10-QPeriod: Q2 FY2020

FLEX LTD. Quarterly Report for Q2 Ended Sep 27, 2019

Filed October 30, 2019For Securities:FLEX

Summary

Flex Ltd. reported a net loss of $116.9 million ($0.23 per diluted share) for the third quarter of fiscal year 2020, a significant downturn compared to a net income of $86.9 million ($0.16 per diluted share) in the same quarter last year. This loss was driven by a 9% decrease in net sales to $6.1 billion, primarily due to softness across most segments, particularly the Consumer Technologies Group (CTG) and Communications & Enterprise Compute (CEC) segments. The company incurred substantial restructuring charges of $128.3 million related to optimizing its portfolio and reducing exposure to high-volatility products in China and India due to geopolitical uncertainties and reduced demand from a key customer. Despite the quarterly loss, the company's balance sheet remains solid with $1.8 billion in cash and cash equivalents and $3.0 billion in borrowings as of September 27, 2019. Investing activities provided $1.6 billion in cash, largely from collections on asset-backed securitization programs. The company also saw positive adjusted free cash flow of $301 million for the first six months of fiscal year 2020, a significant improvement from a negative $245 million in the prior year period, indicating better operational cash generation. Management believes they have sufficient liquidity to fund operations for at least the next twelve months.

Financial Highlights

51 data points
Beta

Revenue

$6.09B

3.1% Gross Margin

Net Income

-$117.00M

-1.9% Net Margin

EPS (Diluted)

$-0.23

Total Assets

$14.28B

Cash & Equivalents

$1.82B

Free Cash Flow

-$1.10B

Financial Statements
Beta
Revenue$6.09B
Cost of Revenue$5.79B
Gross Profit$189.00M
SG&A Expenses$205.00M
Interest Expense$38.00M
Net Income-$117.00M
EPS (Basic)$-0.23
EPS (Diluted)$-0.23
Shares Outstanding (Basic)513.00M
Shares Outstanding (Diluted)513.00M

Key Highlights

  • 1Net sales decreased by 9% year-over-year to $6.1 billion for the third quarter, with notable declines in CTG and CEC segments.
  • 2The company reported a net loss of $116.9 million ($0.23 per diluted share) for the quarter, a reversal from a net income of $86.9 million in the prior year period.
  • 3Significant restructuring charges of $128.3 million were recognized due to portfolio optimization and responses to geopolitical developments impacting operations in China and India.
  • 4Gross profit margin declined to 3.1% from 6.0% in the prior year quarter, impacted by restructuring charges and inventory write-downs.
  • 5The Industrial and Emerging Industries (IEI) segment showed a 20% increase in net sales, indicating strength in this area.
  • 6Adjusted free cash flow for the first six months of the fiscal year improved significantly to $301 million, compared to a negative $245 million in the prior year period.
  • 7The company repurchased $60.2 million of its ordinary shares during the quarter under an authorized $500 million share repurchase program.

Frequently Asked Questions

The net loss of $116.9 million was primarily driven by a 9% decrease in net sales and significant restructuring charges of $128.3 million incurred due to portfolio optimization and the company's strategic decision to reduce exposure to certain high-volatility products in China and India following geopolitical uncertainties and reduced demand from a key customer. These factors, combined with lower gross profit margins, led to the quarterly loss.

The company maintains a strong liquidity position with $1.8 billion in cash and cash equivalents as of September 27, 2019. Investing activities provided $1.6 billion in cash, largely from collections on asset-backed securitization programs. Furthermore, the company reported improved adjusted free cash flow of $301 million for the first six months of the fiscal year, indicating better operational cash generation. Management believes they have sufficient resources to fund operations for at least the next twelve months.

The Industrial and Emerging Industries (IEI) segment demonstrated strength with a 20% increase in net sales, driven by growth in energy and home and lifestyle businesses. Conversely, the Consumer Technologies Group (CTG) and Communications & Enterprise Compute (CEC) segments experienced significant declines in net sales, attributed to customer disengagements, reduced demand (including slower 5G roll-out), and the company's active pruning of underperforming customers and product categories.

The $128.3 million in restructuring charges significantly impacted the third-quarter results, contributing to the net loss and the decline in gross profit margin from 6.0% to 3.1% year-over-year. These charges are part of the company's strategy to optimize its portfolio and streamline costs in response to geopolitical developments and reduced demand from specific customers, particularly in China and India. The company expects to complete these restructuring activities by the end of fiscal year 2020.