ATS Corporation Common Shares

Good morning, ladies and gentlemen. Welcome to the ATS Automation second quarter conference call and webcast. I would like to remind you that this call is being recorded on November 6, 2019 at 10.30 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 difficulty hearing the conference, Please press star followed by zero for operator assistance at any time. I would 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 Heider, Chief Executive Officer of ATS, and Maria Perala, Chief Financial Officer. Before I 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 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 HSS 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 second quarter performance featured growth in revenues, year-over-year margin expansion, the advancement of our ABM and contributions from our recent acquisitions. This morning, I'm going to speak to you about our Q2 performance, our outlook, and the reorganization plan we announced today. Maria will then provide her report. Starting with our financial value drivers, our revenues for the first half of the year were $680 million, up 17% over last year. Q2 revenues were $341 million, up 20% over Q2 last year. Our adjusted EBIT margin for the first half of the year was 12%, up from 10% last year. Year to date, order bookings were $744 million, up 4% year over year. Our Q2 bookings were $321 million, down 10% from last year when we booked a $72 million EB enterprise program. This quarter, we booked a number of programs with repeat customers. resulting in higher bookings in both life sciences and nuclear. Our acquisition continued to perform well, contributing 26 million orders in Q2. Moving to our outlook. We ended the quarter with $945 million of order backlog, up 14% over last year. This provides us with a good base of business to drive growth for the remainder of the year. Looking at our funnel, life sciences continues to be strong, You're seeing good opportunities in medical devices, pharma, and radiopharma. As we've recently announced, early in Q3, ATS and Comisar combined to secure a $32 million order in the aseptic fill and finish market. This is a great win for our business and an early indication of the value ATS and Comisar can create together. Today, Life Sciences represents over 50% of our backlog. We are well aligned to drive penetration in this market. Life Sciences has positive industry dynamics, high barriers to entry, including stringent regulation and high consequence of failure. These characteristics are complementary to our capabilities, which include high speed, high precision solutions across a number of applications. In EV, we have seen some delays in customer order activity, but the funnel remains strong. There are various reasons, including continued development of the technology, and in some cases, delays while customers assess end markets. This is not unusual given the heavy investment customers are making in the EV shift. Overall, our track record of proven success in EV, including battery module, impact assembly, and e-motor assembly positions us well as the industry shifts to electric vehicles. In energy, we continue to win work in nuclear where we are able to offer considerable value for our customers. In consumer, we continue to pursue niche opportunities where our technologies align well with the value required by our customers. As I've stated in the past, I expect our customers will continue to exercise caution and be thorough in making their capital investment decisions, which leads to variability in order bookings from quarter to quarter. We also continue to monitor the impact of trade disputes on customer activity and their supply chain, which has added another variable to our customers' investment decisions. On after-sales services, we continue to see favorable trends in attaching service sales to our CapEx business. Q2 after-sales service bookings and revenues both increased at double-digit rates over last year, and our funnel for services remains strong. We have made investments and after-sales service over the past several years, both in infrastructure to grow and in innovation to drive market leadership, as with the recent launch of our IIoT solution. We remain focused on growing this strategic area of our business as it drives recurring revenues and contributes to our margin expansion initiatives. In support of our growth plans and to drive continued performance improvements, today we announced a reorganization plan involving facilities that are not strategic to our future growth. This plan is designed to reallocate capital from underperforming facilities to high performing facilities, improve the overall efficiency of our operations, and reduce our cost base. Reorganization will be implemented primarily over the next two quarters at a cost of approximately $25 million. Coupled with the investment in innovation and capacity additions we're making in strategic areas of the business. This activity will prepare ATS operations globally to effectively serve customers and efficiently meet the demands of growth in our markets going forward. Turning to our investment activities, our expansion plans are progressing as expected. As a reminder, this includes additional capacity for our life sciences business and dedicated space for innovation teams. Our innovation activities are ongoing. In the quarter, Comasur launched Helios, a new fully automated aseptic dispensing system for vials and syringes for the radiopharma market. As well, our life sciences group launched a new LED UV adhesive curing technology for binding surgical steel needles to glass syringe barrels. This solution replaces mercury vapor lamps. which are being regulated out to protect human health and the environment. This innovation, when combined with SuperTrak technology, forms the foundational elements of a high-speed glass syringe assembly system. We remain focused on internal investment in innovation as an important part of our capital allocation strategy to drive shareholder value. Moving to the ATS business model, A few ABM highlights from the last quarter. One of our divisions improved the throughput of the key production process through a Kaizen event, resulting in a 40% reduction in average completion time. This will drive cost efficiencies and improve lead time for the business. 5S programs were implemented at a number of divisions, including improvements at a division which drove a 30% reduction in waste in specified areas. Another division implemented daily visual management and new standards in engineering that reduced complexity and improved project management. We have increased our training through additional ABM boot camps. Over 120 of our leaders attended boot camps in the second quarter. Weekly lean training sessions are ongoing and driving advancement of the ABM throughout the business. Employee feedback is positive as our people are engaged in making improvements in their day-to-day activities. The pace of advancement is encouraging. We have many opportunities ahead for continued improvement that I expect will support our margin expansion plans. Moving to Comisera. Integration of front end of the business activities is progressing very well. We've had some initial wins in both the pipeline of pursuits that capitalize on unique and sizable platform that has been created from the combination of ATS and Comisera. We are continuing to develop integrated service offerings and refine our joint go-to-market strategy for the aseptic fill and finish market. The combined sales groups have been aligned internally with improved capacity for Comisera and North America. Customer receptivity is positive. We are confident that revenue synergies will continue to be achieved. Integration of administrative activities is largely complete. Joint initiatives between the supply chain groups are underway to drive cost-saving synergies. Another M&A activity, during the quarter, we acquired Exlog, a small German-based IT consulting and service provider specializing in business intelligence and analytics. Exlog will be integrated into our process automation business and allow us to expand our digital capabilities for customers. In summary, on a year-to-date basis, performance included solid growth in both bookings and revenues. We have a strong order backlog and we are well positioned to drive growth in fiscal 2020. Our reorganization plan supports our margin expansion initiatives and reflects our disciplined approach to capital allocation. Our balance sheet remains strong, which we will continue to put to work through internal investment, innovation, and strategic M&A, as well as share repurchases when appropriate. Going forward, we're focused on our value creation strategy, build, grow, and expand to drive growth, both organic and inorganic, and margin expansion with the goal of creating long-term shareholder value. Now I will turn the call over to Maria.