FLEX LTD. SAN JOSE, Calif., Jan. 26, 2017 /PRNewswire/ -- Flex (NASDAQ: FLEX), the Sketch-to-Scale(TM) solutions provider that designs and builds intelligent products for a connected world, today announced results for its third quarter ended December 31, 2016.
"Our Sketch-to-Scale strategy remains firmly on track as reflected in our third quarter performance," said Mike McNamara, CEO at Flex. "We remain focused on value creating activities such as a structural mix shift to a higher margin business, generating sustainable free cash flow and consistently returning value to our shareholders."
(US$ in millions, except EPS) Three-Month Periods Ended
December 31, 2016 December 31, 2015
----------------- -----------------
Net sales $6,115 $6,763
GAAP income before income taxes $140 $127
Adjusted operating income $223 $236
GAAP net income $129 $149
Adjusted net income $183 $196
GAAP EPS $0.24 $0.27
Adjusted EPS $0.34 $0.35
An explanation and reconciliation of non-GAAP financial measures to GAAP financial measures is presented in Schedule II attached to this press release.
"Our cash flow generation was exceptionally strong this quarter as we generated almost half a billion dollars in cash flow from operations," said Chris Collier, CFO at Flex. "This quarter we repurchased over 5 million shares and we remain committed to return over 50% of our fiscal year free cash flow to shareholders."
Third Quarter Fiscal 2017 Results of Operations
Net sales for the third quarter ended December 31, 2016 were over $6.1 billion, which was in the guidance range of $6.0 to $6.4 billion.
GAAP gross margin increased 10 basis points and adjusted gross margin increased approximately 40 basis points on a year-over-year basis.
GAAP income before income taxes was $140 million for the quarter and adjusted operating income was $223 million, above the mid-point of the guidance range of $205 million to $235 million.
Net income on a GAAP basis was over $129 million and adjusted net income for the quarter was $183 million. GAAP EPS was $0.24 for the quarter and non-GAAP EPS was $0.34 for the quarter.
Cash Flow and Balance Sheet
For the three-month period ended December 31, 2016, the Company generated net cash from operating activities of $469 million and free cash flow of $363 million. For the nine-month period ended December 31, 2016, Flex generated net cash from operations of $1.0 billion and free cash flow of $628 million. Strong cash flow generation has funded share repurchases of approximately $75 million and $260 million for the three and nine month periods ended December 31, 2016, respectively. The Company remains committed to return over 50% of annual free cash flow to its shareholders. Flex ended the quarter with $1.9 billion of cash on hand and total debt of $2.9 billion. The balance sheet remains strong and is well positioned to support the business over the long term.
Guidance
For the fourth quarter ending March 31, 2017, revenue is expected to be in the range of $5.5 to $5.9 billion, GAAP EPS is expected to be in the range of $0.17 to $0.21 and includes estimated restructuring charges ($0.03), stock-based compensation expense ($0.04), and intangible amortization ($0.03). Adjusted EPS is expected to be in the range of $0.27 to $0.31 per diluted share.
Conference Calls and Web Casts
A conference call hosted by the Flex management team will be held today at 2:00 PM (PT) / 5:00 PM (ET) to discuss the Company's financial results for the third quarter ended December 31, 2016. The conference call will be broadcast via the Internet and may be accessed by logging on to the Company's website at www.flex.com. Additional information in the form of a slide presentation may also be found on the Company's site. A replay of the broadcast will remain available on the Company's website afterwards.
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. 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)
This press release contains forward-looking statements within the meaning of U.S. securities law 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 we may encounter difficulties with acquisitions and divestitures; that the expected revenue and margins from recently launched programs may not be realized; that recently proposed changes in tax laws in certain jurisdictions where we operate may 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, 2016 December 31, 2015
----------------- -----------------
GAAP:
Net sales $6,114,999 $6,763,177
Cost of sales 5,698,544 6,310,710
Gross profit 416,455 452,467
Selling, general and administrative
expenses 231,551 240,617
Intangible amortization 18,734 19,319
Interest and other, net 22,838 21,566
Other charges, net 3,090 44,415
Income before income taxes 140,242 126,550
Provision for (benefit from) income taxes 10,773 (22,360)
Net income $129,469 $148,910
Earnings per share:
GAAP $0.24 $0.27
Non-GAAP $0.34 $0.35
Basic shares used in computing per share
amounts 539,638 554,919
Diluted shares used in computing per share
amounts 545,022 560,996
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, 2016 December 31, 2015
----------------- -----------------
GAAP:
Net sales $18,000,337 $18,646,187
Cost of sales 16,864,196 17,444,463
Gross profit 1,136,141 1,201,724
Selling, general and administrative expenses 715,040 666,798
Intangible amortization 62,318 43,117
Interest and other, net 71,869 60,106
Other charges, net 15,007 46,257
Income before income taxes 271,907 385,446
Provision for income taxes 39,217 2,709
Net income $232,690 $382,737
Earnings per share:
GAAP $0.42 $0.67
Non-GAAP $0.88 $0.85
Basic shares used in computing per share amounts 542,780 561,070
Diluted shares used in computing per share amounts 548,372 568,926
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, 2016 December 31, 2015
----------------- -----------------
GAAP gross profit $416,455 $452,467
Stock-based compensation expense 2,437 2,407
Restructuring (2) 14,968 -
Non-GAAP gross profit $433,860 $454,874
GAAP SG&A Expenses $231,551 $240,617
Stock-based compensation expense (18,344) (21,826)
Restructuring (2) (2,453) -
Non-GAAP SG&A Expenses $210,754 $218,791
GAAP income before income taxes $140,242 $126,550
Stock-based compensation expense 20,781 24,233
Restructuring (2) 17,421 -
Intangible amortization 18,734 19,319
Interest and other, net 22,838 21,566
Other charges, net (3) 3,090 44,415
Non-GAAP operating income $223,106 $236,083
GAAP provision for (benefit from) income taxes $10,773 $(22,360)
Intangible amortization benefit 1,776 1,131
Tax benefit on intangible assets (4) - 39,324
Tax benefit on restructuring 1,684 -
Non-GAAP provision for income taxes $14,233 $18,095
GAAP net income $129,469 $148,910
Stock-based compensation expense 20,781 24,233
Restructuring (2) 17,421 -
Intangible amortization 18,734 19,319
Other charges, net (3) - 44,415
Adjustments for taxes (4) (3,460) (40,455)
Non-GAAP net income $182,945 $196,422
Diluted earnings per share:
GAAP $0.24 $0.27
Non-GAAP $0.34 $0.35
FLEX
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (1)
(In thousands, except per share amounts)
Nine-Month Periods Ended
------------------------
December 31, 2016 December 31, 2015
----------------- -----------------
GAAP
gross
profit $1,136,141 $1,201,724
Stock-
based
compensation
expense 7,506 6,440
Inventory
impairment
and other
(5) 92,915 -
Restructuring
(2) 21,792 -
Non-
GAAP
gross
profit $1,258,354 $1,208,164
GAAP
SG&A
Expenses $715,040 $666,798
Stock-
based
compensation
expense (59,805) (50,119)
Restructuring
(2) (7,168) -
Non-
GAAP
SG&A
Expenses $648,067 $616,679
GAAP
income
before
income
taxes $271,907 $385,446
Stock-
based
compensation
expense 67,311 56,559
Inventory
impairment
and other
(5) 92,915 -
Restructuring
(2) 28,960 -
Intangible
amortization 62,318 43,117
Interest
and other,
net 71,869 60,106
Other
charges,
net (3) 15,007 46,257
Non-
GAAP
operating
income $610,287 $591,485
GAAP
provision
for
income
taxes $39,217 $2,709
Intangible
amortization
benefit 5,451 3,744
Tax benefit
on
intangible
assets (4) 638 39,324
Tax benefit
on
restructuring 1,880 -
Non-
GAAP
provision
for
income
taxes $47,186 $45,777
GAAP
net
income $232,690 $382,737
Stock-
based
compensation
expense 67,311 56,559
Inventory
impairment
and other
(5) 92,915 -
Restructuring
(2) 28,960 -
Intangible
amortization 62,318 43,117
Other
charges,
net (3) 7,388 44,415
Adjustments
for taxes
(4) (7,969) (43,068)
Non-
GAAP
net
income $483,613 $483,760
Diluted earnings per share:
GAAP $0.42 $0.67
Non-
GAAP $0.88 $0.85
SCHEDULE III
FLEX
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
As of December 31, 2016 As of March 31, 2016
----------------------- --------------------
ASSETS
Current Assets:
Cash and cash
equivalents $1,857,096 $1,607,570
Accounts receivable,
net of allowance for
doubtful accounts 2,162,750 2,044,757
Inventories 3,493,617 3,491,656
Other current assets 1,100,159 1,171,143
Total current assets 8,613,622 8,315,126
Property and equipment, net 2,321,536 2,257,633
Goodwill and other intangible assets, net 1,337,321 1,345,820
Other assets 530,570 466,402
Total assets $12,803,049 $12,384,981
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank borrowings and
current portion of
long-term debt $68,856 $65,166
Accounts payable 4,699,734 4,248,292
Accrued payroll 357,922 353,547
Other current
liabilities 1,751,245 1,905,200
Total current liabilities 6,877,757 6,572,205
Long-term debt, net of current portion 2,797,984 2,709,389
Other liabilities 485,811 497,857
Total shareholders' equity 2,641,497 2,605,530
Total liabilities and shareholders' equity $12,803,049 $12,384,981
=========== ===========
SCHEDULE IV
FLEX
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine-Month Periods Ended
------------------------
December 31, 2016 December 31, 2015
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $232,690 $382,737
Depreciation, amortization and other impairment charges 466,813 381,949
Changes in working capital and other 313,685 175,086
Net cash provided by operating activities 1,013,188 939,772
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (413,596) (418,561)
Proceeds from the disposition of property and equipment 28,056 4,627
Acquisition of businesses, net of cash acquired (180,259) (903,845)
Proceeds from divestiture of business, net of cash held in divested
business 36,073 3,603
Other investing activities, net (49,704) 1,397
Net cash used in investing activities (579,430) (1,312,779)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowings and long-term debt 205,518 755,684
Repayments of bank borrowings and long-term debt (115,089) (40,706)
Payments for repurchases of ordinary shares (259,658) (331,690)
Net proceeds from issuance of ordinary shares 11,978 52,950
Other financing activities, net (47,302) (49,742)
Net cash (used in) provided by financing activities (204,553) 386,496
Effect of exchange rates on cash and cash equivalents 20,321 (7,703)
------ ------
Net increase in cash and cash equivalents 249,526 5,786
Cash and cash equivalents, beginning of period 1,607,570 1,628,408
Cash and cash equivalents, end of period $1,857,096 $1,634,194
===
SCHEDULE V
FLEX AND SUBSIDIARIES
NOTES TO SCHEDULES I, II, III, & IV
(1) To supplement
Flex's unaudited
selected
financial data
presented on a
basis 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
selling, general
and
administrative
expenses, non-
GAAP operating
income, non-GAAP
net income and
non-GAAP net
income per
diluted share.
These
supplemental
measures exclude
stock-based
compensation
expense,
restructuring
charges,
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.
Restructuring primarily includes
severance for rationalization at
existing sites and corporate SG&A
functions. These costs may vary in
size based on the Company's
initiatives, and are not directly
related to ongoing or core business
results, and do not reflect
expected future operating expenses.
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.
Inventory impairment and other
consists primarily of non-cash
inventory impairment of certain
solar panel inventory on hand to
net realizable value. 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.
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.
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, net consists of
various other types of items that
are not directly related to ongoing
or core business results, such as
the non-cash foreign currency
impact 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 December
31, 2016, Free
Cash Flow was
$363 million
consisting of
GAAP net cash
flows from
operating
activities of
$469 million less
purchases of
property and
equipment net of
proceeds from
dispositions of
$106 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) During the second
quarter of fiscal
year 2017, the
Company began to
rationalize the
current footprint
at existing
sites, including
corporate SG&A
functions, and to
continue to shift
the talent base
in support of our
Sketch-to-Scale
initiatives.
Approximately
$17.4 million was
recognized in the
quarter ended
December 31, 2016
and $29.0 million
was recognized
for the nine-
month period
ending December
31, 2016. The
Company expects
to incur
additional
charges in
support of the
initiative in the
fourth quarter of
fiscal 2017.
(3) The nine months
ended December
31, 2016 includes
a $7.4 million
loss attributable
to a non-
strategic
facility sold
during the second
quarter of fiscal
2017.
The three and nine
months ended
December 31, 2015
includes $25
million of non-
cash foreign
currency
translation loss
attributable to
the sale of a
non-strategic
Western European
manufacturing
facility and a
$22 million
impairment of a
non-core
investment.
(4) The nine months
ended December
31, 2016 includes
a $0.6 million
benefit for the
release of
valuation
allowance on
certain of our
deferred tax
assets resulting
from an
immaterial
acquisition.
The three and nine
months ended
December 31, 2015
includes a $39
million benefit
for the release
of valuation
allowances on
certain of our
deferred tax
assets resulting
from our
acquisition of
the NEXTracker
business in
September 2015.
(5) On April 21, 2016,
SunEdison, Inc.
(SunEdison) filed
a petition for
reorganization
under bankruptcy
law, and as a
result, the
Company
recognized a bad
debt reserve of
$61.0 million as
of March 31,
2016, associated
with its
outstanding
SunEdison
receivables. As
of the end of
fiscal 2016, the
Company also
retained solar
panel module
inventory and
assets associated
with our
SunEdison
production, which
we had
anticipated on
selling.
During the second
quarter of fiscal
year 2017, prices
for solar panel
modules declined
significantly due
to global
oversupply and
continued de-
regulation. The
Company
determined that
certain solar
panel inventory
on hand as of
September 30,
2016 was not
fully recoverable
and recorded a
charge of $60.0
million to reduce
the carrying
costs to market
in the second
quarter of fiscal
2017. The Company
also recognized a
$16.0 million
impairment charge
for solar module
equipment and
$16.9 million of
other associated
solar panel
direct costs
incurred during
the same period.
The total charge
of $92.9 million
is included in
cost of sales for
the nine month
period ended
December 31,
2016.
Renee Brotherton Kevin Kessel
Corporate Communications Investor Relations
(408) 576-7189 (408) 576-7985
renee.brotherton@flextronics.com kevin.kessel@flextronics.com
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SOURCE Flex
