CAMBRIDGE, ON, Aug. 12, 2020 /CNW/ - ATS Automation Tooling
Systems Inc. (TSX: ATA) ("ATS" or the "Company") today reported its
financial results for the three months ended June 28, 2020, a period marked by lower customer
activity and production inefficiencies due to the COVID-19
pandemic.
First quarter summary:
- Revenues decreased 4% to $324.9
million.
- Earnings from operations were $21.1
million (6% operating margin), compared to $28.6 million (8% operating margin) a year ago.
Adjusted earnings from operations1 were $29.7 million (9% margin), compared to
$38.0 million (11% margin) a year
ago.
- EBITDA1 was $39.2
million (12% EBITDA margin), compared to $47.2 million (14% EBITDA margin) a year
ago.
- Earnings per share were 11 cents
basic and diluted compared to 18
cents a year ago.
- Adjusted basic earnings per share1 were 17 cents compared to 25
cents a year ago.
- Order Bookings were $325 million,
23% lower than a year ago.
- Order Backlog decreased 7% to $909
million at June 28, 2020
compared to $982 million a year
ago.
- Subsequent to the first quarter, the Company amended its
$750 million senior secured credit
facility and extended the agreement by one year to August 29, 2022.
"Our teams delivered exceptional work for customers during the
first quarter, despite the challenges brought on by COVID-19," said
Andrew Hider, Chief Executive
Officer. "By introducing enhanced facility cleaning and physical
distancing measures, we kept all of our global operations open and
functioning in a safe manner and maintained our focus on innovation
and continuous improvement. While uncertainty remains, we will
continue to take active measures to adjust our business to meet
changing market conditions. We are in a good position to succeed
with a healthy Order Backlog, a strong balance sheet and the
capabilities to emerge from this downturn in a strong competitive
position."
Financial results
(In millions of dollars unless
otherwise stated)
|
3 months
ended June 28,
2020
|
3 months
ended June 30, 2019
|
Revenues
|
$
|
324.9
|
$
|
339.2
|
Earnings from
operations
|
$
|
21.1
|
$
|
28.6
|
Adjusted earnings
from operations1
|
$
|
29.7
|
$
|
38.0
|
EBITDA1
|
$
|
39.2
|
$
|
47.2
|
Net
income
|
$
|
9.8
|
$
|
16.4
|
Adjusted basic
earnings per share1
|
$
|
0.17
|
$
|
0.25
|
Basic and diluted
earnings per share
|
$
|
0.11
|
$
|
0.18
|
1 Non-IFRS
measure: see "Notice to Reader: Non-IFRS Measures and Additional
IFRS Measures".
|
First quarter summary
Fiscal 2021 first quarter
revenues were 4% lower than in the corresponding period a year ago
and included $8.0 million of revenues
earned by acquired companies. Excluding acquired companies, first
quarter revenues decreased $22.3
million, or 6% compared to the corresponding period a year
ago. Revenues from services decreased 19% due primarily to travel
restrictions and temporary closures and entry restrictions at some
customer sites. Revenues from the sale of goods decreased 24% due
primarily to lower after-sales services activity. This was
partially offset by a 7% increase in revenues generated by
construction contracts primarily due to the timing of program
completion and contributions by acquired companies.
By market, revenues generated in life sciences increased 6%
primarily due to short-duration 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. Revenues in the energy market increased 5% due to
higher Order Backlog entering the first quarter of fiscal 2021,
primarily related to programs for the nuclear market. Revenues in
the transportation and consumer products markets decreased 23% and
10%, respectively, due to lower service activity and the timing of
project performance.
Fiscal 2021 first quarter earnings from operations were
$21.1 million (6% operating margin)
compared to $28.6 million (8%
operating margin) in the first quarter a year ago. Earnings from
operations included $8.6 million
related to amortization of acquisition-related intangible assets,
down from $9.4 million of
amortization of acquisition-related intangible assets in the
comparable period a year ago.
Excluding amortization of acquisition-related intangible assets
in both comparable quarters, adjusted earnings from operations were
$29.7 million (9% margin), compared
to $38.0 million (11% margin) a year
ago. First quarter fiscal 2021 adjusted earnings from operations
reflected lower revenues and operational inefficiencies due to new
health and safety measures, including protocols to enable physical
distancing. Travel restrictions, temporary closures and entry
restrictions at some customer sites, disrupted normal operations
including after-sales services activities and added costs to
projects. These increases were partially offset by lower selling,
general and administrative expenses and stock compensation
expenses. The Company benefited from payments received under the
Canadian Emergency Wage Subsidy ("CEWS") program of $7.5 million, of which $5.6 million was recorded in Cost of Sales and
$1.9 million was recorded in selling,
general and administrative expenses. These payments were utilized
by the Company to partially offset operational inefficiencies,
minimize temporary work reductions and maintain employment of the
Company's highly skilled workforce. In addition, the Company
realized benefits from cost containment measures including those
taken during a reorganization completed in late fiscal 2020 and
those implemented since in response to the challenging business
conditions brought on by the COVID-19 pandemic.
Depreciation and amortization expense was $18.1 million in the first quarter of fiscal
2021, compared to $18.6 million a
year ago. The decrease primarily reflected decreased amortization
of acquisition-related intangible assets.
EBITDA was $39.2 million (12%
EBITDA margin) in the first quarter of fiscal 2021, compared to
$47.2 million (14% EBITDA margin) in
the first quarter of fiscal 2020. Lower EBITDA reflected lower
revenues and gross margin due to lower after-sales services
revenues and operational inefficiencies, partially offset by lower
selling, general and administrative expenses and stock compensation
expenses compared to a year ago.
Order Backlog continuity
(In millions of dollars)
|
Three
Months
|
Three
Months
|
|
Ended
|
Ended
|
|
June 28,
2020
|
June 30,
2019
|
Opening Order
Backlog
|
$
|
942
|
$
|
904
|
Revenues
|
(325)
|
(339)
|
Order
Bookings
|
325
|
423
|
Order Backlog
adjustments1
|
(33)
|
(6)
|
Total
|
$
|
909
|
$
|
982
|
1 Order Backlog adjustments include
foreign exchange adjustments and cancellations.
|
Order Bookings
First quarter fiscal 2021 Order
Bookings were $325 million, a 23%
decrease compared to record Order Bookings achieved in the first
quarter of fiscal 2020. Excluding Order Bookings from acquired
companies, first quarter fiscal 2021 Order Bookings were
$315 million. By market, higher Order
Bookings in the life sciences market primarily related to the
$65 million program for the design,
build and delivery of two automated systems for the production of
COVID-19 point-of-care test kits. Order Bookings in transportation,
consumer products and energy markets decreased as customers paused
to assess the impact of the pandemic on their operations and
address related health and safety issues.
Order Backlog
At June 28,
2020, Order Backlog was $909
million, 7% lower than at June 30,
2019 primarily driven by lower Order Bookings in the first
quarter of fiscal 2021 compared to the record Order Bookings
achieved in the first quarter of fiscal 2020. The Company has not
experienced any material cancellations to date.
Quarterly Conference Call
ATS' quarterly conference
call begins at 10:00 a.m. eastern on
Wednesday, August 12, 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 August 19,
2020) by dialing (416) 849-0833 and entering passcode
5788545 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 4,400 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 Quarter
Ended June 28, 2020
This Management's Discussion and Analysis ("MD&A") for
the three months ended June 28, 2020
(first quarter of fiscal 2021) is as of August 11, 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 unaudited
interim condensed consolidated financial statements of the Company
for the first quarter of fiscal 2021, which have been prepared in
accordance with International Accounting Standard ("IAS") 34 –
Interim Financial Reporting, and are reported in Canadian dollars.
The Company assumes that the reader of this MD&A has access to,
and has read, the audited consolidated financial statements
prepared in accordance with IFRS and the MD&A of the Company
for the year ended March 31, 2020
(fiscal 2020), and, accordingly, the purpose of this document is to
provide a fiscal 2021 first quarter update to the information
contained in the fiscal 2020 MD&A. Additional information is
contained in the Company's filings with Canadian securities
regulators, including its Annual Information Form, found on SEDAR
at www.sedar.com and on the Company's website at
www.atsautomation.com.
Notice to reader: Non-IFRS measures and additional IFRS
measures
Throughout this document, management uses certain
non-IFRS measures to evaluate the performance of the Company. The
terms "operating margin", "EBITDA", "EBITDA margin", "adjusted net
income", "adjusted earnings from operations", "adjusted basic
earnings per share", "non-cash working capital", "Order Bookings"
and "Order Backlog" do not have any standardized meaning prescribed
within IFRS and therefore may not be comparable to similar measures
presented by other companies. Such measures should not be
considered in isolation or as a substitute for measures of
performance prepared in accordance with IFRS. In addition,
management uses "earnings from operations", which is an additional
IFRS measure, to evaluate the performance of the Company. Earnings
from operations is presented on the Company's consolidated
statements of income as net income excluding income tax expense and
net finance costs. Operating margin is an expression of the
Company's earnings from operations as a percentage of revenues.
EBITDA is defined as earnings from operations excluding
depreciation and amortization (which includes amortization of
intangible assets 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-month periods ended June 28,
2020 and June 30, 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-month periods ended June 28, 2020 and June 30,
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 4,400 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.
OVERVIEW – OPERATING RESULTS
Consolidated
Revenues
(In millions of dollars)
|
Three
Months
|
Three
Months
|
|
Ended
|
Ended
|
Revenues by
market
|
June 28,
2020
|
June 30,
2019
|
Life
sciences
|
$
|
181.5
|
$
|
171.7
|
Transportation
|
67.1
|
86.9
|
Consumer
products
|
48.2
|
53.8
|
Energy
|
28.1
|
26.8
|
Total
revenues
|
$
|
324.9
|
$
|
339.2
|
Fiscal 2021 first quarter revenues were 4% lower than in the
corresponding period a year ago and included $8.0 million of revenues earned by acquired
companies. Excluding acquired companies, first quarter revenues
decreased $22.3 million, or 6%
compared to the corresponding period a year ago. Revenues from
services decreased 19% due primarily to travel restrictions and
temporary closures and entry restrictions at some customer sites.
Revenues from the sale of goods decreased 24% due primarily to
lower after-sales services activity. This was partially offset by a
7% increase in revenues generated by construction contracts
primarily due to the timing of program completion and contributions
by acquired companies.
By market, revenues generated in life sciences increased 6%
primarily due to short-duration 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. Revenues in the energy market increased 5% due to
higher Order Backlog entering the first quarter of fiscal 2021,
primarily related to programs for the nuclear market. Revenues in
the transportation and consumer products markets decreased 23% and
10%, respectively, due to lower service activity and the timing of
project performance.
Consolidated Operating Results
(In millions of
dollars)
|
Three
Months
|
Three
Months
|
|
Ended
|
Ended
|
|
June 28,
2020
|
June 30,
2019
|
Earnings from
operations
|
$
|
21.1
|
$
|
28.6
|
Amortization of
acquisition-related intangible assets
|
8.6
|
9.4
|
Adjusted earnings
from operations1
|
$
|
29.7
|
$
|
38.0
|
1 See
"Notice to reader: Non-IFRS Measures and Additional IFRS
Measures."
|
|
Three Months
Ended
June 28, 2020
|
|
Three Months
Ended
June 30, 2019
|
Earnings from
operations
|
$
|
21.1
|
|
$
|
28.6
|
Depreciation and
amortization
|
|
18.1
|
|
|
18.6
|
EBITDA1
|
$
|
39.2
|
|
$
|
47.2
|
1 See
"Notice to reader: Non-IFRS Measures and Additional IFRS
Measures."
|
Fiscal 2021 first quarter earnings from operations were
$21.1 million (6% operating margin)
compared to $28.6 million (8%
operating margin) in the first quarter a year ago. Earnings from
operations included $8.6 million
related to amortization of acquisition-related intangible assets,
down from $9.4 million of
amortization of acquisition-related intangible assets in the
comparable period a year ago.
Excluding amortization of acquisition-related intangible assets
in both comparable quarters, adjusted earnings from operations were
$29.7 million (9% margin), compared
to $38.0 million (11% margin) a year
ago. First quarter fiscal 2021 adjusted earnings from operations
reflected lower revenues and operational inefficiencies due to new
health and safety measures, including protocols to enable physical
distancing. Travel restrictions, temporary closures and entry
restrictions at some customer sites, disrupted normal operations
including after-sales services activities and added costs to
projects. These increases were partially offset by lower selling,
general and administrative expenses and stock compensation
expenses. The Company benefited from payments received under the
Canadian Emergency Wage Subsidy ("CEWS") program of $7.5 million, of which $5.6 million was recorded in Cost of Sales and
$1.9 million was recorded in selling,
general and administrative expenses. These payments were utilized
by the Company to partially offset operational inefficiencies,
minimize temporary work reductions and maintain employment of the
Company's highly skilled workforce. In addition, the Company
realized benefits from cost containment measures including those
taken during a reorganization completed in late fiscal 2020 and
those implemented since in response to the challenging business
conditions brought on by the COVID-19 pandemic.
Depreciation and amortization expense was $18.1 million in the first quarter of fiscal
2021, compared to $18.6 million a
year ago. The decrease primarily reflected decreased amortization
of acquisition-related intangible assets.
EBITDA was $39.2 million (12%
EBITDA margin) in the first quarter of fiscal 2021, compared to
$47.2 million (14% EBITDA margin) in
the first quarter of fiscal 2020. Lower EBITDA reflected lower
revenues and gross margin due to lower after-sales services
revenues and the operational inefficiencies, partially offset by
lower selling, general and administrative expenses and stock
compensation expenses compared to a year ago.
Order Bookings by Quarter
First quarter fiscal 2021
Order Bookings were $325 million, a
23% decrease compared to record Order Bookings achieved in the
first quarter of fiscal 2020. Excluding Order Bookings from
acquired companies, first quarter fiscal 2021 Order Bookings were
$315 million. By market, higher Order
Bookings in the life sciences market primarily related to the
$65 million program for the design,
build and delivery of two automated systems for the production of
COVID-19 point-of-care test kits. Order Bookings in transportation,
consumer products and energy markets decreased as customers paused
to assess the impact of the pandemic on their operations and
address related health and safety issues.
Order Backlog Continuity
(In millions of
dollars)
|
Three Months
Ended June 28, 2020
|
|
Three Months
Ended
June 30, 2019
|
Opening Order
Backlog
|
$
|
942
|
|
$
|
904
|
Revenues
|
|
(325)
|
|
|
(339)
|
Order
Bookings
|
|
325
|
|
|
423
|
Order Backlog
adjustments1
|
|
(33)
|
|
|
(6)
|
Total
|
$
|
909
|
|
$
|
982
|
1 Order Backlog adjustments include
foreign exchange adjustments and cancellations.
|
Order Backlog by Market
(In millions of
dollars)
As
at
|
June 28,
2020
|
|
June 30,
2019
|
Life
sciences
|
$
|
524
|
|
$
|
549
|
Transportation
|
|
211
|
|
|
275
|
Consumer
products
|
|
79
|
|
|
78
|
Energy
|
|
95
|
|
|
80
|
Total
|
$
|
909
|
|
$
|
982
|
At June 28, 2020, Order Backlog
was $909 million, 7% lower than at
June 30, 2019 primarily driven by
lower Order Bookings in the first quarter of fiscal 2021 compared
to the record Order Bookings achieved in the first quarter of
fiscal 2020. The Company has not experienced any material
cancellations to date.
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, quarantine periods
and physical distancing requirements, have affected economies and
financial markets around the world and led to a widespread economic
downturn. It is impossible to predict the ultimate duration or
severity of this downturn or its affect on the business, financial
results and conditions of the Company. Among other impacts, the
pandemic may affect customer demand, disrupt global supply chains
and equipment installation, cause staff shortages and increase
government regulations or intervention in the near
term.
Management has implemented a number of countermeasures designed
to: protect employees (including work from home protocols, in-plant
physical distancing requirements and shift work); ensure work on
customer projects progresses; and enable continued customer service
through digital tools. These responses have allowed the Company to
maintain operations, although with less efficiency.
The 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
negatively 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 robust,
with much of the activity transitioned to opportunities related to
the fight against the COVID-19 virus. Other activity in medical
devices, pharmaceuticals and radiopharmaceuticals is showing signs
of improvement. In transportation, some strategic opportunities
related to new technologies have proceeded; however, challenging
end-market conditions have caused those customers to delay and
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 this market in the current
economic environment. The Company expects its Order Backlog of
$909 million at the end of the first
quarter of fiscal 2021 to partially mitigate the impact of volatile
Order Bookings on revenues in the short term.
The Company's Order Backlog includes several large enterprise
programs, that have longer periods of performance and therefore
longer revenue recognition cycles. One customer program remains on
hold that was put on hold in the fourth quarter of fiscal 2020 and
impacted approximately $30 million of
the Company's reported Order Backlog. In the second quarter of
fiscal 2021, management expects the conversion of Order Backlog to
revenues to be in the lower end of the 35% to 40% range.
Inefficiencies as a result of travel restrictions, customer
facility closures and measures implemented to enable physical
distancing across the Company's operations are reflected in this
expected conversion range, which is also based on order delivery
schedules and the timing of third-party equipment delivery.
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 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 short
term. 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 Company benefitted from CEWS program in the
first quarter due to lower revenues in its Canadian operations. The
Canadian government has extended the CEWS program and as a result,
the Company expects to receive payments in the second quarter,
although lower amounts. 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 or their
impact on the financial results and condition of the Company in
future periods.
Management 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 continued development of the ABM. In
fiscal 2021, management expects that these initiatives will be
offset 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.
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.
CONSOLIDATED RESULTS
(In millions of dollars, except
per share
data)
|
Three Months
Ended June 28, 2020
|
|
Three Months
Ended
June 30, 2019
|
Revenues
|
$
|
324.9
|
|
$
|
339.2
|
Cost of
revenues
|
|
245.7
|
|
|
247.7
|
Selling, general and
administrative
|
|
56.5
|
|
|
59.3
|
Stock-based
compensation
|
|
1.6
|
|
|
3.6
|
Earnings from
operations
|
$
|
21.1
|
|
$
|
28.6
|
Net finance
costs
|
$
|
8.2
|
|
$
|
7.1
|
Provision for income
taxes
|
|
3.1
|
|
|
5.1
|
Net
income
|
$
|
9.8
|
|
$
|
16.4
|
Basic and diluted
earnings per share
|
$
|
0.11
|
|
$
|
0.18
|
Revenues. At $324.9
million, consolidated revenues for the first quarter of
fiscal 2021 were $14.3 million or 4%
lower than in the corresponding period a year ago (see "Overview –
Operating Results").
Cost of revenues. At $245.7
million, cost of revenues decreased compared to the
corresponding period a year ago by $2.0
million, or 1%, primarily due to lower revenues. Gross
margin was 24%, compared to 27% in the corresponding period a year
ago, due primarily to lower after-sales services revenues and
operational inefficiencies related to the COVID-19 pandemic,
partially offset by $5.6 million of
payments received under the CEWS program.
Selling, general and administrative ("SG&A")
expenses. SG&A expenses were $56.5
million, which included $8.6
million of costs related to the amortization of identifiable
intangible assets on business acquisitions. Excluding these costs,
SG&A expenses were $47.9 million
in the first quarter of fiscal 2021. Comparably, SG&A expenses
for the first quarter of fiscal 2020 were $49.9 million, which excluded $9.4 million of costs related to the amortization
of identifiable intangible assets recorded on business
acquisitions. Lower SG&A expenses in the first quarter of
fiscal 2021 primarily reflected the benefit of the previously
implemented reorganization, $1.9
million of payments received under the CEWS program and cost
containment measures, partially offset by SG&A expenses from
acquired companies.
Stock-based compensation. Stock-based compensation
expense was $1.6 million compared to
$3.6 million in the corresponding
period a year ago. The decrease in stock-based compensation costs
is attributable to lower expenses from restricted share units.
Earnings from operations. Earnings from operations
were $21.1 million (6% operating
margin), compared to earnings from operations of $28.6 million (8% operating margin) in the
corresponding period a year ago (see "Overview – Operating
Results").
Net finance costs. Net finance costs were
$8.2 million in the first quarter of
fiscal 2021, compared to $7.1 million
a year ago. The increase was primarily due to higher interest
expense in the first quarter of fiscal 2021 compared to the
corresponding period a year ago.
Income tax provision. The Company's effective income tax
rate of 24% differed from the combined Canadian basic federal and
provincial income tax rate of 27% primarily due to income earned in
certain jurisdictions with different statutory tax rates.
Net income. Net income was $9.8 million (11
cents per share basic and diluted) compared to $16.4 million (18
cents per share basic and diluted) for the first quarter of
fiscal 2020. Adjusted basic earnings per share were
17 cents compared to 25 cents in the first quarter of fiscal 2020 (see
"Reconciliation of non-IFRS measures to IFRS measures").
Reconciliation of Non-IFRS Measures to IFRS
Measures
(In millions of dollars, except per share data)
The following table reconciles EBITDA to the most directly
comparable IFRS measure (net income):
|
Three Months
Ended June 28, 2020
|
|
Three Months
Ended
June 30, 2019
|
EBITDA
|
$
|
39.2
|
|
$
|
47.2
|
Less: depreciation
and amortization expense
|
|
18.1
|
|
|
18.6
|
Earnings from
operations
|
$
|
21.1
|
|
$
|
28.6
|
Less: net finance
costs
|
|
8.2
|
|
|
7.1
|
Provision for income
taxes
|
|
3.1
|
|
|
5.1
|
Net
income
|
$
|
9.8
|
|
$
|
16.4
|
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
June 28, 2020
|
|
Three Months Ended
June 30, 2019
|
|
IFRS
|
|
Adjustments
|
|
Adjusted (non-IFRS)
|
|
IFRS
|
|
Adjustments
|
|
Adjusted
(non-IFRS)
|
Earnings from
operations
|
$
|
21.1
|
|
$
|
––
|
|
$
|
21.1
|
|
$
|
28.6
|
|
$
|
––
|
|
$
|
28.6
|
Amortization of
acquisition-related intangible assets
|
|
––
|
|
|
8.6
|
|
|
8.6
|
|
|
––
|
|
|
9.4
|
|
|
9.4
|
|
$
|
21.1
|
|
$
|
8.6
|
|
$
|
29.7
|
|
$
|
28.6
|
|
$
|
9.4
|
|
$
|
38.0
|
Less: net finance
costs
|
$
|
8.2
|
|
$
|
––
|
|
$
|
8.2
|
|
$
|
7.1
|
|
$
|
––
|
|
$
|
7.1
|
Income before
income
taxes
|
$
|
12.9
|
|
$
|
8.6
|
|
$
|
21.5
|
|
$
|
21.5
|
|
$
|
9.4
|
|
$
|
30.9
|
Provision for income
taxes
|
$
|
3.1
|
|
$
|
––
|
|
$
|
3.1
|
|
$
|
5.1
|
|
$
|
––
|
|
$
|
5.1
|
Adjustment to
provision for income taxes1
|
|
––
|
|
|
2.3
|
|
|
2.3
|
|
|
––
|
|
|
2.5
|
|
|
2.5
|
|
$
|
3.1
|
|
$
|
2.3
|
|
$
|
5.4
|
|
$
|
5.1
|
|
$
|
2.5
|
|
$
|
7.6
|
Net
income
|
$
|
9.8
|
|
$
|
6.3
|
|
$
|
16.1
|
|
$
|
16.4
|
|
$
|
6.9
|
|
$
|
23.3
|
Basic earnings per
share
|
$
|
0.11
|
|
$
|
0.06
|
|
$
|
0.17
|
|
$
|
0.18
|
|
$
|
0.07
|
|
$
|
0.25
|
1 Adjustments to provision for income
taxes relate to the income tax effects of adjustment items that are
excluded for the purposes of calculating non-IFRS based adjusted
net income.
|
LIQUIDITY, CASH FLOW AND FINANCIAL RESOURCES
(In
millions of dollars, except
ratios)
As at
|
June 28,
2020
|
|
March 31,
2020
|
Cash and cash
equivalents
|
$
|
398.6
|
|
$
|
358.6
|
Debt-to-equity
ratio1
|
|
0.83:1
|
|
|
0.86:1
|
1 Debt is calculated as bank
indebtedness, long-term debt, and lease liabilities. Equity
is calculated as total equity less accumulated other comprehensive
income.
|
For the three months
ended
|
June 28,
2020
|
|
June 30,
2019
|
Cash flows provided
(used) in operating activities
|
$
|
47.0
|
|
$
|
(40.0)
|
At June 28, 2020, the Company had
cash and cash equivalents of $398.6
million compared to $358.6
million at March 31, 2020. At
June 28, 2020, the Company's
debt-to-total equity ratio was 0.83:1.
In the first quarter of fiscal 2021, cash flows provided in
operating activities were $47.0
million ($40.0 million used in
operating activities in the first quarter a year ago). The increase
in operating cash flows related primarily to the timing of
investments in non-cash working capital in certain customer
programs.
In the first quarter of fiscal 2021, the Company's investment in
non-cash working capital decreased by $19.8
million from March 31, 2020.
Accounts receivable decreased by 26%, or $75.0 million, and net contracts in progress
increased 13%, or $14.4 million,
compared to March 31, 2020, due to
the timing of billings in 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 23%, or $15.9 million,
primarily due to an increase in work-in-process on certain customer
projects. Deposits and prepaid assets increased 13%, or
$4.1 million, compared to
March 31, 2020 due to the timing of
program execution. Accounts payable and accrued liabilities
decreased 8%, or $21.9 million,
compared to March 31, 2020.
Provisions decreased 15%, or $4.8
million, compared to March 31,
2020, due to payments related to the Company's
reorganization plan, which was completed in fiscal 2020.
Cash investments in property, plant and equipment totalled
$4.0 million in the first quarter of
fiscal 2021, primarily related to the expansion and improvement of
certain manufacturing facilities.
Intangible assets expenditures were $1.7
million in the first quarter of fiscal 2021 and
primarily related to computer software and various internal
development projects.
At June 28, 2020, the Company had
$375.7 million of unutilized
multipurpose credit, including letters of credit, available under
existing credit facilities and an additional $18.4 million available under letter of credit
facilities.
On July 29, 2020, the Company
amended its senior secured credit facility (the "Credit Facility")
and extended its maturity to August 29,
2022. The Credit Facility provides a committed revolving
credit facility of $750.0 million.
The Credit Facility is secured by the Company's assets, including 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 June 28, 2020,
the Company had utilized $393.3
million under the Credit Facility, of which $249.7 million was classified as long-term debt
(March 31, 2020 - $250.0 million) and $143.6
million by way of letters of credit (March 31, 2020 - $149.4
million). Subsequent to the end of the first quarter, the
Company repaid $130.0 million of its
long-term debt.
The Credit Facility is available in Canadian dollars by way of
prime rate advances and/or bankers' acceptances, in U.S. dollars by
way of base rate advances and/or LIBOR advances, in Swiss francs,
Euros and British pounds sterling by way of LIBOR advances and by
way of letters of credit for certain purposes in Canadian dollars,
U.S. dollars and Euros. The interest rates applicable to the Credit
Facility are determined based on a net debt-to-EBITDA ratio as
defined in the Credit Facility. For prime rate advances and
base rate advances, the interest rate is equal to the bank's prime
rate or the bank's U.S. dollar base rate in Canada, respectively, plus a margin ranging
from 0.95% to 2.50%. 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 1.95% to 3.50%. The
Company pays a fee for usage of financial letters of credit that
ranges from 1.95% to 3.50%, and a fee for usage of non-financial
letters of credit that ranges from 1.30% to 2.33%. 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 0.39% to 0.79%.
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 June 28, 2020,
all of the covenants were met.
The Company has additional credit facilities available of
$31.4 million (10.1 million Euros, $10.0
million U.S., 50 million Thai
Baht and 1.4 million Czech Koruna). The total amount
outstanding on these facilities at June
28, 2020 was $4.8
million, of which $4.6 million
was classified as bank indebtedness (March
31, 2020 - $4.6 million) and
$0.2 million was classified as
long-term debt (March 31, 2020 -
$0.2 million). The interest rates
applicable to the credit facilities range from 1.75% to 6.25% per
annum. A portion of the long-term debt is secured by certain assets
of the Company.
The Company's U.S. $250.0 million
aggregate principal amount of senior notes (the "Senior Notes") are
unsecured, were issued at par, bear interest at a rate of 6.50% per
annum and mature on June 15, 2023.
The Company may redeem the Senior Notes, in whole at any time or in
part, from time to time, at specified redemption prices and subject
to certain conditions required by the Senior Notes. If the Company
experiences a change of control, the Company may be required to
repurchase the Senior Notes, in whole or in part, at a purchase
price equal to 101% of the aggregate principal amount of the Senior
Notes, plus accrued and unpaid interest, if any, to, but not
including, the redemption date. The Senior Notes contain customary
covenants that restrict, subject to certain exceptions and
thresholds, some of the activities of the Company and its
subsidiaries, including the Company's ability to dispose of assets,
incur additional debt, pay dividends, create liens, make
investments, and engage in specified transactions with affiliates.
At June 28, 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 as at June 28, 2020:
|
|
|
Less than one
year
|
$
|
134.8
|
One – two
years
|
|
5.0
|
Two – three
years
|
|
2.7
|
Three – four
years
|
|
2.6
|
|
$
|
145.1
|
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 June 28, 2020, the total value of outstanding
letters of credit was approximately $181.0
million (March 31, 2020 -
$219.0 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 interim consolidated statement 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 the first three months of fiscal
2021, 181,384 stock options were exercised. At August 11, 2020, the total number of shares
outstanding was 92,410,487, and there were 820,766 stock options
outstanding to acquire common shares of the Company.
NORMAL COURSE ISSUER BID
Under the normal course
issuer bid ("NCIB"), ATS has the ability to purchase for
cancellation up to a maximum of 5,134,930 common shares of the
Company during the 12-month period ending December 22, 2020.
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.
As at June 28, 2020, the Company
had purchased 300,768 common shares for $4.8
million under the NCIB program. These purchases were made in
the fourth quarter of fiscal 2020. The weighted average price per
share repurchased was $15.87.
RELATED PARTY TRANSACTIONS
The Company has an
agreement with a shareholder, Mason Capital Management, LLC ("Mason
Capital"), pursuant to which Mason Capital has agreed to provide
ATS with ongoing strategic and capital markets advisory services
for an annual fee of U.S. $0.5
million. As part of the agreement, a member of the
Company's Board of Directors who is associated with Mason Capital
has waived any fees to which he may have otherwise been entitled
for serving as a member of the Board of Directors or as a member of
any committee of the Board of Directors.
There were no other significant related party transactions
during the first three months of fiscal 2021.
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.
$150.0 million into Canadian dollars.
The Company will receive interest of 6.50% U.S. per annum and pay
interest of 6.501% Canadian. The terms of the hedging relationship
will end on June 15, 2023.
The Company manages foreign exchange risk on its
Euro-denominated net investments. The Company uses a cross-currency
interest rate swap as derivative financial instruments to hedge a
portion of the foreign exchange risk related to its
Euro-denominated net investment. On March
29, 2016, the Company entered into a cross-currency interest
rate swap instrument to swap 134.1 million
Euros into Canadian dollars. The Company will receive
interest of 6.501% Canadian per annum and pay interest of 5.094%
Euros. The terms of the hedging relationship will end on
June 15, 2023.
In addition, from time to time, the Company may hedge the
foreign exchange risk arising from foreign currency debt,
intercompany loans, net investments in foreign-based subsidiaries
and committed acquisitions through the use of forward foreign
exchange contracts or other non-derivative financial instruments.
The Company uses hedging as a risk management tool, not to
speculate.
Period Average Exchange Rates in
CDN$
|
Three Months
Ended
|
|
|
June 28,
2020
|
June 30,
2019
|
% change
|
U.S.
Dollar
|
1.386
|
1.338
|
3.6%
|
Euro
|
1.525
|
1.503
|
1.5%
|
CONSOLIDATED QUARTERLY RESULTS
(In millions of
dollars, except per share amounts)
|
Q1
2021
|
|
Q4
2020
|
|
Q3
2020
|
|
Q2
2020
|
|
Q1
2020
|
|
Q4
2019
|
|
Q3
2019
|
|
Q2
2019
|
Revenues
|
$
|
324.9
|
|
$
|
382.1
|
|
$
|
367.2
|
|
$
|
341.2
|
|
$
|
339.2
|
|
$
|
348.6
|
|
$
|
321.4
|
|
$
|
283.6
|
Earnings from
operations
|
$
|
21.1
|
|
$
|
24.9
|
|
$
|
10.4
|
|
$
|
31.7
|
|
$
|
28.6
|
|
$
|
30.3
|
|
$
|
38.5
|
|
$
|
19.0
|
Adjusted earnings
from
operations1
|
$
|
29.7
|
|
$
|
39.3
|
|
$
|
37.5
|
|
$
|
42.5
|
|
$
|
38.0
|
|
$
|
38.2
|
|
$
|
46.7
|
|
$
|
25.4
|
Net
income
|
$
|
9.8
|
|
$
|
13.1
|
|
$
|
4.1
|
|
$
|
19.3
|
|
$
|
16.4
|
|
$
|
18.2
|
|
$
|
25.1
|
|
$
|
10.8
|
Basic and diluted
earnings per
share
|
$
|
0.11
|
|
$
|
0.14
|
|
$
|
0.04
|
|
$
|
0.21
|
|
$
|
0.18
|
|
$
|
0.20
|
|
$
|
0.27
|
|
$
|
0.11
|
Adjusted basic
earnings per
share1
|
$
|
0.17
|
|
$
|
0.26
|
|
$
|
0.26
|
|
$
|
0.29
|
|
$
|
0.25
|
|
$
|
0.26
|
|
$
|
0.33
|
|
$
|
0.17
|
Order
Bookings2
|
$
|
325.0
|
|
$
|
356.0
|
|
$
|
368.0
|
|
$
|
321.0
|
|
$
|
423.0
|
|
$
|
298.0
|
|
$
|
397.0
|
|
$
|
355.0
|
Order
Backlog3
|
$
|
909.0
|
|
$
|
942.0
|
|
$
|
939.0
|
|
$
|
945.0
|
|
$
|
982.0
|
|
$
|
904.0
|
|
$
|
926.0
|
|
$
|
830.0
|
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
is likely to affect quarterly performance patterns in fiscal
2021.
CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
The
preparation of the Company's interim condensed consolidated
financial statements requires management to make estimates,
judgments and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses, and the disclosure of
contingent assets and liabilities at the end of the reporting
period. Uncertainty about these estimates, judgments and
assumptions could result in outcomes that require a material
adjustment to the carrying amount of the asset or liability
affected in future periods.
The Company based its assumptions on information available when
the interim condensed consolidated financial statements were
prepared. Existing circumstances and assumptions about future
developments may change due to market changes or circumstances
arising beyond the control of the Company. Such changes are
reflected in the estimates as they occur. There have been no
material changes to the critical accounting estimates described in
the Company's 2020 MD&A.
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 interim condensed
consolidated financial statements.
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").
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 changes or material weaknesses in
the design of the Company's internal controls over financial
reporting during the three months ended June
28, 2020, that have materially affected, or are reasonably
likely to materially affect, the Company's internal controls over
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.
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"); 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; rate of Order Backlog
conversion; 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; 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 CEWS; 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 in relation to meeting liquidity and funding
requirements for investments; potential to use leverage to support
growth strategy; and the Company's belief with respect to the
outcome of certain lawsuits, claims and contingencies. The
risks and uncertainties that may affect forward-looking statements
include, among others: 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 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 CEWS; 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; risk that the ultimate
outcome of lawsuits, claims, and contingencies give rise to
material liabilities for which no provisions have been recorded;
that one or more customers, or other entities with which the
Company has contracted, experience insolvency or bankruptcy with
resulting delays, costs or losses to the Company; political, labour
or supplier disruptions; the development of superior or alternative
technologies to those developed by ATS; the success of competitors
with greater capital and resources in exploiting their technology;
market risk for developing technologies; risks relating to legal
proceedings to which ATS is or may become a party; exposure to
product and/or professional liability claims; risks associated with
greater than anticipated tax liabilities or expenses; and other
risks detailed from time to time in ATS' filings with Canadian
provincial securities regulators. Forward-looking statements
are based on management's current plans, estimates, projections,
beliefs and opinions, and other than as required by applicable
securities laws, ATS does not undertake any obligation to update
forward-looking statements should assumptions related to these
plans, estimates, projections, beliefs and opinions change.
ATS AUTOMATION TOOLING SYSTEMS INC.
Interim
Consolidated Statements of Financial Position
(in thousands
of Canadian dollars -
unaudited)
|
|
|
|
|
|
As at
|
Note
|
|
June 28
2020
|
|
March 31
2020
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets
|
11
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
|
$
|
398,557
|
|
$
|
358,645
|
Accounts
receivable
|
|
|
|
216,080
|
|
|
291,126
|
Income tax
receivable
|
|
|
|
4,276
|
|
|
3,720
|
Contract
assets
|
17
|
|
|
266,241
|
|
|
231,531
|
Inventories
|
5
|
|
|
84,287
|
|
|
68,436
|
Deposits, prepaids
and other assets
|
6
|
|
|
35,249
|
|
|
31,149
|
|
|
|
|
1,004,690
|
|
|
984,607
|
Non-current
assets
|
|
|
|
|
|
|
|
Property, plant and
equipment
|
|
|
|
133,803
|
|
|
136,284
|
Right-of-use
assets
|
7
|
|
|
57,058
|
|
|
61,156
|
Other
assets
|
8
|
|
|
12,146
|
|
|
20,220
|
Goodwill
|
|
|
|
599,413
|
|
|
608,243
|
Intangible
assets
|
|
|
|
208,565
|
|
|
220,169
|
Deferred income tax
assets
|
|
|
|
2,959
|
|
|
2,725
|
Investment tax credit
receivable
|
|
|
|
63,629
|
|
|
64,569
|
|
|
|
|
1,077,573
|
|
|
1,113,366
|
Total
assets
|
|
|
$
|
2,082,263
|
|
$
|
2,097,973
|
LIABILITIES AND
EQUITY
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
Bank
indebtedness
|
11
|
|
$
|
4,635
|
|
$
|
4,572
|
Accounts payable and
accrued liabilities
|
|
|
|
267,417
|
|
|
289,313
|
Income tax
payable
|
|
|
|
3,886
|
|
|
3,084
|
Contract
liabilities
|
17
|
|
|
138,072
|
|
|
117,757
|
Provisions
|
10
|
|
|
27,373
|
|
|
32,126
|
Current portion of
lease liabilities
|
7
|
|
|
15,198
|
|
|
15,696
|
Current portion of
long-term debt
|
11
|
|
|
124
|
|
|
133
|
|
|
|
|
456,705
|
|
|
462,681
|
Non-current
liabilities
|
|
|
|
|
|
|
|
Employee
benefits
|
|
|
|
26,095
|
|
|
26,247
|
Long-term lease
liabilities
|
7
|
|
|
43,773
|
|
|
47,209
|
Long-term
debt
|
11
|
|
|
587,777
|
|
|
597,965
|
Deferred income tax
liabilities
|
|
|
|
84,419
|
|
|
86,821
|
Other long-term
liabilities
|
8
|
|
|
5,624
|
|
|
8,037
|
|
|
|
|
747,688
|
|
|
766,279
|
Total
liabilities
|
|
|
$
|
1,204,393
|
|
$
|
1,228,960
|
|
|
|
|
|
|
|
|
Commitments and
contingencies
|
11, 15
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
|
Share
capital
|
12
|
|
$
|
524,505
|
|
$
|
521,884
|
Contributed
surplus
|
|
|
|
11,464
|
|
|
11,680
|
Accumulated other
comprehensive income
|
|
|
|
89,283
|
|
|
92,585
|
Retained
earnings
|
|
|
|
251,775
|
|
|
242,076
|
Equity attributable
to shareholders
|
|
|
|
877,027
|
|
|
868,225
|
Non-controlling
interests
|
|
|
|
843
|
|
|
788
|
Total
equity
|
|
|
|
877,870
|
|
|
869,013
|
Total liabilities
and equity
|
|
|
$
|
2,082,263
|
|
$
|
2,097,973
|
ATS AUTOMATION TOOLING SYSTEMS INC.
Interim
Consolidated Statements of Income
(in thousands of Canadian
dollars, except per share amounts -
unaudited)
For the three months
ended
|
Note
|
|
June 28
2020
|
|
June 30
2019
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
Revenues from
construction contracts
|
|
|
$
|
213,011
|
|
$
|
198,285
|
Sale of
goods
|
|
|
|
25,227
|
|
|
33,387
|
Services
rendered
|
|
|
|
86,629
|
|
|
107,552
|
|
|
|
|
|
|
|
|
Total
revenues
|
17
|
|
|
324,867
|
|
|
339,224
|
|
|
|
|
|
|
|
|
Operating costs and
expenses
|
|
|
|
|
|
|
|
Cost of
revenues
|
|
|
|
245,624
|
|
|
247,666
|
Selling, general and
administrative
|
|
|
|
56,498
|
|
|
59,349
|
Stock-based
compensation
|
14
|
|
|
1,636
|
|
|
3,638
|
|
|
|
|
|
|
|
|
Earnings from
operations
|
|
|
|
21,109
|
|
|
28,571
|
|
|
|
|
|
|
|
|
Net finance
costs
|
18
|
|
|
8,194
|
|
|
7,129
|
|
|
|
|
|
|
|
|
Income before
income
taxes
|
|
|
|
12,915
|
|
|
21,442
|
|
|
|
|
|
|
|
|
Income tax
expense
|
13
|
|
|
3,161
|
|
|
5,028
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
$
|
9,754
|
|
$
|
16,414
|
|
|
|
|
|
|
|
|
Attributable
to
|
|
|
|
|
|
|
|
Shareholders
|
|
|
$
|
9,699
|
|
$
|
16,415
|
Non-controlling
interests
|
|
|
|
55
|
|
|
(1)
|
|
|
|
$
|
9,754
|
|
$
|
16,414
|
|
|
|
|
|
|
|
|
Earnings per share
attributable to
shareholders
|
|
|
|
|
|
|
|
Basic and
diluted
|
19
|
|
$
|
0.11
|
|
$
|
0.18
|
ATS AUTOMATION TOOLING SYSTEMS INC.
Interim
Consolidated Statements of Comprehensive Income
(in
thousands of Canadian dollars -
unaudited)
For the three months
ended
|
June
28 2020
|
|
June 30
2019
|
|
|
|
|
|
|
Net
income
|
$
|
9,754
|
|
$
|
16,414
|
|
|
|
|
|
|
Other comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
Items to be
reclassified subsequently to net income:
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation
adjustment (net of income taxes of $nil)
|
|
(1,359)
|
|
|
(2,287)
|
|
|
|
|
|
|
Net unrealized gain on
derivative financial instruments designated as cash flow
hedges
|
|
3,620
|
|
|
2,647
|
Tax
impact
|
|
(905)
|
|
|
(657)
|
|
|
|
|
|
|
Loss (gain)
transferred to net income for derivatives designated as cash flow
hedges
|
|
1,866
|
|
|
(136)
|
Tax
impact
|
|
(468)
|
|
|
34
|
|
|
|
|
|
|
Cash flow hedge
reserve adjustment
|
|
(8,075)
|
|
|
(1,809)
|
Tax
impact
|
|
2,019
|
|
|
452
|
|
|
|
|
|
|
Other
comprehensive
loss
|
|
(3,302)
|
|
|
(1,756)
|
|
|
|
|
|
|
Comprehensive
income
|
$
|
6,452
|
|
$
|
14,658
|
|
|
|
|
|
|
Attributable
to
|
|
|
|
|
|
Shareholders
|
$
|
6,397
|
|
$
|
14,659
|
Non-controlling
interests
|
|
55
|
|
|
(1)
|
|
$
|
6,452
|
|
$
|
14,658
|
ATS AUTOMATION TOOLING SYSTEMS INC.
Interim
Consolidated Statements of Changes in Equity
(in thousands
of Canadian dollars - unaudited)
Three months ended
June 28, 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, 2020
|
$
|
521,884
|
|
$
|
11,680
|
|
$
|
242,076
|
|
$
|
81,158
|
|
$
|
11,427
|
|
$
|
92,585
|
|
$
|
788
|
|
$
|
869,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
––
|
|
|
––
|
|
|
9,699
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
55
|
|
|
9,754
|
Other comprehensive
loss
|
|
––
|
|
|
––
|
|
|
––
|
|
|
(1,359)
|
|
|
(1,943)
|
|
|
(3,302)
|
|
|
––
|
|
|
(3,302)
|
Total comprehensive
income (loss)
|
|
––
|
|
|
––
|
|
|
9,699
|
|
|
(1,359)
|
|
|
(1,943)
|
|
|
(3,302)
|
|
|
55
|
|
|
6,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
––
|
|
|
136
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
136
|
Exercise of stock
options
|
|
2,621
|
|
|
(352)
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
2,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, as at
June 28, 2020
|
$
|
524,505
|
|
$
|
11,464
|
|
$
|
251,775
|
|
$
|
79,799
|
|
$
|
9,484
|
|
$
|
89,283
|
|
$
|
843
|
|
$
|
877,870
|
Three months ended
June 30, 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 April
1,
2019
|
$
|
516,613
|
|
$
|
11,709
|
|
$
|
191,228
|
|
$
|
67,773
|
|
$
|
1,776
|
|
$
|
69,549
|
|
$
|
311
|
|
$
|
789,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
––
|
|
|
––
|
|
|
16,415
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
(1)
|
|
|
16,414
|
Other comprehensive
income (loss)
|
|
––
|
|
|
––
|
|
|
––
|
|
|
(2,287)
|
|
|
531
|
|
|
(1,756)
|
|
|
––
|
|
|
(1,756)
|
Total comprehensive
income (loss)
|
|
––
|
|
|
––
|
|
|
16,415
|
|
|
(2,287)
|
|
|
531
|
|
|
(1,756)
|
|
|
(1)
|
|
|
14,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
––
|
|
|
263
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
263
|
Exercise of stock
options
|
|
1,019
|
|
|
(280)
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
––
|
|
|
739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, as at June
30, 2019
|
$
|
517,632
|
|
$
|
11,692
|
|
$
|
207,643
|
|
$
|
65,486
|
|
$
|
2,307
|
|
$
|
67,793
|
|
$
|
310
|
|
$
|
805,070
|
ATS AUTOMATION TOOLING SYSTEMS INC.
Interim
Consolidated Statements of Cash Flows
(in thousands of
Canadian dollars - unaudited)
Three months
ended
|
Note
|
|
June
28 2020
|
|
June 30
2019
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
Net
income
|
|
|
$
|
9,754
|
|
$
|
16,414
|
Items not involving
cash
|
|
|
|
|
|
|
|
Depreciation of
property, plant and equipment
|
|
|
|
3,652
|
|
|
3,546
|
Amortization of
right-of-use assets
|
7
|
|
|
4,120
|
|
|
3,738
|
Amortization of
intangible assets
|
|
|
|
10,286
|
|
|
11,355
|
Deferred income
taxes
|
13
|
|
|
(1,593)
|
|
|
(196)
|
Other items not
involving cash
|
|
|
|
(668)
|
|
|
6,198
|
Stock-based
compensation
|
14
|
|
|
1,636
|
|
|
3,638
|
|
|
|
|
27,187
|
|
|
44,693
|
Change in non-cash
operating working capital
|
|
|
|
19,802
|
|
|
(84,712)
|
Cash flows
provided by (used in) operating activities
|
|
|
$
|
46,989
|
|
$
|
(40,019)
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
Acquisition of
property, plant and equipment
|
|
|
$
|
(3,997)
|
|
$
|
(6,415)
|
Acquisition of
intangible assets
|
|
|
|
(1,741)
|
|
|
(2,933)
|
Proceeds from
disposal of property, plant and
equipment
|
|
|
|
2,647
|
|
|
46
|
Cash flows used in
investing activities
|
|
|
$
|
(3,091)
|
|
$
|
(9,302)
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
Restricted
cash
|
|
|
$
|
(51)
|
|
$
|
––
|
Bank
indebtedness
|
|
|
|
177
|
|
|
836
|
Repayment of
long-term debt
|
|
|
|
(55,035)
|
|
|
(16,958)
|
Proceeds from
long-term debt
|
|
|
|
55,080
|
|
|
19
|
Proceeds from
exercise of stock options
|
|
|
|
2,269
|
|
|
739
|
Principal lease
payments
|
|
|
|
(3,771)
|
|
|
(3,290)
|
Cash flows used in
financing
activities
|
|
|
$
|
(1,331)
|
|
$
|
(18,654)
|
|
|
|
|
|
|
|
|
Effect of exchange
rate changes on cash and cash
equivalents
|
|
|
|
(2,655)
|
|
|
(1,703)
|
|
|
|
|
|
|
|
|
Increase (decrease)
in cash and cash
equivalents
|
|
|
|
39,912
|
|
|
(69,678)
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents, beginning of period
|
|
|
|
358,645
|
|
|
224,540
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents, end of period
|
|
|
$
|
398,557
|
|
$
|
154,862
|
|
|
|
|
|
|
|
|
Supplemental
information
|
|
|
|
|
|
|
|
Cash income taxes
paid
|
|
|
$
|
2,886
|
|
$
|
4,171
|
Cash interest
paid
|
|
|
$
|
13,689
|
|
$
|
12,429
|
SOURCE ATS Automation Tooling Systems Inc.