Kyra Whitten: Thank you. Our last question comes from Mark Delaney with Goldman Sachs. Flex’s guide implies a back half-weighted FY2025. What is driving the improvement from the fiscal first quarter to reach the full-year outlook? And how much visibility does Flex have into the demand needed to achieve this?
Revathi Advaithi: Okay. How about we start, Michael, with you talking about your business and then Becky yours, and then we’ll get to Paul and me.
Michael Hartung: Sure. Sounds good. So I’d say, first, to start off with. Expectations are fairly much in line with what we’ve seen for the past few quarters. So we’re starting off Q1 with some normal seasonality, so a little lower starting point as usual. But we are seeing a lot of things progress in the market that give us a lot of optimism. So when you think about the business, think about first half, second half question. The good news is we’re really not banking on a big market recovery in the second half. If you think about what’s happening in our businesses across Agility, first, starting with the data center and what we’ve done there. We’re seeing significant share gains with existing customers. We’re seeing a lot of new business wins, frankly, with new logos.
And it’s not just contained to the data center. We’re actually seeing similar progress in our Lifestyle business with share gains and new business wins with new logos. So the second half of the business, again, isn’t banking on a lot of end market recovery, but we should start to see the full benefit of those new business wins with new and existing customers.
Revathi Advaithi: Becky, reliability?
Rebecca Sidelinger: On the reliability side, I’ll walk you through the three pieces of the business, industrial, auto and health. And I’ll start with Industrial. So renewables in some pieces of our core business, I think you know, are soft. We do see weakness in those areas, and that’s predominantly driven by interest rates. But we are still ramping production in renewables in the U.S. to take advantage of the tax benefits. And remember that we also work in EV chargers, smart metering and grid connect. So renewables, energy efficiency, grid transformation, all in our wheelhouse, and we will continue to see this as a growth market. The second point that I want to make on Industrial, remember that the embedded power and critical power solutions, Michael discussed earlier, those actually sit in Industrial.
And we’re seeing very strong demand for power driven by AI, and we’re seeing it from the board level to the data center power level. We are very differentiated in our power technology. Michael spoke a lot about that earlier today, plus having the ability to provide solutions from the device all the way to the data center power really differentiates us, and that’s why we’re going to continue to win in the industrial space. I’ll pivot to Automotive. And first, I’ll start with we will see growth in FY2025. We’ve built a really strong pipeline in Automotive. We’re coming into FY2025 with a couple of strong years in bookings. And so we’re going to see those programs ramp through FY2025 plus additional content gains. And I just reminded you, the vast majority of our auto portfolio is agnostic to the powertrain.
So regardless of how that plays out in the market, we’re going to continue to grow there. The last point that I’ll make in Automotive is our deep design expertise in both compute and power along with a flexible business model that I discussed earlier, we can design for our customers. We can jointly design. We can manufacture our customers’ designs. This drives higher value, higher margin, customer stickiness and wins. And then the last piece of the market, I’ll touch on is Health Solutions. So there’s two pieces that health – two large pieces to the Health Solutions business, med equipment and med devices. In the med equipment business, we are still seeing some softness. And that’s predominantly driven by two things, I would say, a little pressure on hospital CapEx and some overpurchasing during the pandemic related to lab equipment, particularly high-end fluid analytics.
But remember that hospitals continue to prioritize equipment that drives productivity, and we do play in that space. Our med device piece of Health Solutions remains very strong. And as we continue to see advancements in digital technologies, smaller form factors and chronic disease care, we’re going to continue to see the med device space grow. And then the last point that I’ll make in the longer term for Health Solutions. As we look out in the future, those outsourcing trends of our OEMs, network optimization opportunities, those are huge opportunities for Flex to continue to gain share, and our pipeline really remains strong in health.
Revathi Advaithi: Paul, what would you say?
Paul Lundstrom: Well, I think you covered the end markets well, and I’ll sort of jokingly say, I’m confident because Becky and Michael are confident. I think they have well under control. I’ll also say, look, the comps get quite a bit easier as we move into the back half. Nothing like Michael said a couple of minutes ago. Nothing has materially changed from what we talked about back in October when we saw a little bit of pressure. But that pressure we saw was specifically in Q3 and Q4 of last year. And so comps definitely get easier. Mark, your question was more about demand, but I’d be remiss to not just talk about the rest of the P&L, really quickly here since we’re talking about 2025. We have a really strong track record of productivity improvements.
And I would say at this juncture, we have pretty good line of sight to our margin targets, certainly for 2025, but also beyond. And so I’m comfortable with where we are there. And then I’ll also just say purely from a capital allocation standpoint, we will have continued share count tailwind as we move through 2025. And so overall, I feel pretty good about our guide.
Revathi Advaithi: Yes. So maybe I’ll just wrap it up, Mark, with your question and then wrapping up the entire session today is, let me kind of talk about FY2025 a little bit and then overall. First is on FY2025, I think you heard a very clear answer from Michael and Becky in terms of how we’re thinking about end markets. We spend a lot of time in terms of predicting our customers’ forecast, looking at exactly what happens in the channel and all the way through the value chain. So I feel fairly good in terms of how we’re thinking about the year. And in general, we tend to be somewhat thoughtful and prudent in terms of our guide. So we definitely have all that baked in. We feel very good about kind of margin and EPS targets, guidance that we’re giving you.
I feel like we’re very confident with what we are driving in overall efficiency and mix change that we really will get to that. So I feel really good about our FY2025 overall guide, even in the midst of kind of some conversation about our end markets and how our customers are doing and all of that. So I feel really good about FY2025. But let’s step back and talk about kind of the three-year outlook, the five-year conversation we just put in front of you. What we’re talking about is that Flex stands in this unique position of being differentiated as a very good, strong global EMS company. And at the same time, being in the middle of technology trends that are happening, particularly around power and compute in amazing verticals like data center and Automotive, right?
So we’re in this unique position of being an EMS company in certain areas and a product differentiated company in certain areas, particularly around power. And the secular trends are in our favor in those end markets. We talked about 40% of our revenue in five years coming from these two critical areas, with amazing differentiation also in the ramp of the value-added services, which is everything from fulfillment to aftermarket care that we are providing. So I would walk away from kind of this three-year conversation that we’re having, thinking that Flex is making this unique transition of being the world’s best EMS company, but at the same time, bringing critical important technology trends that puts us in a differentiated position with certain product companies.
And we feel really good about the implications of that to our long-term guide, which is, we’ve talked about 6-plus percent margin, which we should get to, I would say. And definitely, the low EPS CAGR – double-digit EPS CAGR, that we talked about. So feel really good about kind of the three-year guide. Most importantly, we feel very good about our team and what we have delivered so far. So thank you for your time and look forward to our conversation.
Kyra Whitten: Yes. So a replay of today’s webcast and presentation materials will be available on our Investor Relations website shortly. Thank you all for joining us to learn more about Flex and the opportunities ahead. We look forward to seeing you over the next few months at upcoming conferences, including JPMorgan and BofA, and we will also be at Barclays in London. Thank you all so much, and this concludes our event.
