Greetings and welcome to the Jabil First Quarter Fiscal Year 2025 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. [Operator Instructions] A question-and-answer session will follow the formal presentation. [Operator Instructions] It's now my pleasure to introduce your host, Adam Berry, Senior Vice President, IR and Communications. Adam, please go ahead.

Good morning, and welcome to Jabil's first quarter fiscal year 2025 earnings call. My name is Adam Berry, and I'm Senior Vice President of Investor Relations and Communications. Joining me on today's call are Chief Financial Officer, Greg Hebard and Chief Executive Officer, Mike Dastoor. We're happy to be joining you today from St. Petersburg, Florida. As a reminder, we conducted our September earnings call hours before Hurricane Helene made landfall in the Tampa Bay area, followed by Milton thereafter. Although these storms caused significant damage to the Southeast, our sites in St. Petersburg, Florida and our two sites in North Carolina were all operational within 10 days. The tireless efforts of our employees to get these sites back up and running, considering many of them experienced damage to their own homes and communities was incredible. Thank you to all those that helped. With that, 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 31st, 2024, 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 turn the call over to Greg.

Thank you, Adam. Good morning, everyone. Thanks for taking the time to join our call today. I'm pleased to report that we're off to a solid start for FY'25, with Q1 revenue coming in at $7 billion, up 1% year-on-year, excluding the approximately $1.45 billion associated with the Mobility Divestiture in the prior year quarter. Core operating income for the quarter came in at $347 million. Core operating margins came in at 5% in spite of a roughly 10 to 20 basis points of Hurricane-related impact. Net interest expense in Q1 came in better than anticipated at $60 million, reflecting continued good working capital management by the team. On a GAAP basis, operating income was $197 million and our GAAP diluted earnings per share was $0.88. Core diluted earnings per share was $2. Turning now to our performance by segment in the quarter. Our Regulated Industry segment reported revenue of roughly $3 billion, down 7% year-on-year due to continued weakness in our Renewable Energy and EV markets. Despite this, core operating margins for the segment increased by 10 basis points to 4.7%. In the Intelligent Infrastructure segment, we saw revenue of $2.5 billion, up 5% year-on-year. This growth was primarily driven by strong demand in our AI-related cloud, data center infrastructure and capital equipment markets. The core operating margin for the segment was 4.8%, a 10 basis point improvement compared to the prior year quarter. In our Connected Living & Digital Commerce segment, revenues were $1.5 billion, down 46% year-on-year due to our Mobility Divestiture. Excluding the Mobility Divestiture from the prior year, revenue growth for this segment was approximately 12%, reflecting strong year-on-year growth across our Digital Commerce and Warehouse Automation markets. Core operating margins for the segment came in at 5.8% in Q1. Shifting gears to our cash…

Thanks, Greg. Good morning and thank you for joining our call today. As Greg just highlighted, our first fiscal quarter results came in stronger than we had anticipated, driven mainly by incremental strength in our Intelligent Infrastructure segment. As a result, the team was able to deliver strong core EPS, margins and cash flows during the quarter. Furthermore, we distributed the majority of the generated free cash flow to shareholders by our dividend and buyback programs. To summarize, I'm extremely pleased with these financial results and the positive trajectory of our year. As a management team, we're collectively working together to deliver strong core operating margin expansion and consistent free cash flow growth, which will allow us to continue to invest in the business and return capital to shareholders. In a few moments, I'll provide some details regarding our updated outlook for the balance of the year. But before I jump into those details, I want to take a moment to thank the global team here at Jabil for their commitment, dedication and hard work in a highly dynamic operating environment. As the world continues to evolve, this team is working hard to ensure Jabil remains nimble, agile and resilient for many years to come. For instance, during the quarter, our team opened a large scale manufacturing site in Croatia, which currently supports a European based automotive OEM. And beginning in FY'27, the site will also support our healthcare customers, specifically in the GLP-1 drug delivery space as demand continues to exceed supply. The team also relocated and ramped multiple existing programs to the US. As many of our customers continue to seek a broader geographic manufacturing solution. We added to our capabilities during the quarter too through the acquisition of Mikros Technologies, a leader in engineering liquid cool solutions.…

Thanks, Mike. That concludes our prepared comments. Operator, we're now ready for Q&A.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question today is coming from Ruplu Bhattacharya from Bank of America. Your line is now live.

Hi. Thank you for taking my questions and congrats on the quarter. Can you talk about the relative margins of each segment and what we should expect for fiscal '25, so for Regulated Industries and Intelligent Infrastructure and Connected Living? How do you -- how should we think about margin recovery in each of these segments, which segment has the most upside to margins?

Thanks, Ruplu. So I think for the three different segments, I would expect margins to be north of 5% for, well, three of them. Right now, we're seeing some level of underutilization of capacity on our EV side and on the Renewable side, which is a little bit of a drag, but that means the opportunity for increased margins going forward once these end markets recover a little bit is much higher there. I do see our Intelligent Infrastructure piece above 5% as well. I think that's where we see the biggest level of growth over the next few years as well. So, doing relatively well on that whole piece with capital equipment. Obviously, we're expecting a bit of a recovery in the second half of the year, which is still very much in play today and our margins as you're aware there are slightly higher than our other end markets. From a Connected Living perspective, look, that's mainly all consumer-driven, there is a high level of seasonality especially with Equity One doing really well on the consumer side as always. I think the Digital Commerce piece is a bit that's driving the future that will be high margin, it's new product lines, new technologies, new design engineering capabilities in their high-tech sort of stuff going on in that end market. And I feel really good about that having double-digit growth rates albeit from lower base, but the opportunities are there in all three segments today.

Okay. Thanks for that. Mike, has your expectation for AI-related revenues changed? I think you had guided $6 billion last time for AI revenues in fiscal '25. But since cloud is doing well, do you think your revenues can related to AI can be higher? And can you talk about some of the new opportunities you have in this segment going forward?

Sure. So I do think, I think last time we said it was $5 billion to $6 billion. We did increase that to $6.5 billion. So we -- all $500 million of that increase is in the AI space, about $100 million of that is being driven by semi cap. We already had recovery baked in semi cap, so $100 million there and I reckon about $400 million is on the data cloud infrastructure piece where we seem to be doing really well with our largest hyperscaler. We've actually deepened our relationship there. So again, the AI piece is the one that's going to drive a lot of our future growth, $1.5 billion year-on-year is a big number on that $5 billion base from last year. So that's a 30% growth rate right there.

Okay, got it. And then the last one from me. Can you talk about your capital allocation plans? How should we think about the cadence of buybacks? You did -- can you talk a little bit more about the acquisition you talked about? What is the revenue contribution from that? And what is your focus on further M&A in this year? Thanks.

Yes. Good morning, Ruplu. This is Greg. I'll take the first part of that question. So from a capital allocation perspective, we're still going with approach of 80% of our free cash flow going to share buybacks. We are committed to completing our $1 billion share authorization in FY'25. I would say, from a buyback perspective, we'll be weighted a little bit more heavily in the first half versus the second half with the execution of that. But again, we feel share buybacks is a really good use of cash for Jabil as we continue to feel our shares are undervalued and still have a guidance of $110 million to $112 million on the lasso for the year.

And on the acquisition piece, Ruplu, I think you're referring to the Mikros liquid cooling acquisition that we did. It was all around core thermal engineering, cold plate manufacturing capabilities. There's a whole bunch of engineers who've been designing cold plates for a very, very long time. We're really excited to have that team join Jabil. The revenues that we've acquired are relatively small. That's not we did not acquire it for revenue, direct revenue, I should say, it was the engineering capability. This opens up a complete vertical solution for us for hyperscalers, for other cloud solutions and the whole datacenter infrastructure piece as well. The opportunity here is huge. Right now, I would temper the revenues a little bit as a from a direct acquisition perspective. But over the next few years, as we expand vertically in that segment, I think we'll see the benefits of this acquisition for sure.

Thanks for all the details. Congrats on the results.

Thank you.

Thank you. Next question today is coming from Matt Sheerin from Stifel. Your line is now live.

Yes. Thank you. Good morning, everyone. Mike, I wanted to follow-up on your comments regarding the hyperscale customers. You mentioned that you're deepening your relationship with your largest customer. Could you elaborate? Does that mean, you're just winning more business? Are you doing other things for that customer? And then in terms of that second hyperscale customer that you announced on the Photonics side, could you give us the potential size of that opportunity? Thanks.

Sure. So I think our current customer that I referred to, yes, we're winning new business. We've been working with them for a very long time. There's a very good relationship. There's a very good sort of performance that we've sort of performed for that customer. So definitely good growth potential there. As it relates to the second hyperscaler that was more in the silicon photonics piece, not on the data cloud infrastructure side, it's mainly 100, 200, 400G right now that we're working on. We're actually looking at sort of quoting 800 in the first half of '25 and then 1.60 as we get into '25 or towards the end of '25. And if you recall, we made this acquisition from Intel, I think it was last year. We're seeing the benefits of that acquisition. It's always been our play. We go out and acquire capability. That's what we did with this one as well. And I'm glad to see that it's actually paying really good dividends based on what we paid for.

Thank you. And as part of the strategy with that new customer for instance to cross-sell the systems integration skill sets that you have, and as you look at other hyperscale customers as well?

Yes, I think the -- if you think of it as an ecosystem, one of the things we've always done with our Intelligent Infrastructure strategy, we're not product-based. We don't go and try and double down on product or just focus on single products. We're providing an engineering design architecture sort of platform. Then we co-design with our customers. We integrate all sorts of vertical solutions. So it's not just a rack and stack sort of business, there's a very high level of complexity and engineering linked to that.

Okay. Thanks for that. And then for my second question regarding the inventory, you've done a very good job of bringing down inventory, improving cash flows. It looks like you're guiding sort of flattish inventory. How should we expect the back half given that you're going to have higher revenue growth in the back half of fiscal '25?

Yes, hi, this is Greg. On inventory, again, there's some cyclicality during the year, but we still feel the range on our net inventory number will be between 55 and 60 days. And in the back half, we would say that would be in the lower part of that range. So we still feel confident we're able to manage inventory to those levels.

Okay, great. Thanks very much and Happy Holidays.

Thanks, Matt.

Thank you. Next question is coming from Steven Fox from Fox Advisors. Your line is now live.

Hi, good morning. A couple of questions from me. First of all, Mike, can you talk a little bit more about the US footprint from a two perspectives. One, you mentioned that you moved some more programs into US in the quarter. Can you give us a little bit color on what was moved in? And then looking ahead, how do we think about just your ability to meet, say, urgent needs to move production into the US, say, over the next six to nine months versus your willingness to sort of add capacity as we see some changes in tariffs? And then I had a follow-up.

Sure. So the movements in the US, the ramps that we've had here are mainly in the battery power management piece. We've actually had some businesses ramp even on the data cloud infrastructure side. Look, we've always if you look at the sites that we've grown over the last few years, I think, I mentioned on my last call, the number of sites that we have in the US now is 30, 3-0, that's a big number. So we're constantly moving business across that's our model. We move manufacturing to wherever the customer wants to go and there does seem to be more interest in the U.S today, which we are happy to deliver. I think we're really, really well positioned. If you think of our geography, you think of the locations that we have, you think of the knowledge that we have, you think of all the people, local expertise, et cetera. I think we're well positioned for any sort of move. And I think that's the point I was trying to bring to the table in my prepared remarks. I think this is a really good opportunity for a company like Jabil because customers and even non-customers or potential customers will need help. And that's our model right now. So I think we'll be in a good position to help. Can you repeat your second question, Steve?

I'm just wondering sort of like how capacity is currently to meet some of these needs in the near-term versus maybe you have to start considering expansions at some of your sites and when that would happen?

Yes. So I think expansion and so one of the things we try and do is most of our factories have land where we have First Right of Refusal on the adjacent pieces of land. So we can do that. I'll tell you one thing, we opened up a factory in St. Petersburg. I think it was in a record time, it was in less than six months. We went down and hired a whole bunch of people, set up the factory floors. So we have the expertise, we have the knowledge, we have the capabilities, we have that experience. Manufacturing is our core. So happy to set anything up for anyone. Today the capacity, we have some level of surplus capacity, but it's not huge. So there will be some pockets of expansion if it comes down to it.

Great. That's helpful. And then on the cloud piece, you covered a lot of the details already. But I was just curious specifically, as your largest cloud customer moves to a new silicon, like what does that mean for Jabil in general as we see these advanced silicon to roll out? Is that helping your business neutral? What are the general impacts? Thanks.

Yes, Steve. So it's early days, but I do think it'll be a driver of growth, a driver of new business. I think it's -- I think that the custom chip will drive new revenues for Jabil. I can't sort of put my finger on what exactly that means for revenue. We'll provide more color as we move forward through FY'25. For now, we've given our best estimate for FY'25. I don't think FY'25 is going to change that much. We might have a little bit more growth rate in FY'26 and then beyond, I do think there's a helpful opportunity to expand that relationship further.

Great. That's helpful. Happy Holidays.

Thank you, Steve. Happy Holidays to you as well.

Thank you. [Operator Instructions] Our next question is coming from Mark Delaney from Goldman Sachs. Your line is now live.

Yes, good morning, guys. Thanks so much for taking the questions. I guess first to follow-up on the tariff discussion. Can you give us a better sense of how costs compare in the US relative to Mexico, maybe for example, fully loaded labor costs in the US versus Mexico? And as you're engaged with customers and they're thinking through potentially having to move some of their capacity, do you think the cost is something that they can get that they'll be able to overcome or would they more generally just look to absorb tariffs and maybe keep their business in Mexico when they think about some of the cost differential?

Thanks, Mark. The end markets that we're in, I think we need to sort of look at each end market specifically. There are certain end markets, which are more price elastic than others, easier to pass on sort of cost increases there. Obviously, if you move from Mexico to the US, the costs will be higher. The question is, how much of that is it? Is it going to be more than tariffs, can it be passed on, can it be absorbed by our customers? I'll reiterate Jabil, this is a pass through cost for us. It's not something that we absorb. If you actually look back from a historical perspective, we've almost doubled our revenues X the Mobility Divestiture since the last time this administration took office. So I see this as a big positive. I'm not suggesting we grew because of it, but we've grown quite a bit. So it's a huge positive. I think the whole US Domicile corporation piece, the capabilities that we have across the different end markets. But above all, when you're moving manufacturing, automation, robotics, they play a big part. AI, ML that we use across our sites play a huge part in all those decisions. So I think from an automation and robotics standpoint, we're really well positioned to move business across.

Okay. Thanks for those thoughts, Mike. My other question is just trying to better conceptualize how you're seeing the business for the full year relative to your prior outlook. Company B earnings relative to its guidance in 1Q by $0.15, you took up the full year EPS guidance by $0.10. So it does imply at least just from the basic math that there's slightly lower expectation for earnings for the next three quarters relative to what you'd previously been expecting. Are you actually seeing any meaningful change over the next three quarters in the business environment or is that just putting too fine a point on the old versus new EPS guidance? Thanks.

So I think it's puts and takes. The piece that we're most excited about is the data cloud infrastructure. We took that up. I think if you look at some of the other end markets, we adjusted our automotive down a little bit post-election. There's uncertainty, especially on the EV side. As we transition from EVs to hybrids, that comes back. So we have definite, we have the capabilities to help companies navigate this transition from EV to hybrid, maybe hybrids come back to EVs. We'll be right in the middle of it, but for FY'25, we're just being a little bit more prudent. Renewables is another one. I think if you look at some of the solar plays, I think we're just being a little bit more cautious, particularly post-election. So I think it's a series of puts and takes, Mark. And we're, overall, we're trying to be as prudent as we can on our forward-looking guidance.

Thank you and Happy Holidays.

Happy Holidays. Thank you.

Thank you. Next question is coming from George Wang from Barclays. Your line is now live.

Hey, guys. Thanks for taking my question and congrats on the quarter, strong results. I have two quick ones. So firstly, I just want to double-click on the semi cap equipment. Obviously, you guys dialed up the guidance for this year, implying 25% growth year-over-year. And can you kind of pass out ATE versus WFE? It seems ATE should still have relatively better performance this year. And how about any update on the WFE? Are you guys still expecting modest recovery this year?

Yes, so on the WFE, I think the AI related business continues to be strong. Other parts of the WFE on EVs, autos, consumer all that is weak as everyone knows. There's a little bit of a geographic spread as well with Chinese players still dominating that piece. For us, the biggest driver of growth is on the automated test equipment side that is much, much stronger. I think you're seeing a whole bunch of newly fabricated silicon chips out there, more and more customization, people need the testing, hyperscalers need testing. There's a whole bunch of nuances to the automated testing piece, which is good for us. If you look at some of the scale, as we're looking at, we're looking at first it was the shift to 3NM, now it's 3NM going to 2NM, all that requires additional testing. So I can actually see our shift in this whole capital equipment market shifting from, let's say, roughly 55% ATE to a much larger percentage as well going forward.

Okay, great. And just a quick follow-up on the SiPho transceiver business. Obviously, you guys are gaining share heading to 800G, 1.60 potentially. And just concerning kind of the next generation design, potentially beyond the transceiver, you guys alluded to some share gains in the medium term just because of silicon photonics on the eventually go to CPO, maybe intermediate term, you have LPO/LRO. Can you talk about some of the upside for Jabil like the silicon photonics design kind of lead to further share gains just as we sort of we had looked beyond the pluggables?

So I think the silicon photonics piece started with our acquisition from Intel last year. So it was a very small base. We've actually done a great job in taking it out today. It's in that $300 million, $400 million range. We do expect with the engineering capabilities that we acquired with that acquisition, the design engineers, the capacity, the experience, we expect to sort of try and get that out to a lot more customers. Obviously, this whole front end and back end on the switchgear piece might have slightly different requirements, but the 100, 200, 400 is what we're doing today for sure. The 800 is catching up next year. And we're already looking at the 1.60. So that could be an exciting piece where we see some level of growth over the next few years. But I do want to caution, it's not a big base to start with. So I think it'll be baby steps on that one.

Okay, great. I'll go back to the queue. Thank you. Congrats again.

Thank you.

Thank you. Next question is coming from Melissa Fairbanks from Raymond James. Your line is now live.

Hey, guys. Thanks so much. I'm not sure if Steve Borges is in the room. If not, I'll just put this out to the team. I wanted to see if we could go into a little more color on what you're seeing in auto and transport over the past earnings cycle, most recent earnings cycle. We've heard of some improvement in the China EV market from across the supply chain. It's also my understanding, you have some new programs coming in transport, like with buses. I'm just wondering about some of the moving parts there and what's incrementally weaker?

Right. So Melissa, on the EV side, obviously, there's a little bit of weakness right now, especially again, post-election. There's a little bit of uncertainty there. We're well positioned from a capability standpoint. So one of the things we've obviously done is pivoted, not pivotable. We've always played in those capabilities that go across different platforms. They go across the ICE platform, they go across hybrid, they go across EVs as well. So I do think as we transition from EVs to maybe hybrids, back to EVs, we're well positioned regardless we're almost. And I think I use the word technology agnostic on my prepared remarks. I think the China play is very much the play that is -- it's up right now. Europe and the US on the EV side are not doing as well as the China play. So we're definitely participating in that. Transport, we have an agricultural sort of element in there. That's a little bit slow to recover. We do have transportation in other sort of segments as well. I think overall, overall, the EV business, I don't expect it to show some big growth rates suddenly in FY'25, maybe not even in FY'26. But I do think we have the potential to play in multiple platforms. And I do think the China play at some point in time will softened a little bit. We're just being prudent again on that whole piece, Melissa.

Okay. Great. That's great color. Thank you. As a follow-up, this is something that I get asked constantly, and you may or may not be able to answer it quite yet. When Mobility was a piece of the business, the seasonality of the model was a little bit easier to predict. I know with the resegmentation, a lot of people are trying to parse through. Is there any pattern of seasonality within either of the -- any of the three segments or do we just kind of there are too many moving parts at this point, none of them are as big as mobility was as a monolith to move things?

Absolutely, there's a little bit of that where it is all across the board. The Mobility piece, I think we need to clarify a little bit as well. Q3 and Q4 historically have always been ramp orders in that Mobility space, and that was always dilutive to our margins. I reckon first half versus second half on that, that's why we feel good about the margins is maybe it's a 25, 30 bps sort of impact, positive impact to margins because of the Mobility Divestiture. I just want to since you brought up the margin question, we do have some ramps in the first half, especially in the DCI and warehouse automation side. We did the higher margin semi cap business, the recovery is mainly second half baked in. So I think there's multiple reasons. And then if you top that up with our cost optimization initiatives where Q4 will be the biggest beneficiary of that. That could be a 10, 20 bps pickup there as well. So there's multiple reasons for the first half, second half story. It's balanced across three or four reasons that I just talked about, not just the Mobility piece.

Okay.

Melissa, this is Greg. Just one other thing to add on the seasonality and more just on the capital intensity of the Mobility business that was divested. CapEx going forward, we see this now below 2%, where the Mobility business was very capital intensive. So definitely going to see free cash flow improving with the divestiture and that CapEx line going down.

Okay, great. Thanks so much. That's super helpful. That's all for me. Happy Holidays, guys.

Happy Holidays, Melissa.

Thank you. Next question is coming from Samik Chatterjee from JPMorgan. Your line is now live.

Hi. This is MP on for Samik Chatterjee. Thanks for taking my question. So my first question is around like I was saying despite some upward revisions to volume for FY'25. Your expectations for operating margins are similar to prior. So should we think that you are embedding some level of conservatism there?

I wouldn't call it appropriate conservatism. It's not -- we're not being overly conservative or not I think these are the numbers that we provided, the guidance that we provided, I think, are actually extremely valid. I don't I wouldn't say conservative or aggressive, they're appropriate.

Okay. So another question I had is like can you please help us dissect the impact of potential repeal of EV tax credit in US and like how big an impact can that be for your automotive or EV business?

Sorry, can you repeat that? I missed the main part of the question.

Can you please help us dissect the potential or the impact of the potential repeal of EV tax credit in US?

Yes. The EV tax credit, look, it's going to have an impact on certain OEMs for sure, don't forget, our largest customer in that space has the lower levels of credits, if any, their ability to pass on or their ability to pass on some level of rebates, et cetera, is much higher than some of the other OEMs. I do think OEMs will respond. It's not going to be all consumer impacted. There will be some level of absorption. There will be some level of sort of end market demand. But a lot of that is already baked in. If we were forecasting a huge EV growth, I'd say we'll have to adjust the numbers. We're not expecting that in the first place. So as far as FY'25 is concerned, we're in good shape. We'll provide more color on FY'26 and beyond if the EV credit piece does have a huge impact. My guidance is just my own personal opinion. There will be a small impact. I don't think it's going to be a huge impact to be honest.

Okay. Thank you. Thanks for that color there. And my final question is regarding the cloud and AIP slate. You saw robust growth there and it's also driving upward like large part of the upward revision to the outlook. So any particular, any more color around there like which particular product segment, obviously, which sort of infrastructure is driving more impact to the outlook there?

Yes. So I think I mentioned earlier that we've taken up our AI driven business up by -- from $1 billion to $1.5 billion. The $1.5 billion is mainly driven by, let's call it, about $900 million of cloud, i.e., capital equipment is another driver of that piece. That's about $400 million and then the networking here, the liquid cool switching, et cetera, along with the silicon photonics piece, et cetera. So that's about another $200 million year-on-year increase. So the $1.5 billion is spread out mainly among these with cloud being the main cloud and data center infrastructure being the main driver of that growth.

Thank you. Those are my questions. Happy Holidays.

Thank you. Happy Holidays.

Thank you. Next question is coming from David Vogt from UBS. Your line is now live.

Great. Thanks, guys. Mike, one for you and maybe one for Greg. I appreciate all the color on the cloud and data center. Can you maybe talk to the sort of the margin delta from that revenue uplift. I know there's typically in an industry that has some pretty competitive players hasn't been sort of the best gross margin and/or segment margin for you guys. Can you kind of talk through sort of that revenue uplift? And is that impacting sort of your overall margin outlook for the year? And then one for Greg. You talked about capital return, buybacks and dividend, but we didn't hear much in the way of M&A. And I know M&A has been a part of the strategy. Maybe can you kind of talk to where the focus is today. Obviously health care has kind of been a flattish business for you, if I factor in sort of the packaging subsegment as well. Is that kind of what we should be focused on in 2025 and beyond is sort of opportunistic tactical deals in other segments outside of the more traditional datacom and networking space at this point? Thanks.

So let me start with the margin question, David. I think Greg mentioned in his prepared remarks, I mentioned as well. The Hurricane did have a 10, 20 bps sort of impact on our margins in Q1. Obviously, that flows through into FY'25. But overall the data, the cloud and data center infrastructure business is that enterprise margin, it's not dilutive. I don't know where that perceptions come from, but it is an enterprise level margin. Our semicap business is actually above enterprise margins. So I think there were nuances to FY'25. We talked about that on the last call. If you remember, we have about 20, 30 bps impact due to our surplus capacity. We do have capacity -- we did open up Croatia that comes online in Q1 and we only get to fill it up in FY'25. We've obviously done a really great job pivoting from the EV end market, which is supposed to be the main driver of that site to GLP-1, the qualifications, et cetera, we take a bit of time, and that's where I suggested GLP-1s will be live in Croatia by FY'27. But overall, look, the margin piece is good. We've set 5.4. If you factor in some of the nuances I just mentioned, it's an extremely healthy margin. So I don't see us going backwards on the margin perspective as well at all.

Great. And Greg on capital allocation.

Yes. Hi, David, it's Greg. So on capital allocation, to continue to focus on M&A. We're continuing to look at capabilities that we want to expand on. I think the Mikros acquisition we did in Q1 is a great example of that. In addition to that and we're really focusing on markets for growth and continue to be really thoughtful in that space. And if you look at the certain markets, end markets that we're focusing on, would be health care and the markets Intelligent Infrastructure, where we do see some focus from an M&A capability and focus. In general, though, we're still doing 80% of our capital allocation to share buybacks at this time and that 20% to M&A, but continuing to be super thoughtful in that area to see where we can grow.

Great. Thanks, Greg. Thanks, Mike.

Thank you. We've reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

That's all for our call today. Thank you very much and Happy Holidays.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.