Celestica, Inc.

Good day and thank you for standing by. Welcome to the SELESICA Q2 2021 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today. Craig Ebert, please go ahead.

Good morning, and thank you for joining us on Celestka's second quarter 2021 earnings conference call. On the call today are Rob Myonis, President and Chief Executive Officer, and Mandeep Chawla, Chief Financial Officer. As a reminder during this call, we will make forward-looking statements within the meetings of the U.S. Private Securities Litigation Reform Act of 1995 and applicable Canadian securities laws. Such forward-looking statements are based on management's current expectations, forecasts, and assumptions, which are subject to risks, uncertainties, and other factors that could cause actual outcomes and results to differ materially from conclusions, forecasts, or projections expressed in such statements. For identification and discussion of such factors and assumptions, as well as further information concerning forward-looking statements, please refer to yesterday's press release, including the cautionary note regarding forward-looking statements therein our most recent annual report on Form 20F, and other public filings, which can be accessed at sec.gov and cdar.com. We assume no obligation to update any forward-looking statement except as required by law. In addition, during this call, we will refer to various non-IFRS financial measures, including operating earnings, operating margin, adjusted gross margin, adjusted return on invested capital or adjusted ROIC, free cash flow, gross debt to non-IFRS trailing 12-month adjusted EBITDA leverage ratio, adjusted net earnings, adjusted EPS, adjusted SG&A, and adjusted effective tax rate. Listeners should be cautioned that references to any of the foregoing measures during this call denote non-IFRS financial measures, whether or not specifically designated as such. These non-IFRS financial measures do not have any standardized meanings prescribed by IFRS and may not be comparable to similar measures presented by other public companies that use IFRS or who report under U.S. GAAP and use non-GAAP financial measures to describe similar operating metrics. We refer you to yesterday's press release and our Q2 2021 earnings presentation, which are available at Seleska.com under the Investor Relations tab for more information about these and certain other non-IFRS financial measures including a reconciliation of historical non-IFRS financial measures to the most directly comparable IFRS financial measures from our financial statements. Unless otherwise specified, all references to dollars on this call are to U.S. dollars, and per share information is based on diluted shares outstanding. Let me now turn the call over to Rob.

Thank you, Craig. Good morning, everyone, and thank you for joining us on today's conference call. Our strong performance in the second quarter is attributable to the execution of a multi-year transformation. It also reflects the stability and resilience of our global operations and our ability to operate under challenging conditions. Our second quarter revenue of $1.42 billion was at the high end of our guidance range, driven by another quarter of year-over-year double-digit growth in our hardware platform solutions, our HPS business, and double-digit growth in our ATS segment. Our non-IFRS adjusted EPS of 30 cents and non-IFRS operating margin of 3.9% both meaningfully exceeded the high end of our guidance range. Our second quarter operating margin performance represented our sixth straight quarter of year-to-year operating margin improvement and was within our target range of 3.75% to 4.5%. Our strong Q2 performance and multi-year margin expansion efforts are a result of the execution of our strategy, including portfolio shaping and driving operational excellence across the enterprise. Our non-IFRS adjusted free cash flow came in at $31 million for the quarter, or $52 million year to date, and we continue to target $100 million of free cash flow in 2021. Throughout the quarter, we continue to face operational challenges in the form of supply chain constraints and workforce containments in locations such as Malaysia due to the resurgence of COVID-19. But our team's operational agility and advanced planning tools are enabling us to effectively navigate this dynamic environment. We believe that our portfolio is stronger than ever with an improved margin profile, and the fundamentals to drive long-term organic growth. We expect our operating margin to continue to expand in the coming quarters, driven by our anticipation for higher HPS concentration in our CCS segment, as well as volume leverage fueled by steady growth in our ATS segment. Despite being tempered by continued softness in our commercial aerospace business, ATS segment revenue grew by 12% year to year in Q2, driven by another exceptionally strong quarter in our capital equipment business, as well as return to growth in our industrial business. Our ATS segment reported its fifth consecutive quarter of sequential segment margin expansion and remains on track to achieving segment margin within our 5% to 6% target range by the end of the year. Within CCS, our non-Cisco portfolio experienced another quarter of year-to-year growth, as both enterprise and communications and market revenues exceeded our expectations. The CCS segment continues to perform well, with segment margin of 3.7% in the second quarter. With double-digit year-to-year growth, our HPS business recorded sales of more than $300 million in the second quarter. HPS grew 13% on a year-to-year basis. And year-to-date HPS revenues of $501 million are up 24% compared to 2020. Demand for our hardware platform solutions continues to be robust, and our current expectations are that revenue for HPS will exceed $1 billion for 2021. In recent quarters, we have begun to highlight the financial performance of a lifecycle solutions business, which combines the revenues of our HPS business and ATS segment. As we noted during our previous quarterly conference calls, Our lifecycle solutions portfolio generates higher margins, presents greater barriers to entry for competitors, and offers a more robust growth profile compared to our traditional EMS portfolio. We are encouraged by the performance of our lifecycle solutions portfolio, which has exhibited double-digit revenue growth on a year-over-year and sequential basis. Looking ahead, we are pleased to provide third-quarter revenue guidance in the $1.4 billion to $1.55 billion range, and non-IFRS operating margin guidance of 4%, representing the midpoint of our revenue and adjusted EPS guidance ranges. Achievement of 4% operating margin would represent the highest quarterly operating margin at Celestica in the last 20 years. Additionally, we currently expect our performance in the fourth quarter to be at third quarter levels or better. I am pleased with the progress we have made in executing our strategy and transforming our business. Year-over-year operating margin has been expanding for the last six quarters. Revenue from our lifecycle solutions business continues to grow as a percentage of overall revenue, and Celestica is currently on track to post year-over-year revenue growth on an absolute basis in the fourth quarter. Additionally, our bookings performance has been strong, driven by our engineering-led approach and our efforts have resulted in a diversified portfolio with strong secular tailwinds. Before I offer some additional detail on the outlook for each of our end markets and the overall business, I would like to turn the call over to Mandeep, who will provide you with more color on our financial performance in the second quarter, as well as more detail on our third quarter guidance.