Ladies and gentlemen, thank you for standing by and welcome to the Sanmina Corporation’s Fourth Quarter and Fiscal 2020 Year-End Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] I would now like to hand the conference over to Paige Melching. Thank you. Please go ahead, ma'am.

Thank you, Erica. Good afternoon, ladies and gentlemen and welcome to Sanmina’s fourth quarter and full-year fiscal 2020 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 today's call is Jure Sola, Chairman and Chief Executive Officer.

Good afternoon.

And Kurt Adzema, Executive Vice President and Chief Financial Officer.

Good afternoon.

Before we discuss the results for the quarter, 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 and the slides provided on our website. Please turn to slide 3 of the presentation or the press release, Safe Harbor statement. 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 could differ materially from those projections in these statements as a result of a number of factors set forth in the Company’s annual and quarterly reports filed with the Securities and Exchange Commission. The Company is under no obligation to and expressly disclaims any such obligation to update or alter any of the forward-looking statements made in this earnings release, the earnings presentation, the conference call or the Investor Relations section of our website, whether as a result of new information, future events or otherwise, unless otherwise required by law. You will note in our press release and slides issued today that we have provided you with statements of operations for the quarter and fiscal year ended October 03, 2020, 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 other unusual or infrequent items. Any comments we make on this 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’re referring to our non-GAAP information. I would now like to turn the call over to Jure.

Thanks, Paige. Good afternoon, ladies and gentlemen, and welcome again. Thank you all for being here with us today. First of all, this is our 40th year -- or we just finished the 40th year, right, Paige? So, this was a challenging year, but also, I think we accomplished a lot. The most important, I am very proud of our leadership team and our employees for all that they have accomplished in fiscal year '20. Despite all these challenges, we delivered the strong results for a fourth quarter. For agenda, I have Kurt will review the details of our financial results with you. I will follow up with additional comments about Sanmina's results and the future goals. Then, Kurt and I will open for question and answers. And now, I'll turn this call over to Kurt.

Thanks, Jure. Given the continued challenges and uncertainty associated with COVID-19 and the macroeconomic environment, we remained focused on the optimization and continuous improvement of our business, the leveraging of existing manufacturing capacity, and cash generation. I'm very pleased to report the impact of these efforts were once again evident in our results. Please turn to slide 6. Q4 revenue of 1.875 billion was up 13.3% sequentially and exceeded our outlook of 1.73 to $1.83 billion, we provided in July. Q4 non-GAAP gross margin improved from 8.1% to 8.3%. This was primarily the result of management's focus on driving efficiencies and higher revenue levels with a favorable product mix. Q4 non-GAAP operating expenses of $61.4 million were higher relative to Q3, primarily as a result of the extra week in the quarter. Q4 non-GAAP operating margins also improved from 4.6% to 5.1%. Q4 non-GAAP other expenses were approximately $5.6 million, approximately 1.1 higher relative to Q3. This was primarily due to a gain of approximately $2.5 million related to deferred compensation assets, as a result of the appreciation of the stock market and other financial assets in Q4 compared to a gain of 3.6 in Q3. Just as a reminder, gains or losses related to deferred compensation have no net impact on the EPS as they are equally offset with corresponding increases or decreases in manufacturing and operating expenses. Finally, I'm pleased to report to Q4 non-GAAP fully diluted EPS improved from $0.86 to $1.10, as a result of management's focus on driving efficiencies and higher revenue levels. And this exceeded our prior outlook of $0.73 to $0.83 provided back in July. Now please turn to slide 7. Here, you can see the details related to Q4 and the associated comparisons, as well as a comparison of FY20, relative to…

Thanks, Kurt. Ladies and gentlemen, let me tell you more about business environment for the fourth quarter, the outlook for the first quarter and fiscal year 2021. And also, we will talk to you about what are we doing to maximize the shareholder value at Sanmina. Managing around the global health crisis has been challenging. But, we're adapting well to a new business environment as we're learning how to work with COVID-19. I can tell you that our manufacturing facilities in 21 countries on six continents are operating and supporting our customer requirements daily. Sanmina's number one priority is the safety of our employees and doing the right thing for our customer. Again, I can report to you that we are doing well. Some key highlights for the fourth quarter and fiscal year 2020. As you heard from Kurt, Sanmina delivered strong financial results for the fourth quarter. By exiting fourth quarter operating margin up 5.1%, it's a good goal for the future. And also, as we mentioned, we delivered non-GAAP EPS of $1.10. For fiscal year, 2020 was a good year despite challenges with COVID-19. We are learning a lot. We're keeping it simple, what I call internally, back to basics. Primary focus for a management is on the four key things that drives our success. Number one, safety of our employees. Number two, customer satisfaction. Number three, operating margin improvement. And number four, continue to generate free cash flow. Sanmina has a strong foundation in place and it can operate in any economic environment. Please turn to slide 19. Let me now give you some more highlights of revenue for our fourth quarter and end markets. We had a good domain cross majority of our end markets and good mix of business. Industrial, medical, defense, automotive and communication…

[Operator Instructions] And your first question is from Ruplu Bhattacharya with Bank of America.

Hi. Thanks for taking my questions. And congrats on the strong quarter, and also on the strong guide. Jure, I wanted to see if you could delve a little bit deeper into the communications network segment. You had guided for revenues to be sequentially up. But obviously, you had quite a good quarter. So, maybe, can you just talk about what you saw in the optical side as well as networking and wireless, and how you're thinking about the December quarter in that segment?

Yes. As I mentioned, Ruplu, in my prepared statement, we have a diversified customer base in that segment. We are involved in all new systems and products. So, if I look at that optical side that looks pretty good. And also the part of the network inside IP routing, that also looks good. And I mentioned also that 5G networks are starting to improve. So overall, what we see today is stable. We'll see how mix goes during the quarter. But demand what we see today is pretty stable, based on our forecast.

Okay. Thanks for that. Maybe for my second question, I want to ask you on the defense business, the SCI business. You're trying to unlock value and you've created this new structure where you're going to have a separate president for that business. In the long-term, what's your thought or what's your view on that business? Is this something you want to grow organically, or is this something you would want to monetize maybe as a separate company or as a separate business? So, just your thoughts on how you see that business trending over time and your thoughts on the portfolio with respect to that business?

Yes. If you just look at the Sanmina businesses today, especially now this -- as we go into these three focus groups, and three strong managers to really grow this business for us, our goal is to be successful on this model. And I think, we're getting a lot a lot of volume. Yes, we need economy to cooperate, but there's also a lot of work that we are working on today. And we're positioning the Company, so when things turn around and we see this global health crisis go away and we’re certainly focusing on building things, I think there's a lot of excitement here. But back to SCI. SCI basically builds everything for military, that's mainly defense. As much as I think, 90-plus-percent of their businesses defense, and space, mainly satellites. We have our own products there. We also get heavily involved -- as a partner of general contracts there. So, we're well positioned. We have a name -- military name in that industry. We can take any government contracts on. And if you really look at that business is pretty profitable. I think, we can be even more profitable in the future. Today, we're not getting the right valuation. I don't think that our investor see everything. So that we're trying to create more visibility in the future, most important, better results, and we'll see how things go. We definitely will grow that business, both organically, and we're going to look at some strategic acquisitions that can help us grow it. But, we are focused to SCI. SCI has a lot of upsides. We have a beautiful campus down in Huntsville. And I'm personally excited, especially in the environment today, Ruplu, where things are different and we put in a really strong team there, and with a few more players, I think, future will be bright for us.

Okay. Thanks for the details there on SCI, Jure. Maybe, I also wanted to ask you on the industrial medical defense automotive side. I mean, again, you had guided for sequential improvement. But, I mean, that segment grew, I think 19% sequentially. So, you saw pretty strong growth. Was there anything that surprised you in that segment? I mean, I know there is a lot of end markets there. But, was any one end market the driver for that outsized growth or how did things play out, as you had expected?

Well, first of all, with COVID-19, every day is a different day, both for our customers and for us. I think, we adopted and we created enough flexibility that we're able to help our customer fill the orders as they needed. We really -- our management really did a terrific job last quarter helping our customers do that. When it comes to defense and medical, we're well positioned in both of those markets, in a really critical product, including a product for COVID in medical side, and were able to fill extra orders there, to just to meet the demand from our customers. So yes, maybe we -- if you want to call it surprise, I will say that demand can be stronger than what we anticipated beginning of the quarter. But, I can also say that our team executed really well and worked with our customers very close to deliver the numbers that we did.

Your next question is from Jim Suva with Citigroup?

Thank you very much for the details. I have two questions and I'll ask them at the same time, just so you can determine how you want to answer them or in which order. The first is on, look -- on the results. It looks like the cloud was down year-over-year, and I think you expect it to be kind of stable. Kind of what's going on there with the deferments of orders or deferments of deliveries, or change in architectural systems or anything you can think about? Because your cloud has been quite strong in the past. And this time, it looked like a little bit of slowdown, and maybe it's COVID related. I'm not sure. Then my second question is, Jure, with the CEO change, you made some comments that hey, it's time to make some changes for the Company. But, it looks like these results and outlooks are quite respectable and stellar. So, I'm wondering, have you already implemented those changes, or are the changes still yet to come? How should we think about your desire for change yet the results and outlook look very strong?

Jim, two good questions. So, first, let me answer the one around cloud computing, which for us includes our enterprise computing. As I said in my prepared statement, Jim, I think, were down about 8%, 7.9%, or something, approximately $20 million from last quarter. We have some push out with couple of customers, which in this case was mainly about the timing, and to be able to deliver certain products in certain countries. So, there was some delay there, eventually that product will ship. But there's some delay. I would say, for us, on the whole enterprise, if I look at the last year, there were some bigger opportunities that got delayed. I don't know if they got delayed, because of COVID. But I would say, it's probably 50-50. Some of it is COVID and some of it was just a market dynamics that changed for a couple of our customers. But going forward, we believe that that business for us will do well. We continue to invest in our enterprise storage products ourselves internally, and we got some good opportunities that we're working on. And we'll see how those things shake up. Also forgot to mention, going forward, we're going to report communication networks and cloud solution, which is basically computing business, we're going to combine together. Because it's very hard for us to figure out, what is a -- let's say, optical network system, and sometimes it goes in a big data center, and what is the storage product. So, based on our internal inputs, we felt it’s best way to call it communication and cloud networks. So, hopefully, it'll be easier for me to explain to you in the future. But yes, we’re still committed. And we think -- if you look at that business, for us,…

[Operator Instructions] Your next question is from Christian Schwab with Craig-Hallum.

Hey. Jure, congrats on another good quarter. As we -- you talked about earlier a strong pipeline of new opportunities. Can you give us some color about where you guys are seeing new opportunities? Is that expansion with existing customers, or is that new customers that are helping you?

With medical, I will say both. We got some really good customers that we opened up in last three, four years. Medical sometimes takes a little bit longer time. I see some -- with existing program, some solid demand. We have also few customers that have a weak demand, and what happened with COVID. But again, we have a few customers that are involved in COVID, lab test equipment, et cetera. That continues to be very strong, and then we're adding few more. Defense business for us has been strong, especially in our circuit board business, high technology printed circuit boards, and of course SCI products and services. That continues to grow. And we've got some really good programs that we won in last six months. And we expect that to give us some stability during the year.

Great. And then, the strength that you guys called out in the 5G networks, is that predominantly from your historically large customers there, or is that expanding out? Just can you give us any color about the type of applications and products and the number of customers that you're dealing with in that area?

Well, we have just building out 5G network here -- we have a multiple customers that are involved and come to the few 5G, radios and products of that -- that's our existing customers, we're working on some newer customers and that. But overall we expect that business will continue to grow.

Okay, great. And then, my last question, again, two quarters in a row of extremely strong gross margins in a kind of a lack of visibility and challenging environment, I’m sure, lots of changes into quarter with your customer base. Can you just remind us exactly how you've been able to do that, and why that wouldn't be more sustainable in a better visibility environment?

First of all, it's going to continue to be challenging. Because as I mentioned in my prepared statements, there's still a lot of uncertainties, and it comes around the COVID, things are changing. Again, I give a lot of credit to our people on the floor, able to really put the systems in place where we -- these things have to be monitored. Because the most important in this scenario is with this virus around is making sure that our people are safe and working. And we’re able to accomplish that so far. So, we expect that to continue. And then, of course, all depends on our customers’ demand. And so far in certain products, demand has been stable. We expect it to be stable, at least one quarter at a time. And we'll let you know 90 days from now. But -- and there's a lot of work. And I'll turn that over to Kurt. He can give you more from financial side. There was a lot of hard work that goes in. So, Kurt.

Yes. Thanks, Jure. Yes. As I said in the prepared remarks, we spent a lot of time, and we're spending a lot of time optimizing and continuously improving our manufacturing operations. Again, I think, our ops team has done a great job in a challenging environment doing that. I think, also, we've made a lot of investment in the business over the last couple of years. And so, we're spending a lot of time trying to leverage the existing manufacturing infrastructure. I think, we've done a good job, CapEx being a relatively low level, but in doing those things where we're going to get their ROIC. So, I think we're doing a good job there. I think -- and then finally, I think, this last quarter, obviously, we had some benefit from the higher revenue, favorable mix and candidly, some leverage as a result of the 14 weeks. So, I think all those things added together have helped us. But, we're taking one quarter at a time. And we'll continue to focus on this margin improvement.

Great. Thank you. No other questions.

Okay. Thanks, Christian. Yes. Just to add few more things. As Kurt said, I think, there’s a lot of work and we'll continue to work as we said within our margin improvements and the growth. But before I let you go, I just want to let you know that we'll continue to do what works for us. As I say, continue to focus on safety of our people, taking care of our customers. I think, we have a lot of opportunities. We will continue to develop and expand it to more profitable business. That's the focus. So whatever we doing next, let's say this year or next six -- say next six months to nine months is really all about how do we improve the mix of our business, so that we can continue to deliver sustainable and predictable results. So, you have a commitment that we’re going to work hard and have some fun. So, with that, I want to thank you very much. And if you have any more questions, please give us a call. Thank you very much.

Thank you.

Bye-bye.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.