Flex Reports Third Quarter Fiscal 2018 Results
SAN JOSE, Calif., Jan. 25, 2018 /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 third quarter ended December 31, 2017.
"Our third quarter displayed continued revenue growth acceleration and the advancement of our portfolio evolution," said Mike McNamara, CEO at Flex. "This marked our fourth straight quarter of accelerating year-over-year revenue growth, with all four of our business groups beating the mid-point of their revenue guidance ranges. In addition, both our HRS and IEI businesses set new records for quarterly revenue and adjusted operating profits."
(US$ in millions, except EPS) Three-Month Periods Ended
December 31, 2017 December 31, 2016
----------------- -----------------
Net sales $6,752 $6,115
GAAP income before income taxes 141 140
Adjusted operating income 220 223
GAAP net income 118 129
Adjusted net income 164 183
GAAP EPS 0.22 0.24
Adjusted EPS 0.31 0.34
An explanation and reconciliation of non-GAAP financial measures to GAAP financial measures is presented in Schedule II attached to this press release.
Third Quarter Fiscal 2018 Results of Operations
Net sales for the third quarter ended December 31, 2017 were $6.75 billion, growing 10% year-over-year and above the high end of the guidance range of $6.3 to $6.7 billion. GAAP income before income taxes was $141 million for the quarter and adjusted operating income was $220 million, at the mid-point of the guidance range of $205 million to $235 million. GAAP net income was approximately $118 million and adjusted net income for the quarter was $164 million. GAAP EPS was $0.22 for the quarter and non-GAAP EPS was $0.31 for the quarter.
Cash Flow and Balance Sheet
Flex generated cash from operations of $150 million and $431 million for the three and nine-month periods ended December 31, 2017, respectively. The Company remains committed to return over 50% of annual free cash flow to its shareholders as it repurchased ordinary shares for approximately $35 million and $180 million during the three and nine-month periods ended December 31, 2017, respectively.
Flex ended the quarter with approximately $1.3 billion of cash on hand and total debt of approximately $2.9 billion. The balance sheet remains strong and is well-positioned to support the business over the long-term.
Fourth Quarter Fiscal Year 2018 Guidance
The Company plans to initiate targeted restructuring activities during its fourth quarter of fiscal 2018. The objective of the activities is to make Flex a faster, more responsive company, and one that will continuously adapt to the incredible marketplace opportunities ahead. While a detailed action plan has not been finalized, the Company expects to incur a minimum charge of $50 million in the fourth quarter and will substantially complete all the associated activities by the end of this fiscal year.
For the fourth quarter ending March 31, 2018, revenue is expected to be in the range of $6.1 to $6.5 billion. Adjusted EPS is expected to be in the range of $0.28 to $0.32 per diluted share. GAAP EPS is expected to be in the range of $0.10 to $0.15 and includes stock-based compensation expense, intangible amortization, and restructuring charges.
Webcast and Conference Call
Flex management team will host a conference call today at 2:00 PM (PT) / 5:00 PM (ET), to review third 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)
Contacts
Investors & Analysts
Kevin Kessel
(408) 576-7985
kevin.kessel@flex.com
Media & Press
Paul Brunato
(408) 576-7534
paul.brunato@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; the possibility that benefits of the Company's restructuring actions may not materialize as expected; that the expected revenue and margins from recently launched programs may not be realized; our dependence on a small number of customers; 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
December 31, 2017 December 31, 2016
----------------- -----------------
GAAP:
Net sales $6,751,552 $6,114,999
Cost of sales 6,305,224 5,698,544
---------
Gross profit 446,328 416,455
Selling, general and administrative expenses 247,365 231,551
Intangible amortization 19,588 18,734
Interest and other, net 31,350 22,838
Other charges, net 6,865 3,090
-----
Income before income taxes 141,160 140,242
Provision for income taxes 22,827 10,773
------
Net income $118,333 $129,469
========
Earnings per share:
GAAP $0.22 $0.24
====
Non-GAAP $0.31 $0.34
=====
Diluted shares used in computing per share amounts 534,352 545,022
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)
Nine-Month Periods Ended
------------------------
December 31, 2017 December 31, 2016
----------------- -----------------
GAAP:
Net sales $19,030,244 $18,000,337
Cost of sales 17,783,659 16,864,196
----------
Gross profit 1,246,585 1,136,141
Selling, general and administrative expenses 772,325 715,040
Intangible amortization 55,865 62,318
Interest and other, net 85,780 71,869
Other charges (income), net (172,467) 15,007
---------
Income before income taxes 505,082 271,907
Provision for income taxes 56,953 39,217
------
Net income $448,129 $232,690
========
Earnings per share:
GAAP $0.84 $0.42
====
Non-GAAP $0.81 $0.88
=====
Diluted shares used in computing per share amounts 535,972 548,372
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
-------------------------
December 31, 2017 December 31, 2016
----------------- -----------------
GAAP gross profit $446,328 $416,455
Stock-based compensation expense 5,358 2,437
Contingencies and other (3) - 14,968
Non-GAAP gross profit $451,686 $433,860
======== ========
GAAP income before income taxes $141,160 $140,242
Intangible amortization 19,588 18,734
Stock-based compensation expense 20,758 20,781
Contingencies and other (3) - 17,421
Other charges, interest and other, net (4) 38,215 25,928
Non-GAAP operating income $219,721 $223,106
======== ========
GAAP provision for income taxes $22,827 $10,773
Intangible amortization benefit 2,185 1,776
Tax benefit on contingencies and other - 1,684
Non-GAAP provision for income taxes $25,012 $14,233
======= =======
GAAP net income $118,333 $129,469
Intangible amortization 19,588 18,734
Stock-based compensation expense 20,758 20,781
Contingencies and other (3) - 17,421
Other charges, interest and other, net (4) 7,892 -
Adjustments for taxes (2,185) (3,460)
Non-GAAP net income $164,386 $182,945
======== ========
Diluted earnings per share:
GAAP $0.22 $0.24
====
Non-GAAP $0.31 $0.34
========
FLEX
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (1)
(In thousands, except per share amounts)
Nine-Month Periods Ended
------------------------
December 31, 2017 December 31, 2016
----------------- -----------------
GAAP gross profit $1,246,585 $1,136,141
Stock-based compensation expense 13,662 7,506
Distressed customers asset impairments (2) - 92,915
Contingencies and other (3) 18,933 21,792
Non-GAAP gross profit $1,279,180 $1,258,354
========== ==========
GAAP income before income taxes $505,082 $271,907
Intangible amortization 55,865 62,318
Stock-based compensation expense 63,018 67,311
Distressed customers asset impairments (2) 4,753 92,915
Contingencies and other (3) 43,933 28,960
Other charges (income), interest and other, net (4) (86,687) 86,876
Non-GAAP operating income $585,964 $610,287
======== ========
GAAP provision for income taxes $56,953 $39,217
Intangible amortization benefit 6,201 5,451
Tax benefit on contingencies and other 2,738 1,880
Tax benefit on intangible assets - 638
Non-GAAP provision for income taxes $65,892 $47,186
======= =======
GAAP net income $448,129 $232,690
Intangible amortization 55,865 62,318
Stock-based compensation expense 63,018 67,311
Distressed customers asset impairments (2) 4,753 92,915
Contingencies and other (3) 43,933 28,960
Other charges (income), interest and other, net (4) (171,440) 7,388
Adjustments for taxes (8,939) (7,969)
Non-GAAP net income $435,319 $483,613
======== ========
Diluted earnings per share:
GAAP $0.84 $0.42
====
Non-GAAP $0.81 $0.88
========
SCHEDULE III
FLEX
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
As of December 31, 2017 As of March 31, 2017
----------------------- --------------------
ASSETS
Current Assets:
Cash and cash equivalents $1,291,183 $1,830,675
Accounts receivable, net of allowance for doubtful accounts 3,100,808 2,192,704
Inventories 3,725,643 3,396,462
Other current assets 965,470 967,935
-------
Total current assets 9,083,104 8,387,776
Property and equipment, net 2,443,050 2,317,026
Goodwill 1,104,770 984,867
Other intangible assets, net 438,552 362,181
Other assets 770,834 541,513
Total assets $13,840,310 $12,593,363
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank borrowings and current portion of long-term debt $42,954 $61,534
Accounts payable 5,406,512 4,484,908
Accrued payroll 385,985 344,245
Other current liabilities 1,580,618 1,613,940
---------
Total current liabilities 7,416,069 6,504,627
Long-term debt, net of current portion 2,901,720 2,890,609
Other liabilities 542,541 519,851
Total shareholders' equity 2,979,980 2,678,276
Total liabilities and shareholders' equity $13,840,310 $12,593,363
=========== ===========
SCHEDULE IV
FLEX
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine-Month Periods Ended
------------------------
December 31, 2017 December 31, 2016
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $448,129 $232,690
Depreciation, amortization and other impairment
charges 400,015 466,813
Gain from deconsolidation of a subsidiary entity (151,574) -
Changes in working capital and other (265,552) 313,685
-------------------
Net cash provided by operating activities 431,018 1,013,188
------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (432,897) (413,596)
Proceeds from the disposition of property and
equipment 43,653 28,056
Acquisition of businesses, net of cash acquired (269,724) (180,259)
Other investing activities, net (123,883) (13,631)
Net cash used in investing activities (782,851) (579,430)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowings and long-term debt 866,000 205,518
Repayments of bank borrowings and long-term debt (907,930) (115,089)
Payments for repurchases of ordinary shares (180,050) (259,658)
Net proceeds from issuance of ordinary shares 2,063 11,978
Other financing activities, net 46,482 (47,302)
-------------------
Net cash used in financing activities (173,435) (204,553)
-------- --------
Effect of exchange rates on cash and cash equivalents (14,224) 20,321
------- ------
Net increase (decrease) in cash and cash
equivalents (539,492) 249,526
Cash and cash equivalents, beginning of period 1,830,675 1,607,570
-------------------
Cash and cash equivalents, end of period $1,291,183 $1,857,096
========================================
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 customers
asset impairments
consist 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.
(2) Distressed
customers asset
impairments for
the nine-month
period ended
December 31,
2017 relate 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 nine-
month period ended
December 31, 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. The total
charge of $92.9
million is included in
cost of sales for the
nine-month period
ended December 31,
2016.
(3) Contingencies and
other during the
nine-month
period ended
December 31,
2017 consists of
charges in
connection with
certain legal
matters of which
loss
contingencies
are believed to
be probable and
estimable.
Additionally,
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
recognized
approximately $17.4
million in the quarter
ended December 31,
2016 and $29.0 million
was recognized for the
nine-month period
ending December 31,
2016. The plan was
finalized and
completed during
fiscal year 2017.
(4) During the second
quarter of
fiscal year
2018, 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
approximately
$151.6 million
with no related
tax impact,
which is
included in
other charges
(income), net
for the nine-
month period
ended December
31, 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 nine-month
ended December 31,
2017. The contingent
consideration is
expected to be settled
in the fourth quarter
of fiscal year 2018.
The nine-month period
ended December 31,
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
