01—Abstract
Summary
Summary of the 10-Q filed July 29, 2022. Cited figures are marked; the original filing is the authoritative source.
Flex Ltd. reported solid revenue growth of 16% year-over-year for the first quarter of fiscal year 2023, reaching $7.3 billiona.
This growth was driven by all three operating segments: Flex Agility Solutions (FAS), Flex Reliability Solutions (FRS), and Nextracker, with notable contributions from the Americas region. Despite increased sales, gross margin saw a slight decrease to 7.3% from 7.4% due to inflationary cost recoveries and ongoing component shortages, which also pressured the FRS segment margins. The company generated $189 millionb in net income attributable to Flex Ltd., a decrease from $206 million in the prior year, leading to diluted EPS of $0.40 compared to $0.41.
Cash flow from operations was $38 millionc, a significant decrease from $334 million in the prior year, impacted by an increase in working capital, particularly higher inventory levels due to demand and supply chain challenges. The company continues to manage its liquidity effectively, with $2.6 billion in cash and cash equivalents and a recently established $2.5 billion revolving credit facility.
02—Key points
Key Highlights
- Net sales increased by 16% to $7.3 billion, driven by growth across all three segments: FAS (+16%), FRS (+15%), and Nextracker (+16%).
- Net income attributable to Flex Ltd. decreased to $189 million from $206 million in the prior year, resulting in diluted EPS of $0.40.
- Gross margin slightly declined to 7.3% from 7.4% due to inflationary cost pass-throughs and component shortages impacting margins.
- Cash flow from operating activities significantly decreased to $38 million from $334 million, primarily due to a substantial increase in inventories and other working capital components.
- Inventories increased by $0.7 billion, reflecting strong demand, component shortages, and a strategy to maintain buffer stock amidst supply chain challenges.
- The company secured a new $2.5 billion revolving credit facility maturing in July 2027, enhancing its liquidity and financial flexibility.
- Flex continued its share repurchase program, spending $181 million during the quarter and having $314 million available under its current authorization.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2023, Flex Ltd. kept $0.03.
- Revenue$6.96B100.0%
- Cost of revenue−$6.47B93.0%
- Gross profit$487.0M7.0%
- Operating costs−$234.0M3.4%
- Operating income$253.0M3.6%
- Interest, other & tax−$64.0M0.9%
- Net income$189.0M2.7%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2023filed July 29, 2022Financial Statements
Q2 FY2023 against Q2 FY2022
| Line item | Q2 FY2023Q2 FY2022 | Change |
|---|---|---|
| Revenue | $6.96B$6.34B | +9.8% |
| Cost of Revenue | $7.17B$5.87B | +22.2% |
| Gross Profit | $487.00M$471.00M | +3.4% |
| SG&A Expenses | $245.00M$201.00M | +21.9% |
| Operating Income | $253.00M$255.00M | −0.8% |
| Interest Expense | $44.00M$39.00M | +12.8% |
| Net Income | $189.00M$206.00M | −8.3% |
| EPS (Basic) | $0.41$0.42 | −2.4% |
| EPS (Diluted) | $0.40$0.41 | −2.4% |
| Shares Outstanding (Basic) | 458.00M491.00M | −6.7% |
| Shares Outstanding (Diluted) | 468.00M499.00M | −6.2% |
05—Questions
Frequently Asked Questions
What was the primary driver of Flex's revenue growth in the first quarter of FY2023?
The primary driver of Flex's revenue growth was a broad-based increase across all three operating segments: Flex Agility Solutions (FAS), Flex Reliability Solutions (FRS), and Nextracker. Strong customer demand, new project ramps, and the pass-through of inflationary costs contributed to the 16% year-over-year revenue increase to $7.3 billion.
What is impacting Flex's profitability and margins?
Profitability was impacted by a slight decrease in net income attributable to Flex Ltd. and a minor decline in gross margin to 7.3%. This margin pressure is attributed to ongoing component shortages, increased logistics costs, and the company's efforts to pass through inflationary cost recoveries to customers, which can temporarily affect margins.
Why did cash flow from operations decrease significantly?
The significant decrease in cash flow from operations to $38 million was primarily driven by an increase in working capital, most notably a $0.7 billion rise in inventories. This inventory build-up is a strategic response to strong demand, component shortages, and supply chain constraints, aimed at maintaining buffer stock and meeting customer needs, despite putting pressure on operating cash flow in the short term.
How is Flex managing its liquidity and debt?
Flex maintains a strong liquidity position with $2.6 billion in cash and cash equivalents. The company recently entered into a new $2.5 billion revolving credit facility maturing in July 2027, replacing its previous facility, which provides significant financial flexibility. While debt levels remain substantial, the company is in compliance with its covenants and manages its capital structure proactively.
06—Continue