CAMBRIDGE, ON, Feb. 6, 2019 /CNW/ - ATS Automation Tooling
Systems Inc. (TSX: ATA) ("ATS" or the "Company") today
reported financial results for the three and nine months ended
December 30, 2018.
Third quarter summary
- Fiscal 2019 third quarter revenues were $321.4 million, 16% higher than a year ago.
Fiscal 2019 year-to-date revenues were $905.0 million, 11% higher than a year ago.
- Fiscal 2019 third quarter earnings from operations were
$38.5 million (12% operating margin),
compared to $14.8 million (5%
operating margin) a year ago. Fiscal 2019 year-to-date
earnings from operations were $84.5
million (9% operating margin), compared to $59.9 million (7% operating margin) a year
ago.
- Adjusted earnings from operations1 were $46.7 million (15% margin) for the third quarter
of fiscal 2019, compared to $29.3
million (11% margin) a year ago, primarily reflecting higher
revenues, improved gross margin, and a recovery of stock-based
compensation expenses. Fiscal 2019 year-to-date adjusted earnings
from operations1 were $104.6
million (12% margin), compared to $84.4 million (10% margin) a year ago, primarily
reflecting higher revenues and gross margin.
- EBITDA1 was $48.7
million (15% EBITDA margin) for the third quarter of fiscal
2019, compared to $24.3 million (9%
EBITDA margin) a year ago. Fiscal 2019 year-to-date
EBITDA1 was $114.6 million
(13% EBITDA margin), compared to $87.2
million (11% EBITDA margin) a year ago.
- Fiscal 2019 third quarter earnings per share were 27 cents basic and diluted compared to
7 cents basic and diluted a year
ago. Fiscal 2019 year-to-date earnings per share were
56 cents basic and diluted compared
to 34 cents basic and diluted a year
ago. Adjusted basic earnings per share1 were
33 cents for the third quarter of
fiscal 2019 compared to 18 cents a
year ago. Fiscal 2019 year-to-date adjusted basic earnings
per share1 were 72 cents
compared to 53 cents a year ago.
- Fiscal 2019 third quarter Order Bookings were a record
$397 million, a 28% increase from a
year ago. Fiscal 2019 year-to-date Order Bookings were
$1.1 billion, a 33% increase from a
year ago.
- Period end Order Backlog was a record $926 million, 34% higher than at December 31, 2017.
- The Company's balance sheet and financial capacity to support
growth remained strong, with unutilized credit facilities of
$636.8 million.
- On October 31, 2018, the Company
completed its acquisition of Construction, Machine- &
Werkzeugbau GmbH & Co. KG, and KMW GmbH (collectively, "KMW").
See "Business Acquisition: KMW".
- On December 6, 2018, the Company
announced that it had acquired substantially all of the
intellectual property assets of Transformix Engineering Inc. for
$10 million. See "Transformix
I.P.".
- On December 19, 2018, the Company
entered into a definitive agreement to acquire Comecer S.p.A.
("Comecer"). See "Business Acquisition: Comecer".
Financial results
|
3 months
ended December 30, 2018
|
|
3 months
ended
December 31,
2017
|
9 months
ended
December
30, 2018
|
9 months
ended
December 31,
2017
|
Revenues
|
$
|
321.4
|
|
$
|
277.6
|
$
|
905.0
|
$
|
816.5
|
Earnings from
operations
|
$
|
38.5
|
|
$
|
14.8
|
$
|
84.5
|
$
|
59.9
|
Adjusted earnings
from operations1
|
$
|
46.7
|
|
$
|
29.3
|
$
|
104.6
|
$
|
84.4
|
EBITDA1
|
$
|
48.7
|
|
$
|
24.3
|
$
|
114.6
|
$
|
87.2
|
Net
income
|
$
|
25.1
|
|
$
|
6.9
|
$
|
52.6
|
$
|
32.3
|
Adjusted basic
earnings per share1
|
$
|
0.33
|
|
$
|
0.18
|
$
|
0.72
|
$
|
0.53
|
Basic and diluted
earnings per share
|
$
|
0.27
|
|
$
|
0.07
|
$
|
0.56
|
$
|
0.34
|
|
1 Non-IFRS
measure: see "Notice to Reader: Non-IFRS Measures and Additional
IFRS Measures".
|
"Third quarter performance featured year-over-year growth in
revenues and margins and we finished the quarter with record Order
Bookings and record Order Backlog," said Andrew Hider, Chief Executive Officer.
"Operationally, we have continued to advance the ATS Business
Model. Strategically, we have advanced our innovation agenda
organically by adding to our industry leading linear motion product
portfolio, and through the acquisition of Transformix's
intellectual property. We have added to our capabilities to serve
the EV market through the acquisition of KMW and reached an
agreement to acquire Comecer, which will provide us with a platform
in high-growth segments of the pharmaceutical and nuclear medicine
markets. Our balance sheet is strong and we are well positioned to
continue executing our value creation strategy: Build, Grow and
Expand."
Third Quarter Summary
Fiscal 2019 third quarter
revenues were 16% higher than in the corresponding period a year
ago, primarily reflecting Order Backlog, which was 28% higher
entering the third quarter of fiscal 2019 compared to a year ago.
Organic growth in revenues was approximately 14% with increased
revenues generated primarily from automation construction contracts
and services. As well, certain programs that were delayed in the
Company's fiscal 2019 second quarter, contributed in the third
quarter. The balance of the increase in revenues was due to the
acquisition of KMW (acquired October 31,
2018 – see Business Acquisition: KMW) and foreign exchange
rate changes from the translation of revenues earned by
foreign-based subsidiaries.
By market, fiscal 2019 third quarter revenues from consumer
products & electronics increased 28% compared to a year ago,
due to higher Order Backlog entering the third quarter of fiscal
2019 primarily related to a warehousing automation program awarded
in fiscal 2018. Revenues generated in the life sciences market
increased by 18% due to higher Order Backlog entering the third
quarter of fiscal 2019. Revenues in the transportation market
increased 16% primarily related to an EV enterprise program awarded
in the first quarter of fiscal 2019 and revenues from KMW. Revenues
generated in the energy market decreased 5% primarily due to the
timing of program execution.
Fiscal 2019 third quarter earnings from operations were
$38.5 million (12% operating margin)
compared to $14.8 million (5%
operating margin) in the third quarter of fiscal 2018. Third
quarter fiscal 2019 earnings from operations included $2.7 million of incremental costs related to the
Company's acquisition activity and $5.5
million related to amortization of identifiable intangible
assets recorded on business acquisitions. Included in third quarter
fiscal 2018 earnings from operations were $9.0 million of restructuring costs and
$5.5 million related to amortization
of identifiable intangible assets recorded on business
acquisitions.
Excluding these items in both comparable quarters, third quarter
fiscal 2019 adjusted earnings from operations were $46.7 million (15% margin), compared to adjusted
earnings from operations of $29.3
million (11% margin) a year ago. Higher adjusted earnings
from operations reflected higher revenues, improved gross margin
and a recovery of stock-based compensation expenses due to the
revaluation of restricted share units and deferred share units. The
total stock-based compensation recovery was $6.3 million, compared to the corresponding
period a year ago, when stock-based compensation was an expense of
$2.1 million (see "Stock-based
compensation").
Depreciation and amortization expense was $10.2 million in the third quarter of fiscal
2019, compared to $9.5 million a year
ago. The increase primarily reflected depreciation of internal
development projects and computer hardware.
EBITDA was $48.7 million (15%
EBITDA margin) in the third quarter of fiscal 2019 compared to
$24.3 million (9% EBITDA margin) in
the third quarter of fiscal 2018. Higher EBITDA in the third
quarter of fiscal 2019 primarily reflected higher revenues,
improved gross margin and lower stock compensation expenses
compared to a year ago.
Order Bookings
Third quarter fiscal 2019 Order
Bookings were $397 million, a 28%
increase over the third quarter of fiscal 2018. Increased Order
Bookings primarily reflected higher life sciences and
transportation Order Bookings. Life sciences Order Bookings
included a $60 million enterprise
program from a global life sciences customer for a fully automated
manufacturing and packaging system. Higher Order Bookings in the
transportation market related to electric vehicle programs,
including two Order Bookings each with values in the range of
$25 million. The inclusion of KMW had
a positive impact on fiscal 2019 Order Bookings of just under 1%.
Included in third quarter fiscal 2018 Order Bookings were
enterprise programs for a warehousing automation application in
consumer products & electronics, and a life sciences program,
both with values in the range of $25
million.
Order Backlog
At December 30,
2018, Order Backlog was $926
million, 34% higher than at December
31, 2017. Higher Order Backlog was primarily driven by
increased Order Bookings in the life sciences and transportation
markets in the first nine months of fiscal 2019.
ACQUISITIONS
Business Acquisition: KMW
On
October 31, 2018, the Company
completed its acquisition of Konstruktion, Maschinen- &
Werkzeugbau GmbH & Co. KG, and KMW GmbH (collectively,
"KMW"). KMW is a German-based supplier of custom
micro-assembly systems and test equipment solutions. KMW
provides ATS with an internal source for complementary conveyorized
micro-assembly and test capabilities, further enabling the Company
to provide full automation solutions and meet customer demands for
a complete turnkey offering. The addition of KMW's micro-assembly
technology and expertise strengthens ATS' current offerings in the
EV market. The acquisition is aligned with ATS' strategy of
expanding its reach in current and new markets.
In its fiscal year ended March 31,
2018, KMW had revenues of approximately 14.0 million Euro and an EBITDA margin of over
20%. The total purchase price was 18.3
million Euro. Cash consideration paid in the third quarter
was 16.4 million Euro with the
balance to be paid within 18 months from the acquisition date,
subject to finalization of certain working capital and other items.
The cash consideration of the purchase price along with transaction
costs were funded with existing cash on hand. The acquisition
has been accounted for as a business combination with the Company
as the acquirer of KMW. The purchase method of accounting has been
used and the earnings of KMW were consolidated beginning from the
acquisition date.
Business Acquisition: Comecer
On December 19, 2018, the Company entered into a
definitive agreement to acquire Comecer S.p.A. ("Comecer"), a
leader in the design, engineering, manufacture, and servicing of
advanced aseptic containment and processing systems for the nuclear
medicine and pharmaceutical industries. Comecer is primarily
focused in radiopharmaceutical equipment, where it supplies
specialized radiation shielding systems used by customers in the
production, handling, and dispensing of radiopharmaceutical drugs.
Applications for this type of equipment include the diagnosis and
therapeutic treatment of several conditions including various forms
of cancer and cardiovascular disorders. Additionally, Comecer
provides equipment to support the aseptic processing, filling and
handling of specialized pharmaceuticals as well as isolator and
incubator equipment used in advanced therapy medicinal production
(ATMP), a regenerative cell therapy that uses patient cells to grow
new tissues. The addition of Comecer will strengthen ATS' customer
offering in both pharma and biopharma, while adding an innovative
new platform in radiopharmaceuticals.
For the 2018 calendar year, Comecer is expected to generate
revenues of approximately 67 million
Euro, with a low double-digit EBITDA margin. The total cash
purchase price for the acquisition will be 113 million Euro, subject to working capital and
other adjustments. The Company will fund the acquisition primarily
from cash on hand and its credit facilities. This acquisition
will be accounted for as a business combination with the Company as
the acquirer of Comecer. The purchase method of accounting will be
used and the earnings will be consolidated from the acquisition
date. The transaction is expected to close in the first calendar
quarter of 2019, subject to customary closing conditions.
Integration of Comecer will target revenue synergies through
cross-selling, geographic expansion and commercial process best
practices. Integration will also include the deployment of
the ABM, which is expected to enable improvements in project
management, operations, supply chain management and product life
cycle management. The acquisition is aligned with ATS' strategy of
expanding in attractive markets and is expected to increase the
overall percentage of ATS' revenues being generated in life
sciences to over 50% of consolidated revenues.
Transformix I.P.
On December 6,
2018, the Company announced that it had acquired
substantially all of the intellectual property assets of
Transformix Engineering Inc. ("Transformix") for $10 million. Transformix's CNCAssembly
system, based on its patented Rapid Speed Matching technology,
provides a method of linking and synchronizing the movements of
devices and tooling to enable faster and more efficient assembly
systems. This enhanced capability is expected to provide higher
speed, lower cost, energy efficient and more flexible assembly
solutions for ATS' customers, while utilizing a smaller footprint.
CNCAssembly is suitable for any application where high precision
motion control is required and can serve a broad range of end
markets. The addition of this important technology will complement
ATS' growing portfolio of linear mover technology products, which
includes the best-in-class SuperTrakTM linear motion
system and the recently launched SuperTrak MicroTM.
Amortization of the intangible asset will begin when the asset is
available for use which is estimated to be in the second half of
fiscal 2020. Over the next five years, potential future payments of
up to $20.0 million are payable based
on sales which incorporate the acquired intellectual property. The
commission expenses will be recognized as they are incurred.
Increase in Number of Common Shares that may be Purchased
under NCIB
On December 3,
2018, ATS announced that the Toronto Stock Exchange ("TSX")
had accepted a notice filed by it of its intention to make a normal
course issuer bid ("NCIB"). Under the NCIB, ATS has the ability to
purchase for cancellation up to a maximum of 3,000,000 common
shares, representing approximately 3.2% of the 94,139,097 common
shares that were issued and outstanding as of November 16, 2018. ATS will be seeking approval
of the TSX to increase the maximum number of shares that may be
purchased under the NCIB to 6,366,405 common shares, representing
10% of the "public float" (as defined by the TSX and calculated as
of November 16, 2018). The increase
in the number of common shares that may be purchased under the NCIB
is subject to TSX approval.
Purchases under the NCIB will continue to be made through the
facilities of the TSX and/or alternative Canadian trading systems
in accordance with applicable regulatory requirements, during the
twelve month period commencing on December
5, 2018 and ending on or before December 4, 2019. The average daily trading
volume of the common shares on the TSX for the six calendar months
ending October 31, 2018 was 240,474
common shares. On any trading day ATS will not purchase more than
25% of such average daily trading volume, representing 60,118
common shares, except where such purchases are made in accordance
with available block purchase exemptions. The common shares
purchased under the NCIB will be cancelled. Since the commencement
of the NCIB to February 5 2019, ATS
has purchased 2,509,120 common shares for cancellation at a volume
weighted average trading price of $15.63
million.
Board of Directors
Daryl C.F.
Wilson has announced his decision to step down form the
board of directors effective February 5,
2019, for personal reasons.
"On behalf of the board of directors, I extend our deepest
gratitude to Daryl for his skillful and dedicated service over the
past 10 years," said David
McAusland, Chairman. "We wish Daryl all the best in his
future endeavours."
Quarterly Conference Call
ATS' quarterly conference
call begins at 10:00 a.m. eastern on
Wednesday February 6, 2019, and can
be accessed live at www.atsautomation.com or on the phone by
dialing (647) 427-7450 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) 849-0833
and entering passcode 3581279 followed by the number sign.
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 4,000 people at 21
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 December 30, 2018
This Management's Discussion and Analysis ("MD&A") for
the three and nine months ended December 30, 2018 (third
quarter of fiscal 2019) is as of February 5,
2019 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 third 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 third 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- and nine-month periods ending December 30, 2018
and December 31, 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- and nine-month periods ending
December 30, 2018 and December 31, 2017 is also contained in the
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, pharmaceuticals, chemicals, electric
vehicles, transportation, consumer products, electronics, food,
beverage, energy, and oil and gas. Founded in 1978, ATS employs
approximately 4,000 people at 21 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.
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 strategic and disciplined acquisitions
that strengthen ATS' business.
ATS Business Model
The ABM is a business management
system that ATS 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 results 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 automation 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
|
Three
Months
|
Nine Months
|
Nine
Months
|
|
Ended
|
Ended
|
Ended
|
Ended
|
|
December
30,
|
December
31,
|
December
30,
|
December
31,
|
Revenues by
market
|
2018
|
2017
|
2018
|
2017
|
Consumer products
&
electronics
|
$
|
46.2
|
$
|
36.1
|
$
|
164.1
|
$
|
104.9
|
Energy
|
37.8
|
39.8
|
105.5
|
96.2
|
Life
sciences
|
156.6
|
132.2
|
415.4
|
385.8
|
Transportation
|
80.8
|
69.5
|
220.0
|
229.6
|
Total
revenues
|
$
|
321.4
|
$
|
277.6
|
$
|
905.0
|
$
|
816.5
|
Third Quarter
Fiscal 2019 third quarter revenues were
16% higher than in the corresponding period a year ago, primarily
reflecting Order Backlog, which was 28% higher entering the third
quarter of fiscal 2019 compared to a year ago. Organic growth in
revenues was approximately 14% with increased revenues generated
primarily from automation construction contracts and services. As
well, certain programs that were delayed in the Company's fiscal
2019 second quarter, contributed in the third quarter. The balance
of the increase in revenues was due to the acquisition of KMW
(acquired October 31, 2018 – see
Business Acquisition: KMW) and foreign exchange rate changes from
the translation of revenues earned by foreign-based
subsidiaries.
By market, fiscal 2019 third quarter revenues from consumer
products & electronics increased 28% compared to a year ago,
due to higher Order Backlog entering the third quarter of fiscal
2019 primarily related to a warehousing automation program awarded
in fiscal 2018. Revenues generated in the life sciences market
increased by 18% due to higher Order Backlog entering the third
quarter of fiscal 2019. Revenues in the transportation market
increased 16% primarily related to an EV enterprise program awarded
in the first quarter of fiscal 2019 and revenues from KMW. Revenues
generated in the energy market decreased 5% primarily due to the
timing of program execution.
Year-to-date
Revenues for the nine months ended
December 30, 2018 were 11% higher
than in the corresponding period a year ago, primarily reflecting
Order Backlog, which was 10% higher entering fiscal 2019 compared
to a year ago, and Order Bookings, which have increased 33% in
fiscal 2019 compared to a year ago. Organic growth in revenues was
approximately 9% with increased revenues generated primarily from
automation construction contracts. The balance of the increase in
revenues was due primarily to foreign exchange rate changes from
the translation of revenues earned by foreign-based
subsidiaries.
By market, fiscal 2019 year-to-date revenues from consumer
products & electronics, energy and the life sciences markets
increased 56%, 10%, and 8%, respectively, primarily reflecting
higher Order Backlog entering fiscal 2019, and higher Order
Bookings in fiscal 2019 compared to a year ago. Transportation
revenues decreased 4% compared to a year ago primarily due to the
timing of customer program schedules and related third-party
equipment deliveries.
Consolidated Operating Results
(In millions of
dollars)
|
Three
Months
|
Three
Months
|
Nine Months
|
Nine
Months
|
|
Ended
|
Ended
|
Ended
|
Ended
|
|
December
30,
|
December
31,
|
December
30,
|
December
31,
|
|
2018
|
2017
|
2018
|
2017
|
Earnings from
operations
|
$
|
38.5
|
$
|
14.8
|
$
|
84.5
|
$
|
59.9
|
Amortization of
acquisition-related intangible
assets
|
5.5
|
5.5
|
16.5
|
15.5
|
Restructuring
charges
|
-
|
9.0
|
-
|
9.0
|
Acquisition-related
transaction
costs
|
2.7
|
-
|
3.6
|
-
|
Adjusted earnings
from
operations1
|
$
|
46.7
|
$
|
29.3
|
$
|
104.6
|
$
|
84.4
|
1 See
"Notice to Reader: Non-IFRS Measures and Additional IFRS
Measures."
|
|
|
|
|
|
|
|
|
|
Three
Months
|
Three
Months
|
Nine
Months
|
Nine
Months
|
|
Ended
|
Ended
|
Ended
|
Ended
|
|
December 30,
|
December
31,
|
December
30,
|
December
31,
|
|
2018
|
2017
|
2018
|
2017
|
Earnings from
operations
|
$
|
38.5
|
$
|
14.8
|
$
|
84.5
|
$
|
59.9
|
Depreciation and
amortization
|
10.2
|
9.5
|
30.1
|
27.3
|
EBITDA2
|
$
|
48.7
|
$
|
24.3
|
$
|
114.6
|
$
|
87.2
|
2 See
"Notice to Reader: Non-IFRS Measures and Additional IFRS
Measures."
|
|
|
|
Third Quarter
Fiscal 2019 third quarter earnings from
operations were $38.5 million (12%
operating margin) compared to $14.8
million (5% operating margin) in the third quarter of fiscal
2018. Third quarter fiscal 2019 earnings from operations included
$2.7 million of incremental costs
related to the Company's acquisition activity and $5.5 million related to amortization of
identifiable intangible assets recorded on business acquisitions.
Included in third quarter fiscal 2018 earnings from operations were
$9.0 million of restructuring costs
and $5.5 million related to
amortization of identifiable intangible assets recorded on business
acquisitions.
Excluding these items in both comparable quarters, third quarter
fiscal 2019 adjusted earnings from operations were $46.7 million (15% margin), compared to adjusted
earnings from operations of $29.3
million (11% margin) a year ago. Higher adjusted earnings
from operations reflected higher revenues, improved gross margin
and a recovery of stock-based compensation expenses due to the
revaluation of restricted share units and deferred share units. The
total stock-based compensation recovery was $6.3 million, compared to the corresponding
period a year ago, when stock-based compensation was an expense of
$2.1 million (see "Stock-based
compensation").
Depreciation and amortization expense was $10.2 million in the third quarter of fiscal
2019, compared to $9.5 million a year
ago. The increase primarily reflected depreciation of internal
development projects and computer hardware.
EBITDA was $48.7 million (15%
EBITDA margin) in the third quarter of fiscal 2019 compared to
$24.3 million (9% EBITDA margin) in
the third quarter of fiscal 2018. Higher EBITDA in the third
quarter of fiscal 2019 primarily reflected higher revenues,
improved gross margin and lower stock compensation expenses
compared to a year ago.
Year-to-date
For the nine months ended December 30, 2018, earnings from operations were
$84.5 million (9% operating margin)
compared to $59.9 million (7%
operating margin) in the corresponding period a year ago.
Excluding $3.6 million of incremental
costs related to the Company's acquisition activity and
$16.5 million related to amortization
of identifiable intangible assets recorded on business
acquisitions, adjusted earnings from operations were $104.6 million (12% operating margin) in the
first nine months of fiscal 2019, compared to adjusted earnings
from operations of $84.4 million (10%
operating margin) in the corresponding period a year ago. Higher
adjusted earnings from operations primarily reflected higher
revenues and gross margin in the first nine months of fiscal 2019
compared to a year ago.
Depreciation and amortization expense was $30.1 million in the first nine months of fiscal
2019 compared to $27.3 million a year
ago. The increase primarily reflected depreciation of internal
development projects, computer hardware and amortization of
acquisition-related intangible assets.
Year-to-date fiscal 2019 EBITDA was $114.6
million (13% EBITDA margin) compared to $87.2 million (11% EBITDA margin) in the first
nine months of fiscal 2018.
Order Bookings by Quarter
Third quarter fiscal 2019
Order Bookings were $397 million, a
28% increase over the third quarter of fiscal 2018. Increased Order
Bookings primarily reflected higher life sciences and
transportation Order Bookings. Life sciences Order Bookings
included a $60 million enterprise
program from a global life sciences customer for a fully automated
manufacturing and packaging system. Higher Order Bookings in the
transportation market related to electric vehicle programs,
including two Order Bookings each with values in the range of
$25 million. The inclusion of KMW had
a positive impact on fiscal 2019 Order Bookings of just under 1%.
Included in third quarter fiscal 2018 Order Bookings were
enterprise programs for a warehousing automation application in
consumer products & electronics, and a life sciences program,
both with values in the range of $25
million.
Order Backlog Continuity
(In millions of dollars)
|
Three
Months
|
Three
Months
|
Nine
Months
|
Nine Months
|
|
Ended
|
Ended
|
Ended
|
Ended
|
|
December
30,
|
December
31,
|
December
30,
|
December
31,
|
|
2018
|
2017
|
2018
|
2017
|
Opening Order
Backlog
|
$
|
830
|
$
|
648
|
$
|
746
|
$
|
681
|
Revenues
|
(321)
|
(278)
|
(905)
|
(817)
|
Order
Bookings
|
397
|
311
|
1,109
|
834
|
Order Backlog
adjustments1
|
20
|
8
|
(24)
|
(9)
|
Total
|
$
|
926
|
$
|
689
|
$
|
926
|
$
|
689
|
|
1 Order Backlog adjustments include
incremental Order Backlog of $2 million acquired with KMW, foreign
exchange adjustments and cancellations.
|
Order Backlog by Market
(In millions of dollars)
|
December
30,
|
December
31,
|
As
at
|
2018
|
2017
|
Consumer products
& electronics
|
$
|
88
|
$
|
108
|
Energy
|
90
|
99
|
Life
sciences
|
473
|
320
|
Transportation
|
275
|
162
|
Total
|
$
|
926
|
$
|
689
|
At December 30, 2018, Order
Backlog was $926 million, 34% higher
than at December 31, 2017.
Higher Order Backlog was primarily driven by increased Order
Bookings in the life sciences and transportation markets in the
first nine months of fiscal 2019.
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 slowing growth and geopolitical risks remain.
Ongoing trade negotiations and disputes between various
jurisdictions in which the Company does business may impact its
future sales and operations. Management will continue to closely
monitor ongoing global trade discussions which could impact the
Company and identify mitigation opportunities.
Funnel activity (which includes customer requests for proposal
and ATS identified customer opportunities) in life sciences remains
strong. Opportunities in the electrification of vehicles have
strengthened funnel activity in the transportation market. Funnel
activity in energy is variable and this market provides niche
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. Enterprise orders are
expected to provide ATS with more strategic customer relationships,
better program control and workload predictability and less
short-term 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 expects its Order Backlog of $926 million at the end of the third quarter of
fiscal 2019 to partially mitigate the impact of volatile Order
Bookings on revenues in the short term. The composition of the
Company's Order Backlog has changed materially in fiscal 2019, with
the addition of several large, enterprise programs that the Company
has won over the past 12 months. These enterprise programs have
longer periods of performance and therefore longer revenue
recognition cycles. The Company's current Order Backlog of
$926 million provides ATS with
significant visibility into revenues over the next several
quarters. With these changes in the composition of the Company's
Order Backlog, in the fourth quarter of fiscal 2019, management
expects Order Backlog conversion to be in the 30% to 35% range as a
result of the longer periods of performance of the larger
enterprise programs embedded in the Company's current Order
Backlog.
The services strategy is expected to add incremental revenues
over time as the attach rate of services' contracts on new
equipment increases and as the penetration of the installed base
improves. The Company is working to grow service revenues as a
percentage of overall revenues over time, which is expected to
provide some balance to the capital expenditure cycle of the
Company's customers but may not fully offset capital spending
volatility.
The Company is deploying the ABM across its divisions globally.
The initial roll-out of the ABM has been 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 ongoing 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 balance sheet and strong cash flow generation
capability provide the flexibility to pursue its growth
strategy.
ACQUISITIONS
Business Acquisition: KMW
On
October 31, 2018, the Company
completed its acquisition of Konstruktion, Maschinen- &
Werkzeugbau GmbH & Co. KG, and KMW GmbH (collectively,
"KMW"). KMW is a German-based supplier of custom
micro-assembly systems and test equipment solutions. KMW
provides ATS with an internal source for complementary conveyorized
micro-assembly and test capabilities, further enabling the Company
to provide full automation solutions and meet customer demands for
a complete turnkey offering. The addition of KMW's micro-assembly
technology and expertise strengthens ATS' current offerings in the
EV market. The acquisition is aligned with ATS' strategy of
expanding its reach in current and new markets.
In its fiscal year ended March 31,
2018, KMW had revenues of approximately 14.0 million Euro and an EBITDA margin of over
20%. The total purchase price was 18.3
million Euro. Cash consideration paid in the third quarter
was 16.4 million Euro with the
balance to be paid within 18 months from the acquisition date,
subject to finalization of certain working capital and other items.
The cash consideration of the purchase price along with transaction
costs were funded with existing cash on hand. The acquisition
has been accounted for as a business combination with the Company
as the acquirer of KMW. The purchase method of accounting has been
used and the earnings of KMW were consolidated beginning from the
acquisition date.
Business Acquisition: Comecer
On December 19, 2018, the Company entered into a
definitive agreement to acquire Comecer S.p.A. ("Comecer"), a
leader in the design, engineering, manufacture, and servicing of
advanced aseptic containment and processing systems for the nuclear
medicine and pharmaceutical industries. Comecer is primarily
focused in radiopharmaceutical equipment, where it supplies
specialized radiation shielding systems used by customers in the
production, handling, and dispensing of radiopharmaceutical drugs.
Applications for this type of equipment include the diagnosis and
therapeutic treatment of several conditions including various forms
of cancer and cardiovascular disorders. Additionally, Comecer
provides equipment to support the aseptic processing, filling and
handling of specialized pharmaceuticals as well as isolator and
incubator equipment used in advanced therapy medicinal production
(ATMP), a regenerative cell therapy that uses patient cells to grow
new tissues. The addition of Comecer will strengthen ATS' customer
offering in both pharma and biopharma, while adding an innovative
new platform in radiopharmaceuticals.
For the 2018 calendar year, Comecer is expected to generate
revenues of approximately 67 million
Euro, with a low double-digit EBITDA margin. The total cash
purchase price for the acquisition will be 113 million Euro, subject to working capital and
other adjustments. The Company will fund the acquisition primarily
from cash on hand and its credit facilities. This acquisition
will be accounted for as a business combination with the Company as
the acquirer of Comecer. The purchase method of accounting will be
used and the earnings will be consolidated from the acquisition
date. The transaction is expected to close in the first calendar
quarter of 2019, subject to customary closing conditions.
Integration of Comecer will target revenue synergies through
cross-selling, geographic expansion and commercial process best
practices. Integration will also include the deployment of
the ABM, which is expected to enable improvements in project
management, operations, supply chain management and product life
cycle management. The acquisition is aligned with ATS' strategy of
expanding in attractive markets and is expected to increase the
overall percentage of ATS' revenues being generated in life
sciences to over 50% of consolidated revenues.
CONSOLIDATED RESULTS
(In millions of dollars, except
per share data)
|
Three
Months
|
Three
Months
|
Nine
Months
|
Nine
Months
|
|
Ended
|
Ended
|
Ended
|
Ended
|
|
December 30,
|
December
31,
|
December
30,
|
December
31,
|
|
2018
|
2017
|
2018
|
2017
|
Revenues
|
$
|
321.4
|
$
|
277.6
|
$
|
905.0
|
$
|
816.5
|
Cost of
revenues
|
236.8
|
205.5
|
668.8
|
606.8
|
Selling, general and
administrative
|
52.4
|
55.2
|
148.0
|
144.7
|
Stock-based
compensation
|
(6.3)
|
2.1
|
3.7
|
5.1
|
Earnings from
operations
|
$
|
38.5
|
$
|
14.8
|
$
|
84.5
|
$
|
59.9
|
Net finance
costs
|
$
|
4.8
|
$
|
5.8
|
$
|
15.1
|
$
|
18.1
|
Provision for income
taxes
|
8.6
|
2.1
|
16.8
|
9.5
|
Net
income
|
$
|
25.1
|
$
|
6.9
|
$
|
52.6
|
$
|
32.3
|
Basic and diluted
earnings per share
|
$
|
0.27
|
$
|
0.07
|
$
|
0.56
|
$
|
0.34
|
Revenues. At $321.4
million, consolidated revenues for the third quarter of
fiscal 2019 were $43.8 million, or
16% higher than the corresponding period a year ago. At
$905.0 million, year-to-date
consolidated revenues were $88.5
million, or 11% higher than in the corresponding period a
year ago (see "Overview – Operating Results").
Cost of revenues. At $236.8
million, third quarter fiscal 2019 cost of revenues
increased compared to the corresponding period a year ago by
$31.3 million, or 15%, primarily due
to higher revenues. Year-to-date cost of revenues of
$668.8 million increased $62.0 million, or 10% primarily due to higher
revenues. At 26%, gross margin was consistent in the third quarter
of fiscal 2018 and 2019. Year-to-date gross margin was 26%,
consistent with fiscal 2018.
Selling, general and administrative ("SG&A")
expenses. SG&A expenses for the third quarter of
fiscal 2019 were $52.4 million, which
included $2.7 million of incremental
costs related to the Company's acquisition activity and
$5.5 million of amortization costs
related to the amortization of identifiable intangible assets
recorded on business acquisitions. Excluding these costs,
SG&A expenses were $44.2 million
in the third quarter of fiscal 2019. Comparably, SG&A
expenses for the third quarter of fiscal 2018 were $40.7 million, which excluded $9.0 million of restructuring costs, and
$5.5 million of amortization costs
related to the amortization of identifiable intangible assets
recorded on business acquisitions. Higher SG&A expenses in the
third quarter of fiscal 2019 primarily reflected increased
sales-related expenses and employee costs.
For the first three quarters of fiscal 2019, SG&A expenses
were $148.0 million compared to
$144.7 million in the comparable
period last year. Fiscal 2019 SG&A expenses included
$3.6 million of incremental costs
related to the Company's acquisition activity and $16.5 million of expenses related to the
amortization of identifiable intangible assets recorded on business
acquisitions. Excluding these costs, SG&A expenses were
$127.9 million in the first three
quarters of fiscal 2019. Comparably, SG&A expenses for the
first three quarters of fiscal 2018 were $120.2 million, which excluded $9.0 million of restructuring costs, and
$15.5 million of expenses related to
the amortization of identifiable intangible assets recorded on
business acquisitions. Higher SG&A expenses in fiscal 2019
primarily reflected increased sales-related expenses and employee
costs.
Stock-based compensation. Stock-based compensation
recovery amounted to $6.3 million in
the third quarter of fiscal 2019 compared to expense of
$2.1 million in the corresponding
period a year ago. For the nine-month period ended
December 30, 2018, stock-based
compensation expense decreased to $3.7
million, compared to $5.1
million a year earlier. The decrease in stock-based
compensation costs is attributable to lower expenses from the
revaluation of deferred stock units and restricted share units
based on the Company's stock price.
Earnings from operations. For the three- and
nine-month periods ended December 30,
2018, earnings from operations were $38.5 million (12% operating margin) and
$84.5 million (9% operating margin),
respectively, compared to earnings from operations of $14.8 million (5% operating margin) and
$59.9 million (7% operating margin)
in the corresponding periods a year ago (see "Overview – Operating
Results").
Net finance costs. Net finance costs were
$4.8 million in the third quarter of
fiscal 2019, $1.0 million lower than
in the corresponding period a year ago. For the nine months
ended December 30, 2018, finance
costs were $15.1 million compared to
$18.1 million in the corresponding
period a year ago. The decrease was primarily due to higher
interest income earned in the first three quarters of fiscal 2019
compared to the corresponding period a year ago.
Income tax provision. For the three and nine months ended
December 30, 2018, the Company's
effective income tax rates of 26% and 24%, respectively, 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 third quarter net income was
$25.1 million (27 cents per share basic and diluted), compared
to $6.9 million (7 cents per share basic and diluted) for the
third quarter of fiscal 2018. Adjusted basic earnings per
share were 33 cents in the third
quarter of fiscal 2019 compared to 18
cents for the third quarter of fiscal 2018 (see
"Reconciliation of Non-IFRS Measures to IFRS Measures").
Net income for the nine months ended December 30, 2018 was $52.6 million (56
cents per share basic and diluted) compared to $32.3 million (34
cents per share basic and diluted) for the corresponding
period a year ago. Adjusted basic earnings per share were
72 cents in the nine months ended
December 30, 2018 compared to
53 cents in the corresponding period
a year ago (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
|
Three
Months
|
Nine
Months
|
Nine
Months
|
|
Ended
|
Ended
|
Ended
|
Ended
|
|
December
30,
|
December
31,
|
December
30,
|
December
31,
|
|
2018
|
2017
|
2018
|
2018
|
EBITDA
|
$
|
48.7
|
$
|
24.3
|
$
|
114.6
|
$
|
87.2
|
Less: depreciation
and amortization expense
|
10.2
|
9.5
|
30.1
|
27.3
|
Earnings from
operations
|
$
|
38.5
|
$
|
14.8
|
$
|
84.5
|
$
|
59.9
|
Less: net finance
costs
|
4.8
|
5.8
|
15.1
|
18.1
|
Provision for income
taxes
|
8.6
|
2.1
|
16.8
|
9.5
|
Net
income
|
$
|
25.1
|
$
|
6.9
|
$
|
52.6
|
$
|
32.3
|
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
December 30, 2018
|
|
Three Months Ended
December 31, 2017
|
|
IFRS
|
Adjustments
|
Adjusted
|
|
IFRS
|
Adjustments
|
Adjusted
|
|
|
|
(non-IFRS)
|
|
|
|
(non-IFRS)
|
Earnings from
operations
|
$
|
38.5
|
$
|
––
|
$
|
38.5
|
|
$
|
14.8
|
$
|
––
|
$
|
14.8
|
Amortization of
acquisition-
|
|
|
|
|
|
|
|
related intangible
assets
|
––
|
5.5
|
5.5
|
|
––
|
5.5
|
5.5
|
Restructuring
costs
|
––
|
––
|
––
|
|
––
|
9.0
|
9.0
|
Acquisition-related
transaction costs
|
––
|
2.7
|
2.7
|
|
––
|
––
|
––
|
|
$
|
38.5
|
$
|
8.2
|
$
|
46.7
|
|
$
|
14.8
|
$
|
14.5
|
$
|
29.3
|
Less: net finance
costs
|
$
|
4.8
|
$
|
–
|
$
|
4.8
|
|
$
|
5.8
|
$
|
––
|
$
|
5.8
|
Income before
income taxes
|
$
|
33.7
|
$
|
8.2
|
$
|
41.9
|
|
$
|
9.0
|
$
|
14.5
|
$
|
23.5
|
Provision for income
taxes
|
$
|
8.6
|
$
|
–
|
$
|
8.6
|
|
$
|
2.1
|
$
|
––
|
$
|
2.1
|
Adjustments to
provision for
|
|
|
|
|
|
|
|
income
taxes1
|
––
|
2.2
|
2.2
|
|
––
|
4.2
|
4.2
|
|
$
|
8.6
|
$
|
2.2
|
$
|
10.8
|
|
$
|
2.1
|
$
|
4.2
|
$
|
6.3
|
Net
income
|
$
|
25.1
|
$
|
6.0
|
$
|
31.1
|
|
$
|
6.9
|
$
|
10.3
|
$
|
17.2
|
Basic earnings per
share
|
$
|
0.27
|
$
|
0.06
|
$
|
0.33
|
|
$
|
0.07
|
$
|
0.11
|
$
|
0.18
|
|
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.
|
|
|
Nine Months
Ended December 30, 2018
|
|
Nine Months Ended
December 31, 2017
|
|
IFRS
|
Adjustments
|
Adjusted
|
|
IFRS
|
Adjustments
|
Adjusted
|
|
|
|
(non-IFRS)
|
|
|
|
(non-IFRS)
|
Earnings from
operations
|
$
|
84.5
|
$
|
––
|
$
|
84.5
|
|
$
|
59.9
|
$
|
––
|
$
|
59.9
|
Amortization of
acquisition-
|
|
|
|
|
|
|
|
related intangible
assets
|
––
|
16.5
|
16.5
|
|
––
|
15.5
|
15.5
|
Restructuring
costs
|
––
|
––
|
––
|
|
––
|
9.0
|
9.0
|
Acquisition-related
transactions costs
|
––
|
3.6
|
3.6
|
|
––
|
––
|
––
|
|
$
|
84.5
|
$
|
20.1
|
$
|
104.6
|
|
$
|
59.9
|
$
|
24.5
|
$
|
84.4
|
Less: net finance
costs
|
$
|
15.1
|
$
|
––
|
$
|
15.1
|
|
$
|
18.1
|
$
|
––
|
$
|
18.1
|
Income before
income taxes
|
$
|
69.4
|
$
|
20.1
|
$
|
89.5
|
|
$
|
41.8
|
$
|
24.5
|
$
|
66.3
|
Provision for income
taxes
|
$
|
16.8
|
$
|
––
|
$
|
16.8
|
|
$
|
9.5
|
$
|
––
|
$
|
9.5
|
Adjustments to
provision for
|
|
|
|
|
|
|
|
income
taxes1
|
––
|
5.4
|
5.4
|
|
––
|
7.2
|
7.2
|
|
$
|
16.8
|
$
|
5.4
|
$
|
22.2
|
|
$
|
9.5
|
$
|
7.2
|
$
|
16.7
|
Net
income
|
$
|
52.6
|
$
|
14.7
|
$
|
67.3
|
|
$
|
32.3
|
$
|
17.3
|
$
|
49.6
|
Basic earnings per
share
|
$
|
0.56
|
$
|
0.16
|
$
|
0.72
|
|
$
|
0.34
|
$
|
0.19
|
$
|
0.53
|
|
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
|
December 30,
2018
|
March
31, 2018
|
Cash and cash
equivalents
|
$
|
374.1
|
$
|
330.1
|
Debt-to-equity
ratio
|
0.47:1
|
0.47:1
|
|
|
|
|
December 30,
|
December 31,
|
For the three months
ended
|
2018
|
2017
|
Cash flows provided
by operating activities
|
$
|
62.2
|
$
|
5.5
|
At December 30, 2018, the Company
had cash and cash equivalents of $374.1
million compared to $330.1
million at March 31,
2018. At December 30, 2018, the
Company's debt-to-total equity ratio was 0.47:1.
In the third quarter of fiscal 2019, cash flows provided by
operating activities were $62.2
million ($5.5 million provided
by operating activities in the third quarter a year ago). The
increase in operating cash flows related primarily to the timing of
investments in non-cash working capital in certain customer
programs and higher net income compared to a year ago. In the
nine months ended December 30, 2018,
cash flows provided by operating activities were $101.3 million ($39.8
million provided by operating activities in the
corresponding period a year ago). The increase in operating cash
flows related primarily to the timing of investments in non-cash
working capital in certain customer programs and increased net
income.
In the third quarter of fiscal 2019, the Company's investment in
non-cash working capital decreased by $31.6
million from September 30,
2018. On a year-to-date basis, investment in non-cash working
capital decreased $15.7 million.
Accounts receivable increased 13%, or $26.7
million, driven by the timing of billings on certain
customer contracts. Net contracts in progress decreased 76%, or
$52.1 million, compared to
March 31, 2018. The Company actively
manages its accounts receivable and net contracts in progress
balances through billing terms on long-term contracts, collection
efforts and supplier payment terms. Inventories decreased 7%, or
$4.0 million, primarily due to a
decrease in work-in-process on certain customer projects. Deposits
and prepaid assets decreased 4%, or $0.9
million, compared to March 31, 2018 due to the
timing of program execution. Accounts payable and accrued
liabilities decreased 3%, or $7.0
million, compared to March 31,
2018. Provisions decreased 37%, or $7.9 million, compared to March 31, 2018.
Capital expenditures totalled $13.4
million in the first nine months of fiscal 2019, primarily
related to computer hardware, building additions, and office
equipment.
Intangible assets expenditures were $14.6
million for the first nine months of fiscal 2019, and
primarily related to the acquisition of substantially all of the
intellectual property assets of Transformix Engineering Inc.
("Transformix") for $10.0 million.
Transformix's CNCAssembly system, based on its patented Rapid Speed
Matching technology, provides a method of linking and synchronizing
the movements of devices and tooling to enable faster and more
efficient assembly systems. This enhanced capability is expected to
provide higher speed, lower cost, energy efficient and more
flexible assembly solutions for ATS' customers, while utilizing a
smaller footprint. CNCAssembly is suitable for any application
where high precision motion control is required and can serve a
broad range of end markets. The addition of this important
technology will complement ATS' growing portfolio of linear mover
technology products, which includes the best-in-class
SuperTrakTM linear motion system and the recently
launched SuperTrak MicroTM. Amortization of the
intangible asset will begin when the asset is available for use
which is estimated to be in the second half of fiscal 2020. Over
the next five years, potential future payments of up to
$20.0 million are payable based on
sales which incorporate the acquired intellectual property. The
commission expenses will be recognized as they are incurred.
At December 30, 2018, the Company
had $636.8 million of unutilized
multipurpose credit, including letters of credit, available under
existing credit facilities and an additional $19.5 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
the Company's assets, including certain real estate in North America and a pledge of shares of
certain subsidiaries. Certain of the Company's subsidiaries also
provide guarantees under the Credit Facility. At December 30, 2018, the Company had utilized
$129.7 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 December 30,
2018, all of the covenants were met.
The Company has additional credit facilities available of
$19.4 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 December
30, 2018 was $1.9 million, of
which $1.4 million was classified as
bank indebtedness (March 31, 2018 -
$2.7 million) and $0.5 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 December 30, 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
|
Purchase
|
|
leases
|
obligations
|
Less than one
year
|
$
|
9.5
|
$
|
103.0
|
One – two
years
|
10.6
|
1.6
|
Two – three
years
|
8.4
|
0.7
|
Three – four
years
|
4.5
|
0.6
|
Four – five
years
|
2.2
|
0.2
|
Due in over five
years
|
2.1
|
0.2
|
|
$
|
37.3
|
$
|
106.3
|
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 December 30, 2018, the total value of outstanding
letters of credit was approximately $193.9
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 insurance in certain instances.
During the first nine months of fiscal 2019, 137,405 stock
options were exercised. At February 5,
2019 the total number of shares outstanding was 91,629,977
and there were 1,828,311 stock options outstanding to acquire
common shares of the Company.
NORMAL COURSE ISSUER BID
On December 3, 2018, the Company announced that the
Toronto Stock Exchange ("TSX") had accepted a notice filed by the
Company of its intention to make a normal course issuer bid
("NCIB"). Under the NCIB, ATS has the ability to purchase for
cancellation up to a maximum of 3,000,000 common shares,
representing approximately 3.2% of the 94,139,097 common shares
that were issued and outstanding as of November 16, 2018. ATS will be seeking approval
of the TSX to increase the maximum number of shares that may be
purchased under the NCIB to 6,366,405 common shares, representing
10% of the "public float" (as defined by the TSX and calculated as
of November 16, 2018). The increase
in the number of common shares that may be purchased under the NCIB
is subject to TSX approval.
Purchases under the NCIB will be made through the facilities of
the TSX and/or alternative trading systems in accordance with
applicable regulatory requirements, during the twelve-month period
which commenced on December 5, 2018
and ending on or before December 4,
2019. The average daily trading volume of the common shares
on the TSX for the six calendar months ending October 31, 2018 was 240,474 common shares. On
any trading day ATS will not purchase more than 25% of such average
daily trading volume representing 60,118 common shares, except
where such purchases are made in accordance with available block
purchase exemptions. The common shares purchased under the NCIB
will be cancelled.
Some purchases under the NCIB may be made pursuant to an
automatic purchase plan between ATS and its broker. This plan would
enable the purchase of ATS common shares when ATS would not
ordinarily be active in the market due to internal trading blackout
periods, insider trading rules, or otherwise.
ATS believes that there are times when the market price of ATS
common shares may not reflect their underlying value and that the
purchase of shares by ATS will both provide liquidity to existing
shareholders and benefit remaining shareholders. The NCIB is viewed
by ATS management as one component of an overall capital structure
strategy and complementary to its organic and acquisition growth
plans.
As at December 30, 2018, the
Company had purchased 979,152 common shares for $14.8 million under the NCIB. The weighted
average price per share repurchased was $15.09. ATS security holders may obtain a copy of
the notice, without charge, upon request from the Secretary 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 nine 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. In order 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
|
|
Nine Months
Ended
|
|
December 30,
|
December
31,
|
|
|
December
30,
|
December
31,
|
|
|
2018
|
2017
|
% change
|
|
2018
|
2017
|
% change
|
U.S.
dollar
|
1.322
|
1.272
|
3.9%
|
|
1.307
|
1.290
|
1.3%
|
Euro
|
1.508
|
1.498
|
0.7%
|
|
1.521
|
1.484
|
2.5%
|
CONSOLIDATED QUARTERLY RESULTS
(In millions of
dollars, except per share amounts)
|
Q3
|
Q2
|
Q1
|
Q4
|
Q3
|
Q2
|
Q1
|
Q4
|
|
2019
|
2019
|
2019
|
2018
|
2018
|
2018
|
2018
|
2017
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
321.4
|
$
|
283.6
|
$
|
300.0
|
$
|
298.4
|
$
|
277.6
|
$
|
274.9
|
$
|
264.0
|
$
|
265.7
|
|
|
|
|
|
|
|
|
|
Earnings from
operations
|
$
|
38.5
|
$
|
19.0
|
$
|
27.0
|
$
|
25.5
|
$
|
14.8
|
$
|
23.9
|
$
|
21.3
|
$
|
16.8
|
|
|
|
|
|
|
|
|
|
Adjusted earnings
from
|
|
|
|
|
|
|
|
|
operations
|
$
|
46.7
|
$
|
25.4
|
$
|
32.6
|
$
|
32.8
|
$
|
29.3
|
$
|
28.8
|
$
|
26.3
|
$
|
24.5
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
25.1
|
$
|
10.8
|
$
|
16.7
|
$
|
15.0
|
$
|
6.9
|
$
|
13.8
|
$
|
11.5
|
$
|
7.8
|
Basic and diluted
earnings
|
|
|
|
|
|
|
|
|
per
share
|
$
|
0.27
|
$
|
0.11
|
$
|
0.18
|
$
|
0.16
|
$
|
0.07
|
$
|
0.15
|
$
|
0.12
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
Adjusted basic
earnings per
|
|
|
|
|
|
|
|
|
share
|
$
|
0.33
|
$
|
0.17
|
$
|
0.22
|
$
|
0.22
|
$
|
0.18
|
$
|
0.18
|
$
|
0.16
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
Order
Bookings
|
$
|
397.0
|
$
|
355.0
|
$
|
358.0
|
$
|
348.0
|
$
|
311.0
|
$
|
257.0
|
$
|
266.0
|
$
|
322.0
|
|
|
|
|
|
|
|
|
|
Order
Backlog
|
$
|
926.0
|
$
|
830.0
|
$
|
789.0
|
$
|
746.0
|
$
|
689.0
|
$
|
648.0
|
$
|
683.0
|
$
|
681.0
|
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, and by the timing
of acquisitions. 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 interim condensed 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 interim condensed 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. In addition to the
critical accounting estimates described in the Company's fiscal
2018 MD&A, acquisitions that meet the definition of a business
combination require the Company to recognize the assets acquired
and liabilities at their fair market value on the date of the
acquisition. The calculation of fair value of the assets and
liabilities may require the use of estimates and assumptions, based
on discounted cash flows, market information and using independent
valuations and management's best estimates.
ACCOUNTING STANDARD ADOPTED IN 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") 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 and nine months ended December 30, 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 negotiations and disputes; 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; the Company's Order Backlog partially mitigating the
impact of volatile Order Bookings; rate of Order Backlog
conversion; expected benefits with respect to the Company's efforts
to expand its services revenues; 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 expected benefits resulting from the acquisition
of Comecer, expected Comecer 2018 calendar year revenues and
EBITDA, expected timing of closing, and integration of Comecer and
expected impact; the Company's expectation with respect to
effective tax rate; expected benefits from purchase of Transformix
intellectual property assets and when the asset will be available
for use; 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
negotiations or disputes 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; variations in the amount of
Order Backlog completed in any given quarter; that the Company is
not successful in growing its service offering or that expected
benefits are not realized; 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 expected benefits from the
acquisition of Comecer are not realized for reasons including
failure to successfully integrate it and lack of customer
receptivity to the expanded offering; that Comecer 2018 calendar
year revenues and EBITDA are other than expected; that Closing of
the Comecer transaction is delayed or required government approvals
are not forthcoming; that the effective tax rate is other than
expected, due to reasons including income spread among
jurisdictions being other than anticipated; that ATS does not
realize the expected benefits of Transformix asset purchase or that
the products incorporating the technology are delayed in
development; 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 and/or professional 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)
|
|
|
|
|
|
|
|
|
|
December
30
|
|
March
31
|
As
at
|
Note
|
|
2018
|
|
2018
|
|
|
|
|
|
|
ASSETS
|
11
|
|
|
|
|
Current
assets
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
374,090
|
$
|
330,148
|
Accounts
receivable
|
|
|
239,693
|
|
213,006
|
Contract
assets
|
2, 5
|
|
204,259
|
|
164,917
|
Inventories
|
5
|
|
54,483
|
|
58,509
|
Deposits, prepaids
and other assets
|
6
|
|
21,639
|
|
22,510
|
|
|
|
894,164
|
|
789,090
|
Non-current
assets
|
|
|
|
|
|
Property, plant and
equipment
|
|
|
92,381
|
|
85,102
|
Other
assets
|
7
|
|
8,442
|
|
––
|
Goodwill
|
4
|
|
476,466
|
|
459,159
|
Intangible
assets
|
8
|
|
142,284
|
|
148,869
|
Deferred income tax
assets
|
|
|
2,392
|
|
2,987
|
Investment tax credit
receivable
|
|
|
58,600
|
|
57,012
|
|
|
|
780,565
|
|
753,129
|
Total
assets
|
|
$
|
1,674,729
|
$
|
1,542,219
|
LIABILITIES AND
EQUITY
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
Bank
indebtedness
|
11
|
$
|
1,390
|
$
|
2,668
|
Accounts payable and
accrued liabilities
|
|
|
239,399
|
|
246,384
|
Provisions
|
10
|
|
13,142
|
|
20,994
|
Contract
liabilities
|
2, 5
|
|
187,355
|
|
95,912
|
Current portion of
long-term debt
|
11
|
|
395
|
|
393
|
|
|
|
441,681
|
|
366,351
|
Non-current
liabilities
|
|
|
|
|
|
Employee
benefits
|
|
|
27,406
|
|
28,151
|
Long-term
debt
|
11
|
|
335,202
|
|
315,129
|
Deferred income tax
liabilities
|
|
|
49,184
|
|
42,907
|
Other long-term
liabilities
|
7
|
|
20,011
|
|
30,908
|
|
|
|
431,803
|
|
417,095
|
Total
liabilities
|
|
$
|
873,484
|
$
|
783,446
|
|
|
|
|
|
|
Commitments and
contingencies
|
11, 15
|
|
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
Share
capital
|
12
|
$
|
536,287
|
$
|
548,747
|
Contributed
surplus
|
|
|
12,772
|
|
12,535
|
Accumulated other
comprehensive income
|
|
|
77,963
|
|
75,830
|
Retained
earnings
|
|
|
173,913
|
|
121,369
|
Equity attributable
to shareholders
|
|
|
800,935
|
|
758,481
|
Non-controlling
interests
|
|
|
310
|
|
292
|
Total
equity
|
|
|
801,245
|
|
758,773
|
Total liabilities
and equity
|
|
$
|
1,674,729
|
$
|
1,542,219
|
ATS AUTOMATION
TOOLING SYSTEMS INC.
|
Interim
Consolidated Statements of Income
|
(in thousands of
Canadian dollars, except per share amounts - unaudited)
|
|
|
|
|
|
|
|
|
|
Three months
ended
|
|
Nine months
ended
|
|
|
|
December
30
|
|
December
31
|
|
December
30
|
|
December
31
|
|
Note
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Revenues
|
|
|
|
|
|
|
|
|
|
Automation
construction contracts
|
|
$
|
195,441
|
$
|
169,649
|
$
|
554,002
|
$
|
474,940
|
Sale of
goods
|
|
|
21,038
|
|
17,971
|
|
62,804
|
|
56,903
|
Services
rendered
|
|
|
104,918
|
|
89,973
|
|
288,194
|
|
284,663
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
321,397
|
|
277,593
|
|
905,000
|
|
816,506
|
|
|
|
|
|
|
|
|
|
|
Operating costs and
expenses
|
|
|
|
|
|
|
|
|
|
Cost of
revenues
|
|
|
236,836
|
|
205,493
|
|
668,848
|
|
606,808
|
Selling, general and
administrative
|
|
|
52,408
|
|
55,182
|
|
147,978
|
|
144,711
|
Stock-based
compensation
|
14
|
|
(6,310)
|
|
2,142
|
|
3,692
|
|
5,040
|
|
|
|
|
|
|
|
|
|
|
Earnings from
operations
|
|
|
38,463
|
|
14,776
|
|
84,482
|
|
59,947
|
|
|
|
|
|
|
|
|
|
|
Net finance
costs
|
17
|
|
4,761
|
|
5,763
|
|
15,084
|
|
18,105
|
|
|
|
|
|
|
|
|
|
|
Income before
income taxes
|
|
|
33,702
|
|
9,013
|
|
69,398
|
|
41,842
|
|
|
|
|
|
|
|
|
|
|
Income tax
expense
|
13
|
|
8,601
|
|
2,108
|
|
16,836
|
|
9,590
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
25,101
|
$
|
6,905
|
$
|
52,562
|
$
|
32,252
|
|
|
|
|
|
|
|
|
|
|
Attributable
to
|
|
|
|
|
|
|
|
|
|
Shareholders
|
|
$
|
25,094
|
$
|
6,892
|
$
|
52,544
|
$
|
32,217
|
Non-controlling
interests
|
|
|
7
|
|
13
|
|
18
|
|
35
|
|
|
$
|
25,101
|
$
|
6,905
|
$
|
52,562
|
$
|
32,252
|
Earnings per
share
|
|
|
|
|
|
|
|
|
|
attributable to
shareholders
|
|
|
|
|
|
|
|
|
|
Basic and
diluted
|
18
|
$
|
0.27
|
$
|
0.07
|
$
|
0.56
|
$
|
0.34
|
ATS AUTOMATION
TOOLING SYSTEMS INC.
|
Interim
Consolidated Statements of Comprehensive Income
|
(in thousands of
Canadian dollars - unaudited)
|
|
|
|
|
|
|
|
Three months
ended
|
|
Nine months
ended
|
|
|
December
30
|
|
December
31
|
|
December
30
|
|
December
31
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Net
income
|
$
|
25,101
|
$
|
6,905
|
$
|
52,562
|
$
|
32,252
|
|
|
|
|
|
|
|
|
|
Other comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items to be
reclassified subsequently to net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation
adjustment
|
|
|
|
|
|
|
|
|
(net of income taxes
of
$nil)
|
|
9,476
|
|
5,446
|
|
(6,473)
|
|
12,613
|
|
|
|
|
|
|
|
|
|
Net unrealized gain
(loss) on derivative financial
|
|
|
|
|
|
|
|
|
instruments designated
as cash flow
hedges
|
|
(5,257)
|
|
17
|
|
(1,594)
|
|
4,827
|
Tax
impact
|
|
1,316
|
|
(10)
|
|
399
|
|
(1,269)
|
|
|
|
|
|
|
|
|
|
Gain transferred to
net income for derivatives
|
|
|
|
|
|
|
|
|
designated as cash
flow
hedges
|
|
(815)
|
|
(875)
|
|
(773)
|
|
(794)
|
Tax
impact
|
|
213
|
|
240
|
|
208
|
|
236
|
|
|
|
|
|
|
|
|
|
Cash flow hedge
reserve adjustment
|
|
13,012
|
|
116
|
|
13,822
|
|
(8,144)
|
Tax
impact
|
|
(3,254)
|
|
(29)
|
|
(3,456)
|
|
2,036
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income
|
|
14,691
|
|
4,905
|
|
2,133
|
|
9,505
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
$
|
39,792
|
$
|
11,810
|
$
|
54,695
|
$
|
41,757
|
|
|
|
|
|
|
|
|
|
Attributable
to
|
|
|
|
|
|
|
|
|
Shareholders
|
$
|
39,785
|
$
|
11,797
|
$
|
54,677
|
$
|
41,722
|
Non-controlling
interests
|
|
7
|
|
13
|
|
18
|
|
35
|
|
$
|
39,792
|
$
|
11,810
|
$
|
54,695
|
$
|
41,757
|
ATS AUTOMATION
TOOLING SYSTEMS INC.
|
Interim
Consolidated Statements of Changes in Equity
|
(in thousands of
Canadian dollars - unaudited)
|
|
Nine months ended
December 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
|
|
|
|
other
|
|
Non-
|
|
|
|
|
Share
|
|
Contributed
|
|
Retained
|
|
translation
|
|
Cash
flow
|
|
comprehensive
|
|
controlling
|
|
Total
|
|
|
capital
|
|
surplus
|
|
earnings
|
|
adjustments
|
|
hedge
reserve
|
|
income
|
|
interests
|
|
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, as at
March 31,
2018
|
$
|
548,747
|
$
|
12,535
|
$
|
121,369
|
$
|
79,918
|
$
|
(4,088)
|
$
|
75,830
|
$
|
292
|
$
|
758,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
––
|
|
––
|
|
52,544
|
|
––
|
|
––
|
|
––
|
|
18
|
|
52,562
|
Other comprehensive
income
(loss)
|
|
––
|
|
––
|
|
––
|
|
(6,473)
|
|
8,606
|
|
2,133
|
|
––
|
|
2,133
|
Total comprehensive
income
(loss)
|
|
––
|
|
––
|
|
52,544
|
|
(6,473)
|
|
8,606
|
|
2,133
|
|
18
|
|
54,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
––
|
|
729
|
|
––
|
|
––
|
|
––
|
|
––
|
|
––
|
|
729
|
Exercise of stock
options
|
|
2,315
|
|
(492)
|
|
––
|
|
––
|
|
––
|
|
––
|
|
––
|
|
1,823
|
Repurchase of common
shares (note 12)
|
|
(14,775)
|
|
––
|
|
––
|
|
––
|
|
––
|
|
––
|
|
––
|
|
(14,775)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, as at
December 30,
2018
|
$
|
536,287
|
$
|
12,772
|
$
|
173,913
|
$
|
73,445
|
$
|
4,518
|
$
|
77,963
|
$
|
310
|
$
|
801,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
|
|
|
|
other
|
|
Non-
|
|
|
|
|
Share
|
|
Contributed
|
|
Retained
|
|
translation
|
|
Cash
flow
|
|
comprehensive
|
|
controlling
|
|
Total
|
|
|
capital
|
|
surplus
|
|
earnings
|
|
adjustments
|
|
hedge
reserve
|
|
income
|
|
interests
|
|
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, as at March
31, 2017
|
$
|
543,317
|
$
|
12,871
|
$
|
74,599
|
$
|
55,504
|
$
|
(530)
|
$
|
54,974
|
$
|
248
|
$
|
686,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
––
|
|
––
|
|
32,217
|
|
––
|
|
––
|
|
––
|
|
35
|
|
32,252
|
Other comprehensive
income (loss)
|
|
––
|
|
––
|
|
––
|
|
12,613
|
|
(3,108)
|
|
9,505
|
|
––
|
|
9,505
|
Total comprehensive
income (loss)
|
|
––
|
|
––
|
|
32,217
|
|
12,613
|
|
(3,108)
|
|
9,505
|
|
35
|
|
41,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
––
|
|
767
|
|
––
|
|
––
|
|
––
|
|
––
|
|
––
|
|
767
|
Exercise of stock
options
|
|
4,031
|
|
(947)
|
|
––
|
|
––
|
|
––
|
|
––
|
|
––
|
|
3,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, as at
December 31, 2017
|
$
|
547,348
|
$
|
12,691
|
$
|
106,816
|
$
|
68,117
|
$
|
(3,638)
|
$
|
64,479
|
$
|
283
|
$
|
731,617
|
ATS AUTOMATION
TOOLING SYSTEMS INC.
|
Interim
Consolidated Statements of Cash Flows
|
(in thousands of
Canadian dollars - unaudited)
|
|
|
|
|
|
|
|
|
|
Three months
ended
|
|
Nine months
ended
|
|
|
|
December
30
|
|
December
31
|
|
December
30
|
|
December
31
|
|
Note
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Operating
activities
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
25,101
|
$
|
6,905
|
$
|
52,562
|
$
|
32,252
|
Items not involving
cash
|
|
|
|
|
|
|
|
|
|
Depreciation of
property, plant and
equipment
|
|
|
2,988
|
|
2,542
|
|
8,756
|
|
7,591
|
Amortization of
intangible
assets
|
8
|
|
7,246
|
|
6,969
|
|
21,302
|
|
19,734
|
Deferred income
taxes
|
13
|
|
4,564
|
|
(3,609)
|
|
4,664
|
|
(3,732)
|
Other items not
involving
cash
|
|
|
(2,932)
|
|
(6,024)
|
|
(5,365)
|
|
(5,541)
|
Stock-based
compensation
|
14
|
|
(6,310)
|
|
2,142
|
|
3,692
|
|
5,040
|
|
|
|
30,657
|
|
8,925
|
|
85,611
|
|
55,344
|
Change in non-cash
operating working capital
|
|
|
31,577
|
|
(3,460)
|
|
15,736
|
|
(15,569)
|
Cash flows
provided by operating activities
|
|
$
|
62,234
|
$
|
5,465
|
$
|
101,347
|
$
|
39,775
|
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
|
Acquisition of
property, plant and
equipment
|
|
$
|
(4,019)
|
$
|
(6,515)
|
$
|
(13,417)
|
$
|
(13,692)
|
Acquisition of
intangible
assets
|
8
|
|
(11,672)
|
|
(1,519)
|
|
(14,633)
|
|
(4,447)
|
Business acquisition,
net of cash acquired
|
4
|
|
(24,279)
|
|
––
|
|
(24,279)
|
|
––
|
Proceeds from
disposal of property,
|
|
|
|
|
|
|
|
|
|
plant and
equipment
|
|
|
5,046
|
|
10
|
|
5,196
|
|
546
|
Cash flows used in
investing activities
|
|
$
|
(34,924)
|
$
|
(8,024)
|
$
|
(47,133)
|
$
|
(17,593)
|
|
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
|
Bank
indebtedness
|
|
$
|
198
|
$
|
(806)
|
$
|
(1,111)
|
$
|
(1,056)
|
Repayment of
long-term
debt
|
|
|
(28)
|
|
(91)
|
|
(320)
|
|
(1,600)
|
Proceeds from
long-term
debt
|
|
|
38
|
|
25
|
|
76
|
|
122
|
Proceeds from
exercise of
options
|
|
|
51
|
|
2,876
|
|
1,823
|
|
3,084
|
Repurchase of common
shares
|
12
|
|
(14,775)
|
|
––
|
|
(14,775)
|
|
–
|
Cash flows
provided by (used in)
|
|
|
|
|
|
|
|
|
|
financing
activities
|
|
$
|
(14,516)
|
$
|
2,004
|
$
|
(14,307)
|
$
|
550
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange
rate changes on cash
|
|
|
|
|
|
|
|
|
|
and cash
equivalents
|
|
|
7,068
|
|
1,820
|
|
4,035
|
|
(1,859)
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and
cash
equivalents
|
|
|
19,862
|
|
1,265
|
|
43,942
|
|
20,873
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents, beginning of period
|
|
|
354,228
|
|
306,305
|
|
330,148
|
|
286,697
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents, end of period
|
|
$
|
374,090
|
$
|
307,570
|
$
|
374,090
|
$
|
307,570
|
|
|
|
|
|
|
|
|
|
|
Supplemental
information
|
|
|
|
|
|
|
|
|
|
Cash income taxes
paid
|
|
$
|
1,575
|
$
|
3,242
|
$
|
6,355
|
$
|
8,598
|
Cash interest
paid
|
|
$
|
11,090
|
$
|
9,791
|
$
|
24,027
|
$
|
20,486
|
SOURCE ATS Automation Tooling Systems Inc.