01—Abstract
Summary
Summary of the 10-K filed May 20, 2016. Cited figures are marked; the original filing is the authoritative source.
Flex Ltd. (FLEX) filed its annual report on Form 10-K for the fiscal year ended March 31, 2016, revealing a diversified business model focused on design, engineering, manufacturing, and supply chain solutions for original equipment manufacturers (OEMs) across various sectors including High Reliability Solutions (HRS), Consumer Technologies Group (CTG), Industrial and Emerging Industries (IEI), and Communications & Enterprise Compute (CEC).
The company generated $24.4 billiona in revenue for fiscal year 2016, a decrease from the prior year, primarily driven by a decline in the CTG segment. Despite the revenue dip, gross profit saw a slight increase due to a richer mix of business from the HRS and IEI segments and improved operational execution. Net income for the year was $444.1 million, a decrease compared to the previous year, impacted by increased stock-based compensation, acquisition-related costs, and a bad debt charge from the SunEdison bankruptcy.
Flex continued to focus on strategic acquisitions and investments in higher-margin businesses like automotive and medical sectors, aiming to enhance its end-to-end 'sketch to scale' capabilities. Investors should note the company's significant global presence with over 100 facilities in 30 countries and a substantial portion of manufacturing capacity located in low-cost regions.
The company's strategy emphasizes talent, customer focus, market diversification, and leveraging its global operations. While facing competition and risks associated with industry cycles and customer concentration (with Lenovo/Motorola being the only customer exceeding 10%b of net sales), Flex remains committed to providing comprehensive supply chain solutions to a broad base of leading technology companies.
02—Key points
Key Highlights
- Total revenue for fiscal year 2016 was $24.4 billion, a decrease from $26.1 billion in fiscal year 2015, primarily due to softness in the Consumer Technologies Group (CTG) segment.
- Gross profit increased by 4.1% to $1.6 billion in fiscal year 2016, leading to an improved gross margin of 6.6% compared to 5.9% in the prior year, driven by a favorable business mix and operational improvements.
- Net income for fiscal year 2016 decreased by 26.1% to $444.1 million, impacted by increased stock-based compensation, acquisition costs for MCi and NEXTracker, and a bad debt expense related to SunEdison's bankruptcy.
- The company operates across four segments: High Reliability Solutions (HRS), Consumer Technologies Group (CTG), Industrial and Emerging Industries (IEI), and Communications & Enterprise Compute (CEC), with HRS and IEI showing growth.
- Flex's strategy includes investing in higher-margin businesses like automotive and medical (HRS) and energy (IEI), aiming to shift its portfolio towards longer product life cycles and improved profitability.
- The company's customer base is concentrated, with the ten largest customers accounting for 46% of net sales in fiscal year 2016. Lenovo/Motorola was the only customer exceeding 10% of net sales.
- Free cash flow increased to $639.5 million in fiscal year 2016 from $554.3 million in fiscal year 2015, reflecting strong operating cash flows and strategic investments.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Flex Ltd. kept $0.02.
- Revenue$24.42B100.0%
- Cost of revenue−$22.81B93.4%
- Gross profit$1.61B6.6%
- Operating costs−$1.16B4.8%
- Operating income$444.1M1.8%
- Interest, other & tax$-00.0%
- Net income$444.1M1.8%
Where FY2016 revenue went
$24.42B- Cost of revenue: $22.81B, 93% of revenue
- Net income: $444.1M, 1.8% of revenue
- R&D: $61.0M, 0.2% of revenue
- SG&A: $954.9M, 3.9% of revenue
- Other operating costs: $148.1M, 0.6% of revenue
Kept 1.8% as net incomeNet income $444.1M · 1.8%R&D $61.0M · 0.2%Other operating costs $148.1M · 0.6%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed May 20, 2016Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $24.42B$26.15B | −6.6% |
| Cost of Revenue | $22.81B$24.60B | −7.3% |
| Gross Profit | $1.61B$1.55B | +4.1% |
| R&D Expenses | $61.00M$26.30M | +131.9% |
| SG&A Expenses | $954.89M$844.47M | +13.1% |
| Operating Income | $444.08M$600.80M | −26.1% |
| Interest Expense | $98.00M$76.40M | +28.3% |
| Net Income | $444.08M$596.53M | −25.6% |
| EPS (Basic) | $0.80$1.04 | −23.1% |
| EPS (Diluted) | $0.79$1.02 | −22.5% |
| Shares Outstanding (Basic) | 557.67M579.98M | −3.8% |
| Shares Outstanding (Diluted) | 564.87M591.56M | −4.5% |
05—Questions
Frequently Asked Questions
What was Flex's overall financial performance in fiscal year 2016?
In fiscal year 2016, Flex reported a net sales of $24.4 billion, a decrease from the prior year. Net income was $444.1 million, also down from the previous year, primarily due to increased expenses related to acquisitions, stock-based compensation, and a significant bad debt charge from the SunEdison bankruptcy. However, gross profit saw an increase, and the company generated strong free cash flow.
Which business segments performed best and worst in fiscal year 2016?
The High Reliability Solutions (HRS) and Industrial and Emerging Industries (IEI) segments showed growth in fiscal year 2016, with HRS sales increasing by 9.6% and IEI sales by 5.0%. The Consumer Technologies Group (CTG) segment experienced a significant decline in sales (21.7%), while the Communications & Enterprise Compute (CEC) segment saw a modest decrease (3.8%).
What are the key strategic initiatives Flex is pursuing?
Flex is focused on providing end-to-end 'sketch to scale' solutions, investing in higher-growth and higher-margin sectors like automotive and medical (HRS), and energy (IEI). They also aim to leverage their global operations, talent, and customer-centric approach to maintain their competitive advantage in the EMS industry.
What is Flex's approach to managing its global operations and manufacturing?
Flex operates a vast global network of over 100 facilities in approximately 30 countries, strategically located in major consumer electronics and industrial markets. A significant portion of their manufacturing capacity (approximately 76%) is situated in lower-cost regions, which the company leverages to offer competitive pricing and flexibility to its OEM customers.
How exposed is Flex to customer concentration?
Customer concentration is a factor, with the top ten customers accounting for 46% of net sales in fiscal year 2016. Lenovo/Motorola was the only customer exceeding 10% of net sales. The company acknowledges this and emphasizes its efforts to build long-standing relationships and diversify its customer and end-market exposure.
06—Continue