Hello, and welcome to the Jabil First Quarter Fiscal Year 2024 Earnings Conference Call and Webcast. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Adam Berry, Vice President, Investor Relations. Please go ahead, Adam.

Good morning, and welcome to Jabil's first quarter of fiscal 2024 earnings call. Joining me today are Chief Executive Officer, Kenny Wilson; and Chief Financial Officer, Mike Dastoor. In terms of our agenda today, we plan to focus on the following: Review our Q1 results, discuss the trends underway within the end markets we serve, and provide Q2 guidance. We'll also reiterate our capital allocation plans, reinforce our core margin and EPS outlook for the year, and in doing so provide you with the detail as to why we feel confident in achieving these goals for this year and next, despite our updated outlook as discussed on November 28. But before we begin, please note that today's call is being webcast live. And during our prepared remarks, we will be referencing slides. To follow along with the slides, please visit jabil.com within the Investor Relations portion of the website. At the conclusion of today's call, the entirety of today's presentation will be posted for audio playback. I'd now like to ask you to follow along with our presentation with slides on the website. Beginning with a forward-looking statement. During this conference call, we will be making forward-looking statements, including, among other things, those regarding the anticipated outlook for our business. These statements are based on current expectations, forecasts and assumptions involving risks and uncertainties that could cause actual outcomes and results to differ materially. An extensive list of these risks and uncertainties are identified on our Annual Report on Form 10-K for the fiscal year ended August 31, 2023, and other filings with the SEC. Jabil disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. With that, I'd now like to shift our focus to our first quarter results, where the team delivered approximately $8.4 billion in revenue, near the low end of our guidance range provided in September, and in line with our updated expectations announced on November 28. It's worth noting the majority of the year-over-year decline was driven by the previously announced move to a consignment model, where we transitioned certain components we procure and integrate into the cloud space to a customer-controlled consignment services model. Core operating income for the quarter came in at $499 million, or 6% of revenue. This is up 120 basis points year-over-year, due to an improved mix of business, normal seasonal patterns within our mobility business and the previously announced accounting impacts of assets held for sale. Excluding the impact of assets held for sale, core operating margin was roughly 5.3%, up 50 basis points year-on-year. Net interest expense for the quarter came in $3 million better-than-expected at $70 million, reflecting lower levels of inventory during the quarter as a result of lower revenue and better working capital management by the team. From a GAAP perspective, operating income was $303 million, and our GAAP diluted earnings per share was $1.47. Core diluted earnings per share for the quarter was $2.60, a 13% improvement over the prior year quarter and at the midpoint of the range we provided in September. Now, turning to the performance by segment in the quarter. Revenue for the DMS segment came in at $4.8 billion, down approximately 6% from the prior year, driven by continued weakness from our connected devices end market. These declines were partially offset by year-over-year growth in our automotive and transportation and healthcare businesses. Core operating margin for the segment came in at 7%, a 180 basis points higher than the same quarter from a year ago, given solid mix, normal seasonal pattern within our mobility business, and the aforementioned previously announced accounting impact of assets held for sale. Excluding the impact of assets held for sale associated with the mobility sale, core operating margins for DMS were 6%. Revenue for our EMS segment came in at $3.6 billion, down roughly 21% year-over-year. This decline was driven by our move to a consignment model and a softening in demand in end markets like 5G, networking and digital print. Given this combination of consignment and mix, core margins for the EMS segment were an impressive 4.6%, up 30 basis points year-over-year. Next, I'd like to begin with an update on our cash flow and balance sheet metrics as of the end of Q1, beginning with inventory, which improved two days sequentially to 78 days. Net of inventory deposits from our customers, inventory days were 58 in Q1, consistent with our strong Q4 performance. Our first quarter cash flows from operations came in at $448 million, while net capital expenditures totaled $275 million, resulting in $173 million in adjusted free cash flow during the quarter. In the quarter, we repurchased 3.9 million shares for $500 million, leaving us with $2 billion remaining on our current repurchase authorization as of November 30. With this, we ended the quarter with cash balances of $1.6 billion and total debt to core EBITDA levels of approximately 1.1 times. So, in summary, Q1 was largely a very good quarter. While our topline growth came in a bit lower-than-expected, the team still delivered good year-over-year growth in core margins, core EPS and adjusted free cash flow. At the same time, we were incredibly active in terms of repurchasing our own shares and we made solid progress on the sale of our mobility business. With that, thank you. I'll now hand it over to Kenny.

Thanks, Adam; and good morning, everyone. As Adam mentioned, on November 28, we announced a reduction in our outlook for fiscal year 2024 based on a broad slowdown of demand across multiple end markets. In short, customers adjusted demand schedules as they reacted to a slowdown in end markets heading into the end of the calendar year. Although we feel the slowdown will be temporary in nature, it is incumbent on us to react and adjust our model appropriately to align with our customers' requirements. Agility in our industry is key. Being able to absorb changes in demand signals effectively across our network is a critical part of our value proposition. This agility is part of our DNA and is reflected in our ability to effectively absorb downsides and revenue. Fungible assets, flexible automation, single instance of SAP, common manufacturing execution systems, focus on margin-rich value-added services, and multi-customer sites set up specifically to manage disparate end markets in one campus are just some examples of disciplines embedded in our model. These core areas of focus are a large part of why we believe we can manage margins consistent with our Q1 guide and EPS at $9 plus, while absorbing a broad-based slowdown. Turning to end markets, where you take a deeper look, we still expect growth in key areas like electric vehicles and renewables, albeit at a modestly slower pace than previously anticipated. In healthcare, our business remains robust and foundational in terms of what we are trying to accomplish at Jabil. Our ability to provide key solutions and capabilities to customers in complex areas where outsourcing is underpenetrated and quality is paramount underpins our confidence that we will continue to grow in this end market. And in cloud, our team continued to drive forward within the AI data center space. Remember, this business moved into a consignment model last year, which makes revenue look unusually low, relative to previous years, while in reality the business is growing volumes by roughly 20%. In connected devices, we've seen softening for some time, and this doesn't seem likely to change in the near term. While in enterprise, communications, and 5G, we continue to expect softness based on global rollouts. Turning to renewables, we've seen softness in solar and wind, driven by a combination of reduced channel inventory sell-through, impact of interest rates, and incentive uncertainty. Outlook-wise, we remain optimistic based on multiple new business wins and some supply chain consolidation within our current customer base. On the sale of our mobility business, I am really pleased with the progress we are making. The selfless collaboration between our teams while working on closing the deal, ensuring the needs of our customer remain top of mind has been really pleasing to see. Focusing on your day job, keeping product flowing while managing a complex transition is hard. The fact that we are managing this so successfully is another proof point of our belief that BYD Electronics is the correct partner for this transaction. Taken altogether, we now expect revenue not associated with the mobility divestiture to be down 5% year-over-year on a like-for-like basis. Reflecting on all of the above, it's pretty satisfying to see the resilience of our model where despite end market choppiness, we expect to post year-on-year growth in core margins and EPS, while also driving in excess of $1 billion in free cash flows. Further, we remain committed to our previous fiscal year '25 guidance, inclusive of margins at 5.6% plus and EPS in excess of $10.65. In closing, I want to share a final thought. In Jabil, we are always planning our future. And as sad as I am to say goodbye to my colleagues as they transition to BYD Electronics, I would like to welcome the procurement services team from procureability and the silicon photonics technical team from Intel as they join our company. Welcome, and we look forward to your contribution as we focus on the next chapter of our company's growth and diversification. Thank you for joining us today and for your interest in Jabil. I will now hand the call to Mike.

Thanks, Kenny; 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 Q2 and FY '24, which remains largely consistent with our announcement on November 28, and then I'll provide an update on our accelerated buyback execution plans. With that, let's turn to the next slide for our second quarter guidance. We anticipate the Mobility transaction to close during Q2 of FY '24. The exact date of the close will drive where we land. For Q2, we expect total company revenue to be in the range of $7 billion to $7.6 billion. The midpoint of this range assumes the Mobility transaction closes January 31, which is consistent with our modeling assumptions in September. Core operating income for Q2 is estimated to be in the range of $339 million to $399 million. GAAP operating income is expected to be in the range of $216 million to $301 million. Core diluted earnings per share is estimated to be in the range of $1.73 to $2.13. GAAP diluted earnings per share is expected to be in the range of $0.77 to $1.37. Net interest expense in the second quarter is estimated to be $62 million. Before turning to our full-year guidance, it's worth noting that our Q2 guidance is materially influenced by the Mobility transaction close date. I thought it would be helpful if I provide you with the financial impact of an earlier close. For modeling purposes, a December close would reduce the midpoint of our Q2 revenue and core EPS outlook ranges by approximately $400 million and $0.30, respectively. For the year, it would also reduce our revenue outlook by $400 million, while the loss in core EPS would be expected to be offset through accelerated repurchases and lower interest expense, given the earlier receipt of net funds. Now, moving on to full-year guidance on the next slide. As we announced a few weeks ago, towards the end of our quarter, we noticed a widespread slowdown in customer demand. The majority of the slowdown we're seeing is being driven by excess inventory in our customer's channel, which we view as short-term in nature. In our view, once the excess channel inventory clears up, we're optimistic that the secular trends across our business remain intact and gives us confidence in future growth. It is important to note that Jabil's net inventory days is in good shape and remains consistent with our target range of 55 days to 60 days. For FY '24, we expect revenue to be approximately $31 billion for our modeling assumption of a January 31 close for the Mobility transaction. Importantly, for the year, we continue to expect year-on-year growth across the end markets that are experiencing strong multi-year tailwinds, notably in renewable energy, infrastructure, electric vehicles, AI, cloud data centers, and healthcare. Moving to the next slide. Despite the revenue headwinds in the near term, we are confident that we build Jabil to be more resilient as we've diversified across geographies, products, customers, and end markets. Because of this, we don't expect the same level of margin erosion traditionally seen in past slowdowns. Our diversified approach, global footprint, and strong relationships with customers gives us confidence in weathering these near-term challenges. We're adapting, staying focused on margins and cash flow, and committed to delivering value. Notably for FY '24, we still expect core operating margins to be in the range of 5.3% to 5.5%. I would now like to walk you through the dynamics of how we are able to maintain margins despite lower revenue. As a reminder, we have completely changed the construct of our business. We're in the process of divesting one of our highest fixed-cost businesses. Additionally, four of our end markets, EVs, healthcare, renewables, and cloud, are growing volumes year-on-year, albeit at lower levels than previously anticipated, which means deleveraging is limited as we are able to push our planned investments and costs which have not been incurred yet. In addition to pushing our ramp in investment costs, we're also moving ahead with reducing our SG&A in the back half of the year and optimizing our global footprint. All of this gives me confidence in our ability to deliver core operating margins in the 5.3% to 5.5% range in FY '24. Next, I'd like to provide an update on our share repurchases for the year. In Q1, we executed the previously mentioned $500 million accelerated share repurchase. In September, we originally expected to do a series of accelerated buybacks totaling $1.7 billion in FY '24 and $800 million in FY '25. We now intend to execute a series of accelerated buybacks of the entire $2.5 billion repurchase authorization in FY '24. As a result, I now expect WASO to be in the range of $124 million to $127 million for FY '24. We also now expect interest expense to be lower this year in the range of $250 million to $260 million, compared to our expectations in September, as we expect working capital levels to decline with lower revenue. All of these actions gives me confidence that we will offset lower income and deliver core earnings for FY '24 to be in excess of $9 per share, and our cash flow outlook for the year remains robust and we are committed to delivering adjusted free cash flow in excess of $1 billion in FY '24. In my view, Jabil is well positioned to navigate the current economic environment, evidenced by our performance over the past several years. We are not only well diversified, but also markedly more resilient than we were several years ago due to our intentional efforts to invest and align our resources with areas in key end markets, which are undergoing multi-year secular growth.

Thanks, Mike. So, as you can see, we remain well positioned and extremely bullish on the future of Jabil. Thank you for your time. Operator, we're now ready for Q&A.

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

Good morning. Thank you for taking my questions. Can you address how you're managing risk in this environment? For example, what gives you confidence in the $31 billion and $9 plus in EPS guidance for fiscal '24, given you likely have limited visibility in the second half? The question would be, how weak can revenues be for you to still hit that $9 plus EPS target for this year? And can you also comment on any risk with Jabil's own inventory? And I have a follow-up. Thank you.

Thank you, Ruplu. To address your question, our model consistently avoids taking inventory risks. Everything we purchase is supported by a forecast or purchase order, which gives us confidence. In Q1, we maintained an industry-leading 58-day slowdown, indicating our stability. Our company operates with various divisions, each led by division heads, along with a supportive leadership team, allowing us to stay close to our customers. Our team has actively engaged with customers regarding Q1 performance and future outlook, gathering nuanced feedback across different end markets, which remains consistent. Recently, I've met with many customers in Europe and Asia, and their forecasts—typically 12-month projections—indicate that while the next couple of quarters might involve inventory corrections, we anticipate stronger performance afterward, which we've incorporated into our second-half outlook. Additionally, during these times, we find opportunities for consolidation, and we are in active discussions with customers to simplify their supply chain management. We remain closely connected to our customers and continuously monitor market data. While we would prefer to see inventory sold through, we understand the timeline for that over the coming quarters and will factor this into our guidance for Q2 and the rest of the year.

And, Ruplu, if I could just add, if you look at our revenue, while we've taken revenue down by $2.5 billion, about $1 billion of that is the first half. So, we're not taking the second half as it’s absolutely going to recover. We're still being conservative about the second half of the year. There's $1.5 billion coming out. Visibility is a little limited right now, not from our perspective but from our customers' perspective as well. So, we think $1.5 billion to second half is appropriate at this stage. And then if I can, let me just walk you through how we expect EPS to change, because this is a very critical and important piece. If you look at what we provided in September, we said a range of $9.30 to $9.70. If I take a midpoint of $9.50 and start from there, the revenue loss of about $2.5 billion impacts us by roughly $1.20, and that is sort of the deleveraging. When you're growing year-on-year, especially in the four end markets that we've been focused on, in automotive, healthcare, renewables, cloud, we're growing year-on-year. It's not going down. So, when you grow year-on-year, your deleverage is very limited. You can actually push out a whole bunch of investments and costs and ramps to quarters out from here. So, there's a little bit of nuance here that most people are ignoring in that we are in the right end markets. All of them are still showing growth year-on-year, albeit lower levels, but still year-on-year growth. On some of the lower-margin businesses, even if you double the deleveraging there from a 3% or 4% to 8%, you still were losing some level of income, but it's not that much. The margin is not that impacted on the lower margin businesses. And then I talked a little bit about buybacks in my prepared remarks. We completed a $500 million buyback in September. That was huge. That was the biggest buyback we've ever done in a single quarter. And what I mentioned in my prepared remarks is that we are going to double down on that. So, in September, we'd anticipated doing an additional $1.2 billion in ‘24 and $800 million in ‘25. Now, all of that $2 billion left over is going to be done in FY ‘24. We think this is a good time, it's a good appropriate time to do it when there's a slowdown going in. We still feel we're highly undervalued and buybacks are the best return we can get from our free cash flows, from the proceeds of the funds that we will get once the Mobility divestiture is done. So, it's a bit of a long-winded answer, but you could pick up $0.40, $0.50 quite easily between buyback and lower interest cost as well. Interest will be lower because working capital will be lower because of lower revenue. Plus, after yesterday's news, if interest rates do what the Fed is saying, I think there's a little bit of pickup there as well. So, there's a whole bunch of puts and takes, but we feel pretty strong about the $9 plus.

Thank you for the details, Mike and Kenny. I appreciate that. I'd like to ask a follow-up question regarding fiscal ‘25. You’re projecting earnings per share of over $10.65 and maintaining an operating margin target of over 5.6%. What revenue level do you need to achieve in fiscal ‘25 to meet that $10.65 target? You mentioned that you can delay some investments, but could this pose a risk to future revenue growth? I'd like to hear your thoughts on maintaining your guidance for fiscal ‘25 and how confident you are in those projections. Thank you for the insights.

Yes, Ruplu. Looking at our run rates for Q3 and Q4, we provided an annual revenue target of $31 billion. Having completed Q1 and Q2, you can project the second half of the year. If we apply those run rates into FY ‘25, with a slight recovery expected—not a significant one, just some new business already in the pipeline—we're pursuing several new business opportunities. Overall, even with a modest growth of 4%, 5%, or 6% from a smaller base, we anticipate maintaining a margin of at least 5.4% at the midpoint, between 5.3% and 5.5%, as we indicated for 2024. Achieving 5.6% in ‘25 seems realistic. We expect margins to improve. Additionally, the lower weighted average shares outstanding will benefit us in FY ‘24 due to the full $2.5 billion share repurchase authorization and will also have an effect in ‘25 since we'll see the complete impact in that year. Overall, I believe FY ‘25 is looking very promising.

Okay. Thanks for all the details.

Thanks, Ruplu.

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

Hi. Good morning. I just wanted to follow up on some of the comments you just made on the revenues and how it's playing out by the different served markets. So, you mentioned that new program costs are down, so I guess you're seeing pushouts in certain markets. But then you also mentioned that customer forecasts are coming down, which I assume is for existing programs mainly. So, I was wondering if you could sort of dissect not every single line item, but just sort of big picture where you're seeing more new program pushouts and why and where it's more related to current end demand? And then I had a follow-up.

Thank you, Steve. To provide some insight into our end markets, 5G is currently experiencing a downturn, which reflects in our customer base. We're noticing a slowdown in that area as well as in our network and switching business, particularly in the campus and enterprise sectors, where there is an excessive inventory. However, we are seeing strong growth in our switching efforts related to AI, which has been encouraging. In the healthcare sector, orthopedic sales are down, but sales in pharmaceuticals and medical devices are on the rise. In the automotive sector, as it pertains to new products, we are seeing some delays. While we anticipate growth in our auto business, it will not follow a steady trajectory and may be somewhat inconsistent. The automotive market is expecting significant growth of 20% to 30%, but current inventory levels suggest some delays. Despite this, we are still seeing decent growth in automotive. Regarding renewables, we observe a slowdown in residential due to rising interest rates, although commercial sectors remain relatively stable. Energy storage is also slowing as customers wait for the implementation of the IRA. However, we expect to see a recovery in the backlog fairly soon. In the cloud sector, AI continues to drive our business, and we are operating in a new facility to support this growth. Overall, while renewables are somewhat soft and experiencing some product delays, consolidation within the renewable sector may benefit us as the industry recovers. As for automotive, we are just facing some order delays. I hope this answers your question.

And if I could just add, if you look at EVs, I think, everyone has seen the choppiness, everyone has seen the increased inventories at dealers, et cetera. I think the early adapters have already played out and they've got their EVs. It now becomes a question of cost. All the OEMs, all the EV companies are going to try and get their cost down. Who do you go to when you want to get your cost down? To an EMS company. So, this value proposition that EMS provides from an EV manufacturing perspective, we're well positioned for EVs, we're well positioned for hybrids. If you look at the battery management systems, the compute modules, the optics, all of that, we're in a good space to actually provide some value to OEMs who have to now take their costs down a bit, because that's the second wave of EV will be cost-based, not the early adoption wave that we just rode a few quarters ago.

Great. That's very helpful. And then just as a follow up, Mike, I know you're still saying $1 billion plus for free cash flow, but off of the November announcement, if I just changed the revenue assumptions and kept my working capital turn numbers, the lower sales was like worth $200 million more of free cash flow by my calculation. Is that the type of sort of change in free cash flow we can see off of the revised guidance, or am I missing something?

So, obviously, part of free cash flow is income, Steve. And when you lose $2.5 billion, you do lose income. Even though your margin is maintained, the dollars do come out. So, there is an offset. You're absolutely right on the working capital. Working capital does go down, and that is sort of baked in, but you also lose the income. The other area that we're looking at is CapEx very carefully. We've always been disciplined. In these times, we're even more disciplined and if we're pushing out investments, we're pushing out some level of CapEx that would help free cash flow as well. And it's early days, Steve. That's why we've stuck with the $1 billion plus. But do I expect it to be higher than that? Yes.

Great. That's helpful. Thank you.

Thanks, Steve.

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

Yes. Thank you. I had just another question related to inventories and free cash flow. You talked about that gross number of days, I think 78 days, which is down. And the net number, I guess, roughly 25% of your inventory is backed by customer deposits. But given that lead times are pretty short for components, wouldn't we assume that customers will want that cash back? In other words, as you reduce inventory, you have to pay them back, and they don't need to give you more cash deposits, because there isn't that need for buffer or the shortage situation that we saw a couple of years ago. And how does that impact the future free cash flow?

So, let me just answer that in a slightly different way than you've asked it. I expected, and I've always expected inventory days to be in the 55 to 60-day range. When inventory goes up, the inventory deposits go up in sync. When inventory days start coming down or normalizing, yes, there is a level of return on the inventory deposits. So, a quick answer to your question is, are we going to see a pop in free cash flow because inventories are going to go down? The answer is no. It's not a pop in free cash flow. It will still be in the 55 to 60 days. It's just a matter of the gross number going down and the inventory deposits going down in sync. So, that's something we're good at managing. That's something we have really good relationships with customers, and we're always working on that particular front. So, no, free cash flow won't get a pop. It's already baked into our numbers at that 55, 60, and that's where it will stay.

Thank you for that. Kenny, I want to return to the pre-announcement from a couple of weeks ago. That occurred a few months after you projected for the November quarter, and there was a significant reduction across your customer base. It seems like you are falling behind some of your competitors in this regard. One of your major competitors adjusted their numbers about a month earlier in a similar fashion. Can you explain the difference? I understand that supply was experiencing a rolling correction in different end markets, but why do you think your challenges are coming later than those of your competitors? Is it due to the end markets or other factors?

Yes, I believe that the timing of when companies report their results plays a role here. Late in our quarter, we noticed some nuances in end markets related to our customers, but overall, the trend appears to be widespread. Additionally, many of our customers follow a calendar quarter, and it was toward the end of their announcements that they adjusted their outlook downward. I strongly disagree with the notion that our visibility into our customer base is lacking compared to our competitors. Rather, we received this feedback toward the end of our quarter, which informs my perspective on the situation.

Okay. I appreciate it. Yes, I wasn't suggesting that at all. I was just trying to figure out the perspective. Thank you very much.

You're welcome.

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

Hi, thank you. Good morning. I appreciate the opportunity to ask my questions. To start, I would like to talk about the end markets. You mentioned a widespread weakness across your end markets, and I want to confirm my understanding of the sources of this weakness that led to the $2.5 billion reduction in your guidance. It seems like the decline is primarily in the automotive, industrial, and semi-cap sectors. Can you confirm that my interpretation is correct? Additionally, while you characterize much of the weakness as temporary, how do you tackle concerns specifically related to the electric vehicle market? It appears that many investors now believe the expected EV penetration in five years will be significantly lower than previously anticipated due to the current demand trends. What are your thoughts on how this might affect the long-term growth outlook for EVs? I have a quick follow-up as well. Thank you.

Let me discuss the electric vehicle segment first. We've experienced a 40% growth, but we anticipated this would slow down this year. Nevertheless, we remain optimistic about the long-term potential of the EV market. It's essential to view demand in a broader context, looking at trends over five to ten years. We analyze demand patterns globally and maintain a consistent approach across regions. Growth in Asia contrasts with slower demand in other markets, but our presence in each area allows us to adapt to these shifts. Our customer base in North America, Europe, and Asia is strong, enabling us to respond effectively to changes in demand cycles. Currently, in China, where demand is rising, we manufacture EVs and have numerous customers. We believe that the long-term trend for EVs is positive, and we are well-positioned with the right capabilities. Whether growth will be 20%, 30%, or 40%, we are confident we can adjust to any of these scenarios. Regarding other markets, we anticipate continued growth; our automotive sector is projected to grow by 11%, while healthcare and packaging are expected to grow by 6%. As mentioned by Mike, we are focusing on areas with supportive trends, and renewables are expected to grow by 7%. Overall, we feel well-positioned across all these markets.

For my follow-up, the question we are hearing most from investors regarding margins is about the postponed investments. When considering margin guidance for next year, should we assume that some of those investments won't need to be factored back into the model next year since they are being pushed out of fiscal '24, or will the margin guidance stay the same even if those investments are anticipated to return next year? Thank you.

No. So, I think the way to think of this is the revenue comes out, the cost comes out. When the revenue comes back, as we expect it to be sometime in FY ‘25, those costs will come back, but there will be an offset. So, net-net, the impact on margin will be neutral. I think we've said 5.3% to 5.5%. I think we've got to remember we've changed the construct of our business completely. The four end markets do not underestimate that those continue to grow. It's not by chance that we happen to be in those four end markets. Over the last few years, we've intentionally focused on those end markets, because we always thought those were the long-term secular end markets. I think overall, the way to think about cost push-outs, it's completely dependent on whether that revenue is there. If the revenue suddenly comes back, those costs will come back. So, I'm not saying a 5.3% to 5.5% will suddenly jump up if those revenues come back. We have other plans on making margin continue to go up as we continue to change the mix, as we continue to add new operational efficiencies, the automation side, AI/ML, robotics, all of that will continue to provide on an annualized basis, in my view, at least 10 to 20 basis points by itself. And the mix of the business, the revenue piece will provide the balance. So, yes, I think the push-outs are completely revenue-driven.

All right. That's clear. Thank you. Thanks.

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

Oh, hey, guys. Yes. Just kind of want to double click on the connected devices. You guys didn't elaborate too much in the prepared remark. Just you guys took down now expecting down 25% versus 15% last time, and kind of on the heels of down 15% last year, FY 2023. Just curious, kind of any mostly broad-based slowdown within the connected devices, or kind of one of the few customers kind of driving the weakness. Maybe you can kind of double click there?

Yes. Thank you for the question, George. We consistently discuss connected devices in relation to our consumer offerings. We consider this an area where we can develop capabilities that will benefit our entire business. However, we need to be quite selective since consumer product cycles are short, and there’s often uncertainty about product success. Additionally, margin expectations tend to be quite tight in this area. So, it’s not that we are shifting focus away from this part of our business, but rather being discerning about the margin profiles of certain programs. You should observe this across our network. Regarding margins, we believe in supporting our capabilities that enhance cash flows and margins. In this instance, we're opting not to engage in one or two specific areas of our business because we believe we can provide more value to our customers with our capabilities in other markets.

Okay. That makes sense. I just have a quick follow-up. Just kind of in terms of the AI data center, kind of, in terms of the consignment model shift. How much additional margin you guys can extract from this consignment shift? Obviously, it's additive to the bottom line and the kind of margin profile. And, also, maybe you can talk about kind of slightly more just on the projects ramping within the AI. That's being a pretty popular topic with investors nowadays.

I think, there's multiple ways of looking at the AI piece. AI and the new GPUs that drive our requirements, that drive space requirements, it's going to exponentially continue to sort of grow on an annual basis. The margin stack on what we do today will be relatively stable. It's the new services that we provide, the new value-add that we'll be looking at in terms of liquid cooling, photonics, those are the pieces that we think will be highly margin accretive. I'm not suggesting that will happen immediately, but over time I do expect the AI cloud data centers' margin to go up, that entire stack to be more value-add based.

Okay. Great. Thank you.

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

Great. Thanks, guys, for squeezing me in. So, maybe, Kenny, one for you first. Obviously, since the pre-release, you've had a couple of weeks to kind of go back and do, sort of, I would imagine, a deeper dive in terms of the categories and what your customers are saying. How do you frame sort of the inventory digestion? I know, at the time, you said, maybe one to two quarters, and I think I heard you say two quarters. Is that kind of the latest feedback that you're hearing from your partners today? And then one for Mike on capital allocation. I think, I heard you say you're going to do the entire $2.5 billion buyback in fiscal 2024. So, I know you normally don't talk about the following year, but what do you think that means for fiscal 2025 in the context of your $10.65 EPS guidance reiteration? Thanks.

Thank you, David. Regarding inventory correction, since our meeting in Phoenix, our team has been engaging with customers, as I have. The sentiment has certainly not worsened; if anything, it has slightly improved, although in some areas it remains consistent with a quarter and in many areas a couple of quarters. So, overall, it's largely in line with what we discussed in Phoenix. There’s no change to the negative outlook, but perhaps a bit more positivity. To emphasize, the discussions we're having indicate that our customers are seeking to consolidate their supply chains with fewer suppliers, which is a long-term positive for us.

David, you're absolutely correct regarding the buyback perspective. We aim to complete the entire $2.5 billion this year. This will positively affect the weighted average shares outstanding in fiscal year 2024, and we anticipate it to be between 124 million and 127 million by the end of that year. For fiscal year 2025, we plan to implement a normalized buyback program. Historically, over the past six to ten years, we've consistently executed around $500 million a year, so this will likely remain safe. While we haven't yet received Board authorization for fiscal year 2025, I expect it to be in the $500 million range. When we factor in the early buybacks in 2024, our weighted average shares outstanding could decrease to between 110 million and 115 million, depending on the share price. Therefore, this is the best use of our funds. Our history demonstrates that we've backed our commitments with actions, and we'll continue to do so because we believe we are still significantly undervalued.

Great. And can I just make a quick follow-up? I think, Mike mentioned lower interest rates could have a stimulative effect on the business. Maybe, Kenny, if you can kind of help us think about where do you think the most impact could be felt by end market, which is the most sensitive to rates? Given your mix, I would imagine more of the...

Renewables for sure.

Right, exactly.

Yes. Renewables for sure. We've developed strong capabilities in the renewable sector and are waiting for things to stabilize and guidance from the IRA. Interest rates are definitely affecting solar rollouts in the residential market. So, out of all our businesses, while auto will also contribute, I believe renewables will be the top priority. We expect to see positive momentum in that area.

I would also expect some level of enterprise level spend to improve. I think a lot of CFOs have been pulling back on purchases, enterprise-level purchases, with interest rates going down. And just the whole macro environment changes on that perspective. So, we do expect other end markets to have an impact. Will it happen immediately? Probably not, but over time it will have a positive impact for us and for almost every other company as well.

Got it. Thanks, guys.

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

Hey, guys, thanks very much. Talk about getting in under the wire. I'm curious about the comment that you've made or the comments that you've made on supply chain consolidation in renewables. I know supply chain services, this is one area that's driving more, like, direct customer engagement in your business overall. So, in renewables, are you working directly with these customers managing their supply chain, or is this consolidation happening further downstream?

Yes, Melissa. I would separate the two a bit. We've made some announcements regarding supply chain services and had our supplier summit recently, which was great for connecting with our suppliers. We’ve been discussing supply chain services for quite some time and are laying the groundwork to make it significant for us in the long term while supporting our customers. Regarding supply chain consolidation, we've observed a shift back to pre-COVID thinking, where businesses believed that having multiple suppliers was beneficial. However, they realized that managing multiple sources can be extremely challenging. In light of disruptions like the current ones, our customers are looking for ways to simplify their processes. They see our inventory levels compared to our competitors and may consider us a safer option. What we’re hearing from customers is a desire for us to manage their supply chains and build them at our facilities, reducing the number of contacts they need as long as we can be trusted to deliver. This dislocation is prompting those conversations, which we've seen before, especially pre- and post-COVID. We anticipate that this will also bode well for us in the longer term.

Okay. All right. Great. Maybe as a follow-up. I'm glad you mentioned silicon photonics a couple of questions ago. I think this acquisition is really interesting in terms of adding value, but we haven't really talked about it a lot. Does the acquisition of the Intel silicon photonics business, does this bring any revenue along with it, or is it simply about bringing in more of the supply stack internally, and it's already kind of reflected in your business? And then longer term, does this provide more of a competitive moat in AI?

Certainly. Let me give you some background on our acquisition. We acquired a small optical business in 2014 that was positioned to enhance our capabilities. Initially, it was focused on the telecom industry, but our goal has always been to pivot toward the datacom sector, which we see as more valuable long-term. We have been steadily developing this capability, which is not a huge focus for us yet, but we believe it has potential for growth. The opportunity with Intel emerged from discussions with our cloud providers, who are seeking to streamline their supply chains and prefer a more vertical approach from us. With our current capabilities in 400 gig and ongoing development in 800 gig and 1.6 T, the technical team from this acquisition will strengthen our engagement in these areas. This gives us a competitive edge as companies prefer to minimize their supplier base while seeking increased value. In AI data centers, photonics is becoming increasingly vital, especially concerning power requirements. We have already incorporated some expected revenues from this into our guidance for 2024 and 2025. As we advance our 1.6 T capabilities, we anticipate this will become significantly more impactful, especially in other sectors such as automotive, which we haven't discussed much yet. Our team, including Matt Crowley and KW from Asia, are experts in this field and are driving this initiative forward. Overall, we feel optimistic about the long-term prospects, so thank you for the question.

Great. Thanks very much. That's it for me, guys.

Thank you.

Thank you. Next question is coming from Mark Delaney from Goldman Sachs. Your line is now live.

Good morning, and thanks very much for taking my questions. Question on regionalization, and are you still seeing customers looking to have more of their manufacturing done in North America in order to improve supply chain resiliency, or have changes in demand and component lead times meaningfully altered any of those customer plans?

It's an interesting question, Mark. The situation is nuanced by the end market. In renewables, there is a significant push to capitalize on the available incentives in North America. We are actively involved in discussions surrounding this and expect more updates in the next three to six months. Outside of renewables, the pace remains fairly consistent. Your point about regionalization is valid; we continue to receive requests to increase EV production for North America and Mexico, as well as for the European market, considering factors like tariffs, and similarly for Asia. I don't believe this has necessarily accelerated or decelerated, except in the renewables sector where we are seeing a definite increase in requests for localized production. Additionally, it's important to highlight that in the cloud sector, secure supply will be crucial, which we believe will benefit us in the long term. We previously discussed Photonics, which could also play a role. Overall, cloud renewables and the rest of our business are relatively stable.

My other question is on margins and recognizing the outlook the company has for improved margins and also the progress you've made over the last several years. I'm so hoping to better understand as you're seeing lead times for components normalize as you're seeing weaker demand, have you seen any change in your ability to pass through higher costs and negotiate with customers around pricing in light of those changing market conditions?

I would say that while people often discuss leveraging relationships with customers, we don't approach it that way. As I mentioned, we are currently holding a supplier summit, and it's clear that things are improving. We have successfully renegotiated many terms on behalf of our customers and communicate those changes to them while also collaborating with our suppliers. We have not observed any significant changes in our margins despite improved lead times. Our business remains stable, so we do not see any substantial alterations in that regard.

Thank you and happy holidays.

Thanks, Mark. All the best.

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

Thank you very much for joining our call today. We appreciate your interest in Jabil. Everyone here would like to wish all those a very happy holiday, a peaceful holiday, and we are looking forward to joining the S&P 500 tomorrow. So have a great holiday.

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.