Plexus Corp. 10-Q Summary: Quarter Ended June 30, 1999
Business Context and Reporting Period
This Form 10-Q covers the quarterly and nine-month periods ended June 30, 1999, for Plexus Corp., a contract service provider offering design, manufacturing, and testing services to the electronics industry. The company serves medical, computer, industrial, telecommunications, and transportation sectors. As of August 10, 1999, 17,516,139 shares of common stock were outstanding.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended 6/30/99 | 9 Months Ended 6/30/99 | 9 Months Ended 6/30/98 |
|---|---|---|---|
| Net Sales | $105,600 | $310,717 | $292,157 |
| Gross Profit | $15,667 | $45,160 | $35,300 |
| Gross Margin | 14.8% | 14.5% | 12.1% |
| Operating Income | $10,077 | $29,071 | $21,424 |
| Net Income | $6,323 | $18,228 | $13,285 |
| Diluted EPS | $0.39 | $1.12 | $0.83 |
| Cash from Operations (9mo) | N/A | $13,088 | $18,552 |
| Working Capital | N/A | $89,778 | $68,296 |
| Total Debt | N/A | $155 | $266 |
Note: Working capital calculated as Total Current Assets ($150,798) minus Total Current Liabilities ($61,020). Total Debt includes current portion of long-term debt ($10) and long-term debt ($145).
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 7% for the quarter and 6% for the nine-month period compared to the prior year, driven by strong unit volume despite industry-wide pricing pressure.
- Margin Expansion: Gross margin improved to 14.8% (quarter) and 14.5% (nine months) from 13.4% and 12.1% respectively in the prior year, attributed to a shift toward higher-technology products and operating efficiencies.
- Profitability: Net income rose 22% for the quarter and 37% for the nine-month period.
- Cash Flow: Operating cash flow decreased to $13.1 million for the nine months ended June 30, 1999, from $18.6 million in the prior year, primarily due to increased inventory levels ($13.3 million increase) and accounts receivable.
- Customer Mix: Sales concentration shifted; Lucent Technologies and General Electric accounted for 23% and 13% of sales respectively in the quarter, compared to a more diversified top-three customer base in the prior year.
Guidance, Outlook, and Risks
- Acquisitions:
- SeaMED Corporation: Merged July 23, 1999, in a stock-for-stock transaction. Results are not included in this filing but will be accounted for as a pooling-of-interests in Q4. One-time merger costs of approximately $5 million are expected in Q4.
- Shure Facility: Entered into an agreement in principle to acquire a manufacturing facility in Illinois for cash, expected to close in Q4. This will add approximately 180 employees.
- Outlook: Management anticipates sales volume to remain steady. Capital expenditures for fiscal 1999 are estimated at $10–$12 million, funded by operating cash flows and a $40 million revolving credit facility (currently unused).
- Risks and Contingencies:
- Component Shortages: The company faces risks from semiconductor shortages and extended lead times, which could cause production interruptions.
- Year 2000 Compliance: The company believes it is substantially compliant but notes that supplier or customer failures could impact operations. Contingency plans are scheduled for completion by September 1999.
- Integration Risks: Successful integration of SeaMED and the Shure facility is critical; failure to achieve synergies or retain key personnel could negatively impact results.
Investor Verification Checklist
- Verify the closing status and final purchase price of the Shure facility acquisition.
- Confirm the timing and magnitude of the $5 million one-time merger costs related to SeaMED in Q4.
- Monitor inventory levels and turnover ratios, as a significant increase in inventory ($13.3M) reduced operating cash flow.
- Assess the impact of the SeaMED acquisition on the medical sector sales mix and gross margins in the fourth quarter.
- Review the status of Year 2000 compliance for key suppliers and customers, as the company relies on their systems.