ATS Corporation Common Shares

Good morning, ladies and gentlemen. Welcome to the ATS Automation third quarter conference call and webcast. I would like to remind you that this call is being recorded February 5th, 2020 at 10 o'clock Eastern Standard 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.

Stuart McQuaig 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 I 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 included growth in revenues, the continued advancement of our ABM and our previously announced reorganization plan, which is on track. Strategically, we have continued to execute on our M&A strategy with the acquisition of a leading provider of yield control solutions for food and related markets. This morning, I'm going to speak to you about our Q3 performance, our outlook, and the reorganization. I will also provide you with an overview of our latest acquisition, Marco. Maria will then provide her report. Starting with our financial value drivers, our revenues for the first nine months of the year were up 16% over last year to $1.05 billion. Q3 revenues were $367 million, up 14% over Q3 last year. Our adjusted EBIT margin for the first nine months of the year was 11%. As anticipated, Q3 EBIT margin was impacted by the reorganization plan. Year to date, order bookings were $1.11 billion. Our Q3 bookings were $368 million, up from Q2 and down year over year. Q3 bookings featured a number of programs with repeat customers, including a $24 million program for a life science medical device customer. Q3 also included new customer wins, including an approximately $20 million program for a new aerospace customer. This is an exciting program as it represents an expansion of our transportation market and it includes our Illuminate factory intelligence product. As we announced, Q3 bookings also included a $32 million order from a new pharma customer for the supply of an automated pharmaceutical assembly and filling line. This strategic win was a joint effort between Comasur and ATS. And importantly, our funnel for joint work continues to be strong. Moving to our outlook. We have a good level of order backlog at $939 million. Our strategies to target high growth, regulated markets, are reflected in the composition of our backlog, with 55% of our backlog in Life Sciences. 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. Looking at our funnel, Life Sciences continues to be strong. and we are seeing good opportunities in medical devices, pharma, and radiopharma. In EV, customers remain diligent in finalizing their designs and assessing end consumer demand. This has led to delays. However, the funnel remains strong, as is our transportation backlog. Our record of proven success in EV 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, including additional opportunities in digital and services. In consumer, we continue to pursue niche opportunities where our technologies align well with the value required by our customers. As I've stated, 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. On after-sales services, both bookings and revenues are up double digits for both Q3 and year-to-date. We continue to see favorable trends in attaching service sales to our CapEx business and are driving growth through this channel in markets such as transportation that have historically had lower engagement. We're focused on growing the strategic area of our business as it drives reoccurring revenues and contributes to our margin expansion initiatives. As we announced last quarter, we introduced a reorganization plan to support our growth and drive continued performance improvements. Actions are underway and on track. The implementation of the reorganization will continue through the fourth quarter. When complete, this plan is designed to reallocate capital from underperforming facilities to high-performing facilities and drive margin expansion. Moving to the ATS business model, a few ABM highlights from the quarter. Our global HR group completed four Kaizen events, each designed to drive improvements across a number of key business processes. One of the events targeted our employee performance management cycle to drive a faster process with better alignment between organizational and individual employee objectives. Overall, the event will shrink the cycle by over 50%, allowing our businesses to cascade goals at a much faster pace, which provides clarity for our people and drives positive impacts for our customers and shareholders. Daily visual management, a system which presents data visually on business processes, has been one of the most effective tools that we have rolled out through the ABM. This quarter, a number of our businesses implemented it across a range of functions and processes. The division implemented daily visual management across our entire assembly operations, allowing for fast and easy daily tracking of program progress. A shared services finance group implemented in certain processing areas leading to a 15% reduction in processing times. And a sales organization in one of our divisions implemented it in order to improve tracking of project opportunities, which will enable the group to increase its funnel and be more efficient in its sales approach. ABM training is ongoing. through boot camps and weekly lean training session. This is driving the advancement of the ABM throughout the business. Employee feedback is positive, and people are engaged in making improvements in their day-to-day activities. We have many opportunities ahead for continued improvement that I expect will support our margin expansion plans. Turning to our innovation agenda. Activities are ongoing. In the quarter, we completed the launch of a new after-sales services IT platform for North America. This technology platform provides customers with an easier entry point to our after-sales services, which increases the efficiency of our sales and enables a comprehensive digital services offering. Rollouts to additional regions are scheduled over the next several months. In October, our SuperTrack Micro product was awarded New Product of the Year at the Assembly Trade Show held in Chicago. SuperTrack Micro is an exciting addition to our linear motion technology platform that we launched in 2019. It allows customers to configure high-speed, flexible production systems in smaller footprints. which are ideal for high-mix applications. Continued investment and innovation is an important part of our capital allocation strategy to drive shareholder value. Moving to M&A. In December, we completed our acquisition of Marco, a leading provider in yield control and recipe formulation systems. Marco was a well-run $30 million company with a low to mid 20% EBITDA margin that provides us with a good entry into a product based niche segment of the food industry. Food is an attractive new vertical for ATS that is stable with growth in the mid single digit range and subject to regulation, which drives the ongoing need for high precision technologies. Initial integration is underway with a focus of deployment of the ABM to drive operational efficiencies, advance geographic penetration, and expand MarCO's after-sales services. MarCO serves as a first step in our expansion into this attractive new market. On other M&A activity, integration of XLOG and Comasur are progressing as planned. In summary, we have continued to execute on our value creation strategy. We're focused on driving growth and attractive regulated markets that are aligned with the unique value we bring to our customers. Our focus on margin expansion through continuous improvement enabled by our ABM had delivered results over the past several years. We have further room for margin expansion, which will be supported by our structured initiatives. We have made important capital allocation decisions to drive organic and inorganic growth, margin expansion, and improve our return on invested capital. Our balance sheet remains strong, which we will continue to put to work to drive our strategies. Now I will turn the call over to Maria.