CLS

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How CLS rewrote its risk factors

10-K ITEM 1A · FY2024 → FY2025

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New in FY2025

Our shareholders and prospective investors should carefully consider each of the following risks together with all of the other information set forth in this Annual Report.
Risks Related to Our Business and Operations We are dependent on a limited number of customers and end markets and are sensitive to their investment cycles and operating conditions.
Revenue decline or loss of any major customer could have a material adverse effect on our operating results, financial position and cash flows.
In the aggregate, our top 10 customers represented 79% of total revenue for 2025, 73% for 2024 and 64% for 2023.
In 2025, three customers in our CCS segment individually represented 10% or more of total revenue (32%, 14% and 12%).
CCS segment revenue represented 74% of our consolidated revenue in 2025 (2024 — 67%; 2023 — 58%).
Our revenue is sensitive to the investment cycles and operating conditions of a limited number of customers, including hyperscalers.
As spending patterns of our major customers are influenced by technology transitions and deployment priorities, including AI-related programs, demand for our offerings may be affected by: (i) changes in our customers' AI investment strategy; (ii) their access to specialized components such as accelerators and network; (iii) their ability to secure sufficient data center capacity, grid interconnections, and access to power and water; and (iv) regulations, policies and legislations affecting AI, export controls, or data center operations that may increase compliance costs or constrain the development and commercial use of AI technology.
If our customers experience delays, increased costs or reduced access to these inputs due to the foregoing factors, they may slow, scale down or cancel programs with us.
This could adversely affect our revenue, margins and cash flows and increase variability of results from period to period.
See also " We are dependent on our customers' ability to compete and succeed in the marketplace using products we manufacture and services we provide, " and " The future development and adoption of AI and the deployment of data center infrastructure are uncertain and depend on the availability and cost of critical inputs (including power and water), which could materially affect demand for our products and services and our operating results.
" A decline in revenue from, or the loss of, any significant customer could have a material adverse effect on our operating results, financial position and cash flows, and may increase the variability of our operating results from period to period.
" Inherent challenges in managing changes in customer demand has and may continue to impact our planning, supply chain execution and manufacturing, and may adversely affect our operating performance and results.
Our customers typically do not commit to long-term production schedules in advance, and we may experience volatility in customer orders and inventory levels.
Customers have and may in the future terminate their agreements with us prior to scheduled expiration, fail to renew such agreements upon expiration, or significantly change, reduce or delay the volume of manufacturing or other services they order from us, any of which may adversely affect our operating results when they occur.
Customers have and may also shift business to our competitors, implement in-source and second-source programs, or adjust the concentration of their supplier base.
The global economic environment, adverse market conditions, "buy local" movements, political and geopolitical pressures, negative sentiment from our customers' customers, regulatory changes or changes made by local governments (such as tax benefits, tariffs or export controls) have and may continue to impact our customers' business decisions.
See " Our operations have been and could continue to be adversely affected by events outside our control " and " Adoption, integration and use of AI in manufacturing and service offerings and in certain of our internal processes may present regulatory, ethical, data and cybersecurity risks and result in reputational harm or liabilities.
When customers change production volumes or request different products to be manufactured from those in their original forecast, the unavailability of components and materials for such changes could also adversely impact our revenue and working capital.
The uncertainty of demand in our customers' end markets, intense competition in our customers' industries and general order volume volatility from time to time may result in customers delaying or canceling the delivery of products we manufacture for them or placing purchase orders for lower volumes of products than previously anticipated.
This may result in higher than expected levels of inventory, which could in turn have a material adverse impact on our operating results and working capital.
We may not be able to return or re-sell excess inventory resulting from these factors, or we may be required to hold such inventory for a period of time, any of which may result in higher working capital needs (offset in part by customer cash deposits), and/or a requirement to record additional (and higher-than-typical) reserves for excess or obsolete inventory.
Factors that may adversely affect our customers include: rapid changes in technology (including evolving AI technologies); evolving industry standards; seasonal demand; their failure to successfully market, and/or a lack of widespread commercial acceptance of, their products and services; supply chain issues; the emergence of substitutes for products and services; dramatic shifts in demand which may cause them to lose market share or exit businesses; recessionary periods in our customers' markets; short product lifecycles resulting from continuous improvements in products and services, commoditization of certain products, changes in preferences by end customers, and the emergence of new entrants or competitors with disruptive products, services, or new business models.
For example, competition from lower‑cost and open‑source AI models, together with rapid advances in model efficiency, may reduce user switching costs, increase price sensitivity, and limit our customers' ability to maintain or improve pricing for their AI‑related products and services.
Certain of our customers have experienced, and may in the future experience, severe revenue erosion, pricing, margin and cash flow pressures, and excess inventories that, in turn, have adversely affected (and in the future may adversely affect) our operating results.
See also " The future development and adoption of AI and the deployment of data center infrastructure are uncertain and depend on the availability and cost of critical inputs (including power and water), which could materially affect demand for our products and services and our operating results.
" Our exposure to financially troubled customers or suppliers has and may continue to adversely affect our financial results.
When one or more of our customers become insolvent or otherwise are unable to pay for the services provided by us on a timely basis, or at all, our operating results and financial condition are adversely affected.
Such adverse effects have in the past and could in the future include any one or more of the following, among others: an increase in our provision for credit losses, a charge for inventory write-offs, a reduction in revenue, and an increase in our working capital requirements due to higher inventory levels and increases in days our accounts receivables are outstanding.
The purchase of materials and electronic components represents a significant portion of our costs to deliver our manufactured products.
Some of these components have in the past and could in the future be rationed in response to supply shortages.
Changes in forecasted volumes or in our customers' requirements can also negatively affect our ability to obtain components.
We work with our suppliers and customers to attempt to ensure continuity in the supply of these components.
In cases where unanticipated customer demand or supply shortages occur, we attempt to arrange for alternative sources of supply, where available, or defer planned production in response to the availability of the critical components.
Factors that may cause or contribute to such materials shortages or supply issues include: supplier or manufacturer delays or failures to provide components, supplies or equipment as required; quality or reliability issues at component providers; financial difficulties affecting suppliers' production and ability to supply components; and industry-wide shortages for certain electronic components.
Such materials shortages or supply issues could have a significant impact on our operations and on our customers, including: inability to deliver finished products in a timely manner; losses on fixed price contracts due to increased costs for equipment and supplies; having to source items from third parties on less favorable terms; halted or delayed production of a customer's product; claims against us for failure to meet required customer specifications; and carrying higher levels of inventory and extended lead-times.
Shortages may also result in increased component prices, which may require price increases in the products and services that we provide.
While the prices of principal raw materials are generally not volatile, price increases have resulted from materials shortages in the past.
Although we have been successful in offsetting the majority of our increased costs resulting from material shortages, inflation or other factors with increased pricing for our products and services to date, price increases which we cannot recover from our customers may in the future adversely impact our results of operations.
" See Item 7, MD&A — "Recent Developments" for a discussion of the impact on our operating results of customer and service mix during 2025.

and 158 more.

Gone since FY2024

Our shareholders and prospective investors should carefully consider each of the following risks and all of the other information set forth in this Annual Report.
Risks Related to Our Business and Operations We are dependent on a limited number of customers and end markets.
A decline in revenue from, or the loss of, any significant customer could have a material adverse effect on our operating results, financial position and cash flows.
In the aggregate, our top 10 customers represented 73% of total revenue for 2024, 64% for 2023 and 66% for 2022.
We also remain dependent upon revenue from our CCS segment, which represented 67% of our consolidated revenue in 2024 (2023 — 58%; 2022 — 59%).
Notwithstanding the expansion our HPS business and high-value EMS programs (including with hyperscalers), we remain dependent, to a lesser extent compared to prior years, on our traditional CCS business for a portion of our revenue, which continues to experience slower growth rates, increased pricing pressures and a highly competitive marketplace.
Any of the foregoing may adversely affect our margins, cash flow, and our ability to grow our revenue, and may increase the variability of our operating results from period to period.
" Inherent challenges in managing changes in customer demand may impact our planning, supply chain execution and manufacturing, and may adversely affect our operating performance and results.
Our customers typically do not commit to production schedules for more than 30 to 90 days in advance, and we often experience volatility in customer orders and inventory levels.
Customers may terminate their agreements with us prior to scheduled expiration, fail to renew such agreements upon expiration, or significantly change, reduce or delay the volume of manufacturing or other services they order from us, any of which adversely affect our operating results when they occur.
For example, we experienced demand reductions within our Industrial business during 2024.
Customers may also shift business to our competitors, in-source programs, or adjust the concentration of their supplier base.
The global economic environment, adverse market conditions, "buy local" movements, political and geopolitical pressures, negative sentiment from our customers' customers, regulatory changes or changes made by local governments (such as tax benefits, tariffs or export controls) may also impact our customers' business decisions.
See " Our operations have been and could continue to be adversely affected by events outside our control " and " Regulation of AI/ML technology may materially and adversely impact our business.
When customers change production volumes or request different products to be manufactured from those in their original forecast, the unavailability of components and materials for such changes could also adversely impact our revenue and working capital performance.
The uncertainty of demand in our customers' end markets, intense competition in our customers' industries and general order volume volatility from time to time result in customers delaying or canceling the delivery of products we manufacture for them or placing purchase orders for lower volumes of products than previously anticipated.
This may result in higher than expected levels of inventory, which could in turn have a material adverse impact on our operating results and working capital performance.
We may not be able to return or re-sell excess inventory resulting from these factors, or we may be required to hold such inventory for a period of time, any of which may result in higher working capital needs (offset in part by customer cash deposits), and/or a requirement to record additional (and higher-than-typical) reserves for excess or obsolete inventory (as occurred in recent years).
Factors that may adversely affect our customers include: rapid changes in technology; evolving industry standards; seasonal demand; their failure to successfully market, and/or a lack of widespread commercial acceptance of, their products and services; supply chain issues; the emergence of substitutes for products and services; dramatic shifts in demand which may cause them to lose market share or exit businesses; recessionary periods in our customers' markets; short product lifecycles resulting from continuous improvements in products and services, commoditization of certain products, changes in preferences by end customers, and the emergence of new entrants or competitors with disruptive products, services, or new business models that de-emphasize traditional OEM solutions and distribution channels.
In addition, certain of our customers have experienced, and may in the future experience, severe revenue erosion, pricing, margin and cash flow pressures, and excess inventories that, in turn, have adversely affected (and in the future may adversely affect) our operating results.
Our exposure to financially troubled customers or suppliers may adversely affect our financial results.
We may provide manufacturing, design engineering, management and other supply chain services to companies and industries that may in the future experience financial difficulty.
When one or more of our customers becomes insolvent or otherwise is unable to pay for the services provided by us on a timely basis, or at all, our operating results and financial condition are adversely affected.
Such adverse effects could in the future include one or more of the following: an increase in our provision for credit losses, a charge for inventory write-offs, a reduction in revenue, and an increase in our working capital requirements due to higher inventory levels and increases in days our accounts receivables are outstanding.
The purchase of materials and electronic components represents a significant portion of our costs.
We rely on third parties to provide such items.
A delay or interruption in supply from a component supplier, especially for single-sourced components, could have a significant impact on our operations and on our customers if we are unable to deliver finished products in a timely manner.
If the amount we are required to pay for equipment and supplies exceeds what we have estimated, especially in a fixed price contract, we may suffer losses on these contracts.
If a supplier or manufacturer fails to provide components, supplies or equipment as required under a contract, we may be required to source these items from other third parties on a delayed basis or on less favorable terms, which could impact our profitability.
Additionally, quality or reliability issues at any of our component providers, or financial difficulties that affect their production and ability to supply us with components, could halt or delay production of a customer's product, or result in claims against us for failure to meet required customer specifications, which could materially adversely impact our operating results.
Shortages may also result in our carrying higher levels of inventory and extended lead-times, or result in increased component prices, which may require price increases in the products and services that we provide.
Changes in forecasted volumes or in our customers' requirements can also negatively affect our ability to obtain components and adversely impact our operating results.
Some sub-tier suppliers providing raw materials, such as high-grade aluminum, are partially dependent on supply from the Russia/Ukraine region.
In addition, certain of our suppliers are located in, and we source certain parts from, the Middle East.
Although the impacts of the Russia/Ukraine conflict and the conflicts in the Middle East area (Middle East Conflicts) on our supply chain have not been significant to date, we cannot assure that this will continue to be the case, and we may experience, among other impacts, export restrictions and increases to fuel costs.
See " Our operations have been and could continue to be adversely affected by events outside our control , " " Geopolitical uncertainty, including as a result of the military conflict between Russia and Ukraine and/or the Middle East Conflicts, may adversely affect our business, financial condition and results of operations, " and " Our products and services involve inventory risk.
" See Item 7, MD&A — "Recent Developments" for a discussion of the impact on our operating results of customer and service mix during 2024.
Customer relationships with emerging companies present special risks because we do not have an extensive product or customer relationship history.
If we are unable to recruit or retain highly skilled talent, our business could be adversely affected.
We believe that our future success depends, in part, on our ability to attract and retain highly skilled executive, technical and management talent in the various geographies in which we operate.

and 156 more.

Sentence-level comparison of Item 1A in the two most recent 10-Ks (FY2024 ↗, FY2025 ↗). A reworded sentence counts as one dropped and one added, so heavy edits read as low “kept”. Headings and page furniture are stripped; nothing is summarised by a model.

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