Thank you for standing by. Welcome to Flex's First Quarter Fiscal 2026 Earnings Conference Call. As a reminder, this call is being recorded. I will now turn the call over to Mrs. Michelle Simmons. You may begin.

Thank you. Good morning, and thank you for joining us today for Flex's First Quarter Fiscal 2026 Earnings Conference Call. With me today is our Chief Executive Officer, Revathi Advaithi; and Chief Financial Officer, Kevin Krumm, who will 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 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. 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 as a GAAP results. 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 our 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 today. So starting on Slide 4. Flex just wrapped up an exceptional quarter, delivering positive results against our guidance. The groundwork we have laid out over the last several years continues to position us well in driving profitable growth with a growing data center business as well as serving as a manufacturer of choice for our partners. The benefits we are seeing from our global footprint are a result of our actions that started years ago as we focused on being able to meet the needs of our customers wherever they are in the world. Our revenues were $6.6 billion, up 4%. Our adjusted operating margin was 6%, and we delivered adjusted EPS of $0.72, a record Q1 number for Flex. Our great start to fiscal year '26 gives us improved confidence in our ability to hit our fiscal year commitments, which has been reflected in our improved FY '26 guidance. But we're not done. So let's turn to Slide 5. Our portfolio mix continues to shift as data center becomes a larger and more strategic contributor, and this quarter was no exception. We delivered strong performance across both our cloud and power portfolios, and we continue to expect this business to deliver approximately $6.5 billion in revenue, growing at least 35% year-over-year and representing 25% of our total revenue. But what makes this business truly compelling isn't just the size of the growth. It's the architecture and integration behind it. So let's take a moment to unpack what this means. On the cloud side, we deliver vertically integrated IT hardware and infrastructure solutions, including metal fabrication, custom rack assembly, and direct-to-chip liquid cooling technology. On the power side, our solutions span the full stack, from board-level modules managing power to the chip all the way to the facility level with modular power pods. Flex is the only provider providing both end-to-end cloud IT integration and a full power and cooling portfolio at scale. And that matters because customers today are in an arms race to scale. They don't just need custom rack solutions, but they also need power for their chips. They need to cool it and they need to deploy it quickly. Delivering integrated scalable solutions from grid to chip is essential, and it's a key reason why Flex continues to be a strategic partner of choice. That brings me to our broader geographic footprint and scale on Slide 6. Our global operational scale remains one of Flex's most significant competitive advantages not just in data center, but across all our end markets. And it's not just the size of our footprint, but our ability to shift and scale complex production across regions to meet evolving customer needs. We operate more than 49 million square feet globally, including 7 million square feet in the U.S. and 9 million in Mexico, giving us one of the largest advanced manufacturing footprints in North America. But what truly sets us apart is how we operate. Across our sites, we have embedded AI-enabled systems, advanced automation, and localized supply chains designed for speed, flexibility, and resilience. These capabilities are critical not only in data center but also across our other end markets, including automotive, healthcare, industrials, and more, which account for 75% of total Flex revenue. These are highly regulated, complex products that require global design and delivery. Now this scale, paired with deep supply chain expertise enables Flex to help customers navigate challenges like tariffs, regional regulations, and supply disruptions. We have led the shift towards regionalization, and the impact is clear. Americas revenue for us rose to 49% in fiscal year '25, up from 38% in fiscal year '20, while Asia declined to 30%, down from 41% over the same period. These shifts reflect evolving customer needs and Flex's ability to execute. So looking ahead, we're especially bullish on our advanced manufacturing capabilities, where we see continued productivity gains from deploying AI and intelligence systems across our factories. You can see by bringing together advanced manufacturing services and Flex IP products, all supported by advanced automation and AI capabilities, are powering transformation across industries and geographies. While there is no shortage of news flow around uncertainty in the market, we remain confident in our positioning. The Flex you see today is not the same company it was 10 years ago, from the people to the portfolio of businesses. We have positioned ourselves to lead in our markets, focusing on profitability and transformational acquisitions that continue to evolve who we are as a company. We were early to focus on high-growth end markets such as the data center and power, built a scaled and regionalized footprint, and integrated services in a way that transforms Flex from a contract manufacturer into a strategic end-to-end partner. I remain deeply confident in our strategy and the unique value we deliver. The solutions we provide and capabilities we have built have positioned us for one of the most compelling opportunities in Flex's history. With that, I'll turn it over to Kevin to walk through the financials. Kevin?

Thank you, Revathi, and good morning, everyone. I'll start with our key financials. First quarter revenue was $6.6 billion, representing a 4% increase, fueled by strong growth in data center markets across cloud and power segments. Gross profit reached $596 million, with a gross margin improvement to 9.1%, up 130 basis points. Operating profit stood at $395 million, with operating margins rising to 6%, up 120 basis points. Additionally, earnings per share for the quarter rose over 40% to $0.72 per share. Moving on to our quarterly segment results, in Reliability Solutions, revenue totaled $2.9 billion, down 2% year-over-year, aligning with our expectations. These results were influenced by ongoing macro pressures in automotive and renewables, slightly balanced out by strength in power. Despite modest declines across all three reporting units, operating income increased to $172 million, and the segment margin expanded by 100 basis points to 6%, showing strong execution and disciplined cost management. Agility Solutions reported revenue of $3.7 billion, a robust 10% increase year-over-year, driven by strong demand in cloud and AI that offset the ongoing softness in traditional telecom and consumer markets. Operating income reached $240 million, with the operating margin expanding by 120 basis points to 6.5%, supported by efficient cost management and a favorable mix, including a higher uptake of value-added services. Regarding cash flow, free cash flow for the quarter was $268 million, translating to a conversion rate of 98%. Net inventory rose by 3% sequentially due to higher volumes but was down 11% year-over-year, with inventory, net of working capital advances, averaging 55 days, a decrease of 7 days compared to the previous year. Net capital expenditures amounted to $131 million, or around 2% of revenue, while we repurchased approximately $247 million worth of stock, totaling about 7 million shares. Our capital allocation priorities remain steadfast, focusing on maintaining an investment-grade balance sheet, funding strategic growth investments, pursuing beneficial M&A opportunities, and returning capital to shareholders via share repurchases. In the quarter, we secured a new manufacturing site in Poland to produce low- and medium-voltage switchgear power pods and busways, effectively doubling our power capacity in Europe to meet increasing global demand for reliable data center power. This exemplifies Flex's strategic capital deployment to enhance our capabilities and product portfolio. Looking ahead to our full-year guidance, as we move into the second quarter and beyond, the macro environment continues to be dynamic. Nevertheless, we are executing well, and the steps we've taken to focus on high-growth markets are yielding positive results. Our global scale has empowered us to assist customers in their regionalization strategies, enabling us to bring manufacturing closer to end markets for better agility and risk mitigation. Regarding tariffs, we anticipate these to remain largely as pass-through costs with strong contractual protections. While we did not factor the direct impact of tariffs into our revenue guidance last quarter, we have this quarter given clearer expectations. Incorporating this view does not significantly alter our full-year growth projections. Consequently, our updated expectations for the fiscal year are revenue between $25.9 billion and $27.1 billion, which raises our midpoint by about $600 million. We expect adjusted operating margins between 6% and 6.1%, adjusted earnings per share between $2.86 and $3.06, and an adjusted tax rate of 21%. We also anticipate strong cash generation, maintaining our target of over 80% free cash flow conversion for the fiscal year. We will keep an eye on the tariff situation and adapt accordingly. Currently, we are confident in our ability to navigate these changes while fulfilling our financial commitments. As for our segment outlook for the year, it remains largely consistent with last quarter's expectations. In Reliability Solutions, we now forecast revenue to be down low single digit to up mid-single digit, reflecting an improvement from our previous outlook. Strength in data center power helps to counterbalance the macro-driven weakness in automotive and renewables. For Agility Solutions, we expect modest growth in the low to mid-single-digit range year-over-year, with sustained demand in cloud, benefits from previous wins, and strategic gains in networking, albeit partially offset by softening in enterprise IT and consumer devices. Finally, for the second quarter, we expect Reliability Solutions revenue to be down low single digit to up low single digit, with ongoing weaknesses in automotive and parts of healthcare, though supported by solid performance in our Power business. For Agility Solutions, we anticipate revenue growth in the low single digit to mid-single digit ranges, backed by strength in cloud and networking, balanced against weakness in traditional telecom and consumer markets. Overall, we expect total Flex revenue to range from $6.5 billion to $6.8 billion, with adjusted operating income between $375 million and $415 million. Estimated interest and other expenses are around $38 million, with an adjusted tax rate expected to be approximately 21%. Lastly, we forecast adjusted earnings per share to be between $0.70 and $0.78, based on approximately 381 million shares outstanding. I'll now turn the call back over to the operator for Q&A.

Our first question comes from Samik Chatterjee with JPMorgan Chase & Company.

There has been strong performance recently, along with robust margins. To start with the margin outlook for the year, you've reported a 6% margin in the first quarter and are guiding to maintain that level. I am a bit surprised that despite the increase in the midpoint of your revenue guidance, there isn't more leverage on the margin side for the full-year outlook. Could you clarify why the margin outlook isn't improving in line with the revenue projections? I have a quick follow-up after that.

Samik, this is Kevin. What I would say is we held our prior margin guided range of 6% to 6.1%. The math would be, if you were looking at operating profit dollars, we did pass through and therefore, improve our operating profit outlook as well. What I would say on the revenue volume especially in the back half of the year, we remain cautiously optimistic there. We have brought in tariffs, as I said before. That's largely low-calorie revenue and actually is a headwind to our margin performance. So that's an element you're seeing in the back half of the year. And then we are making a few investments in the back half of the year as well.

Samik, I want to emphasize that this is the first quarter, and we delivered very strong numbers for Q1. You're observing a 6% flow-through, which is promising. We tend to be conservative in our yearly forecasts, but the numbers are impressive for both the current quarter and the entire year.

Okay. Okay. No. Got it. And for my follow-up, I see for the data center revenue, you're outlining the target of 35% year-over-year. Maybe you can sort of give us a bit more details on what the trends were in 1Q itself? And if you can break it out between cloud and power? And are your expectations still consistent for power to maybe have a stronger year than cloud this year?

Yes. Samik, I'll say that first is we feel very good about our 35% growth forecast that we gave for this fiscal year. It's the first time we've given a full-year fiscal forecast for our data center business, and that's because it's becoming a large percent of our overall portfolio. We're in line with that 35%. And I would say from a quarterly perspective, we don't want to give quarterly guidance and quarterly numbers because they tend to move around, but the 35%, we feel very strong about. We're still in line with what we had said earlier in the start of the year that power will be stronger. And that's because they had a little bit softer year last year relative to the cloud business, but they're both going to be pretty significantly strong in terms of the overall 35%. So on track for that and continued also margin accretion to the overall Flex portfolio. So pretty robust numbers, I would say, data center for both cloud and power.

Our next question comes from the line of Mark Delaney with Goldman Sachs Asset Management.

Flex's products assembly and services capabilities have allowed it to do very well in the data center. I'm hoping to better understand how the market for products may be evolving. Amazon recently announced its plans to use some of its internal designs for cooling products going forward. So do you think this may be a trend of hyperscalers doing more power and cooling products in-house more generally long-term? And if so, how may Flex fit into those plans?

Yes. I'd say, Mark, that as we look at our capability around IT rack integration, around cooling and power, we've toggled towards having product capability and our technology capability around both power and cooling. How I feel about cooling is very bullish. I think Amazon's announcement really validates the fact that we needed the capability for both manufacturing capability and technology capability. So having both is really important. You can't have one or the other. I would say that hyperscalers continue to invest in their capability, we see as a positive thing. So whether it is providing it as an advanced manufacturing solution or bringing our own IP and technology into the manufacturing side of it or into the design side of it, giving a fully integrated solution is the right way to go. And again, as I've said this before, Mark, is having both compute and power with cooling overall, we think, is a good way to go. So we view this announcement as a positive.

That's helpful. My other question was just to better contextualize the full-year guidance compared to 1Q results. The 1Q earnings results were very strong. Earnings were $0.10 above the midpoint of your prior guidance. You only raised the full-year outlook for earnings at the midpoint by $0.05. So I'm hoping to better understand is the implied lower level of earnings for the balance of the year compared to your previous guidance. Is that just a question of timing and some conservatism? Or are there any businesses that are weakening more than you had previously expected?

Mark, this is Kevin. I'll take that. The first quarter was strong and exceeded expectations. The team performed very well. However, as Revathi mentioned earlier, one quarter doesn’t define the entire year. That being said, we did increase revenue, and as I mentioned earlier, the midpoint of our operating profit dollars doesn’t fully translate to EPS due to some guidance lost in interest and other line items. When comparing the first half to the second half, particularly regarding EPS or OP growth rates, the first half of this year benefits from a prior-year comparison, as revenue was significantly lower in the first half last year. This created some absorption challenges that adversely affected operating profit. Therefore, the first half of this year has a beneficial comparison. Additionally, we are seeing growth this year in the data center, which we previously discussed. We will continue to invest in programs and capacity in the second half to support that growth.

Mark, what I would say is none of our end markets have changed in terms of how we guided for the year and how we felt the markets were performing. So that's good news. I think in all this uncertainty, our guide is pretty strong in terms of how we felt the markets were going to perform. So we feel good about that. And then again, first quarter, like I said before, we are generally conservative in how we guide. And I think that people expect that from us, and that goes into the mix master.

Our next question comes from the line of Steven Fox with Fox Advisors.

I had a couple of questions as well. First off, I was wondering if you can give us a sense for where you stand on some of the capacity constraints you had 90 days ago. I know you just mentioned you're making investments in the second half. You bought a plant in Poland. But how constrained are you now versus 90 days ago? When do you think you sort of catch up with demand, if that's the right terminology? And then I have a follow-up.

Yes. I would say, Steven, first is I think it's a good problem to have, where we have so much growth that we have to continue to invest in capacity. And you are well aware of all the supply-demand equation in terms of AI infrastructure, which we see both in cloud and power. I feel good about the investments that we have announced and making. Our Dallas facility is ramping up very well. We just bought this facility in Poland, which is a fully capable facility that really helps us kind of from a European perspective. So we feel really good about the new investments we are making. My hope is that we continue to make investments in growth for AI infrastructure, both in power and cloud. And our goal would always be not to have so much capacity, but just enough capacity where we're able to bring down lead times and keep up with the demand. And I feel like we're in the right place. You see that with our numbers, right? 35% is a very strong number for data center growth. And we're delivering that because we have new capacity and we'll continue to add more.

That's helpful. And then I know you just said there wasn't much change in some of your non-data center markets versus 90 days ago. But I was curious if there are any green shoots, especially in like automotive, industrial, for example, where maybe some companies are seeing some better cyclical trends.

Yes. I would say that for automotive, at least from what we know, there are some positive developments in the external markets. We provided a fairly conservative guide, and we're on track with those numbers. I'm confident in this outlook because the year is unfolding as we anticipated. Our auto portfolio is more focused on North America, which aligns with how we compare to global figures. Industrial performance is also meeting our expectations, particularly in infrastructure-related markets, where there are encouraging signs in areas like renewables. Additionally, on the networking front, we have experienced significant share gains, which is a major advantage for us. On the healthcare side, while equipment has performed as expected, devices have shown remarkable strength. Overall, we feel good about our ability to predict end market trends in this environment, and we are pleased with how the year has progressed.

Our next question comes from the line of Ruplu Bhattacharya with Bank of America.

I have two, one for Kevin, one for Revathi. Maybe I'll start with Kevin. Can you give us a little bit more detail in terms of what you factored in, in terms of tariff impact to the full year guide on the top line operating margin and EPS? Are you assuming any impact to the USMCA exceptions? What do you think about the 232 tariff impact? And I think you said to an earlier question that there is some impact on the interest and expense line that's impacting EPS guide or the increase of $0.05. Can you clarify how much that is? And then I have a follow-up for Revathi.

Okay. So on tariffs, basically, our view that we're pushing through is as of the June view, sort of the pause. So that's what we brought in. We do not see any USMCA impact. And as I said earlier, it's dynamic. Our customers are making moves to offset impacts of tariffs, etc. So we're not guiding to a tariff number this year. What I said on the release, I'll repeat, or on the script, I'll repeat here, which is tariffs are going to be pass-through for us. So you see that in this updated guide as well. You asked on interest expense. I would say there's really two elements of that. One is we are looking at the timing of interest rate. We have variable interest rates that are included in there. We also have timing and refinancing that's included in our view for the rest of the year. And then we also have costs associated with currency exposures. We brought all those views into this revised guidance, which is why you're seeing an increase in that line item guide to guide.

Thank you for the information. Revathi, could you help us understand the ranking of the two segments: Reliability and Agility? Specifically, which end markets do you anticipate will grow stronger and which might weaken? How does this influence your investment decisions in various end markets? I assume you will be investing in cloud and power, but beyond that, as you plan for growth, which end markets or segments should we expect to see more spending from Flex?

Yes. So I'd say, Ruplu, our view on kind of what weaker and stronger despite all the noise in the end market hasn't changed very significantly. So as an example, automotive where we projected the year it was going to be weak and somewhat spotty, and it is going to turn out to be that way. I would say our consumer kind of end markets, both in lifestyle and consumer devices are kind of holding their own. I would say that we were expecting that to be slow for the year, and it is definitely playing out that way. The places that we expected kind of strong growth in, which is in our medical device business in healthcare and infrastructure-related items for industrial, power and cloud, networking, all those are pretty much in line with what we were expecting it to be. So I would say how the end markets are playing out are fairly in line with what we were expecting. In terms of investments, it will always be prioritized towards the higher growth, higher return end markets for us. And so I would say data center is driving a large part of our investment, both in cloud and in power, not just for this year, but we are investing for the future; I mean, 35% growth does require investment. So you heard Kevin talk about continued investment this year for what will drive growth next year. But it doesn't mean that other businesses aren't getting their share of investment. Healthcare is getting its share of investment, but it's our job to prioritize towards the higher growth, higher return end markets.

Our next question comes from the line of Steve Barger with KeyBanc Capital Markets.

Revathi, for data centers, what percentage of customers engage with the entire suite of IT integration and power products? And for customers that are partial users, how successful have you been at converting them to more content?

Absolutely, Steve, that's an excellent question. Firstly, as you're well aware, the customer base, including hyperscalers and emerging Neo-cloud providers or colocation firms, is relatively small. Therefore, it doesn't encompass a large demographic. Most of these customers, especially hyperscalers, are purchasing a comprehensive range of products, which includes IT integration, cooling, and power solutions. We observe them utilizing a variety of products across the spectrum. For colocation services, the engagement tends to be somewhat inconsistent; however, it generally focuses more on power solutions, gradually incorporating cooling and IT integration when opportunities for scaling arise. Our capability to combine compute and power is becoming increasingly viable, especially as technology advances towards higher power densities—like the one-megawatt racks you've likely heard about. Having an integrated solution for cooling, power, and compute will soon be a standard expectation. Technology is clearly progressing in this direction, and we are ahead of the curve. Customers are now seeking these integrated solutions, positioning us advantageously since there are not many others offering this.

Yes, I agree. To your earlier comment on hyperscalers making some internal investments, are you seeing customers standardizing on solutions? Or is each DC still more custom even if it's the same owner?

Yes. I would say each hyperscaler has its own solution. And each colo tends to gravitate towards whoever is their largest customer base in terms of the standardized solution that they usually implement. So that hasn't changed in a significant way. I think the biggest places that we get to really influence technology, Steve, for all of them would be like if you need high power density to power your chip, then we're designing a power for you that really needs to work well with heat and cooling. So there, we might use their technology, but most of the time, we're using our technology, integrating that, and providing them an end-to-end solution. So it will be a mix, I would say, to your question.

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

Okay. Great. Thank you so much. So we look forward to speaking with you again next quarter. And on behalf of my entire leadership team, I do want to thank our customers, our shareholders, and, of course, the Flex team around the world for all your hard work, dedication, and your contributions. Thank you, everyone.

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