Earnings Disclosure

Q3 2015 Plexus Earnings Conference Call

Thursday, July 23, 2015 7:30 a.m. CT  

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PLXS (Common Stock)

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Plexus Announces Fiscal Third Quarter 2015 Financial Results

Plexus Announces Fiscal Third Quarter 2015 Financial Results                                              

  • Record revenue in fiscal third quarter of $670 million
  • Diluted EPS of $0.69
  • Initiates fiscal fourth quarter 2015 revenue guidance of $650 - $680 million with diluted EPS of $0.64 to $0.72 

NEENAH, WI - July 22, 2015 - Plexus (NASDAQ: PLXS) today announced financial results for its fiscal third quarter ended July 4, 2015.

  Three Months Ended
  July 4, 2015   July 4, 2015   October 3, 2015
Summary GAAP Items Q3F15 Results   Q3F15 Preliminary**   Q4F15 Guidance
           
Revenue (millions) $670   $670   $650 to $680
Operating margin 4.3%       4.2% to 4.5%
Diluted EPS 0.69*   $0.67 to $0.70   $0.64 to $0.72***
           
Summary Non-GAAP Items          
Return on invested capital (ROIC) 14.1%        
Economic Return   3.1%        
 
*Includes $0.10 per share of stock-based compensation expense

** Preliminary results issued on July 13, 2015; guidance provided on April 22, 2015 was revenue of $670 to $700 million and EPS of $0.71 to $0.79

*** Includes $0.10 per share of stock-based compensation expense but excludes any unanticipated special items

Additional Fiscal Third Quarter 2015 Information

  • Won 34 programs during the quarter representing approximately $147 million in annualized revenue when fully ramped into production
  • Trailing four quarter wins total approximately $716 million in annualized revenue
  • Purchased $7.5 million of our shares at an average price of $44.40 per share

Dean Foate, Chairman, President and CEO, commented, "Our fiscal third quarter results were consistent with our announcement of preliminary results on July 13th.  While revenue of $670 million set a new quarterly record for the company, our results were disappointing given the stronger expectations we had when we issued our initial guidance in April.  Looking forward to next quarter, we expect continuing end-market weakness in our Networking/Communications sector to largely offset anticipated sequential growth in our other three market sectors.  As a consequence, we are guiding fiscal fourth quarter 2015 revenue of $650 to $680 million. Achieving the midpoint of our guidance would result in full year revenue growth just shy of our 12% enduring goal.  At this level of revenue we expect diluted EPS in the range of $0.64 to $0.72 for the fiscal fourth quarter." 

Patrick Jermain, Senior Vice President and CFO, commented, "Although we met the low end of our initial revenue guidance, our earnings performance for the fiscal third quarter was below our guidance range.  The disproportionate reduction in earnings was largely due to margin underperformance associated with missed product shipments out of one of our Defense/Security/Aerospace focus factories."

Quarterly Comparison Three Months Ended
  July 4, 2015   April 4, 2015   June 28, 2014
($ in thousands, except per share data) Q3F15   Q2F15   Q3F14
           
Revenue $669,585     $651,285     $620,505  
Gross profit $59,087     $59,777     $58,593  
Operating profit $28,631     $29,452     $28,198  
Net income $23,794     $23,594     $24,584  
Diluted EPS $0.69     $0.69     $0.71  
Adjusted net income* $23,794     $23,594     $25,799  
Adjusted diluted EPS* $0.69     $0.69     $0.74  
           
Gross margin 8.8 %   9.2 %   9.4 %
Operating margin 4.3 %   4.5 %   4.5 %
Adjusted operating margin* 4.3 %   4.5 %   4.7 %
ROIC* 14.1 %   14.5 %   14.6 %
Economic Return* 3.1 %   3.5 %   3.6 %
 
*Refer to Non-GAAP Supplemental Information Tables 1 and 2 for a reconciliation to GAAP measures

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 additional insight into financial performance.  In addition, management uses these and other non-GAAP measures, such as adjusted net income and adjusted operating margin, to provide a better understanding of core performance for purposes of period-to-period comparisons.  For a full reconciliation of non-GAAP measures to comparable GAAP measures, please refer to the attached non-GAAP supplemental data.

Market Sector Breakout

Plexus reports revenue based on the market sector breakout set forth in the table below, which reflects the Company's global market sector focused business development strategy.  The Company measures operational performance and allocates resources on a geographic segment basis.  Please refer to the attached supplemental information for a breakout of revenue by reportable geographic segments.

Market Sector (millions) Three Months Ended
  July 4, 2015   April 4, 2015   June 28, 2014
  Q3F15   Q2F15   Q3F14
Networking/Communications $ 222   33 %   $ 210   32 %   $ 203   33 %
Healthcare/Life Sciences 180   27 %   191   29 %   177   28 %
Industrial/Commercial 176   26 %   160   25 %   154   25 %
Defense/Security/Aerospace 92   14 %   90   14 %   87   14 %
Total revenue $ 670       $ 651       $ 621    

Fiscal Third Quarter 2015 Supplemental Information

Fiscal third quarter cash cycle was 62 days.  The company delivered $15 million in cash from operations and used $10 million for capital investment during the quarter, resulting in positive free cash flow of $5 million.  Top 10 customers comprised 57% of revenue during the quarter, up two percentage points from the previous quarter.

Cash Conversion Cycle Three Months Ended
  July 4, 2015   April 4, 2015   June 28, 2014
  Q3F15   Q2F15   Q3F14
Days in accounts receivable 48   48   48
Days in inventory 88   86   84
Days in accounts payable 62   63   67
Days in cash deposits 12   12   8
Annualized cash cycle* 62   59   57
*We calculate cash cycle as the sum of days in accounts receivable and days in inventory, less days in accounts payable and days in cash deposits

Conference Call and Webcast Information

What: Plexus Fiscal Third Quarter 2015 Earnings Conference Call and Webcast
When: Thursday, July 23 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, www.plexus.com or directly at http://edge.media-server.com/m/p/sex9wib2/lan/en

 

Conference Call:  +1.888.771.4371 with passcode: 40017940
Replay: The webcast will be archived on the Plexus website and available via telephone replay
at +1.888.843.7419 or +1.630.652.3042 with passcode: 40017940

Investor and Media Contact
Susan Hanson
+1.920.751.5491
susan.hanson@plexus.com

About Plexus - The Product Realization Company
Plexus (www.plexus.com) delivers optimized Product Realization solutions through a unique Product Realization Value Stream service model.  This customer-focused services model seamlessly integrates innovative product conceptualization, design, commercialization, manufacturing, fulfillment and sustaining services to deliver comprehensive end-to-end solutions for customers in the America, European and Asia-Pacific regions.

Plexus is the industry leader in servicing mid-to-low volume, higher complexity customer programs characterized by unique flexibility, technology, quality and regulatory requirements.  Award-winning customer service is provided to over 140 branded product companies in the Networking/Communications, Healthcare/Life Sciences, Industrial/Commercial and Defense/Security/Aerospace market sectors.

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, 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 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 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 risks of concentration of work for certain customers; the effect of start-up costs of new programs and facilities, such as our new facility in Guadalajara, Mexico; possible unexpected costs and operating disruption in transitioning programs; 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; the adequacy of restructuring and similar charges as compared to actual expenses; our ability to manage successfully a complex business model characterized by high customer and product mix, low volumes and demanding quality, regulatory, and other requirements; increasing regulatory and compliance requirements; the potential effects of regional results on our taxes and ability to use deferred tax assets; risks related to information technology systems and data security; the effects of shortages and delays in obtaining components as a result of economic cycles or natural disasters; 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; 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 potential effect of 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; and other risks detailed in our Securities and Exchange Commission filings (particularly in "Risk Factors" in our fiscal 2014 Form 10-K).

PLEXUS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
       
  Three Months Ended   Nine Months Ended
  July 4,   June 28,   July 4,   June 28,
  2015   2014   2015   2014
Net sales $ 669,585     $ 620,505     $ 1,985,560     $ 1,712,026  
Cost of sales 610,498     561,912     1,805,282     1,549,096  
               
Gross profit 59,087     58,593     180,278     162,930  
               
Operating expenses:              
Selling and administrative expenses 30,456     29,180     91,722     83,106  
Restructuring costs -     1,215     1,691     10,865  
Operating profit 28,631     28,198     86,865     68,959  
               
Other income (expense):              
Interest expense (3,280 )   (3,055 )   (10,440 )   (8,952 )
Interest income 866     770     2,552     2,092  
Miscellaneous 471     1,271     549     2,182  
               
Income before income taxes 26,688     27,184     79,526     64,281  
               
Income tax expense 2,894     2,600     9,059     3,518  
               
Net income $ 23,794     $ 24,584     $ 70,467     $ 60,763  
               
Earnings per share:              
Basic $ 0.71     $ 0.73     $ 2.10     $ 1.80  
Diluted $ 0.69     $ 0.71     $ 2.05     $ 1.75  
               
Weighted average shares outstanding:              
Basic 33,653     33,837     33,617     33,810  
Diluted 34,454     34,670     34,400     34,686  

PLEXUS
NON-GAAP SUPPLEMENTAL INFORMATION TABLE 1
(in thousands, except per share data)
(unaudited)
           
  Three Months Ended
  July 4,   April 4,   June 28,
  2015   2015   2014
Operating profit, as reported $ 28,631     $ 29,452     $ 28,198  
Operating margin, as reported 4.3 %   4.5 %   4.5 %
           
Non-GAAP adjustments:          
Restructuring costs* -     -     1,215  
           
Operating profit, as adjusted $ 28,631     $ 29,452     $ 29,413  
Operating margin, as adjusted 4.3 %   4.5 %   4.7 %
           
Net income, as reported $ 23,794     $ 23,594     $ 24,584  
           
Non-GAAP adjustments:          
Restructuring costs* -     -     1,215  
           
Net income, as adjusted $ 23,794     $ 23,594     $ 25,799  
           
Diluted earnings per share, as reported $ 0.69     $ 0.69     $ 0.71  
           
Non-GAAP adjustments:          
Restructuring costs -     -     0.03  
           
Diluted earnings per share, as adjusted $ 0.69     $ 0.69     $ 0.74  
           
           
*Summary of restructuring costs          
Severance costs $ -     $ -     $ 669  
Fixed asset impairment -     -     25  
Other exit costs -     -     521  
Total restructuring costs $ -     $ -     $ 1,215  

PLEXUS
NON-GAAP SUPPLEMENTAL INFORMATION TABLE 2
 (in thousands)
(unaudited)
                 
ROIC and Economic Return Calculations Nine Months  Ended   Six Months
Ended
  Nine Months  Ended
  July 4,   April 4,   June 28,
  2015   2015   2014
Operating profit   $ 86,865       $ 58,234       $ 68,959  
Restructuring costs   1,691       1,691       10,865  
Adjusted operating profit   $ 88,556       $ 59,925       $ 79,824  
  ÷ 3           ÷ 3  
    29,519             26,608  
  x 4     x 2     x 4  
Annualized operating profit   $ 118,076       $ 119,850       $ 106,432  
Tax rate x 11 %   x 10 %   x 9 %
Tax impact   12,988       11,985       9,579  
Operating profit (tax effected)   $ 105,088       $ 107,865       $ 96,853  
                 
Average invested capital ÷ $ 745,030     ÷ $ 745,441     ÷ $ 661,835  
                 
ROIC   14.1 %     14.5 %     14.6 %
Weighted average cost of capital   11.0 %     11.0 %     11.0 %
Economic Return   3.1 %     3.5 %     3.6 %

Average Invested Capital Calculations                  
      July 4,   April 4,   January 3,   September 27,
      2015   2015   2015   2014
Equity     $ 835,063     $ 808,468     $ 792,298     $ 781,133  
Plus:                  
Debt - current     4,281     4,774     4,793     4,368  
Debt - non-current     259,284     260,025     260,990     262,046  
Less:                  
Cash and cash equivalents     (354,830 )   (356,296 )   (239,685 )   (346,591 )
      $ 743,798     $ 716,971     $ 818,396     $ 700,956  
               
Third quarter fiscal 2015 average invested capital (July 4, 2015, April 4, 2015, January 3, 2015 and September 27, 2014) was $745,030. Second quarter fiscal 2015 average invested capital (April 4, 2015, January 3, 2015 and September 27, 2014) was $745,441.
 

 
    June 28,   March 29,   December 28,   September 28,
      2014   2014   2013   2013
Equity     $ 760,184     $ 736,493     $ 722,021     $ 699,301  
Plus:                  
Debt - current     4,232     3,901     3,796     3,574  
Debt - non-current     263,056     256,090     256,949     257,773  
Less:                  
Cash and cash equivalents     (330,314 )   (323,695 )   (324,156 )   (341,865 )
      $ 697,158     $ 672,789     $ 658,610     $ 618,783  
                   
Third quarter fiscal 2014 average invested capital (June 28, 2014, March 29, 2014, December 28, 2013, and September 28, 2013) was $661,835.

Free Cash Flow Calculation
The Company defines free cash flow as cash flows provided by (or used in) operations less capital expenditures.  For the three months ended July 4, 2015, cash flow provided by operations was approximately $15 million and capital expenditures were approximately $10 million, resulting in positive free cash flow of approximately $5 million.

   

 

PLEXUS
  CONDENSED CONSOLIDATED BALANCE SHEETS
  (in thousands, except per share data)
  (unaudited)
    July 4,   September 27,
    2015   2014
  ASSETS      
  Current assets:      
  Cash and cash equivalents $ 354,830     $ 346,591  
  Accounts receivable 349,922     324,072  
  Inventories 588,453     525,970  
  Deferred income tax 6,399     6,449  
  Prepaid expenses and other 26,012     27,757  
         
  Total current assets 1,325,616     1,230,839  
         
  Property, plant and equipment, net 322,821     334,926  
  Deferred income tax 3,493     3,675  
  Other 40,309     39,586  
         
  Total assets $ 1,692,239     $ 1,609,026  
         
  LIABILITIES AND SHAREHOLDERS' EQUITY      
  Current liabilities:      
  Current portion of long-term debt and capital lease obligations $ 4,281     $ 4,368  
  Accounts payable 416,190     396,363  
  Customer deposits 76,049     56,155  
  Deferred income tax 567     647  
  Accrued liabilities:      
  Salaries and wages 48,681     52,043  
  Other 34,556     37,739  
         
  Total current liabilities 580,324     547,315  
         
  Long-term debt and capital lease obligations, net of current portion 259,284     262,046  
  Deferred income tax 5,189     5,191  
  Other liabilities 12,379     13,341  
         
  Total non-current liabilities 276,852     280,578  
         
  Commitments and contingent liabilities      
  Shareholders' equity:      
  Preferred stock, $.01 par value, 5,000 shares authorized, none issued or outstanding -     -  
  Common stock, $.01 par value, 200,000 shares authorized,      
  50,549 and 49,962 shares issued, respectively,      
  and 33,690 and 33,653 shares outstanding, respectively 505     500  
  Additional paid-in-capital 494,790     475,634  
  Common stock held in treasury, at cost, 16,859 and 16,309 shares, respectively (502,488 )   (479,968 )
  Retained earnings 836,852     766,385  
  Accumulated other comprehensive income 5,404     18,582  
         
  Total shareholders' equity 835,063     781,133  
         
  Total liabilities and shareholders' equity $ 1,692,239     $ 1,609,026  

PLEXUS
REVENUE BY REPORTABLE GEOGRAPHIC SEGMENTS
(in thousands)
(unaudited)
           
  Three Months Ended
  July 4, 2015   April 4, 2015   June 28, 2014
  Q3F15   Q2F15   Q3F14
Americas $ 365,861   55 %   $ 328,753   50 %   $ 324,544   52 %
Asia-Pacific 313,900   47 %   319,156   49 %   295,625   48 %
Europe, Middle East, and Africa 33,885   5 %   35,773   6 %   27,563   4 %
Elimination of inter-segment sales (44,061 ) (7 )%   (32,397 ) (5 )%   (27,227 ) (4 )%
Total revenue $ 669,585       $ 651,285       $ 620,505    

HUG#1940667