Sanmina Corp (SANM) 2017 Q1 法說會逐字稿

Good afternoon. My name is Chantell and I will be your conference operator for today. At this time, I would like to welcome everyone to the Sanmina Corporation's first-quarter 2017 earnings call.

(Operator Instructions)

Paige Bombino, Vice President of Investor Relations, you may begin your conference.

Thank you, Chantell. Good afternoon, ladies and gentlemen, and welcome to Sanmina's first-quarter FY17 earnings call. A copy of today's release is available on our website in the investor relations section. You can follow along with our prepared remarks in the slides posted on our website.

Please turn to the 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 of operation may differ significantly as a result of various factors, including adverse changes to the key markets we target, risks arising from international operations, competition that could cause us to lose sales, consolidation among our customers and suppliers that could adversely affect our business, and other factors set forth in the Company's annual and quarterly reports filed with the Securities and Exchange Commission.

You'll note in our press release and our slides issued today that we have provided you with statements of operations for the three months ended December 31, 2016 on a GAAP basis, as well as certain non-GAAP financial information. A reconciliation between the GAAP and non-GAAP financial information is also provided in the press release and slides posted on the website.

In general, our non-GAAP information excludes restructuring costs, acquisition and integration costs, non-cash stock-based compensation expense, amortization expense and certain other infrequent or unusual items to the extent material. Any comments we make on this call as they relate to the income statement measures will be directed at our non-GAAP financial results. Accordingly, unless otherwise stated in this conference call, when we refer to gross profit, gross margin, operating income, operating margin, taxes, net income, and earnings per share, we are referring to non-GAAP information.

I would now like to turn the call over to Jure Sola, Chairman and Chief Executive Officer.

Thanks, Paige. Good afternoon, ladies and gentlemen. Welcome. Thank you all for being here with us. With me on today's conference call is Bob Eulau, our CFO.

Good afternoon, everyone.

For agenda, Bob and I have to review with you our financial results for our first quarter of FY17. I will follow up with additional comments about Sanmina's results and future goals. Then Bob and I will open up for Q&A. With this, I'll just turn it over to Bob. Bob?

Thanks, Jure. Please turn to slide 3. Overall, the first quarter was a solid start to FY17. Revenue of $1.72 billion was up 3.3% on a sequential basis and up 12.1% from the first quarter last year. Our non-GAAP gross and operating margins were sequentially flat at 7.9% and 4.2% respectively.

Non-GAAP EPS was $0.75, which was above the high end of our guidance for the quarter. This was based on 77.2 million shares outstanding on a fully diluted basis. Cash flow from operations was good at $54 million for the quarter and free cash flow was $36 million. I'll discuss cash in more detail in a few minutes.

Please turn to slide 4. From a GAAP perspective, revenue was up 3.3% or $54 million from Q4 to $1.72 billion. We reported net income of $44.9 million, which resulted in earnings per share of $0.58 for the first quarter. This was down relative to last quarter by $0.72. You may recall that last quarter, our GAAP results included an incremental release of our evaluation allowance against deferred tax assets.

If we normalize discrete tax adjustments from last quarter and this quarter, our GAAP EPS would be up around $0.03. My remaining comments will focus on the non-GAAP financials for the first quarter of FY17. At $135.9 million, gross profit was up $4.3 million from the prior quarter. Gross margin came in at 7.9%, which was flat compared to Q4. Operating expenses were up $1.9 million for the quarter at $64.2 million. This was flat as a percent of revenue compared to Q4 at 3.7%.

Spending was up this quarter, primarily due to a return to normal spending levels after unusually low spending in Q4. At $71.7 million, operating income increased by 3.6% from the prior quarter, and increased 17.6% from Q1 last year. Operating margin at 4.2% was also the same as last quarter. Other income and expense at $3.8 million was down $600,000 when compared with last quarter and down $2.1 million from the first quarter last year. This was primarily driven by favorable foreign exchange hedging.

The tax rate for the quarter was 15% of pretax income, which was in the range we had expected. On a non-GAAP basis, we earned $57.7 million in net income, or $0.75 per share. Earnings per share were up 4% when compared to Q4 and up 29.8% from Q1 last year.

Please turn to slide 5 where we are providing more information on the segments that we report. As you can see from the graph on the left, the integrated manufacturing solutions segment revenue was up $43 million or 3.1% from last quarter. The IMS team continued to execute well and delivered solid gross margin of 7.3% for the quarter.

The second segment for us is components, products and services. In aggregate, the revenue for this segment was up $9 million, or 2.8%, with gross margin up 1.8 points to 9.5%. We were able to correct some of the short-term issues from last quarter, which drove the profit improvement on a modest revenue increase. We saw very nice improvement in profitability for both the product and services areas.

On slide 6, we are showing you some of our key non-GAAP profit metrics. Gross margin was 7.9% for Q1 while we had a $4.3 million increase in gross profit from Q4. We have been very consistent with our gross margin ranging between 7.7% and 8.2% over the last 15 quarters. Our operating income increased 3.6% when compared to Q4 and 17.6% since Q1 last year. This led to $71.7 million in operating income and operating margin of 4.2%.

Now I'd like to turn your attention to the balance sheet on slide 7. Our cash and cash equivalents were $405 million. 54% of this cash was in the United States at the end of the quarter. Overall, the balance sheet was very similar to last quarter.

Cash was up $7 million from the previous quarter, accounts receivable up $19 million, and inventory was up $18 million. Both of these lines were primarily driven by the higher revenue level. Property, plant and equipment was up $3 million for the quarter.

From a liability standpoint, the accounts payable were up $50 million and short-term debt was up $15 million. Long-term debt was down $41 million. The changes in short- and long-term debt were both driven by the $40 million mortgage due in calendar 2017 becoming current. We have started the process to pay off the mortgage this quarter.

At the end of the quarter, our growth leverage improved to 1.1, continuing a very positive trend over the last seven years. The $35 million decline in other liabilities was primarily caused by a decline in accrued incentive compensation expense.

Please turn to slide 8 where we will review our balance sheet metrics for the first quarter. Cash was up $7 million from Q4. We are very comfortable with our cash balance at $405 million. The cash levels have been very consistent over the last couple of years. Cash flow from operations for the quarter was good at $54 million and net capital expenditures for the quarter were $18 million. This led to $36 million in free cash flow for the quarter.

Inventory turns were better than they were a year ago, but still not where we want them to be on a long-term basis. While inventory dollars were up $18 million from last quarter at $964 million, inventory turns remained flat at 6.6. Compared to Q1 last year, inventory turns increased 0.4 of a turn.

In the lower left quadrant, we are showing cash cycle days, which combines our cycle time for inventory, accounts receivable and accounts payable. Overall cash cycle time decreased from 42.2 days last quarter to 40.4 days. This change was primarily driven by a 1.8-day decrease in days sales outstanding due to better customer shipment linearity that resulted in stronger in-quarter cash collections. Cash cycle days continue to trend in the right direction and are down by 6.8 days since Q1 of last year.

Finally, pretax return on invested capital improved to 24.5% from the prior quarter. Compared to the first quarter last year, pretax ROIC improved 3.3 percentage points. This reflects the combination of better operating margin with solid working capital management.

Please turn to slide 9. I would now like to share with you our guidance for the second quarter of FY17. Our view is that revenue will be in the range of $1.675 billion to $1.725 billion. We expect that gross margin will be in the range of 7.8% to 8.2%. Operating expense should be $65 million to $67 million. This leads to operating margin in the range of 3.9% to 4.3%. We expect that other income and expense will be in the range of $5.5 million to $6.5 million.

We expect the tax rate to be around 15% and we expect our fully diluted share count to be around 78 million shares plus or minus 0.5 million shares. When you consider all of this guidance, we believe that you'll end up with earnings per share in the range of $0.67 to $0.72.

Finally, for your cash flow modeling, we expect net capital expenditures of approximately $40 million while depreciation and amortization will be around $30 million. Overall, we have executed consistently well in the last 15 quarters. Our customer and geographic diversification positions us very well for the future. Growth continues to be our number one objective, but it is imperative that we grow at the right kind of business.

At this point, I will turn the discussion back over to Jure for more comments on our target markets and our business strategy.

Thanks, Bob. Ladies and gentlemen, let me add, or let me share with you some business environment, what we had during the first quarter, talk a little bit about the outlook for a second quarter and the rest of the FY17. As Bob mentioned, an overall good quarter for our expectations. Revenue was up quarter-over-quarter, year-over-year, driven by growth in our end markets and ramp up for the new project.

Operations executed well and that allowed us to deliver a solid results for the quarter. Customers' activities were strong during the quarter as we continued to win new customers which is the key to our growth and grow current relationships. Again, overall good quarter as we continue to position our Company for a better future.

Now please turn to slide 11. Just want to give you some highlights about revenue by end markets. Our top 10 customers were 51.8% of our revenue. Book-to-bill for the first quarter was positive 102 to 1. We continued to do a good job diversifying our revenue by end markets and customers. We also improved, which is very critical to our strategy, quality of our customer base. I think we were able to add some really good customers during this year, the last four months, I should say.

For our first quarter, industrial medical defense was 45% of our revenue. That was nicely up 2.7%. Overall industrial demand was good. Defense was strong and our medical was weaker than we forecasted, but mainly driven by some of the end-of-the-year inventory adjustments. For communication networks revenue was 38% of our revenue. That was also up nicely at 4.1%. Overall good demand driven by networking and optical products.

Mobile network, mainly broadband, overall demand was stable and is improving. Embedded computing and storage was 17% of our revenue; that was up 2.9%. Storage embedded computing overall was good. We saw good demand. For automotive, we saw some end-of-the-year inventory adjustments, but overall, automotive has been very strong for us.

Now please turn to slide 12. Let me talk to you about revenue outlook by market segments for the second quarter. As Bob mentioned earlier, I think this is a good start for our March quarter. Overall, we're forecasting stable demand. For industrial, medical and defense, we expect to continue to do well. In these segments, we have good opportunities in the pipeline. For communication networks, we're starting to see good demand driven by networking, IP routing and optical products. For mobile networks broadband, we're starting to see more improvements.

Embedded computing and storage we expect to continue to improve during the quarter and automotive should be up this quarter as we have a oh so strong pipeline of new projects that are ramping up in automotive. Bookings for the second quarter, we do expect book-to-bill will continue to improve during the quarter.

Let me make a few more comments about business environment for the FY17. As always, global economy is hard to predict, but business environment is improving and expanding. Overall, our customer base is still positive about 2017. So based on that, and visibility and the forecast, we are more confident that FY17 will be another solid and growth year for Sanmina. Pipeline of existing and new opportunity is good and it's expanding.

Now I'd like to make a few comments about Sanmina's global structure. In our industry, there's a lot of questions regarding the global trade, so let me make a few comments on that. In our industry, our industry is well positioned to help our customers evaluate manufacturing strategies and facilitate any changes that occur.

In our industry, Sanmina's strategy has always been more USA-centric from design engineering, components capabilities, as we provide end-to-end manufacturing solutions from USA, Canada and other places around the world. We transfer these technologist and capability around the world as needed. Let me tell you how we do it.

Please turn to slide 13. Key to our strategy in manufacturing is that we get involved with our customers from R&D point of view, we get involved in new product introduction all the way to direct order fulfillment. Sanmina provides one-stop shop solutions. Sanmina's solutions are regional or global for entire life cycle. Today, we operate in 45 countries. We management it with one IT platform. We do have a central control. We believe this is a competitive advantage by implementing best practices globally.

So in summary, Sanmina regional supply chain is very simple, get involved in research and development and really service your customer all the way through direct order fulfillment. The key here is to be predictable, consistent performance globally. So I can conclude is that our global structure is very flexible and we can adjust to any customer demand that goes around the world.

Let me make a few comments about Sanmina's future. Where are we going from here? I can tell you I'm personally excited and very optimistic about Sanmina's future. Our strategy is working. We are building a strong and competitive company for the future. Providing higher technology solutions for mission-critical products and services, we have great technical capabilities in manufacturing footprint in place.

And most importantly is that we are focussed and diversifying our businesses to deliver better financial results in the future that are sustainable and consistent. And we're still having lot of fun. I would think that's most important.

Please turn to slide 14. In summary, first quarter, we delivered revenue growth in line for our expectations. Most importantly, it was predictable and consistent operating margin. Earnings per share expanded up 4% sequentially and 30% year-over-year. We delivered a solid cash flow from operations. For second quarter, as I mentioned earlier, we still see good demand, so we expect a good quarter and Sanmina should continue to deliver strong cash flow from operations.

For FY17, based on our first-quarter results and second-quarter forecast, as you can see, we're going to have a strong first half, but we do also expect, based on all of the information we have today, a strong second half of FY17. So again, in summary, our strategy is working.

We'll continue to drive profitable growth and maximize shareholders' value whenever we can. So ladies and gentlemen, now I would like to thank you all for your time and support. Operator, we are now ready to open the lines for question and answers. Thanks again.

Operator?

(Operator Instructions)

Sean Hannan, Needham & Company.

Yes. Good evening, folks. Thanks very much for taking the question here, and congratulations on a nice quarter and guide.

Thank you.

You're welcome. First question I have is coming off of the commentary, Jure, that you had just provided. In looking at the second half of the year being strong and, well, the first half this fiscal year is looking strong.

Is there an expectation of yours that based on what you see today and general conservatism around any expectations for market demand, would you be a flattish quarter-to-quarter-to-quarter type of year; or are you viewing, based on your ramp activity and what's kind of in the background, that the second half could actually be stronger than the first half? Any clarity around there would be great. Thanks.

Yes, every time we give you a forecast, we spend a lot of times talking to our customers, looking at all the data and historical data. So as I mentioned, we feel very comfortable about second quarter. We delivered the first one. As I look at in the third and fourth quarter, everything we see today and based what customers are telling us, that is going to be stable, and I think there is a fair amount of upside.

We also have some good new programs that are ramping up. They will start shipping in the third and fourth quarter of this fiscal year. So combining all of those things that we have in the pipeline, I'm pretty optimistic that, overall, second half will be a little bit better.

Okay. That's helpful context.

Then, Bob, question here in terms of the CPS gross margin. So obviously you had some hiccups last quarter, a nice recovery here within the December quarter. Can we talk a little bit about other contributors to margins within that segment, the sustainability of being able to perform at this level? And then, I suppose the overall perhaps, qualitative viewpoints that you might have for that segment group. Thanks.

Okay. So several questions in there, and we're definitely pleased that we made progress from last quarter, but we're still not very happy with the results in the first quarter. We believe there's a lot more potential in this segment, as we've said over the years. Most of these businesses benchmark in the mid-teens from a gross margin standpoint, and most of them have contribution margins in the 25% range.

So the real key for us with the components, products and services is to get more growth, and that has been a challenge over the last couple of years. We have had a couple of areas that have had a lot of headwind, and we've been candid about those, with wireless communications and with the oil and gas industry. And in both of those cases, they were important for our components business.

So as we get a little bit of tailwind, I think we can really expand margins in components, products and services. We will be able to generate very good cash there as well. So we still have a lot of work to do here, although we're obviously pleased that we made progress this quarter.

Okay. Thanks very much. I'll hop back in the queue, folks.

Thanks, Sean.

Thanks, Sean.

Steven Fox, Cross Research.

Hello.

Hello, Steve.

So maybe just a follow-up on that CPS question. I was wondering if maybe you could parcel the difference in the gross margins. I'm looking at a $9 million increase in CPS sales versus a $7 million gross profit increase. So how much of the improvement was due to correcting some of the problems you had last quarter, and how much was just due to typical drop-down benefits from revenues?

Well, I mean, if you think about what we said last quarter, we had some short-term issues that were really affecting us in both the product and the services areas. We were able to correct those. If you think about our typical contribution margin being around 25% and if revenue is up $9 million, you're somewhere in the neighborhood of what? $2 million to $2.5 million in gross profit coming from the revenue, and the rest really from the corrections we were able to make.

Great. That's very helpful. And then secondly, just if I could follow-up on some of the trade comments you made, Jure. If I'm looking at the right filings, from a square-footage standpoint at least, you have about 20% of your footprint in Mexico.

Could you, first of all, just refresh our memory of what you're producing down there and just your view on whether some of these trade headlines could maybe shift customers' viewpoints on where they want to produce, including some stuff you're ramping now? Thank you.

First of all, Steven, our Mexico capabilities are same as North America. It is all high-tech stuff that we build there. Very little, what I would call, consumer products. So it is more advanced technologies.

So it's a great capabilities there as we have at rest of the world, but Mexico especially, we have some great capabilities. They are kind of network with the North America capabilities, so we function as, of course, as a one company. I'm not smart enough to know what is going to happen around the world. But, I think our Company, as I mentioned in my prepared statement, is ready to adjust, if it's necessary, and we're looking at all the options.

Personally, I don't think anything crazy will happen. But I am a businessman guy, not a politician. So but we are, we think we -- the most important is our Company is well-positioned. As I said earlier, we have great capabilities in North America. So we give customers, even today, options.

Some customers want to manufacture locally. Some customers, because of their markets, want to do other parts of the world. That is the way Sanmina is really set up and that is the way I see business going out. If you remember 10, 15 years ago, everything was going east, east, and there was no questions asked. Today, I think our business is set up more for a regional business servicing regional customers.

So when we are in Asia, lot of the products that we make eventually going to be shifting to the Asian customers. When we're in Europe, it's European customers. Here in America, it will be for many of America's customers, which is basically USA, Canada, Mexico, South America and so on.

So the model that we see it, the way our global customers are, is really a global model because of a lot of our customers are non-USA customers, also. So we operate globally, but we can give every customer of ours a local solution better than anybody else because that's the way Company is structured.

Great. That is very helpful. I appreciate that color. Thanks.

Thanks, Steven.

Mitch Steves, RBC Capital Markets.

Thanks for taking my questions. First, kind of on the communication segment, I heard that you guys mentioned broadband and mobile networks. Are you guys also seeing demand trends from optical also being positive, or is it just primarily the mobile network and broadband side?

No, I think, as I said in prepared statement, Mitch, that overall our demand is very strong in the network and optical side of the business with the customers that we are involved.

Okay. And how is your visibility doing?

And we have a lot of new programs there, and we're also working a lot of in our new programs. So we really -- Sanmina is well-positioned in that segment. We always were, and we continue to really win in that segment.

Got it.

Yes. I would just add, in optical, as we've said even in our Analysts Meeting last May, is a real strength of Sanmina's. And as of last May, the optical business had doubled in the last couple of years. We've continued to see nice growth over the last nine months, and we've got a very strong offering for that segment.

And I think that's what's going to drive the growth because our offering is really one of the great solutions that we offer to our customers.

Got you. And then for the visibility portion of the optical piece, because I know that it is cyclical, do you guys feel that you guys will still see growth in that segment for the full year?

Would you repeat the question?

So the optical cycle for the full year, do you think that the optical piece will be higher than it was last year?

You know, I would say what we have in the pipeline, worst case, will be the same. But, again, I'm not smart enough to know everything in details. I think our pipeline is strong and, most importantly, I think we have a lot of good programs and great offerings. So overall, I think Sanmina will do well.

I would say that -- and that's really what I'm talking, Mitch. I'm really talking about what Sanmina is going to do. I'm not a expert what goes with every optical product on a global basis, but I'm an expert in what we're going to do in 2017.

Right. Got it. Okay. Thank you very much.

Thanks, Mitch.

Thanks, Mitch.

Jim Suva, Citi.

Hello, Jim.

Hello, Jim.

Hello, good afternoon. Thank you so much for the details thus far. I have a quick clarification question.

You'd mentioned your primary focus of the Company remains on growing and profitable business, which strategically is quite sound. Do you see that mostly coming from organically, or through your recent acquisitions you've had a lot of success there. How should we think about which is most likely versus less likely?

Jim, since you've been around a long time, and more than I want to admit that I've known you forever, we started really changing our strategy, as you know, right after the major recession in 2009. The idea was at that time really to, what I would call, build a second start-up. It was a focus of building a stronger Sanmina, stronger foundation. Maybe we don't have to be the biggest company out there, but go ahead and invest in technology and services that we can compete in those markets with anybody.

I think we accomplished that. We've got the balance sheet now where it needs to be. So we can go a lot of different ways. I think we learned a lot from our mistakes in the past. So I think we're a little bit smarter today as we grow.

First of all, I think we should have a good organic growth in some of these key segments. We did expand in oil and gas a few years ago. Maybe timing was not the best, but we still continued to invest in oil and gas, believe it or not, but we think it's going to pay off. We are driving more investment in defense and aerospace industry because we have a good reputation there. We are investing more in an ODM platform type of a product through our storage product and others.

We're expanding our services. So when you really look at it, I think we are positioning the Company that we can drive organically in the future segments of our customer requirements. At the same time, we are looking at other strategic things that can help us grow faster. So we'll continue to look into those and see if anything makes sense.

Okay (multiple speakers).

Just let me summarize. But the key to what we're saying -- and my assurance is there and Bob's, and not to speak for Bob here -- is whatever we do, it's all based on is it sustainable, is it predictable, is it repeatable?

We're not interested in the customers that come and go. We're not interested in the products that are short-lived and they go down the street and pick up a -- how do I say? -- another competitor with $0.10 less. So we're looking at something that we can build this Company a lot stronger Company forever. So that's the really part of our strategy, and it's working.

Okay. And as a follow-up maybe for Bob, on the gross margin specifically, if you peel it to the segment level and look at the integrated manufacturing solutions, my numbers may be wrong, but are gross margins down year over year in that segment yet revenues are up quite a bit? And if so, can you help us understand it? Is that a long-term thing, or why would they be down with revenues up?

As usual, it is really driven by mix more than anything else. We had two quarters last year where we had gross margins of 7.7% in the integrated manufacturing solutions segment. In both quarters, we said that was a really good mix of business. I don't think there is anything to be concerned about in terms of the first quarter mix of business. It just wasn't quite as rich as the first quarter and fourth quarter last year.

Okay. Thank you so much for the details. Much appreciated.

Thanks, Jim.

Ruplu Battacharya, Bank of America Merrill Lynch.

Hello, thanks for taking my questions.

Hello, Ruplu.

Hello. Just the first question on optical. I just wanted to clarify what you said, Jure.

I think at the Analyst Day, you said that your optical business is over $1 billion. Did you say that in the worst case, that it remains flat, or what was the commentary? Do you see the business growing year on year, or what's the worst case scenario here?

Well, first of all, that is true. I said earlier that -- and first of all, at the Analyst Meeting, yes, we said at that time that our business is over $1 billion and that is still the case. We've grown since then. I think the Analyst Meeting was in May, so we've grown since then. If I look at the next 12 months, based on everything that I see and all the opportunities that we have, I'll be very surprised if we are not growing in 2017.

Okay. That's helpful.

Then, Bob, I think if I just look at the first half, your revenues would have grown, based on the midpoint of guidance, about 9% year on year. I just wanted to clarify again the commentary on the second-half growth. Do you think you can maintain that kind of growth, or what was the commentary between the first half of the year and the second half?

Yes, so I'll respond to the question. I think Jure actually responded earlier, but we're obviously pleased by how the first half of this year is going. I would say, generally speaking, the second half tends to be stronger than the first half, and it looks like this is probably going to be a normal year in that respect. The main information we have is the forecast coming in from our customers, and it looks good for the year. But we don't give annual guidance, and that's probably about all the commentary we should give on the second half.

Okay. Thanks. That's helpful.

And then maybe on CPS, just wanted to see if you can give any commentary on the margins, on components versus products and services. Did they meet your expectations? Which one was higher/lower? Any directional guidance there?

Well, as I have indicated the last few quarters, we continue to have headwinds in the components area. That's the area where we have the most opportunity going forward to improve the margins. But we have opportunities across the board to do better.

Okay. All right. And the last one for me, I think you talked about US manufacturing. Can you tell us like what is your utilization, either in terms of equipment or space or workers in the US? Do you have capacity, if OEMs wanted to move into the US, do you have white space in the US?

Yes. We have plenty of space in USA. Our factories are basically the same processes around the world. So we are very flexible to meet our customers' requirements. We can move equipment around the world. So it is not an issue.

We have a lot of component capability in the United States as well. So I think we've got, as Jure said earlier, an excellent mix of capabilities in the United States.

Okay. Great. Thank you for taking my questions and congrats on the quarter.

Thank you, Ruplu.

Operator, we have time for one more question.

Sean Hannan, Needham & Company.

Hello, Sean.

Good evening. Thanks for the follow-up here. Bob, just a housekeeping question, a few things I may have missed. Book-to-bill in the quarter, the gross margin guide, and then what are the assumed options within your guidance?

Well, as Jure mentioned, book-to-bill for the quarter was 1.02 to 1. And in terms of the gross margin range, we expect it to be 7.8% to 8.2%.

Okay. Then what are assumed in the earnings in terms of option expense of that add-back?

Yes, we don't usually put that number out there. All the numbers I gave you are non-GAAP numbers, including that gross margin range.

Right. Yes. Okay. All right.

Then I want to ask about, as you folks think about the new programs, say, that you've won, that you're expecting to ramp, want to see if I could get you to call out maybe one or two, not necessarily program-specific, but at least in terms of thematic end markets -- whether it be optical, if it is automotive, what it might be. I just want to understand what's really at the top of the list that you're encouraged by for growth going from here.

As you think about that, also, I want to see if I can get an understanding of how the Newisys business is performing. Thanks.

Yes, Sean, let me just add in the markets first of all. What we have in the pipeline, I think it has been working on this now for the last 18 months. But this year, we see a fair amount of projects that are going to go to production. But it is really in our industrial side of our business, the medical side of our business, communication and networks, which includes networking, optical, IP routing. Those will be the, what I would say, most of the wins. But we do have a fair amount of also wins in automotive, which is a market that we go after, mission-critical type of products there.

Overall, enterprise, computing and storage, we continue to invest through that business through a Newisys product. I think Newisys is making some great progress. We made some big investments in the last 12 months, including adding software to the product. We're not maximizing all the margins on this yet, but we expect that product to continuously improve.

Overall, the business that we have in the pipeline is a good business. It's the business that is just as good what we have today. In a lot of cases, it is even a better business. So there's a lot of work left, but the good thing about I think the model is there is a lot of potential for upside, and we've just got to execute.

So with that, Operator, that's all we have today.

I would like to, again, before we let you go, say thank you to everybody for taking your time. Please, if we didn't answer all the questions, give us a call. Thanks.

Thanks, everybody. Have a great day. Bye-bye.

This concludes today's conference call. You may now disconnect.