Flex Ltd. (FLEX) Earnings Call Transcript & Summary

Okay. Great. Well, thank you, everyone, for joining us today. My name is Mark Delaney. I have the pleasure of covering Flex for Goldman Sachs. I'm very pleased to have with us today, Revathi Advaithi, the CEO of Flex; Mike Thoeny, the President of the Automotive Business; and David Rubin, the Head of the Investor Relations team. I really appreciate you guys all coming here.

No problem. Thank you for having us.

I thought one bigger picture question to kick-off and Revathi, maybe you can take this one and Mike, I'd love to get your thoughts as well. But is there anything that you think could surprise industry observers or investors over the next year?

And a lot of things that could surprise us. Let me start with for us, just a little bit of Flex. If you don't know much about it is that our contract manufacturing company, and we work in many different end markets. Our biggest end markets are 6, which is on the reliability side is industrial, automotive and our health solutions business and on the agility side is our cloud enterprise communications business, our lifestyle business, which covers large consumer home good products and then what we call our consumer device business, which is more like cell phones and laptops, that type of business. So many end markets. So in terms of your question itself, I guess the whole conversation the world is having now about demand, where is demand going and all of that. Today, where we are is, we're pleasantly surprised that demand is really strong for us. We had a 16% growth in revenue last quarter. Our guidance, if you look at the next quarter is again around 16% at a midpoint. We have projected a really strong year in terms of full year revenue growth. And so I would say that we're seeing really strong consistent demand across all our 6 end markets, which is very diverse and -- which is different from all the noise that you're hearing out there today. So I'd say in some ways, that's a good surprise. I think what we're all looking for is, what are those early signs of weakness, if any, which today we don't have a significant view of any kind of weakness other than what we've talked about a little bit in our consumer segment, which is more like a -- we don't do much in terms of cell phones, but those types of products we're seeing a little bit weakness, which is all in our guidance, which is still very strong growth. So I'd say big picture right now, we're all trying to predict something that we're not seeing right now. So I would say no surprises from a Flex viewpoint other than we feel pretty good about where we are and where things are in growth. Automotive, any insight?

Yes, in automotive, I think everybody knows about the transition from internal combustion engines to electrified powertrains. So no surprises there. But one thing I think that people are maybe possibly underestimating is the power of the software-defined vehicle trend that's going on. So the amount of compute that's coming into new vehicles is really increasing significantly. And it's all driven by this up integration of all the different 100-plus boxes in the car into a fewer number of zones, domain central compute platforms. And so I really think that as we start to -- we're already launching a lot of new content in this space, and I really think we're going to see this grow as well in parallel with the growth to EV platforms.

That's great. Lot of stuff for us to dig more into. I wanted to go next to the Inflation Reduction Act and pretty substantial legislation. How do you think that will impact Flex, if at all?

So we've talked about the macros that will drive growth for Flex, and we've talked about 3 major trends. So one of it that applies to Inflation Reduction Act is everything around electrification and energy, right? So for us, we feel like first is that whole trend is pretty significant for Flex, whether it's in the automotive business or whether it's in the industrial business, we think that, that is one area that we're seeing huge growth. Inflation Reduction Act specifically helps our Energy businesses for sure. It definitely helps the electrification business also. So for us, if anything, we see it continuing to drive growth for our NEXTracker business, for our Energy business in Industrial, which is north of $1 billion now and then Mike's business around electrification. So all positives for us in every way. So we think of it as a good thing.

All right. So number of your customers also should be able to benefit maybe through higher sales or lower cost. When you think about Flex specifically, I mean do you think you may need to change where you manufacture any of the products to qualify for potential subsidies or do you feel like you're well-positioned already to be able to take advantage?

We're fairly well-positioned, I'd say, but it will drive the way the bill is structured. It is going to drive some made-in-America content, and we will be able to support those customers who need to have more made-in-America content. We have a game plan for it. We're expanding -- continue to expand our footprint in the North American region. So it will drive some extra growth as a result of that, I would say, in the North American region, but we're very well-positioned for that.

Yes, I wanted to talk more on that topic. I mean we've been talking about this as investors and industry participants for a number of years about the potential for a lot more manufacturing to take place in North America. And I think back 4, 5 years ago, some of the tariffs that were put in place or a discussion, is that going to lead to significantly more manufacturing in the United States, specifically North America? Definitely, it didn't seem to do all that much, but now you've had multiple years of geopolitical tension, supply chain stress. You've got the Chips Act. You've got now the Inflation Reduction Act. So I don't know if you can share any more on how broadly you think this could occur more of an increased percentage of manufacturing taking place in North America, and any example you can maybe share along that?

I'll talk about Flex as a whole and definitely have Mike talk about automotive. First is, I talked about electrification being a big trend for us. Regionalization is also a big trend for -- growth trend for Flex. And it started with kind of the trade issues, but then you had COVID. You had freight increases as a result of COVID and all the demand increases. Then you have all the focus on kind of what is happening in terms of labor availability across the world. And then, of course, supply chain resiliency as a result of what's happening with shortages. So I would say the conversation around regionalization and where you manufacture closer to the available to the end consumer is a given for all our customers. Everybody is talking about that. But it has gone from talking about that to real actions. If you look at our portfolio itself and how it has shifted -- in the last -- just even 3 years, is pretty significant, right? We have seen North America really grow. We've seen Europe really grow. The rationalization and the focus with customers to say, I want to make sure I'm manufacturing closer to where the end product is going to get consumed is a big trend. And a significant portion of our new program ramps are driven by that, particularly driven by Europe, North America and then to some extent, I would say, in Southeast Asia. And that's a big trend in all 6 of our businesses, not in just one end market. And anything on automotive, you'd say as a result of regionalization?

No, it's absolutely true. The sourcing patterns that we're seeing is definitely driven by regionalization trends. But also, I have to say that even with our China business, we have a local-to-local focus. So our business is growing within China for China. But then for Europe, for North America, we're also seeing strong growth driven by -- especially for some of these larger components that we provide for electric vehicle electronics and the larger compute platforms, et cetera. So overall, again, strong alignment to the rest of the company here.

I want to talk on supply chain, if I could. I mean semiconductor shortages have been an issue, unfortunately, for quite a while. There's some sign of starting to ease up a bit. Maybe you can share what Flex has seen on that front. But then as you also look forward, are you seeing any newer risks that could be quite material, emerge and anything you can share on that or any of the potential energy crisis in Europe, you've had some renewed lockdowns in China related to COVID of late?

Yes. Let me start with kind of just the COVID question. One is, for a company of our size and scale and how much manufacturing we have, there's always something going on somewhere around the world. So it's important that we look at how we execute in the big picture through all these ups and downs, right? So if I take the supply chain crisis to begin with and the chip shortages, we're definitely seeing some signs of easing, right, particularly around kind of higher volume consumer goods, and you're all hearing about that. That's not new news. But in terms of kind of the more complex semiconductor products, lagging edge products like for Mike's business or industrial businesses, there is still a significant short amount of shortages. We're not out of the woods. We don't see ourselves getting out of the woods anytime in the near future. We've got all that in our guidance in terms of we're seeing improvement in some, not improvement in the others. And I think it will be a while before we see capacity catch up for products like where Mike is at, for automotive and for industrial, where it's higher mix, lower volume products. So as a supply chain crisis, still a little bit to go in terms of where we see improvement. I'm not predicting anything about it because I've been consistently wrong. And I don't think anybody's crystal ball is right on this, but we do see some easing but not across the board. I say in terms of what else is around the corner, I think the energy conversation around Europe is an important one and is a good one because it is so much in the news. If you think of companies like ours, where we have a big manufacturing footprint in Eastern Europe, and we're very aware of this, and we're very focused on how we make ourselves self-reliant, but also what the energy sources are. I think Hungary is a good example, pretty significant amount of energy coming from coal, still a good relationship with Russia. We have our largest manufacturing there, and we feel pretty comfortable in terms of our ability to manage through it. So we've well thought through energy issues in Europe and how we manage. So we're quite comfortable with how we will think through energy crisis in Europe. So I'd say the China shutdown has almost become a norm, where Chengdu is shutdown, we have very little presence there. Shenzhen is going through its ups and downs. But -- we've kind of contemplated all that in our guidance. We almost predict a little bit of something happening and kind of bake that into how we're seeing things. But I think we've become good at managing these little things around the corner that we seem to have all the time.

It's remarkable how long this has persisted for, one thing after another. I was hoping to double click on 2 different things there. One on automotive and then one on Europe and maybe just kind of stuck with Europe. I mean are there changes you're making sort of currently to better position yourselves if there is an energy situation in Europe that deteriorates?

Absolutely. First is, I think we're fairly well positioned. We have looked at every country that we're in, where is the energy dependency coming from? How much is coal, how much is oil? What is the relationship that those governments have with Russia or any other country? What is our source of energy, how much self-reliance do we need? We're working with governments to make sure if there's any impact that we have, have a self-reliant kind of energy infrastructure. Most of the Eastern European countries where we have our manufacturing, we're fairly large manufacturers. So we have good relationships in terms of how we'll manage our energy infrastructure. And like I talked about, I think Hungary is a great example. I mean big coal dependency, good relationships, I would say, geopolitically and we feel good about it. So we've gone through that, I'd say, country by country and how we're thinking about it. Do you want to talk about automotive?

Yes. So you mentioned that we're not out of the woods yet on the supply chain situation. And it's due to one of the fact we're using older technology nodes, 45-nanometer plus type of devices. And that's clearly not where the semiconductor industry is investing in new capacity. So we've got a great supply chain team, right? We are finding parts for our customers, and we're seeing incremental improvements. But we're also being proactive about this with our customers in partnership with the semiconductor industry to make sure that for the newer platforms that we're launching, right, that we are working proactively to identify and steer our customers either through our own design efforts for -- to influence theirs where we're in co-design mode with them to use the semiconductors that are aligned with what they have capacity for in the future. And so again, finding parts now in the short-term, but also planning for the future, I think is the right approach that we've taken.

I had a handful question. I was hoping we could cover on the automotive business. And maybe to start, if you could help us better understand what are the most important applications that Flex is supporting within automotive?

Okay. I'll jump in. So we put a big focus on what are the biggest macro trends in mobility. And this is where we put a lot of our investments. So we call it next-gen mobility. I can double-click a little bit in terms of what products are part of that. So first, it's electric vehicle, power electronics. So DC/DC converters -- I'm sorry, DC/DC converters, inverters, battery packs, battery management electronics, et cetera. So anything that has to do with the electronic side of the electrified powertrain. And that's a fantastic growth area for us with all of the growth of EV content and platforms around the world. The second area that's in our focus for next-gen mobility is ADAS, Advanced Driver Assistance Systems. For us, it's primarily compute in that space, but we also do sensors. And also, this transition from advanced driver safety systems to autonomy. So we have several, I'll say, large-scale Level 4 highly autonomous platforms that we're working on that will be coming to launch within the next year. The other area is what we call scalable compute. So I mentioned earlier about the software-defined vehicle and all the larger compute growth in the cars. We do zone, domain, central compute. All of these have significant compute elements, and that's been also a pretty heavy focus for us. So that's the new stuff where we have the highest level of growth. But we also have a really solid legacy portfolio that is also showing strong growth, core EMS business, specialty products like smart actuators, custom wiring harnesses for smaller applications, et cetera. So overall, it's a good balance of what's new and tied to the highest growth, but also a nice legacy portfolio as well.

Can you help us think through the percentage of revenue exposure to those various areas, either like new versus old or even more specifically, how much is EVs, how much is ADAS?

Okay. All right. So we don't break out specific revenues by product, but I will say this that when it comes to EVs, we do not have ICE or internal combustion engine power electronics or sorry, powertrain electronics or parts that we ship. So no fuel injectors or things like that. So the balance between ICE and EV as it shifts more towards EV, it's only advantageous for us, right, as we continue to focus on that part of our growth. But one thing that we can share, right, is that we had in our last earnings report, we talked about our growth. And we look at a really good booking year that we had in fiscal '22. First quarter alone for this year, we booked 90% of what we had booked all of last year. So really strong growth to start. And 60% of that was in this next-gen mobility area, which is tied to heavily EV and ADAS.

What about content per vehicle? I think that would be a good time to...

Yes. So let's talk about that. So right now, we're conservative in how we calculate content per vehicle. So we look at our overall average content, overall number of vehicles we ship to. And that number, we've talked about before, is $260 per car. Now we clearly have some high-runner vehicles that have much higher content than that average. It's wanting to push towards $1,000-plus and certainly has the opportunity to grow as we put more and more complex electronics and vehicles. So that's, again, heavily driven by the next-gen mobility portfolio.

And when you think about the Inflation Reduction Act for auto specifically, we spoke about this a little bit, but when you're speaking to some of our automotive customers, are you getting any insights from them about changes they may want to try and make and how Flex can perhaps support that because I think there's a pretty big North America specific component in order to be able to qualify for at least the consumer side of the credits?

Yes, absolutely. So Revathi talked about the fact that it's definitely a net positive for us in terms of how it will stimulate demand. But specifically, there are -- if you look -- if you break that down, and we certainly have, right, in terms of what are the impacts of this. There is a cap on vehicle cost, right? So that's going to drive more mass market, which is more volume, which is more revenue. So that's positive. It also drives more localization of content. So we have the footprint for it. But it's a complicated bill, right, in terms of going down into listing exact components and raw materials that have to make up the batteries, et cetera. So overall, it's going to drive a nice level of investment for North America growth. But overall, that incentive, that $7,500 will be a nice incentive and motivation for carmakers to really think mass market instead of luxury. And that means -- and we have the means, of course, to help them with that.

Who do you think your key competitors are in the automotive space? I mean is it the Jabils and Hon Hais of the world? Or is it more typical automotive Tier 1s like a Bosch or a Magna?

So I guess the quick answer is both EMS and Tier 1s, we compete against in our space. We like to think of ourselves as a disruptor, right, because the whole business model of how automobiles are -- excuse me, carmakers are creating and sourcing content is changing, right? It's not perhaps the old days of a high-level spec going out to a full-service Tier 1. It's more of an ecosystem approach now. And the ecosystem of -- that is a collection of flexible partners that are helping carmakers accelerate their technology to market. So our business model in this space is to really play multiple roles in this area. So for example, sometimes we're an EMS supplier and we're, of course, very good at that with our strong manufacturing and supply chain capabilities. And sometimes it's a flex-based design. We've invested, and this is where we differentiate against some of the other EMS players. We've invested in design capabilities. So we have our own products that we design. And then there's this middle space, which we're really seeing a lot of growth in, which is codesign. So for example, a carmaker that's investing heavily in generating software content for the software-defined vehicle might be looking for somebody to help them with their computer platform. And of course, we're perfectly suited to help them with that by taking care of all of the design activities and the verification activities, et cetera, to help enable their software to get into production. And that's the disruptor we think.

Yes. I mean you brought up the software-defined part of the vehicle a few times, right? It's one of the very first things you brought up. Driving is an area where Flex can bring to bear more than just a typical vehicle set of technology to have your cloud business as well. So to what extent are you trying to pull in some of the capabilities of other parts of Flex, some of the cloud offerings in order to be able to help your customers with the software-defined vehicle?

That's a great question. Because as a multi-industry company, we look at collaboration more than just in the compute space, but also in the power electronics space with our industrial team. But I can tell you a brief story about our engagement in highly autonomous driving computer. So we have 3 customers in this space where we are doing -- I mean, it's the highest end of compute that you might have in a car. And what got us in that market is the cloud and enterprise compute business. If you think about blade servers and all of the system-on-chip content that goes on these boards, it's a natural to say, "Hey, let's take that high-end computing and make it automotive-grade, make it be able to survive the rigors of an automotive environment. And that connection point really helped us because sometimes the chip platforms are similar, right, as you go into this. So we had a great head start based on the collaboration with our CEC colleagues and enterprise. And that certainly helped us to land our first few level 4 highly autonomous compute platforms.

And not just on that, but like he said, like what's different about us is that like we have our own design content and DC/DC inverters as an example, that kind of experience also comes from our power business, which has their own design and products to market that then helps us design inverters, which is not easy to do. It takes many years to have 3 generations of that design. So we've been good at picking things from one business and moving into the other, which has helped his business really to grow.

Yes. The another question kind of touches on, I think, a few different areas of what Flex can bring to bear. But we've all been seen in California, right, that the stress that was put on the grid just last week. And you're curious across the various different things that Flex can provide. How does this play out longer term right if you have this big push towards electrification towards EVs like the grid is going to need to be more robust. And I think Flex have some things they can do there and maybe talk a little bit more on what you're seeing in the grid?

I think we've said electrification in general, the whole space, whether it comes from vehicle content that we've talked about or it comes from energy storage that in your house, we manufacture tremendous amount of energy storage products to some of the largest North American manufacturers talk about inverters that go into solar in your homes or into commercial spaces. We manufacture those for most of the large inverter manufacturers just in my home alone this week as power went on and off, our customers' products are working in my own house. So you will see the move towards residential solar, commercial, light commercial solar, utility-based solar, which is all spaces that we have a significant presence in and that you're seeing growth in just for Flex alone and for our customers. We've talked about $1 billion plus in terms of our Energy business. That somewhat came out of nowhere in terms of how significant that growth is, and our focus on that will really continue to push that in a big way, all coming from, I would say, issues you're seeing in the energy space.

When I think about energy, a couple of the acquisitions that Flex has done between NEXTracker and Anord Mardix, those are products, right, and rather than building a company versus somebody else to sell. And I'm curious, Revathi as you think about how you want to position Flex longer term and you look at the M&A landscape, do you have a preference for doing more of those types of deals where it's more of a full solution that Flex brings to market or are those just happen to be kind of idiosyncratic opportunities that presented themselves and so that's how you ended up there?

I would say that I wouldn't fully position Flex as saying we're trying to become a product company. I look at it more like in terms of the end markets that we want to be in. The NEXTracker very different product space totally, right? We make trackers for the utility space. And it was an acquisition that was done before my time, but that has performed very, very well. I think Anord is a very good example of facilities power, what we want to be big in is in the cloud space. So if you look at cloud in terms of end-to-end us as a provider for the cloud space, whether it is from a compute perspective, whether it is from a server storage perspective, where there is building racks and enclosures for the IT system or the facilities power, we want hyperscale colo customers to look at Flex as an end-to-end provider for that space. So Anord fit into our strategy for one thing to drive growth in cloud and looking at it and saying, how do we go from not just having compute storage, racks and enclosures, embedded power products, but also do facilities power. So our approach will be to say, we've picked the end markets we want to be big in. We talked about electrification. We've talked about digitalization, which is cloud growth. And we're trying to build a portfolio that helps customers to be fully reliant on Flex end to end. So I would say that would come as a combination of whether it is contract manufacturing or products. I would love to have more deals like Anord, you know, it is a fantastic acquisition for us, high growth, great EBIT margins. But we will be picky about the end markets we want to be on and how we want to build that portfolio.

When you think about the hyperscale data center opportunity, right, it's one of the faster-growing markets that's been out there for a number of years. Curious, are there still areas you think that are -- you're not participating as well as you would like to as you think about the hyperscale data center. If I think back to Flex -- 5, 10 years ago -- we had a lot of relationships with more of the traditional hardware OEMs and more so of the enterprise applications, and you've really been investing and is starting to grow quite nicely. You have everything you want at this point now for the hyperscale space.

Yes. I'm very pleased with where we're positioned on the hyperscale space, not just in terms of storage, networking, but also in terms of what we are doing with things like racks and enclosures, and that's a space that isn't talked about much, but it's a huge issue for hyperscale providers because you don't have good local suppliers who can scale up to that. Our embedded power business with its own product is a significant growth potential and a backlog that we're really trying to deliver to. I feel really good about where we are in terms of cloud itself. It's going to be all about continuing to execute this backlog we're sitting on. I feel like there may be little ads that we'll do here and there, but we're in a -- we have already built a fantastic portfolio for hyperscale.

That's quite helpful. You touched on this to start the conversation in terms of demand trends. I do think some semiconductor companies have exposure into data center market have seen some signs of weakness of late. Do you think that's a good leading indicator for Flex or is that maybe more driven by inventory cycles and perhaps it's not a good read for Flex?

It's not a good read for Flex because one is our cloud business is growing fantastically well, right? And that is a combination of a lot of new wins that we're executing on. Cloud providers, in general, want very low-risk suppliers. So they really rely on people like Flex. But I'd say end market data centers always goes through some cyclicality of cycle. You put in a capacity investment. You drive to full efficiency load and then you add to it again. But it's hard to step back and imagine the data center markets in general, having longer cycles of slower growth. It's just hard to imagine with the trends that are going on. With Flex, I would say, we're well-positioned on cloud, just new products, a lot of new programs and ramps that we're seeing. So we're very bullish about where we're positioned in terms of our overall growth in cloud.

That's great. In terms of the financial profit margin profile, the company has a 5% plus adjusted EBIT margin target. Is that a level you think the company can hit in a good year or something that it can consistently achieve in the longer term?

I'd say, Mark, if you think about the last 3 years with everything that the world has gone through, whether it was trade issues and exiting some large customers, COVID with the level of shutdowns and things we had supply chain prices, all of that, the company has grown fantastically well, but also grown margins by 120 basis points, right? So we have shown that even very difficult times that this is a company that is able to change mix from a portfolio perspective and then change its execution profile to execute and show that we can grow and improve margins. So I feel very good that one is the industry itself is changing in terms of what customers want from us and what they're willing to pay. And so you're seeing a shift in the direction of improved margins across the industry and Flex for us is leading the way in that. So I feel very good that we will continue to show growth and show mix improvement, but also execution improvement, productivity gains even because we have shown it in very difficult times. So I feel very good about growth and margin improvement, both that we're talking about that Flex is well-positioned to deliver that.

Another financial topic I wanted to touch on was inventory and most of the EMS companies and even across other industries we observe, inventories built up because of all the supply chain efficiencies. What would need to happen for that to come back down or maybe it's the new normal? Is it semiconductor issues being more fully resolved and then perhaps the company can operate with less inventory or is it something else that would need to take place in order to reduce the inventory level?

No, I'd say first is we sit in the middle of managing a whole bunch of components for our customers. It's a complex equation. And if you think about what the world has gone through in the last year, not just chip shortages, but plastics, everything else. We're trying to bring all that bill of material together to put the components together. And we're sitting at 16% growth through these cycles, right? So it does drive inventory. I've been doing this for 30 years. I've seen all the cycles of inventory there is to see. And I'd say it's not an unusual place to be when demand is so high and shortages are so significant. But I also feel very comfortable that it will work itself through. It will take a little bit of time just because we continue to see shortages and decommits that we're working through day after day. So it's not going to happen overnight. But think about the cycles, if you look at the last decade of Flex's performance -- we've been at 120% of cash flow conversion to GAAP net income through all these cycles, right? So we've obviously been a very good company at delivering cash flow conversion. And so I feel very comfortable that that will continue to be what we see in the future. Last quarter and this quarter, we have said that inventory will be inflated and our cash flow conversion will be second half loaded. So that is coming from abatement of inventory issues that we see. But our customers also pay us to hold inventory for them as we help them get through these supply chain crises. So I've been managing this for such a long time that I feel comfortable that as we work through demand and the supply chain crisis inventory will abate, and we're kind of back half loaded because that's the right way to think about this.

I want to ask you about capital allocation priorities right now, probably has been funding inventory, but the other potential uses of cash in terms of share repurchases, tuck-in M&A. Maybe you can talk about how you see that transpiring going forward?

Yes. So with the self-funding working capital, obviously, that becomes a priority. And so we've been managing capital allocation around buybacks primarily quarter-by-quarter. A good rule of thumb out there is that it takes about 1/3 of your inventories, what you're churning through every intra-quarter by way of cash. So that means we've had higher cash on the balance sheet, and we've had to use cash flow at times to do that. But right now, as Paul and Revathi both said over the last couple of quarters, the priority has been investing in Flex because we feel the value is there. And -- we have also said that, and Revathi pointed today that we would love to find more Anord Mardix. But deals like those don't fall from the trees and you have to look hard and do a lot of due diligence. We've talked about making sure that those deals have both the right metrics in ROIC, but they have to make strategic sense. I think Paul said, we're going to go buy a toothpaste company or something like that, because it's maybe profitable it doesn't fit with what Flex's done. And that's when Revathi looked at that deal, you said there's a synergy between both critical power towards the data center and the synergies in ours. For debt, we want to maintain, our biggest priority is maintaining our investment grade. So we want to stay at the levels we're at now. Obviously, that would affect our business and our supplier relationships are of that.

But I'd say the last, if you look at the last 3 years, I would say we have been great stewards of capital. We've been very disciplined in where we've invested and how we've invested. We've done buybacks at the right time. We picked up a great acquisition to invest in. Now it's all focused on growth and making sure we can execute for growth. So whether it's investing in CapEx or short-term investing in inventory to drive that growth. I think we've done this really well through all the ups and downs in the last 3 years. And so what you can expect from us is we'll be disciplined and we'll be very consistent in our capital allocation strategy.

We have time for 1 or 2 questions from the audience. I wanted to just see if anyone has one. Yes, in the front.

[indiscernible]

I'd say, let me just say first to start with, of course, we have an S1 on file. So I can't give you anything specific on timing. I'm sure that doesn't surprise you. But I think it's important to just reflect on the fact that in the NEXTracker, with everything that has happened in terms of end markets and performance has done fantastically well in terms of growth, had a little bit of a dip in terms of margins starting to come out of that right now. We've had kind of 1 quarter of good performance. We expect that to continue to move in the right direction as freight issues abate and all of that. But improving margins is a continued trend we're looking for, for that business, good strong backlog, so growth is good. We'll continue to look for the right opportunity on when we can take that business to IPO, but unfortunately, I can't reflect on timing.

We just said we can't talk about that. By Rule 135 of the SEC, we can't talk about timing, deal composition or deal pricing.

We're in a good position. That's at the end of the day, when we want to do it.

[indiscernible].

Absolutely. I'd say first, just think about the NEXTracker business. I said that acquisition was done before I came into Flex. I have been in energy and solar all my life. I know this space well. And NEXTracker is a very -- the product itself is a very contained product. We make tracker for solar industry. It has no synergy with the rest of what Flex does. It's a mechanical product with some electronics in it. And it made a lot of sense that it's not a great fit to the Flex portfolio but has a tremendous valuation if you think about it externally. So again, very disciplined in our thought process. I know this space well. I know how it behaves. And it sounds like that was the right decision for that business itself. So it just doesn't have synergies with the rest of Flex and we think is a very attractive portfolio for a different set of investors. And that's kind of how we reach the decision.

Are there other parts of Flex [indiscernible] allocate the capital.

No, we feel great about where the Flex portfolio is. For us, it was more about changing the mix in terms of end markets. We exited a few end markets and did that. We positioned the business really well for agility to continue to grow and improve margins, reliability to have strong growth and invest in the right areas. And so we feel very good about the portfolio. We have built a very diverse portfolio, but that has synergies across. And you see that in our numbers, whether it's growth or whether it's operating margin. So very happy with the portfolio where it is today.

I wanted to close out with a really difficult question for Mike on autonomous driving. It was one that we put in the pool that we sent out to a bunch of investors before this event, but given the work you're doing broadly and so I'm not trying to ask you about any one of your customers, but maybe just your own personal view. When do you think Level 4 vehicles for personal use will be available?

Yes, Mike.

Personal use, it's interesting. I've been around the autonomous space for a while, and the dates keep getting pushed out. But right now, I think the best use cases for the amount of money that you have to put in to these cars is really in the mobility as a service and delivery as a service. And I think it will be a while before you really start to see this available for private ownership.

Great. Well, unfortunately, we're out of time. Revathi, Mike, David. Really appreciate you guys joining us today.

Thank you.

Thanks, everyone.