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News

ATS Reports Third Quarter Fiscal 2014 Results

ATS Automation

CAMBRIDGE, ON - ATS Automation Tooling Systems Inc. (TSX: ATA) ("ATS" or the "Company") today reported financial results for the three and nine months ended December 29, 2013.

Third Quarter Summary

  • The Company completed its acquisition of IWK Verpackungstechnik GmbH and OYSTAR IWK USA, Inc. (collectively "IWK") on September 30, 2013 (the first day of the Company's fiscal third quarter);
  • Revenues from continuing operations were $178.0 million, 23% higher than in the corresponding period a year ago. Excluding IWK revenues of $29.7 million, fiscal 2014 revenues from continuing operations were $148.3 million, a 3% increase over the corresponding period a year ago;
  • EBITDA was $22.6 million (13% EBITDA margin) compared to $16.6 million (12% EBITDA margin) in the third quarter of fiscal 2013. Higher EBITDA in fiscal 2014 primarily reflected increased revenues, improved operating margins and the addition of IWK;
  • Earnings from continuing operations were $16.7 million (9% operating margin), compared to $13.6 million (9% operating margin) in the third quarter of fiscal 2013;
  • Order Bookings were $237 million, a 37% increase over the corresponding period a year ago. Excluding IWK Order Bookings of $48 million, Order Bookings were $189 million, compared to $173 million in the third quarter a year ago and $110 million in the second quarter of fiscal 2014;
  • Period end Order Backlog was a record $467 million, up 20% from $388 million in the third quarter a year ago and up 32% from $355 million in the second quarter of fiscal 2014. Higher Order Backlog primarily reflected the addition of $40 million of Order Backlog from IWK and higher Order Bookings in the energy, life sciences and consumer products & electronics markets; and
  • The Company's balance sheet and financial capacity to support growth remained strong, with cash net of debt in continuing operations of $39.7 million at December 29, 2013, unutilized credit facilities of $166.8 million and $8.0 million of credit available under letter of credit facilities.
"Our third quarter performance reflected our strong operating foundation and the addition of IWK," said Anthony Caputo, Chief Executive Officer. "We had strong Order Bookings and ended the quarter with record Order Backlog. Strategically, we have made progress with the acquisition of IWK and remain focused on continuing to grow our business, both organically and through acquisition."

Third Quarter Summary Continuing Operations
Third quarter revenues of $178.0 million were 23% higher than a year ago. By industrial market, revenues from consumer products & electronics increased 227%, primarily on revenues from IWK and higher revenues earned in the consumer products market. Revenues generated in the energy market increased 43% compared to a year ago, primarily on higher Order Backlog entering the third quarter due largely to increased activity in the nuclear energy market. Revenues generated in the life sciences market increased 37% compared to a year ago, primarily on revenues from IWK. Transportation revenues decreased 18% compared to a year ago primarily due to lower Order Backlog in the third quarter compared to a year ago.

Earnings from operations were $16.7 million (9% operating margin) compared to $13.6 million (9% operating margin) in the third quarter of fiscal 2013. Higher earnings from operations primarily reflected higher revenues, better program execution, improvements in the cost structure of the Company's base business, and the inclusion of IWK, partially offset by higher stock-based compensation costs and increased depreciation and amortization expenses compared to a year ago. Depreciation and amortization expense was $5.9 million, compared to $3.0 million a year ago, primarily due to a $2.4 million increase in amortization as a result of the addition of identifiable intangible assets recorded on the acquisition of IWK in the third quarter of fiscal 2014.

EBITDA was $22.6 million (13% EBITDA margin) compared to $16.6 million (12% EBITDA margin) in the third quarter of fiscal 2013. Higher EBITDA in fiscal 2014 primarily reflected increased revenues, improved operating margins and the addition of IWK. Excluding restructuring and transaction costs, IWK realized an EBITDA margin of 15%.

ASG Order Bookings
Third quarter fiscal 2014 Order Bookings were $237 million, a 37% increase from the third quarter of fiscal 2013, which primarily reflected $48 million of Order Bookings generated by IWK in the third fiscal quarter of 2014.  Excluding the impact of IWK, Order Bookings were $189 million, a 9% increase over the corresponding period a year ago.  The increase in Order Bookings primarily reflected growth in energy, life sciences and consumer products & electronics markets.

Business Acquisition - IWK
On September 30, 2013, 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.

The Company has started to integrate IWK into ATS where it will serve as the filling centre of excellence (primary and secondary packaging) for the Company.  IWK brings a strong and experienced management team that will continue to drive the business.

Cash consideration paid for IWK in the third fiscal quarter was $137.4 million (99.0 million Euro), which is net of $9.9 million of cash acquired.  In addition, the Company incurred $3.0 million of transaction costs 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 has been accounted for as a business combination with the Company as the acquirer of IWK.  The purchase method of accounting has been used and the earnings of IWK are consolidated beginning from the acquisition date, September 30, 2013. For the third quarter, IWK generated revenues of $29.7 million, net income of $0.9 million, and was accretive to earnings per share. For additional information on the acquisition of IWK, refer to note 4 of the interim consolidated financial statements.

Third Quarter Summary of Discontinued Operations: Solar
During the first quarter of fiscal 2014, Solar manufacturing assets were sold and the business wound up. Ontario Solar recorded a loss of $0.3 million in the third quarter of fiscal 2014. The third quarter loss a year ago was $21.7 million.

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. Subsequent to the end of the third quarter of fiscal 2014, the projects received notice to proceed approval from the Ontario Power Authority. The Company expects the sale 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 $14 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, February 5 and can be accessed live at www.atsautomation.com or on the phone by dialing 416 644 3416 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 12, 2014) by dialing 416-640-1917 and entering passcode 4665702 followed by the number sign.

About ATS
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 2,500 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. Visit the Company's website at www.atsautomation.com.

Management's Discussion and Analysis
For the Quarter Ended December 29, 2013

This Management's Discussion and Analysis ("MD&A") for the three and nine months ended December 29, 2013 (third quarter of fiscal 2014) is as of February 4, 2014 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 consolidated financial statements of the Company for the third quarter of fiscal 2014 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 the MD&A has access to, and has read the audited consolidated financial statements prepared in accordance with IFRS and MD&A of the Company for the year ended March 31, 2013 (fiscal 2013) and, accordingly, the purpose of this document is to provide a third quarter update to the information contained in the fiscal 2013 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.

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. These terms do not have any standardized meaning prescribed within IFRS and therefore may not be comparable to similar measures presented by other companies.  The terms "operating margin," "EBITDA," "EBITDA margin," "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. 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 from continuing operations 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. 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. Order Bookings provides 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 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 IFRS measures and non-IFRS financial measures in making investment decisions and measuring operational results. A reconciliation of earnings from operations and EBITDA to net income from continuing operations for the three and nine month periods ending December 29, 2013 and December 30, 2012 is contained in this MD&A (see "Reconciliation of EBITDA to IFRS Measures").  EBITDA should not be construed as a substitute for net income determined in accordance with IFRS. A reconciliation of Order Bookings and Order Backlog to total Company revenues for the three and nine month periods ending December 29, 2013 and December 30, 2012 is contained in the MD&A (see "Order Backlog Continuity").

COMPANY PROFILE
ATS Automation Tooling Systems Inc. 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 life sciences, transportation, energy, consumer products and electronics. ATS also leverages its many years of experience and skills to fulfill the specialized automation product manufacturing requirements of customers. ATS employs approximately 2,500 people at 23 manufacturing facilities in Canada, the United States, Europe, Southeast Asia and China. The Company's Solar segment is classified as discontinued operations.

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