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Sanmina Corp (SANM -0.22%)
Q4Â 2020 Earnings Call
Nov 10, 2020, 5:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Ladies and gentlemen, thank you for standing by and welcome to the Sanmina Corporation's Fourth Quarter and Fiscal 2020 Year End Earnings Conference Call. [Operator Instructions]
I would now like to hand the conference over to Paige Melching. Thank you. Please go ahead, ma'am.
Paige Melching -- Senior Vice President, Marketing and Investor Communications
Thank you, Erika. Good afternoon, ladies and gentlemen, and welcome to Sanmina's fourth quarter and full-year fiscal 2020 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.
Jure Sola -- Chairman and Chief Executive Officer
Good afternoon.
Paige Melching -- Senior Vice President, Marketing and Investor Communications
And Kurt Adzema, Executive Vice President and Chief Financial Officer.
Kurt Adzema -- Chief Financial Officer
Good afternoon.
Paige Melching -- Senior Vice President, Marketing and Investor Communications
Before we discuss the results for the quarter, let me remind everyone that today's call is being webcasted and recorded and will be available on our website. You can follow along with our prepared remarks in the slides provided on our website.
Please turn to Slide 3 of the presentation 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 projections in these statements as a result of 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 to and expressly disclaims any such obligation to update or alter any of the forward-looking statements made in this earnings release, their earnings presentation, the conference call or the Investor Relations section of our website, whether as a result of new information, future events or otherwise, unless otherwise required by law.
You'll note in our press release and slides issued today that we have provided you with statements of operations for the quarter and fiscal year ended October 3, 2020 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, non-cash 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 would now like to turn the call over to Jure.
Jure Sola -- Chairman and Chief Executive Officer
Thanks, Paige. Good afternoon, ladies and gentlemen, and welcome again. Thank you all for being here with us today.
First of all, this is our 40th year. We just finished the full year right, Paige. So this was a challenging year, but also, I think we accomplished a lot. The most important, I am very proud of our leadership team and our employees for all that they have accomplished in fiscal year 2020. Despite all these challenges, we delivered the strong results for the fourth quarter.
For agenda I have, Kurt will review the details of our financial results with you. I will follow up with additional comments about Sanmina's results and the future goals. Then Kurt and I will open for question and answers. And now, I will turn this call over to Kurt.
Kurt Adzema -- Chief Financial Officer
Thanks, Jure.
Given the continued challenges and uncertainty associated with COVID-19 and the macroeconomic environment, we remained focused on the optimization and continuous improvement of our business, the leveraging of existing manufacturing capacity and cash generation. I'm very pleased to report the impact of these efforts were once again evident in our results.
Please turn to Slide 6. Q4 revenue of $1.875 billion was up 13.3% sequentially and exceeded our outlook of $1.73 billion to $1.83 billion we provided in July. Q4 non-GAAP gross margin improved from 8.1% to 8.3%. This was primarily the result of management's focus on driving efficiencies and higher revenue levels with a favorable product mix. Q4 non-GAAP operating expenses of $61.4 million were higher relative to Q3 primarily as the result of the extra week in the quarter. Q4 non-GAAP operating margins also improved from 4.6% to 5.1%. Q4 non-GAAP other expenses were approximately $5.6 million, approximately $1.1 million higher relative to Q3. This was primarily due to a gain of approximately $2.5 million related to deferred compensation assets as the result of the appreciation of the stock market and other financial assets in Q4 compared to a gain of $3.6 million in Q3. Just as a reminder, gains or losses related to deferred compensation have no net impact on the EPS as they are equally offset with corresponding increases or decreases in manufacturing and operating expenses. Finally, I'm pleased to report Q4 non-GAAP fully diluted EPS improved from $0.86 to $1.10 as a result of management's focus on driving efficiencies and higher revenue levels and this exceeded our prior outlook of $0.73 to $0.83 provided back in July.
Now, please turn to Slide 7. Here, you can see the details related to Q4 and the associated comparisons, as well as a comparison of FY '20 relative to FY '19. FY '20 revenues were $7 billion compared to $8.2 billion in FY '19, primarily due to the impact of COVID and the macroeconomic environment. Non-GAAP gross margin in FY '20 improved from 7.3% to 7.7% primarily driven by management's actions to drive efficiencies. Non-GAAP operating margin in fiscal 2020 improved from 4.1% to 4.2%. Finally, non-GAAP earnings per share was $3.05 in FY '20 compared to $3.40 in FY '19. Again, this is primarily the result of lower revenue levels due to COVID, partially offset by management's actions to drive efficiencies.
Now, if you please turn to Slide 8. IMS revenue grew approximately 14% and non-GAAP gross margins for IMS improved from 7% to 7.2%. Also, Components, Products and Services revenues grew approximately 9% and non-GAAP gross margin improved from 12% to 12.4%.
If you turn to Slide 9, you can see the quarterly progression of our financial results. Again, we delivered improved non-GAAP gross margins and operating margins, as well as improved EPS in the fourth quarter.
If we turn to Slide 10, this slide shows the annual progression of our financial results. Again, we delivered improved non-GAAP operating margins in FY '20, despite the challenges associated with COVID and the macroeconomic environment.
Please turn to Slide 11. Again, here you will see our balance sheet continues to remain strong. Cash and cash equivalents were approximately $400 million [Phonetic] at the end of Q4. During the quarter, we paid off approximate -- the remaining $650 million on our $700 million revolver. Just as a reminder, we drew down $650 million of our $700 million revolver back in March given the uncertainty around COVID-19. Again, we subsequently never needed to use any of that cash given our strong internal cash generation. The balance on our term loan at the end of Q4 was $348 million. This loan matures in November 2023.
Please turn to Slide 12. Here, you can see we continue to maintain a low debt to cash ratio of 0.7 times. Between the cash and availability under our revolver, we have approximately $1.2 billion of liquidity available to us.
If you turn to Slide 13, you'll see inventory was down approximately $23 million and inventory turns improved to 7.3 times during the quarter. Cash and cash cycle days were 53.6. Non-GAAP pre-tax return on invested capital again improved from 24.3% to 28.3.
Please turn to Slide 14. Again, our strong focus on cash generation continues to pay off. In Q4, we generated approximately $80 million of cash from operations and approximately $69 million of free cash flow. For the full fiscal year, we generated $301 million of cash from operations and approximately $236 million of free cash flow. Over the past five years, we continued to reinvest in the business, spending about 36% of our cash utilization on capital expenditures. In addition, over the past five years, we have used approximately 60% of our cash utilization on debt repayment and share repurchases. For FY '20 in particular, we spent 23% of our cash utilization on capital expenditures and 77% on debt repayment and share repurchases. We will continue to manage the use of cash closely for the betterment of the business and for our shareholders.
Now, please turn to Slide 15. Sanmina takes a very disciplined approach to capital expenditures and focus is on leveraging our existing manufacturing capacity. During Q4, we spent $10.5 million on net capital expenditures. For the full fiscal year, we spent approximately $64 million.
Please turn to Slide 16. During Q4, we repurchased approximately 3 million shares for approximately $78 million at an average price of $26.13. For the full fiscal year, we repurchased approximately 6.4 million shares for approximately $166 million at an average price of approximately $25.94. Again, we'll continue to take an opportunistic approach to share repurchases as we optimize our capital structure. At the end of Q4, we had approximately $135 million of authorization remaining under our current program.
Now if you please turn to Slide 17, we'll talk a little bit about the first quarter outlook. The impact of COVID-19 and the macroeconomic environment will continue to evolve. As a management team, we will remain focused on the optimization and continuous improvement of our business, the leveraging of existing manufacturing capacity and cash generation. As we think about the outlook, it should be noted that Q1 will again have 13 weeks versus 14 weeks in the prior quarter. Our outlook for Q1 will be in the range of $1.7 billion to $1.8 billion for revenues. Overall customer demand is expected to be relatively stable in all of our end markets after adjusting for the one less week. We expect non-GAAP gross margins to be in the range of 7.4% to 8%. Non-GAAP operating expenses to be approximately $59 million to $61 million. We expect non-GAAP operating margin to be in the range of 4% to 4.6%. We expect non-GAAP other expenses to be approximately $8 million. Our non-GAAP tax rate is expected to be around 19%. We expect non-GAAP fully diluted share count to be approximately 67.5 million shares. And when you take all this together, our outlook for non-GAAP diluted earnings per share for the quarter is in the range of $0.75 to $0.85. We expect capital expenditures to be around $15 million and depreciation and amortization to be around $29 million. I believe our team working closely with our customers is navigated well through the impact of COVID-19 and the macroeconomic environment to date, and we are positioning ourselves well with our customers in our key markets to benefit from the ultimate recovery.
And for now, I'll turn it back to Jure for additional comments.
Jure Sola -- Chairman and Chief Executive Officer
Thanks, Kurt. Ladies and gentlemen, let me tell you more about business environment for the fourth quarter, the outlook for the first quarter and fiscal year 2021 and also we will talk to you about what are we doing to maximize the shareholder value at Sanmina.
Managing around the global health crisis has been challenging. While we are adapting well to a new business environment as we are learning how to work with COVID-19, I can tell you that our manufacturing facilities in 21 countries on six continents are operating and supporting our customer requirements daily. Sanmina's Number 1 priority is the safety of our employees and doing the right thing for our customer. Again, I can report to you that we are doing well.
Some key highlights for the fourth quarter and fiscal year 2020. As as you heard from Kurt, Sanmina delivered strong financial results for the fourth quarter. By exiting fourth quarter at operating margin of 5.1%, it's a good goal for the future. And also, as we mentioned, we delivered non-GAAP EPS of $1.10. Fiscal year 2020 was a good year despite challenges with COVID-19. We are learning a lot. We are keeping it simple what I call internally back to basics. Primary focus for management is on the four key things that drives our success; number one, safety of our employees; number two, customer satisfaction; number three, operating margin improvements; and number four, continue to generate free cash flow. Sanmina has a strong foundation in place and it can operate in any economic environment.
Please turn to Slide 19. Let me now give you some more highlights of revenue for the fourth quarter and end markets. We had a good demand across majority of our end markets and good mix of business. Industrial, medical, defense, automotive and communications networks had a strong growth. Cloud solution was down, some push outs from couple of customers, but basically just timing. Overall, we delivered strong growth of 13.3% for the quarter and Top 10 customers represented 57.1% of our revenue. Book-to-bill for the fourth quarter was positive and book-to-bill for our fiscal year 2020 was also positive. And also in the quarter, we continued to diversify our revenue and expand the customer base in this environment. During COVID-19, we have earned better partnerships with our customers by delivering strong performance for them.
Please turn to Slide 20. Now, I'd like to talk to you about revenue outlook by market segments for the first quarter 2021. For the first quarter, today we can tell you is that we are seeing a good stable demand. For industrial, medical, defense and communication networks, we are well positioned in these markets. So for industrial, we expect to continue to do well, and we see stable demand. Similar thing for medical, stable demand. For defense, what we've seen today is very strong demand. Automotive continues to recover with forecasting stable demand. Again for communication networks, which includes networking products, IP routing, optical products, are also doing well and we are forecasting stable demand. For mobile and 5G networks, we are starting to see nice improvements. Again for cloud solution, which for us includes high-end computing and storage stable demand. Sanmina has continued to expand and grow stronger presence with its industry leaders in a mission-critical, high-complexity and heavy-regulated market. This is a market that we are well positioned and most important, we have a great customer base.
Let me make few more comments about the business environment for fiscal year '21. With COVID-19, global economy is very hard to predict at this time. But overall, our customer base is still positive about calendar year 2021 and we have a pipeline of existing and new opportunities that looks good for calendar year 2001 as we are continuing to expand our customer base in this environment. Based on our visibility in the forecast, we feel optimistic that fiscal year 2021 will be a good year for Sanmina and we expect to come out of this year a stronger company for the future. As I said earlier, management will be focused on quality of the growth and margin improvements, back to basics. A lot of work left, but we are also having fun doing it.
Please turn to Slide 21 now. We have been reviewing all Sanmina businesses and capabilities. The goal is to unlock the value of Sanmina and provide greater visibility of each business group. So please turn to Slide 22. On this slide, you see Sanmina current segments. On the left, you see Integrated Manufacturing Solution. Revenue in the fourth quarter was $1.54 billion with a gross margin of 7.2%. Components, Products and Services in the right side, revenue of $365 million and gross margin of 12.4%. We expect to grow all our businesses in this segment, but we are planning to put more focus to grow Components, Products and Services. And let me show you how we're going to do it.
So, please turn to Slide 23. To align with Sanmina's vision of maximizing shareholders' value, we are planning to organize Sanmina's business into three key focus groups. To deliver best value to our customers, drive growth and profitability for each group. Integrated Manufacturing Solutions group will have product system build, global services, optical modules and Viking Enterprise. For us, that's basically a product for data center. Under Component Technology, we have interconnect circuit board which is advanced circuit boards for us, advance backplanes and optical connector systems; precision machining systems, which also includes precision plastics. And then -- and a third group, SCI-Defense Product. SCI has been in the products since early '60s, mainly focusing on military. So, we'll focus on SCI's products, military and space technology for products and system build.
And now, please turn to Slide 24. What we are planning to do is to realign our management so that I'll have three Presidents running our operations and sales, one for each group. Two of these individuals are already inside of the Company and one of them will take our Integrated Manufacturing Solution and other one will take over SCI- Defense Products. For Component Technology, we are in the midst of bringing an individual in our near future for that job.
So what's the advantage to this new structure. Number one, focused leadership and to be able to compete better in each of these business groups. Number two, maximizing operating leverage in each business group. Number three, growth and margin expansion. Number four, more flexibility, speed to market, and better execution. Also, we believe this structure will be a lot more efficient and most cost effective. So, this management structure gives us a solid foundation and flexibility to drive long-term sustainable growth.
Please turn to Slide 25. So here are the management priorities. Sustainable and profitable revenue growth as we've been talking about already, but here, we're going to focus on our customers in a mission-critical, high-complexity end markets, continue to take care of the customers we have and as we're continuing to add customers in these markets, grow with the market leaders in these key markets and drive profitable growth for each business group. Sanmina today provides leading technology to our customers. We have lean and flexible global structure in place. The key advantage, how do we provide end-to-end services, technology, components and products. This competitive advantage will support attractive margin regardless of business environment. Continuing our ability to generate strong cash flow will give us flexibility to invest in right business and optimize our capital structure. And of course, our goal is to really maximize shareholders' value. To do that, we have to unlock the total value of Sanmina capabilities as we just been talking to you about. Also, I can tell you that there is a lot of leverage in Sanmina's business model.
Please turn to Slide 26. In summary, we remain positive on our long-term outlook for our key markets. As you've seen, our fourth quarter came for us strong, not going to go over this, but really good numbers. For fiscal year '20 as this was a challenging year, but we're still able to improve operating margin and we delivered a strong free cash flow of $236 million. So where do we go from here? As I said, we just finished 40 years of our existence. So, getting -- this is a new year for us. We believe the '21 year should be a good year based on what we've seen from our customers today, but we'll take one quarter at a time. As Kurt mentioned, our revenue outlook is solid $1.7 billion to $1.8 billion. Non-GAAP diluted EPS outlook of $0.75 to $0.85. We still have continued uncertainties around the pandemic as global conditions change daily. I have a lot of confidence in Sanmina's management and we will focus on fundamentals of our business and we will work very hard to maximize total shareholders' value. As I said earlier, I'm going to say it again, Sanmina is adapting to market changes well and goal is to come out of this as stronger company.
So, ladies and gentlemen, now I would like to again say thank you for all your time and support that you spend with us. Operator, we're now ready to open the lines for question and answers. Thank you again.
Questions and Answers:
Operator
[Operator Instructions] And your first question is from Ruplu Bhattacharya with Bank of America.
Ruplu Bhattacharya -- Bank of America -- Analyst
Hi. Thank you for taking my questions and congrats on the strong quarter and also on the strong guide.
Jure Sola -- Chairman and Chief Executive Officer
Thanks, Ruplu.
Ruplu Bhattacharya -- Bank of America -- Analyst
Yes. Jure, I wanted to see if you could delve a little bit deeper into the communications network segment. You had guided for revenues to be sequentially up, but obviously you had a quite a good quarter. So, maybe can you just talk about what you saw in the optical side as well as networking and wireless and how you're thinking about the December quarter in that segment?
Jure Sola -- Chairman and Chief Executive Officer
Yeah. As I mentioned, Ruplu, in my prepared statement, we have a diversified customer base in that segment. We are involved in all new systems and products. So, if I look at their optical side, that looks pretty good. And also, the part of the networking side IP routing that also looks good. And I mentioned also that our 5G networks is starting to improve. So overall, what we see today is stable. We'll see how mix goes during the quarter, but demand what we see today is pretty stable based on our forecast.
Ruplu Bhattacharya -- Bank of America -- Analyst
Okay, thanks for that. Maybe for my second question, I want to ask you on the defense business, the SCI business. You're trying to unlock value and you've created this new structure where you're going to have a separate President for that business. In the long term, what's your thought or what's your view on that business? Is this something you want to grow organically or is this something you would want to monetize maybe as a separate company or as a separate business? So, just your thoughts on how you see that business trending over time and your thoughts on the portfolio with respect to that business.
Jure Sola -- Chairman and Chief Executive Officer
Yeah, we -- if you just look at the Sanmina businesses today, especially now these -- as we go into these three focus groups and three strong managers to really grow this business for us, our goal is still be successful on this model and I think we're going to unlock a lot of value. Yes, we need economy to cooperate, but there's also a lot of work that we are working on today and we're positioning the Company. So, when things turn around and we see this global health crisis go away and we strictly focusing on building things, I think there's a lot of excitement here.
But back to SCI, SCI basically builds everything for military that's mainly defense. As much as I think 90% plus of their business is defense and space, mainly satellites. We have our own products there. We also get heavily involved as a partner of general contracts that are there. So we're well positioned. We have a name, military name in that industry. We can take any government contract on. And if you really look at that business, it's pretty profitable. I think we can be even more profitable in the future. Today, we're not getting the right valuation. I don't think our investors see everything, so we're trying to create more visibility in the future, most important better results and we'll see how things go.
We definitely will grow that business both organically and we're going to look at some strategic acquisitions that can help us grow it, but we are focused to SCI. SCI has a lot of upside. We got a beautiful campus down in Huntsville, and I am personally excited -- especially in the environment today, Ruplu, where things are different and we're putting already strong team there and with a few more players, I think, future will be bright for us.
Ruplu Bhattacharya -- Bank of America -- Analyst
Okay. Thanks for the details there on SCI, Jure. Maybe -- I also wanted to ask you on the industrial, medical, defense, automotive side, I mean, again, you had guided for sequential improvement, but I mean, that segment grew, I think, 19% sequentially. So you saw pretty strong growth. Was there anything that surprised you in that in that segment? I mean, I know there are lot of end markets there, but was any one end market the driver for that outsized growth or how -- did things play out as you had expected?
Jure Sola -- Chairman and Chief Executive Officer
Well, first of all, with COVID-19, every day is a different day both for our customers and for us. I think we adopted and we created enough flexibility that we're able to to help our customer fill the orders as they needed. We really -- our management really did a terrific job last quarter helping our customers do that. When it comes to defense and medical, we are well positioned in both of those markets in a really critical product including products for COVID in medical side and we're able to fill extra orders there just to meet the demand from our customers. So yeah, maybe we -- if you want to call it a surprise, I will say the demand came stronger than what we anticipated beginning of the quarter, but I can also say that our team executed really well and worked with our customers very close to deliver the numbers that we did.
Ruplu Bhattacharya -- Bank of America -- Analyst
Okay. Thanks for taking my questions. Congrats again on the strong quarter and congrats on the strong execution and I look forward to the next quarter. So, thanks and congrats.
Jure Sola -- Chairman and Chief Executive Officer
Yeah. Thanks, Ruplu.
Kurt Adzema -- Chief Financial Officer
Thank you.
Operator
Your next question is from Jim Suva with Citigroup.
Jim Suva -- Citigroup -- Analyst
Thank you very much and for the details. I have two questions and I'll ask them at the same time just so you can determine how you want to answer them or in which order. The first is, on the results, it looks like the cloud was down year-over-year and I think you expected it to be kind of stable. Kind of what's going on there with the deferments of orders or deferments of deliveries or change in architectural systems or anything we can think about? Because your cloud has been quite strong in the past and this time it looks like a little bit of slowdown and maybe it's COVID related. I'm not sure.
And then my second question is, Jure, with the CEO change, you made some comments of, hey, it's time to make some changes for the Company, but it looks like these results and outlooks are quite respectable and stellar. So, I'm wondering have you already implemented those changes or the changes still yet to come? How should we think about your desire for change yet the results and outlook very strong? Thank you.
Jure Sola -- Chairman and Chief Executive Officer
Jim, two good questions. So first, let me answer the one around cloud computing which for us includes enterprise computing. As I said on my prepared statement, Jim, I think we're down about 8%, 7.9% or something, approximately $20 million from last quarter. We had some push out with a couple of customers, which in this case was mainly about the timing and to be able to deliver certain products in certain countries. So, there were some delay there, eventually that product will ship, but there's some delay. I will say for us on the whole enterprise, if I looked at the last year, there were some bigger opportunities that got delayed. I don't know if they got delayed because of COVID, but I would say it's probably 50-50. Some of it COVID and some of it was just market dynamics that changed for a couple of our customers.
But going forward, we believe that that business for us will do well. We continue to invest in our enterprise storage products ourselves internally and we got some good opportunities that we're working on and we'll see how those things shape up. Also, forgot to mention, going forward, we're going to report communication networks and cloud solution which is basically computing business, we're going to combine together because it's very hard for us to figure out what is -- let's say, optical network system sometimes it goes in a big data center and what is the storage product. So, based on our internal input, we felt it's best way to call it communication and cloud networks. So hopefully, it will be easier for me to explain to you in the future. But yeah, we're still committed and we think -- if you look at that business for us is, it's a couple billion dollar business a year and I think we should be able to grow it.
Again, back to the CEO changes and better. So yeah, we're doing good today. I think that we're tuning things up, Jim. We're not -- the changes that I'm making is really getting the -- putting the better focus on these businesses, bring in one more outside player to help us. So we have three individuals. Two of these three are already here, they have been involved. We just kind of given them more freedom, more flexibility and -- my background -- I'm around customers and I'm getting back involved in our customers. I would just say we want to do things better. This Company has a lot of upside, a lot of leverage and let's see what we can do in next few years, but personally, we are very excited of what's in front of us. I just hope this COVID goes away, so that we can go and travel and see our customers. But no matter what, we have to focus what's in front of us today which is improving the Company, to improve in these segments that we have competitive advantage and I can tell you that our relationship today with our customers, especially in COVID in last two quarters, what we're able to accomplish for our customers that our relationships are best ever because we were able to do in these circumstances that I didn't think we came and do it ourselves. So we're doing well. Thanks for asking.
Jim Suva -- Citigroup -- Analyst
Thank you so much for the details.
Operator
[Operator Instructions] Your next question is from Christian Schwab with Craig-Hallum.
Christian Schwab -- Craig-Hallum -- Analyst
Hey, Jure. Congrats on another good quarter.
Jure Sola -- Chairman and Chief Executive Officer
Thanks, Christian.
Christian Schwab -- Craig-Hallum -- Analyst
As we -- you talked about earlier a strong pipeline of new opportunities. Can you give us some color about where you guys are seeing new opportunities? Is that expansion with existing customers or is that new customers that are helping you?
Jure Sola -- Chairman and Chief Executive Officer
With medical, I will say both. We got some really good customers that we opened up in last three years, four years, medical sometimes takes a little bit longer time. I see some -- with existing programs some solid demand. We also have a few customers that have a weak demand and what happened with COVID. But again, we have a few customers that are involved in a COVID lab test equipment etc., that continues to be very strong and then we're adding few more. Defense business for us has been strong, especially in our circuit board business, high technology printed circuit boards and of course SCI products and services. That continues strong. We've got some really good programs that we won in last six months and we expect that to give us some stability during the year.
Christian Schwab -- Craig-Hallum -- Analyst
Great. And then, the strength that you guys called out in the 5G networks, is that predominantly from your historically large customers there or is that expanding out? Just can you give us any color about the type of applications and products and the number of customers that you're dealing with in that area?
Jure Sola -- Chairman and Chief Executive Officer
Well, we have a -- just building out 5G networks here. We have multiple customers that are involved and -- but when it comes to few 5G radios and products of that, that's our existing customers. We're working on some newer customers on that. But overall, we expect that business to business to continue to grow.
Christian Schwab -- Craig-Hallum -- Analyst
Okay, great. And then my last question, again, it's two quarters in a row of extremely strong gross margins in a kind of a lack of visibility and challenging environment. I'm sure lots of changes intra-quarter with your customer base. Can you just remind us exactly how you've been able to do that and why that wouldn't be more sustainable in a better visibility environment?
Jure Sola -- Chairman and Chief Executive Officer
First of all, it's going to continue to be challenging because -- as I mentioned in my prepared statement, there's still a lot of uncertainties and it comes around the COVID things are changing. Again, I give a lot of credit to our people on the floor able to really put the systems in place where we -- these things have to be monitored because the most important in this scenario with this virus around, it's making sure that our people are safe and working and we're able to accomplish that so far. So, we expect that to continue.
And then of course, it all depends on our customers' demand and so far in certain products, demand has been stable. We expect it to be stable at least one quarter at a time and we'll let you know 90 days from now. But -- and there is a lot of work and I'll turn that over to Kurt. He can give you more from financial side. There was a lot of hard work that goes in. Kurt?
Kurt Adzema -- Chief Financial Officer
Yeah. Thanks, Jure. Yeah, as I said in the prepared remarks, we spent a lot of time and we're spending a lot of time optimizing and continuously improving our manufacturing operations. Again, I think our ops team has done a great job in a challenging environment doing that. I think also, we've made a lot of investment in the business over the last couple of years and so we're spending a lot of time trying to leverage just the existing manufacturing infrastructure. I think we've done a good job -- capex being a relatively low level, but only doing those things where we're going to get the ROIC. So, I think we're doing a good job there. And then finally, I think this last quarter, obviously, we had some benefit from the higher revenue, favorable mix and candidly some leverage as a result of the 14 weeks. So, I think all those things added together have helped us, but we're taking one quarter at a time and we'll continue to focus on this margin improvement.
Christian Schwab -- Craig-Hallum -- Analyst
Great. Thank you. No other questions.
Jure Sola -- Chairman and Chief Executive Officer
Okay. Thanks, Christian. Yeah, just to add few more things. As Kurt said, I think, there's a lot of work and we'll continue to work on what we said within our margin improvements and the growth, but before I let you go, I just want to let you know that, hey, we'll continue what works for us, as I said, continued focus on safety of our people, taking care of our customers. I think we have a lot of opportunities. We will continue to develop and expand into a more profitable business. That's the focus. So, whatever we do in next, let's say this year or next six -- say, next six months to nine months, is really all about how do we improve the mix of our business so that we can continue to deliver sustainable and predictable results. So, you have a commitment that, hey, we're going to work hard and have some fun. So with that, I want to thank you very much and if you have any more question, please give us a call. Thank you very much.
Kurt Adzema -- Chief Financial Officer
Thank you.
Jure Sola -- Chairman and Chief Executive Officer
Bye-bye.
Operator
[Operator Closing Remarks]
Duration: 44 minutes
Call participants:
Paige Melching -- Senior Vice President, Marketing and Investor Communications
Jure Sola -- Chairman and Chief Executive Officer
Kurt Adzema -- Chief Financial Officer
Ruplu Bhattacharya -- Bank of America -- Analyst
Jim Suva -- Citigroup -- Analyst
Christian Schwab -- Craig-Hallum -- Analyst
