Plexus Announces Fiscal Third Quarter Financial Results

Plexus

NEENAH, WI, July 26, 2023 (GLOBE NEWSWIRE) -- Plexus Corp. (NASDAQ: PLXS) today announced financial results for our fiscal third quarter ended July 1, 2023, and guidance for our fiscal fourth quarter ending September 30, 2023.

• Reports fiscal third quarter 2023 revenue of $1.02 billion, GAAP operating margin of 2.8% and GAAP diluted EPS of $0.56, including $0.76 of restructuring and other charges and $0.14 of stock-based compensation expense

• Reports fiscal third quarter 2023 non-GAAP operating margin of 5.0% and non-GAAP diluted EPS of $1.32, including $0.14 of stock-based compensation expense

• Initiates fiscal fourth quarter 2023 revenue guidance of $1.00 billion to $1.04 billion with GAAP diluted EPS of $1.18 to $1.36, including $0.19 of stock-based compensation expense
  
  

	Three Months Ended
	Jul 1, 2023				Jul 1, 2023		Sep 30, 2023
	Q3F23 Results				Q3F23 Guidance (1)		Q4F23 Guidance
Summary GAAP Items
Revenue (in billions)	$1.02				$1.00 to $1.05		$1.00 to $1.04
Operating margin (2)		2.8	%		2.3% to 2.8%		4.7% to 5.2%
Diluted EPS (3)	$0.56				$0.28 to $0.46		$1.18 to $1.36
Summary Non-GAAP Items (4)
Adjusted operating margin (5)		5.0	%		4.5% to 5.0%
Adjusted diluted EPS (6)	$1.32				$1.05 to $1.23
Return on invested capital (ROIC)		13.5	%
Economic return		4.5	%
(1) On May 18, 2023, the Company announced updates to its fiscal third quarter 2023 GAAP guidance because of an additional one-time, non-recurring charge taken during the quarter related to an arbitration decision.
(2) Q3F23 results and guidance include restructuring and other charges of 220 bps.
(3) Includes stock-based compensation expense of $0.14 for Q3F23 results, $0.19 for Q3F23 guidance and $0.19 for Q4F23 guidance. Q3F23 results include $0.76 per share related to restructuring and other charges, net of tax. Q3F23 guidance includes $0.77 per share related to restructuring and other charges, net of tax.
(4) Refer to Non-GAAP Supplemental Information in Tables 1 and 2 for additional information regarding non-GAAP financial measures.
(5) Q3F23 results and guidance exclude restructuring and other charges of 220 bps in operating margin.
(6) Q3F23 results exclude $0.76 per share related to restructuring and other charges, net of tax, but include stock-based compensation expense of $0.14. Q3F23 guidance excludes $0.77 per share related to restructuring and other charges, net of tax, but includes stock-based compensation expense of $0.19.

Fiscal Third Quarter 2023 Information

• Won 30 manufacturing programs during the quarter representing a record $321 million in annualized revenue when fully ramped into production

• Delivered trailing four-quarter manufacturing wins of $968 million in annualized revenue when fully ramped into production

• Purchased $13.5 million of our shares at an average price of $90.49 per share under our current $50.0 million share repurchase authorization, leaving $9.1 million available
  

Todd Kelsey, Chief Executive Officer, commented, “Plexus delivered a solid fiscal third quarter with revenue of $1.02 billion, non-GAAP operating margin of 5.0% and non-GAAP EPS of $1.32. Our team’s continued ability to mitigate supply chain challenges, along with improvements in manufacturing efficiency and better than anticipated performance from our engineering team, contributed to non-GAAP operating margin meeting the high end of our guidance range and non-GAAP EPS exceeding our guidance range. The fiscal third quarter represented the fifth consecutive quarter with operating margin exceeding 5%.”

Patrick Jermain, Executive Vice President and Chief Financial Officer, commented, “For the fiscal third quarter, we delivered return on invested capital of 13.5%, which was 450 basis points above our weighted average cost of capital. We drove this result and created substantial shareholder value through strong operating performance, prudent capital investments and a modest reduction in inventory compared to the prior quarter. As we continue these efforts, we are guiding improvement to our cash cycle for the fiscal fourth quarter and expect to generate positive free cash flow for the quarter and fiscal 2023.”

Mr. Kelsey continued, “We are guiding fiscal fourth quarter revenue of $1.00 billion to $1.04 billion, GAAP operating margin of 4.7% to 5.2% and GAAP EPS of $1.18 to $1.36. Increasingly robust commercial aerospace demand and continued new program ramps are being offset by incrementally weaker demand for semiconductor capital equipment, a modest softening in some industrial markets and continued supply chain challenges.”

Mr. Kelsey concluded, “We remain confident in achieving our goal of $5 billion in revenue with 5.5% GAAP operating margin by our fiscal 2025. As fiscal 2024 progresses, we anticipate that revenue growth will accelerate once demand stabilizes in certain markets, new program ramp momentum increases and supply chain challenges lessen. Supporting our growth expectation is the knowledge that Plexus’ best in class capabilities and focus on operational excellence are resonating with customers as demonstrated by our fiscal third quarter wins performance. During the quarter, we won 30 new manufacturing programs worth a record $321 million, including several competitive share gains, while maintaining a robust funnel of qualified manufacturing opportunities of $4 billion. Furthermore, new engineering program wins and the funnel of qualified engineering opportunities expanded versus the prior quarter, both positive leading indicators of future manufacturing wins. Over the long term, we believe our strong execution and accelerating program wins position Plexus to continue to deliver industry leading revenue growth and profitability.”

Quarterly Comparison	Three Months Ended
(in thousands, except EPS)	Jul 1, 2023				Apr 1, 2023				Jul 2, 2022
Revenue	$	1,021,610			$	1,070,823			$	981,341
Gross profit		93,646				102,993				93,618
Operating income		28,204				56,942				49,561
Net income		15,799				40,844				37,494
Diluted EPS	$	0.56			$	1.45			$	1.33
Gross margin		9.2	%			9.6	%			9.5	%
Operating margin		2.8	%			5.3	%			5.1	%
ROIC (1)		13.5	%			13.8	%			11.5	%
Economic return (1)		4.5	%			4.8	%			2.2	%
(1) Refer to Non-GAAP Supplemental Information in Tables 1 and 2 for non-GAAP financial measures discussed and/or disclosed in this release, such as adjusted operating margin, adjusted net income, adjusted diluted EPS, ROIC and economic return.

Business Segment and Market Sector Revenue

Plexus measures operational performance and allocates resources on a geographic segment basis. Plexus also reports revenue based on the market sector breakout set forth in the table below, which reflects Plexus’ market sector focused strategy. Top 10 customers comprised 51% of revenue during both the second and third quarters of fiscal 2023, down five percentage points from the third quarter of fiscal 2022.

Business Segments ($ in millions)	Three Months Ended
	Jul 1, 2023				Apr 1, 2023				Jul 2, 2022
Americas	$	371			$	408			$	343
Asia-Pacific		572				587				586
Europe, Middle East and Africa		105				102				84
Elimination of inter-segment sales		(26	)			(26	)			(32	)
Total Revenue	$	1,022			$	1,071			$	981

Market Sectors ($ in millions)	Three Months Ended
	Jul 1, 2023					Apr 1, 2023					Jul 2, 2022
Industrial	$	428	42	%		$	439	41	%		$	454	46	%
Healthcare/Life Sciences		451	44	%			488	46	%			401	41	%
Aerospace/Defense		143	14	%			144	13	%			126	13	%
Total Revenue	$	1,022				$	1,071				$	981

Non-GAAP Supplemental Information

Plexus provides non-GAAP supplemental information, such as ROIC, economic return and free cash flow because such measures are used for internal management goals and decision-making, and because they provide management and investors with additional insight into financial performance. In addition, management uses these and other non-GAAP measures, such as adjusted operating income, adjusted operating margin, adjusted net income and adjusted diluted EPS, to provide a better understanding of core performance for purposes of period-to-period comparisons. Plexus believes that these measures are also useful to investors because they provide further insight by eliminating the effect of non-recurring items that are not reflective of continuing operations. For additional information on non-GAAP measures, please refer to the attached Non-GAAP Supplemental Information tables.

ROIC and Economic Return

ROIC for the third quarter of fiscal 2023 was 13.5%. Plexus defines ROIC as tax-effected annualized adjusted operating income divided by average invested capital over a four-quarter period for the third fiscal quarter. Invested capital is defined as equity plus debt and operating lease obligations, less cash and cash equivalents. Plexus' weighted average cost of capital for fiscal 2023 is 9.0%. ROIC for the third quarter of fiscal 2023 less Plexus’ weighted average cost of capital resulted in an economic return of 4.5%.

Free Cash Flow

Plexus defines free cash flow as cash flows provided by operations less capital expenditures. For the three months ended July 1, 2023, cash flows provided by operations of $18.8 million, less capital expenditures of $30.3 million, resulted in negative free cash flow of $11.5 million. This result included $20.3 million of one-time, non-recurring charges paid during the fiscal third quarter.

Cash Cycle Days	Three Months Ended
	Jul 1, 2023			Apr 1, 2023			Jul 2, 2022
Days in Accounts Receivable	63			56			57
Days in Contract Assets	12			11			12
Days in Inventory	161			156			160
Days in Accounts Payable	(68	)		(69	)		(87	)
Days in Cash Deposits	(57	)		(50	)		(40	)
Annualized Cash Cycle *	111			104			102
* We calculate cash cycle as the sum of days in accounts receivable, days in contract assets and days in inventory, less days in accounts payable and days in cash deposits.

Conference Call and Webcast Information

What:	Plexus Fiscal 2023 Q3 Earnings Conference Call and Webcast
When:	Thursday, July 27, 2023 at 8:30 a.m. Eastern Time
Where:	Participants are encouraged to join the live webcast at the investor relations section of the Plexus website, plexus.com. Participants can also join utilizing the links below: Audio conferencing link: https://register.vevent.com/register/BI14413298f1df4ebf8824d93e71fda163 Webcast link: https://edge.media-server.com/mmc/p/86qn7nw4
Replay:	The webcast will be archived on the Plexus website and will be available as on-demand for 12 months

Investor and Media Contact
Shawn Harrison
+1.920.969.6325
shawn.harrison@plexus.com

About Plexus
Since 1979, Plexus has been partnering with companies to create the products that build a better world. We are a team of nearly 25,000 individuals who are dedicated to providing Design and Development, Supply Chain Solutions, New Product Introduction, Manufacturing and Sustaining Services. Plexus is a global leader that specializes in serving customers in markets with highly complex products and demanding regulatory environments. Plexus delivers customer service excellence to leading companies by providing innovative, comprehensive solutions throughout a product’s lifecycle. For more information about Plexus, visit our website at www.plexus.com.

Safe Harbor and Fair Disclosure Statement
The statements contained in this press release that are guidance or which are not historical facts (such as statements in the future tense and statements including believe, expect, intend, plan, anticipate, goal, target and similar terms and concepts), including all discussions of periods which are not yet completed, are forward-looking statements that involve risks and uncertainties. These risks and uncertainties include the effect of inflationary pressures on our costs of production, profitability, and on the economic outlook of our markets; the effects of shortages and delays in obtaining components as a result of economic cycles, natural disasters or otherwise; the risk of customer delays, changes, cancellations or forecast inaccuracies in both ongoing and new programs; the ability to realize anticipated savings from restructuring or similar actions, as well as the adequacy of related charges as compared to actual expenses; the lack of visibility of future orders, particularly in view of changing economic conditions; the economic performance of the industries, sectors and customers we serve; the outcome of litigation and regulatory investigations and proceedings, including the results of any challenges with regard to such outcomes; the effects of tariffs, trade disputes, trade agreements and other trade protection measures; the effects of the volume of revenue from certain sectors or programs on our margins in particular periods; our ability to secure new customers, maintain our current customer base and deliver product on a timely basis; the risks of concentration of work for certain customers; the particular risks relative to new or recent customers, programs or services, which risks include customer and other delays, start-up costs, potential inability to execute, the establishment of appropriate terms of agreements, and the lack of a track record of order volume and timing; the effects of start-up costs of new programs and facilities or the costs associated with the closure or consolidation of facilities; possible unexpected costs and operating disruption in transitioning programs, including transitions between Company facilities; the risk that new program wins and/or customer demand may not result in the expected revenue or profitability; the fact that customer orders may not lead to long-term relationships; our ability to manage successfully and execute a complex business model characterized by high product mix and demanding quality, regulatory, and other requirements; the risks associated with excess and obsolete inventory, including the risk that inventory purchased on behalf of our customers may not be consumed or otherwise paid for by the customer, resulting in an inventory write-off; risks related to information technology systems and data security; increasing regulatory and compliance requirements; any tax law changes and related foreign jurisdiction tax developments; current or potential future barriers to the repatriation of funds that are currently held outside of the United States as a result of actions taken by other countries or otherwise; the potential effects of jurisdictional results on our taxes, tax rates, and our ability to use deferred tax assets and net operating losses; the weakness of areas of the global economy; the effect of changes in the pricing and margins of products; raw materials and component cost fluctuations; the potential effect of fluctuations in the value of the currencies in which we transact business; the effects of changes in economic conditions, political conditions and tax matters in the United States and in the other countries in which we do business; the potential effect of other world or local events or other events outside our control (such as the conflict between Russia and Ukraine, escalating tensions between China and Taiwan or China and the United States, changes in energy prices, terrorism, global health epidemics and weather events); the impact of increased competition; an inability to successfully manage human capital; changes in financial accounting standards; and other risks detailed herein and in our other Securities and Exchange Commission filings, particularly in Risk Factors contained in our fiscal 2022 Form 10-K.

PLEXUS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
	Three Months Ended								Nine Months Ended
	Jul 1,				Jul 2,				Jul 1,				Jul 2,
		2023				2022				2023				2022
Net sales	$	1,021,610			$	981,341			$	3,186,358			$	2,687,520
Cost of sales		927,964				887,723				2,888,520				2,447,396
Gross profit		93,646				93,618				297,838				240,124
Operating expenses:
Selling and administrative expenses		42,348				44,057				132,257				122,232
Restructuring and other charges		23,094				—				23,094				2,021
Operating income		28,204				49,561				142,487				115,871
Other income (expense):
Interest expense		(8,231	)			(3,923	)			(23,412	)			(10,314	)
Interest income		598				318				2,291				851
Miscellaneous, net		(3,194	)			(2,678	)			(6,750	)			(5,047	)
Income before income taxes		17,377				43,278				114,616				101,361
Income tax expense		1,578				5,784				15,783				13,575
Net income	$	15,799			$	37,494			$	98,833			$	87,786
Earnings per share:
Basic	$	0.57			$	1.35			$	3.58			$	3.14
Diluted	$	0.56			$	1.33			$	3.51			$	3.09
Weighted average shares outstanding:
Basic		27,561				27,738				27,619				27,913
Diluted		27,992				28,179				28,169				28,452

PLEXUS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
	Jul 1,				Oct 1,
		2023				2022
ASSETS
Current assets:
Cash and cash equivalents	$	252,965			$	274,805
Restricted cash		589				665
Accounts receivable		706,898				737,696
Contract assets		132,995				138,540
Inventories		1,641,673				1,602,783
Prepaid expenses and other		64,166				61,633
Total current assets		2,799,286				2,816,122
Property, plant and equipment, net		476,482				444,705
Operating lease right-of-use assets		71,914				65,134
Deferred income taxes		40,350				39,075
Other assets		30,911				28,189
Total non-current assets		619,657				577,103
Total assets	$	3,418,943			$	3,393,225
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt and finance lease obligations	$	304,781			$	273,971
Accounts payable		697,112				805,583
Customer deposits		582,172				480,486
Accrued salaries and wages		79,935				88,876
Other accrued liabilities		276,977				357,273
Total current liabilities		1,940,977				2,006,189
Long-term debt and finance lease obligations, net of current portion		187,468				187,776
Accrued income taxes payable		31,382				42,019
Long-term operating lease liabilities		40,515				33,628
Deferred income taxes		4,444				6,327
Other liabilities		29,795				21,555
Total non-current liabilities		293,604				291,305
Total liabilities		2,234,581				2,297,494
Shareholders’ equity:
Common stock, $.01 par value, 200,000 shares authorized,
54,294 and 54,084 shares issued, respectively,
and 27,498 and 27,679 shares outstanding, respectively		543				541
Additional paid-in-capital		655,675				652,467
Common stock held in treasury, at cost, 26,796 and 26,405, respectively		(1,130,914	)			(1,093,483	)
Retained earnings		1,671,067				1,572,234
Accumulated other comprehensive loss		(12,009	)			(36,028	)
Total shareholders’ equity		1,184,362				1,095,731
Total liabilities and shareholders’ equity	$	3,418,943			$	3,393,225

PLEXUS CORP. AND SUBSIDIARIES
NON-GAAP SUPPLEMENTAL INFORMATION Table 1
(in thousands, except per share data)
(unaudited)
			Three Months Ended												Nine Months Ended
			Jul 1,				Apr 1,				Jul 2,				Jul 1,				Jul 2,
				2023				2023				2022				2023				2022
Operating income, as reported			$	28,204			$	56,942			$	49,561			$	142,487			$	115,871
Operating margin, as reported				2.8	%			5.3	%			5.1	%			4.5	%			4.3	%
Non-GAAP adjustments:
Restructuring costs (1)				8,865				—				—				8,865				2,021
Other non-recurring charges (2)				14,229				—				—				14,229				—
Adjusted operating income			$	51,298			$	56,942			$	49,561			$	165,581			$	117,892
Adjusted operating margin				5.0	%			5.3	%			5.1	%			5.2	%			4.4	%
Net income, as reported			$	15,799			$	40,844			$	37,494			$	98,833			$	87,786
Non-GAAP adjustments:
Restructuring costs, net of tax (1)				7,920				—				—				7,920				1,809
Other non-recurring charges, net of tax (2)				13,346				—				—				13,346				—
Adjusted net income			$	37,065			$	40,844			$	37,494			$	120,099			$	89,595
Diluted earnings per share, as reported			$	0.56			$	1.45			$	1.33			$	3.51			$	3.09
Non-GAAP per share adjustments:
Restructuring costs, net of tax (1)				0.28				—				—				0.28				0.06
Other non-recurring charges, net of tax (2)				0.48				—				—				0.47				—
Adjusted diluted earnings per share			$	1.32			$	1.45			$	1.33			$	4.26			$	3.15
(1) During the three and nine months ended July 1, 2023, restructuring costs of $8.9 million, or $7.9 million net of taxes, were incurred for employee severance costs associated with a reduction in the Company's workforce as well as a lease agreement termination. During the nine months ended July 2, 2022, restructuring and impairment charges of $2.0 million, or $1.8 million net of taxes, were incurred for employee severance costs associated with a facility transition in the Company's APAC region.
(2) During the three and nine months ended July 1, 2023, a one-time, non-recurring charge of $14.2 million, or $13.3 million net of taxes, was incurred for an arbitration decision regarding a contractual matter in the Company's EMEA region.

PLEXUS CORP. AND SUBSIDIARIES
NON-GAAP SUPPLEMENTAL INFORMATION Table 2
(in thousands)
(unaudited)
ROIC and Economic Return Calculations	Nine Months Ended					Six Months Ended					Nine Months Ended
	Jul 1,					Apr 1,					Jul 2,
	2023					2023					2022
Operating income, as reported		$	142,487				$	114,283				$	115,871
Restructuring and other charges	+		23,094			+		—			+		2,021
Adjusted operating income		$	165,581				$	114,283				$	117,892
	÷		3			x		2			÷		3
		$	55,194									$	39,297
	x		4								x		4
Adjusted annualized operating income		$	220,776				$	228,566				$	157,188
Adjusted effective tax rate	x		13	%		x		15	%		x		14	%
Tax impact			28,701					34,285					22,006
Adjusted operating income (tax-effected)		$	192,075				$	194,281				$	135,182
Average invested capital	÷	$	1,423,003			÷	$	1,406,359			÷	$	1,178,134
ROIC			13.5	%				13.8	%				11.5	%
Weighted average cost of capital	-		9.0	%		-		9.0	%		-		9.3	%
Economic return			4.5	%				4.8	%				2.2	%

Average Invested Capital Calculations	Jul 1,				Apr 1,				Dec 31,				Oct 1,
		2023				2023				2022				2022
Equity	$	1,184,362			$	1,182,382			$	1,150,259			$	1,095,731
Plus:
Debt and finance lease obligations - current		304,781				294,011				329,076				273,971
Operating lease obligations - current (1)		8,772				8,358				8,878				7,948
Debt and finance lease obligations - long-term		187,468				188,730				187,272				187,776
Operating lease obligations - long-term		40,515				31,257				32,149				33,628
Less:
Cash and cash equivalents		(252,965	)			(269,664	)			(247,880	)			(274,805	)
	$	1,472,933			$	1,435,074			$	1,459,754			$	1,324,249

Average Invested Capital Calculations	Jul 2,				Apr 2,				Jan 1,				Oct 2,
		2022				2022				2022				2021
Equity	$	1,058,190			$	1,040,591			$	1,044,095			$	1,028,232
Plus:
Debt and finance lease obligations - current		250,012				222,393				151,417				66,313
Operating lease obligations - current (1)		8,640				9,266				9,507				9,877
Debt and finance lease obligations - long-term		184,707				186,069				187,075				187,033
Operating lease obligations - long-term		32,270				34,347				36,343				37,970
Less:
Cash and cash equivalents		(276,608	)			(307,964	)			(217,067	)			(270,172	)
	$	1,257,211			$	1,184,702			$	1,211,370			$	1,059,253
(1) Included in other accrued liabilities on the Condensed Consolidated Balance Sheets.