捷普科技 (JBL) 2015 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to Jabil's fourth-quarter FY15 earnings call.

(Operator Instructions)

I would now like to turn today's call over to Beth Walters, Senior Vice President of Communications and Investor Relations. Please go ahead.

Thank you very much. Welcome to our fourth-quarter and FY15 earnings call. Joining me today are CEO, Mark Mondello; and our Chief Financial Officer, Forbes Alexander. This call is being recorded and will be posted for audio playback on the Jabil website at Jabil.com in the Investor section. Our fourth-quarter press release, slides, and corresponding webcast links are also available on our website. In these materials, you will find the financial information that we will cover during this conference call. We ask that you follow our presentation with the slides on the website, beginning with slide 2, our forward-looking statement.

During this conference call, we will be making forward-looking statements, including those regarding the anticipated outlook for our business, our currently expected first-quarter and FY16 net revenue and earnings results, the financial performance for the Company, and our long-term outlook for the Company. 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, 2014, on subsequent reports on Form 10-Q and Form 8-K, and our other Securities filings. Jabil disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Today's call will begin with our fourth fiscal quarter results and guidance for our fiscal first quarter of 2016 from Forbes. Then Mark will offer his observations on 2015 and outlook for 2016. Following Mark's comments, we will open it up for questions from the call attendees. I would now like to turn the call over to Forbes.

Thank you, Beth. Good afternoon, everyone. I'd like to ask you to turn to slides 3 and 4 where I'll review our fourth-quarter and FY15 results. Net revenue for the fourth quarter was $4.7 billion, an increase of 15% on a year-over-year basis. GAAP operating income was $150 million, though GAAP net income was $88 million. GAAP net diluted earnings per share were $0.45 for the quarter. Core operating income, excluding the amortization of intangibles, stock-based compensation, restructuring charges and other income was above our estimates at $163 million and represented 3.5% of revenue. Core diluted earnings per share were $0.53.

Revenue, core operating income, and core earnings per share exceeded the mid-point of our previous guidance due largely to strength in demand within our DMS mobility, and lifestyle businesses, supported by operational efficiencies across a number of programs ramps during the quarter. For the full fiscal year, net revenue was $17.9 billion, an increase of 14%. GAAP operating income was $555 million, while GAAP net income was $284 million. GAAP net diluted earnings per share were $1.45 for the year. Core operating income, excluding amortization of intangibles, stock-based compensation, restructuring charges, and other income, was $670 million and represented 3.7% of revenue. Core diluted earnings per share were $2.07.

Turning to slides 5 and 6, I'll discuss our fourth-quarter and fiscal year segments. In the fourth quarter, revenue for our Diversified Manufacturing Services segment was $1.9 billion, an increase of 47% on a year-over-year basis, and represented 41% of total Company revenue. Operating income was 4.1%, reflective of ongoing investments in the quarter associated with multiple product ramps within our Green Point division. Our Electronics Manufacturing Services segment revenue was $2.8 billion, an increase of 1% on a year-over-year basis, representing 59% of total Company revenue. Operating income for this segment was 3%, the mid-point of our long-term range.

Now, turning to the year. Our Diversified Manufacturing Services segment revenue was $7.1 billion, an increase of approximately $2 billion, or 39%, on a year-over-year basis and represented 40% of total Company revenue. Operating income for this segment was 5.2%. Our Electronics Manufacturing Services segment revenue was $10.8 billion, an increase of 1% on a year-over-year basis and represents 60% of total Company revenue. Operating income for this segment was 2.8%, an improvement of 50 basis points over FY14. For the [full] fiscal year, we had one customer with revenues in excess of 10%, this being Apple, at 24%.

I'd now like to review some of our cash and balance sheet metrics and ask you to turn to slide 7. We ended fiscal year with cash balances of $[940] million. For the full year, cash flows from operations were $1.24 billion. Net capital expenditures for the fiscal year totaled $947 million, supporting our previously planned capacity and capability expansions. Thus resulting cash flows after capital expenditures totaled approximately $300 million. During the fourth fiscal quarter, we repurchased approximately 2.4 million shares at a total cost of $46 million. Repurchases for the full fiscal year totaled 4.4 million shares at a total cost of $86 million, or an average price of $19.46, while dividends paid in the year totaled $63 million.

Share repurchases have continued during the month of September and approximately $2 million remains outstanding under our current repurchase authorization of $100 million. Core EBITDA for the year was approximately $1.175 billion, and represents 6.6% of revenue. Total debt to EBITDA levels at year-end were 1.8 times. Finally, core return on invested capital for the full fiscal year was 17.8%. In addition, during the fourth fiscal quarter, I'm pleased to note that we acquired Plasticos Castella for approximately $110 million. Established in 1974, and headquartered in Spain with operations in both Spain and Hungary, Plasticos complements our growing Nypro rigid packaging business, bringing both new capabilities and market expansion opportunities across Europe.

I'd now like to discuss our first fiscal quarter and full FY16 outlook, and ask you to turn to slides 9 and 10. The first fiscal quarter, we expect revenue to be in the range of$ 5.1 billion to $5.3 billion, an increase of 14% at its mid-point on a year-over-year basis. Core operating income is expected to be in the range of $220 million to $260 million, with core operating margin in the range of 4.3% to 4.9%. Core earnings per share are estimated to be in the range of $0.72 to $0.88 per diluted share. GAAP earnings per share are expected to be in the range of $0.56 to $0.74 per diluted share. Turning to our segment outlook for the quarter. Diversified Manufacturing Services segment is expected to increase approximately 33% on a year-over-year basis, with revenues estimated to be approximately $2.55 billion. The Electronic Manufacturing Services segment is expected to remain consistent at $2.65 billion.

Turning to the full fiscal year, the investments in infrastructure and capabilities we've made in FY15 have positioned us extremely well as we move into the new fiscal year. We expect to add approximately $2 billion in revenue with the full fiscal year revenue targeted to be approximately $20 billion. Core earnings per diluted share are expected to grow 25% over FY15 to $2.60. Our growth strategy continues as we enter the new fiscal year. We see continued opportunities for expansion in revenue, income, returns on invested capital, and cash flows beyond those of 2016. As such, we expect capital expenditure levels to be relatively consistent with those of FY15.

Details of our expected investments can be found on slide 12 in the appendix of our presentation. These capital investments shall continue to be funded via cash flow from operations, with our expectation of another very strong year in operational cash flow metrics, which will provide an opportunity for free cash flow in the range of $350 million to $450 million. I'd now like to hand the call over to Mark.

Thanks, Forbes. Good afternoon. I appreciate everyone taking time to join our call today, and as always, I'd like to thank our team here at Jabil. They did an amazing job delivering outstanding results. Again, thanks to everyone on our team. I truly appreciate all you do. I'd like to share a few observations specific to the year. As Forbes highlighted, FY15 was a really good year for Jabil, both in terms of financial performance and key accomplishments. At $7.1 billion in annual revenue, our DMS business improves the lives of those around us by making our customers' products more accessible, more affordable, and more sustainable.

The team is doing so by leveraging engineering aptitude, while driving innovation in the areas of material sciences, precision machining, and tooling. Looking ahead, we expect growth to continue across our DMS business, as we capture additional opportunities in the markets we serve. These markets include audio, healthcare, consumer packaging, mobility, wearable technologies, and accessories. Pacing at roughly $11 billion in annual revenue, our EMS business improved core operating margins by 50 basis points year-on-year. This anticipated improvement was the result of solution selling, operational execution, benefits from our restructuring program, and enhanced value propositions. I'm excited to see what our EMS team can do as they leverage secular trends; trends that include connectivity, radical advancements in transportation, cloud-based solutions, and optical communications.

In combination with our core businesses, we continue to maintain focus on megatrends and non-traditional markets. Examples of these being distributed energy, the aging population, urbanization, and the pervasive use of predictive analytics. From a centralized capabilities perspective, we've added several new tools to the Company. These tools allow us to expand our solutions across the entire value chain. Add to this, a handful of strategic acquisitions, combined with our organic investments, and the summation is further expansion and enhancements to our portfolio of capabilities. While we are on the topic of capabilities in technology, I want to highlight one of the most impactful accomplishments from this past year, the opening of our Blue Sky Innovation Center. This energetic think tank displays a collection of Jabil's capabilities all under one roof. It offers an environment for enhanced collaboration, where our partners can truly touch and feel what we do each and every day.

Now let me focus on our outlook for FY16. During our earnings call, roughly 90 days ago, I said our success would be judged by the following: year-on-year growth for our EMS division of greater than 5%; year-on-year growth for our DMS division of greater than 15%; and, year-on-year core EPS growth for the Corporation of greater than 20%. I stand behind these success factors. As Forbes highlighted during his prepared remarks, we expect revenues of approximately $20 billion, core earnings per share of $2.60, and another year of strong cash flows. As I've stated in the past, we believe that investing in our business makes perfect sense, especially when capital is inexpensive and growth opportunities are present, so you can expect our capital investments this year to be $800 million to $1 billion. As I conclude our outlook, let me take you back to comments I made one year ago. At that time, we believed our efforts would yield quarterly revenues of $5 billion and core operating margins of 4%, as we moved beyond FY15. Today, we are well-positioned to meet these goals.

I'd like to close out my prepared remarks by sharing a few final thoughts. I'm really proud of our team. Our team is innovative, dedicated, and proven. Together, we bring forward solutions and services firmly grounded to the hardware ecosystem. And, one secular trend you can count on, hardware is not going away. At Jabil, we have a unique combination of scale, global reach, and resources. Today's customer relationships are trusted, broad, and deep. Our team continues to listen carefully and work tenaciously in assisting our customers with their challenges and their needs. Nearly all of our 200-plus customers need to move with speed and redirect when necessary. They need to secure a reliable supply chain across all geographies and they need to focus their capital on R&D and product marketing. This aligns perfectly with our abilities. The world is changing at a frenetic pace and we are changing with it. Here are three simple takeaways of what's driving our business today: engineering and technical expertise, addressing real problems with solution selling, and diversification of our solutions and the products we deliver. I believe this is evidenced in our growth.

Thank you. We will now be happy to answer any questions that you might have. Beth?

Before we begin the Q&A session, I'd like to remind our call participants that in customary fashion, we will not be able to address any customer- or product-specific questions, as I'm sure you can appreciate. Thank you for your corporation with that. Operator, we are ready to take questions.

(Operator Instructions)

Shawn Harrison, Longbow Research.

This is Gausia Chowdhury calling on behalf of Shawn. Congrats on a great quarter. First of all, I wanted to start off with EMS. You still said that you are sticking to that 5% goal. When do we see that -- when do we see EMS [thaw out there]? You are expecting a flat quarter, year-over-year quarter. Is this the bottom?

I'm sorry, could you speak up a little bit? We are having a really difficult time hearing you.

Sure, not a problem. Sorry about that. I was wondering about the EMS division. When do you see that bottom? Are we at the bottom at this point? Or, when do you see that bottoming?

I'll try to answer it this way. I really don't look at -- that was around EMS, correct?

Correct, yes.

I don't really look at that business so much quarter-to-quarter as I do year-on-year. I don't know if I would characterize it as bottom, but consistent with my prepared remarks, our EMS business in FY15 did in the neighborhood of $10.8 billion, something like that. I do feel comfortable that our EMS business will grow at a minimum 5% year-on-year. So the outlook is -- again, we are cautious because, there's a lot of uncertainty in the marketplace. But based on some of the secular trends I talked about, specifically the EMS, we feel good about the outlook for FY16.

Okay. All right. Then within the DMS division, you said that this quarter there was mobility and Nypro. Is that the same sort of trend for the rest of this year? Is that where you're seeing the growth?

I'd say we are seeing growth across all areas of our DMS business, that would be correct.

Okay. All right. Then lastly, just wanted to check in on the SG&A. It seems like it's fluctuated a little bit. Are we at a crest level here? The guidance for first quarter is a little bit higher. Is that a correct one to use for the rest of the year? Do you see it staying at that $225 million level for the remainder of the year?

Yes. In dollars, there are some slight increases year-over-year, but in percentage terms, you'll see some leverage as we are growing the top line, another what, 14%,15% next year. Modeling the 4% to 4.2% is a reasonable guidance at this juncture.

Great. Thank you very much.

Steve Milunovich, UBS.

Score one for the introverts. In terms of your outlook, you came into the quarter talking about at least 15% growth for DMS and $2.60 next year. Now your up at 33% and obviously a higher EPS. Did your view change significantly during the quarter? Same thing applies to CapEx. I had the impression you might be closer to $700 million in CapEx for 2016 and obviously it's a bigger number. In the last three months, did your view of next year change substantially, and if so, why?

Steve, let me try to break that down into two parts and if I don't answer your question, come back to me, please. The first part was something around our outlook for 2016 in EPS. In prior calls and communications, we talked about the fact that we are efforting to a 20% growth on core EPS, and at the time, we had anticipated our core EPS for 2015 to be on or about $2 a share. We delivered $2.07 a share and what we are talking about now, both in my prepared comments and Forbes' prepared comments, is a 25% growth on the $2.07, which gets you in the $2.58 to $2.60 range for FY16.

In regards to CapEx, I don't know that we've spoken formally about any range of CapEx for FY16 and, at least prior to this call, and what Forbes and I are communicating in this call, is that we think our CapEx range is going to be somewhere $800 million to $1 billion this year. As Forbes stated in his prepared comment, there is a chart in the appendix of our formal slide presentation that gives you a bit of a breakdown of how we anticipate that to be spent.

That's helpful. Thank you. Your expectation for DMS seems to have gone up quite a bit. It's barely decelerating from the growth in 2015. Apple's growth, obviously, is likely to decelerate. Can you give us any more color in terms of your confidence in DMS and how broad-based the growth is?

We can't. I'm not going to give you a breakdown on that. What I did say, in my prepared comments, is that we, again, serve a lot of different markets in our DMS sector -- or segment. Everything from various parts of healthcare, to packaging, to mobility, and wearable type of technologies and accessories, again, it is a combination of all of that.

Great. Thank you so much.

Matt Sheerin, Stifel.

Mark, things have certainly come a long way since your first conference call, two years ago, or so. Certainly you have turned things around. Looking at the guidance for the year, both revenue and EPS, and particularly your EPS guidance for the November quarter, it looks like on the margin front, that margins will be peaking more front-end loaded toward the beginning of the fiscal year. Is that really a function of mix, where you expect EMS to grow in the second half as new programs ramp and you've got seasonality in some of the DMS, particularly the mobility business in the November quarter?

Matt, it's Forbes. Let me answer that for you. You've characterized it pretty well. I'd ask you to think about the shape of this year. While it's early, similar -- which is really what you are describing to FY15 -- with maybe just a little bit more first half-weighted, as we are seeing some pretty explosive growth here in DMS, as we are moving into the first fiscal quarter. That's a fair characterization.

Okay. Just following up on the last question regarding the customer breakdown within DMS, and certainly appreciate that you can't talk specifically about customers. But, you talked about several end markets within DMS: audio, mobility, wearable technologies, et cetera. The impression is, particularly with your biggest customer, that most of that is all mobility and then maybe now wearables. Just trying to get some comfort in terms of how fast you're growing the non-top customer business within DMS and what that might look like in the next year or two?

Yes. I won't go too close to that question because, again, I'm sensitive to our biggest customer. But a simple way to look at it is when I talk -- and I talk often about diversification, it's really not about diversification around the brands we serve. It's really around diversification of the products that we build and the end markets that those products serve. I'd just leave it at that. From a DMS perspective and an EMS perspective, in combination, we serve about 230 different brands and thousands of different products. As we move into 2016, we are probably as diverse as we've ever been, as a Company.

Okay. Fair enough. Thanks very much.

Brian Alexander, Raymond James.

I want to follow-up on that Matt's question on the year being front-end loaded. It looks like DMS margins are going to start the year very strong per your first quarter EPS guidance, perhaps, in the mid-6% range? Do we fall back well below 6% in DMS margins as we move through the year? If so, what would be driving that? Is there a revenue level per quarter where you think you can achieve 6% margins more regularly? Or, are we going to continue to see this volatility and more front-half weighted profitability?

Brian, it's Forbes. It's very similar to last year, in that you'll certainly see 6%-plus in the first half of the year. As we've noted, we are continuing some capital investments that will come into fruition as we move into 2017 for continued growth. So there will continue to be investments in the back half. Think of it as higher margins in the first half of the year and then those lower margins in the back half. I don't want to get too close to specific numbers in the back half yet. It's early coming into the year, but certainly the year looks very bright as we continue to bring capacity online there. On the EMS side, we are targeting, as we've been pretty consistent in our messaging around 3% for the fiscal year and our business is in good shape with some growth in the back half of the year on the revenue line there.

Okay. That's helpful. Just a follow-up on the CapEx. If I look at the mobility CapEx in your slide deck, it looks like it is around $150 million for FY16. That's down from the $200 million you spent in FY15. What does that signal about the growth prospects for the mobility business, if CapEx is actually coming down?

Brian, this is Mark. I don't think it signals anything. It's a great question, but it doesn't really signal anything. We see strength across a good portion of all of our businesses. It's really about the infrastructure that we have in place from prior investments, as well as operational efficiencies and productivity.

Okay. All right. Thanks a lot.

Amit Daryanani, RBC Capital Markets.

Two questions for me, as well. One, if I look at the DMS segment on the margin discussion, [could] you talk about why didn't you see a better margin expansion in the August quarter because you certainly had a lot of revenue growth in August? And then what are the levers that helped you get the margin expansion in November?

Amit, I will take a swing at that, and then Forbes can chime in if I miss anything. It's simple. You know historically how the shape of our DMS business is. As we talked about in the March call and the June call, the back half of our fiscal year, because of how our fiscal year is situated, is pretty significant investments, as we prepare for a variety of product ramps in different investments. The revenue is strong, but we also had a lot of investments. The nice thing is, the returns we're getting both on the CapEx and the OpEx investments are coming through in FY16 based on our Q1 guidance and the full-year guidance.

Got it. If I look at the customer concentration, it's always a big discussion point for you guys, from the stock perspective. Do think your largest customer would remain around where it is today for FY16, or it's going to be up or down? I ask that because you've had great growth this year, but it's [68%] of the growth you've had this year, or new incremental dollars, have been from that one customer, so I'm just curious how do you see this thing flattening out or playing out in 2016?

Can you repeat that, Amit? You were hard to hear. It's important because you were making some comments and I'm not sure I caught all of them about some correlation between some number and our biggest customer.

Mark, I was just trying to think through -- your largest customer was about 24% of sales this year. So I'm just trying to think, as you go to FY16 on this $20 billion guide, do we think your largest customer stays about the same or it goes up or down in concentration? The way I'm trying to think about this is, in FY15, you obviously have had really good growth. 65% of the incremental dollars you had this year were from that one customer. Some I'm just trying to think], do you get better diversity in 2016 versus 2015?

Now, I heard you loud and clear. Thank you. Again, I don't pay much attention to concentration issues around brands. I pay attention to concentration around risk, and we stated that Apple was a 24% customer, that's public information. But one of the things that we spend a lot of time thinking about is selecting partners with incredibly innovative management teams and how do we manage risk and how do we manage concentration around that risk? I'd just leave it at that because commenting about our biggest customer, we love them as a customer. They are very innovative and they play in a significant number of different areas and markets.

Fair enough. If you have to have one customer at that level, it should be Apple. But congrats on the quarter, guys.

Sherri Scribner, Deutsche Bank.

I wanted to ask about what you are seeing in the EM segment, specifically the revenue has been relatively flat and you said you expect it to accelerate in the back half of the year. Are there any segments that are stronger or weaker? What gives you confidence that the revenue will accelerate in the back half?

Sherri, I will take a swing at that. Sometimes what gets lost is -- and we probably own this -- we call that segment of our business EMS, and the EMS business today incorporates different divisions for us. Again, I will remind you it has our telco; it has our networking, where we serve some incredible brands; it's got storage, we serve some incredible brands. Some of the legacy brands, they are absolutely not standing still. They see some of the shifts in the market, the shifts in how data is stored, how data is transmitted and we are right there with them, as far as some different innovative solutions.

The second area of that business is our high velocity business and our high velocity business, arguably, has one of our largest customer accounts of any of the businesses in the Company. That cuts across an endless number of different end markets. The last area of EMS is industrial. It's not only industrial as a whole, but it is light industrial, heavy industrial, and then energy and that also is loaded up with a significant number of companies and brands. So when you take a look at it, at that level, again, you combine that with the customer account, the brands we serve and then some of the trends I talked about in my prepared comments around the fact that we are in a secular trend of a lot of different hardware and a lot of different aspects of hardware being connected together.

Add that to what's going on in the automotive space, add that to what's going on in the cloud space, digitization, need for additional bandwidth, and that doesn't even touch on some of the stuff we're doing in high velocity or various parts of our industrial business. That's where we get some confidence that year-on-year we'll grow EMS at 5% or greater.

Okay. Great. Then, Forbes, maybe thinking about the margins for that segment, you are about the mid-point of your long-term guidance for that segment. How should we think about margins for that group as we trend through the year? Thanks.

For modeling purposes, I'd use that mid-point of 3%, as we continue. In the back half, we are expecting some ramps, but with efficiencies, we will certainly be around that mid-point.

Thank you.

Steven Fox, Cross Research.

Just first off, can you provide a little bit more color on the acquisition you just talked about in your preamble? What does it do that Nypro doesn't and if you provide any financials support the $110 million purchase price, it would be helpful? Then I had a follow-up.

Sure, Steve. Plasticos Castella, as I said in my prepared remarks, really give us a presence now in Europe. If you recall, just over a couple of years ago, we acquired Nypro, which houses our healthcare, [ad] business, and our rigid plastic business. So Plasticos really complements that rigid packaging side and really gives us a foothold now in Europe, Nypro really being a North American acquisition a couple of years ago. We're very excited about the addition of this. It brings both some new customers and some complementing European divisions of existing customers, and really helps us in the thin-walled plastic area, in particular, and access to food and beverage type products throughout Europe. As I said, the purchase price was about $110 million and it's relatively modest in terms of our revenue expectations over the next year. But think of it in the $100 million to $125 million type range, and to say there is a full-year baked in there in our guidance.

Okay. That's helpful. Then just as a follow-up, as you look at to the new fiscal year, you ramped -- expanded across a number of technologies over the last 18 to 24 months. Are any of the newer components, the material sciences that you've gotten in, are they becoming more drivers of revenues commercialized in a lot of products? Is there anything you would highlight as being more important this year than last year?

I won't go into details or highlight it, but absolutely. We are leading with a lot around elastomers and material sciences, for sure.

Okay. That's helpful. Thanks a lot.

Jim Suva, Citi.

Thank you and congratulations on really a robust and outstanding quarter to you and your team there. Great results. On the acquisition, a housekeeping item. Forbes, I think I heard you correctly, but I broke up a bit on housekeeping, did you say the assumed revenue contribution was about $110 million to $125 million, and if so, then that puts you at just a $0.02 to $0.03 earnings help for next year? Then Forbes, also a housekeeping item. With CapEx of $900 million, we've been at this now for a couple of years. Is that what we should assume for the run rate to keep the Jabil machine running along, just free cash flow assumptions going forward are relatively set?

Then for Mark, a question. It appears that the non-DMS business didn't contribute much this year and the DMS really did the big bulk of delivering, which was very impressive, don't get me wrong. Has your visibility in the non-DMS remained stable, in this economic condition improved or declined, based on the volatility around the world? Thank you.

I will take a swing at this, the two. In terms of the acquisition in our rigid packaging area, you are correct in terms of that revenue range, $100 million, $120 million for the year. We're very pleased with that and that will be neutral to modestly accretive for the fiscal year. Not a huge driver, in terms of our revised outlook or outlook for 2016, but, certainly very, very complementary, and we are looking forward to growing that business off the European footprint as we move from 2016 into 2017.

In terms of the CapEx, the mid-point of the guide, $900 million, you are correct in terms of those levels being consistent year-over-year. As we move forward, I wouldn't say to you it's $900 million consistently year-over-year. Of this $900 million this year, approximately $400 million is maintenance, which is really the type of level I see going forward for that replacement cycle based on the broad base of assets that we have in place. This fiscal year, if you refer to the detail we provided, we are adding another $250 million worth of capacity and infrastructure and what that really equally to is about another, what, 2 million to 3 million square feet of operational capacity. We're growing the Company in mid-teens, [close to] the mid-teens in terms of revenue and we need to make sure that we have appropriate capacity in place to be able to meet customer demands that we're seeing.

It's a bit of a long-winded answer to say no, don't bank on $900 million a year. It's around about $400 million a year in terms of maintenance levels. And clearly, as we move into 2017, assuming we are at maintenance levels, you are going to see in excess of $1 billion in what I call free cash flow, operational cash flow less that CapEx.

Jim, this is Mark. Can you help me understand a little bit your question around non-DMS or EMS business? Because, just looking as an example, looking at FY15, our EMS business, rough numbers, contributed 44%, 45% of our income. So maybe you could help me understand your question?

You bet. Again, congrats. The DMS was truly stellar and outstanding. But the non-DMS business, the annual increase this quarter was about 1% year-over-year. I was just wondering if your visibility in bookings and discussions with those customers, again not the DMS side, but the EMS side has remained stable, say, versus six months ago, has improved, or gotten worse? Just because the EMS is a broader base of everything and DMS is a little bit more customer concentrated. The news and the media has been pretty volatile about things going up and things going down. I was trying to get a sense of the pulse of EMS side?

Okay, I understand your question. Good question, by the way. The way we look at it is, our EMS business has the vast majority of our customers. As I was answering one of Sherri's questions of when I was talking about the fact that it's made up of different divisions. With that said, there is a lot of uncertainty in the world today. It's all over the place. There's a lot of uncertainty in the financial markets and there's a lot of uncertainty about who's going to get elected in the US and on and on and on. We try to consider all of that when we're talking about our business, certainly on these calls. So, when we put all that together, give it consideration, take a look at our approach, take a look at what's in the pipeline and what type of solutions we're bringing forward, we stir all that up. That's what led us to talk about the fact that we think we can take the $10.8 billion we did in FY15 and grow that by 5% in FY16.

Perfect. Thanks.

(Operator Instructions)

At this time, there are no further questions. I would like to turn the floor back over to Beth Walters for any closing remarks.

Excellent. Thank you, everyone, for joining us on the call today and for your questions and participation in the call. As always, we will be available for any follow-up questions and inquiries you have regarding our performance and our outlook. Thank you again for joining us and have a good evening.

Thank you for participating in today's conference. You may now disconnect.