Celestica(CLS) - 2025 Q1 - Quarterly Report

Cover Page Information Celestica Inc. files its Quarterly Report on Form 10-Q for the period ended March 31, 2025, confirming its status as a large accelerated filer and SEC compliance - Celestica Inc. is filing a Quarterly Report on Form 10-Q for the period ended March 31, 2025[1][2] - The company is classified as a large accelerated filer and has complied with all SEC filing requirements for the past 12 months[4][5] Common Shares Outstanding (as of April 21, 2025) | Metric | | :----- | | Common Shares Outstanding (as of April 21, 2025) | 114,991,980 | Table of Contents This section provides an organized listing of all chapters and items included in the Quarterly Report on Form 10-Q Part I. Financial Information This part presents Celestica Inc.'s unaudited condensed consolidated financial statements and management's discussion and analysis for the first quarter Item 1. Financial Statements This section provides the unaudited condensed consolidated financial statements for Celestica Inc., including the balance sheets, statements of operations, comprehensive income, changes in equity, and cash flows, along with detailed notes explaining significant accounting policies, segment information, acquisitions, and financial instrument disclosures Condensed Consolidated Balance Sheets The balance sheet reflects a decrease in total assets and equity, alongside an increase in total liabilities, primarily driven by changes in cash and cash equivalents - The balance sheet shows a decrease in total assets from $5,988.2 million at December 31, 2024, to $5,834.9 million at March 31, 2025, primarily driven by a reduction in cash and cash equivalents. Total liabilities increased from $4,092.2 million to $4,278.1 million, while total equity decreased from $1,896.0 million to $1,556.8 million[10] Balance Sheet Metrics (in millions of U.S. dollars) | Metric (in millions of U.S. dollars) | March 31, 2025 | December 31, 2024 | Change | | :--------------------------------- | :------------- | :---------------- | :----- | | Cash and cash equivalents | $303.0 | $423.3 | $(120.3) | | Accounts receivable, net | $2,135.9 | $2,069.0 | $66.9 | | Inventories | $1,788.3 | $1,760.6 | $27.7 | | Total current assets | $4,376.5 | $4,512.2 | $(135.7) | | Total assets | $5,834.9 | $5,988.2 | $(153.3) | | Accounts payable | $1,377.8 | $1,294.8 | $83.0 | | Total current liabilities | $3,054.2 | $3,021.4 | $32.8 | | Total liabilities | $4,278.1 | $4,092.2 | $185.9 | | Total equity | $1,556.8 | $1,896.0 | $(339.2) | Condensed Consolidated Statements of Operations Q1 2025 saw revenue and gross profit growth, but net earnings and diluted EPS decreased due to higher SG&A and income tax expenses - For Q1 2025, revenue increased by 20% year-over-year to $2,648.6 million, and gross profit rose by 23% to $273.9 million. However, net earnings decreased by 6% to $86.2 million, and diluted EPS fell by 4% to $0.74, primarily due to a significant increase in selling, general and administrative expenses (SG&A) and higher income tax expense[13] Statements of Operations (in millions of U.S. dollars, except per share) | Metric (in millions of U.S. dollars, except per share) | Q1 2025 | Q1 2024 | YoY Change | YoY % Change | | :--------------------------------------------------- | :------ | :------ | :--------- | :----------- | | Revenue | $2,648.6 | $2,208.9 | $439.7 | 20% | | Cost of sales | $2,374.7 | $1,986.8 | $387.9 | 20% | | Gross profit | $273.9 | $222.1 | $51.8 | 23% | | Selling, general and administrative expenses | $112.5 | $64.8 | $47.7 | 74% | | Earnings from operations | $128.8 | $125.8 | $3.0 | 2% | | Net earnings | $86.2 | $91.8 | $(5.6) | (6)% | | Basic EPS | $0.74 | $0.77 | $(0.03) | (4)% | | Diluted EPS | $0.74 | $0.77 | $(0.03) | (4)% | Consolidated Statements of Comprehensive Income Total comprehensive income for Q1 2025 remained stable year-over-year, influenced by net earnings and other comprehensive income components - Total comprehensive income for Q1 2025 was $88.1 million, a slight increase from $88.0 million in Q1 2024. This was influenced by net earnings of $86.2 million and other comprehensive income of $1.9 million, which included gains from currency translation differences and unrealized gains on currency forward derivative hedges, partially offset by losses on defined benefit plans and interest rate swap hedges[14] Statements of Comprehensive Income (in millions of U.S. dollars) | Metric (in millions of U.S. dollars) | Q1 2025 | Q1 2024 | YoY Change | | :----------------------------------- | :------ | :------ | :--------- | | Net earnings | $86.2 | $91.8 | $(5.6) | | Other comprehensive income (loss) | $1.9 | $(3.8) | $5.7 | | Total comprehensive income | $88.1 | $88.0 | $0.1 | - Other comprehensive income in Q1 2025 was positively impacted by currency translation differences ($0.7M gain) and unrealized gains on currency forward derivative hedges ($6.3M gain), while Q1 2024 saw losses in these areas[14] Condensed Consolidated Statements of Changes in Equity Total equity significantly decreased in Q1 2025, primarily due to capital stock repurchases and stock-based compensation cash settlements - Total equity decreased from $1,896.0 million at January 1, 2025, to $1,556.8 million at March 31, 2025. This decline was primarily driven by significant capital transactions, including $76.2 million for capital stock repurchased for cancellation and $221.6 million for treasury stock purchases for stock-based compensation (SBC) plans, along with $156.0 million in SBC cash settlements[16][18] Changes in Equity (in millions of U.S. dollars) | Metric (in millions of U.S. dollars) | January 1, 2025 | March 31, 2025 | Change | | :----------------------------------- | :-------------- | :------------- | :----- | | Total equity | $1,896.0 | $1,556.8 | $(339.2) | - Capital transactions in Q1 2025 included $76.2 million for repurchase of capital stock for cancellation and $221.6 million for purchase of treasury stock for SBC plans[16][18] - SBC cash settlements amounted to $156.0 million in Q1 2025[16] Condensed Consolidated Statements of Cash Flows Operating cash flow increased, but significant financing outflows from share repurchases and SBC settlements led to a net decrease in cash and cash equivalents - Net cash provided by operating activities increased to $130.3 million in Q1 2025 from $108.1 million in Q1 2024. However, net cash used in financing activities significantly increased to $213.9 million in Q1 2025 from $130.0 million in Q1 2024, primarily due to higher repurchases of capital stock for cancellation and SBC plans, and increased SBC cash settlements. This resulted in a net decrease in cash and cash equivalents of $120.3 million for the quarter[21] Statements of Cash Flows (in millions of U.S. dollars) | Metric (in millions of U.S. dollars) | Q1 2025 | Q1 2024 | YoY Change | | :----------------------------------- | :------ | :------ | :--------- | | Net cash provided by operating activities | $130.3 | $108.1 | $22.2 | | Net cash used in investing activities | $(36.7) | $(40.4) | $3.7 | | Net cash used in financing activities | $(213.9) | $(130.0) | $(83.9) | | Net decrease in cash and cash equivalents | $(120.3) | $(62.3) | $(58.0) | | Cash and cash equivalents, end of period | $303.0 | $308.1 | $(5.1) | - Significant financing outflows in Q1 2025 included $77.7 million for capital stock repurchase for cancellation, $221.6 million for treasury stock purchase for SBC plans, and $156.0 million for SBC cash settlement[21] - The company received $98.6 million from TRS settlement in Q1 2025, compared to $32.3 million in Q1 2024[21] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements 1. Reporting Entity Celestica Inc. is a Canadian-incorporated company with shares listed on TSX and NYSE, operating in ATS and CCS segments - Celestica Inc. is incorporated in Ontario, Canada, and its common shares are listed on the TSX and NYSE[23] - The company operates in two reportable segments: Advanced Technology Solutions (ATS) and Connectivity & Cloud Solutions (CCS)[23] 2. Basis of Preparation and Significant Accounting Policies Interim financial statements adhere to GAAP, involving management judgments and estimates, with ongoing evaluation of new accounting standards - Interim financial statements are prepared in accordance with GAAP for interim financial reporting, with certain information condensed or omitted[24] - Management's preparation of financial statements involves significant judgments, estimates, and assumptions, which are reviewed on an ongoing basis[26][27][28] - The company adopted ASU 2023-09 (Income Taxes) in December 2023, with impact to be reflected in 2025 annual statements[31] - The company is evaluating the impact of recently issued ASU 2023-06 (Disclosure Improvements) and ASU 2024-03 (Expense Disaggregation Disclosures), with the latter effective for annual periods beginning after December 15, 2026[32][33][34] 3. Segment and Customer Reporting Celestica's Q1 2025 revenue growth was driven by the CCS segment, particularly Communications, with CCS now representing 70% of total revenue - Celestica operates in two segments: ATS (Aerospace and Defense, Industrial, HealthTech, Capital Equipment) and CCS (Communications, Enterprise). In Q1 2025, CCS revenue significantly increased by 28% year-over-year, driven by an 87% surge in Communications, while ATS revenue grew by 5%. CCS now accounts for 70% of total revenue, up from 65% in Q1 2024. Three CCS customers individually represented 10% or more of total revenue in Q1 2025[35][38][40] Segment Revenue (in millions) | Segment Revenue (in millions) | Q1 2025 | % of Total (Q1 2025) | Q1 2024 | % of Total (Q1 2024) | YoY Change | YoY % Change | | :---------------------------- | :------ | :------------------- | :------ | :------------------- | :--------- | :----------- | | ATS | $807.2 | 30% | $767.9 | 35% | $39.3 | 5% | | CCS | $1,841.4 | 70% | $1,441.0 | 65% | $400.4 | 28% | | - Communications | $1,427.7 | 54% | $764.2 | 34% | $663.5 | 87% | | - Enterprise | $413.7 | 16% | $676.8 | 31% | $(263.1) | (39)% | | Total Revenue | $2,648.6 | | $2,208.9 | | $439.7 | 20% | Segment Income & Margin (in millions) | Segment Income & Margin | Q1 2025 Income | Q1 2025 Margin | Q1 2024 Income | Q1 2024 Margin | | :---------------------- | :------------- | :------------- | :------------- | :------------- | | ATS | $40.7 | 5.0% | $31.9 | 4.2% | | CCS | $147.1 | 8.0% | $98.7 | 6.8% | - In Q1 2025, three customers (all in CCS segment) individually represented 10% or more of total revenue (28%, 13%, and 10%)[40] 4. Acquisition Celestica acquired NCS Global Services LLC for $39.6 million, recording $19.4 million in goodwill attributed to the CCS segment - On April 26, 2024, Celestica acquired NCS Global Services LLC, an IT infrastructure and asset management business, for $39.6 million, funded by its credit facility. The acquisition included a potential earn-out of up to $20 million, valued at $6.6 million at acquisition. Goodwill of $19.4 million was recorded and attributed to the CCS segment[41][42][43][44] - The acquisition included a potential earn-out of up to $20 million, with an estimated fair value of $6.6 million at the acquisition date[41][42] - Goodwill of $19.4 million was recorded and attributed to the CCS segment, which is not tax deductible[43][44] 5. Accounts Receivable (A/R), Net Accounts receivable, net of allowance, increased in Q1 2025, accompanied by a rise in the allowance for credit losses and contract assets - Accounts receivable, net of allowance, increased to $2,135.9 million at March 31, 2025, from $2,069.0 million at December 31, 2024. The allowance for credit losses also increased from $10.1 million to $18.4 million. Contract assets included in A/R grew to $275.8 million from $237.9 million[10][45][47] Accounts Receivable Metrics (in millions of U.S. dollars) | Metric (in millions of U.S. dollars) | March 31, 2025 | December 31, 2024 | Change | | :----------------------------------- | :------------- | :---------------- | :----- | | Accounts receivable, net | $2,135.9 | $2,069.0 | $66.9 | | Allowance for credit losses | $18.4 | $10.1 | $8.3 | | Contract assets | $275.8 | $237.9 | $37.9 | - No A/R was sold under the A/R sales program or supplier financing programs in Q1 2025 or Q4 2024[46] 6. Inventories Total inventories increased in Q1 2025, with raw materials as the largest component, while inventory write-downs remained stable - Total inventories, net of write-downs, increased to $1,788.3 million at March 31, 2025, from $1,760.6 million at December 31, 2024. Raw materials constitute the largest component. Inventory write-downs recorded in cost of sales were $16.5 million in Q1 2025, slightly down from $16.9 million in Q1 2024. Customer cash deposits for inventory decreased to $471.8 million[49][50] Inventory Components (in millions of U.S. dollars) | Inventory Component (in millions of U.S. dollars) | March 31, 2025 | December 31, 2024 | Change | | :------------------------------------------------ | :------------- | :---------------- | :----- | | Raw materials | $1,537.6 | $1,521.1 | $16.5 | | Work in progress | $113.6 | $106.6 | $7.0 | | Finished goods | $137.1 | $132.9 | $4.2 | | Total inventories | $1,788.3 | $1,760.6 | $27.7 | Inventory Write-downs (in millions of U.S. dollars) | Metric (in millions of U.S. dollars) | Q1 2025 | Q1 2024 | | :----------------------------------- | :------ | :------ | | Inventory write-downs | $16.5 | $16.9 | - Customer cash deposits for inventory, included in accrued and other current liabilities, decreased from $511.6 million at December 31, 2024, to $471.8 million at March 31, 2025[50] 7. Leases Total lease expense increased in Q1 2025, primarily from operating leases, while Right-of-Use assets and lease obligations remained stable - Total lease expense for Q1 2025 was $13.6 million, up from $12.8 million in Q1 2024, primarily due to increased operating lease expense. Total Right-of-Use (ROU) assets were $178.6 million at March 31, 2025, slightly down from $180.8 million at December 31, 2024. Total lease obligations remained stable at $196.8 million[51] Lease Expense (in millions of U.S. dollars) | Lease Expense (in millions of U.S. dollars) | Q1 2025 | Q1 2024 | | :------------------------------------------ | :------ | :------ | | Finance lease expense | $2.9 | $2.7 | | Operating lease expense | $10.3 | $9.7 | | Short-term and variable lease expense | $0.4 | $0.4 | | Total lease expense | $13.6 | $12.8 | Lease Metrics (in millions of U.S. dollars) | Lease Metric (in millions of U.S. dollars) | March 31, 2025 | December 31, 2024 | | :----------------------------------------- | :------------- | :---------------- | | Total ROU assets | $178.6 | $180.8 | | Total lease obligations | $196.8 | $196.8 | - The company has commitments under a real property lease in Richardson, Texas, not yet recognized as liabilities as of March 31, 2025, as it had not commenced[52] 8. Credit Facilities Total borrowings under Celestica's Credit Facility increased to $886.8 million in Q1 2025, with the company remaining in compliance with all covenants - Celestica's Credit Facility, amended in June 2024, includes a $250.0 million Term A Loan, a $500.0 million Term B Loan, and a $750.0 million Revolving Credit Facility. As of March 31, 2025, total borrowings under the Credit Facility increased to $886.8 million from $741.2 million at December 31, 2024, with $150.0 million outstanding under the Revolver. The company was in compliance with all covenants[53][57][58] - The Credit Facility, amended in June 2024, consists of a $250.0 million Term A Loan, a $500.0 million Term B Loan, and a $750.0 million Revolving Credit Facility[53] Borrowings under Credit Facility (in millions of U.S. dollars) | Metric (in millions of U.S. dollars) | March 31, 2025 | December 31, 2024 | Change | | :----------------------------------- | :------------- | :---------------- | :----- | | Borrowings under Revolver | $150.0 | $0.0 | $150.0 | | Borrowings under Term Loans | $736.8 | $741.2 | $(4.4) | | Total borrowings under Credit Facility | $886.8 | $741.2 | $145.6 | - The company was in compliance with all restrictive and financial covenants under the Credit Facility at March 31, 2025, and December 31, 2024[57] - The Credit Facility has an accordion feature allowing an increase of Term Loans and/or Revolver commitments by $200.0 million, plus an unlimited amount subject to leverage ratio limits[55] 9. Capital Stock Celestica repurchased 2.3 million common shares in Q1 2025 for cancellation and stock-based compensation plans, reducing outstanding shares - As of March 31, 2025, 115.6 million common shares were outstanding. The company repurchased 0.6 million common shares for cancellation under its NCIB for $75.0 million and 1.7 million common shares for SBC plans for $221.6 million in Q1 2025. SBC cash settlements for withholding taxes totaled $156.0 million. The 2024 NCIB allows for repurchase of up to 8.6 million shares, with 7.7 million remaining available at March 31, 2025[60][63][65][66][70] Common Shares Outstanding (in millions) | Metric (in millions) | March 31, 2025 | December 31, 2024 | | :------------------- | :------------- | :---------------- | | Common Shares Outstanding | 115.6 | 116.1 | Common Share Repurchase Activity (in millions of U.S. dollars, except shares) | Common Share Repurchase Activity (in millions of U.S. dollars, except shares) | Q1 2025 | Q1 2024 | | :-------------------------------------------------------------------------- | :------ | :------ | | Aggregate cost for cancellation | $75.0 | $16.5 | | Number of shares repurchased for cancellation | 0.6 | 0.5 | | Aggregate cost for SBC plans | $221.6 | $101.6 | | Number of shares repurchased for SBC plans | 1.7 | 2.8 | - The 2024 NCIB, launched on October 30, 2024, allows for the repurchase of up to approximately 8.6 million common shares, with approximately 7.7 million remaining available at March 31, 2025[63][65] - SBC cash payments for withholding taxes amounted to $156.0 million in Q1 2025, significantly higher than $69.0 million in Q1 2024[70] 10. Accumulated Other Comprehensive Income (Loss), Net of Tax Accumulated other comprehensive income improved in Q1 2025, driven by gains on currency forward hedges and reduced foreign currency translation adjustments - Accumulated other comprehensive income (loss) improved from $(17.6) million at January 1, 2025, to $(15.7) million at March 31, 2025. This change was primarily driven by a net gain on currency forward cash flow hedges and a reduction in foreign currency translation adjustments, partially offset by a net loss on interest rate swap cash flow hedges[16][73] Accumulated Other Comprehensive Income (Loss) (in millions of U.S. dollars) | Metric (in millions of U.S. dollars) | March 31, 2025 | March 31, 2024 | | :----------------------------------- | :------------- | :------------- | | Foreign currency translation adjustments | $0.7 | $(3.3) | | Net gain (loss) on currency forward cash flow hedges | $2.6 | $(9.6) | | Net gain (loss) on interest rate swap cash flow hedges | $(1.6) | $4.2 | | Net loss on pension and non-pension post-employment benefit plans | $(2.4) | $0.0 | | Accumulated other comprehensive income (loss) | $(15.7) | $(4.0) | 11. Restructuring and Other Charges, Net of Recoveries Total restructuring and other charges decreased in Q1 2025, primarily due to lower restructuring and acquisition costs, partially offset by U.S. domestic filer transition expenses - Total restructuring and other charges, net of recoveries, decreased to $3.9 million in Q1 2025 from $4.8 million in Q1 2024. This was mainly due to lower restructuring charges and acquisition costs, partially offset by other charges related to the transition as a U.S. domestic filer, compared to legal recoveries in the prior year[74][78] Restructuring and Other Charges (in millions of U.S. dollars) | Charge Type (in millions of U.S. dollars) | Q1 2025 | Q1 2024 | | :---------------------------------------- | :------ | :------ | | Restructuring charges | $2.2 | $5.1 | | Acquisition costs | $0.6 | $1.0 | | Other charges (recoveries) | $1.1 | $(1.3) | | Total | $3.9 | $4.8 | - Restructuring charges in both periods primarily consisted of cash charges related to employee terminations[75] - Other charges in Q1 2025 included $1.1 million related to the transition as a U.S. domestic filer, while Q1 2024 included $1.3 million in legal recoveries[78] 12. Miscellaneous Expense Miscellaneous expense significantly decreased in Q1 2025, mainly due to lower losses recognized on derivatives - Miscellaneous expense decreased significantly to $1.4 million in Q1 2025 from $6.6 million in Q1 2024. This reduction was primarily driven by lower losses recognized on derivatives, specifically interest rate swaps and foreign exchange forwards[79] Miscellaneous Expense Components (in millions of U.S. dollars) | Component (in millions of U.S. dollars) | Q1 2025 | Q1 2024 | | :-------------------------------------- | :------ | :------ | | Net periodic benefit cost | $0.1 | $0.3 | | Loss recognized on interest rate swaps | $1.3 | $2.7 | | Loss recognized on foreign exchange forwards | $0.0 | $3.6 | | Total Miscellaneous Expense | $1.4 | $6.6 | 13. Pension and Non-Pension Post-Employment Benefit Plans Net periodic benefit cost for pension plans decreased in Q1 2025 due to lower service costs and higher expected returns on assets - Net periodic benefit cost for pension plans decreased to $0.4 million in Q1 2025 from $1.2 million in Q1 2024, mainly due to lower service costs and a higher expected return on plan assets. Net periodic benefit cost for other benefit plans remained stable at $1.0 million[80] Net Periodic Benefit Cost (in millions of U.S. dollars) | Component (in millions of U.S. dollars) | Pension Plans Q1 2025 | Pension Plans Q1 2024 | Other Benefits Plans Q1 2025 | Other Benefits Plans Q1 2024 | | :-------------------------------------- | :-------------------- | :-------------------- | :--------------------------- | :--------------------------- | | Service cost | $0.5 | $1.1 | $0.8 | $0.9 | | Interest cost | $2.5 | $2.4 | $0.7 | $0.7 | | Expected return on plan assets | $(2.5) | $(2.3) | $0.0 | $0.0 | | Amortization of net gain | $(0.1) | $0.0 | $(0.5) | $(0.5) | | Net periodic benefit cost | $0.4 | $1.2 | $1.0 | $1.1 | 14. Income Taxes Net income tax expense increased in Q1 2025, driven by Canada's Pillar Two legislation and tax uncertainties in an Asian subsidiary - Net income tax expense increased to $27.5 million in Q1 2025 from $13.4 million in Q1 2024. This was primarily due to a $6.8 million withholding tax expense related to Canada's Pillar Two legislation and a $3.0 million tax expense for uncertainties in an Asian subsidiary, partially offset by reversals of tax uncertainties. In Q1 2024, tax expense was favorably impacted by $5.6 million in reversals of tax uncertainties. The company benefits from tax incentives in Thailand and Laos, which are subject to expiration or retraction[13][82][84][85][174] Income Tax Expense (in millions of U.S. dollars) | Metric (in millions of U.S. dollars) | Q1 2025 | Q1 2024 | | :----------------------------------- | :------ | :------ | | Net income tax expense | $27.5 | $13.4 | - Q1 2025 tax expense included $6.8 million for Pillar Two (global minimum tax) legislation in Canada and $3.0 million for tax uncertainties in an Asian subsidiary, offset by $1.9 million in reversals of tax uncertainties[82][84] - Q1 2024 tax expense was favorably impacted by $5.6 million in reversals of tax uncertainties, largely offset by a $4.5 million tax expense arising from taxable temporary differences associated with the anticipated repatriation of undistributed earnings from certain of our Asian subsidiaries[85] - Celestica benefits from tax incentives in Thailand (expiring between 2027-2029) and Laos (100% exemption until 2025, then 8% rate)[174] 15. Financial Instruments and Risk Management Celestica manages currency, equity price, and interest rate risks using foreign currency forward contracts, interest rate swaps, and a Total Return Swap Agreement - Celestica manages currency, equity price, interest rate, credit, and liquidity risks. The company uses foreign currency forward contracts to hedge currency risk and interest rate swaps to hedge interest rate variability on Term Loans. A Total Return Swap (TRS) Agreement is used to manage cash flow and equity price exposure related to SBC plans. The fair value of derivatives not designated as hedging instruments shifted from a net asset of $99.4 million (TRS) at Dec 31, 2024, to a net liability of $18.3 million (TRS) at March 31, 2025[86][87][88][89][91][93][97] - Celestica uses foreign currency forward contracts and swaps to hedge currency risk related to operational costs and future cash flows[87] - A Total Return Swap (TRS) Agreement is used to manage cash flow requirements and exposure to fluctuations in common share price for SBC plans. The TRS was re-struck on March 14, 2025, at $91.58 per share, resulting in a $98.6 million cash receipt[88][89] - Interest rate swaps are used to hedge against interest rate variability on a portion of the Term Loans, converting variable rates to fixed rates[91][93] Derivative Fair Value (in millions of U.S. dollars) | Derivative Type (in millions of U.S. dollars) | March 31, 2025 (Fair Value) | December 31, 2024 (Fair Value) | | :-------------------------------------------- | :-------------------------- | :----------------------------- | | Foreign currency forward contracts (economic hedges) | Net Asset $1.3 / Net Liability $4.2 | Net Asset $8.9 / Net Liability $13.1 | | TRS (economic hedge) | Net Liability $18.3 | Net Asset $99.4 | | Foreign currency forward contracts (cash flow hedges) | Net Asset $2.6 / Net Liability $8.1 | Net Asset $3.5 / Net Liability $17.8 | | Interest rate swaps (cash flow hedges) | Net Asset $4.8 / Net Liability $1.7 | Net Asset $6.6 / Net Liability $0.0 | 16. Earnings Per Share Basic and diluted earnings per share for Q1 2025 decreased to $0.74, based on weighted-average shares of 115.9 million and 116.9 million respectively - Basic and diluted earnings per share for Q1 2025 were $0.74, based on weighted-average shares of 115.9 million (basic) and 116.9 million (diluted). This represents a decrease from Q1 2024, when both basic and diluted EPS were $0.77[13][103] Earnings Per Share (in millions, except per share) | Metric (in millions, except per share) | Q1 2025 | Q1 2024 | | :------------------------------------- | :------ | :------ | | Basic EPS | $0.74 | $0.77 | | Diluted EPS | $0.74 | $0.77 | | Basic weighted average shares | 115.9 | 119.0 | | Diluted weighted average shares | 116.9 | 119.3 | 17. Commitments and Contingencies Celestica is involved in various legal, regulatory, and tax proceedings, including significant Romanian and Thai tax assessments, for which management believes adequate provisions have been made - Celestica is subject to various legal, regulatory, and tax proceedings. Management believes adequate provisions have been made, and the ultimate resolution of pending matters will not materially impact financial performance. However, the company is actively defending against a $7 million Romanian tax assessment (2014-2018) and a $12 million Thai tax assessment (2019), with a bank guarantee issued for the latter[105][106][107] - Management believes that adequate provisions have been recorded for litigation, investigations, and other claims, and that the ultimate resolution will not have a material adverse impact on financial performance, position, or liquidity[105] - The company is defending against a final Romanian tax assessment of approximately $7 million for 2014-2018 tax years, having paid the full amount to advance to appeals[106] - The company is defending against a Thailand tax assessment of approximately $12 million for the 2019 tax year, with a bank guarantee issued for the maximum potential liability[107] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Celestica's financial performance and condition for Q1 2025, highlighting revenue growth driven by the CCS segment, changes in profitability metrics, and liquidity management strategies. It also discusses critical accounting estimates, external factors impacting the business, and reconciliations of non-GAAP financial measures Overview Celestica provides global supply chain solutions across ATS and CCS segments, navigating external factors like geopolitical tensions, tariffs, and technological changes - Celestica provides supply chain solutions globally across two segments: Advanced Technology Solutions (ATS) and Connectivity & Cloud Solutions (CCS). The company faces external factors such as government policies, geopolitical tensions (e.g., Russia/Ukraine, Middle East Conflicts), tariffs, supply chain disruptions, inflation, and rapid technological changes (including AI), which could impact operations and financial results[114][117][118][119][120][121][123][124] - Celestica delivers supply chain solutions globally to customers in two segments: ATS (Aerospace and Defense, Industrial, HealthTech, Capital Equipment) and CCS (Communications, Enterprise)[114] - External factors impacting the business include government policies, geopolitical dynamics (e.g., Russia/Ukraine conflict, Middle East Conflicts), tariffs, supply chain challenges, inflation, and the pace of technological changes (including AI-related technologies)[117][118][119][120][121][123][124] - While tariffs are expected to be recovered from customers, unrecovered costs or increased operating expenses due to inflation could negatively impact margins[119][123] Recent Developments Q1 2025 saw revenue growth and margin improvement in both ATS and CCS segments, driven by Capital Equipment and HPS networking products, alongside continued share repurchases - In Q1 2025, ATS segment revenue increased by 5% driven by Capital Equipment, with margin improving to 5.0%. CCS segment revenue grew by 28%, primarily from an 87% increase in Communications due to HPS networking products, while Enterprise revenue decreased by 39%. CCS margin improved to 8.0% due to a higher mix of HPS revenue. The company also continued significant common share repurchases under its NCIB and for SBC plans[126][127][128][129] - ATS segment revenue increased 5% in Q1 2025 (YoY), primarily driven by growth in Capital Equipment, with segment margin improving to 5.0% from 4.2%[126] - CCS segment revenue increased 28% in Q1 2025 (YoY), with Communications end market revenue up 87% due to HPS networking products, while Enterprise end market revenue decreased 39% due to an AI/ML compute program technology transition[127] - HPS revenue reached approximately $1 billion in Q1 2025, a 99% increase YoY, accounting for 39% of total revenue[127] - CCS segment margin increased to 8.0% in Q1 2025 from 6.8% in Q1 2024, driven by a higher mix of HPS revenue and strong operational performance[128] - In Q1 2025, the company repurchased 0.6 million common shares for cancellation ($75.0 million) and 1.7 million common shares for SBC plans ($221.6 million)[129] Summary of Q1 2025 Celestica reported increased Q1 2025 revenue and gross profit, but net earnings and diluted EPS declined due to a significant surge in SG&A expenses - Celestica reported a 20% increase in Q1 2025 revenue to $2,648.6 million and a 23% increase in gross profit to $273.9 million year-over-year. However, net earnings decreased by 6% to $86.2 million, and diluted EPS fell by 4% to $0.74, primarily due to a 74% surge in SG&A expenses. Cash cycle days remained stable at 69 days[132][135] Summary of Q1 2025 (in millions, except per share) | Metric (in millions, except per share) | Q1 2025 | Q1 2024 | % Increase (Decrease) | | :----------------------------------- | :------ | :------ | :-------------------- | | Revenue | $2,648.6 | $2,208.9 | 20% | | Gross profit | $273.9 | $222.1 | 23% | | SG&A | $112.5 | $64.8 | 74% | | Net earnings | $86.2 | $91.8 | (6)% | | Diluted EPS | $0.74 | $0.77 | (4)% | Performance Indicators | Performance Indicator | Q1 2025 | Q1 2024 | | :-------------------- | :------ | :------ | | Days in A/R | 72 | 75 | | Days in inventory | 68 | 93 | | Days in A/P | (51) | (62) | | Days in cash deposits | (20) | (38) | | Cash cycle days | 69 | 68 | | Inventory turns | 5.4x | 3.9x | - Cash provided by operating activities increased to $130.3 million in Q1 2025 from $108.1 million in Q1 2024[134] Critical Accounting Estimates Financial statement preparation involves significant management judgments and estimates in areas like revenue recognition, asset impairment, and fair value measurement, with no material revisions in Q1 2025 - The preparation of financial statements requires significant management judgments, estimates, and assumptions, particularly in areas such as revenue recognition timing, impairment assessments of assets and reporting units, measurement of fair value, deferred tax assets and liabilities, inventory write-downs, and business combination valuations. No significant revisions to critical accounting estimates were made in Q1 2025, and no material impairments were identified[140][141][143][144][145] - Management's critical accounting estimates involve significant judgment and estimation uncertainty, impacting reported results and financial position[140][143] - Key areas of estimation include revenue recognition, asset impairment, fair value measurement of reporting units, deferred tax assets/liabilities, inventory write-downs, and business acquisition valuations[141][144] - No significant revisions to critical accounting estimates or material impairments were identified in Q1 2025[143][145] Operating Results This section details Celestica's Q1 2025 financial performance, analyzing revenue, gross profit, SG&A, segment income, and tax impacts Revenue Total revenue increased 20% in Q1 2025, driven by strong CCS segment growth, particularly in Communications, while Enterprise revenue declined - Total revenue for Q1 2025 increased 20% year-over-year to $2.65 billion. ATS segment revenue grew 5% due to Capital Equipment, while CCS segment revenue surged 28%, driven by an 87% increase in Communications (HPS networking products). Enterprise revenue, however, decreased 39% due to an AI/ML compute program technology transition[147][148][149] Segment Revenue (in millions) | Segment Revenue (in millions) | Q1 2025 | % of Total (Q1 2025) | Q1 2024 | % of Total (Q1 2024) | YoY Change | YoY % Change | | :---------------------------- | :------ | :------------------- | :------ | :------------------- | :--------- | :----------- | | ATS | $807.2 | 30% | $767.9 | 35% | $39.3 | 5% | | CCS | $1,841.4 | 70% | $1,441.0 | 65% | $400.4 | 28% | | - Communications | $1,427.7 | 54% | $764.2 | 34% | $663.5 | 87% | | - Enterprise | $413.7 | 16% | $676.8 | 31% | $(263.1) | (39)% | | Total Revenue | $2,648.6 | | $2,208.9 | | $439.7 | 20% | - HPS revenue increased 99% to approximately $1 billion in Q1 2025, accounting for 39% of total revenue, driven by increased hyperscaler customer demand and program ramps[149] - Top 10 customers represented 78% of total revenue in Q1 2025 (up from 70% in Q1 2024), with three CCS customers individually accounting for 10% or more[150] Gross profit Gross profit increased by 23% in Q1 2025, with margin improving to 10.3%, despite negative impacts from Total Return Swap fair value adjustments - Gross profit for Q1 2025 increased by 23% to $273.9 million, with gross margin improving to 10.3% from 10.1% in Q1 2024. This was driven by strong revenue growth, operating performance, and favorable mix, despite a negative impact of $7.5 million from unfavorable Total Return Swap (TRS) fair value adjustments[152] Gross Profit Metrics (in millions) | Metric (in millions) | Q1 2025 | Q1 2024 | YoY Change | | :------------------- | :------ | :------ | :--------- | | Gross profit | $273.9 | $222.1 | $51.8 | | Gross margin | 10.3% | 10.1% | 0.2 pp | - Gross profit and margin in Q1 2025 were negatively impacted by $7.5 million of unfavorable TRS fair value adjustments, compared to a positive impact of $12.8 million in Q1 2024[152] SG&A Selling, General and Administrative expenses significantly increased by 74% in Q1 2025, primarily due to unfavorable Total Return Swap fair value adjustments and higher compensation - Selling, General and Administrative (SG&A) expenses for Q1 2025 significantly increased by $47.7 million (74%) to $112.5 million, representing 4.2% of total revenue, up from 2.9% in Q1 2024. This rise was primarily due to $30.3 million in unfavorable Total Return Swap (TRS) fair value adjustments, higher expected credit losses, and increased variable compensation[154][155] SG&A Metrics (in millions) | Metric (in millions) | Q1 2025 | Q1 2024 | YoY Change | % of Revenue Q1 2025 | % of Revenue Q1 2024 | | :------------------- | :------ | :------ | :--------- | :------------------- | :------------------- | | SG&A | $112.5 | $64.8 | $47.7 | 4.2% | 2.9% | - The increase in SG&A was primarily driven by $30.3 million in unfavorable TRS fair value adjustments ($11.6 million loss in Q1 2025 vs. $18.7 million gain in Q1 2024), higher expected credit losses, and increased variable compensation[155] Segment income and margin Both ATS and CCS segments reported increased income and improved margins in Q1 2025, driven by strong operational performance and favorable product mix - ATS segment income increased by 28% to $40.7 million in Q1 2025, with its margin improving to 5.0% from 4.2%, driven by strong performance in Capital Equipment and profit improvement in A&D. CCS segment income grew by 49% to $147.1 million, and its margin increased to 8.0% from 6.8%, attributed to a higher mix of HPS revenue and strong operational performance[157][158] Segment Income & Margin (in millions) | Segment Income & Margin | Q1 2025 Income | Q1 2025 Margin | Q1 2024 Income | Q1 2024 Margin | YoY Income Change | YoY Margin Change | | :---------------------- | :------------- | :------------- | :------------- | :------------- | :---------------- | :---------------- | | ATS | $40.7 | 5.0% | $31.9 | 4.2% | $8.8 | 0.8 pp | | CCS | $147.1 | 8.0% | $98.7 | 6.8% | $48.4 | 1.2 pp | - ATS margin improvement was driven by strong operating performance in Capital Equipment and profit improvement in A&D[157] - CCS margin improvement was driven by a higher mix of HPS revenue and strong operational performance[158] SBC Expense and TRS FVAs Total employee Stock-Based Compensation expense increased, and Total Return Swap fair value adjustments shifted to a significant loss, resulting in a combined negative impact in Q1 2025 - Total employee Stock-Based Compensation (SBC) expense increased to $26.0 million in Q1 2025 from $22.7 million in Q1 2024. Total Return Swap (TRS) fair value adjustments (FVAs) shifted from a $31.5 million gain in Q1 2024 to a $19.1 million loss in Q1 2025, resulting in a combined negative impact of $45.1 million in Q1 2025 compared to a $8.8 million recovery in Q1 2024[161] SBC Expense and TRS FVAs (in millions) | Metric (in millions) | Q1 2025 | Q1 2024 | YoY Change | | :------------------- | :------ | :------ | :--------- | | Total employee SBC expense | $26.0 | $22.7 | $3.3 | | Total TRS FVAs losses (gains) | $19.1 | $(31.5) | $50.6 | | Combined effect of employee SBC expense and TRS FVAs | $45.1 | $(8.8) | $53.9 | - The unfavorable changes in TRS FVAs in Q1 2025 compared to Q1 2024 were due to fluctuations in the company's Common Share price[161] Restructuring and Other Charges, Net of Recoveries Restructuring and other charges, net of recoveries, decreased in Q1 2025 due to lower restructuring and acquisition costs, partially offset by U.S. domestic filer transition expenses - Restructuring and other charges, net of recoveries, decreased to $3.9 million in Q1 2025 from $4.8 million in Q1 2024. This was due to lower restructuring charges and acquisition costs, partially offset by $1.1 million in other charges related to the transition as a U.S. domestic filer, compared to $1.3 million in legal recoveries in the prior year[162][166] Restructuring and Other Charges (in millions) | Charge Type (in millions) | Q1 2025 | Q1 2024 | YoY Change | | :------------------------ | :------ | :------ | :--------- | | Restructuring charges | $2.2 | $5.1 | $(2.9) | | Acquisition costs | $0.6 | $1.0 | $(0.4) | | Other charges (recoveries) | $1.1 | $(1.3) | $2.4 | | Total | $3.9 | $4.8 | $(0.9) | - Q1 2025 other charges included $1.1 million for the transition as a U.S. domestic filer, while Q1 2024 included $1.3 million in legal recoveries from class action lawsuits[166] Finance Costs Finance costs slightly decreased in Q1 2025, despite an increase in interest expense under the credit facility - Finance costs for Q1 2025 were $13.7 million, a slight decrease from $14.0 million in Q1 2024. Interest expense under the credit facility, including the impact of interest rate swap agreements, increased to $13.1 million in Q1 2025 from $11.9 million in Q1 2024[13][167] Finance Costs (in millions) | Metric (in millions) | Q1 2025 | Q1 2024 | YoY Change | | :------------------- | :------ | :------ | :--------- | | Finance costs | $13.7 | $14.0 | $(0.3) | | Interest expense under credit facility | $13.1 | $11.9 | $1.2 | Miscellaneous Expense (Income) Miscellaneous expense significantly decreased in Q1 2025, primarily due to lower losses recognized on derivatives and reduced net periodic benefit costs - Miscellaneous expense decreased significantly to $1.4 million in Q1 2025 from $6.6 million in Q1 2024. This reduction was primarily due to lower losses recognized on derivatives (interest rate swaps and foreign exchange forwards) and lower net periodic benefit costs[13][169] Miscellaneous Expense (in millions) | Metric (in millions) | Q1 2025 | Q1 2024 | | :------------------- | :------ | :------ | | Miscellaneous Expense | $1.4 | $6.6 | - Components include net periodic benefit costs and gains/losses from foreign currency forward exchange contracts and interest rate swaps not designated as GAAP hedges prior to 2024[168] Income Taxes Net income tax expense increased in Q1 2025, driven by Canada's Pillar Two legislation and tax uncertainties in an Asian subsidiary - Net income tax expense for Q1 2025 was $27.5 million on earnings before tax of $113.7 million, compared to $13.4 million on $105.2 million in Q1 2024. The increase was driven by a $6.8 million withholding tax expense related to Canada's Pillar Two legislation and a $3.0 million tax expense for uncertainties in an Asian subsidiary, partially offset by $1.9 million in reversals of tax uncertainties[170][171] Income Tax Metrics (in millions) | Metric (in millions) | Q1 2025 | Q1 2024 | YoY Change | | :------------------- | :------ | :------ | :--------- | | Net income tax expense | $27.5 | $13.4 | $14.1 | | Earnings before tax | $113.7 | $105.2 | $8.5 | - Q1 2025 tax expense included $6.8 million for Pillar Two legislation in Canada and $3.0 million for tax uncertainties in an Asian subsidiary, offset by $1.9 million in reversals[171] - Q1 2024 tax expense was favorably impacted by $5.6 million in reversals of tax uncertainties, largely offset by a $4.5 million tax expense from anticipated repatriation of undistributed earnings[172] - The company is defending against a $7 million Romanian tax assessment (2014-2018) and a $12 million Thai tax assessment (2019)[176][177] Net Earnings Net earnings decreased in Q1 2025, primarily due to higher SG&A and income tax expenses, largely offsetting the increase in gross profit - Net earnings for Q1 2025 decreased by $5.6 million (6%) to $86.2 million compared to Q1 2024. This decline was primarily due to a $47.7 million increase in SG&A expenses and a $14.1 million increase in income tax expense, largely offsetting the $51.8 million increase in gross profit[13][180] Net Earnings (in millions) | Metric (in millions) | Q1 2025 | Q1 2024 | YoY Change | | :------------------- | :------ | :------ | :--------- | | Net earnings | $86.2 | $91.8 | $(5.6) | - The decrease in net earnings was primarily driven by higher SG&A ($47.7 million) and income tax expense ($14.1 million), partially offset by higher gross profit ($51.8 million)[180] Liquidity and Capital Resources This section analyzes Celestica's cash position, cash flow activities, and available capital resources, including credit facilities and share repurchase programs Liquidity Cash and cash equivalents decreased in Q1 2025 due to significant financing outflows from share repurchases and SBC settlements, despite increased operating cash flow - Cash and cash equivalents decreased to $303.0 million at March 31, 2025, from $423.3 million at December 31, 2024. Cash provided by operating activities increased to $130.3 million in Q1 2025, but cash used in financing activities significantly increased to $213.9 million, primarily due to common share repurchases and SBC cash settlements. Non-GAAP free cash flow increased to $93.6 million[181][182][186] Liquidity Metrics (in millions) | Metric (in millions) | March 31, 2025 | December 31, 2024 | Change | | :------------------- | :------------- | :---------------- | :----- | | Cash and cash equivalents | $303.0 | $423.3 | $(120.3) | | Borrowings under credit facility* | $886.8 | $741.2 | $145.6 | Cash Flow (in millions) | Cash Flow (in millions) | Q1 2025 | Q1 2024 | YoY Change | | :---------------------- | :------ | :------ | :--------- | | Cash provided by operating activities | $130.3 | $108.1 | $22.2 | | Cash used in investing activities | $(36.7) | $(40.4) | $3.7 | | Cash used in financing activities | $(213.9) | $(130.0) | $(83.9) | - The increase in cash from operating activities was partially offset by higher working capital requirements in Q1 2025, primarily due to decreased A/R and inventory cash flows, partially offset by increased A/P cash flows[183][184] Non-GAAP Free Cash Flow (in millions) | Non-GAAP Free Cash Flow (in millions) | Q1 2025 | Q1 2024 | YoY Change | | :------------------------------------ | :------ | :------ | :--------- | | GAAP cash provided by operations | $130.3 | $108.1 | $22.2 | | Purchase of property, plant and equipment | $(36.7) | $(40.4) | $3.7 | | Non-GAAP free cash flow | $93.6 | $67.7 | $25.9 | Capital Resources Celestica's capital resources include cash from operations, access to its Revolving Credit Facility, uncommitted bank overdrafts, and A/R sales programs, with a portion of borrowings unhedged - Celestica's capital resources include cash from operations, access to a $750.0 million Revolver (with $588.9 million available at March 31, 2025), uncommitted bank overdraft facilities ($198.5 million available), and uncommitted A/R sales programs. The company had $303.0 million in cash and cash equivalents at March 31, 2025. Interest rate risk on $516.8 million of Credit Facility borrowings remained unhedged[212][213][214][218][221][222] - Capital resources include cash from operating activities, access to the Revolver, uncommitted intraday/overnight bank overdraft facilities, uncommitted A/R sales program, and three uncommitted SFPs[212] Capital Resources Metrics (in millions) | Metric (in millions) | March 31, 2025 | December 31, 2024 | | :------------------- | :------------- | :---------------- | | Cash and cash equivalents | $303.0 | $423.3 | | Available under Revolver | $588.9 | $738.9 | | Uncommitted bank overdraft facilities | $198.5 | $198.5 | - At March 31, 2025, $516.8 million of borrowings under the Credit Facility remained unhedged against interest rate risk[218] - The company has an uncommitted agreement to sell up to $450.0 million in A/R and participates in three customer SFPs, but sold nil under these programs in Q1 2025 and Q4 2024[222] Outstanding Share Data This section provides a detailed breakdown of Celestica's common shares and equity instruments outstanding as of April 21, 2025 - As of April 21, 2025, Celestica had 114,991,980 common shares outstanding. Additionally, there were 70,888 outstanding stock options, 1,419,719 outstanding RSUs, 2,180,402 outstanding PSUs (assuming 100% vesting), and 439,386 outstanding DSUs[225] Equity Instrument Outstanding (as of April 21, 2025) | Equity Instrument | Number Outstanding (as of April 21, 2025) | | :---------------- | :---------------------------------------- | | Common Shares | 114,991,980 | | Stock Options | 70,888 | | RSUs | 1,419,719 | | PSUs (at 100% target) | 2,180,402 | | DSUs | 439,386 | Unaudited Quarterly Financial Highlights Q1 2025 revenue exceeded guidance, but gross profit and net earnings decreased sequentially due to unfavorable Total Return Swap fair value adjustments and higher SG&A - In Q1 2025, revenue increased 4% sequentially to $2.65 billion, exceeding guidance. Gross profit decreased 8% sequentially due to unfavorable TRS FVAs, leading to a gross margin decline to 10.3%. Net earnings decreased to $86.2 million from $151.7 million in Q4 2024, primarily due to lower gross profit and higher SG&A. Adjusted EPS of $1.20 exceeded guidance, driven by unanticipated operating leverage in the CCS segment[226][228] Quarterly Financial Highlights (in millions, except %) | Metric (in millions, except %) | Q1 2025 | Q4 2024 | Sequential Change | Sequential % Change | | :--------------------------- | :------ | :------ | :---------------- | :------------------ | | Total revenue | $2,648.6 | $2,545.7 | $102.9 | 4% | | Gross profit | $273.9 | $297.2 | $(23.3) | (8)% | | Gross margin | 10.3% | 11.7% | (1.4) pp | | | Net earnings | $86.2 | $151.7 | $(65.5) | (43)% | - Q1 2025 revenue of $2.65 billion exceeded guidance ($2.475 to $2.625 billion) due to higher than anticipated customer demand[228] - Adjusted EPS of $1.20 exceeded guidance ($1.06 to $1.16), driven by unanticipated operating leverage in the CCS segment[228] - Gross profit decreased sequentially due to unfavorable TRS FVAs ($7.5 million loss in Q1 2025 vs. $22.4 million gain in Q4 2024)[226] Non-GAAP Financial Measures Management utilizes various non-GAAP financial measures, such as adjusted gross profit and EPS, to assess core operating performance by excluding non-recurring or non-cash items - Management uses various non-GAAP financial measures, such as adjusted gross profit, adjusted operating earnings (EBIAT), adjusted net earnings, adjusted EPS, non-GAAP free cash flow, and adjusted ROIC, to assess operating performance and provide normalized period-to-period comparisons. These measures exclude items like employee SBC expense, TRS FVAs, amortization of intangible assets, restructuring