Flex (FLEX) Q1 2026 Earnings Call Transcript

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DATE

Thursday, July 24, 2025 at 8:30 a.m. ET

CALL PARTICIPANTS

Chief Executive Officer — Revathi Advaithi

Chief Financial Officer — Kevin Krumm

Head of Investor Relations — Michelle Simmons

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TAKEAWAYS

Revenue: $6.6 billion (non-GAAP) for Q1 FY2026, up 4% year-over-year (non-GAAP), driven by growth in both cloud and power data center markets (non-GAAP).

Adjusted Operating Margin: 6% (non-GAAP) operating margin

Adjusted EPS: $0.72 adjusted EPS, representing record first-quarter results

Data Center Revenue: On track to deliver approximately $6.5 billion in non-GAAP revenue for FY2026, making up 25% of total company revenue (non-GAAP).

Gross Margin: 9.1% non-GAAP gross margin

Free Cash Flow: $268 million free cash flow

Net Inventory: Net inventory (non-GAAP) was up 3% sequentially.

Stock Repurchases: $247 million (about 7 million shares) bought back.

CapEx: $131 million

Americas Revenue Mix Shift: Increased to 49% of total in FY2025, up from 38% in FY2020; Asia's share dropped to 30% from 41% over the same period.

Segment Results — Reliability Solutions: with operating margin (non-GAAP) improving 100 basis points to 6%.

Segment Results — Agility Solutions: with operating margin rising 120 basis points to 6.5% (non-GAAP).

Tariffs Guidance Update: Tariffs are now incorporated into full-year FY2026 revenue guidance (non-GAAP), but are expected to have no material impact on FY26 growth rates due to pass-through protections.

FY26 Guidance (Midpoint Increase): Updated full-year revenue outlook (non-GAAP) to $25.9–$27.1 billion for FY2026 (midpoint up by approximately $600 million), adjusted operating margin 6%–6.1% (non-GAAP), adjusted EPS (non-GAAP) $2.86–$3.06, and maintained free cash flow conversion target above 80% (non-GAAP).

New Poland Facility: Acquired plant doubling European power production capacity, supporting global data center demand.

SUMMARY

Flex Ltd. (NASDAQ:FLEX) expanded both gross and operating margins (non-GAAP), specifically highlighting robust growth in data center cloud and power segments. Management described significant progress in regionalization, citing expanded capacity and technological investments as key strategic differentiators for serving customer needs across the Americas and Europe. Full-year guidance was raised, with tariffs now included in non-GAAP FY26 forecasts but Tariffs are not expected to have a material impact on revenue growth rates, but do have an impact on margin performance.

Management highlighted that data center growth remains on track for the 35% annual target (non-GAAP), with power outpacing cloud due to last year’s lower power baseline.

CFO Krumm pointed to the effect of first-half FY2026 comparison benefits versus weaker prior-year results as supporting earnings growth (non-GAAP), while noting increased near-term investments and tariff pass-throughs as moderating full-year margin expansion (non-GAAP).

CEO Advaithi referenced customer demand for integrated IT, power, and cooling solutions as a core driver of data center revenue mix, underscoring Flex Ltd.’s unique positioning with end-to-end offerings.

No segments or end markets were explicitly described as deteriorating; management stated that current demand trends are performing in line with prior forecasts.

The new Poland plant and continued automation investment were cited as supporting future growth and enhancing Flex Ltd.’s long-term manufacturing capabilities.

INDUSTRY GLOSSARY

Data Center Power Pods: Modular assemblies providing scalable power distribution solutions in large-scale computing facilities.

Direct-to-Chip Liquid Cooling: Advanced cooling method where liquid coolant is delivered directly to computer chip surfaces to manage heat at high-power densities.

Colo: Short for colocation provider; a company that offers shared data center space and resources for enterprise customers and hyperscalers.

USMCA: United States–Mexico–Canada Agreement, a trade pact referenced regarding supply chain and tariff considerations.

Full Conference Call Transcript

Operator: Thank you for standing by. Welcome to Flex Ltd.'s First Quarter Fiscal 2026 Earnings Conference Call. Presently, all participants are in a listen-only mode. After the speakers' remarks, there will be a question and answer session. If you would like to withdraw your question, please press star two. As a reminder, this call is being recorded. I will now turn the call over to Mrs. Michelle Simmons. You may begin.

Michelle Simmons: Thank you. Good morning, and thank you for joining us today for Flex Ltd.'s first quarter fiscal 2026 earnings conference call. With me today is our Chief Executive Officer, Revathi Advaithi, and Chief Financial Officer, Kevin Krumm. We will give brief remarks followed by Q&A. Slides for today's call as well as a copy of the earnings press release are available on the Investor Relations section at flex.com. This call is being recorded and will be available for replay on our corporate website. Today's call contains forward-looking statements, which are based on our current expectations and assumptions. These statements involve risks and uncertainties that could cause actual results to differ materially.

For a full discussion of these risks and uncertainties, please see the cautionary statements in our presentation, press release, and the Risk Factors section in our most recent filings with the SEC. Note, this information is subject to change, and we undertake no obligation to update these forward-looking statements. Please note, all growth metrics will be on a year-over-year basis unless stated otherwise. Additionally, all results will be on a non-GAAP basis unless we specifically state it's a GAAP result. The full non-GAAP to GAAP reconciliations can be found in the appendix slides of today's presentation as well as in the summary financials posted on our Investor Relations website.

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

Revathi Advaithi: Thank you, Michelle. Good morning and thank you for joining us today. So starting on slide four, Flex Ltd. just wrapped up an exceptional quarter delivering positive results against our guidance. The groundwork we have laid out over the last several years continues to position us well in driving profitable growth with a growing data center business as well as serving as a manufacturer of choice for our partners. The benefits we are seeing from our global footprint are a result of our actions that started years ago as we focused on being able to meet the needs of our customers wherever they are in the world. Our revenues were $6.6 billion, up 4%.

Our adjusted operating margin was 6%, and we delivered adjusted EPS of $0.72, a record Q1 number for Flex Ltd. Our great start to fiscal year 2026 gives us improved confidence in our ability to hit our fiscal year commitments, which has been reflected in our improved FY26 guidance. But we are not done. So let's turn to slide five. Our portfolio mix continues to shift as data center becomes a larger and more strategic contributor, and this quarter was no exception.

We delivered strong performance across both our cloud and power portfolios, and we continue to expect this business to deliver approximately $6.5 billion in revenue, growing at least 35% year over year and representing 25% of our total revenue. But what makes this business truly compelling isn't just its size or the growth, it's the architecture and integration behind it. Let's take a moment to unpack what this means. On the cloud side, we deliver vertically integrated IT hardware and infrastructure solutions, including metal fabrication, custom rack assembly, and direct-to-chip liquid cooling technology.

On the power side, our solutions span the full stack, from board-level modules managing power to the chip all the way to the facility level with modular power pods. Flex Ltd. is the only provider offering both end-to-end cloud IT integration and a full power and cooling portfolio at scale. And that matters because customers today are in an arms race to scale. They don't just need custom rack solutions, but they also need power for their chips. They need to cool it, and they need to deploy it quickly. Delivering integrated scalable solutions from grid to chip is essential, and it's a key reason why Flex Ltd. continues to be a strategic partner of choice.

That brings me to our broader geographic footprint and our global operational scale remains one of Flex Ltd.'s most significant competitive advantages not just in data center, but across all our end markets. And it's not just the size of our footprint, but our ability to shift and scale complex production across regions to meet evolving customer needs. We operate more than 49 million square feet globally, including 7 million square feet in the US and 9 million in Mexico. Footprints in North America. But what truly sets us apart is how we operate. Across our sites, we have embedded AI-enabled systems, advanced automation, and localized supply chains designed for speed, flexibility, and resilience.

These capabilities are critical not only in data center, but also across our other end markets, including automotive, healthcare, industrials, and more. Which accounts for 75% of total Flex Ltd. revenue. These are highly regulated complex products that require global design and delivery. At this scale, paired with deep supply chain expertise, enables Flex Ltd. to help customers navigate challenges like tariffs, regional regulations, and supply disruptions. We have led the shift towards regionalization and the impact is clear. America's revenue for us rose to 49% in fiscal year 2025, up from 38% in fiscal year 2020. While Asia declined to 30%, down from 41% over the same period.

These shifts reflect evolving customer needs, and Flex Ltd.'s ability to execute. Looking ahead, we're especially bullish on our advanced we see continued productivity gains from deploying AI and intelligence systems that across our factories. You can see by bringing together advanced manufacturing services and Flex Ltd. IP products, we all supported by advanced automation and AI capabilities, are powering transformation across industries and geographies. While there is no shortage of news flow around uncertainty in the markets, we remain confident in our positioning. The Flex Ltd. you see today is not the same company it was ten years ago, from the people to the portfolio of businesses.

We have positioned ourselves to lead in our markets focusing on profitability and trust transformational acquisitions that continue to evolve who we are as a company. We were early to focus on high growth end markets such as a data center and power, build a scaled and regionalized footprint, and integrate services in a way that transform Flex Ltd. from a contract manufacturing to a strategic end-to-end partner. I remain deeply confident in our strategy and the unique value we deliver. The solutions we provide and capabilities we have built have positioned us for one of the most compelling opportunities in Flex Ltd.'s history. With that, I'll turn it over to Kevin to walk through the financials.

Kevin Krumm: Thank you, Revathi, and good morning, everyone. I'll start with our key financials on slide eight. First quarter revenue came in at $6.6 billion, up 4% driven by strong data center growth across both cloud and power end markets. Gross profit totaled $596 million and gross margin improved to 9.1%, up 130 basis points. Operating profit was $395 million with operating margins at 6%, up 120 basis points. Finally, earnings per share for the quarter increased more than 40% to $0.72 per share. Turning to our quarterly segment results on the next slide. In Reliability Solutions, revenue was $2.9 billion, down 2% year over year in line with our expectations.

Results reflected continued macro-related pressure in automotive and renewables, which was partially offset by strength in power. While all three reporting units saw modest declines, operating income improved to $172 million and segment margin expanded 100 basis points to 6%, demonstrating strong execution, continued focus on mix, and disciplined cost management. Agility Solutions revenue totaled $3.7 billion, up a strong 10% year over year driven by robust cloud and AI demand that more than offset continued softness in traditional telecom and consumer-facing end markets. Operating income was $240 million with operating margin expanding 120 basis points to 6.5% supported by effective cost management and favorable mix shift, including increased penetration of value-added services. Moving to cash flow on slide ten.

Free cash flow in the quarter was $268 million representing conversion of 98%. Net inventory was up 3% sequentially driven by increased volume and down 11% year over year. Inventory, net of working capital advances, was 55 days, a reduction of seven days versus the prior year. Net CapEx totaled $131 million or approximately 2% of revenue, and we purchased around $247 million of stock, which was approximately 7 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, pursuing accretive M&A opportunities, and returning capital to our shareholders through opportunistic share repurchases.

In the quarter, we acquired a new manufacturing site in Poland, which will produce low and medium voltage switchgear, power pods, and busways. This doubles our power capacity in Europe, allowing us to meet the rising global demand for reliable data center power. It is also a great example of Flex Ltd. deploying capital in a margin accretive way to grow our capabilities and our products portfolio. Looking at our full-year guidance on slide eleven, as we head into the second quarter and we look out to the rest of the year, the macro environment remains dynamic.

That said, we're continuing to execute well and the steps we've taken to focus Flex Ltd. on high-growth strategically important end markets are delivering results. One of the key enablers of our performance is our global scale. We have allowed us to support customers in accelerating their regionalization strategies, bringing manufacturing closer to end markets to improve agility, reduce risk, and meet evolving trade requirements. While the situation continues to evolve, a few key points to keep in mind. We expect tariffs to remain largely pass-through costs with strong contractual protections in place. Importantly, while last quarter we did not incorporate the direct impact of tariffs into our revenue guidance, this quarter we're doing so.

With greater clarity around the scope and timing of the tariff impact, we believe this adjustment provides a more accurate view of expected revenue performance. That said, incorporating our current view to tariffs does not have a material impact on our full-year guided growth rates. With that context, our updated FY26 expectations are revenue between $25.9 and $27.1 billion, which increases our midpoint by approximately $600 million. Adjusted operating margin between 6% and 6.1%, adjusted EPS between $2.86 and $3.06 per share, adjusted tax rate of 21%, and we continue to expect strong cash generation and maintain our 80% plus free cash flow conversion target for FY26. We'll continue to monitor the tariff environment and adjust as needed.

As it stands today, we're confident in our ability to navigate these shifts while delivering against our financial commitments. Moving to our segment outlook for the year. Our segment outlook remains largely consistent with last quarter's as end market demand trends continue to track in line with our expectations. For Reliability Solutions, we now expect revenue to be down low single digit to up mid single digit. A marginal improvement from our prior view. Continued strength in data center power is helping offset macro-related softness in automotive, core industrial, and renewables. For Agility Solutions, we anticipate modest year-over-year growth in the low to mid single-digit range. Reflecting a slight improvement from our prior year outlook.

Growth will be driven by sustained demand in cloud, ongoing benefit from previously secured lifestyle wins, and strategic share gains in networking. These tailwinds are expected to be partially offset by continued softness in enterprise IT, telco, and consumer devices. In finishing off with our guidance for the second quarter on slide thirteen, we expect Reliability Solutions revenue to be down low single digit to up low single digit with continued weakness in automotive and parts of health offset by solid performance in our power business. We expect Agility Solutions revenue to be up low single digit to up mid single digit. Strength in cloud and continued momentum in networking offset by ongoing softness in traditional telecom consumer-facing end markets.

For total Flex Ltd., we expect revenue in the range of $6.5 billion and $4.15 billion. Interest and other expense is estimated to be around $38 million and the adjusted tax rate to be approximately 21%. Lastly, we anticipate adjusted EPS to be between $0.70 and $0.78 per share based on approximately 381 million weighted average shares outstanding. With that, I'll now turn the call back over to the operator to begin Q&A.

Operator: Thank you. We'll now begin the question and answer portion of today's call. One moment please for the first question. Our first question comes from the line of Samik Chatterjee with JPMorgan Chase & Co. Please proceed with your question.

Samik Chatterjee: Hi. Thank you for taking my questions. Strong print here and strong margins as well. Maybe if I can start with the margin outlook for the year. You did a 6% in 1Q. You're guiding to hold that level. I'm a bit surprised along with the increase in the midpoint of the revenue. You're not seeing more leverage on the margin side for the full-year outlook. Maybe you can clarify that as to why the margin outlook isn't improving along with the revenue guide? And then I have a quick follow-up. Thank you.

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

Revathi Advaithi: Samik, I would say first is its first quarter. It was a very strong set of numbers for Q1. And as you can see, you know, pretty much you're seeing the 6% kind of flow through. So we feel we're always conservative about our kind of how we forecast the year, but it's a really strong set of numbers both for the current quarter and the full year.

Samik Chatterjee: Okay. Okay. Got it. And so my follow-up, I see for the data center revenue, you're outlining the target of 35% year over year. Maybe you can sort of give us a bit more details on what the trends were in 1Q itself, and if you can break it out between cloud and power and is your are your expectations still consistent for power to maybe have a stronger year than cloud this year? Thank you.

Revathi Advaithi: Yeah. Samik, I'll say that first is we feel very good about our 35% growth forecast that we gave for this fiscal year. It's the first time we've given a full-year fiscal forecast for our data center business, and that's because of, you know, becoming a large percent of our overall portfolio. We're in line with that 35%, and, you know, I would say from a quarterly perspective, you know, we don't want to give quarterly guidance and quarterly numbers because they tend to move around, but the 35% we feel very strong about.

We're still in line with what we had said earlier in the start of the year that power will be stronger, and that's because they had a little bit softer year last year relative to the cloud business, but they're both going to be pretty significantly strong in terms of the overall 35%. So on track for that and continued also margin accretion to the overall Flex Ltd. portfolio. So pretty robust numbers, I would say, data center for both cloud and power.

Samik Chatterjee: Got it. Got it. Thank you. Thanks for taking my questions.

Operator: Thank you. Our next question comes from the line of Mark Delaney with Goldman Sachs Asset Management. Please proceed with your question.

Mark Delaney: Yes. Good morning. Thank you very much for taking my questions. Flex Ltd.'s products, assembly, and services capabilities have allowed it to do very well in the data center. I am hoping to better understand how the market for products may be evolving. Amazon recently announced it plans to use some of its own internally designed cooling products going forward. So do you think this may be a trend that hyperscalers doing more power on cooling products in-house more generally long term? And if so, how may Flex Ltd. fit into those plans?

Revathi Advaithi: Yeah. I'd say, Mark, that, you know, as we look at our capability around IT rack integration, around cooling and power, you know, we've toggled towards having product capability and our own technology capability around both power and on cooling. How I feel about cooling is very bullish. I think Amazon's announcement, you know, really validates the fact that we needed the capability both for manufacturing capability, but also technology capabilities. So having both is really important. You can't have one or the other. I would say that hyperscalers continuing to invest in their capability. We see as a positive thing.

So whether it is providing it as an advanced manufacturing solution or bringing our own IT and technology into the manufacturing side of it, or into the design side of it, giving a fully integrated solution. Is a is a right way to go. And, again, you know, as I've said this before, Mark, is having both compute and power with cooling overall, we think is a is a good way to go. So we view this announcement as a positive.

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

Kevin Krumm: Hey, Mark. This is Kevin. I'll take that. So first, first quarter was a great quarter above expectations. The team navigated really well. As Revathi alluded to earlier, one quarter does not necessarily make the entire year. So but as we look at it, we did raise revenue. And as I said earlier, sort of the midpoint of OP profit dollars. You don't see that pass all the way through the EPS because we lost a little guide to guide and the interest and other line item.

That said, when you look at first half for back half, which I think was the other part of your question, you know, especially maybe if looking at EPS or OP growth rates, I would say the first half of this year, we are getting a benefit from a prior year comparison. Prior year revenue was down pretty significantly in the first half of the year, so we had some absorption issues that impacted operating profit pretty significantly. So that is a comparison benefit that the first half of the year is getting. The other thing I would say is we're seeing growth this year in the data center. We talked about that.

So we're gonna continue making investments in programs and capability in the back half of the years support that.

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

Mark Delaney: Okay. Congratulations again on the on the good results. So thank you.

Kevin Krumm: Thanks, Mark.

Operator: Thank you. Our next question comes from the line of Steven Fox with Fox Advisors. Please proceed with your question.

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

Revathi Advaithi: Yeah. I'd say Steven, first is I think it's a good problem to have where we have so much growth that we have to continue to invest in capacity. And, you know, you are well aware of all the, you know, the supply-demand equation in terms of AI infrastructure, which we see both in cloud and power. I feel good about the investment that we have announced and making. Our Dallas facility is ramping up very well. We just bought this facility in Poland, which is a fully capable facility that really helps us kinda from a European perspective. So we feel really good about the new investment in growth for AI infrastructure both in power and cloud.

And, you know, our goal would always be not to have so much capacity, but just enough capacity where we're able to bring down lead times and keep up with the demand. And I feel like we're in the right place. You see that with our numbers. Right? Thirty-five percent is a very strong number for data center growth. We're delivering that because we have new capacity, and we will continue to add more.

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

Revathi Advaithi: Yeah. I would say that for automotive, at least our, you know, I know that from the end markets externally, you're hearing that there are some upsides. I think we gave a fairly conservative guide, and so we're in line with the guide in terms of numbers itself. So I feel good that, you know, we took this view because I think how the year will turn out is pretty much how we thought it's going to work out. And then, you know, if you look at our auto portfolio, we're kinda more geared towards North America, and so that kinda fits into the overall kinda how we compare the global numbers.

I'd say industrial is also performing as we've expected. Right? The in kinda end markets that are infrastructure-related, there is green shoots on areas like renewables, you know, those story there. And then I'd say the other areas to think about is on networking side, we've talked about that we've had really good strong gain the share gains, and that's a big plus for us. And then on the healthcare side, you know, equipment is performed in line, but devices have been extremely strong. So that's kinda how the overall markets have evolved.

And being good at predicting the end markets in this environment, I would say, is quite a plus, and we feel good about kinda how we've looked at the year.

Steven Fox: Great. That's all helpful. Thank you.

Revathi Advaithi: Thanks, Steven.

Operator: Thank you. Our next question comes from the line of Ruplu Bhattacharya with Bank of America. Please proceed with your question.

Ruplu Bhattacharya: Hi. Thanks for taking my questions. I have two, one for Kevin, one for Revathi. Maybe I'll start with Kevin. Can you give us a little bit more detail in terms of what you factored in terms of tariff impact to the full-year guide on the top line operating margin and EPS? Are you assuming any impact to the USMCA exceptions? What do you think about the two thirty-two tariff impact? And I think you said to an earlier question that there's some impact on the interest and can you clarify how much that is? Then I have a follow-up for Revathi.

Kevin Krumm: Okay. So on tariffs, basically, our view that we're pushing through is as of the June view, sort of the pause. Okay? So that's what we've brought in. We do not see any USMCA impact. And as I said earlier, it's dynamic. You know, our customers are making moves to offset impacts to tariffs, etcetera. So we're not guiding to a tariff number this year. What I said on the release, I'll repeat or on the script, I'll repeat here, which is tariffs are gonna have will not have a material impact on our growth rate. You look at our revenue growth year on year. They do have an impact on margin performance.

We've talked about that in the past as you're passing it through. They're largely a pass-through for us. So you see that in this updated guide as well. You asked on interest expense. I would say there's really two elements of that. One is we are looking at the timing of interest rate. You know, we have variable interest rates that are included in there. We also have timing in a refinancing that's included in our view. To the rest of the year. And then we also have costs associated with currency exposures. We brought all those views into this revised guidance. Which is why you're seeing an increase in that line item guide to guide.

Ruplu Bhattacharya: Okay. Thanks for all the details there. Revathi, can I ask when we look at the two segments reliability and agility, can you help us rank order for each of those segments how like which end markets you expect to grow stronger? Which ones grow weaker? And how does that impact your decision to invest in different end markets? So I mean, I'm sure you're gonna be investing in cloud and power, but beyond that, do you think about investing for growth? I mean, do you which end markets or which segments should we expect more spend from Flex Ltd. on? Thank you.

Revathi Advaithi: Yeah. So I'd say, Ruplu, our view on kinda what's weaker and stronger despite all the noise and the end markets hasn't changed very significantly. You know, where we kind of projected the year, it was gonna be weak and somewhat spotty, and it is gonna turn out to be that way. I would say our consumer kinda end markets both in lifestyle and consumer devices are kinda holding its own. I would say that we were expecting that to be slow for the year, and it is definitely playing out that way.

The places that we expected kind of strong growth in, which is in our medical device business and healthcare, and infrastructure-related items for industrial, power and cloud, networking, all those are pretty much in line with what we were expecting it to be. So I would say how the end markets are playing out are fairly in line with what we were expecting. In terms of investments, it'll always be the prioritized towards the higher growth, higher return end markets for us. And so I would say data center is driving a large part of our investment both in cloud and in power. Not just for kinda this year, but we are investing for the future.

I mean, 35% growth does require investment. So, you know, you heard Kevin talk about continued investment this year for kind of what'll drive growth next year. And but it doesn't mean that other businesses aren't getting their share healthcare is getting its share of investments, but we'll you know, it's our job to prioritize towards the higher growth, higher return end markets.

Ruplu Bhattacharya: Okay. Thank you for all the details. Appreciate it.

Operator: Thank you. Our next question comes from the line of Steve Barger with KeyBanc Capital Markets. Please proceed with your question.

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

Revathi Advaithi: Yeah. Steve, I'd say that's a great question. First is, you know, as you know very well, the host of customers, whether it's hyperscalers, or kind of these neo cloud folks who are coming up or colo. Is a small set of customers at the end of the day. Right? It's so it's not a large population. So most of them particularly the hyperscalers, will be buying a whole suite of products, whether it is IT integration, cooling, or power. And so we do see kind of them going up across the spectrum. And then on kinda colos, it'll tend to be a little bit more spotty.

I'd say lean more towards kind of the power side, but heading more towards kinda cooling and IT integration, when scale presents itself as an opportunity. So I would say and then our ability to convert the compute and power coming together is becoming more and more reality because as you see technology heading towards this higher power density, the one megawatt rack that you hear about, having an integrated cooling solution, power solution, and having your compute all integrated together is gonna become part of reality. So technology is heading in that direction. We were ahead of the game, and now customers want that integrated solution.

Which puts us in a great sweet spot because nobody else is doing that.

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

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

So it'll be a mix, I would say, to your question.

Steve Barger: Understood. Thanks.

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

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

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

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