Flex(FLEX) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenue for Q4 was $6.2 billion, down 12% year-over-year, while gross profit improved to$ 532 million with a gross margin of 8.6%, an increase of 160 basis points from the prior year [5][6] - Operating margin reached a record 5.4%, up 120 basis points year-over-year and up 50 basis points from Q3 [5] - Adjusted earnings per share (EPS) for the quarter was $0.57, a 30% increase, while GAAP EPS was$ 0.93, influenced by a one-time non-cash tax benefit [6][8] Business Line Data and Key Metrics Changes - Reliability segment revenue was $2.9 billion, with strong demand in cloud power solutions and an operating margin of 5.8% [7] - Agility segment revenue was$ 3.2 billion, driven by AI-driven cloud demand, with operating income increasing 6% to $181 million and a record operating margin of 5.6% [7][10] - For the full year, Reliability revenue was$ 12.5 billion with an operating margin of 5.3%, while Agility revenue was $13.9 billion with a record operating margin of 4.8% [9][10] Market Data and Key Metrics Changes - Automotive revenue within Reliability was up 6%, driven by new ramps and content growth, while Health Solutions was up 3% despite industry slowdowns [9] - Industrial revenue was down 8%, affected by slowing industrial CapEx and weaker residential solar [10] - Agility segment faced a 7% decline in CEC, with strong new cloud ramps offset by slowing enterprise IT and telco spending [10] Company Strategy and Development Direction - The company focuses on large diverse markets with growth potential, leveraging macro and secular trends to generate profitable growth [15][20] - The strategy includes expanding vertical integration and value-added services, with a strong emphasis on automation and efficiency [22][21] - The company aims for power and compute-based revenue to account for 40% of total revenue by fiscal year 2029 [24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating through the current macro cycle, highlighting resilience with margin expansion and EPS growth despite revenue declines [50][61] - The company anticipates revenue for fiscal 2025 to be flat to down 3%, with adjusted operating margins between 5.2% and 5.4% [56] - Long-term growth is expected to be driven by advancements in cloud and automotive sectors, with a focus on power and compute solutions [58][47] Other Important Information - NEXTracker has been reclassified to discontinued operations, providing clearer visibility into core business performance [5][50] - The company returned$ 1.3 billion to shareholders through stock repurchases in fiscal year 2024, marking a record in annual cash returns [11][54] Q&A Session Summary Question: Success in attracting vertical solutions and aftermarket services to data center rack programs - Management highlighted the unique value proposition in integrating power products with compute, emphasizing growth in vertical integration and aftermarket services [64][65] Question: Margin profile for the expected $8 billion revenue growth from auto and cloud - Management indicated that the margin rates for cloud and automotive are better than Flex's average, driven by the need for power solutions [69][70]