Good morning. My name is Julianne, and I will be your conference operator today. At this time, I would like to welcome everyone to Celestica’s Fourth Quarter 2021 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers ' presentation, there will be a question-and-answer session. [Operator instructions] Craig Oberg, Vice-President of Investor Relations and Corporate Development, you may begin your conference.

Good morning. And thank you for joining us on Celestica's Fourth-Quarter 2021 Earnings Conference Call. On the call today are Rob Mionis, President and Chief Executive Officer, and Mandeep Chawla, Chief Financial Officer. As a reminder, during this call, we will make forward-looking statements within the meanings of the U.S. Private Securities Litigation Reform Act of 1995 and applicable Canadian Securities Laws. Such forward-looking statements are based on Management's current expectations, forecasts, and assumptions which are subject to risks, uncertainties, and other factors that could cause actual outcomes and results to differ materially from conclusions, forecasts, or projections expressed in such statements for identification and discussion of such factors and assumptions, as well as further information concerning forward-looking statements. Please refer to yesterday's press release, including the cautionary note regarding forward-looking statements therein. Our most recent annual report on Form 20-F and other public filings which can be accessed at sec.gov and sedar.com. We assume no obligation to update any forward-looking statements, except as required by law. In addition, during this call, we will refer to various non-IFRS financial measures, including operating earnings, operating margin, adjusted gross margin, adjusted return on invested capital or adjusted ROIC, free cash flow, gross debt to non-IFRS trailing 12-month adjusted EBITDA leverage ratio, adjusted net earnings, adjusted EPS, adjusted SG &A, life cycle solutions revenue, and adjusted effective tax rate. Listeners should be cautioned that references to any of the foregoing measures during this call denote non-IFRS financial measures, whether or not specifically designated as such. These non-IFRS financial measures do not have any standardized meanings prescribed by IFRS, and may not be comparable to similar measures presented by other public companies that use IFRS, or who report under us GAAP and use non-GAAP financial measures to describe similar operating metrics. We refer you to yesterday's press release and our Q4 2021 earnings presentation, which are available at celestica.com under the Investor Relations tab, for more information about these and certain other non-IFRS financial measures, including a reconciliation of historical non-IFRS financial measures, to the most directly comparable IFRS financial measures from our financial statements. Unless otherwise specified, all references to dollars on this call are to U.S. dollars, and per share information is based on diluted shares outstanding. Let me now turn the call over to Rob.

Thank you, Craig. And good morning, everyone. And thank you for joining us on today's conference call. In the fourth quarter, Celestica achieved several important milestones, capping a challenging but successful year. The Company closed the acquisition of PCI, our first acquisition in 3 years, which has been immediately accretive to our financial performance. And accelerated our portfolio diversification efforts. We achieved a return to top line year-over-year revenue growth in the fourth quarter. As the successfully disengaging with Cisco. And we recorded a high non-IFRS operating margin ever to the second straight quarter in a row. In spite of a dynamic macro environment, Celestica continues to execute well, on our key objectives. While advancing our long-term strategy. Our fourth quarter revenue came in at $1.51 billion, slightly higher than the midpoint of our guidance. While non-IFRS adjusted EPS of $0.44, a highest quarterly adjusted EPS in more than 20 years, came in well above the high end of our guidance range. Our non-IFRS operating margin of 4.9% was another high watermark for Celestica. This represented our eighth consecutive quarter of year-over-year operating margin improvement and was higher than the guidance midpoint of 4.5%. With our solid progress on margin expansion over the last two years, we believe we are in a strong position to maintain our operating margin in our target range of 4% to 5% for 2022. 2021 was a great year for our CCS segment as our hardware platform solutions business or HPS achieved a record $1.15 billion in sales, which represented growth of 34% compared to 2020 as we continue to gain share and grow faster than the market. Despite the challenges presented by the constrained global supply chain environment, demand from service providers in our HPS business is expected to remain a driver of growth in CCS for 2022. Our ATS segments saw a strong revenue growth in 2021, led by our capital equipment business, which achieved sales of approximately $750 million. We also experienced a return to growth in the fourth quarter of 2021 in our industrial business. Looking ahead to 2022, we expect revenue growth in ATS of 10% or more. Our outlook is supported by 1. continued strength in our capital equipment business, 2. incremental growth in our industrial business, further accelerated by the addition of PCI and 3. continuing commercial aerospace recovery aided by new program ramps in defense. While 2022 is by no means anticipated to be without its share of challenges. We expect to build on the positive momentum we have established in 2021, and lead the company to another strong year of financial performance by executing on our strategic and operational objectives. Before I offer some additional detail on our business outlook, I would like to turn the call over to Mandeep, who will provide you with additional color on our fourth quarter financial performance, as well as our guidance for the first quarter and our outlook for 2022. Mandeep over to you.

Thank you, Rob. And good morning, everyone. Fourth quarter 2021 revenue came in at $1.51 billion in line with the midpoint of our guidance range. Revenue was up 9% year-over-year and up 3% sequentially. Our return to year-to-year growth was driven by double-digit organic revenue growth in our ATS segment, further accelerated by our acquisition of PCI. We delivered non-IFRS operating margin of 4.9%, 40 basis points ahead of the midpoint of our non-IFRS adjusted EPS guidance range, driven by strong performance in both segments. Non - IFRS operating margin was up 130 basis points year-over-year, and up 70 basis points sequentially. Non-IFRS adjusted earnings per share were $0.44 above the high end of our guidance range of $0.35 to $0.41. This was up $0.18 year-over-year and up $0.09 sequentially. In late 2021, we experienced a brief IT outage, that temporarily impacted our operations. Based on the nature of the incident, it did not have a material impact on our financial results in Q4 of 2021. Our operations are functioning at normal capacity and we do not expect any material impact to our Q1 2022 financial results from this brief outage. ATS revenue was up 23% year-over-year in line with our expectations of a low 20 percentage year-over-year increase. Sequentially, ATS revenue was up 8%. The year-over-year revenue growth in ATS was driven by continuing strength in capital equipment, organic growth in our base industrial business, and two months of contribution from the PCI acquisition. We are pleased that ATS has achieved 10% or more of year-over-year revenue growth for the past three quarters. CCS segment revenue was up 1% year-over-year and flat sequentially. Year-over-year. The Cisco disengagement offset with the 5% growth we experienced from our non-fiscal portfolio, driven by strength from service provider customers. Note going forward, the…

Thank you, Mandeep. As we take stock of our performance for the past fiscal year, we are pleased with our financial performance and the progress we have made towards our long-term objectives. Our return to year-over-year revenue growth, record operating margin, and near record adjusted EPS demonstrates that we have been effectively executing against our strategy and our transformation is complete. We are also pleased that our shareholders were rewarded in 2021 as our share price, which outperformed the primary Canadian and U.S indices reflected our strong performance. However, we have no intention of resting on our laurels and we are constantly striving for further improvement. Our focus is now squarely set on meeting our performance expectations for 2022, which include solid top-line growth in combination with anticipated record non-IFRS operating margins for the year, which if achieved, will lead to the highest ever annual non - IFRS adjusted EPS. Our efforts to diversify our commercial portfolio remained our centerpiece of our long-term strategy. And we are pleased with the progress we are making. Our lifecycle solutions business saw another quarter of solid revenue growth, up 36% year-over-year in the fourth quarter, recording nearly 1 billion in sales and accounted for a record 65% of total revenue during the quarter. For the full year 2021, life-cycle solutions accounted for 61% of total sales compared to just 39% in 2017. Looking forward to 2022, we reiterate our expectation for lifecycle solutions revenue growth of at least 10%. As I mentioned in my opening remarks, the year ahead will not be without its share of challenges. The global supply chain environment continues to be the most challenging we have dealt with in recent memory. And the new viral variance leading to further outbreaks of COVID-19 may further exacerbate these issues. The fact…

Thank you. [Operator Instructions] You r first question comes from Thanos Moschopoulos from BMO Capital Markets. Please go ahead. Your line is open.

Hi, good morning. On the supply chain, clearly it had a bigger impact on revenue in Q4 than in Q3. Can you part some color in terms of how you're thinking about that impact heading into Q1 and through 2022? Are you assuming that it gets stable from here, a bit worse, or what's implicit in your assumptions?

Good morning, Thanos. This is Rob. Yes, as we go into Q1, assuming that the impact in Q1 is very similar to Q4, and as we look out for full-year '22, we don't expect any meaningful improvements throughout the year, if you just think about what's going on in the macro environment. We have strong OEM growth. The semi-cap capacity that is coming online will probably be late in the year, inventories are low, lead times are up, pricing is up. So, we've aligned ourselves and assume that we're not going to see meaningful improvement in supply chain constraints throughout the year. That being said, as you can see, we've been fairing fairly well through the environment. It's driven by 1. our strong processes, 2. our strong people. And 3. we're also working closely with our customers, on our customers ' sides of that, for more color. We've been very transparent with them, and as such they've opened up the horizons and, in many cases, they've increased cash deposits so we could secure strategic inventory for them. And on the process side, we've developed a series of new automated tools. And in many cases, we actually understand our customers ' demand better than they do, which allows us to more clearly communicate with our suppliers and get the critical supply that we need.

So, if we close back up -- sorry, go ahead. Sorry, Thanos. Mandeep here. I was just going to add some numbers to what Rob had just mentioned. As you know, for Q1, we are continuing to have a little bit of a wider guidance range, plus or minus $75 million. So, we have taken into account material constraints to the best of our ability for the first quarter. And then when we talk about 2022, as you know, we're targeting at least $6.3 billion in revenue. Our demand outlook is north of that. And so, we've done, to the best of our abilities, we've taken into account the display environment when communicating the 6.3 billion plus.

Great. You don't disclose backlog, but I have to assume that your backlog is growing and a weighted average of your backlog is probably increasing, setting up your longer-term visibility; is that fair?

Yes, that is fair. Our customers ' backlog is increasing and sometimes two to threefold and as such, our backlog is also increasing to the same extent.

And then finally, on cash cycle days, obviously inventory's increasing and you're offsetting it to some extent with higher deposits. How do you think that dynamic kind of progresses over the coming months?

Yes. So, it's been a tough environment as you know, this year. But we're pleased that we were able to generate over a $100 million cash in 2021 despite it. Inventory has been growing, but we've been doing that strategically. And then at the same time working with customers on deposits. As we go into 2022, we expect, again, the environment is going to remain largely consistent. Inventory will be elevated for a period of time, but again supported by deposits. We are still targeting strong free cash flow in 2022. But as that inventory unwinds, we should expect that some deposits will unwind as well. So, it doesn't all fall to the bottom line in terms of cash. But we've taken them into account in our projection.

Great. I'll pass the line. Thanks.

Your next question comes from Robert Young, from Canaccord. Please go ahead. Your line is open.

Hi. Good morning. Just a question on the semi-cap outlook, obviously, taken very strong for 2022 there is. Curious relative to last quarter, would just think that the look is better or worse, there's been a lot of capacity expansion announcements and I'm trying to put that into context from what we know in the public domain versus what you might have known ahead of time, from your customers. Is the environment better today than it was 3 months ago?

Hi, Robert, would you mean when you say the environment, you mean our Q4 performance relative to Q3 performance within our business? Or more broadly speaking?

More broadly and thinking about 2022.

Yeah, so 2022, the external environment, what we're hearing from our customers, the markets should be growing about 14%, 15% is what we're hearing. Internally here, we are aligned to grow much faster than the market due to the fact that we've been up frankly just taking share and we have a new -- number of new program ramps that was scheduled to happen during the course of the year. And there is of high-level assembly, machining, robotics, new customers in display, etc. But the external market that we're hearing from is about 15%, 14% increase year-over-year from a wafer fab equipment.

And that does sound better. I think you said the market was 12% growth last quarter. So, the market sounds like its better than it was last quarter. Is that a fair statement?

Yes.

The outlook I'm talking, not about the quarter.

The outlook is higher than it was last quarter, so the outlook is increasing. And it's also extending as well. What we're hearing from the market folks, that our customers that expect this cycle, as well, to certainly last throughout '22 and well into '23. And many are asking us for capacity plans through '24 as well, to make sure that we're able to grow with them.

Okay. And then on the HPS growth for 2022, 10% or greater, I was just looking at the comms expectation for Q1 of growth of high teens, and I would think of that normally as a slower quarter, Q1, and so I'm trying to reconcile the 10% plus jive with the high teens expectation in Q1. Is visibility just lower as you go through the year? Or is Q1 just higher than it might normally be?

In limited communications, the majority of the ramps that we're seeing in comms is coming from HPS and continued demand strength in new program ramps and networking, which is largely fueled by HPS. We're also seeing some demand strength in some existing programs as well. But the high teens is really a reflection of HPS growth that we're seeing.

Yeah, and Rob, what I would just add is it goes back to our 2022 commentary, we're expecting growth of 10% or more in lifecycle solutions, which of course it's inclusive with HPS. And going back to the commentary I shared with the end of, the demand outlook remains robust. What we're doing is we're also taking into account the materials environment when we provide that color. And so, as we just look at Q1 which is right in front of us, we're feeling quite comfortable based on the supply environment. But of course, we continue to be cautiously optimistic as you go beyond Q1.

Okay, great. And then I didn't see an update on the target margins for CCS and ATS. You said 5.5% for 2022. Is the 2% to 3% still relevant for CCS and 5% to 6% for ATS, general?

What I would say is that, yes, we expect that the performance in CCS is going to continue coming out of 2021. And as you know, throughout 2021, they were above their target margin range. And so, we can -- we expect strength to continue. On the ATS side, we're pleased that they entered back into their target margin range of 5% to 6%. And we expect strong performance at those levels or possibly higher throughout the year. We gave a full-year number of around 5.5%. What I would say in terms of target margin is as you know, we did increase the company's range to 4% to 5% for 2022. We'll relook at what the right target margin ranges are for the individual segment as we go through the year. Frankly, we want to operate in the range for a few quarters first. We also want to complete the integration of PCI. So right now, the higher margins from both segments is being reflected in the total company number, and we'll revisit what the right ranges are over the long term for segments later on.

Okay, thanks for taking the questions.

Thanks, Rob.

Your next question comes from Todd Coupland from CIBC. Please go ahead, your line is open.

Yes. Good morning, everyone. I wanted to ask you about margins as well. I think street expectations for 2022 EPS is $1.45 to $1.50 and it's more or less implying the low end of year 4% to 5% target range, 4.1 or something like that. At the start of the year, is that the right place to be in that target range, or given you've increased the guidance range, should people start to move towards the middle of that range, given the momentum in your business. Just a little color around that would be helpful. Thank you.

Sure. Thanks for the question, Todd. Yes. What I would say is that we do know what the consensus numbers are, at around $6.3 billion in revenue, $1.47 or so of EPS. And then the implied margins are in the 4.2% to 4.3% that range. What I would say is that that's at the low end of what we're targeting. As you can see from our guidance for the first-quarter at 4.2%, which historically is our weakest quarter based on seasonality. We are targeting stronger margin than 4.2% as we go through the remainder of the year. Also, from a revenue perspective, to reiterate, my comments to others, we are targeting $6.3 billion or more as we go through the year. We're just tempering demand right now with some of the material constraints dynamics. So all-in-all, we believe that consensus right now is reflecting the low end of what we are targeting. We're certainly targeting higher than that.

Okay. And at this point in the year, the beyond seasonality, is the biggest swing factor how supply chain plays out?

It is the biggest dynamic, I would say, that could flex our revenue. Again, the demand outlook remained robust throughout 2021. We think we've done a nice job of managing through it. But the impact is anywhere between $30 million to $50 million a quarter of revenue that we could've done had we not had any supply constraints. So, we think we've accounted for that in the $6.3 billion; we don't see it getting significantly worse. It doesn't save time based on what we're seeing right now. We also don't see it getting better in 2022.

Great. And my second question relates to the PCI acquisition. Apologies if you disclosed this, but how much did it contribute to revenue in EPS in the fourth quarter?

We don't speak of it specifically, I will this time because it was a partial quarter, and the business closed -- transaction closed on November 1st. It gave us about 1% of our overall growth. So, ex - PCI, we would have been about 1% to 2% lower on a year-over-year basis. And as we're going into next year, as we've communicated, we are expecting an incremental amount of around $300 million or so on a year-over-year basis.

Great. Thanks for the color. Appreciate it.

Thanks, Todd.

Your next question comes from Paul Steep from Scotia Capital. Please go ahead. Your line is open.

Hey, morning. Maybe just to go back a little bit, either Rob or Mandeep. Can we talk about non-HPS CCS and just the cadence there? Obviously, the basis have implied there has been growth in going on HPS programs, but I think my question is longer-term, how should we think about recalibrating that portfolio? You went through a lengthy period of maybe removing revenues and client work that might be better placed to other places. Where are we in that trending? Because it looks like you've replaced capacity and HPS as a percent of CCS will tick down a little bit on a percentage basis of the mix this year. How will it reconcile?

Hey, Paul. I'll start off. I'll let Rob finish. What I would say is that the non-HPS portfolio in CCS is still very good business. [Indiscernible] $2 billion of our overall revenue gives us terrific utilization in some of our key factories, gives us the ability to have better buying power with our suppliers, getting better pricing across the entire network, and so it is a very attractive piece of business. The other thing, too, is that it is becoming stickier because of our HPS business. Because when you can service a customer with both the traditional EMS offering as well as HPS offering, you become a more strategic supplier to that customer. And so, as we look into next year, if you look at the overall growth rate of markets, it's in the low single-digit rate. That's something that is not too far off of what we would expect of our non-HPS portfolio within CCS. But again, we're pleased with the portfolio that we do have. We've already made the tough decisions that we've had to make around portfolio shaping. And for the portfolio we have today, we think is still very strategic for us.

The only thing I would add.

Sure Rob.

One thing I would add would be that our non-HP S portfolio on the areas of comms and enterprise also enables us to actually gain more HPS confidence of time. So, it allows us to kind of move up the rack and also follow-up solutions to our customers. And, also transition customers from EMF to HPS over a period of time. So, enabler as well.

Maybe Rob or Mandeep; either one who wants to start and I'll two-part this one. But talk to us about what you're thinking about the global footprint in terms of where production is and maybe shifting factories around. You talked about opening the Minnesota facility last year, but that's against a CapEx backdrop that's maybe been more constrained. I guess the second part of it for Mandeep is Mandeep, how should we think about CapEx this year and next? And then maybe the other one. I believe we've cleared most of the real estate opportunity, but I think there still are some owned facilities. What's the opportunity to maybe realize some real estate -- unlock some value in real estate [Indiscernible] deploy that capital?

Well, good question. From a footprint perspective, there has been certainly an increased trend for regionalization and we've been capitalizing on that from a couple of different aspects. First from a growth perspective, as supply chains become more complex, and also if our customers want to regionalize more, it's actually been increasing the amount of outsourcing that we've seen from the customer base. So, we've been capitalized doing that and growing specifically to support our new customers ' regionalization efforts. And then secondly, based on the footprint that we have, many customers either to do just the supply chain or just to improve total landed cost, faster help support multimode solutions. So, we've been supporting them doing that. So that's been heavy activity I would say over the last 18 months or so. Its still will be fairly active this year in terms of maybe repositioning some of our customers’ products to better align them with where they need it to be. But I think we have the right footprint right now to support our customers. We are looking at each capacity expansion as our company continues to grow though in key spots.

And Paul, I'll just continue on the CapEx front. So, we spent about $50 million of CapEx in 2021, around 1% of our revenue. Lower than we had originally set out to do. And that's just because some projects that we were anticipating to start at the back end of this year and pushed to the right along with display environment. As we look into 2022, we are targeting closer to 1.5% of revenue. You could think that it from a modeling perspective as $90 to $100 million. That's in line with the guidance that we traditionally give, which is 1.5% to 2% of overall revenue. And we're pleased though that where we're spending that money is to support customer programs and new wins. So, it's largely growth oriented. To your point about owned versus leased real estate, it is something that we look at from time-to-time. And being in 14 different countries, the dynamics are going to be different in various locations. We don't feel right now that there's compelling reason to take any of our assets. At this point and necessarily do a sale leaseback. Business cases don't make sense in various scenarios. But it is something that we constantly evaluate and we know that that is a source of capital. If we wanted it to be.

Great. Last one, and then I'll -- I'll pass on. Just obviously close PCI leverage is up, but it's going to quickly de -lever at least.

Paul, I'm sorry. I think your phone broke out. Wasn't able to hear the question

Ask really [Indiscernible] factor into [Indiscernible]

Paul, I'm sorry, I think the reception broke out, the question didn't come through. Maybe give you another chance, but otherwise, we can always put you back in the queue as well.

Sorry guys, I'll pass the lineup, bad reception.

Okay. Thank you.

Celestica equipment will be so much better, Paul.

Your next question comes from Ruplu Bhattacharya from Bank of America. Please go ahead your line is open.

Thank you for taking my questions. Can you help us bridge the 70 basis points of margin decline between 4Q and 1Q? I mean, your CCS margins, looks like have consistently been above the 2% to 3% long-term range for over two years now, I mean, for the last 8 quarters. And on the ATS side, you're guiding, I guess for sequential growth and revenues. I'm trying to figure out what are some of the factors that are driving that margin decline? Can you help us break that into what how much is mix? How much is the effects? How much is volume related? And if you could just give us any guidance on how you're thinking about margins for both segments in the first quarter.

Sure. Good morning, Ruplu. So, what the margin decline quarter-to-quarter is reflecting is some moderation within CCS. As you know, we don't give guidance ranges specifically at the end-market level, but I can tell you that we are targeting above the guidance range or the target range in CCS. That's above 3%, but the 4.4% that we saw in the fourth quarter was exceptionally strong, driven by a strong mix and some strong recoveries as well. On the ATS side, we're targeting to be above the 5%. Again, the full-year outlook for ATS is 5.5% or thereabout approximately. And we are expecting to be at 5% or more. We're working towards that in each of the quarters next year. And then to answer your question maybe a little bit more specifically on what's driving from the moderation within CCS. That is the business where we traditionally see seasonality, particularly with our enterprise customers. And so, our goal would be to see margins trend in CCS going beyond the first quarter as well, but it's not unusual for CCS to have its "weakest quarter” in the first quarter.

Okay. Mandeep. Thanks for the details on that. Related to margin, I'm going to ask a more theoretical question. As your capital equipment business grows, that should be accretive to your ATS segment margins, I think you reported $750 million of revenues in that business capital equipment business in fiscal 2021. I'm trying to estimate how much more margin expansion can that business create? So, is there like a revenue level at which you reached steady-state margins in that business?

So, we're already experiencing strong margins in the business right now. We've talked about this on previous calls where as we continue to grow that business, we would expect that it could perform above 6% operating margin. It's not there yet from a consistency perspective, but also going to what we've talked about for 2022, we are expecting further growth in CCS. So, we do expect incremental margin accretion from -- I'm sorry, capital equipment, incremental margin accretion from capital equipment as we go through 2022. That being said, we want to just make sure that we temper expectations because capital equipment demand will not continue forever, and we do expect that eventually it will moderate. We have been very disciplined on adding fixed cost to that business so that we are able to weather the next inevitable downturn. But the reason that we continue to be optimistic for the ATS business is because our very large segment in aerospace and defense is operating below expectations. And so, we do expect that eventually when capital equipment moderate s, our A&D business will hopefully be able to come right behind it and pick up any of that margin dilution. So, we think we're set up for a good margin [Indiscernible] over the next few years. But we just want to make sure that we balance our expectations around capital equipment.

Okay, thanks for the details on that. I appreciate that. And for the last question, Mandeep, can I ask you about your priorities for use of cash now that you have the new NCIB. How should we think about debt reduction versus share buybacks versus further M&A?

Yeah, absolutely. So, it all starts with free cash flow generation. So again, pleased with the cash generation that we had in the 2021, $115 million. We are targeting a $100 million or more for 2022, albeit it is a challenging environment. We have a very healthy balance sheet. Our gross leverage ratio is at 2.0 times. It will reduce as we go through the year. And then also our liquidity remains very strong with our refinance credit facility, close to $1 billion up almost a $120 from where it was a quarter ago. So, we feel like we have a lot of flexibility. When it comes to share buyback, we're going to continue to be opportunistic on those buybacks. And what I mean by that is stock price for select what we are doing from an operational execution perspective. Right now, we believe that consensus estimate does not fully reflect what we are aiming to do in 2022. And frankly, the multiple on the company is still trading at a discount, relative to historical averages. And so, when there is weakness, we are comfortable going in and buying back shares. We think that's a good use of cash for shareholders. That being said, we maintain flexibility to do M&A. Our long-term priority, don't change 50% back to shareholders. Largely 3-inch per this 50% of our cash-generation being invested in the business. But on the M&A side, as you know, we maintain a very tight filter. And it needs to be EPS accretive in year one, ROI has to be above our cost of capital by year two or sooner. It has to be a strategic fit for the business, we have to be able to integrate it well. And so, we'll continue to look at our many transactions as we go through 2022, we have both the balance sheet and the management capacity to do a transaction should the great right one come in front of us. But we're going to be very disciplined before we pull the trigger on anything.

Okay. Thanks for all the details. Congrats on the quarter and the strong margin performance.

Thanks, a lot, Ruplu.

Next question comes from Jim Suva from Citigroup. Please go ahead. Your line is open.

Thank you. I have two questions and I'll ask them at the same time so you can figure out which way you want to answer them. But one of them is just mostly clarification. When you mentioned about that you saw some recoveries in the quarter, there's lots of ways to define that. Some call it recovery of COVID costs. Others may call it the recovery of utilization rates. Others may call it recovery from bad debt accruals, or lots of other things. Can you just help us understand what you meant by recoveries? And then the second question is, am I right that this [Indiscernible] we're looking at now since it's post the Cisco decent engagement, that this the alignment and kind of the vehicle that we should look at going forward or do you still have some things in your portfolio for repositioning that we should be mindful of? I know you of course have to do the integration of PCI, but it seems like we're probably close to the point of the true, clear vehicle that we should be looking at going forward. Thank you.

Hey, Jim, it's Mandeep here. Nice to talk to you this morning. So, to answer your first question, when we're talking about recoveries, it was largely related to premiums that we were paying or freight expenses that we were able to successfully recover from our customers during the quarter and that did help us. I'll let Rob maybe add on to a starting of an answer for the second one, which is, as we have said, our portfolio-shaping actions are complete. We went through a multiyear transformation. The transformation is done. We're now in the growth phase and so to what we're really pleased with is that we are now posting absolute growth numbers. And as we go into Q4 or as we finish Q4 and as we're going into Q1 and all through 2022, we're looking to see absolute growth across the company. Of course, our strategic objectives are to continue to grow our diversified set of businesses, HPS and ATS. And again, we're targeting 10% or more growth in those businesses in 2022. And we think that as we continue to improve the mix from those very high reliability businesses, it just continues to strengthen the company. But I'll let Rob add onto that.

I think you’ve covered majority of the points, Mandeep. But I will just say I'm really pleased, Jim, with the progress. We've improved diversification as a result of that, we've improved our margins and our -- its also improved our customer concentration. So, we think we have a much more resilient portfolio and a portfolio that's much better aligned to take advantage of some of the secular tailwinds that we're seeing. So, I would mark the transformation as complete, but our work is not yet done because there's always room for improvement.

Thank you and congratulations to you and your team for lots of effort and work which is now manifesting itself. Thank you.

Appreciate that.

Your last question comes from Paul Treiber from RBC Capital Markets. Please go ahead. Your line is open.

Thanks very much. And good morning. Just could you speak the labor environment? You've mentioned supply chain constraints, but to what degree are you seeing any shortages in labor, if any, or absenteeism, or also wage inflation? And how do you think about the labor environment through 2022?

A good question, Paul. We're certainly seeing pockets of wage inflation, of higher absenteeism, and difficulty in attracting talent, I would call it pockets largely in the Americas on the West Coast. And also in the northwest area. In terms of picking it off, in terms of absenteeism driven by COVID, we had a rush of it I think earlier in January, but frankly, given the new CDC guidelines. People are back at work and we've returned to normal levels. So it's really for a very short, limited amount of time early in Q1. In terms of the inflationary environment, I do think that's alive and well, if you will. We've been taking that into account and working with our customers and repricing accordingly. And in terms of finding talent, we're doing our best to have partnerships with local universities and doing all the normal things to find the right character, enable strong demand that we have in some key sites. But I wouldn't say it's a broad group list, we're just seeing certain pockets in certain geography spots.

And you mentioned being past long wage inflation, is there any explicit cost related to the labor shortages or absenteeism that's constraining you that maybe you just repurchase supply chain constraints or is it immaterial at this point?

Right now, the labor constraints are probably just impeding our ability to get product out the door in a certain time frame. But we have other tools in mind in terms of overtime or shift patterns or things like that to compensate for that. So I wouldn't view it as a major barrier in terms of fulfilling demand. I'd say right now, the major barrier is really around material. If we have the material, we could typically get the product out the door. And we've been combating the labor shortage with -- it sounds -- I wouldn't call it a top-tier issue. I would call it a second-tier issue right now.

Okay. And then last question for me. The SG&A in the quarter was lower than what we anticipated. Could you speak to -- I know you spoke to margins on a percentage basis, but how do we think about like SG&A dollars in Q4 and then also through 2022?

Hey, Paul. I'd say, in Q4 we saw a little bit of a reduction in some variable spent items that turned out to be favorable for us. And as you go into 2022, largely we're looking to maintain our SG&A dollars and to see leverage benefits of the top-line growth. That being said, there are two things I would call out that will add to the SG&A dollars. The first one of course, is the PCI integration. PCIs, SG&A is going to be somewhere around $1million dollars a month. So, look for the $12 million sort of be added going into 2022. The second one is that we would anticipate that as we move towards the back end of the year that travel has been picking from a management team perspective. We're in 14 countries, we traveled to those locations frequently. And so we will expect to see a little bit more SG&A spend in that area, 2022 compared to 2021. But largely, we are expecting at the top-line growth that we will continue to see cost productivity. And we're aiming to be very disciplined on our SG&A spend outside of those items to drive good level to productivity to offset inflation.

Thanks for taking my questions and congratulations on the quarter.

Thanks Paul.

Thank you.

We have no further questions. I would like to turn the call back over to Rob Mionis for closing remarks.

Thank you, Julianne. I'm pleased with our performance in the fourth quarter and our full-year 2021 results. We continue to execute well through are difficult supply chain environment. And we've completed our transformation are now focused on continued growth and earnings expansion. As we head into 2022 with strong tailwinds and continued conviction, that we are on the right path, I'd like to thank our global team for a strong '21. I also like to thank all of you for joining today's call. I look forward to updating you as we progress throughout the year. Stay safe and best to you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.