Kenny Wilson: Hey, Shannon. Nice to hear from you. Yes, so we approach Healthcare with in three kind of areas of focus, firstly, we got really good relationships with our current customer base and we look to expand that with — whether it’s in the med device, diagnostic, and pharma. And what we see a lot in each of those areas as the need for connected healthcare, so those opportunities, whether it’s continuous glucose monitoring or sensors and so we see that we’ve got a really broad base of customers, capabilities, and markets and just as we continue to serve them well, we think that there’s a real growth opportunity. I mean, an example would be, as you look at the auto-injectors we are making for diabetes and we make hundreds of millions of them a year.
And then you look at the opportunity that comes out with — for the weight reduction that you see with the drug there, so we are really — really it’s broad-based, and we’re well-positioned and we feel quite bullish about our ability to grow that. I will tell you also about — and healthcare moves at a slower pace than some of our other businesses. But we’ve got credibility and we’re having more discussions about kind of B2B is where there’s opportunities for us to do something not in the same scale as our JJ MV deal that we did, but we see opportunities come in for us in the longer term. So, yes, we think — Andrew Priestley runs that business for us and his team have done a wonderful job and we’re feeling quite bullish about where we end up in the longer-term in Healthcare.
Shannon Cross: Great. And then from a margin perspective, I understand that mix of revenue drives a significant amount of the margin movement on a quarterly basis, but kind of maybe as a follow-up to what Steve was asking about in Auto, can you talk about some of the other margin changes you’ve seen within some of your sub-categories, whether I don’t know, networking or industrial as it becomes more renewables focused. Just to give an idea of sort of what’s happening below the covers in terms of the margins. Thank you.
Kenny Wilson: Yes. Yes, sure. Let me take a swing at that and then Mike can help also. We are around, if I look year-over-year, we’re up 60 basis points. And obviously, we think we’ve got 40 basis points for the year, so we’re feeling pretty good about our margin profile and trajectory. We are, I think 60% of our business, as I’ve said in my prepared remarks, we think is business which is going to grow and continue to grow in the longer term. Things like — we think that our Automotive will be — Automotive and Healthcare should be above corporate averages. We think renewables will be, we mentioned that Semi-Cap being lower, we think that actually covers and that helps us. And we’ve done a lot of tidy up in the rest of our business to make sure that we’re running, I mean, what we got to do also is we got to make sure we run good operations.
If we run good operations, then especially operations, then we think we can give our customers good value. So, I don’t know, hopefully that’s helpful. Mike, you got any comment?
Mike Dastoor: I just had one sort of macro comment. I think more than — end market secular trends are obviously driving a huge growth prospect for us, but above that sits the whole outsourcing of manufacturing as a trend as well which drives margins. If you look at the complex design requirements we have today, the dynamic supply chain market, the manufacturing at scale, and multiple geographies with strong local knowledge, localization of manufacturing, regionalization of manufacturing, and then you have automation driving a lot of this forward as well. So, that by itself is driving this entire outsourcing of manufacturing as a trend, which then leads into stickiness, which then leads into margin expansion as well and I would suggest that almost all of our end markets that we present here are seeing some sort of — some sort of change in behavior from an industry standpoint.
And specifically, for Jabil, from a capability standpoint as well. So, all good drivers of margin going forward, Shannon.
Shannon Cross: Thank you.
Operator: Thank you. Next question is coming from Paul Chung from JP Morgan. Your line is now live.
Paul Chung: Hi, thanks for taking the questions. So, nice progress on inventory, and your free cash flow conversion kind of continues to grow from 2021 level kind of rebounding there and guide for growth suggests kind of improved pace there, maybe potentially hitting free cash flow north of $1 billion for the first time. So, how do you think about the pace into 2024 and some of the dynamics across working cap?
Mike Dastoor: We’ll continue to provide — we’ll provide some guidance on free cash flow 2024 in September, Paul, but you can expect the team to be completely focused on driving margins, driving free cash flow, and then using the free cash flow to continue to do buybacks because we think, we feel we’re undervalued still. So I think that free cash flow conversion, expect that to continue to go up as well as working capital dynamics change. I don’t think we get a one-for-one return if inventory goes down, doesn’t mean all of that will flow through in free cash flow, because we have other means of offsetting some of the inventory sort of days through AR, through AP which we’ve been doing pretty effectively. So, expect free cash flows to continue to go up on an annual basis going forward, Paul, is the best way to describe it. And we’ll provide more guidance in September.
Paul Chung: Okay. Great. Thanks for that. And then separately, are you starting to see evidence of some deflationary impact on components and which end markets are you seeing some bigger impact there and how do we think about the impact on revenue and margins into 2024 as kind of prices ease? Thank you.
Kenny Wilson: Yes. We’re not really seeing that, I mean there is puts and takes sometimes, Paul and it’s not something that we’re overly concerned about and it’s not something that we think is going to impact our outlook for 2024. We think that we’ll driving to north of 5% margins for 2024, obviously, we’ll update that in September, but yet it’s not something that’s occupying a lot of our thoughts right now.
Paul Chung: Okay. Great. Thank you.
Operator: Thank you. Next question is coming from Melissa Fairbanks from Raymond James. Your line is now live.
Melissa Fairbanks: Hi, thanks, guys. Congrats on another great quarter and really great working capital management. I just had a quick question on the interest expense, because it does have such a big impact on the core earnings. We’re going to see it tick a little higher in the August quarter. I’m assuming that’s driven by the inventory requirements tied to seasonality, first of all, is that correct? And then second, what should we expect for interest expense beyond August, maybe on a more normalized basis?
Mike Dastoor: So, Melissa, just to clarify, our interest cost in Q3 was $75 million. The guidance we provided for Q4 is in the $73 million range. So it’s not going up, it’s actually going down a little bit. I think we continue to benefit from working capital management. The team is highly focused. Some of the golden screw issues are easing, not as much as we’d like, but still on the right path. So, all-in-all, we feel that, that sort of a run-rate, especially in the first two or three quarters of FY 2024 continue after yesterday’s Fed comments, it might be that sort of run rate for the entire year in FY 2024 as well.
Melissa Fairbanks: Okay. Sorry about that. Little modeling snafu there. Maybe just as a follow-up, it seems AI is a hot topic these days, so I wanted to be sure you had the chance to talk about it. In the slides, you highlight cloud and AI/ML automation as being some of the growth drivers for 2024. You talked a little bit about the automation side of things, but maybe address what you’re seeing in cloud and AI?
Kenny Wilson: Yes, thanks, Melissa. And actually, I’m going to [indiscernible] here because when we were preparing for the call, I was just back from an Asian tour within our facilities and I was really blown away by — yes, I hadn’t been there for a few years pre-pandemic and I was kind of blown away by just the improvements we’ve made internally and using robotics, automation, you will get better non-value added activities and leaning into AI to help us with algorithms that help us introduce new products quickly from an inspection perspective, et cetera, et cetera, et cetera. So, it was unbelievable that just how many people we’ve taken out of our processes by leading into automation and using an AI engine to support that.
And we talk about that and I know that some people say that AI is going to be overhyped in short-term but obviously more beneficial in the longer term. But what we do see is and we are seeing, you need a lot of — you need to teach these large language models, you need advanced network and obviously, you’ve got a lot of requirements for process and the cloud. So what we see is, but we think it’s going to pick up over the longer term. But the ability to produce advanced networks and products and the ability to make your cloud devices where they require liquid cooling, they require high-speed optical interconnects, that plays to capabilities that we have been developing over a long period of time and that’s why we’re quite bullish in the longer-term from a cloud perspective because we’re able to bring in multiple capabilities that we’ve developed in other parts of our business to support customers in that space, which is going to help them as we began request to support companies that are running large language models in the AI space.
So, we think that for sure overheads in the short term, but we think in the longer term, it’s going to be another real secular growth opportunity for us.
