Jabil (NYSE:JBL) held its third-quarter earnings conference call on Wednesday. Below is the complete transcript from the call.
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Summary
Jabil Inc reported Q3 FY26 revenue of $8.8 billion, up 12% year-over-year, and exceeded expectations in revenue, margin, EPS, and free cash flow.
The company saw strong performance across its segments, with Intelligent Infrastructure revenue up 21% year-over-year, driven by AI-related programs and customer ramp timing.
Jabil raised its full-year FY26 revenue outlook to $35 billion, with a core operating margin of 5.8% and adjusted free cash flow of over $1.4 billion.
The company repurchased $291 million in shares and plans to complete its $1 billion share repurchase authorization in Q4.
Jabil anticipates continued strong AI-related revenue growth in FY27, with new capacity expansions in North Carolina, Memphis, and India.
A potential strategic alliance with Adani Enterprises could establish a significant AI infrastructure manufacturing platform in India by FY28.
Management expressed confidence in sustaining profitable growth, margin expansion, and strong cash generation, supported by a diversified business model.
Full Transcript
OPERATOR
Greetings ladies and gentlemen and welcome to the Jabil 3rd Quarter of Fiscal Year 2026 Financial Results Conference call. At this time, all participants are on a listen only mode. A question and answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please press Star 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Adam Berry, Investor Relations Thank you.
Please go ahead Good morning and welcome
Adam Berry (Investor Relations)
to Jabil's third quarter fiscal 2026 conference call. Joining me on today's call are Chief Executive Officer Mike Dastore and Chief Financial Officer Greg Heber. Please note that today's presentation is being live streamed and during our prepared remarks we will be referencing slides. To view these slides, please visit the Investor relations section of jabil.com after today's presentation concludes, a complete recording will be available on our website for playback.
In addition, we will be making forward looking statements during this presentation, including, among other things, those regarding the anticipated outlook for our business, such as Our currently expected fourth quarter and full fiscal year 2026 net revenue and earnings. 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, 2025 and on other filings with the SEC.
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. With that, I'd now like to hand the call over to Greg.
Greg Heber (Chief Financial Officer)
Thank you Adam Good morning everyone and thank you for joining our call today. Before getting into the details, I want to take a moment on how the quarter came together. We feel very good about Q3. Demand remained strong, our teams executed well and we delivered ahead of expectations across revenue margin, EPS and free cash flow. Revenue upside in the quarter was broad based across the portfolio and I'll walk through the segment details shortly. Just as important, margins were strong and free cash flow was robust, giving us good momentum as we move into Q4. For the third quarter, revenue was approximately $8.8 billion, up 12% year over year and $250 million above the midpoint of our outlook. On a GAAP basis, operating income was $445 million or 5.1% of revenue. Core operating income was $504 million and core operating margin was 5.8%.
GAAP diluted earnings per share for the quarter was $2.59 and core diluted earnings per share was $3.16, up 24% year over year. Turning now to segment performance in the third quarter, regulated industries revenue was $3.2 billion, up 4% year over year and above our outlook for the quarter. The upside was primarily driven by automotive and transportation where demand was stronger than we expected. Core operating margin was 5.6%, up 10 basis points over the prior year. Intelligent infrastructure revenue was $4.2 billion, up 21% year over year, reflecting continued strong demand and performance. In line with our outlook for the quarter, growth was broad based across the segment.
Capital equipment and cloud and data center infrastructure were both double digits while networking and communications was up more than 50% supported by a strong networking ramp in India. Overall, this continues to be a very strong growth business for Jabil and as we look from Q3 into Q4 we expect another meaningful step up in revenue across all three end markets supported by continued strength in AI related programs and the timing of customer ramps.
Core operating margin for the segment was 6.1%, up 80 basis points over prior year. Q3 Connected Living and Digital Commerce revenue was $1.4 billion, up 5% year over year and above our outlook for the quarter. Relative to our Q3 outlook, the upside came largely from Connected Living where consumer related demand was better than the cautious assumptions we had embedded in the guide. Our operating margin for this segment was 4.9%. Turning now to cash flow and balance sheet metrics, free cash flow was better than we expected in Q3, supported by strong profitability and continued discipline across the business. Cash flow from operations was $535 million and net capital expenditures were $176 million, resulting in adjusted free cash flow of $359 million for the quarter on working capital. Inventory days were 84 net of inventory deposits from customers.
Inventory days were approximately 68, which was above our normal targeted range of 55 to 60 days. The higher inventory was largely tied to the timing of customer shipments and intelligent infrastructure and we expect this to normalize back toward our targeted range in Q4. Given how our performance through Q3 and the outlook for Q4, we now expect adjusted free cash flow of more than 1.4 billion doll for the full fiscal year, up from our prior outlook of more than $1.3 billion. Our balance sheet remains in excellent shape. We ended Q3 with $1.4 billion in cash and debt to core EBITDA of 1.3 times and we remain fully committed to maintaining our investment grade credit profile.
During the quarter, we repurchased approximately $291 million of shares under our existing $1 billion share repurchase authorization, which we intend to fully complete in Q4. With that, I'll walk through our guidance for Q4 FY26. Starting with the segments, we expect regulated industries revenue of approximately $3.3 billion, up 6% year over year. This reflects continued stability in health care and packaging, ongoing improvement in renewables, and automotive and transportation performing better than we expected earlier in the year. For Intelligent Infrastructure, we expect revenue of approximately $4.9 billion, up about 32% year over year.
This represents a meaningful sequential step up from Q3, reflecting continued strength in AI related programs, customer ramp timing and the timing of shipments as discussed earlier. And in Connected Living and Digital Commerce, we expect revenue of approximately $1.4 billion roughly flat year over year. Digital commerce growth remains healthy while Connected Living continues to reflect a mixed consumer environment, although one that has performed better than our more cautious assumptions. At the enterprise level, we expect Q4 revenue to be in the range of 9.2 billion to $10 billion or about 16% year over year growth.
At the midpoint, we expect core operating income to be in the range of 589 million to $649 million, which implies a core operating margin of approximately 6.4%. At the midpoint, we expect core diluted earnings per share to be in the range of $3.8 to $4.2, we expect fourth quarter net interest expense to be approximately $80 million and our core tax rate remains approximately 21%. Taken together, this would represent a strong finish to the year with continued revenue growth, margin expansion and and free cash flow generation. For fiscal 2026, we now expect revenue of approximately $35 billion, core operating margin of approximately 5.8%, core diluted earnings per share of approximately $12.7 and adjusted free cash flow of more than $1.4 billion.
Let me close by saying Q3 delivered strong results and gives us greater confidence as we enter the final quarter of fis. Our performance this quarter highlights the strength of our diversified portfolio, the momentum and intelligent infrastructure, and the disciplined execution of our teams around the world. As we move through Q4 and look ahead to fiscal 2027, our priorities remain clear and consistent profitable growth, margin expansion, capital efficiency and sustained cash generation. With that, I'll turn the call over to Mike, who will share more on fiscal 2026 outlook and how we're thinking about the setup into fiscal 2027 thanks
Mike Dastore (Chief Executive Officer)
Greg and good morning everyone. I'd like to begin today's call by thanking our teams around the world for delivering another strong quarter. Achieving 12% year over year growth on business of our scale requires tremendous focus, coordination and execution across our global operations, customer partnerships and supply chain network. I want to thank all of our employees for their contributions and commitment to delivering these outcomes at the enterprise level.
We delivered ahead of our expectations across all of our key metrics including revenue margin, EPS and free cash flow. AI infrastructure demand remained extremely strong and our full year AI related revenue outlook is now meaningfully higher than what we laid out just 90 days ago. the same time, we continue to see better than expected performances in areas of the portfolio that have previously been under pressure, including automotive and transportation and connected living and digital commerce.
Over the past several years we have worked hard to build a diversified model, one which relies on many large end markets and we still believe that's the right model for our business today. The diversified model not only provides important synergies such as supply chain, purchasing power and engineering, which is leveraged across end markets, but more importantly, we believe it also allows for more sustainable financial performance over longer periods of time, providing a natural hedge in different economic cycles.
With that as the backdrop, let me now walk through fiscal 2026 by end market. Starting with intelligent infrastructure, we continue to feel very good about the business. We now expect AI related revenue to be approximately $13.6 billion in fiscal 2026. That is $500 million higher than our March outlook of $13.1 billion and up from $9 billion in fiscal 2025. This represents $4.6 billion of AI related growth this year or about 50% year over year. This level of growth reflects strong customer demand, quality execution from our team and the capabilities we have built across computer storage, networking, optics, power cooling and rack level integration.
We also took an important step forward in Q3 by winning our third hyperscale customer. Based on what we see today, we would expect the revenue ramp with this customer to look a lot like what we saw in our second hyperscaler, where we started with a specific capability, executed well, and then expanded the conversation across the data center. That is an important part of the model. We can enter where we have a capability the customer needs, deliver with quality and then expand as the relationship deepens.
Importantly, this remains an attractive asset line model for Jabo as evidenced by our capex expectations of 1.5 to 2%. We're expanding capacity in a disciplined way, tight to visible customer demand, while avoiding the product ownership and IP risk that can come with more OEM like models. Not only do I like the large revenue growth opportunities before us, I continue to like the return profile of the business including strong free cash flows moving to regulated industries where the tone continues to get better. Auto was stronger than expected in the quarter and we now expect auto revenue of approximately $4.4 billion in fiscal 2026 compared to a March outlook of $4.2 billion. Despite coming in stronger than anticipated, we remain cautious on the automotive market given continued demand volatility. That said, stronger export demand from China, industry consolidation and growth in powertrain agnostic platforms enabled us to exceed our prior outlook.
Renewables also continue to improve. We are seeing support from safe harbor projects, demand for power tied to AI and data center infrastructure, and the shift from residential towards commercial projects. The tone is better than it was earlier in the year. In healthcare, our long term view of the opportunity has not changed. The product cycles are long, the margin profile is attractive and the outsourcing of opportunity is still relatively immature.
We continue to see good opportunities around drug delivery, med devices and broader pharma capabilities in connected living and digital commerce. We also saw better performance in the quarter in connected living. The environment remains mixed, but performance was better than the cautious assumptions we had embedded in our outlook. Driven primarily by connected devices, we now expect connected living revenue of approximately $2.7 billion in fiscal 2026, up $300 million from our March outlook. We expect Digital Commerce revenue of approximately $2.7 billion, up $100 million from a March outlook. Digital commerce remains one of our higher margin end markets with good opportunities in automation, robotics, retail and warehouse technology. Putting all of that together, we're raising our fiscal 2026 outlook.
We now expect revenue of approximately $35 billion, up from our March outlook of $34 billion. That represents growth of roughly 17% year over year. We also now expect an improvement in core operating margin of 10bps to approximately 5.8%, core EPS of approximately $12.7 and adjusted free cash flow of more than $1.4 billion, up from a prior outlook of more than $1.3 billion. For me, it's important to recognize that the model is working and as a result the business is rapidly growing, margins are moving higher and free cash flow expectations also are improving.
And when I Look beyond fiscal 2026, I am extremely confident in Jabil's strategic position, the strength of our customer relationships and our ability to capture the significant opportunities ahead. While we will provide full year guidance for FY27 in our annual Virtual Investor Briefing in September, I thought it might be helpful to provide an early view of our AI related revenue growth. As I mentioned earlier in FY26, we anticipate our AI related revenue will be approximately $13.6 billion.
We are exiting the year with a stronger platform for growth, strong customer engagements and new capacity coming online in North Carolina, Memphis, India and other parts of the footprint. For all these reasons, I expect AI related revenue growth in FY27 in percentage terms to be similar to FY26. What makes that especially impressive is that we expect to sustain this growth rate of a much larger revenue base. At the enterprise level, there are still a few things that will shape how the full year comes together between now and September.
That includes component availability, mix across the portfolio and the choices we make as we continue to prioritize margins, customer ramp timing, free cash flow and returns. As these items firm up, they will help determine where the full year could ultimately lands. The combination of strong AI growth, improving mix and continued discipline around free cash flows and returns gives me confidence that DVIL can move core operating margin above 6% in fiscal 2027.
Before we wrap up, one incremental opportunity I want to highlight is the AI Infrastructure initiative we announced earlier this week with Adani Enterprises. While it is still early days, Adani Enterprises and Jabil are targeting a strategic alliance to build an AI data center infrastructure platform in India. This alliance will focus on multi gigawatt manufacturing capacity for high density AI racks and associated computing infrastructure. The platform is expected to manufacture next gen liquid cooled AI racks, servers, storage systems and networking equipment and supporting infrastructure equipment required inside modern AI data centers including power distribution units, transformers, switchgear and thermal management systems used by hyperscalers, colocation providers and enterprise data center customers. Importantly, the opportunity represents the potential to help establish a scaled AI infrastructure manufacturing platform in India, a market we believe will become increasingly important for both domestic and global AI infrastructure demand. There is still work to be done before a definitive framework is established, so we view this as a longer term opportunity.
If the partnership develops as we anticipate, fiscal 2028 is the more realistic starting point for meaningful contributions. In closing, we remain focused on executing our diversified strategy, investing in the right growth areas and creating long term value for our customers and shareholders. Thank you for your continued support and we look forward to updating you on our progress in the quarters ahead with that Operator, we're ready for questions.
OPERATOR
Thank you. The floor is now open for questions if you would like to ask a question Please press Star one on your telephone keypad at this time. A confirmation tone will indicate that your line is in the question queue. You may press Star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. Again, that's star one to register a question at this time. Today's first question is coming from Ruploo Bhattacharya of Bank of America. Please go ahead.
Ruploo Bhattacharya (Equity Analyst at Bank of America)
Hi. Thanks for taking my questions, Mike. With today's guidance raised, you would have had two years of strong AI revenue growth. And like you said, the base is higher now for AI revenues. You know, a lot of companies are building GPU racks. What gives Jabil the right to win in this space? And you talked about a third hyperscaler and you talked about the announcement with Adani Enterprises in India. How big a revenue driver could these be for Jabil?
And I have a follow up.
Mike Dastore (Chief Executive Officer)
Thanks, Raplu. So I, I feel our AI demand continues to be extremely strong. I think the, the holistic strategy that the team's focused on where we kind of enable customers to scale AI much faster by delivering fully integrated systems across compute, storage, networking, power, advanced cooling. We often kind of go in through one channel or one capability and expand the relationship by offering other end to end kind of solutions to customers. We actually won our second hyperscaler in exactly that way and we're actually just won our third hyperscaler and the strategy will be exactly the same. So going really well from a strategy standpoint. In my prepared remarks I talked about having a similar growth rate. You highlighted that Ruploo and it's on a much, much higher revenue base.
All three end markets are contributing to this. If you think of, if you think of capital equipment test obviously is a high performer there. With all the rapid evolution of chip technology, the test equipment demand is through the roof. I think WFE is making a little bit of a comeback, although we will always be a little bit prudent because WFE historically has always been move to the right a little bit. But there is definitely signs of a recovery in WFE right now. And then if you look at dci, our cloud infrastructure business, we're opening up new capacity in North Carolina, we're talking about Memphis, India, other parts of the footprint. We recently made the Hanley acquisition, that's bearing fruit as well. And don't forget that's at a higher margin. And then last but not least, networking.
We've got the whole intelliband Ethernet demand's going up, especially in India. We've sort of almost doubled our revenue over the last year in India there, partly because of this networking demand. And then the silicon photonics, we continue to play in that as well. So overall, very strong demand, very good strategy from Jabil. And you're seeing that in the numbers, you're seeing that in the results. A similar growth rate on such a large revenue base is quite impressive as it relates to the India opportunity. Before I say anything, I just want to say that we do not have a definitive framework in place yet, so we're still working on it, so can't comment on financials or structure or anything like that. Having said that, I am really excited about this opportunity. If you think of a few things that stand out for me.
We're talking about multi gigawatt AI infrastructure manufacturing in India. We're talking about the world's highest population and particularly with the government that's helping push Bake in India as a global manufacturing hub and, and taking it a step further to make for the world as well. So well-aligned there. If you think of the offering that we're providing, it's a one stop shop which would sort of appeal to hyperscalers and data center providers. With Adani being one of the largest conglomerates in India, very strong in infrastructure providing power, and Jabil providing all the manufacturing expertise which has been proved out in the us. So we're talking of racks, we're talking next gen liquid cooled racks, we're talking of servers, we're talking of storage systems and networking equipment. And then you layer on the supporting infrastructure that we're building today in the US as well, in terms of switchgear transformers, power distribution units, thermal management systems, all of that comes into play.
So the opportunity is quite significant going forward. Again, I do want to, I do want to highlight that this is an fiscal 2028 event. Obviously the main gating factor here would be building out this capacity because this will require a decent chunk of capacity. But the opportunity and the potential could be huge.
Ruploo Bhattacharya (Equity Analyst at Bank of America)
Okay, thanks for all the details there, Mike. Since we're talking about capacity, maybe I have a follow up for Greg. You know, you've been adding capacity. Does Jabil now have enough capacity to support the strong AI and data center revenue growth that you're projecting for fiscal 27? And can you help investors understand how much revenue can the existing footprint support and which areas would the company plan to invest in and how does this impact free cash flow going forward? Thanks for all the details.
Greg Heber (Chief Financial Officer)
Yeah, Good morning, Ruploo. Yeah, so as Mike mentioned just now and also in his prepared remarks, you know, when we look at AI revenue in FY27, you know, we're going to see similar growth levels in percentage terms to 26 and also off a larger base from a capacity perspective, you know, we're real confident we could, we could, you know, have that revenue in place from a footprint perspective. You know, globally we're adding an incremental 10% on our footprint, new buildings, new locations and also expansion.
So we feel really good of the footprint being there to support that capacity from a capex perspective and free cash flow. You know, we're not giving any kind of guide for next year yet, but we feel really good on continuing to stay within that 1.5% to 2% on total CapEx, even with the footprint expansion that we're, that we're seeing in the coming year.
OPERATOR
Okay, thanks for all the details. Thank you. Our next question is coming from Steven Fox of Fox Advisors. Please go ahead.
Steven Fox (Equity Analyst at Fox Advisors)
Hi, good morning everyone. Just following up on a couple of those things. I was wondering if you can dial in a little bit more into the networking growth. Obviously it's substantial here. How does that look into next year off of the guidance for AI revenues and where is it coming from? And then I had a follow up. Thanks.
Mike Dastore (Chief Executive Officer)
The networking growth, we've already grown quite a bit in 26. I think that growth continues in 2027. Steve, I think the Intelliband, the Ethernet demand, all the switchgear that we're building in India, the Silicon Photonics piece coming together nicely. So there's a whole bunch of positives in that networking space. And I think the demand for that networking will be similar or better next year to 26.
Steven Fox (Equity Analyst at Fox Advisors)
That's helpful. And then just as a follow up, can you talk a little bit more Mike, about margins for next year? I know you don't want to get too specific, but I would imagine the margins you're posting now still include some inefficiencies from plants you're ramping up. Like when do we start to see you guys fully harvest the new capacity at efficient rates as you're adding sales? When can we sort of see better incrementals? Thanks very much.
Mike Dastore (Chief Executive Officer)
So you're absolutely spot on with the capacity coming through in stages. We don't turn on all our capacity on 1st of September. It will phase in through the balance of this fiscal year and I expect a lot of the capacity to be on board by early fiscal year next year. So you're right there's definitely some level of ramp impact. Having said that, I feel really confident about 6% plus margins and I do add the plus up to the 6%. I think if you look at what's driving some of that, the mix is getting better.
Some of the end markets that we, we've had a little sort of lack of recovery in the past, those are coming together together nicely. Like automotive, renewables, healthcare is steady eddy even, even within intelligent infrastructure, the higher value capabilities like power, liquid cooling, silicon, photonics, they're all getting accretion in margin in that intelligent infrastructure segment itself. And then you add on the operating leverage. You talked about utilization, capacity utilization getting better as we progress through 27. And then Hanley where we made the acquisition a few months ago, it's at double digit margins. So all of that coming together very nicely from a margin standpoint.
I think the point you made about ramps is important to keep in mind though. But like I said, my expectations are on a 6% plus margin for FY27.
Steven Fox (Equity Analyst at Fox Advisors)
Great, that's very helpful. Thank you very much.
OPERATOR
Thank you. Our next question is coming from Samik Chatterjee of JP Morgan. Please go ahead.
MP
Hi, thank you for taking my question. This is MP on for Samik Chatterjee. So my first question is regarding your intelligent infrastructure guide. You have implied an acceleration in year over year growth relative to fiscal 3Q and then it's also higher than your implied guidance which I had given previously. So just wanted you to double click on whether this upside relative to prior expectations is driven entirely by the new hyperscaler customer and then also any color on what what capabilities you are currently ramping on with the new Hyperscaler customer.
And I have a follow up. Thank you.
Mike Dastore (Chief Executive Officer)
Just for clarification, your question is about FY26 or the growth rate for FY27. So fiscal 4Q, your intelligent infrastructure. All right, so I think Greg mentioned something in his prepared remarks around timing where we had some finished goods in the warehouse still at the end of Q3 those will start flowing in in Q4. I think there's about a couple of hundred million from Q3 extending into Q4 and then an incremental 300 million across the board. It's not, it's not just related to the third hyperscaler, it's demand across the board in racks. I think Memphis and other locations is doing really well.
So there's 500 million upside in intelligent infrastructure guidelines for FY26 and it's spread out a little bit. So really, really happy to see that.
MP
Got it. Thank you. And then for your fiscal 27 guide, you have said that AI growth continues at the similar percentage level and also we are seeing acceleration in growth relative to your other end markets. So does that like, is it, will it be a fair assumption to say that overall fiscal 27 revenue growth should be at least in line with fiscal 26 or higher than that? Thank you.
Mike Dastore (Chief Executive Officer)
Look, I think we'll provide full year guidance in September. My AI revenue sort of highlight was more to give the Street a little bit of what's an idea of what's going on in our aspect. There's puts and takes on the other side of the business. Some, some end markets obviously are performing better. We'll continue to look at margins, obviously we'll continue to look at any pruning that we have to do. So I wouldn't start expanding revenue on an incrementally to what I've already said on the AI revenue.
That was more an indication of comfortability in terms of the AI revenue growth rates. We will provide guidance. Like I said, it's September and I expect it to be a nice number. But let's have some caution in. I want to make sure that we don't get carried away with the numbers there.
OPERATOR
Thank you, Michael. Thank you. The next question is coming from Mark Delaney of Goldman Sachs. Please go ahead.
Mark Delaney (Equity Analyst at Goldman Sachs)
Yes, good morning. Thank you very much for taking my questions. I'm hoping you can share more color on what led to the win at the third Hyperscaler and any product capability in particular. Where Dabil has had initial success, it's
Mike Dastore (Chief Executive Officer)
across the data center infrastructure space. Look, it's very similar to how we did the second hyperscaler. Second Hyperscaler was in a different capabilities and then we expanded way beyond that capabilities into all the other capabilities. So I would see this as a starting point. The third hyperscaler, I expect it to be in that couple of hundred million dollar range for 27, rapidly expanding to billion dollar and then beyond in 28. So definitely a good sign. We've been working on this for a while and it's finally come through in our Q3.
Mark Delaney (Equity Analyst at Goldman Sachs)
Okay, thanks for that. And then in terms of the supply chain considerations for the 50% growth in AI related revenue for next year, you already spoke a bit around your manufacturing and Capex plans to support that. But could you speak a little bit more on the supply chain, including labor and parts supply, given that some companies in the industry have run into parts and component shortages, maybe help investors to better understand to what extent there's any conservatism from a supply chain standpoint factored into that outlook for 50% growth next year.
Mike Dastore (Chief Executive Officer)
Thanks. Right. No, it's a really good point, Mark. I think we always, always appropriately ensure that we factored in all these supply chain issues. There is a high demand for high bandwidth memory. As everyone's aware. High end, high density interconnect PCBs are in high demand. Lead times have been extending. One good thing is obviously the hyperscalers and our large customers get more than their fare share of some of these components. I think the DDR5 chips, I think the capacity is decent on that front.
But the DDR4 and older chips, I think there will be some level of shortages and we try our best to obviously factor in those delays. I think the key here on supply chain is our team is extremely focused and I'll put our team up against anyone externally. I think if you look at the conversations are changing. It's not transactional, it's not about pricing, it's about strategy, it's about access, it's about allocation, long term commitment. So overall I feel really good that our team is approaching this in absolutely the right way.
And by the way, they proved it out over the last three, four, five years. If you include Covid in all of this, I think the team performed much better than many of the other teams.
Mark Delaney (Equity Analyst at Goldman Sachs)
Thank you.
OPERATOR
Thank you. The next question is coming from Reuben Roy of Stifel. Please go ahead.
Sahed Singh
Guys, this is Sahed Singh for Reuben Roy.
Mike Dastore (Chief Executive Officer)
Hi, Yeah, go ahead.
Sahed Singh
4Q exits at around. You're breaking up.
Mike Dastore (Chief Executive Officer)
Can you hear me okay now? Yeah, we can hear you now but you broke up before that.
Sahed Singh
I was just saying 4Q exits at around 6.4% core margin. FY27 is being framed above 6%. Can you help us reconcile that? Is that just early conservatism or is there genuine near term margin drag from the onboarding of the third customer, New capacity, startup costs and sort of just the ramp before it all scales. And what's the path back toward that? 7% and higher.
Greg Heber (Chief Financial Officer)
Yes. So typically Q4 is our highest margin. Quarter last year we were at 6.3%. We're going to beat it by 10 basis points for this Q4 at 6.4. So overall feel really good about 5.8%. As Mike mentioned, we're going to be 6% plus for next year. Still a little bit early to talk about the shape of next year but again feel good about continue to improve on gross margins and getting leveraged in SGA to get 6% plus and higher. From there.
Mike Dastore (Chief Executive Officer)
And the Q4 seasonality is quite common. If you go back over the last two or three years, you'll see the same level of seasonality with Q4 being the highest performing margin quarter.
Sahed Singh
Understood. And maybe then just on the Adani piece of what you mentioned, I guess without getting into financials, can you just help us understand the capital model? You know a multi gigawatt build sounds pretty capital intensive and yet you're committed to sort of the one and a half to 2% CAPEX. Percent CAPEX. And you know, so is that structured? Are you thinking of structuring that as a JV or is that partner funded? You know, how are you going to participate in those economics while keeping DJBO asset light and avoiding the IP ownership risk that you've been careful to avoid up until now?
Mike Dastore (Chief Executive Officer)
I just want to start again by saying look, we do not have a definitive framework so we haven't figured out structure and, and capital and all that. Having said that, I feel really good if you look at our growth in, in everything that we're going to do with the Adani Group as well. It's manufacturing, its manufacturing racks, is manufacturing server, it's manufacturing storage, next gen liquid cooled racks, power distribution, transformers. We've been doing that for the last three, four years now. So our capex has been proved out already. This is no different. It's just the scale will be, will be enormous. So I think just I still feel comfortable with 1.5 to 2%. Don't forget our manufacturing business is relatively asset light in nature and that's the beauty of the model that we have today. You can have your cake and eat it too there as well. So I think I feel really good about our CAPEX ability once we get going on this venture.
Sahed Singh
Okay, helpful. Thank you Mike. Thank you Greg.
OPERATOR
Thank you. The next question is coming from Melissa Fairbanks of Raymond James. Please go ahead.
Melissa Fairbanks (Equity Analyst at Raymond James)
Hey guys, thanks so much. Just wanted to start off by saying for Graham and Frank, congratulations on the first round win. I hope to see the tartan army down in Miami. I'm not sure if they're listening to the call. I was wondering, we've got a really strong guide for intelligent infrastructure. Not surprising. Can you give us an update on the North Carolina facility? When can we expect revenue to start flowing through from that facility? And then I believe you also have first rate of refusal of the parcel of land next door. Just wondering how we can think about that in terms of capacity expansion going forward.
Mike Dastore (Chief Executive Officer)
Sure. Thanks Melissa. I'm sure Frank and Graham will appreciate your Comments? You're probably still hungover from Saturday, but probably look, North Carolina facility remains on track. I think we'd given a timeline of Q4, the end of this year, fiscal year, nothing's changed on that front. We booked one customer, we're talking to others. I think if you think about it, January would be probably the date by which we'd be fully ramped. Obviously we'll have some level of sort of steady ramps through 1Q27, but January onwards I would expect run rates to be in that 1 billion, 2 billion, $3 billion range over the next 1, 2 and 3 years. So I think overall the potential is still the same. No major changes to our North Carolina piece. One of the things with the additional land next door, we're looking at facilities which are easier to get to as in readily available. So we might have capacity coming online which is already built out as opposed to going through another 12, 18 month of build out. So it's just a slight sort of variation of our initial thought pattern in North Carolina, but everything else remains exactly the same.
Melissa Fairbanks (Equity Analyst at Raymond James)
Okay, great. Then maybe shifting gears, looking at regulated industries, we'll give someone else a chance to shine. Glad to see the auto business is moving a tick higher for the year. I think the downtick in health care is maybe a little surprising. Wondering if you could give us some more color there.
Mike Dastore (Chief Executive Officer)
So I wouldn't put too much, too much into that. Don't forget we took it down by 100 million. Our daily shipments add up to 120 to 530 million. So the number of the amount is not as material, it's just one, it was just 100 million and with rounding it was even lower than that. So I wouldn't worry about it too much. Our long term view of healthcare has not changed at all. The product cycles extremely long, extremely sticky margin profile, highly attractive.
Outsourcing in this industry is still relatively immature and we continue to see good opportunities around. If you think of GLP-1, you think of drug delivery, you think of continuous glucose monitors, med devices, chronic disease management, all of that is still well within our control. And I think FY27 should show some level of growth again. And then don't forget, we'll have Croatia come online right at the end of FY27. So it's not going to be an FY27 event, but it'll be coming online at the end of FY27 which means it will be an FY28 event.
And then we continue to look at V2Vs (Vehicle-to-Vehicle communications) and capability driven MAs and more vertical integrations. So I think healthcare continues to be right at the center of our strategy going forward as well.
Melissa Fairbanks (Equity Analyst at Raymond James)
Okay, great. Thanks so much for the detail. Thanks guys. That's all for me.
OPERATOR
Thank you. Our next question is coming from Luke Young of Baird. Please go ahead.
Luke Young (Equity Analyst at Baird)
Good morning. Thanks for taking the questions, Mike. Hoping just to start with the preliminary 2027 AI view and hoping just to get a little color from a customer standpoint in terms of incremental contributions from your largest customer versus the second and third hyperscalers or maybe even seeing maybe some more materiality from neoclouds in this guidance as well.
Mike Dastore (Chief Executive Officer)
Thank you. It's spread out across the board. I think the numbers are well diversified. Obviously our largest customer plays a role in that. The second hyperscaler will play a role in that. I Talked about the third hyperscaler initially in FY27. The numbers won't be that material, but FY28 will get to a material number. But it's, it's really well spread out. Capital equipment is doing well. If you look at Data Center Infrastructure (DCI) that's doing well with all the new capacity coming online and then networking, it's almost like a really well diversified portfolio within intelligent infrastructure that's outperforming significantly.
Luke Young (Equity Analyst at Baird)
Understood. And then can we maybe flip that to the capacity view? So certainly Carolina part of this into
Mike Dastore (Chief Executive Officer)
fiscal 27, but can we talk about where you're able to push on capacity in some of the other key facilities, be it India, be it in Memphis, kind of some of the big chunks to support what's obviously several billion dollars in growth in total. Yeah. So North Carolina obviously will play a part there. Like I said, we booked one customer, we're looking at multiple others. We'll provide more guidance on that in September. Memphis is coming along nicely. I think if you look at the, the LVMV (Low Voltage Medium Voltage) switchgear that we have there, the In-row heat exchangers building out in Memphis, they're going well. We're doing the second hyperscaler in Mexico. We've got networking going on right now, expansion going on in India.
So it's all spread out and the capacity utilization will quickly come on, come online very fast Again. I think market asked that question about ramps. There will be some level of ramps that take place. You don't trigger five, six facilities up on all of the same day and they don't start performing from day one. So it will take some level of time. So Q1 of 27 we will be in a little bit of a ramp situation. But from the 1st of January onwards of the fiscal year, I do expect that capacity to come online in a substantial way in all sorts of different products, different customers and in a really well diversified manner.
Luke Young (Equity Analyst at Baird)
Really helpful. Thank you.
OPERATOR
Thank you. Our next question is coming from David Vogt of ups. Please go ahead.
David Vogt (Equity Analyst at UBS)
Great. Thanks guys for squeezing me in here. I've got two questions for Mike and Greg. So maybe Mike, starting with you. When we think about the soft comment commentary around fiscal 27, particularly around AI and your margin, how much of that commentary is guided by your view of supply chain component availability and what your customers are seeing and how is that taken into consideration from a margin perspective? Obviously, I would assume that you're building in a buffer there. I'll give you my second question at the same time, maybe for you as well, and maybe Greg could chime in when I think about the third hyperscaler. I think you mentioned a couple hundred million dollars of revenue in fiscal 27. How should we square that with sort of the North Carolina facility coming online next year?
Are you insinuating that we're going to have multiple customers in that facility or is it just going to be that one customer? How do we think about sort of how that capacity is going to be allocated among your hyperscaler customers going forward? Thank you. So I think when you reference soft guidance, are you talking about 27 similar. Yeah, I'm sorry. Yeah, just a commentary around 27 AI growth. Yeah. And that's colored by supply.
Mike Dastore (Chief Executive Officer)
Yeah, no, it's similar growth rate percentage on a much, much higher revenue base. So it's a substantially bigger number in revenue dollar terms. So I wouldn't call it soft. But overall, I mean, what I meant, what I meant by. So I didn't mean softened soft performance. Like you're not giving the official Quantitative guidance for 27. Preliminary guide. All right, that's fair. I think the reason I actually talked about it was to give an early indication it wasn't meant to provide guidance. I didn't want to hijack our September call. We will have a virtual investor briefing in September. So we will provide more guidance, more definitive guidance then supply chain absolutely is part of our thinking.
We're aware of where the shortages are. And obviously any commentary that we provide for 27 will be, will have some level of impact, but that will already be built in. So the numbers we talked about definitely have that built in. Like I said, a lot of the, a lot of the AI intelligent infrastructure customers do manage to get their fair share and then some components. So it Is, look, it's an issue, but I don't lose that much sleep over it from the intelligent infrastructure standpoint.
And I think as we go along in over the next three or four months and we actually have our long term strategy sessions in this Q4 as well, which go out a couple of years. So we'll provide more guidance in September. Great. And then on the third hyperscaler ramp versus the North Carolina capacity coming online, how do we think about that's going to be allocated to your hyperscaler portfolio? So the third hyperscaler, like I said, is in the data cloud infrastructure space. We booked one customer in North Carolina. We're still trying to figure out where exactly the third hyperscaler would go. It might be North Carolina, it might be somewhere else, but that's a good problem to have.
Like we said, there's capacity coming online in multiple jurisdictions, multiple factories, multiple buildings coming online. So I do think third Hyperscaler is ready to go. It's just a matter of us trying to figure out exactly where to put it.
David Vogt (Equity Analyst at UBS)
Perfect. Thanks, Mike.
OPERATOR
Thank you. The next question is coming from Tim Long of Barclays. Please go ahead.
Tim Long (Equity Analyst at Barclays)
Thank you. 2. If I could here maybe. I think you guys mentioned Hanley as going well. If you could just give us an update there kind of on both the
Mike Dastore (Chief Executive Officer)
power side and the more services side, how that's ramping and developing internally into a better business for you guys. And then second, if you could just touch on the storage business. I think. I'm not sure if you mentioned it that much, but curious how that's going. I think that's been a pretty good ramp. If you just kind of update on us on how that's going this year and the outlook into next year. Thank you. Sure. So I think just as a reminder, Hanley expands our capabilities in both power modular power distribution, energy systems and then there's a service angle to that as well. It's higher margin business. I think from a revenue standpoint it's actually going better than we'd anticipated during our acquisition. The level of interest that the acquisition has generated is extremely positive. I think again, we were expanding capability offerings and going in through one channel and expanding our capability offering in other channels.
And Hanley is part of that solution as well. So all going really well. If you think of some of the areas that we can expand into with modular power solutions, I think data center power architecture, I talked about services, that services is a critical part of the offering. Not only do we help deploy the gear in the data center, we help maintain it, we help service it and that's a recurring revenue stream as well. So Hanley overall going really well and then the second hyperscaler I think you mentioned storage that's going really well.
I think some of that is reflected in our guide for what would call it guide but our indication for FY27. I think when we started on that second hyperscaler journey a couple of years ago none of us imagined it to be as critical and as big as it's turned out to be.
Tim Long (Equity Analyst at Barclays)
Thank you.
OPERATOR
Thank you. This brings us to the end of today's question and answer session. I would like to turn the floor back over to Mr. Berry for closing comments.
Adam Berry (Investor Relations)
Thank you very much for joining. This concludes our call. If you need further clarification please reach out to us. Thank you.
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