Press Release

Plexus Announces Fiscal Third Quarter 2017 Financial Results

Date:
July 19, 2017

     Fiscal third quarter 2017 revenue of $619 million

     GAAP diluted EPS of $0.74

     Initiates fiscal fourth quarter 2017 revenue guidance of $660 to $700 million with GAAP diluted EPS of $0.77 to $0.87

 

NEENAH, WI – July 19, 2017 – Plexus (NASDAQ: PLXS) today announced financial results for its fiscal third quarter ended July 1, 2017, and guidance for its fiscal fourth quarter ending September 30, 2017.

 

 

 

Three Months Ended

 

 

Jul 1, 2017

 

Jul 1, 2017

 

Sept 30, 2017

 

 

Q3F17 Results

 

Q3F17 Guidance

 

Q4F17 Guidance

Summary GAAP Items

 

 

 

 

 

Revenue (in millions)

$619

 

 

$595 to $625

 

$660 to $700

Operating margin

4.8

%

 

4.8% to 5.2%

 

4.7% to 5.1%

Diluted EPS (1)

$0.74

 

 

$0.68 to $0.76

 

$0.77 to $0.87

 

 

 

 

 

 

 

Summary Non-GAAP Items (2)

 

 

 

 

 

Return on Invested Capital (ROIC)

16.1

%

 

 

 

 

Economic Return

5.6

%

 

 

 

 

(1)

Includes stock-based compensation expense of $0.13 for Q3F17 results and $0.13 for Q4F17 guidance.

(2)

Refer to Non-GAAP Supplemental Information in Tables 1 and 2 for non-GAAP financial measures discussed in this release, such as ROIC and Economic Return, and a reconciliation of these measures to GAAP.

 

 

Fiscal Third Quarter 2017 Information

     Won 32 Manufacturing Solutions programs during the quarter representing approximately $220 million in annualized revenue when fully ramped into production

     Trailing four quarter Manufacturing Solutions wins total approximately $839 million in annualized revenue when fully ramped into production

     Purchased $10 million of our shares at an average price of $52.40 per share

 

Todd Kelsey, President and CEO, commented, “I am pleased we delivered fiscal third quarter revenue and GAAP EPS above the midpoint of our guidance range.  Our continued strong operating performance enabled us to achieve our fifth consecutive quarter within or above our target operating margin range of 4.7% to 5.0%.”

 


 

Patrick Jermain, Senior Vice President and CFO, commented, “Our fiscal third quarter ROIC was 16.1%, a result that is 560 basis points above our weighted average cost of capital and exceeds our 500 basis point Economic Return goal.  Consistent with our expectations, fiscal third quarter working capital requirements increased to support new program ramps occurring during the fiscal fourth quarter.  Despite the additional working capital requirements, we delivered approximately $7 million of free cash flow during the quarter and expect to improve on this result during the fiscal fourth quarter.”

 

Mr. Kelsey concluded, “We expect fiscal fourth quarter revenue to increase significantly as a result of ramping previously reported program wins.  Consequently, we are guiding fiscal fourth quarter revenue in the range of $660 to $700 million.  At this revenue level, in conjunction with continued strong operating performance, we anticipate GAAP EPS in the range of $0.77 to $0.87.  Our wins momentum and qualified funnel of opportunities remain robust, giving us confidence that we can achieve meaningful growth in fiscal 2018.”

 

Quarterly Comparison

Three Months Ended

 

Jul 1, 2017

 

Apr 1, 2017

 

Jul 2, 2016

(in thousands, except EPS)

Q3F17

 

Q2F17

 

Q3F16

Revenue

$618,832

 

 

$604,349

 

 

$667,616

 

Gross profit

$61,185

 

 

$63,800

 

 

$62,498

 

Operating income

$29,469

 

 

$32,571

 

 

$30,918

 

Net income

$25,579

 

 

$29,295

 

 

$26,099

 

Diluted EPS

$0.74

 

 

$0.84

 

 

$0.76

 

Adjusted net income*

$25,579

 

 

$29,295

 

 

$27,904

 

Adjusted diluted EPS*

$0.74

 

 

$0.84

 

 

$0.82

 

 

 

 

 

 

 

Gross margin

9.9

%

 

10.6

%

 

9.4

%

Operating margin

4.8

%

 

5.4

%

 

4.6

%

Adjusted operating margin*

4.8

%

 

5.4

%

 

4.9

%

 

 

 

 

 

 

ROIC*

16.1

%

 

16.8

%

 

13.0

%

Economic Return*

5.6

%

 

6.3

%

 

2.0

%

*Refer to Non-GAAP Supplemental Information Tables 1 and 2 for a reconciliation to GAAP measures.

 

 

 

Business Segment and Market Sector Revenue

The Company 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 the Company’s global market sector focused business development strategy.  Top 10 customers comprised 54% of revenue during the quarter, consistent with the fiscal second quarter of 2017.

 

Business Segments ($ in millions)

Three Months Ended

 

Jul 1, 2017

Q3F17

 

Apr 1, 2017

Q2F17

 

Jul 2, 2016

Q3F16

Americas

$

265

 

 

$

272

 

 

$

359

 

Asia-Pacific

326

 

310

 

293

Europe, Middle East, and Africa

53

 

44

 

41

Elimination of inter-segment sales

(25)

 

(22)

 

(25)

Total Revenue

$

619

 

 

$

604

 

 

$

668

 

 

Market Sectors ($ in millions)

Three Months Ended

 

Jul 1, 2017

Q3F17

 

Apr 1, 2017

Q2F17

 

Jul 2, 2016

Q3F16

Healthcare/Life Sciences

210

 

34

%

 

205

 

34

%

 

207

 

31

%

Industrial/Commercial

201

 

32

%

 

192

 

32

%

 

202

 

30

%

Communications

99

 

16

%

 

108

 

18

%

 

156

 

23

%

Defense/Security/Aerospace

109

 

18

%

 

99

 

16

%

 

103

 

16

%

Total Revenue

$

619

 

 

 

$

604

 

 

 

$

668

 

 

                                   

 

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 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 information below and the Non-GAAP Supplemental Information Tables.

 

ROIC and Economic Return

ROIC for the fiscal third quarter of 2017 was 16.1%.  The Company defines ROIC as tax-effected annualized adjusted operating profit divided by average invested capital over a four-quarter period for the third quarter.  Invested capital is defined as equity plus debt, less cash and cash equivalents.  The Company’s weighted average cost of capital for fiscal 2017 is 10.5%.  ROIC for the quarter less the Company’s weighted average cost of capital resulted in an Economic Return of 5.6%. 

 

Free Cash Flow Calculation

The Company defines free cash flow as cash flows provided by operations less capital expenditures.  For the three months ended July 1, 2017, cash flows provided by operations was $16.3 million, less capital expenditures of $9.8 million, resulting in free cash flow of $6.5 million.  For the nine months ended July 1, 2017, cash flows provided by operations was $121.9 million, less capital expenditures of $24.4 million, resulting in free cash flow of $97.5 million.

 

Cash Cycle Days

Three Months Ended

 

Jul 1, 2017

Q3F17

 

Apr 1, 2017

Q2F17

 

Jul 2, 2016

Q3F16

Days in Accounts Receivable

47

 

48

 

51

Days in Inventory

107

 

103

 

87

Days in Accounts Payable

(65)

 

(64)

 

(62)

Days in Cash Deposits

(13)

 

(14)

 

(13)

Annualized Cash Cycle Days*

76

 

73

 

63

*We calculate cash cycle days 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 Q3 2017 Earnings Conference Call and Webcast

When:

Thursday, July 20, 2017 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/r43kdvvi

 

Conference call at +1.800.708.4540 with passcode: 45130654

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: 45130654

 

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 Healthcare/Life Sciences, Industrial/Commercial, Communications 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; possible unexpected costs and operating disruption in transitioning programs, including as a result of a facility closure; 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, low volumes and demanding quality, regulatory, and other requirements; 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 potential effects of regional results on our taxes and ability to use deferred tax assets and net operating losses; 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 effects of changes in economic conditions, political conditions, trade protection measures, 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; changes in financial accounting standards; and other risks detailed in our Securities and Exchange Commission filings (particularly in "Risk Factors" in our fiscal 2016 Form 10-K).


 

 

PLEXUS

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,

 

2017

 

2016

 

2017

 

2016

Net sales

$

618,832

 

 

$

667,616

 

 

$

1,858,200

 

 

$

1,902,940

 

Cost of sales

557,647

 

 

605,118

 

 

1,668,859

 

 

1,737,111

 

Gross profit

61,185

 

62,498

 

189,341

 

165,829

Selling and administrative expenses

31,716

 

29,775

 

93,398

 

84,812

Restructuring and other charges

 

 

1,805

 

 

 

5,229

Operating income

29,469

 

30,918

 

95,943

 

75,788

Other income (expense):

 

 

 

 

 

 

 

Interest expense

(3,294)

 

(3,637)

 

(9,830)

 

(10,845)

Interest income

1,299

 

1,134

 

3,555

 

3,081

Miscellaneous

(103)

 

297

 

1,147

 

(2,451)

Income before income taxes

27,371

 

28,712

 

90,815

 

65,573

Income tax expense

1,792

 

2,613

 

7,762

 

8,239

Net income

$

25,579

 

 

$

26,099

 

 

$

83,053

 

 

$

57,334

 

Earnings per share:

 

 

 

 

 

 

 

Basic

$

0.76

 

 

$

0.78

 

 

$

2.47

 

 

$

1.72

 

Diluted

$

0.74

 

 

$

0.76

 

 

$

2.40

 

 

$

1.68

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

Basic

33,669

 

33,402

 

33,636

 

33,379

Diluted

34,568

 

34,174

 

34,585

 

34,043

 

PLEXUS

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

(unaudited)

 

 

 

 

 

Jul 1,

 

Oct 1,

 

2017

 

2016

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

519,172

 

 

$

432,964

 

Restricted cash

787

 

 

 

Accounts receivable

318,168

 

 

416,888

 

Inventories

653,101

 

 

564,131

 

Prepaid expenses and other

29,581

 

 

19,364

 

Total current assets

1,520,809

 

 

1,433,347

 

Property, plant and equipment, net

305,763

 

 

291,225

 

Deferred income taxes

4,786

 

 

4,834

 

Other

37,274

 

 

36,413

 

Total non-current assets

347,823

 

 

332,472

 

Total assets

$

1,868,632

 

 

$

1,765,819

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

Current liabilities:

 

 

 

Current portion of long-term debt and capital lease obligations

$

267,297

 

 

$

78,507

 

Accounts payable

394,220

 

 

397,200

 

Customer deposits

81,326

 

 

84,637

 

Accrued salaries and wages

46,844

 

 

41,806

 

Other accrued liabilities

45,449

 

 

48,286

 

Total current liabilities

835,136

 

 

650,436

 

Long-term debt and capital lease obligations, net of current portion

26,138

 

 

184,002

 

Other liabilities

16,052

 

 

14,584

 

Total non-current liabilities

42,190

 

 

198,586

 

Total liabilities

877,326

 

 

849,022

 

Shareholders’ equity:

 

 

 

Common stock, $.01 par value, 200,000 shares authorized,

 

 

 

51,856 and 51,272 shares issued, respectively,

 

 

 

and 33,583 and 33,457 shares outstanding, respectively

519

 

 

513

 

Additional paid-in-capital

547,586

 

 

530,647

 

Common stock held in treasury, at cost, 18,273 and 17,815, respectively

(563,824

)

 

(539,968

)

Retained earnings

1,020,196

 

 

937,144

 

Accumulated other comprehensive loss

(13,171

)

 

(11,539

)

Total shareholders’ equity

991,306

 

 

916,797

 

Total liabilities and shareholders’ equity

$

1,868,632

 

 

$

1,765,819

 

 

 

PLEXUS

NON-GAAP SUPPLEMENTAL INFORMATION TABLE 1

(in thousands, except per share data)

(unaudited)

 

 

 

 

 

 

 

Three Months Ended

 

Jul 1,

 

Apr 1,

 

Jul 2,

 

2017

 

2017

 

2016

Operating income, as reported

$

29,469

 

 

$

32,571

 

 

$

30,918

 

Operating margin, as reported

4.8

%

 

5.4

%

 

4.6

%

 

 

 

 

 

 

Non-GAAP adjustments:

 

 

 

 

 

Restructuring and other charges*

 

 

 

 

1,805

 

Adjusted operating income

$

29,469

 

 

$

32,571

 

 

$

32,723

 

Adjusted operating margin

4.8

%

 

5.4

%

 

4.9

%

 

 

 

 

 

 

Net income

$

25,579

 

 

$

29,295

 

 

$

26,099

 

 

 

 

 

 

 

Non-GAAP adjustments:

 

 

 

 

 

Restructuring and other charges*

 

 

 

 

1,805

 

Adjusted net income

$

25,579

 

 

$

29,295

 

 

$

27,904

 

 

 

 

 

 

 

Diluted earnings per share

$

0.74

 

 

$

0.84

 

 

$

0.76

 

 

 

 

 

 

 

Non-GAAP adjustments:

 

 

 

 

 

Restructuring and other charges*

 

 

 

 

0.06

 

Adjusted diluted earnings per share

$

0.74

 

 

$

0.84

 

 

$

0.82

 

 

 

 

 

 

 

*Summary of restructuring and other charges

 

 

 

 

 

Employee termination and severance costs

$

 

 

$

 

 

$

1,641

 

Other exit costs

 

 

 

 

164

 

Total restructuring and other charges

$

 

 

$

 

 

$

1,805

 

 

 

 

 

 

 

 

 

PLEXUS

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,

 

2017

 

2017

 

2016

Operating income, as reported

 

$

95,943

 

 

 

$

66,474

 

 

 

$

75,788

 

   Restructuring and other charges

+

 

 

+

 

 

+

5,229

 

Adjusted operating income

 

$

95,943

 

 

 

$

66,474

 

 

 

$

81,017

 

 

÷

3

 

 

 

 

 

÷

3

 

 

 

31,981

 

 

 

 

 

 

27,006

 

 

x

4

 

 

x

2

 

 

x

4

 

 

 

 

 

 

 

 

 

 

Annualized adjusted operating income

 

$

127,924

 

 

 

$

132,948

 

 

 

$

108,024

 

Tax rate

x

8

%

 

x

9

%

 

x

11

%

Tax impact

 

10,234

 

 

 

11,965

 

 

 

11,883

 

Adjusted operating income (tax effected)

 

$

117,690

 

 

 

$

120,983

 

 

 

$

96,141

 

 

 

 

 

 

 

 

 

 

Average invested capital

÷

$

730,286

 

 

÷

$

718,524

 

 

÷

$

738,397

 

 

 

 

 

 

 

 

 

 

ROIC

 

16.1

%

 

 

16.8

%

 

 

13.0

%

Weighted average cost of capital

-

10.5

%

 

-

10.5

%

 

-

11.0

%

Economic return

 

5.6

%

 

 

6.3

%

 

 

2.0

%

 

 

Three Months Ended

Average Invested Capital

Jul 1,

 

Apr 1,

 

Dec 31,

 

Oct 1,

Calculations

2017

 

2017

 

2016

 

2016

Equity

$

991,306

 

 

$

961,438

 

 

$

927,542

 

 

$

916,797

 

Plus:

 

 

 

 

 

 

 

Debt - current

267,297

 

92,623

 

78,879

 

78,507

Debt - long-term

26,138

 

185,638

 

184,136

 

184,002

Less:

 

 

 

 

 

 

 

Cash and cash equivalents

(519,172)

 

(524,520)

 

(496,505)

 

(432,964)

 

$

765,569

 

 

$

715,179

 

 

$

694,052

 

 

$

746,342

 

 

 

Three Months Ended

Average Invested Capital

Jul 2,

 

Apr 2,

 

Jan 2,

 

Oct 3,

Calculations

2016

 

2016

 

2016

 

2015

Equity

$

895,175

 

 

$

871,111

 

 

$

850,794

 

 

$

842,272

 

Plus:

 

 

 

 

 

 

 

Debt - current

78,279

 

2,300

 

2,864

 

3,513

Debt - long-term

184,479

 

259,565

 

259,289

 

259,257

Less:

 

 

 

 

 

 

 

Cash and cash equivalents

(433,679)

 

(409,796)

 

(354,728)

 

(357,106)

 

$

724,254

 

 

$

723,180

 

 

$

758,219

 

 

$

747,936