Good afternoon. My name is Chantelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sanmina Corporation's First Quarter 2017 Earnings 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. Thank you. Paige Bombino, Vice President of Investor Relations, you may begin your conference.

Thank you, Chantelle. Good afternoon, ladies and gentlemen, and welcome to Sanmina's First Quarter 2017 Earnings Call. A copy of today's release is available on our website in the Investor Relations section. You can follow along with our prepared remarks and the slides posted on our website. Please turn to the Safe Harbor statement. During this conference call, we may make projections or other forward-looking statements regarding future events or future financial performance of the company. We caution you that such statements are just projections. The company's actual results of operation may differ significantly as a result of various factors, including adverse changes to the key markets we target, risks arising from international operations, competition that could cause us to lose sales, consolidation among our customers and suppliers that could adversely affect our business, and the other factors set forth in the company's annual and quarterly reports filed with the Securities and Exchange Commission. You'll note in our press release and our slides issued today that we have provided you with statements of operations for the three months ended December 31, 2016, 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 they relate 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're referring to our non-GAAP information. I would now like to turn the call over to Jure Sola, Chairman and Chief Executive Officer.

Thanks, Paige. Good afternoon, ladies and gentlemen. Welcome. Thank you, all, for being here with us. With me on today's conference call is Bob Eulau, our CFO.

Good afternoon, everyone.

For agenda, Bob and I have to review with you our financial results for our first quarter of fiscal year 2017. I will follow up with additional comments about Sanmina's results and future goals. Then, Bob and I will open for Q&A. With this, I'll just turn it over to Bob. Bob?

Thanks, Jure. Please turn to slide 3. Overall, the first quarter was a solid start to fiscal year 2017. Revenue of $1.72 billion was up 3.3% on a sequential basis and up 12.1% from the first quarter last year. Our non-GAAP gross and operating margins were sequentially flat at 7.9% and 4.2%, respectively. Non-GAAP EPS was $0.75, which was above the high-end of our guidance for the quarter. This was based on 77.2 million shares outstanding on a fully diluted basis. Cash flow from operations was good at $54 million for the quarter, and free cash flow was $36 million. I'll discuss cash in more detail in a few minutes. Please turn to slide 4. From a GAAP perspective, revenue was up 3.3% or $54 million from Q4 to $1.72 billion. We reported net income of $44.9 million, which resulted in earnings per share of $0.58 for the first quarter. This was down relative to last quarter by $0.72. You may recall that last quarter our GAAP results included an incremental release of our valuation allowance against deferred tax assets. If we normalize discrete tax adjustments from last quarter and this quarter, our GAAP EPS would be up around $0.03. My remaining comments will focus on the non-GAAP financials for the first quarter of FY 2017. At $135.9 million, gross profit was up $4.3 million from the prior quarter. Gross margin came in at 7.9%, which was flat compared to Q4. Operating expenses were up $1.9 million for the quarter at $64.2 million. This was flat as a percent of revenue compared to Q4 at 3.7%. Spending was up this quarter primarily due to a return to normal spending levels after unusually low spending in Q4. At $71.7 million, operating income increased by 3.6% from the prior quarter and increased…

Thanks, Bob. Ladies and gentlemen, let me share with you some business environment, what we had during the first quarter. Talk a little bit about outlook for second quarter and the rest of the fiscal year 2017. As Bob mentioned, overall good quarter for our expectations. Revenue was up quarter-over-quarter, year-over-year driven by growth in our end markets and ramp-up of the new project. Operations executed well, and that allowed us to deliver a solid result for the quarter. Customers' activities were strong during the quarter as we continued to win new customers which is the key to our growth and grow current relationships. Again, overall good quarter as we continue to position our company for a better future. Now please turn to slide 11. I just want to give you some highlights of our revenue by end markets. Our top 10 customers were 51.8% of our revenue. Book-to-bill for the first quarter was positive 1.02:1. We continued to do a good job diversifying our revenue by end markets and customers. We also improved, which is very critical to our strategy, quality of our customer base. I think we're able to add some really good customers during this year – last four months, I should say. For the first quarter, Industrial, Medical and Defense was 45% of our revenue. That was nicely up 2.7%. Overall industrial demand was good, defense was strong and our medical was weaker than we forecasted, but mainly driven by some of the end-of-the-year inventory adjustments. For Communications Networks, revenue was 38% of our revenue. That was also up nicely, up 4.1%. Overall good demand driven by networking and optical products. Mobile networks, mainly broadband, overall demand was stable and is improving. Embedded Computing & Storage was 17% of our revenue. That was up 2.9%. Storage/Embedded…

Your first question comes from Sean Hannan with Needham & Co. Your line is open.

Hello, Sean.

Hi, Sean. Sean K. F. Hannan - Needham & Co. LLC: Yes. Good evening, folks. Thanks very much for taking the question here, and congratulations on a nice quarter and guide.

Thank you. Sean K. F. Hannan - Needham & Co. LLC: You're welcome. First question I have is coming off of the commentary, Jure, that you had just provided in looking at the second half of the year being strong, and, well, the first half of this fiscal year is looking strong. Is there an expectation of yours that based on what you see today and general conservatism around any expectations for market demand, would you be a flattish quarter-to-quarter-to-quarter type of year, or are you viewing based on your ramp activity and what's kind of in the background that the second half could actually be stronger than the first half? Any clarity around there would be great. Thanks.

Yeah. I mean, every time we give you a forecast, I mean, we spend a lot of times talking to our customers, looking at all the data and historical data. So as I mentioned, we feel very comfortable about second quarter. We delivered the first one. As I look in the third and fourth quarter, everything we see today and based what customers are telling us, that's going to be a stable, and I think there's a fair amount of upside. We also have some good new programs that are ramping up that will start shipping in the third and fourth quarter of this fiscal year. So combining all those things that we have in the pipeline, I'm pretty optimistic that the overall second half will be a little bit better. Sean K. F. Hannan - Needham & Co. LLC: Okay. That's helpful context. And then, Bob, a question here in terms of the CPS gross margin. So, obviously you had some hiccups last quarter, a nice recovery here within the December quarter. Can we talk a little bit about other contributors to margins within that segment, the sustainability of being able to perform at this level? And then I suppose the overall perhaps qualitative viewpoints that you might have for that segment group? Thanks.

Yeah. So, several questions in there, and we're definitely pleased that we made progress from last quarter, but we're still not very happy with the results in the first quarter. We believe there's a lot more potential in this segment, as we've said, over the years. Most of these businesses benchmark in the mid-teens from a gross margin standpoint and most of them have contribution margins in the 25% range. So the real key for us with the Components, Products & Services is to get more growth. And that's been a challenge over the last couple years. We've had a couple of areas that have had a lot of headwind, and we've been very candid about those with wireless communications and with the Oil and gas industry. And in both of those cases, they were important for our Components business. So, as we get a little bit of tailwind, I think we can really expand margins in Components, Products & Services, and we'll be able to generate very good cash there as well. So we still have a lot of work to do here although we're obviously pleased that we've made progress this quarter. Sean K. F. Hannan - Needham & Co. LLC: Okay. Thanks very much. I'll hop back in the queue, folks.

Thanks, Sean.

Thanks, Sean.

Your next question comes from the line of Steven Fox with Cross Research. Your line is open.

Thank you.

Hey, Steven.

Hi.

Hey, Steve.

So maybe just to follow up on that CPS question, I was wondering if maybe you could parcel the difference in the gross margins. So I'm looking at a $9 million increase in CPS sales versus a $7 million gross profit increase. So, how much of the improvement was due to some of the – correcting some of the problems you had last quarter? And how much was just due to typical dropdown benefits from revenues?

Well, I mean, if you think about what we said last quarter, we had some short-term issues that were really affecting us in both the product and the services areas, and we were able to correct those. If you think about our typical contribution margin being around 25% and if revenue is up $9 million, you're somewhere in the neighborhood of, what, $2 million to $2.5 million in gross profit coming from the revenue and the rest really from the corrections we were able to make.

Great. That's very helpful. And then secondly, just if I could follow up on some of the trade comments you made, Jure. If I'm looking at the right filings, from a square footage standpoint at least, you have about 20% of your footprint in Mexico. Can you first of all just refresh our memory of what you're producing down there? And just your view on whether some of these trade headlines could maybe shift customers' viewpoints on where they want to produce, including some stuff you're ramping now? Thank you.

Well, first of all, Steven, our Mexico capability is the same as North America. It's all high-tech stuff that we build there, very little what I would call consumer product, so it's more advanced technologies. So it's a great capability there as we have in rest of the world. But in Mexico especially, we have some great capabilities and they're kind of networked with North America capabilities, so we function as, of course, as one company. I'm not smart enough to know what's going to happen around the world, but I think company, as I mentioned in my prepared statement, is ready to adjust if it's necessary and we look in all the options. Personally, I don't think anything crazy will happen, but I'm a businessman guy, not a politician. But we think the most important thing is our company's well-positioned. As I said earlier, we have a great capability here in North America. So we give our customers, even today, options. Some customers want to manufacture locally, some customers, because of their markets, want to do other parts of the world, and that's the way Sanmina is really set up. And that's the way I see business going out. If you remember 10, 15 years when everything was going east, east, and there were no questions asked. Today, I think our business is set up more for regional business servicing regional customers. So when we are in Asia, lot of the products that we make eventually are going to be shipped into the Asian customers. When we are in Europe, it's European customers. Here in America, it will be for America's customers, which is basically North America, Canada – I mean, U.S.A., Canada, Mexico, South America and so on. So the model that we see the way our global customers are is really the global model because a lot of our customers are non-U.S.A. customers also. So we operate globally, but we can give every customer of ours a local solution better than anybody else, because that's the way company is structured.

Great. That's very helpful. Appreciate that color. Thanks.

Thanks, Steven.

Thanks, Steve.

Your next question comes from Mitch Steves with RBC Capital Markets. Your line is now open.

Hello, Mitch.

Hi, Mitch.

Hey, Jure. Thanks for taking my question. So I guess first kind of on the Communications segment. I heard that you guys mentioned broadband and mobile networks, but are you guys also seeing kind of demand trends from optical also being positive or is it just primarily the mobile network and broadband side?

No. I think as I stated in prepared statement, Mitch, that overall our demand is very strong in the network and optical side of the business with the customers that we are involved.

Okay. And how much visibility...

And we have a lot of new programs there and we also work in a lot of – in new programs. So Sanmina is well-positioned in that segment. We always were and we continue to really win in that segment.

Yeah. I would just add, and optical, as we've said even in our analyst meeting last May, is a real strength of Sanmina's. And as of last May, the optical business had doubled in the last couple of years. We continue to see nice growth over the last six or nine months, and we've got a very strong offering for that segment.

And I think that's what's going to drive the growth, because our offering is really one of the great solutions that we offer to our customers.

Got you. And then, for the visibility portion of the optical piece, because I know they're least cyclical, do you guys feel that you guys will still see growth in that segment for the full year?

Could you repeat the question?

So the optical cycle for the full year, do you guys think that the optical piece will be higher than it was last year?

I would say what we have in our pipeline, worse case, will be the same. But again, I'm not smart enough to know everything in details, but I think our pipeline is strong. Most importantly, I think we have a lot of good programs and great offerings. So overall, I think Sanmina would do well. I would say that's – and that's really what I'm talking, Mitch. I'm really talking about what Sanmina is going to do. I'm not an expert what goes with every optical product on a global basis, but I'm an expert in what we're going to do in 2017.

Right. Got it. Okay. Thank you very much.

Thanks, Mitch.

Thanks, Mitch.

Your next question comes from Jim Suva with Citi. Your line is open.

Hello, Jim.

Hey, Jim.

Hey. Good afternoon. Thank you so much for the detail thus far. I have a quick clarification question. You'd mentioned your primary focus of the company remains on growing and profitable business, which strategically is quite sound. Do you see that mostly coming organically or through your recent acquisitions you've had a lot of success there? How should we kind of think about which is most likely versus less likely?

Well, Jim, since you've been around a long time and more than I want to admit that I've known you forever, we started really changing our strategy, as you know, right after the major recession 2009. And the idea was at that time really to, what I would call, build a second start-up. It was a focus on building a stronger Sanmina, stronger foundation. Maybe we don't have to be the biggest company out there, but go ahead, invest in technology and services that we can compete in those markets with anybody. I think we accomplished that. We got the balance sheet now where it needs to be. So we can go a lot of different ways. I think we learned a lot from our mistakes in the past. So I think we're a little bit smarter today as we grow. First of all, I think we should have a good organic growth in some of these key segments. We did expand in oil and gas a few years ago. Maybe timing was not the best, but we still continued to invest in oil and gas, believe it or not. But we think it's going to pay off. We are driving more investment in defense and aerospace industry, because we have a good reputation there. We are investing more in our ODM platform type of a product through our storage product and others. We're expanding our services. So when you really look at, I think we are positioning the company that we can drive organically in the future segments of our customer requirements. At the same time, we are looking at other strategic things that can help us grow faster. And so, we'll continue to look into those and see if anything makes sense.

Okay. And as a...

Just let me summarize. But the key to what we're saying, and you have my assurances there and Bob's, and I speak for Bob here, is whatever we do, it's all based on, is that sustainable, is that predicable, is that repeatable? We're not interested in the customers that come and go. We're not interested in the products that are short-lived, and they go down the street and pick up a, how do I say, another competitor over $0.10 less. So we're looking at something that we can build this company a lot stronger company forever. So really part of our strategy, and it's working.

Okay. And then as a follow-up, maybe, for Bob. On the gross margins, specifically if you peel it to the segment level and look at the Integrated Manufacturing Solutions, my numbers may be wrong, but are gross margins down year-over-year in that segment yet revenues are up quite a bit? And if so, can you help us understand, is that a long-term thing? Or why would they be down with revenues up?

Yeah. Well, it's – as usual, it's really driven by mix more than anything else. And we had two quarters last year where had gross margins of 7.7% in the Integrated Manufacturing Solutions segment, and both quarters we've said that that was a really good mix of business. So I don't think there's anything to be concerned about in terms of the first quarter mix of business. It just wasn't quite as rich as the first quarter and fourth quarter last year.

Okay. Thank you so much for the details. Much appreciated.

Thanks, Jim.

Thanks, Jim.

Your next question comes from Ruplu Bhattacharya with Bank of America Merrill Lynch. Your line is open.

Hi. Thanks for taking my questions.

Hi, Ruplu.

Hi. Hey, just a...

Hello, Ruplu.

The first question on optical. Just wanted to clarity what you said, Jure. I think at the Analyst Day you've said that your optical business is over $1 billion. Did you say that in the worst case that it remains flat, or what was the commentary? Do you see the business growing year-on-year, or do you see it – what's the worst-case scenario here?

Well, first of all, that is true. I said earlier that – first of all, at the Analyst Meeting, yeah, we said at that time that our business is over $1 billion, and that's still the case. We do it – we've grown since then. I think the Analyst Meeting was in May, so we grown since then. And if I look at the next 12 months, I – based on everything I see and all the opportunities that we have, I'll be very surprised if we are not growing in 2017.

Okay. That's helpful. And then, Bob, I think if I just look at the first half, your revenues would have grown, based on the midpoint of guidance, about 9% year-on-year. I just wanted to clarify again the commentary on the second half growth. Do you think you can maintain that kind of growth, or what was the commentary between the first half of the year and the second half?

Yeah. So I'll respond to the question. I think Jure actually responded earlier, but we're obviously pleased by how the first half of this year is going, and I would say generally speaking, the second half tends to be stronger than the first half. And it looks like this is probably going to be a normal year in that respect. And the main information we have is the forecast coming in from our customers, and it looks good for the year. But we don't give annual guidance, and that's probably about all the commentary we should give on the second half.

Okay. Thanks. That's helpful. And then maybe on CPS, just wanted to see if you can give any commentary on the margins on Components versus Products & Services? Did they meet your expectations? Which one was higher, lower? Any directional guidance there?

Well, as I've indicated the last few quarters, we continue to have headwinds in the Components area. And that's the area where we have the most opportunity going forward to improve the margins, but we have opportunities across the board to do better.

Okay. All right. And the last one for me, I think you talked about U.S. manufacturing. Can you tell us like what is your utilization either in terms of equipment or space or workers in the U.S., and do you have capacity if OEMs wanted to move into the U.S.? Do you have white space in the U.S.?

Yes, we have plenty of space in U.S.A. Our factories are basically the same process as around the world. So we are very flexible to meet our customers' requirements. We can move equipment around the world, so it's not an issue.

We have a lot of component capability in the United States as well. So I think we've got our, as Jure said earlier, an excellent mix of capabilities in the United States.

Okay. Great. Thank you for taking my questions, and congrats on the quarter.

Thanks, Ruplu.

Okay. Thanks.

Operator, we have time for one more question.

Your next question comes from Sean Hannan with Needham & Co. Your line is open.

Hey, Sean.

Hi, Sean. Sean K. F. Hannan - Needham & Co. LLC: Good evening. Thanks for the follow-up here. Bob, just a housekeeping question, a few things I may have missed. Book-to-bill in the quarter, the gross margin guide, and then what are the assumed options within your guidance?

Well, as Jure mentioned, book-to-bill for the quarter was 1.02:1. And in terms of the gross margin range, we expect it to be 7.8% to 8.2%. Sean K. F. Hannan - Needham & Co. LLC: Okay. And then what are assumes in the earnings in terms of option expense with an add back?

Yeah, we don't usually put that number out there. All the numbers I gave you are non-GAAP numbers including that gross margin range. Sean K. F. Hannan - Needham & Co. LLC: Yes. Okay. All right. And then I want to ask about as you folks think about the new programs that you've won, that you're expecting to ramp, want to see if I could get you to call out maybe one or two – not necessarily program-specific, but at least in terms of thematic end markets whether it be optical, if it's automotive, what it might be. Just want to understand what's really kind of at the top of the list that you're encouraged by for growth going from here. And as you think about that, also want to see if I can get an understanding of how the Newisys is performing. Thanks.

Yeah, Sean, let me just add in the markets. First of all, what we have in the pipeline, and I think it's been working on this now for the last 18 months, but this year we see a fair amount of projects that go to production. But it's really in our Industrial side of our business, the Medical side of our business, Communication Networks, which includes networking, optical, IP routing, those will be what I would say most of the wins, but we do have a fair amount of also wins in automotive, which is a market that we go after, mission-critical type of products there. Overall enterprise Computing & Storage, we continue to invest through that business through Newisys product. I think Newisys is making some great progress. We made some big investments in the last 12 months including adding software to the product. We're not maximizing all the margins on this yet, but we expect that product to continuously improve. So overall the business that we have in pipeline is a good business. It's the business that is just as good what we have today, in a lot cases it's even a better business. So we're very – there's a lot of work left, but good thing about our, I think, the model is there's a lot potential for upside and we just got to execute. So...

With that, operator, that's all we have today. I would like to again, before we let you go, say thank you to everybody for taking your time. And please, if we didn't answer all the questions, give us a call. Thanks.

Yeah. Thanks, everybody. Have a great day.

Bye-bye.

This concludes today's conference call. You may now disconnect.