Results for Q3 Fiscal 2017 Earnings Announcement: January 26, 2017 - - PowerPoint PPT Presentation

Results for Q3 Fiscal 2017

Earnings Announcement: January 26, 2017

(Quarter Ending December 31, 2016)

1

Risks and Non-GAAP Disclosures

This presentation contains forward-looking statements, which are based on current expectations and assumptions that are subject to risks and uncertainties and actual results could materially differ. Such information is subject to change and we undertake no obligation to update these forward-looking statements. For a discussion of the risks and uncertainties, see our most recent filings with the Securities and Exchange Commission, including our current, annual and quarterly reports. Please refer to the appendix section of this presentation for the reconciliation of the Non-GAAP financial measures to the most directly comparable GAAP measures for the current period results. If this presentation references historical non-GAAP financial measures, these measures are located on the “Investor Relations” section

• f our website, www.flex.com along with the required reconciliation to the most comparable GAAP financial measures.

The following business group acronyms will be used throughout this presentation: Communications & Enterprise Compute

Telecom, Networking, Server & Storage, Storage & Security Appliance, Converged Infrastructure, Software Defined Product Solutions.

Consumer Technologies Group

Wearables, Fashion, Connected Living, Gaming, Mobile, PCs/Printers.

Industrial & Emerging Industries

Semiconductor & Capital Equipment, Office Solutions, Household Industrial & Lifestyle, Industrial Automation & Kiosks, Energy & Metering, Lighting.

HRS

High Reliability Solutions

Medical: Consumer Health, Digital Health, Disposables, Drug Delivery, Diagnostics, Life Sciences & Imaging Equipment. Automotive: Vehicle Electronics, Connectivity, Clean Technologies.

IEI CEC CTG

2

Q3 FY2017 Income Statement Highlights

Prior Yr Current Qtr

($M, except per share amounts)

December 31, 2015 December 31, 2016

Net sales $6,763 $6,115 Adjusted operating income 236 223 Adjusted net income 196 183 Adjusted EPS $0.35 $0.34 GAAP income before income taxes 127 140 GAAP net income 149 129 GAAP EPS $0.27 $0.24 Q3 FY2017 Results vs. Guidance Net sales of $6.1B in the range of guidance $6.0 - $6.4B Adjusted operating income of $223M above the mid-point of guidance $205 - $235M Adjusted EPS of $0.34 towards the high-end of guidance $0.31 - $0.35

Please refer to the appendix section of this presentation for current period reconciliation of the Non-GAAP financial measures to the most directly comparable GAAP measures. For all historical periods referenced in this presentation, refer to the Investor Relations section of our website.

Revenue & Adjusted Gross Margin

($M)

3

Quarterly Financial Highlights

22% 22% 22% 20% 20%

Dec-15 Mar-16 Jun-16 Sep-16 Dec-16

Return on Invested Capital

(ROIC %)

$0.35 $0.29 $0.27 $0.28 $0.34

Dec-15 Mar-16 Jun-16 Sep-16 Dec-16

Adjusted Earnings Per Share

(EPS)

6,763 5,773 5,877 6,009 6,115 6.7% 7.1% 6.9% 6.9% 7.1%

Dec-15 Mar-16 Jun-16 Sep-16 Dec-16

• Adj. Gross Margin

Adjusted Operating Income

($M)

236 200 190 197 223 3.5% 3.5% 3.2% 3.3% 3.6%

Dec-15 Mar-16 Jun-16 Sep-16 Dec-16

• Adj. Operating Margin

Please refer to the appendix section of this presentation for current period reconciliation of the Non-GAAP financial measures to the most directly comparable GAAP measures. For all historical periods referenced in this presentation, refer to the Investor Relations section of our website.

Q3 FY17

(December 31, 2016)

Target Adjusted Operating Margin Range

($M)

Rev$ OP$

(adj.)

OP%

(adj.)

$2,102 $62 3.0%

Challenging demand environment but continuing to operate within the targeted range.

$1,849 $59 3.2%

Driving a more diversified customer base by leveraging new technologies and the expansion into new markets.

$1,141 $40 3.5%

Sequential improvement and progressing towards targeted range, despite energy project delays.

$1,023 $83 8.1%

Strong execution and margins remain meaningfully inside the targeted range.

Corporate Services & Other1

• ($21)
• Total $6,115

$223 3.6%

6 4 2 2.5 9 6 4 3.5

Operating Performance by Business Group

• 1. Corporate services and other: corporate service costs that are not included in the assessment of the performance of each of the identified business groups.

3.2%

3.0% 3.5% 8.1%

4

Please refer to the appendix section of this presentation for current period reconciliation of the Non-GAAP financial measures to the most directly comparable GAAP measures. For all historical periods referenced in this presentation, refer to the Investor Relations section of our website.

CEC CTG IEI HRS

5

Other Income Statement Comments

• Q3 FY17 was $26M
• Q4 FY17 outlook $25M-$30M

Interest & other expense, net

• Q3 FY17 was 7.2%
• FY17 outlook 8-10% tax rate

Adjusted income tax rate Reconciliation between GAAP and Adjusted EPS

Aggregate impact on EPS $0.10:

• Stock based compensation $21M or $0.04 in EPS
• Net intangible amortization $17M or $0.03 in EPS
• Severance charges $16M or $0.03 in EPS

» » »

Please refer to the appendix section of this presentation for current period reconciliation of the Non-GAAP financial measures to the most directly comparable GAAP measures. For all historical periods referenced in this presentation, refer to the Investor Relations section of our website.

6

Cash Flows & Net Working Capital

Three Months Ended Nine Months Ended

($M)

(Dec 31, 2016) (Dec 31, 2016)

GAAP net income $129 $233 Depreciation and amortization 128 388 Change in net working capital 214 174 Other operating cash flows, net (2) 218

Net cash provided by operating activities 469 1,013

Purchases of property & equipment, net (106) (385)

Free Cash Flow 363 628

Other investing and financing, net (94) (208) Debt proceeds, net 126 90 Payments for share repurchases (75) (260)

Net change in cash and cash equivalents $320 $250

1,808 1,789 1,796 1,851 1,626

6.7% 7.7% 7.6% 7.7% 6.6%

Dec-15 Mar-16 Jun-16 Sep-16 Dec-16

% Annualized Revenue

Net Working Capital

($M)

Net Working Capital is calculated as accounts receivable, net adding back the reduction in accounts receivable resulting from the non-cash receivable sales plus inventories less accounts payable. Free Cash Flow is calculated as cash from operations less net purchases of property & equipment. For all historical periods referenced in this presentation, refer to the Investor Relations section of our website.

Committed to return over 50% of annual free cash flow to shareholders

$1,857 $1,500 $525 $500 $700 $500 $600

Liquidity 2017 2018 2019 2020 2021 2022 2023 2024 2025

Significant Debt Maturities

($M) (Calendar Year)

Cash Revolver

Total Liquidity $3,357 Term Loan

LIBOR + 137.5bps

4.625% Notes 5% Notes 4.75% Notes $52 EURIBOR +100bps

7

Balanced Capital Structure

Key Characteristics

• Solid liquidity
• No significant near-term maturities

Please refer to the appendix section of this presentation for current period reconciliation of the Non-GAAP financial measures to the most directly comparable GAAP measures. For all historical periods referenced in this presentation, refer to the Investor Relations section of our website.

• Low cost of debt ~3.5%
• Strong credit metrics (Debt / Adj. EBITDA (LTM): 2.3x)

Investment Grade Rating: Moody’s, S&P, Fitch

Term Loan

LIBOR + 137.5bps

26% 16% 34% 24%

8

Q3 FY2017 Highlights and Key Trends

158 114 121 144 363 9.3% 9.7% 8.3% 7.3% 9.6%

Dec-15 Mar-16 Jun-16 Sep-16 Dec-16

FCF Yield

Free Cash Flow

($M)

90 89 95 90 75 551 545 546 541 537

Dec-15 Mar-16 Jun-16 Sep-16 Dec-16

Shares Outstanding (M)

Share Repurchases

($M)

HRS IEI CTG CEC

Strong Cash Flow Continued Portfolio Evolution Capital Return Commitment

Adj.

• Op. Profit

Mix

FCF yield is calculated based on (LTM free cash flow/outstanding shares at quarter-end) / share price at quarter-end.

Please refer to the appendix section of this presentation for current period reconciliation of the Non-GAAP financial measures to the most directly comparable GAAP measures. For all historical periods referenced in this presentation, refer to the Investor Relations section of our website.

50%

34% 19% 17% 30% Revenue Mix

36%

CTG CEC IEI HRS

37% 18% 15% 30%

9

Revenue by Business Group

Communications & Enterprise Compute

Telecom, Networking, Server & Storage, Storage & Security Appliance, Converged Infrastructure, Software Defined Product Solutions.

Consumer Technologies Group

Wearables, Fashion, Connected Living, Gaming, Mobile, PCs/Printers.

Industrial & Emerging Industries

Semiconductor & Capital Equipment, Office Solutions, Household Industrial & Lifestyle, Industrial Automation & Kiosks, Energy & Metering, Lighting.

High Reliability Solutions

Medical: Consumer Health, Digital Health, Disposables, Drug Delivery, Diagnostics, Life Sciences & Imaging Equipment. Automotive: Vehicle Electronics, Connectivity, Clean Technologies.

Dec 2015 33%

HRS IEI CTG CEC

Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17E

($M)

$ $ $ $ $ Q/Q % Y/Y % Outlook Q/Q %

CEC

2,469 2,201 2,196 2,102 2,102 0% (15%)

Down 5 - 10% CTG

2,058 1,364 1,314 1,665 1,849 11% (10%)

Down 20 - 30% IEI

1,214 1,190 1,289 1,243 1,141 (8%) (6%)

Up 10% - 15% HRS

1,022 1,018 1,078 999 1,023 2% 0%

Flat to Up 5% Total Revenue

$6,763 $5,773 $5,877 $6,009 $6,115 2% (10%)

34% 19% 17% 30%

Dec 2016 36%

HRS IEI CTG CEC

10

Q4 FY2017 Guidance – March 2017

GAAP Income Before Income Taxes

$100 - $130 million

GAAP Earnings Per Share

$0.17 - $0.21

Other Information:

Interest & Other Expense $25 to $30 million Adjusted Income Tax Rate 8.0% to 10.0% WASO ~543 million shares

($M, except per share amounts)

$5,500 - $5,900 Revenue $185 - $215 Adjusted Operating Income $0.27 - $0.31 Adjusted Earnings Per Share

» » »

11

For more information, go to investors.flex.com

12

Appendix: Reconciliation of GAAP to Non-GAAP Measures

Quarter-ended

December 31, 2016

($Thousands, except debt to EBITDA ratio)

GAAP Adjustments Non-GAAP Pretax income $140,242 $56,936 $197,178 Depreciation 109,415

• 109,415

Amortization 18,734 (18,734)

• Interest, net

23,516 6,613 30,129 EBITDA 291,907 44,815 336,722 EBITDA – rolling 4 qtrs. 957,712 301,198 1,258,910 Total Debt $2,866,840

• $2,866,840

Debt to EBITDA 3.0x (0.7x) 2.3x

Quarter-ended

December 31, 2016

ROIC % GAAP 13.1%

Non-GAAP Adjustments 6.9%

Non-GAAP 20.0%

Return on Invested Capital (ROIC) is calculated by dividing the Company's last twelve months after-tax Non-GAAP operating income by the net invested capital asset base as of each date. After-tax non- GAAP operating income is reconciled to the nearest GAAP measure above. The net invested capital asset base is defined as the sum of shareholders' equity plus debt less cash and cash equivalents averaged over the last five quarters. Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) and Debt/EBITDA are non-GAAP financial

• measures. EBITDA is derived by adjusting for net interest and adding back depreciation to non-GAAP pretax income.

Quarterly Debt to EBITDA is calculated by dividing the Company's total debt as of the date presented by LTM EBITDA. Non-GAAP pretax income excludes certain amounts that are included in the most directly comparable measures under GAAP including stock-based compensation expense, intangible amortization and certain other charges. Additionally, non-GAAP interest includes the loss on the sale of accounts receivable under our global AR securitization and factoring programs.

Quarter-ended

December 31, 2016

($Thousands, except per share amounts) GAAP gross profit $416,455 Stock-based compensation expense 2,437 Restructuring 14,968 Non-GAAP gross profit $433,860 GAAP SG&A expenses $231,551 Stock-based compensation expense (18,344) Restructuring (2,453) Non-GAAP SG&A expenses $210,754 GAAP income before income taxes $140,242 Stock-based compensation expense 20,781 Restructuring 17,421 Intangible amortization 18,734 Interests and other, net 22,838 Other charges, net 3,090 Non-GAAP operating income $223,106 GAAP provision for income taxes $10,773 Intangible amortization benefits 1,776 Tax benefit on restructuring 1,684 Non-GAAP provision for income taxes $14,233 GAAP net income $129,469 Stock-based compensation expense 20,781 Restructuring 17,421 Intangible amortization 18,734 Adjustments for taxes (3,460) Non-GAAP net income $182,945 Diluted EPS GAAP EPS $0.24 Non-GAAP EPS $0.34 For more details on the GAAP to Non-GAAP adjustments for current and historical periods, please refer to the Investor Relations section of our website which includes press releases and summary financials of the respective periods.