Celestica Inc. (CLS) Q1 2016 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Celestica Earnings Call for the First Quarter of 2016. [Operator Instructions] I would now like to turn the meeting over to one of your hosts for today's call, Jim Fitzpatrick, Vice President, Investor Relations and Communications. Please go ahead, sir.

Thanks, Keith. So good morning, and thank you for joining us on Celestica's first quarter of 2016 earnings conference call. On the call today are Rob Mionis, President, and Chief Executive Officer; and Darren Myers, Chief Financial Officer. This call will last approximately 45 minutes. Darren and Rob will provide some brief comments on the quarter and then we'll open up the call for questions. During the Q&A, please limit yourself to one question and a brief follow-up. And we'll be available later this morning following our annual general meeting for additional follow-up. Also, you can please visit our website at celestica.com to view the supporting slides accompanying this webcast. As a reminder, during this call we make forward-looking statements related to our plans for future growth, trends in our industry, our financial and operational results and performance, and financial guidance that are based on management's current expectations, forecasts and assumptions that are subject to risks and uncertainties that could cause actual outcomes and results to differ materially. Please refer to our cautionary statements regarding forward-looking information in the company's various public filings, including the cautionary note regarding forward-looking information in today's press release. We also refer you to the company's various public filings, which contain and identify material factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements and which discuss material factors and assumptions on which such forward-looking statements are based. These filings include our Annual Report on Form 20-F filed with, and subsequent reports on Form 6-K filed with or furnished to the Securities and Exchange Commission, and our Annual Information Form filed with the Canadian Securities Administrators, which can be accessed respectively at sec.gov and sedar.com. During this call, we will refer to certain non-IFRS financial measures, which include adjusted gross margin and SG&A, adjusted operating earnings or adjusted EBIAT, adjusted operating margin, adjusted net earnings and adjusted EPS, return on invested capital or ROIC, inventory turns, cash cycle days, free cash flow, adjusted tax rate and adjusted tax expense. These non-IFRS measures do not have any standardized meaning under IFRS and may not be comparable with other non-GAAP or non-IFRS financial measures presented by other public companies, including our major competitors. We also refer you to today's press release, which is available at celestica.com for more information about these and certain other non-IFRS measures, including a reconciliation of the historical non-IFRS measures to the corresponding IFRS measures where comparable IFRS measure exists. Unless otherwise specified, all references to dollars on this call are to US dollars. I'll now turn the call over to Darren Myers.

Thank you, Jim, and good morning, everyone. Celestica delivered strong operating results in the first quarter, led by year-over-year growth in revenue, operating margin and return on invested capital. First quarter revenue of $1.35 billion was within our guidance range led by strength in our diversified markets. Let me begin with a few highlights for the first quarter. Revenue in the quarter increased 4% compared to the first quarter of 2015, primarily due to new programs in our diversified markets. Revenue from our diversified markets represented 34% of our total revenue, up from 28% in the first quarter of 2015. Adjusted operating margin was 3.3%, which was 20 basis points above the midpoint of our guidance range in the first quarter of 2015. Adjusted earnings of $0.26 per share was above our guidance range and part due to lower tax expense, as well as better than expected performance from our solar business. IFRS earnings were $25.6 million, a 30% improvement from $19.7 million, a year ago. And we achieved return on invested capital of 17.4%. Moving onto the first quarter details; looking at our revenue from an end market perspective, our diversified end markets represented 34% of our total revenue for the quarter. Diversified revenue increased 2% sequentially and 24% year-over-year, which was higher than our expectations. The year-over-year increase in our diversified revenue was primarily due to new program ramps in our energy and our aerospace & defense businesses. Our communications end market represented 38% of total revenue and was down 9% sequentially due to seasonality. Compared with the first quarter of 2015, communications revenue was flat as growth from new programs was offset by demand reductions associated with a certain program. Our storage business represented 16% of total revenue for the first quarter. Storage revenue decreased 27% on a sequential basis, slightly more than expected in part due to seasonality, weaker demand in the quarter, and a strong fourth quarter. Compared to the fourth quarter of 2015, revenue from our storage business was down 7% due to demand softness. Our Server business represented 9% of total revenue and was down 23% sequentially, in line with our expectations due to seasonality and strong fourth quarter revenue. Server revenue decreased 14% compared to the first quarter of 2015, primarily due to demand softness. And finally, our consumer end market, representing 3% of total first quarter revenue, was flat sequentially consistent with our expectations. Our top 10 customers represented 65% of revenue for the first quarter, down 3% from the fourth quarter of 2015, and up 1% from the same period last year. For the first quarter, we had two customers individually contributing greater than 10% of total revenue. Moving on to some of the other financial highlights for the quarter; adjusted gross margin of 7.2% was up 20 basis points sequentially, primarily due to improved performance from our solar business in Thailand. On a year-over-year basis, gross margin was down 20 basis points as improvements in our solar and semiconductor businesses more than offset changes in program mix. Our adjusted SG&A expense for the first quarter was $47 million, within our expected range of $47 million to $49 million. Adjusted operating earnings for the quarter were $44 million or 3.3% of revenue, which was above the midpoint of our guidance, primarily due to a better than expected performance of our solar business. On a year-over-year basis, operating margin increased 20 basis points driven by improved gross margin and lower SG&A expense. Our adjusted tax rate in the first quarter was 10.1%, below our expected range of 17% to 19% due primarily to taxable foreign exchange benefits from the strengthening of the Malaysian ringgit against the US dollar. Compared to our forecast, the lower tax rate resulted in a $0.02 per share benefit for the quarter. Adjusted net earnings for the first quarter were $38 million or $0.26 per share, compared to $33 million or $0.19 per share, for the same period of 2015. The year-over-year improvement in adjusted earnings was due to lower income taxes in the quarter, as well as higher operating earnings. Our adjusted earnings per share increased 37% year-over-year, as a result of higher earnings and a reduction in our outstanding shares as a result of the shares we repurchased and cancelled in 2015. First quarter IFRS net earnings were $25.6 million or $0.18 per share, compared to $19.7 million and $0.11 per share in the first quarter of 2015. Return on invested capital for the quarter was 17.4%, up from 16.8% for the same period last year. Moving to working capital; our inventory increased $61 million from the end of the fourth quarter of 2015 to $856 million at March 31. Inventory turns for the quarter were 6.1, down from 6.9 last quarter. Our inventory performance was negatively impacted by late demand reductions in the quarter, as well as higher inventory to support the ramping of new programs. We are targeting improvements in our inventory turns in the second quarter. Capital expenditures for the first quarter were approximately $15 million or 1.1 % of revenue, within our estimated range. Cash cycle for the first quarter was 47 days, a five-day increase from the fourth quarter of 2015. Our free cash flow for the quarter was negative $35 million compared to positive free cash flow of $22 million for the same period last year. Free cash flow was generally in line with our expectations and included the impact of our annual variable compensation payments. Moving on to our balance sheet; our balance sheet remains strong giving us the flexibility to continue investing in the business as well as give back to shareholders. Our cash balance decreased by $34 million sequentially to $511 million. Our net cash position at March 31 was $215 million, reflecting draws on our term loan of $231 million, and $65 million from our credit facility. As an update regarding our share repurchases, in February of this year, the Toronto Stock Exchange accepted our notice to launch a normal course issuer bid, which allows us to repurchase for cancellation at our discretion during the following 12 months up to approximately 10 million subordinate voting shares, representing approximately 7.3% of our total shares outstanding at the time of launch. During the quarter, we spent $4.3 million to repurchase and cancel approximately 400,000 shares at a weighted average share price of $10.73. We also entered into a $30 million program share repurchase or PSR, which we funded in March from our credit facility. We expect the shares for the PSR to be repurchased and canceled by the end of the second quarter. At the end of the first quarter, we had 143 million subordinate and multiple voting shares outstanding. Moving forward to our guidance for the second quarter of 2016; for the second quarter we are projecting revenues to be in the range of $1.4 billion to $1.5 billion. At the midpoint, revenue is projected to increase 2% year-over-year. Sequentially, revenue is expected to increase 7% largely due to seasonality. At the midpoint of our guidance, we expect adjusted operating margin of approximately 3.5%. Second quarter adjusted earnings are expected to be in the range of $0.25 to $0.31 per share. Our adjusted SG&A expense for the second quarter is projected to be in the range of $47 million to $49 million, and we estimate an annual adjusted tax rate range of 17% to 19%. Our second quarter guidance assumes the annual rate and excludes any impacts from taxable foreign exchange. I would now like to turn the call over to Rob for some comments on the first quarter, and the second quarter outlook.

Thank you, Dan. Good morning to everyone on the call and thank you for joining us today. First, I would like to thank the entire Celestica team across the globe for their dedication and support in the first quarter. As Darren highlighted, Celestica delivered solid operating results in the first quarter, led by year-over-year growth in revenue, operating margin and ROIC. We are forecasting sequential growth in the second quarter in three largest markets; communications, diversified and storage. We are targeting to deliver our third straight quarter of year-over-year revenue growth. Let me provide some additional perspective on the first quarter. I am very pleased with the performance of our diversified markets in the first quarter which represented 34% of our total revenue. On a year-over-year basis, our diversified markets grew by 24%, with increases driven by aerospace and energy segments. Our first quarter adjusted earnings per share exceeded our guidance range based on lower tax expense, as well as stronger than expected improvement from our solar operation in Thailand. On our January earnings call, we highlighted some of the ramp challenges and increased costs we have been experiencing with our solar operation in Thailand based on the installation of new equipment while also managing a strong demand environment. Although the operation is not yet fully optimized level of efficiency, we have been making improvements at a faster than expected rate, which positively impacted our operating margin performance in the first quarter. We continue to focus on improvements in the business while managing through dynamic demand. Also in line with our continued focus on operational excellence, we were honored to have received two customer awards in the first quarter. One was a Supplier of the Year Award from Polycom, a long-standing Celestica customer, as well as a Best New Supplier Award from one of our energy customers. Having just experienced one of our strongest years ever in terms of customer and industry recognition in 2015, we were very pleased to receive these awards in the first quarter. Now let me turn to our near-term outlook in our end markets. Our communications end market is expected to increase in the low teens sequentially, due to seasonal demand strength as well as new program ramps. On a year-over-year basis, we expect communications revenue to be up in the low single-digits, based on growth in demand, offset by demand reduction with a certain program. Relative to our diversified markets business, we are expecting revenue to be up slightly sequentially in the low single-digits. We are anticipating increases in aerospace and semiconductor to be offset by sequential decline in energy due to the timing of certain programs. On a year-over-year basis, we expect diversified end market to increase in the high teens, driven primarily by new program ramps in aerospace and energy. Our storage revenue in the second quarter is projected to increase in the mid-20% range based on seasonality, as well as new program ramps. On a year-over-year basis, storage is expected to be relatively flat. Our server end market is also expected to be flat sequentially, compared to the second quarter of 2015. Our server business is expected to be down low double-digits based on demand weakness. In summary, we are expecting overall year-over-year revenue growth for the third straight quarter in what continues to be a dynamic demand environment. We are focused on building continued growth momentum over the coming quarters along with continued margin expansion and cash flow generation. We are also focused on winning new business across all of our markets. Our key priorities for 2016 include continuing to evolve our customer and product portfolios in order to drive consistent growth along with strong operating margins, improving the performance of our diversified markets business, increasing the investments in the front end of the business to accelerate growth, continuing to generate strong free cash flow and return on invested capital. Underpinning these priorities are a number of strategic initiatives that are underway across our business that are designed to accelerate our rate of progress and ultimately, the rate of profitable growth. As I have previously said, the foundational elements of Celestica business are solid. That said, I am extremely excited by the opportunities to accelerate our momentum and take this company to the next level in the areas of profitable growth and operating margin expansion. That is why I and the entire Celestica team are focused on as we begin the next phase of our company's evolution and I am pleased with the early progress we are making. Before we open the call for questions, I want to once again thank the 26,000 talented and dedicated Celestica employees across the globe for their continued passion, dedication and commitment to delivering value to our customers and shareholders every day. That concludes our prepared remarks. Keith, please open the call for questions.

[Operator Instructions] Our first question comes from the line of Thanos Moschopoulos from BMO Capital Markets. Your line is open.

Rob, on the last call you said you intended to generally maintain Celestica's overall corporate strategy. Can you provide us with an update in terms of any changes you've made as far as how you're going about implement in the strategy?

Sure. Our strategy is along the lines of streamlining our business and investing for growth. Along that ends we are planning on increasing our investments in sales and corporate development. We're also focused on increasing our investments and speed in what we're calling the connected factory, and Thanos, that's really about taking our automation tools and connecting it to our system and connecting our systems to our supplier systems on customer system and seamlessly sharing information across the entire value chain which we think will help improve our overall operating performance and make us closer and more integrated with our customers. And lastly, we're working on our global business services implementation which is a way of streamlining the back end of our business to improve performance and lower the cost of serve. And there is a whole integrated framework that we have Thanos but this is some of the highlights that I've shared with you.

Great. And just as far as the overall macro environment, have there been any changes, you talked about weakening demand with the ended the quarter although your guidance looks pretty good. So maybe some color on what you are seeing there.

I guess it's a little bit different across each of our markets so let me turn it over to Darren to start it off and I will finish.

Sure. Good morning, Thanos. Overall the market demand is somewhat muted I'd say in the areas of enterprise, we've seen - we saw some late swings the wrong way, I would say that's really in the legacy products within storage, hard disk drives, we are seeing good performance in flash. And communication, the market is again somewhat muted, we're not seeing a lot of spend from customers that said we've had a lot of progress as you can see in the results because of the wins and the performance that we've had so it becomes very program specific, so we're very pleased that the programs we're on are performing well and the - we've had a lot of performance in our bookings over the last few years. And then of course in diversified, you saw the growth driven by the aerospace and the smart energy groups that we have and again that's off the wins that we've been having. Now I'd say overall markets haven't changed per se, maybe it's just been a little bit more negative news in the traditional markets but our wins have helped us and our performance have certainly helped there.

Great, thanks guys. Good to see the execution in the quarter.

Thank you.

Thank you.

Your next question comes from the line of Amit Daryanani with RBC Capital Markets. Your line is open.

Good morning, a question and a follow-up for me. I guess to start with, could you just talk about your diversified segment. You had a really good March but how do see the segment tracking to our calendar '16 on a broader basis? And then inherently do you think what sort of margin potential does the diversified segment have versus your corporate averages?

Good morning Amit, it's Darren. I'm definitely pleased that's very strong growth in first quarter and second quarter we're guiding that as well, so we're not going to guide on the full year but we're looking to continue the momentum as the year goes on, most likely not at the Q1 levels certainly. The real opportunity in front of us is the margin performance of diversified, you heard Rob talk about that as one of the major priorities. Within our diversified business, semiconductor and smart energy are generally at the breakeven point. And when you think about just moving those up to the company average that's a sizable, probably a 40 basis points improvement for the company overall, so the real focus is on improving those. And in diversified we're also investing, so there is a bit of absorption issues as we invest so there is a fair amount of upside as we improve the diversified margins.

And then, I guess Darren you were just talking about you had seen some of the macro softness and demand softness in the tradition technology sectors, is that dynamic holds up, could you just talk about the comfort you have that guidance for comm to be up low teens and storage to be up mid-20% sequentially, is it all new app store that gives you the comforting already given the fact in terms of some of the organic demand somewhat softer?

Yes, we're obviously very careful on lending on our forecast. We do a lot of work with our customers, our forecast is a combination of - Q1 is usually the low point in a lot of the markets, so you see the improvement in Q2 from that, and then some of the program ramps that we have going on. So we're comfortable obviously giving the guidance for the second quarter and you're always going to have ebb's and flows and it will depend on the program success but we obviously feel comfortable giving the guidance.

Got it. Perfect, thank you.

Thanks, Amit.

Your next question comes from the line of Matt Sheerin with Stifel. Your line is open.

Yes, thank you. Just - I somewhat related to your last question just regarding the margins and you're starting in addition to the year-over-year revenue growth, nice year-over-year expansion in margins, I know there is a lot of blocking and tackling but you should start to see the year-over-year revenue growth. So in order to get your target closer to the 4% range, is that just a function of volumes increasing across the business or more mix issue where you need diversified business to continue to grow? And as you said, those investments are going to start to pay off in terms of starting to see margins go up there.

Yes, good morning, Matt. It's definitely, it's a combination of both, this was - we're at the low point on revenue now, as we grow out of that we will get some absorption benefits and part of it is as you're investing in new areas it takes time so it is not - we want to do the stock fully and make sure we're making the right decision. So we expect to see gradual increases in the margin, we're happy to get back in the 3.5% range, it will be working hard to get up to the 4% range. Some of those areas will take longer than others and obviously if the markets behave and we get the revenue as we've shown in the past, we'll get a good flow through on the margin.

Okay, great. And then in the energy area you talked about growth in solar. Could you just talk about how diversified you're within that segment because I know obviously a lot of cyclicality and lumpiness there but in terms of your customer base, both geographically and maybe by other segments?

Matt, this is Rob. With energy we do power generation which is solar panels, we do power conversion which is inverters, we do power electronic which is our - we call intelligent controls. So we have a nice portfolio of what we call classical EMS business, we also have a growing and emerging JDM offering as well within that space. We do have multiple end customers that we provide to in terms of developers and multiple OEMs that we are serving as well.

Actually, demand - just to add to that, demand is mostly US-based I would characterize it as.

Mostly U.S. Okay, that's very helpful. Thanks a lot.

Your next question comes from the line of Jim Suva from Citi. Your line is open.

Thank you very much and congratulations to your time - your results and thanks for the time. The comment about - I believe you mentioned some demand softness and volatility late in the quarter if I heard that right on your prepared remarks. Can you help us connect the gap there of where - you met your revenue goals just fine, so was that at the first part of the quarter was much stronger than what you thought or was it like the bookings started to slow down and then as we approach already April most of it behind us did demand come right back or help us triangulate different details and comments around what you mentioned by that softness stated in the quarter.

Hi Jim, this is Rob. So for some of our customers we take care of their product what I call the last mile, so the final assembly in the high level assembly. And they expect and we expect them to pull from finished goods if you will in terms of the last week or two of the quarter, and with some of our customers in some other programs I think they got a little surprised and we got a little surprised that they did not pull towards the end of the quarter. So that was relative to that comment with respect to some late quarter softness if you will. And I will let Darren answer.

Jim, I just add - I mean, we had the midpoint; frankly, we were hoping to do better. We saw good improvements in solar and we did better in solar than we thought we would do based on the - our forecast at the start of the quarter, so we were pleased with that and obviously disappointed with the last week changes that we saw which culminated in the inventory that is higher than we would have liked as well. So we're just working through that volatility.

Great. And which end markets saw that volatility and did those volatility continue into April?

I would say it was mostly in the storage area would be the strongest one. We saw a little bit of softness in communication as well but the storage would be the most pronounced. And as I mentioned previously, we factored that into our guidance going forward.

Great. Thank you and congratulations to your team.

Thanks, Jim.

Thank you, Jim.

Your next question comes from the line of Paul Steep with Scotia Capital. Your line is open.

Great, thanks. Rob could you just speak on the strategy side, if we think about the '16 outlook here, the investments you talked about sound like they are largely operational, it sounds like most of those aren't large CapEx investments although potentially the systems or could stand a couple of years, maybe talk about that and contrast it to your views on where you think you're at in terms of looking at the M&A pipeline at this point.

Sure. Yes, I would say that the investments we're making are not big CapEx dollars. We're - on the automated factory, the connected factory as I mentioned, those dollars are not significant but we are increasing our rate of adoption and pulling on the technology if you will to make sure that we're staying current and even ahead of the technology curve if you will. With respect to M&A, we are still early days in terms of thinking about developing a full pipeline, some of the things we're looking on obviously our capability type tuck-ins to help accelerate our base case as it goes to improving the overall portfolio of our company and evolving our portfolio into products that have longer life cycles and higher margins and actually more complex which plays to our strength.

Okay. And then the last one for me, just on diversified, in the quarter obviously you meant - you called aerospace as well as energy as part of the wins, were those related to brand new client wins or just new programs at existing clients in terms of what drove the bulk of that? Thank you.

With our aerospace offering we are the only EMS provider that does CCA build, box build and maintenance repair and overhaul build, and we also are leader in our market. So what we've been doing as we're taking these proof points that we have established to a broader set of customers. So the expansion that we're seeing is both deeper within our current customers and also we have a couple of new program wins with some new customers as well.

Yes, I would add just, a large part of the aerospace in addition to winning new business is the Mississauga acquisition that we announced last year that certainly helped from the year-over-year and the energy it's really around Thailand expansion.

Okay, fantastic. Thanks guys.

Thanks, Paul.

Your next question comes from the line of Todd Copeland with CIBC. Your line is open.

Hi, good morning everyone. I wanted to ask about margin expectations for this year. The 4%, I thought that was an aspirational goal but it sounded like in some earlier comments that it sounds like you might have that in your sites for a quarter this year. Did I listen to that correctly or is that still aspirational?

I would not - we're not providing guidance for the year Todd but as I mentioned 3.5% to 4%, we're happy to 3.5%, there is a lot of things and a lot of things that would have to happen to get the 4%. And I think there are areas that will take more time, as an example, solar and our semiconductor businesses. So although I'm not providing guidance, I do tend to be realistic. I think 4% this year is most likely a challenging number.

Okay. Second question, so Mitel is acquiring Polycom, you called them out as an award for you, part of the rationale for that merger will be material synergies which will include supply chain. Can you just talk about how you think that might impact your business with Polycom and whether it's material to the overall company? Thank you.

So again, Polycom is a long-standing customer; however is not material to the overall customer i.e. it's less than 10%. It's actually too soon to say how the Mitel and Polycom merger will impact us but we are and have been performing very well with Polycom and we think we're in a good position to continue to grow with the new companies moving forward but it's a little bit of a wait and see until the teams come together.

Okay, great. Thanks very much.

Thanks, Todd.

Your next question comes from the line of Harvey [ph] with B.Riley. Your line is open.

Thank you, good morning guys. Just wondering if you could talk about at all the size of the program wins that you announced in the quarter, do you see this actual size of program wins increasing? And then I guess just overall, what services do you offer - I think you had mentioned; for example, box build and aerospace, what are the services in your offerings do think has been a large reason of some of the program wins that you have seen that depended upon the end markets that you've seen some of those program wins in?

Good morning Harvey, it's Darren. Let me try to take the first question on. We don't disclose our wins by quarter and just speaking candidly, the reason we don't is it's very hard to have one standard for wins. So we try to give some directional comments in terms of how our wins are progressing. What we've talked about this quarter is the success of our revenue now is based on program wins that we've been winning over the last few years. And based on the time to revenue depending on the market you're on, sometimes you can book something and its revenue in a year, sometimes it's a year later, sometimes its two years later. So it varies greatly but in my comments earlier and Rob's comments really being around historical performance on wins and the impact on revenue now, in terms of the momentum on our wins, we continue to win business in all our markets and are looking really as Rob mentioned, to invest in the front-end and invest in sales and really focus on the company being more efficient on its go-to-market so that we can accelerate the pace of our new wins.

And all that on the - some of the aerospace capability, so there is so much trouble and the EMS industry is doing circuit card to aerospace providers but we have significantly more capability, we are the only aerospace provider that I know of any way that can actually take the circuit cards and integrate into a box to a complete environmental testing such that we are able to produce line replaceable units, those are in guidance that go into aircraft, and also serve as the aftermarket. So for our customers what this means is that they are able to adapt and that's a wide strategy should they choose to do that and enable them to reduce their fixed costs and we're able to provide all the services underneath that and we think that's a very compelling offering that we're looking to take to a broader set of customers.

Got it, thanks very much. If I could finish up with one last question, just on the clarification, your server market the, guidance that you gave for the second quarter, do you say that's going to be flat sequentially?

That would be flat sequentially, yes.

Alright. So the low double digit is down, is that year-over-year?

That's year-over-year, yes.

Got it. Thanks very much.

Thank you.

Your next question comes from the line of Robert Young with Canaccord Genuity. Your line is open.

Hi, good morning everyone. I wanted to ask about the operating margin guide at the midpoint, I think you said 3.5%. The midpoint for revenue is 1.45% and I think you've said in the past that you could get above 3.5% at $1.4 billion and so the delta there, is that mostly driven by the pieces of business in diversified, the semi-business, the smart energy and others that you need to bring above breakeven or is there some other factor in there?

Good morning, Rob. I think you answered the question there. It's - generally there is obviously lots of things that play, there is mix, there is the pace of spending, there is many, many things but I would say that we previously talked about getting the 3.5% at $1.4 billion and just where solar and our smart energy business and our semiconductor businesses have really the biggest things holding us back from getting there lower. And overtime when we frankly want to do even better on that, so the number will evolve but right now I think you categorized it very well.

Okay. And then you said that the benefit overtime could be as much as 40 bips at the company level if I heard that correctly. So I was just thinking about Todd's question about 4% previously, that's a multi-year exercise bringing the semi and smart energy more to a - like a stable level, am I thinking about that correctly?

Yes, I don't want to give the exact timing but it's certainly not overnight and some would be market dependent, really semiconductor more or so at this point, the energy business - there is some volatility in that market right now but generally the demand is much stronger. The semiconductor space continues to be flat, it has been for a number of years now; and so some of it depends on how the market does but we're focused on trying to win more business in the semiconductor space.

Okay, great. And one little clarification, like in the past you're talking about strategic initiatives Rob, coming in phases, is there any timeline around the second phase or is that now - are you thinking about that in a different way?

No, we have integrated framework with many initiatives set out for - I'll call it a three-year roadmap if you will and we've already launched a series of initiatives for the first 12 to 18 months, and then there will be a set of initiatives so forth and so on. So we're embarking on what I call the next chapter for Celestica which is a multi-year and multi-phase journey, and I'm looking forward to the results that we'll be able to post as a result of achieving those goals.

Okay. Any schedule that you can provide when we might get an update there?

Not really.

Okay, then I'll pass the line.

No, putting aside it's - we've launched a lot of boats if you will, and some are running concurrently but I hope to improve sequentially as things move on. That being said, we also hope the end markets cooperate with us along our journey.

Okay, thanks.

Thanks, Rob.

We have no further questions at this time. I'll turn the call back over to the presenters.

Thank you very much, thank you for your continued support and we're looking forward to updating you on our next quarterly call.

Thank you.