Flex Ltd.

Thank you for standing by. Welcome to FLEX's fourth quarter and fiscal 2026 earnings conference call. Presently, all participants are in the listen-only mode. After their speakers' 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 Mrs. Michelle Simmons. You may begin.

Good morning, and thank you for joining us today for Flex's fourth quarter and fiscal year 2026 earnings conference call. With me today is our Chief Executive Officer, Revathy Advisey, our Chief Financial Officer, Kevin Krum, and our Chief Commercial Officer, Michael Hartung. We'll give brief remarks, followed by Q&A. Slides for today's call, as well as a copy of the earnings press release, 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. 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. These statements reflect expected results for the full fiscal year and do not give effect to the planned spinoff of the cloud and power infrastructure segments. For a full discussion of these risks and uncertainties, please see the cautionary statements in our presentation, press release, or in the risk factor section in our most 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, all growth metrics will be on a year-over-year basis unless stated otherwise. Additionally, all results will be on a non-gap basis unless we specifically state it's a gap result. The full non-GAAP to GAAP reconciliations can be found in the appendix slides of today's presentation as well as in the summary financials posted on the investor relations website. In addition to our earnings presentation, we also published a separate presentation regarding the proposed transaction which will be discussed on today's call. Please refer to the earnings presentation to follow along. Before we begin, I want to share a brief update on our investor day. In light of yesterday's announcement, we are postponing the event until the fall when we expect to have more information to share. We will provide more details as the year progresses. Now, I'd like to turn the call over to our CEO. Revathy.

Thank you, Michelle. Good morning and thank you for joining us today. We have a lot to cover this morning, so let me begin with an important milestone that reflects how our business has evolved and where we are headed. Seven years ago, we set out to transform Flex. The strategy was simple. Focus on the right-end markets, divest non-core assets, invest in the technologies that matter, and execute with discipline. Since then, we have exited consumer-focused markets, spun off Nextracker into a leading solar business, and created tremendous value for our shareholders, and invested ahead of the curve in electrical products. recognizing early that compute would become power hungry and that data centers would need an integrated architecture. We have built a productivity machine in our factories, and most importantly, we have invested in our teams, creating one of the best high-performing values-based culture. Yesterday brought the next milestone in that journey. We announced our intent to spin off our cloud and power infrastructure business into a new publicly traded company with the SPIN expected to complete in the first quarter of calendar 2027. This decision reflects our conviction that the business has achieved the scale, growth profile, and strategic importance to stand on its own. It also positions FLEX to sharpen its identity and invest more aggressively in its highest growth, highest technology opportunities. Turning to slide five. SPINCO, historically our data center business, now captured in our CPI segment, will be a global critical digital infrastructure company delivering end-to-end power and thermal management from grid to chip for AI data centers and mission-critical applications like utilities. What differentiates SpinCo is its depth across power, thermal, and compute integration. That depth lets us replace the fragmented multi-vendor approach market-leading customers are actively moving away from. and gives us the opportunity to build one of the largest electrical companies purpose-built to deliver from utility to chip with cooling and compute integration designed in from day one. The timing is clear for two reasons. First, AI is driving compute density to levels that require power and thermal to be engineered as a unified system, not bolted on after the fact. Customers no longer want individual subsystems. They want a single partner who can deliver from grid to chip. SpinCo is purpose-built for this moment. Secondly, electrical infrastructure is entering a generational transformation. The shift to solid-state transformers and 800-volt DC distribution will reshape how power moves from grid to chip, unlocking the density and efficiency AI demands. And SpinCo is the only company with embedded power, distributed power, thermal and systems depth to lead it. Following the spin, Flex will continue to execute its proven playbook as a leading advanced manufacturing company, designing and building highly complex products at global scale for premier brands across diversified end markets. As global supply chains undergo structural changes, shorter technology cycles, rising system complexity and persistent constraints, customers are rethinking how products are designed, manufactured, and scaled. These shifts are expanding opportunities for Flex to deepen customer relationships and capture greater system-level engagement. Post spin, as Flex allocates capital towards higher growth industries such as healthcare, robotics, warehouse automation, and networking, we believe the company is entering its next phase of transformation. with a simplified portfolio and a sharpened strategic focus, Flex is positioned to expand margins and continue to actively optimizing its portfolio towards higher growth opportunities that will drive strong cash flows and shareholder returns. Now turning to slide six, we believe spinning Flex into two distinct companies positions both to sharpen strategic focus, improve operating discipline, and align capital allocation with their respective growth and margin priorities. This is not about changing our strategy. It is about unlocking value through simplification and clarity for customers, for employees, and for shareholders. Now from a financial perspective, both businesses have demonstrated strong fundamentals, and we expect the spin to enhance transparency, while allowing each management team to pursue tailored investment priorities. We plan to provide additional details over the upcoming quarters, including standalone financials at the appropriate time. Now turning to slide seven. Now to our recently announced acquisition. Over the past several years, we have deliberately evolved our portfolio across thermal technologies, around integrated structure, and power. Earlier this week, we closed our acquisition of electrical power products, or EP squared, strengthening our power portfolio with utility grade specification-driven solutions for grid modernization and electrification. These capabilities are becoming critical as data center growth places greater demands on power availability and reliability. Combined with our existing power distribution, switchgear, thermal management, and integrated rack scale capabilities, EP2 enhances our ability to deliver end-to-end solutions for utility and infrastructure customers, and it increases our exposure to long-cycle, margin-of-creative programs that support grid resiliency. To put a point on that momentum, we've recently secured substantial incremental business with several hyperscaler and data center customers, including Google. These are not single-product manufacturing engagements. They span power infrastructure, thermal systems, and complex hardware manufacturing deployed at scale across our global footprint. Capital deployment for these projects is already underway and it will remain elevated through FY27 as this growth alongside broader CPI growth requires expanded investment. We expect this level of investment to be unique to fiscal year 27. We have line of sight into fiscal year 28 and 29 requirements and expect CapEx to normalize in fiscal year 28. Awards of this scope are exactly why we believe the SPIN is the right move. These deployments require the integrated end-to-end capability that SPINco will deliver as a focused company. Now turning to slide eight. Let me put some numbers around the growth opportunity. For SPINCO, we're targeting revenue growth of 65% to 75% in fiscal year 2027, a significant step up from fiscal year 2026. And for FY28, we expect further acceleration with growth of over 80%. Going to slide nine, FLEX post-SPIN is targeting low to mid single-digit revenue growth in that same timeframe and will invest in areas where growth is accelerating, including regulated and technology-driven markets, such as healthcare, warehouse automation, and networking tied to data center infrastructure growth. Now, when you put all this together, it is clear that this is the right moment for this milestone. It is also clear that this leadership team has the credibility to deliver this milestone having already executed and delivered spins like Nextracker. Now, talking about leadership, I want to briefly address leadership as we take our next step. Turning to slide 10, I'm excited to share that I will serve as CEO of SpinCo as we build a focused, purpose-driven platform designed to lead the future of compute infrastructure. I'm equally confident in the future of Flex, and I'm pleased to leave it in Michael Hartung's very capable hands as CEO. Michael joined Flex in 2007 through the acquisition of Selectron and has since held a range of senior leadership roles, most recently as our Chief Commercial Officer. Over the past seven years, Michael and I have worked closely to transform this company, driving discipline, portfolio optimization, margin expansion, targeted acquisition, and building a stronger and a more resilient Flex. This playbook has delivered stronger customer relationships and meaningful returns for shareholders. Michael, thank you for your trusted partnership over the years and for stepping into this role. I look forward to supporting you and the entire leadership team as we embark on this next chapter.