Q2 2023 Flex Ltd Earnings Call
So this is a very dynamic environment. So we continue to closely monitor demand signals and we're engaged with our customers and suppliers to navigate what is a very unusual time.
Recently, we've all seen headlines talking about the improving supply chain.
And overall it has improved.
The shortages have been cut roughly in half compared to this time last year.
Now that being said, we continue to face shortages in certain areas, primarily early that larger geometry node semiconductors, which mainly impact our reliability and markets such as automotive health care and industrial.
We expect constraints to continue to be a challenge of demand and supply remain out of balance.
Now looking past the cyclical concerns the longer term trend is still towards increasing semiconductor content in almost every device regardless of the industry. This is primarily driven by Oems, who want to create products with digital features that our customers highly value. They also want more agility and resiliency and manufacturer.
<unk> and products that are made more sustainably.
This trend of technology transitions driving increased product complexity is consistent with the industry growth themes, we laid out at our Investor day earlier this year.
We also talked about regionalization as it relates to customers moving their production closer to demand and improving business resiliency.
Now our ability to deliver along these themes has already directly led to share gains and expanding business for US now let me just give you. One example.
Last quarter, we mentioned that we baked and weakness in our consumer device and lifestyle outlook, assuming they would be the most sensitive to the macro environment.
Now this is still the right conservative assumption however.
Our lifestyle business grew again this quarter year over year, despite weaker end markets.
Now this is a result of our advanced capabilities, our ability to navigate complexity.
And our ability to expand production in multiple regions across our geographic footprint.
Our renewables business inside our industrial group is another Great example, where our unique capabilities and global footprint aligns really well with both secular technology transitions and regionalization needs.
I would say that the inflation reduction act will also contribute to the strong growth opportunity in renewables as companies now look to move to domestic production to capture the tax credits as well as increase the resiliency.
Again, we have the expertise and the footprint to help our customers take advantage of these opportunities.
Now speaking of solar looking at next tracker segment revenue growth Reaccelerate this quarter due to strong demand.
Margins also improved again as we slowly worked through those contracts that were impacted by the surge in shipping costs during the onset of the supply crisis.
Now obviously renewable energy overall is a very exciting area to me and we're seeing very strong growth.
Now not to be cliche, but it's also important to remember that in the energy transition is a marathon and not a sprint the industry is still dealing with near term solar panel and component shortages, which could also limit the speed for some program brands.
Regardless, we see this as a strong multiyear growth opportunities and we're very excited about it.
Now moving to slide six six we had several notable industry accomplishments this quarter and one in particular our team in Sorocaba, Brazil was selected by the World Economic Forum as a new member of the Global Lighthouse network. This is our second facility to be selected as you may recall, our team and all tofu.
Austria was recognized last year.
This recognition is important for us because it demonstrates our industry leadership, our technology innovation and the many talented people in our company.
We are proving that you can deploy leading edge automation to improve safety data technologies to improve operational efficiency and at the same time, you can upskill employees to increase their opportunities.
Building on our automation and data technology skills deploying solutions inside of flex has become a virtuous cycle as partners and customers see our expertise. This leads to new product wins, such as advanced robotics, which is also a fast growing area for us.
We are very focused on achieving zero waste by prioritizing sustainability as part of our operations, which helps our customers see our circular economy solutions in action.
And this is just a part of this story.
I am very excited about these advancements and we will continue to push the boundaries of what our manufacturing and services can accomplish.
With that I'll turn it over to Paul to take you through our financials Paul.
Thanks Robert.
Good afternoon, everyone.
I'll begin on slide eight with a review of our second 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 the GAAP reconciliations can be found in the appendix of the earnings presentation.
Revenue came in at $7 8 billion that was up 25% gross profit totaled $599 million in gross margin was seven 7%.
We had another quarter of impressive operating profit dollar growth up 31%.
$375 million with operating margin at four 8%, improving 25 basis points year over year.
Lastly earnings per share came in at 63 for the quarter an increase of 31%.
Collectively solid execution and growth and growth across the portfolio contributed to the strong results and overall, we're pleased with our performance this quarter.
Turning to our second quarter segment results on the next slide reliability revenue was $3 3 billion, an increase of 34% year over year.
Operating income was $175 million up 38% and operating margin for the segment was five 3%.
And agility revenue was $4 billion up 16%.
Operating income was $170 million up 11% with an operating margin of four 3%.
Finally next tracker revenue came in at 473 million that was up 40% year over year.
Operating income at <unk> was $43 million up 76% with nice sequential operating margin expansion up to nine 1%.
Overall demand was resilient across most end markets, but semiconductor shortages persisted in the quarter, especially at the larger nodes.
Constraints, primarily affect businesses, and our reliability segment and tempered growth and margins.
Still an automotive customer backlog remained robust and we gained ground in EV power electronics and a desk consistent with the themes, we outlined at our Investor day.
Industrial had a great quarter with healthy demand across our focused markets and demand in the healthcare space remained strong.
As I mentioned <unk>.
<unk> revenue was up 16%, despite some consumer related weakness as expected consumer devices was down against softer markets and in lifestyle. The consumer related slowdowns were more than offset by new program wins and ramps.
Finally, CEC delivered another strong quarter led by triple digit growth in cloud and solid double digit growth in comms and in enterprise.
Moving to cash flow on slide 10-Q, two net capex totaled $187 million or two 4% of revenue free.
Free cash flow was an outflow of 84 million for the quarter and we continue to anticipate free cash flow for the year to be backend loaded.
We returned $72 million $72 million to shareholders this quarter through share repurchases.
Please turn to slide 11 for our segment outlook for the fiscal third quarter and our year over year growth expectations.
For reliability solutions, we expect secular trends to support growth and share gains with revenue up mid to high teens. A great example of this is within industrial where investments based on a longer term cloud expansions.
<unk> and automation should continue.
Solutions pipeline is strong and in auto we expect to see solid growth as customers increasingly favor our nextgen mobility products that support new technologies, and we continue to expect to see growth in content per vehicle.
For agility solutions revenue is expected to be up mid single digit to low teens, driven by sustained strength in CEC, particularly within cloud and communications.
We expect consumer devices to be down in Q3, driven by continued weakness in consumer end markets and we will see some of this in the lifestyle business as well, but we expect share gains to partially offset the softer consumer spend.
On to slide 12 for a quarterly guidance.
We expect revenue in the range of seven 3% to seven 7 billion with adjusted operating income between 345 and $375 million.
Interest and other expenses is estimated to be around $55 million.
We expect the tax rate to be closer to 10% this quarter driven by the timing of a few discrete items.
And we expect adjusted EPS between <unk> 57, and <unk> 63.
Based on approximately 460 million weighted average shares outstanding.
In general our outlook for the fiscal third quarter anticipate similar demand trends to what we saw in the September quarter with the supply situation remaining the gating factor.
Now, let's go over our full year guidance on the following slide.
In short our expectations for the second half of the year are the same as what we talked about last quarter around 8% year over year growth.
With that in mind, given our strong performance for the first half of the year and our current outlook on the third quarter, we increased our fiscal 'twenty three revenue expectations to 'twenty, one 'twenty nine one to 31 billion.
We expect.
Adjusted operating margins to be around four 6% to four 8% and adjusted EPS between $2 20 and.
$2 35, a share.
In closing, although we're navigating a complex macro environment. Our first half performance shows that our strategic focus on high growth and profitable end markets is the right one.
As you know over the last several years, we changed our portfolio mix purposely deemphasizing, the most volatile and shortest cycle businesses.
We strategically focused on aligning our portfolio mix with our core capabilities and large diverse end markets with strong long term growth drivers and importantly, the trends supporting these growth opportunities are unchanged.
Confident the consistent execution that we've demonstrated these last few years will continue as we remain focused on capturing these opportunities and delivering on our long term commitments.
With that I'd like to turn the call back over to the operator to begin Q&A Michel.
Thank you Sir.
Ladies and gentlemen, we will now begin the question and answer portion of today's call.
You would like to ask a question. Please press star followed by the number one on your telephone keypad.
If your question has been answered and you would like to withdraw please press star followed by the number too.
As a reminder, we ask that you please limit yourself to one question and one follow up.
One moment for your first question.
Your first question will come from Mark Delaney of Goldman Sachs. Please go ahead.
Yes. Good afternoon. Thank you very much for taking the questions and congratulations on the strong results.
First question is hoping to better understand the companys comments on the end market trends and the macroeconomic environment and what's implied in your guidance if I understood the comments by end market.
Consumer is.
One of the only markets, where there's been some softness observed so far but if I look at the guidance on a sequential basis going forward I think next quarter and implied in the fiscal fourth quarter as well, there's some sequential revenue moderation quarter over quarter in both quarters. So it seems even though demand trends that you're seeing are still pretty strong youre trying to bake in the potential of <unk>.
There's just a little more broadly given the macroeconomic macroeconomic backdrop it but if you could elaborate a little bit more on how you are trying to handicap. Some of these weaker macroeconomic data points and what the company could see going forward.
And then you put that into your guidance that'd be helpful.
Yes, you're spot on Mark and good question and I would say.
I like about the flex portfolio right now is it's so broad and diverse.
To your point, we're definitely seeing some softness in the more consumer type end markets, both consumer devices and lifestyle.
End markets, a little bit soft you heard in the prepared remarks, though we managed to offset that weakness weakness within the lifestyle business with share gains. So that's a nice net plus but without that we would have probably seen.
Decline in that business as well the other four right now they are firing on all cylinders and so you sort of contrast, soft consumer end markets with things like continued growth in the cloud continued growth in renewable energy.
Continued growth in automotive not just with IHS being up 26%, but with content per vehicle going up as well, so we feel pretty well balanced.
No one is immune to softening markets, but we like where we are and we think that the breadth of the portfolio has helped to insulate the business a little bit from from softening elsewhere, Mark the only thing I'd add is first as Dan we're coming off of it.
Strong quarter after quarter up 24% year over year growth this quarter, which is fantastic.
We're still guiding to a very strong Q3, and I think you all will know that we like to be somewhat prudent in our assumptions and particularly with all the macroeconomic noise going on but whats really great about it is what Paul just said five out of $5 six core businesses and next tracker all grow.
Year over year, which is great in the midst of what youre hearing across other businesses and what we think the reason for that is of course, all the macro stuff, we talked about but also the share gain we are seeing even in areas like lifestyle. So I would say yes.
You have to think about our future guide that there is some amount of prudence in our guide and we need to do that with all the noise you're hearing I would feel very good about the growth. We just posted and the guide we're giving you for Q3.
Feel really good about that but overall it will be a strong growth here in the second half for us.
That's helpful. My second question was just on the IRI and maybe you could elaborate a little bit more on what you've seen from.
And markets, where there is potential tailwind.
The IRI.
As that goes into effect and perhaps how that evolves, but if you could also perhaps comment on do you have to the extent flex as manufacturing products in the U S.
Should be eligible for certain tax credits to those credits for the flex do they flow to the customer or do those get sure. Thanks.
Yeah, I'd first start with saying that we think they're very good tailwind from IRI.
For us not only in our next tracker business, but in terms of our overall renewables business, which is part of our industrial group.
Group, they've talked about that in the past. So let me start with with next tracker to begin wed obviously in on X trackers growth continues to be really strong and they will continue to have tailwind from the IR Ray there'll be some short term things like solar panel shortages and things like that.
But we expect backlog to continue to grow and a good tailwind in growth for for next tracker.
As the IRS kicks in.
I'd say in terms of credits and who will get tax credits I think those are still being worked out.
We have a lot of conversations going on in terms of what we manufacture where we manufacture and how do we move things into the U S.
But I'd say, there's a lot of noise in the system in terms of how the tax credits work out and who gets the best benefit we expect.
Revenue upside for.
And some profit upside for flex through it in terms of overall renewables the same way our renewables business whether it is in inverters are in storage.
As part of our industrial business is growing very strong.
And we expect that to continue to be the case with the IRI VR in deep conversations with our customers in that and we're also already launching manufacturing strategies here in the U S to help support them and I would say the same thing on tax credits Mark is that that that is still being worked out as to who.
Gets credit for it and how it plays through the system, but overall plus plus it's a tailwind whether it's for revenue or for profit. It's a good thing.
Thank you.
Your next question comes from <unk> Bhattacharya of Bank of America. Please go ahead. Thank you for taking my questions and congrats on the quarter. My first question is on margins you reported four 8% operating margin.
As the impact from inflation pass through and the full year, you're raising revenue $700 million EPS of 11 cents and keeping the four 7% operating margin. So what is factored in into the full year guide from inflation pass through impact.
If you can give us any quantification on that.
Sure No problem right Blue So maybe first on the second quarter. So the four 8%.
Probably.
Maybe a little bit of pressure from that low calorie pass through from inflation just to kind of give you an appreciation for the magnitude of that in Q2 of the 25 points of sales growth. We saw in the quarter, 25% sales growth five points or so of that was infill.
Inflation related pass throughs, so theres going to be a little effect margins could have been a little bit better. If it worked for that low calorie pass through but still quite pleased with a 25 basis points of margin expansion year on year in the quarter. So happy to see that if you look at the second half guide right now and.
And maybe Q3, specifically, here's how I'm thinking about Q3.
Q3 will largely be the same as Q2 composition of the business mix of the business margin profile of the business there'll be very similar quarters.
And at four 8% in Q3, that's another 30 basis points of margin expansion. So that's kind of how I think that one will play out.
We have some inflation pass through in the <unk>.
In our in our second half guide, but it's minimal.
Got it thanks for the details on that Paul and if I can for my follow up ask you a question on inventory and free cash flow. It looks like inventory was up 6% sequentially in the quarter and free cash flow was negative slightly.
Are you still maintaining the full year at $550 million of free cash flow and how should we think about that and specifically I think you called out for the reliability segment, you're still having issues with getting semiconductors.
As part of the inventory build because of.
That segment. So can you just talk a little bit about how you think inventory and volumes over the next couple of quarters. If it does and how should we be thinking about free cash flow for the third quarter and fourth quarter. Thank you.
Yes, so so cash flow in Q3, and Q4 will be positive we're still expecting 550 for the year a little color on Q2 shouldn't be a surprise that free cash flow was a bit negative in the second quarter, we had messaged that.
The reason for the negative cash flow was incremental capex spend.
Our capex rate as we move from Q1 to Q2 was about double the rate we are investing in a number of nextgen ramps that support the topline growth that we're seeing right now and so that 25% top line does come with a little bit of incremental investment both in working capital and some capex.
So that was kind of the pressure there to your point on on reliability and chips some of the larger node.
For larger.
Like I say lagging edge technology does more effect, the industrial automotive and health solutions businesses.
So we really haven't seen the constraints abate as much there as what we have in some of the more.
The agility type businesses.
<unk> cleared a build improve a bit in the quarter and CEC. For example that was nice to see but we still have some pretty significant constraints, particularly in an automobile automotive and health solutions I think the only thing I would add is first is you have to think about just the.
Fantastic growth, we're having this year right first quarter, 16%. This quarter 24, 25% in our Q3 guide 13, obviously can be a lot more of supply chain constraints clear. So our focus really is on meeting demand for our customers and right now demand is strong across most of our.
End markets.
And so that has to be the most important factor for us as we are bringing in inventory and trying to player demand and we talked about reliability, which is the most impacted even though they had a fantastic.
Good quarter in Q1, and Q2, there is still the most impact that you've been hearing from automotive is being a hearing from other health companies in terms of how supply chain is impacting them. So demand is strong backlog of Super strong you can see reliability margins continued to improve quarter over quarter year over year. So it's all.
Focused on let's make sure that we are able to meet the demand for our customers because that's what they're looking for us to do and we're comfortable our inventory flush through as we work through that.
Okay. Thanks for the details and congrats again on the strong results.
Thanks, Ruth we appreciate it.
Your next question comes from Steven Fox of Fox Advisors. Please go ahead.
Thanks. Good afternoon, I was curious about to end markets in particular during your prepared remarks, you talked about triple digit growth in cloud I was wondering if you could dig into what's going on there and then secondly, how long do you think that you can sort of stay ahead of the weakening lifestyle demand trend with new programs is this is this sort of.
Yes.
Something that continues only for another quarter or so as you ramp these new programs or is there more behind that thank you.
Yes, so what I'd say, Stephen let me start with with the cloud to begin with we talked in our Investor Day also about our focus.
On cloud not just in CEC, but across our portfolio because we also support hyperscale customers and data centers from our industrial portfolio, both from <unk> and our base power business. So we have a very.
<unk> comprehensive portfolio that supports data centers and cloud not just from our CEC business. So we've been really focused on building share and taking advantage of the full market opportunity for our cloud and we expect that to stay on track because I think despite what you hear in kind of the end.
Markets in terms of maybe cloud growth slowing down if you remember it's still a very big market. That's not growing at 40, it's still growing at 35, plus we have a lot of share gain to do our backlog is strong. So we feel really good about our cloud capabilities not only the fact that it's so differentiate.
It from their traditional msos because of such a power portfolio also on top of the traditional storage networking.
Portfolio. So we feel really good about our focus on cloud and how that is growing and we feel the end market really supports kind of continued growth for cloud.
I'd say in terms of kind of consumer lifestyle business.
What we did a few years ago, Stephen if you remember as we really focused on kind of the big brands and lifestyle.
I really wanted to build a portfolio around kind of higher end product more complex products and thats paying off because we have really gained share across our major customers and also taken advantage of the whole regionalization strategy and the whole kind of consume.
Circular economy work around these customers. So the share gain is really what's driving that business in terms of continuing to grow in the midst of all this noise in that business and we feel pretty good that we will be well above the market in that and continue to manage through that over the next few years because we are.
Very confident in our program problems and how our backlog is looking for that business.
Great that's really helpful. Thanks, so much.
Your next question comes from Jim Suva of Citigroup. Please go ahead.
Thank you maybe my observation is wrong, but it seems like all the contract manufacturers I guess, specifically to you flex is seeing operating margin improvements that actually look quite sustainable and not just a supply chain driven shortage.
Boost can you help us confirm that or not and as onshoring turning in for more now just discussions to actual a reality and that could help you out with some of the utilization at some of your other factories. Thank you.
And Jim I'll start and I'm sure Paul has a lot to say on this I would say first is we are very pleased to see the industry as a whole continue to improve in terms of operating margin improvement I think.
Flex we started talking about the three three and half years ago, and it's really great to see the whole industry go in the right direction in terms of focused on growth the right kind of growth.
And that drives the operating margin improvement for us and for the industry as a whole we feel that we very.
Very comfortable that it's sustainable margin improvement because one is for us our mix is definitely changing the types of end customers that we're going after who want to pay for our services is definitely changing so that is one reason we feel really good about the continued margin improvement and our story is not just based on hey, good.
Growth in good absorption, but mix shift a significant part of why you see our margin continuing to improve.
And then I'd say on the onshoring discussions I think it does become a reality in the last couple of years a lot of our programs are related to.
Either new products being ramped up in a different area or existing products being moved around and distributed to create resiliency.
Programs are driven by this whole onshoring opportunity, that's going on and bringing it close to consumers. So Paul would you make any other comments on the margin improvement just may be a proof point on your comment on regionalization, which is what we saw in the lifestyle business. This quarter, we talked about softer consumer end markets, but lifestyle actually grew.
Large part of that was the regionalization phenomenon that we've been talking about over the last year. So yes. So Jim I think you are spot on I think both of those things bode well for the for the industry and for flex good macro I'd say tailwind in terms of.
Growth due to onshoring, but margin improvement we feel very good about I think we've been on that track record now for almost four years and we continue to show great room for improvement.
Thank you for the details and congratulations to you and all your teams.
Thanks, Jim.
Ladies and gentlemen, as a reminder, if you would like to ask a question. Please press star one at this time.
Your next question will come from Shannon Cross of Credit Suisse. Please go ahead.
Thank you very much to go back to your growth this quarter and just ongoing for the year can you talk a bit about maybe on a segment basis, how much of the growth is from new customers.
Much of the growth is coming out of current programs and maybe how much of the growth is coming out of customers that have a program with you and are expanding it is there is there a difference between your segments or is it sort of just strong growth across the board and then I have a follow up.
Sure. So first of all Shannon nice to hear your voice on the live Mic again.
As for growth.
Let me give you a slightly different cut on the 25% and because I think if you look market by market. It is it's a really wide range. We've talked about consumer on one end of the spectrum you got automotive on the other and it probably up in the 20% I think the overall market.
But if I look at the 25% we saw this quarter, we had a couple of points that came from inorganic and that was the <unk> acquisition.
Had a couple of points just from next tracker next tracker as you saw that was up 40% year over year. So that was a nice contribution to the overall flex.
We had about five points from.
Inflation, which is that's the low calorie cost per cost pass through.
So thats nine the remaining 16 came from a combination of share growth end market.
We think the market.
Overall across the whole portfolio was up mid single digits.
Which means the rest came from share and so theres a lot of new Theres, a not a lot of new labels. There is a lot of new products that are all contributing to that sales growth, hence comments about ramps and some other things.
Again, if you look at the end markets mid single digit broad boy Theres a wide range you have down in some consumer markets and you have very strong market growth and others. A good example of that would be IHS data from light vehicle production in the automotive space, which I think was up 26%.
Great. Thank you that's actually really helpful. I was wondering also if you could talk to some of the investments you've made and maybe advanced manufacturing technologies, whether it's.
AI and ml or three D printing robotics I'm, just wondering as the larger EMS companies get bigger and have more capabilities.
They're going to just continue to be more of a differentiator. When you go out to sign new contracts versus maybe some of the smaller players or frankly, even in some of the in sourcing opportunities where they don't have the same capabilities.
Yes, Shannon. Thank you for that question first is I love the opportunity that exists in manufacturing as you go in.
Not just factory automation, but like you talked about AI ml, which is just to use good data to run our factories better I still believe that we're manufacturing is today is really has tremendous runway to grow. So one way is just factory automation what are you doing it smarter way, whether it's through robotics.
By co bots, and all of that but the AI ml layer, which is how do you overlay smart software rania machines better to have more proactive decision, making all of that will be a huge part of the kinds of investments that we're making today that continue to pay off in the future.
We are a big differentiator because our.
Our customers will say that they rather like to come to flex because the way we can deal with redesigning their product a way we can deal with running their product more efficiently to solve some complex issue. They have is just much better than everybody else. So that does that comes because of our capabilities are because of.
The AI EMA layers that we are building into our manufacturing systems and thinking is a big part of that so I feel like everything we've talked about it in terms of lighthouse network and industry four <unk> and all of that is just the starting of the conversation in terms of what big manufacturing companies will do.
<unk> around.
Automation and really taking advantage of full manufacturing capability, so lots to come on that it'll be a big storyline for what drives our productivity and our margin improvement and it definitely helps if you're a big company and you can invest more right. So I think those are all part of a very strong storylines.
Great. Thank you so much.
Your next question comes from Paul Chung of Jpmorgan. Please go ahead.
Okay.
Mr. Cheung. Your line is open. Please proceed with your question.
Alright, Thanks for taking my questions. So just on the operating margin improvements here, you've seen kind of a big step up here and agility over the years, but.
Also some step down in reliability. So can you talk about the dynamics, there and is there a path or.
Reliability to kind of rebound back north north.
6% I'm just talking about the dynamics there would be helpful.
Sure. So first of all reliability was up year on year in the quarter. So I was very happy to see that but to your point.
That business overall wants to be a whole lot more than low fives something margin.
We've struggled a bit with that business over the last couple of quarters as we've discussed because of the stops and starts from the supply chain and we continue to have some pressure there and what that means is you'll have a factor thats already to go but missing components and so you have absorption headwind and we've seen that over the last.
A couple of quarters as we have indicated before.
But that is a great business and that's a business that if you look at the kind of go back to the the narrative from the Investor Day Flex margins will continue to grow flex core margins will continue to grow over the next few years because of that reliability business mixing up so.
I can't tell you with with rifle shot precision when we're going to see a six handle on reliability margins here, which quarter it will be but the reliability margins want to want to be better and I think as we clear inventory.
As this component shortage continues to improve.
We should see better margins in reliability and Paul the thing I'd say is one is our storyline on overall kind of how operating margin improves for this company has been very consistent and we said we started this story four years ago, we talked about how we will build our operating model for how we run these businesses on improving.
<unk> on how the kinds of customers. We will go after and agility that is a lot easier to do than its in reliability because reliability long programs take a long time and we've made a very conscious decision that we'll go after complex automation complicated products in this in these end mark.
It's because those are the ones. We feel are good for our business is long term so whether it's in automotive we have our own design EV products are in health, where we have very complex things that we make for our customers. So it's a combination of what Paul said, which is.
Lots of stops and starts happening there now which is hard to do with higher capital intensity, but also the continued investment, but we just stand by our goal our goal is for.
For longer term margins for agility.
And for our liability to Threep to keep going up we said five plus for flex, we said hi.
High single digits for reliability, and Thats kind of what we're pushing towards and we're very comfortable that it's heading in the right direction for that.
Great. Thanks, that's very helpful. And then just a follow up on inventory levels. They are at their highest levels ever.
It kind of makes sense given the growth youre seeing in some component constraints, but how should we think about kind of the pace of harvest here or are we at.
Some kind of a new elevated level of inventory and then any update on some of the Golden screw issues you were mentioning.
Are you are you finding a little bit easier to source some of those components now thank you.
Yes, so Paul I'll start with kind of supply issues and what we're seeing we're definitely seeing supply constraints start to clear and parts of the agility business so consumer lifestyle.
<unk> business have more clearing.
Semiconductor availability, that's happening and that's consistent with what we're hearing and we're excited that that's what's driving a lot of our growth for agility on the reliability side, where we have kind of the the.
More lagging edge semiconductors, those are still struggling youre hearing that from automotive customers Youre hearing that from health customers that those investments have not come up as they were planned and there is still delay till we expect that those will continue to be challenged all to kind of next year calendar year.
And so I would say the way we're thinking about it is that we have great relationship with visa and suppliers and we work to get our share of them for our customers and that's where our growth is still very strong and reliability, but is there going to be continued backlog in those businesses I would say absolutely so in terms.
Inventory and clearing inventory our focus is really on this growth opportunity that we have to take advantage for our customers is the single most important thing they are very comfortable that the inventory by us on behalf of our customers and we will clear that as the backlog starts to clear more and reliability that we have.
Seen before so.
So really comfortable with the pace of the change were seeing and.
And we'd say as kind of the growth continues we will manage the inventory down in the coming quarters.
Okay, great. Thank you.
There are no further questions from the phone lines at this time I will turn the conference back to the CEO for any closing remarks.
Well. Thank you so much thanks, everyone for joining I would just take a minute to thank my leadership team of course, all of our customers right and our partners and our shareholders for your support most importantly to the flex team for working so hard to these complex time. So thank you for your contributions and their commitment to flex thanks, everyone.
For joining.
Ladies and gentlemen, this does conclude your conference call for this afternoon, we would like to thank everyone for participating and you may now disconnect your lines.
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