Q4 2024 Jabil Inc Earnings Call and Investor Briefing

Good morning, and welcome to Jabil as fourth quarter.

In fiscal year 'twenty 'twenty four earnings call. It's also our seventh annual virtual investor briefing.

I'm, Adam Berry Senior Vice President of Investor Relations and communications.

As a team here at Jabil, we're excited to share with you a couple updates as it relates to our business.

This includes some organizational updates as well as an outlook for fiscal 2025.

We will begin today's call with a quick introduction setting the stage for what promises to be an informative session.

Greg <unk>: And we'll move on to our 2024 results led by Greg <unk>, Our Chief Financial Officer, and thinking about 2024. It was a challenging year no doubt, but it was also a very important year as we took some strategic strides as an organization while continuing to look after our customers employees and shareholders for starters, we dive.

Speaker Change: Our mobility business for $2 2 billion and returned the majority of those net proceeds to shareholders through a robust buyback program through this divestiture, we not only improved our diversification in terms of geographic footprint, but we also reduced our exposure to our business that required higher levels of capital.

Speaker Change: At the same time the organization persevered in the face of some pretty stiff headwinds. This is evidenced by strong margins roughly in line core earnings per share and strong free cash flows and we did all of this despite $6 billion less in revenue year over year. This suggests to me that jabil is far more resilient today than when.

Speaker Change: Paired to previous downturns, and finally, we reorganized our internal structure to focus on speed precision and solutions. This approach targets our ability to serve each distinct end market effectively by creating domain expertise in core areas and better positions jabil for growth.

Speaker Change: As a result of the organizational realignment, we will transition our financial reporting structure from two segments to three.

Speaker Change: This change better reflects not only how we operate as a business today, but it also positions the organization for growth. The first segment is called regulated industries led by Steve Borges. It is comprised of end markets that simply demand best in class care in manufacturing as the products built in this segment keep us healthy.

Speaker Change: Be safe and moving ahead.

Speaker Change: And a bit you'll hear about our health care automotive and transportation and renewable energy infrastructure markets.

Speaker Change: Next our intelligent infrastructure segment led by Matt Crowley has been designed to support and growth from the cloud to the data center and the networking and communications gear with them as the world further embraces artificial intelligence.

Speaker Change: And then finally, our connected living and digital Commerce segment led by Andy Priestley encompasses both consumer facing products in connected living and retail and warehouse automation and digital commerce.

Again, this enhanced organizational framework will enable greater focus customer care collaboration and growth.

And a bit you'll hear from all three of these business leaders and finally, we will conclude with a business update from our newly appointed Chief Executive Officer, Mike <unk>.

Speaker Change: For Mike you will hear about team targets strategy and why we think jabil is uniquely positioned to benefit from a recovery through our global capacity and network of factories, but before we jump into the details. Please note that today's presentation is being live streamed and during our prepared remarks, we will be referencing slides.

Speaker Change: To view the slides please visit the Investor Relations section of Jabil Dot Com. After today's presentation concludes a complete recording will be available on the website for playback.

Speaker Change: In addition, we will be making forward looking statements. During this presentation, 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 risks and uncertainties.

Speaker Change: That could cause actual outcomes and results to differ materially.

Speaker Change: An extensive list of these risks and uncertainties are identified our annual report on Form 10-K for the fiscal year ended August 31st 2023.

Speaker Change: And other filings with the SEC.

Speaker Change: 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 Change: That we're excited to share our progress and future plans with you now let's dive into the details.

Speaker Change: Thanks, Adam Good morning, everyone. Thanks for taking the time to join our call today I'd like to begin this morning by walking through our fourth quarter results for the team delivered approximately $7 billion in revenue.

Speaker Change: $364 million above the midpoint of the guidance range.

Speaker Change: This was driven by stronger than expected results in our connected devices networking and storage markets.

Speaker Change: Core operating income for the quarter came in at $401 million or five 8% of revenue.

Speaker Change: Solid improvement of 20 basis points compared to last year.

Speaker Change: Net interest expense was better than expected coming in at $65 million.

Speaker Change: Which was due to lower inventory levels and strong working capital management.

Speaker Change: On a GAAP basis.

Speaker Change: Operating income was $318 million and our GAAP diluted earnings per share was $1 18.

Speaker Change: Core diluted earnings per share was $2 30.

Speaker Change: Which is seven cents above the midpoint of our guidance range.

Speaker Change: Now, let's look at the numbers by segment for the quarter, our Dms segment posted revenue of $3 $5 billion, which exceeded expectations by $79 million.

Speaker Change: This was primarily due to stronger growth in our connected devices business, although it was slightly offset by lower than expected revenue in the automotive business.

Speaker Change: Year over year, Dms revenue was down approximately 22%.

Speaker Change: This decrease was mostly due to the mobility divestiture core operating margin for the segment came in at five 4%.

Speaker Change: Slightly lower than expected reflective of the mix and the EMS segment, we saw revenue of $3 $5 billion.

Speaker Change: Which was $285 million higher than anticipated. This was driven by stronger demand in our advanced networking markets as we closed out the year, while <unk> revenue was down roughly 13% year over year, mainly due to the ongoing softness in the end markets like five G.

Renewable energy and digital print, we did see solid year on year growth across our cloud semi cap and warehouse automation markets. This dynamic drove core margins for E. M. S to six 1% in Q4.

Speaker Change: Up an impressive 90 basis points year over year, moving now to our end market performance for the year compared to our thoughts in June connected devices networking and storage came in better than anticipated.

Speaker Change: While auto and transport came in slightly lower.

Speaker Change: All other end markets largely came in as expected shifting gears to cash flow and balance sheet metrics, we continue to see robust results.

Speaker Change: Inventory at the end of Q4 was down five days sequentially, bringing it to 76 days.

Speaker Change: After adjusting for inventory deposits net inventory days were 54, which is a four day improvement quarter over quarter.

Speaker Change: Thanks to disciplined working capital management by the team our fourth quarter cash flows from operations were very strong coming in at $535 million net capital expenditures for the fourth quarter were $116 million and for the full fiscal year came in at $661 million.

Speaker Change: Or two 3% of revenue as a result of the strong fourth quarter performance and cash flow generation.

Speaker Change: Adjusted free cash flow for the fiscal year came in north of $1 billion, we exited the fiscal year with a healthy balance sheet with debt to core EBITDA levels of approximately 1.3 times and cash balances of approximately $2.2 billion with that let's now turn to our capital structure on the next slide we ended FY.

Speaker Change: 24 with capacity under our global credit facilities of $4 billion with this available capacity in our year end cash balances, we had access to more than $6 2 billion of available liquidity, our debt and liquidity profile are both solid and we believe current maturities are appropriately staggered and at attractive interest rates.

Speaker Change: <unk>.

Speaker Change: We also remain fully committed to maintaining our investment grade credit profile.

Speaker Change: Moving now to our capital returns to shareholders on the next slide we have repurchased five 3 million shares, bringing total shares repurchased to $19 4 million shares or $2 $5 billion, which completed our FY 'twenty for share repurchase authorization. This brings our cumulative shares repurchased since FY <unk>.

Speaker Change: 13 to approximately 128 million shares at an average price of approximately $47.

Speaker Change: Bringing our total return to shareholders, including repurchases and dividends to approximately $6 $7 billion.

Speaker Change: Importantly include.

Speaker Change: Included in our earnings release. This morning, we announced that our board of directors authorized a new share repurchase authorization of $1 billion, which we expect to fully execute in FY 'twenty five we remain committed to returning capital to shareholders through a disciplined and balanced capital allocation approach.

Speaker Change: Moving to the next slide.

Speaker Change: The team performed well in FY 'twenty four operating within a highly dynamic environment in summary over the past year, we sold off our mobility business and use the net gains to buyback $2 $5 billion of our shares.

Speaker Change: All while managing temporary challenges and major end markets like renewables electric vehicles, <unk> infrastructure and semi cap however, looking at the broader perspective.

Speaker Change: The company continues to be highly resilient and is well positioned for future revenue growth margin enhancement and delivering robust free cash flow.

Speaker Change: With that let's turn to our next slide for our first quarter guidance, beginning with revenue by segment as Adam highlighted earlier, we're pleased to unveil this new business unit organizational reporting segment structure today.

Speaker Change: We will transition our reporting segments in FY 'twenty five from D. M. S N E M S to.

Speaker Change: The three new reporting segments regulated industries, intelligent infrastructure and connected living and digital Commerce. This change is aligned with our new management structure and with how we drive our long term planning and forecasting.

Speaker Change: For Q1, we anticipate revenue for a regulated industry segment will be $2 $9 billion down 9% year on year reflective of softness in the renewable energy and <unk> markets.

Speaker Change: For our intelligent infrastructure segment.

We expect revenue for the quarter to be $2 $3 billion.

Speaker Change: Down 4% year on year. This is mainly due to us exiting certain legacy networking businesses at the end of Q4, FY 'twenty four and our connected living and digital Commerce segment revenues are expected to be $1 $4 billion. The year over year decline is primarily driven by our mobility divestiture.

Speaker Change: Speaking of mobility I would like to highlight the seasonality of our business in FY 'twenty five we'll reflect the impact of the divestiture as a reminder, our mobility business typically generated a significant portion of its income during Q1. This means going forward, our quarterly income and earnings progression will more closely resemble our historical E. M S.

Speaker Change: Business.

Speaker Change: We're typically 40% of earnings come in the first half of the year and 60% in the second half. So you can expect a more back half weighted year as we go forward moving.

Speaker Change: Moving now to the enterprise guidance.

Speaker Change: Total company revenue for Q1 is expected to be in the range of $6 $3 billion to $6 9 billion.

Speaker Change: Core operating income for Q1 is estimated to be in the range of $304 million to $364 million GAAP operating income is expected to be in the range of $143 million to $223 million core diluted earnings per share is estimated to be in the range of $1 65.

Speaker Change: <unk>.

Speaker Change: To $2.05.

Speaker Change: GAAP diluted earnings per share is expected to be in the range of 26% to 83 cents.

Speaker Change: Net interest expense in the first quarter is estimated to be approximately $65 million and for FY 'twenty five we expect it will be $245 million and.

Our core tax rate for Q1 and for the year is expected to be 21%, reflecting impacts of pillar two global minimum tax legislation and jurisdictional earnings mix. We continue to believe it is prudent to anticipate higher tax rates beyond FY 'twenty, five and the range of 23% to 24.

Speaker Change: <unk>.

Speaker Change: Due to additional expected impacts from global minimum tax legislation moving to the next slide for FY 'twenty five guidance for.

Speaker Change: For the coming year, we expect approximately $27 billion in revenue with core margins in the range of five 4%.

Speaker Change: Core earnings per share is expected to be $8 65.

Speaker Change: Please keep in mind in FY 'twenty, four we divested our mobility business partway through the fiscal year. While we also made the strategic decision to reshape our portfolio away from products and the legacy networking space when adjusting for these changes which accounted for $2 $4 billion in revenue in FY 'twenty four.

Speaker Change: We believe our organic growth in FY 'twenty five will be two 3% on a base of $26 $4 billion. We are forecasting another robust year for free cash flow generation in FY 'twenty five around $1.2 billion. Additionally.

Speaker Change: Additionally, due to the mobility divestiture.

Speaker Change: We anticipate lower capital expenditures in the coming year for FY 'twenty five we expect capex to be between one 5% to 2% of revenue.

Speaker Change: Most notably as in past years, we plan to return, 80% of free cash flow to shareholders through dividends and our newly announced $1 billion buyback authorization.

Speaker Change: With that I'd like to thank you for your time this morning and for your interest in Jabil.

[music] technology is in constant motion.

Speaker Change: Every day, new breakthroughs redefine possibility.

Speaker Change: And cable we embrace change.

Speaker Change: World evolves, so too weak.

Speaker Change: I went down to a single industry or technology.

Speaker Change: From pioneering innovation in health care to advancing artificial intelligence automotive technologies and warehouse automation and we are committed to driving progress across diverse industry.

Speaker Change: Our strength lies in our ability to adapt and evolve meeting the needs of our ever changing world and with each new journey, we bring unparalleled capabilities and expertise to empower our customers change is inevitable the possibilities are endless.

Speaker Change: For leading product brands Jabil is a safe pair of hands and navigating the future of technology.

Jabal <unk> possible made better.

Speaker Change: <unk>.

Speaker Change: Hi, everyone I'm excited to share some details on our regulated industry segment.

Speaker Change: Each of the end markets in this segment plays a critical role in addressing some of the most pressing challenges and opportunities in the world, Let's first start with health care. Many of the macro trends we've been discussing for the last several calls remain unchanged.

Speaker Change: Connected care is creating new markets by enabling remote monitoring and telehealth solutions.

Personalized medicine continues to drive improved patient outcomes, particularly in the management of chronic diseases by tailoring treatments to individual patients health care providers can achieve better results and enhance the quality of life for millions of people.

Speaker Change: In addition, the introduction of weight loss drugs or G. L. P. One drugs are all becoming increasingly important today's health care landscape.

Speaker Change: New care settings are also emerging creating opportunities for innovation.

Speaker Change: Healthcare delivery evolves, we see a shift towards more decentralized and patient centric models.

Speaker Change: This opens new avenues for developing advanced medical devices and technologies that can be used in a variety of settings from hospitals to the whole.

Speaker Change: As a result, we continue with a strong pipeline of design engagements to enable connected devices and whole health care products for our customers.

Speaker Change: Meanwhile, the tailwind of growth in auto injectors medical devices and diagnostics continues most especially with the advent of many new biologics and individualized testing platforms.

Speaker Change: Other significant trend is the need to simplify the supply chain the complexities of the health care supply chain had been highlighting in recent years, most especially during the rise of Covid. There is a growing demand for a streamlined and efficient solutions. This need for simplification is leading to expanded outsourcing as health care device companies seek partners who can provide.

Speaker Change: Comprehensive supply chain management engineering design and manufacturing expertise, coupled with the quality requirements. Our customers demand. We are the largest manufacturing solutions provider for the health care industry with great diversification covering diagnostics medical devices orthopedics and pharmaceutical.

Speaker Change: Delivery systems, staying the largest will require us to expand our capabilities and accelerate growth by entering areas of the market with macro tailwind.

Speaker Change: Which will provide an enormous amount of jabil Tam expansion, while focusing on specific geographies like Croatia, and the Dominican Republic to fuel that growth.

Speaker Change: The expanded capabilities and geographies will enable us to further simplify the supply chain for our customers.

Speaker Change: Internally the most powerful aspect of what we produce is that every single day millions of patients around the world are using our product manufactured by GE.

Speaker Change: Now turning to our automotive and transportation end market.

Speaker Change: Our expertise in product industrialization and manufacturing continues to enable innovation and powertrain electrification autonomous driving and connected vehicle technologies.

Speaker Change: The automotive and transportation industries undergo a transformative shift towards the mass adoption of electric vehicles and advanced driver assistance systems to meet global regulations safety requirements as well as the associated shift to centralized architectures jabil is playing a pivotal role in shaping the future of transportation.

Speaker Change: We have seen some short term volatility in demand due to regional changes in EV tariffs and incentives.

Speaker Change: Which has been experienced across the entire automotive industry the.

Speaker Change: The Jabil team has managed this well supporting our customers as they manage their business through this unprecedented market evolution.

Speaker Change: Jabil remains partnering with global market, leading automotive Oems across the most important technology platforms of the foreseeable future advanced driver assistance and autonomous driving systems connectivity electrification is software defined vehicles.

Speaker Change: Three of these platforms are agnostic to vehicle tight providing us with an opportunity to support our customers. However, they choose.

Speaker Change: Each year, we continue to add new automotive OEM customers and technology leaders, providing further diversification across our customer portfolio.

Speaker Change: Dispositions jabil extremely well as the automotive industry works towards meeting future governmental vehicle emission targets.

Speaker Change: Side of our automotive customers, we remain engaged with strategic Oems and suppliers focused on advancing precision agriculture.

Speaker Change: We leverage experience gained from serving automotive customers as well as capability expertise from across Jabil, such as optics and fluidics to help our customers bring the most innovative new farming technologies to the market as the automotive and transportation market recovers jabil is well positioned to capitalize on growth with expanded strategic capabilities.

Speaker Change: <unk>, our new facility in Croatia, which will support the growth of our European automotive business.

Speaker Change: We are focused on technology collaborations and investments in capabilities that best serve our long term OEM customers and expand <unk> role within the value chain.

Speaker Change: We are committed to delivering cutting edge solutions that enhanced vehicle performance sustainability safety and connectivity.

Speaker Change: <unk> was recognized in the market for ability to industrialize complex technology designs develop robust supply chain and create automotive grade automation strategies for the next generation technologies entering the market today.

Speaker Change: We deliver these highly complex products with speed and quality, while meeting functional safety requirements.

Speaker Change: Now transitioning to our renewables and energy infrastructure end market.

Speaker Change: Global electricity demand is expected to grow at approximately 60% through 2040 and renewable energy is at the center of achieving global climate goals.

Speaker Change: At Jabil, we are leveraging our expertise in manufacturing and supply chain management to support the adoption of renewable energy technologies.

Speaker Change: In addition, with our U S footprint and the inflation reduction Act, we are well positioned to help our customers transition products globally into the U S, which may allow our customers to take advantage of tax incentives. Our work spans a wide range of applications from Inverters and Optimizes to wind turbines energy storage systems Smart grid Tech.

Speaker Change: Allergies.

Speaker Change: Our success in energy storage manufacturing has positioned us to now extend into the automated assembly are critical elements of grid level storage systems, such as battery modules.

Speaker Change: This capability is expected to be leveraged by customers engaged and residential storage as the attach rate could be systems rise due to policy changes complementing the growth in renewable energy, we continue to add new customers that focus on energy management and building controls.

Speaker Change: Overall, the design manufacturing and supply chain needs of renewable energy companies are becoming more complex, which increases their need to work with companies like Jeep.

Speaker Change: Customers. Appreciate the fact, we are committed to delivering high quality reliable solutions that meet the growing demand for clean energy.

Speaker Change: Our modular and scalable designs allow for flexible deployment optimizing resource use and reducing costs.

Speaker Change: I will now pass it along to Matt.

Speaker Change: Yes.

Thanks, Steve and good morning, everyone today I'm excited to share some insights into our work in the intelligent infrastructure segment and discuss the evolution of cloud technology cycles, including the transformative impact of artificial intelligence.

Matt Crowley: Our segment is dedicated to developing and delivering cutting edge solutions that support the backbone of a modern digital ecosystem.

Matt Crowley: This includes everything from cloud and datacenter infrastructure to telecommunications networking and capital equipment.

Each of these end markets plays a crucial role in shaping the future of how we connect compute and communicate.

Speaker Change: The evolution of digital technology is late a robust foundation for today's advancements.

Speaker Change: With e-commerce in the nineties moving through web two <unk> in the early two thousands and advancing with cloud computing mobile apps and big data in the early 2010. Each base has been pivotal now we're on the cusp of a new era, thanks to artificial intelligence and machine learning these emerging technologies promise to reshape everything in our lives from salt.

Speaker Change: A major health conditions to seamless autonomous transportation, emphasizing the critical role of cloud infrastructure as an enabler to these innovations AI as the next cloud technology cycle revolutionizing the way, we process and analyze data, enabling more intelligent automated decision making.

Jabil: At Jabil, we are at the center of this evolution, providing our customers with advanced manufacturing solutions, they need to stay competitive in a rapidly changing landscape. Our expertise in this segment allows us to support the development and deployment next generation technologies to the market.

Jabil: The journey to fully harness AI comes with its own set of challenges to spur innovation and investment.

Jabil: All the compute architectures are inefficient for new models, necessitating the development of massive parallel architecture that drive huge data transfer needs. Additionally.

Jabil: Additionally, AI requires immense amounts of energy is processing power demands continue to exceed the capabilities of conventional cooling methods theres, an increasing need for advanced liquid cooling solutions.

Jabil: While liquid cooling has been around for many years. It has traditionally been a way to deliver efficiency with the explosion of AI in the high power Gpus required to fuel it liquid cooling is now a requirement to deliver capacity and will soon be the standard for how datacenters address cooler.

Jabil: Pace of innovation associated with today's GPU silicon, it's twice as fast as legacy Silicon architectures.

Jabil: This creates new challenges when launching products from development into production.

Speaker Change: And our intelligent infrastructure segment Jabil has built engineering and architecture capabilities that allow us to enable this transition of hardware from development to production at scale, while also enabling us to keep pace with the accelerated development cycles, we see be driven in the market. Today. Additionally, as GPU speeds increase so does the need for high bandwidth interconnect.

Speaker Change: Driving the need for cost and power efficient photonic interconnect across all of these technologies. We are actively investing in capabilities that offer our customers differentiated value for solutions that meet these emerging requirements. One specific example of differentiated capability is our recently announced investment in Jabil is advanced packaging <unk> and process development.

Speaker Change: <unk> for Photonics. This technology will become more important over time as power continues to become more scarce and the need for higher speed and lower latency inside systems becomes more important our investments in this space physicians jabil to be at the center of one of our next innovation cycles as the industry moves to co packaged optics on chip solutions.

Speaker Change: In addition to our focus on creating these key capabilities. We're also expanding our footprint in strategic geographies as we scale our support of AI data center build outs.

Speaker Change: Our facility in Pune, India as a key manufacturing site for our AI customers and has executed exceptionally well.

Speaker Change: While our demand for manufacturing in India has been driven by AI related hardware requirements Jabil has customers across all three of our segments asking us to leverage the region because of this we have recently announced our intention to further expand our footprint in the country. The unique capabilities. We have built throughout this technology value chain are core to our strategy that is both.

Joe: Joe and resilient, giving jabil the ability to support massive scale from secular tailwind like AI, while being ready for whatever comes next in the market ultimately jabil as a key player within the technology ecosystem ready to help customers overcome today's challenges and prepare for tomorrow, we're leveraging our expertise to support the increasing demand for advanced <unk>.

Joe: Assessors high speed Photonics sophisticated hardware solutions, our solutions are designed to be scalable secure and adaptable, helping our customers to stay ahead.

Speaker Change: I'll now pass it along to A&D to speak about the connected living and digital Commerce segment.

A&D: Thanks, Matt and Hello, everyone, Hi League tables connected living and digital Commerce segment today I'd like to take a few minutes until our work in digital commerce and more specifically warehouse automation. Let me think about the definition of commerce is the exchange of goods and services, especially on a large scale commercially.

A&D: If possible by production and fulfillment and a table, where a critical enabler within that ecosystem Jabil is the largest manufacturing solutions provider for digital commerce and warehouse automation customers, our expertise and scale allow us to support the largest players in the industry as they navigate the complexities of Digitization and automation.

A&D: In this market our focus on Digitization and the aisles electronic shelf labels and other connective technologies are becoming part of a unified commerce strategy.

A&D: These innovations are transforming the shopping experience, making it more seamless and efficient for the consumer and our living a higher standard of compliance for the retailer.

Jabil: Most shoppers are now using contactless payments Jabil is a leading provider of point of sale and self checkout solutions, having over 15 years of experience building and designing these products.

Speaker Change: Shift in technology, not only enhances convenience, but also aligns with the growing demand for safer touch pretty interactions. Additionally research shows that most consumers today are likely to choose a business that offers grab and go services over our more traditional business model highlighting the importance of speed and convenience and a modern retail landscape.

Speaker Change: Another element of the digital commerce system that may not be as immediately visible or apparel, it's what happens behind the scenes and warehouses and distribution centers around the world billions of dollars of goods a move to these warehouses and fulfillment centers every day and warehouse automation has seen significant growth.

The integration of Digitization automation and robotics in these environments is revolutionizing the way, we manage inventory and fulfill orders E. Commerce has more than doubled since 2019 to over $1. Two trillion dollars to date. This would not have been possible without higher and higher levels of automation being deployed in these fulfillment centers.

Speaker Change: Globally Jabil is working both directly and indirectly with many of the world's largest brands on autonomous mobile robots automated sorting systems and automated guided vehicles.

Speaker Change: At Jabil, we're constantly looking for ways to help solve some of the macroeconomic issues facing industry State for example, the availability and cost of labor to name, but one cable builds over 1000 warehouse robo someone empowers another food those in a month with sub assemblies that we also make as we look to the future we have several exciting projects.

That look to solve these labor issues with even more creative humanoid robotic solutions.

Speaker Change: I have already discussed Digitization automation and robotics can play a role in a wide range of setting all of which are designed to increase safety improved day to day operational efficiency and deliver a superior customer experience from automated picking and packing to real time inventory management. These technologies are driving significantly.

Speaker Change: Movements in productivity cost accuracy and compliance.

Speaker Change: We're committed to helping our customers stay ahead of this curve by providing innovative solutions that address the unique challenges. For example, we have used our expertise in three D printing to create solutions that allow our customers to solve technical issues and provide superior products to the markets. They serve we're constantly looking for ways to continue to help our customers.

Speaker Change: Hum.

Mr: Some more efficient and meet the needs of their own customers. Our goal is to enable a more connected efficiently and customer centric approach to commerce and logistics, we look forward to continuing to drive innovation and deliver value to our customers in these exciting and rapidly evolving field now I'd like to pass it off to make Mr for closing.

Mr: Thanks, Andy and thank you everyone for joining us today.

Mr: For the last three months I've had the opportunity to travel to a number of our sites and spend a lot of time on the shop floor without teams let.

Mr: Let me address the question that understand and he came up a number of times in my travels and which I believe many of you on the call have as well.

Mr: <unk>, Mike are you going to change the strategy what are you going to do differently.

Well, our enterprise level strategy is sound and while I have made some changes to focus the organization more on profitable growth, while also reducing risk largely maintained the same direction that has allowed us to be so successful for the past few years.

Mr: Our diversified approach across multiple end markets with secular trends continues to provide a solid foundation it disappear.

This approach was pressure tested in FY 'twenty four as we faced multiple headwinds across several end markets and still deliver strong margins and free cash flow.

Mr: The company is much more resilient than in years past.

Speaker Change: During my first few months as CEO I've spent considerable time, ensuring we have the right people, leading our preexisting businesses.

Speaker Change: Each of these businesses has a different growth expectation lead time margin and balance sheet profile outsourcing maturity levels and product life cycle times.

Speaker Change: It was imperative to ensure our teams remained focused in their respective areas of domain expertise base.

Speaker Change: Based on what I've seen in the last three months, our clean like we've gotten that far right.

Speaker Change: We have three business leaders in Steve Madden Andi add the tenure and experience in Jabil.

Speaker Change: <unk> pedigree deep domain expertise and knowhow throughout our global manufacturing business at scale. I also believe we have the right team running our factories led by Fred Mccoy another nearly 25 years of Jabil employee Fred's.

Speaker Change: <unk> unique combination of commercial experience in manufacturing operations will allow us to be more agile and more efficient as the complexities of manufacturing continuing to grow.

And finally, our supply chain organization is an exceptional hands with Frac Mackay Fran.

Frank has developed a highly experienced long tenured team with extremely strong relationships in the supply chain over the last 25 years rich.

Rich: Rich along with investments in advanced supply chain systems gives me full confidence that Jabil continues to be best in class in the industry.

Rich: This well rounded enterprise leadership team is already delivering results securing new business across each of our distinct segments.

Rich: And regulated industries G will continues to partner with global market, leading automotive Oems offsetting EDI demand softness with new wins.

Rich: <unk> tariffs dictate to localize manufacturing vehicles.

Rich: In healthcare, we will soon be expanding on G. L. P. One drug delivery business in Europe, two new wins with existing customers.

We've taken our manufacturing and automation and industrialization capabilities designed in the U S market and replicated those efforts in Europe, which we believe will result in solid multiyear growth.

Rich: Also recently won new programs and the diabetes Wearables area.

Rich: As mentioned earlier the lead times on new wins in the healthcare space due to medical and validation requirements means these wins only show up in FY 'twenty six in FY 'twenty seven.

Speaker Change: In intelligent infrastructure team is squarely situated at the center of the data center infrastructure backbone.

Lead with design and engineering to build the hardware and infrastructure that will enable artificial intelligence.

Speaker Change: <unk> is also well positioned to participate in the recovery of the capital equipment end market joining of fiscal 'twenty five.

Speaker Change: Year on year, we expect the intelligent infrastructure segment to be up by $1 billion. After adjusting for the exit of legacy networking businesses, Greg mentioned earlier.

Speaker Change: And connected lifestyle and digital commerce, our team is driving innovative solutions to address our customers' desire to automate their warehouse and retail environments as nemo becomes increasingly difficult to define.

Greg <unk>: As we move through FY 'twenty five our digital commerce business will grow as we have won new programs with both new and existing customers in that space.

So while early days, the robot and humanoid and market seems to be evolving rapidly.

Greg <unk>: And <unk> is currently participating in that.

At Jabil, we boost us leveraging our vast engineering capabilities global footprint and long term partnerships.

Speaker Change: Technologies constantly evolve, but GMO will continue just keep to the buck by investing in engineering led tuck in capabilities, which will allow jabil to be technology agnostic.

Speaker Change: For instance, in the automotive sector Jabil has built engineering capabilities that are equipped to support both hybrid and EV platforms, depending on which one commands.

Speaker Change: In the data center infrastructure space, Jabil has boomed engineering and architecture, keeping <unk> that allow us to keep pace with the accelerated development cycles and transition from older compute architecture to GP led system level design and hardware production at scale.

Speaker Change: This along with our investments in <unk> and power management engineering capabilities means we're in a good position to offer our customers differentiated value for solutions that meet the ever evolving requirements in this space.

Speaker Change: Similarly in the digital Commerce space Jabil as advanced automation engineering investments uniquely position us to provide automation solutions customers fields.

Speaker Change: <unk> retail warehouses and robots.

Speaker Change: Transitioning to our financial priorities and unique approach to the market. It's important to highlight that both will remain consistent.

Speaker Change: Six years ago, we deliberately to refocus our organization with the intention of achieving core operating margin expansion consistent earnings growth and robust predictable cash flows.

To this end, we aligned our management compensation metrics to better match investor expectations.

Speaker Change: None of this changes and importantly, our capital allocation framework continues to be aimed at creating long term value for shareholders.

Speaker Change: When it comes to our approach with customers, we utilized customer centric work cells that are focused on supporting a single customer.

Speaker Change: This approach is highly effective and sets us apart from competitors.

Speaker Change: Listen the customers' manufacturing location worldwide, a dedicated team supports them across the three regions in Asia, the Americas and Europe.

Each works out provides tailored solutions in three key areas of expertise.

Speaker Change: Advanced Engineering led engagements AI ml supported manufacturing solutions and robust supply chain systems currently around 70% of our engagements are led by engineering initiatives.

Speaker Change: The complexities of modern supply chains, and geopolitical challenges along with the need for advanced software solutions and manufacturing closer to the end market have significantly enhance <unk> value proposition.

Speaker Change: This increased engagement means enhanced stickiness and margin improvement compared to even five or six years ago.

Speaker Change: And when you look a level deeper within each of our segments, you'll find an exception and diverse array of customers, including some of the world's biggest most innovative and successful brands.

Speaker Change: This is by no means a complete list of the customers we serve today, but it's certainly impressive by any standard, especially when considering many of our customers rely on jabil as the sole source for their products.

Speaker Change: Now, let's discuss our global footprint, which we believe is a significant competitive advantage.

Speaker Change: To be abundantly clear, we placed considerable value on maintaining a large scale global manufacturing footprint.

Speaker Change: However, as the geopolitical situation continues to evolve our ability to adapt combined with our designation as a U S. Domiciled in manufacturing service provider is becoming increasingly important as we help our customers navigate this complexity.

Speaker Change: Following the divestiture of our mobility business, our footprint has become largely balanced with nearly one third of our factories located in each of the Americas Europe and Asia.

Speaker Change: Over time, we believe there will be further demand for manufacturing and design closer to the end customer.

Speaker Change: And for that reason, we will work with our customers that seek to EMEA our ratio of their manufacturing whether it would be a bifurcated approach of simply lift and shift.

As this dynamic plays out I believe our factories in both Europe, and the Americas will see considerable growth.

Speaker Change: Today, we have approximately 40 sites in North America, approximately 30, a legend in the U S ready to take advantage of any near or re shoring to North America.

Speaker Change: That said I loved to our supply chain is still very much embedded in Asia and some of our most efficient factories are located there.

Speaker Change: As we sit today, we currently have capacity in place to support in excess of $30 billion of revenue.

Speaker Change: Over the near term in FY 'twenty, five we expect to carry higher than normal levels of access capacity.

Speaker Change: We're doing this because we firmly believe many of the end markets, we serve will recover.

Speaker Change: Underutilized capacity Blu ray on core operating margins in FY 'twenty five by 2030 basis points, even up to the mainly head count related restructuring charges, we disclosed this morning.

Speaker Change: Over the longer term my team and I strongly believe we are well positioned to capitalize on significant global trends in sectors, such as AI data center infrastructure health care pharmaceutical solutions, and whereas automation as Steve Madden Andy highlighted.

Speaker Change: As a result regulated industries and grow 5% to 8% with long lead times, while intelligent infrastructure will grow more quickly at 7% to 10%.

Over the next several years, we believe connected living and digital commerce will grow low to mid single digits, driven mainly by double digit growth in digital commerce and warehouse automation.

Speaker Change: Putting this altogether, we believe our long term enterprise growth rate should be in the range of 5% to 7%.

Speaker Change: Given the anticipated mix of business, we expect gross margins to be in the range of 90% to 10%.

When combined with operational efficiencies, a 6% margin target remains intact over the longer term.

And when you consider our strong free cash flow generation and consistent returns to shareholders core EPS should grow between 12% to 15% over the longer term.

Speaker Change: All of which should continue to drive consistent iron ore I see north of 30%.

Speaker Change: In closing one thing is for sure. It is our people who make a strong our people are resilient. So I just wanted to take a moment to say thank you to all our employees for their unwavering commitment and dedication not just to our customers, but also to our communities and to each other.

Speaker Change: Together, we will write the next chapter of the <unk> story.

Thank you for your interest in Jabil I will now turn the call back over to Adam.

Adam Berry: Thanks, Mike.

Adam Berry: As we wrap up our prepared comments today and we move to the Q&A portion of our call I want to leave you with one final thought for me.

Speaker Change: At Jabil, we build stuff and we do it really really well.

Speaker Change: And as we sit today I believe we're focused on the right end markets with the right capabilities and we have a global yet agile manufacturing footprint.

Speaker Change: And from an enterprise level, you can expect our focus to remain on margins cash flows core EPS growth and shareholder return.

Speaker Change: Thank you for your time today, operator, we're now ready for Q&A.

Speaker Change: 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 he'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before.

Speaker Change: Pressing star one one moment, please while we poll for questions.

Speaker Change: Our first question is coming from Brooklyn, Victoria from Bank of America. Your line is now live.

Speaker Change: Hi, and thank you for taking my questions and congrats to Steve Madden N D on your respective assignments.

Speaker Change: For my first question I'd like to ask related to the cloud and data Center infrastructure segment your guidance for fiscal 'twenty five so yes, 11% year on year growth.

Speaker Change: Are you seeing any slowdown I mean, what is the impact from consignment in fiscal 'twenty five and is low double digit the right way of thinking about revenue growth in this segment and if you can talk about what your plan is to expand revenues in this segment beyond your existing customers.

Speaker Change: Eric It's Mike So I'll start off and then I'll hand, it over to Matt to provide some more details, but before I start I just want to thank the whole team here.

Does it hurricane blowing outside but they're all I'll cut down in the office to do this call. So thanks to the team.

Matt Crowley: That's still intelligent infrastructure, you're absolutely right year on year was seeing I think I think the growth rate is about 12% if you back out the legacy network.

Matt Crowley: Customer that we disengaged with we talked about on the last call I talked I talked about it again on this call. So I think it's a 12% growth rate year on year now I'd like to remind you. The intelligent infrastructure also has five G in it.

Matt Crowley: And it and it has a cyclical semi cap business as well and obviously in the in the up is the semi cap business will do well in the down is it will it will not so overall if you look at the year on year increase extremely valid over the long term, 7% to 10% still.

Speaker Change: Extreme extremely strong given the other parts of the business that are in this are in this segment as well so I'll hand, the call over I think going from a consignment by the way the impact is very small and I think the business that I'm almost excited about in that match most excited about it.

Speaker Change: The whole data center infrastructure or a business that will continue to grow and I expect that to grow.

Speaker Change: In double digits as well.

Speaker Change: Matt if you wanted to stake.

Matt Crowley: The rest of the question.

Matt Crowley: Yeah. Thanks, Mike I appreciate the question, where I flew out let me kind of focus on the back half of your question around our plans to expand the segment beyond our existing customers. So we are hyper focused on executing the strategy that we've put in place over the past 18 months and a good proof point of that is our silicon photonics business. If you think back to <unk>.

Last November we announced the transaction that brought in capability and capacity and inside of the first 12 months, we've already seen that pay off and that we have now landed business with two new Hyperscale accounts, which were currently shipping product into so we're hyper focused on executing there we believe that our roadmap moving.

Matt Crowley: Forward on the qualification of 800 gig parts as well as $1 60 coming in calendar year 'twenty five.

Allow us to continue to expand our customer base. There. We're also super focused on executing our power and cooling business in the data center, where currently beginning to ramp up.

Matt Crowley: Our ability to help customers retrofit datacenters, which today are our air cooled needed to be retrofitted to go from air to liquid and soon will be liquid to liquid. So we really feel like the capabilities. We've built over the past 18 months in these spaces is going to allow us to continue to expand the customer base and we've already.

Matt Crowley: <unk> seen some really nice proof points of that to date.

Matt Crowley: Okay, Okay, thanks for that Matt and Mike for.

Speaker Change: For my follow up Alaska question on Health care again looking at the growth rate for next year, 2% year on year seems a little low it is the market itself growing low single digits right now and can you talk about what you're seeing in terms of the various end markets within health care.

Speaker Change: I think you talked about DLP, one can you talk a little bit about that what does that add in terms of revenue margins and is there a likelihood of another J&J. They put deal going forward. So just any details on the growth rate than what youre seeing in the market.

Speaker Change: Hi, Ricky this is this is Steve let me take that question.

Steve Madden: Overall health care market is growing about 3% to 4%.

Steve Madden: We've been challenged this year I think Mike mentioned this on prior earnings call with the <unk> one drugs the impact of our medical device segment really due to the reduction of the gastric bypass surgeries.

Speaker Change: But when I look at the business going forward and I'll link to your question on GOP ones as well, but no our health care business continues to be incredibly well positioned.

Speaker Change: The growth of G O P. One drugs and some of the new wins that we've been able to obtain really associated with the injectors that we manufacturer and then you take a look at just the challenge across the world as it relates to diabetes care.

Speaker Change: We had some nice new ways with Cgm's minimally invasive device growth and the need for auto injectors generally speaking because biologics are becoming dominant and with the complexities of the diseases and so we've won some exciting new programs I think in Mike's opening remarks, you mentioned fiscal year 'twenty six 'twenty seven.

This is in our pharmaceutical business than our med device segment and we like to say these programs are incredibly sticky they last for many many years of steady production and we have great visibility.

Speaker Change: With our customers and what's also exciting is these are launching in some of our new factories, both in the Dominican Republic and Croatia.

Speaker Change: As a reminder, and again, Mike mentioned this but the complexity of health care. It was really tied to the validation requirements and then you have the complexity of lead time for automation. So no new wins typically launch and cycles that are two to three years.

Speaker Change: Before you kind of reach that steady state production, but love, where we're positioned and our health care business. The second part of your question, Let me take that which is the J&J question you know there's <unk>.

Speaker Change: Certainly we remain positive we have seen a strong pipeline that we're positioned on currently and it's at all different levels of discussions and that's a really solid side.

Speaker Change: Our healthcare Oems, they still view divestitures as a potential strategy for moving outsourcing faster. So we will see how those transpire over the year, but the pipeline is.

Speaker Change: It really strong.

Mike: Okay. Thanks for that Steve Mike If I can squeeze another quick one in just looking at your global footprint I mean, what is the current utilization and you talked about an impact of 20 to 30 basis points is there do you think that there's a need for any restructuring of the footprint and which end markets do you see investing in over the <unk>.

Speaker Change: <unk>. Thank you thanks for all the detail.

So in my prepared remarks, I talked about how after the mobility divestiture.

Speaker Change: Footprint is really well balanced it's one third in the Americas, one third in Europe, one in Asia.

Currently our capacity is set up for a 30 billion plus dollar revenue run.

Run rate, we've got our new facilities in Croatia coming up we've got new facilities in Dominican Republic coming up so there's a whole bunch of a whole.

Whole bunch of.

Speaker Change: Sort of capacity that was put into place always put in place to come up in 'twenty five, but so the utilization that we have today.

Speaker Change: Normally we run around 80% to 85% utilization today.

Speaker Change: It's closer to the 70% level and that creates obviously a surplus capacity issue one of the things we're not doing and then again I mentioned that in my prepared remarks. One thing. We are definitely not doing is go ahead and restructure or reduce the number of sites. Because we believe this is a very strong belief.

Speaker Change: Is that the end markets that we're in will come back we feel <unk> will come back we know health care will be steady Eddie the growth that we're seeing in semi cap the growth that we're seeing in.

Speaker Change: In the cloud data center infrastructure are a part of the business.

Speaker Change: Well positioned for that and when that business comes back by the way there will be a decent level of leverage they're 2030 basis points that I talked about that is that is a headwind right now so we're not restructuring capacity.

Speaker Change: Thank God, we did disclose this broadening that this sort of restructuring some of the SG&A.

Yes, the the head count piece.

Speaker Change: If you think of the three or $4 billion gap that we've had in our revenue 3% of that is around 100 million in SG&A. So we're trying to address some of that AR at the end of the day, we're marching to 6%.

Speaker Change: You can get out of it.

Speaker Change: If we can get our gross margins and then 9495 range and get our SG&A down to that same 3435.

Speaker Change: You have a 6% margin, it's just pure math. So that's that's what we're trying to do here, but we strongly believe that the businesses that we're in they will come back. So I don't know no restructuring of capacity at this stage.

Speaker Change: Great. Thank you so much.

Speaker Change: The next question today is coming from George Wang from Barclays. Your line is now live.

George Wang: Hey, guys. Thanks for taking my question I, just first of all I just want to ask about capital equipment.

George Wang: Obviously, it's a cyclical as you guys mentioned, but almost.

Speaker Change: Almost 30% growth stood out to me just curious if you can just talk about the driver behind that is this a new waiting so I'll just say easy compare just kind of curious about just strong double digit growth for the semi cap for this year.

Matt Crowley: Matt do you want to take that yeah, Yeah, I'll take that one hey, George Thanks for the question Yeah, we're definitely seeing some mix shift occurring in the business and our automated test equipment space because I think there is a pretty clear attach rate there to some of the GPU silicon required to drive AI, So where customers are.

To get more capacity and more yield out the door for customers. We've seen an increase around demand for the <unk> business I think that's the primary driver. We're also seeing a bit of a recovery coming a little bit sooner than we expected on the W. F E side. So overall I think that that D. A.

Matt Crowley: T E business and the attach rate to AI is a big part of that that increase.

Speaker Change: Okay, Great and just a quick follow up can you tell us will expand and talk about kind of module for the AI business margin seems to be the focal point for investors are kind of as you guys are high grade our portfolio fast growing AI cloud business with higher margin.

Just how you think about you know I also kind of liquid cooling kind of Osaka and silicon photonics potentially.

Speaker Change: I remind you end up quickly.

Speaker Change: Just curious you know things you guys said, we segmented it.

Speaker Change: For April we can still are reconciled to this 6 billion AI revenue shortfall a couple quarters ago.

Speaker Change: Besides just called in D. C. I, maybe there is some in the AI networking. So just curious whether that is still a valid number we should look at kind of you know from grow by 1 billion to 6 billion. This year or should we just stick to a new study disclose the segmentation awful fivefold, what Dan for the cloud Dci for.

Sure. Thanks.

Speaker Change: Yeah, no. Thanks, I look I think in general and easy way to think about margins is that we expect margins to be in line to slightly accretive to the enterprise targets that we've laid out.

Speaker Change: We're currently obviously undergoing a number of ramps and the way to think about the 6 billion is that it's spread across cloud Dci capital equipment and networking. So as I just kind of illustrated the a T E business hasnt attach rate there to AI.

Speaker Change: Our networking business, where we're helping customers transition from air cooled the liquid cooled switches has a clear attach rate as well as obviously, what we're doing in the data center for power and cooling and so I think the easy way to think about the the 1 billion of incremental growth year on year is roughly half of it is being driven by our cloud datacenter.

Speaker Change: Yes.

Speaker Change: And then the other half is split relatively evenly between photonics and capital equipment.

Okay, great. Thank you.

Thank you as a reminder, that star one to be placed into the question queue.

Speaker Change: Our next question is coming from Steven Fox with Fox Advisors. Your line is now live.

Steven Fox: Hi, good morning, and thanks for doing this call in the middle of a hurricane.

Steven Fox: I guess just on the automotive and transport segment the numbers in the quarter or at least the revenues were a little less than expected again the guidance for the full year. This fiscal year is down.

Speaker Change: So in the near term I'm wondering how much negative leverage at that auto business is creating for us since I assume it's still high margin and then maybe more important like if I think about this business longer term I know it makes sense to think of a further EV growth in the future, but there are a lot of dynamics out there that make you wonder about weather.

The company is positioned in auto if you could address whether these are good or bad for the for cable longer term, mainly you know, we're seeing lower cost vehicles out of China, We're seeing Oems global Oems, having trouble competing in Asia.

Speaker Change: And youre seeing terrorist rise up all over the world.

Speaker Change: Among other items. It just seems like the auto industry is going to go through some major changes and I guess I'm wondering if cable is positioned well for that and then I had a follow up.

Speaker Change: Thanks, Steve This is a this is Steve.

Speaker Change: We kind of hit this kind of a broad level and then we can if you need to dial in further let me know but.

I think as I said in the opening remarks, it is going through kind of a transition phase of transformation phase in the auto market and.

Speaker Change: Has been hampered by higher interest rates and the government incentives in many cases have been reduced and then you have as you mentioned the overall tariff situations. So it's been pretty dynamic.

Speaker Change: And we've seen some push outs of programs that.

Speaker Change: We had we had thought about for this fiscal year, but when you take a look at the general consumer challenges as well with the charging infrastructure concerns and battery range, you kind of sit back and you suggest there's some challenges ahead and what I'll say, though is despite the challenges I.

Speaker Change: I actually remained pretty excited about EV market because the growth.

Speaker Change: You look at different forms of predictions, but still expected to be in the 25% to 30% range through 2030, albeit that's down from 48%, but that's still really strong growth and so I would say that between the growth rates and our ability to grow new relationships. We during this softness we've added some some new OEM.

Speaker Change: <unk> shifts we have a strong pipeline of opportunities and I'd also say the team has done a really nice job during the softness where they've added other products that are agnostic to vehicle type and that really shows the strength of our OEM relationships to try to use some of that capacity that we have in place to support their programs and then I'll just close with.

Speaker Change: In addition, we actually launched on time.

Speaker Change: <unk> relationship in Croatia, and so we're excited about that business as well.

Speaker Change: Yeah, that's C that covered pretty much everything except for the short term I'm just maybe just now dial it back and talk about like the negative leverage this year as the auto and transportation maybe are down a little bit.

Speaker Change: Let me answer that question save a I think there's definitely some level of negative leverage there are as you're aware Oh, Croatia, a factory that was put up that's coming online that can either fund all or in October was mainly in automotive body.

Speaker Change: Factory, Yes. Some of that has got pushed out we're actually converting that Quaker factory, mainly to a G. L. P. One.

Sort of a health care facts. He just shows how nimble and agile someone like Jabil can be that's the that's the beauty of the model here Oh, but there is definitely going to be some level of.

Speaker Change: A negative <unk> <unk>.

Speaker Change: The good thing is our revenues not getting going down by 10, 20%, it's just not going up.

Speaker Change: So there's a little bit of a deleveraging, but not so much but there are there are definitely new pieces of a capacity that's coming online.

Speaker Change: Which are getting pushed out a little bit.

Speaker Change: Great. That's helpful. And then just as a quick follow up.

Speaker Change: The cash flow targets for this fiscal year, a pretty impressive can you just walk through the puts and takes in terms of how we see free cash flow go up again towards that $1 2 billion dollar number for the year. Thanks.

Speaker Change: Yeah, Hi, Steve This is Greg.

Greg <unk>: Yeah, we're very confident on the $1 2 billion.

Speaker Change: Guidance on free cash flow.

Speaker Change: Spoke on in his remarks regarding free cash flow conversion of being 80% to 100% of core net income and we feel 25, it's going to be stronger.

Speaker Change: A couple of things related to that we are targeting to take another.

Speaker Change: A couple of days.

Of of working capital the cash cycle and Capex, we're seeing capex being approximately 200 million down year over year.

Speaker Change: As we're looking at a one 5% to 2% of Capex of revenue this coming year or so.

Speaker Change: Really do feel confident in that $1 2 billion.

Speaker Change: Great. That's helpful. Thanks, a lot and stay safe.

Steve: Thanks, Steve Thanks, Steve.

Thank you. Your next question is coming from Melissa Fairbanks from Raymond James Your line is now live.

Melissa Fairbanks: Hey, guys. Thanks, so much.

Speaker Change: Hate to say it but it seems like we're always running from a hurricane down here during their year end calls it.

And it'd be great. If we could change that pattern that would that would be fantastic.

So just to start I loved the new segmentation and all the detail that you are giving us I think it gives us a much better visibility into the real drivers. So thanks for that Matt you are the popular one on the call today [laughter]. So I've got a question for you up and down the supply chain in the cloud and data center infrastructure.

Speaker Change: Ply chain, we've heard of increasing pricing pressure, both from Nvidia their suppliers or attempts to protect the margins by the hyperscale errors as the cost of these compute systems continue to skyrocket.

I'm wondering if you're also seeing some pressure from your customers is there more cost conscious when they're planning out their portfolios or if this is actually an opportunity for jabil as you know to maybe help consolidate the supply chain.

Yeah, Hey, Thanks, Melissa for the question what I would tell you is that we're constantly under price pressure right. It's it's part of the business. So.

Speaker Change: Is it a little bit more so than typical maybe but it's something that we have to deal with it.

Speaker Change: In an ongoing basis so.

Speaker Change: Does it afford us an opportunity absolutely and we're constantly looking at ways to consolidate are there opportunities in the market that we see that would create more value for our customers.

Speaker Change: We're constantly looking at that I don't think it creates an opportunity beyond the typical one though so it's it's it's an ongoing effort to manage costs will continue to do it we'll continue to look for efficiencies that deliver value for our customers, but it's nothing we're not used to.

Speaker Change: Okay, great. Thanks, and maybe a quick one for Steve.

Steve: So when the health care business I was wondering if we could get a quick update on the equipment side of things like the surgical robotics the imaging.

Speaker Change: You had mentioned there was an uptick in G. L. PS maybe offsetting some gastric bypass surgeries wondering how that's playing through your customers planning longer term.

Speaker Change: Yeah. Thanks for the question Melissa So certainly genomic testing is it continues to increase where we can kind of get granular on the disease and how to treat it and so we are seeing growth in our diagnostics space and linked to that which is which is really exciting.

Speaker Change: On the on the General G O P. One side as I mentioned before we continue to see very strong growth in that area of the business as it relates to the.

Speaker Change: Other equipment areas like med devices.

I'd say that we continue to see a growth rate of that of that 3% to 4% range. Currently as we grow in the diabetes area of the business robotic surgeries, obviously is as an area that we strategically invested in over the past several years, we've added new customers and we continue to do more and more of the surgical equipment itself.

<unk>.

Speaker Change: Which is exciting and gives us great diversification and capability expansion as well that can be used elsewhere. So yeah, we really like where we're positioned there as well.

Speaker Change: Perfect. Thanks.

Speaker Change: Maybe a question for all of you or or Mike maybe you can address this its something ive been getting asked about I think I know the answer but just in case I'm wondering how your customers are approaching the upcoming election, if theres been any change in their ordering or planning or even delays with some of their longer term program planning.

Mike: Yeah, most of it that there is a little bit of a wait and see approach, particularly as it relates to some of the some of the end markets I think most end buckets. There. Okay. I think once that stand out obviously are.

Mike: And renewables are the there is a little bit of a wait and see I do think our whichever body comes in I feel good.

Mike: That will have a long term a long term sort of growth driver in both E. D that in renewables as I I'm not that worried about the election per se, yeah, obviously there'll be short term.

Mike: Impact, but I think jabil has mitigated most of that.

Great. Thanks, I think that's all for me guys stay safe take care.

Speaker Change: Thank you next question is coming from David vote from UBS. Your line is that a lot.

Speaker Change: Great. Thanks, again, guys for taking everything given the circumstances and please stay safe maybe.

David vote: Maybe you can I just start maybe go to Matt I know, Matt you're answering a lot of questions, but I just wanted to get a better sense for you know.

Speaker Change: Not just on the cloud and data center side, but as it ties to networking and comms, obviously, the networking and comms business ex the divestiture is still a little bit weak.

How do we think about how those two different businesses kind of work together going forward in terms of demand drivers and over the longer term, obviously, but we hear from a lot of investors theres, some concern or maybe some fear that there's a degree of digestion that could put that potentially happen over the longer term I know you just gave 25 numbers, but just how do you think about your visibility.

Speaker Change: Across different programs and how that maybe plays into your long term thinking about the segment and then I've got a couple more.

Yeah, Let me, let me kind of take them from the back forward. So.

Speaker Change #100: If you think about visibility we have a pretty unique position because we have customers across the entire spectrum of the ecosystem and so we have a pretty good view of what's happening at the folks who make silicon for AI at the folks who then transform it.

Speaker Change #100: And consume it and so we feel pretty good about where things are going now if you think about digestion and you think about near term. We're currently in the midst of helping customers move from air cooled switching gear to liquid cooled switching gear and so we can also see the consumption of that on the back end I think it's going to.

Speaker Change #100: <unk> to take off as we move out of fiscal 'twenty five.

Speaker Change #101: If I address the question on how comms and networking works together I would tell you.

Look artificial intelligence is driving this massive wave in the market, that's probably having more of an impact on our networking business in our comms and with the five G installations, where they are which is it's pretty well publicized.

Speaker Change #101: I don't think they're as adjacent as they used to be but certainly as workloads evolving and new opportunities to drive synergy between those we'll be able to take advantage of that.

Speaker Change #102: Great. Thank you that's helpful and maybe maybe one for either Greg or Mike whoever wants to take this so maybe this is more on the model. When you kind of think about you know obviously make any adjustments for the divestitures the mobility piece.

Speaker Change #103: $700 million that you referenced earlier.

Speaker Change #104: I think we're getting some questions about the back half ramp that's sort of implied from an EPS perspective, given sort of the year over year comp in Q1, and ultimately what it probably it looks like in Q2.

Speaker Change #104: You touched on it briefly but can you kind of help us understand how we should think about utilization.

Speaker Change #106: Utilization going into the second half and is that the driver of margin expansion on the gross line or is it really driven by this buyback I'm just trying to get a sense for how the second half ramps and as the buyback really going to be upwards of like $900 million in the fiscal year based on sort of piecing together the commentary about 80% of cash.

Speaker Change #107: Return to shareholders and your Capex and up being sort of your free cash flow numbers.

David: Thanks, David.

I do think the 40 60 is critical I think if you go back to our mobility days Q1 was always the big quarter in Q2.

Speaker Change #109: Sometimes it was a bigger part are sometimes wasn't depending on the Chinese new year impact. So what we're looking at coming out of our the bulk of our the bulk of our rough seasonality is sort of like an E. M. S seasonality, yes, we do have.

Speaker Change #109: Some connected.

Speaker Change #109: Living a business with a customer who used to be the largest customer in that seasonality.

Speaker Change #109: That's come down and are in the in the second quarter. So there's a little bit of a mixed bag between now.

Speaker Change #109: Between now.

Speaker Change #109: Between the connected living the E. M. S seasonality, so I'll ask Andy to provide a little bit more color on the on the connected living piece first and then I'll I'll jump back on after that.

Andy Priestley: Thanks, David.

Andy Priestley: Looking at connected living piece.

Andy Priestley: We're seeing.

Andy Priestley: Some of them you said demand through the end of the consumer we're taking a pretty conservative view of their demand picture.

Andy Priestley: Which I think is feeding into our overall numbers there and then as we contrast that with digital commerce.

Speaker Change #111: Which is much more of a level profile.

Speaker Change #111: We're in a really good shape for the second half.

Speaker Change #111: And then the second half the margins I think if you look at our the EMS seasonality of margins and <unk> always been higher in the second our second half with a yes or no no no major change there are the buyback.

Speaker Change #112: At this stage, we're going to be very opportunistic do buybacks as and when needed.

We fully intend to use the $1 billion authorization that the board just.

Speaker Change #112: Approved for US. This morning, so there so obviously that will help on the on the EPS side, but nothing nothing unusual AR would be just spreading it across the.

Speaker Change #112: The year end opportunistic as and when we are when we feel like great.

Speaker Change #113: Great. Thanks, guys for all the help and stay safe.

Speaker Change #112: Thank you.

Speaker Change #114: Thank you next question is coming from Mark Delaney from Goldman Sachs. Your line is now live.

Mark Delaney: Oh, yes, good morning, and thanks for taking my questions I've a follow up first on the data Center market. Matt You mentioned Jabil has won business with two new hyperscale or customers can you elaborate on how broad based those wins or does it include assembly and services for hardware and racks or was it more specifically tied into optical and anything you can share around.

Speaker Change #114: Owned.

Speaker Change #116: For when some of these new program wins ramp up.

Matt Crowley: Yeah, Hey, thanks for the question Mark It it is specific to optical but it's an example of how our strategy.

Speaker Change #116: Is working as intended right the whole.

What we've attempted to do is create capabilities outside of our core scaled out manufacturing that allow us to access customers in different ways and so while these wins with the two new hyperscale are specific to our optical business.

It gives us access to the hyperscale or to go and demonstrate that we can create value for them and and all the other areas of our business.

Speaker Change #116: And obviously with the mass adoption of folks who were trying to retrofit datacenters to go from air to liquid.

Speaker Change #116: It puts us in a great position to have different conversations.

Speaker Change #117: Okay. That's helpful. I just say thank you for that my next question was a follow up on how you thought about guiding fiscal 'twenty five and in more with respect to revenue in the back half of the year.

Speaker Change #118: I'm, hoping to better understand to what extent you tried to factor in any conservatism.

Speaker Change #119: In terms of your forecasting by end market given what happened last year with some of the volatility I'm curious if you've changed your approach on.

Speaker Change #120: Ah you're trying to get a.

Speaker Change #121: Factor in any potential of our market and maybe macroeconomic volatility.

Speaker Change #122: However, we have learned from lessons from last year and that the second half.

Speaker Change #123: That we have put in here is relatively book. There's this there's though are there's no assumptions of a huge recovery in the end markets. It's based off of our seasonality is based off of our regular set of wins that we have some of the wins take little bit longer than others, there as well.

Paul ramps going on so I feel I feel good about the second half of the year, there's nothing in there that would suggest that.

Speaker Change #123: That does.

Speaker Change #123: Some level of optimism that it's a pretty conservative number as well.

Speaker Change #124: That's helpful and just lastly for me and I'll turn it over.

Mike: In terms of the EBIT margin outlook for fiscal 'twenty five at five 4%, Mike Mike you already spoke about the under utilization and how that's a factor year on year, but could you go into a bit more depth around any.

Mike Mike: Effect on pricing and how that's maybe factoring into.

Speaker Change #126: Margin guidance for this year I'd be curious to better understand if theres been any change in the broader pricing.

Mike Mike: Pricing landscape given some of the cyclical weakness that we're seeing in some of the end markets and if that's at all a factor in your guidance. Thank you yeah, no I'm not seeing any major pricing.

Speaker Change #127: Issues I think the whole industry is doing really well from that perspective.

Speaker Change #128: I think it's just a matter of the surplus capacity that way.

Speaker Change #129: Carrying today and I talked about that it's about 2030 basis points.

Speaker Change #129: Nothing more than that of a so it's sort of.

Speaker Change #130: It's it's it's it's not only that I'm always saying that to be to be fair.

Speaker Change #131: Okay. Thanks, so much and I'm wishing you all the best with the Hurricanes. Thank you.

Speaker Change #132: Thank you. Your next question is coming from Matt Sheerin from Stifel. Your line is our lives.

Matt Sheerin: Yeah. Thanks, good morning, and thanks for all the information so far my question is regarding the exit of your major networking customer.

Matt Sheerin: The first question is is that that revenue all out of the model and in terms of balance sheet receivables and in cash flow from that was that mostly a Q4 or are we going to see some of that in Q1, and then sort of a bigger picture.

Speaker Change #134: Obviously, it's a big step for you to exit from a customer that you've had for 20 plus years and I know the industry a lot of your peers have also been disciplined walking away from him for major revenue opportunities.

Speaker Change #135: Looking at our returns and margins. So question is.

Speaker Change #136: Have you looked at other relationships in terms of your portfolio back to customers and this is this some sort of giving you a little bit more leverage with customers in terms of pricing and returns as you look at forward contracts. Thanks.

Speaker Change #137: Yeah, you bet.

Speaker Change #138: The walking away from a customer or whatever I think I've said it a number of times for the last six years, we've been focused fully on margins. We've been focused on free cash flows are Adler I'm looking at earnings and return to shareholders.

If customers are we never sort of walk away from them directly we tried to negotiate a price and if the price doesn't work out.

Speaker Change #138: That's when we disengaged so there's no walking away from customers, but there's definitely a disengagement going now on their as regards to your question on is it all you've done. It is all done I think we called it out on US like it was about $700 million of revenue with the legacy network customer in 24 that will.

Speaker Change #138: Not repeat in 'twenty five at all.

Speaker Change #138: And all of the balance sheet items have also been closed out so we have a a.

Speaker Change #138: A nice a nice amount of.

Sort of separation after after 30 festivals.

Speaker Change #139: Okay. Thank you for that and then just a follow up on the end markets are your renewable energy and infrastructure and it looks like you're actually guiding for growth and I know we've heard I mean, you've had headwind certainly in the demand front and so have your peers.

Speaker Change #140: So what's behind that forecast for foreseeing at least modest growth next year.

Speaker Change #140: Sure. This is Steve I'll take the question yes.

Steve: Renewables is slightly up as we've been able to get some new wins in the HVAC space and battery storage and then with the you know the IRA and its impact we've been able to.

Steve: Our U S footprint, obviously being well positioned is giving us some opportunities there as well to ramp some some new program. So.

That's where it's coming from.

We are not as Mike said, you know I'm not looking for.

Mike Mike: Solar residential commercial rebound in the fiscal year, keeping that flat, but the growth is really coming from some new wins and then there's some consolidation going on in that are in that end market as well and we've been the beneficiary of that and if it's directly related to the IRS piece that Steve referenced.

Speaker Change #141: Okay, alright, thanks very much.

Mike Mike: Okay.

Thank you. Your next question is coming from Simeon Cheddar came from Jpmorgan Chase <unk> Company. Your line is now life Hey.

Speaker Change #142: Hi, Thanks for taking my questions and thank you for hosting the call under the circumstances.

Simeon Cheddar: Wanted to start with Hum a margin question more in relation to Mike Your prepared remarks on the reiteration of the six sports and margin target that you have I'm just trying to think in terms of if you have any updated thoughts around what's the revenue scale that you need to get to that margin number I know you are calling out about 2020.

Speaker Change #142: At this point.

Tony: But the five 4% for fiscal 'twenty, five which implies that you'd still be at sort of five point by 0.7 underlying sort of if you get to a 30 billion capacity or utilization up to 30 billion capacity. So just trying to think like what do you need in excess of that Tony will in how do you think about what scale you need to get to that margin target. Thank you and I have a follow.

Tony: I think with between 30 and 35 would get US there are I think what I've said before is.

Speaker Change #145: Gross margins in the nine to 10. So if you can just mathematically to get to that 9.5% on a gross margin and you can do that with mix and you can do that with operational efficiencies.

Tony: Efficiencies are if you get to the nine five and by the way we did nine five in the past.

Tony: In fact, I think Q4 was 9.3.

Speaker Change #146: Oh, yeah yeah.

Tony: Yes.

Tony: Yes, there's always a 9.5 is not a target that's out five six years as we've done that in the past and then getting SG&A down to that.

Tony: Five a number I think would get us to the six pretty fast I'm not suggesting when you get to six in the next one or two years, but I'm also not suggesting we'll get that in five or 10 years, it's gonna be somewhere.

Tony: In the 20th 20 X a timeframe and will have a definite.

Tony: But to that 6% I feel really I feel really good about that.

Tony: Okay got it.

Tony: And for my follow up I guess.

Tony: Probably a question for you again, Mike in terms of the strategy update that you provided no major changes focusing more on profitable growth.

Speaker Change #147: Growth as you think about sort of your portfolio and the opportunity to sort of keep expanding margins should we be expecting some level of portfolio rationalization sort of happening every year or sort of a continuous look at the portfolio to sort of weed out some of the lower margin businesses and continue to drive that mix higher or.

Speaker Change #147: Is is this the biggest chunk in terms of what's coming out in fiscal 'twenty, five and everything beyond that should be really embodied in vaccines.

Overtime, our southern we normally have those sort of portfolio rationalizations anyways. The reasonably called this one out it was because it was a it was a material one.

Speaker Change #147: We have smaller rationalizations going on.

Speaker Change #148: All the time, where we try and get a get a negative customer back into positive territory and then beyond if it works well for both of US. We continue that's not we help them transition somewhere else, but overall I'm not expecting some big rationalization now.

Speaker Change #148: Exercises to take place I'm relatively happy with what I'm seeing today from a portfolio perspective don't forget some of the some of the customers that have a slightly lower margin had really good free cash flow. So it's not just about margin. It's a it's a mixed story between free cash flow and and margin and we're constantly working at that.

Speaker Change #148: One thing I will say over the last few years and especially since COVID-19 the value proposition that Jabil provides has gone up considerably I think if you look at our engineering capabilities. If you look at out or our manufacturing facilities, particularly with all the geopolitical issues going on and then you look at our supply.

Speaker Change #148: I chain, which came through very strongly during a COVID-19 Ah I think pricing is not that much of an issue. Obviously every customer will negotiate pricing but.

Speaker Change #148: I do think the value proposition that Jabil provides is extremely strong today and I think that continues in the in the future as well as the portfolio rationalization will be there but limited.

Speaker Change #149: And I'll just sneak one and this is a follow up for the question. David asked you on the sort of ramp through the year you do have revenue that creatively sort of flattish through the rest of the year in them. So the implied implicit sort of annualized run rate here.

Speaker Change #150: But do you do you're starting off the first quarter with 5.1 important margin and implicitly you have to end somewhere in the high fives in the fourth quarter to get to the full year on a 5.4 what is the driver there I think you said some stuff.

Speaker Change #151: On Sunday, but I didn't really catch what you were implying is it mix is it something else, that's really driving that margin to sort of end up being in the high fives by the time you exit the year. So there's two or three things first is the normal E. L. S. Seasonality. If you go back and look over the past few years, the second half from a margin stack.

Endpoint and an earnings standpoint has always been a strong part of it is mix I think the mix that we're working on today, particularly in some of the regulator pieces are you have businesses coming through our six months nine months 12 months out second half is looking good I don't have.

Speaker Change #151: Anything in the second half which is.

Which is extra tariffs it's sort of this is booked business. This is confirmed with it.

Speaker Change #151: Go up and down a little bit sure, but it's not based off of an optimistic.

Speaker Change #151: Return of end market perspective, it's a conservative forecast.

Speaker Change #151: It's just the way the 40 60 is working out a it's purely a seasonality purely the way the bookings are purely makes a that's how we're getting oh, we're getting some leverage on that as well and that's why you'll see a second half was a little bit better than the first half.

Speaker Change #151: Okay.

Speaker Change #152: Thank you thanks for taking my questions.

Speaker Change #151: Yeah.

Speaker Change #153: Thank you we reached end of our question and answer session I'd like to turn the floor back over for any further or closing comments.

Speaker Change #154: Thank you. We appreciate your interest in Jabil, we look forward to getting back with you all over the next couple of days and we'll see you soon thank you bye.

Thank you that does conclude today's teleconference. Webcast. You may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.

Speaker Change #154: Yeah.