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Plexus Announces Fiscal Third Quarter 2017 Financial Results

DATE: 19 Jul 2017

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
 

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, 2017   Jul 2, 2016   Jul 1, 2017   Jul 2, 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)
ASSETS Jul 1, 2017   Oct 1, 2016
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, 2017   Apr 1, 2017   Jul 2, 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, 2017   Apr 1, 2017   Jul 2, 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 Calculations Jul 1, 2017   Apr 1, 2017   Dec 31, 2016   Oct 1, 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 Calculations Jul 2, 2016   Apr 2, 2016   Jan 2, 2016   Oct 3, 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  

Press release file: