CAMBRIDGE, ON, Aug. 15, 2018 /CNW/ - ATS Automation Tooling
Systems Inc. (TSX: ATA) ("ATS" or the "Company") today
reported financial results for the three months ended July 1, 2018.
First quarter summary
- Revenues were $300.0 million, 14%
higher than a year ago.
- Earnings from operations were $27.0
million (9% operating margin), compared to $21.3 million (8% operating margin) a year
ago.
- Adjusted earnings from operations1 were $32.6 million (11% margin), compared to
$26.3 million (10% margin) a year
ago, primarily reflecting higher revenues and improved gross margin
compared to a year ago.
- EBITDA1 was $36.8
million (12% EBITDA margin), compared to $30.2 million (11% EBITDA margin) in the first
quarter of fiscal 2018.
- Earnings per share were 18 cents
basic and diluted compared to 12
cents basic and diluted a year ago. First quarter adjusted
basic earnings per share1 were 22
cents compared to 16 cents a
year ago.
- Order Bookings were $358 million,
a 35% increase from the first quarter of fiscal 2018.
- Period end Order Backlog was a record $789 million, 16% higher than at July 2, 2017.
- The Company's balance sheet and financial capacity to support
growth remained strong, with unutilized credit facilities of
$629.5 million.
"Our first quarter performance featured improvements in our
financial value drivers including year-over-year growth in Order
Bookings, revenues and margin expansion," said Andrew Hider, Chief Executive Officer. "We
finished the quarter with record Order Backlog and have continued
to advance the ATS Business Model. Our balance sheet is strong and
we are well positioned to execute on our value creation strategy:
Build, Grow and Expand, to drive long-term shareholder value."
Financial
results
|
|
|
|
|
|
|
3 months
ended
July 1,
2018
|
3 months
ended
July 2, 2017
|
Revenues
|
$
|
300.0
|
$
|
264.0
|
Earnings from
operations
|
$
|
27.0
|
$
|
21.3
|
Adjusted earnings
from operations1
|
$
|
32.6
|
$
|
26.3
|
EBITDA1
|
$
|
36.8
|
$
|
30.2
|
Net
income
|
$
|
16.7
|
$
|
11.5
|
Adjusted basic
earnings per share1
|
$
|
0.22
|
$
|
0.16
|
Basic and diluted
earnings per share
|
$
|
0.18
|
$
|
0.12
|
1
|
Non-IFRS measure: see
"Notice to reader: Non-IFRS measures and additional IFRS
measures".
|
First quarter summary
Fiscal 2019 first quarter
revenues were 14% higher than in the corresponding period a year
ago. Higher revenues primarily reflected higher Order Backlog
entering the first quarter of fiscal 2019 compared to a year ago,
and higher Order Bookings in the first quarter. Increased revenues
from construction contracts more than offset lower services
revenues.
By market, fiscal 2019 first quarter revenues from the consumer
products & electronics, and the life sciences markets increased
81% and 5% respectively, due to higher Order Backlog entering the
first quarter of fiscal 2019. Revenues in the energy market
increased 70%, primarily due to the timing of Order Bookings.
Transportation revenues decreased 16% compared to a year ago,
primarily due to timing of program execution compared to the
previous year.
Fiscal 2019 first quarter earnings from operations were
$27.0 million (9% operating margin)
compared to $21.3 million (8%
operating margin) in the first quarter of fiscal 2018. First
quarter fiscal 2019 earnings from operations included $5.6 million related to amortization of
identifiable intangible assets recorded on the acquisitions of PA,
IWK and sortimat. Included in first quarter fiscal 2018 earnings
from operations was $5.0 million
related to amortization of identifiable intangible assets recorded
on the acquisitions of PA, IWK and sortimat. Excluding these items,
first quarter fiscal 2019 adjusted earnings from operations were
$32.6 million (11% margin), compared
to adjusted earnings from operations of $26.3 million (10% margin) a year ago. Higher
adjusted earnings from operations primarily reflected higher
revenues and improved gross margin compared to a year ago,
partially offset by higher selling, general and administrative
expenses in the first quarter of fiscal 2019.
Depreciation and amortization expense was $9.8 million in the first quarter of fiscal 2019,
compared to $8.9 million a year ago.
The increase primarily reflected higher depreciation expenses for
internal development projects and amortization expenses of
acquisition-related intangible assets.
EBITDA was $36.8 million (12%
EBITDA margin) in the first quarter of fiscal 2019 compared to
$30.2 million (11% EBITDA margin) in
the first quarter of fiscal 2018. Higher revenues and improved
gross margin in the first quarter of fiscal 2019 were partially
offset by higher selling, general and administrative expenses
compared to a year ago.
Order Bookings
First quarter fiscal 2019 Order
Bookings were $358 million, a 35%
increase from the first quarter of fiscal 2018 as a result of
growth in all customer markets. By customer market, higher Order
Bookings in Energy primarily related to new programs in the nuclear
market. Order Bookings in transportation are being driven by the
electrification of vehicles (EV). Increased Order Bookings in
life sciences are primarily related to medical device
programs. Increased Order Bookings in consumer products and
electronics are primarily related to warehousing automation.
Order Backlog
At July 1,
2018, Order Backlog was a record $789
million, 16% higher than at July 2,
2017. Higher Order Backlog was driven primarily by increased
Order Bookings in all markets.
Quarterly conference call
ATS' quarterly conference
call begins at 10:00 a.m. eastern on
Wednesday August 15, 2018, and can be
accessed live at www.atsautomation.com or on the phone by dialing
(416) 764-8688 five minutes prior to the scheduled start time. A
replay of the conference will be available on the ATS website
following the call. Alternatively, a telephone recording of the
call will be available for one week by dialing (416) 764-8677 and
entering passcode 551836 followed by the number sign.
Annual Shareholders' Meeting
The Company will host its
annual meeting of shareholders at 10:00
a.m. eastern on Thursday, August 16,
2018 at the TMX Broadcast Centre, The Exchange Tower, 130
King Street West, Toronto
Ontario.
Investor Day
The Company will host an Investor Day on
Tuesday, September 18, 2018 at its
headquarters in Cambridge,
Ontario. ATS looks forward to welcoming its institutional
investors and equity research analysts for an update on its
corporate strategy and facility tour. If you are interested in
attending, please contact Sonya
Mehan, Director of Investor Relations and Corporate
Communications at smehan@atsautomation.com.
About ATS
ATS is an industry-leading automation
solutions provider to many of the world's most successful
companies. ATS uses its extensive knowledge base and global
capabilities in custom automation, repeat automation, automation
products and value-added services, including pre-automation and
after-sales services, to address the sophisticated manufacturing
automation systems and service needs of multinational customers in
markets such as life sciences, chemicals, consumer products,
electronics, food, beverage, transportation, energy, and oil and
gas. Founded in 1978, ATS employs approximately 3,800 people at 20
manufacturing facilities and over 50 offices in North America, Europe, Southeast
Asia and China. The
Company's shares are traded on the Toronto Stock Exchange under the
symbol ATA. Visit the Company's website at
www.atsautomation.com.
Management's Discussion and Analysis
For the Quarter
Ended July 1, 2018
This Management's Discussion and Analysis ("MD&A") for
the three months ended July 1, 2018
(first quarter of fiscal 2019) is as of August 14, 2018 and provides
information on the operating activities, performance and financial
position of ATS Automation Tooling Systems Inc. ("ATS" or the
"Company") and should be read in conjunction with the unaudited
interim condensed consolidated financial statements of the Company
for the first quarter of fiscal 2019, which have been prepared in
accordance with International Financial Reporting Standards
("IFRS") and are reported in Canadian dollars. The Company assumes
that the reader of this MD&A has access to, and has read, the
audited consolidated financial statements prepared in accordance
with IFRS and the MD&A of the Company for the year ended
March 31, 2018 (fiscal 2018), and,
accordingly, the purpose of this document is to provide a fiscal
2019 first quarter update to the information contained in the
fiscal 2018 MD&A. Additional information is contained in the
Company's filings with Canadian securities regulators, including
its Annual Information Form, found on SEDAR at www.sedar.com and on
the Company's website at www.atsautomation.com.
Notice to reader: Non-IFRS measures and additional IFRS
measures
Throughout this document, management uses certain
non-IFRS measures to evaluate the performance of the Company. The
terms "operating margin", "EBITDA", "EBITDA margin", "adjusted net
income", "adjusted earnings from operations", "adjusted basic
earnings per share", "non-cash working capital", "Order Bookings"
and "Order Backlog" do not have any standardized meaning prescribed
within IFRS and therefore may not be comparable to similar measures
presented by other companies. Such measures should not be
considered in isolation or as a substitute for measures of
performance prepared in accordance with IFRS. In addition,
management uses "earnings from operations", which is an additional
IFRS measure, to evaluate the performance of the Company. Earnings
from operations is presented on the Company's consolidated
statements of income as net income excluding income tax expense and
net finance costs. Operating margin is an expression of the
Company's earnings from operations as a percentage of revenues.
EBITDA is defined as earnings from operations excluding
depreciation and amortization (which includes amortization of
intangible assets). EBITDA margin is an expression of the Company's
EBITDA as a percentage of revenues. Adjusted earnings from
operations is defined as earnings from operations before items
excluded from management's internal analysis of operating results,
such as amortization expense of acquisition-related intangible
assets, acquisition-related transaction and integration costs,
restructuring charges, and certain other adjustments which would be
non-recurring in nature ("adjustment items"). Adjusted basic
earnings per share is defined as adjusted net income on a basic per
share basis, where adjusted net income is defined as adjusted
earnings from operations less net finance costs and income tax
expense, plus tax effects of adjustment items. Non-cash working
capital is defined as the sum of accounts receivable, contract
assets, inventories, deposits, prepaids and other assets, less
accounts payable, accrued liabilities, provisions and contract
liabilities. Order Bookings represent new orders for the supply of
automation systems, services and products that management believes
are firm. Order Backlog is the estimated unearned portion of
revenues on customer contracts that are in process and have not
been completed at the specified date.
Earnings from operations and EBITDA are used by the Company to
evaluate the performance of its operations. Management believes
that earnings from operations is an important indicator in
measuring the performance of the Company's operations on a pre-tax
basis and without consideration as to how the Company finances its
operations. Management believes that EBITDA is an important
indicator of the Company's ability to generate operating cash flows
to fund continued investment in its operations. Management believes
that adjusted earnings from operations and adjusted basic earnings
per share (including adjusted net income) are important measures to
increase comparability of performance between periods. The
adjustment items used by management to arrive at these metrics are
not considered to be indicative of the business' ongoing operating
performance. Management uses the measure "non-cash working capital
as a percentage of revenues" to evaluate the Company's management
of its investment in non-cash working capital. Management
calculates non-cash working capital as a percentage of revenues
using period-end non-cash working capital divided by trailing two
fiscal quarter revenues annualized. Order Bookings provide an
indication of the Company's ability to secure new orders for work
during a specified period, while Order Backlog provides a measure
of the value of Order Bookings that have not been completed at a
specified point in time. Both Order Bookings and Order Backlog are
indicators of future revenues that the Company expects to generate
based on contracts that management believes to be firm. Management
believes that ATS shareholders and potential investors in ATS use
these additional IFRS measures and non-IFRS financial measures in
making investment decisions and measuring operational
results.
A reconciliation of (i) earnings from operations and EBITDA to
net income, and (ii) adjusted earnings from operations to earnings
from operations, adjusted net income to net income and adjusted
basic earnings per share to basic earnings per share, in each case
for the three-month periods ended July 1,
2018 and July 2, 2017 is
contained in this MD&A (see "Reconciliation of non-IFRS
measures to IFRS measures"). A reconciliation of Order Bookings and
Order Backlog to total Company revenues for the three-month periods
ending July 1, 2018 and July 2, 2017 is also contained in this MD&A
(see "Order Backlog continuity").
COMPANY PROFILE
ATS is an industry-leading automation
solutions provider to many of the world's most successful
companies. ATS uses its extensive knowledge base and global
capabilities in custom automation, repeat automation, automation
products and value-added services, including pre-automation and
after-sales services, to address the sophisticated manufacturing
automation systems and service needs of multinational customers in
markets such as life sciences, chemicals, consumer products,
electronics, food, beverage, transportation, energy, and oil and
gas. Founded in 1978, ATS employs approximately 3,800 people at 20
manufacturing facilities and over 50 offices in North America, Europe, Southeast
Asia and China.
STRATEGY
Framework
To drive the creation of
long-term sustainable shareholder value, the Company has developed
a framework for a three-part value creation strategy: Build, Grow
and Expand.
Build: To build on the Company's foundation and drive
performance improvements, management is focused on strategic
initiatives including the advancement of the ATS Business Model
("ABM"), the implementation and measurement of value drivers and
key performance indicators, a revised strategic planning process,
succession planning and talent management, advancing employee
engagement, and driving autonomy and accountability into its
businesses.
Grow: To drive growth, management is focused on growing
organically through the development and implementation of growth
tools under the ABM, providing innovation and value to the
Company's customers and markets, and growing the Company's
recurring revenue model.
Expand: To expand the Company's reach, management is
focused on the development of new markets and business platforms,
expansion of its service offerings, investing in innovation and
product development, and making strategic and disciplined
acquisitions that strengthen ATS' business.
ATS Business Model
The ABM is a business management
system that the Company has developed with the goal of enabling the
Company to pursue its strategies, outpace its chosen markets, and
drive year-over-year continuous improvement. Introduced in fiscal
2018, the ABM is bringing focus to:
- People: developing, engaging and empowering ATS' people
to build the best team;
- Process: alignment of ATS people to implement and
continuously improve robust and disciplined business processes
throughout the organization; and
- Performance: consistently measuring performance in order
to yield world-class performance for our customers and
shareholders.
The ABM is ATS' playbook, serving as the framework utilized by
the Company to achieve its business goals and objectives through
disciplined, continuous improvement. The initial roll-out of the
ABM included Company-wide training and deployment of tools to
standardize problem solving, establishing focused key performance
metrics and implementing continuous improvement processes. As the
initial tools are implemented, management will deploy additional
tools as part of the ongoing advancement of the ABM. Focus areas
include:
- Strengthening the core: adopting a customer first
mindset; implementing a robust performance management system;
adhering to eight value drivers; managing using Key Performance
Indicators; and leveraging daily management to measure at the point
of impact;
- Delivering growth: alignment with customer success;
focusing on organizational talent development, constantly
confirming that progress is being made toward stated goals; and
developing annual operating and capital deployment plans for each
ATS division;
- Pursuing excellence: deploying specific goals that
segment strategies into relevant focus areas; and improving
continuously using Kaizen events, problem solving and other
continuous improvement initiatives, which increase performance
annually; and
- Pioneering innovation: driving market technology
leadership; creating innovative platforms and analytics that
benefit customers by reducing complexity, shortening development
cycles and improving production efficiencies; and expanding the
reach and scope of ATS' capabilities for competitive advantage.
OVERVIEW –
OPERATING RESULTS
Consolidated Revenues (In millions of dollars)
|
|
|
|
|
|
|
Three Months
Ended
July 1, 2018
|
Three Months
Ended
July 2, 2017
|
|
|
|
Consumer products
& electronics
|
$
|
66.3
|
$
|
36.7
|
Energy
|
36.9
|
21.7
|
Life
sciences
|
124.5
|
119.1
|
Transportation
|
72.3
|
86.5
|
Total
revenues
|
$
|
300.0
|
$
|
264.0
|
Fiscal 2019 first quarter revenues were 14% higher than in the
corresponding period a year ago. Higher revenues primarily
reflected higher Order Backlog entering the first quarter of fiscal
2019 compared to a year ago, and higher Order Bookings in the first
quarter. Increased revenues from construction contracts more than
offset lower services revenues.
By market, fiscal 2019 first quarter revenues from the consumer
products & electronics, and the life sciences markets increased
81%, and 5%, respectively, due to higher Order Backlog entering the
first quarter of fiscal 2019. Revenues in the energy market
increased 70%, primarily due to the timing of Order Bookings.
Transportation revenues decreased 16% compared to a year ago,
primarily due to the timing of program execution compared to the
previous year.
Consolidated
Operating Results (In millions of dollars)
|
|
|
|
|
|
|
Three
Months Ended July 1, 2018
|
Three Months
Ended
July 2, 2017
|
|
|
|
|
|
|
Earnings from
operations
|
$
|
27.0
|
$
|
21.3
|
Amortization of
acquisition-related intangible
assets
|
5.6
|
5.0
|
Adjusted earnings
from
operations1
|
$
|
32.6
|
$
|
26.3
|
1 See
"Notice to reader: Non-IFRS measures and additional IFRS
measures."
|
|
|
|
|
Three
Months
Ended July 1, 2018
|
Three Months
Ended
July 2, 2017
|
|
|
|
|
|
|
Earnings from
operations
|
$
|
27.0
|
$
|
21.3
|
Depreciation and
amortization
|
9.8
|
8.9
|
EBITDA2
|
$
|
36.8
|
$
|
30.2
|
2
See "Notice to reader: Non-IFRS measures and additional IFRS
measures."
|
|
Fiscal 2019 first quarter earnings from operations were
$27.0 million (9% operating margin)
compared to $21.3 million (8%
operating margin) in the first quarter of fiscal 2018. First
quarter fiscal 2019 earnings from operations included $5.6 million related to amortization of
identifiable intangible assets recorded on the acquisitions of PA,
IWK and sortimat. Included in first quarter fiscal 2018 earnings
from operations was $5.0 million
related to amortization of identifiable intangible assets recorded
on the acquisitions of PA, IWK and sortimat. Excluding these items,
first quarter fiscal 2019 adjusted earnings from operations were
$32.6 million (11% margin), compared
to adjusted earnings from operations of $26.3 million (10% margin) a year ago. Higher
adjusted earnings from operations primarily reflected higher
revenues and improved gross margin compared to a year ago,
partially offset by higher selling, general and administrative
expenses in the first quarter of fiscal 2019.
Depreciation and amortization expense was $9.8 million in the first quarter of fiscal 2019,
compared to $8.9 million a year ago.
The increase primarily reflected higher depreciation expenses for
internal development projects and amortization expenses of
acquisition-related intangible assets.
EBITDA was $36.8 million (12%
EBITDA margin) in the first quarter of fiscal 2019 compared to
$30.2 million (11% EBITDA margin) in
the first quarter of fiscal 2018. Higher revenues and improved
gross margin in the first quarter of fiscal 2019 were partially
offset by higher selling, general and administrative expenses
compared to a year ago.
Order Bookings
First quarter fiscal 2019 Order Bookings were $358 million, a 35% increase from the first
quarter of fiscal 2018 as a result of growth in all customer
markets. By customer market, higher Order Bookings in Energy
primarily related to new programs in the nuclear market. Order
Bookings in transportation are being driven by the electrification
of vehicles (EV). Increased Order Bookings in life sciences are
primarily related to medical device programs. Increased Order
Bookings in consumer products and electronics are primarily related
to warehousing automation.
Order Backlog
Continuity (In millions of dollars)
|
|
|
|
|
|
|
Three
Months
Ended
July 1, 2018
|
Three Months
Ended
July 2, 2017
|
|
|
Opening Order
Backlog
|
$
|
746
|
$
|
681
|
Revenues
|
(300)
|
(264)
|
Order
Bookings
|
358
|
266
|
Order Backlog
adjustments1
|
(15)
|
-
|
Total
|
$
|
789
|
$
|
683
|
1
|
Order Backlog
adjustments include foreign exchange adjustments and
cancellations.
|
Order Backlog by
Market (In millions of dollars)
|
|
|
|
|
|
As
at
|
July 1,
2018
|
July 2,
2017
|
Consumer products
&
electronics
|
$
|
93
|
$
|
55
|
Energy
|
122
|
107
|
Life
sciences
|
389
|
353
|
Transportation
|
185
|
168
|
Total
|
$
|
789
|
$
|
683
|
At July 1, 2018, Order Backlog was
a record $789 million, 16% higher
than at July 2, 2017. Higher Order
Backlog was driven primarily by increased Order Bookings in all
markets.
Outlook
The Company's Order Bookings are generally
variable and sensitive to changes in the major economies the
Company serves including the U.S., Canada, Europe and Asia. The global economic environment has
shown recent signs of improvement; however, geopolitical risks
remain. Recently, the U.S. government rescinded on its exclusion of
Canada (and other jurisdictions
including the European Union) from steel and aluminium tariffs. As
a countermeasure, the Canadian government imposed tariffs on
certain imports from the U.S. effective July
1, 2018. Management believes that these tariffs may impact
pricing of certain components purchased by ATS as these tariffs
work through the supply chain. However, management does not expect
these tariffs to have a material impact on the Company's business,
due to the Company's ability to use its global footprint to obtain
alternative sources of supply. Ongoing trade agreement negotiations
between various jurisdictions in which the Company does business
may impact its future sales and operations. Currently, management
has seen no indication of a material change in customer demand or
production plans. Management will continue to monitor these
developments and assess their impact, and identify mitigation
opportunities.
Funnel activity (which includes customer requests for proposal
and ATS identified customer opportunities) in life sciences remains
strong and opportunities in the electrification of vehicles have
strengthened funnel activity in the transportation market. Funnel
activity in energy is fluid, and this market provides select
opportunities for ATS. Funnel activity in the consumer products
& electronics market has improved; however, it remains low
relative to other customer markets. Overall, the Company's funnel
remains significant; however, conversion of opportunities into
Order Bookings is variable as customers are cautious in their
approach to capital investment.
The Company's sales organization continues to work to engage
customers on enterprise-type solutions, which it expects will
provide ATS with more strategic relationships, increased
predictability, better program control and less sensitivity to
macroeconomic forces. This approach to market and the timing of
customer decisions on larger opportunities is expected to cause
variability in Order Bookings from quarter to quarter and lengthen
the performance period and revenue recognition for certain customer
programs. The Company's efforts to expand its after-sales service
offering is expected to provide some balance to the capital
expenditure cycle of its customers; however, this may not offset
capital spending volatility. The Company expects its Order Backlog
of $789 million at the end of the
first quarter of fiscal 2019 to partially mitigate the impact of
volatile Order Bookings on revenues in the short term. In the
second quarter of fiscal 2019, management expects Order Backlog
conversion to be in the [higher end of the 35% to 40%] range. This
expected conversion rate is based on current programs in Order
Backlog and management's estimate of revenues from new Order
Bookings in the quarter.
The Company is deploying the ABM across its divisions globally.
In fiscal 2018, the initial roll-out of the ABM was completed,
which included Company-wide training and deployment of tools to
standardize problem solving and continuous improvement processes.
As the initial ABM tools are implemented, management will deploy
additional tools as part of the ongoing advancement of the ABM,
with the goal of driving growth and continuous, sustained
performance improvements across the Company. Management expects
that the ABM will provide the Company with a long-term competitive
advantage in delivering value to its customers and
shareholders.
The Company is pursuing several initiatives with the goal of
expanding its adjusted earnings from operations margin over the
long-term including: growing the Company's higher margin
after-sales service business; improving global supply chain
management; increasing the use of standardized platforms and
technologies; growing revenues while leveraging the Company's
current cost structure; and the on-going development and adoption
of the ABM.
The Company seeks to expand its position in the global
automation market organically and through acquisition. The
Company's solid foundation and strong cash flow generation
capability provide the flexibility to pursue its growth
strategy.
CONSOLIDATED
RESULTS (In millions of dollars, except per share
data)
|
|
|
|
|
|
|
Three Months
Ended
July 1, 2018
|
Three Months
Ended
July 2, 2017
|
|
|
Revenues
|
$
|
300.0
|
$
|
264.0
|
Cost of
revenues
|
222.1
|
197.2
|
Selling, general and
administrative
|
47.5
|
44.3
|
Stock-based
compensation
|
3.4
|
1.2
|
Earnings from
operations
|
$
|
27.0
|
$
|
21.3
|
Net finance
costs
|
$
|
5.2
|
$
|
6.2
|
Provision for income
taxes
|
5.1
|
3.6
|
Net
income
|
$
|
16.7
|
$
|
11.5
|
Basic and diluted
earnings per
share
|
$
|
0.18
|
$
|
0.12
|
Revenues. At $300.0
million, consolidated revenues for the first quarter of
fiscal 2019 were $36.0 million, or
14%, higher than in the corresponding period a year ago (see
"Overview – operating results").
Cost of revenues. At $222.1
million, first quarter fiscal 2019 cost of revenues
increased compared to the corresponding period a year ago by
$24.9 million, or 13% primarily due
to higher revenues. At 26%, gross margin increased by 1% from first
quarter of fiscal 2018, primarily due to improved program execution
and operational utilization.
Selling, general and administrative ("SG&A")
expenses. SG&A expenses for the first quarter of fiscal
2019 were $47.5 million, which
included $5.6 million of amortization
costs related to the amortization of identifiable intangible assets
recorded on the acquisitions of PA, IWK and sortimat. Excluding
these costs, SG&A expenses were $41.9
million in the first quarter of fiscal 2019. Comparably,
SG&A expenses for the first quarter of fiscal 2018 were
$39.3 million, which excluded
$5.0 million of amortization costs
related to the amortization of identifiable intangible assets
recorded on the acquisitions of PA, IWK and sortimat. Higher
SG&A expenses in the first quarter of fiscal 2019 primarily
reflected increased employee costs and sales-related expenses.
Stock-based compensation. Stock-based compensation
expense amounted to $3.4 million in
the first quarter of fiscal 2019 compared to $1.2 million in the corresponding period a year
ago. The increase in stock-based compensation costs was due to
higher expenses from the revaluation of deferred stock units and
restricted share units.
Earnings from operations. For the first quarter ended
July 1, 2018, earnings from
operations were $27.0 million (9%
operating margin), compared to earnings from operations of
$21.3 million (8% operating margin)
in the corresponding periods a year ago (see "Overview – operating
results").
Net finance costs. Net finance costs were $5.2 million in the first quarter of fiscal 2019,
$1.0 million lower than in the
corresponding period a year ago. The decrease was primarily due to
higher interest income earned in the first quarter of fiscal 2019
compared to the corresponding period a year ago.
Income tax provision. For the three months ended
July 1, 2018, the Company's effective
income tax rate of 23% differed from the combined Canadian basic
federal and provincial income tax rate of 27% primarily due to
income earned in certain jurisdictions with different statutory tax
rates. The Company expects its effective tax rate to remain in the
range of 25%.
Net income. Fiscal 2019 first quarter net income was
$16.7 million (18 cents per share basic and diluted) compared to
$11.5 million (12 cents per share basic and diluted) for the
first quarter of fiscal 2018. Adjusted basic earnings per
share were 22 cents in the first
quarter of fiscal 2019 compared to 16
cents in the first quarter of fiscal 2018 (see
"Reconciliation of non-IFRS measures to IFRS measures").
Reconciliation of Non-IFRS Measures to IFRS
Measures
(In millions of dollars, except per share data)
The following table reconciles EBITDA to the most directly
comparable IFRS measure (net income):
|
Three
Months
Ended
July 1, 2018
|
Three Months
Ended
July 2, 2017
|
|
|
EBITDA
|
$
|
36.8
|
$
|
30.2
|
Less: depreciation
and amortization
expense
|
9.8
|
8.9
|
Earnings from
operations
|
$
|
27.0
|
$
|
21.3
|
Less: net finance
costs
|
5.2
|
6.2
|
Provision for income
taxes
|
5.1
|
3.6
|
Net
income
|
$
|
16.7
|
$
|
11.5
|
The following table reconciles adjusted earnings from operations
and adjusted basic earnings per share to the most directly
comparable IFRS measure (net income and basic earnings per share,
respectively):
|
Three Months Ended
July 1, 2018
|
Three Months Ended
July 2, 2017
|
|
IFRS
|
Adjustments
|
Adjusted
(non-IFRS)
|
IFRS
|
Adjustments
|
Adjusted
(non-IFRS)
|
|
|
|
|
|
|
|
Earnings from
operations
|
$
|
27.0
|
$
|
––
|
$
|
27.0
|
$
|
21.3
|
$
|
––
|
$
|
21.3
|
Amortization of
acquisition-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
related intangible
assets
|
|
––
|
|
5.6
|
|
5.6
|
|
––
|
|
5.0
|
|
5.0
|
|
$
|
27.0
|
$
|
5.6
|
$
|
32.6
|
$
|
21.3
|
$
|
5.0
|
$
|
26.3
|
Less: net finance
costs
|
$
|
5.2
|
$
|
––
|
$
|
5.2
|
$
|
6.2
|
$
|
––
|
$
|
6.2
|
Income before
income taxes
|
$
|
21.8
|
$
|
5.6
|
$
|
27.4
|
$
|
15.1
|
$
|
5.0
|
$
|
20.1
|
Provision for income
taxes
|
$
|
5.1
|
$
|
––
|
$
|
5.1
|
$
|
3.6
|
$
|
––
|
$
|
3.6
|
Adjustment to
provision for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
taxes1
|
|
––
|
|
1.6
|
|
1.6
|
|
––
|
|
1.6
|
|
1.6
|
|
$
|
5.1
|
$
|
1.6
|
$
|
6.7
|
$
|
3.6
|
$
|
1.6
|
$
|
5.2
|
Net
income
|
$
|
16.7
|
$
|
4.0
|
$
|
20.7
|
$
|
11.5
|
$
|
3.4
|
$
|
14.9
|
Basic earnings per
share
|
$
|
0.18
|
$
|
0.04
|
$
|
0.22
|
$
|
0.12
|
$
|
0.04
|
$
|
0.16
|
1
|
Adjustments to
provision for income taxes relate to the income tax effects of
adjustment items that are excluded for the purposes of calculating
non-IFRS based adjusted net income.
|
LIQUIDITY, CASH
FLOW AND FINANCIAL RESOURCES (In millions of dollars,
except ratios)
|
|
|
|
|
|
As
at
|
July 1,
2018
|
March 31,
2018
|
Cash and cash
equivalents
|
$
|
324.6
|
$
|
330.1
|
Debt-to-equity
ratio
|
0.46:1
|
0.47:1
|
|
|
|
For the three months
ended
|
July 1, 2018
|
July 2,
2017
|
Cash flows used in
operating activities
|
$
|
(0.4)
|
$
|
(3.4)
|
At July 1, 2018, the Company had
cash and cash equivalents of $324.6
million compared to $330.1
million at March 31, 2018. At
July 1, 2018, the Company's
debt-to-total equity ratio was 0.46:1.
In the three months ended July 1,
2018, cash flows used in operating activities were
$0.4 million ($3.4 million used in operating activities in the
corresponding period a year ago). The improvement in operating cash
flows related primarily to the timing of investments in non-cash
working capital in certain customer programs.
In the first quarter of fiscal 2019, the Company's investment in
non-cash working capital increased by $29.9
million from March 31, 2018.
At July 1, 2018, accounts receivable
increased by 7%, or $16.0 million,
driven by the timing of billings in certain customer
contracts. Net contracts in progress decreased 30%, or
$20.5 million, compared to
March 31, 2018. The Company
actively manages its accounts receivable and net contract in
progress balances through billing terms on long-term contracts,
collection efforts and supplier payment terms. Inventories
decreased 4%, or $2.5 million,
primarily due to the timing of inventory purchases. Deposits and
prepaid assets decreased 12%, or $2.7
million, compared to March 31,
2018 due to the timing of program execution. Accounts
payable and accrued liabilities decreased 15%, or $36.7 million, compared to March 31, 2018, primarily due to interest
payments made on the Company's senior notes and employee incentive
payments made in the first quarter of fiscal 2019. Provisions
decreased 21%, or $4.4 million,
compared to March 31, 2018.
Capital expenditures totalled $4.6
million in the first quarter of fiscal 2019, primarily
related to the expansion and upgrade of certain manufacturing
facilities and computer hardware.
Intangible assets totalled $1.6
million for the first three months of fiscal 2019, primarily
related to computer software and various internal development
projects.
In the first quarter of fiscal 2019, the Company had
$629.5 million of unutilized
multipurpose credit, including letters of credit, available under
existing credit facilities and an additional $1.8 million available under letter of credit
facilities.
On July 28, 2017, the Company
amended its senior secured credit facility to extend the agreement
by three years to mature on August 29,
2021 (the "Credit Facility"). The Credit Facility
provides a committed revolving credit facility of $750.0 million. The Credit Facility is
secured by (i) the Company's assets, including real estate; (ii)
assets, including certain real estate, of certain of the Company's
North American subsidiaries; and (iii) a pledge of shares of
certain of the Company's non-North American subsidiaries.
Certain of the Company's subsidiaries also provide guarantees under
the Credit Facility. At July 1,
2018, the Company had utilized $135.7
million under the Credit Facility, by way of letters of
credit (March 31, 2018 - $108.5 million).
The Credit Facility is available in Canadian dollars by way of
prime rate advances and/or bankers' acceptances, in U.S. dollars by
way of base rate advances and/or LIBOR advances, in Swiss francs,
Euros and British pounds sterling by way of LIBOR advances and by
way of letters of credit for certain purposes in Canadian dollars,
U.S. dollars and Euros. The interest rates applicable to the
Credit Facility are determined based on a net debt-to-EBITDA ratio
as defined in the Credit Facility. For prime rate advances
and base rate advances, the interest rate is equal to the bank's
prime rate or the bank's U.S. dollar base rate in Canada, respectively, plus a margin ranging
from 0.45% to 2.00%. For bankers' acceptances and LIBOR
advances, the interest rate is equal to the bankers' acceptance fee
or LIBOR, respectively, plus a margin that varies from 1.45% to
3.00%. The Company pays a fee for usage of financial letters
of credit that ranges from 1.45% to 3.00%, and a fee for usage of
non-financial letters of credit that ranges from 0.97% to
2.00%. The Company pays a standby fee on the unadvanced
portions of the amounts available for advance or draw-down under
the Credit Facility at rates ranging from 0.29% to 0.68%.
The Credit Facility is subject to financial covenants including
a net debt-to-EBITDA test and an interest coverage test.
Under the terms of the Credit Facility, the Company is restricted
from encumbering any assets with certain permitted
exceptions. The Credit Facility also limits advances to
subsidiaries and partially restricts the Company from repurchasing
its common shares and paying dividends. At July 1, 2018, all of the covenants were met.
The Company has additional credit facilities available of
$18.8 million (2.3 million Euros, $10.0
million U.S., 50.0 million Thai
Baht and 1.3 million Czech Koruna). The total amount
outstanding on these facilities at July 1,
2018 was $3.2 million, of
which $2.6 million was classified as
bank indebtedness (March 31, 2018 -
$2.7 million) and $0.6 million was classified as long-term debt
(March 31, 2018 - $0.7 million). The interest rates
applicable to the credit facilities range from 1.66% to 8.25% per
annum. A portion of the long-term debt is secured by certain
assets of the Company.
The Company's U.S. $250.0 million
aggregate principal amount of senior notes (the "Senior Notes") are
unsecured, were issued at par, bear interest at a rate of 6.50% per
annum and mature on June 15, 2023.
The Company may redeem the Senior Notes, in whole, at any time or
in part, from time to time, at specified redemption prices and
subject to certain conditions required by the Senior Notes. If the
Company experiences a change of control, the Company may be
required to repurchase the Senior Notes, in whole or in part, at a
purchase price equal to 101% of the aggregate principal amount of
the Senior Notes, plus accrued and unpaid interest, if any, to, but
not including, the redemption date. The Senior Notes contain
customary covenants that restrict, subject to certain exceptions
and thresholds, some of the activities of the Company and its
subsidiaries, including the Company's ability to dispose of assets,
incur additional debt, pay dividends, create liens, make
investments and engage in specified transactions with affiliates.
At July 1, 2018, all of the covenants
were met. Subject to certain exceptions, the Senior Notes are
guaranteed by each of the subsidiaries of the Company that is a
borrower or has guaranteed obligations under the Credit Facility.
Transaction fees of $7.2 million were
deferred and are being amortized over the seven-year term of the
Senior Notes.
Over the long term, the Company generally expects to continue
increasing its overall investment in non-cash working capital to
support the growth of its business, with fluctuations on a
quarter-over-quarter basis. The Company's goal is to maintain its
investment in non-cash working capital as a percentage of
annualized revenues at a level below 15%. The Company expects that
continued cash flows from operations, together with cash and cash
equivalents on hand and credit available under operating and
long-term credit facilities, will be sufficient to fund its
requirements for investments in non-cash working capital and
capital assets and to fund strategic investment plans including
some potential acquisitions. Significant acquisitions could
result in additional debt or equity financing requirements.
Contractual Obligations
(In millions of dollars)
The Company's minimum operating lease payments (related
primarily to facilities and equipment) and purchase obligations are
as follows:
|
Operating
leases
|
Purchase
obligations
|
|
Less than one
year
|
$
|
9.3
|
$
|
121.3
|
One – two
years
|
9.3
|
0.6
|
Two – three
years
|
7.3
|
0.5
|
Three – four
years
|
4.1
|
––
|
Four – five
years
|
1.7
|
––
|
Due in over five
years
|
0.8
|
––
|
|
$
|
32.5
|
$
|
122.4
|
The Company's off-balance sheet arrangements consist of purchase
obligations and various operating lease financing arrangements
related primarily to facilities and equipment that were entered
into in the normal course of business. The Company's purchase
obligations consist primarily of commitments for material
purchases.
In accordance with industry practice, the Company is liable to
customers for obligations relating to contract completion and
timely delivery. In the normal conduct of its operations, the
Company may provide letters of credit as security for advances
received from customers pending delivery and contract performance.
In addition, the Company provides letters of credit for
post-retirement obligations and may provide letters of credit as
security on equipment under lease and on order. At July 1, 2018, the total value of outstanding
letters of credit was approximately $166.6
million (March 31, 2018 -
$137.1 million).
In the normal course of operations, the Company is party to a
number of lawsuits, claims and contingencies. Although it is
possible that liabilities may be incurred in instances for which no
accruals have been made, the Company does not believe that the
ultimate outcome of these matters will have a material impact on
its consolidated financial position.
The Company is exposed to credit risk on derivative financial
instruments arising from the potential for counterparties to
default on their contractual obligations to the Company. The
Company minimizes this risk by limiting counterparties to major
financial institutions and monitoring their creditworthiness. The
Company's credit exposure to forward foreign exchange contracts is
the current replacement value of contracts that are in a gain
position. The Company is also exposed to credit risk from its
customers. Substantially all of the Company's trade accounts
receivable are due from customers in a variety of industries and,
as such, are subject to normal credit risks from their respective
industries. The Company regularly monitors customers for changes in
credit risk. The Company does not believe that any single market or
geographic region represents significant credit risk. Credit risk
concentration, with respect to trade receivables, is mitigated as
the Company primarily serves large, multinational customers and
obtains receivables insurance in certain instances.
During the three months of fiscal 2019, 80,812 stock options
were exercised. At August 15, 2018,
the total number of shares outstanding was 94,082,504, and there
were 1,937,334 stock options outstanding to acquire common shares
of the Company.
RELATED PARTY TRANSACTIONS
The Company has an
agreement with a shareholder, Mason Capital Management, LLC ("Mason
Capital"), pursuant to which Mason Capital has agreed to provide
ATS with ongoing strategic and capital markets advisory services
for an annual fee of U.S. $0.5
million. As part of the agreement, a member of the
Company's Board of Directors who is associated with Mason Capital
has waived any fees to which he may have otherwise been entitled
for serving as a member of the Board of Directors or as a member of
any committee of the Board of Directors.
There were no other significant related party transactions
during the first three months of fiscal 2019.
FOREIGN EXCHANGE
The Company is exposed to foreign
exchange risk as a result of transactions in currencies other than
its functional currency of the Canadian dollar, through borrowings
made by the Company in currencies other than its functional
currency and through its investments in its foreign-based
subsidiaries.
The Company's Canadian operations generate significant revenues
in major foreign currencies, primarily U.S. dollars, which exceed
the natural hedge provided by purchases of goods and services in
those currencies. To manage a portion of this foreign currency
exposure, the Company has entered into forward foreign exchange
contracts. The timing and amount of these forward foreign exchange
contract requirements are estimated based on existing customer
contracts on hand or anticipated, current conditions in the
Company's markets and the Company's past experience. Certain of the
Company's foreign subsidiaries will also enter into forward foreign
exchange contracts to hedge identified balance sheet, revenue and
purchase exposures. The Company's forward foreign exchange contract
hedging program is intended to mitigate movements in currency rates
primarily over a four- to six-month period.
The Company uses cross-currency swaps as derivative financial
instruments to hedge a portion of its foreign exchange risk related
to its U.S.-dollar-denominated Senior Notes. On March 29, 2016, the Company entered into a
cross-currency interest rate swap instrument to swap U.S.
$150.0 million into Canadian dollars.
The Company will receive interest of 6.50% U.S. per annum and pay
interest of 6.501% Canadian. The terms of the hedging relationship
will end on June 15, 2023.
The Company manages foreign exchange risk on its
Euro-denominated net investments. The Company uses cross-currency
swaps as derivative financial instruments to hedge a portion of the
foreign exchange risk related to its Euro-denominated net
investment. On March 29, 2016, the
Company entered into a cross-currency interest rate swap instrument
to swap 134.1 million Euros into
Canadian dollars. The Company will receive interest of 6.501%
Canadian per annum and pay interest of 5.094% Euros. The terms of
the hedging relationship will end on June
15, 2023.
In addition, from time to time, the Company may hedge the
foreign exchange risk arising from foreign currency debt,
intercompany loans, net investments in foreign-based subsidiaries
and committed acquisitions through the use of forward foreign
exchange contracts or other non-derivative financial instruments.
The Company uses hedging as a risk management tool, not to
speculate.
Period Average
Exchange Rates in CDN$
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
July 1,
2018
|
July 2,
2017
|
%
change
|
U.S.
Dollar
|
1.292
|
1.346
|
-4.0%
|
Euro
|
1.536
|
1.480
|
3.8%
|
CONSOLIDATED
QUARTERLY RESULTS (In millions of dollars, except per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1
2019
|
Q4
2018
|
Q3
2018
|
Q2
2018
|
Q1
2018
|
Q4
2017
|
Q3
2017
|
Q2
2017
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
300.0
|
$
|
298.4
|
$
|
277.6
|
$
|
274.9
|
$
|
264.0
|
$
|
265.7
|
$
|
237.4
|
$
|
242.5
|
Earnings from
operations
|
$
|
27.0
|
$
|
25.5
|
$
|
14.8
|
$
|
23.9
|
$
|
21.3
|
$
|
16.8
|
$
|
15.3
|
$
|
17.3
|
Adjusted earnings
from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations
|
$
|
32.6
|
$
|
32.8
|
$
|
29.3
|
$
|
28.8
|
$
|
26.3
|
$
|
24.5
|
$
|
22.5
|
$
|
22.3
|
Net
income
|
$
|
16.7
|
$
|
15.0
|
$
|
6.9
|
$
|
13.8
|
$
|
11.5
|
$
|
7.8
|
$
|
6.6
|
$
|
8.5
|
Basic and diluted
earnings per share
|
$
|
0.18
|
$
|
0.16
|
$
|
0.07
|
$
|
0.15
|
$
|
0.12
|
$
|
0.08
|
$
|
0.07
|
$
|
0.09
|
Adjusted basic
earnings per share
|
$
|
0.22
|
$
|
0.22
|
$
|
0.18
|
$
|
0.18
|
$
|
0.16
|
$
|
0.15
|
$
|
0.12
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Order
Bookings
|
$
|
358.0
|
$
|
348.0
|
$
|
311.0
|
$
|
257.0
|
$
|
266.0
|
$
|
322.0
|
$
|
284.0
|
$
|
289.0
|
Order
Backlog
|
$
|
789.0
|
$
|
746.0
|
$
|
689.0
|
$
|
648.0
|
$
|
683.0
|
$
|
681.0
|
$
|
632.0
|
$
|
654.0
|
Interim financial results are not necessarily indicative of
annual or longer-term results because many of the individual
markets served by the Company tend to be cyclical in nature.
Operating performance quarter to quarter may also be affected by
the timing of revenue recognition on large programs in Order
Backlog, which is impacted by such factors as customer delivery
schedules and the timing of third-party content. General economic
trends, product life cycles and product changes may impact revenues
and operating performance. ATS typically experiences some
seasonality with its Order Bookings, revenues and earnings from
operations due to summer plant shutdowns by its customers.
CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
The
preparation of the Company's consolidated financial statements
requires management to make estimates, judgments and assumptions
that affect the reported amounts of assets, liabilities, revenues
and expenses, and the disclosure of contingent assets and
liabilities at the end of the reporting period. Uncertainty about
these estimates, judgments and assumptions could result in outcomes
that require a material adjustment to the carrying amount of the
asset or liability affected in future periods.
The Company based its assumptions on information available when
the consolidated financial statements were prepared. Existing
circumstances and assumptions about future developments may change
due to market changes or circumstances arising beyond the control
of the Company. Such changes are reflected in the estimates as they
occur. There have been no material changes to the critical
accounting estimates described in the Company's fiscal 2018
MD&A.
ACCOUNTING STANDARD ADOPTED IN THE FIRST QUARTER OF FISCAL
2019
IFRS 15 – Revenue from Contracts with
Customers
Effective April 1,
2018, the Company adopted IFRS 15 - Revenue from
contracts with Customers ("IFRS 15"),
in accordance with the modified retrospective transitional
approach. There were no transitional adjustments or changes
to the Company's revenue recognition policies required on the
adoption of this standard. As required, in the interim
consolidated statements of income, the Company disaggregated
revenue recognized from contracts with customers into categories
that depict how the nature, amount, timing and uncertainty of
revenue and cash flows are affected by economic factors. IFRS
15 establishes a single comprehensive model for entities to use in
accounting for revenue arising from contracts with customers.
Under IFRS 15, revenue is recognized at an amount that reflects the
consideration to which an entity expects to be entitled in exchange
for transferring goods or services to a customer. The
principles in IFRS 15 provide a more structured approach to
measuring and recognizing revenue. The standard also
specifies the accounting for the incremental costs of obtaining a
contract and the costs directly related to fulfilling a
contract.
The standard requires contract assets and contract liabilities
to be separately presented in the statement of financial position.
Contract assets represent the right to consideration in exchange
for goods or services that have been transferred to a customer.
Contract liabilities represent the obligation to transfer goods and
services to a customer for which the Company has received
consideration (or an amount of consideration is due) from the
customer. Previously, the Company recognized contract assets as
"costs and earnings in excess of billings on contracts in progress"
and contract liabilities as "billings in excess of costs and
earnings on contracts in progress." Based on IFRS 15, contract
assets and contract liabilities have been disclosed as current
assets and current liabilities respectively in the statement of
financial position.
ACCOUNTING STANDARDS ISSUED BUT NOT YET EFFECTIVE
IFRS 16 – Leases
In January
2016, the IASB issued IFRS 16 – Leases ("IFRS 16"),
which requires lessees to recognize assets and liabilities for most
leases. There are minimal changes to the existing accounting in IAS
17 – Leases from the perspective of lessors. The new
standard is effective for annual periods beginning on or after
January 1, 2019, with early adoption
permitted provided IFRS 15 has been adopted or is adopted at the
same date. The Company does not anticipate early adoption and plans
to adopt the standard for the annual period beginning on
April 1, 2019. The Company is
currently assessing the impact of adopting this new standard on its
consolidated financial statements but expects that the adoption of
IFRS 16 will result in higher non-current assets and non-current
liabilities on the consolidated statements of financial
position.
CONTROLS AND PROCEDURES
The Chief Executive Officer
("CEO") and the Chief Financial Officer ("CFO") of the Company are
responsible for establishing and maintaining disclosure controls
and procedures and internal controls over financial reporting for
the Company. The control framework used in the design of disclosure
controls and procedures and internal control over financial
reporting is the "Internal Control – Integrated Framework (2013)"
issued by the Committee of Sponsoring Organizations of the Treadway
Commission ("COSO").
Management, including the CEO and CFO, does not expect that the
Company's disclosure controls or internal controls over financial
reporting will prevent or detect all errors and all fraud or will
be effective under all potential future conditions. A control
system is subject to inherent limitations and, no matter how well
designed and operated, can provide only reasonable, not absolute,
assurance that the control system's objectives will be met.
During the three months ended July 1,
2018, there have been no changes in the design of the
Company's internal controls over financial reporting that have
materially affected, or are reasonably likely to materially affect,
the Company's internal controls over financial reporting.
Note to Readers: Forward-looking statements
This news
release and management's discussion and analysis of financial
conditions, and results of operations of ATS contains certain
statements that may constitute forward-looking information within
the meaning of applicable securities laws ("forward-looking
statements"). Such forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause
the actual results, performance or achievements of ATS, or
developments in ATS' business or in its industry, to differ
materially from the anticipated results, performance, achievements
or developments expressed or implied by such forward-looking
statements. Forward-looking statements include all disclosure
regarding possible events, conditions or results of operations that
is based on assumptions about future economic conditions and
courses of action. Forward-looking statements may also
include, without limitation, any statement relating to future
events, conditions or circumstances. ATS cautions you not to place
undue reliance upon any such forward-looking statements, which
speak only as of the date they are made. Forward-looking
statements relate to, among other things: the strategic framework;
trade tariffs and trade agreements; conversion of opportunities
into Order Bookings; the expected benefits where the company
engages with customers on enterprise-type solutions and the
potential impact on Order Bookings, performance period, and timing
of revenue recognition; expectation that the Company's efforts to
expand its after-sales service offering will provide some balance
to the capital expenditure cycle of its customers; the Company's
Order Backlog partially mitigating the impact of volatile Order
Bookings; rate of Order Backlog conversion; deployment of the ATS
Business Model ("ABM") and the expected impact; initiatives having
the goal of expanding adjusted earnings from operations margin over
long-term; the Company's strategy to expand organically and through
acquisition; the Company's expectation with respect to effective
tax rate; the Company's goal with respect to non-cash working
capital as a percentage of revenues; expectation in relation to
meeting funding requirements for investments; potential to use
leverage to support growth strategy; and the Company's belief with
respect to the outcome of certain lawsuits, claims and
contingencies. The risks and uncertainties that may affect
forward-looking statements include, among others: impact of the
global economy; general market performance including capital market
conditions and availability and cost of credit; performance of the
markets that ATS serves; foreign currency and exchange risk; the
relative strength of the Canadian dollar; impact of factors such as
increased pricing pressure and possible margin compression; the
regulatory and tax environment; that current or future trade
tariffs or trade agreements have unexpected impact on the business,
including increased cost of supplies; that some or all of the sales
funnel is not converted to Order Bookings due to competitive
factors or failure to meet customer needs; timing of customer
decisions related to large enterprise programs and potential for
negative impact associated with any cancellations or
non-performance in relation thereto; that revenues from after-sales
services are insufficient to offset capital spending volatility;
variations in the amount of Order Backlog completed in any given
quarter; that the ABM is not deployed effectively, not adopted on
the desired scale by the business, or that its impact is other than
as expected; that efforts to expand adjusted earnings from
operations margin over long-term is unsuccessful, due to any number
of reasons, including less than anticipated increase in after-sales
service revenues or reduced margins attached to those revenues,
inability to achieve lower costs through supply chain management,
failure to develop, adopt internally, or have customers adopt,
standardized platforms and technologies, inability to maintain
current cost structure if revenues were to grow, and failure of ABM
to impact margins; inability to successfully expand organically or
through acquisition, due to an inability to grow expertise,
personnel, and/or facilities at required rates or to identify,
negotiate and conclude one or more acquisitions; or to raise,
through debt or equity, or otherwise have available, required
capital; that acquisitions made are not integrated as quickly or
effectively as planned or expected and, as a result, anticipated
benefits and synergies are not realized; that the effective tax
rate is other than expected, due to reasons including income spread
among jurisdictions being other than anticipated; non-cash working
capital as a percentage of revenues operating at a level other than
as expected due to reasons, including, the timing and nature of
Order Bookings, the timing of payment milestones and payment terms
in customer contracts, and delays in customer programs; risk that
the ultimate outcome of lawsuits, claims, and contingencies give
rise to material liabilities for which no provisions have been
recorded; that one or more customers, or other entities with which
the Company has contracted, experience insolvency or bankruptcy
with resulting delays, costs or losses to the Company; political,
labour or supplier disruptions; the development of superior or
alternative technologies to those developed by ATS; the success of
competitors with greater capital and resources in exploiting their
technology; market risk for developing technologies; risks relating
to legal proceedings to which ATS is or may become a party;
exposure to product liability claims; risks associated with greater
than anticipated tax liabilities or expenses; and other risks
detailed from time to time in ATS' filings with Canadian provincial
securities regulators. Forward-looking statements are based on
management's current plans, estimates, projections, beliefs and
opinions, and other than as required by applicable securities laws,
ATS does not undertake any obligation to update forward-looking
statements should assumptions related to these plans, estimates,
projections, beliefs and opinions change.
ATS AUTOMATION
TOOLING SYSTEMS INC.
Interim Consolidated Statements of Financial Position (in
thousands of Canadian dollars - unaudited)
|
|
|
|
|
As at
|
Note
|
July
1
2018
|
March
31 2018
|
|
|
|
|
ASSETS
|
9
|
|
|
Current
assets
|
|
|
|
Cash and cash
equivalents
|
|
$
|
324,644
|
$
|
330,148
|
Accounts
receivable
|
|
228,977
|
213,006
|
Contract
assets
|
2, 4
|
176,208
|
164,917
|
Inventories
|
4
|
55,968
|
58,509
|
Deposits, prepaids
and other assets
|
5
|
19,820
|
22,510
|
|
|
805,617
|
789,090
|
Non-current
assets
|
|
|
|
Property, plant
and equipment
|
|
85,880
|
85,102
|
Other
assets
|
6
|
3,982
|
––
|
Goodwill
|
|
448,698
|
459,159
|
Intangible
assets
|
|
139,643
|
148,869
|
Deferred income tax
assets
|
|
2,467
|
2,987
|
Investment tax credit
receivable
|
|
57,624
|
57,012
|
|
|
738,294
|
753,129
|
Total
assets
|
|
$
|
1,543,911
|
$
|
1,542,219
|
|
|
|
|
LIABILITIES AND
EQUITY
|
|
|
|
Current
liabilities
|
|
|
|
Bank
indebtedness
|
9
|
$
|
2,582
|
$
|
2,668
|
Accounts payable and
accrued liabilities
|
|
209,711
|
246,384
|
Provisions
|
8
|
16,638
|
20,994
|
Contract
liabilities
|
2, 4
|
127,743
|
95,912
|
Current portion of
long-term debt
|
9
|
392
|
393
|
|
|
357,066
|
366,351
|
Non-current
liabilities
|
|
|
|
Employee
benefits
|
|
27,542
|
28,151
|
Long-term
debt
|
9
|
321,676
|
315,129
|
Deferred income tax
liabilities
|
|
45,297
|
42,907
|
Other long-term
liabilities
|
6
|
23,043
|
30,908
|
|
|
417,558
|
417,095
|
Total
liabilities
|
|
$
|
774,624
|
$
|
783,446
|
|
|
|
|
Commitments and
contingencies
|
9, 13
|
|
|
|
|
|
|
EQUITY
|
|
|
|
Share
capital
|
10
|
$
550,095
|
$
548,747
|
Contributed
surplus
|
|
12,534
|
12,535
|
Accumulated other
comprehensive income
|
|
68,322
|
75,830
|
Retained
earnings
|
|
138,039
|
121,369
|
Equity attributable
to shareholders
|
|
768,990
|
758,481
|
Non-controlling
interests
|
|
297
|
292
|
Total
equity
|
|
769,287
|
758,773
|
Total liabilities
and equity
|
|
$
1,543,911
|
$
1,542,219
|
ATS AUTOMATION
TOOLING SYSTEMS INC.
Interim Consolidated Statements of Income
|(in thousands of Canadian dollars, except per share amounts -
unaudited)
|
|
|
|
|
|
|
July
1
|
July
2
|
For the three months
ended
|
Note
|
2018
|
2017
|
|
|
|
|
Revenues
|
|
|
|
|
Revenues from
construction contracts
|
|
$
|
186,292
|
$
|
143,823
|
|
Sale of
goods
|
|
21,624
|
18,867
|
|
Services
rendered
|
|
92,064
|
101,272
|
|
|
|
|
Total
revenues
|
|
299,980
|
263,962
|
|
|
|
|
Operating costs and
expenses
|
|
|
|
|
Cost of
revenues
|
|
222,043
|
197,133
|
|
Selling, general and
administrative
|
|
47,491
|
44,325
|
|
Stock-based
compensation
|
12
|
3,435
|
1,229
|
|
|
|
|
Earnings from
operations
|
|
27,011
|
21,275
|
|
|
|
|
Net finance
costs
|
15
|
5,233
|
6,195
|
|
|
|
|
Income before
income taxes
|
|
21,778
|
15,080
|
|
|
|
|
Income tax
expense
|
11
|
5,103
|
3,570
|
|
|
|
|
Net
income
|
|
$
|
16,675
|
$
|
11,510
|
|
|
|
|
|
Attributable
to
|
|
|
|
Shareholders
|
|
$
|
16,670
|
$
|
11,494
|
Non-controlling
interests
|
|
5
|
16
|
|
|
$
|
16,675
|
$
|
11,510
|
|
|
|
|
Earnings per share
attributable to shareholders
|
|
|
|
Basic and
diluted
|
16
|
$
|
0.18
|
$
|
0.12
|
ATS AUTOMATION
TOOLING SYSTEMS INC.
Interim Consolidated Statements of Comprehensive Income (in
thousands of Canadian dollars - unaudited)
|
|
|
|
|
July
1
|
July 2
|
For the three months
ended
|
2018
|
2017
|
|
|
|
Net
income
|
$
|
16,675
|
$
|
11,510
|
|
|
|
Other comprehensive
income (loss):
|
|
|
|
|
|
Items to be
reclassified subsequently to net income:
|
|
|
|
|
|
|
Currency translation
adjustment (net of income taxes of $nil)
|
(15,552)
|
10,333
|
|
|
|
|
Net unrealized gain
on derivative financial instruments
|
|
|
|
|
designated as cash
flow hedges
|
1,363
|
2,684
|
|
Tax impact
|
(341)
|
(712)
|
|
|
|
|
Loss transferred to
net income for derivatives
|
|
|
|
|
designated as cash
flow hedges
|
5
|
421
|
|
Tax impact
|
(5)
|
(104)
|
|
|
|
|
Cash flow hedge
reserve adjustment
|
9,362
|
(2,027)
|
|
Tax impact
|
(2,340)
|
507
|
|
|
|
Other
comprehensive income (loss)
|
(7,508)
|
11,102
|
|
|
|
Comprehensive
income
|
$
|
9,167
|
$
|
22,612
|
|
|
|
Attributable
to
|
|
|
Shareholders
|
$
|
9,162
|
$
|
22,596
|
Non-controlling
interests
|
5
|
16
|
|
$
|
9,167
|
$
|
22,612
|
ATS AUTOMATION
TOOLING SYSTEMS INC.
Interim Consolidated Statements of Changes in Equity (in
thousands of Canadian dollars - unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
July 1, 2018
|
|
|
|
|
|
|
|
|
|
Share
capital
|
Contributed
surplus
|
Retained
earnings
|
Currency
translation adjustments
|
Cash flow
hedge reserve
|
Total
accumulated other comprehensive income
|
Non-controlling
interests
|
Total
equity
|
|
|
|
|
|
|
|
|
|
Balance, as at
March 31, 2018
|
$
|
548,747
|
$
|
12,535
|
$
|
121,369
|
$
|
79,918
|
$
|
(4,088)
|
$
|
75,830
|
$
|
292
|
$
|
758,773
|
|
|
|
|
|
|
|
|
|
Net income
|
––
|
––
|
16,670
|
––
|
––
|
––
|
5
|
16,675
|
Other comprehensive
income (loss)
|
––
|
––
|
––
|
(15,552)
|
8,044
|
(7,508)
|
––
|
(7,508)
|
Total comprehensive
income (loss)
|
––
|
––
|
16,670
|
(15,552)
|
8,044
|
(7,508)
|
5
|
9,167
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
––
|
292
|
––
|
––
|
––
|
––
|
––
|
292
|
Exercise of stock
options
|
1,348
|
(293)
|
––
|
––
|
––
|
––
|
––
|
1,055
|
|
|
|
|
|
|
|
|
|
Balance, as at
July 1, 2018
|
$
|
550,095
|
$
|
12,534
|
$
|
138,039
|
$
|
64,366
|
$
|
3,956
|
$
|
68,322
|
$
|
297
|
$
|
769,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
July 2, 2017
|
|
|
|
|
|
|
|
|
|
Share
capital
|
Contributed
surplus
|
Retained
earnings
|
Currency translation
adjustments
|
Cash flow
hedge reserve
|
Total accumulated
other
comprehensive income
|
Non-controlling
interests
|
Total
equity
|
|
|
|
|
|
|
|
|
|
Balance, as at March
31, 2017
|
$
|
543,317
|
$
|
12,871
|
$
|
74,599
|
$
|
55,504
|
$
|
(530)
|
$
|
54,974
|
$
|
248
|
$
|
686,009
|
|
|
|
|
|
|
|
|
|
Net
income
|
––
|
––
|
11,494
|
––
|
––
|
––
|
16
|
11,510
|
Other comprehensive
income
|
––
|
––
|
––
|
10,333
|
769
|
11,102
|
––
|
11,102
|
Total comprehensive
income
|
––
|
––
|
11,494
|
10,333
|
769
|
11,102
|
16
|
22,612
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
––
|
377
|
––
|
––
|
––
|
––
|
––
|
377
|
Exercise of stock
options
|
287
|
(79)
|
––
|
––
|
––
|
––
|
––
|
208
|
|
|
|
|
|
|
|
|
|
Balance, as at July
2, 2017
|
$
|
543,604
|
$
|
13,169
|
$
|
86,093
|
$
|
65,837
|
$
|
239
|
$
|
66,076
|
$
|
264
|
$
|
709,206
|
ATS AUTOMATION
TOOLING SYSTEMS INC.
Interim Consolidated Statements of Cash Flows (in thousands
of Canadian dollars - unaudited)
|
|
|
|
|
Three months
ended
|
Note
|
July
1 2018
|
July
2
2017
|
|
|
|
|
Operating
activities
|
|
|
|
Net
income
|
|
$
|
16,675
|
$
|
11,510
|
Items not involving
cash
|
|
|
|
|
Depreciation of
property, plant and equipment
|
|
2,787
|
2,486
|
|
Amortization of
intangible assets
|
|
7,059
|
6,390
|
|
Deferred income
taxes
|
11
|
1,388
|
862
|
|
Other items not
involving cash
|
|
(1,779)
|
63
|
|
Stock-based
compensation
|
12
|
3,435
|
1,229
|
|
|
29,565
|
22,540
|
Change in non-cash
operating working capital
|
|
(29,946)
|
(25,899)
|
Cash flows used in
operating activities
|
|
$
|
(381)
|
$
|
(3,359)
|
|
|
|
|
Investing
activities
|
|
|
|
Acquisition of
property, plant and
equipment
|
|
$
|
(4,563)
|
$
|
(3,308)
|
Acquisition of
intangible assets
|
|
(1,576)
|
(855)
|
Proceeds from
disposal of property, plant and
equipment
|
|
130
|
15
|
Cash flows used in
investing activities
|
|
$
(6,009)
|
$
(4,148)
|
|
|
|
|
Financing
activities
|
|
|
|
Bank
indebtedness
|
|
$
|
18
|
$
|
(420)
|
Repayment of
long-term debt
|
|
(199)
|
(348)
|
Proceeds from
long-term debt
|
|
36
|
6
|
Proceeds from
exercise of stock options
|
|
1,055
|
208
|
Cash flows
provided by (used in) financing
activities
|
|
$
|
910
|
$
|
(554)
|
|
|
|
|
Effect of exchange
rate changes on cash and cash
equivalents
|
|
(24)
|
722
|
|
|
|
|
Decrease in cash and
cash equivalents
|
|
(5,504)
|
(7,339)
|
|
|
|
|
Cash and cash
equivalents, beginning of period
|
|
330,148
|
286,697
|
|
|
|
|
Cash and cash
equivalents, end of
period
|
|
$
|
324,644
|
$
|
279,358
|
|
|
|
|
Supplemental
information
|
|
|
|
Cash income taxes
paid
|
|
$
|
752
|
$
|
3,457
|
Cash interest
paid
|
|
$
|
11,146
|
$
|
9,907
|
SOURCE ATS Automation Tooling Systems Inc.