ATS Corporation Common Shares

This call is being recorded on February 3rd, 2021 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 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 Shireen Sahawi, Director of Investor Relations at ATS.

Great. Thank you, operator. Good morning, everyone. Your main hosts today are Andrew Heider, Chief Executive Officer of ATS, and Ryan McLeod, Chief Financial Officer. For those who joined us by phone, our remarks are accompanied by a slide deck, which is available at atsautomation.com. Before we begin, I am required to provide the following statement respecting forward-looking information, which is made on behalf of ATS and all its representatives on this call. You are cautioned 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 the Canadian Provincial Securities Regulators. Now, it is my pleasure to turn the call over to Andrew.

Thank you, Shireen. Good morning, ladies and gentlemen, and thank you for joining us. Our third quarter featured record order bookings and backlog. We continued to improve our performance in the face of challenging business conditions and drove meaningful margin expansion in line with our long-term plan. We also announced several transactions. In December, we announced our intention to pursue a tender offer to acquire CFT Group. a global supplier of automated processing and packaging equipment to the food and beverage industry, an attractive growth market for ATS. And during the quarter, we reorganized our European transportation business as planned, helping to strengthen our position and performance in an important end market. Today, I will update you on business conditions, and then Ryan will provide his report. Starting with our financial value drivers, Q3 revenues were $370 million, up 1% from Q3 last year and up 10% sequentially, primarily driven by higher contributions from our services business. Q3 order bookings were $435 million, up 18% from last year and 8% sequentially. Bookings were strong across most segments. with large customer awards in life sciences and consumer. Our adjusted EBIT margin for the quarter was 11.8%, representing 164 basis point margin expansion versus Q3 of last year. Moving to our outlook, we're encouraged by the strong order bookings activity. As the pandemic evolves globally, we are closely monitoring customer demand signals And it's fair to say that some customers remain cautious about approving new CapEx spend. Our order backlog of $985 million provides us with a solid base of business to offset uncertainty in the short term. By market, activity and life sciences remain robust with broad-based strength in medical devices, pharma, and radiopharma. We continue to win new mandates related to COVID-19. This work represented around 18% of our Life Sciences bookings this quarter. Our focus on innovation and differentiated solutions is bearing fruit with new customer wins and higher share of wallet with existing accounts. Life Sciences represented over 60% of our year-to-date bookings and we expect it will be a strong market for ATS for years to come. In EV, We're starting to experience some improvement in activity levels and intend to remain selective and focused on the right projects. Given recent industry announcements and plans for future customer capital deployment in EV, we continue to be bullish on long-term opportunities, particularly in North America, where customers see the need to build capacity. In consumer, we saw strength in warehouse automation and food, while cosmetics remained a little soft. In energy, we continued to execute on our nuclear strategy in what our first major project in the US. This is an important development for ATS as it marks our entry into the attractive decommissioning space and the geographic diversification of the business. On after sales services, revenues were up in the highest single digits year over year. and up double digits compared to Q2 with broad-based strength across all vertical markets. Our regional service networks and the use of digital support tools, including enhanced remote support, have been instrumental in driving our ability to serve customers as travel challenges continue. Moving forward, we continue to refine our digital offerings by adding new capabilities, such as e-commerce, to improve customer convenience, and reliance on ATS as a partner. We're also growing capacity in our regional service networks to strengthen our local presence and increase customer confidence. By being more proactive and strategic in how we embed services in our CapEx projects, we see instrumental opportunities in retrofit and maintenance. To summarize our outlook, we are encouraged by bookings this quarter, and our funnel remains healthy. Similar to last quarter, the pandemic environment continues to introduce some timing and approval uncertainty as customers exercise caution around capital deployment. Moving on, in the third quarter, we made substantial progress on the previously announced reorganization plan in our transportation business, including the sale of certain assets in Germany. This reorganization eliminates underperforming operations to protect future margins and allows us to bring greater focus to attractive niches in EV where the ATS value proposition is strong and the risk-reward dynamic is compelling. Moving to the ABM, our continuous improvement playbook. We are making progress by using virtual means to train and hold events. Through regular Kaizens and other initiatives, we have identified additional opportunities for improvement to support growth and margin expansion. A few ABM highlights from the quarter. We held seven Kaizens across various ATS divisions. These events drove improvements in multiple areas, including sales, operations, and customer service. One division in our life sciences group was able to achieve cost savings of 25% by identifying material savings, improving operational efficiencies, and making greater reuse of engineering designs. Our team at Commissar Netherlands was able to reduce production lead times for a key product by improving process flow and production area layout, which has led to higher customer satisfaction. In commercial ABM, we refined our marketing efforts. We identified and implemented a new process and software tool. This is expected to result in a 5% to 10% improvement in our digital lead generation. We also hosted our first ATS Virtual Expo in early December, which showcased our automation capabilities through live presentations and more than 40 display booths showcasing ATS and our growth partners. The event was well attended with more than 1,800 participants and generated leads which are accretive to our sales funnel. Turning to innovation, we continue to prioritize investments in differentiated solutions that positively impact our customers. Teams across ATS are pursuing next generation ideas in areas including linear motion technology, digital services, and modular and flexible manufacturing, just to name a few. ATS has also been recognized for its efforts and dedication. In the third quarter, WholeLogic, a key customer within our life sciences group recognize ATS for our participation in the manufacturing scale-up of Hologic's innovative COVID-19 assay program. I'm proud of the work done on this assignment and pleased to say it's one of many ways ATS is building customer success around the world. On M&A, acquisitions continue to be an important complement to ATS's organic growth. In the third quarter, We announced our intention to pursue the acquisition of CFT Group via a tender offer process. CFT is a global supplier of automated processing and packaging equipment and would serve as a platform for ATS in the food and beverage industry. It is well aligned with our strategy to target acquisitions in attractive and growing markets with differentiated technologies and strong positions. Its complementary technologies can be combined with our existing capabilities to create unique customer offerings. The transaction offers strong synergies, earnings accretion, and an attractive return on invested capital. The transaction is expected to close in the first quarter of calendar 2021, subject to achieving a 90% take-up on the voluntary takeover offer and customer regulatory approvals and closing conditions. In addition to CFT, we continue to cultivate and evaluate a number of opportunities. Of course, timing will be variable and our approach to deploying our balance sheet will be disciplined and strategic. In summary, third quarter results demonstrated the strength of our business and our ability to adapt operations to the current climate. Booking activity is encouraging. and reflects the alignment we have with our customers in providing best-in-class solutions. Going forward, our focus remains on sharpening our execution through the application of the ABM Playbook to drive better performance. Our strong backlog provides good revenue visibility during this challenging period, while our healthy balance sheet enables us to act opportunistically when strategic prospects arise. We are looking forward to closing the CFT acquisition and see a significant value creation opportunity for our customers and our shareholders. Now, I will turn the call over to Ryan. Of note, Ryan was named our permanent CFO in November. Congratulations, Ryan. Well deserved. Ryan, over to you.