Good afternoon. My name is Ian and I will be your conference operator today. At this time, I would like to welcome everyone to the Sanmina Corporation's Fourth Quarter 2017 Earnings Call. Thank you. I would now like to turn the call over to Paige Bombino, Vice President of Investor Relations. Ma'am, please go ahead.

Thank you, Ian. Good afternoon, ladies and gentlemen, and welcome to Sanmina's fourth quarter and fiscal year 2017 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 the call today is Bob Eulau, Chief Executive Officer.

Hi, everyone.

And David Anderson, Chief Financial Officer.

Hi, everyone.

Following their prepared remarks, we will open the call up for questions. 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. 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, operational or other inefficiencies, risks arising from our international operations, competition that could cause us to lose sales, reliance on a relatively small number of customers for majority of our sales and 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 slides issued today that we have provided you with statements of operation for the three months and 12 months ended September 30, 2017, 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, non-cash stock-based compensation expense, amortization expense, and certain other infrequent or unusual items to the extant material. Any comments we make on this call as it 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 are referring to our non-GAAP information. I would now like to turn the call over to Bob Eulau.

Thanks, Paige, and thanks again, everyone, for joining us today. Given the challenges we've faced this quarter, I thought I would first discuss some of what happened in Q4 and what we expect for fiscal year 2018. The current environment remains positive for Sanmina. Our pipeline is robust and we have significant new program wins that we are onboarding. Most of Sanmina's operations achieved solid results in the fourth quarter. However, the financials of some of our operations were impacted by the onboarding and production ramp of new programs. These programs are in important markets for Sanmina such as optical and automotive, and the products are complex. Production ramps for some of these new programs were delayed by design changes and production yield issues, and our profitability was not where we expected it to be for these programs. The design changes are especially challenging in the current material supply environment. The production capability for higher volumes is in place, but we did not achieve the overhead absorption that we had anticipated in the Integrated Manufacturing Solutions segment. The good news is that in October, production yields have improved. As revenue increases, we expect significant improvement in our capacity utilization and our efficiency. Sanmina focuses on complex products and they aren't easy to design and build. We collaborate extensively with the market leaders in our focus market segments. I am confident that our customers will succeed with their new products and that we will ultimately benefit from their success. We have both the people and the equipment in place to ramp quickly on behalf of our customers. We expect to see improvements in efficiency and capacity utilization in the next few quarters. We're also taking this time to challenge the status quo throughout Sanmina. Our business strategy remains the same and I'm confident our strategy is the right one for the long term. Our goal is provide competitive advantage to our customers with mission-critical products, services, and supply chain needs, while driving value for customers, employees and investors. Finally, we have a highly motivated management team and loyal employee base that are very focused on improving our performance. A lot of hard work went into putting our current capacity and pipeline in place, and I want to thank all of our employees that have worked hard to position us so well for the future. I'll now let Dave make some comments on the financial results, and then I will follow-up with more specifics in what we're seeing in the market.

Thanks, Bob. Please turn to slide 3. Overall, our fourth quarter revenue and cash generation were in line with expectations. However, our margins and non-GAAP EPS in Q4 were a disappointment. Our full fiscal year 2017 results were good, with revenue growing at 6%, non-GAAP operating profit dollars up 7%, non-GAAP net income up 12%, and non-GAAP EPS growth of 13% and cash flow from operations of $251 million that was in line with our expectations. For Q4, revenue of $1.76 billion was in line with our expectations, up 2.5% from Q3 and up 5.4% from the fourth quarter of last year. Our non-GAAP gross margin was disappointing, coming in at 7.2% which was down 60 basis points from the third quarter and 70 basis points from the fourth quarter of last year. Non-GAAP operating margin at 3.5% was down 70 basis points sequentially and from Q4 of last year. Non-GAAP EPS was $0.64, which was $0.09 below our expectations for the quarter. This was based on 77.6 million shares outstanding on a fully diluted basis. During the quarter, we used $139.3 million to repurchase a total of 3.8 million common shares. Cash flow from operations was $49.3 million and free cash flow was $24.3 million. I'll discuss cash in more detail in a few minutes. Please turn to slide 4. From a GAAP perspective, we reported net income of approximately $26 million, which resulted in earnings per share of $0.33 for the fourth quarter. This was down relative to last quarter by $0.14 and largely resulted from a $3.4 million increase in stock compensation expense, a $4.6 million increase in asset impairment charges in Q4, and a $4.4 million change in estimate in Q3 for a specific environmental remediation exposure. For the year, revenue finished at $6.869 million (sic)…

Thanks, Dave. I'd like to provide some additional comments on our end markets and how we are positioned for the future. As we have stated in prior quarters, we continue to diversify our end markets and customer base, increase vertical integration, and enhance our value to customers. Please turn to slide 16. I will now discuss our quarterly results by end market. Industrial, medical, and defense was 43% of our revenue, or $758 million, and flat sequentially. We had expected industrial, medical, and defense to be up for the quarter. However, in addition to normal fluctuations, we had one customer with demand lower than originally forecasted. And while small, our oil and gas business was also impacted by the hurricane in Houston. Communications networks was at 41% of revenue or $714 million, up 6.5% sequentially, and in line with expectations. Growth in this segment was driven by new program wins in wireless infrastructure and optical networks. Embedded computing and storage was 16% of revenue or $283 million, up 1.3% sequentially. Growth came from computing, storage, and automotive. Let's move to slide 17. We're showing you a chart that illustrates the diversification of our end markets since 2013. We continue to focus on markets where we meet the technical requirements and we can provide the expertise to add value for our customers. On an annual basis, industrial, medical, and defense saw nice growth and was up 10.4%, while representing 45% or $3.1 billion worth of our business this past year. Growth was mainly driven by the industrial and medical segments as new programs came online. Communications networks grew 9.8%, driven by growth in optical and solid demand in wireless networks on new programs. I'm pleased to say that Sanmina is now successfully shipping 400 gigabit optical products to two customers. Embedded…

Certainly. Our first question is from the line of Ruplu Bhattacharya from Bank of America.

Hi. Thank you for taking my questions.

Yes. Hi, Ruplu.

Hi, Ruplu.

Hi. How are you? Bob, you mentioned three things: yield issues, design changes, and material constraints. First question is were these in specific end markets, like which end markets were impacted because of these?

Yeah. So the two end markets that we had the most new product introduction activity going on were automotive and the optical networking space.

Okay. And then you talked about the yield issues having improved in October; how about the design changes? And can you talk about the material constraints?

Yeah. So actually let me talk about material first. What we saw during the course of the year, if you think back, in March we saw lead times extending out on us. In the June quarter, I would say the lead times stabilized and in the September quarter, in some cases, we saw lead times extending out again. So I think that's kind of the scenario that we're in. We're seeing a number of component areas that have lead times greater than 80 days right now. At the beginning of the year, there were about 5% of our parts in that state, and now it's closer to 25%, so, so lead times definitely extended out in September. We don't know exactly what's going to happen in the next couple of quarters, but we do hope things start to get better. And then in terms of design changes, we've been working closely with our customers. As I mentioned, we're dealing with very complex products, and we oftentimes have design engineers on the floor helping us to debug and get to root cause on design challenges, so I think that we'll start to see more and more progress there and that's part of why we're seeing the yields improve.

Okay. And maybe the last one from me, just on the optical market, any thoughts on that? Are you seeing any slowdown in optical? I think you mentioned you got some new programs in optical, so just maybe give us your thoughts on what you think the market is going to do, and what you think Sanmina can do in the optical market?

Yeah. I mean, as always, that's probably a better question to ask our customers, but as you know, we have a really significant optical footprint. And we – for the year, our optical footprint, which is all the way from passive and active components up to full system, grew close to 20%. However, in the fourth quarter, we did see a decline sequentially from the third quarter. So we did see some softness there. As I mentioned, we are shipping 400 gigabit product now, and we think the market is beginning to transition there and we should be well positioned as more new product come to market there.

Okay. Thank you.

Sure.

And our next question is from the line of Sean Hannan from Needham & Company.

Hi, Sean.

Hi, Sean. Sean K. F. Hannan - Needham & Co. LLC: Yeah, hi, folks. It's Sean Hannan, yes. So other than some of these yield issues, design issues, et cetera, so it sounds like year-to-date you folks didn't get out as much product through the door as you had hoped. So how material were these mentioned issues in terms of impacting the top line for the fiscal fourth quarter and first quarter, can you size that as well as the GM impact because it looks like maybe you're going to gain within your guide only about 10 basis points or so, if I'm interpreting your guidance correctly? So just a little bit more color around how that's impacting here in both these quarters we're discussing.

Yeah. So it's David Anderson here. In the quarter, because of these issues, we actually ended up with more of a significant under-absorption in these plants, and the impact was about 1.1 percentage point drop in our margins on the IMS business which is where the significant impact was. And in terms of the actual going into our guidance as we said there in our guidance, we're guiding 7.3% to 7.7% in the gross margin. So we're expecting some of this to get corrected in the Q1 timeframe. But as Bob mentioned, it's going to be dependent upon our ability in terms of the yields going forward. I don't know, Bob, if you want to add?

Yes. No, I think that was a good description, and we have more new products coming as well. So we definitely are excited about this. It's exactly the kind of challenge that we wanted to have. But it is a challenge, and we have to get up our learning curve, and we have to get our yields up. Sean K. F. Hannan - Needham & Co. LLC: Okay. And then a follow-up actually on that comment. What should we expect in terms of program ramps from here in 2018? And you often discuss some early insight in terms of the year for how it might shape for revenues, whether you'd expect some sequential progression. I believe that there was some color commentary around an expectation that the back end of the year should look at little bit strong. But any bit more insight you could provide around how to think about fiscal 2018 at this point?

Well obviously, we gave guidance for the first quarter and we're expecting to see some improvement in Q1. I did say I expect the second half to be quite a bit healthier than the first half. So it's a matter of getting up these ramps. We can't fully anticipate all of the technical issues, nor do we know exactly what the supply situation's going to be, but we are definitely doing more. We are bringing new programs to market. And I know that it will be a good set of challenges for us, but I also know that we'll meet the challenge. Sean K. F. Hannan - Needham & Co. LLC: Okay. Thanks, folks.

And our next question is from the line of Mitch Steves from RBC Capital Markets.

Hi, Mitch.

Hi, guys. Thanks for taking my question. So I kind of want to circle back to kind of the operational efficiencies. You guys mentioned that that was a pretty big driver to the margin line. And so it looks like that's going through to next quarter. So when should we see kind of the program ramps and the issues, the yield issues there abate? Should that be kind of the next quarter, or is this going to be a longer term theme?

Well, as I mentioned in my comments, I think we'll definitely have a healthier second half. We're already making progress on yield. I don't want you to believe that we haven't made progress. Even in October, we saw some pretty significant improvement. But we also have new programs still coming. So it's exactly what we wanted. We won some good new business and I'm very confident we'll be able to execute, and by the second half we'll be in a very solid position.

Got it. And then circling back to kind of the industrial segment, you mentioned that there was a single customer there, or I guess maybe you can't name the customer, but what would be kind of the main guys in the industrial segment that could cause a material miss to revenue like what happened this quarter?

Yeah, I really don't want to get in the business of calling out customers, but we always have ups and downs with customers across the board, and we just had in one case a customer that caused us not to hit our revenue we expected in that segment.

Yeah, let me try a quick one then. So is it industrial, medical, or defense, just given that there's three segments? It's pretty difficult to compare.

Yeah, again, I really don't want to go down that path. I apologize, but we just try to give you an idea. It wasn't multiple customers, It was one customer that caused us not to grow there.

Okay. You got it. Thank you.

Sure.

Our next question is from the line of Jim Suva from Citi.

Hi, Jim.

Hi, Jim.

Thanks very much. Hey, good evening. First of all, I would have thought a design change would have been more absorbed by the client for the issues, or the customer for the issues, or maybe something's changed there. And then second of all, why won't these new programs that you have coming on in the next couple quarters also pose the challenges that you're seeing today and next quarter?

Yeah, so two good questions, Jim. So in terms of design changes, I mean, the issue is we've got the capacity in place now. So we just didn't get to the volumes that we thought we were going to have at this point in time. So I think that situation will improve as we get the yields up and the volumes going. And our customers are participating with us in terms of improving the yields. And then in terms of how we move forward, again, we're expecting that we'll continue to ramp on new programs in the first half, and we expect second half to be quite a bit better.

And your guidance for the first quarter out, for the December quarter, are the majority of those challenges with the ramps all into that quarter, or will they also be kind of the March and June? Because when you say second half of the year I assume you mean fiscal year and not calendar year.

Right, I was referring to fiscal year. And as I said, we've already made progress. Even in October, there's measurable progress in yields, but, and we'll make more progress on the products we've already got and then we have more programs coming, so I expect the first half will be characterized by a lot of NPI activity.

Great. Thanks so much for the details, it's greatly appreciated.

Thanks, Jim. So we've got time for one more question.

Certainly. Our next question is from the line of Steven Fox from Cross Research.

Hi, Steve.

Hi, Steve.

Hi. Good afternoon. Just two questions from me. So, just to be clear, Bob, a couple times now you've mentioned that you have more new programs coming, but the yield issues were not something that was systemic, was it, it was specific to the programs? In other words, is there something that we should think about programs ramping less efficiently this year or is that a misinterpretation? And I had a follow-up.

Well, it was specific products with our customers. And most of the ramps are in two areas where they're very complex products, optical networking and in automotive. And those are exactly the kind of challenges, as I mentioned, that we want to take on. So – and we've already made progress as I said a couple of times. So I think that we'll get up the learning curve, the yields will continue to improve, and at the same time, we'll have some more new programs coming on this year.

Okay. And then just quickly on materials. So you mentioned that materials that are tight has increased about 25% of your parts. So you mentioned memory and capacitors. Can you just sort of give us a sense of what other materials? And then what you're doing to sort of address it so that it doesn't result in under absorption later in the year?

Well, there's only a certain amount we can do in terms of supply. A lot of it is making sure that we get good solid forecasts, and that we're executing against those forecasts. The reason why it comes into play when you have a lot of new programs is, in some cases, the components can change. And that's what impacted us this quarter. So we think that the market for certain commodities will get better as we go through the next few months, but we can't be certain. And I would say it was still fairly broad based across a number of semiconductors. And as Dave mentioned, memory, flash, resistors, capacitors. It's fairly broad based.

Okay. Thank you very much.

All right. Thank you.

All right. Thanks, everybody. We really appreciate your time today. We'll talk to you soon.

Thank you.

Ladies and gentlemen, thank you for joining us for the Sanmina Corporation's fourth quarter 2017 earnings call. You may now disconnect.