ATS Corporation Common Shares

Good morning, ladies and gentlemen. Welcome to the APS Automation Second Quarter Conference call and webcast. This call is being recorded on November 4th, 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 McQuaid, Vice President, General Counsel of ATS. Please go ahead.

Thanks, Operator, and good morning, everyone. Your main hosts today are Andrew Heider, Chief Executive Officer of ATS, and Ryan McLeod, 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. Your caution that the oral statements made on this call will contain forward-looking information that involves risks and uncertainties. including those introduced by the 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 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. Through the second quarter, we continue to focus on our operations in this new environment, the health and safety of our employees, and delivering on commitments for our customers. Our second quarter featured increased order bookings, and we finished with a strong order backlog. Operationally, we continued to improve our performance in the face of challenging business conditions. In September, we announced a reorganization plan for our transportation business that included the divestment of non-core assets. Our teams have adjusted to the new environment and are delivering value for our customers, but COVID restrictions continued to ruin revenues in the quarter. Today I will focus on a few key topics, update you on business conditions, and then Ryan will provide his report. Starting with our financial value drivers, Q2 revenues were $336 million, down 2% from Q2 last year on lower services revenue due to travel restrictions and entry limitations at some customer sites. Our Q2 adjusted EBIT margin was 12% in line with last year. Q2 order bookings were $403 million, up 26% from last year. This includes the previously announced $20 million program for the design, build, and delivery of automated safety syringe manufacturing systems. These systems will support and take the demand for routine health care and to treat the surge of COVID-19 patients. Moving to our outlook. We remain cautious. As the pandemic appears to be far from over, period-on-door backlog of $956 million provides us with a solid base of business to offset uncertainty in the short term. We're encouraged with quarterly booking activity. By market, activity in life sciences remained relatively robust and included new mandates related to COVID-19 responses. Other activity in medical devices, pharma, and radiopharma has remained strong. We want a number of orders that follow on current programs, as well as orders from existing accounts that have expanded penetration with those customers. Life Sciences represented over 65% of our year-to-date bookings. We expect it will be a strong market for us over the long term. In EV, we have seen regional differences in market development. In Europe, previous investments in EV capacity and a slowdown in end-market demand have caused customers to focus their efforts on cast preservations and reexamine capital and timing. In North America, some EV opportunities are moving forward, but overall transportation market activity remains challenging. In consumer, conditions remain soft. Activity improved on opportunities in warehouse automation and food, which included contributions from Marko. In energy, we continue to see activity in nuclear, including incremental demand for our digital solutions and services. Overall, our funnel remains healthy, but we expect customers to exercise caution given limited visibility on the future severity and duration of the pandemic and its economic impact. On after-sales services, revenues were down year over year, and this business has not yet recovered due to travel and facility entry restrictions. That said, Sequentially, after-sales service revenues were up double digits compared to Q1. Q2 service bookings were up from both Q1 and Q2 last year. Despite limitations created by COVID, funnel activities for services are robust. Our regional networks and the use of digital support tools, including enhanced remote support, have increased customer confidence as travel challenges continue. Moving forward, We're focused on upgrades and maintenance opportunities and digital services to ensure customers can operate at high levels of productivity in this environment. In the second quarter, we announced a reorganization plan to help offset an expected downturn in our transportation market by the pandemic. This plan includes the closure of certain transportation facilities and workforce reductions, primarily in Europe and Asia, and resulted in the sale of non-core assets. This will align our European capacity and cost structure to current and expected conditions in the transportation market. Ryan will provide further details on cost and time. Moving to the ABM. We've adjusted training and event methods to this new environment. Progress continues and we have many opportunities for improvement ahead to support our growth and margin expansion plans. A few ABM highlights from the quarter. A virtual ABM boot camp held in Europe resulted in 14 ABM-related events, including two Kaizens. The resulting improvements in process and daily visual management helped enable the delivery of critical projects to customers on time, while implementing split shifts for the workforce to maximize safety of our employees and customers. Another division conducted an event focused on streamlining the coding process that yielded a 10% reduction in process time. while improving quality. We launched our commercial ABM, which focuses on improving our marketing and front-end processes. This included the launch of our new ATS website and multiple marketing Kaizen events. These efforts have resulted in up-to-date increases in our digital marketing funnel by 47%. During a time of restricted travel and trade shows, this has proven to be instrumental in getting ATS in front of potential clients. and it has resulted in our upcoming ATS Automation Virtual Expo we are holding early December. The virtual trade show will show all ATS businesses, along with 38 of our growth suppliers. Presentations will include educational webinars that will introduce participants to automation and our core capabilities. We hope you will join us for this event. To further tie Kaizen events to progress, A year ago, we held an event that advanced the development of our critical sustainability initiatives. Our process defined what matters to our employees, contractors, and shareholders in ensuring the sustainable performance of our company. As a result of that work, we published our first annual sustainability report this week. The report highlights many of the policies and practices that shape and guide our efforts, provides data on our initiatives, and performance, and outlines our ongoing commitment to improve. This is an exciting milestone in our sustainability journey, and I encourage you to review the report, which is available on our website. Moving forward, we will continue to report on our sustainability commitments annually. Turning to innovation, we completed the commercial launch of Symphony, a digital manufacturing technology that improves productivity of automated assembly processes. It builds on the rapid-speed matching technology that we acquired last year from Transformix. Symfony increases our capabilities in life sciences and other vertical markets and is a key feature in the $20 million order we secured for automated syringe manufacturing. The development and deployment of our digital service offerings are progressing as well. These products are ideally suited to the COVID environment. and will serve customers well as they optimize their production processes and look to ATS to rapidly supply their needs for service and parts. We continue to prioritize investment in innovation. We recently completed work on our new ATS Innovation Center, a state-of-the-art home for our innovation team. This is a significant accomplishment for ATS and the team who supported the build. The innovation team is working on next generation ideas that will enable solution to positively impact our customers. We've also been recognized for our efforts. In the second quarter, Process Automation Group won the Fiat Chrysler Group CapEx Supplier of the Year. I'm proud of the team's efforts to ensure customer success and to achieve this recognition. Each of these initiatives demonstrates the innovative nature of our people, and our ongoing strategic focus on creating value. Moving to M&A. Acquisitions have been and will continue to be an important element of ECS's growth. We have a good pipeline of prospects that throughout the year. As I've outlined in the past, we evaluate based on four criteria. The market, the strategic value of the target, how we will integrate and operate the target, and how quickly we can implement the agency business model. And finally, the financial return. We have been engaged and continue to cultivate key areas of interest. Of course, timing will be variable, and our approach to deploying our balance sheet will be disciplined and strategic. In summary, our second quarter performance demonstrates the resiliency of our workforce in delivering our commitments. Our continued strength in bookings reflects the alignment we have with our customers and providing best-in-class solutions. We have made it just to operate in this new climate and continue to provide value for our customers. 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 value. We are focused on putting our business in a position to succeed through this challenging period and emerging in a stronger position. Now I will turn the call over to Ryan. Ryan?