Plexus(PLXS) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements for the three and nine months ended July 2, 2022, and July 3, 2021, along with detailed notes Condensed Consolidated Statements of Comprehensive Income Net sales for Q3 FY2022 increased 20.5% to $981.3 million, with net income rising to $37.5 million, while nine-month net sales grew 6.4% to $2.69 billion, but net income decreased to $87.8 million Consolidated Income Statement Highlights (in thousands, except per share data) | Metric | Three Months Ended July 2, 2022 | Three Months Ended July 3, 2021 | Nine Months Ended July 2, 2022 | Nine Months Ended July 3, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $981,341 | $814,387 | $2,687,520 | $2,525,627 | | Gross profit | $93,618 | $74,050 | $240,124 | $244,329 | | Operating income | $49,561 | $36,373 | $115,871 | $133,926 | | Net income | $37,494 | $27,609 | $87,786 | $105,571 | | Diluted EPS | $1.33 | $0.95 | $3.09 | $3.60 | Condensed Consolidated Balance Sheets Total assets increased to $3.20 billion as of July 2, 2022, driven by a 60.6% surge in inventories to $1.56 billion, with total liabilities also rising to $2.15 billion Balance Sheet Highlights (in thousands) | Metric | July 2, 2022 | October 2, 2021 | | :--- | :--- | :--- | | Total current assets | $2,654,425 | $1,930,886 | | Inventories, net | $1,561,264 | $972,312 | | Total assets | $3,204,463 | $2,461,893 | | Total current liabilities | $1,860,743 | $1,128,703 | | Total liabilities | $2,146,273 | $1,433,661 | | Total shareholders' equity | $1,058,190 | $1,028,232 | Condensed Consolidated Statements of Cash Flows Operating activities resulted in a $25.8 million net cash outflow for the nine months ended July 2, 2022, primarily due to a $601.6 million inventory increase, reversing the prior year's inflow Cash Flow Summary (in thousands) | Metric | Nine Months Ended July 2, 2022 | Nine Months Ended July 3, 2021 | | :--- | :--- | :--- | | Cash flows (used in) provided by operating activities | $(25,848) | $131,512 | | Cash flows used in investing activities | $(85,133) | $(34,340) | | Cash flows provided by (used in) financing activities | $122,148 | $(179,143) | | Net increase (decrease) in cash | $7,317 | $(80,397) | - The significant use of cash in operations was driven by a $601.6 million increase in inventories and a $100.9 million increase in accounts receivable, partially offset by a $228.5 million increase in accounts payable and a $189.1 million increase in customer deposits[16] Notes to Condensed Consolidated Financial Statements Detailed notes disclose a surge in inventories to $1.56 billion, a $500 million credit facility refinancing, disaggregated revenue by segment and market, and the completion of a $50.0 million share repurchase program - Inventories increased significantly to $1.56 billion as of July 2, 2022, up from $972.3 million as of October 2, 2021, with related customer deposits also rising to $379.8 million from $200.6 million[22] - On June 9, 2022, the company refinanced its revolving credit facility, expanding the maximum commitment from $350.0 million to $500.0 million and extending the maturity to June 9, 2027[24] Revenue by Market Sector (Three Months Ended, in thousands) | Market Sector | July 2, 2022 | July 3, 2021 | | :--- | :--- | :--- | | Industrial | $454,377 | $371,919 | | Healthcare/Life Sciences | $400,799 | $324,436 | | Aerospace/Defense | $126,165 | $118,032 | | Total External Revenue | $981,341 | $814,387 | - The company completed its $50.0 million 2022 Share Repurchase Program, having repurchased 564,718 shares for $46.9 million during the nine months ended July 2, 2022[61] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses financial performance, highlighting strong revenue growth despite global supply chain constraints, inflationary pressures, and increased inventory investments, which led to negative operating cash flow and an expanded credit facility Overview Plexus, an EMS provider, manages challenges including global supply chain constraints, component and labor cost inflation, and geopolitical conditions impacting its Industrial, Healthcare/Life Sciences, and Aerospace/Defense sectors - The company is experiencing an inability to procure certain components due to global supply chain constraints, which has impacted its ability to meet customer demand and required additional investments in inventory[96] - Global supply chain constraints have led to inflation in components, labor, and operating costs, with contractual pricing rights largely mitigating impacts, though recoveries may be dilutive to operating margin[97] - To ensure liquidity for working capital investments, the company refinanced its revolving credit facility, expanding the maximum commitment from $350.0 million to $500.0 million[98] Results of Operations Q3 FY2022 net sales increased 20.5% to $981.3 million, driven by APAC growth, while nine-month gross margin decreased 80 basis points to 8.9% due to unfavorable mix and costs, leading to a 13.4% decline in operating income Net Sales by Reportable Segment (in millions) | Segment | Three Months Ended July 2, 2022 | Three Months Ended July 3, 2021 | % Change | | :--- | :--- | :--- | :--- | | AMER | $342.6 | $318.9 | 7.4% | | APAC | $586.3 | $446.9 | 31.2% | | EMEA | $84.2 | $76.5 | 10.1% | Net Sales by Market Sector (in millions) | Sector | Three Months Ended July 2, 2022 | Three Months Ended July 3, 2021 | % Change | | :--- | :--- | :--- | :--- | | Industrial | $454.4 | $371.9 | 22.2% | | Healthcare/Life Sciences | $400.8 | $324.5 | 23.5% | | Aerospace/Defense | $126.1 | $118.0 | 6.9% | - Gross margin for the nine months ended July 2, 2022 decreased 80 basis points to 8.9% compared to the prior year, driven by unfavorable customer mix, increased fixed costs, reduced labor productivity, and increased labor costs[118] - Return on Invested Capital (ROIC) for the nine months ended July 2, 2022 was 11.5%, a decrease from 15.9% in the prior-year period[138][139] Liquidity and Capital Resources Liquidity was impacted by $25.8 million cash used in operations for the nine-month period, driven by inventory build-up, increasing the annualized cash cycle by 22 days to 102 days, resulting in negative free cash flow of $(110.8) million - Cash flows used in operating activities were $25.8 million for the nine months ended July 2, 2022, primarily due to a $(494.5) million cash flow reduction from inventory increases to mitigate supply chain constraints[142][143] Cash Cycle Days Comparison | Metric | Three Months Ended July 2, 2022 | Three Months Ended July 3, 2021 | | :--- | :--- | :--- | | Days in accounts receivable | 57 | 52 | | Days in inventory | 160 | 108 | | Days in accounts payable | (87) | (71) | | Annualized cash cycle | 102 | 80 | - Free Cash Flow (FCF), a non-GAAP measure, was $(110.8) million for the nine months ended July 2, 2022, a decrease of $207.9 million from $97.1 million in the prior year period[150][152] - Capital expenditures for fiscal 2022 are estimated to be between $110.0 million and $120.0 million, primarily for the manufacturing footprint expansion in Bangkok, Thailand[153] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company faces market risks from foreign currency and interest rates, with 9% of Q3 net sales and 15% of total costs in non-USD currencies, and states a 10% change would not materially affect its financial position - For the three months ended July 2, 2022, 9% of Net Sales and 15% of Total Costs were denominated in currencies other than the U.S. dollar[173] - The company's primary interest rate risk is tied to its variable-rate Credit Facility, which is based on rates like SOFR, with fixed-rate debt under the 2018 NPA mitigating much of this risk[175] ITEM 4. CONTROLS AND PROCEDURES The CEO and CFO concluded that disclosure controls and procedures are effective, with no material changes to internal control over financial reporting during Q3 FY2022 - The CEO and CFO have concluded that the Company's disclosure controls and procedures are effective at a reasonable assurance level[176] - No changes in the Company's internal control over financial reporting occurred during the third quarter of fiscal 2022 that have materially affected, or are reasonably likely to materially affect, these controls[177] PART II. OTHER INFORMATION ITEM 1A. Risk Factors No material changes to the risk factors previously disclosed in the company's fiscal 2021 Form 10-K have occurred - There have been no material changes to the risk factors set forth in the company's fiscal 2021 Form 10-K[178] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q3 FY2022, the company repurchased 148,571 shares for $11.7 million, completing its $50.0 million 2022 share repurchase program Share Repurchases (Q3 FY2022) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 3 - April 30, 2022 | 137,120 | $79.03 | | May 1 - May 28, 2022 | 11,451 | $82.17 | | Total | 148,571 | $79.27 | - As of July 2, 2022, the company had completed its $50.0 million 2022 share repurchase program[179] ITEM 6. Exhibits This section lists exhibits filed with the Form 10-Q, including the Amended and Restated Credit Agreement, CEO and CFO certifications, and XBRL data files - Key exhibits filed include the Amended and Restated Credit Agreement dated June 9, 2022, and certifications by the CEO and CFO[180]