Sanmina Corporation

Q4 2022 Earnings Conference Call

11/7/2022

spk06: Good afternoon and welcome to the San Munoz fourth quarter and fiscal year 2022 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist 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 telephone keypad. To withdraw your question, please press star then two. Please note that this event is being recorded. I would now like to turn the conference over to Paige Melching, Senior Vice President of Investor Communications. Please go ahead.
spk00: Thank you, Cole. Good afternoon, ladies and gentlemen, and welcome to Sandmina's fourth quarter and fiscal year 2022 earnings call. A copy of our press release and slides for today's discussion are available on our website at sandmina.com in the investor relations section. Joining me on the call today is Yuri Sola, Chairman and Chief Executive Officer.
spk02: Good afternoon.
spk00: and Kurt Azima, Executive Vice President and Chief Financial Officer.
spk04: Good afternoon.
spk00: 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. 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 the 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 company's annual and quarterly reports filed with the Securities and Exchange Commission. The company is under no obligation and expressly disclaims any such obligation to update or alter any of the forward-looking statements made in the earnings release, the earnings presentation, the conference call, or in the investor relations section of our website, whether as a result of new information, future events, or otherwise, unless otherwise required by law. Included in our press release and slides issued today, we have provided you with statements of operations for the quarter and fiscal year ended October 1, 2022, on a GAAP basis, as well as certain non-GAAP financial information. A reconciliation between 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 excludes restructuring costs, acquisition and integration costs, and non-cash stock-based compensation expense, amortization expense, and other unusual or infrequent items. 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 would now like to turn the call over to Yuri Sola.
spk02: Thanks, Paige. Good afternoon, ladies and gentlemen, and welcome. Thank you all for being here with us today. Please turn to slide four. First, I would like to take this opportunity to recognize the Samina leadership team and our employees for doing an exceptional job. So to you, Samina team, thank you for delivering strong and consistent results for the fourth quarter and fiscal year 2022. And now let's keep it up. For the fourth quarter, Samina delivered strong and consistent results. We had a strong broad-based revenue growth, margin expansion, and EPS growth. We delivered solid cash flow. Again, exceptional job by Samina's team. Despite ongoing supply constraints in this microeconomic uncertainty, these results are a reflection of our continued focus on execution of our strategy. Now let me give you a quick overview of our new joint venture in India, which closed on October 3rd. Please turn to slide five. We are very excited by joint venture with Reliance, one of our leading companies in India. Samina has been operating in India for 12 years. We established state-of-the-art manufacturing technology center of excellence. on high technology mission critical markets and servicing customers around the world. We are leveraging reliance expertise in Indian business ecosystem and Sanmina's technology in manufacturing expertise. This venture is capitalized with over $200 million of cash to fund future growth. The goal is to accelerate growth in India by focusing making India strategy. We are planning to build a world-class engineering, technology, and manufacturing company in India. So for the rest of the agenda, we have the Kurt, our CFO, to review details of our results for you. I will follow up with additional comments about Samina results and future goals. Then Kurt and I will open for questions and answers. And now, I'd like to turn this call over to Kurt. Kurt?
spk04: Thanks a lot, Yuri. If everybody could turn to slide seven. As Yuri mentioned, in the fourth quarter, our team did an outstanding job delivering strong revenue and profit growth as well as cash generation. D4 revenue of $2.2 billion grew substantially by approximately 9.1% from the prior quarter and exceeded the high end of our outlook of $1.95 to $2.05 billion. This was primarily due to strong customer demand and excellent coordination with suppliers and customers to mitigate material challenges. Non-GAAP gross margin was 8.3% compared to 8.4% in the prior quarter, primarily due to product mix. Non-GAAP operating margin was 5.6% compared to 5.5% in the prior quarter, primarily due to operating expense leverage. Non-GAAP fully diluted earnings per share grew significantly by approximately 15% to $1.50 compared to $1.30 in the prior quarter and exceeded the upper end of the outlook of $1.27 to $1.37 by 13 cents. Finally, Q4 GAAP fully diluted EPS was $1.08. Now please turn to slide eight. This slide shows the quarterly trends of our financial results. We continue to deliver improved financial performance despite the challenges associated with the supply chain constraints. Nogap gross margins have ranged from 8.1 to 8.5 over the last five quarters. In addition, Nogap operating margins have been 5% or greater over the last four quarters and 5.5% or greater over the last two quarters. Earnings per share grew from 95 cents in the fourth quarter of fiscal 21 to $1.50 in the fourth quarter of fiscal 22, a 58% improvement. Please turn to slide nine. Q4 IMS revenue increased to $1.8 billion, an increase of 10.8% over the prior quarter, primarily due to strong customer demand and excellent coordination with suppliers and customers to help mitigate material challenges. Nogap gross margin for IMS was 7.2 compared to 7.3 in the prior quarter. Component products and services revenue grew to $447 million, or approximately 4.4%. Nogap gross margin for CPS was flat at 11.9%. Now please turn to slide 10. Fiscal 2022 was a strong year driven by strong customer demand and operational excellence. Fiscal 22 revenue was $7.9 billion compared to $6.8 billion in fiscal 21, a growth rate of 16.8%. Operating margins improved from 4.9% in fiscal 21 to 5.3% in fiscal 22, primarily due to higher revenue and operational efficiencies. Earnings per share grew from $3.97 in fiscal 21 to $4.99 in fiscal 22, a growth rate of over 25%. Please turn to slide 11. We have a very healthy balance sheet, which provides us a competitive advantage. Cash and cash equivalents was $530 million. Between cash and availability under our revolver and other debt facilities, we have approximately $1.4 billion of liquidity. There were no borrowings outstanding under our revolver at the end of Q4. In addition, during the quarter, we refinanced our term loan to extend the maturity until September 2027. Inventory remains at an elevated level to support customer demand and due to supply chain shortages. Non-GAAP pre-tax ROIC was 34.1% for Q4 fiscal 22. Now please turn to slide 12. Cash flow generation was strong during both the fourth quarter and for all of fiscal 22. Cash flow from ops was 82 million in Q4 and $331 million for fiscal 22. Free cash flow was $34 million in Q4 and $201 million in fiscal 22. During Q4, we repurchased approximately 535,000 shares for $24 million, and for the year, we repurchased approximately 8 million shares for $317 million. Remaining share repurchase authorization at the end of Q4 was 164 million. Our capital allocation priorities have not changed. Our primary focus is, again, investing in the business to drive organic growth. In addition, we will opportunistically explore strategic transactions, debt reduction, and share repurchases. If you would please turn to slide 13. Let's talk about the outlook for Q1. As Yuri said, overall demand is strong, but there continues to be uncertainty related to supply chain challenges, as well as the macroeconomic and political environment. We expect Q1 revenue to be in the range of 2.1 to 2.2 billion. We expect non-GAAP gross margin to be in the range of 8.1% to 8.6%, depending on product mix. non-GAAP operating expenses in the range of $59 to $61 million, and non-GAAP operating margin in the range of 5.3% to 5.8%. We expect non-GAAP interest in other expenses of about $12 million. This total reflects the benefit of interest income of $2 million related to the approximate 2% $215 million investment by Reliance in our Indian joint venture, which closed subsequent to the end of the fourth quarter. In addition, we estimate an approximate $2.5 million non-cash reduction to net income to reflect our JV partners' equity interest in the net income of the Indian JV. We expect non-GAAP tax rate of approximately 17.5%. and non-GAAP fully diluted share count of approximately 60 million shares. When you consider all this guidance, our outlook for non-GAAP diluted earnings per share is in the range of $1.41 to $1.51. We expect Q1 CapEx to be about 50 million, driven by growth of new programs and to support future growth. We expect Q1 depreciation of around 30 million. In summary, demand remains strong across our customer base. We're confident in our business model and expect the company to continue to deliver strong operating leverage over time. I'll now turn the call back to Yuri.
spk02: Thanks, Kurt. Ladies and gentlemen, let me add a few more comments about our financial highlights for 22 and a fourth quarter. I will also review with you our end market outlook for the first quarter and fiscal year 23. As you heard from Kurt, we delivered strong and consistent results for fiscal year 22. Revenue grew nicely of 16.8% to $7.89 billion. Operating income improved to 5.3%. And we did exit the fourth quarter at 5.6%. Diluted earnings per share were at $4.99, and that grew nicely at 25.6%. We did exit the fourth quarter EPS of $1.50 per share. Our Sunamina team has done an outstanding job as we continue to differentiate our industry-leading capabilities, and all of this is translating into growth and margin expansion for Samina. Please turn to slide 16. Let me talk to you now about revenue for a four-quarter buy-in markets. For industrial, medical, and automotive, our revenue was $1.288 billion, quarter over quarter of 5.7%. Communication networks and cloud infrastructure was 915 million, and that growth was quarter over quarter of 14.2%. For industrial medical defense and automotive, we saw a nice growth of 21.2% to $4.7 billion for a year. And communication networks grew 10.8% for a year, and revenue of 3.175 billion. We continue to diversify our end market successfully. For fiscal year 22, top 10 customers were 48.7% of our revenue. Look to build, continue to be strong for fiscal year 22 was 105 to one. Overall, strong demand and solid backlog for the future. Please turn to slide 17. Now let me talk to you about competitive advantages in the markets that we serve. Some of the key differentiators. Samina is a customer-centric company. Samina is built around our customer needs. It is in our culture. We are a critical partner to our customers. We deliver deep technical market expertise and superior performance. We provide complex, mission-critical products and service in our customer end-to-end. We partner with customers from design and engineering through entire product lifecycle. Samina has embedded resiliency led by our strong global management. Supply chain simplification is industry-leading supply chain. and is our vertical integration advantage. Samina's structure is focused on a regional manufacturing on global scale. We use standardized equipment and standardized processes globally, copy exact. And this all is managed by one single global IT system. This smart manufacturing system gives us, gives our customers this ability globally at real time. But the most important is that Samina delivers predictable and consistent performance globally. Please turn to slide 18. Now let me give you some highlights of Samina's focus markets. Samina has well-diversified customer base in heavy regulated markets. We expect to continue to expand our end markets that require greater technical capabilities that gives us a competitive advantage to win in these mission-critical markets. We provide technology leadership through all of these markets. For industrial markets, we focus in area of renewable energy, smart grid management, test and measurement, security and public safety equipment, optical inspection equipment, industrial X-ray equipment, semiconductor capital equipment. As you can see, we're well diversified in this industrial market. Why we're so excited? This is a diverse and growing market for us. We established a long-term customer base here. And still, this market is at the early stage of outsourcing. We're also working with the local governments for initiatives to grow regional market manufacturing. We leverage Samina's higher technology components as we continue to build full systems globally. Please turn to slide 19. For medical market, we are well established in this medical industry for over 25 years. Areas that we focus on is diagnostic imaging, such as MRI, CT scan equipment, patient monitoring equipment, laboratory biotech, therapeutic surgical equipment, and medical delivery system. Why are we excited in this market? We're industry exports providing critical services to this industry. We continue to see outsourcing opportunity at the large scale. Samina has established significant processes, medical registration, and certification globally that allowed us to lead in this industry. We also have learned long-term customer base in this market. Now, please turn to slide 20. Let me talk to you about defense and aerospace market. We serve this market through our defense divisions for products under the SEI brand. We've been in this business for over 60 years, and through Samina's Technology Components Group. Samina is a well-recognized brand in defense and aerospace industry, and most important, we have proven results in this market segment. Our focus area is around aircraft systems, both defense and commercial, tactical communications, unmanned aerial systems, satellite systems, and others. Why are we excited? Samina serves products, components, and EMS offering from design to full system in this market. These projects have a long product cycle, which is a benefit to us. This is a high complexity, heavy regulated market, and we earn long-term customer base. We provide rigorous security clearance and certification. We have industry-leading structure in place. As we look at the market, we believe the new programs that we want will drive the growth. This market is an early stage of product outsourcing, and we believe we have a lot of upside in this market. Now, please turn to slide 21. Let's talk now about automotive market. We see a long-term growth in this market segment. We focus on electrical vehicle. Basically focusing on building stuff around the electrical motor power systems, safety systems, electronic control systems, LIDAR and radar systems, charging station, and infotainment. Why are we excited? This industry is new for us, but we established last and last five to ten years. Growth in EV and advanced automotive electronics is unlimited right now. as we see a lot more technologies going into these cars. We are leading, and we are working with the industry leaders, and we expect to see nice growth for many years. New programs are also driving the growth for us. Please turn to slide 22. Let me talk to you about communication networks and cloud networks. The focus area for us has been long-time 5G mobile networks, optical packaging, switching, and IP routing networks and cloud infrastructure. Why are we excited? Well, first of all, we have a deep industry expertise in this market and long-term customer base. Demand for greater bandwidth and faster data is continuing. Greater need for storage. Our long-term relationship with these key market leaders will continue as we continue to leverage Samina's technology for this market. New and existing programs are driving the growth, especially in a cloud networking side of our business. Now please turn to slide 23. Now let me talk to you about the first quarter fiscal year 23. In summary, as you can see, Samina does not serve consumer markets at all, but our focus is on high-complexity, heavy-regulated markets. The key markets for Samina, number one is industrial, medical, defense and aerospace, automotive, communication networks, and cloud networks. We see strong demand across all end-market segments for this first quarter. I can also tell you the new project wins are continuing to drive in the growth for us. We expect supply chain constraints to continue through the first quarter and into calendar year 23. But good news is that things are getting better. Please turn to slide 24. Let me give you some more information of what we see today for fiscal year 23 and beyond. We're excited about Samina's future, and we've got a position to build on. For fiscal year 23, we expect to see nice improvements over fiscal year 22. Revenue growth will be driven by existing and new programs. We see strong forecasts from our key customers. We are well diversified in the growth markets, and we also see a strong pipeline of opportunities that we are working on right now. Margin expansion to be driven by revenue growth in our IMS business, our technology component business, our defense products, optical packaging products, and other services. Also, we see improving our manufacturing efficiencies as component availability improves. And with our lean OPEX leverage as we continue to drive efficient structure. So for 23, we expect to deliver strong cash flow that will fund the growth for fiscal year 23 and beyond. Now please turn to slide 25. Let me talk to you about our priorities. Our priorities have not changed. Our strategy is proven to deliver results. We'll continue to build around our customer needs. attract and retain long-term customer partnerships with leading companies in a growth industry. We're going to continue to invest in a leading technology, continue to tune up lean and flexible global structure that we have, and most important, continue to invest in the talent. This gives us competitive advantage that supports attractive margins regardless of business environment. Definitely we are focused on sustainable and profitable revenue growth. We have a great customer base, but we also focus on a customer that we don't have in this special industry that we drive every day. You should see continued strong cash generation from us. And the key here is to optimize our capital structure to drive growth for fiscal year 23 and beyond. You have our commitment that will continue to be focused on maximizing shareholder value for short-term and long-term. The key here is to unlock total value of Samina capabilities. We can do more, and we still have a lot of leverage as Samina business model. Please turn. to slide 26. In summary, for a fiscal year 22, we delivered solid execution, consistent and predictable results. We will continue to diversify revenue growth with these key market leaders. We are well positioned to navigate any market dynamics that comes up. Samina has a healthy balance sheet to build on for fiscal year 23 and beyond. Samina should continue to deliver strong cash flow from operation to fund the future growth. Again, we expect revenue and EPS growth and margin expansion in a fiscal 2023. So ladies and gentlemen, now I would like to thank you for all your time and support. Operator, we're now ready to open the lines for question and answers. Thank you again.
spk06: Thank you. And we will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. And at this time we'll pause momentarily to assemble the roster. And our first question today will come from Rupalu Bhattacharya with Bank of America. Please go ahead.
spk01: Hi. Thank you for taking my questions. Maybe this time. Hi, Rupalu. Hi, Yuri. How are you? Maybe this time I'll start with a couple of questions for Kurt and then I'll come and ask you a question. Maybe, Kurt, you know, I'll start with slide 12, which is, you know, the capital allocation priorities that you laid out. And, you know, the share buybacks, you know, you said the priority hasn't changed and share buybacks are the lowest on the list. But if we look at this year, it looks like you spent $317 million on buybacks, but that compares to a free cash flow of only $200 million, right? So, I mean, if I do the math, if I'm doing it correctly, it looks like, you know, share buybacks have added more than 55 cents in earnings this year. So I'm just trying to understand, you know, how sustainable is this allocation strategy of, you know, you invested 150% of your free cash flow in share buybacks. And even if you can, you know, you have net cash on the balance sheet. But, you know, does that, you know, maybe, you know, do you think that's a good use of cash or is it, you know, if you have all of these 5G and other opportunities, I mean, does it make sense to maybe invest in organic growth? So just trying to understand, you know, how you're thinking about capital allocation in fiscal 23 and if this is sustainable, this level of buybacks versus free cash flow.
spk04: Yeah, so first of all, I don't think, as I mentioned, I don't think our capital allocation priorities have changed. It's always been focused primarily on funding organic growth. I didn't really number the last three. I said each of the other three strategic transactions, debt reduction, insurer purchases, we would do opportunistically. To me, given the volatility in the market that we saw over the last year, I do think it created a good opportunity to buy back more shares than we typically have bought back. That being said, if you look back from FY14 to FY22, we bought $1.2 billion in shares. So our business generates a fair amount of cash. Like I said, our first priority is always to invest that in the business, and we did do that. We invested about $130 million of CapEx last year and intend to do more this year, so that's our priority. But we'll continue to look opportunistically at share buybacks depending on how the markets are.
spk01: Okay, thanks for that. Maybe another question for you, you know, the margins have been good on the operating margin level. And one of the things that has helped Sanmina, it looks like is, you know, even though in fiscal 22, you grew revenue 17% year on year, but OPEX only grew less than 2%, like 1.7%. Essentially, you kept it flat at 239 million of OPEX. So, I mean, if you're guiding for fiscal 23 revenue growth, how should be what are the puts and takes in terms of OPEX growth for this fiscal year? I mean, given labor costs and given inflation, how are you thinking about OPEX and what are the what are the levers you have to keep OPEX again flat if that's possible?
spk04: Yeah, well, we, again, I think as Yuri mentioned when he was talking about the FY23 outlook, we expect to get leverage in OPEX. That does not necessarily mean the nominal dollar amount of OPEX will stay flat, but as you look at OPEX as a percent of revenue, I would expect that to continue to go down. I think we have, as Yuri mentioned, we have the infrastructure to support a much larger business And so we do expect to get a fair amount of leverage there, as well as ultimately leverage at the gross margin line, which gives us confidence over time that our overall margins will expand.
spk01: Okay. Okay, thanks for the details there. Let me ask Yuri one question. Yuri, in the outlook for both the first quarter and fiscal 23, you said that you know, the company can grow revenues year on year. When I look at the first quarter guide, $2.15 billion at the midpoint, that's pretty strong growth. I mean, that's like 22% year on year, you know, compared to the first quarter of fiscal 22. But when we look at the year on year compares as we go into the second quarter, third quarter, fourth quarter, they get progressively more tough, right? So, I mean, it looks like every quarter the compares are 12% or so tougher because you've had strong growth in the second half of this fiscal year. So how should we think about this growth? Is there any way that you can quantify or qualitatively tell us how much growth you think fiscal 23, because you're guiding 22% growth for the first quarter. Is that something sustainable for the rest of the year? And then first half versus second half, how should we think about growth rates moderating as we go through the fiscal 23? Thank you.
spk02: Yeah, Rupu, let me – I'll definitely answer every one of your questions, but I want to add to the questions you asked Kurt earlier. I think key for Salmina, and as you look at the – how can we maximize the shareholder value? We still believe that our stock is a great value, and as we look at the opportunities for that, as you know, we have very strong balance sheets. And we have a lot of options to maximize the shareholder's value. We just need to be smart about it. And we believe the smarter thing for us was last year is to continue to buy the shares. And as Kurt said, we're going to be very opportunistic to maximize the shareholder value. So back to your question. First of all, I'm not really concerned about year-over-year growth. I'm more concerned about, you know, this quarter and next quarter and quarter after. You know, our company – is in a good position. We believe that we have a good visibility in front of us. I think if anybody grows in a market out there, I think Samina will do just as well, if not better. We still operate in with a lot of shortages. Once we resolve all these shortages in industry, I believe there's more opportunity for us, especially when it comes to productivity. As I said earlier, I think we can do a lot better than what we're doing today, and that's my personal focus. It's not just a comparison, but, you know, we don't know what's going to happen. You know, if you look at the four months out, you know, but what we see in front of us, we're very optimistic what we can do.
spk04: Yeah, Ruth Blue, I mean, we tend to take one quarter at a time, right? I mean, this is, well, certainly our business and our demand, as Yuri mentioned, the customer demand is strong. We realize, you know, we read the headlines like everybody else. And so, you know, I think we're going to just take one quarter at a time here. But we do feel good about the business, and we do see strong customer demand here. That's very broad-based at this point, and as Yuri pointed out, we don't do a lot and we didn't do anything in the consumer side, which is where you're seeing the impact of some of the things going on in the economy.
spk01: Thanks for all the details there. I'd like to have a follow-on with Yuri in terms of the revenue growth, but I mean, thanks for all the details on the share buyback program. I mean, I understand that, you know, if buying back shares helps because, I mean, the share count also is relatively low. But I'm just thinking if, you know, you have so many growth opportunities, maybe, you know, doing other things like inorganic growth or other things to grow organically, maybe that, you know, would also help. But I understand what you're saying. Can I just follow up on my question to Yuri? Sure. Just in terms of the growth from the various end markets, it's a little hard to quantify because you've got all of these end markets that are grouped together. So when we look at IMDA, like the industrial medical defense and automotive segment versus communication networks and cloud infrastructure, which segment do you think has more chance of growing faster in fiscal 23? Because I think you're seeing strong growth in 5G, but also in You have opportunities in industrial. So can you help us quantify, like, you know, just qualitatively even if you can talk about the relative strength for these end markets as you see them today? Thank you.
spk02: Thanks for all the details. Yeah, Rupal, as you've seen it last year, we grew our, you know, industrial medical defense and automotive business at a higher rate than communication networks and cloud infrastructures. So we're very optimistic in that group of industrial, medical, and defense, and automotive, as I mentioned. We're well positioned in those four key markets. We're very strong in communication networks, especially for new products. As I said in my prepared statements on cloud networks, we expect to see a fair amount of growth. And by the way, in that group, I don't like to break it down at this time, but we have a lot of business in the cloud networks. and we expect a fair amount of growth.
spk01: Okay. Thanks for all the details. Appreciate it.
spk02: Thanks, Rufu.
spk06: And our next question will come from Anja Soderstrom with Sudoti. Please go ahead. Hello, Anja.
spk03: Hi. Thank you for taking my questions, and congratulations on the good quarter and outlook. So I'm just going to delve a little bit further into this year-over-year revenue growth. So you think you're going to be growing sequentially throughout the year? So the guidance you give for the first quarter is sort of a starting stepping stone for the year?
spk02: As we said in a prepared statement, Anya, we look at the first quarter. We have a strong backlog, strong demand. It's all about getting all the components, so we feel very confident. We'll take one quarter of time, but we do expect to have a better year on top line and a bottom line in 23 than we did in 22.
spk03: Okay, thank you. And could you just speak a little bit about the backlog and quantify that and how you're able to backfill that with new orders?
spk02: Well, today we can ship even more if we can get all the critical components in the first quarter. And, you know, if we look at our forecast from our key customers, they look good for 23. And there's new programs that we have that we already want that we basically have. waiting for equipment to install for the growth, and we'll be spending a few more extra bucks as we are investing for the growth. So we're pretty optimistic about the future, but we'll take one quarter of the time on you.
spk03: Okay, thank you. And what I hear from your peers is that the supply chain challenges are sort of more deep in their customer relationships, and they're sort of order visibility and lead times with their customers so they have better visibility into their sort of planning? Do you see the same for you?
spk02: Well, we have a very good visibility. Our customers have been very nice to us in giving us a lot of forecasts that are, you know, 12 months, 18 months, some cases two years long. but we are still suffering a little bit on shortages. It's getting better, as I said, and we expect to see some better improvements in 2023. But for this quarter, definitely we continue to see similar challenges as we had last quarter, but it's getting better.
spk03: Okay, thank you. And then have you seen any sort of changing sentiment among your customers? I know you're in very solid end markets, that's probably more favorable from cyclical tailwinds. But have you seen any sort of changing sentiment?
spk02: As I mentioned in my prepared statement, we don't do any consumers. The markets, they win like medical, defense, automotive, industrial, cloud, and things like looking good. We had a couple customers that were building COVID projects. That slowed down, but that's about it.
spk03: Okay. And have you seen any sort of changes in the competitive environment?
spk02: There's always competitive environment. I only worry what we do. I don't spend a lot of time what my competition does.
spk03: Actually, I have one more on your capex. It was a little bit higher this quarter, and you're guiding for the same for next quarter. Is that something specific going on, or is that going to be the run rate for next year?
spk04: Well, it's always hard to predict taxes. I think, again, if you look for the overall year in FY22, I think it ended up being about 17.4, and we're forecasting 17.5 for fiscal 23. But the tax rate always comes down to the mix.
spk03: Okay, sorry.
spk04: I thought you said tax rate, not CapEx. My apology. Well, now you learned about tax rate, too. Bonus question. Yeah, I mean, look, I think as Yuri talked about, you know, last year CapEx was about 130. This quarter we're forecasting about 100. 50, you know, we are seeing growth, and we think there's opportunities both in terms of new programs and as well as, you know, expansion with existing customers. So our capex was 48 last quarter. We expect it to be about 50 this year, and I'd expect it to be, you know, in that similar ballpark as we move forward, but it will all depend on demand and program wins.
spk03: Okay, great. Thank you. That was all for me.
spk04: Thanks, Sonia.
spk06: And our next question will come from Jim Suva with Citi. Please go ahead.
spk02: Hello, Jim.
spk05: Good evening, and congratulations to you and your team for just a really strong year of performance.
spk02: Thanks, Jim. Thanks, Jim.
spk05: Yeah, in your prepared comment and then follow-up on the Q&A, I can't remember one of you mentioned that 2023, the fiscal year, should be stronger than 22. There's two ways to interpret that. One means sales growth, but another way to say that is some people may view that as revenue growth to be even higher or better than the growth that you just had. You just had a remarkable year of up 16% or 17%. So can you help us understand when you say a stronger year in 23, are you just meaning dollar amount or actually the growth rate even being stronger?
spk02: So, Jim, let me – I said that, and let me kind of interpret that in a simple English. First of all, to us, most important is profitable growth. Number one, we expect to improve our financial results for the 23 over 22, and we expect to see the growth. We know it's there, and that's one of the reasons we are spending a little bit more money, you know, bringing new equipment and some of the new processes. that will need us for growth, not just for 23, but also for 24. These are the, you know, right customers that we have a very strong partnership with and so on and so on. But definitely we do expect to have a better year, both on top line and a bottom line in 23 over 22. Right.
spk04: And Jim, that's measured in dollars. We're not talking about growth rates, right? So he's saying higher revenue, higher EPS and earnings. We're not necessarily comparing growth rates year over year.
spk05: Yeah, that's what I assume. And then on the new joint venture in India, congratulations. How will that be accounted for on your books? Is it consolidated or a minority interest line? And then what about CapEx funding for it? Is it now fully funded, or will there be capex flowing out of your statement of cash flows we should be thinking about?
spk04: Yeah, let me handle this. So we are consolidating financial results. So you will see above the line all the revenue and all the profits. But as I mentioned in the guidance, then we have to back out below the net income line our partner's share of the net income. So in this case, we estimated that to be a reduction of about $2.5 million. So as I said in the guidance, because of the cash that came in, we expect approximately $2 million more of interest income. But we do, based on the accounting treatment, have to back out 50% of the net income from for the JV, which we currently estimated for that quarter at $2.5 million. And that happens after the net income line, but before you calculate EPS.
spk05: Right. And then on the CapEx, does it all show up 100% on your books?
spk04: Yeah. So it's consolidated. So it will show up on our books. But back to your other question, as you already pointed out, based on the investment The Indian entity is now capitalized with over $200 million of cash, and so that cash will be used to expand the operations there as necessary as that business grows, which is certainly our vision for the JV.
spk02: Okay. We have high hopes for India, and both companies are committed to make something very big.
spk05: And then strategically at that site or facility, are there certain end markets slash products that you think are, you know, on the early innings of, you know, ramping that we should just be mindful of? Because I assume that there are certain, whether it be communications or whether 5G rollout or something that's probably a lot earlier than maybe other things like medical devices, but I just may be backwards on that.
spk02: Yeah, we diversify, Jim, this operation very good. We got over 35 customers that really will diversify in a medical, industrial, definitely some telecommunication. Did I say medical? Having a medical and alternative energy system. But definitely, you know, we will be expanding some of the 5G networks and optical networks there.
spk05: Great. Congratulations to you and your teams.
spk02: Thanks, Jim, for your support.
spk06: And our next question will come from Christian Schwab with Craig Howland Capital Group. Please go ahead. Hello, Christian.
spk07: Hey, Yuri. Congrats on another great quarter and guide. On the joint venture in India, you know, obviously focusing on complex mission-critical stuff, you know, 100-acre campus, that seems to me that that should be a large revenue number over time. You know, I mean, could this – I assume that you did this joint venture to become an India-based company, which makes it a little bit easier to do any type of business there. Correct me if I'm wrong. But number two, could this be like a billion-plus dollar revenue business over time?
spk02: First of all, yeah, this joint venture is made under one goal, is to be an Indian company that can really, as you know, Indian place is not the easiest place to do. We believe there's a lot of upside in the Indian market, especially if you look three, five, ten years out. So, yes, we... We have plenty of space in this 100 acres, and we expect to expand in other parts of India. So, yeah, this better be big, Christian, or this was a bad move.
spk07: Right. When is it logical that it becomes easier for investors to understand that the business is beginning to scale at a high level?
spk02: Yeah, since we are, you know, putting these numbers, I'll turn it over to Kurt, but definitely we'll communicate it, and you'll have all the information. But, Kurt, do you want to add?
spk04: Yeah, I mean, what I would say is, as Yuri said, we're very optimistic about the opportunity here. Again, we just closed the transaction on October 3rd, so I think, you know, we'll have a lot more I'll say disclosure related to it as we progress and develop where we're going to take that business with our joint venture partner. So I think at this point, you know, all we can say is it's early innings, but we think that there's a lot of opportunity there. And as Yuri said, over the next, you know, three to five years, we expect this to become a very big part of the revenue. Great. That's fair.
spk07: And then in fiscal year 22, Kurt, did you have any 10% customers?
spk04: Yeah. In fiscal 22, we had two 10% customers. We will disclose that in the 10K when we file it in a couple days. Perfect.
spk07: And then just a little bit more color on the supply chain getting better. I know you guys talked about it still impacting December, kind of slightly impacting potentially the beginning of the year. You know, as we get, you know, through the middle of, say, calendar, you know, 23, do you believe the vast majority of the supply chain problems or headaches that you've been dealing with for quite some time now, that the majority of those will be over?
spk02: Well, if you look at the data, it should be by middle, hopefully most of it, big percentage result, but you never know. We'll see all on, you know, what goes, what happens with the market, but we do definitely expect better conditions when it comes to material next year than what we experienced in 22. Fabulous.
spk07: And then is that supply chain, you know, loosens, loosens, well... becomes more available for black with better word. Um, is that when we're going to really probably have a significant opportunity to meaningfully reduce the aggregate inventory dollars that we have? Um, I would assume the vast majority of that stuff is sitting around waiting for a few components to come arrive. Um, you know, so next year could be potentially a very substantial cashflow year.
spk02: Yeah. So definitely that's the focus, Christian, next year, and that's what we are driving to and we're putting the systems in place to accomplish that sooner than later.
spk07: Okay, great. No other questions. Congrats again.
spk02: Thank you, Christian. First of all, I'd just like to thank all of you for joining us today, and hopefully we answered most of your questions. If not, please give us a call. Other of us will be talking 90 days from now. Thanks a lot. Thank you. Bye-bye.
spk06: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
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.

-

-