Ladies and gentlemen, thank you for standing by, and welcome to Jabil's First Quarter Fiscal Year 2014 Earnings Conference Call. [Operator Instructions] Thank you. I would now like to turn today's conference over to Beth Walters, Senior Vice President, Communications and Investor Relations. Please go ahead.

Thank you, and welcome, everyone, to our first quarter of fiscal 2014 earnings call. Joining me today are our CEO, Mark Mondello; and Chief Financial Officer, Forbes Alexander. This call is being recorded and will be posted for audio playback on the Jabil website, jabil.com, in the Investors section. Our first quarter press release, slides and corresponding webcast links are also available on our website. In these materials, you will find the financial information that we will cover during this conference call. We ask that you follow our presentation with the slides on the website, beginning with Slide 2, our forward-looking statement. During this conference call, we will be making forward-looking statements, including those regarding the anticipated outlook for our business, our currently expected second quarter of fiscal 2014 net revenue and earnings results, the financial performance for the company and our longer-term outlook for the company. 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 those risks and uncertainties are identified in our annual report on Form 10-K for the fiscal year ended August 31, 2013, on subsequent reports on Form 10-Q and Form 8-K and our other securities filings. 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. Today's call will begin with some opening remarks from Mark Mondello. We will then move on to our first fiscal quarter results and guidance on our second fiscal quarter of 2014 from Forbes Alexander. We will then open it up to questions from all call attendees. I will now turn the call over to Mark.

Thanks, Beth. Good afternoon. I appreciate everyone taking time to join our call today. Before I begin, I'd like to thank all of our people here at Jabil. Thanks for their commitment and dedication. As communicated in today's press release, Jabil has decided to sell our Aftermarket Services business to iQor Holdings for $725 million. iQor is the premier global processing and technical support services company. As we think about the next 3 to 4 years, Jabil's strategy has management keenly focused on manufacturing. We look to expand our technical capabilities in an accelerated time frame, resulting in even better and greater diversification. Our AMS business, which today is heavily concentrated around depot repair for consumer electronics, should benefit tremendously from the complementary capabilities offered by iQor. The announcement of our intent to sell the AMS business reflects a diligent process, thoughtful, long-term planning and prudent negotiations. The end result is the selection of an exceptional buyer. My belief is this strategic decision is in the best interest of our AMS employees, our customers and, most certainly, in the best interest of our shareholders. The sale of this business illustrates management's willingness to capture value when the business is misaligned with our long-term corporate strategy or simply worth more under different ownership. I'd now like to take some time to recognize our AMS team for their contributions. The team created and expanded this remarkable business over the past 2 decades. They delivered $1.1 billion in revenue to Jabil during fiscal year 2013. They provided 14 years of healthy cash flows, and they did all of this while taking great care of their customers. I want to thank each and every member of the team. I wish them the very best. In addition to the anticipated sale of our AMS business,…

Thank you, Mark. I'd ask you to go back to Slide 3 of our earnings presentation. Net revenue for the first quarter was $4.6 billion, consistent on a year-over-year basis. GAAP operating income was $173 million or 3.7% of revenue. This compares to $170 million of GAAP operating income and revenues of $4.6 billion or 3.6% for the same period in the prior year. Diluted earnings per share were $0.57 during the quarter. GAAP earnings in the quarter included $21 million of restructuring charges, $8 million associated with the amortization of intangibles and a positive impact of $25 million of income, reflecting the reversal of some $40 million of performance-based stock compensation expense, this as a result of the determination investing metrics shall not be met and reflective of aligning compensation to company performance. Core operating income, excluding the amortization of intangibles, stock based compensation, restructuring and related charges, was $177 million or 3.8% of revenue. Core diluted earnings per share were $0.51. Core earnings per share being negatively impacted by an increased tax rate at 26%, based upon the geographic mix of earnings during the quarter and expectations for the remainder of the fiscal year. If you now please turn to Slide 4 for some discussion on our segment. In the first quarter, our Diversified Manufacturing Services segment grew 5% on a year-over-year basis, as a result of the inclusion of revenue associated with our recent Nypro acquisition. Revenue for this segment was approximately $2.3 billion, representing 50% of total company revenue. I would also like to note that our newly acquired Nypro business performed as we'd expected. Core operating income for the segment was 4.9% of revenue. The Enterprise & Infrastructure segment decreased 6% on a year-over-year basis, reflective of the overall macro environment. Revenue was approximately $1.3…

[Operator Instructions]

[Operator Instructions] Your first question comes from the line of Wamsi Mohan with Bank of America Merrill Lynch.

You said a couple of times that there were multiple factors that hit you at the same time. So I'm curious, why are you doing this AMS transaction right now when there are so many other moving pieces? And I have a follow-up.

Wamsi, thanks. It's Mark. The issue for me is they're independent activities that happened to coalesce on us all at the same time. So it certainly wasn't planned this way and, hence, the near-term impact to the company. But I just strongly believe we've got a very good strategic path. This AMS sale has been in the works for quite some time. We've had a long-term strategy. I think I talked about it in my prepared comments. I want the management focused on manufacturing. What we do for a living is we build things, and we're going to continue to aggregate capabilities that are similar to what many of you saw when we were up in Boston at Nypro. And our AMS team has done a tremendous job. We've owned that business since 1999, 2000, and the team has done a tremendous job. But as we move forward, I have a belief that you can only focus on so many things, and I want our folks focused on building stuff. And I also think in the positioning of where the AMS business is today, I think for the employees, for the customers and whatnot, pairing this business up with the service offerings that iQor offers is really complementary. So I think in that deal, you kind of get 1 plus 1 might equal 3. And again, some of the issues that happened in the near term were unanticipated, and I didn't feel righteous in slowing down the process for the AMS sale. Again, that's been in the works for quite some time. So unbeknownst to us, everything would kind of collide under the business all at the same time.

Okay. And as a follow-up here on DMS, you mentioned that you would look to reorient some of the assets. But reorienting to me means that -- to a different program, that you will be a net share gainer on the other program. What gives you the confidence that will happen? And what time frame are you talking about in reorienting these assets?

Yes. So I think I said in the prepared comments, it's a 2- to 3-quarter issue, and my confidence is based on the relationship we have with our customer. So again, I don't want to get into any more detail on that. I know that's very unsatisfying. But we're well-roadmapped and we have a good relationship with the customer, for which we could be redeploying the assets.

Your next question comes from the line of Shawn Harrison with Longbow Research.

I'm trying to, I guess, bridge the gap from the EBIT generated this quarter to the midpoint of next quarter. If you could maybe walk me through -- it looks to be 3 discrete buckets. So the AMS sale that -- behind my back of the envelope math is maybe $20 million. But if you could talk about the BlackBerry impact in terms of the EBIT drag quarter-over-quarter and then also the DMS drag, the business falling off. And then I have a follow-up.

Yes, Shawn. So in very, very rough numbers, right, we -- let me round the number so I can do the math in my head. We posted $180 million for our fiscal Q1. We're guiding a center point of $60 million in fiscal Q2. So let's take your math on AMS being $20 million and then we still had better-than-expected BlackBerry revenue and earnings in Q1. So let's take some of that out and you're probably left with a number that's $85 million to $90 million, something like that, as far as the gap. And then you do some math on DMS margins on the demand decline that we talked about and I can't get into any details on that. But run some math on that, you end up with kind of a final delta. And the final delta that you're looking at is really a combination of cost structure inside of DMS and then corporate absorption. And I have a high degree of confidence that, again, all that will get right-sized in relatively short order.

So you think within 2 to 3 quarters, you would be back to the same level of profitability within DMS?

I'm not going to speculate on that. But do I think -- overall, do I think the business in 2 to 3 quarters is in good shape? I do.

Okay. And then my follow-up was, was this a decision by the customer changing or was there an execution issue?

There was absolutely no execution issue at all.

Your next question comes from the line of Amit Daryanani with RBC Capital Markets.

Maybe I just don't understand the DMS issue. Was it a market share loss from your side or was it just the customer saying, "I want product that even you guys [ph] don't do and -- but just hang on for 3 more quarters when the new product comes out?" Will the used [ph] product be the Jabil manufacturers? Is that generally what happened? And if that's the case, maybe I don't understand, but why would you want to take $85 million, $90 million of quarterly losses for the next 2 to 3 quarters until some new thing comes out hopefully that will sell better?

Yes, it's a great question. I'm not going to comment on what drove the demand, and again, I acknowledge that it's unsatisfying. I just -- we're -- as I said in my prepared comments, we have a couple of choices here. And one thing that Forbes and myself and the other parts of the management look at is, in looking after shareholders, as well as the business in general, we take a long-term view on things. And when I think about valuation over the long term, I think the decisions that we're currently making are pretty sound and pretty prudent for the business. So I just leave it at that.

All right. Maybe what I'm trying to think of [ph], is there a discussion where you say, "Customer A, you got to pay us some dollars for the fact that we're going to have $200 million plus of operating losses, given there's idle capacity for close to a year from now?" Is that a potential, you think, that could happen down the road or it is the way it is right now in terms of operating headwind you'll get in that segment?

Yes. I don't want to talk about anything to do with specific customers at all, but in general, I think Jabil's had an excellent track record over the years of amending terms and conditions when the business dictates. And I think we've shown that over the years, most recently with our BlackBerry wind-down. And we've got great relationships with BlackBerry. But when we made the BlackBerry decision, I don't want to dwell on BlackBerry at all because I have a ton of respect for their company and their people and -- but when we made that decision, it was difficult. But we had a substantial liability at hand. BlackBerry has worked very, very well with us. And I look at the kind of amendment to terms and conditions based on business conditions in that example. And I said in my prepared statement that as we sit today, we believe the BlackBerry wind-down, which will happen this quarter, will be in the $35 million to $85 million range that Forbes had talked about as far as -- specific to BlackBerry restructure. That's an admirable illustration and indication of how we end up managing the businesses based on decisions that have to be made. So my belief is, is that with any of our businesses, if they dictate changes to terms and conditions or the way in which we work with our customers, we'll move in that direction.

Fair enough. If I just follow-up, I think in the AMS divestment press release, you guys talked about the divestment proceeds will be used for potentially more engineering-intensive capabilities and acquisitions. Could you maybe -- I mean, when you get -- when you have the cash flow this year, plus the cash flow from the AMS sale, you obviously need a $200 million buyback. Is the focus beyond this to do more M&A activity like Nypro? Or is it more to return capital back to shareholders as you go forward?

Yes. So I think this topic came up at the Analyst Meeting, and I forget what my exact response was. But for me just restating it, I think the best use of our capital is organic growth in the business. It's the least risky. It sets a great platform for growth. And when I think about valuation and long-term viability, again, I love nothing more than to look at outstanding business plans by one of our divisions and take capital and reinvest it back in the business. Secondarily, to your point, acquisitions, much like we did with Nypro, are of keen interest to us. Again, selling AMS -- AMS was a tremendous business for us, but I want our team focused on building stuff. I want our focused -- I want our team focused on manufacturing. And as we look forward, the AMS business just didn't quite fit that. So my guess is, is Forbes announced the buyback in his prepared comments. For now, that seems very reasonable to us. Let's see how things settle out with BlackBerry. Let's see how things look for the year. There's potential we could increase that, but let's take it as $200 million of share buyback for now. And we also have some other ideas in the pipeline as far as some strategic ideas, as well as adding different capabilities.

Your next question comes from the line of Jim Suva with Citi.

Mark and Forbes, if I understand your commentary correctly, it sounds like the negative operating leverage from the wind-down of the different parts that are going on with your company and the excess utilization or the underutilization of being able to spread the fixed costs at the EPS run rate is probably going to be somewhat closer to the guidance, say, for the next 1 to 2 to 3 quarters. Is that correct? Or is there something really hurting it this quarter, then [ph] your following quarter out, we should expect a material increase like in the May quarter for earnings?

Jim, I don't think -- I don't know that I'd think about a material increase. I would think about if we had -- first off, I would be very cautious in how you handicap the balance of the year. As I mentioned and Forbes mentioned, we have a lot of moving pieces. The structure of the company is great. I love our strategy. I like where we're going. I'd just be -- I'd be cautious in the back half of the year. I think if you extrapolate it out, Q2, with some level of modest growth, that's probably reasonable. And I look forward to giving you more clarity on that during our March call.

Okay. And so strategically, big picture, Mark, I believe it's probably pretty prudent then to say earnings growth for this year is just too aggressive for people to expect. You'd be more looking at this is a transition year for Jabil and look for potential positive earnings growth in 2015. Is that a fair assessment?

That's fair. I mean, I hate it because I feel like we have a job to do in delivering for shareholders, but that's the reality. And again, I also don't want anybody to take our comments that we're being -- we are actively assessing the situations that are placed on us. We are balancing -- I think the team is doing an exceptional job of balancing the next couple of quarters with the long-term structure of the company. And I think that we'll have better color on that by the March call. And I feel like we'll do a reasonably good job of taking out as much cost as we can take out. And the current data that you have in front of you suggests that, that's our plan. But again, we'll provide, I think, better color on that in the March call.

Your next question comes from the line of Amitabh Passi with UBS.

Guys, I was just curious. DMS margins missed again this quarter. Was it things starting to show [ph] in the back half that affected the performance? I would like to get some color on that. And then what gives you the confidence you can actually grow DMS back in the 8% to 12% range?

Let me take that one. So our DMS -- if I stop with the revenue in DMS in Q1, I think we guided some growth of about 7%. We came in at 5%. It's just a hair underneath. And the operating performance was relatively consistent with last quarter. So there was -- we're reasonably pleased with that, just given the demand environment that we saw and just coming a little bit light there in overall. What gives us confidence that we can get this back into the range of 5% to 7% longer-term? It's really our capabilities, the way we -- our relationships with our customer base here and really some of the exceptional work that's underway with our Nypro team. So we'll -- once we start to see revenue growth coming back here and, as Mark said, reposition the asset base over the next 2 to 3 quarters, we are very comfortable that we'll start moving solidly back into the range of 5% to 7%. It's a matter of 2 or 3 quarters, and we feel very comfortable with our customer relationships, opportunity to get there.

And then maybe just as a follow-up. The issue with your customer within DMS, I mean, was it just you guys were overly exposed to a particular program? And how do you mitigate that risk as you move forward? Is there active conversations to try to diversify exposure across multiple programs? I would just like to get some incremental insight there.

Amitabh, I think that's a great question. You look at it on the surface and you go, "Geez, what's going on?" And it comes down to the cost structure that we had in place. And again, I feel very good about the customer relationship, I feel very good about our performance, I feel very good about how they feel about Jabil. And it was really about -- it's really about the cost structure we had in place, and I'll leave it at that.

Your next question comes from the line of Steven Fox with Cross Research.

Just a couple of questions for me. I was wondering if you could just sort of -- obviously, the volume assumptions have changed a little bit. But relative to what you guys had talked about last quarter in terms of restructuring savings, helping earnings by $0.11 to $0.15 and Nypro helping by, I believe, $0.16 to $0.22 and the BlackBerry drag of $0.28 to $0.34, in a vacuum, are all those numbers still intact? Or has that changed under some of the things going forward? And then I have a follow-up.

Let me take that. It's Forbes. No, those are very much intact. We are very pleased. As I said, Nypro is on track, great team there. And earnings will be in that range that we talked about. Remember, we just got 1 quarter under our belt, but yes, so far, so good. In terms of overall restructuring plan, yes, those will deliver. We talked about complementary to the EPS range, $40 million of savings in this fiscal year. That's still on track. A lot of that heavy lifting, if you will, underway currently and as we move into the beginning of the calendar year. But certainly, nothing has changed in that regard. And I think the last point you mentioned was the BlackBerry piece, certainly solidly in the range, $35 million to $85 million. So no material change in any of those items. As Mark said, the conversation [ph] is focused around under-absorption of corporate overhead with a demand drop and a cost base in place to support higher volumes.

Great. And then just as a follow-up, if I look at the DMS guidance for this quarter of down 25% year-over-year, I understand you don't want to talk about any customers, but can you help us just to make sure we're backing out the correct amount for the benefit from adding Nypro versus a year ago and then the divestiture of AMS? Is it as simple as just dividing by the floor -- dividing by -- the annual revenues by floor? Or is there some seasonality we should also think about to try and understand your organic growth?

Yes. There's not really much seasonality. I think directionally, if you divide by 4, you're pretty much there.

Your next question comes from the line of Brian Alexander with Raymond James. Brian G. Alexander - Raymond James & Associates, Inc., Research Division: I guess just to follow-up on Steve's question, just to make sure we're on the same page, if we add back the AMS revenue to your DMS guidance of down 25%, you're still down double digits year-over-year, and that's with the benefit of Nypro. So if we look at it organically and add back AMS, it looks like you're down somewhere around 25%, and I just want to make sure we're kind of in the right ballpark.

Yes. That's correct, Brian. Brian G. Alexander - Raymond James & Associates, Inc., Research Division: Okay. And so -- I guess what I'm still struggling with is why this surprised you. You've talked about having a strong partnership with this customer. You've talked historically about having a pretty long lead time and good visibility into product cycles. And I think you've been putting a lot of CapEx into this customer in the last few quarters. So I realize you don't want to get too specific, but again, it's not clear what exactly is happening here, whether it's market share-related and just why you were caught off guard in such a short period of time.

Brian, it's Mark. A fair question. I don't -- we have a good relationship, we've got good visibility on roadmaps and we've got decent diversification. We -- again, we had a fairly substantial cost base in place. Some of that cost base is not transferable immediately. And why were we caught off guard? I just -- I can't comment on that. I just -- again, I'd like to, but I need to be sensitive, and I can't comment on that. Brian G. Alexander - Raymond James & Associates, Inc., Research Division: And so when do you think the earliest you can be back within that longer-term 5% to 7% range? It doesn't sound like that's in the cards for any quarter in fiscal '14. I mean, what would be the earliest quarter you think that you could actually be back above the low end of that range?

Brian, I'd like to -- I'd like you to hold me to that in our March call. Let us work through what we're working through. Let us get some costs realigned. Let us get the AMS sale. The AMS deal is supposed to close March 1, and BlackBerry will be wound down. So hold me to that in the March call. Brian G. Alexander - Raymond James & Associates, Inc., Research Division: Okay, I will. And final question just maybe for Forbes. I think you lowered your free cash flow target for the year by about $250 million. You lowered your CapEx actually by $50 million. So that implies you're lowering your operating cash flow by $300 million. Should we assume that, that $300 million is all coming from reduced core net income? And if that's the case, that would put your core EPS at about $1 in fiscal '14. So I know you didn't provide a formal update on your core EPS outlook, but is that kind of in the ballpark of what you're thinking for the year?

I'm not going to comment on the year, Brian. As we said, operating cash flow in the $400 million to $500 million range. I would remind you, obviously, we've got an AMS divestiture here, so that obviously carries an element of core operating income that leads the company for 3 quarters, given that we will be reporting that as discontinued operations. So there's certainly an impact from the Aftermarket Services area, but I'm not going to comment on any EPS for fiscal '14.

Your next question comes from the line of Mark Delaney with Goldman Sachs.

For my first question, can you help us think about the implications to your margin profile as you move more into manufacturing as opposed to services? I understand that there's different margin guidance between your different segments and some of the manufacturing segments, and E&I and HVS have lower margins. So is there some sort of implication that your margins are going to be lower as you focus more on manufacturing?

Thanks, Mark, for the question. This is Mark. I don't think so at all. I think if you -- one way to think about our business is in very, very rough levels. I think Forbes, during his prepared comments, talked about kind of an endorsement of our growth ranges and our op income ranges for the 3 segments for which we report. If you think about the business being 50% to 60% DMS longer-term and then 40% Enterprise & Infrastructure and High Velocity maybe equally split, something like that, maybe Enterprise & Infrastructure a little bit greater over time, is -- and you run the weighted average math on that, I feel very comfortable that, that's the margins and the margin structure long-term for the company. I think that what we'll be doing in expanding in the manufacturing side, we'll be, again, growing share in the 3 sectors -- or the 3 segments that we report today. And I would envision that in not the too distant future that we would be adding some additional reporting segments or at least adding some additional divisions up under these segments. And again, I think they support the margin structure that Forbes talked about.

Okay. For my follow-up question, as you guys are in the process of redeploying assets from some large handset programs, is there anything that you've learned that you can do in order to maintain your returns over multiple quarters because of the volatility that's associated with some of these higher velocity programs?

Yes. I'm sure there's stuff we've learned, and I just -- I don't want to get into it on the call. I mean, again, some of it has to do with the customer and -- overall, again, it's disappointing that we're taking you down this path for Q2 and potentially a couple of other quarters. But overall, what I'd say in the light of some tough news is, historically, we continue to do a nice job managing our business and the ebbs and flows. And I think this will be a case, looking back on it, where we proved that we're able to do the same thing here.

We have reached our allotted time for questions. I would now like to turn the floor back over to management for any closing remarks.

Okay. Well, thank you very much for joining us on the call today. And we will be available the rest of the week, as usual, for any investor calls and follow-ups that you have. Thank you.

Thank you for participating in today's conference. You may now disconnect.