Jabil Inc. (JBL) Q4 2011 Earnings Report, Transcript and Summary

Good afternoon. My name is Julianne, and I will be your conference operator today. At this time, I would like to welcome everyone to the Jabil Circuit Fourth Quarter and Full Fiscal year 2011 Earnings Conference Call. [Operator Instructions] Thank you. I would now like to turn the conference over to Ms. Beth Walters, Senior Vice President of Communications and Investor Relations. Ms. Walters, please go ahead.

Thanks, Julianne, and thank you, everyone, for joining us. Welcome to our fourth quarter and fiscal year 2011 earnings call. Joining me today are President and CEO, Timothy Main; and Chief Financial Officer, Forbes Alexander. This call is being recorded and will be posted for audio playback on the Jabil website, jabil.com, in the Investors section. Our fourth quarter and fiscal year press release and corresponding webcast with slides are also available on our website. In these slides, you will find the financial information that we covered during this conference call. We ask that you follow our presentation with the slides on the website and beginning with Slide 2 now. Here's our forward-looking statements. During this conference call, we will be making forward-looking statements including those regarding the anticipated outlook for our business, our currently expected first quarter of fiscal 2012 net revenues and earnings results, our long-term outlook for our company and improvements in our operational efficiencies and financial performance. These statements are based on current expectations, forecast 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, 2010, on subsequent reports on Form 10-Q and Form 8-K and our other securities 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. Today's call will begin with our fourth quarter and fiscal year results, some comments and highlights from Forbes Alexander on the results as well as guidance on our first fiscal quarter of 2012. Tim Main will then follow with some macro environment and Jabil-specific comments about our performance, our model and our current outlook. We will then open it up to questions from call attendees. I will now turn the call over to Forbes.

Thank you, Beth, and hello, everyone. I ask you to refer to Slide 3. Net revenue for the fourth quarter is $4.3 billion, an increase of 11% year-over-year. GAAP operating income was $165.6 million or 3.9% of revenue. This compares to $103 million of GAAP operating income and revenues of $3.9 billion or 2.7% for the same period in the prior year. Core operating income excluding the amortization of intangibles and stock-based compensation increased 19% to $187.2 million and represents 4.4% of revenue. This compares with $157 million or 4.1% for the same period in the prior year. On a sequential basis, revenue increased 1% from the fourth quarter. Our core operating income increased 5%. Core diluted earnings per share was $0.62, an increase of 19% over the prior year. And I'll ask you to turn to Slide 4. In fiscal 2011, net revenue was $16.5 billion, an increase of 23%. GAAP operating income was $578.7 million, an increase of 77% and represented 3.5% of revenue. This compares to $327.6 million of GAAP operating income on revenues of $13.4 billion for fiscal 2010 and 2.4% of revenue. Core operating income excluding amortization of intangibles and stock-based compensation increased 46% to $715.2 million and represented 4.3% of revenue for the full fiscal year. This compares to $490.9 million or 3.7% for the same period in the prior year. Core diluted earnings per share was $2.34, an increase of 54% over the prior year. And I'll ask you to turn to Slide 5 for our segment discussion. In the fourth quarter, our Diversified Manufacturing Services segment grew 10% sequentially. On a year-over-year basis, this segment grew 35%. Revenue was approximately $1.7 billion, representing 40% of total company revenue. Core operating income expanded in the quarter to 6.7% of revenue. The Enterprise & Infrastructure segment grew 1% sequentially. On a year-over-year basis, this segment grew 10% for the quarter. Revenue was approximately $1.4 billion representing 32% of total company revenue in the fourth quarter. Core operating income for this segment was 2.6% of revenue. The decline in core operating margin this quarter is primarily attributable to license we were taking to restructure our operations in Italy, specifically severance cost, asset write-offs and other related charges of approximately $8 million. The balance of the decline in operating performance was attributed to the sequential increase in losses in Italy and infrastructure readiness for ongoing wireless program ramps in non-Western European geographies. As we move to fiscal '12, the continued ramp-up of the new programs around the world will continue, diluting the negative impact of operating results in Western Europe. We, therefore, expect margins in this segment to slightly improve over the course of the fiscal year and core operating margin targets between 4% and 4.5% remain intact. As for any future actions, we expect a routine tailoring of our infrastructure will be ongoing and absorbed through operating earnings as we have done in the fourth fiscal quarter. We do not expect any future actions to be material enough to be disruptive to our operations or the expected margins performance for the company overall. Our High Velocity segment decreased 9% sequentially. On a year-over-year basis, this segment decreased 11% for the quarter. Revenue was approximately $1.2 billion, representing 28% of the total company revenue in this quarter. Core operating income for this segment was 3.1% of revenue. The sequential increase in core operating margin, a result of a more favorable mix of revenues and the successful implementation of lean initiatives. Now I'll ask you to turn to Slide 6 for a discussion to our segment performance on a yearly basis. In fiscal year 2011, our Diversified Manufacturing Services segment grew 43%. Revenue was approximately $6 billion representing 36% of total company revenue and core operating income was 6.5% of the revenue for the full year. The Enterprise & Infrastructure segment grew 18% in fiscal 2011. Revenue was approximately $5.2 billion, representing 32% of total company revenue. And core operating income was 3.9% for the full year. And finally, High Velocity segment grew 11%. Revenue was approximately $5.3 billion, again representing 32% of total company revenue and core operating income was 2.4% for the full year. I now ask you to refer to Slide 7 through 10 for the following discussion. We are very pleased with our fiscal 2011 performance. Our focused strategy of driving growth and returns in a differentiated and sustainable manner has resulted in a sustainable portfolio and income mix change to our business. Over the course of the first fiscal quarter of 2010 through the fourth fiscal quarter of 2011, the Diversified Manufacturing Services segment has grown from 29% to 40% of company revenues, but our High Velocity segment has fallen from 40% to 28% of overall revenues. Our Enterprise & Infrastructure segment remained at 32% of overall revenue. Executing for this strategy has also delivered core operating income expansion from 3.4% to 4.4% over the same time frame. In fiscal '11, the resulting mix in revenue contributed to margin expansion from 3.7% to 4.3%. Our investments in the fiscal year were and shall remain focused toward our Diversified Manufacturing Services segment. Approximately 60% of these investments were made in the Diversified Manufacturing Services segment, 11% in Enterprise & Infrastructure and 8% in High Velocity. The balance being IT and infrastructure that support our current and planned future growth. Let's turn to Slide 11 and 12. Our capital returns in fiscal '11 are exceptional and the year-on-year revenue grew 23%. We exit the year with a GAAP return on invested capital of 26%, EBITDA in excess of $1 billion or 6.1% of revenue. Our earnings growth and focused balance sheet management had allowed us to produce very strong cash flows, producing $304 million of operating cash flow in the fourth quarter, $828 million for the full fiscal year resulting in a free cash flow yield of some 40%, exceeding the target we've established at the beginning of the fiscal year. The strong cash flows had also allowed us to return some $260 million to shareholders in stock repurchases and our ongoing dividend payment. We enter fiscal 2012 in a position that's strong. Our balance sheet is positioned to allow strategic flexibility and support continued growth as we continue to position Diversified Manufacturing Services towards 50% of our overall revenue stream. It's also important to note that fiscal '11 performance continues the production of quality earnings amongst our peer group, with Jabil producing positive GAAP earnings 9 years out of 10 years through the end of fiscal '10. Looking ahead in 2012, we expect continued growth. First fiscal 2012 guidance can be found on Slides 14 and 15. We expect the revenue in the first quarter on a year-over-year basis to be up approximately 8%, on a range of $4.3 billion to $4.5 billion. The Diversified Manufacturing Services segment, we expect it to increase 3% sequentially. The Enterprise & Infrastructure segment, we expected to be consistent and our High Velocity segment, we expect it to increase 6% sequentially, representing less seasonality in the past years as a result of continued diversification of our business model. Core operating income is estimated to be in the range of $185 million to $205 million, and the core operating margin in a range of 4.3% to 4.5%. While core earnings per share will be in the range of $0.62 to $0.70 per diluted share based upon a diluted share count of 213 million shares. Based upon the current estimates of production, the tax rate on core operating income, we expect it to be 17% for the quarter and the full fiscal year. We anticipate that late in the first quarter we should complete the acquisition of Telmar Network Technology, continuing our strategy of diversifications and growth in our Diversified Manufacturing Services segment. Our capital expenditures and acquisition of Telmar are estimated to be $225 million in the quarter. The majority of these capital expenditures are associated with investments in Diversified Manufacturing Services and the associated IT infrastructure. At this point, I'd like to hand the call over to Tim Main. Tim?

Thank you, Forbes. 2011 was a remarkable year for us and we're very pleased with the growth and the advancement made on key strategic objectives to diversify our business and to premise our value to customers on highly differentiated services and capabilities. The growth is particularly gratifying given the fact that we operated for 3 quarters of the fiscal year with developed world GDP growth at very low levels. Now some would say to me, that Jabil is a cyclical business, and I think the evidence indicates just the opposite. Please turn to Slide 17. In fact, since 2008 Jabil's compound annual growth rate and EPS places ninth among Fortune 500 companies with over $15 billion in revenue. If you really look at the facts and results, it is a bit stunning, and I have a lot of people asking, "Tim, if it isn't the business cycle, your big customers or the latest products, what is it?" Well, I think it would be an oversimplification to attribute distributed the results solely to mix and our exposure to growth markets. Please turn to Slide 18. In fact, I think the big contributor to our story is our culture of continuous improvement. With some Blitz Kaizen Events, we had 14,000 events this year. We have 3,000 people enrolled in Lean Six Sigma Education programs. We significantly expanded our human development and leadership training resources. We have developed and deployed proprietary global logistics and planning tools around the world, significantly increased the depth of our critical product engineering capability in key areas, and we continue to invest in our IT infrastructure and are one of the few companies in the world that have ever come across -- it's actually operated a company of this size with a single instance of SAP around the world, and that gives us some very key strategic advantages. Now let's take a look at our 3 business areas for a little bit more color. Please turn to Slide 19. In High Velocity, it's really about staying ahead of the game and we do this by having a hyperactive focus on cost, rapid development of new technology, approaches and locations really keeps us lean and moving to the right locations in the world. The business area is continuously providing synergy to high-growth areas like healthcare, which we talked about many times in the past, and it is an asset-light business that generates free cash flow to help repurchase shares and fund expansion and other areas of our business. And margin performance in this area has been good all year and well within our targeted range and actually above our targeted range in most recent quarters. Please turn to Slide 20. In the Enterprise & Infrastructure area, we do operate at the higher end of the product and service complexity. Our customers are continuously challenged with an ever-expanding number of new countries, suppliers, order configurations, services they must provide to their customers and delivering it to different customers all over the world. Our job is to really to provide simplification of this web of complexity, and we do this through engineering intimacy. We -- product developed many, many of our products today that we are shipping in a collaborative way; superb manufacturing of very complex products and low-cost locations around the world; proprietary planning tools that help our customers balance demand and supply, which becomes exceedingly difficult in today's environment. We have more locations. We have scale. We have more capability than our competition and we have the ability to deploy plug and play systems around the world and top order fulfillment capabilities in places like Brazil and Russia. Please turn to Slide 21. At Diversified Manufacturing services, we're really there to make a difference, make a difference to patients, to the environment, to help our customers' products more attractive, more functional and then help make user expense better through aftermarket support. We do this in the Material Technology Group, which has been a big part of our growth story this year, and this group continues to provide synergistic value to targeted markets, particularly healthcare. Aftermarket Services is an area of great opportunity for us and we've recently made an acquisition we hope to close later this quarter, and we expect to see more growth from this group in coming years. Healthcare & Instrumentation is particularly an attractive area for us and we've expanded our ability to help our product, our customers design, develop and deploy their products around the world and we're moving from electronics to non-electronic areas as well. In industrial and Clean Tech, we are an early mover and have some significant advantages in this area. And our business is gaining in breadth, capability and reputation and we look forward to a bright future in this business area for many years to come. Turn to Slide 22, please. So putting it all together, this is what I think our business is about. It isn't about the hot product, the big customer or timing the business cycle. When I look at the landscape, our customers are doing business in a world that is going through very rapid change, the world in which 80% of global GDP growth was generated in developing economies. Where our customers are, what they do and how they do it, there's been a constant state of change and challenge. In managing a business as a customer of Jabil, in a globalizing, urbanizing, resource scarce and socially connected world is a tough task for our customers. What do we do? We just make it easier. Jabil does effort every day to make it easier for our customers to be successful in global markets, making it easier for customers to develop, handmade, deliver and service products around the world. Now we think the demand for this value proposition has been strong and will continue to be strong across more markets for many years to come. That's really what I think the business is about and will conclude my prepared remarks, I'd like to remind everybody that there is in appendix, and you can refer to the appendix for some more detailed information regarding metrics and other information that we typically provide on conference calls. And with that, I'd like to turn it over to the operator for questions.

[Operator Instructions] Your first question is from the line of Lou Miscioscia with Collins Stuart.

Tim, maybe you can just give us a few more thoughts on the macro trends out there in a sense, obviously, you've got a broad base of business and your results obviously are very good and realize that you're outperforming almost all of your customers. But maybe just give us a little bit more read on what they're telling you and maybe also in the Diversified Manufacturing area.

Yes, I'd love to give you some color on that, and I think it's really remarkable how little macroeconomic trends have mattered to the company this year. I think U.S. GDP growth in the March quarter was less than 1 point, in the June quarter, about 1 point. In the September quarter, I can't imagine it being much above 1 point. I don't think European GDP growth has amounted to much all year, and in Japan, that's teetering on the edge of recession. So I think that covers around 60% of the world's economy, and we put up 23% revenue growth in that type of environment. So a remarkable thing to me is how little the macroeconomic environment matter to the company's results over the course of the year. And I think as we move into 2012, I think we -- we're being a little bit conservative in the level of growth that we could put up consecutively after having such a robust 2011. But it's still a year in which we think Diversified Manufacturing Services has the ability to grow at the range, maybe at the low end of the range but certainly within the targeted long-term of growth ranges. And in Enterprise & Infrastructure, we'd expect a similar level of performance. In the High Velocity, we'll see what consumer trends are over the course of the year, and we think it's a good set of conditions right now to be conservative. And it's not all bad if revenue growth slows down from 23% to 10-ish percent. That's not a big deal to the company and give us an opportunity to really drive margin expansion and EPS growth in 2012. So we kind of like the environment, Lou.

Maybe if you could just expand on that. If you did see a slower top line growth, where do you think you could drive earnings?

Well, that continuous improvement culture I think is very important to us. 14,000 Blitz Kaizen Events. I think our Kaizen events were up 44% year-over-year. We're continuously looking to improve our productivity. That has excellent impact in the High Velocity and Enterprise & Infrastructure. We do have as Forbes mentioned a number of new programs ramping in Enterprise & Infrastructure that we think we'll grow our top line, and over the course of 2012 and much of that is a function of market share gains, and so we look forward to that. And then, Diversified Manufacturing Services, I mean, we really have a combination of internal manufacturing that's being externalized. Here are some very valuable services that Jabil provides and access to emerging economies, product development, localizing supply chains, and this is an area of activity that we do see very robust demand from healthcare customers, industrial customers. We think our Clean Tech business is in a very strong position and Materials Technology Group continues to do very well. So overall, I think it's an area that's a combination of driving a lean culture and higher levels of productivity along with specific revenue growth in targeted areas should result in a year in which we can put up another good year.

Your next question is from the line of Amitabh Passi with UBS.

Tim, first question for you. Perhaps you can drill a little more, E&I came in slightly below your expectations from the August quarter. HVS is slightly better and then in DMS, it looks like your Healthcare & Instrumentation had a very strong sequential uptick in Industrial and Clean Tech were down quite a bit. So maybe you can just help us understand some of the dynamics during the quarter and perhaps what you are seeing from the November quarter.

Yes, it's Forbes. I'll take some of this one. In terms of Enterprise & Infrastructure, it was up 1% sequentially, I think, we brought up 3%. So nothing material really going on there when we look at the number of programs that we have, the number of ramps going on. So we really dialed something into, the $10 million to $15 million is pretty tough. So overall, very pleased with the overall performance of our Enterprise & Infrastructure from a growth perspective and as we move into fiscal '12, so nothing really major of note. I think in terms of High Velocity that did perform much better than we have anticipated, the midpoint of our guidance. I think we've guided that down 13% sequentially and actually came in 9% of 10% down sequentially. So I think a little bit better, our demand profile over a number of areas in there as you'll be aware that includes handset activity, our printing products and set-top boxes. But we are standout there but just a little bit better sell-through than we've initially anticipated coming into the quarter. And what was the next part of your question.

I thought your Healthcare & Instrumentation segment was up very strong in the quarter, and I was just trying to figure out, is that strength sustainable? Was it the benefit of maybe or 1 or 2 large programs kicking in? How sustainable is that?

Diversified Manufacturing Services was up 10% sequentially, and we didn't provide a lot of color to each individual area within Diversified.

Okay, I'll take it as a follow-up. And then, just a clarification, Forbes, for you. What was the charge you took in the quarter in the E&I segment?

It's about $8 million.

Your next question it is from the line of Craig Hettenbach with Goldman Sachs.

Tim, in the Aftermarket Services business, can you talk about or just maybe update the strategy there on the heels of the Telmar acquisition, what that really does to you in terms of new markets and then also future opportunities as you go forward to build out your Aftermarket Services business.

Yes, great question. We are very excited about the Aftermarket Services area. It's a great platform for our company and global logistics and providing services through a broader range of customers. It's historically been primarily consumer electronics type of activities and some IT activities. The IT area has been growing rapidly. Telmar acquisition is interesting as it gives us some very high-end engineering and troubleshooting capability along with some capabilities that Aftermarket Services doesn't possess today in terms of service and carriers, and providing higher level of functionality to that service set. So it's a big fragmented, fully-run market, and we're the biggest grower in the market today. We believe we were the best run Aftermarket Services business out there and we intend to cross that advantage into different verticals as well as globally, geographically and with a broader set of our existing customers. So it's an area that we're actually very, very excited about.

Okay. If I can follow up and follow the last question on the medical side. It did look like as a percentage of revenue, in the quarter, it jumped up from 7% to 9%. I know in the past, the company's talked about increased focused in that market and some new hires. So also just looking for an update there in terms of the pipeline of activity that you've seen in the Healthcare & Instrumentation, that will be helpful.

Yes, the Healthcare & Instrumentation is doing very well, and we think over the course of 2012, we'll continue to gain momentum. One of the nice things to about that business area is a very long product life. I think investors typically associate short product lives and very rapid program transitions to our industry and in that particular business area especially product lives they're 7 to 10 years. It often takes 2 to 3 years to bring them to market, very long product development cycles. So we have a very nice pipeline of products that are in production and products that are near production and products that are in development today, and so we have good line of sight to continued growth in that area and we're very bullish on it.

Your next question is from the line of Brian Alexander with Raymond James. Brian G. Alexander - Raymond James & Associates, Inc., Research Division: Tim, you alluded to maybe being at the low end of the 20%-plus growth target in DMS for FY '12, which is understandable given the year that you just had. But how uniform do you think that growth would be within DMS and the subsectors? Do you think one will be a bigger driver then the others?

Not especially. I mean, we had a Telmar acquisition that we're adding that will help Aftermarket Services in the specialized services area. Materials Technology Group continues to grow. I just addressed Healthcare & Instrumentation, it's a very robust pipeline of opportunities and more and more industrial customers and our Clean Tech business continues to be robust. So I think it'll be another year of outstanding growth across the board. Brian G. Alexander - Raymond James & Associates, Inc., Research Division: Great. And then just a follow-up, if I look at the margins, that operating margin implied in your guidance for the November quarter, roughly flat year-over-year. Tim or Forbes, should we think about margins expanding in DMS and High Velocity with margins declining in the Enterprise segment like we just saw this quarter for the reasons that you talked about?

If I go into the first fiscal quarter, I think you should see some margin expansion in the Enterprise & Infrastructure segment. There are several opportunities for some margin expansion within Diversified Manufacturing Services as we bring additional programs to bear that. In terms of High Velocity, its exceptional performance in our fourth fiscal quarter is a result of the mix of business spot on there. But as we look into the first fiscal quarter, we're guiding up 6%. I would expect our margins to come in a little bit and certainly, be above the high end of our long-term targeted range but certainly 2 to 3 points.

Your next question is from the line of Sean Hannan with Needham & Company. Sean K.F. Hannan - Needham & Company, LLC, Research Division: So, Tim, if you can comment a little bit around or just follow-up-on some of the comments that you had earlier, you've obviously observed that there's been a little bit of caution to a degree that we've seen with OEMs and where we think about the macro environment, you're obviously benefiting and reaping the benefits of prior business development now. Can you talk about your strategy today as you approach your business? What are you communicating to customers in terms of the value that you'd incrementally bring to the table in this kind of period of anxiety perhaps? Do you see any changes in the reception you're getting now or the ability to get across the goal line and sign that new business?

Yes, well, customer anxiety counseling service is not something we have in our portfolio. And I think our value proposition is compelling. We talked a little bit about our value proposition for the 3 major business areas and we're getting a very warm reception because we have developed world GDP growth as well as it is. It's even more imperative that European, Japanese and North American customers accelerate their growth and penetration in emerging markets, and that makes global supply chain networks more complicated for them, and product development more complicated for them. And our job is to help them simplify those issues and we do a very good job of that and we're gaining a reputation for that in these key market areas. So we're getting a very warm reception, and I think we're in a period of great opportunity for companies that have very high levels of expertise and can help OEMs across a diverse set of markets, manage the complexity of dealing with the world that's in constant change. And that's something that we will continue to develop and add people and capability to our portfolio and take advantage of the scale that we've gained and the capabilities that we have today. Sean K.F. Hannan - Needham & Company, LLC, Research Division: And then a quick question around your R&D investments and strategy. The overall spend has been down this year versus, say, in the last few. I realize a lot of these is you getting much more efficient with how you're focusing your efforts. But can you help us to understand how to think about your R&D approach as we look forward? And really, how does this reconcile to your approach and when considering that there is an increased focused on higher-design markets such as DMS?

Yes, I think, what's missing is when we actually do spend in product development and we spend depending -- I don't have the latest numbers in front of me, but anywhere from $85 million to $100 million in product development. Most of that is paid for by the customer, and that's the part missing. So it's in revenue, it's in cost of goods sold and it's SG&A, and that has been steadily expanding over the last few years and our level of confidence has dramatically increased in the last few years. We've had a lot of infrastructure in places like enterprise storage, in places like health care, in places like design for manufacturability and value engineering, which is used by virtually all customers in some level. So design is touching almost every single relationship we have in important ways and particularly important in healthcare and in the enterprise storage markets. So I think the part that is missing for investors, frankly, is that our spend in this area is $85 million to $100 million and we have a very, very rapidly increasing engineering headcount and a rapidly improving capability. The customers are paying us for it and that's a really good thing. And what you guys see in terms of R&D is the -- what is specifically categorized as R&D under Generally Accepted Accounting Principles rules and that stuff is we fund on our own, for which we expect no return capitalization from customers. We'll continue to do that at some level because we think that's important for us to stay in front of the product development cycle and keep our expertise advanced. But, man, behind the door, there's a whole lot of activity going on that you can't see.

Your next question is from the line of Amit Daryanani with RBC Capital Markets.

Just have a question around your November quarter guidance, specifically in the High Velocity side. Your largest customer I think has talked about units being up 20%, 25%-plus in their November quarter. It doesn't look like you're factoring that kind of growth for them when you guide High Velocity to be up 6%. Is that accurate or are there sort of offsets to that kind of growth in that segment?

I kind of look at it and gosh, the August quarter was a quarter that we put a great sequential growth, in a period when High Velocity was down 9%, I think sequentially. Again, I think, it's one of those cases where data or variability associated with handset deliveries in the August quarter and the November quarter, respectively, not that big a deal, not that big a deal and gosh, it gets better than that, super. We'll make a little bit more money and where we have it today then that's okay too. And I think we're being -- in this environment, it pays to be a little bit conservative in guidance and I think we are. But we're not making any specific comments around customer deliveries, new products or expectations on volume. I think it's a case where to continue to support the products that that's important to the overall results of the company is misleading.

Fair enough. I used to -- when you look at this 10% to 15% growth potential that you've talked about in the past. I was wondering if you can maybe slice it in a way and help us understand how much of that is really dependent on end market growth that we all seem to be nervous about. Was it competitive wins or organic growth opportunities that you guys may have?

That's a great question, and I'd love to be able come up with a metric that was GDP growth plus because that's really what our growth story has been about. In last quarter's conference call, we indicated that we're 1 of 15 companies that have grown revenue EBITDA 25% on a compound annual growth rate since going public in 1993. So from 1994 through 2010, we're very, very elite group of companies that have been able to sustain that kind of growth. And you can talk all you want about 90-day time windows and what's happening on the margins, you can't grow a 25% for 18 years or 16 years, whatever that is, if you're reliant on macroeconomic growth. You have to be developing new markets and opportunities and through all the freak outs in communications and Asian crises and debt crises and everything else, our business has gone out and made a pretty darn good business in helping customers across the world to manage complexity and showing customers that it's really advisable for them to let us manage making this stuff for them. And when we look at the world and even going forward, that's really what our growth is premised on. So when we really analyze this carefully a few years ago, I think we came up with a metric that's 80% of our growth, was really is a kind of new customers market share gains, lead time organic growth with existing customers, expanding services, and the balance of it was really attributable to what's happening in the secular growth trends of electronics and customers and macroeconomic activity and that kind of thing. So I'm not here to say that we're immune to rapid abrupt contractions in economic activity. That hurts everybody in the world. But in a relatively benign soft-cash type of market, this is a business that can grow on well above the S&P 500 and has for the last 18 years.

Got it. That was helpful. Just a quick one. Do you guys have any customers over 10% of revenues in Q4 and how many were there?

Yes, there were 2.

Your next question is from the line of Wamsi Mohan with Bank of America Merrill Lynch.

Tim, the aggregate company growth rate of, let's say, you ended up at 10% for fiscal '12, would you still expect you could drive the $700 million and cash flow from operations? And are you reevaluating your CapEx assumptions of $450 million given the more uncertain demand environment today?

Just on CapEx, I look forward to answer the question around cash flow in 2012 and what our thoughts are there. From a CapEx standpoint, we'll evaluate that real-time as business conditions change. I think the prospect that we would expect CapEx to be in the same range indicates that we expect the same type of activity out there and that we're not forecasting a significant contraction of activities. So, Forbes?

Yes, I wanted to indicate on the back of Tim's comments there. I very much believe the cash flow from operations was the 700 to 800 number is certainly within our sights. We did a magnificent job over the last 4 quarters in managing our working capital sequentially for the first time in many quarters we saw sequential reduction in inventory. So we're getting our arms around that and making some great progress there. So I certainly, if you could look at our overall cash flow yields this year by 40%. 12 months ago, I provided target of somewhere between 30% to 35% of our EBITDA. I think that's a very valid target for this business model and certainly is in our sights for fiscal '12 also.

Okay, great. You have a very good cash flow quarter here. As a follow-up, could you address where you are with finding businesses to place in your sites in Western Europe and where you are in improving the utilization rates there? It sounded like Italy was a larger drag than expected in the fourth quarter. So how many more quarters do you think this would be a headwind?

Yes, so it was, operationally, this quarter, it was a little bit worse than last quarter. We have talked about creating some actions to streamline or restructure those operations. As we move to the fiscal '12, we'll see reduction in cost base, which will clearly benefit us. In terms of additional revenue loss, we'll continue to work that, and I think we're probably within a quarter or 2 away of adding some additional revenues both in France and Southern Italian operations. So I think you'll see reducing impact as we move into Q2, Q3 and Q4. As we move -- the guidance does contemplate the same types of economic losses in this next coming quarter with the exception of the restructuring charge. So I would say we'll be progressing nicely as we move through Q4 -- fiscal '12.

Okay, great. And then my last one, if I could sneak one in, as well, how much revenue, if any, are you incorporating within your guidance from the Telmar acquisition?

It's really small. So we hope to get this closed early November. So it will be probably at most $10 million to $15 million.

Your next question is from the line of Steve O'Brien with JPMorgan. Steven J O'Brien - JP Morgan Chase & Co, Research Division: Just one point of clarification, I guess, more than anything on the E&I margins. Forbes, I thought you said something about getting those back to 4% to 4.5%. Is that exiting the fiscal year? Or is that on average for the fiscal, on average? Does that mean you'll be sort of above your long-term range from the latter quarters to make up for the -- where the business is at now?

Yes, that was in -- yes, right. The 4% to 4.5% is our long-term target and certainly with the actions that we're taking here and the continuing ramp, that will not be an average for the year. That would be more of a -- I would suggest a Q3, Q4 type number in terms of operation of these particular quarters. So certainly to average 4% to 4.5% is certainly a stretch for the fiscal year. But I would suggest, look as far as the target range Q2 and Q4 fiscal '12. Steven J O'Brien - JP Morgan Chase & Co, Research Division: Great. And on the HVS margin, I thought it sounded like next quarter could also be above the target range but maybe not to the extent the 34.1% [ph] was this quarter. I mean, is there another quarter of favorable mix here? Or is there just, not to make too much of the 2 quarters, but is the business potentially operating here at a higher profitability level than the target range?

We will see how many quarters that we can string together at that level. I think, moving into the November quarter more handset volumes would serve to not be favorable from a mix standpoint that would serve to dilute margins a little bit. So that'll be offset by better utilization to the areas of the business that produce those products and our continued effort on lean initiatives and productivity are really resulting in good cost reductions, so there are offsetting factors that this mix would move against us a little bit in the November quarter but we'll continue to work on processing, and it should be a quarter in which we can operate above the high end of the targeted range. Steven J O'Brien - JP Morgan Chase & Co, Research Division: And maybe one last one if I could. On the industrial and wireless infrastructure outlook, I mean we hear other folks supplying the OEMs and those industries and talking about order cuts and what have you. I guess -- and carrier CapEx and some areas being potentially uncertain going into next year. I mean, what gives you the confidence, it sounds like Jabil has regarding these future programs coming on as expected?

Well, you mentioned 2 different business areas, industrial and then wireless communications. Those are 2 different areas for us. But because the business activity is a little bit different in each of those areas. I think it's a little bit remarkable that people are looking at this like slow macroeconomic growth at recent events. I mean, it's been going on like this going on a year. I mean, March was horrible, June quarter is horrible. September is going to be horrible. There's no macroeconomic tailwind to the business, and so to think that recently people woke up and saw that the U.S. government couldn't come up with the debt refinancing plan and then everybody freaked out and cut out the orders is a little bit laughable. I mean, is it getting a lot worse? I mean, we don't see any precipitous decline in our business, and you see we're absolutely right. I mean, here and there, you see people trimming here and there. And there's more conservatism overall moving into the picture. But man, oh man, this is not recent. This is like a yearlong of no growth from a macro standpoint. And again, I think to really appreciate the value that Jabil brings and what our growth story is about, we really have to think about other things besides the business cycle, big customers and hot products. We really need to think about the value of simplifying complex global supply chain networks and why that's valuable to so many OEMs in so many different markets around the world, and that's what we're trading on.

Your next question is from the line of Shawn Harrison with Longbow Research.

Just wanted to follow up on a prior question. Forbes, you made the comment of some better inventory management. But how do you expect to see inventory dollars trend and even maybe turns but more dollars during the first 2 quarters or the first half of this fiscal year? You're going to see dollars hold steady? Or are you going to see maybe some incremental reduction in inventories?

Yes, we're making progress guiding off price as we're moving into the first half of next year. So I think there's some opportunity to continue this reduction. We're a little bit tricky in terms of guiding to that in the November quarter is how much of that sell-through, in summary, the business approach is repositioned exceeding inventory saw a continued sell-through in the December period. So we see how that works. But certainly, while we're very pleased over the last fiscal quarter we've seen dollar reduction, and I certainly believe there's opportunity we can continue that trend as we move to the first 2 fiscal quarters here.

Was the reduction this quarter more finished good or where was it in inventory?

I mean, we can still look at as that. We actually exited the quarter, our work in processed and finished goods were a couple of points higher than you typically see, but nothing dramatic. So overall, in terms of raw material and the way we plan our capacity.

People tend to look at that as a proxy for what's going on in end markets as the latest indicator and I caution anybody to think about Jabil's inventory level that way. The way I look at it is, look, this a business that's going from having 40% of its business in High Velocity, which this is a very high inventory turnover business. This business has got 40% of the business in Diversified Manufacturing Services, which is extremely complex area. 70% of Jabil's production is built in lot quantities of less than 100. This is not a high volume company. This is a high mix, high complexity company and we've managed to maintain inventory turns at 7 turns, and actually had absolute dollar reduction in our inventory levels in the August quarter. So we're not looking at inventories as a proxy for what's going on and actually our raw material, work in process, finished goods levels has been pretty consistent in all years. As Forbes said, we will continue to work like the devil to make our balance sheet more efficient and drive cash flow by being more efficient the way we manage inventory but you compare Jabil to a high mix business to some of our competitors that are more peer plays in that area, and our inventory turnover is pretty good, at 7 turns.

That's a very fair response. And just a brief follow-up. Share count for the first quarter?

213 million.

Your next question is from the line of Sherri Scribner with Deutsche Bank.

Tim, I was wondering if you'd be willing to give us some thoughts about revenue growth for fiscal '12. Obviously, your long-term target range is 10% to 15%. This fiscal 1Q number looks like at the midpoint, it's up about 8%. Are you guys comfortable with the 10% to 15% revenue growth for fiscal '12?

Yes, we haven't provided the annual guidance, Sherri. I think most people will be fairly cautious in the way they look at 2012. I would look at it this way. If we had an 8% revenue growth here, I think that would be spectacular and it would be well above the S&P growth rate, and I think it would give us an opportunity to drive very significant profitability expansion and cash flow and do great things for shareholders. So I think at the outset of this year, a note of caution is healthy for everybody, but even with that note of caution, I think the expected performance of the company is outstanding relative to the rest of the company that people can go and invest with.

Okay. And then last year, you gave some guidelines around the Green Point business being essentially doubling this year. Would you be willing to give us any detail in your expectations for that segment of the business for fiscal '12?

Yes, we expect it to continue to grow. I hope it doesn't double again, that's really painful for everybody. But it's one true growth and I think we'll have another good year and I'd rather not be more specific than that at this point. I think Diversified Manufacturing Services overall will continue to lead the pack in terms of growth for Jabil.

Okay. And just quickly, did you disclose what percentage of revenue your top 10 customers were?

We did not, but I can tell you it's by 60%.

60%?

6-0, yes.

Your next question is from the line of Jim Suva with Citi.

When we look at your segment guidance, Tim, I think you had mentioned that Diversified should likely be up about 3% quarter-over-quarter. Can you help us understand, if I think your long-term growth rate year-over-year goals were up 20% to 30%, so are you on track where you think you'll hit your long-term sales growth goals in each of the segments? Or is there something going on there? I think I heard you mention you expect Diversified Services to lead and up 3% quarter-over-quarter just doesn't look like it's on track or maybe there's a lot of seasonality that we just need to get educated on with your new segmentations.

Yes, if we grew at 3% every quarter for fiscal '12, when you end up fiscal '12 revenue and look at it year-over-year over fiscal '11, it would actually be about 25%. I think it would be -- I'm sorry?

On a year-over-year basis.

On a year-over-year basis. So yes, I think we're still looking for a good year there. And again, all of the things being equal, we've been relatively cautious in the way we look at the world today. But a 25% year-over-year growth rate at DMS is supported by 3%. And as we look to 2013, we said if we continue to grow at that rate and we'll slow down, but we're opening up new opportunities in Clean Tech and healthcare and specialized services all the time. So I think we'll have ample opportunity in conference calls over the course of 2012 to talk about exciting new things we're doing there.

Okay, that makes a lot of sense. And the other 2 segments, I think your goal, if I remember correctly, for Enterprise & Infrastructure was up 5% to 10% long term and High Velocity up 5% to 10%, if I'm right on those, are you also wanted to kind of meet those goals in this environment?

Those are long-term objectives, and I'd say this High Velocity area is an area where the growth is not the priority. The quality, the cash flow and velocity, that's really the priority there. So if we look at 2012 and said, "Gosh I don't think High Velocity could grow at all." I don't think that would be something that would be that important to us. I think, in Enterprise & Infrastructure, it is a year that we would expect to be in a targeted range of growth of 5% to 10%.

Great. And a question for Forbes. Forbes, you still have what I believe to be more than enough cash to run the business and you had a very successful stock buyback. Your priorities use of cash now that you did return a lot of the stock or cash to shareholders on your stock buyback. Is stock buyback something that you're considering looking at and going to the board again for more approval or more M&A.? It just seems like you have more than enough cash to run the business, which is a great problem to have.

Well, it's a nice problem to have, Jim. Almost -- right through the year, almost around $900 million of cash again, so that's great news. Stock repurchases is one of the many alternatives that we have as you see we're in a great position. First and foremost, it's about reinvesting cash to continue to grow the business. Our strategy that we laid out a year ago was to drive our Diversified Manufacturing Services segmentation to the 50% of the overall revenue stream. We've made great strides this year adding the 5 percentage points and I think we are going to be adding another 5% next year. So that's the first area of thought process. We are committed to our dividend and we continue to review the levels of these dividends with our board on a quarterly basis and we'll be doing that again at our next board meeting. So no specific direction that I can provide you today, but certainly I consider all these various alternatives, that investing in the business, acquisitions, our dividend policy and a stock repurchase program in holistic basis continues to give us flexibility with our capital structure.

Ladies and gentlemen, we have reached the end of our allotted time for question-and-answer session. I'll now turn the floor back over to Ms. Walters for any final comments.

Great. Thank you, operator, and thank you, all, for joining us on the call today. And since our investors have asked us to keep our calls for an hour, so we're going to respect that. And please note that as we are here for the remainder of the weekend and happy to take any follow-up questions or calls that anyone might have. Thank you for joining us.

Thank you all for participating in today's conference call. You may now disconnect.