Flex Ltd.

Good afternoon and thank you for standing by. Welcome to Flexa's second quarter fiscal 2024 earnings conference call. Presently, all participants are in a listen-only mode. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question, please press star 1 on your phone. If you would like to withdraw your question, please press star 2. As a reminder, this call is being recorded. I will now turn the call over to Mr. David Rubin. You may begin.

Thank you, John. Good afternoon and welcome to Flex's second quarter fiscal 2024 earnings conference call. With me today is our Chief Executive Officer, Revati Advaiti, and our Chief Financial Officer, Paul Lundstrom. Both will give brief remarks followed by Q&A. Slides for today's call, as well as a copy of the earnings press release and summary financials are available on the investor relations section at flex.com. This call is being recorded and will be available for replay on our corporate website. As a reminder, today's call contains forward-looking statements which are based on our current expectations and assumptions. These statements involve risks and uncertainties that could cause actual results to differ materially. For a full discussion of these risks and uncertainties, please see the cautionary statements in our presentation, press release, or the risk factors section in our recent filings with the SEC. Note this information is subject to change and we undertake no obligation to update these forward-looking statements. Please note, unless otherwise stated, all results provided will be non-GAAP measures and all growth metrics will be on a year-over-year basis. Full non-GAAP to GAAP reconciliations can be found in the appendix slides of today's presentation as well as the investor relations website. Earlier today, we were pleased to announce our plan to spin off all of Flex's remaining interest in Nextracker to Flex shareholders. As previously disclosed, Flex retained the option to effect the spinoff pursuant to a merger agreement entered into by Flex and Nextracker in connection with Nextracker's initial public offering. We believe that the spinoff is the most advantageous form of separation for Flex, Nextracker, and our respective shareholders. Specifically, it provides the opportunity to distribute Flex's interest in Nextracker to Flex shareholders in a tax-free manner for U.S. federal income tax purposes and allows Flex to focus on our core strategies and long-term value creation for our shareholders. As earlier today, Nextracker filed a registration statement on Form S-4. That includes a preliminary proxy statement of Flex, which includes additional information regarding the spinoff. The spinoff is currently expected to be completed in Flex's fourth quarter, ending March 31, 2024, but does remain subject to a number of conditions, and no assurance can be given that the spinoff will, in fact, occur. We understand that you may have questions on this process. At this point, there are no additional details to share other than what has been publicly made available, but we will provide any updates as appropriate. Now, I'd like to return the call over to our CEO, Revati.

Thank you, David. Good afternoon, and thank you for joining us today. Before we start, I want to say how deeply saddened we are by the horrific attacks on Israel. Our hearts go out to our colleagues, our customers, and our friends in that area. Turning to our quarterly results on slide five, overall fiscal Q2 was another strong quarter with great execution. Revenue came in at $7.5 billion, which was down about 4%. Adjusted operating margin came in at 5.9%, and we delivered 68 cents of adjusted EPS. Since we have now announced the separation of Nextracker, we are able to provide CoreFlex's results, which excludes Nextracker. For CoreFlex, we executed really well, even with the market uncertainty. Revenue came in at $6.9 billion, down 5%, against a great quarter last year, which grew 24%. CoreFlex adjusted operating margin came in at 4.7%, up both sequentially and year-over-year, and we delivered 56 cents of adjusted EPS. I'm really pleased with how these results show their ability to execute and build a resilient company with strong performance through the cycles. Now turning to slide six. We'll take a look at market fundamentals and how we continue to navigate a highly dynamic environment. However, I want to point out a few important items that really puts into perspective the strength of our model and how we have truly evolved as a company. As you're well aware, we participate in six end markets, but within that, we've been focused on shifting our portfolio more towards next-gen mobility, cloud, and digital health. As highlighted in our March 2022 Investor Day, we believe these markets drive the right growth and margin expansion for us, so I'd like to give some specifics on how we're doing in these areas. Next-gen mobility, as we have defined it, comprises our EV, ADAS, autonomous, and our EV charging businesses. At the time of investor day, we expected a 50 plus percent CAGR for this space. We continue to see growth in this category on par with these strong expectations. Looking at our overall automotive business, once again this quarter, our revenue growth outpaced industry units. This strength comes from past program wins coupled with continued steady vehicle content expansion. We expect our cloud business to grow just under 20% per year based on unique ability to manufacture vertically integrated data center racks and critical power systems for the data center. Even with the increasing trend towards consignment, we're on track to beat these growth expectations this year and also next year. This is based on what we have already won with multiple top tier hyperscalers, with much of that growth currently driven by generative AI capability expansions. Lastly, we said our digital healthcare business would have just over a 10% CAGR. We expect that multi-year trend to continue. Right now, we're seeing exceptional growth in our next generation of smarter and smaller devices, including continuous glucose monitors and diabetes drug delivery programs. I'd say the only changes in our life sciences business, but that is just short-term inventory digestion after an extended period of strong growth. One area we touched on during our investor day was clean energy transition opportunity. Last quarter, we announced that our renewables business doubled in our last fiscal year. Despite some lingering weakness in residential solar, we still expect renewables to grow again in fiscal 24. And it is still early days as we look at the potential opportunity from the IRA and other government initiatives to help drive the clean energy transition and upgrade grid infrastructure. Our stated intention at our investor day was to focus on these strategic end markets, which has made Flex a more resilient company. Now let's discuss combining the right end markets with how we are operating as a company. Flex is a more agile and operationally efficient company, and you see that in our results with steady margin expansion and EPS growth. Our continued optimization of our mix and our factory footprint, combined with driving productivity through automation investments, has enabled operating margin expansion, both sequentially and year-over-year for CoreFlex. We also expect this trend to continue, and we'll discuss this further when we get to guidance. We have been shaping the company in this direction over the last five years, and we see the impact of our efforts in our improving results and shareholder value creation. Now, speaking of creating shareholder value, we're executing on our path to unlock the value of Nextracker. Through this journey, we have created value with multiple transactions, growing cash to help fund our capital allocation strategy. We use cash from the pre-IPO TPG investment to fund the Anord Marduk acquisition, which is focused on cloud facilities and critical power. This addition clearly checks all the right boxes for value creation. It delivers double-digit growth, is margin accretive, and is synergistic to our overall position in the cloud market. We believe Flex is a great investment, so we're also putting cash from the transactions to work, buying back our own stock. Year-to-date, we bought back $500 million worth of stock, and you recall our board authorized a $2 billion share repurchase program back in August. Now we're in the final steps to fully unlock the next tracker value in a shareholder-friendly transaction. As David outlined, we expect to distribute a remaining 51% ownership to Flex investors via a tax-free spin in fiscal Q4. With that, I'll pass the call over to Paul to take you through our financial update. Paul?