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Plexus Announces Fiscal Second Quarter 2018 Financial Results

  • Record quarterly revenue of $699 million during the fiscal second quarter of 2018
  • GAAP diluted EPS of $0.36; non-GAAP adjusted diluted EPS of $0.74, excluding $0.38 per share related to the previously announced one-time bonus paid to full-time, non-executive employees
  • Initiates fiscal third quarter 2018 revenue guidance of $700 to $740 million with GAAP diluted EPS of $0.76 to $0.86

NEENAH, Wis., April 25, 2018 (GLOBE NEWSWIRE) -- Plexus (NASDAQ:PLXS) today announced financial results for its fiscal second quarter ended March 31, 2018, and guidance for its fiscal third quarter ending June 30, 2018.

  Three Months Ended
  Mar 31, 2018     Mar 31, 2018     June 30, 2018
  Q2F18 Results   Q2F18 Guidance (1)   Q3F18 Guidance
Summary GAAP Items            
Revenue (in millions)   $ 699     $670 to $710            $700 to $740         
Operating margin   2.5 %   4.3% to 4.7%            4.6% to 5.0%         
Diluted earnings per share (2)   $ 0.36     $0.68 to $0.78            $0.76 to $0.86         
             
Summary Non-GAAP Items (3)            
Adjusted operating margin   4.4 %        
Adjusted diluted EPS   $ 0.74          
Return on invested capital (ROIC)   15.6 %        
Economic Return   6.1 %        

/EIN News/ --

(1) Q2F18 guidance did not reflect Plexus' subsequent decision to pay the one-time, non-executive employee bonus, which, as noted above, had an impact of $0.38 per share; see Non-GAAP Supplemental Information and related tables for additional detail.
(2) Includes stock-based compensation expense of $0.13 for both Q2F18 results and Q3F18 guidance.
(3) Refer to Non-GAAP Supplemental Information in Tables 1 and 2 for non-GAAP financial measures and a reconciliation to GAAP.  Adjusted gross margin, adjusted operating margin and adjusted diluted EPS for the three months ended March 31, 2018, exclude the impact of the one-time, non-executive employee bonus.
   

Fiscal Second Quarter 2018 Information

  • Won 41 manufacturing programs during the quarter representing approximately $255 million in annualized revenue when fully ramped into production
  • Trailing four quarter manufacturing wins total approximately $847 million in annualized revenue when fully ramped into production
  • Purchased $31.6 million of our shares at an average price of $61.63 per share under our existing share repurchase program

Todd Kelsey, President and CEO, commented, “We finished our fiscal second quarter with record revenue of $699 million as our Industrial/Commercial market sector strengthened during the quarter and our Healthcare/Life Sciences and Aerospace/Defense market sectors achieved solid sequential growth.  The result was near the high-end of our guidance range and up approximately 16% from the comparable quarter last year.  Our manufacturing wins were at the highest quarterly level in nearly four years at $255 million, positioning us well for continued future growth.”

Patrick Jermain, Senior Vice President and CFO, commented, “As a result of U.S. Tax Reform enabling us to more efficiently access offshore cash, on February 20, 2018, we announced a revised capital allocation strategy intended to fund growth investments and enhance shareholder value.  During the fiscal second quarter, we successfully repatriated approximately $280 million from our APAC region.  We deployed the cash, as intended, by funding working capital investments, accelerating our share repurchase program, rewarding our non-executive employees through a one-time bonus and reducing borrowing under our revolving credit facility.  We anticipate repatriating an additional $150 million during the fiscal third quarter while continuing to execute our revised capital allocation strategy.”

Mr. Kelsey concluded, “We are establishing revenue guidance of $700 to $740 million for the fiscal third quarter as we anticipate another quarter of record revenue.  The mid-point of this guidance suggests we will achieve approximately 3% sequential quarterly revenue growth and more than 15% revenue growth from the comparable quarter last year.  Further, our success ramping new programs, coupled with improving end markets, provides us increasing optimism that we will achieve revenue growth in line with our 12% target in fiscal 2018.  We continue to anticipate that our operating margin will return to our target range of 4.7% to 5.0% for the remainder of fiscal 2018.  Consistent with these expectations, we are guiding fiscal third quarter 2018 GAAP diluted EPS of $0.76 to $0.86.”

Quarterly Comparison Three Months Ended
  Mar 31, 2018   Dec 30, 2017   Apr 1, 2017
(in thousands, except EPS) Q2F18   Q1F18   Q2F17
Revenue $ 698,651     $ 677,294     $ 604,349  
Gross profit 52,952     63,523     63,800  
Operating income 17,315     31,557     32,571  
Net income (loss) 12,290     (98,493 )   29,295  
Diluted earnings (loss) per share $ 0.36     $ (2.93 )   $ 0.84  
Adjusted net income (1) 25,466     26,019     29,295  
Adjusted diluted EPS (1) $ 0.74     $ 0.75     $ 0.84  
           
Gross margin 7.6 %   9.4 %   10.6 %
Adjusted gross margin (1) 9.4 %   9.4 %   10.6 %
Operating margin 2.5 %   4.7 %   5.4 %
Adjusted operating margin (1) 4.4 %   4.7 %   5.4 %
           
ROIC 15.6 %   16.2 %   16.8 %
Economic Return 6.1 %   6.7 %   6.3 %


(1) Refer to Non-GAAP Supplemental Information in Tables 1 and 2 for non-GAAP financial measures discussed in this release, such as adjusted gross margin, adjusted gross profit, adjusted operating income, adjusted operating margin, adjusted diluted EPS, ROIC and Economic Return, and a reconciliation of these measures to GAAP. 
   

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 58% of revenue during the quarter, consistent with the fiscal first quarter of 2018.

Business Segments ($ in millions) Three Months Ended
  Mar 31, 2018     Dec 30, 2017     Apr 1, 2017
  Q2F18   Q1F18   Q2F17
Americas $ 302     299     $ 272  
Asia-Pacific 350     346     310  
Europe, Middle East, and Africa 74     64     44  
Elimination of inter-segment sales (27 )   (32 )   (22 )
Total Revenue $ 699     $ 677     $ 604  


   
Market Sectors ($ in millions) Three Months Ended
  Mar 31, 2018   Dec 30, 2017   Apr 1, 2017
  Q2F18   Q1F18   Q2F17
Healthcare/Life Sciences $ 248   35 %   $ 237   35 %   $ 205   34 %
Industrial/Commercial 242   35 %   207   30 %   192   32 %
Communications 99   14 %   133   20 %   108   18 %
Aerospace/Defense 110   16 %   100   15 %   99   16 %
Total Revenue $ 699       $ 677       $ 604    
 

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 operating income, adjusted operating margin, 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 items, such as the one-time, non-executive employee bonus and the transitional effects of the U.S. Tax Cuts & Jobs Act (“U.S. Tax Reform”), that are not reflective of continuing operations.  For a full reconciliation of non-GAAP measures to comparable GAAP measures, please refer to Non-GAAP Supplemental Information and the attached Non-GAAP Supplemental Information Tables.

ROIC and Economic Return
ROIC for the fiscal second quarter of 2018 was 15.6%.  The Company defines ROIC as tax-effected annualized adjusted operating income divided by average invested capital over a three-quarter period for the second quarter.  Invested capital is defined as equity plus debt, less cash and cash equivalents.  The Company’s weighted average cost of capital for fiscal 2018 is 9.5%.  ROIC for the quarter less the Company’s weighted average cost of capital resulted in an economic return of 6.1%.

Free Cash Flow Calculation
The Company defines free cash flow as cash flows provided by operations less capital expenditures.  For the three months ended March 31, 2018, cash flows used in operations was $66.3 million, less capital expenditures of $12.4 million, resulting in negative free cash flow of $78.7 million. For the six months ended March 31, 2018, cash flows provided by operations was $2.8 million, less capital expenditures of $29.1 million, resulting in negative free cash flow of $26.3 million.

Cash Cycle Days Three Months Ended
  Mar 31, 2018   Dec 30, 2017   Apr 1, 2017
  Q2F18   Q1F18   Q2F17
Days in Accounts Receivable 52   45   48
Days in Inventory 100   100   103
Days in Accounts Payable (61)   (63)   (64)
Days in Cash Deposits (15)   (15)   (14)
Annualized Cash Cycle* 76   67   73
 
* 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 Q2 2018 Earnings Conference Call and Webcast
When: Thursday, April 26, 2018 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 2018 results will also be made available ahead of the conference call. 

Conference call at +1.800.708.4539 with passcode: 46687589 

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: 46687589
   

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

About Plexus – The Product Realization Company
Since 1979, Plexus has been partnering with companies to create the products that build a better world.  We are a team of over 16,000, providing global Design and Development, Supply Chain Solutions, New Product Introduction, Manufacturing, and Aftermarket Services.  Plexus is an industry leader that specializes in serving customers with complex products used in demanding regulatory environments.  With a culture built around innovation and customer service, Plexus’ teams create customized end-to-end solutions to assure the realization of the most intricate products.  For more information about Plexus, visit our website, 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, 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 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, 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; risks related to information technology systems and data security; 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 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, tariffs, other 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 herein and in our other Securities and Exchange Commission filings (particularly in "Risk Factors" in our fiscal 2017 Form 10-K).

PLEXUS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
           
  Three Months Ended   Six Months Ended
  Mar 31,   Apr 1,   Mar 31,   Apr 1,
  2018   2017   2018   2017
Net sales $ 698,651     $ 604,349     $ 1,375,945     $ 1,239,368  
Cost of sales 645,699     540,549     1,259,470     1,111,212  
Gross profit   52,952       63,800     116,475     128,156  
Selling and administrative expenses 35,637     31,229     67,603     61,682  
Operating income   17,315       32,571     48,872     66,474  
Other income (expense):              
Interest expense (3,547 )   (3,262 )   (7,272 )   (6,536 )
Interest income 1,426     1,185     2,981     2,256  
Miscellaneous (477 )   1,925     (823 )   1,251  
Income before income taxes   14,717       32,419     43,758     63,445  
Income tax expense 2,427     3,124     129,961     5,971  
Net income (loss) $ 12,290     $ 29,295     $ (86,203 )   $ 57,474  
Earnings (loss) per share:              
Basic $ 0.37     $ 0.87     $ (2.57 )   $ 1.71  
Diluted $ 0.36     $ 0.84     $ (2.57 )   $ 1.66  
Weighted average shares outstanding:              
Basic   33,538       33,703       33,552       33,619  
Diluted 34,387     34,702     33,552     34,631  


 
PLEXUS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
       
  Mar 31,   Sept 30,
  2018   2017
ASSETS      
Current assets:      
Cash and cash equivalents $ 402,470     $ 568,860  
Restricted cash 845     394  
Accounts receivable 400,262     365,513  
Inventories 701,666     654,642  
Prepaid expenses and other 32,313     28,046  
Total current assets   1,537,556       1,617,455  
Property, plant and equipment, net 324,484     314,665  
Deferred income taxes 5,464     5,292  
Other 42,470     38,770  
Total non-current assets   372,418       358,727  
    Total assets $ 1,909,974     $ 1,976,182  
       
LIABILITIES AND SHAREHOLDERS’ EQUITY      
Current liabilities:      
Current portion of long-term debt and capital lease obligations $ 180,772     $ 286,934  
Accounts payable 431,659     413,999  
Customer deposits 104,914     107,837  
Accrued salaries and wages 48,973     49,376  
Other accrued liabilities 66,844     49,445  
Total current liabilities   833,162       907,591  
Long-term debt and capital lease obligations, net of current portion 27,217     26,173  
Accrued income taxes payable 91,905      
Deferred income taxes 19,738      
Other Liabilities 17,449     16,479  
Total non-current liabilities   156,309       42,652  
    Total liabilities   989,471       950,243  
Shareholders’ equity:      
Common stock, $.01 par value, 200,000 shares authorized,      
52,435 and 51,934 shares issued, respectively,      
and 33,293 and 33,464 shares outstanding, respectively 524     519  
Additional paid-in-capital 567,535     555,297  
Common stock held in treasury, at cost, 19,142 and 18,470 shares, respectively (615,263 )   (574,104 )
Retained earnings 963,003     1,049,206  
Accumulated other comprehensive income (loss) 4,704     (4,979 )
Total shareholders’ equity   920,503       1,025,939  
    Total liabilities and shareholders’ equity $ 1,909,974     $ 1,976,182  

 

 
PLEXUS CORP. AND SUBSIDIARIES
NON-GAAP SUPPLEMENTAL INFORMATION Table 1
(in thousands, except per share data)
(unaudited)
                   
  Three Months Ended   Six Months Ended
  Mar 31,   Dec 30,   Apr 1,   Mar 31,   Apr 1,
  2018   2017   2017   2018   2017
Gross profit, as reported $ 52,952     $ 63,523     $ 63,800     $ 116,475     $ 128,156  
Gross margin, as reported 7.6 %   9.4 %   10.6 %   8.5 %   10.3 %
                   
Non-GAAP adjustments:                  
One-time employee bonus (1) 12,590             12,590      
Adjusted gross profit $ 65,542     $ 63,523     $ 63,800     $ 129,065     $ 128,156  
Adjusted gross margin 9.4 %   9.4 %   10.6 %   9.4 %   10.3 %
                   
Operating income, as reported $ 17,315     $ 31,557     $ 32,571     $ 48,872     $ 66,474  
Operating margin, as reported 2.5 %   4.7 %   5.4 %   3.6 %   5.4 %
                   
Non-GAAP adjustments:                  
One-time employee bonus (1) 13,512             13,512      
Adjusted operating income $ 30,827     $ 31,557     $ 32,571     $ 62,384     $ 66,474  
Adjusted operating margin 4.4 %   4.7 %   5.4 %   4.5 %   5.4 %
                   
Net income (loss), as reported $ 12,290     $ (98,493 )   $ 29,295     $ (86,203 )   $ 57,474  
                   
Non-GAAP adjustments:                  
One-time employee bonus, net of tax (1) 13,176             13,176      
Income tax expense due to U.S. Tax Reform (2)     124,512         124,512      
Adjusted net income $ 25,466     $ 26,019     $ 29,295     $ 51,485     $ 57,474  
                   
Diluted weighted average shares outstanding, as reported 34,387     33,567     34,702     33,552     34,631  
Diluted weighted average shares outstanding, as adjusted (3) 34,387     34,630     34,702     34,487     34,631  
                   
Diluted earnings (loss) per share, as reported $ 0.36     $ (2.93 )   $ 0.84     $ (2.57 )   $ 1.66  
                   
Non-GAAP per share adjustments:                  
One-time employee bonus, net of tax (1) 0.38             0.38      
Impact of dilutive shares excluded from GAAP results due to the net loss position (3)     0.09         0.09      
Income tax expense due to U.S. Tax Reform (2)     3.59         3.59      
Adjusted diluted earnings per share $ 0.74     $ 0.75     $ 0.84     $ 1.49     $ 1.66  
                     


(1) During Q2F18, a $13.5 million one-time employee bonus was paid; of this amount, $12.6 million was recorded in cost of sales and $0.9 million was recorded in selling and administrative expenses in the accompanying Condensed Consolidated Statements of Operations.
(2) During Q1F18, $124.5 million of tax expense was recorded as a result of the enactment of U.S. Tax Reform.  The results for the three months ended March 31, 2018, were not impacted by U.S. Tax(2) Reform as the provisional amounts recorded in Q1F18 remain unchanged.
(3) For the three months ended December 30, 2017 and the six months ended March 31, 2018, the total weighted average number of potentially-dilutive shares was 1.1 million and 2.0 million, respectively. However, these shares were not included in the computation of GAAP diluted net loss per share since to do so would have decreased the loss per share.  No shares were excluded in any of the other reported periods.


 
PLEXUS CORP. AND SUBSIDIARIES
NON-GAAP SUPPLEMENTAL INFORMATION Table 2
 (in thousands)
(unaudited)
           
ROIC and Economic Return Calculations Six Months Ended   Three Months Ended   Six Months Ended
  Mar 31,   Dec 30,   Apr 1,
  2018   2017   2017
Operating income, as reported   $ 48,872       $ 31,557       $ 66,474  
One-time employee bonus + 13,512              
Adjusted operating income   62,384       31,557       66,474  
  x 2     x 4     x 2  
                 
                 
Adjusted annualized operating income   $ 124,768       $ 126,228       $ 132,948  
Adjusted effective tax rate x 11 %   x 10 %   x 9 %
Tax impact   13,724       12,623       11,965  
Adjusted operating income (tax effected)   $ 111,044       $ 113,605       $ 120,983  
                 
Average invested capital ÷ $ 709,764     ÷ $ 701,635     ÷ $ 718,524  
                 
ROIC   15.6 %     16.2 %     16.8 %
Weighted average cost of capital 9.5 %   9.5 %   10.5 %
Economic return   6.1 %     6.7 %     6.3 %


   
  Three Months Ended
Average Invested Capital Mar 31,   Dec 30,   Sept 30,   Jul 1,   Apr 1,   Dec 31,   Oct 1,
Calculations 2018    2017    2017    2017    2017    2016    2016 
Equity $ 920,503     $ 933,849     $ 1,025,939     $ 991,306     $ 961,438     $ 927,542     $ 916,797  
Plus:                          
Debt - current 180,772     179,881     286,934     267,297     92,623     78,879     78,507  
Debt - long-term 27,217     26,047     26,173     26,138     185,638     184,136     184,002  
Less:                          
Cash and cash equivalents (402,470 )   (506,694 )   (568,860 )   (519,172 )   (524,520 )   (496,505 )   (432,964 )
  $ 726,022     $ 633,083     $ 770,186     $ 765,569     $ 715,179     $ 694,052     $ 746,342  


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