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Plexus Corp – ‘8-K’ for 4/17/19 – ‘EX-95.1’

On: Wednesday, 4/17/19, at 4:45pm ET · For: 4/17/19 · Accession #: 785786-19-17 · File #: 1-14423

  As Of                Filer                Filing    For·On·As Docs:Size

 4/17/19  Plexus Corp                       8-K:2,9     4/17/19    2:584K

Current Report — Form 8-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 8-K         Current Report                                      HTML     15K 
 2: EX-95.1     Mine-Safety Disclosure                              HTML    169K

EX-95.1 — Mine-Safety Disclosure

This Exhibit is an HTML Document rendered as filed. [ Alternative Formats ]

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Exhibit

Plexus Announces Fiscal Second Quarter 2019 Financial Results


•	Record quarterly revenue of $789 million during the fiscal second quarter of 2019


•	GAAP diluted EPS of $0.79


•	Initiates fiscal third quarter 2019 revenue guidance of $760 to $800 million with GAAP diluted EPS of $0.76 to $0.86

NEENAH, WI – April 17, 2019 - Plexus (NASDAQ: PLXS) today announced financial results for its fiscal second quarter ended March 30, 2019, and guidance for its fiscal third quarter ending June 29, 2019.



		Three Months Ended
		Mar 30, 2019			Mar 30, 2019	Jun 29, 2019
		Q2F19 Results			Q2F19 Guidance	Q3F19 Guidance
Summary GAAP Items
Revenue (in millions)			$789		$760 to $800	$760 to $800
Operating margin		4.2		%	4.3% to 4.7%	4.3% to 4.7%
Diluted EPS (1)			$0.79		$0.80 to $0.90	$0.76 to $0.86

Summary Non-GAAP Items (2)
Return on invested capital (ROIC)		13.3		%
Economic return		4.3		%

(1)	Includes stock-based compensation expense of $0.16 for Q2F19 results and $0.17 for Q3F19 guidance.
(2)	Refer to Non-GAAP Supplemental Information in Tables 1 and 2 for non-GAAP financial measures and a reconciliation to GAAP.

Fiscal Second Quarter 2019 Information


•	Won 36 manufacturing programs during the quarter representing $247 million in annualized revenue when fully ramped into production


•	Trailing four quarter manufacturing wins total $912 million in annualized revenue when fully ramped into production


•	Purchased $56.2 million of our shares at an average price of $56.72 per share under our existing share repurchase program

Todd Kelsey, President and CEO, commented, “In the fiscal second quarter, we continued to deliver meaningful growth with record quarterly revenue of $789 million, a 13% increase over the comparable quarter last year. Sizable customer mix changes that occurred within the quarter created cost inefficiencies, resulting in operating margin and EPS slightly below our guidance ranges.”

Patrick Jermain, Executive Vice President and CFO, commented, “During the fiscal second quarter, we continued our cash repatriation strategy by repatriating approximately $28 million of offshore cash. We repurchased approximately $56 million of our shares, which was partially funded with repatriated cash. Since the enactment of U.S. tax reform last year, we have brought back close to $480 million.”

Mr. Jermain continued, “Although working capital requirements were greater than anticipated during the fiscal second quarter, we are reconfirming our full fiscal year expectation for free cash flow in the range of $40 to $60 million.”

Mr. Kelsey continued, “As we look to the fiscal third quarter, we expect weakness in our Communications sector to offset anticipated growth in our Aerospace/Defense and Healthcare/Life Sciences sectors. As a result, we are guiding relatively flat revenue in the range of $760 to $800 million. At this revenue level, we anticipate GAAP EPS in the range of $0.76 to $0.86, with operating margins modestly below our target range. Further, we are implementing productivity and cost containment actions that, in conjunction with our current revenue expectations, are designed to support a return to our target operating margin range in the fiscal fourth quarter.”

Mr. Kelsey concluded, “We remain confident in our revenue outlook and maintain our expectation of solid growth in fiscal 2019. Demand remains robust in many of our end markets, and our teams continue to achieve strong wins performance throughout our differentiated portfolio, producing $247 million of new manufacturing wins in the fiscal second quarter. While we continue to deliver the highest operating margin among our peers, we are committed to taking the necessary actions to consistently deliver our target range of 4.7% to 5.0%.”



Quarterly Comparison	Three Months Ended
	Mar 30, 2019			Dec 29, 2018			Mar 31, 2018
(in thousands, except EPS)	Q2F19			Q1F19			Q2F18
Revenue	$	789,051		$	765,544		$	698,651
Gross profit	70,636			72,383			52,952
Operating income	33,174			36,951			17,315
Net income	24,758			22,226			12,290
Diluted earnings per share	$	0.79		$	0.69		$	0.36
Adjusted net income (1)	*			29,261			25,466
Adjusted diluted EPS (1)	*			$	0.91		$	0.74

Gross margin	9.0		%	9.5		%	7.6		%
Adjusted gross margin (1)	*			*			9.4		%
Operating margin	4.2		%	4.8		%	2.5		%
Adjusted operating margin (1)	*			*			4.4		%

ROIC (1)	13.3		%	14.6		%	15.6		%
Economic return (1)	4.3		%	5.6		%	6.1		%

(1) Refer to Non-GAAP Supplemental Information in Tables 1 and 2 for non-GAAP financial measures discussed in this release, such as adjusted net income, adjusted diluted EPS, ROIC and Economic Return, and a reconciliation of these measures to GAAP.
* No adjustments were made that impacted the measure in the indicated period.

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 56% of revenue during the fiscal second quarter, down three percentage points from the fiscal first quarter of 2019.



Business Segments ($ in millions)	Three Months Ended
	Mar 30, 2019 Q2F19			Dec 29, 2018 Q1F19			Mar 31, 2018 Q2F18
Americas	$	364		$	354		$	302
Asia-Pacific	378			378			350
Europe, Middle East, and Africa	76			73			74
Elimination of inter-segment sales	(29		)	(39		)	(27		)
Total Revenue	$	789		$	766		$	699



Market Sectors ($ in millions)	Three Months Ended
	Mar 30, 2019 Q2F19				Dec 29, 2018 Q1F19				Mar 31, 2018 Q2F18
Healthcare/Life Sciences	$	300	38	%	$	301	39	%	$	248	35	%
Industrial/Commercial	250		32	%	219		29	%	242		35	%
Aerospace/Defense	140		18	%	123		16	%	110		16	%
Communications	99		12	%	123		16	%	99		14	%
Total Revenue	$	789			$	766			$	699

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 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 continuing transitional effects of the U.S. Tax Cuts & Jobs Act (“U.S. Tax Reform”) and the one-time, non-executive employee bonus paid in the second quarter of fiscal 2018, which 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 Return

ROIC for the fiscal second quarter was 13.3%. The Company defines ROIC for the fiscal second quarter as tax-effected annualized adjusted operating income divided by average invested capital over a three-quarter period. Invested capital is defined as equity plus debt, less cash and cash equivalents. The Company’s weighted average cost of capital for fiscal 2019 is 9.0%. ROIC for the fiscal second quarter less the Company’s weighted average cost of capital resulted in an economic return of 4.3%.

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 30, 2019, cash flows used in operations were $1.2 million, less capital expenditures of $29.7 million, resulting in negative free cash flow of $30.9 million. For the six months ended March 30, 2019, cash flows used in operations was $34.5 million, less capital expenditures of $54.6 million, resulting in negative free cash flow of $89.1 million.



Cash Cycle Days	Three Months Ended
	Mar 30, 2019 Q2F19	Dec 29, 2018 Q1F19	Mar 31, 2018 Q2F18
Days in Accounts Receivable	51	51	52
Days in Contract Assets (1)	10	10	-
Days in Inventory (1)	102	105	100
Days in Accounts Payable	(61)	(68)	(61)
Days in Cash Deposits	(16)	(15)	(15)
Annualized Cash Cycle (1)	86	83	76

(1) We calculate cash cycle as the sum of days in accounts receivable, contract assets and days in inventory, less days in accounts payable and days in cash deposits. On September 30, 2018, the Company adopted Accounting Standards Update No. 2014-09 (“ASU 2014-09”), Revenue Recognition (Topic 606). For the three months ended March 30, 2019 and December 29, 2018, cash cycle days include contract assets and an associated reduction in inventory. As the guidance was adopted using a modified retrospective approach, no impact to prior periods was required to be recognized.

Conference Call and Webcast Information



What:	Plexus Fiscal 2019 Q2 Earnings Conference Call and Webcast
When:	Thursday, April 18, 2019 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 2019 results will also be made available ahead of the conference call. Conference call at +1.800.773.2954 with passcode: 48374518
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: 48374518

Investor and Media Contact

Heather Beresford

+1.920.751.3612

heather.beresford@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 19,000 individuals who are dedicated to providing global Design and Development, Supply Chain Solutions, New Product Introduction, Manufacturing, and Aftermarket Services. Plexus is a global leader that specializes in serving customers in industries with highly complex products and demanding regulatory requirements. Plexus delivers customer service excellence to leading global companies by providing innovative, comprehensive solutions throughout the product’s lifecycle. For more information about Plexus, visit our website at www.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 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 2018 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 30,			Mar 31,			Mar 30,			Mar 31,
	2019			2018			2019			2018
Net sales	$	789,051		$	698,651		$	1,554,595		$	1,375,945
Cost of sales	718,415			645,699			1,411,576			1,259,470
Gross profit	70,636			52,952			143,019			116,475
Selling and administrative expenses	37,462			35,637			72,894			67,603
Operating income	33,174			17,315			70,125			48,872
Other income (expense):
Interest expense	(3,145		)	(3,547		)	(5,394		)	(7,272		)
Interest income	440			1,426			965			2,981
Miscellaneous, net	(1,773		)	(477		)	(2,885		)	(823		)
Income before income taxes	28,696			14,717			62,811			43,758
Income tax expense	3,938			2,427			15,827			129,961
Net income (loss)	$	24,758		$	12,290		$	46,984		$	(86,203	)
Earnings (loss) per share:
Basic	$	0.81		$	0.37		$	1.52		$	(2.57	)
Diluted	$	0.79		$	0.36		$	1.48		$	(2.57	)
Weighted average shares outstanding:
Basic	30,603			33,538			31,003			33,552
Diluted	31,385			34,387			31,836			33,552



PLEXUS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)

	Mar 30,			Sept 29,
	2019			2018
ASSETS
Current assets:
Cash and cash equivalents	$	184,028		$	297,269
Restricted cash	331			417
Accounts receivable	445,053			394,827
Contract assets	86,803			—
Inventories	802,261			794,346
Prepaid expenses and other	30,987			30,302
Total current assets	1,549,463			1,517,161
Property, plant and equipment, net	373,918			341,306
Deferred income taxes	10,889			10,825
Intangible assets	7,511			8,239
Other	59,070			55,111
Total non-current assets	451,388			415,481
Total assets	$	2,000,851		$	1,932,642

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt and capital lease obligations	$	93,197		$	5,532
Accounts payable	476,481			506,322
Customer deposits	129,068			90,782
Accrued salaries and wages	52,939			66,874
Other accrued liabilities	92,989			68,163
Total current liabilities	844,674			737,673
Long-term debt and capital lease obligations, net of current portion	187,120			183,085
Accrued income taxes payable	58,296			56,130
Deferred income taxes	14,991			14,376
Other liabilities	20,326			20,235
Total non-current liabilities	280,733			273,826
Total liabilities	1,125,407			1,011,499
Shareholders’ equity:
Common stock, $.01 par value, 200,000 shares authorized,
52,832 and 52,567 shares issued, respectively,
and 30,241 and 31,838 shares outstanding, respectively	528			526
Additional paid-in-capital	586,279			581,488
Common stock held in treasury, at cost, 22,591 and 20,729, respectively	(817,435		)	(711,138		)
Retained earnings	1,117,045			1,062,246
Accumulated other comprehensive loss	(10,973		)	(11,979		)
Total shareholders’ equity	875,444			921,143
Total liabilities and shareholders’ equity	$	2,000,851		$	1,932,642



PLEXUS CORP. AND SUBSIDIARIES
NON-GAAP SUPPLEMENTAL INFORMATION Table 1
(in thousands, except per share data)
(unaudited)

		Three Months Ended									Six Months Ended
		Mar 30,			Dec 29,			March 31,			Mar 30,			March 31,
		2019			2018			2018			2019			2018
Gross profit, as reported		$	70,636		$	72,383		$	52,952		$	143,019		$	116,475
Gross margin, as reported		9.0		%	9.5		%	7.6		%	9.2		%	8.5		%

Non-GAAP adjustments:
	One-time employee bonus (1)	—			—			12,590			—			12,590
Adjusted gross profit		$	70,636		$	72,383		$	65,542		$	143,019		$	129,065
Adjusted gross margin		9.0		%	9.5		%	9.4		%	9.2		%	9.4		%

Operating income, as reported		33,174			36,951			17,315			70,125			48,872
Operating margin, as reported		4.2		%	4.8		%	2.5		%	4.5		%	3.6		%

Non-GAAP adjustments:
	One-time employee bonus (1)	—			—			13,512			—			13,512
Adjusted operating income		$	33,174		$	36,951		$	30,827		$	70,125		$	62,384
Adjusted operating margin		4.2		%	4.8		%	4.4		%	4.5		%	4.5		%

Net income (loss), as reported		$	24,758		$	22,226		$	12,290		$	46,984		$	(86,203	)

Non-GAAP adjustments:
	One-time employee bonus, net of tax (1)	—			—			13,176			—			13,176
	Non-recurring tax impacts (2)	—			7,035			—			7,035			124,512
Adjusted net income		$	24,758		$	29,261		$	25,466		$	54,019		$	51,485

Diluted weighted average shares outstanding, as reported		31,385			32,286			34,387			31,836			33,552
Diluted weighted average shares outstanding, as adjusted (3)		31,385			32,286			34,387			31,836			34,487

Diluted earnings (loss) per share, as reported		$	0.79		$	0.69		$	0.36		$	1.48		$	(2.57	)

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
	Non-recurring tax impacts (2)	—			0.22			—			0.22			3.59
Adjusted diluted earnings per share		$	0.79		$	0.91		$	0.74		$	1.70		$	1.49

(1)	During the three months ended March 31, 2018, a $13.5 million one-time, non-executive 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 December 29, 2018, non-recurring tax expense of $7.0 million was recorded in accordance with new regulations issued in November 2018 under U.S. Tax Reform. These regulations impacted the treatment of foreign taxes paid. During the six months ended March 31, 2018, $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 Reform as the provisional amounts recorded in the three months ended December 30, 2017, remained unchanged at that time.
(3)	For the six months ended March 31, 2018, the total weighted average number of potentially-dilutive securities was 2.0 million. However, these securities 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 30,				Dec 29,				Mar 31,
	2019				2018				2018
Operating income, as reported		$	70,125			$	36,951			$	48,872
One-time employee bonus	+	—			+	—			+	13,512
Adjusted operating income		$	70,125			$	36,951			$	62,384
	x	2			x	4			x	2


Adjusted annualized operating income		$	140,250			$	147,804			$	124,768
Adjusted effective tax rate	x	15		%	x	15		%	x	11		%
Tax impact		21,038				22,171				13,724
Adjusted operating income (tax effected)		$	119,212			$	125,633			$	111,044

Average invested capital	÷	$	898,929		÷	$	862,528		÷	$	709,764

ROIC		13.3		%		14.6		%		15.6		%
Weighted average cost of capital	-	9.0		%	-	9.0		%	-	9.5		%
Economic return		4.3		%		5.6		%		6.1		%



			Three Months Ended
Average Invested Capital	Mar 30,		Dec 29,		Sept 29,		Jun 30,		Mar 31,		Dec 30,		Sept 30,
Calculations	2019		2018		2018		2018		2018		2017		2017
Equity	$	875,444	$	905,163	$	921,143	$	882,360	$	920,503	$	933,849	$	1,025,939
Plus:
Debt - current	93,197		8,633		5,532		6,365		180,772		179,881		286,934
Debt - long-term	187,120		187,567		183,085		180,204		27,217		26,047		26,173
Less:
Cash and cash equivalents	(184,028)		(188,799)		(297,269)		(332,723)		(402,470)		(506,694)		(568,860)
	$	971,733	$	912,564	$	812,491	$	736,206	$	726,022	$	633,083	$	770,186

Dates Referenced Herein and Documents Incorporated by Reference

This ‘8-K’ Filing	Date	Other Filings

	6/29/19
	4/18/19
Filed on / For Period End:	4/17/19
	3/31/19
	3/30/19
	12/29/18	10-Q
	9/30/18
	3/31/18	10-Q
	12/30/17	10-Q
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