Celestica Q4 2018 and FY2018 Financial Results

TORONTO — Celestica Inc. (TSX: CLS)(NYSE: CLS), a leader in design, manufacturing and supply chain solutions for the world’s most innovative companies, recently announced financial results for the fourth quarter of 2018 (Q4 2018) and the year ended December 31, 2018 (FY 2018). During the first quarter of 2018, Celestica completed a reorganization of its business into two operating and reportable segments — Advanced Technology Solutions (ATS) and Connectivity & Cloud Solutions (CCS)*. Celestica adopted International Financial Reporting Standards (IFRS) 15 (Revenue from Contracts with Customers) effective January 1, 2018, and all prior period comparatives in this press release have been restated to reflect such adoption.

Q4 2018 Highlights

• Revenue: $1.73 billion, compared to our previously provided guidance range of $1.70 to $1.80 billion, increased 10% compared to the fourth quarter of 2017 (Q4 2017); Operating margin (non-IFRS)**: 3.5%, consistent with the mid-point of our revenue and non-IFRS adjusted EPS guidance ranges for Q4 2018, and compared to 3.2% for Q4 2017
• ATS segment revenue increased 11% compared to Q4 2017, and represented 33% of total revenue; ATS segment margin*** was 3.7% compared to 5.2% for Q4 2017
• CCS segment revenue increased 10% compared to Q4 2017, and represented 67% of total revenue; CCS segment margin*** was 3.3% compared to 2.2% for Q4 2017
• IFRS EPS: $0.44 per share, compared to $0.09 per share for Q4 2017. IFRS EPS for Q4 2018 included a net benefit of $0.36 per share related to the recognition of deferred tax assets (discussed below)
• Adjusted EPS (non-IFRS)**: $0.29 per share, compared to our previously provided guidance range of $0.27 to $0.33 per share, and $0.27 per share for Q4 2017
• Adjusted ROIC (non-IFRS)**: 15.0%, compared to 16.4% for Q4 2017
• Free cash flow (non-IFRS)**: negative $35.9 million, compared to positive $18.8 million for Q4 2017
• Recorded restructuring charges of $6.4 million ($0.05 per share negative impact on IFRS EPS), compared to $13.2 million ($0.09 per share negative impact on IFRS EPS) for Q4 2017
• Completed acquisition of Impakt Holdings, LLC (Impakt); financed with borrowings under our revolving credit facility and a new $250 million term loan
• Launched a new normal course issuer bid (NCIB) in December 2018, allowing us to repurchase up to approximately 9.5 million subordinate voting shares through December 2019
• Obtained municipal zoning approval for sale of our Toronto real property; scheduled to close March 7, 2019; expect to receive total proceeds of approximately U.S.$110 million on closing (discussed below)

*Our ATS segment consists of our ATS end market, and is comprised of our aerospace and defense, industrial, smart energy, healthtech, and capital equipment businesses. Our capital equipment business consists of our semiconductor, display and power equipment businesses. Our CCS segment consists of our Communications and Enterprise end markets, and is comprised of our enterprise communications, telecommunications, servers and storage businesses. Prior period financial information has been reclassified to reflect this reorganized segment structure.
** See “Non-IFRS Supplementary Information” below for information on our rationale for the use of non-IFRS measures, and Schedule 1 for, among other items, non-IFRS measures included in this press release, as well as their definitions, uses, and a reconciliation of non-IFRS measures to the most directly comparable IFRS measures.
*** Segment performance is evaluated based on segment revenue, segment income and segment margin (segment income as a percentage of segment revenue). See note 4 to our December 31, 2018 unaudited interim condensed consolidated financial statements (Q4 2018 Interim Financial Statements) for further detail.

“Celestica delivered on its Q4 consolidated non-IFRS operating margin target of 3.5%, driven by strong performance in our CCS segment and our aerospace and defense business,” said Rob Mionis, President and CEO, Celestica. “We were particularly pleased that we achieved this key margin metric despite the impact of slower cyclical demand from our capital equipment customers, which had an adverse impact on ATS segment margin for the quarter. Although we remain positive about our positioning and the long-term growth prospects of the capital equipment business, we will focus our efficiency initiatives during the first quarter of 2019 on improving margins and better aligning this business to the current revenue environment.”

“We made good progress in 2018 on our long-term revenue diversification and strategic priorities, including delivering sequential margin expansion in every quarter since Q1, and growing our strong leadership positions within the aerospace and defense, and capital equipment markets. As we enter 2019, we will continue to focus on driving better inventory performance as the constrained materials environment modestly improves, completing our efficiency initiatives to drive margin expansion, and continuing the diversification of our revenue and earnings in order to drive sustainable profitable growth.”