Sanmina(US:SANM)2025-07-28 21:05PART I. FINANCIAL INFORMATION Interim Financial Statements (Unaudited) This section presents Sanmina Corporation's unaudited condensed consolidated financial statements for the quarter ended June 28, 2025, including balance sheets, income statements, and cash flows, with detailed notes on accounting policies and significant events Condensed Consolidated Balance Sheets Total assets increased to $5.22 billion as of June 28, 2025, from $4.82 billion, driven by higher cash and inventories, while total liabilities grew due to increased deferred revenue Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 28, 2025 | September 28, 2024 | Change | | :--- | :--- | :--- | :--- | | Assets | | | | | Cash and cash equivalents | $797,878 | $625,860 | +27.5% | | Inventories | $1,589,807 | $1,443,629 | +10.1% | | Total current assets | $4,301,883 | $3,870,429 | +11.1% | | Total assets | $5,221,756 | $4,822,845 | +8.3% | | Liabilities & Equity | | | | | Accounts payable | $1,432,535 | $1,441,984 | -0.7% | | Deferred revenue and customer advances | $525,144 | $215,553 | +143.6% | | Total current liabilities | $2,247,790 | $1,940,679 | +15.8% | | Total liabilities | $2,746,900 | $2,461,337 | +11.6% | | Total stockholders' equity | $2,474,856 | $2,361,508 | +4.8% | Condensed Consolidated Statements of Income The company reported significant year-over-year growth in revenue and profitability for both the three and nine-month periods ended June 28, 2025, with Q3 net sales up 10.9% to $2.04 billion and net income up 33.0% Q3 FY2025 vs Q3 FY2024 Performance (in thousands, except per share data) | Metric | Q3 2025 | Q3 2024 | Change | | :--- | :--- | :--- | :--- | | Net sales | $2,041,562 | $1,841,430 | +10.9% | | Gross profit | $181,050 | $153,539 | +17.9% | | Operating income | $95,877 | $82,367 | +16.4% | | Net income attributable to common shareholders | $68,616 | $51,602 | +33.0% | | Diluted EPS | $1.26 | $0.91 | +38.5% | Nine Months FY2025 vs FY2024 Performance (in thousands, except per share data) | Metric | Nine Months 2025 | Nine Months 2024 | Change | | :--- | :--- | :--- | :--- | | Net sales | $6,031,990 | $5,550,823 | +8.7% | | Gross profit | $525,200 | $469,136 | +12.0% | | Operating income | $276,103 | $245,904 | +12.3% | | Net income attributable to common shareholders | $197,827 | $161,155 | +22.8% | | Diluted EPS | $3.58 | $2.82 | +27.0% | Condensed Consolidated Statements of Cash Flows Cash provided by operating activities significantly increased to $421.6 million for the nine months ended June 28, 2025, driven by higher net income and deferred revenue, while investing and financing activities used cash Cash Flow Summary (Nine Months Ended, in thousands) | Activity | June 28, 2025 | June 29, 2024 | | :--- | :--- | :--- | | Cash provided by operating activities | $421,578 | $288,341 | | Cash used in investing activities | ($45,563) | ($88,499) | | Cash used in financing activities | ($165,616) | ($209,295) | | Increase (decrease) in cash | $211,860 | ($9,861) | - The increase in cash from operations was largely due to a $309.6 million increase in deferred revenue and customer advances, which offset increases in inventories ($144.8 million) and accounts receivable ($43.2 million)19 - Financing activities primarily consisted of $113.9 million in common stock repurchases19 Note 2. Revenue Recognition Over 95% of revenue is recognized over time, with the Integrated Manufacturing Solutions segment contributing $4.84 billion and Communications Networks & Cloud Infrastructure showing 19.5% growth for the nine months ended June 28, 2025 Revenue by Segment (Nine Months Ended, in thousands) | Segment | FY2025 | FY2024 | Change | | :--- | :--- | :--- | :--- | | Integrated Manufacturing Solutions (IMS) | $4,842,513 | $4,418,009 | +9.6% | | Components, Products and Services (CPS) | $1,189,477 | $1,132,814 | +5.0% | | Total | $6,031,990 | $5,550,823 | +8.7% | Revenue by End Market (Nine Months Ended, in thousands) | End Market | FY2025 | FY2024 | Change | | :--- | :--- | :--- | :--- | | Industrial, Medical, Defense & Aerospace, Automotive | $3,775,853 | $3,663,208 | +3.1% | | Communications Networks & Cloud Infrastructure | $2,256,137 | $1,887,615 | +19.5% | | Total | $6,031,990 | $5,550,823 | +8.7% | - For the nine months ended June 28, 2025, Mexico represented approximately 67% of Americas net sales, while the U.S. represented about 30%36 Note 4. Debt Total long-term debt was $287.2 million as of June 28, 2025, with $791 million available under the revolving credit facility, and a $2.5 billion bridge loan commitment secured for the ZT Systems acquisition - Total long-term debt, net of current portion, was $287.2 million as of June 28, 202558 - The company has an $800 million revolving credit facility with $791 million available to borrow as of June 28, 202563 - A commitment letter for a $2.5 billion bridge loan facility was secured to fund a portion of the ZT Systems acquisition66105 Note 7. Commitments and Contingencies The company is involved in legal proceedings, including the Eckert Qui Tam Suit alleging $100 million in fraud and multiple California labor code class action lawsuits, while a lawsuit with Dialight plc was settled for $14 million - The company is defending against the Eckert Qui Tam Suit, which alleges violations of the False Claims Act with claimed damages of approximately $100 million, seeking treble damages83 - Multiple class action and PAGA lawsuits have been filed by former employees in California alleging various labor code violations, which the company intends to defend vigorously84 - Litigation with former customer Dialight plc was resolved, with Dialight agreeing to pay Sanmina $12 million and assigning a $2 million insurance payment to Sanmina81 Note 8. Income Tax The effective tax rate decreased to 19% for the nine months ended June 28, 2025, while the company contests an IRS audit finding for fiscal 2009 regarding a $503 million worthless stock deduction and assesses new tax laws - The effective tax rate decreased to 19% for the nine months ended June 28, 2025, from 26% in the prior-year period90 - The company is contesting an IRS assertion from a 2008-2010 audit that disallowed a $503 million worthless stock deduction from fiscal 2009, which could materially impact future tax liabilities91 - The company is evaluating the impact of the OECD's Pillar Two global minimum tax rules, effective in fiscal 2025, and the newly enacted One Big Beautiful Bill Act (OBBBA) in the U.S.9293 Note 9. Stockholders' Equity During the nine months ended June 28, 2025, the company repurchased 1.4 million shares for $114 million, with a new $300 million stock repurchase program authorized and $239 million remaining available - The company repurchased 1.4 million shares for $114 million in the first nine months of fiscal 202596 - A new $300 million stock repurchase program was authorized in Q2 2025, with $239 million remaining available under all authorized programs as of June 28, 202596 Note 12. Business Combination Sanmina agreed to acquire ZT Systems' data center infrastructure business for $2.4 billion cash, $150 million stock, and up to $450 million contingent payments, with the acquisition expected to close near the end of calendar year 2025 - Announced agreement to acquire ZT Systems, a provider of AI and computer infrastructure for hyperscale computing companies10366 - Total consideration consists of $2.4 billion cash, $150 million in stock, and up to $450 million in contingent consideration104 - The company incurred $7 million in acquisition and integration charges in Q3 2025 related to this transaction106 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses an 8.7% increase in net sales for the first nine months of fiscal 2025, improved gross margin due to operational efficiencies, the strategic ZT Systems acquisition, and strong liquidity with $422 million cash from operations - Net sales increased 8.7% for the nine months ended June 28, 2025, primarily driven by 19.5% growth in the Communications Networks and Cloud Infrastructure end market121 - Gross margin for the nine-month period increased to 8.7% from 8.5% year-over-year, mainly due to improved operating efficiencies in the CPS segment, whose gross margin rose to 13.7% from 12.4%123 - The company entered into an agreement to acquire ZT Systems' data center infrastructure manufacturing business to expand its presence in the Cloud and AI ecosystem117 - Cash from operations for the nine-month period was $422 million, and the company's cash cycle days decreased from 70 to 67 days, indicating improved working capital management130133 Quantitative and Qualitative Disclosures About Market Risk No material changes were reported in the company's primary market risk exposures or their management since the fiscal year ended September 28, 2024, as disclosed in its Annual Report on Form 10-K - No material changes were reported in the company's primary risk exposures, which include foreign currency exchange risk and interest rate risk155 Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of June 28, 2025, due to identified material weaknesses in internal control over financial reporting, for which remediation plans are underway - Disclosure controls and procedures were concluded to be ineffective as of June 28, 2025157 - Material weaknesses identified in fiscal 2023 relate to an inappropriate tone at the top and ineffective controls over the quarterly contract estimate review process at one division159 - A material weakness identified in fiscal 2024 relates to ineffective controls for accounting for the transfer of control of certain raw materials inventory164 - Remediation efforts are underway, including personnel changes, enhanced training, process redesign, and improved review controls, but are not yet considered fully remediated162163165166 PART II. OTHER INFORMATION Legal Proceedings This section refers to Note 7 of the financial statements for detailed descriptions of material legal proceedings, including a civil False Claims Act lawsuit and several employee class action lawsuits - For a description of material legal proceedings, the report refers to Note 7, "Commitments and Contingencies" in the financial statements170 Risk Factors The company faces significant risks including dependency on key customers, intense competition, supply chain disruptions, uncertainties related to the ZT Systems acquisition, international operations, trade policies, product defects, cybersecurity, and regulatory compliance - Strategic & Acquisition Risk: The pending acquisition of ZT Systems involves risks such as integration difficulties, failure to realize expected benefits, and the need to secure up to $2.5 billion in debt financing213215218 - Operational & Market Risk: The business is subject to intense competition, reliance on a few large customers (ten largest represent ~50% of sales), and potential adverse changes in key end markets like communications and cloud infrastructure177223 - Supply Chain & Trade Risk: The company faces risks from component shortages, inflation, and increased costs from U.S. tariffs, which could reduce gross margins if not fully passed on to customers182183 - Regulatory & Legal Risk: The company is subject to complex export control laws, government contract regulations, and potential liability from product defects, alongside ongoing legal proceedings including a False Claims Act lawsuit and employment-related class actions188190194 Unregistered Sales of Equity Securities and Use of Proceeds During Q3 FY2025, the company repurchased 197,018 shares at an average price of $67.89 per share, with $239.2 million remaining available for future repurchases under board-authorized programs Stock Repurchases in Q3 FY2025 | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Month 1 (Mar 30 - Apr 26) | 197,018 | $67.89 | | Month 2 (Apr 27 - May 24) | — | $— | | Month 3 (May 25 - Jun 28) | — | $— | | Total | 197,018 | $67.89 | - As of June 28, 2025, the maximum dollar value of shares that may yet be purchased under the programs is $239,220,554233 Other Information No director or officer adopted or terminated a Rule 10b5-1 trading arrangement in Q3 FY2025, though one SVP adopted such a plan in the prior quarter to sell up to 6,500 shares - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement in the quarter ended June 28, 2025234 - In the prior quarter (Q2 2025), Vishnu Venkatesh (SVP, Finance and Controller) adopted a Rule 10b5-1 trading plan for the sale of up to 6,500 shares234 Exhibits This section lists key exhibits filed with the Form 10-Q, including the Equity Purchase Agreement for ZT Systems, the Bridge Commitment Letter for financing, and CEO/CFO certifications - Key exhibits filed include the Equity Purchase Agreement for ZT Systems (Exhibit 2.1), the Bridge Commitment Letter (Exhibit 10.46), and CEO/CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2)236