Good afternoon. My name is Erica, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sanmina Corporation's Fourth Quarter Fiscal 2018 Earnings Conference 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. [Operator instructions] Thank you. Ms. Paige Bombino, Vice President of Investor Relations, you may begin your conference.

Thank you, Erica. Good afternoon, ladies and gentlemen. And welcome to Sanmina's fourth quarter and fiscal year 2018 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. 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 the website. 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 operations may differ significantly as a result of various factors, including adverse changes to the key markets we target, significant uncertainties that can cause our future sales and net income to be variable, reliance on a small number of customers for a substantial portion of our sales, risks arising from our international operations, finalization of the manner of adoption of the new revenue recognition standard 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 today that we are providing you with statements of operation for the quarter and fiscal year ended September 29, 2018, 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 and unusual items to the extent material. Any comments we make on today's 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 would like to now turn the call over to Jure Sola, Executive Chairman of the Board. Jure?

Thanks, Paige. Good afternoon, ladies and gentlemen, welcome and thank you all for being here with us. With me on today's conference call is David Anderson, our Chief Financial Officer, who will review our financial results for the fourth quarter fiscal year 2018 and outlook for the first quarter fiscal year 2019.

Good afternoon, everyone.

And also with us here is Michael Clarke, Sanmina's new Chief Executive Officer.

Good afternoon.

Michael will talk about his view of Sanmina opportunities and the future. Before I turn this call - this conference call over to David and Michael, I would like to add fuel highlights. Michael joined us on October 1, I can tell you that Michael hit the ground running reviewing Sanmina business opportunities immediately. Michael's breadth of industry experience and specific knowledge of Sanmina's management team and capabilities are invaluable to the strategic direction of Sanmina and our future performance. I am pleased to welcome Michael back to Sanmina management team and Sanmina team leader. Michael, welcome.

Thank you, Jure.

Please turn now to Slide 3. Let me give you some highlights for the fourth quarter. We delivered a respectable results for the fourth quarter, revenue for the fourth quarter was $1.88 billion at the high end of our outlook, driven by strong demand across the majority of our end-markets. Non-GAAP diluted earnings per share was $0.67. I can tell you that things are moving in the right direction. During the fourth quarter, we had a strong demand, better mix of business and our ability to drive efficiencies across a number of our operations. And now I can tell you that Sanmina is repositioned to get back to the 4%-plus operating margin in the future, I would say in the near future. Additional few comments for fiscal year 2018. Fiscal 2018 was disappointing year, while the second half of the year was stronger than the first half. I can tell you that we finished strong, and for the year, we delivered $7.1 billion in revenue, up 3.5% year-over-year. The most important is, where do we go from here? So let me make a few comments about fiscal year 2019. While, we anticipate supply environment to remain constrained, at least through first half of the calendar year 2019. We are making continuous improvements in our operating efficiencies across all of our businesses, and we are continuing to drive improvements in areas we can control. Sanmina has continued to see strong demand. Overall, our customer base is positive about the fiscal year 2019, while company is focused on quality of the growth for fiscal year 2019 and beyond. And I can tell you that we are confident that fiscal year 2019 will be a lot better year. Again I am very excited about Sanmina's future under Michael's leadership. Ladies and gentleman, now I would like to thank you all for your support. I will turn this call over now to David Anderson, Sanmina's Chief Financial Officer. David?

Thanks, Jure. Please turn to Slide 4. Overall as Jure mentioned previously, our fourth quarter revenue and non-GAAP diluted earnings per share exceeded our expectations. Revenue was at the high-end of our outlook at $1.88 billion and non-GAAP diluted earnings per share at $0.67 was above the midpoint of our outlook. Revenue was up 3.5% sequentially or $63 million, and up 6.9% or $121.3 million from the fourth quarter of last year. Fiscal 2018 revenue ended at $7.11 billion, up 3.5% with second half's revenue stronger than the first half. Revenue was up sequentially and on a full year basis across the majority of our end-markets. I will discuss our end-market performance more detail in a few minutes. From a GAAP perspective, we reported net income of $5.4 million, which resulted in diluted earnings per share of $0.08 for the fourth quarter. This was down $0.39 sequentially and $0.25 from Q4 of last year. The sequential drop in GAAP diluted earnings per share largely resulted from a $30.6 million non-cash goodwill impairment and a $12.2 million increase in restructuring costs that was partially offset by a $5.6 million reduction in stock compensation expense. The $30.6 million non-cash goodwill impairment resulted from our annual asset impairment review, where one of our business units current fair value of its assets was lower than book value. Also, as I pointed out during our Q3 earnings call, we had a $4.8 million reversal of an accrual for contingent consideration in Q3. For the year, we had a GAAP net loss of $91 million, a reduction of $230 million from fiscal 2017 that was largely driven by a $161.1 million impact on our income tax provision, which was due to the enactment of the U.S. Tax Cuts and Jobs Act in December of 2017, the…

Thank you so much, David, I appreciate that. Could you please turn to Slide 12. Good afternoon, everybody, and thanks for joining the call. I'm so excited to be here and to be part of the Sanmina team, leading it to a high level of performance and positioning going forward. I look forward to working with my Sanmina colleagues across the globe to tackle this and many exciting opportunities we have in our chosen market and continue our tradition of exceeding the expectations of our customer, while achieving maximum shareholder value. I'm privileged to have the support, guidance and knowledge from Jure in his role as Executive Chair, as we work closely in the strategic direction of Sanmina. Thank you, Jure.

Welcome, Michael.

In my four weeks on the job, I've had the opportunity to take a detailed look at the business and my initial observations of Sanmina is great. We have much to offer. I'm impressed with our technology capabilities, which I think is second to none, position in our chosen market with great customers, a global footprint with stable talented and experienced team of employees. However, that being said I cannot ignore the poor financial performance in the past or so, which has been well below our expectations on many fronts. My primary focus going forward will be on optimization - optimizing execution and operational consistency of all the business units, while positioning our path going forward in markets we choose to serve and the products we produce. Sanmina has a lot to offer its customers, employees and shareholders alike. We are world class partner, a great environment to work, yet we need to have consistency and predictable results. I am personally up for the challenge and excited about the future. Please turn to Slide 13. o align our strategy of pursuing new higher system complexity and heavily regulated markets we have decided to combine the industrial, medical, defense and automotive end-markets. On this slide, we provide you with the old breakdown and how it looks under the new classification. Please turn to Slide 14. David provided you folks with the outlook for our first quarter fiscal 2019, and I'd like to provide you some more color around the end-market that gives us confidence in our ability to achieve these outlooks. The Communication Network end-market is expected to be up sequentially, we continue to be challenged, however, by the supply chain constraints as Dave commented on. We are well positioned with key players in the 5G space that will benefit Sanmina…

[Operator Instructions] And your first question comes from Sean Hannan from Needham & Company.

Yes, good evening, folks. And Michael, good to talk to you, again. Welcome aboard.

Thanks.

A few questions - you're really welcome. A few questions to ask here. But I suppose the first I'll start with and I apologize I had a little bit of reception break up, I wasn't sure if I had gotten all the commentary from Jure, in terms of expectations looking into fiscal 2019. So just trying to understand first, to what degree are we looking at fiscal 2019 being a growth year here? And how should we expect that the shape of the year should it be somewhat similar to fiscal 2018. I do think that typically, you guys are always very back-ends weighted. So just want to understand that. So if there's a way we can get a little bit more color on how to think about this next year's estimates. Obviously, the first quarter seems to be off to a good start. More color would be very helpful.

Yeah, so Sean, it's Dave. As you know, we don't provide guidance for the full year, but as we've - as you can see from the guidance that we provided for Q1, we think our fiscal year 2019 is off on a good start. So if you look at that guidance, we're guiding $1.875 billion to $1.925 billion in revenue. So we're we obviously, we had a good quarter in Q4 and we expect to continue to drive towards as I mentioned in my prepared remarks. We're continuing to drive towards the first step of our longer term plan towards to getting back to the 4%-plus operating margin level.

Okay. That's fair. And just to throw a comment here, as you guys are around $7 billion in revenues and a lot of your peers provide some more robust commentary around the outlook on the year, I think, it might be helpful moving forward, but just to throw that out there. So - another question here is, we look at tariffs, and obviously, there was a little bit of news around that today. Can you provide a little bit of feedback in terms of what you're hearing from your customers in terms of points of concern, points of risk, any viewpoints or color that you might have around that?

Yeah, it's Michael. Many of our products come back and not for U.S. for China consumption, the most they come back here. And we have that sort of a robust system for passing these tariffs on to our customers. So we haven't really seen that as a big issue for us going forward. I don't know, if you've got any comments, Dave.

Yeah, we - to Michael's point, we haven't seen any significant impact to us yet on the tariffs. We do pass them through to our customers, most of our business that we have is imported. As far as our customers themselves and what they're looking to do. We have a very, very robust footprint around the world, we can provide a regional solution to them. And we also, because, we are all on one IT system, we can move pretty quickly if they want to move somewhere else. So we feel we can really support our customers, when it comes to the any impact to them from a tariff perspective.

But just as a follow-up. We're not really seeing any early demand for moving things around at this time in place. But, obviously, like as Dave said, we have the ability with this fabulous footprint, we have to be able to do that.

Right.

Yeah. Very appreciated. All right. Thanks so much. I really appreciate the help. And I'm going to jump back in the queue.

Okay. Thank you, Sean.

And your next question comes from Ruplu Bhattacharya with Bank of America.

Hi, Ruplu.

Yes. Hi, how are you, Dave? Thanks for taking my questions. You posted strong revenues for fiscal 4Q and you're also guiding strong for the first quarter, maybe another question on China, I think China represents about 20% of your revenues annually. Did you see any slowdown in China and what are your expectations for China, I mean, for the first fiscal quarter?

Yeah, we don't break it down to comment specifically on each individual region or division, but as you know most of - as we mentioned, most of our revenue out of China goes for export in terms of we - I guess, I'd say that that we don't - or didn't see any huge change in that in the fourth quarter and going forward, I don't think that at this point anyway what we are looking into the Q1, we don't see any major impact on that for Q1.

And we - and it's Michael again, and we constantly update our footprint accordingly of where we produced [ph] it.

Right. That makes sense. Maybe if you can concentrate maybe I'll ask you on the Communications segment. Could you provide us some details on the three sub components; wireless, optical and networking? Did each of them sequentially grow in the fourth quarter and are you expecting all three of them to grow sequentially in the first quarter? Any color on each of the segments?

Yeah, Ruplu, as you know, we don't break down the sub-segments any further than what we've provided on the call. We did see - as I mentioned that our optical and networking was solid. The whole communication sector was up by 1.0 - was sequentially up 2.6%, quarter-over-quarter. We are, as we've mentioned before, in this position - in this situation where we're in the same situation with wireless, where it's transitioning from 4G to 5G. So we are expecting to obviously play in that transition, but I guess at this point, we would say that we're still waiting for that to happen.

Okay, fair enough. And then my last question is on the CPS segment. Gross margins, like you mentioned, declined 20 basis points sequentially. Can you clarify, Dave what happened with the product gross margins and do you expect product gross margins to grow sequentially in the first fiscal quarter?

Yeah, so the product margins contributed to the 20% down that we were on the Components, Products and Services and it was partially driven, as I mentioned with the delays in the shipments in our Tier one cloud solution provider. We expect that to improve in our first quarter, going forward.

Okay. Thanks for taking my questions and congrats on the quarter.

Thank you.

Great.

[Operator Instructions] Your next question comes from Jim Suva from Citi.

Hi, Jim.

Thanks - hey, thanks so much. You talked about the delay and cloud spending from your customer, any sense on is - is it a one quarter delay or a one-year delay and would you like the design to spec challenge or just to slow down in spending, just trying to get a sense on that?

Yeah. We didn't necessarily say it was a delay in spending, it was a delay in shipments. In the quarter, we are ramping, as you know, we talked about that, that we had won that business and we talked about it on our Q3 call, and we're starting to ramp that business in our fourth quarter. We've been dealing like we have on other parts of our business with some supply constraints and other things in that. So there were some delays. We expect that to start correcting it, and it has started correcting itself in our Q1.

Okay, that's it. And then a follow-up within your Comp segment, the optical, any comments on comp optical? Was it better, was it worse in your outlook for optical?

No, I think on the optical piece of the business, it's one of - it's in networking, our largest piece of the communication segment and we were pretty, pretty much - we in that segment, because we do everything in optical, I mean, from passive and active components, all the way up through systems, we haven't been as impacted as others have in the optical segment. So we didn't see any significant huge decline in the optical on a year-over-year basis.

Okay, great. My final question was the goodwill impairment. I assume that was on your balance sheet and the other asset line, maybe I'm wrong on that and if so how much goodwill is still left on our balance sheet? And was it related to Newisys? Or Motorola Solutions? Or the oil and gas acquisitions in the past? Or how should we think about what's left and what was the cost?

Yeah, so the goodwill is, I believe in our other assets and we don't have a lot of other goodwill left on our balance sheet, but the - what I can say about it is, it is in our Components, Products and Services segment, but we don't really break that down any further than that.

Thank you so much for the details and clarifications. That's greatly appreciated.

Thanks, Jim.

I think we have time for just one more question, please.

Okay. And your last question comes from Christian Schwab with Craig-Hallum Group.

Hey congratulations guys on a solid quarter and guide in this environment. Just back to communications. Your largest - well, not your largest. One of your large competitors, Flextronics talked about seeing 5G positively impact the most recent quarter. As you look at your wireless and optical business and the opportunities for the products that you're manufacturing, do you have a time frame of when you would expect that to have a positive impact on the top line?

Yeah, I think by the end of the year, we probably will see that come in as our fiscal year. I mean, we do a massive amounts of prototypes and you never know with technology, they can be delayed a quarter or two or something, but we sort of like putting it for the end of our fiscal year to really affect us.

Okay. Fabulous. And then my last question regarding gross margins in the Components, Products and Services area, maybe for Michael, what is - what type of mix of business or design wins do you believe or do you believe you already have in hand to kind of get back to the upper-8, low-9, gross margin range, and is that a goal that you think is attainable within the next year? Or is that something that may to accomplish?

Yeah. Yeah, I mean, obviously, I'm relatively new at this, but yes, for sure that's the sort of margin and when we've been looking at the pipeline and some new business that we've booked with, we've done some, changing around with some facilities and moving products around. So we feel pretty confident, and I mean, that's our goal.

Yeah, I'll just add that. On the Components, Products and Services side, I mean, we're constantly trying to drive our vertical integration, as you know, Christian, and we expect to see in our Q1 guidance to see improvement in that - in Components, Products and Services as some of, as Michael mentioned - some of the actions that we previously announced, continue to take hold in the first quarter.

Okay. With that, I want to thank you everybody for joining this call today, and I do look forward to updating you on our next call. So thanks to all.

Thank you, everyone.

Thank you. This does conclude today's conference call. You may now disconnect.