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PLEXUS ANNOUNCES FISCAL THIRD QUARTER FINANCIAL RESULTS

07/26/2023

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 %        
           
(1On 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.
(2Q3F23 results and guidance include restructuring and other charges of 220 bps.
(3Includes 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.
(4Refer to Non-GAAP Supplemental Information in Tables 1 and 2 for additional information regarding non-GAAP financial measures.
(5Q3F23 results and guidance exclude restructuring and other charges of 220 bps in operating margin.
(6Q3F23 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  
                     
(1During 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.

(2During 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  
(1Included in other accrued liabilities on the Condensed Consolidated Balance Sheets.  

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