SANM - NASDAQ

Good afternoon, ladies and gentlemen, and welcome to the Sanmina's Fourth Quarter and Fiscal Year 2024 Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Monday, November 4, 2024. I would now like to turn the conference over to Paige Melching, Senior Vice President of Investor Communications. Please go ahead.

Thank you, Ludi. Good afternoon, ladies and gentlemen, and welcome to Sanmina's fourth quarter and fiscal year 2024 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 on today's call is Jure Sola, Chairman and Chief Executive Officer.

Good afternoon.

And Jon Faust, Executive Vice President and Chief Financial Officer.

Good afternoon.

Before I turn the call over to Jure, 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 and the slides provided on our website. Please turn to Slide 3 of our presentation and take note of our 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 factors set 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, unless otherwise required by law. Included in our press release and slides issued today, we have provided you with statements of operation for the fourth quarter and fiscal year ended September 28, 2024 on a GAAP basis as well as certain non-GAAP financial information. A reconciliation between the GAAP and non-GAAP financial information is available in the press release and slides posted on our website. In general, our non-GAAP information excludes 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 it relates to the income statement measures will be directed at our non-GAAP financial results. Accordingly, unless otherwise stated in this conference call, when we refer to gross profit, gross margin, operating income, operating margin, taxes, net income, and earnings per share, we are referring to our non-GAAP information. I'd now like to turn the call over to Jure.

Thanks, Paige, and good afternoon, ladies and gentlemen, welcome, and thank you all for being here with us today. First, I would like to take this opportunity to recognize Sanmina's leadership team and our employees for doing a great job. So to you, Sanmina's team, thank you for your dedication and delivering excellent service to our customers. You finished the year with a solid momentum. For the fourth quarter, you delivered solid revenue of $2.02 billion and non-GAAP EPS of $1.43 per share. Again to Sanmina's employees, thank you, and let's keep it up. Now, let's go to our agenda for today's call. We have Jon, our CFO, to review details of our results for you. I will follow up with additional comments about Sanmina results and future goals. Then, Jon and I will open for question and answers. And now, I'd like to turn this call over to Jon. Jon?

Thank you, Jure, and good afternoon, ladies and gentlemen, and thank you for joining us here today. Before we go through the financial results, I want to thank the entire Sanmina team for their hard work and dedication and for executing a solid close to the fiscal year. Now, please turn to Slide 5 to discuss the P&L highlights. We're very pleased with our fourth quarter results as we delivered revenue of $2.02 billion, which exceeded our outlook of $1.9 billion to $2.0 billion and was up 9.6% sequentially. We saw sequential growth across the majority of our end markets and year-over-year growth in our communication networks and cloud infrastructure end market, which Jure will speak to in more detail as a part of his prepared remarks. Non-GAAP gross profit was $175 million or 8.7% of revenue, at the higher end of our outlook and up 20 basis points sequentially. This was driven by favorable mix in our CPS segment, which I will comment more on shortly, as well as focused execution and strong operating discipline. Non-GAAP operating expenses were $68.2 million, above our outlook as we continued to make targeted investments in the business to drive future growth. Non-GAAP operating profit was $107 million or 5.3% of revenue, in line with our outlook and flat sequentially, driven by the higher non-GAAP operating expenses that I just referenced. It's important to note that our non-GAAP operating margin continues to be in line with the 5% to 6% short-term range that we had previously communicated. Non-GAAP other income and expense was $2.8 million, favorable to our guidance driven by our strong cash flow results. Non-GAAP diluted earnings per share came in at $1.43 based on approximately 56 million shares outstanding, exceeding the high end of our outlook of $1.30 to $1.40. Now, please turn to Slide 6 to review the quarterly trends. As we have discussed previously, we expected FY '24 to be a transition year while we partnered with our customers across multiple end markets to adjust inventory levels, which ultimately led to a year-over-year revenue decline. However, we also said that we expected the second half of the year to be better than the first and we delivered on that commitment, as revenue flattened out in the third quarter and grew almost 10% sequentially in the fourth quarter, which puts us on a great trajectory as we head into the new fiscal year. In addition, we delivered non-GAAP gross margin of 8.7% for the quarter, a 20 basis points improvement sequentially and held it relatively steady throughout the year despite a fluctuating revenue base, driven by favorable mix, and strong operating discipline. Our non-GAAP operating margin was 5.3% for the quarter, which was flat sequentially and relatively stable throughout the year and was well within our 5% to 6% short-term outlook range. We also delivered strong non-GAAP diluted earnings per share, with our fourth quarter actuals coming in at $1.43, which was a 14% improvement sequentially, and we started to turn the corner with a 1% improvement versus the prior year. Now, please turn to Slide 7 to discuss the segment results. IMS revenue came in at $1.63 billion, up 10.1% sequentially, driven by growth across the majority of our end markets. IMS non-GAAP gross margin was 7.3%, down 30 basis points sequentially and 70 basis points compared to the same period a year ago, due primarily to unfavorable mix. We believe there is room for margin expansion in IMS and expect to see improvements in the new fiscal year. CPS revenue came in at $418 million, up 7.6% sequentially, driven by higher demand in multiple end markets as well as the two programs that were delayed in the prior quarter. CPS non-GAAP gross margin was 13.6%, up 210 basis points sequentially and up 280 basis points compared to the same period a year ago. We're pleased with the performance of the CPS business this quarter and we'll continue to focus on driving improvements going forward. Now, please turn to Slide 8 to discuss our fiscal year results. On the quarterly trend slide, I commented on how FY '24 was a transition year, but also how we delivered on our commitments and made a lot of progress with the business. To provide a few examples, as you can see on this slide, non-GAAP gross margin grew 20 basis points year-over-year despite the lower revenue base and was significantly higher than the two years prior to that. This was driven by the successful diversification of our business and strong operating discipline. While our non-GAAP operating margin declined 40 basis points versus the prior year, that was primarily due to the targeted investments that we made in the business to drive future growth and was still significantly higher than the two years prior to that. Similarly, while our non-GAAP earnings per share declined 16% versus the prior year, they were up 13% versus the fiscal 2022 results and up 46% versus the fiscal 2021 results. Now, please turn to Slide 9 to discuss the balance sheet highlights. As with the P&L results, we closed the fiscal year well and maintained a very strong balance sheet that I've referenced all year long. Cash and cash equivalents were $626 million, and at the end of the quarter, we had no outstanding borrowings on our $800 million revolver, leaving us with substantial liquidity of approximately $1.5 billion. We ended the fourth quarter with inventory of $1.33 billion, which was down approximately 4% sequentially. While managing inventory in absolute dollars is important, it will fluctuate based on customer demand, and that's why we believe it's most important to focus on inventory turns. Our inventory turns improved to 5.4 times this quarter, which represents a significant improvement from the 4.9 times in the prior quarter. This is a great result, but there is still room to improve and inventory turns will continue to be a focus area for us going forward. Our non-GAAP pre-tax ROIC was 23% for the quarter, well above our weighted average cost of capital and a solid improvement from the 21.1% last quarter. We continue to have one of the strongest balance sheets in the industry with no net debt and a low gross leverage ratio of 0.51 times, which puts us in a great position to execute on our strategy to drive growth and margin expansion. Now, please turn to Slide 10, where I'll talk about cash flow and capital allocation highlights. Thanks to disciplined working capital management by the team, our fourth quarter cash flow from operations was $52 million and came in very strong for the fiscal year at $340 million. Capital expenditures were $23 million for the quarter and $109 million for the year or 1.4% of revenue. This is in line with our historical levels of CapEx spending, which typically ranges between 1% to 2% of revenue. As we move forward into the new fiscal year, we will continue to make strategic investments in the technologies and capabilities required to strengthen our position in the market and to support our long-term financial objectives. Free cash flow was $29 million for the quarter and $231 million for the year, up $186 million versus the prior year. Now, turning to our capital returns to shareholders. During the quarter, we repurchased 945,000 shares for approximately $65 million, which equates to a total of 4 million shares for approximately $227 million for the year. Now, just to provide some more perspective, that means we returned almost 100% of free cash flow to shareholders. Going forward, we intend to continue to repurchase shares opportunistically as we still believe our stock is undervalued. Our strong cash flow performance gives us the flexibility to continue to invest in the business, while also returning capital to our shareholders through a disciplined and balanced capital allocation approach. To conclude on the fiscal 2024 results, I'd like to commend the entire Sanmina team for doing an excellent job in a very challenging market environment. At the start of this year, we explained to investors that it would be a transition year as we partnered with our customers to work through inventory absorption. While it certainly was challenging, we executed very well and ultimately delivered on three key priorities for the year. Number one, expanding gross margin; number two, making targeted investments in the business to drive future growth; and number three, generating solid cash flow, all of which helped us establish a strong foundation for the future. This is a testament to our resilience, our ability to operate in dynamic market conditions, and to deliver on what we say we will, which Jure and I, and the rest of the management team are very proud of. Now, please turn to Slide 11, where I'll cover our outlook for the first quarter of fiscal 2025, which is based on what we were seeing in the market and the forecast from our customers. Our outlook is as follows: We expect revenue between $1.925 billion to $2.025 billion. Non-GAAP gross margin of 8.4% to 8.8%, dependent on mix. Operating expenses of $62 million to $66 million. As a reminder, as our revenue grows, we believe our operating expenses will provide leverage as we have driven efficiencies in the organization and don't expect to make material increases. Non-GAAP operating margin of 5.3% to 5.7%. We expect other income and expense to be approximately $8 million. For the tax rate, we expect a range of 20% to 22%, which includes the final utilization of our US federal net operating losses, the expected impact of the Pillar 2 global minimum tax, mix of jurisdictional earnings, and other tax credits and incentives. We estimate an approximate $3 million to $3.5 million non-cash reduction to our net income to reflect our India joint-venture partners' equity interest. Non-GAAP EPS in the range of $1.30 to $1.40 based on approximately $56 million fully diluted shares outstanding. Please note that the new tax rate change has an impact of approximately $0.07 on the non-GAAP EPS outlook for the first quarter. Capital expenditure is to be around $30 million. And finally, depreciation of approximately $30 million. In summary, based on the demand signals from our customers and our first quarter outlook, we expect FY '25 to be a growth year. We have the right set of customers and capabilities to be successful, and I'm excited about the opportunities ahead. With that, let me turn the call over to Jure.

Thank you, Jon. Ladies and gentlemen, let me add few more comments about our results for the fourth quarter and fiscal year 2024, and I'll tell you more about our outlook for fiscal year '25 and future goals. Please turn to Slide 13. As you heard from Jon, our team delivered solid execution and excellent service to our customers. Revenue and non-GAAP EPS exceeded our outlook as we are starting to see better visibility from our customers. Most of our customers continue to burn through their inventories. I can tell you today that things are getting better. Sanmina's team continues to demonstrate resilience by delivering solid financial results. Non-GAAP gross margin and operating margin came in line with our outlook. We delivered sequential year-over-year growth in communication networks and cloud infrastructure segment, and sequential growth in industrial, medical, defense, aerospace, and automotive segments. To talk more about it, please turn to Slide 14. Let's look at the revenue by end market for the fourth quarter. As you heard from Jon, the revenue was up 9.6% sequentially. We saw growth in majority of our end markets. For industrial, medical, defense, and aerospace and automotive, that came in $1.253 billion. That was 62% of our revenue and it was up quarter-over-quarter, up 6%. Communication networks and cloud infrastructure came in at $765 million, that was 38% of our revenue and that came up at 16% quarter-over-quarter. Top 10 customers represented 51.3% of our revenue, and for our fourth quarter, we had no customers over 10% of our revenue. I can tell you that we continue to see solid bookings. Book-to-bill was 1:1 for our fourth quarter. Please turn to Slide 15. Now, let me talk to you more about fiscal year '24 markets. For industrial, medical, defense and automotive, that was 65% of our revenue for a year. Industrial approximately was 27%, high-performance communication network was 20%, and high-performance cloud infrastructure approximately 15%, defense and aerospace and automotive was 18%, medical approximately 20%. As you can see, Sanmina is a well-diversified company. Now, please turn to Slide 16. Now, let me talk to you about end markets and what we are seeing today. What we're seeing today, I can tell you, we see positive trends for fiscal year '25. For industrial, we see -- we have solid customer base and with exciting lot of new projects in our pipeline. We have some great opportunities around energy, generation and storage, power controls and management systems, factory automation and semiconductor equipment, and safety equipment. Overall, I can tell you this segment is doing well. For medical, it's mainly driven by digital health and medical devices. We have a strong base of customers for a long time here. We are well-diversified within the market itself. Overall, I would say, it's a stable demand with a good future opportunities in front of us. For defense and aerospace, we continue to see solid demand from critical defense projects, including Sanmina products itself. New programs win will drive the growth for us. We are also growing our advanced printed circuit boards business for defense market, and we are also starting to expand our precision machining systems. We believe there's a lot of opportunity there. For automotive and transportation, in this segment, I can tell you that our customer base is doing well in this challenging market. Our business here is mainly based on around electrical vehicles, electrical chargers, but I can tell you that we have a strong pipeline of new opportunities to drive the growth in fiscal year '25. For communication networks and cloud infrastructure, also we see positive trends. We focus on high-density, high-performance networks and cloud infrastructure. AI architecture is driving new opportunities for us. We're expanding our optical business and we are expanding optical advanced packaging. Cloud infrastructure is driving new opportunities for Sanmina. AI requirements continue to evolve at a rapid pace and it's driving technology advancement. So, what does that mean for us? It's driving a new business opportunity and we are well positioned in this segment. Now, please turn to Slide 17. I'd like to spend a few minutes talking to you what we do for cloud data center. Well, today, Sanmina provides end-to-end solution. Sanmina has been investing heavily and expanding into this growth segment. So, what do we do? First of all, we do not compete with our customers. We work together with our customers to service this segment. As you can see on this slide, we provide rack enclosure, which is basically open compute, both standard and custom. We provide cables. We provide advanced optical modules. We provide custom memory. We fabricate high-technology printer circuit boards. We assemble the boards that go into these system, including backplanes. We also have a group what we call Viking Enterprise Solution that does a full design server and storage systems. We build basically complete system through joint development or ODM for our customers. We provide cooling manifolds for the racks and enclosures. We are also partnering with a third-party around liquid and we've been heavily investing in this segment ourselves. We also provide bus bars that go into these racks, precision plastics, and end of the day, we build a full system integration for these segments. And we're providing what we call internally build to order and configure to order. So, Sanmina is well involved in this segment and we continue to invest because we believe we see a great future for us. Please turn to Slide 18. Now, let me talk to you about fiscal year '25 outlook. As Jon said, our fiscal year '25 outlook is based on our customers' forecast today. I can tell you that we are forecasting revenue to grow high-single digits in fiscal year '25. The growth will come from new and existing programs. We continue to diversify with the target markets and developing adding new customers to our portfolio. We focused on margin expansion. Our non-GAAP EPS should grow faster than revenue. Margin expansion should be driven by revenue growth, which we expect in fiscal year 2025, new programs with the higher-margin opportunities, and we're going to continue to improve our manufacturing efficiencies as our business grows, and also we're going to get benefits from OpEx leverage. We expect to generate strong cash flow to fund investments in technology that we are investing right now and capital equipment for the future growth. Again, we expect fiscal year '25 to be a growth year for us. Now, please turn to Slide 19. Let's talk about our priorities. Sanmina priorities are aligned and focused. Sanmina strategy is mainly built around our customers. We have what we call internally customer-centric strategy. We will continue to build around our great diversified customer base and we'll continue to deliver competitive advantage by providing leading technology for our customers in these heavy regulated markets. We remain focused in our long-term growth, margin expansion, and strong cash flow. We are focused on the margin expansion, and short-term, our operating margin goal is to deliver 5% to 6%, and longer-term, our goal is to deliver operating margin at 6%-plus. We believe that our business will allow us to do that and type of technology that we are expanding into. And we'll continue to maximize the shareholders' value. We're not going to do anything crazy, but we'll focus on growth and profitability and servicing our customers. So we believe we'll provide a maximized shareholder value in the short-term and the long-term. Please turn to Slide 20. In summary, we continue to execute on our strategy that we've been talking to you. Fiscal year '24 was a transition year. We finished the fourth quarter with solid momentum and with a strong customer base that give us a growth for fiscal year '25. We have ongoing focus on diversifying the growth markets and expanding into new customers, and we've been investing in that and we're going to continue to invest in that. Sanmina has well-established manufacturing footprint and is well-aligned with our customer needs. We will deliver consistent cash generation to fund the business with a disciplined approach. We remain focused on the fundamentals and future financial performance. And the most important, we'll continue to be a partner of choice with our top customers, industry market leaders. So, ladies and gentlemen, now I would like to, first of all, thank you for your support. Operator, we're ready to open the lines for question-and-answers. Thank you again.

Thank you. And ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] And your first question comes from the line of Ruplu Bhattacharya with Bank of America. Please go ahead.

Hello, Ruplu.

Hi, Jure. Thanks for taking my questions. Jure, I just wanted to clarify something, and I have a question on the cloud segment. I think last year, you had said that this was about 16% of revenues and I think on today's call, you said 15% of revenue. So just from the math, because revenue is down year-on-year, it looks like even in cloud, it went from $1.4 billion to $1.1 billion. Where do you see growth within the cloud business? I mean, what specifically are the growth areas? And how should we think about cloud? Do you think the business grows now from 2024 to 2025? And what growth rate should we think for this business?

Well, Ruplu, excellent question. First of all, yeah, you're right. If you -- that's why we use the word transition, '24 was -- from a growth point-of-view, for us, was a challenging year affected by the inventory -- too much inventory in our pipeline with our customers. But if you look at where we are we today, we're focusing in high-performance networks, which is a and a lot of that -- most of our customers, I would say 60% 70% of our key partners are -- their product being shipped to the data centers to cloud. We've been investing a lot as I just showed you on the Slide 17, if you look at it is that we provide a lot of the critical technologies that goes into these systems and we believe we are well-positioned and we are working on our new programs that we believe will grow. And we're very optimistic and very positive for growth in this segment in what we call communication networks and cloud infrastructure.

Okay. Thanks for that. And then maybe just on the communications side, I mean, I know Sanmina has a good -- very strong optical footprint. Can you talk about the trends you're seeing in communications, specifically in networking and optical? You said that maybe the inventory correction is coming to an end. How many more quarters of that do you see? And even within communications, where do you see growth in fiscal '25?

Well, first of all, as I mentioned in my prepared statement, Ruplu, inventory is definitely coming down. Some customers are already clear pretty well and a few customers are still going through it, but overall, I believe it's coming to the end, I would say, a quarter. As you saw, our inventory turns are going up. We expect it to continue to reduce those, but where the business is coming, I think, will come across all our key customers. I think we are well-positioned in that networking side of the business. As you mentioned, I think our optical networks are very strong. We focus on our high end perform -- I mean, IP networking capabilities that we do for our key customers, all of these key customers today are positioned for a growth and that's what we're hearing from them. So we're pretty optimistic about this group.

Okay. Got it. If I can ask Jon a couple of quick questions? Just on -- I wanted to focus, Jon, on margins. So fiscal 4Q revenue came strong at the high end. Operating margin was at the low end. You mentioned some investments. How should we think about the progression of operating margin in fiscal '25? And can you just talk about your areas of investment in this year?

Yeah, sure. Thanks for the questions, Ruplu. So just to touch on the first point, as you think about Q4 results, we did come in on the higher end of gross margin, a little bit on the lower end of operating margin due to those targeted investments, right? As we look ahead, we still see margin expansion, as I was saying in my prepared remarks, in both the IMS and CPS segments, and I'm talking gross margin there, so we see opportunity on that front. Also, as we return to revenue growth, we think that we'll get natural operating leverage from OpEx. We talked about that, too. But in this last quarter and Q4 specifically, when you look at the OpEx, Jure and I are always looking at investment opportunities. That's part of what we do through an ROI-based approach, and we have a decent percentage of our OpEx. It's variable in nature. So that gives us the flexibility to be able to invest when we need to and pull back when we need to. And for this quarter specifically, I'll give you three areas of investment. One was across R&D, mainly around the programs that Jure was talking about in the cloud and data center space. Number two, looking at some strategic opportunities, some more SG&A spending related to try and lock in those strategic opportunities to drive growth for the future. And then, number three in our workforce. And so all the time, we're looking at those opportunities. And whenever we feel like we've got a good one that makes sense to invest in, we'll do that. And we had those opportunities this quarter.

Okay. Thanks for that, Jon. And maybe just a final one from me. Can you just remind us of your priorities for cash in fiscal '25? And maybe Jure you can also chime in, when you look at the market right now, you see opportunity for inorganic growth, meaning M&A, or how would you think about buybacks or further capital -- rebalancing the balance sheet, taking out more debt? So, any thoughts on priorities of cash? Thank you.

Yeah, I would say our priorities for capital allocation haven't changed. And really the foundation for that, Ruplu, is to drive growth. And just to remind you of what the priorities are. Number one is around organic investments, and I just talked about some of those that we are making. Also in capital expenditures, right, we look at that just to make sure, as I mentioned in my prepared remarks, around having the right capabilities put in place to be successful and provide a competitive advantage for our customers. That's number one. Number two, on strategic acquisitions. Jure made a comment and I'm sure he'll say some more words that we're not looking to do anything crazy, but we certainly are always looking at opportunities there to help expand our portfolio and to be successful. Three is around debt. And as you know, we don't have a lot of long-term debt, right? We have no net debt and our gross leverage ratio is pretty low when you look across the industry. And then last, as we did a lot of this year is share repurchases. And as I mentioned in my prepared remarks, we still feel that we're undervalued, but we'll take that same disciplined ROI-based approach to make decisions between which of those priorities we want to pursue first.

Yeah. Ruplu, just to add a few things on that, if you look at area that we are playing, especially for our future, as I said, there's a -- technology is more involving now because of demand around AI and so on. That's perfect for our company because we believe we can grow organically. We got plenty of cash. We don't need to do anything crazy just to go do acquisition for acquisition sake. So our focus is organic growth and deliver the right solution for our customers and make money. And I believe that we are positioned to do that. And our focus is growth, growth and growth. So hopefully, you'll see that more in the next few years and that's the focus for us. '25, '26, '27, a great time for Sanmina Corporation.

Okay. Thank you for all the details. Appreciate it.

Thanks, Ruplu.

Thank you. And your next question comes from the line of Anja Soderstrom with Sidoti & Company. Please go ahead.

Yes. Hello. This is Alex on for Anja. Thanks for taking questions.

She has a better voice, so go ahead, Alex.

I try my best to honor her. Maybe we could just start on the improvements to cash flow. So I think we've talked about some of the confidence around top-line and margin. Could you talk a little bit about room for further improvement in cash flow and what some of the drivers would be?

Yeah, absolutely. Alex, thanks for the question. So number one, we had a great year for cash flow as I was talking about earlier, but there's still definitely opportunity ahead. Jure had mentioned and I mentioned too about our inventory turns improvement this quarter, but we still think longer-term, we should be back up above 6%. And even if you look at our cash conversion cycle, so great improvement this past quarter, got to about 68 days. We are in the mid-70s there for a while, but there's still improvement to be had, because if you go back further into our history, cash conversion cycle is more in the mid-50s. So, I think on the opportunity -- on the inventory front, more opportunity to continue to work through that absorption and we think that will get better with growth. Even accounts payable, our DPO, we think there's some room there, but I would tee it up mostly to our cash conversion cycle overall, so that's what we're going to be focused on.

Great. Very helpful. Thank you.

Sure.

And I think we heard a fair amount about how AI was affecting the business and creating new business opportunities. Curious if you could share a little bit about how you're integrating and utilizing AI and maybe how that's changing the business internally and perhaps aiding margin?

Yeah, Alex, this is Jure. Let me first of all make comment what we do outside. First of all, around AI, this really started by the last, let's say, 18 months that we started to see movement in this direction. Especially in last 12 months, we see a lot of new opportunities that our partners, and what I mean by partners, the customers they had in our portfolio for over 10 years plus are expanding the business around it and we see fair amount of growth and that's why we are more optimistic about '25. What we are seeing today is that, especially in the communication and cloud customer base is they are very optimistic where they're key partners and just -- and I just talked about what -- we add lot of critical components when it comes to high technology printed circuit boards, mechanical system, liquid cooling capabilities, custom optical modules, so Sanmina participates in a very complex systems and that's what we are known for and that's why we are excited about the opportunity around AI. So, we believe AI is going to be around not just here for the next 12 months, but hopefully, there's a lot of opportunities in next two, three years for us, which we are investing, and also other markets that I mentioned earlier, such as defense and so on. But back to internally, AI, definitely, we are working with some of our customers and some partners that we believe that we can use AI in a lot of different ways to improve our efficiencies through manufacturing. We have a very smart manufacturing setup, setup across all our manufacturing around the world, but we believe in a lot of these cases where we can potentially use artificial intelligence to move in the right direction around the supply chain definitely. As you know, 70%, 80% of our cost is materials that we buy around the world and 22 countries. So a lot of those things we feel we can do better. We have to be a better company. So, we are investing back inside also to basically become more competitive and bring a little bit more profits to the bottom line. Jon, anything else that I...

I think you said it well. The only one that I would add to that is employee productivity. Jure talked about the portfolio, like what's happening in the end markets and what we're doing from a manufacturing perspective, but then our own employees too, working with our IT team and otherwise. So, yeah.

Very helpful. Thank you. And last one for...

Thanks, Alex. Go ahead.

Yeah, of course. Last one from us. I think you did a nice job talking about capital allocation priorities and M&A pipeline. Maybe just to touch on one other facet. I know the Reliance Industries joint venture happened a couple of years ago. So, maybe we could just get an update on how that's trending in your thoughts around additional joint venture opportunities?

Well, good question, Alex. First of all, yeah, the deal was done about a little bit over a year ago. I can tell you -- two years, time flies. We're very happy with the partnership that we have at Reliance and also opportunities we have in India for India market and also India, we believe in next few years will become a major exporter in high-technology products for North America, Europe, and other parts of the world. So, we like what's going on. Actually, we're ahead of the game. We're doing a lot better than what I thought we're going to do. We continue to invest and we're making a major investments this year to position our group in India for our growth. So, we are very optimistic and there's a lot of work left to do, but also there's a lot of opportunities there, but very, very happy with our partnership with Reliance. Jon, anything else I missed?

I think the only other thing that I would add, Jure, you touched on all the key points, right, but a unique setup that we have in there, whereas we manage the business, but Reliance owns the majority of the stake, so any customers that are looking to work with an indigenous India company, they can work with Sanmina and achieve that. So, a pretty unique aspect to the JV.

Yeah, but percentage is almost 50-50.

Yeah, correct.

Anything else, Alex?

No, that's all from us. Thank you very much.

Thank you. Operator, is there any more questions?

We have no further questions at this time.

Well, ladies and gentlemen, first of all, I appreciate your time and you spending with us today. And if there's any questions that we didn't answer, please get back to us, and looking forward talking to you in approximately 90 days from now. All the best. Thanks a lot.

Thank you.