Plexus Corp. (PLXS) Earnings Call Transcript & Summary
February 17, 2021
Earnings Call Speaker Segments
Dean Foate
executiveGood morning, everyone. I am Dean Foate, Chairman of Plexus Corp. I call to order the 2021 annual meeting of Plexus shareholders. I want to thank you for joining this virtual meeting. Hope you'll find that our hosting platform offers participation opportunities consistent with an in-person event. Our agenda today is to first conduct the official business of the meeting. We'll then adjourn so that management can make a few prepared remarks regarding Plexus' business. At that time, we will also take any questions you may have. Before we begin, if any shareholders have not yet voted or wish to change their vote, please do so now as we will close the polls in a few minutes. You may vote by clicking on the Voting button on the web portal and following the instructions there. Let me begin by introducing the independent directors of Plexus Corp. Stephen Cortinovis, who has served on our Board since 2004; Joann Eisenhart, who has served on the Board since 2016; Rainer Jueckstock, who has served on our Board since 2014; Peter Kelly, who has served on our Board since 2006; Joel Quadracci, who has served on our Board for almost 1 year; Karen Rapp, who has served on our Board since 2019; Paul Rooke has served on our Board since 2018; Michael Schrock, our Lead Director, who has served on our Board since 2007. Ralf Böer and David Drury are retiring from our Board at this annual meeting. On behalf of Plexus, I thank them for their many years of service and innumerable contributions to our company. Next, I would like to introduce the members of management who will be participating in our meeting today. Todd Kelsey, Director, President and Chief Executive Officer; Angelo Ninivaggi, Chief Administrative Officer, General Counsel and Secretary. Present from PricewaterhouseCoopers LLP, our independent auditor, is Chad Neumann; present from Foley & Lardner, our external legal counsel, is [ Jesse Lark ]. Finally, the company has appointed Charles Zade of American Election Services to act as inspector of election to tabulate the votes. With that, I'll turn it over to Angelo.
Angelo Ninivaggi
executiveThank you, Dean. We have posted rules of conduct for this meeting on our meeting web portal. As noted by Dean, we will answer questions at the end of official business and the remarks on the business. Only shareholders may ask questions in the designated field on the web portal, and only questions that are germane to the meeting will be addressed. [Operator Instructions] Please note that this meeting is being recorded. However, no one attending via the webcast or telephone is permitted to use any audio recording device. Now let's begin the official business of the meeting. I have proof by affidavit that notice of this meeting has been duly given and that a proxy statement or access instruction has been furnished to Plexus' shareholders of record as of the close of business on December 11, 2020, which is the record date for this meeting. The inspector of election has reported that more than a majority of the shares entitled to vote are represented in person or by proxy at this meeting. Since a quorum is present, we will proceed with the business of the meeting. The proxy statement lists 3 items for formal action at this meeting. Since their bylaws require prior written notice of other business matters for consideration at this meeting and we did not receive any such notice, these will be the only items of formal business. The first item is the election of directors. As described in the proxy statement, the nominating Corporate Governance Committee has selected, and the Board has nominated, the 10 individuals named in the proxy statement for election as directors of Plexus. Our bylaws also require a prior written notice of other nominations for Director. And since we did not receive any such notice, the nominations are closed and the proxies will be voted in accordance with their instructions. The second item for formal action at the meeting is ratification of the selection of PricewaterhouseCoopers as Plexus' independent auditors for fiscal 2021. The third item for formal action is the advisory vote to approve the compensation paid to Plexus' named executive officers. As an advisory vote, this proposal is not binding on Plexus. Dean?
Dean Foate
executiveThank you, Angelo. As I mentioned earlier, the polls remain open. Any shareholder who has not yet voted or wishes to change their vote may do so by clicking on the Voting button on the web portal and following the instructions there. Shareholders who have sent in proxies or voted via telephone or Internet and do not wish to change their vote do not need to take any further action at this time. We'll now pause for just a moment to let the voting complete. [Voting]
Dean Foate
executiveNow that everyone has had an opportunity to vote, I declare the polls for the 2021 annual shareholder meeting closed. Mr. Secretary?
Angelo Ninivaggi
executiveThank you, Dean. According to the inspector of election, a total of 27,530,611 shares or approximately 95.5% of those entitled to vote at this meeting were voted by proxy or in person at this meeting. Each of the nominees for election as Director has received support from more than a majority of the shares represented at the meeting, and therefore, each of the 10 nominees has been elected. More than a majority of the shares represented at this meeting have been voted in favor of ratifying the selection of our independent auditors, therefore, the selection of PricewaterhouseCoopers is ratified. And more than a majority of the votes represented at this meeting have been voted in favor of approving the compensation of Plexus' named executive officers, therefore, the compensation of our named executive officers has been approved on an advisory basis. We will be reporting the final results in a Form 8-K of the shareholder meeting to be filed with the Securities and Exchange Commission within 4 days. Dean?
Dean Foate
executiveThank you, Angelo. Since these were the only matters for official action at this meeting, Plexus' annual share -- meeting of annual shareholders is now adjourned. Now for the informal business portion. Following some preliminary comments by Angelo, Todd Kelsey, our Chief Executive Officer, will make a few remarks about our business. Afterward, you will have an opportunity to ask questions. Angelo?
Angelo Ninivaggi
executiveThank you, Dean. Before we begin, please note that any statements about Plexus' business and the question-and-answer period the follow may contain forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. For a discussion of factors that could cause actual results to differ materially from those projected, please refer to the company's periodic SEC filings, particularly the Risk Factors section in our most recent Form 10-Q and 10-K filings. Plexus discloses and we may discuss at this meeting non-GAAP supplemental information such as return on invested capital, economic return and free cash flow because those measures are used for internal management goals and decision-making because they provide additional insight into our financial performance. In addition, management uses these and other non-GAAP measures such as adjusted net income, adjusted earnings per share to provide a better understanding of core performance for purposes of period-to-period comparisons. For a full reconciliation of non-GAAP supplemental information, please refer to our fiscal first quarter earnings press release and our periodic SEC filings, all of which you can find via links from our website at plexus.com. Todd?
Todd Kelsey
executiveThank you, Angelo and Dean. Good morning, everyone. Thank you all for attending Plexus' annual shareholder meeting. At Plexus, our vision is to help create the products that build a better world. Building a better world is a commitment that goes beyond the products that we bring to market while partnering with our customers. At the heart of our efforts is our environmental, social and governance program. We've aligned the program into 5 pillars, consisting of responsible employer, community partner, global citizen, industry steward and corporate governance. Our social programs have been recognized by the institutional shareholder services as being within the top 10% of companies they have rated. Our environmental and governance programs are both within the top 30%. Our vision also aligns with the values of our passionate Plexus team and provides a commitment to both our current and future talent as we position Plexus as an employer of choice. As evidence, during late 2020 through an unsolicited survey, Plexus was named to Forbes list of the world's best employers of 2020. This distinction is based on employee satisfaction regarding the COVID-19 response, talent development, gender equality commitment and social responsibility. As reflected in our mission, we look to leverage our expertise in and focus on highly complex products and demanding regulatory environments to provide advantages in operational efficiency and a globally consistent platform for our customers. Turning to fiscal 2020. Fiscal 2020 tested all facets of the business due to problems created by COVID-19. I'm extremely proud of the effort and results of the global Plexus team in responding to the pandemic. Not only were they successful in driving solid revenue and EPS growth, they also remain focused on executing our differentiated strategy and driving continuous improvement. In addition, the Plexus team delivered on our commitment that our facilities would be the safest place our team members could be outside of their own homes. Our team delivered record revenue of $3.4 billion for fiscal 2020, representing 7% year-over-year growth. This result included 28% year-over-year growth from our Industrial/Commercial sector, 3% year-over-year growth from our Healthcare/Life Sciences sector and 4% year-over-year growth from our Aerospace and Defense sector. This strong growth, coupled with robust operating performance, led to record non-GAAP diluted earnings per share of $4.08 for fiscal year 2020, an increase of 19% from the previous fiscal year. Our return on invested capital for fiscal 2020 finished at 14%, representing an economic return of 520 basis points above our weighted average cost of capital of 8.8%. This economic return exceeds our enduring goal of 500 basis points. Finally, we generated record free cash flow of $160 million, a result that exceeded our net income. Exiting fiscal 2020, our 3-year revenue CAGR of 10% is firmly within our 9% to 12% target range. Additionally, our economic return over this time period is 5.3%, exceeding our 5% enduring goal and resulting in the creation of significant shareholder value. We began fiscal 2021 achieving strong results. Fiscal first quarter revenue of $830 million was at the midpoint of our guidance range. GAAP diluted earnings per share of $1.23 was well above the top end of our guidance range as a result of strong GAAP operating margin of 5.6%. With our exceptional operating performance, we delivered return on invested capital of 16.3%, sequentially improved by 230 basis points and the highest return delivered in more than 3 years. This result generated economic return of 820 basis points above our weighted average cost of capital, creating substantial shareholder value. Within the fiscal first quarter, Plexus won 35 new manufacturing programs, including a meaningful number of new customer engagements. These wins represented $223 million in annualized revenue when fully ramped into production and contribute to our trailing 4-quarter-wins total of a record $1 billion. In addition, we expanded Plexus' funnel of qualified manufacturing opportunities by nearly $600 million from the prior quarter to a record $3.3 billion. This healthy rate of new program wins and the considerable expansion in the funnel of qualified opportunities should position us well to achieve our 9% to 12% revenue CAGR goal over the longer term. In closing, given our strong operating performance and track record of delivering solid revenue growth, we believe Plexus is positioned to drive strong EPS growth for fiscal 2021 and beyond. We will now answer any questions from shareholders. [Operator Instructions] Thank you.
Dean Foate
executiveWell, if I'm interpreting what I see correctly, there does not appear to be any questions. Is that correct?
Angelo Ninivaggi
executiveYes, that's correct.
Dean Foate
executiveOkay. All right. Seeing that there are no questions, on behalf of Plexus' Board of Directors and management, I thank you for attending.
Operator
operatorThis now concludes the meeting. Thank you for joining, and have a pleasant day.
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