Q4 2023 Jabil Inc Earnings Call
Speaker 1: Hello and welcome to the JBL fourth quarter in fiscal year 2023 earnings poll webcast in investor
Hello, and welcome to the Jabil fourth quarter and fiscal year 2023 earnings call webcast in the Investor briefing if anyone should require operator assistance. Please press star zero on your telephone keypad, a question and answer session will follow the formal presentation human.
Speaker 1: If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow before you call.
You May ask a question at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded.
Speaker 1: You may ask a question anytime by pressing star one on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Adam Berry, Vice President Investor Relations. Adam, please go ahead.
My pleasure to turn the call over to Adam Berry, Vice President Investor Relations. Adam. Please go ahead.
Speaker 2: 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 in the sixth annual investor brief.
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.
Speaker 2: Joining me on today's call are Chief Executive Officer Kenny Wilson, EVP of Global Business Units Fred McCoy.
E V P of global business units Fred Mccoy.
And Chief Financial Officer, Mike <unk>.
For the sixth straight year, we're going to use this session today to accomplish the following.
Speaker 2: For the sixth straight year, we're going to use this session today to accomplish the following.
Speaker 2: Review our fourth quarter and fiscal 2023 results.
Review, our fourth quarter and fiscal 2023 results.
Speaker 2: discuss the trends underway within the end markets we serve.
Discuss the trends underway within the end markets we serve.
Provide an update for our pending transaction to sell the mobility business to be Y D electronics.
Speaker 2: Provide an update for our pending transaction to sell the mobility business to BYD Electronics.
Speaker 2: Refresh our capital allocation policy given the pending deal.
Refresh our capital allocation policy given the pending deal.
Oh for a thoughtful fiscal 'twenty four outlook that demonstrates enterprise level growth in some key areas. While also remaining sensible and grounded given the realities of the dynamic global macro environment surrounding us today.
Speaker 2: offer a thoughtful fiscal 24 outlook that demonstrates enterprise level growth in some key areas, while also remaining sensible and grounded given the realities of the dynamic global macro environment surrounding us today.
And finally, we will do our very best to walk through the many moving pieces, we foresee in the upcoming year as we work to make our business more profitable and more sustainable.
Speaker 2: And finally, we'll do our very best to walk through the many moving pieces we foresee in the upcoming year as we work to make our business more profitable and more sustainable.
But before we jump into the details. Please note that today's call is being webcast live and.
Speaker 2: But before we jump into the details, please note that today's call is being webcast live. And during our prepared remarks, we will be referencing slides.
And during our prepared remarks, we will be referencing slides.
Speaker 2: To follow along with these slides, please visit Jabil.com within the investor relations portion of the website.
To follow along with these slides please visit <unk> dot com within the Investor relations portion of the website.
Speaker 2: At the conclusion of today's call, the entirety of today's presentation will be posted there for audio playback.
At the conclusion of today's call the entirety of today's presentation will be posted there for audio playback.
Okay.
Speaker 2: I'd now like to ask that you follow our presentation with slides on the website, beginning with the forward looking state.
I'd now like to ask that you follow our presentation with slides on the website beginning with the forward looking statements.
Speaker 2: During this 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 fiscal year net revenue and earnings.
During this 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 fiscal year net revenue and earnings.
Speaker 2: These statements are based on current expectations, forecasts, and assumptions involving risks and uncertainties that could cause actual outcomes and results to differ materially.
These statements are based on current expectations forecasts and assumptions involving risks and uncertainties that could cause actual outcomes and results to differ materially.
Speaker 2: 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, 2022, and other filings with the SEC.
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, 2022 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.
Speaker 2: table disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or other.
With that I'd now like to shift our focus to our fourth quarter results, where the team delivered approximately $8 $5 billion in revenue equal to the midpoint of our guidance range.
Speaker 2: With that, I'd now like to shift our focus to our fourth quarter results, where the team delivered approximately $8.5 billion in revenue, equal to the midpoint of our guidance range.
Speaker 2: Core operating income for the quarter came in stronger than expected at $477 million, or 5.6% of revenue.
Core operating income for the quarter came in stronger than expected at $477 million or five 6% of revenue.
Speaker 2: This is up 60 basis points on a year-over-year basis and 80 basis points sequentially, driven by strong execution across both segments.
This is up 60 basis points on a year over year basis, and 80 basis points sequentially driven by strong execution across both segments.
Net interest expense in the quarter came in better than expected at $71 million.
Speaker 2: Net interest expense in the quarter came in better than expected at $71 million.
Reflecting good progress by the team on inventory and solid working capital management.
Speaker 2: reflecting good progress by the team on inventory and solid working capital management.
From a GAAP perspective, operating income was $441 million and our GAAP diluted earnings per share was $1 15.
Speaker 2: From a GAAP perspective, operating income was $441 million, and our GAAP diluted earnings per share was $1.50.
Core diluted earnings per share was $2.45, a 5% improvement over the prior year.
Speaker 2: Core diluted earnings per share was $2.45, a 5% improvement over the prior year, and towards the upper end of our guidance range.
And towards the upper end of our guidance range.
Revenue for the Dms segment came in better than expected at $4 $4 billion up marginally compared to the same timeframe from a year ago, driven by strength in our auto and health care businesses.
Speaker 2: Revenue for the DMS segment came in better than expected at $4.4 billion, up marginally compared to the same timeframe from a year ago, driven by strength in our auto and healthcare business.
Speaker 2: This strength was completely offset by continued weakness in connected devices.
This strength was completely offset by continued weakness in connected devices.
Yeah.
Speaker 2: Core operating margin for the segment came in at 6.1 percent, 100 basis points higher than the same quarter from a year ago, given the solid mix and the normal seasonal pattern within our mobility business.
Core operating margin for the segment came in at six 1% 100 basis points higher than the same quarter from a year ago, given the solid mix and the normal seasonal pattern within our mobility business.
Revenue for our EMS segment came in at $4 billion down roughly 13% year over year and approximately $200 million below expectations.
Speaker 2: Revenue for our EMS segment came in at $4 billion, down roughly 13% year over year, and approximately $200 million below expectations.
As expected during the quarter, we saw our major revenue shift in our cloud business driven by our previously announced transition of certain components, we procure and integrate to a customer controlled consignment service model.
Speaker 2: As expected, during the quarter, we saw a major revenue shift in our cloud business, driven by our previously announced transition of certain components we procure and integrate to a customer-controlled consignment service model.
In Q4, the overall mix of consign components came in higher than expected.
Speaker 2: In Q4, the overall mix of consigned components came in higher than expected.
Speaker 2: For the quarter, core margins for EMS were 5.2%.
For the quarter core margins for E M S or five 2%.
Speaker 2: up 40 basis points year over year, reflecting strength and renewables, which is in our industrial portion of our business and the aforementioned consignment shift.
Up 40 basis points year over year, reflecting strength in renewables, which is in our industrial portion of our business and the aforementioned consignment shift.
In fiscal 'twenty three our Dms segment revenue was $18 billion, an increase of 8% year over year.
Speaker 2: In fiscal 23, our DMS segment revenue was $18 billion, an increase of 8% year over year.
Speaker 2: In particular, it's worth highlighting our automotive and healthcare businesses, which were up 42% and 12% respectively.
In particular, it's worth highlighting our automotive and health care businesses, which were up 42% and 12% respectively.
Core operating margin for the segment came in at 5% uptick up 10 basis points year over year.
Speaker 2: Core operating margin for the segment came in at 5%, up 10 basis points year over year. In EMS,
M E M S core margins for the year was strong.
Speaker 2: also coming in at 5 percent, 70 basis points higher than the prior year, on revenue of $16.7 billion.
Also coming in at 5%.
70 basis points higher than the prior year on revenue was 16 point to $7 billion.
The strength in fiscal 'twenty, three income was driven by growth in renewables within our industrial and semi cap market as well as the benefit from consignment.
Speaker 2: The strength in fiscal 23 income was driven by growth in renewables within our industrial and semi-cap market as well as the benefit from consignment.
Yeah.
Next I'd like to begin with an update on our cash flow and balance sheet metrics.
Speaker 2: Next, I'd like to begin with an update on our cash flow and balance sheet metrics.
Beginning with inventory, which saw good improvement sequentially by four days to 80 days.
Speaker 2: beginning with inventory, which saw good improvements sequentially by four days to 80 days.
More importantly, net of inventory deposits from our customers inventory days were also down four days to 58 in Q4.
Speaker 2: More importantly, net of inventory deposits from our customers, inventory days were also down four days to 58 in Q4.
Our fourth quarter cash flows from operations were strong coming in at $686 million.
Speaker 2: Our fourth quarter cash flows from operations were strong, coming in at $686 million.
Net capital expenditures for the fourth quarter were $28 million and for the full fiscal year came in lower than expected at $708 million, mainly due to the timing of capex payments that are shifting to Q1 from Q4.
Speaker 2: Net capital expenditures for the fourth quarter were $28 million, and for the full fiscal year came in lower than expected at $708 million, mainly due to the timing of CapEx payments that are shifting to Q1 from Q4.
As a result of the strong fourth quarter performance and cash flow generation adjusted free cash flow for the year came in higher than expected at approximately $1 billion.
Speaker 2: As a result of the strong fourth quarter performance in cash flow generation, adjusted pre-cash flow for the year came in higher than expected at approximately $1 billion.
With this we ended the quarter with cash balances of $1 $8 billion and total debt to core EBITDA levels of approximately one one times.
Speaker 2: With this, we ended the quarter with cash balances of $1.8 billion and total debt to core EBITDA levels of approximately 1.1 times.
For the year, we repurchased $6 7 million shares.
Speaker 2: For the year, we repurchased 6.7 million shares for $487 million.
$487 million.
Speaker 2: leaving us with $776 million remaining on our current repurchase authorization as of August 31st.
Leaving us with $776 million remaining under our current repurchase authorization as of August 31st.
Please note that in Q4, we were out of the repurchase market, mostly as a result of the pending mobility deal.
Speaker 2: Please note that in Q4, we were out of the repurchase market, mostly, as a result of the pending mobility deal.
Speaker 2: As Mike will share in a few minutes, when our opportunity to buy back reopens, we plan to accelerate repurchases in Q1, fiscal 24.
As Mike will share in a few minutes when our opportunity to buyback reopens, we plan to accelerate repurchases in Q1 fiscal 'twenty four.
Speaker 2: As I flip to the next slide, looking at the five-year financials, it's hard to believe that another year is in the books for JBL.
As I flip to the next slide looking at the five year financials, it's hard to believe that another year's in the books for Jabil.
And as I look ahead, I can't help but think that there's so much more opportunity ahead for us.
Speaker 2: And as I look ahead, I can't help but think that there's so much more opportunity ahead for us.
Speaker 2: In a moment, I'll hand the call over to Kenny, Fred, and Mike. But before I do, I want to spend a few minutes setting the stage for what you're going to hear today.
In a moment I'll hand, the call over to Kenny Fred and Mike, but before I do I want to spend a few minutes setting the stage for what you're going to hear today.
Over the next couple of minutes I think youre going to hear a lot of the same from us.
Speaker 2: Over the next couple minutes, I think you're going to hear a lot of the same from us.
From a financial target perspective, youre going to hear us talk about when they're our unfair share of business.
Speaker 2: from a financial target perspective, you're going to hear us talk about when they are unfair share of business.
Speaker 2: and leveraging those wins to drive margin expansion, free cash flow generation, and further shareholder return.
And leveraging those wins to drive margin expansion free cash flow generation and further shareholder return.
From an end market perspective, youre going to hear more about the areas of our business, which continued to see solid double digit growth and why we believe we're one of the best positioned companies to benefit from global trends, such as electric and autonomous driving.
Speaker 2: From an end market perspective, you're going to hear more about the areas of our business which continue to see solid double digit growth. And why we believe we're one of the best positioned companies to benefit from global trends such as electric and autonomous driving.
Speaker 2: digital healthcare, AI infrastructure, and the long-term shift to renewable energy.
Digital health care.
The infrastructure and the long term shift to renewable energy.
But there's some new dynamics to share today, as well and as a team we're excited to share a few key updates.
Speaker 2: But there's some new dynamics to share today as well. And as a team, we're excited to share a few key updates.
For starters, you may have noticed that our previously announced transaction to sell our mobility business to be wider electronics has moved from the preliminary stages of agreement to a definitive agreement.
Speaker 2: For starters, you may have noticed that our previously announced transaction to sell our mobility business to BYD Electronics has moved from the preliminary stages of agreement to a definitive agreement as announced earlier this week.
As announced earlier this week.
As we move through our session today, you'll hear from both Kenny and Mike as they leave the strategic rationale and financial impact into our economic model.
Speaker 2: As we move through our session today, you'll hear from both Kenny and Mike as they weave the strategic rationale and financial impact into our economic model.
Okay.
Speaker 2: At the same time, we have some updates to provide today on capital allocation.
At the same time, we have some updates to provide today on capital allocation framework gives.
Speaker 2: given that the mobility definitive agreement is now in place.
Given that the mobility definitive agreement is now in place.
Speaker 2: And then given that fiscal 24 will be transitional for JBL, in terms of closing the mobility transaction and the subsequent planned accelerated buybacks, Mike will offer a viewpoint of fiscal 25, including the full impact of both initiatives. So with that, I'll stop there.
And then given that fiscal 'twenty four it will be transitional for Jabil in terms of closing the mobility transaction and the subsequent planned accelerated buybacks, Mike will offer a viewpoint of fiscal 'twenty five including the full impact of both initiatives.
So with that I'll now hand, it over to Kenny.
Thanks, Adam good.
Speaker 3: Thanks, Adam. Good morning. Thanks for joining us today.
Good morning.
Thanks for joining us today.
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Speaker 3: Fiscal year 23 was another strong year and I'm pleased with the progress we've made relative to our financial objectives.
Fiscal year 'twenty three was another strong year and I am pleased with the progress we have made relative to our financial objectives.
Every day at Jabil, we strive to do the right thing.
This is how we're wired.
So it is heartening when looking at our end of year report card. She did we are making progress on all fronts.
Speaker 3: So it's heartening when looking at our end of year report card to see that we are making progress on all fronts.
Speaker 3: Most satisfying for me is the resilience of our model, where despite ed-market choppiness, we posted very impressive year-on-year growth and core margins up 40 basis points.
Most satisfying for me is sort of the Chilean sovereign model, where despite end market choppiness. He posted very impressive year on year growth in core margins.
Up 40 basis points to 5%.
Speaker 3: earnings up 12% and EPS up 13% while also driving in excess of one.
Earnings up 12% and EPS up 13%.
So driving an excess of 1 billion in free cash flows.
This time of year also sees us complete our annual strategic planning process.
Speaker 3: This time of year also sees us complete our annual strategic planning process. And it is reassuring to note that similar to last year, we confirmed our focus on investing in key areas of our business, including electric vehicles and autonomous driving.
It's reassuring to note that similar to last year, we reconfirmed our focus on investing in key areas of our business, including electric vehicles and autonomous driving.
AI cloud solutions renewable energy and health care.
Speaker 3: AI cloud solutions, renewable energy and healthcare.
All of this sets a firm foundation for fiscal year, 'twenty four and beyond.
Speaker 3: All of this sets a firm foundation for fiscal year 24 and beyond.
Speaker 3: and is a testament to our customer-centric model, which is both robust and adaptable to changes in end markets.
Testament to our customer centric model, which is both robust and adaptable to changes in end market.
Speaker 3: The next slide shows how these characteristics have shaped the last 10 years. And seen in this context, fiscal 23 was just another step in the journey.
The next slide shows how these characteristics have shaped the last 10 years.
And she didn't as context fiscal 'twenty, three which is another step in the journey.
If I was looking for one want to summarize activities highlighted it would be intentionality.
Speaker 3: If I was looking for one word to summarize activities highlighted, it would be intentionality.
Speaker 3: We have and will continue to be very intentional as we look to grow and modify the mix of business to include longer lifecycle industries like healthcare with the acquisition of NYPRO and our strategic collaboration with JJMD.
We have and will continue to be very intentional as it relates to grow and modify the mix of business to include longer lifecycle industries like healthcare with the acquisition of Nitro and a strategic collaboration with J J M D.
In addition, we have also increased investment both organically and Inorganically and emerging technologies, We review our capabilities as a March for important end markets like renewable energy infrastructure electric vehicles and cloud data centers.
Speaker 3: In addition, we have also increased investment both organically and inorganically in emerging technologies. We review our capabilities as a match for important end markets like renewable energy infrastructure, electric vehicles and cloud data centers.
From an enterprise perspective, we began materially redirect them more and more of our free cash flows to buybacks.
Speaker 3: From an enterprise perspective, we began materially redirecting more and more of our free cash flows to buybacks and reinvesting ourselves at very attractive valuation.
Invest in ourselves at very attractive valuations.
And finally, just a few weeks back we unveiled yet another step in our journey.
Speaker 3: And finally, just a few weeks back, we unveiled yet another step in our journey as we announced a pending divestiture of our mobility business to BYD Electronics for $2.2 billion.
I noticed the pending divestiture of the mobility business to be RIDEA electronics for $2.2 billion.
Yeah.
Speaker 3: As you move into fiscal year 24 and beyond, you can continue to rely on this leadership team to allocate capital with a view to expanding shareholder value.
As you move into fiscal year 'twenty four and beyond you can continue to rely on this leadership team to allocate capital with a view to expanding shareholder value.
Yeah.
I'd now like to spend a little time talking about our decision to sell the mobility business.
Speaker 3: I'd now like to spend a little time talking about a decision to sell the mobility business.
Speaker 3: As you know, over the past five years, I've had the privilege both to lead and work alongside some of the most skilled and talented manufacturing engineers, operations leaders, and material scientists in the world.
As you know over the past five years I've had the privilege to lead and work alongside some of the most skilled and talented manufacturing engineers operations leaders I'm, a tito scientist in the world.
Speaker 3: And during that time, we were fortunate to build an incredible business while also delivering best in class products for what
And during that time, we were fortunate to go with an incredible business, but also delivering best in class products.
For one of the world's greatest brands.
I had a front row seat unlike any other to truly appreciate and develop a deep understanding of the level of complexity involved in introducing and manufacturing precision mechanics are huge scale for our largest customer.
Speaker 3: I had a front row seat unlike any other who truly appreciate and develop a deep understanding of the level of complexity involved in introducing and manufacturing precision mechanics at huge scale for the largest customer.
Speaker 3: This perspective provides me some credibility to make the claim that our mobility team is second to none when it comes to innovative automation, tooling design and manufacturing of these components at scale.
This perspective Pervades me some credibility to make the claim that our mobility team is second to none when it comes to innovative automation tools.
Trillium design and manufacturing of abuse components at scale.
And it also truly believe there's talented organization can reach new heights with our capability is matched by a supportive business model focused on significant growth.
Speaker 3: I also truly believe this talented organization can reach new heights when their capability is matched by a supportive business model focused on significant growth.
To all my friends in the mobility business I will Miss you deeply.
Thanks for showing up company at its best.
Speaker 3: for never flinching from the sometimes seemingly unsurmountable asks and doing so always with humility, professionalism and great skill.
I never flinched from the sometimes seemingly unsurmountable asks I'm doing so always with humility professionalism and create scale.
And it's been my honor to be a part of your team.
Looking forward I think that particular skill sets can be leveraged and endless ways.
Speaker 3: Looking forward, I think your particular skill sets can be leveraged in endless ways.
And while it's bittersweet to say goodbye to some great friends and colleagues.
Speaker 3: And well, it's bittersweet to say goodbye to some great friends and colleagues.
Speaker 3: I know this is the best route for our customers, employees and shareholders alike.
I know this is the best route for our customers employees and shareholders alike.
In a moment I will turn the call over to Fred to go deeper into our end markets.
Speaker 3: At the moment I would turn the call over to Fred to go deeper into our end mark.
Speaker 3: But before that, I wanted to reaffirm what you can expect from me as CEO .
But before that I wanted to reaffirm what you can expect for me as CEO .
I will work tirelessly on your behalf to ensure that we had in the correct end markets and geographies with the codec capabilities to serve our customers.
Speaker 3: I will work tirelessly on your behalf to ensure that we are in the correct end markets and geographies with the correct capabilities to serve our customers.
I will continue to ensure that our capital allocation is shareholder friendly while appropriately funding our growth.
Speaker 3: I will continue to ensure that our capital allocation is shareholder friendly while appropriately funding our growth.
Speaker 3: And all of this will be underpinned by an unwavering passion and commitment to preserve, protect and grow our unique culture, which is the foundation of everything that is great about our company.
And all of this will be underpinned by an unwavering passion and commitment to preserve and protect and grow our unique culture, which is the foundation of everything that is great about our company.
Thank you for joining us today and for your interest in Jabil.
Speaker 3: Thank you for joining us today and for your interest in Jibo. I will now turn the call over to Fred.
I will now turn the call over to Fred.
Thanks, Kenny and good morning, everyone.
Speaker 2: 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.
You've heard from Adam and Kenny there's a lot going on at the moment and were 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.
Speaker 2: As we move into FY24, 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.
As we move into FY 'twenty four we continue to expect growth in our business to be headlined by end markets that are benefiting from strong multiyear tailwind specifically renewable energy infrastructure electric vehicles, AI cloud data centers and health care.
Let's begin with what's going on in our industrial and semi cap end market on the next slide.
Speaker 2: Let's begin with what's going on in our industrial and semi-cap end market on the next slide.
Speaker 2: 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.
In industrial we are experiencing robust growth and 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.
Speaker 2: 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.
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.
Speaker 2: These projects have multi-year investment timelines independent of underlying short-term economic growth forecasts.
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.
Speaker 2: So we feel comfortable with the visibility we have in this space, given these elongated infrastructure build-out.
Speaker 2: As an example, a relatively new market that we're particularly excited about is the energy storage systems market.
As an example, a relatively new market that we're particularly excited about is the energy storage systems market.
Speaker 2: from grid level to inside the home and in support of rapid EV charging.
From grid level to inside the home and in support of rapid EV charging.
Speaker 2: On the back of several recent wins in the US and Europe , we expect this space to drive solid growth in the coming years, leveraging our investments in battery module integration.
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.
Speaker 2: 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 capability.
We are well positioned to support growth in the renewable energy infrastructure space due to our unique combination of power engineering expertise in region manufacturing and supply chain capabilities.
Speaker 2: As a result, we expect revenue for our industrial business to be up more than 20% in FY24.
As a result, we expect revenue for our industrial business to be up more than 20% in FY 'twenty four.
Offsetting this growth slightly as our semi cap business as.
Speaker 2: we anticipate market demand to remain muted for most of our fiscal year.
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 fear that turns wafer into chips to the backend with gear that inspection test to wafer or resulting chips.
Speaker 2: 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 chip.
Operator: Hello, and welcome to the Jabil fourth quarter in fiscal year 2023 earnings poll webcast and investor briefing. If anyone could require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may ask a question any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded.
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 'twenty for all preparing the capabilities and regional footprint for us to be well positioned to grow when the market moves higher as and <unk>.
Speaker 2: 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 FY24 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.
Operator: It's not my pleasure to turn the call over to Adam Berry, vice-present investor relations. Adam, please go ahead.
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 six 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. Review our fourth quarter and fiscal 2023 results.
Market demand rebounds.
Within our automotive and transport business, we continue to expect growth to be driven by our global transition to electric vehicles.
Speaker 2: Within our automotive and transport business, we continue to expect growth to be driven by a global transition to electric vehicles.
Speaker 2: For FY24, we expect another year of 20 plus percent revenue growth. Despite what is a choppy overall...
For FY 'twenty four we expect another year of 20 plus percent revenue growth despite.
Despite what is a choppy overall global demand environment.
Speaker 2: The global shift to EVs continues to accelerate, and we expect EVs to represent a larger share of the global auto market in FY24, regardless of near-term global growth dynamics.
The global shift to Evs continues to accelerate and we expect <unk> to represent a larger share of the global auto market in FY 'twenty for regardless of near term global growth dynamics.
Adam Berry: Discuss the trends underway within the unmarked as we serve. Provide an update for our pending transaction to sell the mobility business to BYD electronics. Refresh our capital allocation policy given the pending deal. Offer a thoughtful fiscal 24 outlook that demonstrates enterprise level growth in some key areas, while also remaining sensible and grounded, given the realities of the dynamic global macro environment surrounding us today. And finally, we'll do our very best to walk through the many moving pieces we foresee in the upcoming year, as we work to make our business more profitable and more sustainable.
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.
Speaker 2: 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 referred to as Aces.
Speaker 2: Our focus areas in the EV market we refer to as ACES.
Speaker 2: or ADAS and autonomous, connectivity, electrification, and software-defined vehicle architecture.
Or Adas and autonomous connectivity electrification and software defined vehicle architecture.
And 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.
Speaker 2: 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 was well positioned as jabil to support customers multiple complex program ramps on multiple continents with industry, leading supply chain design and manufacturing capabilities.
Speaker 2: The path to mass adoption of electric vehicles globally is exceedingly complex and there are very few companies that are as well positioned as Jable to support customers' multiple complex program ramps on multiple continents with industry-leading supply chain design and manufacturing capabilities.
Adam Berry: But before we jump into the details, please note that today's call is being webcast live. And during our prepared remarks, we will be referencing slides. To follow along with these slides, please visit jable.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 there for audio playback. I'd now like to ask that you follow our presentation with slides on the website beginning with the forward-looking statement.
Yeah.
Speaker 2: Moving to cloud. Our cloud solutions continue to resonate with customers of all sizes, from large hyperscalers to tier two cloud providers, such as technology companies and leading financial firms.
Moving to cloud our cloud.
Solutions continue to resonate with customers of all sizes from large hyperscale.
Tier two 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.
Speaker 2: 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.
Adam Berry: During this 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 fiscal year net revenue and earnings. These statements are based on current expectations, forecasts, and assumptions involving risk-funded 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 10K for the fiscal year and at August 31, 2022, and other filings with the SEC. Jable disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
Specially with the proliferation of AI and ml.
Next generation clouds, and especially AI cloud datacenters present unique challenges to customers.
Speaker 2: Next generation clouds, and especially AI cloud data centers, present unique challenges to customers.
Speaker 2: AI workloads, which are powered by extremely powerful GPUs that consume significantly more energy and drive increased data generation.
AI workloads, which are powered by extremely powerful gpus to consume significantly more energy and drive increased data generation.
This creates three challenges.
Speaker 2: insufficient power supply on the grid to support expanded data center needs.
Insufficient power supply on the grid to support expanded datacenter needs <unk>.
Heat generation that surpasses the capabilities of air cooled data centers.
Speaker 2: heat generation that surpasses the capabilities of air-cooled data centers.
Speaker 2: and enhance data interconnections between racks to support increased data inside the data center.
And enhanced data interconnections between racks to support increased data inside the data center.
Michael Dastoor: With that, I'd now like to shift our focus to our fourth quarter results, where the team delivered approximately $8.5 billion in revenue equal to the midpoint of our guidance range. Court operating income for the quarter came in stronger than expected at $477 million or 5.6% of revenue. Liu. This is up 60 basis points on a year-over-year basis, and 80 basis points sequentially driven by strong execution across both segments. Net interest expense in the quarter came in better than expected at $71 million, reflecting good progress by the team on inventory and solid working capital management.
Speaker 2: Our design to dust capabilities continue to resonate with customers, and we are investing in the areas of data center infrastructure services, liquid cooling, and silicon photonics to help our customers solve the above challenges.
Our designer does capabilities continue to resonate with customers and we are investing in the areas of data center infrastructure services liquid cooling and silicon photonics to help our customers solve the above challenges.
Speaker 2: Jabil is extremely well positioned to support customers as they incorporate innovative technologies into their data centers.
Jabil is extremely well positioned to support customers as they incorporate innovative technologies into their data centers.
Speaker 2: And with the asset light nature of the business, we have maximum flexibility to adapt and support customer needs around the world.
And with the asset light nature of the business, we have maximum flexibility to adapt and support customer needs around the world.
Speaker 2: We're already seeing success in this area. Shable was recently awarded.
We're already seeing success in this area shipment was recently awarded.
Speaker 2: and began production of our largest cloud customers' artificial intelligence rack configurations that are GPU dense, which are concise.
And began production of our largest cloud customers artificial intelligence rack configurations that are GPU dense which are concerned.
Michael Dastoor: From a gap perspective, operating income was $441 million, and our gap deluded earnings per share was $1.15. Core deluded earnings per share was $2.45, a 5% improvement over the prior year, and towards the upper end of our guidance range. Revenue for the DMS segment came in better than expected at $4.4 billion, up marginally compared to the same time frame from a year ago, driven by strength in our auto and healthcare businesses.
Because these components are among those consigned, we will see year over year headwinds to revenue, especially in the first half of the year.
Speaker 2: Because these components are among those consigned, we will see year-over-year headwinds to revenue, especially in thirty-seven years.
In spite of the revenue decline the underlying business and associated unit volumes. However are expected to grow by more than 20% in FY 'twenty four.
Speaker 2: In spite of the revenue decline, the underlying business and associated unit volumes, however, are expected to grow by more than 20% in FY24.
Yeah.
In healthcare, we expect another robust growth year with revenue up 9% year on year.
Speaker 2: In healthcare, we expect another robust growth year with revenue up 9% year on year.
And the health care space the range of products, we design and manufacture lean into digital health care trends and include highly complex diagnostic equipment and related consumables.
Speaker 2: In the healthcare space, the range of products we design and manufacture lean into digital healthcare trends and include highly complex diagnostic equipment and related consumables.
Michael Dastoor: This strength was completely offset by continued weakness and connected devices. Core operating margin for the segment came in at 6.1%, 100 basis points hired in the same quarter from a year ago, given the solid mix and the normal seasonal pattern within our mobility business. Revenue for our EMS segment came in at $4 billion, down roughly 13% year-over-year, and approximately $200 million below expectations. As expected, during the quarter, we saw a major revenue shift in our cloud business driven by our previously announced transition of certain components we procure and integrate to a customer-controlled consignment service model.
Speaker 2: orthopedics, including 3D printed implantables.
Orthopedics, including three D printed implantables.
Speaker 2: precision health and medical devices like minimally invasive devices.
Precision health and medical devices like minimally invasive devices.
Speaker 2: and pharma solutions including smart injection delivery devices for diabetes and obesity drugs.
And pharma solutions, including smart injection delivery devices for diabetes and obesity drugs.
Speaker 2: JBL's credibility in the healthcare space, as the largest EMS provider in the space, positions us well to take advantage of the outsourcing of manufacturing trends.
Jabil is credibility in the health care space is a largest EMS provider in this space positions us well to take advantage of the outsourcing of manufacturing trend.
Speaker 2: In the coming years, we expect OEMs to continue to accelerate this outsourcing trend, regardless of global macro growth.
In the coming years, we expect Oems to continue to accelerate this outsourcing trend regardless of global macro growth.
A recession resistant end market with long product life cycles, and accretive margins and stable cash flows is why health care continues to be such a critical component of our diversified portfolio.
Speaker 2: A recession resistant end market with long product life cycles and accretive margins and stable cash flows is why healthcare continues to be such a critical component of our Diverse 5 portfolio.
Michael Dastoor: In Q4, the overall mix of consign components came in higher than expected. For the quarter, core margins for EMS were 5.2%. Up 40 basis points year-over-year, reflecting strength and renewables, which is in our industrial portion of our business, and the aforementioned consignment shift. In fiscal 23, our DMS segment revenue was $18 billion. An increase of 8% year-over-year. In particular, it's worth highlighting our automotive and healthcare businesses, which were up 42% and 12% respectively.
Within digital print and retail we're seeing slower demand in legacy print and point of sale markets.
Speaker 2: Within digital print and retail, we're seeing slower demand in legacy print and point of sale markets.
Speaker 2: This is being offset by growth in warehouse and retail automation market.
This is being offset by growth in warehouse and retail automation markets. As we have a number of key wins that will be ramping in the back half of the fiscal year.
Speaker 2: as we have a number of key wins that will be ramping in the back half of the fiscal year.
Speaker 2: These wins leverage unique capabilities in 3D printing of production components, robotics, engineering software and integration, and complex manufacturing automation.
These wins leverage unique capabilities and three D printing of production components Robotics engineering software and integration.
And complex manufacturing automation.
Our recent success shows we are well positioned in these end markets to help our customers bring next generation automation technologies to market.
Speaker 2: Our recent success shows we are well positioned in these end markets to help our customers bring next generation automation technologies to market.
Michael Dastoor: Core operating margin for the segment came in at 5%, up 10 basis points year-over-year. In EMS, core margins for the year were strong. Also coming in at 5%, 70 basis points higher than the prior year, on revenue of $16.7 billion. The strength and fiscal 23 income was driven by growth and renewables within our industrial and semi-cap market, as well as the benefit from consignment.
Speaker 2: Within our networking and storage end markets, we continue our ongoing efforts to optimize our portfolio as we prioritize margins and cash flow.
Within our networking and storage end markets. We continue our ongoing efforts to optimize our portfolio as we prioritize margins and cash flows.
Speaker 2: We also expect overall market demand to be muted this year.
We also expect overall market demand to be muted this year.
Speaker 2: Longer term, however, we anticipate growth coming from new programs in development for advanced optical networking for high performance data center interconnect that will support growth in cloud and AI data center application.
Longer term, however, we anticipate growth coming from new programs in development for advanced optical networking for high performance data center interconnect that will support growth in cloud and AI data center applications.
Michael Dastoor: Next, I'd like to begin with an update on our cash flow and balance sheet metrics. Beginning with inventory, which saw good improvements sequentially by four days to 80 days. More importantly, net of inventory deposits from our customers, inventory days were also down four days to 58 in Q4. Our fourth quarter cash flows from operations were strong, coming in at $686 million. Lewis. Net capital expenditures for the fourth quarter were $28 million, and for the full fiscal year came in lower than expected at $708 million, mainly due to the timing of capex payments that are shifting to Q1 from Q4.
Speaker 2: And finally, within our connected devices business, demand remains soft, reflective of weakness in consumer good spending. We expect another year of market contraction.
And finally within our connected devices business demand remains soft reflective of weakness in consumer goods spending.
We expect another year of market contraction for the coming year.
Speaker 2: We remain committed to this business, however, as shorter lifecycle products
We remain committed to this business however, as shorter lifecycle products.
Speaker 2: help drive product and capability innovation that we leverage across our other end markets.
Helped drive product and capability innovation that we leverage across our other end markets.
Speaker 2: In closing, I feel strongly that we have the right team, capabilities, and play in the right end markets to support fantastic momentum into FY24 and beyond.
In closing I feel strongly that we have the right team capabilities and playing the right end markets to support fantastic momentum into FY 'twenty four and beyond.
Speaker 2: It's now my pleasure to turn the call over to Mike to walk you through our financial forecast, including the impacts of the divestiture of our mobility.
It's now my pleasure to turn the call over to Mike to walk you through our financial forecast, including the impact of the divestiture of our mobility business.
Michael Dastoor: As a result of the strong fourth quarter performance in cashflow generation, adjusted pre-cashflow for the year came in higher than expected at approximately $1 billion. With this, we ended the quarter with cash balances of $1.8 million, and total debt to core EBITDA levels of approximately 1.1 times. For the year, we repurchased $6.7 million shares for $487 million, leaving us with $776 million, remaining on our current repurchase authorization as of August 31st.
Speaker 4: Thanks Fred. Good morning everyone and thanks for joining us today.
Thanks, Brad good morning, everyone and thanks for joining us today.
Over the next few minutes I plan to provide more information on the following the.
Speaker 4: Over the next few minutes, I plan to provide more information on the following.
Speaker 4: the expected net proceeds of the mobility transaction and the related use of funds. Next, I'll walk you through our financial outlook for FY24, along with how we plan to report and forecast the business considering the pending sale, followed by an update on a buyback execution plan through FY24 and FY25.
The expected net proceeds of the mobility transaction and the related use of funds next I will walk you through our financial outlook for FY 'twenty four along with how we plan to report and forecast the business considering the pending sale followed by an update on our buyback execution plans through FY 'twenty, four and FY 'twenty five.
Yes.
And finally I'll also share with you how our financial outlooks for FY 'twenty five excluding our mobility business.
Speaker 4: And finally, I'll also share with you how our financial outlook looks for FY 25, excluding our mobility business.
Michael Dastoor: Please note that in Q4, we were out of the repurchase market, mostly, as a result of the pending mobility deal. As Michael shared a few minutes, when our opportunity to buy back reopens, we plan to accelerate repurchases in Q1, fiscal 24.
With that let's turn to the next slide.
Speaker 4: As Kenny mentioned, the sales proceeds from the transaction are expected to be $2.2 billion.
As Kenny mentioned the sales proceeds from the transaction are expected to be $2 $2 billion.
We expect tax and transaction costs to be approximately $300 million, which would result in net proceeds of $1 $9 billion.
Speaker 4: We expect tax and transaction costs to be approximately $300 million, which will result in net proceeds of $1.9 billion.
Adam Berry: As I flip to the next slide, looking at the five year financials, it's hard to believe that another year is in the books for Jable. And as I look ahead, I can't help but think that there's so much more opportunity ahead for us. In a moment, I'll hand the call over to Kenny, Fred, and Mike. But before I do, I want to spend a few minutes setting the stage for what you're going to hear today.
Okay.
Speaker 4: Upon closing of the transaction, we expect to utilize roughly $300 million, of which $200 million is in cash, towards restructuring of stranded costs and footprint optimization, resulting in total cash available of $1.7 billion after these activities.
Upon closing of the transaction, we expect to utilize roughly $300 million of which 200 million is in cash towards restructuring of stranded costs and footprint optimization, resulting in total cash available of one $7 billion. After these activities.
Speaker 4: We expect to record a gain of approximately $300 to $500 million associated with this transaction net of the above noted expenses.
We expect to record a gain of approximately $300 million to $500 million associated with this transaction net of the above noted expenses.
Adam Berry: Over the next couple of minutes, I think you're going to hear a lot of the same from us. From a financial target perspective, you're going to hear us talk about when there are unfair share of business. And leveraging those wins to drive margin expansion, free cash flow generation, and further shareholder return. From an end market perspective, you're going to hear more about the areas of our business, which continue to see solid double-digit growth.
Okay.
Speaker 4: The $1.7 billion in cash we expect upon closing of the transaction will afford us the flexibility to execute accelerated share repurchases while at the same time drive further growth in key secular end markets.
The $1 $7 billion in cash we expect upon closing of the transaction will afford us the flexibility to execute accelerated share repurchases. While at the same time drive further growth in key secular end markets.
Over the past several years, Jim has been on a journey.
Adam Berry: And why we believe we're one of the best position companies to benefit from global trends such as electric and autonomous driving, digital health care, AI infrastructure, and the long-term shift to renewable energy. But there's some new dynamics to share today as well. And as a team, we're excited to share a few key updates.
Speaker 4: a journey of diversification, a journey of portfolio optimization, a journey of strong financial performance.
You know any of diversification.
Jennie O portfolio optimization.
A journey of strong financial performance, all while being extremely shareholder friendly and returning funds to shareholders.
Speaker 4: all while being extremely shareholder friendly and returning funds to shareholders.
This has been reflected in a resilient model delivering core operating margin expansion sustainable earnings growth and strong predictable cash flows.
Speaker 4: This has been reflected in a resilient model delivering core operating margin expansion, sustainable earnings growth and strong predictable cash flows.
Adam Berry: For starters, you may have noticed that our previously announced transaction to sell our mobility business to BYD Electronics has moved from the preliminary stages of agreement to a definitive agreement, as announced earlier this week. As we move through our session today, you'll hear from both Kenny and Mike as they weave the strategic rationale and financial impact into our economic model. At the same time, we have some updates to provide today on capital allocation framework, given that the mobility definitive agreement is now in place.
Speaker 4: All this throughout a range of economic cycles, including a pandemic, a war, increased supply chain complexities, elevated inflation, and reshoring.
All of this allowed a range of economic cycles, including a pandemic a war increased supply chain complexities elevated inflation and reassuring.
Joining me Savi, we also optimized our capital structure to maximize flexibility.
Speaker 4: During this time, we've also optimized our capital structure to maximize flexibility.
Speaker 4: All of this has been evidenced by a consistent core return on invested capital of around 30%.
All of this has been evidenced by our consistent core return on invested capital of around 30%.
Moving forward, we continue to be conservative in our approach given the current macroeconomic dynamics will.
Speaker 4: Moving forward, we continue to be conservative in our approach, given the current macroeconomic dynamic.
Speaker 4: while remaining confident that we've aligned our resources with the right end markets and we have the best team and set of capabilities to deliver for our customers.
Remaining confident that we've aligned our resources the right end markets and we have the best team and set of capabilities to deliver for our customers.
Adam Berry: And then, given that fiscal 24 will be transitional for jable, in terms of closing the mobility transaction and the subsequent planned accelerated buybacks, Mike will offer a viewpoint of fiscal 25, including the full impact of both initiatives. Joseph's.
With that let's turn to the next slide.
We had Fred take us through each of our end markets and housing planning to optimize this portfolio even further.
Speaker 4: We heard Fred take us through each of our end markets and how we plan to optimize this portfolio even further.
Kenny Wilson: So with that, I'll now hand it over to Kenny. Thanks, Adam.
We continue to benefit from multiple long term secular growth end markets, such as electric vehicles health care renewables and AI driven cloud data centers.
Speaker 4: We continue to benefit from multiple long-term secular growth end markets such as electric vehicles, healthcare, renewables and AI driven cloud data centers.
Kenny Wilson: Good morning. Thanks for joining us today. A lot of them highlighted, fiscal year 23 was another strong year, and I am pleased with the progress we've made relative to our financial objectives. Every day in Jabil, we strive to do the right thing. This is how we are wired. So it's hardening when looking at our end-of-view report card to see that we are making progress on all fronts. Most satisfying for me is the resilience of our model, where despite end-market jobiness, we post a very impressive year-on-year growth in core margins, up 40 basis points to 5%, earnings up 12%, and EPS up 13%.
Speaker 4: In fact, for FY24, we expect these four end markets to make up nearly 70% of our FY24 revenue mix, excluding the revenue associated with the mobility sale.
In fact, our FY 'twenty four we expect these four end markets to make up nearly 70% of our FY 'twenty four revenue mix, excluding the revenue associated with the mobility cell.
Upon closing the mobility transaction, we no longer anticipate having any customer that represents 10% or more of revenue.
Speaker 4: Upon closing the mobility transaction, we no longer anticipate having any customer that represents 10% or more of revenue.
The long term viability of these end markets continues to give me a high level of confidence as we navigate a range of economic scenarios, while expanding margins and free cash flows.
Speaker 4: The long-term viability of these end markets continues to give me a high level of confidence as we navigate a range of economic scenarios while expanding margins and free cash flows.
Kenny Wilson: We're also driving an excess of 1 billion in free cash flows. This time of year also sees us complete our annual strategic planning process, and there's reassuring to note that similar to last year, we confirmed our focus on investing in queries of our business, including electric vehicles and autonomous driving, AI cloud solutions, renewable energy, and health care. All of this fits a firm foundation for fiscal year 24 and beyond, and is a testament to our customer-centric model, which is both robust and adaptable to changes in end-market. The next slide shows how these characteristics have shaped the last 10 years, and seeing this context, fiscal 23 was just another step in the journey.
Next slide.
Slide 24 is a pivotal year in our journey.
Speaker 4: After considering a range of scenarios with differing outcomes associated with the timing of the mobility transaction clause, we thought it might be helpful to provide a time-based range for FY24 results, including our mobility business, until the transaction clause date and highlight the FY25 outlook, excluding mobility, and after considering the full impact of accelerated share repurchase.
After considering a range of scenarios with differing outcomes associated with the timing of the mobility transaction clause, we thought it might be helpful to provide a time base range for FY 'twenty poor results, including our mobility business until the transaction close date and highlight the FY 'twenty five outlook excluding mobility.
And after considering the full impact of accelerated share repurchases.
But before I do that I'd like to walk you through some assumptions we have used most of which we have already discussed on this call.
Speaker 4: But before I do that, I'd like to walk you through some assumptions we have used, most of which we have already discussed on this call.
For FY 'twenty fully as economic conditions remain challenged for the consumer which we have reflected in our consumer related end markets guidance.
Speaker 4: For FY24, we assume economic conditions remain challenged for the consumer, which we have reflected in our consumer-related end-market guidance.
Kenny Wilson: If I was looking for one word to summarize activities highlighted, it would be intentionality. We have, and we'll continue to be very intentional, as we look to grow and modify the mix of business to include longer life cycle industries, like health care, with the acquisition of Nipro and our strategic collaboration with JJMD. In addition, we have also increased investment both organically and inorganically in emerging technologies, where we view our capabilities as a match for important end markets, like renewable energy infrastructure, electric vehicles, and cloud data centers. From an enterprise perspective, we began materially redirecting more and more of our free cash flows to buybacks and reinvesting ourselves at very attractive valuations.
In the coming year, we continued to optimize our in market portfolio in networking and storage.
Speaker 4: In the coming year, we continue to optimize our end market portfolio in networking and storage.
Speaker 4: As Fred mentioned earlier, we began production of our largest cloud customers artificial intelligence rack configuration.
As Craig mentioned earlier, we began production of our largest cloud customers artificial intelligence rack configurations.
Speaker 4: These racks are GPU dense and are among the components that have transitioned to a customer controlled consignment service model which has effectively doubled the consignment percentage from a year ago.
These racks that GPU deaths and automotive components that have transitioned to a customer control consignment and service model, which has effectively doubled the consignment percentage from a year ago.
Speaker 4: While volumes are expected to grow by more than 20%, we expect the shift to result in a lower revenue as compared to last year of approximately $500 million in Q1 and approximately $200 million in Q2.
While volumes are expected to grow by more than 20%. We expect the shift to result in lower revenue as compared to last year of approximately $500 million in Q1 and.
And approximately $200 million in Q2.
Speaker 4: Within our mobility business in Q1, we expect the change in work content associated with new products to impact year-over-year revenue growth by approximately $300 to $400 million.
Within our mobility business in Q1, we expect the change in both content associated with new products to impact year over year revenue growth by approximately $300 million to $400 million.
Kenny Wilson: And finally, just a few weeks back, we unveiled yet another step in our journey, as we announced a pending divestiture of our mobility business, to be by the electronics for $2.2 billion. As you move into fiscal year 24 and beyond, you can continue to rely, honestly, the ship team, to allocate capital with a view to expanding shareholder value.
And finally, we anticipate the mobile at each transaction to close sometime during Q2 of FY 'twenty four.
Speaker 4: And finally, we anticipate the mobility transaction to close sometime during Q2 of FY24.
The exact date of the close will drive where we land on the time base range.
Speaker 4: The exact date of the close will drive where we land on the time base range.
With that let's turn the next slide for our first quarter guidance.
Kenny Wilson: I'd now like to spend a little time talking about a decision to sell the mobility business. As you know, over the past five years, I've had the privilege to both delete and work alongside some of the more skilled and talented manufacturing engineers, operations leaders, and material scientists in the world. And during that time, we were fortunate to build an incredible business, while also delivering best-in-class product. Fox, for one of the world's greatest brands.
For Q1, we expect total company revenue to be in the range of $8 4 billion to $9 billion.
Speaker 4: For Q1, we expect total company revenue to be in the range of $8.4 billion to $9 billion.
Speaker 4: At the midpoint, this anticipates DMS and EMS revenue to be $5.1 billion and $3.6 billion, respectively.
At the midpoint this anticipates D. M. S. N E. That's driving the year to be $5 $1 billion and $3 $6 billion respectively.
Speaker 4: Core operating income is estimated to be in the range of $474 million to $534 million.
Core operating income is estimated to be in the range of $474 million to $534 million.
GAAP operating income is expected to be in the range of $423 million to $483 million.
Speaker 4: Gap operating income is expected to be in the range of $423 million to $483 million.
Kenny Wilson: I had a front row seat, unlike any other, to truly appreciate and develop a deep understanding of the level of complexity involved in introducing and manufacturing precision mechanics at huge scale for our largest customer. This perspective provides me some credibility to make the claim that our mobility team is second to none when it comes to innovative automation, tooling design and manufacturing of these components at scale. And I also truly believe this talented organisation can reach new heights when our capabilities match by a supportive business model focused on significant growth.
Yeah.
Speaker 4: Core delivery earnings per share is estimated to be in the range of $2.40 to $2.80.
Core diluted earnings per share is estimated to be in the range of $2.40 to $2 80 says.
This includes a benefit of approximately 25 cents associated with accounting impacts of assets held for sale.
Speaker 4: This includes a benefit of approximately 25 cents associated with accounting impacts of assets held for sale.
Yeah.
Speaker 4: Gap to earnings per share is expected to be in the range of $2.02 to $2.42.
GAAP diluted earnings per share is expected to be in the range of $2.02 to $2.42.
Net interest expense in the first quarter is estimated to be $73 million.
Speaker 4: Net interest expense in the first quarter is estimated to be $73 million.
Kenny Wilson: Through all my friends and mobility business, I will miss you deeply. Thanks for showing your company at its best, for never flinching from the sometimes seemingly unsurmountable asks. I'm doing so always with humility, professionalism and great skill. It has been my honour to be a part of your team. Looking forward, I think your particular skill sets can be leveraged in endless ways. And while it's bittersweet to say goodbye to some great friends and colleagues, I know this is the best route for our customers, employees and shareholders alike.
Speaker 4: Moving on to full year guidance beginning on the next slide.
Moving on to full year guidance beginning on the next slide.
Okay.
Or FY 'twenty four we expect revenue at an enterprise level to be in the range of $33 billion to $34 billion.
Speaker 4: For FY24, we expect revenue at an enterprise level to be in the range of $33 to $34 billion.
As I mentioned, a moment ago, we anticipate closing the transaction during Q2 about fiscal yeah.
Speaker 4: As I mentioned a moment ago, we anticipate closing the transaction during Q2 of our fiscal year.
Speaker 4: Therefore, our FY24 guidance range reflects a range of potential outcomes.
Therefore, our FY 'twenty full guidance range reflects a range of potential outcomes.
Speaker 4: I would caution against reverting to the midpoint of these ranges as they are time-based ranges and will be highly dependent on actual transaction close dates.
I would caution against you, but I think at the midpoint of these ranges as they are time based ranges and will be highly dependent on actual transaction close date.
Fred McCoy: In a moment, I would turn the call over to Fred to go deeper into our end markets.
Yeah.
Kenny Wilson: But before that, I wanted to reaffirm what you can expect from me as CEO. I will work tirelessly on your behalf to ensure that we are in the correct end markets and geographies with the correct capabilities to serve our customers. I will continue to ensure that our capital allocation is shared hold of friendly, well appropriately funding our growth. And all of this will be underpinned by an unwavering passion and commitment to preserve, protect and grow our unique culture, which is a foundation of everything that is great about our company.
Importantly for FY 'twenty four we expect core operating margins to improve by 30 to 50 basis points year on year, mainly driven by an improved mix of business.
Speaker 4: Importantly for FY24, we expect core operating margins to improve by 30 to 50 basis points year on year, mainly driven by an improved mix of business.
Our investments in 90 and factory automation will also drive improved optimization across our footprint.
Speaker 4: Our investments in IT and factory automation will also drive improved optimization across our footprint.
Speaker 4: and are anticipated to lead to higher margins in the future.
And are anticipated to lead to higher margins in the future.
Yeah.
Moving to our parts around Capex for FY 'twenty four.
Yeah.
In the coming year, we expect net capital expenditures to be in the range of two 2% to two 5% of net revenue.
Speaker 4: In the coming year, we expect net capital expenditures to be in the range of 2.2% to 2.5% of net revenue.
Kenny Wilson: Thank you for joining us today and for your interest in Jebel.
Fred McCoy: I will now turn the call over to Fred. Thanks, Kenny.
Speaker 4: This is higher than the 2% in FY23 due mainly to timing of capex investments ruling into the first quarter of FY24.
This is higher than the 2% in FY2023 due mainly to timing of Capex investments rolling into the first quarter of FY 'twenty four.
Fred McCoy: Good morning, everyone. As you've heard from Adam and Kenny, there's 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 FY24, 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.
Speaker 4: Upon closing the mobility transaction, longer term, we now anticipate our capex to be lower as a percentage of revenue in the range of 2 to 2.3%.
Upon closing of the mobility transaction longer tell me now anticipate our capex to be lower as a percentage of revenue in the range of two to two 3%.
Speaker 4: Our CapEx investments this year are expected to include a combination of maintenance and strategic investments for future growth and efficiency gain.
Our capex investments. This year are expected to include a combination of maintenance and strategic investments for future growth and efficiency gains.
We plan 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 health care and renewable energy and buckets.
Speaker 4: We plan 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 healthcare and renewable energy end markets.
Fred McCoy: 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.
Moving on to cash flow generation.
Yeah.
Speaker 4: We close that FY23 with strong free cash flows north of $1 billion.
We closed out FY 'twenty with strong free cash flow is north of $1 billion.
We expect to continue generating strong cash flows in FY 'twenty four with adjusted free cash flow of more than $1 billion.
Speaker 4: We expect to continue generating strong cash flows in FY24 with adjusted pre-cash flow of more than $1 billion.
With that let's now turn to our capital structure on the next slide.
Speaker 4: With that, let's now turn to our capital structure on the next slide.
Fred McCoy: These projects have multi-year investment timelines independent of underlying short-term economic growth forecast. 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 US and Europe, we expect this space to drive solid growth in the coming years, leveraging our investments in battery module integration.
Speaker 4: We have a solid and flexible debt and liquidity profile with current maturities, appropriately staggered at an attractive interest rate.
We have a solid and flexible debt and liquidity profile with current maturities appropriately staggered at an attractive interest rates.
We ended FY 'twenty, three with committed capacity under our global credit facilities of $3 $8 billion.
Speaker 4: We ended FY23 with committed capacity under our global credit facilities of $3.8 billion.
With this available capacity in our year end cash balance we had access to more than $5 $6 billion of available liquidity, which we believe affords us ample flexibility.
Speaker 4: With this available capacity and our year-end cash balance, we had access to more than $5.6 billion of available liquidity, which we believe affords us ample flexibility.
Speaker 4: We also remain fully committed to maintaining our investment grade credit profile.
We also remain fully committed to maintaining our investment grade credit profile.
Fred McCoy: We are a 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 FY24.
In fiscal 'twenty, four and beyond and we expect to generate significant free cash flow.
Speaker 4: In fiscal 24 and beyond, we expect to generate significant free cash flow.
Given this dynamic along with expected net proceeds from the mobility business sale I believe it's an appropriate time to reiterate our capital allocation priorities and at a high level, how do you plan to deploy our capital over the next two years.
Speaker 4: Given this dynamic, along with expected net proceeds from the mobility business sale, I believe it's an appropriate time to reiterate our capital allocation priorities and at a higher level how we plan to deploy our capital over the next two years.
Fred McCoy: 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 FY24, 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.
Please turn to the next slide.
This morning included in our earnings filing we announced that our board of directors expanded our current share repurchase authorization to $2 $5 billion.
Speaker 4: This morning, included in our earnings filing, we announced that our board of directors expanded our current share repurchase authorization to $2.5 billion.
Speaker 4: We expect to begin executing on this upsized authorization immediately.
We expect to begin executing on this upsized authorization immediately.
You heard Adam say that we were unable to complete our Q4 share repurchases due to restrictions around the mobility transaction.
Speaker 4: You heard Adam say that we were unable to complete our Q4 sharing purchases due to restrictions around the mobility transaction.
Speaker 4: We plan to launch a $500 million accelerated share repurchase transaction in October prior to the close of our mobility transaction.
We plan to launch a $500 million accelerated share repurchase transaction in October prior to the close of probability transaction.
Speaker 4: Post closing of the mobility transaction, we intend to execute a series of additional accelerated buybacks throughout FY24 and FY25 with the intent of optimizing share repurchases and interest expense thereby maximizing the EPS impact.
Post closing of the Liberty transaction, we intend to execute a series of additional accelerated buybacks throughout FY 'twenty, four and FY 'twenty five.
Fred McCoy: Within our automotive and transport business, we continue to expect growth to be driven by the global transition to electric vehicles. For FY24, we expect another year of 20 plus percent 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 FY24, 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.
Kent of optimizing share repurchases and interest expense, thereby maximizing the EPS impact.
Moving forward, we are comfortable with our ability to generate strong cash flows and we remain balanced and thoughtful in how we allocate that capital.
Speaker 4: Moving forward, we are comfortable with our ability to generate strong cash flows and will remain balanced and thoughtful in how we allocate our capital.
Speaker 4: We believe this capital allocation framework will allow us to continue to grow our business and create value for shareholders.
We believe this capital allocation framework will allow us to continue to grow our business and create value for shareholders.
As a reminder, we have already reduced our outstanding shares from $203 million in 2000 $13 million to $131 million at the end of FY 'twenty, 3% to 35% reduction over this time period.
Speaker 4: As a reminder, we have already reduced our outstanding shares from $203 million in 2013 to $131 million at the end of FY23, a 35% reduction over this time period.
Fred McCoy: Our focus area is in the EV market we refer to as ACES, or ADAS and autonomous, connectivity, electrification, and software to find vehicle architecture. In the EV market, we support products such as compute and control modules, power conversion, battery management, optical camera modules, wide R, 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 well-positioned as jable to support customers' multiple complex program ramps on multiple continents with industry-leading supply chain design and manufacturing capabilities.
Over the past 10 years, we bought back shares at an average price of $32.71 a share.
Speaker 4: Over the past 10 years, we've bought back our shares at an average price of $32.71 a share.
Yeah.
Next let's look at our FY 'twenty full guidance.
For FY 'twenty four we expect the momentum underway across our business to continue even in a subdued economic environment.
Speaker 4: For FY24, we expect the momentum underway across the business to continue, even in a subdued economic environment.
Today, our business serves a diverse blend of end markets in areas that provide confidence in future earnings and cash flows.
Speaker 4: Today our business serves a diverse blend of end markets in areas that provide confidence in future earnings and cash flows.
Speaker 4: We have deep domain expertise complemented by investments being made in capability.
We have deep domain expertise complemented by investments we made in capabilities.
Speaker 4: All of which gives us confidence in our ability to deliver 30 to 50 basis points of core margin expansion in FY24 along with core EPS in the range of $9.30 to $9.70 and more than $1 billion in free cash flow.
Fred McCoy: Moving to cloud, our cloud solutions continue to resonate with customers of all sizes, from large hyper-scalers to tier two cloud providers, such as technology companies and leading financial firms. Lawrence. 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.
All of which gives us confidence in our ability to deliver 30 to 50 basis points of core margin expansion in FY 'twenty for.
Along with core EPS in the range of $9 30 to $9 70, and more than $1 billion and free cash flow.
And importantly, our balanced capital allocation framework approach is aligned and focused on driving long term value creation to shareholders.
Speaker 4: And importantly, a balanced capital allocation framework approaches the line and focused on driving long-term value creation to shareholders.
As we transition to our final slide I thought it made sense to provide you with a view of FY 'twenty five excluding our mobility business, but including the impact of our accelerated share repurchases post closing.
Speaker 4: As we transition to our final slide, I thought it made sense to provide you with a view of FY25 excluding our mobility business, but including the impact of our accelerated share repurchases post closing.
Fred McCoy: AI workloads, which are powered by extremely powerful GPUs that consume significantly more energy and drive increased data generation. This creates three challenges. Insufficient power supply on the grid to support expanded data center needs, heat generation that surpasses the capabilities of air cooled data centers, and enhanced data interconnections between racks to support increased data inside the data center. Our designed and does capabilities continue to resonate with customers, and we are investing in the areas of data center infrastructure services, liquid cooling, and silicon photonics to help our customers solve the above challenges.
Yeah.
Speaker 4: We believe we're on the path to deliver core operating margins at or above 5.6% in FY25 and deliver more than $10.65 in core EPS.
We believe we're on the Bachelor of core operating margins at or above five 6% in FY 'twenty, five and deliver more than $10 and 65 in core EPS.
Yeah.
Speaker 4: To deliver this, we need to only grow our revenues by a conservative 3% while continuing to execute a series of accelerated share repurposes.
To deliver this we need to only grew our revenues by a conservative 3%, while continuing to execute a series of accelerated share repurchases.
Speaker 4: In my view, JWU is well positioned to navigate the current economic environment evidenced by our performance over the past several years.
And my view 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 do you have to allow to intentional efforts to invest and align our resources with areas in key end markets that are undergoing multiyear secular growth.
Speaker 4: 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 that are undergoing multi-year secular growth.
Fred McCoy: Jabil is extremely well positioned to support customers as they incorporate innovative technologies into their data centers. And with the asset light nature of the business, we have maximum flexibility to adapt and support customer needs around the world. We are already seeing success in this area. Jabil was recently awarded and began production of our largest cloud customers, artificial intelligence rack configurations that are GPU dense, which are consigned. Because these components are among those consigned, we will see year over year headwinds to revenue, especially in the first half of the year. In spite of the revenue decline, the underlying business and associated unit volumes, however, are expected to grow by more than 20% in FY24.
Speaker 4: All of which gives me confidence as we march towards 6% core operating margins in the future.
All of which gives me confidence as the mileage towards 6% core operating margins in the future.
Thank you for your time today and for joining us this morning.
Speaker 4: Thank you for your time today and for joining us this morning.
I'll now turn the call over to Adam.
Yeah.
Thanks, Mike.
As we talked about at the outset of the call. There's a lot to be excited about here at Jabil.
Speaker 2: As we talked about at the outset of the call, there's a lot to be excited about here at JBL.
Speaker 2: 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.
And we've given you a forecast for fiscal 'twenty, four which we believe will be a bit transitional and fiscal 'twenty five 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.
Fred McCoy: In healthcare, we expect another robust growth year with revenue up 9% year on year. In the healthcare space, the range of products we design and manufacture lean into digital healthcare trends and include highly complex diagnostic equipment and related consumables, orthopedics, including 3D printed implantables, precision health and medical devices, like minimally invasive devices, and pharma solutions, including smart injection delivery devices for diabetes and obesity drugs. Jabil's credibility in the healthcare space, as a largest EMS provider in the space, positions us well to take advantage of the outsourcing of manufacturing trends.
Speaker 2: There's a lot to be excited about here at Chable, and we're ready to get into your Q&A. Operator?
There's a lot to be excited about here at table and we're ready to get into your Q&A operator.
Thank you, we'll now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment may be necessary to pick up your handset.
Speaker 1: Thank you. We'll now be conducting a question and answer session. If you'd like to be placed in the question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 1 on your telephone keypad.
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Speaker 1: Our first question is coming from Rubu Bhattacharya from Bank of America. Your line is not live.
From Bank of America. Your line is now live.
Fred McCoy: In the coming years, we expect OEMs to continue to accelerate this outsourcing trend regardless of global macro growth. A recession resistant end market with long product life cycles and accretive margins and stable cash flows is why healthcare continues to be such a critical component of our diversified portfolio.
Speaker 5: Hi, thanks for taking my questions and congrats on the strong results and the very strong guidance.
Alright, 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 are 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.
Speaker 5: 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 makeshift...
Fred McCoy: Within digital print and retail, we are seeing slower demand in legacy print and point of sale markets. This is being offset by growth in warehouse and retail automation markets, as we have a number of key wins that will be ramping in the back half of the fiscal year. These wins leverage unique capabilities in 3D printing of production components, robotics, engineering software and integration, and complex manufacturing automation. Wilson. Our recent success shows we are a well positioned in these end markets to help our customers bring next generation automation technologies to market.
How much of this margin improvement is coming from mix shift within the portfolio. How much would you say is the like for like pricing improvement I mean, I would think that by fiscal 'twenty five you'd had some recovery in semi cap, maybe there's less inflation pass through and maybe you're taking some cost actions.
Speaker 5: within the portfolio, how much would you say is like for like pricing improvement? I mean, I would think that by fiscal 25, you'd had some recovery in semi cap.
Speaker 5: Maybe there's less inflation passed through and maybe you're taking some costs.
So if any any any color you can give in terms of what are the different drivers for such a strong margin improvement.
Speaker 5: So, any color you can give in terms of what are the different drivers for such a strong margin improvement?
Hey.
Good morning, and thank you for the question.
Speaker 3: I mentioned in my prepared remarks that we're really intentional. We just came out of our annual review of our strategic planning and I think you see in Mike's comments also that we're viewing post the mobility divestiture that 70% directly of our business is going to be in EV's, AI clouds, renewables and healthcare.
I mentioned in my prepared remarks that you were really intentional.
We just come out of AR.
In your.
Fred McCoy: Within our networking and storage end markets, we continue our ongoing efforts to optimize our portfolio as we prioritize margins and cash flows. We also expect overall market demand to be muted this year. Longer term, however, we anticipate growth coming from new programs and development for advanced optical networking for high-performance data center interconnect that will support growth and cloud and AI data center applications.
Do you have a strategic planning and I think you'll see it in mikes comments also that we.
Post the mobility.
Divestiture of that 70 per saying directly over the business is going to be in the U S E vs.
Clarets renewables and health care.
Speaker 3: So if you look at that, that's all areas of our business that we believe are accretive from a margin perspective.
So if you look at that that's all areas of our business that we believe are accretive from a margin perspective I know you don't you just roll forward, what we expect our growth to be in those areas that are really is a big chunk of that also.
Speaker 3: And if you just roll forward what we expect our growth to be in those areas.
Fred McCoy: And finally, within our connected devices business, demand remains soft, reflective of weakness and consumer good spending. We expect another year of market contraction for the coming year. We remain committed to this business, however, as shorter life cycle products help drive product and capability innovation that we leverage across our other end markets.
Speaker 3: that it really is a big chunk of that.
Speaker 3: Obviously, as you'd expect, as the mobility business moves out of the company, we're looking at right size and our footprint and just aligning with the new normal for our business.
As you would expect as the mobility business moves out of the company you were looking at right sizing our footprint.
And just a light in weight with with the new normal for our business. So it really is you know as part of what we've been planning to do.
Speaker 3: It really is, you know, as part of what we've been planning to do, you know, we've been very intentional on it and it really is just a function of, as business with higher margin grows and becomes a bigger part of our portfolio, that's what we see we get to from a margin perspective.
Fred McCoy: In closing, I feel strongly that we have the right team capabilities and play in the right end markets to support fantastic momentum into FY24 and beyond.
You know we've been very intentional on it.
It really is just a function at all.
Business with higher margin grows and becomes a bigger part of our portfolio how should we see to get to from a from a margin perspective, it's not a function of.
Michael Dastoor: Now my pleasure to turn the call over to Mike to walk you through our financial forecast, including the impacts of the divestiture of our mobility business. Thanks, Fred. Good morning, everyone, and thanks for joining us today. Over the next few minutes, I plan to provide more information on the following. We expected net proceeds of the mobility transaction and the related user funds. Next, I'll walk you through our financial outlook for FY24 along with how we plan to report and forecast the business considering the pending sale, followed by an update on our buyback execution plans through FY24 and FY25.
Speaker 3: It's not a function of, you know, as combatant and trying to renegotiate higher prices with our customers. Real is a function of us adding more value and key end markets and that's where we end up.
Of Oh, no I was going back in.
And trying to renegotiate a higher prices with our customers really as a function of us, adding more value and key end markets and that's where we end up so it should be.
Speaker 3: My other comment here would be, as you know, we are generally quite conservative.
My other comment he would be.
As you know we are generally quite conservative.
Speaker 3: So, we wouldn't be talking to you about that if we didn't think there was a high degree of likelihood that we would achieve that.
So we wouldn't be talking to you about without if we didn't think there was a high degree of likelihood that we would achieve that.
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.
Speaker 5: 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.
Michael Dastoor: And finally, I'll also share with you how our financial outlooks for FY25, excluding our mobility business. With that, let's turn to the next slide. As Kenny mentioned, the sales proceeds from the transaction are expected to be $2.2 billion. We expect tax and transaction costs to be approximately $300 million, which will result in net proceeds of $1.9 billion. Upon closing of the transaction, we expect to utilize roughly $300 million of which $200 million is in cash towards restructuring, abstracted costs and footprint optimization, resulting in total cash available of $1.7 billion after these activities.
Speaker 5: I mean, the business now is sizable, right? It's like four and a half billion dollars. 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 and more companies look to try and gain share?
I mean, the business now with sizable rate, it's like four and a half a billion dollars. 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.
Are you concerned about the competition in this space as more and more companies look to try and gain share in different aspects of automotive yeah. Yeah. Let me, let me talk to that also so.
Speaker 3: Yeah, yeah, let me let me talk to that also. So I'm
Speaker 3: I think I said previously that the automotive business is hard and being hard is good for us. And also you need to have a global footprint with consistent and standard processes and capabilities and be able to launch products simultaneously in different geographies at the same time. There's not that many companies that can do that.
I think I've said previously that the automotive business is hard and it being hard is good for us.
Michael Dastoor: We expect to record again of approximately $300 to $500 million associated with this transaction net of the above noted expenses. The $1.7 billion in cash we expect upon closing of the transaction will afford us a flexibility to execute accelerated share repurchases while at the same time, right for the growth in key secular and markets. Over the past several years, Jay was being on a journey, a journey of diversification, a journey of portfolio optimization, a journey of strong financial performance.
Also you need to have a global footprint with <unk>.
Consistent has found the processes and capabilities to be able to launch products simultaneously and in different geographies at the same time, although not many companies can do that.
Speaker 3: And so that certainly helps us. We've been on a journey and the automotive space for quite some time. Chad Morley and his team have been driving that. You know, we identified pretty early that.
And so that certainly helps us.
We don't know, Germany and in the automotive space for quite some time, Chad Morley and his team have been driving it and that we identified for the Italy about.
Speaker 3: electrification was going to be a huge trend and so we doubled down on that and obviously as you listen to Fred talking about ACES we were looking at software defined also now so we've been
You always vacation was going to be a huge trend and so we doubled down in that and obviously as she wasn't afraid talking about he says we will look at it software defined also note.
Michael Dastoor: Jones, all while being extremely shareholder friendly and returning funds to shareholders. This has been reflected in a resilient model to delivering core operating margin expansion, sustainable earnings growth, and strong predictable cash flows. All this throughout the range of economic cycles, including a pandemic, a war, increased supply chain complexities, elevated inflation, and reshoring. During this time, we also optimized our capital structure to maximize flexibility. All of this has been evidenced by our consistent core-tell and invested capital of around 30%.
So we've been.
Thoughtfully.
Speaker 3: thoughtfully focused on adding more of the key logos to our portfolio.
Focused on I've been more of a key logos to our portfolio and what we see is as we add more more logos or more companies.
Speaker 3: And what we see is we add more logos or more companies.
Speaker 3: that were involved in more and more programs. And I think Mike's talked previously about how the business, it's like seven year life cycles. You've introduced them at different rates. So what we see is going.
We're involved in more and more programs and I think makes you talked previously about how the business.
Is it like seven year life cycles, you've introduced them at different rates.
So what we see is going forward that the products that we're going to be eating note you know are going to be.
Speaker 3: that the products that we're incubating now are going to be revenue and margin accretive in the next 24-5 years.
Revenue and margin accretive are you in the next 2345 years. So we're feeling quite confident about our growth.
Speaker 3: So we're feeling quite confident about our growth. You know, certainly, you know, 20% we think is probably reasonable from a competition perspective.
Michael Dastoor: Moving forward, we continue to be conservative in our approach, given the current macroeconomic dynamics, while remaining confident that we've aligned our resources with the right end markets, and we have the best team and set of capabilities to deliver for our customers.
Certainly you know, 20%, we think is probably a reasonable from a competition perspective.
Speaker 3: You know, we compete globally with really, really good companies. You know, competition makes us better. So we're well aware and we're pretty paranoid about our capability and our competitors.
We compete globally with really really good companies.
Competition makes us better.
So we are well aware.
Michael Dastoor: With that, let's turn to the next slide. We heard Fred take us through each of our end markets and how we plan to optimize the portfolio even further. We continue to benefit from multiple long-term, circular growth end markets, such as electric vehicles, healthcare, renewables, and AI-driven cloud data centers.
We're pretty paranoid about our capability and our competitors.
So I would see that.
Speaker 3: We don't have any real surprises with our competitors in terms of their capability relative to ours. And we're pretty confident that what we could offer, you know, being a U.S. domicile, but with wonderful capabilities in Asia, Europe , and North America, we think that that model is a winner for our customers and for JBL. So we're feeling quite confident about our automotive growth in the short, medium, and long term.
We don't have any real surprises and end with our competitors in terms of your capabilities relative to ours.
We're pretty confident that that will be.
You could offer you don't being a U S domiciled, but with wonderful capabilities in Asia, Europe , and North America, we figured about model is a win or Florida.
Michael Dastoor: In fact, for FY24, we expect these four end markets to make up nearly 70% of our FY24 revenue mix, excluding the revenue associated with the mobility sale. Upon closing the mobility transaction, we no longer anticipate having any customer that represents 10% or more of revenue. The long-term viability of these end markets continues to give me a high level of confidence as we navigate a range of economic scenarios while expanding margins and free cash flows.
Our customers and for Jabil. So we're we're feeling quite confident about our out automotive growth in the short medium and long term.
Speaker 5: Thanks for all the details. I'm going to try and sneak one more quick one in.
Okay. Thanks for all the details I'm going to try and sneak one more quick one in.
Speaker 5: 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. And congrats.
You're guiding for strong growth in new areas that I haven't heard of before like the energy storage site is now much stronger for you in 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 still in that normal range of $2 two to two and a half. So I mean do you think that is.
Michael Dastoor: Next slide. FY24 is a pivotal year in our journey. After considering a range of scenarios with differing outcomes associated with the timing of the mobility transaction clause, we thought it might be helpful to provide a time-based range for FY24 results, including our mobility business until the transaction closed date, and highlight the FY25 outlook, excluding mobility, and after considering the full impact of accelerated sharey purchases.
Capex to support this new growth. So just just your thoughts on the footprint and Capex and areas of investment. Thank you. So much again, congrats on the quarter in the game.
Speaker 2: Hey, Ruplu, this is Fred McCoy. I'll take that for you. Yeah, we've announced some expansions in previous calls. We've expanded our footprint both in North America and Europe . So we feel really confident and comfortable in supporting the regional needs for
Hey, Rupert as Fred Mccoy I'll take that for you.
Yes, we've announced some expansions in previous calls we've expanded our footprint both in North America and Europe . So we feel really confident and comfortable in supporting the regional needs for those.
Speaker 2: the those markets that you cite. You know, we've seen some movement, as I mentioned, with some of the legislation in Europe and the US driving, you know, specific regional requirements, and we think we're well positioned.
Michael Dastoor: But before I do that, I'd like to walk you through some assumptions we have used most of which we have already discussed on this call. For FY24, we assume economic conditions remain challenged for the consumer, which we have reflected in our consumer-related end-market guidance. In the coming year, we continue to optimize our end-market portfolio in networking and storage. As Greg mentioned earlier, we began production of our largest cloud customers' artificial intelligence rack configurations.
Those markets that you cite.
We've seen some movement as I mentioned with some of the legislation in Europe and the U S driving.
Specific.
Regional requirements, and we think we're well positioned.
Speaker 2: to support those energy storage and energy conversion programs in those regions. And all that's within the capex that we guided in the call. You know, that's just part of our normal course of business in adjusting our capacity to meet customer needs.
To support those energy storage and energy conversion programs in those regions.
All of that is within within our Capex that we guided.
In the call. That's just part of our normal course of business and in adjusting our capacity to meet customer needs.
Michael Dastoor: These racks are GPU dense and are among the components that have transitioned to a customer control, consignment service model, which has effectively doubled the consignment percentage from a year ago. While volumes are expected to grow by more than 20%, we expect the shift to result in lower revenue as compared to last year of approximately $500 million in Q1 and approximately $200 million in Q2, with our mobility business in Q1, we expect the change in both content associated with new products to impact year-over-year revenue growth by approximately $300 to $400 million, and finally we anticipate the mobility transaction to close sometime during Q2 of FY24.
Speaker 4: And 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 a 2.5, 2.6%.
If I can just add.
You look at our Capex historically, a few years ago. It was in the range of three 5% over the over the years you've taken it down to we've always suggested 252, 6%.
Speaker 4: range, we will have the mobility transaction going through. We are working on taking this capex number down quite a bit.
Ranger, we will have to have a bullet he transaction going through we are working on.
On taking this capex number down quite a bit.
Speaker 4: I think the normalized range, if you look at what happened in FY23, our CAPEX went down to 2%, but that was a little bit of a timing difference. So FY24, we expect CAPEX to still be in the 2.3 to 2.5% range, but going forward, we're
I think the normalized range. If you look at what happened in FY2023 is our Capex went down 2%, but that was a little bit of a timing difference. So FY 'twenty four we expect capex to still be in the two 3% to two 5% range, but going forward.
Speaker 4: The 2 to 2.2%, 2.3% sounds highly doable.
$202, 2%, 3% to 3% sounds a highly durable.
Speaker 4: 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.
If you look at what we've done over the last few years, we've grown from $17 billion 35 billion. So we've doubled our doubled our revenues and we've always manage that capex through that doubling phase.
Speaker 4: We've doubled our revenues and we've always managed our capex through
Michael Dastoor: The exact date that that showed the next slide for our first quarter guidance. For Q1, we expect total company revenue to be in the range of $8.4 billion to $9 billion. At the midpoint, this anticipates DMS and EMS revenue to be $5.1 billion and $3.6 billion respectively. Core operating income is estimated to be in the range of $470 million to $534 million. Gap operating income is expected to be in the range of $423 million to $483 million.
Speaker 4: that doubling phase, it will be the same with automotive, it will be the same with all the other high margin secular growth end markets. We will continue to manage capex.
It'll be the same with automotive will be the same with all the other high margin secular growth and markets. We will continue to manage capex.
Speaker 4: with a lot of discipline and I think the number is already reflected, all expansion is reflected when we give out CapEx percent.
With a lot of discipline.
And I think the number is already reflected all expansion is reflected when we give out capex percentages.
Great. Thank you so much.
Speaker 1: Thank you. Next question is coming from Stephen Fox from Fox Advisors. Why does that lie?
Thank you next question is coming from Steven Fox from Fox Advisors. Your line is now live.
Speaker 6: Hi, good morning. A couple questions for me. First of all, I was wondering if you could dig in a little more into the cloud slide that you presented from the aspect of the growth. Mike, you mentioned 20% sort of like for like growth.
Hi, Good morning, a couple of questions from me first of all I was wondering if you could dig in a little more into the cloud slide that you presented from the aspect of the growth Mike you mentioned, 20% sort of like for like growth.
Michael Dastoor: Core delivery earnings per share is estimated to be in the range of $2.40 to $2.80. This includes the benefit of approximately 25 cents associated with accounting impacts of assets health per sale. Gap delivery earnings per share is expected to be in the range of $2.02 to $2.42. Net interest expense in the first quarter is estimated to be $73 million.
Speaker 6: Um, on the rack configurations, but it seems like the drivers.
On the rack configurations, but it seems like the drivers are a couple of different areas like can you explain what you meant by customer diversity and then also how investing in new technologies like liquid cooling is driving some of the growth and along those lines I noticed you've mentioned OS that packaging, which.
Speaker 6: are a couple of different areas. Like, can you explain what you meant by customer diversity and then also...
Speaker 6: how investing in new technologies like liquid cooling is driving some of the growth. And along those lines, I noticed you've mentioned OSAD packaging, which I think is new. Can you just sort of give us an explanation on that bullet point?
I think as new can you just sort of give us an explanation on that bullet point and then I had a quick follow up.
Speaker 3: Hi Steve, good morning. Yeah, so, um...
Steve Good morning, Yeah. So.
Michael Dastoor: Moving on to full year guidance, beginning on the next slide. For FY24, we expect revenue at an enterprise level to be in the range of $33 to $34 billion. As I mentioned a moment ago, we anticipate closing the transaction during Q2 of our fiscal year. Therefore, our FY24 guidance reflects a range of potential outcomes. I would caution against reverting to the midpoint of these ranges as they are time-based ranges and will be highly dependent on actual transaction closed day.
You know we were talking about that.
Speaker 3: You know, we were talking about that just this morning actually. And I think it's worth us just reaffirming, you know, in the cloud space that...
Just this morning actually in.
I think it's just reaffirming.
On the cloud space.
We really like the model. We have is outstanding. So you know as I said why is co located with our customer. We also think that as the customer looks to our customers look to disaggregate a lot of the other parts of the data center that it plays to our strength and I don't get to be they could all pixel and Osaka.
Speaker 3: We really think the model we have is outstanding. So, you know, it's asset-like, it's co-located with our customer. We also think that as our customer looks to disaggregate a lot of the other parts of the data center that it plays to your strength and it'll get to the kind of optics in OSAT in a second. So what we...
And a second so.
What we find is.
Speaker 3: That relationship drives effectively us sitting at the same side of the table, you know, trying to solution, how can we do things efficiently and how can we help them grow because, you know, we view there's going to be significant growth, especially, you know, underpinned by AI.
That relationship drives effectively offsetting at the same side of the table trying to solution.
Michael Dastoor: Importantly, for FY24, we expect core operating margins to improve by 30 to 50 basis points here and here. Mainly driven by our improved mix of business. Our investments in IT and factory automation will also drive improved optimization across our footprint and are anticipated to lead to higher margins in the future.
Can we do things.
And how can we help them grow because we view, there's going to be significant growth, especially with underpinned by by AI.
So what we see is we got a.
Speaker 3: So what we see is we've got a, you know, we got our, if you take our existing, um, cloud business and what we see that's been augmented by a real, um, pivot to AI, um, from a.
We got out and if you take out existing code.
<unk> business and what we see the speed augmented by a real pivot to EI.
Michael Dastoor: Moving to our pods around CAPEX for FY24. In the coming year, we expect net capital expenditures to be in the range of 2.2% to 2.5% of net revenue. This is higher than the 2% in FY23 due mainly to timing of CAPEX investments rolling into the first quarter of FY24. Upon closing of the mobility transaction, longer term we now anticipate a CAPEX to be lower as the percentage of revenue in the range of 2.3%.
From a consignment perspective.
We if you look at the the Gpus as Blake mentioned that that's going to be a pass through for us because we don't have any value there.
Speaker 3: We, if you look at the GPUs, as Mike mentioned, that, you know, that's going to be a pass through for us because we don't have any value there. But, um, but what you find in cloud is that really just the, the model we have as allowing us to really go deep with our customers and grow our business there. In terms of, you mentioned about, about OSA, let me talk about that. As we discussed with our customers, we have a lot of data that we don't have to worry about. We have a lot of data that we don't have to worry about. We have a lot of data that we don't have to worry about.
But what did you find it and cloud is that really just the the model we have that's allowing us to really go deep with our customers and grow our business.
In terms of you mentioned about it at all.
Let me talk about that.
As we discussed with our customers.
And freight management and liquid cooling.
Speaker 3: And Fred mentioned in liquid cooling, the power requirements for what we're doing in data centers become significant. Air cooling no longer works, so they're looking for a liquid-cooled capability. We need to use photonics extensively, again because of the power requirements.
You know the the power requirements for what we're doing in data centers become significant.
Michael Dastoor: Bennett. Our CAPEX investments this year are expected to include a combination of maintenance and strategic investments for future growth and efficiency gains. We plan 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 healthcare and renewable energy and markets.
Clearly no longer works, so theyre looking for a liquid cooling capability you need to use photonics expansively.
Again, because of the power requirements, so sitting with our customers means that the Oscars can you help us in liquid cooling.
Speaker 3: So, you know, a sitting with our customers means that they ask us, can you help us in liquid cooling?
Speaker 3: Can you help us in photonics? Can you help us in pluggable transceivers etc etc?
Help us in Photonics can you help us plug about transceivers et cetera, et cetera, so that that helps us as we go into strategic planning until the account 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 end markets and simplifies our customers' lives.
Michael Dastoor: Moving on to cash flow generation. We closed out FY23 with strong pre-cash flows north of $1 billion. We expect to continue generating strong cash flows in FY24 with adjusted pre-cash flow of more than $1 billion.
Speaker 3: 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.
Speaker 3: The good thing for us, Steve, is that as we go more vertical and in markets, it simplifies our customers lives and it makes our solutions more robust.
It makes our solutions more robust and that effectively allows us to grow our business. There. So that's kind of how we see things in the cloud and.
Speaker 3: 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.
Michael Dastoor: With that, let's now turn into our capital structure on the next slide. We have a solid and flexible debt and liquidity profile with current maturedies appropriately staggered at an attractive interest rate. We ended FY23 with committed capacity under our global credit facilities of $3.8 billion. With this available capacity and our year-end cash balance, we had access to more than $5.6 billion of available liquidity which we believe supports us ample flexibility. We also remain fully committed to maintaining our investment rate credit profile. In FY24 and beyond, we expect to generate significant pre-cash flow.
Hopefully that answers your question.
Speaker 6: Yeah, no, that's very helpful. And then just as a follow up, Mike, um, it sounds like what you're, you're saying with the fiscal 25 guidance is to assume that you, uh, sort of execute on two and a half billion dollars of buybacks by then. And if that's the case, is there any way to sort of give us
Yeah, No. That's very helpful. And then just as a follow up Mike It sounds like what you're you're saying with the fiscal 'twenty five guidance is to assume that you are.
Sort of execute on $2 $5 billion of buybacks by then.
And if that's the case is there any way to sort of give us.
Speaker 6: an idea of how much we should assume in buybacks or how the share count, you know, conservatively comes down this year. I know there's a lot of timing issues there, but it seems like that's an important part of the EPS model to understand now for a little while.
An idea of how much we shouldn't assume any buybacks or how the share count.
Conservatively come down this year I know, there's a lot of timing issues there, but it seems like that's an important part of the EPS model to understand now for a little while.
Speaker 4: Absolutely Steve, I think you are absolutely right.
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.
Speaker 4: The buyback scenario is dependent on the timing of the close, but regardless, let me just, I think this morning you saw the board.
Michael Dastoor: Given this dynamic, along with expected net proceeds from the mobility business sale, I believe it's an appropriate time to reiterate our capital allocation priorities and at a higher level how we plan to deploy our capital over the next two years.
Speaker 4: 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.
<unk> expanded our authorization current authorization to $5 billion.
I think if you remember Adam mentioned.
In his prepared remarks that in Q4, we were unable to complete our Q4 share buy backs due to the restrictions.
Michael Dastoor: We stand to the next slide. This morning included in our third expiling, we announced that our board of directors expanded our current share repurchase authorization to $2.5 billion. We expect to begin executing on this up-sized authorization immediately.
That tap debt associated with the mobility transaction soon.
Speaker 4: that are associated with the mobility transaction. So in October , starting next week, we will therefore...
Two I think starting next week, we will therefore.
Speaker 4: 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.
We will be executing our accelerated share repurchase program of $500 million, regardless of the timing of the close so think.
Think of that as almost like a catch up.
Speaker 4: 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 will start as soon as the mobility transaction closes and we have received all the cash.
And taking advantage of current market situation as well our post close we will execute a series obviously it'll depend when in Q2, it closes, but we will execute a series of accelerated share repurchases will.
Michael Dastoor: You heard Adam say that we were unable to complete our Q4 share repurchases due to restrictions around the mobility transaction. We plan to launch a $500 million accelerated share repurchase transaction in October prior to the close-up of mobility transaction. With closing of the mobility transaction, we intend to execute a series of additional accelerated buybacks throughout FY24 and FY25 with the intent of optimizing share repurchases and interest expense thereby maximizing the EPS impact.
We'll start as soon as the multiple ability transaction closes and we received all the cash.
Speaker 4: 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.
Probably wouldn't do a poll et cetera share buyback on day, one itself for the entire amount was willing to do a series of buybacks and the reason for that is we're trying to balance the impact of interest costs along.
Speaker 4: of buybacks and the reason for that is we're trying to balance the impact of interest costs is
Speaker 4: with the benefit of the WASO, like you suggested, all 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 FY24 we still won't be completed fully with our buybacks. I think out of the two and a half billion, I expect about 1.5.
With the benefit of the last so like you suggest and all the calculations may Brian is a balanced approach actually maximizes EPS. So that's what we're gonna do which means by the by the end of FY 'twenty four we still won't be completed fully leased up.
Michael Dastoor: Moving forward, we have come for a goal with our ability to generate strong cash flows and will remain balanced and thoughtful in how we allocate our capital. We believe this capital allocation framework will allow us to continue to grow our business and create value for shareholders. As a reminder, we have already reduced our outstanding shares from $203 million in 2013 to $131 million at the end of FY23 at 35% reduction over this time period. Over the past 10 years, we've brought back our shares at an average price of $32.71 a share.
Buybacks I think out of the $2 5 billion I expect about 1.51 0.7 to be completed by FY 'twenty, four and and in FY 'twenty five we'll complete the balance of that transaction.
Speaker 4: 1.7 to be completed by FY24 end and an FY25 will complete the balance of that transaction. I think from a lasso perspective I'm looking at end of 24 and the range of that.
From a from a less so.
Baghdad I'm looking at end of 24 in the range of that 120 628 million shares.
Speaker 4: 126, 128 million shares, while in 24...
While in plenty for.
Michael Dastoor: Next, let's look at our FY-24 guidance. For FY-24, we expect the momentum underway across the business to continue even in a subdued economic environment. Today, our business serves a diverse blend of end markets in 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 30 to 50 basis points of coal margin expansion in FY-24 along with core EPS in the range of $9.30 to $9.70 and more than $1 billion in free cash flow. And importantly, a balanced capital allocation framework broached the line and focused on driving long-term value creation to shareholders.
Speaker 4: Again, depending on how we manage it through FY25, it'll be in the 115, 118 rate.
Again, depending on how we manage it to FY 'twenty five will be in the 100 1500 18 that range.
Great. That's helpful. One just quick question on all of that <expletive> in acquisition come up would that possibly change that the goal. The goal as you just laid out or could you do an M&A and still do this amount of buyback.
Speaker 6: Great, that's helpful. And one just quick question on all that. Should an acquisition come up? Would that possibly change the goals you just laid out? Or could you do M&A and still do this amount of Bible?
Speaker 4: No, I think the company, the management team, everyone feels we're highly undervalued still and the best return that we can get is in Biobacks. Having said that, if an M&A is not a good idea, then it's not a good idea.
I think yeah, the company and the management team everyone feels we're highly undervalued still.
The best return that we can get is in buybacks, having said that if the if an M&A.
Speaker 4: I'll just remind you our debt leverage is at a...
Comes up I was just.
Remind you are right that leverage is that a is that a very low point. It sounds like one planed one are at and that gives us sufficient room to do an acquisition if needed from that.
Speaker 4: It's at a very low point. It's at like 1.1 at and that gives us sufficient room.
Speaker 4: to do an acquisition if needed from that if the financials work out.
If the financials work at and it's it's capability driven it's a it's all in the yen and the right end markets et cetera, So it would be.
Speaker 4: It's capability driven. It's all in the right end markets, etc. So, the
Michael Dastoor: As we transition to our final slide, I thought it made sense to provide you with the view of FY-25 excluding our mobility business, but including the impact of our accelerated share repurchases post-closing. We believe we're on the path to deliver our core operating margins at or above 5.6% in FY-25 and deliver more than $10.65 in core EPS. To deliver this, we need to only grow our revenues by a conservative 3% while continuing to execute a series of accelerated share repurchases.
Speaker 4: 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.
It will be based on it'll be based off of our debt structure I would think of the buybacks as well definitely go to go and do that at any M&A will be on top of that.
Speaker 4: And we have plenty of liquidity and plenty of leverage to do that.
And we have plenty of liquidity and plenty of leverage to do that.
Great. Thank you so much.
Yeah.
Speaker 1: Thank you. Next question is coming from Matt Sheeran from Steve Hill. Your line is now live.
Thank you next question is coming from Matt Sheerin from Stifel. Your line is now live.
Speaker 7: Yes, thanks and good morning, everyone. A couple of questions for me, if I can. One, in terms of your guidance for EMS, it looks like you're guiding networking and storage down 6%. And you also talked about, Kenny, the fact that you're disciplined, you sort of optimize your customer portfolio there. So does that guidance reflect just weakness in end markets in terms of visibility with customers, or are you disengaging with some programs that don't meet your return or profitability goals?
Yes, thanks, and good morning, everyone.
Couple of questions for me if I can one on you in terms of your guidance for EMS.
It looks like Youre guiding networking and storage down 6% and you also talked about the fact that you're disciplined but.
Michael Dastoor: In my view, J. Will 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 PN markets that are undergoing multi-year secular growth. All of which gives me confidence as we march towards 6% core operating margins in the future.
Just trying to optimize your customer portfolio are there. So does that guidance to reflect just weakness in end markets in terms of visibility with customers or are.
Are you just engaging with with some programs that don't meet your return or our profitability goals.
Speaker 3: Yeah, hey, it's a little bit of both in a sense.
Yes.
David It's a little bit of both and in this instance.
Speaker 7: Okay, maybe drill down a little bit in terms of what you're seeing in those markets. Yeah, I mean just
Oh, Okay, Yeah, maybe drill down a little bit in terms of what youre seeing in those markets.
I mean just that.
Michael Dastoor: Thank you for your time today and for joining us this morning.
They're there.
Speaker 3: You know, there are kind of some legacy.
They were kind of some of the legacy.
Adam Berry: I'll now turn the call over to Adam. Thanks Mike. As we talked about at the outset of the call, there's a lot to be excited about here at J.
Yeah, you know what kind of build to print type of models and in some instances.
Speaker 3: EMS type, you know, kind of build to print type of models in some instances. Um, and you know, our view there is that where we can serve, we're always looking to find where we can serve and add value. Um, you know, if our server and add value becomes a hundred percent built to print, then, you know, probably there's people that can do that. Um,
Operator: Will. 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 J. Will and we're ready to get into your Q&A operator.
You know our view there is that we conserve we'd always looking to find where we can serve and add value.
Operator: Thank you.
If our seven odd valued becomes 100% built to print then.
Probably that those people that can do that.
Speaker 3: keep up the noise and can do it and allow the noise to add.
Cheaper the knives and can do it.
I would now like to add value for all of our customers, where we can be back to color, where we can do just do more engineering services or whatever.
Speaker 3: value for other customers, where we can be vertical, where we can do more engineering services or whatever.
Ruplu Bhattacharya: Now we're conducting a question and answer session. If you'd like to be placed into question Q, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question Q.
Speaker 3: So, I mean, we're not walking away from customers. It's a discussion around, you know, look, this, 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 then market softness right now. You know, we see some softness in that market as well as in the consumer space. So we do expect that to recover. I mean, we are not walking away from the network and the storage business, just to be clear. We also see that in that area of our business that I'm...
So I mean, we're not walking away from customers is a discussion around Oh look this.
I'm not sure it's right for ourselves and for our customers. So there's a little bit of that and then some of it is just spend market softness right. Now you know, we see some softness in that market as well as in the consumer space. So we do expect that to recover I mean, you don't walk away from the networking and storage business just to be clear we also see.
Operator: You may press star two if you'd like to remove your question from. McCue. For participants using speaker equipment, maybe necessary to pick up your handset before pressing star 1. One moment please, while we pull for questions.
Ruplu Bhattacharya: Our first question is coming from Ruplu Bhattacharya, from Bank of America, your life is our life. 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?
And in that area of our business that.
The amount of of Manhattan's there are advanced Nate what can those required to support the E. I Datacenters 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.
Speaker 3: you know, the amount of enhanced or advanced network that's required to support the AI data centers is significant also. So, you know, 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, you know, some discussions with a couple of customers.
There was some discussions with a couple of customers.
Ruplu Bhattacharya: I mean, how much of this margin improvement is coming from mixed shift within the portfolio? How much would you say is it like for like pricing improvement? I mean, I would think that by fiscal 25, you'd had some recovery and semi-cap. Maybe there's less inflation passed through and maybe you're taking some cost actions. So, if any color you can give in terms of what are the different drivers for such a strong margin improvement?
Speaker 7: Okay, thanks for that. And then my next question just regarding the inventory picture, supply chain challenges that you've had and how we should think about how that flows through the model in the next year. You had nice inventory reduction quarter on quarter. That net number is down. So are you expecting, you know, that to reduce further? And are you seeing any other supply chain issues that you've called out in previous quarters, particularly in auto and medical in terms of legacy parts?
Okay. Thanks for that and then my next question just regarding the inventory picture supply.
Supply chain challenges that you've had and how we should think about how that flows through the model in.
In the next year, you had a nice inventory reduction quarter on quarter that net number is down.
So are you expecting that to reduce further and are you seeing any other supply chain issues that you've called out in previous quarters, particularly in auto and medical in terms of legacy parts.
Kenny Wilson: Hey, Ruplu. Good morning and thank you for the question. I mentioned in my prepared remarks that we're really intentional. We just come out of our annual review of our strategic planning and I think you'll see in mics, comments also that we review in post-emobility, type-bestiture that you know, 70% directly of our business is going to be in you know, with EVs, AI clouds, renewables and healthcare. So, if you look at that, that's all areas of our business that we believe are accretive from a margin perspective and if you just roll forward what we expect are growth to be in those areas that it really is a big chunk of that.
Speaker 4: Let me try and take that, Matt. The inventory days did come down by four days. I think the team did an excellent job.
Let me try and take that tab at 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 upstream our those BD teams by that it seems to all of them.
Speaker 4: If you look at our supply chain team, our ops team, our biz BD teams, finance teams, all of them.
Speaker 4: I've done a fantastic job in getting that particular metric down. I think the focus that we put on that from a pre-cash flow perspective, from a working capital perspective. prince.
<unk> done a fantastic job and getting at that particular metric down I think the focus that we put out in that from a free cash flow perspective from a working capital perspective.
Speaker 4: 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...
Is all paying off having said that now I don't expect it to go down into the low <unk> I think that 55 to 60 I think on previous calls I've mentioned, that's the range I was expecting mid to long term it came sooner than expected which is.
Speaker 4: Always a pleasant surprise, but I would expect that 55 to 60 day.
Always a pleasant surprise, but I would expect that 55 to 60 day.
Kenny Wilson: Also, obviously as you'd expect, as the mobility business moves out of the company, you were looking at right sides in a footprint and just aligning with the new normal for our business. So, it really is, you know, it's part of what we've been planning to do. You know, we've been very intentional on it and it really is just a function of as business with higher margin growth and it comes a bigger part of our portfolio.
Speaker 4: 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.
Sort of a range to be maintained it might differ by nuances in particular quarters. It might go up a little bit 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 are having yeah.
Speaker 4: From a supply chain perspective, yes, supply chain constraints are...
Speaker 4: are coming down. However, I think like you mentioned the automotive and healthcare.
However, I think the like you mentioned, the automotive and health care pieces is there still some shortages going on there maybe not at the same level that they were 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.
Kenny Wilson: That's what we see we get to from a margin perspective. It's not a function of, you know, as we've been planning and trying to renegotiate higher price with our customers. It really is a function of us adding more value in key end markets and that's where we end up. So, my other comment here would be, you know, as you know, we're generally quite conservative. So, you know, we wouldn't be talking to you about that if we didn't think there was a high degree of likelihood that we would achieve that.
Speaker 4: 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, we'll get to the 55-ish range over a long period of time.
Something we're watching and when that starts coming down and normalizing.
Yeah, we will get we will get to the 55 ish range.
Over a long period as well.
Okay. Thank you and just lastly on the interest expense line, which was what you're guiding $73 million.
Speaker 7: Okay, thank you. And just lastly, on the interest expense line, which was, which are guiding 73 million, what should we think about the full year, particularly with your excess cash in terms of bringing down your short-term borrowings? Is there a number that we should model for the year?
Ruplu Bhattacharya: Okay, thanks for all the details there Kenny.
Ruplu Bhattacharya: 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 20% 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?
What should we think about the full year, particularly with.
With your excess cash in terms of bringing down your short term borrowings is there a number that we should model for the year.
Speaker 4: Oh yeah, the excess cash has been boosted into our, uh, into our, uh, forecast. I think the number we'd, I'd say for FY24.
Yes, the excess cash has been built into our into our all cash I think the number I'd say, but our FY 'twenty four would.
Speaker 4: We'll be in the range of 290 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 market. So conservatively, I'd model 290 to 300 million, Matt. OK.
It would be in the range of 290 to 300 million again, we're being conservative there if interest rates continue to go up.
Ruplu Bhattacharya: 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 has more companies look to try and gain share in it, and different aspects of automotive.
We don't have a crystal ball around that but it is mainly a variable rate, which is a which is higher right now because of everything that's going on in the market. So conservatively.
I'd model $2 90 to 300 million Matt.
Kenny Wilson: Yeah, let me talk to that also. I think I said previously that the automotive business is hard and being hard is good for us, and also you need to have a global footprint with consistent as standard processes and capabilities and be able to launch products simultaneously in different geographies at the same time. There's not you know, we've been on a journey in the automotive space for quite some time. Chad Morley and his team have been driving that.
Okay, Alright, thank you very much.
Thank you. Your next question is coming from Mark Delaney from Goldman Sachs. Your line is now live.
Speaker 1: Your next question is coming from Mark Delaney from Goldman Sachs. Extra light is not live.
Speaker 8: Yes, good morning. Thank you very much for taking my questions. First on mobility, by exiting that business, do you think you can allow JBL to better pursue some of these other end markets? So maybe give us a little bit more details as you think about things like management time, perhaps feeling less constrained by customer diversification considerations, or having more capital to invest.
Yes, good morning, and thank you very much for taking my questions first one on mobility by exiting that business. Do you think you can allow jabil to better pursue some of these other end markets and if so maybe give us a little bit more details or do you think about things like management time, perhaps feeling less constrained by customer diversification considerations are having more capital to it.
Yes.
Speaker 3: Hey, thanks for the question. So Mark, yeah, so firstly, I mentioned in my prepared remarks about the mobility team and I just like to call out again the
Hey, Thanks for the question so mark.
Kenny Wilson: You know, we identified pretty early that, you know, electrification was going to be a huge trend and so we doubled down in that. And obviously as you listen to Fred talking about ACEs, we were looking at software defined also. Now, so we've been thoughtfully focused on adding more of the key logos to our portfolio. And what we see is we add more logos or more companies that were involved in more and more programs.
Yeah.
So firstly.
I mentioned in my prepared remarks about the mobility mobility team and I'd, just like to call out again the.
Speaker 3: you know, our gratitude as an organization for the work that they've done, which has been outstanding. I also think, it would be remiss of me not to call, we are 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.
Got it you are as an organization for the work they've done which has been outstanding I also think.
I would be remiss of me not to call me, you're right in the middle of the transition right now and the collaboration between our team and the BYD team is absolutely outstanding. So so we're really pleased about how that's going in terms of the business for sure.
Kenny Wilson: And I think Mike's, you know, talked previously about, you know, how the business, you know, it's like seven-year life cycles. You're going to introduce them at different rates. So what we see is going forward that the products that we're incubating now, you know, are going to be revenue and margin acclative, you know, in the next two, three, four, five years. So what we're feeling quite confident about our growth, you know, certainly, you know, 20%, we think it's probably feasible.
What we've been looking at here as we try and focus our growth as well.
Speaker 3: What we've been looking at here is and the way we try and focus our growth is, you know, where can we add most
Where can we add most value for our customer.
Speaker 3: and looking at the world through the eyes of our customer. And that's why you see, you know, 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.
And looked at the world through the eyes of our customer.
And that's why you see when you look at the end markets that we're focused on them. We think are the same 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.
Kenny Wilson: From a competition perspective, you know, we compete globally with really, really good companies, you know, competition makes us better. So we are well aware and we're pretty paranoid about our capability in our competitors. So I would say that we don't have any real surprises and with our competitors in terms of their capability of relative to errors. And we're pretty confident that what we can offer, you know, being a US domicile with wonderful capabilities in Asia, Europe and North America, we think that that model is a winner for customers and for jabals. So we're feeling quite confident about our automotive growth in this short, medium and long term.
So, yes, we will be focusing much more on you know.
Speaker 3: So yeah, we'll be focusing much more on automotive, healthcare, you know, 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 user capital perspective, you know, 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 and these secular, you know, strong secular growth areas.
Automotive health care.
Just the renewables that we've mentioned them previously so for sure.
Inquiries for sure that's going to give us the opportunity to do that from a.
Use of capital perspective, you know what helps US. He had also so yeah certainly from a management bandwidth, it's going to free up some of their time to go there in these secular strong secular growth areas.
Okay. Thanks for that.
Speaker 8: Okay, thanks for that Kenny. Speaking of AI, you spoke about some of the nice growth you're seeing and opportunities. Could you clarify how much of your cloud and 5G business is tied to AI at this stage and how do you see that progressing in your 24 and 25 hours?
And speaking of AI you you spoke about one of the nice growth Youre seeing in opportunities could you clarify how much of your cloud and <unk> business is tied to a at this stage and how do you see that progressing and your 'twenty four and 'twenty five Alec.
Fred McCoy: Okay, thanks for all the details. I'm going to try and sneak one more quick one in. I mean, you're guiding for a strong growth in new areas that I haven't heard of before, like the energy storage site is now much stronger for you and the data center side. But 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.
Speaker 3: Yes, so at 24 it's roughly 20 to 25 percent 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.
Yes, so 24, it's roughly 20% to 25% and we think that that's going to grow in the longer term and I'm going to become a much bigger much bigger part of our of our cloud business.
It's very helpful and just a clarification.
Speaker 8: Just a clarification on the data center business. I think this is the third year you're seeing this transition to the consignment model, which has the revenue impact, but helps the profit margins. With the shift you're expecting this year away from some of the consignment, do you think you're fully done now, and is it the last year of that transition, or could this continue beyond fiscal 24? Thanks. I think it's going to be really dependent on the mix of that.
On the.
The data center business I mean, I think this is the third year, you're seeing this transition to the consignment model, which has a revenue impact but helps the profit margin.
Ruplu Bhattacharya: Thank you so much again, congrats on the quarter and the guy.
The shift Youre expecting this year.
Fred McCoy: Hey, Ruudis, Fred McCoy, I'll take that for you. Yeah, we've announced some expansions in previous calls. We've expanded our footprint both in North America and Europe. So we feel really confident and comfortable in supporting the regional needs for those markets that you cite. We've seen some movement, as I mentioned, with some of the legislation in Europe and the U.S, driving, you know, specific regional requirements. And we think we're well positioned to support those energy storage and energy conversion programs in those regions.
Ah well away from some of the time and do you think you are fully done now and this is the last year of that transition or could this continue beyond fiscal 'twenty four.
I think I think it's going to be really dependent on the mix of all the.
The businesses we are expanding.
Speaker 3: the businesses. So we are expanding the space there to allow us to do more.
The space there to allow us to do more.
Speaker 3: you know, cloud, Mike mentioned that, um, you know, we're, we're up 20% year over year. And, and, you know, we don't see any, any slowdown in terms of the, you know, cloud rollout. So, um,
Cloud.
<unk> mentioned that.
We're up 20% year over year.
And we don't see any any slowdown in terms of the cloud rollout so.
Speaker 3: 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.
I think it depends but certainly for sure. We think that that are actually we think our volumes are going to grow but it will grow in the AI space. So probably that our revenues would probably be relatively consistent at that level I would think in the next year or two.
Fred McCoy: And all that's within a CAPEX that we guided in the call. That's just part of our normal course of business and in adjusting our capacity to meet customer needs. Ruudis, I can just add, if you look at our CAPEX historically a few years ago, it was in the range of 3.5 percent. Over the years, we've taken it down to, we've always suggested 2.5, 2.6 percent range. We will have the mobility transaction going through.
Speaker 4: I feel love I feel the assignment levels that we are at today. Uh, will be consistent going forward. I think we've done. We've doubled that concern and so even though volumes are up by 20%, we've actually doubled that consistent levels over this period. Uh, and that's that's impacting our total revenue number, but it's this is all goodness. Right? So I don't think this is.
And not that appeal.
I feel the same levels that we are at today.
<unk> will be consistent going forward I think we've done we've doubled our consignments, even though volumes are up by 20%, we've actually doubled our consignment levels over this period.
Fred McCoy: We are working on taking this CAPEX number down quite a bit. I think the normalized range, if you look at what happened in FY23 is our CAPEX ran down to 2 percent, but that was a little bit of a timing difference. FY24, we expect CAPEX to still be in the 2.3 to 2.5 percent range, but going forward, the 2 to 2.2 percent, 3 to 2.3 percent, 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, we've doubled our revenues, and we've always managed that 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 end markets, we will continue to manage CAPEX with a lot of discipline. I think the number is already reflected, all expansion is reflected when we give out CAPEX percent.
And that's that's impacting our total AD revenue number but it's this is all goodness right. So I don't think this is.
Operator: Thank you so much.
Speaker 4: This is something that is negative. It's actually a big positive for us because it helps with our balance sheet, it helps with our margins, it helps flow through, it helps the customer, it helps JWIL.
This is something.
That is negative is actually a big positive for us because it helps with our balance sheet. It helps our margins. It helps blow through it helps the customer it helps.
Operator: Thank you.
<unk>, it's a win win for Epsilon, but now that we've doubled that consignment levels are.
There might be another 5% to 10% that might come through but I think we're at a rather good decent stage currently.
But the indicators we provided.
Thank you.
Okay.
Thank you. Your next question is coming from David vote from UBS. Your line is now live.
Speaker 1: Thank you. Next question is coming from David Vogt from UBS. Your line is now live.
Speaker 6: 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 like what gives you confidence?
Great. Thanks, guys for taking my questions and I appreciate all the detail it's incredibly helpful.
I have a couple of questions, 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 so we're just trying to think through like 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 had been pending earlier in the year that are taking upwards of you know 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.
Steven Fox: Next question is coming from Steven Fox, from Fox Advisors. Why does that lie?
Speaker 6: 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, you know, earlier in the year that are taking upwards of, you know, 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, that's okay.
Steven Fox: Hi, good morning. A couple questions from me. First of all, I was wondering if you could dig in a little more into the cloud slide that you presented from the aspect of the growth. Mike, you mentioned 20% sort of like for like growth on the rack configurations, but it seems like the drivers are a couple of different areas. Like can you explain what you meant by customer diversity, and then also how investing in new technologies, like with cooling, is driving some of the growth. And along those lines, I noticed you mentioned OSAD packaging, which I think is new. Can you just sort of give us an explanation on that bullet point. And then I had a quick follow up.
Following sort of the purchase agreement that data that you published last night, and then I'll just hold off and ask Mike My follow ups. If that's okay, yes, yes.
Speaker 3: Yeah, yeah, we thanks for the question David. So yeah, we are really, really deep in this right now. I mentioned previously about the
Thanks for the questions. David So yeah, we are really really deep and that's right.
I mentioned previously but the.
You know our <unk> effectively we're working together with them with with BYD.
Speaker 3: You know, how effectively we're working together with BYDE. And that is really, really pleasing, especially for our people that are going to go work in that organisation. And the leadership team is outstanding.
And that that is that's really really pleasing, especially for people that are going to go work what can the organization and the leadership team is outstanding.
Kenny Wilson: Hi, Steve, good morning. Yeah, so we were talking about that just this morning, actually. And I think it's worth us just reaffirming in the cloud space that we really think the model we have is outstanding. So you know, it's asset light is collocated with our customer. We also think that as their customer looks to our customer look to disaggregate a lot of the other parts of the data center that it plays to our strength.
Speaker 3: Yeah, it's really detailed. We've spoken to all of the stakeholders. We think we've got a really good plan, detailed plan. And we're very, very confident that we'll close this in the timeline. We'll find out more resource there and at the end of the day we'll close out here and Will do a link to the Hi recite Paul
Yes, we were really detailed.
We've spoken to all of the stakeholders, we think where we've got a really good plan detailed plan and and we're very very confident that that will cause us and the time line.
So we've covered in our prepared remarks, we will actually focus in trying to cause it as soon as possible. Obviously you know if we could do that in this calendar year would be wonderful, but yeah with with.
Speaker 3: that we covered in our prepared remarks. We're actually focusing on trying to close it as soon as possible, obviously. If we could do that in this calendar year, it would be wonderful. But yeah, with...
Kenny Wilson: And I'll get to be the kind of optics in OSAD in a second. So what we find is that that relationship drives effectively as sitting at the same side of the table, you know, trying to solution, how can we do things efficiently. And how can we help them grow because, you know, we view there's going to be significant growth, especially, you know, underpin by AI. So what we see is we've got a, you know, we've got to take our existing cloud business and what we see that's been augmented by a real pivot to AI.
Speaker 3: BYD's support in Asia and our support in North America, we think that we're very confident that it's going to be closed in the timeline that we mentioned.
Byd's support in Asia, and our support in North America, we think that that where we're fairly confident that it's going to be closed and the time lines that we mentioned.
Speaker 6: And then maybe from my, you know, I appreciate the color on the margins and the mix shift.
Great and then maybe maybe for Mike I appreciate the color on the margins and the mix shift.
Speaker 6: embedded in sort of the outlook for fiscal 24. But can you kind of touch on one cue to start? You know, it looks like at the high end operating margins are closing in on 6%.
Embedded in sort of the outlook for fiscal 'twenty four but.
Can you kind of touch on <unk> to store it looks like at the high end operating margins are closing in on 6%.
Speaker 6: And I would imagine that includes mobility for at least a full quarter to Kenny's point. But when we look at the full year of 2024,
And I would imagine that includes mobility for at least a full quarter to <unk> point.
Kenny Wilson: From a consignment perspective, we if you look at the GPUs as Mike mentioned that, you know, that's going to 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 OSAD and let me talk about that, as we discussed with our customers and Fred mentioned and liquid cooling, you know, the power requirements for what we're doing in data centers are become significant.
And but when we look at the full year of 24.
Speaker 6: 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 trend lower in, I would imagine, 2Q in the back half of the year. So, kind of what's going on in the first quarter? I know mixed...
I would imagine the base case and the projections our mobility exiting the business you know by the end of let's say fiscal two Q and margins kind of trend lower in I would imagine <unk> in the back half of the year, So kind of what's going on in the first quarter. I know mix. You mentioned earlier you know, it's just faster growing businesses helps margins in the full year, but specifically in <unk>.
Speaker 6: You mentioned earlier, you know, it's a faster growing business. This helps margins in the full year, but specifically in 1Q.
Q why our margins are strong and just what does that imply for mobility margins and then maybe just as a quick follow up I'll give them both at the same time.
Speaker 6: 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.
You made a comment that your fiscal 'twenty five outlook.
Kenny Wilson: You know, it's really no longer works. So they're looking for a liquid code capability. You need to use photonics extensively again because of the power requirements. So, you know, sitting with our customers means that the ask is, can you help us in liquid cooling? Can you help us in photonics? Can you help us in plugable transceivers, 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.
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.
Speaker 4: And let me ask you a second question first. The answer is yes. It excludes...
Let me ask a second question first the answer is yes. It excludes.
Speaker 4: Mobility, when we're looking forward to FY25, the 3% growth is on non-mobility.
Mobility, so when we're looking forward to FY cutting 5% to 3% growth is on the non mobility piece.
Speaker 4: As it relates to Q1 margin, there's a couple of.
As it relates to Q1 margin, there's a couple of.
Speaker 4: dynamics going on. We talked about consignment on the cloud. That has a little bit of an impact for margins.
Kenny Wilson: 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 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. Yeah, I know that's very helpful.
Dynamics going on and we talked about consignment or in the cloud that has a little bit of an impact on margins in Q1 and for all of FY 'twenty four as well.
Speaker 4: In Q1 and 4, all of FY24 as well, our mix continues to shift into the higher mix end markets, the higher margin end markets.
Mix continues to shift into the higher <unk>.
Uh huh.
And markets are the higher margin end markets.
Speaker 4: There is a shift taking place there which is working for us. I think I highlighted and Kenny talked about it as well. 70% of our non-mobility business now is going to be in those four end markets. There's no major change in the mobility piece other than some.
There is a there is a shift taking place there which is working for US I think I highlighted and Guinea talked about it as well 70% of our non mobility business now is in a is going to be in those floor and market. So there's no major change in the mobility piece other than some oh.
Michael Dastoor: And then just as a follow-up, Mike, it sounds like what you're saying with the fiscal 25 guidance is to assume that you sort of execute on two and a half billion dollars of buybacks by then. And if that's the case, is there any way to sort of give us an idea of how much we should assume in buybacks or how the share count, you know, conservatively comes down this year. I know there's a lot of timing issues there, but it seems like that's an important part of the EPS model to understand now for a little while.
Speaker 4: I think I called out a couple of pieces. I called out the consignment piece and I called that a shift of work content, which is more bill of material driven rather than anything else. There's no manufacturing change at all and the value add that we provide is still the same, but it was just a bill of material moving upstream rather than through us. So that has a little bit of a positive impact on margin. And then last but not least, we did
Think I called out a couple of pieces I called out the consignment fees and I called out some shift of work content, which is more of a bill of material driven rather than anything outside there's no manufacturing change at all in the value add that we provide is still the same but it was just a bill of material moving upstream rather than and through us.
Michael 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 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 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.
Michael Dastoor: 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, to depend when in Q2 at 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.
So that that has a little bit of a positive impact.
On margin and then last but not least is are we did we signed a preliminary agreement on 27th of August on the 27th of August .
Speaker 4: We signed a preliminary agreement on 27th of August . On the 27th of August .
Speaker 4: It triggered an asset held for sale, sort of accounting treatment under US GAAP. In Q4, there wasn't much of an impact at all. There was zero impact on the P&L. There was some tax that we had to provide for under GAAP for Q4. But in Q1, there is about...
We it triggered an asset held for sale.
The accounting treatment under U S. GAAP in Q4, there wasn't much of an impact at all of those zero impact on the P&L. There was some tax that we had to provide for under GAAP.
For Q4, but in Q1 there is about.
Speaker 4: a $40, $50 million pick up because we're pulling out depreciation.
A $40 $50 million pick out because we're pulling out of depreciation.
Speaker 4: as part of this accounting treatment for assets held for sale. I called it out in my prepared remarks. As I mentioned, there's about a 25 cent improvement.
As part of this accounting treatment for assets held for sale I called it out in my prepared remarks, I mentioned, there's about a 25 cent improvement AR because of because of desk, but don't forget through the year.
Speaker 4: because of this, but don't forget through the year, this sort of improvement gets offset by stranded costs that will take time to.
These this sort of improvement gets upset by stranded costs that will take time to.
Speaker 4: will time to pull out towards the end of the year. But Q1, there's quite a few dynamics moving around whereby...
Blue tightened to pull out towards the end of the year, but in Q1. These are there's quite a few dynamics moving around whereby.
Speaker 4: Our revenue looks lower, but it's not because it's mainly bill of material driven and there's some other dynamics.
Michael Dastoor: 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, and all the calculations we've run is a balanced approach actually maximizes EPS. So that's what we're going to do, which means by the end of FY24, we still won't be completed fully with our buybacks. I think out of the $2.5 billion, I expect about $1.5, $1.7 to be completed by FY24 and an FY25 will complete the balance of that transaction.
Our revenue is a it looks lower but it's not because it's mainly a bill of materials, driven and there's some other dynamics as well.
Speaker 6: And like, just to clarify, so is the stranded costs and this sort of triggered gain. Embedded in the core non gap projections, or is that just strictly in the gap numbers for 20? No, the asset help for sale. The depreciation is embedded in our or. I think I mentioned that specifically when I was talking about the poor eps.
And Mike just to clarify so is the stranded costs and the sort of trigger gains embedded in the core non-GAAP projections or is that just strictly in the GAAP numbers for 'twenty no. The asset held for sale. The depreciation is embedded in our rap or Ah I I think I mentioned that specifically.
<unk> I was talking about the core EPS.
Speaker 4: There was a 25 cent impact. The stranded costs are also included in Core. We've got stranded costs towards the end of the year. We'll only be able to get to restructure those in maybe Q3 or Q4 well after the transaction closes. Great, thank you.
It was a 25 cent impact.
The stranded costs are also included in our in court.
Michael Dastoor: I think from a WASO perspective, I'm looking at end of 24 and the range of that 126, 128 million shares while in 24, again, depending on how we manage it to FY25, it'll be in the 115, 118 range. Great, that's helpful.
We the stranded cost towards the end of the year will only be able to get to.
To restructure those are in maybe Q3 or Q4, well after the transaction closes.
Great. Thank you that's helpful. I appreciate it thanks guys.
Yeah.
Michael Dastoor: One just quick question on all that. Should an acquisition come up, would that possibly change the goal, the goals you just laid out, or could you do M&A and still do this amount of buyback? Thanks. No, so I think, you know, 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 that leverage is at a very low point.
Speaker 1: The next question is coming from George Wang from Mark Leisure Line is now live.
Thank you next question is coming from George Wang from Barclays. Your line is now live.
Hey, guys. Thanks again for taking my question and congrats on the quarter and a strong guide yeah. Just a couple of quick questions. Firstly can you kind of talk about share gains.
Speaker 9: 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.
Just maybe parse out kind of a.
What are you seeing in terms of the share gains whether that's mostly from mix in a new market for all kinds of existing growth market you guys already in right now.
Michael Dastoor: It's at like 1.1, and that gives us sufficient room to do an acquisition if needed from that, if the financials work out, and it's capability driven, it's all in the right end markets, etc. So 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.
Speaker 3: Yeah, hey George, nice to talk to you. Yeah, so what we're seeing is. Um? I think.
Yeah, Hey, George basically talk to you.
Yes, so what we're seeing is.
I think that we were.
We've seen some some offset and end market right now so if you look at the consumer for example, or we called it may work in stories that they own them. So we're not losing market share there, but in the markets that we're focused on like in automotive and in healthcare and renewables for sure.
Speaker 3: in markets right now. So if you look at the consumer, for example, we call it network and stories that's down. So we're not losing market share there. But in the markets that we're focused on, like in automotive and healthcare and renewables, for sure, we're gaining share in those areas. So that is allowing us to offset some softness in consumer, for example, and still be able to grow and normally grow our businesses. So you see, we are seeing share gains in those targeted areas.
We're gaining share in those areas. So that is allowing us to offset some softness in consumer for example, and still being able to grow our normally grow or grow our business. So you see how we are seeing share gains in those targeted areas.
Okay, Great and Thats, why I kind of want to double click on that opportunity is out of China, especially given the re shoring trends.
Speaker 9: Okay, great. And also I kind of want to double click on the opportunities out of China, especially, you know, given the reassuring trends and, you know, maybe kind of specifically in Eastern Europe , kind of on the EV production side and also Mexico, you know, would you like to call out a few other regions kind of outside of China, you know, also in particular vertical, like, you know, that could drive incremental growth as this is a reassuring trend continues.
David Vogt: David Vogtacharya, David Vogtacharya, David Vogtacharya, David Vogtacharya[inaudible] David Vogtacharya, David Vogtacharya, David Vogtacharya, David Vogtacharya,[inaudible] David Vogtacharya, David Vogtacharya, David Vogtacharya,[inaudible] David Vogtacharya, David Vogtacharya, David Vogtacharya David Vogtacharya, David Vogtacharya, David Vogtacharya David Vogtacharya, David Vogtacharya, David Vogtacharya David Vogtacharya, David Vogtacharya, David Vogtacharya, David Vogtacharya, David Vogtacharya, David Vogtacharya, David Vogtacharya, David Vogtacharya, David Vogtacharya[inaudible] Watt. Okay, thank you.
Maybe you kind of full specifically in eastern Europe on the on the production side and also Mexico.
Would you like the quality.
Their regions kind of outside of China and also in particular, the bloody cold like and all that.
That could drive incremental growth.
Vishal and trend that continues.
Speaker 3: Yeah, okay. So let me, yeah, just if this doesn't satisfy your question, just let me know, George.
Yeah, Okay. So let me yes.
Just if this is doesn't satisfy your you write your questions just let me know George but.
So.
Speaker 3: So we have a phenomenal capability and a really robust footprint in China. You know, we leverage a lot of capabilities across the company from a footprint there. What we do see is that...
We have a we have a phenomenal capability and a really robust footprint in China.
We leverage a lot of capabilities across the company from from a footprint there.
We do see is that.
We see it we see opportunities in China for China. So we think that you know whether it's an E vs. On multiple different end markets, we think our facilities a feel and what I've been more more demanded at our China facilities. So.
Speaker 3: We see opportunities in China for China. So we think that, you know, whether it's in EVs or multiple different end markets, we think our facilities are full and we're adding more demand in our China facilities. So when we talk about regionalization, you know, we're not, it's not cannibalizing our footprint in China and we think that the demand is going to increase, but it's there in the longer term, which is great because...
When we talk about regionalization.
It's not cannibalizing our footprint in China.
And we think that the demand is going to increase but at a theater in the longer term, which is great because.
The teams and the people we have in China are absolutely outstanding.
Speaker 3: The teams and the people we have in China are absolutely outstanding. But to answer your other question, we see...
But to answer your other question Yeah, we we see.
Speaker 3: look at reshoring in Europe and North America, it's a big part of what we're doing and what you see growth in our targets then markets. The good thing about our company and our capability is that we have standard processes. We have a consistent culture, of course, new in different parts of the world. We have a standard unified ERP system.
We could re shoring and and Europe , and North America, It's a big part of what we're doing.
What you see growth in our target end markets.
Yeah.
Our company and our capability is that we have I, we have standard processes.
We have a consistent culture of course newness in different parts of the world. We have we have a standard a unified ERP system.
Speaker 3: So what it means is it means our ability to take capabilities and products and move them around the world and build them in the same different geographies at the same time. You know, I would I would argue that that we're among the best in the world at that. So we see
So what it means is it means out of bell like PTT capabilities and products and move them around the world we didn't build them in the same or different geographies at the same time.
I would I would argue that that where were among the best in the world that so we.
We see.
Speaker 3: Our focus is on China to support China market and also for export, but also we see leveraging those capabilities in different parts of the world is something that's going to help us grow in the longer term. So I guess in summary, the regionalization, as we call it, or re-shoring, that's a net positive for us. So we're feeling pretty confident with that in the future. Okay, great. Thank you.
Our focus is on Chegg enough to support China market and also for export but also we see them leveraging those capabilities in different parts of the world is something that's going to help us grow in the longer term so.
In summary, the regionalization as we call it a reassuring as.
That's a net positive for us.
So we're feeling pretty confident about that in the future.
Okay, great. Thank you Congrats again I would go back to the queue.
You are welcome.
Okay.
Speaker 1: Thank you. Next question is coming from Samik Chatterjee from JP Morgan. Your line is now live.
Thank you next question is coming from Sami <unk> from Jpmorgan. Your line is now live.
Speaker 6: Hey, thanks for the question guys. This is Joe Cardoso on first on a strategy. Just one question for me, but maybe a two parter. You know, your outlook for industrial and semi cap encompasses more muted forecast for your semi cap business for 24. Within that, can you just buy for tape between what you're seeing in the front end and back end of the business?
Hey, Thanks for the question guys. This is Joe Cardoso on for Sonic Caturday, just one question for me, but maybe a two part or your outlook.
Our industrial and semi cap and comes to the more immediate forecast for your semi cap business for 24 within that can you just bifurcate between what youre seeing in the front end and back end of the business.
Speaker 6: and how you see those tracking through the year. And then you talked about prepping or investing into that business for 25. Can you just dive into that a bit and touch?
How you see those tracking through the year and then you talked about ramping or investing into that business for 25 can you just dive into that a bit and touch on if theres any specific area, you're investing in or was that more get more of a just a broader comment relative to being prepared for that end market as it recovers.
Speaker 8: on if there's any specific areas you're investing in, or is that more of just the broader comment relative of being prepared for that end market as it recovers? Thank you.
Speaker 2: Hi, this is Fred. I'll try to take that question for you. So, you know, right now we're seeing a lot of uncertainty in our fiscal 24. I think the industry is, you know, looking at kind of the back half of calendar 24 for a rebound. So that's how we've modeled.
Hi, This is Fred.
Ill take that question for you so.
Right now, we're seeing a lot of uncertainty in our fiscal 'twenty four and I think the industries you know looking at kind of the back half of calendar 'twenty four for a rebound.
How we've modeled the semi cap business for our for our FY 'twenty four.
Speaker 2: semi-cap business for our FY24.
Speaker 2: I think that's both front end and back end. We're seeing those challenges. In terms of the investment, we're well aware of the CHIPS Act and the other investment acts in Europe . We are also...
I think that's both front end and back end, we're seeing we're seeing those challenges in.
In terms of the investment I mean, we were well aware of the chips Act and then the other investment acts in Europe , and we are also.
Speaker 2: um, you know, 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.
Well positioned in some of the regional trends that are going on both on the manufacturing and the and the components to go into the semi capital equipment. So we're really using this period to kind of optimize our footprint optimize our our capability and our capacity in the right regions to support what we see is.
Speaker 2: 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, early 2025.
Michael Dastoor: And just lastly, on the interest expense line, you know, which was, which are guiding 73 million. What should we think about the full year, particularly with your excess cash in terms of bringing down your short-term borrowings? Is there a number that we should model for the year? Oh, yeah, the excess cash has been built into our into our all cash. I think the number would, I'd say about FY 24. We'll be in the range of 290 to 300 million.
Where the bounce back will happen when it does late in 2020 for early 2025.
Speaker 2: So we feel really comfortable that, you know, again, you know, 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, you know, in all three regions of the world.
So we feel really comfortable that we.
Again, you know as Kenny alluded to on the prior question, our global footprint and our standard practices.
It will allow us to be the key supplier to this market in all three regions of the world.
Thank you I appreciate the color.
Michael Dastoor: Again, we'll be in conservative there. If interest rates continue to go up, we don't have a crystal ball around that, but it's mainly a variable rate, which is, which is higher right now because of everything that's going on in the market. So conservatively, I'd modeled 290 to 380 million. Okay.
Thank you we reached end of our question and answer session I would like to turn the floor back over to management for any further or closing comments.
Speaker 1: 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 or closing comments.
David Vogt: Alright. Thank you very much.
Thank you our call has now ended if you have any further questions. Please reach out thanks.
Speaker 2: Thank you. Our call has now ended. If you have any further questions, please reach out. Thanks.
Speaker 1: 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.
Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.
Operator: Thank you.
Mark Delaney: Next question is coming from Mark Delaney. Yes.
Kenny Wilson: Good morning. Thank you very much for taking my questions. First on mobility, by exiting that business, do you think you can allow Jabil to better pursue some of these other end markets? And if so, maybe give us a little bit more details as you think about things like management time, you perhaps feeling less constrained by customer diversification considerations or having more capital to invest? Yeah. Thanks for the question. So, Mark. Yeah.
Kenny Wilson: So, firstly, I mentioned to Dr. Peter remarks about the mobility and mobility team. And I just like to call out again the, you know, I gratitude as an organization for the work that they've done, which has been outstanding. I also think the remiss of me not to caught me. We're right in the middle of the transition right now and the collaboration between our team and the BYD team is absolute outstanding. So we're really pleased about how that's going.
Kenny Wilson: Yeah. In terms of the business, for sure, what we've been looking at here is, in the way we try and focus our growth is, you know, where can we add most value for that? We're looking at our customer and looking at the world through the eyes of our customer. And that's why you see, you know, when we look at the end markets that were 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.
Kenny Wilson: So, yeah, we'll be focusing much more on, you know, automotive, automotive health care, you know, just the renewables that we've mentioned previously. So for sure, an AI in cloud, for sure, that's going to give us the opportunity to do that from a, you know, use a capital perspective, you know, it helps us here also. So, yeah, certainly for our management bandwidth, it's going to free up some of our time to go down in these secular, you know, strong, secular growth areas.
Kenny Wilson: Okay. Thanks for that, Kenny. And speaking of AI, you spoke with some of the nice growth you're seeing and opportunities. Could you clarify how much of your cloud and 5G businesses tied to AI at this stage? And how do you see that progressing in your 24 and 25 hours? Luke. Yeah, so 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: It's very helpful. Just a clarification, you know, on the data center business, I think those are the third year you're seeing this transition to the confinement model, which has the revenue impact that helps the profit margin. With the shift you're expecting this year away from some of the confinement, do you think you're fully done now? And is it the last year of that transition? Or could this continue beyond fiscal 24? Thanks.
Kenny Wilson: I think it's going to be really dependent on the mix of the businesses. So we are expanding the space they are to allow us to do more. 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 better or 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.
Kenny Wilson: I feel the confinement levels that we are at today will be consistent going forward. I think we've done we've doubled our confinement. So even though volumes are up by 20%, we've actually doubled our confinement levels over this period. And that's impacting our total revenue number. But this is all goodness, right? So I don't think this is this is something that is negative. It's actually a big positive for us because it helps with our balance sheet.
Kenny Wilson: It helps with our margins. It helps flow through. It helps with the customer. It helps Jay Wilson. It's a Whitman for everyone. But now that we've doubled our confinement levels, there might be another 5, 10% that might come through.
David Vogt: But I think we're at a good decent stage currently with the indicators we've provided. Thank you.
David Vogt: Next question is coming from David vote from UBS. So why does that lie? Great.
David Vogt: Thanks guys for taking my questions. And I appreciate all the detail. It's incredibly helpful. I have a couple of questions. It may be 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 kind of think through. Like what gives you confidence that the deal could close. We'll say within two quarters.
David Vogt: I'm sure you're aware there's other deals that have been pending, you know, earlier in the year that are taking upwards of, you know, 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? I'm following sort of the purchase agreement data that you published last night. And then I'll just hold off and ask Mike my file. That's okay.
David Vogt: Yeah, thanks for the question, David. So yeah, we are really, really deep in this right now. I mentioned previously about the, you know, our how effectively we're working together with B-Y-D and that is really, really pleasing, especially for our people that are going to go work in that organization and the leadership team's outstanding. Yeah, we are really detailed. We've spoken to all of us, the stakeholders. We think we've got a really good plan, detailed plan, and we're very, very confident that it will cause us and the timeline that we covered in our prepared remarks.
David Vogt: We are actually focusing trying to cause it as soon as possible, obviously. You know, if you could do that in this calendar, you would be wonderful. But yeah, we're with BID support and Asia and our support in North America. We think that we're very confident that it's going to be closed in the timeline that we mentioned.
Kenny Wilson: Great. And then maybe maybe from my, you know, I appreciate the color on the margins and the shift embedded in sort of the outlook for fiscal 24. But can you kind of touch on one cue to start, you know, it looks like at the high end, operating margins are, you know, closing in on 6% and I would imagine that includes mobility for at least a 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, you know, by the end of let's say fiscal 2Q and margins kind of, you know, trend lower in, I would imagine 2Q in the back after the year.
Kenny Wilson: So kind of what's going on in the first quarter, I don't mix. You mentioned earlier, you know, it's a faster growing business that helps margins in the full year, but specifically in 1Q. You know, 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, you know, your fiscal 25 outlook only contemplates growth of about 3%.
Kenny Wilson: And I would assume that's based off of a 24 number that is pro former excluding mobility. Is that maybe the right way to think about it? And I'll just not there. And let me ask for your second question first. The answer is yes. It excludes mobility. Yes. When we're looking forward to FY25, the 3% growth is on the non mobility piece. As it relates to Q1 margin, there's a couple of dynamics going on.
Kenny Wilson: We talked about confinement on the cloud. That has a little bit of an impact for margins in Q1 and 4 all of FY24 as well. There's no major change in the mobility piece other than some. I think I called out a couple of pieces that I called out the confinement piece and I called out some shift of work content, which is more bill of material driven rather than anything else. There's no manufacturing change at all and value add that we provide is still the same.
Kenny Wilson: But it was just a bill of material moving upstream rather than it pushed us so that that has a little bit of a positive impact on margin and then last but not least of the we did we we we signed a preliminary agreement on 27th August on the 27th of August. We triggered an asset health for sale sort of accounting treatment under US gap in Q4. There wasn't much of an impact at all zero impact on the piano.
Kenny Wilson: There was some tax that we had to provide for on the gap for Q4. But in Q1 there is about a 40 50 million dollar pick up because we're pulling out depreciation as part of this accounting treatment for assets health for sale. I called it out in my prepared remarks. I mentioned there's about a 25 cent improvement because of because of this but don't forget through the year. There'll be this sort of improvement gets offset by stranded costs that will take time to will time to pull out towards the end of the year.
Kenny Wilson: But in Q1 these are quite a few dynamics moving around whereby revenue is looks lower but it's not because it's mainly bill of material driven and there's some other dynamics, and Mike just to clarify, so is the stranded cost and this sort of triggered gain embedded in the core non-gap projections or is that just strictly in the gap numbers for 20? No, the asset help a sale of depreciation is embedded in our core.
Kenny Wilson: I think I mentioned that specifically, we're not talking about the core EPS, there was a 25 cent impact. That the stranded costs are also included in core. We've got stranded costs towards the end of the year. We'll only be able to get to restructure those in maybe Q3 or Q4 well after the transaction closes.
Michael Dastoor: Great. Thank you. That's all for all.
Operator: I appreciate it.
George Wang: Thanks, guys. The next question is coming from George Wang from Barclays, your line is a lot. Hey, guys, thanks again for taking my question and congrats on the quarter and the strong guide. Yeah, just thanks for a couple of quick questions. Firstly, can you kind of talk about share gains, you know, just maybe pass out kind of who, you know, what are you seeing in terms of the continuing share gains, whether that's mostly from a new market or kind of existing growth markets.
George Wang: You guys already in right now. Yeah. Hey, George, nice to talk to you. Yes. So what we're seeing is, I think that we've seen some off set in market right now. So if you look at the consumer, for example, we've called it networking stories that this town. So we're not losing market share there, but in the markets that we're focused on like in automotive and healthcare renewables for sure, we're gaining share in those areas.
George Wang: So that is allowing us to offset some softness and consumer, for example, and still be able to grow normally grow our business. So you say we are seeing share gains in those targeted areas. Okay, great. And also, I kind of want to double click on the opportunities out of China, especially, you know, given the reshore in trends and, you know, maybe kind of specifically in Eastern Europe, kind of on the EV production side and also Mexico.
George Wang: You know, we don't like to call out, you know, a few other regions, kind of outside of China, you know, also in particular vertical, like, you know, that could drive incremental growth as just a reshore in trend continues. Yeah, okay. So let me just if this doesn't satisfy your question, just let me know George. So we have a phenomenal capability and a really robust footprint in China. You know, we leverage a lot of capabilities across the company from our footprint there.
George Wang: What we do is see is that we see that we see opportunities in China for China. So, so we think that, you know, whether it's an EVs or multiple different in markets, we think our facilities are full and we're adding more demand and our China facilities. So when we talk about regionalization, you know, what we're not, it's not cannibalizing our footprint in China and we think that the demand is going to increase as they're in the longer term, which is great because.
George Wang: Good teams and the people we have in China are absolutely outstanding. But to answer your other question, yeah, we see, look at reshoring in Europe and North America, it's a big part of what we're doing and what you see growth in our targets, then markets. The good thing about our company and our capability is that we have standard processes. We have a consistent culture of course, nuens in different parts of the world.
George Wang: We have a standard unified ERP system. So what it means is it means our ability to take capabilities and products and move them around the world and build them in different geographies at the same time. I would argue that we're among the best in the world at that. So we see our focus on China to support China market and also for export, but also we see leveraging those capabilities in different parts of the world is something that's going to help us grow in the longer term.
George Wang: So I guess in summary, the regionalization, as we call it, are reshoring as that's a net positive for us. So we're feeling pretty confident with that in the future. Okay. Great. Thank you. Congrats again. I will go back to the queue. You're welcome. Thank you.
Kenny Wilson: Next question is coming from Simeek Chatterjee from JP Morton. Your line is now live. Okay. Thanks for the question, guys. This is Joe Curtis on first Simeek Chatterjee.
Fred McCoy: Just one question from me, but maybe a two-parter. You know, your outlook for industrial and semi-cap income is more muted forecast for your semi-cap business for 24 within that. Can you just buy for Kate between what you're seeing in the front end and back end of the business and how you see those tracking to the year? And then, you know, you talked about prepping or investing into that business for 25. Can you just dive into that a bit and touch on if there's any specific areas you're investing in? Or is that more of a broader climate relative of being prepared for that and market as it recovers?
Fred McCoy: Thank you. Hi, this is Fred. I tried to take that question for you. So, you know, right now we're seeing a lot of uncertainty in our fiscal 24. I think the industry is, you know, looking at kind of the back half of calendar 24 for rebound. So that's how we've modeled the semi-cap business for our FY 24. You know, I think that's both front end and back end. We're seeing, you know, we're seeing those challenges.
Fred McCoy: In terms of the investment, I mean, we, you know, we're well aware of the chips act and then the other investment acts in Europe. And, you know, 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.
Fred McCoy: So we feel really comfortable that, you know, again, you know, 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, you know, in all three regions of the world.
Fred McCoy: Thank you. Appreciate the comment. Thank you.
Operator: We reached out to our question and suggestion. I'd like to turn the floor back over to management for any further closing comments. Thank you. Our call has now ended. If you have any further questions, please reach out. Thanks. Thank you. It 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.