ATS Corporation Common Shares

Good morning, ladies and gentlemen, and welcome to the ATS Automation second quarter conference call and webcast. This call is being recorded on November 3rd, 2021 at 8.30 a.m. Eastern Time. Following the presentation, we will conduct a question and answer session. Instructions will be provided at the time for you to queue up for questions. If anyone has any difficulties hearing the conference, please press star followed by the zero for operator assistance at any time. I'd now like to turn the call over to Shereen Zahawi, Director of Investor Relations at ATS. Please go ahead.

Thank you, Operator, and 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 securities regulators. Now, it's my pleasure to turn the call over to Andrew.

Thank you, Shireen. Good morning, ladies and gentlemen, and thank you for joining us. We're pleased to report a strong quarter for ATS, including solid order bookings and record order backlog. We saw robust organic revenue growth and continue to drive margin expansion across businesses in line with our plan. On the M&A front, we announced three acquisitions that in turn strengthen ATS's consulting capabilities and process engineering and serve to enhance our digital offerings, expand our precision conveyor technologies for regulated markets, and bolster our portfolio of pharmaceutical processing and packaging solutions. Reflecting our ongoing focus on improving our ESG efforts, the third quarter also saw the release of our fiscal 2021 sustainability report. It highlights recent accomplishments in the key priority areas of ethics and integrity, people, social responsibility, and responsible manufacturing and service, and introduces five sustainability goals, including our ambition of becoming carbon neutral by 2030. These targets compel us to act with the discipline and accountability that are vital to achieving a successful sustainability journey, which we believe has positive implications for all customers, shareholders, and employees. This morning, I will update you on business conditions, and then Ryan will provide his report. Starting with our financial value drivers. Q2 revenues were $522 million, up 56% from Q2 last year, driven by the addition of CFT, which closed in late March 2021, and strength across our businesses. Organically, revenues grew 24% year-over-year, a good result that was augmented by the pandemic impact on Q2 revenues last year. Q2 order bookings were $510 million, representing a 27% increase year-over-year. We saw robust booking activity across most markets with strength in transportation, food and beverage, and energy. Our adjusted EBIT margin for the quarter was 13.5%, representing over 150 basis points of margin expansion versus Q2 of last year. Moving to our outlook, we ended the quarter with over $1.3 billion in backlog and a solid business foundation that also provides us with good revenue visibility for the balance of 2022. With the pandemic situation improving in some geographies, we're seeing a better operating environment with greater access to customer sites and reduced travel restrictions compared to last year. That said, we continue to work with our customers and employees to manage the pandemic-related logistical challenges that persist. By market, conditions remain positive in Life Sciences, with good activity levels in medical devices, pharma, and radiopharma. Most of the funnel today is comprised of traditional, non-COVID-related opportunities, as customers revive pre-pandemic investment priorities. Life Sciences represented approximately 50% of our bookings this quarter, and we expect it to remain a key market for AETS going forward. In EV, auto manufacturers are stepping up their investments to expand their electrical offerings with robust activity levels for both newcomers and traditional OEMs. We won a number of mandates in the quarter, including a large award from a repeat customer and new work in Europe. Our long track record and proven expertise in battery assembly and test make us a trusted partner in the space, particularly as evolving battery technologies introduce new complexities for our customers. In food and beverage, we're seeing opportunities in food and an improved funnel in beverage. In consumer, we saw good activity in warehouse automation, while the cosmetics funnel is showing some improvement, but still hasn't recovered to pre-pandemic levels. In energy, we won a Nuclear Refurbishment Award based on a highly innovative automation solution and see opportunities in nuclear decommissioning in North America and globally. On after-sales services, revenues exhibited solid growth versus Q2 last year, driven by retrofit projects, spare parts, and digital services. We continue to utilize and expand our services networks to support additional areas of our business. We're making good progress on the deployment of our digital service platform and increased customer adoption. To create an even better customer experience, we see opportunities to expand our aftermarket services footprint. To summarize our outlook, order backlog is strong and our funnel is robust. Overall demand signals are healthy. and we are keeping a close eye on developments within our supply chain where the situation remains dynamic to ensure we're taking the proper mitigating actions. We're still seeing some timing and approval uncertainty related to the pandemic environment when it comes to our customers' buying decisions. However, we're encouraged by recent pickup in customer activity levels. Moving to the ABM, our continuous improvement playbook. This was another busy quarter with a focus on improving our value drivers, both from an operational and commercial perspective. We held over 25 Kaizens and problem solving events across various ATS divisions. These events targeted improvements in multiple areas, including bookings, sales, profitability, delivery, and quality. Our ATF life sciences business ATS Life Sciences business held a joint Kaizen event with a customer. By working together, we were able to identify actions to achieve lead time and cost reductions. This is the third ATS collaboration with a customer and a great way to strengthen our relationship. One division within our CFT business held a Kaizen event with a focus on reducing lead times. The division is projected to improve lead times from greater than 120 days currently to under 90 days by reducing the time needed to locate parts, creating and monitoring standard times for assembly, and improving the kickoff and parts ordering process. Lower lead times will improve competitiveness and support quicker revenue conversion. Also at CFT, in the aftermarket services group, we held a Kaizen event and implemented a daily visual management system for spare parts that proactively identifies and resolves material issues. In the first two months of implementation, on-time delivery improved from 70% to greater than 85% today, with a path towards 90%. We also launched our third global virtual ABM boot camp on the back of a similar event in Q1. The camp runs over a six-week period and combines self-paced learning and real-time discussions with ABM leaders. This modified Virtual format enables us to continue scaling our training and demonstrates how businesses across ATS are using the ABM to deliver tangible results. Moving to M&A. Consistent with our strategy, acquisitions continue to be an important complement to ATS's organic growth. Let me start with the integration of CFT. Over the last six months, we have made good progress on rolling out the ATS business model and firming up synergy opportunities in our supply chain and cost structure. We're also exploring cross-selling opportunities between CFT and ATS in a number of areas, including conveyance products and services. BioDots integration is on plan, and we are pleased with its early progress since acquisition in June. During the second quarter, we announced three acquisitions. BLSG is a consulting company specializing in process engineering. Now serving as part of the ATS process automation solutions group, it expands our ability to holistically serve customers from problem identification to solution implementation and enhances our overall value proposition, particularly in the area of digital offerings. NCC provides turnkey automation solutions and high-precision pallet handling and sanitary conveyance products. It expands our portfolio of precision conveyor technologies through the addition of products adjacent to SuperTrac and serves as an important pillar of our automation product strategy while strengthening our position in the food and beverage end market. DF is a specialized manufacturer of pharmaceutical processing and packaging equipment and systems. Upon closing of the acquisition, expected in calendar Q4, DF will join our Coma Chair business to provide a complimentary portfolio of products and expand our offerings in the aseptic fill finish market. We welcome all three businesses to the ATS family. With a strong balance sheet, we will continue to cultivate and evaluate acquisition opportunities consistent with our proven strategy. Timing of acquisitions will be variable, and our approach to deploying our balance sheet will be disciplined and strategic. In summary, we're pleased with our results this quarter and view them as further proof of the strength and evolution of our portfolio. Our focus on ensuring the safety and engagement of our employees, serving our customers well, and creating value for our shareholders is unchanged. Our objective is to build a great ATS business, and our people are making good progress every day towards achieving our collective goal. Now I will turn the call over to Ryan. Ryan, over to you.