Celestica(CLS) - 2025 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company achieved revenues of $2,890,000,000 in Q2 2025, representing a 21% increase year-over-year and exceeding the high end of guidance [6][8] - Adjusted EPS for the quarter was $1.39, an increase of $0.49 or 54% compared to the previous year [8] - Adjusted operating margin reached 7.4%, marking the highest performance in company history, up 110 basis points year-over-year [6][8] - Adjusted gross margin was 11.7%, up 110 basis points driven by higher volumes and improving mix [8][9] - Adjusted ROIC was 35.5%, compared to 26.6% a year ago, reflecting higher operating profit and strong working capital management [9] Business Line Data and Key Metrics Changes - The ATS segment reported revenues of $819,000,000, up 7% year-over-year, driven by strong demand in capital equipment and industrial businesses [9][10] - The CCS segment generated CAD2.07 billion in revenue, up 28%, primarily due to strong growth in the communications end market [10] - Communications end market revenues increased by 75%, significantly above guidance, driven by demand for HPS networking products [10][11] - The enterprise end market saw a 37% decline in revenue, which was better than the anticipated low 40s percentage decline [10][11] - HPS revenues reached CAD1.2 billion, up 82%, accounting for 43% of total company revenue [11] Market Data and Key Metrics Changes - The company noted minimal impact from tariffs due to exemptions on electronics goods and data center hardware [7] - The cash cycle days during Q2 were CAD66, with a cash balance of CAD314 million at the end of the quarter [12][14] - Free cash flow for Q2 was $120,000,000, an increase of $54,000,000 compared to the prior year [13][14] Company Strategy and Development Direction - The company raised its 2025 annual revenue outlook from $10,850,000,000 to $11,550,000, reflecting a year-over-year growth of 20% [19] - The adjusted EPS outlook for 2025 was increased from $5 to $5.5 per share, representing a year-over-year growth of 42% [19] - The CCS segment is expected to grow nearly 30% for the full year, driven by strong demand for networking products [20] - The ATS segment is anticipated to remain flat compared to 2024, with growth in industrial business offset by lower volumes in A and D business [21] - The company is focused on expanding its service offerings and enhancing its capabilities in response to customer demand [100][102] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate the current macro environment, supported by a globally diversified manufacturing network [23][24] - The demand outlook remains strong, with expectations for continued growth in both communications and enterprise segments [57] - The company is prepared to support growth north of 20% per year, with sufficient capacity to meet demand [70] Other Important Information - The company repurchased approximately 600,000 shares for cancellation at a cost of $40,000,000 during the quarter [15] - The gross debt to non-GAAP trailing 12-month adjusted EBITDA leverage ratio improved to 0.9 turns [14] Q&A Session Summary Question: Can you speak to the breadth of customers and platforms for 800 gig switch ports? - Management indicated that every 400G customer has transitioned to 800G, with significant market share gains in the 800G segment [28][30] Question: What is the manufacturing capacity at your campuses to handle growing demand? - The company confirmed sufficient capacity to support an additional $3 billion to $4 billion in revenue, with ongoing investments in key locations [34] Question: Can you discuss the implications of Q3 guidance and full-year guidance for Q4? - Management noted that while Q4 may see growth at 18%, the overall demand outlook remains strong, with higher confidence in customer forecasts [40] Question: What is the status of the 1.6T timing and its impact on future growth? - The company is ramping new programs and expects significant revenue contributions from these initiatives in 2026 and beyond [42][92] Question: How is pricing factoring into discussions with customers? - Pricing is a consideration, but the primary focus is on supply certainty and technology leadership [76] Question: What is the outlook for cash cycle improvements as CCS grows? - Management expressed confidence in cash generation and inventory management, anticipating ongoing improvements in cash cycle days [53] Question: Can you elaborate on the new program pipeline and opportunities with existing and new hyperscalers? - The company is focused on increasing share with existing hyperscalers and exploring new opportunities with digital natives [75]