Sanmina(US:SANM)2022-08-02 02:34Financial Data and Key Metrics Changes - Q3 revenue reached $2.02 billion, a substantial increase of approximately 5.6% from the prior quarter, exceeding the high-end of the outlook range [17] - Non-GAAP gross margin improved to 8.4% from 8.1% in the prior quarter, driven by higher revenues and a favorable product mix [18] - Non-GAAP operating margin increased to 5.5% compared to 5% in the prior quarter, attributed to improved gross margins and operating expense leverage [19] - Non-GAAP fully diluted earnings per share grew by approximately 14.4% to $1.30, surpassing the upper end of the outlook range [19] - Cash flow from operations was $102 million, and free cash flow was $65 million, indicating strong cash generation [24] Business Line Data and Key Metrics Changes - Q3 IMS revenue increased to $1.625 billion, a 4.3% rise over the prior quarter, driven by strong customer demand [21] - Non-GAAP gross margin for IMS improved to 7.3% from 7% in the prior quarter [22] - Components Products and Services revenue grew significantly to $428 million, with non-GAAP gross margin remaining flat at 11.9% [22] Market Data and Key Metrics Changes - Communication networks and cloud infrastructure accounted for 40% of revenue, growing approximately 6% quarter-over-quarter and 14% year-over-year [36] - Industrial, Medical, Defense, and Automotive markets represented approximately 60% of revenue, with a year-over-year growth of 27.2% [37] - Book-to-bill ratio for Q3 was 1.07:1, indicating strong bookings and a solid pipeline of new opportunities [38] Company Strategy and Development Direction - The company is focused on profitable growth, emphasizing high-complexity products in heavily regulated markets [46][49] - Sanmina aims to invest more in unique capabilities to drive margin expansion over the next 12 to 18 months [76] - The company is well-positioned to manage through economic challenges, with a strong balance sheet and diversified customer base [47][90] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in strong demand across all end markets, with expectations for continued revenue growth in fiscal year 2023 [42][86] - Supply chain challenges remain, but improvements are anticipated, particularly in semiconductor components [34][105] - The company is prepared for potential recessionary conditions, focusing on execution and customer relationships [44][90] Other Important Information - Cash and cash equivalents stood at $493 million, with total liquidity of approximately $1.3 billion [23] - The company repurchased approximately 3.1 million shares during Q3, with $188 million remaining in share repurchase authorization [25] Q&A Session Summary Question: Strength in communications end market - Management indicated that networking and optical segments were strong, with good performance in 5G as well [56] Question: Year-on-year revenue comparisons for 2023 - Management expects solid performance in the first half of 2023, projecting higher absolute dollars compared to 2022 [60] Question: Inventory growth and cash conversion cycle - Inventory is expected to grow slightly more in the next quarters due to purchasing parts amid supply constraints, but should level off eventually [62] Question: Sustainability of operating margins - Management believes operating margins can remain in the 5% to 6% range, with potential for improvement as supply chain efficiencies increase [70][72] Question: Uses of cash flow - The focus will be on organic growth, investing in capabilities, and opportunistic share repurchases [78][79] Question: Clarity on bookings and backlog - Management reported strong demand and a solid backlog, with optimism for continued revenue growth in 2023 [84][86] Question: Components shortages and market resilience - Management acknowledged ongoing component shortages but emphasized that inventory is driven by customer requirements, indicating confidence in demand [92][94]