Flex Ltd. Ordinary Shares 2027 Q2 Earnings Call

Michelle, please go ahead. Good morning, and thank you for joining us today for Flex's second quarter fiscal 2027 earnings conference call.

With me today is Revathi Advaithi, our chief executive officer, Kevin Krumm, our chief financial officer, Michael Hartung, our chief commercial officer, and Amy Schwetz, who we previously announced as the expected CFO of Flex post-spin. We'll give brief remarks followed by Q&A. Slides for today's call, as well as a copy of the earnings press release, are available on the investor relations section at flex.com. This call is being recorded and will be available for a replay on our corporate website. 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.

These statements reflect expected results for the full fiscal year and did not give effect to the planned spin-off of the Cloud and Power Infrastructure segment. Any references to the planned spin-off, including its timing, Form 10 status, and the leadership of each company following the separation, are forward looking and remain subject to applicable approvals and completion of the spin-off. 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 in 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. Please note, all growth metrics will be on a year-over-year basis, unless stated otherwise. Additionally, all results will be on a non-GAAP basis, unless we specifically state it's a GAAP result.

The full non-GAAP to GAAP reconciliations can be found in the appendix slides of today's presentation, as well as in the summary financials posted on the investor relations website. Now I'd like to turn the call over to our CEO.

Revathi? Thank you, Michelle. Good morning, and thank you for joining us to discuss Flex's second quarter fiscal 2027 results.

Before I begin, I would like to start by welcoming Amy Schwetz to the team, who will become the Chief Financial Officer of Flex after the spin-off. I look forward to working with both her and Michael Hartung, who will lead Flex as CEO, through this transition and to seeing Flex continue to excel under their leadership. Now I will start with our performance for the quarter. We delivered another fantastic quarter in Q2. Revenue growth accelerated. We expanded margin across all three segments, and earnings reached a new record of $1.18 per share. Our results reflect continued execution across the portfolio and demonstrate the strength of our strategy, our diversified end markets, and our ability to help customers navigate an increasingly dynamic environment.

At the same time, we continue to make significant progress on one of the most important milestones in our company history, the planned spin-off of our Cloud and Power Infrastructure segment, now known as Axiom. Since our last earnings call, we have reached several important milestones as we have moved from announcing the transaction to building two focused industry-leading companies. Last month, Axiom filed a Form 10 registration statement providing a more detailed view of Axiom's strategy, financial profile, leadership team, and growth opportunities. That filing marked an important step forward and reflects the tireless work of our teams have been doing behind the scenes to prepare for the separation. We also announced the expected leadership teams for both Flex and Axiom. One of the things that gives me great confidence in this next chapter is the strength of our leadership bench.

Across both organizations, we have experienced leaders with deep expertise in technology, in manufacturing, operations, customer engagement, and innovation who are ready to lead from day one. Perhaps most exciting for me, we officially unveiled the Axiom name and brand. Building a new company is a rare opportunity. Over the past several months, we have spent a great deal of time defining not only what Axiom will do, but what it will stand for. For me personally, the name reveal was a meaningful milestone because it made something we have been building become more tangible. Axiom is no longer just an idea. It is taking shape as a company with its own identity, leadership team, culture, and purpose. It has been incredibly rewarding to share that vision with employees, customers, partners, and our investors.

As we have discussed before, we believe Axiom is uniquely positioned to lead the next generation of critical digital and electrical infrastructure. By bringing together power, thermal management, and compute expertise, Axiom helps customers deploy increasingly complex infrastructure with greater speed and scale as AI demands more of the physical infrastructure behind it. The future of AI infrastructure goes beyond the chip itself. It depends on power, cooling, compute, and the ability to deploy and operate infrastructure at scale. Those are the capabilities we have spent years building and honing, and they are the reason we believe the company is uniquely positioned for the opportunities ahead. We have outlined our strategy for Axiom, and we are working diligently through the spin-off to position the company for further success.

Earlier this month, we announced the closing of our acquisition of EPC Power, which further strengthens Axiom's portfolio of end-to-end solutions. EPC's engineering expertise complements our existing research and development into 800-volt architecture and solid-state transformers, technologies that will define the next-generation data center. The success of this strategy is evident in the results we're producing even before the spin. Our CPI segment grew 54% year-over-year in Q2 and delivered margin expansion of over 200 basis points. At OCP earlier this month, we introduced prefabricated AI Modules, which help accelerate AI factory deployment by up to 50%. The work we're doing leading up to the spin is building upon the strength of what is already an incredibly successful business. The spin is about creating two stronger companies with distinct identities, focused strategies, and the ability to pursue their respective opportunities.

While Axiom will be purpose-built to help power the AI infrastructure revolution, Flex will emerge as a more focused industrial technology, manufacturing, and supply chain leader. I'm extremely excited about what Flex will become after the spin. Flex enters this next chapter from a position of strength with leadership position in attractive end markets and a proven track record of profitable growth and cash generation. In Q2, our RMS and ITS segments together grew 16%, representing the fourth consecutive quarter of year-over-year growth. Over the last several years, we have transformed Flex into a stronger, more focused companies with higher margin, improved returns, and a more attractive portfolio. Under Michael's leadership, Flex will build on that transformation. The company will be focused on markets where its engineering, vertically integrated manufacturing, and supply chain capabilities create meaningful competitive advantage and long-term value for customers.

As a standalone company, Flex will have greater ability to continue evolving its portfolio and allocating capital towards its highest return opportunities. Many of the markets where Flex has been investing and building leadership position over time sit at the intersection of long-term technology and industrial trends, including healthcare, energy infrastructure, and communication. We believe these are attractive markets where complexity, reliability, and speed matter, and where our capabilities can continue to drive differentiated growth and returns over time. These businesses are supported by durable, secular growth drivers, strong customer relationships, and capabilities that are difficult to replicate. Combined with our financial discipline, our cash generation ability, productivity culture, and commitment to shareholder returns, we believe Flex is exceptionally well-positioned for its next chapter. At Innovation Day, you will directly hear from the Flex leadership team where they will take Flex from here.

What excites me most is that we're not creating two companies searching for their future. We are creating two industry leaders, each with clear purpose, differentiated capabilities, and substantial opportunities to create value. As we look ahead, I believe both companies are entering some of the most exciting periods in their history. We're looking forward to sharing much more on November 10th at our Innovation Day, where investors will hear directly from the expected leadership teams of both Flex and Axiom, and we'll provide a deeper look at the strategies, the market opportunities, and long-term plans that will guide both companies going forward, including how each intends to strengthen its competitive position and create long-term shareholder value.