Jabil Inc.

Hello, and welcome to the J-Bull first quarter fiscal year 2024 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. You may be placed into question queue at any time 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. Please go ahead, Adam.

Good morning and welcome to Jabil's first quarter of fiscal 2024 earnings call. Joining me today are Chief Executive Officer Kenny Wilson and Chief Financial Officer Mike Destor. In terms of our agenda today, we plan to focus on the following, review our Q1 results, discuss the trends underway within the end markets we serve, and provide Q2 guidance We'll also reiterate our capital allocation plans, reinforce our core margin and EPS outlook for the year, and in doing so, provide you with the detail as to why we feel confident in achieving these goals for this year and next, despite our updated outlook as discussed on November 28th. But before we begin, 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 the website. At the conclusion of today's call, the entirety of today's presentation will be posted for audio playback. I'd now like to ask you to follow along with our 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. 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 ANG report on Form 10-K for the fiscal year ended August 31, 2023, and other filings with the SEC. 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. With that, I'd now like to shift our focus to our first quarter results, where the team delivered approximately $8.4 billion in revenue, near the low end of our guidance range provided in September, and in line with our updated expectations announced on November 28th. It's worth noting the majority of the year over year decline was driven by the previously announced move to a consignment model, where we transitioned certain components we procure and integrate into the cloud space to a customer controlled consignment services model. Core operating income for the quarter came in at $499 million, or 6% of revenue. This is up 120 basis points year over year, due to an improved mix of business, normal seasonal patterns within our mobility business, and the previously announced accounting impacts of assets held for sale. Excluding the impact of assets held for sale, core operating margin was roughly 5.3% of 50 basis points year-on-year. Net interest expense for the quarter came in $3 million better than expected at $70 million, reflecting lower levels of inventory during the quarter, as a result of lower revenue and better working capital management by the team. From a GAAP perspective, operating income was $303 million, and our GAAP diluted earnings per share was $1.47. Core diluted earnings per share for the quarter was $2.60, a 13% improvement over the prior year quarter and at the midpoint of the range we provided in September. Now turning to the performance by segment in the quarter. Revenue for the DMS segment came in at $4.8 billion, down approximately 6% from the prior year, driven by continued weakness from our connected devices end market. These declines were partially offset by year-over-year growth in our automotive and transportation and healthcare businesses. Core operating margin for the segment came in at 7%, 180 basis points higher than the same quarter from a year ago, given solid mix, normal seasonal pattern within our mobility business, and the aforementioned previously announced accounting impact of assets held for sale. Excluding the impact of assets held for sale associated with the mobility sale, core operating margins for DMS were 6%. Revenue for our EMS segment came in at $3.6 billion, down roughly 21% year over year. This decline was driven by our move to a consignment model and a softening in demand in end markets like 5G, networking, and digital print. Given this combination of consignment and mix, core margins for the EMS segment were an impressive 4.6%, up 30 basis points year over year. Next, I'd like to begin with an update on our cash flow and balance sheet metrics as of the end of Q1, beginning with inventory, which improved two days sequentially to 78 days. Net of inventory deposits from our customers, inventory days were 58 in Q1, consistent with our strong Q4 performance. Our first quarter cash flows from operations came in at $448 million, while net capital expenditures totaled $275 million, resulting in $173 million in adjusted free cash flow during the quarter. In the quarter, we repurchased 3.9 million shares for $500 million, leaving us with 2 billion remaining on our current repurchase authorization as of November 30th. With this, we ended the quarter with cash balances of $1.6 billion, and total debt to core EBITDA levels of approximately 1.1 times. So in summary, Q1 was largely a very good quarter. While our top line growth came in a bit lower than expected, the team still delivered good year-over-year growth in core margins, core EPS, and adjusted free cash flow. At the same time, We were incredibly active in terms of repurchasing our own shares, and we made solid progress on the sale of our mobility business. With that, thank you. I'll now hand it over to Kenny.

Thanks, Adam, and good morning, everyone. As Adam mentioned, on November 28th, we announced a reduction in our outlook for fiscal year 24 based on a broad slowdown of demand across multiple end markets. In short, customers adjusted demand schedules as they reacted to a slowdown in end markets heading into the end of the calendar year. Although we feel the slowdown will be temporary in nature, it is incumbent on us to react and adjust our model appropriately to align with our customers' requirements. Agility in our industry is key. Being able to absorb changes in demand signals effectively across our network is a critical part of our value proposition. This agility is part of our DNA and is reflected in our ability to effectively absorb downsides in revenue. Fungible assets, flexible automation, single instance of SAP, common manufacturing execution systems, focus on margin-rich value-added services, and multi-customer sites set up specifically to manage disparate ed markets in one campus are just some examples of disciplines embedded in our model. These core areas of focus are a large part of why we believe we can manage margins consistent with our Q1 guide and EPS at $9 plus, while absorbing a broad-based slowdown. Turning to end markets, when you take a deeper look, we still expect growth in key areas like electric vehicles and renewables, albeit at a modestly slower pace than previously anticipated. In healthcare, our business remains robust and foundational in terms of what we are trying to accomplish at Jabil. Our ability to provide key solutions and capabilities to customers in complex areas where outsourcing is under-penetrated and quality is paramount underpins our confidence that we will continue to grow in this end market. In cloud, our team continued to drive forward within the AI data center space. Remember, this business moved into a consignment model last year, which makes revenue look unusually low relative to previous years, while in reality the business is growing volumes by roughly 20%. In connected devices, we've seen softening for some time, and this doesn't seem likely to change in the near term. While in enterprise communications and 5G, we continue to expect softness based on global rollouts. Turning to renewables, we've seen softness in solar and wind driven by a combination of reduced channel inventory sell-through impact of interest rates, and incentive uncertainty. Outlook-wise, we remain optimistic based on multiple new business wins and some supply chain consolidation within our current customer base. On the sale of our mobility business, I am really pleased with the progress we are making. The selfless collaboration between our teams while working on closing the deal, ensuring the needs of our customer remain top of mind, has been really pleasing to see. Focusing on your day job, keeping product flowing while managing a complex transition is hard. The fact that we are managing this so successfully is another proof point of our belief that BYD Electronics is the correct partner for this transaction. Thinking all together, we now expect revenue not associated with the mobility divestiture to be down 5% year over year on a like for like basis. Reflecting on all of the above, it's pretty satisfying to see the resilience of our model where despite end-market choppiness, we expect to post year-on-year growth in core margins and EPS, while also driving in excess of $1 billion in free cash flows. Further, we remain committed to our previous fiscal year 25 guidance, inclusive of margins at 5.6% plus and EPS in excess of $10.65. In closing, I want to share a final thought. In Jabil, we are always planning our future, and as sad as I am to say goodbye to my colleagues as I transition to BYD Electronics, I would like to welcome the Procurement Services team from Procurability and the Silicon Photonics Technical team from Intel as they join our company. Welcome, and we look forward to your contribution as we focus on the next chapter of our company's growth and diversification. Thank you for joining us today and for your interest in Jabil. I will now hand the call to Mike.