Flex Ltd (FLEX) Q3 2026 Earnings Call Transcript

Flex Ltd (NASDAQ: FLEX) Q3 2026 Earnings Call dated Feb. 04, 2026

Corporate Participants:

Michelle Simmons — SVP of Investor and Public Relations

Revathi Advaithi — Chief Executive Officer

Kevin Krumm — Chief Financial Officer

Analysts:

Ruplu Bhattacharya — Analyst

Samik Chatterjee — Analyst

Mark Delaney — Analyst

Steven Fox — Analyst

Jacob Moore — Analyst

Presentation:

operator

Thank you for standing by. Welcome to Flex’s third quarter fiscal year 2026 earnings conference call. Presently, all participants are in listen only mode. After the speaker’s remarks, there will be a question and answer session. If you’d like to ask a question, please press star one on your telephone. If you’d like to withdraw your question, please press star two. As a reminder, this call is being recorded. I will now turn the call over to Mrs. Michelle Simmons. You may begin.

Michelle Simmons — SVP of Investor and Public Relations

Thank you. Rob Good morning and thank you for joining us today for Flex’s third quarter fiscal 2026 earnings conference call. With me today is our Chief Executive Officer Ravath the advisee and and Chief Financial Officer Kevin Crum. We’ll give brief remarks followed by Q and A. Slides for today’s call as well as a copy of the earnings press release are available on the Investor relations section@flex.com this call is being recorded and will be available for replay on our corporate website. Today’s call contains forward looking statements which are based on current expectations and assumptions. These statements involve risks and uncertainties that could cause actual results and 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. In our most recent filings with the sec, 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. That 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 the summary financials posted on the Investor Relations website. Now I’d like to turn the call over to our CEO Revathi.

Revathi Advaithi — Chief Executive Officer

Thanks Miss. Good morning and thank you for joining us today. As you know, this is an exciting time for flexibility. There’s a lot happening here. Our portfolio is continuing to evolve and I look forward to sharing with you as to where we are headed. But let’s start with the quarter. So Beginning on slide 4, we had another exceptional quarter delivering results above our guidance across all metrics. Revenue came in at 7.1 billion up 8% versus last year and adjusting operating margin was 6.5%. That was yet another quarter above 6%. We reported adjusted EPS of $0.87 up 13% and that was another record for Flex.

So this performance reflects the strength of our differentiated business model. Let’s start With Data center first as you all know, there’s tremendous complexity in the data center deployment and the market needs an ecosystem of integrated products, capabilities, technologies and services. Flexis holistic approach is resonating with customers, enabling them to build at the scale, speed and quality demanded by the AI era, while drawing on Flex’s more than five decades of experience navigating major technology shifts across industries. The growth we’re seeing in data centers is being driven by rapidly expanding compute and AI workloads and those demands are here to stay.

As customers continue to scale, complexity increases. Every design choice has downstream implications across the ecosystem and requires a systems level approach. This is where Flex is uniquely positioned to help. Our data center portfolio is built around three tightly connected capabilities, I.e. compute, integration, cooling and power. At the same time, scaling IT infrastructure adds additional layers of complexity. To scale effectively, power, cooling and IT infrastructure must be designed to move together to and adapt as technologies and workloads evolve. While many companies address individual elements of this ecosystem, very few can integrate all three in a cohesive and end to end way.

This quarter we reinforced that leadership through several milestones. We announced the development of modular data center systems with Nvidia to reimagine deployment for speed and scale, as well as a partnership with LG to advanced thermal management solutions designed for gigawatt scale data centers. We also deployed our advanced rack level vertically integrated liquid cooling solution at the Equinix CO Innovation facility, demonstrating these capabilities in real world environments. In addition, we introduced a new AI infrastructure platform, the first globally manufactured data center platform to integrate power, cooling, compute and services into modular design and this is capable of accelerating deployment timelines by up to 30%.

These milestones demonstrate what sets Flex apart our ability to understand the interdependencies and translate that insight into a comprehensive differentiated offering that helps customers move faster, scale with confidence and stay ahead in a rapidly evolving industry. While our data center business growth reflects where the industry is headed, that momentum extends across our diversified portfolio. Flex remains a trusted global manufacturing partner across a wide range of industries as we continue to move into higher value, more complex product categories that also help drive margin improvement. Beyond data Centers, we continue to see robust momentum across our diversified end markets, each benefiting from long term secular trends in health solutions.

Demand for medical devices remains strong and we saw an improvement in the medical equipment category. In core industrial, we’re seeing demand in productivity driven areas like warehouse automation and robotics, along with strength in select semiconductor related capital equipment programs. Another area of strength not reflected in Data center is high performance networking and satellite communication products serving next generation network and infrastructure platforms. So we are pleased to see that AI is driving momentum in our portfolio outside of what we include in data centers. Looking ahead, we believe in the strategic choices we have made to support both near and long term success for Flex and our customers.

We continue to expand and optimize our global footprint while investing in advanced technologies and capabilities that help customers manage complexity at scale across industries and geographies. The challenges our customers face are increasingly interconnected whether supporting highly regulated healthcare devices, large scale data center deployment, next generation mobility platforms or cutting edge consumer technologies. Success today demands speed, flexibility and resilience. Flex is well positioned to adapt as markets evolve, technologies mature and customer requirements continue to change. We see ourselves as a strategic enabler helping leading brands navigate complexity, improve performance and scale with confidence in a fast moving world. Now I’ll turn the call over to Kevin to walk through the details of our financials.

Kevin Krumm — Chief Financial Officer

Thank you Revathi and good morning everyone. I’ll now review our third quarter performance which reflects disciplined execution and continued progress against our strategic priorities. I’ll start with our key Financials on slide 8. Third quarter revenue came in at $7.1 billion up 8% year over year, driven by continued strong performance in data center and improving momentum in our industrial and health solutions businesses. Adjusted gross profit totaled $690 million and adjusted gross margin improved to 9.8% up 50 basis points year over year. Adjusted operating profit was $460 million with adjusted operating margins at 6.5% up 40 basis points year over year, a record for Flex.

The margin improvement reflects disciplined cost management and our deliberate shift towards higher value products and services. Finally, adjusted earnings per share for the quarter increased 13% year over year to $0.87 per share, underscoring strength in our execution. Turning to our quarterly segment results on the next slide, reliability revenue accelerated this quarter totaling $3.2 billion up 10% year over year. Power continues to drive strong growth alongside core industrial and health solutions. Adjusted operating income improved to $233 million and adjusted operating margin was 7.2% up 50 basis points year over year driven by Power and core industrial agility.

Revenue totaled $3.8 billion, up 6% from the previous year. Data center related end markets continue to drive strong growth but were partially offset by softness in our consumer related end markets. I Adjusted operating income was $239 million and adjusted operating margin for the segment was 6.3%, unchanged from a strong quarter in Q3 last year. Moving to cash flow on Slide 10. Cash flow in the quarter was $275 million, showing robust conversion driven by efficient working capital management. Inventory was up 5% sequentially and up 5% year over year. Inventory net of working capital advances was 56 days flat from the prior year.

Net CapEx totaled $145 million or approximately 2% of revenue, and we repurchased around $200 million of stock in the quarter which was approximately 3.3 million shares. Our capital allocation priorities remain unchanged. We are committed to maintaining our investment grade balance sheet, funding strategic investments to support organic growth and and pursuing accretive MA opportunities while returning capital to shareholders through opportunistic share repurchases. Turning to our full year guidance on slide 11 for reliability solutions, we expect revenue to be up mid single digits driven by strong data center power demand and solid growth in core industrial and health solutions.

For Agility solutions we expect revenue to be up mid single digits driven by continued strength in cloud offset by softness in demand in consumer devices and lifestyle. Finishing with our guidance for the fourth quarter on Slide 13, we expect to exit the year with very good momentum. We anticipate Reliability Solutions revenue to be up low double digits to mid teens driven by continued strength in power and further growth in core industrial and health solutions. We expect Agility Solutions revenue to be up low to mid single digits as cloud and networking growth is offset by softer demand for consumer devices and lifestyle.

As we enter the last quarter of our fiscal year, we are pleased to see our team’s hard work translate into meaningful progress against our strategy. Our disciplined execution and focus on portfolio management is reflected in our full year results. For the fiscal year, we now expect the following revenue to be between $27.2 billion and $27.5 billion, which is $350 million higher at the midpoint versus our prior guide adjusted operating margin of approximately 6.3%, adjusted EPS between $3.21 and $3.27 per share, a midpoint increase of $0.11 per share. And finally, we anticipate further strong cash generation and maintain our guidance of 80% plus free cash flow conversion for the year.

Moving to our segment outlook for the year for Total Flex. For Total Flex we expect revenue to be between 6.75 billion and 7.05 billion with adjusted operating income of 445 million to 475 million, we expect an adjusted tax rate of 21%. And finally, we anticipate adjusted EPS to be between $0.83 and $0.89 per share on approximately 375 million weighted average shares. As we close FY26, we remain focused on disciplined execution. Margin expansion driven by our product and services mix underscores the resiliency of our model and with our improving revenue momentum, positions us for continued profitable growth in FY27.

With that, I’ll now turn the call over to the operator to begin Q and A.

Questions and Answers:

operator

Thank you. We’ll now begin the question and answer portion of today’s call. If you’d like to ask a question, please press Star one on your phone. As a reminder, we ask that you please limit yourself to one question and one follow up. One moment please for the first question. Our first question comes from Rupulu Bhattacharya with Bank of America. Please to see with your question.

Ruplu Bhattacharya

Hi, thank you for taking my questions. Revathi, you’re seeing strong growth in data center. Where do you see the bigger opportunity? Is it in power or in compute? And correspondingly, where are you focusing Flex’s investments this year? I ask because as we look out over the next couple of years, there’s a bunch of new AI programs that are scheduled to come online. Do you think Flex has the opportunity opportunity to benefit from one or more of those? And does Flex have the manufacturing capacity to handle these opportunities or do you expect to need to retrofit any facility to handle more AI related work? And I have a follow up.

Revathi Advaithi

Thanks, Ruploo. First is, you know, we’re really thrilled with the performance that we’re showing across all the business segments that we have now with regard to data centers. We’re still in line with this very strong year over year growth that we talked about earlier in the year and we’ll update that at the completion of the full year next quarter. This year, if you look at our investments, first thing is both power and compute growing very, very strongly. Whether it’s embedded power or critical power or the compute side for the year, if you look at it and our investments, I would say have been in both parts of our businesses, power has been more heavy this year in terms of investments for capacity.

But we expect that because of the large AI infrastructure spend that you continue to see and new programs coming on board for compute, that we will be investing more in compute capacity in the next few years. So but that is normal root as far as I’m concerned, right? Some years one segment will be a little higher investment than the other. As you add in capacity, you digest that capacity and you move forward. So next year I think we’ll be adding probably more capacity in our embedded power business. Not as much in our critical power business because we’ll be digesting the capacity we’re adding this year and, and then we’ll have to continue to add capacity and compute because of AI programs coming into play, as you just mentioned.

So yeah, I think that’s a continuous process. It’s a good problem to have with the tremendous growth we’re seeing. So we’re pretty excited about the opportunity.

Ruplu Bhattacharya

Okay, thanks for the details there, Revathi. Can I ask a follow up? You’ve guided fiscal 26 operating margins to 6.3%. I’m wondering conceptually, is there a ceiling on how high operating margin for Flex can go given the business mix that you currently have? I mean, you’ve done a great job focusing the company on the longer life cycle, higher margin segments. Do you think it would be now strategic to maybe focus Flex more on AI and other higher growth opportunities and maybe exit completely the lower margin consumer related segments? Thanks for taking my questions. Appreciate it.

Kevin Krumm

Hi, Ruploo. Hi, Ruploo, this is Kevin. I’ll take the first stab at answering this question. I would say that, you know, we got this question last year at this time, are our margins stable and sustainable? And I would say last year, as we looked into this year, we answered it, yeah, we believe our margins are sustainable when you look across our underlying business units and then. And we expect our underlying business units to continue to drive margin improvement, plus there’ll be mix impacts. So when you look at our margins this year, I think we’ve delivered against that.

Our underlying businesses have improved across, you know, from a margin standpoint and we’ve seen positive mix impacts as we go forward here. Our answer isn’t going to change. When you look across our business units, we expect them to continue to deliver margin expansion year on year and we expect there to be mix impacts in our business. So that’s how I would answer your question right now as it relates to the overall portfolio, we’re comfortable with where we are. I’ll leave it at that.

Revathi Advaithi

Yeah, Ruplo, I’d say the only thing I’d add is all of you know that we got to the 6% a year ahead of the long term guide that we had given. And it is the continued focus on shifting our mix, which is exactly what you’re talking about. And we make investments into the highest areas of return and the highest areas of growth and that has driven the mix shift and improved our operating margin. Now, with the growth in data centers continuing to be strong that we expect in the next few years, I think you’ll see that makeshift but we’ve also done a tremendous job on productivity and I expect with AI implementation in our own facilities that will also continue to be strong for us. So more to come on investor day in May in terms of long term guide on margins. So stay tuned for that.

Ruplu Bhattacharya

Okay. Thank you for all the details. Appreciate it.

operator

Our next question is from the line of Samik Chatterjee with JP Morgan. Please review with your questions.

Samik Chatterjee

Yeh. Thank you for taking my questions. Maybe Revathi appreciate your comments on the power business doing robust growth right now. If you can help us differentiate a bit between embedded power and critical power just in terms of what you’re seeing from a competitive landscape perspective, where do you see sort of more opportunity for share gains for flex? Is there is it more on embedded and critical and where do you see more opportunity to gain large customers, large cloud customers that would make a more material impact on that growth or inflection growth? Sort of help us just differentiate between the two as much as you sort of have a high margin business across both of them. And I have a follow up.

Revathi Advaithi

Yeah Sumit. Again we’ll talk more about this in our investor day. But at a high level I would say both businesses, embedded power and critical power are growing very very strongly right for through this year. So we feel good about that. Critical power is driven by it’s all about how quickly can you manage your lead times, how quickly can you manage installations. Innovation does play a role, but it’s all about kind of putting these large power pods in schedule. Management is a huge part of what people expect from that particular group of products and that we compete with the traditional electrical players that you all know about.

I would say the embedded power is very different in the sense that it is going through huge technology shift with what is happening in the 800 volt DC category, larger 1 megawatt deployments in terms of rack power. So big technology shift that is happening there. We are in the forefront of that technology shift. There are only very small group of competitors who play in that space which is a significant advantage for us. And we’re very excited about the changes that is happening in 800 volt DC and larger megawatt deployments that are happening across hyperscalers. So I would say that business is growing very well.

We expect that to accelerate with these large power deployments and power hungry data racks that are happening. So in both spaces we’re seeing strong growth and the 35% guide this year is pretty strong and if that continues at a pretty double Digit pace. I will be quite excited about the growth in these categories, but I would stay tuned for what comes out of embedded power just because of the technology technology shift that is happening and a very small set of competitors in that space.

Samik Chatterjee

Got it. No, very helpful. And for my follow up, the full year revenue guide expectation for agility was sort of walked down a bit and I’m assuming it’s the consumer end markets being soft that’s sort of probably impacting it, but it’s a bit more also a bit surprising on the flip side to see not more upside from the compute side to sort of offset that where you’re clearly growing much faster in power and that’s driving the reliability acceleration. But agility didn’t have as much upside on compute to offset that. I mean anything going on specifically on that front because the cloud companies have obviously been pretty strong in their spending. So anything you can help us there. Thank you.

Revathi Advaithi

No, actually, I mean we’re very pleased with agility’s kind of growth and if you think about first as I’d say data center growth remains on track for what we’ve said for the full year guide and we will update that when we finish the year. And so that remains on track and we are comfortable with that. I think the additional upside that you are seeing in agility is driven by kind of what is happening in high speed networking or network interface cards. And I’ll just remind you that we don’t include those end markets in our data center business, but these are data center related infrastructure deployments that are happening that is really driving very good growth for agility.

The place that I see softness for agility is basically consumer related end markets, which is lifestyle and consumer devices. So very pleased with the growth in data centers and, and data center supported infrastructure deployment like networking or NIC cards that we don’t report in our overall, that we don’t talk about in our overall data center numbers. So you know, I’d say really strong growth and agility just offset by consumer end markets.

Samik Chatterjee

Okay, great. Thank you. Thanks for taking my questions.

operator

The next questions are from the line of Mark Delaney with Goldman Sachs. Please proceed with your questions.

Mark Delaney

Yes, good morning. Thank you very much for taking the questions. First. I was hoping to better understand if Flex is already seeing material upside that it would attribute specifically to the Amazon warrant deal that you reached in calendar 25 and if not when might that be additive to your business in a more meaningful way?

Kevin Krumm

Hey Mark, this is Kevin. I’ll take the first part of your question. Short answer is the the warrants are not incremental nor were they expected to be material incremental to FY26. So it’s really that program as we move forward is where we’d expect to see that deployments are complex and they scale over time and so that’s kind of how we expect the upside and the additional revenue to come to us.

Revathi Advaithi

Yeah, the Mark, the only thing I’d add is that in our overall growth rate that we gave for the year, which is 35% growth rate for data center, we were expecting pretty decent growth with our hyperscale customers and it is playing out the way we imagined it to be. The only other thing I’ll add is when we’ll update you with kind of the customer consigned inventory mix shift that does play into some of these growth rate numbers. But our growth with AWS is very strong and is going as expected and we continue to expect to see that growth rate continue into the next few years and then more to update that in our investor day.

Mark Delaney

Very helpful. Thank you both. And my other question was on margins in the reliability segment. You spoke a bit already around company wide margins and the longer term path you’re on. You spoke a bit about mix but reliability margins were Quite strong, over 7%. Help me to better understand if there’s anything episodic in reliability margins that might be more one time in nature or is this just indicative of mix and some of the longer term potential of that business segment. Thanks.

Kevin Krumm

Hey Mark, this is Kevin. I’ll answer that. Reliability margins in Q3 were strong. Really what you’re seeing there is underlying mix impacts from continued growth in power year on year improvements in our core industrial business. Some of that’s related to what Revathi was referencing earlier which is strong performance in industrial in our non data center related end markets that still have exposure to some of the secular AI trends. But generally what you’re seeing in Q3 is power improvement, power mix and strong underlying performance in core industrial. And as we move to Q4 we would expect those to continue.

Mark Delaney

Thank you.

operator

Again. If you’d like to ask a question, please press Star one on your phone. The next question is from the line of Steven Fox with Fox Advisors. Please receive your question.

Steven Fox

Hi. Just to follow up on that last question, Kevin, I’m looking at incremental margins just from the last quarter that are like 20%. You dropped like 250 million more profits quarter over quarter on 250 million of sales. So can you just maybe dig into that a little bit more? It Feels like we’re glossing over some pretty powerful moves there. Like how would you force rank those incremental margins. Thanks. Then I had a follow up.

Kevin Krumm

Mark, I’m going to have to ask a clarifying question or. Steven. Sorry, you’re referring to Q3 margin performance, noting that we had in revenue.

Steven Fox

I’m just looking Q3 versus Q2 and sales were up 250 million plus and profits were up like 50 million plus quarter over quarter. So that’s like you’re dropping 20% sequential margins incrementally. And I’m just not sure why it’s that strong.

Kevin Krumm

We had a strong quarter. A lot of that is related to the question we just had, which is underlying margin performance and reliability. Our power business continued to drive margin improvement in Q3, Steven. And then we also saw improvement sequentially in core industrial for some of the reasons I said. So I would just reiterate our strong margin performance in Q3 sequentially or year on year was related to continued mix impacts and growth in our power business and continued margin improvement in our core industrial business.

Steven Fox

So not to pin you down, but should we take away that it’s mainly power that drove sort of that outperformance?

Kevin Krumm

No, I would say it was power, power mix and core industrial. Stephen.

Steven Fox

Okay, that’s helpful. And then Revathi, I noticed this morning’s Wall Street Journal the headline is US Manufacturing is in retreat. I was curious if you could react to that headline based on what you’re seeing in the U.S. thanks.

Revathi Advaithi

Yeah, Stephen, I would say we are definitely not seeing that. We are not only investing in our own capacity in US Manufacturing, but we continue to get a lot of inbound requests from customers on future projects that require US Manufacturing. So we’re not seeing that at all. You know, we’re one of the world’s largest manufacturers. We see a lot of activity in terms of what goes on in these multiple end markets. So I would say in our biggest investments are still happening in North America and US is continuing to expand across many of our facilities.

So I have to go read that article, I haven’t read it yet and see what the macros are saying. But we’re not seeing that being reflected Stephen, at all in our businesses. In fact, most of our investments are being driven by what’s expected in US and in Mexico.

Steven Fox

Great, I appreciate that. Color and congrats on the great performance.

Revathi Advaithi

Thanks, Steven.

operator

Thank you. The last question is from the line of Jacob Moore with KeyBanc Capital Markets. Please receive your questions.

Jacob Moore

Hi, good morning. Thanks for taking Our question this is Jacob on for Steve Barger. First from us is on automotive. I think we’re all glad to hear that stabilization is the trend, but if. We could just dig into that a. Little bit, what trends does that assume between unit volume versus content and how do you think that those trends inform your view of growth from here? Or do you think the automotive maintains at these levels for a while?

Revathi Advaithi

1St Jacob, thank you for asking a question that’s not data center related but still all good. I’d say the comment on auto stabilizing was more if you recall what we have said in the last few quarters is that programs were at flex were in flux, right. Because people are trying to decide what EV programs to put on hold, how to switch to some hybrid programs or combustion engine programs. So there was a lot of confusion in terms of which platforms were going to grow for which customers. So the stabilization comment is more in terms of clarity, which you can see from a lot of auto OEMs in terms of what programs are going on hold, which cars are being pulled off and what platform investments are being made.

And that helps us a lot in terms of being able to make forecasts and really understand where we see the end market growth in terms of unit volume versus content itself. I would say you as well as I know kind of what the global car forecasts are right now. They haven’t moved significantly. If anything, that won’t be dropped. So for us, any automotive growth actually comes from continuing to invest in future compute platforms. And because compute is needed in every vehicle, whether it is a combustion engine or hybrid or an ev, that is what drives our automotive growth for us is continuing to win in these software defined compute platforms which is agnostic of any platform itself.

And that is super helpful for us. And so we like the first the stabilization and clarity of platforms. And it is definitely not unit volume, it is driven more by these compute platforms accelerating.

Jacob Moore

Got it. Thanks. That’s helpful. And then the second one from us is it’s on the effect of skyrocketing memory prices. I think naturally more price sensitive markets like consumer are most vulnerable to that trend. But could you just talk through any dynamics that you’re planning for? As memory prices jump sharply, are you seeing or anticipating any demand effects on consumer products or other high memory content platforms?

Revathi Advaithi

Yeah, I would say the good news for us Jacob, is that most of our customers outside of what we use in our own products in the power side are all procured by our customers. Our volume of memory procurement is happening by our customers directly from the memory suppliers. And so I’m sure, I mean, you hear this in the calls that the memory companies have. You know, they are selecting few end markets more than the others. So you are seeing a bigger distribution go to data centers and those types of end markets. That being said, we’re not seeing a significant effect in terms of consumer end markets because those end markets are soft to begin with.

So, you know, memory is not driving any kind of demand issue or supply issue in terms of consumer end markets. But I think you’re hearing from memory companies that there is allocation of material that is happening and we bake that into our forecast.

Jacob Moore

All right, understood. And I appreciate you taking the questions.

Revathi Advaithi

Thanks, Jacob.

operator

Thank you. I’ll now turn the call back over to the CEO for any closing remarks.

Revathi Advaithi

Thank you. So on behalf of our leadership team, I want to give a sincere thank you to all our customers for their trust and partnership, our shareholders, for your continued support, and to all our employees across Flex, we’re looking forward to speaking to all of you again when we report our fourth quarter results. And most importantly, I’m hoping to see most of you in person at our Investor Day, which will be held on May 13th here in Austin. Thank you all.

operator

Thank you. This now concludes today’s conference call. Thank you for joining. You may now disconnect.