[Management View]
Jabil Inc. reported strong Q3 FY2025 results, driven by AI-related demand in Intelligent Infrastructure and data center sectors. Management emphasized strategic investments in U.S. manufacturing to support AI growth, with a $500 million facility planned to enhance capabilities.

[Outlook]
The company raised its full-year AI-related revenue expectation to $8.5 billion, reflecting over 50% growth. Plans for a new U.S. site are underway, expected to be operational by mid-2026, with financial impacts starting in FY2027. Jabil anticipates generating over $1.2 billion in adjusted free cash flow for FY2025.

[Financial Performance]
Q3 FY2025 net revenue was $7.8 billion, up 16% YoY, surpassing guidance by $800 million. Core operating income reached $420 million, with a margin of 5.4%. Core diluted EPS was $2.55, up 35% YoY. GAAP diluted EPS was $2.30. Cash flow from operations was $406 million, with adjusted free cash flow of $326 million.

[Q&A Highlights]
Question 1: 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?
Answer: The $8.5 billion revenue in AI is a significant achievement, reflecting a growth rate of nearly 50%. For fiscal 2026, more guidance will be provided in September. Capital equipment is expected to be accretive, with wafer fab equipment slightly higher margin. Automated testing, where growth is concentrated, is lower margin. Cloud data center growth is expected to continue strongly. Networking is slightly accretive, while 5G is more dilutive to margins.

Question 2: 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?
Answer: Current capacity utilization is at 75%, below the normal 85-86% range, due to geographic mismatches. Improved utilization could add 20 bps to margins. SG&A leverage and growth in higher-margin businesses could contribute another 20 bps each. Beyond 6%, vertical integration and deeper customer collaboration could further enhance margins.

Question 3: 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?
Answer: The revenue beat was primarily in U.S.-centric capital equipment and cloud data center infrastructure, minimizing tariff impact. No significant pull-ins are observed, as the tariff situation remains fluid. Collaboration with customers continues without major pull-in effects.

Question 4: 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?
Answer: The new investment is not solely for existing customers but aims to diversify and expand the customer base positively. The site will showcase the entire AI ecosystem, including cooling and power management, beyond cloud data center.

Question 5: Can you 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. What specifically were the puts and takes there that we should consider and how those apply maybe going forward?
Answer: II margins were at 5.3%, similar to Q2, due to incremental investments during the quarter. As scale is achieved, margins are expected to improve. The mix effect from communications and 5G, which is dilutive, also impacts margins.

Question 6: How do we think about managing all of this growth? You mentioned a new plant coming online, new customers, vendor consolidation, and new opportunities. How do you ensure that you're adding capacity at the right rate and focusing on the right technologies?
Answer: The team is focused on expansion, engaging with multiple customers and potential customers. The site will showcase end-to-end solutions across the AI ecosystem, including photonics and liquid cooling, ensuring capacity aligns with growth.

Question 7: You mentioned that this U.S. investment was largely AI-driven. Are there any other segments or end markets exploring moving to the U.S. or consolidating in other geographies?
Answer: Manufacturing is regionalized, minimizing tariff impact. Healthcare, Intelligent Infrastructure, and Digital Commerce are areas focused on U.S. expansion, with automation and robotics capabilities becoming more necessary.

Question 8: How are you thinking about capital allocation? You mentioned that this U.S. investment was not going to change your CapEx levels, but how are you looking at deploying cash in the future?
Answer: Jabil remains committed to returning value to shareholders, with strong free cash flow supporting buybacks. The current $1 billion share authorization is expected to be completed in Q4, with new authorizations typically announced between July and September.

Question 9: Can you update us on the transceiver business? Anything new on customer activity there?
Answer: The Photonics acquisition from Intel is ramping, with demand for transceivers rising. The 1.6 T capability showcased at OFC has been well received, with growth expected in 800 gs and eventually 1.6 T.

Question 10: For Q4 guidance, regulated and connected living segments are down modestly. Are there drivers that could drive these segments back to growth over the next twelve months?
Answer: Regulated industries remain impacted by EVs and renewables, with no turnaround expected yet. Healthcare and digital commerce show growth potential, with accretive margins and exciting developments in automation and robotics.

Question 11: Can you help frame the revenue opportunity that underpins the incremental $500 million investment over the next couple of years? Without the $500 million, do you have enough capacity to hit your growth plan over the next two to three years?
Answer: The $500 million investment is long-term, with the site expected to be operational by mid-2026. Existing capacity supports growth, with ramping in different locations. The site offers high potential for future growth.

Question 12: What's the biggest risk you see to this story today? How would you prioritize M&A versus buybacks over the next year?
Answer: Risks include softness in EV and renewables, but these are manageable. M&A remains capability-driven, with buybacks continuing as a major strategy. Debt to EBITDA is low, providing flexibility for potential larger M&A.

[Sentiment Analysis]
Analysts expressed optimism about Jabil's strategic direction and growth potential, particularly in AI infrastructure. Management maintained a confident tone, emphasizing disciplined capital allocation and strategic investments.

[Quarterly Comparison]
| Metric | Q3 FY2025 | Q3 FY2024 | YoY Change |
|--------|-----------|-----------|------------|
| Net Revenue | $7.8 billion | $6.7 billion | +16% |
| Core Operating Income | $420 million | $350 million | +20% |
| Core Operating Margin | 5.4% | 5.2% | +20 bps |
| Core Diluted EPS | $2.55 | $1.89 | +35% |
| GAAP Diluted EPS | $2.30 | $1.70 | +35% |

[Risks and Concerns]
Persistent softness in EV and renewable markets poses challenges, with no immediate turnaround expected. Geographic revenue concentration impacts capacity utilization, particularly with U.S.-based AI expansion.

[Final Takeaway]
Jabil Inc. demonstrated robust performance in Q3 FY2025, driven by AI-related demand and strategic investments in U.S. manufacturing. The company's focus on Intelligent Infrastructure and diversified end markets positions it well for future growth. Despite challenges in EV and renewable sectors, Jabil's disciplined approach to capital allocation and strategic expansion supports its long-term growth trajectory. Investors can expect continued momentum in AI and data center markets, with significant contributions from new U.S. facilities starting in FY2027.