CAMBRIDGE, ON, May 27, 2020 /CNW/ - ATS Automation Tooling
Systems Inc. (TSX: ATA) ("ATS" or the "Company") today
reported financial results for the three and 12 months ended
March 31, 2020.
Fourth quarter highlights:
- Revenues increased 10% to $382.1
million with organic growth in revenues of 2% and 8% coming
from acquired businesses.
- Earnings from operations were $24.9
million (7% operating margin), compared to $30.3 million (9% operating margin) a year ago.
Adjusted earnings from operations1 were $39.3 million (10% margin), compared to
$38.2 million (11% margin) a year
ago.
- EBITDA1 was $43.2
million (11% EBITDA margin), compared to $42.6 million (12% EBITDA margin) a year
ago.
- Earnings per share were 14 cents
basic and diluted compared to 20
cents a year ago.
- Adjusted basic earnings per share1 were 26 cents for the fourth quarter of fiscal 2020
and 2019.
- Order Bookings were $356 million,
19% higher than a year ago.
- Order Backlog increased 4% to $942
million at March 31, 2020
compared to $904 million a year
ago.
"Fourth quarter performance featured year-over-year growth in
revenues and Order Bookings," said Andrew
Hider, Chief Executive Officer. "Our teams have done an
outstanding job ensuring that we continue to deliver exceptional
work for our customers, while making adjustments in how we operate
to ensure employee safety during the global pandemic. We have taken
on new mandates to help customers rapidly transition production to
personal protective equipment and ramp-up production of critical
life sciences products to aid in the fight against
COVID-19."
Annual fiscal 2020 highlights:
- Revenues increased 14% to $1,429.7
million with organic growth in revenues of 4% and 10% coming
from acquisitions.
- Earnings from operations were $95.6
million (7% operating margin), compared to $114.8 million (9% operating margin) in the prior
year.
- Adjusted earnings from operations1 were $157.4 million (11% margin), compared to
$142.8 million (11% margin) in the
prior year.
- EBITDA1 was $167.0
million (12% EBITDA margin), compared to $157.2 million (13% EBITDA margin) in the prior
year.
- Earnings per share was 57 cents
basic and diluted compared to 76
cents basic and 75 cents
diluted in the prior year.
- Adjusted basic earnings per share1 increased 8% to
$1.06 from 98
cents a year ago.
- Order Bookings of $1,468 million
were 4% higher than a year ago.
Mr. Hider added, "The financial impact of the pandemic cannot be
reasonably estimated. We have implemented measures to contain costs
and preserve liquidity, which will help to mitigate some of the
pressure we expect to experience on our revenues and operating
margins in fiscal 2021. We have a strong business with good Order
Backlog, a healthy balance sheet and valued customer relationships
with world-leading organizations many of whom themselves are
essential service providers. Over the long-term, when we do move
beyond this crisis, our business is uniquely positioned to provide
value to our customers as they innovate, drive efficiency and
examine the need for supply chain refinements within their
operations."
Financial results
(In millions of dollars unless
otherwise stated)
|
3 months
ended
March 31,
2020
|
3 months
ended
March 31,
2019
|
12 months
ended
March 31,
2020
|
12 months
ended
March 31,
2019
|
Revenues
|
$
|
382.1
|
$
|
348.6
|
$
|
1,429.7
|
$
|
1,253.6
|
Earnings from
operations
|
$
|
24.9
|
$
|
30.3
|
$
|
95.6
|
$
|
114.8
|
Adjusted earnings
from
|
|
|
|
|
operations1
|
$
|
39.3
|
$
|
38.2
|
$
|
157.4
|
$
|
142.8
|
EBITDA1
|
$
|
43.2
|
$
|
42.6
|
$
|
167.0
|
$
|
157.2
|
Net
income
|
$
|
13.1
|
$
|
18.2
|
$
|
52.9
|
$
|
70.8
|
Adjusted basic
earnings per share1
|
$
|
0.26
|
$
|
0.26
|
$
|
1.06
|
$
|
0.98
|
Basic earnings per
share
|
$
|
0.14
|
$
|
0.20
|
$
|
0.57
|
$
|
0.76
|
Diluted earnings
per share
|
$
|
0.14
|
$
|
0.20
|
$
|
0.57
|
$
|
0.75
|
1 Non-IFRS
measure: see "Notice to Reader: Non-IFRS Measures and Additional
IFRS Measures".
|
Fourth Quarter
Fiscal 2020 fourth quarter revenues
were 10% higher than in the corresponding period a year ago and
included $26.3 million of revenues
earned by acquired companies (see "Business Acquisitions").
Excluding acquired companies, fourth quarter revenues increased
$7.2 million, or 2% compared to the
corresponding period a year ago. Compared to the corresponding
period a year ago, revenues generated from construction contracts
increased 23% primarily due to the timing of third-party materials.
Revenues from services decreased 13% due primarily to travel
restrictions and customer facility closures related to
COVID-19.
By market, revenues generated in life sciences increased 3%
primarily on revenues earned by Comecer. Revenues in the
transportation market increased 41% due to higher Order Backlog for
both electric vehicle and internal combustion engine projects
entering the fourth quarter of fiscal 2020. Revenues from consumer
products increased 5% on revenues earned by MARCO. Revenues from
energy markets decreased 27% due to timing of projects, primarily
in the nuclear market.
Fiscal 2020 fourth quarter earnings from operations were
$24.9 million (7% operating margin)
compared to $30.3 million (9%
operating margin) in the fourth quarter of fiscal 2019. Fourth
quarter fiscal 2020 earnings from operations included $5.8 million of restructuring charges incurred as
part of the Company's reorganization plan (see "Reorganization
Plan"), $0.1 million of incremental
costs related to the Company's acquisition activity, down from
$1.1 million in the comparable period
a year ago, and $8.5 million related
to amortization of acquisition-related intangible assets, up from
$6.8 million of amortization of
acquisition-related intangible assets in the comparable period a
year ago.
Excluding these items in both comparable quarters, fourth
quarter fiscal 2020 adjusted earnings from operations were
$39.3 million (10% margin), compared
to adjusted earnings from operations of $38.2 million (11% margin) a year ago. Higher
adjusted earnings from operations reflected higher revenues and a
stock compensation recovery compared to higher stock compensation
expenses a year ago. These increases were partially offset by
higher costs of revenues and selling, general and administrative
expenses. As expected, fourth quarter fiscal 2020 adjusted earnings
from operations reflected a lower gross margin due to under
absorption of employee and fixed costs in facilities affected by
the reorganization plan, which negatively impacted earnings by
approximately $5.0 million. In
addition, gross margin was negatively impacted by certain programs
that exceeded budget, which negatively impacted earnings by
approximately $4.0 million. Operating
margins were also negatively impacted by measures implemented in
response to the COVID-19 pandemic, including protocols to enable
physical distancing, and travel restrictions and customer closures,
which disrupted customer activities. The adoption of IFRS 16
positively impacted earnings from operations by $0.9 million compared to the prior year due to
the implied finance costs recorded on lease obligations.
Depreciation and amortization expense was $18.3 million in the fourth quarter of fiscal
2020, compared to $12.3 million a
year ago. The increase primarily reflected $4.3 million of incremental depreciation of
right-of-use assets as a result of the adoption of IFRS 16 and
incremental amortization of acquisition-related intangible assets
due to the acquisitions of Comecer, iXLOG, and MARCO.
EBITDA was $43.2 million (11%
EBITDA margin) in the fourth quarter of fiscal 2020 compared to
$42.6 million (12% EBITDA margin) in
the fourth quarter of fiscal 2019. Higher EBITDA reflected higher
revenues and lower stock compensation expenses and operating lease
costs related to the adoption of IFRS 16, which positively impacted
EBITDA by $5.2 million. These
increases were partially offset by $5.8
million of restructuring charges, approximately $5.0 million of inefficiencies from the
implementation of the reorganization plan, $4.0 million of costs related to certain programs
that exceeded budget and the impacts from the COVID-19
pandemic.
COVID-19
The recent outbreak of COVID-19 has resulted
in governments worldwide enacting emergency measures to combat the
spread of the virus. These measures, which include the
implementation of travel bans, self-isolation and quarantine
periods, and physical distancing, have affected economies and
financial markets around the world resulting in an economic
slowdown. This outbreak may also cause staff shortages, affect
customer demand, disrupt global supply chains and increase
government regulations or intervention, all of which may negatively
impact the business, financial results and conditions of the
Company.
Measures implemented to enable physical distancing across ATS'
operations, including remote work and flexible schedules, have
caused the Company to operate below full capacity. Travel
restrictions and closures of customer facilities have disrupted
customer projects and service activity. These factors are expected
to negatively impact the Company's operating results in the first
quarter of fiscal 2021. Partially offsetting these inefficiencies,
the Company expects to benefit from the recently enacted
Canada Emergency Wage Subsidy
(CEWS), which provides a subsidy for a portion of the Company's
Canadian workforce. Based on lower revenues in ATS' Canadian
operations, the Company expects to receive between $4.0 million to $8.0
million from the CEWS, which will assist with workforce
retention. Management is focused on cost-containment measures and
the preservation of liquidity. Actions taken include reductions to
discretionary expenditures, deferral of some capital investments,
and in certain locations, temporary layoffs and reductions to
working hours. The duration and impact of the COVID-19 outbreak is
unknown at this time and it is not possible to reliably estimate
the duration and severity of these developments as well as the
impact on the financial results and condition of the Company in
future periods. ATS' businesses are currently characterized as
essential in all jurisdictions requiring such a designation to
date.
Impact of Adoption of IFRS 16 - Leases
The nature of
expenses related to identified lease arrangements changed as IFRS
16 replaced straight-line operating lease expense with depreciation
and interest expense relating to lease liabilities. For the three-
and 12-months ended March 31, 2020,
the adoption of IFRS 16 resulted in increased depreciation expenses
related to right-of-use assets of $4.3
million and $15.9 million,
respectively, with a corresponding decrease in operating lease
costs which were recognized in cost of revenues and selling,
general and administrative expenses. In addition, the adoption of
IFRS 16 resulted in incremental interest expenses of $0.9 million and $3.6
million for the three- and 12-months ended March 31, 2020, respectively, with corresponding
decreases in operating lease costs. The combined impact of these
changes was to increase earnings from operations by $0.9 million and $3.6
million and to increase EBITDA by $5.2 million and $19.5
million for the three- and 12-months ended March 31, 2020, respectively. The impact on net
income was negligible.
Reorganization Plan
In fiscal 2020, ATS announced the
expansion and investment in targeted high-performing facilities
globally, as part of a $60 million
capital investment plan to increase capacity, address the Company's
significant Order Backlog and enable long-term growth in strategic
markets such as life sciences. To drive continued improvement in
operations and focus investment in strategic growth areas of the
business, the Company announced a reorganization plan in the third
quarter of fiscal 2020. The reorganization plan included the
consolidation of certain operations and the closure of some
underperforming facilities and small branch offices – none of which
were strategically important to future growth. Costs to implement
the restructuring were comprised primarily of severances and lease
termination costs. The Company has recorded charges of $2.0 million, $18.8
million and $5.8 million in
the second, third and fourth quarters, respectively, in relation to
the reorganization. In addition, and as expected, operating margins
were negatively impacted by approximately $5
million in each of the third and fourth quarters due
primarily to unabsorbed costs from closing facilities and cost
inefficiencies from transferring projects. As a result of the
improvements in the Company's cost structure and elimination of
unprofitable facilities, commencing in fiscal 2021, management
expects annualized improvements to operating earnings of
approximately $15 million to
$18 million. These improvements are
expected to be offset in fiscal 2021 due to pressure on revenues
and operating margins brought on by the current economic
environment.
Order Backlog Continuity
(In millions of dollars)
|
Q4 2020
|
Q4 2019
|
Fiscal
2020
|
Fiscal
2019
|
Opening Order
Backlog
|
$
|
939
|
$
|
926
|
$
|
904
|
$
|
746
|
Revenues
|
|
(382)
|
|
(349)
|
|
(1,430)
|
|
(1,254)
|
Order
Bookings
|
|
356
|
|
298
|
|
1,468
|
|
1,408
|
Order Backlog
adjustments1
|
|
29
|
|
29
|
|
––
|
|
4
|
Total
|
$
|
942
|
$
|
904
|
$
|
942
|
$
|
904
|
1 Order Backlog adjustments include
incremental Order Backlog of $4 million acquired with MARCO,
foreign exchange adjustments and cancellations.
|
Order Bookings
Fourth quarter fiscal 2020 Order
Bookings were $356 million, a 19%
increase compared to the fourth quarter of fiscal 2019. Organic
growth in Order Bookings was 11% with 8% coming from acquisitions.
By market, higher Order Bookings in the consumer products, energy,
and transportation markets more than offset lower Order Bookings in
the life sciences market. Order Bookings in the life sciences
market decreased due primarily to timing of customer decisions.
Order Backlog
At March 31,
2020, Order Backlog was $942
million, 4% higher than at March 31,
2019. Order Backlog growth was primarily driven by Order
Backlog from acquired businesses.
Quarterly Conference Call
ATS' quarterly conference
call begins at 10:00 a.m. eastern on
Wednesday, May 27, 2020, and can be
accessed live at www.atsautomation.com or on the phone by dialing
(647) 427-7450 five minutes prior. 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
(until midnight June 3, 2020) by
dialing (416) 849-0833 and entering passcode 9174376 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 4,500 people at 22
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 Year
Ended March 31, 2020
This Management's Discussion and Analysis ("MD&A") for
the year ended March 31, 2020 (fiscal
2020) is as of May 26,
2020 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 audited consolidated financial
statements of the Company for fiscal 2020, which have been prepared
in accordance with International Financial Reporting Standards
("IFRS") and are reported in Canadian dollars. 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 and right-of-use 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 12-month periods ended March 31, 2020 and March
31, 2019, 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 12-month periods ended March 31,
2020 and March 31, 2019 is
also contained in this MD&A (see "Order Backlog
continuity").
COMPANY PROFILE
ATS is an industry-leading automation
solutions provider to many of the world's most successful
companies. ATS uses its extensive knowledge base and global
capabilities in custom automation, repeat automation, automation
products and value-added services, including pre-automation and
after-sales services, to address the sophisticated manufacturing
automation systems and service needs of multinational customers in
markets such as life sciences, chemicals, consumer products,
electronics, food, beverage, transportation, energy, and oil and
gas. Founded in 1978, ATS employs approximately 4,500 people at 22
manufacturing facilities and has over 50 offices in North America, Europe, Southeast
Asia and China.
STRATEGY
To drive the creation of long-term
sustainable shareholder value, the Company has developed 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 the advancement
of the ATS Business Model ("ABM"), the pursuit and measurement of
value drivers and key performance indicators, a rigorous strategic
planning process, succession planning, talent management and
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,
expanding service offerings, investing in innovation and product
development, and strategic and disciplined acquisitions that
strengthen ATS.
The Company pursues these initiatives with a focus on strategic
capital allocation in order to drive the creation of long-term
sustainable shareholder value.
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. The ABM brings focus to:
- People: developing, engaging and empowering ATS' people
to build the best team;
- Process: aligning ATS people to implement and
continuously improve robust and disciplined business processes
throughout the organization; and
- Performance: consistently measuring performance in order
to yield world-class performance for our customers and
shareholders.
The ABM is ATS' playbook, serving as the framework utilized by
the Company to achieve its business goals and objectives through
disciplined, continuous improvement. The ABM has been rolled out
across ATS divisions globally, supported with extensive training in
the use of key problem-solving tools, and applied through various
projects to drive continuous improvement.
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.
BUSINESS OVERVIEW
ATS and its subsidiaries serve
customers in the following industrial markets: life sciences, which
includes medical devices, pharmaceuticals, radiopharmaceuticals and
chemicals; transportation, which includes electric vehicles,
automotive and aerospace; energy, which includes nuclear energy and
solar energy; and, consumer products, which includes warehousing
automation, cosmetics, electronics, food, beverage, and durable
goods. With broad and in-depth knowledge across multiple industries
and technical fields, ATS delivers single-source solutions to
customers that lower production costs, accelerate product delivery,
and improve quality control. ATS engages with customers on both
greenfield programs, such as equipping new factories, and
brownfield programs, such as capacity expansions, line moves,
equipment upgrades, software upgrades, efficiency improvements and
factory optimization.
ATS engages at varying points in customers' automation cycles.
During the pre-automation phase, ATS offers comprehensive services,
including discovery and analysis, concept development, simulation
and total cost of ownership modelling, all of which help to verify
the feasibility of different types of automation, set objectives
for factors such as line speed and yield, assess production
processes for manufacturability and calculate the total cost of
ownership.
For customers that have decided to proceed with an automation
project, ATS offers specialized equipment for specific applications
or industrial markets, as well as automation and integration
services, including engineering design, prototyping, process
verification, specification writing, software and manufacturing
process controls development, equipment design and build, standard
automation products/platforms, third-party equipment qualification,
procurement and integration, automation system installation,
product line commissioning, validation and documentation. Following
the installation of custom automation, ATS may supply duplicate or
repeat automation systems to customers that leverage engineering
design completed in the original customer program. For customers
seeking complex equipment production or build-to-print
manufacturing, ATS provides value engineering, supply chain
management, integration and manufacturing capabilities, and other
automation products and solutions.
Post automation, ATS offers a number of services, including
training, process optimization, preventative maintenance, emergency
and on-call support, spare parts, retooling, retrofits and
equipment relocation. Service agreements are often attached at the
time of new equipment sale or are available on an after-market
basis on installed equipment. The Company employs a service
strategy to increase the revenue derived from these activities. To
enhance its service offering, the Company offers
IlluminateTM Manufacturing Intelligence, a
connected factory floor management system that captures, analyzes
and uses real time machine performance data to quickly and
accurately troubleshoot, deliver process and product solutions,
prevent equipment downtime, drive greater operational efficiency
and unlock performance for sustainable production improvements.
Contract values for individual automation systems vary and are
often in excess of $1 million, with
some contracts for enterprise-type programs well in excess of
$10 million. Due to the custom nature
of customer projects, contract durations vary, with typical
durations ranging from six to 12 months, and some larger contracts
extending up to 18 to 24 months. Contract values for pre-automation
services and post-automation services range in value and can exceed
$1 million with varying durations,
which can sometimes extend over a number of years.
Competitive strengths
Management believes ATS has the following competitive
strengths:
Global presence, size and critical mass: ATS'
global presence and scale provide advantages in serving
multinational customers, as many of the Company's competitors are
smaller and operate with a narrower geographic and/or industrial
market focus. ATS and its subsidiaries have locations in
Canada, the United States, Germany, Italy, Belgium, Netherlands, United
Kingdom, Austria,
Switzerland, Czech Republic, Slovakia, Poland, Ireland, Turkey, Sweden, Mexico, India, China,
Thailand, Malaysia, and Singapore. ATS can deliver localized service
through its network of over 50 locations globally. Management
believes that ATS' scale and global footprint provide it with
competitive advantages in winning large, multinational customer
programs and in delivering a life-cycle-oriented service platform
to customers' global operations.
Technical skills, capabilities and
experience: ATS has designed, manufactured, assembled
and serviced over 24,000 automation systems worldwide and has an
extensive knowledge base and accumulated design expertise.
Management believes ATS' broad experience in many different
industrial markets and with diverse technologies, its talented
workforce, which includes over 1,700 engineers and over
300 program management personnel, and its ability to provide
custom automation, repeat automation, automation products and
value-added services, position the Company well to serve complex
customer programs in a variety of markets.
Product and technology portfolio: Through its
history of bringing thousands of unique automation projects to
market, ATS has developed an extensive product and technology
portfolio. ATS has a number of standard automation platforms and
products, including: innovative linear motion transport systems;
robust cam-driven assembly platforms; advanced vision systems used
to ensure product or process quality; progressive material handling
technologies; test systems; factory management and intelligence
software; other software solutions; proprietary weighing hardware
and process control software technologies; aseptic processing and
containment technologies; and high-performance tube filling and
cartoning systems. Management believes the Company's extensive
product and technology portfolio provides advantages in developing
unique and leading solutions for customers and in maintaining
competitiveness.
Recognized brands: Management believes ATS is
well known within the global automation industry due to its long
history of innovation and broad scope of operations. In addition,
ATS' subsidiaries include several strong brands: "sortimat", which
specializes in the life sciences market; "IWK", which specializes
in the packaging market; "Process Automation Solutions" ("PA"),
which provides innovative automation solutions for process and
production sectors; "KMW", which specializes in custom
micro-assembly systems and test equipment solutions; "Comecer",
which provides high-tech automation systems for the nuclear
medicine and pharmaceutical industries; and "MARCO", which provides
yield control and recipe formulation systems in the food,
nutraceuticals and cosmetics sectors. Management believes that ATS'
brand names and global reputation improve sales prospecting,
allowing the Company to be considered for a wide variety of
customer programs.
Trusted customer relationships: ATS
serves some of the world's largest multinational companies. Most
customer relationships are long-standing, often spanning a decade
or more, and many customers are repeat buyers who return to ATS and
its subsidiaries time after time to meet their automation
manufacturing, assembly, processing, and services' needs.
Total solutions
capabilities: Management believes the Company
gains competitive advantages because ATS provides total turnkey
solutions in automation. This allows customers to single-source
their most complex projects to ATS rather than rely on multiple
engineering firms and equipment builders. In addition, ATS can
provide customers with other value-added services including
pre-automation consulting, total cost of ownership studies,
life-cycle material management, post-automation service, training
and support.
OVERVIEW – OPERATING RESULTS
Consolidated
Revenues
(In millions of dollars)
Revenues by
market
|
Q4
2020
|
Q4 2019
|
Fiscal
2020
|
Fiscal
2019
|
Life
sciences
|
$
|
199.8
|
$
|
193.1
|
$
|
770.2
|
$
|
608.5
|
Transportation
|
|
116.2
|
|
82.3
|
|
385.0
|
|
302.3
|
Consumer
products
|
|
41.2
|
|
39.2
|
|
172.7
|
|
203.3
|
Energy
|
|
24.9
|
|
34.0
|
|
101.8
|
|
139.5
|
Total
revenues
|
$
|
382.1
|
$
|
348.6
|
$
|
1,429.7
|
$
|
1,253.6
|
|
|
|
|
|
|
|
|
|
Revenues by
customer location
|
Q4
2020
|
Q4 2019
|
Fiscal
2020
|
Fiscal
2019
|
North
America
|
$
|
172.3
|
$
|
137.6
|
$
|
588.3
|
$
|
510.5
|
Europe
|
|
175.0
|
|
186.4
|
|
709.4
|
|
600.4
|
Asia/Other
|
|
34.8
|
|
24.6
|
|
132.0
|
|
142.7
|
Total
revenues
|
$
|
382.1
|
$
|
348.6
|
$
|
1,429.7
|
$
|
1,253.6
|
Fourth Quarter
Fiscal 2020 fourth quarter revenues
were 10% higher than in the corresponding period a year ago and
included $26.3 million of revenues
earned by acquired companies (see "Business Acquisitions").
Excluding acquired companies, fourth quarter revenues increased
$7.2 million, or 2% compared to the
corresponding period a year ago. Compared to the corresponding
period a year ago, revenues generated from construction contracts
increased 23% primarily due to the timing of third-party materials.
Revenues from services decreased 13% due primarily to travel
restrictions and customer facility closures related to
COVID-19.
By market, revenues generated in life sciences increased 3%
primarily on revenues earned by Comecer. Revenues in the
transportation market increased 41% due to higher Order Backlog for
both electric vehicle and internal combustion engine projects
entering the fourth quarter of fiscal 2020. Revenues from consumer
products increased 5% on revenues earned by MARCO. Revenues from
energy markets decreased 27% due to timing of projects, primarily
in the nuclear market.
Full Year
Fiscal 2020 revenues were $1,429.7 million, 14% higher than in the prior
fiscal year and included $126.8
million of revenues earned by acquired companies. Excluding
acquired companies, revenues for fiscal 2020 increased $49.3 million, or 4% over the corresponding
period a year ago, primarily reflecting higher Order Backlog
entering fiscal 2020 compared to a year ago. Revenues generated
from construction contracts and services both increased by 16% and
6%, respectively, compared to the corresponding period a year
ago.
By market, fiscal 2020 revenues from life sciences markets
increased 27%, primarily reflecting revenues earned by ATS'
Comecer, iXLOG and IAP BV subsidiaries and higher Order Backlog
entering fiscal 2020 due to increased revenues for medical device,
pharmaceutical and radiopharmaceutical applications. Revenues in
the transportation market increased 27% due to higher Order Backlog
entering fiscal 2020, primarily for automotive assembly systems and
electric vehicle projects. Consumer products revenues decreased 15%
compared to a year ago due primarily to lower activity in warehouse
automation. Revenues from energy markets decreased 27% compared to
a year ago, primarily due to lower Order Backlog for nuclear
projects entering fiscal 2020.
Consolidated Operating Results
(In millions of
dollars)
|
Q4
2020
|
Q4 2019
|
Fiscal
2020
|
Fiscal
2019
|
Earnings from
operations
|
$
|
24.9
|
$
|
30.3
|
$
|
95.6
|
$
|
114.8
|
Amortization of
acquisition-related intangible assets
|
|
8.5
|
|
6.8
|
|
33.7
|
|
23.3
|
Restructuring
charges
|
|
5.8
|
|
––
|
|
26.6
|
|
––
|
Acquisition-related
transaction costs
|
|
0.1
|
|
1.1
|
|
1.5
|
|
4.7
|
Adjusted earnings
from operations1
|
$
|
39.3
|
$
|
38.2
|
$
|
157.4
|
$
|
142.8
|
1 See
"Notice to Reader: Non-IFRS Measures and Additional IFRS
Measures."
|
|
Q4
2020
|
Q4 2019
|
Fiscal
2020
|
Fiscal
2019
|
Earnings from
operations
|
$
|
24.9
|
$
|
30.3
|
$
|
95.6
|
$
|
114.8
|
Depreciation and
amortization
|
|
18.3
|
|
12.3
|
|
71.4
|
|
42.4
|
EBITDA1
|
$
|
43.2
|
$
|
42.6
|
$
|
167.0
|
$
|
157.2
|
1 See
"Notice to Reader: Non-IFRS Measures and Additional IFRS
Measures."
|
Fourth Quarter
Fiscal 2020 fourth quarter earnings
from operations were $24.9 million
(7% operating margin) compared to $30.3
million (9% operating margin) in the fourth quarter of
fiscal 2019. Fourth quarter fiscal 2020 earnings from operations
included $5.8 million of
restructuring charges incurred as part of the Company's
reorganization plan (see "Reorganization Plan"), $0.1 million of incremental costs related to the
Company's acquisition activity, down from $1.1 million in the comparable period a year ago,
and $8.5 million related to
amortization of acquisition-related intangible assets, up from
$6.8 million of amortization of
acquisition-related intangible assets in the comparable period a
year ago.
Excluding these items in both comparable quarters, fourth
quarter fiscal 2020 adjusted earnings from operations were
$39.3 million (10% margin), compared
to adjusted earnings from operations of $38.2 million (11% margin) a year ago. Higher
adjusted earnings from operations reflected higher revenues and a
stock compensation recovery compared to higher stock compensation
expenses a year ago. These increases were partially offset by
higher costs of revenues and selling, general and administrative
expenses. As expected, fourth quarter fiscal 2020 adjusted earnings
from operations reflected a lower gross margin due to under
absorption of employee and fixed costs in facilities affected by
the reorganization plan, which negatively impacted earnings by
approximately $5.0 million. In
addition, gross margin was negatively impacted by certain programs
that exceeded budget, which negatively impacted earnings by
approximately $4.0 million. Operating
margins were also negatively impacted by measures implemented in
response to the COVID-19 pandemic, including protocols to enable
physical distancing, and travel restrictions and customer closures,
which disrupted customer activities. The adoption of IFRS 16
positively impacted earnings from operations by $0.9 million compared to the prior year due to
the implied finance costs recorded on lease obligations.
Depreciation and amortization expense was $18.3 million in the fourth quarter of fiscal
2020, compared to $12.3 million a
year ago. The increase primarily reflected $4.3 million of incremental depreciation of
right-of-use assets as a result of the adoption of IFRS 16 and
incremental amortization of acquisition-related intangible assets
due to the acquisitions of Comecer, iXLOG, and MARCO.
EBITDA was $43.2 million (11%
EBITDA margin) in the fourth quarter of fiscal 2020 compared to
$42.6 million (12% EBITDA margin) in
the fourth quarter of fiscal 2019. Higher EBITDA reflected higher
revenues and lower stock compensation expenses and operating lease
costs related to the adoption of IFRS 16, which positively impacted
EBITDA by $5.2 million. These
increases were partially offset by $5.8
million of restructuring charges, approximately $5.0 million of inefficiencies from the
implementation of the reorganization plan, $4.0 million of costs related to certain programs
that exceeded budget and the impacts from the COVID-19
pandemic.
Full Year
Earnings from operations were $95.6 million (7% operating margin) in fiscal
2020, compared to $114.8 million (9%
operating margin) a year ago. Excluding $26.6 million of restructuring costs,
$1.5 million of incremental costs
related to the Company's acquisition activity, and $33.7 million related to amortization of
identifiable intangible assets recorded on business acquisitions,
adjusted earnings from operations were $157.4 million (11% operating margin) in fiscal
2020, compared to adjusted earnings from operations of $142.8 million (11% operating margin) a year ago.
Higher adjusted earnings from operations primarily reflected higher
revenues in fiscal 2020, partially offset by higher selling,
general and administrative expenses. Fiscal 2020 adjusted earnings
from operations reflected a lower gross margin due to
inefficiencies from the implementation of the reorganization plan,
which negatively impacted earnings by approximately $10.0 million. This cost was partially offset by
the adoption of IFRS 16 which positively impacted earnings from
operations by $3.6 million due to the
implied finance costs recorded on lease obligations.
Depreciation and amortization expense was $71.4 million in fiscal 2020 compared to
$42.4 million a year ago. The
increase primarily reflected $15.9
million of incremental depreciation of right-of-use assets
as a result of the adoption of IFRS 16 and amortization of
acquisition-related intangible assets of KMW, Comecer, iXLOG, and
MARCO.
Fiscal 2020 EBITDA was $167.0
million (12% EBITDA margin) compared to $157.2 million (13% EBITDA margin) in fiscal
2019. Higher EBITDA reflected increased revenues and lower stock
compensation expenses, partially offset by lower gross margin due
to inefficiencies from the implementation of the reorganization
plan and higher selling, general and administrative expenses.
Higher selling, general and administrative expenses in the period
were partially offset by $19.5
million of lower operating lease expenses related to the
adoption of IFRS 16.
Impact of Adoption of IFRS 16 - Leases
The nature of
expenses related to identified lease arrangements changed as IFRS
16 replaced straight-line operating lease expense with depreciation
and interest expense relating to lease liabilities. For the three-
and 12-months ended March 31, 2020,
the adoption of IFRS 16 resulted in increased depreciation expenses
related to right-of-use assets of $4.3
million and $15.9 million,
respectively, with a corresponding decrease in operating lease
costs which were recognized in cost of revenues and selling,
general and administrative expenses. In addition, the adoption of
IFRS 16 resulted in incremental interest expenses of $0.9 million and $3.6
million for the three- and 12-months ended March 31, 2020, respectively, with corresponding
decreases in operating lease costs. The combined impact of these
changes was to increase earnings from operations by $0.9 million and $3.6
million and to increase EBITDA by $5.2 million and $19.5
million for the three- and 12-months ended March 31, 2020, respectively. The impact on net
income was negligible. See "Accounting Standard Adopted in
Fiscal 2020."
Order Bookings by Quarter
(In millions of dollars)
|
Fiscal
2020
|
Fiscal
2019
|
Q1
|
$
|
423
|
$
|
358
|
Q2
|
|
321
|
|
355
|
Q3
|
|
368
|
|
397
|
Q4
|
|
356
|
|
298
|
Total Order
Bookings
|
$
|
1,468
|
$
|
1,408
|
Fourth Quarter
Fourth quarter fiscal 2020 Order
Bookings were $356 million, a 19%
increase compared to the fourth quarter of fiscal 2019. Organic
growth in Order Bookings was 11% with 8% coming from acquisitions.
By market, higher Order Bookings in the consumer products, energy,
and transportation markets more than offset lower Order Bookings in
the life sciences market. Order Bookings in the life sciences
market decreased due primarily to timing of customer decisions.
Full Year
Fiscal 2020 Order Bookings were $1,468 million, a 4% increase over prior year
Order Bookings of $1,408 million.
Excluding Business Acquisitions, fiscal 2020 Order Bookings were
$1,330 million, which excludes the
$32 million joint ATS and Comecer
Order Booking for a new pharmaceutical customer secured in
October 2019 (third fiscal quarter of
2020). By market, higher Order Bookings in the life sciences,
energy and transportation markets more than offset lower Order
Bookings in the consumer products market.
Order Backlog Continuity
(In millions of dollars)
|
Q4
2020
|
Q4 2019
|
Fiscal
2020
|
Fiscal
2019
|
Opening Order
Backlog
|
$
|
939
|
$
|
926
|
$
|
904
|
$
|
746
|
Revenues
|
|
(382)
|
|
(349)
|
|
(1,430)
|
|
(1,254)
|
Order
Bookings
|
|
356
|
|
298
|
|
1,468
|
|
1,408
|
Order Backlog
adjustments1
|
|
29
|
|
29
|
|
––
|
|
4
|
Total
|
$
|
942
|
$
|
904
|
$
|
942
|
$
|
904
|
1 Order Backlog adjustments include
incremental Order Backlog of $4 million acquired with MARCO,
foreign exchange adjustments and cancellations.
|
Order Backlog by Market
(In millions of
dollars)
As
at
|
March
31,
|
March 31,
|
|
2020
|
2019
|
Life
sciences
|
$
|
467
|
$
|
501
|
Transportation
|
|
273
|
|
244
|
Consumer
products
|
|
90
|
|
86
|
Energy
|
|
112
|
|
73
|
Total
|
$
|
942
|
$
|
904
|
At March 31, 2020, Order Backlog
was $942 million, 4% higher than at
March 31, 2019. Order Backlog growth
was primarily driven by Order Backlog from acquired
businesses.
Reorganization Plan
In fiscal 2020, ATS announced the
expansion and investment in targeted high-performing facilities
globally, as part of a $60 million
capital investment plan to increase capacity, address the Company's
significant Order Backlog and enable long-term growth in strategic
markets such as life sciences. To drive continued improvement in
operations and focus investment in strategic growth areas of the
business, the Company announced a reorganization plan in the third
quarter of fiscal 2020. The reorganization plan included the
consolidation of certain operations and the closure of some
underperforming facilities and small branch offices – none of which
were strategically important to future growth. Costs to implement
the restructuring were comprised primarily of severances and lease
termination costs. The Company has recorded charges of $2.0 million, $18.8
million and $5.8 million in
the second, third and fourth quarters, respectively, in relation to
the reorganization. In addition, and as expected, operating margins
were negatively impacted by approximately $5
million in each of the third and fourth quarters due
primarily to unabsorbed costs from closing facilities and cost
inefficiencies from transferring projects. As a result of the
improvements in the Company's cost structure and elimination of
unprofitable facilities, commencing in fiscal 2021, management
expects annualized improvements to operating earnings of
approximately $15 million to
$18 million. These improvements are
expected to be offset in fiscal 2021 due to pressure on revenues
and operating margins brought on by the current economic
environment.
Outlook
The recent outbreak of COVID-19 has resulted
in governments worldwide enacting emergency measures to combat the
spread of the virus. These measures, which include the
implementation of travel bans, self-isolation and quarantine
periods, and physical distancing, have affected economies and
financial markets around the world resulting in an economic
slowdown. This outbreak may also cause staff shortages, affect
customer demand, disrupt global supply chains and increase
government regulations or intervention, all of which may negatively
impact the business, financial results and conditions of the
Company.
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 pandemic has caused
uncertainty in the Company's end markets, which is expected to
negatively impact customer ordering activity. Funnel activity
(which includes customer requests for proposal and ATS identified
customer opportunities) has been impacted, as some customers have
delayed their planned project timing. Overall, the Company's funnel
remains significant; however, the timing of conversion of
opportunities into Order Bookings is more variable and
uncertain.
By market, the life sciences funnel remains relatively strong,
with some short-term opportunities related to the fight against the
COVID-19 virus, such as the $65
million Order Booking announced by the Company on
April 21, 2020, and other strategic
customer opportunities. The addition of Comecer has improved ATS'
customer offerings in both pharmaceuticals and
radiopharmaceuticals, as demonstrated by the $32 million Order Booking for a pharmaceutical
customer announced in the third quarter. In transportation, some
strategic opportunities related to new technologies have proceeded,
such as the $60 million EV program
won by the Company in the fourth quarter. However, customer
shut-downs have limited service opportunities and focused efforts
by transportation companies to preserve liquidity have caused those
customers to re-examine capital investment plans. Funnel activity
in energy is variable and this market provides niche opportunities
for ATS. Funnel activity in the consumer products market remains
low relative to other customer markets and management expects
customers to be cautious in deploying capital in these markets in
the current economic environment. The Company expects its Order
Backlog of $942 million at the end of
the fourth quarter of fiscal 2020 to partially mitigate the impact
of volatile Order Bookings on revenues in the short term.
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's Order Backlog includes several large enterprise
programs. These enterprise programs have longer periods of
performance and therefore longer revenue recognition cycles. To
date, the Company has had one customer put a program on hold, which
impacts approximately $30 million of
the Company's reported Order Backlog. The Company has not
experienced any material cancellations to date. In the first
quarter of fiscal 2021, management expects the conversion of Order
Backlog to revenues to be in the 30% to 35% range. Order Backlog
conversion in the fourth quarter of fiscal 2020 was higher than
expected due to higher than expected deliveries of third-party
equipment. As well, inefficiencies as a result of travel
restrictions, customer facility closures and measures implemented
to enable physical distancing across the Company's operations are
expected to cause revenues to be in this expected conversion
range.
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.
Measures implemented to enable physical distancing across ATS'
operations, including remote work and flexible schedules, have
caused the Company to operate below full capacity. Travel
restrictions and closures of customer facilities have disrupted
customer projects and service activity. These factors are expected
to negatively impact the Company's operating results in the first
quarter of fiscal 2021. Partially offsetting these inefficiencies,
the Company expects to benefit from the recently enacted
Canada Emergency Wage Subsidy
(CEWS), which provides a subsidy for a portion of the Company's
Canadian workforce. Based on lower revenues in ATS' Canadian
operations, the Company expects to receive between $4.0 million to $8.0
million from the CEWS, which will assist with workforce
retention. Management is focused on cost-containment measures and
the preservation of liquidity. Actions taken include reductions to
discretionary expenditures, deferral of some capital investments,
and in certain locations, temporary layoffs and reductions to
working hours. The duration and impact of the COVID-19 outbreak is
unknown at this time and it is not possible to reliably estimate
the duration and severity of these developments as well as the
impact on the financial results and condition of the Company in
future periods. ATS' businesses are currently characterized as
essential in all jurisdictions requiring such a designation to
date.
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. In fiscal 2021, these initiatives will be affected by the
economic impacts of the COVID-19 pandemic.
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. Based on the uncertainty associated
with the existing business environment and the current business
mix, the Company's investment in non-cash working capital as a
percentage of annualized revenues could exceed 15% during fiscal
2021.
In order to increase capacity, the Company increased its
investment in capital assets and intangible assets to $56.6 million in fiscal 2020 to fund expansions
underway at several facilities. These expansions are largely
complete, and as a result, the Company expects to reduce its
investment in capital assets and intangible assets in fiscal 2021
to a range of $25 million to
$30 million.
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: provide additional liquidity should the economic
impacts of the COVID-19 pandemic persist for an extended period;
fund its requirements for investments in non-cash working capital
and capital assets; and fund strategic investment plans including
some potential acquisitions. Significant acquisitions could result
in additional debt or equity financing requirements.
BUSINESS ACQUISITIONS
MARCO Limited
On December 16,
2019, the Company acquired 100% of the shares of MARCO
Limited ("MARCO"), a U.K. based provider of yield control and
recipe formulation systems to help customers in the food,
nutraceuticals and cosmetics sectors increase productivity and meet
stringent industry regulations. MARCO's solutions are based on its
proprietary weighing hardware and process control software
technologies. MARCO provides ATS with the means of entering a
product-based, niche segment of the food industry that is growing
at a mid-single digit rate. The food industry is attractive because
it is subject to industry and government regulations, driving a
need for high-precision technologies.
Cash consideration paid in the third quarter of fiscal 2020 was
$44.4 million (25.2 million U.K.
pounds sterling). Additional contingent consideration of up to
$12.8 million (7.3 million U.K.
pounds sterling) is payable if certain performance targets are met
within two years of the acquisition date. The fair value of the
contingent consideration was valued at $7.4
million (4.2 million U.K. pounds sterling) at the
acquisition date. This acquisition was accounted for as a
business combination with the Company as the acquirer of MARCO. The
purchase method of accounting was used and the earnings were
consolidated from the acquisition date, December 16, 2019.
iXLOG
On September 19,
2019, the Company acquired 100% of the shares of iXLOG
Unternehmensberatung GmbH ("iXLOG"), a Germany-based IT consulting and service
provider specializing in business process optimization, business
intelligence and analytics, primarily for large- and medium-sized
industrial manufacturing customers. The addition of iXLOG is highly
complementary to ATS' Process Automation Solutions ("PA") business.
iXLOG will play a critical role in expanding PA's data analytics
and business intelligence offerings and in building additional
solutions to broaden PA's digitization capabilities that are used
to optimize customer manufacturing operations.
The total purchase price was $10.6
million (7.2 million Euros).
Cash consideration paid in the second quarter was $7.7 million (5.2 million
Euros), with the balance related to an earn-out to be paid
within 20 months of the acquisition date. The cash consideration of
the purchase price, along with transaction costs, were funded with
existing cash on hand. The acquisition was accounted for as a
business combination with the Company as the acquirer of iXLOG. The
purchase method of accounting was used and the earnings of iXLOG
were consolidated from the acquisition date, September 19, 2019.
IAP BV
On October 31,
2019, the Company acquired 60% of the shares of Industrial
Automation Partners B.V. ("IAP"), a Netherlands-based provider of process
automation services to medium-sized international
companies.
The total purchase price paid in the third quarter of fiscal
2020 was $2.6 million (1.8 million Euros). This acquisition was
accounted for as a business combination with the Company as the
acquirer of IAP. The purchase method of accounting was used
and the earnings were consolidated from the acquisition date,
October 31, 2019.
CONSOLIDATED RESULTS
(In millions of dollars, except
per share data)
|
Q4
2020
|
Q4 2019
|
Fiscal
2020
|
Fiscal
2019
|
Fiscal
2018
|
Revenues
|
$
|
382.1
|
$
|
348.6
|
$
|
1,429.7
|
$
|
1,253.6
|
$
|
1,114.9
|
Cost of
revenues
|
|
293.4
|
|
256.0
|
|
1,067.6
|
|
924.9
|
|
826.8
|
Selling, general and
administrative
|
|
59.0
|
|
56.1
|
|
233.7
|
|
204.1
|
|
194.3
|
Restructuring
costs
|
|
5.8
|
|
––
|
|
26.6
|
|
––
|
|
––
|
Stock-based
compensation
|
|
(1.0)
|
|
6.2
|
|
6.2
|
|
9.8
|
|
8.3
|
Earnings from
operations
|
$
|
24.9
|
$
|
30.3
|
$
|
95.6
|
$
|
114.8
|
$
|
85.5
|
Net finance
costs
|
$
|
7.8
|
$
|
5.8
|
$
|
28.1
|
$
|
20.9
|
$
|
23.8
|
Provision for income
taxes
|
|
4.0
|
|
6.3
|
|
14.6
|
|
23.1
|
|
14.5
|
Net
income
|
$
|
13.1
|
$
|
18.2
|
$
|
52.9
|
$
|
70.8
|
$
|
47.2
|
Basic earnings per
share
|
$
|
0.14
|
$
|
0.20
|
$
|
0.57
|
$
|
0.76
|
$
|
0.50
|
Diluted earnings
per share
|
$
|
0.14
|
$
|
0.20
|
$
|
0.57
|
$
|
0.75
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
|
|
$
|
2,098.0
|
$
|
1,688.8
|
$
|
1,542.2
|
Total cash and
short-term investments
|
|
|
|
|
$
|
358.6
|
$
|
224.5
|
$
|
330.1
|
Total debt
|
|
|
|
|
$
|
665.6
|
$
|
348.7
|
$
|
318.2
|
Other non-current
liabilities
|
|
|
|
|
$
|
121.1
|
$
|
113.4
|
$
|
102.0
|
Revenues. At $382.1
million, consolidated revenues for the fourth quarter of
fiscal 2020 were $33.5 million, or
10%, higher than in the corresponding period a year ago. At
$1,429.7 million, annual consolidated
revenues were $176.1 million, or 14%,
higher than a year ago (see "Overview – operating results").
Cost of revenues. At $293.4
million, fourth quarter fiscal 2020 cost of revenues
increased compared to the corresponding period a year ago by
$37.4 million, or 15%, primarily due
to higher revenues. Annual cost of revenues of $1,067.6 million increased $142.7 million, or 15%, primarily due to higher
revenues. Fourth quarter fiscal 2020 gross margin was 23%, compared
to 27% in the corresponding period a year ago, due primarily to
inefficiencies from the implementation of the Company's
reorganization plan, costs related to certain programs that
exceeded budget and the impacts from the COVID-19 pandemic. Fiscal
2020 gross margin was 25%, compared to 26% in fiscal 2019. Lower
gross margin for fiscal 2020 was due primarily to inefficiencies
from the implementation of the Reorganization Plan, which
negatively impacted earnings by approximately $10.0 million.
Selling, general and administrative ("SG&A")
expenses. SG&A expenses for the fourth quarter of fiscal
2020 were $59.0 million, which
included $8.5 million of costs
related to the amortization of identifiable intangible assets on
business acquisitions and $0.1
million of incremental costs related to the Company's
acquisition activity. Excluding these costs, SG&A expenses were
$50.4 million in the fourth quarter
of fiscal 2020. Comparably, SG&A expenses for the fourth
quarter of fiscal 2019 were $48.2
million, which excluded $6.8
million of costs related to the amortization of identifiable
intangible assets recorded on business acquisitions and
$1.1 million of acquisition-related
transaction costs. Higher SG&A expenses in the fourth quarter
of fiscal 2020 primarily reflected the additions of iXLOG, IAP and
MARCO, increased professional fees, partially offset by lower
employee incentive expenses.
Fiscal 2020 SG&A expenses were $233.7
million, which included $33.7
million of expenses related to the amortization of
identifiable intangible assets on business acquisitions and
$1.5 million of incremental costs
related to the Company's acquisition activity. Excluding these
costs, SG&A expenses were $198.5
million for fiscal 2020. Comparably, SG&A expenses for
fiscal 2019 were $176.1 million,
which excluded $23.3 million of
expenses related to the amortization of identifiable intangible
assets on business acquisitions and $4.7
million of acquisition-related transaction costs. Higher
SG&A expenses in fiscal 2020 primarily reflected the additions
of KMW, Comecer, iXLOG, IAP and MARCO and increased sales-related
expenses.
Restructuring costs. For the three- and 12-months ended
March 31, 2020, restructuring costs
were $5.8 million and $26.6 million, respectively, compared to
restructuring costs of $nil in the corresponding periods a year ago
(see "Reorganization Plan").
Stock-based compensation. Stock-based compensation
recovery amounted to $1.0 million in
the fourth quarter of fiscal 2020 compared to an expense of
$6.2 million in the corresponding
period a year ago. Fiscal 2020 stock-based compensation expense was
$6.2 million compared to $9.8 million a year ago. 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
12-month periods ended March 31,
2020, earnings from operations were $24.9 million (7% operating margin) and
$95.6 million (7% operating margin),
respectively, compared to earnings from operations of $30.3 million (9% operating margin) and
$114.8 million (9% operating margin)
in the corresponding periods a year ago. Excluding the impact of
adopting IFRS 16, earnings from operations were $24.0 million (6% operating margin) and
$92.0 million (6% operating margin)
for the three- and 12-month periods ended March 31, 2020, respectively (see "Overview –
Operating Results").
Net finance costs. Net finance costs were
$7.8 million in the fourth quarter of
fiscal 2020, compared to $5.8 million
a year ago. Fiscal 2020 finance costs were $28.1 million compared to $20.9 million a year ago. The increase was
primarily due to additional interest expense of $0.9 million and $3.6
million, respectively, recorded on lease liabilities on the
adoption of IFRS 16, and lower interest income compared to the
corresponding period a year ago.
Income tax provision. For the three and 12 months ended
March 31, 2020, the Company's
effective income tax rates of 23% and 22%, respectively, differed
from the combined Canadian basic federal and provincial income tax
rate of 27% primarily due to losses in certain jurisdictions with
different statutory tax rates, primarily as a result of the
Reorganization Plan.
Net income. Fiscal 2020 fourth quarter net income
was $13.1 million (14 cents per share basic and diluted) compared to
$18.2 million (20 cents per share basic and diluted) for the
fourth quarter of fiscal 2019. Adjusted basic earnings per
share were 26 cents in the fourth
quarter of fiscal 2020 compared to 26
cents in the fourth quarter of fiscal 2019 (see
"Reconciliation of non-IFRS measures to IFRS measures").
Fiscal 2020 net income was $52.9
million (57 cents per share
basic and diluted) compared to $70.8
million (76 and 75 cents per
share basic and diluted) for the corresponding period a year ago.
Adjusted basic earnings per share were $1.06 in fiscal 2020 compared to 98 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):
|
Fiscal
2020
|
Fiscal
2019
|
Fiscal
2018
|
EBITDA
|
$
|
167.0
|
$
|
157.2
|
$
|
122.1
|
Less: depreciation
and amortization expense
|
|
71.4
|
|
42.4
|
|
36.6
|
Earnings from
operations
|
$
|
95.6
|
$
|
114.8
|
$
|
85.5
|
Less: net finance
costs
|
|
28.1
|
|
20.9
|
|
23.8
|
Provision for income
taxes
|
|
14.6
|
|
23.1
|
|
14.5
|
Net
income
|
$
|
52.9
|
$
|
70.8
|
$
|
47.2
|
|
|
|
|
|
|
|
|
|
Q4
2020
|
Q4
2019
|
EBITDA
|
|
|
$
|
43.2
|
$
|
42.6
|
Less: depreciation
and amortization expense
|
|
|
|
18.3
|
|
12.3
|
Earnings from
operations
|
|
|
$
|
24.9
|
$
|
30.3
|
Less: net finance
costs
|
|
|
|
7.8
|
|
5.8
|
Provision for income
taxes
|
|
|
|
4.0
|
|
6.3
|
Net
income
|
|
|
$
|
13.1
|
$
|
18.2
|
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):
|
Three Months Ended
March 31, 2020
|
Three Months Ended
March 31, 2019
|
|
IFRS
|
Adjustments
|
Adjusted
(non-IFRS)
|
IFRS
|
Adjustments
|
Adjusted
(non-IFRS)
|
Earnings from
operations
|
$
|
24.9
|
$
|
––
|
$
|
24.9
|
$
|
30.3
|
$
|
––
|
$
|
30.3
|
Acquisition-related
transaction costs
|
|
––
|
|
0.1
|
|
0.1
|
|
––
|
|
1.1
|
|
1.1
|
Amortization of
acquisition-
|
|
|
|
|
|
|
|
|
|
|
|
|
related intangible
assets
|
|
––
|
|
8.5
|
|
8.5
|
|
––
|
|
6.8
|
|
6.8
|
Restructuring
costs
|
|
––
|
|
5.8
|
|
5.8
|
|
––
|
|
––
|
|
––
|
|
$
|
24.9
|
$
|
14.4
|
$
|
39.3
|
$
|
30.3
|
$
|
7.9
|
$
|
38.2
|
Less: net finance
costs
|
$
|
7.8
|
$
|
––
|
$
|
7.8
|
$
|
5.8
|
$
|
––
|
$
|
5.8
|
Income before
income taxes
|
$
|
17.1
|
$
|
14.4
|
$
|
31.5
|
$
|
24.5
|
$
|
7.9
|
$
|
32.4
|
Provision for income
taxes
|
$
|
4.0
|
$
|
––
|
$
|
4.0
|
$
|
6.3
|
$
|
––
|
$
|
6.3
|
Adjustment to
provision for
|
|
|
|
|
|
|
|
|
|
|
|
|
income
taxes1
|
|
––
|
|
3.9
|
|
3.9
|
|
––
|
|
2.2
|
|
2.2
|
|
$
|
4.0
|
$
|
3.9
|
$
|
7.9
|
$
|
6.3
|
$
|
2.2
|
$
|
8.5
|
Net
income
|
$
|
13.1
|
$
|
10.5
|
$
|
23.6
|
$
|
18.2
|
$
|
5.7
|
$
|
23.9
|
Basic earnings per
share
|
$
|
0.14
|
$
|
0.12
|
$
|
0.26
|
$
|
0.20
|
$
|
0.06
|
$
|
0.26
|
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.
|
|
Twelve Months
Ended March 31, 2020
|
Twelve Months Ended
March 31, 2019
|
|
IFRS
|
Adjustments
|
Adjusted
(non-IFRS)
|
IFRS
|
Adjustments
|
Adjusted
(non-IFRS)
|
Earnings from
operations
|
$
|
95.6
|
$
|
––
|
$
|
95.6
|
$
|
114.8
|
$
|
––
|
$
|
114.8
|
Acquisition-related
transaction costs
|
|
––
|
|
1.5
|
|
1.5
|
|
––
|
|
4.7
|
|
4.7
|
Amortization of
acquisition-
|
|
|
|
|
|
|
|
|
|
|
|
|
related intangible
assets
|
|
––
|
|
33.7
|
|
33.7
|
|
––
|
|
23.3
|
|
23.3
|
Restructuring
costs
|
|
––
|
|
26.6
|
|
26.6
|
|
––
|
|
––
|
|
––
|
|
$
|
95.6
|
$
|
61.8
|
$
|
157.4
|
$
|
114.8
|
$
|
28.0
|
$
|
142.8
|
Less: net finance
costs
|
$
|
28.1
|
$
|
––
|
$
|
28.1
|
$
|
20.9
|
$
|
––
|
$
|
20.9
|
Income before
income taxes
|
$
|
67.5
|
$
|
61.8
|
$
|
129.3
|
$
|
93.9
|
$
|
28.0
|
$
|
121.9
|
Provision for income
taxes
|
$
|
14.6
|
$
|
––
|
$
|
14.6
|
$
|
23.1
|
$
|
––
|
$
|
23.1
|
Adjustment to
provision for
|
|
|
|
|
|
|
|
|
|
|
|
|
income
taxes1
|
|
––
|
|
16.9
|
|
16.9
|
|
––
|
|
7.5
|
|
7.5
|
|
$
|
14.6
|
$
|
16.9
|
$
|
31.5
|
$
|
23.1
|
$
|
7.5
|
$
|
30.6
|
Net
income
|
$
|
52.9
|
$
|
44.9
|
$
|
97.8
|
$
|
70.8
|
$
|
20.5
|
$
|
91.3
|
Basic earnings per
share
|
$
|
0.57
|
$
|
0.49
|
$
|
1.06
|
$
|
0.76
|
$
|
0.22
|
$
|
0.98
|
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.
|
INVESTMENTS, LIQUIDITY, CASH FLOW AND FINANCIAL
RESOURCES
Investments
(In millions of dollars)
|
Fiscal
2020
|
Fiscal
2019
|
Investments –
increase (decrease)
|
|
|
|
|
Non-cash operating
working capital
|
$
|
112.6
|
$
|
(2.5)
|
Acquisition of
property, plant and equipment
|
|
45.4
|
|
21.1
|
Acquisition of
intangible assets
|
|
11.1
|
|
19.8
|
Proceeds from
disposal of assets
|
|
(0.1)
|
|
(5.2)
|
Total net
investments
|
$
|
169.0
|
$
|
33.2
|
In fiscal 2020, the Company's investment in non-cash working
capital increased $112.6 million,
compared to a decrease of $2.5
million a year ago. Accounts receivable increased 34%, or
$73.9 million, and net contracts in
progress increased 117%, or $61.4
million, compared to March 31,
2019, due to increased revenue and the timing of billings on
certain customer contracts. 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 increased 1%, or $0.4 million, primarily due to an increase in
work-in-process on certain customer projects. Deposits and prepaid
assets increased 8%, or $2.4 million,
compared to March 31, 2019 due to the
timing of program execution. Accounts payable and accrued
liabilities increased 14%, or $35.1
million, compared to March 31,
2019. Provisions increased 130%, or $18.2 million, compared to March 31, 2019, due to provisions related to the
Company's Reorganization Plan.
Cash investments in property, plant and equipment totalled
$45.4 million in fiscal 2020,
primarily related to the expansion and improvement of certain
manufacturing facilities, and investments in computer hardware and
office equipment. Cash investments in property, plant and equipment
totalled $21.1 million for fiscal
2019, primarily related to computer hardware, building additions,
and office equipment.
Intangible assets expenditures were $11.1
million for fiscal 2020 and primarily related to computer
software and various internal development projects. Intangible
assets expenditures were $19.8
million for fiscal 2019 and primarily related to the
$10.0 million acquisition of
substantially all of the intellectual property assets of
Transformix Engineering Inc.
Proceeds from disposal of assets were $0.1 million in fiscal 2020, compared to
$5.2 million in fiscal 2019. The
decrease primarily reflected the sale of redundant assets in fiscal
2019.
The Company performs impairment tests on its goodwill and
intangible asset balances on an annual basis or as warranted by
events or circumstances. The Company conducted its annual
impairment assessment in the fourth quarter of fiscal 2020 and
determined there is no impairment of goodwill or intangible assets
as of March 31, 2020 (fiscal 2019 –
$nil).
All the Company's investments involve risks and require that the
Company make judgments and estimates regarding the likelihood of
recovery of the respective costs. In the event management
determines that any of the Company's investments have become
permanently impaired or recovery is no longer reasonably assured,
the value of the investment would be written down to its estimated
net realizable value as a charge against earnings.
Liquidity, Cash Flow and Financial Resources
(In
millions of dollars, except
ratios)
As at
|
March 31,
|
March 31,
|
|
2020
|
2019
|
Cash and cash
equivalents
|
$
|
358.6
|
$
|
224.5
|
Debt-to-equity
ratio
|
|
0.86:1
|
|
0.48:1
|
Cash flows provided
by operating activities
|
$
|
20.3
|
$
|
127.6
|
At March 31, 2020, the Company had
cash and cash equivalents of $358.6
million compared to $224.5
million at March 31, 2019. At
March 31, 2020, the Company's
debt-to-total equity ratio was 0.86:1 and reflected $250.0 million utilized under the Company's
senior secured credit facility and increased lease liabilities due
to the adoption of IFRS 16.
In fiscal 2020, cash flows provided by operating activities were
$20.3 million ($127.6 million provided by operating activities
in the corresponding period a year ago). The decrease in operating
cash flows related primarily to the timing of investments in
non-cash working capital in certain customer programs.
At March 31, 2020, the Company had
$377.4 million of unutilized
multipurpose credit, including letters of credit, available under
existing credit facilities and an additional $6.2 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 of the Company's subsidiaries. Certain of
the Company's subsidiaries also provide guarantees under the Credit
Facility. At March 31, 2020, the
Company had utilized $399.4 million
under the Credit Facility, of which $250.0
million was classified as long-term debt (March 31, 2019 - $nil) and $149.4 million by way of letters of credit
(March 31, 2019 - $134.3 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 U.K. 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 March 31, 2020,
all of the covenants were met.
The Company has additional credit facilities available of
$32.0 million (10.1 million Euros, $10.0
million U.S., 50.0 million Thai
Baht and 1.8 million Czech Koruna). The total amount
outstanding on these facilities at March 31,
2020 was $4.8 million
(March 31, 2019 - $20.6 million), of which $4.6 million was classified as bank indebtedness
(March 31, 2019 - $2.0 million) and $0.2
million was classified as long-term debt
(March
31, 2019 - $18.6
million). The interest rates applicable to the credit
facilities range from 1.75% to 6.50% 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 March 31, 2020, 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.
Contractual Obligations
(In millions of dollars)
The Company's minimum purchase obligations are as
follows:
|
Purchase
obligations
|
Less than one
year
|
$
|
158.9
|
One – two
years
|
4.1
|
Two – three
years
|
2.1
|
Three – four
years
|
0.4
|
Four – five
years
|
0.1
|
|
$
|
165.6
|
The Company's off-balance sheet arrangements consist of purchase
obligations which consist primarily of commitments for material
purchases, which have been entered into in the normal course of
business.
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
March 31, 2020, the total value of
outstanding letters of credit was approximately $219.0 million (March 31,
2019 - $203.3 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 statements of financial position.
The Company is exposed to credit risk on derivative financial
instruments arising from the potential for counterparties to
default on their contractual obligations to the Company. The
Company minimizes this risk by limiting counterparties to major
financial institutions and monitoring their creditworthiness. The
Company's credit exposure to forward foreign exchange contracts is
the current replacement value of contracts that are in a gain
position. The Company is also exposed to credit risk from its
customers. Substantially all of the Company's trade accounts
receivable are due from customers in a variety of industries and,
as such, are subject to normal credit risks from their respective
industries. The Company regularly monitors customers for changes in
credit risk. The Company does not believe that any single market or
geographic region represents significant credit risk. Credit risk
concentration, with respect to trade receivables, is mitigated as
the Company primarily serves large, multinational customers and
obtains receivables insurance in certain instances.
SHARE DATA
During fiscal 2020, 522,927 stock options
were exercised. At May 26, 2020 the
total number of shares outstanding was 92,130,955 and there were
1,162,149 stock options outstanding to acquire common shares of the
Company.
NORMAL COURSE ISSUER BID
On December 19, 2019, 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 5,134,930 common shares,
representing approximately 10% of the public float of 51,349,307
common shares of the Company during the 12 month period ending
December 22, 2020. As at December 16, 2019, there were 92,196,223 common
shares of the Company issued and outstanding. The NCIB followed the
conclusion of a prior NCIB that expired on December 4, 2019.
Some purchases under the NCIB may be made pursuant to an
automatic purchase plan between ATS and its broker. This plan
enables 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 security holders
may obtain a copy of the notice, without charge, upon request from
the Secretary of the Company.
In fiscal 2020, the Company purchased, for cancellation, a total
of 301,386 common shares at an average cost of $15.87 per share for aggregate consideration of
$4.8 million. At March 31, 2020, a total of 4,834,162 common
shares remained available for repurchase under the NCIB
program.
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 in
fiscal 2020.
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.
$150.0 million into Canadian dollars.
The Company will receive interest of 6.50% U.S. per annum and pay
interest of 6.501% Canadian. The terms of the hedging relationship
will end on June 15, 2023.
The Company manages foreign exchange risk on its
Euro-denominated net investments. The Company uses a cross-currency
interest rate swap as derivative financial instruments to hedge a
portion of the foreign exchange risk related to its
Euro-denominated net investment. On March
29, 2016, the Company entered into a cross-currency interest
rate swap instrument to swap 134.1 million
Euros into Canadian dollars. The Company will receive
interest of 6.501% Canadian per annum and pay interest of 5.094%
Euros. The terms of the hedging relationship will end on
June 15, 2023.
In addition, from time to time, the Company may hedge the
foreign exchange risk arising from foreign currency debt,
intercompany loans, net investments in foreign-based subsidiaries
and committed acquisitions through the use of forward foreign
exchange contracts or other non-derivative financial instruments.
The Company uses hedging as a risk management tool, not to
speculate.
Period Average Exchange Rates in CDN$
|
Year-end actual
exchange rates
|
Period average
exchange rates
|
|
March 31,
2020
|
March 31,
2019
|
%
change
|
March 31,
2020
|
March 31,
2019
|
%
change
|
U.S.
dollar
|
1.408
|
1.336
|
5.4%
|
1.331
|
1.313
|
1.4%
|
Euro
|
1.552
|
1.499
|
3.5%
|
1.479
|
1.518
|
(2.6%)
|
Consolidated Quarterly Results
(In millions of
dollars, except per share amounts)
|
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
|
Q4
|
|
Q3
|
|
Q2
|
|
Q1
|
|
|
2020
|
|
2020
|
|
2020
|
|
2020
|
|
2019
|
|
2019
|
|
2019
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
382.1
|
$
|
367.2
|
$
|
341.2
|
$
|
339.2
|
$
|
348.6
|
$
|
321.4
|
$
|
283.6
|
$
|
300.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from
operations
|
$
|
24.9
|
$
|
10.4
|
$
|
31.7
|
$
|
28.6
|
$
|
30.3
|
$
|
38.5
|
$
|
19.0
|
$
|
27.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted earnings
from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations1
|
$
|
39.3
|
$
|
37.5
|
$
|
42.5
|
$
|
38.0
|
$
|
38.2
|
$
|
46.7
|
$
|
25.4
|
$
|
32.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
$
|
13.1
|
$
|
4.1
|
$
|
19.3
|
$
|
16.4
|
$
|
18.2
|
$
|
25.1
|
$
|
10.8
|
$
|
16.7
|
Basic and diluted
earning
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per
share
|
$
|
0.14
|
$
|
0.04
|
$
|
0.21
|
$
|
0.18
|
$
|
0.20
|
$
|
0.27
|
$
|
0.11
|
$
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted basic
earnings per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share1
|
$
|
0.26
|
$
|
0.26
|
$
|
0.29
|
$
|
0.25
|
$
|
0.26
|
$
|
0.33
|
$
|
0.17
|
$
|
0.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Order
Bookings2
|
$
|
356.0
|
$
|
368.0
|
$
|
321.0
|
$
|
423.0
|
$
|
298.0
|
$
|
397.0
|
$
|
355.0
|
$
|
358.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Order
Backlog3
|
$
|
942.0
|
$
|
939.0
|
$
|
945.0
|
$
|
982.0
|
$
|
904.0
|
$
|
926.0
|
$
|
830.0
|
$
|
789.0
|
1 Non-IFRS measure. See "Notice
to reader: Non-IFRS measures and additional IFRS measures" and
"Reconciliation of Non-IFRS Measures to IFRS Measures."
|
2 Non-IFRS measure. See "Notice
to reader: Non-IFRS measures and additional IFRS measures" and
"Order Bookings by Quarter."
|
3 Non-IFRS measure. See "Notice
to reader: Non-IFRS measures and additional IFRS measures" and
"Order Backlog Continuity."
|
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, 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 employee vacation time
and summer plant shutdowns by its customers. The COVID-19 pandemic
may affect quarterly performance patterns in fiscal 2021.
CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
The
preparation of the Company's consolidated financial statements
requires management to make estimates, judgments and assumptions
that affect the reported amounts of assets, liabilities, revenues
and expenses, and the disclosure of contingent assets and
liabilities at the end of the reporting period. Uncertainty about
these estimates, judgments and assumptions could result in outcomes
that require a material adjustment to the carrying amount of the
asset or liability affected in future periods.
The Company based its assumptions on information available when
the consolidated financial statements were prepared. Existing
circumstances and assumptions about future developments may change
due to market changes or circumstances arising beyond the control
of the Company. Such changes are reflected in the estimates as they
occur.
Notes 2 and 3 to the consolidated financial statements describe
the basis of accounting and the Company's significant accounting
policies.
COVID-19
There is significant uncertainty regarding
the extent and duration of the impact of the COVID-19 pandemic on
the Company's operations. The impact of the pandemic on the
Company's financial condition, cash flows, operations, credit risk,
liquidity and availability of credit is highly uncertain and cannot
be predicted. Management will continue to monitor and assess
the impact of the pandemic on its judgments, estimates, accounting
policies and amounts recognized in the consolidated financial
statements.
The Company tests for impairment on an annual basis and if there
are indicators that impairment may have arisen. In calculating the
recoverable amount for impairment testing, management is required
to make several assumptions, including, but not limited to,
expected future revenues, expected future cash flows and forward
multiples. The outbreak of COVID-19 presents significant
measurement uncertainties associated with the assumptions about the
Company's future operating results used in calculating the
recoverable amount for impairment testing at March 31, 2020.
Revenue recognition and contracts in
progress
The nature of ATS contracts requires the use of
estimates to quote new business, and most automation systems are
typically sold on a fixed-price basis. Revenues on construction
contracts and other long-term contracts are recognized on a
percentage of completion basis as outlined in note 3(c) "Revenue
recognition – Construction contracts" to the consolidated financial
statements. In applying the accounting policy on construction
contracts, judgment is required in determining the estimated costs
to complete a contract. These cost estimates are reviewed at each
reporting period and by their nature may give rise to income
volatility. If the actual costs incurred by the Company to complete
a contract are significantly higher than estimated, the Company's
earnings may be negatively affected. The use of estimates involves
risks, since the work to be performed involves varying degrees of
technical uncertainty, including possible development work to meet
the customer's specification, the extent of which is sometimes not
determinable until after the project has been awarded. In the event
the Company is unable to meet the defined performance specification
for a contracted automation system, it may need to redesign and
rebuild all or a portion of the system at its expense without an
increase in the selling price. Certain contracts may have
provisions that reduce the selling price or provide for refund of
purchase price if the Company fails to deliver or complete the
contract by specified dates. These provisions may expose the
Company to liabilities or adversely affect the Company's results of
operations or financial position.
ATS' contracts may be terminated by customers in the event of a
default by the Company or, in some cases, for the convenience of
the customer. In the event of a termination for convenience, the
Company typically negotiates a payment provision reflective of the
progress achieved on the contract and/or the costs incurred to the
termination date. If a contract is cancelled, Order Backlog is
reduced and production utilization may be negatively impacted.
A complete provision, which can be significant, is made for
losses on such contracts when the losses first become known.
Revisions in estimates of costs and profits on contracts, which can
also be significant, are recorded in the accounting period in which
the relevant facts impacting the estimates become known.
A portion of ATS' revenue is recognized when earned, which is
generally at the time of shipment and transfer of title to the
customer, provided collection is reasonably assured.
Investment tax credits and income taxes
Investment tax
credit assets, disclosed in note 18 to the consolidated financial
statements, are recognized as a reduction of the related expenses
in the year in which the expenses are incurred, provided there is
reasonable assurance that the credits will be realized.
Management has made estimates and assumptions in determining the
expenditures eligible for the investment tax credits claim and the
amount could be materially different from the recorded amount upon
review by the government. Deferred income tax assets, disclosed in
note 18 to the consolidated financial statements, are recognized to
the extent that it is probable that taxable income will be
available against which the losses can be utilized.
Significant management judgment is required to determine the amount
of deferred income tax assets that can be recognized based upon the
likely timing and level of future taxable income together with
future tax- planning strategies.
If the assessment of the Company's ability to utilize the
deferred income tax asset changes, the Company would be required to
recognize more or fewer deferred income tax assets, which would
increase or decrease income tax expense in the period in which this
is determined. The Company establishes provisions based on
reasonable estimates for possible consequences of audits by the tax
authorities of the respective countries in which it operates. The
amount of such provisions is based on various factors, such as
experience of previous taxation audits and differing
interpretations of tax regulations by the taxable entity and the
respective tax authority. These provisions for uncertain tax
positions are made using the best estimate of the amount expected
to be paid based on a qualitative assessment of all the relevant
factors. The Company reviews the adequacy of these provisions
at each quarter. However, it is possible that at some future date
an additional liability could result from audits by the taxation
authorities. Where the final tax outcome of these matters is
different from the amount initially recorded, such differences will
affect the tax provisions in the period in which such determination
is made.
Stock-based payment transactions
The Company measures
the cost of transactions with employees by reference to the fair
value of the equity instruments at the date at which they are
granted. Estimating fair value for stock-based payment transactions
requires the determination of the most appropriate valuation model,
which is dependent on the terms and conditions of the grant. This
estimate also requires determination of the most appropriate inputs
to the valuation model, including the future forfeiture rate, the
expected life of the share option, weighted average risk-free
interest rate, volatility and dividend yield, and formation of
assumptions. The assumptions and models used for estimating fair
value for stock-based payment transactions are disclosed in note 19
to the consolidated financial statements.
Impairment of non-financial assets
Impairment exists
when the carrying value of an asset or cash-generating unit exceeds
its recoverable amount, which is the higher of its fair value less
costs to sell and its value in use. The calculations involve
significant estimates and assumptions. Items estimated include cash
flows, discount rates and assumptions on revenue growth rates.
These estimates could affect the Company's future results if the
current estimates of future performance and fair values change.
Goodwill is assessed for impairment on an annual basis as described
in note 11 to the consolidated financial statements. The Company
performed its annual impairment test of goodwill as at March 31, 2020 and determined there was no
impairment (March 31, 2019
– $nil).
Provisions
As described in note 3(n) to the
consolidated financial statements, the Company records a provision
when an obligation exists, an outflow of economic resources
required to settle the obligation is probable and a reliable
estimate can be made of the amount of the obligation. The Company
records a provision based on the best estimate of the required
economic outflow to settle the present obligation at the
consolidated statement of financial position date. While management
believes these estimates are reasonable, differences in actual
results or changes in estimates could have a material impact on the
obligations and expenses reported by the Company.
Employee benefits
The cost of defined benefit pension
plans and the present value of the pension obligations are
determined using actuarial valuations. An actuarial valuation
involves making various assumptions that may differ from actual
developments in the future. These include the determination of the
discount rate, future salary increases, mortality rates and future
pension increases. Due to the complexity of the valuation, the
underlying assumptions and its long-term nature, a defined benefit
obligation is highly sensitive to changes in these assumptions. All
assumptions are reviewed at each reporting date.
In determining the appropriate discount rate, management
considers the interest rates of corporate bonds in their respective
currency, with extrapolated maturities corresponding to the
expected duration of the defined benefit obligation. The mortality
rate is based on publicly available mortality tables for the
specific country. Future salary increases and pension increases are
based on expected future inflation rates for the respective
country. Further details about the assumptions used are provided in
note 15 to the consolidated financial statements.
CHANGES IN ACCOUNTING POLICIES
ACCOUNTING STANDARD ADOPTED IN FISCAL 2020
IFRS 16
– Leases
Effective April 1,
2019, the Company adopted IFRS 16, using the modified
retrospective approach and accordingly the information presented
for the 2019 reporting period has not been restated.
IFRS 16 introduced significant changes to the lessee accounting
by removing the distinction between operating and finance leases
and requiring the recognition of a right-of-use asset ("ROU asset")
and a lease liability at the lease commencement for all leases,
except for short-term leases (lease terms of 12 months or less) and
leases of low-value assets. In applying IFRS 16, the Company
recognized ROU assets and lease liabilities in the consolidated
statement of financial position, initially measured at the present
value of future lease payments; recognized amortization of ROU
assets and interest on lease liabilities in the consolidated
statements of income; and separated the total amount of lease
payments into a principal portion (presented in financing
activities) and interest (presented in operating activities) in the
consolidated statements of cash flows. For short-term leases and
leases of low-value assets, the Company has elected not to
recognize right-of-use assets and lease liabilities. The respective
lease payments associated with these leases are recognized in the
consolidated statements of income on a straight-line basis.
For leases that were classified as operating leases under IAS
17, lease liabilities at transition have been measured at the
present value of remaining lease payments, discounted at the
Company's incremental borrowing rate of 5% as at April 1, 2019.
The Company has used the following practical expedients
permitted by the standard:
- Used a single discount rate to a portfolio of leases with
reasonably similar characteristics;
- Applied the standard only to contracts that were previously
identified as leases under IAS 17 at the date of initial
application;
- Applied the recognition exemptions for low-value leases and
leases that end within 12 months of the date of application, and
accounted for them as low-value and short-term leases
respectively;
- Accounted for non-lease components and lease components as a
single lease component;
- Relied on previous assessments of whether leases are
onerous;
- Used hindsight in determining the lease term where the contract
contains options to extend or terminate the lease.
On transition to IFRS 16 at April 1,
2019, the Company recognized ROU assets of $74.3 million and lease liabilities of
$74.5 million and reduced retained
earnings by $0.2 million in the
consolidated statement of financial position.
At March 31, 2019, the minimum
operating lease obligations of the Company were $42.9 million, as presented in the audited
consolidated financial statements. The difference between the lease
liabilities of $74.5 million at
April 1, 2019 and the minimum lease
obligation disclosed at March 31,
2019 was mainly due to: (i) the impact of discounting the
remaining lease payments; (ii) the exclusion of short-term leases
and leases of low-value assets; (iii) the inclusion of non-lease
components in measuring the lease liability; and (iv) assumptions
made on the probability of exercising early termination or renewal
options.
For the three- and 12-month periods ended March 31, 2020, the Company recognized expense
related to short-term and low-value leases of $1.1 million and $3.5
million, respectively, in cost of revenues, and $0.4 million and $1.4
million, respectively, in selling, general and
administrative expenses in the consolidated statements of
income.
The following accounting policy is applicable from April 1, 2019:
At the inception of a contract, the Company determines whether a
contract is, or contains, a lease based on whether the contract
conveys the right to control the use of an underlying asset for a
period of time in exchange for consideration. The Company
recognizes an ROU asset and a lease liability on the date the
leased asset is available for use by the Company (at the
commencement of the lease).
Right-of-use assets
ROU assets are initially measured
at cost, which is comprised of the initial amount of the lease
liability, any initial direct costs incurred and an estimate of
costs to dismantle, remove or restore the underlying asset or site
on which it is located, less any lease payments made at or before
the commencement date. Unless the Company is reasonably certain to
obtain ownership of the leased asset at the end of the lease term,
a recognized ROU asset is depreciated using the straight-line
method over the shorter of its estimated useful life or the lease
term. The ROU asset may be adjusted for certain remeasurements of
the lease liability and impairment losses.
Lease liabilities
The lease liability is initially
measured at the present value of the lease payments that are not
paid at the commencement date, discounted using the incremental
borrowing rate at the lease commencement date if the interest rate
implicit in the lease is not readily available. The Company uses a
single discount rate for a portfolio of leases with reasonably
similar characteristics. Lease payments include fixed payments less
any lease incentives, and any variable lease payments where
variability depends on an index or rate. The lease payments
also include the exercise price of a purchase option reasonably
certain to be exercised by the Company and payment of penalties for
termination of a lease. Each lease payment is allocated between the
repayment of the principal portion of the lease liability and the
interest portion. The finance cost is charged to net finance costs
in the consolidated statements of income over the lease period.
Payments associated with short-term leases (lease term of 12 months
or less) and leases of low-value assets are recognized on a
straight-line basis as an expense in the consolidated statements of
income as permitted by IFRS 16.
The carrying amount of the lease liability is remeasured if
there is a modification resulting in a change in the lease term, a
change in the future lease payments, or a change in the Company's
estimate of whether it will exercise a purchase, extension or
termination option. If the lease liability is remeasured, a
corresponding adjustment is made to the ROU asset.
As a practical expedient, IFRS 16 permits a lessee to not
separate non-lease components, but instead account for any lease
and associated non-lease components as a single arrangement.
The Company has applied this practical expedient.
Determining the lease term of contracts with renewal or
termination options
The lease term includes the
non-cancellable term of the lease including extension and
termination options if the Company is reasonably certain to
exercise the option. The Company applies judgment in evaluating
whether it is reasonably certain to exercise the options. All
relevant factors that create an economic incentive for it to
exercise the renewal are considered. After the commencement date,
the Company reassesses the lease term if there is a significant
event or change in circumstances that is within its control and
affects its ability to exercise (or not to exercise) the
option.
CONTROLS AND PROCEDURES
The Chief Executive Officer ("CEO") and the Chief Financial
Officer ("CFO") of the Company are responsible for establishing and
maintaining disclosure controls and procedures and internal
controls over financial reporting for the Company. The control
framework used in the design of disclosure controls and procedures
and internal control over financial reporting is the "Internal
Control – Integrated Framework (2013)" issued by the Committee of
Sponsoring Organizations of the Treadway Commission ("COSO").
Disclosure Controls and Procedures
An evaluation of
the design and operating effectiveness of the Company's disclosure
controls and procedures was conducted as of March 31, 2020 under the supervision of the CEO
and CFO as required by CSA National Instrument 52-109 -
Certification of Disclosure in Issuers' Annual and Interim
Filings. The evaluation included documentation, review,
enquiries and other procedures considered appropriate in the
circumstances. Based on that evaluation, the CEO and the CFO have
concluded that the Company's disclosure controls and procedures are
effective to provide reasonable assurance that information relating
to the Company and its consolidated subsidiaries that is required
to be disclosed in reports filed under provincial and territorial
securities legislation is recorded, processed, summarized and
reported to senior management, including the CEO and the CFO, so
that appropriate decisions can be made by them regarding required
disclosure within the time periods specified in the provincial
and territorial securities legislation.
Internal Control over Financial Reporting
CSA National
Instrument 52-109 requires the CEO and CFO to certify that they are
responsible for establishing and maintaining internal control over
financial reporting for the Company, and that those internal
controls have been designed and are effective in providing
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements in accordance
with IFRS.
The CEO and CFO have, using the framework and criteria
established in "Internal Control – Integrated Framework (2013)"
issued by COSO, evaluated the design and operating effectiveness of
the Company's internal controls over financial reporting and
concluded that, as of March 31, 2020,
internal controls over financial reporting were effective to
provide reasonable assurance that information related to
consolidated results and decisions to be made based on those
results were appropriate.
In response to the COVID-19 pandemic, the Company implemented
measures to enable physical distancing across ATS' operations,
including remote work. This change required certain processes and
controls that were previously done or documented manually to be
completed and retained in electronic form. The Company
continues to monitor whether remote work arrangements have
adversely affected the Company's ability to maintain internal
controls over financial reporting and disclosure controls and
procedures. Despite the changes required by the current
environment, there have been no significant changes in the design
of the Company's internal controls over financial reporting during
the years ended March 31, 2020
and March 31, 2019, that have materially affected, or are
reasonably likely to materially affect, internal control over
financial reporting.
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.
OTHER MAJOR CONSIDERATIONS AND RISK FACTORS
Any
investment in ATS will be subject to risks inherent to ATS'
business. The following risk factors are discussed in the Company's
Annual Information Form, which may be found on SEDAR at
www.sedar.com.
- Market volatility;
- Strategy execution risks;
- Acquisition risks;
- Expansion risks;
- Natural disasters, epidemics, pandemics, acts of war,
terrorism, international conflicts or other disruptions;
- Industry consolidation;
- Liquidity, access to capital markets and leverage;
- Restrictive covenants;
- Availability of performance and other guarantees from financial
institutions;
- Share price volatility;
- Competition;
- First-time program and production risks;
- Automation systems pricing;
- Revenue mix risk;
- Pricing, quality, delivery and volume risks;
- Product failure;
- New product market acceptance, obsolescence, and
commercialization;
- Security breaches or disruptions of information technology
systems;
- Insurance coverage;
- Availability of raw materials and other manufacturing
inputs;
- Customer risks;
- Insolvency or financial distress of third parties;
- Availability of human resources and dependence on key
personnel;
- Cumulative loss of several significant contracts;
- Lengthy sales cycle;
- Lack of long-term customer commitment;
- Foreign exchange risk;
- Doing business in foreign countries;
- Legislative compliance;
- Environmental compliance;
- Corruption of Foreign Public Officials Act, United States
Foreign Corrupt Practices Act and Anti-bribery laws risk;
- Intellectual property protection risks;
- Infringement of third parties' intellectual property rights
risk;
- Internal controls;
- Impairment of intangible assets risk;
- Income and other taxes and uncertain tax liabilities;
- Variations in quarterly results;
- Litigation;
- Manufacturing facilities disruption;
- Restructuring and work stoppage risk; and
- Dependence on performance of subsidiaries.
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;
the Company's strategy to expand organically and through
acquisition; the ATS Business Model ("ABM"); a reorganization plan,
including impact on operating earnings and offset due to the
current economic environment; the potential impact of COVID-19 and
government emergency measures; conversion of opportunities into
Order Bookings; the Company's Order Backlog partially mitigating
the impact of volatile 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; rate of Order Backlog conversion;
expected benefits with respect to the Company's efforts to expand
its services revenues; impact of the measures the Company has
implemented to enable physical distancing and travel restrictions;
expected benefit from Canadian Emergency Wage Subsidy (CEWS); the
expected impact of the ABM; initiatives having the goal of
expanding adjusted earnings from operations margin over long-term
and the impact of the pandemic on those initiatives; non-cash
working capital levels as a percentage of revenues; expectation to
reduce investment in capital assets and intangible assets in fiscal
2021; expectation in relation to meeting liquidity and funding
requirements for investments; potential to use leverage to support
growth strategy; expected contribution of MARCO and iXLOG; 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: the
progression of COVID-19 and its impacts on the Company's ability to
operate its assets, including the possible shut-down of facilities
due to COVID-19 outbreaks; the severity and duration of the
COVID-19 pandemic in all jurisdictions where the Company conducts
its business; the nature and extent of government imposed
restrictions on travel and business activities and the nature,
extent, and applicability of government assistance programs, in
both cases related to the COVID-19 pandemic, as applicable in all
jurisdictions where the Company conducts its business; the impact
of the COVID-19 pandemic on the Company's employees, customers, and
suppliers; impact of COVID-19 on 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; 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
reorganization plan does not achieve the anticipated benefits,
resulting in delays, increased costs, and/or lower than expected
improvements to operating performance; 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 Company is unable to
qualify for or benefit from the CEWS; that the impact of the ABM 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; 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; that the Company
changes its plans in regards to investment in capital assets or
that the cost of capital assets are greater than expected; that
MARCO's and/or iXLOG's impact is other than expected; 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.
Consolidated
Statements of Financial Position
(in thousands of Canadian
dollars)
As at
|
Note
|
|
March
31
2020
|
|
March 31
2019
|
|
|
|
|
|
|
ASSETS
|
16
|
|
|
|
|
Current
assets
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
358,645
|
$
|
224,540
|
Accounts
receivable
|
|
|
291,126
|
|
217,245
|
Income tax
receivable
|
|
|
3,720
|
|
4,938
|
Contract
assets
|
22
|
|
231,531
|
|
213,553
|
Inventories
|
6
|
|
68,436
|
|
67,998
|
Deposits, prepaids
and other assets
|
7
|
|
31,149
|
|
28,719
|
|
|
|
984,607
|
|
756,993
|
Non-current
assets
|
|
|
|
|
|
Property, plant and
equipment
|
10
|
|
136,284
|
|
97,669
|
Right-of-use
assets
|
8
|
|
61,156
|
|
––
|
Other
assets
|
9
|
|
20,220
|
|
2,446
|
Goodwill
|
11
|
|
608,243
|
|
551,643
|
Intangible
assets
|
12
|
|
220,169
|
|
213,945
|
Deferred income tax
assets
|
18
|
|
2,725
|
|
3,194
|
Investment tax credit
receivable
|
18
|
|
64,569
|
|
62,953
|
|
|
|
1,113,366
|
|
931,850
|
Total
assets
|
|
$
|
2,097,973
|
$
|
1,688,843
|
|
|
|
|
|
|
LIABILITIES AND
EQUITY
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
Bank
indebtedness
|
16
|
$
|
4,572
|
$
|
1,950
|
Accounts payable and
accrued liabilities
|
|
|
289,313
|
|
254,227
|
Income tax
payable
|
|
|
3,084
|
|
7,721
|
Contract
liabilities
|
22
|
|
117,757
|
|
161,139
|
Provisions
|
14
|
|
32,126
|
|
13,943
|
Current portion of
lease liabilities
|
8
|
|
15,696
|
|
––
|
Current portion of
long-term debt
|
16
|
|
133
|
|
18,550
|
|
|
|
462,681
|
|
457,530
|
Non-current
liabilities
|
|
|
|
|
|
Employee
benefits
|
15
|
|
26,247
|
|
28,187
|
Long-term lease
liabilities
|
8
|
|
47,209
|
|
––
|
Long-term
debt
|
16
|
|
597,965
|
|
328,247
|
Deferred income tax
liabilities
|
18
|
|
86,821
|
|
78,585
|
Other long-term
liabilities
|
9
|
|
8,037
|
|
6,663
|
|
|
|
766,279
|
|
441,682
|
Total
liabilities
|
|
$
|
1,228,960
|
$
|
899,212
|
|
|
|
|
|
|
Commitments and
contingencies
|
16, 20
|
|
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
Share
capital
|
17
|
$
|
521,884
|
$
|
516,613
|
Contributed
surplus
|
|
|
11,680
|
|
11,709
|
Accumulated other
comprehensive income
|
|
|
92,585
|
|
69,549
|
Retained
earnings
|
|
|
242,076
|
|
191,449
|
Equity attributable
to shareholders
|
|
|
868,225
|
|
789,320
|
Non-controlling
interests
|
|
|
788
|
|
311
|
Total
equity
|
|
|
869,013
|
|
789,631
|
Total liabilities
and equity
|
|
$
|
2,097,973
|
$
|
1,688,843
|
ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated
Statements of Income
(in thousands of Canadian dollars,
except per share amounts)
Years ended March
31
|
Note
|
|
2020
|
|
2019
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
Revenues from
construction contracts
|
|
$
|
884,913
|
$
|
763,228
|
Sale of
goods
|
|
|
121,569
|
|
90,005
|
Services
rendered
|
|
|
423,252
|
|
400,383
|
|
|
|
|
|
|
Total
revenues
|
21, 22
|
|
1,429,734
|
|
1,253,616
|
|
|
|
|
|
|
Operating costs and
expenses
|
|
|
|
|
|
Cost of
revenues
|
|
|
1,067,599
|
|
924,898
|
Selling, general and
administrative
|
|
|
233,653
|
|
204,073
|
Restructuring
costs
|
|
|
26,624
|
|
––
|
Stock-based
compensation
|
19
|
|
6,245
|
|
9,850
|
|
|
|
|
|
|
Earnings from
operations
|
|
|
95,613
|
|
114,795
|
|
|
|
|
|
|
Net finance
costs
|
23
|
|
28,074
|
|
20,909
|
|
|
|
|
|
|
Income before
income taxes
|
|
|
67,539
|
|
93,886
|
|
|
|
|
|
|
Income tax
expense
|
18
|
|
14,588
|
|
23,124
|
|
|
|
|
|
|
Net
income
|
|
$
|
52,951
|
$
|
70,762
|
|
|
|
|
|
|
Attributable
to
|
|
|
|
|
|
Shareholders
|
|
$
|
52,898
|
$
|
70,743
|
Non-controlling
interests
|
|
|
53
|
|
19
|
|
|
$
|
52,951
|
$
|
70,762
|
|
|
|
|
|
|
Earnings per share
attributable to shareholders
|
|
|
|
|
|
Basic
|
24
|
$
|
0.57
|
$
|
0.76
|
Diluted
|
24
|
$
|
0.57
|
$
|
0.75
|
ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated
Statements of Comprehensive Income
(in thousands of Canadian
dollars)
Years ended March
31
|
Note
|
|
2020
|
|
2019
|
|
|
|
|
|
|
Net income
|
|
$
|
52,951
|
$
|
70,762
|
|
|
|
|
|
|
Other comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
Items to be
reclassified subsequently to net income:
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation
adjustment (net of income taxes of $nil)
|
|
|
13,385
|
|
(12,145)
|
|
|
|
|
|
|
Net unrealized loss on
derivative financial instruments
|
|
|
|
|
|
designated as cash
flow hedges
|
13
|
|
(2,570)
|
|
(109)
|
Tax impact
|
|
|
639
|
|
23
|
|
|
|
|
|
|
Loss (gain)
transferred to net income for derivatives
|
|
|
|
|
|
designated as cash
flow hedges
|
13
|
|
(2,342)
|
|
90
|
Tax impact
|
|
|
594
|
|
(12)
|
|
|
|
|
|
|
Cash flow hedge
reserve adjustment
|
13
|
|
17,773
|
|
7,826
|
Tax impact
|
|
|
(4,443)
|
|
(1,954)
|
|
|
|
|
|
|
Items that will not
be reclassified subsequently to net income:
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial gains
(losses) on defined benefit pension plans
|
15
|
|
1,447
|
|
(675)
|
Tax impact
|
|
|
(404)
|
|
12
|
|
|
|
|
|
|
Other
comprehensive income (loss)
|
|
|
24,079
|
|
(6,944)
|
|
|
|
|
|
|
Comprehensive
income
|
|
$
|
77,030
|
$
|
63,818
|
|
|
|
|
|
|
Attributable
to
|
|
|
|
|
|
Shareholders
|
|
$
|
76,977
|
$
|
63,799
|
Non-controlling
interests
|
|
|
53
|
|
19
|
|
|
$
|
77,030
|
$
|
63,818
|
ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated
Statements of Changes in Equity
in thousands of Canadian
dollars)
Year ended March
31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
capital
|
Contributed
surplus
|
Retained
earnings
|
Currency
translation
adjustments
|
Cash
flow
hedge
reserve
|
Total
accumulated
other
comprehensive
income
|
Non-
controlling
interests
|
Total
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, as at
March 31, 2019
|
$
|
516,613
|
$
|
11,709
|
$
|
191,449
|
$
|
67,773
|
$
|
1,776
|
$
|
69,549
|
$
|
311
|
$
|
789,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption of IFRS 16
(note 3)
|
|
––
|
|
––
|
|
(221)
|
|
––
|
|
––
|
|
––
|
|
––
|
|
(221)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At April 1, 2019
(adjusted)
|
$
|
516,613
|
$
|
11,709
|
$
|
191,228
|
$
|
67,773
|
$
|
1,776
|
$
|
69,549
|
$
|
311
|
$
|
789,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
––
|
|
––
|
|
52,898
|
|
––
|
|
––
|
|
––
|
|
53
|
|
52,951
|
Other comprehensive
income
|
|
––
|
|
––
|
|
1,043
|
|
13,385
|
|
9,651
|
|
23,036
|
|
––
|
|
24,079
|
Total comprehensive income
|
|
––
|
|
––
|
|
53,941
|
|
13,385
|
|
9,651
|
|
23,036
|
|
53
|
|
77,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling
interest (note 5)
|
|
––
|
|
––
|
|
––
|
|
––
|
|
––
|
|
––
|
|
424
|
|
424
|
Stock-based
compensation
|
|
––
|
|
949
|
|
––
|
|
––
|
|
––
|
|
––
|
|
––
|
|
949
|
Exercise of stock
options
|
|
6,963
|
|
(978)
|
|
––
|
|
––
|
|
––
|
|
––
|
|
––
|
|
5,985
|
Repurchase of common
shares (note 17)
|
|
(1,692)
|
|
––
|
|
(3,093)
|
|
––
|
|
––
|
|
––
|
|
––
|
|
(4,785)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, as at
March 31, 2020
|
$
|
521,884
|
$
|
11,680
|
$
|
242,076
|
$
|
81,158
|
$
|
11,427
|
$
|
92,585
|
$
|
788
|
$
|
869,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
capital
|
Contributed
surplus
|
Retained
earnings
|
Currency
translation
adjustments
|
Cash
flow
hedge
reserve
|
Total
accumulated
other
comprehensive
income
|
Non-
controlling
interests
|
Total
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, as at March
31, 2018
|
$
|
548,747
|
$
|
12,535
|
$
|
121,369
|
$
|
79,918
|
$
|
(4,088)
|
$
|
75,830
|
$
|
292
|
$
|
758,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
––
|
|
––
|
|
70,743
|
|
––
|
|
––
|
|
––
|
|
19
|
|
70,762
|
Other comprehensive
income (loss)
|
|
––
|
|
––
|
|
(663)
|
|
(12,145)
|
|
5,864
|
|
(6,281)
|
|
––
|
|
(6,944)
|
Total comprehensive
income (loss)
|
|
––
|
|
––
|
|
70,080
|
|
(12,145)
|
|
5,864
|
|
(6,281)
|
|
19
|
|
63,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
––
|
|
910
|
|
––
|
|
––
|
|
––
|
|
––
|
|
––
|
|
910
|
Exercise of stock
options
|
|
7,145
|
|
(1,736)
|
|
––
|
|
––
|
|
––
|
|
––
|
|
––
|
|
5,409
|
Repurchase of common
shares (note 17)
|
|
(39,279)
|
|
––
|
|
––
|
|
––
|
|
––
|
|
––
|
|
––
|
|
(39,279)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, as at March
31, 2019
|
$
|
516,613
|
$
|
11,709
|
$
|
191,449
|
$
|
67,773
|
$
|
1,776
|
$
|
69,549
|
$
|
311
|
$
|
789,631
|
ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated
Statements of Cash Flows
(in thousands of Canadian
dollars)
Years ended March
31
|
Note
|
|
2020
|
|
2019
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
Net income
|
|
$
|
52,951
|
$
|
70,762
|
Items not involving
cash
|
|
|
|
|
|
Depreciation of
property, plant and equipment
|
10
|
|
14,675
|
|
12,137
|
Amortization of
right-of-use assets
|
8
|
|
15,913
|
|
––
|
Amortization of
intangible assets
|
12
|
|
40,814
|
|
30,254
|
Deferred income
taxes
|
18
|
|
(951)
|
|
13,718
|
Other items not
involving cash
|
|
|
3,270
|
|
(11,587)
|
Stock-based
compensation
|
19
|
|
6,245
|
|
9,850
|
|
|
|
132,917
|
|
125,134
|
Change in non-cash
operating working capital
|
|
|
(112,570)
|
|
2,464
|
Cash flows
provided by operating activities
|
|
$
|
20,347
|
$
|
127,598
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
Acquisition of
property, plant and equipment
|
|
$
|
(45,448)
|
$
|
(21,096)
|
Acquisition of
intangible assets
|
|
|
(11,119)
|
|
(19,824)
|
Business acquisition,
net of cash acquired
|
5
|
|
(53,367)
|
|
(156,351)
|
Proceeds from
disposal of property, plant and equipment
|
|
|
139
|
|
5,209
|
Cash flows used in
investing activities
|
|
$
|
(109,795)
|
$
|
(192,062)
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
Bank
indebtedness
|
|
$
|
2,546
|
$
|
(2,512)
|
Repayment of
long-term debt
|
|
|
(17,087)
|
|
(5,175)
|
Proceeds from
long-term debt
|
|
|
250,183
|
|
335
|
Proceeds from
exercise of stock options
|
|
|
5,985
|
|
5,409
|
Repurchase of common
shares
|
17
|
|
(4,785)
|
|
(39,279)
|
Principal lease
payments
|
|
|
(14,533)
|
|
––
|
Cash flows
provided by (used in) financing activities
|
|
$
|
222,309
|
$
|
(41,222)
|
|
|
|
|
|
|
Effect of exchange
rate changes on cash and cash equivalents
|
|
|
1,244
|
|
78
|
|
|
|
|
|
|
Increase (decrease)
in cash and cash equivalents
|
|
|
134,105
|
|
(105,608)
|
|
|
|
|
|
|
Cash and cash
equivalents, beginning of year
|
|
|
224,540
|
|
330,148
|
|
|
|
|
|
|
Cash and cash
equivalents, end of year
|
|
$
|
358,645
|
$
|
224,540
|
|
|
|
|
|
|
Supplemental
information
|
|
|
|
|
|
Cash income taxes
paid
|
|
$
|
10,807
|
$
|
10,468
|
Cash interest
paid
|
|
$
|
30,365
|
$
|
26,243
|
SOURCE ATS Automation Tooling Systems Inc.