Sanmina-SCI Corporation Aktie

Thanks for joining us on day 2 of our Global Technology Conference. My name is Ruplu Bhattacharya and I'm with the IT, hardware and electronics manufacturing services equity research team at Bank of America. Today, we're honored to have Jon Faust, the CFO of Sanmina Corporation. Jon has been with Sanmina since 2023, but he has over 20 years of experience with another company that we cover, HP and various branches of HP. So he's got lots of industry experience, and we've got lots to talk about. So Jon, thanks for coming.

Yes. Thanks for having me, Ruplu. Good to see you, as always.

All right. Great. So I want to talk about -- I want to start with something that's on everybody's minds, and that is ZT Systems. So if I remember from the last earnings call, you showed us a slide that showed the evolution of ZT Systems in 3 stages. So can you kind of remind us of that, where does ZT stand right now in terms of qualification and testing and how do you see its evolution progressing over the next quarter or 2 quarters?

Yes, absolutely. So whenever you do a deal like the deal with ZT or an acquisition and -- it's very important to have a well-thought-out strategy or just a plan effectively of how you make the investment thesis successful, right? What you want to do with the business exactly. So to your point, what we tried to do on our last earnings call is kind of lay out that plan in very simplistic terms, like very high-level terms, just to give investors and sell side, buy side, a better idea of like where we are at in the process. And so when we first closed the deal at the end of October last year, we just wanted to do the initial integration work and so forth. But what we were also doing is taking a bit of a risk continuing to make investments in the business because we knew that there were certain elements of ZT that were going to transition over time. But ZT was making a lot of investments when they're a stand-alone company, again, when they're part of AMD, and we wanted to continue with that.

Now that was kind of the first phase, the first things that we needed to do. The second phase was all about winning business, maintaining the business that ZT had across all 3 lines of business. So that's general purpose compute, CPU-based platforms, storage and then also accelerated compute, the GPU-based platforms. But we had to go win that business. And as we announced on our last earnings call, like we have won that business, both preproduction and production stage business, which is great.

Now to the question that you're asking, what we're working on right now is we're working through the preproduction phase, and we're starting to kind of lock in what production will look like. Now we've got a pretty good idea from the customers already what the forecast is going to look like when we get into production at the end of this calendar year and into next year, but there's still a lot that we have to learn in preproduction, but everything is very much on track, and we're very excited about it.

I mean, when I think back to that plan that we said, we've been executing very well to that. Everything that we said since day 1 and so we just want to continue to do that. And right now, the stage is do the preproduction testing. So we're getting units to AMD, for example, to customers and so forth. We're learning a lot on how to produce and manufacture the products. And then that will help to finalize the eventual production schedule. And that's when we'll come out with more details from a guidance perspective, like the scale, the revenue, the profitability of the business. But right now, we're right where we expected to be in that overall plan that I mentioned.

Got it. You mentioned different buckets and different things that ZT does. Can you elaborate a little bit? Talk to us about what ZT does in terms of accelerated racks, non-accelerated racks and how do you -- how should investors think about overall long-term trends in these businesses and revenue growth?

Yes. So ZT historically, the company has been around for 30 years. I'd say the last 15 years, they were focused on the data center business and as an ODM player. So they were a true ODM, so competing with the large Taiwanese ODMs, for example, across those 3 lines of business that I mentioned. So servers, CPUs, servers, storage and accelerated compute and they were fantastic at it. Now those are all lines of business that we wanted to get into Sanmina because if you think about the core Sanmina business or the legacy business, when it comes to what we were calling cloud infrastructure, we were predominantly focused on data center networking.

So this ZT deal helped to expand our TAM. It got us back into server integration work, storage. When I say server, both CPU and GPU business, so we are excited to expand into that, and we want to maintain that business. But it was a true expansion of our TAM at the end of the day because Sanmina had gotten out of those businesses. Now what ZT always was focused on as an ODM was just the final system integration and test. So really like L10 to L12 manufacturing, they didn't do any subassemblies or anything below that level.

Now that's what Sanmina brings to the table, and that's what makes this deal and this transaction synergistic for us. We want to make sure we want to win business where ZT can continue to do what they've done very, very well in the past, but then complement it with what Sanmina can do because we can do board fabrication, we can do rack fabrication. A lot of things that ZT wasn't done. But first things first, back to the plan that I mentioned about achieving the investment thesis. It was winning business, maintaining the business with -- ZT had with their legacy customers, win more customers with what they do well, and then over time, introduce some of the capabilities that Sanmina brings to the table with vertical integration. But to answer your question directly, maintain and stay in all 3 lines of business.

Got it. Can you remind investors what you've telegraphed in terms of revenues for ZT for this fiscal year? How much revenue have they generated so far? And what should investors be thinking of for the rest of the year? And if you can segment that between AI-related and non-GPU related?

Sure. So we announced the deal on May 19 of last year. It's almost a year ago exactly. And at the time, we said a couple of things. One, we said when we were closing -- when we expected to close the deal, which happened at the end of October, that same year, we expected the revenue run rate for total ZT to be in the $5 billion to $6 billion range. And that's held true. If you think about the full year, fiscal year '26 guide that we gave in our last earnings call, the ZT guide that has you right in the middle of that, right? Now of course, there's a range. So it could be towards the higher end of the range or a little bit below the midpoint, but solidly within that $5 billion to $6 billion. And so we had mentioned that all the way back on May 19 before we even closed the deal. And this is why I say, Ruplu, earlier that we're very much on track on our execution of our plan for ZT.

What we also said back on May 19, a year ago was that we expected to double Sanmina the size of the company, speaking about revenue within 3 years. And so at the time, core Sanmina was about $8 billion, so that implied a $16 billion number, but we said within 3 years. Fast forward to when we closed the deal, we accelerated that and said, hey, we expect to do that within 2 years. So we brought that forward by a year, which implies our fiscal year '27, right, which is coming up soon. And then on our most recent earnings call, we said $16 billion plus.

Now that we've got customers lined up, we've got a better point of view on the production schedule, still preliminary, albeit it's not really a formal guide, but we said $16 billion plus and Jure made the comment on the call about becoming increasingly confident, right, about the business, and that's because we had a plan, and we've been executing one step at a time. And so it's been going well, and we just want to continue to execute to that plan.

Got it. Got it. That makes sense. I'm going to come back to the revenue streams in a bit, but let's talk about manufacturing facilities. So I think you bought 3 facilities when you bought ZT Systems. Can you give us an overview of how those facilities are trending? Are they set for building data center racks? Do you have enough power? And how should we think about the production capacity of these facilities?

Yes. So it was 3 facilities, 3 plants that we acquired as a part of the ZT deal. So the primary headquarters location plant is in Secaucus, New Jersey, just outside of Manhattan. There's another facility here in the States, in Georgetown, Texas, just north of Boston and then a third one in the Netherlands. And all of them are capable of producing business already across those 3 lines of business that ZT was in and state-of-the-art facilities.

Now what we've been doing, and this started even before we did the deal. And again, over the past couple of years, even before we closed, is -- there's been investments made in those facilities to retrofit them effectively for the next generation of accelerated compute, because the power demand is incrementally like massively larger, right? And that's one thing as we were talking with customers, they want to understand the power road map that you have and you need to have those agreements in place with the local governments, the cities, municipalities and such, and we've got that. We had those agreements in place. And that's what was really attractive to us about the assets that we picked up as a part of this deal is that you not only had plants executing at scale across those 3 lines of business. But for the long term, you had agreements in place for power.

You also have to retrofit the test cells for liquid cooling. So you have to have large chillers in the facilities and so forth. So we've done that. We had to keep that pace and that was going to be important to win the next generation of business. So those investments have largely been made now. I mean there's more money to spend over time as power comes in, but we've retrofitted that, so we're prepared. And so that was critically important, right? And now as we're in the preproduction phase of the next generation, we're already leveraging those capabilities, right, to build these products and we're learning more every single day in the preproduction phase. I'm talking engineering validation, design validation, and each customer has a slightly different schedule, different configurations of the product. So you learn a lot, and that's important in our business is to be involved in that stage to make sure you really learn what it takes to build these products.

Got it. You've guided for strong revenue growth, I mean, $16 billion plus by fiscal '27. But the question that I keep getting from clients is, do you have enough capacity to meet that demand? And hopefully, as you grow with AMD, you get more rack orders. Do you have enough facilities to satisfy the demand for the revenue growth that you're going to see?

We do. I mean, we've definitely got the capacity now to do the $16 billion plus. And we'll learn more over time, like we've got estimates right now as we've been learning through that preproduction phase on what it takes to build the product because then you start to estimate how many racks can you build in a given week, month, quarter, right? And it all depends right now when you're just doing preproduction, not like the full-scale unit, production level, silicon and so forth. You've got estimates on how long, not just to integrate it, but to test it because you got to ship it as a complete turnkey product to the customers to put into their data centers.

So we'll learn more about that. But we've got the capacity in place. Now longer term, Sanmina has a very large footprint. Now not all of our facilities around the world have been retrofitted, have like the power or the liquid cooling test cells, for example, to do accelerated compute. But we certainly do for storage, for example, or CPU-based general-purpose compute, pick your term there. So we've got different levers that we could pull essentially if we wanted to move business. So if we're very successful with accelerated compute, with customers and we need more capacity, we could leverage the ZT facilities that are specialized for that and then potentially move other business elsewhere or bring up new plants. So...

Got it. So you mentioned this non-GPU, non-accelerated business. How do you think about that market? And what are the pros and cons of focusing on that business?

I mean the news over the last, I don't know, what is it, 3, 4 months, right, whether it's from AMD or I know HPE, a prior company of mine, announced recently this week, general-purpose server, CPU-based platforms are doing extremely well right now. And that is one of the lines of business that ZT is in. Now for us, as a part of that plan that I mentioned earlier, we are very focused on making sure the transition of accelerated compute was successful, but that doesn't mean that we're ignoring the CPU-based business, right? You just have to make sure that you don't have too many priorities at one time, because if you start to slip with these customers, especially hyperscalers that want product at scale, they don't want any issues, you don't want to get yourself overcommitted. But that is an interesting business to us.

So our strategy and approach as a part of that plan was maintain the legacy customers that ZT had with the programs they had, convert to the next generation of accelerated compute and then expand from there. Now we've talked a lot externally about vertical integration, right, doing more things with the rack because of Sanmina's capabilities, right, like below L10, for example, but it is an expand like the program set that we have, too. So the CPU servers, right, and even storage products. So we are interested in that, and we do have like a team in place that focuses on that. But you got to take one step at a time, and then you can win more programs, especially with the large customers.

Got it. Maybe I want to transition into margins now. So talk to us about how you see ZT Systems margins trending over time. And if you can address two things. One is consignment versus non-consignment, how does that impact things? And then just in terms of the AI revenues versus non-accelerated revenues, how does that mix impact margins?

Yes. So the operating model that the customers choose, so consignment or non-consignments, which really just means that we never take financial control of certain components, which means in our business, we don't recognize revenue on it. Like that's all dependent on customer, but you do see it across all 3 lines of those businesses, right? Some customers very much prefer like a buy-sell model where they control certain components, whether it's the CPUs, the GPUs, memory, et cetera, and then we wouldn't rev rec that. But we're fine to work in any of those models, right? It's for me, from a CFO perspective or from a financial perspective, the true economics is how much profit are you making per rack or per unit that you're building and making sure that the ROIC is good on that front.

Now in the short term, with the mix of the business that we have right now, we've said that the margin profile is similar to core Sanmina. And you've seen that play out. It's actually been a little bit more favorable than that in our Q1 and Q2 results and even our guide for the back half. Core Sanmina exited fiscal year '25 at a 6% operating margin. So we're already there, it is core Sanmina. If you look at Q1 and Q2, we've done better than that, right, a little bit better in Q1, quite a bit better in Q2. And our guide for the second half is even better. So ZT has done well from a margin perspective. But the core Sanmina business is continuing to make progress as well. So that's our best estimate for right now.

Now we haven't formally guided FY '27 yet because we have to lock down the production schedule with the customers. Also the final mix of the customers, that will dictate the operating model, so that could change the profile. But our best guess right now, and we've been saying this since day 1, when we quoted the $16 billion for revenue is, yes, there'll be a good mix of consignment in there, similar profiles for now for -- around that Sanmina profile, I think like 6%. But over time, if we're successful with vertical integration, that wouldn't be more revenue throughput that would just be profit dollars, so that should drive accretion.

Got it. Last quarter came in better than expected for ZT. I think you also -- ZT used to do some legacy accelerators as well, both for NVIDIA as well as the earlier versions of AMD's accelerators. Talk to us about that. I mean, is that a business that you would like to be still in? And how do you see that trending?

Yes. So in Q2, we effectively -- we didn't have almost any, I think, it was close to 0, like legacy accelerated compute platform business, so NVIDIA-based business. That had gone to 0, which we always knew was going to happen because of the nature of the transaction that AMD did. What we did have that we were very pleased with was current generation like new business for us, like AMD platform business, for accelerated compute. And we executed very well on that front and got some incremental, delivered strong demand, too. Now we always expected that to be batchy business for us. The real opportunity for us is the next generation of accelerated compute. And the reason being is, by the time we did the ZT deal, manufacturing partners for the current generation, right, the accelerated compute was already done. But the dynamic that we saw in Q2 was some customers wanted to test us out, test out ZT.

Can we build a different platform of product, learn how to do business? And that was a very important precursor to winning the next generation of accelerated compute, prove that we can do it today. And when we had guided the full year, we expected -- we had some of that demand in place. We expected it to happen between Q2, Q3, maybe even a little bit before in Q4 and that was because of when we thought certain components and supply was going to become available. But once more supply became available, this is the strong execution point. The customers wanted that product immediately and ZT did a fantastic job building that product, shipping it.

So you saw the results that we had, which was essentially an acceleration. So our full year guidance didn't change, like our outlook is still consistent, but the timing changed because of the strong execution. And we got some more demand, too. So we'll see if some more comes in. But right now, we're really laser-focused on getting prepared for the next generation to make sure that, that goes well.

Got it. So building racks is a working capital-intensive business, right? And as you build more and more racks into inventory, how should investors think about working capital, inventory and free cash flow?

Yes. So you're absolutely right. So over time, our working capital will build. The dynamic that we've seen in the first 2 quarters with ZT though, was that legacy business kind of coming down, right? Because we knew that, that dynamic was going to be happening. So we've been generating a lot of cash, which is great. We've been preserving that cash. If you look at core Sanmina, we used to always hold somewhere around $600 million for cash in any given quarter when we would exit. Now we're $1.5 billion in that range. So we've been generating a lot, and that is to get prepared for the eventual working capital build.

I expect that to happen towards the end of the calendar year. Some of it will start here even in Q3 and into Q4, but depending on the operating model, like how much is consignment versus not because if it's consignment, then we don't have to go pay for those materials. We receive them physically. So that will play in. But I do expect working capital to build. So what I've talked about externally is I think about it from like a leverage ratio perspective and Sanmina had the best balance sheet by far in the industry prior to doing this deal and even post doing the deal, we're right in the range of our peers and competitors. But I set a target range of 1 to 2x net. And we've been well below that so far.

I do think we'll come into that range as we get into the back half of the year. And depending on the operating model, it could even go a little bit above it, say, like into next year, we'll see. It depends on that final production schedule. But that's all been part of the plan. That's why we set up the capital structure that we did, not only to purchase the assets, but to get prepared and to have the balance sheet and dry powder to support the growth of the business.

Got it. Okay. That makes sense. I do want to touch on the rest of the business. But before we get to that, are there any risk factors to ZT revenues for this year that investors should keep in mind?

For this fiscal year, I mean, there's always risk, right? But if I think about the ZT the big risk factors was -- one of the big ones was, were we going to win the business? Were we able to -- were we going to stay in the accelerated compute business and win the next generation? And that's what we talked about in the last earnings call that we've essentially kind of crossed the chasm from that regard. But there's still a lot of work to be done, right? We're in this preproduction phase and we need to execute.

So the biggest risk right now is not executing. And that's why we're so focused on like let's make sure that we execute well. So when customers want certain preproduction racks, whether it's EVT, engineering validation or design validation, whatever component mix or configuration changes that they want, like we need to execute well on that because that's really what we're doing this fiscal year for us, all right?

Then as we get into FY '27, that's when the production scale will happen. So we've got to get prepared for that. So we're -- but for this fiscal year, it's really just kind of executing well in the preproduction, continuing to win customers, kind of lock down that demand. And the same thing on our core business, but that's normal for manufacturing. You have to execute, otherwise customers will go elsewhere.

So let's move on to the rest of the business because if we think about legacy Sanmina, you have a very good footprint in optical communications. So talk to us about how the communications market is trending and how do you see Sanmina positioned in this?

Yes. Communication, I mean, what the segment or what we call it is communication networks and cloud infrastructure. So just talking core Sanmina, legacy Sanmina, that part of the business has done extremely well. I mean it's 7 quarters in a row now that we've been growing around 20%, 20-plus percent, and that includes the optical part of the business. And the reality is that we could be doing even better there. There's a lot of demand, but it's constrained, right? So on the cloud infrastructure side, whether it's -- if you think like data center networking, it's different chips and so forth, memory, things that come into play. On the optical side, it's lasers that you need to do the manufacturing, but the demand is there. And we expect that to continue. But the core business overall, and that's been a big reason why, like last fiscal year, the core business grew high single digits.

We've guided this year that it will be the same. It's a little too early to say like we haven't guided FY '27. But on our last earnings call, we said that we don't expect that dynamic to change anytime soon. And we'll see what happens with the supply environment. But if it stays constrained, similar type of profile, but when that eases up, we think we could do even better. And on top of that, Ruplu, we're always looking to win incremental business, take business, larger share from customers. So hopefully, we can do that, too.

Yes. I want to address some other end markets. But before I do that, maybe I'm going to jump to the capital allocation question. As you see working capital needs going up, how should we think about your allocation of capital to CapEx, any M&A that could be relevant? And how should investors think about returns?

Yes. So the capital allocation strategy for us has been very consistent. It's all about driving growth, right? That's what we want to do at the end of the day. Now we always look at it from an ROI perspective. So I'm always balancing the ROI of paying down debt, doing share repurchases, things of that nature. But we're heavily indexed to how do we preserve the dry powder to drive growth. And that's why you've seen our cash balance grow over time because we know that we're going to need some of that cash to drive the growth, depending on the operating model of the future. But that doesn't mean that we don't continue the pipeline going from an M&A perspective.

We're always looking for opportunities to grow and expand our business. And we might have -- we might do different acquisitions on that front, whether it's bringing in engineering talent or bringing in new capabilities, automation, things of that nature, not just for ZT, but for the core business, too. And that's why it's important that we have this strong balance sheet. But the balance to that is, I'm always looking at that leverage ratio and making sure that we stay within the right range, and we don't get overleveraged by any means.

So we'll continue to do that. We'll be opportunistic. I mean if you go back to after our Q1 results, the stock was down quite a bit based on the market reaction. So we did do some share repurchases to offset the dilution of the shares that we granted to AMD as a part of the ZT deal. But that was because the ROI was just so attractive not to pass that up. But now it's all about driving growth.

Got it. Sanmina also has another unique business, which is the defense business, and SCI has been a very steady contributor to revenues and cash flows. What's the long-term plan for that business? And how is that business trending?

Yes. Aerospace and defense has been a great business for us, and we've got a mix of traditional like EMS contract manufacturing work, but we do have our own products and IP in that business, and it has been growing and it's accretive to the business. If you look at the overall profile. So it's definitely something that we want to grow and invest in. And based on all the conflict in the world, which is unfortunate, like there's no shortage of demand there. And there's new players coming into the market, not just the legacy primes that everybody knows about the large players, but new companies that are coming in, too, that we've been targeting. So more to come when we guide FY '27, but that has been an area of focus for us, putting capacity in place, winning new programs with new customers. So we think that, that will be an attractive end market for us. Maybe not quite the same scale as AI these days, but it's a good business to be in.

Got it. How about the industrial end markets, what's happening in there?

Industrial, too, we're starting to see that come back for us. If you go back a couple of years, all the end markets that we are playing in, we're working through inventory absorption, right? So a lot in the channel and so forth. Industrial is kind of similar. So whether you think about like semi-cap equipment, like that's starting to get better, so the inventory profile is getting better. And if you look at like our core Sanmina business, when we talk about the different segments, that was in Q1, industrial, medical, aerospace and defense, all those growth. There's a bit of a headwind, down like 3% year-over-year. It was flat in Q2, but as you look at the back half, it's going to return back to growth, and part of that is the improvements that we're seeing in the industrial space. And that's across both like semi cap equipment, but then other areas, too, things like police handsets, radio handsets, cameras, equipment like that for security purposes, that's been doing quite well already, but we expect that to get better. Again, maybe not the same growth profile as some other end markets, but still a good business to be in.

Got it. So you've got about 2 minutes left. And I want you to leave investors with what you think the market is missing about Sanmina's story? And one question I keep getting from clients, I want you to address this as well. The AI rack building space is a very crowded space. I mean there are lots of companies, EMS, ODM who can do this. How do you see Sanmina and ZT Systems positioned in this market? What are some of the unique things that ZT brings that will let you compete in this market against those players?

Yes. Let me start with the ZT side first, just to explain that. So yes, it is a competitive market, but it's important to keep in mind that ZT was a Tier 1 provider in that space competing with the Taiwanese ODMs. So their manufacturing capabilities are second to none, right? And if you think about the facilities, the people and so forth. So we're very excited about that. Now certainly, there was the transition period that we had to work through, but we've had a plan for that and we've executed well to that plan all the way to back to what we said a year ago.

Things have been happening exactly the way that we said, even better than that. So we need to continue to execute on that because the growth profile of that end market in particular is massive. And so I think that's missing in our story today is the potential of that business, both accelerated compute and then the other 2 lines of business, if we execute well. And I think that we've shown over the last year that we can execute well. But ZT had those capabilities, right? And so to your point, around the crowded space.

So very focused on that. But more broadly, we've learned lessons over time. Sanmina has, certainly Jure has. And it's good to be diversified. And there's a lot of opportunity in the other end markets that we play in. So communication networks, our legacy cloud infrastructure business, again, that's been growing 20-plus percent, and we don't see that slowing down anytime soon. Energy, we're investing in. We mentioned a couple of quarters back about expanding into medium voltage transformers. That's certainly benefiting from the AI ecosystem. So pretty much across all of our end markets, aerospace and defense, we spoke about medical, too. We're going to continue to invest in those. And we do have the balance sheet to do that, and we've shown that we can execute across that profile.

So a lot of opportunity there. We're certainly up to the challenge, but we're very excited about the future. And we think the potential to both grow the business and expand margins is there, and we've been executing on that ever since I've been here, certainly, too, shown quarter after quarter that we can continue to grow and expand margins while still maintaining a healthy balance sheet and cash flow.

Got it. So we've covered a lot of different topics. So thanks so much for coming today and giving us all these details.

Yes. Thank you for having me. All right. Pleasure. All right.

Thank you.

Good afternoon, ladies and gentlemen, and welcome to the Sanmina Second Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions] This call is being recorded on Monday, April 27, 2026.

I would now like to turn the conference over to Paige Melching, Senior Vice President of Investor Communications. Please go ahead.

Thank you, John. Good afternoon, ladies and gentlemen, and welcome to Sanmina's Second Quarter Fiscal 2026 Earnings Call. A copy of our press release and slides for today's discussion are all 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 Jon Faust, Executive Vice President and Chief Financial Officer.

Good afternoon.

Before I turn the call over to Jure, 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 our website.

Please turn to Slide 3 of our presentation and take note of our 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 projected in these statements as a result of factors set forth in the safe harbor statement. 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 in the Investor Relations section of our website, whether as a result of new information, future events or otherwise, unless otherwise required by law.

Included in our press release and slides issued today, we have provided you with statements of operations for the second quarter ended March 28, 2026, 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, noncash 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 are referring to our non-GAAP information.

I'd now like to turn the call over to Jure.

Thanks, Paige. Good afternoon, ladies and gentlemen, and welcome, and thank you all for being here with us today. First, I would like to take this opportunity to recognize our employees and Sanmina leadership team for doing a great job. So to you, Sanmina's team, again, thank you for your dedication, hard work and delivering excellent service to our customers.

Please turn to Slide 4. Ladies and gentlemen, I can tell you that I'm very pleased with our performance for second quarter. We delivered strong results for the second quarter. Revenue came in at $4.01 billion and strong non-GAAP operating margin of 6.4% and non-GAAP diluted EPS of $3.16. Cash flow from operations was also strong at $399 million. Overall, we are executing according to our plan with a strong execution in both core and MENA and Sanmina AI Group ZT Systems.

To tell you more about it, let's go to our agenda call today. We have Jon, our CFO, to review details of the second quarter results for you. I will follow up with additional comments about the results and future goals, then Jon and I will open for question and answers.

And now I'd like to turn this call over to Jon. Jon?

Great. Thank you, Jure, and good afternoon, ladies and gentlemen, and thank you for joining today's earnings call.

Before I review our financial results for the quarter, I want to acknowledge the entire Sanmina team for their focused execution and thank them for delivering a solid second quarter and first half of fiscal 2026.

Now please turn to Slide 6, where I will speak to the financial highlights. As Jerry mentioned, we are very pleased with our results for the quarter. As you can see, we exceeded our outlook across the board.

Our revenue of $4.0 billion came in well above our outlook range, driven by strong execution and customer demand for the ZT Systems business resulting in some accelerated compute shipments previously expected in the second half to shift into the second quarter. Also, we delivered growth across the majority of our end markets for the core Sanmina business, which Jure will cover in more detail later in the call.

Our non-GAAP operating margin of 6.4% and our non-GAAP diluted earnings per share of $3.16 also exceeded our outlook, driven by the additional revenue, mix and disciplined cost management. These results put us on the right path towards achieving our revenue growth, margin expansion and diluted earnings per share growth objectives for the fiscal year.

Now please turn to Slide 7, where I will speak to our non-GAAP P&L performance. As I just mentioned, we delivered revenue of $4.0 billion, which was up 102% versus the same period a year ago. Our core Sanmina business revenue grew 7.3% versus the same period a year ago, in line with our expectations. Our ZT Systems business revenue was $1.88 billion, exceeding our expectations.

As I explained just a moment ago, this was driven by strong execution and customer demand resulting in some accelerated compute shipments previously expected in the second half to shift into the second quarter. This is an important proof point of our partnerships with customers and their confidence in us to support them going forward as we grow the ZT Systems business with new program launches later in the calendar year.

Our non-GAAP gross profit was $360 million or 9.0% of revenue. This was down 10 basis points versus the same period a year ago, driven by mix.

Our non-GAAP operating expenses were $103 million or 2.6% of revenue. These strong revenue results along with ongoing cost discipline and operating leverage enabled us to achieve non-GAAP operating profit of $257 million or 6.4% of revenue, up 80 basis points versus the same period a year ago. This represents our third quarter in a row of non-GAAP operating margin at 6% or above.

Our non-GAAP operating income and expense was a net expense of $25.9 million.

Our non-GAAP diluted earnings per share was $3.16 based on approximately 55 million shares outstanding. This strong non-GAAP diluted earnings per share performance represents a 125% increase versus the same period a year ago and showcases the operating leverage in our business model.

Now please turn to Slide 8, where I will speak to the segment results. IMS revenue came in at $3.58 billion, up 123.5% versus the same period a year ago. driven primarily by growth in the cloud and AI infrastructure end market, including the strong contribution from the ZT Systems business. Core Sanmina IMS revenue was $1.70 billion for the quarter, and grew 6.0% versus the same period a year ago. DT revenue was $1.88 billion for the quarter.

Total IMS non-GAAP gross margin was 8.5%, up 80 basis points versus the same period a year ago. This was driven primarily by favorable mix, including the impact from the addition of the ZT Systems business.

CPS revenue came in at $461 million, up 12.2% versus the same period a year ago. And CPS, non-GAAP gross margin was 11.6%, down 230 basis points versus the same period a year ago. This decrease was primarily driven by depreciation and other expenses related to investments to support new programs, which we expect will deliver margin accretive growth in future quarters.

In addition, component shortages impacted the timing of revenue and profitability for 1 of our product businesses, which we believe will be resolved in the second half of the fiscal year.

Now please turn to Slide 9, where I will speak to the balance sheet highlights. We continue to have a very strong balance sheet with prudent leverage and ample liquidity and giving us the fiscal agility to support our growth objectives.

Cash and cash equivalents were $1.58 billion. At the end of the quarter, we had no outstanding borrowings on our $1.5 billion revolver, leaving us with substantial liquidity of approximately $3.7 billion, which will support the expected growth of the business.

We ended the quarter with inventory of $2.1 billion, net of customer advances, which is up 75% versus the same period a year ago, driven by the ZT Systems acquisition.

Inventory turns, net of customer advances were 6.9x for the quarter, up from 5.9x in the same period a year ago.

Our non-GAAP pretax ROIC was 34.7% for the quarter, well above our weighted average cost of capital and an improvement from the 23.0% from the same period a year ago.

We continue to have 1 of the strongest balance sheets in the industry with a net leverage ratio of 0.56x. This ratio is calculated in a balanced manner by annualizing our non-GAAP EBITDA results for the first half, which only includes 5 months for ZT Systems, but also some shipments advanced from the second half, as using the pro forma trailing 12 months for ZT Systems wouldn't accurately represent the current run rate of the business.

As we have previously communicated, our long-term target net leverage range is 1.0x to 2.0x. We still expect our leverage to increase into our long-term range over time as we invest in working capital to support the growth of the ZT Systems business and the core Sanmina business.

That being said, we remain committed to maintaining a healthy balance sheet, which means carefully managing the liquidity needed to invest in the business and capitalize on strategic opportunities that further strengthen our position in the market.

Now please turn to Slide 10, where I will speak to our cash flow highlights. As a result of the team's disciplined working capital management, our second quarter cash flow from operations came in very strong at $399 million. Capital expenditures were $57 million for the quarter, below our outlook, primarily due to timing. As I've mentioned before, we will continue to make strategic investments in the technologies and capabilities needed to strengthen our position in the market and to support our long-term financial objectives.

Free cash flow was $342 million for the quarter.

During the quarter, we repurchased approximately 1.1 million shares for approximately $160 million to offset the remaining dilution for the year. Our strong cash flow performance gives us the flexibility to continue to invest in the business and return capital to our shareholders.

Now please turn to Slide 11, where I will speak to our capital allocation strategy. When it comes to capital allocation, it's incredibly important to have a clear strategy and a well-defined set of priorities when making decisions. As we've shared with you before, our first priority is to invest in our business to drive long-term organic growth and margin expansion. We evaluate all investments with discipline and take a structured ROI-based approach.

Second, we continuously evaluate strategic acquisition and partnership opportunities, which need to meet our ROI expectations to help accelerate our growth.

Third, we carefully manage our balance sheet and liquidity position with a focus on our long-term net leverage target as well as our long-term goal of achieving investment-grade ratings.

And finally, when appropriate, we return capital to shareholders through share repurchases, subject to maintaining a strong balance sheet and liquidity position. We have and will continue to execute on this strategy by utilizing these options, which enables us to take advantage of opportunities to grow our business. We believe that our stock is a great long-term investment, and as such, share repurchases remain an attractive capital allocation option.

With that said, today, we announced that our Board of Directors authorized an additional $600 million of share repurchases. This authorization has no expiration date as we intend to continue to repurchase shares opportunistically and in the context of the capital allocation strategy I just outlined.

Now please turn to Slide 12, where I'll provide an update on the ZT Systems business. The Sanmina and ZT Systems leadership teams have been working together to ensure a successful and seamless integration of the business with a clear objective to realize the full value of combining the 2 companies. In order to do this, we are following a 3-phase plan. The first phase is focused on executing the post-transaction integration actions, which are largely complete at this point. While we'll always look for opportunities to streamline processes, improve the way we work and drive efficiencies for our customers, the core of the ZT Systems business has now been integrated and we've made most of the necessary capital investments in incremental power, liquid cooling and test cell capacity to be production ready for the next generation of accelerated compute.

The second phase, which is well underway, is focused on securing customer business and ensuring continuity. Since closing the acquisition, we have won and shipped new accelerated compute business which is evident in our strong results for the quarter. In addition, we have secured next-generation accelerated compute business with both hyperscale and OEM customers and are currently in the process of finalizing customer production schedules.

And the third and final phase, which we've already started working on, is about driving growth and expansion. We expect to do this by driving additional synergies through vertical integration and increasing our addressable market by expanding on our existing engineering capabilities to support all platforms.

Today, the focus of ZT Systems business is full systems integration at scale. But in the future, by combining it with Sanmina's existing capabilities, will also have the ability to build subassemblies and leverage our components, products and services technologies.

Now please turn to Slide 13, where I will provide our outlook for the third quarter. Our outlook is based on current customer forecasts and takes into account ongoing market uncertainties stemming from the macroeconomic and geopolitical landscape. We expect revenue between $3.2 billion and $3.5 billion. We expect core Sanmina revenue to be in the range of $2.2 billion to $2.3 billion. And we expect ZT Systems revenue to be in the range of $1.0 billion to $1.2 billion.

As a reminder, ZT Systems revenue is down compared to the prior quarter due to the accelerated compute orders that shifted from the second half into the second quarter.

At the midpoint, total Sanmina would be $3.35 billion which reflects 64% growth versus the same period a year ago.

We expect non-GAAP operating margin of 6.4% to 6.9%.

We expect other income and expense to be a net expense of approximately $30 million.

We expect our non-GAAP effective tax rate to be between 21% to 23%.

We estimate an approximate $5 million noncash reduction to our net income to reflect our India joint venture partners' equity interest.

We expect non-GAAP diluted earnings per share in the range of $2.55 to $2.85 based on approximately 55 million fully diluted shares outstanding.

At the midpoint of $2.70, that represents a 77% increase compared to the same period a year ago.

We expect capital expenditures to be $95 million as we continue to invest strategically to support our future growth expectations.

And finally, depreciation of approximately $50 million.

Now please turn to Slide 14, where I will provide our outlook for the full fiscal year 2026.

We expect revenue to be in the range of $13.7 billion to $14.3 billion. Within this range, we continue to expect the core Sanmina business to grow in the high single digits and the ZT Systems business to end up well within the $5 billion to $6 billion annualized range that we communicated when we first announced the acquisition in May of last year.

We expect non-GAAP operating margin to be between 6.3% to 6.6%.

And finally, we expect non-GAAP diluted earnings per share in the range of $10.75 to $11.35 based on approximately 55 million diluted shares outstanding.

So in summary, I'm very pleased with our results for the second quarter and for the first half. There is still a lot of work to do in the fiscal year, but we're on a great trajectory for both the core Sanmina business and the ZT Systems business.

And while this is a year of transition for the ZT Systems business, our 3-phase plan is working, and the proof points I shared earlier are direct evidence of that. The core Sanmina and ZT Systems teams have done a great job with the integration and execution of our objectives for the ZT systems business, which is helping to position the company for future success. Based on what is in front of us, we are increasingly confident in our ability to achieve revenue of $16 billion plus in 2027.

And with that, I would like to turn the call back over to Jure.

Thank you, Jon. Ladies and gentlemen, as you heard from Jon, we delivered strong results for the second quarter. Most important is that fiscal year '26 is tracking better than our expectation at the start of the fiscal year '26.

Please turn to Slide 16. Let me talk to you about -- now about the revenue by end market for the second quarter of '26. Communication Networks Cloud AI Infrastructure came in at $2.77 billion. As you can see, there was a nice growth. Actually, it's almost 280% growth. Sanmina core contributed to that, $891 million. That's up 22% year-over-year. And as you heard from Jon, ZT System delivered $1.88 billion. So very strong demand in our Communication Networks and Cloud AI Infrastructure.

Industrial energy, medical, defense and aerospace, automotive and transportation group delivered 31% or $1.24 billion. Overall, that was flat, which was expected. We knew that industrial was going to be slightly down, and that's what happened. But overall, this is a great quarter when you look at the revenue now being over $4 billion.

Core Sanmina revenue grew 7.3% year-over-year. I can tell you that the bookings for second quarter were strong. Book-to-bill was better than 1.1.

We're seeing a very positive trends in our end markets to tell you more about it, please turn to Slide 17. Communication Networks Cloud AI Infrastructure is well diversified in this segment. What we consider high-performance communication networks, we -- that business for us has been pretty strong, driven by IP switching and routing, optical system, pluggables, broadband access and 5G wireless infrastructure.

As you heard from Jon, cloud and AI infrastructure continue to do well, driven by accelerated compute, general-purpose compute and storage.

So key takeaways for this is that AI is driving growth for entire end markets, but we're also seeing some positive growth from a traditional telecommunication business.

Bookings continue to be strong. We won several new programs. We do see a strong pipeline for new projects, especially as we look at in the calendar year '27 and '28, and we are positioning our company to be ready for that. We're well positioned to drive the growth in this segment.

Please turn to Slide 18. Let me talk to you about Industrial and Energy. This segment for us is very promising, driven by power generation and distribution of power. We have multiple customers in this segment that we expect it to do well.

Semiconductor. Capital equipment starting to move in the right direction and demand continues to go up. We have a good customer base there, and we expect to see nice growth.

Transformers. We're investing in that business, both from an engineering and design. We have multiple customers working on that, and we expect to see nice growth, especially in '27.

Power and storage and management is also a very strong business for us and safety and surveillance equipment.

So the key takeaways on this is that we're doing well. We expect growth to accelerate in the second half. We're expanding energy business for AI data centers, all the way from engineering design to full system and vertical integration.

Please turn to Slide 19. Let me give you some highlights on Medical. In this segment, we are well positioned around disposables, variable consumer business. Laboratory diagnostics, research equipment and medical office, hospital medical offices.

Key takeaways here are very stable in market. We expect growth to accelerate in second half and we are leveraging our regulatory knowledge and experience to expand customer base and the new programs to drive the growth, well positioned here.

Please turn to Slide 20. Let me give you a few comments on defense and aerospace. We're well positioned here. Sanmina/SCI has been in this business forever. We are building business here around the defense and commercial aerospace. We do all everything from design to full system integration.

Key takeaways here is we expect the growth in traditional USA defense and aerospace business to continue. We are expanding customer base in satellite market, which have some big opportunities, and we continue to see strong demand in fiscal year 2027 and beyond. But as we look at the second half of '26, it's really positioned us to a good year, but most importantly, we see a lot of growth in the future.

Please turn to Slide 21. Few comments about automotive and transportation. We're well positioned here. We have some solid customers still around automotive EV business, self-driving cars and transportation. Key takeaways, again, overall, we have stable customer demand here, a great customer base. We continue to win key programs from new and existing customers and programs that transitioning from NPI into full-scale production for us.

Please turn to Slide 22. Let me talk to you right now about our Sanmina's capabilities. We do have a diverse set of capabilities where we provide end-to-end solution for all our key markets. Our capabilities are industry-leading from engineering, designed to full system for our key markets, including data center, AI infrastructure end market.

We typically get involved early stage of product development. We help the customer bring the product to the market. We provide high technology printed circuit boards. In this segment, we have some of the leading technology in the industry both here in North America and Singapore. We fabricate and assemble some of the most advanced board and test. We built mechanical racks and enclosure and design. We're investing fair amount in liquid cooling. We fabricate and build cooling money folds, bus bars.

We also have a strong compute and storage system around ODM and joint development, and we're expanding that. We do provide custom memory for key customers. We've also been growing and investing in custom optical modules, as I said, from the engineering to full system integration and direct global order fulfillment for our customers.

So when you look at Sanmina's capability, that's what really allowed us to establish a diverse customer base and market leaders with average relationship with our customers over 5 years. So very proud of that.

Please turn to Slide 23. Here, you can see Sanmina manufacturing footprint, which is strategically positioned to support our customers globally. We are aligned with the customer requirements, and we have a strong U.S.A. presence. We are leveraging our established global infrastructure and have the right capacity in place for the growth as we talk about next year, '27 and '28. Our global and regional supply chain is connected by 1 IT system, which is managed by Sanmina Smart MES. Sanmina's IT systems are very agile and responsive. We have industry-leading capabilities, especially in the market today when there's a lot of material shortages.

Please turn to Slide 24. In summary, as you heard from Jon, and I'm repeating myself again, our team executed well and delivered a great second quarter results. Revenue outlook for fiscal year points coming in strong at $13.7 billion to $14.3 billion, midpoint of $14 billion year-over-year growth of approximately 73%. We also well diversified, as I just explained to you earlier, cross and with all end markets. We have strong USA presence and global regional manufacturing footprint for the future. New programs will drive the growth for us in fiscal year '27 and '28. And as Jon said earlier, we're well positioned to deliver $16 billion plus in fiscal year 2027 based on the forecast that we have in front of us right now. And again, we feel good about opportunities in front of us. I can tell you that overall, our strategy is working, is to build bigger and stronger Sanmina for the future.

Now ladies and gentlemen, I would like to thank you all for your time and support. Operator, we're now ready to open the lines for question and answers. Thank you again.

[Operator Instructions] Our first question comes from the line of Ruplu Bhattacharya from Bank of America.

It sounds like ZT came in a lot stronger than you had expected. What drove that outperformance? Was it the MI300 series product that you ship more of in fiscal 2Q? Or was it NVIDIA GPU business? You said something got pulled in. So any details on that?

And then when we look at fiscal '26 guidance, you're saying that ZT will be well within $5 billion to $6 billion, and I think you're guiding $1.1 billion for 3Q, which would mean that fiscal 4Q has to be at least $1.5 billion of revenue from ZT. What is giving you confidence in meeting that level of revenue given you just had a pull-in in fiscal 2Q? And I have a couple of follow-ups.

Yes. Ruplu, excellent questions. First of all, this was a great quarter. A customer wanted to pull in some of the products that originally was on a schedule for the third and fourth quarter that had a demand and our team was able to deliver it. So that's good. We did not ship any accelerated compute and video product. Whatever we shipped, it was all based on AMD technology. As we look at the future, I think there's a lot of exciting stuff going around new products. We won multiple hyperscalers and ODMs for the future. So it's been an exciting quarter for us.

And Jon, I don't know if have anything else you want to add to that?

Yes. Just to add, Ruplu, on the front end. So I mean, we excited, as Jure said, to do so much business in this quarter around accelerated compute and it's a new platform business, not the old legacy products that ZT had. And you and I have spoken quite a bit is this would be a good proof point for Sanmina. If we won business, building out these new products. So we're certainly excited about that. And then it was strong execution, too. There's a lot of demand out there for that product and the customer want it quickly. When we came in and we guided at the beginning of last quarter, we weren't sure that we'd get all the components and so forth that we would need to get it done. But that came in, the team was able to build it quickly. So that's great. And hopefully, we'll see if there's going to be more of those types of orders at this point, given the nonlinear nature, there isn't any. So -- but we'll see. That could change. But our real focus, as Jure was saying, is on the future new generation platform. So we're focused on getting production ready for that and excited about the new opportunities that we won for that business.

Okay. Jon, you mentioned in the PowerPoint that the margin profile for ZT is in line with the overall company. So that would be about 6.4%. Do you see this margin profile as sustainable over the next couple of quarters as the AI or accelerated part of the business ramps higher?

Yes. It's like you're kind of insinuating or getting at Ruplu, it all depends on the mix. the business. So right now, it's very much in line in this quarter, landing at 6.4%. If you look at our guide for Q3, we said 6.4% to 6.9%, and that's kind of implied for Q4 because the full year comes in at 6.3% to 6.6%. And that's because we're not going to have as much of the accelerated compute as they would in the future. But like long term, as we've said before, we expect the margin profile to be roughly in line with core Sanmina and where that's been.

Now this will all depend as we're finalizing some of the customer agreements and where we land in terms of consignment and so forth, that may adjust. So a little bit early to talk about expectations for we did want to give you the guide specifically for fiscal year '26. That's why we guided the full year to let you know what we expect over the next 6 months.

If I can add to that, Ruplu. I think it's -- as Jon said, it's a transition year. A lot of work, but we're ahead of schedule. And we deliver in -- we're going to have a lot better year than what we expected at the beginning of the year. So most importantly, how well we're going to be positioned for the future when it comes to the demand. Demand is not going to be a problem. It's about -- all about timing when the hyperscalers mainly they do their scheduling and so on and so on. So it's all about getting ready for the better days in the future.

Okay. Jure, I'm going to try and sneak 1 more in. Can you give us some more details on the communications segment? I mean, this has been traditionally a strength for Sanmina. Can you talk about like you mentioned optical IP switching and broadband 5G. How much of the segment revenue comes from each of these buckets. And are you seeing more demand for optical transceivers? Or are you seeing demand for switches? And are you actually shipping 1.60 switches today?

First of all, before I forget, I'm an older guy here, yes, we are shipping 1.60 Airbus, which is in what I would call new product introduction and so on. As you know, we have multiple customers that we build switches. We do not compete with our customers, but we're building the most advanced switches for our partners.

So back to your direct question, yes, we are very excited about our communication business because we're building some of the most advanced product that goes in there around IP routing, optical systems, optical pluggables around 400, 800, and we're also developing a 1.6 tetabytes in pluggables. So those are all exciting stuff.

And then as I said, traditional telecom is coming back. And we do a little bit of 5G wireless. That's a small percentage of our overall business, maybe 2%, 3% of it, but it's a couple of solid customers there. So overall, yes, everything is -- this segment for us right now is really is doing well in every segment inside of it, and we will diversify from high-performance communication networks to cloud AI infrastructure.

Your next question comes from the line of Samik Chatterjee from JPMorgan.

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Maybe for the first one, just going back to your reference to new wins on the ZT Systems side with customers where you're shipping preproduction systems and waiting to finalize customer schedules. Just checking in to see if you can flesh that out a bit more. Are these timing sort of more driven by whether you can ship in 2026 or are these some systems that ship in 2027, any more visibility on the timing and how broad-based the customer base is here? Is it all of the hyperscalers that are engaged are you in at with 1 or 2 hyperscalers? Any sort of color on the customer mix as well. And I have a follow-up.

Well, Samik, again, welcome for covering Sanmina. Let me kind of take some of that, and I'll turn it over to John because John been responsible pulling ZT into Sanmina has been doing an excellent job.

First of all, when you look at the market opportunity for us, let's talk about cloud AI infrastructure around the hyperscale is tremendous. It's every hyperscaler out there. We're already starting to do some business. But our goal is to win every 1 of these large hyperscalers over the next 12 months, 18 months. It's been better than what we expected would be more successful than what I expected when we acquired the ZT System, okay? But opportunities, demand is big and we are positioning the company and we put in an infrastructure in a place to be able to handle the latest technology for the future. So from my perspective, we see a lot of upside. So Jon?

Yes. Let me add a few points, Samik, and thanks again for joining, and welcome. So yes, the business that we did this quarter was with all new accelerated compute business, nothing to do with the legacy platforms, but there was very little, right, when you think about the next-generation product. Now that's scheduled to be out in September and everything is very much on track from that perspective. We're doing everything that we're responsible for, which is getting production ready, making sure that we can build all the products at scale for all these customers, but that's very much on track now. Whether or not we get a huge amount of revenue in September has remained to be seen. And now everything is on schedule, but just to give you guys some perspective, once the silicon and so forth becomes production-ready, it takes us a while to build the products, say, a couple of weeks, right? And then we've got to ship the products all around the world. And just to be clear, like the revenue recognition for us in this business is when the customers receive it, right? So the opportunity in our fiscal 2026 isn't really huge. That's more of an FY '27 play. That's why we talk about towards the end of the calendar year. But as we said on the call or in our prepared remarks, we have started to ship some preproduction volumes. We're learning more and more about building these products, getting ready. So more to come on the customer specifics and the schedules, that's why we wanted to put on the slide that we're working through those details, but we are happy to say that we've won several customers now, multiple customers. And our goal is to fill up all of our capacity. And if we continue to win beyond that, we'll look to invest more.

Got it. And for my follow-up, maybe to your comments about sort of 2027 revenues from these systems. Just looking at your $16 billion guide for fiscal '27. If I still in cores and MENA grows at high single digits, that sort of indicates ZT doing about $7 million of revenue and you'll be exiting the year at stake. So is that the right way to think about sort of where the starting point is before some of these new opportunities come through just how we size that business, how you're thinking initially about fiscal '27?

Yes. And it's just that it's early days. That's why we said 16 plus. And just a little bit of history to Samik, like back when we first announced the deal in May of last year, it's almost year ago, we said that we'd expected to double Sanmina within 3 years. And then when we got to our Q4 earnings call last year, we accelerated that to 2 to within 2 years, that's where the $16 billion number comes from for fiscal year 2017. Now we're saying $16 billion plus because we see all the demand is there. But we're still assuming at this point that the vast majority of that business will be consignment. It's not entirely clear just yet. We're working through some of those details with customers. That's why it's still early days, but we did want to make the point that we feel very confident. I think my words were increasingly confident, right? It's about the revenue profile next year. So this year, we still got to wait to see how much we might [indiscernible] in future. And in our business, Samik, you take 1 quarter at a time, but we feel very comfortable for the rest of this fiscal year, and I think there's more to come in the future.

Your next question comes from the line of Steven Fox from Fox Advisors.

I guess I had a couple of questions. Maybe first, Jon, on the cash flows. I know you mentioned a couple of puts and takes with CapEx, and I see 1 time item in there, but you grew revenues quarter-over-quarter like $900 million, and you still generated almost $300 million of free cash flow in the quarter. Do you have a better sense now for how the combined business can sort of throw off cash on a 12-month basis. Anything you want to sort of hold your feet to the fire at this point in terms of CapEx versus working capital and things like that? It would be helpful to get a better feel for that. And then I had a follow-up, if I could.

Yes, sure, Steve. Thanks for joining. So yes, this quarter, Q2 was just a great cash flow from operations. I'll talk to that first before free cash flow. So almost $400 million in cash flow from operations. And it was really due to the linearity of the business and his very strong execution, right? So we executed manufactured a lot, shipped a lot of product and collected cash. So if you look at the details, you'll see it in our 10-Q, our inventory levels came down. AR levels came down because we collected very well on that front. So just -- so I would kind of frame that up as linearity. And I have, to your point, learned a lot over the last, say, 6 to 9 months around dynamics of the ZT Systems business. And once we hit more of a production steady state with customers and get out of this transition period, even more will become clear. But very excited to generate the cash that we did this quarter.

Now as we look ahead into Q3 and Q4, and we don't guide cash specifically, but we will start to build inventory levels, rebuild some of those inventory levels to prepare for that new accelerated compute business. They'll probably start to come more in Q4. But I expect in the near term to continue to generate cash.

But as I was saying in my prepared remarks, I do think our leverage ratio will come within that range as we build the inventory to support the future business. But we're very pleased with where we're at right now.

That's super helpful. And then if I'm reading through all the details here correctly, it sounds like you have 2 main cloud customers that have generated the upside and give you confidence in the numbers? I know you're doing business with all 5 like Jure said. But can you talk about like how we think about not just the number of cloud customers for ZT and the potential there in like between now and '27, but also like OEM business? Like I know the focus is on cloud, but can you talk a little bit about how ZT can grow with OEMs, too?

Yes. It's really both, Steve. I mean ZT legacy was working with a handful of customers, and those are great customers that we want to maintain. But part of our strategy has been to expand the number of customers that we're working with, so more hyperscale, more cloud, CSP customers but OEMs, too. So we're focused on both. Even the neo clouds as well. It really all comes down to maximizing the capacity that we have at the ZT plants. And then as I was saying, just a few minutes ago answering some of Ruplu's questions or maybe to some is if we continue to see more demand and there's a lot of demand out there, we'll look to invest to even expand beyond that. But first things first, right now, it's focus on the customers that we're winning and make sure that we do very good business for them. And that's why I say Q2 was a great proof point because the ZT Systems team executed extremely well, right, on the demand that the customers were looking for.

But we're building plenty of capacity opacity is not going to be an issue, Steve.

Your next question comes from the line of Mehdi Hosseini from SIG.

Thanks for taking my questions and a couple of follow-ups from my end.

Hello, Mehdi and also welcome to covering Sanmina. Hopefully, we'll have some good quarters together in years.

Definitely. I look forward to meeting you in person. A couple of follow-ups from me. And just quickly on the fiscal year '27 revenue target of $16 billion plus. How should I think about ZT System? Should I assume that you're focused on the core customer there, AMD and you would benefit from their ability to scale? Or is there opportunity for you to diversify customer base there? And I have a follow-up.

Yes. Mehdi, thanks for the question. As Jure said, welcome to the call. It's great to have you on board. So right now, FY '27, it's early days. I was given Samik, when I was answering his question, a little bit of context on where the $16 billion came from, which we're now calling $16 billion plus, but it relates to some comments that we made when we first acquired ZT. So we wanted to reiterate, right, that we're still very much on that trajectory. But early days to kind of call out what we would expect exactly from them. But if core Sanmina continues to grow high single digits. That gets us close to, say, like $10 billion next year. And then as you think about what ZT would have to contribute, that would be like, say, $7 billion or so, $6 billion to $7 billion. Samik was doing that same math.

Now as soon as we lock down the number of customers that we're going to work with, the actual production schedules, sort out any details on rev rec and timing like that, we'll be able to give a specific guide, but we feel increasingly confident that $16 billion plus is going to be achievable for next year. And the way that we get there is kind of just how I was answering Steve's question, so we want to maintain the customers that ZT has had historically, the handful of customers that they had, but we're expanding. So CSPs, OEMs and otherwise.

Mehdi, let me add more about rest of the Samina business. The key for us, as Jon mentioned in his prepared statements, was mainly doing the final system integration. And there's a lot of opportunity for us to expand the vertical integration from fabricating the certain subsystems that go inside of the system that will help the growth of what we call Sanmina core. I think it will make us a lot more important with the customers. We'll be able to accelerate time to market and so on. So there's a lot of opportunity for us to expand that. There's a lot of work in front of us, but I think the future is more exciting than historical.

Sure. I agree. And actually, as a follow-up to it, given opportunities there is, especially as we think about optimizing next-gen racks, would you need to elevate the R&D to above $10 million a quarter -- or should we assume that the current R&D level can support the 15% revenue growth in FY '27?

Well, first of all, I think revenue for us is not going to be -- at least what we see today, as I look at the '27, '28 demand is there. We're going to continue to invest for -- not just for '27 and '28, we're investing for the future. We're working very close with our existing customer base, which basically is who's who. We got all the key players. So we're going to continue to invest for the growth of the business. It's a partnership. End of the day, we are an extension of our customers. and building that what I call transparent relationship and building the trust is the key in our business. And if you look at the relationship with our customers well over 15, 20, we have some customers that have been with us over 35 years. So our goal as we go into the AI business and growing their opportunity is to build a strong relationship, and we'll invest whatever it takes to be an industry leader because the capabilities that we acquired from ZT are industry capabilities, the leadership there, and we are investing a fair amount to make sure that we build to be able to meet not just today's requirements, but also tomorrow's requirements. So company is in a great position to continue to do what's right for our customers.

Let me rephrase the question. As you -- and please correct me if I'm wrong, it is my impression that you're transitioning or at least part of the business driven by ZT transitioning from EMS to value-add ODM service provider. Would that require some additional R&D as you go through this transition?

Yes. Yes. Yes. Definitely will. But that's a part of the growth. As you -- in our business as long as you grow, you're going to be spending more R&D. It's a project by project, program by program that is look at yes, but Sanmina will be investing to be able to create the right value and right solution for our customers.

And just to add to that too, Mehdi, we've got a strong foundation of engineering capabilities. That's where we spend our R&D dollars today. But as the business grows, to Jure point, depending on the final customer set that we have and the opportunities that we want to pursue, whether it be vertical integration or otherwise, we could invest more. So more to come, everything that we've planned on so far is factored into the guidance that we just gave, but more to come as we look ahead into FY '27 later this year.

Operator, we have time for 1 more question.

[Operator Instructions] Our next question comes from the line of Anja Soderstrom from Sidoti.

Anja, we saved the best for the last, okay?

Of course. Most my questions have been addressed. But I'm just curious, are you seeing any sort of supply chain disruptions or input costs or difficult to find components at all? Or [indiscernible].

Definitely, Anja, there's some material shortages around the memory, custom ASICs and things like that, that is going on. I think it's going to continue through the rest of the year, and we'll see how things change. But yes, definitely, material is challenging right now as we look at the rest of the year and probably potentially in '27.

But you don't see any risk to your revenue in terms of that? How are you managing it?

Anja, in our business, we are custom manufacturing. There's always -- you have to chase parts every day. So we manage that every day. We have a great IT system. We have a great relationship with our suppliers. We work very closely with our customers planning these things in a head. But last quarter, we could have shipped a little bit more if we got able to get every part number that we needed. And yes, it's something that we have to manage every day, Anja.

Yes. And just to add to that, too, Anja, I mean, everything that we're aware of today has been factored into our guide. To the point Jure just made, our book-to-bill was over 1.1:1. We could have shipped a lot more. I mean if you think about the core Sanmina business communication networks and cloud infrastructure, that's been growing 20% plus year-over-year for the last 6 quarters. could be growing a lot more if there was more components and equipment and so forth like available out there. But everything that we know as of today and the forecast from our customers, that's been factored into our guide.

Okay. Well, ladies and gentlemen, thanks for your time. Looking forward to talking to you 90 days from now. But for some of you that have questions, please give us a call at any time. Thank you again. Thank you. Bye-bye.

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

Good afternoon, ladies and gentlemen, and welcome to Sanmina's First Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions] This call is being recorded on Monday, January 26, 2026. I would now like to turn the conference over to Paige Melching, SVP of Investor Communications. Please go ahead.

Thanks, [indiscernible]. Good afternoon, ladies and gentlemen, and welcome to Sanmina's First Quarter Fiscal 2026 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 Jon Faust, Executive Vice President and Chief Financial Officer. Good afternoon. Before I turn the call over to Jure, 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 our website. Please turn to Slide 3 of our presentation and take note of our 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 projected in these statements as a result of factors set forth in the safe harbor statement. The company is under no obligation to and expressly disclaims any obligation to update or alter any of the forward-looking statements made in this earnings release the earnings presentation, the conference call or in the Investor Relations section of our website, whether as a result of new information, future events or otherwise, unless otherwise required by law. Included in our press release and slides issued today, we have provided you with statements of operations for the first quarter ended December 27, 2025, 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, noncash 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, tax, net income and earnings per share, we are referring to our non-GAAP information.

I'd now like to turn the call over to Jure.

Thanks, Paige. Good afternoon, ladies and gentlemen. Welcome, and thank you all for being here with us today, and Happy New Year and all the best to all of you. First, I would like to take this opportunity to recognize our employees and Sanmina leadership team for doing a great job. So to you, Samina team thank you for your dedication hard work and delivering excellent service to our customers.

Please turn to Slide #4. Ladies and gentlemen, I can tell you that I'm very pleased with our performance for the first quarter. Overall, we are executing according to our plan. Revenue came in at $3.19 billion non-GAAP operating margin at 6% and non-GAAP diluted earnings per share of $2.38, and we delivered strong cash flow from operation of $179 million. Again, I'm excited about the future opportunities that we have in front of us. So now let's go to our agenda for today's call. We have John, our CFO, to review details of our results for you. I will follow up with additional comments about the results and future goals. Then Jon and I will open for question and answers. And now I'd like to turn this call over to Jon. Jon?

Great. Thank you, Jure, and good afternoon, ladies and gentlemen, and thank you for joining today's earnings call. Before I review our financial results for the quarter, I want to acknowledge the entire Sanmina team for their focused execution and thank them for delivering a solid start to the new fiscal year.

Now please turn to Slide 6, where I'll speak to the financial highlights. We're very pleased with our first quarter results, which as you can see, either met or exceeded all of our outlook commitments. Our revenue of $3.19 billion and our non-GAAP operating margin of 6.0% each came in towards the high end of our outlook. In regards to revenue, both the core Sanmina business and the ZT Systems business came in near the high end of their respective outlook ranges. Also, our non-GAAP diluted earnings per share of $2.38 and exceeded our outlook. These results represent a great start to fiscal 2026 and sets us on the right path towards achieving our growth and margin expansion objectives for the year.

Now please turn to Slide 7, where I'll speak to the P&L performance. As I just mentioned, we delivered revenue of $3.19 billion which was up 59% compared to the same period a year ago. This was driven primarily by growth in the communications networks and cloud and AI infrastructure end markets for the core Sanmina business and the addition of the VT Systems business, which Jerry will speak to in more detail as part of his prepared remarks. Non-GAAP gross profit was $298 million or 9.3% of revenue up 30 basis points compared to the same period a year ago. This was driven by favorable mix as well as operational efficiencies.

Non-GAAP operating expenses were $106 million or 3.3% of revenue, down 10 basis points compared to the same period a year ago. We continue to make targeted investments to drive future growth, but are doing so in a very structured and disciplined manner. Non-GAAP operating profit was $192 million or 6.0% of revenue, up 40 basis points compared to the same period a year ago and at the 6% level for the second quarter in a row. This is a result of revenue growth, favorable mix and strong operational discipline.

Non-GAAP other income and expense was a net expense of $19.1 million which was $3.9 million favorable to our guidance, driven by our strong cash generation. Non-GAAP diluted earnings per share came in at $2.38 and based on approximately 56 million shares outstanding and up 66.1% compared to the same period a year ago. As we mentioned on our prior call, we expect fiscal 2026 to be a growth year, and our results for the first quarter represent a solid start towards achieving that objective.

Now please turn to Slide 8, where I'll speak to the segment results. IMS revenue came in at $2.79 billion, up 72% compared to the same period a year ago. driven primarily by growth in the communications networks and cloud and AI infrastructure end markets for the core Sanmina business and the addition of the ZG Systems business. IMS non-GAAP gross margin was 8.7%, up 80 basis points compared to the same period a year ago. This was due primarily to favorable mix, including the impact from the addition of ZT Systems revenue and operational efficiencies in both the core Sanmina and ZT Systems businesses.

CPS revenue came in at $434 million, up 4.3% compared to the same period a year ago. CPS non-GAAP gross margin was 12.9% and up 40 basis points compared to the same period a year ago. That being said, the 12.9% is lower than our recent performance, and that's due to multiple investments that came online to support new programs which we expect will deliver margin accretive growth in the near future as well as a few program transitions. While we executed well, we continue to see opportunity for further improvement in both revenue growth and margin expansion, which we will continue to focus on going forward.

Now please turn to Slide 9, where I'll speak to the balance sheet highlights. We maintained a very strong balance sheet in the first quarter. Cash and cash equivalents were $1.42 billion. At the end of the quarter, we had no outstanding borrowings on our $1.5 billion revolver leaving us with substantial liquidity of approximately $3.6 billion to support the expected growth of the business. We ended the quarter with inventory of $2.2 billion, net of customer advances which is up 74% versus the same period a year ago, driven by the ZT Systems acquisition. Inventory turns, net of customer advances were 5.3x for the quarter down from 5.8x in the same period a year ago, driven by the ZT Systems acquisition. It's also important to note that, that Q1 calculation only includes 2 months of ZT systems cost of goods sold.

Now that being said, core Sanmina inventory turns, net of customer advances improved for the quarter, both sequentially and versus the same period a year ago. While we're pleased with these results, we believe there is still room for improvement. Our non-GAAP pretax ROIC was 32.1% for the quarter, well above our weighted average cost of capital and a sizable improvement from the 23.5% from the same period a year ago. We continue to have one of the strongest balance sheets in the industry with a net leverage ratio of 0.8x. This ratio is calculated conservatively by annualizing our Q1 EBITDA results as using the pro forma trailing 12 months for ZT systems wouldn't accurately represent the current run rate of the business. Our long-term net leverage target remains 1.0x to 2.0x and we expect our leverage to increase into this range over time as we invest in working capital to support the growth of the ZT Systems business.

I want to emphasize our commitment to maintaining a healthy balance sheet, which means carefully managing the liquidity needed to invest in the business and capitalize on the strategic opportunities that further excel our position in the market with strong financial policies to guide our decision-making process. And to be clear, our goal remains to achieve investment-grade ratings over time.

Now please turn to Slide 10, where I'll speak to the cash flow highlights. As a result of the team's disciplined working capital management, our first quarter cash flow from operations came in at a solid $179 million. Capital expenditures were $87 million for the quarter, slightly above our outlook. As I've mentioned before, we will continue to make strategic investments in the technologies and capabilities needed to strengthen our position in the market and to support our growth expectations, and we expect to fund these efforts through our strong cash flow generation, in line with our capital allocation strategy. To that end, we anticipate ongoing targeted investments in both capacity and technologies across our operations in the United States, India and Mexico, to drive further growth and margin expansion across all of our end markets.

Free cash flow was $92 million, enabled by our strong working capital management and operational discipline. During the quarter, we repurchased 516,000 shares for approximately $79 million to offset dilution for the year. At quarter end, we had approximately $160 million remaining on our current share repurchase program. Our strong cash flow performance has provided us with the financial flexibility to allow for continued investments in the business while also returning CAP to shareholders, all within a disciplined and balanced capital allocation framework.

Now please turn to Slide 11, where I'll speak to our capital allocation strategy. When it comes to capital allocation, it's incredibly important to have a clear strategy and a well-defined set of priorities when making decisions. As we shared with you before, our first priority is to invest in our business to drive long-term organic growth and margin expansion. We evaluate all investments with discipline and take a structured ROI-based approach. Second, we continuously evaluate strategic acquisition and partnership opportunities, which need to meet our ROI expectations to help accelerate our growth. Third, we carefully manage our balance sheet and liquidity position with a focus on our long-term net leverage target as well as our long-term goal of achieving investment-grade ratings. And finally, when appropriate, we return capital to shareholders through share repurchases, subject to maintaining a strong balance sheet and liquidity position. We have and will continue to execute on this strategy by utilizing these options, which enables us to take advantage of opportunities to grow our business. Now please turn to Slide 12, where I'll provide our outlook for the second quarter, which is based on current customer forecasts, a full quarter of the ZT Systems business and taking into account ongoing market uncertainties stemming from tariffs and the geopolitical landscape. Our second quarter outlook is as follows: We expect revenue between $3.1 billion to $3.4 billion. At the midpoint of $3.25 billion, that reflects 62% growth compared to the same period a year ago. We continue to expect the core Sanmina business to grow high single digits this fiscal year.

As for ZT Systems, the business is performing well and in line with our expectations as we work through the transition period, and we're very excited and focused on the opportunities and future ahead. Non-GAAP operating margin of 5.7% to 6.2% dependent on the mix of the business. We expect other income and expense to be a net expense of approximately $26 million as it now includes a full quarter of our new debt structure. We expect our non-GAAP effective tax rate to be between 21% to 23%. We estimate an approximate $3 million noncash reduction to our net income to reflect our India joint venture partners' equity interest. Non-GAAP diluted earnings per share in the range of $2.25 and to $2.55 based on approximately 56 million fully diluted shares outstanding. At the midpoint of $2.40, that represents a 66.7% increase compared to the same period a year ago. Capital expenditures are expected to be around $95 million as we continue to invest strategically to support our future growth expectations. And finally, depreciation of approximately $45 million.

In summary, fiscal 2026 is off to a great start. We remain focused on driving revenue growth, margin expansion and cash generation while maintaining a healthy balance sheet and making investments that further support our strategic objectives. Based on our Q1 performance and our outlook for the second quarter, combined with the demand signals from our customers, we continue to expect fiscal 2026 to be a growth year. There's a lot of work ahead of us. but we are very excited about our future. And with that, let me turn the call back over to Jure.

Thank you, John. Ladies and gentlemen, let me add a few more comments about our results for the first quarter. and the rest of the fiscal year '26 and beyond. So please turn to Slide 14. As you heard from John, we delivered strong results for the first quarter. We delivered revenue and non-GAAP operating margin at the high end of our outlook, and non-GAAP diluted earnings per share exceeded our outlook. Most important, fiscal year '26 is on tracking to our expectation, the way I would say it, great start to fiscal year 2026.

As you can see, our consistent execution is driving our financial performance. Also, I can tell you this is exciting time to be in Sanmina. Please turn to Slide 15. Let's look at the revenue by end market for the first quarter 2026 for communication networks, cloud and AI infrastructure, that came in around 62% in total. Sanmina core business in this segment grew year-over-year approximately 20%. ZTE revenue came for our plan at the high end of our guidance in total of $1.964 billion. For industrial, energy, medical, defense and aerospace, automotive and transportation, that was 38% of our revenue or $1.226 billion. That was slightly down year-over-year, about 3%. The way I would review this segment is very consistent and stable. This is a heavy regulated market that we participate, and we focus on mission-critical and advanced technology products. and I'll talk more about it later on about the future by this segment.

As you can see, Sanmina is well diversified within market leaders. Bookings continues to be solid, over 1% -- over 1 I should say, solid demand on existing business and strong pipeline of new projects. At this time, we're seeing very positive trends across the majority of our focused end markets. To tell you more about it, please turn to Slide 16. Now let me talk to you about -- more about end markets, the way we see it today. overall, it's a very positive trend for us as we look at the fiscal year '26 and beyond. For communication networks and cloud infrastructure, we are well positioned for growth in this segment.

For Communications segment, we participate mainly in a high-density high-performance networks. We see strong demand for high-performance switches and enterprise storage. We're also growing and expanding our optical advanced packaging products business. We do high-performance network systems from 400, 800 gig, and we're starting to ship 1.6 terabytes. For cloud and AI infrastructure, we see a strong demand -- strong growth opportunities, and we are well positioned in cloud and AI end market. We expect strong -- we see a strong pipeline of new projects to drive the growth for second half of calendar year '26 and calendar year '27 and beyond. Now let me talk to you about industrial and energy. For industrial and energy, we have a great base of customers.

We have strong demand for power products to support AI data centers and solid demand for safety and surveillance equipment. We see solid new projects in the pipeline to drive future growth. Industrial and Energy is the very strong segment for us. So let me tell you more about our expansion of new state-of-art factory in Houston, Texas for our energy business. Outlook for electricity demand is very positive. There are several areas for these power markets were [indiscernible] plays such as distribution, transmission and storage of electrical power.

In Energy segments such as distribution, we're going to focus on medium voltage transformers. For transmission, we're going to focus on grid scale transformers. And for storage, storage battery storage systems. Here, we basically get involved in early stage of product design to full system and utilizing our vertical integration such as electronics, machining, fabrication, bus bars, et cetera. On this extension, I should say, of this energy business, we've been working for the last couple of years. So we made a decision to to basically grow this business because as I said earlier, the outlook for electricity demand is very positive. For these projects, we partnered with a company called Contra out of Europe, Croatia, to co-design custom medium voltage transformers for our customers plus other opportunities for U.S.A. market.

We have a long-term commitment from our customer. This is a large industry-leading strategic customer for Sanmina. We're ramping up this facility right now, and we are planning to ship a few units in late 2026 and be ready for full production in calendar year 2027. It's exciting opportunity for our energy business and also for Sanmina. Let me tell you more about the medical Medical is well diversified within a market that we participate in. We're starting to see a recovery in this medical segment. We expect medical drug delivery devices to grow in fiscal year '26 and '27. An overall medical business for us, we see solid opportunities in pipeline.

For defense and aerospace, we continue to see strong demand for the next few years. This segment continues to do well. We see strong opportunities in pipeline for next few years. For our more in transportation, this business for us, starting to become more stable. We do have a great customer base. And what we see for next year is that we have new programs that will drive that growth for us. So for industrial and energy, medical, defense, aerospace, automotive transportation, overall, we see solid opportunities in this segment. and we expect to see more growth in the second half of fiscal year 2026.

Now please turn to Slide 17. Now let me tell you more about Sanmina T system AI business. I can tell you that we are executing to the plan. Integration is on track and is doing well. Good thing about this acquisition is it's immediately accretive to our EPS. ZT system margins is in line with our core Sanmina, as John told you. And most important, we do have strong management and technical team in place. So where do we go from here? We expect more growth in the second half of calendar year driven by new projects. As I said before, and we're saying this again, the goal is to double Samina revenue in the next 2 years. And what we see today, the AI opportunities are on track to deliver a $16-plus billion in our calendar year '27.

We're also pursuing vertical integration opportunities for AR. As you see on this slide, on the right side of the slide, when we talk about full system integration for AI data center at the scale. So you can see all the way from design to the full system. Our capabilities for AI data center are industry-leading for components from components and liquid cooling racks to full system integration at scale.

Please turn to Slide 18. Let me talk about our priorities. Number one, we are focused on our customers as we always did. The focus is to continue to broaden and deepen our customer partnership. And we are also adding new market-leading customers to our base. Number two, continue to focus on leadership in technology. Our technology is a competitive advantage in the high-technology markets. Our capabilities are in place from design to full system at scale, and we are planning to do more for the future. Number three, how to execute on ZT system opportunities. ZT systems is working on large opportunities for AI data center business, mainly new projects driven. Sanmina is well positioned. We are investing in AI data center and continue to expand capacity for the future requirements for fiscal year '27 and 28 in -- and of course, number 4 is to continue to drive profitable and sustainable growth.

In Sanmina, we call this building big for the future, while staying through to our core values focusing the margin expansion, continue to diversify to higher and sustainable margin business. I can tell you that we are forecasting steady improvements in operating margin. Short term, we're forecasting 5.7% to 6% operating margin. And longer term, we expect to improve those margin from 6 to 7-plus percent. So overall, our strategy is to build bigger as stronger Sanmina for the future and always maximize shareholder value for our investors.

Please turn to Slide 19. I -- in summary, we are focused on sustainable and profitable growth. As John mentioned, this is a great start to our fiscal year 2026. We expect core Sanmina to grow in the high single digits. -- and we expect strong demand from AR hardware in the second half of calendar year '26, '27 into 28, all driven by new platform, new technology projects. We have capacity and power requirements to support customer demand for present demand, but we are continuing to invest for the future. We focused on market diversification with higher margin opportunities. Our manufacturing footprint is well aligned with our customer requirements, and we do have strong U.S.A. presence. The key to our strategy, again, to continue remain focused on Sanmina's strategy and to be a partner of choice with the market leaders.

So ladies and gentlemen, now I would like to thank you all for your time and support. Operator, we're now ready to open the lines for questions and answers, and thank you again.

[Operator Instructions] Your first question comes from the line of Ruplu Bhattacharya from Bank of America.

Can you help me parse through the sequential revenue guidance for the March quarter? Looks like revenues at the midpoint are guided up $60 million. If I think about it, ZT, you should have a full quarter of revenues, which is about $1.4 billion. That means that DT itself is contributing, say, $0.5 billion of incremental revenues 2 months versus 3 months in the March quarter. So is something weaker sequentially? Like any color you can give us on revenue from legacy Sanmina versus ZT non-accelerated versus T NVIDIA? How are you seeing the trends in those different buckets of revenue?

Okay. First of all, actually, our business is improving in the second quarter. So let me explain that. Yes, you're right. We only had 2 months I don't think it's -- you cannot take 2 months divided by 2 multiple by 3 because the transition of our business, this business is mainly all businesses being transitioned, and we're now strictly focus what we call base business that's going to stay with us. and the future business. So if you really look at it today from our perspective, we're only guiding 1 quarter at a time. But if -- but overall, if you look at the Street expectation, we feel comfortable with that. We're just guiding 1 quarter. For the first quarter, we should be more than a 3% expectation by approximately $100-plus million. So as we're guiding to $3.1 million to $3.4 million, Sanmina business itself, the core business will grow quarter-over-quarter and will grow double digits year-over-year, okay? And we expect ZT system to grow quarter-over-quarter. So overall, we expect a strong quarter. Most importantly, I think we are positioning the company for the new product, new platforms that are going to be coming up in the end of the fiscal year and calendar year and we're investing for that. So we're really excited about the future about that. So that's all I have to say, Jon, anything else you want to add to that?

I mean I think you covered it well, Jure, I mean First and foremost, just talking about the Q1 results, Ruplu, both parts of the business. Core Sanmina and ZT Systems performed well at the high end of the range. And we did provide specific guidance in that first quarter, but we're very pleased to see both parts of the business do well. And yes, just like Gary was saying, ZT Systems is effectively in line with our expectations. You go all the way back to May 19 what we said and pretty much everything we've said and committed about the business has been happening the way that we expected, including in Q1. So very excited about the future. The transition is taking place like we expect, and we're just focused on executing those new opportunities.

As you can add to that up, I think we have a lot of interest from existing customers and future customers what's going on. And as I said in my prepared statement, the most importantly, I think the more learn about site's management. I'm very comfortable, very excited with the team, what they can do. It's -- they're basically self-sufficient going forward. So we're excited, a great acquisition for Sanmina, and this will transform Sanmina. I mean there's no way we could get to in '27 without a potential that we have and the new platforms coming out.

Okay. I appreciate the details there. Can I ask a conceptual question about as I see the business, there are really 3 parts to the business, right? There's the non-accelerated part, which would be just non-GPU servers or racks. Then there's the accelerated part and there's some legacy NVIDIA business you would have. And then obviously, you're going to be ramping with AMD in the second half of the year, as you said. As we think about this total revenue, I think last quarter, we were talking about high $5 billion to $6 billion and the guidance implied something like $5.7 billion, does that $5.7 billion kind of factor in some decline in the NVIDIA part of the business whereas as you ramp AMD, you're going to be focused more on that, and so that will ramp. So any thoughts on how fast that transition can occur this year? Like do you think that you will % AMD in time for any offset to the NVIDIA business that might decline?

Yes. Good question, [indiscernible], this is Jon. So just to verify and a reminder for everyone, the -- back in May '19, we said when we closed the transaction, we'd expect the revenue run rate to be between $5 billion to $6 billion. right? So that was implying that we had a point of view on how that transition was going to occur with the accelerated compute component of the portfolio and they pretty much landed right in our expectations, right? You annualize our Q1 guide to 2 months and you get to $5.7 billion. But we're still going through that transition right now. And a lot of the old platforms at this point now have rolled off. So we're really just focused about the future. But that's why we wanted to be clear at the time we were just guiding the Q1 number that we did, and now we're guiding Q2. But the opportunity, like Jure was saying for accelerated compute specifically is is huge. And that's what we're focused on right now and doing our part of that to be able to execute on that demand and on that opportunity. And that really comes towards the end of our calendar -- at the end of calendar 2026.

Yes. If I can add to that, we really -- opportunities utilizing AMD partnership is huge for us and all the investments being made to be able to support future required. So Ruplu, I would just say is, you know us, we like to guide 1 quarter at a time. We feel very comfortable about our guidance. As you can see, we are increasing our earnings per share. This is the second quarter that we delivered 6%. I think we can expand margins, both on Sanmina side and ZT site in the future. Those are exciting things. and there's a lot of vertical integration opportunities that we're starting to kind of work on that. It's going to take some time. But in a year from now, we should be able -- that part of the business when it comes to vertical integration around the AI data center will improve. And then our core business around data center is doing really well. So we are -- we like what we have. As I said in my prepared only few businesses is that automotive was down, but it's getting stable, but everything else starting to move in the right direction.

Can I -- can I ask a clarification Jure, I know you're not guiding for the full year, but one thing you said in your prepared remarks is that when you look at consensus estimates, you're comfortable with that. If I look at incentives for 2026, right now, it's about $14 billion of revenue. And I think your last guidance for ZT was kind of in that high $5 billion to $6 billion range. Are you still comfortable? Is that the message today [indiscernible]

The message is -- if you look at the first call, we believe we have a very good chance of hitting $14 billion.

$14 billion okay. I understand. And then can I ask...

As much as I hate to tell you on a yearly basis, let me just put -- I'm personally more excited about some front of what opportunities we have today than in May when we did a deal and even a lot stronger than 90 days ago, a lot of work in front of us, but we're not afraid of work.

Right. If I can sneak one last one in. Jure, let's move beyond data center. If you look at the communications market, right, I mean from an optical and networking, how are you -- that market has been going through many years of inventory correction -- how do you see that recovering? What is happening? Can you give us what happened in the December quarter and how you see the March quarter in terms of the overall communications market, whether it's optical or networking or whatever the part you play in.

Yes, very strong. I mean, very strong today. I mean we have some material shortages out there around memory and some of the special ASIC customer ASIC but very strong demand, and we expect -- first of all, it was very strong in the December quarter. It will continue to be strong in March quarter. I think it will be very strong for the rest of the year. But Ruplu, 1 quarter at a time, but we're excited about the year and the future.

Your next question comes from the line of Steven Fox from Fox Advisors.

I guess just off of all that, maybe you can tie that into the operating margin. It looks like the operating margin was a little bit better in the quarter. It looks like it could even be flattish this quarter. Can you talk about some of the things going on, puts and takes and why you're able to hang on to that like 6 handle maybe not only this quarter, but next quarter? And then I have a follow-up question.

Yes. Steve, this is Jon. So very pleased with the operating margin for the quarter. As I was saying in my prepared remarks, pretty consistent with where we exited last year in Q4. And it's largely dependent on mix. That was a big factor in our business. But it's also the same levers that we're always focused on, that we're talking about. So just to be clear and to reiterate that, but we're always looking to drive operational efficiencies within both of our businesses or within both of our segments, both IMS and CPS. Clearly, the addition of ZT it helped out as well. We're always looking for opportunities we're efficient with our SG&A cost structure, too. And we're really focused on growing those businesses that are accretive to the overall margin profile. Last year, Jure and I talked a lot about investments that we were making in CPS in particular, that would be margin accretive. And we're starting to see some of those investments coming online. So that created a little bit of short-term pressure in CPS in particular, but long term, the opportunity is there. So it's the same set of levers that we're always executing on, and that's what we're going to continue to do going forward.

[indiscernible], I can add to that. And investments that we are making, especially as you look at in the '26, '27 a year, it's a lot of it in the businesses that can deliver the higher margin. for us. So the key for us, that's why we feel -- of course, you've got to take one day at a time, one quarter at a time, but we are positioning company to really push for the higher-margin business, something that is sustainable, not just for 1 quarter, but is sustainable for many quarters. As you can see, our business is becoming more technology driven. It requires a higher return on investment to be able to make investments for the future.

And just to be clear, when we're talking about mix here, John, are we talking about mix of components, products and services or mix across served markets.

[indiscernible], I was referring more to across components, products and services, Steve. I think at the end of the day, I think the key important thing to remember here is that even with the acquisition of ZT Systems, our core strategy hasn't changed. What Sanmina wants to focus on. Clearly, that added to the overall IMS part of the portfolio. And that's great. It's essentially an extension of the TAM more broadly into the data center end market or as we call it the cloud and AI infrastructure end market. But the core strategy of always trying to get better on all the programs across all of our businesses hasn't changed and then also our focus on our cost structure and just growing CPS to be a bigger component of the overall mix. So core strategy hasn't changed, excited about and just on XT, they've been executing well, pretty much everything that we said back to May, we've executed on to date. And now we're focused, as Jure was saying, on all the opportunities we've got ahead of us in that business.

Got it. And then just as a follow-up, can you just help us a little bit more on the ZTE wins for later in the year? It sounds like you have confidence in these wins that you've won some substantial stuff -- but I'm wondering if you can give us color as to is it all accelerated computer-related legacy technology too. How would you sort of describe what and why you're winning that you have confidence in doing like $14 billion [indiscernible] $16 billion in [indiscernible]

I think number one, why we're winning is execution. This is a great team. They are known to execute. They have a very strong relationship with existing customers. And the way we are structuring for the future and the technologies that are coming out, these are very difficult systems. And I believe that we are positioned our customers believe that we're positioned to win. We still have to work on it and deliver opportunities [indiscernible] are there. I mean, opportunity is not an issue. I think it's all about timing and making sure that we do what we said we're going to do as we're making commitments to our customers. Anything else, Jon?

The only thing I would add to that, Steve and Ruplu talked about it earlier, but there's multiple components to the ZT business and all of them we're interested in and we're investing in accelerated compute is certainly the part of it that has the most growth potential, but we're focused on all aspects.

And I think what I would just to set, we don't talk too much about it, but I think we're able to there was a lot of talk. We're not going to be able to retain all customers. I think our team is doing a great job, and we have a high confidence that those customers will grow in the future, and we're going to be adding new customers to that. So from an opportunities point of view, that's not an issue. I think the demand for at least what we see today, what we hear from our customers, like I said, there's a lot of opportunity. We are investing for the future. As you just heard from John earlier, we spent, what, over $85 million last quarter $87 million, and we're going to be spending around 90 plus. And that's all for future. That's -- 90% of that is really for '27 or '28.

[Operator Instructions] Your next question comes from the line of Anja Soderstrom from Sidoti.

So within Industrial Medical, our understands where -- what was the pocket of weakness there to [indiscernible]

Well, I think as I said in my prepared statements, I think we had some weakness in the last couple of quarters in automotive, transportation, part of the way we measure it. They're starting to stabilize, and it's mainly driven with some of the new programs that are coming that we won. And so I would say that business is going to be a short-term stable, but the longer term, I think, will start recovering. Medical is starting to recover pretty nicely. We're pretty well diversified there. Defense and Aerospace, it's pretty stable. It's all about these are long-term programs and just that sometimes they don't move as fast, but the demand for those are solid Industrial, I just talked about earlier, that's a very good market for us. We talked about expansion down in Houston, Texas. We do have orders and the books already for what we call medium voltage transformers that we codesign with the Croatian European company. We're very excited about that. Actually, customer wants the product today. So overall, that segment, we expect it to grow more growth in the second half of our fiscal year, calendar year.

Okay. And did you say you expected that to grow sequentially in the second quarter?

Yes, we're going to see some growth in the second quarter, but we'll see more growth in the second half of of our fiscal year '26.

And then in terms of the cash cycle days, you said there were some things going on in this quarter that drove that up. Do you think we'll see a drop in the second quarter? Or is that going to be taking some time to get that down?

Yes. What I was referring to there, Anja, is that whether it's our -- I was talking primarily in my prepared remarks about inventory turns. And in that calculation, you've got the full amount of inventory that came over from but only 2 months of the cost of goods sold. So it somewhat distorts the calculation. Same thing applies for the cash conversion cycle, but that also applies to revenue as well. So I think we'll be a little bit better. But all in all, we're pleased with performance of the business on that front. And it's per our expectations. As I mentioned for core Sanmina, we drove improvement on inventory turns, and that's been the big area that we've been focused on for the last couple of years. So we continue to do well on that front, but more work to be done. In ZTE, once we've got a full quarter in there, I think you'll get a more realistic view of inventory turns, cash conversion cycle. But as always in our business, that's always going to be an area of focus of where can we optimize, how can we do better?

There are no further questions at this time. I would like to turn the call back to Jure Sola for closing comments. Sir, please go ahead.

Well, ladies and gentlemen, again, thank you for your time you spent with us today. Hopefully, we answered most of your questions. If not, please contact us and looking forward to talking to you, if not in the near term, 90 days from now. Thanks a lot. Bye-bye.

Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.

Good morning, everyone. Good afternoon to those listening in Europe. I'm David Vogt. I am the hardware networking analyst here at UBS. Thank you for joining the UBS Tech Conference. We're excited to have Sanmina here. Yuri Sola, Chairman of the Board, Chief Executive Officer. In the crowd is Paige from Investor Relations. So if anyone has any follow-up questions, you can reach out to Paige. So Yuri, thank you for joining us today.

Well, David, it's good to be here.

So I think before we get started, I think you have a brief...

Yes. For everybody on this call, I'd just like to remind you to please look at our risk filings latest with the SEC. And after that, we can talk about anything.

Prefect. So I thought it would be helpful since the business has sort of transformed fairly recently, if we can maybe have some sort of quick historical context of the traditional Sanmina EMS business. Where we were? Where we are today following the ZTS transaction, ZT Systems transaction with AMD. Maybe we'll start there, and then we'll dig deeper into each of the sort of the individual.

For those of you that are not familiar with Sanmina, I'm one of the co-founders. We started the company 45 years ago. We have approximately 40,000 people now with ZT. Really excited about the acquisition. Company always focused on mission-critical type of products. We are known for building a high technology stuff that has to work for many, many years. It's not a throwaway product.

As we looked at the expansion into AI when ZT became available when AMD decided to find a real partner, it wasn't just a sales job and to pick it up, but it was a strategic move on our part, and I personally believe it was strategic for AMD to find the right partner to be able to work with them and get their product to the market.

So personally very excited. Yes, definitely, this will transform the company. We see a lot of upside potential. I think our core business will continue to do well. We had a great '25. We're excited about '26. And most importantly, I think we'll have a lot of growth.

Great. So maybe we'll dig into kind of the strategy. So when you looked at your portfolio prior to the availability of ZT Systems, what made ZT Systems attractive to your current portfolio, right? So it's kind of a new -- it's not a new vector per se, but it does deepen your relationship and ties into sort of the data center AI market effectively. So what -- when you looked at ZT Systems specifically, what drew you to that asset? And what's the strategic justification for taking that portfolio into in-house effectively?

Yes. If you look at our capabilities, they're more focused on the high end, and we've been looking to expansion into the more cloud business. We already -- if you look at our cloud telecommunication business in the last few years, about 40% of our total revenue and very solid customer base in that market. But in the last couple of years, we saw a lot of opportunities for growth in the data center, and we start building this on our own. And our model is really taking our customers all the way from engineering point of view, all the way through subsystem to the full system.

So strategically, when ZT became available, it really gave us a step up instead of building ourselves, taking it -- especially when it comes to the power and so on, it takes a couple of years just to get the power alone. ZT had not just the capabilities, but they had a capacity. And AMD has been investing in a critical technology for the future.

So as I said earlier, it really just made a lot of sense for us. So we worked very hard on this one. We convinced AMD. We got the best capabilities, which I think we do. And we have a great customer base. And as the AMD talked to our customers, they also supported us basically saying Sanmina is the best partner for the future. So strategically fits. We're excited what's in front of us. A lot of work left, though, but besides that, it's fun.

So how does -- so obviously, now you have more -- you had high-end capability. Now you go from subsystem to full system. So when you go out and you speak to potential partners and customers, how does that change sort of the dynamic of Sanmina a year ago or 18 months ago versus today? Like what do those conversations look like? And how has -- how have they changed to the extent that you're driving potentially deeper, more meaningful relationship with these cloud partners effectively?

Yes. So let me make sure that we will not forget our other markets, too, because other markets are very critical to us, and we want to be a diversified company from industrial, medical, defense and then communication and cloud. Cloud for us, we have a better story today. We have a complete story, which we can take them end-to-end.

And that's what our -- especially hyperscalers are looking for that. And with having a right partner like AMD, it now exposes us to all those critical projects. Addition to AMD product, we also -- as we're talking to the hyperscalers, especially, they say, well, we're going to use other AI in the future and what can you do?

So Sanmina is -- ZT Systems is set up to basically be able to handle all of these things. So our message to them, we're a strong company. We're stronger today. And I think putting Sanmina plus ZT together, it puts us as a -- basically as a leader right now in North America AI manufacturing.

So given the full solution that you currently have, we get asked -- although we don't cover the company, but we get asked questions about how you stack up from a capability perspective to some of the other EMS, ODM companies in the marketplace, whether it's U.S. domestic out of Asia. Maybe if you can help your compare and contrast how you see yourself positioned in this new -- or maybe not new, but expanding opportunity within data center vis-a-vis some of the competitors in the marketplace today.

ZT acquisition puts us in a leadership role in North America. So -- and also the partnership that we're building that they already had. I mean to build a company, it's easy to build a building. It's easy to buy equipment, but it takes people. ZT has been in the business for well over 10 years. They built this company from bottom up.

We're keeping the whole management. We're putting one individual over from Sanmina's side to integrate this long term. So we have a great team. We've got great capabilities, and we can do it today. And that is our competitive advantage. And I think having been an NPI partner for AMD really opens the door for us in these new capabilities that we can bring that right solution for our customers, which is a big competitive advantage for us over our global competitors and also the local competitors.

So you brought up the NPI relationship with AMD. Maybe just for clarity, can you talk to how the relationship with AMD today is structured post the deal closing, right? So obviously, AMD and ZT was a completely integrated solution. Obviously, that's not the case anymore. So how does your relationship with AMD evolve? And what does that mean for your ability to work with other partners outside of the AMD ecosystem?

Yes. So for AMD product, we are fully integrated because the old engineering team of ZT is still with us under AMD logo and all the manufacturing is under Sanmina logo, okay? So together, nothing really changed. Their engineering team is operating from the same building as we are, so that we're working very close together on their product.

In the model that we have, we are allowed to also work with other suppliers in this case around AI. And Sanmina always had a small team of engineering in the ODM side of the business. And now we are expanding, and we're working very close with ODM and hyperscalers where we need to add more talent. But that's our long-term goal.

Right. So -- but there's nothing in the agreement that precludes you from working with other [indiscernible] going forward. It's not exclusive AMD. I think that's an important let's put a clarification.

Yes. I think about Sanmina is that we are an extension of our customers. That's the way we build the company. Our business is really protect our customers. And our average relationship with our customers is well over 20, 25 years. So our reputation is, we're not perfect, but we're transparent, and we get the job done.

Got it. And so we get this question all the time. Obviously, it's a fairly big deal -- it was a fairly large deal for you. How do we think about the key outside milestones that we should monitor, whether it's strategic wins with potential customers? Is it -- I know John is not here, but is it financial metrics that we should look at over the next 12, 24, 36 months, leverage targets coming down, strategic wins? Like what are you most focused on? And what should we monitor to highlight that this has been a successful deal and being integrated well at this point?

Well, we have to deliver results. I'm a firm believer. We can talk all day long. I grew up on a farm until [ Kowls ] come home. How did they say that? You have to have a result. So for us, number one is understanding at the end of the day, what our customers want. And together with AMD and other partners, that is the key focus, is there's about 10 key customers that we're going after.

And good thing is that we know who they are because we've been doing business with them at the Board level, mechanical level, liquid cooling level, and now we've taken it to the next level. So I think building that relationship with those key end customers is -- for us, that's the most important part, build everything around the customer.

And then it's execution. And I think as investors, we have to deliver what we said, and we're not going to go after just a business just for a business sake, just to look good for short term. We're building business for the long term. And as you asked the question earlier, this will transform the company, but we're going to make sure that get repeated every year and how public market is. We're just as good what we ship...

That was going to be my follow-up question. So I'm glad you brought that up. When you talk about winning or landing and expanding with existing relationships. You know who these customers are already. There's a lot of concern in the marketplace, not around Sanmina, but in the general marketplace about profitability, profitable growth, in the infrastructure side of the market. So how should we think about -- you just mentioned, I think you just kind of offhand said, look, we're not chasing business for the sake of chasing business.

Are there sort of return thresholds, return on capital thresholds? Like how are you thinking about like, hey, I have customer, A, we've worked with them in the past for 10 years, 15 years. They want me to do this, but this doesn't necessarily sort of equate to what we had envisioned when we took ZT Systems in from a profitability perspective or a margin perspective?

First of all, what we build is a very, very difficult technology to build. This is not something you build today and you can transfer it to somebody else and they can build it tomorrow. So from our customers' point of view, they want to choose the right partner they can depend on for many, many years. So it comes to quality, time to market and is it repeatable, okay?

So that is the key. The margin, this requires a major investment. As you know, the power alone, when some of these hyperscalers come to us and say, in order for us to do business, we need 50 megawatts of power. We need 100. Some of them saying we need 150. That costs money, right? So you have to have a right return.

We guided the Street in the last quarter that we say short term, last year, we delivered on the Sanmina legacy business around 5.7% fourth quarter, we delivered 6% operating. We guided the first quarter between 5.6% and 6.1%. We feel comfortable what we guided.

And we said longer term, we think we can get operating margin 7% to 6%. And we still feel good about that. And our model allowed us to do that, being vertically integrated and be able to supply some of these critical components. Like, for example, we are a major supplier today to a lot of hyperscaler and mechanical enclosure mechanical, including liquid cooling and so on.

So we know how they operate. And as much as they always beat you on a price, that's just a normal thing. But they also need results. And in order to get results, you've got to hire good people. And without a good people, you're going to fail. I think Sanmina has good people, and we think we'll be able to stay. And this industry has to improve the margin. Otherwise, there's no way we can continue to invest in this business.

So as you incorporate more ZT Systems and you target more expansion opportunities, and you mentioned margin targets longer term, 6%, 7%. How do you -- how do we think about what's embedded in your upcoming quarter and next fiscal year margin from the ZT System investment? Like are ZT systems effectively revenue coming in at a lower margin because of the investment cycle to build and ramp that capability for the long term versus the rest of your business? And then how do we think about over time, our margins by segment, if you will, comparable across defense, industrial, cloud, data center?

Yes. Basically, what we said and we basically told investors, we're going to talk a little bit more in January. We just acquired ZT. So we're talking to our end customers. So we'll know a lot more in the next few months where the world going. But we believe what we see today that ZT operating margin for existing business will be very similar to Sanmina legacy business, which in that is around 6%, let's just call it.

Stand-alone today when you build...

Stand-alone. If you look at the longer term, the more product -- the more difficult the product is more risk in it as you build it, you should be able to make a little bit better margins on that stuff. And as long as we apply our model from engineering, Board level to mechanical level, EMS level, integration level, I think we'll be able to generate equal or better margins in the future.

So when you say risk in that equation, does that mean IP or just complexity. You own some of the IP? Or is it just the complexity of the solution makes it riskier effectively, and therefore, you can get more value through price for that offering?

It's more complexity. So the more complex product you build, you should be able to make a little bit better margin. Otherwise, [indiscernible] consumer. We don't build consumer products. So everything that we build, it has to last for more years. And even a data center, these data center guys, they want to plug and play, just like when I get a phone and you get a phone, you want to bring it home, you plug it in and it works.

On the multimillion dollar deal, I mean, rocks, they want to do the same thing. So the companies that can deliver the high yields, they typically will let you make a little bit more money because they're afraid to change. This is not something you can move it like a consumer product.

And then along those lines, do you see where you sit -- I know it's early days, the deal just closed. But do you see yourself as sort of a primary lead supplier in some use cases or a secondary source supplier depending on the customer, the opportunity -- in a lot of different environments, there's always sort of the initial partner that -- EMS ODM partner that has 60%, 70%, 80% of that particular opportunity set? Like how do you think about where you fit in given that for all intents and purposes, you're kind of the newish player fairly recently in this space and a full complete solution?

Yes. First of all, if you look at our legacy business, we're not used to play in second.

That's why I'm asking, right?

So we are a primary supplier to a lot of these critical customers. I can't talk about all of them, but I'm sure you analysts, you know my customers for a long time. They've been with us a long time. These are customers demand high quality, a lot of flexibility and trust. Trust is in this technology is very important. I think in the hyperscalers around AI, especially some of these new technology, I think there's too much focus on price.

I'm telling you the difficulty of that price, the companies who can deliver performance, quality and flexibility will deliver respectable margin. And trust me, my goal is not to be secondary, but primary supplier. And I think we will be on some of the technology because we are playing at a new product.

You have to play as an R&D and new product introduction. Because once you establish yourself and you show to you customers that you can perform, your product is working and you can now tell them you can deliver thousands of these in the next 6 months or 12 months and you have all the capabilities, they don't want to take any risk. They're going to stay with you.

Got it. Okay. It feels like price is not a lever to be used against the EMS partners by the hyperscalers, given what should be increasing complexity for solutions over the foreseeable future, right? Things are only going to get more power consumptive, more technologically challenging, topology challenged, and that's where the value add comes in from your perspective.

Yes. For us, it's to create more value. You have to provide a solution. At the end of the day, they're not going to pay you extra money because you are a supplier, they're going to pay you extra -- if you give better support, better quality, better time to market, all the basic things. This is -- ZT or AI is nothing new to us, we've been doing this for 45 years, okay? So -- but it's all about execution. That's what I said at the beginning, how are you going to judge us. Our customers judge us based on execution. Our investors should do the same thing.

Got it. So when you think about this business, I think industrial has its own sort of GDP-like growth cadence with some multiple or spread upon that. Other markets have their normal, I think, cyclical cadence too. How are you thinking about what this could mean for the longer-term growth trajectory of the business? So.

If we think out -- and I'm not going to put your feet to the fire next year, but obviously, the end markets are growing meaningfully faster than your other verticals that you've been really strong in over the last 30 to 40 years. Is that kind of -- one of the reasons why this is so attractive to you that it adds sort of a layer of vertical market growth that you just don't see in the core portfolio today on a broad-based basis?

Let me first of all talk about our core legacy business for a second. We said on our last call, we're going to grow that high single digits, let's call that 6% to 10%, okay? We feel very confident about that other business. I think this AI business, I don't know what's going to happen 5 years from now, but I can tell you, based on what I'm hearing from the key customers, in next 2, 3 years, the numbers are crazy, right, okay?

I think the key for us is that to make sure we execute to those requirements. So demand, I don't think will be an issue. But back to what it does for Sanmina is basically it give us opportunity, as we said on the call, when we started working on this deal and we got to know end customers, we felt that, hey, we can double the company, think like a rule of thumb from 16 -- I'm sorry, from $8 million to $16 million in the next 3 years.

But as we went through the time and we start talking to these customers and so on, on the last call, we said, I think we can do this in 2 years. So we feel that we have a better visibility today, what's in front of us. I think if you want to look at what's going to happen in '28 and if we believe in those numbers, then you shouldn't lose any sleep. It's all about execution.

Can you level set then? So you said originally, the goal was we can grow double this business in 3 years. Now it sounds like 2 years. But can you remind us again, post the sale, post the closing of the transaction, what the revenue run rate that you acquired at ZT Systems is today, given the moving pieces around the transaction?

We basically -- right now, we sit in -- we only have it for 11 months. 11 months, 5.5 to 6. The average year out for 11 months comes about 5.7. So we think there's more upside than downside to that number right now. But we're really not focused on that. We're really focused on -- end of '26, our fourth quarter of fiscal year '26, first quarter '27 and then calendar year '27. That's where the base.

But that 5.5 to 6 accounts for the adjustment, right? When you originally bought the deal, I think there was a discussion of like how much revenue is sticky staying with the business and how much doesn't make sense to stay with what you acquired and is -- so that's the approach.

Yes, this is the latest number. Actually, some of the business -- when AMD decided to sell ZT, a couple of key customers will say, well, who's going to buy it, we know. We feel that after our meetings, when they realize we're buying it, we already had a relationship with this company. That relationship is a lot more stable today, and we're executing well. And I always believe as long as I execute, there's no reason for customers to leave.

Okay. I just want to level set. We talk about supply chain, the rest of your business, maybe just pivoting away from infrastructure AI. Supply chain has a lot of challenges historically over the last 2 to 3 years. It doesn't seem to go away. Maybe kind of talk about how you're thinking about where your supply chain is today, where it needs to be? Obviously, tariffs were an issue back in April, maybe a little bit less so today. But has that driven the need for more reshoring, onshoring, Mexico, U.S.? How are you thinking about how you're positioned and what your strategy is for the core business?

Yes. So first of all, Sanmina is -- when it comes to supply chain structure, we run everything in One IT System right. Now ZT has another system will eventually integrate ZT into Sanmina, One Global IT System. So our supply chain is global and regionalized. So the world is going to regional manufacturing.

It's already -- it doesn't matter who the President is, it doesn't matter what happens in North America, what happens in Europe. The world is going to regional. World is a lot more political than what it was 10 years ago. So we're going to regional. So how -- what do we do? We have -- we're setting ourselves to be a global company that can support regional customers and they give a global solution.

So if you look at what's happened, we learned a lot during the COVID. I'm telling you that was as much as that was confusing, but also taught us a lot of lesson because all the shortages that we had and so on. The lead times are starting to go out right now. So we are working with our customers today, and they's great.

If you need these numbers, we're got to do the planning. In our model, we just can't -- we just don't go out there. Our industry doesn't go out and buy a bunch of material that we don't know who's going to buy. So the material that we buy is always 100% guaranteed by a customer. We don't buy anything on a risk unless it's approved by a customer or they do prepay. So the supply chain for us is very, very, very critical. It's stuff where we spend a lot of energy on a daily, weekly basis. But Sanmina has one of the state-of-the-art best capabilities in the world. I mean we can compete with anybody when it comes to the IT.

What's pushing lead times to the right? I know there's a lot of supply chain variability and availability of substrates and memory and other proverbial golden screws out there. But like what are you seeing in your business from a customer perspective that they need that maybe is a little bit more challenging to procure today than maybe 6 months ago?

Well, maybe you've got to go back to '22 and '23, what happened there. There was a lot of demand. There was a lot of more orders out there that were not real, okay? So when it came to '24, we went to what we call transitional year, we had to work inventory down. At the same time, a lot of these people in these components, they didn't invest. They didn't know what was going on.

I would say '25 was, we don't have enough capacity. And if you look at the memory, it's crazy right now. I mean -- and it comes to connectors, it comes to circuit boards, it comes to a lot of these PCBs.

Yes. So a lot of these things right now, it's -- I think semiconductor, I mean, they're starting to recover now, maybe now because they really didn't invest. With AI driving the demand, you can see...

So is there risk, though?

I mean, I'm not an expert.

No, no, I know. But is there a risk like so PCBs are in short supply, memory is in short supply. There's a lot of things in short supply, and there's not a lot of capacity coming online that you pointed out that supply chain didn't know what to do. Even now, I think the supply chain doesn't know how confident or comfortable they should be about adding capacity. And so as you tell your partners, hey, you better order 18 months in advance instead of 12, is there a risk that there is -- you have the demand, but you can't ship, you can't procure, you can't build, you can't ship. Is that like a risk for the industry, not just for Sanmina, but for the industry going forward?

I don't know if -- is there enough capacity to fill the whole demand. I think overall, shipments are going to go up, okay? The question is the supply chain, the subcomponents, let's put it in semiconductor, mechanical circuit board, are they going to be able to fill those things in. That's a million-dollar question. But there's a lot better planning. I just had a customer -- we had a 15-minute break, called me up and he says, "Hey, we got this huge order. We do with this customer well over $1 billion.

And they said, we got this huge order on this one part number. You said they want it now, but I need $200 million of that product now. And I know this guy for the last 20 years, I said, how are we going to do it? So -- but there's a lot of planning. So of course, we've got everybody working, his team working, our team working on it, and we'll find a way.

But it's also a good problem to have. I think you got to understand what happened in '23, '24 and '25. I would say when it comes to supply chain, '24, '25 was like a kind of transition feeling what's happening. I think people today are finally getting confidence besides AI because [ AI is the more traditional ]. Other business is growing, too. Medical is starting to expand because the medical was really flat down after COVID, nobody bought anything.

Industrial around power, it's also going crazy, not just for data center, we just don't have enough power. So that part of the business. Only business that today is kind of a little bit kind of flattish will be automotive, around especially electrical cars. But everything else, it seems like it's moving in the right direction.

So maybe in the interest of time, Yuri, I'd like to give companies an opportunity to kind of discuss why they think the market is wrong or misjudging your business. What is the market missing post the ZT transaction and sort of the transformative deal that it is for your business going forward?

Well, first of all, some of this is our own fault for not probably communicating properly with our investors. Sanmina was a bigger company. And then in 2010, '11, we decided to get rid of all the consumer and PC business. And when we acquired SCI, most of their business was a consumer. At the same time, we had a major restructuring that everything was shut down in the United States and everything went to China, Asia, that restructuring is done.

At that time, we kind of pulled back, let's not chase revenues, let's just focus on quality of the earnings and so on, which we accomplished that. We had a great balance sheet. So when we acquired ZT, we acquired it from the strength point of view. I think today, they still look at -- we just did this -- I think people don't appreciate what EMS companies do.

And there's no -- EMS engineering capabilities are better than ODM capability. They just -- ODM focuses on 1 or 2 things. We build 1,000 parts. Our capability is a lot more advanced when it comes to supply chain. So I think we, as an industry, not just -- we are a lot more critical to all these technology companies to be successful. So for hyperscalers, we have to execute.

Otherwise, they don't create everything. I think for Sanmina, I think we're in a very good position and a very strong company right now, and we expect to grow this year comparing to the last year. I know including ZT acquisition, well over 50%. I think EPS will grow at least 50-plus percent, but we'll tell you a lot more in January. We love what's in front of us.

Great. No, I think that's a great synopsis. I think we'll end it there. I think we're out of time. So Yuri, thank you for your time. Paige, thank you for your time. Thank you, everyone, and have a great day.

Thank you, Dave.

Welcome, everyone, to Bank of America's 2025 Leverage Finance Conference. I'm Ana Goshko, and from the credit research side, I cover technology and telecom. And I'm thrilled to have Sanmina with us today, and we have Jon Faust, the company's Executive Vice President and CFO. So Jon, thank you so much for being with us.

Yes, thank you for having me.

Okay. Great. So just in case with anyone in the audience that's new to the Sanmina story, if you could just start with like a minute or 2 summary of the company's business.

Yes, absolutely. I mean, first, let me just start off by saying for all the people listening before we talk about the business. I just want to remind you to take a look at our risk factors and our recent 10-K filing. So I wanted to make sure to point that out first. But yes, back in terms of Sanmina. So Sanmina is a global leader in the design and manufacturing solutions business. And our focus, which is a little bit different than some of our peers is on heavy regulated markets and very complex products, which is a different way of saying we don't play in the consumer space, but we do work across a multitude of end markets doing different services, and I'll talk about those too. But everything from communication networks and cloud infrastructure, to medical, aerospace and defense, industrial, energy, and we're very well diversified.

And I'm talking about the legacy Sanmina business because we just recently closed an acquisition, and I'll talk about that too. But if you look at our legacy business, we are very well diversified across those groups. And we provide the full suite of services on a true end-to-end basis, which means that we like to engage on the front end of the product development, like early-stage new product introductions to really learn how to manufacture, design the products all the way to direct order fulfillment. And I'm talking about to our customers' end customers and pretty much everything in between.

If you look at the size of our business last year, in fiscal year '25, we did about $8.1 billion of revenue, grew high single digits, generated about $621 million in cash. So the legacy Sanmina business is very healthy, and it's very well distributed across those end markets that I talked about. So I just want to speak about that a little bit, too. We like to group the 2 businesses or multiple end markets together.

So we've got communication networks and cloud infrastructure. That's about 40% of our business, a little over $3 billion in revenue. And then the industrial, energy, medical, aerospace and defense and automotive is about 60%. And both were growing last year. Communication networks, cloud infrastructure was about 20% on a full year basis. The rest of the business, like low single digits, but overall in great shape.

And just to add on top in terms of like how we manage our operations, we've got 2 businesses. So we've got IMS, which is Integrated Manufacturing Solutions, which is core EMS assembly type of work. But then we've also got a Components, Products and Services business. And that's where we look to drive vertical integration for our customers. We want to win the business to do core EMS type of work. But if we can also do the boards, if we can do metal fabrication, precision machining and plastics, that's how we look -- that's the type of programs that we look for. And the whole goal is to find customers that are interested in that.

We're very selective about the customers that we want to work with, but then also the programs where we think that we can apply the things that we're focused on to provide them a competitive advantage. And that's really a key point to know about Sanmina. We're a very customer-centric company. Our CEO and Chairman is also a co-founder, started off in sales. And so he's always wanted to make sure that everything that we do is centered around how the customer operates.

And then last point for people to know is just recently, at the end of October, we closed the acquisition of ZT Systems, which expands our business into the -- more broadly into cloud infrastructure. For the last 10, 15 years, we've been very focused on data center networking in that space. But with everything going on with AI and around the data center business, it was just something that we couldn't ignore. And if you look at the complexity of those products and what's happening with accelerated compute, GPU platforms, it's amazing what ZT has done there, but it really does fit our core strategy, back to my earlier point about heavy regulated markets and complex products.

So very excited about that, but a key point being legacy business is doing very well. And now we've got a great acquisition that we just closed that we think is really going to help to transform the company going forward.

Okay. That's great. So a great introduction. So maybe we'd just start a few minutes on just getting a little deeper on some of the subsegments in the legacy business and then there's clearly like a lot to talk about on ZT Systems. And there's been a lot of AI talk everywhere including at this conference today. I think there's some -- a lot of to explore on that front there. But -- so if we start with -- so your big segment. So it's industrial, energy, medical, defense, aerospace, automotive.

So I think as you pointed out, it's about 60% of revenue. So it's $5 billion for your last fiscal year. So starting with industrial and energy, I think that's the largest end market, right? And I think, you've noted there's new projects in the pipeline that are going to help to drive growth for FY '26. So you -- can you describe like what some of these projects are sort of customer size, contract length? And generally, like how much visibility do you have from your pipeline?

Yes, absolutely. I mean maybe I'll touch on that first and then just go into the end markets. But generally, with most customers, we get about a 12-month outlook, and we'll meet with them regularly, like multiple times per month, sometimes weekly. So we get pretty good visibility. And when you can really tell that the business or the end market is getting more stable is when those forecasts don't change, when they're very volatile from 1 week or 1 month to the next, that even the customer, our customer doesn't have great visibility. But we've been seeing that those forecasts are becoming much more steady as of late, which gives us a lot of confidence as we go into FY '26.

Now if you take the energy side of industrial and energy, it was doing great all last year. It's a bit of a mixed story between the 2. And the type of programs we do there is like power storage, power controls, things of that nature. And again, with the broader AI ecosystem, you can see a lot happening in the power space. So that's an area that did well last year. We expect it to continue to do well.

Industrial has been a bit more mixed. And we do multiple things. We're pretty well diversified within industrial. So on one side, we do like handheld equipment for police officers, firemen, those types of products. That did well last year, not huge double-digit growth, but good solid growth. But then we also do things for like the semicon space. So think of companies and we don't talk customer names in specifics, but if you think about the ASMLs, the Applied Materials of the world, that's been a lot more under pressure. And we do both integration work there, but also precision machining.

So if you think about the big aluminum blocks, for example, now that was under pressure as of late, but we're starting to see green shoots of that starting to get better as we go into this year.

Okay. So medical second. So what areas of the market do you participate in and what's the growth outlook for Medical?

Yes. Medical is also kind of a Tale of Two Cities, a little bit mixed last year because I had mentioned that we're pretty well diversified across our end markets. But then even within the end markets, we try to diversify and medical is a good example where we do everything up to large equipment in hospitals. So things like CAT scan machines, products like that all the way down to wearables and then the stuff in the middle, too, like blood testing machines, glucose testing machines for local doctors' offices.

Now the hospital equipment, ever since the pandemic, that's been the part that's been a little bit more constrained and pressured even last year and probably in the first half of this year. But the other part of the medical business has done well. And that's why when you think about that overall segment, if you look at our performance in fiscal year '25, low single digits growth. It was because kind of like the medical example or even industrial and energy, some things doing well, some things not doing as well, but balancing out and growing a little bit overall. But with the forecast that we're seeing from the customers and the stability, like we're starting to see more confidence that, that's going to get better in the second half.

Okay. So defense and aerospace. First, can you give us a sense of the mix of actual defense versus potentially like commercial aerospace and what's that -- like what are the trends and the growth outlook?

Sure. Yes. So we've got 2 plants specifically in the U.S. that came through an acquisition of SCI, like early 2000s that we did. One plant is focused specifically on the Department of Defense, and that's been doing very, very well. And then the other plant is focused on commercial. That's because there's different rules and regulations and different things that you need to have in place between the 2, but aerospace and defense overall, if you look last year and going forward, has done quite well for us. And it's a great business to be in because it's very annuity-like, especially the DoD side of the house, like once you get into these programs with the government, they stick around for a long time.

So it's a very attractive business to us, something that's done well. And unfortunately, there's still a lot of conflict in the world. So it's not like the greatest driver, but that's what's leading to what we're seeing in the performance of the business. And we're very much indexed to U.S. and like some specific U.S. allies like for our aerospace and defense division.

Okay. And then finally, there's automotive. So I think the softness in autos is pretty well known. And so like where are you in the sort of auto supply chain? Like where do you play. And then -- but I do think that the company has recently highlighted some new opportunities to drive growth. So if you can elaborate on that.

Yes. So for automotive, we're very much indexed to the EV side of the house and U.S. EVs in particular. We started out from a product perspective, like in infotainment, those systems, but that's evolved to be drivetrain systems, power controls, other things. So it's been expanding. And that's been intentional. That's been part of our strategy is to get into automotive and then expand into different areas of the business. So what was interesting if you go back to the first half of last fiscal year, we are one of the few EMS players out there talking about how automotive was good for us.

Now it did slow in the second half, and we're still seeing some of those dynamics now. But based on some of the forecasts that we're seeing, we do think in the second half, that will get better. And it's not so much because the broader automotive market is getting better per se, but it's more about expanding the set of products that we're building and that we're doing. And generally, with some of the same customers, but with some new customers, too. So we're winning new programs, bringing in some new customers, and that's how we expect to drive growth there.

Okay. So then shifting to cloud -- well, communications networks, cloud and AI infrastructure. So lots of like sexy stuff in there, so that's about 40% of revenue, about $3.1 billion. So on the communications network subsegment there, so that is 1 of the company's largest end markets, I think, second, potentially to industrial energy. So you've cited strength like what products are driving that strength? And what geographies really.

Yes. So communication networks, if you look at the history of Sanmina, I mean that's the area like the traditional telecom end market where the company really started and grew and expanded into the company in the set of like the portfolio of products and services that we have today. So our capabilities in that space are great. And communication networks hasn't been like the sexy market to be akin like cloud and AI has been as of late, but it's still a great business to be in. We've got some great customers. So I think optical modules, transceivers, like things of that nature, we're continuing to invest and grow there. And even if you look to like last year's performance, we combined the 2 end markets together as we didn't talk specifics of the growth profile, but both sides were growing high like double digits.

So every single quarter was about a 20% year-over-year growth and it was both sides of the house. So it was very good in that space, and that's an area where we're going to continue to invest because if you think about the traditional telecom players like the Siennas of the world, Momentum, things like that, they're benefiting from the broader ecosystem of AI as well and trying to get into more data center applications. And we think that will be a good business for us. And similarly, for cloud infrastructure is a good performance, too. I mentioned earlier, we were -- historically, the legacy Sanmina business has been more focused on data center networking.

Now the ZT acquisition is going to expand the addressable market that we have to other areas of data center. But data center networking has been a great business, too. So we're excited about that profile and then just adding ZT on top of that.

Yes. Okay. So for cloud and AI infrastructure, so a lot of times, we'll kind of create -- on the research side will create sort of schematics of like who makes the data center, right, like of all the components. So what are the actual kind of components that you manufacture that go into data centers and AI infrastructure?

So legacy Sanmina was like data center networking equipment. So I think like the Arista's, the Junipers of the world, so building products for them for those types of companies, like that was the predominant or the bigger piece of that end market for us. But we also do things out of our CPS like components, products and services portfolio. So rack fabrication, for example, like metal fabrication, and we've also got our own storage offering like a white box storage offering. It's a division called Viking Enterprise Solutions, and that's included in that category, too. And that's where we do full design engineering, sell it as a white box to multiple customers and big large customers, hyperscalers as well.

So that was the legacy business that we had. And the reason that we were just focused on that historically was back to some of my earlier comments just focused on the very complex products. Because for many years, we used -- Sanmina used to be in the rack integration business 15, 20 years ago, but it started -- decided to get out of it, not started, but did get out of it because it was becoming more commoditized. Now obviously, that's changed, which is why we're getting it back in and we can talk about ZT Systems more, but that's kind of like what we have been doing over say, like the last 15 years in cloud infrastructure.

Okay. So ZT Systems. So it's ZT Systems, data center, AI infrastructure is officially what it is called, you got it all in there. So you purchased it from AMD. I think it's got $5 billion to $6 billion of revenue...

Correct...

Sorry, what? Rate and a margin similar to Sanmina's, right? So midpoint, maybe about $390 million roughly of EBITDA. Okay. And then the purchase price was about $2 billion.

Yes. I can walk through that...

Talk about the valuation.

Sure. Yes, I can talk valuation but maybe just to start with the business. So ZT Systems has been around for about 30 years. So very similar in terms of like culture. It was a manufacturing business, but it was a private company. Now they used to be focused on lots of different areas. But for the last 15 years, it's been just focused -- the ZT systems just focused on data center. And more recently around accelerated compute. But if you look at the mix of the business today or even for the last 10 years, it's been around storage, general-purpose compute, so CPU-based platforms and accelerated compute, for large hyperscalers and OEMs, like that is what the business is. And they've been doing quite well.

Now what AMD did, they announced back at the end of August in 2024 the acquisition of ZT Systems, and they were specifically interested in their design engineering capabilities. But then at the same time, they announced their intent to spin out the manufacturing division and to look for a partner. So that's ultimately what we bought and the way that the relationship works is we've now got a strategic partnership in place with AMD, where they're doing reference architecture design for accelerate compute platforms and we're their preferred MPI manufacturing partner.

So that's kind of the nature of the transaction. It was a 2-part transaction on their end, right. Buying the company, carving in the design engineers and then looking for a partner to pick up the manufacturing, which works very well for us. We're super excited about that. The size of the business, as you said, if you look at our Q1 guide, we've only got 2 months of ZT included since we closed at the end of October. So we guided 2 months revenue between $850 million to $1.15 billion, so a midpoint of like $950 million in revenue, which if you annualize is like $5.7 billion. So that's kind of the size of the business that it is right now. But there's a lot of opportunity in that space. And now that we're a combined company, we can do a lot more of that joint planning because we have to decide what do we want the mix of the business to be?

How much do we want to accelerate compute, how much storage, how much general purpose, like they're all good businesses to be in. But we're looking for the right type of programs. I made some comments earlier, like within Sanmina, we're always focused on things that fit kind of like our strategy overall, but are also advantageous for the customers. that's kind of like the state of the business today.

Now in terms of the purchase price and the valuation, I think that was your other question, if I remember correctly. The way that we think about that is we did the deal based on tangible asset value plus a modest premium. And at the time that we announced the deal back in May 19, there was a target working capital number of $2 billion. Property, plant and equipment of like $250 million, and then we had a premium of $300 million on top of that. and that was half going to be paid half in cash, half in Sanmina equity, which AMD wanted.

So an overall purchase price of $2.55 billion. And then there was an earnout like a contingent consideration, too, which is specifically tied to the performance of the accelerated compute business. But we only pay that out, if the business between us and AMD is very successful, which we hope it will be, so it will be really a win-win situation. But that's why people heard about the overall purchase price of $3 billion with the contingent consideration included.

Now fast forward to when we closed the deal on October 27, the net working capital number came in about $1 billion lower. So ultimately, the purchase price comes down by about $1 billion on that front, too. And that was partially due to just timing. We closed the transaction earlier and very diligent working capital management by both AMD and ZT, because we wanted to make sure that we were only purchasing inventory that was committed from a customer perspective, like no risk to it. I mean in manufacturing, inventory is the lifeblood of the company, but you want to make sure that you don't have any risk there.

Okay. Great. You preempted a lot of my questions, so that's great, very comprehensive on ZT. So it sounds like it's been a good deal and got a good growth outlook and you've got that relationship with AMD going forward.

Yes, absolutely. First of all, the whole ZT leadership team, Frank Zhang, the CEO and founder and a lot of the other leaders coming over are just fantastic, very similar culture to Sanmina, do great work. The relationship with AMD is also fantastic. We're excited about that. They've had a lot of proof points in the market that shows their ability to be successful. So we're just now focused on doing our part, making sure that we can come in and do all the manufacturing do all the things that we're supposed to do well to help to support them and grow the business.

Okay. So now most of us are trying to get to 2026, but you guys are already 2026 because your fiscal year has already started, right? So kind of shifting to outlook. So for FY 1Q '26, which is December end. So for legacy Sanmina revenue, which is about -- you've guided it to be roughly flat sequentially, but up 5% year-over-year. But then to grow by high single-digit percentage to accelerate really throughout FY '26. So what's driving the acceleration for the legacy Sanmina business?

Yes. And we did want to guide legacy Sanmina like at a high level on a full year basis just because from an analyst and investor perspective, that's helpful with modeling. Now you're exactly right. Like if you take the midpoint of just legacy Sanmina in Q1, it's a little bit less than 5%. But back to like some of my comments earlier, if you think about industrial, medical, some of those end markets that were more under pressure, we're starting to see some kind of green shoots of those areas returning to growth as well. And we don't see the dynamics changing for the other parts of the business that we're doing well, like communication networks and cloud infrastructure.

So that plays out the way that we expect. Outside of like Q2 is always a little bit of a sequential drop for us. But if you look to the second half, we do expect that growth to accelerate because we expect some of those end markets that were more under pressure to start to get better. And that's, again, based on customer forecasts, everything that we're hearing from customers today.

Okay. And then so operating margin, so I think your near-term target is like high 5s, low 6%, but your long-term goal is really 6% to 7%. So how long is that going to take you to get there? And what gets you there?

Yes. I mean, if I break it between the 2 parts, I mean if you look at legacy Sanmina, for the last couple of years, we've been continuing to make improvements in our margin profile, and we exited Q4 at 6%. And as we grow, there's different things that help that. One, you've got the fixed cost leverage. So we get some benefits of that. That helps the margin profile. Part of it is trying to grow that CPS part of the business that has -- if you think from a gross margin perspective, it's more in the mid-teens. It's about 20% of the company today. But if we grow that faster than the IMS side, you get some -- you get a lift from an operating margin perspective there. And just from an SG&A perspective, we don't have a whole lot to invest.

So we should get some natural operating leverage. And then on the ZT side, as we had talked about earlier, the margin profile is similar to legacy Sanmina, but we're looking to drive more vertical integration there, too. We want to let ZT continue to do what they do well, which is the full system test, rack integration, all that work, like level 10 to level 12 and manufacturing speed. But then we want to vertically integrate with some of the capabilities that Sanmina has.

So whether it be rack fabrication, the PCB work cables, things of that nature. That's all within CPS in that mid-teen profile. So we can execute on both sides, right, like continue to grow legacy Sanmina, make ZT successful, take advantage of the opportunity and vertically integrate. That's how we get into that 6% to 7% range.

Okay. And then on a combined basis with ZT, I think just a simple math. So the revenue is now about in the $14 billion range.

We didn't guide like -- yes, but if you look at the run rate that's sounds correct.

EBITDA, I think you are now $1 billion EBITDA company.

Yes, similar type of math, and that was what excites us so much about the acquisition that we did is just expanding into different areas of the market. So a true TAM expansion. And then yes, just grown like the overall revenue size and profile. But again, like key to what Sanmina does well, back to like either regulated -- heavily regulated markets or complex products, and we get a much larger company, so good profitable growth.

Okay. And then how should we think about free cash flow margin? So especially while you're growing, what's capital intensity and working capital needs like?

Yes. The dynamics for ZT will be a little bit different. One thing I can say about Sanmina, especially ever since I became CFO, is that the company even before I got there, very focused on maintaining a healthy balance sheet. We were all -- ever since I've been there in a net cash position, a very low gross leverage ratio. And that put us in a position to do this deal and not get overlevered. So we've set out from a fiscal policy perspective, a target range between 1% to 2% net leverage. As far as the cash, I mean, if you look at last year, we generated $621 million in cash flow from operations. We exited with the balance over $900 million.

Now we don't need that much to operate. That was us being prudent, getting prepared for ZT. Because depending on how quickly that grows, and again, it's a new business to us. We wanted to make sure that we're very well capitalized. So we wanted our own cash. And then with the debt structure that we put in place, including like a new revolver -- upsized revolver, $1.5 billion, we think we've got all the capacity to support the growth of the business.

We've got a lot of cash right now.

Lot of cash.

So if I did -- I hope I did this right, but I think you've got over $1 billion like on a pro forma basis for the term loan transaction and -- right?

Yes, yes. From an overall like capitalization perspective, absolutely. So I mean you think about just legacy Sanmina exiting with $921 million in cash. But then you have the $1.5 billion revolver. We've got cash that's going to be coming over. We haven't talked about publicly the amount yet, but with ZT, we'll have cash coming over as well. And then we have the term loan A and the term loan B, $2 billion term loan A. Now we delayed $600 million drawn on that because that net working capital number that I mentioned earlier was lower. But right now, we think we've got everything that we need to help grow both the ZT business and scale that and the legacy Sanmina business while staying within the leverage ratio like the fiscal policy that we set out.

Okay. And then -- so we talked about your net leverage. What about your rating targets. I think you've been high BB from the agencies, got you at stable. Do you have a rating target? Do you like your ratings, your cost of capital or...

Yes. We've been 1 notch below like on both sides. Now we did come out, I did come out and specifically say that we intend to get to investment grade over time. And as I was talking with the rating agencies, even before we did the transaction in advance of the transaction then afterwards, if you look at the reports that they wrote on Sanmina, they all were saying the state of our balance sheet was pristine, but they said we didn't have the scale. And maybe if we did a transformative acquisition, that could give us the scale and the profile to get to investment grade. We -- now we've executed on that piece. Now of course, we had to go make ZT successful. But our intent is to get to investment grade. And I think if we execute on that, we'll have the profile to get there.

Okay. What about the appetite for more M&A?

So we're always looking for good opportunities as long as we stay within that leverage ratio. We definitely don't want to get over our skis. And thankfully, because of our balance sheet was in such a good position before we're able to do ZT. The purchase price was now a little bit lower, so we're in a good position. But we're going to wait a little while just to see how the business scales and grows, I mean that's our primary focus right now. But we're always going to be looking at opportunities to both complement ZT and that could be with engineering talent, different things that they need. But we talked about the legacy Sanmina business, too, that's doing very well. And so that's an area that we want to continue to invest in and the reason being is like we want to maintain a diversified portfolio, right?

There was years back when Sanmina was maybe more over-indexed to the telecom industry and so forth. But for the last 5-plus years, we've done a great job of diversifying the business. Now getting in with ZT, getting deeper into cloud and AI infrastructure is great, but we want to keep growing that legacy business, too. So we'll be looking at potential transactions on both sides, as long as the ROIC is there and we don't violate our fiscal policies.

Okay. And then what should we expect for the pace of share buybacks?

So share repurchases we effectively have put on hold. From a capital allocation strategy perspective, we've always been opportunistic in that space. But ever since we announced the ZT deal, we had started to slow that. So if you look at like the second half of last year, now we had done a lot in fiscal year 2024. We pretty much returned all of our free cash flow to shareholders in the form of share repurchases. Now it's not to say that we won't start to do some again now. That's an area that we'll look at. But for us, from a pure capital allocation strategy perspective, it's all about driving growth, profitable growth. And we do it on the foundation of like looking at the ROI.

So depending on whether it's our own CapEx investments organically, maybe some more smaller type of M&A or share repurchases. I'll look across all, Juri and I, and decide where we think the best ROI is for our money.

Okay. Great. So I think we've just got a few seconds left actually. But if there's anything -- any closing comments you want to leave the audience with? And what you're most excited about as you enter calendar year 2026?

Yes. Well, first of all, I just want to say thanks again for having me here today to be able to talk about Sanmina, but it's a very exciting time to be at the company. It's very rarely that you get in a position where you're -- you do an acquisition that's got a great amount of potential to help transform the company, but the legacy business is doing very well, too. So as we look ahead, it's going to be all about balancing those needs like where is the right areas to invest to continue to grow and scale the company, but stay true to our culture and the way that we want to grow, which is going to be all around profitable growth, not scale just for scale's sake, but a lot of opportunity out there as we head into the new year and excited about going to execute on that.

Okay. Great. Jon, thank you so much for being with us.

Thank you.

Good afternoon, ladies and gentlemen, and welcome to the Sanmina's Fourth Quarter Fiscal 2025 Earnings Conference Call. [Operator Instructions] This call is being recorded on Monday, November 3, 2025.

I would now like to turn the conference over to Paige Melching, Senior Vice President of Investor Communications. Please go ahead.

Thank you, John. Good afternoon, ladies and gentlemen, and welcome to Sanmina's Fourth Quarter and Fiscal 2025 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, ladies and gentlemen.

And Jon Faust, Executive Vice President and Chief Financial Officer.

Good afternoon.

Before I turn the call over to Jure, 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 our website. Please turn to Slide 3 of the presentation and take note of our safe harbor statement.

During this conference call, we may make projections or other forward-looking statements regarding the 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 factors set forth in the safe harbor statement. 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 the earnings release, the earnings presentation, this conference call or our Investor Relations section of the website, whether as a result of new information, future events or otherwise, unless otherwise required by law.

Included in our press release and slides issued today, we have provided you with statements of operations for the fourth quarter and fiscal year ended September 27, 2025, 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, noncash stock-based compensation expense, amortization expenses 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 are referring to our non-GAAP information.

I'd now like to turn the call over to Jure.

Thanks, Paige. Good afternoon, ladies and gentlemen. Welcome, and thank you all for being here with us today. Please turn to Slide #4. First, I would like to take this opportunity to recognize Sanmina's leadership team and our employees for doing a great job. So to you, Sanmina's team, thank you for your dedication, hard work and delivering excellent service to our customers.

Ladies and gentlemen, I can tell you that I'm very pleased with our performance for fiscal year 2025. Revenue came in at $8.13 billion, growth of 7.4% year-over-year. Non-GAAP operating margin came in at 5.7%. We're able to expand these margins by 30 basis points year-over-year. Non-GAAP EPS came in at $6.04. That's growth of 14.4% year-over-year. We also delivered very strong cash flow from operations of $621 million. And for the fourth quarter fiscal year 2025, we delivered solid revenue of $2.1 billion and non-GAAP EPS of $1.67 per share.

Now let's go to our agenda for today's call. We have Jon, our CFO, to review details of results for you. I will follow with additional comments about Sanmina results and future goals. Then Jon and I will open for question and answers.

And now I'd like to turn this call over to Jon. Jon?

Great. Thank you, Jure, and good afternoon, ladies and gentlemen. We appreciate your participation in today's earnings call. Before I discuss our financial results, I would like to thank the entire Sanmina team for their hard work and dedication and for executing a strong close to the fiscal year. The team has demonstrated exceptional focus and agility in meeting our customers' evolving needs all year long. Jure and I, along with the entire Sanmina management team, commend these efforts, which have resulted in strong fourth quarter and fiscal 2025 performance.

Now please turn to Slide 6, where I'll speak to the financial highlights. We're very pleased to report that our fourth quarter results either met or exceeded our previously communicated outlook. To be specific, our non-GAAP gross margin of 9.4% and our non-GAAP diluted earnings per share of $1.67 both exceeded our outlook. Furthermore, our revenue of $2.1 billion and our non-GAAP operating margin of 6.0% were both at the high end of our outlook. These strong quarterly results as well as our performance throughout the year contributed to our ability to achieve fiscal 2025 results in line with our expectations, as Jure mentioned at the beginning of the call.

Now please turn to Slide 7, where I'll speak to our P&L performance for the fourth quarter. As previously noted, we generated revenue of $2.1 billion, which represents an increase of 3.9% year-over-year. This growth was primarily driven by broad-based demand across the majority of our end markets with particular strength in the communication networks and cloud and AI end markets, which Jure will speak to in more detail in his prepared remarks.

Non-GAAP gross profit was $196 million, representing 9.4% of revenue and a 70 basis point improvement versus the same period a year ago. This expansion in our gross margin was a result of favorable product mix and ongoing operational efficiencies. Non-GAAP operating expenses totaled $70 million, slightly above our outlook, reflecting our continued strategic investments aimed at driving future growth. Non-GAAP operating income was $126 million or 6.0% of revenue, representing a 70 basis point improvement versus the same period a year ago. This improvement was driven by a combination of revenue growth, favorable mix and disciplined execution.

Non-GAAP other income and expense resulted in a net expense of $5.1 million, slightly above our outlook, largely due to foreign currency. And finally, non-GAAP diluted earnings per share was $1.67 based on approximately 54.9 million shares outstanding, representing a 16.7% increase compared to the same period a year ago.

Now please turn to Slide 8, where I'll speak to our segment results. IMS revenue came in at $1.68 billion, up 3.3% year-over-year. This was driven by growth across most end markets with particular strength in the communication networks and cloud and AI end markets. IMS non-GAAP gross margin was 7.8%, up 50 basis points versus the same period a year ago. CPS revenue came in at $448 million, up 7.3% year-over-year. And CPS non-GAAP gross margin was 14.5%, up 90 basis points versus the same period a year ago.

The strong performance in CPS was driven by revenue growth, favorable mix and ongoing operational efficiencies. While we're pleased with the performance of both the IMS and CPS businesses this quarter, we have not yet reached our full potential. We recognize the ongoing opportunity for further improvement in both revenue growth and margin expansion, which will remain key focus areas going forward.

Now please turn to Slide 9, where I'll speak to our P&L performance for fiscal 2025 as compared to the same period a year ago. At the beginning of the year, when we provided our outlook for fiscal 2025, we said we expected revenue to grow high single digits, that non-GAAP diluted earnings per share would grow faster than revenue and that we generate strong cash flow. And I'm pleased to report that we delivered on all of those commitments. In fiscal 2025, we executed to our plan, and we continue to see positive trends as we move into fiscal 2026.

Revenue for the 12 months increased by 7.4% year-over-year. This growth was driven by solid performance across the majority of our end markets with notable strength in the communication networks and cloud and AI end markets. Non-GAAP gross profit was $744 million or 9.2% of revenue, up 50 basis points compared to the prior year. Non-GAAP operating income was $465 million or 5.7% of revenue, up 30 basis points compared to the prior year. These improvements were the result of revenue growth, favorable product mix and strong operational execution. Non-GAAP diluted earnings per share was $6.04, which equates to an increase of 14.4% year-over-year.

Now please turn to Slide 10, where I'll speak to the balance sheet highlights. For many years, Sanmina has had one of the strongest balance sheets in the industry, and we continue to add to that strong foundation this quarter. Cash and cash equivalents were $926 million. At quarter end, we had no outstanding borrowings on our $800 million revolver, leaving us with substantial liquidity of approximately $1.8 billion. We ended the quarter with inventory net of customer advances of $1.1 billion, representing a 12.1% decrease in absolute dollar terms versus the same period a year ago. Inventory turns, net of customer advances improved to 6.7x for the quarter as compared to 5.7x in the same period a year ago.

Our non-GAAP pretax ROIC for the quarter was 28.3%, well above our weighted average cost of capital and a sizable improvement from 23.0% in the same period a year ago. The company continued to be in a net cash position at the end of the quarter, and our gross leverage ratio was 0.32x. This robust financial profile enables us to effectively execute on our strategic initiatives while still navigating macroeconomic uncertainties.

Now please turn to Slide 11, where I'll speak to the cash flow highlights. Thanks to the disciplined working capital management of the Sanmina team, cash flow from operations for the fourth quarter was $199 million and came in very strong for the fiscal year at $621 million. Net capital expenditures for the quarter were $62 million and totaled $142 million for the fiscal year or 1.8% of revenue. This is in line with historic levels of CapEx spending, which typically ranges between 1% to 2% of revenue.

As we move forward into the new year, we remain committed to making strategic investments in the capabilities and technologies necessary to strengthen our market position and support our long-term financial goals. To that end, we anticipate ongoing targeted investments in both capacity and technologies across our operations in the U.S., India and Mexico. Free cash flow for the quarter was $137 million and $478 million for the full fiscal year. We repurchased 1.44 million shares for $113.7 million for the year. And as of September 27, 2025, we had $239 million remaining under our authorized share repurchase program.

Our strong cash flow performance has provided us with the financial flexibility to allow for continued investments in the business while also returning capital to shareholders, all within a disciplined and balanced capital allocation framework.

Now please turn to Slide 13, where I'll speak to the transaction details around the ZT Systems acquisition. This is an exciting time for Sanmina as the acquisition of ZT Systems is truly transformative. It increases our scale, expands our capabilities and enables us to capitalize on the significant growth opportunities in the cloud and AI end market. On this slide, I'm comparing the original transaction details to our latest estimates as of the closing date, some of which are still pending a 90-day working capital true-up process.

First, as a result of the hard work and dedication of all the teams involved, we were able to close the transaction earlier than expected. Second, pending the working capital true-up process I mentioned earlier and assuming a full earn-out of the contingent consideration, we estimate the closing purchase price to be $2.05 billion, which is based on $1.05 billion of net working capital. The lower net working capital dollar amount is primarily the result of production seasonality given the earlier-than-anticipated closing date as well as disciplined inventory management.

Third, as we discussed in May, the purchase price reflects a premium of $300 million to the book value of the acquired net working capital and property, plant and equipment with $150 million of this premium in cash and $150 million in Sanmina equity. At closing, AMD received approximately 1.15 million shares based on a share price of $130.32 calculated based on the volume weighted average price for the 5 trading days prior to closing. We believe that having AMD as a shareholder will only further align our interest, especially as it relates to our new strategic partnership. Lastly, as referenced earlier, there is also a contingent consideration of up to $450 million, which is based on the financial performance of the business over the next 3 years.

Now please turn to Slide 14, where I'll speak to our strong balance sheet and liquidity position. As a result of our industry-leading balance sheet, we were able to secure the necessary financing for this transaction on attractive terms. This puts us in a position to capitalize on future opportunities, both for ZT Systems and for the legacy Sanmina business. We secured a Term Loan A of $2.0 billion, of which $600 million is a delayed draw and a Term Loan B of $800 million. With these funds, we repaid Sanmina's existing Term Loan A and at closing, we have $2.2 billion of funded debt.

As a reminder, we are targeting a net leverage ratio of 1.0x to 2.0x over time with the goal of achieving an investment-grade rating. At the end of the fourth quarter, stand-alone Sanmina had $926 million of cash and cash equivalents. As a part of the new financing structure, we also increased our revolver from $800 million to $1.5 billion. The combination of cash, our revolver and the delayed draw on our Term Loan A gives us a significant amount of liquidity to support the growth of both ZT Systems and the legacy Sanmina business.

Also, I want to emphasize our commitment to maintaining a healthy balance sheet, which means carefully managing the liquidity needed to invest in the business and capitalize on the strategic opportunities that further excel our position in the market with strong fiscal policies and controls.

Now please turn to Slide 15, where I'll cover our first quarter 2026 outlook. Our guidance is based on current customer forecasts, 2 months of the ZT Systems acquisition and ongoing market uncertainties stemming from tariffs and the geopolitical landscape. Our first quarter outlook is as follows. We expect revenue between $2.9 billion to $3.2 billion. We expect legacy Sanmina revenue to be in the range of $2.05 billion to $2.15 billion, which at the midpoint reflects 4.7% growth versus the same period a year ago. We expect ZT Systems to be in the range of $850 million to $1.05 billion for the 2 months after closing, pending final accounting policy alignment.

At the midpoint of $3.05 billion for the total company, that reflects 52% growth versus the same period a year ago. Non-GAAP operating margin of 5.6% to 6.1%. We expect other income and expense to be a net expense of approximately $23 million; an effective tax rate of 21% to 23%, which is up slightly from legacy Sanmina due to the U.S.-based earnings pickup from ZT Systems. We estimate an approximate $4 million noncash reduction to our net income to reflect our India joint venture partners' equity interest.

Non-GAAP diluted earnings per share in the range of $1.95 to $2.25 based on approximately 56 million fully diluted shares outstanding. At the midpoint of $2.10, that represents a 46.3% increase versus the same period a year ago. Capital expenditures are expected to be around $85 million as we continue to invest strategically to support our future growth expectations. And finally, depreciation of approximately $45 million.

In summary, we're very pleased with our Q4 and fiscal 2025 performance as we've made great progress towards our financial goals. Also, now that we've completed the ZT Systems acquisition, we're very excited about our growth potential, both in that part of the business and the legacy Sanmina business, too.

And with that, let me turn the call back over to Jure.

Thank you, Jon. Ladies and gentlemen, let me add more comments about the results for fiscal year 2025 and also talk to you what we are planning to do for fiscal year 2026 and beyond. As you know, Sanmina completed acquisition of ZT Systems data center AI infrastructure business from AMD last week. So before I talk about our results, I would like to take this opportunity to welcome ZT Systems team to Sanmina's family. As we said, together, now we are a stronger company. And I can tell you, this is an exciting time for all of us.

Please turn to Slide 17. As you heard from Jon, we delivered strong results for the fourth quarter, revenue, non-GAAP operating margin at the high end of our outlook, and non-GAAP gross margin and non-GAAP diluted EPS exceeded our outlook. Fiscal year 2025 was a good year for Sanmina. Most importantly is that we positioned our company for a better and stronger future. In summary, our consistent execution is driving financial performance.

Please turn to Slide 18. Let me talk to you about revenue by end market for the fourth quarter of fiscal year '25. Industrial, energy, medical, defense, aerospace and automotive segments have been very consistent segment for us. For the quarter, that was 59% of our revenue and for the year, that was 62%. For the year, we saw the growth 2.2% year-over-year. Communication networks and cloud and AI infrastructure, overall, we had a strong demand with -- that was 41% of our quarterly revenue. And for the year, that was 38%, and we saw great growth of 17% year-over-year.

For fiscal year '25, top 10 customers represented 51.7% of our revenue. As you can see, we are well diversified and no customers over 10%. Overall, bookings were solid. Book-to-bill came around 1:1. We see very positive trends for the future. To tell you more about it, please turn to Slide 19.

As we look at our end markets, we see positive trends. For Industrial and Energy, we have strong customer base and new projects in the pipeline that should drive the growth in fiscal year '26. For medical, we are well diversified within the market itself, and we expect to see nice growth in fiscal year '26. For defense and aerospace, we continue to see solid demand. This segment continues to do well from technology components segment to a full system assembly. Automotive and Transportation, short term, we see some softness in the market, but we do have a great customer base and some good new opportunities, and we expect to see some growth in fiscal year '26.

For Communication Networks and Cloud and AI infrastructure, overall, we saw strong demand for high-performance switches and enterprise storage. We're also growing our optical advanced packaging. And we have a strong pipeline for second half of calendar year '26 and calendar year '27. For cloud and AI infrastructure, we feel good about the future. New programs will drive the growth for calendar year '26 and beyond.

Please turn to Slide 20. Now let me talk to you a little bit more about Sanmina AI and ZT Systems. This strategic acquisition from AMD complements Sanmina's advanced cloud AI technology and gives us the ability to do full system integration at scale. Our strategy is to provide industry-leading capabilities from design to full system end-to-end solutions for cloud, AI infrastructure end markets.

As you can see in this slide, what Sanmina brings to the table, combining with ZT is providing to end-to-end. We get involved early stage of product design. We are expanding this group, and we're transferring a fair amount of engineering individuals to our Viking enterprise that will support the ZT going forward. We provide high-technology printed circuit boards. We provide high-technology board assembly and test. We provide mechanical racks and enclosures, both custom and open compute. We provide liquid cooling, both with our partners and ourselves. We provide server and storage, both from a joint development with our customers to ODM, custom memory, custom optical modules all the way to the full system. And you can see why ZT Systems aligns very well with Sanmina's strategic growth priorities. And as Jon said, we will continue to invest in this key end market.

Please turn to Slide 21. Let me talk to you right now about priorities for '26 actually today. Number one is focus on our customers. Part of our strategy is always to focus on our customers and build around customer needs. We have a strong long-term partnership with many market leaders already. We're expanding our customer base in these key markets. And our technology is continued to be competitive advantage as we've been investing and we'll continue to invest in our key technologies.

Number two is to how we're going to execute on ZT Systems opportunities. As we said, we believe there's a lot of great opportunities in front of us. First of all, we're keeping the same management team at ZT that will be led by our founder, Frank Zhang. He's been running this operation for 30 years plus. We learned a lot about the management, and we believe -- with additional help from our President and Chief Operating Officer, Mike Landy, I believe we have a #1 team in our company to really lead this organization going forward.

We expect very smooth integration of ZT Systems with Sanmina. And as we both said, Jon and I, we have large opportunities for ZT Systems right in front of us to build on. And number three for us is to drive the profitable growth. It's easy to get the growth, but driving the right segments to allow us to improve the -- to have a customer that's going to be with us for many, many years, but also to improve the margin. We are optimizing our capital structure to drive the growth in the next 2 to 3 years, '26 through '28.

ZT Systems', as John said, current annual run rate revenue is about $5 billion to $6 billion. Last quarter, we told you that within next 3 years, we would double Sanmina's revenue to around $16 billion. Now we see opportunity to do it sooner with the next 2 years. As I mentioned, we are focused on margin expansion by delivering competitive advantage for our customers. Short term, we're forecasting margin to be in the range of 5.6% to 6.1% plus. Longer term, we expect to expand our margin and our goal to be in a range of 6% to 7% plus. In a simple English, our strategy is to build a bigger and stronger company for the future.

Please turn to Slide 22. In summary, we finished the fiscal year 2025 with a strong momentum. We are focused on executing on transformation from position of strength. For growth, we expect legacy Sanmina business to continue to grow high single digits. And we expect solid growth in cloud and AI end market in the second half of calendar year '26 and continue through calendar year '27 and beyond. Our capabilities in cloud and AI will bring solutions from concept to development with quality, speed and flexibility at scale. This is competitive advantage for Sanmina. Also, Sanmina has efficient manufacturing footprint. It is aligned to support customers' global production requirements, and we have strong U.S.A. presence in place. Overall, great opportunities to drive profitable growth.

So ladies and gentlemen, now I would like to thank you all for your time and support. Operator, we're now ready to open the lines for question and answers. Thank you again.

[Operator Instructions] Your first question comes from the line of Ruplu Bhattacharya from Bank of America.

Jure, congrats on closing the ZT Systems acquisition. Just to confirm, did you say that it's still at a $5 billion to $6 billion annual run rate? And one of the slides says that it's at corporate average margins. You're guiding margins -- operating margin to 5.9%. Should we assume that the ZT Systems business is also in that range of high 5%, so around 5.9% operating margin. So can you just first confirm the revenue and operating margins for the ZT Systems?

Well, first of all, thank you for the compliment. I'm very excited about the ZT acquisitions. We've got to know the team at ZT. We got excellent people there and it fits to our culture. So we're really excited in front of us. Maybe I'll turn it over to Jon when it comes to the margins, but we are very optimistic. Go ahead.

Yes. Ruplu, on the first point about the revenue. So we did want to give some color on ZT Systems for that 2 months, and we guided a range of $850 million to $1.05 billion. You take that midpoint to $950 million for the 2 months and annualize it, puts you at about $5.7 billion. So check the box. We said that we closed in that $5 billion to $6 billion run rate on an annual basis, and we did that. And then to your second question on the margin profile, like as it shows on the slide, we expect ZT, we guided on a combined basis, but said that ZT is in line with Sanmina. So yes, the short answer to the question is we expect both sides of the business to be within that 5.6% to 6.1% range.

Okay. Great. For my next question, can I ask on the legacy business? If we look at the guide Jon, for the first quarter, $2.05 billion to $2.15 billion. So it's growing like mid-single digits at this point in the first quarter. But I think one of the slides later on talks about the legacy business grows high single digits. Is that -- are you expecting high single-digit growth for the legacy business ex ZT in fiscal '26? And what drives -- if so, what drives that acceleration in the second half for the legacy business?

Yes, that's exactly right, Ruplu. We disclosed ZT a week ago, so we didn't want to touch too much on a full year basis for that, but we'll come back in January in our next earnings call and give some more specifics. But at least for the legacy Sanmina business, very similar to how we guided fiscal year 2025. We expect '26 to be -- have revenue growth in that high single-digit range. To your point, the midpoint would be just shy of 5%, so in the mid-single-digit range, but we expect that to accelerate. And that's based on all the opportunities that Jure spoke to on the end market slide. We see a lot of opportunity ahead. In the first quarter here, it will be more in that midrange. But as we continue on throughout the year, particularly into the back half or the second half of the fiscal year, we expect that to accelerate.

Yes. If I can add, Ruplu, to that, definitely, we're seeing more positive activities as we go into next year around industrial, energy, medical. Defense continue to be stable. We are expanding our component capabilities there. Our military circuit boards are doing well, very profitable business. Automotive only short term is slightly down, but we do have some new programs that will offset that. Communication networks and cloud AI infrastructure without ZT. ZT we're really looking at the integration infrastructure. But if you look at the AI, what Sanmina provides, including our capabilities around the storage ODM, circuit boards, mechanical racks, that part of the business is very active right now, and we expect it to grow more than we did last year.

So overall, we feel very strong with Sanmina legacy business. And also, we've been -- as we said last year, our goal is how do we take this business back to the $9 billion, $10 billion, $11 billion, $12 billion run rate. That's our still plan. So the key for Sanmina is to be a diversified company, not just to depend on one segment of the market or not. So we're excited about the growth. We're excited about what we can build around AI with the ZT. And I said earlier, ZT fits like a glove. Most important, we have great management in there. We're going to be investing -- well, first of all, AMD invested a fair amount of money in the last year plus, and we'll continue to do that. And we have some of the best capabilities for new technology that is coming out end of this year in the future. So overall, Ruplu, I think there's a lot of upside. It's all about how well do we execute.

Okay. If we put all of what you said together, so if the legacy business grows high single digits, that would be about $8.9 billion in fiscal '26. And then ZT is $5.7 billion at the midpoint, like Jon said. So total for fiscal '26 looks like the implied guidance is about $14.5 billion or $14.6 billion. Did you say then that looking forward, the comment that you made, Jure, on the $16 billion 1 year ahead of time. So are we essentially saying that, that $14.5 billion in fiscal '26 can then grow to $16 billion, so about 10% year-on-year growth between fiscal '26 and fiscal '27. Was that the comment?

Okay. First of all, I'm very optimistic what's in front of us, okay? That's number one. Number two, we're going to give you a lot more -- as Jon said, we're going to give you a lot more details in January because we just -- as you know, for legal reasons, we couldn't get all the details about forecast and so on and so on. So we'll share a lot more with you in January. But looking what's in front of us, we basically said about 6 months ago or 3 months ago, we think we can double the size of Sanmina within 3 years. What we see in front of us with legacy business, plus what we believe that we can grow around ZT plus AI opportunities that are in the pipeline that we can accomplish that hopefully, in the next 2 years. So that's all I'm saying.

Right. And the 2 years would put it at calendar '27 for the $16 billion?

Yes.

But maybe one last question.

But Ruplu, let me just say, trust me, we're going to give you a lot more information in January.

Okay. Understood. Let me just ask one more quick question on working capital because you're taking on working capital. Jon, how should we think about cash conversion cycle and free cash flow going forward?

Yes. I mean, first of all, I'm very pleased with how we performed in Q4 and all fiscal year '25, right? Jure and I both talked about that cash flow from operations for the full year being at $621 million, which you don't see very often when you're driving growth. We drove revenue growth of 7%. So our cash conversion cycle exiting Q4 is back in the 50s, which is a good place to be. That's where we wanted to get to.

Now we still see some room for improvement. And I'm talking about the legacy business right now. We still see the opportunity to generate cash from that perspective. And for ZT, it will really depend. As Jure was saying, at this point, we're just guiding Q1 because we just closed the transaction last week. Now depending on growth and working capital needs, that might become a draw on cash. But we think we're in a good position right now. So bottom line being legacy business, continue to expect to generate cash flow from operations. And ZT, more to come on what we think for the full year and what that will mean from a cash perspective.

Your next question comes from the line of Steven Fox from Fox Advisors.

A couple of questions for me. So without putting numbers around it, I was just curious how you think about the opportunity to rebuild the accelerated compute arm of ZT. There's been, I guess, public questions about the ability to do that relative to competition. There was some hint here, but I was just wondering how we should think about how long that takes to sort of get going and how broad you can be with the opportunity? And then I had a follow-up, please.

Yes. First of all, as I said, I'm very excited about the talent that we got through in the ZT acquisitions. This is a very strong team. The founder is going to stay with us to help us take this business to the next level. He's excited. I'm excited. We're putting a great team around it. We're going to invest in it. We are also taking our Viking Enterprise group and moving that over to support ZT as you know, ZT is an ODM operations. And we're also transferring a fair amount -- we have an engineering services group. We're going to transfer a big portion of that into the Viking to build the Viking team bigger. so that we have a stronger engineering team. And we are hiring to really drive our ODM business at a high level.

So Sanmina has a lot of technology and the goal here for us to provide and basically connect the 2 together from a system architecture, electrical mechanical design, providing, as you know, especially in AI, there's a demand for a lot of high-technology circuit boards. We believe we can add value there through assembly of the subsystems through mechanical design around the liquid cooling. We're using partners and some of our own rock enclosures, both customs and open compute. You know a lot about the Viking storage. We also have a Viking technology around custom memory, custom optical modules. And we believe bus bars, we believe all of these things will help us improve the margin for our communication and AI business. So a lot of work in front of us, but good things don't happen easy, Steve.

Yes. Absolutely not. I guess just to interpret what you said, though, Jure, is that you're implying that you need to pull the full system solution from soups and nuts together first before you can then sort of go after the accelerated compute business again? Is that fair to say?

No, no, no. We're going to go after -- first of all, we have a great partner with AMD through NPI. So we enter that part right away. And we are expanding our engineering team to work with AMD and other platforms immediately. Yes, we have to -- as you know, ZT had a big engineering team, and we expect to build that whatever is necessary to be able to support our customer requirements.

That's helpful. And then just on the cash flows in the transaction, just to be clear, Jon, the $2 billion purchase price, is that close to what the final number would be? Or could it balloon back to $3 billion? And then when we think about cash flows, it sounded like you can grow cash flows on legacy Sanmina. And then depending on growth, we'll see if you need to invest in working capital on the ZT business. Am I reading all that right? If you can provide some color there?

Yes, you got that correct, Steve. So on the first point, I don't think the number will move too much. So it's subject to a 90-day true-up process. And that's because we're closing in the middle of the quarter, we worked on some estimates. So we'll have to work through that to reconcile it, but I wouldn't expect it to move materially. So that's -- it should be pretty close to where we land. And then as far as future cash flow generation, yes, on the legacy side of the business, still some opportunity to generate cash even though we'll be growing.

This year, we made huge progress in inventory this past year, I mean, in fiscal 2025. And that's how we were able to generate the $621 million. There's not as much opportunity as that anymore, but we still think we can generate cash. And then ZT, yes, still early days, just closed a week ago. We'll see how the trajectory of the business continues, particularly as we get into the back half, and that could become a use of cash. But more -- as we guide each quarter, we'll provide more specifics on that.

[Operator Instructions] Your next question comes from the line of Anja Soderstrom from Sidoti.

Congrats on closing that the ZT Systems acquisition so early. You mentioned you see a lot of AI opportunity in the pipeline for ZT Systems. What do you see potential beyond what you currently have in the book?

Could you repeat the question, Anja?

Yes. You see a lot of AI opportunity in the pipeline for the ZT systems. What kind of opportunities do you see there?

Okay. Well, first of all, we've been building our capability to support data center AI all the way from high-technology boards to assembly, mechanical, liquid cooling, ODM, JDM and so on, both in custom memory and custom optical modules, we've been expanding that. ZT brings to us is a complete, what I would call strategic acquisition that complements Sanmina's advanced cloud AI technology that gives us the ability to full system integration at scale. We have that today. So when you really look at the ZT today specifically, there's great opportunities in our pipeline that will allow us to really grow in '26, '27, '28. I mean, let's focus on the next 3 years. Who knows what's going to happen 5 years from now.

But at least next 3 years, we see a lot of opportunities that based on our capabilities today, we can compete in this segment with anybody. And especially, as I said earlier, I think the key for us is to make sure that we execute on these opportunities. And I have a very high confidence because we have a strong leadership in there. We're basically letting them go ahead and take it to the next level. We took one of our top managers from Sanmina that ran all our IMS business for the last 25 years to basically help us together with the founder to take this to the next level.

So opportunities are great. A lot of work in front of us, but we are excited. We think we can build something big, something good that's going to be good for our employees, for our investors, and we'll be able to provide some great capabilities for our customers and give them a competitive advantage.

Okay. And then how do you expect this to affect your Indian joint venture?

Actually, it can complement India joint venture. There's a lot of opportunities in India when it comes to the cloud AI growth. We are working with our partners in India right now for opportunities that are happening in India. We have a new factory that we are building right now that we will have -- we will -- how do I say, expand our AI capabilities. We're investing right now, and that will come online early next year, and it's going to be very positive.

Okay. And then it seems like auto was a bit challenging for you. What do you see there? And you were also talking about new opportunities there that could help you drive growth there.

Yes. Automotive -- overall for us, automotive was pretty strong beginning of the year and slowed down a little bit end of the year. But overall, it's pretty good. We have some new programs that we won in the last 60, 90 days for end of the '26, '27 and beyond. So overall, we are pretty optimistic, and we're well positioned with a couple of very critical customers.

We don't have any other questions at this time. Please continue, sir.

Operator, is there any other questions?

We don't have any other questions at this time.

Well, first of all, I'd like to thank everybody on this call. If there is any questions, please let us know. Otherwise, we're looking forward to talking to you in 90 days from now. Thanks a lot for your support. Bye-bye.

Thank you.

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

Good afternoon, ladies and gentlemen, and welcome to the Sanmina's Third Quarter Fiscal 2025 Earnings Conference Call.

[Operator Instructions]

This call is being recorded on Monday, July 28, 2025. I would now like to turn the conference over to Paige Melching Senior Vice President of Investor Communications. Please go ahead.

Thank you, Chloey. Good afternoon, ladies and gentlemen, and welcome to Sanmina's Third Quarter Fiscal Year 2025 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 Jon Faust, Executive Vice President and Chief Financial Officer.

Good afternoon.

Before I turn the call over to Jure, 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 our website.

Please turn to Slide 3 of our presentation and take note of our 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 projected in these statements as a result of factors set forth in the safe harbor statement.

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. Included in our press release and slides issued today, we have provided you with statements of operations for the third quarter ended June 28, 2025, 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, noncash 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 are referring to our non-GAAP information.

I'd now like to turn the call over to Jure.

Thanks, Paige. Good afternoon, ladies and gentlemen. Welcome, and thank you all for being here with us today. First, I would like to take this opportunity to recognize Sanmina leadership team, our employees for doing a great job. So to you, Sanmina's team, thank you for your dedication, hard work and most important, delivering excellent service to our customers.

For the third quarter fiscal year 2025, you delivered solid revenue of $2.04 billion and non-GAAP EPS of $1.53 per share. Again, to Sanmina employees, thank you. Let's keep it up. This is a hard work, and I know that.

Now let's go to our agenda for today's call. We have Jon, our CFO, to review details of the results for you. I will follow up with additional comments about Sanmina's results and future goals. Then Jon and I will open for question and answers. And now I'd like to turn this call over to Jon. Jon?

Great. Thank you, Jure, and good afternoon, ladies and gentlemen. We appreciate your participation in today's earnings call.

Before I discuss our third quarter performance, I would like to thank the entire Sanmina team for their dedication, diligent execution and support. In a highly dynamic environment, the team has demonstrated exceptional agility in meeting our customers' evolving needs. Jure and I, along with the entire Sanmina management team, commend these efforts, which have resulted in a solid third quarter and year-to-date fiscal 2025 performance.

Now please turn to Slide 5, where I'll speak to the financial highlights. We're very pleased to report that our fiscal third quarter results either met or exceeded are previously communicated outlook. More specifically, our revenue of $2.04 billion, non-GAAP gross margin of 9.1% and our non-GAAP diluted earnings per share of $1.53, all exceeded our outlook. Furthermore, our non-GAAP operating margin of 5.7% was at the high end of our outlook. These strong results, along with our Q1 and Q2 performance, have established a solid foundation for the fiscal year and have positioned us well to achieve our long-term financial goals of driving growth and expanding margins.

Now please turn to Slide 6, where I'll speak to our P&L performance for the third quarter. As previously noted, we generated revenue of $2.04 billion which represents an increase of 10.9% year-over-year. This growth was primarily driven by broad-based demand across all of our end markets with particular strength in the communications networks and cloud infrastructure end markets, which Jure will speak to in more detail in his prepared remarks.

Non-GAAP gross profit was $186 million, representing 9.1% of revenue and a 60 basis point improvement versus the same period last year. This expansion in our gross margin was a result of favorable product mix and ongoing operational efficiencies. Non-GAAP operating expenses totaled $70.3 million slightly above our outlook, reflecting our continued strategic investments aimed at driving future growth. Non-GAAP operating income was $115.7 million or 5.7% of revenue, representing a 40 basis point improvement versus the same period last year.

This improvement was driven by a combination of revenue growth, favorable mix and disciplined execution. It is important to note that our non-GAAP operating margin consistently remains within our previously communicated short-term target range of 5% to 6%. Non-GAAP other income and expense resulted in a net expense of $4.5 million, which was slightly favorable to our guidance, largely due to our strong cash flow generation. Finally, non-GAAP diluted earnings per share was $1.53 based on approximately 54.5 million shares outstanding, representing a 22.8% increase versus the same period last year.

Now please turn to Slide 7, where I'll speak to our P&L performance for the 9 months of fiscal year 2025 as compared to the same period last year. Revenue for the 9 months increased by 8.7% year-over-year. This growth was driven by a solid performance across all end markets with notable improvements in the communications networks and cloud infrastructure end markets. Non-GAAP diluted earnings per share for the 9 months increased by 13.5% year-over-year. As communicated at the start of the year and in our earnings call since then, we anticipated fiscal 2025 to be a growth year for both revenue and profitability and our 9 months results puts us on the right trajectory to achieve this objective.

Now please turn to Slide 8, where I'll speak to our segment results. IMS revenue came in at $1.65 billion, up 11.6% year-over-year. This was driven by growth across all end markets, with particular strength in the communications networks and cloud infrastructure end markets. IMS non-GAAP gross margin was 7.5% down 10 basis points versus the same period last year. CPS revenue came in at $422 million, up 8.8% year-over-year driven by increased demand across all end markets. CPS non-GAAP gross margin was 14.7%, an impressive 320 basis point improvement year-over-year. This performance was driven by higher revenue, favorable mix and ongoing operational efficiencies. While we're pleased with the performance of both the IMS and CPS businesses this quarter, we recognize the ongoing opportunity for further improvement in both revenue growth and margin expansion, which will remain key focus areas going forward.

Now please turn to Slide 9, where I'll speak to the balance sheet highlights. For many years, Sanmina has had one of the strongest balance sheets in the industry, and we continue to add to that strong foundation this quarter. Cash and cash equivalents were $798 million. At quarter end, we had no outstanding borrowings on our $800 million revolver, leaving us with substantial liquidity of approximately $1.7 billion. We ended the quarter with inventory net of customer advances of $1.2 billion, representing a 12% decrease in absolute dollar terms versus the same period a year ago.

Inventory turns, net of customer advances improved to 6.3x for the quarter as compared to 5.1x in the same period a year ago. While we're pleased with these results, we still see room for further optimization. Our non-GAAP pretax ROIC for the quarter was 24.8%, well above our weighted average cost of capital and an improvement from 21.1% in the same period a year ago.

The company continues to be in a net cash position and our gross leverage ratio was 0.38x. This robust financial profile enables us to effectively execute on our strategic initiatives while still navigating macroeconomic uncertainties.

Now please turn to Slide 10, where I'll speak to the cash flow highlights. As a direct result of our team's disciplined working capital management, Cash flow from operations for the third quarter was a strong $201 million and $422 million for the 9 months of the fiscal year. Capital expenditures for the quarter were $33 million, which was lower than our outlook driven by the timing of receipts and totaled $80 million for the 9 months of the fiscal year. As previously communicated, we remain committed to making strategic investments in the capabilities and technologies necessary to strengthen our market position and support our long-term financial objectives.

To that end, we anticipate ongoing targeted investments in both capacity and technology across our operations in the U.S., India and Mexico. Based on our spend for the first 9 months and our fourth quarter projections, we now expect full year capital expenditures to be about 1.8% of revenue. Free cash flow for the quarter was $168 million, bringing the 9 months total to $341 million. During the quarter, we repurchased 0.2 million shares for approximately $13 million, and year-to-date, we have repurchased 1.4 million shares for $114 million.

As of June 28, 2025, we have $239 million remaining under our authorized share repurchase program. Our strong cash flow performance has provided us with the financial flexibility to allow continued investments in the business while also returning capital to shareholders, all within a disciplined and balanced capital allocation framework.

Now please turn to Slide 11, where I'll cover our outlook for the fourth quarter. Our guidance is based on current customer forecasts and incorporates market uncertainties stemming from tariffs and the geopolitical landscape. Our fourth quarter outlook is as follows: we expect revenue between $2.0 billion to $2.1 billion. At the midpoint of $2.05 billion, that would put us up 6.8% on a full year basis, in line with our prior outlook. Non-GAAP gross margin is projected to be between 8.7% and 9.2%, subject to mix considerations. Operating expenses of $64 million to $68 million; non-GAAP operating margin of 5.5% to 6.0%. We expect other income and expense to be a net expense of approximately $4 million, an effective tax rate of 20% to 22%. We estimate an approximate $4 million noncash reduction to our net income to reflect our India JV partners' equity interest. Non-GAAP diluted earnings per share in the range of $1.52 to $1.62 based on approximately 54 million fully diluted shares outstanding.

At the midpoint of $1.57, that would put us up 9.8% as compared to the same period a year ago and up 12.9% on a full year basis. Capital expenditures are expected to be around $65 million. And finally, depreciation of approximately $30 million. In summary, we are very pleased with our Q3 performance despite the uncertainty around tariffs and the geopolitical landscape and we're confident in our ability to deliver solid revenue and profitability growth in Q4 and beyond.

Now please turn to Slide 12 where I'll provide an update on our previously announced planned acquisition of the ZT Systems manufacturing business. We are progressing nicely and remain on track to close the transaction near the end of the 2025 calendar year pending regulatory approvals. We are also on track with all of our required regulatory filings. As we mentioned, when we announced the transaction, we expect it will add $5 billion to $6 billion of annual net revenue on a run rate basis and anticipate it will double Sanmina's net revenue within the next 3 years.

As a reminder, we expect the transaction to be accretive to non-GAAP diluted earnings per share in the first year after closing, with additional non-GAAP EPS accretion from both growth and synergies over time. The syndication of our permanent debt financing is also on track, and we'll provide further updates on that front very soon. I also want to briefly discuss what this transaction means for our balance sheet and how it fully aligns with our capital allocation strategy which will continue to focus on growth and cash generation while following a disciplined ROI-based approach.

We've built one of the strongest balance sheets in the industry, with a net positive cash position, strong liquidity and a low gross leverage ratio of 0.38x as of our third quarter. I want to emphasize our commitment to maintaining a strong balance sheet, having ample liquidity to invest in the business and execute on our strategy. This transaction is an investment in working capital, primarily inventory, property, plant and equipment and a critical set of capabilities, which we believe will generate solid returns over time.

At the time the transaction closes, we expect our net leverage ratio to be well within our target range of 1x to 2x and in line with our peer group. For a period of time after closing, we expect working capital to build to support investment in the growth of the business, which we anticipate will temporarily push our net leverage ratio above 2x. To reiterate, we are committed to preserving our existing credit rating, and our goal is to become investment grade over time.

This is a compelling transaction for Sanmina as it positions the company to capitalize on long-term growth trends in the data center and AI infrastructure end market.

In summary, we're excited about the opportunities ahead, and we look forward to discussing the financial profile of the business in more detail at the time the transaction closes. And with that, I will now turn the call over to Jure.

Thank you, Jon. Ladies and gentlemen, let me add a few more comments about our results for the third quarter and the rest of the fiscal year '25.

Please turn to Slide 14. As you heard from Jon, our team delivered solid execution and excellent service to our customers. Revenue, non-GAAP gross margin and non-GAAP EPS exceeded our outlook. We delivered non-GAAP operating margin of 5.7%. And long term, we expect to improve our operating margin to greater than 6-plus percent. We generated a strong cash flow for the quarter, and we expect to continue to generate positive cash flow from operations to drive future growth. We delivered year-over-year growth for all end markets.

So I can tell you that our customers are still positive about their future. And we are starting to see a strong pipeline of new opportunities. So overall, a good quarter, but there's still room, as you heard from Jon, for improvements.

To talk more about it, please turn to Slide 15. Let's look at -- now revenue by end market for the third quarter. Industrial, energy, medical, defense, aerospace and automotive segment came in at $1.256 billion. Growth of 6.2% year-over-year, very strong overall segment. For communication networks and cloud infrastructure that came in at $786 million, growth of 19.1% year-over-year. For the third quarter, total revenue of [ $2.04 billion ], we delivered another solid quarter up 11% year-over-year. Top 10 customers for the quarter was 52.8% of our revenue. Bookings continued to see solid demand overall, book-to-bill came around 1:1.

As you can see, we are a well-diversified company. We continue to see positive trends for fiscal year '25 and beyond. For industrial and energy, we have very solid customer base that is doing well. We have some great opportunities and pipeline around energy and safety equipment. We see exciting new projects in our pipeline that should drive the growth in fiscal year '26. For medical, we see stable demand driven by medical devices and digital health. Again, we have a strong customer base of customers, well diversified within market. We also see a good pipeline of new opportunities for the future fiscal year '26 and '27. For Defense and Aerospace segments, we continue to see solid demand from critical defense projects. Our advanced printed circuit board fabrication business in this segment is doing well. We are growing and expanding Defense and Aerospace segment and other capabilities of Sanmina.

Overall, we expect this segment to continue to grow nicely from technology components all the way to full systems. For Automotive and Transportation segment, short term, we've seen some softness in this market overall slower demand. For this segment long term, we have some good opportunities in pipeline that we expect to grow again in fiscal year '26. For communication networks and cloud infrastructure, we see very positive trends. Solid demand for high-performance routers and switches optical network system, optical advanced packaging and enterprise storage. We're also starting to see some positive signs about our mobile 5G business driven both by cloud and service providers.

For this segment, Sanmina is well positioned and we should continue nice growth in '26 and beyond. Let me talk a little bit more about fourth quarter and fiscal year '25 outlook. As you heard from Jon, we are pleased with our performance for the first 9 months of fiscal year '25. As revenue was up 8.7% compared to the same period a year ago. We have grown non-GAAP EPS for the first 9 months to 13.5%, and we generated strong cash flow from operations. Based on our results for the first 9 months and outlook for the fourth quarter at midpoint, this puts us on a track to deliver nice growth in fiscal year '25, we expect to see a growth of 6% to 8%.

While we continue to manage through a very dynamic environment, we remain focused on operational execution, customer satisfaction, cost management and consistently delivering value to our customers.

Please turn to Slide 16. Now let me talk to you about our strategic acquisition or ZT Systems from AMD. Let me add a few more comments to Jon's comments. This acquisition advances Sanmina's strategic data center AI strategy. It positions Sanmina to capitalize on our long-term growth trends in data center, AI infrastructure spend. If you look at the chart, next year, the forecast is to -- that the global data center investments will be over $500 billion. And as we go into '28, that number could be over $800 billion, potentially over $1 trillion. So there's plenty of opportunity for us. I can tell you that we are getting a lot of great interest in our new capabilities both from existing and new potential customers. We do expect to expand our relationship with hyperscalers and OEM customers across all platforms and technologies in the industry. This strategic acquisition brings industry-leading manufacturing capabilities and capacity here in U.S. and Europe, reinforcing Sanmina as [indiscernible] footprint. This complements Sanmina well-established vertical integration strategy, our strategy is to provide end-to-end solution for data center, AI and market.

So please turn to Slide 17. So I can tell you more about our end-to-end capabilities for data center AI. On this slide, you can see Sanmina end-to-end solution for data center AI end markets. Data center AI requirements continue to evolve at a rapid pace and is driving technology advancement. Sanmina has been investing and expanding our capabilities to meet this present and future demand. We expanded and grown our high-technology printed circuit boards. We've been assembling most advanced systems that are available out there, continue to fabricate and invest in mechanical racks and enclosures, we're expanding our little cooling rock systems. We're investing at cooling money folds and rocks, [indiscernible] bars for rock.

We're growing our ODM services and storage business, custom memory and custom optical module. And with this strategic acquisition, our strategy now provides industry-leading capabilities from design to full system end-to-end solution for data center AI infrastructure and market. These strategic acquisitions from AMD complements Sanmina advanced data center AID technology and gives us the ability to do a full system integration at scale. I can also tell you that we'll continue to invest in this market to drive the future growth.

Please turn now to Slide 18. In summary, we are executing well in this dynamic environment. Third quarter results were in line or exceeded our outlook. We delivered strong year-to-date and year-to-year performance across the majority of our end markets. Fourth quarter outlook aligns with achieving our fiscal year '25 growth and profitability objectives. As you heard both from Jon and I, third quarter was a busy time for us. We signed a definitive agreement with AMD to acquire ZT Systems. It's a strategic transaction for us, very exciting. This fits well with Sanmina's strategic growth priorities. We feel good about our future. New programs wins, and we expect demand improvements to drive the growth in fiscal year '26. Sanmina is well positioned to be a bigger and stronger company in the future. And I'm personally excited about opportunities ahead.

So ladies and gentlemen, now I would like to thank you all for your time and support. Operator, we're now ready to open the lines for question and answers. Again, thank you again.

[Operator Instructions]

Our first question comes from the line of Ruplu Bhattacharya from [ BofA ].

On Slide 12, you gave an update for the ZT Systems acquisition, and it still says $5 billion to $6 billion of net revenue run rate. Is that still your expectation for annual revenue. Is this still a declining revenue business? Or have the revenues now stabilized? And Jure, if you can also talk about your plan to turn this business around. Do you think you need to hire any sales force to go after hyperscale customers and AMD kept the design engineers, are you planning to hire any engineer that invest in this -- the RAG configurations, but just talk about what you see as the annual revenue run rate as of today? And what is your plan to turn and expand this business?

All right. It's a great question, and I will give you a lot of information. As you know, we are -- we're not the owners of this organization yet. So I have to be careful what I can say, what I cannot say. But first of all, Ruplu, we are very excited. Today, we announced this deal in May 19, I believe, personally, I am more excited today than I was then. And I was very excited then. And the reason we're decided today as we are -- talk to basically the critical customers out there with hyperscalers and critical OEM potential customers, we find out there's a lot of interest. Also, we found out a lot more about ZT Systems itself. We believe they have some advanced capabilities, some great people. In this business, it's all about people. I believe they got some great people and when I look at what's the potential, it's a great potential. When AMD acquired this thing, their goal was to eventually find the right partner and separate engineering and manufacturing. And I will say that we are fortunate that we're becoming a critical partner to AMD and taking over this operation.

We believe working together will give us a lot of opportunities, not believe. I see it today, all these key capabilities that we have and industry really needs capacity and capabilities that we have. So I'll be honest with you, I wish we can close this deal today because there's -- I'd be able to tell you a lot more. Personally, I'm not worried about revenue, and Jon can comment later on on that. I think the revenue is there. I think there's a lot more -- ZT has some some older products that they've been doing for a long time. This place is profitable. It was profitable. It is profitable today, and we expect it to continue to be profitable in the future, but opportunities are bigger for the future than the past.

Let me leave it at that. Today, we are already selling Sanmina plus ZT to our critical partners. That's going on every day across all our critical people. We are adding some technical support more about technology to add more value to our customers. We know exactly what that is. But we're also picking a lot of great people from ZT. They've got a lot of network people in the manufacturing and also around testing and so on. So this is a very, very strong team. I think partnering with AMD is very critical. They got a lot of exciting technology. They're coming up. And again, I believe that we can help them get that product to the market at a faster rate with the technology that is required for hyperscalers and OEM customers. We are definitely investing in sales.

As you can see, our SG&A is a little bit higher because of that. And again, I don't know what else to say except to tell you I'm excited. I think there's a lot of opportunity there. As I said before in my prepared statement, I think we're ready to build a lot bigger Sanmina from a very, very strong position. We have a strong foundation. So give us some time here, at least for the next 6 to 12 months to give you some good results. So with that, Jon, you want to add comments to that.

Yes. Just 1 point, Jure, I'll add, Ruplu, just to help answer the question around revenue. So back at the time of the announcement, on May 19, we said that we expected revenue run rate, the net revenue run rate to be about $5 billion to $6 billion or between $5 billion and $6 billion at the time of the close. And we don't intend to change that forecast. As Jure mentioned, we'll come out with a lot more details when we close the transaction, but that's still the case. The business has a very stable foundation of general purpose kind of compute and also storage. It's the accelerated compute component that's going through a transition, as we had mentioned, but we've got full confidence in what's happening on that part of the business, too. But more to come when we close the deal.

And Ruplu, just let me add to that, I didn't answer the question. We are adding -- at Viking, we have a very strong core engineering team that basically can do the same or similar thing that all ZT engineering thing could have now Zt was a bigger scale, but we're expanding our team, but we do have a core right now that specifically for this data center that can do the job today, and we are going to be expanding and growing the team.

Okay. Now I appreciate all the details. For my follow-up, can I ask -- you had very strong growth in fiscal 3Q. I mean you reported 11% year-on-year growth. When we look at the guide for fiscal 4Q, there seems to be somewhat of a meaningful slowdown. I think the midpoint of the guidance implies 1.6% year-on-year growth. Can you just talk about if any markets are weaker than you expected?

And then like you said, Jure, if you look at the full year, you're going to be growing revenues in fiscal '25 at 7% almost year-on-year. Can you give us your early thoughts into fiscal '26. I mean, let's say, even without ZT Systems, do you think the base business can continue the 7% year-on-year growth. So just any thoughts you have on fiscal 4Q, what is driving that and your thoughts on fiscal '26?

First of all, comparison from this fourth quarter to the last -- to the '24, you're right, it's not a huge growth, but the business is not slowing down. I would say the business is expanding. If you look at the last year, we were kind of coming out of inventory. It was choppy. It was a transition year. So it was really choppy for most of our competitors, too. It just happened to be a fourth quarter last year better than what it was third than second. Today, the business is a lot more stable. Yes, we have some uncertainties out there with this geopolitical issue, the tariffs and so on. It looks like that temperature is coming down. So we feel a little bit more comfortable and we can predict the future better.

Our customer is a lot more positive about the future. If I look at the customers' forecast, they look very positive. And we -- today, we're kind of discounting those. So for us to forecast '26, we'll like to wait more, probably another 90 days, but I can tell you right now and what I said earlier in the prepared statements, we're excited. We expect to grow our core business, hopefully at the same or faster rate next year. But overall, I wish you have a -- unless something really falls off the cliff that we are -- completely out of our control, we expect to have a great year next year.

Okay. If I can just put in one more quick question. Jon, CPS margins were up 320 bps sequentially. Was there any onetime items that can discontinue?

No, it's primarily driven just by the business mix, Ruplu. And as you know, CPS margins in that profile, that's an area that we've been focused on for a long time. We've been making a lot of investments there. So we're very pleased with the results for many -- from 1 quarter to the next, you can see some ups and downs just because of the nature of that business. There are so many different components within it. But pretty much across the board, we've been looking to improve the margin profile of each individual division. So what I believe that we're seeing now is the result of some of those investments coming through to fruition. So very happy with the results, nothing onetime in nature that we'd want to call out and as far as the future goes, we're going to continue to drive that profile. Both Jure and I have said before that we expect that business to be above 15%, and we're getting very close to that number already today.

Our next question comes from the line of Steven Fox from Fox Advisors.

First of all, just -- I had another question on the ZT deal now that you've had a little bit more time with it. Can you just talk about the risk on the inventory side, Jon? I know you it's a big piece of the valuation. Do you guys get a last look at valuing that -- the inventories before you close? And I guess my bigger concern is like anything that you might inherit that could be sort of lagging generation on the GPU side that you might have write-downs on. Can you just sort of talk about that risk? Then I had a follow-up.

Yes. No, absolutely, Steve. Thanks for the question. So yes, we do have a working capital target of about $2 billion as a part of the transaction, we talked about that when we announced the deal back on May 19, you can basically think of that as primarily related to inventory. There's the property, plant and equipment too of $250 million, but the $2 billion is primarily around inventory. And as a part of the deal, we spent a lot of time evaluating that inventory position, a lot of discussions with AMD and so we'll make sure, just like we always do in this business and our business around manufacturing, to make sure that, that inventory is supported by customer demand and forecasts. So there's always risk. There are some risks there, but our intent is to fully evaluate that and both AMD and ZT are committed to that as well.

Great. That's helpful. And then on the legacy business, Jure, I know you just mentioned what you've been doing on the CPS side. I was wondering if you could just start -- because I'm looking -- it looks like that was like a record margin. So I was wondering if you can maybe sort of help us step back a little bit more, talk about how CPS is sort of helping your business by served markets a little bit? Like it seems like you must be helping growth not just margin. Any help there would be useful.

Yes, Steve, first of all, yes, we -- not everything is perfect at CPS today, but we believe, as John mentioned, we always target over 15, but I will say that our target is higher than 15 right now because we know there's more opportunity. We still have some softness in some of the semiconductor business that typically we have, and -- but we also have some great opportunities in defense business. If you look at our advanced printed circuit boards here in North America, that's mainly high-technology product for defense. That business is doing well. We're expanding that business, and we expect to continue to have at least a few great years in that segment when it comes to demand.

Our mechanical business is doing well, especially around the data center. As I mentioned earlier, we are expanding investing in liquid cooling rocks. Demand for rocks is very strong. It's all around for the data center and we expect that business actually to increase now with the position of ZT. So we see a lot of positive things there. We also expanding our precision machining into the military side of the business. We are expanding and been investing a fair amount and hopefully, we'll get a lot of returns on optical modules specifically pluggables, custom memory around the military for jet fighters and so on. So there's a lot of exciting stuff that we have in our segment of what we call components technology group with a lot of upside potential and a lot of growth opportunities.

So yes, we are very comfortable with our core business, and we're still pushing those plants that we talked about a year ago. We need to grow our core business at a higher rate, and we believe we are positioning right now that we're going to start seeing that nice growth in '26 and beyond.

Our next question comes from the line of Anja Soderstrom from Sidoti.

Congrats on a nice performance here in the third quarter. With the additional revenue that I expect from the ZT acquisition and doubling the revenue in 3 years, where do you expect the operating margins to be?

Well, definitely first of all, we are improving our margin across existing business, and we believe that the end-to-end solution that we will be providing for data center AI and market, we're adding a lot of value to our customers and a lot of capabilities that will allow us to deliver the better margins than historical. So I'm saying today, higher than 6%, but I believe there's an upside to that, and we like to talk to you more about it 90 days from now. And hopefully, will be in control of ZT by that time. So we'll talk more. But we're excited what's in front of us. Like I said, we -- there are some great people at ZT. We are committed -- we're investing -- we've been investing a fair amount of money in these critical components that go for data center. And I think with now capabilities for full system integration at the scale we should be able to continue to improve our margin going forward.

Okay. And for the Indian joint venture, how is that progressing? It seems like you had a little bit higher payout to them or actually it was in line with what you had expected. But you didn't really give a guidance for us for the fourth quarter, either I think, or maybe I just missed it.

Yes. On that point, Anja, we always guide on the adjustment to our net income to reflect their equity interest, but the JV overall has done very well. I mean, we're very pleased. It's coming up on almost 3 years now that we've had the JV in place. But India is a very important market to us. We expect to see a lot of growth in that market. And as far as the business goes, we're looking to expand the different end markets that we serve. It's an area that we're investing in as well. I mentioned that from a CapEx perspective, and Jure might want to comment on that as well. But we see a lot of opportunity in there. But yes, we do just guide and comment specifically on the net income adjustment to [indiscernible].

Yes. India is a very exciting project for us. First couple of years, when you do a joint venture, it takes to kind of get to know each other, put in [indiscernible] what are our goals but I believe Reliance and Sanmina in a page -- on the same page, we're going to build something big in India. We are expanding -- and we'll also make more comments on that end of this year, but a lot of opportunities in India across all our markets, from industrial, medical, India defense, automotive in India, transportation, definitely for data center AI opportunities that will be, we believe, in India, and we are positioned to play across all of those key markets. So a great decision on our part to go with the JV with the Reliance. We still run that thing 100%, but I think having a good partner in a market like this is very critical, and I believe we have a great partner.

Okay. And just one last one in terms of the tariffs. What are you seeing in terms of the tariffs and potential headwinds from that?

I'll give that to Jon.

Yes. I mean, so there's still a very dynamic environment out there when you think about tariffs and percentages, changes and things of that nature. So our approach has been the same as it's been since all of this started very close to our customers, understand what they're trying to do and what they're trying to achieve. But based on the footprint that we have, we can certainly move programs around, but it's up to them at the end of the day. And typically, what we're seeing is current programs are staying in place, but there's a lot of discussion and an evaluation for new programs because we think supply chain on a broad basis, is becoming more regionalized. And we've got the right footprint to enable that and support that, not just our footprint but also our system structure, our single ERP, our single shop floor system with 42Q, all of those things enable us to be able to support our customers regardless of where they want to do manufacturing.

And then just as a reminder, from a business model perspective, these costs are actually borne by our customers who are essentially a pass-through from that point of view. But our objective at the end of the day is to help them make those decisions, decide where to manufacture and what makes the most sense for their business.

Do you see any customers having sort of a wait and see them [indiscernible] maybe for the new programs, I guess?

Yes. We have -- at this point, we haven't seen anything like any current programs on a material basis shift because that does take time and investment to do that. But certainly, for new programs, there's a lot of evaluation and discussion going on. So our goal or our objective is to make sure that we understand the rules and regulations as they're changing and then partner closely with our customers to help them do that analysis and decide what makes the most sense for them.

Yes. But Anja, just to add to that, I think the model is that we are going more in this geopolitical world in the future, we're going more to a regional type of manufacturing. Definitely, there will be more business manufacturer here in North America, but it's not going to happen overnight because it takes time to bring the technology up to date and so on. But there's our customers are trying to balance. They look at their market globally, what are they going to do in Asia, what are they going to do in India? What are they going to do in Europe? -- what we're doing in North America. And then we're trying to help them balance those requirements not just for short term but also long term. So there's a lot of talk about the long-term how do -- their strategy is going to play.

We had a customer last couple of days ago here, it's a European customer that they're basically looking at the whole world how they're going to supply and service their customers in the future. So a lot of work, but I think it will be positive for us. It's just the way we are structured. We've got a very good structure globally. I believe that will structure is lean. It's a state of [indiscernible] structure and I think we'll be fine.

[Operator Instructions]

There are no further questions at this time. I would like to turn the conference back to Jure. Please go ahead, sir.

Well, ladies and gentlemen, again, thanks for your time that you spend with us today. Looking forward to talking to you. If you have any questions, give us a call. Otherwise, we'll be talking to you 90 days from now. Hopefully, we'll continue to deliver some great news for you. Thanks a lot.

Thank you, everyone.

Bye-bye.

This concludes today's conference call. Thank you for participating. You may now disconnect.