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Plexus Announces Fiscal Fourth Quarter and Fiscal Year 2018 Financial Results

October 24, 2018 4:15 PM

NEENAH, Wis., Oct. 24, 2018 (GLOBE NEWSWIRE) -- Plexus (NASDAQ: PLXS) today announced financial results for its fiscal fourth quarter ended September 29, 2018, and guidance for its fiscal first quarter ending December 29, 2018.

Three Months Ended
Sept 29, 2018 Sept 29, 2018 Dec 29, 2018
Q4F18 Results Q4F18 Guidance Q1F19 Guidance
Summary GAAP Items
Revenue (in millions)$771 $735 to $775 $750 to $790
Operating margin 4.8% 4.5% to 4.9% 4.6% to 5.0%
Diluted EPS (1)$2.20 $0.82 to $0.92 $0.85 to $0.95
Summary Non-GAAP Items (2)
Adjusted diluted EPS (1)$0.96
Return on invested capital (ROIC) 16.1%
Economic Return 6.6%
(1)Includes stock-based compensation expense of $0.14 for Q4F18 results and $0.15 for Q1F19 guidance.
(2)Refer to Non-GAAP Supplemental Information in Tables 1 and 2 for non-GAAP financial measures and a reconciliation to GAAP.

Fiscal Fourth Quarter 2018 Information

Fiscal Year 2018 Information

Todd Kelsey, President and CEO, commented, “We continue to produce meaningful growth, finishing our fiscal fourth quarter with record revenue of $771 million, near the high end of our guidance range. In addition, as a result of strong execution, we delivered fiscal fourth quarter 2018 operating margin of 4.8%, comfortably within our target range of 4.7% to 5.0%. Our solid growth and operating performance led to non-GAAP diluted EPS of $0.96, a result that was above our guidance range. Further, we delivered fiscal year 2018 revenue of $2.9 billion, representing a 14% increase over fiscal 2017.”

Patrick Jermain, Senior Vice President and CFO, commented, “During the fiscal fourth quarter, we repatriated over $50 million of offshore cash which we deployed by investing in facilities and working capital and repurchasing approximately $39 million of shares under our repurchase programs. In total, we brought back approximately $430 million in fiscal 2018.”

Mr. Jermain continued, “Fiscal fourth quarter GAAP diluted EPS included a net benefit of $1.24 per share related to U.S. tax reform. The benefit resulted from adjustments made in applying additional guidance from the U.S. Department of the Treasury, as well as our utilization of accumulated U.S. net operating loss carryforwards, which reduced the repatriation tax. We also recognized a benefit from the reversal of our valuation allowance previously maintained on our U.S. net deferred tax assets. With future projected taxable income in the U.S. due to tax reform, the valuation allowance is no longer required.”

Mr. Kelsey continued, “As we look to the fiscal first quarter of 2019, we are guiding revenue of $750 million to $790 million. We expect continued strong operating performance with operating margin in the range of 4.6% to 5.0% and GAAP diluted EPS in the range of $0.85 to $0.95. We believe that our operating performance strength in the fiscal first quarter of 2019 will alleviate the impact of increased tax expense, estimated at $0.05 per share above the previous quarter.”

Mr. Kelsey concluded, “We anticipate fiscal 2019 to be another strong growth year as we achieve full production volumes of recently launched programs and expect to capitalize on our robust fiscal 2018 wins performance. Further, we currently see overall strength in our end markets and believe we can navigate the ongoing supply chain constraints. This growth, when combined with operating margin within our 4.7% to 5.0% target range and our share repurchase program, should result in meaningful EPS expansion.”

Quarterly & Annual ComparisonThree Months Ended Twelve Months Ended
Sept 29, 2018 Jun 30, 2018 Sept 30, 2017 Sept 29, 2018 Sept 30, 2017
(in thousands, except EPS)Q4F18 Q3F18 Q4F17 F18 F17
Revenue$771,178 $726,385 $669,852 $2,873,508 $2,528,052
Gross profit73,304 67,821 66,514 257,600 255,855
Operating income36,965 32,446 33,965 118,283 129,908
Net income72,742 26,501 29,009 13,040 112,062
Diluted EPS$2.20 $0.79 $0.84 $0.38 $3.24
Adjusted net income (1)31,615 * * 109,600 *
Adjusted diluted EPS (1)$0.96 * * $3.23 *
Gross margin9.5% 9.3% 9.9% 9.0% 10.1%
Adjusted gross margin (1) * * * 9.4% *
Operating margin4.8% 4.5% 5.1% 4.1% 5.1%
Adjusted operating margin (1) * * * 4.6% *
ROIC*16.1% 15.9% 16.2% 16.1% 16.2%
Economic Return*6.6% 6.4% 5.7% 6.6% 5.7%
(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 net income, adjusted diluted EPS, ROIC and Economic Return, and a reconciliation of these measures to GAAP.
* No adjustments were made in the indicated periods.

Business Segment and Market Sector RevenueThe 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 59% of revenue during the fiscal fourth quarter, up two percentage points from the fiscal third quarter of 2018, and 57% of revenue during fiscal year 2018, up one percentage point from the prior fiscal year.

Business Segments ($ in millions)Three Months Ended Twelve Months Ended
Sept 29, 2018 Sept 30, 2017 Sept 29, 2018 Sept 30, 2017
Americas$320 $314 $1,219 $1,166
Asia-Pacific418 334 1,498 1,279
Europe, Middle East, and Africa69 55 281 193
Elimination of inter-segment sales(36) (33) (124) (110)
Total Revenue$771 $670 $2,874 $2,528

Market Sectors ($ in millions)Three Months Ended Twelve Months Ended
Sept 29, 2018 Q4F18 Jun 30, 2018 Q3F18 Sept 30, 2017 Q4F17 Sept 29, 2018 Q4F18 Sept 30, 2017 Q4F17
Healthcare/Life Sciences$289 37% $266 37% $233 35% $1,040 36% $859 34%
Industrial/Commercial244 32% 225 31% 189 28% 918 32% 788 31%
Communications118 15% 120 16% 140 21% 471 16% 478 19%
Aerospace/Defense120 16% 115 16% 108 16% 445 16% 403 16%
Total Revenue$771 $726 $670 $2,874 $2,528

Non-GAAP Supplemental InformationPlexus 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, adjusted net income 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 paid in the second quarter of fiscal 2018 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 the attached Non-GAAP Supplemental Information Tables.

ROIC and Economic ReturnROIC for both fiscal 2018 and the fiscal fourth quarter was 16.1%. The Company defines ROIC as tax-effected annualized adjusted operating income divided by average invested capital over a five-quarter period for the fourth fiscal 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 was 9.5%. ROIC for both fiscal 2018 and the fiscal fourth quarter less the Company’s weighted average cost of capital resulted in an economic return of 6.6%.

Free Cash Flow CalculationThe Company defines free cash flow as cash flows provided by operations less capital expenditures. For the three months ended September 29, 2018, cash flows provided by operations was $25.4 million, less capital expenditures of $10.7 million, resulting in free cash flow of $14.7 million. For the twelve months ended September 29, 2018, cash flows provided by operations was $66.8 million, less capital expenditures of $62.8 million, resulting in free cash flow of $4.0 million.

Cash Cycle DaysThree Months Ended
Sept 29, 2018 Q4F18 Jun 30, 2018 Q3F18 Sept 30, 2017 Q4F17
Days in Accounts Receivable47 48 50
Days in Inventory104 105 99
Days in Accounts Payable(66) (66) (63)
Days in Cash Deposits(12) (14) (16)
Annualized Cash Cycle*73 73 70
*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 Q4 2018 Earnings Conference Call and Webcast
When:Thursday, October 25, 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 fourth quarter 2018 results will also be made available ahead of the conference call.Conference call at +1.800.773.2954 with passcode: 47612122
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: 47612122

Investor and Media ContactHeather Beresford+1.920.751.3612[email protected]

About Plexus – The Product Realization CompanySince 1979, Plexus has been partnering with companies to create the products that build a better world. We are a team of over 18,000, 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 StatementThe 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 shortages and delays in obtaining components as a result of economic cycles, natural disasters or otherwise; the effects of tariffs and other trade protection measures; 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 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, 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 Twelve Months Ended
Sept 29, Sept 30, Sept 29, Sept 30,
2018 2017 2018 2017
Net sales$771,178 $669,852 $2,873,508 $2,528,052
Cost of sales697,874 603,338 2,615,908 2,272,197
Gross profit 73,304 66,514 257,600 255,855
Selling and administrative expenses36,339 32,549 139,317 125,947
Operating income 36,965 33,965 118,283 129,908
Other income (expense):
Interest expense(2,044) (3,748) (12,226) (13,578)
Interest income647 1,487 4,696 5,042
Miscellaneous(1,268) (697) (3,143) 451
Income before income taxes 34,300 31,007 107,610 121,823
Income tax (benefit) expense(38,442) 1,998 94,570 9,761
Net income$72,742 $29,009 $13,040 $112,062
Earnings per share:
Basic$2.27 $0.86 $0.40 $3.33
Diluted$2.20 $0.84 $0.38 $3.24
Weighted average shares outstanding:
Basic 32,113 33,541 33,003 33,612
Diluted33,020 34,482 33,919 34,553

PLEXUS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
Sept 29, Sept 30,
2018 2017
ASSETS
Current assets:
Cash and cash equivalents$297,269 $568,860
Restricted cash417 394
Accounts receivable394,827 365,513
Inventories794,346 654,642
Prepaid expenses and other30,302 28,046
Total current assets 1,517,161 1,617,455
Property, plant and equipment, net341,306 314,665
Deferred income taxes10,825 5,292
Intangible assets8,239 —
Other55,111 38,770
Total non-current assets 415,481 358,727
Total assets$1,932,642 $1,976,182
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt and capital lease obligations$5,532 $286,934
Accounts payable506,322 413,999
Customer deposits90,782 107,837
Accrued salaries and wages66,874 49,376
Other accrued liabilities68,163 49,445
Total current liabilities 737,673 907,591
Long-term debt and capital lease obligations, net of current portion183,085 26,173
Accrued income taxes payable56,130 —
Deferred income taxes14,376 —
Other liabilities20,235 16,479
Total non-current liabilities 273,826 42,652
Total liabilities 1,011,499 950,243
Shareholders’ equity:
Common stock, $.01 par value, 200,000 shares authorized,
52,567 and 51,934 shares issued, respectively,
and 31,838 and 33,464 shares outstanding, respectively526 519
Additional paid-in-capital581,488 555,297
Common stock held in treasury, at cost, 20,729 and 18,470, respectively(711,138) (574,104)
Retained earnings1,062,246 1,049,206
Accumulated other comprehensive loss(11,979) (4,979)
Total shareholders’ equity 921,143 1,025,939
Total liabilities and shareholders’ equity$1,932,642 $1,976,182

PLEXUS CORP. AND SUBSIDIARIES
NON-GAAP SUPPLEMENTAL INFORMATION Table 1
(in thousands, except per share data)
(unaudited)
Three Months Ended Twelve Months Ended
Sept 29, Jun 30, Sept 30, Sept 29, Sept 30,
2018 2018 2017 2018 2017
Gross profit, as reported$73,304 $67,821 $66,514 $257,600 $255,855
Gross margin, as reported 9.5% 9.3% 9.9% 9.0% 10.1%
Non-GAAP adjustments:
One-time employee bonus (1) — — — 12,590 —
Adjusted gross profit$73,304 $67,821 $66,514 $270,190 $255,855
Adjusted gross margin 9.5% 9.3% 9.9% 9.4% 10.1%
Operating income, as reported$36,965 $32,446 $33,965 $118,283 $129,908
Operating margin, as reported 4.8% 4.5% 5.1% 4.1% 5.1%
Non-GAAP adjustments:
One-time employee bonus (1) — — — 13,512 —
Adjusted operating income$36,965 $32,446 $33,965 $131,795 $129,908
Adjusted operating margin 4.8% 4.5% 5.1% 4.6% 5.1%
Net income, as reported$72,742 $26,501 $29,009 $13,040 $112,062
Non-GAAP adjustments:
One-time employee bonus, net of tax (1) — — — 13,176 —
Non-recurring tax impacts (2) (41,127) — — 83,384 —
Adjusted net income$31,615 $26,501 $29,009 $109,600 $112,062
Diluted earnings per share, as reported$2.20 $0.79 $0.84 $0.38 $3.24
Non-GAAP per share adjustments:
One-time employee bonus, net of tax (1) — — — 0.39 —
Non-recurring tax impacts (2) (1.24) — — 2.46 —
Adjusted diluted earnings per share$0.96 $0.79 $0.84 $3.23 $3.24
(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 the three months ended September 29, 2018, non-recurring tax benefits of $38.6 million resulted primarily from the use of current year tax losses and net operating loss carryforwards against the deemed repatriation tax as well as a $3.6 million benefit due to the reversal of a valuation allowance on U.S. deferred tax assets. These benefits were partially offset by a $1.1 million tax expense for other non-recurring tax items.During the twelve months ended September 29, 2018, non-recurring tax expenses of $85.9 million and $1.1 million were recorded as a result of U.S. Tax Reform and other non-recurring tax items, respectively, which were partially offset by a $3.6 million tax benefit from the reversal of a valuation allowance on U.S. deferred tax assets.

PLEXUS CORP. AND SUBSIDIARIES
NON-GAAP SUPPLEMENTAL INFORMATION Table 2
(in thousands)
(unaudited)
ROIC and Economic Return CalculationsTwelve Months Ended Nine Months Ended Twelve Months Ended
Sept 29, Jun 30, Sept 30,
2018 2018 2017
Operating income, as reported $118,283 $81,318 $129,908
One-time employee bonus+13,512 +13,512 +—
Adjusted operating income $131,795 $94,830 $129,908
÷3
$31,610
x4
Adjusted annualized operating income $131,795 $126,440 $129,908
Adjusted effective tax ratex10% x10% x8%
Tax impact 13,180 12,644 10,393
Adjusted operating income (tax effected) $118,615 $113,796 $119,515
Average invested capital÷$735,598 ÷$716,374 ÷$738,266
ROIC 16.1% 15.9% 16.2%
Weighted average cost of capital-9.5% -9.5% -10.5%
Economic return 6.6% 6.4% 5.7%

Three Months Ended
Average Invested CapitalSept 29, Jun 30, Mar 31, Dec 30, Sept 30,
Calculations2018 2018 2018 2017 2017
Equity$921,143 $882,360 $920,503 $933,849 $1,025,939
Plus:
Debt - current5,532 6,365 180,772 179,881 286,934
Debt - long-term183,085 180,204 27,217 26,047 26,173
Less:
Cash and cash equivalents(297,269) (332,723) (402,470) (506,694) (568,860)
$812,491 $736,206 $726,022 $633,083 $770,186

Three Months Ended
Average Invested CapitalJul 1, Apr 1, Dec 31, Oct 1,
Calculations2017 2017 2016 2016
Equity$991,306 $961,438 $927,542 $916,797
Plus:
Debt - current267,297 92,623 78,879 78,507
Debt - long-term26,138 185,638 184,136 184,002
Less:
Cash and cash equivalents(519,172) (524,520) (496,505) (432,964)
$765,569 $715,179 $694,052 $746,342

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Source: Plexus

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