Q3 2022 Jabil Inc Earnings Call
Greetings welcome to Jabil as third quarter fiscal year 2022 earnings call.
At this time, all participants are in listen only mode.
And question and answer session will follow the formal presentation.
If anyone should you should require operator assistance during the conference. Please press star zero from your telephone keypad.
Please note this conference is being recorded.
At this time I'll turn the conference over to Adam Berry, Vice President Investor Relations. Adam You May now begin.
Good morning, and welcome to Jabil third quarter of fiscal 2022 earnings call.
Joining me on today's call are Chief Executive Officer, Mark Mondello.
<unk> financial Officer, Mike desktop.
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 <unk> dot com within our Investor Relations section at.
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 our 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.
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 2021 and other filings.
<unk> 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.
Thanks, Adam.
Yeah.
I appreciate everyone, taking time to join our call today.
I'll begin by saying thanks to all of our people here at Jabil.
Thank you for the tireless attention you offer customers.
And thank you for the manner in which you care for and accept one another.
Yeah.
Let's now turn to slide five and review our third quarter results.
Q3 was another strong quarter.
Driven by double digit revenue growth and outstanding execution.
Altogether.
The team delivered core earnings per share.
A $1.72.
On revenue of $8 $3 billion.
This resulted in a core operating margin.
Four 2%.
40 basis point increase year on year.
All in all I'm quite pleased with the quarter.
We're carrying good momentum as we start to think about FY 'twenty three.
And when I think about momentum.
I think about the primary catalysts behind our business.
That being the makeup and scale.
Our commercial portfolio.
Which I'll now address on the next slide slide six.
The Pie chart shown here.
It reflects <unk> commercial portfolio.
Which our team has built over the past five to six years.
In essence.
Large scale well diversified foundation.
From which we run our business today.
And the resultant output and having built this business is threefold.
One.
A higher level of resiliency for the Corporation.
Either during trying times of macro and geopolitical disruptions.
Or do you mean more typical times.
When we're simply faced with never ending demand fluctuations.
Two.
Jabil has presence in new markets.
Markets that include five G.
Electric vehicles.
Personalized health care.
Cloud computing and clean energy.
Yeah.
Markets that we believe will drive earnings growth.
Especially when combined with the continued refinement and improvement of our traditional businesses.
And finally, the third resulting output of our team's hard work.
Is the assembly and collection of our many capabilities.
Capabilities that allow us to simplify the complex.
For many of the world's most notable brands.
As we lean into a massive market.
Where things need to be built.
And supply chains need to be developed or modified.
Moving to slide seven.
You'll see managements outlook for the year.
We're anticipating core earnings per share.
To be $7.45.
An increase of 33% year on year.
As for revenue fiscal 'twenty, two now looks to be $32 $8 billion.
While our outlook for core operating margin remains steady.
At four 6%.
A 40 basis point improvement year on year.
In addition.
We remain committed to delivering a minimum $700 million and free cash flow for FY 'twenty two.
Altogether.
This year is a terrific blend of reliable margins and sustainable cash flows.
And although we're navigating a tough environment.
We have ample opportunities to consider.
As we formalize our business plan for fiscal 'twenty three.
With this in mind.
We look forward to hosting our fifth annual investor briefing.
And consistent with past years, the briefing will be held in late September .
Adam will be confirming an exact date later this summer.
We will open the session by reporting our fourth quarter and full year results.
Well then follow with a complete review of our priorities.
And explain how these priorities will guide us through FY 'twenty three.
Management will also share how we plan to further expand our core operating margin.
While sharing observations on end markets.
And wrapping up the September session.
Mike will share our capital return framework for FY 'twenty, three and that's why 24.
We have lost share.
And a wonderful story to tell.
Financially.
Operationally.
And commercially.
With that lets look at my final slide.
Well I'd like to talk about the importance of purpose.
Yeah.
At Jabil, We act with purpose.
And with purpose comes expectations.
Expectations around certain behaviors.
Behaviors, such as keeping our people safe <unk>.
Protecting the environment.
Giving back to our communities and.
And ensuring a workplace of tolerance.
Respect and acceptance.
Within Jabil these behaviors have never been as important.
As they are today.
I'm proud of our team.
As they embrace our purpose and in doing so they're conduct is exceptional.
In closing.
I like the decisions we're making.
At Jabil, we build stuff.
And we do it really really well.
It's why we welcome the challenge has put forth by our customers.
And when addressing these challenges we do our best to make the world a little bit better.
A little bit healthier.
And a little bit safer each and every day.
As I alluded to earlier in my prepared remarks.
The world is a bit messy at the moment.
What I do believe is jabil executes well when times are steady.
But I'm, even more passionate and might believes.
That jabil executes really well when times are difficult.
Thank you for joining our call.
And thanks for your interest in Jabil.
I'll now turn the call over to Mike.
Thanks, Mark and thank you for joining us today.
Our first quarter was a great loss station about diversification in action.
I'm really pleased with the resiliency of our portfolio and the sustainable momentum at the enterprise level.
In spite of the challenging supply chain environment, and well publicized shutdowns in China. The team still delivered exceptional results revenue core operating margin and core diluted earnings per share.
For the quarter revenue was approximately $8 $3 billion.
All cast driven by very strong demand within the EMS, partially upset by sporadic corporate challenges within D&S.
Altogether on an enterprise level revenue grew by 15% year over year, and 10% sequentially as demand across end markets remained well ahead of supply.
Yeah.
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 up one.
2% up 40 basis points full cry, yes.
Net interest expense in Q3 came in above expectations at $45 million due to a combination of higher looking capital and rising interest rates.
Core diluted earnings per share was $1.72, a 32% improvement over the prior year, Florida.
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 health care and mobility, we still experienced year over year growth in every end market within Dms.
Yeah.
Well margin for the segment came in at three 8%.
Revenue for our EMS segment came in at full quite $5 billion, an increase of 23% on a year over year basis, and well ahead of our plans for March.
Strongly you'll be outperformance in our EMS segment was extremely broad based with strength in our five G wireless cloud and networking and storage businesses, where we gained additional share during the quarter as a result of our ability to execute in complex life change and deliver critical parts and component.
<unk>.
Well module for the St. Luke's four 6% up 80 basis points over the prior year, reflecting exceptional cost control on higher than anticipated revenue.
Turning now because 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 shut downs in Shanghai, which also impacted upstream and downstream supply chain.
Yeah.
The offset a portion of our higher inventory levels with inventory deposits from our customers.
And these deposits reside within the accrued expenses line item on the balance sheet.
Net inventory deposits inventory days was 70 in Q3 down one day from the Green this quarter.
As a quick reminder, our business model is designed such that we do not take risk on inventory.
Anticipation of sales.
All inventory artists to acquire a customer purchase order before triggering a purchase requests within our MRP system.
The majority of our inventory continues to be mainly associated with raw materials as a result of picking issues and timing of components.
Okay.
At the end of Q3 finished goods represented a very small level at approximately 11%.
Consistent with Q2.
Yeah.
Yeah.
Our third quarter cash flows from operations were $545 million and net capital expenditures totaled $324 million.
Yeah.
From a total debt to core EBITDA level, we exited the quarter at approximately one three times and with cash balances of $1 $1 billion.
Yeah.
During Q3 to repurchase approximately one 6 million shares for $203 million and for the year, we repurchased seven 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 'twenty two to be in the range of 8.1 to $8 $7 billion.
Yeah.
Well, our operating income is estimated to be in the range of $390 million to $450 million, representing a core margin range of eight to five 2%.
At the midpoint. This is an improvement of 80 basis points over the prior yeah.
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 and 30%.
GAAP diluted earnings per share is expected to be in the range of $1.78 to $2 at ETE incentives.
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 market demand has been extremely resilient and continues to outstrip supply across our business, particularly in end markets that continue to benefit from strong secular tailwind market such as electric vehicles, personalized medicine and health care claim.
Clean at Smart energy infrastructure.
Five G infrastructure cloud and semi cap.
These end markets represent a large majority of the overall 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.
Yes.
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 brought us diversification spices zillions seat to our portfolio.
In summary, it was not only a well diversified but also markedly more resilient due to a multi our proactive efforts to diversify our business and align to tomorrow's trends.
As a result, we feel the outlook for our business are strong and anticipate demand to be resilient for the balance of this year and into FY 'twenty three.
All in all our performance during the first nine months of FY 'twenty two it gives us excellent momentum as we look to close out another strong year.
Yeah.
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 increased revenue.
We now expect strong core margin and free cash flow of four 6% and 700 million respectively.
Yeah.
With that I'll now turn the call over to Adam.
Thanks, Mike before we move into Q&A I'd like to remind all participants that we cannot address customer or product specific questions. Thank you for your understanding operator, we're now ready for Q&A.
Thank you.
At this time, we'll be conducting a question and answer session.
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One moment. Please so we poll for questions. Thank you.
Our first question comes from the line of <unk>.
Blue Bhatia with Bank of America. Please proceed with your question Hi.
Thanks for taking my questions and congrats on the strong execution in the quarter.
My first question Mark is on revenue growth revenues in E. M S looks like.
It's a much stronger growth than you had expected was there any pull forward of revenue from a physical for Q or did you just see higher demand in all end markets and the same question for the D. M. S segment, where revenue growth was 7% versus your guidance of 17% a it looks like you've reduced your estimate for fiscal <unk>.
Mobility and auto revenue was a little bit. So do you see lower end market demand or is it that supply constraints are limiting your ability to fulfill the demand.
So those are I think two fundamental questions for the quarter and there's a there's a lot there.
But if I Miss something bring me back to it I'll start with the M S.
The EMS business overall.
I think I think if you're 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 your numbers from one.
We were probably a little bit conservative in our guide at the beginning of the quarter with everything going on number to.
The execution through the quarter was exceptional and it was it was really broad based so I know I use that term.
And in ER and other conversations as well, but if you 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 are on the on the EMS side are a reflective of.
Where we saw some strength and where our execution I think was exceptional for the year. So I think I think it's a combination of a.
A little bit conservative at the beginning of the quarter with everything going on and number two execution of his 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 habit.
A really good appreciation of our ability to help in the supply chain situations and navigating some some continue.
Continued supply chain issues, and I think that allowed us to to pick up some share during the quarter. So that's that's kind of MFS I also think on the EMS side, if I speak to it on a relative basis route blue.
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 controllable and and that's just what Jabil does really really well at our scale is the execution side, whether it be the factor your supply.
Shane on the Dms side.
I think it was I think it was three fold one.
Yeah. It was a bit on health care are two was a bit on auto and three it was a bit on mobility and although again, we were 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 stacking up to be a very good year in a really tough environment there were.
There were some challenges again with some specific silicon are probably impacted us a mostly on an auto, but but but I'm not in a vacuum and then there was some timing shifts going on in volumes with mobility, So I would say.
That's kind of a summary of of of what happened with the results in terms of E. M. S. In Dms in terms of our guide back in back in March.
Yeah. Thanks for all the details there Mark that's helpful and can I ask a given all the strength that you're seeing in various E. M. S N markets and also in D. M S.
How should we be thinking about capex this year and which specific areas are you do you think you need to invest more this.
This year. Thank you.
Well, it's yours about serious about over so I I, you know I I capex is going to be what it's going to be this year I think it'll be I don't know somewhere between two and a half and 3% of our overall revenue is probably closer to two and a half I think we talked about that back in September so the way we're managing capex.
I think is exceptional I actually have a 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 'twenty three during the.
The Investor Day in September I would expect in terms of.
Indexing capex off of revenue FY 'twenty three will look similar to FY 'twenty two and in terms of the last part of your question.
Yeah, we will continue to invest in areas that have great cash flows sustainable businesses, and and and helped drive our margins to 5%.
Yeah, Thanks for taking the questions and congrats again on the on the quarter.
<unk>.
The next question comes from the line of Matt Sheerin with Stifel. Please proceed with your question.
Yes, Thank you and good morning.
Just a question just regarding the guidance.
And specifically on the margins it looks like you're guiding.
Our margins too.
Call it 5%.
So and is that driven by mix and do you expect gross margin to improve a here or continued opex leverage and you you're talking very strong leverage on opex in the last couple of quarters. So.
What what is driving those margins.
Well I think one it's a again, it's it's a little bit of a mix across the business, which I think is a big thesis of our story around where the company is today I think we.
We see quarter on quarter, we'll see decent strength in auto I think we'll see assuming Shanghai. He doesn't shut down hard again, we'll see a relative strength in health care and packaging.
Q4 always ended up being a strong quarter for us because of mix not intentional on our EMS business in the EMS business is.
Is substantial in the fourth quarter and I think if I step back and I I look at the bigger picture. It's it's the it's the overall health of the business and it's the overall execution I mean, I think Q4 is a is a good marker for the business where.
We want to take it further for 'twenty, three and 'twenty four.
Again in driving the entire enterprise on an annual basis.
Two 5% op margins and Matt if I could just add a D. M. S. N E M S businesses have slightly.
Different gross margin profiles are I think the EMS. The child perform in Q3, we should 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 on the Dms side, where are your gross.
Margin is higher but you are SG&A percentages are higher because of FDA qualification requirements, because it's a regulated industry sort of the regulations that go around that so it's a very different gross margin profile for E. M. S. N D. M. S. I would encourage folks to look at operating margin, that's what we as a management team.
Look at internally, Oh, we're marching towards 5% and beyond and we'll continue to deliver that gross margin profile as we go change up and down quarter by quarter depending.
Depending on the mix side. So I just encourage you to focus more on operating margin and gross margin.
Okay. Thank you for that and then regarding the supply chain headwinds that hit most of your your D. M. S. Businesses are you seeing any signs of easing there either on the semiconductor supply side or the COVID-19 related restrictions.
How is that impacting your guidance in other words.
Would you have you been more upside if if there were more available supply for production.
I mean I've been saying this the last couple of quarters first off.
Multiple variables that that impacted the EMS and by the way demand remained strong. So I think I think that's an interesting takeaway from this call and our you know the D. M S.
Hum a delta relative to our guide wasn't wasn't all supply chain at all again I. It was it was a timing shift in volumes in mobility. It was.
Again.
The number of weeks of of our of our shutdown in Shanghai, and then I did I did say and acknowledged that we had some issues with with some very specialized silicon and that impacted probably auto more than 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 in and are in the December call, which is when we think about supply chain.
You know it's not just semi conductor is it's not just the last Golden screw. We have we have everything from resins to to to metals in our in our precision machining to just run the gamut of of everything that we buy so again I think supply chain continues to get better.
Thought and have said that I thought the supply chain normalizes towards the end of this calendar year that may push a bit into 'twenty three but.
Overall, a supply chains are getting a bit better.
There's still some hard constraints around some select.
Components, but I would I would also say that one of the things that played for us in the third quarter and is also helping us drive to 5% margins in the fourth quarter is our ability to navigate supply chain on a relative basis better than most.
Okay. Thanks, so much for the answer yeah. Thanks, Matt.
The next question is from the line of Steven Fox with Fox Advisors. Please proceed with your question Hi.
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 the 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 had a follow up.
You're right, we don't want to say much about 23 at the moment I think well I think we'll go deep into that.
Steve.
In our in our Investor Day in September I just.
I'd look at it and say.
You know a few years back.
We ran about a six year stretch, where we are growing the heck out of the company and diversifying and building the platform. We have today and the op margin line was it was around three 5% and then in 'twenty. One we took it up substantially to four point to this year, we're going to deliver around 4.6.
I guess I would say and maybe I alluded to some of this in my prepared remarks is I think you know sitting here today, I think FY 'twenty threes margins will be greater than FY, 'twenty two's margins and I think Q4 is a little bit of a proxy in terms of.
Kind of where the company is headed.
So yeah overall, there theres a theres a lot of things going on around us at the moment, we're navigating them reasonably well on an absolute scale I think very well on a relative scale so more to come in September .
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 the interim gap and before I forget I guess, so wished to lightning luck in the rest of it Stanley.
Finally, I was hoping you were going to say that you know what.
The Rangers are are you Rangers are an awfully good team and I think they're going to be really really good. The next three to four years. So thanks for that and we're rooting them on that itself was last night, but we appreciate the we appreciate the Ranger fan converting to a lightning fan at least for the next couple of weeks. Thank you okay.
On the on.
On the on the on.
The share gain are you know I would I don't know how to handicap that we we did we did a number of customers some favors by navigating supply chain and helping them out when they needed some help.
Is that sustainable I dunno some of it will be some of it won't I do think.
Though if you take a look at the if you take a look at the Blue Green Slide and I know the one that we posted in the deck kind of gives you relativity FY 'twenty FY 'twenty, one FY 'twenty two but if you pull the blue Green slide out of your last deck from the March call.
And you take a look at what we said in March versus where.
Where we sit today.
Again for the year I think.
I don't remember the exact numbers, but I think a digital print retail is up from what we said 90 days ago five G wireless and cloud is up from what we said 90 days ago networking storage. So I think I think that's a good proxy of where we picked up some share.
Again, largely about around our ability to execute supply chain and get product to our factories for.
Customers will some of that stick with us I think so and and I think you'll hear about some of that in September .
Thanks again, yeah, you're welcome.
Our next question is from the line of Mark Delaney with Goldman Sachs. Please proceed with your question.
Yeah. Good morning, Thank you very much for taking the questions. The first one is on the macroeconomic environment and Mark you commented on somebody's uncertain.
Headlines that are out there and I am curious or is this just a.
Something you guys are seeing in terms of the economic data points that are being reported are there actual customer schedules for six to 12 months out that are that are starting to slow and if there are actual customers that are indicating things may be slowing or are there any end markets you can point to.
Well I'm not going to get into customer data I would say that.
I would say with what's goodness is is if we go back to so again the world is a tough place and its tough place for any large corporation at the moment.
But boy I like our chances if you go back in in a tough environment.
With with everything.
I think it's 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 eight so again I think that's reflective of our ability to execute and in a tough environment and.
And again.
I think it speaks I think it speaks to how we're positioned with the portfolio. We have in terms of what we you know we always see puts and takes are some of those puts and takes maybe.
I don't know peak to trough peak to trough.
Some of those maybe more abrupt and 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's 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 I think it gets.
Way over spoken on earnings calls in and you know people talk about secular this secular that and but but what I think is very real is is.
As we have 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 health care, we talk about.
Some of the changes and advancements in connected devices I think about what's going on.
In terms of automation in 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 in the five G. A build out so.
They're certainly not they're certainly not.
Those those types of businesses, if if if we get into a massive recession.
<unk> will have 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 I feel good about the fourth quarter and and again I think I think well have some reasonably good things to say in in September .
Yeah. That's helpful and my second question is on the China region.
We're seeing some headlines of ER visits resuming post some of these shut downs in different parts of China, you could you better characterize to what extent things are back open you maybe relative to March.
When you're a Shanghai for example went into lockdown.
To what extent are things get back to those sorts of levels or is it still 70, 80%.
If it's not back at full volume do you. When do you think he may be back to full volumes in China. Thanks.
I think we'll be back to full volumes in China now and.
Yeah, we've handicapped that a little bit in the fourth quarter, but you know our assumption is is that China runs at at say, let's just let me just let me say 70, illustrative Lee 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 we have enough a residual capacity. There. If you will too to make things up pretty quickly I would say.
<unk> four for Q.
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.
You know, 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 and why the margins Q3 to Q4.
That's very helpful. Thanks for taking the questions and congratulations on the good results.
Our next question is from the line of Paul Chung with Jpmorgan. Please proceed with your questions.
Hi, Thanks for taking my questions.
So just on free cash flow, you know 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.
First maybe moving forward.
Yeah.
So Paul Thanks for that question I think if you look at our earnings our earnings that are Oh, it's up from the beginning of the air It's a it's up again quarter over quarter.
I think the inventory number was slightly higher than what we expected working capital was up a little bit Ah I think that the reasons for those are a very clear. It's a complex set of supply chain the COVID-19 shutdown stand how.
But overall, we still feel we can get to our free cash flow number Oh wait we will see some reduction in working capital in Q4.
In fact, if you look at our free cash flow this year versus last year at this point in time, we're actually ahead of what we were last year. So I feel good about that 700 million free cash flow number Oh.
Great and then just a follow up on on the automation side, So where are you seeing kind of incremental opportunities for 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 say I know that part of the business is small but how are you.
Leveraging some robotics technology across the business. Thank you.
I think we're doing a really good job of that I I you know one of the things that we spend a lot of time.
Internal about is a control we can control.
And if you think about our business at the very very core of our business as we build stuff and it's that simple and if we're going to build stuff. We should have the best factories in the world I would say of our overall factory network. Today, we're really really proud of about 80% of our factories and we got 20% of the factories there.
Operate really well.
So far from perfect, but also I would say the Opex investments, we've made along with the Capex investments both in I T operations automation AI data analytics et cetera are starting to come through in the factories and.
We think that will carry through for 'twenty, three and 'twenty four.
Overall, we're going to be able to continue to do more with less and Ah I think that's also reflected in our overall SG&A numbers as well, which I think is a good thing.
Okay.
Great. Thank you Youre welcome.
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.
Thanks, everyone for joining this now concludes our call.
This will conclude today's conference. Thank you for your participation.