plxs-20221231

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________________________________________________________________________________________________________

FORM 10-Q

____________________________________________________________________________________________________________________________________

(Mark One)


☒						QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2022


☐						TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File Number 001-14423

____________________________________________________________________________________________________________________________________

PLEXUS CORP.

(Exact name of registrant as specified in charter)

____________________________________________________________________________________________________________________________________


Wisconsin						39-1344447
(State or other jurisdiction of incorporation)						(I.R.S. Employer Identification No.)

One Plexus Way

Neenah, Wisconsin 54957

(Address of principal executive offices) (Zip Code)

Telephone Number (920) 969-6000

(Registrant’s telephone number, including Area Code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.01 par value	PLXS	The Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of January 31, 2023, there were 27,702,483 shares of common stock outstanding.

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PLEXUS CORP.

TABLE OF CONTENTS

December 31, 2022



PART I. FINANCIAL INFORMATION			3
ITEM 1. FINANCIAL STATEMENTS			3
Condensed Consolidated Statements of Comprehensive Income			3
Condensed Consolidated Balance Sheet			4
Condensed Consolidated Statements of Shareholders' Equity			5
Condensed Consolidated Statements of Cash Flows			6
Notes to Condensed Consolidated Financial Statements			7
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			18
"Safe Harbor" Cautionary Statement Under the Private Securities Litigation Reform Act of 1995			18
Overview			19
Results of Oper a tions			20
Liquidity of Capital Resources			23
Disclosure About Critical Accounting Policies			27
New Ac counting Pronouncements			27
ITEM 3 . QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			27
ITEM 4. CONTROLS AND PROCEDURES			28
PART I I. OTHER INFORMATION			28
ITEM 1A. Risk Factors			28
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceed			28
ITEM 6 . Exhibits			29
SIGNATURES			30

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PLEXUS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands, except per share data)

Unaudited


	Three Months Ended
	December 31, 2022		January 1, 2022
Net sales	$	1,093,925	$	817,456
Cost of sales	992,726		747,460
Gross profit	101,199		69,996
Selling and administrative expenses	43,858		37,502
Restructuring and impairment charges	—		2,021
Operating income	57,341		30,473
Other income (expense):
Interest expense	(6,894)		(3,046)
Interest income	934		271
Miscellaneous, net	(1,944)		(923)
Income before income taxes	49,437		26,775
Income tax expense	7,247		3,352
Net income	$	42,190	$	23,423
Earnings per share:
Basic	$	1.53	$	0.84
Diluted	$	1.49	$	0.82
Weighted average shares outstanding:
Basic	27,639		28,018
Diluted	28,305		28,709
Comprehensive income:
Net income	$	42,190	$	23,423
Other comprehensive income (loss):
Derivative instrument and other fair value adjustments	8,439		1,272
Foreign currency translation adjustments	13,777		(1,578)
Other comprehensive income (loss)	22,216		(306)
Total comprehensive income	$	64,406	$	23,117

The accompanying notes are an integral part of these condensed consolidated financial statements.

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PLEXUS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

Unaudited


	December 31, 2022		October 1, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	247,880	$	274,805
Restricted cash	31		665
Accounts receivable, net of allowances of $2,531 and $1,961, respectively	733,962		737,696
Contract assets	119,016		138,540
Inventories, net	1,645,011		1,602,783
Prepaid expenses and other	68,401		61,633
Total current assets	2,814,301		2,816,122
Property, plant and equipment, net	448,325		444,705
Operating lease right-of-use assets	64,069		65,134
Deferred income taxes	39,337		39,075
Other assets	29,260		28,189
Total non-current assets	580,991		577,103
Total assets	$	3,395,292	$	3,393,225

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt and finance lease obligations	$	329,076	$	273,971
Accounts payable	753,755		805,583
Customer deposits	511,037		480,486
Accrued salaries and wages	64,126		88,876
Other accrued liabilities	296,466		357,273
Total current liabilities	1,954,460		2,006,189
Long-term debt and finance lease obligations, net of current portion	187,272		187,776
Long-term accrued income taxes payable	42,019		42,019
Long-term operating lease liabilities	32,149		33,628
Deferred income taxes payable	5,616		6,327
Other liabilities	23,517		21,555
Total non-current liabilities	290,573		291,305
Total liabilities	2,245,033		2,297,494
Commitments and contingencies
Shareholders’ equity:
Preferred stock, $0.01 par value, 5,000 shares authorized, none issued or outstanding	—		—
Common stock, $0.01 par value, 200,000 shares authorized, 54,133 and 54,084 shares issued, respectively, and 27,612 and 27,679 shares outstanding, respectively	541		541
Additional paid-in capital	654,059		652,467
Common stock held in treasury, at cost, 26,521 and 26,405 shares, respectively	(1,104,953)		(1,093,483)
Retained earnings	1,614,424		1,572,234
Accumulated other comprehensive loss	(13,812)		(36,028)
Total shareholders’ equity	1,150,259		1,095,731
Total liabilities and shareholders’ equity	$	3,395,292	$	3,393,225

The accompanying notes are an integral part of these condensed consolidated financial statements.

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PLEXUS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands)

Unaudited


	Three Months Ended
	December 31, 2022		January 1, 2022
Common stock - shares outstanding
Beginning of period	27,679		28,047
Exercise of stock options and vesting of other share-based awards	49		60
Treasury shares purchased	(116)		(110)
End of period	27,612		27,997

Total stockholders' equity, beginning of period	$	1,095,731	$	1,028,232
Common stock - par value
Beginning of period	541		538
Exercise of stock options and vesting of other share-based awards	—		1
End of period	541		539
Additional paid-in capital
Beginning of period	652,467		639,778
Share-based compensation expense	5,683		6,270
Exercise of stock options and vesting of other share-based awards, including tax withholding	(4,091)		(3,394)
End of period	654,059		642,654
Treasury stock
Beginning of period	(1,093,483)		(1,043,091)
Treasury shares purchased	(11,470)		(10,131)
End of period	(1,104,953)		(1,053,222)
Retained earnings
Beginning of period	1,572,234		1,433,991
Net income	42,190		23,423
End of period	1,614,424		1,457,414
Accumulated other comprehensive loss
Beginning of period	(36,028)		(2,984)
Other comprehensive income (loss)	22,216		(306)
End of period	(13,812)		(3,290)
Total stockholders' equity, end of period	$	1,150,259	$	1,044,095

The accompanying notes are an integral part of these condensed consolidated financial statements.

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PLEXUS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Unaudited


	Three Months Ended
	December 31, 2022		January 1, 2022
Cash flows from operating activities
Net income	$	42,190	$	23,423
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization	16,290		15,489
Share-based compensation expense and related charges	5,683		6,357
Other, net	502		602
Changes in operating assets and liabilities, excluding impacts of currency:
Accounts receivable	10,506		(70,159)
Contract assets	19,745		9,904
Inventories	(31,409)		(214,416)
Other current and non-current assets	(7,270)		(9,436)
Accrued income taxes payable	(2,655)		1,121
Accounts payable	(52,702)		76,222
Customer deposits	27,170		60,743
Other current and non-current liabilities	(76,844)		11,171
Cash flows used in operating activities	(48,794)		(88,979)
Cash flows from investing activities
Payments for property, plant and equipment	(23,085)		(33,246)
Other, net	1,503		(124)
Cash flows used in investing activities	(21,582)		(33,370)
Cash flows from financing activities
Borrowings under debt agreements	197,000		181,134
Payments on debt and finance lease obligations	(142,001)		(97,565)
Repurchases of common stock	(11,470)		(10,131)
Proceeds from exercise of stock options	—		307
Payments related to tax withholding for share-based compensation	(4,091)		(3,702)
Cash flows provided by financing activities	39,438		70,043
Effect of exchange rate changes on cash and cash equivalents	3,379		184
Net decrease in cash and cash equivalents and restricted cash	(27,559)		(52,122)
Cash and cash equivalents and restricted cash:
Beginning of period	275,470		270,513
End of period	$	247,911	$	218,391

The accompanying notes are an integral part of these condensed consolidated financial statements.

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PLEXUS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2022 AND JANUARY 1, 2022

Unaudited

1.Basis of Presentation

Basis of Presentation:

The accompanying Condensed Consolidated Financial Statements included herein have been prepared by Plexus Corp. and its subsidiaries (together “Plexus” or the “Company”) without audit and pursuant to the rules and regulations of the United States (“U.S.”) Securities and Exchange Commission (“SEC”). The accompanying Condensed Consolidated Financial Statements reflect all adjustments, which include normal recurring adjustments necessary for the fair statement of the consolidated financial position of the Company as of December 31, 2022 and October 1, 2022, the results of operations and shareholders' equity for the three months ended December 31, 2022 and January 1, 2022, and the cash flows for the same three month periods.

The Company’s fiscal year ends on the Saturday closest to September 30. The Company uses a “4-4-5” weekly accounting system for the interim periods in each quarter. Each quarter, therefore, ends on a Saturday at the end of the 4-4-5 period. Periodically, an additional week must be added to the fiscal year to re-align with the Saturday closest to September 30. All fiscal quarters presented herein included 13 weeks.

Certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP"), have been condensed or omitted pursuant to the SEC’s rules and regulations dealing with interim financial statements. However, the Company believes that the disclosures made in the Condensed Consolidated Financial Statements included herein are adequate to make the information presented not misleading. It is suggested that these Condensed Consolidated Financial Statements be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s 2022 Annual Report on Form 10-K.

The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements and notes thereto. The Company has considered information available as of the date of issuance of these financial statements and is not aware of any specific events or circumstances that would require an update to its estimates or judgments, or a revision of the carrying value of its assets or liabilities. These estimates may change as new events occur and additional information becomes available. Actual results could differ materially from these estimates.

Recently Issued Accounting Pronouncements Not Yet Adopted:

In September 2022, the FASB issued ASU 2022-04, which requires enhanced disclosures about supplier finance programs. The guidance is effective for the Company beginning in the first quarter of fiscal 2024. Early adoption is permitted. The Company is currently in the process of assessing the impacts of the guidance.

The Company does not believe that any other recently issued accounting standards will have a material impact on its Consolidated Financial Statements, or apply to its operations.

2. Inventories

Inventories as of December 31, 2022 and October 1, 2022 consisted of the following (in thousands):


	December 31, 2022		October 1, 2022
Raw materials	$	1,468,942	$	1,433,353
Work-in-process	81,822		81,207
Finished goods	94,247		88,223
Total inventories, net	$	1,645,011	$	1,602,783

In certain circumstances, per contractual terms, customer deposits are received by the Company to offset inventory risks. The total amount of customer deposits related to inventory and included within current liabilities on the accompanying Condensed

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Consolidated Balance Sheets as of December 31, 2022 and October 1, 2022 was $483.1 million and $463.2 million, respectively.

3. Debt, Finance Lease and Other Financing Obligations

Debt, finance lease and other financing obligations as of December 31, 2022 and October 1, 2022 consisted of the following (in thousands):


	December 31, 2022		October 1, 2022
4.05% Senior Notes, due June 15, 2025	$	100,000	$	100,000
4.22% Senior Notes, due June 15, 2028	50,000		50,000
Borrowings under Credit Facility	320,000		263,000
Finance lease and other financing obligations	47,786		50,269
Unamortized deferred financing fees	(1,438)		(1,522)
Total obligations	516,348		461,747
Less: current portion	(329,076)		(273,971)
Long-term debt, finance lease and other financing obligations, net of current portion	$	187,272	$	187,776

As of December 31, 2022, the Company was in compliance with covenants for all debt agreements.

During the three months ended December 31, 2022, the highest daily borrowing under the Company's 5-year senior unsecured revolving credit facility (referred to as the "Credit Facility") was $394.0 million; the average daily borrowings were $320.9 million.

The fair value of the Company’s debt, excluding finance lease and other financing obligations, was $461.5 million and $401.6 million as of December 31, 2022 and October 1, 2022, respectively. The carrying value of the Company's debt, excluding finance lease and other financing obligations, was $470.0 million and $413.0 million as of December 31, 2022 and October 1, 2022, respectively. If measured at fair value in the financial statements, the Company's debt would be classified as Level 2 in the fair value hierarchy. Refer to Note 4, "Derivatives and Fair Value Measurements," for further information regarding the Company's fair value calculations and classifications.

4. Derivatives and Fair Value Measurements

All derivatives are recognized in the accompanying Condensed Consolidated Balance Sheets at their estimated fair value. The Company uses derivatives to manage the variability of foreign currency obligations. The Company has cash flow hedges related to forecasted foreign currency obligations, in addition to non-designated hedges to manage foreign currency exposures associated with certain foreign currency denominated assets and liabilities. The Company does not enter into derivatives for speculative purposes.

The Company designates some foreign currency exchange contracts as cash flow hedges of forecasted foreign currency expenses. Changes in the fair value of the derivatives that qualify as cash flow hedges are recorded in "Accumulated other comprehensive loss" in the accompanying Condensed Consolidated Balance Sheets until earnings are affected by the variability of the cash flows. In the next twelve months, the Company estimates that $2.4 million of unrealized gains, net of tax, related to cash flow hedges will be reclassified from other comprehensive income (loss) into earnings. Changes in the fair value of the non-designated derivatives related to recognized foreign currency denominated assets and liabilities are recorded in "Miscellaneous, net" in the accompanying Condensed Consolidated Statements of Comprehensive Income.

The Company enters into forward currency exchange contracts for its operations in certain jurisdictions in the AMER and APAC segments on a rolling basis. The Company had cash flow hedges outstanding with a notional value of $148.7 million as of December 31, 2022, and a notional value of $143.2 million as of October 1, 2022. These forward currency contracts fix the exchange rates for the settlement of future foreign currency obligations that have yet to be realized. The total fair value of the forward currency exchange contracts was a $2.4 million asset as of December 31, 2022, and a $6.0 million liability as of October 1, 2022.

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The Company had additional forward currency exchange contracts outstanding as of December 31, 2022, with a notional value of $113.5 million; there were $60.1 million such contracts outstanding as of October 1, 2022. The Company did not designate these derivative instruments as hedging instruments. The net settlement amount (fair value) related to these contracts is recorded on the Condensed Consolidated Balance Sheets as either a current or long-term asset or liability, depending on the term, and as an element of "Miscellaneous, net" in the Condensed Consolidated Statements of Comprehensive Income. The total fair value of these derivatives was a $1.0 million asset as of December 31, 2022, and a $0.3 million asset as of October 1, 2022.

The tables below present information regarding the fair values of derivative instruments (as defined in Note 1, "Description of Business and Significant Accounting Policies") and the effects of derivative instruments on the Company’s Condensed Consolidated Financial Statements:

Fair Values of Derivative Instruments (in thousands)

Derivative Assets

Derivative Liabilities

December 31,
2022

October 1,
2022

December 31,
2022

October 1,
2022

Derivatives designated as hedging instruments

Balance sheet
classification

Fair Value

Balance sheet
classification

Fair Value

Foreign currency forward contracts

Prepaid expenses and other

2,451

715

Other accrued liabilities

6,747

Fair Values of Derivative Instruments (in thousands)

Derivative Assets

Derivative Liabilities

December 31,
2022

October 1,
2022

December 31,
2022

October 1,
2022

Derivatives not designated as hedging instruments

Balance sheet
classification

Fair Value

Balance sheet
classification

Fair Value

Foreign currency forward contracts

Prepaid expenses and other

2,487

1,555

Other accrued liabilities

1,486

1,249

The Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive Loss ("OCL") (in thousands)

for the Three Months Ended

Derivatives in cash flow hedging relationships

Amount of Gain Recognized in OCL on Derivatives

December 31, 2022

January 1, 2022

Foreign currency forward contracts

6,150

470


Derivative Impact on Loss Recognized in Condensed Consolidated Statements of Comprehensive Income (in thousands)
for the Three Months Ended
Derivatives in cash flow hedging relationships	Classification of Loss Reclassified from Accumulated OCL into Income	Amount of Loss Reclassified from Accumulated OCL into Income
		December 31, 2022		January 1, 2022
Foreign currency forward contracts	Cost of sales	$	(2,132)	$	(743)
Foreign currency forward contracts	Selling and administrative expenses	$	(157)	$	(59)

Derivatives not designated as hedging instruments

Location of Gain (Loss) Recognized on Derivatives in Income

Amount of Gain (Loss) on Derivatives Recognized in Income

December 31, 2022

January 1, 2022

Foreign currency forward contracts

Miscellaneous, net

747

(43)

Fair Value Measurements:

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (or exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The Company uses quoted market prices when available or discounted cash flows to calculate

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fair value. The accounting guidance establishes a fair value hierarchy based on three levels of inputs that may be used to measure fair value. The input levels are:

Level 1: Quoted (observable) market prices in active markets for identical assets or liabilities.

Level 2: Inputs other than Level 1 that are observable, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the asset or liability.

The following table lists the fair values of assets of the Company’s derivatives as of December 31, 2022 and October 1, 2022, by input level:


Fair Value Measurements Using Input Levels Asset/(Liability) (in thousands)
Fiscal period ended December 31, 2022	Level 1		Level 2		Level 3		Total
Derivatives
Foreign currency forward contracts	$	—	$	3,408	$	—	$	3,408

Fiscal period ended October 1, 2022
Derivatives