捷普科技 (JBL) 2016 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Jabil's first quarter FY16 earnings call.

(Operator Instructions)

Thank you. 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. Thank you very much. Welcome to our first quarter of 2016 earnings call. Joining me today on the call are Chief Executive Officer 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, Jabil.com, in the Investor section. Our first 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 second quarter of FY16 net revenue and earnings results, other 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, 2015, 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, Forbes will begin our call with FY16 first quarter results, and then guidance for our FY16 second quarter. Mark will follow with his comments and some details on our outlook for the business in FY16. And following these opening remarks, we will open it up to questions from call attendees for questions. I would now turn the call over to Forbes.

Thank you, Beth. Good afternoon, everyone. I'd like to ask you to turn to slide 3 where I'll review our first quarter results. Net revenue for our first quarter was $5.2 billion, an increase of 14% on a year-over-year basis.

GAAP operating income was $215 million, while GAAP net income was $132 million. GAAP net diluted earnings per share was $0.68 for the quarter. Core operating income, excluding amortization of intangibles, stock-based compensation, and restructuring costs was $248 million, and represented 4.8% of revenue. Core diluted earnings per share was $0.85.

Now turning to slide 4 for our segment discussion. In the first quarter, revenue for our Diversified Manufacturing Services segment was approximately $2.5 billion, an increase of 30% on a year-over-year basis, representing 48% of total Company revenue. Our core operating margin was 6.7%, reflective of strong execution in the midst of several complex ramps. Our Electronics Manufacturing Services segment revenue was $2.7 billion, an increase of 3% on a year-over-year basis, representing 52% of total Company revenue. Core operating income for this segment was also solid at 3.1%, as a result of broad strength across this segment.

I'd now like to review some of our balance sheet metrics on slide 5. We ended the quarter with cash balances of approximately $1.1 billion. Cash flow from operations for the quarter was $145 million. Net capital expenditures were as expected and totaled $249 million. Capital expenditures for the full fiscal year remain in the range of $800 million to $1 billion, as we continue to invest for future growth opportunities. Our core EBITDA for the quarter was $402 million, representing 7.7% of revenue, an increase of 120 basis points over the same period last year. Our core return on invested capital for the quarter was 24%, a 5% improvement on a year-over-year basis. Also, during the quarter we repurchased approximately 2.8 million shares at a total cost of $55 million, thereby exhausting our current share repurchase authorization.

In addition, during the first fiscal quarter, I'm pleased to note that we acquired Shemer. The addition of Shemer's 30 years of experience expands our capabilities and footprint in Israel bringing expertise in design, basic to highly complex mechanical fabrication, integration of full systems level assembly, and test and fulfillment activity supporting leading capital equipment and large format print brands with sophisticated chassis, enclosures and motion systems.

I'd now like to discuss our business outlook for our second fiscal quarter and note that Mark will follow up with some discussion around the full fiscal year in his prepared remarks. We expect revenue in the second quarter of 2016 to be in the range of $4.4 billion to $4.7 billion, an increase of 6% at its midpoint on a year-over-year basis, and reflective of seasonal consumer demand on a sequential basis.

Core operating income is estimated to be in the range of $170 million to $210 million, and core earnings per share are estimated to be in the range of $0.54 to $0.70 per diluted share. GAAP earnings per share are expected to be in the range of $0.37 to $0.55 per diluted share, this based upon a diluted share count of 195 million shares. And based upon the current estimated mix of earnings, the tax rate for the full fiscal year remains estimated at 24%.

And finally, turning to our segment outlook, I'd ask you to turn to slide 8. The Diversified Manufacturing Services segment is expected to increase approximately 14% on a year-over-year basis with revenues estimated to be approximately $1.9 billion. The Electronic Manufacturing Services segment is expected to remain consistent on a year-over-year basis with revenues estimated to be approximately $2.6 billion. 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. I want to kick off today's call offering a special thanks to our team. They delivered a record quarter in terms of revenue and income. This on the heels of a strong FY15. For me, it's truly an honor to lead a team that's just so capable.

As Forbes highlighted in his prepared remarks, revenue posted for the first quarter reflected solid double-digit growth. Core earnings per share exceeded the midpoint of our guidance by $0.05. This was driven largely by exceptional execution and outstanding productivity, a great accomplishment from our EMS segment and our DMS segment.

I'd now like to offer a few thoughts on what we see driving our business for the balance of the year and into FY17. Our Nypro healthcare business continues to benefit from broad disruption in the areas of med device, patient diagnostics and big pharma. Combine this with rapid advancements in wearable technologies and data analytics and you have a suite of catalysts for growth.

Our packaging business launched its smart packaging theme this past quarter at the PACK EXPO show in Las Vegas. The reception exceeded expectations. The packaging team continues to leverage process engineering and cross functional solution selling as they lean into growth opportunities. The integration of our Plasticos acquisition is ahead of plan, which allows us accelerated access to the European marketplace. In wrapping up my comments specific to DMS, we're projecting OpEx investments during Q3 and Q4 as we engage in various program ramps. We are fortunate to once again have wonderful opportunities for investment within our DMS segment as we think about our business beyond this fiscal year.

Moving on to our EMS segment. From a revenue perspective, I anticipate that the back half of the fiscal year will once again be an EMS story. The confidence I have in our EMS segment is underpinned by transformative proof points currently in play. A few examples would be our transportation and automotive business, which is currently leveraging our optics capability. In addition, the automotive team is the beneficiary of vehicle road maps that now incorporate a higher degree of connectivity and a dramatic increase in electronic content.

Jabil's StackVelocity business is in early days but ramping beautifully. Quite simply, this service offering enables a completely new value proposition for Jabil. Our StackVelocity team serves traditional enterprise and infrastructure OEMs as they transition to cloud-based solutions.

Yet another proof point is evident within our connected home business. This market is rapidly converging on the combination of connectivity, low-cost sensors, and predictive analytics. The world is driving greater bandwidth into the home and into the office, from faster data streaming to support high-definition video, to improved product intelligence, to endless selections of on-demand, to new market applications.

Lastly, we're going to see an improved level of contribution from our capital equipment business. This business cuts across various markets, such as semi-cap, advanced test, and industrial. I believe we'll see an increase in market share as our team weaves together complementary solutions from three strategic acquisitions we recently closed. These proof points illustrate the intimate relationship we've created inside of Jabil between our technical capabilities, our central services, and our commercial segments. This is a true differentiator relative to many others.

There's also a clear advancement in our go to market approach. We seek opportunities with new customers and look to expand share of wallet within our existing partnerships by listening first and continually refining our services. Our customers need to move with speed. They require a trusted technology partner that helps them keep pace; keep pace with the ever-increasing rate of change. Our sales pipeline is clear evidence that the market has an attraction to Jabil's innovative solutions in this digital environment.

Closing out my prepared comments, a few final thoughts. There are a number of moving parts at the moment. The goodness for Jabil is one of our core strengths is our ability to adapt, continually adapt as dictated by the environment. We have a tremendous track record of modifying and modifying quickly.

Jabil has a proven and tested history when it comes to navigating change, both in the macro and in the micro. So as we sit today, an approximate outlook for the year is core earnings per share of $2.65, a 28% increase year-on-year, free cash flow of approximately $400 million, a 45% increase year-on-year, and core ROIC of approximately 20%, a 200-basis-point improvement year-on-year.

To help shape your models for the year, I believe core operating margins for fiscal Q4 will be in the range of 4%, with a strong showing from our EMS segment. I believe core operating margins for fiscal Q3 will be in the neighborhood of 3.5%. As you think about our business, let's keep in mind that many times the sensitivity in our results has a greater link to where we might play in the overall supply chain than the impact of an isolated look at overall product demand.

With that, I'd like to wish everyone on the call a safe and happy holiday season. Thank you. We can now open the line for questions.

(Operator Instructions)

Operator, I would like to remind everyone before begin the Q&A session that in customary fashion we will not be able to address any customer or product specific questions and we ask for your cooperation. Thank you.

Steve Milunovich of UBS.

Thank you. The sequential DMS decline you are expecting is on the order of 25%, which is relatively steep. Could you talk about what factors might be driving that? And then I also wondered if you could talk a bit more about the gross margin being up about 1 point year-over-year and what the factors were there?

Sure, Steve, it's Forbes here. In terms of the sequential decline in revenue, it's really all centered around seasonality in the quarter. Just the way our quarter falls here. So we are seeing seasonality that is a little bit steeper than normal, but nothing really -- with what we thought overall coming in.

I think EMS is a little bit weaker than we thought last year. Our revenues were sequentially consistent. We are seeing a little bit of a more normal seasonality in some of the areas we addressed there. And then the second part of your question was around gross margin?

Yes. Yes, gross margin was up pretty nicely year-over-year.

Yes. I -- as we'd expected, we -- this particular quarter coming in, we've laid down capacity and got off to a great start to the fiscal year. Our teams really executing beautifully there and some really high levels of efficiency, right through our business in general, both DMS and EMS segments, and some nice cost control. So, yes, the gross margin eclipsed 9% and we look forward to continuing that as we move forward into the future.

Hey, Steve, this is Mark. One thing I'd have you think about is that the decline sequentially is as you described. The interesting part is if you look at our DMS revenue year-on-year, even with the sequential decline, I think it's up about 15%, which, again, is a reflection of the strength of the business and the investments we've made.

Understood. Thank you.

Yes.

Brian Alexander, Raymond James.

All right. Thanks. Good afternoon. When I look at the implied revenue growth in the second half of the year per your annual guidance, it suggests about 5% growth second half versus first half. That's well above where you've been last four years, so is all of that above seasonal growth related to EMS, and specifically new ramps? Just trying to understand why well above seasonal in the second half?

Well, I think if you -- Brian, the way I look at it is I think those numbers are accurate. I'm doing the math in my head quickly. If I -- as I said in my prepared remarks, I'd shape out revenue a little bit, Brian, like FY15. What I mean by that is -- rough numbers, I think first half of 2015 overall revenue was a little over $8.8 billion and we did about $17.9 billion for the year. So about 49% of our revenue was realized in the first half of 2015. And I think about 48.5%, 49% of our revenue, or maybe just over 48%, something like that, will be realized first half of 2016 relative to a $20 billion base. So from a shape standpoint, it's pretty similar to 2015.

On the back half, much like 2015, as well, I think when we look at our EMS sector, last year, our EMS sector was up first half to second half. DMS was down, down slightly. I think this year DMS will be down first half to second half, and EMS will be up and it'll be up quite strong.

Yes, that's what I was trying to get at. Maybe I could have asked it a little bit more simply. So your EMS growth first half is up about 1.5% year-on-year. So to -- I think you are still looking for 5% growth in EMS for the year, so, obviously, you need some big acceleration in the second half, and I'm just trying to understand in the context of that acceleration, is most of that new ramps that you touched on in your prepared remarks, or are you counting on some end demand improvement, as well?

For the EMS to turn out?

Yes.

It's a combination of both. But I would say on the EMS side, it's probably a 70/30 split, something like that. So as we sit today, we're still efforting to do 5% growth for the year in EMS, Brian.

Okay, all right. Thanks, Mark.

You're welcome.

Sherri Scribner, Deutsche Bank.

Hi. Thank you. I was hoping you could provide a little more detail on some of the strength you are seeing in the EMS segment. I know you mentioned a couple of things during the prepared remarks, but is there anything in particular beyond automotive that you would call out that is driving that strength?

Hey, Sherri. So, yes, I think it's -- let me start with our EMS business is, as you know, it's extremely broad. So for the year, EMS will be a big business. We're planning on that it to be for the year north of $11 billion -- and it cuts across a ton of customers and in a number of end markets.

In my prepared comments, I touched on automotive. I think there's some good secular trends going on there that I highlighted. The overall -- what I would call kind of the digital connectivity market, I highlighted one proof point in my commentary around what's going on with connected home. And I think you can extrapolate that out into some other end markets. And then, I talked about StackVelocity. So that's a new business for us that we've started in the last year or so, and that's gaining really good momentum. And that's really about the aggregation of hardware for cloud solutions.

And then I also highlighted our capital equipment market, and that's really taking what we do at our core and also adding the capability of three acquisitions that we've recently made, and support the capital equipment. And really, it's around the intricate capital equipment markets in the areas of semi-cap, advanced test, and industrial. But I didn't want to get into 10 or 11 proof points in my prepared remarks. We've really got a lot of really good things going on, cutting across most of that business.

But maybe I could ask -- I'm sorry.

Again --

I'm sorry, go ahead, Mark.

What I was going to say, Sherri, is that business, when you think about silos, you've got telecom, you got networking, you've got storage. You've got base stations, you got industrial. And then you've got a significant number of kind of sub businesses in what we've called kind of in our legacy high velocity area. So, again, it's quite broad.

Okay. That's very helpful. Maybe I could ask a sort of, I guess, from a broader perspective, it seems like for the EM segment we've heard that telecom and networking is relatively weak and industrial is weak. How much of the recovery in the second half for you is driven by a recovery in some of those traditional markets versus some of the new initiatives that you guys are doing?

I think a lot of it has to do with -- I don't think -- well, let me remain a little bit mute on the markets. I think you've characterized the markets reasonably well. There's pockets of some reasonable growth from an end market perspective, so I think from that you can conclude that a good portion of it is about our approach and the services that we are providing.

Okay. Thank you, Mark.

You're welcome.

Mark Delaney of Goldman Sachs.

Yes, good afternoon and thanks very much for taking the questions. The first question, I was hoping you could talk about some of the order trends you've been seeing, some of the supply chain has talked about seeing weakness in the handset vertical, recently. And can you just talk about to what extent Jabil has seen any of that, and if it's factored into your views for the year, even if it's just the linearity of what you expect for revenue?

I don't want to comment on what we're seeing as far as weakness or not, especially in the mobility space. I think we're pretty entrenched in that market, and there's a lot of speculation, a lot of data, and I'd say we've kind of factored all that into our numbers as we sit today, Mark.

Okay, understood. And for a follow-up question, could you talk broadly on the DMS segment, some of the efforts the Company has underway for diversification. And, Mark, you talked about some of the efforts you have going on in the areas like medical and packaging. Maybe you can just help us understand at this point how much of DMS is driven by handsets and [fab width] and then how much of revenue is tied to some of these newer opportunities like medical, like packaging, maybe where you are today in terms of percentage of revenue, and then what we should think about in terms of revenue mix to those other markets as you either exit FY16 or longer term?

Yes, I'm not going to break that out. I will tell you, pretty exciting things going on in our business in the healthcare side and the packaging side. The healthcare business is interesting and I think I made a couple comments in my prepared remarks. There's a lot of disruption going on there, and we are expanding our healthcare business into kind of looking at it as healthcare and wellness. There's a lot of advancement going on in the wearable space. A lot of the wearables technologies aren't at clinical levels yet, but I think they are heading that way. So there's a lot of exciting things putting all that together. And, again, our healthcare business today is really well grounded in a couple different silos, from the pharma market to the diagnostics market to the med device market. So good and interesting things there and I think that there's some good opportunities in the healthcare side.

And then on packaging, we've really in the last couple quarters driven an additional focus on that business with giving it a little more independence than it had, and when you think about the packaging market, you've got packaging around rigid type devices or packages. You've got flexible packaging, and then you've got a whole new area in smarter, intelligent packaging. So all that stuff is pretty interesting to us, and we're pretty bullish on that.

As far as the mobility sector, obviously, mobility is an awfully important part of our DMS sector, and then we also have lifestyles and wearables, as well. So all in all, if I think about the business, we're taking it from, what last year was a little over $7 billion to something quite a bit greater than $8 billion. So I'm pretty pleased with that.

Thank you very much.

You're welcome.

Jim Suva of Citi.

Thank you, and congratulations to you and your team there at Jabil. I had one question for Forbes and one question, probably for Tim. Forbes, I believe in your opening comments you made a comment about an acquisition, and if I heard right, it sounded like it was in Israeli company. Am I correct that this is not the Plasticos Castella Company? And, if so, how much revenue should we kind of fold in or think about for this acquisition, or maybe it's actually the same acquisition and I just misheard the name or something?

And then, more for probably Tim or maybe Forbes also, my follow-up question is on the capital allocation plans, kind of long-term strategy for Jabil. How should we think about that going forward? I believe your stock buyback plan has been used up, and I'm sure shareholders appreciate that. But also how should we think about CapEx versus dividend? I think the dividends remained relatively consistent since 2011, yet today the news was that the Fed increased rates today. How should we think about capital allocation? Thank you.

Sure, Jim. So the acquisition that I discussed was a company called Shemer. They are based in Israel. And this is very distinct from the Plasticos acquisition that we made last quarter. I'd remind everyone that the Plasticos acquisition was focused around building out our European footprint in the packaging area which, as Mark has just said, we're pretty bullish on. This particular acquisition brings with it a lot of expertise in highly complex mechanical fabrication and integration of equipment that supports semiconductor space, digital printing, and analytical inspection tools. So this is, again, something that -- some key initiatives we've had underway over the last year so. It helps us build out our solutions set to support our customers in that space. On overall revenue, we're integrating less. I think on a full-year perspective basis, initially, is somewhere around $100 million, but certainly we're looking to grow that well north of that as we move forward with some exciting opportunities there.

I'll address the second question as well, Jim, in terms of capital allocation. You're correct, however, share repurchase authorization has now expired. We consumed that in our first fiscal quarter. And our thinking today is we've reiterated our capital equipment expenditures, $900 million for the year at its midpoint, and Mark also talked about $400 million of free cash flow after that CapEx, notwithstanding some -- any acquisitions we might undertake. But, as we said about things today, we're continuing to focus on growth. You may see us do some modest share repurchases as we move forward to stop any dilution in terms of our share count, but as we sit today, we are comfortable with where our dividend sits today. We're comfortable in terms of our share repurchase and our key focus right now is around driving that free cash flow to build into these growth opportunities we see, certainly through 2016 and we'll see how 2017 and 2018 look as we progress towards the second half of 2016.

Hey, Jim, this is Mark.

Thanks for the details.

Just a comment on that. I think today, Forbes articulated it quite well, our priorities are around making really sound investment choices in trying to grow the business. Again, year-on-year, from 2015 to 2016, and, again, 2015 was a really good year for us. If we can grow earnings this year north of 20%, and then, again, that's on an EPS basis with really modest, little to no share buybacks, that's really good authentic growth, and then growing our free cash flow with continuing to invest in the business. That's our priorities and then also doing some select acquisitions to continue to expand the capabilities of the business.

Great. Thanks so much for the details. And congratulations to you and your team.

Yes, thanks, Jim.

Andrew Wong.

Thanks for taking my questions. First, on DMS, I think the operating margins had been in the range of 4% for the past two quarters, so I was wondering if you could give us some color on where the dramatic improvement to 6.7% came from?

Sure. So the improvement really comes from, in the back half of last year, we talked about some investments in operating expense as we were ramping several programs. So very much as expected, so once we get those programs ramped up to volume and the capacity installed, we see that pull through in terms of margin. We saw margins north of 6 points the same quarter a year ago, so very typical in terms of when we're laying down capacity, and as I say, ramping a number of programs. So overall a very, very good result and a little bit stronger than, perhaps, initially anticipated just given some great execution by the team.

Okay. Great. And then, maybe another way of asking about the second half ramp for EMS, maybe you could give us some color on how much of that growth will be coming from new program wins versus growth from existing products?

Andrew, this is Mark. Yes, as I said earlier, I would characterize that as kind of maybe a 70/30 split, so maybe 30% coming from new program wins and 70% coming from the expansion of share of wallet or based off of our existing core business.

Okay. Thanks very much.

Yes.

Amit Daryanani of RBC Capital.

Thanks a lot, good afternoon. Two questions from me as well. I guess, Forbes, to start off, when I look at the full-year guide and the expectations in the back half, implies margins, operating margin, will be down somewhere in the 50 to 60 basis points kind of range, back half versus front half I think. Given the fact that you're expecting better than seasonal revenue growth, why do you think margins are on a downtick so heavily? And is that more investments or mix that's driving that downtick?

Yes, sure, Amit. Mark referred to some investments in the back half in our DMS. I'd remind you we are in the process of adding additional footprint in capacity and that's very consistent with what we talked about 90 days ago. So that'll be built out in the June/July timeframe and there is some investment associated with that. And then ultimately the investments associated with bringing up a number of new program ramps where we should start to hit our stride, essentially, as we move into late in the fourth quarter, and into the first fiscal quarter of 2017. So just under a year from now. So that's why you're seeing some of that margin contraction there, and then we'll see that bounce back up as we've seen this fiscal year in the first half of the year.

Got it. And are those investments -- you said in the fall of this year is when the ramps will happen -- is that for DMS or is it the EMS commentary that Mark was talking about?

Yes. That's principally focused around the DMS area, plus we're seeing great strength in EMS in the back half of the year. Some dollars there, but I would put that as marginal on the fringe. It's really associated with the scale of ramps and the scale of capacity we are adding to support our DMS growth.

Hey, Amit. Just maybe I could help clarify a little bit. So as we're sitting today, I think our overall CapEx will be in the $800 million to $900 million range as we talked about in September. In fact, I think in the September slide deck, the presentation, we actually gave you guys a breakdown by five or six different line items. To be conservative in your models, I'd use maybe a $900 million number for CapEx, and what I alluded to in my prepared comments, again, was really talking more about OpEx, and the OpEx investment will look similar to the OpEx investments we made in FY15, if you consider them as kind of a percent of DMS revenue. And that's to take care of the preparation and all the engineering work and whatnot that goes into different product ramps in the DMS programs.

That's really helpful. And, I guess, just as a follow-up, I think it was a FY16 revenue expectation, I think last quarter you guys talked about the DMS growing 5%, if I'm not mistaken, and the implication was DMS could be 20% to 22% kind of growth. Do those numbers probably still hold up in terms of the revenue growth for those two segments?

Yes, they do, 5% on EMS and, yes, a shade above the 20% on the DMS. Yes.

Perfect. Thanks, and congrats on the quarter, guys.

Thanks, Amit.

Steven Fox of Cross Research.

Thanks. Good afternoon. Just a couple questions for me just -- I know you went through some of the details on the recent Israel acquisition. I was wondering, Mark, if you could sort of give us a sense with the three acquisitions in capital equipment area, what you were trying to accomplish there, broadly speaking, because it seems like it's sort of changed your view of the trajectory of that sort of market going forward compared to a few quarters ago. And then, I had a couple quick cash flow follow-up questions. Thanks.

Yes, so it's really about engineering. It's really about engineering and technology, and it's about weaving together those technologies, Steve, and really kind of changing our value proposition on the capital equipment area. So it's, kind of what I would consider intricate automation/motion control, machining, and intricacies around mechanics, and then adding the capabilities of Shemer to that, so we'll see where it goes. Early days. It's a pretty good indication that the market likes what we've put together and the value proposition we have around that specific market.

And then -- that's helpful -- and then just on the cash flow, Forbes. The cash flow from operations for the quarter -- is that about where you thought you were going to come in for the quarter? I guess I was under the impression it might be a little bit better, but I could have been wrong. If not, can you just sort of lay out how you sort of see it going for the rest of the year based on your guidance?

And then, just real quick on the $67 million in terms of the cash outflow for acquisitions and intangibles, was that all related to Shemer or was there some other stuff in there? And that's all I had. Thanks.

Sure. Sure. So cash flows for the quarter, we did see sequentially an expansion in our sales cycle of two days. So that's about $90 million to $100 million, and typically one would model about four days. So that's just -- really tied with the -- pretty explosive growth sequentially in the quarter. So what we will see is a very big Q2 as those receivables are liquidated as we move through December here and into early January. So we should still be looking at operational cash flow as $1.3 billion, $1.4 billion for this fiscal year, and, as I say, Q2 will be a very strong quarter. Certainly well -- and should certainly be well north of about $350 million in the fiscal quarter, and then we should see that type of level in Q3 and a solid Q4 also.

So still very, very comfortable with those types of numbers. You're right, in terms of our cash flow statement, about $67 million, that's not all associated with Shemer, the majority of it is. There was another small tuck-in acquisition that we did in the quarter just to support some of these capabilities that we're building out.

Okay. Great. Thank you very much. Enjoy your holidays.

Thank you very much.

(Operator Instructions)

Shawn Harrison of Longbow Research.

Hi. Two clarifications. Just on the investments, if I -- if memory serves me correctly, it was maybe $60 million last year in terms of the OpEx investments. Is that what you're expecting for the second half of this year? And how does that roll on? Does it all come in the third quarter, or is it spread out during the second half?

Hey, Shawn, it's Mark. Yes, I think last year it was probably closer to $65 million -- $65 million, $68 million, something like that. I'd consider this year to be more than that just because if you kind of look at the scale of DMS and the size of the business, so -- maybe you could ratio that a little bit by revenue. I'd kind of think of it that way and I would think of it -- it's a [expletive]shoot on how it lays in. It will lay in Q3, Q4 but what percentages for what? It's hard to tell because it's a lot of work on a lot of different programs and a lot of moving parts, so kind of take your guess. Maybe -- I don't know, maybe a 60/40 split Q3 to Q4, something like that, but it's anyone's guess, Shawn.

And does this normalize as you move then beyond 2016? Or is this something that's going to be permanently in place?

I guess it depends. It depends on what programs we win and what opportunities we have, and if we have the good fortune to make these types of investments if we can continue to grow earnings. So it depends.

And the investments are mainly around engineering, or is it just associated personnel to help drive the ramps?

It's a combination of all kinds of different engineering, process, automation, et cetera, et cetera.

Okay. And then, as a follow-up question, if my back of the envelope math is right, if you're EMS margin percentage basis is flat quarter-over-quarter, at the midpoint that implies EMS's operating margin is down year-over-year. Is that a correct assumption -- I guess the question would be why would it be down year-over-year? Is it just a great -- the seasonal decline with the incremental fixed cost investment? Is there something else occurring?

So let me understand the question. Can you ask the question again about -- are you talking about Q2?

Solely Q2, Mark. So if I hold the EMS margin flat quarter-over-quarter, at the midpoint of your guidance it implies the DMS margin will be down year-over-year, so holding it at 3% at EMS implies the DMS margin is closer to 6%, which would be down 60 basis points year-over-year.

Yes, I understand your question. I think for the sake of modeling, EMS is going to be a bit softer in Q2, so I wouldn't hold it flat. I think EMS will be more -- I don't know -- 2.5% range, 2.7%. Something like that. And that should adjust your DMS model.

Perfect. Happy Holidays.

Yes, you as well.

Sean Hannan of Needham.

Thanks for taking my question. This really one here -- there are a number of folks, I think, quasi-competitors or within the space that are pretty optimistic on healthcare within 2016 -- there's a pretty good cycle of outsourcing and supply chain engagement in recent years and periods. Can you talk a little bit about your views in the subspace and how pronounced it may or may not be relevant to the DMS side of your business? You seem pretty positive on Nypro versus the EMS side of your business. Thanks.

Sure, Sean. It's Mark again. I think I hit on it a little bit this earlier if you're talking about -- if you're talking specific to healthcare. We have a bullish outlook on it. But I'd caution you, everybody's -- not everybody -- there's a lot of people racing to that space. It's a space that's being disrupted in a lot of different ways. It's being disrupted at a hospital level. It's being disrupted with data, it's being disrupted from a digitization and a mobility perspective. It's being disrupted as far as industry consolidation, if you just look at the megamergers that have taken place. So if we're thoughtful about it, that disruption can be good for us.

And then what I mentioned earlier is, you take all that and add wellness to that, and the lines, I think, over time may get blurred between what's wellness and what's truly healthcare. If the demarcation line is kind of FDA type of stuff, I don't know that anybody knows exactly where that will end up, but it's a market with a kind of a lot of lather around it right now and disruption, and we're very interested in it and if we got the right solutions, I think it'll be good for us for the next two, three, four years.

Okay, great. Thanks for the feedback, that's all I have.

Have a great holiday.

You too.

And at this time, there are no further audio questions. I would now like to turn the call back over to management for any closing remarks.

Okay. Thank you very much, operator, and thank you, everyone, for joining us on the call today. We will be here for the rest of this week. I will remind you that we do shutter for the holidays here in our corporate offices, and so if you want to talk to us, get in this week. All right. Thank you. Happy Holidays.

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