FLEX LTD. Q3 FY2025 earnings call

Key Points

• Q3 was very strong with revenue $6.6 billion, operating margin 6.1%, and EPS $0.77, first quarter with operating margin above 6%, expecting 6% again in Q4.
• Closed JetCool and Crown Systems acquisitions, adding key technologies to data center portfolio. Joined S&P MidCap 400.
• Data center business grew 45% YOY in Q3, expects similar growth in Q4, driven by technology transition towards dense compute. Medical device demand strong in Q3 with long-term opportunities in med-tech space. Automotive has softer near-term trends but longer-term trends intact.
• Diversification is part of strategy, helped customers navigate tariffs, COVID, supply chain crises, etc. Welcomed new CFO Kevin Krumm and thanked interim CFO Jaime Martinez.

In Q3, revenue was $6.6 billion. Reliability segment had revenue flat at $3 billion, driven by strength in power and medical devices offsetting auto challenges. Agility segment had revenue up 4% to $3.6 billion, driven by strong cloud and consumer-related end markets. Gross profit totaled a new quarterly record of $610 million, with gross margin increasing 150 basis points to 9.3%. Adjusted operating income was $399 million with operating margins at 6.1%, and adjusted earnings per share for the quarter increased 43% year-over-year to $0.77 per share.

Fiscal Fourth Quarter Outlook

• Reliability Solutions revenue expected flat to down mid-single digits, balanced by power strength and soft automotive. Agility Solutions revenue expected flat to up mid-single digits, driven by strong cloud demand.
• Q4 revenue range $6 billion to $6.4 billion, adjusted operating income between $360 million and $400 million, interest and other expense estimated around $45 million, adjusted tax rate around 19%, adjusted EPS between $0.65 and $0.73 per share.

Full Year 2025 Outlook

• Full year revenue expected between $25.4 billion and $25.8 billion, adjusted operating margin between 5.6% and 5.7%, adjusted EPS between $2.57 and $2.65 per share.

Risks

• Potential broader macro impact on slowing volumes. Labor constraints in the U.S. related to manufacturing expansion. Uncertainties around tariffs and geopolitical events impacting manufacturing and supply chain.

Q: Starting with cloud and recognizing the north of 40% growth from a revenue standpoint that you've had for a few quarters in a row now, and expecting good growth again next quarter. I am hoping to better understand the pace of the cloud ramp from here. And if have seen any change in the timing or magnitude that customers want to build out AI infrastructure over the near to intermediate term, perhaps due to factors like Blackwell supply chain readiness or to evaluate potential lower-cost AI training approaches?

A: Yes, we expect the 40-plus percent growth to continue in the next quarter. Long-term, we gave a 20% CAGR guidance for data centers based on history of the data center market. Haven't heard of anything changing from customers and suppliers in terms of AI infrastructure build-out. Feel bullish about infrastructure build-out and continued need for power with dense compute.

Q: Your next question today is coming from Ruplu Bhattacharya with Bank of America Merrill Lynch. Kevin, good to have you on board. Look forward to working with you. Revathi, I wanted to start with a high-level question. I mean with respect to manufacturing and especially in the U.S., I mean, with the new administration and policies, whether tariffs or otherwise, some companies may wish to move manufacturing. Can you talk about how much white space does Flex have? And how easy is it for you guys to move manufacturing lines around? And is there a way to lower the total landed cost in the U.S.? I mean how is that possible? Is it a matter of installing more automation. So I mean, is there a way to drive more manufacturing efficiency in the U.S.?

A: Yes. For the last 6 years, we've been moving manufacturing footprint around the world. Space is not a constraint in the U.S. Larger issue is finding people. Landed costs can come down with automation and efficiency. Space is not an issue, focus on automation and efficiency.

Q: Samik Chatterjee from JPMorgan Chase. Kevin, look forward to working with you. I guess maybe if I can start a bit more near term. You did have a strong quarter in terms of revenue, beating your own revenue guide by about $400 million. And you talked about the strength you saw in data centers amongst sort of the drivers as well as consumer. As we think about F4Q, why are we not seeing some of that sort of sustainability of that upside into the 4Q numbers, which you'd seem to be sort of implying a sequential moderation in the revenue? Just curious if sort of you're seeing more incremental headwinds just specifically to 4Q in terms of autos? Or is there sort of any concern that there might have been some pull forward that's driving that sequential moderation on the revenue guide for 4Q?

A: Q4 is in line with seasonality usually between Q3 and Q4, which is usually down like 6% sequentially. Our guide takes that into account. Q4 guide is pretty spot on compared to historical seasonality levels even with upside in Q3.