Plexus Corp. — Q1 FY2022 Form 10-Q
Reporting period: 13 weeks ended January 1, 2022; comparison is the 13 weeks ended January 2, 2021. Plexus provides electronics manufacturing services across Industrial, Healthcare/Life Sciences, and Aerospace/Defense markets.
Financial performance
| Metric | Q1 FY2022 | Prior-year quarter | Change |
|---|---|---|---|
| Net sales | $817.5 million | $830.4 million | Down 1.6% |
| Gross profit / margin | $70.0 million / 8.6% | $79.3 million / 9.5% | Margin down 90 bps |
| Operating income / margin | $30.5 million / 3.7% | $46.9 million / 5.6% | Income down 35.0%; margin down 190 bps |
| Net income | $23.4 million | $36.2 million | Down 35.4% |
| Diluted EPS | $0.82 | $1.23 | Down $0.41 |
| Operating cash flow | $(89.0) million | $6.7 million | Cash use increased |
| Capital expenditures | $33.2 million | $15.9 million | Up $17.4 million |
| Free cash flow (non-GAAP) | $(122.2) million | $(9.2) million | Down $113.0 million |
Lower operating income reflected weaker gross profit, $5.1 million higher selling and administrative expense, and $2.0 million of restructuring and impairment charges. The tax rate was 12.5%, versus 13.1%; management attributed the lower rate primarily to discrete tax benefits, partly offset by geographic earnings mix. Fiscal 2022 annual effective tax rate was expected to be approximately 13%–15%, assuming no tax-law changes.
Revenue mix and segments
- By market: Industrial sales were $363.8 million, down 3.8%; Healthcare/Life Sciences were $344.5 million, up 7.9%; Aerospace/Defense were $109.2 million, down 17.9%.
- By region: AMER sales were $277.3 million, down 15.4%; APAC were $491.7 million, up 9.0%; EMEA were $72.9 million, down 7.4%.
- AMER operating income fell to $1.8 million from $16.5 million. APAC operating income was $60.7 million versus $61.5 million; EMEA improved to $1.0 million from a $1.0 million loss.
Liquidity, debt, and capital
- Cash and cash equivalents plus restricted cash were $218.4 million at quarter-end, down from $270.5 million at October 2, 2021; 90.4% of cash and cash equivalents was held outside the U.S.
- Total debt, finance leases, and other financing obligations were $338.5 million, including $140 million drawn on the $350 million revolving facility. Plexus reported $210 million of revolver availability and compliance with debt covenants.
- Current assets were $2.16 billion and current liabilities were $1.37 billion. Inventory rose to $1.19 billion from $972.3 million. Customer deposits were $265.8 million, up from $205.0 million.
- Annualized cash-cycle days increased to 103 from 80 a year earlier, driven primarily by inventory days rising to 145 from 93 and receivables days increasing to 66 from 53.
- Management expected cash, operating cash flows, available credit, and leasing capacity to be sufficient for working and fixed capital needs over the next 12 months. Funded FY2022 capital expenditures were estimated at $100–$120 million, primarily for Bangkok footprint expansion, program ramps, and equipment replacement.
- Remaining scheduled cash payments for U.S. federal taxes on deemed repatriated foreign earnings totaled $53.6 million, with installments through 2026.
Material changes, outlook, and risks
- Management said supply-chain constraints and component shortages limited shipments and new-program ramps, while longer lead times required higher inventory. Constraints also reduced labor productivity and created operating inefficiencies.
- Inflation affected components, labor, and operating costs. Plexus said customer pricing provisions had largely mitigated inflation to date, but future cost recovery and effects on demand remained uncertain.
- Operating cash flow was pressured by higher inventory and receivables, partly offset by increased accounts payable and customer deposits. Supply-chain-related working-capital needs are expected to persist during the rest of FY2022.
- COVID-19-related workforce disruptions, customer demand changes, component availability, customer concentration, program ramps and transitions, obsolete inventory, inflation, foreign exchange, and execution of restructuring actions were among the stated risks.
- The company recorded $2.0 million of restructuring and impairment charges, primarily employee severance tied to an APAC facility transition. It repurchased 110,440 shares for $10.2 million during the quarter, with $36.7 million remaining under its current authorization.
- Management’s non-GAAP ROIC was 10.0%, versus 16.3% a year earlier; economic return was 0.7%, versus 8.2%. The stated ROIC goal is 15%.
- Management reported no material expected impact from ordinary-course litigation or anticipated resolution of uncertain tax matters. The filing reported no material changes to risk factors from the FY2021 Form 10-K.
Important facts for investors to verify
- Whether component availability, labor productivity, and customer demand improve enough to support shipments and new-program ramps.
- Whether elevated inventory converts to sales and cash without excess or obsolete inventory losses, and whether the 103-day cash cycle improves.
- Whether margins recover from supply-chain inefficiencies, higher fixed costs, and inflation, especially in AMER and Aerospace/Defense.
- Whether operating cash flow and liquidity remain adequate as capital expenditures continue and debt usage changes.
- Whether the expected $100–$120 million FY2022 capital spending, tax-rate outlook, and management’s 12-month liquidity assessment remain achievable.