Q1 2025 Celestica Inc Earnings Call
Bella: Hello and thank you for standing by. My name is Bella and I will be your conference operator today.
Bella: After the speaker's remarks, 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
Bella: To draw your question, press star one again. I would now like to turn the conference over to Matthew Palota, you may begin.
Matthew Palotta: Good morning, and thank you for joining us on Celestica's Q1 2025 Earnings Conference call. On the call today, we have Rob Mionis, President and Chief Executive Officer, and Mandeep Chawla, Chief Financial Officer.
Matthew Palotta: 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,
Matthew Palotta: 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.
Matthew Palotta: Certain material factors and assumptions are applied than drawing any such statement.
Matthew Palotta: 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.
Matthew Palotta: We undertake no obligation to update these forward-looking statements unless expressly required to do so by law.
Matthew Palotta: 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.
Matthew Palotta: 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.
Matthew Palotta: 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 .
With respect to our Q2 2025 and 2025 Annual Outlook
Matthew Palotta: Our earnings release does not include a reconciliation of forward-looking non-GAAP measures to the most directly comparable GAAP measures on a forward-looking basis.
Matthew Palotta: 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 an engine and are not part of our routine operating activities.
Matthew Palotta: 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.
Matthew Palotta: 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.
Matthew Palotta: Unless otherwise specified, all references to dollars on this call are to US dollars. All per share information is based on diluted shares of standing, and all references to comparative figures are on a year over year comparison. [inaudible]
Let me now turn the call over 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, Thoris achieved revenues of $2.65 billion, and adjusted EPS of $1.20 each exceeding the high end of our
Rob Mionis: Both are CCS and ATS segments surpassed or outweighed to the corner. [inaudible]
Rob Mionis: A CCF segment continues to benefit from very strong demand across our hyposcaler customers, in particular for our HPS Networking Furchase.
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.
Rob Mionis: Turns out 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 U.S. administration has provided temporary exemptions for key data center IP hardware, including servers and networking switches, which comprise the majority of our CCS portfolio.
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: Our Global Manufacturing for Trent offers a distinct advantage, providing ample capacity in the US 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.
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: Adjusted gross margin 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 $0.37 or 45%.
Mandeep Chawla: All right, just an effective tax rate for the quarter was 20% . . .
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: 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 AML compute program with one of our hyperskiller customers.
Mandeep Chawla: This exceptional growth is being driven by continuing hyper-scaler demand for our 400G networking switches, as well as the ramping of our 800G switch programs.
Moving on to segment margins.
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: CCS segment margin in the quarter was 8.0% an improvement of 120 basis points, 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 working 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 days during the first quarter, 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: 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: 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.
Mandeep Chawla: 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 shared buybacks for the remainder of 2025.
Mandeep Chawla: Now let's turn to our guidance for the second quarter of 2025 25.
Mandeep Chawla: Please note that our guidance figures assume no material changes to terrorists or trade restrictions compared to what is in effect today.
Mandeep Chawla: 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 dollars.
Mandeep Chawla: These amounts are not anticipated to be material at this time.
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 percent, an increase of 90 basis points over the prior
Mandeep Chawla: We expect our adjusted effective tax rate for the second quarter to be approximately 20%.
Mandeep Chawla: Finally, let's turn to our end-market outlook for the second quarter. In our HES segment, we anticipate revenue to be approximately flat year-over-year, as demands trending 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. You will buy ongoing demands for our networking switches, including accelerating ramps in our 800G programs.
Mandeep Chawla: In our enterprise and market, we expect a low 40 percentage decrease in revenue, driven primarily by a technology transition in an AML compute program.
Mandeep Chawla: With that, I will now turn the call back over to Rob to discuss our latest financial outlets 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.
Rob Mionis: As a result, we are raising our revenue outlook for the year from $10.7 billion to $10.
to $10.85 billion.
Reflecting year-over-year growth of 12% .
Rob Mionis: That's with our quarterly guidance. These outlet 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 pass through charge to our customers and that these amounts are not anticipated to be material at this time.
Mandeep Chawla: A free cash flow outlawed for the year continues to be $350 million.
Mandeep Chawla: Despite the heightened uncertainty presented by tariffs and the overall macro backdrop.
We continue to have confidence in our 2025 Outlook.
Mandeep Chawla: Our conviction reflects the durable secular demand we are seeing in our CCS segment.
Mandeep Chawla: 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 leading hyper-stayers.
Now moving on to additional color on our businesses
Mandeep Chawla: In our CCS segment, we now anticipate growth in the high teens percentage range in 2025.
Mandeep Chawla: Compared to our outlook of mid-teens growth provided in January , the year of the year growth we are seeing in CCS is primarily being driven by our hyperscale customers where demand is strong across numerous networking programs. Thanks for your time.
Mandeep Chawla: In our communications and market, we anticipate continued strength throughout the year, as we ramped multiple 800G programs. We also continue to see healthy demand for our 400G programs for multiple customers.
Mandeep Chawla: Additionally, we are encouraged by the solid traction. We continue to see our new wins across networking and optical programs. Thank you very much.
Mandeep Chawla: Recently, we were awarded a new program with a leading optical OEM to both high-speed optical transceders.
Mandeep Chawla: out of our Thailand site. We see 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 centers for children.
Mandeep Chawla: We expect to begin ramping production in the second half of this year.
In our switching business, we also continue to see
Mandeep Chawla: Very strong momentum on 1.60 rings at this early stage in the cycle
Mandeep Chawla: 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.
Mandeep Chawla: In our enterprise and market, we continue to expect our next generation AIML Compute Program with a large hyposcale customer to begin ramping mass production volumes in the third quarter.
Mandeep Chawla: leading to our resumption of sequential growth in the second half.
Mandeep Chawla: The market share gains we've achieved with hyper scale customers through awarded programs are expected to continue driven by our strong and expanding pipeline of opportunities.
Mandeep Chawla: Moving on to our ETS segment. We are maintaining our 2025 Outlook for Revenues to be approximately flat on a year-over-year basis.
Mandeep Chawla: 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 growth [inaudible]
Mandeep Chawla: In A&D, base to man remains healthy, supported by new program ramps and recent customer wins.
Mandeep Chawla: While overall revenues will be lower this year, due to the strategic decision not to renew a dilute of the margin program, this action positions us for higher profitability dollars and margin in A&D in 2025.
Mandeep Chawla: In capital equipment, we continue to expect above market growth in 2025 on the back of strong customer demand and new program reps.
Mandeep Chawla: Overall, we continue to anticipate another year of solid financial performance for the company in 2025.
Mandeep Chawla: We remain confident in our ability to continue our strong momentum despite the uncertainty presented by the current macro environment.
Mandeep Chawla: Our portfolio continues to be supported by strong secular talents which we believe are enduring and long-term in nature.
Mandeep Chawla: 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.
Mandeep Chawla: 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. Thank you.
Speaker Change: At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. We do 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.
David Vogt: Great. Thanks guys. We 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?
David Vogt: that you're having with your customers, particularly in CCS given the uncertainty. I know you touched on it in the prepared remarks.
David Vogt: Sighting 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
David Vogt: David, I'll start off, and I'll see if Mandeep has anything to add. Typically in CCS, our hyper-striola customers provide a full-year outlet with respect to their CAPEX plan, and that's firmed up on a quarterly basis.
David Vogt: That hasn't changed as a result of the terrorist environment. You know, we continue to ramp a number of new programs with the hyposcaler customers.
David Vogt: We continue to win share with our Hyperscale customers, so that visibility, pre-tariff and post-tariff environment really had to change that was contingency, very strong demand across the board with our Hyperscale customers [inaudible]
David Vogt: The other thing I was sad is, of course there's what's happening this year and what's happening in the coming years.
David Vogt: in terms of where we're ramping in for them as well as the sign and the course I 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.
No, that's a rebellion to fight for each other for each other.
and Peter Ong.
Speaker Change: Great. And then just in a quick follow up along those lines, we know the Enterprise Shide.
Speaker Change: Obviously, you're ramping, or you're expecting a leak celebration in a second half. [inaudible]
David Vogt: 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 was going through a AI ML compute transition.
David Vogt: That transition is now starting to wrap in the 3rd quarter, a couple of minutes into the 4th quarter, and then even more so into 2026. So that new program
David Vogt: 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 storage demand, which will be down on a year-by-year basis, such kind of suppressing some of the enterprise numbers, like you're saying. [inaudible]
Samekh Shatterjee: Your next question comes from the line out to make a strategy with JP Morgan. Please go ahead
sort of customer footprint, or revenue currently is...
Samekh Shatterjee: 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 fresh that out for me and I will follow up. Thank you.
Speaker Change: Trust me, golf got off and I'll let Mandeep finish. So with an ATS, we haven't seen any
Slowdown and demand today as a result of...
Speaker Change: No, overall with an ATS, the tariff impact of somewhat muted, it 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: So the impact has been minimal as well, and health care has been minimal as well.
The minor effect we have been saying...
Speaker Change: is that we have seen where we're dual-sourced some migration of products.
Speaker Change: from our Asian facilities and to 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 sorry, I'm most particularly referring to communications within CCS.
Speaker Change: and you're guiding flat sequential revenues from 1Q to 2Q.
Speaker Change: with Fight What You Had as a pretty big step up from 4Q to 1Q. And I think Mandeep and his prepared months, they talk about sort of accelerating 800 grams as well. So I'm just trying to match that up with the guidance here for more sequential revenue and communications, communications, despite going through what is the accelerating 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 us here. Thank you.
You know, right now we're continuing to...
He's from, you're over your growth.
in concert with you, as you know.
It really is just the timing of programs. [inaudible]
Speaker Change: We're continuing to see various drop-to-band on the 400G side, 800.
Robert Mionis, Craig Oberg, Unknown Executive, Jason Phillips
Transcripts provided by Transcription Outsourcing, www.TranscriptionOutsourcing.com
PURR!
Speaker Change: Overall, we're seeing good growth in the second quarter, I went to the next step [inaudible]
Please go ahead. Your line is now open.
Speaker Change: Oh, you think I sensed for taking my question. I have two quick words [inaudible]
just on the 1.6T switch.
You guys talk about additional links [inaudible]
Speaker Change: Since the last time we spoke, and also you mentioned first the OEM 1.6 T switching wing. And
Speaker Change: In all areas, you can talk about the ramp that depends on the component availability, which is just curious into 2026. Do you have a read from the view in terms of 1.60 shaman, or is there any nuance in terms of the timeline? Thanks.
Speaker Change: Thanks, George. Yeah, well, first off, we're off in 2024. We just scratched our strongest bookings here on record.
across the company [inaudible]
Speaker Change: CCS also posted some very, very strong numbers, and I'll see how the pipeline...
is quite strong. When the first quarter, as I mentioned on the call, we did win another 1.60 program with a major OEM.
Speaker Change: In terms of when level 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 [inaudible]
Speaker Change: Also, I want to point out that we continue to gain share with our high-scale customers across the board.
Systems that as well. [inaudible]
Speaker Change: You know, these next generations of products that we're producing are very complex in nature.
Speaker Change: And I see all those very few folks out there that could produce, I feel, right that we can have scale, consistent way for photo customers and requirements. And so that reason we're continuing to gain share.
Speaker Change: and Austin silky availability will be the gate extractor. No concern at this point. I think they're on track, but just as a result of silky 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 tend to think that the services component is underappreciated for the other story, especially as you look out to 2627 with a dear to native customer, you guys talk about kind of adopting more four rack solutions with a bit of higher margin services, selection maintenance content. Can you kind of talk about any refresher view just on driving from a higher margin services?
Speaker Change: Tim Bolin, especially you guys begin to do more sort of end-to-end the fourth solution for across
Speaker Change: Thank you for bringing that up. We completed civil portages 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 ICAS services.
Speaker Change: Question, Mr. Wang, and your next question comes from the line of Ruben Roy with Sioux Falls. Please go ahead.
Speaker Change: Obviously, we have the full year 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?
Yeah, in a hyper 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 anticipated just three months ago. And so that's why we've already created the solar guide to 7.2%.
Speaker Change: Caring towards or through the rest of this year
Speaker Change: And so we are going to, we're on a very nice run rate right now with Dr. HPS.
and that's a large contributor.
Speaker Change: You know, when you're thinking about the margins 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 [inaudible]
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. [inaudible]
Speaker Change: David is of the transceiver and sort of type of customer perhaps that you're dealing with for that win. Thank you Thank you.
Speaker Change: Thank you. 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 Chippon board, the optical alignment, and the entire mechanical assembly.
Speaker Change: The volumes will scale over time and they'll be significant. We're actually building some incremental infrastructure in Thailand to support it in the volumes
Speaker Change: and lastly, I would say that, you know, this win really provides, you know, additional optical proof points and white label opportunities for us with our Hype of Killer customers as well.
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?
and the Associated Cap X Costs, if tariffs were to come back.
Yup, that's all I'll start off on that one [inaudible]
Hannes Majupoulos: So in the US and Mexico as well, you know Richardson and our...
Hannes Majupoulos: Facility in Monterey. We do about $800 million a year in revenue. Give your tank out of those facilities.
Hannes Majupoulos: Without adding, you know, additional footprint square footage, we could triple that revenue, say I had $7 billion worth of revenue.
Hannes Majupoulos: out of those both those facilities without having to meet for more space. [inaudible] I'm sorry, I'm sorry
and if we did actually detour more space. [inaudible]
Hannes Majupoulos: Then we do have a plan about in terms of shifting production from one region to next it really depends on the complexity of the product that we are moving [inaudible]
Hannes Majupoulos: Some of the more complex products that we do for the manufacturers would be more difficult, more of that system, things like that would be less difficult.
Hannes Majupoulos: It'll probably be more of a regional strategy, we'll final assembly, and integration will be done in the region where the product moves and moves the more complex assembly will be done in centers of excellence and we think we're well gearing to kind of support that emerging trend [inaudible] final assembly, and we'll final assembly, and we'll final assembly, [inaudible]
Transcripts provided by Transcription Outsourcing, LLC.
Speaker Change: I'm sorry, I just did a quick question. So after I've talked about what 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
You know, two million to three billion dollars of revenue with existing capacity could be done relatively quickly but as we're talking with some programs, you can move quicker than others [inaudible]
Labour Cuts is...
of Major Consideration, Student or Major Consideration. [inaudible]
Speaker Change: These moves happen after, yet, is because of the values of putting out capabilities in certain regions. [inaudible]
Please go ahead and have a seat.
Speaker Change: Alright, thank you for that question Mr Moschopoulos. Your next question comes from the line of Steven Fox with Fox Adisers. 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 on my question. You're saying 800 million of revenues.
Speaker Change: 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's a hard to replicate in the U.S. in Mexico. Thanks, and I have to follow up there.
Speaker Change: 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.
Speaker Change: One of the reasons that we have had business and a new business awarded to places like Thailand and Malaysia
Speaker Change: You know, as you committee here, Sid Ristall is not so there's also the supply chain capabilities that are intertwined with the site.
Speaker Change: and so a lot of times, fleshing about regional lines. And it takes many, many years to move those.
Another country. [inaudible]
Down the Cape Abilities, Steven [inaudible]
Speaker Change: So, the liquid cooling that we're doing on the AI ML compute.
Speaker Change: 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 talented facility.
Mandeep Chawla: Again, we do have the recipe to move these products as Mandeep mentioned, you know, should we need to do that, but they are a little more complex in nature.
Mandeep Chawla: and just clarifying the 800 million again, sorry, and then I want to ask one more [inaudible]
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]
Speaker Change: Thanks for that. Sorry to confuse things. Just on the semi-cap market, I was wondering if you could ride more color.
Speaker Change: Underlying Growth seems to be better now than maybe it's talked about 90 days ago, but also new wins. I'm wondering if you could just provide some more detail on that market. Thanks again.
Speaker Change: Stephen, some couple of things we'll have a very good year this year.
Speaker Change: But the growth will be first half-loaded. We saw strong growth exiting last year and we're seeing strong growth in the front half of 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.
Speaker Change: We are winning share with our newest customer and 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.
Paul Trelber: Oh, thanks so much. Good morning. Does a couple of questions around price elasticity? See you mentioned.
Paul Trelber: 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?
Paul Trelber: Do you have a sense of the general price elasticity between regards to the added cost of tariffs?
Paul Trelber: Good question, Paul. In the short period of time, when the reciprocal towers were announced, we did hit a lot with our customers.
Paul Trelber: and they did not show any wavering with respect to their commitment on the CAPEX plans or the demand outlook for the foreseeable future. So I think they have a much longer-term view and strategic view of what they are trying to do in the AI data center space.
with some of our OEM customers.
Mandeep Chawla: We have, they have asked and we have developed it many people did it to earlier [inaudible]
Paul Trelber: 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.
Transcripts provided by Transcription Outsourcing, www.transcriptionoutsourcing.com
Paul Trelber: It could follow up on it is 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. I think it's continued to be very strong. I think it's very strong.
Paul Trelber: 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.
Paul Trelber: Paul just to be a couple of click on that one which is if there is an area that we're seeing customers briefly there, the award that they're considering giving if it's in the industrial sticks and it's going to be more around
Paul Trelber: We're not seeing a reduction in any of the new ones across those of that majority of the rest of the portfolio [inaudible]
Speaker Change: Thank you for that question, Mr. Treiber. Your next question comes from the line of Mr. Robert Young with Kenna Courage and you would see. Please go ahead.
Robert Young: Hi, good morning. I just wanted to get your thoughts on the various ramps you've announced.
and how those impact your guidance, which...
Speaker Change: 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 those various rams and how those interact with the guidance that looks like it's going to accelerate in a second and a half. [inaudible]
Yeah, hey, Rob, uh...
Rob Mionis: 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.
Rob Mionis: We are seeing right now 1.6P development on track, as I mentioned earlier, that's going to be more of a 2026 thing. We're raising 802 programs right now. We're going to continue in level of growth on the 802 size.
400G is the one that we continue to watch. We've been seeing very strong growth on 400G.
Rob Mionis: 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 every time with our customers, and it's our high confidence to you.
Speaker Change: Okay, thanks. And then for my follow-up, the sequential margin improvement in ATS.
Rob Mionis: I think it suggests that the A&D program rolloff hasn't happened yet. I'm sure it says 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 Further margin improvement? Further margin improvement?
Rob Mionis: Yes, so the AND, the Margin de Lutip program that we did to strategic decisions not to renew is reflective in our second quarter guidance and our closure outlook. That transition actually happened in April already, so that is now in all of our numbers.
Rob Mionis: You know, we have some businesses that have performed very well for a period of time on cap equipment.
You'll come down
Rob Mionis: But on the A&B piece specifically, there was a lot of heavy lifting that happened over the last 12 months, commercial sizes of the business. And so we have seen a noticeable improvement in profitability in our A&B business compared to last year. As we go forward for the rest of this year, we do think that there's an opportunity for margin expansion still in HF. [inaudible]
Speaker Change: Thank you for that question, Mr. Robert Young. Your next question comes from the line of Todd Coupland with CIBC. Your line is now open.
Oh yeah, 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: 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.
Speaker Change: is that they are continuing to want to invest in AI and compute, networking and rat solutions, and we're not seeing any slowdown, you know, inside the data center word.
Speaker Change: Well, because we're now actually involved in new data center bills or emerging, you know, very long-term plans, five, six years out.
We haven't had those conversations with them [inaudible]
Speaker Change: But the data center is that we're filling and our strong backlog has 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 set of 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 our new 10% for our customers. It's just a testament to the breadth of products that we're offering to these customers and our strong win rates.
Speaker Change: I do, there is a potential actually for additional 10% customers as some of these programs that we want especially in the 1.16.
is something that could potentially happen.
Speaker Change: So maybe if we define using today's denominator, 10% of the billion dollars.
Speaker Change: Yes, we have the opportunity, but I'll talk to those with some of the wins that we've had to get.
Speaker Change: Thank you for that question, Mr. Coupland. Your next question comes from the line of Jesse Pytlak with Quarmer Securities. Please go ahead.
Jess Pitlak: 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 insight on how pricing between training for 400G.
Goss Perron, Robert Menni, Phil Tudor, Sarah
Jess Pitlak: For the whole year, I'll answer the question and we do expect an energy to...
Jess Pitlak: You know, being north of 50% in 400g to be less than 2.6%
Jess Pitlak: 800G will be the majority of the product shipping out here versus 400G
That will, in 26 and 27, 800G will continue to...
Jess Pitlak: Jesse, we're going to see a nice acceleration and 800G production as we go into the second half of the 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, they'll be a little bit, maybe we'll pull back 400G, but overall this year...
You know, in our networking business, on your basis, uh...
Jess Pitlak: Round numbers, you may want to say half is 400 G and half of it is going to be 100 G.
Speaker Change: Understood, thanks for that. And then just secondly, just kind of given the more dynamic macro environment. I'm just wondering if this is maybe changing your thoughts or priorities or approach to potential M&A. Thank you very much.
Speaker Change: We continue to have a very healthy, down-cheap, and we're off track for generating $350 million a year after our high confidence in you. We are targeting to do better than that and we hope we will.
We are deploying the Capitol.
Speaker Change: Along the way, you know, as much as makes sense strategically, we're going to be opportunistic, not share by that [inaudible]
Speaker Change: We're conducting a very heavily on the R&D side. You'll notice in RTCS business our R&D spend will...
Speaker Change: The contract 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 our birth leverage. We're looking at a number of different targets to accelerate our strategies as popular both in CCS as well as in H.S.
Speaker Change: and David Lee, though, it's a challenging environment right now, and we get to deal with stuff. And so we may see some cycles take 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 open to emanating 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.
Speaker Change: Thank you, and thank you for your time and engagement today [inaudible]
Speaker Change: We're pleased to report a strong beginning to 2025 demonstrating our resilience in a very fluid market. The upward revision of our full year outlet supported by a robust backlog and the strength of our key customer relationships positions us well for continued success.
Speaker Change: We value your ongoing support and anticipate providing further positive updates next quarter. Thank you again for joining us this morning. Have a wonderful day.
Speaker Change: Ladies and gentlemen, that concludes today's call. Thank you all for joining me now, disconnect.