Jabil Inc. (NYSE:JBL) Q4 2023 Earnings Call Transcript

Jabil Inc. (NYSE:JBL) Q4 2023 Earnings Call Transcript September 28, 2023

Jabil Inc. beats earnings expectations. Reported EPS is $2.45, expectations were $2.31.

Operator: Hello, and welcome to the Jabil Fourth Quarter and Fiscal Year 2023 Earnings Call Webcast and Investor Briefing. [Operator Instructions] A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It’s now my pleasure to turn the call over to Adam Berry, Vice President of Investor Relations. Adam, please go ahead.

Adam Berry: Good morning, and welcome to our call today. My name is Adam Berry. I’m Head of Investor Relations, and this is our Q4 earnings call and the sixth annual investor briefing. Joining me on today’s call are Chief Executive Officer, Kenny Wilson; EVP of Global Business Units, Fred McCoy; and Chief Financial Officer, Mike Dastoor. For the sixth straight year, we’re going to use this session today to accomplish the following: review our fourth quarter and fiscal 2023 results; discuss the trends underway within the end markets we serve; provide an update for our pending transaction to sell the Mobility business to BYD Electronics; refresh our capital allocation policy given the pending deal; offer a thoughtful fiscal ’24 outlook that demonstrates enterprise level growth in some key areas while also remaining sensible and grounded given the realities of the dynamic global macro environment surrounding us today; and finally, we’ll do our very best to walk through the many moving pieces we foresee in the upcoming year as we work to make our business more profitable and more sustainable.

But before we jump into the details, please note that today’s call is being webcast live, and during our prepared remarks, we will be referencing slides. To follow along with these 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 there for audio playback. I’d now like to ask that you follow our presentation with slides on the website beginning with the forward-looking statement. During this 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 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, 2022, 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 fourth quarter results, where the team delivered approximately $8.5 billion in revenue, equal to the midpoint of our guidance range. Core operating income for the quarter came in stronger than expected at $477 million, or 5.6% of revenue. This is up 60 basis points on a year-over-year basis and 80 basis points sequentially, driven by strong execution across both segments.

Net interest expense in the quarter came in better than expected at $71 million, reflecting good progress by the team on inventory and solid working capital management. From a GAAP perspective, operating income was $441 million, and our GAAP diluted earnings per share was $1.15. Core diluted earnings per share was $2.45, a 5% improvement over the prior year, and towards the upper end of our guidance range. Revenue for the DMS segment came in better than expected at $4.4 billion, up marginally compared to the same timeframe from a year ago, driven by strength in our Auto and Healthcare businesses. This strength was completely offset by continued weakness in Connected Devices. Core operating margin for the segment came in at 6.1%, 100 basis points higher than the same quarter from a year ago, given the solid mix and the normal seasonal pattern within our Mobility business.

Revenue for our EMS segment came in at $4 billion, down roughly 13% year-over-year and approximately $200 million below expectations. As expected, during the quarter, we saw a major revenue shift in our cloud business, driven by our previously announced transition of certain components we procure and integrate to a customer-controlled consignment service model. In Q4, the overall mix of consigned components came in higher than expected. For the quarter, core margins for EMS were 5.2%, up 40 basis points year-over-year, reflecting strength in renewables, which is in our industrial portion of our business, and the aforementioned consignment shift. In fiscal ’23, our DMS segment revenue was $18 billion, an increase of 8% year-over-year. In particular, it’s worth highlighting our Automotive and Healthcare businesses, which were up 42% and 12%, respectively.

Core operating margin for the segment came in at 5%, up 10 basis points year-over-year. In EMS, core margins for the year were strong, also coming in at 5%, 70 basis points higher than the prior year on revenue of $16.7 billion. The strength in fiscal ’23 income was driven by growth in renewables within our Industrial and Semi-Cap market as well as the benefit from consignment. Next, I’d like to begin with an update on our cash flow and balance sheet metrics. Beginning with inventory, which saw good improvement sequentially by four days to 80 days. More importantly, net of inventory deposits from our customers, inventory days were also down four days to 58 in Q4. Our fourth quarter cash flows from operations were strong, coming in at $686 million.

Net capital expenditures for the fourth quarter were $28 million and, for the full fiscal year, came in lower than expected at $708 million, mainly due to the timing of CapEx payments that are shifting to Q1 from Q4. As a result of the strong fourth quarter performance in cash flow generation, adjusted free cash flow for the year came in higher than expected at approximately $1 billion. With this, we ended the quarter with cash balances of $1.8 billion and total debt to core EBITDA levels of approximately 1.1 times. For the year, we repurchased 6.7 million shares for $487 million, leaving us with $776 million remaining on our current repurchase authorization as of August 31. Please note that in Q4, we were out of the repurchase market mostly as a result of the pending Mobility deal.

As Mike will share in a few minutes, when our opportunity to buy back reopens, we plan to accelerate repurchases in Q1 fiscal ’24. As I flip to the next slide, looking at the five-year financials, it’s hard to believe that another year is in the books for Jabil. And as I look ahead, I can’t help but think that there’s so much more opportunity ahead for us. In a moment, I’ll hand the call over to Kenny, Fred, and Mike, but before I do, I want to spend a few minutes setting the stage for what you’re going to hear today. Over the next couple minutes, I think you’re going to hear a lot of the same from us. From a financial target perspective, you’re going to hear us talk about winning our unfair share of business and leveraging those wins to drive margin expansion, free cash flow generation, and further shareholder return.

From an end market perspective, you’re going to hear more about the areas of our business which continue to see solid double-digit growth and why we believe we’re one of the best positioned companies to benefit from global trends such as electric and autonomous driving, digital healthcare, AI infrastructure, and the long-term shift to renewable energy. But there’s some new dynamics to share today as well, and as a team, we’re excited to share a few key updates. For starters, you may have noticed that our previously announced transaction to sell our Mobility business to BYD Electronics has moved from the preliminary stages of agreement to a definitive agreement, as announced earlier this week. As we move through our session today, you’ll hear from both Kenny and Mike as they weave the strategic rationale and financial impact into our economic model.

At the same time, we have some updates to provide today on capital allocation framework, given that the Mobility definitive agreement is now in place. And then given that fiscal ’24 will be transitional for Jabil, in terms of closing the Mobility transaction and the subsequent planned accelerated buybacks, Mike will offer a viewpoint of fiscal ’25, including the full impact of both initiatives. So, with that, I’ll now hand it over to Kenny.

Kenny Wilson: Thanks, Adam. Good morning. Thanks for joining us today. As Adam highlighted, fiscal year ’23 was another strong year, and I am pleased with the progress we’ve made relative to our financial objectives. Every day at Jabil, we strive to do the right thing. It is how we are wired. So, it’s heartening when looking at our end-of-year report card to see that we are making progress on all fronts. Most satisfying for me is the resilience of our model, where despite end market choppiness, we posted very impressive year-on-year growth in core margins, up 40 basis points to 5%, earnings up 12%, and EPS up 13%, while also driving in excess of $1 billion in free cash flows. This time of year also sees us complete our annual strategic planning process.

And it is reassuring to note that similar to last year, we reconfirmed our focus on investing in key areas of our business, including electric vehicles and autonomous driving, AI cloud solutions, renewable energy and healthcare. All of this sets a firm foundation for fiscal year ’24 and beyond, and is a testament to our customer-centric model, which is both robust and adaptable to changes in end market. The next slide shows how these characteristics have shaped the last 10 years. And seen in this context, fiscal ’23 was just another step in the journey. If I was looking for one word to summarize activities highlighted, it would be intentionality. We have and will continue to be very intentional as we look to grow and modify the mix of business to include longer lifecycle industries like healthcare with the acquisition of Nypro and our strategic collaboration with JJMD.

In addition, we have also increased investment, both organically and inorganically, in emerging technologies. We view our capabilities as a match for important end markets, like renewable energy, infrastructure, electric vehicles, and cloud data centers. From an enterprise perspective, we began materially redirecting more and more of our free cash flows to buybacks and reinvest in ourselves at very attractive valuations. And finally, just a few weeks back, we unveiled yet another step on our journey as we announced the pending divestiture of our Mobility business to BYD Electronics for $2.2 billion. As we move into fiscal year ’24 and beyond, you can continue to rely on this leadership team to allocate capital with a view to expanding shareholder value.

I’d now like to spend a little time talking about our decision to sell the Mobility business. As you know, over the past five years, I’ve had the privilege both to lead and work alongside some of the most skilled and talented manufacturing engineers, operations leaders and material scientists in the world. And during that time, we were fortunate to build an incredible business while also delivering best-in-class products for one of the world’s greatest brands. I had the front row seat, unlike any other, to truly appreciate and develop a deep understanding of the level of complexity involved in introducing and manufacturing precision mechanics at huge scale for our largest customer. This perspective provides me some credibility to make the claim that our Mobility team is second to none when it comes to innovative automation, tooling design, and manufacturing of these components at scale.

And I also truly believe this talented organization can reach new heights when their capability is matched by a supportive business model focused on significant growth. To all my friends in the Mobility business, I will miss you deeply. Thanks for showing your company at its best, for never flinching from the sometimes seemingly unsurmountable asks, and doing so all with humility, professionalism, and great skill. It has been my honor to be a part of your team. Looking forward, I think your particular skill sets can be leveraged in endless ways. And while it’s bittersweet to say goodbye to some great friends and colleagues, I know this is the best route for our customers, employees, and shareholders alike. In a moment, I will turn the call over to Fred to go deeper into our end markets, but before that, I wanted to reaffirm what you can expect from me as CEO.

I will work tirelessly on your behalf to ensure that we are in the correct end markets and geographies with the correct capabilities to serve our customers. I will continue to ensure that our capital allocation is shareholder friendly, while appropriately funding our growth. And all of this will be underpinned by an unwavering passion and commitment to preserve, protect and grow our unique culture, which is the foundation of everything that is great about our company. Thank you for joining us today and for your interest in Jabil. I will now turn the call over to Fred.

Fred McCoy: Thanks, Kenny. Good morning, everyone. As you’ve heard from Adam and Kenny, there’s a lot going on at Jabil at the moment and quite a lot to be excited about. It’s my privilege to join the call today and, over the next few minutes, to walk you through the demand dynamics inside our diversified markets and how we see each shaping up for the coming year. As we move into FY ’24, we continue to expect growth in our business to be headlined by end markets that are benefiting from strong multi-year tailwinds, specifically renewable energy infrastructure, electric vehicles, AI cloud data centers, and healthcare. Let’s begin with what’s going on in our Industrial and Semi-Cap end market on the next slide. In Industrial, we’re experiencing robust growth in clean and smart energy infrastructure, as governments globally implement legislation such as the Inflation Reduction Act in the United States to increase investment in new projects.

As a reminder, we play across the entire energy value chain from energy generation, power conversion, transmission, storage, and metering, and to the management of power inside homes and buildings. These projects have multi-year investment timelines, independent of underlying short-term economic growth forecasts. So, we feel comfortable with the visibility we have in this space given these elongated infrastructure build-outs. As an example, a relatively new market that we’re particularly excited about is the energy storage systems market, from grid level to inside the home and in support of rapid EV charging. On the back of several recent wins in the U.S. and Europe, we expect this space to drive solid growth in the coming years, leveraging our investments in battery module integration.

We are well positioned to support growth in the renewable energy infrastructure space due to a unique combination of power engineering expertise, in-region manufacturing, and supply chain capabilities. As a result, we expect revenue for our industrial business to be up more than 20% in FY ’24. Offsetting this growth slightly is our Semi-Cap business, as we anticipate market demand to remain muted for most of our fiscal year. As a reminder, our Semi-Cap business spans both front-end, with gear that turns wafer into chips, to the back-end with gear that inspects and tests the wafer or resulting chips. Our strategy in this end market has been very thoughtful due to the high cyclicality of the market, and we’ve been very focused around how we’ve invested in this business, expecting demand to remain muted in FY ’24 while preparing the capabilities and regional footprint for us to be well positioned to grow when the market moves higher as end market demand rebounds.

Within our Automotive and Transport business, we continue to expect growth to be driven by the global transition to electric vehicles. For FY ’24, we expect another year of 20%-plus revenue growth, despite what is a choppy overall global demand environment. The global shift to EVs continues to accelerate, and we expect EVs to represent a larger share of the global auto market in FY ’24, regardless of near-term global growth dynamics. In this space, we support an increasingly diverse set of the world’s leading automotive OEMs as they launch new electric vehicle platforms across multiple geographies. Our focus areas in the EV market we refer to as ACES, or ADAS and autonomous, connectivity, electrification, and software-defined vehicle architecture.

In the EV market, we support products such as compute and control modules, power conversion, battery management, optical camera modules, LiDAR, and other sensors, as well as charging solutions. The path to mass adoption of electric vehicles globally is exceedingly complex, and there are very few companies that are as well positioned as Jabil to support customers’ multiple complex program ramps on multiple continents with industry-leading supply chain, design and manufacturing capabilities. Moving to cloud. Our cloud solutions continue to resonate with customers of all sizes, from large hyperscalers to Tier 2 cloud providers, such as technology companies and leading financial firms. Today, cloud represents a relatively small portion of overall global IT spend, but we expect secular growth in this area to accelerate, including the related data center infrastructure, especially with the proliferation of AI and ML.

Next-generation clouds, and especially AI cloud data centers, present unique challenges to customers. AI workloads, which are powered by extremely powerful GPUs that consume significantly more energy and drive increased data generation. This creates three challenges: insufficient power supply on the grid to support expanded data center needs; heat generation that surpasses the capabilities of air-cooled data centers; and enhanced data interconnections between racks to support increased data inside the data center. Our design-to-dust capabilities continue to resonate with customers, and we are investing in the areas of data center infrastructure services, liquid cooling, and silicon photonics to help our customers solve the above challenges.

Jabil is extremely well positioned to support customers as they incorporate innovative technologies into their data centers. And with the asset-light nature of the business, we have maximum flexibility to adapt and support customer needs around the world. We’re already seeing success in this area. Jabil was recently awarded and began production of our largest cloud customers’ artificial intelligence rack configurations that are GPU dense, which are consigned. Because these components are among those consigned, we will see year-over-year headwinds to revenue, especially in the first half of the year. In spite of the revenue decline, the underlying business and associated unit volumes, however, are expected to grow by more than 20% in FY ’24.

In Healthcare, we expect another robust growth year with revenue up 9% year-on-year. In the healthcare space, the range of products we design and manufacture lean into digital healthcare trends and include: highly complex diagnostic equipment and related consumables; orthopedics, including 3D printed implantables; precision health and medical devices, like minimally invasive devices; and pharma solutions, including smart injection delivery devices for diabetes and obesity drugs. Jabil’s credibility in the healthcare space as the largest EMS provider in the space positions us well to take advantage of the outsourcing of manufacturing trends. In the coming years, we expect OEMs to continue to accelerate this outsourcing trend regardless of global macro growth.

A recession-resistant end market with long product lifecycles and accretive margins and stable cash flows is why healthcare continues to be such a critical component of our diversified portfolio. Within Digital Print and Retail, we’re seeing slower demand in legacy print and point of sale markets. This is being offset by growth in warehouse and retail automation markets, as we have a number of key wins that will be ramping in the back half of the fiscal year. These wins leverage unique capabilities in 3D printing of production components, robotics, engineering software and integration, and complex manufacturing automation. Our recent success shows we are well positioned in these end markets to help our customers bring next-generation automation technologies to market.

Within our Networking and Storage end markets, we continue our ongoing efforts to optimize our portfolio as we prioritize margins and cash flows. We also expect overall market demand to be muted this year. Longer term, however, we anticipate growth coming from new programs in development for advanced optical networking, for high-performance data center interconnect that will support growth in cloud and AI data center applications. And finally within our Connected Devices business, demand remain soft, reflective of weakness in consumer goods spending. We expect another year of market… [Technical Difficulty]

Mike Dastoor: [Technical Difficulty] …and set of capabilities to deliver for our customers. With that, let’s turn to the next slide. We heard Fred take us through each of our end markets and how we plan to optimize this portfolio even further. We continue to benefit from multiple long-term secular growth end markets, such as electric vehicles, healthcare, renewables, and AI-driven cloud data centers. In fact, for FY ’24, we expect these four end markets to make up nearly 70% of our FY ’24 revenue mix, excluding the revenue associated with the Mobility sale. Upon closing the Mobility transaction, we no longer anticipate having any customer that represents 10% or more of revenue. The long-term viability of these end markets continues to give me a high level of confidence as we navigate a range of economic scenarios while expanding margins and free cash flows.

Next slide. FY ’24 is a pivotal year in our journey. After considering a range of scenarios with differing outcomes associated with the timing of the Mobility transaction close, we thought it might be helpful to provide a time-based range for FY ’24 results including our Mobility business until the transaction close date and highlight the FY ’25 outlook excluding Mobility and after considering the full impact of accelerated share repurchases. But before I do that, I’d like to walk you through some assumptions we have used, most of which we have already discussed on this call. For FY ’24, we assume economic conditions remain challenged for the consumer, which we have reflected in our consumer-related end market guidance. In the coming year, we continue to optimize our end market portfolio in Networking and Storage.

As Fred mentioned earlier, we began production of our largest cloud customers’ artificial intelligence rack configurations. These racks are GPU dense and are among the components that have transitioned to a customer control consignment service model, which has effectively doubled the consignment percentage from a year ago. While volumes are expected to grow by more than 20%, we expect the shift to result in lower revenue as compared to last year of approximately $500 million in Q1 and approximately $200 million in Q2. Within our Mobility business in Q1, we expect the change in work content associated with new products to impact year-over-year revenue growth by approximately $300 million to $400 million. And finally, we anticipate the Mobility transaction to close sometime during Q2 of FY ’24.

The exact date of the close will drive where we land on the time-based range. With that, let’s turn to the next slide for our first quarter guidance. For Q1, we expect total company revenue to be in the range of $8.4 billion to $9 billion. At the midpoint, this anticipates DMS and EMS revenue to be $5.1 billion and $3.6 billion, respectively. Core operating income is estimated to be in the range of $474 million to $534 million. GAAP operating income is expected to be in the range of $423 million to $483 million. Core diluted earnings per share is estimated to be in the range of $2.40 to $2.80. This includes a benefit of approximately $0.25 associated with accounting impacts of assets held for sale. GAAP diluted earnings per share is expected to be in the range of $2.02 to $2.42.

Net interest expense in the first quarter is estimated to be $73 million. Moving on to full year guidance, beginning on the next slide. For FY ’24, we expect revenue at an enterprise level to be in the range of $33 billion to $34 billion. As I mentioned a moment ago, we anticipate closing the transaction during Q2 of our fiscal year. Therefore, our FY ’24 guidance range reflects a range of potential outcomes. I would caution against reverting to the midpoint of these ranges as they are time-based ranges and will be highly dependent on actual transaction close date. Importantly, for FY ’24, we expect core operating margins to improve by 30 basis points to 50 basis points year-on-year, mainly driven by our improved mix of business. Our investments in IT and factory automation will also drive improved optimization across our footprint and are anticipated to lead to higher margins in the future.

Moving to our thoughts around CapEx for FY ’24. In the coming year, we expect net capital expenditures to be in the range of 2.2% to 2.5% of net revenue. This is higher than the 2% in FY ’23 due mainly to timing of CapEx investments rolling into the first quarter of FY ’24. Upon closing the Mobility transaction, longer term, we now anticipate our CapEx to be lower as a percentage of revenue in the range of 2% to 2.3%. Our CapEx investments this year are expected to include a combination of maintenance and strategic investments for future growth and efficiency gains. We plan to continue to invest in targeted areas of our business with the bulk of our strategic growth CapEx aimed at the automotive EV space along with healthcare and renewable energy end markets.

Moving on to cash flow generation. We closed out FY ’23 with strong free cash flows north of $1 billion. We expect to continue generating strong cash flows in FY ’24 with adjusted free cash flow of more than $1 billion. With that, let’s now turn to our capital structure on the next slide. We have a solid and flexible debt and liquidity profile with current maturities, appropriately staggered at an attractive interest rates. We ended FY ’23 with committed capacity under our global credit facilities of $3.8 billion. With this available capacity and our year-end cash balance, we had access to more than $5.6 billion of available liquidity, which we believe affords us ample flexibility. We also remain fully committed to maintaining our investment-grade credit profile.

In fiscal ’24 and beyond, we expect to generate significant free cash flow. Given this dynamic, along with expected net proceeds from the Mobility business sale, I believe it’s an appropriate time to reiterate our capital allocation priorities and at a high level how we plan to deploy our capital over the next two years. Please turn to the next slide. This morning, included in our earnings filing, we announced that our Board of Directors expanded our current share repurchase authorization to $2.5 billion. We expect to begin executing on this upsized authorization immediately. You heard Adam say that we were unable to complete our Q4 share repurchases due to restrictions around the Mobility transaction. We plan to launch a $500 million accelerated share repurchase transaction in October prior to the close of our Mobility transaction.

Post-closing of the Mobility transaction, we intend to execute a series of additional accelerated buybacks throughout FY ’24 and FY ’25 with the intent of optimizing share repurchases and interest expense, thereby maximizing the EPS impact. Moving forward, we are comfortable with our ability to generate strong cash flows and will remain balanced and thoughtful in how we allocate our capital. We believe this capital allocation framework will allow us to continue to grow our business and create value for shareholders. As a reminder, we have already reduced our outstanding shares from 203 million in 2013 to 131 million at the end of FY ’23, a 35% reduction over this time period. Over the past 10 years, we’ve brought back our shares at an average price of $32.71 a share.

Next, let’s look at our FY ’24 guidance. For FY ’24, we expect the momentum underway across our business to continue, even in a subdued economic environment. Today, our business serves a diverse blend of end markets in areas that provide confidence in future earnings and cash flows. We have deep domain expertise complemented by investments being made in capabilities, all of which gives us confidence in our ability to deliver 30 to 50 basis points of core margin expansion in FY ’24 along with core EPS in the range of $9.30 to $9.70 and more than $1 billion in free cash flow. And importantly, our balanced capital allocation framework approaches the line and focused on driving long-term value creation to shareholders. As we transition to our final slide, I thought it made sense to provide you with a view of FY ’25 excluding our Mobility business, but including the impact of our accelerated share repurchases post-closing.

We believe we’re on the path to deliver core operating margins at or above 5.6% in FY ’25 and deliver more than $10.65 in core EPS. To deliver this, we need to only grow our revenues by a conservative 3% while continuing to execute a series of accelerated share repurchases. 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 that are undergoing multi-year secular growth, all of which gives me confidence as we march towards 6% core operating margins in the future. Thank you for your time today and for joining us this morning.

I’ll now turn the call over to Adam.

Adam Berry: Thanks, Mike. As we talked about at the outset of the call, there’s a lot to be excited about here at Jabil. And we’ve given you a forecast for fiscal ’24, which we believe will be a bit transitional, and fiscal ’25, which we believe will be a bit more normalized and will include the full impact of the share repurchases from both our previous program as well as the portion from the Mobility deal. There’s a lot to be excited about here at Jabil, and we’re ready to get into your Q&A. Operator?

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Q&A Session

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

Ruplu Bhattacharya: Hi. Thanks for taking my questions, and congrats on the strong results and the very strong guidance. In fact, your margin guidance is significantly higher than we had expected. You’re guiding for 60 basis points of improvement over two years and you’ve also talked about 6% operating margin. So, can you help us dive a little bit into that? I mean, how much of this margin improvement is coming from mixed shift within the portfolio? How much would you say is like-for-like pricing improvement? I mean, I would think that, by fiscal ’25, you would have some recovery in Semi-Cap, maybe there is less inflation passed through and maybe you are taking some cost actions. So, any color you can give in terms of what are the different drivers for such a strong margin improvement?

Kenny Wilson: Hey, Ruplu. Good morning, and thank you for the question. I mentioned in my prepared remarks that we’re really intentional. We just came out of our annual review of our strategic planning, and I think you’ll see in Mike’s comments also that we’re viewing post the Mobility divestiture that 70% directly of our business is going to be in the EVs, AI clouds, renewables and healthcare. So, if you look at that, that’s all areas of our business that we believe are accretive from a margin perspective. And then, if you just roll forward what we expect our growth to be in those areas, it really is a big chunk of that. Also, obviously, as you’d expect as the Mobility business moves out of the company, we’re looking at right-sizing our footprint and just aligning with the new normal for our business.

So it really is part of what we’ve been planning to do. We’ve been very intentional on it. And then, it really is just a function of as business with higher margin, grows and becomes a bigger part of our portfolio, that’s where we see we get to from a margin perspective. It’s not a function of us going back and trying to renegotiate higher prices with our customers. It really is a function of us adding more value in key end markets, and that’s where we end up. So, we — my other comment here would be, as you know, we are generally quite conservative. So, we wouldn’t be talking to you about that if we didn’t think there was a high degree of likelihood that we would achieve that.

Ruplu Bhattacharya: Okay, thanks for all the details there, Kenny. If I can ask you on automotive, I mean, you’ve had very strong growth over the last couple of years. I mean, this past year, you grew 40%-plus, and now you’re guiding another year of 20%-plus. I mean, the business now is sizable, right? It’s like $4.5 billion. So, I mean, do you think that this level of growth can sustain? And what drives that? Is it — are you increasing the content per vehicle, or is it that you’re going to more OEMs than before? Just if you can just expand on how you’re thinking about what drives that growth? And are you concerned about the competition in this space as more companies look to try and gain share in different aspects of automotive?

Kenny Wilson: Yeah, let me talk to that also. So, I think I said previously that the automotive business is hard and that being hard is good for us, and also you need to have a global footprint with consistent standard processes and capabilities and be able to launch products simultaneously in different geographies at the same time. There’s not that many companies that can do that. And so that certainly helps us. We’ve been on a journey in the automotive space for quite some time. Chad Morley and his team have been driving that. We identified pretty early that electrification was going to be a huge trend and so we doubled down on that. And, obviously, as you listened to Fred talking about ACES, we’re looking at software-defined also now.

So, we’ve been thoughtfully focused on adding more of the key logos to our portfolio. And what we see is, as we add more logos or more companies that were involved in more and more programs — and I think Mike has talked previously about how the business is like seven-year lifecycles, you’ve introduced them at different rates. So, what we see is going forward that the products that we’re incubating now are going to be revenue and margin accretive in the next two or three, four, five years. So, we’re feeling quite confident about our growth. Certainly, 20%, we think is probably reasonable. From a competition perspective, we compete globally with really, really good companies. Competition makes us better. So, we are well aware and we’re pretty paranoid about our capability and our competitors.

So, I would say that we don’t have any real surprises with our competitors in terms of their capability relative to ours. And we’re pretty confident that what we could offer being a U.S. domicile but with wonderful capabilities in Asia, Europe, and North America, we think that that model is a winner for our customers and for Jabil. So, we’re feeling quite confident about our automotive growth in the short, medium, and long term.

Ruplu Bhattacharya: Okay, thanks for all the details. I’m going to try and sneak one more quick one in. I mean, you’re guiding for strong growth in new areas that I haven’t heard of before, like the energy storage side is now much stronger for you and the data center side. So, do you think you have enough footprint to support this growth over the next few years? And when I look at your CapEx guidance, it’s still in that normal range of 2.2% to 2.5%. So, I mean, do you think that is enough CapEx to support this new growth? So, just your thoughts on the footprint and CapEx and areas of investment? Thank you so much again. Congrats on the quarter and the day.

Fred McCoy: Hey, Ruplu, this is Fred McCoy. I’ll take that for you. Yeah, we’ve announced some expansions in previous calls. We’ve expanded our footprint both in North America and Europe. So, we feel really confident and comfortable in supporting the regional needs for those markets that you cite. We’ve seen some movement, as I mentioned, with some of the legislation in Europe and the U.S. driving specific regional requirements, and we think we’re well positioned to support those energy storage and energy conversion programs in those regions. And all that’s within our CapEx that we guided in the call. That’s just part of our normal course of business in adjusting our capacity to meet customer needs.