ATS Reports Third Quarter Fiscal 2021 Results

Editor's note: This release  has been truncated.

ATS Automation Tooling Systems Inc. (TSX: ATA) ("ATS" or the "Company") today reported its financial results for the three and nine months ended December 27, 2020.

Third quarter highlights:

• Revenues increased 1% year over year to $369.7 million.
• Earnings from operations were $32.3 million (9% operating margin), compared to $10.4 million (3% operating margin) a year ago. Adjusted earnings from operations¹ were $43.8 million (12% margin), compared to $37.5 million (10% margin) a year ago.
• EBITDA¹ was $49.7 million (13% EBITDA margin), compared to $26.8 million (7% EBITDA margin) a year ago.
• Earnings per share were 20 cents basic and diluted compared to 4 cents a year ago.
• Adjusted basic earnings per share¹ were 30 cents compared to 26 cents a year ago.
• Order Bookings were $435 million, 18% higher than a year ago.
• Order Backlog increased 5% to $985 million at December 27, 2020 compared to $939 million a year ago.

"Third quarter performance featured record Order Bookings and Order Backlog with growth in life sciences and consumer products," said Andrew Hider, Chief Executive Officer. "Operationally, our teams drove meaningful margin expansion in line with our long-term plan despite the challenges brought on by the Covid-19 environment. Our record 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 2% year over year to $1,030.1 million.
• Earnings from operations were $76.8 million (7% operating margin), compared to $70.7 million (7% operating margin) in the prior year. Adjusted earnings from operations¹ were $113.6 million (11% margin), compared to $118.0 million (11% margin) in the prior year.
• EBITDA¹ was $130.3 million (13% EBITDA margin), compared to $123.8 million (12% EBITDA margin) in the prior year.
• Earnings per share was 44 cents basic and diluted compared to 43 cents in the prior year.
• Adjusted basic earnings per share¹ were 73 cents compared to 80 cents a year ago.
• Order Bookings were $1,163 million, compared to $1,112 million a year ago.

Mr. Hider added, "Our results in the first nine months of fiscal 2021 reflect solid Order Bookings, revenues and operating margins despite the challenging environment. During the quarter we made substantial progress on the previously announced transportation business reorganization plan. We initiated the tender offer process to acquire CFT Group, a company with a proven track record that participates in an attractive, regulated growth market. Going forward, we will continue to drive improvement in our operations, to bring increased value to our customers with the goal of creating long-term shareholder value"

Third quarter summary
Fiscal 2021 third quarter revenues were 1% higher than in the corresponding period a year ago and included $7.8 million of revenues earned by acquired companies. Excluding acquired companies, third quarter revenues decreased $5.3 million, or 1%, compared to the corresponding period a year ago. Revenues from services increased 8% with broad-based strength across ATS' businesses.  Revenues from the sale of goods increased 19% due primarily to increased sales of spare parts. This was partially offset by a 5% decrease in revenues generated from construction contracts due to the timing of program completion. 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, revenues generated in life sciences increased 3% on higher Order Backlog entering the third quarter of fiscal 2021. Revenues in transportation decreased 36% on lower Order Backlog entering the third quarter of fiscal 2021. This was due to a slowdown in the transportation market and the implementation of a reorganization plan that has reduced exposure to certain aspects of the market and created alignment with market demand (see "Reorganization Plan"). Revenues generated in consumer products increased 88%, primarily on higher Order Backlog entering the third quarter of fiscal 2021 related to warehouse and personal care automation projects, as well as revenues earned by acquired companies. Revenues in energy increased 25% due to timing of customer projects, primarily in the nuclear market.

Fiscal 2021 third quarter earnings from operations were $32.3 million (9% operating margin) compared to $10.4 million (3% operating margin) in the third quarter a year ago. Earnings from operations included: $8.1 million related to amortization of acquisition-related intangible assets, up from $6.9 million a year ago;  $6.2 million of restructuring charges incurred as part of the Company's reorganization plan, down from $18.8 million a year ago; $2.5 million of incremental costs related to the Company's acquisition activity, up from $1.4 million last year; and a $5.3 million gain on the sale of a facility made redundant due to the Company's reorganization activity (see "Reorganization Plan").

Excluding these items in both quarters, adjusted earnings from operations were $43.8 million (12% margin), compared to $37.5 million (10% margin) a year ago. Higher third quarter fiscal 2021 adjusted earnings from operations reflected higher gross margin due to efficiencies made in the Company's cost structure, improved program execution and increased revenues from services. In the third quarter, the Company benefited from payments received under the Canadian Emergency Wage Subsidy ("CEWS") program of $2.3 million.

Depreciation and amortization expense was $17.4 million in the third quarter of fiscal 2021, compared to $16.4 million a year ago. The increase primarily reflected incremental amortization of acquisition-related intangible assets due to the acquisition of MARCO.

EBITDA was $49.7 million (13% EBITDA margin) in the third quarter of fiscal 2021, compared to $26.8 million (7% EBITDA margin) in the third quarter of fiscal 2020. Higher EBITDA reflected lower restructuring expenses in the third quarter of fiscal 2021 compared to the prior year and the gain on sale of a facility, as well as an improved cost structure.

Order Bookings
Third quarter fiscal 2021 Order Bookings were a record $435 million, an 18% increase compared to the third quarter of fiscal 2020. Excluding Order Bookings from acquired companies, third quarter fiscal 2021 Order Bookings were $429 million, a 17% year-over-year increase. By market, higher Order Bookings in life sciences primarily related to medical device programs. Higher Order Bookings in consumer products primarily reflected Order Bookings of acquired companies and programs related to warehouse automation. Order Bookings in transportation decreased as customers paused investment decisions due to the impact of the pandemic on the market. Bookings in energy increased due to timing of customer projects, primarily in the nuclear market, and included expansion of the Company's nuclear business into the United States. 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 December 27, 2020, Order Backlog was $985 million, 5% higher than at December 29, 2019, primarily driven by higher Order Bookings in the life sciences and consumer products markets. Order Backlog adjustments for the three months ended December 27, 2020 included an adjustment of $8 million related to the cancellation of a customer program which was previously placed on hold. For the nine months ended December 27, 2020, foreign exchange rate changes negatively impacted the translation of Order Backlog from foreign-based ATS subsidiaries by approximately 3% compared to the corresponding period a year ago, primarily reflecting the strengthening of the Canadian dollar relative to the U.S. dollar.

CFT S.p.A. Voluntary Tender Update
On December 7, 2020, the Company announced its intention to launch a voluntary public tender offer to acquire CFT S.p.A. ("CFT"), a global supplier of automated processing and packaging equipment to the food and beverage equipment market. The tender offer of €4.60 per share represents a total equity value of €88 million and a total enterprise value of €166 million (~C$260 million). CFT is a strategic transaction which complements the Company's recent MARCO acquisition and will allow ATS to establish a broader growth platform in the regulated food and beverage equipment market. In the event the tender offer is successful, the acquisition of CFT would be expected to close in the first quarter of calendar 2021.  

The tender period under the offer will commence if and when approval is obtained from the applicable Italian securities regulatory authority, such approval now expected to be granted in February 2021. The voluntary tender offer is subject to various approvals and closing conditions, and there can be no assurance that any remaining approvals will be obtained and/or any remaining conditions will be met and therefore no assurance that ATS will be successful in acquiring CFT. To date, certain conditions or approvals have been met or obtained, including approvals from the German anti-trust authority and the Spanish foreign investment authority, and the waiver of certain lock-up arrangements. Remaining conditions to closing include that: (i) ATS be in a position to acquire at least 90% of outstanding ordinary share capital by the end of the offer period in order to effect the delisting of CFT's ordinary shares from the AIM Italia stock exchange, (ii) specified changes to the by-laws of CFT are approved by its shareholders, and (iii) customary regulatory approvals are received, including approval from the Italian foreign investment authority. In the event that less than 90% of the outstanding ordinary shares of CFT were to be submitted to the tender offer, ATS may elect to close on such lesser amount and pursue other methods for effecting the delisting. In addition, if less than 100% of the outstanding shares of CFT were to be submitted pursuant to the tender offer, ATS would retain minority shareholder interests in CFT should it proceed to complete the tender offer.

Reorganization Plan
In September 2020, the Company announced a reorganization plan to help mitigate the expected impact of a slowdown in transportation markets brought on by the COVID-19 pandemic. The reorganization plan was designed to align the capacity and cost structure of ATS' transportation business to current and expected conditions. The reorganization included the sale of certain assets and the transfer of employees from a German-based subsidiary that was completed in October 2020. The Company recorded restructuring expense of $8.1 million and $6.2 million in the second and third quarters of fiscal 2021, respectively, in relation to the reorganization and further restructuring charges are not expected.

In fiscal 2020, the Company completed a reorganization plan which included the consolidation of certain operations and the closure of some underperforming facilities and small branch offices, none of which were strategically important to future growth. The Company recorded charges of $2.0 million and $18.8 million in the second and third quarters of fiscal 2020, respectively, in relation to the reorganization. In the third quarter of fiscal 2021, a $5.3 million gain on the sale of a facility made redundant due to the Company's previously completed reorganization was included in selling, general and administrative expenses.

Quarterly Conference Call
ATS' quarterly conference call begins at 10:00 a.m. eastern on Wednesday, February 3, 2021, 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 February 10, 2021) by dialing (416) 849-0833 and entering passcode 2128258 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.