0001030894-26-000032
SEC filingRevenue surged 53% YoY to $4.05B, driven by 76% CCS growth, expanding gross margin 50bps to 10.8%.
Celestica’s Q1 2026 results reflect a strong operating performance, with revenue surging 53% year-over-year to $4.05 billion. Gross profit increased 60% to $437.2 million, driving gross margin expansion from 10.3% to 10.8%, aided by a favorable revenue mix and strong productivity. Operating income more than doubled, rising 111% to $272.1 million, while net earnings jumped 146% to $212.3 million, translating to diluted EPS of $1.83 versus $0.74 in the prior year. The revenue growth was primarily organic, led by a 76% surge in the CCS segment. Gross margin improvement outpaced revenue growth due to operating leverage and mix benefits, despite higher employee SBC expense and TRS fair value charges. The non-GAAP adjusted operating margin reached 8.0%, exceeding the mid-point of guidance, and adjusted EPS of $2.16 surpassed the high end of the guided range.
The CCS segment was the primary growth engine, with revenue jumping 76% YoY to $3.24 billion. Within CCS, the Communications end market rose 69% on data center networking demand and switch program ramps, while Enterprise revenue doubled (+101%) driven by an AI/ML compute program with a hyperscaler. HPS revenue, a key sub-segment, grew 63% and accounted for 42% of total revenue. CCS segment income increased 88% to $277.2 million, pushing segment margin to 8.6% from 8.0%. The ATS segment revenue was flat at $806 million, as growth in HealthTech was offset by a planned discontinuation of an A&D program and lower Capital Equipment sales. However, ATS margin improved to 6.0% from 5.0%, reflecting successful portfolio optimization and better mix. The revenue mix shift toward higher-margin CCS programs is a notable structural tailwind.
Management updated its annual outlook for 2026, with initial Q1 2026 guidance having called for revenue of $3.85B–$4.15B (actual: $4.05B) and adjusted EPS of $1.95–$2.15 (actual: $2.16). Outlook commentary highlights continued investment in AI infrastructure by hyperscalers and sustained demand for networking and compute products. Capital expenditures are expected to be approximately $1.0 billion for the full year, up significantly from prior periods, to expand capacity in Thailand, U.S., Mexico, and Japan. The company also amended and upsized its credit facility, increasing the revolver from $750M to $1.75B and extending maturities to 2031, enhancing liquidity flexibility. Strategic priorities remain centered on AI/ML and HPS growth, customer diversification, and operational efficiency. The company expects to maintain compliance with debt covenants and fund capex from operating cash flow.
Cash and cash equivalents decreased by $217.6M to $378.0M as of March 31, 2026, from $595.6M at year-end 2025. This decline was driven by significant investing and financing activities, including $229.5M in capital expenditures and $325.5M in cash settlements for stock-based compensation (SBC), partially offset by $356.3M in operating cash flow. Total debt (including finance leases) slightly decreased to $772.4M from $776.5M, with no borrowings outstanding under the revolving credit facility. Shareholders' equity decreased to $2,098.2M from $2,216.3M, primarily due to treasury stock repurchases and SBC activity.
The notes disclose no material purchase commitments beyond those recognized on the balance sheet. Operating and finance lease obligations totaled $225.8M at quarter-end. Customer deposits of $388.7M, included in accrued liabilities, represent amounts received to reduce inventory risk but are not firm purchase commitments. The company also has outstanding letters of credit and bank guarantees of $51.4M.
Share repurchases for cancellation totaled $20.0M (0.1M shares) in Q1 2026, with a remaining authorization of 5.5M shares under the 2025 NCIB. No shares were repurchased for SBC delivery versus $221.6M in Q1 2025. Capital expenditures surged to $229.5M (5.7% of sales) from $36.7M in the prior-year quarter, reflecting investments in property, plant and equipment. Net debt decreased by $4.1M. There were no dividends paid or declared.
The Connectivity & Cloud Solutions (CCS) segment delivered robust growth, with revenue increasing 76% YoY to $3,241M, driven by strong demand in Communications and Enterprise. Segment income rose to $277.2M, yielding an 8.6% margin (up from 8.0% in Q1 2025). The Advanced Technology Solutions (ATS) segment reported flat revenue of $806M, but segment margin improved to 6.0% from 5.0% due to favorable cost control. Customer concentration remains high, with three CCS customers representing 65% of total revenue in Q1 2026.
Net cash provided by operating activities was $356.3M for the three months ended March 31, 2026, compared to $130.3M in the same period of 2025, a significant increase of 173.4%. Net earnings were $212.3M, resulting in a CFO-to-net-income ratio of 1.68x, indicating strong cash conversion. The primary driver of the operating cash flow increase was a large positive swing in working capital, particularly accounts payable and accrued liabilities which contributed $1,071.4M, offset by substantial increases in accounts receivable ($529.3M) and inventories ($484.9M). Depreciation and amortization ($39.6M) and stock-based compensation ($30.5M) were the main non-cash add-backs. Deferred income taxes provided a $26.6M benefit.
Capital expenditures (capex) surged to $229.5M from $36.7M in the prior year, reflecting heavy investment in property, plant, and equipment. Free cash flow (not explicitly stated) would be approximately $126.8M ($356.3M - $229.5M), but this is a computed figure. Financing activities used $355.5M, driven by $325.5M in SBC cash settlements and $22.6M in share repurchases, partially offset by net borrowings and repayments. The company paid $70.8M in income taxes, up from $5.6M, a notable one-time item. Overall, operating cash flow comfortably covered capex and capital returns, though working capital volatility and elevated tax payments warrant monitoring.