SANM - NASDAQ

Good afternoon, ladies and gentlemen, and welcome to the Sanmina's Fourth Quarter Fiscal 2025 Earnings Conference Call. [Operator Instructions] This call is being recorded on Monday, November 3, 2025. I would now like to turn the conference over to Paige Melching, Senior Vice President of Investor Communications. Please go ahead.

Thank you, John. Good afternoon, ladies and gentlemen, and welcome to Sanmina's Fourth Quarter and Fiscal 2025 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, ladies and gentlemen.

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 in the slides provided on our website. Please turn to Slide 3 of the presentation and take note of our safe harbor statement. During this conference call, we may make projections or other forward-looking statements regarding the 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 projections in these statements as a result of factors set forth in the safe harbor statement. 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 the earnings release, the earnings presentation, this conference call or our Investor Relations section of the 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 fourth quarter and fiscal year ended September 27, 2025, on a GAAP basis as well as certain non-GAAP financial information. A reconciliation between the GAAP and non-GAAP financial information is also provided in the press release and slides posted on the website. In general, our non-GAAP information excludes restructuring costs, acquisition and integration costs, noncash stock-based compensation expense, amortization expenses 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. Good afternoon, ladies and gentlemen. Welcome, and thank you all for being here with us today. Please turn to Slide #4. 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, hard work and delivering excellent service to our customers. Ladies and gentlemen, I can tell you that I'm very pleased with our performance for fiscal year 2025. Revenue came in at $8.13 billion, growth of 7.4% year-over-year. Non-GAAP operating margin came in at 5.7%. We're able to expand these margins by 30 basis points year-over-year. Non-GAAP EPS came in at $6.04. That's growth of 14.4% year-over-year. We also delivered very strong cash flow from operations of $621 million. And for the fourth quarter fiscal year 2025, we delivered solid revenue of $2.1 billion and non-GAAP EPS of $1.67 per share. Now let's go to our agenda for today's call. We have Jon, our CFO, to review details of results for you. I will follow 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?

Great. Thank you, Jure, and good afternoon, ladies and gentlemen. We appreciate your participation in today's earnings call. Before I discuss our financial results, I would like to thank the entire Sanmina team for their hard work and dedication and for executing a strong close to the fiscal year. The team has demonstrated exceptional focus and agility in meeting our customers' evolving needs all year long. Jure and I, along with the entire Sanmina management team, commend these efforts, which have resulted in strong fourth quarter and fiscal 2025 performance. Now please turn to Slide 6, where I'll speak to the financial highlights. We're very pleased to report that our fourth quarter results either met or exceeded our previously communicated outlook. To be specific, our non-GAAP gross margin of 9.4% and our non-GAAP diluted earnings per share of $1.67 both exceeded our outlook. Furthermore, our revenue of $2.1 billion and our non-GAAP operating margin of 6.0% were both at the high end of our outlook. These strong quarterly results as well as our performance throughout the year contributed to our ability to achieve fiscal 2025 results in line with our expectations, as Jure mentioned at the beginning of the call. Now please turn to Slide 7, where I'll speak to our P&L performance for the fourth quarter. As previously noted, we generated revenue of $2.1 billion, which represents an increase of 3.9% year-over-year. This growth was primarily driven by broad-based demand across the majority of our end markets with particular strength in the communication networks and cloud and AI end markets, which Jure will speak to in more detail in his prepared remarks. Non-GAAP gross profit was $196 million, representing 9.4% of revenue and a 70 basis point improvement versus the same period a year ago. This expansion in our gross margin was a result of favorable product mix and ongoing operational efficiencies. Non-GAAP operating expenses totaled $70 million, slightly above our outlook, reflecting our continued strategic investments aimed at driving future growth. Non-GAAP operating income was $126 million or 6.0% of revenue, representing a 70 basis point improvement versus the same period a year ago. This improvement was driven by a combination of revenue growth, favorable mix and disciplined execution. Non-GAAP other income and expense resulted in a net expense of $5.1 million, slightly above our outlook, largely due to foreign currency. And finally, non-GAAP diluted earnings per share was $1.67 based on approximately 54.9 million shares outstanding, representing a 16.7% increase compared to the same period a year ago. Now please turn to Slide 8, where I'll speak to our segment results. IMS revenue came in at $1.68 billion, up 3.3% year-over-year. This was driven by growth across most end markets with particular strength in the communication networks and cloud and AI end markets. IMS non-GAAP gross margin was 7.8%, up 50 basis points versus the same period a year ago. CPS revenue came in at $448 million, up 7.3% year-over-year. And CPS non-GAAP gross margin was 14.5%, up 90 basis points versus the same period a year ago. The strong performance in CPS was driven by revenue growth, favorable mix and ongoing operational efficiencies. While we're pleased with the performance of both the IMS and CPS businesses this quarter, we have not yet reached our full potential. We recognize the ongoing opportunity for further improvement in both revenue growth and margin expansion, which will remain key focus areas going forward. Now please turn to Slide 9, where I'll speak to our P&L performance for fiscal 2025 as compared to the same period a year ago. At the beginning of the year, when we provided our outlook for fiscal 2025, we said we expected revenue to grow high single digits, that non-GAAP diluted earnings per share would grow faster than revenue and that we generate strong cash flow. And I'm pleased to report that we delivered on all of those commitments. In fiscal 2025, we executed to our plan, and we continue to see positive trends as we move into fiscal 2026. Revenue for the 12 months increased by 7.4% year-over-year. This growth was driven by solid performance across the majority of our end markets with notable strength in the communication networks and cloud and AI end markets. Non-GAAP gross profit was $744 million or 9.2% of revenue, up 50 basis points compared to the prior year. Non-GAAP operating income was $465 million or 5.7% of revenue, up 30 basis points compared to the prior year. These improvements were the result of revenue growth, favorable product mix and strong operational execution. Non-GAAP diluted earnings per share was $6.04, which equates to an increase of 14.4% year-over-year. Now please turn to Slide 10, where I'll speak to the balance sheet highlights. For many years, Sanmina has had one of the strongest balance sheets in the industry, and we continue to add to that strong foundation this quarter. Cash and cash equivalents were $926 million. At quarter end, we had no outstanding borrowings on our $800 million revolver, leaving us with substantial liquidity of approximately $1.8 billion. We ended the quarter with inventory net of customer advances of $1.1 billion, representing a 12.1% decrease in absolute dollar terms versus the same period a year ago. Inventory turns, net of customer advances improved to 6.7x for the quarter as compared to 5.7x in the same period a year ago. Our non-GAAP pretax ROIC for the quarter was 28.3%, well above our weighted average cost of capital and a sizable improvement from 23.0% in the same period a year ago. The company continued to be in a net cash position at the end of the quarter, and our gross leverage ratio was 0.32x. This robust financial profile enables us to effectively execute on our strategic initiatives while still navigating macroeconomic uncertainties. Now please turn to Slide 11, where I'll speak to the cash flow highlights. Thanks to the disciplined working capital management of the Sanmina team, cash flow from operations for the fourth quarter was $199 million and came in very strong for the fiscal year at $621 million. Net capital expenditures for the quarter were $62 million and totaled $142 million for the fiscal year or 1.8% of revenue. This is in line with historic levels of CapEx spending, which typically ranges between 1% to 2% of revenue. As we move forward into the new year, we remain committed to making strategic investments in the capabilities and technologies necessary to strengthen our market position and support our long-term financial goals. To that end, we anticipate ongoing targeted investments in both capacity and technologies across our operations in the U.S., India and Mexico. Free cash flow for the quarter was $137 million and $478 million for the full fiscal year. We repurchased 1.44 million shares for $113.7 million for the year. And as of September 27, 2025, we had $239 million remaining under our authorized share repurchase program. Our strong cash flow performance has provided us with the financial flexibility to allow for continued investments in the business while also returning capital to shareholders, all within a disciplined and balanced capital allocation framework. Now please turn to Slide 13, where I'll speak to the transaction details around the

Thank you, Jon. Ladies and gentlemen, let me add more comments about the results for fiscal year 2025 and also talk to you what we are planning to do for fiscal year 2026 and beyond. As you know, Sanmina completed acquisition of

[Operator Instructions] Your first question comes from the line of Ruplu Bhattacharya from Bank of America.

Jure, congrats on closing the

Well, first of all, thank you for the compliment. I'm very excited about the

Yes. Ruplu, on the first point about the revenue. So we did want to give some color on

Okay. Great. For my next question, can I ask on the legacy business? If we look at the guide Jon, for the first quarter, $2.05 billion to $2.15 billion. So it's growing like mid-single digits at this point in the first quarter. But I think one of the slides later on talks about the legacy business grows high single digits. Is that -- are you expecting high single-digit growth for the legacy business ex

Yes, that's exactly right, Ruplu. We disclosed

Yes. If I can add, Ruplu, to that, definitely, we're seeing more positive activities as we go into next year around industrial, energy, medical. Defense continue to be stable. We are expanding our component capabilities there. Our military circuit boards are doing well, very profitable business. Automotive only short term is slightly down, but we do have some new programs that will offset that. Communication networks and cloud AI infrastructure without

Okay. If we put all of what you said together, so if the legacy business grows high single digits, that would be about $8.9 billion in fiscal '26. And then

Okay. First of all, I'm very optimistic what's in front of us, okay? That's number one. Number two, we're going to give you a lot more -- as Jon said, we're going to give you a lot more details in January because we just -- as you know, for legal reasons, we couldn't get all the details about forecast and so on and so on. So we'll share a lot more with you in January. But looking what's in front of us, we basically said about 6 months ago or 3 months ago, we think we can double the size of Sanmina within 3 years. What we see in front of us with legacy business, plus what we believe that we can grow around

Right. And the 2 years would put it at calendar '27 for the $16 billion?

Yes.

But maybe one last question.

But Ruplu, let me just say, trust me, we're going to give you a lot more information in January.

Okay. Understood. Let me just ask one more quick question on working capital because you're taking on working capital. Jon, how should we think about cash conversion cycle and free cash flow going forward?

Yes. I mean, first of all, I'm very pleased with how we performed in Q4 and all fiscal year '25, right? Jure and I both talked about that cash flow from operations for the full year being at $621 million, which you don't see very often when you're driving growth. We drove revenue growth of 7%. So our cash conversion cycle exiting Q4 is back in the 50s, which is a good place to be. That's where we wanted to get to. Now we still see some room for improvement. And I'm talking about the legacy business right now. We still see the opportunity to generate cash from that perspective. And for

Your next question comes from the line of Steven Fox from Fox Advisors.

A couple of questions for me. So without putting numbers around it, I was just curious how you think about the opportunity to rebuild the accelerated compute arm of

Yes. First of all, as I said, I'm very excited about the talent that we got through in the

Yes. Absolutely not. I guess just to interpret what you said, though, Jure, is that you're implying that you need to pull the full system solution from soups and nuts together first before you can then sort of go after the accelerated compute business again? Is that fair to say?

No, no, no. We're going to go after -- first of all, we have a great partner with AMD through NPI. So we enter that part right away. And we are expanding our engineering team to work with AMD and other platforms immediately. Yes, we have to -- as you know,

That's helpful. And then just on the cash flows in the transaction, just to be clear, Jon, the $2 billion purchase price, is that close to what the final number would be? Or could it balloon back to $3 billion? And then when we think about cash flows, it sounded like you can grow cash flows on legacy Sanmina. And then depending on growth, we'll see if you need to invest in working capital on the

Yes, you got that correct, Steve. So on the first point, I don't think the number will move too much. So it's subject to a 90-day true-up process. And that's because we're closing in the middle of the quarter, we worked on some estimates. So we'll have to work through that to reconcile it, but I wouldn't expect it to move materially. So that's -- it should be pretty close to where we land. And then as far as future cash flow generation, yes, on the legacy side of the business, still some opportunity to generate cash even though we'll be growing. This year, we made huge progress in inventory this past year, I mean, in fiscal 2025. And that's how we were able to generate the $621 million. There's not as much opportunity as that anymore, but we still think we can generate cash. And then

[Operator Instructions] Your next question comes from the line of Anja Soderstrom from Sidoti.

Congrats on closing that the

Could you repeat the question, Anja?

Yes. You see a lot of AI opportunity in the pipeline for the

Okay. Well, first of all, we've been building our capability to support data center AI all the way from high-technology boards to assembly, mechanical, liquid cooling, ODM, JDM and so on, both in custom memory and custom optical modules, we've been expanding that.

Okay. And then how do you expect this to affect your Indian joint venture?

Actually, it can complement India joint venture. There's a lot of opportunities in India when it comes to the cloud AI growth. We are working with our partners in India right now for opportunities that are happening in India. We have a new factory that we are building right now that we will have -- we will -- how do I say, expand our AI capabilities. We're investing right now, and that will come online early next year, and it's going to be very positive.

Okay. And then it seems like auto was a bit challenging for you. What do you see there? And you were also talking about new opportunities there that could help you drive growth there.

Yes. Automotive -- overall for us, automotive was pretty strong beginning of the year and slowed down a little bit end of the year. But overall, it's pretty good. We have some new programs that we won in the last 60, 90 days for end of the '26, '27 and beyond. So overall, we are pretty optimistic, and we're well positioned with a couple of very critical customers.

We don't have any other questions at this time. Please continue, sir.

Operator, is there any other questions?

We don't have any other questions at this time.

Well, first of all, I'd like to thank everybody on this call. If there is any questions, please let us know. Otherwise, we're looking forward to talking to you in 90 days from now. Thanks a lot for your support. Bye-bye.

Thank you.