Good day, and welcome to the Sanmina's Fourth Quarter and Fiscal Year 2023 Earnings Conference Call. [Operator Instructions] Please note 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.

Thank you, Sarah. Good afternoon, ladies and gentlemen, and welcome to Sanmina's fourth quarter and fiscal year 2023 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 Kurt Adzema, 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 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 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, the conference call or on 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 September 30, 2023, 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 our website. In general, our non-GAAP information excludes restructuring costs, acquisition and integration costs, noncash 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. Good afternoon, ladies and gentlemen, and welcome. 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. So to you, Sanmina's team, thank you for managing through a challenging environment these last few years, managing through COVID, supply chain constraints and ongoing geopolitical environment. Despite all these challenges, you delivered strong results for fiscal year '23. Please turn to Slide 4. Ladies and gentlemen, let me give you some highlights for fiscal year '23. As you can see, revenue is 8.94%, grew 13% year-over-year. Non-GAAP operating margin also improved 80 basis points to 5.8%. And non-GAAP diluted EPS came in at $6.26, that's up 30% -- 34% year-over-year. These results are a reflection of our continued focus on our customers, the market leaders in the key markets. For the rest of the agenda, we have Kurt, our CFO, to review details of results for you. I will follow with additional comments about Sanmina's results and future goals. Then Kurt and I will open for question and answers. And now I'll turn this call over to Kurt. Kurt?

Thanks, Jure. Please turn to Slide 6. For the fiscal fourth quarter, our team did a solid job, delivering consistent gross and operating margins despite lower revenues, mainly due to ongoing customer inventory adjustments, primarily in the communication end market as the supply chain has significantly improved. Q4 revenue was $2.05 billion, slightly below our outlook of $2.1 billion to $2.2 billion. Q4 non-GAAP gross margin was 8.7% at the higher end of the outlook of $8.3 to $8.8 primarily due to favorable product mix. Q4 non-GAAP operating margin was 5.7%, in line with the outlook of 5.5% to 6%. Finally, non-GAAP fully diluted EPS was $1.42, slightly lower than our outlook of $1.47 to $1.57 due to lower-than-expected revenues. With that, please turn to Slide 7. Again, Q4 FY '23 revenue of $2.05 billion was lower than Q4 FY '22 revenue of $2.22 billion. Again, this decline was mainly due to ongoing customer inventory adjustments, primarily in the communications end market as the supply chain has significantly improved. Q4 FY '23 gross margin was 8.7% compared to 7.9% in Q4 of FY '22, primarily due to a favorable product mix. Q4 FY '23 non-GAAP operating margin improved to 5.7% compared to 5.3% in Q4 FY '22. Finally, Q4 FY '23 EPS was $1.42 compared to $1.37 in Q4 FY '22 despite lower revenues. Finally, Q4 GAAP fully diluted EPS was $1.04. Now please turn to Slide 8. Q4 FY '23 IMS revenue was $1.64 billion compared to $1.82 billion in Q3 FY '23. Again, this decline was mainly due to ongoing inventory adjustments at customers, primarily in the communications end market as the supply chain has significantly improved. Q4 gross IMS close margin was 8% in Q4 compared to 8.3% in the prior quarter. Q4 CPS revenue was $440…

Thanks Kurt. Ladies and gentlemen, let me add a few more comments about our results for the fiscal year '23, fourth quarter and outlook for the first quarter of fiscal year '24 and the future goals. Please turn to Slide 14. I can tell you that I am pleased with our fiscal year '23 results. Actually, I'm pleased what we accomplished in the last 3 years. Every one of these years we met or exceed our goals, especially last 2 years, if you look at the revenue growth, last year, we grew 17.5%. This year, we grew 12.8%. On a non-GAAP operating income, again, nice growth over 3 years. Last year, we grew non-GAAP operating income by 30%. And if you look at the non-GAAP diluted earnings per share, we grew that every 3 years, every year. Last year, almost 29.4% and this year, 33.7%, $6,026. Again, these are the -- for all our internal plants, we either met them or exceeded them. So with that, please turn to Slide 15. Now let's look at the revenue by end market for the fourth quarter of fiscal year '23. Revenue per quarter went down as you heard from Kurt 7% sequentially. Mainly due ongoing inventory adjustments, and it was primarily in the communications end market. For the fourth quarter, top 10 customers were 45 -- 49% revenues. We continue to diversify our market segments. For Industrial, Medical, Defense and Aerospace, Automotive for fourth quarter revenue came in at 65.4%. That came to flat quarter-over-quarter. For the year, revenue was 60.3% and growth for the year was 13.6%. So overall, this segment did pretty well. Communication networks and cloud infrastructure for a fourth quarter revenue was 34.6%, down 18% with more inventory adjustment than we thought beginning of the quarter, but for…

[Operator Instructions] Our first question comes from Anja Soderstrom with Sidoti.

For the network equipment market, you said the inventory adjustments there is primarily within that segment, but where else are you seeing inventory adjustments?

Well, most of our inventory adjustments is really across the communications side of the business, 5G, some networking product, but that's mainly adding with a few customers. The rest of the markets, as you can see, in industrial, medical, defense and automotive basically came in flat. We see some minor adjustment there, but nothing major like what we see in the communications side.

Okay. And in terms of auto, has the types of all affected you?

Not really. I mean we have a few projects there, but most of our stuff was with the industry leaders in electrical vehicle.

Okay. And in terms of the joint venture, you said you're seeing strong growth there better than you had expected. When will we see some significant revenue experience from there?

I would expect it to have -- well, first of all, we had a great year down there, operations performed excellent. We do expect to see some pretty good growth in '24, and I will say we are positioned end of '24, '25 to grow a lot.

Okay. And in terms of the gross margin and the product mix with the short term in the communications equipment, how should we think about the gross margin in the coming quarters and then in the coming years?

Well, first of all, let me make a comment about -- back to the margins. As you see, we delivered a respectable margin this year. We believe we can do better. I think the short term, I would say, operating margin will be in the range of 5% to 6%, even with the revenue being down. But we're going to continue to tune up and position the company as we know market is going to come back as we position the company for a lot of growth. As we start shipping more and some -- we know that in last year, we indi done better, let me put it that way. There's some room for improvements. As we look at the '24 and the '24, '25, we have a lot of upside, and we think our margin should be over 6%. We have a proven record on that, and we'll do it. Back to communication, type of communication market and margins we do is, we delivered respectable margins there, Anja. We are focused there on really high performance, both in the networking side, in a storage side and also the routers. So we're well positioned there. Unfortunately, I think our customers grow draw more inventory. We finally realized there's more inventory in the pipeline than we realized. So there will be some correction going on. But the long term, I think we'll be okay.

Okay. And as you spoke about fiscal 2024 it's going to be softer in the first half and then you see growth again in the second half. What gives you confidence in the growth there? And for the full year, how should we think about the overall revenue performance?

Okay. Anja, as you know, in the last 3 years, as you covered us, we take 1/4 time. I think the short term, definitely, we see inventory being resolved in the next 6 months, hopefully sooner. But definitely, I think inventory will get resolved based on what we see today. So definitely, we're going to see some pickup in second half because of that. Unless the economy falls off the cliff, based on my customer forecast, I think there should be some upside across all our markets, especially in the second half. So -- and based on some of these new programs, that we're working, so there's 3 things that we're looking at, we expect to grow. We definitely expect to grow long term. But we'll take 1 quarter a time, Anja.

Okay. And 1 last one. You said you have some new program wins. Can you just talk about those? Are those with the existing customers or expanding your logo at this? Or how is this baseline...

We're expanding logo, but most of the big wins are with existing customers, but we have a fair amount of new logos, Anja, that that have a lot of potential, but probably that's more end of the '24, '25 because it takes some time to give this program up. So yes, we have an upside potential in defense and aerospace side of the business. I think alternative energy has a lot and cloud infrastructure and optical packaging in that area, I think, there's a lot about that. Also, Anja, I just want to remind in my prepared statement, I said, hey, we have a goal internally to grow this company a lot bigger than what we are today. And our -- as I mentioned, we -- in the next 3 years, we expect to be in the range $10 billion to $12 billion. So we are focused on growth, but we're going to make sure it's the most profitable growth.

Our next question comes from Christian Schwab with Craig-Hallum Capital Group.

Most of my questions have been answered. Maybe just a little bit further clarity on the inventory correction communications. Since the inventory correction was obviously bigger than you thought in September, going to continue into December and continue into March. When you talk about some customers, is that like 2 or 3, or is that more than 5?

Well, we do business in that segment with all the market leaders, Christian. As you know, we let our customers speak for themselves. But yes, I will say majority of the customers in that segment have a little bit extra inventory. And I think what happened there, Christian, is that when there was the shortages, I think there was more inventory driven by end customer and our customers. So you had this pipeline that got filled up at a higher rate than I don't know if anybody in the industry really realized that how much inventory was in a pipeline. The good thing is that I'm seeing or at least what customers are telling us that this thing is going to empty and hopefully, next 6 months, and we'll go from there. But good thing, Christian, we didn't lose any customers or any programs. Actually, we won some programs in that side of the business, business being transferred from us and a couple of other -- I mean, another competitor to Mexico for us, but that transfer is going to be delayed for a few quarters. So -- but overall, we're still in a good position with those key customers for long term. It's a basically short-term scenario.

Great. And then just elaborate this a [Indiscernible] further. Obviously, you have historically 1 large customer. But when you talk about all the market share leaders in communications, remind us, are you selling to 10 significant people, 15 significant people?

If you look at the market leaders in there, Christian, you know them better than I do. There's approximately 10 companies. And out of those, there are the 5 big ones and 4 or 5 smaller ones.

Yes, okay. That's what I thought. Okay, and then just a follow-up on the fiscal year guidance. I know you don't give that. But kind of back of the envelope, it does appear in a recovery scenario in the second half in communications. We should be growing revenue year-over-year, right?

Well, it all depends how market turns. If demand is there -- first of all, we have capabilities and capacity to grow. So that's not an issue. And we are positioning the company -- we've been positioning the company for last 1.5 years to grow. That's why I just said it earlier, we had a major expansion for us. As you know, we don't throw money around unless we're going to grow, and we spend over -- we're actually spending right now. We're just finishing expansion in Thailand. We spend in Mexico for the growth of the projects that we want and the customers that will have a growth. So we're optimistic, and we -- that the second half will be better. It's hard for me to -- with all the stuff going on around the world, Christian, I think a smart thing for us is what I say our internal people. We only control what we can control is we can control what we do every day. So we're going to continuously stay on top of things that care of our customers but be aggressive as the demand comes back.

[Operator Instructions] Showing no further questions at this time.

Well, ladies and gentlemen, again, thanks for your time, and I appreciate your patience with us. Again, we're excited about our future, and if we didn't answer any of your questions, please get back to us. With that, thank you, and we'll talk to you 3 months from now, I guess. Bye-bye.

Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.