Sanmina Corporation

Q1 2022 Earnings Conference Call

1/31/2022

spk_0: your day and thank you for standing by welcome to the mean our first quarter fiscal two thousand twenty two earnings call at this time all participants are you know this listen only mode after the speakers presentation level be a question and answer session to ask a question during the session you will need to press star one on the or it's how the fall please paper for advice that today's conference is being recorded if we require any further assistance least prayers star euro i would know like to hand the conference over to your speaker today page marching please go ahead
spk_1: thank you may good afternoon ladies and gentlemen and welcome to send mean us first quarter fiscal twenty twenty two earnings call a copy of a press release and flights for today's discussion are available on our website at send me the dot com and the investor relations section join me on today's paul is your a solar chairman and chief executive officer europe for new and current as the math executive vice president and chief financial officer good afternoon before we begin are prepared remarks let me remind everyone that today's call as being webcast it and recorded and will be available on our website you can follow along with are prepared remarks in the slides provided on our website please turn to flight three of our presentation or the press release safe harbor statement during a conference call we may make projections are other forward looking statements regarding future events or future financial performance of the company because to new that such statements are just projection the company's actual results could differ materially from those projected in a statement as a result of a number of factors set forth in the company's annual and and quarterly report filed with the securities and exchange commission 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 their earnings presentation the conference call or the investor relations section of our website weather as a result a new information future events or otherwise unless otherwise required by law included in our press release and flies issue today i have provided you with a statement of operations for the quarter and january first twenty twenty two on a gap basis as love certain non gaap financial information the reconciliation between the gap and non financial information is also provided in the press release and flight posted on our website in general or non gaap information excludes restructuring cause acquisition and integration caught non stock based compensation expense amortization expense and other unusual are infrequent item any comments remake make on it cause it relates to the income statement measures will be directed at or non gaap financial result accordingly unless otherwise stated in the conference call when we refer to gross profit margin operating income operating margin taxes net income and earnings per share we are referring to are non gap information and now like turn up pall over the years old
spk_2: third you bedroom a good afternoon ladies and gentlemen welcome that thank you all for being here riddles for the like make up your comments before i turn it over to curb first by were like the do take this opportunity to recognize all leadership them and our employees for males you successfully around material shortages and navigating around it so two hours i mean a thing you're doing an excellent job and i like to thank you despite all these challenges and mean a deliver from the results for the first quarter fiscal year twenty twenty two for agenda we have kurt our see afford to review the details of all results for you although follow with additional comments about some him as a result of future goals then courts and i will open for question announcers and now i like to join this go over to kurt kurt
spk_3: thanks your it
spk_4: we've turned a flawed far and the first quarter team did an excellent job of managing through the impact of who supply chain constricts deliver strong revenue growth margins and profitability as well as costumers q one revenue from one point seven six billion grew approximately seven percent from the park order and exceeded our outlook of one point six to one point seven billion this was primarily due to strong execution bar supply chain and operations things
spk_3: is your imagined the man continued to be strong however the impact of supply chain constraints also country non gaap gross margin improve to a point five percent compared to eight point two percent in the park quarter primarily due to higher revenues
spk_4: naga operating margin improve to five percent compared to four point eight in the prior quarter primarily due to better gross margin naga bully deluded or is for sure grew approximately thirteen percent to a dollar two hundred and ninety five cents in the park quarter and exceeded the upper end of our outlook of ninety cents to a dollar
spk_5: finally to one gap bps was eighty nine cents
spk_4: please turn dislikes sex this slideshow the quarterly trends of our financial results
spk_5: you can see your team have done an excellent job of managing through the been measuring the business through this dynamic period
spk_3: naga up gross margins have been very consistent exceeding v percent for the last seven consecutive quarters
spk_4: in addition non gap operating margins have been five percent or higher for five of the last six quarters we believe our revenue will increase in our margins will expand his material supply chain constraints result now please turn to sidestep q one i am as revenue increased to one point four three billion primarily due to strong execution bar supply chain and operations to dog outgrowth margin for i am as improved seven point five percent from six point eight percent primarily due to higher relatives
spk_5: component products and services revenue increased to three hundred and sixty seven million
spk_4: out gross margin for cpf declined to eleven point six percent primarily due to product mix again overall nine out gross margin improved eight point five percent in summary we believe our revenue will grow and our margins improve for both hi i'm a fan cps as the supply chain streets are result now please turn to sliding the thought about the ballot you cash and cash equivalents were six hundred and twenty eight million between cash and be bail ability and a revolver and other death for saudis the of approximately one point four billion liquidity at the end up to one there were no borrowings outstanding under a revolver
spk_5: we believe we have a strong cast as issue help us managed through the current market dynamics
spk_4: eman tory increase due to an increase in the level of unconstrained parts resulting from the impact of the supply chain constraints
spk_5: his inventory greece was driven based our conversations with our customers we expect as him a tory will be consumed in the balance of him a tory to normalize as supply chain constraints are result overtime
spk_4: despite the higher levels of him and toward we were able to manage working capital such that past cycle days remained steady at approximately fifty seven days nadal pretax or oh i see to prove to twenty six point four percent now you please turn to slide nine our cast generation remains consistently strong regenerated sixty million of cast from operations and fifty one million of free cash flow into want
spk_3: we continue to remain focused on cash generation and expect to continue to generate cash going forward
spk_4: with casting used primarily to invest in the business to drive organic growth in addition during que en we repurchased one point five five million shares or total cost of approximately sixty million dollars at the end of the quarter we had remaining purchase authorization of approximately two hundred and twenty million now please turn slide him
spk_6: as talk about the queue to outlook
spk_4: is your imagined overall customer demand a strong but there continues to be supply chain geologists
spk_5: they expect you to revenue to be in the range of one point seven to one point eight billion
spk_4: naga gross margin in the range of beat to eat and a half percent depending on product mix
spk_5: naga operating expenses to be in the range of fifty nine to sixty one million and knocked out operating margin in the range of four point five percent to five point one percent
spk_4: nadya up other expenses of approximately five million naga tax rate from approximately seventeen percent dog out fully diluted share account of approximately sixty six million shares when you consider all those guys are outlook for non gap
spk_5: deluded earnings per share in the range of ninety five cents to a dollar far
spk_4: we expect capital expenditures to be approximately thirty million driven by growth new programs and depreciation for the quarter to be around twenty eight million in summary demand remains strong across our customer base we are confident that are lean manufacturing business model and expect the company to deliver strong operating leverage and cash flow generation overtime as the supply chain constraints are results
spk_7: with that alternate back to earth
spk_2: thank you card ladies and gentlemen let me make few more comments about the business environment for the first quarter and i'll google and i'll do for second quarter and i'll look for the rest of the fiscal year twenty twenty two key i lied for a for a score as hard as you heard from card semina delivered strong result for the first quarter despite material and car with challenges i can tell you our team is executing very well in this environment key driver the first quarter war exelon to supply chain by working closely with our customers and suppliers great operational execution creating a right place ability to build up products to operational flexibility were able to support group or requirements for our customers overall were off to a good start for fiscal year two thousand and twenty two let me give you please don't dislike slight well let me give you fuel i light of revenue were first quarter by and markets the man for product was strong cross all markets would deliver quarter over quarter nice growth for first quarter top ten customers represented forty eight percent of revenue communication networks and cloud infrastructure was forty percent the all revenue revenue was likely down about three percent revenue impacted by material shortages in this segment industrial medical defense automotive was sixty percent of all revenue and there was nicely up fifteen percent also here we experience material sure yes let me talk about bookings looking for a put a score to continue to be strong book to bill was one point two two one please turn to slide thirteen now let me talk to you about revenue all go by market segments for second quarter for second for a short term quarter over quarter were forecasting flawed growth we do have upside potential cross older market segments but it is limited by component constraints the good news is that our customers demands that continue to be strong for second quarter were forecasting that forty percent of our revenue will come from communication that boards and cloud infrastructure markets is driven by optical systems five g networks cloud networking and enterprise storage systems were forecasting that approximately sixty percent plus some revenue will be from industrial driven by security and safety products renewable energy systems that the measurements and semiconductor equipment products medical driven by lab diagnostics ventilators base and monitoring systems ultrasound six him a cetera defense and our space get them by technical communication military aircraft equipment unmanned aerial systems and satellite equipment
spk_8: for automotive
spk_2: is driven by light are and radar systems electrical more power management system safety systems and electronic control systems
spk_9: now let me talk about the future
spk_2: i can tell you the future is more exciting the most important is well established in these mission critical hi complexity heavy regulated markets and some mean i recognized as a leader in these markets by our customers so let's talk about rest of the fiscal year twenty twenty two based on a present much good visibility and custom my forecast i feel very positive about wrath of the fiscal year twenty twenty two materials and kava challenges will continue to calendar year twenty twenty two but we do expect to see some improvements in the second half of the year so i mean is executing bell in these dynamic environment as we continue to work closely with our customers and supplies to resolve these supply chain sure the especially in the short term
spk_9: now let me talk to you about the growth
spk_2: i can tell you that i mean a while position for get out the pipeline of growth opportunities remains healthy we continue to expand existing customers partnerships and we continue to invest in a leading technology to drive growth in ah key market couches medical defense industrial automotive inside moses 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'm optimistic that all these all of these opportunities will translate into growth and margin expansion so for physical yet twenty twenty two we do expect to deliver sally the results please turn to slide fourteen so in summary for up for a preschooler i will say this was good the result revenue above our outlook stronger execution not get bob already margin five percent would continue while person this not gap load a vps a one dollar that eight said x either our outlook and strong free cash flow of fifty one million dollars per second quarter with back to also have a good korea demand remain strong aspects supply constraints to continue my we believe it is manageable in this environment will continue to operate with agility and successfully navigate market dynamics are revenue outlook is stable one point seven to one point eight billion for this quarter and non gaap delude a dps outlook of ninety five cents to dollar or fly so ladies and gentlemen now have like to say thank you all for your time and support operator we now ready to open the line for question and answers
spk_0: absolutely as a reminder to ask a question you will need to pass star one on your telephone to italian question past the pound me to stand by while the compound again the roster your first question comes from the line of luton butter jar yeah of bank of america your line is open
spk_10: thank you for taking my questions we'll pay you if you had dug i did each of the and my kids to communication networks cloud as well as the i am d and those are foreign markets to be a slightly obviously looks late i am be a performed very much better than that it was at fifteen percent sequentially can you help us pars with in that you know how the industrial medical defense and automotive what what did you seen the quarter which one the stronger which one was weaker and the same for communication networks it came a little bit it was down peterson so what was weaker than you had expected can you just talk about the optical networking wireless just getting into more details and me to the
spk_2: and markets that yeah at me their cover your first question in any got a non industrial medical defense in automotive for so our overall the man was there are our biggest challenge was the getting the materials movie you know we had out of that a lot on this segments and there was nicely up a fifteen percent when i said better like is just getting more materials on communication side but again the man was actually very strong arm on allow key markets as such as a cloud networking systems ip it in optical system five g e it was all challenging getting the arrive material on time so a good thing as i said and not been i'll prepare statement that demand is there the that you know it's it's all about it as you know working very closely suppliers and our customers and getting enough material but that good thing is the man is there it's all about nice occasion
spk_10: but it may be the second one alaska question declared on you know nothing inventory was up twenty percent sequentially how much of that inventory in peace corps would you say is because of the component cause still going up in the december quarter horses says actual pieces of inventory going up in in your inventory meaning like is it is that increase really does because of inflation and because of cost increase from the suppliers or is it that you're actually have holding more inventory that the that will help you and shipments from for
spk_4: yeah the i think it's a good question replace i think it's a bit of both honestly i think first of all you know i think we are out there buying inventory with the hopes that some of the really constrain parts are gonna come through and some time
spk_5: and they don't so a tender in our per our conversations with our customers fair on the side of the fact that some of the most constraining part will come through and so we have to make sure we have the but i'll call the secondary or the tertiary bottlenecks in the in the bomb are covered so part of it is is the number of yeah
spk_4: ned's but then you're absolutely right those units that we are tracking down our are costing more and so that consequently means that it's not just the number of units it's also the cost of those units in a particular some of these harder to find out you had that aren't the primary battle
spk_5: mac but are the what i call the second error the tertiary bottleneck in the bombs so it's a it's a combination of both
spk_10: oh he thinks of the details on that kind of he hinted maybe just for my last question they ask you on t p s segment the margins looks like as he clenched the were down by one hundred and twenty bases planes are just what were some of the reasons for that and can you help us think about you know they're coming article it has week
spk_11: think about fiscal twenty two how should we think about seasonality in the cps business but as it has components and has products and services saw anything about like revenue seasonality and and margin
spk_10: seasonality in typical twenty two going from one quarter to another
spk_5: yeah sure so that let's take the seasonality question first and then i'll circle back to that too bad with to the seat to cbs questions so get over all season on you know historically seasonality we've been down in alcoholic three to five percent in our second quarter due to seasonality
spk_4: and yet there are probably will be some of that on it's hard to tell given the backdrop of the supply constraints and sell it our hope and as you can see based on our guy in says to the extent we do experience some seasonality in certain parts of our business will be able to me
spk_5: make up for that on a revenue perspective in terms of the are chasing down more parts and are being able or
spk_12: more of a thought so
spk_5: yet idled i don't think is zero seasonality but our hopes are to the extent there is seasonality added we can help offset that through more shipments of the products by chasing down more parts i think i'm gonna cbs question i think you know again when you think about cbs margin get to remember that better it's a diverse set of businesses inside of their and so they the biggest driver around margin is really around max and so are a lot of times we'll have lumpy know as inside of any one of those businesses and side of the overall cps segment and i don't drive margins and so i know we hope over time obviously we expect overtime those margins to go up by it just so happens this quarter the mix wasn't what we had hoped for and consequently a margin was down a bit
spk_10: okay thanks all the details and congrats on the song into the kitchen and cord
spk_13: thanks thanks who
spk_0: unix next question touch him the line of june suva of seats in atlanta something and a gym
spk_14: good evening thank you so much hi i can't remember my memories right on his back into my life in and it was around two hundred million are just more than that of supply constraints that you can get shipped law school those my memory right on that and if so do you have a number of this corner just curious about how much more
spk_2: are you he could have shifted became gave your memory and edit your memory better than elephants peg yeah i percent correct answer was about to marry the last quarter and we think the best of our analysis allow scores were similar we should we call it that blast person but similar to the corner before
spk_14: okay and then when you talked about calm your forward corner growth of revenues flattens i didn't know to the dps looks a little lower corner of according to what do the like higher compensation employee inflation costs or more makes was trying to get my head hands around y e p s one also be kind of slaps yeah so let me let me try that one and then they occurred you can add to a moron
spk_2: first of all as as we look at the border ah there we are plenty of revenue cross all the markets the and know and most of our customers want it more than know why were we able to shape today was so it's all gonna come houses the mix is gonna come to an end as segments so to so i asked him at that's all we are guy in today but if we if we can get more avenue wild lot of those things get fixed
spk_5: yeah i'd say year is absolutely right it always comes down to mix and and again what we can ship depends on what were able and get from a supply chain perspective but there are you know to other things that you mention i think first of all ah and our fiscal que en we typically have some benefit from holiday shut down especially in in the united states so you have adding keyuan you don't have that and que to i think the other thing that you typically having que to is you have the resetting the payroll tax paid so it usually gets kept out in the us towards the end of the face it the end of the calendar year and a restarts that the beginning of the calendar year so that it's too cute are begging fiscal quarter i'm so in addition to mix with your he mentioned i think those are two other factors that have impact on our cue to barging guides
spk_14: three and then on things with the supply chain still tight him stable tighter actually getting looser from from where you're sitting at a good a closer towards muslims
spk_2: i think there's a lot more planning been going on as we know we beat him in in this scenario for almost a year plus ah so the lot of work being done between the earth you know customers than ours and our key suppliers and this are we working out to to get some kind of normality into this but yeah my is i said are not prepared statements that this will continue we believe that we gonna see some improvements in second half of he was starting to see some improvement on saddam components but right now you have shortages are those than anything from pure raw material like the and i love the known steel to the met semiconductor so just getting everything when you needed that is a great a glimpse and we're learning to work with at now and okay use it anymore did this cues i didn't we gotta beauchamp supply chain management in place you know we gotta one global id system will of the week we connect with our customers we talk to our customers and suppliers and a daily basis while efficiency is not very good because we're not that getting proper loading a daily basis so we have been as we can improve on some of the materials we can be lot more efficient so we just learning how to work with at bought the material shortages and call the the our so it's just that i get back to this is normal
spk_14: wow and so has the dust normal now we know kurt mention working down and until i went to normalize why not hold some buffer inventory there there's a know
spk_2: well hopefully this doesn't happen on a cold the twenty three or twenty four twenty five are earthquake or strider trade wars or who knows what
spk_4: while we i would die i think when comes to inventory we are working very close to our customers on this we just don't bring inventory for can bring in inventory sake here it's a it's a very good this is a higher percent coordinated that each of our customers understanding exactly what we need to bring in and this has gotta feed my contract
spk_5: or a purchase or yeah jim i just to clarify i'm in missouri said to supply constraints we expect to it's really and of this calendar year ah and so there really isn't an opportunity at this point to even build buffer of any sort of critical components so i'm not sure enough down the road that may be an option and twenty twenty three are that our customers choose to do five in these times they're still
spk_14: very much a constraint in terms of especially some of these custom semiconductors
spk_0: and as cranking well congratulations to you and your team for managing to censor challenging time and you so much a text him
spk_15: in next question comes from the line as consensual on of craig hang on capitol hill i do something hello christian it just one good question or maybe to hear but one is far as clarity some of the i'm component shortages that you alluded to seen in the second half of twenty two the to expect some improvement in a in components can can you elaborate on on what you specifically seen that you know didn't tell me your customers good
spk_2: at that are allocated way for start you know that can lead serve up like silicon healthy them or that of the raw materials commenter any that the clarity be great so let me let me make something clear and i'm not an export them and annoying the were i can forecast one is going to happen some of whom and i say we only hoping the second have will be better some of that is probably wishful thinking number two really is what i'm hearing from customers and some customers are getting that allegations we we know that are some customers want to hurt really bad let's say for last two quarters and now they're getting more more more party really the early from a customer to customer and especially around the costume good got from products everything else is just the you know planning better and working with the supplier of lot closer and lot of the things that are location a christian and and doesn't doesn't matter who calls out of the and all our customers or anybody else and we getting the same answers
spk_15: so but it had something that we're working with i i think with weekend we'll get we'll get better definitely how much better that's a big question
spk_2: he okay that makes it and then as far as the inventory is concerned you know what percentage of by inventory is whip versus finished goods and and added that the compared to it though say two thousand nine pm levels would definitely we are getting more raw material now than we did in two thousand and let them know nineteen be made percentage wise based on on a project that we have an and and the reason exactly what cards was talking about few minutes ago bigger is there are certain parts we bring game than that of the something five percent ampersand that we have the way back to the month or two or three to get it and that's really what's happening at the same time or we are bringing critical parts as soon as they are available to us and then also drives a mentally so i would say in a working brought us to
spk_16: days is real hour cycle time for work and brothers very short because the it is you know we are in a environment the we operate one thing that it that's i mean are we doing right nice creating lot more flexibility with doing thing that i didn't even know we can do
spk_2: a couple years ago
spk_15: so we learn lot because we have to create the flexibility to be able to to deliver the is critical components to our customers okay there that that that great and then i guess on my last question has to do you know with potential and the day in this environment you know skill is becoming even more and more important
spk_2: and supply chain partners that are obviously become mean in a front center of everybody's mind ah to give us an update if it if he has are looking at different stages of or in a different geography is are different applications or are they're just that a lot of things for sale so how long of you know we are focused to girls we believe that that with a lot of work in the last eighteen months really looking what we need to do what direction we go to we believe that were as i said earlier we have a strong pipeline of of organic opportunities i'm from of was weeping and you know focusing expand in present relationship i think they're the the lot of good old the an exit think cause the my made that we have and then we looking at some your mind kids that that i believe that you know fits what we offer and we've been investing in some unique capabilities to to to expand and when in in of all these critical markets as i mentioned earlier medical defense in industrial and communication so a lot of a lot of opportunity there yeah we either that comes to him a we we look in other options to see what's available what makes business sense for us but does that mean i
spk_17: have to go we have to get all right now and that's that's my put us on focus on the wrath of the management
spk_18: ah great i've read lot of good quarter got it wasn't thing oppression lot of good stuff going on so anyway i'll put it that we have time for one more question please
spk_2: next question comes from the line of angeles orders from of said that you laddie something
spk_19: go on yeah
spk_20: i can hi group my question the another my questions have been asked the lady been
spk_2: get a house when you talk about the mouth wouldn't for the full scale two thousand and twenty two you're talking about polygraph if i were talking about did grow a mustache another man's between the good growth and how he growth math i open market with acknowledge what other that as as i said my english is not the best so love good good growth up trying to be on piano we we feel we can do better them up with a yeah we had a strong quarter but i don't think we will say that the you know we would we'd definitely could have done better if we got more materials in and internally are get of venue have bought shortages all the time you efficiencies another
spk_20: good so we know we can do better at the same time on it would be in the planning to to really find a way to grow this company so there's a lot of a thing they're going behind the scenes and hopefully we'll be able to flow mode of that as would resolve some of these and material shortages
spk_2: thank you and the author is here am not about the backlog that be p i think you'd be prompted before about you don't think any of that is non perishable not add these the silva see that are do you think some of his any risk to that maclin yeah work on your we weren't very close with our customers especially right now to under than the exactly what they are real demand is the so within certain bro a program we know and i'll got some it communicates with as they buy him they buy a little bit more than than me today but we see that plans for long term so we film i would say if i look at that are back luck out and eighty to ninety percent of our
spk_20: backlog that we feel pretty comfortable i think we know enough in details the you know we're very close to our customers that i feel comfortable that he looks good and will continue to look good at least for that of this money to
spk_2: auto thank yeah that was awesome and congratulations on the great technically some a thanks alot appreciate it well ladies and gentlemen that's all we have for today
spk_0: if we did not all the question please ridge back to asa and the will definitely get back to you with at of with talk to next ninety days from now
Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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