Plexus(PLXS) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements for the quarter ended December 31, 2022, detailing financial position and performance through key statements and notes Condensed Consolidated Statements of Comprehensive Income Net sales increased 33.8% to $1.09 billion and net income grew 80.1% to $42.2 million for the three months ended December 31, 2022 Three Months Ended (in thousands, except per share data) | Financial Metric | Dec 31, 2022 | Jan 1, 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Net sales | $1,093,925 | $817,456 | +33.8% | | Gross profit | $101,199 | $69,996 | +44.6% | | Operating income | $57,341 | $30,473 | +88.2% | | Net income | $42,190 | $23,423 | +80.1% | | Diluted EPS | $1.49 | $0.82 | +81.7% | Condensed Consolidated Balance Sheet As of December 31, 2022, total assets were $3.40 billion, with inventories at $1.65 billion and total liabilities at $2.25 billion, strengthening shareholders' equity to $1.15 billion Balance Sheet Highlights (in thousands) | Account | Dec 31, 2022 | Oct 1, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $247,880 | $274,805 | | Inventories, net | $1,645,011 | $1,602,783 | | Total assets | $3,395,292 | $3,393,225 | | Total liabilities | $2,245,033 | $2,297,494 | | Total shareholders' equity | $1,150,259 | $1,095,731 | Condensed Consolidated Statements of Shareholders' Equity Total shareholders' equity increased from $1.10 billion to $1.15 billion for the three months ended December 31, 2022, driven by net income and partially offset by treasury stock purchases - Net income of $42.2 million was the primary driver of the increase in retained earnings and total equity[14] - The company purchased $11.5 million in treasury stock during the quarter, reducing shares outstanding[14] Condensed Consolidated Statements of Cash Flows For the three months ended December 31, 2022, cash decreased by $27.6 million, with $48.8 million used in operating activities and $39.4 million provided by financing activities Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended Dec 31, 2022 | Three Months Ended Jan 1, 2022 | | :--- | :--- | :--- | | Cash flows used in operating activities | $(48,794) | $(88,979) | | Cash flows used in investing activities | $(21,582) | $(33,370) | | Cash flows provided by financing activities | $39,438 | $70,043 | | Net decrease in cash | $(27,559) | $(52,122) | Notes to Condensed Consolidated Financial Statements Notes detail inventories at $1.65 billion, debt at $516.3 million, APAC as the largest revenue contributor, and 81% of revenue recognized over time - Inventories increased to $1.65 billion as of Dec 31, 2022, up from $1.603 billion as of Oct 1, 2022[24] - Total debt and finance lease obligations were $516.3 million as of Dec 31, 2022[26] - During the quarter, the company repurchased 115,723 shares for $11.5 million under its 2023 share repurchase program[56] - Approximately 81% of the company's revenue for the three months ended Dec 31, 2022 was recognized over time[71] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses the company's financial performance, highlighting a 33.8% year-over-year revenue increase driven by strong demand, while addressing market pressures and liquidity Overview Plexus operates in the EMS industry, specializing in complex products, while navigating global supply chain constraints, component and labor cost inflation, and U.S. export controls on China - The company is experiencing global supply chain constraints, leading to an inability to procure certain components on a timely basis and requiring additional investments in inventory[83] - Inflationary pressures on components, labor, and operating costs are expected to continue, though the company has been largely able to mitigate impacts through contractual pricing rights with customers[84] - As of Q1 fiscal 2023, the company had $248 million in cash and $180 million available under its revolving credit facility to support potential future challenges[87] Results of Operations Net sales for Q1 fiscal 2023 increased 33.8% year-over-year to $1.09 billion across all segments and sectors, with operating margin improving to 5.2% and operating income rising 87.9% Net Sales by Reportable Segment (in millions) | Segment | Q1 FY23 | Q1 FY22 | Change (%) | | :--- | :--- | :--- | :--- | | AMER | $389.7 | $277.3 | +40.5% | | APAC | $641.9 | $491.7 | +30.5% | | EMEA | $89.4 | $72.9 | +22.6% | | Total | $1,093.9 | $817.5 | +33.8% | Net Sales by Market Sector (in millions) | Market Sector | Q1 FY23 | Q1 FY22 | Change (%) | | :--- | :--- | :--- | :--- | | Industrial | $472.1 | $363.8 | +29.8% | | Healthcare/Life Sciences | $487.9 | $344.5 | +41.6% | | Aerospace/Defense | $133.9 | $109.2 | +22.6% | | Total | $1,093.9 | $817.5 | +33.8% | - Operating margin increased to 5.2% from 3.7% year-over-year, and operating income rose 87.9% to $57.3 million[98] - Return on Invested Capital (ROIC) improved to 13.8% from 10.0% in the prior-year quarter, generating a positive economic return of 4.8%[111][112] Liquidity and Capital Resources The company ended the quarter with $247.9 million in cash, with cash used in operating activities at $48.8 million, an annualized cash cycle of 106 days, and negative free cash flow of $71.9 million - Cash and cash equivalents were $247.9 million as of December 31, 2022, with 87% held outside the U.S[113][114] - The annualized cash cycle increased to 106 days from 103 days year-over-year, primarily due to a six-day increase in inventory days and an eighteen-day decrease in accounts payable days[116][117] - Free Cash Flow (a non-GAAP measure) was $(71.9) million, an improvement from $(122.2) million in the prior-year quarter, mainly due to a smaller working capital investment in inventory[122][124] - The company sold $185.6 million of trade accounts receivable during the quarter, receiving cash proceeds of $183.6 million[131] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK No material changes in market risk exposure were reported, with foreign currency and interest rate risks deemed not to have a material effect from a hypothetical 10% change - There were no material changes in market risk exposure from the 2022 Annual Report on Form 10-K[137] - A hypothetical 10.0% change in the value of the U.S. dollar or in interest rates would not have a material effect on the company's financial position, results, or cash flows as of December 31, 2022[139][141] ITEM 4. CONTROLS AND PROCEDURES Management concluded disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the first quarter of fiscal 2023 - The CEO and CFO concluded that the company's disclosure controls and procedures are effective at a reasonable assurance level[142] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[143] PART II. OTHER INFORMATION ITEM 1A. Risk Factors No material changes have occurred in the risk factors set forth in the Annual Report on Form 10-K for the fiscal year ended October 1, 2022 - No material changes have occurred in the risk factors set forth in the Annual Report on Form 10-K for the fiscal year ended October 1, 2022[144] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds During the quarter, the company repurchased 115,723 shares for approximately $11.5 million under the 2023 Program, with $35.0 million remaining in authorization Share Repurchases for Q1 FY2023 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Oct 2 - Oct 29, 2022 | 47,769 | $91.16 | | Oct 30 - Nov 26, 2022 | 30,306 | $102.60 | | Nov 27 - Dec 31, 2022 | 37,648 | $106.41 | | Total | 115,723 | $99.12 | - As of December 31, 2022, approximately $35.0 million remained available for repurchase under the 2023 Program[145] ITEM 6. EXHIBITS This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications, non-GAAP financial measure reconciliations, and Inline XBRL formatted statements - Exhibits filed include CEO/CFO certifications (31.1, 31.2, 32.1, 32.2) and a reconciliation of ROIC to GAAP (99.1)[147] SIGNATURES Signatures The report was duly signed on February 3, 2023, by Todd P. Kelsey, Chief Executive Officer, and Patrick J. Jermain, Executive Vice President and Chief Financial Officer, on behalf of Plexus Corp - The report is signed by CEO Todd P. Kelsey and CFO Patrick J. Jermain[149]