10-QPeriod: Q1 FY2024

FLEX LTD. Quarterly Report for Q1 Ended Jun 30, 2023

Filed July 31, 2023For Securities:FLEX

Summary

Flex Ltd. reported a slight decrease in net sales for the three-month period ended June 30, 2023, compared to the prior year, totaling $7.3 billion. While overall sales remained stable, performance varied across segments. The Flex Agility Solutions (FAS) segment saw a 10% decline, largely due to weakness in consumer-facing businesses, whereas the Flex Reliability Solutions (FRS) and Nextracker segments experienced growth of 11% and 21% respectively, driven by demand in automotive, health, industrial, and solar markets. Profitability saw improvement, with gross profit increasing to 8.0% of net sales, up from 7.3% in the prior year, primarily due to a favorable segment mix with growth in higher-margin FRS and Nextracker. Diluted Earnings Per Share (EPS) was $0.41, a slight increase from $0.40 in the prior year. The company maintained a strong liquidity position with $2.66 billion in cash and cash equivalents, although operating cash flow saw a significant decrease, largely due to working capital changes and debt repayments.

Financial Highlights

51 data points
Beta

Revenue

$6.89B

6.9% Gross Margin

Net Income

$186.00M

2.7% Net Margin

EPS (Diluted)

$0.41

Total Assets

$20.94B

Cash & Equivalents

$2.66B

Free Cash Flow

-$161.00M

Financial Statements
Beta
Revenue$6.89B
Cost of Revenue$6.40B
Gross Profit$476.00M
SG&A Expenses$235.00M
Operating Income$215.00M
Interest Expense$44.00M
Net Income$186.00M
EPS (Basic)$0.42
EPS (Diluted)$0.41
Shares Outstanding (Basic)447.00M
Shares Outstanding (Diluted)455.00M

Key Highlights

  • 1Net sales remained relatively flat at $7.3 billion for the quarter, with mixed performance across segments.
  • 2Flex Agility Solutions (FAS) sales declined 10% due to weakness in consumer markets, while Flex Reliability Solutions (FRS) grew 11% and Nextracker surged 21%.
  • 3Gross margin improved to 8.0% from 7.3% due to favorable segment mix and growth in higher-margin businesses.
  • 4Diluted EPS increased slightly to $0.41 from $0.40 in the prior year.
  • 5Cash and cash equivalents stood at $2.66 billion, though net cash provided by operating activities decreased significantly to $6 million.
  • 6The company repurchased $197 million of its ordinary shares during the quarter under its existing share repurchase program.
  • 7Restructuring charges of $23 million were recognized, primarily related to employee severance.

Frequently Asked Questions

Revenue changes varied significantly by segment. The Flex Agility Solutions (FAS) segment experienced a 10% decline primarily due to a decrease in the Consumer Devices and Lifestyle businesses, reflecting weakness in consumer end markets. Conversely, the Flex Reliability Solutions (FRS) segment grew by 11%, driven by strong demand in Automotive, Health Solutions, and Industrial markets. The Nextracker segment saw substantial growth of 21%, largely due to an increase in gigawatts delivered.

Profitability improved in the quarter. Gross profit increased to $587 million (8.0% of net sales) from $535 million (7.3% of net sales) in the prior year. This improvement was primarily attributed to a favorable shift in the business mix, with stronger growth in the higher-margin FRS and Nextracker segments, partially offset by an unfavorable mix in the Communications, Enterprise and Cloud (CEC) business.

Flex Ltd. maintained a strong liquidity position with $2.66 billion in cash and cash equivalents as of June 30, 2023. However, net cash provided by operating activities saw a significant decrease to $6 million for the quarter, down from $38 million in the prior year. This reduction was primarily driven by changes in working capital and substantial debt repayments, alongside capital expenditures and share repurchases, leading to an adjusted free cash flow outflow of $150 million.

The company is involved in several legal and tax matters. Notably, a Brazilian subsidiary faces assessments for sales and import taxes, with ongoing appeals and court actions. Additionally, Flex has made voluntary disclosures to OFAC regarding possible noncompliance with U.S. economic sanctions, with the potential for penalties. A foreign Tax Authority has also assessed significant taxes related to intercompany payments and income earned outside the jurisdiction, which Flex is contesting. While the company believes it has meritorious defenses and does not expect a material adverse effect on its financial position, these matters introduce ongoing uncertainty.