Q3 2025 Jabil Inc Earnings Call
Operator: Greetings and welcome to Jabil's third quarter fiscal year 2025 conference call and webinar. At this time, all participants are in a listen-only mode. Question and Answer Session will follow the formal If anyone requires operator assistance, please call 1-800-637-8170. Press star zero on your telephone.
Greetings and welcome to J, both third quarter of fiscal year 2025 conference call and webcast. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone require operator assistance during the call.
France. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
Adam Berry: As a reminder, this conference is being It is now my pleasure to introduce your host, Adam Berry, investigating. Thank you. Please go ahead.
Speaker Change: It is now my pleasure to introduce your host Adam Berry Investor Relations. Thank you. Please go ahead.
Adam Berry: Good morning, and welcome to Jabil's third quarter fiscal 2025 conference call. Joining me on today's call are Chief Financial Officer Greg Hebbard, and Chief Executive Officer Mike Dastoor. Please note that today's presentation is being live streamed. And during our prepared remarks, we will be referencing slides. To view these slides, please visit the Investor Relations section of Jabil.com.
Speaker Change: Good morning, and welcome to Jabil third quarter fiscal 2025 conference call.
Speaker Change: Joining me on today's call are Chief Financial Officer, Greg Hubbard, and Chief Executive Officer, Mike <unk>.
Please note that today's presentation is being live streamed and during our prepared remarks, we will be referencing slides.
To view the slides please visit the Investor Relations section of Jabil Dot com.
Adam Berry: After today's presentation concludes, a complete recording will be available on our website for play. 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 that could cause actual outcomes and results to differ materially. An extensive list of these risks and uncertainties are identified in our annual report on Form 10-K for the fiscal year ended August 31, 2024, and other filings with the SEC.
Speaker Change: After todays presentation concludes a complete recording will be available on our website for playback.
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.
Speaker Change: 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 Change: 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, 2024, and other filings with the SEC.
Adam Berry: 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.
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.
Gregory Hebard: With that, I'd now like to hand the call over to Craig. Thanks, Adam. Good morning, everyone. Thanks for joining our call today. I'm very pleased with our third quarter performance, which at the enterprise level came in well above our expectations across revenue, core operating income, and core earnings per share. In the quarter, we saw significant upside in our intelligent infrastructure business, led by the segment's AI-related revenue. At the same time, our regulated and CLPC segments came in largely as planned. The environment remains dynamic, but our performance this quarter demonstrates the strength of our operating model and our ability to deliver consistent results, even as conditions shift.
Speaker Change: With that I'd now like to hand, the call over to Greg. Thanks, Adam Good morning, everyone. Thanks for joining our call today.
Greg: I'm very pleased with our third quarter performance, which at the enterprise level came in well above our expectations across revenue core operating income and core earnings per share.
In the quarter, we saw significant upside in our intelligent infrastructure business led by the segments AI related revenue.
Speaker Change: At the same time, our regulated and C. LTC segments came in largely as planned.
The environment remains dynamic, but our performance this quarter demonstrates the strength of our operating model and our ability to deliver consistent results even as conditions shift.
Gregory Hebard: Let's walk through the details for the quarter. For Q3, the team delivered $7.8 billion in net revenue. up an impressive 16% year-over-year and $800 million above the midpoint of the guidance range we gave in March. Upside strength and revenue was primarily driven by cloud and data center infrastructure. Additionally, it's worth noting both our capital equipment and connected living and markets also saw higher than expected demand in the quarter. Given all this strength, core operating income for the quarter came in solidly above our range at $420 million. We're operating margins, we're at 5.4%. 20 Basis Point Improvement Year-over-Year.
Speaker Change: Let's walk through the details for the quarter.
Speaker Change: For Q3, the team delivered seven $8 billion of net revenue.
Speaker Change: After an impressive 16% year over year.
$800 million above the midpoint of the guidance range, we gave in March.
Upside strength in revenue was primarily driven by cloud and data center infrastructure.
Speaker Change: Additionally, it's worth noting both our capital equipment and connected living end markets also saw higher than expected demand in the quarter.
Speaker Change: Given all this strength core operating income for the quarter came in solidly above our range at $420 million.
Core operating margins were at five 4%.
20 basis point improvement year over year.
Gregory Hebard: Net interest expense in Q3 was $66 million. on a gap basis. Operating income was $403 million and our GAAP diluted earnings per share was $2.03. Core diluted earnings per share for Q3 was $2.55, up 35% compared to Q3 of last year.
Net interest expense in Q3 was $66 million.
Speaker Change: On a GAAP basis.
Speaker Change: Operating income was $403 million.
Speaker Change: Our GAAP diluted earnings per share was $2 three sets.
Speaker Change: Core diluted earnings per share for Q3 was $2.55 up 35% compared to Q3 of last year.
Gregory Hebard: Turning now to our performance by segment in the quarter, our regulated industries reported revenue of $3.1 billion, roughly in line with our expectations and flat year over year. This reflects ongoing softness in the EV and renewable land markets, partially offset by growth in our health care business. We're operating margin for this segment was 5.5%, about 70 basis points sequentially. However, this is down 50 basis points year over year as EVs and renewables remain below normalized levels of profitability.
Turning now to our performance by segment in the quarter are.
Our regulated industries reported revenue of $3 $1 billion roughly in line with our expectations and flat year over year.
This reflects ongoing softness in the EV and renewable end markets, partially offset by growth in our health care business.
Speaker Change: Core operating margin for the segment was five 5% up 70 basis points sequentially.
Speaker Change: However, this is down 50 basis points year over year, as Evs and renewables remain below normalized levels of profitability.
Gregory Hebard: In the intelligent infrastructure segment, we saw revenue of $3.4 billion, up approximately 51% year-on-year and well ahead of our expectations for the third quarter. This growth continues to be driven by sustained, strong demand in our AI-related cloud and data center infrastructure business, including power, cooling, and server rack solutions. Capital equipment was also strong in the quarter, as the need for testing gear remains robust. This growth was offset slightly by lower demand in our networking and communications end market due to softer 5G demand. Core Operating Margin for this segment was 5.3%.
Speaker Change: In the intelligent infrastructure segment, we saw revenue of $3 $4 billion up approximately 51% year on year and well ahead of our expectations for the third quarter.
This growth continues to be driven by sustained strong demand and our AI related cloud and data center infrastructure business, including power cooling and server rack solutions.
Capital equipment was also strong in the quarter as the need for testing gear remains robust.
This growth was offset slightly by lower demand in our networking and communications end market due to softer <unk> demand.
Speaker Change: Core operating margin for the segment was five 3%.
Gregory Hebard: In our Connected Living and Digital Commerce segment, revenue was $1.3 billion. slightly higher than what we thought 90 days ago. On a year-over-year basis, this segment was down approximately 7%. This is mainly reflecting softness and consumer-driven products offset by growth in areas such as warehouse and retail automation. We're operating margins for this segment came in at 5.3% in Q3, up 210 basis points year over year, reflecting both the benefits from the restructuring actions taken earlier this year to reduce costs. as well as a changing mix of business within this sector.
Speaker Change: And our connected living and digital Commerce segment revenue was $1 3 billion.
Speaker Change: Slightly higher than what we thought 90 days ago.
On a year over year basis, the segment was down approximately 7%.
This is mainly reflecting softness in consumer driven products offset by growth in areas, such as warehouse and retail automation.
Speaker Change: Core operating margins for the segment came in at five 3% in Q3 up 210 basis points year over year.
Speaker Change: Reflecting both the benefits from the restructuring actions taken earlier this year to reduce cost.
As well as the changing mix of business within the segment.
Speaker Change: Okay.
Gregory Hebard: Next, I'll provide an update on our cash flow and balance sheet metrics for the end of Q3. Inventory days decreased sequentially by six days to 74 days. Net of inventory deposits from our customers. Inventory days were 59. An improvement of two days sequentially and within our targeted range. In Q3, cash flow from operations was strong at $406 million. Net capital expenditures for the third quarter were $80 million. As a result of this solid performance, adjusted free cash flow for the quarter came in at $326 million, bringing our year-to-date adjusted free cash flow to $813 million.
Speaker Change: Next I'll provide an update on our cash flow and balance sheet metrics for the end of Q3.
Speaker Change: Tori days decreased sequentially by six days to 74 days.
The inventory deposits from our customers inventory days were 59 and.
Speaker Change: An improvement of two days sequentially and within our targeted range.
Speaker Change: In Q3 cash flow from operations was strong at $406 million.
Net capital expenditures for the third quarter or $80 million.
As a result of this solid performance adjusted free cash flow for the quarter came in at $326 million, bringing our year to date adjusted free cash flow to $813 million.
Gregory Hebard: With our results through three quarters, we are well on track to generate over $1.2 billion in free cash flow for the year. We exited the third quarter with a healthy balance sheet with debt-to-core EBITDA levels of approximately 1.4 times and cash balances of approximately $1.5 billion. In Q3, we repurchased $339 million of our shares. We're on track to complete our current $1 billion share repurchase authorization in Q4.
Speaker Change: With our results through three quarters, we are well on track to generate over $1 2 billion and free cash flow for the year.
We exited the third quarter with a healthy balance sheet with debt to core EBITDA levels of approximately one four times and cash balances of approximately $1 $5 billion.
Speaker Change: In Q3, we repurchased $339 million of our shares we're on track to complete our current $1 billion share repurchase authorization in Q4.
Gregory Hebard: With that, let's turn to the next slide for a Q4 FY25 guidance. Beginning with revenue by segment, we anticipate revenue for regulated industries will be $2.9 billion. down 5% year-on-year as we maintain a prudent near-term outlook on the EV and renewable market. We are also closely monitoring potential impacts, positive or negative, arising from the impending legislation in the US. For our Intelligent Infrastructure segment, we expect strong growth to continue with the revenue for the quarter to be $3.3 billion. up approximately 42% year-over-year. We expect this increase to be driven by sustained, broad-based, AI-related growth in cloud, data center infrastructure, and capital equipment markets.
With that let's turn to the next slide for our Q4 FY 'twenty five guidance.
Speaker Change: Beginning with revenue by segment, we anticipate revenue for regulated industries will be $2 $9 billion.
Speaker Change: One 5% year on year as we maintain our prudent near term outlook on the EV and renewable markets.
Speaker Change: We are also closely monitoring potential impacts positive or negative arising from the impending legislation in the U S.
For our intelligent infrastructure segment, we expect strong growth to continue with the revenue for the quarter to be $3 $3 billion.
Up approximately 42% year over year.
We expect this increase to be driven by sustained broad based AI related growth in cloud data center infrastructure and capital equipment markets.
Gregory Hebard: In our Connected Living and Digital Commerce segment, revenues are expected to be $1.3 billion. Down 21% year-on-year, reflecting continued softness and consumer-centric products offset slightly by growth in warehouse and retail automation markets.
And our connected living and digital Commerce segment revenues are expected to be $1 $3 billion.
Down 21% year on year, reflecting continued softness in consumer centric products offset slightly by growth in warehouse and retail automation markets.
Gregory Hebard: Putting it all together at the enterprise level, total company revenue for Q4 is expected to be in the range of $7.1 billion to $7.8 billion. Poor Operating Income for Q4 is estimated to be in the range of $428 million to $488 million. Gap operating income is expected to be in the range of $331 million to $411 million. Our core diluted earnings per share is estimated to be in the range of $2.64 to $3.04. Gap diluted earnings per share is expected to be in the range of $1.79 to $2.37. Net interest expense in the fourth quarter is estimated to be approximately $65 million.
Putting it altogether at the enterprise level total company revenue for Q4 is expected to be in the range of $7 1 billion to $7 $8 billion.
Core operating income for Q4 is estimated to be in the range of 428 million to $488 million.
GAAP operating income is expected to be in the range of 331 million to $411 million.
Core diluted earnings per share is estimated in the range of $2.64 to $3.04.
GAAP diluted earnings per share is expected to be in the range of $1 79 to.
$2.37.
Net interest expense in the fourth quarter is estimated to be approximately $65 million.
Gregory Hebard: Our court tax rate for Q4 and for the full year is expected to remain at 21%.
Our core tax rate for Q4 and for the full year is expected to remain at 21%.
Gregory Hebard: In closing, the Jabil team's execution thus far in FY25 amid heightened geopolitical uncertainty has been tremendous. Our ability to execute effectively is a testament to the strength of our diversified portfolio and our strategic alignment with high growth secular trends such as AI and industrial automation. This resilience not only reinforces our competitive position, but also sets the stage in the coming years for continued revenue expansion, margin enhancement, and robust free cash flow generation.
In closing the Jabil team's execution, thus far in FY 'twenty five amid heightened geopolitical uncertainty has been tremendous.
Our ability to execute effectively is a testament to the strength of our diversified portfolio and our strategic alignment with high growth secular trends, such as AI and industrial automation.
This resilience not only reinforces our competitive position, but also sets the stage in the coming years for continued revenue expansion and margin enhancement and robust free cash flow generation.
Gregory Hebard: With that, I'd like to thank you for your time this morning and your interest in Jabil.
Mike: With that I'd like to thank you for your time this morning, and your interest in Jabil I'll now turn the call over to Mike.
Michael Dastoor: I'll now turn the call over to Mike. Thanks, Greg, and good morning, everybody. I want to start by acknowledging the tremendous work of our global... That consistent execution in a complex environment is the driving force behind the performance and our ability to deliver for our customers. The dedication I see across the organization is remarkable, and I am grateful for their efforts, a dedication which is fundamental to our strategy, especially as we navigate the evolving geopolitical landscape. Today, most of our manufacturing has migrated local for local and region for region. This focus in manufacturing, mainly in region, has continued to play out well for us, particularly in today's geopolitical environment.
Mike: Thanks, Greg and good morning, everyone.
Mike: I want to start by acknowledging the tremendous work of our global team.
Mike: That consistent execution in a complex environment is a driving force behind our performance and our ability to deliver for our customers.
Mike: The dedication I see across the organization is remarkable and I'm grateful for their efforts and dedication which is fundamental to our strategy, especially as we navigate the evolving geopolitical landscape.
Mike: Today, most of our manufacturing is migrated local for local in region for region.
Mike: This focus on manufacturing mainly in region has continued to play out well for us, particularly in today's geopolitical environment.
Michael Dastoor: And furthermore, I continue to see our global and growing U.S. footprint as a significant competitive advantage. Our ability to offer customers diverse, resilient and localized manufacturing solutions has become more valuable than ever. Being a U.S. domicile company with deep experience across 30 countries allows us to partner with customers to navigate issues like potential tariffs and supply chain complexities, a capability I believe is unmatched in the industry.
Mike: And Furthermore, I continue to see a global and growing U S footprint as a significant competitive advantage.
Mike: Our ability to offer customers a diverse resilient and localize manufacturing solutions has become more valuable than ever.
Mike: Being a U S domiciled company with deep experience across 30 countries allows us to partner with customers to navigate issues like potential tenants and supply chain complexities of capability I believe is unmatched in the industry.
Michael Dastoor: Now turning to our performance in the corner. As Greg detailed, our third quarter results were very strong, reflecting higher than expected growth in cloud and data center infrastructure, capital equipment, and connected living and marketing. At the same time, healthcare, automotive, digital commerce, and networking and communications were largely in line with our expectations from March. As a result, the team delivered $7.8 billion in revenue, 5.4% core operating margins, and $2.55 in core delivered earnings per share, up 35% from Q3 last year.
Mike: Now turning to our performance in the quarter.
Mike: As Greg detail, our third quarter results were very strong reflecting higher than expected growth in cloud and data center infrastructure capital equipment and connected living end markets.
Mike: At the same time health care automotive digital Congress and networking and communications were largely in line with our expectations for much.
Mike: As a result, the team delivered seven $8 billion in revenue five 4% core operating margins and $2.55 and core diluted earnings per share up 35% from Q3 last year.
Michael Dastoor: As I contextualize these strong results with our year-to-date performance and projected FY25 revenue by end-market, several key points become evident. First, our intelligent infrastructure segment continues to stand out as it remains squarely at the epicenter of the AI revolution. Demand for AI hardware is not slowing down. If anything, it's accelerating. The need for complex server and rack integration, advanced networking, and innovative power and cooling solutions is surging. Our holistic approach to the data center, our deep engineering and design architecture collaboration, and our ability to execute complex high volume production at scale makes us a go-to partner for the world's leading hyperscalers and silicon providers.
Mike: As I contextualize. These strong results with our year to date performance and projected FY 'twenty five revenue by end market.
Mike: Several key points become evident.
Mike: First our intelligent infrastructure segment continues to stand out as it remains squarely at the epicenter of the AI Revolution.
Mike: Demand for AI hardware does not slowing down if anything it's accelerating.
Mike: The need for complex server and rack integration advanced networking and innovative power and cooling solutions is surging.
Mike: Our holistic approach to the data center, a deep engineering and design architecture collaboration and our ability to execute complex high volume production at scale makes us a go to partner up with the world's leading hyper scaler and silicon providers.
Michael Dastoor: Our teams are executing with urgency, ramping capacity, optimizing supply chains and staying ahead of customer needs. Whether it's racks, photonics, advanced networking, or storage, we're delivering. Given this momentum we now project our AI related revenue will reach approximately $8.5 billion this fiscal year, a 50% plus increase year on year. And to support this growth, I'm excited to share that this morning we announced we will be opening a new site in the southeastern US to help fulfill the ongoing increase in AI data center infrastructure demand. As part of this plan, we expect to invest approximately $500 million over the next several years to expand our U.S.
Mike: Our teams are executing with urgency ramping capacity optimizing supply chains and staying ahead of customer needs.
Mike: But if it's racks photonics advanced networking all storage we're delivering.
Mike: Given this momentum we now project our AI related revenue will reach approximately $8 $5 billion this fiscal year.
Mike: 50% plus increase year on year.
Mike: And to support this growth I'm excited to share that this morning, we announced we will be opening a new site in the southeastern U S to help fulfill the ongoing increase in AI data center infrastructure demand.
Mike: As part of this plan, we expect to invest approximately $500 million over the next several years to expand our U S footprint as we remain focused on supporting cloud and AI data center infrastructure customers.
Michael Dastoor: footprint as we remain focused on supporting cloud and AI data center infrastructure customers. With the addition of this new factory, we will now operate more than 30 sites across the United States.
Mike: With the addition of this new factory, we will now operate more than 30 sites across the United States.
Michael Dastoor: This investment is a significant commitment and there are a few things to keep in mind. We're in the final stages of site selection now, and we expect the facility to be operational by mid-calendar year 2026. This site will further enable our design architecture and large scale manufacturing capabilities in high complexity AI racks with increased power requirements and infrastructure fit out to liquid cooling. We fully anticipate that this new site will help diversify our revenue growth in the AI hyperscale space. We do not expect this investment to change our outlook for our annual CapEx spend, which currently stands at 1.5 to 2% of revenue.
Mike: This investment is a significant commitment and there are a few things to keep in mind.
Mike: We're in the final stages of site selection now and we expect the facility to be operational by mid calendar year 2026.
Mike: This site will further enable our design architecture, and large scale manufacturing capabilities and high complexity AI racks, but the increased power requirements and infrastructure put out liquid cooling.
Mike: We fully anticipate that this new site will help diversify our revenue growth in the AI Hyperscale space.
Mike: We do not expect this investment to change our outlook for annual Capex spend which currently stands at one 5% to 2% of revenue.
Michael Dastoor: And finally, it is important to highlight that as the new site is projected to come online towards the end of FY 26, we do not expect it to have a material impact on our financial results until FY 27.
Mike: And finally, it is important to highlight that as the new site is projected to come online towards the end of FY 'twenty six we do not expect it to have a material impact on our financial results until FY 'twenty seven.
Michael Dastoor: Another area of exciting growth in 2025 and beyond is digital commerce. The team continues to drive innovation in retail and logistics, helping a diverse set of customers automate everything from the warehouse to the aisle and checkout. As we've discussed before, labor dynamics and performance speed are driving structural investment here, and our solutions are resonating with customers. As we look further down the road, we see a long runway ahead as robotics, automation, and even human rights become central to the future of day to day life.
Mike: Another area of exciting growth in 'twenty, five and beyond is digital commerce.
Mike: The team continues to drive innovation in retail and logistics, helping a diverse set of customers automate everything from the warehouse to the island and checkout.
Mike: As we've discussed before the labor dynamics and fulfillment speed driving structural investment here at.
Mike: Our solutions are resonating with customers.
Mike: As we look further down the road, we see a long runway ahead as robotics automation and even human rights become central to the future update today life.
Michael Dastoor: Turning to regulated industries where trends have been more mixed. As expected, EV and renewable energy markets in the U.S. remain soft. Moving forward, we continue to monitor the potential impact of the impending U.S. legislation on these end markets. We're managing these potential headwinds with discipline, staying close to our customers and continuing to focus on markets with a creative long-term margin potential. Healthcare, on the other hand, remains a bright spot. We are focusing on higher value segments such as drug delivery devices, diagnostic equipment, and pharma solutions where our PII acquisition is already opening new doors. We continue to believe this business will be a margin and cash flow contributor over the long term as we continue to add vertical capabilities in various areas of this end market.
Mike: And I think the regulated industries, where trends have been more mixed.
Mike: As expected E D and renewable energy markets in the U S remained soft.
Mike: Moving forward, we continue to monitor the potential impact of the impending U S legislation on these end markets.
Mike: We're managing these potential headwinds with discipline staying close to our customers and continuing to focus on markets with accretive long term margin potential.
Mike: Sure.
Mike: Health care on the other hand remains a bright spot we.
Mike: We are focusing on high value segments, such as drug delivery devices diagnostic equipment, and pharma solutions, where our <unk> acquisition is already opening new doors.
Mike: We continue to lead this business will be a margin and cash flow contributor over the long term as we continue to add vertical cable movies in various areas of this end market.
Michael Dastoor: With that, let's move to our updated outlook for the full year. We are raising our revenue guidance for fiscal 2025 to approximately $29 billion while we believe core operating margins will be in the range of 5.4%. As a result, we now expect to deliver core delivery earnings per share of $9.33 for the year. And importantly, we expect to generate in excess of $1.2 billion in adjusted free cash flow. As we close out fiscal 2025, it's worth noting that our diversification strategy continues to aid our results as the demand profile of the end markets we serve are considerably dynamic.
Mike: With that let's move to our updated outlook for the full year.
Mike: We are raising our revenue guidance for fiscal 2020 five to approximately $29 billion. While we believe core operating margins will be in the range of five 4%.
Mike: As a result, we now expect to deliver core diluted earnings per share of $9.33 for the year.
Mike: And importantly, we expect to generate in excess of $1 $2 billion in adjusted free cash flow.
Mike: As we close out fiscal 2025, it's worth noting that our diversification strategy continues to aid our results as the demand profile of the end markets. We serve are considerably dynamic.
Michael Dastoor: For instance, despite persistent weakness in EVs, renewables and 5G, we're approaching record levels of core EPS. Looking ahead, we remain focused on enhancing core margins, optimizing cash flow and returning value to shareholders. primarily through share repurchases and targeted investments in higher margin opportunities. This focus, together with a disciplined financial approach, creates a favorable setup for sustained value creation in the coming years.
Mike: For instance, despite persistent weakness in E. These renewables and five G.
Mike: We're approaching record levels of core EPS.
Mike: Looking ahead, we remain focused on enhancing core margins optimizing cash flow and returning value to shareholders.
Mike: Primarily through share repurchases and targeted investments in higher margin opportunities.
Mike: This focus together that disciplined financial approach creates a favorable setup for sustained value creation in the coming years.
Michael Dastoor: To close, I want to thank the Jabil team for their outstanding contributions and our investors for their continued confidence in our strategy. I am incredibly optimistic about the future we're building together.
Mike: To close I want to thank Virginia with team for their outstanding contributions and our investors for their continued confidence in our strategy.
Mike: I am incredibly optimistic about the future we're building together.
Adam Berry: I will now turn the call back over to Adam. Thanks, Mike.
Adam Berry: I will now turn the call back over to Adam.
Adam Berry: Thanks, Mike before moving into Q&A I'd like to quickly summarize our key messages from today's call.
Adam Berry: Before moving into Q&A, I'd like to quickly summarize our key messages from today's call. First, Jabil delivered strong Q3 results with core EPS above the high end of our guide. driven primarily by an outstanding performance in intelligent infrastructure. And we provided Q4 guidance that reflects continued robust momentum in AI and data center markets balanced with a prudent assumption for other areas.
Adam Berry: <unk> Jabil delivered strong Q3 results with core EPS above the high end of our guidance.
Adam Berry: Driven primarily by an outstanding performance and intelligent infrastructure.
Adam Berry: And we provided Q4 guidance that reflects continued robust momentum in AI and data center markets balanced with a prudent assumption for other areas.
Adam Berry: Second, we announced further US investments in our AI and data center footprint, which will position us well for future growth. And finally, Jabil remains exceptionally well positioned due to our diversified portfolio, advanced manufacturing and engineering capabilities, and a clear strategy focused on profitable growth and shareholder return.
Adam Berry: Second we announced further U S investments and our AI and data center footprint, which will position us well for future growth.
Adam Berry: And finally, jabil remains exceptionally well positioned due to our diversified portfolio.
Mike: Vance manufacturing and engineering capabilities, and a clear strategy focused on profitable growth and shareholder returns.
Adam Berry: To that end, I'm pleased to share that we'll be hosting our eighth annual virtual investor briefing in late September. During that briefing, we intend to provide a comprehensive full year outlook. This will include our customary commentary on the markets we serve, our growth priorities, and our disciplined approach to capital allocation. Specifically, we will outline our expectations for fiscal year 2026 across core operating margins, core EPS, and adjusted free cash.
Mike: To that end I'm pleased to share that we'll be hosting our eighth annual virtual investor briefing in late September.
Mike: During that briefing, we intend to provide a comprehensive full year outlook.
Mike: This will include our customary commentary on the markets, we serve our growth priorities and our disciplined approach to capital allocation.
Mike: Specifically, we will outline our expectations for fiscal year 2026 across core operating margins core EPS and adjusted free cash flow.
Adam Berry: I remain incredibly optimistic about the future we're building, and we look forward to sharing our plan with you at that time.
Mike: I remain incredibly optimistic about the future we're building and we look forward to sharing our plan with you at that time.
Adam Berry: Thank you.
Operator: Operator, we're now ready for Q&A. Thank you. The floor is now open for questions.
Mike: Operator, we're now ready for Q&A.
Mike: Thank you the floor is now open for questions. If you would like to ask a question. Please press star one on your telephone keypad at this time.
Operator: If you would like to ask a question, please press star 1 on your telephone. Confirmation Tone will indicate. Press Start. to remove your question. Participants using speaker equipment, it may be necessary to pick up for pressing this. And that is star one to register.
Mike: A confirmation tone will indicate that your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up the handset before pressing the star keys against that is star one to register a question at this time.
Ruplu Bhattacharya: Our first question today is coming from. Bhattacharya of Bank of America, please. Hi, thank you for taking my questions. Mike, you're seeing strong growth in data center and cloud revenues. And today you guided AI related revenues to eight and a half billion for fiscal 25. What's the reasonable level of growth to expect in this segment for fiscal 26 and beyond? And can you help us rank order the revenue growth and margins for the different segments within intelligent infrastructure? So for capital equipment, cloud data center and networking comms, how should we think about revenue growth and margins for these?
Speaker Change: Our first question today is coming from <unk>.
unknown: <unk> of Bank of America. Please go ahead.
Speaker Change: Hi, Thank you for taking my questions.
Speaker Change: Mike you're seeing strong growth in datacenter and cloud revenues and today, you guided AI related revenues to eight and a half billion for fiscal 'twenty five what's the reasonable level of growth to expect in this segment for fiscal 'twenty, six and beyond and can you help us rank quarter, the revenue growth and margins for the difference.
Speaker Change: Segments within intelligent infrastructure, so for capital equipment cloud data center and networking comps, how should we think about revenue growth and margins for these.
Michael Dastoor: Hey, Ruplu. So I think before I even started, I think the eight and a half billion dollars of revenue in the AI world is a big achievement for the team. I think the team has performed and executed solidly. I think they were 24-7 over the last few weeks. So a really good result in our Q3 quarter. I think the 8.5 is just testament to the growth rate from 24 to 25, being almost 50%. So really well done there. From a growth rate and margin, Ruplu will provide more guidance in September for 26.
Speaker Change: Oh, Hey, we're blue E. So I think before I, yeah before I, even start I think the $8 billion of.
Speaker Change: Revenue in the AI.
Speaker Change: So this is a big achievement for the team I think the team has performed and executed solidly I think they were up 24 southern over the last Oh.
Speaker Change: The last few weeks so.
Speaker Change: It's a really good result in our Q3 quarter I think the eight five is just a testament to the.
Speaker Change: The growth rate from 24 to 25 being almost 50% so really what is done.
Speaker Change: Promo from a growth rate and margin our ruffino, we'll provide more guidance in <unk>.
Michael Dastoor: I don't want to touch on 26 right now. But I think overall, if you look at margin in the three different end markets in that segment, I do think capital equipment would be a creative. I think if you look at wafer fab equipment side on the capital equipment, that's a slightly higher margin. The automated testing where the bulk of our growth has been a slightly lower margin than WIP. So a mixed sort of margin profile in capital equipment. I think cloud data center, we've mentioned this a few times before, it's at enterprise level. And I think the explosive growth that we continue to see in that area will be good for 26.
Speaker Change: September 26, I don't want to touch on 26 right now.
Speaker Change: But I think Paul if you look at our margin in the in the three different.
Speaker Change: End markets in that segment are I do think capital equipment would be.
Speaker Change: It would be accretive, but I think if you look at wafer fab equipment side on the capital equipment, that's a slightly higher margin the automated testing where the bulk of our growth has been a slightly lower margin than our than wip. So.
Mike: <unk> mix sort of a margin profile in our capital equipment I think cloud data center grabbed we've mentioned this a few times.
Mike: Before it's add enterprise novel, and I think the explosive growth that we continue to see in that area will be good for 'twenty six.
Michael Dastoor: And then from a networking and comms perspective, networking, I expect that to be slightly accretive, while communications and mainly 5G is a lot more dilutive to our margin. So mixed profile, I think it's different for different end markets, even within the same segment.
Mike: And then from a networking and comms perspective networking.
Mike: That to be slightly accretive while communications and mainly five G. Are is is is a lot more dilutive.
Mike: And so mixed profile I think it's different for different end markets, even within the same.
Mike: <unk>.
Ruplu Bhattacharya: Okay, thanks for the details there, Mike. Can I ask fiscal year 25 operating margin you're holding steady at 5.4%. What needs to happen for operating margins to get to 6% plus? I mean, what do you need to see in terms of revenues and other things to get the operating margin to that level? Sure. So if you look at, you know, we've talked about this in the past. Today, we find ourselves with a little bit of underutilized capacity. Our normal capacity utilization is in the 85, 86% range. Today, we're still at the 75% range. Even with the explosive growth that you see in the AI world, the underutilized capacity still exists because there's a mismatch in geographies.
Speaker Change: Okay. Thanks for the details there Mike can I ask a fiscal year 'twenty five operating margin, you're holding steady at five 4% what needs to happen for operating margins to get to 6% plus I mean, what do you need to see.
Speaker Change: In terms of revenues and other things to get the operating margin to that level.
Speaker Change: So if you look at you know we've talked about this in the past today, we find ourselves with a little bit of underutilized.
Speaker Change: Paucity of normal capacity Utilizations in the 80, 586% range today, but I still have the 75% range, even with the explosive growth that you see in.
Speaker Change: In the AI, yeah, well the underutilized capacity still exist because there's a mismatch and geographies are the AI growth is all in the U S. While the underutilized capacity is in is in our countries outside of the U S. So.
Michael Dastoor: The AI growth is all in the U.S. while the underutilized capacity is in countries outside of the U.S. So I do expect 20 bps to come back from a better utilization. And I'm not suggesting that would happen next year. It would all depend on recovery of end markets and our ability to execute to those end markets. So 20 bps on utilization, I would expect another 20 bps on SG&A leverage. I think as we continue to grow, our SG&A, especially at the corporate level, will continue to hold steady. And that will have a big impact on margins going forward.
Speaker Change: I do expect 20 bps to come back from a from a better utilization and I'm not suggesting that would happen next year.
Speaker Change: All depend on recovery of end markets and our ability to execute to those end markets. So 20 bps on utilization I would expect another 20 bps on our SG&A leverage I think.
Speaker Change: As we continue to grow our our SG&A and especially at the corporate level, we will continue to hold steady.
Speaker Change: Steady and that will have a big impact on our margins going forward again.
Michael Dastoor: Again, not suggesting 20 bps in 26. It's a very high level number over the next two, three years. And then last but not least, 20 bps from a mixed standpoint, it's growth in higher margin business as we get into some of the other better performing markets. I think that 20 bps does come through. And then if you go beyond 6% as well, we're not just going to stop at 6%. There's a whole bunch of vertical integration. We've talked about things like farmer filling. We've talked about other parts that we can collaborate on with customers in a deeper end-to-end solution.
Speaker Change: Not suggesting 20 bps and 26.
Speaker Change: It's a very high level number over the next two or three years, and then last but not least 20 bips from a from a mixed standpoint, its growth and higher margin business.
Speaker Change: As we get into some of the other.
Speaker Change: Better performing market. So I think that 20 bps, that's come through and then if you go beyond 6% as well, we're not just going to stop at six there's a whole bunch of political.
Speaker Change: Integration are you able to we've talked about things like that.
Speaker Change: Like a far more filling we've talked about other parts that we can that we can.
Speaker Change: Collaborated on with customers and are in a in a deeper end to end solution. That's what that will get us to that next step beyond the 6%.
Ruplu Bhattacharya: That's what will get us to that next step beyond 6%.
Speaker Change: Okay.
Unknown Executive: Thank you.
Mark Sachs: The next question is coming from Mark.
Speaker Change: Thank you. The next question is coming from Mark Delaney of Goldman Sachs. Please go ahead.
Michael Dastoor: Sachs, please go ahead. Yes, good morning. Congratulations on the strong results and thanks very much for taking my question. First, I'm hoping to better understand how you're assessing the potential risk that some of the strong sales that you saw in the third quarter was due to pull-in buying, perhaps because of tariff uncertainty, and is that a factor in the guidance for sequential moderation and revenue in the fourth quarter? So, no, I think if you look, bulk of our revenue was in capital equipment and in the cloud data center infrastructure. Both of those are U.S. centric, tariff impact is minimal there, so I don't expect to see any pull-ins.
Mark Delaney: Yes, good morning, congratulations on the strong results and thanks very much for taking my questions.
Mark Delaney: First I'm, hoping to better understand how you're assessing the potential risk that some of the strong sales that you saw in the third quarter was due to Poland buying perhaps because of tariff uncertainty and is that a factor in the guidance for a sequential moderation in revenue in the fourth quarter.
Mark Delaney: So no I think if you look bulk of our bulk of our revenue beat was in capital equipment.
Mark Delaney: And in the cloud data center infrastructure, both of those are U S centric a tariff impact is minimal there are so I don't expect to see any pull ins whatnot overall, even beyond that Mark I don't think we're seeing pool.
Michael Dastoor: We're not overall, even beyond that, Mark, I don't think we're seeing pull-ins of any magnitude. Right now, the whole tariff situation is still fluid, still dynamic, things are moving around and nobody wants to make decisions based on paying too much of a tariff or too little of a tariff. So, I think at this stage, we're just, customers and Jabil, we're collaborating, we're obviously having a lot of discussions, but no pull-in of significance, at least we're not seeing that.
Mark Delaney: Pull ins of any magnitude right now the tariff situation is still fluid. So dynamic things are moving around and nobody wants to make decisions based on on paying too much of a delta between a little bit better because I think at this stage. We're just customers then and jabil with elaborating where that we'll see.
Mark Delaney: A lot of discussions, but no pull in of significance.
Mark Delaney: At least we're not seeing that.
Mark Sachs: Very helpful. Thanks, Mike.
Mark Delaney: Very helpful. Thanks, Mike My second question was around the announced planned expansion in the U S is this primarily to support current customers and programs or do you see incremental opportunity, that's giving you the confidence to commit more capital domestically. Thank you know so I think the the best part about this new investment.
Michael Dastoor: My second question was around the announced planned expansion in the US. Is this primarily to support current customers and programs? Or do you see incremental opportunities that's giving you the confidence to commit more capital domestically? Thank you. No, so I think the best part about this new investment is it's not due to just existing customers. It's a portfolio that we're looking at. It's diversified, expanding our hyperscaler base, expanding our polo base. So I think overall, it is expanding our customer base in a really positive manner. I really have good thoughts about this site. Once it's up and running, it's not just going to be in the cloud data center.
Mark Delaney: It's it's not you.
Mark Delaney: You'd adjust existing customers. It's a it's a portfolio that we're looking at is diversifying and expanding our hyperscale a base expanding.
Mark Delaney: Polo based so I think overall it is expanding.
Mark Delaney: Expanding our customer base are in a really positive matter or a yeah, I really haven't but thoughts about this about this side once it's up and running it's not just going to be in the cloud data center are going to look at liquid cooling power management, so everything associated with that.
Michael Dastoor: We're going to look at liquid cooling, power management. So everything associated with that entire AI ecosystem will be sort of showcased in that facility. Thank you.
Mark Delaney: Tire AI ecosystem will will it be sort of showcased in that facility.
Speaker Change: Thank you.
Steven Fox: The next question is coming from Steven Fox of Fox Advisors. Please go ahead. Hi, good morning. A couple questions if I could. First, just looking at the quarter just recorded, can you just sort of discuss the III margins quarter over quarter? So it looks like you were flat at 5.3% on almost an $800 million increase in revenue. So what specifically were the puts and takes there that we should consider and how those apply maybe going forward?
Speaker Change: Thank you. The next question is coming from Steven Fox of Fox Advisors. Please go ahead.
Speaker Change: Hi, Good morning, a couple of questions if I could first.
Speaker Change: Just looking at the quarter just reported.
Speaker Change: Can you just sort of discuss the II margins quarter over quarter. So it looks like you were flat at five 3% on a almost an 800 million dollar increase in revenue. So what specifically what are the puts and takes there that we should consider and how those apply maybe going forward and then I had a follow up.
Gregory Hebard: And then I had a follow up. Yeah, so hey, Steve. Good morning. It's Greg. So on margins for IEI, was it 5.3% similar to what we saw in Q2? You know, what we did see with the very strong growth during the quarter, we did incremental investments during the quarter that did put some pressure on margins for the segment. And, you know, as we get that to scale, we do see that improving to get at and above our enterprise level margins. There's always some level of cost associated with an explosive growth level at this scale, Steve.
Speaker Change: Yeah, So hey, Steve Good morning, it's Greg So on margins for prior it was at five 3% similar to what we saw in Q2.
Speaker Change: You know, what we did see with with the the very strong growth during the quarter, we did incur.
Speaker Change: Incremental investments during the quarter that did put some pressure on margins for the segment and then you know as we get that to scale, we do see that improving to get at and above our enterprise level margins.
Speaker Change: There's always some level of cost associated with the with an explosive growth level at the scale of less steep so I.
Gregory Hebard: So I think overall, we will continue to get leverage going forward. We did get some leverage, by the way, on the cloud and DCI side. I think you don't see it all in the intelligent infrastructure because our communications 5G side is a little bit diluted there. So there's a little bit of a mix effect going on in intelligent infrastructure as well.
Speaker Change: I think overall, we will continue to get leverage going forward, we did get some leverage by the way on the on the cloud in D. C. I side I think you don't see it all in the intelligent infrastructure. It because communications by decided as a is a little bit dilutive. There. So there's a little bit of a mix.
Speaker Change: Is that going on on and intelligent infrastructure as well.
Michael Dastoor: Great, that's very helpful. And then just sort of looking ahead, not just necessarily for this quarter, but beyond. Mike, how do we think about just managing all of this growth? You mentioned you highlighted a new plant coming online, new customers, there seems to be vendor consolidation going on, new opportunities for other technologies for you guys to focus on. How do you sort of ensure that you're adding capacity at the right rate, focus on the right technologies, etc.? But just any thoughts there, given how great the growth is and going forward? Yeah, so the team is really focused on this expansion, Steve, they're talking to customers constantly.
Speaker Change: Great. That's very helpful. And then just sort of looking ahead, not just necessarily for this quarter, but beyond.
Mike: Mike how do we think about just.
Mike: Managing all of this growth you mentioned you highlighted a new plant coming online new customers, there seems to be vendor consolidation going on new opportunities for other technologies to for you guys to focus on how do you how do you sort of ensure.
Speaker Change: That you're adding capacity at the right rate I'm focused on the right technologies et cetera, but just any any thoughts there given you know how great the growth is and going forward.
Speaker Change: Yeah. So the team is really focused on this expansion that Steve there talking to customers constantly you one of the one of the things we were seeing is a chicken and egg.
Michael Dastoor: One of the things we were seeing in the chicken and egg situation with capacity versus new customers and new orders, potential customers want to see a site as well. So I think the team is fully engaged. They've been talking to multiple players, they've been talking to multiple customers and potential customers. And obviously, we feel like there's certainly a path to filling out that site over the next few years. So overall, I do think that expansion continues in good shape. Don't forget beyond cloud data center, we have the photonics side, we're winning some liquid cooling sort of customers as well.
Mark Delaney: Situation with capacity versus new customers and new orders customers potential customers wanted to see your sites as well so.
Mark Delaney: I think the the team is fully engaged and have been talking to multiple players have been talking to multiple <unk>.
Mark Delaney: Customers and potential customers are and obviously, we feel like there's certainly a path to filling out that site over the next.
Mark Delaney: A few years. So overall I do think that expansion continues and in good shape don't forget beyond cloud data center, we have the photonics side.
Speaker Change: Syed a winning some liquid cooling now.
Michael Dastoor: So it's across the board, thermal management, power management, all of that will come into play here. And it just allows us to showcase our entire end to end solution again, in that in that side across the entire ecosystem.
Speaker Change: Customers as well so it's across the board double management power management, all of that will come into play and it just allows us to showcase.
Speaker Change: Our entire end to end solution again are in that in that side across the entire ecosystem.
Steven Fox: Great, that's very helpful. Thank you. Thanks. Thank you.
Speaker Change: Great. That's very helpful. Thank you.
Speaker Change: Thanks.
Melissa Fairbanks: The next question is coming from Melissa Fairbanks of Raymond James. Please go ahead. Hi, guys. Thanks very much. Great news on the U.S. manufacturing investment. You mentioned that this is largely AI-driven or AI-related data center business that's driving this investment. Are there any other segments or end markets that are exploring moving to the U.S. or maybe consolidating in other geographies longer term? Are you seeing more customer conversations about this given the tariff uncertainty?
Speaker Change: Thank you. The next question is coming from Melissa Fairbanks of Raymond James. Please go ahead.
Melissa Fairbanks: Hi, guys. Thanks, very much great news on the U S manufacturing investment you mentioned that this is largely AI driven or or AI related data center business. That's driving this investment are there any other segments or end markets that are exploring moving to the U S or maybe consolidating in other geographies.
Melissa Fairbanks: Fees longer term are you seeing more customer conversations about this given the tariff uncertainty.
Michael Dastoor: So Melissa, I think overall, if you look at what we've done over the last few years, we've regionalized our manufacturing base. A lot of our manufacturing is done in region. So there's not that much of a tariff impact. Sure, there will be odds and bids here and there in terms of tariff impact. But I think from a customer perspective, we seem to be in a decent shape in terms of where they're located. And most of the locations are close to their end consumer market. So we're in good shape there. We'll constantly look at moving things around.
Melissa Fairbanks: So Melissa I think overall, if you look at what we've done over the last few years, we've regionalized manufacturing base a lot about manufacturing is done in region. Now so there's not that much of a tariff impact sure there will be a odds and bits here and there in terms of tariff imp.
Speaker Change: But I think from a customer perspective, we seem to be in a in a decent shape in terms of where they're located and most of the most of the locations are close to their at their end consumer market. So we're in good shape. There are little constantly look at moving things around.
Melissa Fairbanks: I think the end markets that suit better to the US, obviously healthcare is a big one. The entire intelligent infrastructure segment is one. And then if you look at digital commerce as well, that's an area that we're focused on. And bits and pieces could move to the US on that as well as automation, as robotics, as some of the capabilities that we have in that space get more meaningful and more necessary as we expand in the US. Okay, great. Thanks.
Melissa Fairbanks: And I think the end markets that are sort of better to the U S. Obviously health care.
Melissa Fairbanks: Is a is a big one the Italian intelligent infrastructure segment is one and then if you look at digital commerce as well that's an area that we're focused on and bits and pieces could move to the U S on that as well as as automation as robotics as as some of the some of the capabilities that.
Melissa Fairbanks: We have in that space are get more meaningful and more necessary as as we expand and are in the U S.
Speaker Change: Okay, great. Thanks, and then just to give you a little break from the cloud and AI questions. [laughter]. I was wondering you know the stock has obviously moved up pretty considerably recently free cash flow is outstanding just wondering how youre thinking about capital allocation you mentioned.
Michael Dastoor: And then just to the stock has obviously moved up pretty considerably recently. Free cash flow is outstanding. Just wondering how you're thinking about capital allocation. You mentioned that this US investment was not going to change your capex levels, but thinking about how you're looking at deploying cash in the future. Yeah, absolutely. I think that's a great question. Yeah, good morning, Melissa. What I would say is that we continue to remain committed to returning value to our shareholders. To your point, you know, free cash flows is looking very strong this year at $1.2 billion. You know, returning 80% of our free cash flow to buybacks, you know, we're committed to that.
Speaker Change: This U S investment was not going to change your capex levels, but thinking about how youre looking at deploying cash in the future.
Speaker Change: Yeah. Good morning was a what I would say is we continue to remain committed to returning value to our shareholders.
Speaker Change: To your point, you'll free cash flows is looking very strongest euro at $1 2 billion.
Speaker Change: You know returning 80% of our free cash flow to buybacks, we're committed to that.
Speaker Change: We do see our current $1 billion share authorization program being completed in Q4, and our typical cadence of of you know new authorizations and continuing that.
Gregory Hebard: We do see our current $1 billion share authorization program being completed in Q4. And our typical cadence of, you know, new authorizations and continuing that, that that type of policy, we typically announce between July and September. So, you know, more to come on that in the coming months.
Speaker Change: Type of policy, we typically announced between July and September so more to come on that in the coming months and Melissa If I may just add I think if you remember the the mobility divestiture are once we completed that a divestiture our capex requirements have gone down considerably our free cash flow.
Michael Dastoor: And Melissa, if I may just add, I think if you remember the mobility divestiture, once we completed that divestiture, our CapEx requirements have gone down considerably, our free cash flow is in really, really good shape. We're almost a completely different company from a capital allocation perspective. We continue to see share buybacks as a major sort of part of our strategy. So everything's moving in the right direction as it relates to cash flow. Great. Thanks very much. Fantastic job managing it. Thanks very much. Thank you.
Speaker Change: And really really good shape, there almost completely different a company promo from a capital allocation perspective, we continue to see share buybacks as well as a major or are sort of part of our strategy. So everything is moving in the right direction as it relates to cash flows.
Speaker Change: Great. Thanks, very much fantastic job managing it thanks very much. Thank you.
Tim Long: The next question is coming from Tim Long of Barclays. Please go ahead. Thank you. Yeah, two as well, if I could. First, back to the, you know, cloud data center, obviously upside in the quarter and in the guide pretty meaningfully. Just give us a little update on, I think you talked about some of the product breadth that you're seeing in that upside. Could you just, you know, maybe double click on that and also talk about kind of customer diversity within that bucket, how broad that's getting. And then to follow up on the, I'm just hoping anything new on, you know, customer activity there.
Tim Long: Thank you. The next question is coming from Tim long of Barclays. Please go ahead.
Tim Long: Thank you.
Tim Long: Two as well if I could.
Tim Long: First back to the cloud data center, obviously upside in the quarter and then the guide pretty meaningfully I was just.
Tim Long: Give us a little update on I think you talked about some of the product.
Tim Long: Breath that youre seeing in that upside could you just maybe double click on that and also talk about kind of customer diversity women within that bucket, how how broad that is getting.
Tim Long: And then to follow up on that I was just hoping you could update us on the trends here transceiver business anything new on customer activity there.
Tim Long: And now that we're a few months away from the release of the 1.6 key, any customer feedback or outlook on timing there would be helpful. Thank you.
Tim Long: Now that we're a few months away from the release of the $1 60, any any customer feedback or or outlook on timing there would be helpful. Thank you.
Michael Dastoor: So a couple of a couple of drivers in the intelligent infrastructure segment talk about capital equipment. I think the automated the testing cycle is is in full play, I think, with the custom chip requirements with new technologies, with all the complexity with with AI based infrastructure, that whole testing is is is expanding considerably. And I think it's got pretty long legs overall. So WFE on that side is a little bit sluggish, but AI on WFE is actually doing quite well. The sluggishness is more on the automotive consumer side. And then the the cloud data center itself, if you the bulk of the the increase in revenue was driven by a server rack integration.
Tim Long: So a couple of a couple of drivers in the intelligent infrastructure segment out and talking about capital equipment are I think the automated the testing cycle is is in full play I think with the custom chip requirements with new technologies.
Tim Long: With all the complexity with with AI.
Tim Long: Based infrastructure that hole testing is is expanding considerably and I think it's got pretty long legs Oh.
Tim Long: Overall, our Wi Fi on that side is a little bit sluggish, but AI on WMC is actually doing quite well the sluggishness is more on the automotive consumer.
Tim Long: And then the cloud data center itself. If you are that the bulk of the increase in revenue was driven by a southern Iraq integration don't forget that silverback integration is heavily heavily driven by our design architecture and engineering teams were.
Michael Dastoor: Don't forget that server rack integration is heavily, heavily driven by our design architecture and engineering teams where we create a situation where there's a handshake between the hyperscaler and us brings the use to launch to to a much more acceptable percentage. So it's not it's not just by chance that we're winning that business. Obviously, end market is growing. It continues to grow. It's actually accelerating, in my view, and we're winning winning market share there as well. Obviously, for the future, we'll be looking at liquid cooling and and some of the other power management, thermal management pieces.
Tim Long: Create a situation where there's a the handshake between the hyper scaler and us.
Tim Long: <unk> brings the used lunch, though to a much more acceptable percentage. So so it's not it's not just by chance that we're winning that business. Obviously end market is growing it continues to grow well, it's actually accelerating in my view.
Tim Long: Permitting winning market share out there as well obviously for the future, we'll be looking at liquid cooling and and some of the other power management thermal management pieces, but those are are in early stages, yet and again, a big drivers for growth in the future.
Michael Dastoor: But those are in early stages yet. And again, big drivers for growth in the future.
Michael Dastoor: And on the transceiver side? Oh, yeah. So on the on the transceiver side, we're seeing really good growth. I think if you if you go back a couple of years, we made we made this the photonics acquisition from Intel, we acquired a design and engineering capability. So there's a whole bunch of engineers that we that we acquired with clean rooms and capacity to build out the transceivers. Demand for transceivers is obviously on the rise today. Today we're moving the 200 and 400 moving to 800 G. We showcased our 1.6 T capability at UFC two or three months ago.
Tim Long: And on the transceiver side.
Tim Long: Yes, so on the on the transceiver side, we're seeing really good growth I think if you.
Tim Long: If you go back a couple of years, we made.
Tim Long: This the photonics acquisition from Intel.
Tim Long: Acquired a design and engineering capability. So there was a whole bunch of engineers.
Tim Long: That we that we acquired.
Tim Long: With clean rooms and capacity.
Tim Long: To build out our the transceivers are demand for.
Tim Long: Well try and see those as is obviously on the rise today.
Tim Long: Today, but are more in that 204 hundred are moving to 800, a G. We showcased a 160 a capability at OFC.
Michael Dastoor: And that's been well received by our customer base. Obviously, 1.6 T is more advanced. And probably towards the end of the year, early part of next calendar year is when we'll see an uptick there. But we're definitely seeing 200, 400 moving to the 800. And at some point in time, that will continue into the 1.6 T as well.
Tim Long: Two or three months ago, and that's been well received.
Tim Long: Our customer base, obviously 160, <unk> is more advanced and probably towards the end of the year early part of next calendar year is when we'll see an uptick there, but we're definitely seeing a.
Tim Long: 204, hundreds are moving to the eight hundreds and at some point in time.
Tim Long: That will continue into the $1 60 is as well.
Tim Long: Yes.
Tim Long: Okay, thank you. Thanks. Thank you.
Tim Long: Okay. Thank you.
Tim Long: Uh huh.
Samik Chatterjee: The next question is coming from Samik Chatterjee of J.P. Morgan. Please go Hi, thanks for taking my question. I guess maybe if I start with the Q4 guide, and Mike, the run rate that you have for Q4 in regulated industries and connected living and digital commerce, both of them are down modestly in Q4, while intelligent infrastructure is growing rapidly. I'm just trying to think in terms of when we look below that headline number for regulated industries and connected living, are there drivers that as you go over the next 12 months, drive those segments back to growth?
Speaker Change: Thank you. The next question is coming from stomach cavity of J P. Morgan. Please go ahead.
Speaker Change: Hi, Thanks for taking my question I guess, maybe if I start with the Q4 guide and Mike The run rate that you have for Q4 and regulated industries and connected living in the Gulf Coast.
Speaker Change: All of them are down modestly in Q4.
Speaker Change: Intelligent infrastructure is growing rapidly I'm, just trying to think in them. So when we look below that headline number for regulated industries in connected living.
Speaker Change: Are there drivers that as you go within the next 12 months to drive those segments back to growth or it should be sort of starting assumption for the next 12 months would be that those two segments I mean, a bit sluggish while most of the growth comes from intelligent infrastructure.
Gregory Hebard: Or should the sort of starting assumption for the next 12 months be that those two segments remain a bit sluggish, while most of the growth comes from intelligent infrastructure? Thank you, and have a follow.
Speaker Change: First off just think and I have a follow.
Gregory Hebard: Yeah, good morning, Samik. This is Greg. I'll start with your question on Q4. You know, for regulated, you know, we're still being very prudent on our guidance, especially when you look at EVs and renewables. So that's definitely, you know, impacting our guidance for Q4. And then on consumer living and digital commerce, you know, we definitely have been very prudent as well on the revenue guide there. You know, we have been pruning various customers and programs in the consumer-related area. Still feel good about the margins that we're seeing there, but again, just being prudent and conservative on the guidance for those two segments.
Speaker Change: Yes. Good morning. This is Greg I'll start with your question on Q4 for regulated Yeah, we're still being very prudent on our guidance, especially when you look at E vs. A renewables.
Speaker Change: So that that's definitely impacting our guidance for Q4, and then on a consumer living and in digital Commerce. We we definitely have been very prudent as well on the revenue guide there you know we have been pruning our.
Speaker Change: Various customers and programs and in the consumer related area.
Speaker Change: Still feel good about the margins that we're seeing there, but again, just being prudent and conservative on the guidance for those two segments.
Gregory Hebard: and anything in terms of drivers to call out that changes we go into fiscal 26. No specific drivers, I mean, other than just, you know, we're not seeing any turnaround yet in automotive and also in the renewable energy markets. So still to be determined there. And then also just on consumer, yeah, we're just being conservative. I do see some level of growth in healthcare and the digital commerce. Those are a creative margin. So really good progress there in terms of what we're seeing coming again now in the healthcare space. From booking to actually getting in the factory, there's an 18, 24 month time lag.
Speaker Change: And anything in terms of drivers to call out that change as we go into fiscal 'twenty six.
Speaker Change: Oh no no no specific drivers I mean other than just you know, we're not seeing any any turnaround yet and in automotive.
Speaker Change: And also in the renewable energy energy markets, so still still to be determined there and.
Speaker Change: Then also just on consumer you were.
Speaker Change: We're just being conservative.
Speaker Change: I do see some level of a.
Speaker Change: Some level of growth in our health care and the digital call. Most of those are accretive margin. So.
Speaker Change: Really good progress there in terms of what was seen counting again now in the health care space.
Speaker Change: From booking to are actually getting into the factory. There's an 18 24 month time lag we are winning business. Some of it will head towards the end of 'twenty six some of it will hit in 27 28, So just something to be aware about health care is.
Gregory Hebard: We are winning business. Some of it will head towards the end of twenty six. Some of it will hit in twenty seven, twenty eight. So just something to be aware of. But healthcare is definitely an area that we're quite excited about. If you look at digital commerce, that's another area that we're pretty excited about. You're looking at warehouse automation. You're looking at a whole bunch of handheld devices. We're looking at humanoids, robots. That's further out. Obviously, that's not going to be any time soon. And then there's the retail shelf piece as well. So that entire digital commerce is a is an exciting area for us as well.
Speaker Change: It's definitely an area that we're all quite excited about our if you look at digital Commerce. That's another area that we're pretty excited about you're looking at the warehouse.
Speaker Change: Automation, you're looking at a whole bunch of a handheld device is we're looking at humanoid robots. That's further out obviously, that's all going to be anytime soon and then there's the retail shelf piece as well so that entire digital cordless is Ah is an exciting area for us as well.
Michael Dastoor: And for my follow-up, if I can just go back to the announcement on the manufacturing capacity, any broad way for us to think about the $500 million, how to split that between capital versus operating expenses over the time period, and maybe, Mike, in terms of your reference to this being largely capacity for incremental sort of customer wins, in terms of tightening up utilization in the international locations, do you see sort of over time tilting your manufacturing more to the U.S. and maybe sort of restructuring some of the manufacturing in international locations to achieve that better utilization, or do you see enough demand to fill the international locations where you have a bit more underutilization at this point?
Speaker Change: Got it and for my follow up if I can just go back to the announcement on the manufacturing capacity any Broadway.
Speaker Change: Broad way for us to think about the 500 million hold a split that between <unk> voices or operating expenses or the time period and maybe Mike in terms of your reference to this being largely capacity for incremental sort of good customer wins in dumps of tightening up utilization in the international location.
Speaker Change: <unk> do you see sort of overtime tilting your manufacturing most of the U S and maybe sort of restructuring so all of the manufacturing and intellectual locations, but you've got better utilization or do you see enough demand to fill the international locations, where you have a bit more underutilization at this point. Thank you.
Michael Dastoor: I do think today our manufacturing base is really well regionalized. We are manufacturing in regions, so we're in the right locations for manufacturing. Some of it will make sense to bring back to the U.S., some of it won't because it's region for region and local for local, so it'll have to be within the region or within the country itself. I don't think the U.S. The site here is specifically for intelligent infrastructure. It's not a multi-end market site. I do think the whole CapEx piece will be a long-term. The 500 million is not a year one, year two, year three thing.
Speaker Change: I do think our today, our manufacturing base is really well regionalized, we are manufacturing in regions. So we're in the right locations for manufacturing.
Speaker Change: Some of it will make sense to bring back to the U S. Some of it one because it's it's region for region and local for local so that it'll have to be within the regional within the country itself.
Speaker Change: I I I don't think.
Speaker Change: The U S.
Speaker Change: The site here specifically for intelligent infrastructure. It's it's it's not a it's not a multi ER and market.
Speaker Change: Site Ah I do I do think the whole capex piece will be a long term. The 500 million is not a year one year two year three thing gets all the multiple yeah, then it's a little bit of a chicken and egg as well as as we win business the capital expenditure will occur.
Michael Dastoor: It's over multiple years, and it's a little bit of a chicken and egg as well. As we win business, the capital expenditure will occur as it gets pushed out. It will slow down. There's a whole bunch of dynamics in that site. I wouldn't focus too much on the 500 million. I think we did say from a CapEx standpoint, we're still extremely comfortable with our 1.5% to 2% range, and that's not going to change going forward.
Speaker Change: As as it gets pushed out a little.
Speaker Change: Little slow down so there's a whole there's a whole bunch of dynamics in that side I wouldn't focus too much on the $500 million are I think we did say, yes from a capex standpoint, we're still extremely comfortable with about one 5% to 2% range and that's not that's not going to change going forward. So it'll all be within the one 5% to 2%.
Speaker Change: Hence our range in terms of capital expenditure.
David Vogt: Thank you.
Okay. Thank you.
David Vogt: Thank you, the next question is coming from David Vogt of UBS, please go ahead. Great. Thanks, guys, for getting me in. And Mike, I know you said not to focus on the 500 million, but I'm going to focus on it anyway. Can you help frame sort of the revenue opportunity that underpins that incremental 500 million of investment over the next couple of years? And without that 500 million, do you have enough capacity to kind of hit your growth plan over the next two to three years, particularly in cloud and data center? And then my follow up is, you know, on the networking side, obviously, you called out weakness in 5G.
Speaker Change: Thank you. The next question is coming from David vote of UBS. Please go ahead.
Speaker Change: Great. Thanks, guys for getting me in and Mike I know you said not to focus on the $500 million bucket I'm going to focus on it anyway, you help frame sort of the revenue opportunity that underpins that incremental 500 million of investment over the next couple of years and without that 500 million do you have enough capacity to kind of hit your growth plan over the next.
Speaker Change: Two to three years, particularly in cloud and data Center and then my follow up is on the networking side, obviously, you called out weakness in <unk> can you maybe speak to the trends underneath.
Michael Dastoor: Can you maybe speak to the trends underneath 5G? What I mean by that is X 5G, how is networking trending over the last couple quarters? And how should we think about that going forward? If we strip out the 5G business?
Speaker Change: <unk>, what I mean by that is X five G. How is networking.
Speaker Change: Trending over the last couple of quarters, and how should we think about that going forward. If we strip out the <unk> business. Thanks.
Michael Dastoor: So I'll answer your second question first. I think 5G is a little bit dilutive to our business. I think excluding that the margins are accretive in that networking space. I think we'll provide more guidance in September. I think Photonics is ramping in that networking line item. I think we've done maybe 300 to 400 in 2025. We're looking at maybe 750, 826, and then could be a billion dollars beyond that as well. So good growth rates expected for that line item.
Speaker Change: So I'll answer your second question first I think five G is a little bit dilutive baccarat business I think excluding excluding that the margins are accretive and that are not working out.
Speaker Change: Space I think we'll provide more guidance in our in our.
Speaker Change: September or I think photonics is ramping.
Speaker Change: And in that networking line item a threat and I think we've done maybe 300 to 400 and in 'twenty five.
Speaker Change: We're looking at maybe 750 826, and then it could be $1 billion, but beyond that as well. So a good growth rates are expected for that line item Mark can you repeat your first question. Please.
Michael Dastoor: Can you repeat your first question, please? Yeah, on the $500 million investment, obviously, you're mostly local for local, as we've talked about pretty extensively. But without the $500 million, could you hit your growth targets today within intelligent infrastructure? Or is this critical capacity addition needed to kind of hit your multi-year plan? And if so, what kind of revenue can be supported by this incremental $500 million of capacity? If we just think about what your gross PPD looks on the balance sheet, I'm just trying to make sort of an extrapolation of how to think about what the incremental revenue could look like, particularly within that segment.
Mark Delaney: Yeah on the $500 million investment, obviously, you mostly local for local I know you've talked about pretty extensively but.
Mark Delaney: Without the $500 million could you hit your growth targets today within intelligent infrastructure or is this critical capacity addition needed to kind of hit your multi year plan and what kind of if so what kind of revenue can be supported by the incremental $500 million of capacity. If we just think about what your gross PP&E looks on the balance sheet I'm, just trying to make sort of an extrapolation.
Mark Delaney: How to think about what the incremental revenue could look like particularly within that segment.
Michael Dastoor: I think over time, the revenue will be considerable, will be material. I won't, I won't suggest any numbers yet. But the 500 million, again, is a very long term sort of number. It's not first two, three or four years, it's over multiple years. I do think the site with all the capabilities that we have, the execution of the team, they should be able to ramp up relatively soon. I did highlight that it only comes online in the middle of calendar year 26. I don't expect much of a, much of an impact in 26 itself. In 27, there'll be a step up and 28 will be an even bigger step up.
Speaker Change: I think all the time are the revenue will be a considerable it will be material Oh, I wouldn't I wouldn't suggest any numbers yet, but the 500 million again is a very long time sort of number what's not but two or three or four years. It's all there are multiple yeah.
Speaker Change: Is I do think the site with all the capabilities that we have the execution of the team are they should be able to ramp up relatively soon.
Speaker Change: Soon I did highlight that it only comes online in the middle of calendar year 'twenty six I don't expect much of a much of an impact in 'twenty six itself in 27 there'll be a step a step up in 28 will be an even bigger step.
Michael Dastoor: So I do think, I do think very high potential for the site.
Speaker Change: Step up so yeah, I do think I do think a very high potential for the site are in terms of growth rate.
Michael Dastoor: In terms of growth rate for our existing outside of that site, I think we have capacity. We're ramping, we're ramping different parts of that intelligent infrastructure in different locations as well. So overall, overall, we do have a, we do have a decent path to growth even beyond that.
Speaker Change: For our existing outside of that side I think we have a capacity we're ramping yeah, what I'm being different parts of that intelligent infrastructure in different locations.
Speaker Change: Locations as well so our overall overall, we do have a we do have a decent back to to grow even beyond that side.
David Vogt: Great. Thanks, guys. Thank you.
Speaker Change: Great. Thanks, guys.
Ruplu Bhattacharya: The next question. of Bank of America, please proceed with your follow-up. Hi, thanks for taking my follow up. Mike, you know, a lot of things are going strong for Jabil.
Speaker Change: Thank you. The next question is coming from.
Speaker Change: Bank of America. Please proceed with your follow up question.
Speaker Change: Alright, Thanks for taking my follow up.
Speaker Change: Like you know a lot of things are going strong for jabil, what's the biggest risk you see to this story today.
Michael Dastoor: What's the biggest risk you see to this story today? And, and also, you've done some acquisitions in the past, over the last couple of years, you've bought the Intel transceiver business liquid cooling, how would you prioritize M&A versus buybacks over the next year?
Speaker Change: And then also you've done some acquisitions in the past over the last couple of years, you've but the Intel transceiver business liquid cooling.
Speaker Change: How would you prioritize M&A versus buybacks over the next year. Thank you.
Michael Dastoor: Thank you. So a couple of end markets are performing as well, and we've highlighted those over the last several quarters. Obviously, EV has taken a little bit of a downward move, and then renewables. Now, I do want to highlight that in that line item of renewables, energy and infrastructure, renewables is only 600 million. And so when I say downside, I'm thinking of maybe 200, 300 most, there couldn't be an upside of 200, 300 million in that line item as well. I think even from an automotive and EV perspective, one of the things we've got three or four dynamics going on there where obviously our China business is doing well.
Speaker Change: So a couple of a couple of end markets sound job performing as well and we've highlighted those over the last several.
Speaker Change: Cortez, obviously, he has taken a little bit of a downward move and then renewables, though I do want to highlight that.
Speaker Change: In that line item of renewables energy and infrastructure renewables is only 600 million. So when I say downside I'm thinking of maybe 203 under most of that couldn't be an upside of 200 and 300 million are in that line item as well I think even from an automotive and E. B a perspective, one of the things.
Speaker Change: We've got three or four dynamics going on there why are obviously.
Speaker Change: Obviously, our China business is doing well with that we're actually gaining new customers. There Oh, we manufacturing region in that E D space, but most of our customers so very minimal.
Michael Dastoor: We're actually gaining new customers there. We manufacture in region in that EV space for most of our customers, so very minimal tariff impact. And then the power business for our largest customer is doing reasonably well, and that's a little bit of an offset lower car volume sales. And most of all, we've been very conservative and prudent already in that line item. So answer to your question in terms of what... What risk? Those are more small sort of hiccups. I don't see that as major items to get worried about. What was the second question again? Just on M&A versus buybacks.
Speaker Change: Tariff impact ER.
Michael Dastoor: And then the ball business for our largest customer is doing reasonably well and that's a little bit of an offset to lower our car volume sales and most of all we're we've been very conservative and prudent already in that line item. So our answer to your question in terms of what.
Speaker Change: Well, what what risk. It's those are more small sort of a hiccup. So I don't I don't see that as a as major as major items to.
Speaker Change: To get worried about.
Speaker Change: What was the second question again.
Speaker Change: On M&A versus buybacks.
Michael Dastoor: Oh yeah, it's your follow-up to your follow-up. Yes. So look, we've always made tuck-in acquisitions. Most of them are capability driven. If you go and look back at our history over the last maybe 24 months, the silicon photonics from Intel, the liquid cooling, the Micros acquisition, the PII drug filling acquisition, they're all capability driven. They all open up huge tabs for us, and that will continue to be the approach. I think right now the focus is still no change in the whole buyback capital allocation methodology. We're looking at 80% being allocated to buybacks, so no major change there.
Speaker Change: A follow up to your follow up [laughter]. So look we've always made tuck in.
Speaker Change: Acquisitions most of them are capability, driven if you go and look back at our history over the last maybe 24 months are the silicon photonics from Intel the liquid cooling.
Speaker Change: Microsoft <unk> acquisition.
Speaker Change: Hi.
Speaker Change: Drug filling our acquisitions are all capability driven those are all they're all open up huge Tam for us and that's that will continue to be the approach I think right now our focus is still no change in the hole.
Speaker Change: <unk> capital allocation methodology, when looking at 80% are being allocated to to buybacks. So no major change there are.
Michael Dastoor: We'll probably renew our buyback authorization in July with the board. So I think overall no major change in the M&A piece. Having said that, if a larger M&A does come through, which we think would be highly accretive for Jay, we'll execute on that as well. One thing to remember is our debt to EBITDA is very low. It's only 1.4, and there's plenty of room to move around in that leverage as well if needed.
Speaker Change: We'll probably renew our buyback authorization in July with the board. So I think overall no no major change in the M&A and.
Speaker Change: And the M&A piece, having said that if a larger M&A does come through which we think could be highly accretive.
Speaker Change: For J, we'll we'll execute on that as well one thing to remember that.
Speaker Change: Debt to EBITDA is very low it's only one point for and and there's plenty of plenty of room to move around them that are in that leverages, what if needed.
Unknown Executive: Thank you.
Operator: At this time, I would like to turn the floor back. Thank you.
Speaker Change: Thank you at this time I would like to turn the floor back over to Mr. Barry for closing comments.
Operator: That's our call today.
Speaker Change: Thank you that's our call today.
Operator: If you have any questions, please reach out.
Speaker Change: You have any questions. Please reach out.
Operator: Ladies and gentlemen, thank you. Thank you for your attention and interest in Jabil.
Speaker Change: Ladies and gentlemen, thank you for your participation and interest in table you may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.
Operator: You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.
Speaker Change: Okay.
Speaker Change: [music].