Jabil Inc. Aktie

Greetings, ladies and gentlemen, and welcome to the Jabil Third Quarter Fiscal Year 2026 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Adam Berry, Investor Relations. Thank you. Please go ahead.

Good morning. and welcome to Jabil's Third Quarter Fiscal 2026 Conference Call. Joining me on today's call are Chief Executive Officer, Mike Dastoor; and Chief Financial Officer, Greg Hebard. Please note that today's presentation is being live streamed. And during our prepared remarks, we will be referencing slides. To view these slides, please visit the Investor Relations section of jabil.com. After today's presentation concludes, a complete recording will be available on our website for playback.

In addition, we will be making forward-looking statements during this presentation. Including, among other things, those regarding the anticipated outlook for our business, such as our currently expected fourth quarter and full fiscal year 2026 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 annual report on Form 10-K for the fiscal year ended August 31, 2025, and on other filings with the SEC. Table 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, I'd now like to hand the call over to Greg.

Thank you, Adam. Good morning, everyone, and thank you for joining our call today. Before getting into the details, I want to take a moment on how the quarter came together. We feel very good about Q3. Demand remains strong. Our teams executed well, and we delivered ahead of expectations across revenue, margin, EPS and free cash flow. Revenue upside in the quarter was broad-based across the portfolio, and I'll walk through the segment detail shortly. Just as important, margins were strong and free cash flow was robust giving us good momentum as we move into Q4.

For the third quarter, revenue was approximately $8.8 billion, up 12% year-over-year and $250 million above the midpoint of our outlook. On a GAAP basis, operating income was $445 million or 5.1% of revenue. Core operating income was $504 million and core operating margin was 5.8%. GAAP diluted earnings per share for the quarter was $2.59 and core diluted earnings per share was $3.16, up 24% year-over-year.

Turning now to segment performance in the third quarter. Regulated industries revenue was $3.2 billion, up 4% year-over-year and above our outlook for the quarter. The upside was primarily driven by automotive and transportation, where demand was stronger than we expected. Core operating margin was 5.6%, up 10 basis points over the prior year. Intelligent Infrastructure revenue was $4.2 billion, up 21% year-over-year, reflecting continued strong demand and performance in line with our outlook for the quarter. Growth was broad-based across the segment. Capital equipment and cloud and data center infrastructure were both double digits. While networking communications was up more than 50%, supported by a strong networking ramp in India.

Overall, this continues to be a very strong growth business for Jabil. And as we look from Q3 into Q4, we expect another meaningful step-up in revenue across all three end markets. supported by continued strength in AI-related programs and the timing of customer ramps. Core operating margin for the segment was 6.1%, up 80 basis points over prior year Q3. Connected Living & Digital Commerce revenue was $1.4 billion, up 5% year-over-year and above our outlook for the quarter. Relative to our Q3 outlook, the upside came largely from Connected Living, where consumer-related demand was better than the cautious assumptions we had embedded in the guide. Our operating margin for the segment was 4.9%.

Turning now to cash flow and balance sheet metrics. Free cash flow was better than we expected in Q3, supported by strong profitability and continued discipline across the business. Cash flow from operations was $535 million and net capital expenditures were $176 million, resulting in adjusted free cash flow of $359 million for the quarter. On working capital, inventory days were 84. Net of inventory deposits from customers, inventory days were approximately 68, which was above our normal targeted range of 55 to 60 days. The higher inventory was largely tied to the timing of customer shipments in Intelligent Infrastructure, and we expect this to normalize back toward our targeted range in Q4.

Given how our performance through Q3 and the outlook for Q4, we now expect adjusted free cash flow of more than $1.4 billion for the full fiscal year up from our prior outlook of more than $1.3 billion. Our balance sheet remains in excellent shape. We ended Q3 with $1.4 billion in cash and debt-to-core EBITDA of 1.3x and we remain fully committed to maintaining our investment-grade credit profile. During the quarter, we repurchased approximately $291 million of shares under our existing $1 billion share repurchase authorization, which we intend to fully complete in Q4.

With that, I'll walk through our guidance for Q4 FY '26. Starting with the segments. We expect regulated industries revenue of approximately $3.3 billion, up 6% year-over-year. This reflects continued stability in health care and packaging, ongoing improvement in renewables and automotive and transportation performing better than we expected earlier in the year. For Intelligent Infrastructure, we expect revenue of approximately $4.9 billion up about 32% year-over-year. This represents a meaningful sequential step-up from Q3, reflecting continued strength in AI-related programs, customer ramp timing and the timing of shipments as discussed earlier.

And in Connected Living & Digital Commerce, we expect revenue of approximately $1.4 billion, roughly flat year-over-year. Digital Commerce growth remains healthy, while Connected Living continues to reflect a mixed consumer environment, although one that has performed better than our more cautious assumptions. At the enterprise level, we expect Q4 revenue to be in the range of $9.2 billion to $10 billion or about 16% year-over-year growth at the midpoint. We expect core operating income to be in the range of $589 million to $649 million, which implies a core operating margin of approximately 6.4% at the midpoint. We expect core diluted earnings per share to be in the range of $3.80 to $4.20. We expect fourth quarter net interest expense to be approximately $80 million, and our core tax rate remains approximately 21%.

Taken together, this would represent a strong finish to the year with continued revenue growth, margin expansion and free cash flow generation. For fiscal 2026, we now expect revenue of approximately $35 billion, core operating margin of approximately 5.8%, core diluted earnings per share of approximately $12.70 and adjusted free cash flow of more than $1.4 billion.

Let me close by saying Q3 delivered strong results and gives us greater confidence as we enter the final quarter of fiscal 2026. Our performance this quarter highlights the strength of our diversified portfolio, the momentum in Intelligent Infrastructure and the disciplined execution of our teams around the world. As we move through Q4 and look ahead to fiscal 2027, our priorities remain clear and consistent. Profitable growth, margin expansion, capital efficiency and sustained cash generation.

With that, I will turn the call over to Mike who will share more on fiscal 2026 outlook and how we're thinking about the setup into fiscal 2027.

Thanks, Greg, and good morning, everyone. I'd like to begin today's call by thanking our teams around the world for delivering another strong quarter. Achieving 12% year-over-year growth on business of our scale requires tremendous focus, coordination and execution across our global operations, customer partnerships and supply chain network. I want to thank all of our employees for their contributions and commitment to delivering these outcomes.

At the enterprise level, we delivered ahead of our expectations across all of our key metrics, including revenue, margin, EPS and free cash flow. AI infrastructure demand remained extremely strong, and our full year AI-related revenue outlook is now meaningfully higher than what we laid out just 90 days ago. At the same time, we continue to see better-than-expected performances in areas of the portfolio that have previously been under pressure, including automotive and transportation and Connected Living & Digital Commerce.

Over the past several years, we have worked hard to build a diversified model, one which relies on many large end markets, and we still believe that's the right model for our business today. The diversified model not only provides important synergies such as supply chain purchasing power and engineering, which is leveraged across end markets, but more importantly, we believe it also allows for more sustainable financial performance over longer periods of time, providing a natural hedge in different economic cycles.

With that as a backdrop, let me now walk through fiscal 2026 by end market. Starting with Intelligent Infrastructure. We continue to feel very good about the business. We now expect AI-related revenue to be approximately $13.6 billion in fiscal 2026. That is $500 million higher than our March outlook of $13.1 billion and up from $9 billion in fiscal 2025. This represents $4.6 billion of AI-related growth this year or about 50% year-over-year. This level of growth reflects strong customer demand, quality execution from our team and the capabilities we have built across compute, storage, networking, optics, power, cooling and right level integration.

We also took an important step forward in Q3 by winning our third hyperscale customer. Based on what we see today, we would expect the revenue ramp with this customer to look a lot like what we saw in our second hyperscaler, where we started with a specific capability, executed well and then expanded the conversation across the data center. That is an important part of the model. We can enter where we have a capability the customer needs, deliver with quality and then expand as the relationship deepens.

Importantly, this remains an attractive asset-light model for Jabil as evidenced by our CapEx expectations of 1.5% to 2%. We are expanding capacity in a disciplined way tied to visible customer demand while avoiding the product ownership and IP risk that can come with more OEM-like models. Not only do I like the large revenue growth opportunities before us, I continue to like the return profile of the business, including strong free cashflows.

Moving to regulated industries, where the tone continues to get better. Auto was stronger than expected in the quarter, and we now expect other revenue of approximately $4.4 billion in fiscal 2026 compared to our March outlook of $4.2 billion. Despite coming in stronger than anticipated, we remain cautious on the automotive market, given continued demand volatility. That said, stronger export demand from China, industry consolidation and growth in powertrain agnostic platforms enabled us to exceed our prior outlook.

Renewables also continued to improve. We are seeing support from safe harbor projects, demand for power type to AI and data center infrastructure and the shift from residential towards commercial projects. The tone is better than it was earlier in the year. In health care, our long-term view of the opportunity has not changed. The product cycles are long. The margin profile is attractive and the outsourcing of opportunity is still relatively immature. We continue to see good opportunities around drug delivery, med devices and broader pharma capabilities. In Connected Living & Digital Commerce, we also saw better performance in the quarter.

In Connected Living, the environment remains mixed, but performance was better than the cautious assumptions we had embedded in our outlook driven primarily by Connected devices. We now expect connected living revenue of approximately $2.7 billion in fiscal 2026, up $300 million from our March outlook. We expect digital commerce revenue of approximately $2.7 billion, up $100 million from our March outlook.

Digital commerce remains one of our higher-margin end markets with good opportunities in automation, robotics, retail and warehouse technology. Putting all of that together, we're raising our fiscal 2026 outlook. We now expect revenue of approximately $35 billion, up from our March outlook of $34 billion. That represents growth of roughly 17% year-over-year. We also now expect an improvement in core operating margin of 10 bps to approximately 5.8%, core EPS of approximately $12.70 and adjusted free cash flow of more than $1.4 billion, up from our prior outlook of more than $1.3 billion.

For me, it's important to recognize that the model is working. And as a result, the business is rapidly growing. Margins are moving higher and free cash flow expectations also are improving. And when I look beyond fiscal 2026, I am extremely confident in Jabil's strategic position, the strength of our customer relationships and our ability to capture the significant opportunities ahead. While we will provide full year guidance for FY '27 in our annual virtual investor briefing in September, I thought it might be helpful to provide an early view of our AI-related revenue growth.

As I mentioned earlier, in FY '26, we anticipate our AI-related revenue will be approximately $13.6 billion. We are exiting the year with a stronger platform for growth, strong customer engagements and new capacity coming online in North Carolina, Memphis, India and other parts of the footprint. For all these reasons, I expect AI-related revenue growth in FY '27 in percentage terms to be similar to FY '26. What makes that especially impressive is that we expect to sustain this growth rate of a much larger revenue base.

At the enterprise level, there are still a few things that will shape how the full year comes together between now and September. That includes component availability, mix across the portfolio, and the choices we make as we continue to prioritize margins, customer ramp timing, free cash flow and returns. As these items firm up, they will help determine where the full year ultimately lands. The combination of strong AI growth, improving mix and continued discipline around free cash flows and returns gives me confidence that Jabil can move core operating margin above 6% in fiscal 2027.

Before we wrap up, what incremental opportunity I want to highlight is the AI infrastructure initiative we announced earlier this week with Adani Enterprises. While it is still early days, Adani Enterprises and Jabil are targeting a strategic alliance to build an AI data center infrastructure platform in India. This alliance will focus on multi-gigawatt manufacturing capacity for high-density AI racks and associated computing infrastructure. The platform is expected to manufacture next-gen liquid cool AI racks, servers, storage systems and networking equipment and supporting infrastructure equipment required inside modern AI data centers, including power distribution units, transformers, switchgear and thermal management systems used by hyperscalers, colocation providers and enterprise data center customers.

Importantly, the opportunity represents the potential to help establish a scaled AI infrastructure manufacturing platform in India, a market we believe will become increasingly important for both domestic and global AI infrastructure demand. There is still work to be done before a definitive framework is established. So we view this as a longer-term opportunity. If the partnership develops as we anticipate fiscal 2028 is the more realistic starting point for meaningful contributions.

In closing, we remain focused on executing our diversified strategy, investing in the right growth areas and creating long-term value for our customers and shareholders. Thank you for your continued support, and we look forward to updating you on our progress in the quarters ahead.

That operator, we're ready for questions.

[Operator Instructions] Today's first question is coming from Ruplu Bhattacharya of Bank of America.

Mike, with today's guidance raise, you would have had 2 years of strong AI revenue growth. And like you said, the base is higher now for AI revenues. A lot of companies are building GPU racks. What gives Jabil the right to win in this space? And you talked about a third hyperscaler and you talked about the announcement with Adani Enterprises in India. How big a revenue driver could these be for Jabil? And I have a follow-up.

Thanks, Ruplu. So I feel our AI demand continues to be extremely strong. I think the holistic strategy that the team is focused on where we sort of enable customers to scale AI much faster by delivering fully integrated systems across compute, storage, networking, power, advanced cooling. We often sort of go in through one channel or one capability and expand the relationship by offering other end-to-end sort of solutions to customers. We actually won our second hyperscaler in exactly that way. And we're actually just won our third hyperscaler and the strategy will be exactly the same. So going really well from a strategy standpoint.

In my prepared remarks, I talked about having a similar growth rate. You highlighted that, Ruplu, and it's on a much, much higher revenue base. All 3 end markets are contributing to this. If you think of capital equipment, test, obviously, is a high performer there with all the rapid evolution of chip technology. the test equipment demand is through the roof. I think WFE is making a little bit of a comeback, although we'll always be a little bit prudent because WFE historically has always moved to the right a little bit.

But there is definitely signs of a recovery in WFE right now. And then if you look at DCI, our cloud infrastructure business, we're opening up new capacity in North Carolina. We're talking about Memphis, India, other parts of the footprint. We recently made the Hanley acquisition. That's bearing fruit as well. And don't forget that's at a higher margin. And then last but not least, networking. We've got the whole InfiniBand Ethernet. Demand is going up, especially in India. We've sort of almost doubled our revenue over the last year in India there, partly because of this networking demand. And then the silicon photonics, we continue to play in that as well.

So overall, very strong demand, very good strategy from Jabil, and you're seeing that in the numbers. You're seeing that in the results. A similar growth rate on such a large revenue base is quite impressive. As it relates to the India opportunity, before I say anything, I just want to say that we do not have a definitive framework in place yet. So we're still working on it.

So I can't comment on financials or structure or anything like that. Having said that, I am really excited about this opportunity. If you think of a few things that stand out for me, we're talking about multi-gigawatt AI infrastructure manufacturing in India. We're talking about the world's highest population and particularly with the government that's helping push bake in India as a global manufacturing hub and taking it a step further to make for the world as well.

So really well aligned there. If you think of the offering that we're providing, it's a one-stop shop, which would sort of appeal to hyperscalers and data center providers with Adani being one of the largest conglomerates in India. very strong in infrastructure, providing power and Jabil providing all the manufacturing expertise, which has been proved out in the U.S. So we're talking of racks. We're talking next-gen liquid cooled racks.

We're talking of servers. We're talking of storage systems and networking equipment. And then you layer on the supporting infrastructure that we're building today in the U.S. as well in terms of switchgear, transformers, power distribution units, thermal management systems, all of that comes into play. So the opportunity is quite significant going forward. Again, I do want to highlight that this is an FY '28 event. Obviously, the main gating factor here would be building out this capacity because this will require a decent chunk of capacity, but the opportunity and the potential could be huge.

Okay. Mike. -- in talking about capacity, maybe I have a follow-up for Greg. You've been adding capacity. Does Jabil now have enough capacity to support the strong AI and data center revenue growth that you're projecting for fiscal '27? And can you help investors understand how much revenue can the existing footprint support and which areas would the company plan to invest in? And how does this impact free cash flow going forward?

Yes, so as Mike mentioned just now and also in his prepared remarks, when we look at AI revenue in FY '27, we're going to see similar growth levels in percentage terms to '26 and also off a larger base. From a capacity perspective, we're real confident we could have that revenue in place from a footprint perspective.

Globally, we're adding an incremental 10% on our footprint, new buildings, new locations and also expansion. So we feel really good of the footprint being there to support that capacity. From a CapEx perspective and free cash flow, we're not giving any kind of guide for next year yet, but we feel really good on continuing to stay within that 1.5% to 2% on total CapEx even with the footprint expansion that we're seeing in the coming year.

Our next question is coming from Steven Fox of Fox Advisors.

Just following up on a couple of those things. I was wondering if you can dial in a little bit more into the networking growth. Obviously, substantial here. How does that look into next year off of the guidance for AI revenues? And where is it coming from? And then I have a follow-up.

The networking growth, we've already grown quite a bit in '26. I think that growth continues in '27, Steve. I think the InfiniBand, the Ethernet demand, all the switch gear that we're building in India. -- the silicon photonics piece coming together nicely -- so there's a whole chip positives in that networking space. And I think the demand for that networking will be similar or better next year to '26.

That's helpful. And then just as a follow-up, can you talk a little bit more, Mike, about margins for next year? I know you don't want to get too specific, but I would imagine the margins you're posting now and still includes some inefficiencies from plants you're ramping up. Like when do we start to see you guys fully harvest the new capacity at efficient rates as you're adding sales. When can we sort of see better incrementals?

So you're absolutely spot on with the capacity coming through in stages. We don't turn on all our capacity on first of September. It will phase in through the balance of this calendar year, and I expect a lot of the capacity to be on board by early calendar year next year. So you're right, there's definitely some level of ramp impact.

Having said that, I feel really confident about 6% plus margins.

And I do add the plus up to the 6%. I think if you look at what's driving some of that, the mix is getting better. Some of the end markets that we've had a little sort of lack of recovery in the past, those are coming together nicely like automotive, renewables. Health care is steady Eddie even within Intelligent Infrastructure, the higher-value capabilities like power, liquid cooling, silicon photonics, they're all getting accretion in margin in that Intelligent Infrastructure segment itself.

And then you add on the operating leverage, you talked about utilization, capacity utilization getting better as we progress through '27. And then Hanley, where we made the acquisition a few months ago, it's at double-digit margins. So all of that coming together very nicely from a margin standpoint. I would -- I think the point you made about ramps is important to keep in mind though. But like I said, my expectations are on a 6% plus margin for FY '27.

Our next question is coming from Samik Chatterjee of JPMorgan.

This is MP on for Samik Chatterjee. So my first question is regarding your Intelligent Infrastructure guide. You have implied an acceleration in year-over-year growth relative to fiscal 3Q. And then it's also higher than your implied guidance, which you had given previously. So just wanted you to double-click on whether this upside relative to prior expectations is driven entirely by the new hyperscaler customer? And then also any color on what capabilities you are currently ramping on with the new hyperscaler customer? And I have a follow-up.

Just for clarification, your question is about FY '26 or the growth rate for FY '27?

So fiscal 4Q, your intelligent infrastructure implied.

I think Greg mentioned something in his prepared remarks around timing where we had some finished goods in the warehouse still at the end of Q3. Those will start flowing in, in Q4. I think there's about a couple of hundred million from Q3 extending into Q4 and then an incremental $300 million across the board. It's not just related to the third hyperscaler. It's demand across the board in racks. I think Memphis is doing really well. So there's $500 million upside in our Intelligent Infrastructure guide for FY '26, and it's spread out a little bit. So really happy to see that.

Got it. And then for your fiscal '27 guide, you have said that AI growth continues at a similar percentage level and also we are seeing acceleration in growth relative to your other end markets. So does that -- like is it -- will it be a fair assumption to say that overall fiscal '27 revenue growth should be at least in line with fiscal '26 or higher than that?

So look, I think we'll provide full year guidance in September. My AI revenue sort of highlight was more to give Street a little bit of what's an idea of what's going on in our AI piece. There's puts and takes on the other side of the business, some end markets, obviously, are performing better. We'll continue to look at margins, obviously, we'll continue to look at any pruning that we have to do. So I wouldn't start expanding revenue on an incremental basis to what I've already said on the AI revenue that was more an indication of comfortability in terms of the AI revenue growth, right? We will provide guidance, like I said in September, and I expect it to be a nice number, but let's have some caution in -- I would make sure that we don't get carried away with the numbers there.

The next question is coming from Mark Delaney of Goldman Sachs.

I'm hoping you can share more color on what led to the win at the third hyperscaler and any product capability in particular where Jabil has had initial success?

It's across the data center infrastructure space, Merck. It's very similar to how we did the second hyperscale second hyperscaler was in a different capability. And then we expanded way beyond that capability into all the other capabilities. So I would see this as a starting point. The third hyperscaler, I expect it to be in that couple of hundred million dollar range for '27, rapidly expanding to $1 billion and then beyond in '28. So definitely a good sign. We've been working on this for a while, and it's finally come through in our Q3...

Okay. And then in terms of the supply chain considerations for the 50% growth in AI-related revenue for next year, you already spoke a bit around your manufacturing and CapEx plans to support that. But could you speak a little bit more on the supply chain, including labor and parts supply? And given that some companies in the industry have run into parts and component shortages, maybe help investors to better understand to what extent there's any conservatism from a supply chain standpoint, factored into that outlook for 15% growth next year?

Right. No, it's really a good point, Mark. I think we always appropriately ensure that we've factored in all these supply chain issues. There is a high demand for high bandwidth memory as everyone's aware, high-end, high-density interconnect PCBs, R&I demand, lead times have been extending. One good thing is obviously the hyperscalers and our large customers get more than their fair share of some of these components. I think the DDR5s, I think the capacity is decent on that front. But the DDR4s and below, I think there will be some level of shortages, and we try our best to obviously factor in those delays.

I think the -- the key here on supply chain is our team is extremely focused and I'll put our team up against anyone externally. I think if you look at the conversations are changing. It's not transactional. It's not about pricing, it's about strategy. It's about access. It's about allocation long-term commitments. So overall, I feel really good that our team is approaching this and absolutely the right way. And by the way, they've proved it out over the last 3, 4, 5 years, if you include COVID and all of this, it's -- I think the team performed much better than many of the other teams.

The next question is coming from Ruben Roy of Stifel.

This is [indiscernible] for Ruben Roy.

Yes, go ahead. You're breaking up.

Hearing me okay now?

We can hear you now, but you broke up before that?

I say 4Q exits at around 6.4% core margin. FY '27 is being framed above 6%. And so can you help us reconcile that? Is that just early conservatism? Or is there genuine near-term margin drag from the onboarding of the third customer, new capacity start-up costs and sort of just the ramp before it all scales? And what's the path back toward that 7% and higher?

Yes. So typically, Q4 is our highest margin quarter. Last year, we were at 6.3%. We're going to beat it by 10 basis points for this Q4 at 6.4%. So overall, I feel really good about 5.8%. As Mike mentioned, we're going to be 6% plus for next year. Still a little bit early to talk about the shape of next year, but again, feel good about continuing to improve on gross margins and getting leverage in SG&A to get 6% plus and higher from there.

And the Q4 seasonality is quite common. If you go back over the last 2 or 3 years, you'll see the same level of seasonal with Q4 being the highest performing margin quarter.

Okay. Understood. And maybe then just on the Adani piece of what you mentioned. I guess without getting into financials, can you just help us understand the capital model? A multi-gigawatt build sounds pretty capital intensive and yet you're committed to sort of the 1.5% to 2% CapEx. And so is that structured? Are you thinking of structuring that as a JV? Or is that partner funded? How are you going to participate in those economics while keeping Jabil asset light and avoiding the IP ownership risk that you've been careful to avoid up until now?

So I just want to start again by saying, look, we do not have a definitive framework. So we haven't figured out structure and capital and all that. Having said that, I feel really good. If you look at our growth in everything that we're going to do with the Adani Group as well, it's manufacturing. It's manufacturing racks, it's manufacturing servers, it's manufacturing storage, next-gen liquid cooled racks, power distribution, transport. We've been doing that for the last 3, 4 years now.

So our CapEx has been proved out already. This is no different. It's just the scale will be enormous. So I think just -- I feel -- I still feel comfortable with the 1.5% to 2%. Don't forget our manufacturing business is relatively asset-light in nature. And that's the beauty of the model that we have today. You can eat your cake and have it to there as well. So I think I feel really good about our CapEx ability once we get going on this venture.

The next question is coming from Melissa Fairbanks of Raymond James.

Just wanted to start off by saying for Graham and Frank, congratulations on the first round win. I hope to see the Tartan Army down in Miami. I'm not sure if they're listening to the call. I was wondering, we've got a really strong guide for Intelligent Infrastructure, not surprising. Can you give us an update on the North Carolina facility? When can we expect revenue to start flowing through from that facility? And then I believe you also have first right of refusal of the parcel of land next door. Just wondering how we can think about that in terms of capacity expansion going forward?

Sure. Thanks, Melissa. I'm sure Frank and Graham will appreciate your comments. They're probably still hung over from Saturday, but Look, our North Carolina facility is -- it remains on track. I think we've given a time line of Q1, Q4 -- the end of this year, fiscal year. Nothing's changed on that front. We booked one customer. We're talking to others. I think if you think about it, January would be probably the date by which we'd be fully ramped.

Obviously, we'll have some level of sort of steady ramps through the first quarter of -- but January onwards, I would expect run rates to be in that $1 billion, $2 billion, $3 billion range over the next 1, 2 and 3 years. So I think, overall, -- the potential is still the same, no major changes to our North Carolina piece.

One of the things with the additional land next door, we're looking at facilities which are easier to get to as in readily available. So we might have capacity coming online, which is already built out as opposed to going through another 12, 18 months of build-out. So it's just a slight sort of variation of our initial thought pattern in North Carolina, but everything else remains exactly the same.

Okay. Great. Then maybe shifting gears looking at regulated industries, we'll give some else a chance to shine. Glad to see the auto business is moving a tick higher for the year. I think the downtick in health care is maybe a little surprising. Wondering if you could give us more color there.

So I wouldn't put too much into that. Don't forget, we took it down by $100 million. Our daily shipments add up to $125 million, $130 million. So it's -- the number of -- the amount is not as material. It's just -- it was just $100 million. And with rounding, it was even lower than that. So I wouldn't worry about it too much.

Our long-term view of health care has not changed at all. The product cycle is extremely long, extremely sticky margin profile, highly attractive. Outsourcing in this industry is still relatively immature. And we continue to see good opportunities around. If you think of GLP-1s, you think of drug delivery, you think of continuous glucose monitors, med devices, chronic disease management. All of that is still well within our control.

And I think FY '27 should show some level of growth again. And then don't forget, we'll have Croatia come online right at the end of FY '27. So it's not going to be an FY '27 event, but it will be coming online at the end of FY '27, which means it will be an FY '28 event. And then we continue to look at B2Bs and capability-driven M&As and more vertical integration. So I think health care continues to be right at the center of our strategy going forward as well.

Our next question is coming from Luke Junk of Baird.

Mike, hoping just to start with the preliminary 2027 AI view and hoping just to get a little color from a customer standpoint in terms of incremental contributions from your largest customer versus the second and third hyperscalers or maybe even seeing maybe some more materiality from NeoClouds in this guidance as well.

It's spread out across the board, look, I think the numbers are well diversified. Obviously, our largest customer plays a role in that. The second hyperscaler will play a role in that. I talked about the third hyperscaler initially in FY '27. The numbers won't be that material, but FY '28 will get to a material number. But it's really well spread out. Capital equipment is doing well. If you look at DCI, that's doing well with all the new capacity coming online. And then networking, it's almost a really well-diversified portfolio within intelligent infrastructure that's outperforming.

Understood. And then can we maybe flip that to the capacity view? So certainly, Carolina part of this into fiscal '27 but can we talk about where you're able to push on capacity in some of the other key facilities, be India, be it in Memphis, kind of some of the big chunks to support with obviously several billion dollars in growth in total.

Yes. No. So North Carolina, obviously, will play a part there. Like I said, we booked one customer. We're looking at multiple others. We'll provide more guidance on that in September. Memphis is coming along nicely. I think if you look at the LVMV switchgear that we have there, the I heat exchangers building out in Memphis, they're going well. We're doing the second hyperscaler in Mexico.

We've got networking going on right now, expansion going on in India. So it's all spread out and the capacity utilization will quickly come online very fast. Again, I think Mark had asked that question about ramps. There will be some level of ramps that take place.

You don't trigger 5, 6 facilities up on all on the same day, and they don't start performing from day 1. So it will take some level of time. So Q1 of '27, we will be in a little bit of a ramp situation. But from 1st January onwards of calendar year '27, I do expect that capacity to come online in a substantial way. It all sorts of different products, different customers in a really well-diversified manner.

Our next question is coming from David Vogt of UBS.

I've got two questions for Mike and Greg. So maybe, Mike, starting with you, when we think about the soft commentary around fiscal '27, particularly around AI and your margin how much of that commentary is guided by your view of supply chain component availability and what your customers are seeing? And how is that taken into consideration from a margin perspective?

Obviously, I would assume that you're building in a buffer there. I'll give you my second question at the same time, maybe for you as well, and maybe Greg can chime in. When I think about the third hyperscaler, I think you mentioned a couple of hundred million dollars of revenue in fiscal '27. How do we -- how should we square that with sort of the North Carolina facility coming online next year? Are you insinuating that we're going to have multiple customers in that facility? Or is it just going to be that one customer? How do we think about sort of how that capacity is going to be allocated among your hyperscaler customers going forward?

So I think when you run soft guidance, are you talking about '27 similar...

I'm sorry -- yes, just commentary around '27 AI growth a supply..

Accelerated by supply. Yes. No, it's similar growth rate percentage on a much, much higher revenue base. So it's a substantially bigger number in revenue dollar terms. So I wouldn't call it soft, but overall...

What I meant by -- I didn't mean soft and soft performance, like you're not giving the official quantitative guidance for '27 preliminary guide.

That's fair. I think the reason I actually talked about it was to give an early indication. It wasn't meant to provide guidance. I didn't want to Hijack September call. We will have a virtual investor briefing in September. So we will provide more guidance, more definitive guidance then. Supply chain absolutely is part of our thinking. We're aware of where the shortages are.

And obviously, any commentary that we provide for '27 will be -- will have some level of impact, but that will already be built in. So the numbers we talked about definitely have that built in. Like I said, a lot of the AI intelligent infrastructure customers do manage to get their fair share and then some op components. So it is -- look, it's an issue, but I don't lose that much sleep over it from the intelligent infrastructure standpoint. And I think as we go along over the next 3 or 4 months, and we actually have our long-term strategy sessions in this Q4 as well, which go out a couple of years. So we'll provide more guidance in September.

Great. And then on the third hyperscaler rev versus the North Carolina capacity coming online? How do we think about that's going to be allocated to your hyperscaler portfolio?

So the third hyperscaler, like I said, is in the data cloud infrastructure space. We're still -- we booked one customer in North Carolina. We're still trying to figure out where exactly the third hyperscaler would go. It might be North Carolina, it might be somewhere else. But that's a good problem to have. Like we said, this capacity coming online in multiple jurisdictions, multiple factories, multiple buildings coming online. So I do think third hyperscaler is ready to go. It's just a matter of us trying to figure out exactly where to put it.

The next question is coming from Tim Long of Barclays.

Two, if I could here. Maybe I think you guys mentioned Hanley is going well. If you could just give us an update there, kind of on both the power side and the more services side how that's ramping and developing internally into a better business for you guys? And then second, if you could just touch on the storage business. I think -- I'm not sure if you mentioned it that much, but curious how that's going. I think that's been a pretty good ramp. If you could just kind of update on us on how that's going this year and the outlook into next year.

Sure. So I think just as a reminder, Hanley expands our capabilities in both power -- modular power distribution, energy systems and then there's a service angle to that as well. It's a higher-margin business. I think from a revenue standpoint, it's actually going better than we had anticipated during our acquisition.

The level of interest that the acquisition has generated is extremely positive. I think, again, we were expanding capability offerings and going in through one channel and expanding our capability offering in other channels, and Hanley is part of that solution as well. So all going really well. If you think of some of the areas that we can expand into with modular power solutions, I think data center power architecture, I talked about services that services is a critical part of the offering. Not only do we help deploy the gear in the data center, we help maintain it, we help service it. And that's a recurring revenue stream as well. So Hanley overall going really well.

And then the second hyperscaler, I think you mentioned storage. That's going really well. I think some of that is reflected in our guide for -- I won't call it guide, but our indication for FY '27. I think when we started on that second hyperscaler journey a couple of years ago, none of us imagined it to be as critical and as big as it's turned out to be.

Thank you. This brings us to the end of today's question-and-answer session. I would like to turn the floor back over to Mr. Berry for closing comments.

Thank you very much for joining. This concludes our call. If you need further clarification, please reach out to us. Thank you.

Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.

Good morning, everyone, and welcome to the fireside chat with Jabil. I have the pleasure of hosting Mike Dastoor, who's the Chief Executive Officer; and Matt Crowley, who's EVP of Intelligent Infrastructure for Jabil. Thank you both for coming to the conference, and thank you to the audience as well.

Mike, maybe I'll kick it off with you and Matt, feel free to jump in here. But a lot of investors I talk to what's been more sort of surprise to them has been the significant repositioning over the last 5 to 7 years for Jabil. As you sit here today, you have 40% of your revenue exposure linked to AI, including some proprietary capabilities like optical via the Intel acquisition, Intel asset acquisition. You have power products via Hanley. So when you now think about the next 5 to 7 years, what do you see as Jabil's role in AI infrastructure landscape in particular?

Sure. So I think, first of all, thank you for having us. I think the whole Intelligent Infrastructure piece today is going really, really well, strong demand from everywhere. I think it's kudos to the team, Matt and his team here who've actually built a profile, which is not product-based. It's not just a single silo. It's across multiple capabilities. It's across multiple sort of the highlights that we've seen. We're in power management, we're in server racks, we're in liquid cooling. We're in servicing and maintenance as well.

So there's a whole bunch of things that we're involved in. And all of these are coming to fruition very nicely where you make an entry through one particular silo and very soon the conversation goes across. I think one of the things that we've been trying to do is it's all about value offering. It's all about an expanded value that you provide to your customers. And if there is a chance for us to do an end-to-end solution across the data center, that becomes an extremely helpful sort of condition for customers.

So I think going forward, the next 5, 7 years, I don't see anything happening to this whole AI. I don't think there's a bubble. I think things continue to progress well for us. I think the only thing we have right now is some level of capacity constraints. So we're constantly working on those. Next 5, 7 years will probably be the most exciting years that I've ever seen and Jabil has ever seen.

Yes. And I would just add, the proliferation of complexity in the hardware that we're seeing now around AI plays really well into our strategy where we have specifically built capabilities versus being focused on one product or one piece of IP. So as things get more complex, we feel like we're better positioned.

Okay. Okay. How do you then think about -- when you think about the growth over the next 5 to 7 years or medium term, how do you balance that with margins and improvement in the margin profile as well? Because I think you've seen a significant margin improvement over the last few years, which you've been rewarded from by investors as well. But how do you think about continuing that while pursuing the growth?

Sure. So I think if you look at margins and you referred to 6, 7 years ago, our margin was 3%. When you were at 3%, 4% looked like a ceiling. When you hit 4%, 5% looked like a ceiling and so on and so forth. Since that time, when we were 3%, we've repositioned the company. And what do I mean by that? We're no longer a contract manufacturer. I don't like that term. It has very negative sort of connotations. I like describing Jabil as an engineering-led supply chain-enabled manufacturing solutions company.

I think the engineering piece, the supply chain piece are as important, if not more so, than the manufacturing piece today, from an engineering perspective, if you look at the offering that we have, we almost have 9,000 engineers in the company. That's a big amount. Not many engineering companies have 9,000 employees or 9,000 engineers in their organization.

A customer comes to us today with a concept, and we're helping the customer design the product. We're helping them design for manufacturability. Most of the time when customers come to us, their design can't be manufactured. It can't be manufactured at the right cost or efficiency levels and at scale. So we help them through that entire process. So engineering is a big one.

Supply chain, equally big, especially I think our supply chain team is really good during normal times. During constrained times, as we're seeing now, which is probably the new norm, they're really, really good because of all the relationships they built up because of the systems and everything that they've focused on over the last few years.

And then the manufacturing solutions, you look at robotics, you look at automation, you look at engineering, the quality that we provide, our test environment, et cetera. It's a higher value offering. So I don't see 6% as a ceiling. I don't see 7% as a ceiling. The organization is going to keep pushing, and we're going to continue to go up that value offering chain. And that will allow us to continue with our margin accretion story.

Maybe let's deep dive into the segments and starting with Intelligent Infrastructure here. Hyperscale CapEx, we've seen all the companies, cloud companies raise their CapEx spend outlooks. But how should we think about broadly how Jabil has leverage to the increasing CapEx outlooks from these companies?

Yes. I think when you think about the strategy we've deployed with a focus on capabilities versus products, that cuts across architectures, it cuts across customers, it cuts across models. And so clearly, increases in CapEx across that customer base is good, great news. But the way we've positioned the business and our capability around supporting customers broadly in that area, we think puts us in a great position to capture more than our fair share.

Okay. Okay. So maybe talk about areas that you can incrementally address within those opportunities on AI infrastructure. You already do sort of compute, you have optics. Maybe talk about where you see the more sort of incremental opportunities with hyperscalers and helping them scale their AI infrastructure?

Yes, I would say that the opportunities are everywhere, right? At this point, it's not about share. It's really about keeping up with the organic growth of the entire market. But if I think about specifically where I feel like we're going to have a really good advantage, we demonstrated a 1.6T LRO part at OFC, which is about 11 kilowatts dramatically lower than current 1.6T power profiles.

So I think as that gets into Qual, we're excited about that. We also have developed a partnership model as networking moves away from the top of the rack and to a more system rack level architecture. We feel like we're in a really good position to partner with some of the customers that we have. We're never going to compete with them, but delivering the ability to scale out and scale across via partnerships, I think, is going to be a great business for us.

And frankly, when you think about our inorganic growth strategy, it's really to Mike's point on how do we create more value that customers are willing to pay more for and thus have higher margins. So I think we see the Intel transceiver business starting to pay off. I think Mikros is going to pay off significantly, which is where we bought a company that has differentiated liquid-to-chip capability.

And so right now, it looks like that part can cool incrementally up to 4 or 5 kilowatts versus competitors. And then Hanley, where we now have a services organization, where we can deploy 50 kVA gear, not something you can pull somebody off the street in Virginia to do and then service it as an ongoing revenue recurring stream. So really nice margins there, and we're headed towards the segment being at line, if not accretive to the enterprise.

Got it. And most of the -- so just to summarize, most of the incremental opportunities you're highlighting are better margins than what you currently see on the corporate?

Yes, absolutely. We are going to be very disciplined about the business we take, and we're going to balance growth with expansion of margins, and that's our focus.

Okay. So maybe starting with one of those, which is liquid cooling, which is moving from just having a nice to have to now being mandatory or sort of required for all customers. Just walk us through the broad capabilities that you have to address those requirements, including Mikros, particularly sort of how you think about Mikros in the next few years delivering revenue for you?

Yes. I mean we -- so we have very intentionally built engineering and architecture teams that can address any requirement across XPU, whether it's liquid cooled or air cooled. So I think it starts there. We've got a transceiver part that's actually immersion cooled. So we have capabilities in that space. We obviously have talked in the past about our factories on the East Coast, preparing them for liquid cooling, which per the call in Q2, clearly, we've done a decent job at. Then you bring in Mikros where we can have differentiated levels of cooling. And so as you get to Tomahawk 6, et cetera, where there is a higher level of power required and more heat to dissipate, we feel like we've got an advantage there.

And then it kind of rolls right into our DCI business, where we have the capability to manufacture CDUs at scale, per customer designs or not and power equipment. So across the spectrum from a liquid cooled perspective, we have capabilities that we can address pretty much any of our customers' problems with.

Got it.

And just to add on that, I think if you look at liquid cooling, liquid cooling is a way of getting into the door as well. There's a high demand for this capability. We seek to have a differentiated sort of offering there. We often go in through the liquid cooling door and soon the conversations move to server racks, moves to power management, moves to other parts of a data center. And that is the strategy. That's why we actually acquired Mikros. It wasn't for the revenue stream that Mikros got by itself. It's across the board, it's enablement of an entire data center.

Matt, going back to what you referenced, the power capabilities towards the end of the last answer, a lot of investor interest that we're seeing on that front in understanding power capabilities that you have. So maybe help us understand the capabilities that Hanley brings, the acquisition brings to you? And how should investors think about the growth opportunity with Hanley?

Yes. So Hanley was a really good fit because their approach was also not one of specific product, but rather engineering capability. So we've got a really nice complement to the engineering and architecture capability that we had already created in the space. It expanded a bit, so we can actually now design and manufacture at scale power products like PDUs, LVSs medium-volt switchgear as well as getting the ability to service and deploy the products. So do I think -- if I were to refer to what expectations around growth should be, I would say that, that business, much to the way Mike described the entry point, will probably start off between the $200 million to $500 million range, but will expand dramatically from there over the next 3 years.

And are you seeing any changes on the lead times of these power products in terms of how -- what's typical lead time in terms of you addressing customer demand today? Is the supply chain getting more constrained? Is that leading to somewhat maybe a pricing opportunity eventually as well?

Yes. It will have challenges, but a lot of it is very customer dependent and model dependent. So for example, with our hyperscale customer, we build their LVS gear. We build it and deploy it, but they have a ton of procurement power. And so typically, we'll get more than our fair share of parts in that space. So we haven't seen it really impact the existing business. Does it threaten potentially future business could. But we have a really good supply chain also to Mike's earlier point. And so we're very proactive in addressing any potential shortages we see coming.

Okay. Got it. So maybe now let's flip over to discussing optics since your silicon photonics assets that you have are quite well placed because everyone wants silicon photonics at this point in the networking. Can you highlight what your competitive moat is at this point? And how is it helping you in terms of landing and expanding with some of your hyperscalers?

Yes. So I would tell you that obviously, the Intel transaction gave us capability. It gave us capacity, and it gave us a quick entry into silicon photonics, so we'd be ready for co-packaged optics. I think that there's the potential for a relatively dramatic moat with our LRO part that's going to pull 11 kilowatts, 1.6T. So that goes into different calls across the next 1 to 4 months. So we'll have to see how it comes out. The quals can take anywhere between 2 to 6 months. But we feel like that could be a major differentiator in the space.

And then we also created a pilot line in Ottawa, Canada for advanced packaging in order to be prepared for things like process development on co-packaged optics where it's super complex. We can develop processes in Ottawa and then deploy those at scale in places like Penang as we get more business. And then obviously, we've had a continuing really nice business in the networking space and being able to now deliver a co-packaged optics switch is going to put us in a great position.

So maybe talk about timing for co-packaged optics. I think there's a lot of industry debate about what that actual timing looks like. What...

If you ask Jensen, it's today. I think if you look at the economics of it, the price curve has not come down in line per gig. So my sense is that there -- as usual, NVIDIA will probably be leading clearly. Will the entire industry follow? I think there has to be some level of standardization from customers in order for suppliers to go and create processes that are repeatable versus onetime events. And so until you get to that kind of an ecosystem economically, I think it's going to take a while. So it's somewhere in between today with one customer versus x number of months with 50 customers.

Okay. Okay. And maybe let's just go a bit further down that path that you discussed like the CPO switch, for example. But before we discuss CPO specifically on the switch side, you do have capabilities in switching that extend both across Ethernet and InfiniBand.

Correct. We build both types of things.

Yes. So how are you thinking about growth drivers for those individually? And then how do you sort of take that forward into what are you getting in terms of visibility from the customer in relation to a CPO switch?

Growth drivers are kind of everywhere. I would tell you that the entire market continues to expand. We obviously do see products mix. And I'm very careful not to try and reveal customer-specific data, but I would tell you that the mix between an Ethernet and InfiniBand solution has been kind of back and forth, not one big pivot. So for us, it hasn't had a big change in the business. Overall, whether it's a CPO architecture or Ethernet or InfiniBand, again, our strategy around capability has us well positioned to deliver all of those.

Okay. Okay. Good. Maybe moving to overall concerns that we've been generally hearing from investors, how should we think about the market share for Jabil with your largest -- current largest customer within Intelligent Infrastructure? There are obviously a lot of concerns around market share moving around when it comes to compute, in particular, with your largest customer. What are you seeing in terms of position with the largest customer? And how confident are you about maintaining share?

Why do you -- what's the thesis on share concern?

More competitors coming into working with their largest customer on the compute side?

Yes, I'm not worried about that necessarily is what I would tell you. We build every rack type they consume. So core compute, networking, storage, custom silicon, liquid cooled, air cooled, GPU, liquid-cooled, air cooled. So on the core compute side, I will say probably the last time that I saw you, we were talking about the fact that I think that we're going to see an actual increase in core compute because customers a couple of years ago forgot that they still need to actually compute and all they spent money on with CSPs was AI. And I think we've seen that start to come to fruition.

And then when you think about the recent conversations around CPO and Agentic and inference, driving a whole bunch more x86 and/or ARM solutions, I think we're going to start to see that shift inside of our business as well. And whether it's Graviton or another customer solution in that space, again, we have the capability to go and execute.

I think the relationship with the largest customer is in really good shape, and I see that relationship expanding even further.

So maybe address that from a capacity constraint standpoint. Like as much as your relationship is strong, I think one of the concerns investors have is that you're capacity constrained. And does the largest customer need to engage more suppliers to ease some of those capacity constraints. So maybe talk about it from the standpoint of the largest customer, but then we can move more broadly in terms of what you're doing to address some of the capacity constraints broadly for the company as well.

Sure. So I think the capacity constraints are more a timing issue. We've been working on a whole bunch of expansions. I think on the earnings call, I talked about our facility on the East Coast of Florida. We talked about how the retrofit was going. Now we have the ability to air cooled and liquid cooled pieces. I think if you look at the new factory that we're looking at in North Carolina, that's on schedule towards the end of this fiscal year.

If you look at the 1.5 million square feet that we're adding in Memphis, that's another piece that's related to the largest customer. That's a big humongous factory, 1.5 million square feet is huge. And then we're expanding parts of Mexico. We're expanding India. There's a whole bunch of expansion that's taking place for the largest customer beyond the largest customer as well.

One of the things just from a capacity at the enterprise level is a little bit of a mismatch because we have a little bit of surplus capacity today on the regulated market side, which, by the way, is improving. So when that capacity gets absorbed, there's a multiplier effect. It's going to -- it helps absorb capacity on the underutilized side and all these new factories, new expansions, new ramps will come on board. So I'm not -- I don't lose sleep over capacity constraints. We're extremely disciplined, and we sort of focus our expansion based on customer visibility as well.

How are you handling capital and resource allocation outside of Intelligent Infrastructure, given the growth that Intelligent Infrastructure is seeing, I'm assuming that sees an outsized sort of investment in it related to the other parts of the business. But how are you making sure that you balance the resources and capital with the other groups as well?

So let me just start by saying Intelligent Infrastructure Matt's business is actually an asset-light business. It's actually great for free cash flows. It's actually quite limited on capital expenditure. You don't need special flooring, you don't need SMT lines. You don't need a whole bunch of equipment that you need on the other side of the business.

So of course, we're expanding. We're creating capacity. That has some level of cost, but it is absolutely not impacting the other side of the business. It goes so far as to say that the surplus capacity that we have today is being absorbed on the other side. And we'll actually look in -- we're looking at new sort of expansion beyond that outside of Intelligent Infrastructure as well, Salt Lake City, we're looking at Richardson. We're looking at buildings in Mexico, that have nothing to do with Intelligent Infrastructure. So CapEx is very measured. It's very focused, and I see absolutely no reason for it to be anywhere outside of the 1.5% to 2% revenue. As the revenue numbers go higher and higher, 1.5%, 2% is still a reasonable expectation from us.

Okay. Okay. So maybe let's switch over to regulated industries for a bit. Automotive, renewables, these areas saw better-than-expected demand in the latest quarter. Just maybe let's start with automotive. How are you thinking about industry production trends going forward? I mean, clearly, those haven't been robust in the past, but is the outlook there improving or the confidence level there for the Automotive segment improving?

So yes, we did take our automotive numbers up quite a bit on the last earnings call. It was a little bit of mix. There's obviously some level of outlook improving outside of the U.S. and outside of China. If you look at Europe, if you look at other parts of Asia, we're seeing some pickup on the automotive side for sure. I think the -- if you go back a few years ago, we were heavily indexed on the EV side. Since then, we've actually pivoted and we've moved our capabilities on a powertrain agnostic basis, which means our capabilities now go across hybrids, they go across ICE and they go across EVs. And that is a very Jabil-specific reason for the incremental revenue that we put out. There's a lot of interest. OEMs are bypassing Tier 1s. They want to own the IP. They want to own the experience. They are coming to companies like Jabil, we will offer what they're looking for.

So automotive is doing, I'd say, better than feared. And I think as things continue, I do think automotive will start to see a turnaround. I think it was only in December or January EV sales were highest in Europe that overtook ICE sales for the first time. So there are definitely pockets of improvement right now on the automotive side.

And then maybe talk about the structural shift in your renewables business because I think for 2 consecutive quarters, you've had mid- to high single-digit upward revision in your outlook for fiscal '26. How are you thinking about sustainability of the stronger demand you're seeing more recently there?

So I think there's about -- there's 3 reasons, let's say, for this expansion on the renewables side as well. I think there are some projects which have been safe harbored in on the Big Beautiful Bill. So I think that's working out really well. And I think it still has long legs. So there's plenty of projects left on that safe harbor provision.

I think if you look at the incessant demand for power through data centers and AI, that is driving demand for alternative sources of power. There's a lot of conversations, a lot of interest shown, not just in the U.S. but overseas as well.

And then last but not least, I think the tax incentives were taken away for residential purposes. I think we're seeing a big shift in residential projects moving to a commercial project-based outlook. And it's good for us because residential is very tax incentive based while commercial is not.

So again, very long legs in terms of renewables. Again, we're trying to be prudent. So we'll always lead with conservatism there as long as we continue to feel good, which I do right now, I think renewables will be a growth area going forward.

Health care, ideal growth opportunity for the business. How are you thinking about potentially any accelerators of growth? And any updates on how you're thinking about the M&A pipeline for healthcare?

So I'm most excited about the health care end market. Obviously, Intelligent Infrastructure is a piece that is driving all the growth, is driving all the demand today. So really good to see that. But health care, I like almost everything about health care. If you look at the long product life cycles, often the product life cycles go into double digits, 10 years, 15 years. You don't see that in other parts of the business.

When you have 10, 15 years of manufacturing behind you, your efficiency levels, your cost savings go up considerably. So I think long life is a big one. The financial metrics, if you look at the margins, you look at the free cash flows, everything is really positive there. One additional data point on the health care piece is health care is a relatively immature outsourcing market today. There is a level of fear and hesitancy to outsource, but that will open up one day. It has to because I think health care companies are better off focusing on their own projects, their own development, their own products and leaving the manufacturing to someone who can actually do it at scale with a whole bunch of engineering capabilities attached to it as well.

So I do feel really good about health care. I think in terms of growth, mid-to-high single digits is an expectation. I think that growth will come through GLP-1s for sure, we're the world's largest manufacturer of diabetes injector pens. If you look at continuous glucose monitors, diagnostics, minimally invasive devices, all of that falls within the health care purview and high growth potential there. Some of the accelerators that you referred to, obviously, as I said, I like almost everything about it. I don't like the fact that everything in health care takes a long time. To win the business takes 8 months, 12 months, 18 months. Once you won the business to get the FDA qualifications, the regulatory qualifications, setting it up, automating processes, et cetera, take another 18 months and 36 months.

So it's a very long gestation period. But once it's there, it's there for 15 years. And that's -- it's definitely worth waiting for. And I think the acceleration will come on some of the program wins that we've had, but they haven't hit volumes yet. So that will come. We're looking at capability-driven acquisitions. We'll continue to do that. We'll look at B2B transactions. I think we're having some good discussions. And overall, health care just seems to be steady Eddie, and it's -- the way I put it, it's not recession-proof, but it's definitely recession mitigated. Health care, people still need health care.

Let me check if anyone in the audience has a question. I think if we can get a mic.

In listening to your discussions around both having current capabilities and acquiring capabilities, is it a view that you have a fairly significant untapped organic growth opportunity sitting inside the current client base?

Was that specific to Intelligent just in general?

Just in general, but it also sounds like actually particularly in health care, I would...

Right. So I think health care is a great example of why we would do capability-driven acquisitions to go vertical. And I think we did that with the PII transaction with the world's largest maker of injectors, what if we could do the filling of the GLP-1 itself. It's all about making a vertical integration play. So most of our capability-driven acquisitions will be around that.

I think the Mikros 1 liquid cool, that was based around data centers. Let's go, hey, can we go vertical across the data center. Hanley is another good example. Can we do deployment and servicing and maintenance of a data center. So I think capability-driven acquisitions, we've done quite a few in the past. They're nice tuck-in acquisitions. They're not very expensive, but they have huge returns for a company that already has a whole bunch of capabilities attached and you can sell it as a package.

So I agree with you. I don't think we're going to see a bubble burst in AI, but I do suspect at some point, they'll be less frothy, maybe be a little more of a plateau at some point. When you hit that plateau, do you have some sense that you need to start thinking more about how to be more effective at the backlog that you've created and then transition from lots and lots of acquisitions as well to how to become more operationally effective, which is a little more of a core capability at Jabil at one time.

You want to talk about AI?

Yes. I mean from an AI perspective, I don't disagree with you. I think things could plateau. I think calling that is pretty difficult. Just over the last 2 or 3 weeks, we've seen x86 and ARM explode because of Agentic and inference. So when it does happen, we very intentionally have built a resilient portfolio across the segment. And so the capabilities, whether they be in capital equipment, in cloud and DCI, and silicon photonics, we're still going to be able to build compute requirements, networking requirements, storage requirements even if there's an AI bubble, people are still going to have to store data. They're still going to have to compute, and we're in a perfect position to support it.

And so from our perspective, is it going to potentially plateau? Maybe. But when it does, we've got enough breadth of capability to still have a really good business.

I think a diversified portfolio diversification within Matt's business itself outside of Intelligent Infrastructure as well. Every end market goes through an up and down cycle. You need to make sure that you have a natural hedge when something is going down, something else will start coming up and the more optionality you have around these peaks and troughs of cycles, the more diversification plays a big role. So diversification will continue to be one of our strategies going forward as well.

So Mike, counter to the diversification. One of your peer companies did announce their spin-off of their data center linked businesses.

It took you 29 minutes.

I was keeping that for the last.

The longest of the day.

I wanted to make sure people stay back for that. So one, primarily, a lot of the investor questions have been, does it make sense for Jabil to look at something similar? And any -- secondly, any thoughts on changing the competitive landscape on that account?

So look, the Board and I are constantly looking at alternatives in terms of strategy. We're looking at ways to unlock and create shareholder value. It happens all the time. But having said that, I think our strategy remains unchanged from where it was 2 weeks ago. I don't think we were going to change the strategy based on peer thoughts, which might be valid for them.

One thing, if you look back in what Jabil's strategy has been, diversification has been the biggest building block for us. We're in 8 end markets, like I said, but we can talk about 27, 30 other sub end markets, the diversification. And again, I talked about that. It's a natural hedge in up and down cycles.

And by the way, which you're seeing today, when all of the end markets seem to be in a good position, there's a multiplier effect. So diversification does have its positives. Product companies have certain challenges as well. Fear of disruption. Technologies are evolving at such a rapid pace today. There's always a fear of disruption, and that leads to more R&D. That leads to more capital expenditure. That leads to using your balance sheet to go and keep up with the technologies.

And eventually, I think customers also want to see some level of ownership of IP and the experience. So look, it's just 2 different paths. I'm not suggesting one is better than the other. But today, we'll stick with our strategy. Tomorrow, if things change, we'll always look at ways of creating shareholder value.

Great. I'll wrap it up there. But thank you. Thanks for coming to the conference. Thank you to the audience as well. Thank you.

Thank you.

Thank you.

Greetings. Welcome to Jabil's Second Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions]. Please note, this conference is being recorded. I'll now turn the conference over to Adam Berry, Senior Vice President, Investor Relations and Corporate Affairs. Thank you, Adam. You may now begin.

Hello, and welcome to Jabil's Second Quarter Fiscal 2026 Earnings Conference Call. Joining me on today's call are Chief Executive Officer, Mike Dastoor; and Chief Financial Officer, Greg Hebard.

Please note that today's presentation is being live streamed. And during our prepared remarks, we will be referencing slides. To view these slides, please visit the Investor Relations section of jabil.com. After today's presentation concludes, a complete recording will be available on our website for playback.

In addition, we will be making forward-looking statements during this presentation, including, among other things, those regarding the anticipated outlook for our business, such as our currently expected third quarter and full fiscal year 2026 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 is identified in our annual report on Form 10-K for the fiscal year ended August 31, 2025, and other filings with the SEC. 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, I'd now like to hand the call over to Greg.

Thank you, Adam. Good morning, everyone, and thank you for joining our call today. Our second quarter exceeded expectations on both revenue and core operating margin, driving another step-up in core EPS. And while Intelligent Infrastructure continues to be the primary driver of growth, we were encouraged to see solid performance across other areas of the portfolio as well.

In regulated Industries, revenue came in about $200 million above our Q2 guide, driven mainly by Automotive with Renewables also performing better than expected. In Intelligent Infrastructure, we were up nearly $300 million above our Q2 guide, driven mainly by cloud and data center infrastructure and networking and communications. And in Connected Living & Digital Commerce, performance was largely in line with expectations.

Overall, Q2 was a strong quarter, and it provides us with greater confidence in our outlook for the back half of our fiscal year.

With that, let's walk through the numbers for the quarter. Net revenue for Q2 was $8.3 billion, exceeding our outlook for the period. Favorable revenue mix and ongoing cost discipline enabled us to achieve core operating income of $436 million and a core operating margin of 5.3%. On a GAAP basis, operating income was $374 million, and GAAP diluted earnings per share was $2.08. Core diluted earnings per share for Q2 was $2.69, reflecting results that were above our expectations for the quarter.

Now turning to performance by segment in the quarter. Regulated Industries generated $3 billion in revenue, up 10% year-over-year and well above our outlook in December. The higher year-over-year revenue was driven by all 3 end markets. Core operating margin for the segment was 4.8%.

Intelligent Infrastructure revenue was $4 billion, up 52% year-over-year and also ahead of expectations. Growth was broad-based across capital equipment, cloud and DCI and networking and communications. Core operating margin for the segment was 5.7%, up 40 basis points year-over-year, supported by favorable mix and disciplined execution.

Connected Living & Digital Commerce revenue was $1.2 billion, down 8% as expected, reflecting planned program attrition and customer pruning. This was partially offset by continued growth in robotics, advanced warehouse and retail automation. Core operating margin for this segment was 4.9%, up 40 basis points year-over-year.

Turning now to cash flow and balance sheet metrics. Inventory days for the quarter were 75. Net of inventory deposits from customers, inventory days were 60, consistent with our targeted range of 55 to 60 days. Cash flow from operations in Q2 was $411 million, and net capital expenditures were $51 million, resulting in adjusted free cash flow of $360 million for the quarter. This keeps us well positioned to deliver over $1.3 billion in adjusted free cash flow for the full fiscal year.

Our balance sheet remains in excellent shape. We ended Q2 with $1.8 billion in cash and remain fully committed to maintaining our investment-grade credit profile. During Q2, we repurchased $300 million of shares under our existing share repurchase authorization.

With that, I'll walk through our guidance for Q3 FY '26. Beginning with revenue by segment, we anticipate Regulated Industries revenue of $3.1 billion, reflecting some growth in renewables, steady health care demand and stabilizing trends in automotive and transport. For Intelligent Infrastructure, we expect revenue of $4.2 billion, up 22% year-over-year, supported by ongoing demand across cloud and data center infrastructure, advanced networking and communications and capital equipment. And for Connected Living & Digital Commerce, we expect revenue of $1.2 billion, down 10% year-over-year, reflecting continued program transitions and portfolio optimization partially offset by growth in automation, robotics and advanced retail and warehouse programs.

At the enterprise level, total company revenue for Q3 is expected to be in the range of $8.1 billion to $8.9 billion. Core operating income is expected to be in the range of $452 million to $512 million. GAAP operating income is expected to be in the range of $398 million to $458 million. Core diluted earnings per share is expected to be in the range of $2.83 and to $3.23. GAAP diluted earnings per share is expected to be in the range of $2.36 to $2.76. We expect third quarter net interest expense to be approximately $73 million and full year interest expense to be approximately $280 million.

Our core tax rate for Q3 and the full year remained at 21%. Let me close by saying Q2 delivered strong results and we are entering Q3 with solid momentum. Our performance this quarter demonstrates the strength of our diversified portfolio and disciplined execution. As we move through the year, our priorities remain consistent. We remain focused on margin expansion, capital efficiency and sustained cash generation.

With that, I will turn the call over to Mike, who will share more on fiscal 2026 and our updated guidance.

Thanks, Greg, and good morning, everyone.

Before I get in the quarter, I want to recognize and thank our teams around the world for the focus and execution they continue to show. Jabil's strong performance in the first half has required a great deal of coordination across customers, sites and the supply chain, and I'm sincerely grateful for what the Jabil team continues to do every day. As Greg outlined, the second quarter came in stronger than we had anticipated in December, with revenue approximately $500 million above the midpoint of our guidance, which also drove better-than-expected performances in both core operating margin and core EPS.

For me, what was great to see, the revenue upside in the quarter was broad-based as cloud and data center infrastructure, networking and communications, automotive and renewables all outperformed ahead of expectations. By taking a closer look at the outperformance, clearly, our Intelligent Infrastructure segment, driven by the AI data center build-out, continues to be our growth driver in the near term, while the outperformance in areas where we've recently seen headwinds such as automotive and transportation, and renewables and energy infrastructure suggests to me that those markets have bottomed and are now slowly recovering. And just as importantly, our teams across the organization did an outstanding job by delivering for our customers and converting the stronger demand into higher-than-expected margins and strong core EPS growth and high free cash flow generation.

In summary, Q2 was a strong quarter and is yet another example of our strategy in action. The diversified model continues to matter and the momentum we're seeing gives us confidence as we move through the balance of the year.

Let me now walk through our updated outlook for fiscal 2026 by segment, starting with Intelligent Infrastructure. We now believe our Intelligent Infrastructure segment will be approximately $16.5 billion, an increase of $1.1 billion over our previous expectations and 34% growth over fiscal 2025, driven by incremental growth in all 3 of our end markets in that segment. We now believe our cloud and data infrastructure end market will be $10.4 billion, up approximately $600 million for the year relative to our forecast from 90 days ago, driven primarily by 2 factors.

As a reminder, in September, we discussed our intention to retrofit our U.S.-based facility on the East Coast to support liquid cool racks which gives us the flexibility to support both liquid and air cool configurations. I'm proud to say that those modifications are largely behind us, which means we now have incremental capacity available a bit ahead of schedule. And all of this comes at a good time for us as demand continues to outstrip supply for the integration of highly complex racks and servers.

And secondly, also within cloud and DCI, we're seeing strong execution regarding the ramp with our second hyperscale customer in Mexico, which is also contributing meaningfully to stronger outlook along with continued strength in data center power in Memphis. Also, our Hanley acquisition integration is going very well and according to plan.

Next, in Networking & Communications, we now anticipate revenue will be approximately $400 million higher for the year coming in at $3.1 billion, reflecting stronger demand and exceptional execution across our advanced AI networking programs in India. This momentum is fueled by customers investing in greater high-speed interconnect capacity to keep pace with rapidly expanding AI workloads. It's also worth noting that our outlook for 5G spending is showing signs of recovery.

In Capital Equipment, we're seeing positive momentum in this segment as well with our outlook for the year now expected to be $100 million higher for the year coming in at $3 billion. This reflects a combination of strong demand and execution in automated test equipment and more encouraging signs in wafer fab equipment, where the demand environment is improving beyond our earlier assumptions.

Building on the strong results and positive momentum across the segment, we're further increasing our fiscal 2026 AI-related revenue outlook by approximately $1 billion compared to December bringing the total to roughly $13.1 billion. This now represents a strong increase of 46% year-over-year. I'm really proud of our Intelligent Infrastructure team and their ability to stay ahead of the curve and diversify across data center stack with multiple products, customers and capabilities, which I believe is a key factor in our strong results and outlook for fiscal 2026.

Simply put, our approach is delivering real value and is a key differentiator for Jabil. Our holistic strategy here centers and capabilities our customers need versus a product focus. We now have the capability to design and deliver integrated systems at the system level, combining compute, networking, power distribution and advanced cooling all aligned to our customers' specific requirements. This seamless integration of capabilities accelerates deployment times and reduces total cost for our customers, while leveraging our position as a U.S. domicile manufacturer, which is exactly what customers want, as demand for AI capacity continues to expand and global uncertainty continues to grow.

Moving to Regulated Industries. We're seeing some momentum behind the bounds of the bottom for the end markets we play in. For fiscal 2026, we are increasing our regulated outlook by approximately $500 million versus our December view to $12.5 billion. In Automotive and Transport, our strategy to focus on powertrain agnostic capabilities is working, as we continue to win programs on ICE platforms. On a positive note, and as I mentioned previously, we're also beginning to see momentum for EVs, mainly outside the U.S. We're encouraged by what we're seeing, but we're going to stay extremely disciplined in both our outlook and investments regarding EVs.

In Healthcare & Packaging, our business remains both solid and aligned with our expectations for growth, as we move into the back half of the fiscal year, supported by continued strength in drug delivery platforms, including GLP-1 and continuous glucose monitors as well as ongoing demand across diagnostics and minimally invasive technologies.

In terms of pipeline for health care, our outlook remains solid for this end market with good visibility in the program ramps across drug delivery, chronic disease management and on the regulated devices in fiscal 2026 and beyond. We're also seeing improving conditions on renewables relative to what we assumed earlier in the year. Again, we'll stay measured here, but it's worth highlighting that the mix of solar business has shifted to accommodate both residential and commercial installations, which we believe will create a more sustainable level moving ahead.

And finally, in Connected Living & Digital Commerce. Our full year outlook here is largely in line with what we laid out in December, but the story within the segment continues to move in the right direction. While Connected Living remains more stable, Digital Commerce continues to grow, driven by a broad-based trend in automation, robotics and advanced retail and warehouse programs. I believe robotics and physical AI represent meaningful long-term growth opportunities for Jabil and should become increasingly important contributors to the segment's performance over the next several years.

Given the strength of Q2 and the strong outlook for the back half of the year, we're increasing our full year outlook for revenue and core EPS. For fiscal 2026, we now expect revenues of approximately $34 billion, an increase of approximately $1.6 billion from a prior outlook of $32.4 billion. We're also raising our full year diluted earnings per share outlook to $12.25, up from $11.55. For the full year, we continue to expect core operating margins of approximately 5.7%. And importantly, we still expect adjusted free cash flow of more than $1.3 billion. Even with the higher revenue outlook and the working capital that naturally comes with that growth, we expect to maintain strong cash generation and stay disciplined on capital efficiency.

As we move ahead, the focus from here does not change for us: profitable growth, disciplined mix, margin expansion and strong cash generation. That focus continues to create momentum across the business and allows us to navigate changing market conditions while steadily building long-term earnings power. Additionally, as part of our ongoing commitment, delivering value to shareholders, we remain focused on returning capital through share repurchases and other prudent capital allocation strategies. This approach not only reinforces the high level of confidence in our business, but also demonstrates our dedication to enhancing shareholder returns over the long term.

Before closing, I want to again thank our teams, customers and suppliers for their commitment and partnership. The consistency in our results is a direct reflection of their efforts, and I'm grateful for the trust they continue to place in Jabil. As we mark Jabil's 60th anniversary, it's also worth taking a moment to reflect on the strong foundation built over decades and the shared commitment that continues to move us forward. We are proud of our history, grateful to everyone who has shaped it and excited about what lies ahead.

With that, I'll turn the call over to Adam.

Thanks, Mike. Before we move into Q&A, allow me to close out with 5 quick key takeaways.

First, we're exiting the first half with strong momentum. Q2 came in better than expected, and the strength was broad-based across multiple end markets. Second, Intelligent Infrastructure continues to perform at a very high level with solid segment margins reflecting strong execution and continued growth. Against that backdrop, demand tied to AI and data centers remain strong, and we now expect AI-related revenue to grow approximately 46% year-over-year to $13.1 billion in fiscal 2026.

Third, we're encouraged by what we're seeing in Regulated Industries. While health care has remained solid, automotive and renewables are starting to improve off their lows. Moving ahead, we'll stay disciplined in our approach for these end markets as the recovery continues.

Fourth, Connected Living & Digital Commerce is moving in the right direction, as our mix within the segment shifts towards automation, robotics and physical AI, which we believe will be a growth driver over time.

And finally, all of this supports a stronger outlook for fiscal '26. We're raising our fiscal '26 revenue outlook and core EPS expectations year-over-year, while we also continue to expect healthy margins and strong free cash flows as we approach fiscal '27. One last shout out to Jabil, happy 60th birthday.

And operator, we're now ready for Q&A.

[Operator Instructions]. And our first question is from the line of Ruplu Bhattacharya with Bank of America.

Mike, you raised Intelligent Infrastructure revenue by $1.1 billion. Can you help us rank order where you see the most opportunity? Is it in compute networking or semi-cap? And this year, AI revenues are now growing almost 50% year-on-year. Is it reasonable to think that, that strong growth can sustain beyond fiscal '26?

Sure. Thanks, Ruplu. I know this is a critical part of our story, so I'll try to be as detailed as I can. The Intelligent Infrastructure growth was really broad-based across all 3 end markets. I think I mentioned on my call, cloud and DCI was up approximately $600 million, Networking and Comms up about $400 million and Capital Equipment up about $100 million. So the $1.1 billion raise in Intelligent Infrastructure is quite broad-based.

In cloud and DCI, the $600 million increase in September, we talked about the retrofitting of our site on the East Coast of the U.S. to accommodate liquid cool racks that would give us the optionality to do both liquid cool and air cool service. It would be sort of backward compatible and future proof as well. I'm happy to say, as I mentioned on the call, that retrofit actually was done sooner than we expected. We're about 2 or 3 months ahead of schedule, and that opened up some capacity on the East Coast, and that's flowing through our DCI cloud and DCI line.

In addition, if you think about some of the other -- the second hyperscaler that we've talked about, going really well in Mexico. It's on the AI compute storage ramp there. Some of our power business in Memphis. I think we've talked about that in in the past, LVMV switchgear and the heat exchanges that we do in Memphis is going extremely well. In fact, we have expansion plans for Memphis, again, as we've talked about in the past.

And then if you look at networking and communications, which is up about $400 million, it was really good to see $300 million of that came in from the networking side and $100 million of that came from 5G. I don't think we've talked about 5G in a very long time. And we're seeing some positive upside there as well. On the networking side, the demand for high-speed interconnect continues to expand. We're looking at both Ethernet-related demand, Infiniband related to demand, strong execution that we've had across our networking programs. All that's coming across really well. Our sites in India are doing amazingly well. And we have some expansion plans for there as well. So Networking and Communications, again, well sort of spread out.

And then last, but not least, capital equipment. If you think of the strong demand in capital equipment continues the rapid sort of evolution that we're seeing in chip technologies, the high-performance computer, AI applications, continuing to drive demand for testing. So automated test equipment is really doing well. And then if you go beyond that, the wafer fab equipment, we're actually seeing some signs of improvement there as well.

On the wafer fab equipment, just being a little bit more prudent, it appears a little lumpy. So we're being conservative there, and we'll take our numbers up on the WFE side going forward as we see some level of clear visibility as well. So the $1.1 billion in Intelligent Infrastructure really well spread out. I think if you look at the AI piece that we talked about, that was $1 billion year-on-year -- sorry, from December outlook. And again, all of that, I'm really bumped up with what's going on in Intelligent Infrastructure right now.

Okay. I really appreciate it. As a follow-up, can I ask, so it looks like it's a broad-based strength and you've raised total company revenue guidance by $1.6 billion. But op margin is still 5.7%. So can you talk about the factors that are going into that? Are Intelligent Infrastructure margins where you would like them at? How much is mix a factor? And what are the factors that help drive op margin to greater than 6% going forward maybe in fiscal '27?

So as a reminder, we did take margins up in December by 10 bps. I feel really good about the 5% right now, the 5.7% for the year in FY '26. Could it be higher? Sure, I just feel a little sort of -- we want to be a little bit more conservative given everything that's going on in the world with the geopolitics and the uncertainties out there. We'll update margin guidance in our next quarterly call for sure. But I'll be surprised if it doesn't go higher than 5.7% at this stage, but we're just being a little bit more prudent there.

As it relates to 6% and beyond, I think we have a really high level of confidence in that 6% for FY '27, I think I've said this in the past, I feel better about 6% than I have ever gotten before. I think if you look at the main drivers for 6%, we're getting a really good mix of business, not just at the enterprise level, where some of the older -- not the old, but the legacy businesses are coming back.

And then within Intelligent Infrastructure as well, we're seeing some decent signs of margin improvements there, particularly as we -- as we bring on new capabilities online, such as power, such as liquid cooling, et cetera, which are higher margin, silicon photonics will be another one. So I think overall, I think the 6% mix is really good. If you think of the operating leverage on a higher revenue base, we've taken up revenues $4 billion this year and that will pay dividends as well going forward, as we take revenues up, the leverage on that.

We're seeing some better capacity utilization as well. I think last year, we're at 75%; today, we're coming in at 80%. So that will continue to be a driver of higher margin. And then if you add the acquisition that we made, the Hanley acquisition, that will scale with the Intelligent Infrastructure business, and that is going to be accretive to our margins as well. So all in all, 6% and beyond is highly doable.

Okay. If I can sneak one quick one for Greg. Can you remind us on uses of cash? I mean, you've got growth in many different areas. How are you thinking about CapEx spend for this year? Where are you investing for growth? And also, if you can talk about capital structure, how are you thinking about lowering leverage and also -- or taking on leverage for M&A.? So how should we think about that? .

Yes. So on cash, really strong free cash flow quarter in Q2 of $360 million. We feel really good about the full year guide of $1.3 billion-plus. What I would say is with the revenue increase and working capital is slightly expanding, so we are holding our guide to $1.3 billion-plus. But similar to Mike's comments on margins, we'll see as the back half progresses, if there's opportunities to increase.

On CapEx, the back half, we'll see CapEx in the 1.5% to 2% range. So that will be slightly higher than what we saw in the first half. And overall for the year, it will be around 1% of revenue. So we feel really good about where we're allocating our CapEx and continuing to grow. On use of cash as well, and we're still very much committed to our capital allocation framework. 80% of our free cash flow go into share buybacks. We still feel buybacks remain an excellent use of cash for Jabil, as we feel our shares are undervalued, and we'll continue to be opportunistic in that area. So again, feeling really good on our leverage where we are today.

To your question on M&A. Yes, today, 20% of our use of cash is for kind of nip-and-tuck capabilities, and we've been really, I think, successful with that in the last couple of years. But we are at a point in leverage where we could lever up if the right type of M&A deal that was available to us. So we're always monitoring that, and we'll be ready and positioned if those opportunities come about.

Our next question is from the line of Mark Delaney with Goldman Sachs.

First, on the data center and AI market, you all discussed in prior quarter as being close to winning a new customer or potentially multiple new customers and perhaps another large hyperscaler. I was hoping you could give us an update on where you stand with those efforts and if you could also talk about what sorts of products and applications you think are most likely where you could see some share gains?

Sure. The business -- the wins that we've seen, I think we've talked about Intelligent Infrastructure wins in the past of a second hyperscaler, we've done really well with that. The ramp is going really positively there. I think we're in close discussions with third hyperscaler. I expect some level of closure within the next few weeks, that will be a major contributor for FY '27 as well.

I note our facilities, if you think of the expansion that we're undertaking in Memphis, where we're adding 1.5 million square feet, that expansion is on track. We've talked about North Carolina in the past. We feel really good about filling up North Carolina. I think North Carolina is on track. I think we will be ready by July, August.

In FY '27, we have a whole bunch of customers that are interested in that site. And we expect, again, to close on that relatively soon. So overall, the growth that we're seeing in Intelligent Infrastructure, the expansion plans, even networking, communication, all of that is going exceedingly well. It's actually really, really broad-based. It's across the whole portfolio in Intelligent Infrastructure.

And I think I have to give a shout out to our team who's come up with a strategy on that as well, where it's a holistic sort of approach. We're not product-based. We're providing integration at a system level, where we look at compute, looking at networking, we're looking at power, liquid cooling, and going across the customers' needs and requirements. It's not just 1 siloed sort of approach. So overall, it's going really well is the best way to describe it.

I think I mentioned this in the past. I'm really pumped up with what's going on in Intelligent Infrastructure. And this is nowhere nowhere near slowing down. In fact, it's actually gaining momentum, particularly with all the capabilities and the design and engineering architecture that our team has managed to around this.

Very helpful, Mike. My other question was on supply chain. I think even prior to the upside in demand that Jabil has been seeing, there was some tightness in certain components. Could you speak more on what you're seeing in some of these various areas? I think semiconductors and memory was one. I think maybe some of the components have been tight as well. But now the demand is stronger as well as given what's going on with the Middle East, can you speak to your ability to get supply and just kind of cost elements that may be associated with getting that supply in light of everything that's happening?

So supply chain constraints, they are definitely. They're getting a little bit tighter. I think if you look at memory, anything with DDR4 and lower is being impacted. One would think about growth, which is mainly in the Intelligent Infrastructure piece is with hyperscalers. Hyperscalers will get their fair share of the allocation and they're on DDR5 as well. So a different sort of perspective from that angle is some level of PCB constraints that we're seeing.

All in all, though, I think the shortages that are out there, our supply chain team, and we've demonstrated this in the past. I think they do such a good job in getting components and especially in a constrained market, they're actually hitting their elements. I will say we have sort of factored in any supply chain constraints into our guide already. There might be some level of consumer sort of impact. Again, that's all factored in into our guide. At this stage, I don't see anything major coming out of the Middle East equation. Of course, that continues to go on for months and years, it could have an impact on the consumer, again. But overall, the summarized version is, yes, there's constraints, but I think Jabil is doing really well with those constraints.

Next question is from the line of Steven Fox with Fox Advisors.

My first question was on the Intelligent Infrastructure operating margins. It seems like, Mike, you were coming off a peak capacity constraints in the quarter, and yet you still produce 40 basis points year-over-year improvements in margins and the margins were better than I thought they were going to be. So can you talk about the outlook for II margins going forward, especially now that you're ramping other capacity? And then I had a follow-up?

Sure. So if you look at Intelligent Infrastructure, you've got to think of it as a portfolio. It's across multiple capabilities. We have the DCI piece, the service and rack piece, which will be at enterprise level margins. But if you look beyond that where the networking piece, the silicon photonics piece, some of the newer things that we're playing in and if you look at the power management piece with our LV/MV gear and the exchange heters, if you think of the liquid cooling piece, those are at accretive margins.

So overall, the trend in margins for Intelligent Infrastructure actually will continue to evolve over time. And I'm expecting margin accretion for sure in Intelligent Infrastructure going forward, but of course, it will take some time to get all of this at scale, but the margins are absolutely moving in the right direction.

But are we past the peak drag in like all the manufacturing reconfigurations and capacity coming online? Like does that ease in the next couple of quarters or is there things I don't understand about that?

No. So I think just to remind everyone, the retrofitting was done mainly to give us the optionality to liquid cool racks along with the air cool racks. We do feel liquid and air will be -- in the future, there will be a mix move back and forth. So we're well prepared to do that. All of that retrofitting has now been completed. It wasn't as -- we weren't doing that in multiple locations. It was in our U.S. East Coast sites, and we're about 2 or 3 months ahead of schedule, and that's one of the reasons we have the confidence to take our numbers up a bit.

But retrofit is behind us. I think the retrofit will actually help our business going forward because liquid cooling power is going to be an issue going forward and liquid cooling will play more and more of an integral partner in that Intelligent Infrastructure space and especially in the data center infrastructure end market.

Great. That's helpful. And then just as a follow-up, it seems like physical AI is not just a buzzword anymore, there's a lot of investment going on. Can you -- do you have any programs that you could sort of highlight or opportunity sets that you're looking at, as that becomes more of a real use case on the or in warehouses?

Sure. So let me provide more of a general view on physical AI and where Jabil comes in more so than individual program wins.

First of all, I think the physical AI is in its very early commercialization stage. There's very little real world deployment, again, depends on what your definition of physical AI is, but costs continue to remain high, complexity is very high. One good thing about Jabil is we participate in a very early stage. And if I can -- there's almost a meeting of the hardware that we make with the experience that we're gaining. And what do I mean by that? If you look at the devices and machines that require AI in the real world, if you think of retail warehouse robots, autonomous vehicles, drones, industrial automation systems, robotics and humanoid, all -- these are all areas that Jabil already plays in from a hardware standpoint.

If you think of all the capabilities that you need to enable to make these, what we term as, physical AI, it's sensors and vision systems. We're talking about onboard sort of compute and control hardware, connectivity, power systems, liquid cooling, turbo solutions, motion actuation related sort of subsystems, complex electromechanical assemblies. Again, all these areas where Jabil has experience, and we've been doing this, and we've been doing this for the last few years.

And I do think today, physical AI is, like I said, very early commercialization stage. I think it will start getting more and more material over the years as we progress in the evolution of that space, I think the main constraint today is the high cost and complexity and that will come down over time, for sure. And I can't think of anyone better positioned than as Jabil to play in this space.

Our next question is come from the line of Samik Chatterjee with JPMorgan.

Mike, maybe just going back to your earlier comments about the broader opportunities and engagements with hyperscalers. Maybe if you can just expand that a bit further in terms of if you're seeing any opportunities with the neo clouds any way to intersect that market, particularly as you maybe look at opportunities both across compute or networking? What are you seeing in terms of your opportunity to intersect the capital spend we are seeing from the neo cloud market as well? Any thoughts there? And I have a follow-up.

Yes, so we're seeing really good positive momentum, obviously, with hyperscalers. But on the neo cloud side as well we're winning business, we're winning sort of business with high frequency sort of trade requirements as well. It's well spread out, Samik, in terms of we're going after. And again, I go back to the strategy is we're not focused on individual silos or products. We're providing system integration at the system level. It's across the board. We can help with service racks, we can help with power, we can help with liquid cooling, we can help with network, switching, silicon photonics, there's all bunch of capabilities that we're providing.

And I think what I like about the whole Intelligent Infrastructure piece right now is if you go back 3 or 4 years ago, we maybe a little bit concentrated today, it's extremely well diversified. It's diversified with customers, it's diversified with products, it's diversified within our capability set, it's diversified with design, manufacturing at scale, et cetera. So very positive outlook for Intelligent Infrastructure.

Okay. And just maybe a follow-up relative to your capital needs or CapEx needs going forward. I mean we've seen some peers sort of announce pretty significant increases in CapEx. How do you think we should sort of overall think about the trajectory here in terms of you mentioned demand is continue to supply. Is there a lot of pressure to sort of maybe add new facilities in the U.S. from your side?

And then as you think about sort of capital needs, is there also a need to sort of maybe retrofit more facilities towards liquid cooling relative to air cool racks like how are you thinking about that mix? And does that continue to evolve and drive some capital needs on that front as well?

I'll let Greg answer the CapEx piece. But before that, just on the Intelligent Infrastructure, the beauty of -- the Intelligent Infrastructure business is very asset-light, it's asset-light in nature. When we go in -- we're not talking about complex equipment, we're talking -- we're talking about special flooring. Some of the capital expenditure we see on the EMS side, you don't need a lot of that on the Intelligent Infrastructure space.

I think our expansion plans will obviously continue. There's definitely a big requirement. But the asset-light nature of all our investments actually gives me a lot of comfort, and it's actually extremely positive for our return on invested capital as well. Greg, I don't know if you want to add anything?

Yes, Samik, just on CapEx, we feel comfortable on how we're modeling 1.5% to 2% going forward on CapEx to revenue. So even with all the capacity expansions and the growth we're seeing, we feel that's a good run rate.

Our next questions are from the line of Melissa Fairbanks with Raymond James.

Congrats on another fantastic quarter, and happy birthday. I want to give you a chance to talk about Regulated Industries, for a change. So in auto and transport, we have actually seen better-than-expected results and guide this year. We've heard some negative anecdotes coming out of China EV market, which I know historically has been where you've been exposed. Just wondering what kind of details you're seeing within auto, if this is programs that are ramping in the back half of the year that you won a while ago and have been delayed or if you're still seeing better sell-through even in China?

So let me just start by talking a little bit about automotive. I think we were heavily invested on the EV side a few years ago. Since then, we pivoted our strategy to focus on capabilities on powertrain-agnostic sort of platforms, which means we're focused on ICE, which means to focus on hybrids, which means we're focused on now on EVs. What we're seeing with OEMs is they want to go across the platforms. I don't think they want to have individual programs in silos or buckets. They're looking for a few modules, et cetera, that go across all 3 of the different categories.

So that is paying dividends for us. I think we'll continue to see program wins on the ICE side. I talked about EV being actually a positive momentum for us in Q2. You're right, China is a little bit slow, but it's other parts of the world that are actually showing some sign of recovery. Again, I did mention in my prepared remarks that we're going to be very conservative and prudent and until we see strong signs, we'll continue to do so. But overall in Asia, in different parts ex China, we're definitely seeing some signs of improvement there.

Okay. Great. And then in Renewables and Energy Infrastructure, we toured the site in St. Pete, where you're doing some of the commercial and resi solar stuff. I'm wondering how much of the strength that you're seeing in the near term is driven by the upcoming expiration of the tax incentives or if you believe this is really true sustainable demand improvement?

So one of the reasons we're seeing this sort of shift or increase in demand is more driven by the installs. I think previously, there was a lot of focus on residential. We're now moving to a stage where commercial installations is taking on a much bigger role. And I think it's less tax incentive driven than the residential side. So it is sustainable.

Again, we're being -- we're going to continue to be conservative. We've seen renewables move to the right and then come back to the lab. So we're just being a little bit cautious there. But overall, it's sort of -- it's actually a lot more sustainable than one would think given the expiration of tax credits.

Great. And then 1 last final 1 on health care and packaging. It's great to see that you're finally seeing a little bit of inflection point higher on the equipment side with the minimally invasive equipment and imaging systems. Just wondering how the margin profile differs on that side of the business versus a lot of the injectables and disposables?

It's definitely accretive. It's accretive to enterprise, for sure, but it's accretive to the health care and packaging end market or the way we break it out as well. I think some of the GLP-1s and the CGMs have the scale. The minimally invasive technologies are more capability based and have the margins to go with it.

Our next question is from the line of Luke Junk with Baird.

On the AI front, hoping we could just double-click on your silicon photonics trends in the quarter and maybe more importantly, your high-level outlook there, certainly hearing more about higher speed, CPO-type things and scale at applications. So just curious on your updated perspective.

Sure. Just as history, yes, we acquired the photonics business from Intel a few years ago. And that business has done really well for us from a capability standpoint. I think you mentioned CPO. We're actually developing our capabilities across co-packaged optics, across optics, co-packaged copper. So we're going beyond just the co-packaged optics and silicon photonics piece.

We're actually at OFC right now, this week, and we're demonstrating our system integration capabilities. We're looking at next-gen optics from [ 800G ] to [ 1.6P ]. We're looking at the integrated advanced packaging solutions. And if you look at the cooling technologies that have to accompany some of these capabilities, we're well positioned to benefit from that. So all in all, I think if you look at some of the newer technologies that we're now developing and starting to talk about and showcase at OFC, I feel really good about our silicon photonics piece all the time.

The next question is from the line of David Vogt with UBS.

Just 2 for me. I know you don't get asked a lot about sort of the consumer digital commerce business, but given sort of the what appears to be kind of stability in that business relative to where you thought it would be 3 months ago and even 6 months ago. Can you give us a sense for how you're thinking about sort of that, at least it feels like a positive trajectory in that business relative to expectations a couple of months or even a couple of quarters ago?

And then I'll give you my second question at the same time, Greg. So when we think about that business holistically, is there anything in that business that is inflecting higher that's going to drive better profitability, whether it's in sort of warehouse automation, digital commerce. Just trying to get a sense for how we should think about the margin trajectory of that business relative to the strength that you've seen in like intelligent infrastructure and regulated?

So Digital Commerce will continue to be with puts and takes. Obviously, if you think of some of the areas that we play in retail automation, in particular, where we have digital shelf labels, shelf data and analytics, look at in the retail sort of sphere, you look at the checkout or on the go, point-of-sale devices, handheld scanners, et cetera, those will move around a little bit. They'll be up, they'll be down. The areas that I feel really good about is the warehouse automation.

If you think about warehouse automation in the early stage was AGVs and AMR. We've been playing that for a while. Today, it's entire complex automated storage and retrieval systems. We're playing in that. I expect this part of the business to continue to grow at double digits. And then the one that I talked about a little bit earlier was robotics humanoid piece. We've started playing on the whole humanoid piece at a very early stage. And if you think of all the capabilities that we've developed over that time frame that will come together. It's going to be more a thing of the future.

But when it hits, especially when the costs start coming down, I think the whole physical AI piece where it just wouldn't be a dumb robot or a dumb humanoid, it will be an intelligent humanoid that's coming at some point in time, and we're really well positioned to play in that as well. So digital commerce is actually -- I do expect digital commerce to continue to grow at double digits going forward.

Yes, David, this is Greg. Just on the margins and just to complement what Mike was saying, Digital Commerce is one of our highest margin end markets when you look at that succinctly. So it's absolutely accretive to Jabil. And with the growth rates we're seeing, we're really excited about that space from a margin perspective as well.

Great. Can I just follow up? So does that support your kind of confidence and Mike's confidence in '27 margins getting on an upward trajectory towards 6% sort of that mix shift also within [indiscernible]?

Yes. So I think the whole 6% is a diversified mix. So it's much bigger than Digital Commerce. Obviously, we're seeing some of the regulated markets making a comeback. We're seeing our capacity utilization go up. We're seeing intelligent infrastructure pure scale and volume that's coming through, which will create some leverage as well. So it's one of the points that will drive us to 6% and beyond. By the way, we're not happy with just looking at 6%, that's not the area of focus anymore, it's how do we go beyond 6% is where the management team is focused on right now.

The next questions are from Luke Junk with Baird.

Just in terms of launching off of the 6%-plus margin thought, Mike, hoping you could just speak to AI and automation. I know you've outlined it as one of your strategic pillars in terms of internal uses of AI, especially I'm just hoping we could get an update the internal cadence of using AI in your operations, especially maybe any focus areas as we're moving through fiscal '26?

Sure. So what we've been using AI in our operations for a while now, even before AI was actually a thing. I think that, that usage is just getting deeper and deeper in terms of inspections, in terms of quality, in terms of corrective actions. If you think about the breadth of operational experience that we have in our manufacturing sites, I think we have coverage for most problems in the world in manufacturing, and we have a solution for each of those problems.

And the whole database, the actual corrective actions that we can take in 1 place based on learning from another site and the way AI facilitates that is actually a big thing as well. And then if you add AI at a corporate level within the functions, et cetera, that's going reasonably well. So AI will continue to be something that we focus on. It's AI for internal consumption is the best way I describe that to the team here, and it's going really well is what I can say.

At this time, I'll now turn the floor back to Adam Berry for closing remarks.

Thank you for your interest in Jabil. That's all we have today. Thank you.

Thank you. This will conclude today's conference. You may not disconnect your lines at this time. We thank you for your participation, and have a wonderful day.

Greetings. Welcome to Jabil's First Quarter Fiscal Year 2026 Financial Results Conference Call. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to Adam Berry, SVP, IR and Communications. Thank you. You may begin.

Good morning, and welcome to Jabil's First Quarter Fiscal 2026 Conference Call. Joining me on today's call are Chief Executive Officer, Mike Dastoor; and Chief Financial Officer, Greg Hebard. Please note that today's presentation is being live streamed. And during our prepared remarks, we will be referencing slides. To view these slides, please visit the Investor Relations section of jabil.com. After today's presentation concludes, a complete recording will be available on our website for playback.

In addition, we will be making forward-looking statements during this presentation, including, among other things, those regarding the anticipated outlook for our business, such as our currently expected second quarter and full fiscal year 2026 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 is identified in our annual report on Form 10-K for the fiscal year ended August 31, 2025, and other filings with the SEC. 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, I'd now like to hand the call over to Greg.

Thanks, Adam, and good morning, everyone. Thanks for joining our call today. This quarter, we exceeded expectations across the board: revenue, core operating income, core margins and core earnings per share all came in strong. Our performance underscores the value of our diversified portfolio and our consistent execution. Intelligent Infrastructure led the way with impressive growth while Regulated Industries and Connected Living and Digital Commerce delivered steady results in line with or above our outlook.

Let's now walk through our numbers. Net revenue for Q1 was $8.3 billion, at the high end of our guidance range. The mix in revenue and ongoing cost discipline helped us achieve core operating income of $454 million and a core operating margin of 5.5%. On a GAAP basis, operating income was $283 million, and GAAP diluted earnings per share was $1.35. Core diluted earnings per share for Q1 was $2.85, coming in at the upper end of our guidance range.

Turning now to performance by segment in the quarter. Regulated Industries generated $3.1 billion in revenue, in line with expectations and up 4% year-over-year. Automotive and renewables came in largely as expected, and health care continued to deliver steady, reliable revenue performance. Core operating margin was 5.8%, up 110 basis points year-over-year reflecting solid and disciplined execution across the segment and ongoing strength in health care.

Intelligent Infrastructure revenue was $3.9 billion, ahead of expectations. The upside was primarily driven by strength in our cloud and data center infrastructure as well as our networking end markets. In cloud and DCI, we saw higher revenue due to strong execution as we ramp our second hyperscale customer in Mexico, along with robust results from our data center power operations in Memphis.

The upside in networking was primarily driven by stronger demand for next-generation liquid-cooled platforms, which we currently support in India. Core operating margin for the segment was 5.2%, up 40 basis points year-over-year, supported by mix and strong execution. Connected Living and digital commerce revenue was $1.4 billion, ahead of expectations with broad-based strength in automation, robotics and retail warehouse programs. Core operating margin for the segment was 5.5%.

Next, I'll provide an update on our cash flow and balance sheet metrics. Inventory days for the quarter came in at 70 days. Net of inventory deposits from customers inventory days were 57 days, consistent with our targeted range of 55 to 60 days. Cash flow from operations in Q1 was $323 million, and net capital expenditures were $51 million, resulting in adjusted free cash flow of $272 million for the quarter. We remain on track to deliver $1.3 billion in adjusted free cash flow for the full year. We ended the quarter with a healthy balance sheet, including net debt to core EBITDA of 1.2x and cash balances of $1.6 billion. During Q1, we repurchased $300 million of shares under our existing share repurchase authorization.

With that, let's turn to our guidance for Q2 FY '26. Beginning with revenue by segment, we anticipate Regulated Industries revenue of $2.78 billion, up 2% year-on-year, reflecting an appropriately disciplined outlook for automotive and renewables with continued growth in health care. Intelligent Infrastructure revenue of $3.76 billion, up 42% year-on-year, supported by sustained strong demand across cloud, data center infrastructure, data center power, networking, liquid cooling and capital equipment. This also includes a modest contribution from the previously announced Hanley Energy acquisition, which our guidance assumes will close sometime in January.

Connected Living and Digital Commerce revenue of $1.21 billion, down 10% reflecting planned program attrition and customer pruning, partially offset by continued growth in warehouse and retail automation. Putting it all together to enterprise level, total company revenue for Q2 is expected to be in the range of $7.5 billion to $8 billion. Core operating income is expected to be in the range of $375 million to $435 million. GAAP operating income is expected to be in the range of $312 million to $382 million. Core diluted earnings per share is expected to be in the range of $2.27 to $2.67. GAAP diluted earnings per share is expected to be in the range of $1.70 to $2.19.

We expect second quarter net interest expense to be approximately $69 million and full year interest expense to be approximately $270 million. The increase in interest expense next quarter reflects 2 key factors: first, additional debt associated with the anticipated acquisition of Hanley Energy Group, which we intend to fund through a combination of cash and new borrowings. And second, the anticipated refinancing of our existing senior notes maturing in April. Our core tax rate for Q2 and the full year is 21%.

In closing, Q1 was a strong start to the year, and we carried good momentum into Q2. Our results reflect the strength of our diversified portfolio and the consistency of our execution. As we move through the balance of the year, we remain focused on margin expansion, capital efficiency and sustained cash generation.

With that, I'll turn the call back to Mike, who will offer additional color on fiscal 2026 and our updated guidance.

Thanks, Greg, and good morning, everyone. I'd like to begin by personally recognizing and thanking our global team for their extraordinary efforts they continue to deliver. I'm extremely pleased with the strong start to fiscal 2026, which could not be accomplished without your focus, discipline and commitment to our customers. I see that dedication every day across our operations, and I am sincerely grateful for everything the Jabil team continues to deliver.

As Greg outlined, the first quarter was better than expected in both revenue and core margin, which ultimately drove core EPS high end of our guidance range. And while AI continues to be the primary driver of growth, it was great to see all of our 3 segments contribute to our better-than-expected performance.

In summary, our Q1 results, I believe, reinforced the strength of the strategy we laid out in September and the value of our diversified model. And more importantly, we now expect this momentum to continue throughout fiscal 2026 and beyond into fiscal 2027.

With that momentum as a backdrop, I'd now like to take a few minutes to walk through each of our segments for FY '26. Beginning with Intelligent Infrastructure. We're raising our fiscal 2027 outlook by approximately $900 million, driven by higher revenue in both cloud and DCI as well as networking. Cloud and DCI is now expected to be up an incremental $600 million for the year to $9.8 billion. The stronger-than-expected outlook is primarily driven by the recent program wins with our second hyperscale customer in Mexico and upside in our data center power business in Memphis. This also includes approximately $200 million associated with the Hanley Energy acquisition, which we expect to close in January. Hanley strengthens our capabilities in modular power distribution and energy systems for next-generation data centers. This will diversify our racks and server business. We now expect our networking and comms end market to be up approximately $300 million for fiscal 2026 to $2.7 billion. This is supported by stronger demand for next-gen liquid cool platforms with meaningful demand increases in India as customers expand high-speed interconnects, including both Ethernet and InfiniBand capacity to support the rapid growth in AI workloads.

Altogether, we now expect AI-related revenue of approximately $12.1 billion in fiscal 2026, which represents approximately 35% year-over-year growth, up from 25% originally expected in September. The strength we're seeing here clearly validates our strategy. By designing and delivering fully integrated systems that combine compute, networking, power distribution and advanced cooling, we materially shorten deployment time lines and reduce total cost for customers, precisely what is required as AI capacity scales.

On a separate note, and as we discussed in September, we're in the process of retrofitting our East Coast rack and silver factories to accommodate for liquid cooling. And these efforts remain slightly ahead of schedule, positioning Jabil very well for the second half of fiscal 2026 and into fiscal 2027.

In Regulated Industries, fiscal 2026 is tracking above our September expectations by roughly $100 million, driven by better-than-expected results in renewables, although we remain cautious with our outlook for the year. Automotive continues to perform as expected, and we continue to focus on powertrain agnostic solutions in next-gen vehicles. Importantly, over the longer term, we remain well positioned in both renewables and automotive markets as the team has consolidated share with existing customers.

In health care, our business remains solid and aligned with our expectations for growth, supported by continued strength in drug delivery platforms, including GLP-1, and continuous glucose monitors as well as ongoing demand across diagnostics and minimally invasive technologies. Our pipeline remains healthy with good visibility into program ramps across drug delivery, chronic disease management and other regulated devices categories.

Overall, we expect health care will be a durable multiyear growth engine for Jabil. Putting it all together, we now expect our regulated segment to return to growth this year, representing nearly 40% of our revenue in fiscal 2026.

And finally, in Connected Living and Digital Commerce, our outlook is also ahead of our expectations at the beginning of the year as we now anticipate approximately $100 million in incremental revenue for the year driven primarily by broad-based strength in automation, robotics and advanced retail warehouse program. Altogether, we now expect CLDC to be down by roughly 11% year-over-year due to previously announced customer pruning in Connected Living, offset slightly by growth in digital commerce.

Given the strength of Q1 and the visibility we have across the business, we're raising our full year guidance for revenue, core margins and core EPS. For fiscal 2026, we now expect revenue of approximately $32.4 billion, an increase of $1.1 billion from our prior outlook. Importantly, we are also raising our margin expectations for the year. We now anticipate core operating margins of roughly 5.7%, a meaningful improvement of 10 basis points versus our earlier view. This improvement reflects strong mix, continued execution and the underlying leverage in our model.

As a result of both higher revenue and higher margins, we now expect core diluted earnings per share of $11.55 for the year, an increase of $0.55 from our previous estimate. And we continue to expect adjusted free cash flow of more than $1.3 billion, consistent with the framework we outlined in September, which will allow us to continue to invest in future growth while continuing to return capital to shareholders.

Across the company, our priorities remain the same: profitable growth, diversified mix, margin expansion, consistent cash generation and strong commitment to buybacks, which was evident in Q1. This focus is driving momentum across the business, allowing us to navigate changing market conditions, deliver consistent results and steadily build long-term earnings power.

To summarize, our first quarter results were better than expected and fiscal 2026 is now tracking well above our initial expectations. What's notable to me about a higher FY '26 outlook is that it's broad-based. All 3 segments are contributing with intelligent infrastructure leading the way. As we move forward, we remain focused on driving long-term value for our shareholders.

Before closing, I want to again thank our teams, customers and suppliers for their commitment and partnership. The consistency in our results is a direct reflection of their efforts, and I am grateful for the trust they continue to place in Jabil. I also want to wish everyone a safe and healthy holiday season and a happy New Year.

With that, I'll turn the call over to Adam.

Thanks, Mike. Operator, we're now ready for Q&A.

[Operator Instructions] Our first questions come from the line of Ruplu Bhattacharya with Bank of America.

Mike, you raised the full year revenue guide by over $1 billion. There's lots of things that are happening in the intelligent infrastructure space. The slides mentioned some new wins, can you give us some more color on those? There are a lot of new projects coming up as well, like the OpenAI, AMD, Anthropic, AWS. I mean do you think Jabil has the intent or the opportunity to benefit or some of those projects?

And then there are other things you mentioned like retrofitting factories for liquid cooling and acquiring Hanley Energy Group. So maybe just lay out for us the impact of all of these factors. And overall, would you say the guidances for the fiscal year is still conservative?

Thanks, Ruplu. So I really think our intelligent infrastructure is outperforming. I -- one of the reasons I think our AI strategy is working so well is because of the holistic view that we're taking of data centers. So we're not just focused on sale products. So product lines, we're actually invested in design and engineering across the board which allows us to cross pollinate, which allows us to cross-sell, which allows us to use our liquid cooling capability with some of the Silver X and other parts of our Intelligent Infrastructure business. So Intelligent Infrastructure performing really well. I think in '25, our revenue was $9 billion, in September, we've taken it to $11.2 billion, which was up 25%. We've now taken it up to $12.1 billion, which is 35%, about a $900 million increase in that revenue level. I think out of the $900 million think of it in 2 buckets. One is the cloud and DCI bucket, which is up about $600 million, $200 million of that is Hanley, and I'll touch on that in a minute. The balance is made up of upside on some recent wins that we had maybe during Q4 of last year with our second hyperscaler, and that's in Mexico. It's all AI storage racks that we're manufacturing for that second hyperscaler.

And then on the DCI business in Memphis, I think there's a whole bunch of upsides there. The switch gear business is going really well, the inroad heat exchanges, again, going really well. So cloud and DCI up by $600 million in total. Networking and comms is up by about $300 million, and that's mainly in India operations around air and liquid-cooled switches, adapters, network adapters across Infiniband and the Ethernet portfolio. So $900 million is a big number for us to be taking it up in a short -- a relatively short period of time.

On Hanley, if I could just touch on that, I think the revenues that we indicated in my prepared remarks is about $200 million for FY '26. We expect it to complete in January. I would think of Hanley as being modestly accretive in '26. '27 will be when it's more accretive. It's -- I think everybody knows it's a power and energy management solutions company that we acquired. It's more services-enabled business as opposed to manufacturing. And it gives us a really good sort of platform, not just for deployments, but for maintenance as well, which will be an ongoing revenue stream. So overall, really happy with Hanley. Do I think guidance is conservative? I think it's appropriately conservative. We're seeing solid upside everywhere. And as is now being appropriately conservative by there, Ruplu.

Okay. For my follow-up, if I can ask operating margins, Jabil is going to be at 5.7% operating margin this fiscal year. So is it reasonable for investors to assume that operating margin can get above 6% in fiscal '27, what are the puts and takes there? And longer term, how high can operating margin go? Like with the current mix of business, do you see Jabil getting to 7% operating margin at some point? So -- just your thoughts on -- next or what should we keep in mind in terms of operating margin progression and how high that can go over time?

So Ruplu, we put out 3 quarters left in FY '26. So we're just going to be focused on that. We'll provide guidance nearer the time for FY '27. As you know, we increased our margin from 5.6% to 5.7%, which is about 30 bps up from the '25 number and that's for FY '26 due to 2 or 3 reasons, which is mainly better mix. I think the mix is coming in stronger or better utilization of capacity.

Our capacity utilization has gone up from that 75% range, closer to the 80% range. And then SG&A leverage as well. So I think overall, the incremental revenue, what we're seeing, the $1.1 billion that you referenced earlier, that's giving us some nice leverage.

In FY '27, we will be seeing a full year impact of Hanley. So there will be some level of accretion on the margin there. And then we'll see continued leverage from the incremental revenues. The pipeline that I'm seeing, Ruplu, is extremely strong. It's been a long time since I've seen such a healthy pipeline. So I feel better about 6% than I ever have.

I think if you're asking beyond 6% and getting to 7%, of course, we're not going to stop getting leverage, you're not going to stop getting efficiencies as soon as we hit 6%. So 6% is just a point in time on a march to a much higher number. Is it '27, '28, '29, I don't know. 6%, though, I feel really good about at this stage for future.

Got it. If I can sneak one more in. Looking at health care and packaging, for the last 3, 4 years, it's been mostly flat. This year, it's growing low single digits to $5.6 billion. Any thoughts like you had talked about some further J&J type of deals and you've got this impact from Croatia. So just -- can you give us some more color on how you think that business can evolve? Is it still a low single-digit business going forward? Or do you think it can accelerate?

So Croatia was going really well. I think we've always referenced sometime in '27, maybe second half '27 is going to actually start delivering some good returns. Again, just remind you, the margin is higher in that GLP-1 space. So Croatia going really well. As opposed to -- on the whole deal piece, I do think the team is actively working all of that. They are currently engaged in B2B conversations. They're engaged in M&A sort of capability-driven type of sort of deals as well.

So it's an active sort of process that we're going through right now, and we'll provide updates again throughout FY '26 in terms of what we're seeing out there from a deal. And again, just to remind you, the deals that we're looking at mainly would be to sort of add capabilities so that we can go vertical in the health care space. A bit like our -- a bit like our -- the GLP-1 OSD transaction that we did last year, where we added a capability on pharma sort of filling up the GLP-1 itself, oral doses, et cetera. So there'll be more of those more capability driven across the board where we operate.

Our next questions come from the line of Samik Chatterjee with JPMorgan.

This is [ Hampi ] on for Samik Chatterjee. Firstly, congratulations on great results. My question is on second hyperscaler. I think you highlighted high second hyperscale driving up to your intelligent infrastructure outlook for the year. Like how much of it is your better execution relative to your customer demand versus customers -- customer actually preponing their deployment plans?

And then in the past, you have highlighted $750 million of revenue scale for this business for FY '26. Like how should we think about that scale now? And then any color on the broader potential hyperscaler customers? Like how exactly those discussions are going? And then I have a follow-up.

Yes, the upside on the second hyperscaler, as I mentioned earlier on, is on the AI storage piece, we continue to get some upside on that business. I'm not sure if that's predeployment or it's just the demand has always been there. It's a matter of fulfilling it. I -- we feel really good about upside even from there on some of these hyperscalers that we're in discussion with.

So I think if you're looking at the revenue piece for the second hyperscaler roughly in that $1 billion range. I think earlier we said $750 million, so taking that up by some amount as well. So really good interest levels coming through. And we're not just stopping in the second hyperscaler, we're in discussions with even more hyperscalers. So pipeline, again, looking very strong.

Yes. And then my next question is around gross margins for this quarter. I think like despite the revenues being higher quarter-over-quarter from F 4Q, like gross margins were lower, like can please help us understand the drivers for that?

Yes. So Q1, our gross margins were at 8.9%. Year-over-year, it is up 10 basis points. So typically, we do have a little bit of a lower gross margins on the year. So really nothing there other than just mix in Q1 for the gross margin piece.

And Samik, we've always sort of mentioned 9% to 9.5% is the range for our gross margin. That's still the FY '26 estimate.

Our next questions come from the line of Steven Fox with Fox Advisors.

I had 2 questions, if I could. I guess, first of all, just switching gears. On the health care business, like you mentioned, Mike, it's been very steady. My understanding is providing pretty good margins for you guys as well. I guess off of all the growth you're seeing in cloud, what's the prospects for maybe us more aggressively to accelerate that growth since it's such a good contributor to profitability? And then I had a follow-up.

Yes. So Steve, we're constantly evaluating M&A activity in that space. We're constantly in discussions on B2Bs. So I think it's highly likely that we'll do something. We're obviously a conservative company from an M&A perspective. So we'll do all the right groundwork for that. But I feel like health care is such a steady business with higher margins, long, long product life cycles and steady cash flows that it's a great sort of upset from a diversification standpoint for us, and that is an area that I'm most excited about from a deal perspective.

Great. That's helpful. And then just on the cloud business. So a quarter ago, you were warning us about that you still face some bottlenecks later in the year. Now you're ahead of schedule a little bit, which is great, and you're talking about what sounds like a bigger pipeline. So I'm just wondering how we sort of equate your ability to meet demand or meet the growth expectations of adding a new customer or existing customers with all the capacity you have or may need? Like how are you planning out beyond this year for capacity in order to continue to grow that cloud business?

When we talked about the retrofitting piece on the September call, it was mainly associated with our hyperscaler factory on the East Coast of the U.S. A lot of the upside when we talked about upside that $900 million, some of it is in Mexico where we had some surplus capacity, some of it is in India where it's a combination of existing capacity and new capacity.

As you know, North Carolina is going coming up relatively soon in the next 6, 7, 8 months, and that were prefitting, if you want to use that phrase for liquid cooling. So we've got some decent upsides. We're planning our capacity in that way, Memphis is another area I talked about, that's seeing some really good growth as well. So we might expand there as well. So this current expansion plans that we're looking at, and those might be even sooner than the North Carolina facility. Again, it doesn't change CapEx outlook. The CapEx outlook has been 1.5% to 2% of revenue, and that's going to remain consistent for FY '26.

Great. And thanks for all the visibility into your numbers. This is really helpful.

Our next questions come from the line of Ruben Roy with Stifel.

Mike, I wonder if you could spend a minute on just kind of longer-term thinking around Hanley. And I'm wondering, there's been a lot of discussion, obviously, around power and power distribution as the industry is trying to figure out how to get to 800 volts current. And if you think about this acquisition longer term, one of your competitors have been talking a lot about modularized power. Does this help you, do you think, in terms of content per rack and gaining more server rack business by having this? Or is the strategy maybe a little bit different as you think about adding that into the mix?

And also one follow-up on that is, would they own the design of the power distribution? I imagine that's the answer would be yes, given the EBIT margins that you get, but any color on that would be helpful.

So I'd like to call out a couple of transactions as it relates to that whole thermal management piece. Obviously, Hanley is a service provider. I'll talk about that in a minute. But the liquid cooling acquisition we made with Mikros in '24 has also been a big game changer. I think thermal management, thermal participation is not new to hyperscalers, whether it's cooling at the chip level or a switch level or a component level or even at an infrastructure level with liquid -- to liquid heat exchanges. That's one of the reasons we invested in Mikros as we acquired a technology, we didn't acquire a product. We acquired a design and engineering team which is constantly pushing the boundaries for forward-looking liquid cooling activities.

So to me, that old Mikros acquisition is a game changer. I think particularly as the thermal management piece becomes more critical, the ability to design, the ability to engineer liquid cooling at chip level, at the network switch level at different sort of parts and integrate it into a pool system. That's the big differentiator where Jabil will last steps in.

As it relates to Hanley, it's more of a services organization. It's the provider of power and energy management solutions. I think the engineering expertise that we have in there is across power distribution, switchgear, energy monitoring, digital power management platforms. It allows us to go vertical as well. And I'll give you an example. Today, we build low-voltage, medium voltage switchgear in Memphis. Hanley will allow us to deploy, install and then maintain those in data centers, which previously was done by other parties.

So if you sort of combine the whole silver ad business with the ability to delay install and maintain, that is highly accretive type of business for us. So Hanley, I think is a really good transaction. We sort of welcome the team hasn't closed yet. We expect it to close in that first week of Jan. So as soon as that takes place, just like the Mikros transaction has created so much opportunity for us, so does Hanley.

And again, it's exactly the area that you talked about and it's all around thermal management and -- it's not a surprise to any hyperscale. It's not a surprise to anyone who has a data center that that's something that they need to address, and they are addressing that. So I do think the 2 transactions will be well received.

It's a lot of detail. I hope this is a quicker follow-up. But just on the capital equipment. I think you said that was in line with your expectations, maybe a little bit better. Is there any change to I guess, on your sort of thinking around overall spend in the capital equipment market relative to 90 days ago as you think about this year?

So the automated testing equipment side of the business, the back end, I think has been outperforming, it outperformed last year. It's outperforming this year, and we'll continue to be -- it will outperform the WFE site for sure. I think there's multiple dram stacking for high-bandwidth membrane that's creating more demand.

One good thing we are seeing, and it's forward looking, so we haven't built that into our forecast, but there's some level of WFE improvements coming along as well with the whole AI compute expansion and the NAND factory sort of upgrades. So WFE, think of that more as an opportunity. In the past, we like WFE is going to be steady and static. We are seeing some signs of improvements there. And until that happens, those sort of expectations normally move to the right or to the left, so we haven't included that in our guide, but the WFE side could actually be a sublevel of upside for us.

Our next question is come from the line of Melissa Fairbanks with Raymond James.

I wanted to start off by asking about automotive and transport. You see that you maintained the outlook for the full year, down a little bit from last year. Just wondering if the mix of that business or any of kind of the geographical trends have changed. We have heard from some suppliers, Europe suppliers are being a little bit more cautious going into next year? Just wondering what the complexion of that business looks like in the near term?

So let me start by saying automotive is an area that we continue to be appropriately conservative on. I think we're seeing relatively good performance. I think -- has it hit a bottom, I do feel like it has and there will be upside going forward on automotive. Is it a '26 event or a '27, '28 event? We just don't know the exact timing. So we're being appropriately conservative from an automotive standpoint. One of the things the team has done really well is invest in powertrain agnostic technologies and what do we mean by that is software-defined vehicles. ADAS, those sort of programs go into any platform, whether it's hybrid or EVs or combustion engines. They're all -- we're talking to all sorts of companies.

And then if you factor in the whole Tier 1 sort of the OEMs still want to the design and the IP as they want to do with the EV platforms, that's a good opportunity for us EMS companies as well. And I think those program wins, we do expect where we're in discussion again for '27-'28. And we're doing really well because there's a shift in the way the whole automotive space is working out, not just for EVs. It's now being extended to hybrids and ICE as well or at least the concept is.

So we'll continue to add some capabilities, and I do think '26, and best way to define '26 is a conservative year. In '27, we could see some upside. I don't forget a program in automotive takes 12 to 18 months to win. So programs we're winning today will only show up in '27-'28.

Okay, great. Keep up the good work. Maybe just a quick follow-up. Everyone has to ask about at least one question on data center. As you're ramping your second hyperscale customer. I know your lead hyperscale customer. A lot of that business goes through consignment. Just wondering how much, if any, of some of these new programs that you're ramping are on consignment, and the gross revenue is actually coming in a little bit better than even what we're seeing on the net revenue side?

I think it's a little bit of a mix. I think the consignment model is more our largest customer perspective. Some of the other customers were still going through gross versus consignment discussions. But at this stage, we're just factoring in gross levels, I do think that's more likely than consignment models popping up everywhere. I think that was more -- that was specifically for that first hyperscaler, will it apply across every single hyperscaler. I'm not sure. I think it's a wait-and-see approach.

Great. Congratulations.

Our next question has come from the line of Mark Delaney with Goldman Sachs.

Do you able to took up its view for AI growth this year to 35%. I realize you already spoke on your own capacity planning. Can you speak to any constraints your data center customers may face from the supply side, including having enough power supply to their data center sites? And to what extent you factored any constraints they may be seeing into your guidance?

Look, our power sort of constrained the data center is not a new thing. I think it's always been around, and we've grown, I think, I can't remember the exact numbers from '24 to '25, we grew exponentially '25 to '26, again, we're growing at 35%. And this is all while data center power issues continue to perforate.

I think overall, like I said, the offering that we have, the solutions that we have, the design, engineering and including some level of liquid cooling across our offerings, be it on the chip, be it on the rack service, be it on networking switches, be it run in the data center infrastructure itself, we're actually engaged with customers to address a lot of those heat questions.

So I'm not seeing any major impact of slowdown. Like I said earlier, it's actually -- I've never seen such a healthy pipeline now before it is strong, and it continues to be strong. I don't know, people talk about AI bubbles. We're not seeing any of that at all.

Very helpful. Mike, last quarter, you mentioned the possibility of winning that third hyperscaler customer and you spoke to that possibility again on the call today. Can you give more color on that, including what types of product or products you're hoping to sell to that CSP and when you think you may know if you've converted on that opportunity?

We continue to have discussions, Mark. It's a little premature to talk about the products and the revenue. I think that was more -- the last call was more of, hey, this is our overall strategy. We're not just targeting one hyperscaler or 2 hyperscalers. There's definitely a third hyperscaler, fourth hyperscaler so needed our offering. It's that design and engineering architecture capability that's driving a whole bunch of hyperscalers to us. And in a weird way, the discussion could start about a server in a rack and server before you know it, it's moved into liquid cooling, and certainly move into silicon photonics. It's moved into other parts of our data center infrastructure piece with heat exchanges and some of the liquid cooling solutions that we're providing. So it's the offering that we have today that is driving hyperscalers to have these discussions with us. And like I said, it's not built into any of the numbers. We're not talking about our third hyperscaler yet in any of the numbers, but I think going forward, we're still in current discussions currently.

Our next questions come from the line of Tim Long with Barclays. .

Two, if I could, as well. First, I was hoping you could touch a little bit on that the larger hyperscale customer wasn't really excited as a part of the strength here. So curious what kind of trends are going on there. I do think there's some product transitions in some of their compute platform. So curious if that impacting or if there's anything else going on there?

And then secondly, just more broadly, a lot of movement around custom ASICs and XPUs. Curious how you see Jabil participating, obviously, PPU gaining a lot of traction and announcements at least over the last few months, how you see Jabil playing in the toll XPU directly and related type of equipment?

So when we talked about the whole retrofitting piece on the September call, we were specific on one site only. Like I said, the rest of the new business is coming in all different sites. The retrofitting is ahead of schedule. I do feel our second half will be stronger in terms of getting it ready. I think originally, we'd anticipated retrofit out to be combination of Q2 and Q3 that might come in earlier in Q3, which would give us some level of upside there. The demand is there. The -- it's crazy what we're seeing in terms of demand. So I have no concerns about the demand side. What was your -- the second question?

Just on XPUs and custom ASICs and the play directly into that product and peripheral what it means for the rest of the rack in Jabil's participation.

Yes. So I think we're relatively agnostic in terms of chips, in terms of what we're doing and who we're doing it with, the custom chips or even multiple individual companies on those chips. I don't think one replaces another. It's all complementary in my view. So I see it more as an upside than a replacement.

Our next questions come from the line of David Vogt with UBS.

So Mike, maybe one for you and one for Greg. So you talked about strength in data center infrastructure powered networking. We're folding Hanley into the numbers. We're seeing strength in the second hyperscaler above expectations. I guess what I'm trying to think through is how do you think about the second half of your fiscal year, particularly given what the growth implies is a fairly meaningful deceleration where the underlying demand probably doesn't support that view. Is that just a rev rec issue? Is it a capacity issue? How should investors think about sort of the second half of the year, which kind of implies like 10% growth dynamic is there enough capacity? And then maybe I'll give you my question as well. Obviously, you took up the full year numbers for revenue margin in EPS and less kind of the free cash flow outlook unchanged. I recognize that CapEx is probably going to go up, I don't know, $50 million to $100 million year-over-year. Anything else from a working capital perspective or a timing perspective that impacts free cash flow this year versus your original expectations?

So on the second half piece, I think with the $900 million that we've sort of added a large part of that comes through in Q3 and Q4. Q2, I think we've taken that up by $300 million to $400 million from our previous sort of indications. The retrofitting obviously had a little bit of impact on the Q2. We're continuing to win -- we'll continue to win share. I think if you look at last year, the comps from last year, a little difficult to sort of match up with. We went from 0 to 60 literally in a matter of a few seconds there, where Q3, Q4 saw solid performance from the previous Q1, Q2, where we didn't have some of the additional facilities that we took over from a competitor. So I would caution against doing comps for Q3 and Q4 because that was a huge growth number in Q3 and Q4, which was going from nothing to multiple buildings in that facility. I feel -- look, I think there's no rev rec. There's no other issues going on here. We're being conservative. And I do think second half now reflects a much better picture than it did 90 days ago. And I think it will continue to evolve through the year. We have a tendency of being conservative, appropriately conservative. So second half, I think there is some good upside for us as well.

David, it's Greg. So on your free cash flow question, yes, still sticking to our guidance of $1.3 billion plus for the year. Again, a real strong Q1 with $272 million. You're absolutely correct. We do see CapEx slightly ticking up, but still staying in our range. And we also do see working capital with the growth we're seeing in the back half of the year, slightly going up as well. So what I'd say is our guide is -- we feel is prudent at this time, and we'll continue to update as we go through the year.

This now concludes the question-and-answer session. I would now like to turn the floor back over to Adam Berry for closing comments.

Thank you. Thank you for your interest in Jabil. This now concludes our call.

Thank you. This now concludes today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

Greetings, and welcome to the Jabil Fourth Quarter and Fiscal Year 2025 Financial Results and Investor Briefing. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to -- your host, Adam Berry Barry. Please go ahead, sir.

Good morning, and welcome to Jabil's Fourth Quarter and Fiscal Year 2025 Earnings Call. This is also Jabil's Annual Investor Briefing. I'm Adam Berry, Senior Vice President of Investor Relations and Corporate Affairs. This is an important day for us at Jabil, and we appreciate your continued interest in our company.

Our investor briefing is always one of the highlights of our calendar. It's our opportunity to step back from the quarter-to-quarter rhythm and give you a deeper look at how we're shaping the business, how we're allocating capital, and how we're positioning Jabil for sustainable long-term growth.

Before we dive in, I need to cover a quick but important point. Some of the information you'll hear during our discussion today will consist of forward-looking statements, including, without limitation, those regarding our financial guidance for the first quarter and fiscal year 2026 and our future business outlook.

These statements involve risks and uncertainties that may cause actual results or trends to differ materially from our expectations. 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. Now let me set the stage for what we'll cover today.

You're going to hear from a number of our leaders across the organization. Each of our -- we'll begin with Greg Hebard, our Chief Financial Officer, who will walk through our fiscal 2025 results and share the outlook for the first quarter of fiscal 2026. Greg will also frame how we think about the balance sheet free cash flow and capital allocation.

Next, Steve Borges will cover regulated industries. This is a critical part of our business, encompassing health care, automotive and transportation, and renewable and energy infrastructure. These are markets where quality and trust are nonnegotiable, and Steve will share both the near-term realities and the long-term opportunities.

After Steve, you'll hear from Matt Crowley, who leads intelligent infrastructure. This is our fastest-growing segment and the growth is being fueled by unprecedented demand for AI-related systems from semiconductor capital equipment to racks servers and advanced cooling solutions. Matt will explain how Jabil is positioned to capture this wave of growth with system-level integration that very few companies can deliver.

Following Matt, Andy Priestley will take us through Connected Living and digital commerce. This is a segment in transition as we deliberately move away from lower-margin legacy consumer programs and strengthen our position in automation and advanced technologies. Andy will share how this pivot is improving the quality of earnings today and positioning Jabil for long-term opportunity in robotics, warehouse automation and next-generation connected devices.

Finally, we'll conclude with our CEO, Mike Dastoor with help from EVP of Operations, Fred McCoy, and Chief Supply Chain and Procurement Officer, Fred McCoy. Mike and team will bring it all together by describing how our portfolio strategy, capital allocation discipline and culture of execution position Jabil to thrive in an evolving market. You'll also hear from Mike about the priorities that guide us, serving our customers with precision, driving sustainable earnings growth and returning significant value to shareholders.

All in, we expect today to give you a clear, transparent picture of how Jabil is positioned not just for fiscal 2026 but for the years ahead. With that, let's get started. It's my pleasure to introduce our Chief Financial Officer, Greg Hebard.

Thank you, Adam. Good morning, everyone, and thank you for joining us. I'll begin this morning with our Q4 results. For the fourth quarter, our team delivered strong performance, reaching approximately $8.3 billion in revenue, which exceeded the midpoint of our guidance by roughly $800 million. This better-than-expected growth was broad-based as all 3 segments came in higher than anticipated.

Driven by strong underlying revenue growth, core operating income for the quarter came in at $519 million, well above the high end of our expected range. Our core operating margin was 6.3% of revenue, representing a 50 basis point improvement year-over-year. Net interest expense for Q4 was $65 million.

On a GAAP basis, operating income totaled $337 million and diluted earnings per share came in at $1.99. Core diluted earnings per share was $3.29. Moving on to our segment performance for Q4. Regulated Industries revenue was $3.1 billion, reflecting stronger-than-anticipated growth. Health care was in line while renewable and energy infrastructure and automotive and transportation, both exceeded expectations, supported by incentive-related demand pull forward and stronger volumes across core programs.

On a year-over-year basis, revenue increased approximately 3% and core operating margin expanded by 40 basis points to 6.5% driven by a better mix. Turning to intelligent infrastructure, where revenue for Q4 was $3.7 billion, $400 million above expectations. The upside was driven primarily by 3 factors within cloud and data center.

First, we reached efficiency faster than planned for more than 700 new employees hired and trained as we move multiple sites to 24/7 operations in Q3, which lifted shipments. Second, we benefited from a more favorable mix versus Q3, leading to higher average selling prices. And third, in storage, we ramped our second hyperscaler faster than expected and saw stronger-than-anticipated end-of-quarter demand from traditional storage customers.

Core operating margin for this segment was 5.9%. In Connected Living and Digital Commerce, revenue totaled $1.4 billion, coming in slightly ahead of our outlook from 90 days ago. On a year-over-year basis, revenue declined approximately 14%, primarily due to softness in consumer-driven products. This was partially offset by continued growth in warehouse and retail automation.

Core operating margin for this segment was 6.6% in Q4, up 210 basis points year-over-year. The increase reflects cost actions taken earlier in the year and a deliberate shift towards higher-margin programs and markets within the segment. Let's move to our cash flow and balance sheet metrics.

In the fourth quarter of fiscal 2025, inventory ended at 69 days, a 5-day improvement last quarter. Including inventory deposits, net inventory days were 55, down 4 days sequentially. This working capital discipline supported strong cash generation with cash from operations of $588 million in the quarter and $1.64 billion for the year.

Net CapEx expenditures were $83 million in Q4 and $322 million for the full year or 1.1% of revenue. Full year adjusted free cash flow came in very strong at more than $1.3 billion. We exited the fiscal year with a healthy balance sheet with debt to core EBITDA of 1.3x, cash balances of approximately $1.9 billion.

During the fourth quarter, we completed our prior $1 billion share repurchase authorization, consistent with our framework to return 80% of annual adjusted free cash flow to shareholders. With that, let's now turn to our capital structure.

We ended FY '25 with $4 billion of unused capacity under our global credit facilities. Including that capacity and our year-end cash balance Total available liquidity exceeded $5.9 billion. Our debt and liquidity position remains strong and well structured. Maturities are appropriately staggered and carry attractive interest rates.

Importantly, we remain fully committed to maintaining our investment-grade credit profile. Let's now turn to capital allocation and return to shareholders. Since FY '13, we've reduced our shares outstanding from $203 million to $107 million in FY '25, a 47% decline driven by our disciplined share repurchase strategy. Over that period, we've repurchased 136 million shares at an average price of approximately $52 contributing to total shareholder returns of $7.7 billion, including both dividends and buybacks.

As a reminder, in July, our Board authorized a new $1 billion share repurchase program, giving us continued flexibility to return capital thoughtfully and opportunistically, we intend to fully execute the current opposition in fiscal '26. With that, let's turn to the next slide for our Q1 FY '26 guidance. Beginning with revenue by segment.

For Q1, we anticipate regulated industries revenue will be $3.05 billion, up 3% year-on-year as we expect some of the dynamics that benefited Q4 particularly in automotive and renewables to carry into the early part of the first quarter. For our Intelligent Infrastructure segment, we expect strong growth to continue with revenue for the quarter to be $3.67 billion, up approximately 47% year-over-year. We expect this increase to be driven by sustained broad-based AI-related growth in cloud data center infrastructure and capital equipment markets.

In our Connected Living and Digital Commerce segment, revenues are expected to be $1.29 billion, down 16% year-on-year. This reflects continued softness in consumer-centric products, offset slightly by growth in warehouse and retail automation markets. It's important to note that some of the year-on-year decline is intentional as we focus on strengthening the quality of the portfolio by exiting or pruning lower-margin programs and remixing the segment toward more durable growth opportunities.

Putting it all together at the enterprise level, total company revenue for Q1 is expected to be in the range of $7.7 billion to $8.3 billion. Core operating income for Q1 is estimated to be in the range of $400 million to $460 million. GAAP operating income is expected to be in the range of $263 million to $343 million. Core diluted earnings per share is estimated to be in the range of $2.47 to $2.87.

GAAP diluted earnings per share is expected to be in the range of $1.27 to $1.84. Net interest expense for the fourth quarter is estimated to be approximately $64 million. And for the year, we expect to be in the range of $240 million to $250 million. Our core tax rate for Q1 and for the year is expected to be 21%, consistent with FY '25.

In summary, turning to the next slide. FY '25 was marked by disciplined execution. We sharpened the portfolio, improved business mix, delivered strong margins and converted that execution into strong free cash flow. These results highlight the strength of our diversified model and the alignment of our business with secular growth drivers. We enter fiscal '26 to well positioned to continue delivering growth, margin expansion and robust free cash flow. With that, I'll now turn the call over to Steve.

Hello. I'm Steve Borges, and I lead Jabil's regulated industry segment. This segment spans 3 major areas: automotive and transportation, health care and renewables and energy infrastructure. Each of these markets are undergoing significant transformation. And our engineering led teams are deeply engaged in helping customers navigate that change with speed, precision and a focus on long-term value.

Let's start with automotive and transportation. This industry is emerging from a global market correction. And while near-term growth in battery electric vehicles has slowed, the long-term outlook remains strong. Regulatory shifts, changing incentives and trade pressures, particularly around Chinese EVs and U.S. tariffs are reshaping OEM strategies.

Customers continue to design platforms that can be leveraged across their entire portfolio versus being specific to an EV, hybrid or ICE vehicle. As such, and throughout the softness in automotive, Jabil continues to add new customers in vehicle-agnostic programs, helping to bring more stability to the business. We are leaning into technologies that will define industry's future, software-defined vehicles, advanced driver assistance systems, compute, and other powertrain agnostic solutions are all growth areas.

Jabil continues to bring collaborations, like the one we announced recently with ABL to co-develop designs and manufacturing solutions for the automotive and transportation market. Beyond specific collaborations, our automotive teams continue to strengthen partnerships through execution and capability expansion. That combination of technical know-how and trusted relationships positions as well as this market continues its transformation.

Turning to health care. We see an equally dynamic environment shaped by innovation, demographics and patient needs. Connected Care continues to create new markets, enabling care and delivery in ways that are more accessible and more personal. Virtualized medicine is driving improved outcomes for chronic diseases, while new care settings from hospitals to the home are broadening opportunities [Audio Gap] our scale, quality systems and engineering expertise allows us to provide comprehensive solutions that are difficult for others to replicate.

Our acquisition of PII has brought us into the CDMO space. And our sterilization initiative is opening doors with new customers. We're also advancing our capabilities in minimally invasive devices, medical device reprocessing and injectables, including GLP-1s and biologics, which remain a key area of focus.

We remain committed to expanding our capabilities, whether through M&A or organic growth. We are unlocking new markets, creating more value for our customers and further differentiating Jabil in a competitive landscape. In short, Jabil is helping health care innovators bring life-changing solutions to patients faster, more reliably and at scale.

Finally, in renewables and energy infrastructure, the macro picture is dynamic. Global electricity demand is projected to increase by as much as 70% by 2040, driven in large part by the growth of data centers and industrial use. Meanwhile, interest rates, tariffs, and policy changes are reshaping near-term demand in areas like solar and energy storage. Even with these shifts, we've been able to support our customers without disruption, including complex product transfers. Despite the headwinds, renewables remain the fastest-growing and lowest-cost source of new energy.

Solar continues to be the largest driver of growth worldwide, while energy storage systems and grid modernization are increasingly critical to balancing supply and demand. Here again, Jabil is leaning into complexity, supporting customers with design and manufacturing capabilities that extend from inverters to battery modules to smart grid technologies. We're also embedding ourselves deeper into building infrastructure.

We're rising demand for HVAC systems, especially for data centers and the increasing need for modern security and access control solutions present strong opportunities. Across these markets, our ability to combine engineering depth with global manufacturing scale gives us a distinctive edge. To sum it up, in automotive and transportation, health care and renewables and energy infrastructure, our strategy is thoughtful and deliberate. We build capabilities that matter. We deliver with speed and quality and stay ahead of what's next. This is how we're helping customers solve complex challenges in regulated environments, while driving long-term growth and value for Jabil and our shareholders. Thank you.

Good morning, everyone. for those who haven't met, I'm [Audio Gap] -- markets that sit at the heart of today's technology transformation. Capital equipment, cloud and data center infrastructure and networking and communications, AI and advanced compute are driving one of the most profound infrastructure build-outs in decades.

At the same time, our customers are demanding speed, resiliency and cost efficiency and how they scale. Our role is clear: to be the trusted engineering-led manufacturing partner that helps our customers scale faster integrate more seamlessly and deploy new platforms with confidence and what differentiates ecosystem, not just a single piece of the puzzle, but the combination of compute, storage, networking, power, cooling and the tools that make all of this possible.

Let me start with cloud and data center infrastructure. This is where the acceleration of AI workloads is most visible. The largest global platforms are redesigning servers, racks and data center architectures around liquid cooling, next-generation processors and unprecedented bandwidth demand. Instead of supplying individual parts, we're integrating full racks into one deliverable system. That's [Audio Gap] The capacity that is perfectly built for liquid cool drag.

That gives our customers not only scale but also the regional diversification they're asking for. Another critical piece of our data center strategy technologies and integrating them into our data center platforms and power is just as important as cooling. We're expanding into low and medium volt switch gear, PDUs and UPS systems, integrating them directly into RAC and data center designs, this allows us to deliver a truly end-to-end solution in one integrated system.

Turning to capital equipment. This is the technology that underpins the entire semiconductor industry from wafer fabrication to automated test equipment, the capital equipment market is where the building blocks of AI infrastructure are creating Here, our strategy is to move closer to the chamber to the most critical parts of the tool or precision, quality and reliability matter most.

We're working with leading equipment makers to expand our role in our power technologies. By doing this, we become more embedded in our customers' platforms, which makes us harder to replace and more valuable over time. We're also investing in geographic expansion Southeast Asia, so that when our customers expand capacity, we're already there to support them.

The same thermal management automation and precision manufacturing techniques we use in semiconductor tools are being leveraged in data center and networking applications. That's the power of having a portfolio that spans multiple interconnected ones. Here, our strategy is anchored in liquid cooled switching and system-level integration. The explosive growth of AI workloads is driving unprecedented bandwidth requirements.

And traditional air cooled networking year is no longer sufficient. We're investing in liquid cooled switch technology, integrating it with compute, power and thermal solutions to deliver complete rack level systems. This is a space where Jabil is uniquely positioned because we're not just supplying a switch. We're engineering the entire system around it. And we continue to focus on our silicon photonics business where we've developed advanced packaging capabilities to support the ongoing [Audio Gap].

the optics and our strategic focus remains at the system level, where all elements of the RAC architecture are converting. So let me bring it all together. Our customers are no longer looking at servers, racks or switches in isolation. They're designing entire systems that must work together seamlessly.

And Jabil is positioned uniquely to deliver that. By operating across capital equipment, data center infrastructure and networking, we bring insights and capabilities from each domain into the others creating leverage that few competitors can match, by executing flawlessly for our existing partners and continuing to invest in differentiated capabilities, we're laying the foundation not only for today's demand but for the data center and network.

Hello. I'm Andy Priestley, and I lead Jabil's connected living and digital commerce segment. This segment is built around 2 major areas: consumer devices and digital commerce and robotics. Together, they represent the best and dynamic mix of technologies -- start with digital commerce and robotics, where the pace of change is past us.

This part of our business includes retail automation e-commerce, robotics and AI-driven systems that are being fueled by powerful mega trends. Across the supply chain, full scale automation has taken hold from lights-out warehouses to autonomous last mile delivery, physical retail is being reimagined through smart shelf labels, connectivity and robotics, turning stores into digital assets that support omnichannel experiences.

Payment technologies are also evolving fintech and biometrics are transforming how transactions happen, particularly in small and medium-sized markets where contactless and custom point-of-sale solutions are becoming the norm.

Turning to automated retail. This market segment is growing very quickly, driven by demand for speed, convenience and self-service in areas such as autonomous vending and [indiscernible] kitchens. Lastly, robotics and AI are both advancing quickly. Gen AI and large language models are enabling robots even humanoid to learn from existing models and images, making them more adaptable, capable and widespread.

At Jabil, we're investing in engineering and design expertise that allows us to support the most complex and demanding technologies in the market. From computer vision and high-speed automation to complex assembly we're enabling the next generation of intelligent systems. These strengths are also opening doors in nonnegotiable. The shift towards more complex, higher-value technologies is driving margin expansion and positioning Jabil as a key [Audio Gap] as a just producing systems but partnering with customers to solve labor challenges, improve performance and [Audio Gap].

Our scale and expertise allows us to support the largest players in this industry as they navigate today's challenges and beyond. On the consumer device side, we're focused on products that enhance everyday life from small and major appliances to home comfort and outdoor living. Consumers want smarter, more connected products enabled by AI, machine learning and IoT.

Wireless power, energy efficiency and intuitive interfaces are becoming standard. At the same time, there's a growing appetite for creating experiences at home, bringing indoor comfort outboards and elevating how people live. Safety and security is becoming a critical pillar of our future success. Our work in commercial drones and vision systems continues to support safer environment and a more enjoyable experience.

We're extremely proud of the innovation happening in these areas. While segment revenues show a slight year-over-year decline, the underlying story. [Audio Gap] Amerson Robotics. Over time, we will concentrate our consumer device business in areas where our engineering debt provide margin accretive opportunities with premium brands. It's also very important to note that our consumer business remains a vital driver of [Audio Gap] such as automation, AI and robotics.

Connected Living and Digital Commerce segment has been playing a major role in our geographic mix shift since [Audio Gap] , and we value its role in the larger ecosystem.

To summarize, the Connected Living and Digital Commerce segment is evolving quickly. We're enabling smarter systems, more connected experiences and helping our partners stay ahead of the curve. That's how Jabil is creating value today while building the foundation for long-term growth. In closing, I'd like to thank the extended team for what has been an exceptional year. This team has delivered record performance and won multiple new programs with new and existing customers. Thank you.

Thanks, Andy. Good morning, everyone, and thank you for joining us. As you heard from the group today, fiscal 2025 was a great year for Jabil. Operating margins grew core EPS and generate strong free cash flow and extremely strong return on invested capital. Upon taking a closer look, the dynamics varied by end market.

In regulated industries, automotive and renewable space pressure. In shop contrast, Intelligent Infrastructure was a growth engine as AI-related demand accelerated across capital equipment, data center and networking. And in Connected Living and digital commerce, we continue to rationalize the portfolio and execute a deliberate mix shift, deemphasizing lower-margin legacy consumer programs while strengthening our position in advanced warehouse and retail automation.

So stepping back, FY '25 demonstrated 2 things a while. Brazilian, where automotive and renewables slowed, AI-driven demand more than offset where consumer categories soften, CLDC expanded margins through portfolio pruning. And across the enterprise, free cash flow came in extremely strong. The effective integration of 5 key pillars.

First, our long-tenured team and culture of operational execution, Around the world, teams deliver with safety, quality and accountability in a complex environment that consistency is difference between promises and performance, building and delivering products where they're consumed. In today's environment of tariffs, policy shifts and supply chain complexity this is proving to be a clear competitive advantage.

Our geographic mix has also transformed. In FY '18, we were heavily weighted towards Asia. By FY '25, our revenue profile is more balanced, resilient and flexible. Two factors drove the shift. The FY '24 divestiture of our Mobility business which reduced concentration and free resources for higher growth opportunities and the rapid build-out of AI infrastructure in the U.S., which raised our Americas share of revenue from 25% in FY '18 to 46% in FY '25.

This improved balance highlights the strength of Jabil's strategy, building capabilities everywhere to serve customers wherever they operate. Third, scale rationalization and diversification. Hundreds of customers across a number of end markets trust us with mission-critical programs. That diversification provides both stability and optionality as technologies converge and market manage ships.

Today, as we continue to scale in AI-related growth areas, rationalized part of our portfolio, particularly in CLDC and diversify further within customers and end markets. The same strengths have well positioned Jabil to keep delivering through various cycles. Fourth, supply chain orchestration. We managed one of the world's most complex supply chains with over 38,000 global suppliers and over 700,000 unique parts, which enables us to help customers redesign biller materials, qualify new suppliers and secure continuity.

That capability matters most when markets are tight or trade policy shared. And finally, our last pillar is automation and AI inside our factories. As programs move into higher cost regions, competitiveness depends not just on labor cost, but also on labor availability and the concentration of skilled workers in certain areas.

To address this, we embed robotics, predictive maintenance, automated optical inspection and scheduling optimization, to name a few, across our operations. These tools improve quality, accelerate ramps and reduce cost. With more than 30 sites in the U.S., our footprint here has never been larger. At this time, I would like to invite Fred to discuss how we are leveraging AI and automation throughout our factory network followed by Frank, who will share insights into how advanced AI tools are enabling and optimizing our supply chains.

Thanks, Mike. I'm Fred McCoy, and I lead Jabil's global operations. At Jabil, we're building the future of manufacturing, where intelligent automation, AI-driven processes and a fully connected ecosystem empower our people to deliver value to customers and elevate our performance. The reality is that we've been using AI and operations for years.

On our production lines, we deployed several thousand proprietary cameras with embedded AI computer vision models for in-line quality inspections, and we optimize our equipment utilization across our network. By connecting our more than 400 -- to categorize and optimize downtime, attrition and yield loss, which helps us self-correct and improve efficiency and make faster decisions on the manufacturing floor.

This means problems can be solved in place without interrupting production and teams have more confidence in the data behind their decisions. Simultaneously, automation is expanding rapidly across our network. Today, we have more than 25,000 robots in production and a team of over 2,000 trained automation engineers and technicians. They design, build and maintain solutions ranging from simple robotic arms to complex high-speed systems.

For mid-volume production, our proprietary figure as products change, lowering costs and accelerating deployment. We've also developed and are deploying a blueprint for material automate [Audio Gap] these solutions improve safety, provide real-time material traceability and eliminate millions in manual handling costs.

Across the industry and at Jabil, investment in AI and automation is accelerating. Our job is to embrace these technologies, partner with customers and suppliers and industrialize them at scale across our facilities. The future of our factories will bring even more collaboration between people and machines and our employees will focus on higher-value tasks that drive quality, safety and innovation that sets Jabil apart in the marketplace.

I'll now pass it off to Frank to talk about the work we're doing in embedding AI into our procurement and supply chain processes.

5 Thank you, Fred. Hello. My name is Frank McCoy, and I lead Jabil's global procurement and supply chain operations. At Jabil, we are integrating AI into every layer of our supply chain to make it smarter and more resilient. Our vision is an autonomous supply chain, built in an AI technology stack that combines machine learning agent. Our supply and provides customers with a secure window into their supply chain by connecting real-time data across our ecosystem, we can break down silos, run simulations and act quickly on the most important insights.

AI-powered dashboards and intelligent alerts help us prioritize issues as they arise real time. Whether that means Freight performance. The platform is also evolving with an AI-driven road map that includes new capabilities, management and advanced tariff analytics. These features will build on the intelligent dashboards and [indiscernible] that are already in place, giving our teams and our customers even greater resiliency, transparency and speed to action.

We also use the iron ore proprietary procurement intelligence platform, which brings together billions of data points from millions of power houses and suppliers. With this data, we can benchmark costs on sourcing scenarios and negotiate with much greater speed than ever before. And in one particular case, we were just a sourcing cycle from 2 weeks to 1 day across hundreds of thousands of parts, freeing up our teams to focus on far more strategic efforts.

Through IDA Global, our joint venture with ciphered a native AI SaaS provider, we're advancing even for. with Cipher self-learning AI to autonomously manage. Together, these tools are reshaping our procurement and supply chain management watch at Jabil by embedding AI into our operations, we're improving agility, transparency, and efficiency of setting a new standard for overall supply chain performance. I'd now like to pass it back off to Mike.

Thanks, Frank. As you just heard from the team, the 5 pillars are not abstract. They shape how we operate in highly regulated markets, how we capture AI growth in intelligent infrastructure and how we're reshaping CODC per margin and durability. With that, I'd now like to walk you through the dynamics across ADAS segments for FY '26.

I'll begin with regulated industries. Think of regulated industries as the place for reliability, compliance and quality are nonnegotiable. The near-term picture is mixed but the long-term teams are positive. I'll start with the headwinds are most visible in the short term. While EV adoption is strong in China in both the U.S. and Europe, demand has slowed, at intensifying competition among automakers is affecting customer market share and influencing technology strategies.

These dynamics will weigh on FY '26. As a result, we believe our auto and transport end market will decline by 5%. Even so, there is reason for optimism. The long-term trends remain promising as BEV still represents the fastest-growing powertrain. This, in addition to the adoption of software-defined vehicles and ADAS is increasing the content per vehicle.

The team is deeply embedded with leading OEMs on the technologies that are expected to define the industry's future, compute modules, advanced driver assistance systems, and other powertrain agnostic solutions are all growth areas as we support our customers' next-generation vehicles.

And in renewables, and energy infrastructure over the last years, we have helped customers rebalance portfolios, localized supply chains and diversify across commercial and residential projects. These actions improve resilience now and position us for upside as economics, interest rates and demand improve. Said differently, we have done the blocking and tackling to be ready when demand improves.

By contrast, we believe health care outsourcing is entering a growth phase. Growth in FY '26 is expected to be led by drug delivery systems, including GLP-1 auto injectors and on-body monitoring such as continuous glucose monitors. Although these programs have long incubation lead times, they are sticky for customers valuable for patients and margin accretive for Jabil.

It's worth noting health care with a healthy pipeline of new business awarded is expected to be an important contributor to our path towards 6% core operating margins. Putting the segment together in FY '26, we expect regulated industries to be flat on revenue with margin expansion as health care growth helps offset automotive and renewables. If regulated industries is about trust and durability, intelligent infrastructure is about velocity.

Our strategy here is clear within at the system level. Instead of treating servers, racks, switches, power and cooling as separate silos, we design and deliver integrated systems that combine compute, networking, power distribution and advanced cooling that integration short time to deploy and low total cost for customers exactly what they need as AI capacity scales.

You can see the strategy at work across the 3 end markets in this segment. In capital equipment, we're moving closer to the chamber with RF power [indiscernible] delivery and sensors, capabilities at the heart of semiconductor tools that manufacture AI cars. As AI continues to drive demand for more large memory and system on chip designs, we expect demand for automated test equipment to remain strong for the foreseeable future.

As we said today, we expect another strong year with 16% revenue growth year-over-year. And in cloud and data center infrastructure, we operate at rack scale, designing and delivering complete systems with advanced liquid cooling and integrated power spanning low- and medium-voltage switchgear and other solutions that enable power delivery from grid to chip and thermal management from chip to the outside.

And in networking and communications, we are scaling liquid cold switching today while preparing for the eventual shift to co-packaged optics as industry standards mature. In the meantime, pluggable optics remain the backbone and we continue to build those platforms. Strength in networking is expected to be offset with continued softness in the 5G infrastructure market.

Putting it all together for the II segment, Jabil's engineering-led system-level capabilities extend across multiple interconnected markets in the AI space. That reach enable us to transfer technologies and connect these markets seamlessly and it's this integration that stands out as a key differentiator, placing us right at the center of the AI ecosystem.

In FY '24, our AI-related revenues to approximately $5 billion, rising to approximately $9 billion in FY '25 as we brought on additional capacity in the U.S. Looking ahead, we expect AI-related revenue to grow by roughly 25% in FY '26, reaching about $11.2 billion. It's worth noting that demand continues to be extremely strong, as evidenced by our recent performance.

However, it's also worth noting that we're now bumping up against capacity in the U.S. As you may recall, in June, we announced a new facility in North Carolina to address these capacity constraints. We believe, this new state of the art side is set to come online in the summer of 2026 and will serve as a showcase for Jabil's AI rack manufacturing capabilities and will be designed from day 1 with key part capabilities like NVIDIA Omniverse and endeavors power and cooling solutions, which positions us very well to meet future demand with greater agility and expertise.

Once operational, we expect the site to empower us to sustain robust double-digit growth in AI-related revenue in fiscal '27 and beyond. For FY '26, overall, we expect Intelligent Infrastructure revenue to grow 18% with double-digit contributions from cloud and data center and from capital equipment.

Segment margins should remain consistent with Jabil's overall level in the mid-5% range. Turning now to our CLDC segment, which is in the midst of a planned transition and the logic is straightforward. On one hand, we are pruning lower margin short life cycle programs in legacy consumer electronics that [indiscernible] the margin profile we desire.

On the other hand, we're investing with growth and margin stronger, like digital commerce, where automation has become essential for customers to accelerate the delivery of products to and from putamen centers and physical stores. We design, manufacture and scale robotics, warehouse automation systems and physical AI platforms, helping customers move from pilot to global deployments with speed and confidence. Over time, we expect our early engagement in humanoid will be another option for growth and diversification.

In Connected Living, the pivot is towards advanced technologies, wireless power, human machine interfaces and connectivity platforms. We pay these technologies to realize manufacturing in Mexico Eastern Europe and Southeast Asia to shorten supply chains and reduce tariff exposure. The anticipated result is a smaller yet healthier business with better earnings quality.

For FY '26, we expect CLDC revenue declined about 13%. So what does all this mean for the enterprise level? Yes, the FY '26 outlook. Collectively, our portfolio remains balanced and well positioned for sustainable value creation. For FY '26, we expect approximately 5% revenue growth to about $31.3 billion.

We expect core operating margin to expand by roughly 20 basis points to around 5.6% in spite of the underutilized capacity in multiple geographies. Core earnings per share is expected to be $11 in FY '26, and we anticipate free cash flow to be greater than $1.3 billion.

Moving on to capital allocation. Our priorities are straightforward. First, we'll invest organically in the highest return areas such as AI infrastructure, health care and advanced warehouse and retail automation. Second, we pursue acquisitions that build capability and where it makes sense, step into higher-value markets where we bring something distinctive to customers.

Our M&A philosophy is simple. 1 plus 1 must equal 3. Third, over time, we expect to return about 80% of free cash flow to shareholders through a mix of buybacks and dividends while maintaining a strong, flexible balance sheet. The filter is simple. Every dollar must raise returns, build resilience or both.

Looking beyond FY '26, here is the long-term model. Stepping past the next 4 quarters, our focus is unchanged. We target 6% plus core operating margins and north of $1.5 billion in adjusted free cash flow over time. How do we get there? Three levels: first, better mix leaning into health care, AI and digital commerce, where our system-level capabilities can be leveraged best. Second, better execution, embedding automation, AI and robotics in our operations to raise quality and speed while lowering cost; third, better capacity utilization across our global network. So every site contributes more often.

In short, better mix, better execution, better asset terms. Before I close the word to our people. Strategy is only as strong as the team that runs it. In Asia, the Americas and Europe, I see the same hallmarks as I visit Jabil sites, a commitment to safety, respect, culture and belonging, execution and customer focus. Thank you for what you do every day for our customers and communities.

Let me by answering a straightforward question. Why do I feel Jabil is uniquely positioned for continued success. Let me bring it back to where I began. FY '25 demonstrated the strength of our diversified resilient portfolio and our ability to successfully navigate a complex and dynamic tariff environment even as market conditions shifted and geopolitical uncertainty increased. Our competitive edge is clear, system-level engineering expertise, robust regionalized manufacturing footprint and global scale, world-class supply chain management and a culture that executes.

We are powering the bill out of AI infrastructure, operating with precision in regulated markets, automating digital commerce and building capabilities on merit for the future, all while consistently returning the vast majority of cash flow to shareholders. Thank you. I'll now turn it back over to Adam.

Thanks, Mike. As we wrap up our prepared remarks and before we move into Q&A, let me leave you with 5 key takeaways from today's discussion. First, fiscal 2025, we believe, proved out the strength of Able's diversified model. Second, regulated industries highlights both resilience and long-term opportunity. Third, intelligent infrastructure continues to be our growth engine. Fourth, our deliberate portfolio shift in Connected Living and digital commerce is paying off. And fifth, capital allocation remains disciplined and consistent.

On behalf of the entire leadership team, thank you for spending the time with us today. We appreciate your engagement, your feedback and your continued interest in Jabil. With that, let's open it up for questions. Operator, we're now ready for Q&A.

[Operator Instructions] Our first question is coming from Ruplu Bhattacharya from Bank of America.

I want to start with AI. Can you give us some more details on which of the 3 areas you see more growth? Is it in core rack manufacturing or go transceivers or in switching, where do you see Jabil outpacing market growth. And there's some investor concern that Jabil could be losing some share in data center and AI. Can you talk about any shares that are happening? And how do you see margins in this segment?

This is Matt. Thanks for the question. So first, I would just start with Mike mentioned in his prepared remarks, but we're growing 25% in our AI revenue year-on-year. So going from $9 billion to $11.2 billion. And when you think about the base that we built up in '25, we're really pleased with that business and where it's going. Now across the 3 sectors, we're growing pretty well in H1.

In capital equipment, we'll maintain our positions with the right customers that we have. We'll also add capabilities to get us closer to the chamber, which will help us defend our positions that we have that exist and also go get new business. In the cloud and data center infrastructure, that's probably where we see the most position to take share.

So if you think about our data center infrastructure business, that will grow triple digits where we build electrical switch gear, et cetera. and our cloud business will continue to grow. So we feel really good about it. That's headed. And while in the networking and comms space, our communications business is offsetting the networking growth.

We're going to grow at roughly 25% networking. So across the board, we feel good about the share that we're taking. We actually don't see any share loss. We feel like we're gaining share, especially in the data center infrastructure business. So we feel good across the board about where our AI revenue trajectories head.

Okay. Maybe I'll switch to health care. So it looks like from your fiscal '26 guide, you're guiding to the low end of mid-single-digit growth. Can you talk about where you see growth? Is it in devices, equipment or drug delivery? And specifically, the Croatia facility? It seems like it's getting delayed in terms of getting populated. How do you see the impact to margins of that in fiscal '26? And then how should we think about margins beyond that?

Ruplu, Steve here. So to answer your question, first, let me go back to my comments this time last year, and then I'll give you the go-forward perspective. First, I mentioned last year at this time, the overall med device market is growing roughly 3% to 4%.

And on that call, I said my expectation was we would return to growth in fiscal year '26, driven by our past wins in the areas that Mike mentioned in his opening remarks, GLP and biologics growing and getting into production. And that's continued as planned, most especially to answer your question on Croatia. Equation is on track as planned. There has been no changes. There are no delays.

So that's moving forward as we anticipated. In addition, this year, your question about new wins, in addition, I'd say that we have quite a few new ones. They're in the areas of med devices, CGMs and general injector growth. That's driven not just by GLP-1s though, but by biologics. I've mentioned in prior calls, the growth that we're seeing in the Pharma segment as it relates to biologics and the need for injectors to support that.

And as a matter of fact, we recently added a new win for our Dominican Republic site that's going to leverage our new sterilization capability, which we recently invested in. But as we've talked about before, these rents due to automation in regulatory validation requirements will take some time to ramp, but those are some really, really good new wins for us. And I'd say, in addition, we sit today with our largest funnel of B2B, which is obviously not forecasted, but could create some opportunities this fiscal year depending on timing.

And then I'd say last but not least, in our video, we mentioned the PII transaction, and it is on track, and we're excited that the team has already added a new customer, and we have many visits planned now that the integration is complete. So to summarize, a very long answer, sorry, is what I'm trying to say is that with the new wins even from last year and the ones this year that I expect growth rate in health care to be at or above the 5% range going forward.

If I could just add, I think your question around Croatia in FY '26. Croatia was never meant to be an FY '26 event. It was always in FY '27, almost second half of FY '27 event, and that's completely planned and that is exactly how it's turning out. So absolutely no delays, as Steve mentioned.

Okay. I'm going to try and sneak one more in. Mike looks like you met with the Indian Prime Minister Shri Narendra Modi. Can you talk about how the meeting went. And give us specifically your thoughts on investing in the U.S. versus in India because there are different tariff rates. How do you prioritize those 2 regions in terms of investment?

Thank you, Ruplu. Very positive meeting, very pro business. I think the pro investment sort of Apple sphere there is very pleasing to see. Of course, by meeting was before the whole tariff situation, so we're monitoring that. But having said that, don't forget, India has the largest middle class population in the world, huge domestic demand.

So it has a manufacturing right by South regardless of tariffs. One of the things we focused on quite a bit here in the U.S. is the manufacturing. We've gone from 14, 15 sites to more than 30 sites in the U.S. Over the last few years, we prioritized our manufacturing to the U.S. And that paying dividends, all our AI growth is coming through these sites in the U.S. as well.

We're opening up a new facility in North Carolina. It will be a state-of-the-art facility. It will probably be our largest site in the U.S. going forward as well. So we're focused on both. I think the U.S. obviously is a priority for us. We're a U.S. domiciled company with -- we've been here for 60 years in the U.S., so definitely prioritizing the U.S.

Next question is coming from Mark Delaney from Goldman Sachs Asset Management.

I wanted to start, if I could please, with the data center business. Can you help us better understand how Jabil is managing its capacity in order of data center related both in the first quarter and also this fiscal year? And I ask because you've commented that some of your sites are running 24/7 and have been at peak level.

So what are you doing in order to meet that demand? And what does that mean for the shape of growth this year?

Yes. So thanks, Mark, this is Matt. First, I would say we are going to continue to operate sites at 24/7. Additionally, we're going to sites in the U.S. where we had some underutilization and we're going to go and consume that capacity.

So in our data center infrastructure business where we're going to be building chillers, we'll be consuming capacity in our Salt Lake City facility. So we're utilizing the network of capacity across the country. And then in addition to that, we are going right now to start retrofitting the sites that exist to be prepared for liquid to liquid.

So as customers transition and as data centers move from air to liquid to liquid to liquid, we have to be ready to manufacture at the same scale and support that liquid and power requirement. So we are in the process right now across the network of factories in the U.S. retrofitting them so that we can build liquid cooled infrastructure. And that will be throughout the year, which is why you see the shape of the year coming together the way it does. But as we get through the year, it positions us perfectly for '27. So we feel good about where we're headed.

And so wanted to understand the margin dynamics within the Intelligent Infrastructure business. If I heard correctly, company is expecting margins this year to be in the mid-5% range. That's relatively flattish on very robust top line growth. So maybe help us understand some of the puts and takes to that segment for fiscal '26.

And how should investors think about in that space over the longer term, there's been a lot of growth. There's also been some investor debates around the degree of competition. So if you can share more around thinking about profitability, that would be helpful.

Yes. I mean, look, so we're absolutely across the portfolio. We have a business that's going to be accretive. We have a business that's going to be in line with the enterprise, and we're managing the portfolio appropriately. I would tell you that where we have invested in specific capabilities like our silicon photonics business, like our data center infrastructure business, we expect margins to be accretive.

But across the portfolio, there is going to be a business that is more in line with the enterprise. So trying to manage and invest in the right places. And by the way, this year, we will be investing in more capability position us well into the future. So we're going to manage the portfolio appropriately to enterprise-level targets.

Next question is coming from Steven Fox from Fox Advisors.

I had a couple of questions. I guess, first off, could you guys unpack the gross -- the operating margin guidance for the new fiscal year? It looks like sales are going up about $1.5 billion and margins by 20 basis points. But it seems like I'm just listening to the conversation so far, there's a lot of puts and takes in there, figure out how we got to the guidance there. And then I had a follow-up.

Steve, it's Greg. Yes, so we do see a 20 basis point pickup in our margins from 26 to 25. It's really -- we're seeing a good mix in the business that's improving margin. We still have some headwinds on unutilized capacity outside of the U.S. So that's still the 25 basis points of headwind. It's a little bit more flat versus last year, more of a 50-50 first half, second half, where we do see margins continuing to increase as we go forward.

So the investments in II, whether those are like material headwinds that we'll notice within that 5, 6, or something that's sort of flying under the radar more?

So let me...

Sure. Steve, it's Andy here. So I think you heard in the prepared remarks from Greg and Mike. We have made a conscious decision over the last 12, 18 months, margin-accretive product with some of the most premium brands on the planet. So that's certainly having an effect on the overall revenues but having a positive effect on the overall margins.

If I could just add, I think I talked about it in my prepared remarks a little bit. We're still matching strong towards the 6% target, 6% plus target, I should say, that we have for the enterprise. Health care, you have margins getting better, the growth coming through. We've actually booked a decent pipeline, obviously, but the long incubation that will take a little bit of time.

In AI data center infrastructure, we see growth, there's absorption of SG&A. So that's going well, capital equipment, liquid cooling, again, higher margin profiles. And then if you look at digital commerce and robotics, that's high margin as well.

So overall, that I -- sorry, the mix that we're focused on will help us get to that 6%. Efficiency is another one that I talked about, I think Greg and Frank talk about on video, automation, AI, normal efficiencies. I expect contribution of about 10 bps annually from efficiency and then Greg talked about capacity utilization.

Capacity utilization normally on at 85%. Today, it's still at 75%. A lot of the growth that we've seen has come in the U.S. There's been a little bit of a mismatch between where our capacity was surplus and where we have to -- it's hurting our margins right now. Good thing is the surplus capacity is available. for new business going forward. So that will be accretive to margins as well. So overall, no change in our 6% profile. I know your question was more on FY '26, but I want to make sure that the investors understand that 6%.

And just one question for Matt. Maybe just -- I know there's a lot of detail here on this question, but maybe from a big picture standpoint, when we think of -- you mentioned chillers and other power management products. I mean on one hand, there's traditional EMS production and programs that you're doing. On the other hand, you guys have obviously increased your capabilities, as you mentioned.

Like how does that all play out and how does Jabil compare within that?

If you think about the market today and where a ton of volume is being driven, especially in the hyperscale space, products, OEM approach, we don't see that as the future. We see the ability to configure and support scale globally as what these customers want. So that's where we've invested a that's the capability we've created. And we feel really good about how that business is growing.

And as I mentioned, it's growing in the triple digits. So we think as we scale out across our first hyperscale customer, our second hyperscale customer, it is probably where we will land our third hyperscale customer. So it's a focus area where we've invested and we think it's going to help us grow.

Your next question is coming from Melissa Fairbanks from Raymond James.

I wanted to start off with a question for Steve. This may not be a fair question because it all just kind of materialized overnight. But I'm curious about any trends that you're seeing with some of your issues.

I know there hasn't been time to digest. And from what I understand, it was kind of unexpected. I detect that most of your programs like in Mexico are MCA compliant. But I'm just wondering if you've seen any changes in customer behavior given the possibility of more tariffs or if this might just be a net neutral impact to your customer plans?

Yes. When we look at it on the surface, there's areas such as the gloves, wheelchairs, et cetera, and commodity stuff that we actually don't play in. But then there are areas like pharma and others that we do. The good news is -- So we're in a good place from a manufacturing standpoint. I actually view the potential impact on the pharmaceutical side of the business is a great opportunity because if that business gets tariffs at a certain rate, then the opportunity for U.S. production would actually be good for us, especially in our PII operation. So we'll have to see how it plays out, but I view it as a net positive.

Okay. Great. That's very helpful. Maybe just one for the team. Well, capacity utilization or the inefficiencies that you've been seeing correct me if I'm wrong, but I think a lot of the margin headwinds or inefficiencies outside the U.S. were related to the auto business. If we do finally see an inflection point in that auto transport business, do you have the capacity to address potential upside through the P&L?

Yes. I mean, I guess, I'd say this as it relates to the auto part of the business, we have capacity in place to be able to support upside. Now as you can tell by our numbers, we're not predicting in this fiscal year to see growth -- Architecture becoming stronger into the vehicle, which is adding more electronic content. So I do see growth down the road and to fill that capacity. So we're in a good place as it relates to that for auto.

Okay. Great. And maybe just sneak in one more. The new North Carolina liability that's coming on mid next year. I'm wondering what the expectations are to get that facility fully loaded in terms of time line. It kind of seems like it might be more of what you're already doing. So maybe the demand is already there to support it right off.

Maybe for Greg, what should we expect in terms of either the margin profile of that facility, revenue contribution toward late next year into fiscal '27 and even expectation.

This is Matt. Let me take part of that, and I can hand the depreciation expense back to Greg. But so we are expecting -- number one, we do have plenty of demand. So we don't expect for it to get to be fully loaded until probably middle of '27 as we ramp and bring on new customers. It will be a 500 square foot facility. It's going to have 12 megawatts piped in to start.

We'll move to '25 over 18 months. And as we fill up the facility, clearly, there will be a different revenue profile of what that facility will generate over time. But we feel really good about it. There is plenty of demand. And as I mentioned, the fact of the matter is that we are bumping up against capacity. So as soon as that comes on, we feel good about starting to get it filled up. I don't think you're going to see a big impact in '26. It will make a significant contribution in '27.

And just on the investment side of that, the North Carolina investment will be mostly in '26 from a CapEx perspective. We see that in the range of $75 million to $100 million, and that will absolutely be in our range of CapEx overall, which is in that 1.5% to 2% of of CapEx to revenue.

And as you can see from our numbers we printed in '25, we -- we've been on the low end of CapEx, $1.1 billion in '25. So we still feel really comfortable on the overall investment that Jabil is doing in -- from a CapEx point of view.

Your next question today is coming from David Gold from UBS.

This is Brian on for David. Just to start, you guys touched on it, but why are you expecting EV to be down in fiscal year '26 when new programs should be ramping? I know you talked about weakness in Europe and the U.S. as well as strength in China. But just further color there would be helpful. And then I have a follow-up.

Sure. This is Steve. Brian, I'll take that one. Yes, I mean, we remain prudent, I'd say, in our thoughts related to the auto and transportation segment. I mean there's still lots of volatility as automakers reset their portfolio strategies between EVs, ICE and hybrid based on the overall environment.

So -- but I'd say inclusive of that, we continue to see a decline in EV market share in the U.S. As you mentioned, yes, Europe is up, but off a very small base of only about 2 million units. China continues to be the growth area, and we're participating there to help offset softness in the U.S. market.

And what I'd say there is we've also been able to add -- we've doubled our business year-on-year with our first Chinese OEM customer. We've added a second Chinese OEM customer to our portfolio, which will ramp starting late '26 into '27, which gives us the opportunity down the road for continued growth of that business.

I'd also say that when I look at our ADAS strategy, which is agnostic to is the same thing and compute modules, we continue to add those portfolios. But what's happening is that you have a decline that exists, the reset of the portfolios, the cancellation of some programs as a new programs launched and it takes a couple of years to launch those new platforms, and that's kind of where we're at, at this point.

And Brian, if I could just add. I think if you look back at our history, moving parts with what's going on in some of the end markets. So we are on the side of conservatism there. I think Steve mentioned prudent, that's a perfect word to describe our philosophy, not just on EVs, but on a number of end markets because we expect we'd rather be right than wrong there.

So the conservative approach is something we've worked on over the last few quarters as well.

Got it. That's helpful. And then just to add on, I know you guys touched upon this as well. I just wanted to get your guys' thoughts if there's anything else that you could add regarding a warrant deal between one of your competitors in Amazon, just any implications for the industry or the company itself.

Brian, it's Matt. So first, I would say, we were the first EMS to do warrants with that company. That put us in a really good position. I would also point to the portfolio of warrants that they manage. It is not complementary, it's redundant. So it makes sense that they would go and acquire other similar like companies from a warrant portfolio perspective. .

And again, the demand is just so great that having backup agreements make sense. So from our perspective, we were the first to do it in the EMS space. It's going to be a benefit to us. We have very little to no concern over the fact that they would do it with a competitor because we expected them to.

We reached end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

That concludes our call today. If you have any further questions, please reach out. Thank you.

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

Greetings, and welcome to Jabil's Third Quarter Fiscal Year 2025 Conference Call and Webcast. [Operator Instructions] This conference is being recorded.

It is now my pleasure to introduce your host, Adam Berry, Investor Relations. Thank you. Please go ahead.

Good morning, and welcome to Jabil's Third Quarter Fiscal 2025 Conference Call. Joining me on today's call are Chief Financial Officer, Greg Hebard; and Chief Executive Officer, Mike Dastoor. Please note that today's presentation is being live streamed. And during our prepared remarks, we will be referencing slides. To view these slides, please visit the Investor Relations section of jabil.com.

After today's presentation concludes, a complete recording will be available on our website for playback. In addition, we will be making forward-looking statements during this presentation, including, among other things, those regarding the anticipated outlook for our business, such as our currently expected fiscal year 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 annual report on Form 10-K for the fiscal year ended August 31, 2024, and other filings with the SEC. 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, I'd now like to hand the call over to Greg.

Thanks, Adam. Good morning, everyone. Thanks for joining our call today. I'm very pleased with our third quarter performance, which at the enterprise level came in well above our expectations across revenue, core operating income and core earnings per share. In the quarter, we saw significant upside in our Intelligent Infrastructure business, led by the segment's AI-related revenue. At the same time, our Regulated and CLDC segments came in largely as planned. The environment remains dynamic, but our performance this quarter demonstrates the strength of our operating model and our ability to deliver consistent results even as conditions shift.

Let's walk through the details for the quarter. For Q3, the team delivered $7.8 billion in net revenue, up an impressive 16% year-over-year and $800 million above the midpoint of the guidance range we gave in March. Upside strength in revenue was primarily driven by cloud and data center infrastructure. Additionally, it's worth noting both our capital equipment and connected living end markets also saw higher-than-expected demand in the quarter.

Given all this strength, core operating income for the quarter came in solidly above our range at $420 million. Core operating margins were at 5.4%, a 20 basis point improvement year-over-year. Net interest expense in Q3 was $66 million. On a GAAP basis, operating income was $403 million, and our GAAP diluted earnings per share was $2.03. Core diluted earnings per share for Q3 was $2.55, up 35% compared to Q3 of last year.

Turning now to our performance by segment in the quarter. Our Regulated Industries reported revenue of $3.1 billion, roughly in line with our expectations and flat year-over-year. This reflects ongoing softness in the EV and renewable end markets, partially offset by growth in our health care business. Core operating margin for the segment was 5.5%, up 70 basis points sequentially. However, this is down 50 basis points year-over-year as EVs and renewables remain below normalized levels of profitability.

In the Intelligent Infrastructure segment, we saw revenue of $3.4 billion, up approximately 51% year-on-year and well ahead of our expectations for the third quarter. This growth continues to be driven by sustained strong demand in our AI-related cloud and data center infrastructure business, including power, cooling and server rack solutions. Capital equipment was also strong in the quarter as the need for testing gear remains robust. This growth was offset slightly by lower demand in our networking and communications end market due to softer 5G demand. Core operating margin for the segment was 5.3%.

In our Connected Living & Digital Commerce segment, revenue was $1.3 billion, slightly higher than what we thought 90 days ago. On a year-over-year basis, this segment was down approximately 7%. This is mainly reflecting softness in consumer-driven products, offset by growth in areas such as warehouse and retail automation. Core operating margins for this segment came in at 5.3% in Q3, up 210 basis points year-over-year, reflecting both the benefits from the restructuring actions taken earlier this year to reduce costs as well as the changing mix of business within this segment.

Next, I'll provide an update on our cash flow and balance sheet metrics for the end of Q3. Inventory days decreased sequentially by 6 days to 74 days. Net of inventory deposits from our customers, inventory days were 59, an improvement of 2 days sequentially and within our targeted range.

In Q3, cash flow from operations was strong at $406 million. Net capital expenditures for the third quarter were $80 million. As a result of this solid performance, adjusted free cash flow for the quarter came in at $326 million, bringing our year-to-date adjusted free cash flow to $813 million. With our results through 3 quarters, we are well on track to generate over $1.2 billion in free cash flow for the year.

We exited the third quarter with a healthy balance sheet with debt to core EBITDA levels of approximately 1.4x and cash balances of approximately $1.5 billion. In Q3, we repurchased $339 million of our shares. We're on track to complete our current $1 billion share repurchase authorization in Q4.

With that, let's turn to the next slide for our Q4 FY '25 guidance. Beginning with revenue by segment, we anticipate revenue for Regulated Industries will be $2.9 billion, down 5% year-on-year as we maintain a prudent near-term outlook on the EV and renewable markets. We are also closely monitoring potential impacts, positive or negative, arising from the impending legislation in the U.S.

For our Intelligent Infrastructure segment, we expect strong growth to continue with the revenue for the quarter to be $3.3 billion, up approximately 42% year-over-year. We expect this increase to be driven by sustained broad-based AI-related growth in cloud, data center infrastructure and capital equipment markets. In our Connected Living & Digital Commerce segment, revenues are expected to be $1.3 billion, down 21% year-on-year, reflecting continued softness in consumer-centric products, offset slightly by growth in warehouse and retail automation markets.

Putting it all together at the enterprise level, total company revenue for Q4 is expected to be in the range of $7.1 billion to $7.8 billion. Core operating income for Q4 is estimated to be in the range of $428 million to $488 million. GAAP operating income is expected to be in the range of $331 million to $411 million.

Core diluted earnings per share is estimated to be in the range of $2.64 to $3.04. GAAP diluted earnings per share is expected to be in the range of $1.79 to $2.37. Net interest expense in the fourth quarter is estimated to be approximately $65 million. Our core tax rate for Q4 and for the full year is expected to remain at 21%.

In closing, the Jabil team's execution thus far in FY '25 amid heightened geopolitical uncertainty has been tremendous. Our ability to execute effectively is a testament to the strength of our diversified portfolio and our strategic alignment with high-growth secular trends such as AI and industrial automation. This resilience not only reinforces our competitive position, but also sets the stage in the coming years for continued revenue expansion, margin enhancement and robust free cash flow generation.

With that, I'd like to thank you for your time this morning and your interest in Jabil. I'll now turn the call over to Mike.

Thanks, Greg, and good morning, everyone. I want to start by acknowledging the tremendous work of our global team. Their consistent execution in a complex environment is the driving force behind our performance and our ability to deliver for our customers. The dedication I see across the organization is remarkable, and I am grateful for their efforts, a dedication which is fundamental to our strategy, especially as we navigate the evolving geopolitical landscape.

Today, most of our manufacturing has migrated local-for-local and region-for-region. This focus on manufacturing, mainly in region has continued to play out well for us, particularly in today's geopolitical environment. And furthermore, I continue to see our global and growing U.S. footprint as a significant competitive advantage. Our ability to offer customers diverse, resilient and localized manufacturing solutions has become more valuable than ever.

Being a U.S. domiciled company with deep experience across 30 countries allows us to partner with customers to navigate issues like potential tariffs and supply chain complexities, a capability, I believe, is unmatched in the industry.

Now turning to our performance in the quarter. As Greg detailed, our third quarter results were very strong, reflecting higher-than-expected growth in cloud and data center infrastructure, capital equipment and connected living end markets. At the same time, health care, automotive, digital commerce and networking and communications were largely in line with our expectations from March. As a result, the team delivered $7.8 billion in revenue, 5.4% core operating margins and $2.55 in core diluted earnings per share, up 35% from Q3 last year.

As I contextualize these strong results with our year-to-date performance and projected FY '25 revenue by end market, several key points become evident. First, our Intelligent Infrastructure segment continues to stand out as it remains squarely at the epicenter of the AI revolution. Demand for AI hardware is not slowing down. If anything, it's accelerating. The need for complex server and rack integration, advanced networking and innovative power and cooling solutions is surging.

Our holistic approach to the data center, our deep engineering and design architecture collaboration and our ability to execute complex high-volume production at scale makes us a go-to partner for the world's leading hyperscalers and silicon providers. Our teams are executing with urgency, ramping capacity, optimizing supply chains and staying ahead of customer needs, whether it's racks, photonics, advanced networking or storage, we're delivering.

Given this momentum, we now project our AI-related revenue will reach approximately $8.5 billion this fiscal year, a 50%-plus increase year-on-year. And to support this growth, I'm excited to share that this morning, we announced we will be opening a new site in the Southeastern U.S. to help fulfill the ongoing increase in AI data center infrastructure demand.

As part of this plan, we expect to invest approximately $500 million over the next several years to expand our U.S. footprint as we remain focused on supporting cloud and AI data center infrastructure customers. With the addition of this new factory, we will now operate more than 30 sites across the United States. This investment is a significant commitment, and there are a few things to keep in mind.

We're in the final stages of site selection now, and we expect the facility to be operational by mid-calendar year 2026. This site will further enable our design, architecture and large-scale manufacturing capabilities in high complexity AI racks with increased power requirements and infrastructure fit-out for liquid cooling. We fully anticipate that this new site will help diversify our revenue growth in the AI hyperscale space.

We do not expect this investment to change our outlook for our annual CapEx spend, which currently stands at 1.5% to 2% of revenue. And finally, it is important to highlight that as the new site is projected to come online towards the end of FY '26, we do not expect it to have a material impact on our financial results until FY '27.

Another area of exciting growth in '25 and beyond is digital commerce. The team continues to drive innovation in retail and logistics, helping a diverse set of customers automate everything, from the warehouse to the aisle and checkout. As we've discussed before, labor dynamics and fulfillment speed are driving structural investment here, and our solutions are resonating with customers.

As we look further down the road, we see a long runway ahead as robotics, automation and even humanoids become central to the future of day-to-day life.

Turning to Regulated Industries, where trends have been more mixed. As expected, EV and renewable energy markets in the U.S. remain soft. Moving forward, we continue to monitor the potential impact of the impending U.S. legislation on these end markets. We're managing these potential headwinds with discipline, staying close to our customers and continuing to focus on markets with accretive long-term margin potential.

Health care, on the other hand, remains a bright spot. We are focusing on higher-value segments such as drug delivery devices, diagnostic equipment, and pharma solutions, where our Pii acquisition is already opening new doors. We continue to believe this business will be a margin and cash flow contributor over the long term as we continue to add vertical capabilities in various areas of this end market.

With that, let's move to our updated outlook for the full year. We are raising our revenue guidance for fiscal 2025 to approximately $29 billion, while we believe core operating margins will be in the range of 5.4%. As a result, we now expect to deliver core diluted earnings per share of $9.33 for the year. And importantly, we expect to generate in excess of $1.2 billion in adjusted free cash flow.

As we close out fiscal 2025, it's worth noting that our diversification strategy continues to aid our results as the demand profile of the end markets we serve are considerably dynamic. For instance, despite persistent weakness in EVs, renewables and 5G, we're approaching record levels of core EPS.

Looking ahead, we remain focused on enhancing core margins, optimizing cash flow and returning value to shareholders, primarily through share repurchases and targeted investments in higher-margin opportunities. This focus, together with our disciplined financial approach, creates a favorable setup for sustained value creation in the coming years.

To close, I want to thank the Jabil team for their outstanding contributions and our investors for their continued confidence in our strategy. I am incredibly optimistic about the future we're building together.

I will now turn the call back over to Adam.

Thanks, Mike. Before moving into Q&A, I'd like to quickly summarize our key messages from today's call. First, Jabil delivered strong Q3 results with core EPS above the high end of our guidance, driven primarily by an outstanding performance in intelligent infrastructure. And we provided Q4 guidance that reflects continued robust momentum in AI and data center markets, balanced with a prudent assumption for other areas.

Second, we announced further U.S. investments in our AI and data center footprint, which will position us well for future growth. And finally, Jabil remains exceptionally well positioned due to our diversified portfolio, advanced manufacturing and engineering capabilities, and a clear strategy focused on profitable growth and shareholder returns.

To that end, I'm pleased to share that we'll be hosting our 8th Annual Virtual Investor briefing in late September. During that briefing, we intend to provide a comprehensive full year outlook. This will include our customary commentary on the markets we serve, our growth priorities and our disciplined approach to capital allocation. Specifically, we will outline our expectations for fiscal year 2026 across core operating margins, core EPS and adjusted free cash flow. I remain incredibly optimistic about the future we're building, and we look forward to sharing our plan with you at that time. Thank you.

Operator, we're now ready for Q&A.

[Operator Instructions] Our first question today is coming from Ruplu Bhattacharya of Bank of America.

Mike, you're seeing strong growth in data center and cloud revenues. And today, you guided AI-related revenues to $8.5 billion for fiscal '25. What's a reasonable level of growth to expect in this segment for fiscal '26 and beyond? And can you help us rank order the revenue growth and margins for the different segments within intelligent infrastructure? So for capital equipment, cloud, data center and networking comms, how should we think about revenue growth and margins for these?

Ruplu, so I think before I even start, I think the $8.5 billion of revenue in the AI world is a big achievement for the team. I think the team has performed and executed solidly. I think they worked 24/7 over the last over the last few weeks. So a really good result in our Q3 quarter. I think the 8.5% is just a testament to the growth rate from '24 to '25 being almost 50%. So really well done there.

From a growth rate and margin, Ruplu, we'll provide more guidance in September for '26. I don't want to touch on '26 right now. But I think overall, if you look at margin in the 3 different end markets in that segment, I do think capital equipment would be accretive. I think if you look at wafer fab equipment side on the capital equipment, that's a slightly higher margin. The automated testing, where the bulk of our growth has been is slightly lower margin than WFE.

So a mixed sort of margin profile in capital equipment. I think cloud data center, we've mentioned this a few times before, it's at enterprise level. And I think the explosive growth that we continue to see in that area will be good for '26. And then from a networking and comms perspective, networking, I expect that to be slightly accretive, while communications and mainly 5G is a lot more dilutive to our margin. So mix profile, I think it's different for different end markets even within the same segment.

Okay. Thanks for the details there, Mike. Can I ask fiscal year '25 operating margin, you're holding steady at 5.4%. What needs to happen for operating margins to get to 6% plus? I mean what do you need to see in terms of revenues and other things to get the operating margin to that level?

Sure. So if you look at -- we've talked about this in the past. Today, we find ourselves with a little bit of underutilized capacity. Our normal capacity utilization is in the 85%, 86% range. Today, we're still at the 75% range. Even with the explosive growth that you see in the AI world, the underutilized capacity still exists because there's a mismatch in geographies. The AI growth is all in the U.S., while the underutilized capacity is in countries outside of the U.S.

So I do expect 20 bps to come back from a better utilization, and I'm not suggesting that would happen next year. It would all depend on recovery of end markets and our ability to execute to those end markets. So 20 bps on utilization, I would expect another 20 bps on SG&A leverage. I think as we continue to grow, our SG&A and especially at the corporate level, will continue to hold steady, and that will have a big impact on margins going forward. Again, not suggesting 20 bps in '26. It's a very high-level number over the next 2, 3 years.

And then last but not least, 20 bps from a mix standpoint, it's growth in higher-margin business as we get into some of the other better performing markets, I think that 20 bps does come through. And then if you go beyond 6% as well, we're not just going to stop at 6%. There's a whole bunch of vertical integration. We've talked about things like pharma filling. We've talked about other parts that we can collaborate on with customers in a deeper end-to-end solution. That's what that will get us to that next step beyond 6%.

The next question is coming from Mark Delaney of Goldman Sachs.

Congratulations on the strong results. First, I'm hoping to better understand how you're assessing the potential risk that some of the strong sales that you saw in the third quarter was due to pull-in buying perhaps because of tariff uncertainty. And is that a factor in the guidance for a sequential moderation in revenue in the fourth quarter?

So no, I think if you look, bulk of our revenue beat was in capital equipment and in the cloud data center infrastructure. Both of those are U.S.-centric. Tariff impact is minimal there. So I don't expect to see any pull-ins. We're not overall, even beyond that, Mark, I don't think we're seeing pull-ins of any magnitude. Right now, the whole tariff situation is still fluid, still dynamic. Things are moving around, and nobody wants to make decisions based on paying too much of a tariff or too little of a tariff. So I think at this stage, we're just customers and Jabil, we're collaborating. We're obviously having a lot of discussions, but no pull-in of significance, at least we're not seeing that.

Very helpful. My second question was around the announced planned expansion in the U.S. Is this primarily to support current customers and programs? Or do you see incremental opportunities that's given you the confidence to commit more capital domestically?

No. So I think the best part about this new investment, it's not due to just existing customers. It's a portfolio that we're looking at. It's diversified, expanding our hyperscaler base, expanding our Colo base. So I think overall, it is expanding our customer base in a really positive manner. I really have good thoughts about this site. Once it's up and running, it's not just going to be in the cloud data center. We're going to look at liquid cooling, power management. So everything associated with that entire AI ecosystem will be sort of showcased in that facility.

The next question is coming from Steven Fox of Fox Advisors.

A couple of questions, if I could. First, just looking at the quarter just reported, can you just sort of discuss the II margins quarter-over-quarter? So it looks like you were flat at 5.3% on almost an $800 million increase in revenue. So what specifically were the puts and takes there that we should consider and how those apply maybe going forward? And then I had a follow-up.

Yes. Steve, it's Greg. So on margins for II, it was at 5.3%, similar to what we saw in Q2. What we did see with the very strong growth during the quarter, we did incremental investments during the quarter that did put some pressure on margins for the segment. And as we get that to scale, we do see that improving to get at and above our enterprise level margins.

There's always some level of cost associated with an explosive growth level at this scale, Steve. So I think overall, we will continue to get leverage going forward. We did get some leverage, by the way, on the cloud and DCI side. I think you don't see it all in the intelligent infrastructure because our communications 5G side is a little bit dilutive there. So there's a little bit of a mix effect going on in Intelligent Infrastructure as well.

Great. That's very helpful. And then just sort of looking ahead, not just necessarily for this quarter but beyond, Mike, how do we think about just managing all of this growth? You mentioned -- you highlighted a new plant coming online, new customers. There seems to be vendor consolidation going on, new opportunities for other technologies to -- for you guys to focus on. How do you sort of ensure that you're adding capacity at the right rate, focused on the right technologies, et cetera. But just any thoughts there given how great the growth is and going forward?

Yes. So the team is really focused on this expansion, Steve. They're talking to customers constantly. One of the things we were seeing is a chicken and egg situation with capacity versus new customers and new orders, customers -- potential customers want to see a site as well. So I think the team is fully engaged. They've been talking to multiple players. They've been talking to multiple customers and potential customers. And obviously, we feel like there's certainly a path to filling out that site over the next few years.

So overall, I do think that expansion continues in good shape. Don't forget beyond cloud data center, we have the photonics side. We're winning some liquid cooling sort of customers as well. So it's across the board, thermal management, power management, all of that will come into play here. And it just allows us to showcase our entire end-to-end solution, again, in that side across the entire ecosystem.

The next question is coming from Melissa Fairbanks of Raymond James.

Great news on the U.S. manufacturing investment. You mentioned that this is largely AI-driven or AI-related data center business that's driving this investment. Are there any other segments or end markets that are exploring moving to the U.S. or maybe consolidating in other geographies longer term? Are you seeing more customer conversations about this given the tariff uncertainty?

So Melissa, I think overall, if you look at what we've done over the last few years, we've regionalized our manufacturing base. A lot of our manufacturing is done in region. So there's not that much of a tariff impact, sure, there will be odds and bits here and there in terms of tariff impact. But I think from a customer perspective, we seem to be in a decent shape in terms of where they're located. And most of the locations are close to their end consumer market. So we're in good shape there. We'll constantly look at moving things around.

I think the end markets that suit better to the U.S., obviously, health care is a big one. The entire Intelligent Infrastructure segment is one. And then if you look at digital commerce as well, that's an area that we're focused on. And bits and pieces could move to the U.S. on that as well as automation, as robotics, as some of the some of the capabilities that we have in that space get more meaningful and more necessary as we expand in the U.S.

Okay. Great. And then just to give you a little break from the cloud and AI questions. I was wondering, the stock has obviously moved up pretty considerably recently. Free cash flow is outstanding. Just wondering how you're thinking about capital allocation. You mentioned that this U.S. investment was not going to change your CapEx levels, but thinking about how you're looking at deploying cash in the future?

Melissa, what I would say is we continue to remain committed to returning value to our shareholders. To your point, free cash flow is looking very strong this year at $1.2 billion. returning 80% of our free cash flow to buybacks. We're committed to that. We do see our current $1 billion share authorization program being completed in Q4. And our typical cadence of new authorizations and continuing that type of policy, we typically announce between July and September. So more to come on that in the coming months.

And Melissa, if I may just add, I think if you remember the mobility divestiture, once we completed that divestiture, our CapEx requirements have gone down considerably. Our free cash flow is in really, really good shape. We're almost a completely different company from a capital allocation perspective. We continue to see share buybacks as a major sort of part of our strategy. So everything is moving in the right direction as it relates to cash flows.

Great. Fantastic job managing it.

Thank you.

The next question is coming from Tim Long of Barclays.

Yes, two as well, if I could. First, back to the cloud data center, obviously, upside in the quarter and in the guide pretty meaningfully. Could you just give us a little update on -- I think you talked about some of the product breadth that you're seeing in that upside. Could you just maybe double-click on that, and also talk about kind of customer diversity within that bucket, how broad that's getting?

And then the follow-up on the -- I was just hoping you could update us on the transceiver business. Anything new on customer activity there? And now that we're a few months away from the release of the 1.6T, any customer feedback or outlook on timing there would be helpful.

So a couple of drivers in the Intelligent Infrastructure segment. We talked about capital equipment. I think the automated -- the testing cycle is in full play. I think with the custom chip requirements with new technologies, with all the complexity with AI-based infrastructure, that whole testing is expanding considerably. And I think it's got pretty long legs overall.

So WFE on that side is a little bit sluggish, but AI on WFE is actually doing quite well. The sluggishness is more on the automotive consumer side. And then the cloud data center itself, if you the bulk of the increase in revenue was driven by our server rack integration. Don't forget that server rack integration is heavily, heavily driven by our design architecture and engineering teams where we create a situation where there's the handshake between the hyperscaler and us brings the yields to launch to a much more acceptable percentage.

So it's not just by chance that we're winning that business. Obviously, end market is growing. It continues to grow. It's actually accelerating in my view. And we're winning market share there as well. Obviously, for the future, we'll be looking at liquid cooling and some of the other power management, thermal management pieces, but those are in early stages yet. And again, big drivers for growth in the future.

And on the transceiver side?

Yes. So on the transceiver side, we're seeing really good growth. I think if you go back a couple of years, we made this the photonics acquisition from Intel. We acquired a design and engineering capability. So there was a whole bunch of engineers that we acquired with clean rooms and capacity to build out the transceivers. Demand for transceivers is obviously on the rise. Today, we're moving the 200, 400, moving to 800G.

We showcased our 1.6T capability at OFC 2 or 3 months ago, and that's been well received by our customer base. Obviously, 1.6T is more advanced and probably towards the end of the year, early part of next calendar year is when we'll see an uptick there. But we're definitely seeing 200, 400s moving to the 800s. And at some point in time, that will continue into the 1.6T as well.

The next question is coming from Samik Chatterjee of JPMorgan.

I guess maybe if I start with the Q4 guide and Mike, the run rate that you have for Q4 in Regulated Industries and Connected Living & Digital Commerce, both of them are down modestly in Q4, while Intelligent Infrastructure is growing rapidly. I'm just trying to think in terms of when we look below that headline number for Regulated Industries and Connected Living, are there drivers that as you go over the next 12 months, drive those segments back to growth? Or it should be the sort of starting assumption for the next 12 months be that those 2 segments remain a bit sluggish, while most of the growth comes from Intelligent Infrastructure? And I have a follow-up.

Samik, this is Greg. I'll start with your question on Q4. For regulated, we're still being very prudent on our guidance, especially when you look at EVs and renewables. So that's definitely impacting our guidance for Q4. And then on Consumer Living & Digital Commerce, we definitely have been very prudent as well on the revenue guide there. We have been pruning various customers and programs in the consumer-related area. Still feel good about the margins that we're seeing there. But again, just being prudent and conservative on the guidance for those 2 segments.

And anything in terms of drivers to call out that change as we go into fiscal '26?

No, no specific drivers. I mean, other than just we're not seeing any turnaround yet in automotive and also in the renewable energy market. So still to be determined there. And then also just on consumer, yes, we're just being conservative.

I do see some level of growth in health care and the digital commerce. Those are accretive margins. So really good progress there in terms of what we're seeing coming again in the health care space from booking to actually getting into the factory, there is an 18-, 24-month time lag. We are winning business. Some of it will hit towards the end of '26. Some of it will hit in '27 and '28. So just something to be aware of.

But health care is definitely an area that we're quite excited about. If you look at digital commerce, that's another area that we're pretty excited about. You're looking at warehouse automation. You're looking at a whole bunch of handheld devices. We're looking at humanoid robots. That's further out. Obviously, that's not going to be anytime soon. And then there's the retail shelf piece as well. So that entire digital commerce is an exciting area for us as well.

Got it. Got it. And for my follow-up, if I can just go back to the announcement on the manufacturing capacity. Any broad way for us to think about the $500 million, how to split that between capital versus operating expenses over the time period?

And maybe, Mike, in terms of your reference to this being largely capacity for incremental sort of customer wins, in terms of tightening up utilization in the international locations, do you see sort of over time, tilting your manufacturing more to the U.S. and maybe sort of restructuring some of the manufacturing in international locations to achieve that better utilization? Or do you see enough demand to fill the international locations where you have a bit more underutilization at this point?

I do think today, our manufacturing base is really well regionalized. We are manufacturing in region. So we're in the right locations for manufacturing. Some of it will make sense to bring back to the U.S. Some of it won't because it's region-for-region and local-for-local. So it will have to be within the region or within the country itself. I don't think the U.S. -- the site here is specifically for Intelligent Infrastructure, it's not a multi-end market site.

I do think the whole CapEx piece will be a long term. The $500 million is not a year 1, year 2, year 3 thing. It's over multiple years, and it's a little bit of a chicken and egg as well as we win business, the capital expenditure will occur as it gets pushed out. It will slow down. So there's a whole bunch of dynamics in that side. I wouldn't focus too much on the $500 million. I think we did say from a CapEx standpoint, we're still extremely comfortable with our 1.5% to 2% range, and that's not going to change going forward. So it will all be within the 1.5% to 2% range in terms of capital expenditure.

The next question is coming from David Vogt UBS.

And Mike, I know you said not to focus on the $500 million, but I'm going to focus on it anyway. Can you help frame sort of the revenue opportunity that underpins that incremental $500 million of investment over the next couple of years? And without that $500 million, do you have enough capacity to kind of hit your growth plan over the next 2 to 3 years, particularly in cloud and data center?

And then my follow-up is on the networking side, obviously, you called out weakness in 5G. Can you maybe speak to the trends underneath 5G? What I mean by that is ex-5G, how is networking trending over the last couple of quarters? And how should we think about that going forward if we strip out the 5G business?

So I'll answer your second question first. I think 5G is a little bit dilutive to our business. I think excluding that, the margins are accretive in that networking space. I think we'll provide more guidance in September. I think photonics is ramping in that networking line item. I think we've done maybe $300 million to $400 million in '25. We're looking at maybe $750 million, $800 million in '26, and then could be $1 billion beyond that as well. So good growth rates expected for that line item. Can you repeat your first question, please?

Yes. On the $500 million investment, obviously, you're mostly local-for-local, as we've talked about pretty extensively. But without the $500 million, could you hit your growth targets today within Intelligent Infrastructure? Or is this critical capacity addition needed to kind of hit your multiyear plan? And what kind of -- if so, what kind of revenue can be supported by this incremental $500 million of capacity if we just think about what your gross PP&E looks on the balance sheet. I'm just trying to make sort of an extrapolation of how to think about what the incremental revenue could look like, particularly within that segment?

I think over time, the revenue will be considerable, will be material. I wouldn't suggest any numbers yet. But the $500 million, again, is a very long-term sort of number. It's not first 2, 3 or 4 years. It's over multiple years. I do think the site with all the capabilities that we have, the execution of the team, they should be able to ramp up relatively soon.

I did highlight that it only comes online in the middle of calendar year '26. I don't expect much of an impact in '26 itself. In '27, there will be a step up and '28 will be an even bigger step up. So I do think very high potential for the site.

In terms of growth rate for our existing outside of that site, I think we have capacity. We're ramping different parts of that Intelligent Infrastructure in different locations as well. So overall, we do have a decent path to growth even beyond that site.

The next question is coming from Ruplu Bhattacharya of Bank of America.

Mike, a lot of things are going strong for Jabil. What's the biggest risk you see to the story today? And also, you've done some acquisitions in the past over the last couple of years, you've bought the Intel transceiver business, liquid cooling. How would you prioritize M&A versus buybacks over the next year?

So a couple of end markets aren't performing as well, and we've highlighted those over the last several quarters. Obviously, EV has taken a little bit of a downward move and then renewables. Now I do want to highlight that in that line item of renewables, energy and infrastructure, renewables is only $600 million. So when I say downside, I'm thinking of maybe $200 million, $300 million, most there couldn't be an upside of $200 million, $300 million in that line item as well.

I think even from an automotive and EV perspective, one of the things we've got 3 or 4 dynamics going on there where obviously, our China business is doing well. We're actually gaining new customers there. We manufacture in region in that EV space for most of our customers, so very minimal tariff impact. And then the power business for our largest customer is doing reasonably well, and that's a little bit of an offset to lower car volume sales.

And most of all, we're -- we've been very conservative and prudent already in that line item. So answer to your question in terms of what risk, those are more small sort of hiccups. I don't see that as major items to get worried about. What was the second question again?

Just on M&A versus buybacks.

I see a follow-up to your follow-up. So look, we've always made tuck-in acquisitions. Most of them are capability driven. If you go and look back at our history over the last maybe 24 months, the silicon photonics from Intel, the liquid cooling Mikros acquisition, the Pii drug filling acquisition, they're all capability driven. Those are all -- they all open up huge TAMs for us. And that's -- that will continue to be the approach.

I think right now, the focus is still no change in the whole buyback capital allocation methodology. We're looking at 80% being allocated to buybacks. So no major change there. We'll probably renew our buyback authorization in July with the Board. So I think overall, no major change in the M&A piece.

Having said that, if a larger M&A does come through, which we think would be highly accretive for Jabil, we'll execute on that as well. One thing to remember is our debt-to-EBITDA is very low. It's only 1.4x, and there's plenty of room to move around in that leverage as well, if needed.

Thank you. At this time, I would like to turn the floor back over to Mr. Berry for closing comments.

Thank you. That's our call today. If you have any questions, please reach out.

Ladies and gentlemen, thank you for your participation and interest in Jabil. You may disconnect your lines or log out the webcast at this time and enjoy the rest of your day.