Celestica Inc. (TSX: CLS) (NYSE: CLS), a leader in design,
manufacturing, hardware platform and supply chain solutions for the
world's most innovative companies, today announced financial
results for the quarter ended March 31, 2024 (Q1 2024)†.
“We are pleased with our strong start to the
year, delivering revenue growth of 20% in Q1 2024 compared to the
prior-year period, and continued non-IFRS operating margin*
expansion. Our solid performance was reflected in revenue and
non-IFRS adjusted EPS* each in excess of the high end of our
guidance ranges,” said Rob Mionis, President and CEO, Celestica.
“We continue to see healthy demand across a number of our major
customers, which provides us with the confidence to raise our full
year 2024 outlook. We continue to stay focused on solid execution
for our customers, and delivering on our strategic priorities and
financial targets.”
Q1 2024 Highlights
- Key measures:
- Revenue: $2.21 billion, increased 20% compared to $1.84 billion
for the first quarter of 2023 (Q1 2023).
- Non-IFRS operating margin*: 6.2%, compared to 5.2% for Q1
2023.
- ATS segment revenue decreased 3% compared to Q1 2023; ATS
segment margin was 4.7% compared to 4.4% for Q1 2023.
- CCS segment revenue increased 38% compared to Q1 2023; CCS
segment margin was 7.0% compared to 5.8% for Q1 2023.
- Adjusted earnings per share (EPS) (non-IFRS)*: $0.86, compared
to $0.47 for Q1 2023.
- Adjusted return on invested capital (adjusted ROIC)
(non-IFRS)*: 24.8%, compared to 17.9% for Q1 2023.
- Adjusted free cash flow (non-IFRS)*: $65.2 million,
compared to $9.2 million for Q1 2023.
- Most directly comparable IFRS financial measures to non-IFRS
measures above:
- Earnings from operations as a percentage of revenue: 6.0%
compared to 3.2% for Q1 2023.
- EPS: $0.85 compared to $0.20 for Q1 2023.
- Return on invested capital (IFRS ROIC): 23.8% compared to 11.2%
for Q1 2023.
- Cash provided by operations: $131.1 million compared to
$72.3 million for Q1 2023.
- Repurchased 0.5 million subordinate voting shares (SVS)
for cancellation for $16.5 million.
† Celestica has two operating and reportable
segments: Advanced Technology Solutions (ATS) and Connectivity
& Cloud Solutions (CCS). Our ATS segment consists of our ATS
end market and is comprised of our Aerospace and Defense (A&D),
Industrial, HealthTech and Capital Equipment businesses. Our CCS
segment consists of our Communications and Enterprise (servers and
storage) end markets. Segment performance is evaluated based on
segment revenue, segment income and segment margin (segment income
as a percentage of segment revenue). See note 3 to our
March 31, 2024 unaudited interim condensed consolidated
financial statements (Q1 2024 Interim Financial Statements) for
further detail.* Non-International Financial Reporting Standards
(IFRS) financial measures (including ratios based on non-IFRS
financial measures) do not have any standardized meaning prescribed
by IFRS and therefore may not be comparable to similar financial
measures presented by other public companies that report under IFRS
or U.S. generally accepted accounting principles (GAAP). See
“Non-IFRS Supplementary Information” below for information on our
rationale for the use of non-IFRS financial measures. See Schedule
1 for, among other items, non-IFRS financial measures included in
this press release, their definitions, uses, and a reconciliation
of historical non-IFRS financial measures to the most directly
comparable IFRS financial measures. The most directly comparable
IFRS financial measures to non-IFRS operating margin, non-IFRS
adjusted EPS, non-IFRS adjusted ROIC and non-IFRS adjusted free
cash flow are earnings from operations as a percentage of revenue,
EPS, IFRS ROIC, and cash provided by operations, respectively.
Second Quarter of 2024 (Q2 2024)
Guidance‡
|
|
Q2 2024
Guidance |
| Revenue (in billions) |
$2.175 to $2.325 |
| Non-IFRS operating
margin* |
6.1% at the mid-point of ourrevenue and non-IFRS adjustedEPS
guidance ranges |
| Adjusted SG&A (non-IFRS)*
(in millions) |
$67 to $69 |
| Adjusted EPS (non-IFRS)* |
$0.75 to $0.85 |
For Q2 2024, we expect a negative $0.17 to $0.23
per share (pre-tax) aggregate impact on net earnings on an IFRS
basis for employee stock-based compensation (SBC) expense,
amortization of intangible assets (excluding computer software),
and restructuring charges.
For Q2 2024, we also expect a non-IFRS adjusted
effective tax rate* of approximately 20%, without accounting for
foreign exchange impacts or unanticipated tax settlements. This
rate does assume that our income will be subject to Pillar Two
global minimum tax as currently proposed, as legislation that has
been introduced in Canada may become applicable before the end of
Q2 2024 with possible retroactive impact to January 1,
2024‡. If this legislation is not substantively
enacted in Q2 2024, we expect our Q2 2024 non-IFRS adjusted EPS*
guidance range to shift upwards by approximately $0.05, and our
non-IFRS adjusted effective tax rate* for the quarter to be
approximately 15%. Our Q2 2024 guidance also assumes consummation
in May 2024 of our anticipated acquisition of NCS Global Services
LLC (described below).
2024 Annual Outlook
Update‡
Building on our strong performance in Q1 2024,
we are updating our 2024 outlook to the following:
- revenue of $9.1 billion (our previous outlook was $8.5 billion,
or more);
- non-IFRS operating margin* of 6.1% (our previous outlook was
between 5.5% to 6.0%);
- non-IFRS adjusted EPS* of $3.30 (our previous outlook was $2.70
or more); and
- non-IFRS adjusted free cash flow* of $250 million (our previous
outlook was $200 million, or more).
Our 2024 annual outlook assumes that our income
will be subject to Pillar Two global minimum tax as currently
proposed, as legislation that has been introduced in Canada is
expected to be enacted during 2024 and apply retroactively to
January 1, 2024‡. Our 2024 annual outlook also assumes consummation
in May 2024 of our anticipated acquisition of NCS Global Services
LLC (described below).
For the second through fourth quarters of 2024,
we expect a non-IFRS adjusted effective tax rate* of approximately
20%‡ (which does not account for foreign exchange
impacts or unanticipated tax settlements).
* See Schedule 1 for the definitions of these
non-IFRS financial measures. We do not provide reconciliations for
forward-looking non-IFRS financial measures, as we are unable to
provide a meaningful or accurate calculation or estimation of
reconciling items and the information is not available without
unreasonable effort. This is due to the inherent difficulty of
forecasting the timing or amount of various events that have not
yet occurred, are out of our control and/or cannot be reasonably
predicted, and that would impact the most directly comparable
forward-looking IFRS financial measure. For these same reasons, we
are unable to address the probable significance of the unavailable
information. Forward-looking non-IFRS financial measures may vary
materially from the corresponding IFRS financial measures.
‡ The timing of global minimum tax legislation
effectiveness and its impact on our tax expense cannot currently be
estimated with certainty, and may differ materially from our
expectations.
Summary of Selected Q1 2024
Results
| |
Q1 2024
Actual |
|
Q1 2024 Guidance
(2) |
|
Key measures: |
|
|
|
|
Revenue (in billions) |
$ |
2.209 |
|
$2.025 to $2.175 |
|
Non-IFRS operating margin* |
|
6.2% |
|
6.0% at the mid-point of our revenue and non-IFRS adjusted EPS
guidance ranges |
|
Adjusted SG&A (non-IFRS)* (in millions) |
$ |
70.1 |
|
$62 to $64 |
|
Adjusted EPS (non-IFRS)* |
$ |
0.86 |
|
$0.67 to $0.77 |
| |
|
|
|
|
Most directly comparable IFRS financial measures: |
|
|
|
|
Earnings from operations as a % of revenue |
|
6.0% |
|
N/A |
|
SG&A (in millions) |
$ |
65.2 |
|
N/A |
|
EPS (1) |
$ |
0.85 |
|
N/A |
*See Schedule 1 for, among other things, the
definitions of these non-IFRS financial measures, as well as a
reconciliation of these non-IFRS financial measures to the most
directly comparable IFRS financial measures.
(1) IFRS EPS of $0.85 for Q1 2024 included an
aggregate charge of $0.31 (pre-tax) per share for employee SBC
expense, amortization of intangible assets (excluding computer
software), and restructuring charges. See the tables in Schedule 1
and note 8 to the Q1 2024 Interim Financial Statements for per-item
charges. This aggregate charge was within our Q1 2024 guidance
range of between $0.26 to $0.32 per share for these items.
IFRS EPS for Q1 2024 included: (i) a $0.26 per
share positive impact attributable to a fair value gain (TRS Gain)
on our total return swap agreement (TRS Agreement), (ii) a $0.01
per share positive impact attributable to legal recoveries and
(iii) a $0.05 per share favorable tax impact attributable to the
reversals of tax uncertainties relating to one of our Asian
subsidiaries, partially offset by: (x) a $0.04 per share negative
tax impact arising from taxable temporary differences associated
with the anticipated repatriation of undistributed earnings
(Repatriation Expense) from certain of our Asian subsidiaries and
(y) a $0.04 per share negative impact attributable to restructuring
charges. See notes 7, 8 and 9 to the Q1 2024 Interim Financial
Statements.
IFRS EPS of $0.20 for Q1 2023 included a $0.04
per share negative impact attributable to restructuring charges and
a $0.01 per share negative Repatriation Expense from certain of our
Chinese subsidiaries, offset by a $0.05 per share favorable tax
impact attributable to the reversals of tax uncertainties in one of
our Asian subsidiaries. See notes 8 and 9 to the Q1 2024 Interim
Financial Statements.
(2) For Q1 2024, our revenue exceeded the high
end of our guidance range and our non-IFRS operating margin
exceeded the mid-point of our revenue and non-IFRS adjusted EPS
guidance ranges due to higher than anticipated customer demand. Our
Q1 2024 non-IFRS adjusted EPS exceeded the high end of our guidance
range, driven by unanticipated volume leverage and production
efficiencies in our CCS segment, and the lack of enactment of
Pillar Two legislation in Canada (as we assumed a $0.05 per share
Pillar Two legislation impact on our non-IFRS adjusted EPS for the
quarter). Our non-IFRS adjusted SG&A for Q1 2024 exceeded the
high end of our guidance range as a result of higher than expected
variable spend and allowance for doubtful accounts. Our IFRS
effective tax rate for Q1 2024 was 12%. As anticipated, our
non-IFRS adjusted effective tax rate for Q1 2024 was 15%, as Pillar
Two legislation was not substantively enacted in Canada in Q1 2024.
However, if such legislation is enacted as proposed, it would be
retroactive to January 1, 2024.
Acquisition Agreement
In April 2024, we entered into a definitive
agreement to acquire NCS Global Services LLC, a US-based IT
infrastructure and asset management business, for $36 million (and
a possible earnout payment should certain post-closing financial
conditions be met). The transaction is expected to close in May
2024 or earlier, subject to satisfaction of customary closing
conditions.
Q1 2024 Webcast and
2024 Annual and Special Shareholders Meeting/Webcast
Management will host its Q1 2024 results
conference call on April 25, 2024 at 8:00 a.m. Eastern Daylight
Time (EDT). The webcast can be accessed at www.celestica.com.
Celestica's 2024 Annual and Special Meeting of Shareholders
(Meeting) will be held on April 25, 2024 at 9:30 a.m. EDT. As
previously announced, the Meeting will be held in a hybrid format.
Celestica welcomes the participation of shareholders who will be
able to attend the Meeting in-person at Celestica’s head office at
5140 Yonge Street, Suite 1900, Toronto, Ontario. Shareholders may
also attend and participate in the Meeting virtually via a live
audio-only webcast at https://meetnow.global/MUGXJDC. Online access
to the Meeting will begin at 8:30 a.m. EDT.
Non-IFRS Supplementary
Information
In addition to disclosing detailed operating
results in accordance with IFRS, Celestica provides supplementary
non-IFRS financial measures to consider in evaluating the company’s
operating performance. Management uses adjusted net earnings and
other non-IFRS financial measures to assess operating performance
and the effective use and allocation of resources; to provide more
meaningful period-to-period comparisons of operating results; to
enhance investors’ understanding of the core operating results of
Celestica’s business; and to set management incentive targets. We
believe investors use both IFRS and non-IFRS financial measures to
assess management's past, current and future decisions associated
with our priorities and our allocation of capital, as well as to
analyze how our business operates in, or responds to, swings in
economic cycles or to other events that impact our core operations.
See Schedule 1 below.
About Celestica
Celestica enables the world's best brands.
Through our recognized customer-centric approach, we partner with
leading companies in Aerospace and Defense, Communications,
Enterprise, HealthTech, Industrial, and Capital Equipment to
deliver solutions for their most complex challenges. As a leader in
design, manufacturing, hardware platform and supply chain
solutions, Celestica brings global expertise and insight at every
stage of product development — from the drawing board to full-scale
production and after-market services. With talented teams across
North America, Europe and Asia, we imagine, develop and deliver a
better future with our customers. For more information on
Celestica, visit www.celestica.com. Our securities filings can be
accessed at www.sedarplus.ca and www.sec.gov.
Cautionary Note Regarding
Forward-looking Statements
This press release contains forward-looking
statements, including, without limitation, those related to: our
anticipated financial and/or operational results, guidance and
outlook, including statements under the headings "Second Quarter of
2024 (Q2 2024) Guidance", and "2024 Annual Outlook Update"; our
anticipated acquisition of NCS Global Services, LLC; our credit
risk; our liquidity; anticipated charges and expenses, including
restructuring charges; the estimated near-term impact and timing of
international tax reform; the potential impact of tax and
litigation outcomes; and mandatory prepayments under our credit
facility. Such forward-looking statements may, without limitation,
be preceded by, followed by, or include words such as “believes,”
“expects,” “anticipates,” “estimates,” “intends,” “plans,”
“continues,” “project,” "target," "outlook," "goal," "guidance",
“potential,” “possible,” “contemplate,” “seek,” or similar
expressions, or may employ such future or conditional verbs as
“may,” “might,” “will,” “could,” “should,” or “would,” or may
otherwise be indicated as forward-looking statements by grammatical
construction, phrasing or context. For those statements, we claim
the protection of the safe harbor for forward-looking statements
contained in the U.S. Private Securities Litigation Reform Act
of 1995, where applicable, and for forward-looking information
under applicable Canadian securities laws.
Forward-looking statements are provided to
assist readers in understanding management’s current expectations
and plans relating to the future. Forward-looking statements
reflect our current estimates, beliefs and assumptions, which are
based on management’s perception of historic trends, current
conditions and expected future developments, as well as other
factors it believes are appropriate in the circumstances, such as
certain assumptions about the economy, our customers, our
suppliers, our ability to achieve our strategic goals, as well as
market, financial and operational assumptions. Readers are
cautioned that such information may not be appropriate for other
purposes. Readers should not place undue reliance on such
forward-looking information.
Forward-looking statements are not guarantees of
future performance and are subject to risks that could cause actual
results to differ materially from those expressed or implied in
such forward-looking statements, including, among others, risks
related to: customer and segment concentration; reduction in
customer revenue; erosion in customer market competitiveness;
changing revenue mix and margins; uncertain market, political and
economic conditions; operational challenges such as inventory
management and materials and supply chain constraints; the cyclical
nature and/or volatility of certain of our businesses; talent
management and inefficient employee utilization; risks related to
the expansion or consolidation of our operations; cash flow,
revenue and operating results variability; technology and IT
disruption; increasing legal, tax and regulatory complexity and
uncertainty; integrating and achieving the anticipated benefits
from acquisitions; and the potential adverse impacts of events
outside of our control.
For more exhaustive information on the foregoing
and other material risks, uncertainties and assumptions readers
should refer to our public filings at www.sedarplus.ca and
www.sec.gov, including in our most recent Management's Discussion
and Analysis of Financial Condition and Results of Operations,
Annual Report on Form 20-F filed with, and subsequent reports on
Form 6-K furnished to, the U.S. Securities and Exchange Commission,
and the Canadian Securities Administrators, as applicable.
Forward-looking statements speak only as of the
date on which they are made, and we disclaim any intention or
obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise,
except as expressly required by applicable law. All
forward-looking statements attributable to us are expressly
qualified by these cautionary statements.
ContactsCelestica Global Communications
(416) 448-2200
media@celestica.com
Celestica Investor Relations(416)
448-2211clsir@celestica.com
Schedule 1
Supplementary Non-IFRS Financial
Measures
The non-IFRS financial measures (including
ratios based on non-IFRS financial measures) included in this press
release are: adjusted gross profit, adjusted gross margin (adjusted
gross profit as a percentage of revenue), adjusted selling, general
and administrative expenses (SG&A), adjusted SG&A as a
percentage of revenue, non-IFRS operating earnings (or adjusted
EBIAT), non-IFRS operating margin (non-IFRS operating earnings or
adjusted EBIAT as a percentage of revenue), adjusted net earnings,
adjusted EPS, adjusted return on invested capital (adjusted ROIC),
adjusted free cash flow, adjusted tax expense and adjusted
effective tax rate. Adjusted EBIAT, adjusted ROIC, adjusted free
cash flow, adjusted tax expense and adjusted effective tax rate are
further described in the tables below. As used herein, "Q1," "Q2,"
"Q3," and "Q4" followed by a year refers to the first quarter,
second quarter, third quarter and fourth quarter of such year,
respectively.
We believe the non-IFRS financial measures we
present herein are useful to investors, as they enable investors to
evaluate and compare our results from operations in a more
consistent manner (by excluding specific items that we do not
consider to be reflective of our core operations), to evaluate cash
resources that we generate from our business each period, and to
provide an analysis of operating results using the same measures
our chief operating decision makers use to measure performance. In
addition, management believes that the use of a non-IFRS adjusted
tax expense and a non-IFRS adjusted effective tax rate provide
improved insight into the tax effects of our core operations, and
are useful to management and investors for historical comparisons
and forecasting. These non-IFRS financial measures result largely
from management’s determination that the facts and circumstances
surrounding the excluded charges or recoveries are not indicative
of our core operations.
Non-IFRS financial measures do not have any
standardized meaning prescribed by IFRS and therefore may not be
comparable to similar measures presented by other companies that
report under IFRS, or who report under U.S. GAAP and use non-GAAP
financial measures to describe similar financial metrics. Non-IFRS
financial measures are not measures of performance under IFRS and
should not be considered in isolation or as a substitute for any
IFRS financial measure.
The most significant limitation to management’s
use of non-IFRS financial measures is that the charges or credits
excluded from the non-IFRS financial measures are nonetheless
recognized under IFRS and have an economic impact on us. Management
compensates for these limitations primarily by issuing IFRS results
to show a complete picture of our performance, and reconciling
non-IFRS financial measures back to the most directly comparable
financial measures determined under IFRS.
In calculating the following non-IFRS financial
measures: adjusted gross profit, adjusted gross margin, adjusted
SG&A, adjusted SG&A as a percentage of revenue, non-IFRS
operating earnings, non-IFRS operating margin, adjusted net
earnings, adjusted EPS, and adjusted tax expense, management
excludes the following items (where indicated): employee SBC
expense, total return swap (TRS) fair value adjustments (FVAs),
amortization of intangible assets (excluding computer software),
and Other Charges (Recoveries) (defined below), all net of the
associated tax adjustments (quantified in the table below), and any
non-core tax impacts (tax adjustments related to acquisitions, and
certain other tax costs or recoveries related to restructuring
actions or restructured sites). The economic substance of these
exclusions (where applicable to the periods presented) and
management’s rationale for excluding them from non-IFRS financial
measures is provided below. In addition, in calculating adjusted
net earnings and adjusted EPS, management intends to exclude any
one-time prior period portion of cumulative retroactive and
deferred tax adjustments related to Pillar Two legislation when
such legislation is substantively enacted in Canada, as such prior
period adjustments will not be attributable to our operations for
the period when such legislation first becomes applicable or for
subsequent periods. The determination of our non-IFRS adjusted
effective tax rate, adjusted free cash flow, and adjusted ROIC is
described in footnote 2, 3 and 4 to the table below,
respectively.
Employee SBC expense, which represents the
estimated fair value of stock options, restricted share units and
performance share units granted to employees, is excluded because
grant activities vary significantly from quarter-to-quarter in both
quantity and fair value. In addition, excluding this expense allows
us to better compare core operating results with those of our
competitors who also generally exclude employee SBC expense in
assessing operating performance, who may have different granting
patterns and types of equity awards, and who may use different
valuation assumptions than we do.
TRS FVAs represent mark-to-market adjustments to
our TRS, as the TRS is recorded at fair value at each quarter end.
We exclude the impact of these non-cash fair value adjustments
(both positive and negative), as they reflect fluctuations in the
market price of our SVS from period to period, and not our ongoing
operating performance. In addition, we believe that excluding these
non-cash adjustments permits a better comparison of our core
operating results to those of our competitors.
Amortization charges (excluding computer
software) consist of non-cash charges against intangible assets
that are impacted by the timing and magnitude of acquired
businesses. Amortization of intangible assets varies among our
competitors, and we believe that excluding these charges permits a
better comparison of core operating results with those of our
competitors who also generally exclude amortization charges in
assessing operating performance.
Other Charges (Recoveries) consist of, when
applicable: Restructuring Charges, net of recoveries (defined
below); Transition Costs (Recoveries) (defined below); net
Impairment charges (defined below); consulting, transaction and
integration costs related to potential and completed acquisitions,
and charges or releases related to the subsequent re-measurement of
indemnification assets or the release of indemnification or other
liabilities recorded in connection with acquisitions; legal
settlements (recoveries); specified credit facility-related
charges; post-employment benefit plan losses; in Q2 2023 and Q3
2023, Secondary Offering Costs (defined below) and, commencing in
Q2 2023, related costs pertaining to certain accounting
considerations. We exclude these charges and recoveries because we
believe that they are not directly related to ongoing operating
results and do not reflect expected future operating expenses after
completion of these activities or incurrence of the relevant costs
or recoveries. Our competitors may record similar charges and
recoveries at different times, and we believe these exclusions
permit a better comparison of our core operating results with those
of our competitors who also generally exclude these types of
charges and recoveries in assessing operating performance.
Restructuring Charges, net of recoveries,
consist of costs relating to: employee severance, lease
terminations, site closings and consolidations, accelerated
depreciation of owned property and equipment which are no longer
used and are available for sale and reductions in
infrastructure.
Transition Costs consist of costs recorded in
connection with: (i) the transfer of manufacturing lines from
closed sites to other sites within our global network; (ii) the
sale of real properties unrelated to restructuring actions
(Property Dispositions); and (iii) when applicable, and consistent
with our prior treatment of duplicate costs related to our 2019
Toronto real property sale, the excess of rental expense
attributable to subleased space over anticipated sublease rental
recoveries under a 10-year lease for our then-anticipated corporate
headquarters (Property Lease) executed in connection with such sale
($3.9 million charge in Q3 2023), as we extended (on a long-term
basis) the lease on our current corporate headquarters in November
2022 due to several Property Lease commencement delays. Transition
Costs consist of direct relocation and duplicate costs (such as
rent expense, utility costs, depreciation charges, and personnel
costs) incurred during the transition periods, as well as cease-use
and other costs incurred in connection with idle or vacated
portions of the relevant premises that we would not have incurred
but for these relocations, transfers and dispositions. Transition
Recoveries consist of any gains recorded in connection with
Property Dispositions. We believe that excluding these costs and
recoveries permits a better comparison of our core operating
results from period-to-period, as these costs or recoveries do not
reflect our ongoing operations once these specified events are
complete.
Impairment charges, which consist of non-cash
charges against goodwill, intangible assets, property, plant and
equipment, and right-of-use (ROU) assets, result primarily when the
carrying value of these assets exceeds their recoverable
amount.
Secondary Offering Costs consisted of costs
associated with the conversion and underwritten public sale of our
shares by Onex Corporation (Onex), our then-controlling
shareholder, in Q2 2023 and Q3 2023. We believe that excluding
Secondary Offering Costs permits a better comparison of our core
operating results from period-to-period, as they did not reflect
our ongoing operations, and are no longer applicable as such
conversions and sales are complete.
Non-core tax impacts are excluded, as we believe
that these costs or recoveries do not reflect core operating
performance and vary significantly among those of our competitors
who also generally exclude these costs or recoveries in assessing
operating performance.
The following table (which is unaudited) sets
forth, for the periods indicated, the various non-IFRS financial
measures discussed above, and a reconciliation of such non-IFRS
financial measures to the most directly comparable financial
measures determined under IFRS (in millions, except
percentages and per share amounts):
| |
Three months ended March 31 |
| |
|
2023 |
|
|
|
2024 |
|
| |
|
% of revenue |
|
|
% of revenue |
| IFRS
revenue |
$ |
1,837.8 |
|
|
|
$ |
2,208.9 |
|
|
| |
|
|
|
|
|
|
IFRS gross profit |
$ |
164.0 |
|
8.9 |
% |
|
$ |
228.8 |
|
10.4 |
% |
|
Employee SBC expense |
|
8.5 |
|
|
|
|
8.9 |
|
|
|
TRS FVAs: losses (gains) |
|
0.1 |
|
|
|
|
(12.8 |
) |
|
| Non-IFRS adjusted
gross profit |
$ |
172.6 |
|
9.4 |
% |
|
$ |
224.9 |
|
10.2 |
% |
| |
|
|
|
|
|
| IFRS
SG&A |
$ |
77.9 |
|
4.2 |
% |
|
$ |
65.2 |
|
3.0 |
% |
|
Employee SBC expense |
|
(13.5 |
) |
|
|
|
(13.8 |
) |
|
|
TRS FVAs: (losses) gains |
|
(0.1 |
) |
|
|
|
18.7 |
|
|
| Non-IFRS adjusted
SG&A |
$ |
64.3 |
|
3.5 |
% |
|
$ |
70.1 |
|
3.2 |
% |
| |
|
|
|
|
|
| IFRS earnings from
operations |
$ |
59.4 |
|
3.2 |
% |
|
$ |
132.1 |
|
6.0 |
% |
|
Employee SBC expense |
|
22.0 |
|
|
|
|
22.7 |
|
|
|
TRS FVAs: losses (gains) |
|
0.2 |
|
|
|
|
(31.5 |
) |
|
|
Amortization of intangible assets (excluding computer
software) |
|
9.2 |
|
|
|
|
9.3 |
|
|
|
Other Charges, net of Recoveries |
|
4.6 |
|
|
|
|
4.8 |
|
|
| Non-IFRS operating
earnings (adjusted EBIAT)(1) |
$ |
95.4 |
|
5.2 |
% |
|
$ |
137.4 |
|
6.2 |
% |
| |
|
|
|
|
|
| IFRS net
earnings |
$ |
24.7 |
|
1.3 |
% |
|
$ |
101.7 |
|
4.6 |
% |
|
Employee SBC expense |
|
22.0 |
|
|
|
|
22.7 |
|
|
|
TRS FVAs: losses (gains) |
|
0.2 |
|
|
|
|
(31.5 |
) |
|
|
Amortization of intangible assets (excluding computer
software) |
|
9.2 |
|
|
|
|
9.3 |
|
|
|
Other Charges, net of Recoveries |
|
4.6 |
|
|
|
|
4.8 |
|
|
|
Adjustments for taxes(2) |
|
(3.5 |
) |
|
|
|
(4.7 |
) |
|
| Non-IFRS adjusted net
earnings |
$ |
57.2 |
|
|
|
$ |
102.3 |
|
|
| |
|
|
|
|
|
| Diluted
EPS |
|
|
|
|
|
|
Weighted average # of shares (in millions) |
|
121.6 |
|
|
|
|
119.3 |
|
|
|
IFRS earnings per share |
$ |
0.20 |
|
|
|
$ |
0.85 |
|
|
|
Non-IFRS adjusted earnings per share |
$ |
0.47 |
|
|
|
$ |
0.86 |
|
|
|
# of shares outstanding at period end (in millions) |
|
120.7 |
|
|
|
|
118.8 |
|
|
| |
|
|
|
|
|
| IFRS cash provided by
operations |
$ |
72.3 |
|
|
|
$ |
131.1 |
|
|
|
Purchase of property, plant and equipment |
|
(33.1 |
) |
|
|
|
(40.4 |
) |
|
|
Lease payments |
|
(11.3 |
) |
|
|
|
(11.7 |
) |
|
|
Finance Costs paid |
|
(18.7 |
) |
|
|
|
(13.8 |
) |
|
| Non-IFRS adjusted free
cash flow (3) |
$ |
9.2 |
|
|
|
$ |
65.2 |
|
|
| |
|
|
|
|
|
| IFRS ROIC %
(4) |
|
11.2 |
% |
|
|
|
23.8 |
% |
|
| Non-IFRS adjusted ROIC
% (4) |
|
17.9 |
% |
|
|
|
24.8 |
% |
|
(1) Management uses non-IFRS operating earnings
(adjusted EBIAT) as a measure to assess performance related to our
core operations. Non-IFRS operating earnings is defined as earnings
from operations before employee SBC expense, TRS FVAs (defined
above), amortization of intangible assets (excluding computer
software), and Other Charges (Recoveries) (defined above). See note
8 to our Q1 2024 Interim Financial Statements for separate
quantification and discussion of the components of Other Charges
(Recoveries). Non-IFRS operating margin is non-IFRS operating
earnings as a percentage of revenue.
(2) The adjustments for taxes, as applicable,
represent the tax effects of our non-IFRS adjustments (see
below).
The following table sets forth a reconciliation
of our non-IFRS adjusted tax expense and our non-IFRS adjusted
effective tax rate to our IFRS tax expense and IFRS effective tax
rate, respectively, for the periods indicated, in each case
determined by excluding the tax benefits or costs associated with
the listed items (in millions, except percentages) from our IFRS
tax expense for such periods. Our IFRS effective tax rate is
determined by dividing (i) IFRS tax expense by (ii) earnings from
operations minus Finance Costs (defined in footnote (3) below); our
non-IFRS adjusted effective tax rate is determined by dividing (i)
non-IFRS adjusted tax expense by (ii) non-IFRS operating earnings
minus Finance Costs.
| |
Three months ended March 31 |
|
|
|
2023 |
|
|
|
2024 |
|
| IFRS tax expense |
$ |
13.0 |
|
|
$ |
13.9 |
|
| |
|
|
|
| Tax costs (benefits) of the
following items excluded from IFRS tax expense: |
|
|
|
|
Employee SBC expense and TRS FVAs |
|
2.3 |
|
|
|
3.6 |
|
|
Amortization of intangible assets (excluding computer
software) |
|
0.8 |
|
|
|
0.8 |
|
|
Other Charges, net of Recoveries |
|
0.4 |
|
|
|
0.3 |
|
| Non-IFRS adjusted tax
expense |
$ |
16.5 |
|
|
$ |
18.6 |
|
| |
|
|
|
| IFRS tax expense |
$ |
13.0 |
|
|
$ |
13.9 |
|
| |
|
|
|
| Earnings from operations |
$ |
59.4 |
|
|
$ |
132.1 |
|
| Finance Costs |
|
(21.7 |
) |
|
|
(16.5 |
) |
| |
$ |
37.7 |
|
|
$ |
115.6 |
|
| |
|
|
|
| IFRS effective tax rate |
|
34 |
% |
|
|
12 |
% |
| |
|
|
|
| Non-IFRS adjusted tax
expense |
$ |
16.5 |
|
|
$ |
18.6 |
|
| |
|
|
|
| Non-IFRS operating
earnings |
$ |
95.4 |
|
|
$ |
137.4 |
|
| Finance Costs |
|
(21.7 |
) |
|
|
(16.5 |
) |
| |
$ |
73.7 |
|
|
$ |
120.9 |
|
| |
|
|
|
| Non-IFRS adjusted effective
tax rate |
|
22 |
% |
|
|
15 |
% |
(3) Management uses non-IFRS adjusted free cash
flow as a measure, in addition to IFRS cash provided by (used in)
operations, to assess our operational cash flow performance. We
believe non-IFRS adjusted free cash flow provides another level of
transparency to our liquidity. Non-IFRS adjusted free cash flow is
defined as cash provided by (used in) operations after the purchase
of property, plant and equipment (net of proceeds from the sale of
certain surplus equipment and property, when applicable), lease
payments, and Finance Costs (defined below) paid (excluding,
when applicable, any debt issuance costs and credit facility waiver
fees paid). Finance Costs consist of interest expense and fees
related to our credit facility (including debt issuance and related
amortization costs), our interest rate swap agreements, our TRS
Agreement, our accounts receivable sales program and customers'
supplier financing programs, and interest expense on our lease
obligations, net of interest income earned. We do not consider debt
issuance costs paid or credit facility waiver fees paid (when
applicable) to be part of our ongoing financing expenses. As a
result, these costs are excluded from total Finance Costs paid in
our determination of non-IFRS adjusted free cash flow (no such
costs were applicable to the periods presented in this table). We
believe that excluding Finance Costs paid (other than debt issuance
costs and credit-agreement-related waiver fees paid) from cash
provided by operations in the determination of non-IFRS adjusted
free cash flow provides useful insight for assessing the
performance of our core operations. Note, however, that non-IFRS
adjusted free cash flow does not represent residual cash flow
available to Celestica for discretionary expenditures.
(4) Management uses non-IFRS adjusted ROIC as a
measure to assess the effectiveness of the invested capital we use
to build products or provide services to our customers, by
quantifying how well we generate earnings relative to the capital
we have invested in our business. Non-IFRS adjusted ROIC is
calculated by dividing annualized non-IFRS adjusted EBIAT by
average net invested capital for the period. Net invested capital
(calculated in the tables below) is derived from IFRS financial
measures, and is defined as total assets less: cash, ROU assets,
accounts payable, accrued and other current liabilities,
provisions, and income taxes payable. We use a two-point average to
calculate average net invested capital for the quarter. Average net
invested capital for Q1 2024 is the average of net invested capital
as at March 31, 2024 and December 31, 2023. A comparable financial
measure to non-IFRS adjusted ROIC determined using IFRS measures
would be calculated by dividing annualized IFRS earnings from
operations by average net invested capital for the period.
The following table sets forth, for the periods
indicated, our calculation of IFRS ROIC % and non-IFRS adjusted
ROIC % (in millions, except IFRS ROIC % and non-IFRS adjusted ROIC
%).
| |
Three months ended |
| |
March 31 |
|
|
|
2023 |
|
|
|
2024 |
|
| |
|
|
|
| IFRS earnings from
operations |
$ |
59.4 |
|
|
$ |
132.1 |
|
| Multiplier to annualize
earnings |
|
4 |
|
|
|
4 |
|
| Annualized IFRS earnings from
operations |
$ |
237.6 |
|
|
$ |
528.4 |
|
| |
|
|
|
| Average net invested capital
for the period |
$ |
2,127.1 |
|
|
$ |
2,217.4 |
|
| |
|
|
|
| IFRS ROIC % (1) |
|
11.2 |
% |
|
|
23.8 |
% |
| |
|
|
|
| |
Three months ended |
| |
March 31 |
| |
|
2023 |
|
|
|
2024 |
|
| |
|
|
|
| Non-IFRS operating earnings
(adjusted EBIAT) |
$ |
95.4 |
|
|
$ |
137.4 |
|
| Multiplier to annualize
earnings |
|
4 |
|
|
|
4 |
|
| Annualized non-IFRS adjusted
EBIAT |
$ |
381.6 |
|
|
$ |
549.6 |
|
| |
|
|
|
| Average net invested capital
for the period |
$ |
2,127.1 |
|
|
$ |
2,217.4 |
|
| |
|
|
|
| Non-IFRS adjusted ROIC %
(1) |
|
17.9 |
% |
|
|
24.8 |
% |
| |
December 312023 |
|
March 312024 |
| Net invested capital consists
of: |
|
|
|
|
Total assets |
$ |
5,890.7 |
|
|
$ |
5,717.1 |
|
| Less: cash |
|
370.4 |
|
|
|
308.1 |
|
| Less: ROU assets |
|
154.0 |
|
|
|
180.1 |
|
| Less: accounts payable,
accrued and other current liabilities, provisions and income taxes
payable |
|
3,167.9 |
|
|
|
2,992.6 |
|
| Net invested capital at period
end (1) |
$ |
2,198.4 |
|
|
$ |
2,236.3 |
|
| |
|
|
|
|
|
December 312022 |
|
March 312023 |
| Net invested capital consists
of: |
|
|
|
| Total assets |
$ |
5,628.0 |
|
|
$ |
5,468.1 |
|
| Less: cash |
|
374.5 |
|
|
|
318.7 |
|
| Less: ROU assets |
|
138.8 |
|
|
|
133.1 |
|
| Less: accounts payable,
accrued and other current liabilities, provisions and income taxes
payable |
|
3,003.0 |
|
|
|
2,873.9 |
|
| Net invested capital at period
end (1) |
$ |
2,111.7 |
|
|
$ |
2,142.4 |
|
(1) See footnote 4 on the previous
page.
|
|
|
CELESTICA INC. CONDENSED
CONSOLIDATED BALANCE SHEET(in millions of
U.S. dollars)(unaudited) |
| |
|
|
|
|
| |
Note |
December 312023 |
|
March 312024 |
| |
|
|
|
|
| Assets |
|
|
|
|
| Current assets: |
|
|
|
|
|
Cash and cash equivalents |
|
$ |
370.4 |
|
|
$ |
308.1 |
|
|
Accounts receivable |
4 |
|
1,795.7 |
|
|
|
1,815.2 |
|
|
Inventories |
5 |
|
2,106.1 |
|
|
|
1,959.2 |
|
|
Income taxes receivable |
|
|
11.9 |
|
|
|
11.8 |
|
|
Other current assets |
10 |
|
228.5 |
|
|
|
232.5 |
|
| Total current assets |
|
|
4,512.6 |
|
|
|
4,326.8 |
|
| |
|
|
|
|
| Property, plant and
equipment |
|
|
472.7 |
|
|
|
467.9 |
|
| Right-of-use assets |
|
|
154.0 |
|
|
|
180.1 |
|
| Goodwill |
|
|
321.7 |
|
|
|
321.5 |
|
| Intangible assets |
|
|
318.3 |
|
|
|
309.2 |
|
| Deferred income taxes |
|
|
62.5 |
|
|
|
65.5 |
|
| Other non-current assets |
10 |
|
48.9 |
|
|
|
46.1 |
|
| Total assets |
|
$ |
5,890.7 |
|
|
$ |
5,717.1 |
|
| |
|
|
|
|
| Liabilities and
Equity |
|
|
|
|
| Current liabilities: |
|
|
|
|
|
Current portion of borrowings under credit facility and lease
obligations |
6 |
$ |
51.6 |
|
|
$ |
54.3 |
|
|
Accounts payable |
|
|
1,298.2 |
|
|
|
1,388.1 |
|
|
Accrued and other current liabilities |
5&10 |
|
1,781.3 |
|
|
|
1,516.2 |
|
|
Income taxes payable |
|
|
64.8 |
|
|
|
65.7 |
|
|
Current portion of provisions |
|
|
23.6 |
|
|
|
22.6 |
|
| Total current liabilities |
|
|
3,219.5 |
|
|
|
3,046.9 |
|
| |
|
|
|
|
| Long-term portion of borrowings
under credit facility and lease obligations |
6 |
|
731.2 |
|
|
|
778.4 |
|
| Pension and non-pension
post-employment benefit obligations |
|
|
88.1 |
|
|
|
86.1 |
|
| Provisions and other non-current
liabilities |
|
|
41.2 |
|
|
|
47.2 |
|
| Deferred income taxes |
|
|
42.2 |
|
|
|
47.0 |
|
| Total liabilities |
|
|
4,122.2 |
|
|
|
4,005.6 |
|
| |
|
|
|
|
| Equity: |
|
|
|
|
|
Capital stock |
7 |
|
1,672.5 |
|
|
|
1,671.5 |
|
|
Treasury stock |
7 |
|
(80.1 |
) |
|
|
(95.0 |
) |
|
Contributed surplus |
|
|
1,030.6 |
|
|
|
896.8 |
|
|
Deficit |
|
|
(839.6 |
) |
|
|
(737.9 |
) |
|
Accumulated other comprehensive loss |
|
|
(14.9 |
) |
|
|
(23.9 |
) |
| Total equity |
|
|
1,768.5 |
|
|
|
1,711.5 |
|
| Total liabilities and equity |
|
$ |
5,890.7 |
|
|
$ |
5,717.1 |
|
| |
|
|
|
|
Commitments
and Contingencies (note 11). Subsequent event (note 11).
The accompanying notes are an integral part of
these unaudited interim condensed consolidated financial
statements.
| |
|
|
|
CELESTICA INC. CONDENSED
CONSOLIDATED STATEMENT OF
OPERATIONS(in millions of U.S. dollars,
except per share amounts)(unaudited) |
| |
|
|
| |
|
Three months ended |
| |
|
March 31 |
|
|
Note |
|
2023 |
|
|
|
2024 |
|
| |
|
|
|
|
| Revenue |
3 |
$ |
1,837.8 |
|
|
$ |
2,208.9 |
|
| Cost of sales |
5 |
|
1,673.8 |
|
|
|
1,980.1 |
|
| Gross profit |
|
|
164.0 |
|
|
|
228.8 |
|
| Selling, general and
administrative expenses |
|
|
77.9 |
|
|
|
65.2 |
|
| Research and development |
|
|
12.1 |
|
|
|
16.5 |
|
| Amortization of intangible
assets |
|
|
10.0 |
|
|
|
10.2 |
|
| Other charges, net of
recoveries |
8 |
|
4.6 |
|
|
|
4.8 |
|
| Earnings from operations |
|
|
59.4 |
|
|
|
132.1 |
|
| Finance costs |
6 |
|
21.7 |
|
|
|
16.5 |
|
| Earnings before income
taxes |
|
|
37.7 |
|
|
|
115.6 |
|
| Income tax expense
(recovery) |
9 |
|
|
|
|
Current |
|
|
17.9 |
|
|
|
11.3 |
|
|
Deferred |
|
|
(4.9 |
) |
|
|
2.6 |
|
|
|
|
|
13.0 |
|
|
|
13.9 |
|
| Net earnings for the
period |
|
$ |
24.7 |
|
|
$ |
101.7 |
|
| |
|
|
|
|
| Basic earnings per share |
|
$ |
0.20 |
|
|
$ |
0.85 |
|
| Diluted earnings per
share |
|
$ |
0.20 |
|
|
$ |
0.85 |
|
| |
|
|
|
|
| Shares used in computing per
share amounts (in millions): |
|
|
|
|
|
Basic |
|
|
121.5 |
|
|
|
119.0 |
|
|
Diluted |
|
|
121.6 |
|
|
|
119.3 |
|
The accompanying notes are an integral part of
these unaudited interim condensed consolidated financial
statements.
| |
|
|
CELESTICA INC.CONDENSED CONSOLIDATED
STATEMENT OF COMPREHENSIVE INCOME(in millions
of U.S. dollars)(unaudited) |
|
|
|
| |
Three months ended |
| |
March 31 |
|
|
|
2023 |
|
|
|
2024 |
|
| |
|
|
|
| Net earnings for the
period |
$ |
24.7 |
|
|
$ |
101.7 |
|
| Other comprehensive income
(loss), net of tax: |
|
|
|
|
Items that may be reclassified to net earnings: |
|
|
|
|
Currency translation differences for foreign operations |
|
(1.5 |
) |
|
|
(3.3 |
) |
|
Changes from currency forward derivative hedges |
|
1.1 |
|
|
|
(6.7 |
) |
|
Changes from interest rate swap derivative hedges |
|
(3.6 |
) |
|
|
1.0 |
|
| Total comprehensive income for
the period |
$ |
20.7 |
|
|
$ |
92.7 |
|
The accompanying notes are an integral part of
these unaudited interim condensed consolidated financial
statements.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
CELESTICA INC. CONDENSED CONSOLIDATED
STATEMENT OF CHANGES IN EQUITY(in millions of U.S.
dollars)(unaudited) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Note |
Capital stock(note
7) |
|
Treasury
stock (note 7) |
|
Contributedsurplus |
|
Deficit |
|
Accumulated other
comprehensiveloss
(a) |
|
Total equity |
|
Balance -- January 1, 2023 |
|
$ |
1,714.9 |
|
|
$ |
(18.5 |
) |
|
$ |
1,063.6 |
|
|
$ |
(1,076.6 |
) |
|
$ |
(5.7 |
) |
|
$ |
1,677.7 |
|
| Capital
transactions: |
7 |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of capital stock |
|
|
0.1 |
|
|
|
— |
|
|
|
(0.1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Repurchase of capital stock for cancellation(b) |
|
|
(15.5 |
) |
|
|
1.8 |
|
|
|
(1.9 |
) |
|
|
— |
|
|
|
— |
|
|
|
(15.6 |
) |
|
Stock-based compensation (SBC) cash settlement |
7 |
|
— |
|
|
|
— |
|
|
|
(49.8 |
) |
|
|
— |
|
|
|
— |
|
|
|
(49.8 |
) |
|
Equity-settled SBC |
|
|
— |
|
|
|
6.4 |
|
|
|
16.1 |
|
|
|
— |
|
|
|
— |
|
|
|
22.5 |
|
| Total comprehensive
income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings for the period |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
24.7 |
|
|
|
— |
|
|
|
24.7 |
|
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation differences for foreign operations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1.5 |
) |
|
|
(1.5 |
) |
|
Changes from currency forward derivative hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1.1 |
|
|
|
1.1 |
|
|
Changes from interest rate swap derivative hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3.6 |
) |
|
|
(3.6 |
) |
| Balance -- March 31, 2023 |
|
$ |
1,699.5 |
|
|
$ |
(10.3 |
) |
|
$ |
1,027.9 |
|
|
$ |
(1,051.9 |
) |
|
$ |
(9.7 |
) |
|
$ |
1,655.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Balance -- January 1,
2024 |
|
$ |
1,672.5 |
|
|
$ |
(80.1 |
) |
|
$ |
1,030.6 |
|
|
$ |
(839.6 |
) |
|
$ |
(14.9 |
) |
|
$ |
1,768.5 |
|
| Capital
transactions: |
7 |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of capital stock |
|
|
5.4 |
|
|
|
— |
|
|
|
(1.5 |
) |
|
|
— |
|
|
|
— |
|
|
|
3.9 |
|
|
Repurchase of capital stock for cancellation(c) |
|
|
(6.4 |
) |
|
|
— |
|
|
|
(7.4 |
) |
|
|
— |
|
|
|
— |
|
|
|
(13.8 |
) |
|
Purchase of treasury stock for SBC plans (d) |
|
|
— |
|
|
|
(94.1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(94.1 |
) |
|
SBC cash settlement |
|
|
— |
|
|
|
— |
|
|
|
(69.0 |
) |
|
|
— |
|
|
|
— |
|
|
|
(69.0 |
) |
|
Equity-settled SBC |
|
|
— |
|
|
|
79.2 |
|
|
|
(55.9 |
) |
|
|
— |
|
|
|
— |
|
|
|
23.3 |
|
| Total comprehensive
income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings for the period |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
101.7 |
|
|
|
— |
|
|
|
101.7 |
|
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation differences for foreign operations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3.3 |
) |
|
|
(3.3 |
) |
|
Changes from currency forward derivative hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6.7 |
) |
|
|
(6.7 |
) |
|
Changes from interest rate swap derivative hedges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1.0 |
|
|
|
1.0 |
|
| Balance -- March 31, 2024 |
|
$ |
1,671.5 |
|
|
$ |
(95.0 |
) |
|
$ |
896.8 |
|
|
$ |
(737.9 |
) |
|
$ |
(23.9 |
) |
|
$ |
1,711.5 |
|
(a) Accumulated other comprehensive loss is net of tax.(b)
Consists of $10.6 paid to repurchase subordinate voting shares
(SVS) for cancellation during the first quarter of 2023 and $5.0
accrued at March 31, 2023 for the contractual maximum spend
for SVS repurchases for cancellation under an automatic share
purchase plan (ASPP) executed in February 2023 for such purpose
(see note 7).(c) Consists of $16.5 paid to repurchase SVS for
cancellation during the first quarter of 2024, offset in part by
the reversal of $2.7 accrued at December 31, 2023 for the
estimated contractual maximum quantity of permitted SVS repurchases
(Contractual Maximum Quantity) under an ASPP executed in December
2023 for such purpose (see note 7).(d) Consists of $101.6 paid to
repurchase SVS for delivery obligations under our SBC plans during
the first quarter of 2024, offset in part by the reversal of $7.5
accrued at December 31, 2023 for the estimated Contractual
Maximum Quantity under an ASPP executed in September 2023 for such
purpose (see note 7).
The accompanying notes are an integral part of
these unaudited interim condensed consolidated financial
statements.
| |
|
|
|
CELESTICA INC.CONDENSED CONSOLIDATED
STATEMENT OF CASH FLOWS(in millions of U.S.
dollars)(unaudited) |
| |
|
|
| |
|
Three months ended |
| |
|
March 31 |
|
|
Note |
|
2023 |
|
|
|
2024 |
|
| |
|
|
|
|
| Cash provided by (used
in): |
|
|
|
|
| Operating
activities: |
|
|
|
|
| Net earnings for the
period |
|
$ |
24.7 |
|
|
$ |
101.7 |
|
| Adjustments to net earnings
for items not affecting cash: |
|
|
|
|
|
Depreciation and amortization |
|
|
38.3 |
|
|
|
43.6 |
|
|
Equity-settled employee SBC expense |
7 |
|
22.0 |
|
|
|
22.7 |
|
|
Total return swap fair value adjustments: losses (gains) |
|
|
0.2 |
|
|
|
(31.5 |
) |
|
Other charges |
8 |
|
— |
|
|
|
0.7 |
|
|
Finance costs |
|
|
21.7 |
|
|
|
16.5 |
|
|
Income tax expense |
|
|
13.0 |
|
|
|
13.9 |
|
| Other |
|
|
3.3 |
|
|
|
2.0 |
|
| Changes in non-cash working
capital items: |
|
|
|
|
|
Accounts receivable |
|
|
133.5 |
|
|
|
(16.8 |
) |
|
Inventories |
|
|
(53.0 |
) |
|
|
146.9 |
|
|
Other current assets |
|
|
8.6 |
|
|
|
(10.1 |
) |
|
Accounts payable, accrued and other current liabilities and
provisions |
|
|
(129.2 |
) |
|
|
(139.6 |
) |
| Non-cash working capital
changes |
|
|
(40.1 |
) |
|
|
(19.6 |
) |
| Net income tax paid |
|
|
(10.8 |
) |
|
|
(18.9 |
) |
| Net cash provided by operating
activities |
|
|
72.3 |
|
|
|
131.1 |
|
| |
|
|
|
|
| Investing
activities: |
|
|
|
|
| Purchase of computer software
and property, plant and equipment |
|
|
(33.1 |
) |
|
|
(40.4 |
) |
| Net cash used in investing
activities |
|
|
(33.1 |
) |
|
|
(40.4 |
) |
| |
|
|
|
|
| Financing
activities: |
|
|
|
|
| Revolving loan borrowings |
6 |
|
— |
|
|
|
285.0 |
|
| Revolving loan repayments |
6 |
|
— |
|
|
|
(257.0 |
) |
| Term loan repayments |
6 |
|
(4.6 |
) |
|
|
(4.6 |
) |
| Lease payments |
|
|
(11.3 |
) |
|
|
(11.7 |
) |
| Issuance of capital stock |
7 |
|
— |
|
|
|
3.9 |
|
| Repurchase of capital stock
for cancellation |
7 |
|
(10.6 |
) |
|
|
(16.5 |
) |
| Purchase of treasury stock for
stock-based plans |
7 |
|
— |
|
|
|
(101.6 |
) |
|
Proceeds from partial total return swap settlement |
10 |
|
— |
|
|
|
32.3 |
|
|
SBC cash settlement |
7 |
|
(49.8 |
) |
|
|
(69.0 |
) |
|
Finance costs paid |
6 |
|
(18.7 |
) |
|
|
(13.8 |
) |
| Net cash used in financing
activities |
|
|
(95.0 |
) |
|
|
(153.0 |
) |
| |
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(55.8 |
) |
|
|
(62.3 |
) |
|
Cash and cash equivalents, beginning of period |
|
|
374.5 |
|
|
|
370.4 |
|
|
Cash and cash equivalents, end of period |
|
$ |
318.7 |
|
|
$ |
308.1 |
|
The accompanying notes are an integral part of
these unaudited interim condensed consolidated financial
statements.
1. REPORTING
ENTITY
Celestica Inc. (referred to herein as Celestica,
the Company, we, us, or our) is incorporated in Ontario with its
corporate headquarters located in Toronto, Ontario, Canada.
Celestica’s subordinate voting shares (SVS) are listed on the
Toronto Stock Exchange (TSX) and the New York Stock Exchange
(NYSE).
2. BASIS OF PREPARATION
AND MATERIAL ACCOUNTING POLICIES
Statement of compliance:
These unaudited interim condensed consolidated
financial statements for the quarter ended March 31, 2024 (Q1
2024 Interim Financial Statements) have been prepared in accordance
with International Accounting Standard (IAS) 34, Interim Financial
Reporting, and the accounting policies we have adopted in
accordance with International Financial Reporting Standards (IFRS),
in each case as issued by the International Accounting Standards
Board (IASB), and reflect all adjustments that are, in the opinion
of management, necessary to present fairly our financial position
as of March 31, 2024 and our financial performance,
comprehensive income and cash flows for the three months ended
March 31, 2024 (referred to herein as Q1 2024). The Q1 2024
Interim Financial Statements should be read in conjunction with our
2023 audited consolidated financial statements (2023 AFS), which
are included in our Annual Report on Form 20-F for the year ended
December 31, 2023. The Q1 2024 Interim Financial Statements are
presented in United States (U.S.) dollars, which is also
Celestica's functional currency. Unless otherwise noted, all
financial information is presented in millions of U.S. dollars
(except percentages and per share/per unit amounts).
The Q1 2024 Interim Financial Statements were
authorized for issuance by our Board of Directors on April 24,
2024.
Use of estimates and
judgments:
The preparation of financial statements in
conformity with IFRS requires management to make judgments,
estimates and assumptions that affect the application of accounting
policies, the reported amounts of assets, liabilities, revenue and
expenses, and related disclosures with respect to contingent assets
and liabilities. We base our judgments, estimates and assumptions
on current facts (including, in recent periods, the prolonged
impact of global supply chain constraints), historical experience
and various other factors that we believe are reasonable under the
circumstances. The economic environment also impacts certain
estimates and discount rates necessary to prepare our consolidated
financial statements, including significant estimates and discount
rates applicable to the determination of the recoverable amounts
used in the impairment testing of our non-financial assets. Our
assessment of these factors forms the basis for our judgments on
the carrying values of our assets and liabilities, and the accrual
of our costs and expenses. Actual results could differ materially
from our estimates and assumptions. We review our estimates and
underlying assumptions on an ongoing basis and make revisions as
determined necessary by management. Revisions are recognized in the
period in which the estimates are revised and may also impact
future periods.
Our review of the estimates, judgments and
assumptions used in the preparation of the Q1 2024 Interim
Financial Statements included those relating to, among others: our
determination of the timing of revenue recognition, the
determination of whether indicators of impairment existed for our
assets and cash generating units (CGUs1), our measurement of
deferred tax assets and liabilities, our estimated inventory
write-downs and expected credit losses, and customer
creditworthiness. Any revisions to estimates, judgments or
assumptions may result in, among other things, write-downs,
accelerated depreciation or amortization, or impairments to our
assets or CGUs, and/or adjustments to the carrying amount of our
accounts receivable and/or inventories, or to the valuation of our
deferred tax assets, any of which could have a material impact on
our financial performance and financial condition.
Accounting policies:
Except for Amendments to IAS 1, adopted as of
January 1, 2024 as described below, the Q1 2024 Interim Financial
Statements are based on accounting policies consistent with those
described in note 2 to our 2023 AFS.
Recently adopted accounting standards
and amendments:
Classification of liabilities as current or
non-current (Amendments to IAS 1)
In January 2020, the IASB issued Classification
of liabilities as current or non-current (Amendments to IAS 1) to
clarify how to classify debt and other liabilities as current or
non-current. The amendments are effective for reporting periods
beginning on or after January 1, 2024. This standard, which we
adopted as of January 1, 2024, did not have a material impact on
our consolidated financial statements.
Recently issued but not yet effective
standards:
IFRS 18 Presentation and Disclosure in Financial
Statements
In April 2024, the IASB issued IFRS 18
Presentation and Disclosure in Financial Statements. IFRS 18
replaces IAS 1 Presentation of Financial Statements and sets out
requirements for the presentation and disclosure of information in
general purpose financial statements. The standard applies to
annual reporting periods beginning on or after January 1, 2027 and
is to be applied retrospectively, with early adoption permitted. We
have not yet adopted such standard and are currently assessing the
impact on our consolidated financial statements.
3.
SEGMENT AND CUSTOMER REPORTING
Segments:
Celestica delivers innovative supply chain
solutions globally to customers in two operating and reportable
segments: Advanced Technology Solutions (ATS) and Connectivity
& Cloud Solutions (CCS). Our ATS segment consists of our ATS
end market, and is comprised of our Aerospace and Defense
(A&D), Industrial, HealthTech and Capital Equipment businesses.
Our CCS segment consists of our Communications and Enterprise
(servers and storage) end markets. Segment performance is evaluated
based on segment revenue, segment income and segment margin
(segment income as a percentage of segment revenue). See note 25 to
our 2023 AFS for a description of the businesses that comprise our
segments, how segment revenue is attributed, how costs are
allocated to our segments, and how segment income and segment
margin are determined.
Information regarding the performance of our
reportable segments is set forth below:
| Revenue by
segment: |
Three months ended March 31 |
| |
|
2023 |
|
|
|
2024 |
|
| |
|
% of total |
|
|
% of total |
|
ATS |
$ |
792.2 |
43 |
% |
|
$ |
767.9 |
35 |
% |
| CCS |
|
1,045.6 |
57 |
% |
|
|
1,441.0 |
65 |
% |
|
Communications end market revenue as a % of total revenue |
|
36 |
% |
|
|
34 |
% |
|
Enterprise end market revenue as a % of total revenue |
|
21 |
% |
|
|
31 |
% |
| Total |
$ |
1,837.8 |
|
|
$ |
2,208.9 |
|
| Segment
income, segment margin, and reconciliation of segment income to
IFRS earnings before income taxes: |
Three months ended March 31 |
| |
Note |
|
2023 |
|
|
|
2024 |
|
|
| |
|
|
Segment Margin |
|
|
Segment Margin |
|
ATS segment income and
margin |
|
$ |
34.6 |
|
4.4 |
% |
|
$ |
36.2 |
|
|
4.7 |
% |
|
| CCS segment income and
margin |
|
|
60.8 |
|
5.8 |
% |
|
|
101.2 |
|
|
7.0 |
% |
|
| Total segment
income |
|
|
95.4 |
|
|
|
|
137.4 |
|
|
|
| Reconciling items: |
|
|
|
|
|
|
| Finance
costs |
6 |
|
21.7 |
|
|
|
|
16.5 |
|
|
|
| Employee stock-based
compensation (SBC)
expense |
|
|
22.0 |
|
|
|
|
22.7 |
|
|
|
| Total return swap (TRS) fair
value adjustments: losses
(gains) |
7&10 |
|
0.2 |
|
|
|
|
(31.5 |
) |
|
|
| Amortization of intangible
assets (excluding computer
software) |
|
|
9.2 |
|
|
|
|
9.3 |
|
|
|
| Other charges, net of
recoveries |
8 |
|
4.6 |
|
|
|
|
4.8 |
|
|
|
| IFRS earnings before income
taxes |
|
$ |
37.7 |
|
|
|
$ |
115.6 |
|
|
|
Customers:
One customer (in our CCS segment) individually
represented 10% or more of total revenue in Q1 2024 (34%). Two
customers (each in our CCS segment) individually represented 10% or
more of total revenue in the first quarter of 2023 (Q1 2023) (15%
and 11%).
4. ACCOUNTS
RECEIVABLE
Accounts receivable (A/R) sales program
and supplier financing programs (SFPs):
We are party to an A/R sales program agreement
with a third-party bank to sell up to $450.0 in A/R on an
uncommitted, revolving basis, subject to pre-determined limits by
customer. This agreement provides for automatic annual one-year
extensions, and may be terminated at any time by the bank or by us
upon 3 months’ prior notice, or by the bank upon specified
defaults. Under our A/R sales program, we continue to collect cash
from our customers and remit amounts collected to the bank
weekly.
As of March 31, 2024, we participate in
three customer SFPs, pursuant to which we sell A/R from the
relevant customer to third-party banks on an uncommitted basis. The
SFPs have an indefinite term and may be terminated at any time by
the customer or by us upon specified prior notice. Under our SFPs,
the third-party banks collect the relevant A/R directly from these
customers.
At March 31, 2024, we sold $11.6 of A/R
(December 31, 2023 — nil) under our A/R sales program,
and $65.2 of A/R (December 31, 2023 — $18.6) under the SFPs.
The A/R sold under each of these programs are de-recognized from
our A/R balance at the time of sale, and the proceeds are reflected
as cash provided by operating activities in our consolidated
statement of cash flows. Upon sale, we assign the rights to the A/R
to the banks. A/R are sold net of discount charges, which are
recorded as finance costs in our consolidated statement of
operations.
Contract assets:
At March 31, 2024, our A/R balance included
$247.7 (December 31, 2023 — $250.8) of contract assets
recognized as revenue in accordance with our revenue recognition
accounting policy.
5.
INVENTORIES
We record inventory write-downs, net of
valuation recoveries, in cost of sales. Inventories are valued at
the lower of cost and net realizable value. Inventory write-downs
reflect the write-down of inventory to its net realizable value.
Valuation recoveries reflect gains on the disposition of previously
written-down inventory and favorable adjustments reflecting current
and forecasted usage. We recorded net inventory write-downs of
$10.3 for Q1 2024 (Q1 2023 — $13.8).
We receive cash deposits from certain of our
customers primarily to help mitigate the impact of high inventory
levels carried due to the constrained materials environment, and to
reduce risks related to excess and/or obsolete inventory. Such
deposits as of March 31, 2024 totaled $719.4
(December 31, 2023 — $904.8), and were recorded in accrued and
other current liabilities on our consolidated balance sheet.
6. CREDIT FACILITIES
AND LEASE OBLIGATIONS
We are party to a credit agreement (Credit
Facility) with Bank of America, N.A., as Administrative Agent, and
the other lenders party thereto, which includes a term loan in the
original principal amount of $350.0 (Initial Term Loan), a term
loan in the original principal amount of $365.0 (Incremental Term
Loan), and a $600.0 revolving credit facility (Revolver). The
Initial Term Loan and the Incremental Term Loan are collectively
referred to as the Term Loans. In June 2023 (effective for all new
interest periods for existing borrowings and all new subsequent
borrowings), we amended our Credit Facility (June 2023 Amendments)
to replace LIBOR with the term Secured Overnight Financing Rate
(SOFR) plus 0.1% (Adjusted Term SOFR).
The Initial Term Loan matures in June 2025. The
Incremental Term Loan and the Revolver each mature in March 2025,
unless either (i) the Initial Term Loan has been prepaid or
refinanced or (ii) commitments under the Revolver are available and
have been reserved to repay the Initial Term Loan in full, in which
case the Incremental Term Loan and Revolver each mature in December
2026. Scheduled quarterly principal repayments under the
Incremental Term Loan beyond the next four quarters and the
outstanding balance under the Revolver were classified as
non-current at March 31, 2024, as commitments under the
Revolver are available and we have the right and ability to reserve
such commitments to repay the Initial Term Loan in full, such that
the maturity of the Incremental Term Loan and Revolver may be
deferred to December 2026.
The Credit Facility has an accordion feature
that allows us to increase the Term Loans and/or commitments under
the Revolver by $150.0, plus an unlimited amount to the extent that
a specified leverage ratio on a pro forma basis does not exceed
specified limits, in each case on an uncommitted basis and subject
to the satisfaction of certain terms and conditions.
Borrowings under the Revolver bear interest,
depending on the currency of the borrowing and our election for
such currency, at: (i) LIBOR for interest periods beginning prior
to the June 2023 Amendments and Adjusted Term SOFR thereafter, (ii)
Base Rate, (iii) Canadian Prime, (iv) an Alternative Currency Daily
Rate, or (v) an Alternative Currency Term Rate (each as defined in
the Credit Facility) plus a specified margin. The margin for
borrowings under the Revolver and the Incremental Term Loan ranges
from 1.50% — 2.25% for LIBOR and Adjusted Term SOFR borrowings (as
applicable) and Alternative Currency borrowings, and between 0.50%
— 1.25% for Base Rate and Canadian Prime borrowings, in each case
depending on the rate we select and our consolidated leverage ratio
(as defined in the Credit Facility). Commitment fees range between
0.30% and 0.45% depending on our consolidated leverage ratio. As of
March 31, 2024, the Initial Term Loan bears interest at
Adjusted Term SOFR plus 2.125%, and the Incremental Term Loan bears
interest at Adjusted Term SOFR plus 1.75%.
The Incremental Term Loan requires quarterly
principal repayments of $4.5625, and each of the Term Loans
requires a lump sum repayment of the remainder outstanding at
maturity. The Initial Term Loan required quarterly principal
repayments of $0.875, all of which were paid in prior years. We are
also required to make annual prepayments of outstanding obligations
under the Credit Facility (applied first to the Term Loans, then to
the Revolver, in the manner set forth in the Credit Facility)
ranging from 0% — 50% (based on a defined leverage ratio) of
specified excess cash flow for the prior fiscal year. No
prepayments based on excess cash flow were required in 2023, or
will be required in 2024. In addition, prepayments of outstanding
obligations under the Credit Facility (applied as described above)
may also be required in the amount of specified net cash proceeds
received above a specified annual threshold (including proceeds
from the disposal of certain assets). No Credit Facility
prepayments based on net cash proceeds were required in 2023, or
will be required in 2024. Any outstanding amounts under the
Revolver are due at maturity.
Activity under our Credit Facility during 2023
and Q1 2024 is set forth below:
| |
Revolver |
|
Term loans(2) |
|
Outstanding balances as of December 31, 2022 |
$ |
— |
|
|
$ |
627.2 |
|
| Amount repaid in Q1 2023
(1) |
|
— |
|
|
|
(4.5625 |
) |
| Amount repaid in Q2 2023
(1) |
|
— |
|
|
|
(4.5625 |
) |
| Amount repaid in Q3 2023
(1) |
|
— |
|
|
|
(4.5625 |
) |
| Amount repaid in Q4 2023
(1) |
|
— |
|
|
|
(4.5625 |
) |
| Outstanding balances as of
December 31, 2023 |
$ |
— |
|
|
$ |
608.9 |
|
| Amount borrowed in Q1
2024 |
|
285.0 |
|
|
|
— |
|
| Amount repaid in Q1 2024 |
|
(257.0 |
) |
|
|
(4.5625 |
) |
| Outstanding balances as of
March 31, 2024 |
$ |
28.0 |
|
|
$ |
604.3 |
|
(1) During each quarter in 2023, we also made
intra-quarter borrowings under the Revolver and repaid such
borrowings in full within the quarter borrowed, with no impact to
the amounts outstanding at the relevant quarter-end. Such
intra-quarter borrowings and repayments are excluded from this
table. Intra-quarter borrowings (and repayments in equivalent
amounts) were a cumulative aggregate of $270, $140, $200 and $281
in Q4 2023, Q3 2023, Q2 2023 and Q1 2023, respectively.(2) Amounts
repaid in each quarter represent scheduled quarterly principal
repayments under the Incremental Term Loan.
At March 31, 2024 and December 31,
2023, we were in compliance with all restrictive and financial
covenants under the Credit Facility.
The following table sets forth, at the dates
shown: outstanding borrowings under the Credit Facility, excluding
ordinary course letters of credit (L/Cs); notional amounts under
our interest rate swap agreements; and outstanding lease
obligations:
| |
Outstanding borrowings |
|
Notional amounts underinterest rate swaps (note
10) |
| |
December 312023 |
|
March 312024 |
|
December 312023 |
|
March 312024 |
|
Borrowings under the Revolver |
$ |
— |
|
|
$ |
28.0 |
|
|
$ |
— |
|
|
$ |
— |
|
| Borrowings under term
loans: |
|
|
|
|
|
|
|
| Initial Term Loan |
$ |
280.4 |
|
|
$ |
280.4 |
|
|
$ |
100.0 |
|
|
$ |
100.0 |
|
| Incremental Term Loan |
|
328.5 |
|
|
|
323.9 |
|
|
|
230.0 |
|
|
|
230.0 |
|
| Total |
$ |
608.9 |
|
|
$ |
604.3 |
|
|
$ |
330.0 |
|
|
$ |
330.0 |
|
| |
|
|
|
|
|
|
|
| Total borrowings under Credit
Facility |
$ |
608.9 |
|
|
$ |
632.3 |
|
|
|
|
|
| Unamortized debt issuance
costs related to our term loans |
|
(2.6 |
) |
|
|
(2.2 |
) |
|
|
|
|
| Lease obligations(1) |
|
176.5 |
|
|
|
202.6 |
|
|
|
|
|
| |
$ |
782.8 |
|
|
$ |
832.7 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
| Total Credit Facility and
lease obligations: |
|
|
|
|
|
|
|
| Current portion |
$ |
51.6 |
|
|
$ |
54.3 |
|
|
|
|
|
| Long-term portion |
|
731.2 |
|
|
|
778.4 |
|
|
|
|
|
| |
$ |
782.8 |
|
|
$ |
832.7 |
|
|
|
|
|
(1) These lease obligations represent the
present value of unpaid lease payment obligations recognized as
liabilities as of December 31, 2023 and March 31, 2024,
respectively, which have been discounted using our incremental
borrowing rate on the lease commencement dates. In addition to
these lease obligations, we have commitments under real property
leases in Richardson, Texas and in Toronto, Canada not recognized
as liabilities as of March 31, 2024 because such leases had
not yet commenced as of such date. A description of these leases
and minimum lease obligations thereunder are disclosed in note 24
to the 2023 AFS.The following table sets forth, at the dates shown,
information regarding outstanding L/Cs, surety bonds and overdraft
facilities:
| |
December 312023 |
|
March 312024 |
|
Outstanding L/Cs under the Revolver |
$ |
10.5 |
|
|
$ |
10.5 |
|
| Outstanding L/Cs and surety
bonds outside the Revolver |
|
16.5 |
|
|
|
21.2 |
|
| Total |
$ |
27.0 |
|
|
$ |
31.7 |
|
| Available uncommitted bank
overdraft facilities |
$ |
198.5 |
|
|
$ |
198.5 |
|
| Amounts outstanding under
available uncommitted bank overdraft facilities |
$ |
— |
|
|
$ |
— |
|
| |
|
|
|
Finance costs consist of interest expense and
fees related to our Credit Facility (including debt issuance and
related amortization costs), our interest rate swap agreements, our
TRS agreement (TRS Agreement), our A/R sales program and the SFPs,
and interest expense on our lease obligations, net of interest
income earned.
7. CAPITAL STOCK
SVS Repurchase Plans:
In recent years, we have repurchased SVS in the
open market, or as otherwise permitted, for cancellation through
normal course issuer bids (NCIBs), which allow us to repurchase a
limited number of SVS during a specified period. The maximum number
of SVS we are permitted to repurchase for cancellation under each
NCIB is reduced by the number of SVS we arrange to be purchased by
any non-independent broker in the open market during the term of
such NCIB to satisfy delivery obligations under our SBC plans. We
from time-to-time enter into automatic share purchase plans (ASPPs)
with a broker, instructing the broker to purchase our SVS in the
open market on our behalf, either for cancellation under an NCIB
(NCIB ASPPs) or for delivery obligations under our SBC plans (SBC
ASPPs), including during any applicable trading blackout periods,
up to specified maximums (and subject to certain pricing and other
conditions) through the term of each ASPP.
On December 8, 2022, the TSX accepted our notice
to launch an NCIB (2022 NCIB), which allowed us to repurchase, at
our discretion, from December 13, 2022 until the earlier of
December 12, 2023 or the completion of purchases thereunder, up to
approximately 8.8 million of our SVS in the open market, or as
otherwise permitted, subject to the normal terms and limitations of
such bids. One NCIB ASPP (which has since expired) was in effect
during Q1 2023. At March 31, 2023, we recorded an accrual of $5.0
(March 2023 NCIB Accrual), representing the contractual maximum
spend for SVS repurchases for cancellation under an NCIB ASPP
executed in February 2023.
On December 12, 2023, the TSX accepted our
notice to launch a new NCIB (2023 NCIB), which allows us to
repurchase, at our discretion, from December 14, 2023 until the
earlier of December 13, 2024 or the completion of purchases
thereunder, up to approximately 11.8 million of our SVS in the open
market, or as otherwise permitted, subject to the normal terms and
limitations of such bids. At March 31, 2024, approximately
11.3 million SVS remained available for repurchase under the 2023
NCIB either for cancellation or SBC delivery purposes. At
December 31, 2023, we recorded an accrual of: (i) $2.7,
representing the estimated contractual maximum quantity of
permitted SVS repurchases (Contractual Maximum Quantity)
(0.1 million SVS) under an NCIB ASPP we entered into in
December 2023; and (ii) $7.5, representing the estimated
Contractual Maximum Quantity (0.3 million SVS) under an SBC
ASPP we entered into in September 2023, each of which were reversed
in Q1 2024. One NCIB ASPP and two SBC ASPPs were in effect during
Q1 2024, all of which have since expired, and no ASPP accruals were
recorded at March 31, 2024.
SVS repurchased in Q1 2024 and Q1 2023 for
cancellation and for SBC plan delivery obligations (including under
ASPPs) are set forth in the chart below.
SVS repurchases:
| |
Three months ended March 31 |
|
|
|
2023 |
|
|
|
2024 |
|
| Aggregate cost(1) of SVS
repurchased for cancellation(2) |
$ |
10.6 |
|
|
$ |
16.5 |
|
| Number of SVS repurchased for
cancellation (in millions)(3) |
|
0.8 |
|
|
|
0.5 |
|
| Weighted average price per
share for repurchases |
$ |
13.12 |
|
|
$ |
35.96 |
|
| Aggregate cost(1) of SVS
repurchased for delivery under SBC plans (see below) |
$ |
— |
|
|
$ |
101.6 |
|
| Number of SVS repurchased for
delivery under SBC plans (in millions)(4) |
|
— |
|
|
|
2.8 |
|
(1) Includes transaction fees.(2) For Q1
2023, excludes the $5.0 March 2023 NCIB Accrual.(3) For Q1 2024 and
Q1 2023, includes 0.5 million and 0.4 million SVS,
respectively, purchased for cancellation under NCIB ASPPs.(4) For
Q1 2024, consists entirely of SBC ASPP purchases through an
independent broker.
SBC:
From time to time, we pay cash to a broker to
purchase SVS in the open market to satisfy delivery requirements
under our SBC plans. At March 31, 2024, the broker held 2.9
million SVS with a value of $95.0 (December 31, 2023 —
3.3 million SVS with a value of $72.6) for this purpose, which
we report as treasury stock on our consolidated balance sheet. We
used 3.2 million SVS held by the broker (including additional SVS
purchased during Q1 2024) to settle SBC awards during Q1 2024.
We grant restricted share units (RSUs) and
performance share units (PSUs), and occasionally, stock options, to
employees under our SBC plans. The majority of RSUs vest one-third
per year over a three-year period. Stock options generally vest 25%
per year over a four-year period. The number of outstanding PSUs
that will actually vest varies from 0% to 200% of a target amount
granted. For PSUs granted in 2021 and 2022, the number of PSUs that
vested (or will vest) are based on the level of achievement of a
pre-determined non-market performance measurement in the final year
of the relevant three-year performance period, subject to
modification by each of a separate pre-determined non-market
financial target, and our relative total shareholder return (TSR),
a market performance condition, compared to a pre-defined group of
companies, in each case over the relevant three-year performance
period. Commencing in 2023, the number of PSUs that will vest are
based on the level of achievement of a different predetermined
non-market performance measurement, subject to modification by our
relative TSR compared to a pre-defined group of companies, in each
case over the relevant three-year performance period. We also grant
deferred share units (DSUs) and RSUs (under specified
circumstances) to directors as compensation under our Directors'
Share Compensation Plan. See note 2(l) to the 2023 AFS for further
detail.
Information regarding RSU, PSU and DSU grants to
employees and directors, as applicable, for the periods indicated
is set forth below (no stock options were granted in the periods
below):
| |
Three months ended March 31 |
|
|
|
2023 |
|
|
|
2024 |
|
| RSUs Granted: |
| Number of awards (in
millions) |
|
1.8 |
|
|
|
0.7 |
|
| Weighted average grant date
fair value per unit |
$ |
12.75 |
|
|
$ |
36.37 |
|
| |
| PSUs Granted: |
| Number of awards (in millions,
representing 100% of target) |
|
1.3 |
|
|
|
0.5 |
|
| Weighted average grant date
fair value per unit |
$ |
15.01 |
|
|
$ |
43.34 |
|
| |
|
|
|
| DSUs Granted: |
| Number of awards (in
millions) |
|
0.03 |
|
|
|
0.01 |
|
| Weighted average grant date
fair value per unit |
$ |
12.90 |
|
|
$ |
43.75 |
|
In Q1 2023, we settled a portion of RSUs and
PSUs that vested during Q1 2023 with a cash payment of $49.8. In Q1
2024, we made a cash payment of $69.0 for withholding taxes in
connection with the RSUs and PSUs that vested during Q1 2024.
In Q1 2024, our Chief Executive Officer
exercised 0.3 million stock options with an exercise price per
option of $17.52 Canadian dollars.
We use the TRS Agreement to manage cash flow
requirements and our exposure to fluctuations in the share price of
our SVS in connection with the settlement of certain outstanding
equity awards under our SBC plans. See note 10 for further
detail.
Information regarding employee and director SBC
expense and TRS fair value adjustments (TRS FVAs) for the periods
indicated is set forth below:
| |
Three months ended March 31 |
|
|
|
2023 |
|
|
|
2024 |
|
| Employee SBC expense in cost
of sales |
$ |
8.5 |
|
|
$ |
8.9 |
|
| Employee SBC expense in
SG&A |
|
13.5 |
|
|
|
13.8 |
|
| Total employee SBC
expense |
$ |
22.0 |
|
|
$ |
22.7 |
|
| |
|
|
|
| TRS FVAs: losses (gains) in
cost of sales |
$ |
0.1 |
|
|
$ |
(12.8 |
) |
| TRS FVAs: losses (gains) in
SG&A |
|
0.1 |
|
|
|
(18.7 |
) |
| Total TRS FVAs: losses
(gains) |
$ |
0.2 |
|
|
$ |
(31.5 |
) |
| |
|
|
|
| Combined effect of employee
SBC expense and TRS FVAs: expenses (recoveries) |
$ |
22.2 |
|
|
$ |
(8.8 |
) |
| |
|
|
|
| Director SBC expense in
SG&A(1) |
$ |
0.6 |
|
|
$ |
0.6 |
|
(1) Expense consists of director compensation to be settled with
SVS, or SVS and cash.
8. OTHER CHARGES, NET OF
RECOVERIES
| |
Three months ended March 31 |
|
|
|
2023 |
|
|
|
2024 |
|
| Restructuring charges (a) |
$ |
4.3 |
|
|
$ |
5.1 |
|
| Acquisition Costs (b) |
|
0.3 |
|
|
|
1.0 |
|
| Other recoveries (c) |
|
— |
|
|
|
(1.3 |
) |
| |
$ |
4.6 |
|
|
$ |
4.8 |
|
(a)
Restructuring:
Our restructuring activities for Q1 2024
consisted primarily of actions to adjust our cost base to address
reduced levels of demand in certain of our businesses and
geographies.
We recorded cash restructuring charges of $4.4
in Q1 2024, primarily for employee termination costs. We recorded
$0.7 in non-cash restructuring charges in Q1 2024, consisting
primarily of accelerated depreciation of equipment related to
disengaging programs. At March 31, 2024, our restructuring
provision was $4.6 (December 31, 2023 — $3.6), which we
recorded in the current portion of provisions on our consolidated
balance sheet.
In Q1 2023, we recorded cash restructuring
charges of $4.3, primarily for employee termination costs, and nil
non-cash restructuring charges.
(b) Acquisition
Costs:
We incur consulting, transaction and integration
costs relating to potential and completed acquisitions. We also
incur charges or releases related to the subsequent re-measurement
of indemnification assets or the release of indemnification or
other liabilities recorded in connection with acquisitions, when
applicable. Collectively, these costs, charges and releases are
referred to as Acquisition Costs (Recoveries).
We recorded Acquisition Costs of $1.0 in Q1 2024
related to potential acquisitions (Q1 2023 — $0.3).
(c) Other
recoveries
Other recoveries in Q1 2024 consisted of legal
recoveries in connection with the settlement of class action
lawsuits (for component parts purchased in prior periods) in which
we were a plaintiff.
9. INCOME
TAXES
Our income tax expense or recovery for each
quarter is determined by multiplying the earnings or losses before
tax for such quarter by management’s best estimate of the
weighted-average annual income tax rate expected for the full year,
taking into account the tax effect of certain items recognized in
the interim period. As a result, the effective income tax rates
used in our interim financial statements may differ from
management’s estimate of the annual effective tax rate for the
annual financial statements. Our estimated annual effective income
tax rate varies as the quarters progress, for various reasons,
including as a result of the mix and volume of business in various
tax jurisdictions within the Americas, Europe and Asia, in
jurisdictions with tax holidays and tax incentives, and in
jurisdictions for which no net deferred income tax assets have been
recognized because management believes it is not probable that
future taxable profit will be available against which tax losses
and deductible temporary differences could be utilized. Our
annual effective income tax rate can also vary due to the impact of
restructuring charges, foreign exchange fluctuations, operating
losses, cash repatriations, and changes in our provisions related
to tax uncertainties.
Our Q1 2024 net income tax expense of $13.9 was
favorably impacted by $5.6 in reversals of tax uncertainties
relating to one of our Asian subsidiaries, largely offset by a $4.5
tax expense arising from taxable temporary differences associated
with the anticipated repatriation of undistributed earnings
(Repatriation Expense) from certain of our Asian subsidiaries.
Taxable foreign exchange impacts were not significant in Q1
2024.
Our Q1 2023 net income tax expense of $13.0 was
favorably impacted by $5.5 in reversals of tax uncertainties in one
of our Asian subsidiaries, partially offset by a $1.3 Repatriation
Expense from certain of our Chinese subsidiaries. Taxable foreign
exchange impacts were not significant in Q1 2023.
10. FINANCIAL
INSTRUMENTS AND RISK MANAGEMENT
Our financial assets are comprised primarily of
cash and cash equivalents, A/R, and derivatives used for hedging
purposes. Our financial liabilities are comprised primarily of
accounts payable, certain accrued and other liabilities, the Term
Loans, borrowings under the Revolver, lease obligations, and
derivatives used for hedging purposes.
Equity price risk:
We are party to the TRS Agreement with a
third-party bank with respect to an original notional amount of 3.0
million of our SVS (Original Notional Amount) to manage our cash
flow requirements and exposure to fluctuations in the price of our
SVS in connection with the settlement of certain outstanding equity
awards under our SBC plans. The counterparty under the TRS
Agreement is obligated to make a payment to us upon its termination
(in whole or in part) or expiration (Settlement) based on the
increase (if any) in the value of the TRS (as defined in the TRS
Agreement) over the agreement’s term, in exchange for periodic
payments made by us based on the counterparty’s SVS purchase costs
and SOFR plus a specified margin. Similarly, if the value of the
TRS (as defined in the TRS Agreement) decreases over the term of
the TRS Agreement, we are obligated to pay the counterparty the
amount of such decrease upon Settlement. The change in value of the
TRS is determined by comparing the average amount realized by the
counterparty upon the disposition of purchased SVS to the average
amount paid for such SVS. By the end of Q1 2023, the counterparty
had acquired the entire Original Notional Amount at a weighted
average price of $12.73 per share. The TRS Agreement provides for
automatic annual one-year extensions (subject to specified
conditions), and may be terminated (in whole or in part) by either
party at any time. In each of September 2023 and February 2024, we
terminated a portion of the TRS Agreement by reducing the Original
Notional Amount by 0.5 million SVS and 1.25 million SVS,
respectively, and received $5.0 and $32.3, respectively, from the
counterparty in connection therewith, which we recorded in cash
provided by financing activities in our consolidated statement of
cash flows. The TRS does not qualify for hedge accounting. As of
March 31, 2024, the fair value of the TRS Agreement was an
unrealized gain of $39.8 (December 31, 2023 — an unrealized
gain of $40.6), which we recorded in other current assets on our
consolidated balance sheet. TRS FVAs (representing the change of
fair value of TRS) are recognized in our consolidated statement of
operations each quarter. See note 7 for TRS FVAs in Q1 2024 and Q1
2023.
Interest rate risk:
Borrowings under the Credit Facility expose us
to interest rate risk due to the potential variability of market
interest rates (see note 6). In order to partially hedge against
our exposure to interest rate variability on our Term Loans, we
have entered into various agreements with third-party banks to swap
the variable interest rate with a fixed rate of interest for a
portion of the borrowings under our Term Loans. At March 31,
2024, we had: (i) interest rate swaps hedging the interest rate
risk associated with $100.0 of our Initial Term Loan borrowings
that expire in June 2024 (Initial Swaps); (ii) interest rate swaps
hedging the interest rate risk associated with $100.0 of our
Initial Term Loan borrowings (and any subsequent term loans
replacing the Initial Term Loan), for which the cash flows commence
upon the expiration of the Initial Swaps and continue through
December 2025; (iii) interest rate swaps hedging the interest rate
risk associated with $100.0 of outstanding borrowings under the
Incremental Term Loan that expire in December 2025 (Incremental
Swaps); and (iv) interest rate swaps hedging the interest rate risk
associated with an additional $130.0 of our Incremental Term Loan
borrowings that expire in December 2025 (Additional Incremental
Swaps). The option to cancel up to $50.0 of the notional amount of
the Additional Incremental Swaps from January 2024 through October
2025 was terminated in January 2024.
At March 31, 2024, the interest rate risk
related to $302.3 of borrowings under the Credit Facility was
unhedged, consisting of unhedged amounts outstanding under the Term
Loans ($180.4 under the Initial Term Loan and $93.9 under the
Incremental Term Loan), and $28.0 outstanding (in addition to
ordinary course L/Cs) under the Revolver. See note 6.
At March 31, 2024, the fair value of our
interest rate swap agreements was an unrealized gain of $14.2
(December 31, 2023 — an unrealized gain of $13.2), which we
recorded in other current assets and other non-current assets on
our consolidated balance sheet. The unrealized portion of the
change in fair value of the swaps is recorded in other
comprehensive income (loss) (OCI). The realized portion of the
change in fair value of the swaps is released from accumulated OCI
and recognized under finance costs in our consolidated statement of
operations when the hedged interest expense is recognized.
We amended our Credit Facility in June 2023 to
replace LIBOR with Adjusted Term SOFR. See note 6. In June 2023,
all of our interest rate swap agreements were similarly amended.
None of these amendments (individually or in the aggregate) had a
significant impact on our consolidated financial statements. We
continue to apply hedge accounting to our interest rate swaps.
Currency risk:
The majority of our currency risk is driven by
operational costs, including income tax expense, incurred in local
currencies by our subsidiaries. We cannot predict changes in
currency exchange rates, the impact of exchange rate changes on our
operating results, nor the degree to which we will be able to
manage the impact of currency exchange rate changes. Such changes
could have a material effect on our business, financial performance
and financial condition.
Our major currency exposures at March 31,
2024 are summarized in U.S. dollar equivalents in the following
table. The local currency amounts have been converted to U.S.
dollar equivalents using spot rates at March 31, 2024.
| |
Canadiandollar |
|
Euro |
|
Thai baht |
|
Mexicanpeso |
|
Cash and cash equivalents |
$ |
5.7 |
|
|
$ |
9.3 |
|
|
$ |
1.0 |
|
|
$ |
1.3 |
|
| Accounts receivable |
|
0.3 |
|
|
|
46.7 |
|
|
|
0.1 |
|
|
|
— |
|
| Income taxes and value-added
taxes receivable |
|
12.9 |
|
|
|
0.3 |
|
|
|
5.4 |
|
|
|
68.3 |
|
| Other financial assets |
|
— |
|
|
|
8.0 |
|
|
|
0.4 |
|
|
|
1.0 |
|
| Pension and non-pension
post-employment liabilities |
|
(51.9 |
) |
|
|
(0.7 |
) |
|
|
(19.9 |
) |
|
|
(4.9 |
) |
| Income taxes and value-added
taxes payable |
|
(18.3 |
) |
|
|
(2.3 |
) |
|
|
— |
|
|
|
(11.6 |
) |
| Accounts payable and certain
accrued and other liabilities and provisions |
|
(44.5 |
) |
|
|
(39.5 |
) |
|
|
(30.3 |
) |
|
|
(16.1 |
) |
| Net financial assets
(liabilities) |
$ |
(95.8 |
) |
|
$ |
21.8 |
|
|
$ |
(43.3 |
) |
|
$ |
38.0 |
|
We enter into foreign currency forward contracts
to hedge our cash flow exposures and foreign currency swaps to
hedge the exposures of our monetary assets and liabilities
denominated in foreign currencies. While these contracts are
intended to reduce the effects of fluctuations in foreign currency
exchange rates, our hedging strategy does not mitigate the
longer-term impacts of changes to foreign exchange rates.
At March 31, 2024, we had foreign currency
forwards and swaps to trade U.S. dollars in exchange for the
following currencies:
|
Currency |
Contractamount inU.S. dollars |
|
Weighted averageexchange rate
inU.S. dollars
(1) |
|
Maximumperiod inmonths |
|
Fair valuegain (loss) |
|
Canadian dollar |
$ |
221.7 |
|
|
$ |
0.74 |
|
|
13 |
|
$ |
(2.9 |
) |
| Thai baht |
|
141.3 |
|
|
|
0.03 |
|
|
12 |
|
|
(6.2 |
) |
| Malaysian ringgit |
|
93.6 |
|
|
|
0.22 |
|
|
12 |
|
|
(1.7 |
) |
| Mexican peso |
|
124.5 |
|
|
|
0.06 |
|
|
12 |
|
|
2.7 |
|
| British pound |
|
3.6 |
|
|
|
1.27 |
|
|
4 |
|
|
— |
|
| Chinese renminbi |
|
30.5 |
|
|
|
0.14 |
|
|
12 |
|
|
(0.5 |
) |
| Euro |
|
41.7 |
|
|
|
1.09 |
|
|
12 |
|
|
1.1 |
|
| Romanian leu |
|
39.5 |
|
|
|
0.22 |
|
|
12 |
|
|
(0.2 |
) |
| Singapore dollar |
|
21.4 |
|
|
|
0.75 |
|
|
12 |
|
|
(0.2 |
) |
| Japanese yen |
|
5.7 |
|
|
|
0.0068 |
|
|
4 |
|
|
0.3 |
|
| Korean won |
|
3.3 |
|
|
|
0.0008 |
|
|
4 |
|
|
0.1 |
|
| Total |
$ |
726.8 |
|
|
|
|
|
|
$ |
(7.5 |
) |
| |
|
|
|
|
|
|
|
| Fair values of
outstanding foreign currency forward and swap contracts related to
effective cash flow hedges where we applied hedge accounting |
|
|
(2.8 |
) |
| Fair values of
outstanding foreign currency forward and swap contracts related to
economic hedges where we record the changes in the fair values of
such contracts through our consolidated statement of
operations |
|
|
(4.7 |
) |
| |
|
|
|
|
|
|
$ |
(7.5 |
) |
(1) Represents the U.S. dollar equivalent
(not in millions) of one unit of the foreign currency, weighted
based on the notional amounts of the underlying foreign currency
forward and swap contracts outstanding as at March 31,
2024.
At March 31, 2024, the aggregate fair value
of our outstanding contracts was a net unrealized loss of $7.5
(December 31, 2023 — net unrealized gain of $6.5), resulting
from fluctuations in foreign exchange rates between the contract
execution and the period-end date. At March 31, 2024, we
recorded $7.1 of derivative assets in other current assets and an
aggregate of $14.6 of derivative liabilities in other current
liabilities and other non-current liabilities (December 31,
2023 — $15.8 of derivative assets in other current assets and $9.3
of derivative liabilities in other current liabilities).
Credit risk:
Credit risk refers to the risk that a
counterparty may default on its contractual obligations resulting
in a financial loss to us. We believe our credit risk of
counterparty non-performance continues to be relatively low. We are
in regular contact with our customers, suppliers and logistics
providers, and have not experienced significant counterparty
credit-related non-performance in 2023 or Q1 2024. However, if a
key supplier (or any company within such supplier's supply chain)
or customer fails to comply with their contractual obligations,
this could result in a significant financial loss to us. We would
also suffer a significant financial loss if an institution from
which we purchased foreign currency exchange contracts and swaps,
interest rate swaps, or annuities for our pension plans, or the
counterparty to our TRS Agreement, defaults on their contractual
obligations. With respect to our financial market activities, we
have adopted a policy of dealing only with counterparties we deem
to be creditworthy. No significant adjustments were made to our
allowance for doubtful accounts during Q1 2024 in connection with
our ongoing credit risk assessments.
Liquidity risk:
Liquidity risk is the risk that we may not have
cash available to satisfy our financial obligations as they come
due. The majority of our financial liabilities recorded in accounts
payable, accrued and other current liabilities and provisions are
due within 90 days. We manage liquidity risk through
maintenance of cash on hand and access to the various financing
arrangements described in notes 4 and 6. We believe that cash flow
from operating activities, together with cash on hand, cash from
accepted sales of A/R, and borrowings available under the Revolver
and potentially available under uncommitted intraday and overnight
bank overdraft facilities, are sufficient to fund our currently
anticipated financial obligations, and will remain available in the
current environment. As our A/R sales program and SFPs are each
uncommitted, however, there can be no assurance that any
participant bank will purchase any of the A/R that we wish to
sell.
11.
COMMITMENTS AND CONTINGENCIES
Litigation:
In the normal course of our operations, we may
be subject to lawsuits, investigations and other claims, including
environmental, labor, product, customer disputes, and other
matters. Management believes that adequate provisions have
been recorded where required. Although it is not always possible to
estimate the extent of potential costs, if any, we believe that the
ultimate resolution of all such pending matters will not have a
material adverse impact on our financial performance, financial
position or liquidity.
Taxes and Other Matters:
In 2021, the Romanian tax authorities issued a
final assessment in the aggregate amount of approximately
31 million Romanian leu (approximately $7 at Q1 2024
period-end exchange rates), for additional income and value-added
taxes for one of our Romanian subsidiaries for the 2014 to 2018 tax
years. In order to advance our case to the appeals phase and reduce
or eliminate potential interest and penalties, we paid the Romanian
tax authorities the full amount assessed in 2021 (without agreement
to all or any portion of such assessment). We believe that our
originally-filed tax return positions are in compliance with
applicable Romanian tax laws and regulations, and intend to
vigorously defend our position through all necessary appeals or
other judicial processes.
The successful pursuit of assertions made by any
government authority, including tax authorities, could result in
our owing significant amounts of tax or other reimbursements,
interest and possibly penalties. We believe we adequately accrue
for any probable potential adverse ruling. However, there can be no
assurance as to the final resolution of any claims and any
resulting proceedings. If any claims and any ensuing proceedings
are determined adversely to us, the amounts we may be required to
pay could be material, and in excess of amounts accrued.
Acquisition Agreement:
In April 2024, we entered into a definitive
agreement to acquire NCS Global Services LLC, a US-based IT
infrastructure and asset management business, for $36 (and a
possible earnout payment should certain post-closing financial
conditions be met). The transaction is expected to close in May
2024 or earlier, subject to satisfaction of customary closing
conditions.
1 CGUs are the smallest identifiable group of assets that cannot
be tested individually and generate cash inflows that are largely
independent of those of other assets or groups of assets, and can
be comprised of a single site, a group of sites, or a line of
business.
Celestica (NYSE:CLS)
Historical Stock Chart
Von Nov 2024 bis Dez 2024
Celestica (NYSE:CLS)
Historical Stock Chart
Von Dez 2023 bis Dez 2024
