Celestica Announces Third Quarter 2022 Financial Results

Celestica International LP

(All amounts in U.S. dollars. Per share information based on diluted shares outstanding unless otherwise noted.)

Results exceed guidance ranges; full year 2022 outlook raised

TORONTO, Oct. 24, 2022 (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 September 30, 2022 (Q3 2022)^†.

"Our exceptional performance during the third quarter was marked by our highest non-IFRS operating margin* in our history and our highest non-IFRS adjusted EPS* in more than 20 years," said Rob Mionis, President and CEO, Celestica.

"We continue to execute on our strategy to drive profitable growth, and we are pleased with our solid financial results and the momentum that has been building. Year to date, our revenues are up 26%, and our non-IFRS adjusted EPS* is up 56%, compared to the prior year period. The strong performance in recent quarters continues to be driven by new project ramps in our ATS segment and strong demand with market share gains in our Hardware Platform Solutions business. Based on our strong momentum, we are raising our revenue and non-IFRS adjusted EPS* outlook for 2022, and expect revenue and non-IFRS adjusted EPS* growth in 2023."

Q3 2022 Highlights

• Key measures:

• Revenue: $1.92 billion, increased 31% compared to $1.47 billion for the third quarter of 2021 (Q3 2021).

• Non-IFRS operating margin*: 5.1%, compared to 4.2% for Q3 2021.

• ATS segment revenue: increased 30% compared to Q3 2021; ATS segment margin was 5.0%, compared to 4.3% for Q3 2021.

• CCS segment revenue: increased 32% compared to Q3 2021; CCS segment margin was 5.2%, compared to 4.1% for Q3 2021.

• Adjusted earnings per share (EPS) (non-IFRS)*: $0.52, compared to $0.35 for Q3 2021.

• Adjusted return on invested capital (non-IFRS)*: 19.2%, compared to 15.2% for Q3 2021.

• Adjusted free cash flow (non-IFRS)*: $7.4 million, compared to $27.1 million for Q3 2021.
  

• IFRS financial measures (directly comparable to non-IFRS measures above):

• Earnings from operations as a percentage of revenue: 4.1%, compared to 3.5% for Q3 2021.

• EPS: $0.37, compared to $0.28 for Q3 2021.

• Return on invested capital (IFRS ROIC): 15.3%, compared to 12.8% for Q3 2021.

• Cash provided by operations: $74.4 million, compared to $55.7 million for Q3 2021.

• Repurchased and cancelled 0.5 million subordinate voting shares (SVS) for $5.0 million under our normal course issuer bid (NCIB).

† 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 25 to our 2021 audited consolidated financial statements, included in our Annual Report on Form 20-F for the year ended December 31, 2021 (2021 20-F), available at www.sec.gov and www.sedar.com, 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). Adjusted free cash flow was previously referred to as free cash flow, but has been renamed. Its composition remains unchanged. In addition, prior to the second quarter of 2022 (Q2 2022), non-IFRS operating earnings (adjusted EBIAT) was reconciled to IFRS earnings before income taxes, and non-IFRS operating margin was reconciled to IFRS earnings before income taxes as a percentage of revenue, but commencing in Q2 2022, are reconciled to IFRS earnings from operations, and IFRS earnings from operations as a percentage of revenue, respectively (as the most directly comparable IFRS financial measures), with no change to either resultant non-IFRS financial measure. Since non-IFRS adjusted return on invested capital (adjusted ROIC) is based on non-IFRS operating earnings, in comparing this measure to the most directly-comparable financial measure determined using IFRS measures (which we refer to as IFRS ROIC), commencing in Q3 2022, our calculation of IFRS ROIC is based on IFRS earnings from operations (instead of IFRS earnings before income taxes), with no change to the determination of non-IFRS adjusted ROIC. Prior period reconciliations and calculations included herein reflect the current presentation. See “Non-IFRS Supplementary Information” below for information on our rationale for the use of non-IFRS financial measures, and Schedule 1 for, among other items, non-IFRS financial measures included in this press release, as well as 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.

Fourth Quarter of 2022 (Q4 2022) Guidance

	Q4 2022 Guidance
Revenue (in billions)	$1.875 to $2.025
Non-IFRS operating margin*	5.1% at the mid-point of our revenue and non-IFRS adjusted EPS guidance ranges
Adjusted SG&A (non-IFRS)* (in millions)	$64 to $66
Adjusted EPS (non-IFRS)*	$0.49 to $0.55

For Q4 2022, we expect a negative $0.15 to $0.21 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; and a non-IFRS adjusted effective tax rate* of approximately 21% (which does not account for foreign exchange impacts or unanticipated tax settlements).

2022 and 2023 Outlook

Based on our strong performance in the first nine months of 2022 and our Q4 2022 guidance, we have raised our 2022 revenue outlook to between $7.08 billion and $7.23 billion, and our non-IFRS adjusted EPS* outlook to between $1.83 and $1.89. Achievement of the mid-point of these ranges would represent 27% and 43% year- over-year growth for revenue and non-IFRS adjusted EPS*, respectively. Additionally, our 2022 non-IFRS adjusted free cash flow* outlook is $75 million, as we continue to make strategic investments to support our strong growth.

For 2023, our outlook consists of:

• revenue of at least $7.5 billion;

• non-IFRS operating margin* of between 4.5% and 5.5%; and

• target non-IFRS adjusted EPS* of between $1.95 and $2.05.
  

Although we have incorporated the anticipated impact of supply chain constraints into the foregoing financial guidance and outlook to the best of our ability, their adverse impact (in terms of duration and severity) cannot be estimated with certainty, and may be materially in excess of our expectations.

* 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.

Summary of Selected Q3 2022 Results

	Q3 2022 Actual			Q3 2022 Guidance (2)
Key measures:
Revenue (in billions)	$1.92			$1.65 to $1.80
Non-IFRS operating margin*	5.1%			4.8% at the mid-point of our revenue and non-IFRS adjusted EPS guidance ranges
Adjusted SG&A (non-IFRS)* (in millions)	$60.9			$64 to $66
Adjusted EPS (non-IFRS)*	$0.52			$0.41 to $0.47
Directly comparable IFRS financial measures:
Earnings from operations as a % of revenue	4.1%			N/A
SG&A (in millions)	$66.1			N/A
EPS (1)	$0.37			N/A

* See Schedule 1 for, among other things, the definitions of, and exclusions used to determine, these non-IFRS financial measures, and a reconciliation of such financial measures to the most directly comparable IFRS financial measures for Q3 2022.

⁽¹⁾ IFRS EPS of $0.37 for Q3 2022 included an aggregate charge of $0.16 (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 9 to our September 30, 2022 unaudited interim condensed consolidated financial statements (Q3 2022 Interim Financial Statements) for per-item charges. This aggregate charge was within our Q3 2022 guidance range of between $0.13 to $0.19 per share for these items.

IFRS EPS for Q3 2022 included a $0.02 per share negative taxable foreign exchange impact arising from the weakening of the Chinese renminbi relative to the U.S. dollar (Currency Impact) and a $0.01 per share negative impact attributable to restructuring charges.

IFRS EPS of $0.83 for the first nine months of 2022 (YTD 2022) included: (i) a $0.03 per share net negative impact attributable to other charges (recoveries) (consisting most significantly of a $0.05 per share negative impact attributable to restructuring charges and a $0.01 per share negative impact attributable to Transition Costs, partially offset by a $0.03 per share positive impact attributable to Transition Recoveries (each defined in Schedule 1)); (ii) as a result of supply chain constraints and COVID-19-related workforce expenses and constraints, a $0.03 per share negative impact attributable to estimated Constraint Costs (defined as both direct and indirect costs, including manufacturing inefficiencies related to lost revenue due to our inability to secure materials, idled labor costs, and incremental costs for labor, expedite fees and freight premiums, cleaning supplies, personal protective equipment, and/or IT-related services to support our work-from-home arrangements); (iii) a $0.04 per share favorable tax impact attributable to the reversal of tax uncertainties in one of our Asian subsidiaries; and (iv) a $0.02 per share negative Currency Impact. See notes 9 and 10 to the Q3 2022 Interim Financial Statements.

IFRS EPS of $0.28 for Q3 2021 included a $0.04 per share positive impact attributable to a deferred tax recovery recorded in connection with the revaluation of certain temporary differences using the future effective tax rate of our Thailand subsidiary related to the then-forthcoming income tax exemption rate reduction in 2022 under an applicable tax incentive (Revaluation Impact), and a $0.03 per share positive impact attributable to net other recoveries (consisting most significantly of a $0.07 per share positive impact attributable to legal recoveries, offset in part by a $0.05 per share negative impact attributable to Acquisition Costs, each as described in note 9 to the Q3 2022 Interim Financial Statements), all offset in part by a $0.05 per share negative impact attributable to estimated Constraint Costs net of recognized COVID-19-related government subsidies, credits and grants (COVID Subsidies).

IFRS EPS of $0.57 for the first nine months of 2021 (YTD 2021) included a $0.17 per share negative impact attributable to estimated Constraint Costs, and a $0.02 per share negative impact attributable to net other charges (consisting most significantly of a $0.06 per share negative impact attributable to net restructuring charges and a $0.04 per share negative impact attributable to Acquisition Costs, offset in part by a $0.08 per share positive impact attributable to legal recoveries, each as described in note 9 to the Q3 2022 Interim Financial Statements), all offset in part by a $0.09 per share positive impact attributable to approximately $11 million of recognized COVID Subsidies and $1 million of customer recoveries related to COVID-19, as well as the $0.04 per share positive Revaluation Impact.

For the estimated impact of supply chain constraints on our revenues and costs in YTD 2022, Q3 2021 and YTD 2021, see "Recent Developments — Segment Environment — Operational Impacts" of our Q3 2022 Management's Discussion and Analysis of Financial Condition and Results of Operations, to be filed today at www.sedar.com and furnished on Form 6-K at www.sec.gov.

⁽²⁾ For Q3 2022, our revenue and non-IFRS adjusted EPS exceeded the high end of our guidance ranges, and our non-IFRS operating margin exceeded the mid-point of our revenue and non-IFRS adjusted EPS guidance ranges, driven by continued strong demand across the majority of our businesses and improved materials availability in some markets relative to expectations. Non-IFRS adjusted SG&A for Q3 2022 was lower than our guidance range due to the impact of foreign exchange and cost efficiency improvement measures. Our IFRS effective tax rate for Q3 2022 was 25%. As anticipated, our non-IFRS adjusted effective tax rate for Q3 2022 was 21%.

Intention to Launch New NCIB

We intend to file a notice of intention with the Toronto Stock Exchange (TSX) to commence a new NCIB in Q4 2022, after our current NCIB expires in December 2022. If this notice is accepted by the TSX, we expect to be permitted to repurchase for cancellation, at our discretion during the 12 months following such acceptance, up to 10% of the “public float” (calculated in accordance with the rules of the TSX) of our issued and outstanding SVS. Purchases under the new NCIB, if accepted, will be conducted in the open market or as otherwise permitted, subject to applicable terms and limitations, and will be made through the facilities of the TSX and the New York Stock Exchange. We believe that a new NCIB is in the interest of the Company.

Q3 2022 Webcast

Management will host its Q3 2022 results conference call on October 25, 2022 at 8:00 a.m. Eastern Daylight Time (EDT). The webcast can be accessed at www.celestica.com.

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.sedar.com 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 and outlook, including statements made and guidance provided under the headings "Fourth Quarter of 2022 (Q4 2022) Guidance" and "2022 and 2023 Outlook"; our intention to launch a new NCIB and anticipated terms; our credit risk; our liquidity; anticipated charges and expenses, including restructuring charges; the potential impact of tax and litigation outcomes; mandatory prepayments under our credit facility; our intangible asset amortization; and interest rates. 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," "goal," “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. Readers are cautioned that such information may not be appropriate for other purposes. 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; price, margin pressures, and other competitive factors and adverse market conditions affecting, and the highly competitive nature of, the electronics manufacturing services (EMS) industry in general and our segments in particular (including the risk that anticipated market conditions do not materialize); delays in the delivery and availability of components, services and/or materials, as well as their costs and quality; challenges of replacing revenue from completed, lost or non-renewed programs or customer disengagements; our customers' ability to compete and succeed using our products and services; changes in our mix of customers and/or the types of products or services we provide, including negative impacts of higher concentrations of lower margin programs; managing changes in customer demand; rapidly evolving and changing technologies, and changes in our customers' business or outsourcing strategies; the cyclical and volatile nature of our semiconductor business; the expansion or consolidation of our operations; the inability to maintain adequate utilization of our workforce; defects or deficiencies in our products, services or designs; volatility in the commercial aerospace industry; integrating and achieving the anticipated benefits from acquisitions (including our acquisition of PCI Private Limited (PCI)) and "operate-in-place" arrangements; the potential loss of PCI customers as a result of the recent fire at our Batam facility in Indonesia (Batam Fire); an inability to recover our tangible losses caused by the Batam Fire through insurance claims; compliance with customer-driven policies and standards, and third-party certification requirements; challenges associated with new customers or programs, or the provision of new services; the impact of our restructuring actions and/or productivity initiatives, including a failure to achieve anticipated benefits therefrom; negative impacts on our business resulting from our third-party indebtedness; the incurrence of future restructuring charges, impairment charges, other unrecovered write-downs of assets (including inventory) or operating losses; managing our business during uncertain market, political and economic conditions, including among others, global inflation and/or recession, and geopolitical and other risks associated with our international operations, including military actions, protectionism and reactive countermeasures, economic or other sanctions or trade barriers, including in relation to the evolving Ukraine/Russia conflict; disruptions to our operations, or those of our customers, component suppliers and/or logistics partners, including as a result of events outside of our control (see "External Factors that May Impact our Business" in Item 5 of our 2021 20-F); the scope, duration and impact of the COVID-19 pandemic and materials constraints; changes to our operating model; rising commodity, materials and component costs as well as rising labor costs and changing labor conditions; execution and/or quality issues (including our ability to successfully resolve these challenges); non-performance by counterparties; maintaining sufficient financial resources to fund currently anticipated financial actions and obligations and to pursue desirable business opportunities; negative impacts on our business resulting from any significant uses of cash (including for the acquisition of PCI), securities issuances, and/or additional increases in third-party indebtedness (including as a result of an inability to sell desired amounts under our uncommitted accounts receivable sales program or supplier financing programs); foreign currency volatility; our global operations and supply chain; competitive bid selection processes; customer relationships with emerging companies; recruiting or retaining skilled talent; our dependence on industries affected by rapid technological change; our ability to adequately protect intellectual property and confidential information; increasing taxes (including as a result of global tax reform), tax audits, and challenges of defending our tax positions; obtaining, renewing or meeting the conditions of tax incentives and credits; the management of our information technology systems, and the fact that while we have not been materially impacted by computer viruses, malware, ransomware, hacking attempts or outages, we have been (and may continue to be) the target of such events; the inability to prevent or detect all errors or fraud; the variability of revenue and operating results; unanticipated disruptions to our cash flows; compliance with applicable laws and regulations; our pension and other benefit plan obligations; changes in accounting judgments, estimates and assumptions; our ability to maintain compliance with applicable credit facility covenants; interest rate fluctuations and the discontinuation of LIBOR; our ability to refinance our indebtedness from time to time; deterioration in financial markets or the macro-economic environment, including as a result of global inflation and/or recession; our credit rating; the interest of our controlling shareholder; current or future litigation, governmental actions, and/or changes in legislation or accounting standards; negative publicity; a lack of acceptance by the TSX of a new NCIB; the impermissibility of SVS repurchases, or a determination not to repurchase SVS under any NCIB; the impact of climate change; and our ability to achieve our environmental, social and governance (ESG) initiative goals, including with respect to climate change and greenhouse gas emissions reduction. The foregoing and other material risks and uncertainties are discussed in our public filings at www.sedar.com and www.sec.gov, including in our most recent MD&A, our 2021 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 as applicable, the Canadian Securities Administrators.

The forward-looking statements contained in this press release are based on various assumptions, many of which involve factors that are beyond our control. Our material assumptions include: continued growth in our end markets; growth in manufacturing outsourcing from customers in diversified end markets; no significant unforeseen negative impacts to Celestica’s operations; no unforeseen materials price increases, margin pressures, or other competitive factors affecting the EMS industry in general or our segments in particular, as well as those related to the following: the scope and duration of materials constraints (i.e., that they do not materially worsen) and the COVID-19 pandemic and their impact on our sites, customers and suppliers; our ability to recover our tangible losses caused by the Batam Fire through insurance claims; fluctuation of production schedules from our customers in terms of volume and mix of products or services; the timing and execution of, and investments associated with, ramping new business; the success of our customers’ products; our ability to retain programs and customers; the stability of currency exchange rates; supplier performance and quality, pricing and terms; compliance by third parties with their contractual obligations; the costs and availability of components, materials, services, equipment, labor, energy and transportation; that our customers will retain liability for product/component tariffs and countermeasures; global tax legislation changes; our ability to keep pace with rapidly changing technological developments; the timing, execution and effect of restructuring actions; the successful resolution of quality issues that arise from time to time; the components of our leverage ratio (as defined in our credit facility); our ability to successfully diversify our customer base and develop new capabilities; the availability of capital resources for, and the permissibility under our credit facility of, repurchases of outstanding SVS under NCIBs, acceptance of a new NCIB and compliance with applicable laws and regulations pertaining to NCIBs; compliance with applicable credit facility covenants; anticipated demand levels across our businesses; the impact of anticipated market conditions on our businesses; that global inflation and/or recession will not have a material impact on our revenues or expenses; our ability to successfully integrate PCI and achieve the expected long-term benefits from the acquisition; and our maintenance of sufficient financial resources to fund currently anticipated financial actions and obligations and to pursue desirable business opportunities. Although management believes its assumptions to be reasonable under the current circumstances, they may prove to be inaccurate, which could cause actual results to differ materially (and adversely) from those that would have been achieved had such assumptions been accurate. 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 required by applicable law.
  
All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

                                       

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. Adjusted free cash flow was previously referred to as free cash flow, but has been renamed. Its composition remains unchanged. In addition, prior to the second quarter of 2022 (Q2 2022), non-IFRS operating earnings (adjusted EBIAT) was reconciled to IFRS earnings before income taxes, and non-IFRS operating margin was reconciled to IFRS earnings before income taxes as a percentage of revenue, but commencing in Q2 2022, are reconciled to IFRS earnings from operations, and IFRS earnings from operations as a percentage of revenue, respectively (as the most directly comparable IFRS financial measures), with no change to either resultant non-IFRS financial measure. Since non-IFRS adjusted ROIC is based on non-IFRS operating earnings, in comparing this measure to the most directly-comparable financial measure determined using IFRS measures (which we refer to as IFRS ROIC), commencing in Q3 2022, our calculation of IFRS ROIC is based on IFRS earnings from operations (instead of IFRS earnings before income taxes), with no change to the determination of non-IFRS adjusted ROIC. Prior period reconciliations and calculations included herein reflect the current presentation. In calculating our non-IFRS financial measures, management excludes the following items (where indicated): employee stock-based compensation (SBC) expense, amortization of intangible assets (excluding computer software), Other Charges, net of recoveries (defined below), and specified Finance Costs (defined below), all net of the associated tax adjustments (quantified in the table below), and non-core tax impacts (tax adjustments related to acquisitions, and certain other tax costs or recoveries related to restructuring actions or restructured sites).

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.

The economic substance of these exclusions described above (where applicable to the periods presented) and management’s rationale for excluding them from non-IFRS financial measures is provided below:

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.

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, net of 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, when applicable; legal settlements (recoveries); specified credit facility-related charges; and post-employment benefit plan losses. We exclude these charges, net of 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. Our competitors may record similar charges 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, net of recoveries, in assessing operating performance.

Restructuring Charges, net of recoveries, consist of costs relating to: employee severance, lease terminations, site closings and consolidations, write-downs 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 relocation of our Toronto manufacturing operations, and the move of our corporate headquarters into and out of a temporary location during, and upon completion, of the construction of space in a new office building at our former location (all in connection with the 2019 sale of our Toronto real property); (ii) the transfer of manufacturing lines from closed sites to other sites within our global network; and (iii) the sale of real properties unrelated to restructuring actions (Property Dispositions). 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 will not reflect our ongoing operations once these relocations, manufacturing line transfers, and dispositions 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.

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 accounts receivable sales program and customers' supplier financing programs, and interest expense on our lease obligations, net of interest income earned. We believe that excluding Finance Costs paid (other than debt issuance costs and credit-agreement-related waiver fees paid, which are not considered part of our ongoing financing expenses) 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.

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 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 September 30												Nine months ended September 30
		2021						2022						2021						2022
				% of revenue						% of revenue						% of revenue						% of revenue
IFRS revenue	$	1,467.4					$	1,923.3					$	4,122.6					$	5,207.4
IFRS gross profit	$	125.4		8.5	%		$	167.7		8.7	%		$	344.9		8.4	%		$	450.1		8.6	%
Employee SBC expense		3.1						3.8						9.4						14.7
Non-IFRS adjusted gross profit	$	128.5		8.8	%		$	171.5		8.9	%		$	354.3		8.6	%		$	464.8		8.9	%
IFRS SG&A	$	62.0		4.2	%		$	66.1		3.4	%		$	179.6		4.4	%		$	202.8		3.9	%
Employee SBC expense		(5.5	)					(5.2	)					(14.8	)					(22.1	)
Non-IFRS adjusted SG&A	$	56.5		3.9	%		$	60.9		3.2	%		$	164.8		4.0	%		$	180.7		3.5	%
IFRS earnings from operations	$	51.7		3.5	%		$	78.4		4.1	%		$	117.8		2.9	%		$	181.7		3.5	%
Employee SBC expense		8.6						9.0						24.2						36.8
Amortization of intangible assets (excluding computer software)		4.9						9.2						14.7						27.8
Other Charges (recoveries)		(3.9	)					1.6						2.9						3.9
Non-IFRS operating earnings (adjusted EBIAT)(1)	$	61.3		4.2	%		$	98.2		5.1	%		$	159.6		3.9	%		$	250.2		4.8	%
IFRS net earnings	$	35.2		2.4	%		$	45.7		2.4	%		$	72.0		1.7	%		$	103.1		2.0	%
Employee SBC expense		8.6						9.0						24.2						36.8
Amortization of intangible assets (excluding computer software)		4.9						9.2						14.7						27.8
Other Charges (recoveries)		(3.9	)					1.6						2.9						3.9
Adjustments for taxes(2)		(1.4	)					(1.9	)					(4.7	)					(5.6	)
Non-IFRS adjusted net earnings	$	43.4					$	63.6					$	109.1					$	166.0
Diluted EPS
Weighted average # of shares (in millions)		125.5						123.2						127.3						124.0
IFRS earnings per share	$	0.28					$	0.37					$	0.57					$	0.83
Non-IFRS adjusted earnings per share	$	0.35					$	0.52					$	0.86					$	1.34
# of shares outstanding at period end (in millions)		124.7						122.6						124.7						122.6
IFRS cash provided by operations	$	55.7					$	74.4					$	161.0					$	196.6
Purchase of property, plant and equipment, net of sales proceeds		(13.2	)					(38.7	)					(35.3	)					(76.6	)
Lease payments		(10.0	)					(13.0	)					(30.0	)					(36.1	)
Finance Costs paid (excluding debt issuance costs paid)		(5.4	)					(15.3	)					(16.5	)					(32.7	)
Non-IFRS adjusted free cash flow (3)	$	27.1					$	7.4					$	79.2					$	51.2
IFRS ROIC % (4)		12.8	%					15.3	%					9.7	%					12.0	%
Non-IFRS adjusted ROIC % (4)		15.2	%					19.2	%					13.2	%					16.5	%

(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, amortization of intangible assets (excluding computer software), and Other Charges (recoveries) (defined above). See note 9 to our Q3 2022 Interim Financial Statements for separate quantification and discussion of the components of Other Charges (recoveries).
(2)	The adjustments for taxes, as applicable, represent the tax effects of our non-IFRS adjustments and non-core tax impacts (see below).
	The following table sets forth a reconciliation of our IFRS tax expense and IFRS effective tax rate to our non-IFRS adjusted tax expense and our non-IFRS adjusted effective tax rate 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:

	Three months ended September 30										Nine months ended September 30
		2021	Effective tax rate				2022	Effective tax rate				2021	Effective tax rate				2022		Effective tax rate
IFRS tax expense and IFRS effective tax rate	$	8.7	20	%		$	15.2	25	%		$	22.4	24	%		$	38.2		27	%
Tax costs (benefits) of the following items excluded from IFRS tax expense:
Employee SBC expense		1.4					0.5					2.9					3.5
Amortization of intangible assets (excluding computer software)		—					0.8					—					2.3
Other Charges (recoveries)		—					0.6					0.7					(0.2	)
Non-core tax impact related to restructured sites*		—					—					1.1					—
Non-IFRS adjusted tax expense and non-IFRS adjusted effective tax rate	$	10.1	19	%		$	17.1	21	%		$	27.1	20	%		$	43.8		21	%

•	Consists of the reversals of tax uncertainties related to one of our Asian subsidiaries that completed its liquidation and dissolution during the first quarter of 2021.
(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), lease payments and Finance Costs (defined above) paid (excluding any debt issuance costs and when applicable, credit facility waiver fees paid). We do not consider debt issuance costs paid (nil and $0.8 million in Q3 2022 and YTD 2022, respectively; nil in Q3 2021 or YTD 2021) or such waiver fees (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. 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 table 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 and a four-point average to calculate average net invested capital for the nine-month period. Average net invested capital for Q3 2022 is the average of net invested capital as at June 30, 2022 and September 30, 2022, and average net invested capital for YTD 2022 is the average of net invested capital as at December 31, 2021, March 31, 2022, June 30, 2022 and September 30, 2022. 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								Nine months ended
			September 30								September 30
				2021				2022				2021				2022
IFRS earnings from operations			$	51.7			$	78.4			$	117.8			$	181.7
Multiplier to annualize earnings				4				4				1.333				1.333
Annualized IFRS earnings from operations			$	206.8			$	313.6			$	157.0			$	242.2
Average net invested capital for the period			$	1,617.3			$	2,044.2			$	1,613.5			$	2,022.4
IFRS ROIC % (1)				12.8	%			15.3	%			9.7	%			12.0	%
			Three months ended								Nine months ended
			September 30								September 30
				2021				2022				2021				2022
Non-IFRS operating earnings (adjusted EBIAT)			$	61.3			$	98.2			$	159.6			$	250.2
Multiplier to annualize earnings				4				4				1.333				1.333
Annualized non-IFRS adjusted EBIAT			$	245.2			$	392.8			$	212.7			$	333.5
Average net invested capital for the period			$	1,617.3			$	2,044.2			$	1,613.5			$	2,022.4
Non-IFRS adjusted ROIC % (1)				15.2	%			19.2	%			13.2	%			16.5	%
			December 31 2021				March 31 2022				June 30 2022				September 30 2022
Net invested capital consists of:
Total assets			$	4,666.9			$	4,848.0			$	5,140.5			$	5,347.9
Less: cash				394.0				346.6				365.5				363.3
Less: ROU assets				113.8				109.8				133.6				128.0
Less: accounts payable, accrued and other current liabilities, provisions and income taxes payable				2,202.0				2,347.4				2,612.1				2,797.5
Net invested capital at period end (1)			$	1,957.1			$	2,044.2			$	2,029.3			$	2,059.1
			December 31 2020				March 31 2021				June 30 2021				September 30 2021
Net invested capital consists of:
Total assets			$	3,664.1			$	3,553.4			$	3,745.4			$	4,026.1
Less: cash				463.8				449.4				467.2				477.2
Less: ROU assets				101.0				98.4				100.5				115.4
Less: accounts payable, accrued and other current liabilities, provisions and income taxes payable				1,478.4				1,407.0				1,575.8				1,800.8
Net invested capital at period end (1)			$	1,620.9			$	1,598.6			$	1,601.9			$	1,632.7

⁽¹⁾  See footnote 4 on the previous page.

CELESTICA INC. 
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions of U.S. dollars)
(unaudited)

	Note	December 31 2021				September 30 2022
Assets
Current assets:
Cash and cash equivalents		$	394.0			$	363.3
Accounts receivable	5		1,260.3				1,161.7
Inventories	6&14		1,697.0				2,325.8
Income taxes receivable			8.6				7.8
Other current assets	14		75.4				213.1
Total current assets			3,435.3				4,071.7
Property, plant and equipment			338.7				355.5
Right-of-use assets			113.8				128.0
Goodwill	4		324.2				321.3
Intangible assets			382.0				356.1
Deferred income taxes			47.7				66.7
Other non-current assets			25.2				48.6
Total assets		$	4,666.9			$	5,347.9
Liabilities and Equity
Current liabilities:
Current portion of borrowings under credit facility and lease obligations	7	$	51.5			$	51.4
Accounts payable			1,238.3				1,482.6
Accrued and other current liabilities	6		884.3				1,227.6
Income taxes payable			62.3				68.2
Current portion of provisions			17.1				19.1
Total current liabilities			2,253.5				2,848.9
Long-term portion of borrowings under credit facility and lease obligations	7		742.9				741.1
Pension and non-pension post-employment benefit obligations			107.5				101.1
Provisions and other non-current liabilities			39.8				34.8
Deferred income taxes			60.2				52.3
Total liabilities			3,203.9				3,778.2
Equity:
Capital stock	8		1,764.5				1,730.9
Treasury stock	8		(48.9	)			(25.0	)
Contributed surplus			1,029.8				1,046.3
Deficit			(1,255.6	)			(1,152.5	)
Accumulated other comprehensive loss			(26.8	)			(30.0	)
Total equity			1,463.0				1,569.7
Total liabilities and equity		$	4,666.9			$	5,347.9

Commitments and Contingencies (note 13).

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								Nine months ended
		September 30								September 30
	Note		2021				2022				2021				2022
Revenue	3	$	1,467.4			$	1,923.3			$	4,122.6			$	5,207.4
Cost of sales	6		1,342.0				1,755.6				3,777.7				4,757.3
Gross profit			125.4				167.7				344.9				450.1
Selling, general and administrative expenses (SG&A)			62.0				66.1				179.6				202.8
Research and development			10.0				11.6				27.8				31.8
Amortization of intangible assets			5.6				10.0				16.8				29.9
Other charges (recoveries)	9		(3.9	)			1.6				2.9				3.9
Earnings from operations			51.7				78.4				117.8				181.7
Finance costs	7		7.8				17.5				23.4				40.4
Earnings before income taxes			43.9				60.9				94.4				141.3
Income tax expense (recovery)	10
Current			17.0				28.9				36.5				65.9
Deferred			(8.3	)			(13.7	)			(14.1	)			(27.7	)
			8.7				15.2				22.4				38.2
Net earnings for the period		$	35.2			$	45.7			$	72.0			$	103.1
Basic earnings per share		$	0.28			$	0.37			$	0.57			$	0.83
Diluted earnings per share		$	0.28			$	0.37			$	0.57			$	0.83
Shares used in computing per share amounts (in millions):
Basic			125.4				123.1				127.3				123.9
Diluted			125.5				123.2				127.3				124.0

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								Nine months ended
		September 30								September 30
			2021				2022				2021				2022
Net earnings for the period		$	35.2			$	45.7			$	72.0			$	103.1
Other comprehensive income (loss), net of tax:
Items that may be reclassified to net earnings:
Currency translation differences for foreign operations			(1.5	)			(5.6	)			(6.1	)			(13.5	)
Changes from currency forward derivative hedges			(5.1	)			(10.7	)			(16.6	)			(16.2	)
Changes from interest rate swap derivative hedges			1.6				11.0				6.4				26.5
Total comprehensive income for the period		$	30.2			$	40.4			$	55.7			$	99.9

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 8)				Treasury stock  (note 8)				Contributed surplus				Deficit				Accumulated other comprehensive loss (a)				Total  equity
Balance -- January 1, 2021		$	1,834.2			$	(15.7	)		$	974.5			$	(1,368.8	)		$	(15.2	)		$	1,409.0
Capital transactions:	8
Issuance of capital stock			0.3				—				(0.2	)			—				—				0.1
Repurchase of capital stock for cancellation(b)			(70.0	)			—				49.1				—				—				(20.9	)
Equity-settled stock-based compensation (SBC)			—				13.4				12.0				—				—				25.4
Total comprehensive income (loss):
Net earnings for the period			—				—				—				72.0				—				72.0
Other comprehensive income (loss), net of tax: