CAMBRIDGE, ON, Nov. 4, 2020 /CNW/ - ATS Automation Tooling
Systems Inc. (TSX: ATA) ("ATS" or the "Company") today reported its
financial results for the three and six months ended September 27, 2020.
Second quarter highlights:
- Revenues decreased 2% to $335.5
million.
- Earnings from operations were $23.4
million (7% operating margin), compared to $31.7 million (9% operating margin) a year ago.
Adjusted earnings from operations1 were $40.1 million (12% margin), compared to
$42.5 million (12% margin) a year
ago.
- EBITDA1 was $41.5
million (12% EBITDA margin), compared to $49.8 million (15% EBITDA margin) a year
ago.
- Earnings per share were 13 cents
basic and diluted compared to 21
cents a year ago.
- Adjusted basic earnings per share1 were 26 cents compared to 29
cents a year ago.
- Order Bookings were $403 million,
26% higher than a year ago.
- Order Backlog increased 1% to $956
million at September 27, 2020
compared to $945 million a year
ago.
"Second quarter performance featured strong Order Bookings,
particularly in Life Sciences which accounted for 61% of our Order
Backlog at period end, and the Consumer market including food,"
said Andrew Hider, Chief Executive
Officer. "Operationally, our teams delivered exceptional work for
our customers despite challenging conditions that reduced revenues
in our after-sales services business and overall efficiency. We
have adjusted to operate in this new climate and our significant
Order Backlog and strong balance sheet position us well to execute
our value creation strategy, build, grow and
expand."
Year-to-date highlights:
- Revenues decreased 3% to $660.4
million.
- Earnings from operations were $44.5
million (7% operating margin), compared to $60.3 million (9% operating margin) in the prior
year. Adjusted earnings from operations1 were
$69.8 million (11% margin), compared
to $80.6 million (12% margin) in the
prior year.
- EBITDA1 was $80.7
million (12% EBITDA margin), compared to $97.0 million (14% EBITDA margin) in the prior
year.
- Earnings per share was 23 cents
basic and diluted compared to 39
cents in the prior year.
- Adjusted basic earnings per share1 were 43 cents compared to 55
cents a year ago.
- Order Bookings were $728 million,
compared to $744 million a year
ago.
Mr. Hider added, "Despite the pandemic, our results in the first
half of fiscal 2021 reflect solid Order Bookings, revenues and
operating margins. Going forward, we will continue to drive
improvement in our operations. In September, we initiated a
reorganization plan that will streamline our transportation
business once complete. We opened the ATS Innovation Centre and we
secured the first assignment for our new SymphoniTM
digital manufacturing technology that will enhance the productivity
of a customer's automated assembly processes. By investing in
innovation and product development and focusing on growth areas, we
bring increased value to our customers with the goal of creating
long-term shareholder value."
Financial results
(In millions of dollars unless
otherwise stated)
|
3 months ended
September 27, 2020
|
3 months
ended
September 29,
2019
|
6 months
ended
September 27,
2020
|
6 months
ended
September 29,
2019
|
Revenues
|
$
|
335.5
|
$
|
341.2
|
$
|
660.4
|
$
|
680.5
|
Earnings from
operations
|
$
|
23.4
|
$
|
31.7
|
$
|
44.5
|
$
|
60.3
|
Adjusted earnings
from operations1
|
$
|
40.1
|
$
|
42.5
|
$
|
69.8
|
$
|
80.6
|
EBITDA1
|
$
|
41.5
|
$
|
49.8
|
$
|
80.7
|
$
|
97.0
|
Net
income
|
$
|
11.6
|
$
|
19.3
|
$
|
21.4
|
$
|
35.7
|
Adjusted basic
earnings per share1
|
$
|
0.26
|
$
|
0.29
|
$
|
0.43
|
$
|
0.55
|
Basic and diluted
earnings per
share
|
$
|
0.13
|
$
|
0.21
|
$
|
0.23
|
$
|
0.39
|
1 Non-IFRS
measure: see "Notice to Reader: Non-IFRS Measures and Additional
IFRS Measures".
|
Second quarter summary
Fiscal 2021 second quarter
revenues were 2% lower than in the corresponding period a year ago
and included $8.6 million of revenues
earned by acquired companies. Excluding acquired companies, second
quarter revenues decreased $14.3
million, or 4% compared to the corresponding period a year
ago. Revenues from services decreased 9% due primarily to travel
restrictions and temporary closures and entry restrictions at some
customer sites. Revenues from the sale of goods decreased 9% due
primarily to lower after-sales services activity. This was
partially offset by a 3% increase in revenues generated by
construction contracts primarily due to the timing of program
completion and contributions by acquired companies. Foreign
exchange rate changes positively impacted the translation of
revenues earned by foreign-based subsidiaries by approximately 3%
compared to the corresponding period a year ago, primarily
reflecting the weakening of the Canadian dollar relative to the
Euro.
By market, revenues generated in life sciences decreased 5% on
lower Order Backlog entering the second quarter of fiscal 2021 due
to timing of customer projects. Revenues in transportation
decreased 8% on lower Order Backlog entering the second quarter of
fiscal 2021 due to a downturn in the transportation market brought
on by the COVID-19 pandemic. Revenues generated in consumer
products increased 31%, primarily on revenues earned by acquired
companies. Revenues in energy decreased 14% due to timing of
customer projects, primarily in the nuclear market.
Fiscal 2021 second quarter earnings from operations were 23.4
million (7% operating margin) compared to $31.7 million (9% operating margin) in the second
quarter a year ago. Earnings from operations included $8.6 million related to amortization of
acquisition-related intangible assets and $8.1 million of restructuring charges incurred as
part of the Company's reorganization plan (see "Reorganization
Plan"), compared to $8.8 million of
amortization of acquisition-related intangible assets and
$2.0 million of restructuring costs
in the comparable period a year ago.
Excluding amortization of acquisition-related intangible assets
and restructuring charges in both comparable quarters, adjusted
earnings from operations were $40.1
million (12% margin), compared to $42.5 million (12% margin) a year ago. Lower
second quarter fiscal 2021 adjusted earnings from operations
reflected higher stock compensation expenses and higher selling,
general and administrative expenses, partially offset by improved
gross margin. In the second quarter, the Company benefited from
payments received under the Canadian Emergency Wage Subsidy
("CEWS") program of $3.7 million, of
which $2.7 million was recorded in
Cost of Sales and $1.0 million was
recorded in selling, general and administrative expenses. 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.
Depreciation and amortization expense was $18.1 million in both the second quarter of
fiscal 2021, and the comparable period a year ago.
EBITDA was $41.5 million (12%
EBITDA margin) in the second quarter of fiscal 2021, compared to
$49.8 million (15% EBITDA margin) in
the second quarter of fiscal 2020. Lower EBITDA reflected lower
revenues due to lower after-sales services revenues, higher
restructuring expenses and higher stock compensation expenses
compared to a year ago, partially offset by improved gross
margin.
Order Backlog continuity
(In millions of dollars)
|
Three Months Ended
September 27, 2020
|
Three Months Ended
September 29, 2019
|
Six Months Ended
September 27, 2020
|
Six Months Ended
September 29, 2019
|
Opening Order
Backlog
|
$
|
909
|
$
|
982
|
$
|
942
|
$
|
904
|
Revenues
|
|
(336)
|
|
(341)
|
|
(660)
|
|
(680)
|
Order
Bookings
|
|
403
|
|
321
|
|
728
|
|
744
|
Order Backlog
adjustments1
|
|
(20)
|
|
(17)
|
|
(54)
|
|
(23)
|
Total
|
$
|
956
|
$
|
945
|
$
|
956
|
$
|
945
|
1 Order Backlog adjustments include
foreign exchange adjustments, scope changes and
cancellations.
|
Order Bookings
Second quarter fiscal 2021 Order
Bookings were $403 million, a 26%
increase compared to the second quarter of fiscal 2020. Excluding
Order Bookings from acquired companies, second quarter fiscal 2021
Order Bookings were $392 million, a
22% year-over-year increase. By market, higher Order Bookings in
life sciences primarily related to medical device programs and
critical life sciences products to aid in the fight against
COVID-19. Higher Order Bookings in consumer products
primarily reflected Order Bookings of acquired companies and timing
of customer decisions. Order Bookings in transportation and energy
decreased as customers paused to assess the impact of the pandemic
on their operations and address related health and safety issues.
Foreign exchange rate changes positively impacted the translation
of Order Bookings from foreign-based ATS subsidiaries by
approximately 3% compared to the corresponding period a year ago,
primarily reflecting the weakening of the Canadian dollar relative
to the Euro.
Order Backlog
At September 27,
2020, Order Backlog was $956
million, 1% higher than at September
29, 2019 primarily driven by higher Order Bookings in the
life sciences and consumer products markets. The Company has not
experienced any material cancellations to date.
Reorganization Plan
In September, the Company
announced a reorganization plan to help mitigate the expected
impact of a downturn in transportation markets brought on by the
COVID-19 pandemic. The reorganization plan is expected to align the
capacity and cost structure of ATS' transportation business to
current and expected conditions. The reorganization is expected to
be completed by the end of the fiscal year and includes the sale of
certain assets and the transfer of employees from a German-based
subsidiary that was completed in October
2020. Management expects to incur restructuring costs of
approximately $14 million in fiscal
2021 which represents a decrease from the expected $24 million cost of the restructuring plan due to
the sale of the German-based subsidiary. The Company recorded an
initial $8.1 million charge in the
second quarter.
Quarterly Conference Call
ATS' quarterly conference
call begins at 10:00 a.m. eastern on
Wednesday, November 4, 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 November 11,
2020) by dialing (416) 849-0833 and entering passcode
6876432 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 4,200 people at 20
manufacturing facilities and over 50 offices in North America, Europe, Southeast
Asia and China. The
Company's shares are traded on the Toronto Stock Exchange under the
symbol ATA. Visit the Company's website at
www.atsautomation.com.
Management's Discussion and Analysis
For the Quarter
Ended September 27, 2020
This Management's Discussion and Analysis ("MD&A") for
the three and six months ended September 27,
2020 (second quarter of fiscal 2021) is as of November 3, 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 second 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 second 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- and six-month periods ended September 27, 2020 and September 29, 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 six-month periods ended September 27, 2020 and September 29, 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 4,200 people at 20
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)
Revenues by
market
|
Three Months Ended
September 27, 2020
|
Three Months Ended
September 29, 2019
|
Six Months Ended
September 27, 2020
|
Six Months Ended
September 29, 2019
|
Life
sciences
|
$
|
181.9
|
$
|
191.1
|
$
|
363.4
|
$
|
362.9
|
Transportation
|
|
71.2
|
|
77.8
|
|
138.3
|
|
164.7
|
Consumer
products
|
|
59.0
|
|
45.2
|
|
107.2
|
|
99.0
|
Energy
|
|
23.4
|
|
27.1
|
|
51.5
|
|
53.9
|
Total
revenues
|
$
|
335.5
|
$
|
341.2
|
$
|
660.4
|
$
|
680.5
|
Fiscal 2021 second quarter revenues were 2% lower than in
the corresponding period a year ago and included $8.6 million of revenues earned by acquired
companies. Excluding acquired companies, second quarter revenues
decreased $14.3 million, or 4%
compared to the corresponding period a year ago. Revenues from
services decreased 9% due primarily to travel restrictions and
temporary closures and entry restrictions at some customer sites.
Revenues from the sale of goods decreased 9% due primarily to lower
after-sales services activity. This was partially offset by a 3%
increase in revenues generated by construction contracts primarily
due to the timing of program completion and contributions by
acquired companies. Foreign exchange rate changes positively
impacted the translation of revenues earned by foreign-based
subsidiaries by approximately 3% compared to the corresponding
period a year ago, primarily reflecting the weakening of the
Canadian dollar relative to the Euro.
By market, revenues generated in life sciences decreased 5% on
lower Order Backlog entering the second quarter of fiscal 2021 due
to timing of customer projects. Revenues in transportation
decreased 8% on lower Order Backlog entering the second quarter of
fiscal 2021 due to a downturn in the transportation market brought
on by the COVID-19 pandemic. Revenues generated in consumer
products increased 31%, primarily on revenues earned by acquired
companies. Revenues in energy decreased 14% due to timing of
customer projects, primarily in the nuclear market.
Year-to-date
Revenues for the six months ended
September 27, 2020 were $660.4 million, 3% lower than in the
corresponding period a year ago and included $16.6 million of revenues earned by acquired
companies. Excluding acquired companies, revenues were $643.8 million, a 5% decrease over the
corresponding period a year ago due primarily to travel
restrictions and temporary closures and entry restrictions at some
customer sites. Revenues from services and sale of goods decreased
14% and 17%, respectively, compared to the corresponding period a
year ago. This was partially offset by a 5% increase in revenues
generated from construction contracts. Foreign exchange rate
changes positively impacted the translation of revenues earned by
foreign-based subsidiaries by approximately 2% compared to the
corresponding period a year ago, primarily reflecting the weakening
of the Canadian dollar relative to the Euro.
By market, fiscal 2021 year-to-date revenues from life sciences
markets remained flat. Revenues in transportation decreased 16% due
to a downturn in the market brought on by the COVID-19 pandemic.
Consumer products revenues increased 8% compared to a year ago,
primarily on revenues earned by acquired companies. Energy
revenues decreased 4% compared to a year ago, primarily due to
timing of projects in the nuclear market.
Consolidated Operating Results
(In millions of
dollars)
|
Three Months Ended
September 27, 2020
|
Three Months Ended
September 29, 2019
|
Six Months Ended
September 27, 2020
|
Six Months Ended
September 29, 2019
|
Earnings from
operations
|
$
|
23.4
|
$
|
31.7
|
$
|
44.5
|
$
|
60.3
|
Amortization of
acquisition-related intangible assets
|
|
8.6
|
|
8.8
|
|
17.2
|
|
18.3
|
Restructuring
charges
|
|
8.1
|
|
2.0
|
|
8.1
|
|
2.0
|
Adjusted earnings
from operations1
|
$
|
40.1
|
$
|
42.5
|
$
|
69.8
|
$
|
80.6
|
1 See
"Notice to Reader: Non-IFRS Measures and Additional IFRS
Measures."
|
|
Three Months Ended
September 27, 2020
|
Three Months Ended
September 29, 2019
|
Six Months Ended
September 27, 2020
|
Six Months Ended
September 29, 2019
|
Earnings from
operations
|
$
|
23.4
|
$
|
31.7
|
$
|
44.5
|
$
|
60.3
|
Depreciation and
amortization
|
|
18.1
|
|
18.1
|
|
36.2
|
|
36.7
|
EBITDA2
|
$
|
41.5
|
$
|
49.8
|
$
|
80.7
|
$
|
97.0
|
2 See
"Notice to Reader: Non-IFRS Measures and Additional IFRS
Measures."
|
Fiscal 2021 second quarter earnings from operations were 23.4
million (7% operating margin) compared to $31.7 million (9% operating margin) in the second
quarter a year ago. Earnings from operations included $8.6 million related to amortization of
acquisition-related intangible assets and $8.1 million of restructuring charges incurred as
part of the Company's reorganization plan (see "Reorganization
Plan"), compared to $8.8 million of
amortization of acquisition-related intangible assets and
$2.0 million of restructuring costs
in the comparable period a year ago.
Excluding amortization of acquisition-related intangible assets
and restructuring charges in both comparable quarters, adjusted
earnings from operations were $40.1
million (12% margin), compared to $42.5 million (12% margin) a year ago. Lower
second quarter fiscal 2021 adjusted earnings from operations
reflected higher stock compensation expenses and higher selling,
general and administrative expenses, partially offset by improved
gross margin. In the second quarter, the Company benefited from
payments received under the Canadian Emergency Wage Subsidy
("CEWS") program of $3.7 million, of
which $2.7 million was recorded in
Cost of Sales and $1.0 million was
recorded in selling, general and administrative expenses. 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.
Depreciation and amortization expense was $18.1 million in both the second quarter of
fiscal 2021, and the comparable period a year ago.
EBITDA was $41.5 million (12% EBITDA
margin) in the second quarter of fiscal 2021, compared to
$49.8 million (15% EBITDA margin) in
the second quarter of fiscal 2020. Lower EBITDA reflected lower
revenues due to lower after-sales services revenues, higher
restructuring expenses and higher stock compensation expenses
compared to a year ago, partially offset by improved gross
margin.
Year-to-date
For the six months ended September 27,
2020, earnings from operations were $44.5 million (7% operating margin), compared to
$60.3 million (9% operating margin)
in the corresponding period a year ago. Excluding $17.2 million related to amortization of
acquisition-related intangible assets and $8.1 million of restructuring costs, adjusted
earnings from operations were $69.8
million (11% operating margin) in the first six months of
fiscal 2021, compared to $80.6
million (12% operating margin) in the corresponding period a
year ago. Lower adjusted earnings from operations in the first six
months of fiscal 2021 primarily reflected lower revenues and
operational inefficiencies arising from 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 payments received under the CEWS of
$11.2 million, of which $8.3 million was recorded in Cost of Sales and
$2.9 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.
Depreciation and amortization expense was $36.2 million in the first six months of fiscal
2021 compared to $36.7 million a year
ago.
Year-to-date fiscal 2021 EBITDA was $80.7
million (12% EBITDA margin) compared to $97.0 million (14% EBITDA margin) in the first
six months of fiscal 2020. Lower EBITDA reflected lower revenues
and gross margin due to lower after-sales services revenues and
operational inefficiencies, as well as higher restructuring
expenses compared to a year ago.
Order Bookings by Quarter
Second quarter fiscal 2021
Order Bookings were $403 million, a
26% increase compared to the second quarter of fiscal 2020.
Excluding Order Bookings from acquired companies, second quarter
fiscal 2021 Order Bookings were $392
million, a 22% year-over-year increase. By market, higher
Order Bookings in life sciences primarily related to medical device
programs and critical life sciences products to aid in the fight
against COVID-19. Higher Order Bookings in consumer products
primarily reflected Order Bookings of acquired companies and timing
of customer decisions. Order Bookings in transportation and energy
decreased as customers paused to assess the impact of the pandemic
on their operations and address related health and safety issues.
Foreign exchange rate changes positively impacted the translation
of Order Bookings from foreign-based ATS subsidiaries by
approximately 3% compared to the corresponding period a year ago,
primarily reflecting the weakening of the Canadian dollar relative
to the Euro.
Order Backlog Continuity
(In millions of dollars)
|
Three Months Ended
September 27, 2020
|
Three Months Ended
September 29, 2019
|
Six Months Ended
September 27, 2020
|
Six Months Ended
September 29, 2019
|
Opening Order
Backlog
|
$
|
909
|
$
|
982
|
$
|
942
|
$
|
904
|
Revenues
|
|
(336)
|
|
(341)
|
|
(660)
|
|
(680)
|
Order
Bookings
|
|
403
|
|
321
|
|
728
|
|
744
|
Order Backlog
adjustments1
|
|
(20)
|
|
(17)
|
|
(54)
|
|
(23)
|
Total
|
$
|
956
|
$
|
945
|
$
|
956
|
$
|
945
|
1 Order Backlog adjustments include
foreign exchange adjustments, scope changes and
cancellations.
|
Order Backlog by Market
(In millions of dollars)
As
at
|
September 27,
2020
|
September 29,
2019
|
Life
sciences
|
$
|
580
|
$
|
529
|
Transportation
|
|
183
|
|
258
|
Consumer
products
|
|
94
|
|
64
|
Energy
|
|
99
|
|
94
|
Total
|
$
|
956
|
$
|
945
|
At September 27, 2020, Order
Backlog was $956 million, 1% higher
than at September 29, 2019 primarily
driven by higher Order Bookings in the life sciences and consumer
products markets. The Company has not experienced any material
cancellations to date.
Reorganization Plan
In September 2020, the Company announced a
reorganization plan to help mitigate the expected impact of a
downturn in transportation markets brought on by the COVID-19
pandemic. The reorganization plan is expected to align the capacity
and cost structure of ATS' transportation business to current and
expected conditions. The reorganization is expected to be completed
by the end of the fiscal year and includes the sale of certain
assets and the transfer of employees from a German-based subsidiary
that was completed in October 2020.
Management expects to incur restructuring costs of approximately
$14 million in fiscal 2021 which
represents a decrease from the expected $24
million cost of the restructuring plan due to the sale of
the German-based subsidiary. The Company recorded an initial
$8.1 million charge in the second
quarter.
Outlook
The outbreak of COVID-19 resulted in
governments worldwide enacting emergency measures to combat the
spread of the virus. These measures, which include the
implementation of travel restrictions, 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 several countermeasures designed to:
protect employees (including work from home protocols, in-plant
physical distancing requirements and shift work); ensure work on
customer projects progress; 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 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 robust, with normal
activity supplemented by opportunities related to the fight against
the COVID-19 virus. Other activity in medical devices,
pharmaceuticals and radiopharmaceuticals has improved. 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. The Company has initiated a
reorganization plan to help address the expected decreases in
revenues as a result of these conditions (see "Reorganization
Plan"). Funnel activity in energy is variable and this market
provides niche opportunities for ATS. Funnel activity in consumer
products has improved, but management expects customers to be
cautious in deploying capital in this market in the current
economic environment. Improvement in the Company's second quarter
Order Bookings has resulted in a strong Order Backlog of
$956 million that will partially
mitigate the potential 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 has
remained on hold since the fourth quarter of fiscal 2020 and
impacted approximately $10 million of
the Company's reported Order Backlog. In the third quarter of
fiscal 2021, management expects the conversion of Order Backlog to
revenues to be in the 35% to 40% range. Inefficiencies as a result
of travel restrictions, constrained access to customer facilities
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
anticipated timing for the receipt of third-party component
supplies.
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
after-sales 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. Improvements were made in
generating revenues from the Company's after-sales service business
in the second fiscal quarter compared to the first fiscal quarter,
but conditions remain challenging due to on-going travel
restrictions and some customers limiting access to their
facilities.
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 limited access to customer facilities have
disrupted some 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 the CEWS program in the first and second quarters
due to lower revenues in its Canadian operations. The Canadian
government has extended the CEWS program until December 2020, with a proposal to extend the
program further to June 2021, albeit
at a lower recovery rate.
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 developing the ABM. In fiscal 2021,
management expects that any positive impact of 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. The Company's goal is to maintain its
investment in non-cash working capital as a percentage of
annualized revenues below 15%.
The Company expects that continued cash flows from operations,
together with cash and cash equivalents on hand and credit
available under operating and long-term credit facilities, will be
sufficient to: 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
September 27, 2020
|
Three Months Ended
September 29, 2019
|
Six Months Ended
September 27, 2020
|
Six Months Ended
September 29, 2019
|
Revenues
|
$
|
335.5
|
$
|
341.2
|
$
|
660.4
|
$
|
680.5
|
Cost of
revenues
|
|
244.3
|
|
251.6
|
|
490
|
|
499.3
|
Selling, general and
administrative
|
|
58.7
|
|
56.9
|
|
115.2
|
|
116.2
|
Restructuring
costs
|
|
8.1
|
|
2.0
|
|
8.1
|
|
2.0
|
Stock-based
compensation
|
|
1.0
|
|
(1.0)
|
|
2.6
|
|
2.7
|
Earnings from
operations
|
$
|
23.4
|
$
|
31.7
|
$
|
44.5
|
$
|
60.3
|
Net finance
costs
|
$
|
8.0
|
$
|
6.7
|
$
|
16.2
|
$
|
13.9
|
Provision for income
taxes
|
|
3.8
|
|
5.7
|
|
6.9
|
|
10.7
|
Net
income
|
$
|
11.6
|
$
|
19.3
|
$
|
21.4
|
$
|
35.7
|
Basic and diluted
earnings per share
|
$
|
0.13
|
$
|
0.21
|
$
|
0.23
|
$
|
0.39
|
Revenues. At $335.5
million, consolidated revenues for the second quarter of
fiscal 2021 were $5.7 million or 2%
lower than in the corresponding period a year ago. At $660.4 million, year-to-date consolidated
revenues were $20.1 million, or 3%
lower than in the corresponding period a year ago (see "Overview –
Operating Results").
Cost of revenues. At $244.3
million, second quarter fiscal 2021 cost of revenues
decreased by $7.3 million, or 3%,
compared to the corresponding period a year ago, primarily due to
lower revenues. Year-to-date cost of revenues of $490.0 million decreased $9.3 million, or 2%, compared to the prior year,
primarily due to lower revenues. Gross margin was 27% for the
second quarter of fiscal 2021, compared to 26% in the corresponding
period a year ago, due primarily to $2.7
million of payments received under the CEWS program that
offset operational inefficiencies related to the COVID-19 pandemic,
efficiency gains from the Company's previously implemented
reorganization plan and improved program execution. Year-to-date
gross margin was 26%, 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 $8.3 million of
payments received under the CEWS program.
Selling, general and administrative ("SG&A")
expenses. SG&A expenses were $58.7
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 $50.1 million
in the second quarter of fiscal 2021. Comparably, SG&A expenses
for the second quarter of fiscal 2020 were $48.1 million, which excluded $8.8 million of costs related to the amortization
of identifiable intangible assets recorded on business
acquisitions. Higher SG&A expenses in the second quarter of
fiscal 2021 primarily reflected SG&A costs from acquired
companies, increased employee costs and foreign exchange
translation, partially offset by the benefit of the fiscal 2020
reorganization, $1.0 million of
payments received under the CEWS program and cost containment
measures.
For the six months ended September 27,
2020, SG&A expenses were $115.2
million, which included $17.2
million of expenses related to the amortization of
identifiable intangible assets on business acquisitions. Excluding
these costs, year-to-date SG&A expenses were $98.0 million. Comparably, SG&A expenses for
the six months ended September 29,
2019 were $97.9 million, which
excluded $18.3 million of expenses
related to the amortization of identifiable intangible assets on
business acquisitions.
Restructuring costs. For the three- and six-months ended
September 27, 2020, restructuring
costs were $8.1 million, compared to
restructuring costs of $2.0 million
in the corresponding periods a year ago (see "Reorganization
Plan").
Stock-based compensation. Stock-based compensation
expense was $1.0 million compared to
a stock-based compensation recovery of $1.0
million in the corresponding period a year ago. For the
six-month period ended September 27,
2020, stock-based compensation expense was $2.6 million, compared to $2.7 million a year earlier.
Earnings from operations. For the three- and
six-month periods ended September 27,
2020, earnings from operations were $23.4 million (7% operating margin) and
$44.5 million (7% operating margin),
respectively, compared to earnings from operations of $31.7 million (9% operating margin) and
$60.3 million (9% operating margin)
in the corresponding periods a year ago (see "Overview – Operating
Results").
Net finance costs. Net finance costs were
$8.0 million in the second quarter of
fiscal 2021, compared to $6.7 million
a year ago. For the six months ended September 27, 2020, finance costs were
$16.2 million compared to
$13.9 million in the corresponding
period a year ago. Higher interest expense in the three- and
six-month periods ended September 27,
2020 was due to a $250.0
million cash draw on the Company's senior secured credit
facility at the end of March 2020,
which was repaid in the second quarter of fiscal 2021.
Income tax provision. For the three and six months ended
September 27, 2020, the Company's
effective income tax rates of 25% and 24%, respectively, differed
from the combined Canadian basic federal and provincial income tax
rate of 27% primarily due to income earned in certain jurisdictions
with different statutory tax rates.
Net income. Fiscal 2021 second quarter net income
was $11.6 million (13 cents per share basic and diluted) compared to
$19.3 million (21 cents per share basic and diluted) for the
second quarter of fiscal 2020. Adjusted basic earnings per share
were 26 cents compared to
29 cents in the second quarter of
fiscal 2020 (see "Reconciliation of non-IFRS measures to IFRS
measures").
Net income for the six months ended September 27, 2020 was $21.4 million (23
cents per share basic and diluted) compared to $35.7 million (39
cents per share basic and diluted) for the corresponding
period a year ago. Adjusted basic earnings per share were
43 cents in the six months ended
September 27, 2020 compared to
55 cents in the corresponding period
a year ago (see "Reconciliation of non-IFRS measures to IFRS
measures").
Reconciliation of Non-IFRS Measures to IFRS
Measures
(In millions of dollars, except per share data)
The following table reconciles EBITDA to the most directly
comparable IFRS measure (net income):
|
Three Months Ended
September 27, 2020
|
Three Months Ended
September 29, 2019
|
Six Months Ended
September 27, 2020
|
Six Months Ended
September 29, 2019
|
EBITDA
|
$
|
41.5
|
$
|
49.8
|
$
|
80.7
|
$
|
97.0
|
Less: depreciation
and amortization expense
|
18.1
|
|
18.1
|
|
36.2
|
|
36.7
|
Earnings from
operations
|
$
|
23.4
|
$
|
31.7
|
$
|
44.5
|
$
|
60.3
|
Less: net finance
costs
|
8.0
|
|
6.7
|
|
16.2
|
|
13.9
|
Provision for income
taxes
|
3.8
|
|
5.7
|
|
6.9
|
|
10.7
|
Net
income
|
$
|
11.6
|
$
|
19.3
|
$
|
21.4
|
$
|
35.7
|
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
September 27, 2020
|
Three Months Ended
September 29, 2019
|
|
IFRS
|
Adjustments
|
Adjusted
(non-IFRS)
|
IFRS
|
Adjustments
|
Adjusted
(non-IFRS)
|
Earnings from
operations
|
$
|
23.4
|
$
|
––
|
$
|
23.4
|
$
|
31.7
|
$
|
––
|
$
|
31.7
|
Amortization of
acquisition-
related intangible assets
|
|
––
|
|
8.6
|
|
8.6
|
|
––
|
|
8.8
|
|
8.8
|
Restructuring
charges
|
|
––
|
|
8.1
|
|
8.1
|
|
––
|
|
2.0
|
|
2.0
|
|
$
|
23.4
|
$
|
16.7
|
$
|
40.1
|
$
|
31.7
|
$
|
10.8
|
$
|
42.5
|
Less: net finance
costs
|
$
|
8
|
$
|
––
|
$
|
8
|
$
|
6.7
|
$
|
––
|
$
|
6.7
|
Income before
income taxes
|
$
|
15.4
|
$
|
16.7
|
$
|
32.1
|
$
|
25
|
$
|
10.8
|
$
|
35.8
|
Provision for income
taxes
|
$
|
3.8
|
$
|
––
|
$
|
3.8
|
$
|
5.7
|
$
|
––
|
$
|
5.7
|
Adjustment to
provision for income taxes1
|
––
|
|
4.5
|
|
4.5
|
|
––
|
|
3.0
|
|
3.0
|
|
$
|
3.8
|
$
|
4.5
|
$
|
8.3
|
$
|
5.7
|
$
|
3.0
|
$
|
8.7
|
Net
income
|
$
|
11.6
|
$
|
12.2
|
$
|
23.8
|
$
|
19.3
|
$
|
7.8
|
$
|
27.1
|
Basic earnings per
share
|
$
|
0.13
|
$
|
0.13
|
$
|
0.26
|
$
|
0.21
|
$
|
0.08
|
$
|
0.29
|
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.
|
|
Six Months Ended
September 27, 2020
|
Six Months Ended
September 29, 2019
|
|
IFRS
|
Adjustments
|
Adjusted
(non-IFRS)
|
IFRS
|
Adjustments
|
Adjusted
(non-IFRS)
|
Earnings from
operations
|
$
|
44.5
|
$
|
––
|
$
|
44.5
|
$
|
60.3
|
$
|
––
|
$
|
60.3
|
Amortization of
acquisition-related intangible assets
|
––
|
|
17.2
|
|
17.2
|
|
––
|
|
18.3
|
|
18.3
|
Restructuring
charges
|
––
|
|
8.1
|
|
8.1
|
|
––
|
|
2.0
|
|
2.0
|
|
$
|
44.5
|
$
|
25.3
|
$
|
69.8
|
$
|
60.3
|
$
|
20.3
|
$
|
80.6
|
Less: net finance
costs
|
$
|
16.2
|
$
|
––
|
$
|
16.2
|
$
|
13.9
|
$
|
––
|
$
|
13.9
|
Income before
income taxes
|
$
|
28.3
|
$
|
25.3
|
$
|
53.6
|
$
|
46.4
|
$
|
20.3
|
$
|
66.7
|
Provision for income
taxes
|
$
|
6.9
|
$
|
––
|
$
|
6.9
|
$
|
10.7
|
$
|
––
|
$
|
10.7
|
Adjustment to
provision for income taxes1
|
––
|
|
6.9
|
|
6.9
|
|
––
|
|
5.5
|
|
5.5
|
|
$
|
6.9
|
$
|
6.9
|
$
|
13.8
|
$
|
10.7
|
$
|
5.5
|
$
|
16.2
|
Net
income
|
$
|
21.4
|
$
|
18.4
|
$
|
39.8
|
$
|
35.7
|
$
|
14.8
|
$
|
50.5
|
Basic earnings per
share
|
$
|
0.23
|
$
|
0.2
|
$
|
0.43
|
$
|
0.39
|
$
|
0.16
|
$
|
0.55
|
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
|
|
September 27,
2020
|
March 31,
2020
|
Cash and cash
equivalents
|
|
$
|
162.6
|
$
|
358.6
|
Debt-to-equity
ratio1
|
|
0.49:1
|
|
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.
|
|
Three Months Ended
September 27, 2020
|
Three Months Ended
September 29, 2019
|
Six Months Ended
September 27, 2020
|
Six Months Ended
September 29, 2019
|
Cash flows provided
by operating activities
|
$
|
20.3
|
$
|
57.6
|
$
|
67.3
|
$
|
17.6
|
At September 27, 2020, the Company
had cash and cash equivalents of $162.6
million compared to $358.6
million at March 31, 2020. At
September 27, 2020, the Company's
debt-to-total equity ratio was 0.49:1 and reflected $250.0 million repaid under the Company's senior
secured credit facility.
In the second quarter of fiscal 2021, cash flows provided by
operating activities were $20.3
million ($57.6 million
provided by operating activities in the second quarter 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. In the six months ended September 27, 2020, cash flows provided by
operating activities were $67.3
million ($17.6 million
provided by operating activities in the corresponding period a year
ago). The increase in operating cash flows related primarily to the
timing of investments in non-cash working capital in certain
customer programs.
In the second quarter of fiscal 2021, the Company's investment
in non-cash working capital increased by $8.2 million from June 28,
2020. On a year-to-date basis, investment in non-cash
working capital decreased $11.6
million. Accounts receivable decreased by 21%, or
$60.6 million, and net contracts in
progress increased 14%, or $16.2
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 and collection efforts. Inventories
increased 8%, or $5.6 million,
primarily due to an increase in work-in-process on certain customer
projects. Deposits and prepaid assets increased 3%, or $0.9 million, compared to March 31, 2020 due to the timing of program
execution. Accounts payable and accrued liabilities decreased 12%,
or $33.5 million, compared to
March 31, 2020. Provisions decreased
5%, or $1.5 million, compared to
March 31, 2020, due to payments in
the first six months of fiscal 2021 related to the Company's
reorganization plan.
Cash investments in property, plant and equipment totalled
$5.9 million in the first six months
of fiscal 2021, primarily related to the expansion and improvement
of certain manufacturing facilities.
Intangible assets expenditures were $5.6
million in the first six months of fiscal 2021 and
primarily related to computer software and various internal
development projects.
At September 27, 2020, the Company
had $754.1 million of unutilized
multipurpose credit, including letters of credit, available under
existing credit facilities and an additional $62.1 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 September 27,
2020, the Company had utilized $21.3
million under the Credit Facility, of which $nil was
classified as long-term debt (March 31,
2020 - $250.0 million) and
$21.3 million by way of letters of
credit (March 31, 2020 - $149.4 million).
The Credit Facility is available in Canadian dollars by way of
prime rate advances and/or bankers' acceptances, in U.S. dollars by
way of base rate advances and/or LIBOR advances, in Swiss francs,
Euros and British pounds sterling by way of LIBOR advances and by
way of letters of credit for certain purposes in Canadian dollars,
U.S. dollars and Euros. The interest rates applicable to the Credit
Facility are determined based on a net debt-to-EBITDA ratio as
defined in the Credit Facility. For prime rate advances and
base rate advances, the interest rate is equal to the bank's prime
rate or the bank's U.S. dollar base rate in Canada, respectively, plus a margin ranging
from 0.95% 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 September 27,
2020, all covenants were met.
The Company has additional credit facilities available of
$31.2 million (10.1 million Euros, $10.0
million U.S., 50.0 million Thai
Baht and 1.0 million Czech Koruna). The total amount
outstanding on these facilities at September
27, 2020 was $5.6
million, of which $5.5 million
was classified as bank indebtedness (March
31, 2020 - $4.6 million) and
$0.1 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 6.50% 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 September 27, 2020, all 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 term of the Senior Notes.
Contractual Obligations
(In millions of dollars)
The Company's minimum
purchase obligations are as follows as at September 27,
2020:
|
|
|
Less than one
year
|
|
|
$
|
146.7
|
One – two
years
|
|
|
|
4.6
|
Two – three
years
|
|
|
|
1.0
|
Three – four
years
|
|
|
|
0.3
|
Four – five
years
|
|
|
|
––
|
|
|
|
$
|
152.6
|
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 September 27, 2020, the total value of
outstanding letters of credit was approximately $192.3 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 six months of fiscal 2021,
290,103 stock options were exercised. At November 3, 2020, the total number of shares
outstanding was 92,168,452, and there were 974,913 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 September 27, 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 six 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
|
|
Six
Months Ended
|
|
|
September 27,
2020
|
September 29,
2019
|
% change
|
September 27,
2020
|
September 29,
2019
|
% change
|
U.S.
dollar
|
1.331
|
1.321
|
0.8%
|
1.359
|
1.329
|
2.3%
|
Euro
|
1.557
|
1.468
|
6.1%
|
1.541
|
1.486
|
3.7%
|
CONSOLIDATED QUARTERLY RESULTS
(In millions of
dollars, except per share amounts)
|
Q2
2021
|
Q1 2021
|
Q4 2020
|
Q3 2020
|
Q2 2020
|
Q1 2020
|
Q4 2019
|
Q3 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
335.5
|
$
|
324.9
|
$
|
382.1
|
$
|
367.2
|
$
|
341.2
|
$
|
339.2
|
$
|
348.6
|
$
|
321.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from
operations
|
$
|
23.4
|
$
|
21.1
|
$
|
24.9
|
$
|
10.4
|
$
|
31.7
|
$
|
28.6
|
$
|
30.3
|
$
|
38.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted earnings
from operations1
|
$
|
40.1
|
$
|
29.7
|
$
|
39.3
|
$
|
37.5
|
$
|
42.5
|
$
|
38
|
$
|
38.2
|
$
|
46.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
11.6
|
$
|
9.8
|
$
|
13.1
|
$
|
4.1
|
$
|
19.3
|
$
|
16.4
|
$
|
18.2
|
$
|
25.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
earnings per share
|
$
|
0.13
|
$
|
0.11
|
$
|
0.14
|
$
|
0.04
|
$
|
0.21
|
$
|
0.18
|
$
|
0.2
|
$
|
0.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted basic
earnings per share1
|
$
|
0.26
|
$
|
0.17
|
$
|
0.26
|
$
|
0.26
|
$
|
0.29
|
$
|
0.25
|
$
|
0.26
|
$
|
0.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Order
Bookings2
|
$
|
403
|
$
|
325
|
$
|
356
|
$
|
368
|
$
|
321
|
$
|
423
|
$
|
298
|
$
|
397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Order
Backlog3
|
$
|
956
|
$
|
909
|
$
|
942
|
$
|
939
|
$
|
945
|
$
|
982
|
$
|
904
|
$
|
926
|
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 fiscal 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 and six months ended September 27, 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
reorganization plan; 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; the CEWS program; 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 the
reorganization plan does not achieve expected results, that it
takes longer than anticipated to complete, and/or the costs of the
plan exceed current estimates; 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 CEWS program ceases to be available, that the
Company ceases to qualify, or that the benefits under the program
are other than 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; 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.
SOURCE ATS Automation Tooling Systems Inc.