ATS Reports First Quarter Fiscal 2020 Results

CAMBRIDGE, ON /CNW/ - ATS Automation Tooling Systems Inc. (TSX: ATA) ("ATS" or the "Company") today reported financial results for the three months ended June 30, 2019.

[ATS Automation Tooling Systems Inc. (CNW Group/ATS Automation Tooling Systems Inc.)]

First quarter highlights:

• Revenues increased 13% to $339.2 million. Organic growth in revenues was 4% with 9% coming from acquired businesses KMW and Comecer.
• Earnings from operations were $28.6 million (8% operating margin), compared to $27.0 million (9% operating margin) a year ago.
• Adjusted earnings from operations1 were $38.0 million (11% margin), compared to $32.6 million (11% margin) a year ago.
• EBITDA1 was $47.2 million (14% EBITDA margin), compared to $36.8 million (12% EBITDA margin) a year ago.
• Earnings per share were 18 cents basic and diluted compared to 18 cents a year ago. Adjusted basic earnings per share1 were 25 cents compared to 22 cents a year ago.
• Order Bookings were a record $423 million, 18% higher than a year ago. Organic growth in Order Bookings was 9% with an additional 9% increase coming from acquired businesses.
• Order Backlog increased 24% to $982 million at June 30, 2019 compared to $789 million a year ago.

"We had a good start to the year, with record Order Bookings, solid growth in revenues and continued margin expansion," said Andrew Hider, Chief Executive Officer. "Operationally, we are focused on driving continuous improvement through our ABM. Going forward, we have record Order Backlog, which will support growth, and a strong balance sheet, which will allow us to continue pursuing our goal of creating long-term shareholder value."   

First quarter summary
Fiscal 2020 first quarter revenues were 13% higher than in the corresponding period a year ago and included $27.2 million of revenues earned by KMW and Comecer. Excluding KMW and Comecer, first quarter revenues were $312.0 million, a 4% increase compared to the corresponding period a year ago, primarily reflecting Order Backlog, which, excluding the impact of acquired Order Backlog, was 13% higher entering the first quarter of fiscal 2020 compared to a year ago. Revenues generated from services and construction contracts increased 17% and 6% respectively compared to the corresponding period a year ago.

By market, revenues generated in life sciences increased by 38% due to higher Order Backlog entering the first quarter of fiscal 2020, and revenues generated by Comecer. Revenues in the transportation market increased 20%, due to higher Order Backlog entering the first quarter of fiscal 2020, and revenues generated by KMW. Revenues from consumer products and energy markets decreased 19% and 27% respectively due to lower Order Backlog entering the first quarter of fiscal 2020.

Fiscal 2020 first quarter earnings from operations were $28.6 million (8% operating margin) compared to $27.0 million (9% operating margin) in the first quarter of fiscal 2019. First quarter fiscal 2020 earnings from operations included $9.4 million related to amortization of identifiable intangible assets recorded on business acquisitions, up from $5.6 million in the comparable period a year ago. The adoption of IFRS 16 effective April 1, 2019, impacted earnings positively by $0.9 million due to the implied finance costs recorded on lease obligations.

Excluding amortization of identifiable intangible assets recorded on business acquisitions in both quarters,  first quarter fiscal 2020 adjusted earnings from operations were $38.0 million (11% margin), compared to adjusted earnings from operations of $32.6 million (11% margin) a year ago. First quarter fiscal 2020 adjusted earnings from operations reflected higher revenues and improved gross margin, partially offset by higher selling, general and administrative expenses.

Depreciation and amortization expense was $18.6 million in the first quarter of fiscal 2020, compared to $9.8 million a year ago. The increase primarily reflected incremental amortization of acquisition-related intangible assets due to the acquisitions of KMW and Comecer and incremental depreciation of right-of-use assets as a result of the adoption of IFRS 16.

EBITDA was $47.2 million (14% EBITDA margin) in the first quarter of fiscal 2020 compared to $36.8 million (12% EBITDA margin) in the first quarter of fiscal 2019. EBITDA growth reflected higher revenues, improved gross margin, and lower operating lease costs related to the adoption of IFRS 16, partially offset by higher selling, general and administrative expenses compared to a year ago.

Impact of Adoption of IFRS 16 - Leases
The nature of expenses related to identified lease arrangements changed as IFRS 16 replaced straight-line operating lease expense, with depreciation and interest expense relating to lease liabilities. In the first quarter of fiscal 2020, the adoption of IFRS 16 resulted in increased depreciation expenses related to right- of-use assets of $3.7 million with a corresponding decrease in operating lease costs which were recognized in cost of revenues and selling, general and administrative expenses. In addition, the adoption of IFRS 16 resulted in incremental interest expenses of $0.9 million with corresponding decreases in operating lease costs. The combined impact of these changes was to increase earnings from operations by $0.9 million and increase EBITDA by $4.6 million. The impact on net income was negligible. See "Accounting Standards Adopted in the First Quarter of Fiscal 2020."

Order Bookings
First quarter fiscal 2020 Order Bookings were $423 million, 18% higher than first quarter fiscal 2019 Order Bookings. Organic growth in Order Bookings was 9% compared to the prior year, and contributions from acquired businesses KMW and Comecer accounted for 9% of the growth. By market, higher Order Bookings in the life sciences market primarily related to medical device programs, and Order Bookings contributed by Comecer. Higher Order Bookings from the transportation market primarily reflected several large programs in both North America and Europe. Order Bookings in the consumer products market were flat. Bookings in energy markets decreased due to the timing of customer decisions on various larger opportunities.

Order Backlog
At June 30, 2019, Order Backlog was $982 million, 24% higher than at July 1, 2018. Order Backlog growth was primarily driven by higher Order Bookings in the life sciences and transportation markets, and Order Backlog from acquired businesses.

Quarterly Conference Call
ATS' quarterly conference call begins at 10:00 a.m. eastern on Wednesday August 14, 2019, 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 21, 2019) by dialing (416) 849-0833 and entering passcode 7093408 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, pharmaceuticals, chemicals, electric vehicles, transportation, consumer products, electronics, food, beverage, energy, and oil and gas. Founded in 1978, ATS employs approximately 4,400 people at 23 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 30, 2019

This Management's Discussion and Analysis ("MD&A") for the three months ended June 30, 2019 (first quarter of fiscal 2020) is as of August 13, 2019 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 2020, which have been prepared in accordance with International Financial Reporting Standards ("IFRS") 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, 2019 (fiscal 2019), and, accordingly, the purpose of this document is to provide a fiscal 2020 first quarter update to the information contained in the fiscal 2019 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). 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 30, 2019 and     July 1, 2018 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 ending June 30, 2019 and July 1, 2018 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, pharmaceuticals, chemicals, electric vehicles, transportation, consumer products, electronics, food, beverage, energy, and oil and gas. Founded in 1978, ATS employs approximately 4,400 people at 23 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: alignment of 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.

For further information:
Sonya Mehan, Director, Investor Relations and Corporate Communications, Ryan McLeod, Vice President, Corporate Controller, 519 653-6500