Plexus Announces Fiscal Third Quarter 2016 Financial Results

  • Fiscal third quarter 2016 revenue of $668 million
  • GAAP diluted EPS of $0.76, non-GAAP diluted EPS of $0.82, excluding $0.06 per share of restructuring charges
  • Initiates fiscal fourth quarter 2016 revenue guidance of $655 - $685 million with non-GAAP diluted EPS of $0.76 to $0.84, excluding any restructuring or other special items

NEENAH, Wis., July 20, 2016 (GLOBE NEWSWIRE) -- Plexus (NASDAQ:PLXS) today announced financial results for its fiscal third quarter ended July 2, 2016, and guidance for its fiscal fourth quarter ending October 1, 2016.
     
    Three Months Ended
    Jul 2, 2016   Jul 2, 2016   Oct 1, 2016
    Q3F16 Results   Q3F16 Guidance   Q4F16 Guidance
Summary GAAP Items              
Revenue (in millions) $ 668      $640 to $670     $655 to $685
Operating margin   4.6  %        
Diluted EPS (3) $ 0.76           
                 
Summary Non-GAAP Items (1)              
Non-GAAP operating margin (2)   4.9  %   4.7% to 5.0%   4.8% to 5.1%(4)
Non-GAAP diluted EPS (2)(3) $ 0.82      $0.73 to $0.81   $0.76 to $0.84(4)
Return on invested capital (ROIC)   13.0  %        
Economic Return   2.0  %        
             
(1 ) Refer to Non-GAAP Supplemental Information Tables 1 and 2 for a reconciliation to GAAP measures.
(2 ) Excludes restructuring charges of $1.8 million or $0.06 per share for the three months ended July 2, 2016.
(3 ) Includes stock-based compensation expense of $0.11 for Q3F16 results and $0.11 for Q4F16 guidance.
(4 ) Because potential charges related to restructuring or special items are not known at this time, the Company cannot reasonably provide a reconciliation to GAAP guidance.
 

Additional Fiscal Third Quarter 2016 Information
  • Won 46 programs during the quarter representing approximately $194 million in annualized revenue when fully ramped into production
  • Trailing four quarter wins total approximately $714 million in annualized revenue
  • Purchased $7.2 million of our shares at an average price of $42.13 per share

Dean Foate, Chairman, President and CEO, commented, "We delivered a solid fiscal third quarter with revenue up 8% sequentially and operating margin nicely in our target range.  Relative to our guidance, revenue was at the high-end while our strong margin performance pushed our non-GAAP diluted EPS result a penny above the range.  Improved operating performance and efficient management of working capital enabled us to deliver ROIC performance of 13%, or 200 basis points above our weighted average cost of capital."

Patrick Jermain, Senior Vice President and CFO, commented, "We improved our cash cycle sequentially by 3 days during the fiscal third quarter and generated strong cash flows from operations.  The improved cash cycle, in addition to a modest level of capital spending, drove free cash flow above our guidance to $24 million during the quarter."  Mr. Jermain continued, "In anticipation of future growth, and in part to support our previously announced $150 million share repurchase program, on July 5, 2016, we amended our credit agreement.  We increased the maximum commitment under the unsecured credit facility to $300 million and extended the maturity to July 2021.  These modifications extend our favorable pricing structure and support our overall strategic capital allocation plans."

Todd Kelsey, Executive Vice President and COO, commented, "Looking forward to our fiscal fourth quarter of 2016, we are guiding revenue of $655 to $685 million as we anticipate new program ramps in our Industrial/Commercial and Defense/Security/Aerospace market sectors will offset end-market weakness in our Networking/Communications sector.  At this revenue level, with continuing strong operating performance, we expect diluted EPS in the range of $0.76 to $0.84 for the fiscal fourth quarter, before any restructuring or special items."
   
Quarterly Comparison Three Months Ended
  Jul 2, 2016   Apr 2, 2016   Jul 4, 2015
(in thousands, except EPS) Q3F16   Q2F16   Q3F15
Revenue $ 667,616     $ 618,660     $ 669,585  
Gross profit $ 62,498     $ 53,272     $ 59,087  
Operating profit $ 30,918     $ 23,346     $ 28,631  
Net income $ 26,099     $ 16,787     $ 23,794  
Diluted EPS $ 0.76     $ 0.50     $ 0.69  
Adjusted net income* $ 27,904     $ 18,704     $ 23,794  
Non-GAAP diluted EPS* $ 0.82     $ 0.55     $ 0.69  
                       
Gross margin   9.4 %     8.6 %     8.8 %
Operating margin   4.6 %     3.8 %     4.3 %
Adjusted operating margin*   4.9 %     4.1 %     4.3 %
                       
ROIC*   13.0 %     11.6 %     14.1 %
Economic Return*   2.0 %     0.6 %     3.1 %
           
*Refer to Non-GAAP Supplemental Information Tables 1 and 2 for a reconciliation to GAAP measures
 

Non-GAAP Financial MeasuresPlexus 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.  Plexus believes that these measures are also useful to investors because they provide further insight by eliminating the effect of items that are not reflective of continuing operations. For a full reconciliation of non-GAAP measures to comparable GAAP measures, please refer to the attached non-GAAP supplemental data.  As noted above, because potential restructuring charges or special items are not known at this time, the Company cannot provide a reconciliation of non-GAAP adjusted diluted EPS guidance to GAAP diluted EPS without unreasonable efforts.

Market Sector BreakoutPlexus 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.  Top 10 customers comprised 60% of revenue during the quarter, up two percentage points from the prior quarter.
   
Market Sector ($ in millions) Three Months Ended
  Jul 2, 2016 Q3F16   Apr 2, 2016 Q2F16   Jul 4, 2015 Q3F15
Networking/Communications $ 156   23 %   $ 157   25 %   $ 222   33 %
Healthcare/Life Sciences 207   31 %   190   31 %   180   27 %
Industrial/Commercial 202   30 %   169   27 %   176   26 %
Defense/Security/Aerospace 103   16 %   103   17 %   92   14 %
  Total Revenue $ 668       $ 619       $ 670    
                             

Fiscal Third Quarter 2016 Non-GAAP Supplemental Information

ROIC and Economic ReturnROIC for the fiscal third quarter of 2016 was 13.0%.  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 fiscal 2016 weighted average cost of capital was 11.0%.  ROIC for the third quarter less the Company's weighted average cost of capital resulted in an economic return of 2.0%.
   
Cash Conversion Cycle Three Months Ended
  Jul 2, 2016 Q3F16   Apr 2, 2016 Q2F16   Jul 4, 2015 Q3F15
Days in Accounts Receivable   51       48       48  
Days in Inventory   87       91       88  
Days in Accounts Payable   (62 )     (62 )     (62 )
Days in Cash Deposits   (13 )     (11 )     (12 )
  Annualized Cash Cycle*   63       66       62  
 
*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.
 

Free Cash Flow CalculationThe Company defines free cash flow as cash flows provided by operations less capital expenditures.  For the three months ended July 2, 2016, cash flows provided by operations was $31.3 million, less capital expenditures of $7.0 million, resulting in free cash flow of $24.3 million.  For the nine months ended July 2, 2016, cash flows provided by operations was $122.6 million, less capital expenditures of $23.8 million, resulting in free cash flow of $98.8 million.

Conference Call and Webcast Information
   
What: Plexus Fiscal Q3 2016 Earnings Conference Call and Webcast
When: Thursday, July 21, 2016 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/wxbp3ryg/lan/en Conference call at +1.800.708.4539 with passcode: 42806241
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: 42806241
   

About Plexus - The Product Realization CompanyPlexus ( 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; 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; potential economic weakness and other effects resulting from the June 2016 vote of the United Kingdom to exit 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; and other risks detailed in our Securities and Exchange Commission filings (particularly in "Risk Factors" in our fiscal 2015 Form 10-K).

 
PLEXUS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
           
  Three Months Ended   Nine Months Ended
  Jul 2,   Jul 4,   Jul 2,   Jul 4,
    2016       2015       2016       2015  
Net sales $  667,616     $ 669,585     $ 1,902,940     $ 1,985,560  
Cost of sales   605,118       610,498       1,737,111       1,805,282  
Gross profit   62,498       59,087       165,829       180,278  
Selling and administrative expenses   29,775       30,456       84,812       91,722  
Restructuring charges   1,805            5,229         1,691   
Operating income   30,918       28,631       75,788       86,865  
Other income (expense):              
Interest expense   (3,637 )     (3,280 )     (10,845 )     (10,440 )
Interest income   1,134       866       3,081       2,552  
Miscellaneous   297       471       (2,451 )     549  
Income before income taxes   28,712       26,688       65,573       79,526  
Income tax expense   2,613       2,894       8,239       9,059  
Net income $ 26,099     $ 23,794     $ 57,334     $ 70,467  
Earnings per share:              
Basic $ 0.78      $ 0.71      $ 1.72       $ 2.10   
Diluted $ 0.76      $ 0.69      $ 1.68       $ 2.05   
Weighted average shares outstanding:                          
Basic   33,402       33,653       33,379           33,617  
Diluted   34,174       34,454       34,043           34,400  
                               

 
PLEXUS
NON-GAAP SUPPLEMENTAL INFORMATION TABLE 1
(in thousands, except per share data)
(unaudited)
           
  Three Months Ended
  Jul 2,   Apr 2,   Jul 4,
  2016   2016   2015
Operating profit, as reported $ 30,918     $ 23,346     $ 28,631  
Operating margin, as reported 4.6 %   3.8 %   4.3 %
           
Non-GAAP adjustments:          
Restructuring costs* 1,805     1,917      
           
Operating profit, as adjusted $ 32,723     $ 25,263     $ 28,631  
Operating margin, as adjusted 4.9 %   4.1 %   4.3 %
           
Net income, as reported $ 26,099     $ 16,787     $ 23,794  
           
Non-GAAP adjustments:          
Restructuring costs* 1,805     1,917      
           
Net income, as adjusted $ 27,904     $ 18,704     $ 23,794  
           
Diluted earnings per share, as reported $ 0.76     $ 0.50     $ 0.69  
           
Non-GAAP adjustments:          
Restructuring costs 0.06     0.05      
           
Non-GAAP diluted earnings per share, as adjusted $ 0.82     $ 0.55     $ 0.69  
           
*Summary of restructuring costs          
Employee termination and severance costs $ 1,641     $ 1,656     $  
Other exit costs 164     261      
Total restructuring costs $ 1,805     $ 1,917     $  
           

 
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 2,   Apr 2,   Jul 4,
  2016   2016   2015
Operating profit, as reported   $ 75,788       $ 44,870       $ 86,865  
Restructuring charges, as reported + 5,229     + 3,424     + 1,691  
Adjusted operating profit   $ 81,017       $ 48,294       $ 88,556  
  ÷ 3           ÷ 3  
    $ 27,006             $ 29,519  
  x 4     x 2     x 4  
                 
                 
Annualized adjusted operating profit   $ 108,024       $ 96,588       $ 118,076  
Tax rate x 11 %   x 11 %   x 11 %
Tax impact   11,883       10,625       12,988  
Adjusted operating profit (tax effected)   $ 96,141       $ 85,963       $ 105,088  
                 
Average invested capital ÷ $ 738,397     ÷ $ 743,112     ÷ $ 745,030  
                 
ROIC   13.0 %     11.6 %     14.1 %
Weighted average cost of capital - 11.0 %   - 11.0 %   - 11.0 %
Economic return   2.0 %     0.6 %     3.1 %
                       

  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  

  Three Months Ended
Average Invested Capital Jul 4,   Apr 4,   Jan 3,   Sept 27,
Calculations   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 -  long-term   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  
                                       

 
PLEXUS
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
       
  Jul 2,   Oct 3,
    2016       2015  
ASSETS      
Current assets:      
Cash and cash equivalents $ 433,679     $ 357,106  
Accounts receivable   375,240       384,680  
Inventories   575,121       569,371  
Deferred income taxes   9,916       10,686  
Prepaid expenses and other   25,911       22,882  
Total current assets   1,419,867       1,344,725  
Property, plant and equipment, net   300,816       317,351  
Deferred income taxes   3,536       3,635  
Other   36,731       36,677  
Total non-current assets   341,083       357,663  
Total assets $ 1,760,950     $ 1,702,388  
       
LIABILITIES AND SHAREHOLDERS' EQUITY      
Current liabilities:      
Current portion of long-term debt and capital lease obligations $ 78,279     $ 3,513  
Accounts payable   410,537       400,710  
Customer deposits   87,333       81,359  
Accrued salaries and wages   40,588       49,270  
Other accrued liabilities   41,562       44,446  
Total current liabilities   658,299       579,298  
Long-term debt and capital lease obligations, net of current portion   184,479       259,257  
Deferred income taxes   9,080       9,664  
Other liabilities   13,917       11,897  
Total non-current liabilities   207,476       280,818  
Total liabilities   865,775       860,116  
Shareholders' equity:      
Common stock, $.01 par value, 200,000 shares authorized,      
51,082 and 50,554 shares issued, respectively,      
and 33,421 and 33,500 shares outstanding, respectively   511       506  
Additional paid-in-capital   516,662       497,488  
Common stock held in treasury, at cost, 17,661 and 17,054, respectively   (532,882 )     (509,968 )
Retained earnings   918,051       860,717  
Accumulated other comprehensive (loss)   (7,167 )     (6,471 )
Total shareholders' equity   895,175       842,272  
Total liabilities and shareholders' equity $ 1,760,950     $ 1,702,388  
               

 
PLEXUS
REVENUE BY REPORTABLE GEOGRAPHIC SEGMENTS
(in thousands)
(unaudited)
           
  Three Months Ended
  Jul 2,   Apr 2,   Jul 4,
    2016       2016       2015  
Americas $ 359,412     $ 330,240     $ 365,861  
Asia-Pacific   292,644       270,544       313,900  
Europe, Middle East, and Africa   41,041       43,703       33,885  
Elimination of inter-segment sales   (25,481 )     (25,827 )     (44,061 )
Total Revenue $ 667,616     $ 618,660     $ 669,585  
                       

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

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