Q3 2023 Sanmina Corporation Earnings Call
Good day and welcome to the San Mina third quarter fiscal 2023 earnings conference call. All participants will be in a listen only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch tone phone. And to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Ms. Paige Melching. Senior Vice President of Investor Communications, please go ahead ma'am.
Thank you, Chuck. Good afternoon, ladies and gentlemen, and welcome to Sanmina's third quarter fiscal 2023 earnings call. A copy of our press release and slides for today's discussion are available on our website at sanmina.com in the investor relations section. Joining me today on this call is Yuri Sola, Chairman and Chief Executive Officer. Good afternoon. Thank you for joining us today.
And Kurt Azima, Executive Vice President and Chief Financial Officer. Good afternoon. Before I turn the call over to Yuri, 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. Please turn to the Safe Harbor Statement in the presentation.
During this conference call, we may make projections or other forward-looking statements regarding future events for the future financial performance of the company. We caution you that such statements are just projections. Companies' actual results could differ materially from those projected in these statements as a result of factors that forth in the Safe Harbor statement.
The company is under no obligation 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, the company is under
unless otherwise required by law. Included in our press release and slides issued today, we have provided you with statements of operation that a quarter ended July 1, 2023 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.
In general, our non-GAAP information excluded restructuring costs, acquisition and integration costs, non-cash stock-based compensation expense, amortization expense and other unusual or infrequent items.
Any comments we make on this call as they relate 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 margins, taxes, net income, and earnings per share, we are referring to our non-gap information. I'd now like to turn the call over to Yuri.
Thanks, Paige. Good afternoon, ladies and gentlemen. Welcome and thank you all for being here with us today. Thank you.
First, I would like to take this opportunity to recognize Samina leadership team and our employees for getting the job well done. Thank you.
So to you, Samina's team, thank you for delivering solid results for a third quarter.
And let's keep it up.
The agenda we have today is that Kurt RC a poll to review detailed results for you. I will follow up with additional comments about Samina's results and future goals. Kurt and I will open for questions and answers.
Thanks, Yuri. Please turn to slide five. Our team did a good job delivering solid financial performance for the quarter. Q3 revenue was $2.21 billion in line with our outlook of $2.2 to $2.3 billion. In general, revenue remains stable across most of our customer base. However, we did see some declines relative to the prior quarter.
primarily as the result of a few communication customers adjusting inventory levels as the supply chain continues to improve. non-GAAP gross margin improved to 8.6% from 8.4 in the prior quarter.
The non-GAAP operating margin was 5.7%.
non-GAAP fully diluted earnings per share with $1.55 in line with our guidance of $1.50 to $1.60. Eastta
Please turn to slide six. Revenue grew approximately 9% from $2 billion in Q3 FY22 to $2.2 billion in Q3 FY23. Operating margin improved from 5.3% in Q3 FY22 to 5.7% in Q3 FY23. EPS grew approximately 23%.
from $1.26 in Q3 FY22 to $1.55 in Q3 FY23.
$1.26 in Q3 FY22 to $1.55 in Q3 FY23. Please turn to slide 7.
This slide shows a comparison of our GAAP and non-GAAP quarterly financial results.
If you can now turn to slide 8.
in the prior quarter. This improvement was primarily related to a partial release of inventory reserves taken during the first fiscal quarter related to a startup company. We expect IMS gross margins to return to a more normalized level in Q4 FY23. Q3 EDS revenue was $419 million compared to $431 million.
Q3 FY23 non-gap gross margin for CPS with 8.8%.
This is primarily due to cost overruns at one of our CPS divisions.
We are actively working with our customers in that division to recover these costs and expect CPS gross margin will be in a more normalized range in Q4 at Flight 23.
During Q3, we repurchased approximately 970,000 shares for a total of approximately $51 million. At the end of Q3, we had 312 million of remaining authorization for additional share repurchases. We now please turn to slide 11. We continue to remain focused on efficient cash management. Cash cycle days were approximately 58 days in Q3.
pre-tax ROIC was approximately 30% for Q3. Now please turn to slide 12. Let's talk about the outlook for Q4.
We expect revenues to be in the range of $2.1 to $2.2 billion as we expect to continue to see a few communication customers adjust inventory levels as the supply chain continues to improve. We expect non-GAAP gross margin in the range of 8.3 to 8.8% dependent on product mix. non-GAAP operating expenses are expected in the range of $59 to $61 million and non-GAAP operating margin in the range of 5.5 to 6%.
We expect non-GAAP interest and other expenses of $12 to $13 million primarily driven by the increase in interest rates.
In addition, we estimate an approximate $3 million non-cash reduction to net income to reflect our JV partners' equity interest in the net income of our Indian JV.
We expect non-GAAP tax rate for the quarter of approximately 17 to 17.5 percent and non-GAAP fully diluted share count of approximately 59 million.
When you consider all of this guidance or outlook for non-GAAP ...
Diluted, earnings per share is in the range of $1.47 to $1.57. We expect Q4 CapEx to be approximately $50 million driven by growth of new programs and to support future growth.
Q4 depreciation is expected to be about $30 million.
Thank you, Kurt. Ladies and gentlemen, let me give you some key highlights for the third quarter. As you heard from Kurt, throughout third quarter, Sanmina delivered solid results in a line with our outlook. We had a solid operational execution as we provide competitive advantage to our customers. Supply chain for semi-components is getting a lot better. Lead times are improving, and I can say it's coming back to some normality.
Our SAMINA team continues to do a great job by focusing on customer needs.
Margin expansion and EPS growth. Please turn to slide 14.
Industrial, medical, defense, and automotive for a quarter was fairly flat of $1,344,000,000, but for the year was nicely up, up 10%. Also the market trends and mix are improving. We continue to diversify in industrial, medical, defense, and automotive markets, driven by new program wins and new customers. As you can see, mix improved to 61% of our revenue.
and year over year growth of 7.7%. Cloud infrastructure continues to be stable and growing. For the third quarter, top 10 customers were 47% of our revenue, and I can also tell you that book to bill was approximately one to one. Please turn to slide 15. Let me talk to you about fourth quarter and fiscal year 23 and markets outlook. For industrial, medical defense, aerospace, and automotive.
in the quarter. For communication systems we see low revenue due to inventory adjustment.
Cloud infrastructure outlook is stable and growing.
Please turn to slide 16.
In this macro environment, we expect for a four quarter revenue outlook to be in the range of $2.1 to $2.2 billion. We expect revenue growth for fiscal year 23 to be approximately 14%.
For the fourth quarter non-GAAP EPS outlook, we expect to be in the range of dollar 47 to dollar fifty-seven.
Our focus on margin expansion should deliver non-gap EPS growth of approximately 35%.
These are strong year-to-date performance and we expect to deliver strong performance for fiscal year 2023. Now let me talk to you about Samina's future for fiscal year 2024 and beyond. We will continue to focus on profitable growth despite challenging microeconomic environment. Samina is in a great position for the future, strong balance sheet to build on, well diversified customer base in the high complexity and heavy regulated markets.
building on right partnerships with customers that have high complexity products, quality of earnings, the key focus is consistency, margin expansion, and growth of earnings, cash flow to support the growth, and focusing on maximizing shareholders' value both short term and long term. We're making investments for the future and we're expanding our capabilities to support new wins for fiscal year 24 and beyond.
Overall, we are expanding to more profitable projects by providing industry leading technologies in engineering solutions and R&D support.
investing in advanced components, products, and integrated manufacturing services.
We are expanding in these key focus markets such as medical, defense, automotive, focusing around electrical vehicle, industrial, alternative energy, and cloud infrastructure.
Sanmina will continue to invest in talent and technologies to drive margin expansion and profitable growth for fiscal year 24 and beyond.
I can also tell you that Semina is well positioned to manage through this dynamic market.
Please turn to slide 17.
Is body the suggests in Jesus?
Third quarter was a good quarter. Our strategy continues to deliver results.
Customer base and pipeline opportunities remain solid.
So, for the fiscal year 23, as I mentioned, we expect to deliver solid revenue and non-GAAP EPS growth.
and we are investing to support long-term growth opportunities.
As a management, we're focused on quality, delivery, and consistently meeting the needs of our customers.
Ladies and gentlemen, now I would like to thank you all for your time and support. Operator, we are now ready to open the lines for questions and answers. Thank you again. We will now begin the question and answer session.
To ask a question, you may press star then one on your touch tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble our roster.
And the first question will come from Anaja Sodersrom with Cidote. Please go ahead. Hello Anya. Hi Anya.
Hi and thank you for taking my question. So I'm sorry I missed the first part. I don't know if you addressed, we talked about the Indian joint venture and what are you starting to see there and also I'm curious you said you expect that to be a 3 million charge in the fourth quarter and that's sort of down from the second quarter so why stop.
coming down in the fourth quarter. Let me give you highlights of the strategy for India Venture and then I'll turn it over to Kurt to address another question. First of all, you know, JV Venture India is very exciting. You know, this is about a year ago.
We are looking at a lot of options right now. How do we grow that? We think there is a lot of upside potential in the next couple of years. We have strong management in India that we have grown over the last 10 years. With a few...
In addition to that team, I think this team has a lot of off-site. Reliance has been a great partner and together we have the same goals and we believe we are on the same page. So personally, and I can speak for the rest of the team, we are very excited what's in India for us. Kurt? Yes, so again, just to clarify, it's not really a charge, right? So basically we back...
that was about five million this quarter. Again it's hard to forecast. We've forecasted three million. It's really a combination of two things. One of it has to do with obviously the profitability of the business. The other variable that's a little bit harder to predict is the exchange rate and how that affects things.
So, I would say we're forecasting a little bit lower this quarter. Candidly, we had
forecast a little bit louder last quarter but did better than expected. So I would say it's just a little bit hard to predict, especially given some of the foreign currency issues.
Okay, thank you. And then also in terms of the communication network, you said you saw some inventory adjustments there. What kind of visibility do you have there that gives you confidence that it's going to come back?
Well first of all as we mentioned in our prepare statement we believe based on some inventory adjustment we saw some down short term I think we confident about because the type of products we are involved with well involved with the new programs and based on
What we see next 12 months, the customers are still very optimistic. And plus we have a strong pipeline of other businesses that we believe that will make it up even if that area doesn't pick up as fast.
Okay, thank you. And did you quantify how much revenue you left behind in the quarter due to the supply chain challenges? No, actually supply chain has been very good. As I said in my prepared statement, Anja, it's coming back to some kind of normality, I can say that. In returnSTON can objective for the competition to determineordinate revenue changes?
And yeah, there's still some sorting components out there. They have a longer lead time, but it's manageable. And I don't believe we left any major revenue that we couldn't ship because of the parts.
Okay, great. Thank you so much.
The next question will come from Christian Swalz with Craig Hallam Capital Group. Please go ahead. –
Hey guys, so just a few follow-ups.
As far as the customer adjustments, you know, undivatory adjustments and comms, which, you know, could be multi-quarter in nature. It is that...
push out the fact that we can get our inventory days outstanding back into the 40-day level? Does that make that kind of a four to six quarter adventure? Or do you think that it should normalize faster now that the supply chain has normalized?
Well, first of all, let me give you my view on that. We look at most of our customers still gives us a question about...
12 months outlook. So based on that outlook, we definitely believe knowing where the lead time is on, our inventory terms should get better and we expect to see improvements in every quarter. Next three quarters, I think the goal there is to get us...
I'm pretty optimistic that when it comes to the inventory, they will work it down. I think back to the demand, our policies take one quarter at a time, but as I said, as we looked at the 24, we don't see anything that is falling off the cliff.
So, I know you guys, we look at one quarter of the time, but your customers, as you talked about, do give you a 12-month outlook.
And we'll probably talk a lot more about it when we finish our fiscal year 23, but at this time we do expect to grow.
Great. And then my last question is it relates to the India joint venture. When do you expect that to be a material positive contributor to the net income line? I know you guys in the past have said, I believe you've said, that that business in India could ramp north of a billion dollars as far as top line revenue.
So just wondering how we should be thinking about that. Let me we're positive right now, right Kirk. Yeah, I mean That JV Makes it makes good profit You know good revenue good margins. I think you know to the extent on how quickly we could
grow that business I think you know as Yuri said we're seeing good indications and a lot of interest from customers but you don't ramp customers overnight right so I think I think we'll start to see it over the next year or two but that business is doing very well right now
It's definitely profitable and so we're very pleased with where we stand. Just to add to that, Chris, it's a...
I think we're in an excellent position to grow that business and this to be a multi-billion dollar business for us sooner than later. Let's put it that way.
That sounds great. No other questions. Thanks, Eric. Thank you, Christian.
Again, if you have a question, please press star, then 1.
Well, ladies and gentlemen, that's all for today. I appreciate all your support. If we didn't answer all your questions, please get back to us. We're looking forward to talking to you in the next 90 days.
Thanks a lot. Thank you. Thank you.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.