Q1 2022 Sanmina Corp Earnings Call
Speaker 1: Good day and thank you for standing by. Welcome to the Semina First Quarter fiscal 2022 Erning School.
Good day, and thank you for standing by welcome.
Welcome to the <unk> first quarter fiscal 2022 earnings call.
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Speaker 2: Thank you, May. Good afternoon, ladies and gentlemen, and welcome to San Mena's first quarter, fiscal 2022 earnings call. A copy of our press release and slides for today's discussion are available on our website at tanmena.com in the Investor Relations section.
Thank you good.
Good afternoon, ladies and gentlemen, and welcome to Sanmina first quarter fiscal 2022 earnings call a copy of our press release and slides for today's discussion are available on our website at Sanmina Dot com in the Investor Relations section.
Speaker 2: Joining me on today's call is Yuri Solah, Chairman and Chief Executive Officer. Good afternoon. And Kurt Azimah, Executive Vice President and Chief Financial Officer. Good afternoon. Before we begin our prepared remarks, let me remind everyone that today's call is being webcasted and recorded and will be available on our website. You can follow along with our prepared remarks in the slides provided on our website.
Joining me on today's call is Youri, Sola, Chairman and Chief Executive Officer, Good afternoon, and Kurt Athima Executive Vice President and Chief Financial Officer. Good afternoon.
Before we begin our prepared remarks, let me remind everyone that today's call is being webcast and recorded and will be available on our website you can follow along with our prepared remarks in the slides provided on our website.
Speaker 2: Please turn to slide three of our presentation or the press release safe harbor statement. During this conference call, we may make projections or other forward-looking statements regarding future events or future financial performance of the company. We caution you that such statements are just projections. The company's actual results could differ materially from those projected in these statements as a result of the number of factors set forth in the company's annually and quarterly reports filed with the Securities and Exchange Commission.
Turn to slide three of our presentation or the press release Safe Harbor statement. During this conference call, we may make projections or other forward looking statements regarding future events or future financial performance of the company.
We caution you that such statements are just projections the company's actual results could differ materially from those projected in these statements as a result of a number of factors set forth in the Companys annually and quarterly reports filed with the Securities and Exchange Commission.
Speaker 2: The company has under no obligation to and expressly describes any such obligation to update or alter any of the forward looking statements made in this earnings release, their earnings presentations, the conference call, or the investor relations section of our website, whether as a result of new information, future events, or otherwise unless otherwise required by law.
The company is under no obligation to and expressly disclaims any such obligation to update or alter any of the forward looking statements made in this earnings release the earnings presentation. The conference call or the Investor Relations section of our website, whether as a result of new information future events or otherwise unless otherwise required by law.
Speaker 2: Included in our press release and slides issued today, I have provided you with a statement of operations for the quarter ended January 1st, 2022, on a GAAP basis as well as certain non-GAAP financial information. A reconciliation between the GAAP and non-GAAP financial information is also provided in the press release and slides posted on our website.
Included in our press release and slides issued today I have provided you with a statement of operations for the quarter ended January one 2022.
On a GAAP basis, as well as certain non-GAAP financial information a reconciliation between the GAAP and non-GAAP financial information is also provided in the press release and slides posted on our website.
Speaker 2: In general, our non-gap information excludes restructuring costs, acquisition and integration costs, non-cast-stock-based compensation expense, amortization expense, and other unusual or infrequent items.
In general our non-GAAP information excludes restructuring costs acquisition and integration costs noncash stock based compensation expense amortization expense and other unusual or infrequent items.
Speaker 3: Any comments we make on this call that relates to the income statement measures will be directed at our non-GAAP financial results. Accordingly, unless otherwise stated in this conference call, when we refer to gross profit, gross margin, operating income, operating margin, taxes, net income, and earnings per share, we are referring to our non-GAAP information. I'd now like to turn the call over to Yuri Sola. Thank you, Paige. Good afternoon, ladies and gentlemen. Welcome.
Any comments, we make on this call as it relates to the income statement measures will be directed at our non-GAAP financial results Accordingly, unless otherwise stated in this conference call. When we refer to gross profit gross margin operating income operating margin taxes net income and earnings per share we are referring to our non-GAAP information.
I'd now like to turn the call over to Ursula.
Good afternoon, ladies and gentlemen, welcome.
Speaker 3: And thank you all for being here with us today. I'd like to make a few comments before I turn it over to Kurt. First, I would like to take this opportunity to recognize our leadership team and our employees for managing successfully around material shortages and navigating around COVID.
And thank you all for being here with us today like to make a few comments before I turn it over to Kurt first I would like to take this opportunity to recognize our leadership team and our employees for managing successfully around material shortages and navigating around COVID-19 so too.
Speaker 3: So to our Semina team, you're doing an excellent job. And I like to thank you.
Our Sanmina team you are doing an excellent job and I would like to thank you.
Speaker 3: Despite all these challenges and mean a deliver stronger results for a first quarter of fiscal year 2022.
Despite all these challenges Sanmina delivered strong results for our first quarter fiscal year 2022.
Speaker 3: For agenda, we have Curt, our CFO , to review the details of our results for you. I will follow with additional comments about Samina's results and future goals.
For agenda, we have Kurt <unk>, our CFO to review the details of our results for you.
Bob will follow with additional comments about sanmina as a results and future goals.
Speaker 3: Then Kurt and I will open for question and answers. And now I'd like to turn this call over to Kurt. Kurt, thanks, Yuri.
Then Kurt and I will open for question and answers and now I'd like to turn this call over to Kurt Kurt.
Thanks, Gary.
Please turn to slide five.
Speaker 4: In the first quarter, our team did an excellent job of managing through the impact of the supply chain constraints, delivering strong revenue growth, margins, and profitability, as well as cash generation.
In the first quarter, our team did an excellent job of managing through the impact of the supply chain constraints delivering strong revenue growth.
Margins and profitability as well as cash generation.
Speaker 4: Q1 revenue of 1.76 billion grew approximately 7% from the prior quarter and exceeded our outlook of 1.6 to 1.7 billion.
Q1 revenue of $1 76 billion grew approximately 7% from the prior quarter and exceeded our outlook of one six to $1 7 billion.
Speaker 4: This is primarily due to strong execution by our supply chain and operations team.
This was primarily due to strong execution by our supply chain and operations teams.
Speaker 4: As you already mentioned, the man continued to be strong. However, the impact of supply chain constraints also...
Because you already mentioned demand continued to be strong however, the impact of supply chain constraints also continue.
Speaker 4: non-GAAP gross margin improved to 8.5 percent compared to 8.2 percent in the prior quarter, primarily due to higher revenue.
non-GAAP gross margin improved to eight 5% compared to eight 2% in the prior quarter, primarily due to higher revenues.
Speaker 4: non-GAAP operating margin improved to 5 percent compared to 4.8 in the prior quarter, primarily due to better gross margin.
non-GAAP operating margin improved two 5% compared to $4 eight in the prior quarter, primarily due to better gross margin.
Speaker 4: non-GAAP fully diluted earnings per share grew approximately 13% to $1.08 compared to $0.95 in the prior quarter.
non-GAAP fully diluted earnings per share grew approximately 13% to $1 eight compared to 95 in the prior quarter.
Speaker 4: and exceeded the upper end of our outlook of 90 cents to a dollar.
And exceeded the upper end of our outlook of 90 to $1.
Speaker 4: Finally, Q1 GAP EPS was 89 cents.
Finally, Q1, GAAP EPS was <unk> 89 cents.
Please turn to slide six.
Speaker 4: This slide shows the quarterly trends of our financial risks.
This slide shows the quarterly trends of our financial results.
Speaker 4: You can see our team has done an excellent job of managing the business through this dynamic period.
You can see our team has done an excellent job of managing through.
So managing the business through this dynamic period.
Speaker 4: Naga gross margins have been very consistent exceeding 8% for the last 7 consecutive quarters.
non-GAAP gross margins have been very consistent exceeding 8% for the last seven consecutive quarters.
Speaker 4: In addition, non-GAAP operating margins have been 5% or higher for 5 of the last 6 quarters.
In addition, non-GAAP operating margins have been 5% or higher five over the last six quarters.
Speaker 4: We believe our revenue will increase and our margins will expand as material, supply chain, constraints, results. Long.
We believe our revenue will increase and our margins will expand as material supply chain constraints resolved.
Now please turn to slide seven.
Speaker 4: Q1, IMS revenue increased to 1.43 billion. Primarily due to strong execution by our supply chain and operations.
Q1, IMS revenue increased to 143 billion.
Primarily due to strong execution by our supply chain and operations team.
Speaker 4: Don Gap Gross margin for IMS improved to 7.5% from 6.8% primarily due to higher rubbings.
non-GAAP gross margin for IMS improved to seven 5% from six 8% primarily due to higher revenues.
Speaker 4: components, products and services revenue increased at 367 million.
Components products and services revenue increased to $367 million.
Speaker 4: Nogap grows margin for CPS decline to 11.6%, primarily due to product immense.
non-GAAP gross margin for Cps declined to 11, 6%, primarily due to product mix.
Speaker 4: Again, overall, non-GAAP gross margin improved to 8.5%.
Again overall non-GAAP gross margin improved to eight 5%.
Speaker 4: In summary, we believe our revenue will grow in our margins improved for both IMS and CPS as the supply chain constraints are resolved. Now please.
In summary, we believe our revenue will grow and our margins improved for both IMS and Cps as the supply chain constraints are resolved.
Now please turn to slide eight.
Let's talk about the balance sheet cash.
Speaker 4: Cash and cash equivalents were 628 million
Cash and cash equivalents were 628 million.
Speaker 4: and the availability under our revolver and other debt facilities we have approximately 1.4 billion liquidity.
Between cash and the availability under our revolver and other debt facilities, we have approximately $1 4 billion liquidity.
Speaker 4: At the end of Q1, there were no borrowings outstanding under our revolver. We believe we have a strong cast position.
At the end of Q1, there were no borrowings outstanding under our revolver.
We believe we have a strong cash position to help us manage through the current market dynamics.
Speaker 4: inventory increased due to an increase in the level of unconstrained parts resulting from the impact of this supply chain constraint.
Inventory increased due to an increase in the level of unconstrained part, resulting from the impact of the supply chain constraints.
This inventory increase was driven based on conversations with our customers.
We expect this inventory will be consumed in the balance of inventory to normalize our supply chain constraints are resolved over time.
Speaker 4: Despite the higher levels of inventory, we were able to manage working capital such that cash cycle days remained steady at approximately 57 days.
Despite the higher levels of inventory, we were able to manage working capital such that cash cycle days remained steady at approximately 57 days.
non-GAAP pre tax ROIC improved to 26, 4%.
Now if you please turn to slide nine.
Our cash generation remains consistently strong we generated $68 million of cash from operations and $51 million of free cash flow in Q1.
We continue to remain focused on cash generation and expect to continue to generate cash going forward.
With cash being used primarily to invest in the business to drive organic growth.
Speaker 4: In addition, during Q1, we repurchased 1.55 million shares for a total cost of approximately $60 million.
In addition, during Q1, we repurchased 155 million shares for a total cost of approximately $60 million.
Speaker 4: At the end of the quarter, we had remaining purchase authorization of approximately 220 million. Now please turn to slide 10.
At the end of the quarter, we had remaining purchase authorization of approximately $220 million.
Now please turn to slide 10.
Let's talk about the Q2 outlook.
Speaker 4: As Yuri mentioned, overall, customer demand is strong, but there continues to be supply change challenge.
As you already mentioned overall customer demand is strong, but there continues to be supply chain challenges.
Speaker 4: We expect Q2 revenues to be in the range of 1.7 to 1.8 billion.
We expect Q2 revenue to be in the range of one seven to $1 8 billion.
Speaker 4: non-GAAP gross margin in the range of 8% to 8.5%, depending on product mix.
non-GAAP gross margin in the range of eight to eight 5% depending on product mix.
Speaker 4: Nag gas operating expenses to be in the range of 59 to 61 million.
non-GAAP operating expenses to be in the range of $59 million to $61 million.
Speaker 4: and non-gap operating margin in the range of 4.5% to 5.1%.
And non-GAAP operating margin in the range of four 5% to five 1%.
Speaker 4: not get further expenses of approximately five million.
non-GAAP other expenses of approximately $5 million.
Speaker 4: Now get tax rate from approximately 17%.
non-GAAP tax rate of approximately 17%.
Speaker 4: Diegap fully diluted share count of approximate rate 66 million share.
non-GAAP fully diluted share count of approximately 66 million shares.
Speaker 4: When you consider all these guys are out looked for non-gap.
When you consider all this guidance our outlook for non-GAAP .
Speaker 4: diluted earnings per share is in the range of 95 cents to a dollar
Diluted earnings per share is in the range of 95 to $1 five.
Speaker 4: We expect capital expenditures to be approximately $30 million, driven by growth of new programs and depreciation for the quarter to be around $1.5 million.
We expect capital expenditures to be approximately $30 million driven by growth of new programs and depreciation for the quarter to be around $28 million.
Speaker 4: In summary, demand remains strong across our customer.
In summary demand remains strong across our customer base.
Speaker 4: We are confident that our lean manufacturing business model and expect the company to deliver strong operating leverage and cash flow generation over time as the supply chain constraints are resolved. With that, I'll
We are confident that our lean manufacturing business model and expect the company to deliver strong operating leverage and cash flow generation over time as the supply chain constraints are resolved.
With that I'll turn it back to Europe .
Speaker 3: Thank you, Kurt. Ladies and gentlemen, let me make few more comments about the business environment for the first quarter, an outlook for second quarter, an outlook for the rest of the fiscal year 2022.
Thank you.
Ladies and gentlemen, let me make few more comments about the business environment for the first quarter.
And now to an outlook for second quarter and outlook for the rest of the fiscal year 2022.
Speaker 3: Key highlights for a first quarter. As you heard from Kurt, the Mina delivered strong results for the first quarter.
Key highlights for the first quarter as hurt as you heard from Kirk Sanmina delivered strong results for the first quarter.
Speaker 3: Despite material and COVID challenges, I can tell you our team is executing very well in this environment.
Despite material and call with challenges I can tell you our team is executing very well in this environment.
Speaker 3: key drivers in a first quarter war, excellence in supply chain by working closely with our customers and suppliers.
Key drivers in our first quarter War.
Excellent to supply chain by working closely with our customers and suppliers.
Speaker 3: Great operational execution, creating the right flexibility to build the product.
Great operational execution, creating the right flexibility to build products to.
Speaker 3: through operational flexibility we were able to support critical requirements for our customers.
<unk> operational flexibility, we're able to support critical requirements.
Customers.
Speaker 3: Overall, we're off to a good start for fiscal year 2022.
Overall, we're off to a good start for fiscal year 2022.
Speaker 3: Let me give you, please turn to slide 12. Let me give you a few highlights of revenue for the first quarter by end market.
Let me give you please turn to slide 12.
Let me give you a few highlights of revenue for the first quarter by end markets.
Speaker 3: The man for product was strong across all markets. We delivered quarter, over quarter, nice growth. For first quarter top 10 customers.
Demand for product was strong across all markets will deliver quarter over quarter nice growth.
For first quarter top 10 customers.
Represented 48% of revenue.
Speaker 3: Communication networks and cloud infrastructure was 40% of our revenue. Revenue was slightly down.
Communication networks and cloud infrastructure was 40% of our revenue.
Revenue was slightly down about 3%.
Speaker 3: revenue impacted by material shortages in this sector.
Revenue impacted by material shortages in this segment.
Speaker 3: industrial medical defense automotive was 60% of our revenue and that was nicely up 15%. Also here we experienced
Industrial medical defense and automotive was.
60% of our revenue and that was nicely up 15%.
Also here, we experienced material shortages.
Let me talk about bookings bookings for the first quarter continued to be strong book to Bill was one two to one.
Please turn to slide 13.
Now, let me talk to you about revenue outlook by market segments for second quarter.
For second quarter short term quarter over quarter, we are forecasting flat growth.
We do have upside potential across all the market segments, but it is limited by component constraints.
The good news is that our customers demand continued to be strong.
For second quarter, we're forecasting that 40% of our revenue will come from communication networks and cloud infrastructure markets.
Driven by optical systems, <unk> networks cloud networking and enterprise storage systems.
We are forecasting that approximately 60% plus of revenue will be from industrial driven by security and safety products renewable energy systems test and measurements and semi conductor equipment products.
Medical driven by lab diagnostics.
Ventilators patient monitoring systems ultrasound system et cetera.
Defense and aerospace driven by technical communication military aircraft equipment.
Unmanned aerial systems and satellite equipment.
For automotive.
It's driven by Lidar and radar systems.
<unk> more power management system safety systems, and electronic control systems.
Now, let me talk about the future.
I can tell you the future is more excited the most important because we are established in these mission critical high complexity heavily regulated markets and Sanmina is recognized as a leader in these markets by our customers.
So let's talk about breadth of the fiscal year of 2022.
Based on our present market visibility and customer forecast I feel very positive about rest of the fiscal year 2022.
Cereals, and Covid challenges will continue through calendar year 2022, but we do expect to see some improvement in the second half of the year.
Sanmina is executing well in this dynamic environment as we continue to work closely with our customers and suppliers to resolve these supply chain shortly especially in the short term.
Now, let me talk to you about the growth.
I can tell you that sanmina is well positioned for growth the pipeline of growth opportunities remains healthy.
We continue to expand existing customer partnerships.
And we continue to invest in our leading technology to drive the growth in our key markets such as medical defense industrial automotive and automotive is focusing on electrical vehicle communications and cloud infrastructure.
The key focus for our management is to continue to expand into more profitable projects and new market opportunities by delivering competitive advantage to our customers.
I am optimistic that all of these all of these opportunities will translate into growth and margin expansion.
So for physical year 2022, we do expect to deliver solid results.
Please turn to slide 14.
So in summary.
For the first quarter I will say this was good result revenue above our outlook strong execution.
non-GAAP operating margin of 5% we continue.
Focus on this.
non-GAAP diluted EPS of $1 eight exceeded our outlook.
And strong free cash flow of $51 million for.
For second quarter, we expect to also have a good quarter.
<unk> remained strong.
<unk> supply constraints to continue but we believe it is manageable and.
In this environment, we will continue to operate with agility and successfully navigate market dynamics.
Our revenue outlook is stable one seven to one 8 billion for this quarter and non-GAAP diluted EPS outlook of 95 to.
<unk>.
So ladies and gentlemen, now I would like to say thank you all for your time and support.
Operator, we're now ready to open the lines for question and answers.
Absolutely as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
Standby, while we compile the Q&A roster.
Okay.
Your first question comes from the line of Lulu, but their <unk> of Bank of America. Your line is open.
Thank you for taking my questions.
Hi.
You had guided each of the end markets the communication networks cloud as well as the MDA those four end markets to be up slightly obviously, it looks like imba performed very much better than that it was up 15% sequentially can you help us parse within that how the industrial and medical.
Defense and automotive.
What did you see in the quarter, which one was stronger which one was weaker and the same for communication networks. It came a little bit it was down 3%. So what was weaker than you had expected can you just talk about the optical networking wireless just getting into more details in each of these end markets.
Cover your first question regarding the industrial medical defense and automotive first of all overall demand was there.
Our biggest challenge was getting the materials.
We had a better luck this segments and that was nicely up 15% when I say better luck is just getting more materials on.
The communication side.
Again demand was actually very strong.
On all our key markets, such as our cloud networking systems, IP routing and optical system <unk>.
The challenge in getting the right material on time, so a good thing as I said in our prepared statement demand is there.
It's all about.
Working very close with suppliers and our customers and getting enough material, but the good thing is demand is there it's all about execution.
Got it maybe the second one I'll ask a question declared.
It looks like inventory was up 20% sequentially, how much of that inventory increase close would you say is because of the component costs still going up in the December quarter versus actual pieces of inventory going up.
And your inventory meaning.
Is that increase really just because of inflation because of cost.
Increases from the suppliers or is it that you actually have holding more inventory.
We'll help you in shipments going forward.
Yes.
I think it's a good question.
So I think it's a bit of both honestly I think first of all I think.
We are out there buying inventory with the hopes that some of the really constrained parts are going to come through and sometimes they don't so we tend to per our conversations with our customers. There on the side of the fact that some of the most constrained part will come through and so we have to make sure we have the.
But I'll call it the secondary or tertiary bottlenecks in the in the bomb covered so part of it is the number of units. But then you are absolutely right. Those units that we are tracking down our costing more so that consequently means that it's not just the number of <unk>.
And it's also the cost of those units in particular some of these harder to find units that aren't the primary bottleneck, but are the what I call the secondary or tertiary bottleneck in the bump. So it's a combination of both.
Okay. Thanks for the details on that.
Appreciate it maybe just for my last question, let me ask you on PPS segment margins. It looks like sequentially. They were down about 120 basis points.
Just what are some of the reasons for that and can you help us think about.
Coming out of Covid as we think about fiscal 'twenty two how should we think about seasonality in the Cps business because it has components. It has products and services. So how should we think about like revenue seasonality and margin.
<unk> fiscal 2002 going from one quarter to another.
Yeah sure. So let's take the seasonality question first and then I'll circle back to this too.
Due to the seats Cps question. So overall season, historically seasonality we've been down.
Call it 3% to 5% in our second quarter due to seasonality.
And there probably will be some of that.
Hard to tell given the backdrop of the supply constraints and so our hope and as you can see based on our guidance as to the extent, we do experience some seasonality in certain parts of our business will be able to make up for that on a revenue perspective.
In terms of chasing down more parts.
Being able to deliver more units of other products. So.
I don't think Theres zero seasonality, but our hopes are to the extent there is seasonality that we can help offset that through.
More shipments of products by chasing down more parts.
I think I think on the Cps question I think again, when you think about Cps margin you have to remember that.
Diverse set of businesses inside of there and so the biggest driver around margin is really around mix.
And so a lot of times, we will have lumpiness inside of any one of those businesses inside of the overall Cps segment.
That will drive margins and so we.
We hope over time, obviously, we expect over time those margins to go up but.
It just so happens this quarter the mix was what we had hoped for and consequently, our margin was down a bit.
Okay. Thanks for all the details and congrats on the strong execution in the quarter.
Thanks.
Your next question comes from the line of Jim Suva of Citigroup. Your line is open.
Jim.
Good evening. Thank you so much.
I can't remember if my Memory's right on this but.
Right. It was around 200 million or just more than that of supply constraints.
Could you have shipped last quarter is my memory right on that and if so do you have a number of this quarter just curious about how much more you could have shipped J J.
Your memories embedded memory is better than elephants, okay.
100% correct.
It was about 200 last quarter and we think.
Based on our analysis of last quarters, similar to we call it 10 plus percent, but similar to the quarter before.
Okay.
Then when you talked about.
Youre forward quarter growth of revenues kind of flattish I did note that the EPS it looks a little lower quarter over quarter.
Due to like higher compensation employee inflation costs or more mix I'm, just trying to get my hands around why EPS wouldn't also be kind of flat, yes. So let me let me try that one and then Curt you can add two or more.
First of all as we look at the quarter out of there we have plenty of revenue across all the markets.
And most of our customers want to more then why are we able to shape today.
So it's all going to come houses the mix is going to come through in that segment.
Tibet So our estimate that's what we are guiding today, but if we can get more revenue out a lot of those things get fixed.
Yes, I'd say youre, absolutely right it always comes down to mix and and again.
What we can ship depends on what we're able to get from a supply chain perspective, but there are two other things that you mentioned I think first of all.
In our fiscal Q1, we typically have some benefit from holiday shutdowns, especially in the United States.
So you have that in Q1, you don't have that in Q2.
I think the other thing that you typically have in Q2 as you have the resetting of the payroll tax.
So it usually gets capped out in the U S towards the end of the fifth.
At the end of the calendar year and it restarts at the beginning of the calendar year, so that hits too cute.
Our second fiscal quarter.
So in addition to mix maturity mentioned I think those are two other factors that.
Have impact on our Q2 margin guidance.
Great and then things with the supply chain still tight and stable tighter actually getting looser from where youre sitting at getting closer towards a resolution.
I think there is a lot more planning being going on as we know we've been in this scenario for almost a year plus.
So there's a lot of work being done between the customer than us and our key suppliers.
So we're working out to get some kind of normality into this but Jim.
As I said in our prepared statements. This will continue.
Believe that we're going to see some improvements in second half I mean, we're starting to see some improvement in certain components, but right now you have shortages almost on anything from pure raw material like.
Aluminum steel to semiconductor so just getting everything when you needed that is a critical.
And we're learning to work with it now can use it anymore. The Skus I think we got a very strong supply chain management in place.
We got a one global it system, we look we connect with our customers, we talk to our customers and suppliers on a daily basis.
Efficiency is not very good because we're not getting proper loading on daily basis. So we are hoping is we can improve on some of the materials. We can be a lot more efficient. So we just learning how to work with it both the material shortages in COVID-19 .
So it just gets back to normal now.
And so if that's normal now Curt mentioned working down inventory when things normalize why not hold some buffer inventory in case there is a.
Hopefully this doesn't happen a COVID-19 23 year 'twenty four 'twenty five.
Earthquake, or Stryker trade wars, or who knows what.
Well I think when it comes to inventory we are working very close to our customers on this we just don't bring inventory for just bringing inventory sake here. It's very this is a 100% coordinate with each of our customers understanding exactly.
What we need to bring in and this has got emptied by contract or a purchase or Jim I just wanted to clarify.
He said the supply constraints, we expect to go through the end of this calendar year.
And so is that an opportunity at this point to even build buffer of any sort of critical components. So I am not sure down the road that may be an option in 2023 are that our customers choose to do.
In these times there is still.
Very much a constraint in terms of especially some of these custom semiconductors.
Yes, that's correct.
Well congratulations to you and your team for managing through such a challenging time. Thank you. So much thanks Jim.
Your next question comes from the line of Christian Schwab of Craig Hallum Capital. Your line is open Hello Christian.
So just one quick question.
Or maybe two here, but one as far as clarity so it will be.
Component shortages that you.
Alluded to saying in the second half of 'twenty two that you expect some.
Improvement in components can can you elaborate on what you're specifically seeing.
Some of your customers get.
Better allocated wafer start.
You know that can lead to complex silicate, helping them or is that raw materials comment.
Type of clarity would be great. So let me, let me make something clear I am not an export knowing that word I can forecast what is going to happen.
Summit, when I say, we hope in the second half will be better some of that is probably visual thinking number two really is what I'm hearing from customers that some customers are getting better allocations. We know that some customers were hurting really bad let's say for last two quarters that now they are getting.
More parts, it really varies from customer to customer and especially around the custom custom products ever.
Anything else is just.
Planning better and working with the supplier a lot closer and a lot of these things that allocation question. It doesn't it doesn't matter who calls.
Us customer or anybody else, we are getting the same amount of so but it's something that we are working with.
I think.
Well, you'll get better definitely how much better that's a big question.
Okay that makes sense and then as far as the inventory is concerned.
What percentage of inventory is whip versus finished goods.
How does that.
Compare to either.
Say 2019 levels.
Definitely we are carrying more raw material now than we did in 2000, let's say 19.
Percentage wise based on on our projects that we have.
The reason exactly what Curt was talking about a few minutes ago, because there are certain parts. We bring in then there is something 5%, 10% that we have to wait the extra month or two or three to get it and that's really what's happening at the same time.
We are bringing critical parts as soon as they are available to us and that also drives the inventory. So I would say work in process. Today is really our cycle time for work in process is very short.
Because we.
We are in the environment that we operated one thing that we're doing right now is creating a lot more flexibility, we doing things that I didn't even know we can do.
A couple of years ago.
So we learned a lot because we have to create that flexibility to be able to to deliver critical components to our customers.
Okay.
That's great and then I guess.
My last question has to do with.
With potential M&A.
In this environment.
Scale is becoming even more and more important.
And supply chain partners.
Obviously, becoming front and center of everybody's mind.
Can you give us an update if you guys are looking at different themes or different.
Different geographies or different applications or is it just that a lot of things for sale.
So first of all.
We are focused to growth, we believe that with a lot of work in the last 18 months really looking what we need to do what direction. We go to.
We believe that we're as I said earlier, we have a strong pipeline of organic.
Organic opportunities in front of us we've been focusing on expanding presence relationship I think there is still a lot of growth in existing customer base that we have and then we're looking at some new markets.
That I believe.
What we offer and we've been investing in some unique capabilities to expand and win.
All of these critical markets as I mentioned earlier medical defense and industrial and communication.
A lot of a lot of opportunities there, yes, we are.
The comps through M&A, we look at other options.
To see what's available what makes business sense for us, but it has to grow we have to grow right now and that's that's.
My personal focus in the rest of the management.
Great Congrats on a good quarter.
Christian a lot of good stuff going on so anyway I'll put it that we have time for one more question. Please.
Your next question comes from the line of Anne Joseph.
<unk>.
Your line is open.
Hello on yet.
Hi, Gary Hi, Kurt. Thank you for taking my question a lot of my questions have been asked already.
I just wanted to get a sense on when you talked about.
For the full fiscal 2022, you're talking about polygraph to play with talking about good growth.
Between the good growth healthy growth.
Martinez.
As I said in my English is not the best so.
Good growth up trying to be.
Feel we can do better than what we think yes, we had a strong quarter, but I don't think we will see.
Say that.
We definitely could have done better if we got more materials in and internally.
When you have bought a shortage is all the time you efficiencies are not very good. So we know we can do better at the same time on here, we've been planning to really find a way.
To grow this company. So there is a lot of things going behind the scenes and hopefully we'll be able to show more of that as we resolve some of these material shortages.
Okay. Thank you and then also if you can.
Talking about the backlog, but do you see I think you'd be talking before about you don't think any of that is non perishable do you still see that or do you think is there any risk to that backlog.
We work very close with our customers, especially right now to understand exactly what their real demand data. So we can certain programs, we know and our customer communicates with us they bind.
Buying a little bit more than that need today, but we see that plant for long term. So we feel I would say if I look at the backlog how that 80% to 90% of our backlog, we feel pretty comfortable I think we know enough in details.
We are very close to our customers that I feel comfortable that it looks good and we'll continue to look good at least for the rest of these 22.
Okay. Thank you that was all from me and congratulations on the great execution, great. Thanks, a lot.
I appreciate it well, ladies and gentlemen, that's all we have for today.
If we didn't answer all the question please reach back to us.
We'll definitely get back to you with that we will talk to you next 90 days from now.
Bye bye.
This concludes today's conference call. Thank you for participating you may now disconnect.
Yes.
Okay.
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