Celestica Inc (CLS) 2017 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Celestica Earnings Call for the First Quarter of 2017.

(Operator Instructions) I would now like to turn the meeting over to one of your hosts for today's call, Lisa Headrick, Senior Director, Investor Relations.

Please go ahead.

Thank you, Kim.

Good morning, and thank you for joining us on Celestica's First Quarter of 2017 Earnings Conference Call.

On the call today are Rob Mionis, President and Chief Executive Officer; and Darren Myers, Chief Financial Officer.

This conference call will last approximately 45 minutes.

Rob and Darren will provide some comments on the quarter, and then we will open the call for questions.

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

We will be available later this morning, following our Annual General Meeting, for additional follow-up.

Please visit www.celestica.com to view the supporting slides accompanying this webcast.

As a reminder, during this call, we will make forward-looking statements within the meanings of the U.S. Private Securities Litigation Reform Act of 1995 and applicable Canadian Securities laws, including those related to our plans for future growth, priorities, trends in our industry and end markets, our anticipated financial and operational results and performance, and financial guidance.

Such forward-looking statements are based on management's current expectations, forecasts and assumptions, which are subject to risks, uncertainties and other factors that could cause actual outcomes and results to differ materially from conclusions, forecasts or projections expressed in such statements.

For identification and discussion of such factors and the material assumptions on which the forward-looking statements are based, please refer to the company's various public filings, including our most recent MD&A and annual report on Form 20-F, including the Risk Factors section therein, filed with and reports on Form 6-K furnished to the U.S. Securities and Exchange Commission and, as applicable, the Canadian Securities Administrators.

Please also refer to our cautionary statements regarding forward-looking information in such filings and in today's press release.

Our public filings can be accessed at sec.gov and sedar.com.

We assume no obligation to update any forward-looking statements.

During this call, we will also refer to certain non-IFRS financial measures, which include adjusted gross margin; adjusted SG&A; adjusted operating earnings; adjusted operating margin, which is adjusted operating earnings as a percentage of revenue; adjusted net earnings and adjusted EPS; free cash flow; adjusted return on invested capital or adjusted ROIC; adjusted effective tax rate; inventory turns; and cash cycle days.

Other non-IFRS financial measures that we will refer to are return on invested capital, or ROIC, which, for all purposes of this call, means adjusted ROIC; and adjusted tax rate, which, for all purposes of this call, means adjusted effective tax rate.

These non-IFRS measures do not have any standardized meanings under the IFRS and may not be comparable with other non-U.

S. GAAP or non-IFRS financial measures presented by other issuers.

We refer you to today's press release, which is available at celestica.com under the Investor Relations tab for more information about these and certain other non-IFRS measures, including a reconciliation of historical non-IFRS measures to the most directly comparable IFRS measures from our financial statements.

Unless otherwise specified, all references to dollars on this call are to U.S. dollars.

I will now turn the call over to Rob Mionis.

Thank you, Lisa, and good morning, everyone, and thank you for joining today's call.

Celestica delivered a solid first quarter, with strong revenue and adjusted net earnings.

For the quarter, we delivered 9% year-to-year revenue growth and grew adjusted operating earnings by 22%, representing our sixth straight quarter of year-over-year growth in revenue and adjusted operating earnings.

We began the year with a strongest first quarter of adjusted operating margin performance since 2001.

I am pleased to report that we are changing the names of our end markets starting with this quarter to better reflect Celestica's position in the marketplace and the value we bring to customers as an innovative supply chain partner.

Going forward, our diversified markets and consumer markets together will be called Advanced Technology Solutions, or ATS.

Our Communications and Enterprise markets together will be known as Connectivity & Cloud Solutions, or CCS.

This new naming represents a shift in the way we visualize, understand, innovate and drive value to our customers.

I am also proud to report the opening of our customer experience center in Silicon Valley.

I was pleased to attend the grand opening event at the end of March, along with many of our customers located in the Bay Area.

Our new state-of-the-art space in Silicon Valley provides our customers with a place where they can collaborate directly with our experts both locally and globally.

Overall, I am proud of our continued performance and the progress we are making on our journey to drive sustainable, profitable growth.

With that, I will pass the call over to Darren, who will review our financial results for the first quarter of 2017.

I will conclude the call with comments on our progress towards our key priorities for 2017.

Then Darren and I will open the call for questions.

Thank you, Rob, and good morning, everyone.

Celestica delivered a strong first quarter.

First quarter revenue of $1.47 billion was above our guidance midpoint, led by increased program demand in our Enterprise market.

Let me begin with a few highlights for the first quarter.

We delivered 9% year-over-year revenue growth, with 20% growth in the Communications end market and 6% growth in the Enterprise market.

Revenue from the Advanced Technology Solutions market represented 34% of total revenue compared to 29% in the fourth quarter of 2016.

IFRS net earnings were $23 million, an increase of $2 million relative to the fourth quarter of 2016 and down $3 million year-to-year.

Adjusted operating margin was 3.6%, 10 basis points above the midpoint of our guidance and up 30 basis points year-to-year.

Adjusted operating earnings were up 22% year-over-year.

Adjusted earnings of $0.29 per share were towards the high end of our guidance range, and we achieved return on invested capital of 20%, a 2% increase year-to-year.

Moving to our revenue from an end-market perspective.

Advanced Technology Solutions represented 34% of revenue, was in line with our expectations and increased 4% sequentially, driven by strong demand in the semiconductor market and new programs in our smart energy business.

Year-over-year, revenue was relatively flat as growth from our semiconductor market and new programs offset reductions from the exit from our solar panel manufacturing.

Excluding the impact from solar panels, our ATS revenue was up 14% year-over-year.

Our Communications end market performed in line with expectations, representing 42% of total revenue and was down 13% sequentially due to seasonal demand reductions.

Compared with the first quarter of 2016, Communications revenue was up 20%, as a result of new programs, program-specific strength and continued demand strength in optical.

Our Enterprise end market delivered above our expectations and represented 24% of total revenue for the first quarter and decreased 19% on a sequential basis, primarily due to seasonal demand reductions.

Compared to the first quarter of 2016, revenue from our Enterprise business was up 6%, largely due to new program revenue.

Our top 10 customers represented 70% of revenue for the first quarter, down 2% from the fourth quarter of 2016 and up 5% relative to the same period last year.

For the first quarter, we had 2 customers individually contributing greater than 10% of total revenue.

Moving to some of the other financial highlights for the quarter.

From an IFRS perspective, net earnings for the quarter were $22.8 million or $0.16 per share compared to $25.6 million or $0.18 per share in the first quarter of 2016 as higher gross profit was more than offset by higher income taxes and higher restructuring costs related to organizational initiatives.

Moving on to some of our non-IFRS financial measures.

Adjusted gross margin of 7.3% was up 10 basis points both sequentially and year-over-year.

Sequentially, adjusted gross margin increased as a result of an improved performance within ATS, which more than offset the impact of the overall sequential revenue decline.

Our adjusted SG&A was $48 million, within our expected range of $46 million to $48 million for the quarter and up from $47 million for the same period last year.

Adjusted operating earnings were $54 million or 3.6% of revenue, which was above the midpoint of our expectations, down 20 basis points sequentially and up 30 basis points relative to the same period last year.

On a year-over-year basis, the improved adjusted operating margin was driven by higher revenue and improvements across our ATS submarket, including the successful turnaround and strong performance in our semiconductor business.

These improvements offset lower overall margins in our CCS market, driven by overall mix and pricing pressure.

Our adjusted effective tax rate was 17% and was within our expected annual range of 17% to 19%.

Adjusted net earnings for the first quarter of $42 million and adjusted earnings per share of $0.29 increased over 10% relative to the prior year.

Adjusted ROIC was 19.8%, up from 17.4% for the same period last year.

Moving on to working capital.

Our inventory increased $66 million from December 31, 2016, to $956 million at March 31.

Inventory turns for the quarter were 5.9, a decline from 6.1 turns in the first quarter of 2016 as we experienced demand churn late in the quarter and were also impacted by some part constraints.

Capital expenditures were approximately $26 million or 1.7% of revenue for the first quarter and slightly above our targeted annual range of 1% to 1.5% of revenue.

Our cash provided by operations for the quarter was $36 million, while free cash flow was $14 million compared to free cash flow of negative $35 million for the same period last year.

Moving on to our balance sheet.

Our balance sheet remains strong.

Our cash balance of $558 million is largely unchanged from the fourth quarter of 2016.

During the quarter, we repaid $21 million of our outstanding debt.

Our net cash position at March 31 was $352 million, reflecting amounts outstanding on a term loan of $206 million.

With respect to the Toronto real estate deal, we've received notification from the purchaser that, pursuant to the terms of the purchase agreement, they wish to extend the closing by 12 months.

This extension is due to a longer-than-anticipated approval process with the city of Toronto.

We now expect the sale to close towards the middle of 2018.

Within the quarter, no shares were purchased for cancellation.

At the end of the first quarter, we had approximately 143 million subordinate and multiple voting shares outstanding.

Let me now provide a brief update on the closure of our solar panel manufacturing operation that we announced in the fourth quarter of 2016.

In the first quarter, we completed production of the final panels.

We were actively engaged in the disposition of the equipment and our remaining solar panel inventory.

Moving on to our guidance for the second quarter of 2017.

For the second quarter, we are projecting revenue to be in the range of $1.5 billion to $1.6 billion.

At the midpoint, revenue is projected to increase 4% year-over-year and would represent our seventh straight quarter of year-over-year revenue growth.

Sequentially, revenue is anticipated to be up 5%, largely due to seasonality.

At the midpoint of our expectations, we anticipate adjusted operating margin to be approximately 3.7%.

Second quarter non-IFRS adjusted net earnings are expected to range from $0.29 to $0.35 per share.

Adjusted SG&A expense for the second quarter is projected to be in the range of $46 million to $48 million.

And we estimate an annual adjusted effective tax rate range of 17% to 19%.

Our second quarter guidance assumes this annual rate and does not account for any impacts from taxable foreign exchange.

Now let me provide some further color on our second quarter 2017 outlook and our overall end markets.

In our ATS business, we're anticipating revenue to increase in the low single digits year-over-year as anticipated new program revenue and increased demand in our semiconductor business is expected to more than offset lower revenue resulting from our exit from the solar panel manufacturing.

In the Communications end market, we expect revenue to increase in the low double digits year-over-year as we expect to continue to benefit from new program revenue, demand strength in our optical programs, in addition to progress in our JDM programs.

Our Enterprise end market is anticipated to decline in the low single digits relative to the same period last year as new program revenue in our storage business partly offsets lower anticipated market demand.

In summary, I'm very pleased that we continue to expect to drive year-over-year growth in revenues and adjusted operating earnings in the second quarter.

Now I'd like to turn over the call to Rob for an update on our imperatives.

Thank you, Darren.

I'm pleased that in the second quarter, we expect the momentum to continue as we are expecting our seventh straight quarter of year-over-year revenue growth.

Overall, our CCS businesses continue to perform well in an increasingly challenging market as we continue to focus on delivering superior value and performance to our customers.

We continue to see demand strength in programs within our Communications market as we benefit from data center upgrades and the expansion to 100G.

The new programs that we ramp in the second half of 2016 in storage and Communications also continue to do well.

In our ATS markets, they continue to be an area where we see significant long-term growth opportunities resulting from the proliferation of technology and the opportunity of increased outsourcing.

This year, we are working on ramping a number of new programs across this market.

We are also experiencing positive demand trends within our semiconductor capital equipment business.

Now I'd like to talk about the progress we are making on our 2017 priorities.

Continuing to evolve and diversify our customer and product portfolios to better drive long-term consistency and in revenue growth and adjusted operating margins is a top priority.

We remain focused on driving long-term organic growth within our ATS markets, while augmenting with acquisitions to build out our capabilities, proof points and relationships.

We've established a strong corporate development team that is focused on delivering profitable growth opportunities to accelerate our diversification strategy.

It is still early in our process, but I am pleased with the increased activity and focus.

Our next priority is to achieve continued margin enhancement in ATS while balancing investments needed to drive continued growth.

Our progress in this area was a key contributor to a 30 basis point year-to-year improvement in our year-over-year adjusted operating margin.

Continuing to generate strong free cash flow and adjusted ROIC is also our priority.

We plan to continue to use a disciplined approach with our strong balance sheet through the use of cash to invest in our business, drive growth and to return capital to our shareholders over the long term.

And lastly, we continue to drive for flawless execution while driving increased productivity and simplification throughout our organization.

Overall, Celestica team is focused on maintaining the momentum we have generated as we continue our multiyear journey to position us for sustainable, long-term profitable growth.

We continue to work diligently to ramp new programs and grow our ATS business as well as maintain a strong position in our CCS end markets.

I would like to thank the Celestica team for their ongoing commitment to our transformation and the relentless drive to deliver innovative solutions to our customers' toughest challenges.

This concludes our prepared remarks.

I look forward to sharing our progress with you next quarter.

With that, I'd like to open the call with questions.

(Operator Instructions) And your first question today comes from Robert Young from Canaccord Genuity.

The strength you're seeing in the comms business is continuing to keep highlighting the optical trends as a big support there.

Can you talk about that piece of the business and whether you see any stability there through the remainder of [ 2017 ], like beyond the guidance you have here in Q2?

Any color that you can provide would be helpful.

Robert, we're very pleased with the growth that we're seeing in optical and also some of the new programs.

The growth that we experienced in the back half of 2016 is also giving us momentum in the first half of 2017.

In the first half of 2017, we actually would be up 15% year-over-year on our comms business.

In the long term, we're not providing any guidance, but the comms will get a little bit more difficult on a year-over-year basis as we get into the back half of the year.

But overall, I think we're pleased with the performance of our portfolio and what we're doing with our customers.

Okay.

And then my second question will be around the adjusted SG&A.

It looks as though that's been very stable between 56 -- the adjusted SG&A stable between $46 million and $50 million, and I was just wondering how sustainable do you think that range will be going forward?

Do you expect any kind of an increase in that area of spend?

And then I'll pass line.

Yes, Rob.

Yes, certainly, we've been making investments in the front end and sales and corporate development.

But we've done a very effective job, I'd say, of also driving cost productivity through initiatives such as our global business services.

So that's really our plan.

So for the time being, comfortable with the range, and we certainly can leverage that SG&A with growth in the company.

So we're excited by that opportunity.

Your next question comes from Jim Suva from Citi.

And it's great to see the sales growth at Celestica.

When we think about the June quarter guide and the growth of continuing sales growth year-over-year, can you address 2 parts on that?

First, it looks like it's a bit of a deceleration from the March quarter results as far as the growth.

And the second question is, if I do my math right, or I might be wrong, it looks like operating margins year-over-year are relatively flattish based upon your EPS guide for the June quarter.

But I would have thought, with solar now no longer being a drag on margins for the June 2017, that we'd see some margin leverage.

So if you could help us out with some details on that, that'd be greatly appreciated.

Yes.

Yes, Jim, in terms of the top line, certainly 9% growth is a very strong growth rate that we achieved in the first quarter.

So when we look at the second quarter guide of 4% growth rate and that includes the low single-digit growth in our ATS business, which still has a solar headwind, I'm quite pleased with 4% growth.

I think that's a healthy growth rate overall for the company, and Q1 was particularly strong.

And as the back half happens, although we're not giving guidance, we would expect our ATS business to start to grow more on a year-over-year basis from the ramp in programs we have and less of an impact on solar.

With respect to the margins, first of all, if you just look at Q1, it was a 30 basis point year-over-year improvement.

There was 22% growth in operating earnings, so very strong there.

As you may or may not recall, last year, we achieved a very strong second quarter, stronger than expected.

And on that call, we outlined that really was due to a lot of good things going our way.

So the comp is tougher, but I would say that, overall, we're seeing some good improvements year-over-year within the business.

Very pleased with the improvements we've made in ATS that is sustaining into the second quarter and beyond.

But on the other side of things, the CCS side of our business, the traditional Communications, Enterprise side, I'd say we have more unfavorable mix and pricing that's impacted our numbers from a year-over-year basis.

Your next question comes from Matt Sheerin from Stifel.

Just a couple of questions for me.

Just regarding your commentary about, it sounds like, margins were somewhat under pressure in the -- your CCS business, you talked about some pricing pressure.

And then you also talked about some component constraints.

I know there is obviously memory and SSD shortages out there.

And could you talk about that, whether you're building inventory there?

Or whether that's actually hurting sales or margins?

Yes, on the constraint part, it probably impacted us to the tune of $10 million, in that range.

So it is a more constrained environment out there, and we're working through that with our suppliers and customers.

And just on the CCS margins, really it's a mix of the -- both the mix of the programs that we're doing and just ongoing pricing.

I wouldn't say it's people are being rational on a pricing basis.

It's just the ongoing price competition that you expect, and we've got to keep up with more continuous improvements as well as penetrating more of our JDM within that market.

Okay.

And then on the component situation, is that primarily in the memory and drive area?

Or are there other pockets of tightening?

Matt, we're seeing tightening, frankly, broadly throughout the supply chain.

From an allocation perspective, it's mainly on the memory side.

But we're also seeing extended lead times on a lot of electronic components as well.

So it's getting fairly constrained out there on the electronics side.

Okay.

And then regarding the -- your ATS in a diversified markets, you're highlighting some nice growth and acceleration in the semi cap equipment market.

But I know you've also made investments, Rob, in other industrial areas, particularly your mechanical capabilities and that sort of thing.

Where do you see that going in terms of product ramp and customer pipeline for those kind of businesses?

Yes, for 2016, the margins are up across all of our ATS businesses.

So we're quite pleased with the performance of ATS.

As Darren mentioned earlier, if you take out some of the solar headwinds, ATS was actually up 14% in Q1, which is pretty good.

Broadly speaking, we see particularly strength in industry and in semi cap, and the other markets are -- have ebbs and flows based on programs, ramps and other dynamics.

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

Couple of questions for me as well.

I guess, maybe to start with inventory dollars was up more than I would have thought (inaudible) were down.

Can you just tell what are the factors that drove that?

And importantly, do you think that those kind of headwinds sustain into the June quarter?

Or should we see that normalize and free cash flow kind of uptick higher in June?

Yes, Amit.

Yes, inventory, I would say, has been impacted by some late customer demand churn that we saw.

So we are seeing higher variations in the order patterns from our customers, and that was more pronounced in this last quarter and as well from some of the part constraints and the inability to square up some of the sets.

So that certainly has impacted us.

We would expect to see some improvement in the second quarter, but I think it's going to take a little bit more time to work through the cycle.

So I do think that will have -- that extra inventory will have an impact on our cash flow, free cash flow performance for the second quarter.

Now the other thing I would note is we have -- at the midpoint of our guidance, our revenue was up $80 million.

So some of that inventory, of course, is to support the additional revenue that we're driving through the organization as well.

That's really helpful.

And I guess, if I could just follow up, the guide for ATS in June, I think, it's up 4% sequentially, flattish year-over-year.

What kind of headwind do you have from solar panel in the June quarter?

Is it fair to assume that in June quarter, the revenue stream from solar would be 0?

The revenue would be, yes, relatively insignificant other than selling some inventory that we still have.

I'd say it's about a 4% headwind year-over-year for solar panels for the second quarter.

Any margin headwind in June as well from this?

No, not -- that's now -- we've now exited that business.

So no real headwind from that perspective.

We did have a little bit of a pickup in the first quarter from solar from a margin point of view, but the second quarter is clean at this point.

Your next question comes from Daniel Chan from TD Securities.

Derek, can you remind us, does the extension of the closing of the real estate deal, does that change when the cash comes in?

Yes, that would push everything out by a year.

Okay.

And then on the corp debt team, how is that shaping up?

And on a related note how is the M&A pipeline looking?

Daniel, the corp debt team is shaping up nicely.

We're about to fill our last position on the team, with increased focus on staffing.

We're pleased with the progress that we're making, the conversations we're entering into.

Certainly, I'm spending a lot more time in that area myself.

That being said, it's still relatively early in our process.

And as always, we're going to be very, very disciplined in what we look at and the processes we use to make sure we create shareholder value through anything that we do.

Okay.

And then last one for me.

You obviously saw some strength in the Enterprise segment.

What drove that?

And is it sustainable?

Yes, Enterprise in Q1, we were pleased with some share gains, some new program ramps.

And we also were pleased that with some of the part constraints on one side that we saw, it actually increased some HDDs on the other side.

So that drove some of our upside, if you will, and positive trends in the first quarter.

Dan, I think when you overall look the -- in addition to that, some of the fundamentals are still negative in that space.

But it's more that the share gains that we've been getting in new programs, as Rob just mentioned.

All right.

And are those new programs, are those mostly related to JDM?

It's a little bit of everything.

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

In terms of the semi business, can you give us some color on how margins have been trending?

Are those margins now at what you consider to be normalized levels?

Or is there still room for improvement on that area as demand continues to improve?

Yes, Thanos, thanks for the question.

I would say that they are at targets level right now.

In the first quarter, we've been making lots of investments, as you know, through the years, and we're pleased with the progress that we made.

We're also benefiting from some increased volumes, which are obviously pushing the margins higher.

As we move forward, we think, depending on volumes and other continuous improvement activities, we always keep on setting the bar higher.

But generally speaking, we're pleased where the margins are right now, and they're kind of stabilizing at target levels.

Great.

And Rob, can you give us an update on aerospace and defense and how the pipeline has been developing there and how the program has been trending?

Yes.

So we're continuing to have very good conversations with our customers.

These tend to be longer cycle sales.

So I'd say the pipelines are fairly robust, but it takes a while to work through these business development type of activities and type of sales.

So the growth for this year, I would say, is kind of moderate, if you will, based on that but long-term trends, we're still very bullish on the market.

Your next question comes from Gus Papageorgiou from Macquarie.

Most of my questions have been answered, but just on the component story, you said it cost you about $10 million in revenue this quarter.

Do you think it'll have a roughly similar impact this coming quarter?

And when do you expect that to kind of dissipate?

And then just on the real estate sale, Darren, can you just give us -- just remind us again the timing of the payments.

I believe it was $125 million.

You got $15 million upfront.

When does the rest of the proceeds come in?

Yes, Gus, on the component side, based on our supply chain teams ' view of the world, we don't see this issue being a short-term issue.

It's more of a midterm issue.

So we think we're in a constrained environment, early stage of the game, at least through this year.

In terms of the impact for Q2, we think we've built that into our guidance.

That being said, there could be surprises, but we're not anticipating any at this stage of the game.

And Gus.

The overall deal, just as a reminder for everyone, was CAD 137 million, of which we received the CAD 15 million deposit already.

On closing, which will now be a year later, we'll get CAD 53.5 million.

And then 2 years thereafter, we will get CAD 68.5 million, again, all Canadian amounts.

So it's CAD 53.5 million in 2018.

What month?

When the deal closes.

So right now, we're expecting mid-2018, all that in June-July time frame.

And then June-July 2020, you'll get the CAD 68.5 million?

That's correct.

And your next question comes from Todd Coupland from CIBC.

With the margins moving to multiyear records, are you rethinking your 3.5% to 4% target range?

And if so, what should we be thinking about as a possibility a year or 2 down the road?

Gus (sic) [ Todd ], I would say, as we've said in our previous discussions that certainly we've had with investors, for the mix of business we have today, we're quite comfortable in that 3.5% to 4%.

Of course, we continue to look to push that higher.

But really to fundamentally shift that beyond the 4%, it really requires a higher mix of ATS business and a higher mix of business of JDM business.

And that's really what all our efforts are going towards right now.

So when we look at the business, I'd say, for the short term, 3.5% to 4% is still the right goal as we can layer on successful acquisitions and organic growth in ATS and further penetration at JDM.

We'll give updates on those targets, but right now, as you can imagine, the permutations that could exist with all that, I'm not comfortable setting out any longer term goals at this point in time.

And the types of M&A that you're seeing in your funnel, are you putting an emphasis on trying to move that mix above 4?

Is that opportunity there for the kinds of things you're looking at?

Yes.

Todd, yes, that's correct.

Most of the opportunities, in fact, not all the opportunities we're looking at are margin-accretive.

They'll build out our capabilities, build out our proof points.

They are products that would -- and markets that have longer life cycles, stickier with customers.

So really, the goal of our diversification and acquisition strategy is to diversify and be margin-accretive to the whole.

Okay.

And when you think about semi and optical strength and the durability of those cycles, do you view one more favorably than the other at this point in time in terms of what you're seeing?

When I think about the semi market and people pretty bullish right now, people are predicting a strong first half, so are we, based on our guidance.

The second half, they still think, is going to be relatively strong, maybe not as strong as first half, but second half, and this is what I'm talking about the end markets.

So overall, based on foundry spends and the technology pull, if you will, we're pretty bullish on the semi cap business.

With respect to the optical market, 1/3 of our Communications business is in optical.

We have a great portfolio, great franchise, great capabilities.

And based on data center demand and upgrade to 100G, we're pleased with our 15% year-over-year performance in the first half of this year.

As it gets into the second half, as I mentioned earlier, the comps do get difficult for us.

We have no further questions in queue at this time.

I'll turn the call back over for closing remarks.

I'd like to thank you all for joining us today.

And thank you for your continued support, and we look forward to updating you next quarter.

This concludes today's conference.

You may now disconnect.