Q1 2026 Flex Ltd Earnings Call
Unknown Executive: Standing by.
Unknown Executive: Welcome to Flex's first quarter fiscal 2026 earnings conference call. Presently, all participants are in a listen-only mode.
Thank you for standing by.
Speaker Change: Welcome to flex's first quarter fiscal, 2026 earnings conference call.
Unknown Executive: After the speaker's 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. As a reminder, this call is being recorded.
Michelle Simmons: I will now turn the call over to Mrs. Michelle Simmons. You may begin. Thank you.
Speaker Change: Presently, all participants are in a listen-only mode. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question, please press star 1 on your phone. If you would like to withdraw your question, please press star 2. As a reminder, this call is being recorded.
Speaker Change: I will now turn the call over to Mrs. Michelle Simmons, you may begin.
Michelle Simmons: Good morning, and thank you for joining us today for Flex's first quarter fiscal 2026 earnings conference call.
Speaker Change: Thank you.
Speaker Change: Good morning, and thank you for joining us today for flex's.
Michelle Simmons: With me today is our Chief Executive Officer, Revathi Advaithi, and Chief Financial Officer, Kevin Krumm. We'll give brief remarks, followed by Q&A. Slides for today's call as well as a copy of the earnings press release are available on the investor relations section at flex.com.
Speaker Change: Reporter fiscal, 2026 earnings conference call. With me today is our chief executive officer, ravy advisory, and Chief Financial Officer. Kevin crumb will give brief remarks followed by Q&A.
Michelle Simmons: This call is being recorded and will be available for replay on our corporate website. Today's call contains forward-looking statements which are based on our current expectations and assumptions. These statements involve risks and uncertainties that could cause actual results to differ materially. For a full discussion of these risks and uncertainties, please see the cautionary statements in our presentation, press release, or in the risk factors section in our most recent filings with the SEC. Note, this information is subject to change and we undertake no obligation to update these forward looking. Please note, all growth metrics will be on a year-over-year basis, unless stated otherwise.
Speaker Change: Slides for today's call, as well as a copy of the earnings press release are available on the investor relations section. At flex.com, this call is being recorded and will be available for replay on our corporate website.
Speaker Change: 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.
Speaker Change: For a full discussion of these risks and uncertainties. Please see the cautionary statements in our presentation, press release, or in the risk, factor section in our most recent filings with the SEC. Note, this information is subject to change and we undertake no obligation to update these forward-looking statements,
Michelle Simmons: Additionally, all results will be on a non-GAAP basis, unless we specifically state it's a GAAP result. The full non-GAAP-to-GAAP reconciliations can be found in the appendix slides of today's presentation, as well as in the summary financials posted on our Investor Relations website.
Revathi Advaithi: Now I'd like to turn the call over to our CEO, Revathi. Thank you, Michelle. Good morning and thank you for joining us today. So starting on slide four, Flex just wrapped up an exceptional quarter delivering positive results against our guidance. The groundwork we've laid out over the last several years continues to position us well in driving profitable growth with a growing data center business, as well as serving as a manufacturer of choice for our partners. The benefits we're seeing from our global footprint are a result of our actions that started years ago, as we focused on being able to meet the needs of our customers, wherever they're in the world.
Speaker Change: Please note, all growth metrics will be on a year-over-year basis, unless stated. Otherwise, additionally, all results will be on a non-gaap basis. Unless we specifically State, it's a gap result. The full non-gaap to gaap, reconciliations can be found in the appendix slides of today's presentation, as well as in this, as, in the summary financials posted on our investor relations website. Now, I'd like to turn the call over to our CEO raay, thank you, Michelle. Good morning, and thank you for joining us today. So, starting on slide 4 Flex, just wrapped up an exceptional quarter, delivering positive results against our Guidance. The groundwork we've laid out over the last several years, continues to position as well in driving profitable growth, with a growing Data Center business, as well as serving as a manufacturer of choice for our partners. The benefits, we're seeing from our Global footprint are a result of our actions that started years ago as we focused on being able to meet the needs of our customers.
Revathi Advaithi: Our revenues were $6.6 billion, up 4%, our adjusted operating margin was 6% and we delivered adjusted EPS of $0.72, a record Q1 number for Flex. Our great start to fiscal year 26 gives us improved confidence in our ability to hit our fiscal year commitments, which has been reflected in our improved FY 26 guide. But we're not done.
Speaker Change: Wherever they are in the world.
Speaker Change: Our revenues were up, 6 were were 6.6 billion up. 4% are adjusted. Operating margin was 6%. And we delivered adjusted EPS of 72 cents a record. Q1 number for Flex.
Speaker Change: Our great start to fiscal year 26 gives us improved confidence in our ability to hit our fiscal year commitments which has been reflected in our improved FY 2 6.
Revathi Advaithi: So let's turn to slide five. Our portfolio mix continues to shift as data center becomes a larger and more strategic contributor and this quarter was no exception. We delivered strong performance across both our cloud and power portfolios, and we continue to expect this business to deliver approximately $6.5 billion in revenue, growing at least 35% year over year, and representing 25% of our total revenue. But what makes this business truly compelling isn't just the size or the growth, it's the architecture and integration behind it. So let's take a moment to unpack what this. On the cloud side, we deliver vertically integrated IT hardware and infrastructure solutions, including metal fabrication, custom rack assembly, and direct-to-chip liquid cooling technology.
Speaker Change: But we're not done.
Speaker Change: So, let's turn to slide 5.
Speaker Change: Our portfolio. Mix continues to shift as data center becomes a larger and more strategic contributor. And this quarter was no exception. We delivered strong performance across both our cloud and power portfolios. And we continue to expect this business to deliver approximately 6.5 billion. In Revenue growing at least 35% year-over-year and representing 25% of our total revenue.
Speaker Change: But what makes this business truly compelling, isn't just the size of the growth. It's the architecture and integration behind it. So let's take a moment to unpack what this means.
Revathi Advaithi: On the power side, our solutions span the full stack, from board level modules managing power to the chip, all the way to the facility level with modular power pods. Flex is the only provider providing both end-to-end cloud IT integration and a full power and cooling portfolio at scale. And that matters because customers today are in an arms race to scale. They don't they don't just need custom rack solutions, but they also need power for their chips. They need to cool it and they need to deploy it quickly. Delivering integrated scalable solutions from grid to chip is essential, and it's a key reason why Flex continues to be a strategic partner.
Speaker Change: On the cloud side, we deliver vertically integrated it hardware, and and infrastructure Solutions. Including metal fabrication custom rack assembly and direct to chip liquid cooling technology.
Speaker Change: On the power side, our solution, span the full stack from board, level modules managing power, to the chip, all the way to the facility level, with modular power pods.
Speaker Change: Flex is the only provider providing both end to end Cloud. It integration, and a full power and cooling portfolio at scale.
And that matters because customers today are in an arms race to scale.
Speaker Change: They don't they don't just need custom rack Solutions but they also need power for their chips. They need to cool it and they need to deploy it quickly.
Speaker Change: Delivering integrated scalable solutions from grid to chip is essential, and it's a key reason why it's Flex continues to be a strategic partner of choice.
Revathi Advaithi: That brings me to our broader geographic footprint and scale on slide six. Our global operational scale remains one of Flex's most significant competitive advantages, not just in data center, but across all our end markets. And it's not just the size of our footprint, but our ability to shift and scale complex production across regions to meet evolving customer We operate more than 49 million square feet globally, including 7 million square feet in the US and 9 million in Mexico, giving us one of the largest advanced manufacturing footprints in North America.
Speaker Change: So that brings me to our broader Geographic footprint and scale on slide 6.
Speaker Change: Means 1 of flex's, most significant competitive advantages, not just in data center, but across all our end markets and it's not just the size of our footprint, but our ability to shift and scale complex production across regions to meet evolving. Customer needs
Revathi Advaithi: But what truly sets us apart is how we operate. Across our sites, we have embedded AI-enabled systems, advanced automation, and localized supply chains designed for speed, flexibility, and resilience. These capabilities are critical not only in data center, but also across our other end markets, including automotive, healthcare, industrials, and more, which account for 75% of total flex revenue. These are highly regulated, complex products that require global design and delivery. At this scale, paired with deep supply chain expertise, enables Flex to help customers navigate challenges like tariffs, regional regulations, and supply We have led the shift towards regionalization and the impact is clear.
Speaker Change: We operate more than 49 million square feet globally, including 7 million square feet in the US and 9 million in Mexico. Giving us 1 of the largest Advanced manufacturing Footprints in North America.
but what truly sets us apart is how we operate,
Speaker Change: Across our sites. We have embedded AI enabled systems Advanced Automation and localized Supply chains designed for Speed, flexibility and resilience.
Speaker Change: These capabilities are critical not only in data center, but also across our other end markets, including Automotive, Healthcare Industrials, and more, which account for 75% of total Flex Revenue.
Speaker Change: These are highly regulated complex products that require Global design and delivery.
Speaker Change: Now this scale paired with deep supply chain expertise enables Flex to help customers navigate challenges like tariffs Regional regulations and Supply disruptions.
Revathi Advaithi: America's revenue for us rose to 49% in fiscal year 25, up from 38% fiscal year while Asia declined to 30% down from 41% over the same period. These shifts reflect evolving customer needs and Flex's ability to Looking ahead, we're especially bullish on our advanced manufacturing capabilities, where we see continued productivity gains from deploying AI and intelligence systems across our factories. You can see by bringing together advanced manufacturing services and Flex IP products, all supported by advanced automation and AI capabilities, are powering transformation across industries and geographies. While there is no shortage of news flow around uncertainty in the markets, we remain confident in our position.
Speaker Change: We have led the ship towards regionalization and the impact is clear.
Speaker Change: America's revenue for us Rose to 49% in fiscal year 25 up from 38% in fiscal year 20 while Asia declined to 30% down from 41% Over the same period.
Speaker Change: These shifts, reflect evolving. Customer needs and flexes ability to execute.
Speaker Change: Looking ahead where especially bullish on our Advanced manufacturing capabilities where we see continued productivity gains from deploying Ai, and intelligence systems across our factories. You can see by bringing together Advanced Manufacturing Services and flex IP products, all supported by Advanced Automation and AI capabilities are powering transformation across Industries and geographies.
Revathi Advaithi: The Flex you see today is not the same company it was 10 years ago. From the people to the portfolio of We have positioned ourselves to lead in our markets, focusing on profitability and transformational acquisitions that continue to evolve who we are as a company. We were early to focus on high growth and markets such as a data center and power, build a scaled and regionalized footprint, and integrate services in a way that transform Flex from a contract manufacturer into a strategic end-to-end partner. I remain deeply confident in our strategy and the unique value we deliver.
Speaker Change: While there is no shortage of news flow around uncertainty, in the markets, we remain confident in our positioning the flex. You see today is not the same company, it was 10 years ago from the people to the portfolio of businesses.
Speaker Change: We have positioned ourselves to lead in our markets, focusing on profitability and trans transformational Acquisitions that continue to evolve who we are as a company.
Speaker Change: We were early to focus on high growth and markets such as a Data Center and power. Build a scaled and regionalized footprint and integrate services in a way that transform Flex from a contract, manufacturer into a strategic end-to-end partner,
Revathi Advaithi: The solutions we provide and capabilities we have built have positioned us for one of the most compelling opportunity in Flex.
Kevin Krumm: With that, I'll turn it over to Kevin to walk through the financials, Kevin. Thank you, Revathi. Good morning, everyone. I'll start with our key financials on slide eight. First quarter revenue came in at $6.6 billion, up 4%, driven by strong data center growth across both cloud and power end markets. Gross profit totaled $596 million, and gross margin improved to 9.1%, up 130 basis points. Operating profit was $395 million, with operating margins at 6%, up 120 basis points. Finally, earnings per share for the quarter increased more than 40% to $0.72 per share.
Speaker Change: I remain deeply confident in our strategy and the unique value. We deliver the solutions, we provide and capabilities. We've built have positioned us for 1 of the most compelling opportunity in flex's history.
Speaker Change: With that, I'll turn it over to Kevin to walk through the financials. Kevin.
Kevin Crumb: Thank you, Ravi and good morning, everyone. I'll start with our key financials on slide 8.
Kevin Krumm: Turning to our quarterly segment results on the next slide. In reliability solutions, revenue was $2.9 billion, down 2% year over year, in line with our expectations. Results reflected continued macro-related pressure in automotive and renewables, which was partially offset by strength and power. While all three reporting units saw modest declines, operating income improved to $172 million, and segment margin expanded 100 basis points to 6%, demonstrating strong execution, continued focus on mix, and disciplined cost management. Agility Solutions revenue totaled $3.7 billion, up a strong 10% year over year, driven by robust cloud and AI demand that more than offset continued softness and traditional telecom and consumer facing in markets.
Kevin Crumb: First quarter Revenue came in at 6.6 billion dollars up. 4% driven by strong data center growth across both cloud and power and markets, gross profit totaled, 596 million and gross margin improved to 9.1% up, 130 basis points. Operating profit was 395 million with operating margins at 6% up. 120 basis points. Finally earnings per share for the quarter increased more than 40% to 72 cents per share.
Kevin Crumb: Turning to our quarterly segment results on the next slide and reliability Solutions. Revenue was 2.9 billion down 2% year-over-year in line with our expectations results. Reflected continued macro related pressure and automotive and Renewables which was partially offset by strength and power. While all 3 reporting units saw modest, declines operating income, improved to 172 million and segment margin expanded, 100 basis points to 6%. Demonstrating strong execution. Continued, focus on mix and discipline cost management.
Kevin Krumm: Operating income was $240 million, with operating margin expanding 120 basis points to 6.5%, supported by effective cost management and favorable mixed shift, including increased penetration of value added service Moving to cash flow on slide 10.
Kevin Crumb: Agility Solutions Revenue totaled 3.7 billion dollars up. A strong 10% year-over-year driven by robust cloud, and AI, demand, that more than offset continued softness and traditional Telecom and consumer-facing in markets, operating income was 240. Million dollars with operating margin expanding, 120 basis points to 6.5% supported by effective, cost management. And favorable mixed shift including increased penetration of value, added services,
Kevin Krumm: Free cash flow in the quarter was $268 million, representing conversion of 98%. Net net inventory was up 3% sequentially driven by increased volumes and down 11% year over year. Inventory net of working capital advances was 55 days, a reduction of seven days versus the prior year. Net CapEx totaled $131 million, or approximately 2% of revenue.
Kevin Crumb: On slide, 10 free cash flow in the quarter. Was 268 million representing conversion of 98%. Net. Net inventory was up 3%, sequentially driven by increased volumes and down, 11% year-over-year inventory. Net of working capital advances was 55 days. A reduction of 7 Days versus the prior year.
Kevin Krumm: And we purchased around $247 million of stock, which was approximately 7 million shares. Our capital allocation priorities remain unchanged. We are committed to maintaining our investment-grade balance sheet, funding strategic investments to support organic growth, pursuing accretive M&A opportunities, and returning capital to our shareholders through opportunistic share repurchases.
Kevin Crumb: Net capex totaled 131 million or approximately 2% of Revenue and we purchased around 247 million of stock, which was approximately 7 million shares.
Kevin Krumm: In the quarter, we acquired a new manufacturing site in Poland, which will produce low- and medium-voltage switchgear, power pods, and busways. This doubles our power capacity in Europe, allowing us to meet the rising global demand for reliable data center power. It is also a great example of Flex deploying capital in a margin-accretive way to grow our capabilities and our products portfolio.
Kevin Krumm: Looking at our full year guidance on slide 11, as we head into the second quarter, and we look out to the rest of the year. The macro environment remains dynamic. That said, we're continuing to execute well. And the steps we've taken to focus flex on high growth strategically important in markets are delivering results. One of the key enablers of our performance is our global scale. It has allowed us to support customers and accelerating their regionalization strategies, bringing manufacturing closer to end markets to improve agility, reduce risk and meet evolving trade requirements. While the situation continues to evolve, a few key points to keep in mind, we expect tariffs to remain largely passed through costs with strong contractual protections in place.
Kevin Crumb: Our Capital allocation priorities remain unchanged. We are committed to maintaining our investment grade balance sheet, funding strategic Investments to support. Organic growth pursuing a creative m&a opportunity and returning Capital to our shareholders, through opportunistic, share repurchases in the quarter. We acquired a new manufacturing site in Poland which will produce low, and medium voltage, switch gear, power pods, and busways this doubles our power capacity in Europe, allowing us to meet the rising Global demand for Reliable data center power. It is also a great example of flex deploying capital and a margin of creative way to grow our capabilities, and our products portfolio.
Kevin Crumb: Looking at our full year guidance, on slide 11 as we head into the second quarter and we look out to the rest of the year.
Kevin Crumb: The macro environment remains Dynamic that said we're continued execute. Well, and the steps we've taken to focus Flex on high growth strategically important in markets are delivering results.
Kevin Crumb: 1 of the key. Enablers of our performances are global scale. It has allowed us to support customers and accelerating their regionalization strategies. Bringing manufacturing closer to end markets to improve agility, reduce risk, and meet evolving trade requirements.
Kevin Krumm: Importantly, while last quarter we did not incorporate the direct impact of tariffs into our revenue guidance, this quarter we're doing so. With greater clarity around the scope and timing of the tariff impact, we believe this adjustment provides a more accurate view of expected revenue performance. That said, incorporating our current view to tariffs does not have a material impact on our full year guided growth.
Kevin Krumm: With that context, our updated FY26 expectations are revenue between $25.9 and $27.1 billion, which increases our midpoint by approximately $600 million. Adjusted operating margin between 6% and 6.1%. Adjusted EPS between $2.86 and $3.06 per share. Adjusted tax rate of 21%. And we continue to expect strong cash generation and maintain our 80% plus free cash flow conversion target for FY26. We'll continue to monitor the tariff environment and adjust as needed. But as it stands today, we're confident in our ability to navigate these shifts while delivering against our financial commitment.
Kevin Crumb: While the situation continues to evolve a few key points to keep in mind, we expect tariffs to remain. Largely passed through costs with strong contractual Protections in place. Importantly, while last quarter, we did not incorporate the direct impact of tariffs into our Revenue guidance. This quarter, we're doing so with greater Clarity around the scope and timing of the Tariff impact. We believe this adjustment provides a more accurate view of expected Revenue performance that said incorporating our current view to tariffs does not have a material impact on our full year. Guided growth rates with that context, our updated FY 26 expectations are revenue between 25.9 and 27.1 billion dollars which increases our midpoint by approximately 600 million.
Adjusting operating margin adjusted operating margin between 6% and 6.1%. Adjusted EPS between 2.86 and 3.6 cents per share, adjusted tax rate of 21% and we continue to expect, strong cash generation and maintain our 80% plus free, cash flow conversion. Target for FY 26.
Kevin Krumm: Moving to our segment outlook for the year. Our segment outlook remains largely consistent with last quarter's as end market demand trends continue to track in line with our expectations. For reliability solutions, we now expect revenue to be down low single digit to up mid single digit, a marginal improvement from our prior view.
Kevin Crumb: We'll continue to monitor the Tariff environment and adjust as needed. But as it stands today, we're confident in our ability to navigate these shifts while delivering against our financial commitments.
Kevin Crumb: Moving to our segment, outlook for the year. Our segment Outlook remains largely consistent with last quarters, as in market demand Trends. Continue to track in line with our expectations
Kevin Krumm: Continued strength and data center power is helping offset macro related softness and automotive, core industrial and renewables. For agility solutions, we anticipate modest year over year growth in the low to mid single digit range, reflecting a slight improvement from our prior year outlook. Growth will be driven by sustained demand and cloud, ongoing benefit from previously secured lifestyle wins, and strategic share gains and networking. These tailwinds are expected to be partially offset by continued softness in enterprise IT, telco and consumer devices.
Kevin Crumb: for reliability Solutions. We now expect Revenue to be down low single digit to up, mid single digit, a marginal improvement from our prior view, continued, strength and data center. Power is helping offset, macro related softness and Automotive, core industrial and Renewables.
Kevin Crumb: For agility Solutions, we anticipate modest year-over-year growth and the low to mid single-digit range reflecting a slight improvement from our prior year outlook.
Kevin Crumb: Growth will be driven by sustained, demand and Cloud ongoing benefit from previously, secured lifestyle wins and strategic, share gains in networking.
Kevin Krumm: Finishing off with our guidance for the second quarter on slide 13. We expect reliability solutions revenue to be down low single digit to up low single digit with continued weakness in automotive and parts of health offset by solid performance in our power business. We expect agility solutions revenue to be up low single digit to up mid single digit with strength in cloud and continued momentum and networking offset by ongoing softness and traditional telecom and consumer facing end market.
Kevin Crumb: These Tailwinds are expected to be partially offset by continued softness and Enterprise it Telco and consumer devices.
Kevin Crumb: Finishing off with our guidance. For the second quarter on slide 13.
Kevin Crumb: We expect reliability Solutions, Revenue to be down low single digit to upload single digit with continued weakness and automotive and parts of Health offset by solid performance in our power business.
Kevin Krumm: For total flex, we expect revenue in the range of $6.5 to $6.8 billion with adjusted operating income between $375 and $415 million. Interest and other expenses estimated to be around $38 million, and the adjusted tax rate to be approximately 21%.
We expect agility Solutions Revenue to be up low single digit to up, mid single digit with strength and cloud and continued momentum. And networking offset by ongoing softness and traditional Telecom and consumer-facing in markets.
Kevin Crumb: For total Flex, we expect Revenue in the range is 6.5 to 6.8 billion dollars with adjusted operating income between 375 and 415 million.
Kevin Krumm: Lastly, we anticipate adjusted EPS to be between $0.70 and $0.78 per share, based on approximately 381 million weighted average shares outstanding.
Kevin Crumb: Is estimated to be around 38 million and the adjusted tax rate to be approximately 21%.
Unknown Executive: With that, I'll now turn the call back over the operator to begin Q&A. Thank you. We will now begin the question and answer portion of today's call. If you would like to ask a question, please press star 1 on your phone. As a reminder, we ask that you please limit yourself to one question and one follow-up. One moment, please, for the first question.
Kevin Crumb: Lastly, we anticipate adjusted EPS to be between 70 and 78 cents per share based on approximately 381 million weighted average shares outstanding
Kevin Crumb: with that.
Kevin Crumb: I'll now turn the call back over to the operator to begin Q&A.
Kevin Crumb: Thank you. We'll now begin the question and answer portion of today's call.
Kevin Crumb: If you would like to ask a question, please press star 1 on your phone. As a reminder, we ask that you, please limit yourself to 1 question at 1, follow-up.
Kevin Crumb: 1 moment, please for the first question.
Samik Chatterjee: Our first question comes from the line of Samik Chatterjee with JPMorgan Chase & Company. Please proceed with your question. Hi, thank you for taking my questions. Strong print here, maybe, and strong margins as well, maybe if I can start with the margin outlook for the year. You did a 6% in one queue, you're guiding to hold that level. I'm a bit surprised along with the increase in the midpoint of the revenue, you're not seeing more leverage on the margin side for the full year outlook. Maybe you can clarify that as to why the margin outlook doesn't, isn't improving along with the revenue guide, and then have a quick follow-up.
Speaker Change: Our first question comes from the line of seam chattery with JP Morgan, Chase and Company. Please proceed with your question.
Kevin Krumm: Hey, Samik, this is Kevin. What I would say is we held our prior margin guided range of 6 to 6.1%. You know, the math would be if you were looking at operating profit dollars, we did pass through and therefore improve our operating profit outlook as well. What I would say on the revenue volume, especially in the back half of the year, we remain cautiously optimistic there. We have brought in tariffs, as I said before. That's largely low calorie revenue and actually is a headwind to our margin performance. So that's an element you're seeing in the back half of the year.
seam chattery: Oh, hi. Um, thank you for taking my questions. Uh, strong print here, maybe, uh and strong margins as well. Maybe, if I can start with the, um, margin outlook for the year. Um, you did a 6% in 1 queue your guiding to hold that level. I'm a bit surprised along with the increase in the midpoint of the revenue. You're not seeing more leverage on the margin side for the full year outlook. Maybe you can clarify that as to why the margin Outlook doesn't isn't improving. Um, along with the revenue guide and then I have a quick follow-up. Thank you.
seam chattery: Hey smick, this is Kevin. What I would say is we held our prior margin, guided, range of 6 to 6.1%. You know, the math would be if you were looking at operating profit dollars, we did pass through uh and therefore improve our operating profit Outlook as well. What I would say on the, on the revenue volume,
Kevin Krumm: And then we are making a few investments in the back half of the year as well.
Revathi Advaithi: Samik, I would say first is its first quarter. It was a very strong set of numbers for Q1. And as you can see, you know, pretty much you're seeing the 6% kind of flow through. So we feel we're always conservative about our kind of how we forecast the year, but it's a really strong set of numbers, both for the current quarter and the full. Okay, no, got it.
seam chattery: Uh, especially in the back half of the year we remain. Um, cautiously optimistic there. We have brought in tariffs as I said before. Um, that's largely low, calorie revenue and actually is a headwind uh, to our margin performance. So that's an element you're seeing in the back half of the year and then, um, we are making a few investments in the back half of the year as well. So make I would say first is its first quarter, it was a very strong set of numbers for q1. And um, as you can see, you know, pretty much you're seeing the 6% kind of flow through. So we feel we're always conservative about our um kind of how we forecast a year, but it's a really strong set of numbers both for the current quarter and the full year.
Samik Chatterjee: And for my follow up, I see for the data center revenue, you're outlining the target of 35% year over year. Maybe you can sort of give us a bit more details on what the trends were in OneQ itself. And if you can break it out between cloud and power, and is your expectation still consistent for power to maybe have a stronger year than cloud this year? Yeah, Samik, I'll say that first is we feel very good about our 35% growth forecast that we gave for this fiscal year. It's the first time we've given a full year fiscal forecast for our data center business.
Speaker Change: Okay, no, got it. And for my follow-up, I I, I um, I see for the data center Revenue, you're outlining the target of 35% year-over-year. Um, maybe you can set up, uh, give us a bit more details on what the trends were in 1 Q itself. And if you can, uh, break it out between cloud and power and easier. Are you expectations still consistent for power to maybe have a stronger?
You're then Cloud this year. Thank you.
Kevin Krumm: And that's because of, you know, it's becoming a large percent of our overall portfolio. We're in line with that 35%. And, you know, I would say from a quarterly perspective, you know, we don't want to give quarterly guidance and quarterly numbers, because they tend to move around. But the 35% we feel very strong about, we're still in line with what we had said earlier in the start of the year that power will be stronger. And that's because they had a little bit softer year last year relative to the cloud business, but they're both going to be pretty significantly strong in terms of the overall 35%.
Kevin Krumm: So on track for that, and continued also margin accretion to the overall flex portfolio. So pretty robust numbers, I would say data center for both cloud and power.
Speaker Change: Yeah, so make I'll say that first is we feel very good about our 35% growth forecasts that we gave for this fiscal year, is the first time we've given a full year, fiscal forecast for our data center business. And that's because of, you know, it's becoming a large percent of our overall portfolio. We're in line with that 35% and, um, you know, I would say from a quarterly perspective, you know, we don't want to give quarterly guidance and quarterly numbers because they tend to move around. But the 35% we feel very strong about. We're still in line with what we had said earlier, in the start of the year that power will be stronger. Um, and that's because they had a, a little bit softer year last year relative to the cloud business but they're both going to be pretty significantly. Um strong in terms of the overall 35%. So on track for that and continued also margin accretion to the overall Flex portfolio. So pretty robust numbers I would say data center from
Samik Chatterjee: Thank you.
Speaker Change: Both cloud and Power.
Unknown Executive: Thanks for taking my question. Thank you.
Speaker Change: Got it, got it. Thank you. Thanks for taking my questions.
Mark Delaney: Our next question comes from the line of Mark Delaney with Goldman Sachs Asset Management. Please proceed with your question. Yes, good morning. Thank you very much for taking my questions. Flex's products, assembly and services capabilities has allowed it to do very well in the data center. I am hoping to better understand how the market for products may be evolving. Amazon recently announced it plans to use some of its own internally designed cooling products going forward.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Mark, Delaney with Goldman Sachs Asset Management. Please proceed with your question.
Revathi Advaithi: So do you think this may be a trend of hyperscalers doing more power and cooling products in-house more generally long term? And if so, how may Flex fit into those Yeah, I'd say, Mark, that, you know, as we look at our capability around IT rack integration, around cooling and power, you know, we've toggled towards having product capability and our own technology capability around both power and on cooling. How I feel about cooling is very bullish. I think Amazon's announcement, you know, really validates the fact that we needed the capability both for manufacturing capability, but also technology capabilities.
Mark Delaney: Yes, uh, good morning. Thank you very much for taking my questions, uh, flex's products, assembly and services, capabilities has allowed it to do very well in the data center. Uh, I am hoping to better understand how the market for products may be evolving. Uh, Amazon recently announced a plan to use some of its own internally designed cooling products going forward. So, do you think this may be a trend of hyperscalers doing more power and cooling products, in-house more, generally, long term? And if so how may I flex fit into those plans?
Revathi Advaithi: So having both is really important. You can't have one or the other. I would say that Hyperscale is continuing to invest in their capability we see as a positive thing. So whether it is providing it as an advanced manufacturing solution or bringing our own IP and technology into the manufacturing side of it, or into the design side of it, giving a fully integrated solution is a right way to go. And again, you know, as I've said this before, Mark, is having both compute and power with cooling overall, we think is a good way to go.
Mark Delaney: So we view this announcement as a positive. That's helpful.
Mark Delaney: Capability. And our own technology capability around. Uh, both power and on cooling. How I feel about cooling is very bullish. I think Amazon's announcement, you know, really validates, the fact that we needed the capability both for manufacturing capability but also technology capabilities. So having both is really important. You can't have 1 or the other. Um, I would say that hyperscalers continuing to invest in their capability, we see as a positive thing. So, whether it is providing it as an advanced manufacturing solution or bringing our own IP and Technology into the manufacturing side of it or into the design side of it, giving a fully integrated solution, is a, is a right way to go. And again, you know, as I've said this before, Mark is having both compute and and power with cooling. Overall, we think is a is a good way to go. So we we view this announcement as a positive
Mark Delaney: Positive.
Revathi Advaithi: Thanks, Revathi.
Mark Delaney: My other question was just to better contextualize the full-year guidance compared to 1Q results. The 1Q earnings results were very strong. Earnings were $0.10 above the midpoint of your prior guidance.
Kevin Krumm: You only raised the full-year outlook for earnings at the midpoint by $0.05. So I'm hoping to better understand is the implied lower level of earnings for the balance of the year compared to your previous guidance, is that just a question of timing and some conservatism, or are there any businesses that are weakening more than you had previously expected?
Speaker Change: That's helpful, thanks for everything. Uh, my other question was just to better contextualize the, the 4-year guidance compared to 1 key results, but the, the 1 key or any results were very strong, uh, earnings were 10 cents above the midpoint of your prior guidance. Uh, you you only raise the, the, the the full year outlook, uh, for earnings at the midpoint, by 5 cents so I'm hoping to better understand as the implied lower level of earnings, uh, for the balance of the year compared to your, your previous guidance. You is that is that just a question of timing and, and, and some conservative.
Mark Delaney: ISM. Or are there any businesses that are weakening more than you had previously expected. Thank you.
Kevin Krumm: Hey, Mark, this is Kevin. I'll take that. So first First quarter was a great quarter above expectations. The team navigated really well.
Kevin Crumb: Hey Mark, this is Kevin. I'll I'll take that. Um so first
Kevin Krumm: As Revathi alluded to earlier, one quarter does not necessarily make the entire year. So, but as as we look at it, we did raise revenue. And as I said earlier, sort of the midpoint of OP profit dollars, you don't see that pass all the way through to EPS because we lost a little guide to guide and the interest in other line item. That said, when you look at first half versus back half, which I think was the other part of your question, you know, especially maybe looking at EPS or OP growth rates, I would say the first half of this year, we are getting a benefit from a prior year comparison.
Kevin Crumb: First quarter was a great quarter, above expectations, the team navigated really well. Um, as ra at the alluded to earlier 1 quarter does not necessarily make the entire year. So um but as as we look at it, we did raise revenue. And as I said earlier, sort of the midpoint of of op profit dollars, you don't see that pass all the way through to EPS because we lost a little guide to guide and the interest in other line item.
Kevin Krumm: Prior year, revenue was down pretty significantly in the first half of the year. So we had some absorption issues that impacted operating profit pretty significantly. So that is a comparison benefit that the first half of the year is getting. The other thing I would say is we're seeing growth this year in the data center. We talked about that. And so we're going to continue making investments in programs and capability in the back half of the year to support that. And Marga, what I would say is none of our end markets have changed in terms of how we guided for the year and how we felt the markets were performing.
Uh, that said, when you look at first half versus back half, which I think was the other part of your question, um, you know, especially maybe if looking at EPS or op growth rates. I would say, the first half of this year, we are getting a benefit, um, from a prior year, comparison prior year. Um, Revenue was down pretty significantly in the first half of the year. So we had some, uh, absorption issues that impacted operating profit pretty significantly. So, um, that is a, a comparison benefit that the first half of the year is getting. The other thing I would say is we're seeing growth, um, this year and the data center, we talked about that. So we're going to continue making investments in programs and capability and the back half of the year to support that and the markup what I would say is
Kevin Krumm: So that's good news. I think in all this uncertainty, our guide is pretty strong in terms of how we felt the markets were going to perform. So we feel good about that. And then again, first quarter, like I said before, and we're generally conservative in how we guide. And I think that's people expect that from us. And that's that goes into the into the.
Kevin Crumb: None of our end markets have changed in terms of what how we guided for the year and how we felt the markets were performing. Um, so that's good news. I think in, in, um, in all this, uh, uncertainity, our guide is pretty strong in terms of how we felt the markets were going to perform. Um, so we feel good about that and then again, first quarter, like I said before, and we're generally conservative and how we guide and I think that's, uh, people expect that from us, and that's uh, that goes into the into the Mixmaster.
Mark Delaney: Congratulations again on the good results. Thanks, Mark.
Speaker Change: Okay, congratulations again. On the on the good results. Uh, thank you.
Mark Delaney: Thanks Mark.
Steven Fox: Our next question comes from the line of Steven Fox with Fox Advisors.
Steven Fox: Please proceed with your question. Hi, good morning. I had a couple questions as well. First off, I was wondering if you can give us a sense for where you stand on some of the capacity constraints you had, you know, 90 days ago. I know you just mentioned you're making investments in the second half, you bought a plant in Poland, but how constrained are you now versus 90 days ago? When do you think you sort of catch up with demand, if that's the right terminology?
Speaker Change: Thank you. Our next question comes from the line of Steven Fox with Fox advisors. Please proceed with your question.
Steven Fox: And then I had to follow up.
Hi. Good morning. Uh, I had a couple questions as well. Um, first off, I was wondering if you can give us a sense for where you stand on some of the, um, um, capacity, constraints. You had, um, you know, 90 days ago. I know you just mentioned, you're making investments in the second half you, uh, bought a, a plant in Poland, but how constrained Are You Now versus 90 days ago? When do you think you sort of catch up with demand, if that's the right terminology? And then I had to follow up,
Revathi Advaithi: Yeah, I'd say, Steven, first is, I think it's a good problem to have, where we have so much growth that we have to continue to invest in capacity. And, you know, you are well aware of all the, you know, the supply demand equation in terms of AI infrastructure, which we see, both in cloud and power. I feel good about the investments that we have announced and making. Our Dallas facility is ramping up very well. We just bought this facility in Poland, which is a fully capable facility that really helps us kind of from a European perspective.
Revathi Advaithi: So we feel really good about the new investments we are making. My hope is that we continue to make investments and growth for AI infrastructure, both in power and cloud. And, you know, our goal would always be not to have so much capacity, but just enough capacity where we're able to bring down lead times and keep up with the demand. And I feel like we're in the right place. You see that with our numbers, right? 35% is a very strong number for data center growth. We're delivering that because we have new capacity and we'll continue to add more.
Speaker Change: Share both in power, and and Cloud. Um, and you know, our goal would always be not to have so much capacity but just enough capacity where we're able to bring down lead times and keep up with the demand and I feel like we're in the right place. You see that with our numbers, right? 35% is a very strong number for for data center growth and we're delivering that because we have new capacity and you'll continue to add more
Steven Fox: That's helpful.
Revathi Advaithi: And then I know you just said there wasn't much change in some of your non data center markets versus 90 days ago, but I was curious if there's any green shoots, especially in like automotive industrial, for example, where maybe, you know, some companies are seeing some better cyclical trends. Thanks. Yeah, I would say that for automotive, at least our, you know, I know that from the end markets externally, you're hearing that there are some upsides. I think we gave a fairly conservative guide. And so we're in line with the guide in terms of numbers itself.
Speaker Change: That's helpful. And then, I, I know you. You just said there wasn't much change in some of your non-data Center markets, uh, versus 90 days ago. But I was curious if there's any green shoots, um, especially in like, automotive industrial, uh, for example, where maybe, um, you know, some companies are seeing some better cyclical Trends. Thanks.
Revathi Advaithi: So I feel good that, you know, we took this, this view, because I think how the year will turn out is pretty much how we thought it's going to work out. And then, you know, our if you look at our auto portfolio, we're kind of more geared towards North America. And so that kind of fits into the overall kind of how we compare the global numbers. I'd say industrials also performing as we've expected, right? In kind of end markets that are infrastructure related, there is green shoots on areas like renewables, you know, the story there.
Speaker Change: So externally, you're hearing that there are some upsides. I think we gave a fairly conservative guide and so we're in line with the guide in terms of numbers itself. Um, so I feel good that, you know, we took this this view because I think how the year will turn out, is pretty much how we thought it's going to to work out. Um, and then, you know, our, if you look at our, our Auto portfolio, we're kind of more geared towards North America. And so that's kind of fits into the overall kind of how we compare the global numbers. Um, I'd say Industrials also performing as we've expected right now the in 10.
Revathi Advaithi: And then I'd say the other areas to think about is on networking side, we've talked about that we've had really good, strong gain, share gains, and that's a big plus for us. And then on the healthcare side, Equipment has performed in line, but devices have been extremely strong. So that's kind of how the overall markets have evolved. And being good at predicting the end markets in this environment, I would say, is quite a plus. And we feel good about kind of how we've looked at the year. Great, that's all helpful. Thank you.
Speaker Change: And and markets that are infrastructure related. There is uh, green shoots on areas like Renewables, you know, the story there and then I'd say the other, um, areas to think about is on networking side. We've talked about, uh, that we've had really good strong gain, uh, the share gains and that's a big plus for us. And then on the health care side,
Speaker Change: You know, uh, equipment is performed in line, but devices has been extremely strong. So um, so that's kind of how the overall markets have evolved and being good at predicting, the end markets. In this environment, I I would say is, is quite a plus and we feel good about kind of how we've looked at the year.
Steven Fox: Thanks, Steven.
Speaker Change: Great. That's all helpful. Thank you.
Speaker Change: Thanks, Stephen.
Ruplu Bhattacharya: Our next question comes from the line of Ruplu Bhattacharya with Bank of America. Please proceed with your question. Hi, thanks for taking my questions.
Kevin Krumm: I have two, one for Kevin, one for Revathi. Maybe I'll start with Kevin. Can you give us a little bit more detail in terms of what you factored in, in terms of tariff impact to the full-year guide on the top-line operating margin and EPS? Are you assuming any impact to the USMCA exceptions? What do you think about the 232 tariff impact? And I think you said to an earlier question that there's some impact on the interest and expense line that's impacting EPS guide or the increase of five cents. Can you clarify how much that is?
Kevin Krumm: And then I will follow up for Revathi. Okay, so on tariffs, basically, our view that we're pushing through is as of the June view, sort of the pause. Okay, so that's what we've brought in, we do not see any USMCA impact. And as I said earlier, it's dynamic, you know, our customers are making moves to offset impacts of tariffs, etc.
Kevin Krumm: So we're not guiding to a tariff number this year. What I said on the release, I'll repeat, or on the script, I'll repeat here, which is tariffs are going to have, will not have a material impact on our growth rate. When you look at our revenue growth year on year, they do have an impact on margin performance. We've talked, we've talked about that in the past, because you're passing it through, they're largely a pass through for us. So you see that in this updated guide as well.
Kevin Krumm: You asked on interest expense, I would say there's really two elements of that. One is we are looking at the timing of interest rate, you know, we have a variable interest rates that are included in there. We also have timing and refinancing that's included in our view to the rest of the year. And then we also have costs associated with currency exposures. We've brought all those views into this revised guidance, which is why you're seeing an increase in that line item guide to guide. Okay, thanks for all the details there.
Ruplu Bhattacharya: Revathi, can I ask, when we look at the two segments, reliability and agility, can you help us rank order for each of those segments, how, like which end markets you expect to grow stronger, which ones grow weaker? And how does that impact your decision to invest in different end markets? So, I mean, I'm sure you're going to be investing in cloud and power. But beyond that, as you think about investing for growth, I mean, which end markets or which segments should we expect more spend from Flex on? Thank you. Yeah, so I'd say Ruplu, our view on kind of what's, you know, weaker and stronger, despite all the noise in the end markets hasn't changed very significantly.
Revathi Advaithi: So, you know, as an example, automotive, where we kind of projected the year, it was going to be weak and somewhat spotty, and it is going to turn out to be that way. I would say our consumer kind of end markets, both in lifestyle and consumer devices, are kind of holding its own. I would say that we were expecting that to be slow for the year, and it is definitely playing out that way. The places that we expected kind of strong growth in, which is in our medical device business and healthcare and infrastructure related items for industrial, power and cloud, networking, all those are pretty much in line with what we were expecting it to be.
Revathi Advaithi: So I would say how the end markets are playing out are fairly in line with what we were expecting. In terms of investments, it'll always be the prioritized towards the higher growth, higher return and markets for us. And so I would say data center is driving a large part of our investment, both in cloud and in power, and not just for kind of this year, but we're investing for the future. I mean, 35% growth does require investment. So, you know, you heard Kevin talk about continued investment this year for kind of what will drive growth next year.
Ruplu Bhattacharya: But it doesn't mean that other businesses aren't getting their share. Healthcare is getting its share of investments, but it's our job to prioritize towards the higher growth, higher return. Okay, thank you for all the details. Appreciate it. Thank you.
Steve Barger: Our next question comes from the line of Steve Barger with KeyBank Capital Markets. Please proceed with your question. Thanks. Good morning.
Steve Barger: Revathi, for data centers, what percentage of customers engage with the entire suite of IT integration and power products, and for customers that are partial users, how successful have you been at converting them to more content? Yeah, Steve, I'd say that's a great question. First is, you know, as you know, very well, the the host of customers, whether it's hyperscalers, or kind of these Neo cloud folks who are coming up or colo is a small set of customers at the end of the day, right? It's, so it's not a large population. So most of them, particularly the hyperscalers will be buying a whole suite of products, whether it is it integration, cooling or power.
Revathi Advaithi: And so we do see kind of them going across the spectrum. And then on kind of colos, it'll tend to be a little bit more spotty, I'd say lean more towards kind of the power side, but heading more towards kind of cooling, and it integration when scale presents itself as an opportunity. So I would say, and then our ability to convert the compute and power coming together is becoming more and more reality, because as you see technology heading towards this higher power density, the one megawatt rack that you hear about having an integrated cooling solution, power solution and having your compute all integrated together is going to become part of reality.
Revathi Advaithi: So technology is heading in that direction. We were ahead of the game. And now customers want that integrated solution, which puts us in a great sweet spot because there's nobody else who's doing that.
Revathi Advaithi: Yeah, I agree to your earlier comment on hyperscalers making some internal investments. Are you seeing customers standardizing on solutions? Or is each DC still more custom even if it's the same owner? Yeah, I would say each hyperscalers is kind of their own solution. And each colo kind of tends to gravitate towards kind of whoever is their largest customer base in terms of the standardized solution that they usually implement. So that hasn't changed in a significant way. I think the biggest places that we get to really influence technology, Steve, for all of them would be like, if you need high power density to power your chip, then we're designing a power for you that really needs to work well with heat and cooling.
Steve Barger: So there we will may use their technology, but most of the time we're using our technology, integrating that that and providing them an end to end solution. So it'll be a mix, I would say to your your question. Understood. Thanks. Thank you.
Revathi Advaithi: I'll now turn the call back over to the CEO for any closing remarks. Great, thank you so much. So we look forward to speaking with you again next quarter.
Revathi Advaithi: And on behalf of my entire leadership team, I do want to thank our customers, our shareholders, and of course, to the Flex team around the world for all your hard work, dedication and your contributions. Thank you, everyone. Thank you.
Unknown Executive: This now concludes today's conference call. Thank you for joining. You may now disconnect.