Celestica, Inc.

head of investor relations. Please go ahead.

Good morning and thank you for joining us on Celestica's Q3 2025 financial results and investor and analyst day conference call. On the agenda for today's call, we'll begin with our third quarter financial results, followed by our 2025 investor and analyst day. At the conclusion of the prepared remarks, we will open up the lines for Q&A. Joining us on today's call to provide prepared remarks will be Rob Mayonis, President and Chief Executive Officer, Mandeep Chawla, Chief Financial Officer, Jason Phillips, President of our Connectivity and Cloud Solutions segment, and Todd Cooper, President of our Advanced Technology Solutions segment. They will also be joined by Steve Dorwerk, Senior Vice President and General Manager of Hyperscalers for the Q&A portion of our call. Please note that during the course of this call, We will make forward-looking statements, including statements relating to the future performance of Celestica, business outlook, and anticipated trends in our industry and their anticipated impact on our business, which are based on management's current expectations, forecasts, and assumptions. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations. For identification and discussion of these material assumptions, risks, and uncertainties, please refer to our public filings with the SEC on CDAR+, as well as the investor relations section on our website. We undertake no obligation to update these forward-looking statements unless expressly required to do so by law. In addition, during this call, we will refer to various non-GAAP financial measures we have included in our earnings release found in the investor relations section of our website, a discussion of those non-GAAP financial measures, and a reconciliation to the most comparable GAAP measures. Unless otherwise specified, all references to dollars on this call are to U.S. dollars, all per share information is based on diluted shares outstanding, and all references to comparative figures are a year-over-year comparison. Let me now turn the call over to Rob.

Thank you, Matt, and good morning, everyone, and thank you for joining us on today's call. We are pleased to have the opportunity to speak with you today and to share some of the exciting developments in our business and our plans for the future. Before diving into the investor and analyst day portion of our call, Mandeep will begin with a review of our third quarter results and provide our guidance for the fourth quarter. Mandeep, over to you.

Thank you, Rob, and good morning, everyone. In the third quarter, we once again saw exceptionally strong demand in our CCS segment, which drove very strong overall performance across our key financial metrics. Revenue of $3.19 billion was up 28% and above the high end of our guidance range, driven by a very strong demand in our communications and market. Our non-GAAP operating margin was 7.6%, up 80 basis points, driven by higher margins across both of our segments. This once again represented the highest quarterly non-GAAP operating margin in the company's history. Our adjusted earnings per share for the quarter was $1.58, exceeding the high end of our guidance range and an increase of 54 cents, or 52%. Moving on to some additional metrics. Adjusted gross margin was 11.7%, up 100 basis points, driven by higher volumes and improved mix in both segments. Our adjusted effective tax rate for the quarter was 20%. And finally, strong profitability and disciplined working capital management resulted in adjusted ROIC of 37.5%, up 850 basis points versus the prior year period. Moving on to our segment performance. Revenue in our ATS segment for the quarter was $781 million, down 4%, slightly lower than our guidance of a low single-digit percentage decline. The lower performance year-over-year was primarily driven by portfolio reshaping in our A&D business, as discussed in past quarters. Our ATS segment accounted for 24% of total company revenue in the third quarter. Revenue in our CCS segment was $2.41 billion, up 43%, driven by very strong growth in our communications end market. The CCS segment accounted for 76% of total company revenue in the quarter. Our communications end market revenues increased by 82% above our guidance of low 60s percentage growth. The growth was driven by very strong demand in data center networking, primarily for ramping 800G switch programs across our largest hyperscaler customers, complemented by solid demand in our optical programs. Revenue in our enterprise end market was lower by 24%, which was in line with our guidance of a mid-20s percentage decline. due to a technology transition in an AI ML compute program with a hyperscaler customer. Our HPS business generated revenues of $1.4 billion in the third quarter, representing growth of 79% and accounted for 44% of total company revenue. The very strong growth was driven by accelerating volumes in our ramping 800G switch programs. Moving on to segment margins. ATS segment margin in the quarter was 5.5%, up 60 basis points, primarily driven by improved profitability in our A&D business. 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. During the quarter, we had three customers that each accounted for at least 10% of total revenue, representing 30%, 15%, and 14% of revenue, respectively. Moving on to working capital. At the end of the third quarter, our inventory balance was $2.05 billion, a sequential increase of $129 million, and a year-over-year increase of $226 million. Cash cycle days during the third quarter were 65, an improvement of one day versus the prior year and sequentially. Turning to cash flows, we generated $89 million of free cash flow in the third quarter, bringing our year-to-date free cash flow to $302 million. Capital expenditures for the third quarter were $37 million, or 1.2% of revenue, while capital expenditures year-to-date were $107 million, and also 1.2% of revenue. We anticipate capital expenditures to increase in the fourth quarter and for total annual CapEx to be approximately 1.5% of revenue. Turning to our balance sheet and capital allocation. At the end of the quarter, our cash balance was $306 million, while our gross debt was $728 million for a net debt position of $422 million. We had no draw outstanding on our revolver, leaving us with approximately $1.1 billion in available liquidity. Our gross debt to non-GAAP trailing 12-month adjusted EBITDA leverage ratio was 0.8 turns, an improvement of 0.1 turns sequentially and 0.3 turns versus the prior year period. As of September 30th, we were in compliance with all financial covenants under our credit agreement. During the quarter, we did not repurchase any shares under our normal course issuer bid, and our year-to-date repurchases stand at $115 million. Looking forward, we will continue to be opportunistic towards share repurchases, and as such, we are in the process of renewing our NCIB program, which is set to expire on October 31st. We expect to receive the necessary regulatory approval and to commence the new program in November. Now moving on to our guidance for the fourth quarter. Similar to last quarter, we highlight that our guidance figures assume no material changes in tariff or trade restrictions compared to what is in effect as of October 27th, as any changes to these policies and their potential impact on our results cannot be reliably predicted at this time. 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, representing an increase of 62 cents at the midpoint, or 56%. Assuming the achievement of the midpoint of our revenue and adjusted EPS guidance ranges, our non-GAAP operating margin would be 7.6%, an increase of 80 basis points year-over-year. We expect our adjusted effective tax rate for the fourth quarter to be approximately 20%. Finally, let's review our end market outlook for the fourth quarter. In our ATS segment, we anticipate revenue to be down in the low single-digit percentage range, as growth in our industrial and health tech businesses are being offset by lower volumes due to portfolio reshaping in our A&D business and market-related softness in our capital equipment business. In our CCS segment, we anticipate revenue in our communications end market to grow in the high 60s percentage range, supported by continued strong demand for our data center networking switches, including ongoing ramps in multiple 800G programs. In our enterprise end market, we expect to resume growth in the fourth quarter with a low 20s percentage increase in revenue driven by the ramping of a next generation program for hyperscaler application and AI ML compute. Based on our guidance for the fourth quarter and strong year-to-date performance, our latest 2025 financial outlook now calls for revenue of $12.2 billion, up from $11.55 billion previously, reflecting year-over-year growth of 26%. Our adjusted EPS outlook is increased from $5.50 per share previously to $5.90 per share, implying growth of 52%. our non-GAAP operating margin of 7.4% remains unchanged. We're also increasing our free cash flow outlook for 2025 from $400 million to $425 million. And with that, I'll turn the call back over to Rob to begin our 2025 Investor and Analyst Day. Rob, over to you.

Thank you, Mandeep. In the rest of our time this morning, we would like to provide you with a view of where our business stands today and the strategy that got us here. Importantly, we'll then share our view on where we're headed as a company, including our significant market opportunities and the investments we are making in our operations and technology roadmaps. Celestica is a global technology platform solutions company. As our fundamental value proposition, we leverage vertically integrated capabilities and provide customized solutions, enabling our customers to deploy leading technologies at scale, achieving rapid speed to market. Our goal is clear, to lead and accelerate market advancements in our focused technologies. We achieve this by proactively investing in next-generation technology roadmaps and the advanced capabilities required to deliver those technologies to market. Celestica leverages our comprehensive vertically integrated capabilities to deliver leading technology platform solutions. We offer complete end-to-end capabilities, starting with design and engineering, through manufacturing and supply chain management, to software and aftermarket services. The depth of our system-level capabilities and expertise is best reflected in our technology solutions for the data center across networking and AI ML compute. However, we leverage a set of competencies and strengths across a range of markets and technologies. Customers have the flexibility to leverage all or any combination of our capabilities to build tailored platform solutions for their entire product life cycle. So let's look at where we stand today. As Mandeep shared, we are currently delivering the strongest financial performance in the company's history. We will dive deeper into both of our segments shortly to discuss the fundamental factors driving our performance and our plans for the years ahead. However, first, I would like to take a brief look back at how we arrived here. When I took the CEO role in late 2015, my first action was to solidify the core leadership team. However, the real inflection came in 2018 when we began executing a comprehensive transformation to reshape our business. This was a fundamental shift. We aggressively ramped our investment in design engineering and technology roadmaps for the data center while we deliberately disengaged from low margin, low complexity programs, that offered limited opportunity for differentiation and value-add. By 2020, we introduced our 400G switch, marking a pivotal moment in our HBS business, establishing our presence in the high-performance Ethernet switch market. Since then, we have rapidly grown our hyperscaler portfolio We shaped the margin profile of our business and entrenched our position as a technology leader and key enabler of AI infrastructure solutions for the world's largest data center customers. Yet, the changes made to date may seem modest in comparison to the opportunities that lie ahead. We are currently navigating the most rapid period of change in our company's history. and the pace of that change continues to accelerate, driven by the massive investments in AI infrastructure by our customers. Celestica's culture is rooted in the pursuit of progress, and we are incredibly excited and motivated by the opportunities in front of us. During this period, we have seen accelerating momentum in the growth of our business, and we are capitalizing on this strength. Based on our 2025 outlook, we are on track to deliver our strongest performance on record. There are a number of key drivers supporting the sustained improvement in our performance. The first driver is capturing share in high growth markets with the cornerstone being our presence in AI data centers. Next, demand for our HPS product offerings are rapidly shifting our entire portfolio toward higher complexity engagements. where our design collaboration and value add are critical to our customer success. In addition, growing volumes are fueling improved operating leverage, and we relentlessly drive productivity and efficiency across our global network with a strong focus on operational excellence. Our global network operating across 16 countries is an essential part of our value proposition. Our customer-centric network strategy provides a reliable and consistent supply chain solution, allowing our partners to de-risk their geographic exposure, a capability that's essential in the current climate of geopolitical and trade uncertainty. We have been and continue to make significant expansions and upgrades to our network, funded by operational cash flow to support the growing demand and program ramps with our AI data center customers. Demand for North American capacity remains strong, especially within the United States. To accommodate this, we are continuing to deepen our footprint in Texas. We're expanding square footage and increasing our power envelope at our Richardson site with capabilities to support the production of thousands of additional advanced AI racks annually. We are adding to our global design engineering network with a new hub in Austin for closer customer collaboration. We are also in the process of finalizing plans for an additional large scale manufacturing site in the state to support continuing growth with one of our largest customers. We are equally committed to supporting our customers by investing for growth in Asia, where we continue to make significant additions to our largest campus in Thailand. We are seeing incredibly strong demand from hyperscaler and digital native customers for Thai capacity, with significant production ramps planned to commence through 2027 and into 2028 across networking and compute. This proactive and regionalized investment strategy ensures we retain a flexible and reliable network, positioned to meet our customers' evolving needs and accommodate the significant growth and demand from our customers. Operational excellence is ingrained in our company's DNA and an integral pillar of our competitive differentiation and value proposition. The Celestica operating system is our standardized framework that ensures unmatched consistency in quality, reliability, and on-time delivery across every one of our global sites as we deliver hundreds of highly complex programs simultaneously. One of the core components is our culture of accountability, emphasizing execution and safety. This is reflected by our performance in these areas, tracking well above industry benchmarks, including zero critical excursions to customers. We pride ourselves on our customer-first mindset, evidenced by our history of deeply entrenched collaboration in design and engineering, where we have positioned ourselves to act as an extension of our customers' teams. Another operational priority is our continuous investment in our advanced manufacturing capabilities, including automation and testing, which are critical to enabling product roadmap development and speed to market in deploying new technologies. Next, I want to briefly detail a case study that will help bring to life our competitive differentiation, enabled by our core success drivers. In this instance, a hyperscale customer approached us to collaborate on the design of a first-of-its-kind rack-scale liquid-cool 1.16 networking solution, needed in order to accommodate the increased density and power requirements of the latest generation AI networking platforms. This highly customized design was intended to be integrated into their new state-of-the-art data center architecture. The customer required an accelerated roadmap to allow the solution to be early to market, leveraging Broadcom's Tomahawk 6 silicon, making speed to market a key consideration. In addition, the customer required multi-node manufacturing capabilities in Asia and the US to support the delivery of the program. As with many of our key engagements, managing complexity was a defining factor. Celestica was awarded the program earlier this year based on a strong working relationship with the customer and their confidence in our industry leading design engineering. They also valued our advanced manufacturing capabilities, specifically our ability to operationalize highly complex production lines for liquid cooled racks at scale, and to do this faster and more seamlessly than other potential partners. After receiving initial Tomahawk 6 samples earlier this year, we quickly stood up an operational prototype for the 1.6T switch and believe we were the first team anywhere to have done so. The program is scheduled to begin mass production next year. As this example and our discussions today will illustrate, Celestica's success is driven by the unique combination of three core factors. First, we occupy industry-leading positions in markets with strong structural tailwinds and higher barriers to entry, supporting multi-year runways for growth. Our largest and fastest-growing market presence is within AI data centers, supporting high-performance networking and custom ASIC AI ML compute platforms. Second, with these focused markets, we seek to accelerate market advancements through technology leadership. Our early-stage investments in R&D and next-generation product roadmaps support our ability to remain at the leading edge of technology transitions and enable our customers' speed to market in deploying new technologies. We separate ourselves by helping our customers address complexity and by solving the hardest challenges effectively. Third, we have steadfastly focused on maintaining best-in-class operational execution. Our global footprint, combined with the rigorous processes of the Celestica operating system, ensures we can manufacture and deliver the highest complexity products with uncompromising quality and reliability. Fundamentally, these three factors serve as the foundation of our success and our unwavering confidence in the opportunities ahead. I'd like to now turn the call over to Jason to walk us through our CCS segment. Jason, over to you.

Thank you, Rob. It's great to be here with you this morning. The past several years have seen our business on an incredible growth trajectory. In the midst of what is potentially the most significant secular investment cycle in a generation, we are in the incredible position of supporting the world's largest data center customers in their massive infrastructure build-outs to enable the growth in applications of artificial intelligence. This year, we are tracking towards $9 billion of revenue, more than doubling the size of our business from just three years ago. Alongside this growth, our business mix has shifted towards higher complexity customized programs within our HPS portfolio, helping drive strong profitability. Double-clicking on our HBS portfolio, we are expecting to deliver approximately $5 billion in revenue for 2025, an incredible 80% growth, which speaks to the tremendous uptake from customers for our offerings. We take a long-term view towards our investments and product roadmaps, investing early to help customers accelerate deployment of leading technologies. We have consistently grown our investments in R&D over the years, We increased our spend more than 50% this year, and we expect at least a 50% increase in 2026 in support of new program wins that will ramp beginning over the next two years. Our design engineering talent is an important differentiator for our business. We've scaled our team today to more than 1,100 dedicated design engineers, supporting both hardware and software solutions across seven global design sites and growing, and we expect to add several hundred additional resources in the immediate future. Our recognized leadership in design has been critical to winning the many new programs which are driving our growth. Next, we'll take a look at some of the key technology developments and design challenges we are seeing in the data center and where our team is making investments to address those opportunities. Importantly, as a platform solutions company, we are aiming to address these challenges at the systems level. In AIML Compute, we are making investments in our rack scale capabilities to support applications for both training and inferencing workloads, which we will touch on more shortly. To stay ahead of the latest advances in liquid cooling, Celestica is building proof of concepts for our next generation of solutions, which includes innovations in single-phase, dual-phase, and emerging liquid metal technologies. The rapid advances in switching silicon bring with it increasing complexity in designing the latest networking platforms, particularly challenges in addressing power density and signal integrity. Celestica is addressing these by driving innovations in our switch designs for 200 gig Surtees solutions to support 1.6T platforms and are planning early stage investments for 400 gig Surtees to support 3.2T platforms. We're also staying close to the advances in optical technologies that will increasingly be utilized in high performance networking, such as linear pluggable optics, co-packaged optics, alongside other interconnect technologies, such as co-packaged copper. As an example, our latest 800-gig and 1.6T switch designs support LPO for optimized power efficiency, and we are in the early stages of our product roadmaps for our future generations of switching solutions that will accommodate CPO technology. We also see scale-up networking, which supports high-speed direct connectivity between accelerators as an emerging multibillion-dollar new market opportunity that is being unlocked in large part by the move towards open standards, supported by industry initiatives like UA Link and Ethernet for scale-up networking. We are already on the path, through recent program wins, towards productizing our first solutions for scale-up Ethernet, which will leverage Broadcom's Tomahawk 6 silicon. We look ahead at emerging technologies by proactively investing and collaborating with our ecosystem partners to define future product roadmaps. This enables speed to market and establishes Celestica as an essential partner for our customers' next generation deployments. As noted, Celestica looks to address technology leads at the system level. And accordingly, we've invested in developing capabilities to support full platform solutions. Our customers engage with us to support a wide array of programs and technologies and leverage the depth of our capabilities to varying degrees. However, we have increasingly observed our hyperscaler and digital native customers seeking bespoke solutions for rack scale systems, making our full suite of capabilities across multiple technologies increasingly essential. Critically, we are seeing this demand in both networking and AI ML compute, where customers are seeking solutions for both custom ASIC and emerging merchant silicon platforms. Beyond designing the hardware for base technologies and networking, compute, and storage, our engineering teams are supporting customers in orchestrating, testing, and optimizing their rack scale solutions, including the customization of software platforms, as well as aftermarket services. Our ability to deliver system level solutions of this kind requires our breadth and depth of capabilities in all of these areas with the ability to integrate them into a seamless solution for the customer. Software is an increasingly critical component of our comprehensive solutions. To support this, we are making focused investments in our capabilities, having grown our global team to nearly 400 dedicated software engineers. We believe that open source network operating systems, namely Sonic, are positioned for continued market adoption driven by the desire for vendor diversity, cost effectiveness, and sustained improvement and innovation. We have a long history of working with Sonic, and our proficiency with this platform is well respected in the industry. Our Celestica solutions for Sonic customizes and hardens Sonic features, providing customers bespoke solutions with an open source base, as well as related support services. But our software capabilities go beyond Sonic 2, as we offer customers the optionality to leverage third-party solutions. And for hyperscalers using a proprietary network operating system, our software knowledge allows us to provide critical support with switch abstraction interfaces, ensuring silicon interoperability across the fabric, and to assist with network operating system debugging and testing of customized hardware. Our ability to deliver a diverse range of leading solutions is significantly enhanced by our ecosystem of partners across both silicon and software. Leveraging these relationships, we work closely and proactively with our technology partners, aligning years ahead of time on next generation product roadmaps, enabling us to be early to market in deploying leading edge solutions for our customers. And our technology partners attest to the critical part we play in productizing and delivering these leading edge solutions to the market. Broadcom's President and CEO, Hock Tan, highlights the significance of our capabilities and execution by recognizing Celestica as their preferred provider for the most technically demanding data center platform solutions. The strategic relationships between Celestica and industry leaders like Broadcom are a powerful testament to the importance of our role in enabling these critical technologies. Now let's take a deeper dive into our market opportunities. As mentioned, we are witnessing a generational secular investment cycle in data center infrastructure driven by artificial intelligence and cloud adoption. Many of the indicators from the companies leading this investment across silicon designers, hyperscalers, and the emerging leaders in large language models point towards a multi-year runway of continued growth in data center CapEx. Annual data center CapEx is forecasted to surpass $1 trillion by 2028 with commentary from leading voices in the industry suggesting this could prove to be conservative. These companies regularly highlight constraints and compute capacity driven by the increasing demands from both training and inference. All of these companies have signaled their commitments to continue to grow their investments in AI infrastructure, which aligns with the forecasts and planning discussions we are having with our customers. Within our portfolio, hyperscaler customers have continued to be the primary driver of our revenue growth over the past several years. Demand remains incredibly strong and is supported by solid visibility based on program awards that are expected to begin ramping over the next two years. Furthermore, we're unlocking the next wave of expansion with our digital native customer portfolio, which is poised to ramp meaningfully starting in 2027 with the delivery of our first HPS rack scale custom AI system, which we initially announced in January. Our broad portfolio exposure to AI-driven investments from the largest and most established players in the sector ensures our business is exceptionally well positioned to capitalize on this opportunity. Moving on, we'll discuss the opportunities across our markets. Our communications portfolio is anticipated to generate $7 billion in revenue in 2025, an exceptional 78% growth. Our portfolio is anchored by our networking solutions with our 800 gig switch programs comprising the largest share and our most significant growth driver in 2025. We anticipate that continued growth in 800 gig and multiple ramps in 1.6T beginning in 2026, including strong engagement and scale up ethernet, support a robust multi-year growth outlook for our networking business with our existing customer base alone. In addition, we also have a growing funnel of opportunities for both scale up and scale out applications across a diverse set of new and existing customers. We believe that our technical expertise and recognition as a market leader in networking places us in a solid position to continue to grow our portfolio. At the Open Compute Project Global Summit earlier this month, we announced the latest additions to our growing family of high performance ethernet switches as part of our HPS portfolio, the DS6000 and DS6001. The DS6000 series utilize Broadcom's Tomahawk 6 silicon and are designed to support port speeds of up to 1.6T with routing optimized for AIML workloads across both scale-up and scale-out networking. Notably, the DS6001 incorporates direct-to-chip liquid cooling technology. We anticipate availability later in 2026. These latest designs are a testament to our continuous innovation and our commitment to accelerating market advancements through technology leadership. We believe our optimism regarding our networking business is well-founded. Our market share leading portfolio is supported by a number of company specific and market level tailwinds, which position us to continue to succeed in this fast growing market. The latest forecasts suggest that the TAM for high bandwidth Ethernet networking is projected to reach $50 billion by 2029. Within this market, the 800 gig and higher segments are projected to grow even faster than the overall market at an impressive 54% CAGR driven by upgrade cycles led by hyperscalers and leading large language models providers to keep pace with the demands of the latest AI workloads. Based on the engagement we've seen already, we think that the adoption of scale-up Ethernet is going to be a really meaningful opportunity and additive to the growing overall Ethernet TAM. In our case study earlier, we highlighted the increasing technical challenges with each success of new generation of networking technology, which we have proven highly capable of navigating. However, there are a number of additional highly favorable dynamics that we believe make this market an incredibly important opportunity. We'll touch on a couple of those now. One of the core challenges in building AI data centers is scaling of the infrastructure. While the increasing computational power of accelerators or nodes is driving requirements for greater bandwidth, a critical compounding dynamic is the nonlinear growth in connectivity required as the number of accelerators within a cluster scales. The largest fully operational cluster today is believed to consist of roughly 200,000 accelerators. However, commentary from leading silicon companies suggests that multiple hyperscalers plan to deploy clusters consisting of up to one million accelerators within the next couple of years. This rapid scaling and compute capacity required to support leading AI models requires huge increases in networking infrastructure, including high bandwidth Ethernet switches, which comprise the majority of our communications portfolios. The build out of AI data centers is fundamentally shifting the share of spend towards back-end networking, which is expected to grow more than twice as fast as front-end spending. Back-end networking connects the compute clusters used for training models, while front-end connects the network to the external world, primarily for inference traffic. The unique demands of backend align with our competitive strengths, in particular, more intense performance requirements where factors like high bandwidth, low latency, and sustained high utilization are an absolute necessity. The backend also necessitates shorter refresh cycles required for the network to keep pace with the increases in computational power. Since our switch revenues are predominantly comprised of backend shipments, we have meaningful exposure to the highest growth segment of the market. Our customers tend to be early adopters, and we help them accelerate their deployments of the newest switching platforms early on in upgrade cycles. This is reflected in our leading market share on the highest bandwidths in Ethernet switching for the data center across each of 200 gig, 400 gig, and 800 gig platforms. Today, our cumulative market share across all of these feeds, as measured by total ports shipped, is 41%, more than double the next largest competitor's volume. As the technical complexity rises with each generation of the technology, designing high-performance switches becomes increasingly challenging, and fewer and fewer competitors can do it effectively. Managing this complexity and helping customers achieve speed to market with new technologies are what we really excel at, allowing us to secure the strongest share in the earliest stages of every new upgrade cycle. We see custom solutions for high-performance AI networking platforms being widely adopted by our leading hyperscaler customers. This model offers the benefits of vendor diversity, cost effectiveness, and highly tailored solutions which become more pronounced as their infrastructure deployments scale. Consequently, we believe hyperscalers and increasingly large digital native customers will continue to leverage these solutions. In this segment of the overall market, Celestica share leadership is even more pronounced as we account for the majority of the total spend, 55%, having grown our share meaningfully over the last couple of years. Securing mandates and consistently executing on high complexity customized solutions for the largest customers in the industry reflects our competitive advantage and continues to validate our market strategy. Moving on to our enterprise market, which includes our AIML compute and storage businesses. Our portfolio revenue is projected to be about $2 billion in 2025, and we expect to see meaningful growth in 2026, significantly exceeding our previous peak revenues from 2024 as we ramp the next generation AI ML compute program. Looking further ahead, 2027 is expected to be another transformative year as we plan a ramp production for the rack scale custom AI system with a digital native customer. The design work for this program is well underway and we expect to receive initial XPU deliveries in the second half of 2026 to support early test deployments with full scale production expected to commence in 2027. The scale and scope of the custom solution, including design, manufacturing, orchestration, and deployment for a leading edge system of this nature is incredibly complex. But as we've highlighted, these are the kinds of challenging engagements where Celestica truly thrives. We anticipate this program will serve as a landmark proof point, showcasing our full suite of system level capabilities. Shifting to the market outlook, the TAM for accelerated compute is expected to grow to nearly $500 billion by 2029. Some of the tailwinds driving this growth are particularly favorable for our business. Given that our compute business is focused almost exclusively on solutions supporting custom ASIC platforms, we are positioned to benefit from the highest growth segment of the AI server market. Overall, the constraints on capacity we spoke about earlier, currently being experienced at the largest hyperscaler and digital native customers, continue to highlight the clear requirement for more compute infrastructure and the strong demand in this market. As mentioned, Celeste's market strategy is focused almost exclusively on the custom ASIC segment, which is forecasted to grow roughly six-fold over the next several years. An increasing number of the largest data center players in the market continue to pursue development of custom ASIC platforms, and we are seeing this trend within our own customer base. The architectures of these chips are designed to be optimized to support a customer's specific workloads with the intention to deliver lower hardware cost, power savings, and overall better price to performance than a general purpose GPU. As AI models become more highly specialized, custom silicon architectures will also be an increasingly important means to enable differentiation in performance between models. And as compute infrastructures grow and scale, the benefits to deploying a custom ASIC platform successfully are magnified. Because custom ASICs also require highly tailored bespoke systems to be designed around the silicon, customers often require greater support from solutions providers, presenting us with better opportunities for value-added engagement on engineering and design. We believe this fast-growing segment of the market better lends itself to our competitive strengths in customization and managing complexity. and that there are fewer players that have our track record in supporting these kinds of platforms at scale. We are exceptionally optimistic about the future of our CCS business. We have confidence in our outlook, supported by visibility to upgrade cycles, strong customer demand forecasts, and a robust pipeline of potential new opportunities. And we feel that we are in a prime position to capture the incredible market opportunities in front of us. With that, I would now like to hand the call over to Todd, who will take you through the latest in our ATS segment.

Thank you, Jason. It is great to be with all of you this morning. Since we spoke last year, we've been focused on strategically remodeling the ATS portfolio for higher sustained profitability and higher mid to long-term growth. Specifically, our previously discussed reshaping activities in A&D are offsetting otherwise solid base demand across the segment, leading us to expect revenues in 2025 to be approximately flat year over year. We have already seen the significant benefits of these actions on our profitability. After exiting 2024 with a segment margin of 4.6%, We have already improved to 5.5% in the third quarter of 2025 and expect to achieve 70 basis points of full year margin expansion. Looking ahead to 2026, we anticipate revenue to be approximately flat to mid single digit percentage growth. We are seeing strong growth in our industrial and health tech businesses. However, this demand will be partially offset by further selective reshaping across some of our markets. Over the medium to long term, our objective is to grow our portfolio at or above the growth rates of our underlying markets on a consistent basis while balancing growth with sustainably higher profitability. Our target financial framework for the segment is supported by our engineering-led strategy and our focus on deepening our longstanding relationships with the leading customers in our markets. Over the past number of years, our ATS business has made investments to deepen our engineering base by developing market-focused teams with specialized expertise in their respective industries technologies. Today, our team constitutes a global network of highly talented engineers, along with labs and advanced manufacturing sites to support our customers across regions and markets. Engaging customers early in the product lifecycle strengthens our relationships by allowing us to offer a more holistic, vertically integrated solution. This approach more fully leverages our core competency as an organization, helping our customers navigate complexity and solve hard problems while having the added benefit of reinforcing our value as a highly capable partner and driving higher margins for the portfolio. Today, about a third of our more than 100 customers engage with our teams on engineering services, relying on us for support in testing, design, as well as in accelerating their time to market on new product development. We believe this presents an excellent opportunity to deepen our engagements within our existing customer base. And lastly, as discussed earlier, We are also continuously assessing and actively managing our customer portfolio. Our commercial strategy is focused on deepening our longstanding relationships with the leading tier one OEMs in our markets. In pursuit of growth, we are intensely focused on maintaining the quality of our customer base and having a strong margin profile for our portfolio. Now, I'd like to briefly walk through each of our businesses, starting with industrial and smart energy. In our industrial and smart energy portfolio, we anticipate growth in 2026, driven by demand recovery in our macro-sensitive end markets. Longer term, we are engaged on exciting new opportunities in robotics and automation, as well as in on-vehicle technologies such as telematics and battery energy storage for heavy industries. We are also pursuing programs in the growing data center power infrastructure market, including power distribution, conversion, and control equipment, leveraging some of our hyperscaler relationships. While it is still early days, we are encouraged by the traction we are seeing. Next, let's move to aerospace and defense, which, as a US military veteran, is near and dear to me. Our 2026 outlook sees base demand remaining healthy, supported by the ramping of new program winds, although we expect that growth will be offset by tougher comps from the first half of this year, driven by our reshaping activities. Longer term, we project healthy demand from U.S. and European defense spending, which we expect will become a greater share of the portfolio. And in our commercial aerospace business, we expect to see growth aided by program ramps with new and existing customers. Moving on now to semiconductor capital equipment. In semiconductor capital equipment, we saw strong growth in the first half of 2025, although we are seeing a moderation of demand in the second half, consistent with the broader sector. We expect this to continue into at least the first half of next year as our customer conversations indicate foundries are holding off on adding more capacity until there is greater clarity on tariffs and trade restrictions. To obtain greater efficiencies in our network, we are taking this opportunity to consolidate demand across some of our sites. At the same time, we are continuing to ramp new high complexity programs in lithography and advanced semiconductor packaging. Long term, we believe the significant push for the nearshoring of wafer fab capabilities in the US, Europe, and China driven by geopolitical factors, is expected to support healthy demand for new capacity. We have exceptional capabilities and proof points in the semiconductor capital equipment market and anticipate this demand to serve as a tailwind for our business starting in the second half of 2026. Finally, in our health tech business, overall demand remains robust. and we continue to make a concentrated effort towards driving higher portfolio exposure to this market. Last year, we discussed our investments in advanced manufacturing, automation, and testing capabilities to support new wins in diabetes care, which are expected to ramp in 2026. Now, as we approach the beginning of those ramps, we are anticipating more than $100 million of growth in our health tech business in the coming year. In closing, our focus remains on driving high quality, sustainable growth. We are successfully executing strategic commercial decisions to reshape our portfolio, which is already yielding significant improvements in profitability. Our portfolio is supported by healthy underlying near-term demand, along with solid long-term fundamentals. We remain confident that our thoughtful approach in each of our markets will position us to drive sustainable and profitable growth for the ATS segment. With that, I would now like to turn the floor back over to Mandeep, who will discuss our financial outlook and capital allocation priorities.

Thank you, Todd. The outlook for the financial performance of the business in 2026 continues to be very strong. We anticipate revenue of $16.0 billion, representing 31% growth compared to our 2025 outlook. At the segment level, CCS revenue is expected to grow by approximately 40%, driven by strong market tailwinds and program ramps in both our enterprise and communications and markets. Our outlook assumes continued strength in networking, supported by 800G demand growth and the ramps of our earliest 1.6T programs in the second half of the year. In AI ML Compute, we anticipate very strong growth as we reach full volume production of our next generation custom ASIC program for hyperscaler applications. In ATS, as noted, revenue is projected to be flat to up in the mid-single digit percentage range, as healthy base demand and new program ramps are partially offset by our reshaping activities to drive higher profitability. We expect non-GAAP operating margin to expand by 40 basis points to 7.8%, driven by favorable mix and productivity improvements. Our non-GAAP adjusted EPS is projected to be $8.20, which would represent a 39% increase year-over-year. We are targeting non-GAAP free cash flow of $500 million. This model represents our preliminary high confidence outlook for the coming year, and we will continue to update you on our forecasts as the year progresses. Importantly, our confidence extends beyond 2026. First, AI-related demand for data center technologies in our CCS business remains very healthy, and we are seeing many signals that suggest these secular dynamics have a multi-year runway ahead. Second, we have solid visibility to the ramping of significant new programs with start dates out to 2027. Our view for 2027 assumes multiple ramps with hyperscaler customers, with new programs supporting the 1.6T upgrade cycle, including scale-up solutions and a next-generation custom ASIC compute platform. We also anticipate the commencement of mass production of our rack-scale custom AI system program with a digital native customer. As a result, we expect these strong growth dynamics to persist, and in support of this, we are aligning our capacity with our customers, assuming that this trajectory continues into 2027. As we continue to manage our financial priorities through this period of high growth, we intend to maintain a steadfast focus on maximizing shareholder value. We aim to achieve this by compounding our adjusted earnings per share in a sustainable manner over the long term, This requires us to remain thoughtful and measured in our approach to pursuing earnings growth by assessing current and potential new business through the lenses of margin sustainability, alignment with our long-term strategy, our competitive advantages, and return on invested capital. These guideposts help us to maintain discipline in managing our growth and evaluating our commercial opportunities. Our consistent execution and disciplined approach to financial management has delivered improvements in each successive year across each of our key metrics. Based on our 2026 outlook, we expect revenues to more than double relative to 2022 and to lead to a more than fourfold growth in adjusted EPS over the same period, driven by the sustained expansion of our non-GAAP operating margin. We believe there is still room for additional operating leverage in our business beyond 2026. We anticipate maintaining our solid trajectory and compounding our adjusted earnings per share, which we believe will continue to translate into strong return for shareholders. Taking a closer look at free cash flow, we have managed to consistently generate free cash flow on a quarterly basis going back many years, enabled by our strong working capital management and operational discipline. We also continue to grow our free cash flow while simultaneously funding the rapid expansion of our business. Next year, capital expenditures are expected to rise to between 2.0 and 2.5% of revenue funded by operational cash flow as we invest in our network to support the growth we anticipate over the coming years. We will maintain a disciplined approach to CapEx and working capital management as we ramp these investments. While the primary aim of our investments is towards driving compounding of our adjusted EPS over the long term, Adjusted ROIC remains an important measure that we use to assess the quality of our investments. This has been reflected in our strong earnings growth directly translating into meaningfully higher returns on capital, which now sits at 35% year-to-date in 2025, having nearly doubled since 2022. This rigorous focus on capital efficiency seeks to ensure that our growth is high quality and that we continue to direct our resources towards its best and highest return use. Our capital allocation strategy is built on two core principles, discipline to ensure we pursue the highest returns and best use of capital, and strategic flexibility to maintain optionality to execute on new opportunities as they arise. Today, our highest priority for capital is to reinvest in the business to support long-term growth and the significant organic opportunities we see over the next several years. We also continue to assess M&A opportunities in a disciplined and selective manner where acquisitions can serve as a complement to our organic growth and help accelerate our strategic roadmaps. Our CCS funnel is primarily focused on adding or enhancing our capabilities in areas such as services and design engineering. And in ATS, we are looking to balance our portfolio by adding exposure to or scale in desirable markets that possess strong fundamentals. And finally, we will continue to return capital through share buybacks on an opportunistic basis. Over the past three years, our share price performance has significantly outpaced the broader indices and the majority of our peer group. Our stock price reflects the very strong trajectory of adjusted earnings growth we've delivered over the last few years. We are confident that this strong earnings compounding will continue, as demonstrated by the 39% adjusted earnings per share growth implied by our 2026 financial outlook. We believe that our valuation is supported by this strong track record and our anticipation of future growth. With that, I'll now turn the call back over to Rob for his closing remarks.

Thank you, Mandeep. Before we close out, let me briefly reiterate the three key drivers that are the foundation for our confidence and our continued success. We are very optimistic about the future of our business. As I stated earlier, we are navigating a period of rapid but positive changes, and the pace of those changes only continues to accelerate. We believe the next several years present a truly remarkable opportunity for our company. We hope that all of you leave our call today with a richer understanding of our unique combination of capabilities and the strategic approach that enables our success. We provide a perspective on our long-term vision, highlighted by the proactive investments we're making today to capture the opportunities we've discussed. We have the utmost confidence in our organization's talent, our commitment to excellence in delivering for our customers, and our ability to execute on our strategy. Thank you for your time and continued support. I will now turn the call back over to the operator to begin our Q&A period.

Thank you. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please raise your hand now. If you have dialed into today's call, please press star nine to raise your hand and star six to unmute. Please stand by while we compile the Q&A roster. And your first question comes from the line of Mike Ng with Goldman Sachs. Your line is now open.

Great. Good morning. Thank you so much for the question. I guess first, just on the investments that you're making in R&D, the 50% growth next year and the capacity expansions through 2028, I was just wondering if you could talk a little bit more about some of the key products that are supporting your visibility into these investments and are most of the investments grounded by expansions in customers that are new or existing. And then just as a quick follow-up, I noticed you talked about the new storage platform win with the hyperscale in 2026. Is that with your current hyperscale AI ML compute customer or is that somebody else? How would you size the opportunity in hyperscale storage? Thank you.

Hi, Mike. This is Jason, and welcome, and we're glad you're covering us. So as we look at our R&D spend and investments year over year, we've been making significant increases now for quite some time, and they are directed at where we are focusing our strategy and our opportunities largely around networking, AI, ML, and I would say storage, rack-level solutions, and then everything you need to bring that total rack level, fully orchestrated rack level solution together, inclusive of software, liquid cooling power, et cetera. So that's where we've been focusing our R&D spend, and we've also been making significant, I'd say, advancements and investments in our engineering network. We've now moved up to over 1,100 engineers, 400 of those are in software. We've moved to seven design centers of excellence, and we're also looking at increasing that in places like Taiwan as well.

With regard to the specific customer that you inquired about, it is an existing customer. We have a longstanding relationship with this company, and we continue to evolve the relationship from providing single system level solutions up to fully integrated rack solutions of which this engagement is. And that's part of our normal process to grow and evolve with our customers. With regard to storage, we have a few different opportunities where we're engaged in storage. It's less prominent than we would see in networking or our ability to extend some of our networking capabilities into the AI ML compute space.

Great. Thank you for the thoughts and the warm welcome.

Thank you. Your next question comes from the line of Carl Ackerman with BNP Paribas. Your line is now open.

Thank you. You know that Thailand and Texas could see a doubling of capacity from 2024 to 2027, yet CapEx will only be 2% to 2.5% of sales. Could you speak to what assurances your largest customers are giving you to support this capacity growth, whether that is in the form of multi-year volume commitments and or combined investment in tool CapEx?

Yeah. Hey, Carl. Good morning. It's Mindy Peer. Thanks for the question. So we've been very disciplined on our capital expenditures for many, many years. We're tracking towards 1.5% right now for this year. And as the revenue continues to grow, the dollars obviously are growing as well. So we're on track, we're just under $200 million of CapEx this year. We're anticipating right now somewhere between $300 and $400 million of CapEx next year. And these are for investments that are tied to customer programs. We don't have a built-in, they will come approach. It's always tied back to customer engagement. And so we have very good visibility on the demand profile going out multiple years, so it gives us confidence to be able to invest in these types of areas. The only other thing I'll mention, and then I can ask Steve to comment a little bit on the customer engagement on our expansion, but I just want to make a note that only about 40 basis points of our capex spend is maintenance. For instance, 2% next year, that means 1.6% is all on growth. That gives us tremendous amount of discretion on where we put those dollars. We think that right now that's sufficient.

This is Steve again. With regard to visibility to forecasts and customer demands, we currently have about 12 to 15. months of real solid forecast inputs and demand inputs from our customers, largely around their 2026 budgeting and spend-commit processes. In many cases, we have visibility beyond that. In some cases, for specific customers, specific programs, there's a certain amount of ASICs, for example, that they may have committed to, and it gives us some assurance as to the longevity and the size of the overall program. So we do get extended visibility through means similar to that.

Understood. Thank you. And if I could for a follow up quickly, your growth in CCS is notable, which appears driven by your networking switch opportunity in HPS. Could you speak to the relative mix you have today on, you know, 800 gig switch ports? And I suppose as you think about the trajectory of 1.6 next year, could you speak to the opportunity you have in liquid cooled base switches, which appear to be a growing opportunity for you, both in 26 and 27? Thank you.

Yeah, Carl, from a numbers perspective, we've been seeing tremendous growth in 800G this year to the point where we'll end 2025 with roughly a 50% split between 800G and 400G in terms of the product that we're delivering. As we look into 2026, we're seeing the 800G demand in particular accelerating. There are going to be profits before 400G continues to be used. We've been to use for many years still. But the growth is primarily going to come from 800G. On the 1.6T program, we've won a number of them. And we have one customer right now where we have visibility to that ramping towards the back end of next year. And so one of our customers will be really taking up their 1.6T award. But then we anticipate further 1.6T ramps as we go into 2027. And so the portfolio is shifting to the higher end technologies as we would have expected. Jason can add on to that.

Yeah, hi, Carl. I would say when you look at where we carved out this industry-leading position in networking, it started at 400 gig, and we were able to translate all of those engagements into 800 gig, and those engagements have been expanding incrementally into new opportunities. We fully plan to translate all of our 800 gig engagements into 1.6T as well, and we're on track to do that. And liquid cooling plays a key role in those solutions, particularly on 800G and 1.6T.

Understood. Thank you.

Thanks, Rob. Thank you. Your next question comes from the line of Sameek Chatterjee with JPMorgan. Your line is now open.

Go ahead. Hi. Thanks for taking my question. expecting to ramp in 2027. And we've seen multiple sort of announcements from some of your partners around but trying to sort of think about how should we think about the magnitude of the implications for you starting in 2027. Maybe if you can give us something to point us in the right direction of sizing rate of your enterprise business today. And do you have, what are you thinking in terms of capacity to then sort of cater to that magnitude of the digital native customer ramp? Thank you. And I'm a quick follow up.

Yeah, it's me. It's me, Andy Peer. Thanks for the question. So we're very excited still about the engagement we have with this digital native customer. We are very actively engaged with them on the design cycle, and that's going to continue as we go through next year. Our plan on record right now is that we would not see mass production begin in 2027. And so when we've given an outlook of $16 billion for next year, that does not include any meaningful level of revenue coming from this digital native opportunity. The gate to that is really, in terms of timing, is really going to be around silicon availability. And so, if silicon is available sooner for mass production, then we may be able to produce sooner. Right now, our assumption is that we will receive samples in the middle of 26, and then again go towards mass production in 27. From a capacity perspective, we are working with the customer very closely on how we can support them both in Asia as well as in North America. when we were talking about 2% to 2.5% of CapEx for next year, that's inclusive of the capacity that we're going to need to deliver what we're already seeing in 2027. Jason, can you add a little bit more?

Yeah, Samik, I would say, you know, with all the growth we're seeing across the portfolio, we're also excited about what I call a healthy competition on who will be our largest customer in the next two to three years.

Yeah, so the way to think about it right now for me is going to be in the first year, multiple billions of dollars, I'll say. One of the areas, of course, that we still need to line up on is the treatment of the silicon. Is it included or is it not included?

We're still having those conversations with our customer and our providers. Got it. And a quick sort of follow-up on 2027 outlook. I know you're saying the growth momentum continues into 2027, and I didn't hear you explicitly say that, so I just wanted to confirm. From every the growth acceleration in 2027 should be higher relative to the growth that you're forecasting for 2026, just with the digital native customer, the 1.60 RAMs. Is that a fair statement? And thank you for taking the questions.

Yes, of course. So I'll give you a framework question. At this point, it's just too far out. But we are very confident right now on the demand profile that we're seeing and the awards that we've been receiving over the last 12 months or so, in many cases, don't have programs that even ramped until 2027. That being said, it's probably 12 months too early to talk to you about what 2027 really is going to look like. The way I would just think about it right now is our CCS business grew by about 40% in 2024. to grow about 40% right now in 2025. And our outlook or guidance for next year is essentially implying about 40% growth again in CCS in 2026. And so at this point, I think it's fair to continue to extrapolate that as you bring it forward. we do have many opportunities that could accelerate that and could go above. So to your point, it could be through the digital native width that we're ramping, as well as other really strong programs that we've won with some of our larger cyberscalers. But right now we think at least 40% into 2027 is what we have visibility to. And then just on the ATS side, you know, ATS this year is going to be approximately flat where we think going into 2025 foot level as you go into 2027. And I think the way to think about that right now is high single digits.

Okay, great. Thank you.

Thank you. Your next question comes from the line of Ruben Roy with Stiefel. Your line is now open.

Sorry about that. I was on mute. Mandy, maybe to follow up on that just last topic, you talked about potential additional operating leverage beyond 26. I'm just wondering how you're measuring potential for operating leverage relative to, you know, this really strong revenue growth that you guys are seeing, especially as, you know, we went through some of the new design activity, you know, kind of increasing design activity with your customers, rack levels, designs, et cetera. Just, you know, Do you have some thoughts on, you know, longer-term operating leverage?

Yeah. Thanks for the question. So we continue to see the benefits of both operating leverage as well as positive mix in our numbers. You know, I'm trying for about 7.4% operating margin at the company level for 2025, and we're guiding that that's going to expand now going into 2026. We do continue to believe that there's opportunities for on the first for 27 at this point. When you look at our ATS business, the business has done very well on doing some selective pruning in order to really focus on the highest value engagement. And so we're really happy with the margin expansion that we've seen in ATS already. We think that there's opportunities to continue to expand and get it above 6%, hopefully in the near to medium term. On the CCS side, which is operating in the low 80s right now, what's working to our favor is the fact that we will continue to be seeing growth in networking, which are primarily our HPS products. And our HPS products are accreted to the company and accreted to CCS. And so as we see growth in that area, we will continue to see some margin upside. That being said, we do continue to evaluate how we can support our customers on multiple areas, such as doing complex RAC integration work. And so sometimes that will be margin diluted, so we're always managing We think that there's a lot of opportunities for expansion.

Thanks for that detail, Mandeep. And if I could ask a question, a follow-up question for Jason. A lot of discussion around scale-up networking just in recent weeks with a new standard announced, et cetera. You talked about a multibillion-dollar new market opportunity for Celestica, you know, specific to scale-up. And I'm wondering – if you can maybe hash out a little bit around that opportunity relative to scale out, do you have, you know, some sort of advantage as you discuss scale up with your customers, you know, given, you know, how well you're doing on the scale out switch side and maybe, you know, just a little bit around the competitive environment and how you see that playing out over the next several years as you think about your scale up opportunity. Thank you.

Yeah. Hi, Ruben. Yeah, I would say we're well positioned for the scale of opportunity and that comes from incumbency and I would say capability. When you look at, as you mentioned, where we carved out this industry-leading position in 400G, it started largely in, I would say, scale out. And now it's starting that capability and that value proposition is very much applicable to scale up. We've talked about a large digital native. where we provided a fully orchestrated rack and solution. I mean, that's a great example of a great, you know, a significant scale of opportunity. So I would say that we have a large and growing funnel of opportunities, and we're going to be very mindful about where we have our most strategic engagements as we continue to grow and look at taking share.

Thank you. Thank you. Your next question comes from the line of Tim Long from Barclays. Your line is now open. Go ahead.

Thank you. Yeah, two if I could as well. First one on kind of HPS. I think this digital native is a good AI ML win for digital native. So curious about the pipeline that you're talking about for other kind of compute-related opportunities. Could you just talk about that funnel and how we should think about you know, new opportunities being HPS or not, number one. And then number two, just back to, you know, the networking piece. As you look at, you know, new customers outside your large three, should we assume those are mostly Sonic related or do you see opportunities for other neoclouds or others to, you know, maybe develop their own switching stack, where, you know, and what are the competitive differentiations for you with, you know, Sonic versus other proprietary OSs? Thank you.

Hi, Tim. Jason here. So on AI ML compute, I mean, you commented on it. The digital native way that we talked about would be a great example of where we deployed, you know, our entire value proposition into a fully orchestrated solution, driving an AI ML solution. We talked last year a bit about POCs that we're doing with silicon providers, and we talked about the A and B MI355 example, and that POC has garnered a lot of attention, I would say, in the industry. And so we have a large and growing funnel of opportunities in AIML, but we're going to be very, I'd say, focused very focused on where we have the strongest strategic alignment and where we believe the program will be successful in the AI architecture and ecosystem. So a growing funnel of opportunities, but we're going to be careful about where we engage and where we believe the adoption rates will be high.

With regard to these opportunities, I think one of the things to consider is just the strong position that we have in networking and its applicability to these AI compute kind of opportunities. So there's a lot of things that transfer over. The network connectivity, the signal performance, power, density, design, all those things are also very applicable and relevant in the AI space. So we continue to leverage our networking strengths to win in new opportunities in the compute space. With regard to software, most of our hyperscale customers drive their own NOS, but they rely on us to provide the key layers and have full testing and qualification capabilities of their software on our system. There's also more comprehensive choices that are emerging now, and our customers are evaluating those. We still have a fully capable and broad software engineering team, and we're working to support many of our customers with these new software technologies and we continue to support them at the firmware level in most of the networking and compute systems that we do today.

Great, thank you. Thank you. Your next question comes from the line of David Boat with UBS. David, your line is now open.

Great. Thanks, guys. Thanks for taking the question. So maybe for Rob or Mandeep, I want to unpack the CCS business for a second. Obviously, switching has been sort of the driver of the business the last two to three years. And you kind of talked about, you know, over the next several years, you know, switching growth or maybe data center CapEx growth being kind of in the mid-20s. Are you sort of inferring that, you know, ultimately the bigger driver over the next, you know, three years plus will be sort of the compute opportunity along with ancillary opportunities? like optical as we think about 27 and 28, just trying to get a sense for how you're thinking about the composition of product within broadly defined CCS going forward, and then I have a follow-up.

Hey, David. I'll start, and I'll ask Jason to chime in. We have a very strong position with the hyperscalers on networking across the board, given the That position, we're looking to grow our share of wallet into other areas. One of them in particular, we do AI ML compute. But with others, we're in several advanced conversations to expand our solutions to them, especially on the HPS front where we're not just build it, but we actually have some engineering and design content in supporting them. Jason elaborated on a couple of those opportunities, and I'll turn it over to him for additional comments.

Hi, David. So thinking about the TCS business overall, I mean, we've got a lot of strength in our hyperscaler digital native portfolio and networking. AIML, specifically on the custom side, there's incremental opportunities we've talked about at scale up, as well as merchant AIML solutions. So there's a lot of growth, a lot of potential, a lot of funnel of opportunity there. When you look at the value proposition that got us where we are today, there's a lot of opportunity to take that and pivot into the very large enterprise space. And we're going to do that in a very disciplined way. I've talked about that in the past. We have a portfolio solutions business today where we have branded product. We have Sonic. We have Celestica Sonic offering that's enabling that. We have a growing services capability that's rounding out the capability that will allow us to play more effectively in enterprise as well as hyperscaler. So we're effectively doubling down on our enterprise efforts. I've recently just brought in Ganesh Shorazia. He's our Senior Vice President and General Manager of our enterprise line of business, and he will be leading the charge as we chart our course on where and how we're going to double down in enterprise. And it's going to be underpinned by all of this value, this scale, this capability that we've established in our hyperscaler space and applying it to specific markets within enterprise to be successful.

Great. No, that's helpful. And maybe just maybe one more for Jason then on the enterprise portfolio, since you're talking about expanding capabilities and bringing in new talent, looking for new opportunities. You did reference, I think, in the deck an opportunity for a new hyperscaler application in storage for 26. Can you kind of expand upon that, kind of what that actually is and maybe share what the customer is looking for and what you're bringing to that solution going forward? Thanks.

Yeah, maybe I'll start, David, and then I'll ask Steve to weigh in as well. I mean, we do think storage is going to be an opportunity with AI. There's more and more data that is out there, and we're seeing it specifically. We've got some traction in the hyperscalers based on a specific program where there's a specific use case, I would say, that's being adopted, but we also think there's more opportunity there. for storage and enterprise as well. We've had a solid high-end storage business and enterprise for a long time. We're well-positioned with the market leaders there. And I think storage is an opportunity as AI continues to deploy.

And this is Steve. I will just add to that that we have had some success as noted here with hyperscalers and providing custom storage solutions to them. We're being very selective about where we engage and finding areas where we think we can differentiate and bring value to our customers. And so it's a narrower scope today for us, but there are opportunities, and we intend to continue to build on the success that we've had there.

Great. Thanks, guys.

Thank you. Your next question comes from the line of Thanos Moschopoulos with BMO Capital Markets. Your line is now open.

Hi, can you provide some color with respect to the growth that you're expecting in CCS outside of hyperscalers and digital natives? So like, you know, OEMs and other types of customers, what would your outlook be for that in 26 and beyond?

I've asked, yeah, in terms of the incremental growth opportunities, we've talked about, you know, scale up is a very large market where we're getting a lot of traction. I would say, you know, while our AIML opportunities business has been largely underpinned by the custom-level solutions. There is a growing set of opportunities. We're getting a lot of traction in the merchant-based AIML systems. That represents a number of opportunities for us. And then I'd say fully orchestrated rack-level solutions continues to be an opportunity, as well as the services that we were wrapping around our solutions as well.

specifically in terms of, I guess, OEM-type customers and, you know, maybe enterprise campus-type opportunities or other, you know, beyond hyperscalers and digital natives? Is that forecast to grow meaningfully in 26, or is the growth in 26 primarily driven by your core hyperscalers?

The growth is underpinned by our hyperscalers. They are leaning heavily into both switching customers as well as compute, but the rest of the portfolio is still growing as well. We have a large optical program that goes beyond hyperscalers. We're seeing very nice growth in that area, and that product is being used directly into data centers. We've announced that we are building a 1.6G switch within OEM on their behalf.

Okay, great. I'll pass the line. Thank you.

Thank you. Your next question comes from the line of Stephen Fox with Fox Advisors. Stephen, your line is now open. You can star six to unmute. Stephen, your line is now open. You can star six to unmute. Hi, can you hear me?

Hi. All right. Just one question on the HPS business. I know you don't give margin, specific margins on the business, but I was wondering, given all the programs you see in the future and how you may be vertically integrating more, sometimes, I guess, additive, sometimes dilutive to margins, how do you see the direction of HPS, just the HPS business going and why? And of course, that would be excluding any kind of changes in your consignment activities like within the program. Thanks.

Yeah, so we're very excited about what's happening in the HPS portfolio. We're on track to spend probably about $120 million on R&D. Next year, we're going to be increasing that by at least 50%. Today, this year, it's probably going to be about a $5 billion portfolio. That $5 billion is the vast majority of the switching. And in the switching scenario, it actually does include the Silicon, as you know, so it's turnkey. And yet, we still make very good margins in this area, margins that are accreted to CTS right now, which is basically 3%. I know the question sometimes comes, what's the exact number? But what we just say is it's accretive. As we look at the to see compute come in as well. And so as compute comes in, especially as you think about the large digital native web, we've got to think through still on how sort of things can be provided. But today our compute program has still been consigned to us. But overall, we are getting paid for the value that we're bringing forward on the engineering side. Great.

Thank you.

Thank you. Your next question comes from the line of Paul Treiber with RBC Capital Markets. Oh, Paul has actually lowered his hand, so we'll move on. And your next question comes from the line of Robert Young with Canaccord Genuity. Robert, your line is now open.

Please go ahead. Robert, your line is now open. Please go ahead.

Can you hear me?

You're right. Okay. Sorry about that. The 40 basis points of margin expansion, operating margin expansion in the 2026 guidance, just against all of the big jump in scale and You know, some of the shift to higher end networking technology, the software mix out, it just seems a little bit conservative. And so, you know, relative to some of your networking peers, margins are lower. And so I was wondering, is pricing a strategic advantage for you? Or are there any headwinds to note? I think you already mentioned the fact that the full rack solution, you know, isn't ramping until 2027. But are there any other headwinds there to note to better put that 40 basis points expansion into context?

Yeah, so you're all started, and I'll let Jason or Steve talk about the commercial environment and our ability to capture share with price. But essentially what's happening right now is essentially when you look at the 7.8% next year, and again, you're putting 40% growth on the CCS business, maintaining the margins that CCS has and maintaining the margins that ETS has will yield that 40 basis points of improvement. We are working towards expanding margins. early on in the year, and so this isn't that different than the approach that we've taken in previous years, which is we will guide margin in terms of where we are today, knowing that we are working on various levers to expand that. But I would say more to comment as we go through 2026.

Hey, Rob, and I would just comment on where we're seeing the values, where we're driving the differentiation from our competitors. It's largely Technology leadership, customization for optimization, and then our advanced manufacturing processes and execution. We've pivoted now that we're into platform solutions. We've pivoted from a technology partner to a technology leader. We believe we were the first with a fully functioning 800-gig switch. We believe the same on 1.16. Those are examples of technology leadership that our customers are relying on. Secondly, the ability to optimize, to customize these solutions for our customers' specific architectures for optimization in those workloads and those large language models. That continues to be a strong area of differentiation for us. And then the last piece would be the advanced manufacturing processes and capabilities, which I believe is often underestimated and undervalued. It's very difficult to take these very complex designs and put them through the new product development process and then ramp up at scale into production, it's not easy to do, and those continue to be areas that our customers value.

This is Steve. I would just build on what Jason had said there. When we deliver this differentiated value and we do it reliably and consistently over several different platforms or new iterations of the same platforms, there's a lot of strengthening of our incumbency and our customers start to recognize the value of our solutions. and we're less compelled to compete on price. And so that's a key part of maintaining the margin trajectory that we have. And it's also a function of the opportunities that we choose to pursue. So we have a tremendous amount of opportunities in front of us. We're moving away from the more transactional engagements and focusing on those opportunities where we can really differentiate, as Jason said.

And, Rob, I would just add to that. Every now and then we'll see a competitor will – The competition is stiff, and there's a lot of competitors coming in, and we'll lead with price, and every now and then we'll see someone will chase a program on price, only that three to six months later,

Well, that's all great. Second question for me would be just on the shorter refresh cycle you noted in networking and maybe the quicker move to 1.6 and 3.2. Does that make it harder for new entrants? I would assume that in existing data center deployments, it's very hard to dislodge Celestica. But maybe if you could talk about that as it relates to Greenfield and New Build, and I'll pass the line.

Yeah, maybe Rob, I'll start and then I'll hand it over to Steve. So as you, first of all, technology, the generations are getting quicker and it's getting faster. So if you're behind, you're going to have a harder time keeping up. So we saw a lot of folks struggle in 400 as we went into 800. As you go in from 800 to 1.6, it's getting faster and it's getting harder. So if you weren't optimized around 800, you're going to really struggle to get into 1.16. The same applies to 3.2, et cetera, et cetera. So we're well up the curve. We're a technology leader in the space. We've been making significant investments. We've been building talent for many years to get to where we are, and we don't plan on slowing down.

Yeah, this is Steve. Just to build on what Jason said there, our recent experience with 1.16 is that We have demonstrated very strong performance here in delivering solutions. From the initial receipt of silicon to complete functional power on the systems, we've done it in days. And I think well from those would acknowledge that typically with some of our OEM and ODM competitors, they measure that achievement in terms of weeks. And so I think that what we talked about, the carryover from one iteration to the next is just proven to be true for us as we support our customers.

Thanks. Thank you. Your next question comes from the line of Paul Treiber with RBC Capital Markets. Paul, your line is now open. Go ahead. Thanks so much. Good morning.

Just a question on the long term visibility that you're getting from customers at this point. Are you seeing it reflected in the program wins? Are there either explicit volume commitments or are there other commitments or the nature of the contracts that allow you to have that longer term visibility that maybe you didn't have several years ago?

Hi, this is Steve. Yeah, I think it's a good question. I think that we'd like to have as much visibility as we can to the future of these programs, but we do have some comfort in that we continue to see awards come to us for the duration of the program, and a follow-on next generation of those programs tend to be awarded to us as well. So So we do have longer-term visibility of the programs we currently have and what's coming next down the funnel. So overall, very good.

Yes, just maybe as an example on the compute program that we have right now, which is going to be very healthy in 2026 and it's ramping very nicely right now. That is already in – we've already won the following programs for that program. to the point where the silicon has even been finalized yet, because it's going to be on the next generation silicon. And so we see those ramping into 2027. And then we've talked about the digital native wind as well, which is a program award that will be ramping in 2027. And then our R&D efforts continue to be working on the next generation of products as well, which we know will get adopted eventually by the market. We're already working on 3.2T and anticipate that when that migration happens from 1.6 to 3.2 that we're going to be in the pool position to win that share.

Paul, I would just add to that. Steve mentioned forecast visibility between 12 and 15 months and in some cases beyond. There are certain programs that have very specific capability requirements where we're talking even beyond that. As we look at the power requirements, the capacity that will be required beyond what I call an extended forecast outlook. We're in deep conversations with capacity planning, power planning, well beyond, let's say, the 26-27 timeframe that we're accounting for as we make our investments in our expansion plans.

Thanks. And a follow up question. To what degree are you shaping, proactively shaping the portfolio, either disengaging on less strategic programs and then on the strategic programs? Are there any metrics you can share in terms of like win rates or success on rebidding the next generation of those contracts?

Hey, Paul, good morning. Thanks for the question. This is Todd within ATS. Yeah, I would say we are just conducting a comprehensive review, really on an ongoing basis of our portfolio, doubling down, as I said in my comments, on the larger Tier 1 customers and then using this opportunity really to The takeout or exit reshape, if you will, margin dilutive customers. That's why you're seeing the improvement in margin and ATS this year. And then we've had a number of smaller customers where Canada believes that the climate is not worth the view in terms of just the effort to support their businesses. They're non-strategic. In some cases, they're tied to our smart energy portfolio, which given the one big beautiful bill and the loss of tax incentives, and the change in dynamics around clean energy are impacting their end demand. So we're using this opportunity then to disengage and exit from those smaller customers, non-strategic customers, margin dilutive customers, really to strengthen the ATS portfolio and to improve our overall margin profile as well as our growth going forward. Big call.

And from the CCS perspective, you know, We are, from a hyperscaler digital native perspective, in a great spot. Strategically feel very good about that. In enterprise, largely the same. There is a smaller customer where we are no longer strategically aligned, but it's not material to the overall business. And I'd say overall, from a CCS perspective, we feel great about where the portfolio is.

All right. Thanks for taking the questions.

Thank you. Your next question comes from the line of Todd Coupland with CIBC. Todd, your line is now open. Please go ahead.

Great. Good morning, everyone. I had a question on the switching business. I'm wondering with your largest customers, are you single sourced or are there dual source suppliers at any of those?

Hi, this is Steve. With the majority of our largest customers, we tend to be the preferred supplier when it comes to new technology. And so we're often exclusive for some period of time through the development of the product, through MPI, and then to RAMP. As Jason mentioned earlier, we do have excursions from time to time where our customers will look at fuel sourcing or multi-sourcing, maybe for business continuity purposes or or maybe they chase a lower price for some period of time. But we tend to see a lot of those come back to us. While we maintain the preferred position on new products, we see some of the next-generation products come back to us as well for an exclusive period again through the development and through MBI and WAN. So that's been a pattern that we've seen repeat with most of our hyperscale customers over the various product transitions.

And I just wanted to circle back to the 1.6. You were quoting some market share stats earlier in the presentation. Can you just remind us what that win rate implies for ports, I guess, through 26 and 27 on the 1.6? Thanks very much.

Yeah, what I would say, Todd, is as I mentioned earlier, where we've had our engagements in 800 gig, we're on track to have those engagements in 1.6T, and there's incremental opportunity beyond that in the scale-ups market in particular. As I noted, we have a healthy funnel. We're excited about it, and we believe it's going to be a big growth driver for us.

Yeah, I mean, so we're waiting our disproportionate amount of share as the technologies become more advanced. And so some of the materials in the slide were highlighting how when you look at the custom Ethernet switch market share, you know, we're above 50% this year, and last year it was 40%. As there is further deployment of 800G switches, and as 1.6 starts to get delivered, we would anticipate that that, you know, will continue to be positive for us. But we are

Great. Thanks for the call.

I can't give you more counts, but I can tell you we have 10 programs currently underway in 1.60. We've had a significant share win with a number of customers on 1.60.

Great.

Thank you.

Thanks, Todd.

Thank you. Your final question comes from the line of Jesse Pitlack with Cormark Securities. Your line is now open. Hey, good morning.

Just on your optical programs, can you speak to the breadth of customers that you're engaged with on these? And are these programs commonly becoming bundled with switching programs at all?

Yeah. Hey, Jesse. So we have a few primary optical customers where we have deep engagements and we're making POCs and investments in that space. And there is a strong correlation between optical and networking. And we think When you look at things like CTO technology as an example, we think we'll start to see some deployments in 1.6T, and we really think we'll start to see more CTO ramping through that 2T as an example.

Yeah, this is Steve. I would just add, as Jason mentioned, the cold package optic outlook. We do see that it's going to be dual existence for some period of time, so pluggables won't go away. But there will be a hybrid deployment of different strategies around cold package optics. And many of the optical capabilities that we're developing today will be very applicable when it comes to embedded or cold package optics in the future, which designs.

Understood. Thanks. I'll pass the line.

And there are no further questions at this time. I will turn the call back over to Rob Mionis, CEO, for closing remarks.

Thank you, and thank you all for your continued support. We're pleased with the results to date and our continued momentum into Q4 and into 2026 and beyond. We're also looking forward to seeing you later on this afternoon at our event luncheon. Thank you again, and have a wonderful day.

And that does conclude today's call. Thank you all for attending. You may now disconnect.