Jabil Inc.

Hello, and welcome to the Jabil fourth quarter and fiscal year 2023 earnings call webcast and investor briefing. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may ask a question anytime by pressing star one on your telephone keypad. 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. Adam, please go ahead.

Good morning, and welcome to our call today. My name is Adam Barry. I'm Head of Investor Relations, and this is our Q4 earnings call and the sixth annual investor briefing. Joining me on today's call are Chief Executive Officer Kenny Wilson, EVP of Global Business Units Fred McCoy, and Chief Financial Officer Mike Destor. For the sixth straight year, we're going to use this session today to accomplish the following. review our fourth quarter and fiscal 2023 results, discuss the trends underway within the end markets we serve, provide an update for our pending transaction to sell the mobility business to BYD Electronics, refresh our capital allocation policy given the pending deal, Offer a thoughtful fiscal 24 outlook that demonstrates enterprise level growth in some key areas, while also remaining sensible and grounded given the realities of the dynamic global macro environment surrounding us today. And finally, we'll do our very best to walk through the many moving pieces we foresee in the upcoming year as we work to make our business more profitable and more sustainable. But before we jump into the details, please note that today's call is being webcast live. And during our prepared remarks, we will be referencing slides. To follow along with these slides, please visit Jabil.com within the investor relations portion of the website. At the conclusion of today's call, the entirety of today's presentation will be posted there for audio playback. I'd now like to ask that you follow our presentation with slides on the website, beginning with the forward-looking statement. During this 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 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, 2022, and other filings with the SEC. 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 fourth quarter results, where the team delivered approximately $8.5 billion in revenue, equal to the midpoint of our guidance range. Core operating income for the quarter came in stronger than expected at $477 million, or 5.6% of revenue. This is up 60 basis points on a year-over-year basis and 80 basis points sequentially, driven by strong execution across both segments. Net interest expense in the quarter came in better than expected at $71 million, reflecting good progress by the team on inventory and solid working capital management. From a gap perspective, operating income was $441 million, and our gap diluted earnings per share was $1.15. Core diluted earnings per share was $2.45, a 5% improvement over the prior year, and towards the upper end of our guidance range. Revenue for the DMS segment came in better than expected at $4.4 billion, up marginally compared to the same timeframe from a year ago, driven by strength in our auto and healthcare businesses. This strength was completely offset by continued weakness in connected devices. Core operating margin for the segment came in at 6.1%, 100 basis points higher than the same quarter from a year ago, given the solid mix and the normal seasonal pattern within our mobility business. Revenue for our EMS segment came in at $4 billion, down roughly 13% year-over-year and approximately $200 million below expectations. As expected during the quarter, we saw a major revenue shift in our cloud business driven by our previously announced transition of certain components we procure and integrate to a customer controlled consignment service model. In Q4, the overall mix of consigned components came in higher than expected. For the quarter, core margins for EMS were 5.2%. Up 40 basis points year over year, reflecting strength and renewables, which is in our industrial portion of our business, and the aforementioned consignment shift. In fiscal 23, our DMS segment revenue was $18 billion, an increase of 8% year over year. In particular, it's worth highlighting our automotive and healthcare businesses, which were up 42% and 12% respectively. Core operating margin for the segment came in at 5%, up 10 basis points year-over-year. In EMS, core margins for the year were strong, also coming in at 5%, 70 basis points higher than the prior year, on revenue of $16.7 billion. The strength in fiscal 23 income was driven by growth in renewables within our industrial and semi-cap market, as well as the benefit from consignment. Next, I'd like to begin with an update on our cash flow and balance sheet metrics. Beginning with inventory, which saw good improvement sequentially by four days to 80 days. More importantly, net of inventory deposits from our customers, inventory days were also down four days to 58 in Q4. Our fourth quarter cash flows from operations were strong, coming in at $686 million, Net capital expenditures for the fourth quarter were $28 million and for the full fiscal year came in lower than expected at $708 million, mainly due to the timing of CapEx payments that are shifting to Q1 from Q4. As a result of the strong fourth quarter performance in cash flow generation, adjusted free cash flow for the year came in higher than expected at approximately $1 billion. With this, we ended the quarter with cash balances of $1.8 million and total debt to core EBITDA levels of approximately 1.1 times. For the year, we repurchased 6.7 million shares for $487 million, leaving us with $776 million remaining on our current repurchase authorization as of August 31st. Please note that in Q4, we were out of the repurchase market, mostly, as a result of the pending mobility deal. As Mike will share in a few minutes, when our opportunity to buy back reopens, we plan to accelerate repurchases in Q1 fiscal 24. As I flip to the next slide, looking at the five-year financials, it's hard to believe that another year is in the books for Jabil. And as I look ahead, I can't help but think that there's so much more opportunity ahead for us. In a moment, I'll hand the call over to Kenny, Fred, and Mike. But before I do, I want to spend a few minutes setting the stage for what you're going to hear today. Over the next couple minutes, I think you're going to hear a lot of the same from us. From a financial target perspective, you're going to hear us talk about winning our unfair share of business and leveraging those wins to drive margin expansion, free cash flow generation, and further shareholder return. From an end market perspective, you're going to hear more about the areas of our business, which continue to see solid double digit growth and why we believe we're one of the best positioned companies to benefit from global trends, such as electric and autonomous driving, digital healthcare, AI infrastructure, and the long-term shift to renewable energy. But there's some new dynamics to share today as well. And as a team, we're excited to share a few key updates. For starters, you may have noticed that our previously announced transaction to sell our mobility business to BYD Electronics has moved from the preliminary stages of agreement to a definitive agreement, as announced earlier this week. As we move through our session today, you'll hear from both Kenny and Mike as they weave the strategic rationale and financial impact into our economic model. At the same time, we have some updates to provide today on capital allocation framework, given that the mobility definitive agreement is now in place. And then given that fiscal 24 will be transitional for JABL in terms of closing the mobility transaction and the subsequent planned accelerated buybacks, Mike will offer a viewpoint of fiscal 25, including the full impact of both initiatives. So with that, I'll now hand it over to Kenny.

Thanks Adam. Good morning. Thanks for joining us today. As Adam highlighted, fiscal year 23 was another strong year, and I am pleased with the progress we've made relative to our financial objectives. Every day at Jabil, we strive to do the right thing. It is how we are wired. So it is heartening when looking at our end of year report card to see that we are making progress on all fronts. Most satisfying for me is the resilience of our model, where despite end-market choppiness, we posted very impressive year-on-year growth in core margins, up 40 basis points to 5%, earnings up 12%, and EPS up 13%, while also driving in excess of $1 billion in free cash flows. This time of year also sees us complete our annual strategic planning process, And it is reassuring to note that similar to last year, we reconfirmed our focus on investing in key areas of our business, including electric vehicles and autonomous driving, AI cloud solutions, renewable energy and healthcare. All of this sets a firm foundation for fiscal year 24 and beyond and is a testament to our customer-centric model, which is both robust and adaptable to changes in end markets. The next slide shows how these characteristics have shaped the last 10 years. And seen in this context, fiscal 23 was just another step in the journey. If I was looking for one word to summarize activities highlighted, it would be intentionality. We have and will continue to be very intentional as we look to grow and modify the mix of business to include longer lifecycle industries. like healthcare with the acquisition of Nipro and our strategic collaboration with JJMD. In addition, we have also increased investment both organically and inorganically in emerging technologies where we view our capabilities as a match for important end markets like renewable energy infrastructure, electric vehicles, and cloud data centers. From an enterprise perspective, we began materially redirecting more and more of our free cash flows to buybacks and reinvest in ourselves at very attractive valuations. And finally, just a few weeks back, we unveiled yet another step in our journey as we announced the pending divestiture of our mobility business to BYD Electronics for $2.2 billion. As you move into fiscal year 24 and beyond, you can continue to rely on this leadership team to allocate capital with a view to expanding shareholder value. I'd now like to spend a little time talking about our decision to sell the mobility business. As you know, over the past five years, I've had the privilege both to lead and work alongside some of the most skilled and talented manufacturing engineers, operations leaders and material scientists in the world. And during that time, we were fortunate to build an incredible business while also delivering best in class products for one of the world's greatest brands. I had a front row seat, unlike any other, to truly appreciate and develop a deep understanding of the level of complexity involved in introducing and manufacturing precision mechanics at huge scale for our largest customer. This perspective provides me some credibility to make the claim that our mobility team is second to none when it comes to innovative automation, tooling design, and manufacturing of these components at scale. And I also truly believe this talented organization can reach new heights when their capability is matched by a supportive business model focused on significant growth. To all my friends in the mobility business, I will miss you deeply. Thanks for showing your company at its best, for never flinching from the sometimes seemingly unsurmountable asks, and doing so always with humility, professionalism, and great skill. It has been my honor to be a part of your team. Looking forward, I think your particular skill sets can be leveraged in endless ways. And while it's bittersweet to say goodbye to some great friends and colleagues, I know this is the best route for our customers employees and shareholders alike. In a moment, I will turn the call over to Fred to go deeper into our end markets. But before that, I wanted to reaffirm what you can expect from me as CEO. I will work tirelessly on your behalf to ensure that we are in the correct end markets and geographies with the correct capabilities to serve our customers. I will continue to ensure that our capital allocation is shareholder friendly while appropriately funding our growth And all of this will be underpinned by an unwavering passion and commitment to preserve, protect, and grow our unique culture, which is the foundation of everything that is great about our company. Thank you for joining us today and for your interest in Jabil. I will now turn the call over to Fred.