Flex Ltd. Stock

Okay. Great. Thank you, everybody, for joining us. My name is Mark Delaney, and I have the pleasure of covering Flex for Goldman Sachs. Very pleased to have with us today Michael Hartung, the President and Chief Commercial Officer of Flex as well as the planned CEO of RemainCo flex, Kevin Krumm, CFO of the combined company and the planned CFO of the SpinCo and Chris Butler, who is the President of critical and embedded power of Flex, but we'll be the Chief Technology and Strategy Officer of SpinCo. Thank you all for joining.

Good to be here. Thank you.

Mike, I want to start with you, and congrats on your pending appointment as CEO of Remainco Flex. Maybe you can start with some of your key priorities as you take on that role. .

Yes, sure. So I think as everybody in the room probably knows, we've announced a spin. We expect that spend to be executed just after the first of the year. And so when I think about priorities, I think about them in phases. So you've got this pre-spin priority list and then post spin prior risk. -- pre-spin, we're really focused on 2 things: getting the execution of the spin correct and timely. And then two, maintaining the momentum that we've created over the past, call it, 2 quarters in the RemainCo business. So -- if you think back, we have 2 quarters now of double-digit growth on both the RMS business and the ITS business. We've also expanded margins over that time frame from 5% to 5.7%. And we're getting the growth in the areas in which we intend. We talked about high-value markets. Last time we probably talk about all of those things today.

So maintaining that momentum so that when the spin is executed, we're not starting at the finish line, we're like running right through the starting line. Now post spin, there are some different things. And I like to talk about priorities from the perspective of our playbook. And the playbook is what we've been executing for the past 7 years. That's what we'll execute going forward in Flex, and it's what brought us at this moment in time of the spin, where in the past 3 years, we've had an opportunity to create 2 new companies and set 2 companies up for success. And we hope to repeat that over and over and over again in Flex going forward. From a playbook standpoint, I think about 3 different areas. One is financial rigor, another is around productivity improvements, and the third area is around portfolio optimization. From a financial rigor standpoint, I would expect much of the same that you've seen over the past 7 years. We'll continue to deploy capital to the areas of highest return. ROIC will be the governing metric and deciding where we put that capital.

We'll focus more on earnings growth and margin expansion. We won't be chasing top line growth for top line growth's sake, but the same rigor that you've come to know us for over the past call it, 7 years. Productivity in our industry, when you run a network of over 85 different factories in 35 or so different countries driving efficiency in the factory is really the paramount importance. And so we'll expect that to be the baseline going forward of continuing that productivity improvement. But I think what's new and exciting is this ability to unlock more value by combining our automation solutions with AI. And we really see an opportunity to not just unlock more but to accelerate savings from those efforts.

And then thirdly, I'd say, portfolio optimization. We think about our portfolio from a low-value market and a high-value market perspective. Low-value markets have no surprise. These tend to be markets that aren't really growing or where we're not able to differentiate in a way that we can earn a higher margin that supports our plan going forward. And on the other hand, you have high-value markets. And these are markets that tend to be tied to long-term secular growth trends. enables us to grow in the neighborhood of double digits. It also enabled us to earn a higher than average margin because we're solving for different types of complexity. It could be technology complexity, scale, regulatory complexity, so all those things really drive us to continue to balance that portfolio over time. So priorities, prespend, post-spin, but certainly, the idea is to create momentum and maintain that postpaid.

You hit on a lot of things there. Anything in particular that you think will differentiate Remainco flex compared to other EMS providers?

Yes. I think about differentiation in a lot of different levels. every opportunity that comes our way, we have to find a way to differentiate between whomever that competition might be in whatever market. And when you run a diversified portfolio, the competition that you have varies by market and by customer. I'd say there's a couple of things that are universally true. The first is that we operate a unique suite of products and services. So we're 1 of the few companies that has engineering that's connected to manufacturing but also a capability to vertically integrate that manufacturing with things like injection molded plastics, sheet metal fabrication, our own component product line and core works. Vertical integration is 1 key differentiator in many ways. And then after we manufacture the product, we don't stop.

We have an aftermarket business that's already operating at scale, where we have 1 part of our business that is around fulfillment where we can deliver products at the right time, at the right location, whether that's another business or even a home address. And we also have an ability to bring those products back in our sector economy suite of services for repair, refurbishment, recycling, anything that gets those products back from the market, so marketplace itself. So the suite of services, I think, is 1 area. Also, the playbook and then when you think about the muscles that we've developed in the company over the past 7 years, we've developed a capability to identify valuable assets that are consistent with our strategy, integrate those assets into the company. More importantly, combine those assets with existing capabilities to create something of greater value than we acquired. And now we have 2 examples over the past 3 years where we've been able to do that, and we expect to be able to do that in the future as well.

Okay. You hit on top line and some ways already. But Kevin, maybe I could go to you on this one. Any framing around the revenue growth that investors should expect for Remain Coflex over the longer term? .

I would say what we've talked about in those businesses, obviously, there's a lot of momentum today. We'll go through more details at our upcoming Investor Day. But as we look at those businesses, Michael talked about the high-value businesses or the businesses that are positioned against the high-value end markets, we would expect those to perform well in that sort of mid-single-digit plus as we go forward. But there's going to be trade-offs that we're going to continue to make as we continue to deemphasize areas of the portfolio that we wouldn't expect that type of growth. So we'll -- more to come at our upcoming Investor Day. But we're looking for those businesses to continue to perform as they largely have over the last few years. .

We'll stay tuned for November. Looking forward to it. Well, let's dig into some of those key end markets. We can maybe start on the regulated segment. I think last year, RMS revenue grew 5%. This year, I think the company guided revenue in RMS to grow mid- to high-single digits. What's driving that kind of growth? .

Yes. The most exciting part of that is we're getting the growth from the areas that we planned. And so we've done an extensive job of defining those markets that we've called high-value markets, and many of those markets fall in the RMS side of the business. So what are those? I'd say, first, start with health care. So today, there's 2 markets inside of health care that we consider a high-value growth market. One is around connected medical devices, another is around drug delivery systems. And if you think about our medical devices business, we're already 1 of the largest manufacturers of continuous glucose monitors, and we expect that to continue into the future.

From a drug delivery standpoint, a few months ago, we announced a win with Novo Nordisk. So that will be our ramping business inside of drug delivery. And both of those segments are tied to these longer-term secular trends. In this case, things like an increase in our aging population and increase in the prevalence of chronic disease. All of these things are not episodic. There's things that we see driving growth for a long time into the future. Also in RMS, you have our industrial business. One part of that business is our energy infrastructure business. This is a business that we spun the power product portfolio into SpinCo, but we're maintaining all the contract manufacturing business inside of Flex. And so whether it's power generation, transmission, distribution, storage, all of that contract manufacturing work stays inside of Flex.

Those areas will be positively influenced by the trends in the data center. Another area in industrial is around robotics. And so when we think about robotics, it's a broad spectrum, ranging from, call it, warehouse automation on the 1 end, all the way to fully autonomous humanoid on the other. We expect that given the increase in complexity in supply chain that regionalization will continue to be a trend. And many of those regions aren't ready to ramp production. So they're on the lookout for productivity improvements, wage inflation, labor scarcity. These types of applications will have a long-term role in regionalization. When you think about the automotive business, we don't think about that as a high-value market, but we think about that as a stable end market where we have an opportunity to grow in areas like compute that is tied to the software-defined vehicle and areas like power where we do DC-DC converters and onboard chart.

You mentioned robotics. It's been 1 of the key themes at the conference so far this week around physical AI. I'd be interested if you can share more around how big that might be for Flex at this point in terms of what percentage of RMS revenue or total company revenue that may make up now? .

Yes. It's an interesting concept for us because I think we placed 3 different roles in the area of robotics. Customer supplier and an innovator. And so from a customer standpoint, we actually buy robotic from some of our customers. We announced recently a partnership with Teradyne, where not only we use their cobots in a manufacturing environment, we also manufacture those cobots for broader distribution in addition to doing all of our capital equipment business, so a customer perspective. I'd say from a supplier standpoint, we also have developed and manufacture internally our own standardized automation platform. And so we have developed a module-based platform where we've automated -- what were previously manual processes, 13 different manual processes now can be automated across the network with our own automation platform. And then we talk about being an innovator. And the great news is when you're a customer supplier, you get access to a lot of different things in the marketplace. And I was in our Asia factories 2 weeks ago, and you got to see a lot of these things firsthand.

And what you see are a combination of things. On the 1 hand, you have these stationary automation solutions that are plugged into a production line and they're fairly fixed in that configuration. You also, though, see these fleets of autonomous vehicles going out through the factory to deliver products into different pull parts from warehouses, et cetera. And then you see a lot of the work being done on humanoid where we're actively working to come up with the latest solutions to support that growth. Interestingly enough, what we're finding is in our automotive business, our capability around compute, and motion actuation plays very well into the human nit business.

Now I'm not getting over our skis here on human. I don't think we'll deploy humanized in our factory at scale in the next few years. But I do see this hybrid approach emerging -- and it's one that leverages some things that we already have with some things that we're developing. So envision an autonomous vehicle on the bottom instead of the legs of a humanoid then it gets married, let's call it, the upper body of the human -- and now you have a situation where you have a reliable autonomous vehicle, guiding something with more dexterity to increase the application of that humanoid application. And so I think you'll probably see something more in the middle and hybrid before you'll see full blown.

What sort of time frame for that kind of an application should investors expect? .

So we already do automation solutions and already do autonomous vehicles. We already have in our labs, the combination of the hybrid approach. I would say within the next year or 2, you'll see that on our production floor. -- full-blown humanoid, I would put it, 2-plus years out, Bill..

Got it. Okay. But with wheels, that's I think more stationary basis. Yes. Okay. You have a few announced robotics partnerships that are Teradyne is public, the talked about the warrants with Amazon, how those are a little bit more broad-based. I mean as you think about humanoid or just general purpose, robots more generally? I mean, are there key partnerships that are underpinning some of that work you're speaking to?

Yes, I think it depends on which role we're playing in the conversation, customer, supplier -- we have announced a partnership with Teradyne as a customer and a supplier. We've announced a supplier relationship with Amazon. We have standardized platforms inside the factory that we've also partnered with to develop more and new technologies. But I would say that right now, largely that market is based around warehouse automation and fixed stationary automation with a plan to get to more mobile application in the near future.

Okay. Recognize you put a lot of rules here. But any sizing from a revenue perspective, how much robotics makes up?

Yes, we haven't disclosed what that is. We're looking at ways to do that from Investor Day in November as we try to give more granularity and the order of magnitude of our high-value markets and the role in the portfolio .

I guess just -- I mean you mentioned kind of various ways you're using it around these automation modules and maybe different types of robotics going forward. Any kind of way to frame how much of your processes are automated today and where they may go over time?

We do track penetration rates. I think there's a distinction to be made here is that some processes you have just aren't available for automation today. And so you look at a subset of what those are. And we have a really high penetration rate when it comes to the automation piece itself. While we're in the early stages of our integrating AI with those standardized platforms. So that's a really exciting part because as I mentioned earlier, we're known for grinding out productivity each and every year in our factories. And that baseline will continue, this idea of integrating AI with the automation solutions that we've standardized and deployed is really the opportunity to unlock more value.

Okay. And then any kind of specific partnerships where you can share some of your data with different like technology makers not much to share yet. What we plan on doing at Investor Day is give insights into what internally developed manufacturing automation platforms look like in the applications that we have Okay. Maybe talk on health care, you mentioned it as 1 of the key areas of the RMS segment. talk a bit more around your outlook for health care, maybe relative to the segment overall? And as maybe GLPs can perhaps be a driver for Flex?

When you think about the portfolio that we offer and you marry that with this concept that we'll deploy capital to the areas of highest return. Health care for certain post-spin will be a leading destination for capital. So you'll see us continue to invest and the markets that we have and explore markets that we'd like to penetrate. Right now, I would think about health care as being that steady driver of growth and margin appreciation. -- it's kind of the call and the storm, so to speak. And it plays a really important role in this portfolio for a couple of reasons. One, high regulated. And so our customers rely on us in this -- really this environment of uncertainty. -- to help them create flexibility in their supply chains through a regulated footprint. I'd also say that they're relying on us more and more to help them innovate because they're used to an environment where they can look over a long-term horizon. -- call it, 7 to 10 years and with high confidence make predictable investments that they know they'll get a return on.

This is a market that is being disrupted more than ever before, especially on the equipment side. And so again, I like to think that the more complex the supply chain gets, the better position we are to help our customers because of those flexibility requirement. .

Okay. I wanted to talk also on the auto part of the business within RMs. I think you just described it as a relatively stable business. If I'm not mistaken, last Investor Day, that was 1 of the key growth areas that the company had details. So what's changed on the auto front. .

Yes. I think if you roll the tape back a little bit, right? We had certainly some optimism around the automotive business. I think like many companies we're surprised by the level of disruption and volatility, disruption from Chinese markets, disruption from the macro situation that negatively influenced the automotive industry -- and so for the past, I'd say, almost 2 years, we've been talking about the volatility of that business. Last quarter, we started talking about the stability of that business. So we've reset at a lower, more stable level. And this is the level from which we'll start to grow in the areas that we intend. And there's really 2 areas that we're focused on. The 1 area is around our compute platform. We talk a lot about buying habits of the consumer today. automotive customers used to buy based on horsepower. Now they buy based on user experience. And so the software-defined vehicle is the future of automotive.

And as a result, software has become the secret sauce of automotive makers. Now we're uniquely positioned because a lot of the Tier 1s bet that they wanted a combined hardware and software solution, and they really just want the hardware. So we're able to standardize the hardware platform that they can marry with their software solution and they could go to market without the same friction as maybe some other suppliers might have. Also, when you think about the Power business, we're still optimistic that power that hybrid EVs are going to continue to grow as a percentage of the total. And our power business is well positioned for that, whether it be onboard charging or DC to DC power conversion, those are areas that we think will grow over time as well.

Okay. In the interest of time, maybe we can move on to the Integrated Technology segment. That's also going up pretty quickly. Kevin, can you remind us that the outlook for revenue growth in the IT segment for the year?

So we've guided to a revenue number. I might need Michelself here. The good news is that we raised our guidance we started off the year, and I think people were wondering why we didn't guide higher -- and we're sitting at the beginning of the year to want to see how some things playing out in the marketplace. I'm glad that we did. And this last earnings, we raised our guidance from -- we raised our guidance to high-single digits to low-double digits. And that's really coming on the backs of our communications business because the lifestyle business is soft, as expected, it's been soft for, I want to say, a couple of years now. We don't see a catalyst for that to change anytime soon. So that growth that you're seeing is coming from the communications business, and it's coming from that spectrum that is that advanced networking application, high-speed switches, optical year network interface technologies and now set. .

Yes. I imagine, I mean the whole segment grew in high single to low double digits. Networking is growing well above that, right, to bring the corporate to that the segment to that level. I mean how sustainable do you think that networking outlook is? .

Well, I think it's sustainable as the data center demand is sustainable, right? And so we believe in that demand. I believe in it so much that we spun the data center business because we see long-term growth fundamentals that exist in that business. The same fundamentals that exist for SpinCo will exist for Flex post-spin as well.

Yes. Love to talk on data center demand and Michael welcome your views or Kevin, if you want to chime in. But also, Chris, will be very interested in your perspective here. Because I mean, there's not so much discussion around the data center market, maybe some new policy restrictions from certain state governments trying to restrict where data centers have been built, getting the capital to finance some of these projects, but also tight compute and supply demand more generally. So maybe just help us understand what Fox has been seeing around data center demand. .

Yes. I mean it's interesting. We've had NIMB come up a couple of times today. But honestly, I mean, we don't really see that impacting the business and even in the short -- certainly not in the short term, but I think there's a lot of misunderstanding going on in the general public right now. And look, the reality is that everybody continues to use AI. I mean my 81-year-old mother uses AI today, and you start seeing more and more adoption of these tools. You're going to have to be able to process that compute. So I don't think we're going to see demand curtail in the data center space, even with some of these back pressures, it may just shift around a little bit. Because the fundamental reason why you're seeing this increase, you're taking chips that you operate at 150 lots are now going to 3,000 lots. It's a 20-fold increase in power.

It's going to mean there isn't an estimate growth estimate out there that isn't below 2 to 3x the amount of power consumption, right, in the data center fleet here in the U.S. So I think there's going to be long-term growth behind it. You see customers making those investments we're making those investments in capacity to make sure that we can meet those demands.

And excuse me go ahead. Yes. I guess specific to some of the NIMBY concerns, there's just enough other places for the data centers to be built or they're far enough along that it's not going to constrain the growth rate .

Yes, I think they'll just move around, right? There's just so much demand out there. .

Just in terms of getting the supply you need, I guess, is can both CPI as well as the IT segment. I mean what's the ability for Flex to procure enough material, be it semiconductor and other parts are having the capacity to manufacture I mean in order to support this growth outlook that you're seeing across the networking as well as the CPI segments. .

So got it. I'll help with that. As -- so first, the environment is challenged, but it's been challenged for a while. It's been challenged. We would argue for the better part of 7 years and Flex has continued to perform well in that type of environment because we have a capability to do just that and do it at a global scale. As we've looked at our guidance, we, of course, as we started the guidance for CPI as well as broader Flex. As a reminder, CPI, we gave 65% to 75% this year. That contemplated supply challenges in there.

Okay. Well, the company had some interesting news on the CPI business last week acquisition of EPC Power for $4.4 billion. Chris, I was hoping you could share a bit more on EPC in terms of the background, we flex to that acquisition? And anything else you can share on that .

Yes, we're super excited about the announcement last week and a good fit between the management teams. You start looking at EPC power, it really is covering a gap that we had that was kind of upstream in the data center. So if you look at their base product today, they have a highly advanced energy storage product. This is not your typical energy storage product. This is a grid-forming inverter that provides a lot of unique capabilities to data center operators and utilities in this space. So number one, it will make sure that the grid is insulated from some of the anomalies that happen in a GPU-based data center, some of those powerful fluctuations. It also makes sure that we can provide a very clean source of power to the IT loads in the data center. And that's our base product today, which is being required by a lot of utilities here across the U.S. pretty significant power disturbance in Northern Virginia back in the month of July, and that is driving more utilities to demand this type of technology in the data center.

So we see a lot of tailwinds even as we're going through the latter stages of negotiation that are helping us here in the business case looking forward. So from that piece, we've got a lot in their base business today that continues to grow because of the secular trends. But then you also look at things like their future -- the future technology play for us. They have a centralized rectifier today, an active digital rectifier that we can use for a centralized 800-volt DC deployments. This is already in the NVIDIA DSX architecture. They have a very far along SST development program that will allow us to even bolster efficiency better and improve the footprint. I think we're going to be taking the data center architecture to blank sheet to pay per soon and being able to work with customers on really helping them connect that 34.5 kV at the utility space directly to the IT load.

And you mentioned being complementary to what Flex can do. But I think FX has also been working maybe just double click around what Flex in the CPI segment has been doing on a 100-volt and how that's different than what EPC would bring. .

Yes. Great point. I mean, if you look at where Flex's primary power conversion business has been, it's all been really at the rack or near the rack. So I think everybody knows we have a pretty broad portfolio of products that allow us to take, whether it be AC power or even 800-volt DC power all the way down to 1 volt, which is the voltage level that these chips operate. So we have probably 1 of the most expansive portfolios there. We were also -- but we are deploying both plus minus 400 and 800-volt DC side cars as well. And those are being implemented in data centers that are already built today or in the process of being built. So we see next 2 to 3 years, really strong outlook for that type of product. where we see the EPC product playing more of a role is in that greenfield data center that's probably in the planning stages today. And 2 to 3 years from now, we'll start seeing a lot of demand for their 800-volt DC solutions. .

You said in the press release, you expect DTC to generate about $800 million of revenue in calendar '26 and to grow 40% organically in 2027. Help us understand what's driving that kind of top line growth .

It's all in to the data centers. It's all tend to some of those regulatory requirements that are coming. There's also some tailwinds from bands on farm produced product in the critical infrastructure here in the U.S. So EPC is all U.S.-based production. So that plays in very, very well. And that doesn't include any of the other things that I talked about future architecture, which I think will give us some tailwinds in the outer years, and most of that business is booked today.

So a good backlog even for that really for '27. And you also talked about margins expanding double-digit percentages, I think 30% EBITDA margins in calendar 2017. What drives that margin uplift? .

Big drivers are, number one, they just they just implemented and expanded their production capability pretty broadly, and that just came online in the month of June. So a lot of that margin uplift is stabilizing in those manufacturing locations. Also a lot of supply chain initiatives that they've been doing to reshore materials and things like that. So we've got a -- and I forgot to mention data center margins are a little bit higher than what their traditional business has been. So all those factors give us confidence that we can deliver that.

But it sounds like most motor making a supply chain that they've got the materials as well as the manufacturing footprint to support that outlook.

Yes, it's already in place today. We just got to keep the momentum going.

I wanted to just are a little bit talk about services. I mean something that you guys have mentioned throughout the conversation so far. I think at 1 point, the company had said services was about $1 billion business. Maybe talk about how big it is today and how that might split out in terms of RemainCo versus CPI. .

Yes, I'll start and maybe gas can jump in on the future of that for SpinCo. I'd say the services, first of all, will continue to be a key part of the portfolio. Like I mentioned earlier, connecting engineering, a vertically integrated manufacturing and this aftermarket capability is a different for us in multiple markets. So we'll expect that to continue. In terms of scale of that business, it hasn't gotten smaller. We haven't talked about how big it's gone. And it's fair to say that we're going to split certain ports I'd say the vast majority of it will stay inside of Flex. But there is a portion that's going to spin as well. I'd also say that, that's just the starting point of what the strategy is for SpinCo when it comes to services and maybe you guys can speak a little bit more to that.

Yes. So what I would say about services. So first, the other thing we've said about services in addition to the growth we've seen over the last few years is that they it's a higher-margin business. So it's been a part of our margin story. As we look at the business that we're going to spend, we see services as a continued opportunity there to deploy both on the cloud and cooling side as well on the power side. We have services today. Largely, I would say the largest piece of that is on cloud and cooling right now, and it is -- drives margin improvement on that side of the business. As we go forward here, we see it as an opportunity to continue to write service revenue into that cloud and cooling business to continue to drive margins there. And on the power side, I'd say it's a bigger opportunity. We're in the early stages there, but it's certainly going to be a focus area for us over the next 3 years.

Margins, if I could, and maybe for Kevin and Michael. As you think about Remainco Flex, should investors think about that long-term margin profile of that part of the business. .

Yes. We haven't gone out yet at Investor Day, but I'd say a couple of things will be true. First, look in history and looking at what the market appreciation has been over the past 7 years. I'd say even look to the recent history where we've improved margins in the RMS and ITS business independent of CPI from 5 to 5.7%. So we'll be north of those numbers as a combined entity. And we'll expect to continue to focus on earnings growth and margin expansion going forward. And we'll give you a better idea of what the destination has come to member.

Okay. hoping to talk on capital allocation and given the announced spend. I mean I don't know maybe that changes what you kind of can't do, but can you do more M&A between now and potentially that happening? Can you do buybacks? I don't know if you can share more on how you may use the balance sheet? .

So first, as we talked about the spin, our focus from a capital allocation standpoint there is to ensure that we maintain investment-grade status Flex side and then investment-grade metrics on the spin guide. That was the principal that we talked about -- as we've gone through this year, our capital allocation priorities for Flex have not changed. We've talked about those through the years, but it's protecting the balance sheet, investment-grade balance sheet. -- it's putting money back into the business organically in CapEx. You see that's a big focus of ours this year. And then it's selective M&A, which you've seen us do some of that this year, too. We have not bought back any shares through the first quarter. Share buyback remains a part of that capital allocation priority. We'll continue to look at it and be opportunistic. But -- as we've looked at deploying capital this year, clearly, the investment we're making in CapEx, we see significant positive returns there supported by great business cases. So that's been a focus. And then focusing on the spend too, which we believe to be a great return to shareholders has been another area we focus so far this year. But really no change for Flex. No change for what we stated about the 2 businesses separately. -- and we'll continue to stay opportunistic around that framework.

Okay. I know you're still formulating sort of exact balance sheet of the 2 entities. But any kind of high-level thoughts around what the right level of leverage might be for the different parts of the business. .

Well, we've talked about on the RemainCo side, maintaining that investment-grade status. We've also talked about as we move forward to spin, RemainCo were Flex is going to retain a stake in Sisco. We've said that will not exceed 19.9%, but there will be a retained stake back. As SpinCo spins, we do expect Flex to be able to use that retained stake to delever. So what you're going to end up with from a flex standpoint is a business with less leverage, stronger balance sheet and therefore, an opportunity to go deploy that balance sheet against the growth opportunities that present themselves.

Maybe just the last minute we have left, Michael, I wanted to close with a question for you, which kind of your thoughts around a permanent CFO for RemainCo. Kevin, you're polling duty right now. But Michael, any thoughts around.

I'm probably looking forward to it after I forgot the guide number discussion.

Any thoughts on sort of what you're looking for in a partner there in any time frames?

Yes. So there's 2 things to think about when you -- maybe 3 things when you think about the spin. The first is creating the executive team, second and has created the Board and third is filling that CEO spot within the executive team. We are on track to do all of those things in advance of the spin. I feel real good about where we are in that process. We're late stages and hope to announce something in the near future. But certainly, it's someone that will come in and first be familiar with the manufacturing environment; secondly, being a partner in the ongoing transformation that we expect to undertake in flex. And then certainly, the last being someone that fits in with the culture of the business. And I think we found numbers of candidates that all 3 of those criteria, and we're real close to finishing up the last election.

Great. A lot of stuff to keep an eye out for Investor Day and hopefully, completion of the spin in the first quarter next year. Well, thank you all for joining. It's been real -- appreciate you.

Thanks, Mark.

Thank you for standing by. Welcome to Flex's First Quarter Fiscal 2027 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I will now turn the call over to is Michelle Simmons. Mr. Simmons, you may begin.

Good morning, and thank you for joining us today for Flex's First Quarter Fiscal 2027 Earnings Conference Call. With me today is Revathi Advaithi, our Chief Executive Officer; Kevin Krumm, our Chief Financial Officer; and Michael Hartung, our Chief Commercial Officer. 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 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 whole fiscal year and did not give effect to the planned spin-off of the Cloud and Power Infrastructure segment. For a full discussion of these risks and uncertainties please see the cautionary statement 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 rules. The full non-GAAP to GAAP reconciliations can be found in appendix slides of today's presentation as well as in the summary financials posted on the Investor Relations site.

Now I'd like to turn the call over to our CEO. Revathi?

Good morning, and thank you, Michelle. In Q1, our teams delivered another exceptional quarter while continuing to prepare 2 industry-leading companies for the next phase of growth as stand-alone businesses. We delivered strong revenue growth, margin expansion across all 3 segments and record adjusted earnings per share of $1. Our Cloud & Power Infrastructure segment grew 35% year-over-year. And as we stated before, our investments in this business are on track to drive accelerated growth and margin expansion in the second half of the fiscal year. .

We also saw strong growth in our communications and industrial business units, driven by high-value market as networking, automation and energy infrastructure. Now we're in the midst of a generational build-out driven by AI and demand is not slowing down. We have built 2 focused companies to win in the AI era, and these results reflect the strength of our strategy. Our results also reflect our focus on long-term execution. Our addition to the S&P 500 last month reflects our progress over the last several years and the enduring strength of our strategy. We also continue to build momentum in some of our fastest-growing markets, expanding our partnership with Cerebras to scale manufacturing of the CS-3, one of the world's most advanced AI accelerator systems right here in the United States.

We also launched a new liquid cooling solution through JetCool and showcased our next-generation power and infrastructure technologies at Computex. As we continue executing our long-term strategy for both Flex and SpinCo, I want to reiterate our vision for both companies. We have built 2 great businesses that are entering different phases of growth. The spin allows each company to sharpen its strategic focus, align capital allocation with its growth priorities and create greater value for customers and shareholders.

SpinCo requires a capital allocation framework designed for rapid growth as demand for AI infrastructure accelerates. Many people still think about AI as a compute story. I think it's increasingly becoming an infrastructure story and more specifically, a power story. AI may live in the cloud, but the infrastructure behind it is very physical. It must be built, powered, cooled, integrated and deployed at scale. As AI scales, the constraint is no longer just the chip. It's everything around the chip. Power, cooling, electrical systems and ultimately, the grid capacity. That's the challenge customers are trying to solve today. We saw this coming years ago, and that's why we invested in power, compute and thermal management technologies long before AI became front-page news.

What started inside Flex as a set of businesses supporting the next generation of data centers has evolved into a leading solutions provider. I want to be very clear. SpinCo is not a data center components company. It's a digital and electrical infrastructure company, built to help customers solve the power, cooling and scaling challenges that come with AI. That's where we believe SpinCo is uniquely positioned to excel. We see our ability to bring together power, thermal management and compute technologies combined with the ability to deploy these capabilities at global scale as a true differentiator in this space. We have spent years working alongside the world's leading technology companies as a design, build and expanded capital infrastructure.

That combination of power expertise, systems integration and execution is difficult to replicate. And I would say we're still early. We believe we are at the beginning of one of the largest electrical transformations happening today. What's happening in the data centers is just a starting point. As AI scales, demand will extend far beyond compute, driving investment across power systems, cooling technologies, electrical infrastructure and ultimately the grid itself. That's why we don't view this as a short-term investment cycle. The work required to power the next generation of AI will take years, creating ongoing opportunity across the broader electrical ecosystem with a very long tail. We are building SpinCo to lead that transformation.

At the same time, Flex is exceptionally well positioned to drive long-term value creation as a leading global manufacturing platform. Following the separation, Flex will remain a global manufacturing leader with a proven playbook and strategy with deep customer relationships across diversified end markets, and exposure to attractive long-term secular growth trends. These include health care, where an aging population and increasing prevalence of chronic disease are driving demand for medical devices and drug delivery solutions. And robotics and warehouse automation, where regionalization and labor shortages support meaningful operation opportunities for continued growth.

While SpinCo will focus on open digital and electrical infrastructure, Flex will continue to benefit from pull-through demand in data centers, providing contract manufacturing services in the advanced networking and energy infrastructure market. What remains underappreciated is the strength of the Flex portfolio and the related opportunity ahead. The same disciplined playbook that has driven our transformation over the last 7 years will continue to guide Flex as it enters this next phase of growth. Ultimately, we are creating 2 distinct and focused leaders, each with the scale, strategy and opportunity to succeed on its own.

Now turning to our transaction update on Slide 6. Our dedicated separation management office and cross-functional teams continue to make tremendous progress towards the separation and we are on track for tax-free spin-off in the first quarter of calendar 2027. Today, we're also pleased to announce additional leadership appointments for both SpinCo and Flex, effective upon completion of the separation. Thanks to the strong bench and depth of expertise we have built at Flex in recent years. We have strong leadership teams in place for both companies ready to execute from day 1, providing confidence, clarity and continuity for our customers, employees and shareholders.

For more details on the extended leadership teams of each company, please refer to the press release we issued this morning. While it's certainly an exciting and dynamic time at Flex, we're executing from a position of strength. Our teams are winning by delivering incredibly well for our customers and at the same time executing with discipline to deliver exceptional results. We're excited about what's ahead, and we look forward to sharing more in the months to come, including at our Investor Day on November 10 where we will provide additional details on the path forward for both companies.

With that, I'll turn the call over to Kevin, who will walk through the financials in more detail.

Thank you, Revathi, and good morning, everyone. I'm honored to be a part of this exciting journey and to work alongside both teams during this transformative period. It has been an incredible journey so far and I'm energized about the opportunities in front of these businesses. I'll now review our results for the first quarter fiscal year '27, which reflects strong execution as we continue preparing for the upcoming spin-off of our Cloud and Power Infrastructure segment.

I'll start with our key financials on Slide 8. First quarter revenue came in at $7.9 billion, up 21% year-over-year. Adjusted gross profit totaled $761 million and adjusted gross margin improved to 9.6%, up 50 basis points from the prior year. Adjusted operating profit was $534 million, up 35% year-over-year with adjusted operating margins at 6.7%, up 70 basis points from the prior year, driven by business mix and underlying productivity improvements.

Finally, adjusted earnings per share in the quarter increased to $1 per share, up 39% year-over-year. Turning to our quarterly segment results on the next slide. Regulated Manufacturing Solutions revenue were $2.7 billion, up 12% year-over-year, driven by strength in industrial. Adjusted operating income was $176 million and adjusted operating margin was 6.6%, up 130 basis points year-over-year, driven by the aforementioned strong performance in Industrial. Renew from Integrated Technology Solutions segment totaled $3.1 billion, an increase of 20% year-over-year, driven by exceptional growth in communications. Adjusted operating income was $158 million and adjusted operating margin was 5.2%, up 10 basis points year-over-year, driven by the strong performance in communications and offset by weakness in consumer-related end markets.

Finally, Cloud and Power Infrastructure revenue totaled $2.2 billion, up 35% from the prior year, driven by strong growth in power as cloud and cooling continues to ramp new programs. Adjusted operating income was $214 million, and adjusted operating margin was 9.7%, up 20 basis points year-over-year, driven by growth and margin expansion in Power.

Moving to cash flow on Slide 10. Free cash flow in the quarter was $41 million. Free cash flow was negatively impacted by onetime cash costs of $24 million driven by activity related to the announced spin-off. Q1 inventory was up 10% sequentially and 24% year-over-year, largely driven by revenue growth. Inventory, net of working capital advances was 56 days, an increase of 1 day from the prior year. First quarter net CapEx totaled $235 million or approximately 3% of revenue.

Turning to our updated outlook on Slide 11. For fiscal year '27, our expectations are the following. Revenue to be between $33.7 million and $35.2 billion, up 23% at the midpoint. Adjusted operating margin to be between 7% and 7.2%, an increase of approximately 80 basis points year-over-year at the midpoint. We expect an adjusted tax rate of approximately 21%. We expect adjusted EPS to be between $4.42 and $4.74 a share, up 39% at the midpoint. Finally, we expect CapEx to be in the range of $1.5 billion to $1.6 billion.

As a reminder, our prior guidance for free cash flow conversion of 60% excluded costs associated with the spin-off of our CPI segment. Incorporating costs associated with the spin-off, we now expect free cash flow conversion to be approximately 40%. Moving to our updated fiscal year '27 segment outlook. For RMS, we expect revenue to be up mid-single digits to high single digits due to continued strength in high-value end markets within industrial, including warehouse automation, robotics and energy infrastructure.

For ITS, we expect revenue to be up high single digits to low double digits, driven by continued strong performance in communications. And for CPI, we expect revenue to be up 65% to 75%, driven by both cloud and power with Power's growth rate exceeding Cloud's. Finishing off with our guidance for the second quarter on Slide 13. We expect RMS revenue to be up mid-single digits to high single digits on continued strength in industrial. We expect ITS revenue to be up high single digits to low double digits on continued strength in communications offset by weakness in consumer-related end markets. We expect CPI revenue to be up 45% to 55% as new programs continue to ramp in both cloud and power.

For Total Flex, we expect revenue in the range of $7.95 billion to $8.25 billion, up 19% at the midpoint with adjusted operating income between $535 million and $565 million. Interest and other expense is estimated to be around $58 million and the adjusted tax rate to be 21%. Lastly, we anticipate adjusted EPS to be between $1 and $1.07 per share, up 32% at the midpoint based on approximately 375 million weighted average shares outstanding.

In summary, we are off to a strong start for fiscal year '27 and we are well positioned to deliver upon the commitments we made at the beginning of the year.

With that, I'll now turn the call back over to the operator to begin Q&A.

[Operator Instructions] Our first question today is coming from Ruplu Bhattacharya from Bank of America.

Revathi, my first question is on margins in the CPI segment. Looks like revenues grew sequentially, but op margin was slightly lower, maybe 20 bps. Is that because of program ramps that you're focused on? And in a broader sense, can you talk about growth drivers for margins in this segment? Power has good margins, but today lower than some of its peers. So how do you plan to grow margins in the Power segment? And then for compute, what guardrails do you have to make sure margins remain within your target range as some AI projects could have lower margins? And I have a follow-up.

Yes, Ruplu, thanks for that question. I would say that margins in CPI is pretty much in track with the guidance we gave for the quarter and the year. We said that in the CPI segment that the revenue is kind of back half loaded. We have been making investments in that. And then we also said that we expect to have at least 100 basis points improvement in margin in the CPI segment for the year from a year-over-year perspective and we're on track with that. So we feel very good about that.

I would say what guides margins for this segment, obviously, on the compute side, we have been executing on that strategy for a while, and we're fairly mature in these. When there are new programs, which there are always significant new programs, initially, there's some investment, but when the program matures, then kind of the margin flow-through rate is pretty good. So those ups and downs in the cloud side and the computer integration side is part of the game. But as you have seen in our full year results, typically, that through the year, we do pretty well in terms of both revenue and our margin.

I'd say on the power side, we have said that, hey, we've built the power business through a whole bunch of acquisitions, which requires investment, particularly when these businesses are growing at 70-plus percent. So we're making those investments, and that drives kind of requirement for the margin to be slightly muted compared to our peers, but we're very comfortable with moving it in the direction of where the peers and the electrical infrastructure are. So I'd say, Ruplu, in summary, CPI is absolutely where we said the quarter would be and where the guide would be for the year. And we're on track to deliver the margin improvement just as we said for kind of our current fiscal year.

Okay. The follow-up maybe is for Michael or for Kevin. When you think about the segments in Remainco, the regulated markets and especially the ITS segment, are you happy with the product portfolio? I mean if the focus is on longer life cycle, higher-margin segments, is there more potential to do more pruning or more optimization of both the portfolio as well as the footprint. So how are you thinking about that as you look out over the next couple of years? .

Yes, thanks for the question. I'd say we're absolutely happy with where we're starting from in the business. And if you might recall, our strategy going forward will be to continue to emphasize the high-value growth markets that are tied to these longer-term secular trends. And these markets exist in both the RMS business and the ITS business. So up to this point in time, we've been deploying capital, both human and financial, towards the highest returns, and that's been the data center. The strategic clarity as a result of the spin enables us to provide greater focus on those high-value growth markets. In terms of optimization, a regular part of our process here in the business is to always look to optimize the portfolio. You've seen the benefits of that in our Q4 results, our Q1 results and our guide and we expect to continue to optimize the portfolio and look forward in the theme of emphasizing high-value markets and deemphasizing value markets along the way. So in short, really pleased with the starting point of where we jump off from on the business.

Our next question today is coming from Mark Delaney from Goldman Sachs.

I was hoping to start on CPI. I think the full year guidance for CPI revenue implies 2H revenue is up closer to 100%, so some acceleration. I know the company has program wins as you were just describing, but can you speak more on your visibility into that acceleration for 2H. And on that kind of broader theme of visibility into the CPI growth, any change in your views for CPI into next year because I think you're expecting an acceleration to over 80% growth for fiscal '28. .

Mark, this is Kevin. From a CPI perspective, yes, directionally, the ramp that you were referring to is what's going to happen as we move through the year. So we started at 35% in Q1. We're guiding to 45% to 55% in Q2 and then still the 65% to 75% for the full year. So certainly, strong growth in the back half of the year, as you referenced, I would say from a visibility standpoint, we've talked about our demand see through in this business, and it remains strong. We're still at that 90% plus booked business at this point for the next 3 quarters. So we feel good and remain confident in our visibility around this business. I would say, as we think about next year, while we're not going to guide here on a quarterly basis, the framework that we offered earlier in the year still holds, and we expect the investments that we're making this year in CapEx and the ramp we see in the back half of the year to continue strong growth performance next year and our visibility next year still remains robust.

That's helpful context. My other question was on cooling and rarity, you mentioned JetCool and you spoke about cooling. So I was hoping you could give a bit more detail on how big that market might be for Flex today. And maybe more qualitatively, if you could speak around the traction that you're seeing in areas like cold plates and CDUs.

Yes. I'd say, Mark, the market itself for cooling, liquid cooling, as you're aware, is growing quite well and the market size is increasing as more air cooling is getting replaced with liquid cooling. I'd say our acquisition with JetCool really got some cold plate capability as to industry-leading cold plate capability, and then we had to develop and introduce CDUs into the market. So we're in the process of qualifying those products with the written customers to scale that business up. .

It also gave us kind of manufacturing capability and codesign capability with some customers who already have their cooling product that helps us codesign with them. The way I think about cooling in the CPI portfolio is that it's still nascent, and it will be a pretty important part of our growth strategy overall for CPI within the Cloud segment. So we're pretty bullish about it, I would say, but there's work to be done in terms of scaling that business to where we need it to go.

Our next question today is coming from Tim Long from Barclays.

Just one and then a follow-up, if I could. On the communications business, it sounds like it was really strong in the outlook was very favorable there. Just give us a little bit of color on kind of visibility, sustainability of that strength? How broad-based is it in the customer base. And then I'll come back with a follow-up.

Tim, thanks for the question. Yes, we've identified within our Communications business that our advanced networking business, in particular, is one of those high-value growth markets that we expect to drive growth over a sustained period in our business. And that's being positively influenced by pull-through demand from the data center. So if you step back and think about this business, communications continues to be one of our largest healthiest businesses in RemainCo going forward. It will continue to really spread across not just high-speed switches, but optical switches, network interface cards. So it's fairly broad-based within that advanced networking ecosystem and very much tied to the sustained demand from the data center. .

Okay. Great. Great. And then maybe a follow-up for Revathi. You mentioned kind of being able to bundle or a little bit more, have a full solution power cooling rack. Could you just touch on kind of -- I know it's early on the cooling side. Maybe just give us some examples, there's some thoughts of customer activity where you're seeing the benefit of having these multiple pieces?

Yes. I'd say, Tim, that we are seeing it across multiple customers, hyperscalers without naming any, I would say that you can see that most customers now are quickly thinking about, hey, we need to -- before we deploy the next-generation silicon, we need to be thinking about power capability and power requirements. They're already thinking about how does life look like when we go to an SST technology. So we're seeing a lot of conversations at a very high level and strategic level with customers on kind of silicon, cooling, power, how all that comes together for next-generation products, which we didn't see 2 and 3 years ago because what customers don't want to be is in the situation they are today, where the power requirement becomes an afterthought, and then we are in a struggle to make sure that we have enough power to -- for these data centers. .

So I'd say in the last kind of few months, several hyperscaler customers at a very high level, we've had strategic conversations around power cooling and kind of thinking about next-generation silicon. And that really puts us in the unique position of one of the few people who are able to do this. So I feel pretty good that 3 years ago, we thought this is where it would go, but now the conversations are actually heading in that direction. I'd say, from a platform perspective, what we announced with NVIDIA a few months ago in terms of developing an overall modular platform, which encompasses everything that we do is a good example of a customer who's thinking about it and moving it in that direction.

Our next question today is coming from Joseph Cardoso from JPMorgan.

Maybe just for the first one. Relative to the CPI growth outlook that you provided, maybe can you just discuss the constraints that you're seeing just given the current backdrop that we're in? Just interested in hearing potentially what's limiting you from calling for further upside here and where things are maybe more acute in terms of the constraints that you guys are seeing. And how are you thinking about those trending going forward? And any levers you have internally in terms of how you're thinking about offsetting some of them? And then I have a follow-up.

Yes. Joseph, I thought by saying that our guide for CPI for the year was 70%, so growth year-over-year. So it's a pretty strong and robust number in terms of year-over-year growth. So we feel really good about that. I would say we beat the midpoint of our guide for Q1. We said 30%, we came in higher than that. So obviously, the year is accelerating exactly like we planned and Q2 is higher than Q1. And we had clearly mentioned that this is back half loaded, which is mainly driven by the capacity investments we are making. We announced a big CapEx which involves pretty significant investment in terms of facilities, cooling infrastructure, manufacturing infrastructure, all of those are going in place. .

And that, combined with the customers' generational shift in platforms is what has driven our -- kind of the way we've given our guidance for the full year. So we feel very good about the 70% guide that we've given for this year and the 80% that we have given for next year because those are pretty significant numbers. I don't see any significant constraints per se other than putting the capacity investments in place and making sure those factories are ramped up, which we know how to manage really well. So Joseph, I feel really good about the guidance we gave, and we're on track to deliver that.

That's great to hear. And then maybe just as my follow-up, you mentioned the engagement with Cerebras. I'm not sure how much you can talk about it. But any way you can kind of frame out how representative this engagement to Flex' broader AI accelerator opportunity. And really, what I'm trying to get at is, for example, it is mostly advanced manufacturing? Or are you also seeing some pull-through around power, cooling and just the portfolio there.

Yes. I would say we've talked -- we have been quite public about it and Cerebras has been about our engagement with them, and we have -- I think there's videos published by us and them in terms of our full engagement. We've been working on this for a while, right, with them. And I would say that it is definitely a manufacturing cooling engagement because those go hand-in-hand. But it is also -- we're also working on things like next-generation power, which is things that we will be thinking about with them in the future. .

So it's a pretty holistic partnership with Cerebras. It's going extremely well. We're scaling up a lot for them. So I would say that this is a good example of us diversifying our hyperscaler involvement in our CPI business that we have talked about, and it's a great example of scaling up with another customer.

[Operator Instructions] Our next question is coming from Ruben Roy from Stifel.

First question, I had a follow-up on Tim's question on EPS. Kevin, you mentioned Advanced Networking and we've got the guidance higher for the year. Can you talk a little bit about some of the dynamics. Are you seeing share gains in advanced networking versus just broader market growth, which we're hearing from a lot of your peers. And I guess the kind of the longer-term question is how you're thinking about your ability into fiscal '28 on that business. .

Thanks for the question, Ruben, this is actually Michael. In terms of the communications business and the underlying strength in the advanced networking business itself, first, it was a driver in our Q4 results. It was a big driver in our Q1 result, and that strength is continuing into our Q2 guide and in our FY '27 guide. So we're seeing continued strength in that business. I'd say it's a combination of 2 of the things that you mentioned. One is ongoing increased demand from the customers that we have had for a number of years in many cases.

And we're actually winning share in some of those product segments as well. So we have good diversity across a number of large OEMs in the Advanced Networking space. And we also cover a number of product categories as well from high-speed switching to optical products to interface technologies as well. So I'd say 2 things. One, yes, sustained demand in our Advanced Networking business, good diversity across customers and good diversity across product segments as well.

And we feel good about the durability into FY '28 because it's all related to AI infrastructure spending, right? So as that continues, right, you're going to continue to see this business ramp with that.

Revathi, if I could follow up on -- for the follow-up on the CPI discussion and thinking through capacity adds and that type of thing. You talked a little bit about that in May. But 90 days later, can you give us an update on sort of installed capacity against sort of the large second half ramp? What -- I don't know if you can give us a percentage or a high-level view on what's customer qualified today or what you still have to commission towards kind of meeting the strong growth you're expecting in the second half?

Yes, Ruben, I'd say we feel very good about our full year plan here for this business. These capacity investments and movements have been going on for a bit. So it just didn't start like 90 days ago, we have been doing that before that. So feel very good about it. And you can see that in the acceleration in Q2, just like we planned and then we see the back half pretty much going per plan. And most of the CapEx that we announced is for this acceleration in FY '27 and FY '28. So we're installing that CapEx.

I don't see any major concerns about how that capacity installing is going. It's going really well. Flex knows how to do this extremely well. We run large projects well. And this is both in cloud and power, right? Our power business is also growing in the 70-plus percent range. So I feel very good about the progress in terms of both cloud and power and feel very good about the guide for the year. We are on track for it definitely to do the 70% or better than that.

Our next question today is coming from Luke Junk from Baird.

To start with, Revathi, just be great to get your updated perspective on the transition to high voltage, both 400-volt plus or minus and 800-volt and specifically, to the extent there might be any risk of delays or push out just how we should think through what impacts might or might not be relative to the CPI guidance, I think, especially for fiscal '28.

Yes. I would say first is on 400 volt, which is kind of the immediate programs that we are working on, followed by 800 volt. We feel very good about the progress on those programs. I don't see any major limitations at least to the guide we have given for '27 and '28. We feel pretty good about that guide. I'm sure there's lots of conversations about component constraints and all of that, but we have planned all of that in the guide we have given. And if anything, there should be some upside to that, I would say, as availability becomes better.

But the technology transition is going well. We feel good about the pace of customers and how that is being deployed. So I'd say we have mentioned this before Flex is kind of the leader in this transition on them, but at power side, and say that our ability to develop and deploy that 400-volt technology followed by 800-volt is really, really strong. So I feel really good about that we're on track for it, and we'll see kind of as we update our long-term guidance in the Investor Day, we will give you some more clarity around that.

Okay. Yes, look forward to that. For my follow-up, Revathi, you hoping you could double click on the company's modular capabilities and CPI. Certainly, we're getting more questions about the outline, pretty interesting capabilities in the past. Just wondering how that figures into the expanding infrastructure opportunity overall that you reviewed in the prepared comments this morning.

Yes. I'd say, Luke, when I think about modular, right, you can think about modular in terms of -- like I talked about earlier, the partnership we announced with NVIDIA, which is putting everything in a modular capability and deploying kind of mini data centers. That's one way to think about modular. The other way to think about modular is power businesses have been doing modular deployment for power for a long period of time, whether it's in the utility space or the data center space. And for that, we added capacity in Dallas after our Crown acquisition, now with EP Square acquisition, we're adding capacity in Iowa to really continue to drive that modular power business. So we're very mature in that.

And if anything, that is growing pretty significantly. So I think about it in terms of the holistic like modular deployment, which is what people are doing in terms of IT deployment or power deployment. It should become a bigger and bigger part of kind of, I would say, all customers' requirements. And if anything, I think we're fighting against capacity constraints in that space to do more of it, but it's the direction everyone is heading, Luke because it's just so much easier to pick it up and deploy it at the customer site.

Our next question today is coming from Steven Fox from Fox Advisors.

I was wondering if you could give a deep dive into some of the industrial strength you mentioned. How much of it is cyclical versus secular? And how -- what you're doing to continue to address that demand? And then I have a follow-up. .

Yes, Steven, this is Michael. Thanks for the question. I'd say when you think about our Industrial business, that's been identified as one of the business units that will be really containing multiple high-value markets that will be our growth focus going forward. Within that group, you have 2 different markets that I'd like to point out. The first one is around energy infrastructure. Now as you already know, we're spinning our power product portfolio into SpinCo, and we're maintaining our contract manufacturing capability for that industry. And so we will be a contract manufacturer for things ranging from power generation, transmission, distribution and storage.

And that energy infrastructure business has great pull-through demand from not just data center infrastructure, but also utility scale infrastructure as well. So we see sustained demand from that segment within industrial. On the other side, we have our robotics and warehouse automation business. And again, tied to the longer-term secular trend in this case around regionalization, as we talked about, regionalization is accelerating, and many of those regions are now suffering from things like wage inflation, labor scarcity and they're on the constant search for productivity improvements. Our warehouse automation business is perfectly aligned to help solve those problems for our OEM partners. So both of those markets we've called out as being high-value growth markets, and both are tied to these longer-term secular trends that we think are sustainable over the long term.

And just to be clear, Michael, right now, you're saying that this is all more secular in nature than any kind of cyclical recovery. .

I see this tied very much to an ongoing infrastructure build-out both directly with the energy infrastructure businesses and then supporting productivity long term in our warehouse automation business.

Got it. And then as a follow-up, can you give us an update on the Amazon partnership? You had a big commercial agreement announced, I guess, it's been over a year now, maybe longer. And then how does that work out as you split the business? Is that all tied to one side of the business or another. Can you just sort of give us a feel for that too. .

I'll answer the -- Steve, it's Kevin. I'll answer the last part of that question first, which is the benefit to the Amazon arrangement really is across all of our businesses. So you'll see that both on the CPI business that we're spinning out as well as the existing businesses that we have. And Michael talked about some of the end markets that we work in there. So I would say from that perspective, it's broad across the Flex portfolio. From an update standpoint, there's really nothing to update. I would say that we'll continue to assess the arrangement with them as we move through this year and get ready to spin the CPI business in early 2027. And when we have an update, of course, we'll update everybody.

Our next question today is coming from Steve Barger from KeyBanc Capital Markets.

Revathi, you talked about your first-mover advantage in terms of serving broad segments of the data center. But it does look like other EMS companies are also expanding capabilities in a similar way. What percentage of your engagements are contracting for the unified power cooling and compute portfolio versus taking a more selective approach to your products and services?

Yes. I would say, Steve, further, when we are talking about other EMS companies moving into the same space, I think maybe there's some misconception around it because our power business is based on having true IP and product capability. It is where we do contract manufacturing for end markets there. That will stay with kind of the base energy infrastructure business that Michael talked about. So I think there is some confusion around kind of what the real capability is.

So the real requirement in the power business is not just being able to develop for, but what is actually needed, but then be able to integrate that in, like I talked about with 400-volt design, 800-volt design. And then the future of solid state that is going to be coming our way. So integrated design, like I had mentioned earlier in the call today, which is thinking about side cars on tower, cooling racks, and a fully integrated modular design is becoming a bigger and bigger conversation at very high levels in the hyperscalers.

So to be able to do that, you have to have true product technology. You need to be able to design and develop 400-volt and 800-volt design to be able to have those conversations. So I would say where I see the differentiation is we are an electrical player with true product capability, cooling player with true product capability and then integrated design capability, including all of compute integration. I would say I haven't seen anybody just have that capability yet.

No, I agree. I do think you have a really good model. And I'm just -- can you tell us are most of your conversation at a high level talking about taking that full suite of integrated products?

I wouldn't say it's more about taking the full suite of integrated products, but it's about designing that full suite of integrated products, which is kind of more important than anything else, right? So that is how I see about it. I want us to win in each individual category, Steve, whether it's cooling or sidecar or computer integration or even just building and developing your metal for fabricating all of that. But I want to lead the technology conversation with our customers in terms of what is the future of power look like with your next-generation silicon? How can we cool it enough? What kind of cooling makes sense? Those are the conversations we're having, and I think that is the most important part of how we lead this conversation. .

We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Thank you. We delivered another strong quarter, and we're executing our proven strategy as we move towards the spin-off. As always, I want to thank our customers for their trust and partnership, of course, our shareholders for their support and in the global Flex team for their continued dedication and contributions. We look forward to speaking with you again next quarter. Thank you, everyone. .

Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today. Goodbye.

Thank you joining us. My name is Amy Lu. I'm the TMT specialist at BofA, and I'm stepping in for Ruplu here to host the session. So thank you, everyone, for coming in. And we really want to thank Revathi and Michael for joining us today. This is really a great time to be talking about Flex. And so we definitely want to talk a little bit about the spin. So I'll hop right into it, so we can really save some time at the end for questions. Revathi, you really create a lot of value for shareholders in the past with the -- the next tracker spin-off. And so can you talk a little bit about why now is the right time to be doing the spin? And what will let you do that you could not do prior as a combined company?

Yes, I'd say buses in the last 7 years, if you think about Flex, where we're a pure-play contract manufacturing company, we started building out this infrastructure to put compute power and cooling together well before the ChatGPT moment. And by the time that came around compute got more power intensive, the technology of this thermal architecture became a big deal. And then growth was explosive, right? So as all those things started to come together, we ended up with this company that has more of a product architecture with all the technology shifts going on and then the compute scaling was happening at the same time. So it felt like we were putting all our money into the data center utilities build out.

Capital allocation works where it's a zero-sum game, the best returns get all the money and we run our portfolio that way. But at the same time, we had tremendous opportunities in our health care and our industrial business, and we wanted to invest in those two. So we reached a point where there was enough scale in both businesses to say, it needs different management attention. It needs different capital allocation framework. So let's kind of go spin that out to make sure both businesses can be successful longer term.

So that was the thinking behind kind of why now. So you get out of that. Flex, which is going to be a pretty significant sized contract manufacturing company with some great end markets that we want to really double down and invest in. And then out of SpinCo, you get something of an industrial electrical player in one of the largest electrical transformation that is happening today in the space. And so you kind of get best of both worlds. And so the thinking was, let's go do it and why not now? Timing seemed great.

Yes, great. So we want to dig a little bit into both of these businesses. Let's start with the SpinCo. Can you talk a little bit about what the spin could provide in terms of competitive differentiation and then the addressable market and how fast that market is growing?

Yes. So what's cool about the SpinCo is we -- sometimes people are confused that we put everything that happens in an AI infrastructure buildout of the SpinCo. That's not what we did. We have been thinking about SpinCo in terms of thermal architecture. So the technology is all about what's going to drive heat, how do you cool that and how do you bring the best technology to put that together? And then take that all the way out from data centers to the grid because the largest electrical transformation, driven by data centers is also going to happen in the grid. So that was the framework and the thinking from a technology perspective.

So SpinCo has our cloud business, our cooling business. Our cloud business being rack integration and then cooling business and then our power business, both embedded power and distributed power. So that's what kind of SpinCo has. We have said $6.7 billion last year. It is going to grow at 70% at the midpoint this year and then at 80% next year. So that's what's in that kind of SpinCo business. And it's really driven by the AI infrastructure investment, and that's going to drive electrical technology transformation that will move forward into the grid itself. So that's what's there in that business.

Yes. And so you mentioned you guys guided really strong 70% this fiscal year, 80% in the next fiscal year. Can we talk a little bit about fiscal year '29? What is your visibility there and a lot of investors are really focused on whether there will be a AI kind of slowdown in demand. And so what is the visibility you have there?

Yes. So what I is to say, we've said '27 is 90% booked out. '28 is 70% booked out because we have flow-through business also that kind of flows through in that 70% booked out. Haven't given '29 guidance, we'll have an Investor Day here in fall where both businesses will give more longer-term guidance than what we have provided so far, but I'd tell you, if you think about kind of CapEx cycles and investment today, there's a lot of leg work that needs to happen to make those investments come true.

So we're power-constrained. So when you're thinking about '29, those investments are getting made, thinking about how long it takes to get power 12 to 18 months. So I'm not going to give you new numbers for '29 because I've already given you some fantastic numbers for the next 2 years. But the way you should think about SpinCo in the 3- to 5-year cycle is what SpinCo will come out looking like in the next 3 to 5 years is right now, heavy data center business, AI infrastructure build out, strong utility business in terms of grid build-out, but really, I would say, think of it in the mid-cycle, long cycle play right now. We will continue to invest as we have done in the last 5 years in building this out into the services business, which we don't have enough of a portfolio today. We'll invest in more kind of product flow-through business that will see an impact from the 800 volt DC solid-state transformation.

So SpinCo coming out of this in the next 3 to 5 years, hopefully, will look more like a balanced portfolio in terms of short cycle, mid-cycle, long cycle, no cycle business and more electrical kind of play more than anything else. So that's the best I can give you at this point in time, but kind of hold on for our Investor Day for more.

Great. And can you talk a little bit about the relative growth rates of the Critical Power segment versus the embedded power as well as the margin profile for each -- and what could drive margin expansion from here? Is it driven sort of by the higher voltage abilities? Or what can drive margin measure?

So what we have said about growth is in the 70% and 80% growth that we have shared, they have said both cloud and power both kind of grow in that same direction. This year, power will grow more cloud will go less. Next year, it will switch, but there -- it's not a barbell. It's pretty close in that range. It's not -- 1 is 10 and another is 150. They're both in that kind of 70/80 range, both power and cloud. We haven't split out embedded and distributed power. But all I'll say is that both pretty high growth. One, driven by this power density technology shift that's happening in embedded power, right? So you're going from 10-kilowatt, 30-kilowatt to 1-megawatt rack to 400 volt DC, 800 volt DC. And our distributed power business is basically driven by we're small, we're nimble, we know how to customize and put things together.

So that's having a pretty high growth trajectory. What I'll say about margins is this. What we have said is when we exited last year at $6.7 billion, we were 9.2% operating margin. Cloud is a little less than that. Power is in the mid-teens. We invested around 100 basis points into the business in the last year. We'll recoup that this year. And then next year, we'll grow another 50 to 100 basis points in terms of margin driven by both mix and incremental basically.

So I would just think about that framework to say that as power density and complexity improves, it should provide us continued opportunity to improve margins longer term. Power being in the midterm teens is lower than our peers, but we don't have a 100-year heritage, right, for electrical. We just build this the last 5 years. We're putting in a lot of investment to drive the 60%, 70% growth and we expect that to catch up with our peers at some point in time. So margins will continue to improve.

Yes, you caught me on me my next question. We want to talk a little bit about the competitors in the power space. And to your point, the mid-teens operating margin, Delta inverted over at 20% to 25% operating margins. Is that something you could expect to get to over time? And how we -- what are the key levers to get you there?

Yes, absolutely. I've said my history is coming from running one of the largest electrical players. I've seen them go from low 10s to tip them to the high teens and then all electrical peers have progressed from there. So it's not a pricing issue because our pricing is fine. It is about we're building this from scratch, right? We've put together 4 acquisitions to build this electrical business. So we have to make investments. Electrical, the history of that business, in general, it's never grown 60%, 70%. It's all 5, 7 was a great year for us, a decade ago. So it requires heavy investment to build the right infrastructure out.

We're trying to build that out in an AI-native way. So yes, it is going to get to the same that our peers is at, but we will -- we look at this in terms of long term, right? We will build out the profile in a way that we're making big inroads into margin, but we're also investing for the long term, because in 2 years, we're going to be one of the biggest electrical players here in North America. So that's a pretty heavy responsibility, and we want to make sure that it's done well. So it will be a mix of good margin improvement, but good investment to build out the base case for the business.

Great. And now I want to touch a little on the cloud side as well. You guys have mentioned Google and AWS announcements in the past. What is your target set of customers here? And what are the key competitive advantages that Flex has in the cloud space.

So let me just step back and say for the SpinCo, the way I think about customers is hyperscalers, neoclouds, colos, silicon providers and utilities. All 5 of those end markets we participate in. In all those 5 end markets, we will give you just cutting metal, if you want. We'll put that metal together and integrate it into trays and racks and do all the way to L11 testing, and we'll drop it in place if you want. We will build your power modules for your chip or will design your power custom rack solution for your chip or we'll do all your distributed power bus bar data bar all the way to utilities.

So we'll provide this entire portfolio for each of these end markets that I talked about. Hyperscalers will be concentrated because 4 of them make up 75% of the current spend. So there will be some concentration towards that. For all of them, right? So -- but the way I think about diversity of portfolio is within hyperscalers, are we providing this wide variety of products. The differentiation for us in the entire space is this you're either an electrical player that you've got the legacy -- 100-year legacy and you have built it in a certain way, right? Or you're only playing in the compute integration space. Today, all those walls are getting divided. When you design your compute integration, you'd want to think about integrated cooling you want to think about how much power and how do you dissipate that power.

So bringing that thermal architecture technology thinking to the customers well ahead of the cycle is a true differentiation, right? So electrical players are trying to enter into that space now, harder to do because margins are the other direction. For us it is easier to do. And if you look at our competitors, we have a competitor, maybe a couple of competitors in cloud integration. We have one major competitor in embedded power and we have a couple of major electrical players in distributed power.

We're the only ones who are doing it end-to-end. So if you're a hyperscaler or a neocloud who needs everything designed, we're kind of your only pure-play solution.

And I have to ask about the elephant in the room AI CapEx spend. What are your -- how do you get confidence that the demand will continue for compute spend? And what are your concerns that could potentially slow?

I'd say the same confidence that all of you are hearing, right, outside of the $1 trillion investment, we're hearing this $2 million of backlog that these hyperscalers have, right? And so we are the beneficiaries of trying to fulfill that backlog. So there is a moment in time of how much compute requirement is out there and how behind we are to fulfill that. So that's why we have a lot of credibility in terms of the backlog. We -- for -- what we are building out today fulfills what people need in 2 years and 3 years, right?

So there is a long cycle in terms of how backlogged the industry is. And for us, the great news is we can use that investment cycle then to take the cash we generate and invest it in the electrical side where we're building out the solid state and 800 volts DC infrastructure. So I would say, I don't have a crystal ball to 5 years and 10 years, but I can tell you this, the next 3 years in terms of compute infrastructure seems like a solid spend. After that, the grid has to transform our grid is so behind that's going to be a 10-year play plus for that grid transformation to work out, right? So I'm thinking of it in terms of both cycles.

Great. And so does the SpinCo have enough of a footprint to support these upcoming projects? Or will you need to add facilities from here? And how do we think about kind of the annual CapEx for the SpinCo?

So we have announced a big CapEx this year, mainly towards SpinCo. And we have said, as you think about us exiting this cycle Think of it as kind of 3% of revenue. But remember, revenue is growing pretty fast, right? So it will need continued CapEx. I would say most of our investments are here in North America and U.S. And it's more to do with getting power to our facilities, getting cooling infrastructure set up and things like that. So we are actively investing in extra capacity. We've already leased a new facility in Texas, in Georgetown, that will give us 50-megawatt of power. We just announced an acquisition in Iowa for our utility business. We'll be expanding that pretty significantly. So yes, there will be extra investments. But we think we can hold it within that framework of 3% of CapEx.

So in March, you announced that Flex is building the 800 DC for is flex manufacturing or providing everything in that power back? Or how should investors think about the allocation between you and potentially other peers like Delta?

I'll tell you this that in the 400-volts DC, 800 volts DC space and embedded power, there's basically 2 players, right, us and our largest competitor. We always are 1 or 2 in most of these design cycles, and then we both share manufacturing typically so that they can have some supply chain resiliency. So I'd say, yes, we are pretty not just kind of NVIDIA. I'd say almost all hyperscaler who is designing a 400 volts or 800 volts DC, we are present in that design phase. So I'll leave it at that.

And kind of moving over to AMD. You also announced that you're building the compute tray for the AMD Helios rack. How do we think about the AMD revenue opportunity over kind of the next few years?

I'd say, whether it's hyperscalers or neoclouds or silicon providers. Like I said, we want to be diversified everywhere. So we're pretty excited about the AMD opportunity. We're kind of the North American player for integrating a very complex product for their GPU product line that's going to grow pretty well. So I think it's part of our diversification strategy of how we're playing out this business.

Great. Kind of taking a step back, do you see SpinCo growing more via organic growth or acquisitions at this stage. Over the years, there's been multiple acquisitions. So do we expect kind of your history of M&A to continue?

I'd say, yes, you should expect those. It is going to grow organically, 70%, 80% we've already said. Will we use the cash to look for smart technology investments? I would say absolutely.

Great. So we talked a lot about SpinCo. Let's move more towards the remain co. You've decided, you've guided to low single to mid-single-digit revenue growth what could advise are you giving to Michael. We'll get to Michael a second. But what advice are you giving to Michael, who will be the CEO of remain co after the split?

First is I'd say, we are fortunate to be in this position where we are not only able to stand up 2 companies but then have the candidates to succeed both leadership teams, right? That is awesome. And that didn't happen by chance. Michael and I have been side-by-side on this journey for 7 years. And so our -- my advice to him is, of course, I'm biased is it's a good playbook. Hopefully, you continue it. I'm going to hand it over to Michael, so he can talk about the playbook.

Right after you said don't screw it up, I think. So first, I think you had a question earlier also, and maybe I'll just provide some context for what Flex post spend looks like. So keep in mind, even post spin, Flex is going to be a $22 billion manufacturing and services platform. Still operating at a global scale, still servicing a wide variety of diversified in -- so a very substantial company, very difficult to replicate by others.

If you think about the playbook that Revathi mentioned earlier, it's a playbook that look for the past 7 years have led us to this moment, where you've seen top line growth, you've seen us double margins. You've seen the second value creation opportunity, first with NEXTracker now with SpinCo in the last, what, 3 years, and that's a playbook that we'll be executing into the future as well. And so it's a playbook that really isn't about chasing revenue. It's about generating high-quality earnings that maximize cash and is being underpinned by this constant desire to continue to expand margins.

And what that does for us is that enables us to really deploy the capital to the highest value opportunities. And for us, in the portfolio today, we have terrific opportunities that we just haven't been able to get to because that capital has been deployed where it should to the highest value opportunities, and that's been data center up to this point in time.

Now post spin, that will be destinations like industrial and health care, among other things. So really excited about where we can take the business. When you think about where the high-value market opportunities are, I would think about those markets that are tied to longer-term secular trends, right? These aren't sort of event based. So our health care business, very substantial medical devices business and drug delivery business, type of things like aging population, increasing chronic disease.

Think about our industrial business, lots of discussion around the geopolitical situation, creating regionalization right for our applications in robotics, warehouse automation. Communications, satellite communications for us is a fast-growing market, people's desire for ongoing always reliable communications is another opportunity for us. And then don't forget, we're not spinning all of our data center business into SpinCo. We saw 3 large businesses that are still positively influenced by pull-through demand from the data center. All of our networking business, anything involved with secure communications that could be high-speed switching, it could be optical, it could be interface technologies. That entire suite of networking services is staying.

Energy infrastructure, so we're spinning our IP and our power product portfolio, but we're maintaining a contract manufacturing focus on power generation, transmission, distribution and storage. So a large and growing business. And then finally, Semiconductors are required to fuel the growth of AI compute and that takes capital equipment. So our capital equipment business is also positively influenced by data center trends as well.

And can you talk a little bit -- I mean you touched on most of the verticals here. Can you talk about where we could be seeing more end market recovery cyclically, and kind of what's most compelling to you right now?

Yes, I would say this. When you think about the portfolio in these diversified end markets, you have to think about it on spectrum. And on the one end of the spectrum, we have our high-value markets. industrial and health care. And those markets have been and will continue to grow, no recovery necessary. Those are just up under the right verticals for us. On the other end of the spectrum, we've long talked about really deemphasizing our exposure to some of the lower-value markets, things like consumer. And if you remember the story over the past 4 or 5 years, we've taken out over $2 billion of consumer business over the past few years and replaced it with higher value data center business over the same time.

And then in the middle, you have things like automotive, right? So automotive, no secret selling into a really challenging environment. What I would call that as a stabilization period. So not going backwards is actually going forward when it comes to that industry. So that's what you get when you have a diversified portfolio, high-value markets will continue to lean in on, and we'll continue to diversify out of some of the lower value opportunities.

And how are you both thinking about the capital structure for each company, the free cash flow profile and kind of uses of cash from here? .

Yes. So what we have said is Flex will retain up to 19.9% of Equine spin -- and then post spin, it will be an attractive way for Flex to use that equity to pay down debt. So Flex will come out with a clean balance sheet, investment-grade rating, SpinCo will be not highly leveraged. So both will have very clean balance sheets. And then if you think about capital allocation moving forward, SpinCo, as I've said, is going to focus on organic growth and M&A. That's going to be an important part of the strategy in terms of capital allocation and Flex our view is we'll continue the capital allocation that's worked for us so far.

Okay. And post spin, are there any dissynergies that investors should be aware of or focused on?

No. We've been running our 6-business unit structure stand-alone for a long time. Our business unit leaders are incentivized to grow and manage those businesses end to end, which means that our factories have also run that way. So out of our 80 factories, 5 of them have some level of overlap, so that's all we have to work to separate. So that work is already in place. So it's not a pretty big deal. And then SpinCo will have stand-alone company cost and then Flex has kind of some costs left over that we know how to manage. So we don't expect any significant dissynergies in our modeling moving forward.

Great. And just my final question. What do you guys think on both sides of the business is still the most underappreciated sort of by the market and by investors?

Yes. I'd say that's 1 of the more exciting parts is that for sure, there's a lot of excitement, rightly so created by our decision to spend, right? That's a business that is front center and gets the headlines. But I think what's most underappreciated is the -- really the position that Flex post-spin is in to grow in these higher-value markets and continue the trajectory that we started 5, 6, 7 years ago. So by executing this playbook, it could lead us to potentially another event, another value creation opportunity like Nextracker, like SpinCo, but for sure, it provides us with the road map to continue to drive top line, but more importantly, earnings expansion over and over again in these higher-value markets that we've leaned into up to this point in time.

I'd say the SpinCo will see what value the market assigns to us post spin. So at this point, we think it isn't valued enough, but that's always my biased view. So I think the market's understanding the significance of creating such a large electrical player, it hasn't happened in a while, right, the stand-alone something from scratch and create something like that. So -- and then I think the largest transformation that's happening in the electrical industry and for us and we get to create it from scratch without any of the heritage and history, right? So I'm sure that will have tremendous value too. So yes, we'll see where it goes.

Great. Thank you. I really appreciate both of your time. Thanks, everyone, for joining us.

Excellent. Thank you, everyone.

Bye-bye.

Good afternoon, everyone. Thank you for being here. The next fireside chat I'm hosting is with Flex, and I have the pleasure of hosting Revathi Advaithi the CEO of the company; Michael Hartung, who's Chief Commercial Officer; and Kevin Krumm, who's CFO. Thank you all for being here at the conference. Thank you for taking the time. A lot of news over the last, what two weeks, three weeks. I can't remember now, but a lot of things to talk about.

And Revathi, maybe starting with you, you've been at Flex for seven years, a tenure where within which you -- this is now the second spin-off that you're announcing first NEXTracker, now the CPI segment. So tough not to notice a trend and a playbook here. Can you just talk about the rationale and sort of how strategically you're thinking about things?

Yes. I'll just say, Samik, when I started with Flex seven years ago, we thought about the business in terms of opportunities for improvement; one, in terms of mix and portfolio; and two, in terms of productivity to improve kind of the financial returns.

And when we looked at mix and portfolio, it was everything from what we stop doing, what do we spin out, what do we invest in, all of those categories of thinking -- what do we stop doing? You saw a lot of things we stopped doing. We exited many consumer end markets. And what we spin out, we did the NEXTracker spin, which turned out to be very successful at $17 billion market cap today.

And then what we do more of, we double down into a few areas, and said that were a few areas where we felt like we could reinvest more into, which created the whole focus around compute and power for the chip itself, and then we started investing in power, distributed power all the way to utilities.

And then we ended up building this portfolio, which is around thermal architecture of the data center itself, but now going all the way to utilities. And we've been working on this for a few years, well before the ChatGPT moment became a thing, and then now that business is sizable in terms of scale. Now the why now question is because, we have -- one, we have a sizable business a business that is growing very rapidly that requires a certain capital framework.

And we also felt like we weren't deploying enough capital to parts of Flex that we could have been investing in, but we were driving money towards the highest return. So it felt like the moment was perfect to really have two management teams focused on two businesses with different growth elements altogether, and also have a capital allocation framework that creates two very successful businesses. We have a history of doing this well. And we're in a fortunate position to be able to do this now, I would say, in terms of timing for growth. And we're also very excited what remains with Flex and then the opportunities for that, that I couldn't get to over the last five, six years. So I think that's the thesis of why and we know how to do spins. We've done it well. So.

No. Sure. Should investors expect this playbook to continue? Like when we look at the SpinCo, which you'll be the CEO of is an opportunity there further down the line. And similarly, for Michael, maybe the question is for the RemainCo as well, you have a diversified portfolio of end markets that you're addressing. Is there an opportunity that you see to continue the playbook?

SpinCo is an easier answer. The playbook is going to be very different. We are creating an industrial company, right, that will be looked at and invested in as an industrial company lens, right? So first is we have built this thermal architecture for data centers end-to-end, but we are also investing all the way into the grid into utilities.

So our focus and our investments are going to be to continue to build into this electrical infrastructure that we've been doing into the cooling infrastructure that we're building on and then really diversify the portfolio into -- further into different parts of the utility spend that's going to come at some point as the compute spend kind of modulate.

So the view shouldn't be is there a next spin coming. I would say the view should be how do we continue to create a diversified industrial playbook -- and I'll just remind you, with the growth rates we've talked about 70% and 80%, it's going to be a fairly sizable business. It's going to be one of the biggest electrical businesses in the industry in the next couple of years. So it will be all about diversification of portfolio that we'll focus on for SpinCo, I mean...

Yes. From a Flex standpoint, keep in mind, even post spin, Flex will be a $22 billion-plus manufacturing and services platform that will still be operate in a global scale and still be servicing a diversified end markets, right? So we'll have our health care business, our industrial business, automotive, communications and lifestyle.

So still a significant company post spin. I'd say the other point is we'll execute the same playbook we've been executing for the past 5, 6, 7 years. And when I think about the playbook that you mentioned earlier, I think about it through three different lenses potentially. One of those lenses is through financial rigor. And so this isn't a company that chases revenue. We're a company that really strives to generate high-quality earnings that maximize our cash position. And we want to underpin that with margin improvement.

And that margin improvement has also been very methodical. It's come from things like productivity and portfolio mix that you've seen from the company very consistently. The third piece of that, though, is probably the one that's most germane to the question that you asked, and that is, we have always deployed capital to the highest opportunities wherever we can get the highest return. And up to this point in time, that has been the data center.

And so mission accomplished. We've done that to the degree to which we created this moment in time. And we now have a platform from which to build the company going forward. I'd say one of the takeaways from that should be first -- we have a platform that's able to identify those opportunities. We have a management team that's shown a willingness to decide to execute on those opportunities. And we have no shortage of growth markets to pursue that next event should it come to be?

Okay. Great. So maybe starting with SpinCo. Can you talk about the synergies between the power and the compute and cooling segments that you have within that -- when you think about like customers that you're going to, are you seeing synergies in the sales motion already on that front?

Yes. I'd say Samik. We -- like I said, we started investing in this business because we realized that we had a small business that Flex had bought from Ericsson many years ago that built power that powered the chip. We started investing in it. We knew we did compute integration and then we're bringing those together, right? We have a view that computer is going to get power intensive. So let's figure this out, then ChatGPT happens and then of course, compute gets power intensive.

And -- but the -- I've been in this energy space for, what, 20 years now. I've seen every cycle of data centers and utilities there is to see. Within our end customers, we knew that the way they were developing was IT infrastructure was separate from power infrastructure, from cooling infrastructure. It was very, very diversified within our end customers. And at some point, it would all have to come together.

So we started talking to them that way, bringing our teams together and really approaching the customers in terms of let's work on this as an integrated architecture. So for our customers, data center customers, first is we want to be with hyperscalers. We want to be with co-loads. We want to be with new clouds. We want to be with silicon providers.

And with all of them, we want to sell all the individual components. We want to sell the mechanical cutting metal. We want to compute integration. We want to sell cooling, CDUs, or cold plates. We want to sell power modules or custom power. We want to sell switchgear or a fully integrated part -- but at the same time, we want to help them build this thermal architecture that is coming together more and more and more, and we are seeing that getting deployed.

So there is synergies in terms of technology development. And there is synergies in terms of speed to market. So if you bring a good old-fashioned industrial company, together with Flex's capability for scale and speed, that's what you get with SpinCo and that's what we're deploying now. And customers really want that.

Maybe on the growth forecast that you're providing now along with the announcement of the spin, 65% to 75% for fiscal '27, 80% plus for fiscal '28 -- is that driven by what backlog you have already visibility into? Or maybe just more broadly, what's what are you using to drive your confidence into that acceleration? How much of that is booked already versus business that you have in the pipeline that you need to go out and book .

Yes. So we guided to that because we have good confidence in our ability to deliver against it. We've said that most of that for FY '27 is booked. We said about 90% of that is booked -- and for FY '28, you talked about the growth rate. So it was 65% to 75% growth in FY '27 and 80% plus in FY '28. And as we look into FY '28, we have line of sight to about 70%.

So that's awarded programs in programs where we have that demand see-through and we can understand what the customer needs.

Okay. Interesting. -- it's been some time since you, I think, announced last year, this -- the partnership with Amazon is the one I'm referring to. How did that influence the outlook that you're providing for the CPI segment -- how does that feed into the confidence that you have?

So I would say the partnership or the warrant arrangement that we have with Amazon. First, when you look at it, it's done what we wanted it to do. It's given great incentives for us to grow with them and for them to grow with us, and it's been mutual and beneficial. And when you look across the segments that we currently operate under, so the three segments of which two are staying with Flex, they've all benefited from it.

And as we go forward, we would expect those businesses to benefit from it, too. Of course, it's incorporated into our guidance for FY '27 and FY '28 because we expect to continue to work with them in those businesses to accrue the benefits of that.

Okay. Okay. Maybe on Power, just for investors, how are you looking at the competitive landscape? And what's the differentiation that Flex brings. I mean I get that demand is quite strong at this point. But as you start to look at where your competitors are placed, how do you differentiate in that market?

Yes. So if you look at the power space, right, which I know really well, I would say if you look at the traditional kind of electrical players, all the usual names that you know, I'd say the places that we are all placed in the same place is we probably provide switchgear components that go with switchgear, the power pods associated with it, mainly in the distributed power space.

And I would say in that, kind of we all are pretty evenly spaced in terms of what we can deploy and deliver. Again, when you're looking for speed of execution and scale of execution, then Flex is good at that. I'd say in the cooling side, everybody has different capabilities or they're buying into different capabilities just like we have cold plates and CDUs we have. So there's multiple players who can deploy that. I would say the thing we have is we do have embedded power, which is where we started the whole business, which traditional electrical players may not have the same, same scale and capability in that space today in that we may be competing with a different set of players altogether.

And then they're all trying to approach the computer integration space with this idea of this thermal architecture like I talked about, where we have tremendous amount of scale. So if you think about kind of traditional electrical players and where we are, we get to build this electrical infrastructure at a time when the electrical business is seeing the biggest technology shift it's ever seen in its lifetime without the baggage of existing products that could get disrupted in this technology play that's happening.

So I would say we come at it from a very unique angle. We have built it from scratch. It's a fairly sizable business. It's growing rapidly. Like I said, we'll be one of the largest electrical players here in a few years. And our differentiation is being able to do everything in this thermal architecture envelope, which I would say, very uniquely qualified to do that.

Revathi a lot of the conversation recently with investors has been about the transition to 800-volt tracks. I mean how does that influence again the content that you see from the power segment within the data center?

Yes. So power is going through tremendous transition coming from power density, power efficiency that the data centers are driving. So you've gone from -- or we had power shelfs that was powering the chip itself to now they could be fully integrated 1 megawatt racks. We're going from that to having the conversation about, hey, 400-volt, 800-volt architecture to drive power efficiency, then we are going from that to potentially solid-state transformer conversation which will drive a further pretty significant change in terms of electrical infrastructure.

The good news is, I've been doing this for 20 years, and a lot of these conversations haven't matured and now they're maturing because we cannot continue the way we are with the amount of power that computer is going to need without fundamentally changing how power is applied and supplied. And so that means that 400-volt, 800-volt conversations are very mature.

We have programs that are getting launched as we speak. And solid-state transformers are also very relevant conversations, and we're all developing products. Many people are -- that will take a little longer to mature as industry migrates to a common solution and standards and evolve and things like that. The only thing I'll say is as everyone gets super excited about the 800-volt conversation, the thing to remember is it's not just let's supply a product and leave it there.

Electrical has a lot of safety and regulatory environment. It changes the envelope around it. So a lot of work has to happen not just with the product, but the infrastructure, the training, the labor availability around that. So you have to get ready for that also, which requires some work. But we are quite mature in a lot of these programs that we're thinking -- working on and getting ready to deploy.

Maybe just to help and sort of quantify the trajectory here, we all sort of now track given the environment we are in, what hyperscaler CapEx growth is, right? When you think about power and the growth outlook for power over the medium term, how would you compare that to the CapEx envelope growth? Like is power going to exceed that because of the criticality of power? Or how you're thinking about power, growth related to hyperscaler CapEx growth?

Yes. So we've talked about our growth rates earlier on here, where FY '27 for CPI segment, 65% to 75% in that we would expect power to be a little above that. So you can say 75% or higher next year. And as we go into the following year, we've said that our growth rate, we expect 80%, and we would expect power to be around there. So yes, we expect good growth in power in that 70% plus over the next couple of years.

And then Samik, the question is related to hyperscaler CapEx $750 billion with the four hyperscalers getting deployed. If you unpeel that onion within the CapEx getting deployed by each one, you would see that it migrates, right? Sometimes it is very compute-heavy, sometimes it's very power heavy. So it migrates within that envelope. And I expect we will migrate within that maybe a couple of years behind or forward, right?

So a lot of investments going on right now just for capacity and computer integration. But there's a lot of CapEx going into developing the 400-volt, 800 volt architecture, which won't be seen to play until another year or two years. So I would say that we'll mirror it but not like-for-like, there will be some time lag plus or minus to that.

Margins in the power business, you've outlined mid-teens when we look at some of your competitors like Delta, they appear to have higher margins. Is that just a function of scale? Or what would it take for the power business to have higher margins over time?

Yes. I would say today, it's largely a function of, one, the investments that we've put into that business over the last couple of years. And to a certain extent that we'll be investing yet in FY '27. And then, two, a function of scale and continuing to push volume against those investments that we've made. We -- our target is to be at the same levels our industry peer set, and that's our expectation.

Great. Last one on power. I think you've generally sort of outlined to investors the critical power part and the in-built power part. As you'd sort of outlining these growth targets for power -- do you envision critical power, in-built power both to be roughly similar growth rates? Or are there differences between the two in terms of either again, from a timing perspective, how they play out.

Kevin?

Yes. I would say, largely, we have the same expectation between both of them from a growth rate standpoint. As Revathi said earlier, demand comes in one year, you may see one grow faster than the other. But over time, we would expect them both to grow commensurate to each other.

Okay. Okay. Great. So maybe just to move to some questions on the RemainCo side as well and on the regulated manufacturing solutions and ITS. Maybe Michael, first for you. How would you position that business to investors at one point as a stand-alone company in the future. How should we think about that business being positioned? Like if you had to give earnings algorithm of how that investors should think about it? What would be that framework?

Yes. Well, the first thing I would hope is that investors would think about Flex in the future, much like they thought about Flex for the past 5, 6, 7 years. Even post spin, as I mentioned earlier, Flex will still be a $22 billion manufacturing and services platform, operating at global scale, servicing diversified end markets.

So still a very substantial company in that regard. And the playbook we've mentioned, the playbook that's underpinned with the same financial rigor that we have seen, focus on earnings, focus on cash, focus on margin, focus on portfolio optimization, but I think the real exciting part of the business going forward is that we'll have an opportunity to deploy capital to different growth markets.

And those growth markets that we think we have an opportunity to really expand in are all tied to these longer-term secular trends. And so from a health care perspective, if you think about the aging population and the increasing prevalence of chronic disease, our medical devices business, our drug delivery business really well positioned for long-term growth.

When you think about industrial, in our industrial business, you've often talked about the geopolitical situation that we're in driving regionalization. And it just so happens that many of those regions aren't ready for regionalization. So they're facing things like labor scarcity and wage inflation, as they ramp production, which leads in perfectly to our robotics and our warehouse automation solutions. So again, these long-term trends. Within communications, there's a lot of talk about the consumers' desire for ongoing reliable communications regardless of where they might be on the planet and our satellite communications business is one of our fastest-growing growth markets in the business.

I would also point out that in addition to some of those traditional markets, we'll still maintain a significant exposure to the data center. So for instance, when you think about our networking business, that all stays within Flex. So our switch business, our optical business, our network interface cards, that whole secure communications environment remains inside of Flex.

We talked a lot about SpinCo and really focusing on our product, product portfolio in power. And we'll continue a contract manufacturing focus and flex on power generation, transmission, distribution, storage, all those things that really make up that energy infrastructure. And then the third piece is all those semiconductors that are needed for compute have to be assembled and tested by the same capital equipment that we also manufacture.

So I think there's some exciting opportunities to actually have this clarity around which growth markets will now be the new destination for capital, much like data center has been for the past five years or so.

Yes. And most of these growth areas for RemainCo, are these going to be higher margin, so you're looking at the similar playbook as you've implemented with Flex as well.

Absolutely. And the way I would think about it is through two different things. One is on the base business. So even the business we have, there's still opportunity to further optimize the base business. What was the middle of the portfolio becomes the bottom of the portfolio over time as we continue to mix up.

So still opportunity to improve the base -- we've always said we're going to lean in on high-value markets and deemphasize low-value markets. Each one of those growth markets that I mentioned earlier are all higher value markets that should enable that transformation to continue.

And on that front, I mean, you talked about the investments, the focus of investments being in these high-growth areas. How do you think about capital allocation from an M&A perspective, as you sort of prune some of the lower-margin businesses, do you see an opportunity to acquire and build your capabilities in the higher growth areas?

Yes. I think the benefit of the financial rigor that we have in the playbook is that we have options on what to do with the capital that we create. And we'll always prioritize investing in very good, solid growth opportunities as a matter of fact. And then with those types of things, we'll focus on markets that create those high-value market opportunities. So it could be end markets that we already have. But it might be end markets that we don't have yet -- and if you think about what we've done successfully over the past few years is we acquired and spun NEXTracker. We acquired our power businesses, combine that with existing capabilities and spun that company as well.

And so when you think about what's to come, you can think about not only investing in the markets that we have today, but it could be investing in markets that aren't yet part of the portfolio that we could combine in a fashion that you saw here recently. But without that, you would still have to underpin that with. We'll continue to invest in high-value markets and deploy capital accordingly.

So maybe moving to more broader questions that you got from investors about the combined business here. Kevin for you, how is that plan to be allocated between SpinCo and RemainCo that's come up quite a bit with investors. And how are you thinking about maybe Michael, for you, the RemainCo stake and SpinCo?

So I'll talk about capital allocation. As the design of this transaction is for Flex to retain a stake in SpinCo. And what we said is that stake will be up to 20% or not to exceed 20%. What that does is it allows us an elegant way to disentangle the capital structure and allow Flex subsequent to the spin to issue those shares to pay down debt, so debt for equity exchange. After that, you basically have two companies with very low debt in their capital structure that will then allow them to use their capital structure to go pursue growth opportunities.

And from a Flex standpoint, I think that just puts the company in a terrific position to have flexibility to do some of the things we talked about earlier, whether that's invest organically in our high-value markets or look at opportunistic M&A or provide shareholder value in some other form. It just provides us with flexibility, but really low debt to do a lot of different things. .

And then on capital investment, you guided to peak spend of $1.4 billion to $1.6 billion in fiscal '27. Maybe just highlight for us what are the focus areas of the build out here in terms of capital investment.

Yes. So if you step back, that guidance is about 2x what we've generally spent as a percent of revenue. So we're usually in that approximately 2-plus percent range. We're now going to be about 5% in FY '27. What we've done there and what we're doing with that capital, that additional CapEx, so the second 2.5%, if you will, is going to be spent to secure power capacity footprint, cooling infrastructure for a business that has been awarded to us.

So we're investing commensurate with businesses that's been awarded. We've talked about already earlier in this discussion around -- and you see that in the growth rates that we get for CPI. Looking inside of that then, so the lion's share of the additional CapEx is going to CPI, it's really focused on the cloud side of our business as well as the embedded power side of our business. Last year, we talked about it. We invested in Critical. This year, these investments are really focused on those two businesses inside CPI.

Got it. And what drives your visibility that this is the peak CapEx you're and you can get sort of moderate in CapEx in fiscal '28 especially when we think about supporting the kind of growth that you're outlining in the medium term, how do you get the visibility that this will be the peak CapEx year?

It all boils down to customer programs that have been awarded to us and us understanding what we need to support those programs. So the disclosure and the conversation all came together at the same time. That's why we disclosed the CapEx number and the growth not just in FY '27, but in FY '28 because with those awarded programs, we have line of sight to that demand through FY '28. Any additional revenue beyond that would maybe come with additional CapEx, but we feel pretty good about our existing CapEx investment and the revenue it's going to drive over the next couple of years. .

And Samik, one way to think about it is there's base investment that has to be put in for infrastructure development, like power, like cooling loops that have to be built into buildings and things like that, that we've been doing already, but more of it is needed. And once you get to that, the Kaplan Intensity for subsequent growth won't be identical, right? So I think that also plays into how we think about it.

But time will tell in terms of how much more we do around this. But we feel good based on what we know now that we can manage it within a profile, but it's based on these kinds of assumptions we have made.

Got it. Got it. Okay. And maybe last couple of questions on margins. You highlighted that CPI segment margins declined 100 basis points due to capacity investments you made in fiscal '26. I mean, so from what you're outlining these were primarily focused on power or maybe just flesh that out a bit, where did you see the most amount of capacity investments? And how do we think about the return of that reverting back to a normal margin post that capacity investment.

Yes. So we said we ended FY '26 at 9.2%. And in that, we invested about 100 basis points in CPI margin. The investments were one part critical power infrastructure there and another one in the cloud, we are investing in new programs that were coming on, so program ramps, more P&L type of investments.

With the growth we're seeing in FY '27, we've said that we expect to recoup the 100 basis points in FY '27. And as we move beyond FY '27 and FY '28, we do expect CPI to continue to expand margins both on the cloud side, we have expectations that cloud can continue to expand margins. An element of that will be writing services into our existing revenue stream there.

And on the power side, we would expect power to continue to expand. We talked about it earlier, there's opportunity as we scale to increase margins. There's also mix inside of the power business. That's going to drive margins as we go forward. And our target is, as we said, sort of industry benchmarks that are out there from a margin standpoint for a power business.

Any thoughts in terms of what longer-term margins for SpinCo would be?

Well, I'd have to say longer term, that depends on what the revenue stream looks like. We've talked about inside of that. We got two different profiles of margin. Our cloud business is at margins less than the current average. And we've talked a bit today about power at mid-teens plus expectations. We clearly expect the business to continue to grow top line, and we expect margins to move north. Mix will have an impact on that as you move into the years beyond FY '28. And so I'd leave it at that for now. Some of it will be dependent on what the revenue stream looks like.

I have a couple of questions, but let me check if anyone in the audience has a question. Just wait for the mic.

Can you compare and contrast the power piece of your SpinCo business with Vertiv as it relates to the products and also the margins as you get to the scale in two years.

Yes. So on power, what we have built on our power business is what we call embedded power, which is the power modules and custom power which is powering the chip itself and then the distributed power, which is all the standard stuff, which is switch gear and power pods and all that going all the way from data center utilities.

I would say if you look at the critical power of the side of the business, very similar to what somebody like Vertiv would do. We all may have different elements of it, like they have UPSs. We don't have UPSs, things like that. I would say the -- if you look at the cooling side of it, they started their business with the Emerson cooling business, right? So floor coolings, those kinds of things.

Now going into rack integrated cooling, we bought Jet cool with the idea of doing cold plates and CDUs and rack integrated cooling. So we have approached it in a different way. And then they, of course, don't have the embedded power side of it as deeply as we do. And then the compute side of it, everybody seems to be migrating into because you want to put the whole thermal architecture together these days for customers, and we come at that from a position of strength, right?

So the -- on the power side, I would say that will be the simple way to think about the portfolio. From a margin perspective, we're a fairly new electrical business, right? We've just started over the last few years, putting a whole bunch of acquisitions together, scaling up embedded power in a time when a lot of technology shift is happening. So we have a lot of work to do there.

The good news is I've been in the electrical business for a long time. I've been -- I've seen it through lower than 10% margins to high teens. So I know structurally, that we have all the right elements. We just have to get through the scaling piece to get to the margin requirement that we have. But our view is we'll get to the electrical margins that our peer set is at.

Michael, you used this phrase optimize the base of the business. I didn't know if that was code for there's a healthy amount of untapped revenue inside the existing client base. And if so, is there some unlock that you're progressing on to get to that?

Yes. From our perspective, I'd say, again, diversified portfolio. And so I think about the base business through a spectrum. On one end of that spectrum, you have things like health care and industrial that are high-value, high-growth opportunities for us.

On the other hand of the spectrum, we have our, call it, our consumer-related businesses that have been soft for a period of time now. And so when you think about the middle, you have things like pieces of our communications business, pieces of our automotive business, but it's this portfolio that has this really broad spectrum. There's still opportunity in that base business to deemphasize some of the lower-value markets like maybe towards the high-volume, low-margin consumer area while still growing in some of those growth markets that I talked about earlier.

Those six growth markets that I identified earlier are all part of the base business today. So it's not like this aspirational vision that we have to go out and get it. It's -- we're in it, we have a beachhead established and now how fast can we grow it. So that was how I was thinking about the portfolio conversation.

That's clear. I think I appreciate. I'll wrap it up there. Thank you. Thanks for coming. Thank you for the audience.

Thanks.

Thank you for standing by. Welcome to Flex's Fourth Quarter and Fiscal 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded.

I will now turn the call over to Ms. Michelle Simmons. You may begin.

Good morning, and thank you for joining us today for Flex's Fourth Quarter and Fiscal Year 2026 Earnings Conference Call. With me today is our Chief Executive Officer, Revathi Advaithi; our Chief Financial Officer, Kevin Krumm; and our Chief Commercial Officer, Michael Hartung, 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. These statements reflect expected results for the full fiscal year and do not give effect to the planned spin-off of the Cloud and Power Infrastructure segment. 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 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 the Investor Relations website. In addition to our earnings presentation, we also published a separate presentation regarding the proposed transaction will be -- which will be discussed on today's call. Please refer to the earnings presentation to follow along.

Before we begin, I want to share a brief update on our Investor Day. In light of yesterday's announcement, we are postponing the event until the fall when we expect to have more information to share. We will provide more details as the year progresses.

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. We have a lot to cover this morning, so let me begin with an important milestone that reflects how our business has evolved and where we are headed.

Seven years ago, we set out to transform Flex. The strategy was simple: focus on the right end markets, divest noncore assets, invest in the technologies that matter and execute with discipline. Since then, we have exited consumer-focused markets, spun off NEXTracker into a leading solar business and created tremendous value for our shareholders and invested ahead of the curve in electrical products, recognizing early that compute would become power hungry and that data centers would need an integrated architecture. We have built a productivity machine in our factories and most importantly, we have invested in our team, creating one of the best high-performing values-based culture.

Yesterday, brought the next milestone in that journey. We announced our intent to spin off our Cloud and Power Infrastructure business into a new publicly traded company with the spin expected to complete in the first quarter of calendar 2027. This decision reflects our conviction that the business has achieved the scale, growth profile and strategic importance to stand on its own. It also positions Flex to sharpen its identity and invest more aggressively in its highest growth, highest technology opportunities.

Turning to Slide 5. SpinCo, historically, our data center business, now captured in our CPI segment, will be a global critical digital infrastructure company delivering end-to-end power and thermal management from grid to chip for AI data centers and mission-critical applications like utilities. What differentiates SpinCo is its depth across power, thermal and compute integration. That depth lets us replace the fragmented multi-vendor approach market-leading customers are actively moving away from and gives us the opportunity to build one of the largest electrical companies purpose built to deliver from utility to chip with cooling and compute integration designed in from day 1.

The timing is clear for 2 reasons. First, AI is driving compute density to levels that require power and thermal to be engineered as a unified system, not bolted on after the fact. Customers no longer want individual subsystems, they want a single partner who can deliver from grid to chip. SpinCo is purpose built for this moment. Secondly, electrical infrastructure is entering a generational transformation. The shift to solid state transformers and 800 volt DC distribution will reshape how power moves from grid to chip, unlocking the density and efficiency AI demand, and SpinCo is the only company with embedded power, distributed power, thermal and systems depth to lead it.

Following the spin, Flex will continue to execute its proven playbook as a leading advanced manufacturing company, designing and building highly complex products at global scale for premier brands across diversified end markets. As global supply chains undergo structural changes, shorter technology cycles, rising system complexity and persistent constraints, customers are rethinking how products are designed, manufactured and scaled. These shifts are expanding opportunities for Flex to deepen customer relationships and capture greater system-level engagement.

Post spin, as Flex allocates capital towards higher growth industries such as health care, robotics, warehouse automation and networking, we believe the company is entering its next phase of transformation. With a simplified portfolio and a sharpened strategic focus, Flex is positioned to expand margins and continue to actively optimizing its portfolio towards higher growth opportunities that will drive strong cash flows and shareholder returns.

Now turning to Slide 6. We believe spinning Flex into 2 distinct companies positions both to sharpen strategic focus, improve operating discipline and align capital allocation with their respective growth and margin priorities. This is not about changing our strategy. It is about unlocking value through simplification and clarity for customers, for employees and for shareholders.

Now from a financial perspective, both businesses have demonstrated strong fundamentals. And we expect the spin to enhance transparency while allowing each management team to pursue tailored investment priorities. We plan to provide additional details over the upcoming quarters including stand-alone financials at the appropriate time.

Now turning to Slide 7. Now to our recently announced acquisition, over the past several years, we have deliberately evolved our portfolio across thermal technologies around integrated structure and power. Earlier this week, we closed our acquisition of Electrical Power Products or EP2, strengthening our power portfolio with utility-grade specification-driven solutions for grid modernization and electrification. These capabilities are becoming critical as data center growth places greater demands on power availability and reliability.

Combined with our existing power distribution, switchgear, thermal management and integrated rack scale capabilities, EP2 enhances our ability to deliver end-to-end solutions for utility and infrastructure customers and it increases our exposure to long-cycle margin-accretive programs that support grid resiliency.

To put a point on that momentum, we've recently secured substantial incremental business with several hyperscaler and data center customers, including Google. These are not single product manufacturing engagement. They span power infrastructure, thermal systems and complex hardware manufacturing deployed at scale across our global footprint. Capital deployment for these projects is already underway, and it will remain elevated through FY '27 as this growth alongside broader CPI growth requires expanded investment.

We expect this level of investment to be unique to fiscal year '27. We have line of sight into fiscal year '28 and '29 requirements and expect CapEx to normalize in fiscal year '28. Awards of the scope are exactly why we believe the spin is the right move. These deployments require the integrated end-to-end capability that SpinCo will deliver as a focused company.

Now turning to Slide 8. Let me put some numbers around the growth opportunities. For SpinCo, we're targeting revenue growth of 65% to 75% in fiscal year 2027, a significant step-up from fiscal year 2026. And for FY '28, we expect further acceleration with growth of over 80%.

Going to Slide 9. Flex, post-spin, is targeting low to mid-single-digit revenue growth in that same time frame and we'll invest in areas where growth is accelerating, including regulated and technology-driven markets such as health care, warehouse automation and networking tied to data center infrastructure growth. Now when you put all this together, it is clear that this is the right moment for this milestone. It is also clear that this leadership team has the credibility to deliver this milestone, having already executed and delivered spins like NEXTracker.

Now talking about leadership, I want to briefly address leadership as we take our next step. Turning to Slide 10. I'm excited to share that I will serve as CEO of SpinCo as we build a focused, purpose-driven platform designed to lead the future of compute infrastructure. I'm equally confident in the future of Flex, and I'm pleased to leave it and Michael Hartung's very capable hands as CEO. Michael joined Flex in 2007 through the acquisition of [indiscernible] and has since held the range of senior leadership roles, most recently as our Chief Commercial Officer.

Over the past 7 years, Michael and I have worked closely to transform this company, driving disciplined portfolio optimization, margin expansion, targeted acquisitions and building a stronger and a more resilient Flex. This playbook has delivered stronger customer relationships and meaningful returns for shareholders. Michael, thank you for your trusted partnership over the years and for stepping into this role. I look forward to supporting you and the entire leadership team as we embark on this next chapter.

Thank you, Revathi. I'm honored to step into the role of CEO of Flex and to build on the strong foundation this team has created. As we sharpen our focus, I'm confident Flex is well positioned to build on its legacy of global manufacturing and supply chain excellence while serving customers across diversified end markets. I'm excited about the opportunities ahead and what this team can accomplish together.

With that, I'll turn the call over to Kevin, who will walk through the financials in more detail.

Thank you, Michael, and good morning, everyone. I'd like to add that I too am excited about yesterday's announcement of the spin, and I'm looking forward to working with Revathi and Michael throughout this transition. Before I discuss our financial results, I'd like to take a moment to explain our new segmentation outlined on Slide 12.

From this quarter, moving forward, we will be reporting in 3 new segments: Regulated Manufacturing Solutions, Integrated Technology Solutions and Cloud and Power Infrastructure. This new segmentation will provide clear visibility into our business units as our portfolio evolves. So upfront, I will make a few comments about our new segments.

Regulated Manufacturing Solutions, or RMS, like Reliability Solutions before it will house our industrial, automotive and health care business units. RMS is focused on specialized products with longer life cycles that demand a greater level of precision and consistency. Our critical and embedded power businesses have been removed from industrial and are now reported in a new segment.

Integrated Technology Solutions, or ITS, consists of our communications and lifestyle business units. Similar to our previous Agility Solutions segment, ITS serves customers in fast-moving industries with shorter product life cycles with a focus on adaptability and time to market to meet the ever-changing needs of evolving industries. Communications includes what was previously our non-cloud CEC businesses and lifestyle now includes our former consumer device businesses.

Finally, we have consolidated our data center power and cloud businesses once housed within industrial and CEC into a new segment, Cloud and Power Infrastructure or CPI. This new segment represents the business previously included in our data center disclosures and will now be reported via our cloud and cooling and power business units. As Revathi previously announced, we intend to spend this segment into a new publicly traded company and will provide segment-level disclosures until the transaction closes next year.

I will now discuss our financial results for the fourth quarter of fiscal '26. Starting with our key financials on Slide 13. Fourth quarter revenue came in at $7.5 billion, up 17% year-over-year. Adjusted gross profit totaled $737 million, and adjusted gross margin improved to a record level 9.9%, up 50 basis points from the prior year. Adjusted operating profit was $500 million with adjusted operating margins at 6.7%, up 50 basis points from the prior year and another company record due to improved operational efficiency and product mix. Finally, adjusted earnings per share for the quarter increased 27% year-over-year to $0.93 per share.

Turning to our quarterly segment results on the next slide. RMS revenue was $2.7 billion, up 13% from the prior year, driven by strong growth in industrial and healthcare. Adjusted operating income totaled $180 million, and adjusted operating margin was 6.6%, up 80 basis points year-over-year, driven by strong improvements in industrial and automotive.

ITS revenue totaled $2.9 billion, an increase of 13% year-over-year. The increase in revenue was primarily driven by strength in communications. Adjusted operating income was $147 million and adjusted operating margin was 5%, unchanged from the prior year.

Finally, CPI revenue totaled $1.8 billion, up 31% versus the prior year, driven by growth in both business units with Power's growth rate exceeding Cloud's. Adjusted operating income was $182 million, and adjusted operating margin was 9.9%, largely in line with the prior year with favorable mix impacts from Power offset by infrastructure investment in critical power and ramp costs in Cloud.

Looking at our full year results on Slide 15. Revenue was $27.9 billion, up 8% on on continued strong growth in cloud, power and industrial, offset by persistent softness in our consumer-related end markets. Adjusted gross profit totaled $2.7 billion and adjusted gross margin improved to 9.5%, up 70 basis points from the prior year. Adjusted operating income totaled $1.8 billion, up 21% and adjusted operating margin was 6.3%, up 70 basis points year-over-year, primarily driven by favorable product mix and continued improvements in operational efficiency. For the full year, Flex achieved adjusted EPS of $3.30 per share, up 25%, driven by increased adjusted operating income and strong share repurchases.

Turning to our segment results for the year on Slide 16. Similar to fiscal '25, fiscal '26 was a dynamic year characterized by macroeconomic uncertainties and rapidly accelerating AI deployment. I'm proud to say that, once again, we delivered on our expectations for growth, exceeding our revenue expectations for all segments. We have also maintained our focus on operational efficiency and execution, which led to another record year for adjusted growth and adjusted operating margins.

RMS revenue was $10.2 billion for the year, a year-over-year increase of 5%, driven by industrial and health care, and delivered an adjusted operating margin of 6%, up 80 basis points, primarily driven by improvements in industrial.

ITS revenue totaled $11.1 billion, down 2% from the prior year due to persistent softness in lifestyle, offset by growth in communications. Adjusted operating margin was 5.4%, an increase of 60 basis points, driven by improvements in communications.

CPI revenue was $6.6 billion, up 38% year-over-year, exceeding our target of 35%. Adjusted operating margin was 9.2%, down 100 basis points year-over-year, reflecting incremental infrastructure investments in critical power and ramp costs in cloud. While these investments temporarily weighed on our margins, we expect to recoup the full 100 basis points in FY '27 and see further expansion of 50 to 100 basis points in FY '28 as we grow into these investments.

Moving to cash on Slide 18. Free cash flow in the quarter was $212 million, and for the full fiscal year, we delivered approximately $1.1 billion in free cash flow. Q4 inventory was up 5% sequentially and 15% year-over-year, mostly supporting our CPI and RMS segment growth year-over-year. Inventory, net of working capital advances was 55 days, a reduction of 1 day versus the prior year. Fourth quarter net CapEx totaled $201 million, bringing full year CapEx to $625 million or approximately 2.2% of revenue.

In the fourth quarter, we repurchased $200 million of stock or approximately 3 million shares. And for the full year, we repurchased $944 million of stock or approximately 19 million shares.

Moving on to our fiscal '27 outlook on Slide 19. For fiscal '27, our expectations are the following: revenue to be between $32.3 million and $33.8 billion, up 18% at the midpoint. Adjusted operating margin to be between 7% and 7.1%, an increase of approximately 80 basis points, driven in large part by recouped FY '26 investments in CPI. We expect an adjusted tax rate of 21%. We expect adjusted EPS to be between $4.21 and $4.51, up 32% at the midpoint. Finally, we expect CapEx to be in the range of $1.4 billion to $1.6 billion and free cash flow conversion of approximately 60%, excluding costs associated with the spin transaction.

As Revathi mentioned, we secured significant business with multiple customers, including a multiyear contract with Google, underpinning our strong CPI growth expectations of 65% to 75% in FY '27 and and 80% plus for FY '28. What we're putting in place today is foundational, power and cooling infrastructure to manufacture for the data center market to support a broad set of hyperscaler and AI programs, products and partnerships through FY '28 and FY '29. As we scale these investments, we expect incremental investments, but at levels materially lower than the upfront investment required to establish the core infrastructure and capabilities for this next phase of robust growth.

To put a finer point on it, we expect CapEx to return to historical levels in FY '28 with CPI returning to approximately 2.5% to 3% of revenue and ITS and RMS below 2% of revenues. Post-spin, both companies will be well positioned to capture growth from this generational AI-driven buildout.

Moving on to our fiscal '27 segment outlook. For RMS, we expect revenue to be up low to mid-single digits, driven by strength in industrial and health care as automotive continues to stabilize. For ITS, we expect revenue to be flat to up low single digits as strength in communications is offset by softness and our continued deemphasis of low-value markets in lifestyle. And for CPI, we expect revenue to be up 65% to 75% driven by continued accelerating demand in both cloud and power with power growth again outpacing cloud growth.

Finishing off with our guidance for the first quarter on Slide 21, we expect RMS to be up high single digits to low double digits, driven by industrial and health care. We expect ITS to be up high single digits to low double digits based on strength in communications offset by weakness in lifestyle. We expect CPI revenue to be up 20% to 30%, driven by continued growth in power and cloud. We expect CPI growth to ramp in the second half of fiscal '27 as investments made in fiscal '26 allow us to deliver against robust demand from recent program wins.

For total Flex, we expect revenue in the range of $7.35 billion to $7.65 billion, up 14% at the midpoint with adjusted operating income between $469 million and $499 million. Interest and other expense is estimated to be around $65 million and the adjusted tax rate to be around 21%. Lastly, we anticipate adjusted EPS to be between $0.86 and $0.92 per share, up 24% at the midpoint based on approximately 374 million weighted average shares outstanding.

In summary, we finished FY '26 in a position of strength, delivering record margins, strong cash flow and growth across critical end markets. As we look ahead to fiscal '27 and our announcement yesterday to spin off our Cloud and Power Infrastructure segment, we believe both companies are well positioned for their next phases of value creation.

Flex's disciplined playbook -- Revathi and Michael has driven shareholder returns that have consistently outperformed market benchmarks and current planned investments are intended to support continued progress post spin. We are excited about the prospects of these businesses moving forward, and we are confident in the continued value they will create for investors, customers and our employees.

With that, I will now turn the call back over to the operator to begin Q&A.

[Operator Instructions] Our first question comes from the line of Samik Chatterjee with JPMorgan.

[indiscernible] here in terms of information over last night and today morning. So thank you for all the presentations here. Revathi, maybe if I can start with the decision to do a spin co here with the power and cloud assets. I understand the sort of value and [indiscernible] that might create. But how did you sort of balance that against looking at the scale of the business, the sort of diversification across end markets and also customer concentration that, that business might have? How did you sort of [indiscernible] those opportunities and sort of those drivers before taking [indiscernible] interested to hear your thoughts on that. And I have a follow-up.

Yes. Samik, thank you for the question. I would say that value unlock story is absolutely very clear, like you said. I think the important part to understand is if you look at what's happening in the AI data center space, and across power infrastructure in the U.S. and across the world, it is a onetime change that is happening in the architecture of power and in the architecture of data centers. And if you look at the portfolio that we have very thoughtfully built out in the last 4, 5 years, we do everything from rack and [indiscernible] system integration we have the power and thermal architecture we talk about. And then we've been investing in building out all the way from the data center out to the substation with our utility investments that we have done.

So we've built a very diversified portfolio across power, across thermal, across compute. And I think the beauty of the whole thing is with a very diversified customer base, not just hyperscalers, but also across colos, across neoclouds, then across a wide variety of utility customers. So diversified customers, diversified product portfolio, fantastic forward-looking growth rates which is clear in terms of the value unlock story.

So Samik, it definitely felt like it was a no-brainer to do it at this point in time with the business that we have built. And it is very well set up to run as a stand-alone company.

And maybe just a quick follow-up, the actuation that you're expecting in CPI's growth rate, can you just flesh that out a bit more? How much of that is attributable to your multiyear agreement with Google related to maybe power, which you've obviously also invested in over the last year.

Yes. I would say, Samik, that the acceleration of the CPI growth rate is related to Google and multiple other hyperscalers and including the growth that we're going to see across colos and neocloud. So it's a very diversified kind of customer growth rate. It feels like almost every utility customer and almost every data center AI customer is seeing some very significant expansion.

So we feel really good about the 65% to 75% and the 80-plus percent growth rate that we're seeing that we have set. And it's across all the 3 end markets, which is product lines, cooling, computer integration and power and across multiple customers. So well distributed between power and cloud, well distributed across multiple customers. And as I said earlier -- in my interview earlier today is that we are also booked out in terms of capacity and backlog for the next couple of years.

Our next question comes from the line of Luke Junk with Baird.

I'd be curious just to get some additional color now that it's a bigger part of the SpinCo on the power franchise and just how we should think about some of the major subcomponents in terms of embedded and critical power in that business. And just thinking about relative growth rates backwards looking and as you think about some of the discrete opportunities for those parts of the business going forward as well.

Yes. Luke, I would say that in terms of subcomponents of power, I've said this before is what started our journey was the fact that Flex was already doing work around embedded power, which was power for the chip itself. Small business many years ago. But with the acceleration and the focus on power density for chip, obviously, that business is accelerating pretty significantly looking forward. And plus with the change in technology happening with 400-volt DC and 800-volt DC, embedded power is growing significantly.

But you can't grow by yourself just with embedded power, right? What affects the power in the rack also affects all the power outside. So distributed power, which is low-voltage switchgear, medium-voltage switchgear, all the way out to power pods outside the data center, all the way up to the substation or utility-grade power infrastructure. We are seeing growth across all of it end-to-end.

I'd say in terms of growth rates, we're going to share more as -- we've already given a lot of transparency into the new segmentation. And as every quarter gets announced, you will see all the comparisons get more clear. And so I'd say, feeling very good in terms of how the business is performing across the power franchise, and then you'll see further information on all the financials as we look forward.

And then for my follow-up, just hoping maybe you could give us some more texture on the multiyear contract with Google that you mentioned and the pipeline and sort of opportunities that you're seeing in total. It sounds like these awards are fairly foundational in terms of materiality. And I'm just hoping you can maybe double click on where customers are coming from incrementally, and it feels like this is maybe a different type of opportunity. You mentioned kind of meeting the moment of this generational change. Is that kind of what you're seeing in these awards opportunities as well?

Yes. I would say that the multiyear contract is with Google, as we talked about in the call itself, but it's also across multiple hyperscalers. I think that's -- and it's also across neoclouds and across colos. So I think that's a very important diversification story. But I think the cool part about all of this is it's not just in the computer integration side or in terms of building mechanical structures like racks and enclosures, but it's also across things like 400-volt DC, 800-volt DC power architecture for hyperscalers or distributed power in terms of the data center and the utility itself.

So these multiyear contracts are really across multiple product lines across multiple hyperscalers and other customers like neoclouds, colos and utilities. Let's not forget utilities also. And we feel good about the fact that we're adding capacity to meet this kind of multiyear commitment that we have from numerous customers, and we're setting up our factories to enable that kind of growth.

Our next question comes from the line of Ruben Roy with Stifel. .

This is [indiscernible] on for Ruben Roy. About the -- Kevin sort of called out power as the favorable mix driver in the fourth quarter and cloud as the ramp cost drag. So as cloud, that's to say sort of [indiscernible], it is an architecture business units. The scale through fiscal '27 now with the Google multiyear contract that you've mentioned and the GPU programs that we know of, does cloud margin profile once ramp cost adjust converge toward the segment average. And to the degree you're able to speak to it in a normalized FY '28, what's the rough margin spread between the 2 business units within CPI.

Kevin, do you want to take that?

Yes. I'll take that question. So your question on sort of cloud margins. As we move into FY '28, we do -- we did have ramp costs in FY '27. We do expect to absorb those costs and continue to scale through that. And when looking at CPI though, I will say that our cloud margins are lower than our power margins, and we've been talking about that for the last few years. And power in FY '27, we also invested in infrastructure costs that we expect to grow into in FY '28 as well, and that's the improvement that I pointed to in the script, where we think -- where we see CPI margin improving 100 basis points largely driven by us growing into those investments that we made.

But just to put a finer point on your question, our power margins are going to be and will continue to be higher than our cloud margins in that segment.

That's helpful. Just a follow-up. Michael, congrats on the role. [indiscernible] came in I believe is a [ 60% ] operating margin in fiscal '26. ITS is a tad below that. So I guess without running the -- front running the long-term framework you'll lay out in the fall. Can you help us directionally think about the margin progression for RemainCo? Is it [indiscernible] achievable through fiscal '27, '28 on the trajectory you're laying out? Or is that more -- is that further out as health care and auto recovery take time to [indiscernible] and I guess on the continued deemphasis on lifestyle, low-value markets, should we think of that as a more meaningful revenue exit that benefits margin or just more a portfolio refinement at the edges? And I'll stop there.

Michael?

Yes. First, congratulations. I appreciate it. In terms of the story for this year, if we start with the margin perspective, let's start with first what our result was in the FY '26 period where both ITS and RMS were up 80 basis points from 4.6% to 5.4%. And that strength came from across the portfolio with the exception of lifestyle. And remember that lifestyle now includes our consumer devices business. So this does reflect our deliberate repositioning away from those lower value end markets. .

I would also say that when you think about the playbook going forward, that we will continue to, from a financial perspective, prioritize high-quality earnings that maximize cash generation, we'll continue to drive the margin expansion story through some of the similar themes we've talked about in the past, starting with productivity on the very early stages of driving improvement in our cost structure on the advent of using AI enabled technologies going forward. And then we'll continue to optimize the mix going forward as well.

So from a margin standpoint, strength in Q4, similar progress into Q1 and -- as you think about going forward, we think there's a lot of room for improvement given that productivity improvement that we've been driving the value of AI in the future. And still, there's gas in the tank to continue optimizing that portfolio.

If you think about the near term, we're early in the year, strong Q4, strong guide in Q1, still have a balanced perspective, first half, second half, relatively measured view on the second half today. And don't forget, we're lapping a really strong comparable in the second half, including that strong Q4. So really pleased with how we're positioned and really optimistic about where we can take this story from here, in particular, from a margin perspective and a revenue story.

Yes. I think the only thing I would add, Michael, is that just to put a finer point on everything you've said is the framework for Flex post-SpinCo is to basically focus on the things we're focused on. So you'll see strong margin improvement, you'll see focus on growth in the areas of highest return. You'll see great cash generation and buyback invested with it and investments into new areas and technologies we want to lean into like areas like health care or associated with other infrastructure spend you're seeing. So the game plan is to continue to replicate what we have done and really lean into areas of investment that we haven't been able to focus on because of the focus on data centers. .

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

Yes. Congratulations on the strong results and to both Revathi and Michael on the upcoming new roles. My first question was related to the plans for the spin. I'm hoping you can help investors better understand the potential for the 2 companies to grow faster on a stand-alone basis than they could together, perhaps some examples, and if an aspect is to be able to better grow the products portion of the CPI business.

Yes, Mark, first, thank you for the congratulations. We've been seeing the story with Flex together for a few years. I would say for the spin portion of the business for CPI, we've already given a pretty strong guide in terms of growth. We've talked about 65% to 75% and 80-plus percent for the year after.

I would say the focus -- and you've also seen us focus on adding more to the product portfolio. We just announced the acquisition of EP2. So we're obviously continuing to expand our geographic reach and our product portfolio within the CPI portion of the business. I feel very good about the overall architecture we have put together with thermal management on cooling with power, both in the rack outside the rack now heading all the way to the utilities and then the whole focus in terms of rack and scale integration, bringing that together. So I would say the potential to grow is pretty significant. It is going to be all about kind of continuing to focus on adding capacity and bringing it on in a disciplined way, which is our biggest focus right now, and we'll keep looking for areas of technology that we can invest in.

Understood. My other question was to better understand the medium- to longer-term outlook for CPI. You guided for 65% to 75% growth for fiscal '27, another 80% plus in fiscal '28. Does that growth represent Flex getting to the full run rate of the deals that's already signed across multiple hyperscalers in that fiscal '28 time frame? Or do the deals that you signed ramp even beyond '28? And then maybe help investors understand what margins in CPI can get to over that 2- to 3-year out time frame and already 9.2% in fiscal '26, but maybe give us a sense of where that could go over the medium to longer term as you ramp the programs you discussed today?

Kevin, do you want to start off? .

Yes, sure. Mark, so your questions on the programs that we've signed up, commensurate with the investments we're making, I would say that we would continue to see those programs expand beyond FY '28. So the numbers we're giving you today is through FY '28, but we would see some of those programs continue to grow into FY '29.

From a margin standpoint, we've talked about it, and CPI, we expect to recoup the investment we made this year. We've said that's 100 basis points plus. As we move into FY '28, we expect additional margin expansion in CPI. On the script, I said 50 to 100 basis points. The drivers of that are going to be mix from the product businesses continuing to grow faster as a percent of revenue than the cloud side. But additionally, it's continued improvement on margins in our products business, really both, but our products business as we move through FY '28. And so moving FY '28 to FY '29. I guess I would say our expectations are we'll continue to raise the bar. As we move through FY '28 and our expectations will continue to go up as we move into FY '29.

Yes. So Mark, our framework of whether it's for CPI or for Flex won't change in the sense that we will focus on growth, but margin expansion will be a huge part of the story. So again, we're going to do both in both of the companies. And whether it's coming from mix or accelerated growth or continued investment in our products business, our expectation is that we will see margin expansion in both businesses.

[Operator Instructions] And our last question comes from the line of the -- our next question comes from the line of Steve Barger with KeyBanc.

Revathi, how much of the CPI growth forecast is just this incredible demand environment versus your own success in pitching the full product and service integration model to customers. And are you allocating capacity to customers who are willing to commit to the full suite?

Yes. I would say, Steve, first is that's a really important question because a lot of what you're seeing today in terms of expectations from customers is still individual product based, but what you're seeing moving forward from a technology architecture perspective and what we're working with customer and the next generation of products is more a full architecture based. So you continue to see that migration from individual products to complete architecture. And I would say that there's more to come on that.

You're definitely seeing that both hyperscalers, colos, neoclouds are rearchitecting their organizations to be able to deal with this change. And so today, I would say a lot of our growth is individual products, but a lot of our technology road maps are based on a complete architecture.

Got it. And then obviously, the addressable market is just expanding really fast. It's hard to know how that -- where that stops if it does. But just thinking about the portfolio you've assembled what has become the hardest part of the business to replicate. Just talk about how you view your durable moat in a business that's growing the way it is.

Yes. Steve. First is the addressable market does continue to expand. I'd say U.S. data center capacity so -- is seeing a considerable shortfall in terms of what we're seeing today, but even the future-looking projections we're seeing in terms of what we're hearing from customers and what you're all seeing publicly, I'd say in terms of the addressable mode, for me, the addressable not always comes down to 2 things. One is, what is your performance in terms of capacity growth and schedule.

Today, customers want everything fully assembled, fully tested, just drop it off, ready to go in my data centers. And to do that at scale with the complexity that customers are expecting, very few companies can do this. This is -- I've done 3 decades of this, and it's very hard to bring that scale together and that architecture together and deploy it fully tested at customers. So I'd say that is a very significant moat that we have. And I saw that day 1 when I came to Flex is you can combine the complexity of power and cooling and compute and then put it together in 1 architecture [indiscernible] scale. I think that's the big moat that we're seeing, Steve. And I expect that that will continue. And actually, we'll get even more complex as we move forward.

I'll now turn the call back over to the CEO for any closing remarks.

Thank you. Hey, yesterday's announcement marks another foundational step in the transformation of our business, and we are really excited about the opportunities ahead of us. On behalf of the entire Flex leadership team, I want to say a sincere thank you to our customers for their trust and partnership, of course, to our shareholders for their support and the global Flex team for their dedication and contributions. We look forward to sharing further updates in the coming months. Thank you, everyone.

Thank you. This now concludes the call. Thank you for joining. You may now disconnect.

Kicking off the day with our tech track, our own tech track. I am Melissa Fairbanks. I cover analog semis and IT supply chain. And we are really excited to have Rob Campbell from Flex this morning. He's the President of what they call their CEC business, the Communications Enterprise and Cloud business. Nothing exciting going on there, I'm sure, these days. And then we've also got Michelle Simmons here in the audience, who handles IR for the company. So good morning, Rob. Thank you so much for coming.

Good morning. Thank you for having me here. Excited.

I think you've got a couple of introductory slides, which I think would be very helpful. And then if you -- after that, we'll kick off the Q&A.

Okay. Great. So good morning, everybody, and thanks for taking the time to come. I've done a number of investor conferences that are almost always 100% focused on tech. So this is kind of -- you have a little tech track, I heard and so forth. I did take the time to kind of give just a very brief overview of Flex at a high level, right, to say, who is Flex, what is Flex and so forth. I'll go through it pretty quickly, which I normally wouldn't do.

And before I get there, I'll give you just a little bit of my background, and thank you, Melissa. As she mentioned, I'm the President of our Communications, Enterprise and Cloud business unit. My background realistic before I came into Flex is in semiconductors, right? So it's good that you have semiconductor background. So I'm an electrical engineer by training, started my career at Texas Instruments and then went over to Advanced Micro Devices and over into distribution before coming to Flex. And then I've been with Flex now for about 11 years.

So let me give you just a quick overview about Flex, what does Flex do? So Flex at the heart is an EMS company, electronic manufacturing services company. But we try and make sure that everybody understands that we really have different components of it. We're EMS plus products, right, plus services. EMS companies at their very basis are just EMS. They build things that their customers ask them to do. So we do that. We also do the actual design of that as well. But then we have another sector, as I mentioned, called Products. So this is our own branded line of products. And we do this in the number of spaces; the critical power space, embedded power space, liquid cooling space, I could go on.

The neat things about Products, ultimately from a financial perspective is they typically drive quite more significant margins to them and so forth. So we have a quite extensive and growing Products business. And then services is that final piece. And services are things that you would think of service, everything from forward logistics, reverse logistics, doing repairs or RMA authorizations, doing commissioning.

There may be products that we build that would go into a data center and you go commission and so forth. And we do all of those things. I could go on from there. And once again, these are things that are quite accretive from a margin perspective to us. So Overall, when I -- when you ask and say, what about Flex, Flex is an EMS plus products plus services company. It's a nice way to kind of remember it.

So just very quickly, you can see Flex is broken up into 2, what we call, segments, large segments. You can see reliability and agility. Reliability is our -- is made up of our Automotive, Health Solutions and Industrial businesses. So these are things that are all very regulated, right, have a lot of regulation to them and so forth. I'll just tell you really quick, and then I probably won't go back to this just to give an overview of this as a whole, right?

The Automotive business is a business that Flex has a very strong position in. The Automotive business hasn't been a great business the last couple of years. We're finally seeing that level out and start to get some sort of nice path back on it. So when that market does actually turn, Flex is in a really wonderful position there. The Health Solutions business has been really resilient for us. It's broken into 2 pieces, Medical Equipment and Medical Devices. So Medical Equipment, think of in your hospital room and you're looking around in a surgery center, we build a lot of that stuff.

That business has been pretty good, and it's actually starting to come back pretty well. The second half of the year coming up, we have some pretty big plans for that. The Devices business, though, has been really, really strong. So think about people that are walking around doing the glucose monitors and things like that; super, super strong business for us there.

And then Industrial. Industrial is broken into a few pieces. Critical Power that I mentioned before in Industrial and Embedded Power, and I'll talk a little bit more about those. Capital equipment, think semiconductor equipment, really strong business these days. Renewables as well. So think anything in the solar space, that's been a good business. And then what you also don't see on there is things like warehouse automation that's been really, really strong as well. So that's the Reliability segment.

And then we move over into the Agility segment. So the Agility segment is my segment, CEC that I talked about. I'll talk about that a little bit more. And then the Lifestyle and Consumer Devices segment. So these are -- in a way, they're almost kind of coming together. And I'll just kind of probably refer this as the Consumer Lifestyle type business. The Consumer Lifestyle business hasn't been right as strongly. I'd kind of almost put that in the automotive sector and so forth. But as a whole, one of the things that we realize is that in the world, there's the ying and the yang when something is going up, something is going down and so forth. So it's a very diversified portfolio that does this very well.

So Flex is a big company. I'll let you read the stats over here. I'll give you a little bit of background on the footprint over there. You can see Flex has a little over 50 million square feet of manufacturing capacity, and it's all over the world. We're in over 100 locations throughout the world. You can see in Asia and the Americas, we have almost 20 million square feet in both of those, 12 million in Europe. It's a footprint that's really unequaled in the industry. There's a number of large EMS companies who have footprints this size or almost this size, but no one has a footprint that's across the world like this. It's really a unique trade and hallmark of Flex.

There are seats up here on the sides, if you want to come on in. I swear I won't go through every one of these. We put this in here for the reason I said at the beginning, right? A number of folks don't know what is Flex, what does Flex do and so forth. And I just kind of showed you, here's our groups, our business units that we have. These are just some of the customer names that we have. You'll probably see a number of them are familiar. I'll point out, there's quite a few very significant customers we have that don't have their logo up here unless we have expressed written approval from these companies to share their logo. We don't have them up here.

I'll give you, for instance, one of the things Flex has come and we'll talk a little bit more about data center. We have engagements with multiple hyperscalers, right, very significant engage. You don't see those up there, and there's a number of others that you won't see up there. But this just gives you a little bit of an idea.

Just very quickly to go through, Flex has come a long way just in the last, let's call it, 6 or 7 years. It kind of was your father's EMS company, kind of pre '19. And what I mean by that is the business that was there was really one almost of being able to manufacture things very well and then to take advantage of what we call labor arbitrage. If you're building a product in Germany and you have your own factory and then Flex could come and say, I can build you that product with just as good a quality, but I could build it quite a bit cheaper by building it in Romania, right, or building it in Malaysia or something like that. That was the traditional labor arbitrage that really was the rise of the EMS companies.

In 2020, right, we had new leadership come in at Flex. So we have new CEO, Revathi Advaithi came in. And we took a pretty significant movement in our strategy on how to move forward. You can see some of the things that we did. But one of the things that we really did is like, look, let's focus on where we want to be, let's not just focus on labor arbitrage. Where we want to -- what are the industries that are growing? What are the growing industries that really require a special unique skill set? Not everybody can do it. And let's focus on that.

And by the way, the other hand on that is the business that we're doing that isn't necessarily all that hard to build, doesn't really make good margins. Let's -- I'm trying to think of the correct word to say, let's trim it, right? Let's trim it. So we've done some very significant trimming of businesses that weren't core to our businesses through this time and really shifted towards these high-growth, high-margin sectors. And we did that not only with focus, but we even did some acquisitions and so forth. We'll talk a little bit more about that. And that gets us to where we are today, boy, something that's really driving a lot of our business, driving a lot of press in the financial sectors more is the data center AI space.

So it's a major, major space for us. Obviously, for me, it's a major, major space for me individually. And so we'll talk a little bit more about that, but Flex is really focused on that. We've really become focused on cash flow, predictability, margin expansion, all the things that make investors feel good and comfortable. So it's been a really demonstrative focus for us in the recent years.

So I mentioned data center. One of the things in the data center space, we really do it all. I'll talk a little bit more about that. But as I go back to those segments we talked about, in the Reliability segment, right, there is Critical Power and Embedded Power that feed into the data center. So from a Critical Power space, think of the grid power, the giant power lines you see, you've got to get that into an actual data center. So you've got medium voltage switchgear and low-voltage switchgear and power distribution units and things like that. And these are really major critical pieces that Flex has been engaged in.

We got in there early on through an acquisition of Anord Mardix and so forth and built on that with a new acquisition of Crown Technical. Then you go into the -- all the way through now you've got power going to the data center. Now you've got to get into the rack, right? That's embedded power. So embedded power, think about what you're actually doing to take that power and put it down to today, 48 volts, right, put it into the rack and inside the rack. It then has to get down all the way to the level where it gets to the individual chips.

So you hear about all these NVIDIA chips, GPUs, TPUs and so forth. Those all individually have to be powered individually, right, with their own power module. It's an embedded power module. Flex does that as well. It's called Flex Power. We're one of the largest, I think the second largest provider of that as well. And all that is in the embedded power space. And then from our Agility segment, which is my segment I belong with, we do IT hardware. So think if you walk into a data center and everything that you're seeing, we do all of that. And I say all of that, we do everything.

So you're seeing the metal racks that are sitting there. We actually manufacture metal racks, right? I think we're the only EMS out there that's actually manufacturing custom metal racks. And then we build everything that goes into those racks. So whether it's a GPU, whether it's a switch, whether it's a server, whether it's a storage device, Flex builds all of that, right, and it goes in there. And then the process of actually integrating all that into a rack called rack integration, very, very major business. That is a very significant business for that. We integrate all that in there.

And then everything that's in there, not everything today, it's moving very quickly. Everything needs to be cooled and liquid cooled, right? So we have liquid cooling. We acquired a company called JetCool a little over a year ago, and they have cold plates, very unique cold plates, IP technology and CDUs, right, or coolant distribution units, all that are in there. The only slide I think I have that's on my business unit as a whole, so this is the only time I'll talk about it. So the communication requires a cloud space.

So the Communications business unit is -- think about data moving around, whether it's wirelessly or wired. If we were talking 6 years ago, we'd be talking about 5G, right, and so forth. And we still do. We build 5G radios for the big players that need that. But then this is also where we put optical networking. That's a business that is really growing quite strongly. High-speed switching, right? And so to put this through, if you think about high-speed switching, some of the products that are out there, like NVIDIA, their NVLink type stuff, right? That is high-speed switching of a sort.

So all the high-speed switching, that's a business that's really growing quite. And then SatCom, satellite communication has become a really significant business for us. We're engaged with almost every single major SatCom player out there, and that's a really growing business for us as well. The enterprise space, so -- and here, you can think about if you're just building a server or a storage device, cybersecurity, so everything from a cybersecurity space.

I think of the top 4 cybersecurity providers we build for every one of them, actually, we build 100% of the product for 2 of the 4 out there. And this is also where just general networking. So if you think just a NIC card, which is very prevalent across and now that market is moving to what they call SmartNICs or AI NICs. It's a really fast-growing market and an area where Flex has been kind of the provider of choice just like a number of these other areas.

And then finally, Cloud. Cloud, I won't go into that, self-explanatory. That's the data center business. This is where we deal with the hyperscalers and so forth. If we were to do anything beyond with a colo or a Tier 2, that's where it would also show as well. I put this slide up just because it's my favorite slide to talk about, and I actually have gotten up and given 45-minute talks just on this slide. I swear I only spend like 30 seconds on this thing. But this kind of brings into your visual view what I just talked about before from a data center.

This -- when we're talking about the data center space is what makes Flex unique. We are the only company out there that has the full chain on bringing stuff. You start off at the data center to the rack -- from the grid and the data center, everything that you see in the magenta across the top, that's that critical power space. So you think about companies like Eaton or Schneider or Vertiv, that's what they do. That's what we do. We're really good at it. We've got some unique piece over there. You see this little utility control building. And then right in front of it, it's hard to see is a power pod. Power pods is now where you take these pods, think of shipping containers.

And now those things are full of and ready to go with equipment, whether it's low-voltage switchgear, medium-voltage switchgear, we're even doing things in the IT space and so forth. That is a huge push. You're going to hear a lot more about it as people and companies like a hyperscaler want to get a data center set up, boy, to be able to just bring in a truck, drop the pod down and get going and you'll have hundreds of these things, it makes a big difference. We have the ability to do all that, and we're doing all that at scale today.

These green or this is that critical power that I talked about. This is now that the power is into the data center. How do you get it into the rack and then into the chip that we do that. I talked about all the IT work, all my group, server, storage, racks, enclosures, all optical transceivers. We do all those things, everything that goes into a rack and then the rack itself, all that needs to be cooled, which is the orange portion of it. So bottom line, if you look at it, over 80% of what goes into a data center Flex provides, right?

And people say, well, what don't you provide? And the joke is, well, we don't pour the concrete, right? And that's there. The other thing someone said, no, seriously. The other thing I'd say that's probably -- is the fiber optic cabling, think about a corning or something like that, we don't do fiber optic cabling. Other than that, we do just about everything in a data center.

Our Data Center business, just so you can see the revenue from 2 years ago to now, our revenue as a percentage of Flex revenue has more than doubled. And there, it's becoming a very significant piece. And then if you look at the revenue itself, the dark blue is that cloud compute what I'm talking, all that IT work, everything else. The light blue is the power that goes in there. So both of them, as you can see, are growing at a pretty rapid pace. Actually, I will say this because it's come up before, the data center is such a big piece. We don't break up -- you saw our segments are broken out, and you can see the data centers across both our Reliability segment and our Agility segment and so forth.

What we have said about our Data Center business is the margins on this data center are accretive to Flex's overall business. And we've also stated that this year -- and by the way, our fiscal year ends March 31 -- we've stated that our Data Center business will grow 35% or more, and it certainly will. Last year, it grew 50%, and it's continuing to do very well for us.

So last thing I'll cover just from what I've told you about Flex, what is it about Flex that makes us different as a company and successful? Where I started with this EMS plus products plus services, it's a very unique model, adds a lot of value to our customers and also adds a lot of value to our investors. The global scale and regional reach, I also showed you that, it's a really unique aspect of Flex, 50 million square feet all over the world and anywhere you need to go. As tariffs come up and geopolitical things come up, it's really very straightforward us to take a customer and move them into a different place.

The end-to-end capabilities, I talked how we can always do these services for the whole circular economy that we talk -- I joke with my team, it's like all these customers are -- I mean, they give awards and you win Supplier of the Year or whatever. And we get lots of those. I love those. We also win all these Sustainable Supplier of the Year. I joke and say, oh my god, I get it, it feels Miss Congeniality, but we are really good at sustainability, right? We do some amazing things. We run this whole circular economy and enable that, the vertically integrated model that I just showed you, the ability to supply everything, and I haven't covered all of it, right?

I mean, we actually make individual components, right, that go into these different things, whether it's active ICs or passive ICs or even mechanical products. I mean, one of the things to think about that rack, we make the rivets, right, and things like that. It's a really neat vertical model that we have. Our customer base, I kind of showed you. Other EMS will get up here and we'll say, well, this customer is 30% of our business, and this one is 20% of our business, we have a very diverse customer base. I showed you the 6 business units that we have and so forth, it's been very strong. So that makes us really resilient. And then the Data Center business, which we'll talk more about, right, has really enabled us to just take off and accelerate even more. So with that, that's kind of my overview.

That was a great intro, and I'm glad you briefly talked about the business transformation since the current management team joined and since '19 because that's a very important piece of the story. But we know everyone just wants to talk about hyperscale data center today. So that tends to be one of the biggest themes. So along those lines, you did have a very interesting press announcement this morning. And to your point, you don't talk about specific customers, and there are certain customers that you're not allowed to put their logos on that sheet. But I'd love to go over what that press announcement was about this morning.

Yes. And thanks, Melissa. I will say it's -- one of the things people say, well, your competitor here talked about this hyperscale and talked about this -- well, if they represent more than 10% of your business, you look at and so forth. So boy, I would love to -- and I think both of these things will come together, and we'll have these and we will talk more about them. But if there's been a press release, I mean, one of the things we did a press release, I don't know, 6 months ago or so with Amazon, right, we did a warrant deal with them. So now people know that we do a significant amount of business with Amazon.

And then this morning, to your point, there's an announcement with AMD. So I've mentioned part of this thing is that we do everything and we do GPUs and TPUs and whatever there. I think in the GPU space, the one guy that's going to try and give NVIDIA run for their money is AMD. They're doing really, really well as a company. And there's an announcement this morning that Flex will be building -- is building.

Actually, we're actually building their GPUs in the United States. We're building them in our Austin, Texas plant. So their MI355 series, we are in production today on that. The announcement goes on to say that we'll be building their next-generation products, the 455 so forth. AMD last week announced a $60 billion deal with Meta to provide them. So they got to build them somewhere. So we're going to be building those in Austin. So...

Awesome. And I just want to preview, you are going to be hosting an investor event in Austin in May. Maybe we'll get a peek at some of that production?

Yes. I mean, there's production ongoing now. So I know there's going to be some things where you'll see some production. So for sure, that investor conference in May is a big deal. Part of it, I mentioned before, our fiscal year doesn't end until March. So we'll have our earnings the week before the investor conference. And I think we're going to give you a lot more data and detail on -- it's May 13. Thank you for that, Michelle. May 13 is the Investor Conference. There's going to be a lot more data and detail on what we're doing in the data center specifically there as well.

That's excellent. And I have to say I love that slide, your favorite slide of the diagram of the data center because that really helps kind of clarify where things are. I did have one question about the Power business. You brought up a few of -- kind of the dominant guys when we think of critical power, we think of more industrial-type applications like Eaton, Schneider, Vertiv. And that's where that's played. How has your ability to address that end-to-end within the data center, you can do the critical power, bring it into the rack, build the racks and then do some of the embedded power. How has that helped you either win new business or maybe kind of grow your business?

Yes. Great, great question. If you think back 5 years ago, I mean, data centers were here, but they were just kind of afterthought and so forth. So to your point, right, that critical power space wasn't really there that much of it to supply data centers. It was, hey, I'm building a new factory and I need to have the power there or I'm building whatever. And it's been there. So those guys that you just mentioned and us in that critical power space, they were focused just on that piece.

Today, though, right, because we have that critical power space, but now that embedded power and so forth and even the cooling and so forth, what is happening is a convergence of, right, all these things into a single -- so before -- let's just say you're a hyperscaler and you're getting your next-generation data center. Well, you know that you needed to provide whatever, 50 megawatts of power to this building and then in the building, right, you needed to get power to the rack and then so forth, and that was about it and have some air cooling.

Today -- and so by the way, the folks that pick your hyperscaler that did the critical power, they sat in a room over here. The folks that did -- getting it from the power room to the rack room, they sat in maybe a different building, maybe in a different state. And then within the rack, same type thing. There was no talking, everything else. It's now all converging to the point where as you are planning for the next-generation data center and the racks in there and they're talking about racks being 1 megawatt racks, a full megawatt in a single rack. You're now having to do the design, the guys that are designing the processor, whether it be a GPU, TPU, whatever, and now it has to be cooled.

And oh, by the way, that has so much power and that power has to get there. Racks today are at 48 volts. They're going to 400 and 800 volts. We're actively engaged in projects today. We've made announcements with NVIDIA and others about what we're doing there. And then everything through -- to get it all the way through -- from the grid all the way, it starts -- it's all collaborative. They're all working together. So it's really for a -- and I'll just say for a hyperscaler, for a company like Flex that has every part of every piece of everything I mentioned, we're unique there. They can sit down with Flex and design their entire next-generation data center in rack, and they are doing that. We're really heavily involved with a number of hyperscalers. And even the -- there's new chip guys coming in as well, and we're a unique place for them to be able to do that entire stack. So it's a big advantage for us and a big advantage for our customers.

I'm curious how -- we all know we can track the CapEx spending of the big hyperscalers, but I'm curious how that rounded portfolio allows you to address maybe AI at the edge as we move into -- we've got the big hyperscalers, we've got enterprise AI. And then now a lot of like the chip guys are talking about AI at the edge. Is that an area where -- I imagine that's something that is exciting to you...

Yes. It really is exciting, and we're doing a lot of it because today, when you -- more of the edge, if you think about the edge, we think more of our enterprise customers and things like that and what I'm providing to them as far as IT equipment and so forth. And now we're talking even more edge, to your point, like it may be a mobile phone or something like that. And now it's getting more back to the chip.

And as I said before, and we haven't talked -- but we're actively working with a number, if not every chip company out there on their next-generation chips because they have to be cooled. And they have to be cooled in a way that they've never been cooled before. We've got some really unique technology that I didn't really get into that much with JetCool. So we are really heavily involved in it, and it's exciting to know where it's going. You read all this thing about how fast AI is moving and everything else. And if you see it from what I see, it's like, it's actually quite a bit faster than anyone has even seen out there. It's a really exciting space.

It is amazing. All of a sudden, EMS and analog semis are sexy again. I love it. So we're kind of running out of time for Q&A, but I do want to point out, we do have a breakout session downstairs where we can get into some more detail. I know that this is a very hot topic, but maybe just give you a few seconds to wrap up the -- some closing comments.

Sure. So again, it's an incredibly exciting time to be an EMS manufacturer out there, but to be an EMS that has the breadth that we have, the vertical we have, to be as heavily invested and involved in the data center and AI space, incredibly exciting time. It's been a very successful period for us. And like I say, when you see -- what I see and the wins that we have that we haven't talked about yet, well, it's certainly really exciting for us.

Excellent. That was a great overview. Thank you so much, Rob. We really appreciate you being here, and we will see people downstairs.

Great. Thank you.

Thank you for standing by. Welcome to Flex's Third Quarter Fiscal Year 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded.

I will now turn the call over to Ms. Michelle Simmons. You may begin.

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, Revathi Advaithi; and Chief Financial Officer, Kevin Krumm, 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 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 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 of financials posted on the Investor Relations website.

Now I'd like to turn the call over to our CEO, Revathi.

Good morning, and thank you for joining us today. As you know, this is an exciting time for Flex. 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. Flex's 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 5 decades of experience navigating major technology shifts across industries. The growth we're seeing in data centers is being driven by rapidly expanding computer 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 system-level approach. This is where Flex is uniquely positioned to help. Our data center portfolio is built around 3 tightly connected capabilities that is: computer 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 and adaptive technologies and workloads evolve, while many companies address individual elements of this ecosystem, very few you can integrate all 3 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 advance 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 time lines 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 remained 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 health care devices, large-scale data center deployments, next-generation mobility platforms or cutting-edge consumer technologies, success today demand 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 the fast-moving world.

Now I'll turn the call over to Kevin to walk through the details of our financials.

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. Adjusted operating income was $239 million, and adjusted operating margin for the segment was 6.3%, unchanged 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 pursuing accretive M&A 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 FY '26, 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 FY '27.

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

[Operator Instructions]

Our first question comes from Ruplu Bhattacharya with Bank of America.

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 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.

Thanks, Ruplu. First is 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 the 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 Ruplu, 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 then, we'll have to continue to add capacity in compute because of AI programs coming into play, as you just mentioned. So yes, 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.

Okay. Can I ask a follow-up? You 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 of 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?

Ruplu, this is Kevin. I'll take the first stab at answering this question. I would say that 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, yes, 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 -- 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.

Yes, Ruplu, 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 mix shift. 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.

Our next question is from the line of Samik Chatterjee with JPMorgan.

Maybe, Revathi, I 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 it more on embedded and critical? And where do you see more opportunity to like 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 2 as much as you sort of have a high-margin business across both of them? And I have a follow-up.

Yes, Samik, 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 and 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 itself. 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 it 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 shift that is happening and a very small set of competitors in that space.

Got it. 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.

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 have 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're 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 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 I'd say, really strong growth in Agility, just offset by consumer end markets.

The next question is from the line of Mark Delaney with Goldman Sachs.

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?

Mark, this is Kevin. I'll take the first part of your question. Short answer is, the warrants are not incremental nor were they expected to be material incremental to FY '26. 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.

Yes. Mark, the only thing I'd add is that in our overall growth rate that we gave for the year, which is a 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.

Very helpful. 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%. Hoping to better understand if there's anything episodic in Reliability margin that might be more onetime in nature? Or is this just indicative of mix in some of the longer-term potential of that business segment?

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 and 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.

[Operator Instructions] The next question is from the line of Steven Fox with Fox Advisors.

Just a 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?

And then I have a follow-up.

Mark, I'm going to have to ask a clarifying question...

Steve.

Steven, sorry. You're referring to Q3 margin performance, noting that we had in revenue?

No, I'm just looking at 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.

We had a strong quarter. A lot of that is related to the question we just had, which is underlying margin performance in Reliability. Our power business continue 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.

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

No. I would say it was power, power mix and Core Industrial, Steven.

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

Yes. Steven, I would say, we are definitely not seeing that. We are not only investing in our own capacity in U.S. manufacturing, but we continue to get a lot of inbound requests from customers on future projects that require U.S. manufacturing. So we're not seeing that at all. 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, our biggest investments are still happening in North America and U.S. 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 they were saying, but we're not seeing that being reflected, Steven, at all in our businesses. In fact, most of our investments are being driven by what's expected in U.S. and in Mexico.

Great. I appreciate that color. And congrats on the great performance.

Thanks, Steven.

The last question is from the line of Jacob Moore with KeyBanc Capital Markets.

This is Jacob on for Steve Barger. First for 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?

First, 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 influx, right? Because people were 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, they've only 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 platform, 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.

Got it. 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 the consumer products or other high memory content platforms?

Yes. 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, 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 memory is not driving any kind of demand issue or a 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 baked that into our forecast.

I'll now turn the call back over to the CEO for any closing remarks.

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 13 here in Austin. Thank you all.

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

Hi, everybody. Thanks for joining. Tim Long here, Barclays IT hardware communication equipment analyst and now EMS/ODM and whatever else, clearly throw at me.

Welcome to the story.

Yes. Thanks. I appreciate it. So very happy to have Kevin and Mike from Flex here to go over some of the trends in the business. Obviously, it's been a pretty hot space. So these guys, we really appreciate you taking the time given that there's so much going on both with investors and with your customers, I'm sure.

So maybe if we just start out with, obviously, a lot of people very focused on the cloud area. So I know you're not fully addressing that number all the time, but the 35% growth for this year. Maybe just, Kevin, if you want to touch on that number and how do we think about like moving parts around it. Obviously, the pretty broad business as well. So maybe if you could just kind of benchmark for us what we should be thinking about and what are the potential positive drivers beyond that level?

Yes, sure. So last year, so our last fiscal year, we said that we concluded the year with that business at around approximately $4.8 billion, of which we said $1.3 billion was power, which was our products business and the remainder was cloud. So your question was really, I think, on the data center business that we've said last year grew at 50%, which includes both those, so the cloud and the power. And we said last year, that business grew at about 50%. And as we were moving through this year, we said it was going to grow at about 35% plus.

Inside of that, we've said that the power business, we expect this year to grow above 35%. And the cloud portion of that business, we expect to grow slightly below 35%. And the cloud business, as we said, is much larger. The impact of that is, obviously, we continue to scale and grow that business. Inside of that, that's some of our higher-margin businesses. So cloud, we've said, accrues at margins above Flex average, and we said the products side of the business accrues at sort of products level margins, which would be in the mid-teens. So that growth obviously has had a significant impact on margins, too.

Yes. And maybe if you could just touch on -- you touched on the major buckets, but like from a customer standpoint, what kind of breadth you're seeing in that business? I don't think you report any 10% customers yet, but others in the space do. So maybe just talk about how you're a little bit more broad in that area.

Yes, for sure. And I think that's a good part of the story that sometimes gets missed is that, that growth is being driven by a great diversity of customers and products and services. And so when we think about the customer base, it's sometimes helpful to think about it through 3 different buckets.

The first bucket is hyperscalers. And so one unique thing about our business is we have multiple hyperscaler engagements, not just 1 or 2, but multiple. And in each one of those engagements, we do multiple products and services. So critical power, embedded power, rack integration, very well diversified across the customer base and the product and service portfolio in that segment of our customers.

A second segment is colos. And we uniquely have access to that segment through our critical power business. As you know, most of the colos don't have a strong say in what the compute rack looks like inside of the real estate, but they do specify the real estate. And part of that is the power infrastructure that goes with that. So our critical power business provides all the switch gear, the busways, the bus ducts. Think about the power infrastructure that's above and around the rack is our exposure into the colos space.

And then the third category of customers is around silicon providers. And in that space, we have access to our EMS business, where we manufacture a lot of the accelerator hardware itself but also through our embedded power space, where we do module level, board level power, right? Think vertical power applications as an example, where there's a lot of co-design that goes along with making sure that power is being optimized as compute densities increase. So really broad in terms of those 3 categories within each category, multiple customers and with each customer, multiple products or services.

Great. Yes, it's a good starting point. Maybe touching on power. I think when investors are looking at the space, Flex probably has a little bit more power exposure than some of the peer companies. I was just through Asia a month ago, and it was painfully clear how important power is becoming, obviously, not just getting the power, but managing it. So maybe talk about your outlook for that power business, Kevin, you mentioned growth faster than overall. You got the 400-volt racks going to 800-volt. Maybe talk about like what kind of technology drivers and what is causing the power envelope and the power management systems to be much more important over time.

Yes. It's a great question. And it's sometimes easy to overlook the challenges given we're growing the business at a rate that we aren't other businesses, 50%, 35%. So there's a massively expanding industry. But as we're seeing this growth, we're also seeing challenges emerge. And the 3 challenges that we've chosen to focus on are actually around power, heat and scale, and you're talking about 1 or 2 of those 3. So we'll get into that a little bit.

But the relationship is really because compute densities continue to increase. And this compute density is drawing more and more power. And so solving for that power is becoming increasingly important. But also, as you consume more power, you're generating more heat. So you need to make sure that your compute innovation is keeping pace with your power innovation and with your cooling innovation. I'd say the innovations to pay attention to from our perspective, first, in the critical power space, it's really around modularity. So more and more our customers, especially hyperscalers are asking us to go faster, right? Forget about how we're deploying data centers today, how can you help us reimagine the deployment of data centers in the future, speed, speed and speed.

And an underlying theme in going faster is to create modular type of solutions. Fortunately, we already have a great capability in that area around our power business. We're already landing power pods, which are essentially a critical power solution in a box that helps you fire up a data center probably 30% faster than traditional construction time line. So modularity in our critical power business, a really key driver.

In our embedded power business, you alluded to one of those, and that is how do we help enable this 1-megawatt rack on an 800-volt architecture and so we've made some announcements about some partnerships that we've had with -- NVIDIA. We've talked about the deployment of our AI infrastructure platform that also drives that advancement in technology. So 1-megawatt rack, 800-volt architecture is one area. But we also have a wide variety of products, a pretty comprehensive portfolio addressing these increasing compute densities that are taking place. I think power trays, power shells, BBUs, those types of applications.

So we've refreshed our entire product line to keep pace with that rate of innovation. And then I'd say on the cooling standpoint, air cooling technologies are not adequate for the current power consumption and heat generation that's taking place in the data center. So we've acquired a technology through JetCool, where we have a proprietary technology through a cold plate to apply cooling to these chips in a customized way. Most technologies use rigid channels and cool the whole chip. We have an ability through our microchannel and microconvective technologies to apply the cooling to only the hotspots in the chip. So those are some of the highlights of the innovations that are taking place in the power and cooling space.

Okay. Great. Maybe if we go back to the cloud piece of the data center business. You mentioned rack integration. It seems everyone is focused across the ecosystem, whether it's a chip company or an OEM or an EMS/ODM, everyone is focused on kind of full rack integration. So maybe talk a little bit about how that transition is evolving and what sets Flex apart to better participate when it seems like a lot of these new customers just -- I want the whole rack, like I don't want to deal with the pieces. So maybe just walk us through how that works on your end.

Yes. And I'd say that, first, the market for those rack integration services continues to expand at an accelerated rate and with more complexity. And I say that because in our mind, the more complex this requirement gets, the better positioned we are to provide that value. And so when you think about hyperscalers, these are companies that are operating at scale. They want to work with companies that are operating at scale, and they want to work with fewer. So the more you can provide in that relationship, the better, which is why when you think about our EMS products and services capability, that tends to play well in this environment.

So we're winning, firstly, because we operate this portfolio at scale in multiple geographies. So wherever our customer wants to deploy that capacity, we're operating at scale with that portfolio. I'd say secondarily, we vertically integrate our racks. So we fabricate our own sheet metal, right? We can integrate our own embedded power technology. We can embed our own Coreworks brand, which is electronic components that we manufacture. So a more vertically integrated solution enables us to scale more quickly, but also enables us to simplify the conversation with those hyperscaler type customers.

Right. I'm sure it helps with margin stacking as well.

Well, for sure, it helps our margins. We talk about portfolio shift a lot. But also, we talk about service differentiation as well because you have a baseline of EMS margins, which, frankly, even in the data center for us, our EMS business and rack integration is already operating at higher than company average. But then you put on top of that, the power business that's operating at product level margins, call it, mid-teens.

And then you add on these value-added services, whether it be vertical integration or fulfillment or circular economy, those are also operating at higher than company average. So the net of that is, and I think some people miss this, is our fastest-growing business is also our highest margin business. And it's because of this EMS products and services strategy that we have.

Great. Obviously, another hot topic in the cloud area lately is custom ASICs. It's just new announcements almost every day. Can you talk a little bit about Flex's participation in custom ASICs? And if we do see this explosion over the next few years in TPUs and Trainiums and maybe Maia and maybe MTIA, I'm assuming that's all pretty good opportunities for Flex, but can you just walk us through your positioning there?

Yes, for sure. So we today already manufacture a wide variety of accelerator hardware. We're really excited about the increasing requirements. So these are getting more complex. Like I said earlier, compute densities continue to increase. To deploy that technology, though, more and more, not only do you need this baseline capability to manufacture what are some of the most complex boards that we've seen in our industry, you're going to have to pair that with power solutions, which is where our module business comes in, cooling solutions, which is where our JetCool technology plays. And so the more complex this get, the more scale that's required, the better positioned we are. So we're really thrilled with where we're at from that perspective.

Okay. And I did want to touch on, I think at OCT, you guys announced the AI infrastructure platform. So maybe can you just outline what that is and when do you think that will start impacting and if there's any early customer feedback on it?

Yes. Yes. I'd say that the nice thing about the platform from my perspective is it's the physical representation of our data center strategy, right? So we've talked already about the foundation of our company strategy is around EMS products and services. I mentioned earlier that we're using that platform in the data center to solve for power, heat and scale challenges. And that's where this AI infrastructure platform comes in.

We envision a future that as these requirements continue to go up into the right, more and more customers are going to want a solution that is modular and addresses all of these applications in one. So a stand-alone power rack, a stand-alone compute rack, a stand-alone cooling rack. That's wrapped with a services offering that it can deploy and also repair. And that's really what the AI infrastructure platform is all about. Again, it's the physical representation of our strategy. And we decided to deploy it because more and more our customers, as I alluded to earlier, are asking us to reimagine how they deploy data centers. It's all about speed, modularity plays a role, and this platform is very consistent with that. So our customer conversations are continuing to increase in that regard, and we're really excited about where we stand.

Okay. Great. Kevin, maybe we'll throw a financial one at you to get. A lot of comments in here about operating margin and the mix improving. You guys have delivered very well on operating margin in the last several quarters. So kind of walk us through the calculus of mix shift over time, which your higher growth or better margins and scale. I mean, obviously, revenue growth is pretty healthy. And if everything is going to be built, that said it's going to be built, we'll have a lot of scale benefits as well. So talk to us about like kind of mid-, long term, how you see the evolution of the margin structure.

Happy to. I think one of the ways I like to answer this question is to actually look back as well. So if you look coming out of COVID, the business had margins at or around 3%. And the team has done a really great job since then of bringing margins up. And I'll talk about the mix impact from the data center business in a second. But if you look back at each one of our business units, they have all improved margins, okay? And some of the drivers of that have really been mixing up, doing the right work for the right customers in the right markets or segments. There's an element of productivity that we drive year in and year out. And recently, but really over the last few years, we've embraced automation that has really helped us to drive margins. So each one of our business units, leaving data center aside for a minute, have improved their margins over that period of time.

And when you look back over the last 4 quarters now, where we've operated at or around 6%, which is really getting to that 6% number that we put out in May of 2024. We got there a year early. Over the last couple of years, the data center growth has certainly helped. And as we go forward, we expect that to be a big part of our margin story. So while we're not going to guide to margins for next year or anything right now, what we have said is that 6% is not the ceiling for this business. And one of the big drivers of that is going to be growth in the data center. Michael talked about it earlier, that business has products in it that are in the mid-teens. The cloud business as it sits today, accrues to us at higher margins than average. And then on top of it, services, as he talked about, rack integration, some other things or other opportunities we have. So as that business continues to grow, we're going to see margin expansion.

And really, that's what you've seen this year as we move sequentially through the years. But I say all that to say the other businesses are not going to take the next 2 or 3 years off either. The levers that they've been pulling over the last 3-plus years are levers they're going to continue to pull too. There's still opportunity in their portfolios to mix up from a customer or offering standpoint. There's still opportunity from a productivity standpoint, and there's still opportunity in automation.

Okay. Great. And Michael, maybe back to you, you mentioned the NVIDIA partnership on the 800-volt. Talk to us a little bit about kind of timing and what you think the impact of that partnership could be for Flex?

Yes. It's interesting because we're already talking about 800-volt architectures, and we're just starting to manufacture 400-volt architectures. And primarily, the industry is still wrapped around [ 48 ] volt. So we're way out ahead on this -- there isn't even a safety standard yet defined for an 800-volt architecture. And if you know anything about that, that becomes a pretty dangerous environment if we don't manage that.

I'd say that there's some important implications about that announcement, right? One is that we're working towards this 1-megawatt rack on an 800-volt architecture as part of that future innovation curve. It also is important because you want to be on the reference platform, right? You don't want to miss a 3- to 5-year cycle. So with that NVIDIA announcement, being part of that platform was a critical move and a critical opportunity for us to capitalize on. As important as it is for that relationship, it's important to demonstrate our capability to our other customers as well because all of these infrastructures, all of these architectures are going to be prevalent, whether it's from -- driven from the silicon provider or driven from the hyperscalers. So these are really important architectures.

In terms of when, I still think we're a few years out from 800-volt architectures. But we are today working on 1 megawatt racks on that architecture and also 400 volt. So I think it will be a step function as we go through, but there are some fundamental infrastructure elements that have to be figured out to deploy that technology safely.

Right. Okay. Great. Maybe, Kevin, back to you. We get a lot of questions across the space. There's just so much growth about capacity. And you guys obviously had the Ukraine disruption in the facility. So how are you viewing your ability to meet demand and build capacity over the next multiple years? I'm sure it's hard to do a multiyear plan when you see crazy gigawatt numbers from people that you don't know if they're going to get the power or the financing for it. But maybe just from a Flextronics standpoint, where do you -- how do you plan for it? And what are you seeing on the manufacturing capability side?

Yes. So from a capacity standpoint, we have over the last year plus invested in our footprint. You've seen it, whether it be in Eastern Europe or North America, where we see growth and where we see opportunity for great returns. We've continued to invest. It is obviously a robust environment from a demand standpoint. So we're investing, not getting too far out in front of it, but trying and doing it, keeping up with the demand that we have. But we've also -- when you learn from the sins of our past, we are not going to get overinvested. So we're trying to stay really close. I would say the business today, especially where we're growing, has views forward that they traditionally have not had.

So whether it be in the cloud side or the power side, we -- and through the work we're doing with our customers early on, on the design side, we get better views than we otherwise ever had. So that certainly helps us and helps us plan and be thoughtful. So our organic investment is going to stay focused on sort of capital and footprint. It's had great returns for us, and we're going to continue to deploy capital in that way. And we're going to do it in the areas that we've seen the growth, which, again, you've seen us invest in Europe, Eastern Europe as well as North America.

Okay. Great. Maybe stepping away from data center a little. It feels like that's probably all you guys talk about. That's all we hear about as well. But maybe walk us through some of the other business lines where you're seeing positive moment. I think there's certainly headwinds in auto, which we can get into, but maybe walk us through the other growth opportunities that you're seeing.

Yes. Thank you for the question. We don't often get to talk about the non-data center business. So when you think about where we're focused, we're really aligned to what I would say are really 4 different macro trends out there. We talk about digital -- I mean, we talk about data center and AI, so we won't talk much about that any longer. I'd say something that's closely related is around digital infrastructure. And for us, that means things like high-speed networking and satellite communications. Those are 2 areas that we don't include in our data center business that we see as being opportunities for growth.

I'd say the next area is around automation. Think about our industrial business, think about warehouse automation as an opportunity, anything that is driving productivity in an industrial environment, a warehouse, a manufacturing environment. So automation applications in our industrial business is an opportunity for us as well. I'd say also, although probably bad news for the population, the good news for the business is this increasing prevalence of health issues like diabetes. So we're a large manufacturer of continuous glucose monitors. We announced a recent win of a GLP-1 opportunity. So our med device business and our drug delivery business, very strong and tied to those sorts of trends in the general population.

I'd say the fourth one is sort of the corollary to what you said about the challenges we see in automotive. And certainly, hard to overlook the near-term challenges and the volatility that we're experiencing. But long term, we think we're positioned really well for growth in a couple of different areas. One is around our centralized compute platform. And this is a hardware-enabled platform that supports the software-defined vehicle and autonomous driving. And in automotive, software-defined vehicle is becoming sort of the secret sauce in the automotive industry. It's not about horsepower of your engine anymore. It's about your user experience defined by software in the car itself. So the OEMs want to control the software, and we provide them with the hardware platform to actually combine with that. It's also around power platforms. So I think DC to DC converters, think onboard chargers, agnostic to hybrid or EV. So those are probably the big 4 areas that we're focused over the next few years.

Okay. You mentioned kind of networking and satellite. What type of services and what kind of product and use cases would you be addressing there? Some of them have pretty entrenched competitors. So just curious how you can evolve into some other parts of the stack.

Yes. So in that space today, it's primarily an EMS and value-added services play. We don't sell products per se into high-speed networking or in satellite communications. What we do provide is everything from board level assembly to full system assembly. When it comes to the value-added services, we can vertically integrate those offerings with metal. We can also fulfill those products either B2B or B2C depending on the application. And then we can bring those same products back to our circular economy business for repair, refurbishment or recycling. And all those things enable us to continue to improve margin profile over time as we expand into more products and services as we go.

Okay. Yes, to the point about racks and just having your foot in a lot of different technologies is probably going to help that trend as well, I would assume.

For sure. I mean I think a big part of the story is realizing the vision of this EMS plus products plus services intention, right? We're seeing more and more of our ability to add more than one product or service into any one opportunity. And because of that, we can continue to improve our margin profile over time as we not only shift the portfolio, but as we go up the stack, so to speak, in the services that we provide.

And I would just add to that to say the services that we've provided, we've built over time based on what the customers need, and we'll continue to look at further opportunities to identify services to bring into the portfolio to continue to drive margins.

Okay. Yes, I should have probably started with this, but both of you are relatively new to your current seats like year-ish. So maybe both of you take a minute or 2 and just talk a little bit about what you've been surprised by with the new role. I mean you've been at Flex for a long time. Kevin, you're more new. But just curious what you've kind of -- your take has been as you've seen the company from a different angle. And then Kevin, would love your sense of kind of your lessons learned in the first almost year and how you position it going forward.

Yes. So fortunately, I've been with Flex for over 20 years now. So I like to think that I've seen it all. the last 2 years have proven that I haven't. So that's been really fun. I'd say I've been in this role for almost 2 years now. Actually, time is flying. Before that, I ran the Agility Solutions business, which was really half of the company. So in terms of what I've seen that's different, over that 20-year horizon, I'd say I've never seen as much transformation in the company as I've seen in the last 5 to 7 years. And that does correlate with our new CEO as well.

And where we are now was by design. It hasn't been by accident. And so if you think back 5 to 7 years ago, we charted a path to get us exactly where we are today. It started with really reintroducing a level of rigor in the EMS business that we had lost in maybe previous iterations. And so we've continued to improve our execution in that base business. We've continued to improve the portfolio and mix up, as Kevin alluded to earlier. And that really provided us with a really solid foundation from which to do the other 2 legs of the stool of our strategy, which are to develop products and to develop services. And so now by design, we offer our customers an EMS business with products and services that we think is a really unique offering and will also serve as the impetus for growth here in the future.

Yes, I'd probably point to 2 things in the first year here. I would say, one, having traveled around the world and gone to our factories, I'm amazed at the capability that we bring in our sites to work with our customers from a technology standpoint, from an automation standpoint. Obviously, I did my diligence on the company and you look back and you see the margins and you think that especially sort of coming out of COVID when they're in the 3% to 4%, and then you go to a plant, you're just amazed at the things we do in a plant, the speed we do it at and the opportunities that we have to continue to automate. It's just been amazing.

The other thing I would say is I've spent most of my career in products and services businesses. Generally, they are continue to move good organic growth, but the opportunities aren't -- weren't as -- there wasn't as much volume there as there is here. So being in here, as we build this products and services business and see the opportunities in front of us and see what's happening in the space, how dynamic it is right now, it's really been amazing to me. But what's also amazing is how well positioned we are to capitalize and leverage some of those opportunities as we go forward here. So it's about making the right decisions and what fits with our portfolio, but it's been a pretty exciting first year.

Great. Not to hear like annoying sell-sider questions and buy-sider questions, but you could keep that to yourself.

All right. I think we're up on time here. So Michael, Kevin, really. Appreciate the time. Thank you so much.

Thank you very much. Appreciate it.

Thank you, everybody.

Well, thank you all for joining us today. Excited to be spending time with you here, and we're fortunate to have our guest today for our conversation, the Chief Executive Officer of Flex Limited, Revathi...

Advaithi...

Advaithi, sorry. I know, I panicked right at the second. So maybe for those not familiar with the Flex story yet, why don't we start there and kind of level set the audience on the background of the company.

Okay. Great. So Flex is a contract manufacturing company, one of the world's largest, around $26 billion in revenue. And a good way to think about Flex is we're kind of the name behind the brands. We make something for everyone. I would say we report in 6 business units, but think about it as participating in 5 major end markets. Two of the business units are in the consumer end market called lifestyle and consumer devices. One of our biggest end markets is what we call CEC, which is cloud enterprise communication. We're big in the health care space, particularly around devices. Big in automotive and the last one being industrial. So those are the major end markets we're in.

Today, we talk a lot about Flex as also being a data center AI infrastructure player, which means that if you think about the $26 billion, 75% of the company is in the traditional contract manufacturing space, 25% of the company is in the AI data center utility space and growing at 35%. So it's one of our highest growth areas and also an area where the company has become more of a product company versus a contract manufacturing company. And in this space, we do compute, cooling and power as individual components and as modular integrated components for the data center play. We are in 30 countries across the world, 100 different manufacturing sites, around 140,000 people. That's a little bit about Flex.

Okay. And I do want to just give a little background on yourself because you had joined Flex just prior to the pandemic. So maybe you can share a little of your background and also maybe what you've seen change at Flex in your time in the scene.

So I joined Flex in February of 2019. So I'm in my seventh year. And I came -- most of my background is with two companies, Eaton and Honeywell, so mainly in industrial end markets, everything from oil and gas to construction to electrical, most of my career with the electrical or energy space. And when I left Eaton, I was running their electrical business globally and before I came and joined Flex in 2019.

And a little bit about the kind of space itself when I joined, I obviously came from the industrial space, diversified industrial, didn't know much about contract manufacturing, but thought that it felt like a space that was ripe for change, and I wanted to do something different than traditional industrial. And three major players, felt like financially, the space hadn't done well. And I felt like, hey, if 1 of the 3 kind of has certain more fiscal discipline, it will be a good thing for the industry.

And so the focus in Flex was to say that we will run our portfolio in a more disciplined way, which means that we won't grow for the sake of growing. It was not all about growth and capacity expansion. It was going to be about growing with great cash flow, good margin improvement. So we exited many end markets, particularly around consumer end markets that we felt wasn't financially viable for a company like Flex. And we focused on difficult, harder to do things. And so if you think about the last 7 years, we went from kind of 3% operating margin to 6% operating margin today. Managed the portfolio extremely well by really focusing on mix. We also spun off another company called Nextracker, which today is around a $13 billion, $14 billion market cap company on its own. So really a lot around portfolio and running it well, also drove tremendous productivity for the company.

So through the pandemic, through the supply chain crisis, through all the geopolitics of war and macroeconomic changes that has happened as a result of tariffs, we've really continued to perform extremely well as a company. And our shareholder return has been great. We've been rewarded well by our shareholders. And so it's been a good story so far.

It sure has been. So starting with the data center business, you had reported, I believe, $4.8 billion in revenue for fiscal '25, about 20% of the revenue mix. What is that comprised of? And where -- why do you feel you're well positioned there?

So -- and that is going to be -- we have also reported that, that's going to be $6.5 billion this fiscal year and is growing at 35%, that same business. So let me talk about what sits in that portfolio. What sits in that portfolio is three things at a high level: compute integration, cooling and power. And let me talk about each one and what differentiates us.

So in compute integration, we are like probably any traditional contract manufacturing. We will integrate server, storage, all of that together for a hyperscaler and test it fully and deliver it to their data center. The other thing that we do like industrials is we will be cutting your metal, building enclosures, doing all of that. In the cooling space, we mainly do liquid cooling. So we'll make the cold plate that goes on your chip, and then we'll make all the cooling that goes around the rack, including cooling distribution units.

And then we do power. We do power within the rack, so what powers the chip itself, and we do power outside of the rack all the way up to the utility. So if you think about this for a second, companies will do bits and pieces of all of these things, but very few do all of them in an integrated way. And with power being such a significant part of what's required to power the chip itself, the efficiency that's required for it, the heat that it generates and the ability to cool it down, we are one of the few companies that will integrate it end-to-end. And we may put it in a big kind of container, think of it as a pod and deliver a complete solution to your data center, too. So individual components or modular or complete infrastructure build-out in compute, in power and cooling is what we do.

Okay. And who -- how is the competitive environment in that data center space for you?

Yes. I would say for individual bits and pieces, there's somebody who does pieces of each of it, like embedded power, for example, which is the power that powers the chip itself, which is the big conversation these days, there's basically two companies, right, today that does it Flex and Delta. And then if you think about power outside of the rack, which is the typical electrical distribution stuff, it's the big electrical players. It's Eaton, Schneider, those kinds of people.

If you think about cooling, very fragmented, a lot of small players could be a Boyd, could be a Vertiv, could be a Modine, that kind of cooling play. For compute integration, it could be somebody like Jabil. For racks and enclosures, it could be somebody like an nVent or a Rittal. So the bits and pieces of it, lots of different competitors do. The real question is, as compute gets power hungry and power generates a lot of heat that requires to be cooled and what data centers really want is the ability to get speed of installation, who are the players who are able to do fully integrated solutions end-to-end and deploy it with speed, I would say that really reduces the competitive landscape in a pretty significant way.

Absolutely. Well, you certainly have an edge there. And it seems like one of the edges is your power kind of that differentiates you. And you mentioned the power pods. Can you share a bit more on that and what exactly is included in the pods?

Yes. So I'd say just if you think about our power portfolio, I talked about we make the power module that powers the chip. Then we put together the power infrastructure that goes outside of the rack and in the data center, like low-voltage switchgear, medium-voltage switchgear, all of that, power distribution units, data bars, busbars and then we go all the way up to the utility. We call that kind of chip to grid. It looks like everybody calls it that these days. But the real thing, what people want is these pods.

And what the pods could comprise of is think about everything I just described, thrown into a giant container, fully tested and integrated and dropped into your data center or outside your data center powered up and ready to go. And that's what these pods are. Traditionally, people were doing it in the oil and gas space. You saw that when we were bringing up a big oil field or an offshore site, becoming more and more of a thing for data centers.

But what's very cool about that now is it's not just happening in power, it's also happening in compute and cooling. So people are also now deploying IT pods that they're calling, which are the same structure, but with fully integrated with a compute rack and cooling and power, all that thrown in. So the capability that we have in power pods, which is fully integrated electrical infrastructure now is also being deployed to kind of IT compute pods also. So the whole idea is, can you improve my schedule and with labor being such a significant issue to deploy these -- the data center infrastructure, it also reduces kind of your labor costs and makes it super-efficient. So that's what these pods are. Very huge complex things.

Sounds like it -- it sounds like you've got it figured out. So Flex acquired Crown Technical, a company with modular solutions and medium-duty switchgear products, some helpful, including a presence in the utility market. How large is Flex's utility business? And how fast do you expect that area to grow?

Yes. So the reason for buying a company called Crown Technical was one thing to note about the U.S. utility space is it's super fragmented, which means that you have to be very regional and present with utility players to be able to really have a play. And I've spent a long time in this space. And when we built this data center play for compute and power, one thing that I wanted to do was really migrate more to utility because, as you know, a lot of conversation about utility bringing power to data centers. And we also wanted to get in the U.S. this ability to build large power pods, which I told you utilities were already doing. We already had that capability in EMEA, but it isn't transferable. You need to have local capability and local regulatory approvals to do it.

So Crown gave us the presence in the utility sector, but it also gave us the ability to expand those power pod capability into data centers that we didn't have in the U.S. And then it's just diversifying. I like the idea of constantly diversifying out of a certain space. So it was going from data centers to utilities and helped us kind of really step into that product portfolio a little bit more in terms of what we were looking to do.

Okay. And as you think about your broader power business, does Flex need to add capacity? Or are there any key supply chain constraints?

I would say capacity will be a constant thing for us. And because we are growing, we're growing at 35%. So that brings the need to add capacity. And so we're evaluating capacity all the time, but the capacity decisions that we make today will be for 2 years out. And so I'd say, yes, capacity will be a constant thing. We're looking to add more power and the capacity we have because testing of these products require quite a bit of power. So we're looking to add more of that. So I would say most of our additions are happening in North America and to some extent in Europe, where we just recently added capacity in Poland. So yes, we're constantly evaluating our capacity. But one way I think about it is globally, what are we doing with capacity. So we're shrinking in certain parts of the world, and we are adding in others.

Okay. And how are lead times trending for that?

I mean that's difficult to answer question because I would say for power products, lead times has been like 12 to 24 months for a long time. Low-voltage switchgear, medium-voltage switchgear has long lead times. Power pods is pretty significant lead times. But if it's things like data bars and busbars, smaller lead times, I'd say compute racks and compute integration is all kind of planned out. Like the things we're doing for next year, we already know now. So it's really not a lead time driven. It's a capacity-driven exercise. So yes, it depends based on the product. Our product breadth is so large that some things are a couple of years out, some things are the next few days.

Yes. Okay. Flex also acquired JetCool last year, a provider of cold plates and CDUs. Can you speak to how your liquid cooling portfolio is doing?

Yes. So the thinking around liquid cooling, again, was what I talked about, we have power that's generating heat, we needed to cool it down. So in JetCool, we do everything from cold plate. So the cold plate is what goes on the chip to cool the chip down. And it's super interesting. Think about this as the chip, there's a power module that's powering the chip that's generating all the heat. And then there's a cold plate that's going on it. Think about it like a giant sandwich, right? And that is cooling everything. And obviously, that cold plate is very high technology because you don't want liquid to be going on your very expensive chip. So we're making all of that.

And from that, we do cooling technology, which is basically pipes and stuff like that, that's cooling the rack itself, going all the way to the CDU or the cooling distribution unit, which is sitting either next to the rack or at the end of the row of racks. And as these racks are becoming higher and higher power density, the cooling units are becoming higher and higher power density. So what we're deploying with these RCDUs are the smallest I'd say, square footage modular CDUs. So data centers don't have to use up a lot of space, making these giant distribution -- cooling distribution units.

So with JetCool, we're able to deploy a very modular CDU that is very scalable and can go all the way from close to your rack to end the road to be able to cool the entire network of compute racks that are going in. And that's what we did with JetCool. So again, compute we do, cooling, we do and then power we do, we put it all together.

Okay. We've discussed data centers and utility. Are there other businesses? Or how are the other business lines doing as well?

Yes. So like I said in the beginning, we're -- in our contract manufacturing space, we do health care, automotive, industrial and consumer. So I'll talk about all of those here for a second. Health care space doing really well. The big focus for us there is medical devices. So we're one of the largest manufacturers of continuous glucose monitors. And as you know, the world has a diabetes epidemic. So obviously, that's a huge space for us. We invested in that many years ago. So we're very focused on the device space in the health care sector, and that's doing well.

I would say in the industrial space, it's a tale of two cities. So we had a big renewables presence in residential renewable, and that saw a huge decline over the last few years. And that has kind of bottomed out. And where we're seeing investments is in infrastructure, industrial deployment, more around energy, making large-scale utility grade storage or inverters, those kinds of things. That's where we're seeing growth in the industrial space.

Automotive is what I call it as finally some clarity for which platforms are going to get deployed moving forward. So somewhat bottomed out in terms of the automotive space itself for us, but with good clarity of which platforms will get invested in. So I feel like there's growth from where we are at today. We are platform agnostic in automotive, which means that we do power electronics and compute for ICE, for hybrid or for EV. So it doesn't matter where you invest. All three of them require power electronics and compute. So that helps us in terms of which platform we're on.

I would say on the consumer side, I'm pretty much calling it flat. And not sure where exactly it's going, but we're not planning for a lot of growth in this space. We mainly do high-end consumer products. And -- but still, I mean, it's not a space that has high growth, and it's not a big focus for us.

Okay. You mentioned that you're in about 30 countries. How is Flex leveraging its global footprint to support regionalization strategies for customers and to mitigate tariffs?

Yes. So the regionalization thing started 5, 6 years ago, right? It started with the conversation around all this entity list and that started in round one when Huawei was an issue and things like that. It became a bigger thing with the pandemic and where resilience was a big conversation. And then with kind of tariffs 2.0, it's become a bigger conversation. But in the end markets that we're interested in, that journey had already started. Like medical devices is a great example. I think people have been regionalizing for the last 5, 6 years because you wanted to build local supply chains.

Industrials were always somewhat regional because they're big and bulky and hard to move around other than in electronics, right, which could have been mainly in Asia. I'd say the place where the conversation accelerated in this round of tariffs was in the consumer end markets. But it's not a place that we put a lot of capital in. It's not one where the math actually makes a lot of sense. And so I'd say people are investigating a lot. I'm not sure there's been real movement in terms of consumer end markets and regionalization.

So how we think about regional footprint in general is we want to move our footprint to the highest growth areas with the best return, which means that certain regional footprints have been growing for the last 5 years and certain others are shrinking. And that's the nature of what's happening globally. So for us, North America is our highest growth kind of regional footprint and followed by Europe. And then we keep balancing out all the other regions if it doesn't have growth.

Okay. You've expanded margins consistently over the last several years. Will you continue to see that expansion? And if so, what are those key drivers?

Yes. I'd say even if you look at our most recent guidance, our fiscal year ends in March of next year. So you can kind of read into the second half guidance we have given. We're north of 6% as we'll wrap up this year. We do Investor Day every 2 years. So we did it a couple of years ago. Next one is coming up in May. And that time, I talked about a 6% operating margin for next year. We obviously lapped it a year ahead of schedule. So that's good news. And so we'll have to rechange our guidance in May when we come to Investor Day again, and we will.

But how I think about margin is this way. Is if you think about the Flex story on margin, it's all been about mix shift and productivity enhancements. If I look forward, I would say, think about the big growth areas for us. Mix is going to continue to shift, right, big into certain areas like data centers and utility. So that mix shift is going to continue to happen. And that is margin accretive for us.

Productivity, which last 5, 6 years has been about better capacity utilization and all of that, and we have had a huge productivity benefit, I would say, accelerates in the next 5, 6 years because we have barely started on the journey of productivity due to AI. And I feel that's a game changer for industrial companies like ours. So if you think about margin moving forward, yes, we've gone from 3% to 6%. But somehow, I feel like our journey has just started in terms of margin acceleration, and we'll give updated guidance in May.

Okay. I love that. I do, with a few minutes left, open it up if anybody has a question in the audience. If not, I have one burning question.

Cool. All right. So you touched upon a bit on kind of -- in your last answer, but it does seem like there's a new announcement every day about AI CapEx investments. How and when do you see that benefiting Flex?

Well, it's already benefiting Flex, right? Two years ago, in my Investor Day, I said data center was going to grow 20%. And then right after I said it, first year, we grew 50% on top of big comps, we're growing 35-plus percent this year, right? So it's already benefiting us in a big way. But I'd say in terms of new announcements, the way to think about it is most of them take a couple of years for capacity to get added in and for it to actually ramp up. There may be some early on investments that customers may do for power and things like that, but it takes a while to build these things and to ramp it up. So we're looking at investments now for what will show up as revenue for us and for customers in 2027, 2028. So I look at those infrastructure announcements as things that we're talking and negotiating with customers on how to add capacity to build up for it.

But in a lot of ways, it is real because think about just data center U.S., right? A few years ago, we were like, what, 20 gigawatts data center capacity. We're talking about the next few years going up to 100 gigawatts, right? And just that 20 doubled in the last year. And I've been doing this for a long time. I've never seen a year where we doubled. And so going to even something as simple as 100 gigawatts is going to take quite a bit of investment, not just in terms of physical capacity of data centers and the power required for it, but everything downstream.

For us to build and test is going to require capacity and investments. For us to do a rack that used to be 10 kilowatts now is going to be 1 megawatt requires resources in terms of engineering, capital equipment to test and deploy. So it's really end-to-end investment that has to go in for these data centers to have a play. So I would say without getting so caught up in this $8 trillion investment number that everybody is talking about, in the next 3 years to get to even 100 gigawatt of data center is going to take quite a bit of investments. And a lot of those discussions are already in the bag in terms of what we are seeing and getting deployed as we speak. So I feel pretty good about it.

Sure, very much so. I guess is there anything we haven't discussed in this conversation?

No, I think we've covered a lot. I think the important takeaway, I would say, would be, first is if you think about Flex as a company today, still a big contract manufacturing company, deployed pretty significantly into data centers and utilities, fastest-growing sector, but we're still a company that does amazingly well in the contract manufacturing space by moving into higher-end goods and improving our margins. But we're the only company who can really integrate end-to-end in the data center space and do it at scale and deploy it with speed with our own technology that I think is a differentiator.

Well said. Perfect. Well, thank you so much for your time today, and great conversation.

Thank you, guys. Thanks for having me.

Thank you all.

Great. Good morning, everyone. Thank you again for joining the UBS Technology Conference. I'm David Vogt. I'm the UBS hardware networking analyst here, and we're excited to have with us today Flex. I believe Flex was here -- yes, Michael we were here last year. So with the company, we have on the far left or far right from your perspective, Kevin Krumm, Chief Financial Officer; Michael Hartung, Chief Commercial Officer. We're excited to have you.

So what I thought we would do in the 30 minutes is kind of maybe touch on kind of the big picture topics of the business. We've gotten a lot of questions in the last month or so about your business, what's going on in the world of EMS and supply chain. So maybe if we can just start with, if we look at kind of the big picture drivers of your business, we can start with maybe agility first. kind of how should investors think about longer term, the big drivers in agility and then we can jump into reliability after.

Okay. Great. So if we're going to talk about the long-term drivers, maybe we start with what the secular trends are, what the megatrends are, how they flow through to the different businesses that we have. And so the first one is going to be really obvious. The first driver of demand for us is anything related to AI or data center. We expect that to continue to be a strong driver of growth for us. and it actually impacts multiple businesses of ours as well.

The first area it impacts is in our cloud business. In our cloud business, that's where we do all of the vertically integrated data center racks. So we fabricate our own sheet metal. We do final integration and test. We also do all of our accelerator hardware manufacturing in that space as well. And so the cloud business will be the recipient of that growth trend. Also, our power business in our Industrial business unit will be the recipient of that too. So as you might remember, we have 2 different product businesses in power. One is our critical power business and one is our embedded power business.

From a critical power perspective, think about that as being everything that is around and above the rack in a data center, in the facility itself, things like low-voltage switchgear, medium-voltage switchgear, busways, bus ducts, power ponds, those types of things above and around the rack. The second product business for us is our embedded power business. And that essentially takes that power from above the rack into the rack and then down to the board level.

And so both of those businesses will be a good positive driver of growth due to the data center and AI. I'd say the next big trend to think about would be around digital infrastructure. And we have that separate from data center. We narrowly define our data center business as being very core to hyperscalers, colos and silicon providers. So digital infrastructure is another area of growth for us. That will positively impact our networking business. Think about high-speed networking, think about satellite communications. We expect those to be nice growth drivers for us into the future as well.

Another trend to think about would be around automation. So for us, think about things that improve productivity in an industrial or production environment. So it could be robotics, it could be warehouse automation. Again, anything driving efficiency and production is an area that we expect to continue to grow as well. And maybe the fourth trend worth mentioning is around the growing prevalence of diabetes. So that does have a positive impact on our Health Solutions business.

We're a large manufacturer of continuous glucose monitors. We announced a recent win around GLP-1. So both of those things are aligned nicely to the trends in the marketplace as well. So those are probably the big 4 areas.

So within agility, right, so that is heavily exposed to the cloud hyperscaler market. Maybe if you can touch on like what you've seen in your business trends -- every company that we've talked to you this week, as you can imagine, has seen an acceleration in demand trends, order rates, other metrics that you want to look at other KPIs. Maybe can you share with investors like what you're seeing -- like let's go back 12 months ago when we had this conversation 12 months ago versus today. How is the arc of that trend changed? And what are you seeing from key customers within -- let's start within the agility related to the hyperscaler business?

Yes, sure. So if you step back first and think about the exposure that we have to the data center, we really get exposed through 3 different customer categories, the hyperscalers, the colos and the silicon providers. And so we're coming off a year where we ended, what, $4.8 billion on a 50% growth rate. We said we'd grow to about 35% or more this year, right? That would put us at about a $6.8 billion data center business. I'd say the trends continue to be positive.

The demand continues to be really strong across all areas. And I think we've indicated in the past that, that 35% growth rate, all of our businesses are in and around that number, right? I think the power business is a little bit higher. The Rack business is a little bit lower. But again, the Rack business is bigger, so it's a harder comp year-over-year, but very healthy even growth has been happening, and we expect to continue.

From a hyperscaler perspective, we continue to see a lot of interest, not just for discrete solutions, but for integrated solutions. And so one of the reasons behind releasing the AI infrastructure platform at the recent OCP conference was because this whole migration towards integration is becoming more and more prevalent. Compute requirements continue to increase. Power consumption continues to increase, heat generation continues to become a problem. We really believe like the future is now for the 1-megawatt rack where you're going to have stand-alone compute racks, stand-alone power racks, stand-alone cooling racks that need to be integrated. And the more complexity that's required, the more customization we think, the better positioned we are for that growth. So very strong signals.

Has that -- to your point about the integration of compute, cooling, power, have those conversations changed in the last 12 months given this incredible dynamic of just megawatt -- like just the amount of power consumption that people are expecting over the next 3 to 5 years. So have the pace of your conversations or the tone or tenor of your conversations changed with partners in terms of like, hey, we're going into this integrated solution route because we have to effectively.

Yes. Absolutely, the conversation has changed to the better for us at least. I think 2 years ago at Investor Day, we were talking about working on architectures of 20-volt racks, right? And we articulated a vision where in 3 to 5 years, we were going to be at a 1-megawatt rack, and we couldn't have been more wrong. That future is actually right now today where we're talking about 1 megawatt racks on 800-volt architectures, right?

So more and more our customers, particularly the hyperscalers, are asking us to reimagine how we deploy data centers to think beyond the traditional way and think about things like modular, to think about PO, to think about how to bring up these data centers faster quicker, more reliably than we have in the past because every day that they delay is the day they can't generate revenue on a new product or service. And so for that reason, we've really been able to leverage our capability in the power space primarily where we do power pods today, where you have a complete critical power solution in a box that can land in a parking lot and fire up a data center almost immediately.

We've seen 30% reduction in lead times as a result of that. So if we can take that baseline and extend that into compute and cooling and maybe get that similar improvement in lead time, now you're talking about being able to monetize speed. So for sure, we're seeing those conversations really pick up in intensity and [ opportunity. ]

So does that mean -- obviously, those conversations are picking up and obviously, the lead times need to shrink, which you're helping enable from a construction perspective. So does that mean the overall lead times that you're getting from your partners are compressing as well because they're seeing out over the next 2 to 3 years or maybe it's not lead times, maybe the better word is visibility because they're seeing what their road map looks like from a build perspective, infrastructure allocation perspective, they need to be more aggressive. They need to be faster, to your point, to stand these up quicker to start generating revenue given the massive capital commitments that have been sort of promised over the next 3 to 5 years. So are you seeing your customers asking for more faster? Or is it just really as they're moving as quickly as they can already and it doesn't really change kind of the dynamic that you're seeing?

I think customers will always ask for more faster. I would say that the dynamics are -- the input lead times aren't changing, right? The visibility is improving though for a lot of the reasons that you articulated. First, we get visibility from 3 different categories of customers that we get to reconcile and to determine what's real and not. Our partnerships with Silicon providers were out 2, 3 years because they develop technology that require our modules to regulate power. So we see that visibility. From a data center infrastructure standpoint, whether it be a colo who books out real estate years or months in advance or a hyperscaler who's trying to figure out how to reimagine this, we also get multiple years of visibility into what they're looking for.

The real lead time savings isn't happening yet in the inputs. It's happening in how you kit together modules. Today, it's power. In the future, it's likely going to be power, compute and cooling, all in one module that you can deploy much more quickly than you can through a traditional construction cycle. So you'll address lead time through construction without any change in input.

So it sounds like that's about -- that would be not a bottleneck per se, but something that's difficult to improve upon from an input perspective. Is that fair?

I think that's fair. And I think given that demand is outstripping supply, and we expect that to continue, I wouldn't expect dramatic improvement on the input. But if we can reduce lead time of construction for data center by 30% by starting to pull these things together into a modular form to bypass the traditional construction time line, then you're talking about time being less.

Got it. And you mentioned visibility for each of the different components, so silicon providers, colo, hyperscalers. From a silicon provider perspective, is it just the fact that the compression of the cycle in compute and silicon improvement has compressed that's giving you that degree of visibility from the silicon provider?

Or you're just being brought in sooner earlier than maybe in historical cycles as we go from generation to generation to generation of silicon? I'm just trying to think about -- because it feels like the accelerated compute cycle is increasingly compressed. So just is that factoring into kind of the visibility and those lead times that you're getting and the visibility?

Yes, I think all of those things are happening, right? I think the innovation cycle is shortening. I think the visibility is improving. And I think the requirements are continuing to increase. And so you have to bring all those things together because as the cliche goes, you can only ship a product if you have 100% of the parts. Well, you can only bring up a data center, you have everything. The data center is in place, the power is in place, the cooling is in place, the compute is in place, the chips that support compute are in place. So more and more, we're talking about integrated solutions even at the silicon level because that's what it takes to deploy those hardware.

Got it. And so one final point on sort of the data center market holistically. There's been a lot of discussion, market speculation about different partnerships, different relationships, equity investments in different partnerships and relationships, this kind of holistic circular kind of dynamic. How does that affect Flex in any way? I would imagine it doesn't. Maybe it accelerates innovation, it accelerates deployment. But from your perspective, I would imagine that you're somewhat agnostic, kind of an arms dealer, if you will, to what's happening. But so I just want to make sure I understand kind of -- is there any sort of -- outside of increasing the opportunity set for you, is there any sort of relationship to these types of relationships that affect sort of what you're trying to do at Flex?

Yes. And I'll pass it to Kevin maybe in a minute and talk about maybe the broader implication of what we're seeing in the data center. But I think it's safe to say that the level of investment that we're seeing now is unparalleled. At least in my career, I've been at the company for 20 years now, and I've never seen a cycle like this. And I suspect I may never see another cycle like this again. So the magnitude of investment and the speed at which we want to deploy that capital is unique.

Now for us, I mean, we're technology agnostic. We have multiple hyperscaler relationships, multiple colos, multiple silicon providers. But what that is doing for us is it's giving us more visibility, but it's also creating the opportunity for different commercial structures, right? Because although we want to invest in productivity and expansion, capital dollars are finance.

Fortunately, our partners have really deep capital pockets. So what that's enabled to us is more and more look at things like co-investment, look at different commercial models to protect the investments that we make. So it's really just impacted how we think about the commercial relationship with our customers. But I think there's probably a broader implication in the market in general that is really addressing this real thirst for capital.

Yes. I mean the only thing I would add is, so first, yes, we're largely agnostic to what's going on. We continue to make sure that we have capacity and capital available to exercise against any of these opportunities that may present themselves. We stay very close to it. From how we think about investing, there are multiple opportunities in the space for us to invest and go after opportunities. Obviously, we still stay disciplined, as you would expect, the capital returns and what we're expecting in cash flow and some things like that as well as long-term opportunities with that customer set. And that's sort of how we're going to look at it. Things are going to keep moving around for sure. We're going to stay disciplined in how we think about growing with our customers and how we think about capital return.

And maybe just as a follow-up, Kevin. So you talk about staying disciplined in maintaining metrics and operating ratios and ROI. But given the wealth of opportunities that seemingly should present itself to a company like Flex over the next 3 to 5 years, is there a little bit of financial maybe wiggle room or flexibility. I know Michael just smiled on that question regarding -- so the opportunities seem to be fairly large to the cycle point that Michael made. Should investors think that, look, there's -- if it's a significantly compelling opportunity that has an incredibly long tail that fits into your return characteristics, maybe it's not perfectly into that box, if you will, but it's still value enhancing in other ways to the business. Is that something that you're thinking about and contemplating as we move forward?

Absolutely. Like I said, it's a dynamic spot. So we -- or space. So we're staying disciplined in how we think about it, but we're looking at all the options that are out there. And for sure, we're not -- we're willing to invest, especially if it's going to be a longer-term relationship at really solid returns at this point.

Because we get asked by investors all the time, there's just a wealth of new programs that have been discussed, talked about, chatter from cooling, accelerators, traditional compute within accelerators.

And the only thing I would add is we have a portfolio and included in that are businesses that aren't in the data center space that are still presenting great returns, too. So capital is not -- are not finite. It's fine in our portfolio. And so we're looking at across the space of that. And what that does is that requires that these investments in the data center space are still deliver a great return, right, because they're competing for capital against other opportunities in our portfolio.

Well, since you mentioned other businesses, so like within reliability, obviously, these are good businesses, currently do not have the same kind of growth dynamics that the data center, colo silicon markets afford you. How do we -- how do investors -- how should investors think about kind of the those end market growth, your competitive positioning there, to your point, capital is not fine -- if capital is not infinite. Obviously, I think most people in this room here are much more technology-centric versus, let's say, industrial EV centric. So maybe just give us a sense for how you're thinking about the trends and the dynamics in those end markets in reliability, how we should think about that moving forward without getting to specifics quarter-to-quarter.

Yes, sure. So if you think about the Reliability business, that tends to be our more regulated businesses. So that includes our industrial business, our Health Solutions business and our automotive business. And although you haven't seen as aggressive top line growth as you have seen in the data center as an example, we're still constantly mixing up in that portfolio. So what do I mean by that? So when you think about our Health Solutions business as an example, our Health Solutions business is comprised of 3 different types of businesses.

It's got our really traditional capital equipment business. It's got medical devices and it's got drug delivery. So within those 3 categories, how I would think about growth is we'll definitely over-index into medical devices and drug delivery. That doesn't mean we're not going to do equipment business, but when you talk about mixing up your portfolio, not only do we want to do more health solutions business, we want to do more devices or more drug delivery. We're already a large manufacturer of continuous glucose monitors.

We're already a large manufacturer of GLP-1 type devices. We expect to continue to invest and deploy capital against those growth opportunities. When you think about automotive, look, once you get past the near-term volatility, which is hard not to acknowledge, I think we're really well positioned in the long term. We've talked a lot about really 2 areas of emphasis for us, one around our compute platform.

So when you think about automotive and OEMs really emphasizing things like ADAS, the software-defined vehicle, they need a hardware compute platform, which they can combine with their own software stack. More and more OEMs think software is their secret sauce. It's their core competency because they're creating differentiation through that software. So they want a hardware platform that they can rely on and marry with that. So we'll grow in compute within automotive. When you think about power, whether it's EV or hybrid, we have a power platform as well that actually, in that case, combines both hardware and software that our OEM customers can take, could be DC to DC converters, could be onboard chargers.

Those are areas that we'll deploy capital against and that will grow within the portfolio. On the industrial side, you have the power businesses. Both product businesses are in that portfolio. They'll continue to grow at really healthy rates. But within that, we're also seeing really good signs around areas like automation that we talked about earlier, robotics, could be warehouse automation, those things that are driving productivity in the factory. So when you think about those 3 businesses, there are definitely areas within each one of those businesses that we'll deploy capital against and overemphasize from a growth perspective.

And then along those lines, obviously, they have different supply chains, different commodity input issues. But I think most people in this room are focused on the supply chain implications for the data center side. I know auto EV, industrial automation is critical to the story. But for the sake of this audience, maybe what are you seeing from a supply chain perspective today given sort of the unevenness or maybe the variability in commodity costs? How is that affecting sort of your ability -- you mentioned input earlier, but your ability to scale up deliver at scale for your customers? And what is it doing for sort of the economics from the Flex perspective? And is basically everything to be able to pass through to the customer?

Yes. I'd say that, first, if you step back and think about what's happened over not just the past year, but the past 5 years...

A couple of years.

Right. I mean you can go back to, say, the first Trump administration when the initial trade policies changed and created a whole different dynamic in the marketplace, being followed by global pandemic, being followed by a material constraint, real wars in areas where we manufacture and now the next wave of trade restrictions. So I feel like we've been practicing for this moment for 5 years now. It's been an ongoing dynamic environment. And really what that's done is created the real need for regionalization.

So fortunately, for us, the more complex the environment gets, the better positioned that we are because our portfolio of products and services is already operating at scale in each of these major geographies. So we can take our customers wherever they want to go. What ends up happening, I mean, if you think about where the movements are taking place, certainly, we're seeing less interest in China, right?

But we're seeing a lot more interest in places like North America and more recently, a lot of interest in U.S.-based manufacturing. We're also seeing interest in Eastern Europe as well as Southeast Asia. So again, this is not a new environment for us. The value that we bring to our customers is an ability to navigate those challenges.

Does it change the [ BOM ] effectively, right? Regionalization, I would imagine bringing more to U.S. is more expensive than relying on China and Southeast Asia. So how do you think about that in that context?

Yes. I think that there's always trade-offs. On the one hand, you might have higher input costs from a material standpoint. But on the other side, you might have lower output costs and how you land that product into the fulfillment zone that it's going. But even if costs do increase, those are largely from our model perspective, pass-throughs, and we'll make the same sorts of margins that we had made before in that environment. the real trick for us is we want to keep mixing up the portfolio into higher-margin end markets, and some of those happen to be more complex.

So since you mentioned margin pass-through, how are you thinking about sort of the competitive landscape on program wins, profitability by end market, if you will, like cloud, it's a very competitive market. There's a lot of well-capitalized companies that are in kind of the same let's call it, circle of what Flex does, both domestically and outside of the United States. Any change in like the pricing dynamic, what that means for margins in data center and cloud, just to start?

Yes. So maybe take that in layers there. The first point that I think a lot of people miss is our fastest-growing business is our highest margin business, right? And somehow that tends to get lost. But if you think about our data center business, right, it's a business that's going to be $6.5 billion at the end of this fiscal year, coming off 50% growth, 35% growth.

And we've long said that this is a business that operates at margins that are higher than our corporate average. And within that data center business, too, you have this fast-growing power business that's operating at product level margins. So the first headline there is our fastest-growing business by far is our highest margin business. So that's one element. The other thing I think about is we've got two different reporting segments, agility and reliability.

And we now have both of those businesses operating at or above 6% operating margin, right? And that's a year earlier than we had committed. So we're seeing a lot of good, healthy balance between the portfolios. Now we get there in different ways potentially. On the reliability side, we've got product margins, and we've got high complexity, higher margin, higher regulated industries.

But on the agility side, although that base margin might be slightly lower, we have very high penetration of our value-added services. So we get to the same place in different ways. But we see that as being, first, on plan, in fact, a year earlier, and we still see a lot of gas need to.

So I know you're there now. So that is a sustainable, both above 6% number going forward without any degree of like cyclicality or variability quarter-to-quarter. So are we sustainably above that 6% margin for both?

So if you look back over the last 4 quarters, we've stayed at or around that 6% level. We're not going today sort of guide to FY '27. But when you think about the drivers that got us to 6%, frankly, when you think about the drivers that got us from 3% coming out of COVID to 6%. They're the same ones that we're going to be pulling on as we go into next year and the following years. So Michael talked about it. Products business continues to grow at above-average growth rates, clearly, right, because he said it's a little north of 35% and those margins are mid-teen margins.

So that's going to be a margin tailwind as we go forward. services also continues to grow at above Flex averages, and they produce margins at above flex averages. So those 2 things as we go into next year are going to continue to be margin uplift.

And I would only say that the other levers that we've pulled, which is productivity at our scale is something we can continue to drive as we go forward. And then the automation that you're seeing in our supply chain is something we're going to have. So we believe that as we go forward here, we're not done expanding margins. There's still opportunity to drive margins because of those levers that I talked about.

And so you're operating at margins given the mix in your business and above, let's say, other regional competitors or domestic competitors. Is there an opportunity for the entire industry to continue to mix higher and maybe be a little bit less you've done a really good job. I'm trying to use the right words without imputing the business, like being less commodity-centric, right? Is there anything else in the portfolio that's maybe a little bit too commodity-centric where you're not getting the appropriate value for what you provide to a customer that helps drive incremental, to your point, incremental margins higher going forward?

Yes. I still think that -- first of all, I think the good news is the industry is doing a lot better on the whole, right? And we've always said we want to be the best house in a great neighborhood, right? And so that's good for the industry. It's good for us, and I think the industry will continue to move forward. I would say some of our success has been our ability to mix up in that portfolio. I think the best example of that has been we have intentionally taken down our high-volume, high-volatility, low-margin consumer devices business. I think we've taken it down to the tune of $2 billion over the past few years, and we've replaced that with higher-margin, longer product life cycle business, which has improved our margins.

I think that there's still opportunity to mix up from that perspective. But also, I think just the natural growth rates of the portfolio that we have is going to lead to some margin improvement as well as our products continue to increase, as our value-added services continue to increase. And as we really methodically mix up into those higher-value segments, you'll see just a natural progression there.

One question I have that we get asked a lot is capacity. How do you think about additional capacity in the context of obviously meeting the demands of customers, but also managing the margin dynamics that we're talking about. You're mixing up, you're decreasing your reliance on lower-margin products, but capacity is obviously a key consideration as we think about this over the intermediate term. So how do we think about where your capacity focus is going forward and what that might mean for margins?

So you can talk about capital deployment here in a second. But I'd say that our capacity mirrors what our customers want us to do. And we talked about how that dynamic environment is trending across regions. And I'd say that we continue to invest in capacity. We'll continue to invest in capacity. We're certainly just out ahead to make sure we continue to grow. We made some really big announcements in the past year or 2, right?

One is we announced a really large expansion in Dallas, as an example, to grow our power business. We've announced a strategic investment in South Carolina to grow our lifestyle business. We've made expansion announcements in Poland to grow our power business. We've expanded in the U.K. to grow our power business. We recently announced an expansion of our automotive business in Hungary.

So in line with what we're seeing from our customer geographic wish you're seeing investments in North America really coming up in the United States, but also in Europe and Southeast Asia. And that's all within the capital deployment.

Yes. I mean, Michael said it well, he said a critical point there was slightly out ahead, right? We've learned from the sins of the past of the industry, if you will, and we're not going to get way out in front of our capacity needs. He talked about it a little earlier. We have a good line of sight as well, especially in the places that are growing significantly that allow us to understand where we need to make those capital investments and ensure that they're delivering the returns that we would expect.

Got it. Maybe just in the final minute or 2. I'd like to ask companies like what is least understood, what is misunderstood about the story at this point? Demand is great. Performance has been great from an execution perspective, margin accretion. What's maybe not quite fully appreciated about the Flex story at this point in your journey?

So I'll start and maybe you can follow up with that. I think the first one is one that I already mentioned, and that is this realization that our fastest-growing business is our highest margin business. I think that gets lost in the noise on occasion. I'd also say that the intentional choices we've made to grow the business are unique, right?

EMS plus products plus services is something that you have -- you can't see in -- of some of our peer group. EMS certainly is something that other people can provide.

Our constant -- our conscious choice to invest in 2 different power product businesses, Mirror Controls business products is another intentional choice and then our value-added services. The combination of those 3 things is something that we think is unique and positions us really well for the future.

On the financial side?

I would say we talked about it, it's really this margin opportunity and where we are today and the opportunities as we go forward and what that ceiling could look like. We'll continue to talk about it as we go forward. But we're excited about our ability to continue to expand margins as we go forward due to some of the things Michael talked about.

Great. I think we are out of time. Thank you, everyone. Thank you, Michael. Thank you, Kevin.

Thanks, David.

Okay. Great. Thank you, everybody, for joining us. My name is Mark Delaney, and I cover Flex for Goldman Sachs. I'm very pleased to have with us from Flex, Revathi Advaithi, the CEO; and Chris Butler, the President of Embedded and Critical Power, thank you both for joining.

Thanks for having us.

Thanks for having us.

Well, data center has been a real big topic for the broader market as well as for Flex. And so I wanted to start off with some questions on the data center power business. And maybe starting with you, Revathi. As we think about that business, I think the company said $4.8 billion of revenue in fiscal '25 and nearly 20% of your total revenue. Maybe speak to the products and services that Flex has for the data center market and what is enabling the company to be successful?

Yes. I think what we have shared publicly, Mark, it's not a reported segment for us yet. But what we've shared is that this year, it will be around $6.5 billion piece of our business, so 25% of the overall Flex revenue. We said that it would be growing around 35-plus percent in the year, so you can kind of do the math on the scale of that. What constitutes data center, it has data center and utilities also in it for us is a little bit of many things. So let me start by saying that on the compute side, we not only do compute integration which a traditional contract manufacturing would do. But we actually cut the metal, do the metal enclosures like other industrial companies that do in this space.

And then we actually develop the power that goes on the chip itself and then the cooling like the cold plates, et cetera, that goes on the chip itself. And then we also do kind of the auxiliary cooling like CDUs and things like that. And then we do the power that's outside of the rack all the way up to the utilities. So it's a very comprehensive portfolio, but in a simple way to think about it is that we do compute, we do cooling and we do power both in the rack and outside of the rack. So that's kind of what makes up that $6.5 billion.

And you mentioned 35% or a bit more growth is the expectation for fiscal '26. And you think about what's driving that growth this year, is that just the end market is growing? Or is some of that product cycles and traction Flex specifically has seen?

I mean, definitely, end markets are growing. In product traction, I would say, the biggest product traction actually comes from the business that Chris is running, which is the embedded power business. As chips are becoming more power-hungry, a lot of technology leaps happening in that space. So that is a significant place of growth for us. And then I'd also say that on the cooling side, what's happening with CDUs and our technology that's around CDUs is also driving significant growth. So I'd say it's a little bit of both. In some places, there is clear technology leaps that are driving it, and then the end markets are, as you very well know, are super bullish. So that's also driving some of the growth.

Yes. I think for 2026, the bottom-up CapEx estimates from our analysts who cover the big hyperscalers are for 36% growth next year. So we're continuing to expect nice top line trends in that sector. Chris, I wanted to go to you and dig a bit more into the power and cooling part of the business given your role at Flex. And I think the company had said in fiscal '25 anyway that power was $1.3 billion of revenue. And you've already talked a little bit about both embedded and critical power. But maybe give us a bit better sense of how that business splits out between the 2 areas.

Yes. We don't really break out the individuals like that. But one is a little bit bigger than the other, but they're both very substantial pieces of the business. If you think about embedded in critical power, I think, first off, you kind of got to need to understand where they fit in the value chain, right? Embedded Power is very early cycle. So if you think about when customers are deciding what chips they're going to use on their next generation our embedded power teams are designing the power modules and a lot of the hardware that's required, right, to operate those chips in an efficient way.

And that's really where the conversation starts. And then we have the ability to actually build out the stack. So from those initial conversations, we understand what the power consumption is going to be in the facility, and then we can start bringing our Critical Power business in and start building on a much more integrated solution.

Okay. And as you think about the growth rates this year, I mean, is there meaningful differences between embedded and critical power and they both contributing?

Not really, like I said, from a value chain perspective, I mean, I think you're starting to see a lot more acceleration from the AI investments in the embedded power space, and that's going to naturally translate into acceleration in critical power. The decisions are just made at different parts of the cycle.

And our overall 35% growth Mark, obviously, the power business is smaller, so it's growing a little bit faster, but our compute business is growing pretty fast, too. So both are kind of driving to that 35-plus percent growth.

Okay. Very helpful. I wanted to touch on one of the tech themes that we saw pretty present at the Supercompute conference, that we went to a few weeks back and was 800 volt. And I think Fox had a press release out in conjunction with NVIDIA on 800-volt technologies. So maybe just to start why is 800-volt needed?

Yes. Well, let's maybe just break it down to the 800-volt topic or even just the physics of trying to get power right into these racks that are becoming more and more power hungry. If you think about racks even just a year or 2 ago, I mean, we were still deploying racks over 15 kW, right, 15 kilowatts. Now we have customers looking at hundreds of kilowatts right, in that same physical space. And there's no real way to distribute that power without doing something differently. And the easiest thing to do, and it's a very linear relationship, we can increase the voltage that's going to reduce the amount of current that's required. It will reduce the amount of copper that's needed in that same physical space, and it will allow us to make those racks more dense.

So there's been this natural drive to increase the amount of voltage that's in those racks. And at OCP, we had displayed our 400-volt DC rack. So this is kind of the first foray into what a lot of people in the industry are calling high-voltage DC in the data center where people are deploying power at 400-volt DC, and we have a 1-megawatt rack that's deploying a megawatt worth of power at 400 volts. And the natural transition is going to be -- people are going to go to higher voltages because they can continue to increase efficiencies and they can continue to squeeze down the package. So we're very embedded in that conversation, right?

So obviously, we have a 400-volt product that is going through the final stages of validation right now. And hoping to start ramping production sometime probably late next year. And then the natural transition of that is to get into 800-volt or even beyond 800 volt. I think some of the technical challenges that people have around even 400-volt DC, there still hasn't been a shift in the industry around how we're going to handle these things safely. So I'm pretty comfortable with the 400-volt transition because we're proving that out, 880 volts can be going to be a little bit longer of a put. So -- but the industry is moving towards that direction, higher voltages.

Okay. Is there a specific GPU or ASIC that's going to require 800 volt and you can say, oh, in '27 or '28, we definitely need to go to 800 volt or is it hard to say?

It's interesting the role that the silicon providers are playing today because in the past, they would provide a chip and they tell the customer, hey, you go figure it out, right? And now to use NVIDIA as an example, they've built this community of folks that were trying to build reference designs for the chips in advance so they can be rapidly deployed. So if you look at the Rubin or Rubin Plus, where we're starting to get into 300 and even 600-kilowatt IT rack.

So when I talk about a 1-megawatt rack, that's a 1 megawatt rack power and then that will be coupled up with maybe a couple IT racks. And most of the designs we're looking at today, that's 2 or 3 IT racks and then a cooling rack on the end. But when you get there, I mean, NVIDIA is driving the 800-volt because it's going to allow people to deploy it more quickly and in the most efficient way possible.

I'd say end of next year, we'll see 400 volt deployments a calendar year. So when you're thinking about kind of chip technology, I'd say, seeing it in 2027 maybe quite a put. So I would say it will probably take a lot longer than that. But because it's not just a product design, it's the regulatory environment of safely deploying these and being able to service them, which is pretty significant. So the infrastructure has to go along with it.

Okay. Maybe you think about something like 400 volt coming sooner than that, but you have it still on the come. I mean what does that mean for your business? Is it more revenue per rack? Or how should we think about the implications from a financial perspective?

Yes. I mean I think, honestly, it's quite transformational, at least for the embedded power part of the business, right? Because if you think about what we were doing in the past, a hyperscaler will come to us and say, "Hey, we need this particular power shelf and here's our specs." And we need you to develop the best design that you can, right, to meet these needs. It was really a product play. Now we're talking about a fully integrated solution.

So if you think about it in that power rack, that 1 megawatt power rack, you're not only going to have the power supply units and the BDUs that we would have traditionally provided, but now we're fully integrating it, the bus bars, the rack itself, how that power distribution then comes into the IT rack, that's all now part of the equation. And the way I -- probably the easiest way to think about it is we're going to have more dollar content per megawatt than we did before, and we're continuing to kind of move up the technology stack with more expertise there.

What do you think about these big integrated -- are these big systems actually installing it is a challenge and Flex has been one of the companies trying to help your customers overcome that with some of the prefabrication work. And I think power pods is one of the solutions that you bring to bear to help with that. Maybe just talk a little bit more on what you're seeing around customers wanting some prefabrication done and what it might mean for installation times and what you can deliver to these customers.

Yes. So we've been in the power pod business for several years, primarily in Europe. So as part of the Anord business, I mean, that was a pretty core piece of what we do in the Europe market. And they were obviously rapidly adopting these modular solutions because of the cost of labor and some of the challenges that you have in that market. And we see that same trend coming here to the U.S. Now we were traditionally doing just power pods, right? But when I say a power pod, we're talking about taking all the electrical distribution equipment that's needed for that facility and putting it into a building that can be dropped on site.

Now -- and what we announced at OCP just a month or so ago is we're building on that power pod idea and that concept and now bringing in IT pods and bringing in our cooling hardware as well. And really, the idea there is that customers need more than just the power for the site. And by deploying it in a modular format, while there's probably some technological hurdles that we need to solve for the customer, in reality, what they're really looking for is speed. And by delivering these modules to site either in a -- if you've seen any of these online, I mean, we actually build -- like they look like little mini houses, right, that go on site.

Whether we do it in that format or even a skid, it can tremendously reduce the amount of time that's required to deploy and commission this equipment because we'll do all that commissioning on site in a controlled environment. Then when it's delivered to site, they just pull these units in, bring their power cables in, land their power cables, do some final testing in a way it goes. So it shortens the delivery cycle tremendously. And then at the same time, it can reduce the schedule risk that you would see on site.

And the real key, I think, and what Chris is saying is that a pod can be the size of this room or it can be like 1/10 of the size. So a pod can be a variety of different things. But from electrical pods, we're talking about cooling pods and compute pods and the idea of a company being able to do all 3 of them and be able to bring it together, the same thing that happens in a rack within a data center and being able to do that at scale and deploy that with speed is the differentiation that we think makes us qualified to do it.

You both have been in this industry for many years. So hopefully, it allows me to ask you some tough questions that are on the minds of the broader investment community, which is on the power to meet all this AI demand. And as you guys look at your business and just the broader ecosystem and from your industry backgrounds, I mean, do you think there's going to be enough power on the grid to meet all this AI demand?

First, I'll tell you, Mark, I'm so excited that the industry is finally paying attention to what was a sleepy industry in terms of power generation, transmission and distribution, right? And I still remember the days where it's so hard to get utilities to spend any money in terms of upgrade cycles. And here, we are in a unique situation where the push for compute and data center growth is really driving utility investment and it's going to drive a generational technology and investment change in U.S. utility infrastructure, which is really exciting for our geeks like me and Chris in this space. And so I would say the important thing to focus on here is, one is, I'm a big believer that it's true because the world is going to get compute-hungry, compute is going to get power hungry and you have to have more power and utilities have to deploy more.

I'd say the real important thing to focus on is not just the magnitude of the numbers you see people talking about because everybody is really getting focused on is it a hype cycle. I think it is just going to be much better than where it is today, right? And for that, I keep saying that whether -- it's not important whether it's 35% or 40% growth, but we're talking about pretty significant growth cycles for a few years now at least that we can visibly see that I think is really exciting from an industry perspective. So yes, I'm a believer that this has legs.

On the utility market, the company acquired Crown Technical in 2024 and gave you more of a presence specifically sell to utilities as well as just augment the broader power portfolio. Maybe talk about what Crown Technical did in terms of building out a utility business? And if you can help give us a sense of how big that might be for Flex currently.

We don't share numbers really but we can tell you about Crown.

Yes. I will just share a little bit about the strategy behind Crown. Obviously, the primary driver for us to acquire Crown was their ability to do modular systems in the U.S. market. We had a really strong capability of doing that over in Europe. And we needed a way to expand here in the U.S., and it was a great catalyst for us. And on top of that, it brought to us some additional product capability with the Crown Technology acquisition, we got medium voltage equipment. And then on top of that, obviously, this position in the utility industry, which is closely tied to data center.

So if you look at Crown, they were focused primarily in utilities on the West Coast. And they had a small facility in Dallas. And we were able to invest significantly in our new facility in Dallas, which just opened a couple of weeks ago. We had our first set of customers in and doing a great day of showing off some of the capabilities of that new site, but by expanding that, it gives us a couple of things. Number one, it gives us the opportunity to obviously do more in the utilities and focus on utilities that are a little bit further east. So that's part of our strategy, right?

Utilities it's a very long gestation period, right, for utility customers. So you really have to spend the time and invest resources in order to capture some of those accounts. So by now having that capacity and the added capability, we can move a little bit further east. These large buildings, too, are really difficult to ship. So having multiple geographic locations in the U.S. is really helpful as well. And then also, that facility is also the key area where we're expanding our data center module business. So it's kind of helping in both sides, right?

We have, obviously, the utility business that's also growing through Crown and that's growing. Again, we don't break it out, so it's still in that 35% category that we talk about. So that's growing very healthily as well. Probably a little bit longer gestation period than some of the opportunities in data center, but it's our strategy to continue to grow and maybe even add to the portfolio and continue to expand.

It's the idea of continued diversification. We added distributed power with Anord and then we said, let's go through the entire infrastructure chain and then add more utilities to it. We're looking to build out our services business, which still needs to be stronger. So we're just adding pieces to the overall portfolio and also helping kind of the cycle of that business so we can have a fairly through-the-cycle kind of portfolio there.

And as you think about planning capacity to meet all of this demand across the whole spectrum of power products that you have, you mentioned that a little bit with Crown, but more broadly, do you feel like you're able to keep up with the demand? And how much capacity might you need to put into place?

The short answer is no, we're not able to keep up with demand, and we are investing in -- we have been planning and investing now in terms of capacity, both for the compute -- all 3 places, compute, cooling and power. We announced expansions in Dallas. We've been expanding our Mexico facilities in Guadalajara. We have been moving things around into external warehouses and expanding manufacturing footprint in our sites in Columbia and Richmond and in Fontana and Milpitas in California. So yes, there's a lot of capacity expansion that is going on today across all 3 compute, cooling and power. And we're very focused, Mark, right now thinking about capacity for the next year and the year after and kind of where exactly do we have to plan for this kind of growth. So yes, definite work going on in terms of capacity allocation right now.

I do want to talk on the cooling side. And Revathi, earlier on in our conversation, you did mention CDUs. I think the company acquired JetCool a year or 2 ago, and that brought some cold plate and CDU capability. Maybe just give us an update on how that product set on the cooling side is developing.

It's going really well. We bought the category because Chris described it, you have the chip. We are developing the power that goes on the chip and then having the cold plate and making sure that you have the right technology, so that sandwich that you're developing can be an integrated technology was the real reason we kind of bought JetCool. They did not have a CDU product, but they had a product that was in the pipeline. So we completed it and launched a CDU line that just happened over the last kind of few months. So we're really excited about just completing that portfolio.

And I would say it's been a fantastic acquisition for us because there's no way that you can work on generating that kind of heat in our power products and then not have the cooling technology capability to channel all that energy. So it's been going really well. I would say it is a definite important piece of the overall portfolio within the rack for cooling itself and then the CDUs is a nice kind of auxiliary benefit of all of that.

One thing I just wanted to ask about was the recent collaboration that you've announced with LG on thermal management solutions. Can you speak more to what this partnership would entail and what each partner would bring to that? And when you expect products to be available driven by this collaboration?

Yes. So LG -- so if you take a look at what we have in our jet cool portfolio, really, it's at the chip and then the CDU. So it's really that secondary cooling loop, right? And so we didn't have a lot of capability beyond that. And with the LG partnership, what's really fantastic about it is it's very complementary. So what we do in the rack and around the rack, they don't have, and we don't have what they do really well, which is the cooling infrastructure for the facility. So it's a complementary product offer.

We're also complementary from a geographic perspective as well. They tend to focus more on the markets in Asia. We're obviously focused more on the markets in North America. So this is a really great collaboration, and it gives us the ability to provide that entire cooling stack that's required. And it's a really important part of the modular conversation that we were having earlier.

We want to be able to provide the complete solution, both cooling, IT and power, all in these preconfigured modules, and LG is going to be a really important component to that. And so we're super excited. It's very new. It's only about a 30-day-old announcement. But we have the team in Austin yesterday, and we're really excited about the partnership and where it's going to go.

Mark, the way we're thinking about the portfolio is, we're looking at how technology is getting developed as individual products and as a technology infrastructure as a whole. And we're saying there are some parts of this that we would like to own because they're integral to the design itself. There are some parts of this that we'd like to have partnerships with because it makes the development cycle easier for a customer. And that's how you think about kind of we have secondary cooling kind of the primary cooling is something that we don't think is a space that we want to be in, but we want to bring partners in that can develop an integrated solution. So in sum, there will be revenue benefit and some, there will be the benefit of developing a fully deployed technology for the customer. So that's kind of how we're thinking about these partnerships.

Apologies, I forget the exact number, but I think a year or so ago, you were at 80% or so of the kind of capabilities that Flex could bring with some of these new partnerships, where would you sit now?

I think we're still around the 80% because we don't count the partnerships as things that we own and we bring to the market today. So that 80% is a fairly big number. And I feel like the 100% doesn't give you a whole lot more. So we're kind of quite comfortable with the 80%. And then these are just partnership deployments that we'll bring in.

Okay. I want to talk about the warrant agreement with Amazon. I know that's not specific to the data center, but obviously, they are with AWS, one of the big hyperscalers that's out there. Maybe help us better understand to the extent you can when we should think about the AWS warrant transaction or Amazon warrant transaction, I should say, leading to faster growth for Flex.

I'd say not just the warrant with Amazon, but all of these deployments that you're hearing about, they have long gestation periods, right? So Amazon is already a very big customer for us. It is all about kind of the technology and the things we're developing with them today that will come out in the next year or 2 years. So I'd say most of these work that is going on around the big announcements coming out from AI infrastructure players takes time for these things to show up in terms of revenue. So I'd say, hopefully, it'll keep adding to the 30-plus percent growth you're seeing in our business over the next few years.

Great. And would you imagine doing similar deals with other hyperscalers?

Nothing to share at this point.

As long we're webcasting, we're always happy to break news at the conference, but I understand there's only so much you can say. Maybe just kind of a little bit more broadly, as you think about the data center market and just the competitive landscape, be it Asian-based competitors as well as North American-based competitors. Can you just talk a bit about the competitive landscape? And is it becoming more challenging?

I'd say not at all. I think what we are seeing in terms of the Asian competitive thing not really seeing a whole lot of that. I think we've gone well beyond that conversation today because most folks want local, whether you're in Europe or in North America, you want local capability. And so that is super important. And so having Western companies that have built long cycles of capability is really important. I'd say in the competitive landscape, the thing to remember is as we talked about this grid-to-chip solution, we compete in individual pieces with lots of companies, right?

So in embedded chip, we compete with another company. And obviously, in critical power, we have all the big electrical players. In cooling, there's a whole lot of smaller players we compete with. In compute racks, we compete with some of the larger data centers. In rack enclosures, we compete with some of the electrical players. So you have to think about it as the bits and pieces have lots of unique competitors within that. And then in places where complete technology deployment becomes a critical advantage, then we will bring a more holistic solution to the play. But I want to be best-in-class at all these individual bits and pieces.

And the selling features in places where complete technology where you want everything stuffed in a pod and you want a compute pod and a cooling pod and a power pod, we can do that too, and that's a plus. So the competitive landscape is one that we feel very comfortable with in terms of our presence there. The beauty of being Flex, Mark, is large-scale manufacturer, we know how to deploy at speed. What does data center companies need today? Scale and speed. And you bring that with kind of the power experience and cooling experience, it's a game changer.

One other trend we've seen in the data center space has been consignment. And I know you've given some metrics around how much of your business is consignment. Maybe just talk about where you think Flex is on that journey? Do you expect consignment to become a much bigger percentage of the business than it currently is? Or is it kind of more steady state? And what does that mean for margins as you do, do more consignment?

What we have said is we shared it once just because it's become such a large portion of the overall business. And we really let the customers make the decision in terms of what is the best business model for them and we'll work with them on that business model. And to a large extent, it makes sense because you don't want to be procuring these very expensive chips and memories and all of that for the -- on behalf of the customer, you want them to take the procurement in that. So I'd say nothing new in terms of change to our overall numbers. But as the business itself grows, yes, the magnitude of it will grow. It does help in terms of margin rate a little bit, but it hasn't been significant for us.

Okay. I want to talk a bit about your manufacturing strategy and Flex has talked about having a very significant presence in North America. Part of that's in the U.S., part of that is Mexico. Maybe just double-click a bit on that, if you could. And have you seen any increased interest specific for U.S. manufacturing given the tariff and supply chain challenges that some of your customers are contending with?

Yes, definitely, we're seeing more interest in terms of local manufacturing. What we're doing is we're being very picky about where we want -- which end markets do we want to be in for that, right? We are already putting so much investment into data center and utilities. We're investing in health. So we're making sure we kind of pick and choose the end markets that we want to be in. So for example, if consumer end markets, customers want us to put an investment in North America, and like maybe that's not our sweet spot, right? And the same may be the case for automotive today until the industry stabilizes. So yes, we're seeing a lot of interest, but we're being very picky about this is the time for us to choose which end markets do we want to put more capacity in. And so we're doing that mainly focused around health, around industrials and around data center.

Specific for the U.S.?

Specifically for the U.S.

Okay. Maybe you could touch on some of those other end markets. I mean automotive, you've talked about being sluggish and it sounds like that might still be the case from the comments you were just making. But maybe talk about auto, what do you think it would take for that business to return to growth?

I'd say the way -- if you step back, the way I think about kind of our overall portfolio, I'd say data center utilities, strong growth. Health is going really well, really happy with that. We're particularly focused on device manufacturing in health, so that's going well. I'd say Industrials, where we had a big renewables presence that was a drag for us and mainly residential renewables has kind of stabilized and we're starting to see industrial growth mainly around infrastructure deployment. Automotive, to some extent, I feel has flattened out and then particularly, OEMs are more clear about which platforms they want to invest in because there's a whole confusion on hybrid or EV. So I'd say we have more stability in terms of that returning to growth. Consumer end markets are fairly flat and I'd say that's anybody's guess, right? Where does consumer spending go with tariffs and all of that is to be seen. And so that is still kind of pretty flattish, and I'm not kind of projecting any kind of huge return to growth there.

Okay. One technology that's had a lot of focus in the financial community and in the media has been around robotics, humanoid robotics in particular or something. So maybe just talk about to what extent that kind of technology is something that Flex can use in its own sites? And would Flex look to help manufacture humanoid robotics?

Yes. So for sure, we're -- in our industrial business, robotics is a big focus, whether it is warehouse robotics, humanoid robotics hasn't had a big presence yet, but other robots are a big focus for us. So it's a very growing business for us within our contract manufacturing space in industrial. So we're super excited about that. And as we have presence and we'll continue to work with customers on going into other types of robots as they become an important part of the infrastructure.

I'd say for Flex deployment itself I'm super excited about what AI and automation around robotics will do for our business in terms of productivity. I have said this publicly, but I feel like that is a game changer for the manufacturing industry, not just hardware automation and robotics, but software automation and robotic -- focused mainly around AI is really going to change the landscape. And if you think about kind of the next leg of productivity for a company like Flex, that's where it's going to come from.

Is this kind of thing where you've got cameras and says, oh, we can see a defect that maybe a human couldn't? Or is there something even beyond that you're...

It's that kind of stuff, which is just machine learning, right, which is more hardware related, and you'll see more and more of that, you'll see kind of mature platforms getting deployed. But the software integration part of this is going to be a game changer. A typical manufacturing company will have anywhere from 50 software systems if they're good to like 200 to 300 software systems. So having data structure integration and then using the power of AI to make end-to-end decisions is going to be a productivity game changer. So pay as much attention to the software side of it, as we're paying to the hardware side of it. That's going to be a huge plus for all of us.

That's very interesting. Well, maybe sticking with the productivity theme, we can close with a question on margins. The implied 4Q operating margin guide is very strong, in my opinion, at about 6.8%. As you think about that outlook that the company provided, is there anything unusual in terms of timing or mix that you think is helping the margin in the fourth quarter? Or would you consider that illustrative of the longer-term profit potential of the business?

Our margin progression has been very consistent over the last kind of 6 years, right? Where it's coming from is from 2 areas. One is from mixing up, so if you're seeing higher growth from areas like data center and that mix is driving profitability and from internal productivity deployments that we just talked about, so we've had very steady margin progression. A year ago, you all were asking me about, hey, 6% sustainable. We were a year ahead of schedule. And as usual, I was hedging my bets and saying, yes, we'll see. My answer is still the same. Margin progression is coming from mix uplift in terms of high-growth areas and from productivity, and we should continue to see that trend.

That's great. Well, look forward to seeing how that all develops. I want to thank both Revathi and Chris for joining us for this conversation.

Great. Thanks for having us, Mark.

Thanks for having us.

Thank you for standing by. Welcome to Flex's Second Quarter Fiscal 2026 Earnings Conference Call.

[Operator Instructions] As a reminder, this call is being recorded. I'll now turn the call over to Ms. Michelle Simmons. You may begin.

Thank you, Kevin. Good morning, and thank you for joining us today for Flex's Second Quarter Fiscal 2026 Earnings Conference Call. With me today is our Chief Executive Officer, Revathi Advaithi; and Chief Financial Officer, Kevin Krumm. 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 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 of 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?

Thanks, Michelle. Good morning, and thank you for joining us today. Before we get into the results, I want to start by thanking our Flex team around the world for their disciplined execution and commitment to delivering for our customers. In particular, I want to acknowledge our colleagues in Ukraine.

As we shared in August, our Mukachevo facility was damaged during a missile strike. But thanks to our emergency protocols, all team members were safely evacuated. Their strength and resilience in the face of unthinkable circumstances reflect the best of our team in Ukraine and our company as a whole.

We remain committed to our colleagues in Ukraine as we focus on rebuilding our operations. Starting on Slide 4. We had an exceptional quarter, delivering great results on all metrics. Revenue came in at $6.8 billion, growing 4% over last year. Operating margin was an impressive 6%, the fourth quarter in a row that we remained at or above this level, and we delivered adjusted EPS of $0.79, up 23% over last year, another record for Flex.

This performance reflects the strength of our model, anchored in disciplined execution and a continued shift towards higher-value technology-driven businesses. Now turning to Slide 5. Our data center business continues to deliver outstanding results across both cloud and power. With proprietary products, deep systems expertise and global manufacturing scale, we provide fully integrated power and IT solutions that help hyperscale colocation and silicon customers deploy faster, operate more efficiently while strengthening our margin profile.

We remain bullish in our outlook and continue to expect our data center revenue to grow at least 35% this year. Sustaining this level of growth at our scale validates the value we are delivering to the world's leading technology companies and the strength of our execution in a dynamic market.

We are outperforming industry growth rates and continuing to strategically shift our portfolio towards higher-margin critical technology-driven businesses, shaping today's market evolution. As we all know, AI is driving one of the largest infrastructure build-outs in modern history, and Flex is at the forefront of this transformation. We are partnering directly with the world's leading technology companies to design, build and deliver the power, cooling and systems infrastructure that enables faster, more reliable data center deployments at scale.

Our data center offerings span from the grid to chip, combining our product portfolio with advanced manufacturing capabilities and global scale to meet unprecedented demand for performance and efficiency. Some of this activity is already reflected in our current results, while other programs will ramp over the coming quarters and years.

The broader trend is clear. AI is shaping industries for the long term, and Flex is positioned to be a driving force in its continuing infrastructure build-out. A couple of weeks ago at the OCP Global Summit, we unveiled Flex's new AI infrastructure platform, a unified approach that brings together power, cooling and compute in pre-engineered scalable designs.

The platform helps data center operators deploy up to 30% faster, reduce execution risk and scale reliably to meet the pace of AI demand. We partnered with NVIDIA as part of their ecosystem on next-gen 800-volt DC AI factories. These systems improve energy efficiency, lower cooling costs and eliminate points of failure as data centers grow in size and complexity. Looking ahead, I could not be more excited.

The data center opportunity continues to expand, and we are executing remarkably well as we support our customers through this next wave of growth. Beyond our strength in cloud and power, the rest of our diversified portfolio is performing well. In Health Solutions, we see steady medical device demand and anticipate improvement in medical equipment later this year.

In communications and enterprise, we see strength in optical switches and SATCOM devices supporting next-generation connectivity requirements. And in automotive, we see the market stabilizing compared to prior quarters. In the first half of FY '26, we added compute deals with new logos, validating our continued investment and focus on software-defined vehicles.

As we look back over the first half, we are proud of our teams for their execution and persistence. We started the year with volatility from tariffs and the uncertainty that continues to this day. Despite this backdrop, we've been able to exceed our expectations and raise our guidance.

Our customers depend on us for our scale, our technical depth and our global footprint. That foundation positions us to keep delivering for our customers in any market environment.

Now I'll turn the call over to Kevin to walk through the details of our financials. Kevin?

Thank you, Revathi, and good morning, everyone. I'll start with our key financials on Slide 8. Second quarter revenue came in at $6.8 billion, up 4%, driven by strong data center growth across both Power and cloud. Gross profit totaled $632 million and gross margin improved to 9.3%, up 80 basis points.

Operating profit was $409 million, with operating margins at 6%, up 55 basis points. Finally, earnings per share for the quarter increased 23% to $0.79 per share. Turning to our quarterly segment results on the next slide. In Reliability, revenue was $3 billion, up 3% year-over-year as strong growth in Power and moderate growth in Health Solutions and Core Industrial was slightly offset by continued pressure in auto.

Operating income improved to $197 million and segment margin expanded by 105 basis points to 6.5%, driven by favorable mix impacts from Power and strong execution and cost management across the entire segment. Agility revenue totaled $3.8 billion, an increase of 4% year-over-year, driven by robust cloud demand that more than offset softness in communications and consumer end markets.

Operating income was $227 million, with operating margin down 5 basis points to 6%. This is comparing against a very strong quarter last year. Moving to cash flow on Slide 10. Free cash flow in the quarter increased to $305 million despite sequential investments in CapEx to support organic growth.

Net inventory was up 1% sequentially and down 4% year-over-year. Inventory, net of working capital advances was 55 days, a reduction of 3 days versus the prior year. Net CapEx totaled $148 million or approximately 2% of revenue, and we repurchased $297 million of stock, which was approximately 5.6 million shares.

Our capital allocation priorities remain unchanged. We're committed to maintaining our investment-grade balance sheet, funding strategic investments to support organic growth and pursuing accretive M&A opportunities while returning capital to shareholders through opportunistic share repurchases.

Looking at full year guidance on Slide 11. As our customers navigate a dynamic tariff landscape, our teams are partnering closely with them to deliver resilient forward-looking solutions. Our global scale and capacity enables their regionalization strategies, bringing manufacturing closer to end markets to improve agility, reduce risk and meet the evolving trade requirements.

As of last quarter, we incorporated the direct impact of tariffs into our revenue guidance and are doing the same this quarter. The situation remains fluid, but as a reminder, tariffs are largely a pass-through for us. We will continue to monitor and adjust as needed. As we conclude our first half of the year with 4% revenue growth, we are confident in our ability to continue our strong top line momentum in the second half of FY '26 with an acceleration in Q4 driven by demand in Power and cloud.

This confidence in revenue, coupled with our favorable mix and disciplined cost execution, has allowed us to improve our full year expectations across all key metrics while overcoming headwinds in Lifestyle due to our facility shutdown in Ukraine and unfavorable FX impacts across the business versus our Q1 guide.

Despite these challenges, we are raising our FY '26 expectations to the following: revenue between $26.7 billion and $27.3 billion, a $500 million improvement from the midpoint of our prior guide. Adjusted operating margin between 6.2% and 6.3%, demonstrating consistency above 6%; adjusted EPS between $3.09 and $3.17 per share, increasing our midpoint by $0.17 per share, and we continue to expect strong cash generation and maintain our 80% plus free cash flow conversion target for FY '26.

Moving on to our segment outlook for the year. For Reliability Solutions, we expect revenue to be up low to mid-single digits, driven by strong demand in data center power and medical devices, offset by a soft but stabilizing environment in renewables and auto.

For Agility Solutions, we expect revenue to be up mid- to high single digits, driven by continued strength in cloud, offset by a weakening trend in consumer devices and lifestyle and a temporary loss of operations at our Mukachevo facility in Ukraine. Finishing off with our guidance for the third quarter.

We expect Reliability Solutions revenue to be up mid- to high single digits, driven by continued robust power demand and increased growth in Medical Devices. We expect Agility Solutions revenue to be down to up low single digits as cloud growth is offset by weakening trends in consumer devices and reduced expectations in Lifestyle for the reasons previously mentioned.

For Total Flex, we expect revenue in the range of $6.65 billion to $6.95 billion, with adjusted operating income between $405 million and $435 million. We expect an adjusted tax rate of $0.21 or 21%. And lastly, we anticipate adjusted EPS to be between $0.74 and $0.80 per share based on approximately 377 million weighted average shares outstanding.

As Revathi mentioned, we remain a partner of choice for our customers as they navigate a rapidly evolving business environment shaped by AI acceleration and dynamic supply chains. We're constantly exploring new ways to collaborate with our partners to meet their evolving needs and see strong opportunities to support their growth as we exit FY '26 and move towards FY 2027.

With that, I'll now turn the call back over to the operator to begin Q&A.

[Operator Instructions] Our first question today is coming from Ruplu Bhattacharya from Bank of America.

Revathi, you took up revenues for the full year by $500 million at the midpoint. You beat 2Q by $150 million. So there is about $350 million upside in the second half. But interestingly, you didn't raise the guide for data center revenues, although the commentary seemed like there's still a lot of strength in cloud and power. So just curious why there was no upside to that part of the business? And I have a follow-up.

Yes, Ruplu, I'll start by saying that we said that we are going to do our -- give a full year guide for data centers. We said that at the beginning of the year and not update that through the quarter. I'll just remind you, data center is not a reporting segment for us. We've given you extra information at the beginning of the year, considering that it's meaningful growth for us.

And so we're just not updating the quarterly guidance, but it is obvious that it's at least 35%. I will remind you that 35% is a very strong number compared to the industry and the end market itself. So we feel very good about that. So your math is directionally correct. So there's at least 35%.

Obviously, we'll be better than that, and we'll update that in our full year guide when we do it at the end of the year. Kevin, anything to add?

No, nothing to add on that.

Okay.

Okay. That makes sense. Revathi, can I also ask you for the cloud business. Can you comment on the mix as it relates to custom silicon versus merchant silicon? I'm curious because AMD is going to launch a whole set of new GPUs, GPU racks next year, would that be a business that Flex would bid for?

And how do you see this mix of custom versus merchant silicon evolving as things like OpenAI Broadcom, OpenAI AMD, OpenAI NVIDIA, all of these big projects are coming up. So how do you see your data center business benefiting from these large projects?

Yes. So Ruplu, I'll start by saying you, obviously, considering the fact that we're growing at least 35% year-over-year, we are benefiting pretty significantly from not only hyperscale growth, but from kind of the new cloud players, as you have talked about, that is adding to our overall growth rate.

I would say that as we update our forward-looking guidance for cloud that we will do in May during our Investor Day, that should reflect all these new projects that are getting announced that will be built out over the next kind of 2, 3, 5 years. So you should wait for our updated guide. In terms of custom versus merchant silicon, I would say that anywhere there is -- in custom silicon where there is more specialization involved, typically, Flex tends to do really, really well because it requires customization for the requested hyperscaler we're working with and drives more complex products, and we tend to do really better in that in general.

But in terms of custom versus merchant, we obviously participate in both. And I would say that we lean one way more than the other, but we are prevalent in the market in both the spaces. I think the real benefit at the end of the day is if you look at all the announcements that are coming in, if you look at our forward-looking pipeline for cloud, we feel very strongly and very good about kind of participation in this space at the growth rates we're delivering this year, and we're really looking forward to give you guys updated guidance in May that we will see you, and we feel like you'll see very strong growth rate -- continue to see very strong growth rate in our cloud business, driven by all the investments you're hearing from.

Next question today is coming from Tim Long from Barclays.

Appreciate the questions here. Two for me as well. First one, maybe on the op margin front. It looks like some good increases coming in the second half. Maybe if you could just talk at a high level at what's driving some of the second half over first half op margin improvements?

And then second, back to the cloud data center piece. If you could -- understanding the 35% number, just curious if you can talk a little bit about kind of how you see the economics of that business evolving for you? Are you seeing opportunities, as you mentioned, some more specialization?

Are you seeing that business evolve to where it could be newer programs with -- that are a little bit more margin accretive. So anything on kind of how you view that -- your play in that ecosystem changing from a value standpoint?

Tim, this is Kevin. I'll take the first question on margins in the back half of the year. As we said, Q2 was another quarter at or above 6%. So 4 quarters there at or above 6%. We feel good about that. As we move from Q2 to Q3 and Q4 in the back half of the year, we do expect continued margin improvement.

And you see that when you look at the midpoint of our guide for Q3 and obviously, sort of do your own math to get to where we think Q4 is going to be to get to our full year guide. The primary drivers there are going to be mix. We have 2 businesses that continue to grow and grow well as we move through the year, and that's our products and services business. We're expecting both those businesses to perform well from a top line standpoint. And we've talked in the past about the margin performance of those businesses, both those businesses perform above the Flex average.

So really, it's just the continued growth in those businesses, Q2 to Q3, Q4 becoming a bigger piece of revenue and pulling margins up with them as we move forward here.

Yes. I'll say, Tim, on the second part of your question on the economics of the cloud and Power business for us, as you can see from the second half guide on margins, and generally, it's a very accretive business to us. How I see the economics evolve is super positive for us, and that's based on a couple of things.

Just a quick reminder, we're one of the few players who actually integrate compute, power and cooling in this space. And our compute business, which not only does contract manufacturing and assembling of compute products, also does vertical integration in terms of manufacturing racks and all the metal enclosures that goes in terms of compute products.

So very positive in terms of margins for us. In the cooling and in the power play, we have our own products. So we have our own IP and design. And obviously, those are also margin positive for us because it runs more like an OEM play overall.

So I see in terms of evolving as you see the mix shift for us between -- in the cloud power -- in the cloud and data center space between compute and power and power continues to grow, I see that the margin progression for that business being fairly significant.

And we expect that to work and behave like a products business overall, the whole space. So I'll step back and say, feel very good about kind of the 35% growth rate we have talked about, which we said is at least that much for the year.

But I feel even strongly about the updated forward-looking guide, we'll come back and give you in May in terms of growth rate of that business and then the margin improvement of that business driven by the mix of compute and power and cooling within that space.

So feel really good about the economics of the business and how it's evolving.

Next question is coming from Samik Chatterjee from JPMorgan.

Maybe for the first one, if I can sort of go back to the question on guidance and just tackle it more on the end market front. You're raising your guidance for the full year by about $500 million or so. I mean, it seems like from an end market perspective, data center is doing better, but also maybe medical is a bit better.

Can you just parse out if most of the increase in the guide is because of the data center market? Or are there other end markets that are tracking better than you expected at this time? And how much of a headwind is the Ukraine facility shutdown to the sort of raise in the guide that you're issuing today? And I have a follow-up.

Yes. I would say, Samik, is that, obviously, you guys have done the math. You can tell, right? Full year, we have raised the guide by $500 million. We've beat 2Q. And so you can see that second half is going to be strong the way we have raised our guide. It will come from the spaces you have talked about, which is data center and health solutions.

And we have been very clear about both of those spaces being directionally good for us. We also have said that there is stabilizing trends in areas like automotive, which also is a good thing for us. So if you look at the forward-looking guide, while we're not updating our data center growth rates, it's obvious that it's going to be better in the second half, and you will see that reflected in our full year number.

Yes. Samik, I'll just add on your question on the Ukraine. When we had the issue in August, we issued a release that identified the business being approximately 1% of Flex revenue. And I think that's how you should think about the impact of that in the back half of the year.

So going from basically where it was to 0%. You can -- it's slightly north of $100 million impact to us from a revenue headwind standpoint in the back half of the year.

Yes. So overall, raising our guide with the impact of that, I think we think is very strong results.

And for my follow-up, I wanted to see if you can give us some sense of what to expect from the Amazon partnership that you have now to the extent that you can talk about and you're sort of sounding positive about what you will announce in terms of the cloud data center business.

But is that -- is the Amazon partnership part of that optimism that you have as you think about what you would sort of talk about in the May Investor Day as well?

Yes. Samik, I will just step back and say that I feel very bullish about kind of where things are in the data center cloud space for us. Combination of the partnership that we announced with Amazon, but continued growth in other hyperscalers and colo businesses and Neo clouds that we mentioned earlier in the call.

So I think it's important to reflect on the fact that a lot of these announcements and CapEx announcements that you're seeing from our customers are all going to play out in the next 1, 2, 3, 5-year cycle. So I think that's really important to reflect on that, that these are all kind of long-term plays, whether it's our partnership with Amazon or the growth rate that we're seeing with all our other customers.

You'll see that reflected as we move forward in our CapEx numbers and the investments we continue to make in this space. So as you wait for our updated guide coming out in May and you see our long-term growth rates, you would see the bullishness reflected in that coming from the growth rate in this space.

So I view this as a long-term play, feel very good about kind of what we're delivering this year and the investments we are making for forward-looking growth, and we'll give you an updated kind of long-term guide when we see you in May, and that will reflect these partnerships and other investments we are making.

[Operator Instructions] Our next question is coming from Steven Fox with Fox Advisors.

I had a couple of questions as well. First off, looking at the guidance, it's like some people have mentioned, it seems to imply some accelerating growth into the fourth quarter of the fiscal year. Is that something -- without getting into numbers for next year, is that something that we can think about sort of continuing and use that as a base for some new and different growth for the next fiscal year? And if so, what would you sort of say is driving it? And then I had a follow-up.

Thanks, Steven, this is Kevin. I'll take the first part of the question. So you are right. As you look at our guide for the full year, we gave you Q3, you can start to back into an accelerating Q4 or Q3 to Q4 environment and expectation from us. The drivers of that are going to be some of the things we've talked about already on the call. Obviously, data center underlying, we've talked about our power business this year with data center being made up of cloud and power.

Our power business, especially in the back half of the year, we expect that to grow above the data center average. So that's driving some of the margin performance we talked about, but also our overall top line expectations. Also seeing good growth in the back half of the year as we exit the year in medical device and some other areas like capital equipment.

So yes, that growth rate in the back half of the year that we're exiting with, we feel good about it, and we expect that momentum to continue into the first half of FY 2027.

Great. That's super helpful. And then Revathi, it wasn't that long ago where the auto markets were a pretty attractive growth market for you guys. You mentioned some new compute wins and the business and, I guess, production kind of stabilizing. So do you see a path now for like that segment returning to growth?

And if there's any color you can provide on the new compute wins, that would be helpful, too.

Yes. I would say, Steve, is that we're being very thoughtful in terms of giving the right projections for our automotive business. We feel good about kind of stabilizing what we're hearing from our customers on which platforms they're going to grow with.

I have mentioned this before that we're being platform agnostic is helpful for us because even as you shift powertrains within automotive and there's a shift from EV to ICE vehicles, it still helps us because even in ICE vehicles, we are seeing continued investment in terms of power electronics.

So being agnostic to the platform is really important to us. So as I look moving forward, compute wins happen in ICE, hybrid and EV in all platforms. So that is the good part about it is that we continue to win agnostic to the platform, and that is helpful in terms of how we think about growth rates.

All that being said, I would say is that our view on kind of continuing to grow in the automotive space is that it has to show the returns that we expect. And if it shows the returns we expect, then we will continue to invest and grow in that business.

As you can tell, we have enough growth coming from other vectors, and it's a balance in terms of the decision we make. So we look for good growth, healthy growth, long-term commitments. And if that works for us, we'll take that business and grow with it.

Next question is coming from Steve Barger from KeyBanc Capital Markets.

This is Jacob Moore on for Steve Barger. First, I just wanted to ask about the value add from engineering and services in terms of penetration and margin impact. I think you've emphasized those as margin levers outside of data center and power. Could you share the revenue size of those programs?

And what do you see the broader opportunity size to be? And then maybe could you frame up the margin they contribute compared to the overall portfolio and if there are any barriers to further penetration?

Yes. I'll say, Jacob, is that in the past, we have kind of shared a number that's in the range of kind of $1 billion for this space. We haven't updated that in a while. So my overall take will be that value-added services, which includes kind of vertical integration and all the end markets we play in, is important to us because that does drive margin improvement for us overall.

So it is a very important focus for us and our teams across the businesses. It's even more important in the data center space because we do have products we deploy. And so that is really important. So because you have to be able to service those products.

I would say, overall, we are happy with the growth rates, but I don't have specifics I can give you, Jacob, because those are not numbers that we give out. So -- but we like what we do in value-added services, super important to us, both in data center and outside of data centers, and we feel good about kind of how it's growing and the margin it's providing.

Understood. That's helpful. And then second one for me is on op margin, but maybe a little more specifically on the fiscal fourth quarter. The math suggested a pretty decent sized step-up from Q3 to Q4. Could you just walk us through the puts and takes assumed in that sequential step-up?

And then similar to the question on the growth acceleration in the back half, is the sort of mid- to high 6% margin level sustainable moving forward from 4Q?

Jacob, this is Kevin. I'll take that question. So first, we talked about the growth rate in 4Q and our expectation there and what was driving it. And in that, we talked about our products business and our services businesses growing in the back half and accelerating into Q4. That acceleration of those businesses and as we've talked about, they're higher-margin businesses for us, both accrue to the P&L at margins north of the Flex average are what's driving our expectation for margins.

It sounds like your math is directionally correct there. And so as we move into next year, as we said, we expect that growth momentum in those businesses to carry forward into early FY '27 and our margin expectation would be similar.

And then I'd say that I think that it was only a year ago where you guys were pressing me on a 6% sustainable. And when are you going to update that guide because we're a year ahead of the long-term guide we gave you.

So I can see you're already taking it north of that, Jacob. And as long as we continue to change our mix, which we're doing and continuing to have growth rates in the right end markets where we have products and services and margin-accretive business, we feel good about continued growth rates and margin performance of what you'll see moving forward.

Our final question today is coming from Mark Delaney from Goldman Sachs.

I was hoping to better understand where Flex stands with its capacity and ability to support the data center opportunity and if there are any supply constraints that you're starting to encounter in that business given the growth you're seeing?

And as you think about that business over the longer term, do you envision needing to make meaningful increases in your CapEx levels in order to support the growth?

Yes. I would say, Mark, first is I'll parse this out by region, right? I feel very good about our capacity and capability in the EMEA region. We announced a new asset acquisition in Poland, and we feel really strongly about kind of overall capability on compute power and cooling in EMEA.

In North America, which is where you're seeing the largest amount of growth being deployed and CapEx being deployed by our customers, we have incrementally invested pretty significantly in our compute operations in Guadalajara and in U.S. We have continued to invest pretty significantly in cooling and ramping up that manufacturing capability as we got through the acquisition of JetCool.

And then we announced new facilities in Dallas, and we continue to expand our facilities in Fontana, in Colombia in those regions to add to kind of power capability in the U.S. All that being said, I would say that we have a lot more investment to do because you are seeing those big announcements coming from our customers, and you see a meaningful shift within Flex in terms of how we're deploying our CapEx towards those end markets.

So as I look towards the next kind of cycle, 2, 3, 5 years, I would say, yes, you will see meaningful deployment in terms of CapEx and growth and investments required and OpEx, both R&D and support required for those businesses that will shift towards those businesses. I think what's important is that despite all those moves we're making, you're seeing kind of overall cash flow improving and you're seeing our overall operating margin improving.

So obviously, we're making the right choices as we deploy this, Mark.

Very helpful context. My other question was around Flex's own operations. You've spoken in the past about utilizing AI and automation to be efficient. Yesterday, you had some news around a pilot with NVIDIA to maybe even try and get better there.

And of course, there's a lot of innovation happening with AI and robotics. So as you think about some of the things you're working on to tie to those areas, including with what you announced yesterday, anything meaningful you could point to and what we could expect for where Flex may take its own operating and logistics in the future?

Yes. Mark, I'll step back and say that the announcement we had with NVIDIA yesterday is a really exciting announcement. It is more around deploying ready-to-use modular infrastructure for data centers, which is inclusive of compute power and cooling like we showed in the OCP.

So if you're ramping up a data center and you need a modular, scalable architecture and solution, then that's the partnership that we showed with NVIDIA yesterday, and we showed in OCP that we'd be deploying in large scale as you see these data center investments come out.

So that is more around data center infrastructure investment from our customers. So super exciting, right? So if you want to take out -- if you want to reduce lead time to deploy these infrastructure, you'll be able to do that with this partnership we've announced. So that's one thing.

I'd say the second internally to our own factories, I'd say there's a significant amount of work to be done within our own factories in terms of deploying AI and robotics. You have seen that in the past, we have really delivered a lot of productivity within our factories.

That being said, I'm super excited about kind of what the future holds because obviously, there's a lot to be done, not just in terms of hardware robotics, but in terms of software capabilities using AI that will really drive productivities in our factory and drive efficiency in everything from our back office to how we operate.

So whether it's projects that are in processes and functions or whether it's projects that is how we do planning or scheduling or any part of that in our factories, AI is going to really accelerate kind of the productivity we deploy and the efficiency we deploy in how we work with our customers.

So a lot to do there, Mark, but really exciting times, I would say, for the manufacturing space and how we use these tools and capabilities.

We reached the end of our question-and-answer session. I'd like to turn the floor back over to our CEO for the closing remarks.

Thank you. So we look forward to speaking to you again next quarter. On behalf of the entire leadership team, I want to sincerely thank our customers for their trust, our shareholders for your continued support and the Flex team around the world for your dedication and your contributions. Thank you, everyone.

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

Okay. Great. Thank you, everybody, for joining us. My name is Mark Delaney, and I have the pleasure of covering Flex for Goldman Sachs. I'm very pleased to have with me today, Michael Hartung, the Chief Commercial Officer of Flex as well as Michelle Simmons, who heads up the IR function. Thank you both for joining.

Glad to be here.

I thought we could start off with some questions by end markets. And certainly, one of the bigger ones we've been hearing a lot this week at the Communacopia and Technology Conference is on the data center market. For Flex last year, a $4.8 billion business. Now nearly 20% of your revenue, I think $3.5 billion of that $4.8 billion was tied to assembly and then $1.3 billion in power. Maybe you can speak a bit more to the breadth of your data center customer base. What's driving it to that size? And what do you think is positioning Flex well in the data center sector?

For sure. So first, maybe an update on the business itself. So we talked about, to your point earlier, starting the year off at that $4.8 billion number, and we're going to end this year at $6.5 billion. So growing that business about 35% year-over-year on the heels of a growth rate of 50% the prior year. So still really strong growth in a really exciting market. Also would point out that of that $4.8 billion, that $1.3 billion was power and the balance was the integration business. And of that 35% growth rate, we think the power business will probably grow a little bit better than 35% and the integration business may be a little bit lower, but also the sizes of the businesses are different, too.

In terms of the composition of the customer base and so on, probably easiest to answer first by reiterating the nature of the portfolio. So as you may or may not know, Flex provides both products and services to the data center. On the product side, we have 2 different power businesses that leverage Flex created IP to bring products to market. The first business is around critical power. And in that space, we tend to compete against some well-known companies like the ABBs, Eaton's, Schneider's, Vertiv's, that critical power infrastructure, we provide things like low-voltage switchgear, medium-voltage switchgear, busways, bus bar, all the power infrastructure that goes into the 4 walls of the data center itself.

In addition to that, we have a second product business that's really focused around embedded power. And that business takes that power from the infrastructure into the board level and at the rack level. So both critical power and embedded power from a product perspective. And then on the other side, we have a services business where we focus on IT rack integration and tend to vertically integrate those racks. So we can assemble that rack, we can also vertically integrate that with our own sheet metal fabrication capability with our Coreworks product line, which is essentially electronic and mechanical components. We can even bring the aforementioned embedded power group into that product as well.

So really well diversified across that grid-to-chip sort of spectrum, which gives us access to 3 distinct categories of customers, which I think is also relatively unique. So obviously, hyperscalers is a big part of the business. The good news in that space for us is we don't have a heavy concentration. We have multiple hyperscaler relationships. And also within those hyperscaler relationships, we tend to sell multiple products and services. So great diversity amongst hyperscalers and in the portfolio that we offer.

Unique and new to us is that as we've built this critical power space, we've also created engagements with the largest colos. So hyperscalers and colos and then obviously, the silicon providers. And we engage the silicon providers in 2 ways. One, when those silicon providers develop their next-generation ASICs or GPUs or CPUs, they need to address power consumption. And so our embedded power group jointly designs a lot of those applications, gives us access into that space. And then we also work with those same companies to build the boards, integrate the racks and the like.

Michael, in your role as Chief Commercial Officer, you're engaged with a lot of the customers have a lot of conversations. As you look at the things that are driving that, mid-30% range growth rate for fiscal '26 in the data center business. Talk a little bit more around the breadth of that and to what extent you're starting to see either Neoclouds customers or even sovereign, enterprises starting to do some AI data center. Where is that strength coming from?

Yes. The interesting part is it tends to continue to broaden. And it depends on the product or service offering that we're providing. So when you think about the IT rack integration space, certainly, the hyperscalers drive the vast majority of that demand. But we're seeing more and more applications at the enterprise level, somewhat due to the fact that we recently announced an acquisition of JetCool, which is our liquid cooling platform. And in that space, it's actually given us a nice entree into more enterprise type of relationships that prior, we really didn't have a lot of exposure to. So the breadth of the portfolio really does help broaden that.

Now we also have a really intentional effort to get beyond hyperscalers to talk about and work with the NEO scalers as well and seeing more opportunities with them because they tend to want more integrated turnkey solutions across a broad spectrum of products and services. And so because we offer this really unique portfolio that goes from critical power to embedded power to IT racks integration, we can provide more through one supplier versus them having to go to multiple people.

Very helpful. The company recently announced a warrant agreement with Amazon. Help us better understand that, if you could, please. Why now? What does it add to the financial outlook for your data center business?

Yes. I wish I could share a ton of detail around that because I really believe it's an exciting relationship that we've built here with Amazon. We're really limited on what we can say, and I'll defer to Michelle on maybe some of the specifics. But some of the key takeaways that I would think about. One, I would see it as a really strong endorsement of what the opportunity is with Amazon. I would reiterate that it's for the entirety of Amazon, not any one particular business, and it applies to our entire products and services portfolio. Thirdly, I'd say it provides incentive to grow the business. So even though I can't get into the specifics of what we're going to win, when it's going to come, there's certainly incentive to make those things happen.

And what I would say is I would look back to really what we said 2 years ago at Investor Day when I think we first said we wanted to grow this business about 20% CAGR for the next 4 or 5 years, ended up doing 50% last year, 35% this year. This agreement wasn't in place when we made those commitments. So we're really excited about the possibilities.

Michelle, do you want to add anything?

No. I think I would just say it's a long-term partnership that we're super excited about.

Do you think this kind of structure could be something you would do with other hyperscalers?

Well, I would say that we have a wide variety of models in place with all of our customers today. Some customers prefer to really do more of a turnkey relationship and put that burden on Flex. Some customers prefer an asset-light model where they do a lot of that investment. We're open to any variety of financial relationship that makes sense that provides the return that we expect and the value to the customer. So the agreement doesn't prevent us from doing anything, whether it catches on or comes into play with other relationships, really hard to say.

The very strong growth in the data center market is also attracting competition. So to what extent are you seeing more competitors come into that space? If so, what does that mean for margins and how you manage your margin structure for the data center space?

Yes, great question. And I would first -- I would start with where we're tending to focus on our because it's a really broad market landscape that we're talking about here. And the first distinction I would make is that we tend to focus on custom applications, not standard platforms. And that's important because the standard platform space really tends to be dominated by ODMs. And we just don't see that market opportunity being margin rich. It's high volume, tends to be lower margin. It tends to be movable more easily. So we tend to focus on custom. And because of that, we tend to focus on, for instance, hyperscalers that bring to market their own silicon, right? They tend to require more custom applications.

I'd also say that next level of distinction is from a competitive standpoint is how we compete today. So think about EMS. So we've been in the EMS industry for 50 years, I think, and we've built this network of 150,000 people and over 100 different facilities in 35 or more different countries over that 50-year time period, and that's the foundation of what we do. But we're very different today from EMS in the data center. How is that? Well, look, a lot of EMS providers can integrate a rack. That's not necessarily differentiated. We could argue that we do it at scale that maybe some others don't. But where we become differentiated compared to an EMS provider is we can vertically integrate that rack with our own sheet metal. We can vertically integrate that rack with our own embedded power with our own Coreworks product line.

What EMS providers don't have is a power product portfolio at all, right? So even if an EMS provider says they're in the power business, they're build to print. They're building someone else's design. We're actually investing in and creating Flex IP to bring products to market. So we can compete in just EMS, but we're very different across the portfolio. From a power perspective, kind of a similar situation. In the critical power space, I mentioned that we compete with some pretty big names, the ABBs, Vertivs of the world. But those critical power providers don't provide embedded power solutions. And they don't provide IT rack integration at the scale in which we do.

Similarly with embedded power, we tend to compete with companies like Delta, right? Delta is a good company in the embedded power space, good competitor, market leader. They don't provide critical power solutions. And they don't provide IT rack integration at maybe the level and the scale that we do. So I think we've got 3 different categories of opportunity. We're able to compete in each category, but the more we're able to provide an integrated solution that requires 2 or more, we become really different than the other alternatives out there.

You just mentioned the importance of the whole portfolio and that full solution that you can bring to the customer set. You've done some deals to get to that level. You already mentioned JetCool. You've done Crown Technical. As you think about what you have in the portfolio today, how comfortable are you with this current product capabilities that you have in-house? And do you look to add more either with R&D or inorganic actions?

Yes. We -- as you've seen, we've been pretty active in the market, and we're deploying capital against those things that provide the greatest return. We'll continue -- if you look back, you'll continue to see the same level of discipline, whether that's through buybacks, whether that's through organic growth or inorganic growth. I'd say when you think about the question around the data center itself, we've mapped out the ecosystem there. We've come out and said, we think our products and services portfolio covers about 80% of the available spend. So then the question becomes, how do you penetrate that 80% to a greater extent? And how do you get after the 20% or do you even want to?

And I'd say that -- we think about pursuing that through 3 different lenses. The first lens is make. Is there a way that organically, we can create that capacity and that capability on our own. And I think to a certain degree, the answer is yes. And you've seen some announcements for us where we've announced a new factory in Dallas to support our critical power business. We have announced a new factory in Poland, a new factory in the U.K., all to develop and support the growth in those areas.

In terms of acquisitions, we'll continue to look for opportunities to scale that. If it provides a capacity benefit, it provides a capability benefit, we'll be thoughtful if it provides us with the right return. And then the other area, the third area that we're mindful of is you don't necessarily have to make or buy everything. right? And partnerships are going to become a really more important part of that overall portfolio as customers are looking for a one-stop shop for an integrated solution. We're looking at it from a make-buy and partnership perspective.

One of the near adjacencies for your power product set is the utility market. I think it's an area that Revathi and Chris Butler, who are really important new leaders in your company have a lot of experience with. So as you think about the products you have, some of the management knowledge of some of these close adjacent markets like utility and grid, to what extent do you think you can expand into some of these areas, especially now that you have something like Crown Technical?

Yes. We're excited about what the options are here. And when you think about the Crown deal, first, you have to step back maybe earlier in time and talk about the Anord Mardix deal, right? So the acquisition of our Anord Mardix business really provide us an entree into the critical power space. It was focused, however, in Europe primarily. And so low-voltage switchgear, power pods, busways, bus bars really focused on the European market and focused around data centers.

When you think about the Crown piece, we've got a number of things from that deal. One was we got medium-voltage switchgear to the portfolio. Two, we had an ability to extend that offering of power pods from Europe into the U.S. And then thirdly, we had access into the utility market. And so I would expect us to continue to pursue that opportunity, especially when you consider that power is the constraining item when it comes to the growth of the data center. So you'll see us support both the data center side and the utility side.

Maybe shift gears a little bit to the automotive market. It was one of the areas that the company articulated as being a key growth driver for it at your last Investor Day. I think as of that point, you were expecting that 10% CAGR. There's obviously been some volatility in terms of the policy environment, macroeconomic conditions. Can you level set us on what you've been seeing in the auto space and how investors should think about growth here going forward?

Yes. The first is the obvious statement. It's a far different world today than it was when we made that commitment for sure. And I don't think we're alone in that. So whether it be macro, whether it be policy, it's been a pretty tough road for the automotive business, and we've been upfront about that. Nothing new since our earnings, but still in the same challenging spot that maybe it was.

Maybe the more important piece of that is where do we go from here in that space. And a couple of developments I would point to. One is, first, there's been a lot of talk about the false start in the EV and now the pivot back into hybrid or ICE type applications. And so the first thing that we like to reiterate is that we've come to market with a power platform that is agnostic to either hybrid or EV. So once the companies that we support finish the retooling of their factories from EV back to hybrid, we're in a really good position to sell our power platform into that space.

The second area I'd say is from an automotive standpoint, consumers in that space are transitioning from buying automobiles based on, say, mechanical performance or engine performance and user experience. And right now, the big impetus for our customers is around the software-defined vehicle. right? The software-defined vehicle really suggests that software is becoming the core competency, the next secret sauce of the automotive makers. And that's created an opportunity from our perspective. Because up to this point in time, think about the market being served in 2 ways. One, from a build-to-print standpoint, where EMS played build-to-print whatever the automotive maker wanted, that's what the EMS provider to build. On the other end of the spectrum, you have the Tier 1s. And the Tier 1s have been continually investing in the software capability to marry with the hardware capability to provide a complete product to the automotive makers. Well, that worked for a number of years until software became the next secret sauce.

And so that's created a bit of a problem because I don't know that Tier 1s are too enthusiastic about not selling software to go with their hardware given the investments that they've made. So we decided to grab that middle ground. We don't intend to be a software provider in the space, but we also don't intend to be purely EMS. We've actually created our own product platforms, centralized compute to support the trend towards software-defined vehicles. So our automotive customers can take that platform, apply their own software and go to market with their own customized solution.

You mentioned power. You just brought up compute. Any other key content drivers for you in the automotive space, anything around ADAS sensors, actuators, other important drivers we should have in mind?

Well, I'd say that what's driving that compute platform, that compute platform is going to be centralized, and it's going to support all of those adjacencies that you talked about. One of the big transformations taking place in automotive today is it used to be a very mechanically driven distributed architecture and how an automotive -- and how a car was built. Well, what the automakers have learned is that there's a better, faster way to do this when you look at the pure-play EV providers who have come to market without the constraints of how we used to build cars, right? They're native online computer-driven sort of vehicles, and they're very centralized and very simplistic. So automakers are transitioning hard into that way of thinking. So having this ruggedized centralized compute capability is going to play into a lot of those applications.

You mentioned something interesting I wanted to follow up on about having product capabilities in the auto space. And we were just talking about the data center market and having products and the margin profile of selling that product on your own to some of those customers. As you think about autos, is that same kind of an opportunity? Or do you need more you've got some reference designs that can speed development if customers choose, but still a little bit more in line with the past model?

Yes. I'd say it's closer to the reference design end of the spectrum. On the power side, there's an opportunity to have that more be a product offering because that's what automakers are looking for. They're looking for a more turnkey solution on the power side because they don't see a DC to DC converter as being a core competency like they do on the software side. So in the compute space, you'll continue to see that be a platform where they can integrate our hardware with their software, but it won't be a complete product platform because, again, software-defined vehicle is their new secret sauce.

And where are you seeing the most traction with customers in the automotive space? I think historically, Flex has skewed a little bit more to some of the traditional auto OEMs for revenue in this area. Are you having any momentum with some of the Chinese auto OEMs or EV pure plays? Just help us understand where you stand at that.

Yes. What we've said is still true today, and that is our largest customer base is North American focused, followed by Europe and then followed by China. Now we state we're engaged in China for a couple of reasons. One, it's hard to argue that there's not a massive amount of innovation taking place in that marketplace, especially around EV. So we want to participate in that innovation for sure. Most of our business, if not all of it, is in China for China when it comes to that geography. We are being pretty thoughtful though, because in China, you also have hundreds of automotive OEMs, and there will be consolidation. Who the winners are beyond BYD is probably hard to predict. But for sure, we know there will be consolidation in that space. We want to be thoughtful about it. We want to have exposure to it, but we'll be thoughtful about China.

I'd say that North America and Europe continue to be the vast majority of our opportunity. It's both ICE and whatever EV is the choice of the marketplace, whether it be EV purely played or hybrid. I would say, though, that more of our opportunity is starting to look less like pure-play EMS and more around this platform plays around power and compute.

Very helpful. Maybe talk about a couple of other end markets that Flex has exposure to. I wanted to touch on networking. Talk about what you're seeing from an end market perspective, but also some of the share opportunity because I think you alluded to some potential share gains on your last earnings call.

Yes. Networking has been an area of improvement for us, which is pretty exciting. And first step back and if you think about our data center business, we talked about that business being about a $6.5 billion business. by the end of the year. And we've narrowly defined what goes in that data center business. It's hyperscalers, it's colos and it's silicon providers. It's not networking, right? Now what we all know is that more and more networking has exposure to AI-driven demand.

And so a couple of things are happening in that space. One is the complexity of the programs that are being asked to manufacture is continuing to increase and the places that they're asking for these things to be manufactured is shifting. So for years and years and years, low-cost supply chains were put in place in Asia, in China that were hardened over 20, 25 years. Now they want to take more complex technologies and transition from areas of, call it, higher risk into areas of lower risk that are closer to point of use. And so we're shifting that production. As we're going up the complexity curve, we're shifting that production to areas like Mexico, Europe and India.

And is that just kind of traditional switching and routing or optical or both?

The whole spectrum. So we're a large manufacturer of high-end switchgear. We're not a product company when it comes to optical, but we're a large manufacturer of optical equipment for our customers. And so when you think about that spectrum of products, I would say what shifted is an ongoing trend towards the higher end of the complexity spectrum and more regionalized manufacturing of those applications.

Okay. Very helpful. I want to talk on health solutions. That market has been a little flatter over the last few years, especially post some of the work you all did for COVID and some of the respiratory products have been in the $2.6 billion to $2.7 billion range. You talked about an expectation for some recovery in medical equipment toward the end of this fiscal year. What drives that? And what should investors think about growth over the medium to longer term in medical?

Yes. I'd say when you think about the health solutions business, think about it through 3 different lenses. We've got our medical equipment business, our devices business and our drug delivery business. And if you think about sort of the performance of the recent past and the expected growth of the future, it's probably easiest to say that the softness in the equipment space is being offset by strength in the devices space with hope on the horizon for drug delivery.

Let me peel that apart a little bit, okay? So first, on the equipment side, I mean, CapEx spending is still pretty tough in the capital equipment space. Interest rates are still high. I don't think that spending is recovering in a really rapid rate from that perspective. I'd also say that OEMs in that space are facing increasing competition from Chinese medical equipment companies that are doing very well in that space. So we're not seeing a big bounce in that space. We are seeing strength in our device business. So we are a big provider into the CGM space, the continuous glucose monitoring space. So that business is continuing to grow for us. We do expect that to continue.

So real simply, softness in equipment offset by strength in devices. That leaves us with drug delivery. So we've announced some recent wins in that space in the GLP space. And we're excited about that. But also wins in that space take a few years to ramp to production. So that's why I say on the horizon, we expect growth in that space. So that's how I'd characterize the health solutions business for us.

But it is one, I think, has the potential to grow at least mid-single digits, if not even something a little bit better than that as you think over 3, 5, 10 years.

Yes. And we haven't updated our guidance on that. I think we have an Investor Day coming up in May, where we'll refresh the outlook, but we would certainly have a lot more optimism around the health solutions space than maybe some of the other businesses.

Okay. You mentioned services previously in our conversation. You spoke on some of the capabilities Flex brings to that area around metal vending, but I think it's a broader capability set that Flex brings. Talk a bit more on what you do in services.

Sure. So I'll just remind everyone to step back first, EMS was what we had been known for that we've built over the past 50 years. Now we're a products and services business. So think about that lens first. Take away the product business, right? Now you're left with services. Within services, you have 2 different areas. One is traditional EMS and the rest is the value-added services piece that you're talking about.

So what does that mean? Well, it starts with the front end. So we've created a design capability separate from the design and engineering that's focused on creating Flex IP and products. This is to bring products to market for manufacturability, bring products to market faster, more reliably, more cost effectively based on what we know about the manufacturing environment. That's one piece. Secondly, think about the products that we're manufacturing. We vertically integrate that with things like sheet metal. We vertically integrate with plastics with our Coreworks product line. So that's another piece of it is the vertical integration. And then the third piece is around aftermarket.

And so we have a global services business that operates post production that's really operating at scale already that we don't talk a lot about, but it's operating in over 25 factories today, and it's really 2 different categories of services. One is on the forward side where we provide value-added fulfillment capabilities. So we can do late-stage configuration, and we can land product on time, on cost, on quality, either to another business or even to a home address, depending on the business that we're providing that service to. Alternatively, once it goes out, some of them might have to come back. And so through our circular economy suite of services, we can repair, refurbish or recycle those products that we put into the market and either repurpose those for resale, but for sure, limit the amount that goes into landfill.

And I think the services business, if I'm not mistaken, has pretty attractive margins.

So the services business, I think, is important for a number of reasons. The first of which is it does operate at a margin profile that's greater than the company average. But the second is it provides a more sticky relationship with our customers. So we talk about competition a lot. Well, you have to differentiate to earn the right to keep a customer. And so the more products and services we can do with each relationship, the stickier we get. And so much easier to keep a customer if you're not just, say, integrating a product, but you're vertically integrating it, you're fulfilling it, you're taking it back for service, much harder to disassociate that relationship than just pure building.

I wanted to talk a bit more on manufacturing and your global footprint. Flex has, I think, about 100 sites across something like 30 countries. You already spoke around the networking and optical space and seeing some of the customers want to do more close to where they're ultimately shipping their product. But talk a bit more on what you're seeing from geographic trends and to what extent, especially with tariffs in place, you're seeing more of a shift to your Mexico and U.S. sites?

Yes. I think the first principle in all this is expect the unexpected, right? And although that sounds like that's something you can't plan for, it's actually a really important principle for which you design your supply chain, because you have to design for unpredictability, mean long gone are the days where you can rely on one single site in location to optimize for cost. You now have to optimize for business continuity as much as cost and for customer experience, bringing production closer -- as close to the customer as you possibly can and to your point, to mitigate whatever the trade policy ends up being whenever it actually happens.

So I'd say that you've seen the investments reflect this trend for us. And I'd say these trends have been occurring over the past 5 years. This isn't a recent phenomenon. I'd say it dates back, I'll call it, Trump 1.0 for the first administration when trade wars really started, followed by a global pandemic. followed by massive material constraints, followed by real wars in multiple geographies and now, call it, Trump 2.0. So we've been in this environment shifting the supply chain for a number of years now. And what it's resulted in is a growing capability and capacity in Mexico. Now that we've had the benefit of hosting down in Mexico to show you that capability before, and that's been a great success for us. We're also investing considerably in the U.S. today across multiple businesses. We talked about our investment in Dallas. We've talked about our investments in South Carolina, among other places.

So the U.S. footprint, North America is one of our fastest-growing footprint in the portfolio today. You look at Europe, we talked about investments in the U.K., talked about investments in Poland, another recipient of capital when it comes to the portfolio. And then thirdly, one we haven't talked about today is India. And India is still a really important capability for us, depending on what that opportunity might be. So from our perspective, we're going from this low-cost single-site solution into a more regional operation and climbing the complexity curve at the same time.

How important is automation in your manufacturing, especially as you do more in the United States, do you need to do incremental automation? And if so, are you seeing anything interesting on the technology front that is allowing for that?

The more you shift into these new regions and geographies, the more automation will play a role. First, you have to talk about the data because everyone really is interested in how you're utilizing AI to optimize your efficiency and your productivity. And the first thing you have to sort of address is the data. And right now, that's one of the biggest challenges to applying AI to a manufacturing environment. All these different equipment platforms don't provide data in the same format to make it usable and leverageable. So one area that we're really focused on is harmonizing the data from which we can apply AI.

While we're doing that in parallel, we're obviously not waiting for that. We've invested in our own Flextronics standard equipment platform. So right now, today, inside of Flex, we have a standard platform that applies to -- last I counted over a dozen formerly manual processes in our manufacturing environment. So now we can automate with our own platform on any factory to get to that automation more quickly and more cost effectively and get the data in a harmonized way so that we can then apply AI. So doing a lot of work around data harmonization, a lot of work around deploying the standard automation footprint. And I would say the more that regionalization impetus takes hold, the more we're going to rely on automation.

Are humanoids something that you guys think you'll be using? And if so, is that next couple of years or 5-plus years?

For sure, everyone has to contemplate the use of humanoids in a factory. I don't see that as being a near-term opportunity at present. But I always get a little reluctant to doubt the rate of innovation that takes place. And so I'd never say never. I'm not locked in on a time frame. But near term, we're focused on data and standard platforms. And if humanoids become a good use of capital, we'll be one of the first implementers of that.

No, always interesting to see all the things you guys are working on given all the different products and regions that you manufacture in. I did want to ask another one on end markets. We spoke a lot already around some of the different end market trends, especially over a medium- to long-term perspective. But coming out of the most recent earnings report, has anything surprised you in terms of what you're seeing in terms of market conditions?

No, I don't think there's any -- yes, so first, I don't see any real change since earnings. So anything I say isn't intended to communicate a change at all. I would say that the good news is we're seeing continued strength in data center. right? We're seeing the power businesses perform really well. The IT rack integration business is running really well. We've seen the ongoing sort of challenges that we talked about in automotive. We've talked about renewables. The thing about our portfolio is it's built to withstand the variances that happen by market.

I've been in the company for 20 years now. I don't think I've ever been here at a time when every single business is operating at peak performance at any given point in time. But I think it's periods like this where the macro is, relatively speaking, a challenging place to be and still being able to put numbers on the board, improving margin, improving profit dollars, delivering value to our shareholders is in some way, shape or form, a result of the strength of that portfolio.

End on a margin question. I mean, because you guys are at 6% margins, even with some of the tariffs and roughly double what you would have been doing 5 to 10 years ago. So it's been a remarkable journey. Is 6% sort of a peak margin level as you guys think about the profitability potential of this business? Or is this something that you can build off over the longer term?

Yes. So I can't refresh our guidance yet on what the long-term views of the margin is, thrilled that we're able to get to that 6% level almost a year in advance of when we thought we could. And if you look back, you probably get the answer to where we're going in the future. First, we've been very intense about shifting the portfolio to higher-margin businesses. When I was running the Agility Solutions business, we talked about really methodically taking down our consumer business and replacing that with higher value, more stable business.

And sure enough, if you look back, we took our Consumer Devices business down by $2 billion. We replaced that with high-calorie data center business and improved margins from a 2 handle to a 6 handle over that time period, right? You've seen our reliability business even in the last year, improve to that 6%. So we have both segments operating at 6%. When you look at the growth rates in our higher-margin business of data center and you look at how that portfolio could shift, you'll naturally get some blended margin improvement as a result of that expectation.

Well, it's been really great to see, and we look forward to what you have coming ahead. Unfortunately, we are out of time. So we'll have to end it there. Michelle, Michael, really appreciate you joining us.

Real pleasure. Thanks for having us.

Thank you.