SANM - Earnings call transcript Q3 2020

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the Sanmina Corporation’s Third Quarter Fiscal 2020 Earnings Call. At this time, all participants are in a listen-only mode. [Operator Instructions] I would now like to hand the conference over to your speaker today, Paige Melching, Senior Vice President of Marketing and Investor Communications. Please go ahead.

Paige Melching

Thank you, Josh. gentlemen call. to and fiscal third ladies earnings XXXX afternoon, and Sanmina’s welcome quarter Good of press sanmina.com copy available Relations A our on discussion for section. our are today’s website at in Investor release the and slides

me webcasted recorded being our and call on and available remind everyone be Let today’s website. is that will

along presentation prepared website. remarks follow to Slide or turn Harbor Please press X the Safe slides can You the and with our of the release our provided on statement.

may we our company’s call, with to call statements the of of number website, conference information, a projections the or to future earnings or a Commission. performance Investor from regarding this forth During projections. set company. actual factors such statements forward-looking make differ as materially result quarterly disclaims you otherwise, laws. those future financial obligation of as The annual Exchange other in conference made earnings could expressly any release, section unless of company are Relations required new otherwise company’s or by in the whether and no result just under that or projections a events results the statements the update reports We in of future the presentation, caution filed The is Securities of forward-looking statements and the such or events alter obligation and our the any these

call stock-based well quarter our provided slides June In as refer expense, otherwise as Accordingly, items. non-GAAP press net our we information. and amortization financial between income statements as have the Any posted press will conference and information acquisition on share, costs, restructuring issued in the expense, call reconciliation at results. in when costs, earnings I to a comments this statement it Officer. in general, operations you Hartmut measures directed note excludes or release we to on non-cash on integration this turn financial be unless non-GAAP GAAP XX, of to Liebel, ended release our income to and stated that make margin, referring financial our GAAP we information is will compensation the gross slides and income, unusual now operating other A infrequent and call, also would per relates non-GAAP today information. website. Chief over non-GAAP with gross non-GAAP You the operating profit, taxes, the certain like margin, and to provided are XXXX for Executive basis we our

Hartmut Liebel

and us Thanks, you Thank joining Paige welcome. for here today.

You discuss just Financial is detailed fiscal Kurt I will The commentary our Adzema, And call Paige. and from Chief to today open then few on the Officer. third also results me follow turn end-market our comments and call call today’s the is for Kurt for to then heard a format quarter with that joining I around with outlook. some will over financial up the

We worked and hard course, you focus of very of delivered and thank goes we your these couldn’t as without to Sanmina big challenging results during a our benefit some many want of last in business with in particular these for their partnership I and First The thank relationships, foremost, and apparent customers, Sanmina. months longstanding, to very strong were our few new, jointly all these employees. work. times have the

back with then detail supply about conditions, inefficiencies chain was During operational and last not macroeconomic how them. fast know we environment. earnings overall and by COVID-XX call, the we we great What did challenging transportation our is spoke could posed the address

able EPS team prior to really over revenue We exceeded and quarter revenue, how were pleased As executed. our we at our the and by results, margins QX am our our look grow I well expectations. X%

that, our actions evident performance. optimizing by Our by structure our the in will team’s encouraged I important team results Again, focus of and results turn details associates With and demands our to future me to very the call the is for around cost on the over more Kurt world taken be to am quarter. to let commitments provide improved and meet leadership and customers. our Kurt? customer around efficiencies attributes our our satisfaction, our third the

Kurt Adzema

Hartmut. Thanks,

the leveraging existing things: with Given the capacity; uncertainty a associated the and manufacturing following cost three cash on optimization continued management the team, as and of challenges the of and COVID-XX our macroeconomic focused we our generation. environment, structure;

focused dollar spend. we intensely each are on We

I the We are in compelling. on the spending are of capital results to report am the those efforts only dollars will to turn X. return evident for these quarter. where impact confident be Slide the pleased Please on we were

loss as and operating travel. QX approximately X.X%. of primarily non-GAAP were lower, levels. to assets in result in million billion, $X.XX $X.X QX exceeded prior in of the result This This prior those was in non-GAAP was quarter. result of approximately billion other the offset primarily our up a non-GAAP a market of inefficiencies in million deferred $XX.X subsidies X.X% relative margin including operating other approximately communications $X.X $X to the our third benefit primarily compensation lower those of business deferred the was gross XG. gain improved the $X.X second compares wireless, revenue due spending, of from non-GAAP QX This $X.X the efficiencies This QX a billion expenses and outlook a government primarily April. to to and in international medical, demand to This sequentially X.X%, the stock geographies of revenue million. quarter was that $X.X were helped was appreciation to by quarter. to Third was and compensation expenses reduced COVID-XX in provided related financial of the manufacturing the due assets the as quarter. assets levels on X% strength certain of margin employment due down million networking related including including focus IP, quarter. related million the to strong optical to same of driven higher up costs, improvement to some and of maintaining

losses related As operating to losses no on decreases share. a manufacturing or non-GAAP equally increases gain and gains impact earnings reminder, in compensation assets offset per or net have are with Deferred deferred compensation expenses. or corresponding

QX COVID-XX, higher employment lower of non-GAAP government geographies of fully to revenue focus international diluted the to Finally, that strong benefit of earnings increased including as a helped in levels. per result and offset share medical, related and those due to the certain manufacturing subsidies maintaining levels inefficiencies a efficiencies some $X.XX on costs,

expect expenditures. capacity $X.X million to approximately lower to the expenditures turn we X. which Depreciation delay capital in expectations, to items some on quarter. to fourth were and of due partially continue approximately $XX.X was third third focus quarter. Gross We to to the in due capital Slide existing the receive delivery leveraging of This in was Please quarter. million manufacturing prior amortization a minimize than COVID-XX, now in

related Here you can the additional income quarter comparisons. to details the see statement associated and

please Slide X. to turn Now

comparable you results on see, in manufacturing efficiency, efforts quarter optimize our structure, lower share our to our and Here third the non-GAAP revenue through to COVID-XX we margins cost can per delivered levels. to earnings prior improve our

X. Now to turn Slide please

to both see relative of the can quarter. revenues improved prior gross you our and margins Here segments’

wireless, segment Non-GAAP due by communications to IP, margins on XG. and business to see approximately strength can improved primarily for to IMS driven increased was the you of networks optical including $X.XX IMS X%. left, This our As gross revenue billion.

gross businesses. On revenues and Non-GAAP and strength to our the million, improved Services the services board $XXX Products driven circuit right, global in CPS XX%. Component margin printed increased by primarily our for

our see to you please by Now, market. Slide turn X. this can revenues On end page,

mentioned, wireless, revenue, the the well. quarter as by quarter, revenues including relative we XG. to optical Medical as communications experienced driven the As COVID-related XX% again grew products, and strong prior by as prior which driven growth networks IP, we well in industrial market, grew over

shutdowns factory weakness As we expected, to end the due COVID-XX, in customers saw due our of market. automotive to

In addition, shortages. defense, aggregate Overall, market medical, slightly segment some was was component industrial, due X%. down the down automotive defense to COVID-XX-related

Our prior down cloud slightly the was versus quarter.

turn please to Slide Now X.

million equivalents at We end the we our remain operations million the drawn cash of cash million approximately revolver at of generated down see, approximately and billion can $XX quarter. were million you strong very the of $XX end balance free have of Cash $XXX flow. from $XXX a the Again cash sheet. $X.X of Here and quarter.

However, do free the cash we Again, expect in this and we use quarter of again any and not to quarter. cash quarter. in this cash use expect last of did cash fourth flow not the any to generate third quarter flow the fourth generated in free

maintain X.X. of low We to continue debt-to-cash ratio a

balance loan and matures loan term million of a our $XXX has term – November XXXX. in balance a Our has

$XX.X approximately average we XXX,XXX an repurchased $XX.XX. approximately for During price the quarter, million of at shares

at approximately repurchased a have a we year of an average X.X the $XX.XX. price shares of of to million for total million For date, total approximately $XX.X

would to you ask to continue be repurchasing will We opportunistic turn shares. Slide now X. I in to

we’ve Cash at and Here XX.X% see now you flat best was inventory to was last the XX.X%, seen approximately sheet XX, from return million and If details Non-GAAP X.X. cycle quarter to additional can the improving we quarter days that level turns many flat XX.X. turn inventory pre-tax balance on comparisons. the can and you also at associated see related capital Slide were $XXX in quarters. invested

quarter outlook. we the Now, XX fourth turn Slide to so please can discuss

running. Our are global and manufacturing operations geographies in all our up

the in The still of Again, evolve the cash impact the the quarter. we existing we leveraging However, progresses. continued quarter well COVID-XX impact capacity, fourth optimization a the generation. on cost COVID-XX as to will remain management our team, as macroeconomic will structure, of and business manufacturing our focused as general our of foresee continue to environment of as

relative about not in have be XX once for but quarter. years. to that comparisons, It weeks this every also five be noted the have outlook, weeks should XX every our weeks that does fourth quarter, quarter should year we we think noted will year-over-year prior XX it the As

and any reflects expenses. this of revenues additional on XXth outlook impact Our week

to for outlook adjusting is fourth of Overall, our $X.XX stable will for all demand in be for Our billion. quarter be quarter of range the that segments billion the $X.XX after to in relatively extra customer the revenue market the week. expected is

We gross range be the of margins X%. to in to non-GAAP expect X.X%

approximately We subsidies $XX the the The employment in expenses the primarily $XX received should those levels expect of maintaining certain government prior operating expected relating to to to Non-GAAP be quarter. million. that international relative operating geographies week. additional increase in to result quarter third expenses extra million the to see minimal related we is in benefit

to to margin X% operating in non-GAAP of expect the We range be X.X%.

We expect $XX million. be to expenses to approximately $X non-GAAP million other

expected is to rate be around tax XX%. non-GAAP Our

estimated this expect share per stock be earnings compensation range We for to When all for of XX that and diluted diluted the to implies approximately between to of earnings shares. per guidance, quarter non-GAAP $X.XX consider per the our $X.XX. be you in GAAP diluted expected share, of share non-GAAP for count $X.XX. million fully share $X.XX outlook Adjusting is is $X.XX

around be expect million capital and $XX depreciation million. $XX We around and amortization to to be expenditures

Finally, cash we quarter. to again, expect flow in free the generate

are intensely We on focused spend. dollar we every

has will environment. our capital Sanmina crisis and call recovery. I key the as some well spend variables return turn the is those to ultimate that confident that day we changing now ourselves to-date continue markets the navigated through and benefit with comments. a the of compelling. Hartmut we We only for manage macroeconomic to these lot I in are will well back dollars through be additional every believe There during again we are to customers positioning COVID-XX on will are the

Hartmut Liebel

we Thank you, our our we economic to fourth challenges quarter. business uncertainty despite Kurt. faced quarter environment. pleased, given with and am COVID-XX the continues in and show performance, as model pleased challenges especially for And the have with the mentioned, financial the outlook very overall confidence the Kurt our associated in the I Again,

the back majority key to employees components and secure ability product operations quarter. execution demand to supply driver All our are vast expectations of the strong revenue out And our was with chain six on our in our a team meet a in to needed running exceed by for facilities. our continents of ship customer our our

with the extended the lead has chain supply While see some we times, stabilized. still of vast majority components however, largely

also and rates. are some freight We improvement seeing in capacity

is using However, long traffic as equipment, cargo same passenger is as down, constrained. cargo will since remain traffic and the passenger and

and optimize So options we find carriers very and closely are customers, our needs. new suppliers customers’ our support routes working to to with

evident more our optimize much agile with model. dynamics, more to and continue to done. in believe we become changing There will As be become the we business operations our it is

However, there proud many are we be also of. things can

our suppliers. Our response our volumes about organization and and actions our and relationship speak with customers

expect billion seeing are XX the we our dialog our with QX. in I for Slide what Based through most to you forecasts turn please customers, Now billion. walk as and end we the we a In be the of fourth recent basis. for to revenue the markets on to $X.XX and the for to aggregate, automotive up aerospace medical, on range in this segment, quarter be defense, sequential industrial, $X.XX expect

improve seeing back you what as demand we automotive is a on the the coming we in and give some are third perspective online. equipment automotive. some in softness are ups strength Specifically, to producing, are just some what The medical market, recovery in are automotive depending companies the overall And quarter there are seeing from we on downs. products in

sometime diagnostic existing and up. volume. testing, procedures think other that demand an are general Over I that will can virus come supporting But We that elective been believe ultrasound for large have though time, surgical ventilation handle products For market equipment example, postponed, diagnostics, products have stronger. for labs would hospital back imaging. been are and down reduced

On direct the in is very quarter the giving home. the number the we on learning as continue continues be #XX. on outlook. out to treatments our segments, in expected build the increased demand revenue video needed to relatively need confidence as And overall, to our stable to such infrastructure as bandwidth other us the up support working to daily be for result products side, diabetic rise. from see the consumer-facing computing, Virtual we customers a sequential Communications encouraging. basis Cloud of networks there remain is Please more Slide of a our be market. this expect people to outlook stable streaming turn stable demand fourth in from and and

dynamic through important working the very it that are environment, future. always is for we While position we a ourselves

growth new mission-critical focus We complexity capacity take customers second, through revenue focus to key continue on have end on first, following the markets; the balance in on profitable we operational key to a initiatives: and high sheet business.

market our capital back we We think to benefits don’t to keen the I I #XX. focus have in take continued on-boarding leverage return for effort see business cash emphasize during important and short on model. processes focusing of and it and here; today. please will turn Slide on with summarize drive you this want are new stops particular on an programs. lean this future we allow key the for our this, shared I and with for have the more manufacturing this we continues and believe long-term; proven processes invested be generation points success. fourth, in in the leading our believe that third, started step of to to and toward environment, a With COVID short this aspect And I a we flexible

million. generated positive expectations. we fourth results. Year-to-date, challenges in QX in our and Free cash our expect and on So, generate we delivered Revenue, and tremendous cash free despite million and $XX quarter in well. to flow as remains EPS we we exceeded priority the $XXX a first, QX, executed good strength flow margins generated

costs $X.XX and For necessary and and environment, In billion the to QX, we continue what billion the revenue expect and while steps control $X.XX is improve to $X.XX. non-GAAP want we can’t the I that to summary, between economic and overall take EPS predict emphasize we market to efficiencies. dynamics COVID related $X.XX between

and Josh, We call what I is for our better am with we open under very very difficult are up even that, and can With please? accomplishing our team of collaborating closer conditions. Q&A. customers proud the

Operator

Bank first ahead. [Operator Please Ruplu comes America. question of your go from with Instructions] And Bhattacharya

Ruplu Bhattacharya

to in what I my the on also and had segment. the taking network communications questions and guide. than quarter that on the stronger wanted congrats seems strong It much thanks Hi, came focus on for expected. you

was there this you strength it was networking, was details you market? region, details sub customers, that appreciated. to And Hartmut, on the by would the which on few was and be based, one segments, us you give So, So, some touch saw across was what can in you if wireless broad a stronger, it trends can saw optical any which broad one or confined weaker? any

Hartmut Liebel

Sure, thank Ruplu. your for compliments. and the voice hear Great you to

all that are very So with in but also happy is probably we pretty I segment, would – with leaders the the because very, much what performance emphasize the working are this actual market outlook. the obviously we with with

QX happy We we speaking believe are with program very especially in these this the to most QX. – But in wins. which technology latest relates pretty it’s broadly are and outlook particular recent as based market. the on about how all are it broad-based it’s our regionally gives actually us we for market this I for positioned leaders and QX great space, broad rather our outlook for here And confidence footprint. –

Ruplu Bhattacharya

coming And just or terms that you the is you timing a are are they XG XG of the follow-up projects getting in as or question, seeing any to projects? delayed in for expected it had

Hartmut Liebel

Yes, are this very still closely. we very, watching

on market and not Now don’t a there entire very so we I is about very, But XG, but since spoke this closely. spectrum last it it remember – we are just we watching – think new the brand focused generational time. are update still

Ruplu Bhattacharya

medical, color market, then there. the And so talked you appreciate the automotive, okay. Okay, have about defense industrial I and on

make industrial end industrial saw talk what for can little emergency the there? a radios about bit you and On know markets. services segment, the you the you I other

industrial So, any side? commentary the on

Hartmut Liebel

Yes.

in So for our are Revenue supporting with happy stable here there outlook space. super and we working this about market leaders again the is QX.

So, position with we are there. pleased very our very,

Ruplu Bhattacharya

balance sheet. if And have last just terms question, cash, use the in thoughts I strong great. of can my ask, your for a Okay, you of

need it. drawn have you on You but the use don’t to revolver

– look it thoughts sense at the versus just other stage growth, inorganic strong you So, M&A would so cycle, of M&A make on buybacks are of at flow, to this cash? for free expecting Thanks. uses versus given cash would your

Hartmut Liebel

Sure. is cash me very carefully. Good, Kurt Ruplu, our watching to I next have who

about how take you that Kurt, So question?

Kurt Adzema

Sure.

So mean the cash before. again, there make look that balanced sure new of these our customers, and exciting we we we the to opportunities are some talked at want sheet invest I is as then invest we first in at. that. Obviously, have uses support this business of we is many about to different with and in thing look to

So that’s our number goal. one

quarter. the has about end opportunistic a typically we so the and will free – bunch repay repurchases. fund we Again, under that’s to reevaluate million our declined by it have million. on keep we $X – whether have depend using our – our of but we My expectation will $X did little We not only quarter, do the will that, while about quarter cash those. talked be we We again, – are to Secondly, outstanding term is continue quarter during flow that we again chance the by about before of last $X and part will debt every that’s that the cash share circumstances. retirement. due, good at a is quarter, And on sometime our revolver, million loan look there debt a or to the free

In terms about at. always are broader something obviously, looking we it’s question acquisitions, that of your

would opportunity We the just allow lot of do we sheet the but have got at and that, business a – to I organically. think improve that there’s Hartmut a strong believe time, us same balance to

existing given and would business we we very times, our always well. acquisitions say, existing on focused looking how we challenging at can as the business. And so But improve our are I opportunistically are

Ruplu Bhattacharya

and all you. on for congrats Okay, guide. Thank details quarter thanks the the the and

Operator

Suva comes Please Your with next ahead. Citigroup. from Jim go question

Jim Suva

are Thank they you. unrelated. but I have two questions,

will I one take a at them So time.

or operating the it due but a is, that’s my mix this in margins yet more I for impressive. go for If quarter, little or come revenues, math week to margins higher do The higher, that very first the why bit. would in margins come administrative like revenues looks next like quarter were overhead correctly one burdened Is lower? extra quarter

Kurt Adzema

Sure.

say, are two on the there associated say But higher, pieces. parts operating side there’s that all, that’s manufacturing the side. is lot extra costs moving I and week to obviously I a expense have of again, the would even we first would with revenues of and of also though always that, and both So on

manufacturing So, our expenses are higher, are to be and operating going higher. as noted, our I expenses be to going

that’s thing think I into So, one take to account.

amount that this we that last second and from the fair subsidies that noted contingent quarter us see amount quarter. governments the and maintaining thing quarter benefited I same see a that, a minimal the last some I we received was – we employment certain think of don’t on that of foreign were levels

that so And the say is between would I and that’s other QX thing different QX.

at we little gross OpEx to two operating put again we things quarter, that therefore bit a satisfied as are why as outlook think pleased economic X% this about, slightly last midpoint, lower I when of still lower see are a quarter. talked be those mean importantly, But So, more have, at together, we given environment and only X.X%, that. good we you we with the for with the at we higher results the again the that’s margin. place in. what not that’s but But It a margin are doesn’t to very and

Jim Suva

on been sequentially cloud, with about inventory a saw it kind you, question How or think some of there? revenue what’s start program-specific going which the what’s to cloud on should great you about has Then follow-up pricing? like you talk going my think story? we Great. there. digestion is Is I can the regarding or deceleration

Hartmut Liebel

Yes.

So, very business where this we we choosing and customers very, are which for a projects is project-driven are which predominantly here. us, selective

future nice I said, like kind it remains, niche And It’s potential. of an so for a us with business remains business it us. important for as some

happy QX have right outlook it’s we the here. team customers working stable are and there management as the our who now. and with it’s we about So, Very expressed supporting

good how we over figure to business niche time us that out for So, to expand hope further.

Jim Suva

It’s details greatly Thank appreciated. you so for clarifications. much and the

Hartmut Liebel

Thank you.

Operator

Craig-Hallum. comes your Please And Instructions] go ahead. [Operator Christian from question Schwab with next

Christian Schwab

congrats else’s guide. echo the quarter everybody the to and like on would I Yes, great

sequential business, was a little On more that clarity you strength wireless or the infrastructure give strong bit whether optical network of weighted? more communications can

Hartmut Liebel

very – the with optical we business. we very, successfully in So, here the really worked leaders here

don’t opportunity we break down But broadly components. broad-based. speaking, here So, have unfortunately, is to to it an this those

we and – the QX, have, in the shows strong We showed and are outlook with we here have very relationship these very for which which with with again customers the up QX happy a in very, strong QX. collaboration results

much the you. pretty detail super, I again of type that’s relationship we we confidence about with have, super here the So, the of some me wins come. we have happy that lot share and are can But most for gives recent time quite programs or to that

Christian Schwab

then, That’s customers have great. And did any quarter? you the guys XX% in

Hartmut Liebel

customer we the list XX% filings have in don’t our we we and customer public make And beyond any one that, disclosures. Well, disclosed quarter. additional our for

Christian Schwab

X% keep them margin margins? this with then potentially and back get leading positions Should we the customers the on get think to a past of that with – mix of leading margin, COVID this is going growth complicated structures focused worries. you working X.X% that at sustainable business some past kind are we do as of side on Okay, market and you be that to disruptions, of with thinking and sustain operating no business more kind point? gross you the gross And gross hopefully can designs be margins

Hartmut Liebel

Yes.

development the forecasting really not are we the COVID into here future. of So,

cost beyond a can we come to model. of confidence here right the is now, QX, And challenges leverage QX we don’t and what into of We lot know and going us how macroeconomic we efficiencies. COVID-related the QX. are business exactly how focus dealt has manufacturing with this containment our on of terms we obviously, that in are very, really happy do And because in very and given bring improved

on confidence but So, for chance and QX. leverage reconnect let’s future focus right have to into see call, our now when next we we into that’s our how here QX also us quarters,

Christian Schwab

Thank don’t questions. I any other have Thank great. That’s you. you.

Hartmut Liebel

at this then... are point I no questions? other are there If Perfect. Josh, any believe other there questions,

Operator

at have time. I think questions further we this no

Hartmut Liebel

an and a the today’s call. thank your earnings support or to to And great I on day much evening. and our want to business Great. joining for Sanmina. interest on look call Have next providing we Excellent. forward in very great everybody update

Operator

you call. very today’s concludes for conference Thank much This joining.

You may now disconnect.

Sanmina (SANM) 29 Jul 202020 Q3 Earnings call transcript