Sanmina Reports Second Quarter Financial Results

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Apr 29, 2019, 16:02 ET

SAN JOSE, Calif., April 29, 2019 /PRNewswire/ -- Sanmina Corporation ("Sanmina" or the "Company") (NASDAQ: SANM), a leading integrated manufacturing solutions company, today reported financial results for the second quarter fiscal 2019 ended March 30, 2019.

"We exceeded our expectations for the quarter. Revenue was stronger than anticipated driven by our teams' excellent job in securing supply to catch up to demand. Our ability to control our costs, drive efficiencies and leverage our operating model drove operating margins to 4.1 percent. Non-GAAP EPS of $0.91 was up 9 percent sequentially and 81 percent over the second quarter of fiscal 2018. Cash flow from operations was $105.7 million as our team made positive strides in reducing our inventory levels. I am extremely pleased with the hard work and execution by our team in meeting our customers' requirements," stated Michael Clarke, Chief Executive Officer.

(In thousands, except per share data)	Q2:2019	Q1:2019	Q2:2018
Revenue	$2,126,639	$2,188,018	$1,675,629
GAAP:
Operating income	$78,115	$77,543	$48,774
Operating margin	3.7%	3.5%	2.9%
Net income	$40,885	$37,952	$24,632
Diluted earnings per share	$0.57	$0.54	$0.33
Non-GAAP:⁽¹⁾
Operating income	$87,388	$85,790	$52,127
Operating margin	4.1%	3.9%	3.1%
Net income	$65,046	$59,168	$36,986
Diluted earnings per share	$0.91	$0.83	$0.50

⁽¹⁾

Non-GAAP financial measures exclude charges or gains relating to: stock-based compensation expenses, restructuring costs (including employee severance and benefits costs and charges related to excess facilities and assets), acquisition and integration costs (consisting of costs associated with the acquisition and integration of acquired businesses into our operations), impairment charges for goodwill and other assets, amortization expense and charges associated with distressed customers, litigation settlements, gains and losses on sales of assets and redemptions of debt, deferred tax and discrete tax items, all to the extent material in the applicable period. See Schedule 1 below for more information regarding our use of non-GAAP financial measures, including the economic substance behind each exclusion, the manner in which management uses non-GAAP measures to conduct and evaluate the business, the material limitations associated with using such measures and the manner in which management compensates for such limitations. A reconciliation of the non-GAAP results contained in this release to their most directly comparable GAAP measures is included in the financial statements furnished with this release.

Balance Sheet and Cash Flow

Ending cash and cash equivalents: $405.5 million
Cash flow from operations: $105.7 million

"Our strong results over the first six months of fiscal 2019 are a testament to our teams' ability to provide value to our customers through our technical capabilities, market expertise and operational excellence. We remain confident in our ability to drive profitable growth and positive cash flow from operations over the remainder of fiscal 2019," added Mr. Clarke.

Third Quarter Fiscal 2019 Outlook
The following outlook is for the third fiscal quarter ending June 29, 2019. These statements are forward-looking and actual results may differ materially.

Revenue between $1.925 billion to $2.025 billion
GAAP diluted earnings per share between $0.60 to $0.70
Non-GAAP diluted earnings per share between $0.72 to $0.82

Company Conference Call Information
Sanmina will hold a conference call to review its financial results for the second quarter on Monday, April 29, 2019 at 5:00 p.m. ET (2:00 p.m. PT). The access numbers are: domestic 877-273-6760 and international 706-634-6605. The conference will also be webcast live over the Internet. You can log on to the live webcast at www.sanmina.com. Additional information in the form of a slide presentation is available on Sanmina's website at www.sanmina.com. A replay of the conference call will be available for 48-hours. The access numbers are: domestic 855-859-2056 and international 404-537-3406, access code is 2839978.

About Sanmina
Sanmina Corporation is a leading integrated manufacturing solutions provider serving the fastest growing segments of the global Electronics Manufacturing Services (EMS) market. Recognized as a technology leader, Sanmina provides end-to-end manufacturing solutions, delivering superior quality and support to Original Equipment Manufacturers (OEMs) primarily in the communications networks, cloud solutions, industrial, defense, medical and automotive. Sanmina has facilities strategically located in key regions throughout the world. More information about the Company is available at www.sanmina.com.

Sanmina Safe Harbor Statement
Certain statements contained in this press release, including the Company's outlook for the third quarter fiscal 2019 results and expectations for the remainder of fiscal 2019, constitute forward-looking statements within the meaning of the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in these statements as a result of a number of 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; and the other factors set forth in the Company's annual and quarterly reports filed with the Securities Exchange Commission ("SEC").

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 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.

Sanmina Corporation
Condensed Consolidated Balance Sheets
(in thousands)
(GAAP)
			March 30,	September 29,
			2019	2018
			(Unaudited)
ASSETS

Current assets:
	Cash and cash equivalents		$ 405,494	$ 419,528
	Accounts receivable, net		1,312,887	1,177,219
	Contract assets		401,705	-
	Inventories		1,006,548	1,374,004
	Prepaid expenses and other current assets		48,454	43,676
		Total current assets	3,175,088	3,014,427

Property, plant and equipment, net			639,901	642,913
Deferred tax assets			312,081	344,124
Other			79,617	83,669
		Total assets	$ 4,206,687	$ 4,085,133

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
	Accounts payable		$ 1,439,397	$ 1,547,399
	Accrued liabilities		208,839	136,427
	Accrued payroll and related benefits		126,932	124,748
	Short-term debt, including current portion of long-term debt		643,360	593,321
		Total current liabilities	2,418,528	2,401,895

Long-term liabilities:
	Long-term debt		-	14,346
	Other		207,440	196,048
		Total long-term liabilities	207,440	210,394

Stockholders' equity			1,580,719	1,472,844
		Total liabilities and stockholders' equity	$ 4,206,687	$ 4,085,133

Sanmina Corporation
Condensed Consolidated Statements of Income
(in thousands, except per share amounts)
(GAAP)
(Unaudited)

		Three Months Ended		Six Months Ended
		March 30,	March 31,	March 30,	March 31,
		2019	2018	2019	2018

Net sales		$ 2,126,639	$ 1,675,629	$ 4,314,657	$ 3,420,429
Cost of sales		1,973,537	1,560,931	4,012,218	3,196,265
	Gross profit	153,102	114,698	302,439	224,164

Operating expenses:
	Selling, general and administrative	64,186	65,384	127,214	128,987
	Research and development	7,599	8,221	14,036	15,836
	Restructuring and other costs	3,202	(7,681)	5,531	16,779
	Total operating expenses	74,987	65,924	146,781	161,602

Operating income		78,115	48,774	155,658	62,562

	Interest income	364	287	558	572
	Interest expense	(8,472)	(6,826)	(16,743)	(13,040)
	Other income (expense), net	(891)	(483)	(6,885)	2,747
Interest and other, net		(8,999)	(7,022)	(23,070)	(9,721)

Income before income taxes		69,116	41,752	132,588	52,841

Provision for income taxes		28,231	17,120	53,751	183,119

Net income (loss)		$ 40,885	$ 24,632	$ 78,837	$ (130,278)


	Basic income (loss) per share	$ 0.59	$ 0.35	$ 1.15	$ (1.83)
	Diluted income (loss) per share	$ 0.57	$ 0.33	$ 1.11	$ (1.83)

	Weighted-average shares used in computing per share amounts:
	Basic	68,821	70,441	68,556	71,096
	Diluted	71,446	73,582	71,162	71,096

Sanmina Corporation
Reconciliation of GAAP to Non-GAAP Measures
(in thousands, except per share amounts)
(Unaudited)

		Three Months Ended
		March 30,	Dec. 29,	March 31,
		2019	2018	2018

GAAP Operating Income		$ 78,115	$ 77,543	$ 48,774
	GAAP operating margin	3.7%	3.5%	2.9%
Adjustments:
	Stock compensation expense (1)	6,626	5,816	10,295
	Amortization of intangible assets	190	636	1,812
	Distressed customer charges (2)	(555)	(344)	(163)
	Restructuring costs	3,012	2,139	(8,591)
Non-GAAP Operating Income		$ 87,388	$ 85,790	$ 52,127
	*Non-GAAP operating margin*	4.1%	3.9%	3.1%


GAAP Net Income		$ 40,885	$ 37,952	$ 24,632

Adjustments:
	Operating income adjustments (see above)	9,273	8,247	3,353
	Adjustments for taxes (3)	14,888	12,969	9,001
Non-GAAP Net Income		$ 65,046	$ 59,168	$ 36,986


GAAP Net Income Per Share:
	Basic	$ 0.59	$ 0.56	$ 0.35
	Diluted	$ 0.57	$ 0.54	$ 0.33

Non-GAAP Net Income Per Share:
	Basic	$ 0.95	$ 0.87	$ 0.53
	Diluted	$ 0.91	$ 0.83	$ 0.50

Weighted-average shares used in computing per share amounts:
	Basic	68,821	68,303	70,441
	Diluted	71,446	70,901	73,582


(1)	Stock compensation expense was as follows:

	Cost of sales	$ 2,582	$ 1,735	$ 1,851
	Selling, general and administrative	3,939	3,990	8,388
	Research and development	105	91	56
	Total	$ 6,626	$ 5,816	$ 10,295

(2)	Relates to recovery of previously written-off inventory and bad debt associated with distressed customers.

(3)	GAAP provision for income taxes	$ 28,231	$ 25,520	$ 17,120

	Adjustments:
	Tax impact of operating income adjustments	189	168	125
	Discrete tax items	(3,741)	2,127	(2,552)
	Other deferred tax adjustments	(11,336)	(15,264)	(6,574)

	Subtotal - adjustments for taxes	(14,888)	(12,969)	(9,001)

	Non-GAAP provision for income taxes	$ 13,343	$ 12,551	$ 8,119



Q3 FY19 Earnings Per Share Outlook:		Q3 FY19 EPS Range
		Low	High

	GAAP diluted earnings per share	$ 0.60	$ 0.70
	Stock compensation expense	$ 0.12	$ 0.12
	Non-GAAP diluted earnings per share	$ 0.72	$ 0.82

Schedule I

The commentary and financial information above includes non-GAAP measures of operating income, operating margin, net income and earnings per share. Management excludes from these measures stock-based compensation, restructuring, acquisition and integration expenses, impairment charges, amortization charges and other infrequent items, as adjusted for taxes, to the extent material or which we consider to be of a non-operational nature in the applicable period, and as more fully described below.

Management excludes these items principally because such charges are not directly related to the Company's ongoing core business operations. We use such non-GAAP measures in order to (1) make more meaningful period-to-period comparisons of Company's operations, both internally and externally, (2) guide management in assessing the performance of the business, internally allocating resources and making decisions in furtherance of Company's strategic plan, (3) provide investors with a better understanding of how management plans and measures the business and (4) provide investors with a better understanding of the ongoing, core business. The material limitations to management's approach include the fact that the charges and expenses excluded are nonetheless charges required to be recognized under GAAP and, in some cases, consume cash which reduces the Company's liquidity. Management compensates for these limitations primarily by reviewing GAAP results to obtain a complete picture of the Company's performance and by including a reconciliation of non-GAAP results back to GAAP in its earnings releases.

Additional information regarding the economic substance of each exclusion, management's use of the resultant non-GAAP measures, the material limitations of management's approach and management's methods for compensating for such limitations is provided below.

Stock-based Compensation Expense, which consists of non-cash charges for the estimated fair value of stock options and unvested restricted stock units granted to employees, is excluded in order to permit more meaningful period-to-period comparisons of the Company's results since the Company grants different amounts and value of stock options in each quarter. In addition, given the fact that competitors grant different amounts and types of equity award and may use different option valuation assumptions, excluding stock-based compensation permits more accurate comparisons of the Company's core results with those of its competitors.

Restructuring, Acquisition and Integration Expenses, which consist of severance, lease termination, exit costs and other charges primarily related to closing and consolidating manufacturing facilities and those associated with the acquisition and integration of acquired businesses, are excluded because such charges (1) can be driven by the timing of acquisitions which are difficult to predict, (2) are not directly related to ongoing business results and (3) do not reflect expected future operating expenses. In addition, given the fact that the Company's competitors complete acquisitions and adopt restructuring plans at different times and in different amounts than the Company, excluding these charges permits more accurate comparisons of the Company's core results with those of its competitors. Items excluded by the Company may be different from those excluded by the Company's competitors and restructuring and integration expenses include both cash and non-cash expenses. Cash expenses reduce the Company's liquidity. Therefore, management also reviews GAAP results including these amounts.

Impairment Charges, which consist of non-cash charges, are excluded because such charges are non-recurring and do not reduce the Company's liquidity. In addition, given the fact that the Company's competitors may record impairment charges at different times, excluding these charges permits more accurate comparisons of the Company's core results with those of its competitors.

Amortization Charges, which consist of non-cash charges impacted by the timing and magnitude of acquisitions of businesses or assets, are also excluded because such charges do not reduce the Company's liquidity. In addition, such charges can be driven by the timing of acquisitions, which is difficult to predict. Excluding these charges permits more accurate comparisons of the Company's core results with those of its competitors because the Company's competitors complete acquisitions at different times and for different amounts than the Company.

Other Infrequent Items, which consist of other infrequent or unusual items (including charges associated with distressed customers, litigation settlements and gains and losses on sales of assets and redemptions of debt), to the extent material or non-operational in nature, are excluded because such items are typically non-recurring, difficult to predict or not directly related to the Company's ongoing core operations. However, items excluded by the Company may be different from those excluded by the Company's competitors. In addition, these expenses include both cash and non-cash expenses. Cash expenses reduce the Company's liquidity. Management compensates for these limitations by reviewing GAAP results including these amounts.

Adjustments for Taxes, which consist of the tax effects of the various adjustments that we include in our non-GAAP measures, and adjustments related to deferred tax and discrete tax items. Including these adjustments permits more accurate comparisons of the Company's core results with those of its competitors. We determine the tax adjustments based upon the various applicable effective tax rates. In those jurisdictions where we do not expect to realize a tax cost or benefit (due to a history of operating losses or other factors), a reduced tax rate is applied.

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SOURCE Sanmina Corporation