Flex Ltd Q4 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Samik Chatterjee - JPMorgan - Analyst : Hi, thank you. Good morning and thank you for taking my questions and congratulations on the strong margin guide here. Maybe if I can start off with that, as we look at the margin guide for fiscal '26, which is for 6%, a bit more than 6%, how should we think about the drivers relative to fiscal '25 outside of maybe mix on the cloud business as that grows rapidly outside of mix on increasing contribution from cloud. What are the other drivers you're sort of penciling in there in relation to the strong margin guide for fiscal '26. And I have a follow-up.

Question: Samik Chatterjee - JPMorgan - Analyst : Okay. Got it. And for my follow-up, given the -- I think you referenced this in your prepared remarks as well that customers are now looking for capacity, which you have in Mexico as well as US. Can you just give us bit of sort of the lay of the land, what you're hearing from customers in relation to demand for either US footprint in Mexico, how much sort of capacity -- flexible capacity do you have on that front? And does that present at all a margin opportunity as well in relation to picking some high-margin business or as you go through fiscal '26? Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 07, 2025 / 12:30PM, FLEX.OQ - Q4 2025 Flex Ltd Earnings Call

Question: Samik Chatterjee - JPMorgan - Analyst : Got it. Thank you. Thanks for all the color.

Question: Steven Fox - Fox Advisors - Analyst : Good morning and thanks for taking my questions. I had two. First off, Revathi, I was curious if you could expand on your comments. You highlighted around data centers, your scale advantages. How does that play out in the new fiscal year? What are you seeing in the marketplace that is sort of playing into those advantages? And then Kevin, just from an inventory standpoint, obviously, a lot of improvement there. How do we think about sort of inventories and working capital impacting the cash flows in fiscal '26. Thanks.

Question: Steven Fox - Fox Advisors - Analyst : Great. Thank you very much.

Question: Ruplu Bhattacharya - Bank of America - Analyst : Hi, thanks for taking my questions. Revathi, you talked about strong growth in power and cloud, and I think you guided to 30% year-on-year growth. Can you delve a little bit deeper into who the customer said that you're targeting now for both cloud and power. In cloud, I mean, can you maintain REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 07, 2025 / 12:30PM, FLEX.OQ - Q4 2025 Flex Ltd Earnings Call that growth with just the top customers that you had? Or do you -- are you planning to expand beyond that customer, is hyperscale the customer set? Or is it enterprise? And power, can you give some details on what the customer set is and which region do you see power products growing? Any kind of details to

Question: Ruplu Bhattacharya - Bank of America - Analyst : Okay, thanks for all the details there. I appreciate that. Can I ask about the customer sourced inventory and the impact of that on both revenues and margins. I think you talked about a $1 billion impact in fiscal '26. Is that all in hyperscale? Or is it in other end markets as well, including -- are you seeing that in both the power business as well as in the cloud business? And what is the impact on margins of customers going to a customer-sourced inventory model? Is it positive for margins or negative? Any details would be appreciated. Thank you.

Question: Ruplu Bhattacharya - Bank of America - Analyst : Right, thank you for all the details. I really appreciate it.

Question: George Wang - Barclays - Analyst : Thank you guys. thanks for taking my question and congrats on the quarter. I have two quick ones. Firstly, maybe for Kevin. I noticed implied OPM percentage for 1Q '26 is a bit lower sequentially kind of drive with first quarter a year ago as well, kind of a step down from 4Q to 1Q, is this just due to typical seasonality or kind of startup cost with the program ramping? Can you kind of call out the drivers kind of pointing to implied OP percentage maybe kind of 5.6% for the 1Q.

Question: George Wang - Barclays - Analyst : Yeah, I agree. And also a quick follow-up for Revathi. You guys called out networking schedules, which caught my eye. I'm just curious if you can double-click on the networking share gains. Can you talk about which specific customer set or it's mostly broad-based? And in terms of share gain, this gain from Asia competitors or could be just a share gain from US-based EMS guys as well. Just if you can give any color on that. Thanks. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 07, 2025 / 12:30PM, FLEX.OQ - Q4 2025 Flex Ltd Earnings Call

Question: George Wang - Barclays - Analyst : Okay. Just a quick one, if I can squeeze in. Just in terms of value-added services. Last year, you guys have talked about $1 billion. In the prepared remarks, you talked about year-over-year growth. Just curious any color beyond that, just how to quantify growth rate for FY26 for the value-added services, which is margin-accretive.

Question: George Wang - Barclays - Analyst : Great, thank you. Congrats again on the quarter end, guys. I'll go back to the queue.

Question: Mark Delaney - Goldman Sachs - Analyst : Yes, good morning. Thank you very much for taking my questions. Nice to see the margin strength and recognizing you're guiding to reach the 6% a year earlier than you'd previously targeted. I do want to better understand how tariffs may affect the margin guidance, though I believe you said your guidance excludes tariffs, both with respect to revenue and cost, and you'd expect tariff costs to be passed through at a low margin. So if tariff levels are sustained, and I realize tariffs are quite dynamic. But in a scenario where tariff levels are sustained around levels they are today, do you still think you'll be at 6% margins for this coming year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 07, 2025 / 12:30PM, FLEX.OQ - Q4 2025 Flex Ltd Earnings Call

Question: Mark Delaney - Goldman Sachs - Analyst : Okay, thanks for clarifying, Kevin. My other question also related to tariffs and more trying to better understand what kind of knock-on FX tariffs are having to end demand. You said you're factoring in some weakness into the auto market. But if you think about some of the other end markets, are you seeing any weakness in customer schedules? Perhaps if prices are going higher, you're expecting some negative elasticity of demand? Or if you're not seeing that, is this something you try to factor into the revenue guidance? Thanks.

Question: Mark Delaney - Goldman Sachs - Analyst : Yeah, that makes sense, Kevin, and Revathi, thanks for all your thoughts on what you're seeing by a market.

Question: Christian Zyla - KeyBanc Capital Markets - Analyst : Morning. This is this is Christian Zyla on for Steve Barger. Thanks for taking our questions. First question, just going back to the Husqvarna facility acquisition, could you just give us some additional color on how that deal came about? Was that opportunistic timing? Or is that business that you were vying for? And then just more broadly, is the current operating environment across the globe getting more potential customers to the table to consider and pursue your entire suite of outsourcing capabilities?

Question: Christian Zyla - KeyBanc Capital Markets - Analyst : Yes, absolutely. Just is it getting more customers to the table to consider outsourcing over your entire suite of outsourcing capabilities?

Question: Christian Zyla - KeyBanc Capital Markets - Analyst : That's great. And then if I could just sneak in my second question. It's a follow-up on the earlier inventory question. I know the last few years, you guys have been working to bring down the inventory levels. But if we were to see inflection sooner in, say, core agility or auto markets, should we expect to see an equal uptick in inventories or anything on the working capital side? Just help us think about the inflection in kind of the future. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 07, 2025 / 12:30PM, FLEX.OQ - Q4 2025 Flex Ltd Earnings Call

Question: Christian Zyla - KeyBanc Capital Markets - Analyst : Thank you guys.