Q1 2023 Flex Ltd Earnings Call
Good afternoon, and thank you for standing by welcome to Flex its fiscal first quarter 2023 earnings conference call.
Presently all participants are in a listen only mode.
After the Speakers' remarks, there will be a question and answer session.
I'd like to remind everybody that today's call is being recorded.
I'll now turn the call over to Mr. David Rubin. Please go ahead Sir.
Thank you Michelle good afternoon, and welcome to <unk> first quarter fiscal 2023 earnings Conference call with me today is our Chief Executive Officer, <unk>, <unk>, and our Chief Financial Officer, Paul Lundstrom, Both will give brief remarks, followed by Q&A.
Slides for today's call as well as the copy of the earnings press release and summary financials are available on the Investor Relations page at Flex Dot Com. This call is being recorded and will be available for replay on our corporate website. As a reminder, today's call contains forward looking statements, which are based on our current expectations and assumptions. These statements involve risks and uncertainties that could.
Cause actual results to differ materially.
For a full discussion of these risks and uncertainties. Please see the cautionary statements in our presentation press release or in the risk factors section in our most recent filings with the SEC note. This information is subject to change and we undertake no obligation to update these forward looking statements unless otherwise specified we will refer to non-GAAP metrics on the call the full non-GAAP to.
GAAP reconciliations can be found in the appendix slides in today's presentation as well as in the summary financials posted on the Investor Relations website.
As previously disclosed the draft registration statement on the form S. One relating to the proposed initial public offering them next trackers class a common stock remains on file with the U S Securities and Exchange Commission.
The initial public offering and its timing are subject to the SEC market <unk> or other conditions.
SEC regulations, we will make no we will not make any further statements or answer additional questions on the next tracker filing at this time now I would like to turn it over to our CEO <unk>.
David Good afternoon, and thank you everyone for joining us our fiscal Q1 was another strong quarter and I wanted to start off by thanking our teams for their incredible performance and delivering for our customers.
I'm very proud of what the team has accomplished and their consistent commitment to achieve our vision to be the most trusted technology supply chain and manufacturing partner.
Now looking at slide three.
Revenue grew 16% year over year, driven by continued strong demand and our ability to deliver in spite of ongoing component constraints.
Our adjusted operating margins came in at four 5% in the overall solid performance led to another quarter of record adjusted EPS at <unk> 54 up 17% year over year.
So as I look across our portfolio along with the forward looking signals our demand remains strong in those business units and I would say at this point constraints from the ongoing shortage and lagging at semiconductor remains the biggest limiting factor.
Currently expect this trend to continue.
Now not surprisingly we are seeing indications of slowing in some consumer related markets. However, we have been anticipating this change and it is within our current expectations for the full year.
Looking at just a few exam.
Examples of the continued overall demand.
Let me start broad demand across our industrial business unit, along with multiple new ramps in renewables and power related products.
What I would point out that these products are separate from our next tracker solar tracker business and include in murders EV charging energy storage and grid edge all tied to flex this core technology strengths.
Now given our wins in this category of renewables renewables business is now on a run rate to be over $1 billion. This year, making it a sizable portion of our industrial revenue.
We see the long term growth drivers, continuing which gives us confidence in this category.
Bookings in automotive the very impressive this quarter in fact, the wins this quarter alone were nearly as much as all of last year's bookings and over 60% of these wins are in our Nextgen mobility category.
But the U S dealer lot inventory in June still only at 28 days versus 67 in 2019, we're still seeing end market inventory well below demand.
For us much of our business is being driven by OEM expansion, new product lines and technology transitions.
And these multiple drivers give us confidence in our long term outlook now.
Now growth in our cloud business remains very strong driven by longer term trends, including continued enterprise cloud migration and growth in digital services are differentiated capabilities that address several critical areas across the data center include power solutions racks, and enclosures make us well positioned to address this growing.
<unk>.
Yes.
Our lifestyle business continues to deliver solid results, we have created a very compelling value proposition by expanding our vertically integrated capabilities and leveraging our global scale to regionalize supply chains and facilitate facilitate geographic expansions. This combination has directly led to share gains in <unk>.
New wins with premium durable goods customers. Our strategy has also resulted in a more sustainable supply chain for our customers and a more resilient business for flex.
Again. These are all just a few examples but they also highlight how our portfolio and business drivers have evolved.
Now going to slide four at our Investor Day, We showed you this slide and how we change our geographic and customer concentration of our portfolio mix.
This progress is just since fiscal 'twenty egg this change would be even more dramatic if we look back over the last 10 to 15 years.
We have purposely deemphasize the most volatile and short cycle businesses. As an example of this how our consumer device revenue went from about 17% of revenue back in 2018 to now only 10% in fiscal 2022.
Instead, we focused on improving our portfolio mix aligned with our core capabilities and targeted large end markets with strong long term drivers.
We have built a balanced global footprint that can support our customers' changing needs. These investments have created a more resilient foundation, a more diversified portfolio and a more agile company.
The macro environment remains highly uncertain and none of this is to say we're immune to it but we have effectively navigated the challenges over the last couple of years and we've continued to adapt and improve.
I'm very confident in our long term strategy and the solid foundation, we have built.
So we will remain focused on consistent execution to be agile and continue to invest in the future of flex with that I'll turn it over to Paul to take you through our financials. Okay. Thanks, Thanks, David and good afternoon, everyone.
I'll begin on slide six with a review of our first quarter results. Please note. All results provided will be non-GAAP and all growth metrics will be on a year over year basis unless stated otherwise.
And the GAAP reconciliations can be found in the appendix of the earnings presentation.
Our first quarter revenue came in at $7 3 billion up 16% with solid growth on strong execution.
Gross profit totaled $542 million and gross margin was seven 4% we.
We saw a nice operating profit dollar growth in the quarter up 14% at $330 million with a little pressure on operating margin rate at four 5% due to the pass through of abnormal inflation costs. As a reminder, we have protections in our contracts that allow us to recover inflationary.
Costs, which are often pass through dollar for dollar so that creates some natural pressure on operating margin percentage, but not dollars lastly earnings per share came in at 54 cents for the quarter an increase of 17%.
Turning to our first quarter results.
Segment results on the next slide reliability revenue was $3 billion, an increase of 15% year over year.
And throughout the quarter demand remains strong across the segment.
Operating income was $147 million up 2%.
Although demand remained robust output was constrained by continued component shortages, which pressured operating margins at 5%.
Agility revenues up 4 billion up 16% driven by strong continued growth in.
In CEC and in lifestyle.
Operating income was 170 $171 million up 25% with operating margin up 30 basis points to four 3%.
The solid margin expansion was driven by our team's ability to execute exceptionally well against new project ramps, while overcoming challenges brought on by supply constraints.
Finally next tracker revenue was about $400 million up 16% year over year and adjusted operating income was $30 million operating margin increased to seven 6% and that strong sequential margin improvement was nice to see after a difficult fiscal 2022.
Moving to slide eight net capex for the quarter totaled $91 million or one 2% of revenue.
Free cash flow was an outflow of $53 million for the quarter driven by continued pressure on inventory.
We anticipate free cash flow for the year to be backend loaded.
As inventory begins to slowly unwind.
We repurchased over 11 million shares in the quarter totaling $181 million of spend and representing approximately two 5% of the shares outstanding.
Over the last 12 months, we have taken share count down by 8%.
Inventory levels remain elevated and we closed the quarter with inventory of $7 2 billion. This is a function of high demand coupled with continued supply constraints in key components.
I think you all are well aware of the Golden screw phenomenon and as <unk> mentioned, we continue to closely monitor demand indicators, but our focus right now is on delivering our customer backlogs.
Please turn to slide nine for our segment outlook for the fiscal second quarter, and our year over year growth expectations.
For reliability solutions, we have good line of sight to meaningful revenue growth this quarter potentially as high as 20% driven by healthy demand across several key markets.
We expect broad based strength to support significant organic growth in industrial, particularly within renewables and grid edge and in auto we're seeing our nextgen mobility products, such as EV and scalable compute continue to gain tremendous interest from our customers.
Turning to agility solutions revenue is expected to be up high single digits to mid teens predominantly driven by overall cloud and communication strength within CEC.
Lifestyle should trend flat and consumer devices will be down consistent with our expectations.
<unk> regionalization capabilities continue to provide growth opportunities and we expect a softening pockets of demand and some of the consumer markets will be more than offset by considerable growth in CEC.
On to slide 10 for a quarterly guidance.
We expect revenue in the range of seven to seven 4 billion with adjusted operating income between 315 and $345 million.
Interest and other is estimated to be around $52 million.
And the tax rates should be in the 13% to 15% range. We expect adjusted EPS between <unk> 48, and 54 based on approximately 468 million weighted average shares outstanding.
On the following slide.
We have updated our fiscal year 2023 guidance, we increased revenue expectations to 28, four to $29 4 billion based on inflation recoveries and continued strong end market demand, while also anticipating some softening and consumer end markets. We now expect.
Adjusted operating margins to be around four 6% to four 8% and continue to expect adjusted EPS between $2 nine and $2 24 a share.
And just to wrap up with a couple of comments before we start the Q&A session.
Despite the very dynamic macro backdrop over the last few years, you've seen a very resilient flex our goal has been to deliver consistency and we have a.
Adjusted EPS was up 28% in fiscal 'twenty, 125% in 2022, and we continue to expect double digit EPS growth in 2023.
We've enhanced our portfolio and the mix continues to improve with better geographic diversity more balanced end market exposure and with a greater emphasis on high growth industries. Overall flex is operating from a stronger position today than we ever have.
With that I'd like to turn the call over to the operator to begin Q&A.
Michelle.
Thank you Sir.
Ladies and gentlemen, we will now begin the question and answer portion of today's call.
You have a question. Please press star followed by one on your telephone keypad.
If you would like to withdraw your question. Please press star two.
As a reminder, we ask that you please limit yourself to one question and one follow up.
One moment. Please for your first question.
Yes.
Your first question comes from Steven Fox of Fox Advisors. Please go ahead.
Thanks, Good afternoon, and congrats on the quarter and outlook.
Two questions if I could first off can you give a little more color on the CEC strength that you're seeing how much is seasonal and then maybe if you could force rank, where it's coming from.
<unk> versus leased.
How much is new programs et cetera, and then secondly, I was curious what kind of discussions maybe you're having with customers that youre producing four in Europe about risks related this year round at energy crisis, any kind of plans you are making or how you just sort of see the landscape for later this year for producing in Europe . Thank you.
Sure Steven.
Thanks for the complements maybe just start with the CEC question.
We didn't spike out <unk>, specifically, but I will tell you very strong growth double digit growth for CEC and in the quarter. If I were to sort of rank them from from lowest growth to highest I would say enterprise.
Probably the slowest grower, but still up double digit.
Communications was up double digit really nice to see continued strength, there and then cloud.
As we had indicated back in the analyst day, it was up triple digits, and we still expect that business to more than double here. In 2023, just looking ahead for I guess those three components on the enterprise side, it will probably soften a little bit in the back half of the year, but we still expect pretty robust growth.
Just talking to our CIO and you sort of get the get the chatter in the industry, we're going to continue to see strong spending on things like security.
And whether it's on Prem compute or something done in the cloud. There is continues to be the just this insatiable appetite for data.
And data analytics, so really don't see that going away, it's just sort of like squeeze the balloon if it's lower in enterprise, it's probably going to be higher in cloud.
Comms continues to look pretty good with with <unk> Rollouts and we love, where we are with with cloud again, it'll be up triple digits this year more than double.
And then you asked about program wins, Thats, where its coming from I mean, CEC, where we've got some nice share gain in the in that cloud segment of the business and feel really good about that with respect to Europe .
Look hard to say I mean, we've kind of been talking about the regionalization strategy that we have which is customers want.
Proximity of facilities to be closer to end market demand <unk> seen.
We have facilities in Europe to support that.
I guess I can't comment specifically to the energy challenges, but if things get tight.
This winter flex has the ability to redirect production from from one region to another and we would be.
We're going to be as fleet of foot as possible to support that to make sure we're meeting our customers' demand.
Stephen Thanks.
Thanks for the comments on the performance on the energy issue I would add is that two things one is from an energy inflation costs. We continue to kind of put that together to look at how we pass those costs on but in terms of energy availability itself in Europe . We are looking at all our kind of alternate plans.
Whether we have to how much of this can come from reliance on some independent alternate energy strategies, we're working with local utility providers to.
To see how we can partner up on that so we are looking at all the options of course, if it gets more difficult than where it is now it's hard to predict.
I think we have a good resiliency plan right now from the current line of sight that we have.
Great that's super helpful. Thanks again.
Thanks Amy.
Your next question comes from Mark Delaney of Goldman Sachs. Please go ahead.
Yes, good afternoon, and thank you very much for taking the question.
First on the revenue outlook, if I take the strong first half of the fiscal year on revenue. The company has reported and guided to and also taking into account the full year revenue guide I believe it implies at the midpoint at the second half of the fiscal year revenue to be down a little bit compared to the first half maybe.
Talk about to what extent that moderation is the change in the mix away from consumer and to what extent, it's potentially some slowing in demand given the macroeconomic issues and if it is a macroeconomic issues is that something that you guys are seeing reflected in customer orders or are you just trying to be proactive and given some of the headlines.
We all see out there thanks.
Yes, so mark what I'd say is first let me start with the fact that if you look at our current Q1 performance and our guide for Q2, our first half would be up 16%. So a very very strong kind of first half looking at second half I think you'd probably be able to calculate that it's going to be.
Round, 7%.
But I think we've taken a lot of factors into consideration on this.
Most importantly, looking at fiscal Q4 for us, which is first quarter calendar.
For most companies were being little more prudent about our assumptions, we are assuming that the consumer market will be somewhat slower they are kind of baked that into our assumption and that's kind of what's driving a more prudent look in second half we think the the interesting dilemma like for most people market, including us.
Demand is very very strong for the full year like we're trying to give a guidance that we think is prudent and makes sense. So we've baked in some kind of slowness in demand and consumer products for for Q4 of our fiscal year from what we can see today, but actually we don't see any demand fullness across any of your friend.
Segment, so it's a little bit of a trick to figure it out, but we'd rather be prudent than not.
No. That's very helpful. Thanks, and my follow up question is on the updated EBIT margin guidance again revenue overall is just coming in very very well.
The company took up the full year revenue guide, but just with the higher revenue you did slightly adjust the EBIT margin guidance lower so if you could just clarify what the factors for that are thank you.
Sure Mark.
As you saw we drop through the good news from the topline good news from from Q1 some of that top line came from inflation recovery.
And so as I had mentioned in the prepared remarks that that inflation recoveries essentially dollar for dollar offsetting cost growth.
But like <unk> said Congress with respect to the revenue question, we're trying to have a prudent second half, but given the dynamic macro environment would rather not get over our skis and start taking up EPS for the full year. So we're holding the estimate on right now.
Look record record operating profit in Q1 lever we are there have great line of sight.
Another strong Q2 likely with operating profit.
On a dollar for dollar the same.
We saw from the expectations, a little bit of China's often expectations a bit for the second half, but overall, we feel really good about where we are mark I think the story to takeaway here is first is that obviously fantastic.
Tastic performance topline Bottomline for Q1 rate and Q2 guide also will be another record in terms of operating income dollars. The way we have guided right. Now is so strong performance on that too I'd say like most people, we talk a little bit about supply chain constraints and the added.
Costs in pressure that drives.
And we continue to.
It kind of be thoughtful about how we assume that's going to flow through for the rest of the year. So that's kind of our thinking around how we're doing margin guidance, but.
With our very consistent and record performance on revenue and <unk>.
And margins.
And our operating income dollars, we feel comfortable and then most importantly, mark it's only Q1 for US. So you know it's.
It's a little early in the year for us to change a whole lot, but it is also part of.
It's a modified prudent guidance.
Thanks assets. Thank you.
Your next question comes from <unk> Bhattacharya of Bank of America. Please go ahead.
Hi, Thank you for taking my questions.
It looks like inventory was up 10% sequentially.
How should we think about a normal level of inventory going forward and how should we think about cash conversion cycle and is the expectation for free cash flow is still $550 million for fiscal 'twenty three.
Yes, let me start and then I'll hand, it over to Paul what does that say I have been very clear at Investor day, when I gave our kind of longer range guidance that our expectation is to be 80, plus percent free cash flow conversion and we know we're coming into unusual times and are we have been an unusual.
Times and so we are seeing some.
Investment in inventory, which to meet our record demand with 16% growth and with the unusual circumstances of the supply chain kind of not knowing what's available. It's the right thing to do we are hearing that from all of our customers in terms of supply chain constraints still exist and we are part of that right. So we need to have the right inventory.
Torry to deliver the demand and we want to do what's right for our customers and we kept that consistent in terms of how we have talked about it and also how we have a partner with our customers on this I would say the way to think about inventory moving forward is we do think our inventory perform.
<unk> will come back in line.
As you look forward now I don't want to give an exact prediction when but our longer range forecast world to bring will be to bring free cash flow back to where we were when we lap fiscal 'twenty, one and that's our commitment to make that happen as we look forward, we do see some supply chain constraints easing we have talked.
That they have a very strong demand forecast all of that bodes well right in terms of inventory and free cash flow. So.
Very very confident in our ability to execute this we have shown that consistently in all our financial metrics.
And we feel very comfortable that looking forward, we'll bring all of this back to normalcy.
As these unusual circumstances is two and with that I'll turn it over to Paul anything else of that yeah. Just maybe a couple a couple of data points I mean, youre right about the sequential inventory change through blue.
When you look at working capital advances in deferred revenue they were up 20% so.
Did that dollar for dollar offset the growth in inventory no, but I continue to like that we're getting support from our customers who are willing to make significant cash deposits for for the inventory growth and so we are getting some help there.
Net inventory when you net off working capital advances days of inventory is about 72.
And it wants to be 15 to 20 days less than that.
Think as Ray with you pointed out as this situation slowly on lines, we will see those inventory levels come down you asked a specific question on free cash flow of $5 50, Yep. That's that's the plan, we're driving towards $550 million.
It has taken longer than what we had hoped for this inventory challenge to abate and so it'll probably be a back half loaded free cash generation year, but again, we are we are holding to the $5 50 right now.
Okay. Thanks for all the details on that.
For my follow up maybe I'll ask.
Here level question, so inflation and recession are obviously on top of mind of investors can you remind us I mean, how do customers behave during periods of recession and inflation and do customers tend to outsource more or do they take manufacturing in house and if I look at your results in the <unk>.
<unk> segment.
<unk> outperformed your guidance for the first quarter revenues were up 16%.
If that sustains.
Sustained then that's one thing, but if it doesn't.
If you see a greater deeper recession, how would your playbook change.
Would you do different and how do you think flex would fare in the next recession. Thank you.
Yes, Thanks, Ross I'll start and then.
Paul can jump in I would say this is obviously top of mind to everyone all fair.
Start by reminding that flex is a very different company today right. Even from three years ago I showed that slide and in my opening and that we shared at the Investor day and from the last recession, which was at the OE dollars nine cycles. They are very different company as an example, consumer.
<unk> was 60% of the company then and today, it's 10% of the company so significantly different right our portfolio has changed that much more.
The exposure to volatile businesses has changed to shorter cycle, the reliability business, a big part of our portfolio even within the agility business. If you look at CEC in the lifestyle portfolio the types of customer mix and our product portfolio has changed and then I'll move on to <unk>.
Good example of how you think about it's about US moving forward has to be how we have performed in the last few years, because we took out a pretty significant portion of our revenue as we went through portfolio changes and we went through the COVID-19 reductions because it's pretty significant that happened in 'twenty, one so and we performed.
The extremely Walter that right. If you remember our COVID-19 projections first quarter I think revenue was down like 17, 18% that we had a great fantastic full year in terms of our EPS performance in our our margin performance. So I'd say, we're much more different portfolio company we are more.
Chile and more disciplined in how we execute our playbook is very very strong we know how to manage the ups and downs really well and then most importantly, one thing I feel very good about is the number of new programs and share gains that we have in our demand.
Demand backlog right now, which makes me very feel very good about my forward looking forecast now that being said not everybody is immune to two to the macros right and things could change so to your question of how our customers behave in this in terms of outsource or more in house I would.
Say it so much has changed from eight to nine right the whole supply chain resiliency conversation has significantly shifted.
A few customers who would be thinking about their supply chain strategy. The way, we're thinking about it in a way it an overnight that resiliency question is top of mind and most Ceos will note today that whatever recession that do go to is going to be temporary and they want to come out of it with a stronger supply chain because.
I think the bruised as everybody has sustained in the last two three years is significant so I feel very confident that the outsourcing strategy and the dependency on Ams and contract manufacturers. If anything is going to grow through a recessionary cycle and through the two because of the supply chain issue in terms of.
Agility itself, yes, 16% is a very strong and very high revenue growth.
Very very proud of what they are accomplishing here, if the macros changed significantly.
<unk> is going to change like the rest of the businesses, but are currently our demand is up not only because of markets up because a lot of new businesses, both in lifestyle and in our cloud business in CEC. So we feel good about our revenue growth there and but we are like.
Everyone else. If there is any significant change we think it'll have an impact on us, but we feel very confident in our ability to be agile to deliver our kind of operating profit.
That we are that we're talking about so that we feel very good about.
Thanks for all the details and congrats on the strong execution.
Thanks Rupert.
Ladies and gentlemen, as a reminder, if you would like to ask a question. Please press star one now.
Your next question comes from Matt Sheerin of Stifel. Please go ahead.
Yes. Thank you.
I wanted to just ask.
Another question regarding the automotive strength that you've talked about.
You referred to the Nexgen.
Area as hyper growth area, but what about the core business.
Particularly what youre seeing in terms of recovery in automotive.
Reduction.
Perhaps by region.
The outlook that Youre seeing your two to three quarters out from those customers.
Yeah, So Matt.
Thank you for that so I'll give you a little bit of detail first starting with Ken.
Okay, and then this quarter itself right, our automotive business had strong double digit growth. If you look at the comparison for you.
The kind of light vehicle production I think it was it was flat for the fourth quarter. So we've done really well.
Against kind of what the industry itself has seen I would say if you look at this current quarter in the next two quarters, our customer demand and our backlog remains very very strong right now.
And some of it has to do with kind of supply chain constraints are most.
Significant in the automotive segment and in a dealer lot inventories are down.
So we're feeling really good about automotive looking forward. The next two three quarters that we have a lot of revenue to deliver in terms of geographies itself, it's pretty consistent I would say across all geographies I would say those shortages and the revenue backlog opportunity that exists is pretty consistent.
Not as the one is better than the other.
And so overall looking and I'd say big growth looking forward, but the next year is very strong and you've heard that from many of our automotive customers to that backlog is high and we need the supply chain constraints declare for that backlog to be delivered.
Okay. Thank you for that and I wanted to just ask.
A question regarding the.
The input costs that you've seen in Guyana, particularly component costs semiconductor cost I know most of that is a pass through to your customers.
And in some cases, they are paying multiples of the face value of those parts.
Are you seeing some customers sort of push back at some point.
And are the expectations for normal price downs once we get past these lead time issues and back to a more normal supply environment.
Well I think Matt we haven't seen any pushback at all on that and we don't expect that to change because the business model is set this way and that has never been an issue I would say and it hasnt changed and even in this condition.
That's the big plus for our business model right.
Our customers have partnered up with us very well on that not just on labor inflation, but in all kinds of inflation and we expect that to continue that really hasnt changed ever in this industry and we don't expect that will change now.
Okay. Thanks very much.
Your next question comes from Jim Suva of Citigroup. Please go ahead.
Thank you.
Pretty basic question and maybe it's.
Because I'm not the smartest person or maybe I don't do good math, but you raised.
And you're raising revenues.
For the full year, but not EPS, what's the disconnect or can you help me bridge that.
Yes, I just don't get it maybe as much details around why there is a disconnect that'd be great.
No no problem at all Jim So we.
As you know we'd be Q1.
Portion of that revenue came from inflation pass through.
As I think you know inflation pass through is usually a dollar for dollar without a mark up and so thats a low calorie revenue growth.
As we look ahead to Q2, we will see some of that continue inflation remains a bit high and we're passing through those dollars and so as I think about the full year, we took up the midpoint by about $700 million on the topline we took up <unk> dollars about $10 million up and then we go a little bit of pressure on an interest cost.
<unk> interest expense given higher interest rates and we were really trying to is to use. These words just give a prudent guide we still have three quarters to go there's a lot of uncertainty out there we want to put an EPS number.
Out to the street that we are confident that we can deliver on.
At $2 16 at the mid point, we feel pretty good.
And Jim I think you just have to look at our track record I would look at how we've done this quarter and look at the guide we've given for next quarter and it seems that when you are sitting in our fiscal Q1, and we are looking forward at a very strong demand pipeline you are looking at good there.
The ability to start clearing supply chain constraints, but there is still hearing a lot of noise from the economy and all the noise around you. It doesn't feel like it's the right time to be kind of giving an upward guide on on on our profit and EPS yet.
But if you look at our track record, we have always delivered well and I think that's what you should take to the bank. We just feel like it's not the right time to do it.
Well Paul Thank you so much for the details on the additional color that does bridge the gap. Thank you so much.
Thanks, Jim Thanks, Jim.
Your final question comes from Melissa Fairbanks of Raymond James. Please go ahead.
Hi, Thanks, very much I'm glad I could squeeze in congratulations on the great quarter and guide and.
I'll Echo that thank you for the detail on the inflation recovery that's really helpful.
Are you able to quantify how much of a tailwind that was to revenue at this point.
Also is that a factor in driving the dollar value of the inventory as well.
Certainly is driving some inventory.
Okay.
Great.
Hey.
<unk>.
There definitely is an inflation element in inventory.
As I think about Q1 op margins, we probably had I don't know 10 20 basis points of margin rate headwind because of inflation pass through I guess, that's one way to think about it.
Okay perfect.
And then kind of back to the inventory as we are seeing some of the demand drivers shift away from some consumer and towards some of the more strategic verticals, you're long term key markets is there any risk of obsolescence in the inventory or is there. Some commonality among the components you can redirect that inventory as the demand drivers shift.
Melissa not for US right because most of our agreements with our customers, we buy behalf will offer our customers sell.
Excess obsolescence all of that is borne by them and so we work very very closely with our customers to give them a lot of help what they're forecasting capabilities and intelligence around that.
So we can minimize that.
To the best we can.
On their behalf, but we don't take that liability it sits with our customers.
Okay excellent great. Thanks very much.
Okay. Thanks Melissa.
Okay. So thank you all I would like to just say thanks on behalf of my leadership team to our customers and our shareholders. Thanks for your support and then of course, most importantly to our to my colleagues around the world. Thanks for all your contributions and our commitment to flex. Thank you all bye.
Ladies and gentlemen, this does conclude your conference call for this afternoon, we would like to thank everyone for participating and ask that you. Please disconnect your lines.
Oh.