Flex Reports First Quarter Fiscal 2018 Results
SAN JOSE, Calif., July 27, 2017 /PRNewswire/ -- Flex (NASDAQ: FLEX), the Sketch-to-Scale(TM) solutions provider that designs and builds intelligent products for a connected world, today announced results for its first quarter ended June 30, 2017.
"Our Sketch-to-Scale strategy remains firmly on track as reflected in our first quarter results which were within guidance ranges," said Mike McNamara, CEO at Flex. "While fiscal 2018 is an investment year, we continue to evolve our portfolio and enter and create new markets that will generate meaningful value and expand the Company's total available market."
(US$ in millions, except EPS) Three-Month Periods Ended
June 30, 2017 July 01, 2016
------------- -------------
Net sales $6,008 $5,877
GAAP income before income taxes $146 $117
Adjusted operating income $178 $190
GAAP net income $125 $106
Adjusted net income $128 $149
GAAP EPS $0.23 $0.19
Adjusted EPS $0.24 $0.27
An explanation and reconciliation of non-GAAP financial measures to GAAP financial measures is presented in Schedule II attached to this press release.
First Quarter Fiscal 2018 Results of Operations
Net sales for the first quarter ended June 30, 2017 were just over $6.0 billion, growing 2% year-over-year and within the guidance range of $5.7 to $6.1 billion. GAAP income before income taxes was $146 million for the quarter and adjusted operating income was $178 million, within the range of guidance of $170 million to $200 million. GAAP net income was approximately $125 million and adjusted net income for the quarter was $128 million. GAAP EPS was $0.23 for the quarter and non-GAAP EPS was $0.24 for the quarter.
Cash Flow and Balance Sheet
For the three-month period ended June 30, 2017, Flex generated cash from operations of approximately $138 million and free cash flow of $19 million. Strong cash flow generation funded share repurchases of approximately $74 million. The Company remains committed to return over 50% of annual free cash flow to its shareholders and in the first quarter it repurchased $74 million of its shares or roughly 1% of its outstanding shares. Flex ended the quarter with nearly $1.6 billion of cash on hand and total debt of $3.0 billion. The balance sheet remains strong and is well-positioned to support the business over the long term.
Second Quarter Fiscal Year 2018 Guidance
For the second quarter ending September 29, 2017, revenue is expected to be in the range of $5.9 to $6.3 billion, GAAP EPS is expected to be in the range of $0.16 to $0.20 and includes stock-based compensation expense and intangible amortization. The Company expects to sustain elevated levels of costs and investment, while maintaining its commitment to return value to shareholders. Adjusted EPS is expected to be in the range of $0.24 to $0.28 per diluted share and reflects the increased level of investment.
Conference Calls and Webcasts
A conference call hosted by the Flex management team will be held today at 2:00 PM (PT) / 5:00 PM (ET) to discuss the Company's financial results for the first quarter ended June 30, 2017. The conference call will be broadcast via the Internet and may be accessed by logging on to the Company's website at www.flex.com. Additional information in the form of a slide presentation may also be found on the Company's site. A replay of the broadcast will remain available on the Company's website afterwards.
About Flex
Flex Ltd. (Reg. No. 199002645H) is the Sketch-to-Scale(TM) solutions provider that designs and builds intelligent products for a connected world(TM). With approximately 200,000 professionals across 30 countries, Flex provides innovative design, engineering, manufacturing, real-time supply chain insight and logistics services to companies of all sizes in various industries and end-markets. For more information, visit flex.com or follow us on Twitter @Flexintl. Flex - Live Smarter(TM)
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: that future revenues and earnings may not be achieved as expected; the challenges of effectively managing our operations, including our ability to control costs and manage changes in our operations; compliance with legal and regulatory requirements; that we may encounter difficulties with acquisitions and divestitures; that the expected revenue and margins from recently launched programs may not be realized; our dependence on a small number of customers and on customers with short product life cycles; geopolitical risk, including the termination and renegotiation of international trade agreements; that recently proposed changes or future changes in tax laws in certain jurisdictions where we operate could materially impact our tax expense; and the effects that the current macroeconomic environment could have on our business and demand for our products as well as 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. 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 reports on Forms 10-K and 10-Q that we file with the U.S. Securities and Exchange Commission. 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 thousands, except per share amounts)
Three-Month Periods Ended
-------------------------
June 30, 2017 July 01, 2016
------------- -------------
GAAP:
Net sales $6,008,272 $5,876,813
Cost of sales 5,601,340 5,470,818
Gross profit 406,932 405,995
Selling, general and administrative expenses 250,811 239,546
Intangible amortization 19,901 21,598
Interest and other, net 26,876 24,399
Other charges (income), net (2) (36,165) 3,529
Income before income taxes 145,509 116,923
Provision for income taxes 20,799 11,194
Net income $124,710 $105,729
Earnings per share:
GAAP $0.23 $0.19
Non-GAAP $0.24 $0.27
Diluted shares used in computing per share amounts 538,633 551,029
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 thousands, except per share amounts)
Three-Month Periods Ended
-------------------------
June 30, 2017 July 01, 2016
------------- -------------
GAAP gross profit $406,932 $405,995
Stock-based compensation expense 3,319 2,433
Non-GAAP gross profit $410,251 $408,428
GAAP income before income taxes $145,509 $116,923
Stock-based compensation expense 21,796 23,797
Intangible amortization 19,901 21,598
Interest and other, net 26,876 24,399
Other charges (income), net (2) (36,165) 3,529
Non-GAAP operating income $177,917 $190,246
GAAP provision for income taxes $20,799 $11,194
Intangible amortization benefit 1,766 1,850
Tax benefit on intangible assets - 638
Non-GAAP provision for income taxes $22,565 $13,682
GAAP net income $124,710 $105,729
Stock-based compensation expense 21,796 23,797
Intangible amortization 19,901 21,598
Adjustments for taxes (1,766) (2,488)
Other charges (income), net (2) (36,165) -
Non-GAAP net income $128,476 $148,636
Diluted earnings per share:
GAAP $0.23 $0.19
Non-GAAP $0.24 $0.27
SCHEDULE III
FLEX
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
As of June 30, 2017 As of March 31, 2017
------------------- --------------------
ASSETS
Current Assets:
Cash and cash equivalents $1,582,197 $1,830,675
Accounts receivable, net of allowance for doubtful
accounts 2,325,845 2,192,704
Inventories 3,601,175 3,396,462
Other current assets 1,049,092 967,935
Total current assets 8,558,309 8,387,776
Property and equipment, net 2,346,440 2,317,026
Goodwill 1,039,069 984,867
Other intangible assets, net 453,957 362,181
Other assets 619,213 541,513
Total assets $13,016,988 $12,593,363
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank borrowings and current portion of long-term
debt $45,661 $61,534
Accounts payable 4,781,036 4,484,908
Accrued payroll 359,353 344,245
Other current liabilities 1,572,198 1,613,940
Total current liabilities 6,758,248 6,504,627
Long-term debt, net of current portion 2,918,871 2,890,609
Other liabilities 530,091 519,851
Total shareholders' equity 2,809,778 2,678,276
Total liabilities and shareholders' equity $13,016,988 $12,593,363
=========== ===========
SCHEDULE IV
FLEX
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three-Months Periods Ended
--------------------------
June 30, 2017 July 1, 2016
------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $124,710 $105,729
Depreciation, amortization and other impairment charges 131,396 129,500
Changes in working capital and other (117,590) 28,703
Net cash provided by operating activities 138,516 263,932
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (124,851) (159,103)
Proceeds from the disposition of property and equipment 5,476 15,722
Acquisition of businesses, net of cash acquired (213,718) (9,492)
Proceeds from divestiture of business, net of cash held in divested business (616) 14,828
Other investing activities, net (18,549) 26,261
Net cash used in investing activities (352,258) (111,784)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowings and long-term debt - 75,018
Repayments of bank borrowings and long-term debt (7,554) (92,222)
Payments for repurchases of ordinary shares (73,864) (94,715)
Net proceeds from issuance of ordinary shares 696 3,966
Other financing activities, net 57,628 12,901
Net cash used in financing activities (23,094) (95,052)
Effect of exchange rates on cash and cash equivalents (11,642) 14,669
------- ------
Net (decrease) increase in cash and cash equivalents (248,478) 71,765
Cash and cash equivalents, beginning of period 1,830,675 1,607,570
Cash and cash equivalents, end of period $1,582,197 $1,679,335
===
SCHEDULE V
FLEX AND SUBSIDIARIES
NOTES TO SCHEDULES I, II, III, & IV
(1) To supplement Flex's unaudited selected financial
data presented on a basis consistent with Generally
Accepted Accounting Principles ("GAAP"), the
Company discloses certain non-GAAP financial
measures that exclude certain charges, 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
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.
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 when applicable.
Other charges, net consists of various other types of items that
are not directly related to ongoing or core business results,
such as the gain or loss from certain divestitures and
impairment charges associated with 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 provide investors with a
basis to compare Company performance against the performance of
other companies without this variability.
For the three-month period ended June 30, 2017,
Free Cash Flow was $19 million consisting of GAAP
net cash flows from operating activities of
approximately $138 million less purchases of
property and equipment net of proceeds from
dispositions of $119 million. We believe 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 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 flows provided by operating
activities."
(2) During the three-month period ended June 30, 2017,
the company sold its Wink business to an unrelated
third-party venture backed company in exchange for
contingent consideration fair valued at $59.0
million and recognized a gain on sale of $38.7
million, which is recorded in Other charges
(income), net.
Kevin Kessel
Renee Brotherton
Corporate Communications Investor Relations
(408) 576-7189 (408) 576-7985
renee.brotherton@flex.com kevin.kessel@flex.com
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SOURCE Flex
