Celestica Inc. — FY2023 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2023; the filing also provides unaudited Q4 2023 results. Financial amounts are in U.S. dollars unless stated otherwise. The company reports under IFRS.
Business context
Celestica provides electronics manufacturing and supply-chain services through Advanced Technology Solutions (ATS) and Connectivity & Cloud Solutions (CCS). CCS includes Communications, Enterprise, and higher-value Hardware Platform Solutions (HPS). One CCS customer generated 22% of 2023 revenue; the top 10 customers generated 64%.
Key financial metrics
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Revenue | $7.961 billion | $7.250 billion | +10% |
| Gross profit / margin | $778.5 million / 9.8% | $636.3 million / 8.8% | Margin +1.0 percentage point |
| Earnings from operations | $383.2 million | $263.3 million | +46% |
| Net earnings | $244.6 million | $145.5 million | +68% |
| Diluted IFRS EPS | $2.03 | $1.18 | +72% |
| Operating cash flow | $429.7 million | $297.9 million | +44% |
| Adjusted free cash flow (non-IFRS) | $193.9 million | $93.8 million | More than doubled |
ATS revenue rose 11% to $3.32 billion, with a 4.7% segment margin, unchanged year over year. CCS revenue rose 9% to $4.64 billion; segment margin improved to 6.2% from 5.1%. Enterprise revenue increased 40%, driven by AI/ML compute demand from hyperscalers. Communications revenue fell 7%, and HPS revenue fell 7% to $1.7 billion.
Q4 2023: Revenue was $2.14 billion, up 5% year over year and sequentially. Gross margin was 10.4%, versus 9.1% in Q4 2022. Earnings from operations were $118.6 million; net earnings were $84.2 million, versus $42.4 million a year earlier. Diluted IFRS EPS was $0.70. CCS Enterprise revenue rose 46% year over year; Communications revenue declined 10%.
Balance sheet and funding: Cash and cash equivalents were $370.4 million at year-end, versus $374.5 million a year earlier. Term-loan borrowings were $608.9 million, down from $627.2 million; no revolving loans were outstanding at year-end, and $589.5 million of revolver capacity was available. Lease obligations were $176.5 million. Capital expenditures were $125.1 million in 2023. Adjusted free cash flow is a non-IFRS measure and is not residual cash available for discretionary spending.
Material changes versus prior periods
- Revenue and earnings continued to grow, while gross margin improved to 9.8% from 8.8%, reflecting higher volumes, mix and production efficiencies.
- CCS performance strengthened, particularly in Enterprise and hyperscaler programs; CCS segment margin rose to 6.2%. ATS grew, but its margin remained flat amid Capital Equipment softness.
- Net inventory write-downs increased to $57.6 million from $30.5 million, reflecting reduced demand for certain aged inventory.
- Operating cash flow increased, supported by earnings growth and improved inventory cash flows. Year-end inventory fell to $2.11 billion from $2.35 billion, while accounts receivable rose to $1.80 billion from $1.39 billion.
- Celestica repurchased 2.6 million shares for cancellation for $35.6 million during 2023. Onex’s secondary offerings converted the remaining multiple-voting shares into subordinate voting shares; Onex ceased to be the controlling shareholder. The offerings generated no proceeds for Celestica.
Outlook, risks and unusual items
- Management expects 2024 ATS revenue growth in the mid-single-digit percentage range and CCS growth in the low-double-digit range. It expects strong Enterprise growth from hyperscaler AI/ML deployments; Industrial revenue is expected to weaken in the first half and recover in the second half. These are forward-looking expectations, not guarantees.
- Management’s long-term goals include average annual ATS organic revenue growth of 10%, adjusted EPS growth of at least 10% CAGR, capital spending generally at 1.5%–2.0% of annual revenue, and returning approximately 50% of adjusted free cash flow to shareholders on average when permitted. Planned 2024 capital spending is 1.75%–2.25% of revenue.
- Management expects sufficient liquidity for anticipated needs, but key term-loan maturities fall in June 2025 and, subject to specified conditions, December 2026. Refinancing terms and market access remain risks. The company reported compliance with credit-facility covenants at year-end.
- Net restructuring charges were $11.2 million in 2023; further restructuring charges are expected in 2024. A $3.9 million headquarters lease transition charge was recorded in Q3.
- The 2022 Batam facility fire caused approximately $95 million of tangible asset write-downs, offset by expected insurance recoveries. Celestica had recovered $54 million by year-end 2023 and recorded an estimated $41 million receivable for remaining anticipated proceeds; full recovery is not assured.
- Other risks include customer and CCS concentration, competitive pricing, demand volatility, component availability, inventory exposure, geopolitical and trade disruptions, interest rates, foreign exchange, and tax changes. The company estimated that Pillar Two rules could add approximately $6 million of tax expense in Q1 2024 if applicable then. It is defending a Romanian tax assessment of approximately $7 million paid in 2021.
- IFRS results include a $45.6 million non-cash gain from total-return-swap fair-value changes in 2023; adjusted measures exclude this and other items. The filing reports no material cybersecurity incident through year-end and unqualified audit opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether hyperscaler and AI/ML demand, particularly in Enterprise, persists and converts into profitable revenue without increasing customer concentration.
- Whether elevated inventory provisions, customer deposits, and working-capital needs continue to affect cash conversion and margins.
- Progress on refinancing or repaying the 2025 and 2026 debt maturities, and sensitivity to interest rates and credit-facility conditions.
- Timing and collectability of the remaining Batam fire insurance recovery, and resolution of the Romanian tax dispute and Pillar Two exposure.
- Whether 2024 segment growth expectations and planned capacity expansions are achieved; consolidated 2024 revenue guidance is not clearly provided in the filing.
- The impact of share repurchases, stock-based compensation settlements, and the post-Onex ownership structure on share count and capital allocation.