ATS Reports Second Quarter Fiscal 2014 Results
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ATS Automation Tooling Systems Inc. (TSX: ATA) ("ATS" or the "Company") today reported financial results for the three and six months ended September 29, 2013 for its continuing operations (Automation Systems Group or "ASG") and discontinued operations ("Solar").
Second Quarter Summary
- Revenues from continuing operations were $154.6 million, 9% higher than fiscal 2013 second quarter revenues of $141.4 million and 3% higher than first quarter fiscal 2014 revenues of $150.0 million;
- EBITDA was $17.6 million, which included $0.9 million of acquisition related costs. Normalized for those costs, EBITDA was $18.5 million (12% EBITDA margin) compared to $16.7 million (12% EBITDA margin) in the second quarter a year ago and $18.0 million (12% EBITDA margin) in the first quarter of fiscal 2014;
- Earnings from continuing operations normalized to exclude acquisition related costs were $15.3 million (10% operating margin), compared to $13.8 million (10% operating margin) in the second quarter a year ago and $14.9 million (10% operating margin) in the first quarter of fiscal 2014;
- Normalized Basic Earnings Per Share (EPS) from continuing operations were $0.13 compared to $0.11 a year ago. Normalized Diluted EPS were $0.15, reflecting EPS from continuing operations of $0.12 and EPS from discontinued operations of $0.03, up from $0.09 a year ago;
- Order Bookings were $110 million compared to $112 million in the second quarter a year ago and $165 million in the first quarter of fiscal 2014;
- Period end Order Backlog was $355 million, down 2% from $361 million in the second quarter a year ago and down 14% from $415 million in the first quarter of fiscal 2014;
- The Company's balance sheet and financial capacity to support growth remained strong, with cash net of debt in continuing operations of $139.0 million at September 29, 2013, unutilized credit facilities of $166.7 million and $26.5 million of credit available under letter of credit facilities; and
- The Company completed its acquisition of IWK Verpackungstechnik GmbH and OYSTAR IWK USA, Inc. (collectively "IWK") subsequent to the end of the second quarter of fiscal 2014.
Fiscal 2014 second quarter revenues were 9% higher than in the corresponding period a year ago. By industrial market, revenues generated in the energy market increased 65% on higher Order Backlog entering the second quarter compared to a year ago reflecting increased activity in the nuclear and solar energy markets. Revenues from life sciences increased 21% year over year due to continued market strength and higher Order Backlog entering the second quarter compared to a year ago. Transportation revenues increased 1% compared to a year ago primarily reflecting the timing of various larger programs. Revenues generated in the consumer products & electronics markets decreased by 34% which reflected lower Order Backlog entering the second quarter compared to a year ago due to reduced activity, primarily in the consumer products market.
Fiscal 2014 second quarter EBITDA was $17.6 million (11% EBITDA margin) compared to $16.7 million (12% EBITDA margin) in the second quarter of fiscal 2013. EBITDA normalized for $0.9 million of IWK acquisition costs was $18.5 million (12% EBTIDA margin) in the second quarter. Higher normalized EBITDA primarily reflected higher revenues and lower SG&A spending, partially offset by higher stock-based compensation costs compared to the corresponding period a year ago. Depreciation and amortization expense was $3.2 million in the second quarter of fiscal 2014, compared to $2.9 million a year ago.
Earnings from operations were $14.4 million (9% operating margin) up from $13.8 million (10% operating margin) in the second quarter of fiscal 2013. Normalized for the IWK acquisition costs, second quarter fiscal 2014 earnings from operations were $15.3 million (10% operating margin).
ASG Order Bookings
Second quarter fiscal 2014 Order Bookings were $110 million, a 2% decrease from the second quarter of fiscal 2013. Lower Order Bookings primarily reflected the timing of various larger opportunities in the transportation market, partially offset by increased Order Bookings in consumer products & electronics, and in life sciences on continued strong market activity.
Business Acquisition - IWK
On September 30, 2013, subsequent to the second quarter, the Company completed its acquisition of IWK. IWK is a leader in technology driven high performance tube filling and cartoning machinery for the pharmaceutical and personal care industries. The acquisition of IWK aligns with ATS's strategy of scaling its leading position in the global automation market and enhancing growth opportunities, particularly in strategic customer segments and with technology leadership. IWK brought new relationships with key pharmaceutical and personal care customers and added core capability in primary packaging (tube fillers) and secondary packaging (cartoners), which management expects can be leveraged into other markets ATS currently serves. IWK also allows ATS to consider future acquisition possibilities that would be a strategic fit with IWK and provide the Company with deep capabilities across several core elements of the customer value chain.
In calendar 2012, IWK had revenues of approximately 82 million Euro and EBITDA of approximately 11 million Euro. Sales to customers in the pharmaceuticals and personal care sectors evenly account for over 90% of IWK worldwide revenues. New equipment systems and standard automation each account for approximately 30% of total revenues, with services accounting for the remaining 40% of total revenues. European and North American markets each account for approximately a third of revenues, Asia 25%, and the balance primarily in South America.
The Company has started to integrate IWK into ATS, where it will serve as the filling centre of excellence (primary and secondary packaging) within the Company. IWK brings a strong and experienced management team that will continue to drive the business. Opportunities to improve profitability will be pursued through improved supply chain management, better leveraging of the Company's global footprint and deploying IWK's service model and capability to all of ATS. The addition of IWK to the group also provides the Company with an opportunity to realign its operations and improve the global cost structure of its base ASG business. In this regard, the Company expects to incur charges of approximately $2.0 million in the third quarter of fiscal 2014.
The acquisition is expected to be immediately accretive to earnings per share and cash flow per share. The Company expects approximately 50% of the purchase price will be allocated to goodwill, with the majority of the remaining purchase price primarily allocated to depreciable intangible assets.
Total cash consideration paid for IWK in the third fiscal quarter, pending post-closing adjustments, was $140.5 million (101.4 million Euro). In addition, the Company incurred $0.9 million of transaction costs in the second quarter of fiscal 2014 related to the acquisition. The cash consideration of the purchase price, along with transaction costs, were primarily funded with existing cash on hand and proceeds from long-term debt of $40.0 million. This acquisition will be accounted for as a business combination with the Company as the acquirer of IWK. The purchase method of accounting will be used and the earnings of IWK will be consolidated beginning from the acquisition date, September 30, 2013. For additional information on the acquisition of IWK, refer to note 20 of the interim consolidated financial statements.
Second Quarter Summary of Discontinued Operations: Solar
Ontario Solar recorded income of $2.5 million in the second quarter of fiscal 2014, primarily due to the reversal of a $3.0 million warranty provision which was no longer required following the resolution of an outstanding claim during the second quarter of fiscal 2014. The second quarter loss a year ago was $1.8 million.
For the six months ended September 29, 2013, a gain on sale of $13.8 million reflected gains of $10.8 million from the sale of a 75% ownership interest in four ground-mount solar projects by Ontario Solar's 50% owned joint operation Ontario Solar PV Fields ("OSPV") and $3.0 million from the sale of Ontario Solar's manufacturing assets and inventory.
OSPV has signed a definitive agreement for the sale of its other three ground-mount solar projects. This transaction is subject to a number of approvals and conditions, including the purchaser securing financing for the projects. The Company expects the transaction to close in fiscal 2014. OSPV will retain 25% ownership of the projects until the projects reach commercial operation, which is expected to occur in calendar 2014. Net proceeds to ATS are expected to be approximately $10 million, and are expected to be paid based on the projects achieving certain development milestones.
Quarterly Conference Call
ATS's quarterly conference call begins at 10 am eastern on Wednesday November 6 and can be accessed live at www.atsautomation.com or on the phone by dialing 416 644 3414 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 13, 2013) by dialing 416-640-1917 and entering passcode 4647592 followed by the number sign.
ATS Automation provides innovative, custom designed, built and installed manufacturing solutions to many of the world's most successful companies. Founded in 1978, ATS uses its industry-leading knowledge and global capabilities to serve the sophisticated automation systems' needs of multinational customers in industries such as consumer products & electronics, energy, life sciences and transportation. It also leverages its many years of experience and skills to fulfill the specialized automation product manufacturing requirements of customers. Through its Ontario solar business, ATS participates in the solar energy industry. ATS employs approximately 2,600 people at 23 manufacturing facilities in Canada, the United States, Europe, Southeast Asia and China. The Company's shares are traded on the Toronto Stock Exchange under the symbol ATA.
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