Jabil Inc.

Hello, and welcome to the Jabil third quarter and fiscal year 2023 earnings conference call and webcast. At this time, all participants are in listen-only mode. 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. Please go ahead, Adam.

Good morning, and welcome to Jabil's third quarter of fiscal 2023 earnings call. Joining me on today's call, our Chief Executive Officer, Kenny Wilson, and Chief Financial Officer, Mike Destor. 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 portion of our website. At the conclusion of today's call, the entirety will be posted there for audio playback. I'd now like to ask that you follow our earnings presentation with the 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 fourth 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 any report on Form 10-K for the fiscal year ended August 31, 2022 and other filings. The table 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 third quarter results, where the team delivered approximately $8.5 billion in revenue at the top end of our guidance range. Core operating income for the quarter came in at $404 million, or 4.8% of revenue. This is up 60 basis points on a year-over-year basis. Net interest expense in the quarter came in better than expected at $75 million, reflecting lower levels of inventory during the quarter, resulting in better working capital management by the team. From a GAAP perspective, operating income was $375 million and our GAAP diluted earnings per share was $1.72. Core diluted earnings per share was $1.99, a 16% improvement over the prior year quarter and towards the upper end of our guidance range. Now turning to the segments. Revenue for the DMS segment was $4.35 billion, an increase of 13% on a year-over-year basis, driven by strength in our automotive and healthcare end markets. In particular, it's worth highlighting our automotive business. which grew approximately 60% year-over-year, as the team performed extremely well as volume, content, and brands continued to expand. Core operating margin for the segment came in at 4.1%, 30 basis points higher than the same quarter from a year ago, but down 50 basis points sequentially, as typical given the normal seasonal pattern within our mobility business. Revenue for our EMS segment came in at $4.1 billion, down 8% year over year, and in line with our expectations. Also as expected, we saw a revenue shift in our 5G wireless and cloud business, driven by our previously announced move to a consignment model for certain components within that end market. It's also worth noting that our industrial business, driven by global demand for renewable energy, increased by approximately 30 percent year-over-year. For the quarter, core margins for the EMS segment were an impressive 5.5 percent, up 90 basis points year-over-year and 40 basis points sequentially, reflecting strong growth in industrial and the aforementioned shift to a consignment model. Next, I'd like to begin with an update on our cash flow and balance sheet metrics as of the end of Q3, beginning with inventory. which saw a great improvement sequentially to 84 days. More importantly for us, net of inventory deposits from our customers, inventory days were 62 in Q3, an improvement of seven days sequentially. Our third quarter cash flows from operations came in at $468 million, while net capital expenditures totaled $212 million, resulting in $256 million in free cash flows during the quarter. In the quarter, we repurchased 1.9 million shares for $154 million, leaving us with $821 million remaining on our current repurchase authorization as of May 31st. With this, we ended the quarter with cash balances of approximately $1.5 billion and total debt to core EBITDA levels of approximately 1.2 times. In summary, the team delivered another impressive performance in Q3. 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. But before I hand it over, I'd like to announce our fourth quarter earnings call and sixth annual investor briefing scheduled for September 28th, where we'll lay out our strategy and our financial plan for fiscal 24. Please mark your calendars. Additionally, from an investor relations perspective, we're going to be active in fiscal 24 with meetings, factory tours, and market deep dives, where we plan to discuss and showcase some of the growth drivers that we feel support our longer-term expectations. Please stay tuned. And thanks for your time today. It's now my pleasure to turn the call over to Mike.

Thanks, Adam. Good morning, everyone. For the first nine months of fiscal year, the team has posted solid top-line growth improved core operating income by more than twice the pace of revenue growth, and grew core EPS by 16%, while also expanding core operating margins by 30 basis points, a solid performance by the team. As you heard from Adam, our growth and improved profitability this year continues to be driven by areas of our business benefiting from secular growth like electric vehicles, healthcare, renewable energy infrastructure, and cloud. All in all, our solid performance year to date gives us excellent momentum as we enter the final quarter of FY23. With that, on the next slide, you'll see our fourth quarter guidance. For Q4, we expect total company revenues to be in the range of $8.2 billion to $8.8 billion. At the midpoint, this anticipates DMS and EMS revenue to be $4.3 billion and $4.2 billion, respectively. Core operating income is estimated to be in the range of $424 million to $484 million. Gap operating income is expected to be in the range of $400 million to $460 million. Core delivered earnings per share is estimated to be in the range of $2.14 to $2.50. Capital earnings per share is expected to be in the range of $1.96 to $2.32. Interest expense in the fourth quarter is estimated to be $73 million, which is lower than we forecasted in March, reflecting better working capital management by the team. Moving to the next slide, where I'll offer an update on our end market demand assumptions and how these translate to our FY23 revenue expectations. At a high level, our assumptions remain largely consistent with our March update. We continue to be conservative in our approach, given the current macroeconomic dynamics, and expect strong growth from our secular markets to be slightly offset by lower demand in some of our consumer-facing markets and in SEMICAF. In our automotive end market, EV growth continues to be robust, limited only by the pace at which we can scale up production across multiple geographies with several OEMs. In healthcare, the outsourcing of manufacturing trend continues to play out as we're seeing increased activity with interest from multiple OEMs exploring our capabilities. Growth expectations for our industrials business have also improved since March. driven higher by renewable energy infrastructure. Specifically, we're seeing good growth in solar inverters, smart meters, energy storage, and power and building management solutions. We now expect our industrials business to be up more than 25% in FY23. This growth is being slightly offset by incremental end market weakness in our semi-cap business. In summary, we feel the outlook for our business is solid. and expect demand across many of our end markets to remain strong. We now expect revenue for FY23 to be $34.7 billion, up 4% year-over-year, which is $200 million about what we thought in March. Considering this updated growth outlook, let's now turn to the next slide to get a view of our updated guidance for FY23. Notably, we see income coming through with the increase to revenue. We now expect to deliver core operating income of $1.71 billion a year-over-year increase of approximately 11% while holding core margins at 4.9%. This 4.9% represents a growth of approximately 30 basis points year-on-year. With the additional income, we're now anticipating core EPS will be $8.50. We remain committed to generating more than $900 million in free cash flow this year. Beyond FY23, we expect our secular markets to continue to drive growth. I also believe our margins will continue to expand with the combination of our positive mix shift towards higher margin end markets and operational efficiencies driven by automation and internal use of AI and ML technologies. In summary, the team is executing extremely well. I expect a strong momentum to continue into FY24, although we remain cautious and vigilant on the near-term macroeconomic conditions. With that, I'll now turn the call over to Kenny.