Celestica Announces First Quarter 2024 Financial Results
*Q1 2024 revenue and non-IFRS adjusted EPS* above the high end of guidance ranges;
**2024 full-year outlook raised*(All amounts in U.S. dollars. Per share information based on diluted shares outstanding unless otherwise noted.)
TORONTO, April 24, 2024 (GLOBE NEWSWIRE) -- 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 our
revenue and non-IFRS adjusted
EPS 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.
*Contacts
*Celestica Global Communications
(416) 448-2200
media@celestica.com
Celestica Investor Relations
(416) 448-2211
clsir@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 31
2023* *March 31
2024*
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 31
**2022* *March 31
2023*
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 31*
*2023* *March 31*
*2024*
*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**)* *Contributed*
*surplus* *Deficit* *Accumulated other comprehensive*
*loss* ^*(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 (CGUs^1), 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 bas