Jabil Inc. (JBL) Q4 2013 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to Jabil's Fourth Quarter and Full Fiscal Year 2013 Earnings Call. [Operator Instructions] Thank you. I would now like to turn today's conference over to Beth Walters, Senior Vice President of Communications and Investor Relations. Please go ahead.

Thank you very much. Welcome to our fourth quarter and fiscal year 2013 Earnings Call. Joining me today are CEO, Mark Mondello; 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, slides and corresponding webcast links are also available on our website. In these materials, you will find the financial information that we cover during this conference call. We ask that you follow our presentation with the slides on the website, beginning with Slide 2, our forward-looking statement. 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 2014 net revenue and earnings results, the financial performance of the company and our long-term outlook for the company. These statements are based on current expectations, forecasts and assumptions involving risks and uncertainties that could cause actual results and outcomes 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, 2012, 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 fiscal quarter and fiscal year results and guidance on our first fiscal quarter of 2014 from Forbes Alexander. Mark has also prepared comments on our performance and his outlook for the business. We will then open it up to questions from call attendees. I'll now turn the call over to Forbes.

Thank you, Beth. Good afternoon. Please refer to Slide 3 for a review of the quarter. Net revenue for the fourth quarter was $4.8 billion, an increase of 11% year-over-year. GAAP operating income was $88.4 million or 1.8% of revenue. This compares to $144.3 million of GAAP operating income on revenues of $4.3 billion or 3.3% for the same period in the prior year. Diluted earnings per share were $0.61 during the quarter. GAAP earnings during the quarter were impacted by restructuring charges of $61 million as we discussed last quarter and approximately $104 million benefit due to a onetime tax benefit associated with our acquisition of Nypro. Core operating income, excluding amortization of intangibles, stock-based compensation, restructuring, impairment charges, acquisition cost and purchase accounting adjustments, increased 4% year-over-year to $181 million and represents 3.8% of revenue. This compares to $175 million or 4% for the same period in the prior year. Core diluted earnings per share was $0.56, an increase of 5% over the prior year. Now I'll ask you to turn to Slide 4. The fiscal 2013 net revenue was $18.3 billion, an increase of 7% year-over-year. GAAP operating income decreased 18% to $511 million, representing 2.8% of revenue. This compares to $622 million GAAP operating income on revenues of $17.2 billion and 3.6% of revenue in fiscal 2012. Diluted earnings per share was $1.79. Core operating income, excluding amortization of intangibles, stock-based compensation, restructuring, impairment charges, acquisition cost and purchase price accounting adjustments, decreased 2.1% to $721 million and represents 3.9% of revenue. This compares to $736 million or 4.3% for the same period in the prior year. Core diluted earnings per share for the year was $2.26. Now I'll ask you to turn to Slide 5, where I'll discuss our fourth quarter segments. In the fourth quarter, our Diversified Manufacturing Services segment grew 11% on a year-over-year basis, driven by strength in Specialized Services as well as the inclusion of 2 months of Nypro revenue. Revenue for the segment was approximately $2.1 billion, representing 44% of total company revenue. Core operating income was 4.9% of revenue. Operating performance in the quarter was impacted by cost overruns associated with ramping programs during the quarter. The Enterprise & Infrastructure segment increased 3% on a year-over-year basis. Revenue was approximately $1.4 billion and represented 29% of total company revenue in the quarter. Core operating income for the segment was 3.3% of revenue, an improvement of 100 basis points sequentially. We're pleased with the operating performance in the quarter. The benefits of lean activity, efficiency and effectiveness of our business model are bearing fruit. We're well positioned to see this segment perform at or above 3% through fiscal 2014. High Velocity segment increased 21% on a year-over-year basis, driven by strength in handset volumes. Revenue was $1.3 billion, representing 27% of total company revenue in the quarter. Core operating income for this segment was 2.5% of revenue, a decrease of 90 basis points on a sequential basis as a result of higher levels of handset revenues than anticipated. I'll ask you to refer to Slide 6, where I'll discuss our segments on a yearly basis. In fiscal 2013, our Diversified Manufacturing Services segment grew 9%. Revenue was approximately $8.2 billion, representing 45% of total company revenue. Core operating income was 5.4% for the year. Enterprise & Infrastructure segment also increased 9% in fiscal 2013. Revenue was approximately $5.5 billion, representing 30% of total company revenue. Core operating income was 2.7% for the full year. Our High Velocity segment remained relatively consistent to last year. Revenue was approximately $4.6 billion, representing 25% of total company revenue. Our core operating income was 2.9% for the full year. For the fiscal year, we had 2 10% customers: Apple with 19%; and Blackberry, 12%. I'll now ask you to refer to Slide 7 where I'll review our cash and return metrics. We ended the quarter with cash balances of $1 billion. Cash flow from operations in the quarter was approximately $404 million. Our core EBITDA for the fiscal year was approximately $1.1 billion, representing 6.1% of revenue, while our core return on invested capital was 21%. We're extremely pleased with our operating cash flow generation during the year, which totaled $1.2 billion. Our net capital expenditures during the year -- excuse me, during the quarter were approximately $280 million and $720 million for the full fiscal year, in line with previous expectations. For the year, we repurchased approximately 7.3 million shares, totaling $129 million and paid dividends of $67 million. Please now turn to Slide 8. On our last earnings call, we detailed plans to reduce the level of structural costs within the company. And today, I'd like to provide you an update on our progress. In fiscal 2013, we incurred approximately $89 million in charges, as we expected. In fiscal year 2014, we anticipate restructuring charges, as part of this plan, to be in the range of $70 million to $90 million and the balance in 2015. The expectation remains that the cash portion of this restructuring activity is estimated to be $140 million, and the majority of this cash shall be disbursed during the course of fiscal 2014. As a reminder, these actions intend to realign our manufacturing capacity and cost base to appropriately size our manufacturing footprint with market conditions and our customers' geographic requirements. Such realignment of capacity is estimated to provide a range of savings of $30 million to $40 million in fiscal 2014 and an estimated $65 million in fiscal 2015, based upon our current estimates of timings of such actions. As a result of the abrupt revenue declines we're experiencing, we're currently in process of working through plans to rightsize our organization. Our current best estimate is that we shall incur charges in the range of $35 million to $85 million during the course of fiscal 2014. Now I'll ask you to refer to Slides 10 and 11, where I'll discuss our forward-looking guidance for the first quarter of 2014. We expect revenue in the first quarter on a year-over-year basis to decline approximately 3% to within the range of $4.35 billion to $4.65 billion. Core operating income is estimated to be in the range of $165 million to $195 million, and core operating margin in the range of 3.8% to 4.2%. Our core earnings per share will be in the range of $0.50 to $0.60 per diluted share, and GAAP earnings per share are expected to be in the range of $0.25 to $0.35 per diluted share. This based upon a diluted share count of 209 million shares. Based upon the current estimates of production, our tax rate on core operating income is expected to be 22% for the quarter and the full year. Turning to our segments and the year-on-year performance, our Diversified Manufacturing Services segment is expected to increase by 7%. Enterprise & Infrastructure segment is expected to be consistent on a year-over-year basis. And finally, our High Velocity segment is expected to decline 25% on a year-over-year basis or $500 million sequentially. This decline is associated with our handset customers in this segment. I'd anticipate, based on current estimates of cash flows from operations in fiscal 2014 to be $1 billion. Our capital expenditures in the fiscal year are expected to moderate and be in the range of $250 million to $350 million. I'd now like to hand the call over to Mark Mondello.

Thanks, Forbes. Good afternoon, everyone. I appreciate you taking time to join our call today. I'd like to start by thanking all of our people here at Jabil. I'm proud to work with the team that is obsessed with taking great care of our customers while working so hard to deliver for our shareholders. As I reflect on the past year, there are plenty of challenges, but these challenges were balanced with a few areas of exceptional performance. During fiscal year '13, our team delivered record revenues of $18.3 billion, generated more than $1 billion in operational cash flows, and achieved a core return on invested capital of 21%, approximately 10 percentage points above our weighted average cost of capital. I'll highlight these accomplishments for 2 reasons. One, I appreciate the effort and hard work required by our team to deliver these results. Two, growth, return on invested capital and cash flows are areas of focus for management. We carry a strong belief that these specific drivers, combined with unwavering discipline around margins, will provide long-term value for our shareholders. Another important accomplishment during the fiscal year was our Net Promoter Scores. Net Promoter Scores are a reliable, straightforward metric embedded in our business, which accurately gauges the health of our customer relationships. During the year, our Net Promoter Scores improved across the entire company. This is great news. My expectation is that we will see this trend continue throughout FY '14. I'm also quite satisfied with our deployment of capital during the fiscal year. We returned roughly $200 million to shareholders through dividends and share buybacks. In addition, we continue to invest capital back into the business, both organically and acquisitively. When I consider organic capital allocations, the one change I would've made if I could hit the rewind button is the timing of our investment in Chengdu, China. We were premature in expanding our production square footage in this location. With that said, Chengdu remains a strategic site for Jabil and will come online in mid to late fiscal year '14. As per deploying capital acquisitively, I could not be happier with our acquisition of Nypro. The Nypro team officially joined Jabil on July 1. As we talked about before, we have a tremendous platform for expansion in areas of health care and consumer packaging, as well as expanding mechanics capability for our High Velocity customers. Nypro not only advances our capability but offers clear access to end markets, which offers stable, long-term earnings potential. Now I'd like to address our challenges. During prior calls, I stated that FY '13 was a difficult year from an earnings perspective. My wish is that we would've delivered better earnings for our shareholders during the fiscal year. During the year, the macro economy offered a recovery, but the recovery was weak and un-fulfilling. In addition, we could have done a better job with execution in certain pockets of our business. We will push ourselves harder and continue to drive improvement as we press forward into the new fiscal year. At this time, I ask that you please reference Slide 13 in the formal presentation. During our June call, I shared an illustrated path to $2.77 a share in core EPS for FY '14. We took what we thought at the time was a conservative approach as we modeled the fiscal year. Our model was based on market conditions, shift in market share in the handset space and the overall landscape at that point in time. The result was a confident management team, confident that we would deliver the $2.77 a share in core EPS. Unfortunately, as we sit today, we'll not deliver the $2.77 a share. We are faced with a strong possibility of disengaging with BlackBerry. BlackBerry is our second largest customer overall and our largest customer within our High Velocity sector. Our team has worked diligently over the past few days to comprehend the recently announced changes. Detailed plans and discussions are underway with our customer. Timelines are fluid, but directionally, we have a path, a path that we believe is prudent and in the best interest of our shareholders, a path that also supports the needs of BlackBerry. We plan to take a restructuring charge, move swiftly and decisively and mitigate the impact to FY '14 as best we can. Our best estimate of the impact resulting from this decision will be $0.28 to $0.34 of core EPS. This results in the range of $2.36 to $2.60 for core earnings per share or a midpoint of $2.48 a share. I'm disappointed. I truly believe we would've delivered $2.77 a share in FY '14 as nothing else materially changed in our business from 90 days ago. Taking a decision to part ways with a customer is never easy and comes with varying degrees of tactical difficulty. BlackBerry has Jabil's full support during this transition. We will do whatever we can to help our customer and meet their needs, all while protecting the interest of our shareholders. BlackBerry has been a great partner over the past 6 to 7 years, and we believe that they will offer their typical, high-integrity cooperation as we navigate this probable disengagement in the coming months. Although this news is not good, there are few positives worth mentioning. We have developed some outstanding capabilities from this relationship. I believe we will generate roughly $1 billion in operational cash flows in FY '14. Our free cash flows in FY '14 will be strong, which has us looking at increasing our share buyback during the fiscal year. We have a very real opportunity to grow our core earnings per share by 10% year-on-year. I also anticipate record core operating profit for FY '14 in terms of absolute dollars. The core foundation of our company remains solid. I'm appropriately cautious in offering these comments, based on variables outside of our control. Forbes and I will narrow the range around core EPS for FY '14 as we progress through the fiscal year. I'd like to wrap up my prepared comments by extending an invitation to attend our Analyst Day, currently planned for Wednesday, October 30, in Massachusetts. Formal invitations will be sent out this week. We will provide a longer-term view of where we're headed and offer an overview of our newly formed organizational structure, a structure that provides an optimal foundation for the business that lies ahead. We plan to spend a half day in Boston conducting formal discussions and a half day in Clinton, where you'll get to know our leadership team which oversees Nypro. It will be busy, but a fun and informative day. As I stated here in our June call, I am blessed with an outstanding leadership team, a team with tons of experience, a team that will successfully execute and navigate us through this difficult moment in time. I remain bullish in the long-term outlook for Jabil. We have so many opportunities to apply our capabilities, leverage our global experience and offer our diverse knowledge to a number of end markets. In closing, I look forward to seeing many of you when we get together on October 30. Thank you.

Operator, before we begin the question-and-answer session, I'd like to remind our call participants that in customary fashion, we cannot address any customer- or product-specific question. Thank you for your cooperation.

[Operator Instructions] Your first question comes from the line of Steven Fox with Cross Research.

Just questions around some of the quantitative impact on your results from BlackBerry. So the $0.28 to $0.34 is -- seems like it's a hit to core operating income. Can you talk about the exact drivers there, how much from sales versus how much excess overhead you still have from ongoing operations? And then secondly, can you talk about the charges, exactly what that will be tied to, how much related to fixed assets versus, say, maybe headcount reduction?

Thanks, Steven. Let me take the first question and let Forbes talk a little bit about the charges. So to frame this out, when we sat 90 days ago, we were having a good year with BlackBerry. And again, I'll emphasize, BlackBerry has been a great customer. We typically don't talk about specific customers. But again, because of the impact to the company, we felt it important. As we look forward in setting the FY '14 models, we de-rated the BlackBerry numbers, just based on the overall environment and where we felt would be a very conservative estimate. That obviously appeared to be not conservative enough with what's taking place. So the core impact is a combination of loss of income as well as the infrastructure we have in place for BlackBerry. Again, we've been a customer -- or a supplier to them for 6, 7 years, and we have a substantial amount of infrastructure in place. So the infrastructure is a combination of depreciation. We're going to -- we're in discussions right now on how we're going to wind down the relationship. And depending on the timing of that, we'll end up with individual or employee resources to deal with. Some of that will be captive or captured in the charges. And then we have depreciation that we won't be able to redeploy immediately. Most of the assets for BlackBerry are fungible. So we'll be able to move them around, but that will take a little bit of time. And then we just have an overhead structure for a relationship of this magnitude, and it will take us time to figure out how to redeploy that and/or get rid of some of those resources. So again, the bar we showed on Slide 13, I believe that's a reasonable to slightly conservative look. If you can imagine, we've acted on this in the last few days, and we felt it was important to communicate to the investor community where our thoughts were at. And with that, I'll turn it over to Forbes and he can talk a little bit about the charges.

Yes. The range of charge is $35 million to $85 million. As Mark said, we were active in the last few days to the lease activity with BlackBerry. That's quite a broad range. And at the center point of that range, a kind of expectation that would be primarily costs associated with reductions in force. As you can imagine, it's a very large scale relationship, about [ph] the same customer last year. And that takes many thousands of people to support relations for that size. So certainly, the midpoint -- the majority of those costs are associated with reductions in force. And as Mark said, it's early right now, but I believe I've been relatively conservative in the range that we've given there in terms of those charges. As regards to timing of that, much will depend on our negotiations and discussions with the customer in the coming weeks and months.

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

Mark, just on the slide where you have an EPS progression and your initial take or initial stab at fiscal '14, any help you can give us in terms of how you're thinking about the top line? It looks like BlackBerry could be a $2 billion drag, but then Nypro probably adds $1 billion. And I'm just curious how you're thinking about your underlying business growth as we look at fiscal '14?

Yes, we anticipated somebody asking the question, and we're just not in the position to talk about revenue right now. I feel good about the chart. I feel good about the EPS. I don't want to get into margin or revenue at this point in time. I would say directionally, you're probably accurate on Nypro and you're probably a little bit high in BlackBerry. So I'll just leave it at that, and we may choose to have a little bit more color around this during our Analyst Day at the end of October.

Okay. And then just maybe a quick follow-up for Forbes. Forbes, how should we think about DMS margins going into the November quarter? I mean, do we think we can hit a 5 handle? Just any help you can give us there.

In terms of the DMS area?

Yes.

Yes, I would certainly -- I think we'd hit a 5 handle. I remind you, in the fourth quarter, we had about $150 million of Nypro revenue essentially at breakeven in terms of margin. So I certainly expect Nypro to contribute nicely in the quarter and certainly, we would be well into the 5 handles during the course of the fiscal quarter.

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

Two questions for me. One, maybe just on the DMS side. Margin was down 70 basis points year-over-year. I think maybe half of that or 40 basis points is, to your point, Nypro being breakeven. Could you just talk about what led to the rest of the decline? Was it the cost overruns that you talked about? And maybe if you could quantify that and talk about how you recover that cost inefficiency, if you may, as you go forward?

Yes, I think your math is correct. I think we ended up printing a 4.9% margin on DMS. If you take Nypro out, as we talked about in our third quarter call, that was bringing Nypro into the company. It was a bit of some empty revenue. And if you take Nypro out and kind of normalize the margins, I think you end up at 5.2% or 5.3%. So we were 20, 30 basis points off the bottom end of our range, and that was around some cost overruns. We talked the last couple of calls about Q3 and Q4 being some fairly extensive product ramps, and I believe it has -- that's what it was associated for and we don't expect a repeat of that in Q1.

Got it. So you should be able to pick up that entire 70 basis points drag in the November quarter then, right? Nypro gets to better performance and the cost overruns don't exist. Is that fair?

I think I would echo what Forbes said, which I have a strong belief that DMS margins will have -- be a 5 handle in Q1, and I believe we'll be back to the bottom end of our overall DMS range.

All right. And then in the fiscal '14 road map, you guys obviously are providing the headwinds you're going to have with one of your customers. How much of that is baked into your November quarter guide of $0.55 as the midpoint, which seems like it's $0.10 below what most of us were modeling. Maybe some help on what sort of headwinds are you seeing in the November quarter specifically from High Velocity, I guess.

Yes, there's clearly some headwinds, and we're right in the middle of those discussions with the customer and looking at our schedules. But my guess would be somewhere in $0.04, $0.05, $0.06 type range, just given what I know today, just given what we've undertaken and used over the last 4 or 5 business days here. So a little bit tough to tell, but it's that type of magnitude.

I think Forbes is being really generous through this transparency, and I think that's good. It's just if you can imagine, there's a lot of moving pieces, and we're working it real time really hard.

Your next question comes from the line of Matthew Sheerin with Stifel. Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division: I want to just change the subject a little bit to the E&I segment. Your revenue was in line with expectations, up nicely year-over-year. But you're guiding kind of flattish year-over-year, so a little bit slower there. Could you talk about the puts and takes that you're seeing and also the pipeline within the customer sector?

Matt, in that whole comment, no acknowledgment of the 3.3% margins for Q4? Come on. Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division: That was my follow-up.

Come on. Throw us a little bit of bone. Lead with a good news. Yes, we're -- we've said this before and we sound a little bit like broken records, but we're really blessed with serving phenomenal brands in that area. And I think our service offering is outstanding. I would -- I think we're doing all of the right things. The team is certainly doing a number of really good things as far as optimizing costs. And I just feel really good about our E&I business. And as we look one quarter out, you're right, the top line is -- we're guiding essentially flat. So -- but I feel good about the diversification we have there, and I feel good about the brands that we serve. Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division: Okay. Fair enough. And back to the High Velocity, so x your big handset customer, could you talk about what that business looks like, what you're seeing sequentially? And given the experience that you've had in handsets, is that a business that you want to stay in, in terms of High Velocity assembly business on the handset side?

I'm not sure I understand the first part of your question. Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division: Well, the -- okay. So x the BlackBerry, what does that business look like in terms of seasonality with your other customers?

Matt, it's Forbes. The balance of the business there, there's not a lot of seasonality. I remind you, in the balance of that High Velocity business, set-top boxes, printing, some level of automotive and some point-of-sale in there. So not a lot of what I call straight consumer spend with seasonality in the business. So we'd expect that revenue stream, the $750 million to $800 million in the quarter materially down sequentially. As I said in my prepared remarks, about $0.5 billion of handset revenue coming out. So that's very significant in terms of the operating performance as we look into Q1 of that segment. So overall, in summary, not much seasonality. The business is stable. Relationships are good. And we're pleased with our capability in High Velocity and look forward to applying that capability across a number of customers and industries. Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And then relative to handsets going forward, is that something you'd still want to look at in terms of opportunities?

I think we'll take a look at it. I think our main focus around that market will be in -- it will be in coatings, metals, plastics and mechanics.

Your next question comes from the line of Brian Alexander with Raymond James. Brian G. Alexander - Raymond James & Associates, Inc., Research Division: If I look at the $0.30 or so of earnings decline related to BlackBerry, and I know there's a lot of moving parts, but I just want -- does that assume no revenue from that customer in fiscal '14? Because it looks like a lot of lost income. If I convert that to operating income, it's over $80 million, which is almost a 4% margin if you assume all of the $2 billion in revenue goes away, and that's the higher margin than we would have assumed for that business historically. I know there's some negative leverage there, but I just wanted to get a sense. Are you assuming all the revenue goes away when you talk about a $0.30 decline?

Brian, it's Mark. We haven't gotten through that yet for modeling purposes. We were conservative. We felt like that was an appropriate communication at this point with what we know. The -- so we don't know what the revenue is going to be. We modeled conservative revenue. I wouldn't say it's 0 for the fiscal year, but it's small. And I would tell you that the red bar on Slide 13 is a combination of lost income as well as the deleveraging of some significant scale in assets and a whole bunch of deleveraging in people. Brian G. Alexander - Raymond James & Associates, Inc., Research Division: Okay. And then just referring back to the EPS waterfall, you didn't change your organic growth assumption of $0.11 to $0.31, which at the midpoint is about 10% growth in the core business. Yet, if I look at your guidance for Q1, it doesn't look like your core EPS is growing at all, if I try to back out BlackBerry and Nypro. So I'm just trying to understand why wouldn't the organic assumptions have changed from last quarter when you gave the $0.11 to $0.31, especially given your DMS performance looks to be below expectations, you're running below your 5.5% to 7% margin goal.

Good question. I don't know that we're -- we had a -- our Q4 results were below the 5.5% to 7%. I don't think that will be the case in Q1. And it's hard to extrapolate, although I understand that's all the information we gave you, a quarter of guidance to kind of extrapolate out what's going to happen throughout the year. We feel -- I guess I'd leave it as we feel good about the organic growth bar that we have on the chart. And again, if you take a look at what we've said for Q1 and figure out what our models might need to look like in Q2 through Q4, there's a very reasonable assumption set that kind of grounds that bar on the chart. Brian G. Alexander - Raymond James & Associates, Inc., Research Division: And then just a final clarification, why wouldn't the restructuring benefits have increased from last quarter if you're taking another round of restructuring actions of $35 million to $85 million? I just thought maybe the savings would go up in fiscal '14 as a result.

I think the -- Brian, I'll let Forbes comment, but my thought is, is the additional restructuring that we've talked about is solely around the discussions we've had with our handset customer. And the majority of that restructuring is really to mitigate costs and mitigate what otherwise could end up being more problematic for FY '14.

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

On the question side, I have 2 questions, and I'll just give them both now so you guys can divide up how you want to talk about it. But first of all on the guidance, if I'm correct, it looks like it's a bit larger guide range than normal. I think you normally give about a $200 million. Now you're giving a $300 million range, which I think is about a 50% increase. But when we look at your handset customer, it looks like you're kind of materially removing them completely from the equation. So why a wider revenue guidance range? What else is going into that? And the second question is for those of us who's been around Jabil for a long time, you used to have some big customers, whether it be Nokia then that struggled, then BlackBerry, now we're seeing it struggles there. And it looks like Apple now is going to be an above 20% customer with BlackBerry going away. So what are you guys doing to strategically manage these large concentrations of customers? And by all means, I'm not calling for problems with Apple. I'm just saying you got to run the business and help your shareholders and mitigate risk. So can you walk us through that?

Sure, Jim. Let me take your last question first and then Forbes and I can kind of tag team the guidance. So yes, it's -- there are certain variables outside of our control at times, and it's incumbent on management to act when certain variables occur. I -- Apple is a large customer. Ideally, and one of the things that management's working towards is, is to further diversify our company. Our objective and our goal over the longer period of time is to have no 10% customer. I think it will take us a bit of time to get there. But I would also comment on the fact that we feel very comfortable with Apple as a customer. Again, they're announced at the end of the year as what percentage they were for FY '13. I think unfortunately, when we look at a company like a Nokia or a BlackBerry, unfortunately, they've had some strategic issues of their own. I feel very, very comfortable that Apple is sound as a corporation and they're an outstanding customer. So although I'd like to see no particular customer being more than 10% of our business and we're working hard towards that, I'm very pleased with having Apple as our largest customer. As far as the guidance, Jim, we -- Forbes mentioned it, I think I mentioned it. We're in the middle of discussions right now real time with BlackBerry. So we did not take BlackBerry down to 0 in Q1, and we're in those discussions real time. So based on the fact that there are some unknowns and there's some uncertainty around the discussions, we thought it was prudent that we offered a abnormal range of guidance for Q1. And we should be able to narrow that once we get complete in our discussions with our customer.

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

I guess first question I wanted to address is if my math's right, you're going to generate about $700 million of free cash, give or take, next year. When should we expect, I guess, a decision or an announcement on the commentary regarding another buyback or step-up buyback? How quickly can you implement that?

Timing is TBD. I think it's a great question. Forbes and I need to have more conversation. We want to run through some more models, and then we need to have a conversation with our board. So we feel like -- we acknowledge your comment on we do feel like free cash flow is going to be strong. And let us get through some additional models, let us have some appropriate conversation with our board and we'll be back to you.

Okay. And then 2 quick clarifications. The $0.28 to $0.34 loss associated with BlackBerry, that includes restructuring offsets? And then second, do you expect all the ramp issues associated with DMS in the August quarter to be completely gone in the November quarter?

I think to your first question, that's appropriate that the red bar on Slide 13 is net of all restructuring offsets, that would be correct. I think if I understood your question, Q1 will be void of the types of program ramps we talked about in Q3 and Q4. Although that might not be 100% true, I think for purposes of modeling out the fiscal year, that's an appropriate assumption.

Okay. I guess when do those -- when should we expect those headwinds to end?

Q1.

Your next question comes from the line of Wamsi Mohan with Bank of America.

Forbes, can you share perhaps what BlackBerry was as a percent of revenue in the fourth quarter?

It was certainly north of 10% in the quarter. In my prepared remarks, I did note that our current midpoint of guidance assumes a reduction of $500 million sequentially. So they were a sizable customer.

And how much of the BlackBerry EPS hit are you assuming in Q1 of your annual number?

We have -- Wamsi, we haven't broken that out. We said $0.28 to $0.34 for the year. As Mark and I have noted, we're in discussions with the customer as we speak. So there's clearly some significant impact in Q1 depending on where we land, just given the abruptness of this change and our ability to react to the overhead that's in place in such a short time frame. Remember, we're effectively 1 month into a 3-month quarter here. So it's material, and we'll see how that shakes out as we move through the next 60 days or so.

And Forbes, if you could just talk about the linearity through fiscal '14. I mean, the headwinds of BlackBerry, is it fair to assume that, that would be concentrated in the first half of the year? So we'll see most of that hit in the first half and significantly lesser amount of hit in the second half. Is that a reasonable assumption?

Yes. That's very reasonable, yes.

And one more question on cost here. You mentioned cost overruns with respect to DMS. Could you give us some color on what those cost overruns were? And did you have associated yield issues during the ramp?

I really can't comment on that. I mean, if you look at where we ended up, I think, x Nypro and DMS, we're about 5.2%, 5.3%. We talked about our number right about 5.5 points for the quarter coming into the quarter. So the $4 million or $5 million on the scale of operation that we have is not overly material. So I can't really give much more color than that.

Okay. And last one for me. Can you talk about any view on long-term HVS margins in light of the BlackBerry news?

Much of that is going to -- it's clearly going to depend how quickly we can either redeploy the fixed cost base we have in that area during the course of fiscal '14. But certainly, as we sit today and there's a lot of work to be done and discussion to be had, but certainly, with the cost base we have as we work through this, certainly going to be well below the low end of the range that we previously provided, which was 2.5% to 3.5%. And I believe we'll see that recover in the second half of the year as we manage to take that resource out. So first half of the year, it's going to be in the point, point and a half type range, I would suggest.

One thing I think is important to think about in your modeling, our High Velocity business is in -- as we end up disengaging, if you will, with BlackBerry, the High Velocity portion of the relationship, the balance of our High Velocity business is in very good shape. And we're fairly bullish on that business as we move through FY '14. It's just the weight of the SG&A and the overhead that's problematic, and we're working on that real time as we speak.

Your next question comes from the line of Sean Hannan with Needham. Sean K.F. Hannan - Needham & Company, LLC, Research Division: So question -- actually 2 parts to a question within DMS. So just from a 100,000-foot perspective, the segment grew 9%, I think, this past fiscal year. So I think a little bit disappointing versus perhaps what your viewpoint was a few quarters ago and your general feel around the space. Can you talk about your viewpoints for continued growth or perhaps some resurgence within that segment as we look to fiscal '14? And then I've got a follow-up to that.

Sean, just to be sure Forbes and I understand your question, are you talking about the 9% sequentially Q4 to Q1? Sean K.F. Hannan - Needham & Company, LLC, Research Division: That's correct.

So you're talking about DMS going from Q4 '13 to Q1 '14 and sequentially, the math comes out to be around 9%. Is that correct? Sean K.F. Hannan - Needham & Company, LLC, Research Division: Yes. And I think that entering the year that you had some higher expectations for this group, so just looking to see what your perspective might be for '14.

Right. I'll start off, and I don't know if Forbes has anything to add. But again, when we think about DMS, DMS is made up of industrial, JDAS instrumentation, Clean Tech, our AMS services business and others. So I feel like in this market, with some of the challenges that we've had, 9% sequential growth is actually quite good. So I don't feel like I'm answering your question, but I'm really making a statement that going from Q4 '13 to Q1 '14, a 9% growth in that sector is good. Sean K.F. Hannan - Needham & Company, LLC, Research Division: Yes, Mark, sorry for the reference point and the 9%. That's more of an acknowledgment on the quarter. But I think that overall for the segment, this probably was not performing as you would hope entering the year. So just a contrast as you look into '14, what is your perspective and what is your outlook here as we stand today?

We still remain bullish on DMS. I think that -- a couple of comments I made prior. Our DMS business has been hugely successful. It's approaching -- that business is approaching a $10 billion base. I've said before that once we start to get close to a $10 billion base, I don't know that we can continue to meet our growth range of 15%. But we've done an excellent job growing that sector over the last 2, 3, 4 years. I feel good about that sector for '14. I think if we do our job correctly and continue to take great care of our customers, we'll see growth rates that are double-digit on an annual basis from '13 to '14. So overall, as we sit today, I still remain bullish on this sector, and I think that margins will end up back in the 5.5% to 7% range. Sean K.F. Hannan - Needham & Company, LLC, Research Division: That's great. And I think about a year ago, we had some yield challenges with some of the programs that we were ramping within that space. Given where we are a year later and considering the seasonality of where we are, are you facing similar yield challenges at current point in time? Or is this a little bit more abated this year?

I would say that there's no repeat of any of that type of thing now versus last year.

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

I just wanted to ask sort of from a top-level perspective, and I know it's early days in terms of figuring out what you're going to do with BlackBerry. But for fiscal '14, would you expect to see your revenue grow?

Again, Sherri, I think it's a great question. We're just not -- at this point in time, we're just not going to comment on revenue. And again, we may add some color to that during our analyst meetings. But as we sit here today, we're just not going to comment on that.

Okay. But you're still comfortable with 15% growth for DMS and sort of 0 to 5% growth in the E&I segment?

My comment was, is I felt like on an annual basis going from FY '13 to FY '14, I felt like DMS would grow double-digits. So that might be something greater than 10%. And 0 to 5% for E&I seems reasonable, yes.

We have reached our allotted time for questions. I would now like to turn the call back over to management for any closing remarks.

Thank you, Susan, the operator. Thanks for joining us everyone on the call today. As Mark has mentioned a couple of times during the call, please look for your invitation to our Analyst Meeting, which will be held near the end of October, the 30, and it will be out later this week. So thank you very much for participating.

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