Jabil Inc.

Hello and welcome to the Jabil's second quarter fiscal year 2023 earnings conference call and webcast. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Adam Berry, Vice President, Investor Relations. Please go ahead, Adam.

Good morning and welcome to Jabil's second quarter of fiscal 2023 earnings call. Joining me on today's call is Chairman and CEO Mark Mondello, incoming CEO Kenny Wilson, and CFO Mike Destor. In terms of agenda, Mike, Kenny, and I will be offering today's prepared remarks, while Mark will join for the question and answer session. Please note that today's call is being webcast live, and during our prepared remarks, we will be referencing slides. To follow along with the slides, please visit Jabil.com within the investor relations section of our website. At the conclusion of today's call, a recording of the entirety will be posted for audio playback on our website. I'd now like to ask that you follow our earnings presentation with slides on the website, beginning with the forward-looking statement. During this conference call, we will be making forward-looking statements. including, among other things, those regarding the anticipated outlook for our business, such as our currently expected third quarter and 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 on our annual report on Form 10-K for the fiscal year ended August 31, 2022, 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. With that, I'd now like to shift our focus to our second quarter results. where the team delivered approximately $8.1 billion in revenue, in line with our forecast. As you dig a little deeper, it's worth noting we saw strength in areas such as industrial, driven by continued robust demand for renewable energy generation and storage, automotive, driven by the transition to electric vehicles, and healthcare, as large OEMs in that space continue to partner with Jabil to deliver best-in-class personal care. Conversely, a portion of the year-over-year strength was offset by weakness in SEMICAP and other consumer-oriented portions of our business. Putting it all together at the enterprise level, revenue grew by an impressive 8% year-over-year. Core operating income during the quarter was $391 million, an increase of 14% year-over-year, representing a core operating margin of 4.8%. This is up 20 basis points over the prior year and just ahead of our expectations from 90 days ago based on great operational execution within our EMS businesses. Net interest in the quarter came in higher than expectations at $74 million. In the quarter, we also repurchased 1.7 million shares for $127 million, leaving us with $975 million remaining on our current repurchase authorization. From a GAAP perspective, operating income was $359 million, and our GAAP diluted earnings per share was $1.52. Core diluted earnings per share was $1.88, a 12% improvement over the prior year quarter and slightly ahead of the midpoint of our range. Now, turning to the segments. Revenue for the DMS segment was $4.1 billion, an increase of 8% on a year-over-year basis and in line with our expectations, while core operating margin for the segment came in at 4.6% as expected as a result of strong returns in auto and healthcare, offset by weakness in consumer markets. Revenue for our EMS segment came in at $4.1 billion, an increase of 7% year-over-year, while core margins for the segment was 5.1%, up 110 basis points year over year, reflecting solid leverage on strong revenue growth. So in summary, a strong close to the first half of our fiscal year. As we sit today, I know the team here is extremely proud of the strides we've made to not only improve our business over the last several years, but also make it more strong and more resilient. This improved resiliency in our business was reflected in the Q2 results. In a moment, I'll turn the call over to Mike and Kenny to provide some additional thoughts on our performance in the quarter and update our outlook for fiscal 23. And I think you'll see there's so much opportunity as we look towards fiscal 24 and beyond. Thanks for your time today. It's now my pleasure to turn the call over to Mike.

Thanks, Adam. Good morning, everyone. Q2 marked a solid close to the first half of the fiscal year. Through the first two quarters of FY23, the team delivered strong year-over-year growth in revenue, core operating income, and core earnings per share, while also expanding core margins by 20 basis points compared to the first half of FY22. Growth year-to-date has been headlined by areas of our businesses experiencing long-term secular growth trends, offset slightly by some of our more consumer-centric markets and Semicam. The team's impressive performance through the first half of our fiscal year, despite what continues to be an extremely dynamic macroeconomic environment, underscores the strength of our diversified portfolio and the improved resiliency of our business. Next, I'd like to begin with an update on our cash flow and balance sheet metrics as of the end of Q2, beginning with inventory, which came in higher than expected, mainly due to timing and continued component constraints on the automotive supply chain. The team did a good job of setting a portion of our inventory levels with inventory deposits from our customers. Net of these deposits, inventory days, was 69 in Q2. We continue to be fully focused on bringing this metric down further in FY23 and beyond. targeting net inventory days ranging between 60 to 65 days in the medium term and expecting to normalize in the 55 to 60 days range in the long term. Our second quarter cash flows from operations came in at $414 million, while net capital expenditures totaled $304 million. With this, we ended the quarter with cash balances of $1.2 billion, and the total debt to core EBITDA level of approximately 1.1. Turning now to our third quarter guidance on the next slide. We expect total company revenue in the third quarter of fiscal 23 to be in the range of $7.9 billion to $8.5 billion. At the midpoint, this anticipates DMS and EMS revenue will both be $4.1 billion. Core operating income is estimated to be in the range of $363 million to $423 million. Gap operating income is expected to be in the range of $336 million to $396 million. Core delivered earnings per share is estimated to be in the range of $1.70 to $2.10. Gap delivered earnings per share is expected to be in the range of $1.50 to $1.90. Net interest expense in the third quarter is estimated to be approximately $80 million and for the year to be in the range of $295 to $300 million, which is higher than we forecasted in December due to more conservative interest rate and working capital assumptions. As inventory levels normalize, I expect these interest costs to gradually decrease over the mid to long term. Tax rate on core earnings in the third quarter is estimated to be approximately 19%. Moving to the next slide, where I'll offer an update on the end market demand assumptions and how these translate to our FY23 revenue expectations. At a high level, our year so far is playing out consistent with our assumptions in December. The industry continues to benefit from outsourcing of manufacturing as a macro trend, due to dynamics such as onshoring closer to end consumers, complex supply chain dynamics, and greater content due to ever-increasing design complexities in products. We continue to expect areas of our businesses benefiting from strong long-term secular growth trends like electric vehicles, healthcare, renewable energy infrastructure, 5G, and cloud to drive solid year-over-year growth. An area where our outlook has improved since December is in our industrial business, where we see robust demand for renewable energy infrastructure, which we expect to drive double-digit year-over-year revenue growth. Electric vehicle demand also continues to remain extremely strong as we continue to gain share in an end market with strong, robust growth as we navigate product manufacturing life cycles and ramps at different stages in their maturity curves. constrained by a tight component supply chain. We expect a portion of the solid growth from our secular markets to be offset by lower demand in our consumer-facing markets and in Semicap. In summary, we feel the outlook for our business is solid and expect the secular demand across many of our end markets to remain strong. Considering this updated demand picture, let's now turn to the next slide to get a view of our updated guidance for FY23. We expect our improved mix of business will drive incremental operating leverage, thereby giving us the confidence to raise our core margins by 10 basis points to 4.9% for FY23 on revenue of $34.5 billion. We continue to anticipate core EPS will be $8.40, which is reflective of our improved core operating income, upset by higher interest expense. Importantly for the year, we also remain committed to generating in excess of $900 million in free cash flow. Overall, our performance during the first half of the year gives us excellent momentum as we look to close out another strong year. and drive the company to core margins beyond 5%. With that, I would now like to turn the call over to Kenny.