Adam Berry:

Good morning, and thank you for joining Jabil's third quarter fiscal 2024 earnings call. Joining me on today's call are Chief Financial Officer, Greg Hebard, and Chief Executive Officer, Mike Dastoor. Over the next few minutes, we will review the following. Review our Q3 results, provide an update on current demand, and preview our seventh annual virtual investor briefing. Before we begin, please note that today's call is being webcast live. And during our prepared remarks, we will be referencing slides. To follow along with the slides, please visit jabil.com within the Investor Relations portion of the website. At the conclusion of today's call, the entirety of today's presentation will be posted for audio playback. I'd now ask that you view the slides on the website and follow along with our presentation, beginning with the forward-looking statement. During this conference call, we will be making forward-looking statements, including among other things, those regarding the anticipated outlook for our business. These statements are based on current expectations, forecasts and assumptions involving risks and uncertainties that could cause actual outcomes and results to differ materially. An extensive list of these risks and uncertainties are identified in our annual report on Form 10-K for the fiscal year ended August 31st, 2023 and other filings with the SEC. Jabil disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. With that, I'll now hand the call over to Greg.

Mike Dastoor:

Thanks, Greg. Good morning, and thank you for joining our call today. Before I jump to my prepared remarks, a couple of comments. I am truly humbled by the trust placed in me by Mark and the Jabil Board. For the past 24 years, Jabil has been my professional home and witnessing the company's journey from $3 billion in 2000 to $28 billion is a true testament to the care we offer our customers. As CEO, I'm excited and carry a tremendous amount of gratitude to steward an amazing team. As Greg highlighted, the team has executed well in FY '24 amid a dynamic environment. Considering this, we divested our mobility business, a key strategic decision, we're capturing growth in the AI data center space and we're working towards our commitment to repurchase $2.5 billion of our shares, all while dealing with end-market softness in renewables, EVs and semi-cap equipment, which we expect to be short-term in nature. Yet when you take a step-back and put it all together, the company remains resilient and on track and we expect to deliver on key metrics, including 5.6% core margins and strong free cash flow in excess of $1 billion on $28.5 billion of revenue. More importantly, we remain well-positioned to benefit from many of the world's powerful trends in areas like AI data center infrastructure, healthcare, pharma solutions and automated warehousing to name a few. At the end of the day, the world needs complex manufacturing to enable innovation in nearly everything we do in our everyday lives. Jabil is at the forefront of providing solutions around a rapidly evolving technology landscape, with complex supply chains in an ever-changing geopolitical environment. As a management team, it's incumbent upon us to ensure we're focused on the right end markets, with the most innovative customers thereby delivering incredible solutions. And I think it's safe to say we're right in the middle of that ecosystem today. Moving ahead, we'll continue to reshape our diversified portfolio and remain focused on growing new and existing value-added businesses, driving margins and generating free cash flow. Let me share where I've been spending my time over the last six to eight weeks. I've been focused on our customers, our investors, our suppliers and our people. Some of the key takeaways are as follows. From a structure standpoint, I've chosen an organizational approach that has served us well over the last decade with an intense focus on speed, precision and solutions. This focused approach, I believe, targets our ability to serve each distinct market effectively by creating domain expertise in our core areas and better positions Jabil for growth. From a capital allocation standpoint, we will remain committed to returning value to our shareholders by prioritizing organic investments in our business and aggressively pursuing share buybacks at attractive valuation levels. This balanced approach ensures that we can reward our shareholders while simultaneously investing in next-generation capabilities. All the while, we will take care of our customers and suppliers while treating our people here at Jabil with respect. Turning to the business side of things. As you recall, on May 20th, we choose to rescind our FY '25 guidance. And it's worth noting there was no singular issue that led to that tough decision, but rather three key factors. For starters, many of the end markets we serve remains soft and the timing of recovery in these end markets remains unclear, particularly in EVs and semi-cap equipment. We also expect to accelerate reshaping our portfolio away from end markets and geographies with less attractive risk and financial outcomes. As a result, our revenue in FY '25 may be negatively impacted by approximately $800 million. However, this will set us up to be a much stronger company in the years to come. And lastly, in FY '25, we now expect interest expense and the tax rate to be higher due to a push-out of interest rate cut expectations and the global minimum tax that Greg noted earlier. Over the next couple of months, the management team will be spending a lot of time reviewing our plans for FY '25 and beyond, and in September, I fully anticipate providing a full year outlook per usual with our normal color and commentary surrounding our strategy, the end markets we serve and our anticipated capital allocation methodology for the year. From an end-market standpoint, you will hear how we've aligned technology-driven capabilities in our intelligent infrastructure business to help not only hyperscalers, but also silicon providers accelerate their own technology. Our manufacturing model leverages our automation capabilities to navigate the rapid growth in AI demand, how we're prioritizing growth in certain end-markets like healthcare and energy infrastructure, how we're helping retailers automate solutions in both the retail environment as well as warehousing to robotics, we'll also offer color on the businesses we anticipate deemphasizing in the future and of course, we'll do our best to provide our expectations around our roadmap for the timing of recovery in key areas like renewables, semi-cap, electric vehicles, connected devices and 5G. And when you put this all together, we'll describe how the seasonality has changed and how the capital intensity of our business has improved and the subsequent free cash flows we will generate, given our new mix of business. I am confident that the roadmap we develop will propel Jabil towards an even brighter future. I can assure you that all of these actions will remain squarely focused on driving margins higher in the long-run and generating robust, sustainable cash flow, all while taking care of our customers, suppliers and people. Jabil's success is not the result of individual efforts, but rather a collective achievement of our entire team. Looking ahead, I'm excited about the long-term trajectory of the company. We have a strong track record of talented and dedicated leadership team and a clear vision for the future. Together, we will continue to drive innovation, deliver value to our shareholders and execute for our customers. Before handing the call over to Adam, I would like to take a moment to say thank you to the entire Jabil team for your commitment and dedication to our customers, communities and to each other. Thank you for your time and for your interest in Jabil. I'll now hand the call over to Adam.

Operator:

[Operator Instructions] Today's first question is coming from Ruplu Bhattacharya. Please go ahead.

Mike Dastoor:

Thanks, Ruplu. I think you're aware I’ve been the CFO for six years and during this time, my focus areas have always been and always will continue to be margins and free cash flow and utilization of that free cash flow for buyback purposes. We still do think we're undervalued. So that's a key area of capital allocation that will continue well with the focus on margins, continuous focus on free cash flow. We're in all the right sort of end markets as well. So from an opportunity standpoint, are there end markets that we're not in? Yes, we'll be looking into that. That's one of the reasons we're structured the way we are in the new organization. But right now, yes, there's some softness in some of our end markets. But over the long term, these end markets are ripe for recovery. And I'm not suggesting that happens in the next one or two quarters. I think we have seen some of that shifting -- the recovery shifting to the right. So overall, from an opportunity perspective, I think the key is when does this whole AI proliferation in almost everything we do. So we're a hardware company. AI is going to require hardware refreshes across the board and we're playing in almost all the right end markets. So I do expect that entire AI proliferation to be a tailwind for us. So that happens in the next one or two quarters, perhaps not right now, it's more data center focused. But over the long-run, I do expect that to proliferate across the entire range of end markets we serve. From a risk standpoint, Ruplu, I think it's the timing of the recovery. I think there's various anecdotes outside externally, internally. Some would suggest things are recovering a little bit slower than we anticipated. Some suggest that it might be okay. So we'll take this time over the next three or four months to figure out our plan. That was one of the reasons we rescinded our FY '25 guidance and we'll provide much more color on our analyst briefing in -- at the end of September.

Ruplu Bhattacharya:

Okay. Got it. Mike, you talked about AI. I mean when I look at things, AI is getting to be a very competitive space. And so how do you see Jabil's investments in AI trending over the next few years? And do you think margins on the AI side trend lower or higher than the rest of the business, given the increased competition?

Ruplu Bhattacharya:

Okay. Maybe I'll try and sneak one more in. You talked about some weakening of the auto and the healthcare space. And also on semi-cap, I think you've said that it's weaker than expected. When do you expect a recovery in these? And if revenues continue to be weak, what are some of the levers you have to continue to drive margins and free cash flow? I think you've said margins are a focus. So what are some of the levers you have on the margin and free cash flow side, given if revenues are weak? Thanks for taking my questions.

Ruplu Bhattacharya:

Okay. Thanks for all the details. Congrats again on the new assignments.

Operator:

Thank you. The next question is coming from Steven Fox of Fox Advisors. Please go ahead.

Mike Dastoor:

Yeah. So, thanks, Steve. First of all, I do think there is an amount of seasonality that we see in almost every single Q4. So you'll see margins go up because of that for sure. And I think Adam highlighted even FY '25, when we think about that, we expect the second half -- going forward, second halves to be much more than the first half of the year because of our mobility divestiture. There is some level still of fixed cost recoveries. And when you have fixed cost recoveries, but no revenue flowing through, there is definitely a bit of a margin impact. I do think -- I don't think 6% is what we're going to be seeing. It's not sustainable in Q1. If you look at historical seasonality, Q1, things go down. Q2 is consistent with Q1 and then we see another sort of Q3 and Q4 uptick in margins. So 6%, I would say, has a little bit of one-offs in it and is not sustainable for the first half of the year, but Q3, Q4 of next year, you'll see similar sort of seasonality from a margin perspective.

Mike Dastoor:

Sure. So, Steve, I've always been focused on margins and free cash flow. I think you've seen that over the last six years. We continue to prioritize margins and cash flow. If we see some level of accounts where the one or two of these metrics don't shape up too well, we're looking at it from a reshaping our portfolio, sort of away from some of those end markets and geographies as well with less sort of attractive risk and financial outcomes. So it spread out a little bit. I would look at legacy networking as one of the areas where you see this, the legacy networking going down, you will see the AI piece replacing some of that. So you'll see an increase in AI, but you will see a little bit of a decrease on the legacy networking piece as well. Again, this positions us really well. So I'm not saying margins will jump up in '25 because of this. But over the long-term in FY '26 and beyond, the margin structure will improve along with better cash flows. I think Greg talked about free cash flows coming in really strong in Q3. We continue to be focused on free cash flows going forward because that's where we think the valuation lies is in the free cash flow.

Operator:

Thank you. The next question is coming from George Wang of Barclays. Please go ahead.

Mike Dastoor:

I think it's probably neither of those. It was a little bit of conservative forecasting from our perspective. If you see connected devices over the last maybe a couple of years, post-COVID, it's been a little bit down and we've always sort of tried to make sure that our forecasts are accurate. In this particular instance, the numbers came in, I don't think we're seeing a big jump-up in the end-market, but I think the whole impact in Q3 was mainly because of the conservative forecasting that we sort of anticipate.

Mike Dastoor:

Let me hit the power and cooling question first. One of the things we are seeing in the data center space, the legacy data centers are going through a retrofit. And at retrofit, we were looking at capabilities there where we can offer services to data centers from a cooling distribution unit perspective. If you look at new deployments, the legacy ones are more liquid to air. The newer deployments are liquid to liquid cooling. Well, we have internal capabilities around that. And we'll be continuing to look at small capability-driven transactions in that space as well. The key here is to expand our service around server rack integration and into the whole data center building infrastructure as well. And we -- I think that will be a big differentiator around.

Mike Dastoor:

Thanks, George.

Matt Sheerin:

Yes, thanks. Good morning, everyone. I wanted to drill down a little bit more on your commentary on networking, the strength, but also the customer base. You indicated that you may -- to walk away from some of the legacy business, I'm guessing you're talking about the traditional OEM market. But I know that you've got a growing data center and hyperscale customer base, particularly on the server side. But are you also working with those customers on network products like switches? And could you tell us exactly what you're doing for those partners on the networking side?

Matt Sheerin:

Okay. And then on the networking side, we're seeing some of your peers have an ODM model where they're actually doing custom work for customers and others are building to customers design. Are you going through both routes or mostly on the more traditional EMS side?

Matt Sheerin:

Okay, great. Thank you. And just turning to the balance sheet and your forecast for that higher interest -- net interest expense next year or basically flattish. Could you just talk through the capital allocation? I know you've done aggressive buybacks, significant. But why not take-down some of the short-term borrowings or some of your debt to reduce that? And also, if you look at your inventory, inventory days, they've come down a lot, but they're still well above where they were post-pandemic. So is there work to be done in terms of inventory or the working capital to bring that net interest expense down?

Mike Dastoor:

And, Matt, if I can just add, provide some more color on the interest. If you go back to FY '23, so not this year, but previous years, our interest was in the range of $150 million. I think if you look over time, it was in that range. I'm not suggesting we go back to $150 million. Today, it's at $275 million. But as interest rates start coming down and we have a full year impact of that more towards the end of our calendar year '25, you'll see interest start going down quite a bit as well, because $275 million is not going to be the norm. It's going to continue to go downwards. It won't go back to $150 million, but a two -- low-200s is highly possible and all of that just drops directly to the EPS line.

Mike Dastoor:

All of that comes from deselecting, not deselecting, but renegotiating with customers. It's coming down. I think the number I provided was $800 million. That is a part of our strategy. Like I've mentioned before, margins and free cash flow continue to be front and center of everything we do. And we're just -- it's reshaping our portfolio sort of away from end markets and geographies with less attractive risk and financial outcomes. So it's all that. And then I think I mentioned legacy networking being one of the big ones there. So it's all -- it's all driven by literally reshaping the numbers. I think if you look at all the other end markets, they are more than soft, I'd say the recovery -- the timing of that recovery has been pushed out, is continuing to be pushed out a little bit. So the other end markets will be down, but there's no reshaping going on around that and that $800 million that I referenced was probably a reshaping number. There will be some level of revenue impact as the timing of recovery gets shifted to the right as well.

Mike Dastoor:

Absolutely. I'm not -- again, I'm not suggesting FY '25 will see a big accretion because of that. I talked about us being capacitized for $32 billion, $33 billion of revenue. Our revenues are going to be considerably short of that. So we will have a little bit of overcapacity, but we need that capacity when things start to recover. And I think it will be very short-sighted of us to go and address that incremental capacity that we have today. So yes, there will be margin accretion in these businesses overall from a company standpoint, just keep in mind that there is a little bit of an overcapacity situation right now as well. But think of that as an opportunity. When things start coming back, it will have a big margin impact. And does that happen towards the end of '25? Does that happen in FY '26? We just don't know right now. And that's why we've asked for a little bit more time and that's why we withdrew our FY '25 guidance. We will provide more color in -- at the end of September to the best of our abilities.

Operator:

Thank you. The next question is coming from Mark Delaney of Goldman Sachs. Please go ahead.

Mike Dastoor:

It's south of enterprise margin. It's not just the margin. We look at the free cash flow profile as well that both of those metrics are critical for our success. I think the -- one of the things we're looking at is risk as well. So obviously, the financial metrics have to tie out, the risk has to tie out as well, risk in different parts of the world, risk in the end markets that are seeing a downward trend all being replaced by a new perspective. So it's all of that work and the margin will be south as I was mentioning on the previous question from Matt. Don't expect margins to jump-up in '25 because of this. There is a little bit of an overcapacity situation. So the margin does get impacted and it's over time. I do expect maybe towards the end of FY '25 or even in FY '26 to see a pickup in margin because of this. So it's a mid to long-term payback or a return.

Mike Dastoor:

So, I think when I talked about EVs, I think the point I was trying to break -- make was that we're almost agnostic to whether it's EVs that succeed or hybrids that succeed. And I think if you look at some of the three or four areas that we participate in, I think it's software-defined vehicles, that applies across combustion, hybrids and EVs. If you look at the battery management systems and everything to do with the battery, it equally applies to EVs and hybrids. If you look at some of the connectivity piece, again, it applies to all three categories of automotive. And then if you look at automated driving with optics, with cameras, with a whole bunch of ADAS technologies, again, agnostic to which technology wins out. We still think EVs is ripe for a comeback. I think it's seeing some temporary sort of impact due to price, due to battery range. Just couple of those issues being resolved and EVs will be back again. But the point I was trying to make is, look, we're going to have an EV or a hybrid. When EVs go down and hybrids go up, there'll always be a little bit of a timing difference as we win programs in the hybrid space for them to come online. But the long-term trajectory for our EV business is actually quite agnostic in terms of which technology wins out.

Operator:

Thank you. The next question is coming from Samik Chatterjee of JPMorgan. Please go ahead.

Mike Dastoor:

So in the other end markets, I think Greg talked about the three that are impacting us today from an AI perspective. All the other end markets, something it's a little too early for us to start sort of assuming AI pieces in there. I think AI is definitely coming. AI is definitely going to impact all of those end markets. Hardware refresh cycles will take place in a number of our end markets, but our assumptions wouldn't bake that in right now. As we see it coming forward, we will start putting some of that in. But the answer -- direct answer to your question is, there's very little, there's almost no AI in any of the other end markets at this stage.

Greg Hebard:

Yeah, Samik, it's really a mix that we're seeing recently. So we -- again, some seasonality to that, but all that is related to mix.

Unidentified Analyst:

Thank you. There's no questions.

Operator:

The next question is coming from David Vogt of UBS. Please go ahead.

Mike Dastoor:

At this stage, not really. I think there's been a mass scale deployment of 5G already in India. I think there's definitely -- I think there's a hope that they monetize that and move forward after they've seen some returns. So they're almost -- I think there's 75%, 80% sort of rolled out. I don't think we have some big assumptions of a post-election recovery in India at this stage.

Mike Dastoor:

So, when we say softness, just note that it's just one of the four or five things that we do in the entire healthcare space. I think if you look at the GLP-1 drugs, they're off the charts. They just keep going higher and higher and higher. There's no -- and we're really well-positioned to play in that space. There is a counter sort of impact, obviously, that impacts surgeries, medical devices. But there's a whole bunch of other things that we do as well from a diagnostic standpoint, from an orthopedic standpoint, from a pharma solutions standpoint, from other medical devices. So it's a smaller impact. I wouldn't -- Greg called it out, I think it was an issue specifically for our FY '24. We're seeing some short-term headwinds there because of that. But don't forget the GLP-1 piece will continue to grow. I think the only sort of constraint is capacity, putting that capacity in place, which takes a little bit of time due to the heavy automation that's involved on the GLP-1 piece.

Operator:

Thank you. At this time, I would like to turn the floor back over to management for any additional or closing comments.

Operator:

Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.

Adam Berry:

Good morning, and thank you for joining Jabil's second quarter fiscal 2024 earnings call. Joining me on today's call are Chief Financial Officer, Mike Dastoor; and Chief Executive Officer, Kenny Wilson. Over the next few minutes, Mike and I will review our Q2 results, update current demand trends and provide new guidance for fiscal '24. We will then turn the call over to Kenny, who will provide several of the building blocks that give us confidence in our strong outlook for fiscal '25. Before we begin, please note that today's call is being webcast live, and during our prepared remarks, we will be referencing slides. To follow along with the slides, please visit jabil.com within the Investor Relations portion of the website. At the conclusion of the call, the entirety of today's presentation will be posted for audio playback. I'd now ask that you view the slides on the website and follow along with our presentation, beginning with the forward-looking statement. During this conference call, we will be making forward-looking statements, including, among other things, those regarding the anticipated outlook for our business. These statements are based on current expectations, forecasts and assumptions, involving risks and uncertainties that could cause actual outcomes and results to differ materially. An extensive list of these risks and uncertainties are identified in our annual report on Form 10-K for the fiscal year ended August 31, 2023, and our other filings with the SEC. Jabil disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. With that, I'd now like to shift our focus to our second quarter results, where the team delivered approximately $6.8 billion in revenue roughly in line with the guidance range we provided as a majority of the businesses performed extremely well against the updated guidance we provided back in December. Core operating income for the quarter came in at $338 million, or 5% of revenue. This was up 20 basis points as a percentage of revenue year-over-year due to a strong mix of business led by automotive and health care, while also supported by an ongoing mix shift within our networking and storage end markets. Net interest expense for the quarter came in higher than expected at $72 million, reflecting higher levels of inventory during the quarter. It's also worth noting that we successfully closed on the sale of our mobility business to BYD Electronics during the quarter for approximately $2.2 billion. As a result, GAAP operating income was approximately $1.1 billion, and our GAAP diluted earnings per share was $7.31, reflecting the substantial gain associated with the sale at the end of December. Core diluted earnings per share for the quarter was $1.68, $0.05 above the midpoint of our guidance range provided in December. Now turning to our performance by segment in the quarter. Revenue for the DMS segment came in at $3.4 billion, down approximately 16% from the prior year, driven almost entirely by year-over-year comparisons for the mobility divestiture. On a like-for-like basis, our DMS segment performed very well, led by approximately 11% growth in our automotive and transportation businesses. Core operating margin for the segment came in at 5.6%, 100 basis points higher than the same quarter from a year ago, reflective of the ongoing mix shift within our DMS business. Revenue for our EMS segment came in at $3.3 billion, down roughly 18% year-over-year and roughly $100 million to $200 million below our expectations for the quarter. The majority of our year-on-year revenue decline within EMS was driven by our move to a consignment model within our cloud business and lower revenue in markets like 5G, renewable energy and digital print as expected. However, unexpectedly, and towards the end of the quarter, our 5G and renewables businesses were both negatively impacted by yet another decline in demand associated with those end markets. For the quarter, core margins for the EMS segment were 4.4%, down 70 basis points year-over-year. Next, I'd like to begin with an update on our cash flow and balance sheet metrics as of the end of Q2, beginning with inventory, which came in nine days higher sequentially to 87 days. Net of inventory deposits for our customers, inventory days were 62%, which was quarter-on-quarter increase of four days. Our second quarter cash flows from operations came in at $218 million, while net capital expenditures totaled $170 million, resulting in $48 million in adjusted free cash flow during the quarter. During the quarter, we repurchased 6.5 million shares for $825 million, leaving us with approximately $1.2 billion remaining on our current repurchase authorization as of February 29. With this, we ended the quarter with cash balances of $2.6 billion and total debt to core EBITDA levels of approximately 1.2 times. In closing, Q2 was largely a solid quarter. For starters, the divestiture of our mobility business and the allocation of those funds towards the share buybacks reflect the strategic intent of this management team to both reshape the business where appropriate, while also maintaining healthy returns to shareholders. At the same time, the business is performing pretty admirably despite considerable declines in two of the end markets we serve, as evidenced by our ability to deliver higher margins despite these headwinds. And finally, I'll leave you with a bit of optimism as we look ahead to fiscal '25 and beyond. As we think about the adjacencies across the end markets we serve, it's becoming clear that there's a common theme forming among a number of the end markets, specific to the surge of artificial intelligence, and the impact it will have on our customers' business well into the future. And with this surge, there's a proliferation of data being created by EV and autonomous vehicles that needs to be harnessed. In the health care industry, we're in the early innings of getting our arms around the benefits of AI in the operating room. And in our cloud business, we're seeing significantly increased demand for our services related to AI specific to hardware, manufacturing and design. And perhaps most exciting, this enthusiasm is beginning to turn into tangible results. For instance, our AI GPU volume in the first half of 2024 is 200 times that of the level of 2023. So there's a lot to be excited about as we look a little bit further down the road. In a few minutes, Kenny will share his thoughts on fiscal '25 and why he believes our original outlook of 10.65 remains attainable despite a transitional fiscal '24. But first, I'll hand the call over to Mike, who will provide more details on fiscal '24, including an update on our growth outlook by end market. With that, thank you. I'll now hand the call over to Mike.

Kenny Wilson:

Thank you, Mike, and thanks to everyone for joining us today. Fiscal '24 was always going to be a transitional year for Jabil, one of which we've successfully completed the largest transaction in the company's history with the mobility sale and its subsequent efforts by our teams to optimize our footprint and cost structure for the go-forward company. For this transaction and the optimization of our footprint were anticipated, the end market slowdown was not. As I have stated previously, the key attribute of our model is agility and our ability to quickly react and effectively absorb changes in revenue. At Jabil, we obsess about operations, working tirelessly to ensure that what is within our control, we control well. Managing our factories to absorb such a March slowdown does not happen by chance, so it's pleasing to see our margins hold up. Additionally, dislocations like this provide opportunity for some consolidation and is reassuring to make progress with customers who trust us to allocate more of their spend to Jabil. In tandem with our focus on operational execution, we have been intentional in how we've shaped our commercial portfolio. The closing of the mobility deal was not a one-off event, but part of a process where we look telling our capabilities current and future with markets exhibiting the desirable characteristics of long term secular growth at appropriate margins and cash flows. The result of this allows us to help simplify the lives of our current and future customers while making appropriate returns. For example, in our recent history, this has seen us transition from low tech electronics and automotive to EV and autonomous driving systems, including optical cameras. From PCBA manufacturing and health care to precision machining of customized implantable, from build-to-print servers to highly configurable AI data center racks, from simple network switches to liquid cooled accelerated switching supporting AI applications and from build-to-print in the telco space, starting a seat at the table, as we look to optimize our advanced packaging value chain for silicon photonics across multiple end markets. In short, we are continuously retailing the company to ensure we are ready to support the future needs of our customers. In addition to the mobility deal, another couple of proof points were evident in the quarter. We are proud to have been awarded a new video security and optics business with Motorola Solutions, including two highly competent manufacturing sites in North America. This supports a focus on supply chain regionalization where we see significant benefits from the ability to leverage our global footprint coupled with the advantage of being domiciled in the U.S. And in the AI data center infrastructure space, we are building low and medium voltage switchgear to support proliferation of AI data centers. We were awarded a liquid cooled accelerated network switching program, which will ramp in fiscal year '25. While already, we are seeing the benefits of the addition of the Intel Silicon Photonics team with multiple wins in the pluggable transceiver space. As I think about exiting this year as a more optimized company, coupled with the numerous opportunities across our commercial portfolio, I'm confident in our ability to expand margins year-on-year while also delivering core EPS of $10.65 and free cash flow in excess of $1 billion. Note that in modeling fiscal year '25, we anticipate total revenues similar to fiscal year '23 levels, excluding the mobility divestiture. Importantly, we expect mix to be much improved as our business continues to trend toward markets, benefiting from long-term secular trends. In closing, in the last 90 days, I have had the privilege of spending time with multiple customers and internal organizations, including executive team at Motorola Solutions, as we celebrated the new award. In addition to the Jabil team from Retronix, Procurability and Intel and with our teams in Asia as we celebrated Chinese New Year with a long held Jabil [indiscernible] tradition. While in Asia, it was also my honor to accept a Shingo prize awarded to our health care site in Shanghai, the largest med device side to receive this award in the last 15 years. As I reflect on all of this, I believe it further demonstrates that in addition to having the right capabilities and being in the right end markets, we also have the right team to buy their actions every day, strengthen our unique global culture. All of this puts us on firm footing for fiscal '25 and beyond. Thank you for your interest in Jabil. I will now hand the call back to Adam.

Operator:

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first questions come from the line of Steven Fox with Fox Advisors. Please proceed with your questions.

Kenny Wilson:

Hi, Steven. Thanks. Good morning. Yeah. Let me take that, the question on demand. I mentioned in Q1 when we've seen the broad-based demand reduction that we've got a process where we do we're pretty intimate with our customers in terms of their forecast, looking at inventory and inventory in channels. We called that right across all of our end markets with the exception of the 5G telco space and renewables. And there's a couple of specifics there. So Mike mentioned the India issue here, and I think what we see here is that although, we said, there was a substantial pullback. In effect, what happened was the rollout stopped with -- basically with no input from the Reliance in this instance. So when we look at that, there's no indication of that and basically, we've baked into our number now going forward. So we're comfortable that everything else in the telco space, we've seen and we understood. This was just a gotcha in India. We're not forecasting or expecting that to recover in this year. So we think we're pretty safe there. In the renewable space, again, we've been working with the customer through calendar Q4 into Q1. And what we decided to do there is that basically, the inventories in the channel, and it's not going to be sold through. So we've reduced the build plan, they’ve register what they're going to ship. And what we're seeing is that the inventory in channel now is now reducing. We haven't forecasted a covering that this year also. So we've been very, very conservative. Also, just as we look to '25, we've been very conservative, and we've modeled those run rates going forward into '25. So when you look at what we're talking about in '25, we don't expect these two end markets to recover. So we think we've been appropriately conservative.

Michael Dastoor:

Hey, Steve. Yeah. So obviously, the mix shift does have a huge impact. We've replaced a lot of our legacy networking and storage business with higher margin AI related business there, obviously, AI by itself in the cloud space, although, you don't see it in the revenue line item because of the consignment effect, the volumes are up considerably in that particular line item. So there's a big margin play coming through on the mix shift that you suggested. And on top of that, we've done a lot of cost optimization. If you go look back at our -- I think on the call maybe earlier in the fiscal year, we talked about a stranded cost and footprint optimization restructuring that we've taken then. The fruits of that are showing up in the second half of the year. Obviously, we had Q2 was a little bit of a transition quarter for the cost optimization effort. But that's coming through. And then if you look at some of the cost recoveries that we're getting from our customers, even though revenues are down, we are -- we have been successful in getting cost recoveries because of the sudden nature of the cut. So all of that plus Q3, Q4 had some ramps in there. Obviously, as the revenue is pushed out, we don't have to have those ramps. And then I'll just remind you, ramps are at a much lower margin in those initial quarters when we're moving up on that revenue line item. So that gets pushed out a little as well. So a combination of all that, Steve, gives us really good comfort. I think we said 5.3% to 5.5% margin. Previously, we've actually taken it up, not just to the high end. We've taken it beyond that, and we think it's going to be more in the 5.6% range, and we feel really good about that.

Steven Fox:

Great. That’s all very helpful. Thanks for that answer.

Operator:

Thank you. Our next questions come from the line of Ruplu Bhattacharya with Bank of America. Please proceed with your questions.

Michael Dastoor:

Hey, Ruplu. Just to be clear, I said AI 21 times in my reports, so I did count. On the AI piece, so if you look at my prepared remarks, Ruplu, I did talk about the AI revenue. I think we're going to grow by about 20%, 25%. We're about in the $4.5 billion, $5 billion range, we're going to be north of $6 billion in FY '25 and that's across multiple end markets. Obviously, as Kenny mentioned, we'll be playing in the cloud data infrastructure space. We play in areas such as network switching. There's a whole bunch of business that was switching from or replacing from our legacy network business to AI-related business. Sort of its spread out, particularly in those two line items when we call them out on our revenue chart. But overall, about $6 billion plus, we actually feel that will continue to grow in that 20%, 30% range over time as this proliferation of AI across different end markets just continues to expand. So it's starting off where you expect it to start in the cloud space. And then as you work around the cloud space, that will gain more momentum. And then as you go forward, and I'm talking here two years out, even that was spread into all our other end markets as well because all that we do is mainly hardware and all hardware will benefit from the AI proliferation.

Ruplu Bhattacharya:

Okay. Thanks for that. And just as a follow-up, I want to push you a little bit. I mean this is the second time in a row that you're cutting full year guidance. I mean last time revenues you cut by $2.5 billion. And this time, it looks like ex the $400 million for the mobility business, the takedown is about $2.1 billion. So my question is really the same as I had last time, which is, what gives you confidence in your guidance and how can investors get confidence that you won't come in even lower for fiscal '24, for example, if renewables is weak, why can't it get even weaker? And then Mike, just on the -- for next year, you talked about all these drivers for margin improvement. My question would be what can derail that? I mean what are some of the risks to Jabil attaining that margin and what should we look out for? Thank you so much for taking my questions.

Michael Dastoor:

And Ruplu, I'm going to answer your question in a slightly different way than you were at it. Obviously, you asked about the risk and what can go wrong and why the margin story holds good for us. So let me just try and answer it by talking about the $10.65 a little bit. Because all of that is factored into our $10.65 guide. Why do I feel so strongly about that particular $10.65 number. Before that, let me just give you some building blocks. So if you look at what our interest costs this year will be in the high 200s. We expect next year to be in the mid-$200 million. So if you take an interest number of about $250 million for the building block there, if you take WASO (ph), we will have done substantially the $2.5 billion will be completed by FY '24. In FY '25, we'll continue a more normalized run rate of buyback. So I expect WASO to be about $110 million to $113 million in FY '25. Now based on these two numbers, if you take the incremental income that's needed to make $10.65, the numbers are around $130 million to $140 million of incremental income. I talked about some of the end markets, how we're sort of benefiting from some other macro trends that are coming into play right now. I talked about AI, I talked about the different end markets within storage, in cloud, et cetera, where we're seeing this whole AI proliferation. And that alone, as I mentioned, is about $1 billion to $1.5 billion incremental revenue, net revenue, I should add as well, sort of net of any consignment effect that FY '25 presents. We've talked about -- I mentioned in my prepared remarks, automotive, what we're seeing for FY '25 and our assumption is not based on end market growth. Our assumption is based on new program wins. We're talking about wins that we already have under the belt. We've already booked those and it's just a matter of delivering those next year, obviously, but not expecting some big miracle layer for the end market to change substantially. If it does, it will actually be an opportunity for us. But right now, if you just assume a 10%, even in this bad environment in FY '24, we're close to 10%. So there's no reason to expect automotive to be substantially lower than 10%. And then if you take health care and maybe a 5% growth, again, it's a very modest growth. If you add up this AI automotive and health care alone, that's about $2 billion of revenue. You're talking about 5% to 6% margin, even more if you get leverage out of it. So at 6%, you're talking $120 million of that $130 million, $140 million incremental income that I mentioned is needed for the $10.65. It's already there in just these three end markets and the balance of all the end markets. And I'm talking about semi cap, which, by the way, is showing very strong signs of a recovery that's coming. It's not here, but a lot of customers have changed the way they talk about their own businesses, and that's changing quite a bit in the positive direction. So we do expect not this year, we're not talking about calendar year '24. But in calendar year '25, we do expect very high probity of sharpish sort of recovery there. Renewables totally agree, it's slowing. Digital print and retail, steady Eddie and then connected devices as the basin FY '24 is so low that even a small little increase there you certainly see the $130 million, $140 million of income that we're talking about is not difficult to get to. And then if you look at the margin play, obviously, there’s mix going on, this mix shift that we continue to talk about. And the cost optimization, you’ll also have a full year impact of our cost optimization efforts that we’ve undertaken in FY ‘24. So I hope I answered your question from a risk perspective. Look, the risk is very low. If you look at – if you break down the individual components of what we’re talking about for FY ‘25, the $10.65 sounds highly achievable.

Michael Dastoor:

Welcome, Ruplu.

Mark Delaney:

Yes. Good morning and thanks for taking my question. The company mentioned an expectation to have about $6 billion of AI-related revenue in fiscal '25. Better understand how you're defining AI-related revenue? And then maybe also help us understand out of that $6 billion, how much is coming from data center and then how much are some of these other end market opportunities where you see some AI opportunities like health care?

Michael Dastoor:

And Mark, if I could just add, if you look at our data center revenue and again, remind you that's net revenue. It's net of consignment effect. Our gross volumes are growing at a really good pace. It's in that 25%, 30% growth range obviously doesn't show up in the revenue. But it will show up in the margin because that is what we're adding value on. So I think the number by itself, just the revenue number, net revenue can be a little misleading. You've got to look through -- look at volumes. Volumes are going up 25%, 30% in that particular space.

Michael Dastoor:

No, it has to have some GPU attached. Most of our business now has shifted from the legacy server business to AI-related GPU, predominantly in our cloud business.

Mark Delaney:

Helpful. My other question was on margins. Mike, you mentioned fixed cost recoveries is one reason for the margin resiliency in fiscal '24. Maybe you can help us speak to how secure the recoveries are? Is that something that you still need to go out and negotiate? And then maybe talk a little bit around your ability to still achieve a 6% EBIT margin over the longer term. Thanks.

Mark Delaney:

Your ability to get to the 6% EBIT margin in the longer term, which is something I think you said could be achievable. I don't think you put a specific time frame on it, but to what extent do you think you're still tracking to eventually get a 6% or higher non-GAAP EBIT margin? Thanks.

Mark Delaney:

Thank you.

Melissa Fairbanks:

Hey, guys. Thanks very much. I was wondering, if we could dig into the expectation for health care. I know it's not quite as exciting as AI. But we've heard from some of your peers that capital equipment investment has been challenged recently I assume that's what's behind your lower full year outlook. But you actually found increasingly constructive about the overall business. Could you give us a little more color on what you're seeing there?

Melissa Fairbanks:

Okay. Great. That’s all from me. I’ll pass it along and give some else another question.

Operator:

Thank you. Our next questions come from the line of George Wang with Barclays. Please proceed with your question.

Michael Dastoor:

So yeah, the AI piece, obviously, the different line items that we look at I said earlier, it's in cloud, it's a networking in storage. The margin is north of enterprise level margin. It's different. The rank order would be roughly sort of photonics would be the highest margin, AI switching gear would be next switch and Rax's configuration integration, etc. So overall, if you look at all these dynamics, the total margin plays north of enterprise margins. So again, that's what's giving us comfort for our margin in FY '24. That's what's giving us comfort for margins in FY '25 as well.

Kenny Wilson:

Yeah. We got -- if you look at predominant [indiscernible] you look at the proliferation of other capabilities. So we are supplying other hyperscalers across the whole blend of the capabilities that we talk about there, George. And I think the other thing just to emphasize that what Mike mentioned, Look, we've been doing enterprise switches for multiple years. And as that becomes to some commoditized we've pivoted in that the capability that we have there to the advanced switching area that really drives the AI TPU type model. So I think that, coupled with what we’re doing in optics means that we’re comfortable that our margin profile is robust here. And I go back to the point I made with Steve about all the kind of DCI, the infrastructure stuff we’re doing as well, which historically we hadn’t done. So we think we got a real rich profit pool here for us in the longer term.

Kenny Wilson:

You got it, George. Thank you.

Unidentified Participant:

Hi. This is [indiscernible] on for Samik Chatterjee. Thanks for taking the question. I just wanted to ask you to expand on the incremental weakness that you are seeing on the 5G side. Like is it relative to some particular set of customers or some particular region? Any more color on that? Thank you.

Operator:

Thank you. We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Adam Berry for closing report.

Operator:

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

Adam Berry:

Good morning, and welcome to Jabil's first quarter of fiscal 2024 earnings call. Joining me today are Chief Executive Officer, Kenny Wilson; and Chief Financial Officer, Mike Dastoor. In terms of our agenda today, we plan to focus on the following

Mike Dastoor:

Thanks, Kenny; and good morning, everyone. Over the next few minutes, I plan to provide more information on the following. First, I'll walk you through our financial outlook for Q2 and FY ‘24, which remains largely consistent with our announcement on November 28, and then I'll provide an update on our accelerated buyback execution plans. With that, let's turn to the next slide for our second quarter guidance. We anticipate the Mobility transaction to close during Q2 of FY ‘24. The exact date of the close will drive where we land. For Q2, we expect total company revenue to be in the range of $7 billion to $7.6 billion. The midpoint of this range assumes the Mobility transaction closes January 31, which is consistent with our modeling assumptions in September. Core operating income for Q2 is estimated to be in the range of $339 million to $399 million. GAAP operating income is expected to be in the range of $216 million to $301 million. Core diluted earnings per share is estimated to be in the range of $1.73 to $2.13. GAAP diluted earnings per share is expected to be in the range of $0.77 to $1.37. Net interest expense in the second quarter is estimated to be $62 million. Before turning to our full-year guidance, it's worth noting that our Q2 guidance is materially influenced by the Mobility transaction close date. I thought it would be helpful if I provide you with the financial impact of an earlier close. For modeling purposes, a December close would reduce the midpoint of our Q2 revenue and core EPS outlook ranges by approximately $400 million and $0.30, respectively. For the year, it would also reduce our revenue outlook by $400 million, while the loss in core EPS would be expected to be offset through accelerated repurchases and lower interest expense, given the earlier receipt of net funds. Now, moving on to full-year guidance on the next slide. As we announced a few weeks ago, towards the end of our quarter, we noticed a widespread slowdown in customer demand. The majority of the slowdown we're seeing is being driven by excess inventory in our customers channel, which we view as short-term in nature. In our view, once the excess channel inventory clears up, we're optimistic that the secular trends across our business remain intact and gives us confidence in future growth. It is important to note that Jabil's net inventory days is in good shape and remains consistent with our target range of 55 days to 60 days. For FY ‘24, we expect revenue to be approximately $31 billion for our modeling assumption of a January 31 close for the Mobility transaction. Importantly, for the year, we continue to expect year-on-year growth across the end markets that are experiencing strong multi-year tailwinds, notably in renewable energy, infrastructure, electric vehicles, AI, cloud data centers and healthcare. Moving to the next slide. Despite the revenue headwinds in the near term, we are confident that we build Jabil to be more resilient as we've diversified across geographies, products, customers and end markets. Because of this, we don't expect the same level of margin erosion traditionally seen in past slowdowns. Our diversified approach, global footprint and strong relationships with customers gives us confidence in weathering these near-term challenges. We're adapting, staying focused on margins and cash flow, and committed to delivering value. Notably for FY ‘24, we still expect core operating margins to be in the range of 5.3% to 5.5%. I would now like to walk you through the dynamics of how we are able to maintain margins despite lower revenue. As a reminder, we have completely changed the construct of our business. We're in the process of divesting one of our highest fixed cost businesses. Additionally, four of our end markets, EVs, healthcare, renewables and cloud, are growing volumes year-on-year, albeit at lower levels than previously anticipated, which means deleveraging is limited as we are able to push our planned investments and costs which have not been incurred yet. In addition to pushing our ramp in investment costs, we're also moving ahead with reducing our SG&A in the back half of the year and optimizing our global footprint. All of this gives me confidence in our ability to deliver core operating margins in the 5.3% to 5.5% range in FY ‘24. Next, I'd like to provide an update on our share repurchases for the year. In Q1, we executed the previously mentioned $500 million accelerated share repurchase. In September, we originally expected to do a series of accelerated buybacks totaling $1.7 billion in FY ‘24 and $800 million in FY ‘25. We now intend to execute a series of accelerated buybacks of the entire $2.5 billion repurchase authorization in FY ‘24. As a result, I now expect WASO to be in the range of $124 million to $127 million for FY ‘24. We also now expect interest expense to be lower this year in the range of $250 million to $260 million, compared to our expectations in September, as we expect working capital levels to decline with lower revenue. All of these actions gives me confidence that we will offset lower income and deliver core earnings for FY ‘24 to be in excess of $9 per share, and our cash flow outlook for the year remains robust and we are committed to delivering adjusted free cash flow in excess of $1 billion in FY ‘24. In my view, Jabil is well positioned to navigate the current economic environment, evidenced by our performance over the past several years. We are not only well diversified, but also markedly more resilient than we were several years ago due to our intentional efforts to invest and align our resources with areas in key end markets, which are undergoing multi-year secular growth. Thank you for your time today and for joining us this morning. I'll now turn the call over to Adam.

Operator:

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question today is coming from Ruplu Bhattacharya from Bank of America. Your line is now live.

Kenny Wilson:

Hey, thanks, Ruplu. So, first of all, let me take the last part of your question there, which is, I think, our model is relatively consistent that we don't take inventory risk. So, everything that we buy is underwritten by a forecast or a purchase order. So, we're pretty comfortable in that. And if you look at where we are in Q1, with the slowdown at 58 days, that's still industry leading. And so, we're pretty confident there. If you look at the way where our company is set up, we run divisions, we've got division leads, and we've then got a leadership team that support that. So, we're pretty intimate with our customers. And all of our team have been very, very active with our customer base. You're looking at what happened in Q1, what's happening for the balance of the year. And the feedback, although nuanced with different impacts in different end markets. And what we see is relatively consistent. And, incidentally, myself, I mean, I've been in Europe and in Asia over the last month meeting a lot of our customers also. So, the feedback is -- and remember, we get forecast, 12-months' forecast pretty much for all of our customers. And we see their feeds, we look at what they're pooling and what they're selling. So, the feedback generally is, look, we expect the next couple of quarters to be inventory correction and we think beyond that we're in decent shape, and we've baked that into what we see for the back half of the year. The other thing I'd like to emphasize is that, in the discussions we're having, and times like this ultimately can be good for us from a consolidation perspective. So, we're pretty active in a number of discussions with our customers about how can we make their business easier by helping them consolidate supply chains, so that their business is simpler to manage. So -- I mean, I would say that we're really close with our customers. The data we get is pretty consistent. And we're monitoring really closely. I mean, we'd like for the inventory to be sold through, but it's not -- and when we think it will be over the next couple of quarters. And -- but we'll bake that into our guide for Q2 for the balance of the year.

Ruplu Bhattacharya:

Okay. Thank you for all the details there, Mike and Kenny. I appreciate that. Let me ask you a follow up question, which is really the same question for fiscal ‘25. I mean, you're guiding for $10.65 plus EPS and you're maintaining the operating margin target of 5.6% plus. What -- again, the question is, what revenue level do you need to see in fiscal ‘25 to be able to hit that $10.65 target? And you mentioned that you can push out some investments, but is there any risk to doing that in terms of hurting future revenue growth? So, just your thoughts on maintaining the guidance that you had for fiscal ‘25 and how confident you are in that? Thank you so much. I appreciate the details.

Ruplu Bhattacharya:

Okay. Thanks for all the details.

Operator:

Thank you. Next question is coming from Steven Fox from Fox Advisors. Your line is now live.

Kenny Wilson:

Yes. Thanks, Steve. So, I would say, I mean, if we -- if I run through our end markets, just to give you some color, so 5G is obviously soft, and you see that from the customers that we serve. A slowdown in end markets there and our network and switching business, we see the kind of campus and enterprise space, softer with an inventory glut, but we're really going great guns and accelerated switching around the AI space. So, that's been pretty positive for us. In healthcare, ortho is down, but pharma and med devices are up. And then in auto, which I think is a part -- in terms of your question about new products, we see the new products getting pushed out there to some degree. What I would always say is that or what we've always said is that, look, we think our auto business is going to be up into the right, but it's not going to be linear, it's going to be lumpy. And we see that. And if you look at the auto market, where people are saying that the expectation is that it's going to grow 20%, 30%, but you look at the inventory in the lots right now. So, we see some push out in automotive. Although to Mike's earlier point, we're still growing pretty nicely there. And then, on renewables, so we look at, kind of, residential slowing down with interest rates, effectively commercial still going reasonably okay. We see a kind of slowdown in energy storage as people wait for the IRA to really get bedded in. But we think the backlog here is going to recover relatively quickly thereafter. So, I think -- I mean, that's some of the key end markets I mentioned in cloud, where AI is really driving our cloud business. We're operating in a new facility to support that. So, we're up there. And so, generally, renewables is a little bit softer with some new product being delayed. We do see consolidation in the renewable space, which I think is going to help us for sure as the industry recovers there. And then -- and automotive is just a push out of some orders, but -- so hopefully that answers your question.

Steven Fox:

Great. That's very helpful. And then just as a follow up, Mike, I know you're still saying $1 billion plus for free cash flow, but off of the November announcement, if I just changed the revenue assumptions and kept my working capital turn numbers, the lower sales was like worth $200 million more of free cash flow by my calculation. Is that the type of sort of change in free cash flow we can see off of the revised guidance, or am I missing something?

Steven Fox:

Great. That's helpful. Thank you.

Operator:

Thank you. Next question is coming from Matt Sheerin from Stifel. Your line is now live.

Mike Dastoor:

So, let me just answer that in a slightly different way than you've asked it. I expected, and I've always expected inventory days to be in the 55 to 60-day range. When inventory goes up, the inventory deposits go up in sync. When inventory days start coming down or normalizing, yes, there is a level of return on the inventory deposits. So, a quick answer to your question is, are we going to see a pop in free cash flow because inventories are going to go down? The answer is no. It's not a pop in free cash flow. It will still be in the 55 to 60 days. It's just a matter of the gross number going down and the inventory deposits going down in sync. So, that's something we're good at managing. That's something we have really good relationships with customers, and we're always working on that particular front. So, no, free cash flow won't get a pop. It's already baked into our numbers at that 55, 60, and that's where it will stay.

Kenny Wilson:

Yes. I mean, I think, there's a little bit of when people report the results and -- but from our perspective, we've seen that late in our quarter, wherein some of the end markets are nuanced to some degree as of the customers, but generally we've seen it broad-based across our customers. And we also see that a lot of our customers report calendar quarters, and it was really the back end of their announcements where they took actions to reduce our outlook. So, I mean, I would push back quite strongly that our visibility into our customer base is disconnected and that we don't do a good a job of that as our competitors, to be honest. I think, it's just time and based on -- we got that feedback in -- toward the back end of our quarter. So, that would be my answer.

Kenny Wilson:

You're welcome.

Samik Chatterjee:

Hi. Thank you. Good morning. Thanks for taking my questions. If I can just start with one on the end markets and just wanted to confirm first, I know you're mentioning broad-based weakness that you saw across your end markets, but just trying to rank out of the weakness that you're seeing and what you're embedding in that sort of $2.5 billion reduction in the guide, looks like it's more autos and industrial and semi-cap and going to, one, confirm that I'm sort of interpreting that right? Secondly, how do you -- just, overall, you're describing a lot of the weakness as temporary, but how do you address concerns on the EV market in particular? When I think the average investor out there is thinking that EV penetration looking five years out is now going to be probably a lot lower than what it was expected to be just given sort of the demand profile we are seeing now. So, any thoughts around how this changes the more sort of long-term growth profile on EVs for you? And I have a quick follow-up after that. Thank you.

Samik Chatterjee:

And for my follow up, I -- the question that we are getting most from investors on margins today is you mentioned the push out in terms of investment. When you think about margin guidance for next year, is the assumption that some of those investments don't need to sort of be put back into the model next year as you're pushing them out of fiscal ‘24, or is the margin guidance maintained despite assuming those investments come back next year? Thank you.

Samik Chatterjee:

All right. That's clear. Thank you. Thanks.

George Wang:

Oh, hey, guys. Yes. Just kind of want to double click on the connected devices. You guys didn't elaborate too much in the prepared remark. Just you guys took down now expecting down 25% versus 15% last time, and kind of on the heels of down 15% last year, FY 2023. Just curious, kind of any mostly broad-based slowdown within the connected devices, or kind of one of the few customers, kind of, driving the weakness. Maybe you can kind of double click there?

George Wang:

Okay. That makes sense. I just have a quick follow-up. Just kind of in terms of the AI data center, kind of, in terms of the consignment model shift. How much additional margin you guys can extract from this consignment shift? Obviously, it's additive to the bottom line and the kind of margin profile. And, also, maybe you can talk about kind of slightly more just on the projects ramping within the AI. That's being a pretty popular topic with investors nowadays.

George Wang:

Okay. Great. Thank you.

David Vogt:

Great. Thanks, guys, for squeezing me in. So, maybe, Kenny, one for you first. Obviously, since the pre-release, you've had a couple of weeks to kind of go back and do, sort of, I would imagine, a deeper dive in terms of the categories and what your customers are saying. How do you frame sort of the inventory digestion? I know, at the time, you said, maybe one to two quarters, and I think I heard you say two quarters. Is that kind of the latest feedback that you're hearing from your partners today? And then one for Mike on capital allocation. I think, I heard you say you're going to do the entire $2.5 billion buyback in fiscal 2024. So, I know you normally don't talk about the following year, but what do you think that means for fiscal 2025 in the context of your $10.65 EPS guidance reiteration? Thanks.

Mike Dastoor:

And, David, from a buyback perspective, you're absolutely right. We're going to try and get the whole $2.5 billion done this year. That not only has a positive impact on WASO in FY ‘24, I think we've said 124 million to 127 million WASO by the end of ‘24. And then for FY ‘25, we'll have a normalized buyback program. And if you look back at our history over the last six, seven, eight, 10 years, we've done about $500 million a year. So, it will be safe again. We don't have the authorization from the Board yet for that FY ‘25. It's early days. But I'd expect that to be in that $500 million range. And when you add all the early buybacks in ‘24 plus that our WASO goes down to $110 million to $115 million depending on share price, so it is the best use of our funds. And I keep saying that with our history, what we've done over the last few years proves that out, that we've been -- we put our money where our mouth is, and we will continue to do so as we feel we're still highly undervalued.

Kenny Wilson:

Renewables for sure.

Kenny Wilson:

Yes. Renewables for sure. I mean, if we look at our -- we've developed a -- developing really great capabilities in the renewable space and we're kind of just waiting for things to bed down and guidance from -- through with the IRA. But also interest rates for sure are impacting solar rollouts in the residential space. So, I would say, out of all of our businesses -- auto will help us also, obviously, and -- but I think renewables would be the number one. We would expect to see a tailwind there.

David Vogt:

Got it. Thanks, guys.

Melissa Fairbanks:

Hey, guys, thanks very much. Talk about getting in under the wire. I'm curious about the comment that you've made or the comments that you've made on supply chain consolidation in renewables. I know supply chain services, this is one area that's driving more, like, direct customer engagement in your business overall. So, in renewables, are you working directly with these customers managing their supply chain, or is this consolidation happening further downstream?

Melissa Fairbanks:

Okay. All right. Great. Maybe as a follow-up. I'm glad you mentioned silicon photonics a couple of questions ago. I think, this acquisition is really interesting in terms of adding value, but we haven't really talked about it a lot. Does the acquisition of the Intel silicon photonics business, does this bring any revenue along with it, or is it simply about bringing in more of the supply stack internally, and it's already kind of reflected in your business? And then longer term, does this provide more of a competitive moat in AI?

Melissa Fairbanks:

Great. Thanks very much. That's it for me, guys.

Operator:

Thank you. Next question is coming from Mark Delaney from Goldman Sachs. Your line is now live.

Kenny Wilson:

Hey Mark, it's an interesting question. So I think it's nuanced by end market. So for sure in renewables, we're seeing a real push for -- to get the benefit of the incentives into being and North America. That's 100%. In fact, we're active. And a relatively large scale in that discussion where you expect more from us in the next three to six months. So definitely in renewables. Outside of that, I think the pace is relatively consistent. We're still seeing -- I mean I think your point about regionalization. We are still being asked to can we build more EVs for North America and Mexico, can we build them in Europe for the European market and obviously, tariffs, et cetera, and Asia for Asia. So I don't think that's necessarily speed up any or slowed down other than in the renewables space, we're definitely seeing a pickup and ask for us to be localized. So let me also qualify that by saying -- in the cloud space, the secure supply there becomes quite important, and we think that, that's going to be a tailwind for us in the longer term. We talked earlier with Melissa on Photonics, which I think will be a player also -- so I think cloud renewables and the rest of the business is relatively consistent.

Kenny Wilson:

I mean, I would -- we talk about kind of -- people talk about leverage with customers, and we don't view it that way at all. As I mentioned, we've got a supplier summit right now for surely things are coming down. I mean we pass through -- renegotiate a lot of -- and our customers' behalf, and then we pass that through to our customers and we engage with our suppliers. So -- as we've not seen any pickup in our reduction in margins based on lead times being reduced and our business is -- we write that up and down. And so no, we don't see any real changes there.

Kenny Wilson:

Thanks, Mark. All the best.

Adam Berry:

Thank you very much for joining our call today. We appreciate your interest in Jabil. Everyone here would like to wish all those a very happy holiday, a peaceful holiday, and we are looking forward to joining the S&P 500 tomorrow. So have a great holiday.

Adam Berry:

Good morning, and welcome to our call today. My name is Adam Berry. I'm Head of Investor Relations, and this is our Q4 earnings call and the sixth annual investor briefing. Joining me on today's call are Chief Executive Officer, Kenny Wilson; EVP of Global Business Units, Fred McCoy; and Chief Financial Officer, Mike Dastoor. For the sixth straight year, we're going to use this session today to accomplish the following

Fred McCoy:

Thanks, Kenny. Good morning, everyone. As you've heard from Adam and Kenny, there's a lot going on at Jabil at the moment and quite a lot to be excited about. It's my privilege to join the call today and, over the next few minutes, to walk you through the demand dynamics inside our diversified markets and how we see each shaping up for the coming year. As we move into FY '24, we continue to expect growth in our business to be headlined by end markets that are benefiting from strong multi-year tailwinds, specifically renewable energy infrastructure, electric vehicles, AI cloud data centers, and healthcare. Let's begin with what's going on in our Industrial and Semi-Cap end market on the next slide. In Industrial, we're experiencing robust growth in clean and smart energy infrastructure, as governments globally implement legislation such as the Inflation Reduction Act in the United States to increase investment in new projects. As a reminder, we play across the entire energy value chain from energy generation, power conversion, transmission, storage, and metering, and to the management of power inside homes and buildings. These projects have multi-year investment timelines, independent of underlying short-term economic growth forecasts. So, we feel comfortable with the visibility we have in this space given these elongated infrastructure build-outs. As an example, a relatively new market that we're particularly excited about is the energy storage systems market, from grid level to inside the home and in support of rapid EV charging. On the back of several recent wins in the U.S. and Europe, we expect this space to drive solid growth in the coming years, leveraging our investments in battery module integration. We are well positioned to support growth in the renewable energy infrastructure space due to a unique combination of power engineering expertise, in-region manufacturing, and supply chain capabilities. As a result, we expect revenue for our industrial business to be up more than 20% in FY '24. Offsetting this growth slightly is our Semi-Cap business, as we anticipate market demand to remain muted for most of our fiscal year. As a reminder, our Semi-Cap business spans both front-end, with gear that turns wafer into chips, to the back-end with gear that inspects and tests the wafer or resulting chips. Our strategy in this end market has been very thoughtful due to the high cyclicality of the market, and we've been very focused around how we've invested in this business, expecting demand to remain muted in FY '24 while preparing the capabilities and regional footprint for us to be well positioned to grow when the market moves higher as end market demand rebounds. Within our Automotive and Transport business, we continue to expect growth to be driven by the global transition to electric vehicles. For FY '24, we expect another year of 20%-plus revenue growth, despite what is a choppy overall global demand environment. The global shift to EVs continues to accelerate, and we expect EVs to represent a larger share of the global auto market in FY '24, regardless of near-term global growth dynamics. In this space, we support an increasingly diverse set of the world's leading automotive OEMs as they launch new electric vehicle platforms across multiple geographies. Our focus areas in the EV market we refer to as ACES, or ADAS and autonomous, connectivity, electrification, and software-defined vehicle architecture. In the EV market, we support products such as compute and control modules, power conversion, battery management, optical camera modules, LiDAR, and other sensors, as well as charging solutions. The path to mass adoption of electric vehicles globally is exceedingly complex, and there are very few companies that are as well positioned as Jabil to support customers' multiple complex program ramps on multiple continents with industry-leading supply chain, design and manufacturing capabilities. Moving to cloud. Our cloud solutions continue to resonate with customers of all sizes, from large hyperscalers to Tier 2 cloud providers, such as technology companies and leading financial firms. Today, cloud represents a relatively small portion of overall global IT spend, but we expect secular growth in this area to accelerate, including the related data center infrastructure, especially with the proliferation of AI and ML. Next-generation clouds, and especially AI cloud data centers, present unique challenges to customers. AI workloads, which are powered by extremely powerful GPUs that consume significantly more energy and drive increased data generation. This creates three challenges

Adam Berry:

Thanks, Mike. As we talked about at the outset of the call, there's a lot to be excited about here at Jabil. And we've given you a forecast for fiscal '24, which we believe will be a bit transitional, and fiscal '25, which we believe will be a bit more normalized and will include the full impact of the share repurchases from both our previous program as well as the portion from the Mobility deal. There's a lot to be excited about here at Jabil, and we're ready to get into your Q&A. Operator?

Ruplu Bhattacharya:

Hi. Thanks for taking my questions, and congrats on the strong results and the very strong guidance. In fact, your margin guidance is significantly higher than we had expected. You're guiding for 60 basis points of improvement over two years and you've also talked about 6% operating margin. So, can you help us dive a little bit into that? I mean, how much of this margin improvement is coming from mixed shift within the portfolio? How much would you say is like-for-like pricing improvement? I mean, I would think that, by fiscal '25, you would have some recovery in Semi-Cap, maybe there is less inflation passed through and maybe you are taking some cost actions. So, any color you can give in terms of what are the different drivers for such a strong margin improvement?

Ruplu Bhattacharya:

Okay, thanks for all the details there, Kenny. If I can ask you on automotive, I mean, you've had very strong growth over the last couple of years. I mean, this past year, you grew 40%-plus, and now you're guiding another year of 20%-plus. I mean, the business now is sizable, right? It's like $4.5 billion. So, I mean, do you think that this level of growth can sustain? And what drives that? Is it -- are you increasing the content per vehicle, or is it that you're going to more OEMs than before? Just if you can just expand on how you're thinking about what drives that growth? And are you concerned about the competition in this space as more companies look to try and gain share in different aspects of automotive?

Ruplu Bhattacharya:

Okay, thanks for all the details. I'm going to try and sneak one more quick one in. I mean, you're guiding for strong growth in new areas that I haven't heard of before, like the energy storage side is now much stronger for you and the data center side. So, do you think you have enough footprint to support this growth over the next few years? And when I look at your CapEx guidance, it's still in that normal range of 2.2% to 2.5%. So, I mean, do you think that is enough CapEx to support this new growth? So, just your thoughts on the footprint and CapEx and areas of investment? Thank you so much again. Congrats on the quarter and the day.

Mike Dastoor:

And, Ruplu, if I can just add, if you look at our CapEx, historically, a few years ago, it was in the range of 3.5%. Over the years, we've taken it down to -- we've always suggested 2.5%, 2.6% range. We will have the Mobility transaction going through. We are working on taking this CapEx number down quite a bit. I think the normalized range, if you look at what happened in FY '23 is our CapEx went down to 2%, but that was a little bit of a timing difference. So, FY '24, we expect CapEx to still be in the 2.3% to 2.5% range, but going forward, the 2% to 2.2% to 2.3% sounds highly doable. If you look at what we've done over the last few years, we've grown from $17 billion to $35 billion. So, we've doubled our revenues, and we've always managed our CapEx through that doubling phase. It'll be the same with automotive. It'll be the same with all the other high-margin secular growth and markets. We will continue to manage CapEx with a lot of discipline. And I think the number has already reflected, all expansion is reflected when we give out CapEx percentages.

Operator:

Thank you. Next question is coming from Steven Fox from Fox Advisors. Your line is now live.

Kenny Wilson:

Hi, Steve, good morning. Yeah, so we were talking about that just this morning actually, and I think it's worth just reaffirming you on the cloud space. We really think the model we have is outstanding. So, it's asset-like, it's co-located with our customer. We also think that as our customers look to disaggregate a lot of the other parts of the data center that it plays to our strength, and I'll get to the optics in OSAT in a second. So, what we find is that relationship drives effectively us sitting at the same side of the table, trying to solution how can we do things efficiently and how can we help them grow, because we view there's going to be significant growth, especially underpinned by AI. So, what we see is we've got to -- if you take our existing cloud business and what we see, that's been augmented by a real pivot to AI. From a consignment perspective, if you look at the GPUs, as Mike mentioned, that's going to be a pass through for us because we don't add any value there. But what you find in cloud is that really just the model we have is allowing us to really go deep with our customers and grow our business there. In terms of you mentioned about OSAT, let me talk about that. As we discuss with our customers, and Fred mentioned in liquid cooling, the power requirements for what we're doing in data centers has become significant. Air cooling no longer works, so they're looking for a liquid-cooled capability. You need to use photonics extensively, again, because of the power requirements. So, sitting with our customers means that they ask us, "Can you help us in liquid cooling? Can you help us in photonics? Can you help us in pluggable transceivers, et cetera, et cetera?" So that helps us as we go into strategic planning to look at where should we be investing our dollars and capabilities to help our customers. The good thing for us, Steve, is that as we go more vertical and end markets, it simplifies our customers' lives and it makes our solutions more robust and it effectively allows us to grow our business there. So that's kind of how we see things in the cloud. And hopefully that answers your question.

Mike Dastoor:

Absolutely, Steve. I think you're absolutely right. The buyback scenario is dependent on the timing of the close. But regardless, let me just -- I think this morning you saw the Board expanded our authorization -- current authorization, $2.5 billion. I think, if you remember, Adam mentioned in his prepared remarks that, in Q4, we were unable to complete our Q4 share buybacks due to the restrictions that are associated with the Mobility transaction. So, in October, like starting next week, we will therefore, we will be executing an accelerated share repurchase program of $500 million, regardless of the timing of the close. So, think of that as almost like a catch-up and taking advantage of current market situation as well. Post-close, we will execute a series. Obviously, it will depend when in Q2 it closes, but we will execute a series of accelerated share repurchases. We'll start as soon as the Mobility transaction closes and we've received all the cash. We probably won't do a full accelerated share buyback on day one itself for the entire amount. We're going to do a series of buybacks. And the reason for that is we're trying to balance the impact of interest costs along with the benefit of the WASO, like you suggested, on the calculations we've run as a balanced approach actually maximizes EPS. So that's what we're going to do, which means, by the end of FY '24, we still won't be completed fully with our buybacks. I think out of the $2.5 billion, I expect about $1.5 billion, $1.7 billion to be completed by FY '24, and in FY '25, we'll complete the balance of that transaction. I think from a WASO perspective, I'm looking at end of '24 and the range of that 126 million, 128 million shares, while in '24, again, depending on how we manage it through FY '25, it'll be in the 115 million, 118 million range.

Mike Dastoor:

No. So, I think the company, the management team, everyone feels we're highly undervalued still, and the best return that we can get is in buybacks. Having said that, if an M&A comes up -- I'll just remind you our debt leverage is at a very low point. It's at like 1.1, and that gives us sufficient room to do an acquisition if needed from debt if the financials work out and it's capability driven, it's all in the right end markets, et cetera. So, it'll be based on -- it'll be based off of our debt structure. So, I would think of the buybacks as -- we're definitely going to go and do that, and any M&A will be on top of that, and we have plenty of liquidity and plenty of leverage to do that.

Operator:

Thank you. Next question is coming from Matt Sheerin from Stifel. Your line is now live.

Kenny Wilson:

Yeah, hey, [Steven] (ph), it's a little bit of both in this instance.

Kenny Wilson:

Yeah, I mean just that, there are kind of some legacy EMS type kind of built to print type of models in some instances. And our view there is that where we can serve -- we're always looking to find where we can serve and add value. If our serve and add value becomes 100% built to print, then probably there's people that can do that cheaper than us and can do it -- and allowing us to add value for other customers where we can be vertical or where we can do -- just do more engineering services or whatever. So, I mean, we're not walking away from customers. It's a discussion around, look, I'm not sure it's the right fit for ourselves and for our customers. So there's a little bit of that. And then some of it is just end market softness right now. We see some softness in that market as well as in the consumer space. So, we do expect that to recover. I mean, we're not walking away from the Networking and Storage business, just to be clear. We also see that in that area of our business that the amount of enhanced or advanced networking that's required to support the AI data centers is significant also. So, we think, longer term, this business will be okay for us, but we're just seeing a little bit of softness in the short term, plus, some discussions with a couple of customers.

Mike Dastoor:

Let me try and take that, Matt. The inventory days did come down by four days. I think the team did an excellent job. If you look at our supply chain team, our ops team, our BD teams, finance teams, all of them have done a fantastic job in getting that particular metric down. I think the focus that we put on that from a free cash flow perspective, from a working capital perspective, is all paying off. Having said that now, I don't expect it to go down into the low 50s. I think that 55 to 60, I think on previous calls I mentioned that's the range I was expecting mid to long term. It came sooner than expected, which is always a pleasant surprise. But I would expect that 55 to 60 day sort of range to be maintained. It might differ by nuances in particular quarters. It might go up a little bit, it might go down a little bit, but over the long term, I expect 55 to 60 days to be maintained. From a supply chain perspective, yes, supply chain constraints are coming down. However, I think, like you mentioned, the automotive and healthcare pieces, there still are some shortages going on there. Maybe not the same level that they were at three to six months ago, but we're still seeing some issues in those end markets all because of the legacy chips like you said as well. So, something we're watching, and when that starts coming down and normalizing, yeah, we'll get to the 55-ish range over a long period as well.

Mike Dastoor:

Yeah, the excess cash has been built into our forecast. I think the number I'd say of FY '24 would be in the range of $290 million to $300 million. Again, we're being conservative there. If interest rates continue to go up, we don't have a crystal ball around that. But it's mainly our variable rate, which is higher right now because of everything that's going on in the markets. So, conservatively, I'd model $290 million to $300 million, Matt.

Operator:

Thank you. Next question is coming from Mark Delaney from Goldman Sachs. Your line is now live.

Kenny Wilson:

Hey, thanks for the question. So, Mark, yeah, so firstly, I mentioned in my prepared remarks about the Mobility and the Mobility team. And I'd just like to call out again our gratitude as an organization for the work that they've done, which has been outstanding. I also think it would be a remiss of me not to call -- we're right in the middle of the transition right now and the collaboration between our team and the BYD team is absolutely outstanding. So, we're really pleased about how that's going. Yeah, in terms of the business, for sure, what we've been looking at here is -- and the way we try and focus our growth is, where can we add most value for our customer, and look at the world through the eyes of our customer. And that's why you'll see when we look at the end markets that we're focused on, we think it's end markets where the range of capabilities that we have in our company and the global presence that we have can really help our customers grow and develop. So, yeah, we'll be focusing much more on automotive, healthcare, just the renewables that we've mentioned previously, so for sure -- and AI and cloud, for sure that's going to give us the opportunity to do that. From a use of capital perspective, it helps us here also. So yeah, certainly from a management bandwidth, it's going to free up some of our time to go double down in these strong secular growth areas.

Kenny Wilson:

Yeah, so at '24, it's roughly 20% to 25%, and we think that that's going to grow in the longer term and going to become a much bigger part of our cloud business.

Kenny Wilson:

I think it's going to be really dependent on the mix of the businesses. So, we are expanding the space there to allow us to do more cloud. Mike mentioned that we're up 20% year-over-year. And we don't see any slowdown in terms of the cloud rollout. So, I think it depends, but certainly for sure, we think that our volumes are going to grow, but it will grow in the AI space. So, probably our revenues would probably be relatively consistent at that level, I would think, in the next year or two.

Mark Delaney:

Thank you.

David Vogt:

Great. Thanks guys for taking my questions. And I appreciate all the detail. It's incredibly helpful. I have a couple of questions, and maybe one for Kenny and a couple for Mike. So, Kenny, just on the Mobility transaction, I know you're probably limited in terms of what you can say. But what gives you confidence? We're just trying to think through, what gives you confidence that this deal could close, let's say, within two quarters? Because I'm sure you're aware there's other deals that have been pending earlier in the year that are taking upwards of 12 months, if not longer. So, kind of what's going on there and kind of what are the steps that we should be looking at following sort of the purchase agreement data that you published last night? And then, I'll just hold off and ask Mike my follow-ups, if that's okay.

David Vogt:

Great. And then maybe for Mike, I appreciate the color on the margins and the mix shift embedded in sort of the outlook for fiscal '24. But can you kind of touch on 1Q to start? It looks like at the high end, operating margins are closing in on 6%. And I would imagine that includes Mobility for at least the full quarter, to Kenny's point. And -- but when we look at the full year of '24, I would imagine the base case in the projections are Mobility exiting the business by the end of, let's say, fiscal 2Q and margins kind of trend lower in, I would imagine, 2Q and the back half of the year. So kind of what's going on in the first quarter? I know mix, you mentioned earlier, it's a faster growing business. This helps margins in the full year, but specifically in 1Q, why are margins so strong and what does that imply for Mobility margins? And then, maybe just as a quick follow up, I'll give them to you both at the same time, I think you made a comment that your fiscal '25 outlook only contemplates growth of about 3%. I would assume that's based off of a '24 number that is pro forma excluding Mobility. Is that maybe the right way to think about it? And I'll just stop there.

David Vogt:

Mike, just to clarify, so is the stranded cost and this sort of triggered gain embedded in the core non-GAAP projections, or is that just strictly in the GAAP numbers for '24?

David Vogt:

Great. Thank you. That's helpful. I appreciate it. Thanks, guys.

George Wang:

Hey, guys. Thanks again for taking my question, and congrats on the quarter and the strong guide. Yeah, just a couple of quick questions. Firstly, can you kind of talk about share gains? Just maybe pass out kind of what are you seeing in terms of the continued share gains, whether that's mostly from new markets or existing growth markets you guys already in right now?

George Wang:

Okay, great. And also, I kind of want to double-click on the opportunities out of China, especially given the reshoring trends and maybe kind of specifically in Eastern Europe, kind of on the EV production side and also Mexico. Would you like to call out a few other regions kind of outside of China, also in particular vertical, like that could drive incremental growth as this reshoring trend continues?

George Wang:

Okay, great. Thank you. Congrats again. I will go back to the queue.

Operator:

Thank you. Next question is coming from Samik Chatterjee from JPMorgan. Your line is now live.

Fred McCoy:

Hi, this is Fred. I'll try to take that question for you. So, right now, we're seeing a lot of uncertainty in our fiscal '24. I think the industry is looking at kind of the back half of calendar '24 for a rebound. So that's how we've modeled the Semi-Cap business for our FY '24. I think that's both front-end and back-end. We're seeing those challenges. In terms of the investment, I mean, we're well aware of the CHIPS Act and the other investment acts in Europe, and we are also well positioned in some of the regional trends that are going on, both on the manufacturing and the components that go into the semi-capital equipment. So, we're really using this period to kind of optimize our footprint, optimize our capability and our capacity in the right regions to support what we see as where the bounce back will happen when it does late in 2024 or early 2025. So, we feel really comfortable that -- again, as Kenny alluded to on the prior question, our global footprint and our standard practices will allow us to be the key supplier to this market in all three regions of the world.

Operator:

Thank you. We've reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further closing comments.

Operator:

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

Adam Berry:

Good morning, and welcome to Jabil's third quarter of fiscal 2023 earnings call. Joining me on today's call are Chief Executive Officer, Kenny Wilson; and Chief Financial Officer, Mike Dastoor. Please note that today's call is being webcast live, and during our prepared remarks, we will be referencing slides. To follow along with the slides, please visit jabil.com within the Investor Relations portion of our website. At the conclusion of today's call, the entirety will be posted there for audio playback. I'd now like to ask that you follow our earnings presentation with the slides on the website, beginning with the forward-looking statements. During this conference call, we will be making forward-looking statements, including among other things, those regarding the anticipated outlook for our business, such as our currently expected fourth quarter and fiscal year net revenue and earnings. These statements are based on current expectations, forecasts, and assumptions involving risks and uncertainties that could cause actual outcomes and results to differ materially. An extensive list of these risks and uncertainties are identified on the annual report on Form 10-K for the fiscal year ended August 31st, 2022, and other filings. Jabil disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events, or otherwise. With that, I'd now like to shift our focus to our third quarter results, where the team delivered approximately $8.5 billion in revenue at the top end of our guidance range. Core operating income for the quarter came in at $404 million or 4.8% of revenue. This is up 60 basis points on a year-over-year basis. Net interest expense in the quarter came in better than expected at $75 million, reflecting lower levels of inventory during the quarter, resulting in better working capital management by the team. From a GAAP perspective, operating income was $375 million and our GAAP diluted earnings per share was $1.72. Core diluted earnings per share was $1.99, a 16% improvement over the prior-year quarter and towards the upper end of our guidance range. Now turning to the segments. Revenue for the DMS segment was $4.35 billion, an increase of 13% on a year-over-year basis, driven by strength in our Automotive and Healthcare end markets. In particular, it's worth highlighting our Automotive business, which grew approximately 60% year-over-year as the team performed extremely well as volume, content, and brands continue to expand. Core operating margin for the segment came in at 4.1%, 30 basis points higher than the same quarter from a year ago, but down 50 basis points sequentially as typical given the normal seasonal pattern within our Mobility business. Revenue for our EMS segment came in at $4.1 billion, down 8% year-over-year and in line with our expectations. Also as expected, we saw a revenue shift in our 5G Wireless and Cloud business, driven by our previously-announced move to a consignment model for certain components within that end market. It's also worth noting that our Industrial business driven by global demand for renewable energy increased by approximately 30% year-over-year. For the quarter, core margins for the EMS segment were an impressive 5.5%, up 90 basis points year-over-year and 40 basis points sequentially, reflecting strong growth in Industrial and the aforementioned shift to a consignment model. Next, I'd like to begin with an update on our cash flow and balance sheet metrics as of the end of Q3, beginning with inventory, which saw a great improvement sequentially to 84 days. More importantly for us, net of inventory deposits from our customers, inventory days were 62 in Q3, an improvement of seven days sequentially. Our third quarter cash flows from operations came in at $468 million, while net capital expenditures totaled $212 million, resulting in $256 million in free cash flows during the quarter. In the quarter, we repurchased 1.9 million shares for $154 million, leaving us with $821 million remaining on our current repurchase authorization as of May 31st. With this, we ended the quarter with cash balances of approximately $1.5 billion and total debt to core EBITDA levels of approximately 1.2 times. In summary, the team delivered another impressive performance in Q3. In a moment, I'll turn the call over to Mike and Kenny to provide some additional thoughts on our performance in the quarter and update our outlook for fiscal 2023. But before I hand it over, I'd like to announce our fourth quarter earnings call and 6th Annual Investor Briefing scheduled for September 28th, where we'll lay out our strategy and our financial plan for fiscal 2024. Please mark your calendars. Additionally, from an Investor Relations perspective, we're going to be active in fiscal 2024 with meetings, factory tours, and end market deep dives, where we plan to discuss and showcase some of the growth drivers that we feel support our longer-term expectations. Please stay tuned. And thanks for your time today. It's now my pleasure to turn the call over to Mike.

Kenny Wilson:

Good morning, and thanks for joining us today. As you heard from Adam and Mike, our business is in good shape and the team has executed well this year in what continues to be a dynamic operating environment. The success we are seeing across our business is a key proof point of our teams' ability to leverage multiple capabilities across disparate end markets, as we continue to diversify our service offerings, underpinning our improving financial performance. Let's turn to the next slide where you'll see our updated outlook for fiscal year 2023. We continue to expect good year-over-year growth and operating leverage this year, which gives us the confidence to raise our expectations for core EPS by $0.10 to $8.50. At the same time, we remain highly focused on delivering more than $900 million in free cash flow. It also sets a firm foundation for further margin and free cash flow expansion as we look to fiscal year 2024. In fact, when I look at the growth in our business this year, it's worth highlighting that nearly 60% of our portfolio [indiscernible] the markets with strong secular growth, specifically, electric vehicles, renewable energy, healthcare, and 5G and cloud. Our Automotive business continues its healthy growth rate as the team navigates multiple complex program introductions, increasing both our scale and addressable content per vehicle. Jabil continues to be extremely well-positioned to support our customers as they accelerate their transition to EVs in the coming years. And in our Industrial business, we are supporting customers as they navigate the rapid transition towards clean energy. Over the last several years, we've invested heavily in capabilities to support energy storage, energy conversion, and grid-level power management solutions, which are now been deployed across multiple months at scale. Although we are in the early days of growth in this space, as government policies like the Inflation Reduction Act in the US mature and scale, Jabil is extremely well-positioned to support our customers in the coming years. In Healthcare, we continue to capitalize on the trend to outsource manufacturing, and our credibility with some of the leading OEMs in this space has positioned us well for future growth. Another area that is increasingly coming into focus for us is in the AI and ML space. This has implications both on the growth side of our business across multiple end markets, but also has the potential to drive efficiencies across our internal processes and factory network. As it relates to our internal processes, we are capturing data and using the latest toolkits to help improve our operations. [indiscernible] don't view this as a new initiative. We know the next step and a continuous improvement path we've been on for many years. Our operating system naturally drives us to simplify, standardize, optimize, and automate processes and this in conjunction with our enhanced ability to mine big data which ultimately drives sustainable improvements. In September, the Jabil team will go deeper in all of these areas at our Investor Briefing. At that event, we plan to offer our fiscal year 2024 financial outlook as we continue to prioritize growth in core margins and cash flows. Specifically, we will lay out how we plan to increase revenue, while also expanding core operating margins beyond 5%, and we plan to increase free cash flow by continuing to invest in growth. We provide another year of solid core EPS growth, and finally, provide an update on our capital return frameworks. In closing, I feel strongly that we have the right team, capabilities, and diversified portfolio to support strong momentum into the final quarter of fiscal year 2023 and beyond. And none of this would be possible without a thriving and unified Jabil culture which is as strong today as it has ever been. Thank you for joining us today and your interest in Jabil. I will now turn the call over to Adam.

Operator:

Thank you. We'll now be conducting a question-and-answer session. [Operator Instructions] Our first question today is coming from Ruplu Bhattacharya from Bank of America. Your line is now live.

Mike Dastoor:

Hey, Ruplu. Yes, the ROIC that we reported is in the 30% range. We normally target in that 25%, 30%. If you look at our working capital management, the way we use our invested capital, our CapEx, and all the factors that makeup invested capital, we're extremely disciplined on that. The returns are coming in. So, the numerator and denominator on the ROIC calculator or the ROIC calculation is actually quite robust and strong, and you can expect those levels of ROIC going forward as well, Ruplu.

Kenny Wilson:

Hey, Ruplu, it's Kenny, and good morning. Yes, it's a great question, and in fact just this morning, I was reading an article about the covered AI and it talked about the semiconductor space and just the wafer fabrication equipment and the demand and how that increases through 2024, 2025, and 2026, so I would say that we are -- our view is quite consistent with yours that we think that although it's a low right now, that's going to -- that's going to pick-up in the probably the second half of calendar 2024 and beyond. So, remember that we try and we diversify the all end markets and we're very well-diversified in this market also from a front-end to back-end perspective. We've been expanding our footprint across the world and anticipation of the pickup in demand through the back-end of next year, so we got a pretty competent team there that are ready and we're ready to build the demand for our customers when demand picks up through the back-end of next year. So we feel really, really good about where we are from a Semi-Cap perspective.

Kenny Wilson:

Yes, you're welcome.

Matt Sheerin:

Yes, thank you, and good morning. I wanted to dig a little deeper on some of the end market commentary, particularly on the consumer side. It looks like you actually took up your connected devices guidance a little bit for the year, but still down double-digits. Are you seeing any signs of consumer bottoming here or any outlook that gives you some confidence that you're going to get back to growth at some point?

Matt Sheerin:

Okay. Great. Thank you for that. And I also wanted to just talk about the inventory reduction that you've seen and the general supply environment. I know you've had some headwinds certainly in Auto, EV, and some other markets, are you starting to see some signs of supply easing or is that still a gating factor in Auto or some of your other businesses?

Kenny Wilson:

I have a comment on that, just to support that of Mike's and just to give you some context. So, we are tracking, in the semiconductor space, the automotive semiconductors, and whereas 12 months ago we were tracking 1,200 components that were classed as golden screws for different assemblies, that number is probably half now as the number that we're managing, so it's down a lot, but it's still an issue for us that we continue to navigate. So, it's getting better for sure, but it's not gone yet.

Kenny Wilson:

You're welcome.

Steven Fox:

Hi, good morning. Two questions from me as well. First off, thanks for the extra disclosure on Industrial and Auto. On the Industrial piece, I was wondering if you could give us a little more color as to how Jabil is differentiating in those markets. I know some of the programs you mentioned you've been in for quite a while, what's sort of changed beyond the secular that's driving that 40% growth? And then I have a follow-up.

Steven Fox:

Great. That's super helpful. And then just on the Auto sort of an opposite end of spectrum financial question, which is, the growth is tremendous and it doesn't seem to be hurting the overall margins at all. But can you give us a sense for how that's possible, and yes, I would imagine that these aren't mature margins whatever you're producing within the Auto sector when you're growing 60%, so just sort of maybe give us a little perspective on that. Thank you.

Mike Dastoor:

And Steve, if I can just add, the product lifecycle in Automotive extends out to six or seven years. As you get deeper into the bulk of that -- that Kenny mentioned with some of the automation that we've introduced, it really suits long product life-cycle products such as automotive where operational efficiencies continue to drive margin even beyond end market sort of impact. So, just something to keep in mind that the longer a product lifecycle, the higher the operational efficiencies as a result of automation, which again drives margins upwards as well.

Operator:

Thank you. Next question is coming from Shannon Cross from Credit Suisse. Your line is now live.

Kenny Wilson:

Hey, Shannon. Nice to hear from you. Yes, so we approach Healthcare with in three kind of areas of focus, firstly, we got really good relationships with our current customer base and we look to expand that with -- whether it's in the med device, diagnostic, and pharma. And what we see a lot in each of those areas as the need for connected healthcare, so those opportunities, whether it's continuous glucose monitoring or sensors and so we see that we've got a really broad base of customers, capabilities, and markets and just as we continue to serve them well, we think that there's a real growth opportunity. I mean, an example would be, as you look at the auto-injectors we are making for diabetes and we make hundreds of millions of them a year. And then you look at the opportunity that comes out with -- for the weight reduction that you see with the drug there, so we are really -- really it's broad-based, and we're well-positioned and we feel quite bullish about our ability to grow that. I will tell you also about -- and healthcare moves at a slower pace than some of our other businesses. But we've got credibility and we're having more discussions about kind of B2B is where there's opportunities for us to do something not in the same scale as our JJ MV deal that we did, but we see opportunities come in for us in the longer term. So, yes, we think -- Andrew Priestley runs that business for us and his team have done a wonderful job and we're feeling quite bullish about where we end up in the longer-term in Healthcare.

Kenny Wilson:

Yes. Yes, sure. Let me take a swing at that and then Mike can help also. We are around, if I look year-over-year, we're up 60 basis points. And obviously, we think we've got 40 basis points for the year, so we're feeling pretty good about our margin profile and trajectory. We are, I think 60% of our business, as I've said in my prepared remarks, we think is business which is going to grow and continue to grow in the longer term. Things like -- we think that our Automotive will be -- Automotive and Healthcare should be above corporate averages. We think renewables will be, we mentioned that Semi-Cap being lower, we think that actually covers and that helps us. And we've done a lot of tidy up in the rest of our business to make sure that we're running, I mean, what we got to do also is we got to make sure we run good operations. If we run good operations, then especially operations, then we think we can give our customers good value. So, I don't know, hopefully that's helpful. Mike, you got any comment?

Shannon Cross:

Thank you.

Paul Chung:

Hi, thanks for taking the questions. So, nice progress on inventory, and your free cash flow conversion kind of continues to grow from 2021 level kind of rebounding there and guide for growth suggests kind of improved pace there, maybe potentially hitting free cash flow north of $1 billion for the first time. So, how do you think about the pace into 2024 and some of the dynamics across working cap?

Paul Chung:

Okay. Great. Thanks for that. And then separately, are you starting to see evidence of some deflationary impact on components and which end markets are you seeing some bigger impact there and how do we think about the impact on revenue and margins into 2024 as kind of prices ease? Thank you.

Paul Chung:

Okay. Great. Thank you.

Melissa Fairbanks:

Hi, thanks, guys. Congrats on another great quarter and really great working capital management. I just had a quick question on the interest expense, because it does have such a big impact on the core earnings. We're going to see it tick a little higher in the August quarter. I'm assuming that's driven by the inventory requirements tied to seasonality, first of all, is that correct? And then second, what should we expect for interest expense beyond August, maybe on a more normalized basis?

Melissa Fairbanks:

Okay. Sorry about that. Little modeling snafu there. Maybe just as a follow-up, it seems AI is a hot topic these days, so I wanted to be sure you had the chance to talk about it. In the slides, you highlight cloud and AI/ML automation as being some of the growth drivers for 2024. You talked a little bit about the automation side of things, but maybe address what you're seeing in cloud and AI?

Melissa Fairbanks:

Great. Thanks very much.

Operator:

Thank you. Next question is coming from Mark Delaney from Goldman Sachs. Your line is now live.

Mike Dastoor:

Hey, Mark. Just to clarify, I think the words I used, we're just being cautious and vigilant. There's a lot of chat around consumer end markets, we've seen some of that. It's a little bit patchy, it goes up, it comes down, for instance, Q2 was down, Q3 was actually up for us from a consumer standpoint, we're not seeing anything major in any of our end markets that would give us any concerns. I was just being cautious and vigilant, that's the only meaning behind my comments there. And if you look at the secular markets that we're in today, all growth-oriented, the EV, healthcare, renewables, 5G, cloud, they're all -- they're all moving in the right direction, so I don't think that gets slowed down by macroeconomic conditions that much, that might be instead of growing by double-digits, maybe it grows by single-digits. But overall, we're not seeing any of that right now. And we just want to be cautious and vigilant as well.

Mike Dastoor:

Yes, so on the EV side for example, yes, we have to expand our operations where we're expanding in the Americas, we're expanding in Europe, we are expanding in Asia. So, there is definitely -- we need to grow in our footprint in some of the geographies. Healthcare is a little bit more steady [indiscernible], but overall still the trend is upwards. Renewables, we've just opened a new factory in the US, but -- and we'll continue to expand as and when we feel the requirements are there. But yes, it is something we are watching, we're being very thoughtful, we're very disciplined. We don't want to over-invest in CapEx and we're watching trends very carefully to make sure there are long-term sustainable trends and not just hype which is temporary. So, yes, the answer to your question is, yes.

Mark Delaney:

Thank you.

David Vogt:

Great. Thanks for taking my question, and good morning. I just want to go back to the AI automation conversation. I know you're probably going to provide a lot of color on this in September and I know it's early days, but when you think about sort of the end markets in your customer base, obviously there's going to be some technological shifts in what's happening, whether it's in the data center or the network stack, how does that work with you and your customers in terms of you potentially winning new types of businesses for new technological sort of changes effectively and generally, what are the lead times in terms of from concept discussion into deployment? And then I have a follow-up on margins, which I can maybe just roll-in here as well. So, it sounds like near term, the opportunity is for your own efficiency gains from automation going forward in fiscal 2024 from AI potentially, is that fair? Is that a fair way to think about the business next year? Thanks.

David Vogt:

No, that's helpful. Maybe can I just ask a quick follow-up along those lines, do you -- I know it's early days, do you get the sense that maybe some customers would re-prioritize spending and roadmaps for maybe some existing sort of products and the roadmaps to really take advantage or jump on this new sort of large long-term secular driver in AI on anybody that have maybe some legacy [indiscernible] get de-emphasized?

David Vogt:

Got it. So, it sounds like it's an additive. That's helpful, Kenny. Thank you.

Operator:

Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

Operator:

Thank you. That does conclude today's teleconference webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

Adam Berry:

Good morning. And welcome to Jabil’s second quarter of fiscal 2023 earnings call. Joining me on today’s call is Chairman and CEO, Mark Mondello; incoming CEO, Kenny Wilson; and CFO, Mike Dastoor. In terms of agenda, Mike, Kenny and I will be offering today’s prepared remarks, while Mark will join for the question-and-answer session. Please note that today’s call is being webcast live, and during our prepared remarks, we will be referencing slides. To follow along with the slides, please visit jabil.com within the Investor Relations section of our website. At the conclusion of today’s call, a recording of the entirety will be posted for audio playback on our website. I’d now like to ask that you follow our earnings presentation with slides on the website, beginning with the forward-looking statement. During this conference call, we will be making forward-looking statements, including among other things, those regarding the anticipated outlook for our business, such as our currently expected third quarter and fiscal year net revenue and earnings. These statements are based on current expectations, forecasts and assumptions involving risks and uncertainties that could cause actual outcomes and results to differ materially. An extensive list of these risks and uncertainties are identified on our annual report on Form 10-K for the fiscal year ended August 31, 2022 and other filings. Jabil disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. With that, I’d now like to shift our focus to our second quarter results, where the team delivered approximately $8.1 billion in revenue in line with our forecast. As you dig a little deeper, it’s worth noting we saw strength in areas such as industrial, driven by continued robust demand for renewable energy generation and storage, automotive driven by the transition to electric vehicles, and healthcare as large OEMs in that space continue to partner with Jabil to deliver best-in-class personal care. Conversely, a portion of the year-over-year strength was offset by weakness in Semi-Cap and other consumer-oriented portions of our business. Putting it all together at the enterprise level, revenue grew by an impressive 8% year-over-year. Core operating income during the quarter was $391 million, an increase of 14% year-over-year, representing a core operating margin of 4.8%. This is up 20 basis points over the prior year and just ahead of our expectations from 90 days ago based on great operational execution within our EMS businesses. Net interest in the quarter came in higher than expectations at $74 million. In the quarter, we also repurchased 1.7 million shares for $127 million leaving us with $975 million remaining on our current repurchase authorization. From a GAAP perspective, operating income was $359 million our GAAP diluted earnings per share was $1.52. Core diluted earnings per share was $1.88, a 12% improvement over the prior year quarter and slightly ahead of the midpoint of our range. Now turning to the segments, revenue for the DMS segment was $4.1 billion, an increase of 8% on a year-over-year basis and in line with our expectations, while core operating margin for the segment came in at 4.6% as expected, as a result of strong returns in auto and health care, offset by weakness in consumer markets. Revenue for our EMS segment came in at $4.1 billion, an increase of 7% year-over-year, while core margins for the segment was 5.1%, up 110 basis points year-over-year reflecting solid leverage on strong revenue growth. So in summary, a strong close to the first half of our fiscal year. As we sit today, I know the team here is extremely proud of the strides we have made to not only improve our business over the last several years, but also make it more strong and more resilient. This improved resiliency in our business was reflected in the Q2 results. In a moment, I will turn the call over to Mike and Kenny to provide some additional thoughts on our performance in the quarter and update our outlook for fiscal 2023 and I think you will see there’s so much opportunity as we look towards fiscal 2024 and beyond. Thanks for your time today. It’s now my pleasure to turn the call over to Mike.

Kenny Wilson:

Thanks, Mike. I am pleased to be joining the call today. It is truly humbling to reflect back 23 years to when I joined Jabil in our manufacturing facility in Livingston, Scotland. Since then I have been afforded the opportunity to grow and lead several areas of our business. Most recently, I had the privilege to live and work in Asia, leading our Jabil Green Point organization, which has played a major role in building out multiple key capabilities that continue to be leverage across the company. Going forward, I am excited to lead Jabil as CEO, alongside a team of extremely talented and long tenured industry leaders. I would like to share a few thoughts on what you should expect from us going forward. As Mark mentioned 90 days ago, think of this as evolutionary, not revolutionary, it is our term to carry the torch and prepare our organization for future growth. First, we have a customer-centric organization, always have been, always will be. As such, we will continue to work tirelessly on behalf of our customers and shareholders to deliver long-term value. Second, we will continue to cultivate our unique culture, which attracts, retains, empowers and enables our people, allowing their true self to turn up to work every day. Third, we will remain focused on increasing margins and delivering sustainable free cash flow through a combination of enhancing the mix of our business and excellent operational execution. It’s my belief that this in turn will allow us to earn an appropriate return on investment for the value we provide. Moving on to our business, today we see incredible tailwinds driving our business forward. For instance, this year, we are seeing robust growth in our industrial business in areas like renewable energy generation and storage. In automotive, the team continues to navigate multiple complex program introductions, increasing both our scale and addressable content per vehicle. And in healthcare, we continue to win new business in areas such as digital health and precision medicine as the industry outsource trend accelerates. The success we are seeing in these areas is a key proof point of our team’s ability to leverage multiple capabilities across fiscal end markets as we continue to diversify our service offerings. Moving on to the year, I am pleased with the momentum underway in the business. We expect good growth and operating leverage, which gives us the confidence to raise our expectations for core margins to 4.9% for fiscal 2023. At the same time, we remain highly focused on delivering more than $900 million in free cash flow and when I think about Jabil beyond fiscal year 2023, there is a tremendous amount of opportunity ahead. Between the mix of business and the growth trends underpinned by our long tenured management team, I am confident that we can drive the company at above 5% core margins with sustainable strong cash flows. This will afford us tremendous flexibility in our capital allocation. In the coming years, we will remain focused on executing buybacks when they produce strong returns for shareholders and remain committed to a dividend. As it relates to M&A, you will see us continue to focus on capability building deals consistent with the past several years. And finally, we will ensure our capital structure is optimized and remain committed to maintaining our investment-grade credit profile. In closing, I feel it is appropriate to send a message to our people here at Jabil. I have spent over 20 years at our company and I am excited to be a leader. I will strive to make you proud. At Jabil, our people are our greatest asset. Our strength is in our ability to bring together a collection of people from diverse backgrounds, different experiences and multiple generations and moved into a culture that across the world is both consistent and a true differentiator. Being no doubt that all that matters every day is that you give away your best, focus on performance and strive to be the leader or coworker you wish you had. In summary, bring your true self to work each and every day without anxiety or fear of recourse. I am truly grateful to each and every one of you for all that you do. I will now turn the call over to Adam.

Operator:

Thank you. [Operator Instructions] Our first question today is coming from Ruplu Bhattacharya from Bank of America. Your line is now live.

Kenny Wilson:

Yeah. Thanks for the message, Ruplu. I really appreciate it. Yeah. So, as you know, the EMS, the automotive industry when you do automotive business, you have got to be -- it takes you a while to get qualified. The programs run for five years, six years, seven years. You also got to be able to leverage that capability consistently in multiple geographies across the world. So that kind of plays to our strength and we see that -- for sure we think there’s enough opportunity and enough heeding for multiple different suppliers or competitors. So, yes, we are pretty confident that, we have got a value proposition that’s going to see us continue to grow our business in automotive in the longer term. In terms of -- in the EV space, if we look at our total automotive business, it’s in the order of 80% to 90% of our business now is kind of EV and autonomous. So I think you should expect -- we are pretty confident that basically we are well positioned. We have got business with most of the large OEMs and we are very, very confident that’s going to grow and continue across multiple geographies in the future.

Mike Dastoor:

Yeah. Thanks. So, if you look at EBIT. EBIT has grown from December by about $25 million, but on the other side of the coin, interest costs have gone up as well, our business -- our operating business, our secular trends, all the end markets that we perform in, that’s actually going really well. Performance is stronger than we have anticipated. So we have taken EBIT up. Unfortunately, we have had a slightly higher level of inventory, mainly due to couple of reasons. There’s timing where inventory came in at the end of the quarter. The opposite side of that shows up in AP. So I am not that worried about that piece. But the auto supply chain continues to be tight. We sort of anticipated it improving over the quarter and the rest of the year. We are not seeing that. So it’s not getting worse, but it’s not getting any better either. So there’s inventory and then on the interest side, obviously, the short end of the interest rate curve has steepened over the last 10 weeks, 12 weeks, notwithstanding the last three days or four days. The short-term borrowings that we have to finance our working capital has gone up as well. So it’s a little bit of a positive story and that our underlying business is performing really well. We are having some level of temporary issues with inventory and interest rates. If you look at the other side of that, when we come out of this at some point in time over the next three quarters, four quarters, interest rates, interest costs, everything should subside at our inventory levels should be much better as well. So right now, our inventory is in that 68 days, 69 days sort of the net inventory that we have announced. The expectation is for it to be in the 60 days, 65 days in the medium-term and I actually expect it to go down to 55 days, 60 days in the long-term as well. So, plenty of positive momentum to come at some point in the future as well, Ruplu.

Ruplu Bhattacharya:

Okay.

Ruplu Bhattacharya:

Okay. Mark thanks for all the details there and congrats on the strong execution.

Operator:

Thank you. Next question is coming from Steven Fox from Fox Advisors. Your line is now live.

Mark Mondello:

Thanks, Steve. Are you saying or suggesting. I couldn’t quite hear you correctly. Are you saying automotive is going to slow next year?

Mark Mondello:

So we have done….

Mark Mondello:

I didn’t know. I just wanted to clarify. I don’t know if you are asking in terms of a macro slowdown, slowdown to Jabil, slowdown in absolute dollars or slowdown on our CAGR growth rates, so?

Mark Mondello:

Yeah. That’s -- I think that’s fair. We have come off of, I don’t remember the exact numbers, but I think 2021 to 2022, the business grew north of 40%, 2022 to 2023 if things hold, it will grow north of 40%. I don’t think next year, it’s going to grow north of 40%. But I think, if I had to speculate, I think, of our eight sectors, I think, automotive and transport will certainly be towards the top in terms of growth 2023 to 2024 on a relative basis. I mentioned on Ruplu’s question on how the margins, I think, again, when we look at the back half of the year, we are really, really satisfied, excuse me, with overall margins and really satisfied with margins taking it up 10 bps for the year. Intertwined in that, though, is we have a ton of activity going on in auto EVs at the moment and there’s a lot of that activity that hasn’t reached maturity yet and we expect it to do so in 2024. So almost independent of whether the growth is 10%, 20%, 30% next year. I think the activity and the efforts we are putting into that space at the moment are going to have a good result and a good outlook and outcome in 2024.

Mark Mondello:

I think we -- we have been saying this since we did the JJMD deal and then we got hit with COVID. I think, philosophically, we are directionally correct in our hypothesis around opportunities to be able to capture more and more outsourcing in the personalized digital overall healthcare space. As you know, it’s a very, very, let’s just say, formal marketplace. So decisions are very well thought as they should be with a lot of patients being involved. But nothing’s changed at all in terms of our overall thoughts and commentary we have been making the last couple of years in terms of how that market looks for us and how we are positioned for that market. I think timing has been a little bit slower than we anticipated, but nonetheless, the trajectory of that is still in really good shape.

Mark Mondello:

Yeah.

Melissa Fairbanks:

Hi, guys. Thanks very much. I have got two questions, they may be related, so I will just ask them both at once. It’s great to see you raise the full year revenue target for industrial and Semi-Cap. You did mention the strong growth in renewables. I was wondering if you could give us an update on your expectations for the other businesses in that segment, Semi-Cap and elsewhere? And then as a second, very nice move higher on the operating margin target for EMS as Mark highlighted, what’s driving that upside? Thanks.

Melissa Fairbanks:

Just wondering if that’s kind of what’s driving the higher operating margin target for EMS, just a mix up or is there is internal efficiencies or what else?

Melissa Fairbanks:

Excellent. Thanks very much.

Operator:

Thank you. Next question is coming from Paul Chung from JPMorgan. Your line is now live.

Mark Mondello:

We always see competition. I feel without -- I don’t really want to get into quantifying it. I just think -- we are a U.S. domiciled company and if there was ever a geography that I feel really, really good, again, I think, we compete really well all over the globe. I feel very good about our ability to compete in the Americas. We have always -- we have a longstanding track record in how to run, execute and offer great customer care out of Mexico and the U.S. In terms of getting into the competition of who they are it’s the same competition we have all over the globe. If you are inferring that over the next coming years, maybe overall growth rates might be quite good in North America and Mexico. If you are serious on that or your inference on that is correct, we are very, very well positioned both in U.S. and Mexico.

Mark Mondello:

You are welcome. For us, mobility -- if I think about FY 2022, if I think about our outlook in September and if I think about where it is today, mobility hasn’t changed much, it’s plus or minus $100 million on nearly a $4 billion base. So mobility is kind of turning out about how we thought it would and both on an absolute scale and a relative scale to September in FY 2022 and there’s a lot of puts and takes there. Our overall consumer business, though, is we -- it’s weak compared to 2022, it’s weak compared to what we thought in September. Has it bottomed? Not sure. Let’s see what happens. There are so many moving parts. You have seen what has happened this week in the banking industry. We will see what the interaction is both from the government, both from the Fed. So, again, the nice thing is, is our consumer business is well diversified. In terms of the sector or end market as a whole, I don’t know if I would have enough insight to suggest it’s bottomed or not, I would say that, we have taken a very significant hit in consumer. I think our outlook for the back half of the year is rational and with that we are taking the year up in terms of margins by 10 bps and we feel really, really good about that. And again, I think, it’s illustrative of the composition of the overall company today.

Mark Mondello:

You are welcome.

Shannon Cross:

Hi. Thank you very much. Speaking of turmoil in the banking system we are still here.

Shannon Cross:

Thank you. Yes. To all the clients out there we are alive and kicking. So with -- just a couple of questions. On the EMS margin you attributed the improvement to scale leverage. Can you elaborate more on that and then maybe just talk about how you see scale versus mix versus cost optimization playing through as you look forward on operating margin? And I have a follow-up.

Shannon Cross:

Yes.

Shannon Cross:

Okay. Thanks. And then, I guess, as you think about capital allocation, obviously, shareholder, sorry, share repurchase remains a key focus. How are you balancing the opportunity, say, in auto where, obviously, there’s significant growth potential versus returning cash to shareholders? What’s -- I know you go through probably just a returns based analysis, but how are you sort of thinking about it holistically and potential for, I don’t know, small acquisitions as well?

Shannon Cross:

Great. Thank you so much.

Operator:

Thank you. Next question is coming from Matt Sheerin from Stifel. Your line is now live.

Mark Mondello:

We -- so if you think about the business and again we combine 5G wireless, infrastructure and cloud together, as you know, from what we thought it was going to be 90 days ago in December. I actually think we guided it up by, I think, roughly $100 million relative to December and we are getting back to levels that actually we thought it would be back in September. So there’s pockets of that where we are seeing a little bit of weakening. Overall, though, a reminder, our 5G wireless business is very global in nature. So to the extent that there’s any and I am not suggesting there is or isn’t, but to the extent there’s any type of pockets of weakening in North America, we are really fortunate to have that business well diversified and our overall cloud solution, cloud business today is continuing to execute and operate slightly above the plan.

Mark Mondello:

Yeah. This is a recurring topic and rightfully so because it’s been awful the last 18 months. We started tapping the drum and then maybe pounding the drum as we exited the summer of 2022, moved into fall of 2023 with opinions that the supply chain would probably get better sooner relative to maybe some other projections. It also, I think, is illustrative of advantage point we have with our scale cutting across so many different end markets. That’s played out to be true. And I would say, in general terms, I believe we talked about maybe during the September Investor Day, that we thought the supply chain, although, maybe not fully back to normal, would normalize by late winter, spring time of 2023 and that’s shown to be true. So, all in all, as we continue to move into the summertime of calendar 2023 and into the fall we see the supply chain getting better and better.

Mark Mondello:

You are very welcome.

Mark Delaney:

Hey. Good morning. Thank you for taking my questions. Kenny, congratulations on the expanding responsibilities. First on the full year revenue guidance, I recognize there’s no change to the overall guidance. If I look at the second half, in particular, it does imply year-over-year revenue declines especially in the EMS segment. I recognize there’s a high base that’s perhaps a factor. But could you double click a little bit on what’s happening in the second half? How much is maybe that high base in program timing and how much might be macro factors that are contributing to that?

Mark Delaney:

That’s helpful, Mark. Hopefully, you can hear me a little bit better now, I removed my headset. But I was also trying to get at whether or not you thought the declines in the second half was due to program timing and just a high base from last year or you would attribute it to macroeconomic trends?

Mark Delaney:

Well, specifically in the EMS part of the business being down year-on-year. It looked like it was a tough comp. So was it kind of more program timing or would you attribute it more to macroeconomic factors?

Mark Delaney:

Correct.

Mark Delaney:

That’s very helpful. Thank you.

Operator:

Thank you. We have reached the end of our question-and-answer session. I’d like to turn the floor back to management for any further or closing comments.

Operator:

Thank you. That does conclude today’s teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

Adam Berry:

Good morning, and welcome to Jabil's first quarter of fiscal 2023 earnings call. Joining me on today's call is Chairman and Chief Executive Officer, Mark Mondello; and Chief Financial Officer, Mike Dastoor. Please note that today's call is being webcast live, and during our prepared remarks, we will be referencing slides. To follow along with the slides, please visit jabil.com within our Investor Relations section. At the conclusion of today's call, the entirety will be posted for audio playback on our website. I'd now like to ask that you follow our earnings presentation with slides on the website, beginning with the forward-looking statement. During this conference call, we will be making forward-looking statements, including, among other things, those regarding the anticipated outlook for our business, such as our currently expected second quarter and fiscal year net revenue and earnings. These statements are based on current expectations, forecasts and assumptions involving risks and uncertainties that could cause actual outcomes and results to differ materially. An extensive list of these risks and uncertainties are identified on our annual report on Form 10-K for the fiscal year ended August 31, 2022, and other filings. Jabil disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. With that, I'd now like to shift our focus to our solid quarter. To kick off the fiscal year, the team delivered approximately $9.6 billion in revenue, well ahead of our forecast and at the top end of our guidance range, driven by even better-than-expected revenue in automotive, healthcare and industrial. All other end markets largely performed consistent to our expectations from 90 days ago. When you put all of this together, at the enterprise level, revenue grew by 12% year-over-year and 7% sequentially. Core operating income during the quarter was $461 million, an increase of 15% year-over-year, representing a core operating margin of 4.8%. This is up 10 basis points over the prior year and in line with expectations. From a GAAP perspective, operating income was $362 million, and our GAAP diluted earnings per share was $1.61. Net interest expense in the quarter came in higher than expectations at $66 million as the combination of higher interest rates and better-than-expected demand drove our working capital needs higher during the quarter. During the quarter, we also repurchased 2.6 million shares for $161 million. Core diluted earnings per share was $2.31, a 20% improvement over the prior year quarter and at the higher end of our range as core operating income grew much faster than net interest expense. Now turning to the segments. Revenue for the DMS segment was $5.1 billion, an increase of 8% on a year-over-year basis and ahead of our plan from September, while core operating margin for the segment came in at 5.2%, slightly below expectations as upside strength in automotive and healthcare was offset by operational inefficiencies associated with mobility in China. Revenue for our EMS segment came in at $4.5 billion, an increase of 18% on a year-over-year basis, while core margins for the segment was 4.3%, up 50 basis points year-over-year, reflecting solid operational execution on strong revenue growth. So in summary, another strong quarter is in the books for Jabil. And I know the team here is extremely proud of the strides we've made to not only improve our business over the last 10 years but also make it stronger and more resilient. In a moment, I'll turn the call over to Mark and Mike to provide some additional thoughts on our performance in the quarter and update our outlook for fiscal '23. And I think you'll see there's still so much opportunity as we move into fiscal '23 and beyond. Thanks for your time today. It's now my pleasure to turn the call over to Mike.

Mark Mondello:

Thanks, Mike. Good morning. I appreciate everyone taking time to join our call today. I'll begin by saying thanks to our team here at Jabil. Thank you for your attention to detail, and thank you for the way you care for and accept one another. Your attitude is amazing, and your dedication is incredible. With that, let's move to our next slide. It's staggering when I think about what our team has built and tailored over the past five to six years. A large-scale portfolio of business sectors, eight discrete yet interwoven sectors, which offer Jabil a high degree of resiliency during times of macro and geopolitical disruption as well as gearing times when we simply welcome the ongoing demands placed on us by our customers. IN looking at this slide, I think about a world where countless products and a massive number of supply chains need to be created, redesigned or modified, therefore placing Jabil deep in the heart of essential end markets. Before moving to our next slide, it's worth revisiting the topic that we addressed during our Investor Day event back in September, the topic being the intentional output of the portfolio you see in front of you with the intention being that no single product contributes more than 5% to Jabil's overall earnings. This result is a good thing. It's a really good thing, especially when we think about dependability and sustainability. It also shines a bright light on the strategic importance of diversification and scale and the clear impact it has when operating our business. In recognizing our Q1 results, along with our 2Q guide as detailed by Adam and Mike, combined with a watchful eye on the back half of the year, we find ourselves with an updated financial plan for FY '23, an outlook which has us increasing core earnings per share to $8.40, an increase of $0.25 from our forecast roughly 90 days ago. In addition, we believe that core operating margin will hold at 4.8% for the year on revenue of roughly $34.5 billion, while free cash flow remains north of $900 million. Integral to this outlook is the fact that our team is doing an exceptional job of proactively managing costs and controlling what they can control in today's environment. Moving to our next slide. I'll share thoughts on our path forward. Shown here are fundamental catalysts, which are key to favorable results and future outcomes for Jabil

Operator:

[Operator Instructions] Our first question is coming from the line of Steven Fox with Fox Advisors.

Mike Dastoor:

Hey, Steve. Yes, so the inventory days that we just printed 61 days, down 1 day from Q4. A normalized run rate, Steve, would be around that 55, 57. That's what I expect. Not anytime soon, but that is the ultimate sort of aim. I do expect that 61 days to continue to go down to that 58, 59 level. There will be quarterly nuances, timing nuances, et cetera. But overall, the trend would be in the downward direction, particularly with the supply chain constraints easing, as you mentioned.

Mark Mondello :

Steve, that's an area of our business. As you know, it's embedded in our industrial business. We don't tend to break out all the individual products. But in terms of overall energy management, clean energy, et cetera, that's an area where, if you take a look at our overall industrial growth, I would say that the growth rate of that component of our industrial business is greater than most of the other industrial business. So whether it be solar, whether it be off-grid battery storage, whether it be new efficiency of off-grid power generation, mobile power generation, it's an area that's, from a strategy standpoint, very important in the next three to four years of the overall industrial business. I'd equate it -- I don't know that the growth will be as secular as maybe EVs. But five, six years ago, when we made decisions to go hard into the EV market and move a lot of our resources that way, you could think of it a bit the same in terms of our overall industrial business. That part of our industrial business is getting a lot of attention.

Mark Mondello :

Yes. You're welcome. I guess I'd make a general statement and a specific statement. I think one of the interesting characteristics of Jabil is to be really effective in this business over the long term, I think scale matters. And then in one of the slides that we just indexed through, if you look at the overall portfolio today that make up the $34 billion, $35 billion of revenue, the balance of the portfolio is substantial. And so again, coming back to your specific question, when I think about the markets that you're referring to, A, we've got a whole set of engineering staff that are, let's just say, expert in that area. But much like all of our businesses, they also have a vast pool of engineering resources in other sectors that they also get to confer with and talk to and think about being creative in terms of overall solutions in the industrial space. And I think that makes a big difference.

Jim Suva :

You mentioned a little bit of manufacturing challenges with the DMS segment. I assume that has to do with the COVID closures and things. Can you just update us as we sit here now around December 15? Have those kind of been back to normalized? Are there still inefficiencies going on? Or any changes in how we should think about those efficiencies and inefficiencies?

Jim Suva :

And then as a follow-up on a different topic, you mentioned some more consigning. That was kind of the same customer? Or is it expanding more or the relationship getting deeper? Or is it kind of getting broader for the consignment? I'm just kind of curious, it seems like to me, I should think about the consignment as a good thing for like more sticky business and sticky relationships.

Mike Dastoor:

And Jim, if I could just add, I think when we gave guidance in September, our assumption was that the consignment would start sometime in March. We actually managed to get it done far earlier in November. So you're seeing an earlier impact of this consignment piece showing up in our -- a little bit in Q1 but mainly in Q2.

Shannon Cross :

I wanted to understand a little bit more about the decision to reduce costs. I understand there's continued productivity improvements that you can do. But I'm wondering sort of what you saw out there that led you to do this? And how much of it is proactive versus changes you've already seen in customer behavior? And then I have a follow-up.

Mike Dastoor:

And Shannon, our business assumptions continue to be extremely robust. I think I highlighted some of the secular trends that we're actually participating in. All of those continue to show very decent growth.

Mark Mondello :

Thank you. Happy holidays to you too. I don't know that there's a general theme. I think we have 400-plus customers, and I think our customers' thoughts are all over the map, and they're doing the best for their business based on their products. Everything -- and this will give you a little bit of a feel for the complexity of it. And by the way, it's why our structure is so efficient and so optimal in terms of customer solutions. Here at Jabil, we don't run our business on a factory basis. We run it customer by customer, line item by line item. And the reason we do that is let's just take a product that, let's say, the unit cost is x, but the ability to move that product around the world in terms of distributing the product is very expensive. Well, that would suggest maybe we build it in-region. We have other products that cost y and moving that product around the world is very small relative to the cost of the product, and we might consolidate that to a single spot in the world. Then you add to it, all the different geopolitical issues, the very unfortunate issue that continues to wane on in the Ukraine. So it's hard for me to go, geez, this is kind of the herd mentality of our customers because the business just doesn't act that way. Also, I would suggest that when you look at our portfolio, and you look at the eight sectors that we define and then you think about all the subsectors of the business, Again, one of the things I think is a huge strength at Jabil is the diversification. And with that diversification becomes endless amounts of solutions. And again, I take you back to our approach and our structure. We kind of work with each customer in a very unique way, accommodating their needs. With that being said, I would say that you'll probably see us do some expansion in Eastern Europe. You'll probably see us continue to expand in Mexico. I think we feel pretty good about our footprint in China. And you'll probably see some expansion over the next couple of years in India.

Matt Sheerin :

I have a question, Mark, regarding your updated revenue guidance for FY '23. You're raising the outlook for auto and healthcare. Is that related to just better supply conditions or demand related? Why taking that number up -- taking those numbers up?

Matt Sheerin :

And then a question, Mike, regarding the incremental consignment revenue that you talked about. So total $800 million in revenue going to consignment for your cloud customer. Does that move the needle on gross margin at all? Is there any change in terms of the operating margin or operating income on that business?

Mark Mondello :

If I could add to that, here's a real simple way to think about it in very round numbers. Two years ago, the overall op margin for the company was 4.2%. Last year, it was 4.6%. This year, at the beginning of the year, we suggested that the op margin for the year will be 4.8%. We're holding to that 4.8%, which we're proud of. So there's a 20 bps expansion between '22 and '23. About half of that is based on our cost management for the back half of the year as well as continuing to advance our asset-light nature of our cloud business and the other half of that is the lack of a better word, the core business. But what's interesting is, I don't even like differentiating that because for me, all of this activity goes hand in hand with running a good business. So -- but in terms of your modeling and the way to think about it, I think that's a reasonable way to think about it.

Ruplu Bhattacharya :

My first question is on the DMS segment. Mark, you're seeing strong growth in automotive and healthcare, and you've taken up those two segments combined by $600 million for the full year. Like you said, the consumer-facing end markets in that segment are weaker, and you're taking that down by 200 basis points. Net when I look at operating margin, it's down 10 bps. So my question to you is if the consumer-facing end markets get weaker, can you talk us through your thoughts on margin risk in DMS? I mean, how -- do you think margins can go lower in that segment? Or what offsets do you have -- and typically, the reason I'm asking this is because typically one would think automotive and healthcare to be higher-margin end markets. So if you're seeing a mix shift into that, what's driving the 10 basis points lower? And how do you see risk to that if the consumer-facing markets go lower?

Ruplu Bhattacharya :

For my second question, if I can ask, Mike, 4.8% operating margin total for the company. Can you help us quantify the inflation pass-through impact on that? I'm assuming like other EMS companies as component costs have gone up, you're passing that through. I'm not sure if it's a dollar for dollar, but if it is, then your revenue should be hurting -- but sorry, your margin should be hurting because of that. And so what would that 4.8% have been if there was no inflation pass-through? And when we think about modeling margins, if we look back, the Slide 13 that you have, you've kind of shown us the last five years and how the margins have progressed since fiscal '19, very strong performance. But I mean, as we model out going forward, what are the puts and takes here? Like I mean you're going to get a benefit as inflation goes down. That should help margins. But what are the other things that can drive margins? And any guidance you can give to -- how do you think about what the target margins can be in the long term?

Ruplu Bhattacharya :

Got it. I mean I really appreciate all those details. And wondering, maybe now if I can sneak one more quick one in. I know you've announced Kenny Wilson to be the new CEO effective May 1, and you're going to take on more of a strategy, corporate development role. So can you just talk about from now until then, what are some of the handover activities you're going to do? And should we think of any change in direction to the company? Or how should we think about this transition? Congrats again on the quarter.

Operator:

Our next question is coming from the line of Paul Chung with JPMorgan.

Mike Dastoor:

Yes. So the free cash flow assumptions that we have today that reflect everything reflect they reflect the sort of charge that we've taken, the cash outlay associated with that. Don't forget that the savings on the other side of that as well. So there is definitely everything that's out there is reflected in the free cash flow. From a Q1 standpoint, I think it's more timing. We've talked about our CapEx being in that 2.5% range. Not much changes from that 2.5% guidance that we provided in September. You'll always have timing differences. You'll have nuances. From a shape of the year perspective, I sort of -- I’d just use shapes from previous years. I think it will be very similar to that. Obviously, timing moves things here and there a little bit. But overall, we still feel committed to our $900 million free cash flow number for the year as well.

Mike Dastoor:

I would suggest all of you about, Paul, I think it's definitely a mix, operational efficiency, something we always execute on. We've always invested in the past around automation, robotics, et cetera. So we feel good about that as well. And overall, the margin, does it go beyond 5%, 5.5% as well. We're not stopping at 4.8%, and we're definitely not stopping it at 5% either. So it's something we're actively engaged in and feel very strongly about.

David Vogt :

I have a big picture macro question on sort of demand. And you talked about your demand characteristics being relatively consistent with 90 days ago. But I'm trying to square it with your commentary being a little bit more cautious as we move through the back half of this year. I guess my question is when you think about what's happening in the marketplace, we're seeing some intensity drop from a capital spend in telcos and cloud. How much of your demand visibility or your revenue visibility has to do with elevated backlogs because supply chain has been sort of elevated for quite some time versus the in-period demand that you're seeing today from your customers? And then I have another question.

David Vogt :

No, that's helpful. What we're trying to kind of understand is sort of the normal cadence of sort of order trajectory of the business, stripping aside what we've kind of lived through the last couple of years. So that's helpful. We appreciate it. And then maybe just a final question on cash flow and capital priorities. You've done a great job in terms of returning shareholder capital and managing cash flow over the last couple of years. Does your commentary about the second half or maybe some of the cash used for the restructuring change any of your priorities in the balance of this year. I wouldn't think so, but just wanted to just confirm with you.

Mark Mondello :

We have reached the end of our question-and-answer session. With that, this does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day, and happy holidays.

Mike Dastoor:

Thanks, Adam. Good morning, everyone. Thank you for joining us today and for your interest in Jabil. Our business model has been intentionally structured with the aim of delivering core operating margin expansion, sustainable earnings growth and strong predictable cash flows. On top of this, our capital structure has been optimized to maximize our flexibility. This flexibility has enabled us to reshape our end market portfolio over the last several years, which has performed extremely well evidenced by a very strong FY ‘22 results. I am extremely pleased with the resiliency of our business, particularly considering the numerous challenges throughout the year with ongoing COVID waves, war in the Ukraine, global inflation, supply chain challenges and multiple energy shortages. Despite these challenges, we delivered year-on-year growth in revenue of 14%, core operating income of 24%, and core EPS of 36%, all while increasing core operating margin by 40 basis points over FY ‘21. At a segment level for the year, our DMS revenue was $16.7 billion, an increase of 9% over the prior year, while core operating income for the segment was up 12% year-over-year. This resulted in core margin expanding 10 basis points to 4.9%. In EMS for the year, core operating income growth was incredibly strong, up 43% over the prior year. This resulted in core margin expanding an impressive 60 basis points over ‘21 on revenue of $16.7 billion. The strength in our EMS margins is reflective of our improving mix and strong leverage on 20% year-over-year revenue growth. Turning now to our cash flows and balance sheet. In FY ‘22, fourth quarter cash flow from operations was $1.65 billion. For the quarter, inventory days came in at 79, down 6 days sequentially on improved working capital management by the team. It’s worth noting that we offset a portion of our higher inventory levels with inventory deposits from our customers, which reside within the accrued expenses line item on the balance sheet. Net of inventory deposits, inventory days was 62 in Q4, down 8 days from Q3. While I am pleased with the sequential decline in inventory days, the team continues to be fully focused on bringing this metric down further in FY ‘23 as some of the supply chain constraints continue to ease. Net capital expenditures for the fiscal year were $841 million or 2.5% of net revenue. As a result of the strong Q4 cash flow generation, adjusted free cash flow for fiscal year came in higher than expected at approximately $810 million. And finally, we exited the quarter with total debt to core EBITDA levels of approximately 1.2x and cash balances of $1.5 billion. Next, I would like to provide some clarity on our CapEx as shown in our cash flow statement. As a reminder, our customers routinely co-invest in plant, property and equipment with us as part of our ongoing business model. We often pay for these co-investments upfront, which are then later reimbursed to us by customers. Due to the high dollar value, these co-investments from our customers and how they are reflected on our cash flow statement, it is important that the two line items shown on the slide to reflect the true CapEx number and what we refer to as net capital expenditures. Our net capital expenditures for the fiscal year amounted to $841 million. Moving now to our capital returns to shareholders on the next slide. During the fourth quarter, we repurchased 3.8 million shares, bringing total shares repurchased in FY ‘22 to 11.8 million shares or $696 million. To-date, we have utilized $737 million of our $1 billion authorization granted in July of last year. This brings our cumulative shares repurchased since FY ‘13 to approximately 102 million shares at an average price of $30, bringing our total returns to shareholders, including repurchases and dividends to approximately $3.6 billion, reflective of our ongoing commitment to return capital to shareholders. In summary, I am extremely pleased with the resiliency of our portfolio and the sustainable momentum underway across the business, which has allowed us to deliver exceptionally strong results in fiscal ‘22. Moving to the next slide, where I will offer some insight about how we are thinking about the business this year by end market. Across most of our end markets, demand has been extremely resilient, particularly in end markets that continue to benefit from strong secular tailwinds, many of which Adam highlighted a moment ago. We continue to expect these secular markets to expand in FY ‘23. We also expect some consumer-centric end markets to underperform compared to the robust growth for the past 18 months. Unlike in past economic slowdowns where Jabil was highly concentrated in a particular product or end market, today, it is critical to think of Jabil not as one company, but as a well-diversified accumulation of many end markets, a number of which we expect will continue to benefit from long-term secular tailwinds. This product and end market diversification, coupled with our global network of connected factories, global best-in-class supply chain management and deep domain expertise, makes Jabil today markedly more resilient than we were 5 to 10 years ago as evidenced by our strong results in the last few years in the face of multiple significant global challenges. Our FY ‘23 guidance assumes a moderate economic slowdown and some moderation in growth, which will impact certain end markets more than others. I would now like to walk you through each end market and describe how we are thinking about our business in the coming year. In our automotive and transportation end market, we expect the global transition to EVs to continue to drive robust growth within our automotive business despite choppy overall demand in global automotive purchases. Our view is that EV adoption will continue to accelerate and gain a larger share of the auto market in FY ‘23 regardless of the near-term global growth dynamics. Jabil’s content per vehicle, which can be as high as $3,000 or more for a fully electric vehicle, continues to increase, which provides further confidence in future growth. It’s also worth pointing out that project lifecycles in this end market run as high as 7 or more years, providing a high level of stability and stickiness. In healthcare today, the industries are undergoing tremendous change due to rising costs, aging populations and the demand for better healthcare in emerging markets. OEMs are seeking to address these dynamics by shifting the focus away from manufacturing to improving patient outcomes. Jabil’s credibility in the healthcare space has positioned us well to take advantage of this outsourcing of manufacturing trend. Should we enter an economic slowdown, it is our view that OEMs would in fact look to accelerate this outsourcing trend. A recession-resistant end market with long product lifecycles and accretive margins and stable cash flows is why healthcare continues to be such an important component of our diversified portfolio. Within connected devices, which I remind you is made up of a number of different customers, demand generally remains resilient. But given the consumer-centric nature of this end market, as we move from the pandemic fueled consumer spending to a more normalized environment, we feel it’s appropriate to take a conservative outlook and expect some moderation in growth. And in mobility, demand signals continue to be strong as we navigate through our Q1 quarter. This quarter, which has historically been associated with channel fill during the seasonal product launch, is our highest revenue quarter. It’s worth noting we have a long track record of operating successfully in this end market, which is being uniquely positioned within the portfolio as we partner with the most innovative brand and market leader in the space to supply key capabilities that are critical and hard to replicate. In summary, for DMS to me, the key takeaway this year is the considerable mix shift underway. In FY ‘23, automotive and transportation and healthcare and packaging are expected to be more than half of our DMS business with estimated revenue growth of approximately $1.2 billion combined in FY ‘23. Putting it altogether for DMS in FY ‘23, we are expecting 20 basis points of margin expansion on a low to mid single-digit revenue growth. Turning now to EMS, in digital print and retail, we expect some moderation in consumer print as people return to office to slightly offset growth in industrial print and e-commerce and warehouse automation systems. Within retail, both in customer-facing stores and in the warehouse, technology is shifting rapidly. As a result, we are building and ramping some of the most complex e-commerce and warehouse automation systems in the industry, which gives us confidence in our FY ‘23 outlook. Within our industrial business, we expect clean and smart energy infrastructure to drive growth for FY ‘23. There are a few major trends which drive growth in this space, but the overarching one is the green energy revolution. Government legislation such as the recently enacted Inflation Reduction Act in the U.S. with the sizable subsidies and incentives is already beginning to increase investment in the space. As a reminder, we play across the entire energy value chain from energy generation in solar panels, power conversion, transmission, storage and metering to the management of power inside of homes and buildings. These projects have multiyear investment timelines independent of underlying short-term economic growth forecast, so we feel comfortable with the visibility we have in this space. Within semi cap, so far customers continue to march ahead with CapEx investments executing to their investment roadmaps with the recently introduced CHIPS Act providing an additional catalyst in this space. I remind you our strategy in this end market has been very thoughtful due to the high cyclicality of the semi cap market. And we have been very conservative around how we have invested in this business and our forecast for FY ‘23. On the 5G side, infrastructure rollouts are going extremely well and demand remains high in the U.S. and Europe. Rollouts are accelerating and our localized manufacturing capabilities are leading to market share gains in other geos such as India. We expect these rollouts to play out over the next several years regardless of near-term economic conditions. Therefore, we anticipate the 5G end market to continue to be resilient even in the face of moderate global slowdown. And in the cloud space, our expectation is that the ongoing shift away from on-prem will continue to accelerate, driving long-term growth in the space. If economic conditions weaken, our views of the cloud space should be a beneficiary as companies look to reduce costs in a moderating growth environment. It’s worth reminding everyone we have deliberately structured our cloud business as a geo-centric, asset-light service offering with very low levels of CapEx and working capital. To ensure this business remains asset-light, we routinely look for mutually beneficial arrangements with our customers to optimize our asset-light model. With this in mind, in FY ‘23, approximately $500 million in components we procure and integrate will shift from the current purchase and resale model to a customer control consignment service model. This is in addition to the consignment of certain components we had announced in earlier years. This change will allow us to use our assets more efficiently in addition to improving margins. Adjusting for this shift, we expect continued robust unit growth in the cloud space in FY ‘23. And then finally, within legacy networking and storage end markets, the value proposition that Jabil provides, the best-in-class supply chain management, deep domain expertise and engineering capabilities and manufacturing in multiple geos, is resonating with our customers. And we expect market share already gained in the second half of FY ‘22 to drive growth in FY ‘23 with higher margins and robust cash flows. With the current mix of business in EMS, we expect 20 basis points of core margin expansion in fiscal ‘23 on low single-digit revenue growth. In summary, Jabil is not only well-diversified, but also markedly more resilient due to our multiyear proactive efforts to diversify our business and align to tomorrow’s trends. As a result, we feel the outlook for our business is solid and expect demand to be resilient with year-over-year revenue growth at an enterprise level to be approximately 3% for FY ‘23 in spite of an economic slowdown. Moving to the next slide. For FY ‘23, we expect core operating margins to improve by a conservative 20 basis points over the prior year mainly driven by end market growth and improved mix of business. We also expect the investments we have made in areas such as IT, automation and factory digitization will drive improved optimization across our footprint, which will translate to higher margins in the future. Turning now to our CapEx guidance for FY ‘23, net capital expenditures are expected to be in the range of $875 million or 2.5% of net revenue. This will come through a combination of both maintenance and strategic investments for future growth and efficiency gains. In FY ‘23, we expect to continue to invest in targeted areas of our business with the bulk of our strategic growth CapEx aimed at the automotive EV space, along with the healthcare, 5G wireless, power generation and industrial end markets, generating multiyear returns in FY ‘23 and beyond. Our improved profitability, strong operational performance and disciplined investment has yielded significant cash flow over the last few years, which has allowed the company to strategically invest in higher return areas of our business. Moving forward, we expect to continue generating strong cash flows. This is possible as a result of earnings expansion, along with our team’s disciplined approach and ability to execute. In FY ‘23, we expect to generate adjusted free cash flow of more than $900 million. It is important to note that this estimate is based on our current expectations of a moderation in growth and continuing supply chain constraints in certain secular end markets. Paradoxically, a more severe recession is likely to improve cash flows due to the working capital nature of our business. Moving to the next slide. A key aspect of delivering high returns and delivering long-term value to shareholders is ensuring our capital structure is appropriately balanced and optimized. Over the last year, the team has done an outstanding job of building a solid and flexible debt and liquidity profile with current maturities appropriately staggered at an attractive interest rate. We ended FY ‘22 with committed capacity on global credit facilities of $3.8 billion. With this available capacity, along with our year-end cash balance, Jabil ended the year with access to more than $5.3 billion of available liquidity, which we believe affords us ample flexibility. And importantly, we’re fully committed to maintaining our investment-grade credit profile. Turning now to our capital allocation framework, we expect to generate significant free cash flow. Given this dynamic, it’s an appropriate time to reiterate our capital allocation priorities and at a high level, how we plan to deploy our capital over the next 2 years. This morning, included in our earnings filing, we announced a $1 billion share repurchase program authorization from our Board of Directors with this incremental authorization we have approximately $1.3 billion in share repurchase authorization, reflecting our belief and confidence in Jabil’s ability to generate strong earnings and free cash flows. Turning now to our first quarter guidance on the next slide. EMS segment revenue is expected to increase 2% on a year-over-year basis to $4.8 billion. And EMS segment revenue is expected to be $4.5 billion, an increase of approximately 15% over the prior year. We expect total company revenue in the first quarter of fiscal ‘23 to be in the range of $9 billion to $9.6 billion. Core operating income is estimated to be in the range of $415 million to $475 million. GAAP operating income is expected to be in the range of $367 million to $427 million. Core diluted earnings per share is estimated to be in the range of $2 to $2.40. GAAP diluted earnings per share is expected to be in the range of $1.65 to $2.05. Interest expense in the first quarter is estimated to be in the range of $56 million to $60 million and for FY ‘23 to be approximately $230 million. On fiscal ‘23, we will adopt an annual normalized tax rate for the computation for our core income tax provision to provide better consistency across reporting periods. As a result, the tax rate on core earnings in the first quarter and for the fiscal year is estimated to be 19%. As we transition to our final slide, we expect the momentum underway across our business to continue even in a subdued economic environment. Today, our business serves a diverse plan of end markets and areas that provide confidence in future earnings and cash flows. We have deep domain expertise complemented by investments we made in capabilities, all of which gives us confidence in our ability to deliver 4.8% in core margins in FY ‘23 along with $8.15 in core EPS and more than $900 million in free cash flow. And importantly, our balanced capital allocation framework approach is aligned and focused on driving long-term value creation to shareholders. I’d like to thank you for your time today, and thank you for your interest in Jabil. I’ll now turn the call over to Mark.

Adam Berry:

Thanks, Mark. There is clearly a lot to like about Jabil today. To summarize, we began by describing how Jabil has undergone deep and sustainable improvements to its business model. And we highlighted the solid foundation upon which the company sits today. Then Mike walked you through our financial playbook, highlighted by the strength of our portfolio, fueled by long-term secular tailwinds. And importantly, Mike talked about our financial outlook against a challenged macroeconomic background. To reiterate, today, demand still remains strong and well ahead of supply. But as Mike noted, conservatism has been baked into today’s model, which anticipates good revenue growth, expanding margins and strong cash flows. And finally, to wrap up our session today, Mark offered insight into our unique approach, solutions, portfolio and purpose. I want to thank you for your time today, and we appreciate your interest in Jabil. Operator, we’re now ready for Q&A.

Jim Suva:

Thank you and congratulations on the results and very strong outlook for both the quarter and the year. Our thoughts and of course, go out to you and your loved ones and families as the weather looks like it’s getting quite negative there with the hurricane. In lieu of that just wanted to know your outlook for the first quarter and full year. Does it build in a little bit for hurricane? I know it’s hard to predict, and I’m sure you’ve got a playbook for closing up factories and making sure, importantly, employees are safe and communicating with customers. But I assume that there is something built in there. Is that true? And I assume you’re probably going through procedures for the negative weather situation.

Jim Suva:

Great. And then as my quick follow-up, it sounds like your consignment model and could business is actually progressing to be a more deeper relationship than say a couple of years ago. Is that true? And does this lead to kind of increasingly more opportunities both on maybe less so revenues because it’s a net model, but more so profitability and more potential improvement in margins?

Jim Suva:

Thank you and congratulations once again.

Operator:

Thank you. Our next question is coming from Ruplu Bhattacharya from Bank of America. Your line is now live. Perhaps your line is on mute. Please pickup your handset.

Mark Mondello:

How should you think about seasonality? I just don’t – Ruplu, I know where you’re getting at, right? I don’t – I just don’t think seasonality – I don’t think of seasonality in the EMS space. It’s really about the evolving construct of the business. So what might appear on the surface as seasonality is just a continuance of reshaping that business again as we focus on a good blend of margins and cash flows. I guess for modeling purposes, I don’t want to be too prescript here, but I think with the guide that Mike provided for Q1 of ‘23, I think our margins on the EMS side year-on-year, I would guess we will be up 20, 30 basis points. So if you take a look at EMS by – and in and of itself, if you take a look at Q1 ‘22, you match that to Q1 ‘23, I would think the EMS margins will be up again 20, 30 basis points. And then if you kind of extrapolate out Q2, Q3, Q4, I would guess margins will be similar as they were in ‘22. And I think the best part of the overall story with EMS is in FY ‘21, I think our EMS margins were sub 4%. I think in FY ‘22, our EMS margins were 4.3%. And I think in FY ‘23, the EMS margins will be closer to 4.5% to 4.6%, somewhere in that range.

Matt Sheerin:

Hi, yes, thanks, and good morning. And thanks for all the good information so far. A couple of questions for me. One, just in your outlook, you are guiding networking and storage up roughly 6% for next year. A little surprising and strong given concerns about IT spending slowdown, is there – are you getting a positive forecast from customers of the supply constraints easing? And is that giving you some more confidence in your guide? Any color there would be great?

Matt Sheerin:

Okay, thank you. And then just a couple of smaller questions, one, just on your outlook, I don’t think you provided a share count guide for Q1 or for ‘23. Does your ‘23 guide contemplate lower shares with the buyback?

Matt Sheerin:

Okay. And just lastly, on the consignment shift with the cloud business, that 500 million, does that begin this quarter so that’s reflected in the year-over-year growth rates in Q1?

Matt Sheerin:

Okay. Great. Thanks so much again.

Operator:

Thank you. Your next question is coming from Steven Fox from Fox Advisors. Your line is now live.

Mark Mondello:

Let me comment on the last comment first. And I know Mike will add to it and correct me – he will correct me where I am wrong for sure. But I think the 80%, I think is firm. And I think that will include the buybacks plus our dividend over the next couple of years, and Mike can expand on that. In terms of the footprint, Steve, there is no big changes to our footprint anticipated ‘22 to ‘23. We really like the footprint that we have. We think that our current footprint with the number of factories you have in the U.S. and our ability to expand those factories might serve us well to the extent there is some re-showing [ph] with clean energy. We will see what happens with the CHIPS Act. We have been staying very close to that directly with our friends in D.C. There is a lot of details that need to be worked out there. But that’s one thing I could think about. But as we often say, the nice thing about Jabil is if you take a look at our capabilities, you take a look at our scale, almost independent of geopolitical issues, there is going to be some bumpiness for sure on the macro. But over the next 3 years to 5 years, there is a lot of things that still need to be built. And we have build stuff, and we do it awfully well. And we can accommodate the needs of nearly any geography either on the supply side or the demand side. I would – I think you asked about Southeast Asia and India. Over the last number of years, we have expanded into and continue to grow in Malaysia. We have ramped up a wonderful campus in Vietnam. We will continue – Southeast Asia will certainly continue to be of interest to us. By the way, we also have a wonderful footprint in Mainland China that we are pleased with. And then lastly, for India, I think India, we have done what I would consider moderate, maybe even modest on a relative basis investments in India around the Mumbai area in Pune. And that campus continues to scale. If I had to wave a magic wand and kind of guess what things might look like in India, say, in FY ‘24 or ‘25, my guess would be our footprint in India will be greater in fiscal ‘24 and ‘25 than it is today.

Steven Fox:

Great. All of that’s super helpful. Of course, positioned the best regarding the area. Thank you.

Mark Delaney:

Yes. Good morning. Thank you for taking the question and let me add my thoughts for everyone in Florida. The company’s fiscal ‘23 guidance assumes a slowdown in certain end markets, even though, as I understand it, demand is generally strong. So, double-click on that a bit, better understand. Are there end markets where the company has seen signs of macro-related slowness as you start fiscal ‘23, or is it really related to your assumptions about what may materialize based on your history with the business?

Mark Delaney:

That’s helpful. On supply chain, you said it’s getting somewhat better, but still issues. Are the issues semiconductor supply demand or are there other supply chain constraints that the company is dealing with? And can you just elaborate a little bit more on how you see that playing out over the course of fiscal ‘23?

Mark Delaney:

If I could sneak one last question in, that we mentioned electricity costs going higher in China, although I think, unfortunately, they are also higher in Europe. Maybe you could remind us to what extent those are typically part of the cost-plus structure? And are you expecting you can pass on higher electricity costs in fiscal ‘23, or is that maybe a headwind you baked into the guidance? Thank you and congratulations on the good results.

Operator:

Thank you. Your next question is coming from Shannon Cross from Credit Suisse. Your line is now live.

Mark Mondello:

I like your question because whether it’s Industry 3.0 or 4.0, I am not quite sure. But at Jabil, it’s kind of 1.0. It’s right at the heart of what we do. Our business is complicated at times. Our strategy is really straightforward. Our strategy gets driven by each of the individual sectors because that’s where all the domain expertise lies. And then at an enterprise level, we build stuff. And the better we build stuff, the more flexible we are in building stuff, the better our geography is in serving customers, the better engineering is, the more market share gains we will continue to capture as we move forward. And Shannon, a big part of that is, again, I think if we are not the largest, we are one of the largest large-scale manufacturing services company in the world. And a huge, huge amount of that is always our OpEx and our CapEx investments. And we just believe deeply in investing in the business because, again, we don’t want to be making decisions for today that aren’t great decisions long-term. And those investments are great decisions long-term. So, whether it’s AR, VR, whether it’s artificial intelligence, whether it’s additional data analytics, whether it’s robotics, automation, by the way, we make significant investments in those areas. I would guess that independent of our customers between our overall advancement in IT, data analytics, robotics, all of that stuff, our OpEx investments are probably $400 million to $500 million a year. And we think those are terrific investments for the company and will be very material as we move forward and run this company north of 5% at a very large scale.

Mike Dastoor:

Sure. So, I will answer that. I think if you look at how we structure our pricing, etcetera, the revenue is mainly predominantly U.S. dollar-based bill of material that we buy from suppliers is mainly predominantly U.S. dollar-based. The value-add that you get, the local labor, the local cost, yes, those fluctuate. We do have true-up mechanisms with our customers to re-price if there is a significant move. And we also hedge our FX on the value-add portion as well. So, overall, FX is not something I lose sleep over.

Operator:

Thank you. Your next question today is coming from Paul Chung from JPMorgan. Your line is now live.

Mark Mondello:

Thanks for the questions, Paul. Just on the buybacks, I think your comment was, why not be more aggressive. I think we are being very aggressive. If we just take a look at cash flows we dealt – we delivered in ‘22 and the level of buyback, the level of buybacks, and Mike talked about this level of buybacks in ‘22 was north of 700 million on free cash flows of $800 million. I consider that extremely aggressive. By the way, that doesn’t include our dividend. If I think about ‘23 and ‘24, Mike talked about the fact that we got authorization for an extra $1 billion. We add that to the unused portion of the prior authorization, that puts in play about $1.3 billion. If I think about our free cash flow this year being $900 million, and we are saying nothing about fiscal ‘24, but hypothetically, let’s say it was around $1 billion, you got $1.9 billion in free cash flow. And now you are talking about a total authorization of $1.3 billion plus another $100 million plus for dividend, you are talking about us returning $1.4 billion or give or take against free cash flows of $1.9 billion. So, I think that’s appropriate and we could debate whether or not it’s aggressive enough. But I think it’s a very nice returning capital directly to shareholders. In terms of M&A, we think – so again, I think one of the charm, the real charming part of being in our business with all the complexities is it’s a big world out there. And I said earlier, there is lots and lots and lots of things that need to be built. And the world is not going to become virtual completely, and the world is not going to become kind of holographic. It’s like there is hard things. We talk internally sometimes, a big part of the way we run the business is digital with ones and zeros, but the output of that is based in atoms. I mean, they are hard, tangible things we build. And again, the market is massive. So, I just – we will continue to do small acquisitions, largely around acquiring engineering talent and technical capabilities. But the best use of our capital, A, is exactly what you alluded to is at these valuations, returning capital to shareholders via dividends and buyback. And then also the best use of our cash is both CapEx and OpEx investments, again, with an eye on continuing to pick up share, continuing to position us in a very dominant portion of the overall supply chain and then also with an eye on getting the margins for the company over 5% on a sustainable basis.

Mark Mondello:

I would say to your – the first part of your question is the overall – if I take a look at all of our bill of materials, which are in the tens of thousands and extrapolate this comment over all of it, the supply chain is very mixed. There is some part of the supply chain that’s already more normalized, and there is some part of the supply chain remaining that’s inflationary. I think that continues to move in the direction of over time of being more normalized. And in terms of the bill of materials becoming deflationary, I don’t think we have to worry about that so much in ‘23. We will see what happens in the first half of ‘24. But we have been doing this a long time. And if you just kind of think about the 55 years that Jabil has been in business and maybe focus on the last 30 years, it’s just been a continuous sine wave of up, down, up, down, up, down in terms of our variable costs or fixed costs and cost of bill of material. I think we will continue to navigate. We will continue to navigate that quite well with customers. And I don’t envision – I certainly don’t envision – we wouldn’t have guided the 4.8% this year if we thought there was a risk to that. And I think this morning alone, I have mentioned the idea of running the company at 5% with, I think a purposeful consideration of what might happen to the materials market, the component market and our bill of materials, we feel pretty confident of driving the margins to 5%.

Mark Mondello:

Yes. You’re welcome.

Melissa Fairbanks:

Great. Thanks very much guys. I am hunkering down just south of you. It looks like they are calling for a direct hit here now. So, quite an eventful day for all of us, I guess. You mentioned supply is starting to ease. Can you share if that’s more due to just Jabil sourcing, just improved efficiency on your part, or are you seeing it free up more generally? And then I have got a follow-up to that.

Melissa Fairbanks:

Okay. Great. And then you mentioned inventories would be worked down over time. What would be your ideal inventory target? Is there excess inventory that you are holding that you are specifically looking to destock?

Mike Dastoor:

And Melissa, just as a reminder, most of our inventory is actually raw materials and WIP. There is very little finished goods. So, we don’t have a finished good problem or any such lag. It’s the raw materials and WIP. As Mark said, we bring it in for our customers after they place a PO. So, they are legally contractually obligated with that inventory as well. So, it’s just a matter of the golden screw coming through and our manufacturing churning our products. It’s a relatively different inventory situation than perhaps retailers or any other type of market.

Mark Mondello:

You too Melissa. Thank you.

Ruplu Bhattacharya:

Hi. Thanks for taking the follow-up and Mark thanks for all the details you gave so far. I wanted to ask you a question on risk management in the DMS segment. If we look at mobility revenues, right, so fiscal ‘22 came in a little bit lower than what you had expected $100 million, and you are guiding another $100 million lower for fiscal ‘23. But now connected devices, as you said is a consumer-facing end market, and you are guiding that down 9%. So, when I look at these two things, mobility and connected devices, they are about 47% of the fiscal ‘23 guide for DMS. In case these markets are weaker than what you expect, how would your playbook change? Are there areas of investment that you would switch to other areas? And overall, do you think that there is enough strength in the automotive and healthcare segments that – though that strength can balance any weakness in these other two segments? So, just your thoughts on if there is incremental weakness in these two end markets, mobility and connected devices, how your playbook changes? Thanks.

Ruplu Bhattacharya:

Okay. Thanks for the detail. Appreciate it.

Operator:

Thank you. We have reached the end of our question-and-answer session. I would like to turn the floor back over for any further closing comments.

Adam Berry:

Our call has concluded. Thank you for your interest in Jabil.

Adam Berry:

Good morning, and welcome to Jabil's third quarter of fiscal 2022 earnings call. Joining me on today's call are Chief Executive Officer, Mark Mondello; and Chief Financial Officer, Mike Dastoor. Please note that today's call is being webcast live, and during our prepared remarks, we will be referencing slides. To follow along with the slides, please visit jabil.com within our Investor Relations section. At the conclusion of today's call, the entirety of today's session will be posted for audio playback on our website. I'd now like to ask that you follow our earnings presentation with slides on the website, beginning with the forward-looking statement. During this conference call, we will be making forward-looking statements including, among other things, those regarding the anticipated outlook for our business, such as our currently expected fourth quarter and fiscal year net revenue and earnings. These statements are based on current expectations, forecasts and assumptions involving risks and uncertainties that could cause actual outcomes and results to differ materially. An extensive list of these risks and uncertainties are identified in our annual report on Form 10-K for the fiscal year ended August 31, 2021, and other filings. Jabil disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. With that, I'd now like to turn the call over to Mark.

Mike Dastoor:

Thanks, Mark, and thank you for joining us today. Our third quarter was a great illustration of our diversification in action. I'm really pleased with the resiliency of our portfolio and the sustainable momentum at the enterprise level. In spite of a challenging supply chain environment and well-publicized shutdowns in China, the team still delivered exceptional results in revenue, core operating margin and core diluted earnings per share. For the quarter, revenue was approximately $8.3 billion, ahead of our forecast, driven by very strong demand within EMS, partially offset by sporadic COVID challenges within DMS. Altogether, on enterprise level, revenue grew by 15% year-over-year and 10% sequentially as demand across end markets remain well ahead of supply. In Q3, our GAAP operating income was $321 million, and our GAAP diluted earnings per share was $1.52. Core operating income during the quarter was $352 million, an increase of 27% year-over-year, representing a core operating margin of 4.2%, up 40 basis points over the prior year. Net interest expense in Q3 came in above expectations at $45 million due to a combination of higher working capital and rising interest rates. Core diluted earnings per share was $1.72, a 32% improvement over the prior year quarter. Now turning to our third quarter segment results on the next slide. Revenue for our DMS segment was $3.8 billion, an increase of 7% on a year-over-year basis. Although upside in the quarter was limited in automotive, healthcare and mobility, we still experienced year-over-year growth in every end market within DMS. Core margin for the segment came in at 3.8%. Revenue for our EMS segment came in at $4.5 billion, an increase of 23% on a year-over-year basis and well ahead of our plans for March. The stronger year-over-year performance in our EMS segment was extremely broad-based, with strength in our 5G Wireless & Cloud and Networking & Storage businesses, where we gained additional share during the quarter. As a result, our ability to execute in complex supply chains and deliver critical parts and components. Core margin for the segment was 4.6%, up 80 basis points for the prior year, reflecting exceptional cost control on higher-than-anticipated revenue. Turning now to our cash flows and balance sheet. In Q3, inventory days came in at 85 days, down one day sequentially and above our expectations in March, mainly due to the shutdowns in Shanghai which also impacted upstream and downstream supply chains. We offset a portion of higher inventory levels with inventory deposits from our customers, and these deposits reside within the accrued expenses line item on the balance sheet. Net of inventory deposits, inventory days were 70 in Q3, down one day from the previous quarter. As a quick reminder, our business model is designed such that we do not take risk on inventory in anticipation of sales. All inventory orders require a customer purchase order before triggering a purchase request within our MRP system. Majority of our inventory continues to be mainly associated with raw materials as a result of kicking issues and timing of components. At the end of Q3, finished goods represented a very small level at approximately 11% of inventory consistent with Q2. Our third quarter cash flows from operations were $545 million, and net capital expenditures totaled $324 million. From a total debt to core EBITDA level, we exited the quarter approximately 1.3x and with cash balances of $1.1 billion. During Q3, we repurchased approximately 0.6 million shares for $203 million, and for the year, we've repurchased 7.9 million shares for $475 million as we remain committed to returning capital to shareholders. Turning now to our fourth quarter guidance on the next slide. DMS segment revenue is expected to increase 14% on a year-over-year basis to approximately $4.5 billion, while the EMS segment revenue is expected to increase 11% on a year-over-year basis to approximately $3.9 billion. We expect total company revenue in the fourth quarter of fiscal '22 to be in the range of $8.1 billion to $8.7 billion. Core operating income is estimated to be in the range of $390 million to $450 million, representing a core margin range of 4.8% to 5.2%. At the midpoint, this is an improvement of 80 basis points for the prior year. In Q4, GAAP operating income is expected to be in the range of $367 million to $427 million. Core diluted earnings per share is estimated to be in the range of $1.94 to $2.34. GAAP diluted earnings per share is expected to be in the range of $1.78 to $2.18. The core tax rate in the fourth quarter is estimated to be approximately 17%. Next, I'd like to take a few moments to highlight our dynamic and resilient portfolio of businesses by end market. Across the majority of our end markets, demand has been extremely resilient and continues to outstrip supply across our business, particularly in end markets that continue to benefit from strong secular tailwinds. Markets such as Electric Vehicles, Personalized Medicine and Healthcare, Clean and Smart Energy Infrastructure, 5G Infrastructure, Cloud and Semi-Cap, these end markets represent a large majority of the overall Jabil portfolio today, and we believe sustained growth in these markets will continue even if overall global economic growth slows from the solid levels over the last few years. The end markets we serve that may be more susceptible to economic slowdowns have been strategically positioned within the portfolio as we partner with market-leading brands to provide key capabilities that are critical and hard to replicate. This product diversification provides resiliency to our portfolio. In summary, Jabil is not only well diversified, but also markedly more resilient due to our multi-year proactive efforts to diversify our business and align to tomorrow's trends. As a result, we feel the outlook for our business is strong and anticipate demand to be resilient for the balance of this year and into FY '23. All in all, our performance during the first 9 months of FY '22 gives us excellent momentum as we look to close out another strong year. We're now anticipating core EPS will be in the neighborhood of $7.45 per share on revenue of approximately $32.8 billion. Notably, we see income and cash flow coming through with the increase to revenue. We now expect strong core margin and free cash flow of 4.6% and $700 million, respectively. With that, I'll now turn the call over to Adam.

Operator:

Thank you. [Operator Instructions] Our first question comes from the line of Ruplu Bhattacharya with Bank of America. Please proceed with your question.

Mark Mondello:

Ruplu, so those are, I think, two fundamental questions for the quarter, and there's a lot there. But if I missed something, bring me back to it. I'll start with DMS. DMS business overall, I think if you're looking at comps relative to what we thought we'd do at the beginning of the quarter, which is I think where you're indexing your numbers from, one, we're probably a little bit conservative in our guide at the beginning of the quarter with everything going on; number two, the execution through the quarter was exceptional, and it was really broad-based. So I know I used that term in other conversations as well. But if you take a look at -- maybe a good data point for you, if you go back and look at our blue green slide from March and you look at it, what we presented today, kind of the annual numbers on the EMS side are reflective of where we saw some strength and where our execution, I think, was exceptional for the year. So I think it's a combination of, A, a little bit conservative at the beginning of the quarter with everything going on. Number two, execution was great. There was a little bit of uptick in demand. And I don't know if I'd say pull forward, I would say that in this environment, customers are -- have a really good appreciation of our ability to help in the supply chain situations and navigating some continued supply chain issues. And I think that allowed us to pick up some share during the quarter. So that's kind of EMS. I also think on the EMS side, if I speak to it on a relative basis, Ruplu, I said something in my prepared remarks about the world being a little bit difficult at the moment. The EMS side of our business, we were saying internally, I think we did a good job controlling the controllables. And that's just what Jabil does really, really well at our scale is the execution side, whether it be the factory or supply chain. On the DMS side, I think it was threefold; one, it was a bit on health care; two, it was a bit on auto; and three, it was a bit on mobility. And although, again, we were somewhat conservative in our guide, we certainly didn't anticipate the length of time in terms of the shutdown in Shanghai. Although we're doing on a general basis, if you look at the enterprise results overall for the quarter and what's stacking up to be a very good year in a really tough environment, there were some challenges again with some specific silicon, probably impacted us mostly on auto, but not in a vacuum. And then there were some timing and shifts going on in volumes with mobility. So I would say that's kind of a summary of what happened with the results in terms of EMS and DMS in terms of our guide back in March.

Mark Mondello:

Well, this year's about over, so I -- CapEx is going to be what it's going to be this year. I think it will be, I don't know, somewhere between 2.5% and 3% of overall revenue. It's probably closer to 2.5%, and I think we talked about that back in September. So the way we're managing CapEx, I think, is exceptional. I actually have an opinion too on the fact that I think our overall capital allocation throughout the year has been quite good. We'll get into CapEx for FY '23 during the upcoming Investor Day in September. I would expect in terms of indexing CapEx off of revenue, FY '23 will look similar to FY '22. In terms of the last part of your question, we'll continue to invest in areas that have great cash flows, sustainable businesses and help drive our margins to 5%.

Mark Mondello:

Thank you.

Matthew Sheerin:

Yes. Thank you, and good morning. I just -- a question just regarding the guidance, and specifically on the margins. It looks like you're guiding margins to, call it, 5% or so? And is that driven by mix? Do you expect gross margin to improve here or continued OpEx leverage? And you're talking very strong leverage on OpEx in the last couple of quarters. So what is driving those margins?

Mike Dastoor:

And Matt, if I could just add. DMS and EMS businesses have slightly different gross margin profiles. I think the EMS, which outperformed in Q3, which will have a good quarter in Q4 as well. The gross margin can be low, but the SG&A OpEx can be lower as well and vice versa. On the DMS side, where your gross margin is higher, but your SG&A percentages are higher because of FDA qualification requirements because of regulated industries, sort of the regulations that go around that. So it's a very different gross margin profile for EMS and DMS. I would encourage folks to look at operating margin. That's what we, as a management team, look at internally. We're marching towards 5% and beyond, and we'll continue to deliver that. Gross margin profiles will go change up and down quarter-by-quarter depending on the mix, so I just encourage you to focus more on operating margin than gross margin.

Mark Mondello:

I've been saying this the last couple of quarters. First off, there was multiple variables that impacted DMS, and by the way, demand remains strong. So I think that's an interesting takeaway from this call. And our -- the DMS delta relative to our guide wasn't all supply chain at all. Again, it was a timing and shift in volumes in mobility. It was, again, the number of weeks of our shutdown in Shanghai. And then I did say and acknowledge that we had some issues with some very specialized silicon, and that impacted probably auto more than other end markets. But I think -- I continue to think that as a whole across the company, our supply chain challenges are getting better, the overall supply chain is getting better. And I'll caveat that as I did, I think, in the March call and the December call, which is when we think about supply chain, it's not just semiconductors. It's not just the last golden screw. We have everything from resins to metals in our precision machining to just run the gamut of everything that we buy. So again, I think supply chain continues to get better. I thought and have said that I thought supply chain normalizes towards the end of this calendar year. That may push a bit into '23. But overall, A, supply chains are getting a bit better. There's still some hard constraints around some select components. But I would also say that one of the things that played for us in the third quarter and is also helping us drive the 5% margins in the fourth quarter is our ability to navigate supply chain on a relative basis better than most.

Mark Mondello:

Yes. Thanks Matt.

Steven Fox:

Hi, good morning. Two questions, if I could. First of all, when you think -- I know you don't want to give too much on next year, but your operating margins are up 80 basis points year-over-year. I think you mentioned some of that was because of mix. Can you just sort of talk about how much more is left in terms of improving margins just based on your sales mix? And then I have a follow-up.

Steven Fox:

That's helpful. And then just as a follow-up, you mentioned some market share gains on some of the more mature product areas. I'm just curious if there's any other color you can provide on that? And do we think about that as being sustainable? Or were you feeling sort of an interim gap? And before I forget, I guess I'll wish the Lightning luck in the rest of the Stanley Cup finals.

Steven Fox:

Thanks again.

Operator:

Our next question is from the line of Mark Delaney with Goldman Sachs. Please proceed with your question.

Mark Mondello:

Well, I'm not going to get into customer data. I would say that -- I would say what's good news is if we go back to -- so again, the world is a tough place, and it's a tough place for any large corporation at the moment. But boy, I like our chances. If you go back in a tough environment with everything, I think in September, if I remember right, we thought the year would be like $31.5 billion or something like that, and now we're up at $32.8 billion. So again, I think that's reflective of our ability to execute in a tough environment. And again, I think it speaks to how we're positioned with the portfolio we have. In terms of what -- we always see puts and takes, are some of those puts and takes maybe, I don't know, peak to trough -- peak to trough? Are some of those may be more abrupt in an environment like this? Maybe. But again, as I step back and I look at -- if you take our current guide and look where the year is going to end up, I feel pretty good about the year overall, so. And I think the other thing we've been talking about, and I think it gets way over spoken on earnings calls and people talk about secular this and secular that. But what I think is very real is we have some wonderful opportunities for '23 and '24 that have started to come through the P&L this year. And we talked about Electric Vehicles, we talked about Personalized Healthcare, we talk about some of the changes and advancements in connected devices. I think about what's going on in terms of Automation and the retail space. I think about what's going on with new fabs being built in our Semi-Cap business, I think about what's going on in the 5G build-out. So they're certainly not -- those types of businesses, if we get into a massive recession, will have impact to the negative. But all things being equal, when you look at those businesses, and then I also think about how we've refined and improved what you might think of as our more legacy business. All in all, I feel good about the fourth quarter. And again, I think we'll have some reasonably good things to say in September.

Mark Mondello:

I think we'll be back to full volumes in China now. And we've handicapped that a little bit in the fourth quarter, but our assumption is that China runs at, say, let's -- let me just -- let me say something to you illustratively and don't pay too much attention to the numbers, but you'll get what I'm trying to say. If you take our overall China capacity, and let's just say that we assume that that capacity is going to run at 80%, 85%. When things do get shut down or things go bump in the night, we have enough residual capacity there, if you will, to make things up pretty quickly. I would say for 4Q, we're assuming that our capacity is going to run at 80%, 85%, and all indications are that's a good assumption set. And things -- we're not assuming things will be quite as difficult as they were in Q3. By the way, I think that's also a variable in why the margins Q3 to Q4 are up.

Mark Mondello:

Thank you.

Paul Chung:

Hi, thanks for taking my questions. So just on free cash flow, pretty steady guidance here despite tough macro backdrop. Talk about some of the puts and takes there on offsetting some heavy investments in inventory? And then you mentioned some normalization later this year, but are you expecting some structural step ups here on working cap offers maybe moving forward?

Paul Chung:

Great. And then just a follow-up on the automation side. So where are you seeing kind of incremental opportunities for CapEx and M&A to kind of enhance the firm's capabilities? It seems like you have some momentum here at Badger from what I can see. I know that part of the business is small, but how are you kind of leveraging some robotics technology across the business? Thank you.

Paul Chung:

Great. Thank you.

Operator:

Thank you. We've reached the end of the question-and-answer session. I'll now turn the call over to Adam Berry for closing remarks.

Operator:

This will conclude today's conference. Thank you for your participation.

Adam Berry:

Good morning and welcome to Jabil’s second quarter of fiscal 2022 earnings call. Joining me on today’s call are Chief Executive Officer, Mark Mondello; and Chief Financial Officer, Mike Dastoor. Please note that today’s call is being webcast live and during our prepared remarks, we will be referencing slides. To follow along with the slides, please visit jabil.com within our Investor Relations section. At the conclusion of today’s call, the entirety of today's session will be posted for audio playback on our Web site. I'd like to now ask that you follow our earnings presentation with the slides on the Web site, beginning with the forward-looking statement. During this conference call, we will be making forward-looking statements, including, among other things, those regarding the anticipated outlook for our business such as our currently expected third quarter and fiscal year net revenue and earnings. These statements are based on current expectations, forecasts and assumptions involving risks and uncertainties that could cause actual outcomes and results to differ materially. An extensive list of these risks and uncertainties are identified in our annual report on Form 10-K for the fiscal year ended August 31, 2021 and other filings. Jabil disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. With that, I'd now turn the call over to Mark.

Mike Dastoor:

Thanks, Mark, and thank you for joining us today. I'm really pleased with the resiliency of our diversified portfolio and the sustainable broad-based momentum underway across the business, as several of our end markets continue to benefit from long-term secular trends. As Mark just summarized, our Q2 results were very strong. During the quarter, revenue, core operating income, core EPS and free cash flow, all exceeded our December expectations. Given the higher revenue, I'm particularly pleased with our ability to drive an extra 30 basis points of margin improvement compared to our expectations in December, mainly through broad-based trends in several key end markets benefiting from long-term secular trends, as well as outstanding execution by our business, operations and supply chain teams. For the quarter, revenue was approximately $7.6 billion, up 10.6% over the prior year quarter and ahead of the midpoint of our guidance from December. The additional upside was mainly driven by our 5G and cloud businesses, while our automotive, healthcare and retail end markets remained very strong. Our GAAP operating income during the quarter was $313 million and our GAAP diluted earnings per share was $1.51. Core operating income during the quarter was $344 million, an increase of 21% year-over-year, representing a core operating margin of 4.6%, up 40 basis points over the prior year. Core diluted earnings per share was $1.68, a 32% improvement over the prior year quarter. Now, turning to our second quarter segment results on the next slide. Revenue for our DMS segment was $3.8 billion, an increase of 4% on a year-over-year basis. The solid year-over-year performance in our DMS segment was broad based with strength across our healthcare, automotive and connected devices businesses. Core margin for the segment came in at 5.1%. Revenue for our EMS segment came in at $3.8 billion, an increase of 19% on a year-over-year basis. The strong year-over-year performance in our EMS segment was also broad based with strength across our digital print and retail, industrial and semi-cap and 5G wireless and cloud businesses. Core margin for the segment was 4%, up 90 basis points over the prior year, reflecting improvements and solid execution by the team. Turning now to our cash flows and balance sheet. In Q2, inventory days came in at 86 days. The sequential increase in days was driven largely by two factors. Firstly, the ongoing tightness in the supply chain continues to weigh on our inventory balances. It's worth noting that we've offset a portion of these increases with inventory deposits from our customers, and these deposits reside within the accrued expenses line item on the balance sheet. Net of these inventory deposits, inventory days was 71 in Q2. And second, at the end of the quarter, we experienced a timing difference on the sell-through of finished goods within our DMS segment. I anticipate this timing difference to reverse in Q3. In spite of these two factors impacting inventory, our second quarter cash flows from operations were very robust coming in at $246 million and net capital expenditures totaled $201 million. From a total debt to core EBITDA level, we exited the quarter at approximately 1.3x and with cash balances of $1.1 billion. During Q2, we repurchased approximately 2.3 million shares for $145 million. And for the year, we repurchased 4.4 million shares for $272 million as we remain committed to returning capital to shareholders. Turning now to our third quarter guidance on the next slide. DMS segment revenue is expected to increase 17% on a year-over-year basis to approximately $4.2 billion, while the EMS segment revenue is expected to increase 11% on a year-over-year basis to approximately $4 billion. We expect total company revenue in the third quarter of fiscal '22 to be in the range of $7.9 billion to $8.5 billion. Core operating income is estimated to be in the range of $300 million to $360 million, representing a core margin range of 3.8% to 4.2%. At the midpoint, this is an improvement of 20 basis points over the prior year and down sequentially reflecting planned investments in our Q3 quarter. It's also worth noting, sequentially in Q4, we expect robust core margins driven by our scaling automotive business, along with typical seasonality in our mobility and EMS businesses. In Q3, GAAP operating income is expected to be in the range of $276 million to $336 million. Core diluted earnings per share is estimated to be in the range of $1.40 to $1.80. GAAP diluted earnings per share is expected to be in the range of $1.24 to $1.64. The core tax rate in the third quarter is estimated to be approximately 21%. Next, I'd like to take a few moments to highlight our balanced portfolio of businesses by end market. Today, the outlook for our business is strong, with end markets across both segments continuing to benefit from multiyear secular trends. We believe these markets will continue to drive our growth as we concentrate our efforts on long-term secular growth markets with strong margins and cash flow dynamics. Markets such as electric vehicles, personalized medicine and healthcare, semi-cap, clean and smart energy infrastructure, cloud, 5G infrastructure and the associated connected devices. Our electric vehicle business in particular continues to outperform in spite of global supply chain issues as the transition to EV accelerates. We've seen this rapid acceleration manifested in top line revenue growth in excess of 50% this year alone in our automotive end market. We're also expecting double digit growth for the healthcare, automotive, retail, industrial and semi-cap and 5G wireless and cloud end markets. And importantly, the broad-based growth associated with the secular trends is expected to drive solid year-over-year core operating margin and free cash flow expansion. All-in-all, our performance during the first half of the year gives us excellent momentum as we look to close out another strong year. We're now anticipating core EPS will be in the neighborhood of $7.25 per share on revenue of approximately $32.6 billion. Notably, this incremental revenue will improve mix and drive operating leverage, thereby giving us the confidence to raise our core margin by 10 basis points to 4.6% for FY '22, as we continue to drive the organization to 5% and beyond. Importantly, for the year, we also remain committed to generating in excess of $700 million in free cash flow in spite of the higher revenue and associated working capital. We've been working extremely hard as a team to expand margins and drive strong cash flows. I'm very pleased with our team's exceptional execution of our strategy on all fronts. With that, I'll now turn the call over to Adam.

Operator:

Thank you. We'll now be conducting a question-and-answer session. [Operator Instructions]. Our first question today is coming from Jim Suva from Citigroup. Your line is now live.

Mark Mondello:

Hi, Jim. I think the overall margin profile, if you just go back to, let's say, pre-COVID to fiscal '19, we were running the business at around 3.5% margins. And our focus at that point in time was really about reshaping the overall portfolio and a big focus on diversification in both top line and bottom line. I think the team did a really nice job of that over a four, five-year period. And then starting in fiscal '21, so last year, we really started taking that portfolio at scale and focusing hard on the margin side of the business, largely around costs and optimization, while still being what I think is very competitive in the marketplace in terms of our pricing. This year, we've taken margins up. I think September, we said margins would go up to 4.5% from the 4.2% last year. And then this morning, we're taking it up another 10 basis points to 4.6% for the year. I think the main catalyst driving it is our execution has been outstanding and I think sustainable. I think the overall platform around the operational network, the tools, our IT systems also sustainable, and the advances we've made there are terrific. And then lastly, and maybe most importantly is, is just the overall portfolio that we have, Jim, when we think about how diverse we are, when we think about the contributions of the business, we look at the blend between automotive and transportation, healthcare, connected device, mobility, digital print, retail, industrial, cloud, 5G, networking, semi-cap, et cetera. It's just a wonderful, wonderful book of business today. We think that will continue to scale. And as I said, at some point in the last 18 months or so, I really believe as this business continues to get beyond $35 billion, $37 billion, $40 billion, we're going to effort internally to run the business at five points of margin on the operating line.

Mark Mondello:

Thanks, Jim.

Steven Fox:

Thanks. Good morning, everyone. Two questions, if I could. First of all, just building off of that last answer, Mark, can you help us conceptualize a little bit how you're growing at scales so quickly, the challenges there given the global footprint that you have and managing the programs into, like we're talking about 8%, 10% growth off of $30 billion, $35 billion type of sales base? And then secondly, how is your global footprint? Maybe a better way to ask this, can you give us an update on your global footprint and how maybe it's changing versus what you would have thought six or nine months ago? Thanks.

Steven Fox:

Great. That's really helpful. Thank you.

Operator:

Thank you. Next question today is coming from Ruplu Bhattacharya from Bank of America. Your line is now live.

Mark Mondello:

Yes, I'm hesitating because I'm thinking. I'm always concerned about a lot of things all the time. There's a war going on. And obviously, that's a concern. And for me that concern is, this will be the third time I'll say it, right, is really about the well being and the safety and security of our people. And I don't know how to say this. But in terms of a pure financial economic perspective, that doesn't give me a lot of concern. Saying that though, I do want to emphasize it's a bit heartbreaking to me and very emotional with that situation over there. And it has our full attention. So I would say supply chains, we tend to navigate that as good as anybody at the moment. Does that give me concern through the rest of the fiscal year? Maybe. A collapse in the macro in the very near term? Not so much. Inflation? I think we're managing that quite well. And I would say, I don't know, there's been a dust up here recently with some more COVID issues in Mainland China. And Ruplu, I would say we've been dealing with that literally like firsthand since the issues in Wuhan in January of 2020. And when I think about our campuses and places like Wuxi and Weihai and Huangpu and Shenzhen and Shanghai and Tianjin and Chengdu, we got a great team over there. We've been navigating that quite well. So as we think about the balance of the year and maybe first part of '23, as we sit today as a management team, we got pretty good confidence in the guide for the balance of the year and the beginning outlook for '23.

Mark Mondello:

Okay. So I'll split that into two. We're always out in the market shopping. We do a very nice job I think in terms of small M&A. I would say our focus is going to be on maybe further transactions that look a little bit like the JJMD transaction in terms of big brands getting out of manufacturing. That would be one area we continue to spend quite a bit of time on. Small M&A around capabilities, I wouldn't imagine anything too sizable in terms of direct M&A just because even with the recent correction in the U.S. equity markets, the prices are still quite high. And then if I think of the other derivative of capital allocation in terms of buyback and dividend, we're still -- we've got authorization out to complete our $1 billion buyback. And if there's any benefit whatsoever in the recent equity market corrections is the fact we're out in the market buying back our stock. So I think today with the outlook for the business over the next couple of years, where I think we're headed, what we could do in terms of margin, what we could do in terms of some continued growth, I think buybacks make a lot more sense than any type of change to our dividend. I do believe at some point in time that a well thought multiyear dividend plan will make sense, just not now.

Mark Mondello:

Thanks, Ruplu.

Ruplu Bhattacharya:

Thank you.

Matt Sheerin:

Yes. Thanks and good morning, everyone. Mark, I had a couple of questions regarding your segments. If you look at your forward guide for FY '22, it looks like you're taking up the 5G wireless and cloud segment and industrial and semi-cap segment fairly significantly. Could you give us color there, specifically on the 5G and cloud? Is that from both segments or are you still seeing more strength on the cloud side versus 5G?

Matt Sheerin:

Okay, great. Thanks for that color. And just as a follow up just regarding the supply constraints that everyone is seeing. Jabil seems to be managing it as well, if not better, than any of your peers. Are you seeing any signs of ease in terms of supply opening up, particularly the legacy semiconductor parts that seem to be hard to get, any signs of relief there?

Matt Sheerin:

Okay, great. Thanks very much.

Operator:

Thank you. Next question today is coming from Mark Delaney from Goldman Sachs. Your line is now live.

Mike Dastoor:

I think it's all of the above, Mark. Obviously, we have some kitting issues that drives the inventory up. There's a little bit of buffering. There's a little bit of strategic hold. And that's where we offset it with the inventory deposits. So depending on how we're balancing our inventory numbers, the deposits do offset a considerable amount. I think I talked about 86 days. It sounds like a very high number. But if you take the inventory deposits out, it's about 70 days. So I think, overall, am I worried about the inventory? Not so much. I think we're having a temporary tightness in the supply chain, which is causing some of this. I also talked a little bit about -- there was a little bit of a timing difference in our DMS business with the launch of new products. I fully expect that to reverse in Q3 as well, and that's what gives us confidence to maintain a 700 million plus free cash flow number as well. So overall, a little bit of a challenge right now in inventory. Am I concerned mid to long term? The answer is no.

Mark Mondello:

Yes. I think it would be neglectful to suggest that's not a risk. Again, we've got a great global footprint, moving stuff in and out of China. We've done that as efficiently as anybody. But in terms of in-region or in Mainland China, it's a risk. And I don't want to make light of the risk. But again, it's something that we've been handling in terms of quarantines, dormitory quarantines, campus quarantines, different province quarantines, city quarantines for two years. And at least as we sit today, this time doesn't feel any different. I think where probably the biggest risk is, is when I think about the stringent protocols that Jabil uses on our own campuses. I feel very good about how we're managing the situation. I think the bigger risk element would be the greater supply chain, getting materials in and out of campuses and/or logistics, et cetera. As we sit today, assuming that there continues to be pockets of COVID and it's not extensive in terms of timing of shutdowns, all of that's been considered in our numbers. If the COVID issues inside of Mainland China were to get maybe a magnitude more severe than -- again, that's certainly a risk for consideration. But as we sit today, we're two years in. I've got a lot of experience dealing with it, got a great team on the ground there. And again, if things stay kind of like-for-like as they sit today, we'll be fine through the end of the fiscal year.

Mark Mondello:

Thanks, Mark.

Melissa Fairbanks:

Great. Thanks, guys. Congrats on a great quarter and guide. I was wondering if you could give a little more detail on expectations for core margin per segment. I think we all saw the press release on stepping up hiring in the healthcare business. Just wondering how that's flowing through margins or if that's not yet expected to impact them?

Melissa Fairbanks:

Okay, great. Thanks. And then finally, on inventories, you noted ex-deposits, your inventory days are running around 70 days. Can you give us a comparison what that number was last quarter, or maybe historically what that number has trended toward?

Melissa Fairbanks:

Okay, great. Thanks. That's it for me.

Paul Chung:

Hi. Thanks for taking my question. So just on the market share gains you mentioned, is this more from Asian-based players or some of your domestic peers or both, and then scale players versus more fragmented smaller players? And what are some key factors that are kind of closing those deals for you?

Paul Chung:

Okay, great. Thanks for that. And then just on the strong free cash flow guide, most of the strength there is from earnings, which is great. So how big of a drag in your view is working cap for the fiscal year? Just want to get a sense for more normalized free cash flow, which hopefully reverts later this calendar year and into kind of next fiscal year. Thanks.

Paul Chung:

Thank you.

Adam Berry:

Thank you. Thank you for your interest in Jabil. This now concludes our call.

Adam Berry:

Good morning and welcome to Jabil’s first quarter of fiscal 2022 earnings call. Joining me on today’s call is Chief Executive Officer, Mark Mondello and Chief Financial Officer, Mike Dastoor. Please note that today’s call is being webcast live, and during our prepared remarks we will be referencing slides. To follow on with the slides, please visit jabil.com within our investor relations section. At the conclusion of today’s call, the entire call will be posted for audio playback on our website. I now like to ask that you follow our earnings presentation with the slides on the website beginning with the forward-looking statement. During this conference call we will be making forward-looking statements including among other things those regarding the anticipated outlook for our business such as our currently expected second quarter and fiscal year net revenue and earnings. These statements are based on current expectations, forecast and assumptions involving risks and uncertainties that could cause actual outcomes and results to differ materially. An extensive list of these risks and uncertainties are identified on our annual report on Form 10-K for the fiscal year ended August 31, 2021 and other filings. Jabil disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. With that, I’d now like to shift our focus to our strong quarter and outstanding results. First off, the team delivered $400 million of core operating income and roughly $8.6 billion in revenue, resulting in a core operating margin of 4.7%. These results were primarily driven by broad base strength in several key end markets, including healthcare, industrial and semi cap and of course, mobility has customary for our first fiscal quarter. And finally, it's worth noting that our team was able to accomplish all of this in spite of the chaotic global supply chain environment. In summary, we delivered strong results, grew in key end markets, and successfully navigated a dynamic global supply chain, clearly demonstrating the power of Jabil by way of our scale, tools, team and relationship. In a few moments, both Mike and Mark will provide more details on the quarter, while also addressing our improved outlook for the year. But before I hand it over, I'll pass along some thoughts from Jabil’s procurement and supply chain team, as you may find it helpful when modeling our year. In short, demand continues to outstrip supply, particularly as it relates to semiconductors and issue that has persisted since 2019. That said, Jabil continues to leverage best-in-class tools and relationships to maximize our allocation and keep the factories in production to the best of our ability. So far, we have been extremely successful, and we would like to thank our supplier partners for their continued support and commitment to Jabil. As we move ahead, we anticipate continued supply chain challenges, which have been incorporated in our guidance similar to previous quarters. We do expect some relief towards the back half of the fiscal year, but the general consensus is that demand will remain ahead of supply for the next six months. With that, I'd now like to turn the call over to Mike.

Mark Mondello:

Thanks Mike. Good morning. I'll begin today by thanking our folks here at Jabil for making safety, their personal priority. I'd also like to recognize their hard work and tireless commitment, which drove solid results for our first fiscal quarter. Again, thank you. Before I get into my prepared remarks, I'd like to wish all of you a safe and peaceful holiday season. With that, let's move to our next slide. Where I'd like to expand on what Mike and Adam addressed in their prepared remarks. Not only did our team deliver a favorable first quarter, but the diversification of our business was fundamental to the results. With each sector having a material contribution in the solutions we offer our customers and with each sector having a material contribution to our financial results. Specifically, the four sectors in our DMS segment focus on margins while offering reliable cash flows. While the four sectors in our EMS segment focus on cash flows, while offering reliable margins, a perfect complement as the well diversified construct of Jabil continues to drive our execution. If we dig a little deeper, we find secular trends embedded within certain sectors. Secular markets, where we now play and have a substantial presence. We believe these markets will drive our growth, with the overwhelming majority of such growth occurring organically, as we placed our attention on secular opportunities, opportunities such as 5G, electric vehicles, personalized health care, cloud computing, and clean energy. Furthermore, our commercial portfolio is intentional, and we think quite special. Each slice of this pie harbors domain expertise, affording us an essential collection of valuable capabilities. Although what's most impactful is the way in which we merge these capabilities with precision and speed as we serve our customers. Our approach is further enhanced by seamless collaboration across the organization combined with our unique Jabil structure. And when done correctly, we simplify the complex for many of the world's most remarkable brands. And we do so as we lean into a massive market where things need to be built, and supply chains need to be optimized. One of the key outcomes of our approach is the fact that with each passing year, our results become less dependent on any single product or product family, which improves our resiliency, especially during times of macro disruption, and cyclical demand. I'll now take you through an update to our fiscal 2022 financial plan where you'll see the continued earnings power of the company. We've increased core earnings per share to $6.55 for the year, up $0.20 from our September outlook. We've also increased revenue to $31.8 billion, up from our initial guide of $31.5 billion. In addition, we're committed to delivering free cash flow in excess of $700 million while maintaining a core margin of 4.5% for the year as we navigate this challenging environment. In concert with these strong numbers, please note that our path forward is well understood throughout the company. And what needs to be done remains crystal clear. Quite simply, what we're doing is working a positive testament on how our team is managing the business. Moving on from the financials, I'd like to talk about purpose. At Jabil, purpose serves as our guidepost. When we think about purpose, we think about our behaviors, behaviors such as keeping our people safe, servant leadership, DE&I, protecting the environment, and getting back to the many communities where we live. Please note that these behaviors as displayed by our team are exceptional. In closing, our improvement is steady and our strategy is consistent. And as a team, we value our role as a responsible and reliable partner to those we serve. All-in-all, I feel good about where we've been. But I feel even better about where we're going. In simple terms, at Jabil we build stuff and we do so really, really well. We also solve problems over and over again, that’s why we welcome the challenges put forth by our customers. To our entire Jabil team, thank you for making Jabil, Jabil. I want each of you to always be your true self without fear or anxiety as you care for one another. To everyone on the call today, I wish you a safe and peaceful holiday. With that, I'll now turn the call back over to Adam.

Operator:

Thank you. [Operator Instructions] Our first question is coming from the line of Ruplu Bhattacharya with Bank of America. Please proceed with your questions.

Mark Mondello:

Hey Ruplu thanks for the question. I don't -- I don't know that we really look at it that way. How I would answer it maybe would be maybe getting away from Q1. And I'm not doing that for any reason other than I kind of think about the year a bit deeper. I'd say that we've taken the year now from 31, five to 31, eight. I think that's up from like 29 three last year. And I think we've done a really good job, spending a lot of time with our commercial folks, our operations folks, and our supply chain procurement folks. So I believe that we've handicapped supply chain properly, to deliver the 31 eight. I guess in an unconstrained environment. I don't know maybe the maybe the 31 eight would be somewhere 32 something in terms of top line. But again, I think we spend more time really kind of looking at our factories, looking at the looking at the pipeline of materials, and then a lot of communication and connectivity between our supply chain procurement folks, our operations folks and our commercial folks. So I think maybe the main takeaway is Simmons supply chain continues to be kind of bumpy and a bit unpredictable for the next couple of quarters. We believe we've handicap that properly to deliver the year, or said differently the 31.8 billion. In terms of when we see things getting better for -- I like the question because it allows me to give a shout out to our supply chain procurement team for what they did in, in in for 4Q of last year in Q1 of this year, in delivering the numbers, we overshot revenue by a 300 million for the quarter and a lot of that had to do with the whole team, but just tremendous work from the supply chain procurement group. I think that will continue to be in this environment and in one way, shape perform probably through the spring into early summer. But I think we start seeing things getting better six to nine months from now.