Q1 2025 Celestica Inc Earnings Call
Bella: Hello and thank you for attending by. My name is Bella and I will be your conference operator today.
At this time, I would like to welcome everyone to Celestica Q1 2025 Financial Results and Conference Call
Bella: All lines have be placed on mute to prevent any backward noise
Bella: After the speakers remarked, there will be a question and answer session.
Bella: If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. To draw your question, press star one again. I would now like to turn the conference over to Matthew Palota. You may begin.
Speaker Change: Good morning, and thank you for joining us on Celestica's Q-1 2025 Earnings Conference call. On the call today, we have Rob Mionis, President and Chief Executive Officer, and Mandeep Chawla, Chief Financial Officer.
Speaker Change: Please note that during the course of this call, we will make forward-looking statements relating to the future performance of Celestica, which are based on management's current expectations, forecasts and assumptions.
Speaker Change: While these four-looking statements represent our current judgment, actual results could differ materially from a conclusion forecast or projection in the four-looking statements made today.
Speaker Change: Certain material factors and assumptions are applied than drawing any such statement.
For identification and discussion of such factors and assumptions [inaudible]
Speaker Change: as well as risk factors that may impact future performance and results of Celestica. Please refer to our public filings available at www.sec.gov and www.cdarplus.ca
as well as the Investor Relations section on our website.
Speaker Change: We undertake no obligation to update these forward-looking statements unless expressly required to do so by law.
Speaker Change: In addition, during the call, we will refer to various non-GAAP financial measures, including Adjusted Operating Margin, Adjusted Gross Margin, Adjusted Return on Invested Capital, or Adjusted ROIC.
Speaker Change: free cash flow, gross debt to trailing 12-month adjusted EBITDA leverage ratio, adjusted earnings per share, or adjusted EPS.
and Adjusted Effect of Tax Rate.
Speaker Change: We have included in our earnings release found in the Investor Relations section of our website a reconciliation of non-GAAP financial measures to the most comparable GAAP measures .
Speaker Change: With respect to our Q2 2025 and 2025 annual outlook, our earnings release does not include the reconciliation of forward-looking non-GAAP measures to the most directly comparable GAAP measures
Speaker Change: As items that we exclude from our gap to calculate the comparable non-GAAP measure are dependent on future events that are not able to be reliably predicted by a measure and are not part of our routine operating activities.
Speaker Change: We are unable to provide such a reconciliation without unreasonable effort through the uncertainty and inherent difficulty in predicting the occurrence, the financial impact, and the periods in which the adjustments may be recognized.
Speaker Change: The occurrence timing and amount of any of the items excluded from Gap to calculate non-GAAP could significantly impact our Q2 2025 and 2025 Gap results.
Speaker Change: Unless otherwise specified, all references to dollars on this call are to US dollars. All per share information is based on diluted shares outstanding and all references to comparative figures are on a year over year comparison. [inaudible]
Let me now turn the call over to Rob [inaudible]
Rob Mionis: Thank you, Matt, and good morning, everyone, and thank you for joining us on today's call.
Rob Mionis: We're off to a solid start in 2025. A strong performance in the first quarter, Thorus achieved revenues of $2.65 billion, and adjusted EPS of $1.20 each exceeding the high end of our
Rob Mionis: are adjusted operating margin of 7.1% mocked our highest performance in the company's history. Both our CCS and ATS segments surpassed our outlook for the quarter.
Rob Mionis: A CCF segment continues to benefit from very strong demand across our hyposcaler customers, in particular for our HPF networking forges.
Rob Mionis: In our ETS segment, we are encouraged by the solid demand we are seeing in our capital equipment business as well as signs of returning growth in our industrial business. [inaudible]
Rob Mionis: James R. January Call, the macro environment has become increasingly dynamic due to trade policy uncertainty.
Rob Mionis: While the environment remains fluid with frequent policy adjustments, recent announcements have provided near-term clarity.
Rob Mionis: Notably, the US administration has provided temporary exemptions for key data center IT hardware including servers and networking switches which comprise the majority of our CCS portfolio. We are.
Rob Mionis: We are closely collaborating with our customers as they evaluate the evolving policy landscape. Today, this has not translated into decisions to shift existing programs or new awards across our sites.
Rob Mionis: Importantly, we are seeing resilient, overall demand in our CCS portfolio, with only minor adjustments in ATS.
Rob Mionis: Our global manufacturing footprint offers a distinct advantage, providing ample capacity in the U.S. and Mexico for any future program adjustments. We remain vigilant and prepared to adapt swiftly to policy changes.
Rob Mionis: Before, I provide you with our latest annual financial outlook and an update on our businesses. I would like to hand the call over to Mandeep, who will provide more details on our financial performance during the first quarter and our guidance for the second quarter of 2020. Thank you, Mandeep, Todd.
Mandeep, over here Good.
Mandeep Chawla: Thank you, Rob, and good morning, everyone. First quarter revenue of $2.65 billion is up 20% above the high end of our guidance range, driven primarily by strong demand from hypersailer customers in our CCS segment.
Mandeep Chawla: and Justin Gross-Margent to the quarter was 11.0% off 110 basis points driven by higher volumes and favorable mix.
Mandeep Chawla: First quarter, adjusted operating margin with 7.1% up 120 basis points driven by higher margin across both our CCS and ATS segments.
Mandeep Chawla: Our adjusted earnings per share for the first quarter was $1.20, exceeding the high end of our guidance range, and an increase of 37 cents or 45 percent [inaudible]
All right, just an effective tax rate for the quarter was 20% for the government.
Mandeep Chawla: Finally, our first quarter adjusted ROIC with 31.5%, a 770 basis points improvement driven by higher operating profit and effective working capital management.
Mandeep Chawla: Moving on to our segment performance, ATS segment revenue totalled $800.7 million, up 5% and above our guidance of being flat your rear.
Mandeep Chawla: The higher revenue this quarter was primarily the result of significant growth in our capital equipment business. Our ATS segment accounted for 30% of total company revenue.
Mandeep Chawla: Our CCS segment, revenue, was $1.84 billion, up 28% driven by very strong growth for networking switches in our communications and market.
Mandeep Chawla: The CCS segment accounted for 70% of total revenue in the quarter.
Mandeep Chawla: Our communications and market revenues increased by 87% above our guidance of low 80s percentage growth, driven primarily by strong demand for our HPS networking products.
Mandeep Chawla: Revenue in our enterprise and market was 39% lower, though better than our guidance of a mid-40s percentage decline.
Mandeep Chawla: The lower revenues were due to the anticipated technology transition in an AIML compute program with one of our hyperscaler customers.
Mandeep Chawla: HPS Revenue, Group by 99% in the first quarter, suggests over $1 billion, accounting for 39% of total company revenue.
Mandeep Chawla: This exceptional growth is being driven by continuing hyperscaler demand for our 400G networking switches, as well as the ramping of our 800G switch programs.
Moving on to segment margin. [inaudible]
Mandeep Chawla: H.S. segment margin for the first quarter was 5.0% off 80 basis points.
Mandeep Chawla: primarily driven by strong operating performance in our capital equipment business, and as anticipated, improve profitability in our A&D business.
Mandeep Chawla: DCS segment margin in the quarter was 8.0% an improvement of 120 basis points.
Mandeep Chawla: driven by a higher mix of the HPS revenues and strong operational performance.
Mandeep Chawla: During the quarter, we had three customers that each accounted for at least 10% of total revenue, representing 28%, 13% and 10% of revenue respectively.
Mandeep Chawla: moving on to work in capital. At the end of the first quarter, our inventory balance was $1.79 billion, a sequential increase of $28 million, and a year-over-year decrease of $163 million.
Mandeep Chawla: We continue to effectively manage inventory levels while supporting significant growth in customer
Mandeep Chawla: Fast deposits were $472 million at the end of the quarter, down $40 million sequentially and down $248 million your over here.
Has cycle day during the first quarter, we're 69. We're 69.
Mandeep Chawla: Turning our attention to cash flows, capital expenditures for the first quarter were $37 million, or approximately 1.4% of revenue, compared to 1.8% in the first quarter of 2024.
Mandeep Chawla: We continue to anticipate capital expenditures to remain within the range of 1.5% to 2.0% of revenues for the full year.
Mandeep Chawla: During the quarter, we generated $94 million of free cash flow, $26 million higher than the prior year period.
Mandeep Chawla: Starting to the balance sheet and capital allocation. At the end of the first quarter, our cash balance was $303 million, combined with $600 million of borrowing capacity under our revolver, we currently have approximately $900 million in total liquidity, which we believe is sufficient to meet our projected business needs.
Mandeep Chawla: Our growth debt at the end of the quarter was $887 million and our net debt position was $584 million.
Mandeep Chawla: Our gross death to non-GAAP trailing 12-month adjusted EBITDA leverage ratio was 1.1 turns, 0.1 turns sequentially, and flat versus the prior year periods.
Mandeep Chawla: As of March 31st, we were in compliance with all financial covenants under our credit agreement.
Mandeep Chawla: During the first quarter, we repurchased $75 million of shares per cancellation under our normal course issue orbit. In addition, following the end of the quarter, we repurchased an additional $40 million of shares, bringing our total repurchases under the NCIB to $115 million year-to-date.
Mandeep Chawla: We intend to continue being opportunistic on share by-backs for the remainder of 2025.
Mandeep Chawla: Now let's turn to our guidance for the second quarter of 2025
Mandeep Chawla: Please note that our guidance figures assume no material changes to terrorists or trade restrictions compared to what is in effect today. Substantially, all tariffs paid by Celestica are expected to be recovered from our customers and are non-expected to impact our non-GAAP adjusted EVA or non-GAAP adjusted net earning
Mandeep Chawla: These amounts are not anticipated to be material at this time
Mandeep Chawla: 2nd quarter revenue is projected to be between $2.575 billion and $2.725 billion, representing growth of 11% at the midpoint.
Mandeep Chawla: Adjusted earnings per share are anticipated to be between $1.17 and $1.27, representing an increase of 32 cents per share, at the midpoint, or 36%.
Mandeep Chawla: Assuming the achievement of the midpoint of our revenue and adjusted EPS guidance ranges, our non-GAAP operating margin would be 7.2%, an increase of 90 basis points over the prior year
Mandeep Chawla: We expect our adjusted effective tax rate from the second quarter to be approximately 20 percent.
Mandeep Chawla: Finally, let's turn into our end-market outlook for the second quarter [inaudible]
Mandeep Chawla: In our HES segment, we anticipate revenue to be approximately flat year-rear, as demands tramping capital equipment and the recovery and industrial volumes are being offset by our previously announced decision, not to renew a diluted margin program in our A&D business.
Mandeep Chawla: In our CCS segment, we project revenue in our communications and market to grow in the high 50s percentage range, fueled by ongoing demand strength for our networking switches, including accelerating ramps in our 800G programs.
Mandeep Chawla: In our enterprise end market, we expect a low 40 percentage decrease in revenue, driven primarily by a technology transition in an AIML compute program.
Mandeep Chawla: With that, I will now turn the call back over to Rob to discuss our latest financial outlooks for 2025 and to provide an update on our business.
Rob Mionis: Thank you, Mandeep. We are encouraged with a strong first quarter performance and the positive demand outlook our customers have shared with us for the remainder of 2025.
Thank you. Bye.
Rob Mionis: As a result, we are raising our revenue outlook for the year from $10.7 billion
to $10.85 billion.
Reflecting year-over-year growth of 12% of the world.
Rob Mionis: We also raving our non-GAAP adjusted EPS outlook from $4.75 per share to $5 per share. This improvement in profitability is reflective of strong revenue growth, operating leverage, and improvement.
Rob Mionis: As with our quarterly guidance, these outlook figures assume no material changes to tariffs or trade restrictions compared to those in effect today.
Mandeep Chawla: As Mandeep noted, we expect that substantially all tariffs will be treated as a path through charge to our customers and that these amounts are not anticipated to be material at this time.
Rob Mionis: A free cash flow outlook for the year continues to be $350 million.
Rob Mionis: Despite the heightened uncertainty presented by terrorists and the overall macro backdrop, we continue to have confidence in our 2025 outlook.
Rob Mionis: Our conviction reflects the durable secular demand we are seeing in our CCS segment, which is supported by a close collaboration and demand planning with our customers, new program awards and reaffirmations of 2025 CapEx plans from some of the reading hyperscalers. [inaudible]
Moving on to additional color on our businesses
Rob Mionis: In our CCS segment, we now anticipate growth in the high teams percentage range in 2025.
Rob Mionis: Compared to our outlook of mid-teens growth provided in January , the year of year growth we are seeing in CCS is primarily being driven by our hypostale customers where demand is strong across numerous networking programs.
Rob Mionis: In our communications and market, we anticipate continued strength throughout the year as we ramp multiple 800G programs. We also continue to see healthy demand for our 400G programs for multiple customers.
Rob Mionis: Additionally, we are encouraged by the solid traction. We continue to see our new wins across networking and optical programs.
Rob Mionis: Recently, we were awarded a new program with a leading optical OEM to both high-speed optical transceders.
Rob Mionis: out of our Thailand site. We've seen this as an opportunity to broaden our exposure to the Pluggable Transceiver segment, which is a natural complement to our market-leading portfolio in data center switching.
Rob Mionis: We expect to begin ramping production in the second half of this year.
In our switching business, we also continue to see
Rob Mionis: Very strong momentum on 1.60 rims at this early stage in the cycle
Rob Mionis: Since we spoke last quarter, we are pleased to have secured multiple new awards for 1.60 programs, leveraging our HPF solutions, including our first with a major OEM customer.
Rob Mionis: In our enterprise and market, we continue to expect our next generation AIML Compute Program with a large hyperscale customer to begin ramping mass production volumes in the third quarter, leading to our resumption of sequential growth in the second half.
Rob Mionis: The market share gains we've achieved with hyperscale customers through awarded programs are expected to continue driven by our strong and expanding pipeline of opportunities.
Rob Mionis: Moving on to our ATF segment, we are maintaining our 2025 Outlook for Revenues to be approximately flat on a year-over-year basis.
Rob Mionis: In our industrial business, volumes are stabilizing after an extended period of declines. Looking forward, our customer forecasts reflect solid growth due to our recovery and base demand across multiple submarkets, as well as new program ramps.
However, we remain cautious on the extent of this grudge. [inaudible]
Rob Mionis: In A&D, based on man remains healthy, supported by new program ramps and recent customer wins.
Rob Mionis: While overall revenues will be lower this year, due to the strategic precision not to renew a dilutive margin program, this action positions us for higher profitability dollars and margin in the AMD in 2025.
Rob Mionis: In capital equipment, we continue to expect above market growth in 2025 on the back of strong customer demand and new program wraps.
Rob Mionis: Overall, we continue to anticipate another year of solid financial performance for the company in 2025.
Rob Mionis: We remain confident in our ability to continue our strong momentum despite the uncertainty presented by the current macro environment.
Rob Mionis: Our portfolio continues to be supported by strong secular talents which we believe are enduring and long-term in nature.
Rob Mionis: Furthermore, we believe that Celestica is very well positioned to help our customers navigate the uncertainty of the current environment, supported by our globally diversified manufacturing network, and our best in class supply chain operations teams.
Rob Mionis: We are a company that thrives in managing complexity and we feel that these challenges will serve to further highlight the critical value we are able to provide. With that, I will now turn the call to the operator to begin the Q&A session.
Thank you
Speaker Change: At this time, I would like to remind everyone in order to ask a question, press the star, then the number one on your telephone keypad.
Rob Mionis: We dear request for today's session that you please limit to one question and one follow-up. We will pause for just a moment to compile the Q&A roster.
Speaker Change: Your first question comes from the line of David Vogt with UBS. Your line is now open. Please go ahead.
Speaker Change: Great. Thanks, guys. I appreciate all the details, particularly in a difficult macro backdrop. I'm going to ask a question on that as well. So can Rob or Mandeep, can you kind of share with us kind of the level of visibility? Absolutely.
Speaker Change: that you're having with your customers, particularly in CCS, given the uncertainty. I know you touched on it in the prepared remarks, citing that you don't see a lot of changes whether it's in terms of infrastructure deployments and or demand, but just can give us a sense for how we're sitting here today and, you know, maybe you pull in what that visibility looks like and then I will follow up. Thanks.
Speaker Change: David, I'll start off and I'll see if Mandeep has anything to add. Typically in GCS, our hyperstriola customers provide a full-year outlet with respect to their CAP-X plans and that's firms up on a quarterly basis.
Speaker Change: That hasn't changed as a result of the terrorist environment. We continue to ramp up a number of new programs with the hyperscale of customers.
Speaker Change: We continue to win share with our hyposcaler customers, so that visibility, pre-tariff and post-tariff environment really has a change that was contingency, very strong demand across the board with our hyposcaler customers [inaudible]
Speaker Change: The other thing I would say is of course there's what's happening this year and what's happening in the coming years.
Speaker Change: and so, in addition to evaluating the forecast for 25, we've had conversations with our customers on a new program ramp.
Speaker Change: in terms of where we're ramping in for them, as well as the design and the prototype work that happens and we're happy to see that there's been no change in the activity this year in terms of design work for a program that are in one year or even two years out. So the resilience of my particular experience is strong.
Samik Chatterjee
Speaker Change: Great. And then just in a quick follow-up along those lines, meet on the Enterprise side.
Speaker Change: Obviously, you're ramping, or you're expecting the leak celebration in a second half [inaudible]
Speaker Change: with I would imagine an existing customer within Enterprise and also a ramp with new customer maybe a couple of customers. Can you kind of share with us kind of the magnitude or how you're thinking about? [inaudible]
Speaker Change: That re-exceleration in the second half of 2025, particularly in enterprise with those with the existing customer and a new customer that you cite. Thanks.
Speaker Change: Yes, David, so in 2025, chose the back end of 2024 into the first half of 2025, we mentioned on previous calls that one of our largest customers is going through AI ML Transition.
Speaker Change: That transition is now starting to wrap in the 3rd quarter, the 4th quarter, and then even more so into 2026, so that new program
Speaker Change: It is ramping. We'll be ramping quite nicely here in the back half of the year. Also in Enterprise, we have seen some program dynamics in our storage facility, which will be in a source of the language we down on a year-over-year basis of kind of suppressing some of the Enterprise numbers that you're seeing.
David Vogt, Jason Phillips, David Vogt, Jason Phillips
Speaker Change: Your next question comes from the line as to make a strategy with JP Morgan, please go ahead.
Speaker Change: Hi. Thanks for taking my questions. Maybe if I can start off with a question on tariffs and the reference you had to some minor adjustments from customers in ATS.
Can you just outline for us what portion of your...
Speaker Change: sort of customer footprint or revenue currently is under the purview of tariffs and you have to pass on price increases to customers at this point and when you mention the minor adjustments from customers in 80s was that primarily a pulled forward or some sort of delays if you can just flash that out for me and I will follow up. Thank you.
Thank you.
Trust me, I'll start off in a lit, Mandeep finished. So with an ATS, we haven't seen any...
Slowdown in demand, today as a result of...
Speaker Change: The Tarris, but our customers in chatting with them, they have expressed some concern over the macroeconomic slowdown, so as such, we have factored into some risk into a full year outlook.
Speaker Change: No, overall with an ATS, the tariff impact of somewhat muted or should just go down by a line item of business with an A&D
Speaker Change: The majority of our demand is covered by USMCA in America. We do have some limited impact in our food and facility in Southeast Asia.
Speaker Change: Now within industrial, industrial largely runs a regional supply chain, so a lot of the product stays in region.
Speaker Change: Within Capital Equipment, the majority of the tools, 85-90% of the tools remain in Asia.
Speaker Change: So the impact has been minimal as well, and health tech, the impact has been minimal as well [inaudible]
Speaker Change: The minor impact we have been saying is that we have seen where we're dual-sourced some migration of a product
Speaker Change: from our Asian facilities into our competitive Mexico facilities, but on the flip side, we also have seen some increased share in our Mexican facilities. So NetNet, ATS is pretty flat relative to prior reviews.
Speaker Change: as I look at the guide as it currently, and I'm sorry, I'm more specifically referring to communications within CCS.
Speaker Change: and you're guiding flat sequential revenues from one Q2 Q.
Speaker Change: with Fight What You Had as a pretty big step up from 4Q to 1Q. And I think Mandeep has prepared a month to talk about sort of actuating 800 grams as well. So I'm just trying to match that up with the guidance here for more sequential revenue and communications, the spite going through what is the actuating 800 grams. Thank you.
Speaker Change: Yeah, I think first of all, welcome to the call and we're really happy to have you in as you've been working.
along with up here.
You know, right now we're continuing to...
Keith Spron, you're over your growth.
as you know.
It really is just the timing of programs [inaudible]
Speaker Change: We're continuing to see various Trump demand on the 400G side, 800 [inaudible]
keep programs running nicely.
Speaker Change: Nothing that's off of our expectations. And so I wouldn't read you too much into a constant flash, which is much as continue to look at the year-to-year and just know that there are going to be some demand dynamics between the quarters, whether it comes to material availability, largely around material availability, but overall we're seeing good growth in the second quarter, and we're going to the next step.
George Wang: Our next question comes from the line of George Wang with Barclays.
Please go ahead. Your line is now open.
George Wang: Oh, hey guys, thanks for taking my question. I have two quick words just on the one point six feet switch
You guys talked about additional links.
George Wang: Since the last time we spoke, and also you mentioned first the OEM 1.6 T switching wing. And I thought from there, you know, he also talked about availability of Tomahawk 6 Um
George Wang: In all areas, you can talk about the ramp that depends on the component availability, which is just curious into 2026, do you have to reaffirm the view in terms of 1.60 shaman, or is there any nuance in terms of the timeline? Thanks.
George Wang: Thanks, George. Yeah, well, first off we're off in 2024. We just finished our strongest bookings here on record.
George Wang: across the company. CCS also posted some very, very strong numbers and ourselves pipeline is quite strong. You know, in the first quarter, as I mentioned on the call, we did win another 1.60 program with a major OEM.
George Wang: In terms of Silicon availability, we are starting to see samples in the first half of this year, in terms of when...
George Wang: and that will turn into mass production. We're still thinking when that 60 will be wrapping on the majority of our programs in the back half of 2026.
George Wang: Also, I want to point out that we continue to gain share with our high-scale customers across the board.
George Wang: You know, I'm not sure I was in the areas of AI compute networking, it also rack systems as well You know, these next generation of products that we're producing are very complex in nature [inaudible]
George Wang: And I see all those very few folks out there that could produce at the rate that we can at scale consistently and for for that customer's requirements, and so that reason we're continuing to gain share.
George Wang: George is on the 1.6T program, as you know, we're doing multiple programs now across the number of different customers.
George Wang: and Austin Silicon availability will be the gating factor. No concern at this point, I think they're on track, but just as a result of silicon development time, you're looking at probably more mass production towards the second half of 2016. [inaudible]
Speaker Change: Okay, great. Just a quick follow up if I can for both Rob and Mandeep. You know, I just want to think that the services component is I appreciate it for the artist's story, especially as you look out to 2627 with a dear to native customer, you guys talk about kind of a
Speaker Change: The services component, especially you guys begin to do more sort of end-to-end, the fourth solution for cross-digitonative and the T.O.A.W.A.W.A.W.A.W.A.W.A.W.A.W.A.W.A.W.A.W.A.W.A.W.A.W.A.W.A.
Speaker Change: Thank you for bringing that up. We completed Civil Portage ago, the acquisition of NCS Global, which is a services company which is a great complement to what we're doing. NCS Global does everything from our ITS services.
Speaker Change: to supporting our asset market service in the evaporating fix and things born in those lines. And as you pointed out, that is a higher offering and full-life cycle solution that we support across with our customers. Also continuing to grow that wine of business.
Speaker Change: The growth in that business is very, very strong and based on some of the new awards that we have with our hyposcaler customers and digital majors, we've been looking to expand that offering to support our customers in the future as well.
Thank you. Thank you.
Speaker Change: Question, Mr. Wang, and your next question comes from the line of Ruben Roy with Stephen. Please go ahead.
I'm sorry. I'm sorry. I'm sorry. I'm sorry.
Speaker Change: Obviously, we have the failure guide and congrats on continued improvement of profitability, but how should we think about sort of exit rate on margins as you have stronger enterprise exiting the year? [inaudible]
Yeah, in a pipe we're recording. Let's talk to you.
Speaker Change: Look, the margins that we're seeing right now, just given in the first half of the year, are stronger than what we had anticipated just three months ago. And so that's why we've upgraded the solar guide to 7.2%.
Speaker Change: And that's up from what we had again talked about three months ago. So what we're seeing is a trend that's happening right now from a mixed perspective, which is largely driven by more HPS business.
Speaker Change: Caring through towards or through the rest of this year. And so we are going to we're on a very nice run rate right now through HPF.
and that's a large contributor.
Speaker Change: You know, when you're thinking about the margin profile between enterprise and comms, when you're thinking about it between hyperscalers and non-hyperscalers, there's not that much of the differentiation within the hyperscaler portfolio specifically.
Speaker Change: The other thing too is that we are growing revenue second half versus first half and as a result we will be seeing operating leverage management which we would hope then could fall to the bottom line.
Speaker Change: Perfect. Thank you. And a quick follow up for Rob on the optical transceiver win. You talk about competitively, you know, sort of why you won, you know, what the interface.
Speaker Change: David is a transceiver and sort of type of customer perhaps that you're dealing with for that win. Thank you
Rob Mionis: Yeah, thanks Ruben. So it's 800G optical transceiver. It was a competitive win. We went up against several other OEMs and ODMs. What we're doing is the complete transceivers of the DCVA, the Chaplin Board, the optical alignment, and the entire mechanical assembly.
Rob Mionis: The Lions will scale over time and there will be significant, we're actually building some incremental infrastructure in Thailand to support these Lions [inaudible]
Rob Mionis: And lastly, I would say that this win really provides additional optical truth points and white label opportunities for us with our hyper scale of customers as well [inaudible]
Thank you.
Speaker Change: Thank you for your question, Mr. Roy. Your next question comes from the line of Thanos Moschopoulos with BMO Capital Markets. Please go ahead.
Hannes Majupoulos: Hi, good morning. Maybe a bit of a hypothetical question at this point. But can you comment qualitatively or quantitatively with a second how quickly you could shift production to the US? The US.
and the Associated CapEx costs if tariffs were to come back.
Yes, Dennis Holt, I'll start off on that one
Hannes Majupoulos: So in the US and Mexico as well, you know Richardson and our...
Hannes Majupoulos: Facility in Monterey, and we do about $800 million a year in revenue. Give your tank out of those facilities.
Hannes Majupoulos: Without adding additional footprints, square footage, we could triple that revenue, they had $7 billion worth of revenue.
Hannes Majupoulos: Out of those both those facilities without having to meet for more space [inaudible]
and if we did actually detour more space. [inaudible]
Hannes Majupoulos: then we do have a play about it. In terms of shifting production from one region to next, it really depends on the complexity of the product that we are moving.
Hannes Majupoulos: Some of the more complex products that we do for behind-the-skillers would be more difficult, more lack systems, things like that would be less difficult. What we're seeing with our customers is when they ever decide to move.
Hannes Majupoulos: It'll probably be more of a regional strategy, a final assembly, and integration will be done in the region where the products is moved and more complex assembly will be done in tennis. The excellence that we think will gearing to support that emerging trend.
Okay, end of clip.
Hannes Majupoulos: I'm sorry, I just didn't quite get the color. So, as Rob talked about, we're doing about $800 million in revenue in Richardson. We have a run rate towards the end of the year at $800 million right now in Monterey. So, being able to add...
Hannes Majupoulos: You know, $2 billion to $3 billion of revenue with existing capacity could be done relatively quickly as we're talking with some programs to move quicker than others [inaudible]
Hannes Majupoulos: All of our conversations with our customers right now are on that TCOO basis for helping them understand the dynamics from a cost perspective.
Labour Cuts is...
Hannes Majupoulos: of major consideration, duty or major consideration. But the capabilities are very important to keep in mind. And so what we're seeing right now is customers reaffirming plan to grow, and even regions outside of North America, because the capabilities are just that established. And so as a result, while we'll support our customers for any movement, we think we have a very strategic footprint to help them. We think the reason we're not seeing...
Hannes Majupoulos: These moves happen after death because of the values of putting out capabilities in certain regions. [inaudible]
David Vogt, Jason Phillips, David Vogt
Thank you.
Thank you.
Speaker Change: Thank you for that question Mr. Moschopoulos. Your next question comes from the line of Steven Fox with Fox Advisors. Please go ahead.
Stephen FOX: Hi, good morning. Can I just follow up on that last answer first off and then I had to follow up in my question. You're saying 800 million of revenues.
Stephen FOX: in Richardson plus 800 in Monterey. And then secondly, Mandeep, can you just expand on what you mean by capabilities? Like what specific capabilities are you referring to outside of North America that are hard to replicate in the U.S. in Mexico? Thanks, and I have to follow. Thank you.
Stephen FOX: You know, I'll let Rob expand on this one, but what I was referring to from a talent perspective, the engineering capability that you've built over many, many years.
Stephen FOX: It's one of the reasons that we have had business, and new business, awarded to places like Thailand and Malaysia, you know, too many years to have reached out So there's also the supply chain capabilities that are intertwined with the site [inaudible]
Stephen FOX: and so, a lot of times, fleshing their regional lines and it takes many, many years to move those.
Thank you.
Young, the capability is Stephen.
Speaker Change: So, the liquid cooling that we're doing on the AI ML compute.
Stephen FOX: and on networking. It's very complex, and it's very complex to do that at the scale and the level of automation that we mastered in our talent facility.
Stephen FOX: is very unique, and those are the capabilities that I think are very special to Thailand, frankly across the entire industry. Some of the other capabilities in terms of family like rats, I think that that tend to be.
Stephen FOX: He's a little more easy to replicate, and those types of things we took move up more quickly than not.
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Speaker Change: and just clarifying the 800 million again, sorry, and then I want to ask one more.
Speaker Change: Definitely, you got to write Steven Sorge, H. Herb Williams, a friend of this year in Monorite, and we're ramping the number of programs already in Richardson, so our exit rate at the end of the year in Richardson will be about 800 as well.
Thank you for that question.
Speaker Change: Operator, if we could go back to Steve and just let him ask his next question.
Alright, your light is now open, Mr. Fox [inaudible]
Stephen FOX: Thanks for that. Sorry to confuse things. Just on the semi-cap market, I was wondering if you could ride more color, underlying growth seems to be better now than maybe you talked about 90 days ago, but also a new win. So I'm wondering if you could just provide some more detail on that market. Thanks again.
Justin Vincent, Camel Pimble will have a very good year this year this year.
Stephen FOX: But the growth will be first half-loaded. We saw strong growth exceeding last year, everything strong growth in the front house this year. As we get into the back half of this year, we're seeing some program dynamics where the growth might slide out a little bit.
Stephen FOX: We are winning share with our newest customer and you know those are very again very complex products tend to be slower ramps and some of the program dynamics I just wanted to do [inaudible]
Thank you [inaudible]
Speaker Change: Sin comes from the line of Paul Treiber with RBC Capital Barquets. Please go ahead.
Speaker Change: Oh, thanks so much. Good morning. Does that couple of questions around price elasticity? As you mentioned,
Speaker Change: You know, now with the tariffs where they are, you have visibility to demand for the year. Did you during the period when you know, tariffs were on an elevated level, did you get feedback from your customers that at those levels, it would be, it would be a challenge and across your various segments.
Speaker Change: Do you have a sense of the general price elasticity to be in regards to the added cost of tariffs?
Speaker Change: Good question, Paul. In the short period of time, when the reciprocal towers were announced, we did hit a lot of our customers.
Speaker Change: and they did not show any wavering with respect to their commitment on a CAPEX plan or the demand outlet for the foreseeable future.
Speaker Change: So I think they have a much longer-term view and strategic view of what they're trying to do in the AI data center space [inaudible]
With some of our OEM customers.
Speaker Change: These very complex total cost of ownership models, you know, depending on where tyros may or may not settle in, we understand, you know, what's the most economical way to produce it.
to prepare to put a line item on their pricing for certain charges and pass costs on to their end customers. And that's what we're seeing, you know, not just in CCS, but also on ATS that
Speaker Change: It's lots of going to be passed on to any users and some of the stationary concerns that we say to the economists. Talk about them in the news every day.
Speaker Change: It could follow up on it. It's related to the pipeline as the pipeline here is very strong. Over the last month or so have you seen any changes one way or another in regards to your pipeline? Well, no, we really haven't been able to continue to be very strong. I don't know if you're very strong.
Speaker Change: So today we haven't seen any major changes as a result of the task. We have seen a little bit maybe a delay of making some decisions, but in the overall magnitude of our pipeline, I wouldn't call that material at all.
Speaker Change: We're not seeing a reduction in any of the new ones across those of that majority of the rest of the portfolio.
Speaker Change: Thank you for that question, Mr. Treiber. Your next question pumps from the line of Mr. Robert Young with Kenna Courage and you would see.
Please go ahead.
Robert Young: Hi, good morning. Just wanted to get your thoughts on the various ramps you've announced.
and how those impact your guidance which...
Robert Young: The back half of your looks like it's a bit of a deceleration
Robert Young: So I'm trying to understand the timing of the resumption of the networking.
Robert Young: or, sorry, the resumption of the AIML server and then the GROC program. And then there's also the two new programs, the ROC programs that you announced last quarter, which I believe we're in 2026. So you just talk about...
Robert Young: Those various ramps and how those interact with the guidance that looks like it's going to decelerate in the second half [inaudible]
Thank you.
Yeah, he wrote, uh...
Speaker Change: So, we're looking at sequential growth as we go into the second half. So, the second half revenue is up by $200 million dollars relative to the first half.
Robert Young: We are seeing right now 1.6 P development on track as I mentioned earlier, that's going to be more of a 2026 thing.
Robert Young: We're raising energy programs right now. We're continuing level of growth on the energy side.
Robert Young: 400G is the one that we continue to watch. We've been seeing very strong growth on 400G.
Thaum...
in the first half of this year. [inaudible]
Robert Young: It is an incredibly uncertain environment, as you know, and things are changing day by day. We are in a very close collaboration with our customers. The 10.85 is reflective in our walks that we've had with our customer, and it's our high confidence view.
Robert Young: It's our VISTA justice view, it's our high confidence view. We do have the plans where you could see that. What we think right now, we're being prudent balancing all of the various dynamics that are happening. [inaudible]
Speaker Change: I think it's suggested the A&D program rolloff hasn't happened yet. I mean, it's serious. Is that in the current margin structure? Or is there opportunity for ATS to deliver further margin structure in the second half? Further margin improvement? Second half?
Speaker Change: Yeah, so the AND Marginay-Luted program that we did to strategic decision not to renew is for reflective in our second quarter-guided and our folder outlook that transition is actually happening to happen in April already, so that is now in all of our numbers.
Speaker Change: We're really pleased with the performance that we're seeing, the improvement that we're seeing in AGS.
Speaker Change: We had some businesses that had performed very well for a period of time on cap equipment.
and you'll come down.
Speaker Change: But on the A&B piece specifically, there were a lot of heavy lifting. That's happened over the last 12 months.
Speaker Change: on the commercial side of the business. And so we have seen a noticeable improvement in profitability in our A&B business compared to last year. As we will go forward for the rest of this year, we do think that there's an opportunity for margin expansion still in HF.
Speaker Change: Thank you for that question, Mr. Robert Young. Your next question comes from the line of Todd Copeland with CIBC. Your line is now open.
Oh, yeah, good morning, everyone Good morning, everyone.
Speaker Change: So I wanted to step back from all the detail around the bookings and just help us understand
when we hear commentary around.
Speaker Change: Data Center Lease pauses from hyperscalers, questions around timing of builds, et cetera. How should we interpret that relative to the types of bookings growth you are seeing? Give us a little bridge to that, that would be helpful, thanks.
Samik Chatterjee
is that they're continuing to want to...
Speaker Change: Invest in AI and altitude, networking and rat solutions, and we're not saying any slow down, you know, inside the data center world.
Speaker Change: Well, because we're not actually involved in new data center bills or emerging, you know, very long time plans five, six years out, we haven't had those conversations with them, but the data center is that we're filling and our strong backlog has, you know, several years, I think of life in it.
Speaker Change: The only one hyper-scaler that I've seen in the news anyway, that's pulling back on new data center builds, but I haven't read anything publicly on pullback from any of the other major hyper-scalers. So I think to some extent that's a little bit of a waiting scene.
Speaker Change: Thank you. My follow-up question is, with all the design wins that you've been talking about, would you expect additional 10% new customers to emerge from those lists if so talk about the product areas where that's going to be. Thanks.
Speaker Change: You know, we're very happy that we actually have new, like 10% for our customers, it's just a testament to the breadth of products that we're offering to these customers and our strong wind rates.
Speaker Change: I do various potential actually for additional 10% customers as some of these programs that we've won, especially in the 1.16 [inaudible]
for joining us.
Speaker Change: 27th, potentially time print, but you know, based on some of the backlog and some of the bookings that we have, and around what that certainly is something that could potentially happen
Speaker Change: Todd, maybe do you know if we define using today's denominator 10% of the billion dollars.
Speaker Change: and another customer of up-a-billion dollars, but based on the ramp cycles and...
I would agree.
Speaker Change: Thank you for that question, Mr. Copeland. Your next question comes from the line of just Pytlak with four Martha Securities, please go ahead.
Speaker Change: Hey, good morning. Just want to give us a sense on the mix of 400G for 800G, which is this quarter and then just some info on how pricing has been trading for 400G.
Samik Chatterjee,
I'll start off, I'll let Mandeep fill in for the...
Mandeep Chawla: From a four-year answer of the question, we do expect an undertreater.
Mandeep Chawla: You know, being north of 50% and 400G to be less than 50%. So 800G will be the majority of product shipping now to this year versus 400G.
Mandeep Chawla: That role in 25 and 27, for 800G, will continue to be, you know, gained share roles at the quantity.
Mandeep Chawla: But Foyntagy has a very long tail as well as places to come down and are customised to find new use cases for that So I would say Foyntagy has a very long tail and Edontagy is wrapped in quite nicely [inaudible]
Mandeep Chawla: Jesse, we're going to see a nice acceleration and 800G production as we go into the second and third quarter. As I mentioned earlier, 400G has been a very nice, resilient part of our portfolio. We don't see one cannibalizing the other, but as 800G does ramp, you know, there will be a little bit of a pullback on 400G. But overall, this year...
You know, in our networking business, on your basis.
Mandeep Chawla: Round number, you may want to say half is 4 energy and half is going to be 5 energy [inaudible]
Speaker Change: Understood, thanks for that. And then just secondly, just kind of given a more dynamic macro environment, just wondering if this is maybe changing your thoughts or priorities or approach to potential M&A.
Speaker Change: We continue to have a very healthy balance sheet. We're up to average $350 million a year. That's our high confidence view. We are targeting to do better than that, and we hope we will.
Speaker Change: We are deploying the capital along the way, you know, as much as makes sense strategically. We're going to be opportunistic. I'm not sure if I'll have that [inaudible]
Speaker Change: We're investing very heavily on the R&D side. You'll notice in our CCS business our R&D spend will be on track for about $100 million this year or even a little bit more. So we're actively investing organically.
Speaker Change: and then we still have a healthy balance sheet. Our leverage is only just above one time during the hour of leverage. We're looking at a number of different targets to accelerate our strategies of popular both in CCS as well as in HES.
Speaker Change: Definitely, though, it's a challenging environment right now that we get to deal with stuff, and so we may see some psychotic longer than we normally would, but if the business is aligned with our strategy and if it will help accelerate our business, then we're very often to emanate to the right deal.
Speaker Change: That concludes our Q&A session. I will now turn the call back over to Mr. Rob Mionis for closing remarks.