CLS - Earnings call transcript Q4 2020

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Operator

Thank you for standing by and welcome to the Celestica Fourth Quarter 2020 Earnings Call. [Operator Instructions]. I'd now like to hand the conference over to Craig Oberg, Vice President, Investor Relations. Mr. Oberg, please go ahead.

Craig Oberg

you conference us call. thank quarter Celestica's and earnings XXXX morning, for on joining fourth Good

Financial On President Officer; Chief and call Chief the today Executive and are Mandeep Rob Mionis Officer. Chawla,

call statements outcomes we a the of are Canadian of based U.S. the Securities during Act As Securities Reform and will on meanings Litigation reminder, Private XXXX forward-looking that statements. and statements expressed make Laws. subject within this expectations, to to applicable which risks, Such forward-looking could forecasts cause other and in current from actual management's materially are factors results projections differ conclusions, and uncertainties or assumptions, forecasts such

For recent forward-looking cautionary law. forward-looking XX-F on forward-looking statements be identification as concerning statements, assumptions to at our please sec.gov and therein, our filings, refer note no regarding public most press except of and sedar.com. the statement Form such as to update accessed factors including other obligation which information We by well assume as can further today's and discussion any annual report and required release

not and comparable to our directly IFRS certain companies to tab free non-IFRS Investor adjusted measures measures EPS, at describe flow, or which this operating this net shares to adjusted and to invested prescribed the who for foregoing do meanings may including public In U.S. non-IFRS similar to other capital use of various return margin, today's whether any measures on and measures have operating adjusted other are designated information XXXX to under We adjusted and tax effective references These margin, specified, any financial earnings, call GAAP under a be Listeners report based our the standardized will Earnings not EBITDA Relations historical use dollars operating or celestica.com rate. by information denote this leverage press are metrics. that adjusted ROIC, be measures not measures as refer by IFRS non-IFRS refer ratio, during release call, similar most reconciliation from available non-GAAP adjusted non-IFRS QX to comparable cautioned should Presentation, otherwise during to measures debt or such. you U.S. these IFRS our on more XX-month presented diluted we specifically and gross of gross addition, share to is non-IFRS earnings, outstanding. including per trailing adjusted cash adjusted references call Unless about measures SG&A all on non-IFRS measures dollars statements. and that

Let me now turn the call over to Rob.

Rob Mionis

basis quarter revenue commercial consecutive segment improvement other a posted year-over-year Despite extended fiscal for revenue fourth our areas. the year-over-year and sequentially successfully operated our of the the Craig. above in margin to margin you, and in as health weakness adjusted for demand a our in X% equipment than on of unprecedented a Within everyone, ranges. the growth segment growth our on operating fourth guidance the while segment revenue quarter, decline, us we growth declines, disengagement with revenue Good in strong Despite our margin to delivered solid challenges. and the other we midpoint in target concluded above revenue tech well capital sequential EPS improvement Within fiscal ATS strong in reported consecutive as aerospace segment, on were third Thank for morning, achieved and quarter. quarter successes, CCS, these year-over-year Celestica was today's businesses. end thank the fourth you range, conference margin, quarter offsetting X% basis. more in range. call. within year QX and and Fourth joining the offset decreased

quarter, fourth JDM JDM Roundtable growth. impressive in our business. we Many of the experience JDM attended approximately of our you to total key the in represented continues business where QX. revenues year-over-year. JDM of company were million in up December Our XX% revenues XX% discussed $XXX elements

example, globe, generation XXX hardware design than working have engineers JDM and For across next the current noted more on platform we we that solutions.

over described as XXX the million to drive We of The XXX shipped term than patent decade and our hardware or over have have we and JDM, Design a safeguarding co-development management IP advantage ago programs it process. and as worldwide. Joint began technical customers our this more robust units offering a Manufacturing over JDM Since we model. inception X.X a launched

JDM our HPS a more breadth highly-valued that of fully and of and across platforms. which business segment. generates However, Moreover, product our Solutions we support of platform we over our enabled fueled and depth term capabilities does R&D lifecycle an simply, leading-edge does within reflect our XX cycle, engagement not within offering not extensive roadmaps. product than last It scope current to across of customers of of by portfolio, The our investment. Celestica's XX margins XX is by our is Said the that the forward, evolution capability ATS years. the Hardware feel of Platform believe many offering HPS now, and sharing JDM hardware hardware solutions, accretive offer comprehensive the attributes than as the the more the describe the offering more been moving slate We have referring HPS. will life model years we offering. significant broader our be highly-strategic solutions or Therefore, currently

companies. and of the X% a our Solutions. comprehensive we revenue total XXXX, call more product Lifecycle an Solutions has what years. Lifecycle revenue growth industry segment than average half had revenue last patent portfolio, and represent HPS together diverse In of a three of represented ecosystem and roadmaps ATS deep leading with rate Additionally, partnerships HPS over

higher markets strategy coming of Solutions is solutions of our the will a provides and over and quarter to the guidance. I Lifecycle and our our call I This will XXXX growth revenue the customers. and additional shortly, portion first, continue but value-added on the first to on some expect you represent with give enable total larger Mandeep turn our to to provide We outlook in some to fourth end revenues. color our in-line years diversification details quarter

Mandeep Chawla

Rob, everyone. Thank morning, and good you,

For guidance and quarter revenue $X.XX XXXX, fourth our decreased year-over-year of within range XX% and sequentially. X% the was of billion

non-IFRS down year-over-year guidance across operating by XX year-over-year Our sequentially. was down and basis of margin improved for points were EPS earnings the up above XXXX due productivity was earnings down midpoint XX our partly adjusted sequentially. $X.XX businesses. and $X.XX CCS, XX above mix were The to ETS. points per improvements midpoint, by $X.XX and and up $X.XX our sequentially. the per several share driven Fourth in basis share offset basis The year-over-year improvement points quarter decrease $X.XX of QX in year-over-year mix was X.X%, revenue up ranges, Non-IFRS sequential adjusted $X.XX, and IFRS

quarter, of in-line This primarily driven tech and in segment industrial continued largely revenue in last was to and decline. by our new compared of quarter was equipment during health down COVID-XX. the partly commercial down and with our A&D at [ph]. our driven decline pressure year. strength sequential businesses, offset a was revenues continued last down of aerospace consolidated from capital X%. by ATS low the specifically due The program year-over-year year XX% by ramps was in Our ATS was Sequentially, XX% double-digit fourth year-over-year and expectations to XX% ATS revenue percentage

down Cisco revenue segment low X% CCS decline a due was with to in expectations single-digit Our the Sequentially CCS year-over-year of line XX%. revenue was year-over-year our Disengagement. down

continue Cisco the look next will to from impact quarters As disengagement few forward comparables. the we our year-over-year to

growth of rest our XX% fourth year customers However, was from the from year, Cisco compared communications CCS robust of was in up we segment, Within CCS from primarily grew XX% demand market impact with Sequentially, Revenue provider X% our the the service remaining by down in the the driven prior HPS. in the customers revenue are the Disengagement. growth in communications pleased mainly the end last by offsetting in to our Disengagement. are XX% the Cisco QX quarter the revenue up XXXX we quarter due Communications quarter consolidated portfolio. revenue, by XX%, year-over-year, fourth period. represented from of seeing driven CCS to

quarter, represented in year-over-year driven same and the declines period revenue were down revenue year. fourth softness. XX% down and XX% sequentially. XX% mainly XX% was by enterprise Enterprise from quarter in of last consolidated the Our in sequential the end-markets demand down Year-over-year

deliver Our on our new HPS increased with driven be to continue from quarter the and an to business area strength fourth of demand year-over-year revenue XX% ability our ramps customers. hyperscaler program in up by

compared For revenue. of of million full XXXX, revenue, to total XXXX accounted achieved HPS up year company XX% $XXX for our XX% and

and segment mentioned, Lifecycle from Solutions' is revenues ATS Rob the comprised As of HPS business. revenue our

up revenue, year full our billion revenue. represented XXXX accounted the X% XX% and Solutions in XXXX, of for consolidated Lifecycle year-over-year dollars $X.XX For

of last XX% Our during top revenue, represented represented down period X% last XX% last Top XX year revenue and customers year. from quarter, up quarter. the from XXXX of XX our X% fourth the customers same

XXXX total For quarter or one the in more XXXX. of the who compared in revenues. had of our two quarter, fourth revenue and customers represented of prior Celestica No represented more to XX% two the XX% than quarter customer fourth

our on target The margins. points driven productivity health margin mix. in XX our driven which year-over-year, was actions sequential to margin number segment and which volume XX sequentially. up was Year-over-year the one-time improved by improvement capital and leverage up more above demand margin segment year-over-year our The offset segment points XX improvement driven X.X%, X% declined basis of actions was but equipment anticipated achieving points by business. positive mainly up margin favorable was points continued due businesses, normalizing CCS businesses. improvement and to sequential productivity our fewer margin and a basis X%, combined of recoveries. headwinds sequentially. a to was of of ATS down XX basis was performance The basis across A&D trajectory X.X% range year-over-year with tech Turning than by a in our

year $XX.X was year. in period compared year. earnings Moving per on of net XX same were the efforts up to a financial third per $X.XX and quarter quarter adjusted business points the SG&A share variable Year-over-year revenue. relatively sequentially. of million quarter $XX.X SG&A quarter or and and the basis same same compensation. quarter. up compared mix loss million, operating share, $X.X flat sequentially. was sequentially. quarter from net $X to lower largely $XX Fourth or a basis was IFRS ago, despite year $XX.X and some million the versus for X% to primarily improved And improvements $X.X $X.XX for Adjusted driven the Non-IFRS were down million were last to the adjusted of sequential by million productivity a $X.XX million of earnings million XXX year million $XX.X due per across higher this up last share points additional the in earnings loss of gross highlights net last Adjusted margin or of

compared tax XX% the prior and quarter. effective quarter adjusted XX% to fourth rate non-IFRS Our was year for for period XX% last the

We are due mix. pleased the profit of tax normalization rate, with overall to in largely our improvement a

fourth last the adjusted earnings operating adjusted to was to $XX.X adjusted $X.XX offset was within earnings XX.X% taxes. non-IFRS adjusted quarter, year up year-over-year operating earnings same million $X.XX ROIC for and interest period the to taxes, compared $XX.X Sequentially, Non-IFRS quarter. the for of and to quarter XX.X%, XXXX. earnings, by down partly mainly due XXXX sequentially. net lower X.X% $X.XX were For non-IFRS Fourth expense. lower range adjusted lower last up lower per prior X.X% higher and to quarter million ROIC of due $XX.X our were down compared guidance million X.X% Annual up per compared and of were share year share earnings,

on Moving working capital. to

million quarter HPS Our X% flow our the turns for investments revenue. X.X cash the expenditures was of the up turns down million down same $XX to sequentially sequentially fourth compared business. turns fourth by prior-year year. period was Non-IFRS free end million to the inventory the Capital million X.X largely last $XX period, were Inventory relative fourth $XX.X quarter billion, X.X million $XXX in for of at the and driven approximately the and $X.XX $XX.X in down quarter, year-over-year. or quarter were in

cash free despite are quarters We positive a in in unprecedented for challenges row, have pleased generate XXXX. eight to been to able the flow

the year generated of cycle cash $XXX year fourth million full our we $XXX in or the days free and sequentially. days, at full XX million generating more. were non-IFRS XX year-over-year with Looking flow up in-line target of Cash up days XX quarter days XXXX

$XX Our cash $XXX end of XXXX sequentially. deposits at December were million, the down million

cash our and million We've Combined undrawn. metrics. continued additional with sequentially. balance at the balance fourth million strong key remains XXXX dollars, a $XX our was some compared to down to to up $XX on maintain million quarter the Moving sheet, revolver, which million of end $XXX $XXX

of available We current meet million over very we have to a liquidity believe in liquidity $XXX sufficient position strong funds. business have our We needs.

position debt $XXX was net XXXX an debt million end December XXXX. versus at $XX third of our improvement million gross the while was the Our of end $X of the quarter million, of

gross of debt the adjusted EBITDA result cash disciplined all with debt is financial our end improved flat leverage is quarter and trailing ratio The generation, At X.X XXXX. XXXX, QX agreement. compliant reduction was and fourth profitability. Our were improvement covenants XX-month flow improvement credit we to sequentially X.X non-IFRS free the turn from year-over-year of strong under December turns, operating

cash to priorities our return in business the and are previously, over shareholders XX% the amount free flow remaining the of shared have long we As term. to invest to capital

track pleased approaching same to while When We shareholders two are and exceeds returning EPS When focused $X.X capital making to aligned in investments cost or XX acquisition. over intended both and year our looking the ROI last investments, an opportunities are look that that ensure to our the record are billion our and our sooner. strategic one, over organic at strategic the by on with we years, accretive approach capability-based filter the in year acquisition, drive roadmaps with a are investments in that through well-defined. at to We they for time business buybacks. filter

undervaluation better in order A&D we uses of business incurred to restructuring the our buybacks. undervalued alternative been November having decisions price XXXX. Recently, of traded such launched a investment and value Cisco to $XX of its to book XXXX. In demand, opportunistically we below million as cash, including our completed we fourth these of adjust share this to has weigh shares, tangible fluctuating [ph] Disengagement. purchase cost and share majority also as We to the stock in buyback for our levels adapt quarter, program In charges the on base response in

full restructuring year million. of $XX estimate recorded have we charges our the For earlier million of XXXX, against $XX

approximately sequentially. XXXX, down to revenue first At this of year-over-year we and billion Now revenue will for be turning guidance our of projecting the the in $X.XXX to the billion. $X.XXX to quarter range, are be first range of quarter down X% midpoint XX%

taxable impacts the is excluding exchange tax to on settlement. foreign At increase non-IFRS earnings margin for quarter range ranges, mix adjusted basis the tax adjusted decrease non-IFRS effective quarter, year first approximately geographical Based quarter SG&A First same expected in would million be XX%, our million. revenue to anticipate unanticipated last points $XX adjusted $X.XX from of XX between the the to per the expense to and share. profit an X.X%, to of Non-IFRS our $X.XX rate share EPS a per first midpoint of are basis points range be projected adjusted and guidance over $XX the of any operating in our our sequentially. of be XX approximately we period expected non-IFRS or

in the our to partly end health aerospace for anticipate market Turning capital result revenue In the weakness we and businesses. due sustained to offset tech growth mid-single-digit quarter XXXX. our be percentage market down a by range COVID-XX, commercial ATS in our first to year-over-year of in as outlook equipment of end

market the strength we end end in driven by Rob driven range market, demand. by to our ATS single-digit update and driven communications XX% growing, be anticipate down low our year-over-year, revenue teens range year-over-year, capital priorities. The enterprise and in to business program in our an is In weaker In revenue remainder are tech. we our HPS. the For color we turn decrease portfolio additional over I'll percentage market grow Cisco. high XXXX anticipate health percentage targeting the our year-over-year driven from equipment by of disengagement CCS, to however, ramping revenues call and for by largely to on end now

Rob Mionis

Mandeep. COVID-XX Thank year unprecedented you, pandemic. an to was XXXX the due

challenges However, to mobilized on. and our team quickly the entire meet up head stepped global

of around slow globe, the rises additional number cases virus. seeing spread the of to with the COVID-XX we restrictions government respond are again As the

and We continue to disruption minimal currently are to our effectively manage operations. COVID-XX-related experiencing challenges

As work challenges circumstances continuity. new evolve, we any maintain adapt to and to operational continue will to

Now us ATS, to bookings turning has momentum excited in strong grow our segments, our our prospects business. to about portion of this

In program base continued We business growth sources across continue equipment towards as reduced utilization in markets. form reduce fab demand site as in Industry of increased demand new at rates our to are well increased expenses equipment forecasting displays semi business by number as for anticipate see work strong growth we commercial XXXX. in are demand. A&D, of in In adjacent of to equipment our our capital demand. headwinds aerospace our a in business, to driven ramps drive wafer year in continue the factor business operators display to end continue the small expected overall light capital

continue take anticipate defense market Demand business. stable to this that We our grow we persist headwinds remains in productivity business cost and XXXX. to continue to make actions we given through to investments

momentum begins strong to growth to within to including base added encouraged to bookings by industrial, our expect as are new of major into moderate. continue a airframers demand contractors. tech, as we recovery we continue as winds, recent strong the customers, continue we in experience continue A&D COVID-XX we we impact defense ramp XXXX. and of customer In to And have health the We momentum across nine experience a

continue to of turning efforts and improved to in shaping reap margins. our resulting CCS, mix we portfolio benefits the Now revenue

our of programs. our impact backfill a pleased quarter partly Disengagement. another posted with I'm from that mix offsetting target we Our achieved Hardware richer of Platform growth Solutions Cisco have business the

our generating XXXX, improved on basis, on EPS performance As while results in operating also free our driving margin segment back strong cash I adjusted flow. and a significant we year-over-year growth look

made towards number executing in our strategy. we Additionally, of areas a progress meaningful

global the service our posed pandemic, the to First, the team difficulties operations. standard posed challenges by responded of despite maintained the to high

participating of As a result customer one XX% rank of their on the customers scorecards. two either this over effort Celestica number number or

compared of CCS ATS margin headwinds by to was we basis points key basis improved segment segment in margin the last target and adjusted in XXXX. compared EPS year-over-year. XX% up of markets, XXXX Second, quarters XXXX non-IFRS of as operating XXXX its in margin Non-IFRS meaningful three points XXXX XX XXXX improved in in despite operated and above some XX X.X% our to

volatility the difficult despite ramps, Third, executed double-digit successfully environment, on which of allowed percentage other new markets. seen well customer our macro HPS and the for in revenue growth in demand as as program business a we number

of the impressive $XXX NCIB Our business transformational an that ahead. of opportunistically years. opportunities a repurchase flow, growth growth debt to driver as million free few a result launching believe strengthened that We for $X the And show our in made HPS investments reducing shares. be to many our sheet balance last challenges efforts We the program and over generating new business capitalize of XXXX compared million believe continue our HPS cash lie company to of might and on our position to have by we finally, future. will net overcome to over XX% positioned years over

of margins. improving our XXXX, in diversifying As areas strategy we remain targeted revenue our to growing we business, and committed enter

As such, the for set have we ourselves. targets following

productivity the as year-to-year target targeting XXXX and to we the revenue by growth are as tech, in in X% year, growth driven its segment, return capital end XX% ongoing and to well range within to of actions. the equipment, X% our by business of health margin for industrial First cost ATS

X% percentage will with Cisco. revenue firmly in within are single-digit a growth target decline our segment CCS is be Second, which non-HPS a business, our we targeting high partially of our in offset primarily XXXX. as result of range segment margin HPS our CCS X% expected to to in disengagement

in expect business million continue Lifecycle Solutions we'll allocation. XXXX lastly, sum I HPS long-term to we required difficult $XXX our our revenues am revenue, some targeting pleased execution very grow our next that decisions is disciplined towards we strong efforts, dividends. our to and have are would more last of digits, challenging these but flow single comprised to efforts have years enabling we years. of cash To and paying executing been a revenue And and their sustainable committed our ATS segment approach We or Third, decisions business. with performance tremendous. a I for achieve few in of further to The hard like and to on up, us generate which high focused drive to our materially believe diversifying work in our are remain the environment. and few to growth. thank free acknowledge in objective capital in the dedication Their employees to strategy profitable

for trust Q&A. a We and utmost priorities turn thank Celestica. begin global forward the updating shareholders support our operator the And we progress I the will our customers like like team, would call unprecedented loyalty overcome now continued for would faced to to we over you our to have XXXX. to that that their finally, confidence to results on for quarters. coming and XXXX. also over the of their the I with on challenges look and execute And in our As have deliver to our continue I

Operator

[Operator Capital. Instructions] Steep Paul Scotia Certainly. with

open. line Your is

Paul Steep

Maybe of your incited little a talking is about across, I morning. outlook as consistent guess talk year terms the within what Good and businesses been ramps. the to little new business is bit us the just health how almost that Great. expanding in bit, a it meaningful portfolio. a tech but talking is where Maybe program theme it's it for last more

Rob Mionis

Health and new diagnostic business for Yes. lot over the ultrasound, that We've segment all programs well. areas It virus and the terrible of ATS quite our to is as has been recently equipment-related XXXX for said, nicely is strong we're morning That growth smallest in going source a XX% in our frankly us in us of combatting of expected equipment within and forward. tech we this business. on year growing last over growth PPE, we a for by won Good Paul. being XXXX. Hi, hands. have looking to grew the very be

the know, side, capable as continue we bit to we the sluggish little But for the outlook surgical continue instruments have year of to and the for some win very well. we're team health very is a programs flip full bullish On tech our demand a you new on business. for

Paul Steep

of either just the And guys. overall weigh we bit working you then maybe up maybe little now on Fantastic. It then guess Cap think obviously, you, or Rob, frame Mandeep help clarify how comments more upfront of about cap to here. your the and what is growth expectations could I around of moves on in, Thanks, in CapEx calling we're should I like guess sort one business be a terms with that us in unrelated HPS. or maybe working the seems that in, what demand? held would

Mandeep Chawla

Paul. Sure. Good morning,

to flow highest targeting cash level, over we the is generate XXXX. are I'll So at of $XXX which in start maybe million free

couple to see there in them. a improvements continue We hitting working but dynamics happening are you're on capital, our and of overall

inventory. XXXX, capital the been we'll but believe has support build But the continues we and high doing continue the to expectations. The offset builds to have of working inventory unwind XXXX, in business and other growing that very we Our of need single-digits help in business sufficient to growth still working parts again, rest to inventory, is that as largely diligently that we of towards still levels business proportionally that. targeting we're to have we're some HPS of in-line our with over grow so inventory we our

simplistically, typically came shifting XXXX in XXXX. and spent our around of of them We around in with in or $XX revenue on million year. million For in putting and we've $XX projects about and to maybe CapEx per were COVID highest the We of into more XXXX. in that lower spent just hold CapEx. a some priority X.X% CapEx generate had that maybe lot do of

$XX the $XXmillion in is to now CapEx for right in outlook million Our somewhere XXXX. range

more So levels. back normalized to

Paul Steep

sort Great. guys a this are a Actually, you those few mentioned I'm baked actions Mandeep, provided commentary one, all I and you've into to know assuming just and last buried higher-level the times. clarify, morning. cost of

Mandeep Chawla

It is.

So, because we to we restructuring, taking actions of know that for less we've had as million. the took good on we spend original of number $XX restructuring made million of $XX a a progress year new estimate losing ramping million This little programs able years. been revenue, assume We but you that an actions as bit were levels, be more $XX restructuring some we would looking where will in $XX in will somewhere at well. range. I we next in be taking the facilities charges normalized our tuck-in year XXXX into the to million were

Paul Steep

Perfect. guys. Thanks

Operator

with CIBC. Coupland Todd

Your line is open.

Todd Coupland

the also ask Great. about ATS, Good wanted segment. morning, a in everyone. I segment semiconductor to

forecast is there your want investors back in growth in semi customers and business connect the and to reason business. how Thanks is, asking a been what I'm much. calling a that in locked link Can surge it that You're the pace semi to of often market or could very impacts to of your appears and out in as growth area XXXX. whether strength be in you talk pockets the about the it

Rob Mionis

equipment strong Todd. to we it and be Thanks, couple been expect of a in has Yes, XXXX XXXX. strong in

from running a market accelerated equipment secular that because expansion news industry wafer the and the As in of long-term bodes that, program you of what equipment saying know, while growth being and we here which build just millimeter our gains from on seeing [ph], good read centers, into are the check XXX raised technology auto a themes portion largely the XXXX is and the well upgrading wins semi-industry data new in for growth older the designs, our their communication predictions XXXX in equipment. for XXXX. growth from high-speed fab out for of is growth. And they are coming going of UBS, including it's also again to out also broad of networks, XX% perspective, is their we're just top the of X.X% share

get stronger will on said, longer. as So all outlook the equipment bullish capital the being that year gets we're within

obviously, provided the of terms things around our that the customers of six in for that's but confirm the I would slot of out about speaking, turn for industry up, months visibility inside typically kind I [indiscernible] are trends. the In can and year analysts and guess secular wiggle our plans, month, say customers But six They to then we bullish visibility, broadly quarter. have.

Todd Coupland

plans, next? change sort you to to the lot can the - were if them of the in guess now compare of at where And one characterize those you they end I to were quarter September,

Rob Mionis

forecast with increasing for little is time into cyclical the are there's turning little bit the certainly frame. and the time POs capital align slot picking a XXXX. up Again, certainly It takes somewhat equipment, industry for the dynamic. Tt's so Yes, a certainly But to to [ph]. there. trends September plans it relative been is

Todd Coupland

last question Thanks about talk from course margin the me from could. X% fits The if that and the by year how One lot. just rhythm X% fourth over pickup with outlook of the impact ATS, the quarter. I this a that in to

Mandeep Chawla

morning, Todd. Good Great.

performance and we've happy that the in momentum been been seeing we've So, with ATS.

target driver. from growth that end where the the by drive would continuing the to XXXX. are did We're to of to expecting improvement X% capital largest we really just quarter last there. year into margin see you back us to us be targeting As this get going to get equipment continue to into and -X% X.X% It's of the know, are and range we we in

have cost continuing But performance [ph]. of strong see profile. ramp the will its as to because the equipment, from health we capital grow business a structure benefits margin expect We fixed and programs we continue revenue, as we heavy disproportionate tech

the of some XXXX. towards expect second half as especially we we So margin see we go that improvement, will

Todd Coupland

Great. Thanks a lot.

Mandeep Chawla

Todd. Thanks,

Operator

Young Robert Canaccord. with

Your open. line is

Robert Young

Hi, morning. good

said had grown. customers of in Cisco the I the outside business think that revenue CCS you from

and you are I And think these business? it that number. was capacity backfilling? you're part talk relative XX%. could Maybe the to backfilling if Cisco, that some new reconfirm how you could you that left of in Cisco this, customers, backfilling unused are the in that capacity where by that's you is Are about

Mandeep Chawla

part. Rob. morning, the first and Rob Great. I'll second take take Good part I'll let the

We and full engagement. piece. this. grew another X% grow fourth it on in KPI grew the if the by quarter basis when XX% Cisco second So a at yes, excluding and as excluding you actually Disengagement Rob you CCS Cisco exclude on let look I'll CCS year good by did the touch It's

Rob Mionis

Rob. Hi, Yes.

to So, battle we But ourselves our that that backfilling the goal, we're revenue the not initiatives and We is we as would that dollar-for-dollar. HPS at content. year in has how in the and higher we focus to of add we're for of pleased able fulfilled last largely coming revenue fiscal place target and on pleased that say a shaping with mentioned, that very looking are a mix target portfolio business previously on very our we're achieve end terms put target. along. I value

Robert Young

with the business. And go you're to under great. margin going that? forward X.X% of That HPS. to It's way target correct Okay, then Am reporting in going JDM to I that the or the reported HPS be the still includes CCS XXXX.

Mandeep Chawla

That's correct. Rob.

businesses: just operating they talk together attribute. we is fact two CCS ATS segment to of target ATS about and a similar X% firmly Solutions, our and have to HPS ATS that. the putting of just as continue revenue the inclusive that CCS. But We to very margin X% range we're revenue the But Lifecycle in business the highlight have and the is when

Robert Young

potential then much? declining did it you're in growth very And declining is higher upside now so you're the there JDM based digits you the opportunity business then for is is And there why on - potential [ph]. any today growth but than to the be strong Great. for and Okay. still what good, for why guiding or is single XXXX decline in is to the growth

Rob Mionis

growth very, the HPS. secular with we is XX% there growing still centers trends Yes, Edge growth, Compute and strong the of data is switching in XXXX the certainly some had all year-over-year Rob. upside, expansion on of It just very terms depends world. long-term around for in Hey, opportunities and it

We have a very healthy portfolio of products.

we now digits think the is have plays high-single but certainly So how it's but going to where see we'll year it right could to be higher. land, out

Robert Young

was and your the type in business time. you could the I business book today? HPS part asking of don't Is And that have XXXX of then in you it business has plan I is convert guess what cycle that where the

Rob Mionis

book bill it. absolutely do a year. actually Yes, business it. and No inside have you book and It's can the about question

Robert Young

the recovery guys another are the string other question that say, more The or areas looking ATS takeout more driven line. [ph]? you in margin for efficiencies that's would it's other the the And areas, I'll earlier semi-cap say and that talking could from pass were just cost or driven the me, by in in Okay. the about strength business, that last you maybe by you

Mandeep Chawla

it's Rob, Yes, the combination a say of I two. would

to actions we the to demand cost On A&D needing are the take align outlook. to side

of tech growth prepared And already equipment, taken we to revenue we need giving to But then benefit areas a we'll we've of we've improvement and take industrial of because number And XXXX, come sequential a taken if we're help health very us growth, lot to. see frankly of the to are bottom in does some capital revenue good that so, which the seeing and cost actions scale. side, continue to the strong the in starting some and already on is growth line. again productivity actions, be

Robert Young

great for the all Okay, questions. thanks answering

Mandeep Chawla

Thanks, Rob.

Operator

with Markets. Treiber Capital RBC Paul

is line open. Your

Paul Treiber

the much. conversely outlook? see so that potential and bit little look up What when as Thanks opportunities morning. wanted segment, you it upside a to you're more potential at ATS do risks on growth. XX% for when on just a you I outlook the into looking dive XXXX to in and building the forecast downside Good

Rob Mionis

year. center growth. XXXG we driver Rob. And we have see engagements first, comprehensive roadmap a XXXX, across the look I core this of and past forward, as technologies Hey, also going into We'll say, figures all a data key provide would and

also and leaders healthy market [ph] with position other wide-back strong have speeds business. We and a

we So of a growth. as being hedge source

Edge developing growth their focus to also is to have MEC, broader Communications enabling some from by the Edge positions shown evolve. would portfolio and XG, side expansion customers of with lastly, on say center And a Multi-access driven computer across customers edge. data We us. the as for then requirements wired resonating Compute offering strength Edge continue I program emerging solutions each right cloud seeing in the of customers XG+, such with source also to our XG and and as have We're servers we are were that

may continue We [ph] applications have to AI to a expand healthy centers continue and business as data ML grow.

also our to customers positions service and enterprise have with We compute provider well. customers as

just products their these I is equipment technology to tend trends. built have we by of demand, Service and would So, of bit strength. a The some trends they paused hit. broader up, demand buy scale the next sometimes until have when additional in could so of be providers the say downsides own little consume secular just slowdown growth web it demand a

So, I think be side. flip that on the would would

Paul Treiber

to referring HPS that there. correct? you're think I Is

Rob Mionis

sorry, was HPS. about ATS I HPS? I'm Yes, say or talking you did

Paul Treiber

mean when worked I ATS, for - you very… Yes. a

Rob Mionis

Oh, ATS. I'm sorry.

Paul Treiber

No problem.

Rob Mionis

I was sorry on I'm HPS. helpful for Well, hopefully about that. you

For ATS, we in equipment. see growth capital

industrial mentioned strong. diagnostic I being very continues of terms those As for but that networks, the lines. centers, revenue again communication our our well business expecting high-speed be commercial call tech PPE, Those subsides. as things helping long-term growth as as expansion customers. from like aerospace see back before, aerospace we mentioned is business. during to certainly in secular XXXX equipment of corner. build-out nine sluggish lastly expanding in should health won turning COVID-XX We We're of to be some still into fully good on that. data business in of need programs and trends half out I industrial things see ultrasounds, the the We flattening starting new and And XXXX XXXX our in then the turn

Paul Treiber

mainly I year. the little the long lead mean just to of the mentioned bit in there's time that a are are And that revenue second half - you in into segment diving how commercial typically more aerospace, and you new programs

In existing them of there's or see of programs, still the normalizing other the programs, in the your year existing by do on likely programs headwinds end you segment? terms the that

Rob Mionis

are half Lead we That's programs programs the long. early thing. year, that and in back won actually good of are a times the those XXXX. bad in ramping in The Yes. thing a of

flattening now I say, commercial little still bit So, it's say they'll trough ebbs in right aerospace at start would I would back a of levels. ramping of XXXX. the and out But flows. has

Paul Treiber

Okay. Thank you, line. Rob. I'll pass the

Operator

Capital Markets. Moschopoulos Thanos with BMO

open. is line Your

Thanos Moschopoulos

Hi, good morning.

we back commercial more commercial as can that as recovery? I Just to aerospace. has be sounds modest a to margins. there XX%, back X% had X% look in range mean come improvement aerospace at with if Does on get that upside only of like to might this, ATS that what you you imply a to

Mandeep Chawla

Yes. morning. good Dennis, Hi,

largest - strong within the pandemic, and that back capabilities right we're frankly, X% you positive our A&D for getting case so to aerospace the from market contributor expecting come ATS. very range. the overall We're and does - thing back, has to have know be return not towards and now we the and So, was before X% working ATS. profitability largest contribution within and as ATS would segment had a that so a to defense nominal the demand to we're when the overall A&D of and continue will when margins it support That's

Thanos Moschopoulos

could And equipment. expand for comments on display if you Okay. your then

we a a that ramp of you're Should that function be uptick this as more come later to screens. new as capacity You mentioned small gradual the expecting the of online? of or think might year, believed kind is step

Rob Mionis

You're capital equipment, talking about Thanos?

Thanos Moschopoulos

Display equipment.

Rob Mionis

equipment. question. Thanks. display have think the gradual I I Oh, check display, Yes, twice before of would be to a now would I it answer more ramp.

it halves a be two think will of I tale [ph].

it We've China, will growth What is the makers stronger also the of in which orders well new panel half. in to additional half Korea-based them ramps by second from improvements and panel seen go OEMs. bodes program build it we're half I prices seeing second and will think from hopefully long. mobile first year, profitability, Japan CapEx. some coming and spending over a But as year and the sluggish you be half-to-half, a gets

Thanos Moschopoulos

new as be that online, [ph] we more coming As possibility? large might far fabs XXXX about

Rob Mionis

stronger think time as will on. get display I goes Yes,

that first think half we stronger back XXXX, expecting much stronger of be the XXXX well. than to half XXXX to the expecting of much are than be XXXX but the half back of as we're also I

than stronger things be are much think in for but I will for positive, display XXXX So XXXX considered. the long-term trends all display

Thanos Moschopoulos

pass thanks. Great, it I'll on.

Rob Mionis

Okay.

Operator

Bank with America. Bhattacharya of Ruplu

Your line is open.

Ruplu Bhattacharya

Thank for Hi. taking you my questions.

that you Fiscal are double would decline mean one, mid-teens year-on-year? the the HPS CCS the you've would for just rest digits segment they Then year-on-year? the XXXX, double in Would to mean I that Cisco? still segment because to somewhere to you declining expect expected be to first think reconcile of high-single. this high-single The said clarify, guided decline Because be grow revenues trying CCS just CCS is in digits to all clarify, x revenues, grew digits. I'm I XXXX, just Cisco year-on-year Or XXXX? CCS [ph] them to maybe in Fiscal do

Mandeep Chawla

revenue, We're I'll not overall on dynamics CCS to you but Yes. guidance the think about. Ruplu. morning, specific tell giving Good

high are we to range. million generate year. business is one single-digit and It's to the Cisco is Cisco be for will and growth. the growing targeting will going first again now $XXX HPS coming come The a entire so that out right out

some relatively of for rest that So all been be of very going into because of we're the about we've it right dynamics that was that is the we're CCS, a and then for the demand going remainder to be and that headwind now the XXXX. and for portfolio that will subside offset a flat by to expecting that of of programs will talking strong ramping. took so place be XXXX in level There

of rest out So, growth the to in the flat. and HPS, Cisco be portfolio comes

Rob Mionis

CCS thing I what focused targeted Ruplu, is growing on. we're would in is only is that importantly, areas our most add, The

Ruplu Bhattacharya

just for the XX%. the year and for up on mid-single-digit then guiding on the is quarter you're that. the clarification full And thanks first Okay, still ATS side, decline

we half? you would first second expect in year-on-year on to throughout the half more versus the the comments seasonality we QX that any be the should Can or onwards growth revenue growth from year? the So, like expect expect

Mandeep Chawla

Ruplu. Hi,

a full be quarter quarter. growth although it be to could So the that and and of not quarterly first quarter at are lead within is few growth full for headwind are from would the growth growth half-oriented, first year rates second say in that yes, the of year-to-year then lot we in on of a guidance of I the will A then this is that we terms touched to growth. going we back coming a to Rob be expecting but is give in them year We're A&D. to the is, what decline showing going point, think largest has even where XX% that

We new should winning some of some so the we programs, see growth the have towards end year. back been

in seeing we strong towards already online semi-conductor on more little could the the year come but which and back accelerate bit to are display a the expected think year. We demand end also side, the end of will continue, then of is the

after then So, quarter that. drag be a coming growth to and first some we expect

Ruplu Bhattacharya

$XX the Okay. the maintain for or you're you. revenue? this that. quarter? of to guiding million for were think $XX in you Can to Thanks of we in SG&A of COVID-related Thank million the for at year, last rest What least SG&A rest And level the the expenses quarter. my should question, think at going forward? percent should terms in for that I year? of that first think about How about for we maybe the And

Mandeep Chawla

in both programs as the answer It number well countries million from offset generate that. To the recoveries around We some in questions, Ruplu, in was a various quarter. COGS the of $X mostly - COVID we SG&A, some that from in in of did we're have Yes. well. as as which range did government costs both customers in,

look at greater recoveries. having of ended a But million we far did the than negative So had costs We full we overall impact. about year, COVID recoveries. we $XX up had when you

our SG&A number terms to areas levels invest we're rapid In some in the driving dollar are to We're at XXXX. but next maintain the in year, areas, also to taking our we're are similar of of that of very into looking productivity growth. seeing where we the opportunity SG&A going

road engineering business, good maps investments and we be HPS of where the will businesses are investments making have years. making aligned further number those that a the We ATS showing in we growth really are with are business for strong the within

in our maintain longer-term bullish the revenue because So, on outlook. we capabilities want to are XXXX we

Ruplu Bhattacharya

it. clarifications. Great. Appreciate all for the Thanks

Mandeep Chawla

Ruplu. Thanks,

Operator

Jim Suva with Citi.

Your line is open.

Jim Suva

Thank you.

with You Disengagement. Cisco have been very clear the

you stable As ahead? as mindful that as direction right profit or you customers the or behind we going should want are of those with pretty more future? be look us, we your as well there positively book Or to where the that's that look pruning, you to business realignments forward products it? disengagements, Now can a profile additional

Rob Mionis

would Hi, are overall, Jim. things stable. morning. Good generally I Yes, say

that and As do I over keeping our and appropriate scorecards. networks ranked two customer the were in of mentioned We're to customers scorecard things is our we number XX% actions one on we the how way. call, in measure taking of cost-effective stay rank and we one number

and to profile grow that the margin because proven or of of that that away our And strategy. CCS right that aligned incremental a and providing goal we're think is not think so revenue value-adds that doing better very making booking. business, to we're to from business with I feel the disciplined pursuing we do for business HPS our our sake segments to that across in it's specifically, the we're really we're we've profitably I staying At also the happy we're step that to progress quite strategic we're revenue's lens. we but our times, in margin low customers, and we're might

Jim Suva

clarifications. Great. details Thank for and you much so the

Operator

Kurt Stifel. Swartz with

open. is line Your

Kurt Swartz

component you're can you to procurement seeing may shortages. any hoping and how headlines get the talk a I'm color from supply morning. given little perspective. responding about on inventory you an good more regarding I'm bit Hi, environment be the constraints all hoping

Rob Mionis

seeing the quarters of sort Yeah, been demand We've increase this. dynamic a coupled it's out ago. Yes, preparing is hi. we're coming probably COVID. certainly impact is for couple of situation the fluid. We've very with there, of What

preparing one quarters So been or for two we've of uncertainty.

for increased seeing market, the capacity wafers semiconductor's commodities, bodes and much that in logic We've we Mosfet's are attention memory orders high-end new dynamic across to foundries business all reaching transistors the make sure lead Just X-inch phase [ph] our and get the too The well tight ordering we're running which this in XXXX. windows we've the are don't and we Semicap lead into started customers' also to times customers entry area we're situation. of to paying make close manufacturers to resources consumption for being our again or order our several sure working sure increasing with seeing the top dynamics make secure That MLCCs order stay have chip times said, marketplace even to very supply. windows, [ph] in up and at controls the think implement level buffering. historical spike I resistors and we the on placing on opened and based our

Kurt Swartz

maybe demand should sort then bit related you Understood. on tech could more on Great. And those side, we a quarters. hoping stand and the those how coming COVID reconcile the I'm elaborate of two health in ramps, electric with where with product product

Rob Mionis

that products COVID-related that diagnostic imaging are diagnostic surgery driving - are our growth more products things things the been majority elective instruments, like related of surgical monitoring, certainly anesthesia, PPE, respiratory, sluggish. ones require, Yes. devices, the equipment, ultrasound and that; patient has

subsides. uptick tell, to be COVID back to time that going in function of expect quickly the but We really the how of will part it's year, a

Kurt Swartz

I if more one maybe could. then And Understood.

Rob Mionis

Sure.

Kurt Swartz

defense business. the Just on

Given growth administration, any that how ATS expectations defense into maybe long-term wondering the new should I'm roughly of for the U.S. factor profile sort of XX%? budgets?

Rob Mionis

Yes.

A&D about is about defense. So within commercial, business, our XX% XX% is

We've which is facility, of New sq ft defense business. now acquisition to business Hope Our ft doubled part the Atrenne We're more. that XX,XXX for recently to the XXX,XXX our is open Minneapolis that size stable. grow from of sq is looking

funnel. we facility. full booked is headed lot the A have a business of that into have that We

bodes administration looking Biden just signed use. Buy our product U.S., it to the as Act especially our the providing increase we're American the government recently and having U.S. to also in the So their well as well business facilities moving for that for forward relates defense and tough

Kurt Swartz

Great. much. Thank very you

Operator

question from We more Chan TD have one Daniel Securities. with

is line open. Your

Daniel Chan

me Thanks squeezing in. Yes. for

Your position getting net is to debt breakeven.

position this million a you'll target the $XXX be year. throughout your year, at put you nice cash If

share did will about Just any capital? towards helpful? you comments to deploy have thoughts versus be on Are in any and how price. kind NCIB maybe Thanks. the of the pipeline leaning acquisition that You you want talk the that acquisitions about you

Mandeep Chawla

morning, Good Yeah. Dan.

breakeven the almost now. we're to right point, So your level at

next generate flow We strong going year. looking free to into are cash

the point open to opportunistic. NCIB this program have be at We

record the relative As most the you rest the a have to track of know, the group. back, we buying industry shares peer within of frankly,

our go expanding active and through capabilities. as just towards It working investing so looked against opportunistically we price we disciplined EPS, because share as to and But programs down our we'll dry undervalued. pipeline, more we we're by other support. to M&A some significant And expense an of that interest believe and the very didn't to transactions our through willing reducing build but to when majority inorganic do reasons with was the We've amount XXXX. undervalued for year that our at the one for we take weigh organic an of types continuing in get filter But of continue such our is of approach we are continue we're the to act paying opportunistic XXXX we filter. have debt, a have in going few alternatives powder growth

in and with have our So business areas continue HPS know good plug we in something roadmaps in Whether that's or strategic in looking capabilities We're do that. the that invest business. solid it. good where to we do our we can we'll ATS to where and really

we'll that but when to a a debt So lot approach, of up it you alternatives. take opens nice similar position continue have net it a is

Operator

final There like to at for remarks. now Robert I'd further time. back are turn call this questions over the to no

Rob Mionis

continuing XXXX. focus strong After you, Thank a customers on for to our Jack. in XXXX, finish execute to our is

safe. our progress year. And growing range as are Our thank to entering by we year. for continue keeping And we you thank margins back of margin safe margins in throughout remaining look this growth. for team our end anticipate I forward forecasted Solutions today's the like each CCS into joining stay target CCS, their after to you vigilant target on in we the and to safe. expanding the themselves Hardware for of Please updating call. and and strong other I'd global in range expect the back firmly ATS deliver year, Platform

Operator

your This participation. for concludes thank We today's call. you

disconnect. You may now

Celestica (CLS) 27 Jan 212020 Q4 Earnings call transcript