PLEXUS CORP

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents and restricted cash were $232.4 million as of December 30, 2023 as compared to $256.7 million as of September 30, 2023.

As of December 30, 2023, 90% of our cash and cash equivalents balance was held outside of the U.S. by our foreign subsidiaries. Currently, we believe that our cash balance, together with cash available under our Credit Facility, will be sufficient to meet our liquidity needs and potential share repurchases for the next twelve months and the foreseeable future.

Our future cash flows from operating activities will be reduced by $42.0 million due to cash payments for U.S. federal taxes on the deemed repatriation of undistributed foreign earnings that are payable over an eight year period that began in fiscal 2019 with the first payment. The table below provides the expected timing of these future cash outflows, in accordance with the following installment schedule for the remaining three years (in millions):

Cash Flows. The following table provides a summary of cash flows (in millions):

Operating Activities. Cash flows used in operating activities were $3.0 million for the three months ended December 30, 2023, as compared to cash flows used in operating activities of $48.8 million for the three months ended December 31, 2022. The decrease was primarily due to cash flow improvements (reductions) of:

•$(13.0) million decrease in net income.

•$58.7 million in accounts payables cash flows primarily driven by the timing of materials procurement and payments to suppliers.

•$26.4 million in inventory cash flows driven by inventory levels increasing at a slower rate in the three months ended December 30, 2023 compared to the three months ended December 31, 2022 due to fewer program ramps requiring upfront inventory procurement.

•$(28.2) million in advanced payments from customers cash flows driven by a larger decrease in advanced payments in the three months ended December 30, 2023 compared to the three months ended December 31, 2022.

•$(9.0) million in contract assets cash flows, driven by decreases in advanced payments received from customers who recognize revenue over time.

The following table provides a summary of cash cycle days for the periods indicated (in days):

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 December 30, 2023, annualized cash cycle days increased twelve days compared to December 31, 2022 due to the following:

Days in accounts receivable for the three months ended December 30, 2023 remained flat compared to the three months ended December 31, 2022.

Days in contract assets for the three months ended December 30, 2023 increased two days compared to the three months ended December 31, 2022. The increase is primarily attributable to a decrease in advanced payments from customers with arrangements requiring revenue to be recognized over time as products are produced.

Days in inventory for the three months ended December 30, 2023 increased ten days compared to the three months ended December 31, 2022. The increase is primarily due to lower sales in the three months ended December 30, 2023 compared to the prior year, partially offset by lower inventory.

Days in accounts payable for the three months ended December 30, 2023 decreased three days compared to the three months ended December 31, 2022. The decrease is primarily attributable to timing of materials procurement and payments to suppliers.

Days in advanced payments for the three months ended December 30, 2023 increased three days compared to the three months ended December 31, 2022. The increase was primarily attributable to lower sales in the three months ended December 30, 2023 compared to the prior year, partially offset by a decrease in advanced payments received from customers in line with lower inventory balances.

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 $(31.7) million for the three months ended December 30, 2023 compared to $(71.9) million for the three months ended December 31, 2022, an improvement of $40.2 million. The improvement in FCF was primarily due to lower working capital investments in inventory to support our customers and increased accounts payable due to timing of payments.

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):

Investing Activities. Cash flows used in investing activities were $28.6 million for the three months ended December 30, 2023 compared to $21.6 million for the three months ended December 31, 2022. The increase in cash used in investing activities was due to a $5.6 million increase in capital expenditures.

We estimate capital expenditures for fiscal 2024 will be approximately $100.0 million to $120.0 million to support new program ramps and replace older equipment.

Financing Activities. Cash flows provided by financing activities were $5.8 million for the three months ended December 30, 2023 compared to cash flows provided by financing activities of $39.4 million for the three months ended December 31, 2022. The decrease was primarily attributable to net borrowings on the credit facility for the three months ended December 30, 2023 of $10.0 million compared to net borrowings on the credit facility for the three months ended December 31, 2022 of $57.0 million, as well as a $11.5 million reduction in repurchases of our common stock.

On August 18, 2022, the Board of Directors approved a share repurchase program under which we are authorized to repurchase up to $50.0 million of its common stock (the "2023 Program"). The 2023 Program became effective immediately and has no expiration. During the three months ended December 30, 2023 we purchased no shares under this program. During the three months ended December 31, 2022, we purchased 115,723 shares under this program for $11.5 million at an average price of $99.12 per share. As of December 30, 2023, $5.7 million of authority remained under the 2023 Program. All shares repurchased under the aforementioned program were recorded as treasury stock.

On January 16, 2024, we announced an additional $50.0 million in share repurchase authority (the "2024 Program") that authorizes us to repurchase our common stock. There is now a total of $55.7 million in repurchase authority under the combined 2023 and 2024 Programs. The 2024 Program will commence upon completion of the 2023 Program.

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 December 30, 2023 is $340.0 million. The maximum facility amount under the HSBC RPA as of December 30, 2023 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 $223.6 million and $185.6 million of trade accounts receivable under these programs during the three months ended December 30, 2023 and December 31, 2022, respectively, in exchange for cash proceeds of $221.0 million and $183.6 million, respectively. As of December 30, 2023 and December 31, 2022, $226.9 million and $196.8 million, respectively, of accounts receivables sold under trade accounts receivable programs and subject to servicing by us remained outstanding and had not yet been collected by MUFG Bank or HSBC Bank.

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 2024, cash and cash equivalents and restricted cash were $232 million, while debt, finance lease and other financing obligations were $443 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.