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Plexus Announces Fiscal Second Quarter 2016 Financial Results

  • Fiscal second quarter 2016 revenue of $619 million
  • GAAP diluted EPS of $0.50; non-GAAP diluted EPS of $0.55, excluding $0.05 per share of restructuring charges
  • Initiates fiscal third quarter 2016 revenue guidance of $640 to $670 million with non-GAAP diluted EPS of $0.73 to $0.81, excluding any restructuring or other charges

NEENAH, Wis., April 20, 2016 (GLOBE NEWSWIRE) -- Plexus (NASDAQ:PLXS) today announced financial results for its fiscal second quarter ended April 2, 2016, and guidance for its fiscal third quarter ending July 2, 2016.

Three Months Ended
Apr 2, 2016 Apr 2, 2016 Jul 2, 2016
Q2F16 Results Q2F16 Guidance Q3F16 Guidance
Summary GAAP Items
Revenue (in millions)$619 $600 to $630 $640 to $670
Operating margin 3.8%
Diluted EPS$0.50
Summary Non-GAAP Items (1)
Non-GAAP operating margin (2) 4.1% 3.6% to 4.0% 4.7% to 5.0%
Non-GAAP diluted EPS (2)(3)$0.55 $0.47 to $0.55 $0.73 to $0.81
Return on invested capital (ROIC) 11.6%
Economic Return 0.6%
(1) Refer to Non-GAAP Supplemental Information Tables 1 and 2 for a reconciliation to GAAP measures.
(2) Excludes restructuring charges of $1.9 million for the three months ended April 2, 2016.
(3) Includes stock-based compensation expense of $0.11 for Q2F16 results and $0.11 for Q3F16 guidance.

Additional Fiscal Second Quarter 2016 Information

  • Won 38 programs during the quarter representing approximately $174 million in annualized revenue when fully ramped into production
  • Trailing four quarter wins total approximately $667 million in annualized revenue
  • Purchased $7.3 million of our shares at an average price of $34.88 per share

Dean Foate, Chairman, President and CEO, commented, “Our fiscal second quarter revenue result was largely in-line with our guidance. Non-GAAP diluted EPS was at the top end of our guidance range as a consequence of achieving many of our cost reduction and productivity improvements ahead of plan. The greatly improved operational performance in our fiscal second quarter sets up our expectation that we will return to our target operating margin range of 4.7% to 5.0% in our fiscal third quarter; one quarter ahead of earlier expectations. With fiscal third quarter revenue anticipated to be in the range of $640 to $670 million, we expect non-GAAP diluted EPS in the range of $0.73 to $0.81, before any restructuring charges.”

Patrick Jermain, Senior Vice President and CFO, commented, “We continue to see improvement in our working capital. During the fiscal second quarter, our cash cycle improved 5 days sequentially and exceeded our expectations at 66 days. Our improved cash cycle and management of our capital spending drove free cash flow of $65 million during the quarter, which exceeded our guidance. As a result of projected revenue growth and continued progress on our productivity improvements, we expect to sustain our target operating margin range as we exit fiscal 2016. Lastly, we believe that our stronger margin performance in combination with disciplined invested capital management sets a trajectory for improved ROIC performance.”

Quarterly Comparison Three Months Ended
Apr 2, 2016 Jan 2, 2016 Apr 4, 2015
(in thousands, except EPS) Q2F16 Q1F16 Q2F15
Revenue $618,660 $616,664 $651,285
Gross profit $53,272 $50,059 $59,777
Operating profit $23,346 $21,524 $29,452
Net income $16,787 $14,448 $23,594
Diluted EPS $0.50 $0.42 $0.69
Adjusted net income* $18,704 $15,955 $23,594
Non-GAAP diluted EPS* $0.55 $0.47 $0.69
Gross margin 8.6% 8.1% 9.2%
Operating margin 3.8% 3.5% 4.5%
Adjusted operating margin* 4.1% 3.7% 4.5%
ROIC* 11.6% 10.8% 14.5%
Economic Return* 0.6% -0.2% 3.5%
*Refer to Non-GAAP Supplemental Information Tables 1 and 2 for reconciliation to GAAP measures.


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 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 attached non-GAAP supplemental data.

Market Sector Breakout
Plexus 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 58% of revenue during the quarter, down two percentage points from the prior quarter.

Market Sector ($ in millions) Three Months Ended
Apr 2, 2016
Q2F16
Jan 2, 2016
Q1F16
Apr 4, 2015
Q2F15
Networking/Communications $157 25% $157 25% $210 32%
Healthcare/Life Sciences 190 31% 191 31% 191 29%
Industrial/Commercial 169 27% 173 28% 160 25%
Defense/Security/Aerospace 103 17% 96 16% 90 14%
Total Revenue $619 $617 $651

Fiscal Second Quarter 2016 Supplemental Information
ROIC for the fiscal second quarter of 2016 was 11.6%. The Company defines ROIC as tax-effected annualized operating profit, before special items, 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 is 11.0% for fiscal 2016. ROIC for the second quarter less the Company’s weighted average cost of capital results in an economic return of 0.6%.

Fiscal second quarter cash cycle was 66 days. The Company delivered $70.0 million in cash from operations and used $5.0 million for capital investments during the quarter, resulting in positive free cash flow of $65.0 million.

Cash Conversion Cycle Three Months Ended
Apr 2, 2016
Q2F16
Jan 2, 2016
Q1F16
Apr 4, 2015
Q2F15
Days in Accounts Receivable 48 53 48
Days in Inventory 91 88 86
Days in Accounts Payable (62) (59) (63)
Days in Cash Deposits (11) (11) (12)
Annualized Cash Cycle* 66 71 59
*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 Second Quarter 2016 Earnings Conference Call and Webcast
When:Thursday, April 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/287yxk62
Conference call at +1.888.771.4371 with passcode: 42104018
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: 42104018

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 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; the potential effect of 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 Six Months Ended
Apr 2, Apr 4, Apr 2, Apr 4,
2016 2015 2016 2015
Net sales $618,660 $651,285 $1,235,324 $1,315,975
Cost of sales 565,388 591,508 1,131,993 1,194,784
Gross profit 53,272 59,777 103,331 121,191
Selling and administrative expenses 28,009 30,325 55,037 61,266
Restructuring charges 1,917 3,424 1,691
Operating income 23,346 29,452 44,870 58,234
Other income (expense):
Interest expense (3,674) (3,383) (7,208) (7,160)
Interest income 1,015 788 1,947 1,686
Miscellaneous (1,128) (60) (2,748) 78
Income before income taxes 19,559 26,797 36,861 52,838
Income tax expense 2,772 3,203 5,626 6,165
Net income $16,787 $23,594 $31,235 $46,673
Earnings per share:
Basic $0.50 $0.70 $0.94 $1.39
Diluted $0.50 $0.69 $0.92 $1.36
Weighted average shares outstanding:
Basic 33,319 33,606 33,368 33,604
Diluted 33,834 34,342 33,957 34,391


PLEXUS
NON-GAAP SUPPLEMENTAL INFORMATION TABLE 1
(in thousands, except per share data)
(unaudited)
Three Months Ended
Apr 2, Jan 2, Apr 4,
2016 2016 2015
Operating profit, as reported$23,346 $21,524 $29,452
Operating margin, as reported3.8% 3.5% 4.5%
Non-GAAP adjustments:
Restructuring costs*1,917 1,507
Operating profit, as adjusted$25,263 $23,031 $29,452
Operating margin, as adjusted4.1% 3.7% 4.5%
Net income, as reported$16,787 $14,448 $23,594
Non-GAAP adjustments:
Restructuring costs*1,917 1,507
Net income, as adjusted$18,704 $15,955 $23,594
Diluted earnings per share, as reported$0.50 $0.42 $0.69
Non-GAAP adjustments:
Restructuring costs0.05 0.05
Diluted earnings per share, as adjusted$0.55 $0.47 $0.69
*Summary of restructuring costs
Employee termination and severance costs $1,656 $1,394 $
Other exit costs261 113
Total restructuring costs$1,917 $1,507 $


PLEXUS
NON-GAAP SUPPLEMENTAL INFORMATION Table 2
(in thousands)
(unaudited)
ROIC and Economic Return Calculations Six Months Ended Three Months Ended Six Months Ended
Apr 2, Jan 2, Apr 4,
2016 2016 2015
Operating profit $44,870 $21,524 $58,234
Restructuring charges 3,424 1,507 1,691
Adjusted operating profit $48,294 $23,031 $59,925
x2 x4 x2
Annualized operating profit $96,588 $92,124 $119,850
Tax rate x11% x12% x10%
Tax impact 10,625 11,055 11,985
Operating profit (tax effected) $85,963 $81,069 $107,865
Average invested capital ÷$743,112 ÷$753,078 ÷$745,441
ROIC 11.6% 10.8% 14.5%
Weighted average cost of capital 11.0% 11.0% 11.0%
Economic return 0.6% -0.2% 3.5%


Three Months Ended
Average Invested Capital Apr 2, Jan 2, Oct 3, Jul 4, Apr 4, Jan 3, Sep 27,
Calculations 2016 2016 2015 2015 2015 2015 2014
Equity $871,111
$850,794
$842,272
$835,063
$808,468
$792,298
$781,133
Plus:
Debt - current 2,300 2,864 3,513 4,281 4,774 4,793 4,368
Debt – non-current 259,565 259,289 259,257 259,284 260,025 260,990 262,046
Less:
Cash and cash equivalents (409,796) (354,728) (357,106) (354,830) (356,296) (239,685) (346,591)
$723,180
$758,219
$747,936
$743,798
$716,971
$818,396
$700,956

Free Cash Flow Calculation
The Company defines free cash flow as cash flow provided by operations less capital expenditures. For the three months ended April 2, 2016 cash flow provided by operations was $70.0 million, less capital expenditures of $5.0 million, resulting in free cash flow of $65.0 million. For the six months ended April 2, 2016 cash flow provided by operations was $91.3 million, less capital expenditures of $16.8 million, resulting in free cash flow of $74.5 million.

PLEXUS
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
Apr 2, Oct 3,
2016 2015
ASSETS
Current assets:
Cash and cash equivalents$409,796 $357,106
Accounts receivable 325,392 384,680
Inventories 563,291 569,371
Deferred income taxes 10,522 10,686
Prepaid expenses and other 27,095 22,882
Total current assets 1,336,096 1,344,725
Property, plant and equipment, net 307,227 317,351
Deferred income taxes 3,591 3,635
Other 36,610 36,677
Total non-current assets 347,428 357,663
Total assets$1,683,524 $1,702,388
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt and capital lease obligations$2,300 $3,513
Accounts payable 383,092 400,710
Customer deposits 70,620 81,359
Accrued salaries and wages 31,252 49,270
Other accrued liabilities 41,890 44,446
Total current liabilities 529,154 579,298
Long-term debt and capital lease obligations, net of current portion 259,565 259,257
Deferred income taxes 9,664 9,664
Other liabilities 14,030 11,897
Total non-current liabilities 283,259 280,818
Total liabilities 812,413 860,116
Shareholders’ equity:
Common stock, $.01 par value, 200,000 shares authorized,
50,757 and 50,554 shares issued, respectively,
and 33,267 and 33,500 shares outstanding, respectively 508 506
Additional paid-in-capital 502,625 497,488
Common stock held in treasury, at cost, 17,490 and 17,054, respectively (525,706) (509,968)
Retained earnings 891,952 860,717
Accumulated other comprehensive income (loss) 1,732 (6,471)
Total shareholders’ equity 871,111 842,272
Total liabilities and shareholders’ equity$1,683,524 $1,702,388


PLEXUS
REVENUE BY REPORTABLE GEOGRAPHIC SEGMENTS
(in thousands)
(unaudited)
Three Months Ended
Apr 2, Jan 2, Apr 4,
2016 2016 2015
Americas $330,240 $305,097 $328,753
Asia-Pacific 270,544 299,346 319,156
Europe, Middle East, and Africa 43,703 42,087 35,773
Elimination of inter-segment sales (25,827) (29,866) (32,397)
Total Revenue $618,660 $616,664 $651,285

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

Source: Plexus