Jabil Inc. (JBL) Q2 2016 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to Jabil's Second Quarter Fiscal Year 2016 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [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, operator. Welcome to our second quarter of 2016 earnings call. Joining me today are our 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 second quarter press release, slides and corresponding webcast links are also available on the website. In these materials, you will find the financial information that we will cover during this conference call. We ask that you follow our presentation with the slides on the website, beginning with slide two, 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 third quarter of fiscal 2016 net revenue and earnings results, the financial performance for 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 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, 2015, 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 Mark with his comments on our outlook for the business in fiscal 2016. Forbes will follow with comments on our second fiscal quarter results and guidance for our third fiscal quarter 2016. Following our prepared remarks, we will open it up to questions from call attendees. I will now turn the call over to Mark.

Thanks, Beth. Good afternoon, everyone. I appreciate you taking time to join the call today. Before I begin, I'd like to take a minute and acknowledge our 50th anniversary here at Jabil. 2016 is Jabil's 50th year as a growing concern. To me that's an amazing accomplishment. The best part is, Jabil is stronger and more diversified today than ever before. Thanks to all of our wonderful people for making dreams come true. I will begin today by addressing our second quarter results. During the quarter we faced sharper than expected declines in product demand within our DMS segment, resulting in a revenue shortfall of $150 million for the quarter. Nonetheless, our team delivered a $186 million in core operating income which was s squarely in the range of our guidance. As such, I'm quite pleased with the results overall. Unfortunately, the modest declines we experienced during the second quarter have now turned into an abrupt downturn, significantly impacting our third fiscal quarter. So in all of this, where is the good news? Let's start, if I could ask you to please refer to slide three in our formal presentation. It's important for investors to understand that we're not being dismissive in anyway of the projected earnings shortfall, but I'm confident that this is a temporary event. My confidence is underpinned by the fact that we're rapidly accelerating our development efforts, transitioning our installed capacity to new product platforms. I draw your attention to the column on slide three which reads Q3 2016, depicting our current fiscal quarter. Here is where you see a discernible gap between our beginning year forecast and our current outlook. As delineated on the slide, you can see this will largely be a one quarter issue. As I step back and look at the full fiscal year, we're now positioned to deliver $700 million in terms of core operating income, down roughly 12% from where we guided back in September, yet up 5% from the $670 million we earned in fiscal '15. For the year I also see our EBITDA remaining well north of $1 billion and free cash flow landing in the range of $250 million to $300 million. This outlook is driven by three solid orders, Q1, Q2 and Q4, combined with our current quarter Q3, a quarter that exhibits deep investment and under-absorbed capacity. So how are we able to grow EBITDA and core operating income year-on-year when faced with such a dramatic unit volume reductions? There's three main drivers; one, our aggressive play towards truly diversifying our income streams; two, advancing our solution selling and value proposition; and three, our unique structure and our innovative people. Let me take a moment and offer a few proof points. I will start with Jabil's EMS business as it’s firing on all cylinders. The scale and broad diversification of this business allows for a stable, predictable, foundational backbone to our core business. This thesis is well illustrated by our proven margins and strong outlook. Our EMS team believes they will grow core operating income 15% to 20% year-on-year while expanding full-year core operating margins beyond 3%. The current marketplace offers technology and business model transitions as well as secular trends that favor Jabil. Consumers demand more and more devices be connected, connected to each other, connected to the cloud and connected to the end user. Automobiles, appliances, meters, home security systems, drones, just to name a few. This world of massive connectivity assures that more and more data will be generated. This in turn requires more bandwidth which requires more computing power and more storage. This is all good news for Jabil. Another proof point is our healthcare business. Our Nypro team continues to deliver on their goal of improving the way in which people live. As our Nypro healthcare business enters fiscal year '17, we're looking at a very healthy cash generator for the company, cash generated from well-diversified multi-year product platforms which cut across healthcare, wellness and big pharma. I remind you that many of these hardware platforms also want to be connected and optimized for big data and predictive analytics. Again, this is also good news for Jabil. A final proof point as to why our financial performance for this fiscal year remains near record levels is Jabil's exceptional balance of what I would call divisional speed and agility, innovative capabilities and central corporate services. Our divisional approach allows for speed and agility to occur where it matters most, at the customer. Add to this the thoughtful investments we've made in capabilities, capabilities which are fully endorsed and utilized across our various businesses. And lastly our highly leveraged corporate services, a critical aspect of our puzzle that positions the company with exceptional controls all while optimizing our indirect cost, both of these are critical to our business. I'd now like to circle back to our Green Point business. As we know, this business has a well understood high-beta characteristic. Our Green Point team manages large scale demand fluctuations really well. In fact, I'd argue they do it better than anyone. Dealing with this volatility can be maddening. With that said, our continued participation in the mobility market is key to Jabil's holistic approach to the overall ecosystem, a technology ecosystem that squarely relies on handheld computing. Mobile devices are here to stay. They monitor and control an infinite number of connected devices as well as connect all of us in our daily lives. Apple remains dominant in this space and we're fully committed to serving their brand. As you know, we've made substantial investments in support of our Green Point business, investments that are highly valued by our customers. Hard asset investments, that when paired with material science expertise, scale and precision mechanics know-how are nearly impossible to replicate. This invested capital is currently installed and ready for production. I believe the outcome will be strong cash flows over the next two to three years as our Green Point team leverages these existing assets. In closing, much hard work remains, but there's clear evidence that our diversified portfolio strategy has taken hold. We remain fully confident in our past and our strategy and in the very commitments our customers make to Jabil. In fact, it's these commitments that ground my confidence. Thank you. And with that I'll turn the call over to Forbes.

Thanks, Mark. Good afternoon, everyone. I'd like to ask you to turn to slide four where I will review our second quarter results. Net revenue for the second quarter is $4.4 billion, an increase of 2% on a year-over-year basis. GAAP operating income is $155 million while GAAP net income $79 million. GAAP net diluted earnings per share were $0.41 for the quarter. Core operating income excluding the amortization of intangibles, stock based compensation and restructuring costs is $186 million and represented 4.2% of revenue. Core diluted earnings per share were $0.57. You can now turn to slide 5, I will discuss our segments. In the second quarter, revenues for diversified manufacturing services segment was approximately $1.75 billion, an increase of 4% on a year-over-year basis and represents 40% of total Company revenue. Our core operating margin was 5.8%. Solid performance in the face of demand challenges experienced late in the quarter in our mobility business. Our electronics manufacturing services segment revenue was $2.65 billion, an increase of 1% on a year-over-year basis and represented 60% of total Company revenue. Core operating income for this segment was 3.2% as a result of continued strong operational performance across the segment. Tax rate in the second quarter was 28.5% versus a previously estimated 24%. This is a result of the change to geographic mix of earnings and a now estimated 27% tax rate for the full fiscal year. Turning to slide 6, and I like to review some of our key metrics with you. We ended the quarter with cash balances close to $900 million. During the quarter, we consumed $73 million of cash flow from operations while year-to-date cash flow from operations was a positive $72 million. The second quarter saw an expansion in our sales cycle reflective of the demand profile in the quarter, the primary driver being a four-day increase in inventory days. We expect our sales cycles to normalize. Net capital expenditures for the quarter totaled $200 million. Also during the quarter, we acquired Chinese-based assets of [indiscernible] for cash proceeds of $139 million. This addition is complimentary to over Greenpoint operations and continues to aid our diversification efforts within our DMS segment. Capital expenditures for the full fiscal year are now estimated to be $800 million, at the very low end of previous range of guidance. As a result, we expect cash flow from operations minus capital expenditures now be in the range of $250 million to $300 million for the full fiscal year. Core EBITDA for the quarter was $346 million and represented 7.8% of revenue, an increase of 120 basis points over the same period of last year. For the first half of the fiscal year, we have generated $748 million of EBITDA also representing 7.8% of revenue. The core return on invested capital for the second quarter was 16%. Before providing updated guidance for our third quarter and full fiscal year, I'd like to take a moment to discuss the impact of taxes on the balance of the fiscal year. Given the new forecasted income levels, we now expect the annual core effective tax rate to be 27%. This distortion to the fiscal year rate is a result of the current forecasted income levels and the geographic mix of earnings. Core tax dollars for the full fiscal year remain in the range of $150 million to $160 million, with the third quarter in the range of $20 million to $25 million or a rate of 42%, and the fourth quarter a range of $35 million to $44 million or 25%. In fiscal 2017, we currently expect our global tax rate to return to more normalized levels. And now I would like to discuss with you our business outlook for the third fiscal quarter and full year and ask you to turn to slide 8. We expect revenue in the third quarter of 2016 to be in the range of $4.1 billion to $4.3 billion and its midpoint decline of 4% on a year-over-year basis reflective of demand reductions in our mobility business. Core operating income is estimated to be in the range of $80 million to $100 million, with core operating margins in the range of 2% to 2.3%. GAAP earnings per share are expected to be in the range of a loss of $0.05 to income of $0.03 per diluted share. Core diluted earnings per share are estimated to be in the range of $0.12 to $0.18. This is based upon dilutive share count of 194 million shares and the guidance at its midpoint assumes a tax rate of approximately 42%. Turning now to slide 9 and our outlook for the third quarter for our segments. Our diversified manufacturing services segment is expected to decline 10% on a year-over-year basis, with revenues estimated to be $1.45 billion. The electronics manufacturing services segment is expected to be consistent on a year-over-year basis with revenues estimated to be $2.75 billion. For the full fiscal year, we now expect total company revenue to be $18.5 billion. The diversified manufacturer service segment is expected to be approximately $7.5 billion or growth of 6% on a year-over-year basis. The reduction in the anticipated annual growth rate is reflective of the recent demand changes we see within our Greenpoint business. The electronics manufacturing services segment is now expected to grow on a year-over-year basis at 2% with total revenue estimated at $11 billion. This guidance is reflective of headwinds within the storage and networking marketplace. As Mark noted in his prepared remarks, we do expect the third fiscal quarter earnings reduction to be temporary as we ramp new programs during both that quarter and into our fourth fiscal quarter. As a result, core operating income for the full fiscal year is now estimated to be $700 million. Assuming a tax rate of 27%, the core diluted earnings per share are estimated to be $2.12. I now like to hand the call back to Beth.

Great, thanks Forbes. Before we begin our question-and-answer session I would like to remind those on our call today that in customary fashion, we will not be able to address any customer or product specific question as a result of actually being our customers asking us not to. So, with that I will turn the call back over to the operator and I appreciate your cooperation with that. Thank you.

[Operator Instructions] Your first question comes from the line of Brian Alexander of Raymond James.

Thank you, this is Adam, in for Brian. Just wanted to ask first of all about market share trends, I know historically you've talked about gaining share with your largest customer. And I ask this in the context of the next generation models and things like that. Number one, are you still gaining share with your largest customer? Is that something that you are sticking by?

Absolutely.

And longer term plans on customer concentration, I know two of the last three years the business has been heavily impacted by one customer, but continuing to invest. Just wanted to understand longer term plans to potentially distance yourself for diversified customer base?

Yeah that's a good question. As is said in previous calls, I'm not pressing the organization at all for a natural growth. If there is good sound opportunities in front of us for growth that we believe are accretive to cash flows at a good ROIC we're going to make the investment. So, as far as our overall strategy in that regard that hasn't changed and I think if we’re successful in that, as I mentioned a bit in my prepared remarks, I think the Company becomes more and more diversified over the next two or three years which I think is really good for investors.

And if I could sneak one more in. In the August quarter, you've historically -- or on the last call you said that you expected a strong showing from EMS. And I was wondering if that’s still expected and how you get to the above 3.5% operating margin that’s essentially implied here, given the DMS trend?

I'm very bullish on the EMS business, it’s extremely well diversified. We've seen a little bit of slowdown from a revenue perspective but as Forbes alluded to in his prepared remarks some of that has to do with what I would call long in the tooth legacy business and then the other thing that the two gentlemen that oversee that business, I think they've done a great job in two fronts, A, leading into the secular trends that I’ve been talking about for a year on the call. So connectivity and different service offerings around that, around all devices and number two is accounts that don't have a good outlook as far as being accretive to the company or don't have good levels of return on invested capital. I think they’ve done a good job of pruning the tree if you will and moving in a different direction. So I feel good about our EMS business and where it is today.

Your next question comes from the line of Steven Fox of Cross Research.

Just further on the weakness in the mobility area. So is there a way to just sort of describe the slope down? So you just mentioned weakness in exiting February. It looks like you have about a $400 million to $500 million per quarter guide down in the May and August quarter. So, how do we think about how that sort of ramped down and then what the prognostication is say for the August quarter in terms of new programs and units and things like that?

Sure Steve. So we started seeing some softness in our Greenpoint business in the late January early February timeframe and I think that's because of our position in supply chain. So we started seeing the softness in January and it really accelerated in February. And we had some modest declines that impacted Q2. So as I mentioned in my prepared remarks, we were down about $150 million in revenue but the outlook and the abruptness of the outlook for most certainly Q3 and then a portion of Q4 really hit us hard in I would say the last four weeks so.

And then just longer term, Mark. I know you just reiterated your commitment to your largest customer, but obviously sort of customer concentration level has come up and bit you, not out of your own fault, a couple times now in the last couple of years. Is there anything else you can do, I mean, thinking about your own stock for a minute, in terms of overcoming that more quickly? Or is there anything we should think about that is going to help you do that over, say, the next two to four quarters? Thanks.

Sure, so let me start with, I love our biggest customer. And we'll continue to make investments for them and we will be prudent in that. I think our ability to partner with them is outstanding, I think our ability to handle their volatility if and when it occurs is really, really good and I have a lot of confidence in Apple. So on the diversification side, what I can tell you is we are very, very supportive with our largest customer. We are seeing very good diversification within that large customer, but at the same time, we have a balance sheet such that we are leaning hard into our healthcare business, we are leaning hard into our EMS business, which by the way is fully evident in both our results in Q1 and Q2 as well as our outlook in Q3 and Q4. And then recently separated our consumer packaging business into separate business and we have named outstanding leadership there and we’re very bullish on that albeit starting from a smaller base. So I think we are on a good path. It’s a two, three year path and in the meantime, there is going to be some volatility in the mobility space and it’s a nature of that business.

Great. That's very helpful, thanks.

Your next question comes from the line of Herve Francois of B. Riley. Herve, your line is open.

Sorry about that. Can you hear me?

Yes.

All right, thanks guys. I just wanted to dig a little bit deeper on the tax rate for your fiscal third quarter. If I heard you correctly, going up to 42%, can you talk about, in a little bit more detail, the geographic mix, exactly where is that coming from, mainly, that’s causing it to spike up like that, and then it goes back down to 25% for your fiscal fourth quarter?

Yes, what that is essentially – the simplest way to think about it is the majority of the income reduction that we just signaled, about $100 million for the fiscal year is – was previously expected to be generated in a country where we have tax incentive. So essentially that tax incentive isn’t in play anymore, so the tax dollars for the full year remain consistent with those at the beginning of the year. Therefore, one has to pro rate if you will those overall tax dollars by quarter and with the low point of guidance being Q3, those tax dollars are fixed and then it’s simple arithmetic over the income dollar.

Got it, thanks very much. And then just one last one for me, the China-based company that you bought for $439 [ph] million, can you talk about a certain number of facilities that might have come with? What kind of product line are you going to be doing now? And is anything going to be transferred to any of Jabil's facilities or are manufactured in the factory that you purchased?

Yes, sure. So one facility in China, at this stage, we may transfer some of that asset base into our existing facilities, but as we said right now, it’s about one facility there. With that comes capabilities, additional complementary to our Greenpoint operations in terms of machining, and some great skill sets than material science and assets. So the opportunities there I think are significant as we move through certainly our Q4 with the ramping of some new products sets there into fiscal ’17. So we are very pleased with our transaction.

Got it. All right. Thanks. Thanks very much.

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

Hi, thank you. I just wanted to ask about your confidence that business resumes in the fourth quarter in the DMS segment. What makes you comfortable that things will start to pick up again in 4Q?

Hi, Sherri, it’s Mark.

Hi, Mark.

How are you doing? Couple of things, one is if you think about a more normalized landscape Sherri, Q3 is typically in our mobility sector a quarter for investment and then we started trajectory out of that and as we hit new product life cycles, the – this year, as I mentioned in my prepared remarks, we are accelerating some of the product ramp, so we got on those a little earlier than usual, so that’s one. Number two is sometimes it gets lost with everybody that our DMS business isn’t just our largest customer. We have got other business there within our Greenpoint business and we also have a very, very good healthcare business, which is now really starting to take hold and build critical mass, so it’s a combination of those things, Sherri.

And then can I just ask a question about the EMS segment. You mentioned the significant long-term positives of more bandwidth and storage, but those segments seem to continue to be relatively soft. When do you think we see a turn in those businesses, where the positive momentum from connected devices starts to take over? Thanks.

You’re welcome. I think in some packets we are seeing that now and it’s really about the service offerings and where we play. So if you take a look at maybe some of the legacy business, I would contend that your thesis is exactly correct. If I think about what’s happening and how things like cloud storage is changing, bandwidth transfer is changing and things like that, Jabil is playing in different areas well beyond, what I would kind of consider the build-to-print markets that we were playing in five, six, seven years ago. So for us, yes, there is some areas of that business that are declining, there are some areas of that business that are flat and then there are some areas of that business that I think are thriving. And the other thing I throw out there is, our EMS business today is incredibly broad. So today, I don’t know what the customer count is, but I bet, in that segment of our business, the customer count is probably 220, 230 customers and it cuts across not only cloud, not only legacy storage, not only data, not only networking, but industrial energy, automotive and a ton of the ecosystem around connected devices. So for us, that’s what’s driving certainly the resiliency on the margin side and the growth of our absolute profit dollars.

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

Thanks a lot. Good afternoon, guys. I guess, a couple questions for me. So one, on the DMS side, when I look at the fiscal ‘16 expectations, you're implying, I think, the August quarter would be up high 20%, 28%, 29% sequentially EBIT growth. You haven’t seen that kind of growth in the last few years out of that segment. So just walk me through what’s the confidence and how do you confidence, sitting in March, to how the DMS segment would look like and have better [indiscernible] units or is it allocation? Any help there would be great.

Sure, Amit. As we talked about, Q3 is the low point and it’s really as a result of that low point that would get into that 29%, 30% growth. So there are current guidance for that segment would suggest similar levels of revenue in Q4 ‘16 to that of a year ago. That’s based upon, as Mark said, we’re seeing growth within our healthcare and packaging businesses, in both areas, they are doing nicely. And we’re also ramping a number of new programs starting in the third fiscal quarter, which will ramp the volume and scale as we move into the July, August, September, October timeframe. So certainly based on the available capacity we have, the line of sight we have around those unit volumes that gives us great comfort that we can certainly grow that segment approaching $1.8 billion to $1.9 billion in the fourth fiscal quarter.

Hey, Amit, the one thing I would add to Forbes’ comment is, I think it’s well known that the third fiscal quarter for us is as always an important kind of investment ramp quarter in the mobility sector. But coincidently and it truly is coincidental. We are also ramping probably six to eight product platforms that have nothing to do with handsets and we are ramping those in the May, June timeframe, actually one of them in late April. So we anticipate that those will be driving revenue in the fourth quarter as well.

Got it. And then I guess as a follow up, Mark, could you just talk about how is this downturn that you’re seeing in the May quarter different from maybe three years ago? And do you think that's the reality that you deal with, given what your largest customer goes through that every few years you have to go through this [Technical Difficulty]?

Yes, it sucks. I mean, as far as – I would love to be able to run our business on a quarter-to-quarter basis and I don’t like it at all and I take it to it heart, we have committed investors and it bothers me. But I think it’s drastically different, Amit, as far as fiscal year ’14. If you take a look at fiscal year ’14, we had a dramatic downturn as everybody knows on a program and for that year the company – I don’t remember the exact numbers, but I think we made about $340 million dollars in operating income. Today, we’ve got some abrupt downturns and the company is going to do $700 million. So I think it’s drastically different and I think what’s different about it is is we started three, three-and-half years ago to really drive in diversification throughout the company, and as I said, in my prepared remarks that’s taken hold. And I also said that I am bullish in supporting the mobility space at the moment, we have made some investments. I don’t want people to be confused about the fact that the investments we have made in the last two years or for this year, the investments we’ve made for the two years in regards to invested capital and buildings are going to be there for us to leverage over the next two to three years. So it’s the business that we are in and I feel very good about it. So I think there is a dramatic difference between two years ago and today.

Perfect. I appreciate that. Thank you guys.

You’re welcome. Thank you.

Your next question comes from the line of Mark Delaney of Goldman Sachs.

Yes, good afternoon, and thanks very much for taking the questions. First question is on your – the handset PC or mobility business. Not a question on the next quarter or two, but as you guys think out over the next 12 to 24 months, can you help us understand what sort of opportunity you have in mobility tied to headsets to outgrow what handset units are doing? And is there an opportunity for you to continue to expand content, or are there other factors that we need to be thinking of that will be headwinds to your revenue growth versus handset units?

Sure, Mark. So I can’t sit here today and kind of prognosticate two or three years out on whether or not we’re going to grow our mobility business faster than the market. We certainly have historically, if you look at our Green Point business as a proxy, again, I don't remember the exact numbers, but I think we’ve grown that business probably $2.5 billion in recent years on a relatively modest base and so I feel really good about that. Will we be able to continue those growth rates two or three years out, I don't know. Here is what I’ll commit to you. If we have the opportunity to grow that business at a good ROIC, with good terms, with customers, we’re going to do so. If we see the growth rate or the opportunities attenuate, then we’ll pull back CapEx, we will be very, very prudent and the investments we make, and that business will throw off a significant amount of free cash flow because handsets aren’t going away and we've got great installed capacity in combination with incredible capabilities with mechanics and material sciences. So to me, it's going to be one of two paths and I think both paths are good paths. Today, I like the path we’re on. One of the things I love about our company is it’s incredibly adaptable and incredibly agile and we’ll read and react to the mobility market and do what's right for investors.

That's helpful. And then a follow-up question on the new CapEx guidance, $800 million, which I think is about $100 million below the midpoint of the prior guidance. Can you help us understand where that is coming from? And does that say anything about your growth expectations for fiscal '17, or is that more of a read on what's been happening for programs that you're shipping this year?

Yes. That's more of a read for this year and the Green Point DMS teams have done a terrific job in terms of efficiencies through process and suchlike. So don't take that as a signal for reads on ‘17. As Mark said, we’re certainly looking at growth opportunities as we move into new fiscal year.

Mark, I would also add to that, I would also, I would read into that the fact that I think we have outstanding terms and conditions and so I think we’re being very, very diligent around how we run the business and how we run CapEx.

And just a real brief follow-up related to that. This acquisition that you announced for the DMS segment, does that change the CapEx profile of what you would've needed to spend this year? Or is that just kind of a completely different set of technologies?

It might have an impact on it, but it's not material. It's different products, different points in the market, I mean, it could have a bit of an impact, but not overly material.

Okay, I'll turn it over. Thank you very much.

Yeah. Thanks, Mark

Your next question comes from the line of Sean Hannan of Needham.

Yes, thanks folks. Can you hear me?

We can hear you fine, Sean

Okay. Great. Thanks for taking my questions, here. Mark, you had talked a little bit about diversification over the course of the next two to three years. Just wanted to see if we can get a little bit more color from you in terms of how you're thinking about that? Is this on the nature of the work and product basis, or do you also feel strongly about achieving this on a customer basis? Particularly given that your largest customer, you seem to be quite positive on in taking share. So just want to get a perspective of where you are coming from, in defining diversification and how we should think about that?

I think you should think about all of that. And I don't mean to be reckless with that comment at all, but when I think about diversification, Sean, I think about diversification in Green Point, I think about diversification across all the different end markets in our EMS business, which is probably 9 to 11 different end markets, something like that and then end markets aside, Sean, I think about our value proposition and the service offering. And so building product in legacy EMS style is not going to drive a lot of value for our shareholders. So we’re still very good at that, we are still going to do that. But, and it's a big part of our business. But what we've been up to for the last couple of years is also looking at different parts of the value chain that we can play, that we have a parenting advantage and our solid service offerings that might be above and beyond what you consider kind of typical manufacturing. So I cut the diversification play many different ways. One of the things I talked to Beth about in the last month is, it's been a while since we've done an analyst get-together and I feel a little bit remiss on that. Time flies by. So I think you can expect something from us, certainly in the next 12 months where we’d love to gather everybody on the sell side to buy side and the banking side to get together and give you much more color in what we’re up to, because I think you’ll be really pleased.

Okay, another question here, just to follow up on that. That diversification, are you explicitly seeing that in a strong manner within your pipeline of opportunities? Or is that more of a bogey and you're trying to work toward it?

I think we’re seeing it with great acuity and again as you sit back and kind of model out just the rest of this year, I think you’ll get to a conclusion that the diversification play, both EMS and then the non-mobility DMS must be diverse, because I think the financials will speak for themselves. And then I also, as I’ve said the last three or four calls, I’m pretty pleased with the diversification we have in the mobility spaces well.

If I could just follow with a question around Nypro, that seems to be an area a lot of optimism. Can you elaborate on the degree of growth, the duration of that growth that could be incremental from current levels, and the runway you would have in that business before you have to make more large investments? Thanks very much. That is it for me.

Sure. Why don't we hold off on that and why don't we wait until we do kind of a show-and-tell at an analyst meeting, and I think you will get a really good appreciation of what we are doing in the healthcare space, but I can tell you that it's growing to be fairly sizeable, good critical mass in ‘17, ‘18 and ‘19. It's going to be material to the company.

Thank you.

You're welcome

Your next question comes from the line of Jim Suva of Citigroup.

Thank you very much. You mentioned an acquisition and gave some details around it. Can you help us understand about how much revenue contribution is coming in on a quarterly or annual run rate? And is this acquisition -- is it a profitable one, or is it like a green shoots to kind of help you build much better and it doesn't impact your financials?

Jim, it’s Mark. Unfortunately, because of the terms and whatnot with the acquisition, and some sensitivity around it, we just can't provide a lot of detail. I will tell you that that acquisition will be fully accretive by Q1 of ‘17.

Okay, I was getting for the revenue contribution? Like, you just lowered your revenue outlook for the year, but yet you also acquired a company. I'm trying to figure out how much, organically, is the revenue adjustment for? And is there -- I assume some type of contribution?

Yeah. That's a good question. It's very modest at the moment. We did that acquisition more from a capability perspective as well as a strategic play along the lines of our diversification and we just can't say much about it unfortunately, but it will start to have contributions as we get into the early parts of ‘17.

Okay, then maybe I can ask a question on something that maybe is a little bit easier for you to talk about. Aside from the mobility customer that people have been focused on for the past 45 minutes of the call, can you take a step back and say, excluding that, what's going on there, your visibility, is it kind of stable with where it was three or six months ago? Has it improved? Just kind of outside the mobility, can you talk about the business trends that you're seeing in the demand and the visibility to your bookings and things like that?

Sure. Are you talking about at a corporate level, Jim or at a segment level?

Yes, corporate level, excluding mobility.

Yeah. So let's exclude mobility. I said in my prepared remarks, our EMS business is, it’s a $11 billion business going to $12 billion or $13 billion business and core income dollars in that business year-on-year are going to grow north of 15%. In this market, that's pretty good. And I think not that long ago, three, four, five years ago, people were looking at kind of legacy EMS business going, you know what, it's going to kind of have GDP type growth to it and legacy EMS margins to it. And our folks have kind of transformed that and we've got amazing customer relationships and we’re quite bullish. So that part of our business is doing well. I spoke about the healthcare business and then what I mentioned briefly is our packaging business, which we recently announced internally that we are going to break that off and have that be a stand-alone business and we’re doing that because we think that there are some outstanding opportunities in the marketplace around consumer packaging, whether it be the combination of rigid, flexible and intelligent type packaging, we’re pretty bullish on that and then we've got a whole group internally, Jim that operates maybe two or three degrees away from our core business that are off with some investment dollars and applying some of our know-how to different macro trends that we see. So we’re hopeful in that area and I’m bullish in the core business and again, I don't sit here and feel good about guiding you down for Q3. But I still remain very bullish on our mobility sector.

Thanks for the detail.

Yeah. Thank you.

At this time, there are no further questions. I would now like to turn the floor back over to Beth Walters for any closing remarks.

Okay. Thank you everyone for joining us on the call today. We will be available for any further follow-up questions that you have and once again, thank you for your participation and interest in Jabil.