Hello and welcome to the Jabil Fourth Quarter Fiscal Year 2020 Earnings Call and Investor Briefing. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. It’s now my pleasure to turn the call over to your host, Adam Berry, Vice President, Investor Relations. Adam, please go ahead.

Good morning and welcome to Jabil’s fourth quarter of fiscal 2020 earnings call and investor briefing. Joining me on today’s call are Chief Executive Officer, Mark Mondello and Chief Financial Officer, Mike Dastoor. We will begin today with Mike who will review our fourth quarter and fiscal 2020 results. These slides are currently posted on our website at jabil.com. Following those comments, we will transition to our third annual investor briefing, where Mark will review our business overview and Mike will provide an outlook for our first quarter and fiscal 2021. We will then open it up for your questions. Please note to view our investor briefing slides during today’s session, you will need to be logged into our webcast@jabil.com. Following today’s session, you will find our entire slide deck for both our fourth quarter earnings and investor briefing on our website. 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 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. Before handing the call over to Mike, I would 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 our business, such as our currently expected first quarter net revenue and earnings. 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 in our Annual Report on Form 10-K for the fiscal year ended August 31, 2019 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.

Thank you, Adam and good morning everyone. I am very pleased with our fourth quarter performance. Both segments executed extremely well and delivered financial results that came in well above the guidance we provided on June 19. The overperformance was driven mainly by two factors. First, during Q4, we experienced fewer corporate-related disruptions than we anticipated in June, which resulted in higher than expected throughput in our plans, a more efficient supply chain and lower corporate related expenses. And second, our teams in both segments quickly moved to capitalize on upside demand, mainly in the mobility, 5G wireless and cloud end-markets. The compounding effects of higher than expected sales, improved productivity and lower costs allowed us to deliver strong revenue, core operating income and core diluted earnings per share in Q4 well above our expectations in June. With that, I will now review our Q4 and fiscal ‘20 financial results. Net revenue for the fourth quarter was $7.3 billion, an increase of 11% year-over-year. GAAP operating income was $197 million and our GAAP diluted earnings per share was $0.44. Core operating income during the quarter was $255 million, well above our expectations in June, driven mainly by the aforementioned higher sales and lower COVID-related impact that came in approximately $25 million lower than anticipated. Net interest expense during the quarter was $46 million. Our core tax rate for the quarter was 24%. Core diluted earnings per share was $0.98, an 11% improvement over the prior quarter. For the full fiscal year, net revenue was $27.3 billion, up 8% year-over-year. FY ‘20 GAAP operating income was $500 million, with GAAP net income of $54 million. GAAP net diluted earnings per share, was $0.35 for the year. Core operating income was $864 million, representing a core operating margin of 3.2%. Core diluted…

Thanks Mike. Good morning. I appreciate everyone taking time to join our call today. I will begin by offering my sincere gratitude to all of you here at Jabil. Thanks for hanging in there during these trying times, while never compromising the safety of our people. Your response, stamina and attitude had been amazing and so appreciated. Again, thank you all. Today is our third consecutive year, where we not only share our results and give a quarterly guide, but we also provide a complete outlook for the year ahead. So, I will get us started with thoughts on our outlook and Mike will offer additional detail during his follow-on remarks. Moving to Slide 11, I will offer a few thoughts on our approach beginning with diversity and inclusion. Being that Jabil is a service business, we know that each employee is critical to our success. We also know that each employee has the right to be treated with dignity and respect, all day and everyday. We operate our business in 30 plus countries, employing people that don’t look the same, don’t talk the same, people that practice different religions have different sexual orientations, people with physical limitations and neuro diversities. Diversity and inclusion is top of mind as we employ folks all around the world, but we have got more work to do. We won’t abide racism for lack of human rights. We won’t accept discrimination for social injustice. Our team challenges the status quo and we hold ourselves accountable through action. Most recently, we formed a 9-person council to assist and guide our internal D&I efforts. This council will provide advocacy as we push to improve our own shortcomings. These 9-council leaders are talented and without a doubt will make us better. Consistent with this focus, we are…

Thanks Mark. I would also like to thank our employees for their hard work, dedication and excellent execution during the challenging FY ‘20. 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 in the coming year. As we turn our focus to 2021, our financial priorities remain unchanged. First, we are fully focused on expanding margins. To position the company to deliver higher margins over the last few years, we have 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 costs to ensure we deliver SG&A leverage across the worldwide Jabil footprint. Secondly, in FY ‘21, we are forecasting core earnings per share to improve nearly 40% over FY ‘20. And finally, we are focused on generating strong free cash flow through optimization of working capital and disciplined CapEx management. Next, let’s take a look at each of our operating segments and I would like to walk you through what we are seeing in the different end markets we serve and how each of these plays a role in delivering our financial targets. Our DMS team’s strong performance over the last few years reflects our improving business mix as a result of our intense focus on diversifying our end-markets, products and customers to create a more sustainable business. The team continues to do a tremendous job leveraging our deep capabilities in this segment like tooling, precision mechanics, acoustics, optics, automation, and material sciences to capture new opportunities in high value adjacent markets. Nowhere is as clearer than in our healthcare and packaging businesses, which have grown tremendously over the last…

Thanks Mike. As we begin our Q&A session, I would like to remind our call participants that per our customer agreements, we will not address customer or product specific questions. We appreciate your understanding and cooperation. Operator, 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, thanks. Good morning and congrats on a strong finish to fiscal ‘20. Mark, I just wanted to start on COVID cost, it was I think you said $25 million lower than expected in the quarter. So I think in the quarter, a little under $10 million a month. Thinking about where you sit here towards the end of September, is that still getting better? I am just trying to understand how much you have to go to get to this $30 to $50 million that you talked about for the full year in fiscal ‘21? And secondly, just to clarify is the $50 million or so restructuring program the reason that this came down or is that separate and on top of this, I just want to make sure I am not double counting?

Hi, Adam. Thanks for the nice comment. I will let Mike talk about the restructuring and maybe let’s get it clarify that a little bit. In terms of COVID, geez, I am really happy with how we handled it all in a really, really kind of opaque, murky deal. I mean, we take you back to February, things are blowing up. I think our COVID costs in February on a total monthly basis were like $55 million, $60 million for the month then we moved into Q3 and COVID costs were around $50 million and then Q4. As we are sitting in the June call, I think either Mike or I said Q4 would be around $40 million, $50 million. And as we got into 4Q, June was still kind of along that run-rate that has started to dissipate a bit in July and in a more normalized run-rate when compared to FY ‘21 as we are leaving August and as we continue to index through September, our run-rate in September looks to be much like August. So, assuming that the whole world doesn’t blow up again, at that point, all bets are off, but with everything kind of the way we see it, we feel pretty confident in the 30% to 50%, I think a way to think about those costs are maybe 60%, 65% in the first half of the year and something like 35% to 40% in the back half of the year. And with that, maybe you could expand a little bit on the restructuring question. I will let Mike address that.

Yes, I was just trying to understand what the restructuring, is that what is helping the COVID costs to get better or is the restructuring program on top of this and going to help in Q1,

The restructuring effort is on top of that nothing to do with the COVID reduction at all, Adam?

Okay. And maybe just as a quick follow-up, I wanted to understand from a seasonality perspective as we think about fiscal ‘21. It’s just a little bit unusual based on your Q1 guidance to see revenue down sequentially in November quarter for Jabil. So, maybe you could touch on why that’s occurring is that – is the full move to the consignment shift in Q1 and what it means for the out quarters and also the cadence of margin as that occurs? It looks like you are starting at such a high point about mid 4% range in Q1, but the full year is guided to around 4% just trying to understand the cadence of the drop-off in margins as well? Thank you.

Yes. So there is a couple of things in that. One is if I take a look at kind of our DMS business, I think kind of year-on-year Q1 ‘20 to ‘21 in the range of around 1%, so on the DMS Q1 to Q1. And I would think about our DMS business, Adam, more kind of first half to first half just based on timing of some products. So, if I take a look at and I don’t know – I don’t know the exact numbers, but rough numbers would be kind of DMS, first half, first half of ‘20 to first half of ‘21, we will probably see growth in the 6% to 8% range. And then I think if you look at the blue green slide overall for the year, DMS, so will be up about $800 million from call it 13, 13.2 up to around 14. So, I wouldn’t get too caught up in the Q1 revenue numbers. And then overall for the enterprise, if we execute well in Q1, like Mike said in his prepared remarks, we expect margins to be around the 4.5% range. With that same execution kind of total comparison, we could have a six handle on our margins for DMS in Q1. So, off to a relatively strong start which is typically how our years kick off. And I would say as I think about kind of Q2, Q3, Q4, if I am thinking about shaping the year, at an enterprise level, margins should be pretty stable. So, if we kick off with a 4.5%, I think Q4, we could end somewhere around 4% and then Q2, Q3 in between in the high 3s something like that and if you sum all that up kind of on a weighted average basis, EMS to DMS, we are shooting for 4% overall for the enterprise for ‘21.

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

Hi, thank you for taking my questions and congrats on the strong guide and the $4 target for fiscal ‘21, which is pretty much what you had guided in fiscal 4Q ’19, so that says – congrats on the guide. Just my first question, conceptually, I am wondering why add automotive and transport into DMS, so just your thoughts on why that segment was added into the DMS segment?

I think it’s because every couple of years Ruplu, we have been on, I don’t know a 5 – 4, 5, 6-year journey. And we disengaged with BlackBerry back in the day. We sold our services business. We are really successful with in the mobility sector. And we have been working really, really hard to continue to diversify the portfolio. I don’t think that work is ever done, but where we sit today, if you just kind of sit back and look at the – for lack of better word, the portfolio slide on the blue and the green, geez, we have got, 8 areas of our business reflected there and I just love the way it looks. I said something like that in my prepared remarks. As part of kind of always reshaping there, I think I use the word contouring the portfolio we would like to have businesses together that makes sense from a capability perspective and market perspective. And we just felt like automotive and transport fits really well with our healthcare business in terms of overall regulated markets. And then the other shift we made and again, I know this can be aggravating to investors, because it ends up being a lot to follow. That’s not our intention. Our intention is to give us a good platform again for the next 24 to 36 months. We took our smart home business, which had been in our networking storage, because a lot of devices in home were networked together and we moved some of that over to connected devices just because of 5G coming on board. And when we think about things throughout the home, from a capabilities and an end-market perspective, it fit really well into connected devices. The good news is those modest shifts don’t change the enterprise level numbers, but that’s the logic behind it.

Okay, thanks. Thanks for the clarification on that. Mike and for my follow-up just on the EMS segment, just looking at industrial and semi-cap, you are guiding year-on-year flat at $3.5 billion. That just seems a little conservative given industrial end market should improve next year. And I assume semi-cap is not a target revenue or margins it should be improving. So, just your thoughts on what are the puts and takes in that segment, why are you guiding flat revenues year-on-year?

I don’t want to get into all the puts and takes only because Ruplu our industrial business has all kinds of puts and takes. I would say, I’d – if I were to knowing that we are not going to be right on any of these numbers exactly, if I had to handicap industrial and semi-cap, I would say I agree with your comments. If there is, if we are going to handicap that one way or the other sitting here today for the year, there is probably more upside than not, I would say certainly in – certainly in semi-cap and that’s offset by some softness at the moment in industrial and I think Mike talked in his prepared remarks about construction starts both residential and commercial we think will soften a bit, certainly through the first half of the year and then regain some momentum towards the back half of the year, but I think you are thinking about that the right way.

Okay, thanks for taking my questions and congrats again on the strong guide. Thank you.

Thanks, Ruplu.

Thank you. The next question today is coming from Jim Suva from Citigroup. Your line is now live.

Thanks. Could you spend a little bit of time talking about the shift to consignment model and not that there is anything wrong with doing that, but was it – is it across all your customers or particular customer driving that and is it all completed in calendar – I am sorry fiscal Q1 and the revenue impact, because I believe it would be a revenue comes out of the model four? And then I am just wondering does it impact seasonality going forward?

Thanks, Jim. Sure. So, I think it’s really important for everybody to understand that our move to consignment wasn’t reactionary it wasn’t something that we just thought of. If you go back and I don’t remember when we first started talking about our cloud business, it was 4, 5, 6 earnings calls ago. I remember at that point in time, we gave it enough attention we were doing the JJMD deal and we also in one of those calls, we had two separate slides, one talking about our JJMD engagement in collaboration, which by the way is going very well and then we had a slide on cloud. There is a lot of questions at that time about are we getting into white box manufacturing in this set and the other and we have been very, very consistent in our approach strategically the cloud business that we are going to go into this in the geocentric service model, it was going to be a very asset-light very agile model both on the fixed asset and networking capital side as that business is scaled through, call it back half of ‘19 all through ‘20, we have always had a thought process in terms of again keeping the networking capital asset-light as well. So this has been in the works for quite some time. And I would say the consignment model that we have went through is largely around our cloud business and it’s largely in place. So, again, if you look at the shape of our EMS business, I think our guide for Q1 per Mike’s comments in the press release is like $3.2 billion for EMS. You compare that to a $3.7 billion, Q1 ‘20 to Q1 ‘21, that’s just reflective, largely around consignment. And then we also have some intentional reshaping of our networking storage business on top of that, but I would say, you can consider it in place and it will be reflective quarter-to-quarter throughout the year.

Got it. So, you said effectively in place in Q1 so that would mean the revenue impact is pretty much all absorbed in Q1 and going beyond Q1, it sounds like revenue seasonality should be closer to normal, because it seems like Q1 would be hindered a little bit because of the shift to consignment model if I understand consignment correctly, where you won’t recognize the revenue, you are just going to pass that through?

I want to be careful that I understand your comment, because this is kind of an important topic. The $3.2 billion saying it straight up right, the $3.2 billion guide for EMS in Q1 is fully reflective of the consignment model. So there is no – there is no jeez, we are going to come back and go, the $3.2 billion turned into $2.5 billion because of consignment, it’s all in. So, again if you take that new and you take a look at our Q1 ‘21 relative to our Q1 ‘20 EMS, I think you will see the distinction there Q1 ‘20 in EMS was around $3.7 billion, something like that, Q1 of ‘21 is $3.2 billion. So again, it’s fully reflected. In addition to that, Jim, I believe that the blue green slides that we shared I spoke to it a bit, Mike went a bit deeper shows our overall company revenue for the year around $26.5 billion. The EMS segment, which is where our cloud business sits, show shows $12.5 billion. So again, overall for the company for the year $26.5 billion midpoint, about $14 billion of that is our DMS segment $12.5 billion is our EMS segment. That’s where our cloud business sits. Those numbers also are fully reflective of any and all consignment.

Got it. Thanks so much. And my last follow-up is with the U.S. being a political entity list of can’t build to, can’t ship to things like that, is any of that impacting your company and how should we think about that?

Well, we talked about that last year. That was a hot topic as we were coming out of ‘19 into ‘20 and COVID kind of dominated everything. But that’s something we watch every week, every month. And I think we had talked about the fact that the first half of ‘19, I may have – I maybe off the quarter to Jim, but directionally as we exited fiscal ‘19 going into first half of ‘20, somewhere in that timeframe, when the tariff talks were hot and heavy and relatively new in front of headlines, we had said we were going to have a two to three quarter portion of our business, where we were going to spend upwards of $20 million, $25 million in terms of moving product around for customers. At that point in time, we have suggested that if the macro holds or even weakens a little bit, all of this product needs to get built. And I can’t think of a better place for customers to build it than at Jabil just because of our global footprint. So, we can continue to keep an eye on that. As mentioned previously that if we kind of collate up all of our business in Mainland China as we sit today and I have said this in the past, there are certain parts of that business that we just don’t think will move based on the indigenous supply chain and other factors. We have also said that there is a significant amount of our China revenue today that China for other parts of the world, non-U.S. and then the China revenue that we have that happens to be products to be consumed and shipped to the U.S. Some of that has already shifted and some of it customers look at it and they are comfortable keeping it in China for now.

Thank you so much for the details and clarification. It’s greatly appreciated.

Yes, thanks, Jim.

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

Thanks. Good morning. Mark, I was wondering if you could talk a little bit about as you not to put the cart before the horse and actually hitting $4. But you have been messaging that, that wasn’t a major top line driver to getting to $4 over the last couple of years, it was more about improving margins on the different new programs you win – what have won. So, can you just talk about how much of that is still holding true? And then as you transition through those new programs, what is the messaging to the go-to-market teams beyond this year? Is it to return to growth leverage more internally, etcetera? And then I had a follow-up.

Okay. Well, there is couple questions in there and I appreciate you not putting the cart before the horse, although I think we have kind of asked for it, because we came out with the four and the four. So, we got a lot of work to do to deliver the four and the four, but we wouldn’t have put it out there, if we didn’t see a clear path. Yes. For the last 3, 4 years, we have been talking about diversifying the top line, but at the same time, we have been caveating those comments with the fact that we are not going to chase revenue for the sake of chasing revenue. We are going to diversify income and cash flows, which is exactly what I think we have been up to. And I would suggest our team has been quite successful in that. If I think about FY ‘21, we are certainly not chasing revenue because on an absolute basis, some of this is consignment, revenues going down, but again, I would say overall, it is about us kind of continually taking a file and not a chisel and filing the portfolio with a real kind of no kidding focus on the margins in the cash flows. So, that’s what we are up to and we are going to work really hard to do our best to deliver that the four and the four.

Thanks for that. And then just as a quick follow-up, I understand the accounting math behind the consignment shift, but what does it mean in terms of your ability to drive better engagements with those cloud customers? Is that a competitive advantage? Is it something everyone is doing or what would you say that means in sort of at the customer level for this shift?

I would say it’s neutral. That one aspect is neutral. It’s – there is in our geocentric asset-light service business there is high dollar components, where we don’t provide much value. And so having those pass-through materials is distortive to the real returns we should be getting on the value add we provide the customer. I would say our cloud business is founded on the services our team provides the geocentric nature of it, the flexibility, the agility, I mean, I think about COVID was unplanned and COVID hits and all of a sudden, people are working remotely working from homes and the ability of our of our cloud team to react all by the way as well as our mobility team and our connected devices team. I mean, those volumes spiked up. So, I would say it’s the most important part of our approach to that model is – or that businesses is the model itself and the relationships that we have, Steve.

Thanks. That’s helpful. And good luck in game four.

Yes, we will need it. It was a good win by lightning last night. So thank you.

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

Yes, good morning and thanks for taking the questions and congratulations on the strong quarter. The first question was just following up on what Steven was just talking about in the cloud business and the company has been driving some very nice growth in cloud, I think one customer in particular has been good, but Jabil has talked about having a handful of customers in cloud and some opportunities to grow. Obviously, that’s a market that should exhibit growth, but grow as Jabil becomes bigger within the cloud markets. You have done a little bit more what sort of opportunity Jabil sees either in FY ‘21 or longer term to continue to take share within the cloud business?

Mark, I really appreciate the question. I am not trying to duck the question. But we are in the process now of varying conversations going on with current customers, hyperscale customers, smaller customers. So, I just – I don’t want to get into it on a customer by customer basis. I think what we have said in the past is we have got reasonably good confidence in our approach to what we are doing in that market overall and we certainly expect that market to be kind of multi-customer faceted if you will and that’s still our path and still our intent.

Okay, that’s helpful and understand the sensitivities. One other question I wanted to understand I think is on the mind of one investors who I speak to is thinking through some of the cyclical dynamics and the risks that either because some of the geopolitical tensions with China or just with COVID supply chain uncertainties, there has potentially been pre-buying taking place that in uncertain end markets, you talked about how Jabil is thinking about that risk and what you may have factored in as you were contemplating your 2021 outlook?

Which risk in particular?

Well, I think in a few areas, one is to the extent you are hoping there is any customers in China and they are worried about some of this geopolitical tension have they pulled in, but even, just more broadly with, there has been some uncertainties around, what ability has the supply chain been able to serve as customers and if customers worried about, companies not being able to manufacture or maybe they are pre-building products, because they just didn’t know how COVID may impact just the overall supply chain. So, had they maybe built – pulled in any of their plans, so just high level to the extent you have seen for either COVID or geopolitical reasons, customers building more than maybe they otherwise would have? Do you think you have seen any of that or did you try and think about that risk at all when you are contemplating your 2021 outlook?

Okay, I understand the question and it’s appreciated. I would say, if I am sitting on your side of the table, along with kind of the buy side folks, it’s immaterial. I will give you an example. And I am not suggesting that there is not pockets that are material, but in the big picture of what we just guided to our outlook for Q1 and then certainly for ‘21, I think all those puts and takes there is a lot of them, I think they are immaterial. I give you an example. There has certainly been on Steve Borges’ business with healthcare, there has certainly been some upside near-term upside in healthcare through the back half of ‘20 and probably the first quarter or two in ‘21 demand driven solely by COVID. Yes, there has been a falloff in his business due to COVID with elective surgeries as an example. Yet you spin all that up and you kind of get kind of a normalized business plan and same holds true with some puts and takes industrials, same holds true with some puts and takes in connected devices, although that ended up being a net strength. So, I would say all in all, we don’t have a crystal ball, but our Q1 guide and our overall outlook for the year, Mark, we have taken kind of all those puts and takes, we have stress tested it with all the teams and we feel like we have kind of normalized it to the 4%, the $4 and $26.5 billion in revenue.

Understood. Thank you very much.

Yes, you are welcome.

Thank you. [Operator Instruction] Our next question today is coming from Matt Sheerin from Stifel. Your line is now live. Hello, Matt, perhaps your phone is on mute. Matt, if you can hear me, I cannot hear you. Please return to the queue by pressing star one. Our next question today is coming from Shannon Cross from Cross Research. You line is now live.

Thank you very much. I had more of a big picture question as you look forward over the next few years. You talked about the investment that you are making in terms of CapEx and maintenance in that within your facilities. But I am curious, what kind of drivers do you see really improving productivity and providing more of a margin either to you or to your customers from a technology perspective within your factories and sort of how do you see the I don’t know the factory of the future in the next few years? And then I have a follow-up. Thank you.

Okay, Shannon, that’s a cool question. That’s kind of what we are all about. We are a company at the core that builds stuff. And so we are, if I think Mike, when you talked about CapEx in his prepared remarks talked about a split between growth and maintenance, I would say in terms of productivity in the factories, that’s probably split between maintenance and growth. I would say, we are one of the leading companies that I know of in terms of automation what I would call flexible automation, what I would call automated, real useful automated platforms, you combine that with augmented reality, that will start hitting our factory floors, you combine that with machine learning. And then the other thing I think that sets Jabil apart is as you take all of that, Shannon, we have got a ton of factories, call it, we run our – we largely run most of our business on 35, 40 sites, although we have more. If I take those – if I take the sites that are most impactful to our earnings, they are all wrapped together in a single holistic IT system and I don’t know that anyone else has that. So, we will always continue to invest and invest aggressively in terms of the technology the productivity that you alluded to. I think what shareholders should hold us accountable for is with those investments and with the aggression around that type of investing I would hold us accountable for continued margin expansion and good cash flows. If I think about the journey we have been on, on top line diversification, where we have been going through that, our margins for 2, 3 years have been stuck around 3.5%. We are starting to see the efforts come through on the margin line. That’s why we – that’s why Q1 is looking at 4.5% and the year around 4%. So, I think the returns we are getting on those investments are coming through in terms of our bottom line.

Okay, thank you. That’s helpful. And then can you talk – you talked about strength in healthcare, but maybe if you could be a bit more specific, I know obviously, there was pressure from electives not happening and benefit from COVID in the near-term. But what other key drivers maybe you can talk about the Johnson & Johnson relationship are benefiting healthcare? Thank you.

Well, I don’t want to – the – I look at the J&J collaboration and that’s kind of business as usual now. We spoke about that for a number of calls. That partnership that the team that’s responsible for that, that has gotten so deep and boy has that turned out, I think from both sides, we had high expectations. I think it’s turning out better than even we expected and I hope J&J would feel the same, but that the business is so far beyond that. I mean, I think we are talking about healthcare and packaging combined, bumping up towards $5 billion. I think about that business, Shannon. I always have my timing a little bit off, but it’s typically directionally correct. Our healthcare and packaging business in FY late ‘17, early ‘18, was like a $2 billion business, then it started bumping up against $2.5 billion. FY ‘19 healthcare and packaging, was probably closer to $3 billion. Last year, it was closer to $4 billion. And now we are bumping up against $5 billion. And again, as pleased as we are with the Johnson & Johnson collaboration, it’s just it’s a lot more than that. Steve and his team are focused in areas so broad-based today relative to 4 years ago with things like pharma, the med device, orthopedics, diagnostics, etcetera. And then I think they will also start to gravitate towards digital analytics and digital diagnosis as well. And then you add to it, I am very, very excited about what the next couple of years hold for our consumer packaging business as well. So, that line item when you look at it on the green blue slide, again, this is a little bit of a commentary around the whole company, but the healthcare packaging line is as diverse both end market and customer base as it’s ever been.

Great, thank you.

Yes. Thanks, Shannon.

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

Yes, thanks for taking my question. Obviously, lot to like here. I was particularly impressed by the statement of intent around diversity and inclusion. So that was welcome. Couple of quick things. One is you sounded, Mike, like you intentionally called some business in DMS segment, I think I heard that correct, what was the criteria for doing so, what impact does that have in terms of the year-on-year sort of base percentage growth or headwind, I suppose in 2021?

Hey, Paul. Thanks for the question. We did call some we are constantly reshaping the portfolio as we see it right now on the networking and storage side, in particular. We have been looking at all businesses we have. I think we have declared a couple of years ago that we are focusing on margins. We are focusing on free cash flow. And we are tightening up all our financial metrics around existing and future customers. So, that’s one of the areas that we have looked at, in particular. I talked about connected devices as well in my prepared remarks. That’s another one where we have gone and called some customers there. So, it’s all directional. We have said we will do that. We will focus on that. And that is exactly what we are doing.

And can you quantify in terms of headwinds on the – for that segment year-on-year?

Yes, if you look at the blue and green slide, I will just highlight the networking and storage, that’s the last line on the blue side, that’s down by about $600 million. A lot of that is a simple straightforward, hey, let’s get this to our financial metric levels and then you have connected devices on the green side as well. That’s the – there is parts of business that are doing really well on the connected devices and then there is parts that we feel the financial metrics don’t just justify moving ahead with them.

Okay, got it. I think Mark, you mentioned that you are starting to see sort of green shoots in the auto space, especially with electrification, which is good, but it’s really confusing monitoring that space at the moment. The big Tier 1s all seemed poised, but not active and instead just seeing a lot of small companies, kind of sneaking into the space at the moment and that seems to be where most of the action is and they are focused on sort of niche markets that seemed to have the best playback perhaps on electrification. Do you concur that that’s the kind of business that you are seeing now or are you actually starting to see the beginnings of the passenger vehicle market kicking into your business?

What I would concur is it is confusing from the outside in, it’s an interesting market. I think, I don’t want to generalize, but a portion of the automotive market is starting to be just a big rolling mobile device and that’s a really good spot for us and that’s where we are focused most of our attention. We do support legacy automotive technology. But as we continue to look forward, a lot of our attention will be again, if you just think of the automotive industry in the next 10 years being a connected device on four wheels. That’s kind of how we look at it and that’s where we are making most of our investments.

Do you think that the inflection point there is in a couple of years still, I mean, that’s the impression I get is 2022, 2023 that the action really starts to heat up?

I would say that’s probably best case. Yes, we are thinking somewhere I would say volumes and whatnot start to heat up call it 2025, something like that, but there is a lot of work. There is a lot of work that goes in between now and then. So, we will be busy.

Alright. Thank you. Appreciate that.

Thanks, Paul. Yes.

Your next question today is coming from Matt Sheerin from Stifel. Your line is now live.

Yes, thank you. So, I did want to thank you for all the details so far, Mark and Mike. One follow-up question regarding your guidance for the storage and networking segment, I understand that you are reshaping at walking away from some programs that are not profitable or don’t give you returns goals. But could you talk about how you see those end-markets playing out particularly storage, it sounds like you are looking at your further weakness there because of the move to the cloud? And then beyond that, we are seeing not as stable, but some of your peers also walking away from some of these programs in the data hub space, where they are not needing certain metrics and goals. And at some point, it looks like the leverage might swing back to the EMS guys like you – where you make win deals, because customers really have nowhere to go.

Yes, I don’t know, I look at it quite simply as I want, I don’t ever – I don’t want ever want to walk away from a relationship. But there are certain relationships where if we get to a point that customers can provide, others than Jabil business and get better value-add for it, then so be it. And I think in the network storage space, it’s been a market that we have played in actively since the early 90s. We have got some longstanding relationships that are, I don’t want to lose, but again, if we get to a point where things start to change, our value proposition starts to fall off, there is no reason to force that. And I think if I think about how well diversified the company is today when those situations occur, we don’t need to force it. I think that, that’s a – of the eight different business line items you are seeing there on the blue green slide, that’s an area at least specific to Jabil, that probably isn’t going to have a lot of hyper growth to it for some of the reasons you described and others. If I had to handicap it today, again, knowing that our numbers aren’t going to be exact, the $2.2 billion we are showing in that line item, I think it might come in a little bit stronger than that, but again, directionally, I think network and storage will be down year-on-year.

Okay, thank you for that. And Mike, regarding the inventories, which came down nicely and your inventory days were down and you did talk about that the supply chain being a little bit more efficient than it had been. Do you expect to maintain those low inventory levels as we get through next year and is that part of your pretty strong free cash flow guidance?

Yes, that is certainly part of our guidance. That is part of our assumption. We are constantly working on inventory levels in the organization and I feel good about continuing to take that down further over the year.

Okay, thanks very much.

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

Thank you. That’s it for our call today. This call is concluded. Please reach out to us if you have any further questions. Thank you.

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