OREANDA-NEWS. July 21, 2016. 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 ComparisonThree 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 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 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 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 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 Sciences207 31% 190 31% 180 27%
Industrial/Commercial202 30% 169 27% 176 26%
Defense/Security/Aerospace103 16% 103 17% 92 14%
  Total Revenue\\$668   \\$619   \\$670  
               

Fiscal Third Quarter 2016 Non-GAAP Supplemental Information

ROIC and Economic Return
ROIC 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 CycleThree 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 Calculation
The 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 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; 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 reported4.6% 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 adjusted4.9% 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 costs0.06  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 costs164  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 
 x4  x2  x4 
         
         
Annualized adjusted operating profit \\$108,024   \\$96,588   \\$118,076 
Tax ratex11% x11% x11%
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 CapitalJul 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 CapitalJul 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