Flex 10-Q 2021-10-01

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 1, 2021

Or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-23354

FLEX LTD.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code

(65) 6876-9899

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.:

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the registrant’s ordinary shares outstanding as of October 25, 2021 was 470,623,389.

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FLEX LTD.

INDEX

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PART I. FINANCIAL INFORMATION

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Flex Ltd., Singapore

Results of Review of Interim Financial Information

We have reviewed the accompanying condensed consolidated balance sheet of Flex Ltd. and its subsidiaries (the “Company”) as of October 1, 2021, and the related condensed consolidated statements of operations, comprehensive income, shareholders’ equity for the three-month and six-month periods ended October 1, 2021 and September 25, 2020, and the condensed consolidated statements of cash flows for the six-month periods ended October 1, 2021 and September 25, 2020, and the related notes (collectively referred to as the “interim financial information”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of Flex Ltd. and subsidiaries as of March 31, 2021 and the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated May 19, 2021, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of March 31, 2021 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

The interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our reviews in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

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FLEX LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these condensed consolidated financial statements.

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FLEX LTD.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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Unless otherwise specifically stated, references in this report to “Flex,” “the Company,” “we,” “us,” “our” and similar terms mean Flex Ltd., and its subsidiaries.

This report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. The words “expects,” “anticipates,” “believes,” “intends,” “plans” and similar expressions identify forward-looking statements. In addition, any statements which refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. We undertake no obligation to publicly disclose any revisions to these forward-looking statements to reflect events or circumstances occurring subsequent to filing this Form 10-Q with the Securities and Exchange Commission. These

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forward-looking statements are subject to risks and uncertainties, including, without limitation, those risks and uncertainties discussed in this section, as well as any risks and uncertainties discussed in Part II, Item 1A, “Risk Factors” of this report on Form 10-Q, and in Part I, Item 1A, “Risk Factors” and in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2021. In addition, new risks emerge from time to time and it is not possible for management to predict all such risk factors or to assess the impact of such risk factors on our business. Accordingly, our future results may differ materially from historical results or from those discussed or implied by these forward-looking statements. Given these risks and uncertainties, the reader should not place undue reliance on these forward-looking statements.

OVERVIEW

We are the manufacturing partner of choice that helps a diverse customer base design and build products that improve the world. Through the collective strength of a global workforce across approximately 30 countries and responsible, sustainable operations, we deliver technology innovation, supply chain, and manufacturing solutions to diverse industries and end markets. The Company reports its financial performance based on two reportable segments:

• Flex Agility Solutions ("FAS"), which is comprised of the following end markets:

◦Communications, Enterprise and Cloud ("CEC"), including data infrastructure, edge infrastructure and communications infrastructure;

*◦*Lifestyle, including appliances, consumer packaging, floorcare, micro mobility and audio; and

*◦*Consumer Devices, including mobile and high velocity consumer devices.

• Flex Reliability Solutions ("FRS"), which is comprised of the following end markets:

◦Automotive, including autonomous, connectivity, electrification, and smart technologies;

◦Health Solutions, including medical devices, medical equipment and drug delivery; and

◦Industrial, including capital equipment, industrial devices, renewable including our Nextracker business, grid edge, and power systems.

Our strategy is to provide customers with a full range of cost competitive, vertically-integrated global supply chain solutions through which we can design, build, ship and service a complete packaged product for our customers. This enables our customers to leverage our supply chain solutions to meet their product requirements throughout the entire product life cycle.

Over the past few years, we have seen an increased level of diversification by many companies, primarily in the technology sector. Some companies that have historically identified themselves as software providers, Internet service providers or e-commerce retailers have entered the highly competitive and rapidly evolving technology hardware markets, such as mobile devices, home entertainment and wearable devices. This trend has resulted in a significant change in the manufacturing and supply chain solutions requirements of such companies. While the products have become more complex, the supply chain solutions required by such companies have become more customized and demanding, and it has changed the manufacturing and supply chain landscape significantly.

We use a portfolio approach to manage our extensive service offerings. As our customers change the way they go to market, we have the capability to reorganize and rebalance our business portfolio in order to align with our customers' needs and requirements in an effort to optimize operating results. The objective of our business model is to allow us to be flexible and redeploy and reposition our assets and resources as necessary to meet specific customer's supply chain solutions needs across all the markets we serve and earn a return on our invested capital above the weighted average cost of that capital.

We believe that our continued business transformation is strategically positioning us to take advantage of the long-term, future growth prospects for outsourcing of advanced manufacturing capabilities, design and engineering services and after-market services.

Update on the Impact of COVID-19 on our Business

With the second wave of the pandemic including follow-on variants of COVID-19, we continue to experience plant closures and/or restrictions at certain manufacturing facilities in Malaysia. There have been renewed disease control measures being taken to limit the spread including movement bans and shelter-in-place orders. We continue to closely monitor the situation in all the locations where we operate. Our priority remains the welfare of our employees. In addition, our end markets continue to be impacted by the global supply chain disruptions. Component shortages and logistical constraints are pervasive across the entire value chain. COVID-19 related restrictions also contributed to a declining workforce, including at ports and warehouses, as well as creating driver shortages around the world. We expect persistent waves of COVID-19 to remain a headwind into the

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near future. Component shortages and significantly increased logistic costs are also expected to persist at least in the near future as we are continuing to see increasing supply constraints and costs. Refer to “Risk Factors - The ongoing COVID-19 pandemic has materially and adversely affected our business and results of operations. The duration and extent to which it will continue to adversely impact our business and results of operations remains uncertain and could be material.” as disclosed in Part II, “Item 1A. Risk Factors.”

We are continuously evaluating our capital structure in response to the current environment and expect that our current financial condition, including our liquidity sources are adequate to fund future commitments. See additional discussion in the Liquidity and Capital Resources section below.

Other Developments

We are continuing to evaluate alternatives for our Nextracker business. We are considering options that may include, among others, a full or partial separation of the business through an initial public offering, sale, spin-off, or other transaction. On April 28, 2021, we announced that we confidentially submitted a draft registration statement on Form S-1 with the U.S. Securities and Exchange Commission relating to the proposed initial public offering of Nextracker's Class A common stock. The initial public offering and its timing are subject to market and other conditions and the SEC’s review process, and there can be no assurance that we will proceed with such offering or any alternative transaction. Refer to "Risk Factors - We are pursuing alternatives for our Nextracker business, including a full or partial separation of the business, through an initial public offering of Nextracker or otherwise, which may not be consummated as or when planned or at all, and may not achieve the intended benefits." in our Annual Report on Form 10-K for the fiscal year ended March 31, 2021.

This Quarterly Report on Form 10-Q for the second quarter ended October 1, 2021 does not constitute an offer to sell or a solicitation of an offer to buy securities, and shall not constitute an offer, solicitation or sale in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of that jurisdiction.

Subsequent Events

In October 2021, we announced that we have entered into a definitive agreement to acquire 100% of the voting shares of Anord Mardix, a global leader in critical power solutions for $540 million in an all-cash transaction. The acquisition will add to our portfolio of Power products and expand our offering in the data center market and is expected to close in the third quarter of fiscal year 2022, subject to customary closing conditions, including regulatory approval. For reporting purposes, Anord Mardix will be included in the Industrial business unit within our FRS segment.

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Business Overview

We are one of the world's largest providers of global supply chain solutions, with revenues of $12.6 billion for the six-month period ended October 1, 2021 and $24.1 billion in fiscal year 2021. We have established an extensive network of manufacturing facilities in the world's major consumer and enterprise markets (Asia, the Americas, and Europe) to serve the growing outsourcing needs of both multinational and regional customers. We design, build, ship, and service consumer and enterprise products for our customers through a network of over 100 facilities in approximately 30 countries across four continents. The following tables set forth the relative percentages and dollar amounts of net sales by region and by country, and net property and equipment by country, based on the location of our manufacturing sites (amounts may not sum due to rounding):

We believe that the combination of our extensive open innovation platform solutions, design and engineering services, advanced supply chain management solutions and services, significant scale and global presence, and manufacturing campuses in low-cost geographic areas provide us with a competitive advantage and strong differentiation in the market for designing, manufacturing and servicing consumer and enterprise products for leading multinational and regional customers. Specifically, we offer our customers the ability to simplify their global product development, manufacturing process, and after sales services, and enable them to meaningfully accelerate their time to market and cost savings.

Our operating results are affected by a number of factors, including the following:

• the impacts on our business due to component shortages, disruptions in transportation or other supply chain related constraints including as a result of the COVID-19 pandemic;

• the effects of the COVID-19 pandemic on our business and results of operations;

• changes in the macro-economic environment and related changes in consumer demand;

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• the mix of the manufacturing services we are providing, the number, size, and complexity of new manufacturing programs, the degree to which we utilize our manufacturing capacity, seasonal demand, and other factors;

• the effects on our business when our customers are not successful in marketing their products, or when their products do not gain widespread commercial acceptance;

• our ability to achieve commercially viable production yields and to manufacture components in commercial quantities to the performance specifications demanded by our customers;

• the effects that current credit and market conditions (including as a result of the COVID-19 pandemic) could have on the liquidity and financial condition of our customers and suppliers, including any impact on their ability to meet their contractual obligations;

• the effects on our business due to certain customers’ products having short product life cycles;

• our customers’ ability to cancel or delay orders or change production quantities;

• our customers’ decisions to choose internal manufacturing instead of outsourcing for their product requirements;

• integration of acquired businesses and facilities;

• increased labor costs due to adverse labor conditions in the markets we operate;

• changes in tax legislation; and

• changes in trade regulations and treaties.

We are also subject to other risks as outlined in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2021 and in Part II, Item 1A of this Quarterly Report on Form 10-Q.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP” or “GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Due to the COVID-19 pandemic, there has been and will continue to be uncertainty and disruption in the global economy and financial markets. We have made estimates and assumptions taking into consideration certain possible impacts due to COVID-19. These estimates may change, as new events occur, and additional information is obtained. Actual results may differ from those estimates and assumptions.

Refer to the accounting policies under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2021, where we discuss our more significant judgments and estimates used in the preparation of the condensed consolidated financial statements.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain statements of operations data expressed as a percentage of net sales (amounts may not sum due to rounding). The financial information and the discussion below should be read together with the condensed consolidated financial statements and notes thereto included in this document. In addition, reference should be made to our audited consolidated financial statements and notes thereto and related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2021.

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Net sales

The following table sets forth our net sales by segment, and their relative percentages:

Net sales during the three-month period ended October 1, 2021 totaled $6.2 billion, representing an increase of approximately $0.2 billion, or 4% from $6.0 billion during the three-month period ended September 25, 2020. Net sales for our FAS segment increased $0.1 billion, or 4% from the three-month period ended September 25, 2020, primarily driven by an increase in our Lifestyle business due to strong demand, particularly with new product ramps and new customers. Offsetting the increase to some extent were impacts from COVID-19 outlined above and specifically related to scarcity of component and raw materials and logistics constraints. Net sales for our FRS segment increased approximately $0.1 billion, or 5% from the three-month period ended September 25, 2020, primarily driven by our Industrial business led by customer ramps and strong demand in key areas including electric vehicles (EV) charging and renewables, semicap, and robotics. The increases noted in FRS during the three-month period ended October 1, 2021 were partially offset by a decrease in our Health Solutions business primarily due to lower COVID-19 related demand compared to prior year period coupled with component shortages as well as clear-to-build constraints. Net sales increased across all regions with a $0.2 billion increase to $2.6 billion in the Americas, a $0.1 billion increase to $2.3 billion in Asia and a modest $22 million increase to $1.3 billion in Europe.

Net sales during the six-month period ended October 1, 2021 totaled $12.6 billion, representing an increase of approximately $1.4 billion, or 13% from $11.1 billion during the six-month period ended September 25, 2020. Net sales for our FAS segment increased $0.6 billion, or 10% from the six-month period ended September 25, 2020, primarily driven by an increase in our Lifestyle business and to a lesser extent increase in our Consumer Devices business. These increases were driven by a lesser impact from COVID-19 production pressure during the current year, coupled with new ramps, customer expansions and continued recoveries in consumer spending, offset to some extent by the scarcity of components and raw material and logistics constraints noted above. Net sales for our FRS segment increased approximately $0.8 billion, or 16% from the six-month period ended September 25, 2020, primarily due to an increase in our Industrial business, as a result of customer ramps and strong demand in EV charging and renewables, semicap, and robotics. In addition, net sale for our Automotive business increased due to depressed automotive sales from factory shutdowns in the first quarter of fiscal year 2021. The increase in our Automotive business was partially constrained by component shortages and OEM plant shutdowns during the six-month period ended October 1, 2021. Net sales increased across all regions with a $0.6 billion increase to $5.2 billion in the Americas, a $0.4 billion increase to $4.7 billion in Asia, and a $0.4 billion increase to $2.7 billion in Europe.

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Our ten largest customers during the three and six-month periods ended October 1, 2021 accounted for approximately 36% and 35% of net sales, respectively. Our ten largest customers, during the three and six-month periods ended September 25, 2020, accounted for approximately 39% and 38% of net sales, respectively. No customer accounted for more than 10% of net sales during the three and six-month periods ended October 1, 2021 or September 25, 2020.

Cost of sales

Cost of sales is affected by a number of factors, including the number and size of new manufacturing programs, product mix, labor cost fluctuations by region, component costs and availability and capacity utilization.

Cost of sales during the three-month period ended October 1, 2021 totaled $5.8 billion, representing an increase of approximately $0.2 billion, or 3% from $5.6 billion during the three-month period ended September 25, 2020. The increase in cost of sales for the three-month period ended October 1, 2021 was primarily driven by the increased consolidated sales of over $0.2 billion. Cost of sales in FAS for the three-month period ended October 1, 2021 increased approximately 2%, or $50 million from the three-month period ended September 25, 2020, which is slightly lower than the overall 4% increase in FAS revenue during the same period primarily as a result of higher revenue in our Lifestyle and Consumer Devices businesses coupled with better fixed cost absorption, disciplined cost management as well as our continued push for new business wins and renewals at accretive margins. Cost of sales in FRS for the three-month period ended October 1, 2021 increased 6%, or $0.1 billion from the three-month period ended September 25, 2020, which is slightly higher than the overall 5% increase in FRS revenue during the same period primarily due to material constraints causing numerous production disruptions impacting our automotive business and continued increases in freight and logistics costs impacting our industrial businesses despite stronger demand and lesser COVID-19 pressures during the first half of fiscal year 2022, as discussed above.

Cost of sales during the six-month period ended October 1, 2021 totaled $11.6 billion, representing an increase of approximately $1.2 billion, or 12% from $10.4 billion during the six-month period ended September 25, 2020. The increase in cost of sales for the six-month period ended October 1, 2021 was primarily driven by the increased consolidated sales of over $1.4 billion during the same period. Cost of sales in FAS for the six-month period ended October 1, 2021 increased approximately 8%, or $0.5 billion from the six-month period ended September 25, 2020, which is lower than the overall 10% increase in FAS revenue during the same period primarily due to the same reasons as discussed above in the three-month period ended comparison. Cost of sales in FRS for the six-month period ended October 1, 2021 increased 17%, or $0.7 billion from the six-month period ended September 25, 2020, which is slightly higher than the overall 16% increase in FRS revenue during the same period due to the same reasons as discussed above in the three-month period ended comparison.

Gross profit

Gross profit is affected by a fluctuation in cost of sales elements as outlined above and further by a number of factors, including product life cycles, unit volumes, pricing, competition, new product introductions, and the expansion or consolidation of manufacturing facilities, as well as specific restructuring activities initiated from time to time. The flexible design of our manufacturing processes allows us to manufacture a broad range of products in our facilities and better utilize our manufacturing capacity across our diverse geographic footprint and service customers from both segments. In the cases of new programs, profitability normally lags revenue growth due to product start-up costs, lower manufacturing program volumes in the start-up phase, operational inefficiencies, and under-absorbed overhead. Gross margin for these programs often improves over time as manufacturing volumes increase, as our utilization rates and overhead absorption improve, and as we increase the level of manufacturing services content. As a result of these various factors, our gross margin varies from period to period.

Gross profit during the three-month period ended October 1, 2021 increased $0.1 billion to $0.5 billion, or 7.5% of net sales, from $0.4 billion, or 6.6% of net sales, during the three-month period ended September 25, 2020. Gross margin improved 90 basis points during the same period despite certain COVID-19 disruptions, industry-wide component shortages and cost pressures on logistics in the three-month period ended October 1, 2021. The increase in gross profit and gross margin during the current period resulted primarily from the overall stronger demand in our FAS segment which allowed for improved fixed cost absorption, coupled with continued improvement in the mix of our business, benefits from prior restructuring activities and a lower direct and incremental unfavorable impact from COVID-19 compared to the prior year period.

Gross profit during the six-month period ended October 1, 2021 increased $0.2 billion to $0.9 billion, or 7.4% of net sales, from $0.7 billion, or 6.3% of net sales, during the six-month period ended September 25, 2020. Gross margin improved 110 basis points during the same period due to the same factors noted above in the three-month periods discussion.

Segment income

An operating segment's performance is evaluated based on its pre-tax operating contribution, or segment income. Segment income is defined as net sales less cost of sales, and segment selling, general and administrative expenses, and does not include intangible amortization, stock-based compensation, restructuring charges, and legal and other. A portion of depreciation is

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allocated to the respective segments, together with other general corporate research and development and administrative expenses.

The following table sets forth segment income and margins:

FAS segment margin increased 170 basis points, to 4.4% for the three-month period ended October 1, 2021, from 2.7% for the three-month period ended September 25, 2020. The margin increase was driven by an increase in demand notably in our Lifestyle and Consumer Devices end markets due to new business wins and renewals at accretive margins, strong demand recovery from COVID-19, disciplined cost management and improved efficiencies as noted above, partially offset by the elevated costs due to component shortages and logistics constraints we faced during the three-month period ended October 1, 2021. The FAS segment margin increased 160 basis points, to 4.2% for the six-month period ended October 1, 2021, from 2.6% for the six-month period ended September 25, 2020. The increase in FAS segment margin during the six-month period is due to the same factors noted in the discussion above for the three-month period.

FRS segment margin decreased 130 basis points, to 5.4% for the three-month period ended October 1, 2021, from 6.7% for the three-month period ended September 25, 2020. The margin decrease in FRS was primarily driven by production disruptions in our Automotive business, as well as continued freight and logistics cost headwinds impacting our Industrial business during the three-month period ended October 1, 2021. FRS segment margin decreased 40 basis points, to 5.6% for the six-month period ended October 1, 2021, from 6.0% for the six-month period ended September 25, 2020. The decrease in FRS segment margin during the six-month period is due to the same factors noted in the discussion above for the three-month period.

Restructuring charges

During the three and six-month periods ended October 1, 2021, we recognized approximately $9 million of restructuring charges, primarily cash charges related to employee severance. During the three and six-month periods ended September 25, 2020, we recognized approximately $35 million and $45 million, respectively, of restructuring charges, primarily cash charges related to employee severance.

Selling, general and administrative expenses

Selling, general and administrative expenses (“SG&A”) was $0.2 billion, or 3.4% of net sales, during the three-month period ended October 1, 2021, increasing $20 million from $0.2 billion, or 3.2% of net sales, during the three-month period ended September 25, 2020. SG&A was $0.4 billion, or 3.3% of net sales, during the six-month period ended October 1, 2021, increasing $30 million from $0.4 billion, or 3.4% of net sales, during the six-month period ended September 25, 2020, which reflects our enhanced cost control efforts to support higher revenue growth while keeping our SG&A expenses relatively flat.

Intangible amortization

Amortization of intangible assets marginally declined to $15 million during the three-month period ended October 1, 2021, from $16 million for the three-month period ended September 25, 2020, and declined to $30 million during the six-month period ended October 1, 2021, from $31 million for the six-month period ended September 25, 2020, primarily due to certain intangibles now being fully amortized.

Interest and other, net

Interest and other, net was income of $134 million during the three-month period ended October 1, 2021 compared to an expense of $22 million during the three-month period ended September 25, 2020, primarily driven by a $149 million gain related to a certain tax credit recorded upon approval of a "Credit Habilitation" request by the relevant Brazil tax authorities. This is a non-cash gain which will be used to offset certain current and future tax obligations. Refer to note 11 to the condensed consolidated financial statements for further detail.

Interest and other, net was income of $111 million during the six-month period ended October 1, 2021 compared to an expense of $51 million during the six-month period ended September 25, 2020, due to the same driver noted above.

Income taxes

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Certain of our subsidiaries, at various times, have been granted tax relief in their respective countries, resulting in lower income taxes than would otherwise be the case under ordinary tax rates. Refer to note 14, “Income Taxes” of the notes to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended March 31, 2021 for further discussion.

The consolidated effective tax rate was 9% and 10% for the three and six-month periods ended October 1, 2021, and 26% and 25% for the three and six-month periods ended September 25, 2020, respectively. The effective rate varies from the Singapore statutory rate of 17% as a result of recognition of earnings in different jurisdictions (we generate most of our revenues and profits from operations outside of Singapore), operating loss carryforwards, income tax credits, release of previously established valuation allowances for deferred tax assets, liabilities for uncertain tax positions, as well as the effect of certain tax holidays and incentives granted to our subsidiaries primarily in China, Malaysia, Costa Rica, the Netherlands and Israel. The effective tax rate for the three and six-month periods ended October 1, 2021 is lower than the effective tax rate for the three-month and six-month periods ended September 25, 2020, primarily due to a changing jurisdictional mix of incomes, restructuring charges for the three-month and six-month periods ended September 25, 2020 which resulted in minimal tax benefit, and the significant Brazilian indirect tax credits recorded this period (as discussed above in note 11 to the condensed consolidated financial statements) which resulted in immaterial additional income tax cost.

LIQUIDITY AND CAPITAL RESOURCES

In response to the recent challenging environment following the COVID-19 pandemic, we continuously evaluate our ability to meet our obligations over the next 12 months and have proactively reset our capital structure during these times to improve maturities and liquidity. As a result, we expect that our current financial condition, including our liquidity sources are adequate to fund current and future commitments. As of October 1, 2021, we had cash and cash equivalents of approximately $2.5 billion and bank and other borrowings of approximately $3.8 billion. We have a $2.0 billion revolving credit facility that is due to mature in January 2026 (the "2026 Credit Facility"), under which we had no borrowings outstanding as of October 1, 2021. As of October 1, 2021, we were in compliance with the covenants under all of our credit facilities and indentures.

Cash provided by operating activities was $0.5 billion during the six-month period ended October 1, 2021, primarily driven by $0.5 billion of net income for the period plus $0.3 billion of non-cash charges such as depreciation, amortization, restructuring and impairment charges, and stock-based compensation offset by changes in net working capital as discussed below.

We believe net working capital ("NWC") and net working capital as a percentage of annualized net sales are key metrics that measure our liquidity. Net working capital is calculated as current quarter accounts receivable, net of allowance for doubtful accounts, plus inventories and contract assets, less accounts payable. Net working capital increased $0.3 billion to $3.2 billion as of October 1, 2021, from $2.9 billion as of March 31, 2021. This increase is primarily driven by a $1.3 billion increase in inventories due to component shortages and logistics constraints driving up buffer stock and inventory pricing, partially offset by a $0.5 billion decrease in net receivables and a $0.6 billion increase in accounts payable. Our current quarter net working capital as a percentage of annualized net sales for the quarter ended October 1, 2021, increased to 13.0% from 11.5% of annualized net sales for the quarter ended March 31, 2021 due to component shortages and logistics constraints. We continue to see component shortages in the supply chain and logistical constraints, and although we are actively managing these impacts, we expect continued working capital pressure in the near future. We expect it will take additional time to adequately drive down our inventory levels to align with the current demand environment. We are proactively working with our partners to rebalance safety and buffer stock requirements and we have an established enterprise-wide cross-functional initiative resetting our load planning. In addition, we are pursuing alternative resources using inclusive hybrid solutions to minimize transit times and implementing operational efficiencies. Component shortages and significantly increased logistic costs are also expected to persist at least in the near future as we are continuing to see increasing supply constraints and costs. We are working diligently with our partners to secure needed parts and fulfill demand.

Cash used in investing activities was $0.2 billion during the six-month period ended October 1, 2021. This was primarily driven by $0.2 billion of net capital expenditures for property and equipment to continue expanding capabilities and capacity in support of our expanding Health Solutions, Automotive, and Industrial businesses.

We believe adjusted free cash flow is an important liquidity metric because it measures, during a given period, the amount of cash generated that is available to repay debt obligations, make investments, fund acquisitions, repurchase company shares and for certain other activities. Our adjusted free cash flow is defined as cash from operations, less net purchases of property and equipment to present adjusted cash flows on a consistent basis for investor transparency. During fiscal year 2021, we proactively and strategically reduced the outstanding balance of our ABS programs. As this decrease in cash flow reflected the change of our capital strategy, we added this back for our adjusted free cash flow calculation and also excluded the impact to cash flows related to certain vendor programs that is required for US GAAP presentation for fiscal year 2021. Refer to Item 7,

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“Management’s Discussion and Analysis of Financial Condition and Results of Operations” (Adjusted Free Cash Flow subsection) of our Annual Report on our Form 10-K for the fiscal year ended March 31, 2021 for further discussion. Our adjusted free cash flows for the six-month period ended October 1, 2021 and September 25, 2020 is relatively consistent and remains an inflow of $0.3 billion. Adjusted free cash flow is not a measure of liquidity under U.S. GAAP, and may not be defined and calculated by other companies in the same manner. Adjusted free cash flow should not be considered in isolation or as an alternative to net cash provided by operating activities. Adjusted free cash flows reconcile to the most directly comparable GAAP financial measure of cash flows from operations as follows:

Cash used in financing activities was $0.5 billion during the six-month period ended October 1, 2021, which was primarily driven by $0.5 billion of cash paid for the repurchase of our ordinary shares.

Our cash balances are generated and held in numerous locations throughout the world. Liquidity is affected by many factors, some of which are based on normal ongoing operations of the business and some of which arise from fluctuations related to global economics and markets. Local government regulations may restrict our ability to move cash balances to meet cash needs under certain circumstances; however, any current restrictions are not material. We do not currently expect such regulations and restrictions to impact our ability to pay vendors and conduct operations throughout the global organization. We believe that our existing cash balances, together with anticipated cash flows from operations and borrowings available under our credit facilities, will be sufficient to fund our operations through at least the next twelve months. As of October 1, 2021, and March 31, 2021, approximately half of our cash and cash equivalents were held by foreign subsidiaries outside of Singapore. Although substantially all of the amounts held outside of Singapore could be repatriated under current laws, a significant amount could be subject to income tax withholdings. We provide for tax liabilities on these amounts for financial statement purposes, except for certain of our foreign earnings that are considered indefinitely reinvested outside of Singapore (approximately $1.5 billion as of March 31, 2021). Repatriation could result in an additional income tax payment; however, for the majority of our foreign entities, our intent is to permanently reinvest these funds outside of Singapore and our current plans do not demonstrate a need to repatriate them to fund our operations in jurisdictions outside of where they are held. Where local restrictions prevent an efficient intercompany transfer of funds, our intent is that cash balances would remain outside of Singapore and we would meet our liquidity needs through ongoing cash flows, external borrowings, or both.

Future liquidity needs will depend on fluctuations in levels of inventory, accounts receivable and accounts payable, the timing of capital expenditures for new equipment, the extent to which we utilize operating leases for new facilities and equipment, and the levels of shipments and changes in the volumes of customer orders.

We maintain global paying services agreements with several financial institutions. Under these agreements, the financial institutions act as our paying agents with respect to accounts payable due to our suppliers who elect to participate in the program. The agreements allow our suppliers to sell their receivables to one of the participating financial institutions at the discretion of both parties on terms that are negotiated between the supplier and the respective financial institution. Our obligations to our suppliers, including the amounts due and scheduled payment dates, are not impacted by our suppliers’ decisions to sell their receivables under this program. The cumulative payments due to suppliers participating in the programs amounted to approximately $0.3 billion and $0.6 billion for the three and six-month periods ended October 1, 2021, respectively, and $0.2 billion and $0.5 billion for the three and six-month periods ended September 25, 2020, respectively. Pursuant to their agreement with one of the financial institutions, certain suppliers may elect to be paid early at their discretion. We are not always notified when our suppliers sell receivables under these programs. The available capacity under these programs can vary based on the number of investors and/or financial institutions participating in these programs at any point in time.

In addition, we maintain various uncommitted short-term financing facilities including but not limited to commercial paper program, and revolving sale and repurchase of subordinated note established under the securitization facility, under which there were no borrowings outstanding as of October 1, 2021.

Historically, we have funded operations from cash and cash equivalents generated from operations, proceeds from public offerings of equity and debt securities, bank debt and lease financings. We also have the ability to sell a designated pool of trade

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receivables under asset-backed securitization ("ABS") programs and sell certain trade receivables, which are in addition to the trade receivables sold in connection with these securitization agreements. We may enter into debt and equity financings, sales of accounts receivable and lease transactions to fund acquisitions and anticipated growth as needed.

The sale or issuance of equity or convertible debt securities could result in dilution to current shareholders. Further, we may issue debt securities that have rights and privileges senior to those of holders of ordinary shares, and the terms of this debt could impose restrictions on operations and could increase debt service obligations. This increased indebtedness could limit our flexibility as a result of debt service requirements and restrictive covenants, potentially affect our credit ratings, and may limit our ability to access additional capital or execute our business strategy. Any downgrades in credit ratings could adversely affect our ability to borrow as a result of more restrictive borrowing terms. We continue to assess our capital structure and evaluate the merits of redeploying available cash to reduce existing debt or repurchase ordinary shares.

Under our current share repurchase program, our Board of Directors authorized repurchases of our outstanding ordinary shares for up to $1 billion in accordance with the share purchase mandate approved by our shareholders at the date of the most recent Annual General Meeting which was held on August 4, 2021. During the six-month period ended October 1, 2021, we paid $0.5 billion to repurchase shares under the current and prior repurchase plans at an average price of $18.14 per share. As of October 1, 2021, shares in the aggregate amount of $0.7 billion were available to be repurchased under the current plan.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

Information regarding our long-term debt payments, operating lease payments, capital lease payments and other commitments is provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on our Form 10-K for the fiscal year ended March 31, 2021.

There were no material changes in our contractual obligations and commitments as of October 1, 2021.

OFF-BALANCE SHEET ARRANGEMENTS

As of October 1, 2021, and March 31, 2021, the outstanding balance on receivables sold for cash was $0.3 billion and $0.2 billion, respectively, under our accounts receivable factoring program, which were removed from accounts receivable balances in our condensed consolidated balance sheets. There were no outstanding balance of receivables sold under our ABS programs as of each of the periods presented. For further information, see note 9 to the condensed consolidated financial statements.

There were no material changes in our exposure to market risks for changes in interest and foreign currency exchange rates for the six-month period ended October 1, 2021 as compared to the fiscal year ended March 31, 2021.

(a) Evaluation of Disclosure Controls and Procedures

The Company's management, with the participation of the Chief Executive Officer and Chief Financial Officer has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of October 1, 2021. Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that, as of October 1, 2021, the Company's disclosure controls and procedures were effective in ensuring that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934, as amended, is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during our quarter ended October 1, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We have not experienced any material impact to our internal control over financial reporting despite the fact that most of our employees are working remotely for their health and safety during the COVID-19 pandemic. We are continually monitoring and assessing the potential impact of COVID-19 on our internal controls to minimize the impact on their design and operating effectiveness.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For a description of our material legal proceedings, see note 11 “Commitments and Contingencies” in the notes to the condensed consolidated financial statements, which is incorporated herein by reference.

In addition to the other information set forth in this report, you should carefully consider the risks and uncertainties discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2021, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be not material also may materially and adversely affect our business, financial condition and/or operating results. We are including the following revised risk factors, which update and supersede the corresponding risk factors disclosed in our Annual Report on Form 10-K for the year ended March 31, 2021, and which should be read in conjunction with our description of risk factors in Part I, Item 1A, "Risk Factors" of our Annual Report on Form 10-K for the year ended March 31, 2021:

The ongoing COVID-19 pandemic has materially and adversely affected our business and results of operations. The duration and extent to which it will continue to adversely impact our business and results of operations remains uncertain and could be material.

The ongoing COVID-19 pandemic has resulted in a widespread public health crisis and numerous disease control measures being taken to limit its spread, including travel bans and restrictions, quarantines, shelter-in-place orders, and shutdowns. These measures have materially impacted and are continuing to impact our workforce and operations, the operations of our customers, and those of our respective vendors and suppliers. We have significant operations worldwide, including in China, Mexico, the United States, Brazil, India, Malaysia and Europe, and each of these geographies has been affected by the outbreak and has taken measures to try to contain it. This has resulted in disruptions at many of our manufacturing operations and facilities, and further disruptions could occur in the future. Any such disruptions could materially adversely affect our business. More recently, we have been experiencing plant closures and/or restrictions at certain manufacturing facilities in Malaysia. There have been renewed disease control measures being taken to limit the spread including movement bans and shelter-in-place orders. We continue to closely monitor the situation in all the locations where we operate. The impact of the pandemic on our business has included and could in the future include:

• disruptions to or restrictions on our ability to ensure the continuous provision of our manufacturing services and solutions;

• temporary closures or reductions in operational capacity of our manufacturing facilities;

• temporary closures of our direct and indirect suppliers, resulting in adverse effects to our supply chain, and other supply chain disruptions, which adversely affect our ability to procure sufficient inventory to support customer orders;

• temporary shortages of skilled employees available to staff manufacturing facilities due to shelter-in-place orders and travel restrictions within as well as into and out of countries;

• restrictions or disruptions of transportation, such as reduced availability of air transport, port closures, and increased border controls or closures;

• increases in operational expenses and other costs related to requirements implemented to mitigate the impact of the pandemic;

• delays or limitations on the ability of our customers to perform or make timely payments;

• reductions in short- and long-term demand for our manufacturing services and solutions, or other disruptions in technology buying patterns;

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• workforce disruptions due to illness, quarantines, governmental actions, other restrictions, and/or the social distancing measures we have taken to mitigate the impact of COVID-19 at our locations around the world in an effort to protect the health and well-being of our employees, customers, suppliers and of the communities in which we operate (including working from home, restricting the number of employees attending events or meetings in person, limiting the number of people in our buildings and factories at any one time, further restricting access to our facilities and suspending employee travel); and

• our management team continuing to commit significant time, attention and resources to monitoring the COVID-19 pandemic and seeking to mitigate its effects on our business and workforce.

The global spread of COVID-19 also has created significant macroeconomic uncertainty, volatility and disruption, which may continue to adversely affect our and our customers’ and suppliers’ liquidity, cost of capital and ability to access the capital markets. As a result, the continued spread of COVID-19 could cause further disruptions in our supply chain and customer demand, and could adversely affect the ability of our customers to perform, including in making timely payments to us, which could further adversely impact our business, financial condition and results of operations. The COVID-19 pandemic has, in the short-term, adversely impacted, and may, in the long-term, adversely impact the global economy, potentially leading to an economic downturn. Even after the COVID-19 pandemic has subsided, we may continue to experience adverse impacts to our business as a result of the pandemic’s global economic impact, including any recession, economic downturn, government spending cuts, tightening of credit markets or increased unemployment that has occurred or may occur in the future, which could cause our customers and potential customers to postpone or reduce spending on our manufacturing services and solutions.

The extent to which the COVID-19 pandemic will continue to impact our business and financial results going forward will be dependent on future developments such as the length and severity of the crisis, the potential resurgence of COVID-19 in the future including variants of the virus, the availability and distribution of effective treatments and vaccines, and public health measures and actions taken throughout the world to contain COVID-19, and the overall impact of the COVID-19 pandemic on the global economy and capital markets, among many other factors, all of which remain highly uncertain and unpredictable. We cannot at this time quantify or forecast the business impact of COVID-19, and there can be no assurance that the COVID-19 pandemic will not have a material and adverse effect on our business, financial results and financial condition. In addition, the COVID-19 pandemic increases the likelihood and potential severity of other risks described in this “Risk Factors” section and in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2021.

We have been and continue to be adversely affected by supply chain issues, including shortages of required electronic components.

From time to time, we have experienced shortages of some of the electronic components that we use. These shortages can result from strong demand for those components or from problems experienced by suppliers, such as shortages of raw materials. We have also experienced, and continue to experience, such shortages due to the effects of the COVID-19 pandemic. Most recently, we have experienced shortages of semiconductor components which has impacted our end markets. These unanticipated component shortages have resulted and will continue to result in curtailed production or delays in production, which prevent us from making scheduled shipments to customers. Our inability to make scheduled shipments has caused and will continue to cause us to experience a reduction in sales, increase in inventory levels and costs, and could adversely affect relationships with existing and prospective customers. Component shortages may also increase our cost of goods sold because we may be required to pay higher prices for components in short supply and redesign or reconfigure products to accommodate substitute components. As a result, component shortages have adversely affected and, will continue to adversely affect, our operating results. Our customers also may experience component shortages which may adversely affect customer demand for our products and services. Our end markets have been and continue to be impacted by logistical constraints, with COVID-19 related restrictions contributing to a declining workforce, including at ports and warehouses, as well as driver shortages around the world.

Our supply chain has been and will continue to be impacted by the COVID-19 pandemic, and may be impacted by other events outside our control, including macro-economic events, trade restrictions, political crises, other public health emergencies, or natural or environmental occurrences.

We are subject to risks relating to litigation and regulatory investigations and proceedings, which may have a material adverse effect on our business.

From time to time, we are involved in various claims, suits, investigations and legal proceedings. Additional legal claims or regulatory matters may arise in the future and could involve matters relating to commercial disputes, government regulatory and compliance, intellectual property, antitrust, tax, employment or shareholder issues, product liability claims and other issues on a global basis. If we receive an adverse judgment in any such matter, we could be required to pay substantial damages and cease certain practices or activities. Regardless of the merits of the claims, litigation and other proceedings may be both time-

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consuming and disruptive to our business. The defense and ultimate outcome of any lawsuits or other legal proceedings may result in higher operating expenses and a decrease in operating margin, which could have a material adverse effect on our business, financial condition, or results of operations.

On May 8, 2018, a putative class action was filed in the Northern District of California against the Company and certain officers alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5, promulgated thereunder, alleging misstatements and/or omissions in certain of the Company’s financial results, press releases and SEC filings made during the putative class period of January 26, 2017 through April 26, 2018. On October 1, 2018, the Court appointed lead plaintiff and lead plaintiff’s counsel in the case. On November 28, 2018, lead plaintiff filed an amended complaint alleging misstatements and/or omissions in certain of the Company’s SEC filings, press releases, earnings calls, and analyst and investor conferences and expanding the putative class period through October 25, 2018. On April 3, 2019, the Court vacated its prior order appointing lead plaintiff and lead plaintiff’s counsel and reopened the lead plaintiff appointment process. On September 26, 2019, the Court appointed a new lead plaintiff, National Elevator Industry Pension Fund, and lead plaintiff’s counsel in the case. On November 8, 2019, lead plaintiff filed a further amended complaint. On December 4, 2019, defendants filed a motion to dismiss the amended complaint. On May 29, 2020, the Court granted defendants’ motion to dismiss without prejudice and gave lead plaintiff 30 days to amend. On June 29, 2020, lead plaintiff filed a further amended complaint. On July 27, 2020, defendants filed a motion to dismiss the amended complaint. On December 10, 2020, the Court granted defendants’ motion to dismiss with prejudice and entered judgment in favor of defendants. On January 7, 2021, lead plaintiff filed a notice of appeal to the Ninth Circuit Court of Appeals. On May 19, 2021, lead plaintiff filed its opening appeal brief, on July 19, 2021, defendants filed their answering brief, and on September 8, 2021, lead plaintiff filed its reply brief. The Court of Appeals has scheduled oral argument for December 8, 2021. Any existing or future lawsuits could be time-consuming, result in significant expense and divert the attention and resources of our management and other key employees, as well as harm our reputation, business, financial condition or results of operations.

On February 14, 2019, we submitted an initial notification of voluntary disclosure to the U.S. Department of the Treasury, Office of Foreign Assets Control ("OFAC") regarding possible noncompliance with U.S. economic sanctions requirements among certain non-U.S. Flex-affiliated operations. On September 28, 2020, we made a submission to OFAC that completed the Company’s voluntary disclosure based on the results of an internal investigation regarding the matter. On June 11, 2021, we notified OFAC that we had identified possible additional relevant transactions at one non-U.S. Flex-affiliated operation. We are currently reviewing those transactions and expect to submit an update to our submission to OFAC once that review is complete. We intend to continue to cooperate fully with OFAC in this matter going forward. Nonetheless, it is reasonably possible that we could be subject to penalties that could have a material adverse effect on our financial position, results of operations or cash flows.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

The following table provides information regarding purchases of our ordinary shares made by us for the period from July 3, 2021 through October 1, 2021:

(1)During the period from July 3, 2021 through October 1, 2021, all purchases were made pursuant to the programs discussed below in open market transactions. All purchases were made in accordance with Rule 10b-18 under the Securities Exchange Act of 1934.

(2)On August 7, 2020, our Board of Directors authorized repurchases of our outstanding ordinary shares for up to $500 million. This is in accordance with the share purchase mandate whereby our shareholders approved a repurchase limit of 20% of our issued ordinary shares outstanding at the Annual General Meeting held on the same date as the Board authorization. As of July 2, 2021, we had shares in the aggregate amount of $154 million available to be repurchased under this plan, of which 1.1 million shares in the aggregate amount of $19 million were repurchased as of August 4, 2021 (after which authorization under this plan terminated).

(3)On August 4, 2021, our Board of Directors authorized repurchases of our outstanding ordinary shares for up to $1.0 billion. This is in accordance with the share purchase mandate whereby our shareholders approved a repurchase limit of 20% of our issued ordinary shares outstanding at the Annual General Meeting held on the same date as the Board authorization. As of October 1, 2021, shares in the aggregate amount of $691 million were available to be repurchased under the current plan.

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

None

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EXHIBIT INDEX

• This exhibit is furnished with this Quarterly Report on Form 10-Q, is not deemed filed with the Securities and Exchange Commission, and is not incorporated by reference into any filing of Flex Ltd. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.