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.

Thank you, Andrew. Our Q3 performance included year-over-year improvement in all financial value drivers, including bookings, revenues, operating margins, and our non-cash working capital as a percentage of revenues. Substantially, all of this growth was organic. Our Q3 results included KMW for eight weeks, but this did not have a material impact. KMW's purchase price will be €18.3 million, subject to final adjustments, with cash of €16.4 million paid in Q3. The balance is payable within 18 months. In December, as you heard from Andrew, we reached a definitive agreement to acquire Comasur in an all-cash €113 million transaction that is subject to working capital and other adjustments. We expect to complete this acquisition in our fiscal fourth quarter following normal course regulatory review. Q3 also featured the acquisition of Transformix's intellectual property for $10 million cash. We will work over the next few quarters to finalize development and integration of the technology and amortization of the asset will begin at that time. There is also a commission structure in place which will be paid out contingent on sales of products that incorporate the acquired IP. Total payout is capped at $20 million. This morning, the balance of my comments will be focused on our Q3 results and our balance sheet. I'll start with operating results. Q3 bookings were $397 million, up 28% from last year's bookings of $311 million, and up 12% from Q2. On a year-to-date basis, bookings of $1.1 billion were 33% higher than prior year bookings of $834 million. These three bookings include a $60 million enterprise program from a Global Life Sciences customer, which we announced in December. This record bookings quarter also included two large EV orders in the $25 million range and two large Life Sciences orders in the $20 million range. With these orders, we have achieved the highest booking quarter in our history, This also changes the profile of our backlog conversion, which I will speak to shortly. Q3 revenues of $321 million were 16% higher than last year's $278 million. Organic growth was 14%, with the balance related to foreign exchange and KMW. Organic growth was primarily due to higher order backlog entering the third quarter of fiscal 2019, and included the impact of certain programs that were delayed in Q2. The impact of those delays has, for the most part, been reversed. On a year-to-date basis, revenues were $905 million, up 11% over last year, primarily reflecting higher order backlog entering fiscal 2019 and higher order bookings in the first nine months of this year. Q3 ending order backlog increased by 34% to $926 million, up from $689 million last year. Our record order backlog provides us with a strong foundation to generate continued organic growth. Over the last three quarters, we have won a number of large enterprise orders, which have changed the composition and increased the size of our backlog. These programs do not have a quick revenue conversion cycle, but have performance periods ranging from 18 to 24 months. Due to the increased duration and size of our backlog and taking into consideration our estimates of in-quarter orders, our Q4 revenues are estimated to be in the 30% to 35% range of backlog. While this range is lower than previous quarters, we view the change in the profile of our backlog to be positive. as these enterprise or large programs provide greater visibility for capacity planning and future revenues. This expectation does not include commissure, which would provide additional revenues if closed prior to the end of Q4. During the quarter, gross margins expanded 30 basis points to 26.3% versus the same period a year ago. On a year-to-date basis, Gross margin expanded 40 basis points to 26.1% versus the same period a year ago. We have made progress on our margin expansion initiatives, which have more than offset investment in innovation, people, and capacity. Moving to SG&A, excluding $2.7 million of deal-related M&A costs in Q3 this year and acquisition-related amortization expenses in both periods, Q3's SG&A was $44.2 million, approximately $3.5 million higher than Q3 last year. SG&A has increased over the prior year, primarily due to increased employee costs and sales-related expenses. However, our higher gross margins more than offset increased SG&A costs. It is important to note that we continue to achieve operating leverage, for example, excluding acquisition-related transaction costs and the restructuring charge last year, SG&A as a percentage of revenue improved 60 basis points for the first nine months of the year to 14.1% versus the same period a year ago. Going forward, we expect SG&A dollars to increase slightly as we assume KMW and Comisars costs and incur integration-related expenses. Q3 adjusted earnings from operations of $46.7 million were 14.5% of revenue, up from 10.6% last year, reflecting higher gross margin and stock compensation recovery. Stock compensation expense decreased by $8.4 million from Q3 last year and impacted margins by approximately 2.6%, due primarily to mark-to-market adjustments. Excluding the impact of stock compensation, our margins have improved by approximately 100 basis points year to date. As mentioned, we have made progress on our margin expansion plans as we are working to drive further improvements through the deployment of our ABM, capacity utilization, supply chain management, increase in services revenues, standardization, and program management. Moving to the balance sheet, Our non-cash working capital as a percent of revenue remained low in Q3 at 6.6%, down from 9.3% in Q2 and 8.3% at Q3 last year. Favorable payment terms on some of the large orders we received in Q3 resulted in this low percentage. Going forward, working capital will increase as we start to work through these programs utilizing the deposits. Working capital as a percent of revenue will be variable as project schedules and the timing of progress payments will fluctuate. However, this is normal and we continue to target to be below 15%. Cash from operations was $62.2 million in Q3 compared to Q2 when we generated $39.5 million and Q3 last year when we generated $5.5 million. Higher cash generation is primarily due to decreased investment in non-cash operating working capital and increased profitability. At quarter end, our cash net of debt position was $37.1 million, an improvement from last year's net position, which was effectively zero. This increase was net of approximately $50 million in outflows for the acquisitions of KMW and the intellectual property of Transformix, and purchases made under our share buyback program. As you would have seen in our press release today, we have filed an amended notice with the TSX to increase the maximum number of shares that may be purchased under our NCIB in order to maintain flexibility in our capital deployment. We continue to have strong liquidity with cash on hand of $374 million and our credit facility, of which approximately $637 million is available. In Q4, the Commissure acquisition will be funded with existing cash on hand. In Q3, we generated earnings per share of 27 cents, up from 7 cents last year. On an adjusted earnings per share basis, we generated 33 cents in Q3, up 15 cents from last year. Increased revenues and margins accounted for approximately half of the increase, with stock compensation recovery accounting for the other half. Our effective tax rate was 25.5% in the quarter, consistent with our expectations. In summary, our business performed well. Our record order backlog of $926 million provides a substantial platform for organic growth, as we finish fiscal 19 and move into the new fiscal year. We will continue to focus on the deployment of the ABM and initiatives to drive margin expansion going forward. Our funnel remains well diversified with a mix of end markets, programs, and enterprise solutions. We have a strong balance sheet with available credit which will support our objective of profitable growth. Now we'd like to open the call to your questions. Operator, could you please provide instructions to our listeners? Thank you.

Ladies and gentlemen, we will now conduct a question and answer session. To allow as many voices to be heard as possible, please limit yourself to two questions per turn. If you have a question, please press star followed by the number one on your touchtone phone. You will hear a tone acknowledging your request. Your questions will be pulled in the order they are received. Please ensure you lift the handset if you are using a speakerphone before pressing any keys. One moment, please, for your first question. Your first question comes from Mark Neville of Scotiabank. Your line is open.

Good morning. First, just a point of clarification, the 30% to 35% backlog conversion for Q4, does that include KMW, or is that additive?

That does include KMW. It doesn't include Comestor.

All right. Okay, but for KMW, luckily it added about $2 million to backlog, but I think it's about a $20 million revenue business. So is that sort of like typically there's really no backlog in that business? Is that typical?

Not typical. Soon after we acquired, they got more orders, and we saw the backlog come back up. So typical would be to have higher backlog.

Okay. And just generally on that sort of conversion rate, I know it sort of depends on what your backlog looks like in your book of business, but from your perspective, I mean, is there an ideal range that it gets to or where it finishes or is this sort of, you know, where you want it to be or with greater enterprise orders, would it decline further? I'm just sort of, This, again, is broadly speaking where ideally it lands for you.

I think it all depends on what our backlog is. I would say there isn't an ideal range. It's more about growing our bookings and our backlog and then driving the revenues each quarter.

Okay. And on these large orders, I mean, is there a service component attached to it? I mean, can we think about it, maybe a percentage of the capital cost or some sort of long-term service agreements, sort of how the service component might work for those orders?

Hey, Mark. Good morning. So we have seen an increase in our attached rate to CapEx, and these oftentimes have a service element to them, both service and support. as well as installation, as well as toolkit. And we're very pleased with the progress we've made with the toolkit application. As we've talked, that enables us to continue to add value over the life of the equipment and truly provide an IoT smart factory solution.

Okay, and the toolkit is also something you're charging for sort of as a product at the moment.

Mark, can you repeat the question?

I mean, you're charging for the toolkit now. It's not just sort of embedded or coming with the order. I don't know, again, how you're splitting it, but maybe you're not thinking about it that way. But you're charging for the toolkit.

So it is an independent product that we offer to our customers.

All right. Maybe just one last one from Maria. Just a comment around SG&A. I think it was $44 million and change this quarter to adjust. Like you said, it might increase slightly. It just sort of some kind of maybe quantum around that or order of magnitude just with the commercial coming in, what that might look like?

Sure. So if we look at adding KMW and CommaServe for a full quarter, we're looking at increased SG&A in the range of $4.5 to $5.5 million.

Okay. That's per quarter?

Per quarter.

Okay. I'll get back in queue, but busy quarter. Great job. Thanks.

Thank you, Mark. Thanks.

Your next question comes from Sherilyn Radborn of TD Securities. Your line is open.

Thanks very much, and good morning. I wanted to start, Andrew, by asking you whether you saw any indications in the quarter or post-quarter that the equity and credit market volatility is doing anything to impact either the tenor or the length of customer decision processes?

You know, Sherilyn, first, we get asked this question a lot around tariffs as well as the taxation in the U.S. as well as some of the macro trends. And what we've found, and we continue, and I've mentioned this in the past, one of the One of my standard work as a CEO is to visit with customers, really sit down with them and understand their capital plans and how they plan to deploy within their business. And what we found is that customers are still looking at automation as a way that they can improve quality, maximize their output, and have a cost advantage potentially to the markets that they serve. And so those dynamics, again, back to our statement around a very good bookings quarter, as well as a healthy funnel as we enter into this quarter and potentially end of the year, puts us, we believe, in a solid position as we enter into our 2020. That said, we're constantly talking to customers to make sure it aligns with the needs and confirm that we can offer that level of value.

Okay, that's helpful. And then in terms of the year-to-date margin improvement that you referenced, Is there any way to rank for us of the five drivers that we've been talking about relative to margin improvement, which ones have been more impactful on a year-to-date basis?

I'll give it a try. Most impactful is really the operating leverage, and you can see that at the SG&A line. where we have a 60 basis point improvement there. And then at the gross margin level, operating leverage. But we know that we've also made improvements in areas of supply chain and application of the ABM. And Andrew has spoken of some examples. And although on their own, they're not a lot, when we add them all up, they do impact. But in addition to that, we've had some investment that we've talked about, which offsets some of these areas. And as we've said, we've made investments in innovation, in training, and we've had some headcount increases also, which has offset some of the gains.

And then last one for me in terms of M&A. Having done three deals relatively close together, do you think that you paused for a bit of an integration period, or do you think that you still have some operational capacity to do deals?

So, Sherilyn, I'll answer the second part of your question, then I'll go back to the first. We believe we still have capacity to do deals, and from a capital deployment standpoint, And I've outlined the four criteria. We are going to be extremely disciplined in our approach in ensuring that we're aligned around true shareholder value. And so to answer your question, our funnel remains healthy. We have a lot of businesses we're cultivating today. That said, we're going to make sure it's the right asset to the business. And we do have capability and capacity to move when we see the right opportunity.

Thank you. That's all from me.

Thank you, Sherilyn.

At this time, I would like to remind everyone, in order to ask a question, press star, then the number 1 on your telephone keypad. Your next question comes from Justin Keywood of GMP Securities. Your line is open.

Good morning, and thanks for taking my call. Just with the continued record bookings and backlog, I'm wondering if there's any capacity challenges in executing on this, And if so, is that affecting the conversion rate at all?

No issues on capacity. From a headcount perspective, we've grown our headcount over the last two quarters on average about 100 people each quarter. And in addition to that, we augment with subcontractors. So no issues there. And then physical space. We've added a facility in Q3, and we also did something in Q2, and we have plans in place to also continue to expand in Canada, U.S., and Europe. So the lower backlog conversion has nothing to do with our ability to deliver.

Okay, thank you. And what's the planned remaining capex for the year?

We had provided a range of between 20 and 30 million. Right now, I believe we've spent about 18 million. I would still give that range, and it's a bit of a range, a bit of a range because we, as I said, we have certain plans to start building expansions, and depending on when that happens, it'll impact our numbers, either fiscal 19 or fiscal 20.

Okay, thanks. And then just going back to the services revenue growing double-digit, first, if that's both revenue and backlog, and is this being driven by some more recent orders, or has there also been an uptick from existing machines already deployed?

Good morning, Justin. So I'm going to take a minute to highlight this section of the business. Can't be more pleased without the team is executed. First... we've increased our attach rate on CapEx. And this is a true value that we offer to our customers, both on new CapEx, but then also as we're going to be servicing equipment over the life of the equipment. And number two, we've continued to drive expansion on existing equipment in the market space. And it was double digit on bookings and revenue. And this team, as we step back and look at the remaining year, and as we go into 2020, we have a lot of opportunities to continue to drive. And I have had the chance to sit down with this group and really go into detail about how they're going to continue to execute on the strategy. So pleased with the progress, a lot of work to do.

Okay, thank you.

Your next question comes from Mark Neville of Scotiabank. Your line is open.

I just want to ask a question. Just on the NCIB, a pretty significant bump. I have two questions. First, is there a level where you maybe get more or less aggressive on that because you've been quite aggressive thus far? And then just more broad thoughts around that versus a dividend. Yeah.

So, Mark, I'll answer the second piece and we'll start there. First, let's talk a bit about capital deployments. In terms of priority and our view, we have a strategic layout on this. We've aligned with the board. We've done a significant amount of analysis. And first and foremost, reinvest in the business and drive profitable growth. And I highlighted a lot of those areas. We often miss the opportunity to talk about CapEx, innovation, training, true training so we can continue to drive all aspects of our business as we've got a great business. And it's about aligning to continue to achieve our aspirations, first and foremost. Number two, M&A. Disciplined, very focused approach on M&A. And I've talked through the four criteria just to hit them quickly. It's the market that we like. It's the areas that we like. We have to like the up and down of the market over the long haul. Number two, the strategic rationality asset. Is it a platform play? Number three, how we're going to manage, how we're going to implement the ABM. how we're gonna operate the asset. And number four, ROIC. And next is share buyback. And we have certain areas that when we see that our shares are at a place where we believe they're undervalued, we're in a position to be able to pull the trigger. And we're aligned around that, the board's aligned, and it's all with the mindset to have true shareholder return.

And just to add a little bit more on that, As you've seen, we've increased the amount, and we've done it because we want the flexibility to be able to buy back when it makes sense. And so that means we want to have an active program in place.

Okay. Maybe just a couple of housekeeping questions while I'm on. The Transformix, I wasn't sure if it was capped at $20 million or there's potential for another incremental $20 million.

It's capped at $20 million.

Okay. Andrew, you made a comment earlier about, I think, Supertrack Pharma was the first sale you had. I'm just curious, is that something like to an end user or just to another automation vendor?

It was to a specific area in the aseptic filling process. And that's really all I can add. What I can tell you is the product's an exciting product. It's an area that we've been driving to get to, and we're very pleased that we've launched and The difference is on aseptic, right? It's no exposed lubricant. It's ISO certified, IP65 rated, stainless steel construction. So this is a very strong platform as we're looking at aseptic in its totality.

Okay. Thanks again for taking my questions.

You're welcome. Again, if you would like to ask a question, press star, then the number one on your telephone keypad. Your next question comes from Robert Caldwell of Richardson GMP. Your line is open.

Hi, everyone. Good morning.

Good morning.

I have a double-tiered question. Question number one, perhaps to you, Andrew, what's our current position in China? I'm thinking of plants and employees and perhaps a volume of business. And more importantly, number two, we read in some analyses that Upwards of 45% of the potential EV business is going to be in China. Large players, including Volkswagen, will be doing a great deal of their business there. The question then, of course, is what's our opportunity to attract EV business in China?

Hey, Robert. Good morning. So ATS... has solid positions in multiple areas. So we've got PA Solutions that has a position in China. We've got our AWK business that has positions in China. And we have our systems facility. And our systems business has, call it, several hundred folks that represent and drive a solution set for the market. That said, we've got a lot of opportunity here. And In the past, we've really utilized this business to offer the capability to existing customers that have gone to the region. And we've shifted that to really align them around in China for China. And EV is one example. And the opportunity in China is going to continue to grow. EV, life sciences, key areas that we can provide a total solution for our customers, regardless of whether they're a Western company performing in China or they're a China company that's performing in China. And so early days in our strategy deployment on this critical region, and I would say we've got a lot of opportunity, which means we've got a lot of work to do. And it's around gaining and ensuring that we've got the right value story to our customers. We can service, support, and continue to drive that solution set in this critical region.

And perhaps just a brief follow-on, Andrew, Is there any pause because of the current environment between Canada and China and China and others as well? Any uneasiness about the relationship?

So, Robert, what I can tell you is we believe we've got a great solution in the region to provide high-level value to our Chinese customers as well as other parts of the world. And ATS, one of our key strengths is our ability to plan, execute, and service regardless of location and drive that, whether it's in China, whether it's in Canada, U.S., or other parts of the world. So we're very, very excited about our opportunities ahead. That said, we've got some work to do.

That's very promising. Thanks very much, Andrew.

Thank you, Robert.

There are no further questions at this time, Mr. Heider. I return the call to you, sir.

Thank you, everyone. Appreciate your time this morning. I look forward to reporting our fourth quarter and four-year results in May. Have a great day.

This concludes today's conference call and webinar. You may now disconnect.