Celestica Inc. (NYSE:CLS) Q1 2026 Earnings Call Transcript

Celestica Inc. (NYSE:CLS) Q1 2026 Earnings Call Transcript April 28, 2026

Operator: Hello, everyone. Thank you for joining us, and welcome to the Celestica Q1 2026 Financial Results and Conference Call. [Operator Instructions] I will now hand the conference over to Matthew Pallotta, Head of Investor Relations. Matthew, please go ahead.

Matthew Pallotta: Good morning, and thank you for joining us on Celestica’s Q1 2026 Financial Results Conference Call. On the call today, we have Rob Mionis, President and Chief Executive Officer; and Mandeep Chawla, Chief Financial Officer. Please note that during the course of this call, we will make forward-looking statements, including statements relating to the future performance of Celestica, our business outlook, guidance for the second quarter of 2026, our 2026 annual outlook and anticipated trends in our industry and their anticipated impact on our business. These are based on management’s current expectations, forecasts and assumptions as of April 27. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from our expected stations and their potential impact as well as the Investor Relations section on our website.

We undertake no obligation to update these forward-looking statements unless expressly required to do so by law. In addition, during this call, we will refer to various non-GAAP financial measures. We have included in our earnings release found in the Investor Relations section of our website. a discussion of those non-GAAP financial measures and a reconciliation to the most comparable GAAP measures. Unless otherwise specified, all references to dollars on this call are to U.S. dollars all per share information is based on diluted shares outstanding and all references to comparative figures are a year-over-year comparison. Let me now turn the call over to Rob.

Robert Mionis: Thank you, Matt, and good morning, everyone, and thank you for joining us on today’s call. We kicked off the year with solid results in the first quarter as revenue surpassed $4 billion with adjusted operating margin of 8%, a new high for Celestica. This performance drove adjusted EPS of $2.16 for the quarter, which exceeded the high end of our guidance range. Our awarded backlog and the opportunity pipeline with both existing and new customers are the strongest they have ever been during my tenure as CEO. We continue to see exceptionally strong and accelerating demand from our hyperscaler customer base complemented by a steadily strengthening outlook in our ATS segment. This momentum underpins our expectation for sustained growth in both revenue and adjusted EPS throughout 2026, while our outlook for 2027 has strengthened compared to just 90 days ago.

I’ll discuss our latest 2026 outlook in a moment, but first, I’ll hand it over to Mandeep to walk through the Q1 details and our Q2 guidance. Mandeep, over to you.

Mandeep Chawla: Thank you, Rob, and good morning, everyone. Revenue in the first quarter was $4.05 billion, up 53%, just above the midpoint of our guidance range, driven by very strong demand in our CCS segment. Our non-GAAP operating margin was 8.0%, up 90 basis points, driven by solid margin improvement in both of our segments. Our adjusted earnings per share was $2.16 in the first quarter, exceeding the high end of our guidance range and an increase of $0.96 or 80%. Moving on to some additional metrics. Adjusted gross margin was 11.3%, up 30 basis points driven by improved mix and strong productivity. Our adjusted effective tax rate for the quarter was 19%. And finally, strong profitability and disciplined working capital management led to an adjusted ROIC of approximately 50%, up more than 18 percentage points versus the prior year.

Moving on to our segment performance. Revenue in our ATS segment for the quarter was $806 million, flat year-over-year and higher than our guidance of a low single-digit percentage decline. The performance was driven by higher revenue in HealthTech offset by tougher comps due to previously communicated portfolio reshaping in our A&D business and softness in capital equipment. Our ATS segment accounted for 20% of total company revenue in the first quarter. Revenue in our CCS segment was $3.24 billion, up 76%, driven by very strong growth in both our communications and enterprise end markets. The CCS segment accounted for 80% of total company revenue in the first quarter. Revenue in our communications end market increased by 69%, better than our outlook of low 60s percentage growth primarily driven by strong demand and ramping programs for our 800G networking switches across our largest hyperscaler customers.

Our enterprise end market revenue was higher by 101% and driven by the planned ramping of a next-generation AI ML compute program with the hyperscaler customer. This result was modestly lower than our outlook of 100 high-teens percentage increase as the timing of the planned ramp was partially gated by select component constraints. Our HPS business generated revenue of $1.7 billion, representing growth of 63% and accounted for 42% of total company revenue. The growth was driven by ramping 800G switch programs with multiple hyperscaler customers. Moving on to segment margins. ATS segment margin was 6.0%, up 100 basis points, driven by improved mix and higher profitability as a result of our portfolio optimization activities. CCS segment margin in the first quarter was 8.6%, an improvement of 60 basis points, driven by strong mix and operating leverage from higher volumes.

During the first quarter, we had three customers that each accounted for at least 10% of total revenue, representing 35%, 15% and 15% of revenue, respectively. Moving on to working capital. At the end of the first quarter, our inventory balance was $2.67 billion, a sequential increase of $485 million and higher by $885 million compared to the prior year as we support significant growth in our CCS segment. Cash cycle days during the first quarter were 55, representing an improvement of 14 days versus the prior year and 6 days better sequentially. Turning to cash flows. We generated $138 million of free cash flow in the first quarter. Our capital expenditures were $230 million or 5.7% of revenue, an increase of $135 million sequentially and $193 million versus the prior year.

Consistent with our prior communication, our full year 2026 capital expenditure guidance remains unchanged at approximately $1 billion to enable significant growth in our CCS segment. This investment is supported by awarded programs and our increased level of visibility to a multiyear capacity alignment with our key customers. At the end of the quarter, our cash balance was $378 million, while our gross debt was $719 million, resulting in a net debt position of $341 million. We had no draw outstanding on our revolver at the end of the quarter. Our gross debt to non-GAAP trailing 12-month adjusted EBITDA leverage ratio was 0.6 turns an improvement of 0.1 turn sequentially and 0.5 turns versus the prior year period. As of March 31, we were in compliance with all financial covenants under our credit agreement.

Subsequent to the end of the quarter, we amended our credit facility, increasing our revolver by $1 billion to $1.75 billion. In addition, we received more favorable terms regarding certain covenants and interest rates and the maturities of both the Term Loan A and revolver were extended to 2031. The upsize revolver on the amended facility, along with our cash balance, provides us with more than $2 billion of available liquidity and which we believe is sufficient to meet our current operating needs. During the quarter, we repurchased approximately 73,000 shares for cancellation under our normal course issuer bid at a cost of $20 million. We continue to be opportunistic with respect to share repurchases. Now moving on to our guidance for the second quarter of 2026.

Second quarter revenue is projected to be between $4.15 billion and $4.45 billion, representing growth of 49% at the midpoint. Adjusted earnings per share are anticipated to be between $2.14 and $2.34, representing an increase of $0.85 at the midpoint or 61% growth compared to the prior year. Assuming the achievement of the midpoint of our revenue and adjusted EPS guidance ranges, our non-GAAP operating margin is expected to be 8.0%, which would represent an increase of 60 basis points. We anticipate our adjusted effective tax rate for the second quarter to be approximately 21%. Finally, let’s review our revenue outlook for each of our end markets. In our ATS segment, we anticipate revenue to be up in the mid-single-digit percentage range, fueled by program ramps across our HealthTech and industrial businesses alongside strengthening market demand driving a return to growth in our capital equipment business.

In our CCS segment, we expect revenue in our communications end market to grow by approximately 50% and driven by ongoing hyperscale ramps in multiple 800G programs, complemented by continued strength in 400G programs. In our enterprise end market, we expect growth of approximately 130%, supported by the continued ramp in an AI ML compute program with a hyperscaler customer as well as ramping volumes in storage. With that, I will now turn the call back over to Rob to provide an update on our 2026 annual financial outlook and additional color on the latest developments in our business.

Robert Mionis: Thank you, Mandeep. Driven by the continued strengthening of our demand pipeline and enhanced visibility as we progress through the year, we are raising our full year 2026 annual financial outlook. We are raising our revenue outlook from $17 billion to $19 billion, representing very strong growth of 53%. This latest outlook reflects accelerating demand in the second half of 2026, fueled by production ramps for awarded programs. We are also raising our outlook for adjusted EPS and from $8.75 to $10.15, which, if achieved, would represent growth of 68%. Included in our forecast is an adjusted operating margin outlook of 8.1% higher than our previous outlook of 7.8%. Finally, we are reaffirming our free cash flow outlook of $500 million which fully incorporates our $1 billion in planned capital investments in 2026.

This outlook represents our high confidence view for 2026 and while the supply environment remains highly dynamic, our outlook is informed by a measured assessment of component availability. Building on my earlier remarks, our longer-term customer demand outlook has continued to solidify over the past 90 days, bolstered by additional new program wins and enhanced forecast visibility. We expect to grow revenue by over $6.5 billion in 2026 based on our latest outlook. And now we expect to grow revenue significantly more than this in 2027. As the year progresses, and our visibility continues to improve. We will continue to update our outlook. Now moving on to our businesses and beginning with our CCS segment. Based on our latest 2026 annual outlook, we now anticipate approximately 70% revenue growth in our CCS segment.

Even as demand across our customer base remains exceptionally strong and continues to accelerate the unprecedented growth throughout the data center ecosystem has created a tighter supplier environment, effectively pacing our growth. As we navigate extended lead times and supply chain constraints for certain advanced components, we view our overall demand as durable and cumulative, underpinning our sustained growth runway as supply and capacity aligned through the second half of 2026 and into 2027. Moving on to our end markets. In communications, accelerating volumes from the ramping of multiple 800G Ethernet switch programs are driving very strong and sustained growth. In addition, we are expecting to begin mass production on 1.6T switch programs with two hyperscaler customers, which will contribute to additional growth in the second half of the year.

During the quarter, we also secured two important new program wins, further bolstering our networking demand pipeline into 2027 and 2028. First, we announced in March, we are collaborating with AMD on the design and manufacturing of a scale-up networking switch for the Helios rack scale AI architecture. This collaboration leverages our leading-edge Ethernet networking expertise to support deployments of the Helios platform. Development is in progress, and we expect initial units to be available by year-end. Additionally, we have secured a landmark program award for the design and manufacturing of a 1.6T, co-packaged optics Ethernet switch with a hyperscaler customer. This win serves as a critical validation of our ability to execute complex next-generation networking designs at scale.

We expect mass production to commence in 2027. Within our enterprise end market, the growth outlook remains very strong into 2027. As anticipated, volumes for our next-generation AI ML compute program with a hyperscaler customer continue to scale through 2026. We continue to expect a strong momentum to sustain in 2027, supported by the launch of mass production for our digital native rack scale program as well as higher demand from our hyperscaler programs driven by ramps in next-generation platforms. Moving on to our ATS segment. We are increasing our full year revenue outlook which now calls for mid- to high single-digit percentage growth. The strengthening growth outlook relative to prior quarters is bolstered by a reacceleration of customer demand in our capital equipment business, as the market forecast for wafer fab equipment spending is strengthening in the second half of 2026 and into 2027.

We also continue to expect solid growth in both our Industrial and HealthTech businesses. supported by new program ramps. We are also very encouraged by the strengthening margin profile of our ATS segment portfolio as we see the benefits of our strategic portfolio reshaping activities. We expect that these dynamics, along with improving operating leverage will continue to lead to stronger segment margins as we progress throughout the year. The fundamentals and visibility supporting our long-term demand outlook through 2026 and into next year are stronger than ever. The intensifying need for leading-edge AI compute and networking infrastructure is driving an unprecedented level of customer demand. Today, as we scale our global operations to meet this accelerating demand, our primary focus remains on execution.

We are confident that we are incredibly well positioned to execute and deliver on the growth opportunity in front of us. With that, I will now turn the call back over to the operator to begin with the Q&A.

Q&A Session

Operator: [Operator Instructions] Your first question comes from the line of Samik Chatterjee with JPMorgan.

Samik Chatterjee: Maybe for the first question, you did mention the next-generation programs that you have with your enterprise customer on AI ML compute programs and there’s been a lot of discussion around share. So maybe if you can just dive a bit into what you’re seeing relative to your market share with your customer on that front, particularly on these next-generation program. And what level of visibility are they providing you, particularly as the demand sort of increases on that front? Are they looking for additional vendors or suppliers to help them with that ramp? And I have a follow-up.

Robert Mionis: Samik, yes, based on the long lead times that there is for silicon these days, the visibility that we have into next-generation programs is quite long. And we are supporting that customer on all the future generation programs, ones in production now and [ Savola ] in the pipeline to start ramping in subsequent periods. We haven’t seen a significant change in market share shifts or things along those lines, and we continue to execute well. In the first quarter, by the way, it met that you asked, we did have a little bit of a component issue relative to our AI ML compute issue. It wasn’t a demand issue. It was actually a material supply issue. That has been resolved and will be catching up in subsequent quarters and the program remains on track.

Samik Chatterjee: Got it. Got it. Interesting. And maybe for my follow-up, the announcement of the win around the CPO Ethernet switch. Just trying to get a bit more visibility in terms of what it means in terms of your content related to maybe a sort of a typical 1.6T switch, what does the content for Celestica look like? And what would be the margin profile? And what are you seeing in terms of engagement beyond this one hyperscaler that you won in terms of CPO ethernet switches?

Robert Mionis: Yes. Good question. So this is not just another switch award. We actually believe it’s the first major production scale deployment of co-packaged optics using Broadcom Tomahawk [ 6 Davidson ] module and designing that directly into our system. And winning this award validates our multiyear investment in developing this capability ahead of the market. We talked about that in the last call. . The transition to 1.6 requires managing unprecedented dermal and signal integrity challenges. And the fact that we’re able to do this further demonstrate that we’ve actually moved up the value chain and we are now a sophisticated codesign partner for the most advanced hyperscalers. It also sets us up well for the 3.2 adoption where we think this will kick in. So we think, at this stage, the game, we’re a market leader in terms of margin profile, because of the high value add, this will be on the higher end of what we typically do.

Samik Chatterjee: And are you seeing more hyperscalers interested beyond this one hyperscaler that you won?

Robert Mionis: I think each of the hyperscalers will have their own adoption for CPO. Some are choosing to do CPX before CPO. But at the end of the day, we’ll think the major adoption will be at the 3.2, that T note.

Operator: [Operator Instructions] Your next question comes from the line of Michael Ng with Goldman Sachs.

Michael Ng: You talked about the CCS revenue growth of 70% for 2026 and the 2027 outlook getting better relative to the last 90 days. I was wondering if you could talk a little bit about your 2027 CCS revenue growth expectations relative to where you guided us last time? And any way to size or help think about the order contributions from some of the key programs that you mentioned between scale [ Helio ], CPO and digital native.

Mandeep Chawla: Yes. Mike, it’s Mandeep here. Yes, thanks for the question. Look, we’re very pleased with the accelerated growth that we’re seeing across the business. And we have no indications right now that it’s slowing down. When we’re looking at that we shared. We’re growing by about $6.5 billion this year, and we think we’re going to grow significantly more than that, which means the floor would be somewhere around [ 25.5 ], but we do see revenue higher than that. And that’s on programs that we’ve won. As you know, we’re seeing really great networking dynamics this year. 400G continues to be strong. 800G is accelerating materially and we’re ramping — we’re seeing some contribution towards the back end of the year from the 1.6T programs.

When you start looking at 2027, 800G demand continues to be strong. 1.6T now ramping across the programs that we’ve already started plus additional programs that will be coming online. And then we have the very large program, the rack scale system that we’re doing for the digital native customer. And then in addition to that, as Rob talked about, on the AI ML compute programs, we’re continuing to see strong growth, including next-generation programs. And I could go on with other things as well. But with the programs that we’ve won with the material that we are in line to secure with the capacity that is coming online, we have strong confidence in 2027, and we’ll give more specificity around the number as we go through the year.

Operator: Your next question comes from the line of Tim Long with Barclays.

Timothy Long: Yes, I was hoping you could talk a little bit about the HPS business off to a pretty good start, about $7 billion in the quarter. I’m curious if you can talk about kind of the progression of the [ HPS ] business. I know that’s been part of the CapEx increased investment is more [ HPS ] as well. and particularly into next year, I think some of the — I think all three of these large programs the digital native AMD and CPO should be HPS as well. So if you could just give us a little color on how you see the glide path for that piece of business and the mix .

Mandeep Chawla: Great. Tim. Look, the HPS business and specifically, the design work that we’re doing with our customers is really underpinning the majority of the growth that we’re seeing, a significant portion of it. You’ve already mentioned a few of them. We’re seeing very good traction on the switching side, the CPO program that Rob just talked about is an HPS program. 1.6T programs are predominantly HPS as well as our [ 800G ] and 400G programs. And so we have a very strong competitive position when it comes to networking. As we grow this digital native program into next year, it really starts to extend ourselves into compute as well. And all of this is underpinned by investments that we’re making. You’ll notice that our R&D spend is up materially, and it’s where we want it to be.

We have about 1,350 design engineers right now that’s much higher than we had this time last year. And by the time we end this year, we’re going to have even more. And the benefit of that is that they’re working on not this year’s program, so they’re really working on programs for next year and the year after. And so because of the programs that we’ve been winning in the pipeline that we have, we’re very comfortable making the investments that we are in R&D, which is specifically HPS.

Operator: Your next question comes from the line of Karl Ackerman with BNP Paribas.

Karl Ackerman: Two questions for me please. First, as you think about the drivers for upwardly-revised outlook for 2026 and 2027, I was hoping you could bucket the relative growth drivers between some of the new switch programs versus the AI servers. And how that might influence your margin trajectory throughout the balance of ’26 and ’27.

Mandeep Chawla: Karl, I’ll get started and Rob can feel free to add on for anything that I may miss. Look, as we look into 2027, what we are seeing right now is very strong growth coming in particular from CCS, although ATS will also be growing. I’ll just quickly touch on ATS because often we missed it on the call. It’s a very nice performance that’s underway right now in ATS, which is a return to growth and strong margins, and that’s really being underpinned by capital equipment. Capital equipment, we believe now is turning into a very nice cycle where there is a very strong order book from our major customers, and that will take us through this year and next year. So ATS will be contributing to the growth, but the growth is overwhelmingly been driven by CCS.

And it is being driven by both communications and enterprise. We’re not going to put the details yet. Again, more to come. But yes, just to talk about the specifics a little more. On the enterprise side, we are growing a new storage program that we’ve just launched and is in ramp. We have the AI ML compute program that is going strong through this year and then the next-generation program, two programs to be specific, are going to be ramping in ’27. And then on the networking side, as we talked about, we have a couple of 1.6T programs that are coming online towards the end of this year, and then we have a lot more that are coming online next year. And then we never want to look excited this digital native win, which is a completely integrated RAC system, which has compute and networking in it, highly complex, not easy to do.

at scale, and that will be entering production next year as well. And so those are really driving the growth across CCS.

Robert Mionis: And I would just add, Karl, that in terms of 1.6T we have 10 active programs. They’ll be ramping heavily in 2027. On top of that, 800G remains strong. And as Mandeep mentioned, we have the digital native. We have the [ Helios ] lots of new programs. and also our AML compute program that has very strong end customer demand for those programs that will end up ramping very nicely into 2027 as well. So overall, a very strong demand environment in 2027.

Operator: [Operator Instructions] Your next question comes from the line of Mehdi Hosseini with Susquehanna Financial Group.

Mehdi Hosseini: One follow-up on [indiscernible] project. To what extent — actually, can you size the opportunities associated with [ Helios ] over the next 18 months? And to what extent some of those opportunities are now embedded into your kind of year 2026 revenue target?

Robert Mionis: Yes. With respect to [ Helios ], the program is in development right now, and we’ll be shipping samples this year. We view the overall market as a multibillion-dollar market. And as we get into next year, I think revenue will probably be based more by silicon availability than by end market demand. At this stage of the game, things are on track with the development and it has a lot of market interest .

Operator: Your next question comes from the line of David Vogt with UBS. Please go ahead.

David Vogt: So just maybe, Mandeep, have a question regarding the revenue ramp versus the trade-off on gross margin. So obviously, TPU sounds like it was capacity constrained this quarter, and that’s going to ramp stronger as we go into Q2 and the second half of this year, and it certainly sounds like strength in calendar ’27. How should we think about the gross margin progression of the business, particularly with TPU ramping? And also the — what sounds like a really strong start to the D&C relationship potentially in the second half of this year into next year?

Mandeep Chawla: Yes, David. Look, we’re pleased that we saw gross margin expansion in the quarter on a year-over-year basis. We think that the gross margin dynamics that we’re seeing are a play in a similar way. there are going to be mix impacts along the way. But we definitely are looking to maintain, if not grow our gross margins as we go forward. Two things I’ll talk about. The first one is that longer term, there are some headwinds on the gross margin side, and it really has nothing to do with pricing because we’re not — we have capacity is at a premium. Our execution is a real differentiator. And so we have choice on where we apply our focus. And so we’re not giving up price in the marketplace. But the reality is, is that there’s some input costs that are going up materially, whether it be memory or whether it be silicon.

And so those are some headwinds that we’re working through on the gross market side. But more specifically, what I’ll talk about is the operating profit we’re seeing very nice operating leverage right now in the company, and we think that there’s more opportunity in front of us as well. We’re pleased to be able to raise the full year to 8.1%. That’s up from the [ 7, 8 ] that we had just 90 days ago. It’s a reflection of mix, but it’s a reflection of operating leverage because we’ve been very disciplined on the operating expenditure side. And although we are very pleased to make investments along the way to fund growth. And so as you look into 2027, there will continue to be an opportunity on, I would say, operating leverage, and we are very focused on ultimately translating that to EPS growth.

We are a management team that is very focused on long-term sustainable growth in EPS. And so the levers that are being pulled are driving that outcome.

Operator: Your next question comes from the line of George Notter with Wolfe Research. Your line is open.

George Notter: I guess I wanted to come back to the CPO when the [indiscernible] announced here, is that an existing customer for networking infrastructure? Or is that a brand new customer? And then also, I’m wondering if it’s an existing customer, is it likely that, that cannibalizes an existing revenue run rate for you? And then anything you could say about the potential size of that deal would be great. And then also, you said 2027 would be the ramp. Is it any more specifics there? Is it early ’27? Is it late ’27? Any help would be great.

Robert Mionis: George, yes, it’s an existing customer. We have multiple 1.6T that’s going up. And with respect to timing, this will be second half of 2027.

Operator: Your next question comes from the line of John Shao with TD Cowen.

John Shao: So regarding Google’s new border fly architecture for TPU [ VA ], could you maybe talk about implication to your business? Do you see an ongoing trend towards more complex data center interconnect. And as a result, you’re going to be there to benefit as ODM.

Robert Mionis: Yes. As the architecture becomes more critical and as our hyperscale customers continue to innovate, what’s becoming more and more evident is that systems levels, manufacturing, design is becoming more and more important for these customers, especially in liquid cooling, advanced rack scale infrastructure, thermal management, so these customers are looking for us to continue to innovate with them and design with them on multiple nodes moving forward. So we’re pleased to be able to continue to support them as they continue to innovate and advance their architecture through all the versions that you mentioned.

Operator: Your next question comes from the line of Ruben Roy with Stifel.

Ruben Roy: Rob, I wanted to come back to the supply commentary. You characterized the environment is highly dynamic, and it sounded like there was a specific issue around AI ML in Q1. So I’m just wondering if you could maybe expand on how you’re thinking about supply relative to the guidance and the demand dynamic as you think about both Q2 and the second half of the year, are there caps on sort of what you’re able to see is a broader base than the AI ML program that you talked about for Q1. Any detail on that would be helpful.

Robert Mionis: Good question. We are experiencing more component shortages now than 90 days ago, two main factors. One is the demand really continues to grow. — as a result of the suppliers are a little bit behind on adding capacity. The good news is that all of our key suppliers are currently in the works of adding capacity, and we expect the situation to improve the constrained commodities right now on allocation are custom silicon and memory. That’s probably not a news flash view. We are seeing challenges in and PCBs, the 40-plus layer ones, power components, optical components. The positive news is that we have commitment from all our applies to secure the outlook that we just gave. So we think the outlook that we just gave factors always in, we think it’s prudent, we think it’s conservative.

And that’s why we marked it as high confidence. We have capacity in ’26 coming online ourselves also in 2027. So if things continue to improve in the back half of the year. We’ll have the opportunity to get it out the door and also into next year. But we think we factored it all in, but it is more constrained now than it was 90 days ago. and the lead times are extending. And one last positive thing is, with the extent of lead times, we are getting unprecedented visibility from our customers and item demand. So that’s actually a very positive thing for us as we do long-term planning.

Operator: Your next question comes from the line of Ruplu Bhattacharya with Bank of America.

Ruplu Bhattacharya: Rob Mandeep, you’re projecting strong growth for next year. I think you said significantly more than $6.5 billion year-over-year in fiscal ’27. How should we think about free cash flow in that context? Looks like you did not take up the free cash flow guide for fiscal ’26. What are some of the puts and takes impacting free cash flow for fiscal ’26 and ’27, and how should we think about the working capital as you see this strong growth? And just another clarification, I think, Rob, the AMD opportunity as the scale-up opportunity, but as the one you announced in the press release that the switch CPO switch is a scale-out opportunity, can you help us size how much of that $6.5 billion plus growth next year is from scale up and scale out and which is a longer-term opportunity.

Mandeep Chawla: Ruplu, I love you because you find a way to find two questions in one. That experience talking there. . Planning to let Rob talk about some of the program specifics that you brought up. So Look, we’re very happy that we were able to raise the revenue outlook for 2026 by $2 billion and yet maintain our free cash flow outlook of $500 million. And then just as a reminder, that’s including funding $1 million of CapEx. The balance sheet is incredibly strong. But we are — we believe we are very disciplined when it comes to capital allocation we’ll assess our needs as we go through — as we get closer to ’27 and as the forecast starts to solidify. But I’ll say just a few things. Again, the balance sheet is very, very strong.

We have ample capacity to target to use it as we need to. We’re very comfortable investing to support customer growth. But one thing you’ll know is that we will always remain very disciplined. And so we are a free cash flow focused management team. But at the same time, the growth is really unprecedented right now. And so if that requires additional funding, we have no hesitation to do that.

Robert Mionis: And regarding scale up versus scale out, correct, the CPO win is scale out and the heliostat or a scale-up opportunity. We are have been very strong on scale-out as you noted. So we view scale up as a huge opportunity. But frankly, we’re supporting both very strongly in our system-level architectures.

Operator: Your next question comes from the line of Robert Young with Canaccord Genuity.

Robert Young: Back to the component constraints. I think if we look back to the supply constraints of the pandemic, [indiscernible] took a lot of share because of its execution, its relationships. And so I’m curious if you’d see the current issues as strengthening your hand competitively? And then I was wondering if you could talk about relative impact on compute and networking or if it’s relatively a similar supply chain impact?

Robert Mionis: Yes. One of our key strengths is execution. So once we get the parts and securing the parts, wherever it happens to be in the quarter, we’re able to execute that at scale very quickly. So in the land of a very dynamic supply constraints, we do advance planning very well. And typically, we gained share through that environment because we find that peers or competitors have a hard time executing through turbulent times. So that is an opportunity. We haven’t necessarily seen that as yet as a result of the supply chain constraints. But frankly, the constraints are just starting the thick of things right now, I think it will get better or at least more dynamic as the year gets long. And with respect to compute versus networking, so on the networking side, it’s not very memory-centric.

So there the constraints are really around PCBs or silicon, but we think we have a good handle on that. On compute. It’s all about memory, but our customers have very strong presence with the main memory suppliers, and we have secured at least in the near term, what we think we need to do to support our customers.

Operator: Your next question comes from the line of Thanos Moschopoulos with BMO Capital Markets. Please go ahead. [Operator Instructions] Your next question comes from the line of Paul Treiber with RBC Capital Markets. Please go ahead.

Paul Treiber: Just you mentioned unprecedented visibility, long-term visibility? And then also you mentioned in the slide deck capacity alignment with customers. Can you elaborate on both of those? And specifically, what’s fundamentally changed to give you far better long-term visibility in the past? And is there anything contractual that gives you better visibility than you may have had in the past?

Robert Mionis: Yes. I would say a quarter or so ago, our key customers, the main hyperscalers had very, very strong demand. They loaded in the system just to try to figure out where the constraints would be. At this stage of the game, I think the entire supply chain knows where the constraints will be and we’ve aligned our physical capacity with our supply chain capacity with our CapEx plans. And that’s the current state that we’re in. And because the lead times are very long, specifically custom silicon lead times are so long, we’ve not just done this for ’26 or ’27. We’re actually dipping into 2028 and actually booking awards right now that ship into 2028. So the unprecedented visibility is really just making sure that we’re on in long-term material supply with long-term capacity agreements.

And a lot of the orders that we’re placing supported by our customers are NCNR. So there are contractual terms protecting us through ups and downs. So we feel very comfortable in our long-term growth trajectory at this stage of the game. It’s all about execution, and that’s what we do very well.

Operator: Thank you for your question. Your next question comes from the line of Todd Coupland with CIBC.

Thomas Ingham: Thanks, and good morning, everyone. So I wanted to ask about the switch ramps in the second half of the year. I’m wondering if they are coming in as expected or have some of them been pushed into 2027, which gives you the higher confidence in that year. Can you just talk about the dynamics between ’26 and ’27?

Robert Mionis: I would say the switch ramps that are coming in the back half of the year are going as planned. In the back half of the year, we have two customers ramping 1.6T and several more coming online in 2027. We’ve secured the silicon that is required to complete the development processes. And we also have commitments to support the ramps and 800G remains very strong throughout the year. So things are going as planned on the networking side.

Operator: Thank you for your question. Your next question comes from the line of Michael Ng with Goldman Sachs.

Michael Ng: I was just wondering if you could give us some updated thoughts on capital intensity and the outlook for CapEx beyond this year. Obviously, you’ve got a lot of new program awards and some new wins. Should we expect CapEx to ramp up beyond that $1 billion that you laid out for this year in 2027. How are you thinking about additional capacity that you need to put in to support these new wins?

Mandeep Chawla: Mike, it’s Mandeep here. So $1 billion of CapEx this year, as you’re aware, we will be doing that or more next year. And I think the way to think about it right now would be I’m just going to give you a rough number of $1.5 billion as a placeholder for now. And we’re very comfortable with that. The way that — to build on the comments that Rob had shared just recently, we’re having very long-term conversations with our customers, A, as it relates to supply because we need to get in line on their behalf and lead times have extended in some cases, beyond a year for certain types of materials, but then really around capacity. And the majority of our capacity investments right now are in Southeast Asia, Thailand specifically and in the United States, and I would say, Texas specifically.

And we have a number that are going to come online this year. We have some that are coming online next year. And then there’s other ones that we’re evaluating still. But that’s the support growth in 2028 and 2029. And so when we make our capacity decision, it’s tied to a business case. The side to program level specifics. It’s tied to programs that we are winning or we intend to win by the time we make that decision to go forward with the CapEx. And if the business cases are strong, strong ROI strong paybacks. And so when you when we continue to have business cases like that brought forward, we don’t hesitate to invest. And so right now, I would say we will see an elevated level of CapEx spend into 2027. And we’ll take 1 year at a time.

Operator: [Operator Instructions] Your next question comes from the line of Thanos Moschopoulos with BMO Capital Markets.

Thanos Moschopoulos: Sorry about that earlier. With respect to your large digital native customer, is that still on track to ramp in early 2027? Or has there been any change in the coming today?

Robert Mionis: Yes, that’s still on track where sample systems this year and production should start in the first quarter — late in the first quarter next year, that is on track. We’ve been having very close meetings with all of our key suppliers at to make sure we’ve secured the material across the supply chain and things look very positive at this stage of the game.

Operator: Thank you for your question. There are no further questions at this time. I will now turn the call back to Rob Mionis for closing remarks.

Robert Mionis: Thank you all. Thank you for your support and for joining us this quarter. We have great momentum across our business, and we look forward to updating you on our progress next quarter. Have a great day.

Operator: This concludes today’s call. Thank you for attending. You may now disconnect.