10-QPeriod: Q3 FY2024

FLEX LTD. Quarterly Report for Q3 Ended Dec 31, 2023

Filed February 2, 2024For Securities:FLEX

Summary

Flex Ltd. reported its third-quarter fiscal year 2024 results, showing a decrease in net sales to $7.1 billion from $7.8 billion in the prior year's quarter, a decline of 8%. This was primarily driven by softer demand in consumer end markets and a mid-single-digit percentage decrease in the Communications, Enterprise, and Cloud (CEC) business. The company's Flex Agility Solutions (FAS) segment experienced a significant 14% drop in net sales, while the Flex Reliability Solutions (FRS) segment saw an 8% decrease. However, the Nextracker segment demonstrated strong growth, with a 38% increase in net sales, highlighting its strategic importance and resilience. Despite the overall sales decline, gross profit improved year-over-year due to a more favorable business mix, with Nextracker's higher-margin contribution significantly boosting overall profitability. The company also recognized substantial restructuring charges of $74 million related to workforce reductions aimed at improving operational efficiencies.

Financial Highlights

52 data points
Beta

Revenue

$6.42B

6.7% Gross Margin

Net Income

$197.00M

3.1% Net Margin

EPS (Diluted)

$0.45

Total Assets

$20.37B

Cash & Equivalents

$2.76B

Free Cash Flow

$154.00M

Financial Statements
Beta
Revenue$6.42B
Cost of Revenue$5.93B
Gross Profit$433.00M
SG&A Expenses$205.00M
Operating Income$198.00M
Interest Expense$39.00M
Net Income$197.00M
EPS (Basic)$0.46
EPS (Diluted)$0.45
Shares Outstanding (Basic)431.00M
Shares Outstanding (Diluted)436.00M

Key Highlights

  • 1Net sales for the third quarter decreased by 8% year-over-year to $7.1 billion, impacted by weaker performance in FAS and FRS segments.
  • 2Nextracker segment showed robust growth, with net sales increasing by 38% year-over-year, driven by higher gigawatts delivered.
  • 3Gross profit improved by $59 million to $642 million, and gross margin increased to 9.0% from 7.5% year-over-year, aided by a favorable segment mix.
  • 4Operating income increased to $348 million from $321 million year-over-year, despite the sales decline.
  • 5Significant restructuring charges of $74 million were recorded, primarily for employee severance, aimed at enhancing operational efficiencies.
  • 6The company completed the spin-off of its remaining interests in Nextracker on January 2, 2024, which will impact future financial reporting by no longer consolidating Nextracker.
  • 7Share repurchases continued, with $275 million spent during the quarter to buy back 10.7 million shares.

Frequently Asked Questions

The primary driver for the year-over-year decrease in net sales was weaker demand in consumer end markets and a mid-single-digit percentage decrease in the Communications, Enterprise, and Cloud (CEC) business. This particularly affected the Flex Agility Solutions (FAS) and Flex Reliability Solutions (FRS) segments, which saw sales declines of 14% and 8% respectively.

The Nextracker segment demonstrated strong performance with a 38% year-over-year increase in net sales. This growth was driven by an increase in gigawatts delivered. Following its spin-off on January 2, 2024, Nextracker will no longer be consolidated into Flex's financial results, meaning its growth and profitability will be reported separately by its own entity.

Flex incurred $74 million in restructuring charges during the quarter, mainly related to employee severance. These charges are aimed at improving operational efficiencies. While they reduced operating income, the overall gross profit margin improved year-over-year due to a more favorable segment mix, particularly from Nextracker's contribution.

As of December 31, 2023, Flex had $2.8 billion in cash and cash equivalents and $3.4 billion in bank and other borrowings. The company generated $0.6 billion in cash from operating activities during the first nine months of the fiscal year and managed its working capital effectively. It also continued its share repurchase program, spending $275 million in the quarter.