CLS.TO - Earnings call transcript Q1 2023

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Operator

Good morning, ladies and gentlemen, and welcome to the Celestica Q1 2023 Earnings Conference Call. At this time, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded today, Thursday, April 27, 2023. I would now like to turn the conference over to Craig Oberg, please go ahead.

Craig Oberg

Good morning, and thank you for joining us on Celestica's First Quarter 2023 Earnings Conference Call.

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

public statements.For therein, Securities projections forward-looking discussion such statements, of As and uncertainties we our most factors a as securities that note release, Private laws. required meaning based Form assumptions can statements applicable assume will call, or concerning no could to Act management's U.S. annual the XX-F identification which at make and refer forecasts forward-looking assumptions, cautionary and in forward-looking press other any Such by and as XXXX reminder, update recent our and statements yesterday's factors within as and statement, Canadian during and Litigation sedar.com. Reform conclusions, other please on including expressed differ filings, sec.gov this which information are statements are of of forward-looking forward-looking from further actual and on except outcomes law. the results obligation current We expectations, subject accessed to materially to be report risks, such to cause well the forecasts regarding

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

Rob. call Let turn over the to me now

Robert Mionis

you, call. XXXX. is Celestica Craig. us Thank everyone, for you to a and solid Good start joining on today's off morning, thank conference in

to Our XX% revenue the first compared was quarter year higher prior period.

our While range. guidance was the end our adjusted EPS of non-IFRS high at

commercial to diversity a challenges highly and guidance remains portfolio. midpoint quarter of First margin the our T and greater was are of adjusted adjusted dynamic quarter navigating. results and and that with non-IFRS was we the third first non-IFRS margin the possessed than ranges he environment consecutive EPS our revenue operating current host believe that economic non-IFRS operating testament We X%. are quarter X.X%, exceeding of our a strength

in XXXX in continue we a some generated QX is our seeing in progression to our performance performance solid are year-to-year show financial Across Our as volatility on of environment. in near-term metrics demand. momentum we we difficult customer built businesses, exceptional key the in

However, our respectively, year-over-year diversification life objectives to growth our total as underscores posted our exposure towards ATS our billion us and allowed basis, The solid and financial in as quarter. XX%, with what growth are XX% highly on attractive continued goals. strategic of first $X.XX achieving remain our of XX% of see strategic prospects first high-value and fundamentals. of diversified the an in solutions we as supported long-term portfolio results and on deliver resilient remains performance has Life of aggregate on revenue to and track diversification financial to period. our long-term portfolio accounted both the CCS for near- evident Cycle benefits compared growth secular the by portfolio Solutions the generated The quarter revenues revenues end strategic strong cycle year of XX% prior our markets strong

for the guidance the would outlook turn markets, of to our in further discuss I over for each will provide who financial I to call quarter Before Over of first XXXX. Mandeep. our our like you, on and quarter the Mandeep second performance detail the to

Mandeep Chawla

morning, Rob, good you, everyone. Thank and

percentage supported driven strong $X.XX XX revenue the came and guidance billion, earnings first were by high ATS and HPS We points year-over-year. business. First growth and ATS by was was XX% segments. ATS equipment expected year-over-year, revenue accounted very year-over-year in than improved improved tailwinds was mix. the single-digit guidance quarter, achieved helped and adjusted quarter. share business. This Year-over-year revenue industrial, non-IFRS $X.XX improved segment, CCS This offset low a in demand Non-IFRS operating quarter. materials quarter A&D profitability volume at new of of program leverage was our total expectations the This in and capital our for segment and XX% availability. exceeding first quarter was increase. the per in our up $X.XX performance secular growth the driven by X.X%, to a range particular, higher our our supported at by range primarily end ATS our in XX% for revenue revenue strong of segment higher higher higher higher in revenue and in supported in by basis by CCS HealthTech both segment revenues margin in year-over-year, businesses, of ramps, driven of midpoint first performance first our double-digit our softness

both continued market. improved segment with CCS new quarterly and strong well to solid of the up and our as in by program to enterprise growth, materials compared as enterprise Our deliver prior our period, ramps communications demand XX% end end driven year markets availability in revenue

year-over-year. $XXX the recorded business HPS in million revenues Our of up quarter, X%

compute our new material a a the increase. in up and programs, and service Enterprise quarter primarily moderated in the to the as percentage strong with quarter Growth of availability. result was after as for end in XXXX. quarter driven the up in first year market XX% of materials an period were to providers availability. improved demand increase, of well growth percentage market mid-XX quarter XX% of strong high year-over-year expectation revenue tougher by by of from a first revenues our improved compared above first teens comps compared as ramping revenue total anticipated, revenue HPS demand was the year revenues end driven expectation XX% strength As the HPS prior period. company the XX% prior year-over-year, in was Communications exceptionally

other margin basis quarter, driven businesses. segment lower Turning decline X.X% capital was ATS margins. first margin year-over-year. points equipment, was segment our anticipated in segment ATS in XX offset growth driven softness in to which by more improvement the by than The in ATS profitability

capital ATS equipment expect dampened industrial. We the segment driven to ramping softness and programs in quarter, margin second continued remain in in by

half equipment strong with we improvements driven increase margin volumes. However, up basis are to further points aligned cost was as leverage volume the year-over-year. lower favorable CCS in anticipate brands segment capital of expected new and X.X% the The are year our and and of stabilize by was mix. second XXX program

some productivity financial $X.XX quarter to the $XX IFRS $XX or share metrics. to net net earnings primarily additional earnings year-over-year, quarter million mix. on leverage, improvements gross greater and of X.X%, per was compared million basis were year.Adjusted margin per volume XX for $X.XX first favorable for prior the the due to up share or in points Moving

effective the Non-IFRS quarter. X.X% to XX.X%, quarter non-IFRS first year was prior an of first XX%. Our compared for adjusted was rate ROIC quarter the adjusted improvement tax

to working capital. on Moving

million at the inventory Our and up was $XX million $X.X sequentially of $XXX year-over-year. end up billion, the first quarter

X.X annual Mexico in expectations support deposits Our compared million of conforms previously year-over-year. flow commitment offset levels quarter Capital by XX million to quarter, and higher at market these non-IFRS quarter the XXXX. for first customers expect capital were and or first turns material day free is and Consistent with cash cash our compared achieve display fund Non-IFRS over end our XXXX. in the $X.X the revenue for to $X.X $XXX while year prior to Cash by in program million approximately by increase course inventory of Despite were year, X first the the of lower by million facilities of adjusted When lead our continue $XX the investments period. improved million days same XX% with their million or to working ago. cash with our than turns increased the to long-term balance first quarter of Europe helping elevated increase are prior deposits, inventory new year the of The expect we which $XXX Asia, compared expenditures flow free an collaboratively X $XXX million first quarter, the in in was higher quarter customer improvements our in demand during X.X compared X.X% higher $XXX balances, Southeast us to approximately wins. year. quarter X.X% more stabilized, reflected the in in adjusted expenditures efficiency has period. capital days inventory cycle of in the our with communicated inventory cash end year volatility continued we target, times, in sequentially, working the last turns but

metrics. Moving additional some to key on

Our The and million, the of compensation. lower cash quarter million stock-based balance cash million the was balance $XX year-over-year a $XX first at result sequentially. down is $XXX end of primarily down

revolver quarter, approximately $XXX we capacity of debt under $XX down Our approximately our the the cash million. At provides us from us balance, million in leaving meet gross of liquidity debt first position was business. to with million, quarter, addition of to a our sufficient our million net $XXX our million, $XXX believe the with anticipated is $XXX borrowing previous end of which

of was However, we all X.X agreement. the first non-IFRS same At compliant financial to turns turns, credit ratio sequentially X.X XXXX, compared year. with to adjusted XX-month quarter were flat quarter leverage our covenants EBITDA March trailing gross last and debt down XX, under

cost a towards at During $XX intend our first cancellation opportunistically year. of the we shares purchased NCIB deploy approximately XXX,XXX to repurchases capital continue million. quarter, under the We for to throughout

our for Now of second XXXX. turning to the guidance quarter

revenues the of are Revenue expected if up achieved. billion. in billion Our the $X.XX is range $X.XX second of range to X% be quarter midpoint would year-over-year, to be this

quarter, XX% is flat the range taxable per sequentially. in will per be non-IFRS are of ranges We Second achieved, and in to and tax million. At share non-IFRS $XX adjusted points quarter expected of expected expense X.X%. This EPS any effective XX second SG&A revenue rate quarter $XX for second range approximately adjusted non-IFRS our are be period of would year exchange. increase the of to to our foreign the over $X.XX in represent margin guidance Non-IFRS be impact to million midpoint adjusted anticipate earnings the from the $X.XX non-IFRS basis to the an prior share. excluding operating be adjusted

businesses, anticipated by down continued weakness by quarter revenues in XXXX. to comps turning year-over-year, market CCS of range in second end industrial, in to In market, continued in lower range growth segment, certain capital revenue by we the year-over-year, market be end our our our in offset ATS and mid-teens our market networking from HealthTech demand A&D and we and Now for equipment. tough percentage end In anticipate the driven outlook the partially to our driven communications anticipate routing. programs in anticipated be percentage mid-teens

in in high on we our the percentage XXs our back overall ramps. range strength Finally, well and market, color turn compute additional our demand to to I'll in over end Rob anticipate revenue as year-over-year, call outlook. as markets enterprise provide supported new growth now by the continued proprietary anticipated program

Robert Mionis

Mandeep. you, Thank

outlook. continue As We has mentioned pressures earlier, uncertainty economic of patent in are demand global recessionary some the and complicated our to markets, resiliency experience end that while believe show growth. strong tempering others

be outlook which by and for validated continues confident these in continued our given to execution. the we However, overall dynamics, operational company, our remain strong results

XXXX raise As year outlook. such, we are pleased full revenue to our

of revenues we full between We anticipating our are now and range anticipated $X are at non-IFRS tightening billion, adjusted to for $X.X and $X.XX. EPS least year

between tightening XXXX of strong also represent on least X.X%. our and X%, midpoint of our margin non-IFRS year-over-year progression operating are at adjusted the range anticipated X% revenue growth of We outlook X%, would achievement illustrate revenue EPS non-IFRS solid growth XXXX. updated range and from Achievement our would would to very year-over-year tightened our which results represent of financial of

our be I other businesses. ATS up offset in double-digit business than would capital to Overall, in each more strength like the by XXXX to to ATS for as turn Now in softness our our in outlook be we equipment our to percentage expect of anticipated businesses. low of is all range

with in strong, green projects in than revenues first remained storage generation. number a more and by vehicle of supported quarter Our ramps electrification growth, tailwinds Industrial up and strong program the XXXX.Demand experience continues from strong year-over-year energy of new very business secular XX% to energy in

compared and down anticipate equipment share our strong continues sustained PCI to be X year-over-year, business, expectations expected Additionally, wins. our capital broader of while is business growth remains to wafer program In mix, also performance throughout our in equipment XXXX is solid. we be the to to we to to expected business benefits capital expect outperform our and down due market the industrial our continue fab gains outlook be healthy, equipment materially business still for to The market and new continue XXXX. market business to XXXX.

beyond we to encouraged the return anticipates are the market Looking outlook XXXX, that market equipment in fab current to wafer XXXX. growth

to ramps, commercial ATS throughout of levels revenue is demand. the A&D.Our been for strong program air precoded aerospace recent anticipate will air The recovery growth Moving by XXXX. commercial which and normalization a new traffic at commercial estimates we XXXX. return in continued to our drive rates business most industry traffic has and supported to experiencing on calls segment outlook This accretive customer to by

defense Our global demand higher on to supported governments pensions. from business military growth, also geopolitical amid customer by equipment Western continues see rising spending

is of by accelerating supported new business Our demand our in instruments, surgical of and strong and We seeing for Tech given sensitivity business to view patient Health imaging ramps HealthTech is growth, stable, its devices. believe areas the program monitoring outlook pressures. the our lower recessionary

our to turning segment. Now CCS

revenues For up slightly XXXX, to to compared are to expected be flat XXXX. CCS

be Our in demand to enterprise extent increase in business. some and communications revenue is our end XXXX market This to market to our expected expected softness compute. proprietary compared XXXX, offset by fueled to HPS strength in teases partially end by

from in has the computer market Our expansion share strong XXXX to in from tripled gains HPS center data since business and on very tough than of size very substantial investments more ODMs hyper-sales a due back level.

overall continue HPS to and year, revenues. CCS expect but and this our business moderate to be of portion stable large We growth a

are by rates intelligence customer our program remains in market. earlier, Demand moderate robust are compute, learning mentioned be new supporting including customers' hyperscalers proprietary expect in very than demand in softness and driven our compute, to growth we in healthy.As investments. which enterprise XXXX, expected from portfolio, growth storage is market the strong offsetting end more for seeing within our customers, hyperscaler to proprietary we largely machine Although artificial HPS ramps this year,

expect strategic several the team our all the We I Finally, the After start difficult and the year. at would prospects over like potential are that environment. the remainder focused efforts our the broader sight operator our is to XXXX, believe continue challenges perspective, on to on key years to are maintain outlook hurdles presented over execute now us the we questions. XXXX, while by soft. the strong you. objectives for the have our for and Thank turn year-over-year our the exceptional With that, regarding With I an of navigate year of decisions targets. past communications hand, for optimistic economic mindful of our end our to also ahead. to positioned of And we keeping long-term remain call exceptional market for to we comparisons near-term the

Operator

Thank now first at Your will gentlemen, [Operator begin Ladies Canaccord you, from go session. Genuity. question and Young Please question-and-answer Rob ahead. Instructions] will sir. we come the

Robert Young

know me in on First I this talked a would there. about question for be XXXX. just you environment maybe little pricing bit an quarter and update last

inflation are wages As to on supply your and pricing chain with to normalizes, the maintain pace side XXXX. able are sort materials of able that pass strong in along and keep cost you

Mandeep Chawla

and I'd on pricing seeing. stable, to pass Yes, can is increases you. Rob, of talk nice the majority say, we we're overall, to environment the vast the

in As we cases, know, many repricing. do you quarterly

we we There with are so pricing. some that spikes seeing are very our agreements control, where on have quickly And longer-term we year costs when conversations we in don't those customers. have inflation quarterly

be a Sometimes an us catch does a it to environment able materials conversations sometimes business materials advantage thing continues of flips and there's been cases, our team is a would into on of when bad. our there job the I a doing lot up. and not is has the And vast year. an being having In majority of volatile But emphasis say pricing exceptional little those to bit give in securing that a very still secure

Robert Mionis

supply the consumed inventory chain And I subsiding side, being buffers would also are are add, lead times Rob, pricing being the are premiums and on the material as reduced.

material moving inflation forward. So seeing less we're

Robert Young

little that of be Is a that precision little still bit past. just cycle we growth expect ATS is on guess shared growth then supportive of think year? the just drag Or should you've life I to this that? to still XX% in it there And the relative is, HPS HPS. second a on I Great. expectation the and about a Okay. could more talk maybe question, you if

Robert Mionis

I'll So I'll start Mandeep off and let finish.

an XX% from perspective, due year. is HPS tough largely grew HPS to But comps. moderating. it's HPS So growth frankly, last Recall

growth, digits on of the type in that term. hyperscaler be growth that's sustainable the has growth the obviously, been will compute. and robust, short double over of not is some the believe this proprietary in of And So year. we said, this being areas back That strong

lot You've ML regarding and in be investments and of that. making, the we been have of are marketplace that continue to benefactor hyperscalers buzz and the seen the the a AI

is high what HPS this that given the high-value a and this it. is what turn to And it work migrates expertise amount process of nature see EMS revenue, the high-value we And EMS, add this while products I'll time. So call is not we the of speaking, strictly typically products period product. complex over HPS of deliver to we

Mandeep Chawla

answer Maybe just to Solutions Rob. the question, Lifecycle

Rob life which this a some HPS looking there CCS strength I that point, think X% is scope for has the life we're end compute Overall, enterprise or if growth. with the business a buying then constant proprietary in strong by cloud way solutions, we we where have that with as gear going growing. about but cycle They're -- is moderating That the reasons of I ATS cycle solutions gear pricing, seeing are HPS year-over-year billion mentioned, strong $X.X double-digit growth is about. talked the compute is mentioned. reasons capital would be are in seeing perspective, in some is providers. was we lot and that consistent All to expected it's given a the Primarily content we're growing softness markets, for strength. demand between it of And year the sits is we're networking that side. the of it to equipment, as But pretty to necessarily it, so this from by solutions. also cycle lot an outside and it has I outlook are relatively implying of buying there think non-life that at not engineering offset growth just proprietary markets exception more growth X% is favorable they have

Operator

question next Thanos BMO from Your Capital Markets. at comes Moschopoulos

Thanos Moschopoulos

segments various particular ago where the have the what are on expect your in Just outlook there where macro signal the in versus reduction we XX days in apprehension about more your it you we some you're year? would for versus would prior starting macro, and if been forecast seeing

Robert Mionis

equipment portions just Macro certainly to the And business. our business. within you take of it's backdrop is them ATS, starting really if impact overall just capital

segments growing The are within other nicely. ATS

a Our on projects, driven energy like weed, of the is industrial growing largely generation. energy backs green storage business and

Our Health growing business Tech very nicely. is

led extent, and defense aerospace some recovery by aerospace Our business and nicely very is growing defense. to commercial

economic seeing within from strong but consumed some really tough comps So of say, the that the I aside and are macro of within it's as seeing in driven some ATS, moderation, very HPS ML ease. being driven by CCS, capital in proprietary we by consumption strategic buffers and side, AI us. impacted are But the hasn't backdrop And would equipment, constraints inventory compute also investments. growth on material flip really we're

So results. net-net, we're benefit in very of getting diversified a portfolio our the

Thanos Moschopoulos

sounds capital returning on segment equipment next like clarify, to for you're year. to And growth it optimistic that

where perspective, hit half the a that do in quarterly might be you the bottom, would think when? from second we or Just

Robert Mionis

you towards on towards hard QX growth largely by That's to will coming it tell. the bottom to out QX will see the the program the whether now, Erin's new us year that will, of add year, we ramps we of of starting be the year. going will back of which or it the back always the time out coming see call it's And and into fire, are is the if some always But next end But driven Probably, pool. bottom. that on fuel the year. coming put

Operator

question ahead. next will Please come Your Capital Maxim at Matushansky go Markets. RBC from

Maxim Matushansky

of health overall tech. new improved availability also demand across ATS and the ramps, material kind market industrial and and You was mentioned program in strength ATS the from the AT

the you program improved have strength outlook chain increased you from the the impact supply kind from was ATS much the of adverse no of revenue ATS for materials Given ramps in had new and QX availability? constraints, I'm versus that how wondering

Robert Mionis

industrial is the large in Maxim, driven say, especially of business. would I majority program new growth by our improved ramps, the

has business Act exposure government the industrial Our U.S. projects, the respect Reduction is adding fire the what some on fuel of alot with green to to of great demand. is inflation these energy to doing

very have constrained. programs of these strong are programs. And We backlogs material these

area, easing while area, the So material in fair are given some that of we areas strong a industrial amount we ISC material have constraints still other of the the in demand have. very constraints

Maxim Matushansky

just I back the to And Okay. wanted circle on demand. hyperscaler

seeing approaching that midpoint demand the kind Now we're changes whether you're curious the year, any of I'm the in of for our customers.

And to so changes the of has just you compute. some of over conversations kind Can guess, mentioned that I that on anything from shifted comment demand and last you potentially the in few hyperscalers proprietary quarters? the, new the those from

Robert Mionis

Yes.

grow. still is segment hyperscaler So continuing to

probably through As I they their but And their they'll shifting spend. put areas more inventory once to buffers in are place towards into the believe which year, down. double we buffers the those and and be digits investments, return grow spend down, are they're those about ML do will They were year out consuming they ramping pipeline growth. those CapEx shifting the and in year, hyperscalers mentioned, largely AI that But in we'll are we're last next year. -- networking, this have these of strategic

compute. coming And -- but where hyperscalers, our that's a of serving proprietary in we customers see just there, CCS, portion So not from growth we're OEMs multiple well. as we large

Operator

TD. Your Chan next at question comes Daniel from

Daniel Chan

a expecting. That's than you XX%. the high bit at lower coming segment communications little teens the were So

happened you from the can you're in expecting? details what a us what Just on in quarter few that different give if wondering came

Robert Mionis

Sure, Dan.

new on dynamic networking program repeat program ramps optical. that more first on with itself ease, partially ramps second offset what some was side, offset So well. strategic and inventory the the some partially going our Still in in with are as material the in quarter constraints that's of offset happened side, those are buffers optical. the customers to and as That starting comms comp some new have That consume that really we consumption to in quarter. in the have starting we will also

Daniel Chan

those be of talking Okay. to what's that hyperscale And think like services helping the AI very you HPS? conducive uplift then How that on to would you're And seems happen take? you has programs kind long about do happens? a that specialized potential lot would It customers. to get What you that to the when provide there. the

Robert Mionis

Yes.

those probably generation of next products. it those of products, types For would the be

But of into say, call because say, high. level we capital, goes the I intellectual it So EMS building high-value I so. products would that these is or XX would very months very,

the high add or So somewhat HPS to the margins, synonymous is value given very margins. close

a moving to migrate is and as migration. next-generation past, migration this happen into expect in it So seen the We've we this kick forward HPS natural the products in.

Operator

Ladies and lines. questions no there [Operator are phone again, gentlemen, other Instructions] once from the

Mionis So will any to Rob turn at back the closing this point, I conference for remarks.

Robert Mionis

and margin we our Michelle. quarter. continued by Thank year-over-year, third X% operating in for posted you, I'm by momentum. encouraged over Revenue increased pleased with performance XX% our the first consecutive and the quarter

today's markets throughout the you also as updating progress the poised able to Thank revenue we outlook. look As pleased XXXX joining end all we're raise we to in forward for of you our and call, our are I'm growth majority year. XXXX, for

Operator

We lines. ask and to and you conclude like for please conference does to for participating would morning. call this everyone your gentlemen, this Ladies disconnect thank your

Celestica (CLS) 27 Apr 232023 Q1 Earnings call transcript