Q3 2022 Flex Ltd Earnings Call

Good afternoon, and thank you for standing by walk up just like this first call's third quarter 2022 earnings conference call.

Speaker 6: Good afternoon and thank you for standing by. Welcome to FLEXUS Fiscal's 3rd Quarter 2022 Earnings Conference Call. Presently, all participants are in a listen-only mode. After the speaker's remarks, there will be a question and answer session. As a reminder, this call is being recorded. I will now turn the call over to Mr. David Rubin, who may begin speaking.

All participants are in a listen only mode. After the Speakers' remarks, there'll be a question and answer session.

A reminder, this call is being recorded.

I'll now turn the call over to Mr. David Rubens you may begin Sir.

Thank you Chris Good afternoon, and welcome to Flex as third quarter of fiscal 2022 earnings Conference call with me today is our Chief Executive Officer, Ray, but the baby and our Chief Financial Officer, Paul Lundstrom, Both will give brief remarks, followed by Q&A.

Speaker 5: Thank you, Grace. Good afternoon and welcome to Flex's third quarter fiscal 2022 earnings conference call with me today is our chief executive officer, and our chief financial officer, Paul Lundstrom. Both will give brief remarks followed by Q and a.

Speaker 5: This call is being webcast and recorded, and if you have not already received them, slides for today's presentation are available on the Investor Relations section of our flex.com website.

This call is being webcast and recorded and if you have not already received them slides for today's presentation are available on the Investor Relations section of our flex Dot Com website.

Speaker 5: As a reminder, today's call contains forward-looking statements which are based on our current expectations and assumptions and are subject to risks and uncertainties, so actual events and results could differ materially.

As a reminder, today's call contains forward looking statements, which are based on our current expectations and assumptions and are subject to risks and uncertainties. So actual events and results could differ materially also such information is subject to change and we undertake no obligation to update these forward looking statements for full discussion discussion of the risks and uncertainty.

Speaker 5: Also, such information is subject to change, and we undertake no obligation to update these forward-looking statements. For a full discussion of the risks and uncertainties, please see our most recent filings with the SEC.

Please see our most recent filings with the SEC.

Speaker 5: This call references non-GAAP financial measures for the current quarter. The GAAP reconciliations can be found in the appendix slides of today's presentation, as well as on the investor relations section of our website.

This call references non-GAAP financial measures for the current quarter. The GAAP reconciliations can be found in the appendix slides today's presentation as well as on the Investor Relations section of our website.

Speaker 5: Lastly, with regards to Flex Nextracker Business, as we've previously discussed, we announced that we confidentially submitted a draft registration statement on Form S-1 of the U.S. Securities and Exchange Commission on April 28, relating to the proposed initial public offering of its Class A common stock.

Lastly, with regards to flex next tracker business as we've previously discussed we announced that we confidentially submitted a draft registration statement on form S. One of the U S Securities and Exchange Commission on April 28 relating to the proposed initial public offering of its class a common stock.

Actual public offering and its timing or subject to market and other conditions in the SEC's review process. We made this announcement in accordance with rule 135 under the FCC.

Following that to see regulations, we will not make any further statements or answer additional questions on the next tracker filing at this time.

Speaker 5: With that, I'd like to turn the call over to Revati, our CEO . Thank you.

With that I'd like to turn the call over to Ray BT or see you. Thank you. Thank you David Good afternoon, and thank you for joining us today for our fiscal Q3 earnings call. Please turn to slide three and I'll briefly review our results.

Speaker 7: Thank you, David. Good afternoon and thank you for joining us today for our fiscal Q3 earnings call. Please turn to slide three and I'll briefly review our results.

Speaker 7: We had another strong performance in our fiscal Q3 despite the anticipated challenging supply chain environment.

We had another strong performance in our fiscal Q3, despite the anticipated challenging supply chain environment.

Speaker 7: We achieved revenue of $6.6 billion, up 6% sequentially, and about the top end of our previous guidance.

We achieved revenue of $6 6 billion up 6% sequentially and above the top end of our previous guidance range I want to emphasize that this outcome was more about strong execution that easier the unexpected macro challenges.

Speaker 7: I want to emphasize that this outcome was more about strong execution than easier than expected macro challenge.

Speaker 7: Total Flex Adjusted Operating Margin came in at 4.5%, also better than previously anticipated.

Total flex adjusted operating margin came in at four 5% also better than previously anticipated and.

Speaker 7: Adjusted EPS was $0.50, up from $0.49 in Q3 of last year. By the way, that's another new quarterly record for us. Adjusted free cash flow came in at $31 million.

Adjusted EPS was 50 cents up from 49 cents in Q3 of last year by the way that's another new quarterly record for US adjusted free cash flow came in at $31 million I would just add that our results. This quarter demonstrate the major progress we have made in our ability to adapt and overcome macro challenges quickly.

Speaker 7: I would just add that our results this quarter demonstrate the major progress we have made in our ability to adapt and overcome macro challenges quickly.

Speaker 7: Of course, our deep and longstanding relationship with our suppliers definitely helps us during times like these. We are proud of our strong performance, and it's another yet important win for the team.

Of course, our deep and long standing relationships with our suppliers is definitely helps us during times like these we are proud of our strong performance and it's another yet important win for the team.

Speaker 7: The consistency and continued acceleration of our performance the last couple of years is driven by the diversity of our portfolio along with our disciplined execution. Strong sequential growth in our cloud, communications, and industrial businesses is a result of our bookings growth and successful ramps of these new businesses. Our investments in optical and 5G technology, electrification products, and data center solutions are also helping to accelerate our growth this year.

The consistency and continued acceleration of our performance. The last couple of years is driven by the diversity of our portfolio along with our disciplined execution strong sequential growth in our cloud communications and industrial businesses as a result of our bookings growth and successful ramps of these new businesses our investments in <unk>.

Optical and five G technology electrification products and data Center solutions are also helping to accelerate our growth this year.

Speaker 7: We also recently welcomed Enord Mardix to the team. This acquisition adds to our overall data center portfolio, which is a high growth vector for us.

We also recently welcomed ignored Marty to the team. This acquisition adds to our overall data center portfolio, which is a high growth vector for US. We're excited to see the combination of these investments and strong secular growth trends.

Speaker 7: We're excited to see the combination of these investments and strong secular growth trends really drive our performance going forward.

Drive our performance going forward.

I will come back at the end and talk about our growth drivers and a little bit more detail, but now I'll turn it over to Paul to take you through the full financials and the guidance great. Thank you Robert and good afternoon, everyone.

Speaker 7: I will come back at the end and talk about our growth drivers in a little bit more detail, but now I'll turn it over to Paul to take you through the full financials and the guidance. Great. Thank you, Revati.

Speaker 5: Let me just start by saying how impressed we all are with the team's execution and commitment to delivering the best possible service for our customers in such a challenging environment. So thank you all for the hard work. Beginning on slide five, please note I will focus my remarks on the non-GAAP results. The GAAP reconciliations can be found in the appendix of the earnings presentation.

Let me just start by saying how are how impressed we all are with the team's execution and commitment to delivering the best possible service for our customers in such a challenging environment. So thank you all for the hard work.

Beginning on slide five please note I'll focus my remarks on the non-GAAP results. The GAAP reconciliations can be found the impact in the appendix of the earnings presentation.

Speaker 5: Flex revenue was $6.6 billion in the quarter, down a point year over year, but up 6% sequentially.

<unk> revenue was $6 6 billion in the quarter down a point year over year, but up 6% sequentially and.

Speaker 5: Adjusted operating income was $298 million, down about 4% year-over-year and up 4% sequentially.

Adjusted operating income was 298 million down about 4% year over year and up 4% sequentially. Adjusted net income was $238 million down 5% from the prior year period and up about 3% sequentially and finally adjusted earnings per share was 50 cents an increase of.

Speaker 5: Adjusted net income was $238 million, down 5% from the prior year period and up about 3% sequentially. And finally, adjusted earnings per share was $0.50, an increase of 2% year-over-year and 4% sequentially.

2% year over year and 4% sequentially.

On slide six our third quarter adjusted gross profit was 498 million down $16 million year over year.

Speaker 5: Our third quarter adjusted gross profit was $498 million, down $16 million year over year.

Speaker 5: Q3 gross margin of 7.5% was about 10 basis points lower compared to last year. In total, adjusted SG&A came in at $200 million, down $3 million from our prior year period, and at 3% of sales, is at the better end of our targeted range of 3 to 3.2%.

Q3 gross margin of seven 5% was about 10 basis points lower compared to last year in total adjusted SG&A came in at $200 million down $3 million from our prior year period and at 3% of sales is at the better end of our targeted range of three to three 2%.

Overall, adjusted operating income was 298 million, resulting in a four 5% adjusted op margin.

Speaker 5: Overall, adjusted operating income was $298 million, resulting in a 4.5% adjusted op margin.

Speaker 5: down slightly, but strong performance considering the continued tightness in the supply chain and at the top end of our guidance.

Slightly but strong performance considering the continued tightness in the supply chain and at the top end of our guidance.

On slide seven.

Speaker 8: Reliability revenue was $3 billion, up about 5% year over year.

Reliability revenue was 3 billion up about 5% year over year dimmed.

Speaker 8: Demand was strong across each of the end markets.

Demand was strong across each of the end markets.

Speaker 8: Adjusted operating income decreased 14% to $154 million with a 5.1% adjusted operating margin rate.

Adjusted operating income decreased 14% to $154 million with a 5.1% adjusted operating margin rate.

In December we were very happy to welcome the <unk> to the team impact to the financials was immaterial in the quarter, but we are quite upbeat about the potential and the impact it will have on growth in our fast growing data center business. We continue to expect it to be accretive to adjusted EPS.

Speaker 8: In December , we were very happy to welcome the Aynard Mardix to the team. Impact of the financials was immaterial in the quarter, but we are quite upbeat about the potential and the impact it will have on growth in our fast-growing data center business. We continue to expect it to be accretive to adjust the DPS and deliver mid-teens EBITDA margins in fiscal 2023, which begins this April .

And deliver mid teens EBITDA margins in fiscal 'twenty 'twenty, three which begins this April .

Speaker 8: Automotive revenue decreased mid-single digits in the quarter with healthy underlying demand offset by continued supply challenges.

Automotive revenue decreased mid single digits in the quarter with.

With healthy underlying demand offset by continued supply challenges health solutions revenue was better than expected, but down slightly compared to the prior year driven by tough comps related to last year's Covid related critical care peak <unk>.

Speaker 8: Health Solutions revenue was better than expected, but down slightly compared to the prior year, driven by tough comps related to last year's COVID-related critical care.

Speaker 8: Lastly, industrial sales were strong up mid-teens, with strong growth across the board, including at Nextracker, where we saw sales up high teens.

Lastly, industrial sales were strong up mid teens with strong growth across the board, including at next tracker, where we saw sales up high teens.

Speaker 8: Due to the global logistics headwinds, margins have been pressured at Nextracker, but we view it as temporary. The cost pressure in Nextracker is largely what drove the decline in reliability margins. Fundamentals remain strong.

Due to the global logistics headwinds margins have been pressured at next tracker, but we view it as temporary.

The cost pressure and next tracker is largely what drove the decline and reliability margins fundamentals remained strong.

Speaker 8: Moving to agility, segment revenue was $3.6 billion, down about 6.5% year-over-year. In total, the agility segment delivered $163 million of adjusted operating income, a year-over-year increase of 7%, which led to a record 4.6% operating margin.

Moving to a Julie segment revenue was $3 6 billion down about six 5% year over year in total the agility segment delivered 163 million of adjusted operating income a year over year increase of 7%.

Which led to a record 4.6% operating margin.

With an agility CEC demand was very robust, particularly in cloud five G and optical but.

Speaker 8: With an agility, CEC demand was very robust, particularly in cloud, 5G, and optical, but upside in the quarter was limited by component constraints, which led to a modest sales decline.

But upside in the quarter was limited by component constraints, which led to a modest sales decline in lifestyle revenue was up slightly despite the difficult comp driven by new product ramps customer wins and healthy underlying demand.

Speaker 8: In lifestyle, revenue is up slightly despite the difficult comp driven by new product ramps, customer wins, and healthy underlying demand.

Speaker 8: And finally, as we indicated last quarter, consumer devices revenue was down double digits caused largely by a planned project completion.

And finally, as we indicated last quarter consumer devices revenue was down double digits caused largely by a planned project completion.

Speaker 8: Turning to cash flow on slide 8, our net capital expenditures for the quarter totaled $119 million, and adjusted free cash flow was $31 million.

Turning to cash flow on slide eight our.

Our net capital expenditures for the quarter totaled $119 million and adjusted free cash flow was $31 million.

Speaker 8: This quarter, we paid out a net $523 million in cash at the closing of the Aynard-Mardik acquisition on December 1st.

This quarter, we paid out a net $523 million in cash at the closing of the a Nord Mark acquisition on December one.

We had two changes to our debt profile in the quarter totaling $709 million in both cases, we took advantage of regional opportunities at very low rates to support our business expansion and approaching maturities.

Speaker 8: We had two changes to our debt profile in the quarter, totaling $709 million. In both cases, we took advantage of regional opportunities at very low rates to support our business expansion and approaching maturity.

Speaker 8: During the fiscal third quarter, we repurchased 5 million shares, totaling $90 million.

During the during the fiscal third quarter, we repurchased 5 million shares totaling $90 million.

Speaker 8: In total, for fiscal 22, we have spent $580 million repurchasing roughly 32 million shares. At the end of the quarter, we had approximately $600 million remaining on our current board authorization.

In total for fiscal 'twenty, two we have spent $580 million repurchasing roughly 32 million shares at the end of the quarter. We had approximately 600 million remaining remaining on our current board authorization.

Speaker 8: Inventory at the end of the quarter was $6 billion. Inventory turns were $4.4 down from $4.8 turns last quarter. While we expect inventory to remain high in the near term, I'll reiterate Raventhy's comments about strong and market demand. Chip shortages have customers waiting to fulfill demand, and delivering on customer demand remains a high priority. So as shortages abate, so will higher than usual.

Inventory at the end of the quarter was 6 billion inventory turns were 4.4 down from 4.8 turns last quarter.

While we expect inventory to remain high in the near term I'll reiterate rabid. These comments about strong end market demand chip shortages have customers waiting to fulfill demand and delivering on customer demand remains a high priority. So as shortages abate, so will higher than usual inventory levels.

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All things considered we're pleased with our free cash flow generation over the last several quarters totaling 340 million fiscal year to date, and we continue to target free cash flow of approximately 500 million for fiscal 2022.

Speaker 8: All things considered, we're pleased with our free cash flow generation over the last several quarters, totaling $340 million fiscal year to date, and we continue to target free cash flow of approximately $500 million for fiscal 2022.

Cash generation remains a priority and in alignment with our stated capital allocation strategy will continue to invest in key areas that will position flex to capture growth.

Speaker 8: cash generation remains a priority, and in alignment with our stated capital allocation strategy, we'll continue to invest in key areas that will position FLEX to capture growth.

On slide nine our segment outlook, we expect reliability solutions to be up mid to high single digits with demand continuing to outstrip supply leading to trends in the business similar to Q3.

Speaker 8: On slide nine, our segment outlook, we expect reliability solutions to be up mid to high single digits, with demand continuing to outstrip supply, leading to trends in the business similar to Q3.

Speaker 8: Automotive will be marginally down and health solutions essentially flat with strong double-digit growth in industry.

Automotive will be marginally down in house solutions, essentially flat with strong double digit growth in industrial.

Speaker 8: Agility solutions revenue is expected to be relatively flat year over year. We expect mid to high single digit growth in CEC based on strength in cloud and 5G. Lifestyle revenue should be up slightly following similar trends to last quarter and consumer devices in line with Q3 due to the aforementioned plan program completion setting up a difficult comparison.

Agility solutions revenue is expected to be relatively flat year over year, we expect mid to high single digit growth in CEC based on strength in cloud and five G. <unk>.

Lifestyle revenue should be up slightly following similar trends to last quarter in consumer devices in line with Q3.

Due to the aforementioned plan program completion.

Setting up a difficult compare.

Speaker 8: Full year guidance on slide 10. You'll see that we've updated and narrowed our full year guidance.

Full year guidance on slide 10, you'll see that we've updated and narrowed our full year guidance range. Our new guidance reflects revenue of 25.4 billion to $25 8 billion or 6% year over year growth at the midpoint.

Speaker 8: Our new guidance reflects revenue of $25.4 billion to $25.8 billion, or 6% year-over-year growth at the mid-period.

Speaker 8: At the midpoint of the range, adjusted EPS of $1.88 would be up 20% year-on-year. The updated guidance, now at the top end of the previous range, reflects a combination of the improving strength of our results

At the midpoint of the range adjusted EPS of $1 88 would be up 20% year on year. The updated guidance now at the top end of the previous range reflects a combination of the improving strength of our results our execution trajectory and the strong secular trends we continue to see.

Speaker 8: our execution trajectory, and the strong secular trends we continue to see.

Speaker 8: Turning to slide 11, we expect fiscal fourth quarter revenue to be in the range of $6.2 to $6.6 billion, with adjusted operating income between $265 and $305 million.

Turning to slide 11.

We expect fiscal fourth quarter revenue to be in the range of 6.2 to $6 6 billion with adjusted operating income between $2 65 and $305 million.

Interest and other expenses is estimated to be roughly $40 million and the tax rate should remain at the high end of our 10% to 15% guidance range, we expect.

Speaker 8: Interest and other expenses is estimated to be roughly $40 million, and the tax rate should remain at the high end of our 10 to 15 percent guidance.

Speaker 8: We expect adjusted EPS to be in the $0.05 range of $0.41 to $0.46, excluding the impact of stock-based compensation expense and net intangible amortization, with about 474 million weighted shares outstanding. With that, I'll turn it over to you.

<unk> adjusted EPS to be in the five cent range of 41 to 46 cents, excluding the impact of stock based compensation expense and net intangible amortization with about 474 million weighted shares outstanding with that I'll turn the call back over to Ray with you.

Speaker 7: Thank you. As you can see from Paul, another strong quarter and improved guidance for our fiscal 2022.

As you can see from Paul another strong quarter and improved guidance for our fiscal 2022.

Speaker 7: In early 2020, when COVID was just unfolding, we held our first Investor Day since I came into the company.

In early 2020, when Covid was just unfolding we held our first investor day since I came into the company.

Speaker 7: In the midst of uncertainty, we shared with you our long-term financial framework.

In the midst of uncertain of D. We shared with you our long term financial framework.

Speaker 7: As you can see here on slide 12, we said we would deliver organic growth above GDP and get to mid-single-digit operating margins and EPS growth of 10 plus percent.

As you can see here on slide 12, we said, we would deliver organic growth about GDP and get to mid single digit operating margins and EPS growth of 10 plus percent.

Speaker 7: Looking at our full year guide of FY2022, you can see we have accelerated growth, even while lapping a major portfolio change in FY20.

Looking at our full year guide of FY 'twenty 'twenty. Two you can see we have accelerated growth, even while lapping a major portfolio change in FY 'twenty.

Speaker 7: and we have delivered on our long-term margin and EPS goals.

And we have delivered on our long term margin and EPS goals.

Speaker 7: Turning to slide 13, we plan to have an investor day in late March where we will discuss how the combination of our investments in commercial and technology capabilities, coupled with strong secular trends, will accelerate our growth potential.

Turning to slide 13, we plan to have an investor day in late March when we will discuss how the combination of our investments in commercial and technology capabilities, coupled with strong secular trends will accelerate our growth potential.

Speaker 7: Technology transitions like 5G, optical, electrification, and point-of-care diagnostics continues to be a major driver for most of our customers.

Technology transitions like five G optical electrification and point of care diagnostics continues to be a major driver for most of our customers.

Speaker 7: And Flex investments in these technologies have helped us win major programs and continues to position us strongly in this market.

And flex investments in these technologies has helped us win major programs and continues to position us strongly in this markets.

Speaker 7: In addition to these technology transitions, the challenges of the last several years have solidified the need for robust global supply chains so companies can deliver their products to market and meet customer commitments.

In addition to these technology transitions the challenges of the last several years have solidified the need for robust global supply chains. So companies can deliver their products to market at means and meet customer commitments.

Speaker 7: Many companies have found that they can't effectively manage this by themselves.

Many companies have found that they can affect it that they can't effectively manage this by themselves.

Speaker 7: This need is expanding the total available market for supply chain and advanced manufacturing services.

This need is expanding the total available market for supply chain and advanced manufacturing services.

Speaker 7: Now, the desire to manufacture products closer to local demand is also becoming a priority. Again, only a few companies have the capabilities to accomplish this efficiently and on a global scale, and that is driving strong new business wins for us.

Now the desire to manufacture products closer to local demand is also becoming a priority.

Again, only a few companies have the capabilities to accomplish this efficiently and on a global scale and that is driving strong new business wins for us.

Are there secular trends, we're bullish about our digitalization data center growth and infrastructure investments driving growth in the energy sector in both residential and utility scale.

Speaker 7: Other secular trends we're bullish about are digitalization, data center growth, and infrastructure investments driving growth in the energy sector in both residential and utility scale.

Speaker 7: Now, these secular growth drivers have been fueling our pipeline and bookings growth, as you can see in this year's results.

Now these secular growth drivers have been fueling our pipeline and bookings growth as you can see in this year's results.

As I said earlier, the combination of our investments in commercial and technology capabilities has positioned us well to capitalize on strong secular trends and hacks and has accelerated our growth potential going forward.

Speaker 7: As I said earlier, the combination of our investments in commercial and technology capabilities has positioned us well to capitalize on strong secular trends and has accelerated our growth potential going forward. Now, combined with our track record on operational execution, this will create strong shareholder value in the years to come.

Now combined with our track record and operational execution. This will create strong shareholder value in the years to come.

On behalf of the entire leadership I want to thank our employees for their contributions and strong execution and of course, our customers and suppliers for their trust and partnership and our shareholders for your continued support with that I'd like to turn the call over to start the Q&A.

Speaker 7: On behalf of the entire leadership, I want to thank our employees for their contributions and strong execution, and of course, our customers and suppliers for their trust and partnership, and our shareholders for your continued support. With that, I'd like to turn the call over to start the Q&A.

Speaker 6: Thank you. Ladies and gentlemen, we will now begin the question and answer portion of today's call. If you have a question, please press star one on your phone. If you would like to withdraw your question, please press the pound key. As a reminder, we ask that you please limit yourself to two questions. One moment please for the first question.

Thank you ladies and gentlemen, we will now begin the question and answer portion of today's call. If you have a question. Please press star one on your phone if you would like to withdraw your question. Please press the Apache as a reminder, we ask that you. Please limit yourself to two questions. One moment. Please for the first question.

Your first question comes from the line of Thrill blow Babich Arya from Bank of America. Your line is open.

Speaker 6: Your first question comes from the line of Rupul Bhattacharya from Bank of America. Your line is open.

Speaker 9: Hi, thank you for taking my questions. My first question is on Nextracker. Based on the disclosures you've given so far, it looks like for the first three quarters of fiscal 22, revenues for Nextracker are growing very strong, around 10% year-on-year, which compares to the full year fiscal 21, you had reported only 2%.

Thank you for taking my questions. My first question is on next tracker based on the disclosures you've given so far it looks like for the first three quarters of fiscal 'twenty. Two revenues for next tracker are growing very strongly around 10% year on year, which compares to the full year fiscal 'twenty. One you had reported only 2% growth.

So the first part of the question is what is driving that strong growth and do you think that this growth rate can sustain going forward.

Speaker 9: So the first part of the question is, what is driving that strong growth, and do you think that this growth rate can?

Speaker 9: But then on the margin side, you know, it's a little bit.

But then on the margin side.

It's a little bit you know.

Speaker 9: You're suffering from, I guess, the freight cost and logistics.

You're suffering from I guess, the freight costs and logistics costs.

Speaker 9: uh... look like for the first three quarters operating margin for that business is seven percent

It looks like for the first three quarters operating margin for that business is 7% versus 15% for the full year. So it's about half of last year.

Speaker 9: So, is it just the logistics cost that's impacting that? You mentioned that you think this is temporary. Why do you think that? Is this a business where you can pass on the cost? Does it take longer to pass on the cost?

So is it just the logistics cost that's impacting that you mentioned that you think this is temporary why do you think that is this a business where you can pass on the cost does it take longer to pass. It on if you can just kind of give us your thoughts on revenue and revenue growth and margin improvement in that business. Thank you.

Speaker 9: If you can just kind of give us your thoughts on revenue and revenue growth and

Speaker 7: Yeah, Ruplu, you know, I'll start and Paul can jump in. I'd say first is I'll start with on the growth question. Yes, obviously, strong growth comparison this year. And of course, last year, you know, with COVID and things like that, things did get to a little pause in terms of solar and utility grade installation.

Yeah real clue.

And I'll start and Paul can jump in I would say first is I'll start with on the growth question, Yes, obviously strong growth comparison.

This year and of course last year, you know, what COVID-19 and things like that things did get a little pause in terms of solar a needle in the utility grade installation, but I would say that the pipeline and bookings for that business has been very strong even to Covid times and then now as installations are coming back youre seeing that reflected in article.

Speaker 7: But I would say that the pipeline and bookings for that business has been very strong, even through COVID times.

Speaker 7: And then now as installations are coming back, you're seeing that reflected in our growth rate.

Great and we continue to be very bullish for that sector not just because everything you hear about them kind of energy projects that is going on around the globe, but also the infrastructure investments that are being committed to this country. So pipeline is strong bookings are even more strong growth rates expected to continue.

Speaker 7: And we continue to be very bullish for that sector, not just because everything you hear about kind of energy projects that is going on around the globe, but also the infrastructure investments that are being committed to this country. So pipeline is strong, bookings are even more strong, growth rates expected to continue, if not accelerate from where we are today. So feel very, very good about it.

You if not accelerate from where we are today, so feel very very good about it in terms of margin first as I'll point out is that our performance is.

Speaker 7: In terms of margin, first is I'll point out is that our performance is much better than all the peers in this sector. So that's one.

Much better than all the peers in the sector. So that's one second is I would say we have talked about this before that we are able to pass on.

Speaker 7: Second is, I would say, we have talked about this before, that we are able to pass on, not just kind of steel inflation costs and things like that, but freight and logistics costs also. But there is a timing issue involved with passing those on. And what you've seen happen with freight and logistics, Rupalu, is of course the inflation has gone up quarter over quarter over quarter. So as we are passing that on, there's also catch up that's required as we continue to see this inflation, including the availability of things like shippers and all of that. So I think that is a challenge we're facing, but we are very, very comfortable that that is transitionary and that we will improve the margins of this business as we move forward. Our fundamentals are very strong. This is like any other business that has.

Not just kind of steel inflation costs and things like that that freight and logistics costs also but there is a timing issue involved with passing those on and what do you have seen happened with freight and logistics real clue is of course, the inflation has gone up quarter over quarter over quarter. So as we are passing that on there's also catch up that's required as we.

Continue to see this inflation, including the availability of things like shippers and all of that so I think that is a challenge we're facing but we are very very comfortable that that is transitioning and that we will improve.

Improve the margins of this business as we move forward. Our fundamentals are very strong. This is like any other business that has time in terms of passing this onto their systems is very similar to that.

Speaker 7: time in terms of passing this on to their systems. It's very similar to that. And we feel very comfortable that the fundamentals are strong and they will catch up in terms of their margin rates as they move forward.

And we feel very comfortable that the fundamentals are strong.

And they'll catch up in terms of their margin rates as they move forward.

Okay. Thanks for the details on that.

Speaker 9: and thanks for the details on that. My second question is on the CEC business, specifically on the cloud.

My second question is on the CEC business, specifically on the cloud portion you mentioned that that the demand from cloud was a was particular was very strong this quarter.

Speaker 9: uh... you mentioned that that uh... the demand from cloud was uh... was particular uh... with very strong

Speaker 9: uh... you know some of your peers uh... have seen in that business customers moved to a consignment model and uh... that has big uh... impacted their

You know some of your peers have seen in that business customers moved to a consignment model and that has.

Impacted their revenues.

Speaker 9: are you seeing anything like that from your customers are from up from flexes standpoint are you building the whole rack uh... do you think that that business can continue to grow uh... you know as

Anything like that from your customers are from from Flexes standpoint are you building the whole rack.

That that business can continue to grow as you as we look out into the next couple of quarters. Thank you.

So first I would say is.

You know our CEC business. If you recall couple of years ago, we did some kind of pruning and correction in the CEC business in the last year you have invested a lot in terms of growing the cloud into five G business and you're seeing all of that kind of play through.

Speaker 7: You know, our CEC business, if you recall a couple years ago, we did some kind of pruning and correction in the CEC business. In the last year, you have invested a lot in terms of growing the cloud and the 5G business. And you're seeing all that kind of play through in our growth associated with cloud and 5G. So we're feeling very good about our investments in the cloud business with all the major hyperscalers and colos. So feeling really good about that. I think in terms of the model itself, you know, we usually let our customers drive kind of what is the right engagement model. It's usually a partnership approach to figuring out where is the best value. Because whether it's consignment model or not consignment model, really depends on kind of where is the value driven, right? And so if we find that we are not having any value, then consignment model is the right one to do. So we like to have a partnership with our customers and a collaboration to come up with the answer of what is the right model. So it's a balanced approach.

In our growth associated with cloud.

And five G. So we're feeling very good about our investments in our in the cloud business that all the major Hyperscale and co laws. So feeling really good about that and I think in terms of the model itself. You know, we usually let our customers drive kind of what is the right engagement model, it's usually a a partnership approach.

To figuring out where is the best value because whether it's consignment model are not consignment model. It really depends on kind of various a value driven right and so if we find that we are we are not having any value them consignment model is the right one to do so we like to have a partnership with our customers in a car.

<unk> to come up with the onset of what is the right model. So it's a balanced approach.

Speaker 7: And, you know, we don't have a business where we kind of move that around at a pretty significant scale as you have seen some others do it. I think we're very consistent in our approach to this.

And you know we are we don't have a business, where we kind of move that around at a pretty significant scale as he has seen some others do it I think they are very consistent in our approach to this and we allow our customers to really figure out and work with us as to what is the model who drives the best value and then based on that we make the decision.

Speaker 7: and we allow our customers to really figure out and work with us as to what is the model, who drives the best value, and then based on that we make the decision. Okay, thanks for all the details.

Okay. Thanks for all the details and congrats on the strong execution.

Thank you cliff.

Speaker 6: I think your next question comes from the line of Mark Delaney from Goldman Sachs, your line is open.

Thank you. Our next question comes from the line of Mark Delaney from Goldman Sachs. Your line is open.

Speaker 10: Yeah, good afternoon, and thanks very much for taking the questions. First question was on supply chain. Hoping you could provide a bit more clarity on what Flex is seeing. I realize there's been supply chain challenges for quite a while now, but at the same time there's now Omicron variants. So any incremental details you can share on what the company is seeing currently and any expectations for how that may progress?

Yes, good afternoon, and thanks very much for taking the questions. First question was on supply chain, hoping you could provide a bit more clarity on what <unk> seen I realize there has been supply chain challenges for quite a while now.

The same time there is no omicron variants. So any incremental details you can share on what the company has seen currently and any expectations for how that may progress going forward.

Mark I Love. This question, because obviously my Crystal ball is as good as yours and theirs, but I'd say in terms of we have we see a ton of data coming in right and that helps us process. Some thoughts on this.

Speaker 7: Mark, I love this question because obviously my crystal ball is as good as yours in this, but I'll say in terms of we have we see a ton of data coming in right and that helps us process.

Speaker 7: some thoughts on this. You know, you've seen suppliers and customers give anywhere from thoughts on, hey, late 2022 to 2023, you start to see the supply issues abate.

You've seen suppliers and customers gave anywhere from thoughts on he made 2022 to 'twenty 'twenty three you'll start to see the supply issues abate.

Speaker 7: And I would say that our thinking is in line with that, because frankly, now we haven't seen that abate in any significant way. We feel like those supply challenges are still there and consistent.

And I would say that you know.

Our thinking is in line with that because frankly now we haven't seen that abate and in any significant way, we feel like both supply challenges are still there and consistent but we have a very very big supply chain team. My 10000 people and we're able to really work with our suppliers to get our our demand full.

Speaker 7: So we have a very, very big supply chain team, right, 10,000 people, and we're able to really work with our suppliers to get our demand fulfilled in a way that makes sense for us and our supply and our customers. But looking forward, I would say that, you know, kind of the second half of 22 and 23.

Filled in a way that makes sense for us and our supply and our customers, but looking forward I would say that you know kind of the second half of 'twenty, two and 'twenty three seems to make sense based on kind of capacity investments that suppliers are commitment committed to having made.

Speaker 7: seems to make sense based on kind of capacity investments that suppliers are committed to having made. So we're kind of in line with where all the industry is.

So we're kind of in line with where all the industry is you know in terms of looking forward and thinking this is probably a late calendar 'twenty two going into 'twenty three type of situation I would say in terms of omicron, Mark you know the impact to our kind of performance itself.

Speaker 7: you know, in terms of looking forward and thinking this is probably a late calendar 22 going into 23 type of situation. I would say in terms of Omicron, Mark, you know, the impact to our kind of performance itself wasn't significant at all because one of the reasons is, you know, we have 85 percent of our 165,000 employees.

It wasn't significant at all because one of the reasons is we have 85% of our 165000 employees.

Speaker 7: fully waxed and around 93% of them with at least one dose. So we have just driven a culture of focusing on understanding why this is important to you and your family, which has really helped us take this a long way. And because of that, we have really been able to hold our performance through these kind of COVID ups and downs that you have seen recently.

Believe AXT and around 93% of them with at least $1. So we have just driven a culture of focusing on understanding why this is important to you and your family, which has really helped us takes us a long way and because of that we've really been able to hold our performance through these kind of COVID-19 ups and downs that you've seen recently.

Speaker 10: My follow-up question was around the EV business, and you alluded to it a couple of times in the prepared remarks, not just in the automotive business, but also industrial with charging. I was hoping you could elaborate a bit more on what you're seeing in EVs and the outlook there, and, you know, is it getting to a point where you can size how much of the company's revenue is coming from that?

That's very helpful. Thank you and my follow up question was around the EV business and you alluded to it a couple of times in the prepared remarks, not just in the automotive business, but also industrial with charging I was hoping to elaborate a bit more on what youre seeing in evs and the outlook there and is it getting to.

To a point, where you can side how much of the company's revenues coming from UBS. Thank you.

Yeah Mark.

Speaker 7: Yeah, Mark, we will talk more about this in our investor day. And so we'll go deeper into kind of big gold drivers like electrification for us. You know, if you think about EV and autonomous both together, you know, we've been spending a lot of technology dollars into developing our own portfolio of solutions on converters, really looking for partnership for high voltage inverters, our own battery management solution.

We will talk more about this in our Investor day, and so we'll go deeper into kind of big growth drivers like electrification for us.

If you think about EV and autonomous boat together, we've been spending a lot of technology dollars into developing our own portfolio of solutions on an convert us really looking for partnership for high voltage and what does our own battery management solution.

Speaker 7: And then also investing with co-partners in terms of long-range battery solutions. So we're really putting a lot of money into technology on electrification. Autonomous, you already knew that we had a pretty strong working relationship with almost large autonomous players, and it was a matter of time before those started to ramp up.

And then also investing with co partners in terms of long range battery solution. So we're really putting a lot of money into technology on electrification autonomous you already knew that would be you know had a pretty strong working relationship with almost large autonomous players and it was a matter of time before those started to ramp up.

Speaker 7: We will talk more about it in our investor day. It is starting to become a larger and larger part of our business. And as we look forward, we'd say.

We will talk more about it in our Investor day. It is starting to become a larger and larger part of our business and as we look forward we'd say.

Speaker 7: you know, kind of as ICE vehicles start to kind of reduce in terms of overall volume, we do see that electrification and autonomous will drive an unfair share of growth. If you look at our bookings this year, it has been all pivoted a lot towards electrification mainly. And then what I really like about this market even more is the geography, because we're also winning electrification in China, as you know, which is one of the largest growth markets. So we really doubled our effort to say, we want to win in electrification in China because that provides a scale, but we also want to do that in kind of Europe and North America. So the geography or distribution is really good. We're not just tied to one player and one geography. We really are more distributed across the globe. So feeling very good about it. And we'll share more details in March and our investor day. This will be one of our macro growth themes for sure.

Kind of as ice vehicles start to kind of reduce in terms of overall volume, we do see that electrification and autonomous will drive an unfair share of growth. If you look at our bookings. This year. It has been all pivoted a lot towards electrification, mainly and then what I'd really like about this.

Mark even more is the geography, because theyre also winning electrification in China as you know, which is one of the largest growth market. So we've really doubled our effort to say we want to win in electrification in China because that provides the scale, but we also want to do that in kind of Europe , and North America, since our Duke and the geography of our distribution.

It was really good we're not just tied to one player in one geography. They really are more distributed across the globe. So feeling very good about it and we'll share more details in March at our Investor Day, This will be one off or macro growth theme swisher.

Thank you.

Thank you.

Speaker 6: Thank you. Your next question comes from the line of Shannon Cross from Cross Research, Yolani Zulpe.

Thank you. Our next question comes from the line of Shannon Cross from Cross Research. Your line is open.

Speaker 11: Thank you very much. I have two questions. I'm curious, as we've moved past the holiday season, are you seeing any improvement in customer lead times? Have buying behaviors changed overall? Do you see customers, you know, able to plan a little bit better? I'm just, you know, balancing maybe a little bit slower non-holiday demand with obviously Omicron and everything else that's happened, and then I have a follow-up.

Thank you very much I have two questions I'm curious as we move past the holiday season are you seeing any improvement in customer lead time club buying behaviors changed overall do you see customers you know able.

Cable to plan, a little bit better just balancing maybe a little bit.

Our non holiday demand with obviously omicron and everything else. That's happened and then I have a follow up.

Sure maybe start with lead times, and then I'll just talk about stocking levels, because I think that's kind of an interesting phenomenon to Shannon.

Speaker 8: Sure, maybe start with lead times and then I'll just talk about stocking levels, because I think that's kind of an interesting phenomenon too, Shannon. You know, particularly in the, in the lifestyles business, as we've moved out of the holiday season, I would say no significant change to customer lead times, but what we are continuing to see is.

Particularly in the in the lifestyles business as we've moved out of the holiday season, I would say no significant change to customer lead times, but what we are continuing to see is.

Speaker 8: Inventory at the customer or at the channel level continues to be very, very low. Our customers, particularly in the lifestyle business, would like to see, I don't know, six to eight weeks worth of inventory, and they have somewhere between zero and two.

Inventory at the customer or at the channel level continues to be very very low.

Our customers, particularly in the lifestyle business would like to see I don't know six to eight weeks worth of inventory and they have somewhere between zero and two so we do expect as I mentioned in the prepared remarks, we continue to see strong demand signals in that business in particular, and I think that coupled with the need to replenish inventories.

Speaker 8: So we do expect, as I mentioned in the prepared remarks, we continue to see strong demand signals in that business in particular. And I think that coupled with the need to replenish inventory is gonna be a positive tailwind for us over the next.

Is going to be a positive tailwind for us over the next couple of quarters.

Speaker 7: And then Shannon, the only other thing I would add is, you know, that segment, the consumer segment, the lifestyle as we call it, also has a lot of the reshoring work that going on, right? In terms of that you have.

And then Shannon the only other thing I would add is you know that segment the consumer segment the lifestyle as we call. It also has a lot of the re shoring work going on right in terms of that you have.

Speaker 7: a capacity available close to kind of the end consumer. So that is also driving a lot of program and bookings ramp for us. So I would say holiday lead times.

Capacity available close to kind of the end consumer. So that is also driving a lot of programming bookings ramp for us. So I would say holiday lead times, you know maybe kind of being manage better sports are clearing, though theyre all backed up again, but I'd say in general Paul's answer that inventory.

Speaker 7: you know, maybe kind of being managed better as ports are clearing, though they're all backed up again. But I'd say in general, Paul's answer that.

Speaker 7: Inventory levels are still depleted and then program changes like reshoring is driving a lot of the demand there.

Inventory levels are still good play dead and then program.

Changes likely shoring is driving a lot of the demand there too.

Okay. Thank you and then I'm curious Paul if you if you think about how you're managing working capital and specifically inventory, which is obviously up but just in general given everything that's happened in the last couple of years is shall we assume working capital needs to run at a higher level going forward with the more distributed Manny.

Speaker 11: Okay, thank you. And then I'm curious, Paul, if you think about how you're managing working capital and, you know, specifically inventory, which is obviously up, but just in general, given everything that's happened in the last couple of years, should we assume working capital needs to run at a higher level going forward, you know, with the more distributed manufacturing? Or, you know, is there a way over time to kind of work working capital back down again, maybe as things normalize?

Factoring or is there a way over time to kind of work working capital back down again, maybe as things normalize.

Yeah, I do you know to your point I mean inventory is running hot and I think that will will continue but as we move into into 2023.

Speaker 8: Yeah, I do. You know, to your point, I mean, inventory is running hot, and I think that will will continue. But as we move into into 2023, I do see inventory levels starting to normalize. I'll say our big priority right now is is just meeting customers.

I do see inventory levels, starting to normalize I'll say, our big priority right. Now is is just meeting customer demand and we need a higher level of inventory just to do that.

Speaker 8: And, you know, we need a higher level of inventory just to do that. And, but again, I, I think you'll see that ramp down as, as the supply constraints improve as we move through our fiscal 23 with, with inventory starting to come down then. And, and I guess the, I would also point to cash flow, you know, look, inventory is elevated, but we continue to generate positive cash flow and, and hold fast to our, you know, roughly 500 million in pre-cash flow this year.

But again I I think youll see that ramp down as as these supply constraints improve as we move through our fiscal 'twenty three with with inventory starting to come down then and I guess I would also point to cash flow you know look inventories elevated but we continue to generate positive cash flow and hold fast to our roughly 500 million of free cash.

This year, so I think we're managing it pretty well.

Great. Thank you so much.

Thanks Shannon.

Thank you. Our next question comes from the line of Steven Fox from Fox Advisors. Your line is open.

Speaker 6: Thank you. Your next question comes from the line of Stephen Fox from Fox Advisors. Your line is open.

Speaker 8: Thanks. Good afternoon. Two questions. First, on the lifestyle business, I was wondering if you could give some more color around the new logos and portfolio expansion you talk about in the slides. And then secondly, Paul, I understand seasonality in the March quarter, but if demand is exceeding your ability to supply right now, why isn't the March quarter guidance closer to what you just posted in terms of December revenues? Thanks.

Thanks, Good afternoon, two questions first on the lifestyle business I was wondering if you could give some more color around the new logos and portfolio expansion you talked about in the slides.

And then secondly, Paul I understand seasonality in the March quarter, but if demand is exceeding your ability to supply right now why isn't the March quarter guidance closer to what you just posted in terms of December revenues. Thanks.

Yeah. So maybe I can take the seasonality question and maybe you can talk to the to the labels.

Speaker 8: Yeah, so maybe I can take the seasonality question and maybe we can talk to the labels on seasonality, just some data points for you. Historically, as we move from Q3 to Q4.

On seasonality just some data points for you historically as we move from Q3 to Q4, it's in.

Speaker 8: in the past, been about a 10% step down from Q3 to Q4. That's based on, I don't know, the last 10.

In the past been about a 10% step down from Q3 to Q4, that's based on out of the last 10 years or so at the midpoint right now we're looking at about a 3% sequential decline better than what we've done historically I think driven by a couple of things hopefully some improving component.

Speaker 8: At the midpoint right now, we're looking at about a 3% sequential decline, better than what we've done historically. I think driven by a couple of things, hopefully some improving component shortages, but also driven by some customer ramps. So I think we feel pretty good about our Q3 to Q4 step. To your point, you know, if we had unfettered access to chips, Q4 would be much, much

Component shortages, but also driven by some customer ramps. So I think we feel pretty good about our Q3 to Q4 step to your point, if we had unfettered access to chips Q4 would be much much higher.

Speaker 8: But we just, you know, much to my chagrin, don't see this this shortage challenge going away immediately here as we move into the first part of this calendar year. It's going to take several quarters to work our way out of it.

But we just you know much to my chagrin don't see this this shortage challenge going away immediately here as we move into the first part of this calendar year, it's going to take several quarters to work our way out of it and Steve The way I think about it is you know when we talked about Q3, and we werent that'd be where while we were.

Speaker 7: You know, when we talked about Q3, you know, we weren't while we were able to estimate a large part of what we were going to get from suppliers, we were able to do some work to pull in things for our customers, but also to be able to do some resourcing and things like that, which really helped.

Able to estimate a large part of what we were going to get from suppliers. We were able to do some work to pull in things for our customers, but also to be able to do some resourcing and things like that which really helped kind of Q3, and which we thought would happen in Q4 right and so what we will do the same in Q4, so we're giving you a <unk>.

Speaker 7: kind of Q3 and which we thought would happen in Q4, right? And so we'll do the same in Q4. So we're giving you a revenue guide.

Revenue guide based on what we think our supply situation will be but were working absolutely hard with our suppliers and our customers too.

Speaker 7: based on what we think our supply situation will be. But we're working absolutely hard with our suppliers and our customers to.

Speaker 7: you know, to do better than that, but it's hard to kind of pin down a commitment that is easy to make these days, right? So...

To do better than that but it's hard to kind of pin down a commitment that is easy to make these days right. So we think you know.

Speaker 7: We think, you know, it's a it's a good guide based on, you know, what, where we see things, but obviously, we're working our suppliers all the time to be able to do much better than that. In terms of logos.

It's a it's a good guide based on you know.

Where we see things, but obviously, we're working our suppliers all the time to to be able to do much better than that in terms of logos itself. You know when we again did our portfolio changes in 'twenty 'twenty FY 'twenty 'twenty, we're really focused on earlier they were doing a lot of small logos and start.

Speaker 7: You know, when we, again, did our portfolio changes in 2020, FY 2020, we really focused on earlier, we were doing a lot of small logos and startups and things like that. And we've really refocused our business on kind of large logos where we have clear value add from a technology perspective.

Ups and things like that and they've really refocused our business on kind of large no go is where we have clear value add from a technology perspective. So our focus on is not just adding new logos. We are very clear on where we Wanna add logos, but also to have a deeper penetration with our existing logos.

Speaker 7: So our focus is not just adding new logos. We are very clear on where we want to add logos, but also to have a deeper penetration with our existing logos. So as an example, we are focused very much on winning, kind of dispensing fluids, kind of on lifestyle on all large logos because we feel our manufacturing process capability

So as an example that we are focused very much on winning kind of dispensing fluids kind of on lifestyle are all large logos, because we feel our manufacturing process capability on what is a very technical problem of managing the quality of dispensing liquids is important so we want to focus on adding.

Speaker 7: on what is a very technical problem of managing the quality of dispensate liquids is important. So we want to focus on adding logos on that space.

<unk>, Oh on adding logos on that space.

Speaker 7: you know, the same with floor care. As you know, we're one of the world's largest manufacturers of floor care. We feel like we have process manufacturing technology capability that gives us an advantage. That we are really focused on adding logos there. We already have a large market share. So our growth of lifestyle, as you, you know, fantastic growth, right? The last few years has really been with deeper penetration.

The same with floor care as you know, we're one of the world's largest manufacturers of floor care. We feel like we have process manufacturing technology capability that gives us an advantage.

That we are really focused on adding logos. There we already have a large market share. So our growth of lifestyle. As you know fantastic growth try at the last few years has really been with deeper penetration with existing logos, which is providing them more geographies of growth.

Speaker 12: with existing logos, which is providing them more geographies of growth, adding more kind of services business as they're looking for a more kind of holistic lifecycle support, and then really focusing on technology and manufacturing capabilities where we feel like we should penetrate other logos. So that's kind of where we've really focused our lifestyle business and it's really working. I mean, you know, fantastic growth performance from that business the last couple of years. Great, that's really helpful.

Adding more kind of services business as they're looking for a more.

Kind of holistic lifecycle support and then really focusing on technology and manufacturing capabilities, where we feel like we should penetrate other logos. So that's kind of where we've really focused our lifestyle business and it's really working I mean fantastic growth performance from that business. The last couple of years.

That's really helpful. Thank you so much.

Thanks Steven.

Speaker 6: Thank you. Your next question comes from the line of James Tava from Citigroup. Your line is open.

Thank you. Our next question comes from the line of James Suva from Citigroup. Your line is open.

Speaker 13: Thank you very much. I think it was Raythevy on her prepared comments. She mentioned, you know, how pleased she was with the execution of the team and specifically stated if I heard right, it was more a function of strong execution more than easing supply chain challenges. If I got that right, Raythevy, can you help us understand, how do you know about that that's the case?

Thank you very much I think it was right to be on her prepared comments. She mentioned how pleased she was with the execution of the team and specifically stage if I heard right. It was more a function of strong execution more than easing supply chain challenges.

Got that right here to be can you help us understand how do you know about that that's the case.

Speaker 13: And is it just because the lead times are still really long to getting supply? And why were you able to, I don't want to say leapfrog, but, you know, jump and get the parts and components while other OEMs seem to struggle with securing components? Thank you.

And is it just because the lead times are still really long to getting supply and why were you able to I don't want they leapfrog.

Jump and get the parts and components, while other Oems you struggled with securing components. Thank you.

Speaker 7: Thank you, Jim, for that question. And yes, I think you've nailed it absolutely right, you know, in terms of why we're able to, you know, manage this. One is, I would say, my statement is absolutely correct, because you haven't seen anything change in supply or demand, right? Supply is still

Thank you Jim for that question and yes, I think you've nailed it absolutely right.

Himself.

Why they're able to.

<unk> managed this one is I would say my statement is absolutely correct. Because you haven't seen anything change in supply or demand supply is still pretty bottleneck across all major.

Speaker 7: pretty bottlenecked across all major, you know, I would say all major kind of material components that we're looking at. And demand is very, very strong, right? And that is still the fact. So there are two things that really helps us in an environment like this. One is our scale, of course.

I would say all major kind of material components that we're looking at.

And demand is very very strong rate and that is still the fact, so there are two things that really helps us in an environment like this one is our scale of scores.

Significant scale, which helps us have deep relationship with our suppliers, we work very closely with our customers to really understand how we prioritize what we prioritize within the quarter. What we can bring in what we should push out and really work with our suppliers to say as they're re substitution should be.

Speaker 7: within the quarter, what we can bring in, what we should push out, and really work with our suppliers to say is there a re-substitution, should we be looking at qualifying something different.

B looking at qualifying something different all of those really helps with our scale right 30, plus countries 100 plus factories.

Speaker 7: All of those really helps with our scale, right? 30 plus countries, 100 plus factories.

Speaker 7: You know, every supplier we call will lift up the phone and give us top priorities. So we work in a real partnership between our suppliers, customers.

Every supply our supplier, we call will lift up the phone and give us top priority. So we work in a real partnership between our suppliers customers.

Speaker 7: and ourselves in a very complex environment, right? Hundreds and thousands of lines that we're moving around every single day.

Ourselves in a very complex environment right hundreds and thousands of lines that were moving around every single day.

Speaker 7: And then on top of that, what happens is the stuff we planned for it to arrive, Jim, doesn't arrive. What we weren't expecting to arrive arrives because a boat stopped somewhere or a supplier didn't meet their commitments.

And then on top of that what happens is the stuff that you plan for it to arrive Jim doesn't arrive at what we werent expecting to arrive arrives because of both stopped somewhere or a supplier had.

It didn't meet their commitments so the factories have to be Super Super nimble in terms of stop start and doing all of that so that is also under their fantastic capability. We have our factory execution machine I would say is unbelievable is like no others that I have seen and so theyre able.

Speaker 7: So the factories have to be super, super nimble in terms of stop, start, and doing all of that.

Speaker 7: So that is also another fantastic capability we have. Our factory execution machine, I would say, is unbelievable. It's like no others that I have seen.

Speaker 7: And so they are able to take and execute. If we have the parts, there's no questions that we can get it done. So they're able to do that and also be efficient at the same time, as you can see with our results. And Jim, that's why I feel very comfortable saying that supply demand hasn't changed.

Well to take and execute if we have the parts. There's no question that we can get it done so theyre able to do that and also be efficient at the same time as you can see what the results and Jim that's why I feel very comfortable saying that supply demand hasn't changed we are very focused on resource thing re.

Speaker 7: We are very focused on resourcing, redesigning for our customers, doing all of that as we adapt to the supply situation. And then our factories, I mean, what can I say about our factory execution? They have just the last couple of years, they have just kind of blown it away with their fantastic execution. And so that's what it comes down to.

Designing for our customers doing all of that as we adapt to the supply situation and then our factories I mean, what can I say about our factory execution. They have just a last couple of years. They have just kind of blowing it away when they're fantastic execution and so that's what it comes down to.

Okay.

Great. Thank you so much.

Thanks Sherman.

Thank you and our last question comes from the line of Paul Chung from Jpmorgan. Your line is open.

Speaker 6: Thank you. And our last question comes from the line of Paul Chung from J.P. Morgan. Your line is open.

Speaker 14: Hi, thanks for taking my question. So just on on follow up on free cash flow, should we kind of expect more, you know, outsized generation, maybe in the first half of 23, kind of relative to 22, or expect a little bit more normalization towards the end of 23? How should we think about seasonality of cash flows? I know it's difficult to predict.

Hi, Thanks for taking my question. So just on follow up on free cash flow should we kind of expect more outsized generation maybe in the first half of 'twenty three kind of relative to 'twenty two.

Or expect a little bit more normalization towards the end of 'twenty through how should we think about kind of seasonality of cashless I know it's difficult to predict.

Speaker 15: Yeah, so if you think about the inventory levels that we're at right now, Paul, you know, as a

Yes. So if you think about the inventory levels that we're at right now Paul.

As I had kind of mentioned the Shannon. They are they are a bit elevated and we'll see that ramp down over the next several quarters moving into 2023 now we the good news here is that we have in many cases cash advances from customers that have helped to offset the burden of that inventory growth and.

Speaker 15: And they are a bit elevated. And we'll see that ramp down over the next several quarters.

Speaker 8: Now we, you know, the good news here is that we have, in many cases, cash advances from customers that have helped to offset the burden of that inventory.

Speaker 8: And mechanically, the way it will work is as inventory levels come down, so do the customer cash advances. And so there's a little bit of an

Mechanically the way it will work is as inventory levels come down so do the customer cash advances and so theres a little bit of an offset there and so the way I'm thinking to 2023, and we'll talk more about this at the Investor day in March I suspect, but I'm thinking seasonality won't be too much different than what we've seen in the past.

Speaker 8: And so the way I'm thinking to 2023, and we'll talk more about this at the investor day in March, I suspect, but I'm thinking seasonality won't be too much different than what we've

If you look back over the last several years, we tend to be more back half loaded in and I think 2023 will probably be much the same.

Speaker 15: look back over the last several years we tend to be more back half-loaded and I think

Speaker 12: And then Paul, the only thing I'd add is, you know, strong balance sheet, right? We're still in a fantastic position. Our focus is on meeting demand, as we have said for our customers, because we just want to really focus on delivering our best for them. And in that time, I would say we're doing Yeoman's job and fantastic job in terms of managing our cash flow, of course, with a lot of support from our customers who fully understand what we're trying to get done for them. So really pleased with where we are with it. And we think it stabilizes as the situation balances out. So really pleased with where we are.

And then Paul the only thing I would add is you know a strong balance sheet right. We're still in a fantastic position.

Our focus is on meeting demand as we have said for our customers because we just wanted to really focus on delivering our best for them and in that time I would say, we're doing yeoman's job and fantastic job in terms of managing our cash flow of course with a lot of support from our customers who fully understand what we're trying to get done for them. So really pleased with where we are.

Our with it and we think it stabilizes as that as the situation balances out so really pleased with where we are.

Speaker 14: Great. And then, last question on component shortages. You know, how are you kind of prioritizing, you know, certain customers, you know, are you prioritizing certain, you know, higher margin segments? How are you dealing with those dynamics? And if you could also talk about kind of some of the pricing dynamics. I believe you're passing off most of the cost, but is there any kind of incremental margins you're capturing for prioritization of certain customers? Thank you.

Great and then last question on on component shortages, you know how are you kind of prior to prioritizing.

Certain customers you know are you prioritizing certain.

Higher margin segments, how are you dealing with those dynamics and if you could also talk about kind of some of the pricing dynamics believe you're passing on most of the costs, but is there any kind of incremental margins, you're capturing for prioritization of certain customers. Thank you.

Yeah, Paul I'd say, Paul It really important question right I'd say in terms of how we prioritize we have a very in.

Speaker 7: Yeah, I think all really important question, right? I would say, you know, in terms of how we prioritize, we have a very in

In depth analytical and focused approach with our customers in our suppliers that really drives prioritization, we don't prioritize based on margins or stuff like that we really focus on can we get the product and if we can get the product and from our suppliers, we will absolutely deliver at the end.

Speaker 7: analytical and focused approach with our customers and our suppliers that really drives prioritization.

Speaker 7: we will absolutely deliver the end product to the customers. Obviously, medical always gets attention from all our suppliers. That's just been the way it has been. But our prioritization is really focused on what can the supplier give us based on their capacity and their capability, and we work very closely with our customers in terms of making sure that they understand the prioritization. I'd say in terms of price, the way I think about it really is, the last year has had tremendous cost changes, whether you.

And and product to the customers obviously in a medical always gets attention from all our suppliers. That's just been the way it has been but.

In our prioritization is really focused on what can the supplier would give us based on their capacity and their capability and they work very closely with our customers in terms of making sure that they understand the prioritization I'd say in terms of price the way I think about it really is you know there is the last year.

Speaker 7: I'd say in terms of price, the way I think about it really is, you know, there is the last year has had tremendous cost changes, whether you think about freight or material prices associated with with semiconductors and all other materials, right?

Has had tremendous cost changes, whether you think about freight are material prices associated with with semiconductors and all of the materials right and we have a very collaborative approach with our customers, we really focus on sharing cost with them. They understand that we drive efficiencies very very well.

Speaker 7: And we have a very collaborative approach with our customers. We really focus on sharing costs with them. They understand that we drive efficiencies very, very well. But they also have a role to play in terms of cost. And they want us to do what's the right thing for running our business and running their business. So it's a it's a partnership approach, I would say, in terms of how we share costs.

They also have a role to play in terms of cost and they want us to do what's the right thing for running our business and running their business. So it's a it's a partnership approach I would say in terms of how we share costs.

Speaker 7: you know, with our customers. That's how this industry works. And at this time like this, you have to be more tight at the hip so our customers understand kind of what are the things we're saying and what is the role they have to play. And then where are the places we can drive efficiency and be better in how we run. And all of those is working. And you see that in our results, even in the last six months with costs escalating. And we continue to use that same playbook with our customers and our suppliers.

With our customers that's how this industry works and at this time like those who have to be more tied at the hip so our customers understand kind of what are the things, we're saying and what is the role they have to play and then Barry the way of places, we can drive efficiency and be better and how we run and all of those is working and you'll see that in our results over the last six months with costs esque.

<unk> and we continue to use that same playbook with our customers.

Our suppliers.

Great. Thank you.

Thanks, Paul.

Speaker 6: Thank you so much, presenters, and ladies and gentlemen, this concludes today's conference call. Thank you all for joining. Jimena, I'll disconnect.

Thank you so much for centers and ladies and gentlemen. This concludes today's conference call. Thank all for joining you may now all disconnect.

Goodbye.

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