Flex Ltd.

Good afternoon and welcome to the Flex first quarter fiscal year 2020 earnings conference call. Today's call is being recorded and all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Kevin Kessel, Flex's Vice President of Investor Relations. Sir, you may begin.

Thank you and thank you for joining Flex's first quarter fiscal 2020 conference call. Slides for today's discussion are available on the Investor Relations section of our website. Joining me on today's call with some introductory remarks will be our Chief Executive Officer, Revathi Advaithi, and our Chief Financial Officer, Chris Collier. Today's call is being webcast and recorded and contains forward-looking statements which are based on current expectations and assumptions that are subject to risks and uncertainties, and actual results could materially differ. Such information is subject to change, and we undertake no obligation to update these forward-looking statements. For discussion of the risks and uncertainties, see our most recent filings with the SEC, including our current, annual, and quarterly reports. If this call references non-GAAP financial measures for the current period, they can be found in our appendix slides. Otherwise, they are located on the Investor Relations section of our website, along with the required reconciliations. Now, I'd like to turn the call over to our CEO, Revathi.

Thanks, Kevin. Hey, good afternoon, and thank you for joining us on the call today. I'm pleased to have the opportunity to update you on our progress. While the main purpose of the call is to review our financial results, I also want to provide you with some context about how we are managing our business. We have made a lot of progress in the past few months, making critical decisions in managing our portfolio. As a result of this today, We are sharing restructuring actions that will accelerate our decision to reduce exposure to higher volatility, lower margin products within our business. Our strategy is simple and continues to win more design-led business, which will improve our mix towards higher margin and less volatile business segments. I want to take this opportunity to thank our customers for their trust and our employees for their commitment to delivering results. We have great employees and attractive assets, and that gives me confidence in the path we're taking. I will talk in more detail regarding our progress in the quarter and our go-forward plans, but first let's review our first quarter financial results. Let us turn to slide three. I'm pleased with our financial performance this quarter as revenue, operating income, and EPS were all within their respective guidance ranges. We had solid results delivering 27 cents in adjusted EPS, adjusted operating margin of 3.4%, and free cash flow of $114 million. Year-over-year revenue growth in both IEI and health solutions were led by the successful ramp-up of new programs secured through the prior year bookings. We saw slower than expected revenue in CEC and automotive. CEC was impacted by softness in a few telecom and networking customers as well as the geopolitical issues in China. CTG was within the expected range as we continue to manage the mix in this segment. Three out of four business groups achieved operating margins within their targeted range. We're also pleased with our free cash flow performance in Q1 and this represented a big swing from prior year. We attribute this change primarily to more disciplined execution, and Chris will provide more details on the financial results. Let's go to slide four. I want to talk about our approach to managing the business moving forward. During this quarter, along with visits to many of our customers as well as major sites, I have done deep drives on our business groups, our sites, and our technology centers. The feedback has confirmed the initial assessment that we have a tremendous opportunity to leverage our global capability and we have to be focused on how we manage the business to deliver consistent results. Like I said in the last quarter, we're concentrating on four key areas. Managing the portfolio, driving disciplined execution, pursuing design-led manufacturing or sketch to scale opportunities, and emphasizing free cash flow generation and prudent capital allocation. This will enable us to accelerate our business strategy and improve our financial returns for the long term. Now going to slide five. In the four areas of focus we have chosen, we have made much progress in a short time. A key priority is managing our portfolio mix, which will enable us to improve overall profitability as well as the consistency of our execution. During Q1, there was well-publicized action by the U.S. government and significant geopolitical uncertainty that impacted our customer, Huawei. These actions, which were beyond our control, led to a reduction in demand for products we assembled for them in China, and as a result of this, we're scaling down our Huawei-dedicated operations in China. Flex and Huawei have had a longstanding and successful partnership. We have worked with them to find an agreeable solution. This change is unfortunate. However, China is and will remain a very important center of production and market for Flex. We have a significant presence, including tens of thousands of employees in China. We remain fully committed to our valued customers and employees in China. In addition to this action, we have also decided to reduce our exposure to high-volatility, short-cycle, low-margin businesses in other places like India. These decisions, when combined, will impact roughly $300 to $400 million of quarterly revenue and align with our overall strategy to focus on more sustainable and less volatile product categories. It will also improve our gross margin and operating margin, enabling us to be a more focused and profitable company. These actions are reflected in our forward-looking guidance. I want to reiterate that these actions do not impact the scale and diversity of our footprint. Our global footprint including our significant presence in China, India, and the rest of the world is a key differentiator for Flex and enables us to deliver value to our diverse customers. While these are big portfolio changes, changing the mix is also important within the segments. We have a very focused effort to improve the performance of our CTG business by reducing high volatility, low margin businesses, as well as underperforming and inconsistent businesses. For the quarter, we achieved 2% operating margin in CTG, and we'll continue to assess this portfolio to prune businesses that do not meet our criteria. Next, let me address my favorite topic, which is focused on disciplined and sustainable execution, and this involves the entire enterprise. We are reviewing key processes and programs which include contracts, incentives and cost management. Progress is being made in areas such as variance management and program ramp efficiency. For example, in HRS alone, we are currently managing over 200 programs with multi-billion dollar annual future revenue. A recent example is a program in our health solutions business where we moved three families of medical devices from a customer factory to one of our Mexico facilities. The team achieved the 20 plus milestone on schedule and produced four times the expected volume in the committed timeframe. This type of program launch improves our expected gross margin materially. As you're aware, getting these programs ramped right is critical for us. Not only from a customer credibility perspective, but also to make sure that we don't have financial variances across our factories. We're also driving governance discipline across the organization. For example, one of the major things we have done is to change and align our incentives to drive behavior in our focus areas. Now on the design-led effort side, We know that this is the best way to build customer affinity and deliver greater value to our customers. And in return, this improves their financial performance. Now, when I think of design-led manufacturing or sketch-to-scale, I think of a strategic customer partnership where we co-create a product that leverages Flex's portfolio of capabilities from design, supply chain, complex manufacturing to aftermarket services. One example from this quarter that I'm particularly excited about, given my background, is a power supply with an integrated battery solution. Now, our global team worked with the customer to define the specifications, design a solution, and bring the product to market in high volume. This solution is just one example demonstrating how we are leveraging our expertise to provide value and achieve significant returns. Our goal is to identify more design and engineering-led engagements as these opportunities can capture accretive operating margins nearly doubled out of traditional EMS business. By achieving the right portfolio mix, creating a track record of disciplined execution, and driving higher margin design-led engagements, we will deliver higher levels of financial performance, including greater and more sustainable free cash flow. We have improved our process and discipline for CapEx management across our enterprise, aligning to our portfolio objectives and improving our returns. For example, this past quarter, our CapEx investment was $123 million, which was the lowest level in seven quarters. This discipline investment is critical for improving long-term free cash flow generation. So as you can see, we have made a lot of progress in a short amount of time, in these four areas, and our results are showing this effort. Now turning to slide six, I wanted to share with you our framework on how we manage the portfolio going forward, and we'll ensure that we're making decisions that align with our strategy. We now evaluate the portfolio through discipline criteria that cover a wide range of parameters. An example of our criteria is the industry opportunity. For example, we'll not consider an opportunity in another industry that is too far afield from our core business capabilities where we do not have expertise. We'll ensure the business that we win or keep in our portfolio meets the financial thresholds for margin, free cash flow, and return on invested capital. Every business is managing itself to our criteria to evaluate new opportunities and ensure they're executing with discipline. Turning to slide seven, I want to share my perspective on capital allocation and a framework for managing it. Our goal is to make capital decisions wisely, which provide future growth by reinvesting organically in our businesses, repurchasing stock to offset share dilution, and continuing to take opportunities to return cash through share repurchase in line with our prior commitments. At the end of the day, Our goal is to maintain a healthy, investment-grade rated balance sheet. Overall, I'm really proud with our results. We will continue to make progress across our four areas of focus, managing the portfolio, achieving disciplined execution, pursuing design-led manufacturing, and emphasizing free cash flow generation and capital allocation. I believe we're building momentum and the changes we're making will result in a long-term value creation for our shareholders. I'll now turn the call over to Chris who'll go through the numbers in more detail and I'll then come back with some concluding commentary before Q&A. Chris?