10-QPeriod: Q1 FY2016

FLEX LTD. Quarterly Report for Q1 Ended Jun 26, 2015

Filed July 27, 2015For Securities:FLEX

Summary

Flex Ltd. (FLEX) reported a decrease in net sales for the first quarter of fiscal year 2016, reaching $5.6 billion compared to $6.6 billion in the prior year's first quarter. This decline was primarily driven by lower sales in the Integrated Network Solutions (INS) and Consumer Technology Group (CTG) segments, attributed to softness in mobile devices and declines in telecom, server, and storage businesses. Despite the top-line decrease, the company saw an improvement in gross margin to 6.3% from 5.7%, driven by higher-margin High Reliability Solutions (HRS) sales and improved operational efficiencies, though partially offset by underperformance in certain Industrial & Emerging Industries (IEI) programs. Financially, Flex maintained a strong liquidity position with $2.3 billion in cash and cash equivalents. The company generated $362.3 million in operating cash flow, significantly improving from a negative outflow in the prior year. Strategic debt management included issuing $600 million in new notes. The company also continued its share repurchase program, buying back approximately $100 million worth of shares during the quarter. Management is focused on evolving the business portfolio towards longer product life cycles and higher margins, demonstrating a strategic shift in response to market dynamics and customer needs.

Financial Highlights

51 data points
Beta

Revenue

$5.57B

6.3% Gross Margin

Net Income

$110.85M

2.0% Net Margin

EPS (Diluted)

$0.19

Total Assets

$12.10B

Cash & Equivalents

$2.33B

Free Cash Flow

$223.93M

Financial Statements
Beta
Revenue$5.57B
Cost of Revenue$5.21B
Gross Profit$352.34M
SG&A Expenses$209.38M
Interest Expense$20.10M
Net Income$110.85M
EPS (Basic)$0.20
EPS (Diluted)$0.19
Shares Outstanding (Basic)565.54M
Shares Outstanding (Diluted)578.00M

Key Highlights

  • 1Net sales decreased by 16% to $5.6 billion for the first quarter of fiscal year 2016 compared to $6.6 billion in the prior year.
  • 2Gross margin improved to 6.3% from 5.7% year-over-year, driven by higher-margin HRS sales and operational efficiencies.
  • 3The INS and CTG segments experienced significant sales declines, impacting overall revenue.
  • 4Operating cash flow improved significantly to $362.3 million from a negative $81.2 million in the prior year.
  • 5The company issued $595.3 million in net proceeds from new debt (4.750% Notes due June 15, 2025) for general corporate purposes.
  • 6Share repurchases amounted to $100.0 million during the quarter.
  • 7Cash and cash equivalents stood at a robust $2.3 billion as of June 26, 2015.

Frequently Asked Questions

The primary driver for the decrease in net sales was softness in the mobile devices business and broad declines in the telecom, server, and storage businesses, leading to significant decreases in the Consumer Technology Group (CTG) and Integrated Network Solutions (INS) segments.

Despite the decrease in net sales, gross profit increased to $352.3 million from $380.8 million in the prior year period, and the gross margin improved to 6.3% from 5.7%. This improvement was attributed to higher sales from the higher-margin High Reliability Solutions (HRS) business and enhanced operational efficiencies.

The company maintained a strong liquidity position, with $2.3 billion in cash and cash equivalents as of June 26, 2015. Operating cash flow also saw a substantial improvement, turning positive to $362.3 million from a negative outflow in the prior year.

Yes, during the quarter, the company issued $600 million of 4.750% Notes due June 15, 2025, receiving net proceeds of approximately $595.3 million for general corporate purposes. The company also continued its share repurchase program, spending $100.0 million to buy back ordinary shares.