Plexus Corp. 10-Q Summary: Quarter Ended March 31, 2001
Business Context and Reporting Period
This Form 10-Q covers the quarterly and six-month periods ended March 31, 2001, for Plexus Corp., a provider of product realization services (design, manufacturing, and testing) to electronic original equipment manufacturers (OEMs). The company operates in North America and Europe, serving industries including networking/datacommunications, medical, industrial, computer, and transportation. As of May 8, 2001, 41,370,568 shares of common stock were outstanding.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended Mar 31, 2001 | 3 Months Ended Mar 31, 2000 | 6 Months Ended Mar 31, 2001 | 6 Months Ended Mar 31, 2000 |
|---|---|---|---|---|
| Net Sales | $280,284 | $161,994 | $552,381 | $309,088 |
| Gross Profit | $33,575 | $23,103 | $71,927 | $43,652 |
| Gross Margin % | 12.0% | 14.3% | 13.0% | 14.1% |
| Operating Income | $19,582 | $15,102 | $43,265 | $28,489 |
| Net Income | $11,656 | $9,352 | $24,869 | $17,606 |
| Diluted EPS | $0.27 | $0.25 | $0.58 | $0.47 |
| Cash from Operations (6mo) | $11,780 (2001) vs $7,016 (2000) | |||
| Total Debt (Current + Long-term) | $57,210 (Mar 31, 2001) vs $149,774 (Sep 30, 2000) | |||
| Cash & Equivalents | $42,213 (Mar 31, 2001) vs $5,293 (Sep 30, 2000) |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 73% for the quarter and 79% for the six-month period compared to the prior year. Acquisitions accounted for slightly less than 50% of this growth.
- Margin Compression: Gross margins declined from 14.3% to 12.0% (quarterly) and 14.1% to 13.0% (six-month). Management attributes this to a slowdown in end-market demand (specifically networking/datacommunications), lower capacity utilization, and the integration of recent acquisitions (Keltek and Mexico operations) which have historically lower margins.
- Liquidity Improvement: Cash and cash equivalents surged from $5.3 million to $42.2 million, driven by a $164.3 million net proceeds from a common stock offering and $30 million from an asset securitization facility. Total debt decreased significantly due to debt paydowns.
- Customer Concentration: While sales to the top 10 customers decreased as a percentage of total sales (from 69% to 54-55%), the company remains dependent on major clients like Cisco Systems (12% of sales) and Lucent Technologies.
Guidance, Outlook, and Risks
- Acquisitions: Plexus signed a definitive agreement to acquire Qtron, Inc. for approximately $30 million in cash, expected to close in the third fiscal quarter. The company anticipates a one-time charge for relocating Qtron operations.
- Cost Reductions: In response to reduced capacity utilization and sales forecasts, the company reduced its workforce by approximately 5% (300 employees) in April 2001, expecting a one-time charge of less than $1 million in the third quarter.
- Capital Expenditures: Fiscal 2001 capital expenditure estimates were reduced to $65–$70 million due to lower anticipated sales levels.
- Risks: Key risks include the slowdown in the networking/datacommunications market, potential order cancellations or delays by major customers, component shortages, and the challenges of integrating new acquisitions. The company also faces a patent infringement lawsuit from the Lemelson Foundation, though management does not expect a material impact.
Investor Verification Checklist
- Customer Concentration: Verify the stability of orders from Cisco Systems and Lucent Technologies, which collectively represent a significant portion of revenue.
- Margin Trends: Monitor whether gross margins stabilize or continue to compress due to the integration of Keltek and Mexico operations and the broader economic slowdown.
- Qtron Acquisition: Confirm the closing of the Qtron acquisition and the actual costs associated with the relocation and integration.
- Inventory Levels: Review inventory turnover given the company's exposure to component shortages and the risk of obsolescence in a slowing market.
- Debt Covenants: Ensure compliance with the new $250 million credit facility covenants, specifically interest coverage and leverage ratios.