10-QPeriod: Q3 FY2018

FLEX LTD. Quarterly Report for Q3 Ended Dec 31, 2017

Filed January 29, 2018For Securities:FLEX

Summary

Flex Ltd. reported solid revenue growth for the nine-month period ended December 31, 2017, with net sales increasing by 6% to $19.0 billion. This growth was primarily driven by strong performance in the Industrial and Emerging Industries (IEI), Consumer Technologies Group (CTG), and High Reliability Solutions (HRS) segments, offsetting a decline in the Communications & Enterprise Compute (CEC) segment. The company's net income for the nine-month period was $448.1 million, a significant increase from $232.7 million in the prior year, largely influenced by a substantial gain from the deconsolidation of an investment in Elementum and a gain from the sale of Wink. Financially, Flex Ltd. maintained a healthy liquidity position with $1.3 billion in cash and cash equivalents as of December 31, 2017. While free cash flow saw a decrease year-over-year due to higher capital expenditures and increased working capital, the company remains confident in its ability to fund operations and future growth through existing cash, operational cash flows, and available credit facilities. The company also announced a restructuring plan to optimize its cost base in lower-growth areas and streamline functions, expecting to incur charges of at least $50 million in the fourth quarter of fiscal year 2018.

Financial Highlights

49 data points
Beta

Revenue

$6.75B

6.6% Gross Margin

Net Income

$118.33M

1.8% Net Margin

EPS (Diluted)

$0.22

Total Assets

$13.84B

Cash & Equivalents

$1.29B

Free Cash Flow

-$1.10B

Financial Statements
Beta
Revenue$6.75B
Cost of Revenue$6.31B
Gross Profit$446.33M
SG&A Expenses$247.37M
Interest Expense$32.10M
Net Income$118.33M
EPS (Basic)$0.22
EPS (Diluted)$0.22
Shares Outstanding (Basic)528.40M
Shares Outstanding (Diluted)534.35M

Key Highlights

  • 1Net sales increased by 6% to $19.0 billion for the nine-month period ended December 31, 2017, driven by growth across multiple segments.
  • 2Net income more than doubled to $448.1 million for the nine-month period ended December 31, 2017, significantly boosted by a $151.6 million gain from the deconsolidation of Elementum.
  • 3The company reported $1.3 billion in cash and cash equivalents as of December 31, 2017, indicating a solid liquidity position.
  • 4Free cash flow for the nine-month period decreased to $42 million from $628 million in the prior year, primarily due to increased capital expenditures and working capital needs.
  • 5Flex Ltd. announced a restructuring plan expected to incur at least $50 million in charges in Q4 FY18 to streamline operations and reduce costs.
  • 6Goodwill increased to $1.1 billion as of December 31, 2017, reflecting acquisitions, notably AGM Automotive and a Power Modules business.
  • 7Diluted earnings per share for the nine-month period were $0.84, up from $0.42 in the prior year.

Frequently Asked Questions

Flex Ltd.'s revenue growth was primarily driven by increases in its Industrial and Emerging Industries (IEI) segment by $664 million, Consumer Technologies Group (CTG) by $496 million, and High Reliability Solutions (HRS) by $416 million. These increases were partially offset by a decrease in the Communications & Enterprise Compute (CEC) segment.

The deconsolidation of Elementum, which occurred during the second quarter of fiscal year 2018, resulted in a significant non-cash gain of approximately $151.6 million for Flex Ltd. This gain was recognized in 'Other charges (income), net' and substantially contributed to the increase in net income for the nine-month period.

Flex Ltd. reported $1.3 billion in cash and cash equivalents as of December 31, 2017. The company believes its existing cash, anticipated cash flows from operations, and available credit facilities are sufficient to fund its operations for at least the next twelve months. They are also exploring debt and equity financings, sales of accounts receivable, and lease transactions for future funding needs.

Investors should monitor net sales growth across segments, particularly the performance of IEI, CTG, and HRS, and any recovery in CEC. Net income and earnings per share will be important, especially considering the impact of non-recurring gains. Free cash flow generation will also be a key metric, alongside the successful execution and financial impact of the announced restructuring plan.