Summary of Conference Call Company and Industry - **Company**: Flex - **Industry**: IT hardware, communications equipment, cloud services, data center solutions Key Points and Arguments Cloud and Data Center Growth - Flex's cloud business is projected to grow at approximately **35%** this year, with the data center segment growing at **50%** last year and expected to maintain strong growth [9][10] - The cloud portion of the business is larger but is expected to grow slightly below **35%** this year, while the power business is anticipated to grow above **35%** [9][10] Customer Diversity and Engagement - Flex has a diverse customer base categorized into three segments: hyperscalers, co-location providers (co-los), and silicon providers, with multiple engagements in each segment [15][16] - The company emphasizes its broad customer engagement, which drives growth through various products and services [15][16] Power Business Outlook - The power business is critical as compute densities increase, leading to higher power consumption and heat generation [18][19] - Innovations in power management include modular solutions that allow faster deployment of data centers, with power pods enabling setups **30%** faster than traditional methods [20][21] - Flex is focusing on 800-volt architectures and partnerships with companies like NVIDIA to enhance its power solutions [39][41] Rack Integration and Margin Improvement - The market for rack integration services is expanding, with Flex positioned to provide comprehensive solutions due to its scale and vertical integration capabilities [24][25] - The fastest-growing business segment is also the highest margin segment, driven by the EMS products and services strategy [27] Custom ASICs and AI Infrastructure - Flex is actively involved in manufacturing accelerator hardware and is well-positioned to meet the increasing complexity of custom ASICs [30] - The AI infrastructure platform represents Flex's strategy to address power, heat, and scale challenges in data centers, focusing on modular solutions [31][32] Financial Performance and Margin Structure - Flex has improved its operating margins from around **3%** post-COVID to approximately **6%**, with expectations for further growth driven by the data center business [35][36] - The company anticipates that the growth in the data center segment will continue to enhance overall margin structure [37] Capacity and Investment Strategy - Flex has invested in expanding its manufacturing footprint in Eastern Europe and North America to meet growing demand while avoiding over-investment [45][46] - The company is focused on organic investments in capital and footprint to ensure sustainable growth [46] Other Business Lines and Growth Opportunities - Flex is exploring growth in areas such as digital infrastructure (high-speed networking and satellite communications), automation in industrial settings, and healthcare devices [50][51] - The automotive sector presents long-term growth opportunities, particularly in software-defined vehicles and power platforms [52] Conclusion - Flex is strategically positioned to capitalize on growth opportunities across various sectors, leveraging its diverse customer base, innovative power solutions, and integrated service offerings to enhance margins and operational efficiency [62][65]

Core Insights - Flex Ltd. (FLEX) has experienced a significant stock surge of 79.9% over the past year, reaching a 52-week high of $70.37 before closing at $68.50, driven by strong execution and a shift towards higher-value, technology-intensive businesses [1][4][8] Price Performance - FLEX's performance outpaces the Zacks Electronics - Miscellaneous Products industry, the Zacks Computer and Technology sector, and the S&P 500 composite, which grew by 24.3%, 24.8%, and 14.6% respectively [4] Growth Drivers - Flex's revenue for the second quarter of fiscal 2026 increased by 4% year-over-year to $6.8 billion, with the data center business identified as the primary growth engine [5][6] - The company is leveraging AI to drive infrastructure build-outs, enhancing its product portfolio with advanced manufacturing capabilities [6][8] - A new AI infrastructure platform has been introduced, allowing data center operators to deploy systems up to 30% faster while reducing execution risk [8] Partnerships and Innovations - Flex has partnered with NVIDIA on next-gen 800-volt DC AI factories, improving energy efficiency and reliability [9] - A collaboration with LG Electronics aims to develop integrated modular cooling systems to address thermal challenges in AI-driven data centers [9] Financial Performance - Flex's non-GAAP gross margin expanded by 80 basis points to 9.3%, and non-GAAP operating margin increased by 55 basis points to 6% [13] - The company reported a record $1.1 billion in free cash flow for fiscal 2025 and $305 million in adjusted free cash flow for the second quarter of fiscal 2026 [14] - Flex has repurchased $1.3 billion in stock in fiscal 2025 and $297 million in the second quarter of fiscal 2026 [16] Guidance and Outlook - Flex revised its fiscal 2026 revenue guidance to $26.7-$27.3 billion, expecting an adjusted operating margin of 6.2% to 6.3% and adjusted EPS of $3.09 to $3.17 [17][18] - Despite challenges such as tariffs and unfavorable forex movements, the company maintains a positive growth outlook [18] Valuation - FLEX trades at a forward 12-month price-to-earnings (P/E) ratio of 20.35, which is below the industry average of 24.99 [20] - Compared to peers like Jabil, Sanmina, and Celestica, FLEX's valuation appears attractive [22] Investment Opportunity - With strong cash flow, disciplined execution, and expanding margins, Flex presents an appealing investment opportunity even after its substantial stock appreciation [23]

Core Insights - Flex Ltd. is rapidly expanding its presence in the high-growth data center market, driven by proprietary technology, partnerships, and global manufacturing capacity to meet AI-driven infrastructure demand [1] - The company reported exceptional performance in the cloud and power segments during the second quarter of fiscal 2026, reinforcing its leadership in the industry [1] Data Center Portfolio - Flex's integrated data center portfolio, which includes power systems, cooling solutions, and compute, is a key growth engine supported by deep systems expertise and global scale [2] - Management highlighted that fully integrated power and IT solutions enable faster deployment and more efficient operations for hyperscale, colocation, and silicon customers, enhancing Flex's overall margin profile [2] AI Infrastructure Platform - A significant catalyst for growth is the introduction of a new AI infrastructure platform that allows data center operators to deploy infrastructure up to 30% faster and reduce execution risk [3] - Collaborations with NVIDIA and LG Electronics aim to develop modular, energy-efficient AI data centers, leveraging next-generation 800-volt DC architectures to improve energy efficiency and reduce cooling requirements [3] Revenue Growth and Guidance - Flex is projected to generate approximately $6.5 billion in data center revenue for the year, reflecting at least 35% year-over-year growth and constituting 25% of total revenues [4] - The company has revised its fiscal 2026 revenue guidance to $26.7–$27.3 billion, an increase of $500 million from the previous midpoint, with an expected adjusted operating margin of 6.2% to 6.3% [5] Competitive Landscape - Flex faces competition from companies like Jabil Inc. and Sanmina Corporation, which are also expanding in the data center and AI infrastructure markets [6][7] - Jabil is expected to benefit from strong demand in AI data center infrastructure and has projected revenues of $31.3 billion for fiscal 2026 [7] - Sanmina focuses on end-to-end solutions and is prioritizing expansion into high-growth industries, with expected revenues of $2.05-$2.15 billion for the first quarter of fiscal 2026 [8][9] Stock Performance and Valuation - Flex shares have increased by 48.5% over the past year, outperforming the Electronics - Miscellaneous Products industry, which grew by 20.7% [10] - The company trades at a forward 12-month price-to-earnings (P/E) ratio of 18.77, below the industry average of 24.02 [11] - The Zacks Consensus Estimate for Flex's earnings for fiscal 2026 has been revised upward over the past 60 days, indicating positive market sentiment [12]

Financial Data and Key Metrics Changes - Revenue for the second quarter was $6.8 billion, representing a 4% year-over-year growth [5][12] - Operating margin was 6%, maintaining this level for four consecutive quarters, with adjusted EPS of $0.79, up 23% year-over-year [6][12] - Gross profit totaled $632 million, with a gross margin improvement to 9.3%, up 80 basis points [12] Business Line Data and Key Metrics Changes - In the Reliability Solutions segment, revenue was $3 billion, up 3% year-over-year, driven by strong growth in power and moderate growth in health solutions [12][13] - Agility Solutions revenue totaled $3.8 billion, an increase of 4% year-over-year, primarily due to robust cloud demand [13] - Operating income for Reliability Solutions improved to $197 million, with a segment margin expansion to 6.5% [13] Market Data and Key Metrics Changes - The data center business is expected to grow at least 35% this year, reflecting strong demand in cloud and power sectors [7][8] - Medical device demand remains steady, with expectations for improvement in medical equipment later this year [10] - The automotive market is stabilizing, with new compute deals validating investments in software-defined vehicles [10] Company Strategy and Development Direction - The company is strategically shifting its portfolio towards higher-margin, technology-driven businesses, particularly in AI and data center infrastructure [8][9] - Flex unveiled a new AI infrastructure platform aimed at enhancing data center deployment efficiency [9] - The company is committed to rebuilding operations in Ukraine following facility damage, emphasizing resilience and support for employees [5] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to navigate a dynamic tariff landscape and maintain strong top-line momentum [15] - The company raised its full-year revenue guidance to between $26.7 billion and $27.3 billion, reflecting strong performance despite challenges [15][16] - Management highlighted the importance of partnerships with leading technology companies to drive future growth [46][47] Other Important Information - Free cash flow for the quarter increased to $305 million, with net CapEx totaling $148 million [13][14] - The company repurchased $297 million of stock, approximately 5.6 million shares [14] Q&A Session Summary Question: Why was there no upside to data center revenues despite strong performance? - Management clarified that data center growth is not updated quarterly, but they expect at least 35% growth for the year, which is strong compared to industry standards [22] Question: How does the mix of custom silicon versus merchant silicon impact the cloud business? - Management indicated that they benefit significantly from hyperscale growth and will provide updated guidance in May regarding the mix of custom versus merchant silicon [26][27] Question: What is driving margin improvements in the second half? - Management noted that growth in products and services businesses, which have higher margins, is expected to drive margin improvements [33][34] Question: How does the company view the automotive market's growth potential? - Management stated that they are cautiously optimistic about stabilizing growth in the automotive sector, with a focus on long-term commitments [55] Question: What is the outlook for data center capacity and potential supply constraints? - Management expressed confidence in capacity and capability across regions, with plans for significant CapEx investments to support growth [70][71] Question: How is AI and automation being utilized in operations? - Management highlighted ongoing efforts to deploy AI and robotics to enhance efficiency and productivity in manufacturing and logistics [76][77]

Financial Data and Key Metrics Changes - Revenue for the second quarter was $6.8 billion, representing a 4% year-over-year growth [5][12] - Operating margin was 6%, maintaining this level for four consecutive quarters [6][12] - Adjusted EPS increased by 23% to $0.79, marking a record for the company [6][12] - Gross profit totaled $632 million, with gross margin improving to 9.3%, an increase of 80 basis points [12] Business Line Data and Key Metrics Changes - In the Reliability Solutions segment, revenue was $3 billion, up 3% year-over-year, driven by strong growth in power and moderate growth in health solutions [12] - Agility Solutions revenue totaled $3.8 billion, an increase of 4% year-over-year, primarily due to robust cloud demand [12][13] - Operating income for Reliability Solutions improved to $197 million, with segment margin expanding by 105 basis points to 6.5% [13] - Operating income for Agility Solutions was $227 million, with operating margin slightly down to 6% [13] Market Data and Key Metrics Changes - The data center business is expected to grow at least 35% this year, reflecting strong demand in cloud and power sectors [6][10] - Medical device demand is steady, with anticipated improvements in medical equipment later this year [10] - The automotive market is stabilizing compared to prior quarters, with new compute deals validating investments in software-defined vehicles [10] Company Strategy and Development Direction - The company is strategically shifting its portfolio towards higher-margin, technology-driven businesses [6][10] - Flex is positioned to benefit from the AI-driven infrastructure buildout, partnering with leading technology companies to enhance data center capabilities [7][9] - The company is committed to rebuilding operations in Ukraine following facility damage, emphasizing resilience and support for employees [5] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to maintain strong top-line momentum in the second half of FY2026, with an acceleration expected in Q4 [15] - The company raised its full-year revenue guidance to between $26.7 billion and $27.3 billion, reflecting a $500 million improvement from previous estimates [15][16] - Management highlighted the importance of partnerships, particularly with Amazon, in driving long-term growth in the data center space [48][49] Other Important Information - Free cash flow for the quarter increased to $305 million, with net CapEx totaling $148 million [13][14] - The company repurchased $297 million of stock, approximately 5.6 million shares [14] - The impact of the Ukraine facility shutdown is estimated to be slightly over $100 million in revenue for the back half of the year [45] Q&A Session Summary Question: Why was there no upside to data center revenues despite strong performance? - Management clarified that data center growth is not updated quarterly, but they expect at least 35% growth for the year, which is strong compared to industry standards [21][22] Question: How does the mix of custom silicon versus merchant silicon affect the cloud business? - Management indicated that they benefit significantly from hyperscale growth and will provide updated guidance in May regarding the mix of custom versus merchant silicon [26][27] Question: What is driving margin improvements in the second half? - Management noted that growth in products and services businesses, which have higher margins, is expected to drive margin improvements [35][36] Question: How does the company view the automotive market's growth potential? - Management expressed cautious optimism, noting that they are platform agnostic and continue to see compute wins across various platforms [60][61] Question: What is the company's capacity to support data center growth? - Management confirmed strong capacity in EMEA and North America, with plans for significant CapEx investments to support growth in data centers [74][75] Question: What innovations are being pursued with AI and automation? - Management highlighted a partnership with Nvidia to deploy modular infrastructure for data centers and emphasized ongoing efforts to enhance factory efficiency through AI and robotics [76][80]

Core Insights - Flex has launched the industry's first globally manufactured, fully integrated platform for gigawatt data centers, specifically designed to support AI and HPC, enabling operators to deploy infrastructure up to 30% faster [1][5]. Group 1: Platform Features - The new platform integrates power, cooling, compute, and services into pre-engineered, modular designs, addressing the challenges of rising power, heat, and scale in data centers [2][4]. - Flex's platform allows for faster deployment, reducing time-to-market and accelerating revenue recognition [6]. - The architecture is flexible and open, allowing for adaptability to customer-preferred OEMs, which enhances deployment predictability [6]. Group 2: Product Innovations - Key innovations include high-density, liquid-cooled IT racks designed to support +/-400V and facilitate the transition to 800VDC power architectures [6]. - The Capacitive Energy Storage System is the first UL 1973-certified system aimed at reducing electrical disturbances from AI workloads [6]. - Modular rack-level coolant distribution units (CDUs) provide scalable capacity of up to 1.8 MW, supporting evolving AI, HPC, and hyperscale workloads [6]. Group 3: Operational Efficiency - The platform leverages Flex's global manufacturing and supply chain network, ensuring unmatched scalability, resilience, and deployment speed [5]. - Prefabricated power pods and skids simplify installation and reduce onsite labor, cutting construction time from over 12 months to just 6-12 months [6]. - The integrated hardware and end-to-end support enhance reliability, sustainability, and speed to scale for customers [7].