Greetings, and welcome to the Jabil Fourth Quarter 2019 Financial Results 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 of Investor Relations. Please go ahead, sir.

Hello and welcome to Jabil's fourth quarter of fiscal 2019 earnings call and investor briefing. Joining me on today's call are Chief Executive Officer, Mark Mondello; and Chief Financial Officer, Mike Dastoor. Today Mike will begin by walking us through the fourth quarter results. Following these comments, we will transition into the investor briefing portion of the day, where both Mark and Mike will review our strategy and outlook. We will then open it up for your questions. The entirety of today’s call will be recorded and posted for audio playback on jabil.com within the Investors Section. Our fourth quarter press release, slides, videos and corresponding webcast are also available on our website. In these materials you will find the earnings information that we cover during this conference call. Please note that during the investor briefing portion of the webcast we will be showing a video. You will need to be logged in to our webcast on jabil.com during today's session to view our slides and the video. Additionally, at the conclusion of today’s event, we will post several videos to our investor relations website in the Events and Presentation section. These videos feature our business leaders and highlight the current state of the end markets they serve. Before handing the call over to Mike, I would now ask that you follow our earnings presentation using the slides on the website beginning with our forward-looking statements. During this conference call, we will be making forward-looking statements, including, among other things, those regarding the anticipated outlook for our business. Those 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, 2018 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 Mike Dastoor.

Thank you, Adam, and good morning, everyone. I will begin today by reviewing our fourth quarter and fiscal year '19 results. I'm very pleased with our fourth quarter performance. During the quarter, both segments executed extremely well and delivered strong consolidated results. Net revenue for the fourth quarter was $6.6 billion, an increase of 14% year-over-year. GAAP operating income was $189.7 million and our GAAP diluted earnings per share was $0.34. Core operating income came in slightly higher than the midpoint of our guidance during the quarter at $246.1 million, an increase of 16% year-over-year, representing a core operating margin of 3.7%. Core diluted earnings per share was $0.88, a 26% improvement over the prior year quarter. For the full fiscal year, net revenue was $25.3 billion, up 14% year-over-year. FY '19 GAAP operating income was $701 million with GAAP net income of $287 million. GAAP net diluted earnings per share was $1.81 for the year. Core operating income was $877 million, an increase of 14% on a year-over-year basis, representing a core operating margin of 3.5%. Core diluted earnings per share for the year was $2.98, an increase of 14% over the prior year. I’d like to call your attention to two items which impacted our GAAP results during the quarter. First, we incurred a one-time charge of $6.2 million due to a distressed customer in the networking space. And secondly, as we previously disclosed during the quarter, we exchanged $50 million of iQor preferred stock associated with our divestiture of our aftermarket services business in 2014. The exchange in the preferred stock resulted in a one-time net non-cash charge of $29.6 million. I will remind you in 2014 we recorded a net gain on the sale of discontinued operations net of tax of approximately $223 million. Now turning…

I appreciate everyone taking time to join us today. I can’t help but smile when I see that video. For me the video speaks volumes. Seeing comments from our folks like true self, differences unite and diversity of thought, as CEO I love it. It's who we are and it's what Jabil is all about. You see diversity and inclusion is core to our value system. Diversity is about having a seat at the table. Inclusion is about having a voice and belonging is assuring your voice is heard and respected. This certainly rings true here at Jabil. Our belief system makes a difference. In fact, a huge difference. Thanks to all of our employees. Thank you for just being you. Thanks for keeping each other safe, each and every day. And I appreciate all you do. With that, please turn to Slide 11, where we see our financial results for fiscal '19. Another exceptional year. In fact, a record year in terms of revenue and income. As Mike highlighted, our team generated core earnings per share of $2.98, a 14% increase over fiscal '18. On top of this, the team doubled free cash flow year-on-year, while returning roughly $400 million to shareholders through buybacks and dividends. During the year, healthcare, cloud, wireless, energy and retail were our top-performing sectors. Another really nice year all the way around. Moving to Slide 12. I thought it worthwhile to highlight our four year track record. The fact is what we're doing is working. These three bar charts taking collectively provide a fantastic backdrop to our ongoing story. A catalyst to our performance is the balance and blend of our income. But as I said previously, being diversified for the sake of diversification isn't all that special. What is impactful to me is…

Thank you, Mark. I am excited with the momentum underway within the business and I believe it will carry through to our next two fiscal years, as we continue our natural progression towards margin and cash flow expansion. Over the next few minutes, I plan to provide you with a framework that highlights how we will execute on our strategy and deliver on our financial commitments. First, we’re fully focused on expanding margins to position the company to deliver higher margins over the last few years with targeted growth in areas of our business that have higher return profiles that offer accretive margins and strong cash flow streams. At the same time, we are focused on optimizing cost to ensure we’re positioned to deliver SG&A leverage across the worldwide Jabil footprint. Secondly, core earnings per share has gone from $1.86 in FY '16 to a projected $3.45 in FY '20. That’s a 17% compounded annual growth rate. And finally, we’re focused on generating strong free cash flow through optimization of working capital and disciplined CapEx management. These priorities are aligned and focused on delivering long-term value creation. Our performance in FY '19 gives me confidence that our strategy is working and positions us to deliver on our commitments in FY '20 and beyond. Next I'd like to outline our expectations for revenue in FY '20 by end market, along with our expectations for core operating margin by segment. I first like to discuss what’s going on in our DMS business in FY '20. We're expecting 10 basis points of margin expansion on low single-digit revenue growth. The key take away this year is the considerable mix shift underway in this business. In FY '20, we anticipate adding $800 million of healthcare and packaging revenue to replace $700 million of mobility…

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

Thank you. [Operator Instructions] Our first question today is coming from Adam Tindle from Raymond James. Your line is now live.

Okay. Thank you very much and good morning. Mark, I just wanted to start off with the fiscal '21 EPS target of $4. I think that implies similar EPS growth as fiscal '20 mid-teens year-over-year. Hoping you can touch on the composition of that growth from '20 to '21. Because if we think about from '19 to '20, there's some identifiable things driving EPS growth like J&J getting to the full run rate, the EMS costs that burden last year not repeating and now you’ve got $85 million of costs taking out. When you thought about guiding fiscal '21 for the same EPS growth, what are the drivers of that growth that gave you the confidence to guide that far out as we sit today?

Thanks, Adam. So I think you touched on a few of them. The -- for us as we look at going from '19 to '20 and '20 to '21, certainly normalization in our healthcare business with what's going on with J&J, I think Mike also shared in his opening remarks and his assumptions that we believe we'll see or start to see a recovery in semi-cap in calendar summer 2020. So we believe that will carry us into '21. And then I also believe that across a number of our business sectors, Adam, the 5G enablement will start I think for real as we get into early to mid fiscal '21 and that will be beneficial as well. And then if I touch on the $85 million that Mike talked about, I think the timing and the use of those funds is quite good at the moment when I think about where our business inside of China sits. So, all in all, I stack all that up and that’s how we decided to give you guys a look to see at fiscal '21 and I’m pretty pleased with the outlook now we got to execute, but it's squarely right in front of us.

Okay. That’s helpful. And maybe just as a follow-up for Mike, you had obviously very strong performance and free cash flow exceeding your original goals for fiscal '19. And I know this has been a focus, so could you maybe just touch on some of the discipline you put in place to achieve this. And it does sound like you’re expecting kind of the same level of free cash flow in fiscal '20, but growth is attenuating. So are there offsets or is this just kind of more taking a conservative approach like you did last year. And if you want to wrap it up with the capital allocation and buyback decision, which is the largest authorization ever, that would be helpful.

So, yes, Adam, extremely pleased with our cash flow performance in Q4 consistent with previous years. Some the disciplines we put in place on inventory on AR, AP, all of those are coming through, working capital efficiencies are improving. There will be puts and takes as we go forward, obviously when we do our strategic collaboration. The inventory levels go up a little bit and they come back down throughout FY '20. Yes, so there's a lot of efficiencies taking place in working capital side and I feel really good about the $500 million plus that we put out for free cash flow. Maybe there's a little bit of conservatism in there, but it includes all the other pieces on the optimization side and some of the cash. I think we’ve mentioned about $35 million of cash will go out on the optimization side as well. So feel good about that. Capital allocation, I think the basis, I think it lays out a clear path on what we're trying to do over the next two years and I think the starting point is our free cash flow number and the share buybacks and dividends of approximately 60%, we feel is a good target to drive in over the next two years.

Got it. That’s very …

This is Mark again. While I was listening to Mike talk, another thing that popped in my head to your question around '21 is, Adam, alluded to it and I think I mentioned it somewhere in my prepared remarks. I think for both sales side, buy side and anybody interested in the company, taking some time and looking at videos that were posted or will be posted right after the call will be extremely beneficial in terms of activities that will also contribute to '20 and '21.

Appreciate it and congrats on a strong year.

Yes. Thanks, Adam.

Thanks.

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

Thanks. Good morning. I’ve two questions. First off, can you talk a little bit more about the process that went into deciding to take some capacity out on a wireless side. I heard some excess capacity concerns, which I think were there a year-ago, but then also you were talking about growth when you get out to fiscal '21. So is it just a mismatch capacity, different types of programs that came up made the decision happen. I would love some color on that. And then I had a follow-up.

Yes. Steve, let me take a swing at it and then maybe Mike will add some commentary. What we felt is, if we look at the leadership team we have in Jabil Green Point today, the work they’ve done in the last 18 months is fascinating to me. And the fact that we're taking out some capacity is no indication around health of business -- lack of health of the business where we're positioned is as good today as we've ever been. Market share is in good shape. The team has just done a tremendous job of -- for lack of better word, getting more water through a smaller pipe. And so we looked at all of this and said, the timing feels pretty good to take out some capacity. There is a small subset of that capacity that needed to be taken out regardless. But the vast majority is we really wanted our kind of our back half of '20 and certainly '21 financials to be properly reflected, if you will, for again lack of a better term. So I think it's a really good decision and I think the timeliness of the decision is appropriate. And I don’t know if you had anything to add, Mike.

And so some of the automation and manufacturing process improvements that we've put into place over the last 18 months, that makes us -- that gives us confidence that we can put in more incremental revenues through a reduced capacity. And we’ve sort of -- we feel really good about our market share. There's no loss of market share. In fact, we are gaining market share. So overall, I think it’s the right decision and it contributes to DMS margins.

That's very helpful. Thank you for that. And then just as a follow-up, the message came through loud and clear in terms of improving margins and optimizing what you have in terms of programs. But how do you manage the customer relationships going forward as you execute that maybe they want to add more to the Jabil pipeline, but that doesn't seem to be in the cards in the next new 12 to 18 months? Thanks.

Well, I’m not so sure it's not in the cards. I think there's two elements for Mike and I. One is, we continue to improve the overall portfolio both in terms of our right to play in certain markets, selection of certain markets that we think are a bit more stable, a bit more predictable at times longer product life cycles. And then, in addition to that, one of the things that we've done a really nice job of, so Steve, you know well, the last 3, 4 years our hair has been on fire a bit in terms of overall growth for a number of well thought strategic reasons. Taking our foot off the gas, I think is healthy. We put a lot of pressure on the factories, a lot of pressure on the team. So now it's time to slow the car down just a hair, refine it, polish it up, but in terms of -- if we’ve got good opportunities, I think the way we look at that is reset and hurdle rates for each of our business sectors and business division. So what you could expect is, if revenue -- if we do take on opportunities and revenue creeps up, I think there's a high probability that additional earnings will come with it without any attenuation to margin either in '20 or '21.

That’s very helpful. Good luck going forward.

Yes. Thanks, Steve.

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

Thank you very much, guys. If my math is right and it might be wrong, I think the full-year fiscal '20 sales growth rate is slightly under 3% around 2.7%. But the Q1 outlook is up about closer to 8%. Maybe my numbers are wrong on that, but it seems like you were expecting a strong wind down or tail off of growth as the year progresses, is that due to you exiting the business? And it looks like this category called Edge device and lifestyles is the biggest challenge there? Can you walk us through kind of the linearity, is my math right and kind of what’s going on there? Thank you.

Hi, Jim. I think your math is right. I think the Q -- if you look at the Q1 kind of growth rate, the Q1 growth rate is going to be kind of double-digit year-on-year, Q1 to Q1 on the EMS side and then normalizes throughout the year. I think that's twofold. One is Q1 of last year was a little bit of a abnormality, because we hadn't ramped any of the new businesses yet. So the kind of the denominator in the growth rate was a little bit distorted. I think if I think about Q2 and Q3 and Q4, we end up with kind of tougher comps with growth towards the back half of the year based on the timing of the new business ramps and how they laid in '19. So part of it is kind of the overall comps year-on-year comparison for '19 and then as well as the first half of fiscal '20, which is really kind of the back half of calendar '19 is also an area where we're completing ramp. So, overall, your math is correct and I wouldn't take anything away from that other than it's really about how the comps are measured.

And then, Mike, correct that the biggest challenge is the subdivision or sub-segment you called edge device and lifestyles. It looks like year-over-year going to be down about $0.5 billion, is that right? And help us just understand that a little bit.

I would say in our DMS segment where edge device plays, that's a fair observation. And I would say that overall on edge device, what we call edge device and lifestyle, Jim, there's three items that are playing there. So I think on our -- for lack of a fancier term, our green, blue slide that Mike spoke to on end markets, it shows edge device lifestyle for the year-on-year going from about $3.5 billion to $3 billion. I remember the exact numbers, but call it down $400 million, $500 million year-on-year. That's for a few different reasons. Number one is, there is a significant number of products in that bucket. So a number of those products are going through technology changes as things prepare for 5G. Number two is, certain products are just plainly going into life. And number three is, management's just made some decisions not to pursue follow-on products based on those products not meeting either a margin structure or cash flow priorities. The nice thing about that, Jim, is repeal $400 million, $500 million out of edge device and it gets replaced by really healthy outlook from healthcare and packaging. So I think the swap is quite good and really sets a nice platform for us as we move into fiscal '21.

Great. And then quickly can you just update us on the Johnson & Johnson transition as it -- I'm sure it's still transitioning if not fully done would be my assumption. May be either a number of sites or amount of revenues or just where we think about the phase or ending of that transition? Thank you so much.

Yes, sure. The -- when we first announced the wonderful collaboration with JJMD, there was -- there were some noise out there about, Geez, you guys going to be able to execute. This is like other big deals done in the industry that maybe didn't turn out so well. I think I said in our June call that Wave 1 and Wave 2 were completed and completed the plan. Those Waves had five factory sites and we welcomed all the employees from those sites. Wave 3, Jim, is coming along as planned. It will be integrated and closed on time. In fact, the plan is for the end of this month. So all in all, really, really pleased. Lots of hard work, but I think it's a win-win for both Johnson & Johnson and Jabil. And as I said, I think in the June call, revenues from the transaction still look to be in the $800 million to $1 billion range for fiscal 2020.

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 Matt Sheerin from Stifel. Your line is now live.

Yes, thanks. Good morning and thanks for all the details on the sub-sectors. Very helpful. In your outlook, you talked about growing the auto and semi-cap segment fairly significantly. Is that mostly on the auto side? You talked about continued weakness in semi-cap until basically the end of your fiscal year. So where is that growth coming from?

Sure. Thanks for the question, Matt. The -- again in Mike's prepared remarks and his assumptions as we sit today and it's been a moving target, unfortunately, it's been a target that's moved on us a couple of times to the right. But Alex Parimbelli and his team who oversee that part of our business has, kind of, put a little bit of a more stable guidepost in thinking that our semi-cap recovery, at least as applicable to Jabil. We should start seeing recovery in summer of calendar 2020. And we think that recovery carries through beyond the end of our fiscal 2020 and into 2021. And then on the automotive side, Mike Loparco and his team, Chad Morley and all the folks that run our automotive business have it really well position specifically in areas of electrification and sensing around the vehicle. So that's where the growth coming in both of those sectors combined.

I guess despite the fact that the auto production continues to be weak. Is that just incremental program wins, basically?

Well, it's two things. One, it's always great to have huge wins at your sale in terms of market growth. But when we take a look at where we are positioned in the marketplace, it's not just all about vehicle production, it's about content per vehicle. And again, where we’ve chosen to participate strategically, content per vehicle for us looks quite good.

Okay, great. And then on DMS, could you talk about the packaging area? I know that has not been a big contributor to profits. I know you’ve had some management changes there, you've had some more optimistic outlook. So can you talk about that business and how that contributes to your op margin increases over the next couple of years?

Yes, I chuckle because I remember sitting here not that long ago talking about the drag on the company from our packaging group. And happy to say that the packaging business continues to grow double digits in terms of top line. The drag on the company is now gone. And I said in my prepared remarks, I made some comment around one of the things we pride ourselves on is keeping fixed things fixed. And the lady that we hired out of the packaging industry has turned over the vast majority of our packaging leadership team. What she has dove into with her team is a service offering now and a solutions offering now in the packaging space from a company that has massive scale, great capabilities in terms of miniaturization, precision machining coatings, electrical and electronic assembly, and combining that with a pure packaging molding background. And we think our service offering is quite good. So certainly our packaging business is planned to be a material contributor as we move into fiscal 2021 and certainly a contributor in helping us get the company to the 4% margin outlook that we talked about for fiscal 2021 as well.

Okay, great. Thanks a lot, Mark.

Yes.

Thank you. Our next question is coming from Mark Delaney from Goldman Sachs. Your line is now live.

Yes. Good morning and thanks for the detailed presentation and slides. As -- first off and to better understand your manufacturing plan and as the company constructed its CapEx plan for fiscal 2020, I'm curious if you are contemplating any increased manufacturing in different geographic locations because of tariffs, or maybe just more broadly are you're seeing any interest from customers or potential new customers and moving out of manufacturing locations?

Thanks, Mark. So there is a couple of different questions there. In terms of trade tariff issues, I said back, I think it was the June call that as we sit today no big material impacts to us. As we are sitting now in September, again, very little materiality in terms of actual business moves. I think, I mentioned something around the fact that there continues to be a deep rooted supply chain in China. A lot of our customers, when they look at the analysis, don't see a great payback in terms of moving existing business. And then there is a decent amount of our China revenue that's concerned -- consumed in other geos other than the U.S., so kind of not applicable. With all that said, Mark, one of the things that we have taken a hard look at in the last 75, 90 or 100 days is we do think with all the growth we put into the company, general footprint expansion is essential. And so from a CapEx perspective, we are going to continue to expand our footprint. And a lot of that expansion is largely outside of China. Most of that expansion is in support of our EMS business. And then there's probably an OpEx component to that, Mark. As I think about the overall EMS margins and somebody else earlier in the conversation today was asking about it, our EMS margins are always the last number of years stronger in the back half of the fiscal year versus the front half. This year EMS margins will also be lighter in the front half versus the back half and a small subset of that is we've planned about $10 million to $12 million of OpEx in the first half of the year in terms of EMS as far as footprint expansion strategically. So I hope that answers your question. And by the way, that's all built into our model and our outlook.

Yes, that's all very helpful. Thank you for that. My follow-up question was the outlook for the enterprise business, lower revenues in the guidance for this year? Is that just more end-market weakness or anything around the programs that you’re able to [indiscernible] we should be thinking about? Thank you.

Yes, I think the answer is yes. We've been participating in that space literally forever. We are very well positioned in that space with our service offerings. We understand it inside and out. And, overall, if I think about the enterprise space collectively, if I set cloud aside, we are not going to see big growth in that sector of our business, but it's still a very important part of our business. It has lots of critical scale. I think the numbers Mike showed on our sector chart is still a $4 billion business for us. Really good in terms of stable cash flows. So, all in all, pleased with the business. But yes, your thesis are understanding around the end markets, I think it's correct.

Thank you.

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

Hi. Thank you for taking my questions. The first one, just to clarify the focus on footprint optimization. Are you actually going to use the $85 million to repurpose the factories from one area of DMS to another, or are you actually closing factories? And related to that, you’ve got mobility revenues declining $200 million in fiscal 2020. Some people think that the next year, fiscal 2021, can be a strong year for 5G related mobility. Would you have enough capacity to support that and put mobility revenues then grow in fiscal 2021?

Hi Ruplu, it's Mark. Let me take a swing and let Mike add. So on the mobility side, I think our outlook '19 to '20 write-down $200 million, I don't think that's overly material, but directionally it's down. I think, we are being somewhat conservative this year in the mobility business. It's not an indication, as we said earlier, in terms of how we're positioned. It's not an indication of that whole sector for us in terms of market share. We are quasi-bullish on mobility for '21, again, based on 5G. So as I also alluded to earlier, it's really about the incredible job our teams done around Green Point. We are just getting better water flow through smaller pipe and that's due to factory optimization, layouts, efficiencies, automation, robotics. And again, some of the CapEx we spent in the last couple of years is really starting to pay good dividends for us on the factory floor. So, again, I wouldn't read anything into it in terms of how we view the mobility market or how we view the relationships we have in that area. Quite frankly, it's all in relatively good shape. Mike, do you got anything to add?

No, I think the biggest factor is that the ability to drive more revenues through a reduced capacity that we are putting in place. I think Mark talked about automation, robotics, all of that’s going to take over the next year or so. We will be able to drive a lot more revenue through a much, much reduced footprint.

Okay. Thanks for the clarification on that, Mark. Maybe the next question on EMS. You’ve got the wireless 5G and cloud revenues flat in fiscal '20. I would have thought that there would be some 5G build outs and you would see stronger growth. And you've done a great job with the cloud business this year. Can you just talk about what do you see -- how you see that business growing in the next year and why wouldn't we see more growth in that area?

Well, we might. I think we are -- the cloud business is relatively new to us. Again, I think Alex and his whole team have done a really nice job there. I think, we're looking at it going, "Okay. Let's not get over our skis." So take that as intended, but the cloud business is in really nice shape for us. And we think the outlook is going to be quite good. I think the other thing is, remember the $4 billion plus that we're showing is on a net scale. So, one could look at it intuitively and go, "Geez, why is the growth number is not higher with strong anticipation of 5G?". We are not going to see a lot of 5G in fiscal 2020. But also the biggest component to that is, as we move into '21 and '22 is there is going to be some cannibalization of LTE and 4G. So on a net-net basis, I think our outlook is relatively conservative, but that's why the numbers look like they look.

Okay. Okay that makes sense. And for my last question, Mike, on the $600 million authorization, what is the cadence of that? I mean, how many years is that over and how should we think about the cadence of buyback? Thanks.

I think the $600 million is over a couple of years. I think, I would -- for modeling purposes, I would factor in about 50% -- I think, we've said 50% to 60% between share buybacks and dividends and the capital allocation framework. So that's factoring about $250 million for FY '20 and $350 million for FY '21.

Thank you so much.

Thank you. Our next question today is coming from Paul Coster from JP Morgan. Your line is now line.

Hi. Thanks. This is Paul Chung on for Coster. Thanks for taking my question. So, first, nice operating margin guidance here for the next two years. But your operating margins have been kind of relatively in the 3.5% range for the past three fiscal years. What’s giving you more confidence that we should see some acceleration here over the next two years? Is this more a function of product mix, some cost efficiency, possibly, more higher margin design work? And then what kind of question are you baking in for variables you can't control, particularly if there is a global recession?

Sure. So I think -- geez, without trying to sound overly promotional, I think the last three or four years, everything that -- not everything, I think lots of what we’ve talked about, we've accomplished. If we go back to a year-ago and what we said we would do in '19, we largely accomplished those goals. If we go back to fiscal '18, we largely accomplished those goals. And quite frankly, our focus in the last three or four years has been on top line growth for a lot of the reasons we've talked about for the last 10 to 12 quarters. I think in the last -- with where the growth has gone, with the amount of growth in top line we've added to the company for all of the right reasons in my opinion, we as a leadership team now again has taken our foot off to pedal a bit in terms of growth. We are still going to grow, we're going to be a bit more selective. And we are going to focus on margins and cash flows. The nice thing about that is, sometimes growth isn't well within our control. I could tell you that the company has a 50-year track record of operational excellence and with the investments we've made in the factories the last two years, I think Mike in his CapEx slide broke out this year kind of an innovation engineering line item under CapEx. He did so that you can see from a sustainability standpoint and a technology standpoint in our factories. We are not under investing in that area. So the good news is for the next 12 to 24 months, a lot of what we are working on in terms of margin and cash flow is squarely in our control, and it's something we know how to do really, really well. I would also add to it a comment you made. Another component of the margin expansion, absolutely, is the composition of the commercial portfolio, which we feel really, really good about.

Okay. Thanks for that. And then, my follow-up is on CapEx levels longer term. As you upgrade more manufacturing sites with more automation, do you kind of see a structural change in some of that maintenance CapEx? Does that $550 million, kind of, maintenance CapEx will come down over time or should we just kind of think about 3% of sales as a correct way to kind of model CapEx spend longer term? Thanks.

So I talked about where we stand today with our sites, it's about 100 sites in 30 countries. That's a big footprint. It will always require some level of maintenance as we go through some of the leasehold improvements, some equipment changeover for keeping up the technologies, factory-of-the-future, IT, automation, etcetera. So I think looking forward that $550 million-ish or that 2% sounds about right from a percentage perspective.

Thank you.

Thank you. Our next question today is coming from Andrew Vadheim from Wolfe Research. Your line is now live.

Thank you. Good morning. Taking a look at EMS at '20 revenue growth, the full-year guidance were 4%. However, the 1Q guide of 11% would imply a 2% year-over-year growth for quarters two through four. So I recognize there's a tougher set of comps in the middle of the year, particularly, but why is there such a sizable drop off and what sort of the linearity for the last three quarters? Could we potentially see a sequential decline 1Q to 2Q?

A sequential decline in EMS revenues?

EMS, Yes.

Yes, I think for modeling purposes, it would be good to think about EMS as flat Q1 to Q2. But could there be a sequential decline? There could. I think in our models, we're thinking about Q2 being relatively flat to Q1. And again, as I mentioned, a lot of that has to do with what you are measuring against last year. So 1Q of '19 before we started layering in revenues, I don't remember the exact numbers, but 1Q of EMS last year revenue was around $3.5 billion, I think, and I think we ended the year well over $4 billion. So again, we were ramping business through '19. Those are the comps that will be compared against some stronger comps Q2 through Q4 this year. But all in all, I feel really good about our EMS business this year. It's still going to end up growing 3%, 4% year-on-year. So around the $16 billion I think that we gave you and more importantly is as we will have a -- we think a 30, 40 basis point pickup in margin year-on-year going from the 3.1% last year back into a more normalized range of 3.5%.

Thank you. That’s helpful. And then just one on the tax rate. Tax rate in the quarter came in a little bit below guidance. In last call, Mark, I think you made a point to discuss that overall '19 tax rate kind of come in higher than they would have -- than you would have liked. But you would expect to get to more normalized level, sort of, in F '20 and F '21. Was the F 4Q rates, sort of, on at that normalized level? Was it sort of the beginning of the normalized level?

I think, the tax rate depends a lot on where the revenues are being generated. Like we've said in the past 100 sites, 30 countries, a little bit of a mix shift in -- from one country to another. That could change the tax rate considerably. We feel good with our guidance going forward in that range of 26% to 28% that we've prescribed for FY '20. Will it be on the lower end or higher end? Don't know at this stage, but I think we feel good that it's moving in the right direction. It should continue to go down as we look out to our business mix going forward.

Thank you.

Thank you. We reached end of our question-and-answer session. I would like to turn the floor back over to Adam for any further closing comments.

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