Good afternoon. My name is Erica and I will be your conference operator today. At this time, I would like to welcome everyone to the Sanmina Corporation's second quarter fiscal 2019 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. Ms. Paige Bombino, Vice President of Investor Relations, you may begin your conference.

Thank you Erica. Good afternoon ladies and gentlemen and welcome to Sanmina's second quarter fiscal 2019 earnings call. A copy of our press release and slides for today's discussion are available on the website at sanmina.com in the Investor Relations section. 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. 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 of operations may differ significantly as a result of various factors, including adverse changes to the key markets we target, significant uncertainties that can cause our future sales and net income to be variable, reliance on a small number of customers for a substantial portion of our sales, risks arising from our international operations and other factors set forth in the company's annual and quarterly reports filed with the Securities and Exchange Commission. You will note in our press release and slides issued today that we have provided you with a statement of operations for the quarter ended March 30, 2019, 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, non-cash stock-based compensation expense, amortization expense and certain other infrequent or unusual items to the extent material. Any comments we make on this call as it relates to 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 financial information. I would now like to turn the call over to Michael Clarke, Chief Executive Officer.

Thank you Paige and good afternoon everyone. Thank you for joining the call today. With me on the call is Dave Anderson, our CFO.

Welcome everyone.

Just a few comments on the quarter before I turn the call over to Dave. We are real pleased with the quarter and can see some of our operational efforts materializing. Congratulations and thank you to our team for their hard work and dedication on exceeded our expectations in this quarter. Revenue came in above our outlook, primarily driven by the ability to catch up with demand ramp up new programs. Non-GAAP earnings came in above our outlook at $0.91, delivering solid cash flow as we made positive strides to reduce inventory. With that, I will now turn the call over to Dave to go through our financial results. Then I will provide more insight on the business and our end-markets followed by Q&A. Dave?

Thanks Michael. Please turn to slide three. Overall, our second quarter revenue and non-GAAP diluted earnings per share exceeded our expectations. Revenue exceeded the high-end of our outlook by $126.6 million ending at $2.13 billion. Revenue was down sequentially 2.8% and up 26.9% from the second quarter of last year. Our strong second quarter revenue was driven by our catching up to our customers' demand as supply continued to stabilize as well as the ongoing ramp of new programs to volume production. Non-GAAP diluted earnings per share at $0.91 exceeded the high-end of our outlook by $0.11 and was up 9.1% sequentially and 81.1% over the second quarter of last year. I will discuss our end market revenue, non-GAAP margin and non-GAAP diluted earnings per share performance in more detail in a few minutes. Please turn to slide four. From a GAAP perspective, we reported net income of $40.9 million which resulted in diluted earnings per share of $0.57 for the second quarter. This was up $0.04 sequentially and $0.24 from Q2 of last year. The sequential improvement in GAAP diluted earnings per share was largely driven by an increase in gross profit resulting from operational improvements. The improvement over Q2 of last year resulted from higher gross profit driven by the contribution margin flow-through on the increased revenue. My remaining comments will focus on the non-GAAP financial results for the second quarter of fiscal 2019. At $155.1 million, gross profit was up $4 million from the prior quarter. Gross margin came in at 7.3%, which was 40 basis points higher than Q1. Operating expenses were up sequentially, in line with our Q2 outlook of $67.7 million. As a percentage of sales, operating expenses were up 20 basis points to 3.2%, but down 70 basis points from 3.9% in Q2…

Thanks Dave. Thank you. Dave provided comments about our overall outlook for the company. Now I would like to provide you with additional color around the end market outlook for the third quarter and FY 2019. The communications networks is made up of wireless, network and optical products. We continue to see strong demand in the communications market gaining traction in such programs as 5G, IP routing that we are working on. The 5G market is exciting for us. As it matures and the products moved from NPI to volume production, Sanmina will benefit from this going forward. We expect third quarter to be down sequentially as we have caught up with demand that helped drive first half results. However, we expect our growth for the full year to be great, incidentally the strongest we have seen in a long time. Industrial, defense, medical and automotive. While this segment was slightly down for the second quarter, it is better-than-expected with all subsegments up year-to-date and solid growth in automotive. We continue to benefit from progress we have made and won and continue to win that will support our growth in markets in the future. Our customers recognize our capabilities more so now and the value-add that we offer. We are well positioned in the market for the long-term. Based on the forecast from our customers, we expect our third quarter to be down sequentially, but up over the prior quarter last year. And as like with the communications, we expect nice growth for the full year. Cloud solutions. Based on the forecast, we foresee the cloud solutions segment to be down sequentially for the third quarter and flat for the full year. We are really excited about the opportunities ahead of us in all segments and subsegments with most of them up for the full year. We have a healthy pipeline driven by a great and strong customer base, the continuous improvements we are making in operations and new program wins. In summary, Q2 was another solid quarter. We continue to improve our operational margins. We have a healthy pipeline going into the second half of the year. We remain confident in our ability to drive profitable growth and positive cash flow from operations over the remaining fiscal year 2019. Our third quarter outlook, revenue at $1.925 billion to $2.025 billion and non-GAAP EPS of $0.72 to $0.82. Based on our results for the first half and our outlook for the third quarter, we expect for the full year to be in the mid-teens based on continuous growth in the global economy. I sincerely thank our employees worldwide for their hard work and dedication, to our customers for their support, without them, we would not be here and to our shareholders for their continuous confidence in Sanmina. With that, operator, I would now like to open the call up for questions.

[Operator Instructions]. and your first question comes from Jim Suva.

Hi Jim.

Jim?

Sorry, I was on mute. Hi. This is Tim Young, call on behalf of Jim Suva. Thanks for taking the question. On your communication segment, you had strong double-digit growth for the March quarter. Can you talk about how much is that driven by the optical strengths? And how much is driven by non-optical product? And then I have a follow-up.

We don't usually split that up. But generally speaking, when we look at the communications market, it's made up of like for example the 5G. It's also made up of the optical as well as the IP network. So we experienced growth in all of those areas.

A couple of your peer EMS companies mentioned that they have seen some softness in router and switches products. So I wonder if you are seeing a similar thing? Or what you are seeing in the marketplace is different?

No. We are not exactly seeing that as we are now.

Yes. Sorry go ahead.

Yes. Please go ahead.

Yes. Like Michael said, we aren't right now seeing that in terms of the routing and the networking piece. So we are not quite sure what you are commenting on about our competitors.

Got you. And then my last question is on your revenue seasonality. It appears you are your June quarter guidance is a little bit below seasonal. So how should we think about the seasonalities for going forward, especially for the next year as well? Thanks.

Yes. We didn't really talk about that in terms of seasonality. What we are really seeing as we talked about just through the early part of this call is that continuing through Q2, we kept seeing a good catch up in the demand requirements of our customers. So we are seeing for Q3, as we guided, as you can see we are seeing a more, not necessarily in relation to seasonality as per se, just that we have in the first half of the year, caught up with the demand of our customers.

Got you. Thanks for the color. Thank you.

Thanks Tim.

Thanks Tim.

And your next question is from Christian Schwab.

Great. Thanks for taking my question. Just on the last question by the gentlemen before, he was kind of talking about seasonality and he also kind of mentioned on a yearly basis, which I think you guys failed to answer, so I will give you a chance to do that quick, if you guys want to talk about a multiyear kind of growth rate or what we should be thinking about growth rates going into 2020?

Yes. Chris, we aren't giving out growth rates beyond what we have done for the full year 2019. So we are not going to talk about 2020 at this point. But what guess I just answered to Tim was that, what we saw so far in the first half of the year has been the catch up of the demand because of the supply constrained environment. And that flowing through to the full year, we are cautiously optimistic, as we said, that the growth rate for the full year will be in the mid-teens.

Okay. Fantastic. Can you talk about structurally what you guys did or Michael, what you did coming in potentially to improve the gross margins on the components, products and services business so dramatically over a two quarter timeframe?

Well, I don't know whether it was dramatically an improvement but the company is a solid company. We have a solid infrastructure. We just kept focusing on the right parts of the business that focus that's going to change the needle. When you start looking at the supply issue, we have got a real strong organization that I think the momentum was building up to be able to get the supply constraint sorted out. We also booked a lot of new programs past year or so and focused on them to get them full, get them full prototypes, get the yields up. If I could say this, it's just like basically blocking and tackling. We have got all the bells and whistles in the company. We just kept focusing on the things that can change the needle.

Great. And then, thank you for that. my last question has to do with operating margins. When you first came in, you said, we are going to drive the company as fast as possible to the 4% plus operating margin range. And then in your slides here, we are still focused on operating margin improvement. After you have now had a chance to be there for a few quarters, are you prepared to give a multiyear objective of what you think this business can drive above 4% on operating margin basis or not quite yet?

Probably not quite yet. But obviously, we are not satisfied with where we are. We have had operating margins larger than that in the past and that's where we have got our focus. I am not prepared at this time. But you and a lot of our investors can be assured that's a big focus for us going forward.

Yes. I think, Christian, just to add to that, as you know, we have been heavily focused on improving the operational efficiencies as we have been in this supply constrained environment and we are trying to get the leverage out of our model which we have shown you in the past. So our first goal was to get to that 4% and obviously we are trying to get to continue to improve on that going forward.

Great. No other questions. Thank you.

You are welcome. Thanks.

[Operator Instructions].

Operator, we have time for one more question, I guess.

It appears there are no further questions at this time.

Okay. In closing, I would just like to comment again, look, Sanmina has a strong foundation. We have got good results this past couple of quarters. We have got an experienced talented employee base, solid customer base with great target markets, leading technologies, global footprint. We are well positioned for the future in the company. So I thank all of you for joining the call today and we look forward to providing an update on the business on our next earnings call. Thank you very much.

Thank you.

Thank you and this does conclude today's conference call. You may now disconnect.