Jabil Inc.

Good morning and welcome to Jabil's fourth quarter of fiscal 2022 earnings call and fifth annual investor briefing. My name is Adam Berry. I'm head of investor relations at Jabil, and I represent a team here that's pretty excited to share our 2022 results with you today, while also providing additional detail around our focus and outlook as typical for our September call. In terms of agenda, over the next 60 minutes or so, we aim to accomplish the following. Discuss the trends underway within the end markets we serve. Review our fourth quarter and fiscal year 22 results. Provide first quarter guidance. Offer a fiscal 23 outlook that includes enterprise-level growth while also remaining sensible and grounded given the realities of the dynamic global macro environment surrounding us today. And finally, we'll refresh our capital allocation and shareholder return policies. And most importantly, as our session unfolds, I hope that we're able to provide you with further perspective on Jabil, which I believe is uniquely positioned to grow and win in an environment where supply chain and global manufacturing capabilities have never been so important. Joining me on today's call is Mike Destor, our Chief Financial Officer, and Mark Mondello, our Chairman and CEO. who together account for over 50 years of Jabil experience. And importantly, when you think about their respective tenures, you can't help but also think about how they have guided Jabil through periods of economic expansion and times where macro conditions were a bit more challenged. A tenure that gives me great confidence as we move into fiscal 23. So with that, there's just one more housekeeping item before we begin. Please note the following. During today's presentation, we will be making forward-looking statements, including, among other things, those regarding the anticipated outlook for our business, such as our currently expected first quarter and fiscal year net revenue, earnings, and cash flow. These statements are based on current expectations, forecasts, and assumptions involving risks and uncertainties that could cause actual outcomes and results to differ materially. An extensive list of these risks and uncertainties are identified in our annual report on Form 10-K for the fiscal year ended August 31, 2021, and other filings. JABL disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. As you can see on slide four, Jabil has vastly improved since we began these investor briefing sessions in 2018. Today, Jabil is a $33.5 billion enterprise with over 50 million square feet of manufacturing space across 100 plus sites. Our cash flow generation is strong, allowing us to invest in key end market growth while also returning considerable cash to shareholders which in fiscal 22 was $744 million. And our roughly 260,000 people moved with purpose and agility to meet customer needs within a wide-ranging composition of the end markets you see here. Moving to our next slide, you can't help but notice the global nature of our manufacturing footprint, which enables us to manufacture on a local level for a global set of customers. No matter whether it's mobility products in Asia, healthcare products in North America, or 5G infrastructure in Europe, we work with our customers to design and develop the most impactful manufacturing solutions, irrespective of region, with a focus on speed and urgency and a crisp sense of consistency from plant to plant. This is critical because in today's geopolitical climate, the ability to adjust and move with urgency has never been more important as we help customers react to changes in tariffs, the rise of pandemics and natural disasters, energy shortages, conflict, and many other unforeseen events. The JABL of 2022 is also diversified and robust, thereby allowing us to meet challenges head-on in one part of the business while outperforming in others. So just exactly how did we get here? Well, I'm here to tell you it was very purposeful. In the 2016 timeframe, our management team concluded that our model was missing an important characteristic if we were going to deliver upon our financial priorities consistently and sustainably. This important characteristic was diversification. So beginning in roughly 2017, we embarked on a journey to grow and diversify our business in areas such as 5G, cloud, healthcare, packaging, connected devices, semi-capital equipment, and electric vehicles. Our intentional and deliberate focus on these emergent end markets, combined with our already robust traditional businesses in print and retail, networking and storage, and mobility, resulted in considerable enterprise-level growth over the past four to five years, as you can see here. And as a result, today, no product or product family represents more than 5% of our business, creating an added level of comfort as demand fluctuates up and down, global taste change, and technology constantly evolves. Given our intentional focus on diversification, over the next couple minutes, I'd like to take a moment and review some of the end markets that have fueled our growth, leading to the portfolio mix you see today. In automotive, we're supporting a rapid shift in technology to electric vehicles, as evidenced by our 121% revenue growth since fiscal 18. The growth has been driven by our best-in-class portfolio of customers and an addressable market that is growing by the day. In EV, our manufacturing processes support the industrialization and production of complex technology for electric vehicles, including battery management systems, inverters, converters, cables, off-board and on-board charging. And importantly, all of this increased complexity translates to increased content per vehicle for Jabil. Since fiscal 18, our 5G wireless and cloud business has nearly tripled in spite of the asset light nature of the cloud model, as our design to dust value proposition resonates with existing and new customers. From secure supply chain design and manufacturing to rack integration and ultimately recycling, Jabil is winning in an expanding market. In healthcare, our business has doubled since fiscal 18, as the industry is experiencing tremendous change due to rising costs, aging populations, and the demand for better healthcare in emerging markets. To address these trends, doctors, hospitals, and patients are adopting new and more innovative ways to deliver better, more personalized treatment. Consequently, healthcare OEMs are partnering with Jabil to navigate these changes. Today, we support customers in the development of solutions across medical devices, diagnostics, pharmaceutical delivery, and orthopedics. From rapid prototyping using additive manufacturing to high-volume production, tooling, injection molding, robotics, and rigorous test procedures for regulatory compliance, Jabil Healthcare offers an unmatched suite of capabilities, all of which uniquely positions us to offer technology-enabled solution to our customers. In industrial and semi-cap, our business has grown 43% since fiscal 18, driven mainly by the increasing need for green energy and with incredibly strong global demand for semiconductors. Within our industrial business, alternative energy generation and consumption are driving increased need for power conversion, power optimization, line balancing and storage at the endpoints of generation and consumption, including accelerated adoption of EVs as well as on the grid. Table has been investing in this space with reference designs and scaled manufacturing partnerships globally. On the semi-cap side of our business, semiconductor equipment has become increasingly complex and precise, driving new generations of equipment at large scale. And when you take a step back, you'll again notice an incredibly well-diverse set of business sectors in support of some of the largest, most innovative, and successful brands in the world today. In each of these end markets, we're incredibly focused on delivering consistent and reliable value from early in the product lifecycle, like product innovation and design, to more mature products where we offer planning, automation, supply chain management, and of course, manufacturing. At the end of the day, we build stuff here at Jabil, and we do it really, really well. In summary, so far today I've discussed the benefits of our global footprint, our focused and intentional growth in key end markets, and the high level of consistency brought forth through diversification. Before turning the call over to Mike, I'll try to tie this together through the use of real-life examples within the business to demonstrate the importance of diversification while also walking through our Q4 results. For the quarter, revenue was approximately $9 billion, ahead of our forecast driven by much better than expected revenue in 5G wireless and cloud and networking and storage. as our ability to secure critical parts on higher-end demand created meaningful revenue upside during the quarter. At the same time, healthcare and packaging, connected devices, mobility, digital print and retail, and industrial and semi-cap all performed really well and consistent to our expectations. All of this growth was slightly offset by component shortages in automotive, where supply chain challenges remain the most pronounced. Altogether, at the enterprise level, revenue grew by 22% year-over-year and 8% sequentially, reflecting continued strong demand. In Q4, our GAAP operating income was $409 million, and our gap diluted earnings per share was $2.25. Core operating income during the quarter was $447 million, an increase of 42% year-over-year, representing a core operating margin of 5%, up 80 basis points over the prior year, driven by the aforementioned strength in certain end markets, slightly offset by unanticipated costs associated with the power shortages in Chengdu during the month of August. Net interest expense in the quarter came in higher than expectations at $53 million, primarily associated with rising interest rates, while our tax rate came in better than expected by approximately 70 basis points, resulting in core diluted earnings per share of $2.34, a 63% improvement over the prior year quarter and at the higher end of our range. Revenue for the DMS segment was $4.4 billion, an increase of 13% on a year-over-year basis, while core operating margin for the segment came in at 5.1%, slightly lower due to the temporary power shutdowns in China. Revenue for our EMS segment came in at $4.6 billion, an increase of 32% on a year-over-year basis and well ahead of our plan from June. Core margin for the segment was 4.8%, up 50 basis points year-over-year, reflecting good operating leverage on strong growth. I believe the fourth quarter is the perfect illustration of our global network of factories adjusting, adapting, and ultimately delivering for our customers and shareholders alike. It feels as though the days of single-end markets creating outsized issues for the company seem well off in the rearview mirror. And if you're buying Jabil today, it's not for a single product, but rather a tenured leadership team strong manufacturing capabilities, and the general assumption that technology is converging with our day-to-day lives. Thanks for your time today. It's now my pleasure to turn the call over to Mike.

Thanks, Adam. Good morning, everyone. Thank you for joining us today and for your interest in JBO. Our business model has been intentionally structured with the aim of delivering core operating margin expansion sustainable earnings growth, and strong, predictable cash flows. On top of this, our capital structure has been optimized to maximize our flexibility. This flexibility has enabled us to reshape our in-market portfolio over the last several years, which has performed extremely well, evidenced by our very strong FY22 results. I'm extremely pleased with the resiliency of our business, particularly considering the numerous challenges throughout the year. with ongoing COVID waves, war in the Ukraine, global inflation, supply chain challenges, and multiple energy shortages. Despite these challenges, we delivered year-on-year growth in revenue of 14%, core operating income of 24%, and core EPS of 36%, all while increasing core operating margin by 40 basis points over FY21. At a segment level for the year, our DMS revenue was $16.7 billion, an increase of 9% over the prior year, while core operating income for the segment was up 12% year-over-year. This resulted in core margin expanding 10 basis points to 4.9%. In EMS for the year, core operating income growth was incredibly strong, up 43% over the prior year. This resulted in core margin expanding an impressive 60 basis points over 21 on revenue of $16.7 billion. The strength in our EMS margins is reflective of our improving mix and strong leverage on 20% year-over-year revenue growth.

Turning now to our cash flows and balance sheet.