附錄99.1
凱爾斯蒂卡公司
管理層討論與分析
財務狀況和營運結果之討論與分析
截至2024年9月30日止三個和九個月
在此管理中’對財務狀況和營運結果（MD&A）的討論和分析，「Celestica」，「公司」，「我們」，「我們」和「我們」指 Celestica Inc. 及其附屬公司。本 MD&A 應與 2024 年 9 月 30 日未經審核中期簡明合併財務報表（2024 年第三季中期財務報表），以及截至 2023 年 12 月 31 日止年度 20-F 表格 20-F 年報，包括我們所載的 2023 年經審核合併財務報表（2023 AFS），我們根據國際會計準則委員會（IFRS）發出的國際財務報告準則（IFRS）擬備 ASB)。除非另有註明，否則所有美元金額均以美元表示。如此所使用，「第一季」，「第二季」，「第三季」和「第四季」，接著一年分別指該年度的第一季、第二季、第三季和第四季。截至二零二四年九月三十日止的九個月被稱為「截至二零二零二三年九月三十日止年度」，而截至二零二三年九月三十日止九個月則稱為「截至 2023 年至今」。除非我們另有指明，否則本討論中的信息是截至 2024 年 10 月 23 日提供。
本管理層討論與分析中包含的某些聲明構成向前看聲明，在美國《1933年修改版美國證券法》第27A條和《1934年修改版美國證券交易法》第21E條及符合加拿大證券法的向前看資訊。該向前看資訊包括但不限於有關： 我們的優先事項，預期焦點領域，目標和目標; 電子製造服務（EMS）行業趨勢及我們的板塊（和/或其組成業務）及其預期影響; 當前市場條件和特定客戶因素對我們的各板塊（和/或其組成業務）和短期預期的預期影響; 可能的重組和出售行動; 預期的財務和/或運營結果和展望，包括預期的收入增加和減少，以及某些業務和終端市場的增長; 我們早期終止當前常規NCIB及同時啟動新的NCIB的意圖; 新NCIB的預期條款; 我們的策略; 我們的信用風險; 收購，方案獲勝，轉移，損失或與之斷開等事件的潛在影響; 材料，零組件和供應鏈限制; 預期的開支，資本支出和其他運營資本需求和合約義務（以及資助這些項目的預期方法）; 我們的價格下調和更長付款期的影響; 我們打算從外國子公司內的特定未分配收益中提取現金（以及我們未來可見的打算不提取的金額）; 稅務和訴訟結果的潛在影響; 我們利用某些稅務損失的能力; 對業務的預定投資; 技術變化速度，客戶外包，方案轉移和全球經濟環境步伐的潛在影響; 我們未清償的負債影響; 流動性和我們資本資源的充足性; 財務報表的估計和假設; 事件之外（包括下文"可能影響我們業務的外部因素"中所述事件）的強制預支付; 我們對信貸設施約束的遵守; 債務到期再融資; 所得稅激勵措施; 以及關於接受於帳款結賬（A/R）銷售計劃和供應商融資計劃的要約的預期期望的期望。該等向前看聲明可能在之前，之後或包括“相信”，“期望”，“預期”，“估計”，“意圖”，“計劃”，“持續”，“項目”，“目標”，“潛力”，“可能”，“考慮”，“尋求”等字詞，或可能以“可能”，“可能”，“將”，“可能”，“應”，或“將”，或可能以語法結構，詞語或語境表明作為向前看聲明。對於這些聲明，我們聲稱受到美國1995年私人證券訴訟改革法中的向前看聲明安全港的保護，並且受應用加拿大證券法的向前看信息的保護。
前瞻性聲明旨在幫助讀者瞭解管理團隊對未來的當前期望和計劃。讀者應注意，此類信息可能不適用於其他目的。前瞻性聲明並不保證未來的業績，並面臨可能導致實際結果與此類前瞻性聲明中所表述或暗示的結果大不相同的風險，包括但不限於與客戶和業務板塊集中、替換已完成、丟失或未續約的項目或客戶脫節的營業收入挑戰相關的風險；在不確定的市場、政治和經濟條件下管理我們業務，包括但不限於全球通貨膨脹和/或經濟衰退等風險，以及地緣政治不確定性等與我們國際業務相關的其他風險，包括軍工行動和衝突的影響（例如，俄羅斯/烏克蘭衝突和/或其他地區的衝突）
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包括以色列/哈馬斯/真主黨/伊朗衝突以及與****海洋襲擊有關的中東地區，中國大陸和台灣之間日益緊張的關係，保護主義和反應性對抗措施，經濟或其他制裁，和/或貿易壁壘；航運延誤和運輸成本上升（包括紅海運輸中斷導致的結果）；管理客戶需求變化；我們的客戶競爭並成功使用我們製造的產品和提供的服務的能力；組件、服務和/或材料交付和可用性延遲，以及其成本和質量；我們的庫存水平和實踐；我們半導體業務的周期性和波動性；我們客戶結構和/或我們提供的產品或服務類型的變化，包括高集中低毛利計劃的負面影響；價格、毛利壓力及其他影響，可能影響EMS和原始設計製造商（ODM）行業的競爭因素和不利市場條件，以及，電子製造服務業和ODM行業以及我們特定部門的高競爭性質（包括預期市場條件不實現的風險）；與新客戶或計劃、或提供新服務的挑戰；利率波動；上升的商品、材料和部件成本，以及勞動成本上升和勞動條件變化；美國即將舉行總統大選的結果和影響；美國政策或法規的變化；客戶與新興公司的關係；招聘或保留技術人才；我們適當保護知識產權和機密信息的能力；收入和營運結果的變化性；我們現金流程意外中斷；金融市場或宏觀經濟環境惡化，包括全球通脹和/或衰退的結果；維持足夠資金來資助目前預期的財務行動和義務，並追求理想的業務機會；我們業務擴展或整合；無法保持我們勞動力的充分利用；從收購中整合並實現預期收益（包括我們收購NCS Global Services LLC（NCS）和“就地運營”安排）的執行和/或質量問題；合約對方的不履行；由於現金的重大使用，證券發行和/或第三方負債增加而對我們業務造成的負面影響（包括由于無法根據我們的非承諾應收賬款銷售計劃或供應商融資計劃出售理想數額的結果）；對我們業務，以及我們的客戶，零件供應商和/或物流合作夥伴的工作中斷，包括因外部事件引起的；我們產品、服務或設計的缺陷或缺陷；商業航空業的波動性；遵守以客戶為驅動的政策和標準，以及第三方認證要求；由于我們第三方負債的增加而對我們業務的負面影響；美國和其他政府預算的下降，政府支出或預算優先級的變化，或者合同頒發的延遲；對我們營運模式的變化；外匯波動性；我們的全球業務和供應鏈；競爭性招標選擇過程；我們依賴于受快速技術變革影響的行業；不斷發展和變化的技術以及我們客戶的業務或外包策略的變化；不斷增加的稅收；稅收審計，以及捍衛我們稅收立場的挑戰；獲取、更新或滿足稅收激勵和抵免條件的能力；管理我們的信息技術系統，事實上，盡管我們尚未受到計算機病毒，惡意軟件，勒索軟件，黑客事件或中斷的實質影響，我們已經（並將來可能）成為此類事件的目標；我們重組行動和/或生產力措施的影響，包括未能實現預期收益的失敗；未來重組費用的產生，資產（包括庫存）的減值費用，或營運損失；無法防止或檢測到所有錯誤或欺詐；遵守適用法律和法規；我們的智能連接和 Clound Solution部門因超大規模，人工智能（人工智能）和數據中心客戶因近期和未來法規的結果減少他們在人工智能技術上的資本支出投資而對我們業務產生的負面影響；我們的退休金和其他福利計劃義務；會計判斷、估計和假設的變化；我們維護遵守適用信貸協議條款的能力；我們的總回報掉期協議；我們有時再融資我們的債務的能力；我們的信用評級；持有股東；當前或未來訴訟，政府行動，和/或立法或會計準則的變化；我們的普通股股價的波動性；多倫多證券交易所不接受新NCIB的限制；普通股回購的限制，或決定不回購普通股，按任何NCIB下；法律裁定的不可執行性；負面宣傳；氣候變化的影響；我們實現環保、社會和管治（ESG）目標和目標的能力，包括關於氣候變化和減排；我們對收購或要約收購的潛在脆弱性。前述及其他重要風險和不確定性在我們在www.sedarplus.ca和www.sec.gov的公開申報中進行討論，包括在本管理層討論與分析（MD&A）文件中，我們檔有的2023 20-F與提交給美國證券交易委員會（SEC）的未來提交的6-k表格，以及相關的情況下，加拿大證券管理者。
我們的前瞻性聲明基於許多假設，其中許多涉及我們無法控制的因素。 我們的主要假設包括：全球經濟不會顯著下滑，或由於主要衰退或其他原因導致我們最終市場的經濟活動下降；製造業外包從不同市場的客戶呈增長趨勢；持續發展和商業化人工智能技術和雲計算，支持領先的超大型承包商、人工智能和idc概念客戶持續高水平的資本支出投資；沒有意外的中斷。
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由於地緣政治因素（包括戰爭）對經濟活動、全球或區域供應鏈或正常業務運作造成重大負面影響；沒有意外的客戶或計劃轉移、損失或解除；我們業務結構中沒有意外的負面變化；監管環境沒有意想不到的負面變化；沒有不當的對我們製造的產品和提供的服務使用者競爭和成功能力造成不利影響；預期營業收入和ATS營收增長；持續的營運槓桿和改善的業務結構；我們終端市場的持續增長；我們運營未受重大意外負面影響；沒有意外材料價格上漲、利潤壓力或其他影響EMS或ODm產業或我們特定部門的競爭因素；我們保留計畫和客戶的能力；貨幣兌換匯率的穩定性；利率的穩定性；第三方遵守其合約義務；我們的客戶將對產品/元件關稅和對策承擔責任；我們跟得上快速變化的技術發展的能力；成功解決不時出現的質量問題的能力；成功多元化客戶基礎並開發新能力的能力；成功整合NCS並實現預期的財務結果和協同效應的能力；NCS提供準確完整的財務信息和合理誠實的財務預測；有資本資源可用於及我們信貸設施允許下的回購優先普通股以進行回購，接受新的NCIb並遵守與NCIB相關的適用法律和法規提供的項目數；待售股份數；符合適用信貸設施契約的標準；全球通貨膨脹將不會對我們的營收或費用產生實質影響；保持足夠的資金來資助目前預期的財務行動和義務以及追求有利的業務機會；以及與以下相關的：客戶生產計劃的波動，產品或服務的產量和組合；新業務的推進、時機和執行以及相關的投資；供應商的表現和質量、定價和條款；元件、材料、服務、設備、勞動力、能源和運輸的成本和供應情況；全球稅法的變化；重組行動的時機、執行和影響；我們槓桿率的構成（在信貸設施中定義）；預期業務的需求水平；預期市場狀況對我們業務的影響。儘管管理層認為其假設在當前情況下是合理的，但可能證明是不準確的，這可能導致實際結果與如果這些假設準確的話會實現的結果有實質（並且不利的）差異。前瞻性陳述僅於發布之日起生效，我們否認有任何意圖或義務更新或修訂任何前瞻性陳述，無論是基於新信息、未來事件或其他原因，除適用法律要求外。我們所做的所有前瞻性陳述特此受到這些警語性說明的明確限制。
概覽
天弘科技的業務：
我們為兩個營運和報告領域的客戶提供全球創新的供應鏈解決方案：先進技術解決方案 (ATS) 和連接和雲端解決方案 (CCS)。我們的 ATS 部門由我們的 ATS 終端市場組成，包括我們的航太和國防（A&D）、工業、健康科技和資本設備業務。我們的 CCS 部門包括我們的通訊和企業（伺服器和儲存）最終市場。有關我們應報告細分的資料載於附註 3 至 2024 年第三季中期財務報表，於 www.sedarplus.ca 提交，並載於 www.sec.gov 上的表格 6-k 表格，以及註 25 載於 2023 阿夫斯.
我們的客戶包括原始設備製造商（OEM）、雲端及其他服務供應商，包括超級擴展商，以及各種行業的其他公司。我們的全球總部位於加拿大安大略省多倫多。我們在北美、歐洲和亞洲經營一個策略性地點和卓越中心網絡，具有專門的端對端供應鏈功能，以滿足特定市場和客戶產品生命週期需求量身定制的專業端對端供應鏈功能。我們提供全方位的產品製造和相關供應鏈服務，包括設計與開發、新產品介紹、工程服務、元件採購、電子製造和裝配、測試、複雜機械裝配、系統整合、精密加工、訂單履行、物流、資產管理、產品授權以及售後維修、退貨和 IT 資產處置 (ITAD) 服務。我們的硬體平台解決方案 (HPS) 產品（在 CCS 部門內）包括開發基礎架構平台、硬體和軟體設計解決方案，包括配合我們硬體產品的開放原始碼軟體，以及與客戶合作為特定應用程式定制的服務，以及管理計劃設計和供應鏈、製造和售後支援，包括 ITAD 和資產管理服務。請參閱「概述 — 商業環境概述「在我們的項目 5, 經營及財務回顧及展望 (項目 5) 中 2023 20-F，以了解我們每個部門的產品和服務的描述。
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我們的ATS板塊業務通常具有更高的利潤概況和利潤波動性，較傳統業務在我們CCS板塊的生命週期更長。我們的CCS板塊受到市場高度競爭所推動的負面價格壓力影響，並正在經歷科技驅動的需求變化，預計這種情況不會減緩。我們傳統的CCS板塊業務通常具有較低的利潤概況，較低的工作資本需求和較高的銷售量，優於我們ATS板塊的業務。然而，在我們的CCS板塊內部，我們的HPS業務 (在我們的CCS板塊，包括所有主要IT基礎設施idc概念技術的固件/軟體啟用、與我們的硬件平台相輔相成的開源軟體產品，以及包括ITAD的售後服務)通常具有較高的利潤概況，但也需要特定投資（包括研發）和較高的工作資本。我們的CCS板塊通常在營業收入和產品/服務組合方面經歷高度波動性，因此，我們的CCS板塊利潤可能會在不同時期波動。最近一段時間，我們的項目組合向以雲端為基礎和其他服務提供商轉變的比例不斷增加，這些與我們傳統OEm客戶不同，使我們的營收模式更加波動和無法預測，並對我們的供應鏈管理和工作資本需求帶來額外挑戰。
業務環境概況：
電子製造服務（EMS）行業競爭激烈。需求可能在不同時期波動，具挑戰性的價格是常見的業務動態，客戶可能因各種原因在EMS和原始設計製造（ODM）供應商之間轉移生產。 請參閱我們第5項的「概觀 — 」 業務環境概述在我們的20-F中查看更多相關信息 2023 因此，客戶和部門的營收和組合，以及整體利潤很難預測。 一兩個重要客戶的損失可能對我們的營業收入、財務狀況和現金流產生重大不利影響。
管理我們的業務是復雜的，我們的財務結果往往波動不定，原因之一包括我們服務的市場產品生命周期、客戶需要的生產交貨期、我們獲得材料和元件的能力、管理工作人員和人才動態的能力、科技迅速變化、產品過時、某些產品普及化、新業務模式的出現、需求模式轉變、軟體定義技術的大量應用使軟體和硬件的分離、產品供過於求、供應鏈變更和客戶供應鏈需求，以及客戶庫存緩衝的積累。例如，從傳統網絡和idc概念基礎設施轉變為高度可擴展、虛擬化、基於雲的環境，對我們一些傳統CCS節段的客戶產生了不利影響，對我們的服務提供商客戶和我們的HPS業務產生了積極影響。
產能利用率、客戶組合以及我們提供的產品和服務類型是影響我們財務表現的重要因素。站點數量、合格人員的地點、製造與工程能力和網絡，以及通過該能力的業務組合等因素對EMS和ODm供應商產生適當回報至關重要。由於EMS行業需要大量運營資本，我們認為基於非IFRS調整後的投資回報率（ROIC），主要基於非IFRS運營收益（下文中各項“非IFRS財務指標”中討論）以及運營資本和設備投資，是衡量EMS供應商財務表現的重要指標。
可能影響我們業務的外部因素：
對我們的行業和/或業務產生重大不利影響的外部因素包括政府立法、法規或政策、供應商或客戶的財務困難、自然災害、火災和相關干擾、政治不穩定、各國之間政治緊張加劇（包括美國與中國之間持續緊張局勢引發中國政府威脅報復行動及中國大陸與台灣之間緊張局勢升級）、地緣政治動態、恐怖主義、武裝衝突（包括俄烏衝突、中東地區發生的沖突，包括以色列/哈馬斯/真主黨/伊朗衝突以及與胡塞反政府武裝襲擊在紅海產生的衝突（統稱為中東衝突））、勞資或社會動盪、犯罪活動、網絡安全概念事件、異常不利天氣條件（包括氣候變化引起的颶風、龍捲風、其他極端暴風、野火、乾旱和洪水），對當地、國家或國際經濟產生影響的疾病或疾病，以及其他風險，存在於我們、我們的客戶、供應商和/或物流合作夥伴運營的司法管轄區。這些事件可能會導致我們的一個或多個站點或我們的客戶，元件供應商和/或我們的物流合作夥伴的運營受到干擾。這些事件還可能導致成本增加或供應短缺，並可能干擾我們的元件交付，或者我們向客戶提供成品或服務的能力，其中任何一種均可能（以及在材料限制情況下在過去和未來可能）造成影響。
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對我們的營運結果產生實質負面影響。俄羅斯/烏克蘭衝突或中東衝突對我們的供應鏈影響不大，但無法保證將來情況仍將如此。請參見以下「最新發展 — 業務環境」及我們20-F文件第5項中的內容。 2023 關於全球供應鏈限制對我們業務近期影響以及潛在未來影響的討論，請參見我們20-F文件。
由於政府政策或法例，和/或國家之間的政治緊張局勢加劇導致的不確定性可能會對我們的業務、營運結果和財務狀況產生不利影響。一般而言，社會、政治、監管和經濟條件或對外貿易、稅收、製造業、清潔能源、醫療保健行業和/或我們的客戶或供應商經營的法律和政策的變化，可能會對我們的業務、營運結果和財務狀況產生重大不利影響。請參閱「營運業績 — 所得稅「以下，以及第 3 (D) 項，主要信息 — 風險因素，」我們的營運受到並可能繼續受到我們控制以外的事件的不利影響" 和 "美國政策或法例可能會對我們的業務、營運結果和財務狀況產生重大不利影響「我們的 2023 20 樓以提供更多細節。
與國際貿易協議相關的政府行動已經增加（並可能進一步增加）我們在美國客戶使用我們的非美國製造業和元件的成本，反之亦然，這可能對我們的服務需求、營運結果或財務狀況產生重大和不利影響。在過去的時期中，我們的資本設備業務和在較小程度上我們的CCS業務部門受到了美國技術出口管制措施與中國有關的負面影響（部分是為了限制中國獲得先進的計算機芯片、開發和維持超級電腦以及製造先進的半導體），以及中國支持其私營企業的政策。我們已經提高了全球網路的彈性以應對這種變化的情況。然而，鑒於目前對這些（或進一步）貿易行動的範圍和持續時間以及貿易緊張局勢是否會進一步升級的不確定性，對我們服務的需求、未來時期的業務運作及結果的影響目前無法評估，但可能是實質的。我們將繼續監控美國和其他國家政府對我們業務的貿易行動的範圍和持續時間。
我們的運營成本已經增加，並且可能會因通貨膨脹而繼續增加。儘管迄今我們已成功通過為產品和服務提高價格來抵消大部分成本增加，但我們無法保證在這方面持續取得成功，未來時期未收回的運營成本將不利地影響我們的利潤率。我們無法預測通貨膨脹速度或其他負面經濟因素以及相關運營成本增加的未來趨勢。此外，我們的客戶可能會選擇減少與我們的業務往來，因為我們價格上漲。此外，全球經濟（包括全球通貨膨脹和/或衰退的嚴重程度和持續時間）以及金融市場的不確定性可能影響目前和未來客戶對產品和服務的需求，進而影響我們的業務。我們將繼續監控全球經濟和金融環境的動態和影響，並努力管理我們的優先事項、成本和資源，以預測和準備應對我們認為必要的任何變化。
我們依賴各種承包或常用運輸業者將原材料和元件從我們的供應商運送到我們這裡，並將我們的產品運送給我們的客戶。使用承包或常用運輸業者存在諸多風險，包括：受不斷上升的能源價格和勞動力、車輛和保險成本所帶來的成本上升影響；劫持和盜竊導致貨物丟失；因港口擁擠和勞動力短缺和/或罷工引起的延遲交貨；以及其他我們無法控制的因素。雖然我們試圖通過使用多家運輸業者和運輸方式以及保險來減輕由這些風險引起的任何損失，但任何與運輸或運輸延誤相關的成本或損失若無法減輕、避免或轉嫁給我們的客戶，可能會降低我們的盈利能力，要求我們製造替換產品或損害與客戶的關係。儘管由於中東衝突的後果我們已經發生了一些運輸費用上升和延誤，但這些增加和延誤到目前為止並不顯著。然而，無法保證這種情況將繼續存在。
科技變革的步伐和客戶外包或在EMS和/或ODm競爭對手之間轉移業務的頻率可能會影響我們的業務、營運結果和/或財務狀況。具有眾多特定基礎設施需求的idc概念部署已影響了我們的營業收入變化性，並可能繼續影響我們未來的需求。
我們依賴IT網絡和系統，包括第三方服務提供商的系統，來處理、傳輸和存儲電子信息。特別是，我們依賴我們的IT基礎設施進行各種功能，包括產品製造業、全球財務報告、庫存和其他數據管理、採購、發票和電子郵件。
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通信。這些系統中的任何一個都容易因火災、洪水、停電、電信故障、恐怖襲擊、破壞、網絡安全概念威脅和事件等而發生故障。雖然我們尚未受到電腦病毒、惡意軟件、勒索軟件、黑客事件或故障的重大影響，但我們已經（並且將來可能會）成為此類事件的目標。
我們維持高水準的庫存以支持我們業務的增長（而早前是為了應對全球供應鏈限制）。我們繼續與客戶合作，獲取現金按金，以緩解庫存採購對我們現金流的影響。請參見 3(D)項，關鍵信息-風險因素，"我們的產品和服務涉及庫存風險我們的 2023 20-F中有進一步的細節。
客戶流動性不足可能導致我們應收款項出現重大延遲或違約。此外，客戶面臨財務困難或客戶產品需求變化可能導致訂單取消以及高於預期水平的庫存，這可能會對我們的營運結果和工作資本表現產生重大不利影響。我們可能無法退回或重新銷售這些庫存，或者可能需要長時間持有這些庫存，其中任何一種情況可能導致我們不得不記錄額外的庫存儲備。我們也可能無法收回客戶欠我們的所有款項，包括用於支持該客戶業務的未使用庫存或我們支付的資本投資款項。我們未能收回欠款和/或失去一個或多個主要客戶可能對我們的營運結果、財務狀況和現金流量產生重大不利影響。
查看我們的20-F文檔中第5項“可能影響我們業務的外部因素” 2023 參閱我們20-F文件以了解可能對我們業務造成不利影響的其他不可控因素的討論。
最近的發展：
環境分割:
ATS 環節:
ATS業務在2024年第3季相較於2023年第3季減少了5%，主要是由於我們工業業務持續疲軟（2024年第3季相較於2023年第3季營業收入下降了25%），部分抵消了我們航太與國防和資本設備業務的強勁表現（分別在2024年第3季相較於2023年第3季增加了15%和31%的營業收入）。對於2024年第4季，我們預計我們的航太與國防業務將持續強勁，而我們的資本設備業務需求將有所恢復，同時我們的工業業務仍將面臨挑戰。
2024年第三季的ATS業務段利潤率為4.8%，較2023年第三季的4.9%有所下降，主要是由於我們工業業務的營運槓桿降低，部分抵銷了我們資本設備和航空航天業務的利潤改善。
CCS部門：
在2024年第三季度，CCS業務收入較2023年第三季度增長42％，主要受到我們企業業務和通信市場強勁增長的推動。與2023年第三季度相比，我們企業業務市場的收入增長了38％，主要受到我們存儲業務需求增強的推動。與2023年第三季度相比，我們通信市場的收入在2024年第三季度增長了45％，主要受到對我們HPS網絡交換機需求增加的推動。我們2024年第三季度HPS收入為7.61億美元，較2023年第三季度增長了54％，佔我們總收入的30％。對於2024年第四季度，我們預計我們通信市場的需求強勁。預計2024年第四季度企業業務市場收入將較2023年第四季度下降，主要是由於一項大型單一供應商服務器項目的科技轉型。
2024年第三季，CCS部門利潤率提升至7.6%，較2023年第三季的6.2%增加，主要是由於更強的營運槓桿和相關的生產效率，以及改善的產品組合。
全球貨幣不確定性:
由於一些次級供應商提供高級鋁等原材料的部分依賴來自俄羅斯/烏克蘭的供應，我們將繼續密切關注這些原材料的供應可用性和價格波動。然而，截至目前為止，目前俄羅斯/烏克蘭衝突對我們的供應鏈影響尚不明顯。此外，由於我們的某些供應商位於中東，我們從中東採購某些零部件，我們正在密切關注這對我們的供應鏈
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中東衝突對我們的供應鏈造成影響。我們與當地供應商和物流提供商保持緊密聯繫，據我們所知，迄今我們和他們均未遭受重大影響。另請參見"可能影響我們業務的外部因素" 見上文。
全球貨幣供應鏈限制過去對我們的運營造成了不利影響，導致某些元件的交貨周期延長，並影響支援客戶計畫所需材料的供應狀況。儘管最近時期供應鏈限制的不利影響較小，但這些問題可能在未來再次浮現。請參閱條款3（D），主要信息-風險因素，"我們依賴第三方供應某些材料，過去這些材料的供應可用性對我們的業績造成了負面影響，未來這些材料的質量、供應狀況和成本可能會產生負面影響我們的 2023 20-F.
買盤正常認股權購回計劃（NCIB）提前續期的意圖：
我們打算向多倫多證券交易所（tsx）提交意向通知，並於2024年第四季度啟動新的NCIb，以替代我們當前的NCIb在2024年十二月到期之前。如果該通知被tsx接受，我們期望將被允許在該接受後的12個月內自行重新購回相當於我們已發行和流通的普通股“公開漂流”（根據tsx規則計算），減去我們當前NCIb下購回和取消的普通股數量（該操作將在新NCIB啟動時結束）。如果新的NCIb獲得接受，購買將在公開市場上進行，或者根據適用條款和限制進行，並將通過tsx和紐約證券交易所的設施進行，或者根據其他規定進行。我們認為早日續簽NCIb符合天弘科技和我們的股東最大利益。
董事會成員辭職：
關於2024年7月30日楊・喬普拉從我們的董事會辭職，喬普拉先生持有的10萬個遞延股份單位（DSUs）在2024年9月進行結算。
更改外國私人發行者地位：
根據先前披露的，截至2024年第二季結束時，我們不再符合美國聯邦證券法規定的「外國私人發行人」定義。因此，從2025年1月1日開始，我們將受到適用於美國國內發行人的相同報告和披露要求，包括按照美國通用會計原則準備我們的綜合基本報表。
重組進展報告:
我們記錄了 60萬美元和 1130萬美元 在2024年第三季度和截至當年的整體，我們記錄了重組費用，主要用於調整我們的成本基礎以應對某些業務和地區需求減少的情況 在2024年第三季度和截至當年的整體，我們記錄了重組費用，主要用於調整我們的成本基礎以應對某些業務和地區需求減少的情況 在某些業務和地區出現需求降低的情況下，我們主要採取行動調整成本基礎。.
普通股份回購:
截至2024年9月30日, 約 8.9百萬 我們公司現在尚有共用股票可在目前的NCIb下回購，該計畫預計於2024年12月到期（除非提前終止）。我們根據NCIb計畫，我們被允許回購用於取消的共用股票數量，將在執行NCIb期間由任何非獨立經紀人在公開市場上購買的共用股票數量減少，以滿足股票為基礎的補償計劃的交付義務。 在2024年第3季及截至2024年目前，我們分別支付1億美元和1.265億美元（包括交易費用）回購220萬和290萬共用股票，以便在NCIb下取消。請參閱下方的“2024年第3季和2024年目前概要”。
營運目標和優先事項：
我們的營運目標和優先事項與我們在我們20-F文件的"營運目標和優先事項"一節中設定的相同。 2023 行業市場和經濟狀況的持續時間和影響不在我們的控制範圍內，因此可能會影響我們實現營業收入和利潤目標的能力。
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我們的策略：
我們堅定致力於進行我們認為有必要支持我們的長期目標並創造股東價值的投資，同時管理我們的成本和資源，以最大化我們的效率和生產力。我們的策略並未改變自我們在第5條"我們的策略"下設置的內容。 2023 20-F.
Q3季度摘要 2024年及截至目前的2024年
我們的2024年Q3暫行基本報表已根據國際會計準則（IAS）34編製。 中期財務報告。並且根據我們採納的國際財務報告準則（IFRS）採納了會計政策。 2024年Q3暫行基本報表反映了所有調整，根據管理層的意見，必要地公平呈現了截至2024年9月30日的財務狀況，以及截至2024年9月30日結束的三個月和九個月的財務業績、綜合收益和現金流量。詳見2024年Q3暫行基本報表附註2，討論最近採納的會計準則修訂。我們的2024年Q3和截至2024年的年度財務結果的討論請參見下文。 "營運結果" 以下是有關我們2024年Q3和截至YTD 2024的財務結果的討論。
下表列出了指定期間的某些主要營運結果和財務資訊（以百萬為單位，除每股金額和百分比外）：
| 截至9月30日的三個月 | 截至9月30日的九個月 | ||||||||||||||||||||||||||||||||||
| 2023 | 2024 | %增加（減少） | 2023 | 2024 | % 增加 | ||||||||||||||||||||||||||||||
| 營業收入 | $ | 2,043.3 | $ | 2,499.5 | 22 | % | $ | 5,820.5 | $ | 7,100.3 | 22 | % | |||||||||||||||||||||||
| 毛利潤 | 206.7 | 259.1 | 25 | % | 555.3 | 744.0 | 34 | % | |||||||||||||||||||||||||||
| 銷售、一般及管理費用（SG&A） | 56.9 | 91.9 | 62 | % | 203.9 | 237.2 | 16 | % | |||||||||||||||||||||||||||
| 其他費用，扣除追回金額後淨額 | 5.6 | 1.0 | (82) | % | 13.7 | 15.9 | 16 | % | |||||||||||||||||||||||||||
| 净利润 | 80.2 | 91.7 | 14 | % | 160.4 | 293.0 | 83 | % | |||||||||||||||||||||||||||
| 稀釋每股盈利 | $ | 0.67 | $ | 0.77 | 15 | % | $ | 1.33 | $ | 2.46 | 85 | % | |||||||||||||||||||||||
| 截至9月30日的三個月 | 截至9月30日的九個月 | ||||||||||||||||||||||
分部營業收入*佔總營業收入的百分比： | 2023 | 2024 | 2023 | 2024 | |||||||||||||||||||
| ATS營業收入（佔總營業收入的百分比） | 42% | 33% | 43% | 33% | |||||||||||||||||||
| CCS營業收入（佔總營業收入的百分比） | 58% | 67% | 57% | 67% | |||||||||||||||||||
| 截至9月30日的三個月 | 截至9月30日的九個月 | ||||||||||||||||||||||||||||||||||
| 2023 | 2024 | 2023 | 2024 | ||||||||||||||||||||||||||||||||
| 業務部門收入和業務部門利潤率*： | 分段利潤 | 分段利潤 | 分段利潤 | 分段利潤 | |||||||||||||||||||||||||||||||
| ATS業務部門 | $ | 42.1 | 4.9 | % | $ | 39.0 | 4.8 | % | $ | 118.6 | 4.7 | % | $ | 110.5 | 4.7% | ||||||||||||||||||||
| CCS部門 | 73.6 | 6.2 | % | 128.7 | 7.6 | % | 198.9 | 6.0 | % | 346.4 | 7.3% | ||||||||||||||||||||||||
* 以各節段的營業收入、節段收入和節段毛利（節段收入佔節段營業收入的百分比）來評估節段表現，這些定義均在下文“營運結果-節段收入和毛利”中闡明。
| 12月31日 2023 | 九月三十日 2024 | ||||||||||
| 現金及現金等價物 | $ | 370.4 | $ | 398.5 | |||||||
| 資產總額 | 5,890.7 | 5,926.8 | |||||||||
依期限貸款所借款項(1) | 608.9 | 745.6 | |||||||||
循環信用貸款之借款(2) | — | — | |||||||||
(1) 不包括未攤銷的債務發行成本。
(2) 不包括正常情況下的信用證（L/Cs）信用證。
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| 截至9月30日的三個月 | 截至9月30日的九個月 | ||||||||||||||||||||||
| 2023 | 2024 | 2023 | 2024 | ||||||||||||||||||||
| 營運活動提供的現金流量 | $ | 88.4 | $ | 144.8 | $ | 290.9 | $ | 399.0 | |||||||||||||||
| 常見的股票回購活動: | |||||||||||||||||||||||
下面是根據SBC計劃交付的共同股票取消回購的總成本(1) 共同股票取消回購的數量（以百萬計） | $ | — | $ | 100.0 | $ | 25.6 | $ | 126.5 | |||||||||||||||
共同股票取消回購的加權平均價格(2) | — | 2.2 | 2.2 | 2.9 | |||||||||||||||||||
| 11.03 | $ | — | $ | 44.44 | $ | 11.80 | $ | 43.28 | |||||||||||||||
下面是根據SBC計劃交付的共同股票取消回購的總成本(1) 根據SBC計劃回購的普通股數量(3) | $ | 42.0 | $ | — | $ | 47.2 | $ | 101.6 | |||||||||||||||
根據SBC計劃交付的共同股票取消回購的數量（以百萬計）(4) | 2.0 | — | 2.4 | 2.8 | |||||||||||||||||||
(1)包括交易費用。對於2024年第3季和 至2024年截至目前的整體成本，用於取消股票回購，不包括截至2024年9月30日未支付的230萬美元用於股票回購稅。
(2)對於 2024年第三季及 截至2024年，分別包括用於自動股份購買計劃（ASPPs）下取消購買的空單和0.5百萬普通股（Q3 2023 — 空單；截至今日 2023 — 0.9百萬）。
(3)至2023年第三季 截至今年底 2023年，不包括 截至2023年9月30日，已記錄為6.5百萬美元，為我們於2023年9月簽署的擴展SBC計劃下許可的普通股最大回購數量之交割責任。
(4)對於每個適用期，完全由經獨立經紀人進行的ASPP購買組成。
其他績效因數：
除了上述描述的主要營運結果和財務信息外，管理層還會審查以下措施:
Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | Q1 2024 | Q2 2024 | Q3 2024 | |||||||||||||||||||||||||||||||||||
現金循環天數： | |||||||||||||||||||||||||||||||||||||||||
| 應收帳款天數 (A/R) | 66 | 60 | 65 | 72 | 75 | 71 | 71 | ||||||||||||||||||||||||||||||||||
存貨天數 | 130 | 123 | 114 | 104 | 94 | 81 | 75 | ||||||||||||||||||||||||||||||||||
| 應付帳款天數 (A/P) | (76) | (68) | (65) | (62) | (62) | (59) | (56) | ||||||||||||||||||||||||||||||||||
| 現金存款天數* | (45) | (42) | (42) | (42) | (38) | (29) | (24) | ||||||||||||||||||||||||||||||||||
| 現金循環天數 | 75 | 73 | 72 | 72 | 69 | 64 | 66 | ||||||||||||||||||||||||||||||||||
| 庫存週轉率 | 2.8x | 3.0x | 3.2x | 3.5x | 3.9x | 4.5x | 4.9x | ||||||||||||||||||||||||||||||||||
*我們收到部分客戶的現金存款，主要是為了減少與庫存過剩和/或過時庫存相關的風險。請參見下表中的"客戶庫存現金存款"。
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| (以百萬為單位) | 2023 | 2024 | ||||||||||||||||||||||||
| 三月31日 | 六月30日 | 九月30日 | 十二月31日 | 三月31日 | 六月30日 | 九月三十日 | ||||||||||||||||||||
| 應收帳款銷售 | $ | 282.6 | $ | 253.5 | $ | 66.5 | $ | — | $ | 11.6 | $ | — | $ | — | ||||||||||||
| 供應商融資計畫（SFPs）* | 128.2 | 112.4 | 92.5 | 18.6 | 65.2 | 13.3 | — | |||||||||||||||||||
| 總計 | $ | 410.8 | $ | 365.9 | $ | 159.0 | $ | 18.6 | $ | 76.8 | $ | 13.3 | $ | — | ||||||||||||
客戶現金存款購買存貨 | $ | 810.8 | $ | 809.7 | $ | 874.8 | $ | 904.8 | $ | 719.4 | $ | 576.4 | $ | 521.1 | ||||||||||||
* 代表與三名客戶（一名CCS部門客戶和兩名ATS部門客戶）的不留折現SFP相關的應收帳款銷往第三方銀行。
我們在應收帳款銷售計劃和選項性財務工具下賣出的金額，可能會因我們的運營資金和其他現金需求（包括地理位置）而隨季度變動（以及在每個季度內）。請參見上面的圖表以及下面的“流動性 — 資金需求 — 融資安排”。 現金需求 — 融資安排」下。
應收賬款天數是指該季的平均應收賬款除以平均每日營業收入。庫存天數、應付賬款天數和現金存款天數是通過將該季每項平均餘額除以平均每日銷貨成本來計算的。現金周期天數包括應收賬款天數和庫存天數之和減去應付賬款天數和現金存款天數。庫存週轉率是通過將365除以庫存天數來確定的。較短的應收賬款天數、庫存天數和現金周期天數以及較長的應付賬款天數、現金存款天數和庫存週轉率通常反映出改善的現金管理業績。
2024年第三季應收帳款天數相較於2023年第三季增加了6天，主要是因為2024年第三季平均應收帳款比2023年第三季更高，這部分抵銷了2024年第三季營業收入比2023年第三季更高的影響。2024年第三季平均應收帳款較2023年第三季增加，主要是由於2024年第三季營業收入較高，以及營業收入和款項收回的時間安排。2024年第三季應收帳款天數與2024年第二季的71天持平，因為2024年第三季平均應收帳款比2024年第二季的效應被逐步增加的營業收入的效應所抵銷。
2024年第3季庫存天數較2019年第3季減少39天，較2020年第2季減少6天，原因是2024年第3季的銷貨成本較2019年第3季和2020年第2季的平均庫存水平高。2024年第3季的銷貨成本較2019年第3季和2020年第2季高，是由於我們的業務增長。2024年第3季的平均庫存水平較2019年第3季低，是由於供應鏈限制的緩解。由於根據客戶需求將庫存用於生產，2024年第3季的平均庫存水平較2020年第2季減少。
2024年第三季的應付賬款天數比2023年第三季減少了9天，這主要是由於成本上升，部分抵銷了2024年第三季的平均應付賬款高於2023年第三季的影響。2024年第三季的平均應付賬款高於2023年第三季主要是由於付款時間以及我們業務增長的影響。2024年第三季的應付賬款天數按季減少了3天，主要是由於2024年第三季的成本上升與2024年第二季相比。
2024年第三季的現金存入天數比2023年第三季減少了18天，比2024年第二季減少了5天，這是由於2024年第三季的銷售成本較高，平均現金存入金額較低，與2023年第三季和2024年第二季相比。我們收到來自某些客戶的現金存入，這有助於緩解存貨購買對我們現金流的影響（請參見上面的圖表）。我們的客戶現金存入餘額會隨著我們根據某些客戶的要求採購的存貨水平（以確保未來需求的供應）或者我們在生產過程中使用存貨而波動。2024年第三季的平均現金存入金額下降與上述2024年第三季與2024年第二季的平均存貨水平下降一致。
我們認為現金循環天數（及其元件）和存貨週轉是提供投資者有關我們現金管理績效的有用指標，也是我們行業板塊中被接受的營運資本管理效率指標。
關鍵的會計估計
根據IFRS準則準備基本報表需要管理層進行影響會計政策應用、資產、負債、營業收入和等記錄金額的判斷、估計與假設。
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expenses, and related disclosures with respect to contingent assets and liabilities. We base our judgments, estimates and assumptions on current facts, 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 Q3 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/or cash generating units (CGUs1), our measurement of deferred tax assets and liabilities, our estimated inventory write-downs and expected credit losses, customer creditworthiness and the determination of the fair value of assets acquired, liabilities assumed, and contingent consideration in connection with a business combination. Any revisions to estimates, judgments or assumptions may result in, among other things, write-downs, accelerated depreciation or amortization, or impairments of our assets or CGUs, and/or adjustments to the carrying amount of our A/R 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.
Material accounting policies and methods used in the preparation of our consolidated financial statements are described in note 2 to our 2023 AFS. The following paragraph identifies those accounting estimates which management considers to be "critical," defined as accounting estimates made in accordance with IFRS that involve a significant level of estimation uncertainty, and have had, or are reasonably likely to have, a material impact on the Company's financial condition or results of operations. No significant revisions to our critical accounting estimates and/or assumptions were made in Q3 2024.
Key sources of estimation uncertainty and judgment: We have applied significant estimates, judgments and assumptions in the following areas which we believe could have a significant impact on our reported results and financial position: our determination of the timing of revenue recognition; whether events or changes in circumstances are indicators that an impairment review of our assets or CGUs should be conducted; the measurement of our CGUs' recoverable amounts, which includes estimating future growth, profitability, and discount and terminal growth rates, and the allocation of the purchase price and other valuations related to a business acquisition. See "Critical Accounting Estimates" in Item 5 of our 2023 20-F for a detailed discussion of our critical accounting estimates.
In addition, we determined that no triggering event occurred in YTD 2024 (or to date) that would require an interim impairment assessment of our CGUs, and no material impairments or adjustments were identified in YTD 2024 (or to date) related to our allowance for doubtful accounts, or the recoverability and valuation of our assets and liabilities.
Operating Results
See "Overview — Overview of business environment" and "Recent Developments" above for a discussion of the impact of recent events and market conditions on our segments. See the initial paragraph of "Operating Results" in Item 5 of our 2023 20-F for a general discussion of factors that can cause our financial results to fluctuate from period to period.
1 CGUs are the smallest identifiable group of assets that cannot be tested individually and generate cash inflows that are largely independent of those of other assets or groups of assets, and can be comprised of a single site, a group of sites, or a line of business.
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Operating results expressed as a percentage of revenue:
| Three months ended September 30 | Nine months ended September 30 | ||||||||||||||||||||||
| 2023 | 2024 | 2023 | 2024 | ||||||||||||||||||||
| Revenue | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||
| Cost of sales | 89.9 | 89.6 | 90.5 | 89.5 | |||||||||||||||||||
| Gross profit | 10.1 | 10.4 | 9.5 | 10.5 | |||||||||||||||||||
| SG&A | 2.8 | 3.7 | 3.5 | 3.3 | |||||||||||||||||||
| R&D costs | 0.8 | 0.8 | 0.7 | 0.8 | |||||||||||||||||||
| Amortization of intangible assets | 0.5 | 0.5 | 0.5 | 0.5 | |||||||||||||||||||
| Other charges, net of recoveries | 0.3 | — | 0.2 | 0.2 | |||||||||||||||||||
Finance income | — | (0.1) | — | (0.1) | |||||||||||||||||||
| Finance costs | 0.9 | 0.5 | 1.1 | 0.7 | |||||||||||||||||||
| Earnings before income taxes | 4.8 | 5.0 | 3.5 | 5.1 | |||||||||||||||||||
| Income tax expense | 0.9 | 1.3 | 0.7 | 1.0 | |||||||||||||||||||
| Net earnings for the period | 3.9 | % | 3.7 | % | 2.8 | % | 4.1 | % | |||||||||||||||
Revenue:
Aggregate revenue of $2.50 billion for Q3 2024 increased 22% compared to Q3 2023. Aggregate revenue of $7.10 billion for YTD 2024 increased 22% compared to YTD 2023.
The following table sets forth revenue from our reportable segments, as well as segment and end market revenue as a percentage of total revenue, for the periods indicated (in millions, except percentages):
| Three months ended September 30 | Nine months ended September 30 | ||||||||||||||||||||||||||||||||||
| 2023 | 2024 | 2023 | 2024 | ||||||||||||||||||||||||||||||||
| % of total | % of total | % of total | % of total | ||||||||||||||||||||||||||||||||
| ATS segment revenue | $ | 859.4 | 42 | % | $ | 814.1 | 33 | % | $ | 2,516.9 | 43 | % | $ | 2,349.7 | 33 | % | |||||||||||||||||||
| CCS segment revenue | |||||||||||||||||||||||||||||||||||
| Communications | $ | 735.5 | 36 | % | $ | 1,067.3 | 42 | % | $ | 1,958.0 | 34 | % | $ | 2,766.7 | 39 | % | |||||||||||||||||||
| Enterprise | 448.4 | 22 | % | 618.1 | 25 | % | 1,345.6 | 23 | % | 1,983.9 | 28 | % | |||||||||||||||||||||||
| $ | 1,183.9 | 58 | % | $ | 1,685.4 | 67 | % | $ | 3,303.6 | 57 | % | $ | 4,750.6 | 67 | % | ||||||||||||||||||||
| Total revenue | $ | 2,043.3 | $ | 2,499.5 | $ | 5,820.5 | $ | 7,100.3 | |||||||||||||||||||||||||||
ATS segment revenue for Q3 2024 decreased $45.3 million (5%) compared to Q3 2023, and decreased $167.2 million (7%) in YTD 2024 compared to YTD 2023, in each case driven by the anticipated demand softness in our Industrial business (25% decrease in Q3 2024 compared to Q3 2023 and 26% decrease in YTD 2024 compared to YTD 2023), partially offset by strength in our A&D and Capital Equipment businesses. A&D business revenue increased 15% in Q3 2024 compared to Q3 2023 and increased 17% in YTD 2024 compared to YTD 2023. Capital Equipment business revenue increased 31% in Q3 2024 compared to Q3 2023 and increased 15% in YTD 2024 compared to YTD 2023.
CCS segment revenue for Q3 2024 increased $501.5 million (42%) compared to Q3 2023 and increased $1,447.0 million (44%) in YTD 2024 compared to YTD 2023. Communications end market revenue for Q3 2024 increased $331.8 million (45%) compared to Q3 2023 and increased $808.7 million (41%) in YTD 2024 compared to YTD 2023, in each case driven largely by increased demand for HPS networking products from hyperscaler customers. Our HPS revenue for Q3 2024 increased 54% to $761 million compared to Q3 2023, and accounted for 30% of our total Q3 2024 revenue (Q3 2023 — 24% of our total Q3 2023 revenue). Our HPS revenue for YTD 2024 increased 61% to $1,966 million compared to YTD 2023, and accounted for 28% of our total YTD 2024 revenue (YTD 2023 — 21% of our total YTD 2023 revenue). Enterprise end market revenue for Q3 2024 increased $169.7 million (38%) compared to Q3 2023 and increased $638.3 million (47%) in YTD 2024 compared to YTD 2023. Enterprise revenue increases in Q3 2024 and YTD 2024 compared to the respective prior periods were
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driven by stronger demand in our storage business, and in YTD 2024 compared to YTD 2023, were also favorably impacted by stronger demand for compute products from our hyperscaler customers.
We depend on a small number of customers for a substantial portion of our revenue. In the aggregate, our top 10 customers represented 74% and 73% of total revenue for Q3 2024 and YTD 2024, respectively (Q3 2023 and YTD 2023 — 66% and 62%, respectively). Two customers (both in our CCS segment) individually represented 10% or more of total revenue in Q3 2024 (25% and 12%) and YTD 2024 (30% and 11%). One such customer also individually represented 10% or more of total revenue in Q3 2023 (23%) and YTD 2023 (19%).
We generally enter into master supply agreements with our customers that provide the framework for our overall relationship, although such agreements do not typically guarantee a particular level of business or fixed pricing. Instead, we bid on a program-by-program basis and receive customer purchase orders for specific quantities and timing of products. We cannot assure that our current customers will continue to award us with follow-on or new business. Customers may also cancel contracts, and volume levels can be changed or delayed, any of which could have a material adverse impact on our results of operations, working capital performance (including requiring us to carry higher than expected levels of inventory, particularly in a supply-constrained environment, to enable us to meet demand requirements), and result in lower asset utilization and lower margins. We cannot assure the replacement of completed, delayed, cancelled or reduced orders, or that our current customers will continue to utilize our services, or renew their long-term manufacturing or services contracts with us on acceptable terms or at all. In addition, in any given quarter, we can experience quality and process variances related to materials, testing or other manufacturing or supply chain activities. Although we are successful in resolving the majority of these issues, the existence of these variances could have a material adverse impact on the demand for our services in future periods from any affected customers. Further, some of our customer agreements require us to provide specific price reductions to our customers over the term of the contracts, which has had, and may continue to have, a significant impact on our revenues and margins. Continuing market shifts to disaggregated solutions and open hardware platforms are adversely impacting demand from our traditional OEM Communications customers, but favorably impacting our service provider customers and our HPS business. There can be no assurance that revenue from any of our major customers will continue at historical levels or will not decrease in absolute terms or as a percentage of total revenue. A significant revenue decrease or pricing pressures from these or other customers, or a loss of a major customer or program, could have a material adverse impact on our business, our operating results and our financial position.
Gross profit:
The following table shows gross profit and gross margin (gross profit as a percentage of total revenue) for the periods indicated:
| Three months ended September 30 | Nine months ended September 30 | ||||||||||||||||||||||
| 2023 | 2024 | 2023 | 2024 | ||||||||||||||||||||
| Gross profit (in millions) | $ | 206.7 | $ | 259.1 | $ | 555.3 | $ | 744.0 | |||||||||||||||
| Gross margin | 10.1 | % | 10.4 | % | 9.5 | % | 10.5 | % | |||||||||||||||
Gross profit for Q3 2024 increased by 25% to $259.1 million compared to Q3 2023, primarily due to our strong revenue growth. Gross profit for YTD 2024 increased by 34% to $744.0 million compared to YTD 2023, primarily due to our strong revenue growth, as well as higher net inventory write-downs recorded in YTD 2023 ($40.4 million) compared to YTD 2024 ($27.1 million).
Gross margin increased from 10.1% in Q3 2023 to 10.4% in Q3 2024 and increased from 9.5% in YTD 2023 to 10.5% in YTD 2024. The increase in gross margin in each period was primarily driven by operating leverage and production efficiencies in our CCS segment.
See "Operating Results — Gross profit" in Item 5 of our 2023 20-F for a general discussion of the factors that can cause gross margin to fluctuate from period to period.
SG&A:
SG&A for Q3 2024 of $91.9 million (3.7% of total revenue) increased $35.0 million compared to $56.9 million (2.8% of total revenue) for Q3 2023. The increase in SG&A in Q3 2024 compared to Q3 2023 was mainly due to a $22.6 million
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unfavorable change in fair value adjustments (TRS FVAs) related to our total return swap agreement (TRS Agreement), approximately $3 million in higher foreign exchange losses, and higher variable compensation and variable spend. See "Liquidity — Cash requirements — TRS" for a description of our TRS Agreement.
SG&A for YTD 2024 of $237.2 million (3.3% of total revenue) increased $33.3 million compared to $203.9 million (3.5% of total revenue) for YTD 2023. The increase in SG&A in YTD 2024 compared to YTD 2023 was mainly due to higher variable compensation, higher expected credit losses and higher variable spend.
Segment income and margin:
Segment performance is evaluated based on segment revenue (set forth above), segment income and segment margin (segment income as a percentage of segment revenue). Revenue is attributed to the segment in which the product is manufactured or the service is performed. Segment income is defined as a segment’s net revenue less its cost of sales and its allocable portion of SG&A and R&D expenses (collectively, Segment Costs). Identifiable Segment Costs are allocated directly to the applicable segment while other Segment Costs, including indirect costs and certain corporate charges, are allocated to our segments based on an analysis of the relative usage or benefit derived by each segment from such costs. Segment income excludes Finance Costs, net of Finance Income (defined under "Finance Costs and Finance Income" below), employee SBC expense, amortization of intangible assets (excluding computer software), Other Charges (Recoveries) (described under "Other Charges, net of Recoveries" below), and TRS FVAs, as these costs and charges are managed and reviewed by our Chief Executive Officer at the company level. See the reconciliation of segment income to our earnings before income taxes for Q3 2024, YTD 2024 and the respective prior year periods in note 3 to the Q3 2024 Interim Financial Statements. Our segments do not record inter-segment revenue. Although segment income and segment margin are used to evaluate the performance of our segments, we may incur operating costs in one segment that may also benefit the other segment. Our accounting policies for segment reporting are the same as those applied to the Company as a whole. See "Summary of Q3 2024 and YTD 2024" for a table showing segment income and segment margin for Q3 2024, YTD 2024 and the respective prior year periods.
ATS segment income for Q3 2024 decreased $3.1 million (7%) compared to Q3 2023 and decreased $8.1 million (7%) in YTD 2024 compared to YTD 2023 as a result of lower revenue in Q3 2024 and YTD 2024 compared to the respective prior year periods. ATS segment margin decreased from 4.9% in Q3 2023 to 4.8% in Q3 2024, primarily driven by a reduction in operating leverage in our Industrial business, partially offset by improved profitability in our Capital Equipment and A&D businesses. ATS segment margin remained flat at 4.7% in YTD 2024 compared to YTD 2023.
CCS segment income for Q3 2024 increased $55.1 million (75%) compared to Q3 2023 and increased $147.5 million (74%) in YTD 2024 compared to YTD 2023, as a result of the higher CCS segment revenue levels in Q3 2024 and YTD 2024 compared to the respective prior year periods. CCS segment margin increased from 6.2% for Q3 2023 to 7.6% in Q3 2024 and increased from 6.0% in YTD 2023 to 7.3% in YTD 2024, primarily driven by greater operating leverage and related production efficiencies, as well as improved mix.
SBC expense and TRS FVAs:
We entered into the TRS Agreement to manage cash flow requirements and our exposure to fluctuations in the price of our Common Shares in connection with the settlement of certain outstanding equity awards under our SBC plans. See "Liquidity — Cash requirements — TRS" below for further detail. The following table shows employee SBC expense (with respect to restricted share units (RSUs) and performance share units (PSUs) granted to employees), TRS FVAs, and director SBC expense (with respect to DSUs and RSUs issued to directors as compensation) for the periods indicated (in millions):
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| Three months ended September 30 | Nine months ended September 30 | ||||||||||||||||||||||
| 2023 | 2024 | 2023 | 2024 | ||||||||||||||||||||
| Employee SBC expense in cost of sales | $ | 5.1 | $ | 5.6 | $ | 18.4 | $ | 20.2 | |||||||||||||||
| Employee SBC expense in SG&A | 7.8 | 7.1 | 27.4 | 27.1 | |||||||||||||||||||
| Total employee SBC expense | $ | 12.9 | $ | 12.7 | $ | 45.8 | $ | 47.3 | |||||||||||||||
TRS FVAs: losses (gains) in cost of sales | $ | (11.8) | $ | 2.7 | $ | (13.8) | $ | (17.2) | |||||||||||||||
TRS FVAs: losses (gains) in SG&A | (17.6) | 5.0 | (20.4) | (22.3) | |||||||||||||||||||
Total TRS FVAs: losses (gains) | $ | (29.4) | $ | 7.7 | $ | (34.2) | $ | (39.5) | |||||||||||||||
| Combined effect of employee SBC expense and TRS FVAs: expenses (recoveries) | $ | (16.5) | $ | 20.4 | $ | 11.6 | $ | 7.8 | |||||||||||||||
Director SBC expense in SG&A(1) | $ | 0.6 | $ | 0.6 | $ | 1.8 | $ | 1.8 | |||||||||||||||
(1) Expense consists of director compensation to be settled in Common Shares, or Common Shares and cash.
Our SBC expense may fluctuate from period to period to account for, among other things, new grants, forfeitures resulting from employee terminations or resignations, and the recognition of accelerated SBC expense for employees eligible for retirement (generally in the first quarter of the year associated with our annual grants). The portion of our employee SBC expense that relates to performance-based compensation is subject to adjustment in any period to reflect changes in the estimated level of achievement of pre-determined performance goals and financial targets.
We recorded $7.7 million of unfavorable TRS FVAs related to our TRS Agreement in Q3 2024 compared to $29.4 million of favorable TRS FVAs in Q3 2023, and $39.5 million of favorable TRS FVAs in YTD 2024 compared to $34.2 million of favorable TRS FVAs in YTD 2023, in each case due to fluctuations in our Common Share price.
Other Charges, net of Recoveries:
We recorded the following restructuring and other charges (recoveries) for the periods indicated (in millions):
| Three months ended September 30 | Nine months ended September 30 | ||||||||||||||||
| 2023 | 2024 | 2023 | 2024 | ||||||||||||||
Restructuring charges, net of recoveries (a) | $ | 0.3 | $ | 0.6 | $ | 9.8 | $ | 11.3 | |||||||||
| Transition Costs (b) | 3.9 | — | 3.9 | 3.4 | |||||||||||||
Acquisition Costs (c) | 0.6 | 0.4 | 0.9 | 2.5 | |||||||||||||
Other costs (recoveries) (d) | 0.8 | — | (0.9) | (1.3) | |||||||||||||
| $ | 5.6 | $ | 1.0 | $ | 13.7 | $ | 15.9 | ||||||||||
(a) Restructuring charges, net of recoveries:
We perform ongoing evaluations of our business, operational efficiency and cost structure, and implement restructuring actions as we deem necessary. Our restructuring activities in Q3 2024 and YTD 2024 consisted primarily of actions to adjust our cost base to address reduced levels of demand in certain of our businesses and geographies.
We recorded cash restructuring charges of $0.2 million and $10.2 million in Q3 2024 and YTD 2024, respectively (Q3 2023 — $1.3 million; YTD 2023 — $7.9 million), primarily for employee termination costs. We recorded $0.4 million and $1.1 million of non-cash restructuring charges in Q3 2024 and YTD 2024, respectively, consisting primarily of accelerated depreciation of equipment related to disengaging programs (Q3 2023 — nil; YTD 2023 — $2.9 million, consisting primarily of the accelerated depreciation of equipment, building improvements and right-of-use (ROU) assets related to disengaging programs and vacated properties). In Q3 2023 and YTD 2023, we also recorded non-cash restructuring recoveries of $1.0 million, related to sublet recoveries in excess of the carrying value of the related leases and sales of surplus equipment. In Q3 2024, substantially all restructuring charges pertained to our CCS segment. In YTD 2024, approximately two-thirds of our restructuring charges pertained to our ATS segment. In Q3 2023 and YTD 2023, our restructuring charges and restructuring recoveries were each split approximately evenly between our two segments. At September 30, 2024, our restructuring provision
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was $2.4 million (December 31, 2023 — $3.6 million), which we recorded in the current portion of provisions on our consolidated balance sheet.
We may also implement additional future restructuring actions or divestitures as a result of changes in our business, the marketplace and/or our exit from less profitable, under-performing, non-core or non-strategic operations. In addition, an increase in the frequency of customers transferring business to our competitors, changes in the volumes they outsource, pricing pressures, or requests to transfer their programs among our sites or to lower-cost locations, may also result in our taking future restructuring actions. We may incur higher operating expenses during periods of transitioning programs within our network or to our competitors. Any such restructuring activities, if undertaken at all, could adversely impact our operating and financial results, and may require us to further adjust our operations.
(b) Transition Costs:
Transition Costs are defined under the caption "Non-IFRS Financial Measures" below. In March 2019, as part of our Toronto real property sale, we entered into a 10-year lease with the purchaser of such property for our then-anticipated headquarters, to be built by such purchaser on the site of our former location (Purchaser Lease). Due to a number of construction-related commencement date delays, in November 2022, we extended (on a long-term basis) the lease on our current corporate headquarters, and in Q3 2023, we executed a sublease for a portion of the leased space under the Purchaser Lease (Sublease). The Purchaser Lease commenced in June 2024 and related ROU assets and lease liabilities were recognized in our consolidated financial statements. Consistent with our prior treatment as Transition Costs of duplicate and idle premises costs incurred as a result of our 2019 Toronto real property sale, the excess of rental expenses under the Purchaser Lease (with respect to the subleased space) over anticipated rental recoveries under the Sublease were recorded as Transition Costs in Q3 2023 and YTD 2023 ($3.9 million). Similarly, we recorded Transition Costs of $3.4 million in YTD 2024, representing the write-down of ROU assets under the Purchaser Lease with respect to the space not subleased. We incurred no Transition Costs in Q3 2024.
(c) Acquisition Costs:
We incur consulting, transaction and integration costs relating to potential and completed acquisitions. We also incur 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. Collectively, these costs, charges and releases are referred to as Acquisition Costs (Recoveries).
We recorded Acquisition Costs of $0.4 million in Q3 2024 related to potential acquisitions and $2.5 million in YTD 2024 related to the acquisition of NCS Global Services LLC (NCS) in April 2024 and potential acquisitions (Q3 2023 and YTD 2023 — $0.6 million and $0.9 million, respectively, related to potential acquisitions).
(d) Other costs (recoveries):
We recorded nil other costs or recoveries in Q3 2024. In YTD 2024, we recorded nil other costs, and $1.3 million of other recoveries, consisting of legal recoveries in connection with the settlement of class action lawsuits (for component parts purchased in prior periods) in which we were a plaintiff (Parts Recoveries). In Q3 2023, we recorded $0.8 million of other costs, substantially all of which consisted of fees and expenses of the August 2023 underwritten secondary public offering by Onex Corporation (Onex), our then-controlling shareholder (August Secondary Offering), and nil other recoveries. In YTD 2023, we recorded $2.7 million in Parts Recoveries, offset in part by $1.8 million of other costs, substantially all of which consisted of fees and expenses of both the June 2023 underwritten secondary public offering by Onex (June Secondary Offering) and the August Secondary Offering.
Finance Costs and Finance Income:
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 A/R sales program, customer SFPs, and interest expense on our lease obligations. During Q3 2024 and YTD 2024, we incurred aggregate Finance Costs of $12.9 million and $51.7 million, respectively (Q3 2023 — $18.6 million; YTD 2023 — $63.0 million). We incurred Finance Costs under our A/R sales agreement and customer SFPs of $0.1 million in Q3 2024 and $1.1 million in YTD 2024 (Q3 2023 — $3.2 million; YTD 2023 — $15.5 million). We incurred lower Finance Costs in Q3 2024 and YTD 2024 under our A/R sales agreement and
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customer SFPs compared to the respective prior year periods, primarily as a result of lower aggregate amounts sold under these arrangements during Q3 2024 (approximately $34 million) compared to Q3 2023 (approximately $291 million) and during YTD 2024 (approximately $152 million) compared to YTD 2023 (approximately $1,873 million). Interest expense and fees under our credit facility, including the impact of our interest rate swap agreements (described under "Capital Resources" below) was $11.4 million in Q3 2024 and $35.4 million in YTD 2024 (Q3 2023 — $11.4 million and YTD 2023 — $36.8 million). In YTD 2024, we also recorded as Finance Costs $5.2 million in fees and costs incurred in connection with the June 2024 Amendment, as well as $0.8 million in accelerated amortization of unamortized deferred financing costs in connection with the related termination of one of our prior term loans.
Finance Income consists of interest income earned, and in YTD 2024, a modification gain of $5.5 million (Refinancing Gain) recorded in connection with the accounting treatment of the termination of the second prior term loan in connection with the June 2024 Amendment. See "Liquidity — Cash used in and provided by financing activities — Financing and Finance Costs" below. We recorded Finance Income of $1.9 million in Q3 2024 and $8.5 million in YTD 2024 (Q3 2023 — $0.3 million; YTD 2023 — $0.9 million). The increase in Finance Income in YTD 2024 compared to YTD 2023 was mainly due to the Refinancing Gain.
Income taxes:
Our Q3 2024 net income tax expense of $33.7 million included a $2.6 million withholding tax expense incurred to minimize the impact of the enactment of Pillar Two (global minimum tax) legislation in Canada, and a $2.0 million tax expense arising from taxable temporary differences associated with the anticipated repatriation of undistributed earnings from certain of our Asian subsidiaries (Repatriation Expense). Our YTD 2024 net income tax expense of $68.1 million included an $18.8 million withholding tax expense incurred to minimize the impact of the enactment of Pillar Two legislation in Canada, and a $2.0 million Repatriation Expense, offset in part by the recognition of $7.5 million of previously unrecognized deferred tax assets in our U.S. group of subsidiaries as a result of our NCS acquisition (DTA Recognition), and $5.6 million of reversals of tax uncertainties (Reversals) relating to one of our Asian subsidiaries. Taxable foreign exchange impacts were not significant in Q3 2024 or YTD 2024.
Our Q3 2023 net income tax expense of $18.9 million included a $3.5 million Repatriation Expense. Our YTD 2023 net income tax expense of $42.1 million included a $6.8 million Repatriation Expense, partially offset by the favorable impact of $5.5 million in Reversals relating to one of our Asian subsidiaries. Taxable foreign exchange impacts were not significant in Q3 2023 or YTD 2023.
We conduct business operations in a number of countries, including countries where tax incentives have been extended to encourage foreign investment or where income tax rates are low. Our effective tax rate can vary significantly from period to period for various reasons, including as a result of the mix and volume of business in various tax jurisdictions, and in jurisdictions with tax holidays, and tax incentives that have been negotiated with the respective tax authorities (see discussion below). Our effective tax rate can also vary due to the impact of restructuring charges, foreign exchange fluctuations, operating losses, cash repatriations, certain tax exposures, the time period in which losses may be used under tax laws and whether management believes it is probable that future taxable profit will be available to allow us to recognize deferred income tax assets.
Certain countries in which we do business grant tax incentives to attract and retain our business. Our tax expense could increase significantly if certain tax incentives from which we benefit are retracted. A retraction could occur if we fail to satisfy the conditions on which these tax incentives are based, or if they are not renewed or replaced upon expiration. Our tax expense could also increase if tax rates applicable to us in such jurisdictions are otherwise increased, or due to changes in legislation or administrative practices. Changes in our outlook in any particular country could impact our ability to meet the required conditions.
Our tax incentives currently consist of tax exemptions for the profits of our Thailand and Laos subsidiaries. We have the following four income tax incentives in Thailand: (i) a 5-year 50% income tax exemption that expires in 2027; (ii) an 8-year 100% income tax and distribution tax exemption that expires in 2028; (iii) a 6-year 100% income tax and distribution tax exemption that expires in 2028; and (iv) a 6-year 100% income tax and distribution tax exemption that expires in 2029. Our tax incentive in Laos allows for a 100% income tax exemption until 2025, and a reduced income tax rate of 8% thereafter. Upon full expiry of each of the incentives, taxable profits associated with such incentives become fully taxable. Our tax expense could increase significantly if certain of the foregoing tax incentives are retracted or expire.
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In certain jurisdictions, primarily in the Americas and Europe, we currently have significant net operating losses and other deductible temporary differences, some of which we expect will be used to reduce taxable income in these jurisdictions in future periods, although not all are currently recognized as deferred tax assets. In addition, the tax benefits we are able to record related to restructuring charges and SBC expenses may be limited, as a significant portion of such amounts are incurred in jurisdictions with unrecognized loss carryforwards. Tax benefits we are able to record related to the accounting amortization of intangible assets are also limited based on the structure of our acquisitions. We review our deferred income tax assets at each reporting date and reduce them to the extent we believe it is no longer probable that we will realize the related tax benefits.
We develop our tax filing positions based upon the anticipated nature and structure of our business and the tax laws, administrative practices and judicial decisions currently in effect in the jurisdictions in which we have assets or conduct business, all of which are subject to change or differing interpretations, some of which with retroactive effect (e.g., Canada's Pillar Two legislation). We are subject to tax audits in various jurisdictions which could result in additional tax expense in future periods relating to prior results. Reviews by tax authorities generally focus on, but are not limited to, the validity of our inter-company transactions, including financing and transfer pricing policies which generally involve subjective areas of taxation and significant judgment. Any such increase in our income tax expense and related interest and/or penalties could have a significant adverse impact on our future earnings and future cash flows.
In 2021, the Romanian tax authorities issued a final assessment in the aggregate amount of approximately 31 million Romanian leu (approximately $7 million at Q3 2024 period-end exchange rates), for additional income and value-added taxes for one of our Romanian subsidiaries for the 2014 to 2018 tax years. In order to advance our case to the appeals phase and reduce or eliminate potential interest and penalties, we paid the Romanian tax authorities the full amount assessed in 2021 (without agreement to all or any portion of such assessment). We believe that our originally-filed tax return positions are in compliance with applicable Romanian tax laws and regulations, and intend to vigorously defend our position through all necessary appeals or other judicial processes.
The successful pursuit of assertions made by any government authority, including tax authorities, could result in our owing significant amounts of tax or other reimbursements, interest and possibly penalties. We believe we adequately accrue for any probable potential adverse ruling. However, there can be no assurance as to the final resolution of any claims and any resulting proceedings. If any claims and any ensuing proceedings are determined adversely to us, the amounts we may be required to pay could be material, and in excess of amounts accrued.
Net earnings:
Net earnings for Q3 2024 of $91.7 million increased $11.5 million compared to net earnings of $80.2 million for Q3 2023. This increase was primarily due to $52.4 million in higher gross profit, $5.7 million in lower Finance Costs and $4.6 million in lower net Other Charges, offset in part by $35.0 million in higher SG&A and $14.8 million in higher income tax expense.
Net earnings for YTD 2024 of $293.0 million increased $132.6 million compared to net earnings of $160.4 million for YTD 2023. This increase was primarily due to $188.7 million in higher gross profit and $11.3 million in lower Finance Costs, offset in part by $33.3 million in higher SG&A, $26.0 million in higher income tax expense and $11.3 million in higher R&D costs (to support the growth of our HPS business).
Liquidity and Capital Resources
Liquidity
The following tables set forth key liquidity metrics for the periods indicated (in millions):
| December 31 | September 30 | ||||||||||
| 2023 | 2024 | ||||||||||
| Cash and cash equivalents | $ | 370.4 | $ | 398.5 | |||||||
Borrowings under credit facility* | 608.9 | 745.6 | |||||||||
* Excludes ordinary course L/Cs.
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| Three months ended September 30 | Nine months ended September 30 | ||||||||||||||||||||||
| 2023 | 2024 | 2023 | 2024 | ||||||||||||||||||||
| Cash provided by operating activities | $ | 88.4 | $ | 144.8 | $ | 290.9 | $ | 399.0 | |||||||||||||||
| Cash used in investing activities | (26.2) | (51.0) | (90.5) | (161.5) | |||||||||||||||||||
Cash used in financing activities | (69.8) | (129.3) | (221.8) | (209.4) | |||||||||||||||||||
| Changes in non-cash working capital items (included in operating activities above): | |||||||||||||||||||||||
A/R | $ | (295.3) | $ | (111.7) | $ | (205.5) | $ | (209.4) | |||||||||||||||
| Inventories | 84.5 | 25.5 | 89.2 | 278.6 | |||||||||||||||||||
| Other current assets | (6.6) | 37.7 | 22.7 | 37.1 | |||||||||||||||||||
| A/P, accrued and other current liabilities and provisions | 186.3 | 21.0 | 53.0 | (189.7) | |||||||||||||||||||
| Working capital changes | $ | (31.1) | $ | (27.5) | $ | (40.6) | $ | (83.4) | |||||||||||||||
Cash provided by operating activities:
In Q3 2024, we generated $144.8 million of cash from operating activities compared to $88.4 million in Q3 2023. The increase in cash from operating activities was primarily due to $37.1 million in TRS FVAs ($7.7 million in unfavorable TRS FVAs in Q3 2024 as a non-cash add-back to net earnings; $29.4 million in favorable TRS FVAs in Q3 2023 as a non-cash deduction from net earnings), $11.5 million in higher net earnings (described in "Operating Results — Net earnings" above) and $8.4 million in higher depreciation and amortization expense (as a non-cash add-back to net earnings, due to higher capital expenditures in Q3 2024 and YTD 2024 compared to the respective prior year periods, see "Cash used in investing activities" below). Working capital requirements for Q3 2024 decreased by $3.6 million compared to Q3 2023, as discussed below.
In YTD 2024, we generated $399.0 million of cash from operating activities compared to $290.9 million in YTD 2023. The increase in cash from operating activities was primarily due to $132.6 million in higher net earnings (described in "Operating Results — Net earnings" above) and the following non-cash add-backs to net earnings: (i) $26.0 million in higher income tax expense and (ii) $19.3 million in higher depreciation and amortization expense (due to higher capital expenditures in YTD 2024 compared to YTD 2023, see "Cash used in investing activities" below), offset in part by $42.8 million in higher working capital requirements (discussed below) and $18.9 million in lower Finance Costs, net of Finance Income (as a non-cash add-back to net earnings).
Working capital requirements for Q3 2024 decreased by $3.6 million compared to Q3 2023 as a $183.6 million increase in A/R cash flows (due to timing of collections and revenues) and a $44.3 million increase in other current assets cash flows were substantially offset by a $165.3 million decrease in A/P cash flows and a $59.0 million decrease in inventory cash flows. Working capital requirements for YTD 2024 increased by $42.8 million compared to YTD 2023, primarily reflecting a $242.7 million decrease in A/P cash flows, partially offset by a $14.4 million increase in other current assets cash flows and a $189.4 million improvement in inventory cash flows.
Inventory cash flows increased in YTD 2024 compared to YTD 2023 due to a lower inventory level at September 30, 2024 (due to improvements in the availability of materials and our utilization of inventory in production in response to customer demand). Inventory cash flows decreased in Q3 2024 compared to Q3 2023 as the decrease in inventory level at September 30, 2024 compared to June 30, 2024 (primarily due to utilization of inventory in production) was less than the decrease in inventory level at September 30, 2023 compared to June 30, 2023 (primarily due to improvements in the availability of materials). A/P cash flows decreased in Q3 2024 and YTD 2024 compared to the respective prior year periods primarily due to lower cash deposit levels at September 30, 2024. We receive cash deposits from certain customers, primarily to alleviate the impact of inventory purchases on our cash flows. Consistent with decrease in inventory levels noted above, our customer deposit levels decreased. Other current assets cash flows increased in Q3 2024 and YTD 2024 compared to the respective prior year periods due to receipt of certain insurance proceeds and recovery of indirect taxes in certain jurisdictions in Q3 2024 and YTD 2024.
From time to time, we extend payment terms applicable to certain customers, and/or provide longer payment terms to new customers. To substantially offset the effect of extended payment terms for particular customers on our working capital, we participate in three customer SFPs, pursuant to which we sell A/R from such customers to third-party banks on an uncommitted
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basis to receive earlier payment. See "Summary of Q3 2024 and YTD 2024" above and "Liquidity — Cash requirements — Financing Arrangements" below for amounts of A/R sold under such arrangements at September 30, 2024 and December 31, 2023 and during recent periods.
Non-IFRS adjusted free cash flow:
Non-IFRS adjusted free cash flow is a non-IFRS financial measure without a standardized meaning and may not be comparable to similar measures presented by other companies. We define non-IFRS adjusted free cash flow as cash provided by or 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 Paid (defined as Finance Costs paid, excluding, when applicable, credit agreement-related debt issuance costs and any credit agreement waiver fees paid). As we do not consider debt issuance costs paid ($0.6 million in Q3 2024 and $9.6 million in YTD 2024; $0.4 million in Q3 2023 and YTD 2023) or such waiver fees paid (when applicable) to be part of our ongoing financing expenses, these costs are excluded from our definition of Finance Costs Paid for 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. Management uses non-IFRS adjusted free cash flow as a measure, in addition to IFRS cash provided by or used in operations (described above), to assess our operational cash flow performance. We believe non-IFRS adjusted free cash flow provides another level of transparency to our liquidity. See "Non-IFRS Financial Measures" below.
A reconciliation of non-IFRS adjusted free cash flow to cash provided by operating activities measured under IFRS is set forth below:
| (in millions) | Three months ended September 30 | Nine months ended September 30 | |||||||||||||||||||||
| 2023 | 2024 | 2023 | 2024 | ||||||||||||||||||||
| IFRS cash provided by operations | $ | 88.4 | $ | 144.8 | $ | 290.9 | $ | 399.0 | |||||||||||||||
| Purchase of property, plant and equipment, net of sales proceeds | (26.2) | (46.0) | (90.5) | (120.4) | |||||||||||||||||||
| Lease payments | (12.8) | (13.0) | (36.9) | (37.6) | |||||||||||||||||||
Finance Costs Paid | (15.3) | (11.3) | (53.4) | (38.0) | |||||||||||||||||||
| Non-IFRS adjusted free cash flow | $ | 34.1 | $ | 74.5 | $ | 110.1 | $ | 203.0 | |||||||||||||||
Our non-IFRS adjusted free cash flow of $74.5 million for Q3 2024 increased $40.4 million compared to $34.1 million for Q3 2023, primarily due to $56.4 million in higher cash generated from operations (as described above) and a $4.0 million decrease in Finance Costs Paid, partially offset by a $19.8 million increase in cash flows used to purchase property, plant and equipment, net of sales proceeds (as described below).
Our non-IFRS adjusted free cash flow of $203.0 million for YTD 2024 increased $92.9 million compared to $110.1 million for YTD 2023, primarily due to $108.1 million in higher cash generated from operations (as described above) and a $15.4 million decrease in Finance Costs Paid, partially offset by a $29.9 million increase in cash flows used to purchase property, plant and equipment, net of sales proceeds (as described below).
Cash used in investing activities:
Our capital expenditures for Q3 2024 and YTD 2024 were $46.0 million and $123.3 million, respectively (Q3 2023 — $27.0 million; YTD 2023 — $92.2 million), primarily to enhance our manufacturing capabilities in various geographies and to support new customer programs. Most of the Q3 2024 and YTD 2024 capital expenditures pertained to our CCS segment. In each of Q3 2023 and YTD 2023, our capital expenditures were split approximately evenly between our two segments. We fund our capital expenditures from cash on hand and through the financing arrangements described below.
In April 2024, we completed the acquisition of NCS. The purchase price for NCS was $39.6 million, including acquired cash of $3.5 million.
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Cash used in and provided by financing activities:
Common Share repurchases:
See "Summary of Q3 2024 and YTD 2024" above for a table detailing our Common Share repurchases for the periods indicated.
Financing and Finance Costs:
Credit Agreement
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 as of the June 2024 Amendment, includes a new term loan in the original principal amount of $250.0 million (Term A Loan), a new term loan in the original principal amount of $500.0 million (Term B Loan, and collectively with the Term A Loan, the New Term Loans), and a $750.0 million revolving credit facility (Revolver). Prior to the June 2024 Amendment, the Credit Facility included a term loan in the original principal amount of $350.0 million (Initial Term Loan) and a term loan in the original principal amount of $365.0 million (Incremental Term Loan), the outstanding borrowings under each of which were fully repaid with a substantial portion of the proceeds of the New Term Loans, and commitments of $600.0 million under the Revolver. The terms of the Credit Facility prior to the June 2024 Amendment are described in detail in Item 5 of our 2023 20-F and note 11 to the 2023 AFS. Notwithstanding the repayment of the Incremental Term Loan in full and its replacement with the Term A Loan, for accounting purposes, this portion of the transaction was treated as a modification of the Incremental Term Loan, resulting in the $5.5 million Refinancing Gain recorded in YTD 2024 as Finance Income (See "Operating Results — Finance Costs and Finance Income" above). The repayment of the Initial Term Loan in full was treated, for accounting purposes, as an extinguishment of such loan.
The Term A Loan and the Revolver each mature in June 2029. The Term B Loan matures in June 2031. The Term A Loan and the Term B Loan require quarterly principal repayments of $3.125 million and $1.250 million, respectively (which commenced in September 2024), and each of the New Term Loans requires a lump sum repayment of the remainder outstanding at maturity. We are also required to make annual prepayments of outstanding obligations under the Credit Facility (applied first to the New Term Loans, then to the Revolver, in the manner set forth in the Credit Facility) ranging from 0% — 50% (based on a defined leverage ratio) of specified excess cash flow for the prior fiscal year. No prepayments based on excess cash flow were required in 2023, or will be required in 2024. In addition, prepayments of outstanding obligations under the Credit Facility (applied as described above) may also be required in the amount of specified net cash proceeds received above a specified annual threshold (including proceeds from the disposal of certain assets). No prepayments based on net cash proceeds were required in 2023, or will be required in 2024. Any outstanding amounts under the Revolver are due at maturity.
Activity under our Credit Facility during 2023 and YTD 2024 is set forth below:
| Revolver | Term loans | ||||||||||||||||
| Outstanding balances as of December 31, 2022 | $ | — | $ | 627.2 | |||||||||||||
| Amount repaid in Q1 2023 | — | (1) | (4.5625) | (2) | |||||||||||||
| Amount repaid in Q2 2023 | — | (1) | (4.5625) | (2) | |||||||||||||
| Amount repaid in Q3 2023 | — | (1) | (4.5625) | (2) | |||||||||||||
| Amount repaid in Q4 2023 | — | (1) | (4.5625) | (2) | |||||||||||||
| Outstanding balances as of December 31, 2023 | $ | — | $ | 608.9 | |||||||||||||
| Amount borrowed in Q1 2024 | 285.0 | — | |||||||||||||||
| Amount repaid in Q1 2024 | (257.0) | (4.5625) | (2) | ||||||||||||||
| Amount borrowed in Q2 2024 | 180.0 | (3) | 750.0 | (4) | |||||||||||||
| Amount repaid in Q2 2024 | (208.0) | (604.3) | (5) | ||||||||||||||
| Amount borrowed in Q3 2024 | 20.0 | — | |||||||||||||||
| Amount repaid in Q3 2024 | (20.0) | (4.375) | (6) | ||||||||||||||
| Outstanding balances as of September 30, 2024 | $ | — | $ | 745.6 | |||||||||||||
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(1) During each quarter in 2023, we also made intra-quarter borrowings under the Revolver and repaid such borrowings in full within the quarter borrowed (Intra-Quarter B/Rs), with no impact to the amounts outstanding at the relevant quarter-end. Such Intra-Quarter B/Rs are excluded from this table. In Q4 2023, Q3 2023, Q2 2023 and Q1 2023, we made a cumulative aggregate of $270 million, $140 million, $200 million and $281 million in Intra-Quarter B/Rs, respectively.
(2) Represents scheduled quarterly principal repayments under the Incremental Term Loan prior to the June 2024 Amendment.
(3) A portion of this amount was used to fund the NCS purchase price.
(4) Represents borrowings under the New Term Loans.
(5) Represents the repayment and termination of the Initial Term Loan and the Incremental Term Loan.
(6) Represents scheduled quarterly principal repayments under the New Term Loans.
Interest we paid under the Credit Facility, including the impact of our interest rate swap agreements (described below), was $10.9 million and $34.0 million in Q3 2024 and YTD 2024, respectively (Q3 2023 — $10.9 million; YTD 2023 — $35.5 million). Finance Costs we paid under our A/R sales program and customer SFPs decreased in Q3 2024 ($0.1 million) compared to Q3 2023 ($3.2 million) and decreased in YTD 2024 ($1.1 million) compared to YTD 2023 ($15.6 million), primarily due to lower aggregate amounts sold under these arrangements during Q3 2024 (approximately $34 million) compared to Q3 2023 (approximately $291 million) and during YTD 2024 (approximately $152 million) compared to YTD 2023 ($1,873 million). Commitment fees paid in Q3 2024 and YTD 2024 were nil and $1.2 million, respectively (Q3 2023 — $0.4 million; YTD 2023 — $1.1 million). Interest rates for outstanding borrowings under the Credit Facility as of September 30, 2024 are described under "Capital Resources" below.
See "Operating Results — Finance Costs and Finance Income" above for a description of Finance Costs incurred in Q3 2024, YTD 2024, and the respective prior year periods.
Lease payments:
During Q3 2024 and YTD 2024, we paid $13.0 million and $37.6 million, respectively (Q3 2023 — $12.8 million; YTD 2023 — $36.9 million) in lease payments.
Cash requirements:
Our working capital requirements can vary significantly from month-to-month due to a range of business factors, including the ramping of new programs, expansion of our services and business operations, timing of purchases, higher levels of inventory for new programs and anticipated customer demand, timing of payments and A/R collections, and customer forecasting variations. The international scope of our operations may also create working capital requirements in certain countries while other countries generate cash in excess of working capital needs. Moving cash between countries on a short-term basis to fund working capital is not always expedient due to local currency regulations, tax considerations, and other factors. As a result, we make Intra-Quarter B/Rs, sell A/R through our A/R sales program, and/or participate in available customer SFPs when deemed necessary or desirable to effectively manage our short-term liquidity and working capital requirements. The timing and the amounts we borrow or repay under these facilities can vary significantly from month-to-month depending upon our cash requirements. See the Credit Facility activity table above and "Financing Arrangements" below. As our operating activities provided funding for a substantial portion of our working capital needs, we sold fewer A/R under our A/R sales program and customer SFPs in Q3 2024 (aggregate of $34 million) compared to Q3 2023 (aggregate of $291 million), and made smaller Intra-Quarter B/Rs in Q3 2024 ($20 million) compared to Q3 2023 ($140 million). See "Cash used in and provided by financing activities — Financing and Finance Costs" above and "Financing Arrangements" below.
Based on our current cash flow budgets and forecasts of our short-term and long-term liquidity needs, we continue to believe that our current and projected sources of liquidity will be sufficient to fund our anticipated liquidity needs for the next twelve months and beyond. Specifically, we believe that cash flow from operating activities, together with cash on hand, availability under the Revolver ($738.5 million at September 30, 2024), potential availability under uncommitted intraday and overnight bank overdraft facilities, and cash from accepted sales of A/R, will be sufficient to fund our anticipated working capital needs, planned capital spending, contractual obligations and other cash requirements (including any required SBC share repurchases, debt repayments and Finance Costs). See "Capital Resources" below. Notwithstanding the foregoing, although we anticipate that we will be able to repay or refinance outstanding obligations under our Credit Facility when they mature (our primary current long-term cash liquidity requirement), there can be no assurance we will be able to do so, or that the terms of any refinancing will be favorable. In addition, we may require additional capital in the future to fund capital expenditures, acquisitions (including contingent consideration payments), strategic transactions or other investments. We will continue to
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assess our liquidity position and potential sources of supplemental liquidity in view of our objectives, operating performance, economic and capital market conditions and other relevant circumstances. Our operating performance may also be affected by matters discussed under the Risk Factors section of our 2023 20-F. These risks and uncertainties may adversely affect our long-term liquidity.
Except as set forth below (as a result of the June 2024 Amendment), and that we currently expect capital expenditures for 2024 to be approximately 1.75% of revenue, there have been no material changes to the information set forth under "Contractual Obligations" and "Additional Commitments" of the "Liquidity" section of Item 5 of our 2023 20-F.
As at September 30, 2024, we had known contractual obligations that require future payments under the Credit Facility as follows (in millions)*:
| Total | 2024 | 2025 | 2026 | 2027 | 2028 | Thereafter | |||||||||||||||||||||||||||||||||||
| New Term Loans | $745.6 | $4.4 | $17.5 | $17.5 | $17.5 | $17.5 | $671.2 | ||||||||||||||||||||||||||||||||||
* Represents annual amortization of the New Term Loans, as well as principal repayment obligations at maturity (June 2029 for borrowings under the Term A Loan and the Revolver, and June 2031 for the Term B Loan), based on amounts outstanding as of September 30, 2024, but excludes related interest and fees. See "Liquidity — Cash used in and provided by financing activities — Financing and Finance Costs" above for prepayment obligations and annual interest and commitment fees paid in Q3 2024 and YTD 2024. See "Capital Resources" below for a description of the Credit Facility as of the June 2024 Amendment, including amounts outstanding thereunder, and applicable interest rates, commitment fee rates and margins at September 30, 2024. No mandatory principal prepayments on any of our term loans based on excess cash flow or net cash proceeds will be required in 2024, but we are currently unable to determine whether any such prepayments will be required thereafter. Payment defaults under the Credit Facility will incur interest on unpaid amounts at an annual rate equal to the sum of (i) 2%, plus (ii) the rate per annum otherwise applicable to such unpaid amounts, or if no rate is specified or available, the rate per annum applicable to Base Rate revolving loans. If an event of default occurs and is continuing (and is not waived), the Administrative Agent may declare all amounts under the Credit Facility to be immediately due and payable, and may cancel the lenders' commitments to make further advances thereunder.
Financing Arrangements:
See "Liquidity — Cash used in and provided by financing activities— Financing and Finance Costs" above for our contractual repayment obligations under the Credit Facility, as well as interest and commitment fees paid in Q3 2024, YTD 2024 and the respective prior year periods thereunder. Annual interest expense and fees under the Credit Facility, including the impact of our interest rate swap agreements, based on amounts and swap agreements outstanding as of September 30, 2024, are approximately $47 million. Interest rates applicable to outstanding borrowings under the Credit Facility at September 30, 2024 are described under "Capital Resources" below.
We do not believe that the aggregate amounts outstanding under our Credit Facility at September 30, 2024 ($745.6 million under the Term Loans and $11.5 million in ordinary course L/Cs) had or will have a material adverse impact on our liquidity, our results of operations or financial condition (unless our debt obligations mature without refinancing). In addition, we do not believe that Intra-Quarter B/Rs have had (or future Intra-Quarter B/Rs will have) a material adverse impact on our liquidity, results of operations or financial condition. See "Capital Resources" below for a description of our available sources of liquidity.
However, our current outstanding indebtedness, and the mandatory prepayment provisions of the Credit Facility (described above), require us to use a portion of our cash flow to service such debt, and may reduce our ability to fund future acquisitions and/or to respond to unexpected capital requirements; limit our ability to obtain additional financing for future investments, working capital, or other corporate purposes; limit our ability to refinance our indebtedness on terms acceptable to us or at all; limit our flexibility to plan for and adjust to changing business and market conditions; increase our vulnerability to general adverse economic and industry conditions; and/or reduce our debt agency ratings. Existing or increased third-party indebtedness could have a variety of other adverse effects, including: (i) default and foreclosure on our assets if refinancing is unavailable on acceptable terms and we have insufficient funds to repay the debt obligations when due; and (ii) acceleration of such indebtedness or cross-defaults if we breach applicable financial or other covenants and such breaches are not waived.
The Credit Facility contains restrictive covenants that limit our ability to engage in specified types of transactions, and limit share repurchases for cancellation if our consolidated secured leverage ratio (as defined in such facility) exceeds a specified amount, as well as specified financial covenants (described in "Capital Resources" below). Currently, we expect to remain in compliance with our Credit Facility covenants. However, our ability to maintain compliance with applicable financial
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covenants will depend on our ongoing financial and operating performance, which, in turn, may be impacted by economic conditions and financial, market, and competitive factors, many of which are beyond our control. A breach of any such covenants could result in a default under the instruments governing our indebtedness.
As at September 30, 2024, other than ordinary course L/Cs, nil was outstanding under the Revolver (December 31, 2023 — nil). See the Credit Facility activity table under "Financing and Finance Costs — Credit Agreement" above for Intra-Quarter B/Rs during recent periods. At September 30, 2024, nil of A/R were sold under our A/R sales program (December 31, 2023 — nil sold). In order to offset the impact of extended payment terms for particular customers on our working capital, we also participate in three customer SFPs, pursuant to which we sell A/R from such customers to third-party banks on an uncommitted basis to receive earlier payment. At September 30, 2024, nil of A/R were sold under the SFPs (December 31, 2023 — $18.6 million sold). We sold an aggregate of approximately $34 million in Q3 2024 and approximately $152 million in YTD 2024, respectively (Q3 2023 — $291 million; YTD 2023 — $1,873 million) under our A/R sales program and customer SFPs. See "Capital Resources" below for a description of our A/R sales program and SFPs. We vary the amounts we offer to sell under our A/R sales program and customer SFPs depending on our short-term ordinary course cash requirements.
We expect to fund our Finance Costs with cash on hand.
TRS:
We are party to the TRS Agreement with a third-party bank with respect to an original notional amount of 3.0 million of our Common Shares (Original Notional Amount) to manage our cash flow requirements and exposure to fluctuations in the price of our Common Shares in connection with the settlement of certain outstanding equity awards under our SBC plans. The counterparty under the TRS Agreement is obligated to make a payment to us upon its termination (in whole or in part) or expiration (Settlement) based on the increase (if any) in the value of the TRS (as defined in the TRS Agreement) over the agreement's term, in exchange for periodic payments made by us based on the counterparty's Common Share purchase costs and the Secured Overnight Financing Rate (SOFR) plus a specified margin. Similarly, if the value of the TRS (as defined in the TRS Agreement) decreases over the term of the TRS Agreement, we are obligated to pay the counterparty the amount of such decrease upon Settlement. The change in value of the TRS is determined by comparing the average amount realized by the counterparty upon the disposition of purchased Common Shares to the average amount paid for such Common Shares. In each of September 2023 and February 2024, we terminated a portion of the TRS Agreement by reducing the Original Notional Amount by 0.5 million Common Shares and 1.25 million Common Shares, respectively, and received $5.0 million and $32.3 million from the counterparty in connection therewith, respectively, which we recorded in cash provided by financing activities in our consolidated statement of cash flows. As the interest payments under the TRS Agreement will vary from period to period and the value of our Common Shares upon Settlement cannot be ascertained in advance, we cannot determine future interest and/or other payments that may be payable by (or to) us with respect to our TRS Agreement. We expect to fund required payments under our TRS Agreement from cash on hand.
Repatriations:
As at September 30, 2024, a significant portion of our cash and cash equivalents was held by foreign subsidiaries outside of Canada, a large part of which may be subject to withholding taxes upon repatriation under current tax laws. Cash and cash equivalents held by subsidiaries, which we do not intend to repatriate in the foreseeable future, are not subject to these withholding taxes. In Q3 2024 and YTD 2024, we repatriated approximately $72 million and $193 million, respectively, in cash from various of our foreign subsidiaries, and remitted withholding taxes of approximately $5 million and $7 million, respectively, in Q3 2024 and YTD 2024. We currently expect to repatriate an aggregate of approximately $190 million of cash in the foreseeable future from various foreign subsidiaries, and have recorded anticipated related withholding taxes as deferred income tax liabilities (approximately $16 million). While some of our subsidiaries are subject to local governmental restrictions on the flow of capital into and out of their jurisdictions (including in the form of cash dividends, loans or advances to us), which is required or desirable from time to time to meet our international working capital needs and other business objectives (as described above), these restrictions have not had (and are not reasonably likely to have) a material impact on our ability to meet our cash obligations. At September 30, 2024, we had approximately $170 million (December 31, 2023 — $285 million) of cash and cash equivalents held by foreign subsidiaries outside of Canada that we do not intend to repatriate in the foreseeable future.
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Capital Expenditures:
Our capital spending varies each period based on, among other things, the timing of new business wins and forecasted sales levels. We currently estimate that capital spending for 2024 will be approximately 1.75% of revenue (consistent with our previous estimate of 1.5% to 2.0% of revenue), and expect to fund these expenditures from cash on hand and through the financing arrangements described below under "Capital Resources."
Common Share Repurchases:
We have funded and intend to continue to fund our Common Share repurchases under our NCIBs from cash on hand, borrowings under the Revolver, or a combination thereof. We have funded, and expect to continue to fund, Common Share repurchases to satisfy delivery obligations under SBC plan awards from cash on hand. The timing of, and the amounts paid for, these repurchases can vary from period to period. See "Summary of Q3 2024 and YTD 2024" above.
Restructuring Provision:
At September 30, 2024, our restructuring provision was $2.4 million, which we intend to fund from cash on hand.
Lease Obligations:
At September 30, 2024, we recognized a total of $207.2 million in lease liabilities (December 31, 2023 — $176.5 million). In addition to these lease liabilities, we have commitments under a real property lease in Richardson, Texas not recognized as liabilities as of September 30, 2024 because such lease had not yet commenced. A description of, and minimum lease obligations under, such lease are disclosed in note 24 to the 2023 AFS. All lease obligations are expected to be funded with cash on hand and through the financing arrangements described below under "Capital Resources."
Litigation and contingencies (including indemnities):
We are party to litigation, investigations and other claims that arise from time to time in the ordinary course of our operations, including legal, regulatory and tax proceedings. Management believes that adequate provisions have been recorded where required. Although it is not always possible to estimate the extent of potential costs, if any, management believes that the ultimate resolution of all such pending matters will not have a material adverse impact on our financial performance, financial position or liquidity. See "Operating Results — Income Taxes" above for a description of an ongoing Romanian income and value-added tax matter.
We provide routine indemnifications, the terms of which range in duration and scope, and often are not explicitly defined, including for third-party intellectual property infringement, certain negligence claims, and for our directors and officers. We have also provided indemnifications in connection with the sale of certain assets, and the underwritten secondary public offerings completed by Onex in each of June and August 2023. The maximum potential liability from these indemnifications cannot be reasonably estimated. In some cases, we have recourse against other parties or insurance to mitigate our risk of loss from these indemnifications. Historically, we have not made significant payments relating to these types of indemnifications.
Capital Resources
Our capital resources consist of cash provided by operating activities, access to the Revolver, uncommitted intraday and overnight bank overdraft facilities, an uncommitted A/R sales program, three uncommitted SFPs, and our ability to issue debt or equity securities. We regularly review our borrowing capacity and make adjustments, as permitted, for changes in economic conditions and changes in our requirements. We centrally manage our funding and treasury activities in accordance with corporate policies, and our main objectives are to ensure appropriate levels of liquidity, to have funds available for working capital or other investments we determine are required to grow our business, to comply with debt covenants, to maintain adequate levels of insurance, and to balance our exposures to market risks.
At September 30, 2024, we had cash and cash equivalents of $398.5 million (December 31, 2023 — $370.4 million), the majority of which were denominated in U.S. dollars. Our cash and cash equivalents are subject to intra-quarter swings, generally related to the timing of A/R collections, inventory purchases and payments, and other capital uses.
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As of September 30, 2024, an aggregate of $745.6 million was outstanding under the New Term Loans, and other than ordinary course L/Cs, no amounts were outstanding under the Revolver (December 31, 2023 — $608.9 million outstanding under our prior term loans, and other than ordinary course L/Cs, no amounts outstanding under the Revolver). See "Liquidity — Cash used in and provided by financing activities — Financing and Finance Costs" above for a discussion of amounts borrowed and repaid under our Credit Facility during YTD 2024 and 2023. Except under specified circumstances, and subject to the payment of breakage costs (if any), we are generally permitted to make voluntary prepayments of outstanding amounts under the Revolver and the New Term Loans without any other premium or penalty. Repaid amounts on the New Term Loans may not be re-borrowed. Repaid amounts on the Revolver may be re-borrowed. As of September 30, 2024, we had $738.5 million available under the Revolver for future borrowings, reflecting outstanding L/Cs (December 31, 2023 — $589.5 million of availability).
The Credit Facility has an accordion feature that allows us to increase the New Term Loans and/or commitments under the Revolver by $200.0 million, 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 basis and subject to the satisfaction of certain terms and conditions. The Revolver also includes a $50.0 million sub-limit for swing-line loans, and a $150.0 million sub-limit for L/Cs thereunder, in each case subject to the overall Revolver credit limit. The Revolver permits us and certain designated subsidiaries to borrow funds (subject to specified conditions) for general corporate purposes, including for capital expenditures, certain acquisitions, and working capital needs. See note 7 to the Q3 2024 Interim Financial Statements for a description of the current range of interest rates, margins and commitment fees applicable to borrowings under the Credit Facility.
At September 30, 2024, outstanding amounts under the Term A Loan bore interest at Adjusted Term SOFR (term SOFR plus 0.1%) plus 1.75%, and outstanding amounts under the Term B Loan bore interest at term SOFR plus 1.75% (no amounts were outstanding under the Revolver).
In order to partially hedge against our exposure to interest rate variability on our New Term Loans, we are party to various agreements with third-party banks to swap the variable interest rate with a fixed rate of interest. At September 30, 2024, we had interest rate swaps hedging the interest rate risk associated with $130.0 million of our Term A Loan borrowings and $200.0 million of our Term B Loan borrowings, each of which expire in December 2025. Prior to the June 2024 Amendment, these interest rate swaps were used to hedge $100.0 million of our Initial Term Loan borrowings and $230.0 million of our Incremental Term Loan borrowings. We continue to apply hedge accounting to our interest rate swaps, as the term loan borrowings prior to and subsequent to the June 2024 Amendment share the same floating interest rate risk. The option to cancel up to $50.0 million of the notional amount of the interest rate swaps on the Incremental Term Loan from January 2024 through October 2025 was terminated in January 2024.
At September 30, 2024, the interest rate risk related to $415.6 million of borrowings under the Credit Facility was unhedged, consisting of $415.6 million of unhedged amounts outstanding under the New Term Loans (December 31, 2023 — aggregate of $278.9 million under the Initial Term Loan and the Incremental Term Loan).
We are required to comply with certain restrictive covenants under the Credit Facility, including those relating to the incurrence of certain indebtedness, the existence of certain liens, the sale of certain assets, specified investments and payments, sale and leaseback transactions, and certain financial covenants relating to a defined interest coverage ratio and leverage ratio that are tested on a quarterly basis. At September 30, 2024, we were in compliance with all restrictive and financial covenants under the Credit Facility. Our Credit Facility also limits share repurchases for cancellation if our consolidated secured leverage ratio (as defined in such facility) exceeds a specified amount (Repurchase Restriction). The Repurchase Restriction did not prohibit share purchases during Q3 2024 or at September 30, 2024. The obligations under the Credit Facility are guaranteed by us and certain specified subsidiaries. Subject to specified exemptions and limitations, all assets of the guarantors are pledged as security for the obligations under the Credit Facility. The Credit Facility contains customary events of default. If an event of default occurs and is continuing (and is not waived), the Administrative Agent may declare all amounts outstanding under the Credit Facility to be immediately due and payable and may cancel the lenders’ commitments to make further advances thereunder. In the event of a payment or other specified defaults, outstanding obligations accrue interest at a specified default rate.
At September 30, 2024, we had $11.5 million outstanding in L/Cs under the Revolver (December 31, 2023 — $10.5 million). We also arrange bank guarantees and surety bonds outside of the Revolver. At September 30, 2024, we had $23.9 million of bank guarantees and surety bonds outstanding (December 31, 2023 — $16.5 million).
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At September 30, 2024, we also had a total of $198.5 million in uncommitted bank overdraft facilities available for intraday and overnight operating requirements (December 31, 2023 — $198.5 million). There were no amounts outstanding under these overdraft facilities at September 30, 2024 or December 31, 2023.
We are party to an agreement with a third-party bank to sell up to $450.0 million in A/R on an uncommitted, revolving basis, subject to pre-determined limits by customer. This agreement provides for automatic annual one-year extensions. This agreement may be terminated at any time by the bank or by us upon 3 months' prior notice, or by the bank upon specified defaults. We also participate in three customer SFPs, pursuant to which we sell A/R from the relevant customer to third-party banks on an uncommitted basis to receive earlier payment (substantially offsetting the effect of such customer's extended payment terms on our working capital for the period). The SFPs have indefinite terms and may be terminated at any time by the customer or by us upon specified prior notice. A/R are sold under these arrangements net of discount charges. See note 5 to the Q3 2024 Interim Financial Statements for further detail. As our A/R sales program and the SFPs are on an uncommitted basis, there can be no assurance that any of the banks will purchase any of the A/R we intend to sell to them thereunder. However, as the A/R that we offer to sell under these programs are largely from customers we deem to be creditworthy, we believe that such offers will continue to be accepted. See "Liquidity — Cash requirements — Financing Arrangements" above for a description of A/R amounts sold under these arrangements at September 30, 2024 and December 31, 2023, and during Q3 2024, YTD 2024 and the respective prior year periods.
The timing and the amounts we borrow and repay under our Revolver (including Intra-Quarter B/Rs) and overdraft facilities, or sell under the SFPs or our A/R sales program, can vary significantly from month-to-month depending on our working capital and other cash requirements. See "Operating Results — Finance Costs and Finance Income" and "Liquidity — Cash used in and provided by financing activities — Financing and Finance Costs" and "Liquidity — Cash requirements — Financing Arrangements" above.
Our strategy on capital risk management has not changed significantly since the end of 2023. Other than the restrictive and financial covenants associated with our Credit Facility noted above, we are not subject to any contractual or regulatory capital requirements. While some of our international operations are subject to government restrictions on the flow of capital into and out of their jurisdictions, these restrictions have not had a material impact on our operations or cash flows.
Financial instruments and financial risks:
We are exposed to a variety of risks associated with financial instruments and otherwise. Except as set forth below, there have been no material changes to our primary market risk exposures or our management of such exposures during Q3 2024 or YTD 2024 from the description set forth in note 20 to our 2023 AFS and under "Capital Resources — Financial instruments and financial risks" in Item 5 of the 2023 20-F.
Currency risk: We enter into foreign currency forward contracts to hedge our cash flow exposures and swaps to hedge our monetary asset and liability exposures, generally for periods of up to 12 months, and to lock in the exchange rates for future foreign currency transactions, which is intended to reduce the foreign currency risk related to our operating costs and future cash flows denominated in local currencies. See note 11 to our Q3 2024 Interim Financial Statements for a listing of our foreign currency forwards and swaps to trade U.S. dollars in exchange for specified currencies at September 30, 2024. The aggregate fair value of the outstanding contracts at September 30, 2024 was a net unrealized gain of $19.4 million (December 31, 2023 — net unrealized gain of $6.5 million), resulting from fluctuations in foreign exchange rates between the contract execution and the period-end date.
Equity price risk: See "Liquidity — Cash requirements — TRS" above for a description of the TRS Agreement. If the value of the TRS (as defined in the TRS Agreement) decreases over the term of the TRS Agreement, we are obligated to pay the counterparty the amount of such decrease upon Settlement. As a result, the TRS Agreement is subject to equity price risk. By the end of Q1 2023, the counterparty to the TRS had acquired the entire Original Notional Amount at a weighted average price of $12.73 per share. In each of September 2023 and February 2024, we terminated a portion of the TRS Agreement by reducing the Original Notional Amount by 0.5 million Common Shares and 1.25 million Common Shares, respectively. As of September 30, 2024, the fair value of the TRS Agreement was an unrealized gain of $47.8 million (December 31, 2023 — $40.6 million), which we recorded in other current assets on our consolidated balance sheet. A one dollar decrease in our Common Share price would decrease the value of the TRS as of September 30, 2024 by $1.3 million.
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Interest rate risk: Borrowings under the Credit Facility bear interest at specified rates, plus specified margins (described in note 7 to our Q3 2024 Interim Financial Statements), and expose us to interest rate risk due to the potential variability of market interest rates. In order to partially hedge against our exposure to interest rate variability on our Term Loans, we have entered into various agreements with third-party banks to swap the variable interest rate with a fixed rate of interest for a portion of the borrowings under our New Term Loans (described above). At September 30, 2024, the fair value of our interest rate swap agreements was an unrealized gain of $6.3 million (December 31, 2023 — an unrealized gain of $13.2 million). A downward shift of the forward interest rate curve would decrease the amount of the gain. A one-percentage point increase in relevant interest rates would increase interest expense, based on outstanding borrowings under the Credit Facility at September 30, 2024, by $4.2 million annually, including the impact of our interest rate swap agreements, and by $7.5 million annually, without accounting for such agreements.
Related Party Transactions
For a discussion of prior related party arrangements and transactions involving the Company and Onex, our former controlling shareholder, see "Recent Developments — Secondary Offerings and Related Matters" and "Related Party Transactions" in Item 5 of our 2023 20-F. Other than our indemnification agreements in favor of Onex in connection with the June Secondary Offering and August Secondary Offering, all arrangements and transactions with Onex have terminated, and Onex is no longer a related party.
Outstanding Share Data
As of October 18, 2024, we had 116,359,313 outstanding Common Shares. As of such date, we also had 70,888 outstanding stock options, 2,676,814 outstanding RSUs, 3,113,029 outstanding PSUs assuming vesting of 100% of the target amount granted (PSUs that will vest range from 0% to 200% of the target amount granted), and 722,565 outstanding DSUs; each vested option or unit entitling the holder thereof to receive one Common Share (or in certain cases, cash) pursuant to the terms thereof, subject to certain time or performance-based vesting conditions.
Controls and Procedures
Evaluation of disclosure controls and procedures:
Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the U.S. Exchange Act) designed to ensure that information we are required to disclose in the reports that we file or submit under the U.S. Exchange Act is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the U.S. Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Management, under the supervision of and with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2024. Based on that evaluation, our principal executive officer and principal financial officer have concluded that, as of September 30, 2024, our disclosure controls and procedures are effective to meet the requirements of Rules 13a-15(e) and 15d-15(e) under the U.S. Exchange Act.
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that its objectives are met. Due to inherent limitations in all such systems, no evaluation of controls can provide absolute assurance that all control issues within a company have been detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met.
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Changes in internal control over financial reporting:
We did not identify any change in our internal control over financial reporting in connection with our evaluation thereof that occurred during Q3 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Unaudited Quarterly Financial Highlights
Q3 2024 compared to Q2 2024:
Total revenue for Q3 2024 increased $107.6 million or 4% compared to Q2 2024. ATS segment revenue increased $46.4 million (6%) in Q3 2024 compared to Q2 2024 mainly due to increased demand in our Industrial, Capital Equipment and A&D businesses. CCS segment revenue increased $61.2 million (4%) in Q3 2024 compared to Q2 2024. Communications end market revenue increased $132.1 million (14%) sequentially, primarily due to demand increases for networking products from hyperscaler customers. Enterprise end market revenue decreased $70.9 million (10%) sequentially, due to a technology transition in a large sole-sourced server program, partially offset by higher demand in our storage business. Gross profit for Q3 2024 increased sequentially by $3.0 million (1%), primarily due to the higher revenue in Q3 2024. Gross margin decreased from 10.7% in Q2 2024 to 10.4% in Q3 2024 primarily due to a $9.8 million unfavorable change in TRS FVAs recorded in cost of sales. CCS segment income for Q3 2024 of $128.7 million increased $12.2 million from Q2 2024 and CCS segment margin increased from 7.2% in Q2 2024 to 7.6% in Q3 2024, driven by operating leverage and related production efficiencies. ATS segment income for Q3 2024 of $39.0 million increased by $3.7 million from Q2 2024 and ATS segment margin increased from 4.6% in Q2 2024 to 4.8% in Q3 2024 due to operating leverage across a majority of our ATS businesses and improved mix. Net earnings for Q3 2024 of $91.7 million decreased $7.9 million compared to net earnings of $99.6 million for Q2 2024, primarily due to $11.8 million in higher SG&A and $13.2 million in higher income tax expense, partially offset by $9.1 million in lower net Other Charges and $9.0 million in lower Finance Costs. Higher sequential SG&A was primarily due to a $13.6 million unfavorable change in TRS FVAs recorded in SG&A. Higher sequential income tax expense was primarily due to the $7.5 million DTA Recognition recorded in Q2 2024 and higher taxable earnings in Q3 2024. Lower net Other Charges in Q3 2024 compared to Q2 2024 were primarily due to $5.0 million in lower restructuring charges in Q3 2024 and $3.4 million of Transition Costs related to the Purchaser Lease recorded in Q2 2024. Lower sequential Finance Costs were primarily due to the following expenses recorded in Q2 2024: (i) $5.2 million in fees and costs incurred in connection with the June 2024 Amendment and (ii) $0.8 million in accelerated amortization of unamortized deferred financing costs in connection with the related termination of one of our prior term loans.
Select Q3 2024 Results:
Q3 2024 Actual | Q3 2024 Guidance | ||||||||||
IFRS revenue (in billions) | $2.500 | $2.325 to $2.475 | |||||||||
| IFRS earnings from operations as a % of revenue | 5.5% | N/A | |||||||||
| Non-IFRS operating margin* | 6.7% | 6.3% at the mid-point of our revenue and non-IFRS adjusted EPS guidance ranges | |||||||||
| IFRS SG&A (in millions) | $91.9 | N/A | |||||||||
| Non-IFRS adjusted SG&A* (in millions) | $79.8 | $73 to $75 | |||||||||
IFRS EPS (diluted)(1) | $0.77 | N/A | |||||||||
| Non-IFRS adjusted EPS* | $1.04 | $0.86 to $0.96 | |||||||||
*These non-IFRS financial measures (including ratios) do not have standardized meanings and may not be comparable to similar measures presented by other companies. A discussion of non-IFRS financial measures included herein, and a reconciliation of historical non-IFRS financial measures to the most directly-comparable IFRS financial measures, is set forth in "Non-IFRS Financial Measures" below.
(1)IFRS EPS of $0.77 for Q3 2024 included an aggregate charge of $0.20 (pre-tax) per share for employee SBC expense, amortization of intangible assets (excluding computer software), and restructuring charges. See "Operating Results" above and "Non-IFRS Financial Measures" below for per-item charges. This aggregate charge was within our Q3 2024 guidance range of between $0.16 to $0.22 per share for these items.
For Q3 2024, our revenue exceeded the high end of our guidance range due to higher-than-anticipated customer demand in our CCS segment. Our non-IFRS operating margin for Q3 2024 exceeded the mid-point of our revenue and non-
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IFRS adjusted EPS guidance ranges and our Q3 2024 non-IFRS adjusted EPS exceeded the high end of our guidance range, primarily driven by unanticipated operating leverage in our CCS segment. Our non-IFRS adjusted SG&A for Q3 2024 exceeded the high end of our guidance range primarily due to the impact of foreign exchange. Our IFRS effective tax rate for Q3 2024 was 27%. Our non-IFRS adjusted effective tax rate for Q3 2024 was 21%, higher than our anticipated estimate of approximately 20%, mainly due to jurisdictional profit mix.
Non-IFRS Financial Measures
Management uses adjusted net earnings and the other non-IFRS financial measures (including ratios based on non-IFRS financial measures) described herein to (i) assess operating performance and the effective use and allocation of resources, (ii) provide more meaningful period-to-period comparisons of operating results, (iii) enhance investors' understanding of the core operating results of our business, and (iv) set management incentive targets. 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. 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.
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 following non-IFRS financial measures are included in this MD&A: adjusted gross profit, adjusted gross margin (adjusted gross profit as a percentage of revenue), adjusted 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 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. 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, adjusted tax expense, and adjusted effective tax rate, management excludes the following items (where indicated): employee SBC expense, TRS 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, adjusted EPS, adjusted tax expense and adjusted effective tax rate for YTD 2024, (i) management also excluded the one-time Q1 2024 portion of the negative tax impact arising from the enactment of Pillar Two (global minimum tax) legislation in Canada recorded in Q2 2024 and incremental withholding tax accrued in such quarter to minimize its impact (Pillar Two Tax Adjustments), as such portion is not attributable to our on-going operations for subsequent periods; and (ii) commencing in Q2 2024, management excludes Refinancing Charges (Gains) (defined below). 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.
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Employee SBC expense, which represents the estimated fair value of stock options, RSUs and PSUs 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 Common Shares 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); Acquisition Costs (Recoveries); legal settlements (recoveries); 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) specified charges related to the Purchaser Lease. 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. As part of our 2019 Toronto real property sale, we entered into the Purchaser Lease. Consistent with our prior treatment of duplicate and idle premises costs incurred as a result of such property sale, the excess of rental expenses attributable to space subleased in Q3 2023 under the Purchaser Lease over anticipated sublease rental recoveries were recorded as Transition Costs ($3.9 million charge) in Q3 2023, as we previously extended (on a long-term basis) the lease on our current corporate headquarters due to several Purchaser Lease commencement date delays. Similarly, as the Purchaser Lease commenced in June 2024, we recorded a $3.4 million charge in Q2 2024 as Transition Costs, representing the write-down of ROU assets under the Purchaser Lease with respect to non-subleased space. 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 June Secondary Offering and August Secondary Offering, 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.
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Refinancing Charges (Gains) consist of costs (gains) recorded as Finance Costs (Income) in connection with refinancings of our credit facility. In Q2 2024, we amended and restated our credit facility agreement. In connection therewith, our Initial Term Loan and Incremental Term Loan were repaid in full, terminated and replaced with the Term B Loan and Term A Loan. Refinancing Charges for YTD 2024 consist of the $5.2 million in fees and costs incurred in connection with such amendment and restatement, and the $0.8 million in accelerated amortization of unamortized deferred financing costs recorded as a result of the related termination of the Initial Term Loan. Notwithstanding the termination of the Incremental Term Loan and its replacement with the Term A Loan, for accounting purposes, this portion of the transaction was treated as a modification of the Incremental Term Loan, resulting in the $5.5 million Refinancing Gain for YTD 2024. Refinancing Charges (Gains) are excluded in our determination of adjusted net earnings, adjusted EPS, adjusted tax expense and adjusted effective tax rate, as management believes that such exclusions (both positive and negative) permit a better comparison of our core operating results from period-to-period, as these costs and gains are not directly related to ongoing operating results and do not reflect expected future operating expenses after completion of the applicable refinancing transaction.
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 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):
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| Three months ended September 30 | Nine months ended September 30 | ||||||||||||||||||||||||||||||||||
| 2023 | 2024 | 2023 | 2024 | ||||||||||||||||||||||||||||||||
| % of revenue | % of revenue | % of revenue | % of revenue | ||||||||||||||||||||||||||||||||
| IFRS revenue | $ | 2,043.3 | $ | 2,499.5 | $ | 5,820.5 | $ | 7,100.3 | |||||||||||||||||||||||||||
| IFRS gross profit | $ | 206.7 | 10.1 | % | $ | 259.1 | 10.4 | % | $ | 555.3 | 9.5 | % | $ | 744.0 | 10.5 | % | |||||||||||||||||||
| Employee SBC expense | 5.1 | 5.6 | 18.4 | 20.2 | |||||||||||||||||||||||||||||||
| TRS FVAs: losses (gains) | (11.8) | 2.7 | (13.8) | (17.2) | |||||||||||||||||||||||||||||||
| Non-IFRS adjusted gross profit | $ | 200.0 | 9.8 | % | $ | 267.4 | 10.7 | % | $ | 559.9 | 9.6 | % | $ | 747.0 | 10.5 | % | |||||||||||||||||||
| IFRS SG&A | $ | 56.9 | 2.8 | % | $ | 91.9 | 3.7 | % | $ | 203.9 | 3.5 | % | $ | 237.2 | 3.3 | % | |||||||||||||||||||
| Employee SBC expense | (7.8) | (7.1) | (27.4) | (27.1) | |||||||||||||||||||||||||||||||
| TRS FVAs: (losses) gains | 17.6 | (5.0) | 20.4 | 22.3 | |||||||||||||||||||||||||||||||
| Non-IFRS adjusted SG&A | $ | 66.7 | 3.3 | % | $ | 79.8 | 3.2 | % | $ | 196.9 | 3.4 | % | $ | 232.4 | 3.3 | % | |||||||||||||||||||
| IFRS earnings from operations | $ | 117.4 | 5.7 | % | $ | 136.4 | 5.5 | % | $ | 264.6 | 4.5 | % | $ | 404.3 | 5.7 | % | |||||||||||||||||||
| Employee SBC expense | 12.9 | 12.7 | 45.8 | 47.3 | |||||||||||||||||||||||||||||||
| TRS FVAs: losses (gains) | (29.4) | 7.7 | (34.2) | (39.5) | |||||||||||||||||||||||||||||||
| Amortization of intangible assets (excluding computer software) | 9.2 | 9.9 | 27.6 | 28.9 | |||||||||||||||||||||||||||||||
| Other Charges, net of Recoveries | 5.6 | 1.0 | 13.7 | 15.9 | |||||||||||||||||||||||||||||||
Non-IFRS operating earnings (adjusted EBIAT)(1) | $ | 115.7 | 5.7 | % | $ | 167.7 | 6.7 | % | $ | 317.5 | 5.5 | % | $ | 456.9 | 6.4 | % | |||||||||||||||||||
| IFRS net earnings | $ | 80.2 | 3.9 | % | $ | 91.7 | 3.7 | % | $ | 160.4 | 2.8 | % | $ | 293.0 | 4.1 | % | |||||||||||||||||||
| Employee SBC expense | 12.9 | 12.7 | 45.8 | 47.3 | |||||||||||||||||||||||||||||||
| TRS FVAs: losses (gains) | (29.4) | 7.7 | (34.2) | (39.5) | |||||||||||||||||||||||||||||||
| Amortization of intangible assets (excluding computer software) | 9.2 | 9.9 | 27.6 | 28.9 | |||||||||||||||||||||||||||||||
| Other Charges, net of Recoveries | 5.6 | 1.0 | 13.7 | 15.9 | |||||||||||||||||||||||||||||||
| Refinancing Charges, net of Refinancing Gains | — | — | — | 0.5 | |||||||||||||||||||||||||||||||
Adjustments for taxes(2) | (0.3) | 0.8 | (11.3) | (11.3) | |||||||||||||||||||||||||||||||
| Non-IFRS adjusted net earnings | $ | 78.2 | $ | 123.8 | $ | 202.0 | $ | 334.8 | |||||||||||||||||||||||||||
| Diluted EPS | |||||||||||||||||||||||||||||||||||
| Weighted average # of shares (in millions) | 119.6 | 118.9 | 120.5 | 119.1 | |||||||||||||||||||||||||||||||
| IFRS earnings per share | $ | 0.67 | $ | 0.77 | $ | 1.33 | $ | 2.46 | |||||||||||||||||||||||||||
| Non-IFRS adjusted earnings per share | $ | 0.65 | $ | 1.04 | $ | 1.68 | $ | 2.81 | |||||||||||||||||||||||||||
| # of shares outstanding at period end (in millions) | 119.4 | 116.4 | 119.4 | 116.4 | |||||||||||||||||||||||||||||||
| IFRS cash provided by operations | $ | 88.4 | $ | 144.8 | $ | 290.9 | $ | 399.0 | |||||||||||||||||||||||||||
| Purchase of property, plant and equipment, net of sales proceeds | (26.2) | (46.0) | (90.5) | (120.4) | |||||||||||||||||||||||||||||||
| Lease payments | (12.8) | (13.0) | (36.9) | (37.6) | |||||||||||||||||||||||||||||||
Finance Costs Paid | (15.3) | (11.3) | (53.4) | (38.0) | |||||||||||||||||||||||||||||||
Non-IFRS adjusted free cash flow(3) | $ | 34.1 | $ | 74.5 | $ | 110.1 | $ | 203.0 | |||||||||||||||||||||||||||
IFRS ROIC %(4) | 21.8 | % | 23.3 | % | 16.5 | % | 23.6 | % | |||||||||||||||||||||||||||
Non-IFRS adjusted ROIC %(4) | 21.5 | % | 28.6 | % | 19.8 | % | 26.7 | % | |||||||||||||||||||||||||||
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(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 "Operating Results — Other Charges, net of Recoveries" for separate quantification and discussion of the components of Other Charges (Recoveries) for the periods set forth herein. 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 net of Finance Income; 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, net of Finance Income.
| Three months ended | Nine months ended | ||||||||||||||||||||||
| September 30 | September 30 | ||||||||||||||||||||||
| 2023 | 2024 | 2023 | 2024 | ||||||||||||||||||||
| IFRS tax expense | $ | 18.9 | $ | 33.7 | $ | 42.1 | $ | 68.1 | |||||||||||||||
Add-backs to (deductions from) IFRS tax expense representing the tax benefits or costs associated with the following items*: | |||||||||||||||||||||||
Employee SBC expense and TRS FVAs | (1.1) | (1.4) | 7.6 | 9.0 | |||||||||||||||||||
| Amortization of intangible assets (excluding computer software) | 0.7 | 0.7 | 2.2 | 2.3 | |||||||||||||||||||
Other Charges, net of Recoveries | 0.7 | (0.1) | 1.5 | 0.6 | |||||||||||||||||||
Non-core tax adjustment for NCS acquisition | — | — | — | 7.5 | |||||||||||||||||||
Pillar Two Tax Adjustments | — | — | — | (8.1) | |||||||||||||||||||
| Non-IFRS adjusted tax expense | $ | 19.2 | $ | 32.9 | $ | 53.4 | $ | 79.4 | |||||||||||||||
| IFRS tax expense | $ | 18.9 | $ | 33.7 | $ | 42.1 | $ | 68.1 | |||||||||||||||
| Earnings from operations | $ | 117.4 | $ | 136.4 | $ | 264.6 | $ | 404.3 | |||||||||||||||
Finance Costs, net of Finance Income | (18.3) | (11.0) | (62.1) | (43.2) | |||||||||||||||||||
| $ | 99.1 | $ | 125.4 | $ | 202.5 | $ | 361.1 | ||||||||||||||||
| IFRS effective tax rate | 19 | % | 27 | % | 21 | % | 19 | % | |||||||||||||||
| Non-IFRS adjusted tax expense | $ | 19.2 | $ | 32.9 | $ | 53.4 | $ | 79.4 | |||||||||||||||
| Non-IFRS operating earnings | $ | 115.7 | $ | 167.7 | $ | 317.5 | $ | 456.9 | |||||||||||||||
Finance Costs, net of Finance Income | (18.3) | (11.0) | (62.1) | (43.2) | |||||||||||||||||||
| $ | 97.4 | $ | 156.7 | $ | 255.4 | $ | 413.7 | ||||||||||||||||
| Non-IFRS adjusted effective tax rate | 20 | % | 21 | % | 21 | % | 19 | % | |||||||||||||||
* Tax impact associated with Refinancing Charges, net of Refinancing Gains in YTD 2024 was insignificant, and was inapplicable to the other periods presented above.
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(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 Paid (defined under "Liquidity — Non-IFRS adjusted free cash flow" above). We do not consider debt issuance costs paid ($0.6 million in Q3 2024 and $9.6 million in YTD 2024; $0.4 million in Q3 2023 and YTD 2023) or credit facility waiver fees paid (when applicable) to be part of our ongoing financing expenses. As a result, these costs are excluded from our definition of Finance Costs Paid for our determination of non-IFRS adjusted free cash flow. We believe that excluding Finance Costs 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 and a four-point average to calculate average net invested capital for the nine-month period. Average net invested capital for Q3 2024 is the average of net invested capital as at June 30, 2024 and September 30, 2024, and average net invested capital for YTD 2024 is the average of net invested capital as at December 31, 2023, March 31, 2024, June 30, 2024 and September 30, 2024. 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.
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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 | ||||||||||||||||||||||||||||
| 2023 | 2024 | 2023 | 2024 | ||||||||||||||||||||||||||
| IFRS earnings from operations | $ | 117.4 | $ | 136.4 | $ | 264.6 | $ | 404.3 | |||||||||||||||||||||
| Multiplier to annualize earnings | 4 | 4 | 1.333 | 1.333 | |||||||||||||||||||||||||
| Annualized IFRS earnings from operations | $ | 469.6 | $ | 545.6 | $ | 352.7 | $ | 538.9 | |||||||||||||||||||||
| Average net invested capital for the period | $ | 2,155.9 | $ | 2,346.0 | $ | 2,141.5 | $ | 2,281.7 | |||||||||||||||||||||
IFRS ROIC %(1) | 21.8 | % | 23.3 | % | 16.5 | % | 23.6 | % | |||||||||||||||||||||
| Three months ended | Nine months ended | ||||||||||||||||||||||||||||
| September 30 | September 30 | ||||||||||||||||||||||||||||
| 2023 | 2024 | 2023 | 2024 | ||||||||||||||||||||||||||
| Non-IFRS operating earnings (adjusted EBIAT) | $ | 115.7 | $ | 167.7 | $ | 317.5 | $ | 456.9 | |||||||||||||||||||||
| Multiplier to annualize earnings | 4 | 4 | 1.333 | 1.333 | |||||||||||||||||||||||||
| Annualized non-IFRS adjusted EBIAT | $ | 462.8 | $ | 670.8 | $ | 423.2 | $ | 609.0 | |||||||||||||||||||||
| Average net invested capital for the period | $ | 2,155.9 | $ | 2,346.0 | $ | 2,141.5 | $ | 2,281.7 | |||||||||||||||||||||
Non-IFRS adjusted ROIC %(1) | 21.5 | % | 28.6 | % | 19.8 | % | 26.7 | % | |||||||||||||||||||||
| December 31 2023 | March 31 2024 | June 30 2024 | September 30 2024 | ||||||||||||||||||||||||||
| Net invested capital consists of: | |||||||||||||||||||||||||||||
| Total assets | $ | 5,890.7 | $ | 5,717.1 | $ | 5,882.4 | $ | 5,926.8 | |||||||||||||||||||||
| Less: cash | 370.4 | 308.1 | 434.0 | 398.5 | |||||||||||||||||||||||||
| Less: ROU assets | 154.0 | 180.1 | 188.6 | 167.8 | |||||||||||||||||||||||||
| Less: accounts payable, accrued and other current liabilities, provisions and income taxes payable | 3,167.9 | 2,992.6 | 2,949.3 | 2,979.1 | |||||||||||||||||||||||||
Net invested capital at period end(1) | $ | 2,198.4 | $ | 2,236.3 | $ | 2,310.5 | $ | 2,381.4 | |||||||||||||||||||||
| December 31 2022 | March 31 2023 | June 30 2023 | September 30 2023 | ||||||||||||||||||||||||||
| Net invested capital consists of: | |||||||||||||||||||||||||||||
| Total assets | $ | 5,628.0 | $ | 5,468.1 | $ | 5,500.5 | $ | 5,745.3 | |||||||||||||||||||||
| Less: cash | 374.5 | 318.7 | 360.7 | 353.1 | |||||||||||||||||||||||||
| Less: ROU assets | 138.8 | 133.1 | 146.5 | 157.8 | |||||||||||||||||||||||||
| Less: accounts payable, accrued and other current liabilities, provisions and income taxes payable | 3,003.0 | 2,873.9 | 2,870.6 | 3,045.4 | |||||||||||||||||||||||||
Net invested capital at period end(1) | $ | 2,111.7 | $ | 2,142.4 | $ | 2,122.7 | $ | 2,189.0 | |||||||||||||||||||||
(1) See footnote 4 on the previous page.
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