Flex (NASDAQ: FLEX) today announced results for its first
quarter ended June 26, 2020.
First Quarter Fiscal Year 2021 Highlights:
- Net Sales: $5.2 billion
- GAAP Income Before Income Taxes: $67 million
- Adjusted Operating Income: $163 million
- GAAP Net Income: $52 million
- Adjusted Net Income: $116 million
- GAAP Earnings Per Share: $0.10
- Adjusted Earnings Per Share: $0.23
An explanation and reconciliation of non-GAAP financial measures
to GAAP financial measures is presented in Schedules II and V
attached to this press release.
“The Flex team delivered strong results in Q1, overcoming the
challenges presented by the COVID-19 pandemic. Our ability to
deliver better than expected results, even in this difficult
environment, is a testament to our disciplined, world-class
execution,” said Revathi Advaithi, Chief Executive Officer of Flex.
“We continue to make progress on our long-term strategy which has
been validated during this dynamic time through our ability to
focus and scale to meet the needs of our diverse customer
base.”
“We made solid progress on driving efficiencies and reducing
costs during the quarter which better positions the company to
effectively manage through this environment,” added Chris Collier,
Chief Financial Officer of Flex. “We anticipate a sequential
recovery for all of our end markets in the second quarter of fiscal
2021, however we expect overall revenue to be under pressure due to
the uncertainty of the crisis. We will continue to make sequential
improvements in profitability and adjusted earnings per share.”
Second Quarter Fiscal 2021 Guidance
- Revenue: $5.4 billion to $5.7 billion
- GAAP Income Before Income Taxes: $35 million to $70
million
- Adjusted Operating Income: $180 million to $220 million
- GAAP EPS: $0.05 to $0.11 which includes $0.07 for stock-based
compensation expense and net intangible amortization and $0.13 for
estimated restructuring and other charges
- Adjusted EPS: $0.25 to $0.31
Webcast and Conference Call
The Flex management team will
host a conference call today at 2:00 PM (PT) / 5:00 PM (ET), to
review first quarter fiscal 2021 results. A live webcast of the
event and slides will be available on the Flex Investor Relations
website at http://investors.flex.com. An audio replay and
transcript will also be available after the event on the Flex
Investor Relations website.
About Flex
Flex (Reg. No. 199002645H) is the manufacturing partner of
choice that helps a diverse customer base design and build products
that improve the world. Through the collective strength of a global
workforce across 30 countries and responsible, sustainable
operations, Flex delivers technology innovation, supply chain, and
manufacturing solutions to diverse industries and end markets.
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of U.S. securities laws, including statements related
to future expected revenues and earnings per share and measures
that we are taking to respond to the challenges presented by the
COVID-19 pandemic and the resulting economic disruptions. These
forward-looking statements involve risks and uncertainties that
could cause the actual results to differ materially from those
anticipated by these forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking
statements. These risks include: the effects of the COVID-19
pandemic on our business, results of operations and financial
condition; that future revenues and earnings may not be achieved as
expected; the effects that the current macroeconomic environment
could have on our business and demand for our products; the effects
that current credit and market conditions could have on the
liquidity and financial condition of our customers and suppliers,
including any impact on their ability to meet their contractual
obligations; the challenges of effectively managing our operations,
including our ability to control costs and manage changes in our
operations; litigation and regulatory investigations and
proceedings; compliance with legal and regulatory requirements; the
possibility that benefits of the Company’s restructuring actions
may not materialize as expected; that the expected revenue and
margins from recently launched programs may not be realized; our
dependence on a small number of customers; the impact of component
shortages, including their impact on our revenues; geopolitical
risk, including the termination and renegotiation of international
trade agreements and trade policies, including the impact of
tariffs and related regulatory actions; and that recently proposed
changes or future changes in tax laws in certain jurisdictions
where we operate could materially impact our tax expense. In
addition, the COVID-19 pandemic increases the likelihood and
potential severity of many of the foregoing risks.
Additional information concerning these and other risks is
described under “Risk Factors” and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” in our
annual report on Form 10-K for the fiscal year ended March 31,
2020. The forward-looking statements in this press release are
based on current expectations and Flex assumes no obligation to
update these forward-looking statements.
SCHEDULE I
FLEX
UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per
share amounts)
Three-Month Periods
Ended
June 26, 2020
June 28, 2019
GAAP:
Net sales
$
5,153,333
$
6,175,939
Cost of sales
4,840,114
5,775,775
Restructuring charges
9,666
47,405
Gross profit
303,553
352,759
Selling, general and administrative
expenses
190,721
209,624
Intangible amortization
15,176
17,082
Restructuring charges
16
8,787
Interest and other, net
30,257
53,157
Income before income taxes
67,383
64,109
Provision for income taxes
15,563
19,237
Net income
$
51,820
$
44,872
Earnings per share:
GAAP
$
0.10
$
0.09
Non-GAAP
$
0.23
$
0.27
Diluted shares used in computing per share
amounts
501,632
517,550
See Schedule II for the reconciliation of
GAAP to non-GAAP financial measures.
SCHEDULE II
FLEX
RECONCILIATION OF GAAP TO
NON-GAAP FINANCIAL MEASURES (1)
(In thousands, except per
share amounts)
Three-Month Periods
Ended
June 26, 2020
June 28, 2019
GAAP gross profit
$
303,553
$
352,759
Stock-based compensation expense
4,006
2,940
Customer related asset impairments
437
483
Restructuring charges
9,666
47,405
Legal and other
350
-
Non-GAAP gross profit
$
318,012
$
403,587
GAAP income before income taxes
$
67,383
$
64,109
Intangible amortization
15,176
17,082
Stock-based compensation expense
12,769
15,227
Customer related asset impairments
(76
)
483
Restructuring charges
9,682
56,192
Legal and other
27,681
1,610
Interest and other, net
30,257
53,157
Non-GAAP operating income
$
162,872
$
207,860
GAAP provision for income taxes
$
15,563
$
19,237
Intangible amortization benefit
2,049
2,156
Other tax related adjustments
(1,212
)
1,576
Tax benefit on restructuring and other
1,674
1,140
Non-GAAP provision for income
taxes
$
18,074
$
24,109
GAAP net income
$
51,820
$
44,872
Intangible amortization
15,176
17,082
Stock-based compensation expense
12,769
15,227
Restructuring charges
9,682
56,192
Customer related asset impairments
(76
)
483
Legal and other
27,681
1,610
Other charges, interest and other, net
1,346
7,091
Adjustments for taxes
(2,511
)
(4,872
)
Non-GAAP net income
$
115,887
$
137,685
Diluted earnings per share:
GAAP
$
0.10
$
0.09
Non-GAAP
$
0.23
$
0.27
See the accompanying notes on Schedule V
attached to this press release.
SCHEDULE III
FLEX
UNAUDITED CONDENSED
CONSOLIDATED BALANCE SHEETS
(In thousands)
As of June 26, 2020
As of March 31, 2020
ASSETS
Current assets:
Cash and cash equivalents
$
1,935,081
$
1,922,686
Accounts receivable, net of allowance for
doubtful accounts
3,280,837
2,435,982
Contract assets
306,198
282,444
Inventories
3,483,475
3,785,073
Other current assets
556,786
660,085
Total current assets
9,562,377
9,086,270
Property and equipment, net
2,162,715
2,215,991
Operating lease right-of-use assets,
net
611,047
605,070
Goodwill
1,074,604
1,064,553
Other intangible assets, net
250,455
262,418
Other assets
471,870
455,315
Total assets
$
14,133,068
$
13,689,617
LIABILITIES AND SHAREHOLDERS’
EQUITY
Current liabilities:
Bank borrowings and current portion of
long-term debt
$
162,287
$
149,130
Accounts payable
4,595,409
5,108,251
Accrued payroll
390,544
363,644
Other current liabilities
1,647,011
1,590,060
Total current liabilities
6,795,251
7,211,085
Long-term debt, net of current portion
3,423,162
2,689,109
Operating lease liabilities,
non-current
539,441
528,967
Other liabilities
435,609
429,303
Total shareholders' equity
2,939,605
2,831,153
Total liabilities and shareholders'
equity
$
14,133,068
$
13,689,617
SCHEDULE IV
FLEX
UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three-Month Periods
Ended
June 26, 2020
June 28, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
$
51,820
$
44,872
Depreciation, amortization and other
impairment charges
156,215
190,163
Changes in working capital and other,
net
(837,425
)
(891,901
)
Net cash used in operating activities
(629,390
)
(656,866
)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment
(110,259
)
(162,115
)
Proceeds from the disposition of property
and equipment
7,853
38,901
Cash collections of deferred purchase
price
—
899,260
Other investing activities, net
2,027
(920
)
Net cash (used in) provided by investing
activities
(100,379
)
775,126
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowings and
long-term debt
1,247,835
771,533
Repayments of bank borrowings and
long-term debt
(510,554
)
(601,240
)
Payments for repurchases of ordinary
shares
—
(51,999
)
Other financing activities, net
3,513
(11,979
)
Net cash provided by financing
activities
740,794
106,315
Effect of exchange rates on cash and cash
equivalents
1,370
(749
)
Net change in cash and cash
equivalents
12,395
223,826
Cash and cash equivalents, beginning of
period
1,922,686
1,696,625
Cash and cash equivalents, end of
period
$
1,935,081
$
1,920,451
SCHEDULE V
FLEX AND SUBSIDIARIES
NOTES TO SCHEDULES I,
II
(1)
To supplement Flex’s unaudited selected
financial data presented consistent with Generally Accepted
Accounting Principles (“GAAP”), the Company discloses certain
non-GAAP financial measures that exclude certain charges and gains,
including non-GAAP gross profit, non-GAAP operating income,
non-GAAP net income and non-GAAP net income per diluted share.
These supplemental measures exclude restructuring charges,
customer-related asset impairments, stock-based compensation
expense, intangible amortization, other discrete events as
applicable and the related tax effects. These non-GAAP measures are
not in accordance with or an alternative for GAAP and may be
different from non-GAAP measures used by other companies. We
believe that these non-GAAP measures have limitations in that they
do not reflect all of the amounts associated with Flex’s results of
operations as determined in accordance with GAAP and that these
measures should only be used to evaluate Flex’s results of
operations in conjunction with the corresponding GAAP measures. The
presentation of this additional information is not meant to be
considered in isolation or as a substitute for the most directly
comparable GAAP measures. We compensate for the limitations of
non-GAAP financial measures by relying upon GAAP results to gain a
complete picture of the Company’s performance.
In calculating non-GAAP financial measures, we exclude
certain items to facilitate a review of the comparability of the
Company’s operating performance on a period-to-period basis because
such items are not, in our view, related to the Company’s ongoing
operational performance. We use non-GAAP measures to evaluate the
operating performance of our business, for comparison with
forecasts and strategic plans, for calculating return on
investment, and for benchmarking performance externally against
competitors. In addition, management’s incentive compensation is
determined using certain non-GAAP measures. Also, when evaluating
potential acquisitions, we exclude certain of the items described
below from consideration of the target’s performance and valuation.
Since we find these measures to be useful, we believe that
investors benefit from seeing results “through the eyes” of
management in addition to seeing GAAP results. We believe that
these non-GAAP measures, when read in conjunction with the
Company’s GAAP financials, provide useful information to investors
by offering:
- the ability to make more meaningful period-to-period
comparisons of the Company’s on-going operating results;
- the ability to better identify trends in the Company’s
underlying business and perform related trend analyses;
- a better understanding of how management plans and measures the
Company’s underlying business; and
- an easier way to compare the Company’s operating results
against analyst financial models and operating results of
competitors that supplement their GAAP results with non-GAAP
financial measures.
The following are explanations of each of
the adjustments that we incorporate into non-GAAP measures, as well
as the reasons for excluding each of these individual items in the
reconciliations of these non-GAAP financial measures:
Stock-based compensation expense consists
of non-cash charges for the estimated fair value of stock options
and unvested restricted share unit awards granted to employees and
assumed in business acquisitions. The Company believes that the
exclusion of these charges provides for more accurate comparisons
of its operating results to peer companies due to the varying
available valuation methodologies, subjective assumptions and the
variety of award types. In addition, the Company believes it is
useful to investors to understand the specific impact stock-based
compensation expense has on its operating results.
Intangible amortization consists primarily
of non-cash charges that can be impacted by, among other things,
the timing and magnitude of acquisitions. The Company considers its
operating results without these charges when evaluating its ongoing
performance and forecasting its earnings trends, and therefore
excludes such charges when presenting non-GAAP financial measures.
The Company believes that the assessment of its operations
excluding these costs is relevant to its assessment of internal
operations and comparisons to the performance of its
competitors.
Customer related asset impairments may
consist of non-cash impairments of property and equipment to
estimated fair value for customers we have disengaged or are in the
process of disengaging as well as additional provisions for
doubtful accounts receivable for customers that are experiencing
financial difficulties and inventory that is considered
non-recoverable that is written down to net realizable value. These
costs are excluded by the Company’s management in assessing current
operating performance and forecasting its earnings trends and are
therefore excluded by the Company from its non-GAAP measures.
Restructuring charges include severance
for rationalization at existing sites and corporate SG&A
functions as well as asset impairment, and other charges related to
the closures and consolidations of certain operating sites and
targeted activities to restructure the business. These costs may
vary in size based on the Company’s initiatives and are not
directly related to ongoing or core business results, and do not
reflect expected future operating expenses. These costs are
excluded by the Company’s management in assessing current operating
performance and forecasting its earnings trends and are therefore
excluded by the Company from its non-GAAP measures.
In order to support the Company’s strategy
and build a sustainable organization, and after considering that
the economic recovery from the pandemic will be slower than
anticipated, the Company has identified and is engaging in certain
structural and portfolio changes. These restructuring actions will
eliminate non-core activities primarily within the Company’s
corporate function, align the Company’s cost structure with its
reorganizing and optimizing of its operations model along its two
reporting segments, and further sharpen its focus to winning
business in end markets where it has competitive advantages and
deep domain expertise. During the three-month period ended June 26,
2020, the Company recognized approximately $10 million of
restructuring charges, most of which related to employee
severance.
During the first quarter of fiscal year
2020 in connection with geopolitical developments and uncertainties
at the time, primarily impacting one customer in China, the Company
experienced a reduction in demand for products assembled for that
customer. As a result, the Company accelerated its strategic
decision to reduce its exposure to certain high-volatility products
in both China and India. The Company also initiated targeted
activities to restructure its business to further reduce and
streamline its cost structure. During the three-month period ended
June 28, 2019, the Company recognized $56 million of restructuring
charges, comprised of approximately $31 million of cash charges
predominantly for employee severance, and $25 million of non-cash
charges related to impairment of equipment and inventory.
Legal and other consist primarily of costs
not directly related to ongoing or core business results and may
include various loss contingencies that arise that could involve
matters relating to commercial disputes, government regulatory and
compliance, intellectual property, antitrust, tax, employment or
shareholder issues, product liability claims and other issues on a
global basis. During the first quarter of fiscal 2021, the Company
accrued for certain loss contingencies where losses are considered
probable and estimable. These costs are excluded by the Company’s
management in assessing current operating performance and
forecasting its earnings trends and are therefore excluded by the
Company from its non-GAAP measures.
Other charges (income), interest and
other, net consists of various other types of items that are not
directly related to ongoing or core business results, such as the
gain or losses related certain divestitures, debt extinguishment
costs and impairment charges or gains associated with certain
non-core investments. We exclude these items because they are not
related to the Company’s ongoing operating performance or do not
affect core operations. Excluding these amounts provides investors
with a basis to compare company performance against the performance
of other companies without this variability.
Adjustment for taxes relates to the tax
effects of the various adjustments that we incorporate into
non-GAAP measures in order to provide a more meaningful measure on
non-GAAP net income and certain adjustments related to
non-recurring settlements of tax contingencies or other
non-recurring tax charges, when applicable.
Adjustments for free cash flow.
Prior to fiscal 2021, the Company utilized
net cash flow from its various A/R sales programs as a low-cost
financing source to fund operations and as a critical net working
capital management tool. The Company viewed and managed all
collections under the programs similarly without bifurcation and
accordingly provided the adjustment to reflect adjusted free cash
flow inclusive of all collections of receivables sold through the
programs described above as well as collections on the repurchased
receivables as part of the ABS program amendment. In the first
quarter of fiscal year 2021, we proactively and strategically
utilized the proceeds of our debt issuance during the quarter to
reduce the outstanding balance of our ABS programs. We reduced the
balance on this short-term financing product by $655 million
sequentially, which has the accounting effect of reducing our cash
flow from operations and is excluded from the calculation of
adjusted free cash flow.
We define our adjusted free cash flow
metric to be operating cash flows plus the impacts described above
less purchases of property and equipment net of proceeds from
dispositions and present cash flows on a consistent basis for
investor transparency. We believe adjusted free cash flow is an
important liquidity metric because it measures, during a given
period, the amount of cash generated that is available to repay
debt obligations, make investments, fund acquisitions and for
certain other activities. Since adjusted free cash flow includes
investments in operating assets, we believe this non-GAAP liquidity
measure is useful in addition to the most directly comparable GAAP
measure – “net cash provided by operating activities.” See below
for the three-month periods ended June 26, 2020, and June 28, 2019
reconciliation of GAAP to Non-GAAP measures:
Three-Month Period
Ended
Three-Month Period
Ended
June 26, 2020
June 28, 2019
Net cash used in operating activities
$
(629,390
)
$
(656,866
)
Reduction in ABS levels
654,769
-
Cash collections of deferred purchase
price and other
3,460
893,735
Net capital expenditures
(102,406
)
(123,214
)
Adjusted free cash flow
$
(73,567
)
$
113,655
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200730006004/en/
Investors & Analysts David
Rubin Vice President, Investor Relations (408) 577-4632
David.Rubin@flex.com
Media & Press Silvia Gianelli
Senior Director, Corporate Communications (408) 797-7130
Silvia.Gianelli@flex.com
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