Sanmina - SCI Corporation (SANM) F3Q12 Earnings Call July 23, 2012 5:00 p.m. ET Executives Paige Bombino – IR Director Jure Sola – Chairman and CEO Bob Eulau – CFO Analysts Wamsi Mohan – Bank of America Merrill Lynch Jim Suva – Citi Craig Hettenbach – Goldman Sachs Brian Alexander – Raymond James & Associates Sean Hannan – Needham & Company Shawn Harrison – Longbow Research Christian Schwab – Craig-Hallum Capital Sherri Scribner – Deutsche Bank Osten Bernandez – Cross Research Amit Daryanani – RBC Capital Markets Presentation Operator
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We refer you to our quarterly and annual reports filed with the Securities and Exchange Commission. These documents contain and identify important factors that could cause actual results to differ materially from our projections or forward-looking statements.You will note in our press release and slides issued today that we have provided you with statements of operations for the three months and nine months ended June 30, 2012 on a GAAP basis, as well as certain non-GAAP financial information. A reconciliation between the GAAP and non-GAAP financials 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 infrequent or unusual items to the extent material. Any comments we make on this call that 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, net income, and earnings per share, we are referring to our non-GAAP information. I would now like to turn the call over to Jure Sola, chairman and chief executive officer. Jure Sola Thanks Paige. Good afternoon ladies and gentlemen, and welcome. Also thank you all for being here with us today. With me today on this conference call is Bob Eulau, our CFO. Our agenda: Bob will review our financial results for the third quarter. I will follow up with comments relative to Sanmina SCI results and future goals. Then Bob and I will open for question and answers. And now I would like to turn this call over to Bob. Bob Eulau Thanks Jure, and thanks again everyone for joining us today. Please turn to slide three. Overall, the third quarter was much better from a revenue perspective, but was challenging from a margin standpoint. Revenue of $1.55 billion was up 5.9% on a sequential basis, and down 7.5% from the third quarter last year. This was above the high end of our guidance of $1.475 billion to $1.525 billion.
Our gross margin came in at 6.8%, which was down 60 basis points from the second quarter. Operating margin declined 30 basis points from last quarter to 2.8%. Non-GAAP earnings per share was $0.26, which was at the low end of our guidance for the quarter. This was based on 83.6 million shares outstanding on a fully diluted basis.Finally, cash generation was strong this quarter, with cash flow from operations at $48 million and free cash flow at $34 million. I’ll discuss cash in more detail in a few minutes. Please turn to slide four. Revenue was up 5.9%, or $86 million, from Q2 to $1.55 billion. From a GAAP perspective, we reported net income of approximately $9 million, with results in earnings per share of $0.11. This was up relative to last quarter by $0.13. The GAAP results included a $4.2 million charge for the call premium and unamortized issuance costs associated with the redemption of $100 million of debt during the quarter. Restructuring costs totaled about $3.9 million for Q3. The cost primarily reflect what we’ve been recognizing as expenses are incurred related to real estate. Looking forward, we will continue to see some ongoing restructuring charges on our GAAP P&L of approximately $3-4 million per quarter that primarily relate to real estate which is being held for sale. My remaining comments will focus on the non-GAAP financials for the third quarter. At $106 million, gross profit was down $2 million from the prior quarter. Gross margin came in at 6.8%, which was 60 basis points below the previous quarter. Gross margin was lower than we had anticipated for the quarter, primarily due to lower profitability in the components business and a one-time foreign exchange exposure that was not fully hedged. The components business was a disappointment, and we are aggressively evaluating alternatives to quickly improve profitability in this business. Read the rest of this transcript for free on seekingalpha.com