ATS Corporation Common Shares

Good morning, ladies and gentlemen. Welcome to the ATS Automation fourth quarter conference call and webcast. I would like to remind you that this call is being recorded on May 27th, 2020 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 McQuag, 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. You are cautioned that the oral statements made on this call contain forward-looking information that involves risks and uncertainties, including those introduced by the current COVID-19 pandemic. The actual results could differ materially from a conclusion, forecast, or projection in the forward-looking information. Certain material factors or assumptions that 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. I want to start by thanking you for your continued support of ATS. The last few months have been challenging for everyone, and the economic impact of this health crisis is unprecedented. To those directly affected by COVID-19, we extend our sincere sympathies. And to those healthcare professionals on the front lines, we thank you for your service. Through this pandemic, our first priority has been the health and safety of our employees. In February, we quickly put in place our pandemic response team that has worked diligently to coordinate our global approach to business continuity, employee health and safety, while ensuring local regulations are followed. Our teams have adjusted how we work and implemented measures to enhance safety at our facilities. As an essential business, providing critically important services that enable our customers to produce medical devices, pharmaceuticals, nuclear energy, food, and other important products, we remain committed to serving our customers and communities. We have also taken on new mandates to help our customers in the automotive sector rapidly transition production to personal protective equipment. And in life sciences, we have deployed resources to help customers quickly ramp production of critical components to aid in the fight against COVID-19. Our teams have done an outstanding job ensuring that we continue to deliver exceptional work for our customers. I want to thank our suppliers and other partners for working hard alongside with us. I could not be more proud of the way our teams have taken on these challenges. While travel restrictions, measures implemented to enhance facility cleaning, and physical distancing have impacted operational efficiency, they are critical to our employees' well-being. These efficiency impacts were felt in Q4 and will continue into Fiscal 21. Turning now to performance. Fiscal 20 and Q4 featured growth in revenues and order bookings. As well, we have completed the previously announced reorganization plan, which impacted our operating margins. I will speak to these outcomes, provide commentary on our outlook, and offer more details on how we are operating in this new environment. Maria will then provide her report. Starting with our financial value drivers, our revenues for the year were up 14% to $1.4 billion. This included Q4 revenues of $382 million, up 10% over last year. Our adjusted EBIT margin for the year was 11%, down slightly due to the expected inefficiencies caused by our recently completed reorganization. Margins were also impacted by red programs in the quarter. We work to mitigate costs and schedule overruns, but I don't expect that we will ever eliminate REDD programs given the challenging and innovative projects we take on. These particular projects were isolated to one facility and countermeasures have been implemented. Order bookings for the year were $1.5 billion, up 4% over last year. Our Q4 bookings were $365 million, up 19% over last year. Q4 included a $60 million EV booking for a fully automated battery assembly program for a global automotive manufacturer. This program includes two turnkey lines for the customer's North American operations, will be delivered over the next 18 months, and is based on ATS's best-in-class SuperTrac linear motion technology. Moving to our outlook, our Q4 ending order backlog $942 million positions us well in the current environment. To date, we have not had any material cancellations on programs in our backlog, and only one program has been put on hold. The global pandemic has caused economic uncertainty, which we expect will impact customer order activity. We have seen an impact in our funnel, and some opportunities have been pushed to a future date. By market, Activity in Life Sciences has remained relatively robust. Much of that activity has transitioned to mandates related to COVID-19 responses. We expect other opportunities to progress in medical devices, pharma, and radiopharma with some interruption as customers adjust to the new environment. Life Sciences represents 54% of our revenues last year. This market has positive dynamics for continued long-term growth and is highly complementary to our capabilities as it features high barriers to entry, including stringent regulation and high consequence of failure. In EV, customer shutdowns and focused efforts on cash preservation have caused customers to reexamine capital investment plans. Some strategic opportunities are proceeding, as evidenced by the new battery program I discussed. we expect some opportunities to move out until there is more clarity regarding the economic impact of this pandemic. In consumer, similar to EV, we expect a general slowdown in activity with the timing of some opportunities moving out. In energy, we continue to see activity in nuclear, where we offer considerable value for our customers, including digital solutions and services. While our customers may delay work as they adjust to the new environment, we see opportunities in this market. Generally, we expect customers to focus on preserving liquidity until there is more clarity on the severity and duration of the economic impact of the pandemic. There will be some offset in the short term from specific COVID-related opportunities and some highly strategic projects. On after-sales services, Bookings remain strong in Q4, up double digits, and we continue to see good trends in attaching service sales to our CapEx business. Q4 service revenues were down from last year as operations were impacted by customer plant closures and travel restrictions. In response to this, we've accelerated development of our digital service offerings, including enhanced remote support and Smart Coach, an on-demand virtual training product. For the year, both bookings and revenues for after-sales services increased by double digits. We've seen strength across our services portfolio, including upgrades, asset management, and our digital services offerings. Moving forward, we're focused on aligning the customer upgrade and maintenance opportunities to ensure customers can continue to operate at high levels of productivity in this new environment. In the short term, after sales services will be impacted while travel restrictions are in effect. As we announced in November, we introduced a reorganization plan to support our growth and drive continued performance improvements. This has been completed on time and on budget. The reorganization is designed to reallocate capital from underperforming facilities to high-performing facilities and drive margin expansion. That said, I don't expect it will fully offset the inefficiencies caused by this new operating environment in the near term. And consequently, we will see margin pressure in fiscal 21. Moving to the ATS business model. A few AVM highlights from the quarter. In January, we held our second annual President's Kaizen. This involved the execution of four simultaneous Kaizen events globally. with participation by the executive leadership group as team members. The four events focus on sales funnel process, employee retention, new product development, and cost reduction. The events were held in facilities around the world. I was very pleased by the achievements made by the teams in a short period of time. Importantly, the 30 and 60-day follow-ups, which are standard parts of the ABM process, showed sustainment of the benefits realized in each event. More recently, as we have transitioned to new ways of operating, the fundamentals of our ABM have served our organization well. These new ways of operating include work-from-home protocols for our people where possible to enable physical distancing. In our facilities, we have also transitioned to shifts to reduce workforce density. We have implemented virtual daily visual management, which enables our remote workforce to stay connected with our teams on site. Along with daily visual management, other core ABM tools, such as problem solving, have equipped our team to quickly identify issues, root causes, and implement corrective actions. Turning to innovation. Much of our recent focus has turned to finding ways to help in the fight against COVID-19. our people have come together to apply their expertise across our organization. Outside of what we would consider to be core to our business, we have taken actions to help manufacturers produce critical personal protective and medical equipment. In the U.S., we worked with a global automaker to help them reconfigure capacity and supply equipment that can produce up to 11,000 N95 respirators per day. This was accomplished in 17 days, from kickoff to delivery, an incredible achievement by the team. We're working with ventilator manufacturers, enabling them to scale up production and providing equipment used to calibrate and test before distribution to hospitals and medical facilities. We're also engaged in activities that are well aligned to the value we bring to customers. For example, we're engaged with manufacturers of COVID-19 test kits, helping them ramp up production to meet the unprecedented demand for their products. At Comasur, our team has launched Decon Box, a new product to enable the fast decontamination of medical equipment, including N95 masks, helping to mitigate shortages. This product is based on the same technology used in our aseptic isolators. At IWK, Our team has developed a rapid deployment tube filling solution suitable for hygiene products with high alcohol content, such as hand sanitizer. Each of these initiatives have been implemented very quickly and demonstrates the innovation of our people and the positive impact that our organization enables for our communities. Moving to M&A, for the year, we completed three acquisitions, deploying $53 million in capital. Integration of Marco is underway and on track, with a focus on deployment of the ABM to drive operational efficiencies, advance geographic penetration, and expand Marco's after-sales services. As a reminder, Marco is a leading provider of yield control and recipe formulation systems for the food and related industries. As we look ahead, we're focused on maintaining our financial strength. which positions us well to get through these challenges today and be ready for future opportunities that may arise out of this new environment. In summary, I want to thank our employees for their ongoing dedication, which has enabled ATS to support our customers, make a difference in our communities, and drive improvements in our business. Our focus on innovation and continuous improvement enabled by our ABM along with the completion of our reorganization and ongoing measures to contain costs and preserve liquidity will serve us well. As we navigate through this dynamic period, we don't know how long the impact of the pandemic will last. However, when we do move beyond this health and economic crisis, we believe our business is uniquely positioned. As customers return to work and look at ways to drive efficiency in their operations, Automation will be a critical enabler. Long term, we expect manufacturers to examine their existing footprints and supply chains to ensure they can operate in the future through major disruptions as we're experiencing. Enabling efficiencies through automation and innovation will be vital to their success. We have valued customer relationships with world-leading organizations, many of whom are essential service providers themselves. We have a strong business with good backlog, a healthy balance sheet, and our ABM playbook that will enable us to continue to create long-term shareholder value. Now I will turn the call over to Maria.