ATS Corporation Common Shares

Good morning, ladies and gentlemen. Welcome to the ATS Automation first quarter conference call and webcast. I would like to remind you that this call is being recorded on August 12th, 2020 at 10 o'clock 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'd now like to turn the call over to Stuart McQuaig, Vice President, General Counsel of ATS. Please go ahead.

Thanks, Operator, and good morning, everyone. Your main hosts today are Andrew Hyder, Chief Executive Officer of ATS, and Ryan McLeod, 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. Your caution that the oral statements made on this call will contain forward-looking information that involves risks and uncertainties, including those introduced by 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 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 that 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. The first quarter was a period of adjustment due to the pandemic. Restrictions were placed on customer plan visits, some customers temporarily closed their operations, and at ATS, working from home, physical distancing in our facilities, and enhanced cleaning became standard operating practice. As a result of these factors, Q1 revenues, bookings, and margins were down versus last year. Even so, our teams delivered exceptional work for customers. and secured new programs, including those related to the fight against COVID-19. In this uncertain and challenging environment, the presence of a healthy backlog, strong balance sheet, and resilient workforce provides an advantage for ATS. This morning, I will speak to our Q1 performance, provide comments on our outlook, which reflects somewhat improved business conditions since our last call, and discuss how we are moving forward. Ryan will then provide his report. Starting with our financial value drivers, our revenues for the quarter were $325 million, down 4% from last year. Our Q1 adjusted EBIT margin was 9%, reflecting pandemic-related inefficiencies partially offset by government wage subsidies and cost containment measures, including the reorganization we completed last year. Q1 order bookings were $325 million, down 23% from last year's record Q1 bookings of $423 million. Included in our Q1 orders was a previously announced $65 million program for the design, build, and delivery of two automated systems that will enable the production of up to 10 million units per month of critical components for point-of-care test kits that can be used to detect COVID-19. I'm pleased to report that our team is on track to meet this very aggressive delivery schedule. As well, ATS's Life Sciences Group and ComaChair jointly won a pharmaceutical program worth an excess of $10 million. It will feature the compelling combination of ComaChair's isolation technology with ATS's automation capability. Moving to our outlook, our Q1 ending order backlog of $909 million positions us well in the current environment as economic uncertainty accompanying the pandemic has pushed some business to a future date. By market, activity in life sciences remains relatively robust due to mandates related to COVID-19. We continue to pursue a number of COVID-related rapid response opportunities, including applications for syringe production, diagnostic test devices, and pen needles. Other opportunities in medical devices, pharma, and radiopharma, are coming back online. Life Sciences represented over 70% of our bookings in the first quarter, and we expect this will be a strong market for us over the long term. In EV, a significant slowdown in end market demand has caused customers to focus their efforts on cash preservation and re-examine capital investment timing. There are select opportunities that are moving forward, but overall market activity is slow. In consumer, activity slowed with the timing of some opportunities moving out. In energy, we continue to see activity in nuclear, including incremental demand for our digital solutions and services. Generally, we expect customers to exercise caution in making capital investment decisions 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 were down low double digits in the first quarter, while revenues were down more significantly due to plant closures and travel restrictions. Despite Q1 challenges, funnel activity for services is robust, and we have realized some early wins with our new digital product offerings, including enhanced remote support and Smart Coach. Moving forward, We're focused on 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 continue to be impacted while travel restrictions and physical distancing protocols are in effect. Overall, and not to downplay the operating challenges ahead, but as some regions began to reopen, business conditions improved as the quarter progressed. Moving to the ATS business model. We have now adjusted to the pandemic by leveraging the ABM in a virtual environment. In the quarter, we completed six virtual Kaizens to support remote operations, including events that are driving improvement in business development, project management, finance, and supply chain. Training has continued through the deployment of digital on-demand ABM programs. We also launched Forward Together to document our approach to COVID. This will also provide direction for future pandemics or other global or regional concerns that impact business operations. Turning to innovation. We've been active in applying expertise across the organization to quickly address the needs of customers engaged in the production of N95 respirators, ventilators, diagnostic test kits, and syringes. We accelerated the development and deployment of our digital service product offerings, which are ideally suited to this environment. We have launched our new Symphony product, an innovative, high-performance digital manufacturing technology that improves productivity of automated assembly processes by eliminating non-value-add time. This product builds on the technology that we acquired last year from Transformix and provides a high degree of standardization and is ideal for multipurpose production assets, having the flexibility to adapt to new products and processes. Each of these initiatives demonstrates the innovative nature of our people and our ongoing strategic focus of creating enabling solutions. Even in this COVID environment, we will prioritize investment in innovation. Moving to M&A, we continue to engage in cultivating activities that are aligned with our stated framework. We have a strong balance sheet and are well positioned and ready for future opportunities that may arise in this new environment. While the early days of COVID made it more difficult to cultivate M&A, activities have restarted. In summary, our first quarter performance reflected the challenges brought on by the pandemic. but also the resiliency of our workforce and delivering for our customers as an essential business. We have made adjustments to operate in this new climate and stand ready to do more as needed. Going forward, we have a strong business with good backlog, a healthy balance sheet, and our ABM playbook that will enable us to create long-term shareholder value. We are focused on putting our business in a position to succeed through this difficult period and emerge in a strong competitive position in a future that may need ATS's solutions more than ever. Now, I'll turn the call over to Ryan McLeod. This is Ryan's first call as Chief Financial Officer. As you recall, Ryan was named Interim CFO effective June 26. Having worked closely with the leadership team over many years, Ryan has moved quickly and seamlessly in his new role. Ryan, over to you.