Flex Ltd. (FLEX) Earnings

Management highlights

Overall Company Performance - Q1 FY27 delivered strong year-over-year revenue growth of 21% to $7.9 billion, 50 basis points of adjusted gross margin expansion to 9.6%, 70 basis points of adjusted operating margin expansion to 6.7%, and a record adjusted EPS of $1, up 39% year-over-year. - Flex was added to the S&P 500, reflecting the company's multi-year transformation progress. Planned Spinoff Update - The company remains on track to complete a tax-free spinoff of the CPI (SpinCo) segment in Q1 calendar 2027. Cross-functional separation teams are making strong progress, and full leadership teams for both Flex (post-spin Remainco) and SpinCo have been appointed, ready to execute from day one. - The spinoff will allow each standalone company to sharpen strategic focus, align capital allocation with their specific growth priorities, and create greater shareholder value. SpinCo (Post-Spinoff CPI) Strategic Positioning - Management frames AI growth as increasingly an infrastructure and specifically a power story, where constraints extend beyond chips to power delivery, cooling, electrical systems, and grid capacity. SpinCo is a full digital and electrical infrastructure solutions provider, not just a data center components company, uniquely positioned to solve these customer challenges. - Management believes the global electrical transformation driven by AI is in its early stages, with a multi-year investment cycle and long-tail growth opportunities extending beyond data centers across the broader power and electrical ecosystem. Management expanded its AI manufacturing partnership with Cerebras to scale production of the advanced CS3 AI accelerator system in the U.S., and launched a new liquid cooling solution via JetCool. Remainco (Post-Spinoff Flex) Strategic Positioning - Post-spin Flex will remain a leading global diversified contract manufacturing platform, exposed to high-value long-term secular growth trends including medical devices (driven by aging populations and chronic disease) and warehouse automation/robotics (driven by regionalization and labor shortages). Flex will also retain contract manufacturing services for advanced networking and energy infrastructure, benefiting from data center pull-through demand.

Guidance

- Full Fiscal Year 2027 (FY27) overall guidance: Total revenue is expected between $33.7 billion and $35.2 billion, representing 23% year-over-year growth at the midpoint. Adjusted operating margin is expected between 7% and 7.2%, an 80 basis point increase year-over-year at the midpoint. Adjusted EPS is expected between $4.42 and $4.74 per share, representing 39% growth at the midpoint. Capital expenditures are projected between $1.5 billion and $1.6 billion. Including spinoff-related one-time costs, free cash flow conversion is now expected to be approximately 40% (down from the prior 60% guidance that excluded spinoff costs). - FY27 segment guidance: RMS revenue is expected to grow mid-single digits to high single digits, driven by strength in high-value industrial end markets. ITS revenue is expected to grow high single digits to low double digits, driven by strong communications performance. CPI revenue is expected to grow 65% to 75% year-over-year, with power growth outpacing cloud growth. - Q2 FY27 overall guidance: Total revenue is expected between $7.95 billion and $8.25 billion, representing 19% year-over-year growth at the midpoint. Adjusted operating income is expected between $535 million and $565 million, and adjusted EPS is expected between $1.00 and $1.07 per share, representing 32% growth at the midpoint. - Q2 FY27 segment guidance: CPI revenue is expected to grow 45% to 55% year-over-year, with continued ramping of new cloud and power programs. RMS and ITS growth outlooks match their full-year trend ranges.

Segment performance

1. Regulated Manufacturing Solutions (RMS): Revenue of $2.7 billion, up 12% year-over-year. Adjusted operating income was $176 million, with an adjusted operating margin of 6.6%, up 130 basis points year-over-year, driven by strength in the industrial end market. Revenue contribution is ~34.2% of total Q1 revenue. 2. Integrated Technology Solutions (ITS): Revenue of $3.1 billion, up 20% year-over-year. Adjusted operating income was $158 million, with an adjusted operating margin of 5.2%, up 10 basis points year-over-year. Growth was driven by strong communications performance, offset by weakness in consumer end markets. Revenue contribution is ~39.2% of total Q1 revenue. 3. Cloud and Power Infrastructure (CPI): Revenue of $2.2 billion, up 35% year-over-year, driven by strong growth in power and ramping cloud and cooling programs. Adjusted operating income was $214 million, with an adjusted operating margin of 9.7%, up 20 basis points year-over-year. Revenue contribution is ~27.8% of total Q1 revenue.

Risks & headwinds

- Forward-looking statements for growth and results are inherently subject to risks and uncertainties that could cause actual results to differ materially from expectations, including risks related to the execution and timing of the planned CPI spinoff, capacity ramp schedules for new AI-related programs, supply chain and component availability constraints, and customer adoption rates for new power and cooling technologies. Additional details on material risks are included in the company's SEC filings and earnings presentation materials.

Analyst Q&A

• Q: CPI revenue grew sequentially but operating margins came in slightly lower than expectations. Is this due to new program ramps, and what is the strategy for expanding CPI margins over time, especially for power vs. compute? /

  A: Management confirmed current CPI margins are fully in line with Q1 and full-year guidance, noting the full-year expectation of 100 basis points of year-over-year margin expansion remains on track. Near-term margin softness comes from ongoing investments in ramping new programs and scaling the rapidly growing power business (built via multiple acquisitions), which is growing over 70% annually. As new programs mature, margin flow-through improves, and management expects power margins to move toward peer levels over time.

• Q: Full-year CPI guidance implies ~100% year-over-year growth in the second half of FY27. What visibility does management have into this acceleration, and does the prior expectation of >80% CPI growth in FY28 still hold? /

  A: Management confirmed the back-half acceleration matches the original plan, driven by the timing of capacity investments and customer platform generational shifts. Visibility remains strong, with over 90% of revenue for the remaining three quarters of FY27 already booked. The prior framework for strong growth acceleration into FY28 remains intact, as current-year capacity investments will support continued growth next year.

• Q: What constraints are limiting further upside to the CPI growth outlook, and how are these being managed? /

  A: Management noted the current 65-75% full-year FY27 growth guidance is already a very robust, aggressive number, and the company beat the Q1 growth guidance midpoint. The only meaningful constraint is the ongoing buildout of new manufacturing capacity, which is progressing on schedule per plan. Flex has extensive experience executing large-scale capacity projects, and management is confident in meeting the current growth guidance with potential for upside.

• Q: How would you characterize the strength of the communications/advanced networking business within ITS, and is growth driven by market expansion or share gains? /

  A: Advanced networking is a core high-value growth market for ITS, with strength driven by a combination of broad-based sustained demand tied to AI data center pull-through and share gains across multiple product categories including high-speed switches, optical products, and network interface cards. The business has a diverse customer base across large OEMs, and growth is expected to remain durable into FY28 as AI infrastructure investment continues.