FLEX LTD. Q2 FY2027 earnings call

• Spinoff Progress: Significant milestones achieved for the separation of the CPI segment into a new entity named Axiom, including the filing of Form 10 and announcement of leadership teams.
• Strategic Vision: Axiom will focus on AI infrastructure, combining power, thermal management, and compute expertise. Flex will emerge as a focused industrial technology and supply chain leader.
• Acquisition Integration: Completed acquisition of EPC Power, strengthening Axiom’s end-to-end solutions and adding engineering expertise in 800-volt architecture and solid-state transformers.
• Operational Excellence: Delivered record earnings per share of $1.18. Margin expansion occurred across all segments, driven by productivity improvements, favorable mix, and volume leverage.
• Market Positioning: Strong growth in high-value markets such as communications, energy infrastructure, robotics, and healthcare. Emphasis on complex, regulated environments that create competitive moats.

The company reported total revenue of $8.5 billion, up 25% year-over-year. The Cloud and Power Infrastructure (CPI) segment generated $2.5 billion in revenue (up 54% YoY), contributing approximately 29% to total revenue, with an adjusted operating margin of 10.7%. Integrated Technology Solutions (ITS) contributed $3.3 billion (up 22% YoY), representing roughly 39% of revenue, with an adjusted operating margin of 5.5%. Regulated Manufacturing Solutions (RMS) brought in $2.7 billion (up 9% YoY), accounting for about 32% of revenue, with an adjusted operating margin of 6.4%. Combined, RMS and ITS grew 16% year-over-year.

• Full-Year FY27 Revenue: Raised guidance to $34.9–$35.9 billion, implying ~27% growth at the midpoint.
• FY27 Segment Growth: CPI revenue expected to grow 75–85%; combined RMS and ITS revenue expected to grow 8–11%.
• FY27 Margins: Adjusted operating margin expected between 7.6% and 7.8%. CPI margin expected between 11.5% and 11.7%. Combined RMS/ITS margin expected between 5.9% and 6.1%.
• FY27 EPS: Adjusted EPS expected between $4.84 and $5.16, up ~52% at the midpoint.
• Q3 FY27 Outlook: Total revenue expected $8.87–$9.17 billion (up ~28% YoY). CPI revenue expected to surge 105–115%. Adjusted EPS expected $1.19–$1.25.
• CapEx: Full-year CapEx expected $1.5–$1.6 billion; Q3 CapEx implied to be significant as investments ramp for future capacity.

• Supply Chain Constraints: Component shortages and availability issues persist, impacting inventory levels and requiring conservative planning in guidance.
• Spinoff Execution: Risks associated with completing the separation of Axiom, including regulatory approvals, timing, and maintaining business continuity during transition.
• Customer Concentration: High reliance on hyperscalers for CPI/Axiom growth, leading to potential concentration risk despite efforts to diversify within these clients.
• Debt and Interest Expense: Short-term elevated interest expenses due to debt incurred for the EPC Power acquisition, though mitigated by planned convertible preferred stock issuance.

Q: Analyst asked to split the $950M guidance increase between organic growth and acquisitions, specifically regarding EPC Power's contribution. / A: CFO stated that of the $950M increase, approximately half is attributed to the EPC acquisition, while the other half reflects underlying improvement and organic growth within Flex's existing businesses. He noted that EPC contributes roughly $800 million this year, with further growth next year.