PLEXUS CORP. — FY2020 Form 10-K Summary
Business context and reporting period. Plexus provides electronics design, supply-chain, manufacturing and aftermarket services to customers in regulated, complex-product markets. This 10-K covers the fiscal year ended October 3, 2020; FY2020 had 53 weeks versus 52 weeks in FY2019. The filing also reports fourth-quarter results separately.
Key financial metrics
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales | $3,390.4 million | $3,164.4 million |
| Gross profit / margin | $312.7 million / 9.2% | $291.8 million / 9.2% |
| Operating income / margin | $153.4 million / 4.5% | $142.1 million / 4.5% |
| Net income | $117.5 million | $108.6 million |
| Diluted EPS | $3.93 | $3.50 |
| Operating cash flow | $210.4 million | $115.3 million |
| Capital expenditures | $50.1 million | $90.6 million |
| Free cash flow (non-GAAP) | $160.3 million | $24.7 million |
At year-end, cash and restricted cash totaled $387.9 million; debt, finance leases and other financing obligations totaled $334.8 million. Current assets were $1,779.2 million and current liabilities were $1,003.5 million. Inventory was $763.5 million, up from $700.9 million. The company reported $288.0 million of debt principal, including $138.0 million of term loans due April 2021 and $150.0 million of senior notes. The $350 million revolving facility was fully available at year-end; the company reported compliance with its debt covenants.
For FY2020 fourth quarter, net sales were $913.2 million, net income $37.7 million and diluted EPS $1.26, compared with $810.2 million, $36.8 million and $1.23, respectively, in FY2019 Q4.
Changes versus the prior comparable period
- Full-year sales rose 7.1%, net income rose 8.2%, and diluted EPS increased from $3.50 to $3.93. FY2020 included an extra week.
- Gross and operating margins were unchanged at 9.2% and 4.5%, respectively. Higher sales and gross profit were partly offset by new-program costs, COVID-related compensation and supplies costs, and higher selling and administrative expenses.
- APAC sales increased 17.2%, supported by program ramps, manufacturing transfers from AMER and stronger Industrial/Commercial demand. AMER sales declined 7.1%, while EMEA sales increased 12.6%.
- By market sector, Industrial/Commercial sales grew 27.9%; Communications declined 29.0%. Healthcare/Life Sciences grew 3.1%, reflecting critical-care and pandemic-related demand offset by weaker elective-procedure products.
- Operating cash flow increased substantially, aided by accounts payable and receivable timing and customer-program activity, partly offset by higher inventory. Capital spending fell after completion of a Guadalajara facility.
Outlook, commentary, risks and unusual items
- Management said it was operating at pre-pandemic production capacity globally, but warned that renewed COVID-19 disruption could affect employees, suppliers, customers, costs and demand. COVID-19 both increased demand for critical-care products and weakened some elective-care and aerospace demand.
- FY2021 capital expenditures were estimated at $70–$90 million; the expected effective tax rate was approximately 13%–15%. The filing provides no clear consolidated revenue or earnings guidance.
- FY2020 included $6.0 million of restructuring and impairment charges, primarily related to closure of the Boulder Design Center. The annual effective tax rate was 13.2%; a Malaysian tax holiday reduced FY2020 taxes by approximately $28.3 million, net of GILTI effects.
- Key risks include limited long-term customer commitments, concentration (the top 10 customers generated 55.2% of sales; GE generated 11.7%), component shortages, excess or obsolete inventory, program ramp and transfer costs, foreign-country and currency exposure, cybersecurity, regulatory compliance, and uncertain COVID-19 effects. A significant portion of cash and operations is outside the U.S., particularly in Malaysia.
- Receivables factoring was material: $834.4 million of receivables were sold during FY2020. These arrangements are uncommitted and involve bank-counterparty and customer-credit risks.
- Approximately 91% of FY2020 revenue was recognized over time, making contract eligibility, costs incurred and estimated profit margins significant judgments and a critical audit matter. The auditor issued unqualified opinions on the financial statements and internal control; management reported effective controls. Ordinary-course legal proceedings were not expected to have a material effect.
Important facts for investors to verify
- Whether the FY2021 term-loan maturity and revolving-credit availability were refinanced or otherwise addressed after April 2021.
- Whether FY2020 cash-flow strength was sustained, given the significant working-capital timing effects and higher inventory balance.
- Whether growth in Industrial/Commercial and pandemic-related healthcare programs offset continued weakness in Communications, elective-care and commercial aerospace demand.
- How customer concentration, component availability and inventory exposure evolved, including recovery of customer-funded or customer-obligated inventory.
- Whether the Malaysian tax holiday conditions remain satisfied and whether tax rates or cash repatriation obligations changed.
- Whether the disclosed FY2021 capital-spending estimate, share-repurchase authorization and subsequent operating outlook were achieved.