Greetings. Welcome to the Jabil Second Quarter of Fiscal Year 2024 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note that this conference is being recorded. I will now turn the conference over to Adam Berry, Vice President, Investor Relations. Thank you. You may begin.

Good morning, and thank you for joining Jabil's second quarter fiscal 2024 earnings call. Joining me on today's call are Chief Financial Officer, Mike Dastoor; and Chief Executive Officer, Kenny Wilson. Over the next few minutes, Mike and I will review our Q2 results, update current demand trends and provide new guidance for fiscal '24. We will then turn the call over to Kenny, who will provide several of the building blocks that give us confidence in our strong outlook for fiscal '25. 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 the call, the entirety of today's presentation will be posted for audio playback. I'd now ask that you view the slides on the website and follow along with our presentation, 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 in our annual report on Form 10-K for the fiscal year ended August 31, 2023, and our 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 second quarter results, where the team delivered approximately $6.8 billion in revenue roughly in line with the guidance range we provided as a majority of the…

Thanks, Adam, and good morning, everyone. Over the next few minutes, I plan to provide more information on the following: First, I'll walk you through our financial outlook for Q3 and updated outlook for FY '24. Next, I'll provide an update on why we are confident in our growth opportunities for FY '25. And then, I'll provide an update on our accelerated share buyback execution plans, which are progressing ahead of schedule. With that, let's turn to the next slide for our third quarter guidance. Towards the end of our second quarter, we experienced a sudden slowdown within our 5G and renewable energy end markets, which we expect will continue through the second half of FY '24 and result in lower than expected revenue for the last two quarters. Within our renewable energy business, the inventory correction that began in our Q1 is now expected to persist through the balance of our fiscal year as customers in this end market lower demand forecast towards the back half of February. The renewable energy team has done an excellent job consolidating the supply chain within our current customer base and we will have a higher overall share of our customers' business as we move towards the end of Q4. In 5G, towards the end of the quarter, infrastructure rollout slowed quicker than expected as faster growing markets like, India substantially pull back on all 5G infrastructure investments. As a result of these two market dynamics for Q3, we expect total company revenue to be in the range of $6.2 billion to $6.8 billion. Core operating income for Q3 is estimated to be in the range of $325 million to $385 million. GAAP operating income is expected to be in the range of $221 million to $301 million. Core diluted earnings per share…

Thank you, Mike, and thanks to everyone for joining us today. Fiscal '24 was always going to be a transitional year for Jabil, one of which we've successfully completed the largest transaction in the company's history with the mobility sale and its subsequent efforts by our teams to optimize our footprint and cost structure for the go-forward company. For this transaction and the optimization of our footprint were anticipated, the end market slowdown was not. As I have stated previously, the key attribute of our model is agility and our ability to quickly react and effectively absorb changes in revenue. At Jabil, we obsess about operations, working tirelessly to ensure that what is within our control, we control well. Managing our factories to absorb such a March slowdown does not happen by chance, so it's pleasing to see our margins hold up. Additionally, dislocations like this provide opportunity for some consolidation and is reassuring to make progress with customers who trust us to allocate more of their spend to Jabil. In tandem with our focus on operational execution, we have been intentional in how we've shaped our commercial portfolio. The closing of the mobility deal was not a one-off event, but part of a process where we look telling our capabilities current and future with markets exhibiting the desirable characteristics of long term secular growth at appropriate margins and cash flows. The result of this allows us to help simplify the lives of our current and future customers while making appropriate returns. For example, in our recent history, this has seen us transition from low tech electronics and automotive to EV and autonomous driving systems, including optical cameras. From PCBA manufacturing and health care to precision machining of customized implantable, from build-to-print servers to highly configurable AI data center racks,…

Thanks, Kenny. So there was a lot here today. And in closing, I'd like to quickly summarize some of the key messages. Our second quarter results and our fiscal '24 outlook are largely in line with the guidance we provided back in December, with the exception of the impact from two specific end markets, including renewable energy and 5G wireless. And despite our lower outlook for '24, positive demand signals in the market, along with new wins, higher core margins due to mix shift and the accelerated buybacks from the proceeds of the mobility transaction give us confidence in fiscal '25 which is why we chose to maintain our $10.65 core EPS target. Thank you for your interest in Jabil. Operator, we're now ready for Q&A.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first questions come from the line of Steven Fox with Fox Advisors. Please proceed with your questions.

Hi. Good morning. Two questions from me, if I could. I guess, first of all, on the cuts within 5G and renewables programs. Can you give us a sense for why you think this is the last time you're going to have to come back and cut those numbers? Like, what are the indications, not just through the fiscal year, but through maybe the calendar year from customers on that front? And then secondly, on the better margins that you're targeting now, I understand the mix shift, but maybe a little bit more color on like the biggest mix shift drivers if we exclude the mobility math from that? Thanks.

Hi, Steven. Thanks. Good morning. Yeah. Let me take that, the question on demand. I mentioned in Q1 when we've seen the broad-based demand reduction that we've got a process where we do we're pretty intimate with our customers in terms of their forecast, looking at inventory and inventory in channels. We called that right across all of our end markets with the exception of the 5G telco space and renewables. And there's a couple of specifics there. So Mike mentioned the India issue here, and I think what we see here is that although, we said, there was a substantial pullback. In effect, what happened was the rollout stopped with -- basically with no input from the Reliance in this instance. So when we look at that, there's no indication of that and basically, we've baked into our number now going forward. So we're comfortable that everything else in the telco space, we've seen and we understood. This was just a gotcha in India. We're not forecasting or expecting that to recover in this year. So we think we're pretty safe there. In the renewable space, again, we've been working with the customer through calendar Q4 into Q1. And what we decided to do there is that basically, the inventories in the channel, and it's not going to be sold through. So we've reduced the build plan, they’ve register what they're going to ship. And what we're seeing is that the inventory in channel now is now reducing. We haven't forecasted a covering that this year also. So we've been very, very conservative. Also, just as we look to '25, we've been very conservative, and we've modeled those run rates going forward into '25. So when you look at what we're talking about in '25, we don't expect these two end markets to recover. So we think we've been appropriately conservative.

Great. And then on the margin question?

Hey, Steve. Yeah. So obviously, the mix shift does have a huge impact. We've replaced a lot of our legacy networking and storage business with higher margin AI related business there, obviously, AI by itself in the cloud space, although, you don't see it in the revenue line item because of the consignment effect, the volumes are up considerably in that particular line item. So there's a big margin play coming through on the mix shift that you suggested. And on top of that, we've done a lot of cost optimization. If you go look back at our -- I think on the call maybe earlier in the fiscal year, we talked about a stranded cost and footprint optimization restructuring that we've taken then. The fruits of that are showing up in the second half of the year. Obviously, we had Q2 was a little bit of a transition quarter for the cost optimization effort. But that's coming through. And then if you look at some of the cost recoveries that we're getting from our customers, even though revenues are down, we are -- we have been successful in getting cost recoveries because of the sudden nature of the cut. So all of that plus Q3, Q4 had some ramps in there. Obviously, as the revenue is pushed out, we don't have to have those ramps. And then I'll just remind you, ramps are at a much lower margin in those initial quarters when we're moving up on that revenue line item. So that gets pushed out a little as well. So a combination of all that, Steve, gives us really good comfort. I think we said 5.3% to 5.5% margin. Previously, we've actually taken it up, not just to the high end. We've taken it beyond that, and we think it's going to be more in the 5.6% range, and we feel really good about that.

Yeah. I have a follow-up to that also, Steve, and we've been talking about this and obviously, with yourself. But I think Slide 17 is a pretty good pictorial view of why we're confident that our margins in the longer term will be robust. Historically, we would be in the server space here when I think back three, four, five years ago. And then what we're trying to show here is just how as well as being vertical in terms of going to asset like rack assembly that's been hugely successful for us. But if you look at everything else interest we've gone from being a legacy enterprise switching to accelerated switching that supports AI with the awards that we won recently. Optical transceivers or pluggable transceivers in this instance that we got a lot of horsepower from the Intel deal that we just closed. And incidentally, I met with the Intel team in Singapore in January and the hit the ground running and are really making a huge difference, which is great for us. But there's things like the CDUs, liquid cooled racks, and also, we're now doing, as I mentioned, the low voltage bid voltage switchgear and the rack power distribution. So historically, that's markets that we wouldn't be planning in at all. But what we find is from being a server player to now we're getting multiple income streams in that space -- with things where a little bit of the data center being disaggregated. It just gives us confidence when I said that we're retail in the company, what I was talking about is we're leveraging things that we've done historically will listen to our customers, and we're finding other value-added activities so we can help them. We can reduce their costs and we can increase our margins. So I think that can underpin what we try to do from a margin perspective to satisfy our customers' needs grow our margins and make that sustainable in the longer term.

Great. That’s all very helpful. Thanks for that answer.

You’re welcome.

Thank you. Our next questions come from the line of Ruplu Bhattacharya with Bank of America. Please proceed with your questions.

Hi. Thank you for taking my questions. I was trying to count how many times you mentioned AI in your prepared remarks, and then I just lost count. So needless to say, AI is a meaningful driver for demand in different end markets. Mike, is there a way to quantify how much revenue will come from AI over the next year or what the margin impact would be? And Kenny, can you delve a little bit more into what you're doing in the cloud business? What is Jabil's competitive advantage? A lot of people are going into AI in the data center. So how do you think your competitive advantage stands against others and how do you see your cloud business revenues growing over the next couple of years?

Hey, Ruplu. Just to be clear, I said AI 21 times in my reports, so I did count. On the AI piece, so if you look at my prepared remarks, Ruplu, I did talk about the AI revenue. I think we're going to grow by about 20%, 25%. We're about in the $4.5 billion, $5 billion range, we're going to be north of $6 billion in FY '25 and that's across multiple end markets. Obviously, as Kenny mentioned, we'll be playing in the cloud data infrastructure space. We play in areas such as network switching. There's a whole bunch of business that was switching from or replacing from our legacy network business to AI-related business. Sort of its spread out, particularly in those two line items when we call them out on our revenue chart. But overall, about $6 billion plus, we actually feel that will continue to grow in that 20%, 30% range over time as this proliferation of AI across different end markets just continues to expand. So it's starting off where you expect it to start in the cloud space. And then as you work around the cloud space, that will gain more momentum. And then as you go forward, and I'm talking here two years out, even that was spread into all our other end markets as well because all that we do is mainly hardware and all hardware will benefit from the AI proliferation.

And let me take your second question, Ruplu, on Jabil's competitive advantage. Firstly, what I would say is, I think that the growth in this area means that there's going to be a lot of work for a lot of people. So I think that's good. When we look at our competitors, I think there's enough work to go around. That said, what we try to do is we try to look at the world through the eyes of our customers and make their life simpler. And then if you look at -- there's a need in the data centers to be able to do silicon photonics transceivers. These need to be able to do power and switching. There's a need to be able to do servers need to be able to do rack assembly. What we find our customers look to do is their life becomes -- the more suppliers they add, the more and more complicated the life becomes. So if they have a credible supplier that can do multiple different activities, then that's helpful for them. You take, for example, if you can do pluggable transceivers, but you don't do line cars and then you want to put the optical device on a line card. That becomes an issue as we can do both of that. So we think the view for us is to be able to be vertical and to be able to integrate more services that becomes a play for us. is something that we've seen across automotive, Mike mentioned the cameras that we're producing in automotive, for example. So we think that, that serves us well, the other thing that I think remains to be seen, but I think it's basically not a negative but a positive for sure. We have a global footprint, so we can leverage best practices and capabilities across the world, but being domiciled in North America, we see has been helpful in the longer term from a secure supply perspective. So we think we put all of that together, we feel that we're well positioned, and all we got to do is perform. So we're pretty bullish on the long-term opportunities and growth in this area.

Okay. Thanks for that. And just as a follow-up, I want to push you a little bit. I mean this is the second time in a row that you're cutting full year guidance. I mean last time revenues you cut by $2.5 billion. And this time, it looks like ex the $400 million for the mobility business, the takedown is about $2.1 billion. So my question is really the same as I had last time, which is, what gives you confidence in your guidance and how can investors get confidence that you won't come in even lower for fiscal '24, for example, if renewables is weak, why can't it get even weaker? And then Mike, just on the -- for next year, you talked about all these drivers for margin improvement. My question would be what can derail that? I mean what are some of the risks to Jabil attaining that margin and what should we look out for? Thank you so much for taking my questions.

Yeah. So let me take a step back, Ruplu, because we've reflected on that a lot. The relationships we've got with our customers is -- and generally has been long term in some instances, has been multi-decades. So we have a partnership there. We're kind of joined at the hip connected. We've got processes where we share forecasts. We look at inventory. So we're pretty tight. We've got people in our sites, whether it's business development people, planners, et cetera, et cetera, that are involved in this. So this isn't the top down. It's -- we bubble this up from the bottom. So -- and I can understand the question. In Q1, we've seen a broad-based reduction. And if I look forward from what we when we looked at Q2, across the majority of our end markets, what we predicted is going to happen for the balance of the year is happening. So we're comfortable with that. And sometimes you get out higher, like India, for example, I mean, no one expected with the rate -- the deployment of radios in India that, that would just all of a sudden stop. So I think that, that in this instance, that becomes something that you got accept that sometimes things will happen. In the renewable space, we spend a lot of time with -- we've got more customers now than we had six months ago. And we spend a lot of time with them. It's clear that the slowdown and the rollout of the inventory we got in channel has been much lower than expected. We've taken our numbers way, way down. But in that also, we look -- it's mainly a residential play that's been soft. We are pivoting so that we are much more in the commercial side, and…

And Ruplu, I'm going to answer your question in a slightly different way than you were at it. Obviously, you asked about the risk and what can go wrong and why the margin story holds good for us. So let me just try and answer it by talking about the $10.65 a little bit. Because all of that is factored into our $10.65 guide. Why do I feel so strongly about that particular $10.65 number. Before that, let me just give you some building blocks. So if you look at what our interest costs this year will be in the high 200s. We expect next year to be in the mid-$200 million. So if you take an interest number of about $250 million for the building block there, if you take WASO (ph), we will have done substantially the $2.5 billion will be completed by FY '24. In FY '25, we'll continue a more normalized run rate of buyback. So I expect WASO to be about $110 million to $113 million in FY '25. Now based on these two numbers, if you take the incremental income that's needed to make $10.65, the numbers are around $130 million to $140 million of incremental income. I talked about some of the end markets, how we're sort of benefiting from some other macro trends that are coming into play right now. I talked about AI, I talked about the different end markets within storage, in cloud, et cetera, where we're seeing this whole AI proliferation. And that alone, as I mentioned, is about $1 billion to $1.5 billion incremental revenue, net revenue, I should add as well, sort of net of any consignment effect that FY '25 presents. We've talked about -- I mentioned in my prepared remarks, automotive, what we're seeing for…

Okay. Thanks for all the details. Appreciate it.

Welcome, Ruplu.

Thank you. Our next questions come from the line of Mark Delaney with Goldman Sachs. Please proceed with your questions.

Yes. Good morning and thanks for taking my question. The company mentioned an expectation to have about $6 billion of AI-related revenue in fiscal '25. Better understand how you're defining AI-related revenue? And then maybe also help us understand out of that $6 billion, how much is coming from data center and then how much are some of these other end market opportunities where you see some AI opportunities like health care?

Yeah. Hey, Mark. So the blend of it is as -- I would say that probably just north of half of it is data center related maybe slightly -- maybe two-thirds of it and the balance would be optics and advanced switching really. It's that kind of order of magnitude.

And Mark, if I could just add, if you look at our data center revenue and again, remind you that's net revenue. It's net of consignment effect. Our gross volumes are growing at a really good pace. It's in that 25%, 30% growth range obviously doesn't show up in the revenue. But it will show up in the margin because that is what we're adding value on. So I think the number by itself, just the revenue number, net revenue can be a little misleading. You've got to look through -- look at volumes. Volumes are going up 25%, 30% in that particular space.

Okay. That's helpful. But just to clarify, so would any rack for hyperscale or be counted as AI or does it need to have GPUs in it? Just trying to understand sort of the categorization of AI versus some of these other broader categories.

No, it has to have some GPU attached. Most of our business now has shifted from the legacy server business to AI-related GPU, predominantly in our cloud business.

Yeah. We just -- we opened a new facility like six months ago that's pretty much all doing a GPU like -- in that space.

Helpful. My other question was on margins. Mike, you mentioned fixed cost recoveries is one reason for the margin resiliency in fiscal '24. Maybe you can help us speak to how secure the recoveries are? Is that something that you still need to go out and negotiate? And then maybe talk a little bit around your ability to still achieve a 6% EBIT margin over the longer term. Thanks.

Yeah. The recoveries are already done, Mark. It's not based on our future event. It's already agreed upon. So it's very secure. Can you repeat your second question?

Your ability to get to the 6% EBIT margin in the longer term, which is something I think you said could be achievable. I don't think you put a specific time frame on it, but to what extent do you think you're still tracking to eventually get a 6% or higher non-GAAP EBIT margin? Thanks.

Right. So we will exit at FY '24 at 5.6%. We're being very sort of conservative by saying 5.7% plus for FY '25. I think getting to 6% is not is not five years from there. It's maybe a year or so away from FY '25. So we're getting closer and closer to that 6%. And I think the margin story is definitely in our favor right now. It's all the business that we're seeing. That is all higher margin mix shift.

Thank you.

Thank you. Our next question come from the line of Melissa Fairbanks with Raymond James. Please proceed with your questions.

Hey, guys. Thanks very much. I was wondering, if we could dig into the expectation for health care. I know it's not quite as exciting as AI. But we've heard from some of your peers that capital equipment investment has been challenged recently I assume that's what's behind your lower full year outlook. But you actually found increasingly constructive about the overall business. Could you give us a little more color on what you're seeing there?

Yeah. Hey, Melissa. Yeah. I mean we kind of break that up -- if I think about how we break it up entirely, there's med devices, pharma and ortho. What we see in the first half of the year was our expectation is like a little bit softer kind of inventory digestion. But we think that recovers and kind of made the bases and a mean pharma with GLP-1. We see that going really, really strongly. So we think that's -- we're pretty much running our factories, obviously, round the clock there. We think in med devices, we see some recovery there, and also is still a little bit soft but getting better. So I think we’re looking at I think our back half of our year is 8% stronger than the front half as inventory is digested, and we’re comfortable with that number. So we think we are pretty comfortable that our health care business is going to continue. I think Mike mentioned 5% growth next year. We got enough kind of in entire and opportunities for us to be comfortable with that as we go forward.

Okay. Great. That’s all from me. I’ll pass it along and give some else another question.

Hey. Thanks, Melissa. All the best.

Thank you. Our next questions come from the line of George Wang with Barclays. Please proceed with your question.

Hey, guys. Thanks for squeezing me in. I just want to double click on the AI, you talked about revenue growing 20%, 25% kind of pre to north of $6 billion in FY '25. I just want to see if you can elaborate on the margin profile kind of within specific subsegments within AI. You talked about the GPU [indiscernible] kind of the optics, switching transceivers power, are you able to rank order, at least in a high level how you think about margin structure in terms of taking order, which specific to the element within the overall AI envelope will garner the highest margin kind of vice versa.

So yeah, the AI piece, obviously, the different line items that we look at I said earlier, it's in cloud, it's a networking in storage. The margin is north of enterprise level margin. It's different. The rank order would be roughly sort of photonics would be the highest margin, AI switching gear would be next switch and Rax's configuration integration, etc. So overall, if you look at all these dynamics, the total margin plays north of enterprise margins. So again, that's what's giving us comfort for our margin in FY '24. That's what's giving us comfort for margins in FY '25 as well.

Got you. In terms of the customer base, obviously, Amazon being one of the bigger players within the AI segment. Can you kind of talk briefly other kind of whether other hyperscale’s in there or maybe Tier 2, Tier 3 cloud. Any color there?

Yeah. We got -- if you look at predominant [indiscernible] you look at the proliferation of other capabilities. So we are supplying other hyperscalers across the whole blend of the capabilities that we talk about there, George. And I think the other thing just to emphasize that what Mike mentioned, Look, we've been doing enterprise switches for multiple years. And as that becomes to some commoditized we've pivoted in that the capability that we have there to the advanced switching area that really drives the AI TPU type model. So I think that, coupled with what we’re doing in optics means that we’re comfortable that our margin profile is robust here. And I go back to the point I made with Steve about all the kind of DCI, the infrastructure stuff we’re doing as well, which historically we hadn’t done. So we think we got a real rich profit pool here for us in the longer term.

Okay. Great. Thanks. That’s it for me.

You got it, George. Thank you.

Thank you. Our next questions come from the line of Samik Chatterjee with JPMorgan. Please proceed with your question.

Hi. This is [indiscernible] on for Samik Chatterjee. Thanks for taking the question. I just wanted to ask you to expand on the incremental weakness that you are seeing on the 5G side. Like is it relative to some particular set of customers or some particular region? Any more color on that? Thank you.

Yeah. So what we see is we are seeing – and if you look at telco customers generally, pretty much all come out with a really, really soft outlook for calendar we baked most of that in, but there is some continued weakness there and that’s North America and also across the world. The biggest impact in 5G was the rollout in India where, I mean, basically, the rollout stopped. So it’s paused. We don’t know when it’s going to restart. But there’s still a significant amount of radios that have got to be installed in the Indian market, so that demand doesn’t go away. It’s just paused. We are pretty much single sourced in India. We build those radios in our facility in Pune, which we found that facility and our company for 20 some years, so that performed really well. We’re doing a really nice job, and we’re just waiting for the gates to reopen and as we start to build and allow that and get that to be installed in the network, so that will come back. We just didn’t expect it to stop. I mean, completely stopped with no future demand we’ve taken the demand there for the balance of the year.

Thank you. We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Adam Berry for closing report.

Thanks for your interest in Jabil. Please reach out to us, if you have any further questions. Thank you.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.