Plexus Corporation

02/05/2026 | Press release | Distributed by Public on 02/05/2026 15:32

Quarterly Report for Quarter Ending January 3, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
"SAFE HARBOR" CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995:
The statements contained in this Form 10-Q that are guidance or which are not historical facts (such as statements in the future tense and statements including believe, expect, intend, plan, anticipate, goal, target and similar terms and concepts), including all discussions of periods which are not yet completed, are forward-looking statements that involve risks and uncertainties. These risks and uncertainties include the effects of tariffs, trade disputes, trade agreements and other trade protection measures; the effects of shortages, delays and price fluctuations in obtaining components as a result of economic cycles, capacity constraints, natural disasters or otherwise; the risk of customer delays, changes, cancellations or forecast inaccuracies in both ongoing and new programs; the particular risks relative to new or recent customers, programs or services, which risks include customer and other delays, start-up costs, potential inability to execute, the establishment of appropriate engagement terms, and the lack of a track record of order volume and timing; the risk that new program wins and/or customer demand may not result in the expected revenue or profitability; the lack of visibility of future orders, particularly in view of changing economic conditions; the economic performance of the industries, sectors and customers we serve; the effects of the volume of revenue from certain sectors or programs on our margins in particular periods; our ability to secure new customers, maintain our current customers and deliver product on a timely basis; the risks of concentration of work for certain customers; the effects of start-up costs of new programs and facilities or the costs associated with winding down programs or the closure or consolidation of facilities; possible unexpected costs and operating disruption in transitioning programs, including transitions between Company facilities; the risks associated with excess and obsolete inventory, including the risk that inventory purchased on behalf of our customers may not be consumed or otherwise paid for by the customer, resulting in an inventory write-off; the fact that customer orders may not lead to long-term relationships; our ability to manage successfully and execute a complex business model characterized by high product mix and demanding quality, regulatory, and other requirements; the outcome of litigation and regulatory investigations and proceedings, including the results of any challenges with regard to such outcomes; the ability to realize anticipated savings from restructuring or similar actions, as well as the adequacy of related charges as compared to actual expenses; risks related to information technology systems and data security; increasing regulatory and compliance requirements; any tax law changes and related foreign jurisdiction tax developments; current or potential future barriers to the repatriation of funds that are currently held outside of the United States as a result of actions taken by other countries or otherwise; the potential effects of jurisdictional results on our taxes, tax rates, and our ability to use deferred tax assets and net operating losses; the weakness of the economy regionally or globally; the effect of changes in the pricing and margins of our services; raw materials and component cost fluctuations; the potential effect of fluctuations in the value of the currencies in which we transact business; the effects of changes in economic conditions, political conditions and regulatory matters in the United States and in the other countries in which we do business; the potential effect of other events outside our control, such as the conflict between Russia and Ukraine, conflict in the Middle East, escalating tensions between China and Taiwan or China and the United States, tensions in or amongst countries in which we operate or transact business, changes in energy prices, terrorism, global health epidemics and weather events; the impact of increased competition; an inability to successfully manage human capital; changes in financial accounting standards; and other risks detailed herein and in our other Securities and Exchange Commission filings, particularly in Risk Factors contained in our fiscal 2025 Form 10-K.
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OVERVIEW
At Plexus, we help create the products that build a better world. Driven by a passion for excellence, we partner with our customers to design, manufacture and service highly complex products in demanding regulatory environments. From life-saving medical devices and mission-critical aerospace and defense products to industrial automation systems and semiconductor capital equipment, our innovative solutions across the lifecycle of a product converge where advanced technology and human impact intersect. We provide these solutions to market-leading as well as disruptive global companies in the Aerospace/Defense, Healthcare/Life Sciences, and Industrial sectors, supported by a global team of over 20,000 members across our 27 facilities.
The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide an analysis of both short-term results and future prospects from management's perspective, including an assessment of the financial condition and results of operations, events and uncertainties that are not indicative of future operations and any other financial or statistical data that we believe will enhance the understanding of our company's financial condition, cash flows and other changes in financial condition and results of operations.
The following information should be read in conjunction with our condensed consolidated financial statements included herein and "Risk Factors" included in Part II, Item 1A included herein as well as Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 27, 2025, and our "Safe Harbor" Cautionary Statement included above.
RESULTS OF OPERATIONS
Consolidated Performance Summary. The following table presents selected consolidated financial data (dollars in millions, except per share data):
Three Months Ended
January 3,
2026 		December 28,
2024
Net sales $ 1,069.9 $ 976.1
Cost of sales 963.7 875.4
Gross profit 106.1 100.7
Gross margin 9.9 % 10.3 %
Operating income 54.5 46.9
Operating margin 5.1 % 4.8 %
Other expense 3.4 3.4
Income tax expense 9.9 6.2
Net income 41.2 37.3
Diluted earnings per share $ 1.51 $ 1.34
Return on invested capital* 13.2 % 13.8 %
Economic return* 4.2 % 4.9 %
*Non-GAAP metric; refer to "Return on Invested Capital ("ROIC") and economic return" below and Exhibit 99.1 for more information.
Net sales.For the three months ended January 3, 2026, net sales increased $93.8 million, or 9.6%, as compared to the three months ended December 28, 2024.
Net sales are analyzed by management by geographic segment, which reflects our reportable segments, and by market sector. Management measures operational performance and allocates resources on a geographic segment basis. Our global business development strategy is based on our targeted market sectors.
A discussion of net sales by reportable segment is presented below (in millions):
Three Months Ended
January 3,
2026 		December 28,
2024
Net sales:
AMER $ 344.8 $ 273.9
APAC 611.7 607.1
EMEA 118.4 101.2
Elimination of inter-segment sales (5.0) (6.1)
Total net sales $ 1,069.9 $ 976.1
AMER. Net sales for the three months ended January 3, 2026 in the AMER segment increased $70.9 million, or 25.9%, as compared to the three months ended December 28, 2024. The increase in net sales was driven by an increase of $81.6 million due to production ramps of new products for existing customers and overall net increased customer end-market demand. The increase was partially offset by a decrease of $8.7 million due to disengagements with customers.
APAC. Net sales for the three months ended January 3, 2026 in the APAC segment increased $4.6 million, or 0.8%, as compared to the three months ended December 28, 2024. The increase in net sales was driven by an increase of $5.8 million due to production ramps of new products for existing customers and overall net increased customer end-market demand. The increase was partially offset by a decrease of $5.8 million due to a disengagement with a customer.
EMEA. Net sales for the three months ended January 3, 2026 in the EMEA segment increased $17.2 million, or 17.0%, as compared to the three months ended December 28, 2024. The increase in net sales was driven by an increase of $10.0 million due to production ramps of new products for existing customers and overall net increased customer end-market demand.
Our net sales by market sector for the indicated fiscal period were as follows (in millions):
Three Months Ended
January 3,
2026 		December 28,
2024
Net sales:
Aerospace/Defense $ 178.0 $ 159.7
Healthcare/Life Sciences 466.0 374.1
Industrial 425.9 442.3
Total net sales $ 1,069.9 $ 976.1
Aerospace/Defense.Net sales for the three months ended January 3, 2026 in the Aerospace/Defense sector increased $18.3 million, or 11.5%, as compared to the three months ended December 28, 2024. The increase in net sales was driven by an increase of $33.9 million in production ramps of new products for existing customers.
Healthcare/Life Sciences.Net sales for the three months ended January 3, 2026 in the Healthcare/Life Sciences sector increased $91.9 million, or 24.6%, as compared to the three months ended December 28, 2024. The increase in net sales was driven by an increase of $53.9 million in production ramps of new products for existing customers and overall net increased customer end-market demand.
Industrial.Net sales for the three months ended January 3, 2026 in the Industrial sector decreased $16.4 million, or 3.7%, as compared to the three months ended December 28, 2024. The decrease in net sales was driven by a decrease of $10.3 million due to a disengagement with a customer and overall net decreased customer end-market demand.
Cost of sales. Cost of sales for the three months ended January 3, 2026 increased $88.3 million, or 10.1%, as compared to the three months ended December 28, 2024. Cost of sales is comprised primarily of material and component costs, labor costs and overhead. For each of the three months ended January 3, 2026 and December 28, 2024, approximately 89% of the total cost of sales was variable in nature and fluctuated with sales volumes. Approximately 88% of these costs were related to material and component costs.
As compared to the three months ended December 28, 2024, the increase in cost of sales in the three months ended January 3, 2026 was primarily driven by an increase in net sales and an increase in fixed costs.
Gross profit.Gross profit for the three months ended January 3, 2026 increased $5.4 million, or 5.4%, as compared to the three months ended December 28, 2024. Gross margin of 9.9% for the three months ended January 3, 2026 decreased 40 basis points compared to the three months ended December 28, 2024. The primary driver of the increase in gross profit was the increase in net sales, partially offset by an increase in fixed costs which drove the decrease in gross margin.
Operating income.Operating income for the three months ended January 3, 2026 increased $7.6 million, or 16.2%, as compared to the three months ended December 28, 2024. Operating margin of 5.1% for the three months ended January 3, 2026 increased 30 basis points compared to the three months ended December 28, 2024. The primary drivers of the increase in operating income and operating margin for the three months ended January 3, 2026 were the result of the increase in gross profit as well as a decrease of $4.7 million in restructuring and other charges. The restructuring and other charges for the three months ended December 28, 2024 consisted of severance costs associated with a reduction in the Company's workforce in the EMEA and AMER regions. The increase in operating income was partially offset by an increase of $2.5 million in selling and administrative expenses ("S&A"). The increase in S&A was primarily due to an increase in compensation costs.
A discussion of operating income by reportable segment for the indicated fiscal period is presented below (in millions):
Three Months Ended
January 3,
2026 		December 28,
2024
Operating income:
AMER $ 24.0 $ 19.1
APAC 86.8 87.7
EMEA 9.4 4.5
Corporate and other costs (65.7) (64.4)
Total operating income $ 54.5 $ 46.9
AMER. Operating income increased $4.9 million for the three months ended January 3, 2026 as compared to the three months ended December 28, 2024, primarily as a result of an increase in net sales, partially offset by a negative shift in customer mix and an increase in fixed costs.
APAC. Operating income decreased $0.9 million for the three months ended January 3, 2026 as compared to the three months ended December 28, 2024, primarily as a result of an increase in fixed costs.
EMEA. Operating income increased $4.9 million for the three months ended January 3, 2026 as compared to the three months ended December 28, 2024, primarily as a result of an increase in net sales and a positive shift in customer mix.
Other expense.Other expense for the three months ended January 3, 2026 remained flat compared to the three months ended December 28, 2024.
Income taxes.Income tax expense for the three months ended January 3, 2026 was $9.9 million compared to $6.2 million for the three months ended December 28, 2024. This increase was primarily driven by the implementation of the global minimum tax across several jurisdictions in which we operate, as well as an increase in pre-tax book income.
Our annual effective tax rate varies from the U.S. statutory rate of 21.0% primarily due to the geographic distribution of worldwide earnings as well as a tax holiday granted to a subsidiary located in the APAC segment where we derive a significant portion of our earnings. Our effective tax rate may also be impacted by disputes with taxing authorities, tax planning activities, adjustments to uncertain tax positions and changes in valuation allowances.
The annual effective tax rate for fiscal 2026 is expected to be approximately 16.0% to 18.0% assuming no changes to tax laws.
Net income.Net income for the three months ended January 3, 2026 increased $3.9 million, or 10.5%, from the three months ended December 28, 2024 to $41.2 million. Net income increased primarily as a result of the increase in operating income, partially offset by the increase in tax expense as previously discussed.
Diluted earnings per share.Diluted earnings per share increased to $1.51 for the three months ended January 3, 2026 from $1.34 for the three months ended December 28, 2024, primarily as a result of increased net income due to the factors discussed above.
Return on Invested Capital ("ROIC") and economic return.We use a financial model that is aligned with our business strategy and includes an ROIC goal of 15%, which would exceed our weighted average cost of capital ("WACC") by more than 500 basis points and represent positive economic return. Economic return is the amount our ROIC exceeds our WACC.
Non-GAAP financial measures, including ROIC and economic return, are used for internal management goals and decision making because such measures provide management and investors additional insight into financial performance. In particular, we provide ROIC and economic return because we believe they offer insight into the metrics that are driving management decisions. We view ROIC and economic return as important measures in evaluating the efficiency and effectiveness of our long-term capital investments. We also use ROIC as a performance criteria in determining certain elements of compensation as well as economic return performance.
We define ROIC as tax-effected operating income before restructuring and other charges divided by average invested capital over a rolling two-quarter period for the first fiscal quarter. Invested capital is defined as equity plus debt and operating lease liabilities, less cash and cash equivalents. Other companies may not define or calculate ROIC in the same way. ROIC and other non-GAAP financial measures should be considered in addition to, not as a substitute for, measures of our financial performance prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP").
We review our internal calculation of WACC annually. Our WACC is 9.0% for fiscal 2026 and 8.9% for fiscal 2025. By exercising discipline to generate ROIC in excess of our WACC, our goal is to create value for our shareholders. For the three months ended January 3, 2026, ROIC of 13.2% reflects an economic return of 4.2%, based on our WACC of 9.0%, and for the three months ended December 28, 2024, ROIC of 13.8% reflects an economic return of 4.9%, based on our WACC of 8.9%.
For a reconciliation of ROIC, economic return and adjusted operating income (tax-effected) to our financial statements that were prepared using U.S. GAAP, see Exhibit 99.1 to this Quarterly Report on Form 10-Q, which exhibit is incorporated herein by reference.
Refer to the table below, which includes the calculation of ROIC and economic return for the indicated fiscal period (dollars in millions):
Three Months Ended
January 3,
2026 		December 28,
2024
Adjusted operating income (tax-effected) $ 180.8 $ 175.2
Average invested capital 1,374.5 1,268.3
After-tax ROIC 13.2 % 13.8 %
WACC 9.0 % 8.9 %
Economic return 4.2 % 4.9 %
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and restricted cash were $249.4 million as of January 3, 2026, as compared to $306.8 million as of September 27, 2025.
As of January 3, 2026, 91% of our cash and cash equivalents balance was held outside of the U.S. by our foreign subsidiaries. Based on current expectations, we believe that our projected cash flows provided by operations, available cash and cash equivalents, potential borrowings under the Credit Facility, and our leasing capabilities should be sufficient to meet our working capital and fixed capital requirements, as well as execute our share repurchase authorization as management deems appropriate, for the next twelve months.
Cash Flows.The following table provides a summary of cash flows (in millions):
Three Months Ended
January 3,
2026 		December 28,
2024
Cash flows (used in) provided by operating activities $ (15.4) $ 53.6
Cash flows used in investing activities (35.1) (26.4)
Cash flows used in financing activities (8.0) (52.8)
Effect of exchange rate changes on cash and cash equivalents 1.2 (4.0)
Net decrease in cash and cash equivalents and restricted cash $ (57.3) $ (29.6)
Operating Activities.Cash flows used in operating activities were $15.4 million for the three months ended January 3, 2026, as compared to cash flows provided by operating activities of $53.6 million for the three months ended December 28, 2024. The decrease was primarily due to cash flow improvements (reductions) of:
•$3.9 million increase in net income.
•$(85.8) million in inventory cash flows driven by an increase in inventory associated with ramping programs in the three months ended January 3, 2026 compared to a decrease in inventory driven by inventory reduction efforts in the three months ended December 28, 2024.
•$(40.6) million in accounts receivable cash flows driven by an increase in net sales as well as the timing of shipments and mix of customer payment terms.
•$(18.3) million in accounts payables cash flows primarily driven by the timing of materials procurement and payments to suppliers.
•$(17.8) million in other current and non-current asset cash flows primarily driven by an increase in non-hedge derivative assets and prepayments to suppliers in the three months ended January 3, 2026 as compared a decrease in the three months ended December 28, 2024.
•$84.0 million in advanced payments from customers cash flows as prior year had a significant outflow of deposit returns due to inventory management efforts.
•$5.8 million in contract assets cash flows corresponding to changes in demand from over time customers.
The following table provides a summary of cash cycle days for the periods indicated (in days):
Three Months Ended
January 3,
2026 		December 28,
2024
Days in accounts receivable 58 56
Days in contract assets 13 12
Days in inventory 124 134
Days in accounts payable (71) (69)
Days in advanced payments (55) (65)
Annualized cash cycle 69 68
We calculate days in accounts receivable and contract assets as each balance sheet item for the respective quarter divided by annualized sales for the respective quarter by day. We calculate days in inventory, accounts payable and advanced payments as each balance sheet line item for the respective quarter divided by annualized cost of sales for the respective quarter by day. We calculate annualized cash cycle as the sum of days in accounts receivable, days in contract assets and days in inventory, less days in accounts payable and days in advanced payments.
As of January 3, 2026, annualized cash cycle days increased one day compared to December 28, 2024 due to the following:
Days in accounts receivable for the three months ended January 3, 2026 increased two days compared to the three months ended December 28, 2024. The increase is primarily attributable to the timing of customer shipments and payments as well as the mix of customer payment terms.
Days in contract assets for the three months ended January 3, 2026 increased one day compared to the three months ended December 28, 2024. The increase is primarily attributed to an increase in demand from customers with arrangements requiring revenue to be recognized over time as products are produced.
Days in inventory for the three months ended January 3, 2026 decreased ten days compared to the three months ended December 28, 2024. The decrease is primarily attributable to increased net sales and continued inventory management efforts.
Days in accounts payable for the three months ended January 3, 2026 increased two days compared to the three months ended December 28, 2024. The increase is primarily attributable to timing of materials procurement and payments to suppliers.
Days in advanced payments for the three months ended January 3, 2026 decreased ten days compared to the three months ended December 28, 2024. The decrease was primarily attributable to a return of advanced payments to customers due to continued inventory management efforts.
Free Cash Flow. We define free cash flow ("FCF"), a non-GAAP financial measure, as cash flow generated or used in operations less capital expenditures. FCF was $(50.6) million for the three months ended January 3, 2026 compared to $27.1 million for the three months ended December 28, 2024, a decrease of $77.7 million.
Non-GAAP financial measures, including FCF, are used for internal management assessments because such measures provide additional insight to investors into ongoing financial performance. In particular, we provide FCF because we believe it offers insight into the metrics that are driving management decisions. We view FCF as an important financial metric as it demonstrates our ability to generate cash and can allow us to pursue opportunities that enhance shareholder value. FCF is a non-GAAP financial measure that should be considered in addition to, not as a substitute for, measures of our financial performance prepared in accordance with GAAP.
A reconciliation of FCF to our financial statements that were prepared using GAAP as follows (in millions):
Three Months Ended
January 3,
2026 		December 28,
2024
Cash flows (used in) provided by operating activities $ (15.4) $ 53.6
Payments for property, plant and equipment (35.2) (26.5)
Free cash flow $ (50.6) $ 27.1
Investing Activities.Cash flows used in investing activities were $35.1 million for the three months ended January 3, 2026 compared to $26.4 million for the three months ended December 28, 2024. The increase in cash used in investing activities was due to an $8.7 million increase in capital expenditures.
We currently estimate capital expenditures for fiscal 2026 will be approximately $100.0 million to $120.0 million to support new program ramps and replace older equipment.
Financing Activities. Cash flows used in financing activities were $8.0 million for the three months ended January 3, 2026 compared to $52.8 million for the three months ended December 28, 2024. The decrease was primarily attributable to net borrowings on the credit facility for the three months ended January 3, 2026 of $20.0 million compared to net repayments on the credit facility for the three months ended December 28, 2024 of $35.0 million, partially offset by an increase of $9.6 million in cash used to repurchase our common stock.
On August 14, 2024, the Board of Directors approved a share repurchase program under which we were authorized to repurchase up to $50.0 million of our common stock (the "2025 Program"). The 2025 Program became effective upon completion of the 2024 Program and was completed in fiscal 2025. During the three months ended December 28, 2024, we repurchased 84,823 shares under this program for $12.8 million at an average price of $151.19 per share.
On May 14, 2025, the Board of Directors approved a share repurchase program under which we are authorized to repurchase up to $100.0 million of our common stock (the "2026 Program"). The 2026 Program became effective upon completion of the 2025 Program and has no expiration. During the three months ended January 3, 2026, we repurchased 152,987 shares under this program for $22.4 million at an average price of $146.36 per share. As of January 3, 2026, $62.6 million of authority remained under the 2026 Program.
All shares repurchased under the aforementioned programs were recorded as treasury stock.
We have Master Accounts Receivable Purchase Agreements with MUFG Bank, New York Branch (formerly known as The Bank of Tokyo-Mitsubishi UFJ, Ltd.) (the "MUFG RPA"), HSBC Bank (China) Company Limited, Xiamen branch (the "HSBC RPA") and other unaffiliated financial institutions, under which we may elect to sell receivables, at a discount. These facilities are uncommitted facilities. The maximum facility amount under the MUFG RPA as of January 3, 2026 is $340.0 million. The maximum facility amount under the HSBC RPA as of January 3, 2026 is $70.0 million. The MUFG RPA will be automatically extended each year unless any party gives no less than 10 days prior notice that the agreement should not be extended. The terms of the HSBC RPA are generally consistent with the terms of the MUFG RPA previously discussed.
We sold $216.3 million and $151.2 million of trade accounts receivable under these programs during the three months ended January 3, 2026 and December 28, 2024, respectively, in exchange for cash proceeds of $214.5 million and $149.7 million, respectively. As of January 3, 2026 and September 27, 2025, $225.2 million and $214.4 million, respectively, of accounts receivables sold under trade accounts receivable programs and subject to servicing by us remained outstanding.
In all cases, the sale discount was recorded within "Miscellaneous, net" in the Condensed Consolidated Statements of Comprehensive Income in the period of the sale. For further information regarding the receivable sale programs, see Note 13, "Trade Accounts Receivable Sale Programs," in Notes to Condensed Consolidated Financial Statements.
Based on current expectations, we believe that our projected cash flows provided by operations, available cash and cash equivalents, potential borrowings under the Credit Facility, and our leasing capabilities should be sufficient to meet our working capital and fixed capital requirements, as well as execution upon our share repurchase authorizations as management deems appropriate, for the next twelve months. We believe our balance sheet is positioned to support the potential future challenges presented by macroeconomic factors including increased working capital requirements associated with longer lead-times for components, increased component and labor costs, and operating inefficiencies due to supply chain constraints. As of the end of the first quarter of fiscal 2026, cash and cash equivalents and restricted cash were $249 million, while debt, finance lease and other financing obligations were $158 million. If our future financing needs increase, then we may need to arrange additional debt or equity financing. Accordingly, we evaluate and consider from time to time various financing alternatives to
supplement our financial resources. However, we cannot be assured that we will be able to make any such arrangements on acceptable terms or at all.
DISCLOSURE ABOUT CRITICAL ACCOUNTING ESTIMATES
Our critical accounting policies are disclosed in our 2025 Annual Report on Form 10-K. During the first quarter of fiscal 2026, there were no material changes.
NEW ACCOUNTING PRONOUNCEMENTS
See "Recently Issued Accounting Pronouncements Not Yet Adopted," in Note 1, "Basis of Presentation" in Notes to Condensed Consolidated Financial Statements regarding recent accounting pronouncements.
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