Celestica Inc. Q3 FY2025 earnings call

Key managerial messages include: Celestica began a comprehensive transformation in 2018, ramping investment in design engineering and technology roadmaps for the data center while disengaging from low-margin programs. The company has a global network operating across 16 countries, with significant expansions and upgrades in Texas and Thailand. Operational excellence is ingrained, with the Celestica operating system ensuring quality, reliability, and on-time delivery. A case study was presented on a hyperscaler customer's rack-scale liquid cool 1.6T networking solution. The CCS segment has seen significant growth, with $9 billion expected in 2025, and investments in R&D, design engineering, and advanced manufacturing capabilities. The ATS segment is focused on portfolio reshaping for higher profitability, with growth in Industrial and HealthTech businesses offset by selective reshaping in other markets.

In the third quarter, the ATS segment had revenue of $781 million, down 4%, accounting for 24% of total company revenue. The CCS segment had revenue of $2.41 billion, up 43%, accounting for 76% of total company revenue. The HPS business generated revenues of $1.4 billion, representing growth of 79% and accounted for 44% of total company revenue. The ATS segment margin in the quarter was 5.5%, up 60 basis points, primarily driven by improved profitability in the A&D business. The CCS segment margin in the third quarter was 8.3%, an improvement of 70 basis points, driven by a higher mix of HPS revenues and benefits from operating leverage.

Fourth quarter revenue is projected to be between $3.325 billion and $3.575 billion, representing growth of 36% at the midpoint. Adjusted earnings per share are anticipated to be between $1.65 and $1.81. For 2025, revenue is now seen at $12.2 billion, up from $11.55 billion previously, adjusted EPS up from $5.50 to $5.90, non-GAAP operating margin remains 7.4%, and free cash flow is increased to $425 million. For 2026, revenue is anticipated to be $16.0 billion, non-GAAP operating margin to expand to 7.8%, adjusted EPS to be $8.20, and non-GAAP free cash flow to be $500 million.

Q: Mike Ng asked about investments in R&D, capacity expansions, and the new storage platform win with a hyperscaler.

A: Jason Phillips responded that R&D spend is directed at networking, AI/ML, storage, and rack level solutions, with over 1,100 engineers and 400 software engineers. The new storage platform win is with an existing customer, and storage has several opportunities but is less prominent than networking.

Q: Karl Ackerman inquired about capacity growth assurances from customers and liquid-cooled-based switches.

A: Mandeep Chawla and Stephen Dorwart replied that CapEx is tied to customer programs, with 12-15 months of forecast visibility. On liquid-cooled switches, 800G demand is accelerating, with 1.6T programs ramping and liquid cooling playing a key role.

Q: Samik Chatterjee asked about the digital native customer ramp in 2027 and its magnitude.

A: Mandeep Chawla and Stephen Dorwart stated that mass production is expected in 2027, with visibility to multiple billions of dollars in revenue, and the growth is expected to accelerate beyond 2026.