Q4 2020 Earnings Call
[music].
Good afternoon, and walking to flex fourth quarter fiscal year 2020 earnings conference call.
<unk> is being recorded and all lines have been placed on me to prevent any background noise. After the speakers are marks there will be a question and answer session.
This time for opening remarks, I'd now like to turn the call over to Mister David Rubin Flex Vice President up Investor Relations, Sir you may begin.
Thank you Robert and welcome to Flex his fourth quarter fiscal 2020 conference call joining me today.
Chief Executive Officer, Baby Baby, and our Chief Financial Officer, Chris color.
Calls me and web cast and recorded and slides for today's presentation are available on the best Relations section of our flex Dot Com website.
But please note today's call contains bored looking statements, which are based on current expectations and assumptions, they're subject to risks and uncertainties, including the impact of it 19 condemning <unk> dipper materially.
Such information is subject to change we undertake no obligation to update these four looking statements for full discussion of the risks and uncertain easily see our most recent pounds, yes see see lastly, this call references non got financial measures current period gap reconciliations can be done and next slide that today's presentation walls on your best Relations section.
Website.
But that I'd like to turn the call over to R.C., Yeah, maybe <unk>. Thank you David mid afternoon, and thank you for joining US today. It has been an unprecedented 90 days for all of us.
But before I start I want to express my sincere. Thanks since N. best wishes to the tens of thousands of sex employees around the was well have worked tirelessly to achieve that as Dallas, if they proud to share with you.
It has described some of them credible work that's been going on in flat and the decisions, we have been making to overcome near term challenges, but it's still focusing on the long term financial house of the company <unk>.
Addressing all of our challenges thoughtfully and the great tenacity enable by an incredible can do in carrying culture deeply rooted inside the company.
We will not be giving form a guidance today because of the unpredictable. It in the current environment. However, I want to provide as much color as I can on what we're seeing and does options were making.
First I'd like to start with giving you an update on the code 19 situation.
There should teams had our first conversation about the corner viruses very January and as we shared your nine yesterday presentation March we developed a firework stream approach and the playbook for each of the work strange the priority to protect the safety in while being up our employees.
This approach really helped us to be ahead of the curve you deployed masks gloves sanitation measures temperature checks and social distancing in our factories well before government run health organizations mandated that.
We have enabled thousands of office.
Workers to work from home without compromising productivity.
Are protocols to protect employees in safely run operations have been recognized as best in class by several government, including China, Mexico Malaysian Brazil.
These protocols of not only help to protect our colleagues, but also enabled us just actively operate our factories in support of our customers that mandated at central products.
That's cool with 19 is primarily a global health crisis, there was a clear need to help raise the healthcare system capacity and this is something we could do in partnership with our customers.
Overnight many of our critical care products, we make for health care customers were in short supply the immediately <unk> our efforts to expand production of products such as oxygen concentrate errors, which help patients breed more efficiently along with other items like patient monitors infusion pumps and ice you bad.
But also significantly increasing our testing equipment production for both point of care and laboratory systems, where now ramping test for both identifying the presence of the code 19 virus as though it's new and highly accurate antibody test.
In addition, we were pushed by many medical and non traditional customers as those governments to hold manufacture ventilators. The global shortage of ventilators has been highly publicized as you all know it.
Current producers along with the supply chain I severely constrained and unable to me the global demand as many people have discovered ventilators not simple devices to make not only do you have to make the device, but you also need the required testing equipment as well, we engage with the number of partners to bring proven designs to mark.
But on a scale and speed never seen before our engagement with Philips has been talked about publicly and then also working with other ventilator Oh, he m.'s behind the scenes.
Most medical device Rams typically takes around 12 to 18 months.
We have significant experience, making complex medical devices as of seven weeks ago, We had never made a ventilator before now we're proud to say that we're producing ventilators at six sites around the globe and by the end of this month will be producing thousands though continue to grow.
Give you a sense of scale before this health crisis that entire global production on ventilators was around 25000 units per year.
So we're uniquely positioned to take on challenges such as these we have decades of experience and making medical grade devices, they're experts at dropping in building highly complex products and systems, often helping our customers redesign products make the production more efficient, but also exceptional at simplifying and managing <unk>.
Supply chains, including organizing them recently, which as you know is increasingly important for the market sweets or.
So you know there are many stories to share, but let me talk about a product they're producing <unk> one of the products that <unk> makes as a state of the are testing system that is now in high demand, we make components for the system, but nowhere near the quantities that are needed right now in response to this formidable challenge flex created a special.
Task force leveraging the expertise from our Swift space manufacturing side to ramp up other sites and record time.
As a result for a strong strategic partnership with <unk> Lexus been given the opportunity to make a difference and this pandemic.
I want to point out that this response was truly global in addition to our house solutions and operations teams countless others across organizations contributed a non medical segments supported with three purpose capacity needed regions are global procurement, an I.T. teams provided crucial support and they charge staff help.
Shift flex workers to the medical efforts.
Not to mention not crisis operations teams were keeping people safe and protected so they can produce these life saving products.
At the heart of this extraordinary effort is the tens of thousands of flex workers in our factories to deliver every day and I cannot overstayed, how proud I am despite the difficult times to flex family came together quickly found new ways to work and in many cases, where running 24 seven to solve complex problems and ultimately.
Truly live up to our purpose, which is to make great products for our customers that create value and improve people's lives.
Now, let's turn to our operations.
March Investor called we outlined that component shortages speech to peak on February 22nd since then our suppliers have made great progress and we are seeing fewer component shortages today V.C. component shortages in only a handful of situations and are managing them closely.
Now with regard to her operations were pleased that are China's sites are now fully up and running.
In our other regions, we have a few sites that are shut down due to a cute outbreaks in these geography remain in contact with the local and national governments, and I've and have received or in the process of receiving they've whereas to return factories safely to full capacity.
It also shut down our automotive facilities in line with our North American and European customer facility closures.
We expect that some of the automotive shut downs that started in March will continue through may.
To ensure be prepared for the uncertain demand situation, we have aggressively cut costs and our preserving cash our goal is to maintain as many jobs as we can and then to invest where we need to enable our future business.
To accomplish this we deployed a combination of graduated salary cuts for low isn't other programs taking actions are just pay cuts and for those can be challenging as you. All know it that are absolute necessity. During this unprecedented time.
I want to thank our employees again for their dedication to flex and willingness to sacrifice to protect jobs.
We also decided to suspend our share buybacks for fiscal Kiwanis part of our efforts to preserve cash and Chris will walk you through our strong liquidity position and our financial conditions during his remarks.
Oh, please turn to slide five.
Considering how quickly the covert 19 situation escalated in the quarter, we executed what grade discipline, which resulted in a strong quarter for us.
Let me highlights several of the key financial metrics for our fourth quarter.
Revenue was $5.5 billion down 12% near over your due to cope with 19, along with previously planned changes in our portfolio makes you reduce exposure to high volatility and short cycle businesses.
We achieved in the adjusted operating margin of 3.8%, despite absorbing and impact of $52 million in the covert 19 costs are adjusted E.P.S. with 28 fan.
We had a very strong quarter for Justin free cash flow of hundred and $34 million.
These strong results reflects our focus on driving disciplined execution and a fast reaction to the pandemic.
The attorney decide slide six I'll talk about our fiscal 2020 results <unk>.
Revenue was 24.2 billion down 7.6 year over per cent year over year, we achieved a four year adjusted operating margin of 3.7%, which is the highest since 2001 are adjusted E.P.S. for the year with $1.23. It was but then the original fiscal year guidance of $1.20.
To dollar 30 and through this year regenerated adjusted free cash flow of 672 million.
Turning to slide seven I have to say that with the number of challenges. We saw this year, including the global trade impacts our plan changes to our portfolio and the covert 19 crisis.
Back that'd be had one of our strongest financial yours.
Should give you confidence in the fundamentals of our company.
The actions, we took and are taking position as well as we continue implementing our new strategy now.
Now I'd like to turn the color were to press will walk you through our quarterly financial results in more detail I will then come back at the end to share some closing remarks, Chris.
<unk>.
[noise] for a fourth quarter income statement summary.
Yeah.
Or fourth quarter revenue total five enough billion, which was don't 12% you're over here.
Flooding the distinct options, we undertook earlier this year to reduce our exposure to high volatility short Psycho business.
And the result of covert 19 negatively impacting demand and production during the quarter.
Or q. for Justice operating income of 207 million reflected the impact of incremental expenses associated with colds and 19.
Display to $742 million decline quarterly revenues year over year or Q. for operating income was Oh 3 million you're over here.
Or adjusted net income was 143 million.
Resulting in adjusted earnings per share of 28 cents.
Which was up 5% you're over here.
Fourth quarter Gupp net income 48 million was lower than are adjusted net income primarily due to $18 million stock Miss compensation $13 million and nothing tangible amortization and 64 million enough restructuring and other charges.
Oh, Please turn to slide 10 for a quarterly financial highlights.
Let me begin by highlighting the significant earnings impact we absorb this quarter associated with covert 19.
Which amounted to roughly 52 million of costs.
These costs included enhanced health and safety measures.
Labor incentives incremental supply chain costs, and forced under absorption of labor and overhead costs.
These additional costs were occurred as we implemented appropriate health guidelines for global sites and comply with government regulations.
And in certain countries there are limitations in our ability to adjust recall structure during factory shutdowns.
Well, our fourth quarter adjusted gross profit was down for person year over year or just a gross margin improve 50 basis points, you're over your to 7.1%.
So despite these shocks that we're not forcing on restarted the quarter or.
Or better mix of business, coupled with improved execution from our operation teams led to our fourth consecutive quarter of your over your gross margin expansion.
Or us Unix most decreased nine per cent in your over your to 185 million this quarter.
Which an absolute dollar terms is the lowest quarterly level, we're all printed up in over seven years.
This was the result of strong costs discipline embedded in our organization, which enabled us to respond quickly to current market conditions like taking targeted options on our discretionary spending.
Maintaining our costs focus all interacting further cost measures will further reduce or operating expenses as we go forward.
Lastly, or your over your adjusted operating margin expended 50 basis points to 3.8%.
Which marks or seven consecutive quarter of your over your margin expansion.
No turn despite a loving for a fourth quarter business segment performance.
H. or us revenue was 1.1 billion Donald 6% you're over a year.
Even been 8% decline in automotive and he 2% decline in Hell solutions.
Or automotive business was hampered due to multiple softer shutdowns from so several of our large oh m. customers, leading the quarter.
In response to the covert 19 outbreak.
<unk> was modest we weaker a certain customers also saw minor covert 19 related disruptions.
Revenue for I I business grew as strong 23% you're over your to 1.9 billion.
I I benefited from significant growth was in energy.
In particular or renewable energy solutions, which exhibited strong revenue growth throughout the quarter.
There's more than offset underlying supply chain disruptions that impacted product clamps for various industrial as well as home and lifestyle customers.
She she revenue declined 23% you're over here to 1.5 billion.
Which was reflective of across the board reductions in data center edge compute.
Oh come and networking due to production disruptions.
Lastly, T.T.G. revenue declining 37% from the prior year, two 1 billion.
<unk> significant supply chain constraints that impacted our ability to ship product.
As well as reflecting the impacts of our targeted portfolio reductions in high volatility low margin short cycle businesses earlier this year.
Turning to profitability, we were pleased to expand our adjusted operating margin year over year to 3.8%.
H.R. us generated $63 million of adjusted operating profit and they 5.6% adjusted operating margin.
I'd like to point out the reduce profitability and margin performance, we're primarily reflective of the under absorption impacts associated with a temporary closure of several several of our automotive sites.
There's automotive weakness masks the success of our ongoing ramp of a large continuous glucose monitoring device program.
Which is a foundational element of our house solutions offering.
I I generated $134 million of adjusted operating profit.
And a 7.2% adjusted operating margin.
The strong performance reflects the continued benefit from a richer mix of business that we've been winning over the past several years as well as increased contribution from strong renewable energy grow.
She she delivered 31 million of adjusted operating profit and a 2.1% adjusted operating margin as we continue to adjust she sees cost structure to align with this lower top line.
Finally, she did you publish it 8.6% adjusted operating margin.
As it was pressured from manufacturing inefficiencies due to supply chain disruptions, while simultaneously undergoing repositioning have its cost structure.
Turn into slide 12, let US review, our cash flow generation highlights.
Or fourth quarter performance displayed solid cash flow execution.
Adjusted free cash flow was 134 million as we continue to operate with discipline over both count Bucks and working capital.
This mark the six consecutive quarter that we have generated positive adjusted free cash flow.
We generated 166 million cashwell from operations, despite experiencing higher alimentari levels.
Remained elevated due to constrain supply environment during the quarter.
Oh, you've mitigated most of the initial supplier constraints and component shortages that we encountered back in February we continue to operate in an unusual and dynamic environment with respect to virus related production limitations and fluctuating demand.
As a result, we expect it will take a few quarters to adequately drive down our inventory levels to a line with the current demand environment.
Do that regard.
Actively working with our partners to rebalance safety in buffer stock requirements.
And we have an established enterprise wide cross functional initiative resetting our load planning.
We are confident we will be able to achieve our target of reductions given the numerous inventory management actions already underway.
A key element of our cash flow generation has been the discipline with which we have manager cat Bucks investments this past year.
This quarter, Oh, net capital expenditures told 83 million <unk>.
Significantly lower than depreciation.
Thanks to prior years investments that are now supporting new technologies products and programs.
We continue to have confidence in our ability to manage complex to be at or below or depreciation levels.
Well adequately investing into the core areas of girls for the company.
As we managed through alleviating supply constraints production restarts and clearing finished goods.
As well as some shifting in payables, our cash flow will fluctuate in the near term.
However, you believe it is important to reiterate.
That's what's his free cash flow generation will continue to be largely counter cyclical.
Resulting from working capital reductions expected in a don't cycle, coupled with our ability to sustain discipline cutbacks investment.
Point free cash flow in a prudent fashion is the key feature of our capital allocation strategy.
During the quarter, we remain focused on delivering shareholder return.
So we repurchased over 7 million shares for $87 million.
Over as market conditions changed we suspended Sherry purchases in mid March in order to prioritize our liquidity in cash position during the ongoing health crisis.
We actively monitor our capital allocation.
And we will resume sherry purchases at an appropriate future date.
Please turn to slide 13 for liquidity in cash update.
We continue to operate with it balanced inflexible capital structure.
Stagger debt maturities, no meaningful near term maturities and no maturities that exceed our expected annual adjusted free cash flow.
During the quarter, we took a number of steps to enhance our liquidity position.
Such as suspending share repurchases in March.
Further tightening cap bucks to always fun critical investments and our highest margin opportunities.
And aggressively reducing discretionary corporate spend.
Enacting targeted pay reductions.
As we closed out this fiscal year, we had ample access to liquidity, including our one and three quarters billion on drawn revolver supported by a strong banks and <unk> syndicate.
In summary, we have worked very did diligently to maintain a sound and flexible capital structure that gives us confidence in our ability to meet our current and future business needs.
We remain committed to maintaining our investment grade ratings.
Please turn to slide 14 for first quarter fiscal 2021 business update.
From where we stand today, we continue to operate in a very dynamic in highly food production environment.
Our ability to safely run our factories subject to local conditions in government actions, both of which can change quickly as further outbreaks or disruptions occur.
Given the uncertainty in this current environment.
We were lucky to suspend quarterly guidance for the June corridor. So.
So we want to provide some qualitative insight into how we view, our and markets and how we're driving disciplined operational execution and sound financial governance.
Oh, they start with our flux agility solution segment, and it's business groups.
And lifestyle or demand is negatively impacted by reduced consumer spending protected particularly on non essential products.
Ever we're seeing certain bright spots within durable goods that support remote working and schooling and in areas like cleaning and home beverage.
Oh, she she business is experiencing increased cloud infrastructure demand due to increased telework streaming gaming and other online usage.
We're also seeing increased demand to support remote work in our networking edge computing and V.P.N. solutions.
Cover were seen broader commentary, indicating that overall enterprise I.T. spending looks to be flat to down.
Driven by broader cap extra strain.
Telecom infrastructure is also challenged.
Spend level, maybe a common on demand for these products. It's also about the impacts from supply chain disruptions and inadequate field labor, which may further postpone some aspects of five g. roll outs.
With regards to our consumer devices.
We have seen a moderate moderate upticking P.C. and notebook demand due to the shift to telework practices.
But this is being more than offset by weaker consumer demand for our customers mobility products.
Turning to our flux reliability solution segment.
Let me start with her automotive business group.
This is an area where visibility remains very low.
[noise] all indications on the trends around increasing vehicle features and content.
Electronification as well evade ass will continue.
Well many of our longer term projects and opportunities.
However.
The full impact of plant closures by North American and European <unk>, it's not fully known and the serious impediment in the near term.
Oh production is expected to resume to some degree in mid May we still do not have a clear view of that demand.
So while we were made very confident with our differentiated solutions offering in the long term fundamentals within automotive.
Our financial performance in this very rich piece of our business will be extremely pressured in the near term.
You know solutions as raise if he had highlighted earlier covert 19 is driving significant demand increases in critical care products, such as Oxygenators ventilators patient monitors testing equipment and I see you related necessities all of which we produce.
This new business demand is nicely balanced over our portfolio.
And we continue to have a very healthy pipeline.
However demand related to elective procedures has been impacted by the shelter in place orders.
Whichever essentially shut down non emergency medical services.
We expect elective procedures and routine health care services to return the timing and that pace at which they return is unclear at this point.
In the interim that creates a modest headwind tour overall, how solutions demand, but again, we expect growth in our June quarter, given a significant ramping business.
Lastly, or industrial on it or industrial business is likely to remain challenged.
Well renewable energy has been largely stable, we've seen near term signs of reductions in this market.
We also anticipate near term challenges ahead related to cap x. reductions across all major industrial segments.
Given the some of the I once had just shared we would expect a quarterly enterprise revenue to decline. She <unk> in the range of high single too low double digit percentage as we continue to operate through regional production disruptions as well as an acute volume pressure within our automotive business.
When considering our first quarter adjusted operating margins.
We also anticipate impacts for me sequential doubling or more of the covert 19 costs, we incurred in or fourth quarter.
This increased comes primarily from greater levels of operational shutdowns capacity constraints.
Which creates elevated levels of under absorption.
As well as sustaining cost pressures due to some jurisdictional constraints on our ability to take distinct costa actions.
As well as sustain costs associated with protecting our employees.
The last thing we want to mention is that we've taken numerous actions to align our costs structure with today's lower sales levels.
And we continue to drive those efforts in a thoughtful and disciplined way.
These effects will mitigate some of our incremental covert 19 related costs.
As well as a result, and asked you know expense level that is modestly lower sequentially in the first quarter.
With that let me turn it back over to re busy.
Thank you Chris.
Looking back at her queue for in our fiscal year 2020 results. It is quite clear that the flex team is executing with the new cadence and read them, even in Q. form and the challenges with production and supply chain, where unexpected we stayed agile and executed with discipline.
Let me tell you what we're doing differently. This time from prior downturns.
I believe that we have a unique opportunity to anticipate and balances supply and demand needs and adjusters investments and working capital Accordingly, I called us our operational <unk> radar, which enables us to look out beyond our immediate you know time horizon.
Using those radar we haven't early insight into an incredibly broad base of customers very diverse products.
Operate in directly or indirectly in almost every country in the world.
So we see early data of the grassroots level to our contacts with thousands of purchasing managers and local leaders and they combine that with the connectivity we have with a broad array of C.E.O.'s banks in government officials were using all that intelligence to help shape, our customer and our supplier behaviors in terms of demand. So we can <unk>.
Operate as the more they shouldn't supply chain.
Also using that to actively scenario plan for different demands scenarios, enabling us to respond to decrease as our increases very quickly.
Oh, there's lots to be done here, but the goal for this industry should be to come out of this crisis more efficient and agile we want to drive the leadership thinking around this.
Oh, turning to slide 15.
All of this I want to stress that we remain committed to our long term strategy, we outline to you at an investor They bought back on March 11th.
<unk>, even more convinced that our strategic approaches right. We will continue our shift or more diversified portfolio will focus on targeted growth applications, expanding our technology differentiation as well as design operating models, which are tailored specifically to our agility and reliability segments.
And you can see that this is working.
Into slide 16, you'll see that our strategy is allowed us to react to change faster and has positioned us for the new demands of adaptive supply chains and Regionalise regionalized production.
I differentiation through focus domain expertise in technology is enabling us to solve our customers most difficult manufacturing challenges and his deepening I've cuts <unk> and supply relationships.
And even more confident we've come out of the other side of this global crisis stronger and better position for the future.
Finally, I'd like to to return once more to thank our employees for their tireless work throughout this period, we should all be very proud that we're making many essential products that save lives and to play a part in enabling the woolsey economies to keep working.
I continue to be inspired by the creativity in the generosity of the flex employees around the <unk> lobe.
Being our teams come together to contribute in so many ways from ramping ventilators and weeks not month, making in donating hundreds and thousands of math in our communities creatively working in their homes to make sure. We meet our commitment while also caring for their loved ones has shown how resilient and resourceful the flex family is.
I want to thank you for your support and we remain committed to delivering consistent sustainable long-term value for shareholders.
[noise] at this time, if you'd like to ask a question. Please press star than the number one on your telephone keypad.
If you'd like to withdraw your question press the pound key <unk>.
Pause for just a moment to compile the q. and a roster.
Your first question comes from the line of Mark Delaney with Cross Goldman Sachs. Please go ahead. If your line is open.
It's good I can picture unless you're taking a question so in a better understand the bookings trends that bucks. That's on the marks corridor and also a month of April and maybe you know I don't understand it bookings and continue to be pressured or more recently a good in April or if there's any signs of stabilization at the companies now so you.
Yeah, Mark. Thank you for the question I would say that bookings were lower and our last quarter compared to our prior quarters, but as you recall, we came into the year with a very strong bookings year in keys segments, like automotive and how solutions and industrial.
You know I would say in in critical segments like health that was very strong as it as you would expect but we definitely saw some slowness in our other segments, which is also expected and the time like this as customized pause and focus more on executing then releasing new P.O.'s, so, but I feel quite confident that are pipeline that.
Sit on for a house solutions, and automotive and industrial it's pretty strong and our recovering agility will be attending back with the markets as it comes back.
Right.
Questions on on margins, it's certainly a a metric that companies are done very well on a bicycle quarters included in this this most recent quarter out it to the.
Martin expansion out of your of your basis, as we think long heard about the market potential for the company and so the targets that flux. It discussed now do you think a industry should expect any change on what the out of the margin levels are so different segments can be in the long term.
So it's accurate in the central costs her physical distancing and a covert prevention. Thanks.
Yeah, No I would say that you know obviously like we sat next quarter will be challenged because we'll be increasing the code related costs. So we see as a result of supply constraints and operational disruptions and shut down. So we're seeing that'd be a very confident mark that we come back to the not only.
They expect to ranges that we have in terms of operating margins, but also to the commitment I made an investor day in terms of our long term focus on a on improving margins, which comes as a result of having the right mix with the right set of bookings in growth in the areas. We think are the right fit for flex that also with.
Driving operational efficiency, where we think we have more room to drive operational efficiency across our business. So other than the you know the pause that we think that will have in in Q1, we see that returning back to the operating margin levels, we want to execute and is in our horizon and actually.
R.Q. for results should be a great indication of that that we have executed so well in q. for despite the challenges in revenue.
<unk>.
During next question comes from the line of not sharing with Stiefel. Please go ahead. If your line is open.
Oh, yes. Thank you Chris I wanted to talk about the the commentary regarding our cash flow expectations.
I understand the the inventory situation and I also understand it could take it a longer than normal just because some customers me <unk> want you to keep some inventory there's continue to be supply chain disruptions, but are you working with customers in terms of them to pause m. your cash deposits.
Supporting you in that regard and once you get passed this quarter to which we expect to see it kind of a normal free cash flow relative to the the revenue declined that were expecting.
<unk>. Thanks for the questioning yeah for sure the a and the prepared remarks, who tried to pay that picture. So it's very clear you know the if you just look back we've we've got no six straight quarters of greater than $100 million, a free cash flow generation, we've been operating very well great.
Coupling around networking capital grade discipline around our cat Bucks investments one of the things that that the shock has done is is kinda elevated the levels of inventory in the system in the prepared remarks were highlighted that we are working with partners right now reassessing buffer stock safety stock requirements also.
[noise] are finished goods inventories at a very high level. So active discussions great great engagement with our partners as we work through this hand in hand.
And we would expect that to abate in we measured it <unk> you, taking a couple of quarters, but you put it all together you know we operate in a very countercyclical way you should anticipate seeing the company continued to generate solid free cash flow generation just coming here.
We've been able to demonstrate that historically through these cycles as well and I'd say you know some of the actions we've taken in terms of rudimentary management in the in the rigor and discipline all will prove beneficial to us as we move through these couple of course.
Okay. Thanks for that it is a good question regarding the the strength and some weakness you're seeing in medical relative to you know covert relieve it's related needs a an elective surgery on on on the first part are you expecting you know that to to wind down instead of <unk>.
In terms of the surgery. She now you know the expectation is that the the opportunities in the elective are part of the business you know might might offset that.
No not absolutely absolutely thinks that our growth in house solution next quarter is gonna be strong a net off even those the adoptions and elective surgeries and those areas and then we expect that you know the areas that are little muted today, because patients aren't going to hospital for.
<unk> going to rebound back pretty quickly because you can have that.
Stay at home and wait for those kinds of elective procedure is so next quarter within a strong growth in health solutions.
And we expect that that they'll be in that they'll say new adoptions in a non critical procedures, which we then think we'll come back pretty quickly.
Very very pleased with the performance of that group and just back at her Investor day, we'd highlighted the robustness of the continued bookings you know about Tibet. Two years in are all very very healthy bookings across a broad array of product categories diversified with new partners as well so.
We believe we have a a healthy pipeline in a nice outlook for that business.
Okay, great. Thanks, a lot.
Your next question comes from the line of student Fox with Fox Advisers. Please go ahead you're line is open.
Thanks, Good afternoon could you maybe give us a little more detail on your experience with producing these days in Mexico, Malaysian India and how much those region serve account for some of the challenges you have going ahead, and then secondly, Chris with regard to the code that cost pressures you highlight.
Good for this quarter is there any overlap with sort of with the auto O.U.M. pressures, you're seeing as well and in the sense that you might have an ability to shut down some clamps fully where you would like to thanks.
Yeah, Steven Thanks to the question I'd say that you know with relation to Malaysia, though you know we have had we have seen a impact than the last quarter in Malaysia, and we continue to see that this month. So you know as a as you all know Malaysian government approved a lot of the central factories to be.
Running at 50, plus percent and have and we are quickly returning back 200 plus per cent based on the 100% based on the approval. It's we have in Malaysia.
India slowly coming back we expected to start production next week, and then ran back to full capacity through the <unk>, Mexico, even though we have approval to operate and most of our Mexicans facilities outside of automotive because they all classify as essential products you know what we.
We are doing is being proactive and watching where there are coded outbreaks in Mexican cities and trying to shut down our facilities just to keep our employees say, so even if governments or allowing us to keep it running Stephen were being very proactive and making sure that worth keeping our employees safe. So we think that Mexico's the place.
To watch next quarter.
More related to outbreaks than anything else in terms of our capability to operate fully and then automotive is definitely shut down for now starting in may, but I'll handed over to Chris to talk about automotive more.
Yeah for sure the the impact that we're seeing that we highlighted in terms of the codes and costs you know yeah more than double for US is coming period in that also has a large reflection on the the extended shutdowns that are occurring as a result of north American and European <unk> partners of ours, having their facility.
Closures you know we operate a pretty significant global scale, we have over 20 automotive certified facilities in several of those are are shut down and there'll be turning back on his return production back on throat.
Me and then ramped up production so that does put a heavier impact in terms of our our costs undertaking the next period.
Great. Thank you very much for that that's very helpful.
You are next question comes from the line of Shannon Cross with Cross Research. Please go ahead you're line is open.
Thank you very much for taking my question I was wondering if you could talk a good about how any thoughts have changed on the five G. Ram.
You're hearing from your partners and you know how you're thinking about it as we look forward given some of the pressures from from cover at at this point and then have a follow up thank you.
Thank you had an here let me just talk about five Gee here for a second you have also hood. Our some of our customers also talk about five g. ramps in their earnings call over the last few weeks you know what we have said before about five G. Shannon is that you know if you look at our relative wins in five g., whereas.
Strong in Asia and Europe.
You know not as strong in North America right now what we're seeing is that the five g. investments in China, It's just ramping up significantly and that's the result of the government, making and infrastructure investments in China to help the economy and we are definitely seeing a a big benefit from that and Europe and.
North America are somewhat on on pause right now what we are hearing from our customers is that that eventually this is going to start coming back up but as you can tell from constrains off you know people and resources to deploy a on this this is not n. if it comes back at six.
No when it comes back and that's the main thing would all be looking for it. So I'd say, China strong we'd have to see for Europe, and North America does start coming back, but it's just a question of timing.
Okay, Great and then I just want to follow up from the standpoint of the that costs side of things I'm, just curious as you're seeing some of the the pressures and various segment.
How much can you shift some of the manufacturing capacity and reallocate at four areas of growth and I know you talked about about auto but I was wondering about some of the other areas within your within your business in terms of opportunities to leverage under utilized assets. Thank you.
Shannon, Let me talk about what we're doing now and what we are kind of changing in terms of our operational model. Even moving forward today were absolutely shifting resources from you know our areas, which are under utilized particularly to medical and they're doing that in fact craze in juarez send Romania.
In the U.S. bear, where we are doing medical Rams, where shifting our employees both from factory employees and non factory employees to help with men medical <unk> across the board and that's happening quite effectively and efficiently <unk>, we're receiving a lot of compliments from her.
Medical customers as we do that but you know our whole thesis on building the right operational model Shan't Shannon <unk> reliability is really meant to fit that that we would be doing that even more efficiently as we move forward as we make sure that our factories that that writes cycle of products into the right.
Facility in that way, we'll be able to flex up and down a variable in a fixed costs structure, even better than what we're doing now because you can see from our queue for results were doing quite well and then on top of that of course, we can take a lot of actions like we're doing already in terms of variable costs to offset any near term pressure and.
You can see that they've already implemented and <unk> and executed all of those so you know Q4 shows that we're doing that shifting of resources extremely while and taking cost actions, but our long term operation model that building with a lot US intelligence makes is even more robust in for a for us to opera.
Through the cycle.
Great. Thank you.
[noise]. Your next question comes from the line of Jim Sufa with the city. Please go ahead you're line is open.
Hi, This is Tim Young call me I'll be hollering gyms through.
Taking the crowd shows a clarification question you have to 15 52 million costs associated associated with covert March quarter, and then used to next quarter of the costs will be double so roughly 100 million.
<unk> incremental cost plus but how to words from the lower volume he's up right away to think about the margin performers for next quarter.
But.
So just for a bit a clarification as well and it was touched on earlier, there's a bit of overlap with regards to that as as there is under absorption Crushers says result of these extended shelter in place rules closures in in the in the impact of where we are having to run some of those are not remove some of those factories. So.
Part of that is in the equation of doubling that costs that we absorbed in are you for.
<unk> hopeful given your global manufacturing for parents.
Can you talk about a whole bunch of shoo quarter selves decline.
Factory closer at home I says as from looking around with this <unk>.
<unk>.
Yeah. So let me started with that I'd seen some sectors. It's all busy very yeah right like automotive you know is that as I was the factory closures, but I think.
This is not a simple on third right. Because every segment. What we are trying to understand is what is the recovery that comes back as the factories talked to operate and what becomes at the monitor adoption. So if I think about it in terms of segments. My segment, yes, automotive will be coming back as a result of shut.
Down, but you all have c. nice I test projections that automotive overall is probably going to decline north of 20% in the year. So I won't you're going to see in the court, though does a little bit of for the next right. The same I would say in films of other segments. If you think about C.C., if I appeal that N.N. I would say.
He asked with these strong growth in terms of our cloud infrastructure investments that if you think of enterprise spending we would expect that that demand would be down in enterprise spending and and see see and that would be demand related not related to any shut down. If you think about industrial we had strong growth in industrial across all segments in Q.
For were still expecting a pretty solid Q1 for industrial but we do expect that calf back spending an industrial segments will be somewhat constrained. So what I would take away from this is that we have proactively working with customers using intelligence to understand and demand and then adjusting our.
Our <unk>, our operational capability and capacity to meet with that pretty quickly is how we're dealing with that so it's hard to really.
That it's a one size fits all on seven is that operation was that demand I would say, what you're seeing and Q1 is a combination of both then each segment is different.
Great represent a color. Thank you.
[noise]. During next question comes from the line of <unk> with Bank of America. Please go ahead. If your line is open.
Thanks for taking my questions can you talk about the portfolio pruning of that you've been doing in the C.T.G. segment and it's easy.
And where does that stand given you know demand is.
Currently week, and and the June quarter, or you're still doing more pruning and how how do you think that impacts the revenues and margins into into June quarter.
Yeah. So I think we've addressed most still far of portfolio corrections I was saying the last year. They will be some <unk> <unk> because if you remember most of our you know actions in terms of corrections of portfolio started than cute too off last year, we gave you.
A range of 300 plus million dollars impact in in a quarter for that so you would see some overhang of that because there'll be a cue one to two one comp as related to that but I'd say most of our portfolio actions in any significant scale. You know has been done, but that'd being fed I will constantly.
Look for us improving mix in every aspect of our business and that's going to be an ongoing task for our teams now that I I would think any good business will continue to do that.
Yeah that makes sense and thanks for that for the details rate with the the second for my full of if you can address maybe uses of cash I realize you need to maintain liquidity, but it looks like you have good liquidity you'd want to have a lot of dead coming up soon you suspend it buybacks so given that.
I mean would it make sense to maybe think of some inane organic growth in in this time, and maybe try and consolidate some of the competitors or smaller players in the M.S.P.'s. So just your thoughts on organic growth in this environment thing.
Yeah, So who do what I'd say is you know I said and then that's today conversation that when I think about M.N.A. for the space. The the places we'd be looking for is where we have technology advantages in areas that they want to target for girls, particularly in areas like automotive held parts of industrial.
Oh, where it clearly gives us a technology advantage now you are right. We have a strong liquidity position and we're continuing to build on that they feel very comfortable that for the that as the time shows up and if the the right assets available <unk> take a look at it but maybe now is not the time for.
But but we'll watch and see but where well positioned I would say our liquidity position is extremely strong and get anything stronger and if the ride assets show up at the right time, we'll think about it but I'm not sure. The since the this quarter is that right time, but we'll keep our eyes open.
Okay. Thank you for that either.
Your next question comes from the line of Adam to deal with Raymond James. Please go ahead, you're line is open.
Good afternoon. This is Madison on for Adam and Thanks for taking my questions I Wanna first acknowledge the fact that you are growing profit dollars on double digit revenue decline so pretty impressive. It's we're not accustomed to seeing E.M.S. models like that I know growth is driven by very solid performance in I I, but it sounds like forward commentary was.
Little more cautious, but can you just touch on the sustainability with an eye for both the revenue in March and standpoint, and was there anything one time in the order that you would call out that benefited I I performance.
Yeah, So what I'd say Adam is that you know our ability to continue to improve margins as a result of having declining revenues.
It's not related to the fact that they're focused on the right <unk>, but we also had taking a lot of efficiency actions across our portfolio, which is helping that I expect that to continue in the case of then that's true of question you know I would say the only reason, we're saying that though that there will be some slowness and then.
That's true, let's just because you know demands situation is unknown, we think that they've they've all position and industrial we said that in prior quarter is that the available market in industrial is significant there's lots of room to what to be integrated yeah hearing more from industrial customers in that time like this for their for the opposite.
<unk> to actually move business over it to us as good meaningful design and engineering content, and I and I industrial businesses now fairly sizeable with how we have position dead. So other than the fact that you know demand is slightly unknown right now from overall customer base.
Respected we think you one will take a little bit of pause, but we have no can sons that industrial will continue to grow you know to the foreseeable future as the world returns to normalcy.
Okay. That's good color. Thank you and just a a quick follow up knowing the slide you mentioned that operating margin is going to be down sequentially. But you also think that operating margin is going to be down from a year over year basis as well. Thanks.
Yeah, we we we defined the the the qualitative inside there on a sequential basis.
You know, there's a lotta puts and takes inside of that if you look back to the same quarter of a year ago.
Roughly a 3.4% operating margin.
You know.
We're we're just not going to get into guiding but we are operating business to continue to have strong margin performance very thoughtful with regards to the.
The cost structures were operating we've installed several austerity measures then I think we're managing through this crisis in a very strong fashion.
In in in fact, you know.
We have not cut to the bone in the actions we've taken to date. So we're going to be very thoughtful very disciplined as we move forward continuously evaluating the costs structure and being a good solid partner and Adam I'll be honest with you are a big challenges really predicting the mixed right to end because it's going to depend on how soon automotive opens.
Back and how quickly drams backup or things like that some mix really plays a role in that and that's why we're being a little bit more cautious and calling it out exactly because I think those are the things that'll that'll impact how this quarter looks but I'm sure. All a few are well used to the fact that this is gonna be an unusual quarter for the whole.
Walled for every company across the world, but.
But hopefully what Q4 shows you is that even in times like this we're executing wall and that's what we'll continue to do.
Okay. Thanks, again graphic in the questions.
Your last question comes from the line of Paul Koester with J.P. Morgan. Please go ahead you're line is open.
Hi, guys, it's Paul Chung on for costs are thanks for squeezing me and so.
Just just a quick one just your quick thoughts on the you know the U.M.S. industry. You know as we think about you know kind of those coded do you expect to see maybe increasing walcher from.
Some of your existing customers as you know they maybe maybe look to off load. Some fixed costs and then also do you expect to see maybe some more.
<unk>, maybe some smaller Eunice players just curious on your thoughts there.
And how do you think margins and you know kind of pricing power evolves. Thanks, guys.
Yeah. So let me stocked with you know where I think kind of the post <unk>. One goes in terms of you know for us and where we think we want the wallet chair from our customers I would say definitely in areas like medical we have demonstrated just unique capability in terms of.
Only being able to do complex program cramps, but also help our customers. We think designs in terms of how we bring it to market. So I'd say, we expect you know wallet chair to continue to grow in places like health, we see the same around sectors like industrial and automotive, where we think that we have unique capable.
The m. customers are approaching with us I there in terms of consolidation of liter supply base or where they think that we can do a better job all operationally managing their supply chain and their factories. So I expect that those are the areas that will really focus on in terms of well, let's share improvement I'd say our lifestyle.
Business and R.C.C. business has very unique pockets that'd be a very focused on where we think that we add value. The vertical integration in terms of our overall capability. So in the post <unk> well, we have already defined in talking to customers, where we think we can play a unique role and customers are coming to us asking for where we can help out.
We also think that the whole regionalization conversation is one that is working out really well for us and we're helping a lot of customers thing through that.
So you know focusing on the right kind of growth that said many times is important Paul and so that's what we will drive on in terms of in a margin I'd say it all depends on you know the the mix of products and as you can see the be continue to drive the right makes we've already said anime that's their day that we see that our operational model has tremendous.
Room for efficiency, we're continuing to focus on that and will continue to drive that and really focus on our overall fixed and variable cost structure. So we can operate while within all the various cycles of our short cycling Midcycle businesses. So we think that also helps us with margin improvement in the long.
Terms, so overall in the post <unk> well, they're really focusing now looking for word on where customers need our help where we can jump in and really drive value.
And then I'd say overall in terms of you know other M.S. A partner is you know I I would hate to comment on anything like that I think we have a very clear plan of the mix of cost of segments, we want to grow in and we think there's enough and market available for us to focus on and grow there and that's all where you know really focus.
On right now.
Great. Thank you.
Too much.
Okay, Hey, thanks, everyone for joining us today, and even with these unprecedented times I'm really confident about the future for flax you could see that from our you know great performance in Q. for in our and I'm in our fiscal year 2020 results. This that all a few will remain safe than in good health and we look forward to talking.
You again next quarter. Thank you for joining us.
[noise], ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
[noise].