Plexus Corp. (Nasdaq: PLXS) — FY2022 Form 10-K
Reporting period: Fiscal year ended October 1, 2022 (52 weeks), compared with fiscal 2021 ended October 2, 2021. This filing provides annual results; it does not give a clear standalone fiscal Q4 income statement.
Business context
Plexus is a global electronics manufacturing services provider offering design and development, supply-chain, product introduction, manufacturing and sustaining services. It serves the Industrial, Healthcare/Life Sciences and Aerospace/Defense sectors across the Americas, Asia-Pacific and EMEA.
Financial performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Net sales | $3,811.4 million | $3,368.9 million | +13.1% |
| Gross profit / margin | $347.2 million / 9.1% | $323.3 million / 9.6% | Profit +7.4%; margin down 0.5 percentage points |
| Operating income / margin | $178.2 million / 4.7% | $176.3 million / 5.2% | Income +1.1%; margin down 0.5 points |
| Net income | $138.2 million | $138.9 million | Down 0.5% |
| Diluted EPS | $4.86 | $4.76 | +2.1% |
| Operating cash flow | $(26.2) million | $142.6 million | Declined $168.8 million |
| Free cash flow (non-GAAP) | $(127.9) million | $85.5 million | Down $213.4 million |
Revenue growth was concentrated in APAC, up 24.3% to $2,300.6 million; AMER decreased 0.5% to $1,310.7 million and EMEA increased 1.2% to $316.3 million. By sector, Industrial sales rose 13.2% to $1,752.7 million, Healthcare/Life Sciences rose 18.0% to $1,565.8 million, and Aerospace/Defense was essentially flat at $492.9 million.
Cash generation was pressured primarily by working-capital investment amid component shortages and longer lead times. Inventory increased to $1,602.8 million from $972.3 million; the annualized cash cycle lengthened to 100 days from 85. Customer deposits increased to $480.5 million from $205.0 million, partially supporting inventory needs.
At year-end, cash and restricted cash totaled $275.5 million. Debt, finance leases and other financing obligations totaled $461.7 million, including $263.0 million drawn on the revolving facility. The $500 million revolver had $237 million available; the company reported compliance with its debt covenants. Total assets were $3,393.2 million and shareholders’ equity was $1,095.7 million.
Other metrics: ROIC (non-GAAP) was 13.0%, versus 15.4% in FY2021; economic return was 3.7%, versus 7.3%. The effective tax rate was 12.7%. A Malaysian subsidiary tax holiday reduced FY2022 tax by approximately $35.3 million, or $1.24 per diluted share.
Material changes and notable items
- Sales rose 13.1%, supported by higher customer demand, new-program ramps, partial supply-chain recovery and pricing reflecting higher component costs.
- Margins weakened despite higher sales. Management cited component inflation, labor and fixed-cost increases, reduced operational efficiencies, and pricing recoveries that could dilute margins. Operating income was nearly flat as selling and administrative expense increased $22.0 million.
- Operating cash flow swung to an outflow as inventory and receivables absorbed cash; capital expenditures increased to $101.6 million from $57.1 million, largely reflecting expansion in Bangkok, Thailand.
- Other expense increased to $19.9 million from $15.9 million, chiefly due to higher receivables-factoring fees and interest expense. Share repurchases totaled $50.4 million during FY2022.
- GE accounted for 12.9% of sales, up from 11.2%; the ten largest customers together accounted for 56.2% of sales. GE and Medtronic represented 16.2% and 10.2% of year-end receivables, respectively.
Outlook, risks and contingencies
- Management expects FY2023 capital expenditures of approximately $110 million to $130 million for new-program ramps and equipment replacement; the estimate excludes site expansions. It expects a FY2023 effective tax rate of approximately 14% to 16%, assuming no tax-law changes.
- No specific FY2023 revenue or earnings guidance is provided in the supplied filing text. The company’s long-term financial objectives are 9%–12% compounded annual revenue growth and 15% ROIC.
- Management expects component shortages, extended lead times, elevated inventory requirements, inflation and labor-cost pressures to continue in the near term. Pricing protections have mitigated much of the cost pressure, but recoveries can weigh on margins.
- Key risks include limited customer purchase commitments and demand visibility; customer and sector concentration; component availability, pricing and quality; excess or obsolete inventory; execution risks on new and transferred programs; labor availability and cost; foreign-exchange, interest-rate and tax exposure; cybersecurity; regulation; and geopolitical, trade and supply-chain disruption, particularly in APAC.
- The company reported ordinary-course lawsuits that management did not believe would materially affect its financial position, results or cash flows. The financial statements received an unqualified audit opinion; management and the auditor reported effective internal control over financial reporting.
Important facts for investors to verify
- Whether component availability improves and inventory, cash conversion and free cash flow normalize without significant write-offs.
- Whether higher sales translate into margin recovery, particularly after inflation-related price pass-throughs and labor-cost increases.
- Customer concentration and demand trends, including GE exposure and the relative growth of the three market sectors.
- Debt maturities, variable-rate borrowing costs, covenant headroom and continued access to uncommitted receivables-factoring programs.
- Execution and utilization of the Bangkok expansion, planned FY2023 capital spending, and the assumptions underlying the tax-rate outlook and Malaysian tax holiday.