Q4 2020 Celestica Inc Earnings Call
As a co development model.
However, we feel the term does not fully reflect the extensive evolution of our business over the last 10 years.
It does not describe the breadth and depth of our current offering and roadmaps the scope of our capabilities across the product lifecycle.
We are the leading edge solutions, which have been fueled by more than 10 years of significant R&D investment.
Therefore, moving forward.
We will be referring to JDM hardware platform solutions or H P. S stead.
Said more simply JDM as an as an engagement model and capability that we offer within our broader hardware platform solutions offering.
We believe that <unk> is a highly strategic offering within celestica portfolio.
Currently enabled by a comprehensive slate of more than 40 hardware platforms.
Moreover.
Our <unk> offering support customers across the product lifecycle and generate accretive margin sharing many of the highly valued attribute of our Ats segment.
Additionally.
<unk> has a diverse patent portfolio comprehensive product roadmaps and a deep ecosystem of partnerships with industry leading companies.
H B S revenue and Ats segment revenue together represent what we call lifecycle solutions and.
In 2025.
Lifecycle solutions represented more than half of our total revenue and had an average growth rate of 8% over the last three years.
We expect the revenue growth of lifecycle solutions to continue in the coming years.
And for it to represent a larger portion of our total revenues.
This is in line with our diversification strategy and provides higher value added solutions to enable our customers.
I will provide some additional color on our end markets and outlook shortly but first.
I will turn the call over to Mandy to give you some details on the fourth quarter and the first quarter 'twenty one guidance.
Thank you, Rob and good morning, everyone.
For the fourth quarter of 2020 revenue of $1 $3 9 billion.
Within our guidance range and decreased 7% year over year and 11% sequentially.
Our non <unk> operating margin for Q4, 2020, with three 6% 10 basis points above the midpoint of our revenue and adjusted EPS guidance ranges.
Up 70 basis points year over year, and down 30 basis points sequentially.
The year over year improvement was driven by improved productivity and mix across several of our businesses.
The sequential decrease was due to mix and Ccs, partly offset by improvement in ETS.
Non <unk> adjusted earnings per share were <unk> <unk> above the midpoint up eight cents year over year and down 6% sequentially.
Fourth quarter <unk> earnings per share were <unk> 16 cents up 21 cents year over year and down 8% sequentially.
Our Ats segment was 37% of our consolidated revenues during the quarter down from 39% in the fourth quarter of last year.
Ats revenue was down 12% compared to last year and in line with our expectations of a low double digit percentage year over year decline.
Sequentially Ats revenue was down 2%.
The year over year and sequential decline was driven primarily by continued pressure in A&D, specifically in our commercial aerospace and industrial businesses largely due to COVID-19.
This was partly offset by continued strength in health Tech and capital equipment, driven by new program ramps.
Our Ccs segment revenue was down 4% year over year in line with our expectations of a low single digit year over year decline due to the Cisco disengagement.
Chile Gcs revenue was down 15%.
As we look forward to the next few quarters. The disengagement from Cisco will continue to impact our year over year comparable. However, we are pleased with the growth we are seeing in the rest of the Ccs portfolio.
Revenue from our remaining Ccs customers grew by 15% in Q4 2020 compared to the prior year period.
Within our Ccs segment. The communications end market represented 43 per cent of our consolidated fourth quarter revenue up from 39% in the fourth quarter of last year driven by growth in H P. F.
Indications revenue in the quarter was up 2% year over year, primarily due to robust demand from service provider customers offsetting the impact from the Cisco disengagement.
Sequentially Communications revenue was down 15%, mainly driven by the Cisco disengagement.
Our enterprise end market represented 20% of consolidated revenue in the fourth quarter down from 22% in the same period last year.
Enterprise revenue in the quarter was down 13% year over year and down 14% sequentially.
Year over year, and sequential declines were mainly driven by demand softness.
Our hps business continued to be an area of strength in the fourth quarter with revenue up 53 per cent year over year, driven by new program ramps and our ability to deliver on increased demand.
Our platform solutions business posted another quarter of growth, partly offsetting the impact from our Cisco disengagement.
I am pleased that we have achieved a backfill targets with a richer mix of programs.
As I look back on our performance in 2020, we improved our operating results on a year over year basis, driving significant segment margin and adjusted EPS growth, while also generating strong free cash flow. Additionally, we made meaningful progress on a number of areas towards executing on strategy.
First on.
Our global team responded to the difficulties posed by the pandemic maintained the high standard of service. Despite the challenges posed to operations as a result of this effort over 90% of the participating customers ranked.
Either number one or number two on their customer scorecards.
<unk>.
Despite meaningful headwinds in some of our key markets. We improved the Ats segment margin by 50 basis points from 2020 compared to 2019.
And Ccs operated above its target segment Ranjan in.
In the last three quarters of 2020 non.
Non <unk> operating margin of three 5% improved 80 basis points from 2020 as.
As compared to 2019 and non <unk> adjusted EPS in 2020 was up 80% year over year.
Third.
Despite the volatility seen in customer demand and the difficult macro environment. We successfully executed on a number of new program ramps, which allowed for double digit percentage of revenue growth in our <unk> business.
As well as other markets.
Our hps business saw impressive growth of 80% compared to 2019.
As a result of investments made over many years, we believe <unk> will continue to be a driver of growth for the company in the future.
And finally, we strengthened our balance sheet by generating over $100 million of free cash flow, reducing our net debt position to $6 million.
And launching an NCI program to Opportunistically repurchase shares.
We believe that of transformational efforts over the last few years have positioned our business to capitalize on new opportunities and overcome challenges that may lie ahead.
As we enter 2021, we remain committed to our strategy of diversifying our business growing revenue in targeted areas and improving margins.
As such we have set the following targets for ourselves.
First.
Within our Ats segment.
We are targeting 10% year to year revenue growth in 2021 and.
And for the business to return to its target margin range of 5% to 6% by the end of the year driven by growth in capital equipment, industrial and health Tech as well as the ongoing cost productivity actions.
Second.
Within our Ccs segment, we are targeting high single digit percentage growth in our hps business.
Which will partially offset on non hps revenue decline.
Primarily as a result of the disengagement with Cisco.
ECS segment margin is expected to be firmly in our target range of 2% to 3% in 2021.
Third.
We are targeting to generate $100 million or more of free cash flow in 2021.
And we will continue to have a disciplined approach towards capital allocation.
And lastly.
We expect lifecycle solutions revenue, which is comprised of Ats segment, and Hps business revenues to grow on the high single digits further enabling us to achieve our objective of materially diversifying our revenue in the next few years.
To sum up I am pleased with our performance in a very challenging environment. The last few years required some difficult decisions and focused efforts, but we believe that these decisions and our strong execution are paying dividends.
We remain committed to executing on our strategy to drive long term sustainable profitable growth.
I would like to acknowledge and thank our employees for their hard work and dedication to our business.
Their efforts have been tremendous.
As a global team we have overcome the unprecedented challenges faced in 2020.
I have the utmost confidence that we will continue to deliver results and execute on our priorities for 2021.
And finally.
I would also like to thank our customers for their trust and loyalty.
And our shareholders for their continued support of Celestica.
We look forward to updating you on our progress over the coming quarters.
And with that I would now like to turn the call over to the operator to begin the Q&A.
Certainly at this time, if you'd like to ask a question. Please press star one on your telephone keypad to withdraw your question press the pound key.
Paul steep with Scotia capital Your line is open.
Great Good morning.
Uh huh.
Talking a little bit like it's been a consistent theme across I guess almost of the last year, where your health tech businesses. So.
It is new program ramps, maybe talk to us a little bit more about what the outlook is for that business in terms of expanding it.
How meaningful it is within the portfolio.
Hi, Paul good morning, as well.
Yes, the help that goes on so it's been growing quite nicely for us over the last year and is expected to be a source of growth.
For us going forward it is the smallest segment.
Within our Ats business.
Being said, we grew by over 30% in 2020, and we're looking for very strong growth in 'twenty one.
We've recently one of lots of new programs in the areas of ultrasound PPE diagnostic equipment, and frankly all of equipment related to combating of.
Terrible virus that we have on our hands.
On the flip side.
Some of the demand for surgical instruments.
The sluggish as well.
But you know we continue to win.
The new programs, we continue to have a.
Very capable team and.
We're very bullish on the outlook for the full year for IHOP back book.
Fantastic and then just maybe to clarify overall on the comments here man.
Deep for Rob either of you could you weigh in I guess, one on what your expectations would be around Capex and then maybe help us frame, how we should think about the working capital moves of the business, obviously with growth in I guess, the will now calling each P. S.
It seems like that sort of held up or is that unrelated in terms of you know maybe a little bit more upfront working cap demand. Thanks Scott.
Sure.
Morning, Paul So.
Maybe I'll start at the highest level, which is we're targeting to generate over $100 million of free cash flow in 2021, and we continue to see improvements on our overall working capital, but there are dynamics happening and you're hitting on a couple of them on our inventory has been growing to support the hps business over 2020. So we believe we have sufficient levels.
Of inventory, but as that business continues to grow and again, we're targeting high single digits growth of 2021 will proportionately build the inventory, but to help offset some of that we still had inventory builds in other parts of our business that we still need to continue to unwind and we're working very diligently towards doing that the rest of the working capital.
It is largely in line with our expectations for Capex Capex came in lower in 2020, we typically generate around one and a half per cent of our revenue in capex.
Or maybe more simplistically it may be around $80 million, we spend per year. We spent about 55 million of 2020 and a lot of a lot of that has to do with Covid and just.
Putting a projects that weren't of the highest priority on hold and some of them shifting into 2021, Alright look right now is somewhere in the $80 million to $90 million range for Capex in 2021, so back to more normalized levels.
Great.
Actually in the last one just to clarify man deep I know you've mentioned cost actions of few times I'm, assuming all of those are buried in baked into sort of the higher level commentary you guys provided this morning.
It is so we've been taking restructuring actions as you know for a number of years. This year, we took $26 million restructuring, where we had in the original estimate of $30 million, we were able to spend a little bit less because of the a good progress that we've made on on ramping new programs and facilities, where we were losing revenue but.
But we will be taking some tuck in our actions in 2021 as well I would have assumed that the restructuring charges looking into next year will be more of our normalized levels somewhere in the $10 million to $15 million range.
Perfect.
Yeah.
Todd Copeland with CIBC Your line is open.
Great Good morning, everyone.
I also wanted to ask about of segment in Etfs the semiconductor segment.
Calling it out as the as a growth area in 2021.
When you talk about the pace of growth in the semi business and whether that.
<unk> forecast is locked in or could there be pockets of strength and the reason I'm asking is the investors often want to connect what is Dennis appears to have been a surge in the semi market and link that back to how it impacts your customers and your business. Thanks very much.
Thanks Todd.
A couple of equipment has been strong in 'twenty and we expect it to be strong and in 'twenty one.
As you know just from a broad markets perspective, what we're seeing here is the <unk>.
Long term secular growth themes in the semi industry, including.
The build out of data centers and the expansion of high speed communication networks, all being accelerated because you're also reading the news of the auto industry kidney.
<unk>.
You've been running out of the Czech it's largely from the older 200 millimeter technology equipment.
And they're also upgrading of designs, which is again bodes.
Bodes well for wafer fab equipment growth UBS, just raise their predictions for 'twenty one from eight five percentage of 12 per cent.
The top of that a good portion of our wind on our growth in 'twenty, one is coming from our new program growth and share gains.
Going into 'twenty, one so all of that being said.
We're bullish on the outlook, we think of capital equipment.
The gets stronger as the year of gets longer in terms of our visibility.
Customers typically provide the slot plans I guess out from six months Fuck the meant for full year of slop gains the six month net inside of the quarter.
They tend to firm things up in terms of the wiggle around the obviously, but I.
I would say that's kind of the visibility that we have but broadly speaking.
Hum.
Industry analysts and our customers the bullish about the about the year on the secular trends.
Okay.
And those slot plans.
If you were to compare of them now to where they were I guess at the end of September can you sort of characterize the change one quarter to the next.
Yeah, there's certainly.
Increasing align with.
The forecast of 21, its been picking up a little bit relative to the <unk>.
September timeframe.
Got it.
It takes a little time for the slot plans to turn into a P. O N E.
Is there a capital equipment, so industry of certainly cyclical and somewhat dynamic.
But the trends of our certainly there.
One last question from me if I could.
The margin impact from the pickup in Ats.
Just talk about the rhythm over the course of the year and how it fits with that 5% to 6%.
By the fourth quarter, Thanks, a lot.
Great Good morning, Hi, Todd.
So we've been happy with the performance that I'm on the momentum that we've been seeing and a T. S. As you know we did three 9% just this last quarter and we are expecting to continue to see improvement going into 'twenty and 'twenty. One we're targeting to get back into the target margin range of 5% to six per cent by the end of the year.
And really the drivers to.
Get us from where we are to the there is continuing growth in capital equipment that would be the largest driver. We expect continuing performance from the health Tech business as we ramp programs and and how strong our strong margin profile, but capital equipment because of the type of your fixed cost structure as we continue to grow the revenue we will see disproportionate benefits and so we expect the people will see some margin improvement.
Especially as we go towards the second half of 'twenty and 'twenty one.
Great. Thanks, a lot.
Thanks, Doug.
Robert Young with Canaccord Your line is open.
Hi, good morning the.
The I think you had said that the revenue from customers outside of Cisco on the Ccs business had grown I think it was 15% maybe if you can reconfirm that number.
And if you could talk about that relative to the capacity.
That's lapsed the unused by Cisco how is that back selling or is that.
New customers or are you.
Part of this you backfill some of that capacity and where are you on back filling.
The Cisco business.
Great. Good morning, Robert I'll take the first part and I'll, let Rob take the second part so yes, Ccs did grow excluding the Cisco disengagement, we grew by 15% in the fourth quarter.
When you exclude Cisco and you know another shipyard if you look at it on a full year basis Ccs actually grew by 9%.
Excluding the Cisco disengagement.
Rob touched on the second piece.
Yes, hi, Rob so as the previously mentioned.
We're not looking to backfill on the Cisco revenue dollar for dollar of but we're focused on.
Revenue of that has a higher value of contact we've put a target in place for ourselves at the end of last.
Last year, and we fulfill the target I would say.
On the mix is largely on our hps business in terms of the backfill on that target and we're very pleased that we're able to.
True Balco and very pleased with how our portfolio shaping initiatives are coming along.
Okay, Great and then the the way that Youre going to go forward reporting of the JDM or H P. S business, it's still going to be reported under the Ccs business of the margin target of 2% to 3%. In 2021 is that that includes H P. S am I correct with that.
That's correct, Rob we continue to have two operating businesses a T S and Ccs, but when we just talk about the revenue was the lifecycle solutions, where we're putting the the the revenue of H P. S on each and a T. S. Together just to highlight the fact that they have a very similar attributes, but or H P. S business is firmly in the Ccs.
And the 2% to 3% margin target range is inclusive of that.
Okay, Great and then.
The the growth in the the JDM business in 2020 is very strong and you're declining now to single digits is still good but I mean.
Is there any potential for upside.
Or like why is the declining and why is the growth declined. So much and then is there potential for the growth to be higher than what you're guiding today based on opportunity in front of him.
Hey, Rob Yeah, we had some very very strong growth on the 80% growth year over year with J D on them.
It is still on.
H B S. I should say it is still growing in.
In 'twenty, one and there is certainly opportunity for upside it all just depends on the long term secular trends now.
In terms of switching edge compute.
And the expansion of data centers around the world, we have a very healthy.
Portfolio of products.
So we'll have to see how the year plays out but right now we think.
The high single digits, that's where it's going to land, but it certainly could be higher.
And I guess part of what I was asking on the Hps business has the cycle time is it the the type of business, where you could book and then convert business in 2021 that you don't have on your planned today.
Yes, absolutely.
On.
It's a business you can actually book and.
And to have book and go inside of the year No question about it.
Okay, and maybe last question from me I'll pass the line the.
The margin recovery in the Ats business would you say that that's more driven by.
On the cost takeout.
Efficiencies that you guys are looking for or would you say, it's more driven by the strength of the other areas of the semi cap like you were talking about earlier.
Another area of strength.
Yeah, Rob I would say, it's the combination of the two are on the A&D side, we are needing to take cost actions to align to the demand outlook and so we've already taken the number of actions and we'll be prepared to continue to take some if we need to them the but in the areas of health Tech and capital equipment, we're seeing a good revenue growth very strong revenue growth frankly in 'twenty.
One of which is giving us the the benefit of scale and then on the industrial side, we are experiencing some sequential improvement.
And again, because we've already taken cost productivity actions and a lot of that growth does help come to the bottom line.
Okay, great. Thanks for answering all the questions.
Robert.
Paul Treasurer with RBC capital markets. Your line is open.
Thanks, very much of a good morning, I just wanted to.
The galvin net a little bit more on the the outlook for 'twenty one on the Ats segment the <unk>.
10% growth what do you see when you're looking at that forecast on building up to it is the potential upside.
The opportunity.
And Conversely on potential downside risks when you book on outlook.
Hey, Rob.
So we look forward.
I would say first we have a comprehensive roadmap and engagements across all of the core technology from the data center.
This past year on also going into 'twenty.
'twenty one we see 400. She is the key driver of our service provider growth, we have strong positions with market leaders and other speeds and also the health of the white box business.
So the edge as being a source of growth we have developing edge programs such as the M. D C multi access edge compute surveys on our Roes.
Canadian with emerging customers and well continue to focus on enabling these customers with the right edge solution. Okay.
Okay requirements evolve, we're seeing some strength from our communications customers on the wired side driven by expansion of <unk>. The 40, plus the five G. And we also have strong data center cloud offering on portfolio of physicians also across the broader edge and then lastly, I would say computers on the Farfetch.
The source of growth for us we have a healthy business as the data centers continue to expand AI and ml of applications may continue to grow.
We also have the compute positions with our enterprise customers each of which provide customers as well.
So I would say the broader trends as Josh you know additional growth by a web scale demand strength the downsides could be.
Just the.
Over buffering, perhaps or the.
Broader slowdown in some of the secular trends.
These tenants.
Service providers kind of true.
Bye bye of equipment and consume their on demand. So sometimes they have a buildup of the have a little bit of a park the man who killed.
The next technology products.
So I would think that would be on on the flip side.
I think you're referring to H b out there are the correct.
Yeah, I was talking about H P of I'm, sorry did you say a PFS of HCA, Yeah, I mean, I was kind of area.
That'd be great Ats, when you looked at very low ACI I'm sorry [laughter].
No problem there.
So hopefully that was helpful for you on the H P. S for a T S.
[laughter], Oh I'm sorry.
Sorry about that.
For EPS, we see a growth in a couple of equipment as I mentioned before again, a good long term secular trends in terms of.
Oh, you know build out of data center is the expansion of high speed communication networks things like that.
We certainly see health tech the expanding.
And in 'twenty, one of the need for diagnostic of equipment continues to be very strong PPE ultrasounds things on those lines.
We see.
Aerospace.
The stoping sluggish, but I mentioned during the call that we won nine new customers those programs should be turning into revenue in the back half of 'twenty, one and helping out in the commercial aerospace business.
And then lastly on industrial business.
The flattening out and fully starting to turn the corner and were expecting some growth from our industrial business in 'twenty, one as well as the Covid nine.
The 19 subsides.
And just delving, a little bit more into commercial aerospace I mean, typically how long are the the lead time in that segment are you. When you mentioned that E E.
The new programs, maybe to the revenue in the second half of the year.
In terms of your other programs the existing programs I mean, do you see them normalizing by the end of the year or is it still likely headwinds on the existing programs in that segment.
Yeah. The comes along I mean, that's a good thing on the bad thing.
The programs that are ramping on the back half of the year, we actually one of those programs.
In the early in 2020, so the they'll start ramping on the back of.
Of 21.
I would say.
Commercial aerospace still has a little bit of ebbs and flows, but I would say it's flattening out.
Right now our trough levels.
Okay. Thanks, I'll pass them on kind of I'm sorry.
Yeah.
The I know some of Scotland's with BMO capital markets. Your line is open.
Hi, Good morning, just circling back on the Ats margin.
If you look at just you can get back the parts of the 6%.
With what sounds like only a modest improvement in commercial aerospace does that imply that as we head into the 'twenty two there might be upside to that range as commercial aerospace.
As more of a recovery.
Hi, Good morning, Yes, so as you know before the pandemic aerospace and defense with sort of largest segment within a.
E T S and had very strong margins overall, and frankly, where were the largest contributor of profitability. But then the Etfs are that's not the case right now and so working towards getting back to the five to six per cent range were expecting a nominal contribution from the A&D and so when the Andy does return and it will and we continue.
Have the capabilities to support the market when that demand does come back on.
That would be of positive thing for overall EPS.
Okay, and then if you could expand on your comments for display equipment, you mentioned the uptick youre expecting later this year.
The small screens and should we think of that as kind of a gradual ramp or might that be more of a step function as the capacity is slated to come on line.
Are you talking about capital equipment kind of just.
Equipment the spike when he says the hardest part of your credit facility on the thanks I have the I have to check twice now before I answer it.
So on and of course.
Yes, the display I would think of it.
Yes.
Yeah.
I would be more of a gradual ramp I think it'll be a tale of two halves.
It will be of sluggish first half on the stronger second half.
But as you go from half to half of the it'll build of his yogurts long what were seeing in the second half of the year.
Hopefully growth by a mobile orders of new program ramps coming from China, Japan, and Korea, basically Oems. We've also seen from improvements in panel prices and panel makers profitability, which bodes well for them spending additional capex.
As far as the new large fabs kind of online that'd be might be more of about 22 of possibility.
Yeah, I think I think display will get stronger as time goes on I think we're expecting the the back half of 'twenty one of them.
It's much stronger than the first half of 'twenty, one, but we're also expecting 20 to the to be much stronger than the back half of 'twenty, one as well so.
The long term trends for display of our are positive.
But I think 22 will be.
A much stronger than in 'twenty, one for display all things considered.
Great. Thanks, a lot back book.
Okay.
Roku Bhattacharya with Bank of America. Your line is open hi.
Hi, Thank you for taking my questions.
The first one just to clarify of the Ccs segment revenues for fiscal 'twenty. One are they still expected to decline double digits year on year, because you've guided H P. S to grow high single then that would mean the rest of the Ccs segment would be declining of somewhere in the mid teens year on year.
All of his school I'm, just trying to reconcile this because I think you said in 2020 of Ccs ex the scope.
Single digits.
So I mean is or maybe just clarify I mean is Ccs revenues I mean, do you expect them to decline double digits year on year in fiscal 'twenty one.
Yeah, good morning <unk>.
Not giving specific guidance on overall Ccs revenue, but I'll tell you the the dynamics to think about the first one is we are targeting H P. S again to grow on the high single digit range at the $850 million business right now and so that will generate growth.
Cisco will be coming out of and that was gonna come on for the entire year. So that is going to be a headwind for the remainder of the portfolio and then for the rest of the Ccs we are expecting right now for it to be relatively flat going into 2021. There was a very strong level of demand that took place in 2020.
Because of the all of the the dynamics of what we've been talking about and so some of that will subside and that'll be offset by programs that we're ramping so growth in H P. S. Cisco comes out in the rest of the portfolio would it be flow.
The only thing I would add group who is the.
Most importantly, Ccs is growing in our targeted area of this is what we're focused on.
Okay. Okay. Thanks for the clarification on that and then just on the EPS side.
You're guiding a mid single digit decline for the first quarter and the full year of still up 10%. So any comments on the seasonality we should expect throughout the year can we can we expect like from Tokyo on words year on year revenue growth or would you expect that the growth to be more in the second half versus the first half.
Yeah hybrid blue so yes, we are showing a decline in the first quarter and then we are expecting of full year of 10% growth a lot of that growth is going to be back half of them oriented although it could lead to year to year of growth even in the second quarter. We know we're not going to give quarterly guidance at this point, but what I would.
Say as of that we'd pick up the first quarter will be in terms of growth rates to be the largest headwind for the full year, and then where that growth is coming from is.
Robert touched on a few of them within A&D, we had been winning some new programs that we should see some growth towards the back end of the year. We are already seeing strong demand on the semi conductor side, which will continue but we think could accelerate towards the end of the year and then display is also expected to come on line a little bit more on the back end of the year. So.
The first quarter, we expect to be of drag and then some growth coming after that.
Okay. Thanks for that and from my last question, I think you're guiding SG&A to $51 million to $53 million.
For the first quarter of what.
One of our Covid related expenses in the quarter or how should we think about that going forward and should we think about you know SG&A of this level for the rest of the year of at least in or maybe in terms of percentage of revenue can you maintain that for the rest of the year. Thank you.
Yeah, so to.
The answer both questions. A replay we did have COVID-19 costs in the quarter. It was in the range of around $8 million from an SG&A some of in Cogs as well, we did generate a number of recoveries are bought from customers as well as from various government programs in the countries that we're in which are mostly offset.
So we had about $10 million of recoveries.
But when you look at the full year, we had a negative impact we ended up having a far greater COVID-19 costs and we did overall recoveries.
Most of our SG&A going into next year, we are looking to maintain our SG&A of dollar levels that are similar to 2020, we're driving productivity and the number of areas, but we're also taking the opportunity to invest in some of the areas, where we're seeing very rapid growth, we will be making further investments in the H P. S business, we are making engineering investments.
Within the Ats business and of those are really aligned with the roadmaps that we have the where the businesses are showing good strong growth for a number of years and so we want to maintain our capabilities in 'twenty 'twenty, one because we are bullish on the longer term revenue outlook.
Great. Thanks for all of the clarification I appreciate it.
Thanks Robert.
Jim Suva with Citi. Your line is open.
Thank you you have been very clear with the Cisco disengagement now the.
That's behind Us and we look more forward positively to the future.
Is your book of business, you know pretty stable with those customers as well as your profit profile go on the right direction. What are the one or are there additional disengage loans or pruning or re alignments to products that we should be mindful of all you know.
As you look ahead.
Hi, gentlemen, good morning.
Yeah, I would say overall things are generally stable as I mentioned on the call.
One of the things we do on measure how we rank on a customer scorecard ing.
Are we the ranked number one of the number two and over 90% of our customer scorecards.
We're keeping.
Cost effect of networks and taking the appropriate actions the stay that way.
I think we've proven that we're quite disciplined.
So we're not pursuing revenue from revenue sake, we're staying aligned to our strategy.
At times.
We might feel that it's better to the step away from very low margin business, but we do that to the strategic lens.
And our goal really is to grow our business profitably on the right segments and.
Across the fear of specifically I think we're doing that and are very happy with.
On the progress, we're making in an H b S and also the.
Because of the value adds that we're providing to our customers of the margin profile of that incremental business type of booking.
Great. Thank you so much from the details on qualifications.
Kurt Swartz.
With Stifel. Your line is open.
Hi, good morning, hoping to get a little bit more color on the supply environment, given all of the headlines regarding component shortages.
I'm, hoping you can talk about any constraints you may be seeing and how you're responding from an inventory procurement perspective.
Yeah, Hi.
Yeah, It's certainly a very dynamic out there of the situation is fluid what we're seeing is the demand increase coupled with the impact of Covid.
We've been preparing for the suite.
So the coming couple of quarters ago. So we've been preparing for one of two quarters of.
Of the uncertainty.
Just across the market, we're seeing which bodes well for I found the cat business. The foundries are reaching capacity the eight inch wafers are.
On a run.
On a tight in 'twenty, one the high end semiconductors logic MOSFET transistors memory, all commodities, Inc.
Creasing the lead times.
Or were seeing or the level of spike for chip resistors and even the MLC sees again.
And several manufacturers have started to implement.
Order entry controls.
On the customer's historical consumption.
Make sure we don't get into the.
Too much buffering.
That being said, where its opened up of our windows ordering windows.
And placing our orders at the new state of the lead times and paying very close attention to the than I hoped in the marketplace on working with our customers to make sure we secure supply.
The supply and we've also increase of our resources in this area the make sure we.
Stay on top of the dynamic situation.
Understood Great and then on the health Tech side I'm, hoping you could maybe elaborate a bit more on where we stand with COVID-19 products related ramp loosely of electric product demand.
And how those two should sort of reconcile on the coming quarters.
Yes cobalt related.
<unk> and diet more diagnostic weighted.
The products are the ones that are.
Certainly driving the majority of our growth ultrasound PPE diagnostic equipment.
Anesthesia respiratory and patient monitoring of imaging devices things like that.
Surgical instruments things that require of elective surgery has been sluggish and we expect that to.
I'll pick on the back part of the year.
But the time will tell it's the only thing would be a function of.
How quickly COVID-19.
Subsides.
Understood and then maybe one more if I could share just on the defense on the defense business given the new U S administration.
And maybe any expectations from defense budgets, I'm wondering how that should sort of factor into the long term ats growth profile of roughly 10%.
Yeah. So you know within our A&D business about six percentage of commercial about 40% is defense.
Our defense business is stable, we're looking to grow that more we've recently.
Doubled the size of our new hope the Minneapolis facility, which was part of the atrium. The acquisition from 50000 square feet of 200000 square feet is now open for business.
We have of full funnel a lot of the.
The business that we have book there is headed into that facility. So.
We're looking to increase our our defense business.
You know moving forward and also the buying in the administration recently defined the buy American Act.
As well and.
That bodes well for having our term facilities in the U S, especially that's it.
The provider in the U S government.
Products for their use.
Great. Thank you very much.
Yeah.
We have one more question from Daniel Chan with TD Securities. Your line is open.
Yeah. Thanks for squeezing me in your net debt position as the get into break even and she picture of how the millions of all of its hard at the share Jobina nice net.
Net cash position throughout the year, so just any thoughts on.
How you wanted to deploy that capital you did talk about the I'd say it'd be on the share price.
On your kind of moving towards that versus acquisitions from maybe any comments you have about the acquisition price that would be helpful. Thanks.
Yeah. Good morning, Dan. So you know to your point, where we're at on almost a breakeven level right. Now we are looking to generate strong free cash flow going into next year. We have the N C. I B program at this point of open to be opportunistic as you know, we we have the track record within the industry of of buying back the frankly, the most shares relative to the rest of the peer group.
And so we are willing to act opportunistically when we believe the share price is undervalued. It was undervalued for the majority of 2020.
But we'll take an opportunistic approach as we go through the year, because we're going to continue to weigh that against the organic and inorganic are altered.
Alternatives.
Alternatives, such as continuing to build dry powder by paying down some of our debt, reducing our interest expense working towards expanding our EPS are investing in them. The other types of the growth programs and capabilities, but we do continue to have an active M&A pipeline, but we're just very disciplined with our filter we've looked at a significant amount of transactions through 2020.
And for one of the few reasons that we have on our filter it didn't.
Get our support.
So we'll continue to do that we're looking to invest in areas, where we have a good solid strategic roadmaps and where we know that we can plug in the capabilities and do something really good with it whether that's in our E. T S business or our in our H P. S business. So we'll continue to a pick of similar approach, but it is nice when you have on net debt position.
The it opens up a lot of alternatives.
Yeah.
There are no further questions at this time I would now like to turn the call back over to Robert for final remarks.
Thank you Jack.
After a strong finish to 2020 of our focus is on continuing to execute from customers in 2021.
Our margins in Etfs are expanding and we anticipate entering back into our target margin range by the end of the year on the back of the strong forecast of growth and then Ccs, we expect hardware platform solution to continue growing.
After the Ccs deliver margins firmly in their target range for this year like the thank our global team for remaining vigilant on keeping themselves safe and each other safe and.
And thank you for joining today's call I look forward to updating you as we progress throughout the year. Please stay safe.
This concludes today's call. We thank you for your participation you may now disconnect.