Celestica Q3 2026 Financial Results and 2026 Investor and Analyst Day Conference Call - CELESTICA INC

Explicit Guidance:

• Q4 2026 Revenue: $6.275 billion – $6.575 billion (midpoint growth ~76% YoY); Assumes $127 million diluted weighted average shares outstanding.
• Q4 2026 Adjusted EPS: $3.37 – $3.57 (midpoint growth ~84% YoY).
• Q4 2026 Operating Margin: Expected 8.7% (up 100 bps sequentially) at midpoint; Effective tax rate ~20%.
• FY 2026 Revenue: Raised to $21.0 billion (up from $20.5 billion guidance), representing 69% growth; Non-GAAP operating margin unchanged at 8.4%.
• FY 2026 Adjusted EPS: Raised to $11.55 (up from $11.30), representing 91% growth.
• FY 2026 Free Cash Flow: $460 million (reduced from $600 million previously) due to working capital investments for 2027 growth.
• FY 2027 Revenue: $40.0 billion, representing ~90% YoY growth.
• FY 2027 Operating Margin: 9.0% (up 60 bps YoY); Non-GAAP adjusted EPS of $21.50 (up 86%).
• FY 2027 Capital Expenditures: $1.5 – $2.0 billion.
• FY 2027 Shares Outstanding: Assumed ~127 million diluted weighted average shares.
• FY 2027 Effective Tax Rate: ~21%.

Business-Segment Outlook:

• CCS (Connectivity and Cloud Solutions): Expected revenue of $17.4 billion in 2026 (quadrupling business in 3 years); Projected to grow ~110% in 2027. Networking revenue to reach $11.8B in 2026 (+66%); Compute and Storage to reach $5.6B in 2026 (+170%).
• Networking End Market: 2026 growth of ~65% driven by 800G ramps and 1.6T ramping. 2027 outlook anticipates 1.6T revenue surpassing 800G; 3.2T/400GHz transition expected later. Scale-up Ethernet spending projected to grow from negligible in 2026 to $55B by 2030 (40% of backend switching).
• Compute and Storage End Market: Expected ~160% growth in Q4 2026; 2027 outlook driven by Google TPU and OpenAI Jalapeno ramps (Jalapeno ramp starts 2027, second-half weighted). Custom ASIC market projected to exceed $430B by 2030 (>33% of AI accelerator market).
• ATS (Advanced Technology Solutions): Q4 2026 growth in low 20s range; Full year 2026 revenue $3.6B (+13%); Margin of 6.4%. 2027 outlook expects ~10% revenue growth driven by capital equipment (+40% fab spend growth), industrial, and early data center power infrastructure.
• Capacity & Operations: Expansion plans to support demand through 2028; adding capacity in US (Texas, liquid-cooled L11), Mexico (Monterey), Thailand, Japan, and Malaysia. Automation investments for L6-L11 processes and rack assembly.

Market and Competitive Outlook:

• AI Infrastructure Demand: Unprecedented momentum with a multi-year "AI investment super cycle." Cumulative data center CapEx forecast to exceed $3 trillion by 2030 (~$2T incremental TAM growth from 2026).
• Technology Trends: Shift from board-level design to full rack-scale and system-level engineering. Accelerated upgrade cycles (silicon 12-24 months, networking 2 years).
• Architecture Shifts: Move toward integrated optics (CPO/NPO) for 1.6T and beyond; "Scale-up" Ethernet adoption replacing proprietary architectures.
• Competitive Positioning: Celestica holds 31% revenue/44% port share in 800G+ Ethernet; 58% share in custom Ethernet switches. Competition for next-gen programs (1.6T, scale-up) is narrowing due to complexity barriers.
• Long-Term Visibility: Customer demand visibility extending to 2029/2030 based on awarded programs and design collaborations.

Macro / Industry Outlook:

• Economic Drivers: Hyper-scale and frontier AI labs driving capital concentration (nearly 70% of investment). AI accelerator shipments forecast to almost triple from 2026 to 2030.
• Supply Chain: Constraints shifting from components to power, land, and geopolitical factors. Management expects to overcome component supply constraints; power is a primary bottleneck.
• Customer Health: Hyperscalers and AI labs are well-funded; no financial distress observed across the customer portfolio.

Strategic Initiatives:

• Capacity Expansion: Approved significant global capacity increases (40+ sites in 16 countries). Targeting hundreds of megawatts of power addition.
• Investment in Tech: R&D spend to exceed $300 million in 2027; engineering headcount growing from 1,600 to 2,000+ by next year.
• Product Roadmaps: Ramping DS6010 (AMD Helios) by end of 2026; DS6005 (CPO) in testing; Co-designed 1.6T rack-scale CPO solution with hyperscaler ramping late 2027.
• Geographic Diversification: Strategic investments to support nearshoring (US/Mexico) and supply chain resilience.
• Capital Allocation: Priority on organic growth and capacity; M&A pursued opportunistically for capability expansion; NCIB renewed for up to 2.5% of float (timing opportunistic, primarily for SBC offset).

Risks and Headwinds to Outlook:

• Cash Flow Usage: Net cash use expected in 2027 due to $20B incremental revenue ramp and working capital/CapEx requirements; Positive FCF targeted to resume in 2028.
• Execution Risks: Potential impacts from supply constraints, component availability (silicon, optics), and operational execution on ramp timing.
• External Constraints: Geopolitical risks, land scarcity, and power availability bottlenecks could limit upside or delay ramps.
• Margin Mix: 2026 gross margin impacted by mix; 2027 margins dependent on mix between networking (accretive) and compute, though operating leverage expected to expand margins to 9%.
• Technology Uncertainty: Transition to integrated optics (CPO) presents new manufacturing hurdles and yield risks.

Management Tone on the Future:

• Confidence Level: High confidence in the $40B 2027 outlook and sustainability of demand; described as the "most exciting period" in company history.
• Strategic Stance: Belief in a "step-function" change in scale and profitability; conviction in the differentiated model (JDM + Design + Scale).
• Forward-Looking Narrative: Emphasis on "unprecedented momentum," "acceleration," and "structural tailwinds" rather than cyclical volatility. Management views the current environment as a durable multi-year cycle.

Miscellaneous:

• Naming Convention Update: "CCS" segment renamed; "Communications" end market is now "Networking," and "Enterprise" is now "Compute and Storage."
• Share Count: Diluted weighted average shares outstanding assumed at 127 million for Q4 2026 and FY 2027.
• Financial Position: Net cash of $3.2B at end of Q3 2026; Liquidity of $5.7B (cash + revolver); Debt leverage at 0.4x.
• Q&A Clarification: 2028 demand forecasts based on awarded programs already exceed 2027 revenue outlook; 2028 customer demand visibility is extending to 2029/2030.