ATS Corp (ATS) 2001 Q4 法說會逐字稿

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  • CONFERENCE FACILITATOR

  • 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.

  • KLAUS 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.

  • RON JUTRAS

  • 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.

  • KLAUS WOERNER

  • 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.

  • CONFERENCE FACILITATOR

  • 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.

  • MASON GRANGER

  • 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?

  • BRUCE HEALEY

  • The run rate at the end of

  • fiscal '03 would be in the $18

  • million range per ahem at that level.

  • KLAUS WOERNER

  • Based on what we know now.

  • BRUCE HEALEY

  • Based on the forecast we have today.

  • JP BENSON

  • 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.

  • BRUCE HEALEY

  • They are primarily

  • server-based markets at this time.

  • JP BENSON

  • Have you had any wins in

  • desk top pc's to speak of?

  • BRUCE HEALEY

  • 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.

  • JP BENSON

  • 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?

  • RON JUTRAS

  • 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.

  • JP BENSON

  • The industry cost curve is kind of

  • coming down?

  • RON JUTRAS

  • 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.

  • JP BENSON

  • 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.

  • RON JUTRAS

  • You want to add something?

  • KLAUS WOERNER

  • 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.

  • JP BENSON

  • Just on the pretty decent

  • improvement in operating

  • results at precision

  • components, Ron?

  • RON JUTRAS

  • 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.

  • BRUCE HEALEY

  • 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.

  • JP BENSON

  • So it sounds like these --

  • you have seasonal fluctuations

  • quarterly in the automotive

  • business, but these kind of margins

  • are sustainable going forward?

  • BRUCE HEALEY

  • Yes, they are.

  • JP BENSON

  • Okay.

  • That's all, I'll let someone else go,

  • Thanks very much.

  • CONFERENCE FACILITATOR

  • The next question

  • is from Glen Jamieson with Griffin McBurney, please proceed.

  • GLEN JAMIESON

  • 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?

  • KLAUS WOERNER

  • 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.

  • RON JUTRAS

  • 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.

  • GLEN JAMIESON

  • 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?

  • RON JUTRAS

  • 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.

  • GLEN JAMIESON

  • 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?

  • BRUCE HEALEY

  • It is really small

  • utilization to what is put in

  • place.

  • GLEN JAMIESON

  • So,you could ramp with your

  • existing platform to some

  • order of magnitude above $18

  • million run rate?

  • BRUCE HEALEY

  • Absolutely.

  • GLEN JAMIESON

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

  • BRUCE HEALEY

  • There is some Cap-X, actually required

  • We are not talking huge

  • numbers of Cap-X.

  • GLEN JAMIESON

  • So, you can scale this business quickly

  • with incremental Cap-X?

  • BRUCE HEALEY

  • Absolutely.

  • GLEN JAMIESON

  • At that $18 million run

  • rate would this business be profitable

  • stand alone?

  • BRUCE HEALEY

  • Yeah.

  • GLEN JAMIESON

  • Where does it hit the break

  • even point.

  • BRUCE HEALEY

  • I don't think we have that

  • name -- number.

  • Not at this point in time, we don't have that number.

  • GLEN JAMIESON

  • 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?

  • BRUCE HEALEY

  • Could be.

  • KLAUS WOERNER

  • Better be.

  • BRUCE HEALEY

  • I also want to reiterate this is

  • sensibilia orders that have been

  • awarded to date.

  • Clearly there is a lot more

  • in the pipeline.

  • GLEN JAMIESON

  • 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.

  • BRUCE HEALEY

  • In thermals?

  • GLEN JAMIESON

  • Yeah.

  • RON JUTRAS

  • 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.

  • GLEN JAMIESON

  • Okay, terrific. Thank you.

  • RON JUTRAS

  • It varies.

  • Depends upon when the

  • processor chip actually gets

  • installed.

  • CONFERENCE FACILITATOR

  • Your next

  • question is from Cameron

  • Jeffries with Credit Suisse

  • First Boston.

  • CAMERON JEFFRIES

  • 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.

  • BRUCE HEALEY

  • 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.

  • CAMERON JEFFRIES

  • There hasn't been really any big

  • order that has pushed it out or

  • anything like that to a meaningful

  • extent?

  • BRUCE HEALEY

  • No.

  • CAMERON JEFFRIES

  • 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.

  • RON JUTRAS

  • 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 --.

  • CAMERON JEFFRIES

  • In the fourth quarter though?

  • RON JUTRAS

  • Yeah.

  • CAMERON JEFFRIES

  • Great.

  • Thanks.

  • CONFERENCE FACILITATOR

  • The next question

  • is from Peter Saccarl with Nesset Burns.

  • Please proceed.

  • PETER SACCARL

  • 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?

  • RON JUTRAS

  • 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.

  • PETER SACCARL

  • 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?

  • RON JUTRAS

  • 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.

  • KLAUS WOERNER

  • DOI

  • PETER SACCARL

  • Do 100% typically result in

  • bookings within a short time frame?

  • RON JUTRAS

  • Yes.

  • PETER SACCARL

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

  • CONFERENCE FACILITATOR

  • The next question

  • is from David Garaman with Scotia

  • Capital, please proceed.

  • DAVID GARAMAN

  • 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?

  • RON JUTRAS

  • Are you suggesting that you

  • extrapolate it out?

  • DAVID GARAMAN

  • 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?

  • KLAUS WOERNER

  • 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.

  • DAVID GARAMAN

  • Normal to you would mean like what

  • within 01 or something like that?

  • KLAUS WOERNER

  • Exactly.

  • DAVID GARAMAN

  • Fair enough, What areas are thriving

  • this [INAUDIBLE]?

  • RON JUTRAS

  • 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.

  • KLAUS WOERNER

  • Electronics is more active

  • now than the past three

  • quarters.

  • What Ron said earlier off the

  • electronic and computer

  • peripheral business, we

  • dropped --.

  • RON JUTRAS

  • Backlogs are down 64%.

  • KLAUS WOERNER

  • 64% exactally right, So with that we receive alot

  • we see a lot of activity in that sector

  • again.

  • DAVID GARAMAN

  • Did you say 80% from auto

  • and computer?

  • UNKNOWN SPEAKER

  • Roughly 80% is

  • between automotive and

  • computer electronics.

  • DAVID GARAMAN

  • Great.

  • A couple of house keeping

  • issues.

  • The inventory, did that run

  • through cost getting sold?

  • UNKNOWN SPEAKER

  • Yes.

  • UNKNOWN SPEAKER

  • And the reverence?

  • UNKNOWN SPEAKER

  • Yes.

  • UNKNOWN SPEAKER

  • On the non-cash working

  • capital, you made an

  • improvement.

  • Will we see farther

  • improvement in percentages?

  • It sounds like we have growth

  • ahead.

  • UNKNOWN SPEAKER

  • 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.

  • UNKNOWN SPEAKER

  • Right.

  • Cap-X for 03?

  • UNKNOWN SPEAKER

  • 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.

  • UNKNOWN SPEAKER

  • Depending on how the

  • business goes, up to 29-30.

  • UNKNOWN SPEAKER

  • 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.

  • UNKNOWN SPEAKER

  • Last question, tax rates

  • going forward?

  • UNKNOWN SPEAKER

  • 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.

  • UNKNOWN SPEAKER

  • Thank you very much.

  • CONFERENCE FACILITATOR

  • Ladies and

  • gentlemen, if there additional

  • questions please press star one.

  • Your next skwe from --.

  • UNKNOWN SPEAKER

  • 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?

  • UNKNOWN SPEAKER

  • 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.

  • UNKNOWN SPEAKER

  • 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.

  • UNKNOWN SPEAKER

  • I would say we have not

  • provided a forecast and we

  • didn't contemplate doing that

  • today.

  • UNKNOWN SPEAKER

  • 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?

  • UNKNOWN SPEAKER

  • 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.

  • UNKNOWN SPEAKER

  • 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?

  • RON JUTRAS

  • 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.

  • UNKNOWN CALLER

  • Thank you.

  • CONFERENCE FACILITATOR

  • Your next

  • question is a follow-up from

  • David Garaman from Scotia Capital.

  • DAVID GARAMAN

  • 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?

  • RON JUTRAS

  • Revenue growth will be at the

  • top end of our growth range [INAUDIBLE].

  • DAVID GARAMAN

  • 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.

  • RON JUTRAS

  • 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.

  • DAVID GARAMAN

  • 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.

  • KLAUS WOERNER

  • 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.

  • DAVID GARAMAN

  • Okay, So, this is all precision

  • component?

  • KLAUS WOERNER

  • This is actually a systems

  • built.

  • DAVID GARAMAN

  • 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?

  • KLAUS WOERNER

  • 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.

  • RON JUTRAS

  • 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.

  • DAVID GARAMAN

  • 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?

  • KLAUS WOERNER

  • Yes, very much a standard

  • platform that the company

  • developed and markets,

  • Correct.

  • DAVID GARAMAN

  • Thank you very much.

  • CONFERENCE FACILITATOR

  • Your next

  • question is from Ben Washatar with

  • National Bank Financial.

  • Please proceed.

  • BEN WASHATAR

  • 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?

  • RON JUTRAS

  • 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.

  • BEN WASHATAR

  • Should we expect in this

  • context acquisition

  • announcement this is year?

  • Is that part of the strategy?

  • RON JUTRAS

  • 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.

  • BEN WASHATAR

  • Thank you very much.

  • CONFERENCE FACILITATOR

  • Your next

  • question is a follow-up with

  • Cameron Jeffries with Credit Suisse First Boston.

  • CAMERON JEFFRIES

  • Ron, you can remind us what the

  • third party percentage was in

  • the fourth quarter?

  • RON JUTRAS

  • Yeah.

  • Third party content read 46%--,

  • forty-six cents on the dollar by the automation systems revenue.

  • CAMERON JEFFRIES

  • Thanks.

  • CONFERENCE FACILITATOR

  • 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.

  • KLAUS WOERNER

  • 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.

  • CONFERENCE FACILITATOR

  • Ladies and

  • gentlemen, this concludes your

  • conference call and thank you

  • for participating.

  • Please disconnect your lines.