Celestica(US:CLS)2021-10-26 17:01Financial Data and Key Metrics Changes - Third quarter revenue was $1.47 billion, a decrease of 5% year-over-year but an increase of 3% sequentially [15][10] - Non-IFRS adjusted EPS was $0.35, up $0.03 year-over-year and up $0.05 sequentially, marking the highest EPS in nearly five years [16] - Non-IFRS operating margin was 4.2%, up 30 basis points year-over-year and sequentially, representing the highest quarterly operating margin in the company's history [11][16] Business Line Data and Key Metrics Changes - ATS segment revenue increased by 12% year-over-year and 5% sequentially, driven by recovery in industrial business and strong demand in capital equipment [17] - CCS segment revenue decreased by 14% year-over-year but increased by 2% sequentially, primarily due to Cisco disengagement [18] - HPS business revenue was $300 million, up 22% year-over-year, driven by demand strength from service providers [20] Market Data and Key Metrics Changes - Communications revenue declined by 17% year-over-year, primarily due to Cisco disengagement, but service provider demand remained strong [19] - Enterprise revenue was down 7% year-over-year but up 16% sequentially, indicating stabilization in certain areas [19] Company Strategy and Development Direction - The company aims to achieve top-line growth in Q4 2021 and anticipates closing the PCI acquisition, which is expected to enhance its portfolio [13] - Focus remains on growth and maintaining strong margins, with a long-term revenue target of at least $6.3 billion for 2022 [40] - The company is investing in expanding its capabilities, particularly in the HPS and industrial sectors, to support future growth [50][43] Management's Comments on Operating Environment and Future Outlook - Management acknowledged persistent supply chain challenges but emphasized resilience and proactive demand planning [39] - The company expects to return to top-line growth in Q4 2021, with operating margins projected to be 4.5%, the highest in its history [40] - Management remains optimistic about growth potential despite current constraints, indicating strong customer demand [39] Other Important Information - Inventory at the end of Q3 was $1.41 billion, up $201 million year-over-year, as the company prepares for future demand [25] - The company repurchased approximately 2.1 million shares for cancellation at a cost of $17.2 million during the quarter [32] - Non-IFRS free cash flow was $27 million in Q3, marking the 11th consecutive quarter of positive free cash flow [27] Q&A Session Summary Question: Inventory increase and cash conversion cycle - Management indicated that inventory is up due to strong demand for 2022, and they are working with customers on cash deposits to manage inventory levels [55] Question: Capital allocation priorities post-PCI acquisition - Management confirmed a focus on generating strong free cash flow, paying down debt, and being opportunistic with share buybacks [59] Question: Communication segment performance - Management noted good strength in networking and HPS but acknowledged that overall communication revenue was impacted by Cisco disengagement [60] Question: HPS growth expectations - Management expects strong growth in HPS, with tougher comparisons in Q4 but remains optimistic about future performance [62] Question: Enterprise trends - Management observed demand softness in compute but strength in storage, indicating a mixed outlook for the enterprise segment [68]