Plexus Corp. Q1 FY2023 Form 10-Q Summary
Business context and period: Plexus provides design, supply-chain, manufacturing and related services to customers in the Industrial, Healthcare/Life Sciences and Aerospace/Defense sectors. This unaudited quarter ended December 31, 2022 (13 weeks); comparisons are with the 13 weeks ended January 1, 2022.
Financial performance
| Metric | Q1 FY2023 | Prior-year quarter |
|---|---|---|
| Net sales | $1,093.9 million | $817.5 million |
| Gross profit / gross margin | $101.2 million / 9.3% | $70.0 million / 8.6% |
| Operating income / margin | $57.3 million / 5.2% | $30.5 million / 3.7% |
| Net income | $42.2 million | $23.4 million |
| Diluted EPS | $1.49 | $0.82 |
| Operating cash flow | $(48.8) million | $(89.0) million |
| Capital expenditures | $23.1 million | $33.2 million |
| Free cash flow (non-GAAP) | $(71.9) million | $(122.2) million |
Sales grew 33.8%; management attributed growth to higher customer demand, partial easing of supply constraints, new-program ramps and pricing that reflected higher component costs. Growth was broad-based: AMER sales rose 40.5%, APAC 30.5% and EMEA 22.6%. Healthcare/Life Sciences sales increased 41.6%, Industrial 29.8% and Aerospace/Defense 22.6%.
Gross margin improved 70 basis points and operating margin 150 basis points, supported by volume and operational efficiencies. Higher component and fixed costs partly offset those gains. Operating income also benefited from no restructuring charges in the current quarter, versus $2.0 million in the prior-year quarter. Interest expense rose $3.8 million year over year, contributing to higher other expense.
Financial position and liquidity
- At December 31, 2022, cash and cash equivalents were $247.9 million; restricted cash was $0.03 million. Cash and restricted cash declined $27.6 million from the fiscal year-end balance.
- Total debt, finance lease and other financing obligations were $516.3 million, including $320.0 million drawn on the revolving credit facility. Plexus reported $180.0 million of remaining availability on the $500 million facility, with potential to increase the commitment to $750 million by mutual agreement. The company said it was in compliance with debt covenants.
- Inventory was $1.645 billion, up from $1.603 billion at October 1, 2022. Customer deposits totaled $511.0 million, including $483.1 million related to inventory.
- Operating cash use improved from the prior-year quarter, mainly due to a smaller inventory investment and improved receivables and contract-asset cash flows; supplier-payment timing and a reduction in other liabilities partly offset the improvement. The annualized cash cycle was 106 days versus 103 days a year earlier.
- Plexus sold $185.6 million of receivables through uncommitted sale programs during the quarter, receiving $183.6 million in proceeds. It reported $196.8 million of sold receivables still outstanding and subject to its servicing.
- Repurchased 115,723 shares for $11.5 million at an average $99.12 per share; $35.0 million remained under the current authorization.
Outlook, risks and notable items
- No sales or earnings guidance is stated in the provided filing text. Management estimated a fiscal 2023 annual effective tax rate of approximately 14%–16%, assuming no tax-law changes, and capital expenditures of approximately $110–$130 million, excluding site expansions.
- Management expects component shortages and extended lead times to persist, requiring elevated inventory investment. Inflation in components, labor and operating costs is also expected to continue; customer pricing recoveries may dilute operating margins.
- Other cited uncertainties include customer forecast changes, delays or cancellations; demand volatility related to U.S. export controls affecting China; end-market weakness, customer concentration, execution risks on new programs, foreign exchange and rising interest rates. Higher working-capital needs could increase borrowing and interest expense.
- Management stated cash, operating cash flows and available credit should be sufficient for working-capital and capital needs for the next 12 months. About 87% of cash was held outside the U.S. The company also expects $47.7 million of remaining U.S. federal tax payments related to deemed repatriation of foreign earnings, with installments through 2026.
- The filing reports ordinary-course litigation and customer indemnity and warranty obligations; management did not expect these matters to have a material adverse effect. Certain jurisdictions retained full or partial valuation allowances on deferred tax assets.
Most important facts for investors to verify
- Whether component availability, customer demand and program ramps support continued sales growth without further inventory accumulation.
- Whether margins can hold or improve as inflation, labor costs and customer pricing recoveries affect profitability.
- Whether working-capital demands and negative free cash flow ease, and how much the company continues to rely on receivable sales and revolving credit borrowings.
- The pace of debt repayment, interest expense exposure and available revolver capacity; the filing reports the current portion of debt and finance obligations at $329.1 million.
- Whether fiscal 2023 tax-rate and capital-expenditure estimates remain consistent with management’s stated assumptions.