Flex (NASDAQ: FLEX) today announced results for its second
quarter ended September 25, 2020.
Second Quarter Fiscal Year 2021 Highlights:
- Net Sales: $6.0 billion
- GAAP Income Before Income Taxes: $153 million
- Adjusted Operating Income: $247 million
- GAAP Net Income: $113 million
- Adjusted Net Income: $180 million
- GAAP Earnings Per Share: $0.22
- Adjusted Earnings Per Share: $0.36
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.
“Flex displayed solid execution, as we capitalized on improved
demand across our varied end markets, and delivered results above
our previous expectations,” said Revathi Advaithi, Chief Executive
Officer of Flex. “Even during these uncertain times, we have shown
that our long-term strategy to manage portfolio mix, drive
disciplined execution, and focus on free cash flow generation, is a
strong and differentiating roadmap. Looking ahead, we are confident
in our ability to maintain our performance while innovating and
delivering best-in-class solutions for our customers.”
Third Quarter Fiscal 2021 Guidance
- Revenue: $6.0 billion to $6.4 billion
- GAAP Income Before Income Taxes: $125 million to 160
million
- Adjusted Operating Income: $235 million to $275 million
- GAAP EPS: $0.21 to $0.27 which includes $0.08 for stock-based
compensation expense and net intangible amortization and $0.05 for
estimated restructuring and other charges
- Adjusted EPS: $0.34 to $0.40
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 second 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. 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. Our share repurchase
program does not obligate the Company to repurchase a specific
number of shares and may be suspended or terminated at any time
without prior notice.
SCHEDULE I
FLEX UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS (In millions, except per share amounts)
Three-Month Periods Ended September 25, 2020
September 27, 2019 GAAP: Net sales
$
5,985
$
6,088
Cost of sales
5,566
5,785
Restructuring charges
24
114
Gross profit
395
189
Selling, general and administrative expenses
193
205
Intangible amortization
16
16
Restructuring charges
11
14
Interest and other, net
22
50
Income (loss) before income taxes
153
(96
)
Provision for income taxes
40
21
Net income (loss)
$
113
$
(117
)
Earnings (losses) per share: GAAP
$
0.22
$
(0.23
)
Non-GAAP
$
0.36
$
0.31
Basic shares used in computing per share amounts
501
513
Diluted shares used in computing per share amounts
504
515
Basic shares are used in calculating diluted GAAP EPS for
the period in which a net loss is recognized. See Schedule
II for the reconciliation of GAAP to non-GAAP financial measures.
See the accompanying notes on Schedule V attached to this press
release.
FLEX UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (In millions, except per share
amounts) Six-Month Periods Ended September 25,
2020 September 27, 2019 GAAP: Net sales
$
11,138
$
12,264
Cost of sales
10,406
11,561
Restructuring charges
34
161
Gross profit
698
542
Selling, general and administrative expenses
384
415
Intangible amortization
31
33
Restructuring charges
11
23
Interest and other, net
51
103
Income (loss) before income taxes
221
(32
)
Provision for income taxes
56
40
Net income (loss)
$
165
$
(72
)
Earnings (losses) per share: GAAP
$
0.33
$
(0.14
)
Non-GAAP
$
0.59
$
0.57
Basic shares used in computing per share amounts
499
513
Diluted shares used in computing per share amounts
503
517
Basic shares are used in calculating diluted GAAP EPS for
the period in which a net loss is recognized. See Schedule
II for the reconciliation of GAAP to non-GAAP financial measures.
See the accompanying notes on Schedule V attached to this press
release.
SCHEDULE II
FLEX RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL
MEASURES (1) (In millions, except per share amounts)*
Three-Month Periods Ended September 25, 2020
September 27, 2019 GAAP income (loss) before
income taxes
$
153
$
(96
)
Intangible amortization
16
16
Stock-based compensation expense
24
19
Customer related asset impairments (recoveries)
(3
)
91
Restructuring charges
35
128
Legal and other
-
19
Interest and other, net
22
50
Non-GAAP operating income
$
247
$
227
GAAP provision for income taxes
$
40
$
21
Intangible amortization benefit
2
2
Withholding tax liability and tax receivable, net
(2
)
(13
)
Tax benefit on restructuring and other
2
13
Non-GAAP provision for income taxes
$
42
$
24
GAAP net income (loss)
$
113
$
(117
)
Intangible amortization
16
16
Stock-based compensation expense
24
19
Restructuring charges
35
128
Customer related asset impairments (recoveries)
(3
)
91
Legal and other
-
19
Other charges (income) interest and other, net
(3
)
5
Adjustments for taxes
(2
)
(3
)
Non-GAAP net income
$
180
$
158
Diluted earnings (losses) per share: GAAP
$
0.22
$
(0.23
)
Non-GAAP
$
0.36
$
0.31
See the accompanying notes on Schedule V attached to this
press release. *Amounts may not sum due to rounding
FLEX
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (1)
(In millions, except per share amounts)* Six-Month
Periods Ended September 25, 2020 September 27,
2019 GAAP income (loss) before income taxes
$
221
$
(32
)
Intangible amortization
31
33
Stock-based compensation expense
37
34
Customer related asset impairments (recoveries)
(3
)
91
Restructuring charges
45
185
Legal and other
28
21
Interest and other, net
51
103
Non-GAAP operating income
$
410
$
435
GAAP provision for income taxes
$
56
$
40
Intangible amortization benefit
4
4
Withholding tax liability and tax receivable, net
(3
)
(11
)
Tax benefit on restructuring and other
4
14
Non-GAAP provision for income taxes
$
60
$
48
GAAP net income (loss)
$
165
$
(72
)
Intangible amortization
31
33
Stock-based compensation expense
37
34
Restructuring charges
45
185
Customer related asset impairments (recoveries)
(3
)
91
Legal and other
28
21
Other charges (income) interest and other, net
(2
)
12
Adjustments for taxes
(5
)
(8
)
Non-GAAP net income
$
296
$
296
Diluted earnings (losses) per share: GAAP
$
0.33
$
(0.14
)
Non-GAAP
$
0.59
$
0.57
See the accompanying notes on Schedule V attached to this
press release. *Amounts may not sum due to rounding
SCHEDULE III
FLEX UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions) As of September 25, 2020 As
of March 31, 2020 ASSETS Current assets: Cash and cash
equivalents
$
2,359
$
1,923
Accounts receivable, net of allowance for doubtful accounts
3,804
2,436
Contract assets
181
282
Inventories
3,611
3,785
Other current assets
524
660
Total current assets
10,479
9,086
Property and equipment, net
2,106
2,216
Operating lease right-of-use assets, net
614
605
Goodwill
1,088
1,065
Other intangible assets, net
241
262
Other assets
473
456
Total assets
$
15,001
$
13,690
LIABILITIES AND SHAREHOLDERS’ EQUITY Current
liabilities: Bank borrowings and current portion of long-term debt
$
63
$
149
Accounts payable
5,046
5,108
Accrued payroll
419
364
Other current liabilities
1,629
1,590
Total current liabilities
7,157
7,211
Long-term debt, net of current portion
3,739
2,689
Operating lease liabilities, non-current
545
529
Other liabilities
445
430
Total shareholders' equity
3,115
2,831
Total liabilities and shareholders' equity
$
15,001
$
13,690
SCHEDULE IV
FLEX UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS (In millions) Six-Month Periods
Ended September 25, 2020 September 27, 2019 CASH
FLOWS FROM OPERATING ACTIVITIES: Net income (loss)
$
165
$
(72
)
Depreciation, amortization and other impairment charges
346
357
Changes in working capital and other, net
(876
)
(1,933
)
Net cash used in operating activities
(365
)
(1,648
)
CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property
and equipment
(185
)
(272
)
Proceeds from the disposition of property and equipment
14
53
Cash collections of deferred purchase price
—
1,840
Other investing activities, net
13
23
Net cash (used in) provided by investing activities
(158
)
1,644
CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from bank
borrowings and long-term debt
1,943
780
Repayments of bank borrowings and long-term debt
(1,005
)
(864
)
Payments for repurchases of ordinary shares
—
(112
)
Other financing activities, net
2
328
Net cash provided by financing activities
940
132
Effect of exchange rates on cash and cash equivalents
19
(9
)
Net increase in cash and cash equivalents
436
119
Cash and cash equivalents, beginning of period
1,923
1,697
Cash and cash equivalents, end of period
$
2,359
$
1,816
SCHEDULE V
FLEX AND SUBSIDIARIES
NOTES TO SCHEDULES I and
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 operating
income, non-GAAP net income and non-GAAP net income per diluted
share. These supplemental measures exclude restructuring charges,
customer-related asset impairments (recoveries), 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
(recoveries) 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. In addition, it includes write-downs of inventory that will
not be recovered due to significant reductions in future customer
demand as the Company reduced its exposure to certain high
volatility business in the second quarter of fiscal year 2020. In
subsequent periods, the Company may recover a portion of the costs
previously incurred related to assets impaired or reduced to net
realizable value. These costs and recoveries 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 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 and six-month periods ended September
25, 2020, the Company recognized approximately $35 million and $45
million of restructuring charges respectively, most of which
related to employee severance.
During the first half 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 and six-month
periods ended September 27, 2019, the Company recognized $128
million and $185 million, respectively, of restructuring charges.
The Company incurred cash charges of approximately $97 million and
$128 million, respectively, and non-cash charges of $31 million and
$57 million, respectively, primarily related to asset
impairments.
Legal and other consist primarily of costs
not directly related to core business results and may include
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 year 2021, the
Company accrued for certain loss contingencies where losses are
considered probable and estimable. Legal and other during the
three-month and six-month periods ended September 27, 2019
primarily consists of direct and incremental costs associated with
certain wind-down activities related to the disengagement of a
certain customer primarily in China and India. 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 to certain divestitures, debt extinguishment
costs and impairment charges or gains associated with certain
non-core investments. The Company excludes 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. Withholding taxes
relates primarily to tax liabilities for future planned
liquidations of certain legal entities recognized during second
quarter of fiscal year 2020.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201029006070/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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