Flex Q4 2025 Earnings Report

Flex EPS Results

• Actual EPS: $0.73
• Consensus EPS: $0.69
• Beat/Miss: Beat by +$0.04
• One Year Ago EPS: $0.57

Flex Revenue Results

• Actual Revenue: $6.40 billion
• Expected Revenue: $6.22 billion
• Beat/Miss: Beat by +$181.47 million
• YoY Revenue Growth: +3.70%

Flex Announcement Details

• Quarter: Q4 2025
• Date: 5/7/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, May 7, 2025
• Conference Call Time: 8:30AM ET

Flex (NASDAQ:FLEX) (NASDAQ: FLEX) is a leading provider of design, manufacturing, and supply chain solutions for a diverse array of industries, including automotive, communications, computing, consumer electronics, industrial, energy, and healthcare. The company partners with global brands to develop products and services across the entire innovation lifecycle, from concept and prototype to high-volume manufacturing and aftermarket support. Flex’s core offerings encompass engineering design, electronics manufacturing, automated assembly, testing, fulfillment, and logistics, enabling clients to accelerate time to market while optimizing cost and quality.

Founded in 1969 as Flextronics International, the company has evolved from a contract electronics manufacturer into a full-service solutions provider. Over the decades, Flex has expanded both organically and through strategic acquisitions, broadening its technical capabilities and geographic footprint. In 2016, the company rebranded as Flex to better reflect its commitment to agility and innovation in addressing complex product development challenges and rapidly shifting market demands.

Headquartered in Singapore and with global operations spanning the Americas, Europe, and the Asia-Pacific region, Flex serves more than 2,000 customers from over 30 manufacturing sites and R&D centers. Its distributed network of facilities and partnerships allows it to provide tailored solutions, from low-volume specialized manufacturing in medical devices to large-scale production of consumer electronics. Flex’s end-to-end supply chain services include component sourcing, customs management, and last-mile delivery, ensuring seamless integration for customers operating in highly regulated and dynamic markets.

Since December 2019, CEO Revathi Advaithi has led Flex’s strategic initiatives focused on digital transformation and sustainability. Under her leadership, the company has made significant investments in advanced manufacturing technologies such as robotics, automation, and data analytics to drive operational excellence. Flex continues to emphasize corporate responsibility, embedding environmental, social, and governance (ESG) principles into its business processes to support long-term growth and stakeholder value.

Flex Q4 2025 Earnings Call Transcript

Key Takeaways

• Flex delivered a record Q4 with $6.4 billion in revenue (+4% YoY), a new high adjusted operating margin of 6.2%, and adjusted EPS of $0.73 (+28%), while FY25 saw a record 5.7% margin, EPS of $2.65 (+23%) and $1.1 billion in free cash flow.
• The data center segment grew about 50% YoY in both Q4 and FY25 to $4.8 billion at accretive margins, driven by end-to-end hyperscale rack solutions and power products, bolstered by JetCool and Crown Technical acquisitions.
• For FY26, Flex expects revenue of $25.0–$26.8 billion, adjusted operating margin above 6% (hitting its FY27 target a year early), EPS of $2.81–$3.01 and over 80% free cash flow conversion.
• The company continues to execute its EMS + products + services strategy, adding proprietary power offerings and value-added services to deepen vertical integration and capture higher-margin opportunities.
• Flex views tariffs as pass-through costs with contractual protections, and its 16 million sq ft U.S. and 9 million sq ft Mexico footprint positions it to benefit from customer regionalization trends despite evolving trade risks.

Presentation

[Operator]

Thank you for standing by. Welcome to Flex's Fourth Quarter and Fiscal Year twenty twenty five Earnings Conference Call. Presently, all participants are in a listen only mode. After the speakers' remarks, there will be a question and answer session. As a reminder, this call is being recorded.

[Operator]

I will now turn the call over to Mr. David Rubin. You may begin.

[David Rubin, VP, IR at Flex]

Thank you, Melissa. Good morning, welcome to Flex's fourth quarter and fiscal twenty twenty five earnings conference call. With me today is our Chief Executive Officer, Revathi Advaithi and Chief Financial Officer, Kevin Crum. We will give brief remarks followed by Q and A. Slides for today's call as well as a copy of the earnings press release and summary financials are available on the Investor Relations sections of flex.com.

[David Rubin, VP, IR at Flex]

This call is being recorded and will be available for replay on our corporate website. As a reminder, today's call contains forward looking statements, which are based on our current expectations and assumptions. These statements involve risks and uncertainties that could cause actual results to differ materially. For a full discussion of these risks and uncertainties, please see the cautionary statements in our presentation, press release or in the Risk Factors section on our most recent filings with the SEC. Note this information is subject to change, and we undertake no obligation to update these forward looking statements.

[David Rubin, VP, IR at Flex]

Please note, unless otherwise stated, all results provided will be non GAAP measures, and all growth metrics will be on a year over year basis. For the full non GAAP to GAAP reconciliations can be found on the appendix slides of today's presentation as well as in the summary financials posted in the Investor Relations website. Now I'd like to turn the call over to our CEO, Reviti.

[Revathi Advaithi, CEO at Flex]

Thank you, David. Good morning, and thank you for joining us today. Starting with our fiscal Q4 results on Slide four, we had a very strong finish to the year. Revenue came in at $6,400,000,000 growing almost 4% year over year. Adjusted operating margin came in at 6.2%, which is another quarterly record and the second quarter in a row with adjusted operating margin above 6%.

[Revathi Advaithi, CEO at Flex]

We delivered adjusted EPS of $0.73 up 28% over last year. Now looking at the full year results. We achieved another year of record annual adjusted operating margins coming in at 5.7% despite continued macroeconomic headwinds. And this is our fifth consecutive year of double digit adjusted EPS growth reaching a record level of point $2.06 $5 per share. Also, we generated over $1,000,000,000 in free cash flow, another record high.

[Revathi Advaithi, CEO at Flex]

And for the second consecutive year, we exceeded our 80 plus percent adjusted free cash flow conversion target. This year, we drove strong growth in key markets such as the data center as we continue to shift the portfolio towards more profitable business. We executed on multiple program ramps, completed several key acquisitions, and we won two PACE awards in the automotive space with our NVIDIA DRIVE AGX powered Jupiter compute platform and our backup DCDC converter. Throughout all of this, we maintained a relentless focus on operational efficiency. Another year of strong results once again demonstrates our ability to effectively navigate a challenging macroeconomic environment and deliver value to our shareholders.

[Revathi Advaithi, CEO at Flex]

These achievements also speak to the extraordinary dedication of our team who delivered these results under challenging market conditions. This has been the theme for the last several years, and it's important to understand how we got here. Now turning to the next slide. From the beginning, I have emphasized our focus on winning the right kind of growth that would ultimately transform this company. Since 2020, we have executed our FlexForward strategy.

[Revathi Advaithi, CEO at Flex]

We've made aggressive portfolio management decisions that positioned us to shift towards higher value businesses. And by integrating thoughtful organizational changes and operational innovations, we have built a more efficient and resilient company. From this transformational strategy, we've delivered multiple years of consecutive record level adjusted operating margins and earnings per share. This performance validates our strategic direction and shows our ability to create sustainable value through the cycles. As you will recall, on our Investor Day last May, we formally unveiled the next phase in our evolution, our EMS plus products plus services strategy.

[Revathi Advaithi, CEO at Flex]

This approach builds on our world class advanced manufacturing and supply chain capabilities, adding proprietary products and expanded value added services that provide greater vertical integration and customization at scale. Our power products further differentiates Flex as the only provider with a comprehensive portfolio spanning the data center from grid to chip. We believe that this evolved strategy will generate greater value for our customers, more integrated engagements and, of course, margin accretive growth opportunities. Now turning to the next slide. Our data center business exemplifies this strategy in action.

[Revathi Advaithi, CEO at Flex]

Total data center revenue grew about 50% year over year in both Q4 and for the full year and reached approximately $4,800,000,000 in fiscal twenty twenty five at accretive margins. We also strengthened our competitive position through several acquisitions aimed at solving critical challenges around power, heat and scale. Our data center revenue is comprised of two parts: cloud and power. In FY twenty twenty five, our cloud programs generated about $3,500,000,000 as we provide end to end customized hyperscale rack solutions. Cloud operations are increasingly seeking more complete solutions to improve efficiency and cost at the scale they require.

[Revathi Advaithi, CEO at Flex]

This year, we further enhanced our solution with direct to chip liquid cooling capabilities through our JetCool acquisition. Our power products, which is a combination of our embedded and critical power solutions, generated about $1,300,000,000 in revenue in fiscal twenty twenty five. As you can see in the graphic, Embedded Power Solutions starts at the board level with our power modules managing power to the GPU or custom ASIC all the way through the rack. Critical Power Solutions is the other part of our power portfolio, which covers everything above the rack and through data center facilities, including our PowerPods that provide a fully customized modular data center power in a box, which is critical in supporting faster time to market and future flexibility as data centers evolve. Through our Crown Technical acquisition, we enhanced our critical power capabilities in the data center and expanded our addressable market into grid modernization.

[Revathi Advaithi, CEO at Flex]

As you can see, we have truly differentiated ourselves as the only company providing both end to end IT cloud integration and an innovative power portfolio that spans from grid to chip. This synergistic combination reinforces our position in the evolving AI data center ecosystem, given the convergence between compute and power. Our value proposition is evident in the strength of our data center revenue growth at accretive margins. As we look to next year, we expect data center revenue to grow around the mid-thirty percent level, with power likely a little above that rate as we ramp domestic capacity and Cloud to be slightly below due to difficult comps. Now turning to Slide seven.

[Revathi Advaithi, CEO at Flex]

Regarding tariffs, here are a few things to keep in mind as we navigate the evolving situation. As we previously stated, tariffs are a pass through cost. Mexico is our largest revenue center, and over 90% of what we produce there is USMCA compliant. Very little of the product manufactured in China comes to The U. S.

[Revathi Advaithi, CEO at Flex]

However, we do procure raw materials from China and other countries that may still be impacted by higher tariffs, so this does add costs that we will ultimately pass through. As a trusted global manufacturing partner with deep supply chain expertise, we have become the first call for customers to help navigate today's complex trade and tariff environment. Through our proprietary Pulse Simulation platform and our team of supply chain experts, we have visibility and potential tariff impact by customer and by country and are currently working with many customers to develop durable tariff mitigation strategies. This approach builds on our success guiding customers through Tariff one point zero and other recent major geopolitical events. What's particularly noteworthy is how quickly the situation has progressed from conversations about potential location scenarios to customers moving forward with transition plans for North American manufacturing capacity.

[Revathi Advaithi, CEO at Flex]

We believe these moves are reflective of a longer term trend towards regionalization as well as the value of our footprint and the trust customers place in our execution. We were early in establishing the right footprint, capabilities and labor pools in key markets. Our actions and strategic investments have enabled us to have the right ecosystem in place today. Flex's global operational footprint now covers over 48,000,000 square feet. Last year, we expanded four new strategic locations, predominantly in The U.

[Revathi Advaithi, CEO at Flex]

S, which now encompasses 7,000,000 square feet across 17 facilities and further expandability. When combined with our 9,000,000 square feet in Mexico, we now command one of the largest advanced manufacturing footprints in North America. This expansion has been tied to current customer demand, especially with cloud and power programs. We will continue to be selective on new programs in North America as we prioritize capacity for initiatives that deliver maximum value and align with our longer term strategy. Additionally, our EMEA footprint now exceeds 11,000,000 square feet, also maintaining our position as one of the region's largest diversified manufacturing providers.

[Revathi Advaithi, CEO at Flex]

You can see how our extensive footprint and operational agility have now become tremendous strategic assets. Of course, are still risks in the current tariff environment, particularly to demand and a potential slowdown in the broader economy. Still, we believe that we are well positioned to support customers and expect Flex to remain both a facilitator and beneficiary of regionalization in the coming years. Kevin will provide our full guidance in just a moment, but I want to make a few comments as we look ahead to fiscal twenty twenty six. Once again, this year is off to a dynamic start.

[Revathi Advaithi, CEO at Flex]

As I've said before, resiliency and adaptability are embedded in our core, enabling us to navigate years of disruptions while still executing our longer term growth and margin expansion strategy. The strength of this foundation becomes evident when you consider that despite current market uncertainty, our fiscal twenty twenty six guidance indicates we expect to achieve 6% adjusted operating margin, reaching our fiscal twenty twenty seven target a full year ahead of schedule. Stepping back, I remain deeply confident in our strategy and distinctive value proposition. I believe our current capabilities and competitive advantage present the strongest opportunity in our company's history. And I'm very excited about our future and the exceptional value we'll continue to deliver to our stakeholders.

[Revathi Advaithi, CEO at Flex]

Lastly, I want to thank the Flex team again for your continued dedication and hard work. I also want to thank our customers for their trust and partnership. And with that, I'll turn it over to Kevin. Kevin?

[Kevin Krumm, CFO at Flex]

Thank you, Revathi, and good morning, everyone. Starting with our Q4 results on Slide nine. Fourth quarter revenue came in at $6,400,000,000 up nearly 4% versus prior year. Gross profit totaled $6.00 $2,000,000 and gross margin improved to a record level 9.4%, up 80 basis points. Operating profit was $396,000,000 with operating margins at 6.2%, up 80 basis points.

[Kevin Krumm, CFO at Flex]

And as Revathi mentioned, this was a new record for Flex. Finally, earnings per share for the quarter increased 28% year over year to $0.73 per share. Turning to our quarterly segment results on the next slide. In Reliability, revenue was $2,900,000,000 down 1.3%, largely driven by strength in Power, offset by continued softness in Core Industrial and Renewables. Operating income was $180,000,000 with segment operating margin up 40 basis points, finishing at 6.2%.

[Kevin Krumm, CFO at Flex]

Agility revenue totaled $3,500,000,000 growing a very strong 8.2%, driven by cloud demand and networking share gains offsetting weak enterprise IT and consumer end markets. Operating income was $230,000,000 with operating margins up 100 basis points, improving to a new quarterly record of 6.6% on continued mix improvements. Looking at our full year FY 2025 results on Slide 11. Revenue was $28,500,000,000 down 2%, driven by strength in Cloud and Power, primarily offset by continued softness in core industrials and renewables. Gross profit totaled $2,300,000,000 and gross margin improved to 8.8%, up 100 basis points driven by strong mix.

[Kevin Krumm, CFO at Flex]

Operating income totaled $1,500,000,000 up 15%, leading to a 5.7% operating margin, up 90 basis points, driven by favorable mix impacts and operational efficiency. I'll point out, we hit record levels for both annual gross and operating margins this year. For the full year, Flex achieved EPS of $2.65 up 23%, driven by record operating profit and strong free cash flow conversion, which contributed to another year of strong share buybacks. Moving to our cash flow on Slide 12. Free cash flow in the quarter was $325,000,000 And for the full fiscal year, we delivered a record $1,100,000,000 in free cash flow.

[Kevin Krumm, CFO at Flex]

The strong performance is coming from CapEx discipline and continued focus on working capital management with outsized reductions in inventory. In Q4, net inventory was down 4% sequentially and 18% year on year. Inventory, net of working capital advances, was fifty six days, a reduction of fourteen days versus the prior year. For the quarter, net CapEx totaled $108,000,000 bringing full year CapEx to $423,000,000 or approximately 1.6% of revenue. In the fourth quarter, we repurchased about $300,000,000 of stock or approximately 8,000,000 shares.

[Kevin Krumm, CFO at Flex]

Our capital allocation priorities remain intact. We are focused on maintaining our investment grade balance sheet, funding CapEx to support organic growth, deploying capital towards accretive M and A and returning capital to our shareholders opportunistically through our share repurchase program. This was evident in FY 2025 as we deployed CapEx judiciously, spent about $400,000,000 on strategic accretive M and A and repurchased nearly $1,300,000,000 of stock, representing about 9% of our outstanding shares. Turning to our segment results for FY 2025 on Slide 13. FY 2025 was a highly dynamic year.

[Kevin Krumm, CFO at Flex]

Still, we delivered exceptional performance in key end markets such as data center as well as achieving growth in medical devices and automotive power electronics, where we continue to benefit from content gains. Macro driven headwinds affected several end markets, including core industrial, renewables and medical equipment. We believe these headwinds are temporary and expect these end markets to support growth in the future. Our diversified end market strategy has enhanced our resilience through market cycles, while simultaneously driving growth in our strategic focus areas. Additionally, active portfolio management to improve mix, growth in our products business and expanding value added services has helped drive strong margin expansion through the cycles and in both segments.

[Kevin Krumm, CFO at Flex]

Finally, our focus on operational excellence and efficiency is contributing to record level operating margins. In our Reliability segment, revenue was $11,700,000,000 with operating margin finishing at 5.8%. Again, that's a record level for the segment. And despite the top line pressure, the team still delivered 50 basis points of margin improvement. In our Agility segment, revenue totaled $14,100,000,000 delivering a 6.1% operating margin, also a record.

[Kevin Krumm, CFO at Flex]

I'm reminded Agility margins used to be around 2%. So that's quite a transformation and it reflects purposeful mix shift towards higher value business in all three business units. Looking at our full year 2026 guidance on Slide 14. With respect to the current macro environment, we're taking a conservative approach to our initial guidance. We believe it's prudent to provide a wider than usual revenue range, recognizing there are a lot of variables that create uncertainty for our customers.

[Kevin Krumm, CFO at Flex]

That said, we have not expanded the range for our operating margin or operating profit as we are confident in our ability to navigate this environment from a profitability standpoint as we've done over the last few years and in other challenging situations. Additionally, we have not incorporated direct tariff impacts to our expected costs or revenues given the rapidly changing nature of the situation. I'll explain that in further detail in a moment. Another factor to consider as we look to FY twenty twenty six revenue guidance, we are seeing an increasing number of customers moving to our customer sourced inventory models, particularly in our cloud business. Financial reporting requires that the value of the customer sourced inventory under these contracts be excluded from revenue.

[Kevin Krumm, CFO at Flex]

The net effect is that this shift in contract mix is muting our reported growth rate by excluding this activity, which is growing significantly year on year from revenue. With the strong growth in our data center business, cloud is becoming a more material contributor. And within cloud, we are seeing an increase in adoption of these models. In FY 2025, this customer source inventory activity increased $1,500,000,000 and represented approximately 17% of revenue. This is versus approximately 11% of revenue in FY 2024 and is expected to increase an additional $1,000,000,000 plus in FY 2026, which would represent approximately 20% of revenue.

[Kevin Krumm, CFO at Flex]

We've said in the past, we support our customers in either standard purchase and resale models or these consignment like models because they both drive operating profit dollar growth, which you saw increased 15% year on year in FY 2025. The simple takeaway is that we are winning new higher value data center business, not fully reflected in growth rates, which is driving growth in operating profit and EPS and generating greater value for our shareholders. As we look ahead, our FY 2026 expectations are revenue to be between 25,000,000 and $26,800,000 adjusted operating margin to be between 66.1%. As we've said in the past, our global tax rates increase excuse me, as we've said in the past, as global tax rates increase, we expect some headwinds. So for FY 2026, we expect our adjusted tax rate to land at about 21%.

[Kevin Krumm, CFO at Flex]

We expect adjusted EPS to be between $2.81 to $3.01 per share, and we expect to generate strong free cash flow and maintain our 80% plus free cash flow conversion target. As Ravathi said, our adjusted operating margin guidance implies that we hit our FY twenty twenty seven target of 6% plus operating margins a year earlier than expected. With regards to tariffs, it is a highly dynamic situation, but a few things to keep in mind. We expect tariffs to be a pass through cost, and we typically have strong contractual protections to allow for this. Tariffs can affect cash flow timing if there is a lag between when we pay the tariff at the border and receive the recoveries from customers.

[Kevin Krumm, CFO at Flex]

Depending on the magnitude, tariff recoveries could have an impact similar to inflation recoveries during the supply chain crisis, where we saw a slight increase in revenue growth and slight pressure on operating margins as recoveries came in as low calorie revenue. Lastly, some flex zone power products could be subject to tariffs due to current material and component sourcing. While we don't anticipate this to be a material issue, we do have pricing actions underway to offset these impacts where needed. Obviously, this is all still rapidly evolving, which is why we've excluded these direct tariff factors from our guidance. I just want to reiterate, we have a strong footprint in the right geographies, which we are confident will allow us to help our customers navigate this environment and position Flex well to benefit from the longer term trends and regionalization.

[Kevin Krumm, CFO at Flex]

Moving on to our initial FY twenty twenty six segment outlook. For Reliability Solutions, we expect revenue to be flat at the midpoint with continued strength in data center power offsetting macro related softness in automotive, core industrial and renewables. For Agility Solutions, we expect revenue to be flat to slightly up driven by sustained strength in cloud demand, networking share gains and lifestyle wins tempered by soft enterprise IT, telco and consumer devices. Finishing off with our guidance for the first quarter on Slide 16. We expect Reliability Solutions to be flat to down high single digits, largely due to expected auto weakness on tariff related disruptions affecting customer volumes.

[Kevin Krumm, CFO at Flex]

We expect Agility Solutions revenue to be down low single to up mid single digits based on strong cloud, balanced against softer enterprise IT and consumer related end markets. For total Flex, we expect revenue in the range of $6,000,000,000 to $6,500,000,000 with adjusted operating income between $330,000,000 and $370,000,000 Interest and other expense is estimated to be around $50,000,000 and the adjusted tax rate to be around 21%. Lastly, we anticipate adjusted EPS to be between $0.58 and $0.66 per share based on approximately $385,000,000 weighted average shares outstanding. With that, I will now turn the call back over to the operator to begin Q and A.

[Operator]

Thank you. We'll now begin the question and answer portion of today's call. Our first question comes from the line of Samik Chatterjee with JPMorgan. Please proceed with your question.

[Samik Chatterjee, Managing Director at JP Morgan]

Hi, thank you. Good morning and thank you for taking my questions and congratulations on the strong margin guide here. Maybe if I can start off with that, as we look at the margin guide for fiscal 'twenty six, which is for 6%, a bit more than 6%, how should we think about the drivers relative to fiscal 'twenty five outside of maybe mix on the cloud business as that grows rapidly outside of mix on increasing contribution from cloud, what are the other drivers you're sort of penciling in there in relation to the strong margin guide for fiscal twenty twenty six? And I have a follow-up.

[Kevin Krumm, CFO at Flex]

Hi, Smik. This is Kevin. I'll start on that. Yes, you nailed it. A big driver of the mix year on year is going to be our continued growth in the cloud.

[Kevin Krumm, CFO at Flex]

Also data center product business, as we are in our Power business, we should continue to see favorable mix impacts from that as well. I will point out our service business, we expect continued growth there year on year, which should have some favorable mix impacts. And then lastly, what I'll say is, the drivers of mix that you've seen benefit our business in FY 2025, we expect to continue in FY 2026, which is in each one of our segments. We expect them to continue to drive mix improvement in those segments through operational efficiency, and continued productivity and leverage.

[Samik Chatterjee, Managing Director at JP Morgan]

Okay. Got it. And for my follow-up, given the I think you referenced this in your prepared remarks as well that customers are now looking for capacity, you have in Mexico as well as U. S. Can you just give us a bit of sort of the lay of the land, what you're hearing from customers in relation to demand for either U.

[Samik Chatterjee, Managing Director at JP Morgan]

S. Footprint and Mexico? How much sort of capacity, flexible capacity do you have on that front? And does that present a dollar margin opportunity as well in relation to picking some high margin business as you go through fiscal twenty twenty six?

[Revathi Advaithi, CEO at Flex]

Yes.

[Revathi Advaithi, CEO at Flex]

Samik, I'd say, first is definitely for our teams, the phones are ringing off the hook as customers are trying to figure out, one is what's the impact of tariffs and then longer term, this means to their footprint. The good part is that we have worked through this in the whole tariff one point zero scenario, and we've been done a lot of work already in terms of moving footprint around for our customers over the last kind of five years. So it's not new to us. The good news for us is that our footprint is so strong in Europe and in North America that we have some available capacity and where we have also announced new capacity expansions over the last year, as you have seen and heard from us, in these regions that we're able to really be thoughtful about what is the right kind of mix we want as we look at these capacity expansions. But at the end of the day, we want to help our customers, right?

[Revathi Advaithi, CEO at Flex]

And that is our big focus. So a lot of conversations with customers on open capacity, increasing utilizations in terms of our existing equipment to drive productivity so we can drive more volume for them from these factories. All of those things are continuing conversations. And we expect the continued shift that has happened in our footprint, has happened in our PPE, and then as a result, continued improved margin as a result of these changes. While tariffs create a lot of noise and are not helpful in many ways, the changes that are happening to regionalization and to customer locations as a result of this are really, really important to us.

[Revathi Advaithi, CEO at Flex]

And so only the last thing I'd say in closing is, as customers look at things from a longer term perspective, regionalization will continue. We will need open capacity in North America, could be Mexico or The U. S. And I believe we are very well equipped to deal with that and support them through that transition.

[Samik Chatterjee, Managing Director at JP Morgan]

Got it. Thank you. Thanks for all the color.

[Operator]

Thank you. Our next question comes from the line of Steven Fox with Fox Advisors. Please proceed with your question.

[Steven Fox, Founder & CEO at Fox Advisors, LLC]

Hi, good morning and thanks for taking my questions. I had two. First off, Revathi, I was curious if you could expand on your comments you highlighted around data centers, your scale advantages. How does that play out in the new fiscal year? What are you seeing in the marketplace that is sort of playing into those advantages?

[Steven Fox, Founder & CEO at Fox Advisors, LLC]

And then Kevin, just from an inventory standpoint, obviously a lot of improvement there. How do we think about sort of inventories and working capital impacting the cash flows in fiscal twenty twenty six? Thanks.

[Revathi Advaithi, CEO at Flex]

Okay, Stephen. I'll start off. I'd say in data centers, as I think about our overall kind of footprint and capability, right, is one is in the IT integration side that comes under our CEC business. First is having the ability to have a fully vertically integrated capability that is where you're cutting the sheet metal, putting all the equipment together with server storage switching devices, having the power available to do it, then also today having liquid cooling capability to scale these customer orders up are all important. And so we have the ability not only have the footprint, but have the power availability for these IT integration and the equipment and the utilization capability for rack integration, I would say unlike almost any other competitors in this region in this area.

[Revathi Advaithi, CEO at Flex]

So scale is really, really important in the IT integration side. On the power side, the engineering and design capability in terms of not only designing what is happening today, which is we're talking about kind of 100 kilowatt power in a rack or higher in some cases, being able to design that with kind of the silicon providers is really significantly important. So there, the scale of engineering capability in designing that and deploying that, I think, is very important for us. On the power side, the scale comes not only from footprint, but from the engineering scale and the depth of experience that exists there. And the thing I said in my prepared remarks that I've said a few times before is what is coming together is compute and power.

[Revathi Advaithi, CEO at Flex]

And there's really no supplier who can put the two together, other than Flex, right? And so that is a very unique capability we have that totally differentiates us. And more and more customers are asking for that today, not only in terms of the programs they're working on today, but what they're designing for the future. And that's a very unique differentiation that we have. Kevin, I'll turn it over to you for the inventory question.

[Kevin Krumm, CFO at Flex]

Stephen, thanks for the question. On inventory, as you asked on FY 2026, I'll point to sort of inventory trends over the last couple of years. As you know, coming out of COVID, we invested heavily in inventory, and we've been harvesting that investment over the last couple of years, and certainly did so again in FY 2025, which was a big driver in our record level, free cash flow, which was about $1,100,000,000 As we end the year, our team has done a great job, and we see inventories really ending FY 2025 at more normal levels. All that said, we do expect some improvement in our inventory rate and in our working capital rate in FY 2026, but not at the levels we've seen over the last couple of years. And that's really what's informing our 80% plus free cash flow conversion target.

[Kevin Krumm, CFO at Flex]

The other thing I'll point out with respect to FY twenty twenty five as we move into FY twenty twenty six is in FY twenty twenty five CapEx as a percent of revenue was about 1.6%. That's a little below our target rate, historical target rate of about 2%. So as we go back into, or as we go into FY '20 '20 '6, I expect our CapEx as a percent of revenue to normalize closer to that historical rate. Again, that's a contributor to our full year guide of 80% plus free cash flow conversion.

[Steven Fox, Founder & CEO at Fox Advisors, LLC]

Great. Thank you very much.

[Kevin Krumm, CFO at Flex]

Thank you.

[Operator]

Thank you. Our next question comes from the line of Ruplu Bhattacharya with Bank of America. Please proceed with your question.

[Ruplu Bhattacharya, Analyst at Bank of America]

Hi, thanks for taking my questions. Revathi, you talked about strong growth in Power and Cloud and I think you guided to 30% year on year growth. Can you delve a little bit deeper into who the customer said that you're targeting now for both Cloud and Power? In cloud, I mean, you maintain that growth with just the top customers that you had or do you are you planning to expand beyond that customer? Is hyperscale the customer set or is it enterprise?

[Ruplu Bhattacharya, Analyst at Bank of America]

And in Power, can you give some details on who the on what the customer set is and which region do you see Power products growing? Any kind of details to help us get comfortable with the 30% year on year growth rate? And I have a follow-up. Thank you.

[Revathi Advaithi, CEO at Flex]

Yes. I'd say, Rupul, I'd start with saying, one is you should be very comfortable with the 30% because you have just seen what we have executed in the last few years, right? So that is one thing. And then second is, as you all point out to me all the time is that we're always conservative in kind of what we say long term, right, in terms of our guidance. So I would say the 30% is, you should absolutely feel comfortable with.

[Revathi Advaithi, CEO at Flex]

Now where is it coming from? I would say on our IT integration side, I think one of the things that is really important to know what's different about us is we have multiple hyperscaler customers, right? So almost all large hyperscaler customers are part of our customer mix. So we're not really geared towards or targeted towards one large hyperscaler. And they're all growing fairly significantly and have very big long term programs that are up and coming.

[Revathi Advaithi, CEO at Flex]

And we're also growing with kind of the smaller cloud customers, who now you're seeing a lot of who offsets to also hyperscalers where there are smaller cloud customers that are coming up in various regions, and we are also supporting them. So that is also very significantly important. So very diversified end customers in our IT integration side. In the power side, on the embedded power business, where we design power that goes on the chip, we mainly work with the silicon providers because those they are the ones who are driving actually the what the significant compute requirements that's required. So we start by working with the silicon providers, which in some cases are also hyperscalers who are making their own silicon.

[Revathi Advaithi, CEO at Flex]

And there also, there is pretty significant diversification in terms of end customers. And in our Critical Power, we work with almost every large colo and almost every large hyperscaler, mainly in Europe and North America. I'd say we do less in terms of Asia and Critical Power, but very diversified from a geography and an end customer standpoint. So that's what really makes our data center business very unique is the diversification in all these three businesses, which is really important. And then the critical thing is as technology puts compute and power together, we're the only ones who can really work on that technology in terms of putting that together. So that's also a very important thing.

[Ruplu Bhattacharya, Analyst at Bank of America]

Okay. Thanks for all the details there. I appreciate that. Can I ask about the customer sourced inventory and the impact of that on both revenues and margins? I think you talked about a $1,000,000,000 impact in fiscal twenty twenty six.

[Ruplu Bhattacharya, Analyst at Bank of America]

Is that all in hyperscale or is it in other end markets as well including are you seeing that in both the power business as well as in the cloud business? And what is the impact on margins of customers going to a customer sourced inventory model? Is it positive for margins or negative? Any details would be appreciated.

[Revathi Advaithi, CEO at Flex]

Yes. Kevin?

[Kevin Krumm, CFO at Flex]

Ruplu, I'll take that. Just answering your question. So your first question on hyperscale, I would say, no, it is not isolated. Those contracting arrangements are not isolated to our cloud business, although I would say a majority of the contracts are in the cloud business. Your question on margins, the short answer is yes.

[Kevin Krumm, CFO at Flex]

Margins get a bump when you look year on year, but it's important to note that FY 2025 and as we think about margins as we go into FY 2026, our margins we do expect our margins to grow without this bump.

[Ruplu Bhattacharya, Analyst at Bank of America]

All right. Thank you for all the details. Really appreciate it.

[Kevin Krumm, CFO at Flex]

You're welcome.

[Operator]

Thank you. Our next question comes from the line of George Wang with Barclays. Please proceed with your question.

[George Wang, Analyst at Barclays Capital]

Hey, guys. Thanks for taking my question and congrats on the quarter. I have two quick ones. Firstly, maybe for Kevin, I noticed implied OPM percentage for 1Q twenty twenty six is a bit lower sequentially. Kind of for JIVE with first quarter a year ago as well kind of a down from 4Q to 1Q. Is this just due to typical seasonality or kind of start up costs with the program ramping? Can you kind of call out the drivers kind of pointing to implied OP percentage maybe kind of 5.6% for the 1Q?

[Kevin Krumm, CFO at Flex]

Yes. Hi, George. So the question on why are margins implied margins stepping down 4Q twenty twenty five to Q1 twenty twenty six, I'd say there's really two drivers in there. One is just sequentially our revenue, we expect our revenue to step down and in some of our business, we're going to have lower fixed cost absorption. The other thing I would say is, as we go into the first quarter, our automotive business, we're expecting a step down there sequentially, Q4 to Q1.

[Kevin Krumm, CFO at Flex]

And with that and due to the nature of the cost structure in that business, there's going to be a little more margin drag in the first quarter than we would expect as we move through the year there as well. So those are really your two primary drivers of the step down in operating margin Q4 to Q1.

[Revathi Advaithi, CEO at Flex]

And I'd say, George, the only thing I'd add to that is you've seen this in the last year also, right? Our Q1 was somewhat soft and had a fairly strong year in terms of our margin performance. And we as you can see our FY twenty twenty guide is really strong, 6% operating margin that we're going to hit a year ahead of schedule. So I'm not worried about kind of the sequentials. I feel very good about kind of how we have laid this out. It's going to be a strong year.

[George Wang, Analyst at Barclays Capital]

Yes. Yes, I agree. And also a quick follow-up for Ravathi. You guys called out networking share gains, which caught my eye. I'm just curious if you can double click on the networking share gains.

[George Wang, Analyst at Barclays Capital]

Can you talk about which specific customer set or is mostly broad based? And in terms of share gains, are these gains from Asia competitors or could be just a share gain from U. S.-based EMS guys as well? Just if you can give any color on that.

[Revathi Advaithi, CEO at Flex]

Yes.

[Revathi Advaithi, CEO at Flex]

The only thing I would say is, George, is that it's we mainly grow with kind of large players in the networking space. And they're all fairly well known to you and to everyone. So we've continued to grow with them in the last few years. And I would say in terms of geography, it is across the world with these share gains and these customers. So I think that's all I can add to it, right?

[Revathi Advaithi, CEO at Flex]

I'm not going to share names and all that, but it's a pretty significant part of where we have grown and it's a very good business for us.

[George Wang, Analyst at Barclays Capital]

Okay. Just a quick one if I can squeeze in. Just in terms of value added services, last year you guys have talked about RMB1 billion. Dollars In the prepared remarks, you talked about year over year growth. Just curious, any color beyond that, just how to quantify growth rate for FY 2026 for the value added services, which is margin accretive?

[Revathi Advaithi, CEO at Flex]

Yes. I don't think we are sharing growth rates for FY 2026 in terms of the services business. I think we give you enough as we look back usually on the services business. All I'll say is we expect it to grow again in fiscal twenty twenty six in almost all aspects of that business. As you know very well, it really drives vertical integration for us across multiple end markets.

[Revathi Advaithi, CEO at Flex]

And it is important in terms of how we improve margins because that is a key part of our strategy. Revenue wise, it's not big numbers compared to our overall kind of $31,000,000,000 revenue that we have, but really important in terms of building customer affinity and driving margins. But really no numbers to share for you in terms of exact growth rates and things like that, but we expect it to grow in FY 2026.

[George Wang, Analyst at Barclays Capital]

Great. Thank you. Congrats again on the quarterly guide. I'll go back to the queue.

[Revathi Advaithi, CEO at Flex]

Thanks, George.

[Operator]

Thank you. Our next question comes from the line of Mark Delaney with Goldman Sachs. Please proceed with your question.

[Mark Delaney, Analyst at Goldman Sachs]

Yes, good morning. Thank you very much for taking my questions. Nice to see the margin strength and recognizing you're guiding to reach the 6% a year earlier than you'd previously targeted. I do want to better understand how tariffs may affect the margin guidance. So I believe you said your guidance excludes tariffs both with respect to revenue and cost and you'd expect tariff costs to be passed through at a low margin.

[Mark Delaney, Analyst at Goldman Sachs]

So if tariff levels are sustained and I realize tariffs are quite dynamic, but in a scenario where tariff levels are sustained around levels they are today, do you still think you'd at 6% margins for this coming year?

[Kevin Krumm, CFO at Flex]

Mark, this is Kevin. Thanks for the question. I would say so you're thinking about it the right way. Our guide excludes any impacts from direct impacts from tariffs, which would impact both revenue and costs really coming through at flat to zero margin. So, we would expect a drag versus our current guide at margins if tariffs were applied at sort of the current guidance that's out there.

[Kevin Krumm, CFO at Flex]

We wouldn't expect it to be significant, but there would be, some basis points drag versus our current guide.

[Mark Delaney, Analyst at Goldman Sachs]

Okay. Thanks for clarifying, Kevin. My other question also related to tariffs and more trying to better understand what kind of knock on effects tariffs are having to end demand. You said you're factoring in some weakness into the auto market. But as you think about some of the other end markets, are you seeing any weakness in customer schedules perhaps if prices are going higher, you're expecting some negative elasticity of demand?

[Mark Delaney, Analyst at Goldman Sachs]

Or if you're not seeing that, is that something you tried to factor into the revenue guidance? Thanks.

[Revathi Advaithi, CEO at Flex]

Yes. I'd say, Mark, we're really not seeing anything in terms of outside of what we have talked about in automotive and any kind of significant weakness in terms of customers itself. And I'll just remind you that if you think about our current business mix, right, even in our lifestyle and consumer and market businesses, we are with kind of really high end consumers and complex products. And so don't we're not seeing any significant impact there. Of course, our data center business is very strong.

[Revathi Advaithi, CEO at Flex]

We don't see any significant impact there. Industrial businesses are still holding, as you have seen in terms of CapEx for industrials are still pretty strong driven by investments that they're making. So we're not really seeing any significant impact in terms of end market demand outside of automotive. So if you think about our guide today, it really reflects that. And you can see that from a lot of the results that are coming out also that demand is holding pretty well in all the major end markets we're in.

[Revathi Advaithi, CEO at Flex]

So highly dynamic, of course, Things could change. But I would say both dealing with tariffs pass through and demand, we feel like we have kind of included what we see today in our guide.

[Kevin Krumm, CFO at Flex]

Mark, the only thing I want to add because you asked your question based on OP margin, which I understand, why you positioned it that way. But when we think about tariffs, while there will be a drag on OP margin, as we've thought about our guide, we do not expect there to be an impact on OP profit dollars this year, or EPS dollars for that matter. So I just wanted to clarify that because that was a critical element of our guide as we thought about it for FY 2026.

[Mark Delaney, Analyst at Goldman Sachs]

Yes. No, that makes sense, Kevin. And Ruvi, thanks for all your thoughts on what you're seeing by end market.

[Revathi Advaithi, CEO at Flex]

Thanks, Mark.

[Operator]

Thank Our next question comes from the line of Steve Barger with KeyBanc Capital Markets. Please proceed with your question.

[Christian Zyla, Senior Associate Equity Research at KeyBanc Capital Markets]

Good morning. This is Christian Zyla on for Steve Barter. Thanks for taking the questions. First question, just going back to the Husqvarna facility acquisition, could you just give us some additional color on how that deal came about? Was that opportunistic timing?

[Christian Zyla, Senior Associate Equity Research at KeyBanc Capital Markets]

Or is that business that you were vying for? And then just more broadly, is the current operating environment across the globe getting more potential customers to the table to consider and pursue your entire suite of outsourcing capabilities?

[Revathi Advaithi, CEO at Flex]

Yes. I'd say, Christian, on the deal with Husqvarna, we constantly talk to customers and engage with them about kind of how we can help them with their supply chain, right? So that's a constant conversation with them. As this whole regionalization conversation has become stronger and stronger, and we are looking to build our footprint in North America, this was a really good opportunistic deal for us and for the customer where we're able to take on their capability and then add to our footprint and our capability in a region that we are very interested in growing more aggressively. So it was really a win win for us.

[Revathi Advaithi, CEO at Flex]

And more and more conversations like that customers are happening where not only can we help them with their footprint, existing footprint, but we can expand our capability with that too. So it was a perfect deal, perfect timing, and really excited to welcome that group into our fold and looking to expand that capability pretty well. What was the second question? Christian, can you repeat your

[Christian Zyla, Senior Associate Equity Research at KeyBanc Capital Markets]

absolutely. Just is it getting more customers to the table to consider outsourcing or your entire suite of outsourcing capabilities?

[Revathi Advaithi, CEO at Flex]

I would say we are getting a lot customer conversations with our teams in terms of regionalization, but also as you're doing regionalization, taking on more end to end capability. Because the hardest part about regionalization is going to be where is your raw material coming from, who's going to be making that, everything that's vertically down, not just the final test and assembly. So it's better for customers if they hand over things to us more end to end. Everything from a planning perspective, managing their supply chain to then vertically integrating it into all the aspects that go into the final product does make it easier for them. So we are seeing more of those conversations.

[Revathi Advaithi, CEO at Flex]

It is pushing us to develop our own capability even further in markets like Mexico and in The U. S, but also develop our supply chain even more aggressively. So Christian, you're right, it is driving more end to end conversations at a faster speed today than it's ever been before.

[Christian Zyla, Senior Associate Equity Research at KeyBanc Capital Markets]

That's great. And then if I could just sneak in my second question. It's a follow-up on the earlier inventory question. I know in the last few years, you guys have been working down to bring working to bring down the inventory levels. But if we were to see inflection sooner in say, core agility or auto markets, should we expect to see an equal uptick in inventories or anything on the working capital side?

[Christian Zyla, Senior Associate Equity Research at KeyBanc Capital Markets]

Just help us think about the inflection and kind of the future. Thank you.

[Kevin Krumm, CFO at Flex]

This is Kevin. I'll take that. I mean, sure. When you think about our inventory, to the extent that we see a significant pivot and growth, you would see some investment in our working capital rate as we need that or sorry, capital, not working capital rate, but we would need that investment to support growth in our model. All that said, there will continue to be opportunity in working capital rate that would offset that investment.

[Kevin Krumm, CFO at Flex]

So yes, as, we pivot to growth, you asked on automotive, but I would say this across all of our SBUs, you would see some working capital investment. But we have rate opportunity we're going to continue to work on, and that's going to help offset some of that investment as we go forward here.

[Revathi Advaithi, CEO at Flex]

Yes. The only thing I'd add, Kevin, to that is one thing we learned through the supply chain crisis is getting really good in terms of managing inventory end to end, right? So not just for us, but for our customers and then through the supply chain. So all of those learnings and systems and processes we have developed will all come into play as overall at the end of the day, we want to make sure our days are well in control for us and our customers. So yes, we'll need more inventory to support growth.

[Revathi Advaithi, CEO at Flex]

But the important part is we will manage our days of inventory really well across the supply chain.

[Christian Zyla, Senior Associate Equity Research at KeyBanc Capital Markets]

Thank you, guys.

[David Rubin, VP, IR at Flex]

Thank you.

[Operator]

Thank you. Ladies and gentlemen, this concludes our question and answer session. And thus concludes our call today. We thank you for your interest and participation. You may now disconnect your lines.

Participants

Executives

• David Rubin, VP, IR
• Revathi Advaithi, CEO
• Kevin Krumm, CFO

Analysts

• Samik Chatterjee, Managing Director at JP Morgan
• Steven Fox, Founder & CEO at Fox Advisors, LLC
• Ruplu Bhattacharya, Analyst at Bank of America
• George Wang, Analyst at Barclays Capital
• Mark Delaney, Analyst at Goldman Sachs
• Christian Zyla, Senior Associate Equity Research at KeyBanc Capital Markets