Earnings Call Transcript - JBL Q2 2022

Operator, Operator

Hello, and welcome to Jabil’s Second Quarter Fiscal 2022 Earnings Call and Webcast. At this time, all participants are in a listen-only mode. 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, Investor Relations. Please go ahead.

Adam Berry, Investor Relations

Good morning and welcome to Jabil’s second quarter of fiscal 2022 earnings call. Joining me on today’s call are Chief Executive Officer, Mark Mondello; and Chief Financial Officer, Mike Dastoor. 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 our Investor Relations section. At the conclusion of today’s call, the entirety of today's session will be posted for audio playback on our website. I'd like to now ask that you follow our earnings presentation with the slides on the website, beginning with the forward-looking statement. During this conference call, we will be making forward-looking statements, including, among other things, those regarding the anticipated outlook for our business such as our currently expected third quarter and 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, 2021, and other filings. Jabil disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. With that, I'd now turn the call over to Mark.

Mark Mondello, CEO

Thanks, Adam. Good morning. I appreciate everyone taking time to join our call today. To begin with, our hearts go out to everyone impacted by the war in Ukraine. When I think about our team, along with their families, what comes to mind are words like admiration, courage and heart. Please know we're in constant communication with those on the ground. And we continue to provide resources and financial assistance as the safety and security of those in Ukraine is our top priority. At Jabil, we're one corporate family with people located all over the world. And despite the physical distance between us, we'll always face difficult situations together. To all of our employees, thank you for being servant leaders, thank you for your spirit and thank you for looking after one another. Let's now turn to Slide 6, where we'll take a look at our second quarter results. Q2 was another strong quarter, both top line and bottom line, driven by double-digit revenue growth year-on-year and exceptional execution, respectively. Altogether, the team delivered core earnings per share of $1.68 on revenue of $7.6 billion, resulting in a core operating margin of 4.6%, a 40 basis point increase year-on-year. All-in-all, I'm pleased with the quarter as our performance during the first half of the year gives us positive momentum as we push towards the back half of fiscal '22 and into fiscal '23. And when I think about a key catalyst driving our momentum, what comes to mind is the makeup of our commercial portfolio, which I'll now address on the next slide. Slide 7 is a wonderful picture which shows the construct of our portfolio today. Jabil's large scale diversification serves as a solid foundation from which we run our business. The team has built this foundation over the past five to six years as we target new end markets and optimize our legacy business. The output of this effort is twofold; one, a higher level of resiliency across the company and two, a substantial presence in secular end markets. Markets that include 5G, electric vehicles, personalized healthcare, cloud computing, and clean energy. If we dissect the pie chart a bit differently, with an emphasis on financial contribution and economic relevance, we see a terrific blend of reliable margins and sustainable cash flows. Again, a real tribute to the diversified nature of our business today. Lastly, if we look at a third dimension of our portfolio, we find a library of essential capabilities; capabilities that allow us to simplify the complex for many of the world's most notable brands. And when done correctly, our unique set of capabilities offer Jabil a real competitive advantage, as we lean into a massive market where things need to be built and supply chains need to be developed or modified. Moving on to Slide 8, you'll see management's outlook for the year. We've increased core earnings per share to $7.25, an increase of nearly 30% year-on-year. As for revenue, FY '22 now looks to be in the range of $32.6 billion, up more than 10% year-on-year. In addition, we remain committed to delivering a minimum of $700 million in free cash flow for the year while increasing core operating margin to 4.6%, a 40 basis point improvement year-on-year. For me, this is a positive testament to how the team is managing the business, as our strategy has been consistent and what needs to be done is well understood throughout our company. With that, let's move to my final slide where I'd like to start with the importance of our purpose. At Jabil, with purpose comes expectations; expectations around certain behaviors, behaviors such as keeping our people safe, servant leadership, protecting the environment, giving back to our communities and offering a workplace which encompasses tolerance, respect and acceptance. Within Jabil, these behaviors have never been more important than they are today. I'm proud of our team as they fully grasp our purpose. And in doing so, their conduct is exceptional. In closing, our improvement is steady, commercially, financially and operationally. Quite simply, here at Jabil we build stuff and we do it really well. One factor that makes good companies great is having a value set, a culture, if you will, that enhances the way in which they solve problems. As a team, we embrace this as we take on the challenges presented by our customers each and every day. To our entire Jabil team, thank you for making Jabil what it is today. I'll now turn the call over to Mike.

Mike Dastoor, CFO

Thanks, Mark, and thank you for joining us today. I'm really pleased with the resiliency of our diversified portfolio and the sustainable broad-based momentum underway across the business, as several of our end markets continue to benefit from long-term secular trends. As Mark just summarized, our Q2 results were very strong. During the quarter, revenue, core operating income, core EPS and free cash flow, all exceeded our December expectations. Given the higher revenue, I'm particularly pleased with our ability to drive an extra 30 basis points of margin improvement compared to our expectations in December, mainly through broad-based trends in several key end markets benefiting from long-term secular trends, as well as outstanding execution by our business, operations and supply chain teams. For the quarter, revenue was approximately $7.6 billion, up 10.6% over the prior year quarter and ahead of the midpoint of our guidance from December. The additional upside was mainly driven by our 5G and cloud businesses, while our automotive, healthcare and retail end markets remained very strong. Our GAAP operating income during the quarter was $313 million and our GAAP diluted earnings per share was $1.51. Core operating income during the quarter was $344 million, an increase of 21% year-over-year, representing a core operating margin of 4.6%, up 40 basis points over the prior year. Core diluted earnings per share was $1.68, a 32% improvement over the prior year quarter. Now, turning to our second quarter segment results on the next slide. Revenue for our DMS segment was $3.8 billion, an increase of 4% on a year-over-year basis. The solid year-over-year performance in our DMS segment was broad-based with strength across our healthcare, automotive and connected devices businesses. Core margin for the segment came in at 5.1%. Revenue for our EMS segment came in at $3.8 billion, an increase of 19% on a year-over-year basis. The strong year-over-year performance in our EMS segment was also broad-based with strength across our digital print and retail, industrial and semi-cap and 5G wireless and cloud businesses. Core margin for the segment was 4%, up 90 basis points over the prior year, reflecting improvements and solid execution by the team. Turning now to our cash flows and balance sheet. In Q2, inventory days came in at 86 days. The sequential increase in days was driven largely by two factors. Firstly, the ongoing tightness in the supply chain continues to weigh on our inventory balances. It's worth noting that we've offset a portion of these increases with inventory deposits from our customers, and these deposits reside within the accrued expenses line item on the balance sheet. Net of these inventory deposits, inventory days was 71 in Q2. And second, at the end of the quarter, we experienced a timing difference on the sell-through of finished goods within our DMS segment. I anticipate this timing difference to reverse in Q3. In spite of these two factors impacting inventory, our second quarter cash flows from operations were very robust coming in at $246 million and net capital expenditures totaled $201 million. From a total debt to core EBITDA level, we exited the quarter at approximately 1.3x with cash balances of $1.1 billion. During Q2, we repurchased approximately 2.3 million shares for $145 million. And for the year, we repurchased 4.4 million shares for $272 million as we remain committed to returning capital to shareholders. Turning now to our third quarter guidance on the next slide. DMS segment revenue is expected to increase 17% on a year-over-year basis to approximately $4.2 billion, while the EMS segment revenue is expected to increase 11% on a year-over-year basis to approximately $4 billion. We expect total company revenue in the third quarter of fiscal '22 to be in the range of $7.9 billion to $8.5 billion. Core operating income is estimated to be in the range of $300 million to $360 million, representing a core margin range of 3.8% to 4.2%. At the midpoint, this is an improvement of 20 basis points over the prior year and down sequentially reflecting planned investments in our Q3 quarter. It's also worth noting, sequentially in Q4, we expect robust core margins driven by our scaling automotive business, along with typical seasonality in our mobility and EMS businesses. In Q3, GAAP operating income is expected to be in the range of $276 million to $336 million. Core diluted earnings per share is estimated to be in the range of $1.40 to $1.80. GAAP diluted earnings per share is expected to be in the range of $1.24 to $1.64. The core tax rate in the third quarter is estimated to be approximately 21%. Next, I'd like to take a few moments to highlight our balanced portfolio of businesses by end market. Today, the outlook for our business is strong, with end markets across both segments continuing to benefit from multiyear secular trends. We believe these markets will continue to drive our growth as we concentrate our efforts on long-term secular growth markets with strong margins and cash flow dynamics. Markets such as electric vehicles, personalized medicine and healthcare, semi-cap, clean and smart energy infrastructure, cloud, 5G infrastructure and the associated connected devices. Our electric vehicle business in particular continues to outperform in spite of global supply chain issues as the transition to EV accelerates. We've seen this rapid acceleration manifested in top-line revenue growth in excess of 50% this year alone in our automotive end market. We're also expecting double-digit growth for the healthcare, automotive, retail, industrial and semi-cap and 5G wireless and cloud end markets. And importantly, the broad-based growth associated with the secular trends is expected to drive solid year-over-year core operating margin and free cash flow expansion. All-in-all, our performance during the first half of the year gives us excellent momentum as we look to close out another strong year. We're now anticipating core EPS will be in the neighborhood of $7.25 per share on revenue of approximately $32.6 billion. Notably, this incremental revenue will improve mix and drive operating leverage, thereby giving us the confidence to raise our core margin by 10 basis points to 4.6% for FY '22, as we continue to drive the organization to 5% and beyond. Importantly, for the year, we also remain committed to generating in excess of $700 million in free cash flow in spite of the higher revenue and associated working capital. We've been working extremely hard as a team to expand margins and drive strong cash flows. I'm very pleased with our team's exceptional execution of our strategy on all fronts. With that, I'll now turn the call over to Adam.

Adam Berry, Investor Relations

Thanks, Mike. Before we move into the Q&A portion of the call, I'd like to remind our participants that we cannot address customer-specific or product-specific questions. Thanks. Operator, we're now ready for Q&A.

Operator, Operator

Thank you. We'll now be conducting a question-and-answer session. Our first question today is coming from Jim Suva from Citigroup. Your line is now live.

Jim Suva, Analyst

Thank you. Congratulations on the results and extremely strong outlook, despite all the uncertainty in the world. I was wondering if you could give us a little bit of confidence or conviction about the operating margins and sustainability. Of course, your full year guidance increase is so big you have to assume the operating margins continue to see the strength. So I'm just curious, is that due to mix or the location and visibility from customer contracts that you're getting or the value added or maybe a combination of all, but if you could just pontificate a little bit on operating margins and your confidence in the sustainability of them? Thank you so much.

Mark Mondello, CEO

Hi, Jim. I think the overall margin profile, if you just go back to, let's say, pre-COVID to fiscal '19, we were running the business at around 3.5% margins. And our focus at that point in time was really about reshaping the overall portfolio and a big focus on diversification in both top line and bottom line. I think the team did a really nice job of that over a four to five-year period. And then starting in fiscal '21, so last year, we really started taking that portfolio at scale and focusing hard on the margin side of the business, largely around costs and optimization, while still being what I think is very competitive in the marketplace in terms of our pricing. This year, we've taken margins up. I think in September we said margins would go up to 4.5% from the 4.2% last year. And then this morning, we're taking it up another 10 basis points to 4.6% for the year. I think the main catalyst driving it is our execution has been outstanding and I think sustainable. I think the overall platform around the operational network, the tools, our IT systems also sustainable, and the advances we've made there are terrific. And then lastly, and maybe most importantly, is just the overall portfolio that we have, Jim, when we think about how diverse we are, when we think about the contributions of the business, we look at the blend between automotive and transportation, healthcare, connected device, mobility, digital print, retail, industrial, cloud, 5G, networking, semi-cap, et cetera. It's just a wonderful, wonderful book of business today. We think that will continue to scale. And as I said, at some point in the last 18 months or so, I really believe as this business continues to get beyond $35 billion, $37 billion, $40 billion, we're going to effort internally to run the business at five points of margin on the operating line.

Jim Suva, Analyst

Thank you, and congratulations to you and your team.

Mark Mondello, CEO

Thanks, Jim.

Operator, Operator

Thank you. The next question today is coming from Steven Fox from Fox Advisors. Your line is now live.

Steven Fox, Analyst

Thanks. Good morning, everyone. Two questions, if I could. First of all, just building off of that last answer, Mark, can you help us conceptualize a little bit how you're growing at scales so quickly, the challenges there given the global footprint that you have and managing the programs into, like we're talking about 8%, 10% growth off of a $30 billion, $35 billion type of sales base? And then secondly, how is your global footprint? Maybe a better way to ask this, can you give us an update on your global footprint and how maybe it's changing versus what you would have thought six or nine months ago? Thanks.

Mark Mondello, CEO

There's a lot to unpack here. To address growth at scale, the team has effectively diversified the company and we really managed to step back when we reached what I would consider significant scale. We’ve had some luck, solid planning, and thoughtful decisions that have led us to enter substantial, real secular markets. In my prepared remarks, I mentioned areas like electric vehicles, personalized healthcare, cloud computing, and clean energy. Our approach to strategy is more bottom-up, leveraging the expertise within our sectors. Over the past few years, we’ve successfully aligned our revenue efforts with powerful secular trends. Additionally, we're gaining market share, and it can be challenging for people to interpret our numbers alongside current macro conditions without recognizing our market share growth. In my prepared remarks, I referred to the market as massive, reflecting the ongoing need for construction and supply chain improvements, which we excel at. Lastly, our core legacy business has shown strong growth over the past 18 to 24 months. While I don't expect the company to maintain strong double-digit growth as we approach $35 billion, $37 billion, or $40 billion, I do anticipate continued growth over the next three to five years. Our global footprint is exceptional, spanning regions like Southeast Asia, China, Europe, Brazil, Mexico, and the U.S. A key focus for us right now is our presence in Eastern Europe, and as mentioned in my prepared remarks, we are deeply concerned for those affected by the current situation there. Despite any worries, I feel very confident about the strength of our footprint today.

Steven Fox, Analyst

Great. That's really helpful. Thank you.

Mark Mondello, CEO

Have a good day.

Operator, Operator

Thank you. Next question today is coming from Ruplu Bhattacharya from Bank of America. Your line is now live.

Ruplu Bhattacharya, Analyst

Thanks for taking my questions. Maybe I'll build on some of the prior questions and say that Jabil's performance this quarter is impressive and you raising the guide annual by $800 million, $0.70 is impressive given what's happening with the supply chain and logistics costs and oil prices and geopolitical stuff. So can I ask you maybe what gives you the most concern when you look into the second half of this year, fiscal 22? And what happened in the past 90 days that is giving you confidence to raise the annual guide, or was your prior guidance just too conservative?

Mark Mondello, CEO

Yes, I'm hesitating because I'm thinking. I'm always concerned about a lot of things all the time. There's a war going on. And obviously, that's a concern. And for me, that concern is, this will be the third time I'll say it, right, is really about the well-being and the safety and security of our people. And I don't know how to say this. But in terms of a pure financial economic perspective, that doesn't give me a lot of concern. Saying that though, I do want to emphasize it's a bit heartbreaking to me and very emotional with that situation over there. And it has our full attention. So I would say supply chains, we tend to navigate that as good as anybody at the moment. Does that give me concern through the rest of the fiscal year? Maybe. A collapse in the macro in the very near term? Not so much. Inflation? I think we're managing that quite well. And I would say, I don't know, there's been a dust-up here recently with some more COVID issues in Mainland China. And Ruplu, I would say we've been dealing with that literally like firsthand since the issues in Wuhan in January of 2020. And when I think about our campuses and places like Wuxi and Weihai and Huangpu and Shenzhen and Shanghai and Tianjin and Chengdu, we got a great team over there. We've been navigating that quite well. So as we think about the balance of the year and maybe the first part of '23, as we sit today as a management team, we got pretty good confidence in the guide for the balance of the year and the beginning outlook for '23.

Ruplu Bhattacharya, Analyst

Okay. Thanks for that, Mark. Can I ask about maybe if you can give us an update on your capital allocation priorities? Specifically, when I look in the past, you've focused on smaller tuck-in M&A. But given valuations have pulled back, do you see the possibility of any larger M&A? And how would you contrast that to the possibility of a dividend increase or a focus on buybacks?

Mark Mondello, CEO

I'll break that down into two parts. We are continuously exploring opportunities in the market and have been effective with small mergers and acquisitions. Our focus will likely remain on transactions similar to the JJMD deal, particularly with major brands exiting manufacturing. This is an area we are dedicating significant attention to. Regarding small M&A for capability enhancements, I don't anticipate any large direct acquisitions, as even with the recent downturn in U.S. equity markets, prices remain quite high. On the other hand, concerning capital allocation regarding buybacks and dividends, we still have authorization to complete our $1 billion buyback. If there's any upside to the recent corrections in the equity market, it's that we are actively buying back our stock. Given the outlook for our business over the next couple of years, our potential for margin improvement, and ongoing growth, I believe buybacks are more favorable than modifying our dividend at this time. I do see value in establishing a well-considered multi-year dividend plan in the future, but it's not the right time for that.

Ruplu Bhattacharya, Analyst

Okay. Thanks for that. And if I can just squeeze one more quick on in for Mike, looks like inventory was up 15% sequentially. But you are maintaining your free cash flow guide of 700 million plus on higher revenues and earnings. So can you just talk about your CapEx requirements for this year? I don't know if you mentioned that on the call yet. And how should we think about the cash conversion cycle and the cadence of free cash flow? Thanks for all the details. Thank you.

Mark Mondello, CEO

Thanks, Ruplu.

Mike Dastoor, CFO

If you go back a couple of years, we were in the 3% plus range for CapEx. Over time, we brought it down to about 2.6%. I feel pretty comfortable with that level. Obviously, revenues have gone up a little bit. At the start of the year, we said about 825. Maybe that's now 850-ish. So we're still maintaining that 2.6% CapEx level. And our free cash flow yield is something we focus on quite a bit. We're not where we wanted to be and we'll be taking it up slowly through the next few quarters and get into the 50% range at some point in time. And that's what the management team is focused on.

Ruplu Bhattacharya, Analyst

Thank you.

Operator, Operator

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

Matt Sheerin, Analyst

Yes. Thanks and good morning, everyone. Mark, I had a couple of questions regarding your segments. If you look at your forward guide for FY '22, it looks like you're taking up the 5G wireless and cloud segment and industrial and semi-cap segment fairly significantly. Could you give us color there, specifically on the 5G and cloud? Is that from both segments or are you still seeing more strength on the cloud side versus 5G?

Mark Mondello, CEO

It's both. As I mentioned earlier, we've been fortunate to have exceptionally talented individuals in our company who possess a deep understanding of the end markets at a sector level. Similar to our efforts in personalized healthcare and electric vehicles, our focus on networking, cloud, and 5G wireless has led us to become heavily integrated into the 5G rollout, resulting in favorable growth. Around the same timeframe as the JJMD deal, our team developed and implemented an asset-light cloud configuration service that has been well received and is performing effectively. At the beginning of the year, we projected our 5G wireless business to be around 5.5 billion, slightly up from just over 5 billion last year, and now we anticipate it will approach 6 billion, with an even split between segments. Regarding our industrial and semi-cap business, it's quite broad. A couple of years ago, our industrial semi-cap business was below 3 billion, and now it is nearing 4 billion. However, I prefer not to break that out further because the contributions span various areas, including semi-cap, solar, light industrial, and heavy industrial, across the entire sector.

Matt Sheerin, Analyst

Okay, great. Thanks for that color. And just as a follow up just regarding the supply constraints that everyone is seeing. Jabil seems to be managing it as well, if not better, than any of your peers. Are you seeing any signs of ease in terms of supply opening up, particularly the legacy semiconductor parts that seem to be hard to get, any signs of relief there?

Mark Mondello, CEO

Let me start with your last part first. I think when it comes to what you'd characterize or think about as legacy semiconductors, it's still challenging when I step back though and I look at the whole business in terms of Jabil. So this isn't a proxy for maybe the market per se. I'm talking about strictly what we use, what we consume, our supply chain across mobility, connected devices, EVs, healthcare, packaging, digital print, retail, the whole deal. I believe that we started talking last fall that we thought with our team, the supply chain issues might start showing some improvement in the springtime of 2022. So that's kind of where we sit today. And I think we're starting to see some relief. I would say the overall supply chain challenges, again, whether it's raw metals availability, and I'm strictly talking about continuity of supply, have gotten moderately better. I would probably take legacy semiconductors and still put that in the bucket of constrained. Although with our relationships, we tend to be managing that quite well as well. I would also, maybe from a relativity standpoint or a contextual standpoint, suggest that the current guide that Mike gave and the $7.25, I think we've done a pretty good job of contemplating all the supply chain issues and events in terms of weaving that into our guide for the balance of the year.

Matt Sheerin, Analyst

Okay, great. Thanks very much.

Mark Mondello, CEO

Thanks.

Operator, Operator

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

Mark Delaney, Analyst

Yes. Good morning. Congratulations on the good results and thanks for taking my questions. I was first hoping to talk about the inventory. The company talked about carrying some additional inventory and also taking some deposits from customers to help manage that. Would you say that the extra inventory you're holding, is some of that strategic buffer inventory that customers are compensating Jabil for to hold some extra stock or is this also partly an incomplete kitting issue?

Mike Dastoor, CFO

I believe it's a combination of factors. We do have some kitting issues that are contributing to the increased inventory. There’s a bit of buffering and some strategic holds involved, and we’ve offset this with inventory deposits. The way we balance our inventory figures means that the deposits significantly help. While I mentioned an inventory level of 86 days, which may seem high, if you exclude the inventory deposits, it drops to around 70 days. Overall, I’m not particularly worried about the inventory situation. We’re experiencing a temporary tightness in the supply chain that’s affecting this. Additionally, there was a timing difference related to our DMS business and the launch of new products, which I anticipate will correct itself in Q3. This gives us confidence in maintaining a free cash flow of over 700 million. So, while there’s a bit of a challenge with inventory at the moment, I’m not concerned about the mid to long term.

Mark Delaney, Analyst

That is helpful, Mike. Thank you. And then my follow up was on the China region and the operational situation there given the rising COVID cases. And you touched on it a bit already, but could you comment more about to what extent any of the Jabil facilities are having to take shutdowns? And if so, do you have an expectation for how long those could last? And then on the related topic, to what extent are other companies that are either suppliers or customers are you seeing any indirect effects from shutdowns in the region on your business? Thank you.

Mark Mondello, CEO

Yes, I believe it's important to acknowledge that this is a risk. We have a strong global presence and have been effectively managing logistics in and out of China. However, when it comes to operations in Mainland China, it remains a concern. I want to emphasize that this risk is significant. Over the past two years, we have managed various quarantines, including dormitory, campus, and city quarantines. At this point, the situation doesn't seem any different. The main risk lies in the strict protocols Jabil enforces on our campuses. I am confident in our management approach, but the larger risk relates to the supply chain, particularly in getting materials and handling logistics. As of now, assuming there are still isolated COVID cases and the shutdowns are not widespread, we have accounted for this in our projections. If the COVID situation in Mainland China were to worsen significantly, it would definitely be a risk to consider. Nevertheless, we have two years of experience under our belts and a strong local team. If conditions remain stable, we are well-positioned to navigate through the end of the fiscal year without issues.

Mark Delaney, Analyst

Thank you.

Mark Mondello, CEO

Thanks, Mark.

Operator, Operator

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

Melissa Fairbanks, Analyst

Great. Thanks, guys. Congrats on a great quarter and guide. I was wondering if you could give a little more detail on expectations for core margin per segment. I think we all saw the press release on stepping up hiring in the healthcare business. Just wondering how that's flowing through margins or if that's not yet expected to impact them?

Mark Mondello, CEO

Sure. One of the slides shared during the call highlights our diversified manufacturing business, which we believe will operate at a core margin of around 5%. Our EMS business is currently running at about 4%. These margins are among the strongest we've achieved over the last 15 years as we have separated the EMS and DMS segments. While we don’t disclose margins for each segment individually, we do provide insight into revenue trends for both categories. We may consider breaking out the margins in the future, but we are not doing that at this time.

Melissa Fairbanks, Analyst

Okay, great. Thanks. And then finally, on inventories, you noted ex-deposits, your inventory days are running around 70 days. Can you give us a comparison what that number was last quarter, or maybe historically what that number has trended toward?

Mark Mondello, CEO

Yes. I would say, all-in-all, whether you look at the gross line or the net line, we're probably 12 to 14 days of additional fluff with overall inventory. And as Mike just commented on, we're not overly concerned about that. The balance sheet is in great shape. And we think in the relative near term that corrects. And again, I think our goal internally is, at a minimum, to take that down by 12, 14 days.

Melissa Fairbanks, Analyst

Okay, great. Thanks. That's it for me.

Operator, Operator

Thank you. Next question is coming from Paul Chung from JPMorgan. Your line is now live.

Paul Chung, Analyst

Hi. Thanks for taking my question. So just on the market share gains you mentioned, is this more from Asian-based players or some of your domestic peers or both, and then scale players versus more fragmented smaller players? And what are some key factors that are kind of closing those deals for you?

Mark Mondello, CEO

It may sound repetitive, but the situation applies universally. I believe the market is quite large, and we have become quite adept at integrating IT solutions and product design. Our performance and execution on the factory floors over the past two years has highlighted the capabilities of our supply chain team in navigating the market. Overall, I would describe this as people viewing Jabil as a reliable option. Additionally, while COVID has brought many challenges, it has prompted companies to re-evaluate their supply chain strategies more thoroughly for the future. This has been a key driver of our conversations regarding market share gains. I wouldn't want to specify whether these gains are coming from Asian, domestic, or European players; it truly encompasses all sectors.

Paul Chung, Analyst

Okay, great. Thanks for that. And then just on the strong free cash flow guide, most of the strength there is from earnings, which is great. So how big of a drag in your view is working cap for the fiscal year? Just want to get a sense for more normalized free cash flow, which hopefully reverts later this calendar year and into kind of next fiscal year. Thanks.

Mike Dastoor, CFO

So Paul, at the beginning of the year, we projected revenues of 31.5 billion. We later raised that estimate to 31.8 billion and now to 32.6 billion. This indicates a significant growth in our revenue figures. Naturally, this leads to a higher level of working capital, but our team has effectively managed it. We are confident in generating 700 million in free cash flow, and we might even exceed that amount. I believe our inventory will begin to normalize, although not entirely by the end of the year; there are still a few days of inventory affecting timing. I anticipate that this will correct itself completely in Q3. Overall, our collections and accounts payable management give me strong assurance in exceeding 700 million in free cash flow.

Paul Chung, Analyst

Thank you.

Operator, Operator

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.

Adam Berry, Investor Relations

Thank you. Thank you for your interest in Jabil. This now concludes our call.

Operator, Operator

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