Q2 2024 Flex Ltd Earnings Call
Good afternoon, and thank you for standing by welcome to Flex our second quarter fiscal 2024 earnings conference call all.
All participants are in a listen only mode.
After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. Please press star one on your phone if you would like to withdraw your question. Please press star two.
This call is being recorded I will now turn the call over to Mr. David Griffith you may begin.
Thank you John Good afternoon, and welcome to <unk> second quarter fiscal 2024 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 slide.
Slides for today's call as well as a copy of the earnings press release and summary financials are available on the Investor Relations section 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 statements involve risks and.
<unk> 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 are the risk factors section in our recent filings with the SEC.
Note. This information is subject to change and we undertake no obligation to update. These forward looking statements. Please note unless otherwise stated all results provided will be non-GAAP measures and all growth metrics will be on a year over year basis full non-GAAP to GAAP reconciliations can be found in the appendix slide of today's presentation as well as the <unk>.
Relations website.
Earlier today, we were pleased to announce our plan to spin off all of <unk> remaining interest in next tracker to flex shareholders. As previously disclosed flex retained the option to effect the spinoff pursuant to a merger agreement entered into by Flex Index tracker in connection with NEC trackers initial public offering we believe that the spinoff is.
The most advantageous form separation for flex next tracker and our respective shareholders. Specifically provides the opportunity to distribute flexes interest in next tracker to flex shareholders and tax free manner for U S. Federal income tax purposes, and a lot of flex to focus on our core strategies and long term value creation for our shareholders as it.
Earlier today next tracker filed a registration statement on form S. Four that includes a preliminary proxy proxy statement of flex, which includes additional information regarding the spinoff spin off is currently expected to be completed in flexes fourth quarter, ending March 31, 2024, but does remain subject to a number of conditions.
No assurance can be given that the spinoff will in fact curb we understand that you may have questions. On this process at this point there are no additional details to share other than what's been publicly made available, but we will provide any updates as appropriate now I'd like to turn the call over to our CEO remedy.
Thank you David.
Good afternoon, and thank you for joining us today.
Before we start I wanted to say how deeply saddened we are by the horrific attacks on Israel.
Our Hearts go out to our colleagues our customers and our friends in that area.
Turning to our quarterly results on slide five overall fiscal Q2 was another strong quarter with great execution revenue came in at seven 5 billion, which is down about 4% adjusted operating margin came in at five 9% and we delivered 68 cents of adjusted EPS.
Unknown Executive: Good afternoon, and thank you for standing by.
Unknown Executive: Welcome to Flex's second quarter fiscal 2024 earnings conference call. Presently, all participants are in a listen on the mode.
Since we have now announced the separation of next tracker, we're able to provide core flex this results, which excludes next tracker.
Unknown Executive: After the speakers remarks, there will be a question and answer session. If you would like to ask a question, please press par 1 on your phone. If you would like to withdraw your question, please press par 2. As a reminder, this call is being recorded.
Our flex, we executed really well even with the market uncertainty revenue came in at $6 9 billion down 5% against a great quarter last year, which grew 24%.
David Rubin: I will now turn the call over to Mr. David Rubin. You may begin. Thank you, John.
Core flex adjusted operating margin came in at four 7% up both sequentially and year over year, and we delivered 56% of adjusted EPS.
Revathi Advaithi: Good afternoon, and welcome to Flex's second quarter fiscal 2024 earnings conference call.
David Rubin: With me today is our Chief Executive Officer, Revathi Advaithi, and our Chief Financial Officer, Paul Lundstrom. Both will give brief remarks followed by Q&A. Slides for today's call, as well as a copy of the earnings press release, and summary financials are available on the investor relations section at Flex.com.
Im really pleased with how these results shows our ability to execute and build a resilient company with strong performance through the cycle.
Now turning to slide six.
Take a look at market fundamentals and how we continue to navigate a highly dynamic environment. However, I want to point out a few important items that really puts into perspective, the strength of our model and how we are truly evolved as a company.
David Rubin: 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 the risk factors section in our recent filings with the SEC.
David Rubin: Note this information is subject to change and we undertake no obligation to update these forward-looking statements. Please note, unless otherwise stated, all results provided will be non-gap measures and all growth metrics will be on a year-over-year basis. The full non-gap to gap reconfiliations can be found in the appendix slides of today's presentation as well as the investor relations website.
As Youre well aware, we participated in six end markets, but within that we've been focused on shifting our portfolio more towards nexgen mobility cloud and digital health.
As highlighted in our March 2022, Investor Day, We believe these markets drive the right growth and margin expansion for us So I'd like to give some specifics on how we're doing in these areas.
Next in mobility as we have defined it comprises our EV Adas autonomous and our EV charging businesses at.
At the time of Investor Day, we expected a 50 plus percent CAGR for this space, we continue to see growth in this category on par with the strong expectations.
Revathi Advaithi: Earlier today, we are pleased to announce our plan to spin off all of Flex's remaining interest and next tracker to Flex shareholders. As previously disclosed, Flex retained the option to affect the spin-off pursuant to a merger agreement entered into by Flex and next tracker in connection with next tracker's initial public offering. We believe that the spin-off is the most advantageous forms separation for Flex, next tracker and our respective shareholders. Specifically, it provides the opportunity to distribute Flex's interest in next tracker to Flex shareholders in tax-free manner for US federal income tax purposes and allows Flex to focus on our core strategies and long-term value creation for our shareholders.
Looking at our overall automotive business once again this quarter, our revenue growth outpaced industry units.
This strength comes from past program wins, coupled with continued steady vehicle content expansion.
We expect our cloud business to grow just under 20% per year based on unique ability to manufacture vertically integrated data centre racks and critical power systems for the data center.
With the increasing trend towards consignment, we're on track to beat these growth expectations. This year and also next year.
This is based on what we have already won with multiple top tier hyperscale, Larry with much of that growth currently driven by generative AI capability expansion.
Revathi Advaithi: As earlier today, next tracker filed a registration statement on Form S4, that includes a preliminary proxy statement of Flex which includes additional information regarding the spin-off. Spin-off is currently expected to be completed in Flex's fourth quarter ending March 31, 2024, but does remain subject to a number of conditions and no assurance can be given at the spin-off will.
Lastly, we said our digital health care business would have just over a 10% CAGR.
We expect that multiyear trend to continue.
Right now, we're seeing exceptional growth in our next generation of smarter and smaller devices, including continuous glucose monitors and diabetes drug delivery programs.
Revathi Advaithi: In fact, curve. We understand that you may have questions on this process. At this point there are no additional details to share other than it was been publicly made available, but we won't provide any updates as appropriate.
I'd say the only changes in our life Sciences business, but that is just short term inventory digestion. After an extended period of strong growth.
Revathi Advaithi: Now, I'd like to return the call over to our CEO, Reviti. Thank you, David. Good afternoon, and thank you for joining us today.
One area, we touched on during our Investor day was clean energy transition opportunity.
Revathi Advaithi: Before we start, I want to say how deeply saddened we are by the horrific attacks on Israel. Our hearts go out to our colleagues, our customers, and our friends in that area. Turning to our quarterly results on slide five, overall fiscal Q2 was another strong quarter with great execution. Revenue came in at 7.5 billion, which is down about 4%, adjusted operating margin came in at 5.9%, and we delivered 68 cents of adjusted EPS.
Last quarter, we announced that our renewables business doubled in our last fiscal year.
Despite some lingering weakness in residential solar we still expect renewables to grow again in fiscal 'twenty four.
And it is still early days as we look at the potential opportunity from the IRA and other government initiatives to help drive the clean energy transition and upgrade grid infrastructure.
Our stated intention at our Investor day was to focus on the strategic end markets, which has made flex a more resilient company.
Revathi Advaithi: Yes. Since we have now announced the separation of next tracker, we're able to provide core flexes results, which excludes next tracker. For core flex, we executed really well even with the market uncertainty. Revenue came in at $6.9 billion, down 5%, against a great quarter last year which grew 24%. Core flex adjusted operating margin came in at 4.7% up both sequentially and year over year, and we delivered 56 cents of adjusted EPS.
Now lets this is combining the right end markets and markets with how we are operating as a company.
<unk> is a more agile and operationally efficient company and you'll see that in our results with steady margin expansion and EPS growth. Our continued optimization of our mix and our factory footprint combined with driving productivity through automation investments has enabled operating margin expansion, both sequentially and year over.
For year for core flex.
Revathi Advaithi: I'm really pleased with how these results shows our ability to execute and build a resilient company with strong performance through the cycles. Now turning to slide 6. We'll take a look at market fundamentals and how we continue to navigate a highly dynamic environment. How where I want to point out a few important items that really puts into perspective the strength of our model and how we have truly evolved as a company.
We also expect this trend to continue and we'll discuss this further when we get to guidance.
We have been shaping the company in this direction over the last five years, and we see the impact of our efforts and our improving results and shareholder value creation.
Now speaking of creating shareholder value, we're executing on our path to unlock the value of next tracker through this journey, we have created value with multiple transactions growing cash to help fund our capital allocation strategy.
Revathi Advaithi: As you're well aware, we participate in fixed end markets, but within that we've been focused on shifting our portfolio more towards next end mobility, cloud and digital health. As highlighted in our March 2022 investor day, we believe these markets drive the right growth and margin expansion for us, so I'd like to give some specifics on how we're doing in these areas. Next end mobility as we have defined it, comprises our EVA, DAS, autonomous and our EV charging businesses.
We use cash from the pre IPO TPG investment to fund the ignored Margaret acquisition, which is focused on cloud facilities and critical power.
This addition, clearly checks all the right boxes for value creation and delivered double digit growth is margin accretive and synergistic to our overall position in the cloud market.
We believe flex is a great investment. So we're also putting cash from the transactions to work buying back our own stock year to date, we bought back 500 million worth of stock and Youll recall, our board authorized a $2 billion share repurchase program back in August.
Revathi Advaithi: At the time of investor day, we expected a 50% percent keger for this space. We continue to see growth in this category on par with these strong expectations. Looking at our overall automotive business, once again, this quarter are revenue growth outpaced industry units. This strength comes from past program when coupled with continued steady vehicle content expansion. We expect our cloud business to grow just under 20% per year based on unique ability to manufacture vertically integrated data center racks and critical power systems for the data center.
Now we're in the final steps to fully unlock the next tracker valued in a shareholder friendly transaction as David outlined we expect to distribute the remaining 51% ownership to flex investors via a tax free spin in fiscal Q4.
With that I'll pass the call over to Paul to take you through our financial update Paul.
Okay. Thank you everybody I'll.
I'll begin with our second quarter performance on slide eight.
Revathi Advaithi: Even with the increasing trend towards consignment, we're on track to beat these growth expectations this year and also next year. This is based on what we have already won with multiple top tier hyperscalers with much of that growth currently driven by generative AI capability expansions. Lastly, we said our digital healthcare business would have just over a 10% keger. We expect that multi-year trend to continue. Right now, we're seeing exceptional growth in our next generation of smarter and smaller devices, including continuous glucose monitors and diabetes drug delivery programs.
It was another solid quarter.
Second quarter revenue was $7 5 billion in line with our expectations.
Gross profit totaled $676 million and gross margin increased to 9% up 130 basis points operating income was $439 million with operating margins at five 9% the substantial year on year improvement up 110 basis points and earnings per share came in at 60.
<unk> for the quarter, increasing 8%, which includes eight cents of next tracker Noncontrolling interest.
Revathi Advaithi: I'd say the only changes in our life sciences business, but that is just short-term inventory digestion after an extended period of strong growth. One area we touched on during our investor day was clean energy transition opportunity. Last quarter, we announced that a renewables business doubled in our last fiscal year. Despite some lingering weakness and residential solar, we still expect renewables to grow again in fiscal 24. And it is still early days as we look at the potential opportunity from the IRA and other government initiatives to help drive the clean energy transition and upgrade gridding for it.
Looking at core Flex results, which excludes next tracker in the quarter.
Core flex revenue was $6 9 billion down 5% and as Ray with you mentioned this was against a great quarter last year up 24%, which is which was our strongest quarter in fiscal year 'twenty three.
Core flex adjusted operating margins came in at four 7% up 20 basis points and with another quarter of sequential margin expansion up 40 basis points from Q1.
Flex core business delivered 56 cents of EPS up 6%.
Turning to our quarterly segment results on the next slide reliability revenue was flat at $3 3 billion.
Revathi Advaithi: Structure. Our stated intention at our investor day was to focus on these strategic end markets which has made Flex a more resilient company. Now let's, this is combining the right end markets and markets with how we are operating as a company. Flex is a more agile and operationally efficient company and you see that in our results with steady margin expansion and EPS growth. Our continued optimization of our mix and our factory footprint combined with driving productivity through automation investments has enabled operating margin expansion both sequentially and you're over your core flex.
Auto and health solutions remained strong with some headwinds from residential solar and industrial operating income was 171 million and operating margin for this segment improved sequentially.
To five 2% on solid execution.
And agility revenue was down as expected to $3 6 billion as strong cloud growth was offset by the anticipated pressure in comms enterprise I T and consumer operating.
Operating income came in at 168 million million with a solid four 6% operating margin up both sequentially and year on year and was reflective of strong operational management and improved mix.
Revathi Advaithi: We also expect this trend to continue and we'll discuss this further when we get to guidance. We have been shaping the company in this direction over the last five years and we see the impact of our efforts and our improving results and shareholder value creation. Now speaking of creating shareholder value, we're executing on our path to unlock the value of next tracker through this journey. We have created value with multiple transactions, growing cash to help fund our capital allocation strategy, we use cash from the pre IP or TPG investment to fund the a Nord market acquisition, which is focused on cloud facilities and critical power.
Finally next tracker delivered revenue of $573 million up 21%.
Operating income at next tracker was $112 million more than double what it was last year delivering a strong 20% operating margin.
Moving to cash flow on slide 10, we made further progress against our inventory improvement goals, reducing net inventory by 5% sequentially and by 7% year over year as we said last quarter. This is an indicator of the overall situation improving and we expect to see further progress over the coming quarters.
We continue to invest in future growth opportunities Q2, Capex came in at $144 million on target at 2% of revenue.
Revathi Advaithi: This addition clearly checks all the right boxes for value creation. It delivers double digit growth is margin accretive and is synergistic to our overall position in the cloud market. We believe Flex is a great investment, so we're also putting cash from the transactions to work buying back our own stock. You're today we bought back 500 million worth of stock and you recall our board authorized a $2 billion share repurchase program back in August.
We expect to maintain a similar total investment level for the full fiscal 2024.
All that led to free cash flow of $213 million, which was up both sequentially and year over year.
As we've committed to we continue to prioritize opportunistic share repurchases, we bought back 309 million worth of stock in the quarter and fiscal year to date, we have purchased $506 million as discussed earlier.
Revathi Advaithi: Now we're in the final steps to fully unlock the next tracker value in a shareholder friendly transaction. As David outlined, we expect to distribute a remaining 51% ownership to flex investors via a tax respawn in fiscal Q4.
In August the board authorized a new 2 billion dollar share repurchase program.
Please continue to slide 11 for our segment outlook for the fiscal third quarter.
Paul Lundstrom: With that, I'll pass the call over to Paul to take you through our financial update, Paul. Okay, thank you, River. I'll begin with our second quarter performance on slide eight.
For reliability solutions, we expect revenue will be down high single digits to low teens auto demand has been steady however, with the UAW strikes unresolved, we're taking a more conservative approach in the quarter.
Paul Lundstrom: Who is another solid quarter? Second quarter revenue was $7.5 billion in line with our expectations. Gross profit totaled $600 and $76 million and gross margin increased to 9% up 130 basis points. Operating income was $439 million with operating margins at 5.9%, a substantial year on your improvement, up 110 basis points and earnings per share came in at 68 cents for the quarter, increasing 8%, which includes 8 cents of next tracker, non-controlling interest.
We also expect some continued weakness in parts of industrial.
Revenue and agility is expected to be down mid teens to low 20% with strong growth in cloud offset by near term weakness in comms enterprise I T and consumer.
Onto slide 12 for a quarterly guidance for total flex we expect revenue in the range of $6 five to $6 9 billion with operating income between 375 and $425 million interest and other expenses estimated to be around $50 million we.
Paul Lundstrom: Looking at core flex results, which excludes next tracker in the quarter, core flex revenue was $6.9 billion down 5%, and as David mentioned, this was against a great quarter last year, up 24%, which was our strongest quarter in fiscal year 23. Core flex adjusted operating margins came in at 4.7%, up 20 basis points, and with another quarter of sequential margin expansion, up 40 basis points from Q1. The Flex Core Business delivered 56 cents of EPS up 6%.
We expect the tax rate to be around 11% for the quarter all of that translates to adjusted EPS between <unk> 57, and <unk> 65 cents based on approximately 448 million weighted average shares outstanding.
This guidance includes approximately eight to 10 cents of Noncontrolling interests from next tracker.
Again to provide some additional visibility we included our expectations for core flex. Excluding next tracker for Q3, we now expect core revenue to be between five nine and $6 3 billion.
Paul Lundstrom: Turning to our quarterly segment results on the next slide, reliability revenue was flat at 3.3 billion. Auto and health solutions remained strong with some headwinds from residential solar and industrial operating income was 171 million and operating margin for the segment improved sequentially to 5.2% on solid execution. In agility, revenue was down as expected to 3.6 billion as strong cloud growth was offset by the anticipated pressure in comms, enterprise IT and consumer. Operating income came in at 168 million with a solid 4.6% operating margin up both sequentially and year on year and was reflective of strong operational management and improved mix.
Core adjusted operating income between 280, and $310 million, which equates to adjusted operating margins between four seven and 4.9% at the midpoint this would be up both sequentially and year over year.
Core flex adjusted earnings per share is expected to be between 47, and 52 cents and looking at our GAAP guidance. We've included approximately 100 million in restructuring, which we expect to implement in Q3.
Looking at our full year guidance on the following slide.
Until the separation will provide guidance for total flex, including next tracker, which remains comparable to our prior guidance.
Paul Lundstrom: Finally, next tracker delivered revenue of 573 million up 21%. Operating income at next tracker was 112 million more than double what it was last year delivering a strong 20% operating margin.
We now expect full year revenue between 28.1, and $28 8 billion adjusted operating margin now between 5.86% and adjusted EPS between $2 49, and $2 66 per share. This includes approximately 30 to 35 cents and non.
Paul Lundstrom: Moving to cash flow on slide 10, we made further progress against our inventory improvement goals reducing net inventory by 5% sequentially and by 7% year over year. As we said last quarter, this is an indicator of the overall situation improving and we expect to see further progress over the coming quarters. We continue to invest in future growth opportunities. Q2 CapEx came in at 144 million on target at 2% of revenue. We expect to maintain a similar total investment level for the full fiscal 2024. All that led to free cash flow of 213 million which was up both sequentially and year over year.
Controlling interest expense from next tracker.
Looking at our full year expectations for core flex to be clear. This excludes next tracker for the entire year again. This is something new to help you with modeling and is not comparable to previous total flex guidance.
We expect full year revenue for core flex between $25 nine and $26 5 billion adjusted operating margins between four eight and 4.9%, which at the midpoint would be up about half a point year on year and last adjusted EPS between 205.
Paul Lundstrom: As we've committed to, we continue to prioritize opportunistic share repurchases. We bought back 309 million worth of stock in the quarter and fiscal year to date we've purchased 506 million. As discussed earlier, in August, the board authorized a new $2 billion share repurchase program.
And 218.
On the next slide I want to highlight just how much flex has changed as we have shifted to higher value business and improved operationally to manage through the cycles as.
As you can see our revenue outlook for FY 'twenty four has change resulting from some short term market challenges. However, despite some pressure on the top line. Our expectation is that both operating profit dollars and core flex EPS will hold strong and that operating margin rates will continue.
Paul Lundstrom: Please continue to slide 11 for our segment outlook for the fiscal third quarter. For reliability solutions, we expect revenue will be down high single digits to low teens. Auto demand has been steady.
Paul Lundstrom: However, with the UAW strikes unresolved, we're taking a more conservative approach in the quarter. We also expect some continued weakness in parts of industrial.
<unk> to expand.
This comes from executing on our portfolio strategy towards higher value businesses, our constant drive to improve operating efficiency and continuously optimizing our cost structure. As we have told you that we would.
Paul Lundstrom: Revenue in agility is expected to be down mid teens to low 20% with strong growth in cloud offset by near-term weakness in comms, enterprise IT and consumer.
This is another proof point on how we've evolved and improved and are now operating at a level better than at any time in the company's history.
Paul Lundstrom: On to slide 12 for quarterly guidance. For total flex, we expect revenue in the range of 6.5 to 6.9 billion with operating income between 375 and 425 million. Interest in other expenses estimated to be around 50 million. We expect the tax rate to be around 11% for the quarter. All that translates to adjusted EPS between 57 and 65 cents based on approximately 448 million weighted average shares outstanding. This guidance includes approximately 8-10 cents of non-controlling interest from next tracker.
Paul.
Thank you Paul overall, I'm really pleased with how they are executing our strategy and portfolio management focused on the right kind of growth and driving margin expansion. This combined with executing the capital allocation strategy with a strong focus on buybacks as how we provide value to our shareholders.
We expect an extraordinarily strong year for flex with continued margin performance on EPS growth, even with the near term challenges.
This is also a good time for me to reiterate our Investor day targets for fiscal 'twenty five getting to core flex adjusted EPS of $2 65.
Paul Lundstrom: Again, to provide some additional visibility, we included our expectations for core flex excluding next tracker. For Q3, we now expect core revenue to be between 5.9 and 6.3 billion. Core adjusted operating income between 280 and 310 million, which equates to adjusted operating margins between 4.7 and 4.9%. At the midpoint, this would be up both sequentially and year-over-year. Core flex adjusted earnings per share is expected to be between 47 and 52 cents.
So we remain confident in the long term opportunity for flex with that I'll turn the call back to the operator John to begin Q&A.
Thank you we will now begin the question and answers portion of today's call. If you would like to ask a question. Please press star one on your phone.
As a reminder, we ask that you please limit yourself to one question and one follow up.
One moment. Please for your first question.
Your first question comes from the line of Matt Sheerin from Stifel. Your line is now open.
Paul Lundstrom: And looking at our gap guidance, we've included approximately 100 million in restructuring, which we expect to implement in Q3.
Yes, thank you very much and good afternoon.
Just a question relative to your guidance.
Versus 90 days ago, it looks like you're taking down the boats expectations for both reliability and agility pretty significantly you talked a little bit about some auto headwinds.
Paul Lundstrom: Looking at our full year guidance on the following slide, until the separation will provide guidance for total flex including next tracker, which remains comparable to our prior guidance. We now expect full year revenue between 28.1 and 28.8 billion. Adjusted operating margin now between 5.8 and 6% and adjusted EPS between 249 and 266 per share. This includes approximately 30-35 cents in non-controlling interest expense from next tracker.
And some of the Datacom markets still being weak, but could you tell us exactly what you've seen from customers in terms of their order patterns and are we hitting the bottom in some of these markets or do you expect continued deterioration as we get into calendar 'twenty four.
Hey, Matt So first of all I. Appreciate the question I think it's spot on let me just give you some some specifics and ray with you might have some some comments as well but.
Paul Lundstrom: Looking at our full year expectations for core flex to be clear, this excludes next tracker for the entire year. Again, this is something new to help you with modeling and is not comparable to previous total flex guidance. We expect full year revenue for core flex between 25.9 and 26.5 billion. Adjusted operating margins between 4.8 and 4.9%, which at the midpoint would be up about half a point year on year. And last, adjusted EPS between 205 and 218.
What we had previously called out was weakness in and more of our consumer facing markets and in particular I'll. Just give you. One example, our consumer device business, which is within the agility segment, we figured would be down for the year around mid teens, but based on what we're hearing from customers today.
We're thinking it'll be down more like 25%, so mid teens to twenty-five fairly significant change on those consumer facing markets, we'd called out a softening in comms infrastructure before our thought had been that should be probably flat for the year, but with the ongoing inventory digestion and what we're seeing.
Paul Lundstrom: On the next slide, I want to highlight just how much flex has changed as we have shifted to higher value business and improved operationally to manage through the cycles. As you can see, our revenue outlook for FY24 has changed, resulting from some short-term market challenges. However, despite some pressure on the top line, our expectation is that both operating profit dollars and core flex EPS will hold strong and that operating margin rates will continue to expand. This comes from executing on a portfolio strategy towards higher value businesses, our constant drive to improve operating efficiency, and continuously optimizing our cost structure as we have told you that we would.
And in some of those end markets right now what you guys are all seeing too we're expecting comps to be down more like 10% for the year for us.
Revathi Advaithi: This is another proof point on how we've evolved and improved and are now operating at a level better than at any time in the company's history.
<unk> has been strong but now we're sitting in week six of this this UAW strike and where we're seeing some impact here in Q3, so we're taking a little bit more conservative approach.
That said, we're still expecting growth overall for the automotive business.
And then I guess lastly, just a little on renewables we.
We were expecting robust double digit growth for the year, but given what youre seeing right now in some of the residential solar space that'll it'll still be up but it will probably be up more like more like low single digit. So those are some of the bigger end markets. We've seen some contraction, but I guess I would sort of book in that comment by saying.
Although things are choppy in some areas things like next Gen mobility looks great cloud great Digital health continues some really nice to see some things there so yes.
Revathi Advaithi: Thank you, Paul. Overall, I'm really pleased with how we are executing our strategy on portfolio management, focused on the right kind of growth and driving margin expansion. This combined with executing the capital allocation strategy with the strong focus on buybacks is how we provide value to our shareholders.
Unfortunately, just can't quite offset some of what we're seeing there and those are some of those other end markets.
Got it.
Revathi Advaithi: We expect an extraordinarily strong year for Flex with continued margin performance on EPS growth even with the near term challenges. This is also a good time for me to reiterate our investor day targets for fiscal 25, getting to core Flex adjusted EPS of $2.65. So we remain confident in the long-term opportunity for Flex.
Yes, Matt the only thing I'll add to what Paul said is that.
You know one of the things we've talked about consistently for flex in the last few years is.
You have to have the right portfolio, but you also have to have the right operational strategy to be agile and more operationally.
Operationally efficient and you can see that playing out right now in our results with our margin expansion EPS growth. So it's really well managed through the cycle, which is what you are seeing present out today. So.
Unknown Executive: With that, I'll turn the call back to the operator, John, to begin Q&A. Thank you.
Unknown Executive: We will now begin the question and answers portion of today's call. If you would like to ask a question, please press far one on your phone. As a reminder, we ask that you please limit yourself to one question and one follow up. One moment please for your first question.
Market Choppiness will be there I think how we execute as a company is important and we're pleased with that.
Okay. Thanks for all of that very helpful.
My follow up just regarding you reiterating that $2 65, EPS target for fiscal 'twenty five.
Matt Sheerin: Your first question comes from the line of Matt Sheerin from Stiefel, your lines now open. Yes, thank you very much and good afternoon. Just a question relative to your guidance versus 90 days ago, you look like you're taking down both expectations for both reliability and agility pretty significantly. We talked a little bit about some auto headwinds and some of the data come markets still being weak. Could you tell us exactly what you've seen from customers in terms of their order patterns and are we hitting the bottom of some of these markets or do you expect a continued deterioration as we get into calendar 24.
Obviously, it looks like significant growth off of what Youre guiding the core business for 24.
So how much of that is going to come from.
Core business growing margins expanding versus the buyback, making up for that for that deficit.
It's going to be a combination of the three Matt I don't want to get too far ahead of ourselves and guide to many of the specifics on that we need to get through the next six months here, but I think it'll be a combination of some topline growth and margin expansion.
I think kind of makes sense, given our momentum here and probably some buyback as well.
Okay, great. Thank you very much.
Your next question comes from the line of Steven Fox from Fox Advisors. Your line is now open.
Matt Sheerin: Matt, so first of all, I appreciate the question. I think it's spot on. Let me just give you some specifics and, you know, gravity might have some comments as well. But what we had previously called out was, you know, weakness in more of our consumer facing markets. And, you know, in particular, I'll just give you one example. Our consumer device business, which is within the agility segment, we figured would be down for the year around mid teens.
Thanks, Good afternoon.
Two questions if I could first of all given the.
Matt Sheerin: But based on what we're hearing from customers today, we're thinking it'll be down more like 25%. So mid teens at 25, fairly significant change on those consumer facing markets. We had called out a softening in comms infrastructure before our thought had been that should be probably flat for the year, but with the ongoing inventory digestion and what we're seeing in some of those end markets right now. What you guys are all seeing too.
Further progress in margins, even though you're seeing weakness in some end markets. It seems to strike a chord that like some of the markets that are softening or even lower margin below average than I would've thought.
I was curious like how many of these markets, where maybe youre still not getting.
Average margins would you consider either exiting repricing.
We are considering the strategy in some ways I'm just curious how.
How how pliable youre going to be towards some of these other markets going forward. Thanks.
Sure so.
I wouldn't say, there's any major major end markets were planning on exiting but I would sort of caveat that statement, Steve by saying.
Matt Sheerin: We're expecting comms to be down more like 10% for the year for us auto has been strong. But now we're sitting in week six of this, this UAW strike and we're seeing some impact here in Q3. So we're taking a little bit more conservative approach. You know, that said, we're still expecting growth overall for the automotive business. And then I guess lastly, just a little on renewables. You know, we were expecting robust double digit growth for the year.
Portfolio management is a constant process and we're always evaluating.
Maybe not quote divesting per se, but deemphasizing.
I think your comment on mix is spot on.
It's kind of nice that you know some of those end markets that I pointed out to happen to be sort of lower margin. If you look at the flex aggregate. So as I think about is how how we're moving with some market choppiness in kind of a guide down on the top line.
Matt Sheerin: But you know, given what you're seeing right now and in some of the residential solar space, that'll it'll still be up, but it'll probably up more like more like low single digit. So those are some of the bigger end markets we've seen some contraction, but I guess I would sort of book in that comment by saying, although things are choppy in some areas, things like next gen mobility looks great. You know, cloud, great digital health, you know, continues some really nice to see some things there.
Mix definitely helps.
Definitely helps.
I don't know.
Is that a helpful is that helpful commentary.
Just wondering given the one thing I'll add is just to say is managing mix and portfolio kind of has been a key theme in the last five years. If you look at what we have done overall in the agility business in consumer devices all of that within the each of the end markets. It really managed our mix pretty significantly in terms of moving.
Matt Sheerin: So you know, they just, unfortunately, just can't quite offset some of what we're seeing there in those in some of those other end marks. And Matt, the only thing I'll add to what Paul said is that, you know, one of the things we've talked about consistently for Flex in the last few years is, you have the right portfolio, but you also have to have the right operational strategy to be agile and more operationally efficient, and you can see that playing out right now in our results with our margin expansion, EPS growth.
The value chain, that's why you see agility margins being such a strong performance.
Even with the end markets and so our belief is that within these end markets that are pockets that are extremely strong that really helps us and then there are others that will keep shrinking in size nothing significant to talk about but I think it's part of managing the portfolio even within all of the six end markets doesn't matter where they are in.
Liability, our agility I see that normal course of action.
Matt Sheerin: So, you know, it's really well managed. Through the cycle, which is what you're seeing present out today. So, you know, market chopinists will be there. I think how we execute as a company is important and we're pleased with that. Okay, thanks for all of that. Very helpful. And as my follow up just regarding you reiterating that 265 EPS target for fiscal 25. Obviously, it looks like significant growth off of what you're guiding the core business for 24.
Okay. That's definitely helpful. And then just I was wondering if you could dial in a little bit more on the auto market.
You mentioned, the UAW strike, but it away from that can you talk about.
Just maturity of programs and whether they are contributing to margins and how sort of the program ramps look into next year, because you seem pretty bullish on new programs continuing to ramp even though there's been a lot of sort of.
Negative headlines in the last couple of months on Evs and things like that.
Matt Sheerin: So, how much of that is going to come from the core business growing margins expanding versus the buyback making up for that for that deficit. It's going to be a combination of the three Matt. You know, I don't want to get too far ahead of ourselves and guide, you know, too many of the specifics on that. You know, we need to get through the next six months here, but I think it'll be a combination of some top line growth, some margin expansion. I think kind of makes sense given our momentum here and probably some buyback as well. Okay, great. Thank you very much.
Yeah, I'd say I'll start with saying that a few years ago, we kind of stated our intention and automotive to really drive our focus on what they call next Gen mobility and.
Our EV platform that I've talked about before which is a combination of our own designs and designs that we work on with our customers has been very successful.
In different geographies and also in North America in terms of winning platforms, we talked about large bookings expansion in automotive, which will take kind of two to five years to ramp up and get to maximum volume production, but that is our strategy on automotive and we can see that in terms of our bookings and our core volume.
Stephen FOX: Your next question comes from the line of Stephen Fox from Fox advisors. Your line is not open. Thanks.
Stephen FOX: Good afternoon. Two questions. If I could, first of all, given the further progress in margins, even though you're seeing weakness in some end markets, it seems to strike a chord that like some of the markets that are softening are even lower margin below average and I would have thought. So I was curious like how many of these markets where maybe you're, you're still not getting, you know, average margins. Would you consider either exiting reprising, you know, reconsidering the strategy in some ways.
So it's both that automotive I would say that the noise that you see today.
In terms of EV is kind of part of I would say the growing pains that you're going to say is seen any end markets that is going to have such a hyper growth cycle.
And we see that that's a good thing we believe that there is good growth to be had we also think there is disruption in the overall supply chain in automotive, which provides a great opportunity for <unk>.
EMS companies like Flex. So you put all that together I would say.
Stephen FOX: I'm just curious how, you know, how, how pliable you're going to be towards some of these other markets going forward. Thanks. Sure. So, you know, I wouldn't say there's any major major and markets we're planning on exiting. But I would sort of caveat that statement, Stephen, by saying, you know, portfolio management is a constant process and we're always evaluating and, and, you know, maybe not quote, divesting, per se, but, you know, deemphasizing.
My overall view on Evs and in automotive is that it is a good place for flex to be.
And we.
We continue to have really strong growth as a result of that and we want to be diversified in our automotive end markets.
Great. That's helpful. Thank you.
Thanks, David.
Your next question comes from the line of throughput, but the Targa from Bank of America. Your line is now open.
Stephen FOX: I think your comment on mix is spot on, you know, it's kind of nice that, you know, some of those end markets that I pointed out to happen to be sort of lower margin if you look at the flex aggregate. And so as I think about, that's how, how we're moving with, you know, some market choppiness and kind of a guy down on the top line, you know, mix definitely helps. I don't know, is that a helpful, is that helpful commentary?
Hi, Thank you for taking my questions looks like on the core business. Your expectation for revenues has gone down about $2 6 billion, but the expectation for operating margins is 40 bps better.
So I was wondering if you can delve a little bit deeper into both the revenue side and on the margins specifically on renewables like how much of your business is tied to residential versus utility scale and how do you see that progressing over the over the year and then on automotive are you tied more to the North American.
Stephen FOX: Yeah, even the one thing I'll add is just to say is managing mix and portfolio kind of has been our key theme in the last five years, if you look at what we have done overall and agility business and consumer devices. All of that within the port, each of the end markets, we've really managed our mix pretty significantly in terms of moving up to value chain. That's why you see agility is margins being such a strong performance, even with the end markets that's in.
And Oems are the Europeans and how do you see that mix changing as the mix gets more towards Evs and then just on the margins that 40 bps of improvement does that come more from reliability, our agility and Paul in the past you've talked about things like components, the lagging edge semiconductors being an issue.
Stephen FOX: So our belief is that within these end markets that are pockets that are extremely strong, that really helps us and then there are others that will keep shrinking in size. Nothing significant to talk about, but I think it's part of managing the portfolio, even within all the six end markets, doesn't matter whether you're on reliability or agility, I see that normal course, of Action. Okay, you know, that's definitely helpful.
<unk> is that now done and what is driving that 40 bps. If you can just delve into that margin improvement on lower revenues.
Well the good news is that there will be no more sell siders that ask questions. Because I think you had eight of them in there.
But I'm I'm I'm just teasing so so let me let me start with with revenue.
I think we called out a few of the end markets that we're seeing declines by the way by my math, the midpoint of about $2 $5 billion down consumer devices was a piece.
Stephen FOX: And then just, I was wondering if you dial in a little bit more on the auto market. You know, you mentioned the UAW strike, but away from that, can you talk about, you know, just maturity of programs and whether they're contributing to margins, how, you know, sort of the program ramps look into next year, because you seem pretty bullish on new programs continuing to ramp even though there's been a lot of sort of negative headlines in the last couple months on EVs and things like that.
Talk a little bit about renewables, we've talked about being a little bit more conservative with with auto we talked about comms infrastructure.
So I think those are going to be some of the bigger drivers partially offset by continued growth in the areas that are that rabies and I've been talking about for a couple of years now Nextgen mobility and auto cloud digital health are all look pretty good.
Stephen FOX: Yeah, I'll start with saying that, you know, a few years ago, we kind of stated our intention in automotive to really drive our focus on what we call next gen mobility and, you know, our EV platform that I've talked about before, which is a combination of our own designs and designs that we work on with our customers has been very successful, you know, in different geographies and also in North America in terms of winning platforms. We talked about large bookings expansion in automotive, which will take kind of two to five years to ramp up and get to maximum volume production, but that is our strategy on automotive and we can see that in terms of our bookings and our core volume growth both in automotive.
So that's what drove the day rate on.
On revenue.
Asked about utility versus Reza for renewables first I'll, just say and I think we've disclosed this before that the renewables business is now well over $1 billion reflects its a big piece of the business.
We there's some confidentiality around customers, we have made some disclosures that would.
In partnership with our customers. So I think you know that there's a couple of names out there there tend to be more in the residential space and that's where we've been pinched here a little bit in terms of some forecast changes in a little bit of choppiness, but our our long term view remains very bullish on that whole renewables space and we do expect it to continue to grow.
Stephen FOX: I'd say that the noise that you see today in terms of EV is kind of part of, I would say, the growing pains that you're going to say, you see in any end markets that is going through such a hyper growth cycle and we see that that's a good thing. We believe that there is good growth to be had. We also think there is disruption and overall supply chain in automotive, which provides a great opportunity for EMS companies like Flex.
You you asked about automotive.
I would say, we're fairly well geographically dispersed we're not overly concentrated in North America, so although the UAW.
We are expecting and seeing some impact here in Q3, it doesn't affect Europe, it doesn't affect China. So much.
In terms of margins, so two and a half billion dollar sales cut with no change to O. P. Theres a couple of things that are in our favor on that one and this is what I think Steven.
Stephen FOX: So you put all that together, I would say my overall view on EVs and an automotive is that it is a good place for Flex to be and, you know, we continue to have really strong growth as a result of that and we want to be diversified in our automotive EV and markets. Great, that's helpful. Thank you. Thanks, Steve.
Well pointed out the margin mix helps.
We're seeing volume reductions in areas, where margin rates tend to be a little bit lower and so that definitely helps I would say that's one.
Two we I did mentioned in the prepared remarks, there is going to be some restructuring here in the third quarter and theres going to be tailwind both in Q3 and Q4 for that.
Ruplu Bhattacharya: Your next question comes from the line of Furu Poo Batacharya from Bank of America. Your line is now open. Hi, thank you for taking my questions. Look like on the core business, your expectation for revenues has gone down about 2.6 billion, but the expectation for operating margins is 40 bits better. So I was wondering if you can delve a little bit deeper into both the revenue side and on the margins, specifically on renewables, like how much of your business is tied to presidential versus utility scale and how do you see that progressing over the over the year and then on automotive, are you tied more to the North American OEMs or the Europeans and how do you see that mix changing as the mix gets more towards EVs?
And then three Q2 came in a little bit better and so that's dropping through and so I think those three pieces kind of help us too.
Hold the line on an operating profit and then the last thing that you asked about was recoveries. So if I think about the full year.
Revenue year on year for core flex.
Recoveries are down meaningfully versus what we've what.
What we thought over the last couple of quarters I would say that's a very good news very good news for a couple of reasons, one it's going to have a beneficial impact on inventory as chip shortage thing.
Although there is still tightness in some areas, it's gotten much much better.
Ruplu Bhattacharya: And then just on the margins that 40 bits of improvement, does that come more from reliability or agility? And Paul, in the past, you've talked about, you know, things like components, the lagging at semiconductors being an issue, is that now done? And what is driving that 40 bits, if you can just delve into that margin improvement on lower revenues?
And that helps with cost to cost pass through included and so when I think about full year and I think at the midpoint of our guide you know high single digit down for the full year I would guess at this point maybe half of that comes from changes in pass through so it's not.
Ruplu Bhattacharya: Well, the good news, Ruvu, is that there will be no more cell-siders that ask questions because I think you had eight of them in there, but I'm just teasing. So let me start with revenue. I call out a few of the end markets that we're seeing declines. By the way, my math, the midpoint, about 2.5 billion dollar down. Consumer devices was a piece. We talked a little bit about renewables. We talked about being a little bit more conservative with auto.
All of the revenue.
Headwinds that Youre seeing are core markets. So some of that is just inflation pass through as you knew that we would see when things got a little bit more normal.
Yeah. Thanks for all the details I really appreciate you going into all of that just real quick on a quick follow up now that you've announced the remaining next tracker transaction does that change your philosophy around capital return and peso buybacks. How should we think about then thank you. Thanks for all the detail.
Ruplu Bhattacharya: We talked about comms infrastructure. So I think those are going to be some of the bigger drivers, partially offset by continued growth in the areas that Ravit, and I've been talking about for a couple of years now, next-gen mobility and auto, cloud digital health, all look pretty good. So that's what drove the derate on revenue. You asked about utility versus Rezzy for renewables. First, I'll just say, and I think we've disclosed this before, that the renewables' business is now well over a billion dollars for Flex.
No problem and so we've we've talked about our capital allocation priorities before and I would say number one we're never going to starve. The core business. We are quite bullish in a number of our end markets and so we're never going to starve ourselves for things like Capex.
Or other internal investments.
The number two priority and this is a high high priority is share buyback. We continue to believe that there's a significant disconnect hopefully with the next tracker separation people sort of realize the arbitrage, there and things things sort of rationalize a little bit.
Ruplu Bhattacharya: It's a big piece of the business. We, there's some confidentiality around customers. We have made some disclosures that would you know with in partnership with our customers. So I think you know that, you know, there's a couple names out there that tend to be more in the residential space. And that's where we've been pinched here a little bit in terms of some forecast changes and a little bit of choppiness but our our long term view remains very bullish on that whole renewables space.
I would say the probably the distant third at the moment would be M&A as always reserve the right to change our minds, but stock buyback is clearly the.
Expected use of free cash.
Only thing I'd add is I'll remind you that in our board recently authorized a $2 billion stock.
Ruplu Bhattacharya: And we do expect it to continue to grow. You, you asked about automotive. I would say we're fairly well geographically dispersed. We're not overly concentrated in North America. So although the UAW, we are expecting and seeing some impact here in Q3. It doesn't affect Europe. It doesn't affect China so much. In terms of margins. So two and a half billion dollar sales cut with no change to OP. There's a couple things that are in our favor on that one.
Optimization right until we expect to continue to return cash back to our shareholders.
Okay. Thank you.
Thanks for your Blue.
Your next question comes from the line of semi chapter G from JP Morgan. Your line is now open.
Hi, Thanks for taking my question.
Just two.
Sure.
Just parsing through all the numbers that you've disclosed.
When I look at the <unk> guide versus <unk> implied in there.
Ruplu Bhattacharya: And that this is what I think Stephen well pointed out, you know, the margin mix helps. You know, we were we're seeing volume reductions in in areas where you know our margin rates tend to be a little bit lower. And so that definitely helps. I would say that's one. Two, you know, we I did mention in the prepared remarks. There is going to be some restructuring here in the third quarter. And there's going to be tail in both in Q3 and Q4 for that.
There is a modest uptick in revenue and a modest uptick in profit.
I hope I'm doing the math right queue, but.
Just wondering how much of that is the cloud really cloud customer as it projects you've talked about.
Or is there something else embedded in there in terms of recovery going from 32 to <unk> and any sense you can give us on the timing of those projects starting in <unk> and then ramping to full queue or is it more of a <unk> event in the numbers and then I have a quick follow up thank you.
Ruplu Bhattacharya: And then you know three Q2 came in a little bit better. And so that that's dropping through. And so I think those three pieces kind of help us to, you know, hold the line on operating part profit. And then the last thing that you asked about was recoveries. So if I think about the full year revenue year on year for core flex recoveries are down meaningfully versus what we've, you know, what we thought over the last couple of quarters.
Sure Smedes.
So yes, there is some ramp tailwind and as we move through Q4 as we continue to rent cloud as a piece of it there's a there's a couple of others that we expect to benefit from as well.
A number of these new platforms that we've been talking about that that should give us. Some some continued growth. It's the three areas that we've been talking about is next gen mobility as cloud as you pointed out in.
Ruplu Bhattacharya: I would say that's a very good new, very good news for a couple of reasons. One, it's going to have a beneficial impact on the inventory, this chip shortage thing. It's although there's still tightness in some areas, it's gotten much, much better. And you know that helps with, you know, cost to cost pass through included. And so when I think about full year. I think at the midpoint of our guide, you know, high single digit down for the full year, I would guess at this point maybe half of that comes from changes in pass through.
Health solutions should continue to do well in those the smaller tech device things.
The you mentioned margins do.
Do expect a little bit of a margin uptick as well as we move from Q3 to Q4, that's really just a full quarter of restructuring tailwind.
Got it.
And on that point. The second question was you did mentioned on the call you're seeing about a 50 basis points margin expansion.
In fiscal 2004, when you sort of just all the Knicks striking numbers out just wondering if you can share your thoughts about sustainability of that piece of improvement going into next year, how much of the reliability improvement through the yield is on account of price increases that you start to lap.
Ruplu Bhattacharya: So you know, it's not all the revenue headwinds that you're seeing our core markets. Some of that is just inflation pass through as you knew that we would see when things got a little bit more normal. Yeah, thanks for all the details that really appreciate you going into all of that. This is real quick on that quick follow up. Now that you've announced the remaining next tracker transaction. Does that change your philosophy around the capital return and pay for buybacks?
25, and how should we think about sustainability of that piece.
Yes, so Matt I would say first is in the margin.
<unk> margin expansion has been a core part of our story the loss.
Four to five years right and through the different cycles, we've seen they've been very consistent in our ability to drive margin expansion. So I view that 50 basis points margin expansion that's sustainable.
Ruplu Bhattacharya: How should we think about that? Thank you. Thanks for all the details. No problem. And so we've talked about our capital allocation priorities before. And I would say, you know, number one, we're never going to starve the core business. You know, we were quite bullish in a number of our end markets. And so we're never going to starve ourselves for things like cat backs or other internal investments. The number two priority, and this is a high, high priority, is share buyback.
You know and continue to tracking.
Tracking the in the way of margin expansion and it comes from the things we talked about one is definitely continued change in our mix right. Our focus is more on growing areas like cloud Nextgen mobility.
So health care all of those that are better margin mix plays a role in it for sure. We have done a lot around optimization, all fire factories and driving productivity.
Ruplu Bhattacharya: You know, we continue to believe that there's a significant disconnect. Hopefully with the next tracker separation, people sort of realize the arbitrage there and things sort of rationalize a little bit. You know, I would say that probably the distant third at the moment would be M&A. You know, as always, reserve the right to change our minds. But stock buyback is clearly the expected use of free cash. And the only thing I'd add is I'll remind you that, you know, our board recently authorized a $2 billion stock authorization, right? And so we expect to continue to just return cash back to our share. Paul Darius. Okay, thank you. Thanks, Ruplu.
Through automation through Capex investment so that is very sustainable so if I look at how we're getting margin expansion.
I would say that its a very sustainable story and I think that it's good that we have been able to do that consistently and.
Reading out FY 'twenty five EPS also points in that direction.
Great. Thank you thanks for taking my questions.
Thanks, Amit.
Your next question comes from the line of George Wang from Barclays. Your line is now open.
Samik Chatterjee: Your next question comes from the line of Samik Chatterjee from JP Morgan. Your line is now open. Hi, thanks for taking my question. And I have just to hear. And then have a quick follow up. Thank you. Sure, Samik. So, yep, there is some ramp talent and as we move through Q4 as we continue to rent cloud is a piece of it. There's a couple of others that we expect to benefit from as well.
Oh, Hey, guys.
Thanks for taking my questions I have two questions. If I can firstly I just want to double click on the buybacks you mentioned that authorized towards buybacks I'm, just curious about cadence, especially kind of.
Black Hills around kind of scheme of timing, which is kind of in the March quarter 2024.
I was looking at the share count kind of it.
It seems to be flat based on the guide for <unk> versus <unk>.
Obviously, you may do some buybacks to offset dilution just curious any sort of color you can providing themselves with the cadence of kind of linearity over the buybacks should we assume a similar sort of just 300 meter run rate for next few quarters could be some technicality around the spinoff tiny.
Well the good news is now.
Hyatt periods are essentially over because it's out in the public domain that we do intend to spin and so that has sort of created some stops and starts over the last.
Really over the last two years, but.
So that that helps a little bit.
No.
Samik Chatterjee: There's a number of these new platforms that we've been talking about that that should give us some some continued growth. It's the three areas that we've been talking about is next gen mobility is cloud as as you pointed out and you know how solutions should continue to do well in those the small tech device things. The you mentioned margins, you know, I do expect a little bit of a margin uptick as well as we move from Q3 to Q4.
We give our last quarter share count as sort of a.
As part of our guide I think you've noticed it and didn't do but continue to buy stock as we move through the quarters and so that's probably a slightly conservative view.
You know if you want to read into that a little bit in terms of specific cadence.
Not going to say exactly what we intend to buy here in our third quarter or our fourth other than to say stock buyback is clearly a capital allocation priority for us.
Samik Chatterjee: That's really just a full quarter of of restructuring talent. Correct. And on that point, the second question was you did mention on the core you're seeing about a 50 basis points margin expansion in fiscal 24 when you sort of adjust all the next record numbers out.
Got it.
Thanks for that just a quick follow up just in terms of the free cash flow.
Potentially it could be a bigger driver for share price appreciation, it's nice to see Tokyo, delivering such a strong scf versus kind of <unk> being a cash use.
Samik Chatterjee: Just wondering if you can share your thoughts about sustainability of that base of improvement going into next year, how much of the reliability improvement to the year is on account of price increases that you start to lap in fiscal 25 and how should we take about sustainability of that base. Yeah, so that I would say first is you know margin steady margin expansion has been a core part of our story the last.
Curious if you guys are reiterating $600 million all about in terms of full year Fcs and.
Any potential upside just based on the better margin profile in the back half.
Yeah, It's a great question and so I'll, just say predicting cash flow is a little trickier than predicting the P&L it can kind of bounce around a little bit but.
Samik Chatterjee: You know, four to five years right and through the different cycles we've seen we've been very consistent in our ability to drive margin expansion so I view the 50 basis points margin expansion that's sustainable. You know and continue to track in the in the way of margin expansion and it comes from the things we talked about one is definitely continued change in our mix right our focus is more on growing areas like cloud nextion mobility.
What we're going to do is we're going to update everyone about the free cash flow expectation targets. Once the separation is complete and here's the logic on that there's lots of puts and takes from next tracker specifically.
And because the timing is not perfectly certain other than we expect it sometime in Q4, it's just a little hard to predict.
But what I want to make sure is clear we're definitely headed in the right direction, we're particularly pleased with how we did in Q2. We generated you know like you said, we generated north of 200 million in free cash flow that was up significantly both year on year and also sequentially.
Samik Chatterjee: The digital health care all of those that are better margin so mixed plays a role in it for sure we have done a lot around optimization all far factories and driving productivity you know through automation through capex investments so that is very sustainable so if I look at how we're getting margin expansion. You know I would say that it's a very sustainable story and I think that's the it's good that we have been able to do that consistently and you know reiterating F by 25 EPS also points in that direction. Thank you. Thanks for taking my questions. Thanks, me.
Quite pleased with our inventory performance as it came down again in the quarter, we inflected a couple of quarters back and I like to see the continued progress there.
And that free cash generation was after $145 million in Capex. So we're clearly not under investing in the business. So I would say nothing has fundamentally changed and we still expect to grow free cash flow.
Great. Thanks, again, I'll go back to the queue.
Yes, Thanks, George and the welcome.
Your last question comes from the line of Mark Delaney from Goldman Sachs. Your line is now open.
George Wang: Your next question comes from the line of George Wang from Barclays. Your lane is now open. Hey guys, thanks for taking my question. I have two questions if I can. Firstly, I just want to double click on the buyback. You know, you mentioned that authorized two billion buybacks. I just curious about cadence, especially kind of, you know, blackout around the kind of thing of timing, which is kind of, you know, March quarter, 2024.
Yes. Good afternoon. Thanks for taking my question, you mentioned mix as a key tailwind to core flex margins going from fiscal <unk> total revenue declines, but is there anything additional in terms of incremental pricing or large restructuring programs that may also be playing a key role in the sequential margin strength and if so could you dimensionalize how large.
There's other drivers maybe.
George Wang: And also, I was looking at the sharecon kind of things to be flat based on a guide for three cubus and two cubus. Obviously, you may do some buybacks to offset delusion. Just curious, any sort of color you can provide in terms of the cadence and kind of linearity of the buybacks. And then should we assume a similar service 300 meter rate for next few quarters, or could be some technicality around the, you know, the spin of timing.
Sure. So just unclear on your question or are you talking Q2 to Q3 Mark.
Yes from the $4 seven you just did I think the midpoint of guidance is four eight.
You mentioned mix is one of the key drivers as to how margins are you actually maybe extending a little bit as revenue drops but is there anything with restructuring programs. You just did or incremental pricing that may also be playing a role just trying to think through some of the buckets and pieces that are helping margins in the upcoming quarter based on guidance.
George Wang: Well, the good news is now, you know, quiet periods are essentially over because that's out in the public domain that we do and intend to spin. And so that has sort of created some stops and starts over the last, I mean, really over the last two years. But so that helps a little bit. But, you know, we give our last quarter share count as sort of a, as part of our guide.
Yup got it got it okay. So I would say probably the biggest singular tailwind as you know are our continued push on productivity programs.
In our prepared remarks, you did flag that we pointed out some restructuring we're going to have benefit from that both in Q3 and also in Q4.
But mix is definitely a factor. It's you look at some of the end markets that are contracting right now.
George Wang: I think you've known us to continue, but continue to buy stock as we move through the quarters. And so that's probably a slightly conservative view. You know, if you want to read into that a little bit in terms of specific cadence, you know, I'm not going to say exactly what we intend to buy here in our third quarter or our fourth other than to say stock buyback is clearly a capital allocation priority for us. Got it. Thanks for that.
They tend to earn a little less than other parts of the core portfolio.
So that we've sort of been a beneficiary of that mix you asked about pricing nothing significant to comment on there I would say, it's a combination of productivity programs and mix and then really mark driving a lot of factory optimization.
And that's like Paul said that is a big driver.
George Wang: Just a quick follow up. Just in terms of the free cash flow kind of, you know, potentially could be bigger driver for the share price appreciation. It's nice to see. The tool to deliver much a strong SCF versus kind of once you being a cash use, just here, you know, if you guys are rearrading 600 million or above in terms of four year. And there, you know, any potential upside just based on the better margin profiling the back half.
Okay.
That's very helpful. Thanks for all the details on that and then I don't know guidance.
Next tracker, but just to level set on where you stand currently.
Do you still need government approvals or tax rulings in order to do the spin or do you have all of those in place now with the announcement that youre, making today.
Alright this is David.
George Wang: Yeah, it's, it's a great question. And so I'll just say, you know, predicting, you know, cash flow is a little trickier than predicting the P and L. It can kind of bounce around a little bit. But what we're going to do is we're going to update everyone about the free cash flow expectation targets. It's once the separations complete. And here's the logic on that there's lots of puts and takes from next record specifically.
Yes. It is.
All outlined in the S. Four I know you Havent had time to proves it 400 pages, but that will have the outlines of what approvals. We've gotten the we still have the shareholder vote. That's on November 20th but.
Otherwise.
We are moving in process.
Okay. Thanks, so much for taking my questions.
Early early Q4 is what were thinking goes.
George Wang: And because the timing is not perfectly certain other than we expect it sometime in Q4. It's just a little hard to predict. But what what I want to make sure is clear we're definitely headed in the right direction. We're particularly pleased with how we did in Q2. We generated, you know, like you said, we generate north of 200 million and free cash flow. That was up significantly both year on year and also sequentially.
The last question Alright, great. Thank you all okay. Thank you all for joining I just wanted to thank the flex team for on behalf of the leadership team and of course to all our customers and our shareholders for your support so thank you all thanks for joining.
George Wang: I'm quite pleased with our inventory performance as it came down again in the quarter. We inflected, you know, a couple quarters back and I like to see the continued progress there. And, you know, that free cash generation was after 145 million in CapEx. So we're clearly not under investing in the business. So I would say nothing has fundamentally changed. And we still expect to grow free. Joshua. Great. Thanks again. I'll go back to the two. Yeah.
This concludes.
Unknown Executive: Thanks, George, and welcome.
Mark Delaney: Your last question comes from the line of Mark Delaney from Goldman Sachs.
Mark Delaney: Your line is not open. Yes. Good afternoon. Thanks for taking my question. You mentioned mix as a key tailwind to core flux margins going from pistol to two to three key, even as total revenue declines. But is there anything additional in terms of incremental pricing or large restructuring programs? That may also be playing a key role in the sequential margin strength. And if so, could you dimensionize how large those other drivers may be?
Mark Delaney: Sure. So just I'm clear on your question. Are you talking Q2 to Q3 Mark? Yeah, from the 4.7 you just did an intimate point of guidance is for a you mentioned mix is one of the key drivers as to how margins are you actually even maybe expanding a little bit as revenue drops, but is there anything with you know restructuring programs you just did or incremental pricing? Yeah, that's the key. You know that the may also be playing a role to just try to think through some of the buckets and pieces that are, you know, margins in the, in the quarter of Asian guidance.
Mark Delaney: Yeah, got it. Got it. Okay. So I would say probably the biggest singular tailwind is, you know, our continued push on productivity programs. You know, in our prepared remarks, you did, you know, flag that we pointed out some restructuring, we're going to have benefit from that both in Q3 and also in Q4. But mix is definitely a factor. You know, it's you look at some of the end markets that are contracting right now.
Mark Delaney: You know, they tend to earn a little less than other parts of the core portfolio. And so that we've sort of been a beneficiary of that mix. You asked about pricing, you know, nothing significant to comment on there. I would say it's a combination of productivity programs and mix. And then we're really a mark driving a lot of factory optimization. And that's like all said, that is a big driver. Okay, no, that's very helpful things for all the details on that.
David Rubin: And then, yeah, I know no guidance on next tracker, but just a level set on where you stand currently.
David Rubin: Do you still need government approvals or tax rulings in order to do the spin, or do you have all those in place now with the announcement that you're making today? This is David. Yeah, it's all outlined in the S4. I know you have time to cruise it all 400 pages, but that will have the outlines of what approvals we've gotten. And we still have the shareholder vote. That's on November 20th, but otherwise, you know, we're moving in process.
David Rubin: Okay, thanks so much for taking questions. Early, early Q4 is what we're thinking guys. Great.
Unknown Executive: Thank you all.
Revathi Advaithi: Okay, thank you all for joining.
Unknown Executive: I just want to thank the flex team, you know, for on behalf of the leadership team. And of course, all our customers and our shareholders for your support. So thank you all.
Unknown Executive: Thanks for joining.