ATS Corporation Common Shares

Good morning, ladies and gentlemen. Welcome to the ATS Automation fourth quarter 2019 earnings, sorry, conference call and webcast. I would like to remind you that this call has been recorded on May 16th, 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 any 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 of 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 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. This morning, I'm going to speak to you about our Q4 performance and outlook, But first, I'm going to provide some comments at a full year performance. Marie will then provide her report. Over the last year, we have generated positive momentum, which resulted in solid organic growth to the addition of new customers in strategic markets and the retention and expansion of some long-term customer relationships. In addition, we have made a number of important strategic advancements. In Q4, we completed our acquisition of ComaChair, a great addition to ATS that will accelerate our growth and penetration in life sciences. ComaChair is a leader in the radiopharma market with significant capability in the fast-growing aseptic processing and ATMP subsegments. In Q3, we acquired KMW, a provider of microassembly systems for the EV market. KMW provides us with additional capability in microassembly and fills a niche that adds to our overall offering. Both of these acquisitions are well aligned with our stated long-term growth strategy, which targets leading technology in attractive markets. We have made innovation a key focus area with a goal of driving technology leadership and expanding the reach and scope of our capabilities to benefit customers through reduced complexity, shortened customer development cycles, and improved production efficiencies. Most recently, we added to our IoT platform with the launch of Illuminate Manufacturing Intelligence. Illuminate is a scalable, connected factory management system that customers can use to maximize overall equipment effectiveness, productivity, and quality. Illuminate is the next generation of our ATS Toolkit IoT product and offers subscribers enhanced e-commerce capabilities for service and parts, improved dashboards and data analytics, support of third-party equipment, and easier integration with customer business systems. As well, during the year, we introduced a number of additions to our SuperTrac linear motion platform. In Q4, we launched our SuperTrac micro-conveyance system. This product offers unique merge and divert capabilities, which allows manufacturers to minimize cell sizes, and offers flexibility for high mix applications for batch manufacturing. In Q3, we acquired the intellectual property for rapid speed matching technology, which provides the ability to link and synchronize movements of devices together, allowing for faster and more efficient assembly systems. These are valuable advantages, particularly in applications where high speed and high precision is required. Work is well underway to integrate this technology with our best-in-class SuperTrac platform, and will continue for the next several quarters. From an organizational standpoint, we moved our linear motion technology and Illuminate groups into separate business units with our own management teams. I expect this will accelerate innovation and market penetration. In addition to these important strategic initiatives, I'm very pleased with the continued focus and adoption of the ATS business model. We have seen the ABM go from a corporate-led initiative to becoming the way we do business. And importantly, we are realizing benefits from the ABM all across the organization. Now, moving to our financial value drivers for the year, starting with bookings. For the year, our orders increased 19%, to $1.4 billion. Organic bookings growth of 16% resulted from new customer relationships and both life sciences and EV, along with a number of enterprise program wins from existing customers. These included programs across all customer verticals. Revenues for the year were $1.25 billion, up 12% over last year. Organic growth in revenues was 11%, with the other 1% coming from acquisitions. On adjusted EBIT margins, we realized a 90 basis point improvement over fiscal 2018. While I'm pleased with this progress, we still have work to do to achieve our margin expansion goals. Now, our Q4 highlights. Starting with our Q4 financial value drivers, bookings were $298 million, down from $348 million last year, which included significant follow-on program orders in warehousing automation and in life sciences. We remain focused on driving growth in bookings on an annual basis, recognizing we may see normal course variability from quarter to quarter due to our project-based business. Q4 revenues were $349 million, up 17% over last year. Excluding acquisitions, our organic revenue was 13%. Our Q4 adjusted EBIT margin was 11%. Consistent with last year is higher stock-based compensation costs offset improved gross margins. Moving to our outlook. We ended the quarter with order backlog of $904 million, up 21% 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. As I've stated in the past, I expect customers will continue to exercise caution and be thorough in making their capital investment decisions, which could lead to variability in order bookings from quarter to quarter. Looking at our funnel, Life Sciences continues to be strong, and we are seeing good opportunities in both medical devices and pharmaceuticals. The addition of Coma Chair provides us with additional exposure to this attractive market. Over 50% of our backlog is now made up of orders for Life Sciences customers. 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 number of Life Sciences applications. EV activity accounts for the majority of our transportation funnel. 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. 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. On after-sales services, customer receptivity remains positive, We continue to see favorable trends in attaching service sales to our CapEx business. Q4 bookings and revenues were up over last year, and our overall funnel for services has grown. For the last year, for the year, our service bookings were up double digits, and service revenues were up mid-single digits. We are focused on the strategic area of our business. Moving to the ATS business model. As I noted, we are continuing to embed the ABM in how we do business every day. During Q4, we continue to implement new tools at our divisions and drive improvements through problem solving and Kaizen events. Of note, in Q4, we completed our first President's Kaizen. This involved the execution of four simultaneous Kaizen events globally, which I and my executive team participated in as team members. The four events focused on engineering efficiencies, access inventory management, supply chain efficiencies, and design standardization and reuse. The events were held in facilities around the world, and I was very pleased by the achievements made by the teams in a relatively short period of time. Our ABM boot camps and weekly lean training sessions are 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 change that I expect will continue to support our margin expansion plans. Moving to Comichaire. To date, front end of the business integration activities are progressing very well. We have built a pipeline of pursuits where the combined businesses are working together on specific opportunities in order to capitalize on the strong and positive momentum created in the market since the acquisition. From a strategic standpoint, activities are well underway to drive medium and long-term impact. Specifically, work is in process to improve sales capacity in North America. Align the organizations on sales pursuits and capture plans to capitalize on the combined ATS's strong automation capability and ComaChair's leading isolator technology. Implement a roadmap to develop integrated service offerings and develop a joint go-to-market strategy for the aseptic fill and finish market. Customer receptivity has been very positive with both ATS and ComiChair customers, and we are confident that revenue synergies will be achieved. Integration of administrative activities is well underway and expected to be largely complete over the next few months. Initial deployment of the ABM with ComiChair's leadership team was very well received. In Q1, we'll be rolling out training on specific ABM tools and facilitating continuous improvement exercises as part of the ongoing ABM deployment. Joint initiatives between the supply chain groups are well underway to drive cost synergy savings. Through the initial integration activities, we have identified 200 basis points of savings, which we will target to achieve over the next 12 to 24 months. ComiChair, 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. On KMW, integration of both administrative and operational activities is proceeding as planned. The business has performed to our expectations, and I am encouraged with their prospects for continued growth and improvement. In summary, I am pleased with the year's achievements strategically and financially. Significant new customer relationships were added, and we continue to earn repeat business, both with new and long-term accounts. Revenues and order bookings reached record levels. We've expanded our margins by 180 basis points over the last two fiscal years. We have a strong order backlog, and we are well-positioned going into fiscal 2020. Importantly, our balance sheet remains strong, which we will continue to put to work through internal investment, innovation, strategic M&A, and share repurchases when appropriate. As we continue to execute our value creation strategy, we are focused on driving continuous improvement in all aspects of our business to support the creation of long-term shareholder value. I want to take a moment to thank our employees. for their hard work and dedication over the past year. I'm proud of what our team has accomplished, and I look forward to building on this going forward.