Good afternoon, and welcome to the Flex Second Quarter Fiscal Year 2022 Earnings Conference Call. Today’s call is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. At this time, for opening remarks, I would now like to turn the call over to Mr. David Rubin, Flex’s Vice President of Investor Relations. Sir, you may begin.

Thank you, Jenny. Good afternoon, and welcome to Flex’s second quarter fiscal 2022 earnings conference call. With me today is our Chief Executive Officer, Revathi Advaithi; and our Chief Financial Officer, Paul Lundstrom. Both will give brief remarks followed by Q&A. This call is being webcast and recorded. And if you have not already received them, slides for today’s presentation are available on the Investor Relations section of our flex.com website. As a reminder, today’s call contains forward-looking statements, which are based on our current expectations and assumptions and are subject to risks and uncertainties, so actual events and results could differ materially. Also, such information is subject to change, and we undertake no obligation to update these forward-looking statements. For a full discussion of the risks and uncertainties, please see our most recent filings with the SEC. This call references non-GAAP financial measures for the current period. The GAAP reconciliations can be found in the appendix slides of today’s presentation as well as on the Investor Relations section of our website. Also note on October 18th, we announced we’d entered into a definitive agreement to acquire Anord Mardix -- excuse me. Guidance we provide on this call excludes any impact from the pending acquisition. Lastly, with regards to Nextracker business, as we previously discussed, on April 28th, 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 offering of its Class A common stock. The initial public offering and its timing are subject to market and other conditions and the SEC’s review process. We made this announcement in accordance with Rule 135 under the Securities Act. We continue to look to the market and we’ll evaluate the right time to do a transaction, but we remain committed to doing one. Following SEC regulations, we will not make any further statements or answer any additional questions on the Nextracker filing at this time. With that, I’d like to turn the call over to our CEO, Revathi.

Thanks, David. Good afternoon and thank you for joining us today for our fiscal Q2 earnings call. Firstly, I want to thank our employees for their contributions this past quarter, and I really appreciate how hard our teams are working to support our customers and truly make a difference. I’m very proud of what we have accomplished together. Please turn to slide 3. We achieved a revenue of $6.2 billion, that is up 4% year-over-year. Revenue came in slightly below the midpoint of our previous guidance of $6.3 billion, due to some interruptions to production late in the quarter. And I’ll provide more context to that in a minute. Total Flex adjusted operating margin came in at 4.6%, consistent with last quarter, but better than what we initially expected. As you can see, we continue to execute exceptionally well. Our adjusted EPS was $0.48, up from $0.36 in Q2 of last year, and up from the pre-COVID level of $0.31 in Q2 of FY 2020. Adjusted free cash flow came in at $90 million. That brings us to over $300 million in free cash flow generation for the year. Now, going to the next slide, let me start with a little bit of update on the supply chain situation. We said last quarter that fiscal Q2 would be a more challenging quarter due to a number of factors. We based our assumptions on a broad view of the supply situation and our demand analysis at the end market level. If you look at our results, you will see that what was in our control, we executed very well, again delivering year-over-year growth and very strong margins, despite some headwinds we saw late in the quarter, like some last minute supplier de-commits, some further logistics surprises and short notice automotive OEM…

Okay, great. Thanks, Revathi, and good afternoon, everyone. Please turn to slide 7 for our second quarter income statement summary. Flex revenue was $6.2 billion in the quarter, an increase of 4% year-over-year, but down 2% sequentially, primarily attributed to what everyone else is seeing with global supply chain disruptions. Adjusted operating income was $286 million, up 16% year-over-year. Adjusted net income was $233 million and adjusted earnings per share was $0.48, a year-over-year increase of 29% and 33%, respectively. Reconciling to GAAP, second quarter GAAP net income was $336 million and benefited from a $149 million favorable VAT like indirect tax credit, partially offset by stock-based compensation, intangible amortization, and other charges. The credit, which you will see booked to the interest in other line in the P&L, is a result of a favorable tax ruling in Brazil that benefited a number of other companies as well. Please turn to slide 8. Our second quarter adjusted gross profit was $481 million, up $58 million year-over-year. Despite the challenging macro environment, our disciplined execution delivered a Q2 gross margin of 7.7%, which was up 60 basis points compared to last year. In total, SG&A came in at $195 million, up $18 million from the prior year period and at 3.1% of sales, within our targeted range of 3% to 3.2%. Overall, adjusted operating income was $286 million, up 16% year-over-year. Although we faced headwinds brought on by COVID-19, along with industry-wide disruptions, Flex achieved a 4.6% adjusted operating margin, which was up 50 basis points year-on-year. Turning to slide 9 to review segment performance. And please note, all growth metrics we’re going to discuss are on a year-on-year basis. Flex Reliability revenue was $2.8 billion, an increase of 4.7%. Adjusted operating profit came in at $151 million with a 5.4%…

Thank you, Paul. So, as we all know, the environment remains pretty fluid. With the current issues in the supply chain, we’re giving a more prudent outlook to our second half revenue guide. However, we are maintaining our earnings guidance as we continue to execute well at all levels. So, on behalf of the leadership team, I want to thank our customers and our suppliers and our shareholders for their support. With that, we’ll start the Q&A.

[Operator Instructions] Your first question is from Ruplu Bhattacharya, Bank of America.

Thank you for taking my questions. Based on the guidance for fiscal 3Q and the midpoint of fiscal ‘22, looks like fiscal 4Q is estimated to be up in the low-single-digit sequentially. I guess, my question is, what is giving you confidence that the fourth quarter was typically a seasonally weaker quarter for Flex, can be sequentially up given -- especially given these component constraints, which are likely to continue into calendar ‘22?

It’s a fair question, Ruplu. And let’s just give you a little bit of color. So, you’re right. Typically, if you look back over the last number of years, our fiscal Q4, which ends in March, tends to be a bit light of our fiscal Q3, which is the December quarter. That pattern has been historically based on demands. And so, I would say, a couple of things are different this year. One, revenue is being constrained by supply, not demand. The second one is, we have a fairly significant new program ramp in the hyperscale space, which starts ramping in Q3 and gets closer to stable as we move into Q4 and beyond. So, that adds to the top line as well.

Yes. And Ruplu, I mean, it’s pretty simple, right? It’s a different year than it’s normally been, right? So, seasonality is working a little differently. And what’s really happening in Q4 for us is like Paul said, demand is strong, channel inventory still needs to be replenished, and we have got a couple of very specific large programs that are going into play in Q4 also that have started ramping up -- that would start ramping up in Q3. So, that is also adding a delta to our traditional seasonality. So, I think those are all the reasons why Q4 is looking different than you typically would see it.

Okay. Thanks for the details there. If I can just, for my follow-up, ask about the same question on guidance, but related to margins. So, it’s like based on your EPS guidance, you didn’t take that down. I mean, you’ve taken down the revenue guidance, but the EPS guidance is still the same, which implies better margins. So, I guess, my question would be again, what is giving you the confidence that you can have better operating margins, given the lower revenues? And I know you mentioned that demand is strong, but again, what is giving you the confidence in that backlog, which is probably very high, but if your customers are looking further out and giving you a larger forecast, but again, their visibility is probably limited, the farther out you go. So, again, what is giving you the confidence in the backlog and what is giving you the confidence in the margin guidance?

So, Ruplu, let me, let me start with margin, and then we can talk about the backlog in just a moment. So, on the margin front, so what we originally said, going back to April was we figured we’d finish the year and this was at, 25 billion to 26 billion top line, somewhere between 4.4% and 4.6%. That margin rate is intact. It’s a little bit light of what we talked about in July, but at 4.4% to 4.6%, I would say, nice strong margins above last year’s margins with a $100 million of operating profit growth. If you look at the EPS, which to your point, we held versus our prior guide, we’re quite confident that we’re going to end up in that $1.70 to $1.85 range, based on a couple of things. One, as you saw last quarter, we bought back a meaningful amount of stock. And so, we’re going to get a little bit of tailwind from the weighted average shares outstanding. You’ve seen our count go from 507 million, to 499 million to 487 million. So, share counts coming down, that helps. A little bit of tailwind from interest and other, from some FX and then a couple of minor things over the last couple of quarters, that were essentially dropping through, but again, highly confident in that $1.70 to $1.85 range. In terms of backlog, there’s talk in the industry about double ordering and all that. But, what I can say is, Flex has a tremendous amount of end market insight, because in most of our industries, we have numerous customers that service those industries. And so, the read through that we have and our deal analytics is quite strong. And so, just to give you one example, Revathi mentioned a couple of minutes ago, channel replenishment, case in point would be automotive. If you look at inventory sitting on the lot in dealers worldwide, it is at two-year lows. That ultimately has to be replenished. And we’re seeing that same channel replenishment need across our end markets. So, we feel quite good about the sequential improvement and then looking forward, frankly, I think top line expectations will be high as we move into 2023.

Ruplu, I’ll leave with couple of thoughts. One is, I’d say, if you look at our -- I’ll talk about margin for a second. If you look at our performance so far, it has been really executed extremely well. Our margin performance has been very good. And so, we have room in our margin profile for Q3 and Q4. That’s what gave us confidence in our guidance. In FY22, if you look at our midpoint of kind of 4.5, that would be a pretty -- that would be the highest operating margin in the long time. And based on our Q2 execution, you can see that we are consistently delivering that. So, ton of confidence in delivering that margin commitment, for sure. The demand side is a really no brainer. If you look at Q2, I mean, we still grew 4% in a time like this, right, which is probably the highest in the industry and a very, very strong growth. If you look at our demand profile, we have more than enough demand to have hit more than our top end of the guidance we had given earlier, which would have been a 13%, 14% growth year-over-year. So, that demand is still there, waiting for us to execute as the supply situation improves. So, all of that really gives us confidence in Q3 and Q4. I think just being prudent in revenue is the right thing to do right now.

Okay. Thanks for all the details. I appreciate it. Thank you.

Thanks, Ruplu.

The next question is from Matt Sheerin with Stifel.

Yes. Thank you. I’m hoping you can comment more regarding demand strength, but also the components constraints within the CEC. Is that across the key platforms, networking, servers, storage, et cetera? And it sounds like the supply constraints are getting worse there. Any signs of that abating as you get into calendar ‘22?

Yes. I would say, Matt, first is you’re right. CEC is definitely -- I think that sector for us and for our customers is probably one of the most challenged, because demand is the most strong there also, right? Whether it is all the prevailing reasons of the macros, whether it is hyperscale growth, you’ve seen all the cloud guys report fantastic growth, whether it is 5G starting to accelerate now. So, all macros are driving a pretty significant demand profile for it. When I talked about, our demand profile would have been at the higher end of our guidance or more than that, CEC would have been the biggest beneficiary of having that much kind of unfinished demand at this point in time. I would say, in terms of which sector within CEC is the most affected by supply chain constraint, I’d say, they’re all are. This is a very equal opportunity issue here across every sector, unfortunately. But, the way I see it play out is, I would say, the biggest growth sits in cloud, right? And so, in general, the more growth you have, the more pent-up demand you have. You’re seeing it in cloud, you’re seeing it in networking, and you’re seeing it in servers and storage. All of them have pretty significant supply chain constraints, and also have strong demand that has not been met yet. So, we’re seeing it across the board for CEC.

Okay. Thank you for that. And then, just on automotive. We know that the headwinds facing all suppliers for that market right now. But beyond those supply issues and you talked about inventory replenishment, but could you talk about in terms of the content opportunity for Flex, particularly in EV, where I know you’ve got some strong customers?

Yes. One thing I’d start with saying is Matt, our automotive bookings this year is at record levels. We’ve just had a fantastic year in automotive in terms of our overall bookings. It’s one of the strongest in a long time. What we like about it is, also the mix of those bookings, particularly around autonomous and EV. And on the autonomous space, I’ve said before, we are also more focused on kind of level one to four, because that is more accelerated revenue in the near-term. And so, our largest bookings have been in those two spaces. And the other good news on those bookings are, it’s also -- the geography of those bookings are across the board. So, we’ve had a strong China growth on automotive bookings and we’re also seeing that in Europe and North America. So, we’re really pleased with kind of the pivot that has happened in our automotive business in terms of our focus around EV. We recently announced a partnership with a battery company that has been looking at long range batteries. And since we are so strong in BMS, we are partnering with them to provide content for EV that we are quite excited about. So, really the focus is the right one, the bookings are showing the results, and we’re well-positioned on the EV space. And we also continue to look to add technology there.

Okay. Thank you very much.

Your next question is from Mark Delaney with Goldman Sachs.

Yes. Good afternoon, and thanks for taking the questions. The first one’s on the proposed Anord Mardix acquisition. Maybe you could talk a little bit more around how Flex became familiar with that potential asset. And then, is this a signal of how the M&A strategy may progress going forward, and that this is a product type of business rather than an assembly business? Is that the type of acquisition we should expect Flex to focus on longer term?

Yes. So, mark, I’d start by saying is we are super excited about this acquisition, not just because it just fits really well with Flex, and I’ll explain that in a second, but also importantly, I know this space really well from my prior history and now I know Flex well. So, the way it fits really well is Flex does a lot of system integration work for the hyperscale colo space, right? So, we do racks and enclosures, we do service storage integration, we also have our own embedded power business that works in that space. And Anord Mardix brings fantastic synergy with it because they bring critical power to -- particularly to hyperscale and colo. And that’s also a lot of racks and enclosures and system integration along with the technology embedded within that system integration. And the biggest issue that hyperscale colo people have is that it’s hard for folks to scale up. They find it difficult because when they scale up, they usually -- the component suppliers are not able to and Flex is really good at scaling up. So, this is a really good combination of the product technology we have and our ability to do logistics and modular solutions really fast, for Anord to be really successful with Flex. And we’re really excited because hyperscale colo is a fantastic place to invest in right now in terms of growth. We’re seeing that in the base Flex business. So, bringing a business like this with high margin and a perfect fit, both in technology and system integration is really the kinds of acquisition we’d like to see in Flex, moving forward.

That’s helpful. A follow up question about the implied fiscal 4Q guidance, as you already discussed, revenue is implied to be up a little bit quarter-on-quarter in fiscal 4Q. If I just take the midpoint of EPS guidance for 3Q and for the full year, it looks to imply pretty flattish EPS quarter-on-quarter, despite the higher revenue. So, am I just splitting the hairs too finely on using those calculations, or are you in fact expecting some incremental cost or margin pressure in fiscal 4Q as the guidance seems to imply?

I don’t think we’ll see -- I don’t think, Mark, we’ll see a sequential deterioration. I think, what we’ve done here is put a prudent guidance out there that we think that we can hit. There has been some incremental challenges in the supply chain as we talked about in the prepared remarks. So, as we move from Q2 to Q3, we will see a little bit of a margin bite. We expect some of that to continue as we move into Q4, but I don’t think it will be significantly worse.

Thank you.

The next question is from Shannon Cross with Cross Research.

Thank you very much. I wanted to dig a little bit more into the logistics challenges and the inflation that you’re seeing. And what I’m trying to figure out is because we’ve heard this from a number of companies. You’re obviously not the first. But, how -- I guess, how much visibility do you have into knowing that things aren’t going to get worse with some of the vaccine mandates and other things that are going to come into play here in the next month or so? What kind of workarounds can you do from a logistics standpoint? I don’t know if you can just give maybe some insight into what’s going on behind the scenes, because I think everybody is somewhat struggling with the supply chain situation that exists today.

Yes. Shannon, I think that’s a fantastic question, because, we have a ton of visibility, and we also have a lot of conversations with suppliers to really understand what’s going to come in and when and how is that going to come together for the full bill of materials? What is tending to happen today is in general is that even if you have like 99 of the 100 components available, if you have 1 component that is missing, whether it’s due to Malaysia or some other issue, it’s stuck on a boat, then you’re really not able to put that product together. Even that’s the reason you are seeing some of these supplier de-commits and movement happening last minute, because people have all the components and they don’t have 1. I think, so projecting and that is not very easy. That’s the same thing that we’re seeing is that we have the inventory, we have the labor and the resources, but if 1 product doesn’t arrive and the automotive company announces a shutdown, we are in no situation to send them any product because it’s a very last minute issue. So, I think that is just hard to prediction, Shannon, no matter what we try. And that’s why we have been somewhat prudent now in our revenue guidance, because we think those things are hard to predict. In terms of vaccine mandates, I think that’s a more hot topic, I’d say more important for the U.S., which is a small portion of our overall workforce, right? So, really not a large portion of our overall workforce. And, we think that the U.S. situation is manageable because it’s less than 10,000 people in our 165,000 people. So, our factories here, we already have a plan. We’ve got a very good understanding about how many vaccinated, how many not, how to manage to that. We have 84% who’ve already had one shot across the Company. So, it’s pretty good metrics we have. But, is that going to affect kind of some site, maybe, but I think all that fits into kind of how we’re prudently giving the revenue guidance, which is what you’re seeing all companies do, Shannon.

With regard to inflation, how are the conversations going with customers? How much Flex is there in your contracts, given some of the increases we’ve seen in labor costs and that, or do we have to wait until you renegotiate contracts in sort of the next iteration, before you’re able to make up some of that? Thank you.

No. Shannon, absolutely, we don’t have any concerns in passing along inflation. We have become so good at executing to these ups and downs, right? Whether it’s COVID or whether it’s trade issues, and now the supply chain. We reacted quickly to the installation issues and have been very systematically passing along claims to our customers, or pricing to our customers on these claims -- on these inflation issues. So, we’re quite comfortable that we are tracking it well. We’re methodical in terms of passing it. We have a high pass rate on our inflation, things that we’re seeing across the Company, which is why our margins are performing so well. And we’re very comfortable that contractually and even outside of contracts, that this is the time to get pricing. And we’re definitely seeing that in our business.

Great. Thank you so much.

Your next question is from Paul Chung with JP Morgan.

Hi. Thanks for taking my question. So, just a follow-up on the acquisition. So, does the fiscal year ‘22 guide kind of include the cost impact there? And, when can we expect to see some margin contribution from that business? I believe you mentioned it was in the mid-teens EBITDA, just quite attractive. And then, it’s been a while since you’ve acquired large asset like this. Is your cap allocation priority kind of shifting? I know you repurchased kind of quite a bit this quarter, but should we think about higher margin M&A as the bigger priority here, moving forward?

Sure. So maybe, Paul, I’ll answer the Anord Mardix question first. So, we have not baked that into our 2022 guide. We’ll expect to close that deal sometime towards the end of the calendar Q4 here, November, December timeframe. Thinking about 2022, it’ll probably add roughly $100 million to our fiscal Q4, as we move into that March quarter. Looking ahead to 2023, don’t want to get too far over my skis in terms of incremental disclosure. But, I’ll say this, I expect probably $0.05 to $0.10 of earnings accretion, as we move into our fiscal 2023. In terms of capital allocation, no change from what we’ve said before. We are going to be disciplined, we’re going to be opportunistic, and we’re going to balance internal investment, external investment and share repurchase or share capital return. We’re not going to over constrain our own CapEx. As we see good deals, we will be opportunistic and get them where we can get them at good prices. We love the Anord Mardix deal. I think it’s a great fit and it’s going to have nice financial returns. But, like you mentioned, Paul, a couple of minutes ago, we brought back a lot of stock last quarter. And we did that because we viewed the company to be pretty significantly undervalued. So, no major change to our capital allocation framework. We’re going to continue to be opportunistic. We’re going to continue to be balanced. And we’re going to be thoughtful and think long-term.

Yes. And Paul, you should be able to look at this and maybe profile it moving forward, because we’ve been very consistent in what we said we would do, right? So organically, we are in a great position, right? Commercial growth is strong. We like our mix, our execution, and that is fantastic. So, you’re seeing the margin flow through on that, which only gets better by the way, because there is so much inefficiencies in the system, right? So, that only gets better moving forward. If you think about our balance sheet, it’s in a strong position, got $1 billion authorization to buy back stock. We’re executing on that really well. We have room to do M&A, which is fantastic. And if you can find deals like this, it’s very easy to kind of see how this company looks moving forward. So, we really think that we are prioritizing all the things we said we would prioritize.

Thanks for that. And then, just a follow-up on industrial. Can you kind of expand on the broad-based demand there? Where are you seeing pockets of strength? And are you seeing less impact on components in this segment? Thanks.

Yes. I’d say, first, there is two things. One is industrial demand is broad-based kind of across all sectors for us. So, whether we have power, whether we’re in capital equipment, or just in kind of core industrial devices, demand is very, very strong. We’ve had fantastic bookings last year in industrial. So, we’ve been really steadily growing that business, which is now translating into this higher demand for us. So, that’s a big plus. And we’re seeing it across our targeted verticals and sub segments in industrial. In terms of the component shortage, I would say, because industrial is more kind of high mix, low volume, it is kind of more dependent on the next set of semiconductor players versus kind of the large scale ones that you typically see. So, I would say, it is getting its pretty fair share of it, right? After CEC, I’d say, industrial and automotive are the two biggest that are constrained by supply. But, it may come out of it earlier just because, I would say, those suppliers are committing to investments that is coming on earlier than the larger foundries, right? So, I’d say, our thinking is that, industrial demand is strong. So, that plays too. But, the supply situation in terms of mix probably helps that because it’s lower volume, higher mix, and those suppliers are keeping up a little better right now.

Okay, great. Thank you.

Thanks, Paul.

The next question is from Steven Fox with Fox Advisors.

Good afternoon. I apologize if this is a bit repetitive. I got cut off in the middle of one of the questions. Can you -- I think I understand, the delta in terms of how all these issues are hitting sales. I’m not quite sure I understand the math around the exact impact to the operating line. You called out things related to Nextracker and auto, which sound big and some other items. So, I was wondering if you could maybe quantify some of the impact to the bottom line from these issues. And then, I had a follow-up.

Yes. No problem, Steven. I assume you’re talking specifically about Q2 because that’s the only thing we’ve really given Nextracker disclosure on. Am I correct?

Yes. Whatever you can provide…

Yes, sure. Okay. So -- sure. So, specific to Q2, I would say, two-thirds of the margin erosion that we saw in the Reliability segment specifically came from the cost headwinds that we’ve seen from logistics and Nextracker. That was the preponderance. We had a little bit of mix headwind there as well. We talked about the health solutions business being off a little bit. But, I think the bigger driver was automotive OEM shutdowns, which again is as we move through -- as we moved through the quarter, they got progressively worse and September I think sort of being hopefully the peak. But, as I think about the sequential change now moving from Q2 to Q3, here’s what we’re expecting. At the mid-point of the guidance for Q3, we’re expecting a 4.3% op margin rate. That’s down a little bit at the midpoint from the 4.6% we did the prior quarter. It’s driven by a couple of things. Largely, the logistics cost headwinds that we know will continue as we move through the quarter, in particular the automotive business, the other piece is mix. Both auto and health solutions are going to be down a little bit. And those are better than average margin rate businesses within the overall Flex portfolio.

And Steve, let me just -- maybe I understood your question a little differently. So, what I’d say is, for Q2 straightforward, right, we did much better than what we said we would do just because we’re executing really well. And margins came in strong at 4.6%. I think looking forward into Q3 and Q4, if we hit the guidance we’re giving, our full year operating margin will be at 4.5% of record. But what we’re trying to do with 3 and 4 is to continue to make sure that we’re incorporating any of these ups and downs that we see. And we’ll continue to execute really well and hopefully do towards the higher end of the range that we’ve given you. I think, at this point in time, with the complexities in forecasting, we’re being prudent in our outlook. But, you’ve seen our methodology of how we have done it in Q2 and Q1. And you should apply that same logic as you think about 3 and 4.

Yes. That’s really helpful. And, now for the hard question, which is the path out of this is murky at best. I mean, even if you say things don’t get worse, you’re still sort of playing catch-up for quite a long time. Understanding that demand is very good, is there something specific to Flex that maybe you could outperform others and catch up quicker for your customers, or do we think about it as this is a new base and you’re growing from this base for the time being?

I would say, Steve, first, at this revenue that we have done in Q2 of over $6.2 billion, I would say -- and at a 4% revenue growth year-over-year, we’d still be very high compared to most of our peers and compared to what most companies that have such strong hardware composition are doing. So, we’re definitely coming out at the high end of it. There’s no question about that. You can see it in all the comparisons. And I think the reason for that is that as a supply chain company, we’re just executing just fantastically well. And we have more ins with our suppliers and are able to understand the investments and the commitments really much better than almost any company that I’ve seen. And then, I’d say the second reason why Flex comes out very well is just what is happening on our commercial go-to-market strategy, and all the new wins and the growth ramps that we’re getting, which is sitting in demand that needs to be shipped. So, the combination of those two things really gives us tremendous confidence in our forward-looking forecast. And then, largely, there’s no question that we’re executing well and with all the inefficiencies built into the system. So, if you put all those together, I think you should have a real strong confidence that Flex is doing really well overall, and we’ll continue to outperform.

That’s really helpful. Thank you very much.

Your last question is from Jim Suva with Citigroup.

Thank you. And a lot of the questions have been answered. But, I have more of a strategy structural question, and that is, as we’ve now gone through trade wars, COVID crisis, and now a supply chain challenge for every company and every end markets. As companies -- we’re hearing that they’re more sourcing more local on the continent or closer to their home to get closer to the product and not deal with future issues, like shipping and all of these things. Does it make sense that Flex could better utilize its factories that are underutilized, maybe like in Guadalajara where Nike was planned to go to and such? And therefore, on a cost plus model, your operating margins have very much significant upside room for that because they’ve been underutilized, or am I missing some key components there? But strategically instructions, kind of curious about your reply to that.

Yes. Jim, it’s a fantastic question. One, I would look historically and say, if you think about our 120 basis points of margin improvement that we’ve delivered over the last couple of years, all that has also been as a result of us being very-focused on efficiency. But, if you look forward, you are absolutely right. You see the shifting of our PPE that is happening more to kind of North America. And that does drive tremendous productivity and utilization benefits in Mexico and in the U.S. that we should benefit from. So, we’re doing well in terms of resizing and up-sizing our factories with a very forward-looking view of how we should see things move. Our largest programs and ramps are happening as a result of regionalization in North America. And as you are aware, we have the room to do it, but more importantly, we have a really fantastic team that can execute. So, our view is that yes, the margin upside potential is strong, not only because revenue is going to be stronger and that’ll drive better absorption through the system, but our efficiencies get better, just like you have pointed out, because of factory utilization that we’re going to get some upside from.

Thanks, Jim.

Okay. I think that was our last question. So, thank you all for joining us. And I hope you all remain safe and in good health. And I look forward to speaking to you again. Thank you.

Thanks, everybody.

Goodbye. That concludes today’s conference. You may now disconnect.