Greetings and welcome to the Jabil Fourth Quarter Fiscal 2018 Earnings Call and Investor Briefing. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Adam Berry, Vice-President Investor Relations for Jabil. Please go ahead sir.

Good morning and welcome to Jabil’s fourth quarter and fiscal 2018 earnings call and investor briefing. Joining me on today’s call are Chief Executive Officer, Mark Mondello; and Chief Financial Officer, Mike Dastoor. Today’s agenda will begin with Mike, who will review our fourth quarter results and our first quarter guidance. Following these comments, we will transition into the investor briefing portion of the day where both Mark and Mike will review the strategic drivers of our business. We will then open it up for your question. The entirety of today’s call will be recorded and posted for audio playback on jabil.com, in the Investors section. Our fourth quarter press release, slides and corresponding webcast are also available on our website. In these materials, you will find the earnings information that we will cover during this conference call. Please note that during the investor briefing portion of our webcast, we will be showing videos. To view our slides and these videos live during today’s session, you will need to be logged in to our webcast at jabil.com. At the conclusion of today’s call, all of our investor briefing material including slides and videos will be posted and available. Before handing the call over to Mike, I’d now ask that you follow our earnings presentation with slides on the website beginning with our forward-looking statement. During this conference call we will be making forward-looking statements, including, among other things those regarding the anticipated outlook for business such as our currently expected first quarter and fiscal year 2019 net revenue and earnings. 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, 2017 and other filings. Jabil disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. With that, it's now my pleasure to turn the call over to CFO, Mike Dastoor.

Thank you Adam, and good morning everyone. Thank you for joining us today. As Adam described, I'll begin today by reviewing our fourth quarter and fiscal year results. During the quarter, both segments executed extremely well, resulting in consolidated results that exceeded our expectations in terms of revenue, core earnings and core earnings per share. Net revenue for the fourth quarter was approximately $5.8 billion, an increase of 15% year-over-year. GAAP operating income was $134 million and our GAAP diluted loss per share was $0.34. Core operating income during the quarter was $212 million, an increase of 11% year-over-year, representing a core operating margin of 3.7%. Core diluted earnings-per-share was $0.70, a 9% improvement over the prior year quarter. For the full fiscal year, net revenue was $22.1 billion, up 16% year-over-year. FY 2018 GAAP operating income was $542 million with GAAP net income of $86 million. GAAP net diluted earnings per share was $0.49 for the year. Core operating income was $768 million, an increase of 15% on a year-over-year basis, representing a core operating margin of 3.5%. Core diluted earnings-per-share for the year was $2.62, an increase of 24% over the prior year. I'd like to call your attention to three items which impacted our GAAP results during the quarter; first, pursuant to the Tax Cuts and Jobs Act in Q4, we recorded a provisional tax expense of $111 million. This is comprised of an additional tax expense of $26 million related to the one-time transition tax and an $85 million accrual related to the foreign tax impact of the change in the indefinite reinvestment assertion on certain earnings from foreign subsidiaries. The net effect of these two actions allows us to more effectively return cash to the United States. As we are applying our analysis any changes…

Thanks, Mike and well done. Good morning. We have lots to discuss today and lots to share. But first, as I think about our day that makes me think about our people. Our people are special and our team makes Jabil, Jabil. So along those lines, I’d like to begin today with a short video. Let's take a look. [VIDEO PRESENTATION] [END OF VIDEO PRESENTATION] Our people make all the difference. They are real, real differentiator for Jabil. And as customary, I want to say thanks to all of them. Thanks for taking great care of our customers. Thanks for making safety our priority and certainly thanks for your dedication and commitment. Back in December, during our 1Q earnings call of 2018. I made mention of a quote from C.S. Lewis, and to me the quote is just so descript. It’s so applicable of where the company is at today You know and our team is executing and taking care of customers in the day to day, it’s really hard to see and feel the progress that’s being made. But for me, what we’re doing is working, and because it's working there has been substantial change, and it’s changed for the positive. Talking and briefing you on these positives today is what’s today is all about. So let's start with last year of fiscal 2018. From my perspective, it was another great year. We grew revenue north of 15%. Combine that with strong earnings and strong cash flows. And I’m pleased with the 3.5% co-operating margin as well. Especially given that we printed these results while dealing with an extremely difficult supply chain. Our components market is full of constraints and uncertainties. Well done by all, across our entire Jabil enterprise. Our team’s carrying positive momentum with them into fiscal…

Thank you, Mark. I'd like to thank everyone again for your interest in Jabil. You just heard Mark described incredible growth in several end markets in the last few minutes, this growth we're seeing, it's almost like an episodic growth FY 2018 saw us adding $3 billion of revenues. We're projecting to add another $2.5 million in FY 2019. That's $5.5 billion in two years. That is unprecedented growth in Jabil history. Considering this growth, I though it would to be useful to sort of provided inside into the financial metrics that I, as CFO, am focusing on to the rest of the organization, the way we're driving the rest of the team. There's three metrics that are key to my level of detail. Operating margins, first, let me assure you the team is focused on operating margins, operating margins through diversification, operating margins through cost optimization. Diversification through targeted growth in selected end markets which will help us with cash flow streams and earnings which are predictable and lower volatility. Cost optimization and SG&A leverage across our worldwide print. So, overall those two areas of focus on operating margin. Secondly, earnings per share, earnings per share has gone from $1.86, $2.11 [ph] to $2.62 and we're projecting $3. That's a 17% CARG from 2016 to 2019. We will continue to focus on that EPS. Last but not least, free cash flows, free cash flow through optimization of working capital, discipline in CapEx management approach and cash allocation. I really feel we are on the right path and I'm confident that we will deliver on our commitments for FY 2019. Turning to revenue expectations for FY 2019, you heard Mark on why diversification was so important for the company. I'd like to provide you with the deeper look into this…

Thank you, Mike. As we begin the Q&A session, I'd like to remind our call participants that per our customer agreements we will not address any customer or products specific questions. We appreciate your cooperation. Operator, we are now ready for Q&A.

Thank you. We'll now be conducting a question and answer session. [Operator Instructions]. Our first question today is coming from Adam Tindle from Raymond James Financial. Your line is now live.

Okay. Thanks and good morning. Mark, I just wanted to start on the new business awards. What has changed to drive the inflation in new wins? Is it market share gains? Is it customers moving more from insourcing to the outsourcing? Then I had -- have a follow-up on that?

We certainly have seen – we have certainly seen some customers moving to outsourcing, but I would think as I mentioned in my prepared remarks in the presentation, we're -- I really like our approach. Our approach is divvied up into very, very intentional sectors where over the last three, four years with the investments we've made both in capabilities and then just kind of this domain expertise with people, I think we were just taking better solutions to the marketplace. And I also think that the macro in certain areas right now is – has given us some help, so I would say its those three areas, Adam.

Okay. And I know you mentioned that there's going to be some cost in front of the revenue with the bulk being cloud customers in terms of the win breakdown. We've seen others in the supply chain get pressured on profitability by those customers at time. Can you just maybe talk about the contract structures and maybe any protections or guarantees on returns on the contracts?

I can't – I wish I could, I can't, but we're well aware of that. And again, I think we do a pretty good job overall and I think it applies to the new business wins in terms of commercial terms and contracts with customers. I think we got a pretty good track record there.

Okay. Maybe I can get one in for Mark real quick then. Mike, you've been through multiple areas. We've seen areas in Jabil with high CapEx and little free cash flow, but setting up a strong growth. We've seen areas of attenuated CapEx and returning cash to shareholders via the buyback. Can you maybe just reflect on those times and help us understand your capital allocation beliefs? Thank you.

I think our discipline on CapEx management has increased tenfold. We're totally focused on growth areas. I think one of the key things we're doing on diversification side is to focus on end markets where we're targeting high returns and that’s how we manage our CapEx flows as well. We do think working capital management is another area that we're focusing on and that's obviously helps our cash flow from ops. And now we feel really good about that.

Okay. Thank you.

Thank you. Our next question today is coming from Amit Daryanani from RBC Capital Markets. Your line is now live.

Thanks Mark and Mike. Your first half, when I look at the November quarter guide, I think the implication is operating margin is up about 20 basis points sequentially. Can you walk through -- is that expectation or expansions that are going to come out from DMS or the EMS side? And kind of what's driving that?

Hi, Amit, I'll take that. In my -- the ramp slide that I showed, I think I talked about some of those costs for ramps coming pre-revenue, so the costs are obviously – its production facilities, its pre-ramp costs, its things that we're doing in our sides before we even start manufacturing. So I indicated there's about $15 million to $20 million of those costs coming in the first half. So some of that is related to Q1 and some of it is Q2.

On the Johnson & Johnson engagement that you guys talked about, can you just talk about -- I think you mentioned the 14 sites you're taking over. Geographically, where are these sites located? And once you get past the initial ramp with Johnson & Johnson, what's the margin profile of this business that you're looking? Is it going to be like the long-term DMS target or something different, just the Johnson breakdown of the site and what do you think the margin profile once you passed the initial ramp? That will be helpful.

Yes. So, we'll be able to share more detail and I actually want to share more detail over time. For now we're in – as you'll be familiar with kind of applicable consultative processes. And once we get through all that then we'll come out and provide a bit more detail and scope of the entire collaborative partnership. But again it’s – in my mind a very, very transformational strategic opportunity.

Perfect. That's it from me. Thanks.

Yes. Thank you.

Thank you. Our next today is coming from Steven Fox from Cross Research. Your line is now live.

Thanks. Good morning. Thanks for all that great detail this morning. I had a couple of questions based on the slides. First off, if I look at just the base business that you've highlighted going into 2019 and eventually 2021, looks like the incremental margins you're getting off of that is low double digits in 2019 and then more like 6% to 7% if you look over three-year period? I was curious if you could just sort of explain those incremental margins? How they change? And what a normalized incremental margin you think is for the company going forward? And then I have a follow-up.

Hi, Steve, it's Mark. Maybe you can help me little bit with your question. I think when I was kind of going through and indexing through the slides I thought what I had communicated and maybe I didn’t do a very good job of it is, is that the base business from 2018 that we just printed was right at 3.5% core op margin. And as we just step that base business from 2018 to 2019 we have fairly modest growth assumptions around that base business of about 2.5%. And I think what the slide showed is, is margins would actually expand about 20 basis points.

Right. And so what I was wondering Mark is that the incremental change is dollar is about $500 million roughly. And you get $60 million of profit off of that next $500 million. But then if I look at the three-year slide you get $1.7 billion of incremental sales and you generate like a $150 [ph] million off of that. So I'm trying to understand how that leverage is coming out?

Yes, yes, but I didn’t understand question that way. That's just simply the product mix and where we at. There's a lot of dollars that we're ramping that aren't in the new business wins from years past. So that's all about time to maturity.

So, is the longer term incremental margin sort of a normalized -- what you could get on --the type of leverage you get normalized volumes?

Yes.

Okay.

Okay. I think – and by the way, I think that's a consideration when we are talking about what could be in fiscal 2021 with us driving to $4 a share and four points of operating margin.

Okay. That's helpful. And then just on the diversification slide, I might be pushing a luck a little bit on this one. But if you were to sort give us a sense for where some of the growth is most robust within all those different breakdowns that you gave versus where maybe its more normalized. There's like – it looks like there's like about 10 different categories, but maybe little more highlights on going forward how that growth looks like?

Yes. I think you're pushing your luck little bit. I think if you just referred back to – I think a good proxy for that is, if you saw and go back to both one of my slides and I think Mike duplicated the slide actually that kind of highlighted the four areas in terms of new wins and I would add to that, if I go back maybe 12 months to 18 months, we’ve also had some nice wins in the area of energy. So I’d say there's five to six end markets that are driving that.

Okay. Thank you so much.

Yes, you’re welcome.

Thank you. Our next question today is coming from Ruplu Bhattacharya from Bank of America Merrill Lynch. Your line is now live.

All right. Thanks for taking my questions and thanks for all the nice details. Mike you mentioned about component cost. I was wondering your guiding fiscal 2019 revenue to $24.5 billion, how much of that is impacted by component cost, like how much would you say a component cost are harming or are reducing revenue in the next year?

Hey, Ruplu this is Mark. So this is a topic that we’ve been queried down quite a bit. So I’ll start kind of fundamentally. Calendar, late calendar 2017 and certainly all of calendar 2018 and we think probably the first three, four, five, six months of calendar 2019. For those of us that have been around this business for a long time, it has been what I would think is the most highly constrained, complicated, difficult component markets that we’ve seen. And when you go through that, it’s just -- it's hard, it's hard to plan production. It's hard to run your factories optimally. It does, it does, it does shake up kind of product mix and revenue. What it doesn't do so much for us though is we don’t tend to absorb the escalating costs. We have really good commercial terms. We split those risks with our customers; with some customers we recovered 100%. Some customers we split 50-50. So, for me, the constriction of material, the difficulty and the supply chain, the difficulty that does in terms of I don’t know what we are shipping today. We’re probably shipping $80 million to $100 million of hardware out of the company every day. It just makes running the network factories more complicated and I think that's where I think that's where some of the additional cost come from, not so much from the from the escalating components.

Okay, okay and that’s helpful. My next question, I just wanted to ask you about the slide that has fiscal 2018, 2019 and 2021. When I look at the section for fiscal 2021, you've got fiscal 2018 baseline growing 2.5% and you also have the new wins from fiscal 2019 growing to $3 billion. And then I see the other line of $1 billion right? Does that include both the new wins from fiscal 2020 and fiscal 2021, and I guess my question would be, do you think the win rate slows down after fiscal 2018, 2019, because I see you’ve got fiscal 2018, fiscal 2019 wins and then you’ve grouped them into another category. So, does that include both fiscal 2020 wins and 2021 wins?

That's more just an illustrative plug. What I'm trying to show there is – as we index towards fiscal 2021 as the new wins from 2019 gets to maturity if you will, I just – we’re not going to be standing still, we are going to book new wins and that was nothing more than a plug number, the intention being that it doesn’t take a significant amount of new wins for us to make fiscal 2021 turnout, that’s all.

Okay, thanks for clarifying that. And the last question is, Mike you are guiding $800 million for CapEx for next year. Like you’ve invested significantly like two or three years ago in Greenpoint, so where do you think – can you give us a spread of where that CapEx spend will be in which segment or which end markets or which geographic region?

We haven’t broken that out, Ruplu but I think it’s all across, it’s not in any – it’s not in any specific segment, obviously the growth areas will be ones that we focus and like I mentioned the diversification in the end markets we are trying to deliberately take action in certain end markets, so CapEx is more targeted towards that.

Okay, thank you. Thanks for taking my question.

Thank you. Our next question today is coming from Alvin Park from Stifel. Your line is now live.

Hi, this is Alvin, speaking on behalf of Matt Sheerin. I think on the call you mentioned that you met the supply constraint shed expense through the second half of calendar year 2019. If you could give more details on if it’s a widespread phenomenon or if it still constituted on a certain past components? And secondly, if for fiscal year 2019 or fiscal year 2020 and beyond do you expect potential cash flow increases assuming that inventory would wind down since you don’t have to stock up much back up supply?

Yes, so I think what I said is – what I meant to say is the constraint component market would go through the back half of calendar 2018 and into the first number of three, four months if you will call it first half of calendar 2019. I don’t think it’s market will settle or abate completely as we get to the back half of 2019 that we’ll start seeing some relief we believe as we start moving through the spring and summer time of 2019 we think the market will get better. In terms of what was your second question?

So in terms of cash flows…

In terms of cash flows, right.

Yes.

Could you ask that again, because I’m not sure I understood you correctly?

So the cash flow guide takes into effect the potential benefits you might see from less working capital requirement specifically involving inventory.

Well I think what’s going to happen is, is actually think the working capital is going to continue to expand on an absolute basis based on the $5 billion, $6 billion of growth that we’re seeing. But in terms of days and inventory and what not as the supply chain rationalizes, as we can run our factories in a more normalized basis, as we can serve our customers with our planning tools in a more normalized basis, that will improve but yes, the information in terms of both EBITDA in terms of free cash flow and cash flow from operations that we anticipate for 2019 and then the model illustration we showed for 2021 does anticipate that.

Okay. And then in terms of the core EPS guide of roughly $3 for fiscal 2019 and the 20% year-over-year growth, how much – how heavily will that be constituted on overall sales and margin improvement versus share buyback programs that you have in place?

I’d just say that, I’d say the $3 a share again it’s a combination of both growth of the business, financial returns or op [ph] income tied to that business plus the share buyback and then of course tax and interest expense.

Thank you very much.

Thank you. Our next question today is coming from Jim Suva from Citi. Your line is now live.

Thanks very much. You both gave a lot of details on the financial model long term and the bridges which is great. On the Johnson & Johnson plant acquisitions, is that included in CapEx or cash flow and how should we just think about that from modeling versus on the financial metrics that you just gave out. I think you said neutral to EPS and then growing, is that correct?

Yes, Jim I said we anticipate the deal to be neutral to core EPS for fiscal 2019. And then in terms of the $800 million that Mike talked about in CapEx for 2019 the J&J deals included in that number.

Okay. And then near term this quarter, your revenues materially beat your guidance expectations but earnings, kind of really did not. Is that, due to like a pull-in of these investments you are doing in the future that kind of near term pressure things or was it something else like mix related that or inefficiency due to the complexity of the supply chain, because it seems like you are talking about longer-term pressures on margin the next year or so, but I just want to make sure this quarter the report of the disconnect from upside to sales to margins. Thank you.

Yes, if you’re talking about 4Q of 2018, if I think through the math on that Jim, we overshot the midpoint of revenue by about $350 million. And then our midpoint on the operating line was about $200 million of core operating income. I think we published about 212, so we got about $12 million of Op income leverage on the 350, I don’t know what the math is, it feels to me like that's like three 3%, 3.5%. And then, the only reason we didn't get more leverage is again because of -- because of some of the early expense that Mike talked about in some of these ramps. But all-in-all when I look at the addition of revenue and the upside to the midpoint of our operating income, the leverage wasn’t bad.

Okay, that makes sense. Thank you so much for the details and clarifications. It’s greatly appreciated.

Yes, thanks Jim.

Thank you. Our next question today is coming from Paul Chung from JPMorgan. Your line is now live.

Hi, thanks. This is Paul Chung on for Coster. Thanks for taking my questions. So, thanks for the end market diversification size, is very helpful. So just want to get a sense. Are you going to provide this level of detail moving forward? I know you mentioned the bifurcation of DMS and EMS doesn’t really make sense anymore. And also will you provide some margin profiles for each respective end market? And then which markets in your view are kind of driving most margin upside relative to your corporate average?

Okay, that was like four questions in one I think. So, in terms of how we are going to provide this going forward, I think what we’ll probably talk about Mike and I will talk about going forward is kind of on an exception basis. So we’re trying to use the depth that we shared today is as kind of foundational for 2019 and then on an exception basis it things have gotten way out of line, we’ll talk about it and address it. In terms of my comment on DMS, EMS I just want to be sure you’re clear, right. We’re still going to report our business in an EMS, DMS segment. I think if you look at what the teams have done in terms of taking their EMS margins from roughly 2.2% pumping into the high threes and towards four, our approach to all of our businesses today. Our original thesis around the nomenclature of DMS was really about giving investors, higher acuity, higher visibility to businesses that were no longer build the print, no longer EMS like and that was whatever it was six, seven years ago. Today, when I think about the nature of and the intent of diversified manufacturing, meeting new solutions to the marketplace, mechanics full product design, really us having products, expertise, us taking kind of a functional spec or conceptual ideas and being able to take that all the way through to design products, supply chain and delivering the product, that really cuts across the businesses today, whether it be in automotive or healthcare, whether it be in ARVR 5G Cloud, industrial etcetera. So, my commentary was really around our approach in terms of solutions in terms of how we go after the business, in terms of how we care for customers is not a big differentiation between our DMS and our EMS segments. What was the third question?

Just the margin profile and kind of end markets.

Yes, at this point we don’t intend to break out the margins by sector. We’ll continue to break out the margins by DMS, EMS segment through fiscal 2019 and then we’ll see what we decide to do as we move into fiscal year 2020.

Okay. Then if we take a step back at looking at fiscal year 2018, very strong revenues. How has the kind of pricing environment been with competition? And then moving into 2019, are you seeing some of those competitive pressures at all? And then anything you can mention on the tariff noise as well? Are you winning -- are you gaining share from some of those partners that are more affected by that?

On the pricing side, I wouldn’t say there's no relief in pricing. I would say that the pricing environment we live in today is -- is this will sound like an interesting word, but it is normal as it’s ever been. And normal for us is – we’ve got to be creative, we got to come up with good solutions. We’ve got to earn our pay. But when I cut across the dozen or so sectors in the business, there's nothing there that is suggesting that we have issues with pricing, I don’t think really and anywhere in our business, and I think we’ve been very cautious and select in the new business awards. One point, I think I failed to mention. And I think it's important, as CEO of the company, I’ve not sat in the last 12 months to 14 months, I've not sat in one meeting and asked people to drive topline growth, not a single meeting. And I think that's a reflection of I don't want people to be confused, we’re not out chasing growth for the sake of growth. For me, our whole objective is to make the company more valuable within a reasonable time window. And again, I think we've expanded valuation, but we certainly I don't think have expanded it enough. So these wins, these $2 billion of wins are a direct reflection of the quality of services and solutions that are being accepted in the marketplace, but by no means are we out covering the streets or the salespeople trying to grab topline growth not, not in our strategy at all. In terms of the trade and tariff issue, I think that it continues to be a moving target. It depends -- you wake up one day and there's a tweet you…

Okay, great. And then my last question is on free cash flow. It looks like ramp up cost, working capital investments, so probably weigh on 2019 as well. When should we expect kind of free cash flow to normalize? And what are those normalized levels in your view? Thank you.

Yes, you’re welcome. I actually like our free cash flow for 2019, I think in 2018 it was $250 million. It would have been greater than that if we weren’t dealing with the growth and weren’t dealing with the supply chain constraints. In 2019, I think what the slide suggested as we were going to expand free cash flow by about $100 million, or 40% year-on-year from 2018 to 2019, and then kind of the -- how it could be slide suggest the free cash flow could be something much greater than that in the $600 million range. So with all said and how we are running the business, all the different moving parts in terms of kind of what future cash flows could look like I'm quite pleased.

Thank you. Great job guys.

Thank you.

Thank you. [Operator Instructions] We have reached the end of our question and answer session. I like to turn the flow back over to Adam for any further or closing comments.

Thank you everyone for joining us today. This now concludes our event. Thank you for your interest in Jabil.

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