Celestica Inc. Q4 FY2025 earnings call

• Delivered strong Q4 results driven by CCS segment growth, with revenue and adjusted EPS exceeding guidance ranges. • 2025 was an exceptional year with $12.4 billion revenue and $6.05 adjusted EPS, up 28% and 56% year-over-year respectively. • Continued discussions with key customers in CCS segment led to increased capital investment plans for 2026 and 2027. • Proud of partnership with Google and commitment to supporting AI data center architecture. • ATS segment expected to have mid-single digit percentage revenue growth in 2026 with growth in industrial and health tech offsetting some declines in capital equipment.

In the fourth quarter, the ATS segment had revenue of $795 million, a 1% decrease, accounting for 22% of total company revenue. The CCS segment had revenue of $2.86 billion, up 64%, accounting for 78% of total company revenue. The HPS business had revenue of $1.4 billion, up 72%, accounting for 38% of total company revenue. ATS segment margin in the quarter was 5.3%, up 70 basis points, and CCS segment margin was 8.4%, an improvement of 50 basis points.

• First-quarter 2026 revenue projected between $3.85 billion and $4.15 billion, midpoint growth 51%. Adjusted EPS anticipated between $1.95 and $2.15. • Raised 2026 annual revenue outlook to $17 billion, adjusted EPS to $8.75, both up year-over-year. Maintained free cash flow outlook at $500 million. • CCS segment expected to have ~50% full-year revenue growth in 2026, with communications end market growth in low sixties percentage range and enterprise end market in high teens percentage range.

• Geopolitical risks and potential supply chain tightening, though management sees more opportunities than risks. • Uncontrollable macro factors could impact business, but management is focused on operational execution and supply chain management.

Q: So it looks like you've taken up both the top line and the bottom line guide for fiscal 2026. If we take the midpoint of the guidance literally, then there seems to be a slowdown coming in the fiscal second half. Also, some loss of operating leverage. I mean, the revenue guidance is 51% year-over-year for fiscal Q1. The full year is 37%, so implying some slower growth in the remaining three quarters. Likewise, in EPS, it's 71% for the first quarter, but the full year is 45%. EPS is definitely growing faster than revenue, and there is leverage in the model. It looks like some operating leverage decline in the remaining three quarters. Can you just clarify for us, is there something specific that's causing this slowdown? Or should investors just chalk this up to conservatism in the guidance?

A: Good morning, Ruplu, and first of all, welcome back. We're always very happy to work with you. So thank you for the coverage. Look, we're very confident in our 2026 outlook. And as we said in our commentary and Rob mentioned, it's our high-confidence view. Our customer forecasts right now for 2026 are higher than the $17 billion that we are guiding. And also really nice to see right now is that the demand outlook with our customers is actually extending beyond sometimes our typical four-quarter outlook. You know, similar to past outlooks that we've had, we're taking a pretty pragmatic view. Our views on next quarter and the quarter after that are typically going to be very much dialed in, and we're going to share with you what that visibility exactly looks like. But when we look beyond the two quarters, we're just being pragmatic. We're focusing on securing supply. We have no concerns at this time, but we just want to make sure that the supply base can also ramp as fast as we are ramping. Then we take into account the macro, which, as you know, there's a lot of them. But as we go through the year, we are working towards a higher number. And we'll look to be updating the numbers as we go.

Q: If I can ask a quick one about risk management. So, you know, you obviously have a lot of opportunity in both your white box switching business and the custom ASIC server business. One thing you've mentioned is you're increasing CapEx to fund the growth. Can I ask if you're concerned about any potential funding for future AI-related projects? And is there any risk to programs materializing, and have you taken that into account? Also, you've kept free cash flow at $500 million, you know, given that the CapEx is going up and you're probably going to need more working capital to support revenue growth, can you just tell us, like, you know, is there a risk to the story here? And what is giving you confidence to maintain the free cash flow guide? Again, congrats on the quarter. Thanks for taking my questions.

A: Thanks, Ruplu. I'll start off, and I'll let Mandeep finish up. With respect to programs materializing, the build-out that we're doing is based on booked business. We had a record bookings year in 2025, and we're really just building out to support those bookings. So there's very little risk in those programs materializing. They've been in the development cycle right now, and we're doing proof of concepts with respect to validation testing. And they're well underway to ramp in 2026. In terms of risks to the entire story, Mandeep talked about it. We view it more as uncontrollable, like geopolitical risks. Always an opportunity of tightening supply chain, but frankly, our suppliers realize now that we have a lot of leverage these days given our scale. We're also a design agent, which is giving us some leverage in the supply chain. We also have a lot of opportunities, as Mandeep mentioned. Demand continues to well outstrip our ability to provide it in the very short term. We have very strong demand in networking with respect to 400G, 800G, and the 1.6T ramps that are happening later on this year. And on top of this, we have some very strong demand for AIML compute. And within the enterprise market, we're also seeing signs of very significant growth. So overall, we see more opportunities than risks at this time. Sorry. Go ahead. We're going to talk about cash generation. Look, we're very comfortable with our ability to invest, and, frankly, we're willing to invest even more as we go through the year. That's what's in front of us. We think we'll generate at least $500 million of free cash flow this year. That's after paying for a billion dollars of CapEx. I know that on the call already are aware of this. We generated positive free cash flow every quarter for almost seven years now. And it's because we are very focused on generating strong positive free cash flow every quarter. And so with the growth plans that we have in front of us, we don't see that being at risk. And, you know, this is even going beyond the fact that we have an incredibly healthy balance sheet. And so we think that we can fund these with cash generation and not have to even use the balance sheet. Thanks for your question.