Jabil Inc.

Good morning and welcome to Jabil's fourth quarter and fiscal year 2024 earnings call. It's also our seventh annual virtual investor briefing. I'm Adam Barry, Senior Vice President of Investor Relations and Communications. As a team here at Jabil, we're excited to share with you a couple updates as it relates to our business. This includes some organizational updates as well as an outlook for fiscal 2025. We'll begin today's call with a quick introduction, setting the stage for what promises to be an informative session. Then we'll move on to our 2024 results led by Greg Hebbard, our Chief Financial Officer. In thinking about 2024, it was a challenging year, no doubt, but it was also a very important year as we took some strategic strides as an organization while continuing to look after our customers, employees, and shareholders. For starters, we divested our mobility business for $2.2 billion and returned the majority of those net proceeds to shareholders through a robust buyback program. Through this divestiture, we not only improved our diversification in terms of geographic footprint, but we also reduced our exposure to a business that required higher levels of capital. At the same time, the organization persevered in the face of some pretty stiff headwinds. This is evidenced by strong margins, roughly inline core earnings per share, and strong free cash flows. And we did all this despite $6 billion less in revenue year over year. This suggests to me that Jabil is far more resilient today than when compared to previous downturns. And finally, we reorganized our internal structure to focus on speed, precision, and solutions. This approach targets our ability to serve each distinct end market effectively by creating domain expertise in core areas and better positions Jabil for growth. As a result of the organizational realignment, we will transition our financial reporting structure from two segments to three. This change better reflects not only how we operate as a business today, but it also positions the organization for growth. The first segment is called Regulated Industries, led by Steve Borges. It is comprised of end markets that simply demand best-in-class care and manufacturing, as the products built in this segment keep us healthy, safe, and moving ahead. In a bit, you will hear about our healthcare, automotive and transportation, and renewable energy infrastructure markets. Next, our intelligent infrastructure segment, led by Matt Crowley, has been designed to support end-to-end growth from the cloud to the data center and the networking and communications gear within, as the world further embraces artificial intelligence. And then finally, our connected living and digital commerce segment, led by Andy Priestley, encompasses both consumer-facing products in connected living and retail and warehouse automation in digital commerce. Again, this enhanced organizational framework will enable greater focus, customer care, collaboration, and growth. In a bit, you'll hear from all three of these business leaders. And finally, we'll conclude with a business update from our newly appointed Chief Executive Officer, Mike Destor. From Mike, you will hear about team, targets, strategy, and why we think Jabil is uniquely positioned to benefit from a recovery through our global capacity and network of factories. But before we jump into the details, please note that today's presentation is being live streamed. And during our prepared remarks, we will be referencing slides. To view these slides, please visit the investor relations section of Jabil.com. After today's presentation concludes, a complete recording will be available on the website for playback. In addition, we will be making forward-looking statements during this presentation, 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, 2023, and other filings with the SEC. 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, we're excited to share our progress and future plans with you. Now let's dive into the details.

Thanks, Adam. Good morning, everyone. Thanks for taking the time to join our call today. I'd like to begin this morning by walking through our fourth quarter results, where the team delivered approximately $7 billion in revenue, $364 million above the midpoint of the guidance range. This was driven by stronger-than-expected results in our connected devices, networking, and storage markets. Core operating income for the quarter came in at $401 million, or 5.8% of revenue, a solid improvement of 20 basis points compared to last year. Net interest expense was better than expected, coming in at $65 million, which was due to lower inventory levels and strong working capital management. On a GAAP basis, operating income was $318 million, and our GAAP diluted earnings per share was $1.18. Core diluted earnings per share was $2.30, which is 7 cents above the midpoint of our guidance range. Now let's look at the numbers by segment for the quarter. Our DMS segment posted revenue of $3.5 billion, which exceeded expectations by $79 million. This was primarily due to stronger growth in our connected devices business, although it was slightly offset by lower than expected revenue in the automotive business. Year over year, DMS revenue was down approximately 22%. This decrease was mostly due to the mobility divestiture. Core operating margin for the segment came in at 5.4%, slightly lower than expected, reflective of the mix. In the EMS segment, we saw revenue of $3.5 billion. which was $285 million higher than anticipated. This was driven by stronger demand in our advanced networking markets as we closed out the year. While EMS revenue was down roughly 13% year over year, mainly due to the ongoing softness in the end markets like 5G, renewable energy, and digital print, we did see solid year-on-year growth across our cloud, semi-cap, and warehouse automation markets. This dynamic drove core margins for EMS to 6.1% in Q4, up an impressive 90 basis points year over year. Moving now to our end market performance for the year. Compared to our thoughts in June, connected devices, networking, and storage came in better than anticipated, while auto and transport came in slightly lower. All other end markets largely came in as expected. Shifting gears to cash flow and balance sheet metrics, we continue to see robust results. Inventory at the end of Q4 was down five days sequentially, bringing it to 76 days. After adjusting for inventory deposits, net inventory days were 54, which is a four-day improvement quarter over quarter. Thanks to disciplined working capital management by the team, our fourth quarter cash flows from operations were very strong, coming in at $535 million. Net capital expenditures for the fourth quarter were $116 million, and for the full fiscal year came in at $661 million, or 2.3% of revenue. As a result of the strong fourth quarter performance and cash flow generation, adjusted free cash flow for the fiscal year came in north of $1 billion. We exited the fiscal year with a healthy balance sheet with debt-to-court EBITDA levels of approximately 1.3 times and cash balances of approximately $2.2 billion. With that, let's now turn to our capital structure on the next slide. We ended FY24 with capacity under our global credit facilities of $4 billion. With this available capacity in our year-end cash balances, we had access to more than $6.2 billion of available liquidity. Our debt and liquidity profile are both solid, and we believe current maturities are appropriately staggered and at attractive interest rates. We also remain fully committed to maintaining our investment-grade credit profile. Moving now to our capital returns to shareholders, on the next slide, we have repurchased 5.3 million shares, bringing total shares repurchased to 19.4 million shares, or $2.5 billion, which completed our FY24 share repurchase authorization. This brings our cumulative shares repurchased since FY13 to approximately 128 million shares at an average price of approximately $47, bringing our total return to shareholders, including repurchases and dividends, to approximately $6.7 billion. Importantly, included in our earnings release this morning, we announced that our board of directors authorized a new share repurchase authorization of $1 billion, which we expect to fully execute in FY25. We remain committed to returning capital to shareholders through a disciplined and balanced capital allocation approach. Moving to the next slide. The team performed well in FY24, operating within a highly dynamic environment. In summary, over the past year, we sold off our mobility business and used the net gains to buy back $2.5 billion of our shares, all while managing temporary challenges in major end markets like renewables, electric vehicles, 5G infrastructure, and SEMICAP. However, looking at the broader perspective, The company continues to be highly resilient and is well positioned for future revenue growth, margin enhancement, and delivering robust free cash flow. With that, let's turn to our next slide for our first quarter guidance, beginning with revenue by segment. As Adam highlighted earlier, we're pleased to unveil this new business unit organizational reporting segment structure today. We will transition our reporting segments in FY25 from DMS and EMS to three new reporting segments, regulated industries, intelligent infrastructure, and connected living and digital commerce. This change is aligned with our new management structure and with how we drive our long-term planning and forecasting. For Q1, we anticipate revenue for our regulated industry segment will be $2.9 billion, down 9% year on year, reflective of softness in the renewable energy and EV markets. For our intelligent infrastructure segment, We expect revenue for the quarter to be $2.3 billion, down 4% year-on-year. This is mainly due to us exiting certain legacy networking businesses at the end of Q4 FY24. In our connected living and digital commerce segment, revenues are expected to be $1.4 billion. The year-over-year decline is primarily driven by our mobility divestiture. Speaking of mobility, I'd like to highlight the seasonality of our business in FY25 will reflect the impact of the divestiture. As a reminder, our mobility business typically generated a significant portion of its income during Q1. This means going forward, our quarterly income and earnings progression will more closely resemble our historical EMS business. where typically 40% of earnings come in the first half of the year and 60% in the second half. So you can expect a more back half-weighted year as we go forward. Moving now to the enterprise guidance. Total company revenue for Q1 is expected to be in the range of $6.3 billion to $6.9 billion. Core operating income for Q1 is estimated to be in the range of $304 million to $364 million. Gap operating income is expected to be in the range of $143 million to $223 million. Core diluted earnings per share is estimated to be in the range of $1.65 to $2.05. Gap diluted earnings per share is expected to be in the range of $0.26 to $0.83. Net interest expense in the first quarter is estimated to be approximately $65 million, and for FY25, we expect it will be $245 million. And our core tax rate for Q1 and for the year is expected to be 21%, reflecting impacts of Pillar 2 global minimum tax legislation and jurisdictional earnings mix. We continue to believe it's prudent to anticipate higher tax rates beyond FY25 in the range of 23 to 24 percent due to additional expected impacts from global minimum tax legislation. Moving to the next slide for our FY25 guidance. For the coming year, we expect approximately $27 billion in revenue with core margins in the range of 5.4 percent. while core earnings per share is expected to be $8.65. Please keep in mind, in FY24, we divested our mobility business partway through the fiscal year, while we also made the strategic decision to reshape our portfolio away from products in the legacy networking space. When adjusting for these changes, which accounted for $2.4 billion in revenue in FY24, we believe our organic growth in FY25 will be 2.3% on a base of $26.4 billion. We are forecasting another robust year for free cash flow generation in FY25, around $1.2 billion. Additionally, due to the mobility divestiture, we anticipate lower capital expenditures in the coming year. For FY25, we expect CapEx to be between 1.5 to 2% of revenue. Most notably, as in past years, we plan to return 80% of free cash flow to shareholders through dividends in our newly announced $1 billion buyback authorization. With that, I'd like to thank you for your time this morning and for your interest in Jabil.

Technology is in constant motion. Every day, new breakthroughs redefine possibilities. At Jabil, we embrace change. As the world evolves, so do we. We aren't bound to a single industry or technology. From pioneering innovations in healthcare to advancing artificial intelligence, automotive technologies, and warehouse automation, we are committed to driving progress across diverse industries. Our strength lies in our ability to adapt and evolve, meeting the needs of our ever-changing world. And with each new journey, we bring unparalleled capabilities and expertise to empower our customers. Change is inevitable. The possibilities are endless. For leading product brands, Jabil is the safe pair of hands in navigating the future of technology. Jabil, made possible, made better.