Jabil Inc Q2 FY2025 Earnings Call

Greetings and welcome to Jabil's Second Quarter Fiscal Year 2025 Conference Call and Webcast. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Adam Berry, Investor Relations. Thank you. You may begin.

Good morning and welcome to Jabil's second quarter fiscal year 2025 earnings call. Joining me on today's call are Chief Financial Officer, Greg Hebard; and Chief Executive Officer, Mike Dastoor. Please note that today's presentation is being live-streamed, and during our prepared remarks, we will be referencing slides. To view these slides, please visit the Investor Relations section of jabil.com. After today's presentation concludes, a complete recording will be available on the website for playback. In addition, we will be making forward-looking statements during this presentation, including among other things, those regarding the anticipated outlook for our business, such as our currently expected fiscal year net revenue and earnings. These statements are based on current expectations, forecasts, and assumptions involving risks and uncertainties that could cause actual outcomes and results to differ materially. An extensive list of these risks and uncertainties are identified in our annual report on Form 10-K for the fiscal year ended August 31, 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'll now turn the call over to Greg.

Thank you, Adam. Good morning, everyone. Thanks for taking the time to join our call today. I'm extremely pleased with our strong Q2 results, where the team delivered solid margins and cash flows on $6.7 billion in revenue. When excluding approximately $250 million associated with the divested mobility business in the prior year quarter, revenue increased 3% year-on-year. Core operating income for the quarter came in at $334 million. Core operating margins came in at 5%. Net interest expense in Q2 came in at $61 million. On a GAAP basis, operating income was $245 million and our GAAP diluted earnings per share was $1.06. Core diluted earnings per share was $1.94. Turning now to our performance by segment in the quarter, our regulated industry segment reported revenue of roughly $2.7 billion as guided. On a year-over-year basis, this represents a decrease of 8% due to expected weakness in our renewable energy and EV markets. Despite this, core operating margin for the segment increased year-over-year by 20 basis points to 4.8% based on favorable mix in the segment. In the Intelligent Infrastructure segment, we saw revenue of $2.6 billion, up 18% year-on-year, above what we expected in December. 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 this segment was 5.3%, a 110 basis point improvement compared to our prior year quarter. In our Connected Living & Digital Commerce segment, revenue was $1.3 billion, down 13% year-on-year due to our mobility divestiture. Excluding revenue associated with the divested mobility business from the prior year, revenue growth for the segment was approximately 4%. This reflects strong year-on-year growth across our digital commerce and warehouse automation markets, which was partly offset by weaker demand in consumer-driven connected living products. On a sequential basis, segment revenue was down 13%, which is consistent with the historical seasonality typically observed in the Connected Living sector following the holiday period. Core operating margins for the segment came in at 4.5% in Q2. Next, I'll provide an update on our cash flow and balance sheet metrics for the end of Q2 starting with inventory. As anticipated, during the quarter, inventory days increased 4 days sequentially to 80 days, which reflects typical seasonality in our business. However, on a year-on-year basis, inventory days decreased by 7 days. Net of inventory deposits from our customers, inventory days were 61, a quarter-on-quarter increase of 5 days, which is slightly above our targeted range of 55 to 60. This was mainly due to timing within our Intelligent Infrastructure segment as we support strong growth. As we progress through the fiscal year, we anticipate that inventory days will normalize into our targeted range. In Q2, cash flow from operations for the quarter was solid, amounting to $334 million. Net capital expenditures for the second quarter were $73 million. For the full year, we continue to expect net CapEx to be between 1.5% to 2% of revenue. As a result of the solid second-quarter performance and cash flow generation, adjusted free cash flow for the quarter came in at $261 million, bringing our year-to-date adjusted free cash flow to $487 million. With our strong first half results, we now anticipate free cash flow for the year to exceed $1.2 billion. We exited the second quarter with a healthy balance sheet with debt to core EBITDA levels of approximately 1.4 times and cash balances of approximately $1.6 billion. In Q2, we repurchased 2.5 million shares. The quarter ended with 364 million remaining on our current $1 billion share repurchase authorization, which we expect to complete by the end of FY 2025. Before I move on to guidance for the next quarter, I'd like to wrap up my remarks on Q2 by recognizing the Jabil team's strong execution this quarter. The team's efforts have yielded strong results through the first half of FY 2025 despite a highly dynamic environment. The company continues to show remarkable resilience and is poised for future revenue growth, improved margins, and robust free cash flow generation. With that, let's turn to the next slide for Q3 FY 2025 guidance. Beginning with revenue by segment, we anticipate revenue for our regulated industries will be $3 billion, down approximately 1% year-on-year, reflecting appropriate caution in the EV market. For our Intelligent Infrastructure segment, we expect revenue for the quarter to be $2.8 billion, up approximately 22% year-over-year, on broad-based growth across our capital equipment, advanced networking, cloud, and data center infrastructure markets. This strength is expected to be slightly offset by lower demand in our 5G end market. In our Connected Living & Digital Commerce segment, revenues are expected to be $1.2 billion. This is down 16% year-over-year, mainly due to weaker year-over-year demand in our connected living markets, offset slightly by continued growth across the digital commerce space. Total company revenue for Q3 is expected to be in the range of $6.7 billion to $7.3 billion. Core operating income for Q3 is estimated to be in the range of $348 million to $408 million. GAAP operating income is expected to be in the range of $282 million to $352 million. Core diluted earnings per share is estimated to be in the range of $2.08 to $2.48. GAAP diluted earnings per share is expected to be in the range of $1.50 to $1.99. Net interest expense in the third quarter is estimated to be approximately $61 million. For FY 2025, we now expect it will be in the range of $240 million to $245 million. Our core tax rate for Q3 and for the year is expected to be 21%. With that, I'd like to thank you for your time this morning and for your interest in Jabil. I'll now turn the call over to Mike.

Thanks, Greg, and good morning to all those joining our call today. To begin, I'd like to take a moment to thank our incredible team here at Jabil for their commitment, dedication, and hard work in a particularly dynamic operating environment. As the world continues to evolve, so does this team, always striving to ensure Jabil Solutions and our customer supply chains remain nimble, agile, and resilient. Thank you. Speaking of nimble, agile, and resilient, next I'd like to touch on a topic that remains top of mind for customers, shareholders, and employees alike: potential tariffs. Consistent with my comments in December, we place considerable value on maintaining a large-scale global manufacturing footprint. And as the geopolitical situation continues to evolve, our ability to adapt, combined with our designation as a U.S. domiciled manufacturing service provider, and our significant U.S. footprint is becoming increasingly important for our customers. In my opinion, Jabil is among the best positioned companies in the world to help customers navigate these complexities. As a reminder, while tariffs may impact end customer demand, any changes in tariff costs are a pass-through cost for Jabil. Since our last call in December, tariff expectations have broadened, which now include China, Canada, and Mexico, along with reciprocal tariffs. Addressing each of these, for starters, most of our business in China is predominantly local to local—local to regional, with a very small portion of our revenues generated from that region being U.S. bound. We have extremely limited exposure to Canada. In Mexico, 80% to 90% of our business today is U.S. MCA compliant. While implementation mechanics of reciprocal tariffs are unknown, I believe it levels the playing field for manufacturing as hardware still needs to be built somewhere. Once again, I feel Jabil is well positioned to help customers navigate these complexities. Finally, with 30 sites in the U.S., our manufacturing footprint here has never been larger than it is today. While I do feel there could be some challenges to overcome, such as labor, our investments and experience in tried and tested automation lines and robotics will certainly help expedite any lift and ship transfers. I personally feel there is no company better positioned than us to grow manufacturing in the U.S. Moving on to our results. As highlighted by Greg, our second quarter results were quite strong, driven by better than expected growth in capital equipment, cloud and data center infrastructure, and digital commerce. At the same time, healthcare, automotive, renewables, and connected living were all in line with expectations from 90 days ago. As a result, the team delivered approximately $6.7 billion in revenue, 5% core margins, and $1.94 in core earnings per share, up $0.26 from Q2 of last year. As I review these results in context with our updated outlook for the balance of the year, a few things stand out to me. First, our strong year-to-date results underscore the resilience and strength of our diversified portfolio where certain end markets like capital equipment and data center infrastructure continue to outperform, while some areas of our business like EDs and renewables continue to warrant caution. We now believe our intelligent infrastructure business is well positioned to deliver 17% growth in FY 2025 on a reported basis and approximately 27% excluding the legacy networking business we exited at the end of FY 2024. With this updated outlook, AI-associated business is now expected to represent approximately $7.5 billion in revenue this fiscal year, as demand for servers, racks, photonics, advanced networking gear, storage, and testing equipment continues to climb higher during the quarter. This represents an approximate 40% year-on-year increase for AI-related revenue. Contrary to market fears, the deployment of GPU-engineered racks and liquid-cooled data centers continues to accelerate. Our strategy to lead with design architecture and engineering allows us to keep pace with the accelerated development cycles with higher yields at launch. We can now transition from older computer architecture to GPU-led system-level design and hardware production at scale, which has been critical in establishing Jabil as a trusted partner for data center infrastructure build-outs. As we look to future growth in this space, I am particularly excited about our expansion opportunity in India. During the quarter, we announced our plans to expand in Gujarat to support our photonics capabilities. Over the longer term, we expect Jabil to play a significant role domestically in India, as the combination of domestic demand and infrastructure, a young workforce, and a business-friendly environment continue to support the manufacturing of advanced technologies and products, including sovereign data center build-outs that are in the very initial stages. Secondly, digital commerce with our Connected Living & Digital Commerce segment is expected to increase by 14% in FY 2025 as the team continues to help several customers drive automation and retail and digital commerce, whether in the warehouse, in the aisle, or at checkout. In healthcare, I would like to welcome the team from our exciting acquisition of U.S.-based Pharmaceuticals International Inc. This acquisition, completed in early February, allows us to better serve our pharmaceutical and healthcare customers in aseptic filling and dry oral dosage, which opens up a $20 billion addressable market by enhancing Jabil's existing pharmaceutical solutions offering, which includes the development and commercial production of auto injectors, pen injectors, inhalers, and on-body pumps. With PII's advanced capabilities and state-of-the-art manufacturing facilities, we're now in a stronger position to meet the growing demand for high-quality drug development and manufacturing in the U.S. In other parts of our business, we continue to be prudent with our expectations for the year. In automotive, we remain cautious regarding the ED outlook for the year, while at the moment we're not seeing much recovery in the renewable energy space outside of energy storage. Putting it all together for the year, we now anticipate approximately $27.9 billion in revenue with core operating margins of 5.4%. Core earnings per share are now expected to be $8.95. Importantly, as Greg indicated earlier, we now expect free cash flow generation in FY 2025 to exceed $1.2 billion. In closing, I want to say thank you to the entire Jabil team for your dedication and to our investors for your continued trust and support. I will now turn the call back over to Adam.

Thanks, Mike. Before moving into Q&A, I'd like to take a quick moment and summarize our call today. We're closely monitoring all things associated with the potential tariff situation. As Mike highlighted, we are extremely well positioned as a U.S. domiciled manufacturing service provider supported by our global footprint and with a significant U.S. manufacturing footprint. As Greg pointed out, the resilience of our diversified portfolio is evident. Certain end markets such as capital equipment, data center infrastructure, and digital commerce continue to perform exceptionally well. However, other end markets including electric vehicles, renewables, and 5G warrant near-term caution. All of this has been considered in our raised outlook for fiscal 2025. Thank you for your time today. Operator, we're now ready for Q&A.

Thank you. The floor is now open for questions. Today's first question is coming from Ruplu Bhattacharya of Bank of America. Please go ahead. Ruplu, can you please make sure your phone is not on mute?

Hi, thank you for taking my questions. Mike, can you talk about your existing footprint in the U.S.? You mentioned that several times. And your ability to support customers who want to move manufacturing, do you think such moves are possible and would that make sense from a landed cost standpoint?

Sure, Ruplu. I think in my prepared remarks I tried to address what we know today. We're obviously a U.S. domiciled manufacturing service provider. We're U.S. headquartered and have been in the U.S. for 60 years, so we have a lot of experience, knowledge about the U.S. Today, if you look at the number of sites we have, we have 30 sites in the U.S. all over the place. The expertise that we have, along with the knowledge and capabilities required to move to the U.S., we have all of that. Today, if you look at some of our end markets like healthcare, almost the entire segment in intelligent infrastructure is mainly U.S.-based today as well. We already have a footprint that generates a large part of our revenue stream. The ability to move manufacturing is based on end markets. Some of the end markets are more price elastic, where prices can be passed on to customers. There are some which are not as price elastic. That will have to be a landed cost determination in terms of what moves and what doesn't move. The key takeaway here is, we're here, we have 30 sites; if you go back to what we did last year, within six months we started from zero, we had no site. We set it up, hired all the people, put all the equipment in, and did all the infrastructure around the factory and had it up and running in six months. Now it depends on the end market, but it's highly doable. So, yes, we're looking forward to helping our customers if they want to shift to the U.S.

Okay, thanks for the details there. Can I ask you about the cloud revenues? You raised the guidance for that as well as for AI-related revenues. Can you talk more about the opportunity with silicon photonics and how you see that market growing and your revenues growing? You mentioned Gujarat. Just elaborate on what you plan to build there and how do you see that market trending?

Sure. If you look at the AI piece, I think you referenced that. Obviously, the Intelligent Infrastructure business is going up from previous outlook and considerably from last year. AI revenue, if you look at last year, it was in the region of $5 billion. I think we took it up to $6 billion at one stage, and then to $6.5 billion. Now we're taking it up to $7.5 billion, which represents a significant improvement. If you look at the year-on-year growth, that shows a 40% growth rate. We're happy with how we are progressing from the AI revenue perspective. To be fair, a lot of that is coming from the data cloud infrastructure piece. Silicon photonics, you talked about that. We made the acquisition from Intel about 18 to 24 months ago. That gave us the capability, engineering, and infrastructure to build these photonics and transceivers modules. Today, we have $300 million to $400 million with hyperscalers, working aggressively with new hyperscalers on increasing that. I'm really excited about silicon photonics. At OFC in a couple of weeks' time, we'll be showcasing a 1.60 capability from the front end. The 100 to 400 seems more applicable today, and the 800 on the back end will move to 1.60 towards the end of this calendar year. We're well-positioned from a silicon photonics perspective. It's a smaller base, but the future outlook is promising.

Okay. Thanks for all the details there. Maybe I'll sneak one more in. Just looking at the forecast, it looks like you tweaked down networking and healthcare forecasts for fiscal 2025. Just what should we read into that, if anything? Thank you so much.

Sure. This is just a slight tweak; it's not on switches or gear, nor on AI-related revenue, but more on the 5G infrastructure side. There's uncertainty today with the network providers, which is causing some of the reduction in our outlook.

Thanks for all the details. Appreciate it.

Thank you. The next question is coming from Samik Chatterjee of JP Morgan. Please go ahead.

Hi, thanks for taking my question. Mike, it does seem like when I look at intelligent infrastructure, something changed materially for the positive this quarter, because all through last year, you were doing about a $2.2 billion, $2.3 billion revenue run rate per quarter. You extended that sequentially into $2.6 billion this quarter and you're guiding to $2.8 billion. Also, you're raising the AI guidance by about $1 billion after raising it by $0.5 billion last quarter. It just seems like there's an increase in the confidence, and I'm just wondering if there was something noticeable that happened during the quarter in terms of either more design wins or more visibility into RAMs that is driving that confidence. I have a quick follow-up after that. Thank you.

Sure. It's in two main areas. If you look at semi-cap, not in the wafer fab, it works inside more in the automated testing piece. That part of the business is doing really well with the advent of custom chips that need to be tested; newer technologies are coming through, and the testing requirements are quite high there. Semi-cap is doing well. Then on the cloud data center infrastructure piece, while I hear stories of it slowing down, it's not slowing down at all; it's actually gaining momentum, at least as far as Jabil is concerned. Those are the two main areas. Some network and communication issues are offset by some aspects of the 5G infrastructure, as I mentioned earlier. The intelligent infrastructure outlook has robust growth expectations.

Okay. And then for my follow-up on the margin, particularly on a segment basis, when I look at connected living and digital commerce, there's some headwind relative to mobility on the revenue side, but when we look at margins, what's driving some of the weakness here? Obviously, there's probably some revenue leverage, but otherwise how are you thinking about the roadmap in terms of improving the margin for that particular segment?

Yes, I think you hit the nail on the head when you talked about mobility. That's why the year-on-year comparison looks a little strange. We did have one month of mobility in Q2 of last year, which skews the number a little. Overall, our margin structure is performing reasonably well. We have seasonality; if you remember in Q1, we outperformed on the Connected Living piece by a significant margin, and Q2 is normally a slower quarter for us after the holiday season in our Q1. The CLDC piece, the digital commerce piece is one I'm excited about. We're looking at humanoid automation, warehouse automation, and digital commerce options. This humanoid situation is early-stage but has tremendous potential; it's another growth engine for us.

Great. Thank you. Thanks for taking my questions.

Thank you. The next question is coming from Mark Delaney of Goldman Sachs. Please go ahead.

Yes, good morning, and thanks for taking my questions. Thanks for the comments you've provided so far on tariffs. I'm hoping you can expand a bit on that topic and help us better understand what you're seeing from customers currently in terms of how they may want to respond to tariffs and potential tariffs. Are there a meaningful number of customers that have already started to work on plans to shift sourcing into the U.S. or told you that's something they want to do, or is it more that customers are working through scenario analysis and planning in the event that higher tariffs do go into effect?

Let me just hit on what we've already covered in our prepared remarks. If you look at the current situation, as we know today, it's in Canada, Mexico, and China. The exposure there is minimal. The reciprocal tariffs, it could level the manufacturing playing field, which allows us to manufacture anywhere. We've been in these countries, and I believe our capabilities and expertise will help customers navigate there. The tariff situation, I see as a net positive. The uncertainty could lead to some level of demand reduction by the end customer; we aren't seeing that today, but it could happen. The potential for moving to the U.S. is focused on end markets. In healthcare, moving things around can be difficult; we're already mainly in the U.S. in that market. Intelligent infrastructure is doing really well here already, and in digital commerce, connected living, those markets are more price elastic.

That's helpful and understand there's a lot of moving parts here. I did want to ensure investors and we understand what is embedded into your fiscal 2025 guidance with tariffs. Are you assuming tariffs on imports from Mexico and the reciprocal tariffs go into effect on April 2nd? Similarly, have you tried to bake in any revenue headwinds from potentially higher prices or conservatism due to uncertainties?

For China, we have very little exposure of products that eventually come to the U.S., so we're good there. We have almost zero exposure in Canada. In Mexico, I referred to that in my prepared remarks; 80% to 90% of our business is U.S. MCA compliant. We don't know the details of reciprocal tariffs versus Mexico. I know Mexico doesn't charge large tariffs on U.S. products, and I'm not worried about Mexico. Overall, it’s possible that volumes may get impacted eventually, but I don't see that happening in the next six months. It's a longer-term impact that could be some level of pullback towards the holiday season, especially from the consumer's perspective. Until things are clarified, our assumptions are consistent. We're being prudent regarding end markets, such as EVs and renewables, even some consumer segments. Long term, I’ll keep repeating, we're well-positioned to help customers navigate these complexities.

That all makes sense. Mike, I appreciate all your commentary on this topic, and congratulations on the solid result and outlook. I'll pass it along.

Thank you. Our next question is coming from David Vogt of UBS. Please go ahead.

Great. Thanks, guys. I want to follow up on that, but not necessarily on the actual gross margin impact of tariffs but on revenue. Maybe this is for Greg to start. So, Greg, I just want to make sure I understand the year-over-year comparison. I know you have the divestiture of mobility last year, but you also exited some legacy networking businesses last year. Is that in the commentary in terms of how you're thinking about the growth rates going forward? I thought it was my understanding that in February of last year, you had a couple hundred million from that business and a similar number in May. I'm trying to understand the pro-forma growth rate for fed revenues. I think you said 3%, but it suggests to me that it should be stronger than that. And then I have a follow-up.

Yes, David, thanks for the question. If we take out that networking legacy business out, our quarter year-over-year growth would have been 8.5%. We had about $300 million of revenue in Q2 of 2024 associated with that. If you look at the growth for Intelligent Infrastructure, which we reported 18% year-over-year, would have been 37% year-over-year.

Got it. Okay. So then my follow-up to that is, if I just take your guidance at face value for the year, I would imagine in Q4 of this fiscal year, you don't have a tough compare. So what's implied by the guide? It goes back to Mike's point about being conservative. You have a meaningful deceleration into the summer months into the fall; is that a reflection of anything you're seeing from a demand perspective to date or tariff potential impact or just prudence given the uncertain macro? Maybe just kind of flush that out.

Yes, absolutely. It's all about being prudent in our current situation, so we're just being cautious with the guidance.

Got it. I would imagine that prudence is reflected in cloud and data center, autos, EVs, or across the board. I'm just trying to get a sense of where you feel the most caution is warranted, given the strong demand you're seeing in semi-cap and cloud and data center.

Yes, it's a broad stroke across all end markets, David.

Great. Thanks, guys.

Thank you. The next question is coming from Steven Fox of Fox Advisors. Please go ahead.

Hi, good morning. I had two questions if I could. First, I was wondering if you could expand on the comment, Mike, that you made about GPU racks and liquid cooling continuing to accelerate. It seemed like you were tying it into your ability to deliver higher yields at the launch of new racks. What does that exactly mean that you're doing, and why you're benchmarking supposedly better against the competition? I had a follow-up.

Hey, Steve. My comments on improving yields at launch were more related to our design architecture, engineering piece, and the capability that we have today, where the handshake between the hyperscaler and us relates to data center build-outs—that's what drives improved yields at launch. Servers and racks are doing really well. The GPU-related piece is a significant catalyst. The liquid cooling acquisition we made last year is going well, opening doors for us in terms of vertical solutions, in terms of individual customized solutions that we can offer. None of that is in our forecast yet; we're still in conversations, but I’m very pleased with that liquid cooling acquisition and its potential for future growth. We didn't buy it with revenue expectations; it was more about the capability of selling vertical and customized solutions.

Yes, that's really interesting. I appreciate that color. And the auto transport segment is still a bit of a melting ice cube for you guys in terms of your forecast. How confident are you that you have a good handle on what EV production could be like for the second half of the year? Do you have any offsets within that segment around new programs or new content, etc.?

Yes, there are definitely some considerations in that line item. We're being prudent, as not seeing a significant reduction. The forecast reductions are being offset by Chinese OEMs; the China EV markets are performing well. There are puts and takes. If we didn't have these, you'd see a bigger reduction. I wouldn't characterize it as a melting ice cube; it's us being prudent and applying factors that are more applicable here.

Great. I appreciate that color. Thank you.

Thank you.

Thank you. The next question is coming from George Wang of Barclays. Please go ahead.

Oh, hey, guys. Congrats on the quarter and the guide. I have a couple of questions. I've been remiss not to ask about CTO, especially following the GTC, NVIDIA and CPO. Just curious, I thought Jabil could be a beneficiary in the CPO assembly just based on leverage of your optics assets. Can you give more color in terms of how Jabil could be positioned to take advantage of the CIPO-based CPO assembly?

Yes, of course. I think we are well positioned. The comments were more around switching gear, not so much on the GPU side. That's where our capability is on the switching gear side. Development lines are going on CPO. We have silicon photonics glued on. We’re using Intel Fix, wherein the laser is embedded, which is a benefit today, given the laser shortages we’re experiencing. We're very well-positioned for CPO. It's not a big revenue generator yet, but it's still in the development phase for Jabil and others. In the next couple of years, it will grow significantly, especially toward 2028, where growth potential is immense.

Okay, just a quick follow-up regarding the transceiver. Three months ago, you discussed ongoing discussions with three hyperscalers for 800G now, and 1.60 towards the end. Any progress or developments in that regard? Are you making incremental progress you can report here?

Yes, there has been progress. We are performing well with one of the hyperscalers. We're quoting for the others. We'll be showcasing a 1.60 capability at OFC—additional data point for us. I believe the silicon photonics market is about to take off considerably for us, and there aren't many companies as well-positioned as we are, particularly due to the Intel acquisition and our current capabilities.

Great. I just wanted to squeeze in one more quickly. I'm glad to see you raised guidance by $800 million around server racks, likely driven by your biggest hyperscale customer. Can you provide any timing for the ramp? You're saying FY 2026, but has any portions pulled into the back half of FY 2025 based on strong growth in the segment and the guidance you raised?

The increase is driven mainly by two parts. We're growing our market share, with consolidation occurring, and we're winning more of the market than before. The end market growth is strong; we aren't seeing any slowdown. Additionally, there are areas in the world where sovereign data centers are in their early stages. There’s plenty of room for growth in this entire piece.

Great. Thank you. Congrats again.

Thank you.

Thank you. The next question is coming from Melissa Fairbanks of Raymond James. Please go ahead.

Hey, guys. Thanks so much. I had a question about some supply chain dynamics. I appreciate all the detail about your expectations for tariffs. If Frank is in the room, he may address this; but I was wondering if there’s been any change in the way your customers think about procuring components. Your manufacturing footprint is solid, but are customers pulling in future demand or managing how or where they expect you to source materials from?

There's definitely been conversations. It doesn't make sense to move entire supply chains across countries. You are correct; there are ongoing discussions on regionalizing supply chains, but we have not seen major completed changes. Moving entire supply chains from one part of the world to another takes multiple quarters—it's not an overnight task. We’re actively discussing these topics; however, I haven't seen any significant moves completed yet.

Great, thanks. Just one quick follow-up. You've talked about recent M&A successes, like silicon photonics and liquid cooling. Are there any other capabilities you're looking at that customers are asking for assistance with? Are there specific areas where you see future opportunities?

I'm glad you mentioned the pharmaceutical acquisition. That has paid dividends as well. We're receiving lots of interest from pharmaceutical companies on potential dry dosage drugs and aseptic filling. The acquisition gave us 175,000 square feet in the U.S., and the level of interest exceeds our expectations. We're actively working a few more acquisitions as we speak, always looking to fill gaps in our capabilities. No significant acquisitions are expected in the immediate future, but we're constantly assessing opportunities.

Excellent. That's all for me, guys. Thanks.

Thank you.

Thank you. At this time, I would like to turn the floor back over to Mr. Adam Berry for closing comments.

Thank you very much for your time. This now concludes our call. Have a great day.

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.