01—Abstract
Summary
Summary of the 10-Q filed July 26, 2019. Cited figures are marked; the original filing is the authoritative source.
Flex Ltd. reported net sales of $6.176 billiona for the first quarter of fiscal year 2020, a decrease of 3% compared to the same period last year, primarily due to softness across most segments, particularly the Consumer Technologies Group (CTG) and Communications & Enterprise Compute (CEC) segments.
Despite the revenue decline, the company's Industrial and Emerging Industries (IEI) segment showed strong growth. Profitability saw a notable shift, with net income decreasing to $44.9 millionb ($0.09 diluted EPS) from $116.0 million ($0.22 diluted EPS) in the prior year's quarter. This was influenced by lower sales, an increase in interest and other expenses, and significant restructuring charges ($56.2 million recorded in the current quarter, with expectations for further charges).
The company is actively managing its portfolio, including accelerating a strategic decision to reduce exposure to certain high-volatility products. Liquidity remains adequate, with $1.9 billionc in cash and cash equivalents.
The company issued new debt and used proceeds to refinance existing debt, maintaining compliance with covenants. Management expects current liquidity to be sufficient for at least the next twelve months.
02—Key points
Key Highlights
- Net sales decreased by 3% year-over-year to $6.176 billion, driven by declines in CTG and CEC segments.
- Net income significantly decreased by 61.5% to $44.9 million ($0.09 diluted EPS) from $116.0 million ($0.22 diluted EPS) in the prior year period.
- Gross profit margin slightly decreased to 5.7% from 5.9% year-over-year.
- The company recorded $56.2 million in restructuring charges in the current quarter and anticipates further charges in fiscal year 2020.
- Cash flow from operations was negative at ($656.9 million), though investing activities provided positive cash flow of $775.1 million, largely due to ABS program collections.
- Total assets increased to $14.4 billion, with a notable addition of $656 million in operating lease right-of-use assets due to the adoption of ASC 842.
- The company maintains a strong liquidity position with $1.9 billion in cash and cash equivalents and $1.75 billion revolving credit facility.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2020filed July 26, 2019Financial Statements
Q1 FY2020 against Q1 FY2019
| Line item | Q1 FY2020Q1 FY2019 | Change |
|---|---|---|
| Revenue | $6.18B$6.40B | −3.5% |
| Cost of Revenue | $5.78B$6.02B | −4.1% |
| Gross Profit | $352.76M$377.85M | −6.6% |
| SG&A Expenses | $209.62M$262.88M | −20.3% |
| Interest Expense | $40.43M$33.52M | +20.6% |
| Net Income | $44.87M$116.03M | −61.3% |
| EPS (Basic) | $0.09$0.22 | −59.1% |
| EPS (Diluted) | $0.09$0.22 | −59.1% |
| Shares Outstanding (Basic) | 514.24M529.38M | −2.9% |
| Shares Outstanding (Diluted) | 517.55M535.45M | −3.3% |
05—Questions
Frequently Asked Questions
What were the primary drivers of the decrease in net sales for the quarter?
The decrease in net sales was primarily driven by softness in the Consumer Technologies Group (CTG) and Communications & Enterprise Compute (CEC) segments. The CTG segment saw a decline due to pruning underperforming customers and products, while the CEC segment experienced reduced demand in its networking and telecommunication businesses.
How did the adoption of ASC 842 (Leases) impact the balance sheet?
The adoption of ASC 842 on April 1, 2019, resulted in the recognition of new operating lease right-of-use assets ($656 million) and operating lease liabilities ($690 million) on the balance sheet. This adoption had a material impact on the balance sheet but did not materially impact the income statement or cash flow statement.
What is the company's outlook on restructuring charges?
Flex Ltd. recognized $56.2 million in restructuring charges in the current quarter and expects to incur additional restructuring and other charges estimated between $145 million and $265 million throughout fiscal year 2020. These actions are part of a strategic decision to optimize its portfolio and streamline its cost structure, partly in response to geopolitical developments affecting a key customer.
How is the company managing its debt and liquidity?
The company has $1.9 billion in cash and cash equivalents and a $1.75 billion revolving credit facility. During the quarter, Flex issued new debt and used proceeds to refinance existing debt, including repaying $250 million of notes due February 2020 and $250 million of a term loan due November 2021. The company states its current liquidity is expected to be sufficient for at least the next twelve months.
06—Continue