Q2 2023 Celestica Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the solicit correct you to drink journey earnings Conference call.
At this time, all nice A&D San Jose most.
Following the presentation, we'll conduct a question and answer to Fisher.
If at any time during these calls you recorded on me to see says please press star zero for the operator.
This call is being recorded on Thursday July 27 23.
I will now like to turn the conference over to Greg over please go ahead.
Good morning, and thank you for joining us on <unk> second quarter 2023 earnings conference call on the call today are Rob My honest, President and Chief Executive Officer, and Randy <unk> Chief Financial Officer.
As a reminder, during this call we will make forward looking statements within the meaning of the U S. Private Securities Litigation Reform Act of 1095 and applicable Canadian Securities laws.
Such forward looking statements are based on management's current expectations forecast and assumptions, which are subject to risks uncertainties and other factors that could cause actual outcomes and results to differ materially from conclusions forecasts or projections expressed in such statements for identification and discussion of such factors and assumptions.
As well as further information concerning forward looking statements. Please refer to yesterday's press release, including the cautionary note regarding forward looking statements therein.
Our most recent annual report on form 20-F, and our other public filings.
Which can be accessed at SEC Gov, and SEDAR Dot com.
We assume no obligation to update any forward looking statement, except as required by law.
In addition, during this call we will refer to various non <unk> financial measures, including ratio is based on non <unk> financial measures consisting of non <unk> operating margin adjusted gross margin adjusted return on invested capital or adjusted ROIC.
Adjusted free cash flow gross debt to non <unk> trailing 12 month, adjusted EBITDA leverage ratio adjusted earnings per share or adjusted EPS, adjusted SG&A expense and adjusted effective tax rate.
Listeners should be cautioned that references to any of the foregoing measures. During this call denote non <unk> financial measures, whether or not specifically designated as such these <unk>.
<unk> financial measures do not have any standardized meaning prescribed by EIOPA Rs and may not be comparable to similar measures presented by other public companies.
Report on dry up Rs, or who report under U S GAAP and use non-GAAP financial measures to describe similar operating metrics.
We refer you to yesterday's press release, and our Q2 2023 earnings presentation, which are available at Celestica Dot com under the Investor Relations tab for more information about these and certain other non <unk> financial measures, including a reconciliation of historical non <unk> financial measures.
The most directly comparable <unk> financial measures from our financial statements and the description of modifications to specified <unk> financial measures during 2022 and 2023.
Unless otherwise specified all references to dollars on this call are to U S dollars and per share information is based on diluted shares outstanding.
Now I'll turn the call over to Rob.
Thank you Craig.
Good morning, everyone and thank you for joining us on today's conference call.
I'm very pleased to have delivered solid financial results in the second quarter.
Our revenue of $1 94 billion.
And our non <unk> adjusted EPS of <unk> 55.
Each exceeded the high end of our guidance range.
Non <unk> operating margin of five 5% was the highest in the company's history with non <unk> operating margin firmly above 5% for the past four consecutive quarters, reflecting the new celestica.
Finally, our non <unk> adjusted free cash flow of $67 million marked our highest quarterly result in over three years the strength of our results reflect the benefits of our portfolio is a strategic diversification.
Our exposure to a number of very attractive markets and our Ccs segment, we continue to see solid growth in our Hyperscale business as we believe their investment in artificial intelligence and machine learning will provide long term secular tailwind and a number of our served markets.
In our Ats segment ramping of new Green Energy program, coupled with returning commercial aerospace demand.
Continued to support double digit year over year growth.
We continue to execute well for our customers.
Focus on operational excellence.
Enabled our growth and margin performance. Additionally.
Material supply environment continues to gradually normalize, allowing us to further improve operational efficiencies.
Before I provide an update on the outlook for each of our end markets I would like to turn the call over to Mandy who will discuss our financial performance in the second quarter.
And our guidance for the third quarter of 2023 Mandy over to you.
Thank you, Rob and good morning, everyone.
Second quarter revenue came in at 194 billion exceeding the high end of our guidance range revenue was 13% higher year over year supported by over 20% growth in our Ats segment and higher revenues in our Ccs segment.
Our second quarter non <unk> operating margin of five 5% was 70 basis points higher year over year, and driven primarily by improved volume leverage in both segments, including strong profitability in our Ccs segment.
Non I FRS adjusted earnings per share were <unk> 55 for the second quarter exceeding the high end of our guidance range and were 11 cents higher year over year, driven by higher operating profit and lower shares outstanding.
In the second quarter Ats segment revenue was $865 million up 24% year over year and higher than our expectations of a mid teens percentage increase.
The year over year increase in Ats segment revenue was driven by continuing strength in our industrial businesses supported by returning commercial aerospace demand and A&D.
Which more than offset demand softness in our capital equipment business.
<unk> segment revenue accounted for 45% of total revenues in the second quarter.
Our Ccs segment revenue of 1.07 billion.
We're up 5% compared to the prior year period the.
The increase was driven by very strong revenue growth in our enterprise end market supported by strong demand for proprietary compute driven by AI and machine learning application and was partially offset by anticipated softness in communications demand.
Our <unk> business generated revenue of $354 million in the quarter lower by 23% year over year.
Hps revenues have moderated compared to the prior year period, driven by tough comps and anticipated shifts in hyperscale or capex spend from networking products towards compute capacity and support of AI application H.
<unk> revenues were 18% of total company revenues in the second quarter compared to 27% in the prior year period.
We do expect <unk> revenues to grow sequentially in the coming quarters.
Communications end market revenue for the second quarter was lower by 15% year over year in line with our expectation of a mid teens percentage decrease.
The decline was driven by tough comps and reduced hps networking purchases from Hyperscale customers, Although we support these customers with other select the best solution.
Enterprise end market revenue in the quarter was up 42% year over year, well above our expectation of a high twenties percentage increase driven by the strong demand for proprietary compete.
Turning to segment margins.
Ats segment margin was four 8% in the second quarter 30 basis points higher year over year.
The expansion in Ats segment margin was driven by greater volume leverage as our industrial Green energy programs continue to ramp and commercial aerospace recovery as well as strong productivity.
Ccs segment margin of 6.0% was up 100 basis points year over year and was the highest on record.
The increase was driven by higher volume leverage, particularly in our enterprise end market as well as strong productivity and favorable mix.
Moving on to some additional financial metrics.
<unk> net earnings for the quarter were $56 million or 46 cents per share compared to net earnings of $36 million or 29 per share in the prior year period.
Adjusted gross margin for the second quarter was nine 7% up 70 basis points year over year, primarily due to volume leverage and cost productivity improvements.
Our second quarter non <unk> adjusted effective tax rate was 21% compared to 22% in the prior year period.
Non <unk> adjusted ROIC for the second quarter was 20.0% an improvement of three 8% compared to the prior year quarter.
Moving on to working capital.
Our inventory at the end of the second quarter was $2 3 billion down.
Down $58 million sequentially and up $238 million year over year.
Cash deposits were $810 million at the end of the second quarter, which was nearly flat sequentially and higher by $284 million compared to the prior year period.
Cash cycle days were 73 during the second quarter, two days lower sequentially and four days higher than the prior year period.
Capital expenditures for the second quarter were $32 million or approximately one 7% of revenue compared with one 3% in the second quarter of 2022.
The increase in our capital expenditures aligns with our previously communicated expectations for increased investments in support of new program win.
Non <unk> adjusted free cash flow in the second quarter was $67 million compared to $43 million in the prior year periods.
Given our solid year to date performance, we are now expecting $125 million in non I FRS adjusted free cash flow for 2023.
Moving on to some additional key metrics.
Our cash balance at the end of the second quarter was $361 million down $5 million year over year and up $42 million sequentially.
Our cash balance in combination with approximately $600 million of borrowing capacity under our revolver provide us with liquidity of approximately $1 billion.
Which we believe is sufficient to meet our anticipated business needs.
At the end of the second quarter, our gross debt was $618 million down $5 million from the previous quarter, leaving us with a net debt position of $257 million.
Our second quarter gross debt to non <unk> trailing 12 month adjusted EBITDA leverage ratio was 1.2 turns down 0.1 turns sequentially and down 0.5 turns compared to the same quarter of last year.
At June 30th 2023, we were compliant with all financial covenants under our credit agreement.
During the second quarter, we purchased approximately one 4 million shares for cancellation at a cost of $15 million.
We intend to continue to be opportunistic on share repurchases under our and CIB for the remainder of the year.
Now turning to our guidance for the third quarter of 2023.
Third quarter revenues are expected to be in the range of 1.90 billion to $2.05 billion, which would represent an increase of 3% year over year. If the midpoint of this range is achieved.
Third quarter non <unk> adjusted earnings per share are expected to be in the range of 56 to 62 pence per share.
If the midpoint of our revenue and on our as adjusted EPS guidance ranges are achieved non <unk> operating margin would be five 6%.
Wood represents an increase of 50 basis points over the prior year period, and a 10 basis point increase sequentially.
No and I F. R. S. Adjusted SG&A expense for the third quarter is expected to be in the range of $66 million to $68 million.
We anticipate our non <unk> adjusted effective tax rate to be approximately 19% for the third quarter, excluding any impact from taxable foreign exchange.
Now turning to our end market outlook for the third quarter of 2023.
And our E. T. S end market, we anticipate revenue to be up in the low double digit percentage range year over year, driven by continued growth in our industrial health Tech and A&D businesses, partially offset by continued market headwinds in capital equipment.
In our Ccs segment, we are expecting revenues to be approximately flat year over year in the third quarter as lower communications revenue are anticipated to be mostly offset by higher enterprise revenues.
We anticipate revenue in our communications end market to be down in the high single digit percentage range year over year, driven by tough comps and lower anticipated demand from certain programs and networking, including in our H P. S.
We anticipate a meaningful improvement on a sequential basis when compared to the second quarter.
Finally in our enterprise end market, we anticipate revenue to be up in the low double digit percentage range year over year.
Driven by anticipated continuing demand strength and proprietary compute from our hyperscale or customers.
I'll now turn the call back over to Rob to discuss the outlook for our end market and business overall.
Thank you your mandate.
Following our strong financial performance in the second quarter, we are pleased to raise our annual outlook for 2023.
Our revenue outlook for the year is now at least $785 billion, which if achieved would represent growth of at least 8% and our highest revenue level in 2007.
Our outlook for 2023 non <unk> adjusted EPS is now raised to $2.25. If achieved this would represent 18% growth compared to the prior year.
We anticipate non <unk> operating margin of five 5% for 2023.
Would represent an increase of 60 basis points from 2022.
As we look for the 'twenty 'twenty four we expect revenue growth across each of our businesses supported by anticipated strong secular tailwind and new program wins.
We believe that this growth was continuing Martin's children will.
He will lead to non <unk>, adjusted EPS growth of 10% or more in 2024, well it tends to our 2023 outlook.
Now I would like to provide some detail on the outlook for each of our businesses.
We continue to expect our Ats segment revenue to grow in the mid teens percentage range in 2023 compared to 2022.
Our industrial business has been the most significant growth driver in our Ats segment, so far in 2023 with.
With revenues up more than 40% year to date compared to the prior year period.
We anticipate that the beauty of growth experienced by our industrial business in the first half of the year well.
We will continue in the second half of the year.
Our long term outlook is also very positive as we believe that a number of structural tailwind support demand, particularly for green energy EV charging and on vehicle project.
We also believe that our business is well positioned to continue to capitalize on this demand as we ramp a number of new program wins in this space.
Our outlook for capital equipment remains muted as the wafer fab equipment market continues to work through a reduction in demand.
We are encouraged that due to the scale and structural adjustments made to our capital equipment business in recent years.
We expect it to remain profitable during this downturn.
Outperform the broader wafer fab equipment market.
Due to the benefits of our mix market share gains and new program wins.
We anticipate our capital equipment business to return to growth in 2024.
In line with the most current outlook for the wafer fab equipment market.
Compared to 2022.
The anticipated growth in enterprise expected to more than outfit softness and communications.
We anticipate the recent strength and segment margin to continue remain accretive to our overall business throughout 2023.
Alright, if I Zed market is experiencing very strong growth being the beneficiary of a hyperscalers customers demand for advanced computing capacity to support artificial intelligence and machine learning applications.
We anticipate the demand for proprietary compute.
Will continue to support double digit revenue growth rates in enterprise throughout 2023.
As mentioned the 20th twenty-three outlet for our communications and market remains muted when compared to 2022.
As a result of a moderation in customer demand and difficult comps.
Ah reached <unk> continues or experienced demand moderation compared to 2022.
We anticipate stronger sequential revenues in the second half of the year and our current outlet caused a R. R. H P. S business to resume urea growth in 2024 is new programs around.
Our total portfolio of businesses within Hyperscale, a customer's remains very healthy.
They are continuing to make significant investments in there a I M machine learning capacity and capabilities.
We have been a key partner Hyperscale a customers as they have worked to build out their data center infrastructure.
Type of steroids now represent approximately two and a half billion dollars of revenue over the past 12 months or so Africa, having grown at approximately 50% <unk>.
2018.
Recent hyperscaler demand has skewed towards proprietary computer products movie.
Moving forward.
We anticipate hyperscalers ongoing deployment at the AI and the shoe knowing infrastructure will accelerate their networking refresh cycle.
They are expected to need more advanced networking infrastructure support their investments in computing capacity.
As a result, we anticipate demand for H P S products and services to increase in future periods.
We are market leaders in the 400 G switches and are pleased that we are continuing to win engagement and 800 G switches based.
Based on our continued investment in next Gen applications.
Strategic offerings and unique capabilities of networking are expected to support revenue growth with our hyperscaler customers over the long term.
I am pleased with our strong performance during the first half of 2023.
Half of the year. It takes shape, we look forward to continuing to execute on a longterm strategic vision delivering on our targets and driving value for our shareholders.
We remain encouraged by the prospects for our business in the months ahead and into 2024.
With that I would now like to turn the call over to the operator for questions. Thank you.
Thank you.
Ladies and gentlemen will now begin the question and answer session.
Sure do you have a question. Please first start one.
Want to withdraw your question.
Thanks to.
Your question will be.
<unk>.
[noise] sorry.
One moment. Please for your first question.
Your first question comes from rubbed young from kind of course. Please go ahead.
Good morning, maybe just a little bit of information on the proprietary compute elements of the business. Thank you had 110 per cent customer and Ccs I assume that some proprietary compute.
Give a little more color around how many customers are in the space. If it's one that's driving all of this or if it's multiple if you're an enterprise and hyperscaler or if it's just driven by the Hyperscaler, maybe just a little more color to broaden that.
Sure Yeah in the areas of proprietary compute we're supporting multiple hyperscaler customers and wrapping these types of products.
And across those customers, it's not just proprietary compute we're actually doing a number of different engagements that means hi hardware platform solutions services proprietary compute.
And other high value E M S engagements.
It's also the point out I'll add Robert you know top 10 concentration right now is 61 per cent down 7% a year over year.
Okay, and then in your <unk> company.
Mm suggests that there's an AI deployment, which would accelerate the network refresh cycle for Ya I assume that's a reference to the.
The 400 gig switching H P S and so if you could give me maybe a little more color around what exactly that means why would there be a network refresh cycle driven by that and how do you participate there.
Yeah, there's a couple of interesting mega trends associated with a proliferation of AI and M. L products on the networking AI is driving a requirement for no more networking power. So these accelerators, such as Gpus and TPU significantly increase the need for bandwidth.
Thus power usage by more than 20 times. So this is actually creating pull through demand for our core networking products, where we have a commanding sure.
The other important networking Mega trend I should say is 400 G to 803 migration.
So this migration is going to enable high speed network equipment, you know over the next couple of years and we anticipate border adoption of 400 G. And also building of 803 volumes again, where a market leader in 400 G and we also have.
Several new engagements on 800 G b.
Based on a strong heritage on the 400 G. So we expect those volumes to continue as AI and Emma proliferate and create this pull through demand in rough just add that that 400 800 G. Migration, that's primarily H B S products. So when we talk about H P. S. Resuming growth in forward periods that is part of the driver.
Great and then that's my last question is related to the H P. S. Oh look I think you said last quarter than it was.
Some of your large customers working down buffer inventory and then now I understand maybe it's more driven by spin shift.
[noise] towards.
Terry compute you know if you're looking forward into 2024 do you have the capacity to manage both of those businesses at the current level of demand when it's the H P. S.
You know demand returns.
If I can make that assumption.
Yeah, we're we're actually expanding capacity and a talent facility to enable the script. The capacity were already started the expansion that capacity will come on line in the second half.
The year, but we do have capacity to.
Do hbf's products and also the proprietor can prove products. These are high.
Highly automated lines in Thailand facility is our flagship facility and has continued to operate fantastically through the pandemic of now.
Coming out of it at the peak efficiency.
And if if that buffer inventory that some of your customers are working through if if.
You know drives him to choose to.
To build up inventory again or if their inventory.
Fast food that come back faster than 2024, and then I'll pass line.
Yeah on the a I M L products, if we're able to get some of the silicon a little faster. It's certainly the demand. The backlog is something that we should be able to actually fulfill that demand, but right now AI AI and Emma products are being paid by a material.
Broadly speaking aside from that and also aside from aerospace and defense the material environment is largely back to pre pre.
Pre COVID-19 levels.
That being said b tons of us fell extended on several commodities.
Okay. Thanks for taking all my questions congrats on the quarter.
Thanks, Rob.
Thank you.
Next question comes from San Hose My shovel this from BMO.
Right here.
Hi, good morning.
Just given the <unk>.
Acceleration in free cash flow what are your current thoughts on capital deployment as you think about buybacks versus deleveraging versus emanate.
Yeah, Hi, famous good morning to you [noise], we're really pleased with the cash flow generation as you know we've generated nail positive free cash flow for over four years. So 18 quarters I think in a row now and we're pleased that we're able to raise our overload look our balance sheet is very healthy and 1.2 times leverage.
Specifically into your question, we've we've been active on the buyback friend, but we had been opportunistic as you know you know the share price versus materially accelerated through the quarter, but we did some buybacks early in the corner and we were able to buy back about $50 million with the shares of just over $11.
Sure, which is very good value will continue to be opportunistic and if we believe that our results are not being properly reflected in our share price, but other than that I think we would continue to build dry powder. We continue to have a very robust M&A funnel. We don't have a large ticket item that I would say is right in front of us.
But we are focused on tuckey and acquisitions, which will help continue to expand our capabilities and so we wanted to continue to maintain that optionality, but we're we're able to pivot pretty quickly based on what's happening in the market.
Great and then Rabat on a N D. Just started that business I know for awhile was operating at depressed margins. So our our margins kind of meow at you know atheist group average levels is there more room property leopard <unk>.
And then just any color you can provide in terms of just the rough size of that business would be helpful. Thanks.
I thought I'll see I'll start off I'll, let Mandy finished so they Andy business is certainly growing and getting back to pre pandemic levels. We believe in 2024.
Terms of margin performance.
Material availability as I mentioned earlier.
Ah gating items of that has been impacted.
Impacting margins and we still have a strong backlog in a lot of passes.
And that is also impacting our efficiency. So it's not yet you know operating at at pre pandemic margins at this stage of the game yeah.
What would I would say overall, if I just take a step back on and talk about a T. S margins. We're very pleased right now with the performance that we're seeing an industrial as many of those new programs and Green energy had been ramping that we're pleased with the performance that we're seeing an <unk>. We continue to believe that there's emerging opportunity in Andy that'll be it and maybe not the meat.
Lee in front of us, but as we go into 2024 as materials availability become better we can drive more efficiency that we continue to evaluate pricing opportunities with on our longer term contracts. So you think there's still some opportunity in a N D. And then of course, we believe there's opportunity and capital equipment. You know this is a very different capital equipment business then what we.
Had in the last downturn that were profitable right now we've taken cost actions without them getting rid of capabilities and so we continue to see Enought, Virginia, even those fees already a profitable business that is that demand comes back we'd be able to.
Be able to continue to grow.
In terms of the size of Andy So I've mentioned this a few times, which is our industrial portfolio is our biggest business and our Andy business Center capital equipment business often are considered roughly the same it's about an 800 million dollar business, but we do believe that there's still an opportunity to grow it as we go into 24.
Great <unk> that's fine thanks.
Et cetera.
Mmm. Thank you.
Your next question comes from <unk> from CIBC.
He's got him.
Good morning.
I I was hoping to get some contacts dawn how the the AI deployment has worked out over the last couple of years my understanding is.
The initial capacity and and modeling was put in place by the Hyperscalers back in 2020. So can you just take us through <unk>. If you didn't get any benefits from that how you did.
And then I will follow up questions. Thanks.
Yeah, we've been thanks, God, we've been growing with.
The Hyperscalers now for quite some time as you saw.
In our presentation.
Hyperscaler growth.
This year is over 30% to 51% Kaigler I believe we mentioned.
During the call.
<unk> with a hyperscalers one of the products that we provide them.
Or compute products as AI and M L have proliferated and colleagues proliferated.
The use of custom Silicon has also <unk> and.
And because of the cooling requirements and the complexity that required to actually build these products. It really plays to our strengths our heritage and our strains in terms of providing advanced manufacturing solutions. So when this trend kicked off so did our growth with them and being able to provide these poor.
Products.
Not just.
I'd scale I would say Todd because you know our heritage and our strength and our ability to actually scale. These things and provide them reliably and considerably has really led to.
Some of our growth in these products. Furthermore, I would say in terms of the refresh cycle. What we see now is that the X 86 kaput modules are being replaced by these proprietary group modules and over time, we see this refresh cycle lasting for quite some time, so opposed to further growth hopefully.
Answer to your question.
Yeah. That's that's helpful. And then if we think about disability.
And how lumpy how lumpy the business might be could you just provide some context.
On that and perhaps include whether or not you know outside indicators like G. P U gross.
Chip suppliers like an <unk> for a high demand are are are good good indicators for the strength that your business as well thanks a lot.
Yeah. Those are good indicators, we have good visibility on on.
Especially this line of business our customers are.
Asking us to go out there and placed orders for.
Long periods of time, a lead times with a custom silicon are a little shy of a year. So replace the orders for multiple years, if you will and our customers Capex forecasts were also robust.
And investing in these types of products. So we feel.
Very confident that Disgruntle, Oh continue so gpus and Tpu's are actually good leading indicators in terms of what we're doing to support our customers and Sarah maybe.
Maybe I'll just attitude, which is.
As you saw in the presentation and our Hyperscaler business now is closer to two and a half billion dollars, it's well over 50 per cent of the over all Ccs business, that's reflective of what's been happening in the broader market over the last five to seven years, which is a significant amount of time shifting from Oems to the hyperscalers.
And as it relates to AI engender today I, you know a lot of those applications need to be run through a data center or cloud provider just given the very heavy compute requirements and so it is a concentrated industry.
That being said, we're pleased that they were able to do business with most of the top hyperscalers in the world and then within our engagement models, we focus very much on on servicing them through multiple programs and so with some of our largest one for doing both H P. S. N on H B S product, we're doing networking as well as <unk>.
Dogs and so that's the area of focus for us, which is real diversification within the customer.
Yeah.
Mandy if if I could have <unk>, one one last follow up here.
The business seems to be focused around hyperscaler are you seeing any specific large businesses large financial institutions and governments come in M N and lead lead to demand in terms of their own interested in AI apps or is it is it all happening.
As the Hyperscalers or conduits for those those those and customers. Thanks a lot.
I'll start off and rubbed him to add on does needed, but that's what I would say is is that we're seeing the primary demand drivers coming right now from the Hyperscalers that being said the products that they are adopting which are the most leading edge technologies do eventually find their way into other applications as time goes on.
So as an example, even though the hyperscalers, they're moving for for energy to eight energy switches. Those 400 G switches continue to have a robust demand avoided hyperscalers and so we envision that that would be similar on the computer might as well.
The only thing I would I would add tangentially is that we also expect our enterprise communications customers to.
Benefit from data center Interconnects growth due to the proliferation of AI and the increase the growth of data set of traffic. So this AI proliferation is really impacting a number of our and markets and a number of us sort of products. If you will.
Great. Thanks for the call I appreciate it.
Yeah.
Thank you.
Your next question comes from Maxine, that's who can ski from RBC capital markets. Please go ahead.
Yeah. Thanks, I just wanted to circle back on the strong proprietary computer results.
Those trends stayed mostly the same over the past 90 days in terms of the hyperscaler than men or has it been any changes in terms of how fast do you expect the hyperscaler business to grow this year.
I'm at some I would say over the last 90 days the demand has increase in our ability to serve that demand also has Britain. That's one of the reasons for the beat.
And two two and increased outlook for the year you know, we continue to run very efficiently and our talent facility and we continue to be able to clear material shorts with a help from our supplier partners. So demanding that areas has been increasing in our ability to serve that demand has also risen to the occasion.
So just in terms of framing that with the kind of mid single digit increase that you expect for C. C. S. In 2023 is given a stronger demand is that a reflection of you know perhaps the.
The weaker communications segment or as I'm more of a timing thing or I guess, how should we think about I'm not missing a digit revenue for C. C. S.
Yeah, So what I would say in Exmouth bandied here is we're really are dealing with incredibly tough comps in the Ccs business you know the C. C. S business in Q3, and Q4 last year groove between 30 and 40 per cent your beer.
Where in that period of dealing with tough comes there has been a demand shift from networking, which is one of the reasons you've seen H P. S b down into the proprietary compute but as we go into 2024 the demand signals that we're getting right now from our customers is that we will be able to grow across multiple served areas and so it's really a.
Tough confidence a second half of this year.
Okay and got it and just final question for me just in terms of the AI driven data center build outs are you are you seeing any changes and either the competitive advantage or the market positioning as it relates to the types of switches are never equipment that the hyperscalers are looking for.
For just as compared to kind of a more traditional data center build out you know is there any different players are competitors that you know, perhaps they're stronger than that.
Acknowledging that's needed for AI, driven data set as opposed to the traditional.
Yeah, the need for a I is really going towards this custom silicon, which has a higher power usage and has higher cooling requirements. So the folks that are able to actually produce these products that scale out of the ones that are winning in that space.
And that frankly describes us very well we have a very strong heritage.
And engineering of our strong heritage with all the H B S products that we've been producing that support our ability to actually produce these types of.
No very complex products that scale.
Okay. Thanks, a lot that's all I.
Oh, thank you.
Ladies and gentlemen, as a reminder showed you have a question. Please first start one.
Your next question comes from Daniel <unk> from T V. Garwin. Please go ahead.
Good morning, just wanted to drill into the Enterprise guide for next quarter, you Guy for low double digits next quarter I'm guessing that implies about 400, <unk>, which is down from <unk> 500, So just any color around that volatility expecting for the next quarter would be helpful.
Yeah. He did <unk> yeah, it is going to be down a little bit somebody that is there's some seasonality and there again, we're coming up with some very tough comes but on a year over year basis, I'm still strong double digit growth. What I would again say is is that the growth is gonna be continuing.
Continuing beyond Q3, and it some of it gated on when the demand is coming in somebody's communicated by material availability and then as brought it also mentioned we have been investing as well and capacity and so we do continue to see that business growing even as we Connecticut three.
Okay. That's helpful. And then Rob you talked about some pull through demand from from networking as customers accelerate their <unk> investments are they engaging of programs outside of traditional data center hardware. So for example, you brought up cooling a number of times is.
Are they looking to different cooling solutions with you or anything outside of your typical networking compute 10 storage solutions.
Most of the solutions, we provide them are you know completed products or we're deploying a cooling solutions.
In our Hbf's designs were also deploying them and I returned from here.
So we tend not to do engineering is a service we tend to provide complete solutions, but we're also growing or aftermarket services business with these providers, especially in the areas of iPad and things along those lines.
Which is going to be a huge growing business rest moving forward.
Great. Thank you.
Thank you.
There are no further questions for this time I'll be during the call over to Rome, Miami's Foreclosing remarks.
Thank you I'm pleased with our continued strong performance in the second quarter and encouraged by our continued momentum as we entered the back half of the year.
As a majority of our end markets are poised for growth in 2023 I'm also please we continue to be able to raise our twenty-three financial outlook and also please at this momentum is continuing into 24. Thank you for joining us on today's call and we look forward to updating you as we progress throughout the year.
Ladies and gentlemen that completes your conference call. Fortunately, we thank you for participating and ask that you. Please these <unk>. Thank you.