Log in
Log in
Or log in with
GoogleGoogle
Twitter Twitter
Facebook Facebook
Apple Apple     
Sign up
Or log in with
GoogleGoogle
Twitter Twitter
Facebook Facebook
Apple Apple     
  1. Homepage
  2. Equities
  3. United States
  4. Nasdaq
  5. Flex Ltd.
  6. News
  7. Summary
    FLEX   SG9999000020

FLEX LTD.

(FLEX)
  Report
Real-time Estimate Cboe BZX  -  12:35:31 2023-01-30 pm EST
23.33 USD   -0.91%
01/27FLEX LTD. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)
AQ
01/27Citigroup Adjusts Flex's Price Target to $28 From $23, Keeps Buy Rating
MT
01/26Citigroup Adjusts Price Target on Flex to $28 From $23, Maintains Buy Rating
MT
SummaryQuotesChartsNewsRatingsCalendarCompanyFinancialsConsensusRevisionsFunds 
SummaryMost relevantAll NewsAnalyst Reco.Other languagesPress ReleasesOfficial PublicationsSector news

FLEX LTD. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

10/31/2022 | 05:06am EST

Unless otherwise specifically stated, references in this report to "Flex," "the Company," "we," "us," "our" and similar terms mean Flex Ltd. and its subsidiaries.


This report on Form 10-Q contains forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended, and
Section 27A of the Securities Act of 1933, as amended. The words "expects,"
"anticipates," "believes," "intends," "plans" and similar expressions identify
forward-looking statements. In addition, any statements which refer to
expectations, projections or other characterizations of future events or
circumstances are forward-looking statements. We undertake no obligation to
publicly disclose any revisions to these forward-looking statements to reflect
events or circumstances occurring subsequent to filing this Form 10-Q with the
Securities and Exchange Commission (the "SEC"). These forward-looking statements
are subject to risks and uncertainties, including, without limitation, those
risks and uncertainties discussed in this section, as well as any risks and
uncertainties discussed in Part I, Item 1A, "Risk Factors" and in
Part II, Item 7, "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, 2022. In addition, new risks emerge from time to time and it is
not possible for management to predict all such risk factors or to assess the
impact of such risk factors on our business. Accordingly, our future results may
differ materially from historical results or from those discussed or implied by
these forward-looking statements. Given these risks and uncertainties, the
reader should not place undue reliance on these forward-looking statements.

OVERVIEW


We are the diversified manufacturing partner of choice that helps market-leading
brands design, build and deliver innovative products that improve the world.
Through the collective strength of a global workforce across approximately 30
countries with responsible, sustainable operations, we deliver advanced
manufacturing solutions and operate one of the most trusted global supply
chains, supporting the entire product lifecycle with fulfillment, after-market,
and circular economy solutions for diverse industries including cloud,
communications, enterprise, automotive, industrial, consumer devices, lifestyle,
healthcare, and energy. Our three operating and reportable segments are:

•Flex Agility Solutions ("FAS"), which is comprised of the following end markets:

•Communications, Enterprise and Cloud, including data infrastructure, edge infrastructure and communications infrastructure;

•Lifestyle, including appliances, consumer packaging, floorcare, micro mobility and audio; and

•Consumer Devices, including mobile and high velocity consumer devices.

•Flex Reliability Solutions ("FRS"), which is comprised of the following end markets:

•Automotive, including next generation mobility, autonomous, connectivity, electrification, and smart technologies;

•Health Solutions, including medical devices, medical equipment and drug delivery; and

•Industrial, including capital equipment, industrial devices, and renewables and grid edge.


•Nextracker, the leading provider of intelligent, integrated solar tracker and
software solutions used in utility-scale and ground-mounted distributed
generation solar projects around the world. Nextracker's products enable solar
panels to follow the sun's movement across the sky and optimize plant
performance.

Our strategy is to provide customers with a full range of cost competitive, vertically-integrated global supply chain solutions through which we can design, build, ship and service a complete packaged product for our customers. This enables our customers to leverage our supply chain solutions to meet their product requirements throughout the entire product lifecycle.


Over the past few years, we have seen an increased level of diversification by
many companies, primarily in the technology sector. Some companies that have
historically identified themselves as software providers, Internet service
providers or e-commerce retailers have entered the highly competitive and
rapidly evolving technology hardware markets, such as mobile devices, home
entertainment and wearable devices. This trend has resulted in a significant
change in the manufacturing and supply chain solutions requirements of such
companies. While the products have become more complex, the supply chain
solutions required by such companies have become more customized and demanding,
and it has changed the manufacturing and supply chain landscape significantly.

We use a portfolio approach to manage our extensive service offerings. As our
customers change the way they go to market, we have the capability to reorganize
and rebalance our business portfolio in order to align with our customers' needs
and

                                       27

--------------------------------------------------------------------------------

Table of Contents


requirements in an effort to optimize operating results. The objective of our
business model is to allow us to be flexible and redeploy and reposition our
assets and resources as necessary to meet specific customers' supply chain
solution needs across all the markets we serve and earn a return on our invested
capital above the weighted average cost of that capital.

We believe that our continued business transformation to improve our portfolio
mix is strategically positioning us to take advantage of the long-term, future
growth prospects for outsourcing of advanced manufacturing capabilities, design
and engineering services and after-market services.

Update on the Impact of COVID-19, Component Shortages and Logistical Constraints on our Business


With the second wave of the global pandemic including follow-on variants of
COVID-19, there have been renewed disease control measures being taken to limit
the spread including movement bans and shelter-in-place orders. Although not
materially impacting our results for the first half of fiscal year 2023, with
the lockdowns in China, we experienced temporary plant closures and/or
restrictions at certain of our manufacturing facilities in China. We continue to
closely monitor the situation in all the locations where we operate. Our
priority remains the welfare of our employees. In addition, our end markets
continue to be impacted by the global supply chain disruptions. Component
shortages and logistical constraints are pervasive across the entire value
chain. We expect persistent waves of COVID-19 to remain a headwind into the near
future. Component shortages and significantly increased logistic costs are also
expected to persist at least in the near future. We continue to carefully
monitor potential supply chain disruptions due to ongoing tightness in the
overall component environment. Refer to "Risk Factors - The ongoing COVID-19
pandemic has materially and adversely affected our business and results of
operations. The duration and extent to which it will continue to adversely
impact our business and results of operations remains uncertain and could be
material." and "-- Supply chain disruptions, manufacturing interruptions or
delays, or the failure to accurately forecast customer demand, could affect our
ability to meet customer demand, lead to higher costs, or result in excess or
obsolete inventory. We have been and continue to be adversely affected by supply
chain issues, including shortages of required electronic components." as
disclosed in Part I, "Item 1A. Risk Factors" of our Annual Report on Form 10-K
for the fiscal year ended March 31, 2022.

We are continuously evaluating our capital structure in response to the current environment and expect that our current financial condition, including our liquidity sources are adequate to fund future commitments. See additional discussion in the Liquidity and Capital Resources section below.

Russian Invasion of Ukraine


We continue to monitor and respond to the escalating conflict in Ukraine and the
associated sanctions and other restrictions. As of the date of this report,
there is no material impact to our business operations and financial performance
in Ukraine. The full impact of the conflict on our business operations and
financial performance remains uncertain and will depend on future developments,
including the severity and duration of the conflict and its impact on regional
and global economic conditions. We will continue to monitor the conflict and
assess the related restrictions and other effects and pursue prudent decisions
for our team members, customers, and business.

Other Developments


On April 28, 2021, we announced that we confidentially submitted a draft
registration statement on Form S-1 with the SEC relating to the proposed initial
public offering of Nextracker's Class A common stock. The initial public
offering and its timing are subject to market and other conditions and the SEC's
review process, and there can be no assurance that we will proceed with such
offering or any alternative transaction. Refer to "Risk Factors - We are
pursuing alternatives for our Nextracker business, including a full or partial
separation of the business, through an initial public offering of Nextracker or
otherwise, which may not be consummated as or when planned or at all, and may
not achieve the intended benefits." as disclosed in Part I, "Item 1A. Risk
Factors" of our Annual Report on Form 10-K for the fiscal year ended March 31,
2022.

On February 1, 2022, one of our subsidiaries sold Series A Preferred Units
representing a 16.7% interest in Nextracker to TPG Rise for an aggregate
purchase price of $500 million. The sale of the 16.7% interest in Nextracker
reflects an implied value for Nextracker as of the date of the sale of
$3.0 billion. See Note 7 to the consolidated financial statements in our Annual
Report on Form 10-K for the fiscal year ended March 31, 2022 for further
information.

This Quarterly Report on Form 10-Q for the fiscal quarter ended September 30,
2022 does not constitute an offer to sell or a solicitation of an offer to buy
securities, and shall not constitute an offer, solicitation or sale in any
jurisdiction in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of that jurisdiction.

                                       28

--------------------------------------------------------------------------------

Table of Contents

Business Overview


We are one of the world's largest providers of global supply chain solutions,
with revenues of $15.1 billion for the six-month period ended September 30, 2022
and $26.0 billion in the fiscal year ended March 31, 2022. We have established
an extensive network of manufacturing facilities in the world's major consumer
and enterprise markets (Asia, the Americas, and Europe) to serve the growing
outsourcing needs of both multinational and regional customers. We design,
build, ship, and service consumer and enterprise products for our customers
through a network of over 100 facilities in approximately 30 countries across
four continents. We also provide intelligent, integrated solar tracker and
software solutions used in utility-scale and ground-mounted distributed
generation solar projects around the world. The following tables set forth the
relative percentages and dollar amounts of net sales by region and by country,
and net property and equipment by country, based on the location of our
manufacturing sites (amounts may not sum due to rounding):

                                                          Three-Month Periods Ended                                                     Six-Month Periods Ended
                                             September 30, 2022                      October 1, 2021                   September 30, 2022                       October 1, 2021
                                                                                                       (In millions)
Net sales by region:
Americas                            $      3,459                    45  %       $  2,605            42  %       $      6,774                45  %       $        5,184            41  %
Asia                                       2,751                    35  %          2,347            38  %              5,268                35  %                4,712            37  %
Europe                                     1,556                    20  %          1,277            20  %              3,071                20  %                2,675            22  %
                                    $      7,766                                $  6,229                        $     15,113                            $       12,571

Net sales by country:
China                               $      1,770                    23  %       $  1,547            25  %       $      3,354                22  %       $        3,078            24  %
Mexico                                     1,601                    21  %          1,240            20  %              3,156                21  %                2,460            20  %
U.S.                                       1,294                    17  %            846            14  %              2,511                17  %                1,722            14  %
Malaysia                                     633                     8  %            412             7  %              1,204                 8  %                  823             7  %
Brazil                                       547                     7  %            502             8  %              1,074                 7  %                  966             8  %
Hungary                                      330                     4  %            295             5  %                616                 4  %                  647             5  %
Other                                      1,591                    20  %          1,387            21  %              3,198                21  %                2,875            22  %
                                    $      7,766                                $  6,229                        $     15,113                            $       12,571


                                                 As of                           As of
      Property and equipment, net:         September 30, 2022              
 March 31, 2022
                                                            (In millions)
      Mexico                         $             672        31  %    $         626        29  %
      U.S.                                         371        17  %              354        17  %
      China                                        323        15  %              299        14  %
      Malaysia                                     137         6  %              110         5  %
      Hungary                                      113         5  %              118         6  %
      India                                        112         5  %              129         6  %
      Other                                        473        21  %              489        23  %
                                     $           2,201                 $       2,125


We believe that the combination of our extensive open innovation platform
solutions, design and engineering services, advanced supply chain management
solutions and services, significant scale and global presence, and manufacturing
campuses in low-cost geographic areas provide us with a competitive advantage
and strong differentiation in the market for designing, manufacturing and
servicing consumer and enterprise products for leading multinational and
regional customers. Specifically, we offer our customers the ability to simplify
their global product development, manufacturing process, and after sales
services, and enable them to meaningfully accelerate their time to market and
cost savings.

Our operating results are affected by a number of factors, including the following:

•the impacts on our business due to component shortages, disruptions in transportation or other supply chain related constraints including as a result of the COVID-19 global pandemic;

•the effects of the COVID-19 global pandemic on our business and results of operations;


                                       29

--------------------------------------------------------------------------------

Table of Contents

•changes in the macro-economic environment and related changes in consumer demand;


•the mix of the manufacturing services we are providing, the number, size, and
complexity of new manufacturing programs, the degree to which we utilize our
manufacturing capacity, seasonal demand, and other factors;

•the effects on our business when our customers are not successful in marketing their products, or when their products do not gain widespread commercial acceptance;


•our ability to achieve commercially viable production yields and to manufacture
components in commercial quantities to the performance specifications demanded
by our customers;

•the effects that current credit and market conditions (including as a result of
the COVID-19 global pandemic and the ongoing conflict between Russia and
Ukraine) 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 effects on our business due to certain customers' products having short product lifecycles;

•our customers' ability to cancel or delay orders or change production quantities;

•our customers' decisions to choose internal manufacturing instead of outsourcing for their product requirements;

•integration of acquired businesses and facilities;

•increased labor costs due to adverse labor conditions in the markets we operate;

•changes in tax legislation; and

•changes in trade regulations and treaties.

We are also subject to other risks as outlined in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2022.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES


The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America ("U.S. GAAP" or "GAAP")
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Due to the COVID-19 pandemic
and the ongoing conflict between Russia and Ukraine, there has been and will
continue to be uncertainty and disruption in the global economy and financial
markets. We have made estimates and assumptions taking into consideration
certain possible impacts due to COVID-19 and the Russian invasion of Ukraine.
These estimates may change, as new events occur, and additional information is
obtained. Actual results may differ from those estimates and assumptions.

Refer to the accounting policies under Item 7, "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, 2022, where we discuss our more
significant judgments and estimates used in the preparation of the condensed
consolidated financial statements.

                                       30

--------------------------------------------------------------------------------

RESULTS OF OPERATIONS


The following table sets forth, for the periods indicated, certain statements of
operations data expressed as a percentage of net sales (amounts may not sum due
to rounding). The financial information and the discussion below should be read
together with the condensed consolidated financial statements and notes thereto
included in this document. In addition, reference should be made to our audited
consolidated financial statements and notes thereto and related Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in our Annual Report on Form 10-K for the fiscal year ended March 31,
2022.

                                                               Three-Month Periods Ended                                    Six-Month Periods Ended
                                                      September 30, 2022                 October 1, 2021          September 30, 2022         October 1, 2021
Net sales                                                                100.0  %                 100.0  %                   100.0  %                 100.0  %
Cost of sales                                                             92.4                     92.4                       92.5                     92.5
Restructuring charges                                                        -                      0.1                          -                      0.1
Gross profit                                                               7.6                      7.5                        7.5                      7.4
Selling, general and administrative expenses                               3.2                      3.4                        3.2                     

3.3


Intangible amortization                                                    0.2                      0.3                        0.3                      0.2
Operating income                                                           4.2                      3.8                        4.0                      3.9
Interest and other, net                                                    0.7                     (2.2)                       0.7                     

(0.9)


Income before income taxes                                                 3.5                      6.0                        3.3                     

4.8

Provision for income taxes                                                 0.4                      0.6                        0.4                      0.5
Net income                                                                 3.1  %                   5.4  %                     2.9  %                   4.3  %
Net income attributable to redeemable
noncontrolling interest                                                    0.1                        -                        0.1                     

-

Net income attributable to Flex Ltd.                                       3.0  %                   5.4  %                     2.8  %                   4.3  %


Net sales

The following table sets forth our net sales by segment, and their relative
percentages:

                                                                 Three-Month Periods Ended                                                      Six-Month Periods Ended
                                                     September 30, 2022                      October 1, 2021                   September 30, 2022                       October 1, 2021
                                                                                                              (In millions)
Net sales:
Flex Agility Solutions                     $      4,004                     52  %       $  3,437            55  %       $      7,995                53  %       $        6,869            55  %
Flex Reliability Solutions                        3,299                     42  %          2,465            40  %              6,268                41  %                5,047            40  %
Nextracker                                          473                      6  %            339             5  %                868                 6  %                  680             5  %
Intersegment eliminations                           (10)                     -  %            (12)            -  %                (18)                -  %                  (25)            -  %
                                           $      7,766                                 $  6,229                        $     15,113                            $       12,571


Net sales during the three-month period ended September 30, 2022 totaled $7.8
billion, representing an increase of approximately $1.5 billion, or 25% from
$6.2 billion during the three-month period ended October 1, 2021. Net sales for
our FAS segment increased approximately $0.6 billion, or 16% from the
three-month period ended October 1, 2021, primarily driven by strong
year-over-year growth in our Communications, Enterprise and Cloud (CEC) business
and a low single-digit year-over-year increase in our Lifestyle business due to
new program wins, ramps, and clear-to-build improvement. These increases in FAS
were offset by a high-teen year-over-year decrease in our Consumer Devices
business due to relatively softer market demand and a planned project completion
in the fiscal year ended March 31, 2022. Net sales for our FRS segment increased
approximately $0.8 billion, or 34% from the three-month period ended October 1,
2021, primarily driven by a strong year-over-year increase in our Industrial and
Automotive businesses and a low-teen year-over year increase in our Health
Solutions business due to strong customer demand and ramps across various end
markets coupled with incremental revenues from our Anord Mardix acquisition,
despite continued supply constraints. Net sales for our Nextracker segment
increased approximately $0.1 billion, or 40% from the three-month period ended
October 1, 2021, primarily driven by an increase in gigawatts delivered and to a
lesser extent, an increased average selling price. Net sales increased across
all regions with a $0.9 billion increase to $3.5 billion in the Americas, a $0.4
billion increase to $2.8 billion in Asia, and a $0.3 billion increase to $1.6
billion in Europe.

                                       31
--------------------------------------------------------------------------------

Net sales during the six-month period ended September 30, 2022 totaled $15.1
billion, representing an increase of approximately $2.5 billion, or 20% from
$12.6 billion during the six-month period ended October 1, 2021. Net sales for
our FAS segment increased approximately $1.1 billion, or 16% from the six-month
period ended October 1, 2021, primarily driven by strong growth in our CEC
business and a mid single-digit increase in our Lifestyle business during the
current year due to new ramps, customer expansion, continued recoveries in
consumer spending along with some effect from inflation pass-through while
overcoming challenges from supply constraints. These increases in FAS were
offset by a high-teen decrease in our Consumer Device business during the
current year due to the same factors in the three-month periods discussion
above. Net sales for our FRS segment increased approximately $1.2 billion, or
24% from the six-month period ended October 1, 2021, primarily driven by strong
increases in our Industrial and Automotive businesses, and a mid single-digit
year-over year increase in our Health Solutions business during the current year
due to strong customer demand and ramps across various end markets coupled with
incremental revenues from our Anord Mardix acquisition and the recovery of
inflationary costs, despite continued supply constraints noted above. Net sales
for our Nextracker segment increased approximately $0.2 billion, or 28% from the
six-month period ended October 1, 2021, primarily driven by an increase in
gigawatts delivered and to a lesser extent, an increased average selling price
which was in part driven by an increase in logistics costs. Net sales increased
across all regions with a $1.6 billion increase to $6.8 billion in the Americas,
a $0.6 billion increase to $5.3 billion in Asia, and a $0.4 billion increase to
$3.1 billion in Europe.

Our ten largest customers during the three and six-month periods ended
September 30, 2022 accounted for approximately 35% of net sales. Our ten largest
customers during the three and six-month periods ended October 1, 2021 accounted
for approximately 36% and 35% of net sales, respectively. No customer accounted
for more than 10% of net sales during the three and six-month periods ended
September 30, 2022 or October 1, 2021.

Cost of sales


Cost of sales is affected by a number of factors, including the number and size
of new manufacturing programs, product mix, labor cost fluctuations by region,
component costs and availability and capacity utilization.

Cost of sales during the three-month period ended September 30, 2022 totaled
$7.2 billion, representing an increase of approximately $1.4 billion, or 25%
from $5.8 billion during the three-month period ended October 1, 2021. The
higher cost of sales for the three-month period ended September 30, 2022 was
primarily driven by increased consolidated sales of $1.5 billion or 25%. Cost of
sales in FAS for the three-month period ended September 30, 2022 increased
approximately $0.5 billion, or 17% from the three-month period ended October 1,
2021, which is relatively in line with the overall 16% increase in FAS revenue
during the same period primarily as a result of higher revenue in our CEC and
Lifestyle businesses. Cost of sales in FRS for the three-month period ended
September 30, 2022 increased approximately $0.8 billion, or 34% from the
three-month period ended October 1, 2021, which is in line with the overall 34%
increase in FRS revenue during the same period, primarily as a result of higher
revenue in our Industrial and Automotive businesses. Cost of sales in our
Nextracker segment for the three-month period ended September 30, 2022 increased
approximately $0.1 billion, or 36% from the three-month period ended October 1,
2021, primarily due to the 40% increase in Nextracker revenue during the same
period partially offset by improved recovery on freight and logistics cost
increases.

Cost of sales during the six-month period ended September 30, 2022 totaled $14.0
billion, representing an increase of approximately $2.4 billion, or 20% from
$11.6 billion during the six-month period ended October 1, 2021. The higher cost
of sales for the six-month period ended September 30, 2022 was primarily driven
by increased consolidated sales of $2.5 billion or 20%. Cost of sales in FAS for
the six-month period ended September 30, 2022 increased approximately
$1.1 billion, or 16% from the six-month period ended October 1, 2021, which is
aligned with the overall 16% increase in FAS revenue during the same period
primarily due to the drivers noted in the discussion above for the three-month
period. Cost of sales in FRS for the six-month period ended September 30, 2022
increased approximately $1.1 billion, or 25% from the six-month period ended
October 1, 2021, which is relatively in line with the overall 24% increase in
FRS revenue during the same period, primarily due to the drivers noted in the
discussion above for the three-month period. Cost of sales in our Nextracker
segment for the six-month period ended September 30, 2022 increased
approximately $0.2 billion, or 25% from the six-month period ended October 1,
2021, primarily driven by the same factors noted above in the three-month
periods discussion.

Gross profit


Gross profit is affected by fluctuations in cost of sales elements as outlined
above and further by a number of factors, including product life cycles, unit
volumes, pricing, competition, new product introductions, and the expansion or
consolidation of manufacturing facilities, as well as specific restructuring
activities initiated from time to time. The flexible design of our manufacturing
processes allows us to manufacture a broad range of products in our facilities
and better utilize our manufacturing capacity across our diverse geographic
footprint and service customers from all segments. In the cases of new programs,
profitability normally lags revenue growth due to product start-up costs, lower
manufacturing program volumes in the start-up phase, operational inefficiencies,
and under-absorbed overhead. Gross margin for these programs often improves

                                       32

--------------------------------------------------------------------------------

over time as manufacturing volumes increase, as our utilization rates and overhead absorption improve, and as we increase the level of manufacturing services content. As a result of these various factors, our gross margin varies from period to period.


Gross profit during the three-month period ended September 30, 2022 increased
$0.1 billion to $0.6 billion, or 7.6% of net sales, from $0.5 billion, or 7.5%
of net sales, during the three-month period ended October 1, 2021. Gross margin
improved 10 basis points during the three-month period ended September 30, 2022
primarily due to the overall strong customer demand across various end markets
which allowed for improved fixed cost absorption and benefits from prior
restructuring activities, despite continued pressure on margin from component
shortages, logistics constraints and the pass-through effect of inflationary
cost recoveries.

Gross profit during the six-month period ended September 30, 2022 increased $0.2
billion to $1.1 billion, or 7.5% of net sales, from $0.9 billion, or 7.4% of net
sales, during the six-month period ended October 1, 2021. Gross margin improved
10 basis points during the same period due to the same factors noted above in
the three-month periods discussion.

Segment income


An operating segment's performance is evaluated based on its pre-tax operating
contribution, or segment income. Segment income is defined as net sales less
cost of sales, and segment selling, general and administrative expenses, and
does not include intangible amortization, stock-based compensation,
restructuring charges, and legal and other. A portion of depreciation is
allocated to the respective segments, together with other general corporate
research and development and administrative expenses.

The following table sets forth segment income and margins. Segment margins in
the table below may not recalculate exactly due to rounding and are calculated
based on unrounded numbers.

                                                           Three-Month Periods Ended                                                    Six-Month Periods Ended
                                              September 30, 2022                         October 1, 2021                  September 30, 2022                  October 1, 2021
                                                                                                    (In millions)
Segment income:
Flex Agility Solutions            $        170                         4.3  %       $   153             4.5  %       $      342             4.3  %       $   290             4.2  %
Flex Reliability Solutions                 175                         5.3  %           126             5.1  %              322             5.1  %           271             5.4  %
Nextracker                                  43                         9.1  %            25             7.4  %               73             8.4  %            50             7.4  %


FAS segment margin decreased approximately 20 basis points, to 4.3%, for the
three-month period ended September 30, 2022, from 4.5% for the three-month
period ended October 1, 2021. The margin decrease was driven by elevated costs
due to component shortages and logistics constraints combined with certain
inflation pass-through recoveries. The FAS segment margin increased
approximately 10 basis point, to 4.3% for the six-month period ended
September 30, 2022, from 4.2% for the six-month period ended October 1, 2021.
The increase in FAS segment margin during the six-month period is primarily due
to strong execution against new project ramps and product mix, partially offset
by elevated costs due to component shortages and logistics constraints and the
effect of certain inflation pass-through recoveries.

FRS segment margin increased approximately 20 basis points, to 5.3% for the
three-month period ended September 30, 2022, from 5.1% for the three-month
period ended October 1, 2021. The margin increase in FRS was primarily driven by
higher margin from the Anord Mardix acquisition in our Industrial business,
coupled with logistics constraints, partially offset by production disruptions
in our Automotive and Health Solutions businesses during the three-month period
ended September 30, 2022. FRS segment margin decreased approximately 30 basis
points, to 5.1% for the six-month period ended September 30, 2022, from 5.4% for
the six-month period ended October 1, 2021. The decrease in FRS segment margin
during the six-month period was primarily driven by component shortage related
production disruptions, as well as inflationary cost pressures impacting our
Health Solutions and Automotive businesses.

Nextracker segment margin increased approximately 170 basis points, to 9.1% for
the three-month period ended September 30, 2022, from 7.4% for the three-month
period ended October 1, 2021. The margin increase was driven by improved pricing
and better cost controls and better cost absorption with increased revenue.
Nextracker segment margin increased approximately 100 basis points, to 8.4% for
the six-month period ended September 30, 2022, from 7.4% for the six-month
period ended October 1, 2021. The increase in Nextracker segment margin during
the six-month period is due to the same factors noted in the discussion above
for the three-month period.

Selling, general and administrative expenses


Selling, general and administrative expenses ("SG&A") was approximately $0.2
billion, or 3.2% of net sales, during the three-month period ended September 30,
2022, increasing $32 million from approximately $0.2 billion and improving 20
basis

                                       33
--------------------------------------------------------------------------------

points from 3.4% of net sales, during the three-month period ended October 1,
2021. SG&A was $0.5 billion, or 3.2% of net sales, during the six-month period
ended September 30, 2022, increasing $72 million from $0.4 billion and improving
10 basis points from 3.3% of net sales, during the six-month period ended
October 1, 2021, which reflects our enhanced cost control efforts to support
higher revenue growth while keeping our SG&A expenses relatively flat.

Intangible amortization


Amortization of intangible assets increased to $21 million during the
three-month period ended September 30, 2022, from $15 million for the
three-month period ended October 1, 2021, and increased to $43 million during
the six-month period ended September 30, 2022, from $30 million for the
six-month period ended October 1, 2021, primarily due to amortization expense
related to new intangible assets from the Anord Mardix acquisition completed in
December 2021.

Interest and other, net

Interest and other, net was an expense of $53 million during the three-month
period ended September 30, 2022 compared to income of $134 million during the
three-month period ended October 1, 2021, primarily due to the absence in the
three-month period ended September 30, 2022 of the $149 million gain related to
a certain tax credit recorded upon approval of a "Credit Habilitation" request
by the relevant Brazilian tax authorities in the three-month period ended
October 1, 2021 and losses from equity in earnings recognized for certain of our
non-core equity method investments, coupled with higher interest expense
compared to the prior year period.

Interest and other, net was an expense of $93 million during the six-month
period ended September 30, 2022 compared to income of $111 million during the
six-month period ended October 1, 2021, due to the same drivers noted in the
discussion above.

Income taxes

Certain of our subsidiaries, at various times, have been granted tax relief in
their respective countries, resulting in lower income taxes than would otherwise
be the case under ordinary tax rates. Refer to note 15, "Income Taxes" of the
notes to the consolidated financial statements in our Annual Report on Form 10-K
for the fiscal year ended March 31, 2022 for further discussion.

The consolidated effective tax rate was 13% and 14% for the three and six-month
periods ended September 30, 2022, and 9% and 10% for the three and six-month
periods ended October 1, 2021, respectively. The effective rate varies from the
Singapore statutory rate of 17% as a result of recognition of earnings in
different jurisdictions (we generate most of our revenues and profits from
operations outside of Singapore), operating loss carryforwards, income tax
credits, release of previously established valuation allowances for deferred tax
assets, liabilities for uncertain tax positions, as well as the effect of
certain tax holidays and incentives granted to our subsidiaries primarily in
China, Malaysia, the Netherlands and Israel. The effective tax rate for the
three and six-month periods ended September 30, 2022 were higher than the
effective tax rates for the three-month and six-month periods ended October 1,
2021 due to the changing jurisdictional mix of income and there were significant
Brazilian indirect tax credits recorded for the three and six-month periods
ended October 1, 2021 with minimal tax impact.

On August 16, 2022, the Inflation Reduction Act of 2022 ("IRA") was enacted into
law, which includes a new corporate minimum tax, a stock repurchase excise tax,
numerous green energy credits, other tax provisions, and significantly increased
enforcement resources. We are evaluating the effect the IRA will have on our
consolidated financial statements.


LIQUIDITY AND CAPITAL RESOURCES


In response to the recent challenging environment following the COVID-19
pandemic, we continuously evaluate our ability to meet our obligations over the
next 12 months and have proactively reset our capital structure during these
times to improve maturities and liquidity. As a result, we expect that our
current financial condition, including our liquidity sources are adequate to
fund current and future commitments. As of September 30, 2022, we had cash and
cash equivalents of approximately $2.5 billion and bank and other borrowings of
approximately $4.0 billion. As of September 30, 2022, we had a $2.5 billion
revolving credit facility that is due to mature in July 2027 (the "2027 Credit
Facility"), under which we had no borrowings outstanding. We also entered into a
$450 million delayed draw term loan credit agreement, under which we had no
borrowings outstanding as of September 30, 2022. Borrowings under the delayed
draw term loan may be used for working capital, capital expenditures,
refinancing of current debt, and other general corporate purposes. Refer to note
6 to the condensed consolidated financial statement for details on the 2027
Credit Facility and the delayed draw term loan. As of September 30, 2022, we
were in compliance with the covenants under all of our credit facilities and
indentures.

                                       34
--------------------------------------------------------------------------------

Cash provided by operating activities was $0.1 billion during the six-month period ended September 30, 2022, primarily driven by $0.4 billion of net income for the period plus $0.3 billion of non-cash charges such as depreciation, amortization, and stock-based compensation offset by changes in net working capital as discussed below.


We believe net working capital ("NWC") and net working capital as a percentage
of annualized net sales are key metrics that measure our liquidity. Net working
capital is calculated as current quarter accounts receivable, net of allowance
for doubtful accounts, plus inventories and contract assets, less accounts
payable. Net working capital increased $1.2 billion to $5.4 billion as of
September 30, 2022, from $4.2 billion as of March 31, 2022. This increase is
primarily driven by a $1.1 billion increase in inventories due to strong demand,
coupled with continued component shortages and logistics constraints, clear-to
build constraints and logistics challenges driving up buffer stock and inventory
pricing, and a $0.6 billion increase in net receivables, offset by a $0.6
billion increase in accounts payable due to increased inventory purchases. Our
current quarter net working capital as a percentage of annualized net sales for
the quarter ended September 30, 2022, increased to 17.4% from 15.4% of
annualized net sales for the quarter ended March 31, 2022 due to component
shortages, clear-to-build and logistics constraints. We continue to experience
component shortages in the supply chain, and although we are actively managing
these impacts, we expect continued working capital pressure in the near future.
We expect it will take additional time to adequately drive down our inventory
levels to align with the current demand environment. We are proactively working
with our partners to rebalance safety and buffer stock requirements and we have
an established enterprise-wide cross-functional initiative resetting our load
planning. Component shortages and significantly increased logistic costs are
also expected to persist at least in the near future. We are working diligently
with our partners to secure needed parts and fulfill demand. In addition, to the
extent possible, we have collaborated with our customers for working capital
advances to offset the required investment in inventory. Advances from customers
as of September 30, 2022 increased $0.6 billion to $2.0 billion from $1.4
billion as of March 31, 2022.

Cash used in investing activities was $0.3 billion during the six-month period
ended September 30, 2022. This was primarily driven by $0.3 billion of net
capital expenditures for property and equipment to continue expanding
capabilities and capacity in support of our expanding Automotive, Industrial,
Health Solutions, and Lifestyle businesses.

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, repurchase
company shares and for certain other activities. Our adjusted free cash flow is
defined as cash from operations, less net purchases of property and equipment
allowing us to present adjusted cash flows on a consistent basis for investor
transparency. Our adjusted free cash flow for the six-month period ended
September 30, 2022 and October 1, 2021 was an outflow of $0.1 billion and an
inflow of $0.3 billion, respectively. Adjusted free cash flow is not a measure
of liquidity under U.S. GAAP, and may not be defined and calculated by other
companies in the same manner. Adjusted free cash flow should not be considered
in isolation or as an alternative to net cash provided by operating
activities. Adjusted free cash flows reconcile to the most directly comparable
GAAP financial measure of cash flows from operations as follows:

                                                                        Six-Month Periods Ended
                                                              September 30, 2022        October 1, 2021
                                                                             (In millions)
Net cash provided by operating activities                     $           141          $           514

Purchases of property and equipment                                      (296)                    (210)
Proceeds from the disposition of property and equipment                    18                        5
Adjusted free cash flow                                       $          (137)         $           309


Cash used by financing activities was $0.3 billion during the six-month period
ended September 30, 2022, which was primarily driven by $0.3 billion of cash
paid for the repurchase of our ordinary shares.

Our cash balances are generated and held in numerous locations throughout the
world. Liquidity is affected by many factors, some of which are based on normal
ongoing operations of the business and some of which arise from fluctuations
related to global economics and markets. Local government regulations may
restrict our ability to move cash balances to meet cash needs under certain
circumstances; however, any current restrictions are not material. We do not
currently expect such regulations and restrictions to impact our ability to pay
vendors and conduct operations throughout the global organization. We believe
that our existing cash balances, together with anticipated cash flows from
operations and borrowings available under our credit facilities, will be
sufficient to fund our operations through at least the next twelve months. As of
September 30, 2022 and March 31, 2022, approximately 30% and 34%, respectively,
of our cash and cash equivalents were held by foreign subsidiaries outside of
Singapore. Although substantially all of the amounts held outside of Singapore
could be repatriated under current laws, a significant amount could be subject
to income tax withholdings. We provide for tax liabilities on these amounts for
financial statement purposes, except for certain of our foreign earnings that
are considered indefinitely reinvested outside of

                                       35

--------------------------------------------------------------------------------

Singapore (approximately $1.6 billion as of March 31, 2022). Repatriation could
result in an additional income tax payment; however, for the majority of our
foreign entities, our intent is to permanently reinvest these funds outside of
Singapore and our current plans do not demonstrate a need to repatriate them to
fund our operations in jurisdictions outside of where they are held. Where local
restrictions prevent an efficient intercompany transfer of funds, our intent is
that cash balances would remain outside of Singapore and we would meet our
liquidity needs through ongoing cash flows, external borrowings, or both.

Future liquidity needs will depend on fluctuations in levels of inventory,
accounts receivable and accounts payable, the timing of capital expenditures for
new equipment, the extent to which we utilize operating leases for new
facilities and equipment, and the levels of shipments and changes in the volumes
of customer orders.

We maintain global paying services agreements with several financial
institutions. Under these agreements, the financial institutions act as our
paying agents with respect to accounts payable due to our suppliers who elect to
participate in the program. The agreements allow our suppliers to sell their
receivables to one of the participating financial institutions at the discretion
of both parties on terms that are negotiated between the supplier and the
respective financial institution. Our obligations to our suppliers, including
the amounts due and scheduled payment dates, are not impacted by our suppliers'
decisions to sell their receivables under this program. The cumulative payments
due to suppliers participating in the programs amounted to approximately
$0.4 billion and $0.8 billion for the three and six-month periods ended
September 30, 2022, respectively, and $0.3 billion and $0.6 billion for the
three and six-month periods ended October 1, 2021, respectively. Pursuant to
their agreement with one of the financial institutions, certain suppliers may
elect to be paid early at their discretion. We are not always notified when our
suppliers sell receivables under these programs. The available capacity under
these programs can vary based on the number of investors and/or financial
institutions participating in these programs at any point in time.

In addition, we maintain various uncommitted short-term financing facilities
including but not limited to a commercial paper program, and a revolving sale
and repurchase of subordinated notes established under the securitization
facility, under which there were no borrowings outstanding as of September 30,
2022.

Historically, we have funded operations from cash and cash equivalents generated
from operations, proceeds from public offerings of equity and debt securities,
bank debt and lease financings. We also have the ability to sell a designated
pool of trade receivables under asset-backed securitization ("ABS") programs and
sell certain trade receivables, which are in addition to the trade receivables
sold in connection with these securitization agreements. We may enter into debt
and equity financings, sales of accounts receivable and lease transactions to
fund acquisitions and anticipated growth as needed.

The sale or issuance of equity or convertible debt securities could result in
dilution to current shareholders. Further, we may issue debt securities that
have rights and privileges senior to those of holders of ordinary shares, and
the terms of this debt could impose restrictions on operations and could
increase debt service obligations. This increased indebtedness could limit our
flexibility as a result of debt service requirements and restrictive covenants,
potentially affect our credit ratings, and may limit our ability to access
additional capital or execute our business strategy. Any downgrades in credit
ratings could adversely affect our ability to borrow as a result of more
restrictive borrowing terms. We continue to assess our capital structure and
evaluate the merits of redeploying available cash to reduce existing debt or
repurchase ordinary shares.

Under our current share repurchase program, our Board of Directors authorized
repurchases of our outstanding ordinary shares for up to $1 billion in
accordance with the share purchase mandate approved by our shareholders at the
date of the most recent Annual General Meeting which was held on August 25,
2022. During the six-month period ended September 30, 2022, we paid $253 million
to repurchase shares under the current and prior repurchase plans at an average
price of $16.15 per share. As of September 30, 2022, shares in the aggregate
amount of $977 million were available to be repurchased under the current plan.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

Information regarding our long-term debt payments, operating lease payments, capital lease payments and other commitments is provided in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on our Form 10-K for the fiscal year ended March 31, 2022.


In July 2022, we entered into a new $2.5 billion credit facility which matures
in July 2027, replacing our previous $2.0 billion credit facility, under which
we had no borrowings outstanding as of September 30, 2022.

In September 2022, we entered into a $450 million delayed draw term loan credit
agreement, under which we had no borrowings outstanding September 30, 2022.
Borrowings under the delayed draw term loan may be used for working capital,
capital expenditures, refinancing of current debt, and other general corporate
purposes.

                                       36
--------------------------------------------------------------------------------

Other than the changes discussed above, there were no material changes in our contractual obligations and commitments as of September 30, 2022.

© Edgar Online, source Glimpses

All news about FLEX LTD.
01/27FLEX LTD. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF O..
AQ
01/27Citigroup Adjusts Flex's Price Target to $28 From $23, Keeps Buy Rating
MT
01/26Citigroup Adjusts Price Target on Flex to $28 From $23, Maintains Buy Rating
MT
01/26JPMorgan Adjusts Flex Price Target to $30 From $23, Maintains Overweight Rating
MT
01/26Goldman Sachs Adjusts Price Target on Flex to $25 From $24, Maintains Buy Rating
MT
01/25Flex Q3 Non-GAAP EPS, Sales Climb; Revises Fiscal 2023 Guidance
MT
01/25Flex : Fiscal Q3 Earnings Snapshot
AQ
01/25Transcript : Flex Ltd., Q3 2023 Earnings Call, Jan 25, 2023
CI
01/25Flex reports third quarter fiscal 2023 results
PR
01/25Flex Ltd. Reports Earnings Results for the Third Quarter and Nine Months Ended December..
CI
More news
Analyst Recommendations on FLEX LTD.
More recommendations