10-QPeriod: Q1 FY2021

FLEX LTD. Quarterly Report for Q1 Ended Jun 26, 2020

Filed August 5, 2020For Securities:FLEX

Summary

Flex Ltd. reported its first quarter fiscal year 2021 results, ending June 26, 2020, showing a 17% decrease in net sales compared to the prior year, largely attributed to the impact of COVID-19. Despite the revenue decline, the company demonstrated resilience with a slight increase in net income to $51.8 million from $44.9 million in the comparable period. This improvement was supported by reduced restructuring charges and operational efficiencies, including lower SG&A expenses. The company also highlighted strategic organizational changes, realigning its business into two reportable segments: Flex Agility Solutions (FAS) and Flex Reliability Solutions (FRS), to drive efficiency and focus on core market strengths. Management's proactive cost-saving measures, including salary cuts and reduced discretionary spending, helped mitigate some of the pandemic's financial impact. Flex ended the quarter with a solid cash position of $1.9 billion, and while facing ongoing challenges, management believes its liquidity sources are adequate to fund future commitments.

Financial Highlights

49 data points
Beta

Revenue

$5.15B

5.9% Gross Margin

Net Income

$52.00M

1.0% Net Margin

EPS (Diluted)

$0.10

Total Assets

$14.13B

Cash & Equivalents

$1.94B

Free Cash Flow

-$739.00M

Financial Statements
Beta
Revenue$5.15B
Cost of Revenue$4.85B
Gross Profit$304.00M
SG&A Expenses$191.00M
Interest Expense$33.00M
Net Income$52.00M
EPS (Basic)$0.10
EPS (Diluted)$0.10
Shares Outstanding (Basic)498.00M
Shares Outstanding (Diluted)502.00M

Key Highlights

  • 1Net sales declined by 17% year-over-year to $5.2 billion, primarily due to COVID-19 related disruptions and demand pressures across segments.
  • 2Net income increased to $51.8 million from $44.9 million in the prior year's comparable quarter, signaling effective cost management.
  • 3Gross margin improved slightly to 5.9% from 5.7%, driven by lower restructuring charges compared to the prior year.
  • 4The company realigned its reporting structure into two segments: Flex Agility Solutions (FAS) and Flex Reliability Solutions (FRS).
  • 5Selling, General, and Administrative (SG&A) expenses decreased by $19 million, reflecting cost discipline and temporary compensation reductions.
  • 6Cash and cash equivalents stood at $1.9 billion at the end of the quarter, with management confident in its liquidity to meet obligations.
  • 7The company experienced negative adjusted free cash flow of $74 million for the quarter, compared to positive $114 million in the prior year, impacted by a strategic reduction in ABS program balances.

Frequently Asked Questions

The primary driver for the 17% decrease in net sales was the impact of the COVID-19 pandemic, which caused disruptions to factories, supply chains, and customer demand across most of the company's business segments. Notably, the FAS segment saw lower demand, particularly in Consumer Devices, while the FRS segment was impacted by automotive facility shutdowns.

Flex improved its net income despite lower sales by implementing strong cost control measures. This included significant reductions in restructuring charges and selling, general, and administrative (SG&A) expenses. Proactive cost-saving initiatives, such as temporary compensation cuts and reduced discretionary spending, also contributed to mitigating the pandemic's financial impact.

Flex realigned its business into two reportable segments: Flex Agility Solutions (FAS) and Flex Reliability Solutions (FRS). This change was part of a strategy to drive efficiency and productivity by focusing on two distinct delivery models. FAS is optimized for speed to market, while FRS is optimized for longer product lifecycles with specialized production models.

Flex ended the quarter with $1.9 billion in cash and cash equivalents. While operating activities used cash, this was partially offset by strong financing activities, including proceeds from new debt issuances. Management believes its current liquidity is adequate. Key factors influencing liquidity include managing working capital, particularly inventory levels which are expected to take a few quarters to align with demand, and strategic use of proceeds from debt issuance to reduce ABS program balances.