Good morning, ladies and gentlemen, and welcome to the Sanmina Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Monday, May 19th of 2025. I would now like to turn the conference over to Paige Melching, Senior Vice President of Investor Relations. Paige, please go ahead.
Thank you, Chester. Good morning, ladies and gentlemen, and welcome to the call. A copy of the press release announcing our acquisition of ZT Systems' data center infrastructure manufacturing business and the accompanying slides for today's discussion are available on our website at sanmina.com in the Investor Relations section. Participating on today's call are Jure Sola, our Chairman and Chief Executive Officer.
Good morning.
Jon Faust, Executive Vice President and Chief Financial Officer.
Good morning.
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. Please turn to slide three of the presentation and take note of our safe harbor statement. During this call, we may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We caution you that such statements are just projections. The company's actual results could differ materially from those projected in these statements as a result of factors set forth in the safe harbor statement.
Sanmina is under no obligation to and expressly disclaims any such obligation to update or alter any of the forward-looking statements made in this transaction press release, the presentation, the conference call, or the investor relations section of our website, whether as a result of new information, future events, or otherwise, unless otherwise required by law. In addition, during the course of today's presentation, we'll refer to certain non-GAAP financial information and forward-looking projections and industry and market data. 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 the financial measures, we are referring to our non-GAAP information. Thank you again, and I now like to turn the call over to Jure.
Thank you, Paige. Good morning, everybody. Thank you for showing up on such short notice, but we really appreciate it. On today's call, we're going to talk a lot about this exciting acquisition of data center infrastructure manufacturing business. Please turn to slide four. Now let me talk to you about this transaction in more detail. Sanmina to acquire ZT Systems Manufacturing, a leading provider of cloud and AI infrastructure to the world's largest hyperscalers from AMD. This positions Sanmina to capitalize on the long-term growth trends in cloud and AI infrastructure spend. This establishes our strategic commercial partnership for NPI with AMD, and this should accelerate quality and time to deployment of AMD ROCm and cluster-scale AI solutions. These manufacturing capabilities plus strong management will position Sanmina to drive the growth in cloud and AI market.
Purchase price for this project is $2.55 billion in cash and equity, plus $450 million in contingent consideration, totaling up to $3 billion. Jon, our CFO, will give you a lot more details on this. Sanmina and AMD will work together to drive success of ongoing platform transition at ZT Systems as we bring in new customers for the future. This project will be accredited to non-GAAP EPS, and Jon will talk more about it in the first year. We expect that the synergies will make improvements over time. Most importantly, the transition will deliver compelling value for our Sanmina shareholders. With that, please turn to slide five. For those of you that are not familiar with ZT Systems Manufacturing, they are a leading provider of end-to-end system integration from components to complete ROCs for cloud and AI infrastructure ecosystem.
They also have strong industry-leading power and liquid cooling capabilities, which in this business are very, very critical. They have a strong established US presence and one factory in Europe. If you look at it, we have multiple sites in the New Jersey area, which is 1.2 million sq ft with strong liquid cooling capabilities. Also, they just opened a brand new operation in the last 12 months in Georgetown, Texas, which is outside of Austin. This is a modern state-of-the-art factory designed for future platforms with leading liquid cooling capabilities. This factory is approximately 500,000 sq ft, ready to go and to multiply, if necessary, to 1 million sq ft. There is a factory in Europe, to be exact, in the Netherlands, approximately 250,000 sq ft.
I think here, if you look at ZT, I think for years over being in the business over 30 years, especially the last 10 years focusing on large hyperscalers, they really established themselves as a trusted partner to the world's largest hyperscalers. We're going to build on that. With their senior management team and deep industry expertise in world-class manufacturing know-how, it really gives Sanmina extensive experience for next-generation AI platforms. In this business, power is everything. These operations have plenty of power capacity in place to support the future growth. Please turn to slide six. To continue with these strategic priorities and really repositioning Sanmina, we've been talking about this growing in AI cloud in the last year or so. We've been investing a lot in organic growth.
When this opportunity became available, we felt this is something that made a lot of sense to combine with Sanmina, especially when we basically saw an opportunity to build a partnership for NPI with AMD. I believe that will help us to accelerate deployment of our AMD ROCm, cluster-scale, and AI solution. It will broaden Sanmina's relationship with the hyperscalers and deepens our relationship, which we already have some with the existing one, but I believe this will enhance it. Enhancing Sanmina's ability to partner closely with both hyperscalers and OEM customers across all platforms, not just AMD, technology is very important for our future growth. Again, this adds to Sanmina's US strong footprint for cloud and AI manufacturing. It complements Sanmina's well-established vertical integration strategy. I believe ZT kind of completes that.
Again, ZT Systems has a strong management, and this adds to Sanmina's best-in-class management and technical talent pool. So very excited about that. Again, in summary, this accelerates Sanmina's entry into cloud and AI across all the technologies that are available in the marketplace. Please turn to slide seven. As you can see on this slide, spending for cloud AI is skyrocketing. I mean, you just look at what we did last year. The market was spending around $300 billion. But if you look at three, four years out there, this jumps to $890 billion, almost a trillion dollars. So I think there's plenty of opportunities. And as we were talking to our customers, how we're going to grow this business, and what we learned is that we got to grow at a faster rate.
This ZT acquisition really gives us that opportunity to take advantage of the market that is there today and will continue to grow in the future. Again, very exciting opportunity for Sanmina. Please turn to slide eight. This slide kind of illustrates why this is important. If you look at on the left of this box in the middle and the right, this is what we do in Sanmina. We already support these customers through high-technology board fabrication, assembly of the product, optical modules, mechanical ROC, and enclosure systems. On the right side, you see ODM server and storage system that has been designed and manufactured under the Viking Enterprise technology. We expanded our cooling capabilities. Basically, we need a ZT to fill this, what I call, one-stop shop. I believe ZT Systems gives us the full system integration at a scale.
What I learned from ZT in the last three, four months is their culture and Sanmina culture will fit well. They are both entrepreneurial management styles, and I think will fit like a glove. Excited. Please turn to slide nine. Let's talk about a little bit more about AMD and Sanmina partnership. Sanmina is to become a preferred NPI manufacturing partner for AMD ROC and cluster-scale AI solutions. That is very important to us. This strategic partnership will accelerate deployment of complex AI ROC system tailored for hyperscaler requirements. Sanmina is focused on mission-critical technology and vertical integration. Combined with ZT Systems leading next-generation compute system manufacturing and AMD concurrent silicon system design will enable Sanmina to accelerate production and validation timeline for hyperscaler deployment. This completes the total solution that we can basically offer to any hyperscaler out there and OEM.
Sanmina-AMD partnership, its key focus is going to be time to market, drive the quality, and flexibility for our customers. We believe we'll be able to deliver industry-leading solution at the fastest time to market. This partner is something that I'm personally very excited about. I learned a lot about AMD, and I learned a lot how we can work together to help each other. For Sanmina shareholders, I believe this is a very compelling transaction. To talk more about it, I'd like to turn this call over to Jon to tell you about long-term value creation for our shareholders. Jon?
Thank you, Jure. Good morning, ladies and gentlemen. As Jure mentioned earlier, the purchase price is comprised of $2.25 billion in upfront cash, reflecting net asset value, plus a premium of $300 million, which is made up of $150 million in cash and $150 million in Sanmina equity. The number of shares will be determined based on the five-day volume-weighted average stock price on the second day prior to closing and subject to a three-year equity lockup period. The lockup period will begin at the time of closing, during which equity sales are limited to 33% in the first year, 33% in the second year, and the remaining equity in the third year. We are pleased that AMD recognizes our upside potential, and we believe that having them as a shareholder will only further align our interests, especially as it relates to our new strategic partnership.
There is also a contingent consideration of up to $450 million based on the financial performance of the manufacturing operations over the three years after closing. This brings the total purchase price to up to $3 billion. As I mentioned before, we arrived at this overall price, which implies a premium of approximately $300 million by adding $2 billion in target net working capital at closing with a corresponding purchase price adjustment mechanism, and approximately $250 million in property, plant and equipment at closing, including ZT Systems' three state-of-the-art facilities. This all followed an extensive due diligence process. In terms of financing, we have secured a $2.5 billion bridge facility from Bank of America, with permanent financing expected to be secured between now and closing. We expect the transaction to close near the end of the 2025 calendar year to allow for regulatory approvals and customary closing conditions.
We intend to put together a deliberate integration plan supported by a dedicated team to ensure the two organizations come together seamlessly. Now, please turn to slide 12, where I'll speak to the compelling financial benefits of the transaction. We see this transaction as transformative, greatly increasing our scale and our high value and market exposure. It will add approximately $5 billion-$6 billion at the current annual net revenue run rate and is expected to double Sanmina's net revenue in three years. It also significantly increases our cloud and AI revenue mix. Importantly, it is also expected to be accretive to non-GAAP EPS in the first year after close, with further non-GAAP EPS accretion expected as synergies are fully realized over time. The synergy opportunities are expected to be driven by both operational efficiencies due to scale and vertical integration opportunities.
To sum it up, this transaction is highly aligned with our goal of positioning Sanmina to drive profitable growth with greater scale and attractive end markets, which in turn will enhance our ability to deliver value for our shareholders. Now, please turn to slide 13, where I'll speak to our commitment to a strong balance sheet. I want to briefly discuss what this transaction means to our balance sheet and emphasize that it is fully aligned with our capital allocation strategy, which will continue to be focused on cash generation. We have built one of the strongest balance sheets in the industry with no net debt, strong liquidity, and a gross leverage ratio of approximately 0.5 times prior to this transaction.
I want to reiterate our commitment to maintaining the strength of our balance sheet and ensuring we have ample liquidity to invest in the business and execute on our strategy. This transaction is an investment in working capital, primarily good inventory, PP&E, and capabilities that we believe will generate solid returns over time. We expect working capital to build in 2026 and 2027 to support investment in the growth of the business. We also see an opportunity to improve inventory turns. We are committed to preserving our existing credit ratings, and I want to reiterate our goal of achieving an investment-grade credit profile. Post-close, we will target a net leverage ratio of 1.0 times-2.0 times over time. With that, let me turn the call back over to Jure.
Thank you, Jon. Let me summarize some of the key takeaways that we've been talking about. First, please turn to slide 14. This acquisition accelerates Sanmina's position in the cloud and AI infrastructure and market, which is very critical for our future growth. These ZT Systems bring decades of experience. This is not a startup. This is a company that already earned trust with their customers to the world, most advanced, leading hyperscalers. I think addition to with AMD really enforces the strength of this group. This complements Sanmina's well-established vertical integration strategy. Our model is really to basically supply a lot more to our customers today by providing an end-to-end solution across all the critical technologies. Also, this is a strategic and commercial partnership for NPI with AMD, which should accelerate quality and time-to-market deployment of AMD ROC and cluster-scale AI solutions.
We are excited about those capabilities. Sanmina's ability to partner closely with both hyperscalers and OEM customers across all the platforms and technologies is very critical to us. Sanmina and AMD will partner to ensure success of ongoing platform transition at ZT Systems as we are bringing new customers and replacing some of the old ones. We are committed to maintaining a strong balance sheet, as you heard from Jon, and ample liquidity. Again, this is going to be accretive to non-GAAP EPS in the first year after closing, which we believe with the synergies will be able to continue to improve our financial results. With that, again, thank you all for joining us today on such a short notice. We really appreciate it. Operator, now we're ready to open the lines for Q&A. Thank you again.
Thank you, Jure. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star button followed by the number one on your telephone keypad. You will hear a prompt that your hand has been raised. Should you wish to cancel your request, please press the star button followed by the number two. If you are using a speakerphone, please leave the handset before pressing any keys. One moment, please, for our first question.
Operator?
Our first question comes from Steven Fox from Fox Advisors. Please go ahead.
Hi.
Hi, Steve.
Good morning. Thanks for doing this call. I had two questions. I guess the first one, can you give us, my understanding is that ZT was a lot bigger in terms of revenues when the transaction was first announced between them and AMD. Can you give us sort of a sense for your comfort in the idea that there's $5 billion to $6 billion of ongoing revenue from the business before thinking about growth and how you get there and what the commercial relationship with AMD is going to look like within that $5 billion-$6 billion? I had a follow-up.
Yeah. First of all, Steven, if you look at what the good thing about what ZT has is they've got a lot of capabilities and a lot of capacity to grow this business. As you said, they were fitting over $10 billion. Their business, since AMD announced strategically, it's going to transition where they are bringing additional to some of the other technologies. They're bringing AMD technologies and some new customers that are coming in. We are really focused on today and the future. If you look at today, we're not running this place yet, but everything that we see today, what they see today, that's pretty solid to be in the range of $5 billion-$6 billion. We believe as the industry is growing and we take it over with AMD partnership, I believe that there's a lot more opportunity to grow this business.
That's what we said. It will potentially more than double Sanmina's revenue in the next three years. We'll see. That could even happen faster. At this time, that's kind of what we see. It's a very exciting asset for us. We believe that Sanmina, once we take it over, will be able to bring additional customers. Our partnership with AMD is for us to support their product through this operation. We also have a right to do business with other platforms and be able to support multiple platforms that are out there in the field right now. I hope that answers your question.
Yeah, that's helpful, Jure. Just as a follow-up, it seems to me like the vertical integration piece of the story with AMD could be pretty powerful for you guys given all that you can bring to the table. Can you sort of give us a sense for the timeline for sort of getting at that vertical integration piece and the margins? What's the lower-hanging fruit that you could sort of see early on with this business? What takes longer? Thanks.
I think vertical integration to us is a plus because, as I said in our prepared statement, we're going to offer one-stop shopping, end-to-end solution. ZT was focusing basically on integration of our system, bringing a lot of these things. We'll continue to utilize other suppliers around the world, but we have some critical technologies that we can bring to this solution. It'll be done customer by customer all the way working with AMD and other technologies around the world and utilize Sanmina liquidity. If you look at the slide eight of my presentation, that really illustrates how ZT Systems fits like a glove to future strategy of Sanmina. That's one of the reasons. We always said our strategy was to build something like this on our own.
When this opportunity came that AMD acquired ZT and that they were going to separate manufacturing, we had an interest in that immediately. We just want to make sure that we have a right partnership. Once we learned a lot about this ZT, we realized this is a state-of-the-art capabilities, and we should be able to take this to any customer out there that meets the requirements in a data center. I believe we can compete with anybody in the world. That is why it is exciting for me personally, and I would say Sanmina team.
Great. Thank you for all that. Appreciate it.
Thanks, Steven.
Thank you for the question, Steven. Now we're going to move on to Andrea Söderström from Sidoti. Please go ahead.
Hi. Thank you for taking my question. I'm just curious about the margin profile on this compared to your average margins.
Andrea, thank you for the call. Let me turn that over to my expert, Jon.
Yeah, thank you, Jure. And thank you, Andrea, for the question. This business has a very healthy margin, and we think it's got even more margin potential. Just like Jure was just talking about with Steve, we think we've got opportunities both in terms of vertical integration and just the operating efficiencies through scale. When we close the transaction, we'll provide more specifics. What I can let you know now is that the business does have a very healthy profile, and we expect to expand on that over time. More to come when we close the transaction, Andrea.
Okay. Thank you. In terms of.
And Andrea.
Yeah?
Andrea was going to add to that. I think the key to this business is also capabilities now that Sanmina plus ZT will bring to the hyperscalers and OEM that it's a very critical technology. It's not easy to build. Once you deliver the system to the customer, it has to be plug and play. In other words, it has to work immediately and requires a lot of support behind the scenes to get it done right. ZT has that in place. ZT plus Sanmina, we believe we can continue to build on that and really be the supplier out there that should generate very respectable, competitive margins globally.
Okay. Thank you for that additional color. I also was curious if you leverage ZT Systems' capabilities with your existing customers?
I mean, that's our goal. I mean, our goal is to work with all the customers out there. Hopefully, with adding Sanmina capabilities to ZT's capabilities, we should be able to continue to improve the value to our customers. Yeah, I'm very excited. We heard a lot of positive things from customers. We could not talk about ZT, but our customers were basically guiding us to go faster instead of slower. Today, I fully believe this is a game changer for Sanmina. I think when it comes to competing in this industry, it's a game changer for us being now the key player in the EMS industry to be able to serve as a hyperscalers.
Okay. Thank you. In terms of capacity, you said that these new facilities have extra capacity. Do you know what kind of utilization they run at?
Could you repeat the last part of the question?
Do you know what kind of utilization they have now at the facilities that you are getting in this acquisition?
The most important part in this factory is do you have enough power to be able to do the testing and so on and so on in this business? I can tell you that ZT was positioning, ZT was shipping a lot of revenue a couple of years ago. Okay? When AMD bought them, they're going to transition. We're introducing AMD products, and we're going to continue to do that. That's plenty of capacity. The efficiency is really done by adjusting, but it's the power that drives the capacity. They got a lot of power. I don't want more power than we're going to need for the next three, four years. Let's put it that way. We got a lot of opportunity to grow and add customers at ZT manufacturing.
Okay. Thank you. I'll get back into queue.
Thank you.
Thank you so much for the question, Andrea. If you have a question, please press the star button followed by the number one on your telephone keypad. Please press one followed by the number one on your telephone keypad. Since there are no further questions at this time, I'll be transferring the call over to Jure Sola for our closing remarks. Please go ahead.
Thank you, Operator. First of all, ladies and gentlemen, thank you for getting on this call on such short notice. I do appreciate it. If you have any questions that we did not answer, please give us a call. Personally, we are very excited about this opportunity and our partnership with AMD. How can we make a major impact in this industry? We do have capability. It is all about the growth right now. With that, thank you very much. Bye-bye.
Thank you.
This concludes today's call. Thank you for participating. You may now disconnect.