ATS Reports First Quarter Fiscal 2021 Results
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 |
3 months ended |
|||
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 |
Three Months |
||||
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 |
Three Months |
||||
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 |
Three Months |
||||
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 |
Three Months |
||||
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 |
IFRS |
Adjustments |
Adjusted |
||||||||||||
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 |
Q4 |
Q3 |
Q2 |
Q1 |
Q4 |
Q3 |
Q2 |
||||||||||||||||
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 |
March 31 |
||||
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 |
June 30 |
||||
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 |
June 30 |
|||
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 |
Contributed |
Retained |
Currency |
Cash flow |
Total |
Non- |
Total |
||||||||||||||||
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 |
Contributed |
Retained |
Currency |
Cash flow |
Total |
Non- |
Total |
||||||||||||||||
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 |
June 30 |
||||
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.
Ryan McLeod, Chief Financial Officer, 519 653-6500
Share this article