Good afternoon, and welcome to the Sanmina Fourth Quarter and Fiscal Year 2022 Earnings Conference Call. I would now like to turn the conference over to Paige Melching, Senior Vice President of Investor Communications. Please go ahead.

Thank you, Cole. Good afternoon, ladies and gentlemen, and welcome to Sanmina's fourth quarter fiscal year 2022 earnings call. A copy of our press release and slides for today's discussion are available on our website at sanmina.com in the Investor Relations section. Joining me on today's call is Jure Sola, Chairman and Chief Executive Officer. Good afternoon. And Kurt Adzema, Executive Vice President and Chief Financial Officer. Good afternoon. Before we begin our prepared remarks, let me remind everyone that today's call is being webcast 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 or the press release safe harbor statement. During this conference call, we may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We caution you that such statements are just projections. The company's actual results could differ materially from those projected in these statements as a result of a number of factors set forth in the company's annual and quarterly reports filed with the Securities and Exchange Commission. The company is under no obligation 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 quarter and fiscal year ended October 1, 2022, on a GAAP basis as well as certain non-GAAP financial information. A reconciliation between 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 and non-cash stock-based compensation expense, amortization expense and other unusual or infrequent items. 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're referring to our non-GAAP information. I would now like to turn the call over to Jure Sola.

Thanks, Paige. Good afternoon, ladies and gentlemen, and welcome. 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 an exceptional job. So to you, Sanmina team, thank you for delivering strong and consistent results for the fourth quarter and fiscal year 2022, and now let's keep it up. For the fourth quarter, Sanmina delivered strong and consistent results. We had broad-based revenue growth, margin expansion, and EPS growth. We delivered solid cash flow, again, an exceptional job by Sanmina's team. Despite ongoing supply constraints and this macroeconomic uncertainty, these results reflect our continued focus on executing our strategy. Now let me give you a quick overview of our new joint venture in India, which closed on October 3. Please turn to Slide 5. We are very excited about the joint venture with Reliance, one of our leading companies in India. Sanmina has been operating in India for 12 years. We established a state-of-the-art manufacturing technology center of excellence. This joint venture is focused on high-technology mission-critical markets and servicing customers around the world. We are leveraging Reliance's expertise in the Indian business ecosystem and Sanmina's technology and manufacturing expertise. This venture is capitalized with over $200 million of cash to fund future growth. The goal is to accelerate growth in India by focusing on the Make in India strategy. We are planning to build a world-class engineering, technology, and manufacturing company in India. So for the rest of the agenda, we have Kurt, our CFO, to review the details of our results for you. I will follow up with additional comments about Sanmina's results and future goals. Then Kurt and I will open for questions and answers. And now I'd like to turn this call over to Kurt.

Thanks a lot, Jure. Everybody could turn to Slide 7. As Jure mentioned, in the fourth quarter, our team did an outstanding job delivering strong revenue and profit growth as well as cash generation. Q4 revenue of $2.2 billion grew substantially, by approximately 9.1% from the prior quarter and exceeded the high end of our outlook of $1.95 billion to $2.05 billion. This was primarily due to strong customer demand and excellent coordination with suppliers and customers to mitigate material challenges. Non-GAAP gross margin was 8.3% compared to 8.4% in the prior quarter, primarily due to product mix. Non-GAAP operating margin was 5.6% compared to 5.5% in the prior quarter, primarily due to operating expense leverage. Non-GAAP fully diluted earnings per share grew significantly by approximately 15% to $1.50 compared to $1.30 in the prior quarter and exceeded the upper end of the outlook of $1.27 to $1.37 by $0.13. Finally, Q4 GAAP fully diluted EPS was $1.08. Now please turn to Slide 8. This slide shows the quarterly trends of our financial results. We continue to deliver improved financial performance despite the challenges associated with the supply chain constraints. Non-GAAP gross margins have ranged from 8.1% to 8.5% over the last five quarters. In addition, non-GAAP operating margins have been 5% or greater over the last four quarters and 5.5% or greater over the last two quarters. Earnings per share grew from $0.95 in the fourth quarter of fiscal '21 to $1.50 in the fourth quarter of fiscal '22, a 58% improvement. Please turn to Slide 9. Q4 IMS revenue increased to $1.8 billion, an increase of 10.8% over the prior quarter, primarily due to strong customer demand and excellent coordination with suppliers and customers to help mitigate material challenges. Non-GAAP gross margin for IMS was 7.2% compared to 7.3% in the prior quarter. Component products and services revenue grew to $447 million or approximately 4.4%. Non-GAAP gross margin for CPS was flat at 11.9%. Now please turn to Slide 10. Fiscal 2022 was a strong year, driven by strong customer demand and operational excellence. Fiscal '22 revenue was $7.9 billion compared to $6.8 billion in fiscal '21, a growth rate of 16.8%. Operating margins improved from 4.9% in fiscal '21 to 5.3% in fiscal '22, primarily due to higher revenue and operational efficiencies. Earnings per share grew from $3.97 in fiscal '21 to $4.99 in fiscal '22, a growth rate of over 25%. Please turn to Slide 11. We have a very healthy balance sheet, which provides us a competitive advantage. Cash and cash equivalents was $530 million. Between cash and availability under our revolver and other debt facilities, we have approximately $1.4 billion of liquidity. There were no borrowings outstanding under our revolver at the end of Q4. In addition, during the quarter, we refinanced our term loan to extend the maturity until September 2027. Inventory remains at an elevated level to support customer demand and due to supply chain shortages. Non-GAAP pre-tax ROIC was 34.1% for Q4 fiscal '22. Now please turn to Slide 12. Cash flow generation was strong during both the fourth quarter and for all of fiscal '22. Cash flow from operations was $82 million in Q4 and $331 million for fiscal '22. Free cash flow was $34 million in Q4 and $201 million in fiscal '22. During Q4, we repurchased approximately 535,000 shares for $24 million, and for the year, we repurchased approximately 8 million shares for $317 million. Remaining share repurchase authorization at the end of Q4 was $164 million. Our capital allocation priorities have not changed. Our primary focus is, again, investing in the business to drive organic growth. In addition, we will opportunistically explore strategic transactions, debt reduction, and share repurchases. Do you please turn to Slide 13. Let's talk about the outlook for Q1. As Jure said, overall demand is strong, but there continues to be uncertainty related to supply chain challenges as well as the macroeconomic and political environment. We expect Q1 revenue to be in the range of $2.1 billion to $2.2 billion. We expect non-GAAP gross margin to be in the range of 8.1% to 8.6% depending on product mix. Non-GAAP operating expenses in the range of $59 million to $61 million and a non-GAAP operating margin in the range of 5.3% to 5.8%. We expect non-GAAP interest and other expenses of about $12 million. This total reflects the benefit of interest income of $2 million related to the approximate $215 million investment by Reliance in our Indian joint venture, which closed subsequent to the end of the fourth quarter. In addition, we estimate an approximate $2.5 million non-cash reduction to net income to reflect our JV partner's equity interest in the net income of the Indian JV. We expect a non-GAAP tax rate of approximately 17.5% and a non-GAAP fully diluted share count of approximately 60 million shares. When you consider all this guidance, our outlook for non-GAAP diluted earnings per share is in the range of $1.41 to $1.51. We expect Q1 CapEx to be about $50 million, driven by growth of new programs and to support future growth. We expect Q1 depreciation of around $30 million. In summary, demand remains strong across our customer base. We're confident in our business model and expect the company to continue to deliver strong operating leverage over time. I'll now turn the call back to Jure.

Thanks, Kurt. Ladies and gentlemen, let me add a few more comments about our financial highlights for '22 and the fourth quarter. I will also review with you our end market outlook for the first quarter and fiscal year '23. As you heard from Kurt, we delivered strong and consistent results for fiscal year '22. Revenue grew nicely by 16.8% to $7.89 billion. Operating income improved to 5.3%, and we did exit the fourth quarter at 5.6%. Diluted earnings per share were at $4.99 and that grew nicely by 25.6%. We did exit the fourth quarter with EPS of $1.50 per share. Our Sanmina team has done an outstanding job as we continue to differentiate our industry-leading capabilities. And all of this is translating into growth and margin expansion for Sanmina. Please turn to Slide 16. Let me talk to you now about revenue for the fourth quarter by end markets. For Industrial, Medical, and Automotive, our revenue was at $1.288 billion with a quarter-over-quarter growth of 5.7%. Communication Networks and Cloud Infrastructure was $915 million, with quarter-over-quarter growth of 14.2%. For Industrial, Medical, Defense, and Automotive, we saw a nice growth of 21.2% to $4.7 billion for the year. And Communication Networks grew 10.8% for the year with revenue of $3.175 billion. We continue to diversify our end market successfully. For fiscal year '22, our top 10 customers accounted for 48.7% of our revenue. Book-to-bill continued to be strong for fiscal year '22 with a ratio of 1.05:1. Overall, strong demand and solid backlog for the future. Please turn to Slide 17. Now let me talk to you about competitive advantages in the markets that we serve. Some of the key differentiators: Sanmina is a customer-centric company. Sanmina is built around our customer needs; it is in our culture. We are a critical partner to our customers. We deliver deep technical market expertise and superior performance. We provide complex, mission-critical products and services throughout the entire product life cycle. Sanmina has embedded resiliency led by our strong global management. Supply chain simplification is our industry-leading advantage, and our vertical integration structure supports regional manufacturing on a global scale. We use standardized equipment and processes globally, all managed by one single global IT system. This smart manufacturing system provides our customers with abilities globally in real time. But most importantly, Sanmina delivers predictable and consistent performance globally. Please turn to Slide 18. Now let me give you some highlights of Sanmina's focus market. Sanmina has a well-diversified customer base in heavily regulated markets. We expect to continue to expand our end markets that require greater technical capabilities, giving us a competitive advantage to win in these mission-critical markets. We provide technology leadership across these markets. For industrial markets, we focus on renewable energy, smart grid management, test and measurement, security and public safety equipment, optical inspection equipment, industrial x-ray equipment, semiconductor capital equipment. As you can see, we're well diversified in this industrial market. Why are we so excited? This is a diverse and growing market for us. We established a long-term customer base here, and this market is at the early stage of outsourcing. We're also working with the local government on initiatives to grow regional market manufacturing. We'll leverage Sanmina's higher technology components as we continue to build full systems globally. Please turn to Slide 19. For medical markets, we are well established in this medical industry for over 25 years. The areas that we focus on include diagnostic imaging, such as MRI and CT scan equipment, patient monitoring equipment, laboratory biotech, therapeutics, surgical equipment, and medical delivery systems. Why are we excited about this market? The industry is expanding, providing critical services to this industry. We continue to see large scale outsourcing opportunities. Sanmina has established significant processes, medical registrations, and certifications globally that have allowed us to lead in this industry. We also have a long-term customer base in this market. Now please turn to Slide 20. Let me talk to you about the Defense and Aerospace market. We serve this market through our defense divisions for products under the SCI brand. We've been in this business for over 60 years through Sanmina's Technology Components Group, and Sanmina is a well-recognized brand in the defense and aerospace industry. Most importantly, we have proven results in this market segment. Our focus areas include aircraft systems, both defense and commercial, tactical communications, unmanned aerial systems, satellite systems, and others. Why are we excited? Sanmina provides products, components, and EMS offerings from design to full systems in this market. These projects have long product cycles, which is a benefit to us. This is a highly complex, heavily regulated market, and we have built a long-term customer base. We believe the new programs that we won will drive growth. This market is in an early stage of product outsourcing, and we believe we have a lot of upside in this market. Now please turn to Slide 21. Let's discuss the automotive market. We see long-term growth in this segment. We focus on electric vehicles, specifically building around electrical motor power systems, safety systems, electronic control systems, LIDAR and radar systems, charging stations, and infotainment. Why are we excited? This industry is new for us, but we have established growth in EVs and advanced automotive electronics over the last five to ten years, and the potential for growth is unlimited as we see more technologies integrated into these cars. We are leading and working with industry leaders, and we expect to see positive growth for many years ahead, driven by new programs. Please turn to Slide 22. Let’s discuss communication networks and cloud networks. Our focus has long been on 5G mobile networks, optical packaging, switching and IP routing networks, and cloud infrastructure. Why are we excited? We have deep industry expertise in this market and a long-term customer base. The demand for greater bandwidths and faster data continues to increase, leading to a greater need for storage. Our long-term relationships with key market leaders will continue as we leverage Sanmina's technology for this market. New and existing programs are driving growth, especially in the cloud networking side of our business. Now please turn to Slide 23. Let's move on to the outlook for the first quarter of fiscal year '23. In summary, as you can see, Sanmina does not serve consumer markets at all, but our focus is on high complexity, heavily regulated markets. The key markets for Sanmina are industrial, medical, defense and aerospace, automotive, communication networks, and cloud networks. We see strong demand across all end market segments for this first quarter. I can also tell you that new project wins continue to drive our growth. We expect supply chain constraints to continue through the first quarter and into calendar year '23. But the good news is that things are getting better. Please turn to Slide 24. Let me provide more insight into where we see fiscal year '23 and beyond. We are excited about Sanmina's future, and we are well-positioned to build on it. For fiscal year '23, we expect to see notable improvements over fiscal year '22. Revenue growth will be driven by existing and new programs. We see strong forecasts from our key customers. We are well diversified in growth markets, and we also have a strong pipeline of opportunities that we are currently pursuing. Margin expansion will be driven by revenue growth in our IMS business, our technology components business, our defense products, optical packaging products, and other services. Additionally, we anticipate improving our manufacturing efficiencies as component availability improves and a lean OpEx structure that continues to drive efficiency. For '23, we expect to deliver strong cash flow that will fund growth for fiscal year '23 and beyond. Now please turn to Slide 25. Let me discuss our priorities. Our priorities have not changed. Our strategy is proven to deliver results. We will continue to focus on our customer needs, maintaining and building long-term partnerships with leading companies in growth industries. We will continue to invest in leading technology, and we will further optimize our lean and flexible global structure. Most importantly, we are committed to investing in talent. This gives us a competitive advantage that supports attractive margins regardless of the business environment. We are focused on sustainable and profitable revenue growth. We have a great customer base and are actively seeking new clients in specialized industries that we focus on each day. You should see continued strong cash generation from us. The key here is to optimize our capital structure to drive growth for fiscal year '23 and beyond. You have our commitment that we will continue to maximize shareholder value for the short and long term. The key is to unlock the total volume of Sanmina's capabilities. We can achieve more, and we still have significant leverage in our business model. Please turn to Slide 26. In summary, for our fiscal year '22, we delivered solid execution, consistent and predictable results. We will continue to diversify revenue growth with these key market leaders. We are well positioned to navigate any market dynamics that may arise. Sanmina has a healthy balance sheet to build on for fiscal year '23 and beyond. Sanmina should continue to generate strong cash flow from operations to fund future growth. Again, we expect revenue, EPS growth, and margin expansion in fiscal 2023. So ladies and gentlemen, now I would like to thank you for your time and support. Operator, we're now ready to open the lines for questions and answers. Thank you again.

And our first question today will come from Ruplu Bhattacharya with Bank of America.

Maybe this time I'll begin with a couple of questions for Kurt, and then I'll ask you one. Kurt, let’s start with Slide 12 regarding your capital allocation priorities. You mentioned that the priority hasn't changed and that share buybacks are the lowest on your list. However, this year, it appears that you spent $317 million on buybacks, which compares to a free cash flow of only $200 million, correct? So, if I understand this correctly, it seems that share buybacks have contributed more than $0.55 in earnings this year. I'm trying to grasp how sustainable this allocation strategy is, given that you're investing 150% of your free cash flow in share buybacks. Additionally, even though you have net cash on the balance sheet, do you believe this is a good use of cash? Considering all of these 5G and other opportunities, does it make sense to focus instead on organic growth? I'm trying to understand your perspective on capital allocation for fiscal '23 and whether this level of buybacks relative to free cash flow is sustainable.

Yes. First of all, I believe our capital allocation priorities remain unchanged. Our primary focus has always been on funding organic growth. While I didn't specifically quantify the last three areas, including strategic transactions, debt reduction, and share repurchases, we approach those opportunistically. Given the market volatility we experienced last year, it presented a favorable opportunity for us to repurchase more shares than usual. Looking back from fiscal year '14 to fiscal year '22, we purchased $1.2 billion in shares, indicating that our business generates a significant amount of cash. Our first priority is continually to invest that cash back into the business, which we did last year with approximately $130 million in capital expenditures, and we plan to do more this year. However, we will remain open to opportunistic share buybacks, depending on market conditions.

Okay. Maybe another question for you. The margins have been good on the operating margin level. One of the things that has helped Sanmina is that in fiscal '22, you grew revenue by 17% year-on-year, while operating expenses only increased by less than 2%, essentially keeping it flat at $239 million. If you're guiding for revenue growth in fiscal '23, what should we expect for operating expense growth this fiscal year, considering labor costs and inflation? How are you approaching operating expenses, and what strategies do you have to keep them flat, if that's feasible?

Yes. As Jure mentioned during his discussion of the fiscal year '23 outlook, we anticipate gaining leverage in operating expenses. This does not necessarily mean that the absolute dollar amount of operating expenses will remain unchanged. However, when considering operating expenses as a percentage of revenue, I expect that figure to decrease further. As Jure noted, we have the infrastructure in place to support a significantly larger business. Therefore, we expect to achieve a considerable amount of leverage there, as well as eventually leverage at the gross margin level, which gives us confidence that our overall margins will improve over time.

Okay. Let me ask Jure one question. Jure, in the outlook for both the first quarter and fiscal '23, you said that the company can grow revenues year-on-year. When I look at the first quarter guide, $2.15 billion at the midpoint, that's pretty strong growth. I mean, that's like 22% year-on-year compared to the first quarter of fiscal '22. But when we look at the year-on-year compares as we go into the second quarter, third quarter, or fourth quarter, they get progressively more tough, right? So, I mean, it looks like every quarter, the compares are 12% or so tougher because you had strong growth in the second half of this fiscal year. So how should we think about this growth? Is there any way that you can quantify or qualitatively tell us how much growth do you think fiscal '23? Because you're guiding 22% growth for the first quarter. Is that something sustainable for the rest of the year? And then first half versus second half, how should we think about growth rates moderating as we go through the fiscal '23?

Yes, Ruplu, I will certainly address all of your questions. I want to add to what Kurt mentioned earlier. A key focus for Sanmina is maximizing shareholder value. We still believe our stock is a fantastic value, and we are actively seeking opportunities. We have a strong balance sheet with various options to enhance shareholder value, and we need to approach our purchases wisely. Last year, we felt that continuing to buy back shares was the best move. As Kurt mentioned, we plan to be very strategic in maximizing shareholder value. To your question, I'm not overly worried about year-over-year growth; my focus is more on the current quarter and the next few quarters. Our company is well-positioned, and we see good visibility ahead. I believe if any company is to grow in this market, Sanmina will perform just as well, if not better. We are still facing numerous shortages, and I see further opportunities for us, particularly in productivity, once these issues are resolved. As I stated earlier, I believe we can significantly improve upon our current performance. That's my main focus; it goes beyond just comparisons. While we cannot predict exactly what will happen in the next 12 months, we are very optimistic about our immediate prospects.

Yes, we typically focus on one quarter at a time. Our business and customer demand are strong, as Jure mentioned. We are aware of the headlines like everyone else, so we will approach this one quarter at a time. Overall, we feel positive about the business and see strong and broad-based customer demand at this stage. Additionally, as Jure highlighted, we haven't engaged much in the consumer sector, which is where you are noticing the effects of certain economic issues.

Thank you for the detailed information. I'd like to follow up with Jure regarding revenue growth. I appreciate the insights on the share buyback program and see how it has positively influenced the share count. However, considering the numerous growth opportunities you have, are there plans to explore other avenues for growth, such as inorganic growth or alternative methods for organic expansion? That might also be beneficial. Regarding my follow-up question to Jure, it seems a bit challenging to gauge growth across different end markets since they are grouped together. For instance, comparing the Industrial, Medical, Defense, and Automotive segment to Communication Networks and Cloud Infrastructure, which segment do you believe has a better potential for faster growth in fiscal '23? There appears to be strong growth in 5G alongside opportunities in the industrial sector. Could you provide some qualitative insights into the relative strengths of these end markets as you currently see them?

Yes, Ruplu. As you've seen it last year, we grew our industrial, medical, defense, and automotive business at a higher rate than communication networks and cloud infrastructure. So we're very optimistic about the group of industrial, medical, and defense and automotive. As I mentioned, we're well positioned in those four key markets, and we're very strong in communication networks, especially for new products. As I said in my prepared statements on cloud networks, we expect to see a fair amount of growth. And by the way, in that group, we have a lot of business in the cloud networks, and we expect a fair amount of growth.

And our next question will come from Anja Soderstrom with Sidoti.

Congratulations on the good quarter and outlook. So I'm just going to delve a little bit further into this year-over-year revenue growth. So do you think you're going to grow sequentially throughout the year? So the guidance you gave for the first quarter is a stepping stone for the year?

As we said in our prepared statements, Anja, if we look at the first quarter, we have a strong backlog, strong demand. It's all about getting all the components. So we feel very confident. We'll take one quarter at a time. But we do expect to have a better year on top line and the bottom line in '23 than we did in '22.

Okay. And could you just speak a little bit about the backlog and sort of quantify that and how you're able to backfill that with new orders?

Well, today, we can ship even more if we can get all the critical components in the first quarter. And if we look at our forecast from our key customers, they look good for '23, and new programs that we have that we already won, we're basically waiting for equipment to install for the growth, and we'll be spending a bit more for that we are investing in for the growth. So we're pretty optimistic about the future. But we'll take it one quarter at a time, Anja.

Okay. And what I hear from your peers is that the supply chain challenges are sort of making them deepen their customer relationships and their sort of order visibility and lead times with their customers, so they have better visibility into their sort of planning? Do you see the same for your...

Well, we have very good visibility. Our customers have been very kind and giving us a lot of forecasts. They extend to 12 months, 18 months, in some cases, two years long. But we are still slightly suffering on shortages, and it's getting better, as I said, and we expect to see some better improvements in '23. But for this quarter, definitely, we continue to see similar challenges as we had last quarter, but it's getting better.

Okay. And then have you seen any sort of changing sentiment among your customers? I know you are in very solid end markets, that's probably more favorable from cyclical tailwinds. But have you seen any sort of changing sentiment?

As I mentioned in my prepared statement, we don't serve consumers; the markets that we're in, like medical, defense, automotive, industrial cloud and things like that, they're looking good. We had a couple of customers that were building COVID projects, and that's slowed down, but that's about it.

Okay. And have you seen any sort of changes in the competitive environment?

There's always competition, but I don't spend a lot of time on what my competition does.

I have one more question about your capital expenditures. They were a bit higher this quarter, and you are projecting a similar amount for the next quarter. Is there a specific reason for this, or is this going to be the ongoing rate for next year?

It's always hard to predict taxes. I think, again, if you look for the overall year in FY '22, I think it ended up being about $17.4 million, and we're forecasting $17.5 million for fiscal '23. But the tax rate always comes down to the mix.

Sorry, I couldn't catch that regarding CapEx.

Okay. I'm sorry, I thought you said tax rate, not CapEx, my apology. Well, now you learned about the tax rate, too. Bonus question. Yes. I mean, look, I think as Jure talked about last year CapEx was about $130 million; this quarter we're forecasting about $50 million. We are seeing growth, and we think there are opportunities both in terms of new programs and expansion with existing customers. So our CapEx was $48 million last quarter, we expect it to be about $50 million this year. And I'd expect it to be in that similar ballpark as we move forward, but it will all depend on demand and program wins.

Our next question will come from Jim Suva with Citi.

Congratulations to you and your team for just a really strong year of performance. In your prepared comments and then a follow-up on the Q&A, I can't remember one of you mentioned that 2023, the fiscal year should be stronger than '22. There's two ways to interpret that. One means sales growth. But another way to say that is some people may view that as revenue growth to be even higher or better than the growth that you just had. And just had a remarkable year of up 16% or 17%. So can you help us understand when you say a stronger year in '23, are you just meaning dollar amount or actually the growth rate even being stronger?

So Jim, let me clarify that in simple terms. First and foremost, our priority is profitable growth. We anticipate that our financial results for 2023 will be better than those of 2022, and we expect to see growth. We recognize that it’s there, which is one of the reasons we are investing a bit more in new equipment and some new processes necessary for growth, not just for 2023, but also for 2024. We have strong partnerships with the right customers. Overall, we fully expect to have an improved year, both in terms of revenue and profit in 2023 compared to 2022.

Right. And Jim, that's measured in dollars; we're not talking about growth rates, right? So he is saying higher revenue, higher EPS and earnings; we're not necessarily comparing growth rates year-over-year.

Yes. And then on the new joint venture in India, congratulations. How will that be accounted for on your books? Is it consolidated or a minority interest line? And then what about CapEx funding for? Is it now fully funded? Or will there be CapEx flowing out of your statement of cash flows we should be thinking about?

Yes. Let me handle this. So we are consolidating financial results. So you will see above the line, all the revenue and all the profits. But as I mentioned in the guidance, we have to back out below the net income line, the our partner's share of the net income. So in this case, we estimated that to be a reduction of about $2.5 million. So as I said in the guidance, because of the cash that came in, we expect approximately $2 million more of interest income. But we do, based on the accounting treatment, have to back out 50% of the net income for the JV, which we currently estimate for that quarter at $2.5 million, and that happens after the net income line, but before you calculate EPS.

Right. And then on the CapEx, does it all show up 100% on your books or...

Yes. So it's consolidated. So it will show up on our books. But back to your other question, as Jure pointed out, based on the investment, the Indian entity is now capitalized with over $200 million of cash. And so that cash will be used to expand the operations there as necessary as that business grows, which is certainly our vision for the JV.

Yes. We have high hopes for India, and both companies are committed to achieving significant growth.

And then strategically, at that side of the facility, are there certain end markets/products that you think are on the early innings of ramping that we should just be mindful of? Because I assume that there are certain, whether it be communications or whether 5G rollout or something, that's probably a lot earlier than maybe other things like medical devices. But I just may be backwards to it.

Yes. We diversified, Jim, this operation very well. We got over 35 customers. They're really well diversified in medical, industrial, definitely some telecommunications. As I mentioned, we have medical and alternative energy, but definitely, we'll be expanding some of the 5G networks and optical networks there.

And our next question will come from Christian Schwab with Craig-Hallum Capital Group.

Congratulations on another successful quarter and your guidance. Regarding the joint venture in India, it focuses on complex mission-critical operations, involving a 100-acre campus. This appears to have the potential for significant revenue generation over time. I assume the purpose of this joint venture was to establish a presence as an Indian company, which should facilitate doing business there. If I'm mistaken, please let me know. Additionally, is it possible that this could evolve into a business generating over $1 billion in revenue in the future?

First of all, yes, this joint venture was established with the goal of becoming an Indian company that can navigate the challenging business environment in India. We believe there is significant potential in the Indian market, especially looking three, five, or ten years ahead. We have ample space in this 100 acres, and we plan to expand in other areas of India. This better be substantial, Christian, or it will have been a poor decision.

Right. When is it logical that it becomes easier for investors to understand that the business is beginning to scale at a high level?

Yes, since we are putting these numbers out, I'll turn it over to Kurt, but definitely, we'll communicate it, and you'll have all the information. But Kurt, do you want to add?

Yes. I mean, what I would say is, as Jure said, we're very optimistic about the opportunity here. Again, we just closed the transaction on October 3. So I think we'll have a lot more, I'll say, disclosure related to it as we progress and develop where we're going to take that business with our joint venture partner. So I think at this point, all we can say is it's early innings, but we think that there is a lot of opportunities there. And as Jure said, over the next three to five years, we expect this to become a very significant part of our revenue.

Great. That's fair. And then in fiscal year '22, Kurt, did you have any 10% customers?

Yes. In fiscal '22, we had two 10% customers. We will disclose that in the 10-K when we file it in a couple of days.

Perfect. And then just a little bit more color on the supply chain getting better. I know you guys talked about it still impacting December, kind of slightly impacting potentially the beginning of the year. As we get through the middle of, say, calendar '23, do you believe the vast majority of the supply chain problems or headaches that you've been dealing with for quite some time now will be over?

If you examine the data, we expect that by the middle of the year, a significant portion of the issues will be resolved, though outcomes can be unpredictable. We anticipate improved conditions regarding materials next year compared to what we faced in 2022.

And then as that supply chain loosens up, becomes more available for backlogs, is that when we're going to really probably have a significant opportunity to meaningfully reduce the aggregate inventory dollars that we have? I would assume the vast majority of that stuff is sitting out waiting for a few components to arrive. So next year could be potentially a very substantial cash flow year.

Yes. So definitely, that's a purpose, Christian, next year, and that's what we are driving towards. And we're putting the systems in place to accomplish that later. First of all, I'd just like to thank all of you for joining us today. And hopefully, we answered most of your questions, if not, please give us a call. Otherwise, we'll be talking 90 days from now. Thanks a lot.

Thank you.

Bye, bye.

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