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 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 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 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 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 the second quarter. We delivered strong results for the second quarter. Revenue came in at $4.01 billion and a 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 strong execution in both Core Sanmina and Sanmina AI Group ZT Systems. To tell you more about it, let's go to our agenda for today's call. 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 Jure 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 shifting 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 toward 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 shifting 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. ZT 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. 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 one 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, 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 one 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 two companies. In order to do this, we are following a three-phase plan. The first phase is focused on executing the immediate 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, we 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 three-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 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 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 Systems delivered $1.88 billion. So very strong demand in our Communication Networks & Cloud AI Infrastructure. Industrial & Energy, Medical, Defense & Aerospace, Automotive & 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 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, 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 & 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 the entire end markets, but we're also seeing some positive growth from 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 calendar years '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 to do well. Semiconductor capital equipment is 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 perspective. 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, wearable consumer business, laboratory diagnostics, research equipment and hospital & medical offices. Key takeaways here are very stable in the market. We expect growth to accelerate in the second half and we are leveraging our regulatory knowledge and experience to expand customer base and new programs to drive the growth. Well positioned here. Please turn to Slide 20. Let me give you a few comments on Defense & Aerospace. We're well positioned here. Sanmina/SCI has been in this business for a long time. We are building business here around defense and commercial aerospace. We do everything from design to full system integration. Key takeaways here is we expect the growth in traditional U.S. Defense & Aerospace business to continue. We are expanding customer base in the satellite market, which has some big opportunities, and we continue to see strong demand in fiscal year 2027 and beyond. As we look at the second half of '26, it's positioning us to a good year, but most importantly, we see a lot of growth in the future. Please turn to Slide 21. A few comments about Automotive & Transportation. We're well positioned here. We have some solid customers in the automotive EV business, self-driving cars and transportation. Key takeaways, again, overall, we have stable customer demand here and a great customer base. We continue to win key programs from new and existing customers and programs are transitioning from NPI into full-scale production for us. Please turn to Slide 22. Let me talk to you right now about Sanmina's capabilities. We do have a diverse set of capabilities where we provide end-to-end solutions for all our key markets. Our capabilities are industry-leading from engineering, design to full system for our key markets, including data center and AI infrastructure end market. We typically get involved in the early stage of product development. We help the customer bring the product to market. We provide high-technology printed circuit boards. In these segments, 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 boards and test. We build mechanical racks and enclosures and design. We're investing a fair amount in liquid cooling. We fabricate and build cooling manifolds and busbars. 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 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 work with market leaders with an average relationship with our customers over 15 years. So very proud of that. Please turn to Slide 23. Here, you can see Sanmina's manufacturing footprint, which is strategically positioned to support our customers globally. We are aligned with customer requirements, and we have a strong U.S. presence. We are leveraging our established global infrastructure and have the right capacity in place for the growth we expect next year, '27 and '28. Our global and regional supply chain is connected by one 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 '26 is strong at $13.7 billion to $14.3 billion, midpoint of $14 billion, year-over-year growth of approximately 73%. We are also well diversified, as I just explained to you earlier, across all end markets. We have a strong U.S. 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 the opportunities in front of us. I can tell you that overall, our strategy is working: to build a 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 shipped 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 your 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 question. First of all, this was a great quarter. A customer wanted to pull in some of the product 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 NVIDIA product. Whatever we shipped was all based on AMD technology. As we look at the future, I think there's a lot of exciting stuff going on around new products. We won multiple hyperscalers and ODMs for the future. So it's been an exciting quarter for us. Jon, I don't know if you want to add anything to that.

Yes. Just to add, Ruplu, on the front end. So I mean we're very excited, as Jure said, to do so much business in this quarter around accelerated compute, and it's new platform business, not the old legacy products that ZT had. And you and I have spoken quite a bit: 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 wanted it quickly. When we came in and we guided at the beginning of last quarter, we weren't sure that we would get all the components 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 are going to be more of those types of orders. At this point, given the nonlinear nature, there isn't any certainty. But we'll see; that could change. 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 kind of what you're insinuating, Ruplu: it all depends on the mix of 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, it was 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 we would in the future. But 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 '27. But 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 six 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're going to have a lot better year than what we expected at the beginning of the year. Most importantly, we're going to be very well positioned for future demand. Demand is not going to be a problem. It's all about timing when the hyperscalers schedule 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 one 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 1.6T switches today?

First of all, before I forget, yes, we are shipping 1.6 terabit switches in what I would call new product introduction and so on. As you know, we have multiple customers that build switches. We do not compete with our customers, but we're building some of the most advanced switches for our partners. To your direct question, 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 are also developing 1.6 terabit pluggables. Those are all exciting. Traditional telecom is coming back. We do a little bit of 5G wireless—it's a small percentage of our overall business, maybe 2% to 3%—but it's a couple of solid customers there. So overall, this segment is doing well in every subsegment and we're well diversified from high-performance communication networks to cloud AI infrastructure.

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

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 issues 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? Or are you engaged with one or two hyperscalers? Any sort of color on the customer mix as well? I have a follow-up.

Well, Samik, welcome to covering Sanmina. Let me take some of that, and I'll turn it over to Jon because Jon has been responsible for integrating ZT into Sanmina and has done an excellent job. First of all, when you look at the market opportunity for Cloud AI infrastructure, the hyperscaler opportunity is tremendous. So every hyperscaler out there, we're already starting to do some business with. Our goal is to win every one of these large hyperscalers over the next 12 to 18 months. It's been better than we expected when we acquired ZT Systems. Opportunities and demand are big, and we are positioning the company and putting infrastructure in place to handle the latest technology for the future. From my perspective, we see a lot of upside. Jon?

Yes. Let me add a few points, Samik, and thanks again for joining. So yes, the business that we did this quarter was new accelerated compute business, nothing to do with the legacy platforms, but there was very little in the way of next-generation product volumes yet. That next-generation product is scheduled to be out in September, and everything is very much on track for that. 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, and that's very much on track now. Whether or not we get huge amounts of revenue in September remains to be seen. When the silicon and so forth becomes production ready, it takes us a while to build the products—say, a couple of weeks—and then we've got to ship the products around the world. To be clear, revenue recognition for us in this business is when the customers receive it. 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 the end of the calendar year. As we said in our prepared remarks, we have started to ship some preproduction volumes. We're learning more and more about building these products and getting ready. More to come on customer specifics and schedules. We have won several customers, multiple customers, and our goal is to fill up all of our capacity. 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 2027 revenues from these systems: just looking at your $16 billion guide for fiscal '27, if I assume core Sanmina grows at high single digits, that indicates ZT doing about $7 billion of revenue and you'll be exiting the year at $6 billion. Is that the right way to think about where the starting point is before some of these new opportunities come through? How are you sizing that business for fiscal '27?

It's early days, which is why we said $16 billion plus. A little history: when we first announced the deal last May, we said we'd expect to double Sanmina within three years; then we accelerated that to within two years. That's where the $16 billion number comes from for fiscal year '27. We're saying $16 billion plus because we see the demand. At this point, we're assuming the majority of that business will be consignment. It's not entirely clear yet; we're working through details with customers. That's why it's still early days, but we feel increasingly confident that $16 billion plus is achievable next year. The actual trajectory will depend on the final customer set, production schedules, consignment arrangements, and revenue recognition timing.

It's an exciting future. In our business you take one 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 had a couple of questions. Maybe first, Jon, on the cash flows. I know that you mentioned a couple of puts and takes with CapEx, and I see a one-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 throw off cash on a 12-month basis? Anything you want to hold your feet to the fire on 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.

Yes, Steve. This quarter, Q2, was just a great cash flow quarter. Almost $400 million in cash flow from operations. It was really due to linearity of the business and very strong execution: we executed, manufactured a lot, shipped a lot of product and collected cash. If you look at the details, inventory levels came down and AR levels came down because we collected very well. I've learned a lot over the last six to nine months about the dynamics of the ZT Systems business. Once we hit more of a production steady state with customers and get out of this transition period, even more will become clear, but we're very excited to have generated the cash we did this quarter. Looking ahead into Q3 and Q4, we don't guide cash specifically, but we will start to build inventory levels to prepare for the new accelerated compute business; that will probably start to come more in Q4. I expect in the near term to continue to generate cash. As I said in my prepared remarks, I do think our leverage ratio will come within our long-term range as we build inventory to support the future business. But we're very pleased with where we are right now.

That's super helpful. And then if I'm reading through all the details here correctly, it sounds like you have two main cloud customers that have generated the upside and give you confidence in the numbers. I know you're doing business with all five, like Jure said. Can you talk about how we should think about the number of cloud customers for ZT and the potential there between now and '27, and also the OEM business? I know the focus is on cloud, but how can ZT grow with OEMs too?

It's really both, Steve. ZT's legacy business worked with a handful of customers, which we want to maintain. Part of our strategy has been to expand the number of customers we work with—more hyperscale, more cloud CSP customers, and OEMs too. We're focused on both, including neo-clouds. It comes down to maximizing capacity at the ZT plants. If we continue to see more demand, we'll look to invest to expand capacity further. First things first: focus on the customers we're winning and make sure we do very good business for them. Q2 was a great proof point: the ZT Systems team executed extremely well on the customer demand.

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

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

A couple of follow-ups from my end. And just quickly on the fiscal year '27 revenue target of $16 billion plus, how should I think about ZT Systems? Should I assume that you're focused on the core customer there at AMD and you would benefit from their ability to scale? Or is there opportunity for you to diversify your customer base there?

Mehdi, thanks for the question. As Jure said, welcome. Right now, FY '27 is early days. The $16 billion plus is consistent with prior commentary when we acquired ZT. If core Sanmina continues to grow in the high single digits, that gets us close to roughly $10 billion next year. Then ZT would need to contribute in the $6 billion to $7 billion range. We're still locking down the number of customers, production schedules and details on revenue recognition and consignment. We'll be able to give a more specific guide once those details are finalized. We feel increasingly confident that $16 billion plus is achievable, and we are expanding the customer base: CSPs, OEMs and others.

Let me add more about the rest of Sanmina. The key for us is that ZT primarily did final system integration. There's a lot of opportunity to expand vertical integration and fabricating subsystems that go inside the systems, which will help growth for Core Sanmina. That will make us more important to customers and accelerate time to market. There's a lot of work ahead, but the future is more exciting than the historical business.

Sure. As a follow-up, given opportunities, especially optimizing next-gen racks, would you need to elevate R&D to above $10 million a quarter or should we assume current R&D levels can support the 15% revenue growth in FY '27?

First of all, as we grow, we will continue to invest. We're investing not just for '27 and '28 but for the future. We're working closely with our existing customer base, which includes the key players. We'll invest to be an industry leader and to meet both today's and tomorrow's requirements. Sanmina acquired industry capabilities from ZT and we are investing a fair amount to meet future needs. The company is in a great position to continue to do what's right for our customers.

Let me rephrase. It is my impression you're transitioning part of the business driven by ZT from EMS to a value-add ODM service provider. Would that require additional R&D as you go through this transition?

Yes, definitely. As you grow, you're going to spend more on R&D. It's project by project, program by program, but Sanmina will invest to create the right value and solutions for our customers.

To add, we have a strong foundation of engineering capabilities and that's where we spend our R&D dollars today. As the business grows, depending on the final customer set and the opportunities—whether vertical integration or otherwise—we could invest more. Everything we've planned so far is factored into the guidance we just gave, but more to come as we look ahead into FY '27 later this year.

Operator, we have time for one more question.

(Operator Instructions) Our next question comes from the line of Anja Soderstrom from Sidoti.

Most of my questions have been addressed, but I'm just curious: are you seeing any sort of supply chain disruptions or input cost difficulties to find components at all?

Yes, Anja, there are some material shortages around memory, custom ASICs and similar components. I think this will continue through the rest of the year, and we will see how things change. Material availability is challenging right now as we look at the rest of the year and potentially into '27.

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

In our business, we are custom manufacturers; we have to manage parts availability every day. We manage that daily. We have a great IT system, strong supplier relationships and we work closely with our customers to plan ahead. Last quarter, we could have shipped a little bit more if we had every part number available. It's something we manage every day.

Everything we're aware of today has been factored into our guide. To Jure's point, our book-to-bill was over 1.1:1. We could have shipped a lot more. The core Sanmina business—communication networks and cloud infrastructure—has been growing over 20% year-over-year for the last six quarters. It could be growing a lot more if more components and equipment were available. But everything we know as of today and the forecast from our customers has been factored into our guidance.

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

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