Celestica Inc (CLS) 2012 Q1 法說會逐字稿

Good morning.

My name is Melissa and I will be your Conference Operator today.

At this time I would like to welcome everyone to Celestica's 2012 first-quarter earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks there will be a question-and-answer session.

(Operator Instructions).

Thank you.

Mr.

Manny Panesar, Director of Investor Relations, you may begin your conference.

Thank you, Melissa.

Good morning, everyone.

And thank you for joining us for Celestica's first-quarter 2012 earnings conference call.

On the call today are Craig Muhlhauser, President and Chief Executive Officer, and Paul Nicoletti, Executive Vice President and Chief Financial Officer.

This conference call will last approximately 45 minutes.

Paul and Craig will provide some brief comments on the quarter and then we will open the call for Q&A.

During the Q&A session please limit yourself to one question and one follow-up.

Copies of the supporting slides accompanying this webcast can be viewed at Celestica.com.

Before we begin, I would like to remind everyone that during this call we make forward-looking statements related to our future growth, trends in our industry, our financial and operational results and performance.

And financial targets that are based on current expectations, forecasts and assumptions that involve risks and uncertainties that could cause actually outcomes and results to differ materially.

We refer you to our cautionary statements regarding forward-looking information in the Company's various public filings, including the Safe Harbour statement in today's press release.

We refer you to the assumptions, risk factors and uncertainties discussed in the Company's various public filings which contain identified factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements.

These filings include our Form 20-F and subsequent reports on Form 6-K filed with the Securities and Exchange Commission which can be accessed at be accessed at SEDAR.com and SEC.gov.

During this call we will refer to certain non-IFRS financial measures which include adjusted gross margin, adjusted SG&A, adjusted operating margin, or EBIAT, adjusted EPS, ROIC and free cash flow.

These non-IFRS measures do not have any standardized meaning under IFRS, and are not necessarily comparable with other non-GAAP financial measures presented by other companies, including our major North American competitors.

We refer you to our press release which is available at Celestica.com for more information about these non-IFRS measures, including a reconciliation of the non-IFRS measures to the corresponding IFRS measures, as appropriate.

I will now turn the call over to Paul Nicoletti.

Thank you, Manny, and good morning, everyone.

As many of you know, we are holding our annual general meeting at 9 AM Eastern Daylight Time this morning.

We will keep our formal remarks brief on this call to allow enough time for questions and conclude the call at 8.45 AM.

I will summarize the first-quarter results and will then turn the call over to Craig to provide his comments before we open up the call to questions.

Celestica delivered a solid first quarter, with strong operational and cash performance despite an overall muted demand environment.

First-quarter revenue was slightly below $1.7 billion and came in at the high end of our guidance range.

First-quarter revenue declined 4% sequentially, while on a year-over-year basis revenue was down to 6%, mainly due to weaker demand across a number of customers.

Some further highlights for the quarter.

IFRS net earnings of $43.2 million increased 44% year-over-year.

Adjusted earnings per share of $0.25 came in slightly higher than our guidance range.

Non-IFRS operating margin of 3.4% was up 10 basis points from the same period a year earlier.

ROIC continued to be strong at 23.7%.

We generated $44 million of free cash flow for the quarter.

And we repurchased and canceled 6 million shares as part of our share repurchase program.

From an end market perspective our diversified end market grew 3% sequentially, while on a year-over-year basis this end market grew 58%.

With approximately 50% of the growth contributed from our acquisition in 2011.

The diversified end market now represents 19% of our total revenue, up from 11% in the first quarter of 2011.

Our consumer end market, which represents 23% of revenue, declined 12% sequentially, as we expected.

And was down 14% year-over-year primarily due to demand weakness and program transitions at one of our largest customers.

As we stated in our January earnings call, we have consolidated our enterprise communications and telecommunications end markets.

The communications end market represents 33% of total revenue and was sequentially down by 5%.

On a year-over-year basis communications was down 15%, as we experienced demand declines across a number of customers.

The server end market represents 15% of total revenue for the first quarter and grew sequentially by 4%, driven by one of our major customers in this end market.

Compared to the first quarter of 2011 revenue from the server end market was down 8%.

Storage was 10% of total revenue and was slightly up sequentially.

On a year-over-year basis, storage declined 19% primarily due to demand softness across a few customers.

Our top 10 customers represented 71% of revenue for the quarter, down from 74% from the first quarter of 2011.

Our top 5 customers represented 51% of revenue, down from 54% for the same period last year.

We had one customer in the quarter with greater than 10% of revenue, with RIM representing approximately 19% of total revenue in the quarter.

The Company posted first-quarter IFRS net earnings of $43.2 million, or $0.20 per share compared to IFRS net earnings of $30 million or $0.14 per share for the same period last year.

IFRS net earnings in the first quarter were higher on a year-over-year basis, primarily due to lower SG&A expense and restructuring recoveries recorded in the quarter.

Adjusted net earnings for the quarter were $53.6 million, or $0.25 per share, compared to adjusted net earnings up $54.7 million, or $0.25 per share for the same period last year.

Our adjusted tax rate in the first quarter was 6.1%, lower than our typical 10% to 12%, due to the country composition of profits this quarter and differing tax rates by country.

Going forward we expect to be back in the 10% to 12% range.

Adjusted SG&A expense for the quarter was $52.6 million, or 3.1% of revenue, which was 8% lower than the first quarter of 2011, primarily due to lower variable compensation and overall spend, as well as bad debt recoveries.

Finally, pretax return on invested capital was 23.7%.

Moving on to working capital performance.

Our inventory position increased by $32 million from the end of the fourth quarter.

While a portion of this increase is to support revenue growth into the second quarter, we did see a fair amount of demand churn in the first quarter, which also contributed to this increase.

We expect to achieve inventory reductions and inventory turn improvements as new programs ramp in the second quarter.

As we mentioned last quarter, we negotiated cash deposits to fund higher inventory levels for one customer.

At March 31 the cash deposit was $99 million and is reflected in our cash and accounts payable balances for the quarter.

We have since repaid this deposit.

Going forward, we expect a reduction in cash deposits from this customer.

Capital expenditures for the quarter were $39 million, which is higher than our average CapEx of 1% to 1.5% of revenue.

Included in the first-quarter CapEx is the expansion of our operations in Johor, Malaysia.

Craig will provide more color on this investment during his remarks.

Cash cycle was 35 days compared to 36 days for the first quarter of 2011.

We generated free cash flow of $44 million in the first quarter, driven by continued strong collection of receivables.

Moving to the balance sheet.

The Company's financial position continues to be strong.

Cash balance at March 31 was $647 million, a decrease of $12 million from the end of the fourth quarter.

At quarter end we had no outstanding debt and our credit facility remains undrawn.

As an update to our current share repurchase program, during the first quarter we repurchased and canceled 6 million subordinate voting shares for a total cash outlay of $56 million.

At the end of March, there were 192.7 million subordinate voting shares and 18.9 million multiple voting shares outstanding.

As we continue to have a strong net cash position, I'd like to comment on our cash position, how we currently employ cash and our expectations for the uses of cash going forward.

Our cash balance of $647 million at the end of the first quarter includes $60 million of AR sales and cash from one customer of $99 million.

Normalizing for these two items, we had $488 million of cash at quarter and.

Operationally, we typically require approximately 5% of annualized revenue in cash to manage the ebbs and flows within the quarter, along with the geographic distribution of our cash.

Taking into account the amount of cash we need to run the business, along with the two items mentioned earlier, would leave approximately $130 million of excess cash based on the cash balance at the end of the first quarter.

As we have mentioned in the past, our primary objective for excess cash continues to be investments in the business to support growth in targeted areas.

You have seen this with our investments to accelerate our growth in the diversified markets and services.

At the same time you are also seeing our discipline to return excess capital through our current share repurchase program.

While the pace and size of our share repurchases will vary depending upon the opportunities we seek, we do expect this to become our main vehicle to return capital and to be a systemic way for Celestica to continuously adjust its capital structure.

Let me now turn to our second-quarter guidance.

While the majority of our end markets appear to be stable, visibility remains limited.

For the second quarter we anticipate revenue to be in the range of $1.65 billion to $1.75 billion.

While overall revenue is expected to be relatively flat on a sequential basis, we anticipate reductions of approximately 10% in consumer, offset by growth in the balance of our end markets, with the strongest growth coming from storage and servers.

For adjusted earnings per share we expect a range of $0.20 to $0.26 per share.

At the midpoint of this guidance operating margin will be approximately 3.4%.

Non-IFRS SG&A expense is expected to be in the $53 million to $56 million range.

I will now turn the call over to Craig for some comments on the current business environment and our progress on several key initiatives.

Thank you, Paul, and good morning everyone.

As Paul mentioned, I'd like to provide an update of our current market outlook and an update on several of our key initiatives.

Let me start with our consumer end markets.

And more specifically RIM.

As you know, RIM continues to be in important customer of Celestica, who we currently serve from three geographies for manufacturing services, as well as being one of their primary North American repair partners.

As recently disclosed by RIM, they are conducting an evaluation of their global supplier base, with the objective of reducing their supply chain capacity and number of manufacturing locations.

We are currently working very closely with RIM as they assess their supply chain manufacturing strategy by providing tailored solutions for what we believe would be the most effective design point.

This is a very dynamic situation with many variables for RIM and Celestica to consider.

We continue to be one of RIM's best-performing partners and are currently ramping one of their new programs globally.

However, there remains a fair degree of uncertainty on the outcome of these discussions and the impact or timing these future discussions may have on Celestica.

We continue to support RIM with the same level of intensity and focus on driving value for their customers, while assessing the appropriate trade-offs for Celestica.

Now, moving on to an update on several of our key initiatives.

Let's begin with an update on our progress in increasing the revenue mix for diversified markets.

As we have discussed previously, our target has been to expand our customer base and grow our revenues in the higher value-added diversified markets to 25% to 30% of our total revenue.

Once again this quarter we made progress towards this objective.

Despite typical seasonal demand declines, we saw sequential revenue growth in the diversified end markets as we continue to ramp new programs and experience some demand strength in certain end markets.

We are experiencing this growth, both from the ramping of new programs, as well as from a 2011 acquisition of the contract manufacturing division of Brooks Automation.

Further, we expect to see growth in all markets within our diversified segment throughout 2012.

In particular, we are beginning to see improvements in our semiconductor equipment business, which had a stronger-than-anticipated first quarter.

As Paul mentioned earlier, we have made investments in the first quarter to expand our operations in Malaysia.

We are planning to further increase our investments and strengthen Celestica's presence in Malaysia as it becomes an area of growing importance to support our global strategy, particularly in the semiconductor equipment market.

Our plans are to leverage the strong industry knowledge and customer relationships that came with the Brooks Automation acquisition, with Celestica's demonstrated leadership and experience in managing complex supply chains.

We are investing to establish a global center of excellence for the semiconductor capital equipment market, as well as for other diversified market segments that require complex electro-mechanical systems solutions.

In summary, Celestica has been consistently recognized as an industry leader in developing and delivering innovative end-to-end supply chain solutions for our customers.

As a testament to our performance and delivering breakthrough solutions for our customers, we are pleased to have been recognized as the recipient of the 2012 supply chain excellence award at Aberdeen Group's Supply Chain Summit last week in Boston.

Aberdeen's supply chain excellence awards recognize enterprises that have demonstrated process ingenuity, agility, flexibility and scalability to address evolving business requirements.

Our thought leadership in the area of supply chain is a key differentiator and a building block in many of our customer engagements.

We are winning new business with existing and new customers across a wide range of end markets, which gives us confidence that we are on the right track.

We remain confident that our dedication and focus on making our customers successful, our commitment to operational excellence, and our continued ability to generate cash will create long-term value for our customers and our shareholders.

That concludes our formal remarks.

Melissa, please open the call for questions.

(Operator Instructions) Wamsi Mohan from Bank of America Merrill Lynch.

Paul, you touched on this briefly but can you address what specifically drove this much better than seasonal outlook in servers?

It sounds from your comments that this is strength that will continue at least into the second quarter.

Could you share some more color on that, please?

Yes, good morning, Wamsi.

I think if you look at essentially a few programs and a couple of key customers we have, we're seeing a bit of recovery from what we saw in late 2011.

As you know we saw a bit of weakness in the fourth quarter and we've seen some of that come back.

That, in addition to new programs that we have been ramping, has really underpinned the growth that we're seeing.

Okay.

Thanks.

If you look at your first-half revenues, if you make the high end of your guidance for the second quarter, you will still be down about 5% year-on-year.

So given that, do you see anything in the second half that gives you confidence that you can actually grow revenues for the full year?

If not, then why invest in more capacity right now, especially given all the uncertainty that surrounds RIM and potentially having to redeploy some of the existing assets?

Thanks.

So on the first, on the overall growth in year-to-year, certainly we're seeing a lot of dynamics in the consumer side.

So, granted, if you were to look at things without the consumer side, you get a bit of a different story, vis-a -vis the overall growth of the Company.

As far as investments, clearly we are investing for the long term.

So, as Craig mentioned, we do see significant opportunity for us to establish capabilities to support the diversified markets in Malaysia.

So, to your point on redeploying capital, certainly we will do that as far as equipment is concerned.

But the investment we highlighted is really to increase the size of our presence in Malaysia and to drive revenues in 2013.

Thank you.

Amit Daryanani from RBC Capital Markets.

I just had a question on the diversified segment.

It looks like it was up 58% year-over-year.

But I think organically, if my math works out, it's up 28% year-over-year.

Which is well below the 40% to 50% growth rate you have been targeting for the year.

Do you guys still remain comfortable with that 40% to 50% growth target?

Is it more driven by new ramps that are in the pocket or an expectation to go have new wins?

Amit, it's Paul.

We still think the 40% to 50% is something that we will achieve.

Clearly there has been a contribution from the acquisition, as you mentioned.

But when we look at the pipeline of new programs that we've won and when they ramp, that's something we are still comfortable with.

All right.

Then, secondly, you guys touched on a RIM and the potential supply chain consolidation they could have.

In theory, if you were to go from three manufacturing sites to two or one with that customer, would it, A, entail a material restructuring?

B, do you think it would be you or the OEM that would be liable for that in that scenario?

Amit, I think that if we were to consolidated, it certainly depends where.

As you know, our major manufacturing support for RIM is in North America.

If things were to shift in Asia, there would be some cost.

Who would eventually pay for that is not clear.

Certainly our position would be that we would expect the customer to participate in that.

But it's really too early to say right now.

All right.

In there a sense -- in the scenario where you do move from North America to Asia, would that charge be fairly material?

Or would it be not a big number at the end of the day?

Amit, I'll underscore that we are having ongoing discussions with RIM and what is going to happen is not clear.

Having said that, if we needed to restructure and essentially get rid of all the capacity that we had, which at this point is not our plan, I think we've talked in the past that we would see a charge in the neighborhood of something around $35 million, would probably be the maximum.

Perfect.

That's helpful.

Thanks a lot guys.

Sherri Scribner from Deutsche Bank.

I just wanted to dig a bit into the communications segment.

Clearly down year-over-year.

We've heard a lot of comments from other companies about an inventory correction there.

What are you seeing from your customers, and what are you hearing from your customers more specifically about their expectations as we move through the year and for the back half?

Sherri, good morning.

In the second quarter, I think we are looking -- demand is not consistent across the customers.

So we are seeing some increased demand from some customers, and then we are experiencing some new program ramps.

But then we're seeing some soft demand from others.

So it's very spotty by customer.

Then obviously we see pressure in Europe based on the difficulties there.

So that's the broad communication situation.

It sounds like you are seeing some areas that are seeing a pickup.

Are customers forecasting to see demand improve in the second half of the year?

Again, visibility is limited.

I would say at this point it's difficult to predict the second half.

We are seeing increased demand from some of our customers going into Q2.

Then, obviously, we are seeing some new program ramps.

Okay.

Great.

Thank you.

Matt Sheerin from Stifel Nicolaus.

A question on the operating margin guidance that you gave for the June quarter.

You talked about SG&A so that implies that gross margin will be flat or down.

Is that mostly a mix in volume issue?

Do you expect gross margins to get back to that 7%-plus range that you saw last year as you get volumes ramping at the end of the year?

Matt, it's Paul.

Good morning.

I think that we will see gross margins be pretty flat from where they were in Q1, perhaps slightly up.

Really a function of the overall revenues in the Company.

So vis-a-vis where we were last year, the going rate right now is just a little bit lower, as you know.

That and, frankly, investments that we are making to support our growth into diversified and support revenue increases into 2013.

Right now I would expect gross margins, when we look forward, what we achieved in Q1 is what I would expect to be the floor looking at 2012.

And expect us to grow from there.

Obviously there is some contingency as to what would happen on the top line, and in particular back to the comments around our largest customer.

Okay.

That's helpful.

I just wanted to get back to the RIM relationship.

Craig, you talked about various scenarios in this exercise that you are going through with RIM to figure out where that relationship goes.

But it sounds like there is still some time there.

Could you give us a framework for the timeline?

Does this also imply that, if you were to go through with this and make more significant changes to your business to accommodate RIM, does that mean that you would be taking more share and that they would be basically consolidating their supply base?

Matt, good morning.

It's difficult to predict the range of options that RIM will actually consider and implement.

So I will say, given the situation, I would expect us to have more clarity as we get to the middle of the year, hopefully before then.

Obviously, as you can imagine, we are working very closely with RIM.

In general the implications to Celestica Inc, it's too early to tell.

Obviously we remain at the top of our game in terms of execution.

We're executing globally one of their new programs in three geographies, as we mentioned.

But at this point in time it's difficult to predict the outcome.

So that's why we give you the corners of the box as to what the range of possibilities.

We look forward to continue to work with RIM to resolve the situation quickly.

Okay.

Thanks a lot.

Jim Suva from Citi.

Thank you Craig and congratulations there to you and your team at Celestica Inc.

Regarding your very candid discussions around your customer, the largest one that is going through some challenges, which I think everyone appreciates you being so open with that.

When we think about that relationship they've been a strong customer for years and years for the Company.

I just find your commentary around the potential charges and you could be sharing the cost with them to be interesting.

Can you just refresh our memory about when you have such a customer for such a long time, it's common sometimes when that customer and the original relationship with the contract manufacturer expires, and restructuring costs are, for the most part, largely borne by the contract manufacturer as opposed to the OEM.

So I was a little surprised for you to mention that some of those costs would be shared by the Company as opposed to all borne for Celestica Inc.

Can you let us know, have the terms been changing where you are making them agree to things?

Typically I would think that the cost of restructuring is typically borne by the contract manufacturer.

Just update us on how that has transpired over time.

As you rightly mentioned, Jim, we have had a very long and very solid relationship with RIM.

We are passionate to work with them to help them absolutely get through their difficulties right now.

Our focus has always been on doing the best thing for RIM, as well as the best thing for Celestica Inc.

As a result of this partnership and the mutual respect we have, and I think the contributions we've made over the years to RIM, RIM is very fair with us.

Helping both of us get through this situation with the absolute certainty that we need to make sure, when we come out the other end, both of us.

That they are competitive and we are actually in a situation where we've done the right thing for our Company.

It's too early to tell the situation.

I think as a result of our relationship we have a very strong platform.

As I mentioned, we have contributed significantly to the success and the launch of their previous products.

We think that's going to be an important characteristic of the future in terms of just solid flawless launches.

As I said, we've given you the edges of the box just so you can do a fair assessment from your perspective.

But obviously our commitment right now is to work with RIM to find what's right for both parties.

Then just a quick clarification.

You had mentioned some program transitions there.

It was unclear if those are transitions to Celestica Inc, transitions away from Celestica Inc, or program transitions in new wins.

Then, finally, a quick clarification on the CapEx.

Can you give us some CapEx outlook guidance of where you see capital spending going for the year?

The program transitions largely impacting Celestica Inc are programs that, as the mix changes, programs reaching end-of-life and then new programs ramping.

So that has been the primary Celestica Inc impact.

With regard to capital spending, it will be in our normal range of somewhere between 1% and 1.5%.

Great.

Congratulations again.

Shawn Harrison from Longbow Research.

I just wanted to focus in on the OpEx the rest of the year.

You made some commentary earlier about investments.

Just wondering how we should expect both SG&A and R&D dollars to trend as we progress through the rest of 2012.

Hi, good morning, it's Paul.

I think I commented in the script that SG&A would be in a range that is pretty close to where we were this past quarter.

So no major changes there.

The R&D was a little less than $3 million in the first quarter.

I expect it to be in a similar range looking forward into second quarter and beyond.

So net message is no significant changes to OpEx and R&D.

Some of the investment comments, Shawn, were in relation to gross profit and some of the expansions that we are making in our facilities.

Okay.

Then the follow-up, just the buyback.

Have you repurchased any shares here during the [June] quarter?

What should we expect the share count to be for the June quarter?

It's difficult to forecast.

It certainly depends on the volumes in the market and what we can pick off.

You saw that we bought 6 million of a possible 16 million in the first quarter, so it was a pretty healthy pace.

So I would expect to continue to be active in the market.

But the exact number is hard to predict.

I think if you wanted to assume that the balance is completed over the next couple of quarters, I think that would be a fair assumption on your side.

Okay.

Thanks so much.

Naser Iqbal from Salman Partners.

Thank you and congratulations on the quarter.

Just circling back on the relationship with RIM, just in terms of, when you gave your forecast of revenue growth back in December and in January, in terms of, were there different expectations of what you expected from your largest customer versus where you are today?

Is it that you had some expectations of that customer and those aren't bearing fruit, just in terms of our expectations for your full-year revenue?

Naser, good morning, it's Paul.

I would say that when we set our plans, certainly we would not have anticipated seeing, for example, some of the weakness going into the second quarter.

So I think everyone here, the story around what is happening with our biggest customer is well chronicled and so I won't add much value to that conversation.

But suffice to say, overall demand from that point of view is weaker than we would have expected.

That said, we are in the midst of ramping up one of their new programs.

So that's an area that we do expect to see revenue increases from.

But where the full year plays out it's just too hard to predict at this point.

I appreciate that.

Just as a follow-up, in terms of whatever happens with that relationship.

In terms of just the overall market opportunity, and in terms of, if you had to redeploy any of your capacity in your operations to new opportunities.

Is there enough opportunities out there such that you could make up for this largest customer in terms of the changing relationship?

Naser, good morning, it's Craig.

It's difficult to say.

As you obviously know, it depends on a number of factors.

Backfill is very difficult to predict.

As we said, we have a very solid platform, we're winning new business, our funnel is growing.

But replacing a 20% customer will not happen overnight.

It's going to depend on the timing.

So obviously those factors will factor into it.

Like this, we've overcome other difficult situations.

If we're faced with another one here, it will take time but obviously we will overcome it.

Right.

Just if I could press you on that point.

Are we talking maybe a two-quarter phenomenon, or a one-year phenomenon, or a two-year?

Any kind of a sense would be greatly appreciated.

I can understand it's difficult.

I think if you could bear with us here, obviously we've got a bit of a track record that says we will deliver what we promise.

At this point we're not in a position to make firm commitments in terms of timing until we get further in the year.

So give us until the end of June and we will come back and certainly have another frank conversation with all of you.

On our side we all appreciate that.

Thank you very much, Craig and Paul.

Todd Coupland from CIBC.

I will ask one question on RIM and then one question on the cash.

So is the point that you are making on RIM that you are trying to decide whether or not you want to take on additional business, whether that makes economic sense?

Or is the point that overall you are trying to decide whether you want to be there at all as a company?

I think, Todd, you have to look at this as a collaborative effort.

We are looking with RIM.

We consider ourselves one of the top-performing supply-chain partners in the industry.

We are looking with RIM at the challenges that they face, the opportunities that lie ahead for RIM, and the timing at which we could accelerate their turnaround.

As a result of that, it's very collaborative and we are not looking at it from a selfish perspective.

We are looking at it from a joint perspective.

What's best for RIM, and will make sure that RIM will be successful coming out the other side, as well as what's best for Celestica Inc.

We are trying to be open-minded as to the range of options.

Right now it's just too soon to tell.

So it's not sitting here selfishly looking at what is best for Celestica Inc.

It's doing it with the real understanding that we have a major opportunity here to work with RIM to re-establish the brand, accelerate the introduction of their new products, and make the products that we have successful.

That's the essence of the conversation.

This is just another industry phenomenon that we are going through with them.

We want to make sure that we take every opportunity to do it right.

So it's just a very collaborative, very important time.

Something that's going to take a bit of time.

But we wanted to provide enough transparency to give you a sense that we have the confidence in what we are doing.

We have the confidence in what we are doing with RIM in terms of our relationship.

We have the confidence that we will come out the other side.

Even if we have difficulty, we will come out the other side a stronger Company.

Okay.

Thank you for that.

Secondly on the cash, Paul you went through those splits on the cash.

You went through that pretty quick.

Could you just re-cover the splits in terms of what is allocated and how much you need to run the business?

Sure, Todd.

Basically, from our view -- and there's a range.

I think a good way to think about it is that you need about 5% of revenues, annualized revenues, in cash to run the Company, just to manage the ebbs and flows.

When you look at our cash balance, we commented there is a deposit in from one customer, so we normalized that out.

Certainly we continue to use AR sales of dealing with liquidity needs in different areas around the world.

So normalize that out.

That takes cash to essentially $500 million.

Using that 5% rule of thumb would just put you in a zone where access cash, quote-unquote, is around $130 million.

As we look forward into 2012, as you know we have the stock, the NCIB, that is underway that we would expect to complete.

On top of that, certainly we expect to generate additional cash flow into 2012.

So, as we look forward, I think that excess cash number is something that in that range is what we see.

Our objective, as I made on my comments, is to look for the right investments to add capabilities to increase the penetration into those targeted areas, be it diversified, be it services and the likes.

So that continues to be our priority.

If we don't see those opportunities, then we will continue to look for ways to return the capital.

Great.

Thanks a lot, Paul.

Brian Alexander from Raymond James.

Thanks for all the color, guys.

Should we assume the 3% to 5% growth outlook for 2012 is off the table, given the Q1 results, Q2 outlook, and, most importantly, the RIM uncertainty?

Or maybe characterize your revenue outlook for 2012 excluding RIM, or excluding the consumer segment, however you think it's appropriate.

I'm just trying to get a sense for whether that has changed meaningfully since the last quarter.

Brian, good morning, it's Craig.

Given the uncertainty with RIM, I think it's fair to say we cannot provide the full-year 2012 outlook at this time.

As we mentioned, once we have better clarity, which I would expect to be around mid year, we will provide an update.

If you were to just look at the other segments, Craig, are they more or less within the range that you thought they would be a quarter ago?

I think the rest of the business is pretty much unfolding as we expected.

So, in particular, the growth in diversified market continues to be strong.

Clearly, when we spoke last time, we did talk about our expectations to see a bit of economic recovery into the second half.

So I think that, that's probably not as strong today looking at the forecast for the second half as we would have expected sitting here 90 days ago.

But notwithstanding that, I think fundamentally, as Craig mentioned, we're winning new business.

You are seeing that come through in areas such as diversified and others.

So we're optimistic about what we are doing.

But the overall revenue envelope is just too difficult to predict, given the dynamics.

Okay.

On diversified specifically, just to make sure we are clear, the 40% to 50% that is still attainable, does that include the contribution from Brooks?

Does that include any contemplation of future acquisitions?

Or is that purely organic?

Then the final one is just on the server strength or the rebound that you are seeing.

I think I dropped off but I think you might've said something about new programs.

Is that new programs with your largest server customer or is that new programs with a new customer?

Thanks.

So the growth we talked about includes the contributions from last year's acquisition.

But would not include any additional acquisitions that we might do.

So that 40% to 50% was taking both into account.

As we've said, if you look at first quarter, the 58% year-on-year growth, about 50% of that was driven from the acquisition and 50% organic.

Lastly on that point, it will become more difficult to separate those two going forward as we are winning new business as a result of that acquisition.

So the linearity on that, delineation on that will be more difficult to predict as we go forward.

As far as the server markets are concerned, we're winning business with existing customers.

New programs with existing customers.

It's more than just one customer.

Brian, it's demand strength, as well, in a couple customers.

Okay, great.

Good luck with everything.

Gus Papageorgiou, Scotiabank.

Most of my questions have been answered.

But just quickly, you are still undergoing this tax audit from Revenue Canada.

I'm just wondering, any sense of that coming to completion?

Can you give us a sense of any potential impact on the cash position?

Gus, there is nothing to report as far as that audit is concerned.

I would not expect to get resolution to that any time soon.

We're pretty confident about our position.

So, along those lines, I would also not expect there to be any impact on cash.

But that's something I would expect will take quite some time to resolve.

Great.

Thank you very much.

I'd like to thank everybody for joining the call this morning.

Appreciate your confidence and continued support.

We look forward to updating you in July.

Thank you very much.

Ladies and gentlemen, this concludes today's conference call.

You can now disconnect.