Plexus(PLXS) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the company's financial statements, management's analysis, market risk disclosures, and internal control information Financial Statements The financial statements present the company's performance for the three and six months ended April 1, 2023, showing significant growth in net sales and income, stable assets, and positive operating cash flow Condensed Consolidated Statements of Comprehensive Income Net sales increased 20.5% to $1.07 billion for Q2 FY2023, with net income rising 52.0% to $40.8 million, reflecting strong year-over-year growth Consolidated Income Statement Highlights (in thousands, except per share data) | Metric | Three Months Ended April 1, 2023 | Three Months Ended April 2, 2022 | YoY Change | Six Months Ended April 1, 2023 | Six Months Ended April 2, 2022 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net sales | $1,070,823 | $888,723 | +20.5% | $2,164,748 | $1,706,179 | +26.9% | | Gross profit | $102,993 | $76,510 | +34.6% | $204,192 | $146,506 | +39.4% | | Operating income | $56,942 | $35,837 | +58.9% | $114,283 | $66,310 | +72.3% | | Net income | $40,844 | $26,869 | +52.0% | $83,034 | $50,292 | +65.1% | | Diluted EPS | $1.45 | $0.95 | +52.6% | $2.94 | $1.76 | +67.0% | Condensed Consolidated Balance Sheet Total assets slightly decreased to $3.38 billion, while inventories increased to $1.65 billion, and total liabilities decreased to $2.20 billion as of April 1, 2023 Key Balance Sheet Items (in thousands) | Account | April 1, 2023 | October 1, 2022 | | :--- | :--- | :--- | | Current Assets | | | | Cash and cash equivalents | $269,664 | $274,805 | | Inventories, net | $1,649,719 | $1,602,783 | | Total Assets | $3,382,020 | $3,393,225 | | Current Liabilities | | | | Accounts payable | $729,225 | $805,583 | | Customer deposits | $531,683 | $480,486 | | Total Liabilities | $2,199,638 | $2,297,494 | | Total Shareholders' Equity | $1,182,382 | $1,095,731 | Condensed Consolidated Statements of Cash Flows Operating cash flow turned positive to $57.2 million for the six months ended April 1, 2023, driven by higher net income and managed inventory investments Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended April 1, 2023 | Six Months Ended April 2, 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $57,156 | $(4,653) | | Net cash used in investing activities | $(47,615) | $(64,258) | | Net cash (used in) provided by financing activities | $(18,424) | $107,801 | | Net (decrease) increase in cash | $(5,106) | $38,363 | Notes to Condensed Consolidated Financial Statements Detailed notes reveal inventories of $1.65 billion, total debt of $482.7 million, active use of derivative instruments, and a Q3 2023 restructuring plan - Total inventories reached $1.65 billion, partially offset by customer deposits of $516.7 million[25] - Total debt and finance lease obligations were $482.7 million as of April 1, 2023[26] - The company uses foreign currency forward contracts to hedge cash flows, with a notional value of $192.9 million for designated hedges as of April 1, 2023[31] - For the six months ended April 1, 2023, approximately 81% of revenue was recognized over time[78] - The company repurchased $23.9 million of its common stock under the 2023 Program in the first six months of fiscal 2023[60] - In April 2023, the company committed to a restructuring plan and expects to incur approximately $9.0 million in costs during the third quarter of fiscal 2023[85] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the 20.5% year-over-year revenue growth, improved operating margin, positive free cash flow, and ongoing capital management amidst market pressures Overview Plexus navigates global supply chain constraints, inflation, and geopolitical trade restrictions, maintaining a strong balance sheet with $270 million in cash and available credit - The company is experiencing global supply chain constraints, impacting its ability to meet customer demand and requiring additional inventory investments[92] - Inflationary pressures on components, labor, and operating costs are ongoing, largely mitigated through contractual pricing rights with customers[93] - As of Q2 2023, the company had $270 million in cash and cash equivalents and $216 million available under its revolving credit facility[96] Results of Operations Q2 2023 net sales grew 20.5% to $1.07 billion, driven by strong performance in Healthcare/Life Sciences, leading to expanded gross and operating margins and increased diluted EPS Net Sales by Market Sector (in millions) | Market Sector | Q2 2023 | Q2 2022 | YoY Change | | :--- | :--- | :--- | :--- | | Industrial | $439.3 | $414.7 | +5.9% | | Healthcare/Life Sciences | $487.3 | $353.2 | +38.0% | | Aerospace/Defense | $144.2 | $120.8 | +19.4% | | Total Net Sales | $1,070.8 | $888.7 | +20.5% | Net Sales by Reportable Segment (in millions) | Segment | Q2 2023 | Q2 2022 | YoY Change | | :--- | :--- | :--- | :--- | | AMER | $407.8 | $311.2 | +31.0% | | APAC | $587.3 | $533.9 | +10.0% | | EMEA | $101.8 | $73.7 | +38.1% | - Gross margin for Q2 2023 increased to 9.6% from 8.6% YoY, and operating margin increased to 5.3% from 4.0% YoY[97][113][115] - Return on Invested Capital (ROIC) for the six months ended April 1, 2023 was 13.8%, generating a positive economic return of 4.8% above the company's 9.0% WACC[134][135] Liquidity and Capital Resources The company's liquidity remains strong with $270.4 million in cash, achieving positive free cash flow of $7.7 million for the first six months of fiscal 2023, a significant improvement year-over-year Free Cash Flow (FCF) Reconciliation (in millions) | Metric | Six Months Ended April 1, 2023 | Six Months Ended April 2, 2022 | | :--- | :--- | :--- | | Cash flows provided by (used in) operating activities | $57.2 | $(4.7) | | Payments for property, plant and equipment | $(49.5) | $(64.1) | | Free cash flow | $7.7 | $(68.8) | Annualized Cash Cycle (in days) | Period | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Days in accounts receivable | 56 | 59 | | Days in contract assets | 11 | 12 | | Days in inventory | 156 | 154 | | Days in accounts payable | (69) | (86) | | Days in cash deposits | (50) | (41) | | Annualized cash cycle | 104 | 98 | - The company sold $411.3 million of trade accounts receivable in the first six months of fiscal 2023, receiving cash proceeds of $406.5 million[154] - Capital expenditures for fiscal 2023 are estimated to be between $110.0 million and $130.0 million[148] Disclosure About Critical Accounting Policies No material changes were made to the company's critical accounting policies during the second quarter of fiscal 2023 - No material changes were made to critical accounting estimates in the second quarter of fiscal 2023[159] Quantitative and Qualitative Disclosures About Market Risk Market risk exposure remains consistent with prior disclosures, primarily involving foreign currency and interest rate fluctuations, with management assessing no material financial impact from a 10% change - There were no material changes in exposure to market risk from foreign exchange and interest rates[161] - For the three months ended April 1, 2023, 9% of Net Sales and 21% of Total Costs were denominated in currencies other than the U.S. dollar[163] - Interest rate risk is primarily associated with the variable-rate Credit Facility, which had a borrowing rate of SOFR plus 1.10% as of April 1, 2023[165] 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 the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the quarter[166] - No material changes to internal control over financial reporting occurred during the second quarter of fiscal 2023[167] PART II. OTHER INFORMATION This section covers updates on risk factors, equity security sales, and a list of exhibits filed with the report Risk Factors No material changes have occurred in the risk factors previously disclosed in the company's fiscal 2022 Annual Report on Form 10-K - No material changes have occurred in the risk factors set forth in the fiscal 2022 Form 10-K[168] Unregistered Sales of Equity Securities and Use of Proceeds During Q2 FY2023, the company repurchased 125,639 shares for $12.4 million under the 2023 Program, with $22.6 million remaining available Share Repurchases in Q2 2023 | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Jan 2023 | 21,085 | $108.70 | | Feb 2023 | 46,332 | $97.78 | | Mar 2023 | 58,222 | $95.92 | | Total | 125,639 | $98.75 | - As of April 1, 2023, $22.6 million remained available for repurchase under the 2023 Program[169] Exhibits The report includes required CEO and CFO certifications, a reconciliation of non-GAAP measures, and financial data in Inline XBRL format as exhibits - The report includes required CEO/CFO certifications, a reconciliation of ROIC to GAAP, and XBRL data files as exhibits[171]