Flex Reports Second Quarter Fiscal 2018 Results
SAN JOSE, Calif., Oct. 26, 2017 /PRNewswire/ -- Flex (NASDAQ: FLEX), the Sketch-to-Scale(TM) solutions provider that designs and builds Intelligent Products for a Connected World(TM), today announced results for its second quarter ended September 29, 2017.
"Our results this quarter strongly indicate Flex's top-line growth, structural portfolio evolution, and capital return all remain on track," said Mike McNamara, CEO at Flex. "We had impressive revenue performance across the board, growing for the third consecutive quarter on a year-over-year basis, with revenue for all four business groups above the midpoint of their respective guidance ranges."
(US$ in millions, except EPS) Three-Month Periods Ended
September 29, 2017 September 30, 2016
------------------ ------------------
Net sales $6,270 $6,009
GAAP income before income taxes 218 15
Adjusted operating income 188 197
GAAP net income (loss) 205 (3)
Adjusted net income 142 152
GAAP EPS 0.38 0.00
Adjusted EPS 0.27 0.28
An explanation and reconciliation of non-GAAP financial measures to GAAP financial measures is presented in Schedule II attached to this press release.
Second Quarter Fiscal 2018 Results of Operations
Net sales for the second quarter ended September 29, 2017 were $6.3 billion, growing 4% year-over-year and at the high end of the guidance range of $5.9 to $6.3 billion. GAAP income before income taxes was $218 million for the quarter and adjusted operating income was $188 million, above the mid-point of the guidance range of $170 million to $200 million. GAAP net income was approximately $205 million and adjusted net income for the quarter was $142 million. GAAP EPS was $0.38 for the quarter and non-GAAP EPS was $0.27 for the quarter.
Cash Flow and Balance Sheet
For the three-month period ended September 29, 2017, Flex generated cash from operations of approximately $142 million and free cash flow of $34 million. For the six-month period ended September 29, 2017, Flex generated cash from operations of $281 million and free cash flow of $53 million. The Company remains committed to return over 50% of annual free cash flow to its shareholders as it repurchased ordinary shares for approximately $71 million and $145 million during the three and six-month periods ended September 29, 2017, respectively. Flex ended the quarter with over $1.3 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.
Third Quarter Fiscal Year 2018 Guidance
For the third quarter ending December 31, 2017, revenue is expected to be in the range of $6.3 to $6.7 billion, GAAP EPS is expected to be in the range of $0.20 to $0.24 and includes stock-based compensation expense and intangible amortization. Adjusted EPS is expected to be in the range of $0.28 to $0.32 per diluted share.
Webcast and Conference Call
Flex management team will host a conference call today at 2:00 PM (PT) / 5:00 PM (ET), to review second quarter fiscal 2018 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 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)
Contact
Kevin Kessel, CFA
Vice President, Investor Relations & Corporate Communications
(408) 576-7985
kevin.kessel@flex.com
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: 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 the expected revenue and margins from recently launched programs may not be realized; our dependence on a small number of customers; 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
September 29, 2017 September 30, 2016
------------------ ------------------
GAAP:
Net sales $6,270,420 $6,008,525
Cost of sales 5,877,095 5,694,834
Gross profit 393,325 313,691
Selling, general and administrative expenses 274,149 243,943
Intangible amortization 16,376 21,986
Interest and other, net 27,554 24,632
Other charges (income), net (143,167) 8,388
Income before income taxes 218,413 14,742
Provision for income taxes 13,327 17,250
Net income (loss) $205,086 $(2,508)
Earnings (losses) per share:
GAAP $0.38 $0.00
Non-GAAP $0.27 $0.28
Basic shares used in computing per share amounts (2) 531,313 544,055
Diluted shares used in computing per share amounts (2) 536,019 544,055
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 thousands, except per share amounts)
Six-Month Periods Ended
-----------------------
September 29, 2017 September 30, 2016
------------------ ------------------
GAAP:
Net sales $12,278,692 $11,885,338
Cost of sales 11,478,435 11,165,652
Gross profit 800,257 719,686
Selling, general and administrative expenses 524,960 483,489
Intangible amortization 36,277 43,584
Interest and other, net 54,430 49,031
Other charges (income), net (179,332) 11,917
Income before income taxes 363,922 131,665
Provision for income taxes 34,126 28,444
Net income $329,796 $103,221
Earnings per share:
GAAP $0.61 $0.19
Non-GAAP $0.51 $0.55
Basic shares used in computing per share amounts 530,790 544,353
Diluted shares used in computing per share amounts 536,311 549,934
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
-------------------------
September 29, 2017 September 30, 2016
------------------ ------------------
GAAP gross profit $393,325 $313,691
Stock-based compensation expense 4,985 2,636
Distressed customer asset impairment (3) - 92,915
Contingencies and other (4) 18,933 6,824
Non-GAAP gross profit $417,243 $416,066
GAAP income before income taxes $218,413 $14,742
Intangible amortization 16,376 21,986
Stock-based compensation expense 20,464 22,733
Distressed customer asset impairment (3) 4,753 92,915
Contingencies and other (4) 43,933 11,539
Other charges (income), net (5) (143,167) 8,388
Interest and other, net 27,554 24,632
Non-GAAP operating income $188,326 $196,935
GAAP provision for income taxes $13,327 $17,250
Intangible amortization benefit 2,250 1,825
Tax benefit on contingencies and other 2,738 196
Non-GAAP provision for income taxes $18,315 $19,271
GAAP net income (loss) $205,086 $(2,508)
Intangible amortization 16,376 21,986
Stock-based compensation expense 20,464 22,733
Distressed customer asset impairment (3) 4,753 92,915
Contingencies and other (4) 43,933 11,539
Other charges (income), net (5) (143,167) 7,388
Adjustments for taxes (4,988) (2,021)
Non-GAAP net income $142,457 $152,032
Diluted earnings (losses) per share:
GAAP (2) $0.38 $0.00
Non-GAAP (2) $0.27 $0.28
FLEX
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (1)
(In thousands, except per share amounts)
Six-Month Periods Ended
-----------------------
September 29, 2017 September 30, 2016
------------------ ------------------
GAAP gross profit $800,257 $719,686
Stock-based compensation expense 8,304 5,069
Distressed customer asset impairment (3) - 92,915
Contingencies and other (4) 18,933 6,824
Non-GAAP gross profit $827,494 $824,494
GAAP income before income taxes $363,922 $131,665
Intangible amortization 36,277 43,584
Stock-based compensation expense 42,260 46,530
Distressed customer asset impairment (3) 4,753 92,915
Contingencies and other (4) 43,933 11,539
Other charges (income), net (5) (179,332) 11,917
Interest and other, net 54,430 49,031
Non-GAAP operating income $366,243 $387,181
GAAP provision for income taxes $34,126 $28,444
Intangible amortization benefit 4,016 3,675
Tax benefit on contingencies and other 2,738 196
Tax benefit on intangible assets - 638
Non-GAAP provision for income taxes $40,880 $32,953
GAAP net income $329,796 $103,221
Intangible amortization 36,277 43,584
Stock-based compensation expense 42,260 46,530
Distressed customer asset impairment (3) 4,753 92,915
Contingencies and other (4) 43,933 11,539
Other charges (income), net (5) (179,332) 7,388
Adjustments for taxes (6,754) (4,509)
Non-GAAP net income $270,933 $300,668
Diluted earnings per share:
GAAP $0.61 $0.19
Non-GAAP $0.51 $0.55
SCHEDULE III
FLEX
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
As of September 29, 2017 As of March 31, 2017
------------------------ --------------------
ASSETS
Current Assets:
Cash and cash equivalents $1,369,502 $1,830,675
Accounts receivable, net of allowance for doubtful
accounts 2,632,934 2,192,704
Inventories 3,773,654 3,396,462
Other current assets 1,091,957 967,935
Total current assets 8,868,047 8,387,776
Property and equipment, net 2,415,574 2,317,026
Goodwill 1,086,978 984,867
Other intangible assets, net 420,459 362,181
Other assets 770,848 541,513
Total assets $13,561,906 $12,593,363
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank borrowings and current portion of long-term debt $46,977 $61,534
Accounts payable 5,231,130 4,484,908
Accrued payroll 400,074 344,245
Other current liabilities 1,552,254 1,613,940
Total current liabilities 7,230,435 6,504,627
Long-term debt, net of current portion 2,909,144 2,890,609
Other liabilities 550,042 519,851
Total shareholders' equity 2,872,285 2,678,276
Total liabilities and shareholders' equity $13,561,906 $12,593,363
=========== ===========
SCHEDULE IV
FLEX
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six-Month Periods Ended
-----------------------
September 29, 2017 September 30, 2016
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $329,796 $103,221
Depreciation, amortization and other impairment charges 264,718 337,387
Gain from deconsolidation of a subsidiary entity (151,574) -
Changes in working capital and other (162,135) 102,944
Net cash provided by operating activities 280,805 543,552
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (264,030) (305,936)
Proceeds from the disposition of property and equipment 36,123 26,561
Acquisition of businesses, net of cash acquired (273,167) (189,895)
Proceeds from divestiture of business, net of cash held in
divested business (2,949) 36,073
Other investing activities, net (114,063) 20,357
Net cash used in investing activities (618,086) (412,840)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowings and long-term debt - 75,035
Repayments of bank borrowings and long-term debt (26,483) (110,592)
Payments for repurchases of ordinary shares (145,005) (184,698)
Net proceeds from issuance of ordinary shares 1,211 11,344
Other financing activities, net 60,591 (6,836)
Net cash used in financing activities (109,686) (215,747)
-------- --------
Effect of exchange rates on cash and cash equivalents (14,206) 14,521
------- ------
Net decrease in cash and cash equivalents (461,173) (70,514)
Cash and cash equivalents, beginning of period 1,830,675 1,607,570
Cash and cash equivalents, end of period $1,369,502 $1,537,056
=============
SCHEDULE V
FLEX AND SUBSIDIARIES
NOTES TO SCHEDULES I, II, III, & IV
(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, 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.
Distressed customer assets impairment
consists primarily of non-cash inventory
impairments of certain inventory on hand
to net realizable value as well as
additional provisions for doubtful
accounts receivable for customers that
are experiencing significant financial
difficulties. 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. See additional
description related to the specific
period charge as applicable below.
Contingencies and other consists primarily
of charges in connection with certain
legal matters of which loss contingencies
are believed to be probable and
estimable. It also includes certain
targeted site restructuring costs and
damages incurred from natural disasters
which are not directly related to ongoing
or core business results, and do not
reflect expected future operating
expense. 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.
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 (income), 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
September 29, 2017,
Free Cash Flow was
$34 million
consisting of GAAP
net cash flows from
operating activities
of approximately
$142 million less
purchases of
property and
equipment net of
proceeds from
dispositions of $108
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) Basic shares were
used in calculating
diluted GAAP EPS for
the quarter ended
September 30, 2016
due to the net loss
recognized during
the period. Diluted
shares for Q2 fiscal
2017 were 548,358
thousand which were
used in calculating
diluted Non-GAAP
EPS for the quarter.
(3) Distressed customer
assets impairment
for the three and
six-month periods
ended September 29,
2017 relates to
additional provision
for doubtful
accounts receivable
for a customer
experiencing
significant
financial
difficulties.
During the fourth
quarter of fiscal
year 2016, the
Company accepted
return of previously
shipped inventory
from a former
customer, SunEdison,
Inc. ("SunEdison"),
of approximately $90
million. On April
21, 2016, SunEdison
filed a petition for
reorganization under
bankruptcy law, and
as a result, the
Company recognized a
bad debt reserve of
$61 million as of
March 31, 2016,
associated with its
outstanding
SunEdison
receivables.
During the second
quarter of fiscal
year 2017, prices
for solar panel
modules declined
significantly. The
Company determined
that certain solar
panel inventory on
hand as of September
30, 2016 was not
fully recoverable
and recorded a
charge of $60
million to reduce
the carrying costs
to market in the
three and six-month
periods ended
September 30, 2016.
The Company also
recognized a $16
million impairment
charge for solar
module equipment and
$16.9 million
primarily related to
negative margin
sales and other
associated solar
panel direct costs
incurred during the
same periods. The
total charge of
$92.9 million is
included in cost of
sales for the three
and six-month
periods ended
September 30, 2016.
(4) Contingencies and
other during the
three and six-month
periods ended
September 29, 2017
consist of charges
in connection with
certain legal
matters of which
loss contingencies
are believed to be
probable and
estimable.
Additionally, during
the second quarter
ended September 29,
2017 the Company
incurred various
other charges
predominantly
related to damages
incurred from a
typhoon that
impacted one of its
China facilities.
During fiscal year
2017, the Company
initiated a plan to
rationalize the
current footprint at
existing sites
including corporate
SG&A functions and
to continue to shift
the talent base in
support of its
Sketch-to-
Scale(TM)
initiatives. As part
of this plan,
approximately $11.5
million was
recognized in the
quarter ended
September 30, 2016.
The plan was
finalized and
completed during
fiscal year 2017.
(5) During the quarter
ended September 29,
2017, the Company
and other minority
shareholders of
Elementum amended
certain agreements
and as a result, the
Company concluded it
no longer had
majority control and
accordingly,
deconsolidated the
entity. As part of
the deconsolidation,
we recognized a gain
of $151.6 million,
which is included in
other charges
(income), net for
the three and six-
month periods ended
September 29, 2017.
In addition, the
company sold its
Wink business during
first quarter of
fiscal year 2018 to
an unrelated third-
party venture backed
company in exchange
for contingent
consideration fair
valued at $59
million and
recognized a gain on
sale of $38.7
million, which is
recorded in other
charges (income),
net for the six-
months ended
September 29, 2017.
The contingent
consideration is
expected to be
settled in the
fourth quarter of
fiscal year 2018.
The three and six-
month periods ended
September 30, 2016
includes a $7.4
million loss
attributable to a
non-strategic
facility sold during
the second quarter
of fiscal year 2017.
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SOURCE Flex
