Jabil Inc.

Greetings and welcome to the Jabil third quarter of fiscal year 2024 earnings call. At this time, all participants are on a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Adam Barry, Vice President of Investor Relations. Thank you. You may begin.

Good morning, and thank you for joining Jabil's third quarter fiscal 2024 earnings call. Joining me on today's call are Chief Financial Officer Greg Hebbard and Chief Executive Officer Mike Destor. Over the next few minutes, we will review the following. Review our Q3 results, provide an update on current demand, and preview our seventh annual virtual investor briefing. 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 now ask that you view the slides on the website and follow along with our presentation. beginning with a 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 in our annual report on Form 10-K for the fiscal year ended August 31st, 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'll now hand the call over to Greg.

Thanks, Adam. Good morning, everyone. It's a great privilege to be a part of the call today. I'd like to begin this morning by walking through our third quarter results. where the team delivered approximately $6.8 billion in revenue, $265 million above the midpoint of the guidance range on better than expected growth in our connected devices and networking and storage end markets. Core operating income for the quarter came in at $350 million, or 5.2% of revenue, an improvement of 40 basis points year over year. Net interest expense for Q3 came in better than expected at $64 million. This was due to lower levels of inventory during the quarter, reflecting improved working capital management by the team. From a GAAP perspective, operating income was $261 million, and our GAAP diluted earnings per share was $1.06. Core diluted earnings per share was $1.89, 4 cents above the midpoint of our guidance range. Now turning to our performance by segment in the quarter. Revenue for the DMS segment came in at $3.4 billion, $65 million above our expectations, driven by better than expected growth within our connected devices business, offset slightly by the lower than anticipated revenue in our automotive and healthcare businesses. On a year-over-year basis, our DMS segment revenue was down approximately 23%, driven primarily by the mobility divestiture. Core operating margins for the segment came in at 4.6%, 50 basis points higher than the same quarter from a year ago, reflective of the ongoing mixed shift within our DMS business. Revenue for our EMS segment came in at $3.4 billion. approximately $200 million above our expectations, driven by higher than anticipated revenue in our networking and storage end markets in the quarter. Compared to the prior year quarter, EMS revenue was down roughly 18%, driven mainly by lower revenue in end markets like 5G, renewable energy, and digital print, offset slightly by good growth in cloud. For the quarter, Core margins for the EMS segment came in at 5.7%, up 20 basis points year over year. Next, I'd like to begin with an update on our cash flow and balance sheet metrics. Inventory at the end of Q3 came in six days lower sequentially at 81 days. Net of inventory deposits from our customers' inventory days were 58, which was a quarter-on-quarter improvement of four days. As a result of the team's good working capital management in the quarter, our third quarter cash flows from operations came in quite strong at $515 million, while net capital expenditures totaled $100 million, resulting in $450 million in adjusted free cash flow during the quarter. In Q3, we repurchased 3.7 million shares for approximately $500 million. leaving us with approximately $700 million remaining on our current $2.5 billion share repurchase authorization as of May 31st. We remain fully committed to completing the share repurchase authorization by the end of FY24. We exited Q3 with a healthy and solid balance sheet with debt to core EBITDA levels of approximately 1.2 times and cash balances of approximately $2.5 billion. And as a management team, we are fully committed to maintaining our investment grade credit profile. With that, let's turn to the next slide for our fourth quarter guidance. For Q4, we expect total company revenue to be in the range of $6.3 billion to $6.9 billion. Our operating income for Q4 is estimated to be in the range of $365 million to $425 million. GAAP operating income is expected to be in the range of $285 million to $355 million. Core diluted earnings per share is estimated to be in the range of $2.03 to $2.43. GAAP diluted earnings per share is expected to be in the range of $1.40 to $1.88. Net interest expense in the fourth quarter is estimated to be approximately $67 million. And our core tax rate for Q4 is expected to be 20%. Before moving to our full year guidance on the next slide, I'd like to provide a brief update on our net interest expense and core tax rate beyond FY24. We now anticipate interest rates to remain elevated and expect our net interest expense to remain at FY24 levels in FY25 and be approximately $275 million. And for core tax rate in FY25, we anticipate our core tax rate will be impacted by Pillar 2 global minimum tax legislation. We will be required to adopt this only in FY25. We are evaluating the impact this will have. As we sit today, we anticipate our core tax rate in FY25 to be in the range of 22% to 24%. Now moving on to full year guidance on the next slide. For the year, we continue to expect $28.5 billion in revenue in the face of what continues to be a very dynamic demand environment. Compared with our thoughts in March, our expectations for growth in our automotive and transportation business has softened further. In particular, the market in China has been impacted due to overcapacity resulting in a surplus of cars affecting local demand there. And new global EV platforms, that we originally expected to begin launching in the next 100 days or so have now shifted out several quarters. On the healthcare side, we see softness in medical devices, which we expect will create a headwind to revenue in the near term. These declines were offset by strength in connected devices and our AI data center end markets, which today are reported across industrial, cloud, and networking end markets. All other end markets are largely in line with previous expectations. Given this updated end market outlook, let's move to the next slide to review our FY24 guidance. We continue to expect core margins for the year to come in at 5.6% of 60 basis point improvement over the prior year. We also expect to deliver EPS of $8.40 for the year. And importantly, we remain committed to generating over $1 billion in adjusted free cash flow this year. With that, I'd like to thank you for your time this morning and your interest in Jabil. We'll now turn the call over to Mike. Thanks, Craig.