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DATE
Tuesday, June 17, 2025 at 8:30 a.m. ET
CALL PARTICIPANTS
Chief Executive Officer — Mike Dastoor
Chief Financial Officer — Greg Hebard
Vice President, Investor Relations — Adam Berry
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RISKS
Softness persists in EV and renewable end markets, with CFO Hebard noting, "EVs and renewables remain below normalized levels of profitability."
Connected Living and Digital Commerce revenue declined approximately 7% year over year in Q3 FY2025, reflecting continued softness in consumer-driven products despite offsetting growth in warehouse and retail automation.
The regulated industries segment is projected to decline 5% year over year in Q4 FY2025, as Hebard stated a "prudent near-term outlook on the EV and renewable markets."
Management does not expect a turnaround yet in automotive or renewable energy markets, indicating continued headwinds without specific drivers for recovery noted for fiscal 2026.
TAKEAWAYS
Revenue: Net revenue was $7.8 billion in Q3 FY2025, up 16% year over year and $800 million above the midpoint of previous guidance, with strength driven by demand in cloud and data center infrastructure.
Core Operating Income: Core operating income reached $420 million in Q3 FY2025, solidly above the company’s range according to CFO Hebard.
Core Operating Margin: Core operating margin was 5.4% in Q3 FY2025, up 20 basis points year over year.
Core Diluted Earnings per Share (EPS): Core diluted earnings per share was $2.55 in Q3 FY2025, up 35% compared to Q3 of last year.
GAAP Diluted EPS: GAAP diluted earnings per share was $2.30 in Q3 FY2025; GAAP Operating Income: $403 million, both reported directly in the call.
Cash Flow from Operations: Cash flow from operations was $406 million in Q3 FY2025, with adjusted free cash flow of $326 million in Q3 FY2025; Year-to-date adjusted free cash flow totaled $813 million for 9M FY2025.
Share Repurchases: $339 million in shares were repurchased in Q3 FY2025; company remains on track to complete the $1 billion authorization in Q4.
Intelligent Infrastructure Segment Revenue: Intelligent Infrastructure segment revenue was $3.4 billion in Q3 FY2025, up approximately 51%, driven by AI-related cloud and data center business; segment margin was 5.3% in Q3 FY2025.
Regulated Industries Revenue: Regulated Industries segment revenue was $3.1 billion in Q3 FY2025, flat year over year due to ongoing softness in EV and renewable end markets, partially offset by healthcare growth; segment core operating margin was 5.5% in Q3 FY2025.
Connected Living and Digital Commerce Revenue: Connected Living and Digital Commerce segment revenue was $1.3 billion in Q3 FY2025, down approximately 7% year over year; segment margin was 5.3% in Q3 FY2025, up 20 basis points year over year.
Inventory Days: Inventory days sequentially improved by six days to seventy-four in Q3 FY2025; net of inventory deposits, improved by two days to fifty-nine in Q3 FY2025.
Guidance - Q4 Revenue: Revenue is anticipated in the range of $7.1 billion to $7.8 billion for Q4 FY2025; core operating income is guided between $428 million and $488 million for Q4 FY2025; core diluted EPS is expected between $2.64 and $3.04 for Q4 FY2025.
AI-Related Revenue: Management raised the full-year AI-related revenue expectation to approximately $8.5 billion for FY2025, representing over 50% year-over-year growth.
U.S. Manufacturing Expansion: Plans announced for a new southeastern U.S. site to support AI data center demand, with an anticipated $500 million investment over several years, The facility is expected to be operational by mid-calendar year 2026 and to materially impact financials starting in FY2027.
Capital Expenditure Outlook: CapEx is expected to remain at 1.5% to 2% of revenue for FY2025 despite the new site, with no short-term change to annual capital spending levels.
Free Cash Flow Guidance: The company expects to generate over $1.2 billion in adjusted free cash flow for FY2025.
Debt and Cash Position: Debt to core EBITDA was approximately 1.4 times in Q3 FY2025, and the cash balance was approximately $1.5 billion at Q3 FY2025 quarter end.
SUMMARY
Jabil Inc. (JBL 8.89%) reported substantial top- and bottom-line outperformance in Q3 FY2025, with management attributing revenue strength primarily to AI-driven Intelligent Infrastructure and data center demand. Full-year revenue guidance was raised to approximately $29 billion in FY2025 with core operating margins targeted at 5.4% in FY2025, reflecting ongoing mix strength in high-growth secular trends. The company formally disclosed plans for a major $500 million investment to build a southeastern U.S. facility focused on AI data center infrastructure, which is projected to augment U.S. manufacturing capacity but is not expected to impact overall capital expenditure rates through FY2026. Management reiterated its capital allocation discipline, while maintaining flexibility for potential capability-driven tuck-in acquisitions. Investors were told to expect updated multi-year growth and margin guidance at the virtual investor briefing in late September.
CEO Dastoor said, "Demand for AI hardware is not slowing down. If anything, it's accelerating." highlighting secular tailwinds underpinning growth.
CFO Hebard confirmed, 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.
Networking and communications exposure was described as margin-dilutive, particularly 5G, whereas capital equipment and cloud data center businesses are accretive to overall margins.
Photonics/transceiver business is ramping post-acquisition and is expected to deliver up to $1 billion in annual revenues in subsequent years, according to CEO Dastoor.
Management attributed persistent underutilization of overseas manufacturing sites to geographic revenue concentration, particularly with U.S.-based AI expansion, noting Our normal capacity utilization is in the 85-86% range. Today, we're still at the 75% range.
Jabil Inc. highlighted a focus on end-market diversification, with incremental contributions expected from healthcare and digital commerce, although longer-term revenue growth from these areas may extend through fiscal 2027 and beyond.
INDUSTRY GLOSSARY
Intelligent Infrastructure: Jabil Inc.'s reporting segment focused on cloud, AI, capital equipment, networking, and data center hardware.
Core Operating Income/Margin/EPS: Non-GAAP measures that exclude certain items to present normalized business performance.
Photonics: Refers to optical transceivers and networking components, often used for high-speed data transmission in data centers, including those acquired from Intel.
Vertical Capabilities: Integrated offerings within a specific industry, such as drug delivery and diagnostics within healthcare.
Adjusted Free Cash Flow: Cash flow remaining after capital expenditures, adjusted for non-recurring or specific strategic items as defined by management, representing available cash for shareholder returns or reinvestment.
Full Conference Call Transcript
Greg Hebard: 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 CLD 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 $2.30. 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 healthcare business. Core operating margin for this 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. Our operating margin for the segment was 5.3%. In our Connected Living and Digital Commerce segment, revenue was $1.3 billion, slightly higher than what we thought ninety days ago.
On a year-over-year basis, the 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 20 basis points year over year, reflecting both the benefits from the restructuring actions taken earlier this year to reduce costs as well as a changing mix of business within this segment. Next, I'll provide an update on our cash flow and balance metrics for the end of Q3. Inventory days decreased sequentially by six days to seventy-four days.
Net of inventory deposits from our customers, inventory days were fifty-nine, an improvement of two 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 three 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 core EBITDA levels of approximately 1.4 times 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 2025 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 and 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 Inc. team's execution thus far in FY 2025 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 Inc. I'll now turn the call over to Mike.
Mike Dastoor: 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.
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. domicile 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, healthcare, automotive, digital commerce, 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 2025 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, 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 make 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, delivering. Given this momentum in our project, our AI-related revenue will reach approximately $8.5 billion this fiscal year, a 50% plus increase year on year.
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 $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, increased power requirements, and infrastructure fit out to 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 annual CapEx spend, which currently stands at 1.5% to 2% of revenue.
Finally, it is important to highlight that as the new site is projected to come online towards the end of FY 2026, we do not expect it to have a material impact on our financial results until FY 2027. Another area of exciting growth in 2025 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. Healthcare, 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.
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 is 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 a disciplined financial approach, creates a favorable setup for sustained value creation in the coming years.
To close, I want to thank the Jabil Inc. 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.
Adam Berry: Thanks, Mike. Before moving into Q&A, I'd like to quickly summarize our key messages from today's call. First, Jabil Inc. delivered strong Q3 results, with core EPS above the high end of our guidance, driven primarily by an outstanding performance in Intelligent Infrastructure. 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. Finally, Jabil Inc. 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 eighth Annual Virtual Investor Briefing in late September. During that briefing, we intend to provide a comprehensive full-year outlook, which 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: Thank you. The floor is now open for questions. Our first question today is coming from Ruplu Bhattacharya of Bank of America. Please go ahead.
Ruplu Bhattacharya: Hi, thank you for taking my questions. Mike, you're seeing strong growth in data center and cloud revenues. Today you guided AI-related revenues to $8.5 billion for fiscal 2025. What's a reasonable level of growth to expect in this segment for fiscal 2026 and beyond? 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, should we think about revenue growth and margins for these?
Mike Dastoor: Hey 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. They were working 24/7 over the last few weeks. So a really good result in our Q3 quarter. I think the 8.5% is just 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 three different end markets in that segment, I do think capital equipment would be accretive. If you look at wafer fab equipment side on the capital equipment, that's 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. I think the explosive growth that we continue to see in that area will be good for 2026. Then from a networking and comps perspective, networking 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.
Ruplu Bhattacharya: Okay. Thanks for the details there, Mike. Can I ask fiscal year 2025 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?
Mike Dastoor: 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, 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 better utilization, and I'm not suggesting that would happen next year.
It would all depend on the 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 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 and 26 bps, it's a very high-level number over the next two, three 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 six. 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 will get us to that next step beyond 6%.
Operator: Thank you. The next question is coming from Mark Delaney of Goldman Sachs. Please go ahead.
Mark Delaney: Yes. Good morning. Congratulations on the strong results and thanks very much for taking my questions. First, I'm hoping to better understand how you're assessing the potential risks that some of the strong sales that you saw in the third quarter were due to pull-in buying perhaps because of tariff uncertainty? And is that a factor in the guidance for sequential moderation in revenue in the fourth quarter?
Mike Dastoor: So no, I think if you look, the bulk of our revenue beat was in capital equipment and the cloud data center infrastructure. Both of those are U.S. centric, so the tariff impact is minimal there. So I don't expect to see any pull-ins. 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 Inc. are collaborating. We're now obviously having a lot of discussions, but no pull-in of significance.
At least we're not seeing that.
Mark Delaney: Very helpful. Thanks, Mike. 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 giving you the confidence to commit more capital domestically? Thank you.
Mike Dastoor: No. So I think the best part about this new investment is 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 Polo 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 cooling, power management. So everything associated with that entire AI ecosystem will be sort of showcased in that facility. Thank you.
Operator: Thank you. The next question is coming from Steven Fox of Fox Advisors. Please go ahead.
Steven Fox: Hi, good morning. 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.
Greg Hebard: Yes. So hey Steve, good morning. It's Greg. So on margins for II 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 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.
Mike Dastoor: 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.
Steven Fox: Great. That's very helpful. And then just sort of looking ahead, just necessarily for the 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 for you guys to focus on. How do you sort of ensure that you're adding capacity at the right rate, focus on the right technologies, etcetera, but just any thoughts there given how great the growth is and going forward?
Mike Dastoor: Yes. So the team is really focused on this expansion, Steve. They're talking to constantly. One of the things we were seeing in the chicken and egg situation with capacity versus new customers and new orders, customers, potential customers want to see your 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. Great. That's very helpful. Thank you.
Operator: Thank you. The next question is coming from Melissa Fairbanks of Raymond James. Please go ahead.
Melissa Fairbanks: Hi, guys. Thanks very much. 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?
Mike Dastoor: So Melissa, think overall, if you look at what we've done over the last few years, we've regionalized 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 bids here and there in terms of tariff impact. But I think from a customer perspective, we seem to be in 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 healthcare 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 capabilities that we have in that space get more meaning and more necessary as we expand in the U.S.
Melissa Fairbanks: Okay, great. Thanks. And then just to give you a little break from the cloud and AI questions, I was wondering, you know, 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?
Greg Hebard: Yes. Good morning, Melissa. What I would say is that 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.
Mike Dastoor: And Melissa, if I may just add, if you remember the mobility divestiture, once we completed that divestiture, 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.
Melissa Fairbanks: Great. Thanks very much. Fantastic job managing it. Thanks very much.
Operator: Thank you. The next question is coming from Tim Long of Barclays. Please go ahead.
Tim Long: Thank you. Yes, two as well if I could. First, back to the, you know, cloud data center. Obviously, upside in the quarter and in the guide pretty meaningfully. Just give us a little update on 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 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 1.6p, any customer feedback or outlook on timing there would be helpful. Thank you.
Mike Dastoor: So a couple of drivers in the Intelligent Infrastructure segment. Talked about capital equipment. I think the automated 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 sluggish 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 a handshake between the hyperscaler and us, which brings the yields to launch to a much more acceptable percentage. So it's not just by chance we're winning that business. Obviously, the 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.
Tim Long: And on the transceiver side?
Mike Dastoor: 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 team. 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. Today we're moving that 200,000,000 and 400 moving to 800 gs. We showcased our 1.6 T capability at OFC two or three months ago and that's been well received by our customer base.
Obviously, 1.6 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 two hundred, four hundred moving to the 800 and at some point in time that will continue into the 1.60s as well.
Tim Long: Okay. Thank you.
Operator: Thank you. The next question is coming from Samik Chatterjee of JPMorgan. Please go ahead.
Samik Chatterjee: Hi. Thanks for taking my question. I guess maybe if I start with the Q4 guide. And Mike, the run rate that you have for Q4 in regulated and connected living in digital commerce, both of them are down modestly in Q4, while intelligent infrastructure is growing rapidly. Just trying to think in terms of when we look below that headline number for regulated and connected living, are there drivers that as you go over the next twelve months drive those segments back to growth? Or should the sort of starting assumption for the next twelve months be that those two segments remain a bit sluggish while most of the growth comes from Intelligent Infrastructure? Thank you.
And I have a follow-up.
Greg Hebard: Yes. Good morning, 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 and Digital Commerce, we definitely have been very prudent as well on 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 two segments.
Samik Chatterjee: And anything in terms of drivers to call out that change as we go into fiscal twenty six?
Greg Hebard: No, no specific drivers other than 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, we're just being conservative.
Mike Dastoor: I do see some level of growth in healthcare and the digital commerce. Those are accretive margins. So really good progress there in terms of what we're seeing coming again now in the healthcare space from booking to actually getting in the back trade as an eighteen point two four month time lag. We are winning business. Some of it will hit towards the end of twenty six. Some of it will head in '27 and 2028. So something to be aware about healthcare. 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 humanoids robots, that's further out of 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.
Samik Chatterjee: 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 $500,000,000 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? Thank you.
Mike Dastoor: I do think today our manufacturing base is really well regionalized. We are manufacturing in regions. 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 it's region for region and local for locals. So it'll have to be within the region or within the country itself. I don't think The U. S. The site here specifically for in Downs and infrastructure. It's not a not a multi end market site. I do I do think the whole CapEx piece will be a long term $500,000,000 is not a year one, year two, year three.
I think 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 $500,000,000 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'll all be within the 1.5% to 2% range in terms of capital expenditure.
Samik Chatterjee: Okay. Thank you.
Operator: Thank you. The next question is coming from David Voigt of UBS. Please go ahead.
David Voigt: Great. Thanks guys for getting me in. And Mike, I know you said not to focus on the $500 but I'm going to focus on it anyway. Can you help frame sort of the revenue opportunity that underpins that incremental 500,000,000 of investment over the next couple of years. And without the $500,000,000 do you have enough capacity to kind of hit your growth plan over the next two to three 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?
Trends trending over the last couple of quarters? And how should we think about that going forward? We strip out the 5G business? Thanks.
Mike Dastoor: 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 to 400 in twenty five. We're looking at maybe seven fifty, eight twenty six and then could be $1,000,000,000 beyond that as well. So good growth rates expected for that line item. Can you repeat your first question please?
David Voigt: Yes. On the $500,000,000 investment, obviously, you're mostly local, as we've talked about pretty extensively. But without the $500,000,000 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 $500,000,000 of capacity if we just think about what your gross PPD 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.
Mike Dastoor: I think over time the revenue will be will be material I wouldn't suggest any numbers yet. But the 500,000,000 again is a very long term sort of number with not first two, three or four years. It's over multiple years. I do think the site with all the capabilities that we have, the 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 2026. I don't expect much of an impact in 2026 itself. In 2027 there'll be a step up and 2028 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, overall, we do have a decent path to growth even beyond that side.
David Voigt: Great. Thanks guys.
Operator: Thank you. The next question is coming from Ruplu Bhattacharya of Bank of America. Please proceed with your follow-up question.
Ruplu Bhattacharya: Hi, thanks for taking my follow-up. Mike, a lot of things are going strong for Jabil Inc. What's the biggest risk you see to this 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 and A versus buybacks over the next year? Thank you.
Mike Dastoor: So a couple of end markets are 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 600,000,000 So when I say downside, I'm thinking of maybe 500,000,000 most there couldn't be an upside. Of $500,000,000 in that line item as well. Think even from an automotive and EV perspective, one of the things we've got three or four 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 ED space for most of our customers, so very minimal tariff impact then the power business for our largest customer is doing reasonably well. And that's a little bit of an offset 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 it's those are more small sort of hiccups. I see that as major items to get worried about. What was the second question again? Just on M and A versus buybacks. I see a follow-up to your follow-up. Yes. 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 twenty four months, the silicon photonics from Intel, the liquid cooling Micros acquisition, the 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 and A in the M and A piece. Having said that, if a larger M and A does come through, which we think would be highly accretive, for Jabil Inc. We'll execute on that as well. One thing to remember is that debt to EBITDA is very low.
It's only 1.4 there's plenty of plenty of room to move around in that leverage as well if needed.
Operator: Thank you. At this time, I would like to turn the floor back over to Mr. Berry for closing comments.
Adam Berry: Thank you. That's our call today. If you have any questions, please reach out.
Operator: Ladies and gentlemen, thank you for your participation and interest in Jabil Inc. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.