ATS Corp (ATS) 2001 Q4 法說會逐字稿

Good morning, Ladies and gentlemen, thank you for standing by. Welcome to the ATS Automation Tooling Systems fourth quarter conference call. At this time all participants are listen only mode.Following the presentation will conduct a question and answer session. If anyone has any difficulties hearing the conference press star zero for operator assistance. I would like to remind you that our presentation today may contain forward looking statements. These forward-looking statements may reflect the current views of the company's management and are subject various risks and uncertainties. Certain of these risks are described in the ATS annual report. ATS disclaims any intention or obligation to update or revise these forward-looking statements. This call is being recorded for replay purposes. I would like to turn the call over to Mr. Klaus Woerner,President and Chief Executive Officer of ATS, please go ahead, Mr. Woerner.

Thank you, operator and good morning, Ladies and gentlemen. In a few moments, Ron Jutras, we will review financial performance, but before that I would like to provide with you a report card on ATS software rating performance and expectations. First the report card. Last year ATS sought to see four operating objectives. Target new market segments, secure new position component work, advance technology in a customer-focused way and acquire complementary technologies in business. ATS move made good strides in all four areas for fiscal 2002 despite the steep and prolonged economic downturn that kept us from achieving our primary financial objectives. ATS went assignments from one hundred twenty-five new customers in both traditional and new markets segments. We also kept existing clients satisfied and a full 77% of revenue came from repeat customers. To complement our growing present and customer base and traditional markets we identified and start direct long-term marketing efforts towards promising new areas. These include Contra built of Automation Subsystems and equipment, not just for semi conductor but for other customers, including those in the health care sector. Automation for biotechnology and in vitro-diagnostics sectors as well as specialty [INAUDIBLE]packaging and plant-wide automation for all markets. New position component work is also [INAUDIBLE} including an assignment to produce seed adjustment subsystems for multi-national automotive company. That assignment was awarded in the first quarter of fiscal '02 and we will comment on schedule in May 2003 with an initial revenue of approximately $12 to $15 million in fiscal 2004 and the following the year, ATS annual revenue under the program are forecast to grow $40 to $50 million in canadian dollars that is. The program is expected to continue for five years, atleast extending into ATS's fiscal 2008 year and maybe beyond. Also adding to [INAUDIBLE]components future potential, our thermal products [INAUDIBLE] was launched late in the fourth quarter, eight years [INAUDIBLE] the [INAUDIBLE] agreement with Tyco Electronics, on the terms of this agreement, ATS is designing and manufacturing thermal products for Tyco, which is in-turn packaging out technology with theirs and selling it to their customers. We believe this agreement will be pivotal for initiative because it gives ATS to Tyco, sizable direct sales force and makes our solution part a valuable bundle that includes Tyco's connectors and inter connection systems. With Tyco support, from recent announcements from companies like Intel they introduced the 2.5 gigahertz processor on their [PENTITUIM] four machines. Planning to move up to three gigahertz next year, we expect sales to ramp up. ATS products are fully qualified for these speed ranges and increased thermal management requirements. As announced in the press release, we have now begun to win production orders. The business awarded to date based on customer forecast is expected to generate $12 to 13 million in the revenue this year, increasing further in fiscal 2004. We have many additional prospects in the pipeline and we expect it to be the start of a growing area of our precision components business. This new work is a culmination of direct selling efforts by ATS and as well as joint efforts by Tyco and ATS. Our VP of Precision Components, Bruce Healy, has joined us here today to answer any questions you may have in the call. Our sole initiative [EBITDA] [PHOTO-OP] performed well in fiscal 2002, achieving greatly improved revenue and operating profits [PHOTO-OP] is only one of perhaps two other companies in the sector that is profitable. This speaks well of the operational and management changes made in the past year and the benefits ATS has brought to [PHOTO-OP] production efficiencies through automation. They're quite bullish on this entire area for the long-term, two, [PHOTO-OP] has recently experienced pricing pressure that is might have an impact on short-term results, however we believe this is temporary and further more we know [PHOTO-OP] is well positioned for this because we continue to improve production efficiencies to offset pricing changes. We also committed last year to advancing our [INAUDIBLE] technologies and ATS did that too. In fact, from an operating perspective, the launch of our new flexes line or flexible system line of standard automation equipment in quarter four and the success of super track automated material handling systems are among the years highlights. Flexes is a new [INAUDIBLE]standard automation ideally suited to a number of industries. For micromedical devices , and semi-conductor to automotive electrics and computer peripherals. We believe the launch of standard product modules will have a positive impact on revenue and margin going forward that's because flexes will be popular particular with customers who have a global production mandate and want to duplicate automation line in each plant. Flexes offers these customers maximum flexibility, reliability, scaleability ranging for a single flat form that supports multiple operations including position placement, dye-bonding, high speed alignment, prior preparation handling,metrology test and measurement. The fact that we have now now sold three flexes systems since the launch in late March. As for the Super Track, we have now received seven orders, incorporating Super Track from a diverse range of customers. We have also recently developed a derivative of Super Track, we call Lean Track and [INAUDIBLE] Incorporates all the advantages of a Super Track in speed and cleanliness, but is much, much lower cost. Lean track costs approximately 30% to 40% less than conventional conveyors, yet it's controlled extacly like a conventional power free conveyor system. As previously advertised, ATS also introduced complimentary high speed technology in the third quarter and is now sold over a hundred and thirty of these systems. This is an important initiative because it allows us to captures work that was traditionally outsouced to third parties that hence earned better margin as a result and very importantly, better serve customers in the area that matter the most. Total cost of ownership and speed of delivery. In the current market, these [INAUDIBLE] new products clearly differentiate ATS from the competition and are already contributing to a new order [INAUDIBLE]. Finally, against our acquisition objectives, If you will recall very early in the fiscal year, we acquired OMEX, it is a profitable QS nine thousand qualified metel forming and stamping company, located in Stratford Interior. Total price was approximately $12 million. OMEX has performed well since then, contributing $10 million incremental revenue and positive earnings , while helping us pick up new work and automotive and electrical from smaller injection molding companies and stamping companies that have been struggling with the market downturn. In the long-term, OMEX will enable us to grow the amount of higher value added [INAUDIBLE] business in our precision components group. The bottom line from an operating perspective is this: ATS was far from idle during fiscal 2002. We made the most of a bad economy, achieved the number strategic objectives and have emerged more solutions to offer customers ,more opportunities for the long-term. Unlike many of our competitors, we moved forward rather than backwards and didn't stand still. In [INAUDIBLE] I am convinced our [INAUDIBLE] retain our technical capabilities and skilled workforce was the right one because it allowed ATS to better equip itself for future opportunities.Yes it made our financial performance was not as robust as it might have been even though in context ATS performance soared above the pack and we did remained profitable. By preserving our capabilities ATS industry leadership position has became far more pronounced and this proves to be valuable going forward as customers accelerate their purchases. By preserving our capabilities, we are also fully positioned to capitalize on a market recovery without the need of costly, time consuming and the disrupted recruitment and training. That's an operation report card. Now let me tell you about our near term expectations. We believe the first quarter of this new 2003 year will be better than fourth quarter, fiscal 2002, both from a revenue and profitability stand point.While we believe the economic recovery will continue to be gradual, it should be enough to allow ATS to perform significantly better in fiscal '03 than fiscal '02. As part of our expectations we should see recovery in both core position components and automation system revenue and we believe we should get good contributions with both thermal products and [INAUDIBLE]. This is a logical place now to for a round brighter financial performance review touching on automation bookings and backlog, which underscore our going confidence in the future. When he is finished, I will talk about the agenda for 2003.

Thank you, Klaus and good morning. ATS remained profitable in the fourth quarter of fiscal 2002, In despite of the very weak economic condition that have been in place for about six quarters. This was achieved even while we maintained our knowledge-based workforce and further enhanced our technology platforms through this more challenging period. In addition ATS significantly to financial strength in the period as a result of good cash generation and reflecting the reduced requirements of the business. Now with demand beginning to improve, we are well positioned to take full advantage of the opportunities that are emerging. In a few moments, I will provide commentary on backlog and bookings to illustrate why we believe the improvement has started. First let's focus on the quarter. Automation system revenue was 43% lower than the fourth quarter of last year. Revenue last year represented a record high for ATS by a substantial margin. While the fourth quarter this year, showed the obvious effects of the economic downturn compared to the third quarter this year, Automation system revenue was 2% higher. The lower year over year revenues for the fourth quarter combined with the cost associated retaining our workforce and capacity were the primary reasons for the change in Automation systems operating earnings. In addition we determined that it was prudent to write down the value of certain slow-moving inventories. Primary result of product designs,-- changes in product design and to a lesser economic environment. These charges total $3.2 million and were well spread out among four different lines of the Automation systems business. We also incurred $.4 million in Q4 primarily related to management changes we felt were necessary in a some of the operating divisions. AS a result, we reported a operating loss of $.7 million in Automation systems for the fourth quarter of this year compared to a record high operating profit of $23.6 million in Q4 of last year. We have been a public company since 1993 and this is the first time ,we have had a quarterly operating loss in Automation systems during this entire period. While this loss is relatively small, it's not something we are comfortable with. However with order activity and shop utilization improving, we also believe Q4 reflects an historic low point for Automation systems performance. Precision components revenue was 13% higher than Q4 of last year, reflecting growth from the solar operations and the contributions of OMEX acquired in June of 2001. Lower precision components revenue from computer electronics, customers was more than offset by higher revenues from automotive, which as you may recall substantial inventory connection in Q4 of last year. Our thermal solution business revenue was $1.2 million in the fourth quarter and reflects some initial shipments of our new generation products. This is small relative to [INAUDIBLE] revenues today, however, as Klaus noted, we are progressing with securing initial orders and this area of the company is expected to grow quickly in the future. Compared to the third quarter, precision component revenues were 12% higher, reflecting a 9% increase in solar and 14% increase in the balance of the components business. The solar market remains strong in the fourth quarter, while volumes stabilize and then improved in the automotive sector. Compared to Q4 of last year, precision components operating earnings benefited from the increased revenues. The contributions of OMEX and from improved utilization. When compared to Q3, when precision components reported an operating loss of $.5 million, the Q4 results showed substantial improvement, with a 7.5% operating margin. The improvement was the result of a stronger performance from the North American operations. [PHOTo-OP} were similar in Q4 to Q3 of this year, however this was only because we established provisions for bonuses and profit sharing payments at [PHOTO-OP] in Q4 to award that team to the strong improvement and operating results and the achievement of performance targets for fiscal 2002. [PHOTO-OP] performed well throughout all the fiscal 2002 and we expect more in the future. I would now like to review a period at the backlog levels and order booking activity for Automation systems. We ended the 2002 fiscal year with an Automation systems order backlog of one hundred and sixty-eight million compared to two hundred and twelve million at the start of the year. The diversification of the backlog was provided in the press release. The biggest change year over year, is the computer electronics segment which was 64% lower. Close to half of this reduction was the result of lower contributions from fiber optics and semi conductors customers, among the hardest-hit industries in this downturn. Health care declined 20% or $9.5 million, but we continue to expand penetration of this newer market over the past year. We served thirty-one different customers in the industry sector of fiscal 2002 compared to fourteen last year and we continue to have a number of good opportunities in the quotation area. The bright spot was the automotive backlog that increased 25.5% or 47% year over year. This change was largely the result of two large automotive orders booked in Q3, which totalled approximately $28 million. The other sector also increased compared to Q4 of last year up $3.5 million. Over the course of the fourth quarter, even while the total backlog did not increase significantly, industry diversification improved, providing another indicator that market conditions are improving. For example, computer electronics backlog increased by 13% over Q3 to represent 21% of total Q4 backlog. In health care contribution, increased 12% to 23% of Q4 backlog. Automotive still showed the benefits of the two large orders booked in Q3 as automotive orders -- backlog represented 47% of Q4 backlog versus 54% in Q3. New automation order bookings totalled $94 million in the fourth quarter. This is 19% lower than the one hundred- sixteen million recorded in Q4 of last year. It is also 15% lower than the new order bookings of $111 million achieved in the third quarter. There are some interesting factors related to booking activity that should be considered, however, as I noted earlier, order bookings in the third quarter were significantly increased as a result of two large automotive customer orders that represented 25% of the total bookings in the period. In the fourth quarter, also two larger orders, one from a health care customer and from computer electronics customer. Combined they were just under fifteen million or only 16% of the two of the total new bookings in the period. Another positive of these recent large orders is they are both repeat systems orders. With good potential for additional follow on business in the future. There were two orders in the $2.5 to $3.5 million range and the balance was comprised of a broad number of individual orders with individual values of $2 million or less. The point is while the gross amount of new orders was $16 million lower than Q3, order activity was much broader. Secondly, order cancellation and scope changes at $7.3 million were less than half than what they were in Q3 and $1.7 million less than last year. Also encouraging was in Q4 of this year, most was for changes in scope by new projects and not cancelation. Only $2.5 million of orders were actually cancelled in the period. We believe the reduced level in Q4 order cancelation combined with greater diversification of new order bookings are both positive indicators of market activity and renewal. As we disclosed in the press release, new order activity has strengthens since the end of the fourth quarter. In the past six weeks, we have won approximately $77 million in order comments of our broad range of customers. In addition our quotation activity is very brisk and we believe the amount of hesitation in placing orders has dropped significantly in the past couple of months. While,it's still early in the recovery and business confidence is still a bit shaky, we think all these factors are positive indicators that the worst of this economic downturn is behind us. Our financial strength is another key competitive advantage that ATS has coming out of the downturn to add value. Our cash position net of bank indebtedness increased an additional twenty-eight million over the course of the fourth quarter. This brings the increase over the full 2002 fiscal to $41 million. We ended fiscal 2002 with a strong debt equity ratio of 0.1.1 and net cash of $110 million. Our strong cash position means we are well positioned to finance organic growth and addition to making strategic acquisitions. That's a brief financial overview and I will turn you back to Klaus.

Thank you, Ron. I opened with a report card on operating performance. Let me close it with our agenda for the new fiscal year. Our course strategies have not change and remain completely customer-focused to an objective of enhancing our volume of both new and traditional markets, however while we haven't changed our strategies, we increased our emphasis several important areas. First we want to broaden our automation capabilities and customer base in Europe. We are targeting to grow in areas beyond automotive. Second, we intend to continue forcefully pursuing opportunities which we believe are plentiful in the [INAUDIBLE] subcontract bill of Automation subsystems and equipment in many of our markets, including semi conductor and medical companies. Third, we are also focused on generating opportunities and partnerships to meet the needful plan ,[INAUDIBLE] automation in the same markets as well as electronics and automotive. We did sizing capabilities and ATS is a logical choice for the major players in all these sectors. Fourth, we intend to advance our position in both thermal products and solar by exploiting opportunities for advanced technology. Fifth, we expect to add more business partnerships as a way to extend marketing reach. ATS is a more sought after partner because of our industry leadership position and higher profile. Over all, we intend to take maximum advantage of our competitive strength return [INAUDIBLE] to a height mode as soon as possible. That now concludes our remarks and I would be pleased to answer your questions. As a reminder Bruce Healey, our Vice President of Precision Components is here as well as Carl Gallery our Corporate Treasurer. Operator, would you please open the call to questions. Thank you.

Thank you, Ladies and gentleman, We will now conduct a question and answer session. If you have a question, press star followed by the one on your phone you will hear a three prompt acknowledging your request. Your questions will be polled in the order received they are received. If you would like to decline from the polling process, press star followed by the two. Please ensure you lift the hand set, if you are using a speaker phone, before pressing any keys One moment for your first question. Your first question comes from Mason Granger from Merrill Lynch.

Hi, it's JP Benson, actually I have a few questions, first off one for Bruce. There was some guidance in the press release about what you think fiscal year 03 revenues could be from the thermal product could be, It's something that's ramping through the area. Can you give us a sense of the run rate you would be at by the end of fiscal 03?

The run rate at the end of fiscal '03 would be in the $18 million range per ahem at that level.

Based on what we know now.

Based on the forecast we have today.

Okay. Is this with -- Can you help us a little bit -- are these products going into servers? Which is the end market? It seemed on the last call you were targeting the server market than the desk top pc market.

They are primarily server-based markets at this time.

Have you had any wins in desk top pc's to speak of?

We have products that are qualified for the upcoming speed ranges, within the desktop but the technology is really ahead of the curve of the thermal requirements.

Okay. Ron, you made a comment I believe talking about solar and pricing pressure there and you believed it to be temporary. Why do you feel it's only temporary?

I think the pricing -- first of all, I think the energy needs globally will continue to increase and Solar is a market which is continuing to grow and expand. You look at the paper today and you look at the increased emphasis on cleanliness , [INAUDIBLE] and all those types of discussions, longer-term there is a demand for clean energy. Secondly some of the things that are happening, we are pushing forward very strongly is reducing the cost and efficiency of solar cells so that -- for the dollar that you spend, you get better performance.

The industry cost curve is kind of coming down?

We are very activate and pushing on both of those things. While we are seeing pricing pressure, we think we can offset those things through the efficiencies we are gaining and those that are planned as well for the next year.

Just one final question. I haven't had a chance to bang all the numbers into my model, it certainly looks like precision component did better than in the third quarter and I believe you said that [PHOTO-OP] was similar to third quarter because you did some provisioning for bonuses and so on. Can you help a little bit with where the big improvement most of come in automotive and just a little color on what went on there, the volumes were better, but it seems like maybe a bigger pick up than just the volume increase would have of suggested.

You want to add something?

I wanted to add something to [INAUDIBLE] regards to [PHOTO-OP] to specifically what we are doing there. We have two major initiative moving away from the one hundred millimeter square cells to one hundred twenty-five millimeter square cells which [INAUDIBLE] increases the surface area A-cell by 50%. Therefore it takes the same money to process to sell whether it's one hundred millimeters or one hundred and twenty-five millimeters. So therefore, there will be less interconnections and less material handling and fewer cells in a module. Number one. Number two, we also going away from a particular coding to enhance the efficiency of the system , to a better coding, which will increase our efficiency from 12% to about 15% range after [INAUDIBLE]. Therefore again since you sell module by the watt and not the square footage, we automatically gain an advantage also. These are the two main drivers that we expect to be competitive again.

Just on the pretty decent improvement in operating results at precision components, Ron?

Maybe I can come back to that question. Clearly we had a much stronger performance, as I indicated the operating margins increased to the 7.5% range in the fourth quarter compared to reporting a small loss in the third quarter, and that was primarily driven by the North American operations which is heavily, obviously almost exclusively at this point of time driven off the automotive sector. we reported what was essentially flat because of these additional provision. I think there is two factor that is came into play and Bruce might have some comments, first of all we saw the volume issues stabilized. We had been dealing with fluctuating volumes and [INAUDIBLE] cost. As well,-- we had adjusted the size of the operations as well as our capacity and made better use of the capacities we had in the fourth quarter and that produced the benefits we realized in the fourth quarter.

To add to that, in the last conference call we talked about right sizing. As the volume has picked up in the fourth quarter, the organizations are really sized today to handle the volume that is coming through.

So it sounds like these -- you have seasonal fluctuations quarterly in the automotive business, but these kind of margins are sustainable going forward?

Yes, they are.

Okay. That's all, I'll let someone else go, Thanks very much.

The next question is from Glen Jamieson with Griffin McBurney, please proceed.

Good morning. Klaus, when we are looking at order booking activity it's been very strong through the first half of this quarter, is it reasonable to assume you will be able to achieve similar bookings through the second half or is it too early in the recovery to assume steady order activity and we could have lumpiness?

Well, certainly the signs are there that order activity will remain at least remain at this level or increase. As I mentioned in my remarks, we're pursuing quite a number of different strategies now to market ATS more and more into areas, we have not done active in before, but we find there is a welcoming committee awaiting us there and saying ATS, we wish we had known you earlier. We do expect that during the year, these new initiatives will help broaden our customer base again and also of course increase our business activities.

Glen, I would say that some of this is obviously pent up demand coming through as well. I think the other thing when we look beyond the current quarter, clearly there is a call on what the [INAUDIBLE] economic recovery is going to be and I think we are not economists, but looking at the indicators and seeing good indication that is things are improving, thats for the robustas, I guess time will tell.

Okay, Fair enough. Just one follow-up question here. Over the last two quarters,you had a couple of large orders booked in each quarter. In that $77 million we are discussing, are there large orders in there?

The largest we have, we did a quick synopsis. We did $3.6 million or $5.6 canadian. It's pretty broad based and it's primarily roughly split and equally 80% of the total volume will probably be coming from the computer electronics and automotive customers and balance from the other sector.

Okay, terrific. If we turn to the thermals, Bruce, that run rate that you quoted for the end of fiscal '03, I think you suggested $18 million in revenue, can you give me an idea of what level of utilization you would be at with your insisting equipment?

It is really small utilization to what is put in place.

So,you could ramp with your existing platform to some order of magnitude above $18 million run rate?

Absolutely.

Is $50 million a reasonable range with what you have in place currently?

There is some Cap-X, actually required We are not talking huge numbers of Cap-X.

So, you can scale this business quickly with incremental Cap-X?

Absolutely.

At that $18 million run rate would this business be profitable stand alone?

Yeah.

Where does it hit the break even point.

I don't think we have that name -- number. Not at this point in time, we don't have that number.

Okay. Would it be fair to assume by the fourth quarter of fiscal 03 the unit would be profitable to stand alone giving what you know today?

Could be.

Better be.

I also want to reiterate this is sensibilia orders that have been awarded to date. Clearly there is a lot more in the pipeline.

Right, just one follow-up and it speaks to new orders. What kind of lead times are you seeing from the point where you get a commitment from a customer to actual shipment activity.

In thermals?

Yeah.

From receipt of order, you start with small volume ramps to fill a worldwide pipeline. As the processor speeds, the announce processor speeds along before the vendor production. There is a lag to when you actually receive to when you get into full volume.

Okay, terrific. Thank you.

It varies. Depends upon when the processor chip actually gets installed.

Your next question is from Cameron Jeffries with Credit Suisse First Boston.

Good morning, guys. Just a quick question on the duration, just wondering if you can give us a sense of what the backlog duration is and whether there has been significant changes since the third quarter.

A difficult question to answer given the fact that you are talking probably about three hundred different projects all with different schedules.I would say that in looking at, what we have [INAUDIBLE] right now, two things that are probably significant. One, I think there has been an substantial increase in the amount of repeat system activity that we have bag log. Which is obviously positive because it allows us to roll through in a quicker pace. So I think we have seen that situation improve. We have also had a fair amount of activity, particularly over the fourth quarter in the design area where I think Klaus mentioned the last conference call, we had taken overtime restrictions off the design area and well that work is now flung onto the floor. We also allow us to now get it into the shop and the shop utilization improves and we are expecting that to also happen going forward.

There hasn't been really any big order that has pushed it out or anything like that to a meaningful extent?

No.

Okay, For your operating margin for fiscal 03 can you give us a sense as to how much improvement you expect to see versus this year and maybe how close you could come to your -- what your former longer term target of 11%to12% was, I don't imagine you will get to that level, but could you give us a sense of how much improvement you expect to see along those lines.

Again, our internal targets which are based on the interline assumption of continued economic recovery have been showing a steady progression of our consolidating operating margin so by the end of the fiscal year, the fourth quarter that we would expect margins are running at or better than what they were in 2001. So, getting back into that range we were talking about --.

In the fourth quarter though?

Yeah.

Great. Thanks.

The next question is from Peter Saccarl with Nesset Burns. Please proceed.

Good morning. Ron, the $3.2 million write down and $400,000 of severance, I'm trying to figure out the per share impact. Can you give me that or it will me how much tax would be taken against the charges?

The standard tax rate. This is a quarter that was year end so we went through and did a number of analysis. I figured that if we took all the factors out of the shoot we probably would have reported an EPS of about five cents per share.

Right and the other question I had, when you are talking about the $77 million of the activity you secured since the quarter end, you describe it as new order bookings and commitments, what's the difference between commitments and new order bookings?

The only difference between the two is one,have the purchase order in hand and the other one, we have been told it's on its way. A letter of intent.

DOI

Do 100% typically result in bookings within a short time frame?

Yes.

Okay, that's all I have, Thank you.

The next question is from David Garaman with Scotia Capital, please proceed.

Yes, I just wanted to come back to one comment. That was regarding the run rate in the first six weeks of the quarter. I think he said that you felt that things would remain at least at this level or increase. I am trying to interpret that. Sounds like you could have a very, very big number for the year if you maintain that rate. Is that correct interpretation?, Or should we be more cautious?

Are you suggesting that you extrapolate it out?

If you extrapolated, you end up with a huge number. I'm not suggesting that because that's sounds like too big of a number, but I guess what I'm trying to get a sense of is do you feel you are getting back to the situation you were in in 2001 or is it too soon to say on the order side?

Certainly from all we have seen at this point in the way of customer activities and customer responses and customer inquiries and so on. We fully expect things to get back to normal, yes. In the second or third quarter unless something totally unforeseen happens again.

Normal to you would mean like what within 01 or something like that?

Exactly.

Fair enough, What areas are thriving this [INAUDIBLE]?

Like I said, if you look at the numbers in that $77 million, we are seeing pretty good based activity. If that's an indicator, I said about 80% of the total volume is electronic and automotive. You split it both equally between the two and it would be balanced basically from health care where the stuff in the other consumer products primarily in that area. It's broad based and the order size indicate that the indivtial order is they are broad based as well.

Electronics is more active now than the past three quarters. What Ron said earlier off the electronic and computer peripheral business, we dropped --.

Backlogs are down 64%.

64% exactally right, So with that we receive alot we see a lot of activity in that sector again.

Did you say 80% from auto and computer?

Roughly 80% is between automotive and computer electronics.

Great. A couple of house keeping issues. The inventory, did that run through cost getting sold?

Yes.

And the reverence?

Yes.

On the non-cash working capital, you made an improvement. Will we see farther improvement in percentages? It sounds like we have growth ahead.

We probably have contact. What we are seeing with the increase in activity will be likely a requirement to put money into working capital. That coupled with the fact that we are having an increase in shop utilization indicates a working capital utilization. I am not expecting dramatic improve ATS because I think we are moving back into growth mode again.

Right. Cap-X for 03?

Right now I will give you some guidance from the standpoint of what we set in the operating budgets for the year. That's clearly dependent upon the pace of new order placement that comes in in the components group. We have right now in the $29-30 million has continue for the new accident. About ten million of that is work we are planning to make in the Solar business. To farther improve efficiencies. Roughly about 7-8 million in the components group and another chunk in the systems group largely continued to attach to it as well.

Depending on how the business goes, up to 29-30.

Clearly a call on the economic and how we participate. From a planning standpoint, targets are for that to take place and we provide conteufrplgenceys to provide to that.

Last question, tax rates going forward?

I think that during the quarter, we are going to see the rate come down a little bit. Partly because of the tax planning inteurbatives we under took in the current year. We are talking in the 30% range.

Thank you very much.

Ladies and gentlemen, if there additional questions please press star one. Your next skwe from --.

Good morning. Ron, a couple of questions. In opening remarks, you expected 1 to be better than Q4. That's expecting the backlog is flat and the backlog is down sequentially from q3. Despite that, you feel comfortable to see an improvement in Q1?

First of all, I am not expecting that we will have inventory adjustments in Q1. Secondly, I think as I indicated, we are having more work fly on to the floor. We are getting an increase in shop utilization and that will be beneficial. We are expecting good performance in the groups. From our perspective when we look at the business combined with the fact that the order bookings is increasing with repeat system that is means we can pull that as well, we think it pwoeds well.

Okay. Regarding the demand pick up you are seeing, order booking is up since year end. Is it at a point that visibility is increasing throughout the quarter and maybe you would be willing to give a forecast in terms of revenue for q1.

I would say we have not provided a forecast and we didn't contemplate doing that today.

Okay. Just to go back on the long-term goal of revenue growth between 15-25%, at what point do you think you could be back at that level?

That's very much a call on the economic recovery, but the budget targets are calling for a substantial pick up in business. A recovery in our levels of activity over the course of the current fiscal year so that from a revenue standpoint we are coming off the base when kh we think is a low point and looking for the growth to be at the top end of the 15-25% range over all. Obviously we are looking for improved utilization to allow earnings to grow.

Okay. Just to go back, is it possible to have a reading in terms of revenue? Was the revenue more back in the quarter or more front and loaded?

No, the revenue was basically ran through the first quarter in a normal sense and we do get movement on a month by month basis and I don't think it's indicative.

Thank you.

Your next question is a follow-up from David Garaman from Scotia Capital.

Yes, actually two questions,One on the comment you just made, Ron. You said you expected based on what you can see in the plan on the economy and so on. If it turns out the way you think it will, the recovery that revenues would be at the top end of your forecast?

Revenue growth will be at the top end of our growth range [INAUDIBLE].

Okay. That would imply, unless I'm wrong, a very, very large increase in orders in the year because you typical convert roughly half your orders to sales at any one point in time. Your orders are receiving faster to keep the bag log at a reasonable level.

I'm not sure I follow the math, you that you are running through, but I can tell you that we are coming off of the year, where our revenues contracted. and you see the backlog, Certainly stabilized and improved throughout current quarter. With an increase in the amount of repeat systems activity. We are continuing to look at strong order prospects and we think we our improving economic situation from my perspective that should allow us the growth at a faster rate. Also don't forget we are coming off a smaller base. That helps us to achieve a higher percentage growth rate.

I'll follow-up with you on that. The other quick question was Klaus mentioned about subcontract build and I was wondering if he can provide some explanation of what he means by that.

Gladly, just to to give you one example, we recently picked up a customer or found a customer who partially made their own equipment and partially subcontracted it out to the small companies in the regional area and had a lot of problems with trying to put the systems together and a lot of problems with documentation of the systems and a series of the systems in various parts of North America and the world. They discovered us months ago and now we are building all of their subsystems and given up to do this internally. They have given up working with four to five different small subcontractors because of the [INAUDIBLE] problems they had. The company in the medical equipment business. This will based on the forecast they have given us, result in about a $20 million annual business for us now with hopefully a lot of upside. That's one typical example of how we can increase our presence in that sort of business. There many companies out there who are sure they have similar needs.

Okay, So, this is all precision component?

This is actually a systems built.

Okay. Somebody might have a contract to provide a large system they are not proving terrible effective at producing some smaller parts of it and that's where you folks come in. It sounds like you have an annual component, that is correct?

Well yeah and of course alot of these could lead into a life time relationship because if we prove to be a valuable supplier, no reason what so ever, why we should let go as a supplier unless they exit the particular line of business.

It's Ron, I just want to make sure we clarify on this thing, maybe alittle bit of confusion, What we are talking about is customers developed a platform and they are looking for somebody to build that platform while they continue to focus on designing new platforms. Clearly we bring in the ability to optimize design and scale the production and basically help them to take the product through to market.

So, would this be systems per say,or is this kind of like -- maybe I can contrast it between the system that you typically produce with a lot different components, something like eco-cell where it's a single unit, is it more like the eco-cell?

Yes, very much a standard platform that the company developed and markets, Correct.

Thank you very much.

Your next question is from Ben Washatar with National Bank Financial. Please proceed.

Thank you, Yes,the question more on your acquisition strategies going forward. You have alot of cash, generating cash which is just marvelous, Can you go back to your views on your strategy on the acquisitions particularly, as the case being after the slow down , pricing of assets must have come down significantly and what kind of matrix are you looking at, financial in terms of market position?

Our position of strategy , is historical has been to acquire small tuck in types of acquisitions that complement geographic positioning or adding to the technology base. Right now the areas we are looking at most would be the [INAUDIBLE] as we are looking at. Europe is an area that we would like to broad note our presence in farther and we are activity looking at opportunities in that particular market at the current time. As for the metrics, I think that -- I don't know if the pricing in the private company space has come down tremendously, clearly there has been more of a check and balance come into it. Private companies, which are typically owned by owner managers are not as elastic to the swings that take place in the public markets. I think it will be very much dependent upon the strategic value of the acquisitions we look at can contribute to ATS, that will determine the pricing range. Historically, acquisitions we have done have typically been in the seven- eight times ebitda and sometimes lower and sometimes the numbers equated to one times revenue. I don't know if those are good to judge on a go forwarded basis.

Should we expect in this context acquisition announcement this is year? Is that part of the strategy?

That is certainly a possibility because we are actively looking at opportunities today even though it would be too early to suggest we have something that's a slam dunk.

Thank you very much.

Your next question is a follow-up with Cameron Jeffries with Credit Suisse First Boston.

Ron, you can remind us what the third party percentage was in the fourth quarter?

Yeah. Third party content read 46%--, forty-six cents on the dollar by the automation systems revenue.

Thanks.

Once again, Ladies and gentlemen, if there additional questions, please press star followed by the one. Mr. Woerner, there no farther questions at this time. Please continue.

Thank you, operator. If there no farther questions, I have one other announcement. Our annual meeting will be held on September 26th at 4 p.M. Eastern time. This is later than normal because we decided to organize a date that does not conflict with peak summer vacations. Hope to see you there. The details will be in the annual report and circular. Thank you very much again for listening and have a good day.

Ladies and gentlemen, this concludes your conference call and thank you for participating. Please disconnect your lines.