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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.