Plexus Announces Fiscal Third Quarter Financial Results

 | Source: Plexus Plexus

  • Record quarterly revenue of $857 million for the fiscal third quarter of 2020
  • GAAP diluted EPS of $1.20
  • Initiates fiscal fourth quarter 2020 revenue guidance of $850 to $890 million with GAAP diluted EPS guidance of $1.05 to $1.20, excluding unforeseen impacts relating to COVID-19

NEENAH, Wis., July 22, 2020 (GLOBE NEWSWIRE) -- Plexus (NASDAQ: PLXS) today announced financial results for its fiscal third quarter ended July 4, 2020, and guidance for its fiscal fourth quarter ending October 3, 2020.

   
  Three Months Ended
  Jul 4, 2020 Jul 4, 2020 Oct 3, 2020
  Q3F20 Results Q3F20 Guidance Q4F20 Guidance
Summary GAAP Items     
Revenue (in millions)$857  $790 to $830 $850 to $890
Operating margin5.3%  3.8% to 4.2% 4.8% to 5.2%
Diluted EPS (1)$1.20  $0.72 to $0.82 $1.05 to $1.20
       
Summary Non-GAAP Items (2)     
Return on invested capital (ROIC)12.9%     
Economic return 4.1%     
       
(1) Includes stock-based compensation expense of $0.22 for Q3F20 results, $0.21 for Q3F20 guidance, and $0.21 for Q4F20 guidance.
(2) Refer to Non-GAAP Supplemental Information in Tables 1 and 2 for non-GAAP financial measures and a reconciliation to GAAP.
 

Fiscal Third Quarter 2020 Information

  • Won 35 manufacturing programs during the quarter representing an expected $252 million in annualized revenue when fully ramped into production
  • Trailing four quarter wins total an expected $868 million in annualized revenue when fully ramped into production

Todd Kelsey, President and CEO, commented, “I am incredibly proud of our global Plexus team as they managed through the complexities arising from COVID-19 while delivering record quarterly revenue of $857 million and GAAP diluted earnings per share of $1.20.  This strong performance led to GAAP operating margin of 5.3%, our best quarterly margin result in three years.  Further, our team overcame the challenges of the pandemic to deliver exceptional manufacturing wins of $252 million annualized when fully ramped into production.  In addition to traditionally strong wins from our existing customers, our team’s innovative virtual business development efforts resulted in a meaningful number of new target customer wins.  Our global team’s demonstrated ability in providing superior execution continues to position us for future growth."

Patrick Jermain, Executive Vice President and CFO, commented, “During the fiscal third quarter, we delivered a return on invested capital of 12.9%.  This equates to an economic return of 410 basis points above our weighted average cost of capital, creating solid shareholder value.  A combination of exceptional operating performance and improved working capital generated this return, an improvement of 150 basis points over the previous quarter.  The increase in fiscal third quarter revenue and improvements in our inventory management contributed to an eight day sequential improvement in our fiscal third quarter cash cycle days.  We generated $37 million of free cash flow during the quarter, exceeding our net income.”

Mr. Jermain continued, “We are well-positioned with a strong balance sheet.  Cash of approximately $300 million was sequentially higher by $73 million while our short-term debt increased $38 million.  In May, we executed a 364-day term loan with several of our credit facility banks.  We secured $138 million through this offering.  With the proceeds, we repaid existing borrowing under our revolving credit facility.  At the end of the fiscal third quarter, there was no outstanding borrowing under this facility, therefore allowing us the full use of the $350 million facility.”   

Mr. Kelsey continued, “While we expect continued end market volatility, our aggregate demand is anticipated to remain strong in our fiscal fourth quarter.  As a result, we are guiding revenue in the range of $850 to $890 million.  At this anticipated revenue level, coupled with expected sustained solid operating performance, we are guiding GAAP diluted EPS in the range of $1.05 to $1.20.  In providing this guidance, we have taken into consideration known constraints with the global supply chain and workforce challenges that could occur due to COVID-19.  However, our guidance assumes no large scale closures of our facilities, or those of our suppliers or customers, due to COVID-19, nor does it assume that the COVID-19 outbreak will materially impact end markets beyond what has already occurred.”

Mr. Kelsey concluded, “As we move into the early part of fiscal 2021, we anticipate certain COVID-related demand to moderate in advance of the anticipated benefit of growth from new program ramps later in the year.  Despite the known impacts related to COVID-19, we see a path to continued strength in operating performance throughout fiscal 2021.”

  
Quarterly ComparisonThree Months Ended
 Jul 4, 2020 Apr 4, 2020 Jun 29, 2019
(in thousands, except EPS)Q3F20 Q2F20 Q3F19
Revenue$857,394  $767,364  $799,644 
Gross profit82,881  61,445  71,030 
Operating income45,853  17,209  34,403 
Net income35,842  12,926  24,801 
Diluted EPS 1.20   0.43   0.81 
Adjusted net income (1)35,842  18,299  24,801 
Adjusted diluted EPS (1) 1.20   0.61   0.81 
      
Gross margin9.7% 8.0% 8.9%
Operating margin5.3% 2.2% 4.3%
Adjusted operating margin (1)5.3% 3.0% 4.3%
      
ROIC (1)12.9% 11.4% 12.9%
Economic return (1)4.1% 2.6% 3.9%
      
(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, and a reconciliation of these measures to GAAP.
 

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 56% of revenue during both the fiscal third quarter and fiscal second quarter of 2020.

  
Business Segments ($ in millions)Three Months Ended
 Jul 4, 2020 Apr 4, 2020 Jun 29, 2019
 Q3F20 Q2F20 Q3F19
Americas$306 $334 $367
Asia-Pacific482 388 385
Europe, Middle East, and Africa92 74 81
Elimination of inter-segment sales(23) (29) (33)
Total Revenue$857 $767 $800


  
Market Sectors ($ in millions)Three Months Ended
 Jul 4, 2020 Apr 4, 2020 Jun 29, 2019
 Q3F20 Q2F20 Q3F19
Healthcare/Life Sciences$330  39% $271  35% $309  39%
Industrial/Commercial317  37% 287  37% 248  31%
Aerospace/Defense141  16% 157  21% 151  19%
Communications69  8% 52  7% 92  11%
Total Revenue$857    $767    $800   
         

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 a full reconciliation of non-GAAP measures to comparable GAAP measures, please refer to the attached Non-GAAP Supplemental Information Tables.

ROIC and Economic Return
ROIC for the fiscal third quarter was 12.9%.  Plexus defines ROIC as tax-effected annualized adjusted operating income divided by average invested capital over a four-quarter period for the fiscal third quarter.  Invested capital is defined as equity plus debt and operating lease liabilities, less cash and cash equivalents.  Plexus’ weighted average cost of capital for fiscal 2020 is 8.8%.  ROIC for the fiscal third quarter less Plexus’ weighted average cost of capital resulted in an economic return of 4.1%.

Free Cash Flow
Plexus defines free cash flow as cash flows provided by operations less capital expenditures.  For the three months ended July 4, 2020, cash flows provided by operations of $47.1 million, less capital expenditures of $10.5 million, resulted in free cash flow of $36.6 million. For the nine months ended July 4, 2020, cash flows provided by operations of $92.5 million, less capital expenditures of $41.2 million, resulted in free cash flow of $51.3 million.

  
Cash Cycle DaysThree Months Ended
 Jul 4, 2020
Q3F20		 Apr 4, 2020
Q2F20		 Jun 29, 2019
Q3F19
Days in Accounts Receivable55  55  52 
Days in Contract Assets12  13  12 
Days in Inventory97  99  95 
Days in Accounts Payable(65) (62) (54)
Days in Cash Deposits(20) (18) (16)
Annualized Cash Cycle *79  87  89 
* 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 2020 Q3 Earnings Conference Call and Webcast

When: Thursday, July 23, 2020 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, https://plexus.gcs-web.com/events-and-presentations/upcoming-events, where a slide presentation reviewing fiscal second quarter 2020 results will also be made available ahead of the conference call.

Conference call at +1.866.922.5180 with passcode: 9483228

Replay: The webcast will be archived on the Plexus website and available via telephone replay at +1.855.859.2056 or +1.404.537.3406 with passcode: 9483228

Investor and Media Contact
Heather Beresford
+1.920.751.3612
heather.beresford@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 over 19,000 individuals who are dedicated to providing global Design and Development, Supply Chain Solutions, New Product Introduction, Manufacturing, and Aftermarket Services.  Plexus is a global leader that specializes in serving customers in industries with highly complex products and demanding regulatory environments.  Plexus delivers customer service excellence to leading global companies by providing innovative, comprehensive solutions throughout the 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 evolving effect, which may intensify, of COVID-19 on our employees, customers, suppliers, and logistics providers, including the impact of governmental actions being taken to curtail the spread of the virus.  Other risks and uncertainties include, but are not limited to: the risk of customer delays, changes, cancellations or forecast inaccuracies in both ongoing and new programs; 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 effects of shortages and delays in obtaining components as a result of economic cycles, natural disasters or otherwise; 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; the ability to realize anticipated savings from restructuring or similar actions, as well as the adequacy of related charges as compared to actual expenses; increasing regulatory and compliance requirements; the effects of U.S. Tax Reform and of 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 (including as a result of the United Kingdom’s pending exit from the European Union); the potential effect of other world or local events or other events outside our control (such as changes in energy prices, terrorism 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 in our fiscal 2019 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 4, Jun 29 Jul 4, Jun 29
 2020 2019 2020 2019
Net sales$857,394   $799,644   $2,477,167   $2,354,239  
Cost of sales774,513   728,614   2,253,651   2,140,190  
Gross profit82,881   71,030     223,516     214,049  
Operating expenses       
Selling and administrative expenses37,028   36,627   114,517   109,521  
Restructuring and impairment charges—   —   6,003   —  
Operating income45,853   34,403     102,996     104,528  
Other income (expense):       
Interest expense(3,988)  (3,711)  (11,934)  (9,105) 
Interest income368   445   1,546   1,410  
Miscellaneous, net(600)  (1,419)  (2,619)  (4,304) 
Income before income taxes41,633   29,718     89,989     92,529  
Income tax expense5,791   4,917   10,215   20,744  
Net income$35,842   $24,801   $79,774   $71,785  
Earnings per share:       
Basic$1.23   $0.83   $2.73   $2.34  
Diluted$1.20   $0.81   $2.66   $2.28  
Weighted average shares outstanding:       
Basic29,199   29,912   29,210   30,637  
Diluted29,793   30,635   29,936   31,420  


 
PLEXUS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
    
 Jul 4, Sept 28,
 2020 2019
ASSETS   
Current assets:   
Cash and cash equivalents$296,545   $223,761  
Restricted cash3,098   2,493  
Accounts receivable519,323   488,284  
Contract assets116,442   90,841  
Inventories819,543   700,938  
Prepaid expenses and other32,836   31,974  
Total current assets1,787,787   1,538,291  
Property, plant and equipment, net380,056   384,224  
Operating lease right-of-use assets71,885   —  
Deferred income taxes14,089   13,654  
Other34,707   64,714  
Total non-current assets500,737   462,592  
     Total assets$2,288,524   $2,000,883  
    
LIABILITIES AND SHAREHOLDERS’ EQUITY   
Current liabilities:   
Current portion of long-term debt and finance lease obligations$145,993   $100,702  
Accounts payable553,254   444,944  
Customer deposits173,027   139,841  
Accrued salaries and wages60,056   73,555  
Other accrued liabilities105,290   106,461  
Total current liabilities1,037,620   865,503  
Long-term debt and finance lease obligations, net of current portion188,626   187,278  
Accrued income taxes payable53,899   59,572  
Long-term operating lease liabilities38,077   —  
Deferred income taxes6,394   5,305  
Other liabilities19,087   17,649  
Total non-current liabilities306,083   269,804  
     Total liabilities1,343,703   1,135,307  
Shareholders’ equity:   
Common stock, $.01 par value, 200,000 shares authorized,   
53,442 and 52,917 shares issued, respectively,   
and 29,214 and 29,004 shares outstanding, respectively534   529  
Additional paid-in-capital615,103   597,401  
Common stock held in treasury, at cost, 24,228 and 23,913, respectively(912,731)  (893,247) 
Retained earnings1,257,374   1,178,677  
Accumulated other comprehensive loss(15,459)  (17,784) 
Total shareholders’ equity944,821   865,576  
     Total liabilities and shareholders’ equity$2,288,524   $2,000,883  
    


PLEXUS CORP. AND SUBSIDIARIES
NON-GAAP SUPPLEMENTAL INFORMATION Table 1
(in thousands, except per share data)
(unaudited)
           
  Three Months Ended Nine Months Ended
  Jul 4, Apr 4, Jun 29, Jul 4, Jun 29,
   2020 2020 2019  2020 2019
Operating income, as reported$  45,853    $17,209    $34,403    $102,996    $104,528   
Operating margin, as reported 5.3 %  2.2 %  4.3 %   4.2 %  4.4 % 
           
Non-GAAP adjustments:         
Restructuring and impairment charges (1) —    6,003    —     6,003    —   
Adjusted operating income$45,853    $23,212    $34,403    $108,999    $104,528   
Adjusted operating margin 5.3 %  3.0 %  4.3 %   4.4 %  4.4 % 
           
Net income, as reported$35,842    $12,926    $24,801    $79,774    $71,785   
           
Non-GAAP adjustments:         
Special tax impacts (2) —    —    —     (814)  7,035   
Restructuring and impairment charges, net of tax (1) —    5,373    —     5,373    —   
Adjusted net income$35,842    $18,299    $24,801    $84,333    $78,820   
           
Diluted earnings per share, as reported$1.20    $0.43    $0.81    $2.66    $2.28   
           
Non-GAAP per share adjustments:         
Special tax impacts (2) —    —    —     (0.02)  0.23   
Restructuring costs, net of tax (1) —    0.18    —     0.18    —   
Adjusted diluted earnings per share$1.20    $0.61    $0.81    $2.82    $2.51   
           
(1) During the three months ended April 4, 2020, restructuring and impairment charges of $6.0 million, or $5.4 million net of taxes, were incurred due to the previously announced closure of our Boulder Design Center.
(2) During the nine months ended July 4, 2020, there was $1.9 million in tax benefits related to US foreign tax credit regulations issued during the quarter, partially offset by $1.1 million of tax expense as a result of special tax items.  During the nine months ended June 29, 2019, special tax expense of $7.0 million was recorded in accordance with new regulations issued in November 2018 under U.S. Tax Reform. These regulations impacted the treatment of foreign taxes paid.
  


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 4, Apr 4, Jun 29,
 2020 2020 2019
Operating income, as reported $102,996  $57,143  $104,528
Restructuring and impairment charges+ 6,003 +6,003 +—
Adjusted operating income $108,999  $63,146  $104,528
 ÷ 3    ÷3
  $36,333     $34,843
 x 4 x2 x4
         
Adjusted annualized operating income $145,332  $126,292  $139,372
Adjusted effective tax ratex 13 % x13 % x15 %
Tax impact  18,893  16,418  20,906
Adjusted operating income (tax effected) $126,439  $109,874  $118,466
         
Average invested capital÷$980,929 ÷$964,894 ÷$921,435
         
ROIC  12.9 %  11.4 %  12.9 %
Weighted average cost of capital- 8.8 % -8.8 % -9.0 %
Economic return  4.1 %  2.6 %  3.9 %
                                              
  Three Months Ended 
Average Invested Capital Jul 4, Apr 4, Jan 4, Sept 28, 
Calculations 2020 2020  2020  2019  
Equity $944,821 $892,558 $908,372  $865,576  
Plus:         
Debt and finance lease obligations - current 145,993 107,880 67,847  100,702  
Operating lease obligations - current (1) (2) 8,061 8,546 9,185  —  
Debt and finance lease obligations - long-term 188,626 186,327 186,827  187,278  
Operating lease obligations - long-term (2) 38,077 39,617 36,473  —  
Less:         
Cash and cash equivalents (296,545) (225,830) (252,914)  (223,761)
 
  $1,029,033 $1,009,098 $955,790  $929,795  
    
  Three Months Ended 
Average Invested Capital Jun 29, Mar 30, Dec 29, Sept 29, 
Calculations 2019 2019  2018  2018  
Equity $860,791 $875,444 $905,163 $921,143 
Plus:         
Debt and finance lease obligations - current 138,976 93,197 8,633 5,532 
Operating lease obligations - current (1) (2) — — — — 
Debt and finance lease obligations - long-term 187,581 187,120 187,567 183,085 
Operating lease obligations - long-term (2) — — — — 
Less:         
Cash and cash equivalents (198,395) (184,028) (188,799) (297,269) 
  $988,953 $971,733 $912,564 $812,491 
(1) Included in Other accrued liabilities on the Condensed Consolidated Balance Sheets. 
(2) In the fiscal first quarter of 2020, Plexus adopted and applied Topic 842 to all leases using the modified retrospective method of adoption. The prior year comparative information has not been restated and continued to be reported under the accounting standards in effect for fiscal 2019 and 2018.

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