Flex Ltd. (FLEX) Q4 2013 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Flextronics International Fourth Quarter Fiscal Year 2013 Earnings Conference Call. Today's call is being recorded. [Operator Instructions] At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Kevin Kessel, Flextronics' Vice President of Investor Relations. Sir, you may begin.

Thank you, Kim, and thanks for joining Flextronics' conference call to discuss the results of our fiscal 2013 fourth quarter ended March 31, 2013. We have published slides for today's discussion that can be found on the Investors section of our website. With me today on the call is our Chief Financial Officer, Paul Read; and our Chief Executive Officer, Mike McNamara. Today's call is being webcast live and recorded and contains forward-looking statements which are based on current expectations and assumptions that are subject to risks and uncertainties, and actual results could materially differ. Such information is subject to change, and we undertake no obligation to update you of any changes to the forward-looking statements. For discussion of the risks and uncertainties, you can review our filings with the Securities and Exchange Commission, specifically our most recent annual and quarterly reports on Form 10-K and 10-Q and our current reports on Form 8-K. If this call references non-GAAP financial measures, you can find them on the Investor Relations section of our website, along with the required reconciliation to the most comparable GAAP financial measures. I will now turn the call over to our Chief Financial Officer, Paul Read. Paul?

Thank you, Kevin. Please turn to Slide 3. We generated $5.3 billion in revenue for our fiscal 2013 fourth quarter ending March 31, 2013, which is at the high end of our guidance range of $5.0 billion to $5.3 billion. Revenue declined $1.1 billion or 17% year-over-year. The majority of the reduction resulting from exiting our assembly business with RIM. Our fourth quarter adjusted operating income was $106 million, declining 33% year-over-year. After recognizing restructuring charges of $125 million during the quarter, our GAAP operating loss amounted to $27 million. Adjusted net income for the fourth quarter was $86 million. Our adjusted earnings per diluted share for the fourth quarter was $0.13, which was within our adjusted EPS guidance of $0.11 to $0.15. Our GAAP EPS for the fourth quarter was a loss of $0.04 and reflects the $0.18 impact of the restructuring activities. Our diluted weighted average shares outstanding, or WASO, for the quarter was 664 million shares. This is a reduction of 35 million shares or 5% from the 699 million shares reported a year ago, reflecting our share repurchase activity. Last September, our Board of Directors issued a new authorization permitting the repurchase of the maximum limit of 10% of our outstanding shares. During the March quarter, we repurchased an additional 19 million shares, and we have also repurchased an additional 10 million shares in the month of April. Therefore, we have repurchased a total of 41 million shares or 6% of our outstanding shares against our 10% authorization, leaving approximately 25 million shares available to repurchase before our July 29 Annual General Meeting. Please turn to Slide 4. Our Integrated Network Solutions or INS business group totaled 47% of our sales during the quarter. Revenue declined sequentially by 10% to $2.5 billion in the quarter, which was slightly worse than our expectations of high single-digit revenue decline. Our March quarter revenue decline reflected normal seasonality and the weak economic backdrop affecting the networking, telecom and service storage markets we serve. The slight miss from our guidance can be attributed primarily to greater than expected weakness experienced by our service storage business than originally anticipated. Industrial & Emerging Industries or IEI amounted to $895 million and comprised 17% of total sales. Revenue declined 5% on a sequential basis, which was slightly better than our expected revenue decline of mid to high-single digits. Our High Reliability Solutions Group is comprised of our medical, automotive and defense and aerospace businesses and grew 9% sequentially and rose 20% year-over-year. Its quarterly revenue totaled $776 million, which established another all-time quarterly high for this group and also marked the 13th consecutive quarter of double-digit year-over-year revenue growth for HRS. This performance was in line with our March quarter revenue expectations of mid-single digit growth with the major contributor to its strength coming from our automotive business. Our High Velocity Solutions', or HVS, quarterly revenue totaled $1.2 billion and comprised 22% of our total sales. HVS declined 33% sequentially, which is in line with our expectations of 30% to 35% decline, reflecting the seasonality for the underlying markets we serve. Also subsegments of computing, consumer and mobile communications declined with our mobile communications declining most heavily, over 40%, largely due to the finalization of our production with RIM in our December quarter. This quarter marks the bottom or trough for this segment as we see significant growth from this quarter forward, driven by new program wins and the start of the Google-Motorola partnership. Please turn to Slide 5. Despite significant revenue reduction, adjusted gross margin was 5.9%, increasing sequentially 20 basis points from last quarter and last March quarter. Leading to savings from restructuring activities underway. Savings were forecasted to be even greater in the quarter, however, there were some delays in the timing of the restructuring activities due to some jurisdictional requirements and other considerations. Adjusted operating income decreased 27% sequentially to $106 million in our March quarter. Our adjusted operating margin declined 40 basis points to 2.0%. The sequential decline in revenues drove the margin decline as our utilization rates were lower and overhead absorption was negatively impacted. Additionally, SG&A expenses were driven higher by increased investments in our corporate infrastructure, supporting IT, HR, and sales and account management. Our adjusted EBITDA declined to $229 million in the fourth quarter and totaled over approximately $1.1 billion over the last 12 months. Our adjusted EBITDA margin decreased 4.3%, which is a direct correlation to my previous comments on operating income. Adjusted EPS from continuing operations was $0.13 and amounted to $0.84 for our fiscal 2013. Please turn to Slide 6. Net interest and other expense amounted to approximately $8 million in the quarter and included a net gain on our investments of approximately $7 million, primarily as a result of the fair value adjustment related to our Workday warrants. After excluding the net impact of $7 million gain, the interest and other expense was at the low end of the guidance range of $15 million to $20 million. Subsequent to year end and the expiration of the lockup period, we sold our Workday investment and realized $67 million of cash proceeds. However, the sale resulted in the $7 million loss from our quarter end fair value position that will be recognized in the current June quarter. Our June quarter, a range of $27 million to $30 million for quarterly net interest and other expense is appropriate, which includes the $7 million realized loss on the fair value adjustment of our Workday investment. Adjusted tax expense for the fourth quarter was $11 million, reflecting an adjusted tax rate of 11.7%, which is slightly higher than the 8% to 10% tax rate range we'd estimated for the quarter. We continue to believe that our operating effective tax rate within the range of 8% to 10%, absent any discrete items. Now turning to reconciling items between our GAAP and adjusted EPS. Stock-based compensation amounted to $8 million in the quarter and intangible amortization of $8 million in the quarter. The 2 combined items represent $0.02 to $0.03 impact -- sorry, $0.02 impact. This quarter, we also recognized $125 million of pretax restructuring-related charges, which resulted in an $0.18 reduction of our GAAP EPS. Lastly, we realized a $28 million tax benefit that is comprised of approximately a $6 million tax benefit from the restructuring charges and the recognition of a $22 million benefit from a discrete item associated with our finalization of tax positions related to one of our acquisitions we closed in fiscal 2013. Please refer to the Investor section of our website for a detailed reconciliation of our GAAP to non-GAAP financial measures. Please turn to Slide 7. As discussed last quarter, we have undertaken actions to rightsize and reduce our manufacturing footprint in order to position us for improved operational efficiency and profitability in the future. During the March quarter, we recorded charges totaling $125 million, which consisted of $102 million of cash charges related to employee severance costs and $23 million of noncash asset impairment costs. Approximately 95% of the restructuring costs were included in cost of sale. As we progress on our planned actions, we encountered some minor delays and elongated timing for various closing and transition activities associated with our restructuring. We now expect to complete our restructuring in the June fiscal '14 quarter and estimate that we will recognize remaining charges in the $25 million to $30 million range. Upon completion of the restructuring activities, we believe the savings, through reduced employee expenses and lower operating costs, will yield annualized savings of over $150 million. We estimate that we will be realizing a full quarterly run rate of these savings in our third quarter fiscal 2014. Please turn to Slide 8. We continue to manage our working capital very well. Again, this quarter, we drove further inventory reductions as our inventory balance declined by almost $200 million or 7%. However, as our quarterly revenue declined by 14%, we experienced erosion in our inventory turns down to 7.1x. This equates to an increase in our inventory days by 4 days to 52 days. Our cash conversion cycle crept up 2 days sequentially to 26 days and remains within the 25 to 30-day range we target to manage our business. The entire 2-day increase came as a result of the expansion of our DSO by 4 days coupled with the 4-day increase in our inventory days, offset by an expansion of 6 days for our accounts payable. We continue to operate in net working capital as a percentage of sales within a new targeted range of 6% to 8% as seen from the net working capital chart on the top right of this slide. A couple of days increase in our cash conversion cycle resulted in the increase of 70 basis points in our net working capital as a percentage of sales. ROIC for the quarter declined to 19% strictly due to the lower earnings but still remains very healthy at these lower earnings levels. Please turn to Slide 9. We generated $109 million in cash flow from operations this quarter, which also marked our ninth consecutive quarter of positive operating cash flow generation and boosted our operating cash flow for the fiscal year to over $1.1 billion. Our net capital expenditures amounted to $107 million for the March quarter, resulting in nominal free cash flow generation for the quarter. We ended fiscal 2013 with free cash flow generation of $680 million, which is well above the targeted range of $500 million for this fiscal year. During the quarter, we paid $140 million for the repurchase of our ordinary shares. For fiscal 2013, we spent approximately $322 million repurchasing 8% of our shares. Please turn to Slide 10. During the quarter, we successfully refinanced $1 billion of our term loan due in 2014 through the issuance of 2 $500 million tranches of senior notes due in 2020 and 2023. We closed our fiscal year with almost $17 million more cash after supporting our strategic acquisitions costing $184 million, reducing our total debt by $121 million and repurchasing $322 million of our shares. Our debt-to-EBITDA levels are very healthy at 1.9x. Our strong free cash flow generation coupled with the strength and flexibility of our balance sheet and liquidity positions us very well to support the business growth ahead of us this year. That concludes my remarks. I will now pass the call over to our CEO, Mike McNamara.

Thanks, Paul. I'll start providing our perspective on the general business environment and how we are responding. We continue to operate in a weak macroenvironment, which is probably displayed across many of our markets we serve. Globally, demand trends remain challenging, and the hardware sales of many of our customers this earnings season have been disappointing. While most customers point to a better second half, we have not yet seen this in our orders except for consumer customers. However, we are encouraged to see some signs of stability emerging in our business as evidenced by 3 of our 4 business groups performing in line to slightly better than our forecast entering the March quarter. In addition, in the past 2 months, our monthly forecast roll-ups have remained very stable as compared to the previous 3 quarters where demand reductions were continuous. We are encouraged by this stabilization of demand. Nevertheless, to combat the general overall flattish business environment, we are intent on layering on revenues, from new markets, new customers and new programs. Throughout this year, we are focused on transformational outsourcing solutions for our customers and it's been paying off. We believe we are uniquely positioned to provide our customers with solutions that improve their cost structures, increase their supply chain velocity and reduce supply chain risk through the breadth and depth of our global service offering. This is particularly important as the world's demand turn towards being built more regionally and would be distributed across more geographies. Fiscal 2013 was an exceptional year in terms of bookings as we secured new business that was broadly distributed across our portfolio of businesses. In addition, we also booked multibillion dollars of Google-Motorola business. These bookings are starting to manifest themselves in revenue for us as the underlying programs begin to ramp in fiscal 2014 as we have anticipated. And we expect the associated revenue to be the real driver behind our growth this coming year. There continues to be a strong pipeline of outsourcing opportunities, and we are confident on our ability to convert these into strong bookings just as we have done throughout fiscal 2013. We closed the partnership with Google's Motorola Mobility on April 16. This multibillion relationship will aid this customer in streamlining the supply chain operations and position us as a key supply chain partner for current and future internally designed hardware products within their ecosystem. This partnership also strengthens our manufacturing footprint and capabilities in both China and Brazil. We spend less than $75 million for the related fixed assets and equipment required to run it. Our total consideration for the transaction is expected to be less than $200 million including the inventory required to support the work in process that we took over. We believe this partnership is structured to be EPS and operating income-accretive for fiscal 2014. Throughout fiscal 2013, we're focused on transforming our business. The revenue and profitability headwinds from disengaging from ODM and existing ODM PC are now permanently behind us. As discussed last quarter, we've been operating in a challenging transitional phase. We were experiencing significant revenue deterioration and the associated worsening impacts on our margin, while simultaneously being required to invest differently in our business to support the healthy, new customers and program wins, which are more complicated and diverse than typical. Additionally, in light of the challenging economic backdrop, we have invested in our technology roadmaps, manufacturing capabilities as well as our corporate infrastructure for our long-term growth. This quarter, we took important steps to strengthen our business as we emerged from the transition period. We are taking advantage of a trough revenue quarter to direct targeted restructuring activities aimed at improving our operations and achieving margin expansion. We are firmly underway in these actions and we expect to generate greater than $150 million in annual savings upon completion. These actions provide for a quick and meaningful margin expansion. We want to provide you with a bit more insight into the breadth and depth of these actions. Restructure activities require a considerable coordination with our employees, work councils, local governments and customers, when the process is closing 7 factories, we have aggressive cost-reduction efforts going on at 40 other sites spanning multiple countries. Including these actions is the closing of the Multek factories in Germany and Brazil. We are consolidating Multek footprint and rationalizing its operations in the similar fashion how we attacked our power businesses this past year, which is now profitable and expanding into new power products. We are confident that the steps we're taking will drive operating efficiencies and results in an optimization of our system which will lower the revenue level required to achieve better margins. And before we go into the guidance, I wanted to share with you several highlights as we exit fiscal 2013. Please turn to Slide 11. We closed on 2 strategic acquisitions of Stellar Microelectronics and Saturn Electronics. Both of these acquisitions expanded our available market, enhanced our capabilities in the areas of cable, solenoids and microelectronics, brought an important new customers and are making a positive impact on our higher-margin HRS business. We will continue to focus our M&A dollars on capabilities for high-margin, longer product life cycle products. We restructured our Power business by consolidating the operations to achieve profitability and continue to realize a strong rate of growth. We are employing the same consolidation playbook to meaningfully restructure Multek through the closure of 2 high cost sites in Germany and Brazil. We generated over $1.1 billion of cash flow for operations and $680 million in free cash flow, spending $322 million to repurchase another 8% of our outstanding shares. Our capital structure is in excellent shape as we reduced debt by $121 million and also improved our debt structure with new bonds that extend the maturities of our debt through 2023. Throughout fiscal 2013, it was a challenging year, much was accomplished and we emerged with an improved supply chain solution offering, highly valuable operating system, a stronger balance sheet and capital structure, and meaningful reduction to our shares outstanding. And we are strategically positioned to grow business despite the macroenvironment. Now turning to guidance on Slide 12. Based on the current visibility, we continue to believe that this past March quarter will mark our revenue and margin trough. For the first quarter of fiscal 2014, revenue is expected to be in the range of $5.3 billion to $5.6 billion. This reflects an increase of approximately 3% at the midpoint. At the midpoint of our guidance range, we are forecasting INS to be flat, joins some stabilization after 10% decline in March. HRS is also expected to be flat sequentially after 2 straight quarters of strong sequential growth. We see a modest growth in June quarter in IEI as a new program ramps drive low single-digit growth. HVS is also expected to rise in low double-digits as we get a partial quarter contribution from Google, Motorola and we experienced some muted seasonality. Our adjusted EPS guidance is $0.12 to $0.16 per share and is based on an estimated weighted average shares outstanding of 650 million and a tax rate of 8% to 10%. Our adjusted EPS guidance excludes restructuring expense and includes approximately $7 million loss we realized on the sale of our Workday investment. Quarterly GAAP earnings per share is expected to be lower than the adjusted EPS that I just provided by approximately $0.03 for intangible amortization expense and stock-based compensation expense, and another $0.4 to $0.5 for restructuring expense. With that, I would like to open up the call for Q&A. [Operator Instructions] So operator, if you could please begin.

[Operator Instructions] And our first question comes from Amitabh Passi with UBS.

Mike, my question for you was, I was a little surprised or confused by the guidance given the fact that you closed MMI. You probably have over 2 months of MMI in your numbers. So just trying understand the low double-digit guidance for HVS, it almost seems to imply MMI maybe contributing to a couple of hundred million dollars in the quarter. So I wanted to see if you can clarify what's going on with MMI? And then I have a follow-up.

Yes, I think first of all, MMI is in a pretty significant transitional period this quarter as it seeks to begin rolling out its new products for the second half and wind up some of the products in the first half. So it's in itself is in a pretty significant transitional period. So I don't want to comment on what those revenues are except what we're trying to do is, until we see real evidence of moving -- that we see any of the macro, we're going to be conservative on the rest of the businesses. We continue to see a very, very muted economy. Like I mentioned we saw, that the -- our forecast started coming in flat for the last couple of quarters, which we consider to be good. But until we see any kind of meaningful rebound of any kind of seasonality, which tends to typically start happening in the June quarter, unless we actually see that on an order base, we're going to be able to conservative on the rest of it.

Okay, understood. And then just as my follow-up, Paul, perhaps for you. $150 million of annualized cost savings. If I assume top line is $23 billion, $24 billion, it seems like the implied benefit to your operating margin will be 60 to 70 basis points. But in the back half of this year, I think Consumer will be significantly stronger. So just trying to get a sense, how do we look at the margin dilutive impact of HVS, probably being a greater portion of your mix versus the 60 bps to 70 bps of benefit from cost savings. Should we except operating margin maybe to push to 2.5% range in the back half? Do you think you can do better, lower?

Yes. I think that, you're right, with $150 million plus of savings, we're going to be adding 60 to 70 basis points of margin accretion off the base of where we're at today. And then the other factor going is the increase revenues for the rest of the year will also give greater absorption. And that's, together for us will take us over 3% by the end of the year. And so that's how I would look at it. It's probably going to step change through the quarters for that, but both revenue and restructuring will contribute towards that.

I think the other -- just one thing I would add to on that is I think there's a little bit of uncertainty with us in terms of how the revenue will flow through the rest of the year in that whole Google-Motorola deal. Like I said, there's going to be a lot of new products coming out. And, I think, you guys will probably see -- will start seeing announcements soon enough and have your own opinion on it. But there is somewhat of a degree of uncertainty as to exactly what that revenue is going to be and how much it's going to impact our overall margins. But the one thing that we were very confident is the restructuring that we're doing has a very, very strong ROI. And we will realize that, and then we'll have to see how much of -- what percent of the business is going to end up being HVS.

And our next question comes from Amit Daryanani with RBC Capital Markets.

There's 2 questions for me. One, I think, Mike, I think in the last call you talked about December revenues being 30% to 40% higher versus the March run rate that you guided for. Could you maybe talk about, if you still hold that view, and maybe then, you can also just talk about how much of that growth from March to December is going to be driven by seasonality versus new product ramps, not Google specifically, but the entire bucket of it.

Yes. So do I still hold the view of 30% to 40% growth for December? The answer is, yes, I do. And second of all, how much is going to be distributed across Google versus new program ramps versus seasonality. And I would have to say, I think we'll see a little bit of everything. One of the things that I'm not so sure about that I mentioned in my prepared remarks is that some of the base business, we don't see a lot of seasonal uptick on. So I would call the core base as being somewhat weak in terms of seasonality, almost call it muted. And when I think about that, I think about a lot of the industrial business or a lot of the telecom or datacom or server storage. Until we see evidence to that, we're going to assume that's going to be reasonably flat. We've heard a lot of commentary from some of our customers in those spaces that have been positive on the second half, but until we see that, we're going to assume it's going to be pretty flat. We do have other programs that will begin to kick in at the end of the year. I would expect those to start hitting in the December quarter and actually carry on into the March quarter. And then of course, we have the big Google thing, which hard to say exactly what that's going to be. But we just -- one of the comments we made last year is we had a lot of bookings that would begin to hit through over the course of FY '14, which are not Google-Motorola bookings. So we're kind of anticipating all our growth at this time is going to come from new bookings, Google-Motorola or it's going to come from some seasonality because we, obviously, are going to get some seasonality. You got some products like Xbox that has a refresh that's going to kick up some incremental seasonality for us. So I would say it's a bundle of those 3 things, but we're anticipating in that number, that the core business is going to be at pretty muted seasonality.

Fair enough, that's really helpful. And then maybe will you just touch on your Components business and I know you guys touch on this a little bit, but was Multek still a 25, 20-basis point drag on your overall operating margins in the March quarter? And do you expect to remain that kind of a drag in June as well, and then, just want to get a sense of when do you think you'll get to a breakeven level with Multek.

Yes, I'll take that. Yes, Multek performed in line with the December quarter that we had where it did last roughly kind of $15 million, $18 million. And the restructuring that's going to kick in here with the closure of the 2 factories, we should be at profitability by the end of the year, and we think we have all the plans in place. Now, of course with that, we're anticipating some revenue increases with Multek at the back end of the year with some new programs that we've been booking with the new technologies that we've invested in and we're starting to see the orders flow through for that. So it's a combination of restructuring and some revenues for the existing or continuing Multek business.

But I guess, Paul, breakeven would be more December quarter, from what you guys hear right now or September, I assume?

Yes, for sure, the December. I mean it should be slightly profitable in the December quarter. In the September quarter, we'd be approaching that as well.

We'll be done with the restructuring charges in the June quarter that'll be hitting the Multek business. So if we get some of the revenue bookings that we're talking about, we'll hope to be above breakeven by September.

And our next question comes from Shawn Harrison with Longbow Research.

Just a -- more clarification first on the restructuring. Were there any savings in the numbers for the March quarter? And I guess, what's the exact dollar amount you expect for the savings in the June quarter?

Yes. For the March quarter, we had roughly $10 million of savings on the quarter, so kind of kind of $40 million annualized. And then the June quarter is roughly the same, another $10 million, so $20 million total for June, annualized at $80 million. So roughly 50% of the way through there in savings coming through June.

Okay. And then, as a follow-up, Paul. I guess with a lot of the program ramps you expected for the year, could you maybe walk us through both how you expect working capital to move and then also just a capital spending forecast?

Yes, we'll address more of this in our investor day for the whole year. But really, the business model is not going to change that much. Our capital spending like this year is very much equivalent to our depreciation, so kind of $420 million, $430 million. We have a working capital charge that's roughly 6% to 8%, and we'll see running the business in that range as well for the growth that we have. And so, those 2 together should still generate the substantial free cash flow for the year. Probably not as high as what we've just come off with $680 million, that was really a bumper year for us but $500 million plus. And I would expect the CapEx to be more front loaded as it normally is in the June or the September quarters.

And we'll take our next question from Sherri Scribner with Deutsche Bank.

Paul, I think you made a comment or maybe Mike made the comment about the Power business now being profitable. Can you just remind me, I think in terms of the components business, you only have the power and Multek now, the rest of the businesses are at least small or you'd sold them off. Can you give us a sense of how profitable the Power business is? And moving forward, what would be your expectation for profitability longer-term for the Multek business?

Yes, certainly. The Power business really turned around in the December quarter of last year. It really ran very well and made that kind of target operating margins roughly around 5%. The revenues are lower in March, so the absorption was less but nevertheless, it was still profitable, kind of low-single digits profitable, in the March quarter. Going forward, we expect to run that business in that 5% operating margin range. And the revenues are growing, it saw some great new programs, diversifying the business into many of the different products so that we're very pleased with this business and the way it's operating for us, very EPS-accretive and margin-accretive kind of business. The Multek business, like I just talked about, has gone through a significant restructuring. We will have the footprint really down to 2 locations, 1 here in the U.S. and 1 in Asia. And we have some good bookings that are coming through for the new technologies that we have invested in over the last 18 months that we're seeing to come through for the second half of this year. So with the restructuring and the bookings, we feel Multek to be profitable here in the second half of the year. The target range is going to be within whatever is running in the industry, it's a very competitive business. But to crawl out of losing $18 million a quarter to breakeven, to profitability by the end of the year of low single digit kind of numbers. And I think we'll been pretty pleased with the turnaround this year.

And the next question comes from Brian Alexander with Raymond James. Brian G. Alexander - Raymond James & Associates, Inc., Research Division: I know you said MMI is in a transition period for the June quarter, and you didn't want to get specific on revenue. But beyond the June quarter, if we look at 2 to 4 quarters out, what are we thinking in terms of quarterly revenue as well as what's the margin profile for that business? And then also, what's your confidence that the relationship could expand beyond PCBA into higher margin services and component offerings?

Yes. So I think I'll just take the second question first. We actually believe that this is a partnership that we can grow into a lot of different product categories over time. So we view it as a relationship with not only Motorola but also with Google. So that's how we think about the business. It's one of the reasons we got into the business. And it is something that we're hopeful for in the future, and I think our relationship with them right now is actually pretty strong. As far as, so let's say, kind of an enthusiastic yes on that one. The second piece around -- what do we think it's going to look like over time? We think the next 12 months gives us $2 billion plus of revenue. How exactly it structures over the course of the quarter? I think normally, you'll find that new products launches start pretty aggressively in the September quarter and the December quarter, and then it's hard to say in March. So I think it's fair to say that we would see a pretty significant ramp, but it's highly dependent on the success in the marketplace, which is still a little bit of an unknown for us. But we're pretty bullish, we're starting to see some of those products today. We're excited about what the future might be this quarter is for sure, a trough quarter for them and for us. But I would expect maybe to think about it I mean we got kind of a trough quarter than over the next 3 quarters, we'd like to see all 4 quarters run well over $2 billion. Brian G. Alexander - Raymond James & Associates, Inc., Research Division: And what would be the right way to think about margins associated with that on kind of an annualized basis?

Yes. Margins, I think we'll have a little bit of a transition this quarter and next quarter, and then I think, we would expect to run those at our HVS target, which is roughly 2%. We have 2% margins but -- and then pretty flat it would be to stay there but very high work in process throughput. Brian G. Alexander - Raymond James & Associates, Inc., Research Division: So Paul, just a last follow-up. It looks like you're expecting operating margins to be around 2.3% to 2.4% in the June quarter. And beyond that, I think you would get another 30 basis points of savings given that you have halfway through the program. So kind of a 2.7% operating margin post restructuring. If that's the right math, maybe if you could confirm that. And then if it is, what gets you to 3% beyond that given that a lot of the incremental revenue is coming from MMI, which we just established was dilutive to the overall margins?

Yes. So I think you have to build in the revenue increase in the absorption's that's going to bring a couple of things. It's just not Google-Motorola, we have other programs that we booked last year that is starting to layer in this year, and that will bring accretion for us. Then also, I talked about Multek getting healthy, and that's the swing as well by the September quarter coming off an $18 million loss. We'll have some accretion from that as well. So I think when you take the restructuring, the revenue increase, the Multek health, you'll get us -- really getting up close to that 3% target that we have for the back end of the year.

I think our next question comes from Jim Suva with Citi group.

When we start thinking about folding in Motorola, which now is closed, can you help us out a little bit about the SG&A? I assume a lot of that goes away or maybe I'm wrong on that, in a kind of a gross margin profile. Because if you look at your SG&A for this quarter, we kind of figure out going forward what you're SG&A should look like. And it sounds like, if I'm correct, you're not giving Motorola revenues for us to compare apples-to-apples?

Hey, Jim, it's Paul. So SG&A will probably run around $215 million per quarter and we see that fairly flat throughout the rest of the year as we've taken on the Motorola, 2 facilities that we have. We now have a full quarter of Saturn Electronics' SG&A. So, all bundled in, we're roughly running around $215 million as so that as we go forward. Gross margin really does pick up because 90% -- 95% of the restructuring is all -- a cost of sales related. So, that will really help gross margins go up. It's fair to say that obviously when there's a big program, $2 billion plus of Google-Motorola with high velocity margins coming into play this year. But we really think that it's having a dilutive effect maybe at 10 to 20 basis points on overall company margins and not any more than that.

And then as a quick follow-up and it sounds like you're not, if I'm correct, giving Motorola revenues. And I'm wondering if some point in the future, you will so we can see Flextronics' organic growth rate. But is the restructuring going forward including that you see no need for a Motorola restructuring? Or would that be incremental? Or have you kind of tested the business now it's been closed and you just don't see any need for additional restructuring since you said you should be done in June?

Yes. The restructuring we're talking about is clearly the core business prior to the Google-Motorola business. There is restructuring going on in the Motorola business, but that's been done in partnership with Google-Motorola, and we have this first quarter to work that out with them and rightsize that business for us. So they're 2 independent activities, the restructuring that we talked about is the core going forward. And so, we would have a rightsized factory to run. Well, 2 factories to run thereafter.

And our next question comes from Osten Bernardez with Cross Research.

I guess to start, would you be able to comment on, within FlexPower and Multek, whether there is any significant design wins during the quarter? I believe you commented on some Multek design wins. But I believe those are prior wins that should benefit you later on in the year?

Now both -- so just I'll take them one at a time. Power design wins, I'd call really pretty exceptional. And across a broad range of product categories, both additional charger business and all the way up to things like 3,000-watt power supply. So I'd call that a broad range of design wins across networking, storage, like I said, cellphones, tablets, whatever. So I'd call that significant in the lot, and we would expect that business to grow pretty substantially this year. In Multek, we almost have the same -- we also have a high level of bookings and enough to consume a significant amount of our underutilized capacity. And I would call them wins. But I would like to see those things actually run through the factory, loaded up before we call it a success at this point. But I would say, the amount of wins that we've had on the Multek side has been quite high.

Okay. And then to follow up on Multek, and then another quick question. Do you see a path of Multek to eventually reach your run rate of at least over the $800 million that it's done in the past, maybe closer to $900 million to $1 billion sometime within the next year or 2? And then -- a separate question would be, if you could comment on the progress of the integration of Saturn and whether there's been any sort of -- I know it's early, but has there been any sales leverage with your pre-existing automotive business?

Right. Yes, so as far as Multek goes, we would expect to -- and despite what we consider to be a reasonably flat economy, we're actually quite bullish on the revenue prospects of Multek just because of all the bookings we had. So could it go back up, up there? Maybe. But let's just take one step at the time here and park a few wins under our belts before we call victory here. And so I would say, yes, that's potential. Yes, we're working on that. Yes, we're expanding. We should expand the revenue this year and we're certainly hopeful but like I said, one step at a time, that's been a disappointing result for us for several years now, And we're being extremely aggressive about how we approach the problem. And we've been extremely fortunate in terms of being able to book some of the new business, but let's give that a chance. But yes, we expect us to be a growing business, making normal profitability. As far as the Saturn, we've already -- she already had some good bookings with Saturn as well. So we, actually, had a certain business case that we thought would come both in terms of revenue and operating profit. We now have the asset for, maybe, 5 months, and we are at our target or maybe even slightly ahead. So we're pleased with how it's performing, and we certainly expect it to be able to add synergies. I'm not sure it's led to other bookings yet, I mean they've had bookings, but it hasn't necessarily added to other EMS bookings yet, and that's just because it takes time in that automotive business to really be able to get those wins in. But the amount that we've actually added, the significant amount of new relationships as a result of Saturn, and that's something that we expect to leverage pretty significantly. So we're very, very pleased with the acquisition. We think it will hit all our targets. And -- but this one will take time just because of the product category that it's in.

And our next question comes from Sean Hannan with Needham & Company. Sean K.F. Hannan - Needham & Company, LLC, Research Division: Actually, most of my questions have been addressed. But Mike, if I could just have you follow up on that last comment or set of comments you made on Saturn. The more that, that folds into the mix, it sounds like that business is very much on track for organic growth based on what you're looking at this fiscal year. Is that correct?

Correct. Sean K.F. Hannan - Needham & Company, LLC, Research Division: Okay. And then if we were to step back and we were to actually strip out the recent acquisitions or well, if we're to strip out, say, Stellar, Saturn, if we were to pull the Motorola piece out of the equation, what is the outlook right now for the legacy Flex business? And I don't want it -- have this seem like unfair question. I'm assuming it's obviously going to be down in some manner but I just wanted to get some context around that.

And your talking overall Flex, not just automotive Flex, correct? Sean K.F. Hannan - Needham & Company, LLC, Research Division: Correct.

Yes. So the way we look at the legacy business is, we're coming in with our revenue. As you know it's roughly $23 and some billion -- $23.6 billion. Now in the $23.6 billion, we have probably $800 million or $900 million of RIM. So when we think about what is our core base business, we go and we take $800 million or $900 million out of that and then go rebuild from there. So the question is what is -- I think your question is what is the organic revenue growth associated with that base. And I think, it's probably -- in terms of the way we look at it today, we've talked about the base business being flat. We're not going to adjust that up for any kind of seasonality in a lot of the different core businesses. So we view it as quite stable, maybe goes up a few percent, but it's -- I'd say it's a low piece of business, not counting all of the incremental add ons. So I'd call it 0% to 5%.

Our next question comes from Wamsi Mohan with Bank of America Merrill Lynch.

Mike, just curious on the comment on the back half on consumer ramps but not having seen other areas pick up. Are you referring to the ramps that are expected from the Google-Motorola business? Or were you referring to something else?

No. We see the back half ramps on products like an Xbox, like a -- obviously, Motorola is a heavily weighted back half consumer product pickup as the results of the timing. What I was saying is what we don't see and what we're not contemplating at this time, what we don't see is networking, server storage, computing, the industrial business, any of the telecom entity, all of these categories, which I'd call a big core part of our business. We've seen a lot of commentary from other EMS companies. We've seen a lot of commentary from the OEMs in the subs about a second half recovery. And all we're saying is this, we haven't seen that in our order stream yet. And until that shows up in our order stream, what we do in our forecast will be conservative, call it stable at this point. We're hopeful that it turns into a seasonal uptick for that group of customers, but so far, we don't see it in our order book.

Okay. And I have a follow-up for Paul. Paul, 37% of restructuring charges were impairment. Can you address what exactly was impaired, when these assets were acquired, and what end markets are customers see the assets were serving?

Yes. It's mostly machinery and equipment assets that with product changes whether that was in the Multek business or in some of our other more component mechanical businesses, these are the kinds of things that we've been impairing. And I think 25% of the overall charge is actually Multek. So it's a significant portion of that.

Our next question comes from Amitabh Passi with UBS.

Just a quick follow-up. Paul, what is the implied share count for the June quarter embedded in your guidance? And then I wanted to confirm the $7 million loss from Workday. Is that included in your non-GAAP or adjusted EPS guidance?

Yes. The -- in my script, I said that we should assume roughly 650 million share count for the June quarter. And the Workday, $7 million, is included in the non-GAAP guidance that we gave.

Okay. Thank you, everybody for joining us on our call today. We would like to remind everyone that our Investor and Analyst Day will take place on May 30 in New York City. Details on registration are available in the Investor section of our website and we look forward to a good turnout and seeing many of you in person. This concludes our call.

Thank you. This concludes today's conference. You may disconnect at this time.