Celestica Inc. (CLS) Q4 2017 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen, and welcome to Celestica's Fourth Quarter 2017 Financial Results Conference Call. [Operator Instructions] I would now like to turn the meeting over to one of your hosts for today's call, Paul Carpino, Vice President, Investor Relations. Please go ahead.

Thank you. Good afternoon, and thank you for joining us on Celestica's fourth quarter 2017 earnings conference call. On the call today are: Rob Mionis, President and Chief Executive Officer; and Mandeep Chawla, Chief Financial Officer. This conference call will last approximately 60 minutes. Rob and Mandeep will provide some comments on the quarter, and then we will open the call for questions. [Operator Instructions] Please visit www.celestica.com to view the supporting slides accompanying this webcast. As a reminder, during this call, we will make forward-looking statements within the meanings of the U.S. Private Securities Litigation Reform Act of 1995 and applicable Canadian securities laws, including those related to: Our strategies and plans for future growth; priorities, trends in our industry and end markets; our anticipated financial and operational results and performance; non-IFRS operating margin goals and financial guidance. Such forward-looking statements are based on management's current expectations, forecasts and assumptions, which are subject to risks, uncertainties and other factors that could cause actual outcomes and results to differ materially from conclusions, forecasts or projections expressed in such statements. For identification and discussion of such factors and the material assumptions on which such forward-looking statements are based, as well as further information concerning financial guidance, please refer to the company's various public filings, including our most recent MD&A and annual report on Form 20-F, including the Risk Factors section therein, filed with and in reports on Forms 6-K furnished to the U.S. Securities and Exchange Commission and, as applicable, the Canadian Securities Administrators. Please also refer to our cautionary statements regarding forward-looking information in such filings and in today's press release. Our public filings can be accessed at sec.gov and sedar.com. We assume no obligation to update any forward-looking statements except as required by law. During this call, we will also refer to certain non-IFRS financial measures, which include: Adjusted gross margin; adjusted SG&A; non-IFRS operating earnings; non-IFRS operating margin, which is non-IFRS operating earnings as a percentage of revenue; adjusted net earnings and adjusted EPS; free cash flow; adjusted effective tax rate; inventory turns; and cash cycle days. Other non-IFRS financial measures that we will refer to are: return on invested capital, or ROIC, which for all purposes of this call means adjusted ROIC; and adjusted tax rate which, for all purposes of this call, means adjusted effective tax rate. These non-IFRS measures do not have any standardized meaning under IFRS and may not be comparable with other non-U.S. GAAP or non-IFRS financial measures presented by other issuers. We refer you to today's press release, which is available at celestica.com, under the Investor Relations tab, for more information about these and certain other non-IFRS measures, including a reconciliation of historical non-IFRS measures to the most directly comparable IFRS measures from our financial statements. Unless otherwise specified, all reference to dollars on this call are to U.S. dollars. I will now turn the call over to Rob.

Thanks, Paul, and good afternoon. Celestica's Q4 results reflect the volatility we are seeing in our CCS business, so is the progress that we are making in our ATS markets. In ATS, the focus to grow and diversify our business continues to yield results. Within ATS, we delivered solid revenue and profitability growth, highlighting the positive progress we have made on our strategy, which we set in place 2 years ago. However, in contrast to our ATS business, our CCS business continues to adjust to the more variable demand and product life cycles of programs in these markets, which are impacting volumes, pricing, mix and segment margins. Importantly, even as end market volatility in Q4 created some impact in our CCS business, in Q4, progress continued on the transformation strategy outlined when I first started 2 years ago. In Q4, we organically accelerated our growth in our ATS business and are further enhancing our mix and capabilities through our agreement announced today to acquire Atrenne. Additionally, we accelerated our efforts to drive efficiency and further align our network cost to the volume and pricing requirements of our CCS customers as they navigate volatility in their markets. And finally, we used our strong balance sheet to further enhance returns to our shareholders by accelerating the investment in our own shares through our current NCIB. Let me provide some additional color on our transformation strategy in the coming year. As we plan for 2018, we expect the dynamics we are seeing in CCS to continue throughout the year and accordingly, intend to respond with the appropriate cost efficiency initiatives as we have noted in our Q3 call. While this volatility does put some modest pressure on the near-term results, I am encouraged that within this environment, our overall operating margins should hover at approximately 3% in the first quarter. Historically, Celestica's margin profile would have been much more severely impacted with this level of change in the CCS business, but our growing ATS business is providing a counterbalance to those dynamics. To be clear, the volatility in our CCS business is a result of some challenging markets, but we continue to win new programs from these OEMs who entrust Celestica to support some of the most critical electronic infrastructure in the world. In addition to these wins, we are seeing continued and steady growth in our JDM business. In 2017, our JDM business represented 10% of our CCS sales with revenue growing 12% compared to 2016. Last year, we launched 29 new JDM programs and added 12 new customers, reflecting both the opportunity for us in this market and the capabilities we have established. Over the past 2 years, we have been investing in and growing our ATS business. And over this period, our overall margin profile has significantly improved. The growth of our ATS end market was clearly a highlight in the fourth quarter. For example, this was the highest quarterly ATS revenue in over 5 years, with just over $500 million in revenue and greater than 4% operating margin. We're also seeing consistency in growing ATS, excluding solar, where Q4 represented the 10th consecutive quarter of year-to-year growth. Finally, we achieved the best single quarter bookings in ATS we have experienced in the last 4 years, supported by a strong sales funnel. The ATS business is growing nicely on an organic basis, reflecting the successful execution of our strategy to grow this business. As we have noted, it is our intention to augment this organic growth rate through acquisitions, and we are very pleased with our agreement to acquire Atrenne. We believe that Atrenne will bring Celestica an exceptional portfolio of top defense and aerospace customers. Atrenne has a strong history in this sector, which we believe supports Celestica's strategy of becoming a full product life cycle solutions provider by aerospace and defense customers. We also believe that this acquisition will bolster Celestica's leadership in aerospace and defense by enhancing our capabilities and connectors, machining and the thermal and mechanical design and manufacture of high reliability ruggedized chassis and enclosures. In addition, Atrenne's capabilities in the design and manufacturing of high value-added mechanical solutions expands Celestica's service offerings for industrial customers. This acquisition will also meet key financial metrics, including: Contributing to the reshaping of our portfolio by adding over $80 million in annual ATS revenue to Celestica; and delivering attractive acquisition economics. As we have highlighted in our diversification strategy, we plan to continue to evaluate acquisitions to increase our presence in these diversified markets, build our management team expertise and expand our capabilities. Over the past year, we have engaged with a number of companies and continue to remain prudent in assuring strategic fit and long-term value creation for our shareholders. In addition, in order to allow investors to better evaluate the progress of our transformation, we plan to start providing some additional financial transparency in our ATS and CCS business segments starting in Q1. As we look into 2018, we will be building on the 4 priorities I established when I first joined Celestica. They include: Evolving and diversifying our customer and product portfolios to drive longer-term consistency in revenue growth and operating margins; achieving margin enhancement in our ATS end market, while balancing investments needed to drive continued growth; generating strong annual free cash flow and adjusted return on invested capital; and continuing to improve our execution while driving increased productivity and simplification through our organization. We will continue to work on improving our cash flow generation as we work through customer inventory and operate through a supply-constrained market. And I believe we have made solid progress on our other priorities. Thoughtful capital allocation and strong balance sheet are essential in this business. And I want to emphasize that this management team will continue to be disciplined and strong stewards of our capital as we continue to move through our transformation. We believe that we have a balanced, long-term approach to capital allocation, which benefits both our customers and our shareholders. Our priorities for capital remain focused on: Pursuing targeted and on-strategy acquisitions to drive scale, customer expansion and new capabilities; returning capital to our shareholders through share buybacks, including the completion of our current NCIB, the purchase up to 10% of our public float; and finally, investing in cost management programs across our global network, which will allow us to further accelerate productivity initiatives to reduce costs for Celestica and our customers. In summary, we are executing on the strategy we put in place 2 years ago, despite volatility in our CCS business. We're now looking to enhance our performance in 2018. As noted in our press release today, it is our goal to get our margins back into the 3.5% range in the second half of 2018, as cost efficiencies and benefits from our growing ATS mix are realized. Before I turn the call to Mandeep, I want to thank the entire global Celestica team for driving new growth in our portfolio enhancement initiatives, while effectively dealing with volatility and pricing, volume and mix in our communications and enterprise markets. We have a strong team, and I am very appreciative of their commitment to deliver exceptional service to our customers, while continuing to implement our exciting and comprehensive transformation strategy. Now, let me turn the call over to Mandeep.

Thank you, Rob, and good afternoon, everyone. Fourth quarter revenue of $1.55 billion, we got the midpoint of our guidance range and down 4% year-over-year. Some highlights for the fourth quarter include: We delivered 6% year-over-year revenue growth in ATS, representing 33% of total revenue. Revenue from our ATS end market increased 6% compared to the fourth quarter of 2016, as growth from strong demand and new programs offset revenue declines due to our exit from the solar panel business. At $504 million, ATS represented 33% of total revenue. And excluding the impact of the solar panel business, the ATS business grew 10% compared to the fourth quarter of 2016. We also launched a new normal course issuer bid, pursuant to which we repurchased and canceled 1.9 million subordinate voting shares for approximately $20 million. Although we were within our guidance range for revenue and adjusted EPS, margin, IFRS EPS and adjusted EPS were down year-over-year and sequentially, impacted by customer demand, pricing volatility and shift in program mix in our CCS business. Non-IFRS operating margin was 3.3% and adjusted earnings per share were $0.27. Finally, we achieved adjusted return on invested capital of 17%. Moving to our revenue from an end market perspective. Our communications end market represented 40% of total revenue in the fourth quarter. Revenue from this market was down 8% sequentially due to lower demand and late demand changes in the quarter and was down 12% year-over-year based on the very strong fourth quarter of 2016. ATS growth was largely driven by increases in our aerospace and defense revenue as a result of an additional operate in place agreement, which we completed in the fall of 2017. Energy products also showed strong growth year-over-year. This growth was somewhat offset by the loss of revenue resulting from our exit from solar panel manufacturing. As Rob has highlighted, the investments we are making to drive growth and expand our capabilities in ATS are contributing to positive and consistent results, and we anticipate that this positive momentum will continue in 2018. Our enterprise end market revenue was strong and increased 15% sequentially due to demand seasonality, but decreased 4% on a year-over-year basis, primarily due to softer demand. Revenue from our enterprise end market represented 27% of total revenue. Our top 10 customers represented 73% of revenue for the fourth quarter, an increase of 2% from the third quarter of 2017 and 1% from 1 year ago. For the fourth quarter, we had 3 customers individually contributing greater than 10% of total revenue. Moving to some of the other financial highlights for the quarter. From an IFRS perspective, net earnings for the quarter were $14.4 million or $0.10 per share compared to $20.9 million or $0.15 per share in the fourth quarter of 2016. Lower IFRS net earnings were driven by lower gross profit and higher other charges in 2017 as well as interest from tax recoveries that benefited 2016, partially offset by somewhat lower restructuring costs. Moving on to some of our non-IFRS financial measures. Adjusted gross margin of 6.8% was down 20 basis points sequentially and down 40 basis points year-over-year. Sequentially and on a year-over-year basis, adjusted gross margin was impacted by unfavorable changes in program mix in CCS, elevated ramping costs associated with establishing infrastructure in multiple jurisdictions and volatile pricing dynamics. Our adjusted SG&A was approximately $47 million, within our range of $45 million to $47 million for the quarter, and similar to the same period last year. Non-IFRS operating earnings were $50.7 million or 3.3% of revenue, which was 30 basis points below the midpoint implied in our Q4 revenue and EPS guidance ranges. This was down $3.7 million sequentially and down $10.7 million relative to the same period last year. Our adjusted effective tax rate for the fourth quarter was 17.3% and 16.5% for the year, slightly below our expected annual range of 17% to 19%. Adjusted net earnings for the fourth quarter were $39.7 million. Adjusted earnings per share of $0.27 represents a decline of $0.14 year-over-year. This was largely due to lower non-IFRS operating earnings in the fourth quarter of 2017 and net tax recoveries recorded during the fourth quarter of 2016. Adjusted ROIC of 17% was down approximately 2% sequentially and down approximately 6% year-over-year, primarily impacted by lower profitability and higher inventory. Last quarter, we announced that we were undertaking a series of restructuring actions. The actions will be focused on streamlining our business and improving margin performance. We launched an enterprise-wide cost productivity program to identify cost reduction opportunities in our network to increase operational efficiency and productivity and to respond to the volatility in our CCS market, including pricing volatility. As part of this efficiency initiative, we have launched a cost reduction program, pursuant to which, we anticipate we will incur restructuring charges between $50 million and $75 million. The program will primarily consist of cash charges, which we expect to incur through mid-2019, with the improvement from the program to primarily benefit gross margin. We anticipate that these efficiency initiatives, combined with our growing ATS product mix, will continue to move us towards our previously referenced target margin goal of 3.5% to 4% as we progress on our transformation. Moving on to working capital. Our inventory increased by $38 million from September 30, 2017, to $1,062,000,000 at the end of 2017. Inventory turns for the fourth quarter were 5.6, a decline from 5.7 turns in the third quarter of 2017 and 6.6 turns in the fourth quarter of 2016. The increase in inventory in the fourth quarter was driven by high levels of demand volatility, late period demand reductions, material constraints as well as investments in new programs. Capital expenditures were $21 million or 1.3% of revenue for the fourth quarter. Our capital expenditures for 2017 were $103 million or 1.7% of revenue, primarily due to increased investments in growing our capabilities and facilities. We currently expect 2018 CapEx spend to be in the range of 1.5% to 2% of revenue, similar to 2017. We generated approximately $43 million of cash from operating activities for the quarter compared to approximately $88 million in the prior period. Free cash flow was a positive $19 million compared to positive free cash flow of approximately $69 million for the same period last year. Our free cash flow was lower as it was negatively impacted by lower operating earnings and higher inventory levels. We launched a new NCIB program in November 2017, and we repurchased and canceled 1.9 million subordinate voting shares in the fourth quarter for approximately $20 million. This reduced our outstanding subordinate voting shares by 1.5%, and we anticipate continuing to repurchase shares into Q1. At December 31, 2017, we had approximately 141.8 million shares outstanding. Moving on to our balance sheet. Our balance sheet remains strong and continues to demonstrate to our customers our ability to invest and grow with them, while we continue to return capital to shareholders. Our cash balance at quarter-end was $515 million, down $12 million sequentially and down $42 million year-over-year. During the quarter, we made our quarterly repayment of $6 million against our outstanding term loan, which now has a balance of $187.5 million. Our net cash position at December 31, 2017, was $328 million. Before we move on to our guidance, I'd like to give an update on IFRS 15. We adopted this new reporting standard beginning in the first quarter of 2018 and will provide restated comparatives each quarter. For those who are not familiar with this standard, it does not change the economics of our business. However, IFRS 15 will change the timing of revenue recognition for some of our business, resulting in the recognition of revenue earlier than under the former rules. Our revenue and earnings guidance for Q1 2018 accounts for these changes. Now on to our guidance for the first quarter of 2018. For the first quarter of 2018, we are projecting revenue to be in the range of $1.425 billion to $1.525 billion. The midpoint of this range reflects revenue to be down 5% sequentially and flat year-over-year. At the midpoint of our revenue and EPS range, non-IFRS operating margin would be approximately 3.0%. Our operating margin for the first quarter is expected to be impacted by continued volatile pricing dynamics and higher-than-usual ramp costs that are continuing from the second half of 2017. However, as Rob noted, we are anticipating the business to operate at approximately 3.0% operating margin, despite the current period of volatility in our CCS business. It is our goal to get back to the 3.5% range in the second half of 2018 as we progress on our cost initiatives and growing ATS mix. First quarter non-IFRS adjusted net earnings are expected to range between $0.20 and $0.26 per share. Non-IFRS adjusted SG&A expense for the first quarter is projected to be in the range of $45 million to $47 million. Finally, we estimate our first quarter non-IFRS adjusted effective tax rate to be in the range of 17% to 19%, excluding any impacts from taxable foreign exchange. Looking at our end market outlook for the first quarter. In ATS, this market continues to grow. And we are anticipating revenue to be up in the mid-single digits year-over-year, driven by anticipated new program growth, including in our aerospace and defense and semiconductor markets. In our communications business, we anticipate a decline in the mid-single-digit range. In our enterprise end market, we anticipate moderate increases in the low single digits year-over-year as new ramping programs offset volatility in other programs. In closing, I'd like to acknowledge the Celestica team for their performance during our transformation. You cannot undergo this level of change without exceptional people. And we are fortunate to have a talented and dedicated organization that is delivering solid progress during our revenue diversification and margin enhancement push. Now, I'd like to turn over the call to the operator to begin our Q&A.

[Operator Instructions] Your first question comes from Ruplu Bhattacharya

Just starting on communications, can you give us a sense of how large your optical business is? And maybe just, if you can give us any color, where was the weakness -- where did the weakness come from versus your expectations? Was it in optical or networking or telecom, or if it was region-specific?

Sure. So optical's about 35% of our total communications portfolio. And with respect to Q4, we saw demand weakness in routing and switching and in broadband and to a lesser extent, in optical. But we did see some strength in our networking business.

And was it region-specific? Or was it across regions as well?

It was program-specific.

Program-specific, okay. And just, for my follow-up, for the communications segment again, when do you think that this segment can see positive year-on-year growth in revenues?

As you know, we've had a strong growth spurt with respect to communications. In a full year basis, '17, we're up 4%. So back half of '16, first half of '17, we were ramping quite nicely. As we look forward, it's a fairly dynamic market. We did see some strength in networking continuing, but we're also seeing some headwinds, continued headwinds in broadband, routing and switching and optical as well. So it's hard to predict right now.

Your next question is from Matt Sheerin from Stifel.

Just dovetailing off of the last question, just regarding the outlook, as we get into the back half of the year and you're looking at the margins improving, is that a function of some of the investments sort of playing out and getting leverage on new programs, or more from restructuring in the computing, the Datacom businesses? And do you need a better second half in terms of volumes in those businesses in order to get to that 3.5%-plus margin range?

Hi Matt, it's Mandeep here. Thanks for the question. Yes, to get to the 3.5% range from where we are right now, it's really centered on a few things, which we highlighted during the script. We continue to see a strong ramping of programs in our ATS business. And we expect that, that organic growth is going to continue as we go through 2018. As we continue to grow the ATS business, the benefits of the scale, we expect to continue to see margin expansion as well. The cost productivity program is already underway. And so as we start to see the benefits of those actions, and that will start to materialize as well to help offset some of the challenges in the CCS space. And then finally, the integration of the Atrenne acquisition. As that closes, that will have a positive benefit as well, and we think those things together will help us get back to the 3.5% range.

Okay. And just on that acquisition, is -- will that be accretive immediately? And is that accretive? I would imagine that's accretive to your margin profile right now.

It is. It's a -- it's going to be accretive in the first year, and we -- it is accretive to the overall business and a strong performer for our ATS portfolio.

Your next question comes from Amit Daryanani from RBC Capital Markets.

A couple of questions for me as well. I guess, first off on the cost reduction initiative. I think you mentioned $50 million to $75 million of charges to implement this. Could you just tell us what sort of savings do you expect out of this, and when should we start to see the savings come in, when do they get 100% realized?

Yes, hi, Amit. So the program size of $50 million to $75 million, we did actually start already executing actions toward it. We saw about $8 million in our fourth quarter results. And when -- as I mentioned, we expect that the program is going to take us into the first half of 2019. But substantially, most of the program, we expect to execute in 2018. It's focused on a few different things. We're focusing on driving productivity in material and labor costs, focusing on optimizing the network and also looking at corporate costs as well. Overall, we have a big funnel of opportunities that we're pursuing. And for the funnel of savings opportunities that the restructuring applies to, we expect that the payback is going to be under a year. The program is going to be primarily cash based. And when we execute the program -- and again, it's already underway, and we couple that with the growth we're expecting to see on the ATS side, those together will help to get to the 3.5% range in the back half of the year.

Got it. That's really helpful. And I guess if I could just follow up -- I apologize if I missed this, but on the Atrenne acquisition, could you quantify what sort of revenues are you expecting to get out of the deal, and what's the EPS contribution going to be like? And I guess, just on a broader level, how do you think about M&A as you go forward? Is it going to be, "Let's close this in Q2, digest it, and then look at other deals?" Or are you willing, and is the funnel open for you guys to do more acquisitions in '18, despite what you've announced so far?

Yes. So maybe Rob and I will tag team on this one. To answer your question, with -- the acquisition has an annualized revenue of around $80 million or so. We signed the deal. It's going through customary closing at this time. And once it closes, it'll have a contribution to 2018. We haven't disclosed the profitability, specifically on the deal. But what -- again, we are saying is that it is a very attractive overall business. It's accretive to our earnings, and it'll be at strong ATS margins. In terms of M&A go forward, I'll let Rob take that piece.

Yes, we continue to have a very active pipeline. We have been, and continue to be, engaged with multiple companies. And we feel comfortable based on the integration muscle and the M&A muscle that we've been building out over the last year plus, that we're able to both integrate this acquisition and also be able to look for other wonderful adds to our $2 billion ATS business moving forward.

Your next question is from Thanos Moschopoulos from BMO Capital Markets.

Your inventories remained elevated, and I think you alluded to that being due to the component shortages, demand volatility and the program ramps. How should we think about inventory turns evolving as we look out through the course of '18? Should they come down from current levels based on that?

Yes, hi, Thanos. Yes, the inventory is elevated. And you're right, and if we take a stock at the end of the year and look back over the previous year, how did it really build to this level? There's a couple of dynamics that were in play. We did have program investments through the year for programs that we believe are strategic to the business and are going to ramp and continue to ramp into 2018. There has been the heightened level of order churn, primarily within our CCS business. We see that continuing, and that has been a dynamic for the past 6 months or so. And material constraints and extended lead times, that's not necessarily getting better at this point, but we're also not seeing it get a lot worse. And so material constrained environment that we're in, we're expecting it to continue until at least the middle of 2018, if not the back half. In terms of bringing our inventory balance back into line with what we would expect, we see right now that we need to burn through some of the inventory that we have in the first half of the year. And as we ramp those programs that we've made investments in, we're looking to see some of that benefit in the back half of 2018.

Okay. And Rob, in terms of the Atrenne acquisition, it sounds like the focus is expanding your capability in aerospace and defense. Although you alluded to the fact that it should extend your service offerings for industrial customers, can you maybe expand on that point? Does it give you a broader suite of services? Does it get you into maybe some new industrial markets you weren't in previously? Maybe some color on that front.

Yes, sure. So it's a wonderful business. It adds to our A&D franchise, it also adds to, again, our $2 billion ATS business. If you think about what Atrenne does, you think about an aircraft or an armored vehicle, and these kind of platforms as an enclosure, a ruggedized enclosure, so what Atrenne does is actually they design this enclosure. In fact, 50% of their revenue from the business is proprietary designs. They have a library of over 2,000 of these designs. They also actually manufacture the back plane, which includes connectors. That's a new capability add. They also have MRO capability, complex wiring, harness capability in CCS, CCA manufacturing capability, which is complementary. On the industrial side, they also have metals capability and machining capability, which actually plays well into some of our industrial verticals as well. And it adds 2 U.S. [indiscernible] facilities which will help support our push to get into defense aerospace as well. So overall, a nice add to our portfolio. We're very pleased to have the Atrenne business under our wings.

Your next question is from Jim Suva from Citigroup.

You mentioned communications softness. Is that more broader based? Or obviously, you have some top customers that are concentrated. Is it you think more customer-specific, or more broader based, based upon your market intelligence?

With respect to our business, I would say it's probably program specific is what we're seeing. We're certainly seeing some broader industry headwinds but the softness we're seeing is largely driven by the programs that we have.

Okay, got you. And then for your March guidance, I believe it's for revenues to be flattish, but margins to be down year-over-year. You cited ATS revenue growth, but then communications softness. Does that then imply that ATS margins are lower than communications, or integration of acquisitions burden margins? Or how should we think about that mix that's impacting margins?

Yes. So the ATS business is going to be up mid-single digits on a year-over-year basis in the first quarter. And we, as mentioned, are seeing the overall margin profile right now of ATS being accretive to where we are as a company. In the fourth quarter, those margins were near north of 4%. And so we continue to see a strong margin profile continuing on ATS going into the first quarter. The challenge is really, Jim, are in CCS. We're seeing the impact of mix as we've talked about, with the increased level of fulfillment business. The pricing is becoming more pronounced at this point. And so we're working through those dynamics as well. And we continue to work on the cost productivity side, to align our cost structure to mitigate those, but we need just a little bit more time to do that.

Thanks, Jim. I think that was our last question. Rob, if you have any closing comments you'd like to provide?

Sure. So despite the tough markets, we are actually executing very well on our ATS strategy. I think we have some great momentum in ATS. We have some great momentum in our JDM business. We have some great momentum on our M&A strategy, and after some strong growth that we've seen in CCS, we are experiencing some headwinds. But we do have the right actions in place to improve our margins as our transformation progresses. And I look forward to updating you on our progress on our next call.

Thank you.

This concludes today's conference call. You may now disconnect.