ATS Corporation Common Shares

Good morning, ladies and gentlemen. Welcome to the ATS Automation Third Quarter 2019 conference call and webcast. I would like to remind you that this call is being recorded on February 6th, 2019 at 10 a.m. Eastern Time. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. If anyone has difficulties hearing the conference, please press star followed by zero for operator assistance at any time. I'd now like to turn the call over to Stuart McQuaig, Vice President, General Counsel of ATS.

Thanks, Operator, and good morning, everyone. Your main hosts today are Andrew Hyder, Chief Executive Officer of ATS, and Maria Perrella, Chief Financial Officer. Before we begin, I'm required to provide the following statement respecting forward-looking information, which is made on behalf of ATS and all its representatives on this call. The oral statements made on this call will contain forward-looking information. The actual results could differ materially from a conclusion, forecast, or projection in the forward looking information. Certain material factors or assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward looking information. Additional information about the material factors that could cause actual results to differ materially from the conclusion, forecast, or projection in the forward looking information and the material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information are contained in ATS's filings with Canadian Provincial Securities Regulators. Now, it's my pleasure to turn the call over to Andrew.

Thank you, Stuart. Good morning, ladies and gentlemen, and thank you for joining us. Our third quarter performance featured year-over-year growth in revenues and margins. and we finished the quarter with records in both order bookings and order backlog. We also completed our acquisition of KMW and signed an agreement to acquire Commercer, two important assets that will help to advance our strategy and growth trajectory. This morning, I'm going to highlight our performance, outlook, and progress with the ABM, as well as provide an update on our recent innovation and M&A activity. Maria will then provide more detail on our third quarter financials. Starting with our Q3 financial value drivers, bookings were $397 million, up 28% year-over-year. Q3 bookings were driven by Life Sciences, which featured a $60 million program for two turnkey, fully automated manufacturing and packaging systems for our current global Life Sciences customer. A number of ATS proprietary technologies will be incorporated into these systems, including SuperTrack and ATS Toolkit. This is an important win for our business, as it builds on a successful relationship we have had with this customer over the last several years. The program will be executed over the next 30 months. In EV, bookings remain strong. Q3 orders feature two discrete battery assembly programs for different customers, both of which are in the $25 million range. Overall, EV continues to drive activity in the transportation market. The consumer market was down from last year. when we booked the initial orders for our warehousing automation program. This program remains active and we continue to receive orders in the third quarter on this program for both new equipment and services. As expected, energy bookings were lower following the major program for Bruce Power we announced earlier this year. Work is well underway on this program and will be ongoing over the next year. As you know, We remain focused on driving year-over-year growth in bookings on an annual basis, recognizing we may see normal course variability from quarter to quarter due to our project-based business. That said, for the first nine months of the year, our bookings increased 33% over last year to $1.1 billion. Q3 revenues were $321 million, up 16% over last year. Year to date, revenues were $905 million, up 11% over last year. Our Q3 adjusted EBIT margin was 14.5%, up from 10.6% last year, as we've benefited from both higher revenues, which drove operating leverage, and the reversal of stock-based compensation costs. Moving to our outlook, we ended the quarter with record order backlog of $926 million, up 34% over last year. This provides us with good visibility into the next fiscal year and a very good base of business to continue to generate organic growth. Importantly, our backlog growth is increasingly being driven by our continued success in winning large enterprise programs. These programs are an important area of focus as they improve our ability to plan capacity provide more control over programs, and enable deeper customer relationships. They also lengthen the average performance period of our backlog. As I've stated in the past, I expect customers will continue to exercise caution and be thorough in making their capital investment decisions. While this may lead to variability in order bookings from quarter to quarter, our record order backlog provides good visibility into the next fiscal year. Looking at our funnel, Life Sciences continues to be strong, and we are seeing good opportunities in both medical devices and pharmaceuticals. The upcoming addition of Commercer will provide us with additional exposure to this attractive market. On a pro forma basis, we expect Life Sciences will represent over 50% of our consolidated revenues. Life Sciences has positive dynamics, high barriers to entry, including stringent regulation, and high consequence of failure. These characteristics are complementary to ATS's capabilities, which include high speed, high precision solutions across a growing number of life sciences applications. EV activity is strong and accounts for the majority of our transportation funnel. EV represents a considerable changeover for the transportation industry, which I expect will result in continued strong market activity. Our proven success in EV applications, including battery module and pack assembly and e-motor assembly, as well as the recent addition of KMW, position us well to capitalize on the EV market shift and deliver value to our customers. We are proactively targeting the life sciences and EV markets for growth. Our niche positions in consumer and energy have positively contributed to our business. and we will continue to pursue opportunities where our technologies align well with the value required by our customers. Not after sales services, customer receptivity remains positive, and we continue to see favorable trends in attaching service sales to our CapEx business. Two or three bookings in revenues were up over last year, and our overall funnel for services has grown. For the year, our services bookings are up double digits. we are focused on the strategic area of our business, as service sales not only are important to our customers, but attractive to our margins. Moving to the ABM, our ATS business model. As a reminder, the ABM is our playbook, designed to run our business strategies, collective strengths, and commitment to performance. During the quarter, we completed the first ATS Leadership Academy, where over 40 of our senior leaders came together to learn, share best practices, establish a baseline in applying ABM company-wide, and help set priorities for continuous improvement in the critical areas of our business, our value drivers. As well in Q3, our team continued to drive process improvements. For example, one of our divisions conducted a focused value analysis, value engineering continuous improvement event with a target to improve lead time, and reduce cost on a specific customer project. The event generated a 10% improvement to lead time and a 4% reduction in direct costs of the program. Also, our supply chain group implemented a new cost reduction funnel process, which involves supply chain leaders, engineering, and category managers from all divisions. The group collaborated to identify a number of cost reduction opportunities which will drive incremental savings in fiscal 2020. The continued rollout of our ABM boot camps and weekly lean training sessions is ongoing and driving the advancement of the ABM throughout the business. The pace of advancement is encouraging, and we have many opportunities ahead for continued improvement. The ABM is driving positive changes that I expect will continue to support our margin expansion plans. Turning to our work on innovation, as I've noted, this is a key focus area for us. Our goal is to drive technology leadership and expand the reach and scope of our capabilities that benefit our customers by reducing complexity, shortening customer development cycles, and improving production efficiencies. We have continued to make progress. Specifically in Q3, we acquired the intellectual property of Transformix Engineering, This includes rapid speed matching technology, which provides the ability to link and synchronize movements of devices together, allowing for faster and more efficient assembly systems. The ability to increase line speed and utilize a smaller, more efficient footprint are significant advantages, particularly in applications where high speed and precision is required. We will work over the next several quarters to integrate this technology and expect that this will be complimentary to our best-in-class SuperTrac platform. We have made additional progress with our linear motion system. In Q3, we recorded our first sale of SuperTrac Pharma, made specifically for aseptic applications. And recently, we launched SuperTrac Micro, which provides an improved solution for smaller batch processing and provides more flexibility and efficiency in line layouts and processing. Overall, we have more work to do to drive our innovation agenda. Over time, value-added innovations that address the needs of both new and existing ATS customers globally will enable us to capture additional systems, product, and services business. Moving to M&A. In October, we completed our acquisition of KMW, a German-based provider of microassembly systems for the EV market. KMW is a great fit as it provides us with additional capability in microassembly and fills a niche that adds to our overall offering in EV. We are integrating both administrative and operational activities at KMW. Importantly, we will be deploying our playbook, the AVM, into KMW to enable the business to grow and drive improvements going forward. And as you know, we entered into an agreement to purchase Commercer in December. This acquisition represents an exciting opportunity for our business, and I would like to provide an update and some additional detail. Our acquisition of Commercer is well aligned with our stated long-term growth strategy, as we are disciplined in our approach to M&A, which targets leading technology and attractive markets. Commercer gives us access to approximately 1 billion euros of additional addressable market. This will allow us to leverage our automation capabilities and expand our offering into highly regulated, high consequence of failure markets within life sciences. This includes further penetration into the fast-growing radiopharma equipment, aseptic processing, and advanced therapy medicinal production or ATMP subsegments. We are extremely excited about this acquisition for three main reasons. One, this is a very attractive market that is large, growing, and core to our long-term strategy. More specifically, the combination of Commercer and ATS provides access to the high-growth pharma and nuclear medicine industries and positions us to aggressively increase Commercer's position in the aseptic fill-and-finish market, which is expected to grow at a high single-digit rate through 2023. Two, there are meaningful and tangible synergy opportunities. These include a significant cross-selling opportunity across the globe, deeper penetration for the combined company in Europe and North America, the ability to provide holistic solutions in a much more efficient and effective manner for the benefit of our customers, and increasing commercial service revenue to a level that is commensurate with ATS. Moreover, while cost synergies were not a key driver of the deal, we do anticipate many opportunities for improvement as we implement our ABM playbook and drive commercial operating leverage going forward. We'll disclose more detail once the deal is closed and we have the opportunity to collaborate with the commercial team. And reason three, this transaction, coupled with the existing ATS Life Sciences business, creates a new and sizable platform that we expect to grow both organically and inorganically in the coming years. From an organic growth perspective, this combination pairs Commercer's aseptic fill and finish technology with our automation technology to provide customers with more comprehensive solutions, and we see additional opportunities to improve our revenue growth and margin expansion profile in the long run. Perhaps the most encouraging development since our announcement is that several of our Blue Chip customers have already expressed excitement and interest in the solutions we will be able to provide with Commercer. I am confident that this meaningful entry into pharma will not only make our combined offering more attractive to our existing and potential customers, but also strengthens our position as a formidable player in the life sciences sector. In summary, I am pleased with the results of the quarter. We achieved growth in revenues, margin expansion, and bookings. With our record order backlog, we are well positioned to have a positive finish to the year and to start fiscal 2020 from a solid base. Importantly, our balance sheet remains strong, which we continue to put to work through internal investment, including innovation, strategic M&A, and share repurchases. We continue to execute our value creation strategy. build, grow, and expand. We're focused on driving continuous improvement in all aspects of our business. This is to support the creation of long-term shareholder value. Now I'll turn the call over to Maria.