ATS Corp (ATS) 2008 Q1 法說會逐字稿

Good morning, and welcome to ATS First Quarter Conference Call for three months ended June 30, 2007.

The following statements reflecting forward-looking information is made on behalf of ATS and all of its representatives. The oral statements made on this call will contain forward-looking information. The actual results could differ materially from the conclusions, forecasts or projections in the forward-looking information. Certain materials, factors or assumptions were applied in drawing a conclusion or making a forecast or projections as reflected in the forward-looking information.

Additional information about the material factors that could cause actual results to differ materially from the conclusion, forecast or projection in the forward-looking information, and the material factors or assumptions that were applied in drawing a conclusion or making a forecast or a projection as reflected in the forward-looking information, are contained in ATS' filings with Canadian provincial securities regulators.

I would also like to remind everyone that this conference call is being recorded today, Thursday, August 9, 2007 at 10:00 a.m. Eastern Time. Now, I would now like to turn to call over to Ron Jutras, President and Chief Executive Officer of ATS. Go ahead, Mr. Jutras.

Thank you, Operator. Good morning, everyone, and thank you for attending.

Joining me today are Gary Seiter, Carl Galloway and Bruce Seeley. Unfortunately, Gerry Beard was unable to attend, and he's very disappointed. Gerry is on the mend from a very nasty virus, and we wish him a very speedy recovery. In Gerry's absence, Hans Rudell, Manager of Financial Reporting, is with us today. Also, in Gerry's absence, Gary and I will provide some supplementary financial analysis to the MD&A, which I trust all of you now have.

It's now been about seven weeks since we announced an aggressive program to unlock value in our business. Even though not much time has passed, we're pleased with the progress we've made during this busy period toward our strategic objectives.

As a reminder, these objectives are as follows. One, make ATS a pure, highly focused automation company, the best in the world, through a set of four focused priorities. Second, to divest PCG. And third, to strengthen and exit from Photowatt.

Central to the implementation of our program was securing funding for Photowatt. We're on track in executing this plan. The rights offering was launched on schedule in July, and is now nearing completion with the rights expiring on August the 14th.

This initiative will give us net proceeds of approximately $103 million to use specifically and exclusively to strengthen and build Photowatt in accordance with our improved and more focused bio-creation strategy for the Solar business, which is already in motion.

As we had promised seven weeks ago, we also announced today that our Board has approved an exit strategy for Photowatt. This involves a distribution of shares of Photowatt to ATS shareholders through a Spin Out. This will result in Photowatt becoming a stand-alone publicly traded company.

Our advisors have informed us the completion of this Spin Out will likely take until the Spring of 2008. This timeline takes into account the corporate, accounting, tax and legal activities and approvals required to complete this initiative. This planned Spin Out is integral to achieving ATS' vision of becoming a pure automation systems business.

And most vitally, we believe the Spin Out is in the best interest of our shareholders. Why? First, it will not dilute the ownership interest in Photowatt enjoyed by our shareholders, and it will continue to have the ability to participate in the growth of this Solar business. And second, separating Photowatt from ATS should allow the full value of each business to be recognized in the share price of each enterprise. This is a clear and attractive path forward for our Solar business and for ATS shareholders.

The Spin Out strategy is also more controllable and executable than other options we considered. And we intend to pursue it aggressively. The Spin Out does not, by the way, alter our mandate to strengthen Photowatt in the meantime, and to take full advantage of the proceeds raised from the rights offering.

A key item on our agenda to strengthen and exit Photowatt is to recruit a capable CEO based in France to lead the business on a stand-alone basis. We've made good progress here, as well. Our selection process for this key role is advancing on schedule, and I am now optimistic that we'll be able to complete this task in the next few weeks.

Strengthening Photowatt also involves improving our overall financial performance, including increased sale efficiency both internally and through collaborations. I've asked Gary to talk about the specifics of Photowatt's performance in his remarks. But, from a collaborative R&D standpoint, I can tell you that our plans with the French Atomic Energy Commission, CEA, and Electricite de France, EDF, to form a lab-fab, are moving ahead nicely.

I expect Photowatt will sign an agreement this Fall with our partners that will formally establish the lab-fab development entity to execute our R&D collaboration. The primary mission of the lab-fab is to improve the power efficiency of solar cells, especially those made from refined metallurgical silicon.

Combining the extensive world-renowned R&D technical depth funding and supporting infrastructure of CEA, the substantial market channels at EDF, and Photowatt's vertically integrated solar expertise and experience promises to make the lab-fab a powerful commercial advantage for each partner. Our $16 million share of the lab-fab will be fully funded by the rights offering.

The rights funding we're about to receive will also strengthen Photowatt in many other ways. However, the business is already a much better position for the future than it was a year ago because of the silicon supply arrangements signed in the last few months, including the two contracts we entered into in Q1 with Deutsche Solar for polysilicon wafers, and with Dow Corning for refined metallurgical silicon.

The fact is silicon supply remains an industry-wide challenge, and these supplies gives us greater certainty for the future. Specifically, they enable Photowatt to expand with much greater confidence because the required silicon supply contracts for our planned capacity expansion are already in place.

We discussed the duration of these supply agreements on the last call, so I will simply remind you that we intend to continue to actively manage and expand our supply, since this is a critical component of our mandate to strengthen Photowatt for continued growth.

Strengthening our Automation Systems Group performance is also a key priority, one of four for our core business, all of which we discussed on our last call. Here, we are also making important progress.

New automation order bookings increased to $146 million, compared to $98 million in the first quarter a year ago. This is a strong 49% increase. We expect these orders will increase revenue and bolster factory utilization, the key driver of forward earnings as we progress through the year.

So, we're pleased with this early progression. And our sales teams are working very hard to sustain order flow going forward. In fact, entering new markets and expanding our multinational customer base is another one of our four key ASG priorities.

This will take time. But, of note, 36% of the orders we secured in the first quarter were from new customers, including the $14 million healthcare order and the $7 million security technology order announced in the past few weeks.

We're also encouraged by the substantial performance improvement within our Cambridge and Ohio ASG operations. As you may recall, these operations performed poorly in the fourth quarter because of the under-utilization of resources and the stress of very significant organizational and capacity restructuring. But, with these actions, they are now poised to benefit from greater organizational stability, improved order flow, increased backlogs and a better cost structure.

Looking at the first quarter specifically, with improved contributions from both these facilities, ASG's EBITDA, excluding severance costs, was $4.8 million, compared to adjusted EBITDA of $3.6 million in the fourth quarter.

This is the beginning of improvement. But, directionally, we're on the right track. And we know that only full execution against our financial improvement objectives is acceptable, and that we still have a ways to go to achieve the performance we demand.

Another key step forward for our core business was the recruitment announced yesterday of Jim Rowan as President and Chief Operating Officer for Automations Systems Group. Jim is a very seasoned and talented executive, with extensive international operating experience in complex manufacturing. He brings extensive experience in starting, growing and managing complex manufacturing businesses in numerous countries.

Jim gained significant knowledge and expertise during his eight years with Flextronics, where he rose to the level of Vice President of European Operations. And he was most recently Executive Vice President of Worldwide Operations for Celestica. I am extremely pleased that an executive of Jim's caliber has agreed to join ATS to help us realize our vision.

We're also very pleased that Bruce Seeley, who has taken on the role of interim COO, will assume responsibility as President of ASG's Asian and European Operations. In this newly created role, Bruce will be able to fully deploy his considerable skills, experience and relationships to advance our ASG business in Asia, where we have aggressive growth targets, in our REM business, which Bruce helped to start, and he will also help us to further strengthen our European operations.

You may recall the recruiting and developing the top talent within ASG as another of our four core business priorities. And I'm confident in saying that these changes represent further important checkmarks against this objective.

Jim Rowan's immediate priorities include recruiting a president for our North American ASG operations. We've already identified some candidates for this role, and we're optimistic that Jim will be able to recruit a highly experienced person for this role very soon.

I'm also very pleased with the new team that we have in place in areas of IT, strategy and HR. We've added critical skills, experience and drive to push forward with our strategic goals.

Our final ASG strategic priority is to strengthen our global brand, and we have a host of initiatives ongoing in this area. The bottom line on ASG is that we have the right priorities in place and, increasingly, the right people.

Now, it's about execution because these four priorities and the work we do against each one will allow us to achieve our vision of becoming the best automation solutions provider in the world. That's our end game because we believe it will create sustainable and attractive shareholder value.

I'll speak to a few other first quarter performance measures and our business outlook at the end of the call. But, first, I'd like Gary to review the results of Photowatt France. Gary?

Thanks, Ron, and good morning, everyone.

The first quarter results at Photowatt were effected by a variety of factors, and we'll delve into the details shortly. But, before doing that, I would like to acknowledge that Photowatt France did succeed, as we knew they would, in accomplishing a very significant ramp-up in the production of refined metallurgical silicon products. By significant, I mean in terms of units.

Modules made from 100% refined metallurgical silicon accounted for over 40% of the modules sold this quarter versus 14% in the last quarter. Clearly, the market acceptance is good, as is our ability to sell these products.

Our metallurgical silicon capability is an important one because it will help us to manage the impact of both the high price and the tight supply of polysilicon feedstock. In fact, metallurgical silicon products contributed almost $17 million to the sales line this quarter.

For the record, by the end of the quarter, we met all of our targets relative to the use of refined metallurgical silicon. This includes production rates, efficiency and average selling price.

Before turning to our financial results, I would like to make one additional opening comment. We are living in a very different world today than a year ago. Polysilicon feedstock prices are much higher. Polysilicon feedstock supply is even more constrained. And we have made a fundamental shift in our manufacturing strategy toward refined metallurgical silicon. These factors make comparisons to last year extremely challenging, and masked the true value of our metallurgical silicon capability.

As we go through the numbers, I think you'll discover that, while early metallurgical silicon production efficiencies due to learning curve did have an impact in the first quarter, but this was not the primary driver of our performance. That distinction belongs to the lower average selling prices for solar modules as experienced across Europe, and the impact on margins from industry-wide polysilicon shortages and poly prices.

Revenue at Photowatt France was $46.2 million. This is up 5% over the comparable period last year. This result was achieved in spite of an average 13% decline in the average price of our products. This higher revenue is the result of our recent capacity expansion in France, which was completed at the end of the fourth quarter.

Consequently, we sold 10.7 megawatts in the quarter. This represents a 23% increase over the comparable period last year. However, we had to work much harder to produce this output. And due to many factors, our margins are lower than last year.

To get more detail, Photowatt France's EBITDA for the first quarter was $2.7 million, and the operating loss was $400,000. This compares to an EBITDA of $12.5 million and an operating income of $10.2 million in the first quarter of last year.

These results reflect a continuation of the market and manufacturing challenges that began several quarters past, and was driven by two realities. The first was lower average selling prices for Photo (inaudible) products, and the second was higher manufacturing costs.

Lower selling prices had a negative impact of $6.8 million on operating income. This was, by far, the largest single driver in reducing our margins, and accounted for over half of the total negative impact. Polysilicon module average selling prices were 8% lower than a year ago, and our metallurgical silicon modules are sold at approximately 90% of the price of the polysilicon.

We believe that the decrease in the market selling price was a reflection of several factors, including changing subsidiaries in Europe and the soft winter market. These factors contributed to a build-up of inventory within the supply chain, and resulted in lower prices across the industry.

As you know, our module efficiency with refined metallurgical silicon is lower than with polysilicon. During the quarter, we increased the efficiency to 13%, up from 11.5% when we started using the material. Nonetheless, this is lower than our polysilicon efficiency. This had a negative impact on operating income of $2.2 million, compared to last year when we produced only polysilicon modules.

Total material costs have increased significantly over the first quarter of last year, and have negatively impacted operating income by $2 million. We have seen our polysilicon costs increase significantly.

There are a number of factors at play here. First, the average value of polysilicon that we have in inventory is increasing as we consume material that was purchased at lower prices. Secondly, the average price that we paid to acquire new polysilicon has nearly doubled in the last year.

Additionally, there is another cost. Today, due to availability in the market, most of the polysilicon we purchase and use is recycled. This material has more impurities than electronic grade polysilicon which, historically, constituted the majority of the feedstock we consumed.

Increased use of recycled polysilicon impacts our processing yields, our silicon utilization, efficiency, and even our labor costs. The increase in polysilicon costs that I have just described strongly validates our decision of last year to utilize our vertically integrated manufacturing capability and know-how to develop the capacity to use refined metallurgical silicon as an alternative feedstock.

Moving on, we also choice to purchase more wafers and cells which allowed us to increase the factory output. This did have a negative impact on gross margins, compared to when we use our internally generated substrate products, as we did last year.

But, it did make a positive margin contribution overall, since it supported higher output in our ingot and wafering areas. The output in these areas would have otherwise been constrained by metallurgical silicon production.

I hope this gives some idea of the various impacts on our performance. Now, let's discuss the outlook.

We believe that the market conditions in Europe are stabilizing. And looking at other performance influencers, we recognize that polysilicon supplies and higher polysilicon costs will likely remain a challenge in the near term.

In order to mitigate the impact that this has on our business, we plan to continue to advance our capability for utilizing refined metallurgical silicon as a cost-effective alternative feedstock. This capability provides us with an important flexibility in dealing with polysilicon supply conditions.

Additionally, we are seeking to optimize the overall production processes, including improving efficiencies, increasing yields and raising productivity. We also plan to continue to develop our polysilicon strategy, including securing additional sources of high quality polysilicon materials.

Now that ramping metallurgical silicon and assimilating new production capacity has been achieved, we can focus on operational and process improvements, improvements that will drive increased profitability and reduce risks associated with polysilicon supply.

Now, I'll turn the call back to Ron.

Thanks, Gary.

Just to close the loop on Solar, you'll note that we significantly reduced the losses associated with the [serial] Solar in the first quarter. Going forward, we expect these losses to continue to diminish due to our decision announced in the quarter to halt internal development of this technology.

We're also on track to close our module facility in New Mexico. This will remove the drag of an underperforming asset and further strengthen our management focus on successfully executing our plans at Photowatt France.

Moving on, the process to divest Precision Components Group is progressing on schedule. Although not much time has passed since the Board approved this initiative, we have worked with our financial advisors to prepare marketing documents. Our goal is to divest this operation as quickly as possible, to allow us to bring total management focus to our core automation business.

Looking forward, and as a reminder, all of our businesses -- ASG, Solar, and PCG Operations -- experienced a negative impact of summer plant shutdowns. This effects second quarter performance, and it will again this summer. Compared to the last summer, however, some of the underlying performance drivers are improved.

Let me enumerate these. One, our automation order backlog has improved year-over-year based on the improvement in new order bookings in the past two quarters. And higher backlogs mean we have more work on hand to drive utilization up.

Two, our backlog is much more balanced across our global facilities than it was a year ago. And better balance means more potential for better, across the board, factory utilization and performance.

Three, although it's early, we have seen a good progression in order booking so far in the second quarter. Over the first six weeks, interim order bookings totaled $59 million. That's up 136% from the same period in Q2 of last year.

Four, we have taken significant costs out of ASG, and removed significant excess capacity. And fifth, in the case of Photowatt, last year's second quarter was held back because of an extended shutdown to facilitate plant equipment reorganization as part of its expansion.

In concluding, I would like to acknowledge the excellent support for our focused agenda that we received from investors during our recent roadshow. This is most appreciated. And we fully intend to deliver, and demonstrate our continued progress against each of our goals.

With the progress we've already achieved and the completion of our rights issuance next week, I believe that a number of the critical pieces are now already in place to drive our continued progress against our goals.

However, I can also assure you that our priorities are very clear, and the ATS team is intensely focused on the continued execution of our plans on an aggressive basis to achieve our stated goals, to become a pure automation company and realize our vision of being the best automation company around the world.

Thanks for listening. Now, with the operator's assistance, we'd like to take your questions. I'd ask that you please confine yourself to two per turn, so that we can hear from as many people as possible. Operator, would you open the lines for questions, please?

Certainly. (OPERATOR INSTRUCTIONS). One moment please for the first question. Marko Pencak, GMP Securities. Please go ahead.

Good morning, guys.

Hi, Marko.

Ron, a question, or maybe for Gary. In Photowatt France, if we assume that the currency stays constant and selling prices stay constant, given the initiatives you guys have in-house to improve the performance of met-grade silicon, when would you expect you should be in a profitable position in that business?

In general, we don't give forward-looking statement. We do anticipate, obviously, continuing improvements. We always have, and have plans in place to increase all operational efficiencies and improve output. Beyond that, I don't think we give any specifics.

Well, let me ask. I mean, is there availability for you guys to purchase wafers from third party suppliers? Because I presume that the margins on that are better than met-grade. Or is there just not enough material out there?

There is the ability to purchase external substrates, and we did do that in the first quarter. We have plans to do that continuing throughout the year, as well.

But, I guess, the percentage of that's not going to change? I mean, is purchase wafers going to be relatively, proportionately more or less versus your met-grade?

Well, on a percentage-wise, it would be a lower run rate than metallurgical silicon.

No, I know. But, if we look forward, say to the back half of this year -- let's forget about Q2 because of your summer shutdown. But, what I'm just trying to understand is will the purchase material be relatively more or less compared to what you guys just did in Q1?

I'm sorry. Could you repeat that? We're trying to--.

--What I'm trying to understand is, as you look forward -- and let's ignore Q2 because of summer shutdown, and that may affect the percentage. But, what I'm just trying to understand is if you look at what you expect to produce in the back half of this year, will the -- in cell, I should say -- will the met-grade feedstock be proportionately more or less, with respect to purchased wafers, than it was in Q1?

It would be more. We are continuing to ramp our utilization in metallurgical silicon. We were 14% last quarter, 40% of the product that went out the door this quarter was metallurgical silicon, and we've anticipated that it would actually increase towards the third and the fourth quarter.

Okay. The second question, just details on the Spin Off. What percent approval do you need to get from shareholders? And do you sort of have dates for when you might be mailing stuff and holding the phone?

I don't have the answer to that information. Unfortunately, Gerry is the one that's primarily handing this initiative. So, I don't have a proportion of what is required.

As we said, we expect to complete this task in the Spring of 2008, and we have a plan that gets us to that point.

And why does it take so long, given that you guys went through what I would envision to be a very similar process, with respect to the proposed IPO? I mean, in terms of accounting and regulatory and all that.

I think that's a very good question, Marko. I think there are some benefits that we derived from the work that was done through the IPO and from the rights issuance. But, there are also a number of additional hurdles that need to be cleared, in terms of completing the Spin Out.

These include -- there's a requirement to do a full evaluation. There's a requirement to get tax clearance certificates. And there's a requirement to, again, file updated regulatory documents, although it's an information circular and not a perspective. But, the disclosure is similar. And then, there's a requirement for shareholder approval, as well.

So, the plan that we've articulated provides for each of these critical tasks that has to be completed. And we set forth as aggressive a schedule as we think is possible. And we did that in conjunction with our advisors.

Okay. Well, I'll get back in queue. Thanks.

Thank you, Marko.

David Tyerman, Scotia Capital. Please go ahead.

Yes, good morning.

Morning.

I was wondering if you could give us an idea of what you see for cell module pricing, or what you're seeing right now, sequentially, compared to the last quarter?

Compared to the last quarter, the module ASPs are off slightly. As we've indicated, as compared to last year, they're off for polysilicon by 8%. We expect that, going forward, because the demand has firmed, that prices are going to steady-up.

Okay. And on the MgSi side, you said they are going higher. I think in your prospectuses, you talked about more than two-thirds for the year being MgSi. Is that still the expectation?

It would be in that neighborhood with one caveat, and that depends, again, as we spoke just a few minutes ago, on the number of external substrates that we purchase. But, it would be close to two-thirds or a little below that.

Okay. So, that would imply production in the last three quarters probably getting close to 80%? Am I in the ballpark there?

I'm sorry, 80% of--?

--80% of total would be out of MgSi because, in the first quarter, you had hardly any. And in the second quarter, you were well below the two-thirds.

I think David's suggesting that to get to an average of three-quarters, that you need to ramp-up dramatically through the back half. And I don't know if we're communicating properly.

Yes. Well, we look at -- we're talking on a quarter-on-quarter basis. So, we've gone from 7% to 14% to 40%. By the third quarter, we would expect that to be in the 60% to 65% range.

Okay.

Again, depending -- for the quarter.

Oh, yes.

Again, depending upon the number of external substrates that we purchase.

I'm sorry. Now, is that Q2 or Q3?

Q3.

Q3. So, you're set at 40% to somewhere in that range, and then that's the level you'll be at for the remainder of the year, kind of the idea?

That's our expectation, yes.

Okay. And just related to that, then. Is there any way to gage improvement on MgSi at all? I know you qualitatively talk about it. But, it's really hard for us sitting on this side of the phone to get any sense of where we're going on cost structure with that stuff.

Internally, we have a lot of metrics. Unfortunately, because of competitive reasons, we don't release those.

So, there are yields that we track. There are efficiency numbers, and there are productivity, as well as cost and margin numbers that we track. Our expectation is that, as we come up the learning curve -- we have not completed our learning curve.

Well--.

--So--.

--I would just add to that. I think that the ability to continually improve efficiencies of our production has been an ongoing part of the improvements that we've seen within Photowatt over time. We have a track record of achieving this. And these improvements have been meaningful.

Right.

And I think we've said in the past, and we've continued to believe, that the learning curve on MgSi will be steeper because it's relatively new. We're the only company producing this type of product today in the market place. And it's at an early stage.

We've just started to get to the point where we're manufacturing in meaningful quantities, and that's going to drive the ability to drive continuous improvement. So, we're quite pleased about where we're at with MgSi, and we're very optimistic about our ability to continue to enhance that.

Okay, great. I'll get back in queue. Thank you.

Michael Willemse, CIBC World Markets. Please go ahead.

Thank you. Ron, if I heard correctly, did you say your orders in the first six weeks of the quarter are up 136% versus last year?

That's correct. I believe they were $25 million, I think, in the same six-week period last year.

Okay. And last year, you ended up with $100 million for the whole quarter for new orders. So, at this current run rate, we could be up 50% for the whole quarter, once we get to the next six weeks booked in?

Yes. Well, I think that we said we are optimistic about what we're seeing happening from an order flow standpoint. But, I want to caution you that I think it's very difficult to gage the quarter's order booking rates based upon the interim number.

A good example, that would be last quarter. I think that the interim order booking number, we were two weeks away from the quarter, was about $9 million, and it ended up at $146. So, an extrapolation would have not gotten you close to the end number. So, again, I just want to make sure that I caution you with respect to doing straight extrapolations.

Great, okay. Also, is there a way to get a sense of what your capacity utilization would be in the Automation Systems business in Europe and North America and Asia right now? Or capacity is so easy to expand, that that's a tough number to calculate?

Well, I think it is a tough number to calculate.

Suffice it to say that we're much more comfortable with the extent of our capacity versus the backlogs than we have been in some time because of the backlogs' increase, as well as the distribution of that backlog across facilities. In addition, we've been spending a lot of time working to increase our ability to flex that capacity to deal with peak loading situations, either through outsourcing or temporary measures that will give us additional flex.

But, given the fact that ASG is primarily a custom design and build business, I think it's very difficult to put a pin in what our targeted complete capacity utilization number would be.

Okay, thank you.

You're welcome.

(OPERATOR INSTRUCTIONS). Frederic Bastien, Raymond James. Please go ahead.

Good morning. Just a related question on ASG. You noted a good growth in orders that you won from new customers. What kind of visibility do you have on potential incremental orders that you're getting from your returning customer base?

I think that there a couple of things we're looking at. I think that we are continuing to see -- and we've spent a lot of time working to improve the reliability of the sales forecast information that we get coming through the sales team, in addition to the work we did to improve our execution capability in this area.

We continue to see good activity with our core customer accounts. In fact, I think that we've seen some improvement in that. I think that would be a fair statement. So, our quotation activity remains relatively robust, I would say. And so, we're feeling good about our ability to continue to drive more activity through this quarter and going forward.

So, you're not losing any existing customers to the benefit of new customers?

I would say that, as we've clearly stated, we have taken a more selective approach within the automotive sector. This is an industry which has gone through substantial restructuring, and it's forced us -- and we've taken some hits as a result of that. So, it's forced us to be much more selective in it.

As a result, if you look at the automotive backlog, quite frankly, the bulk of the automotive content is not in North America. It's coming, actually, out of Asia, which is where automotive is growing very aggressively. And it's also coming out of Europe, driven by new product launches in the automotive space from a technology standpoint.

The content in North America is down quite dramatically as a result of our approach to this. We are aggressively pushing into new markets. It's one of the priorities I mentioned on the call. And we're seeing good traction in moving into some areas.

And I'm very pleased with some of the work we've been able to strengthen our relationship with AECL in the nuclear energy area. I'm also pleased with the early indications we're getting for gaining traction within the solar equipment market. And we continue to see that as an excellent growth potential for us.

And I think we will continue to see benefits from the work we've done to strengthen and develop our business development functions within our company over the past 18 months.

Okay, thanks for that. My second question would be related to the recruitment efforts in North America. Are you looking internally or externally to fill that position at the senior level?

The President of North America role is a role that we are primarily sourcing externally. There is one candidate who will be considered internally.

Okay. And how's that process going?

I think it's going well. I think the key thing, from my perspective, when I sat down and worked it through from a practical standpoint, it was clear to me that getting the COO role filled on a permanent basis was an important step.

It did allow us to identify some solid candidates for the President of North America role, as well. I believe that we will now be able to move forward aggressively with filling the President of North America role. And that process is unfolding on schedule as it should.

Okay. And beyond this higher -- can we expect more announcements from ASG on that front, or is that pretty much it?

Well, I think we'll continue to evolve the management structure on a go-forward basis. We have an aggressive plan to grow our business on a global basis.

And I think that, with the COO role filled and the President of North America role filled, which are the immediate priorities, I think we'll start to look at some of the other critical strategic roles at a corporate level that we would look to fill. And some of these are in the area of sales and marketing, I would say. And some of them are also in the area of corporate technology development.

Okay, thank you.

You're welcome.

Robert Caldwell, Blackmont Capital.

Hi, Ron and colleagues. Good morning.

Good morning.

Congratulations on advancing the Photowatt Spin Off.

Thank you.

I, for one, certainly applaud that. A question in that regard, is it Photowatt's intention to apply to trade those shares on, perhaps, both Toronto and the NASDAQ, or possibly even a European exchange?

We will automatically resolve in the shares being traded on the TSX. I shouldn't say automatically, but that's the end consequences that those shares will be listed on the TSX because that's where ATS shareholders are.

But, you're right. I think that we have already identified that we think it would be a value-enhancement strategy to obtain a listing on a European exchange. And that's clearly part of the work that needs to be done to fully flush that out.

Thank you, Ron. That's good.

You're welcome.

Marko Pencak, GMP Securities. Please go ahead.

Thanks. Ron, you often provide us with a metric of third party content in ASG. Do you have that number handy?

Hans, do you want to provide that number?

Oh, yes. The third party content for the quarter was 49%.

Thank you. The next question is -- in reading through your four points of strategy for ASG, you talk about developing regional automation markets. Can you just -- what are you referring to there? Because that sounds to me -- how is that not contrary to the global brand that you're trying to develop?

I think it's very supportive of it, and let me explain. I believe that we have a tremendous opportunity, and we're growing as aggressively as we possibly can within Asia and within Southeast Asia. These are huge engines of growth for manufacturing on a global basis.

So, clearly, our drive is to really grow as aggressively as we possibly can to capture that opportunity. I think we have a great -- the potential for us is quite substantial because our strength is in custom design and build systems. And we can offer our customers the scale, which many of our competition cannot.

So, the regional opportunities that we see within Asia are substantial. Longer-term, I think we will continue to look for new markets. But, I don't think that we're looking at expansion into a new market, such as India, within the next 12 months. But, I think that we do have our antenna up to continue to explore new markets, to go forward, to continue to drive our business.

Again, our goal is to become the best automation solutions provider in the world. And I believe, fundamentally, that we need to operate on a global basis because the regional manufacturer no longer exists.

So, I mean, you've previously talked about global account managers. So, I presume that that concept is still holding firm here, and all you're doing is you're just putting more local resources on the ground in those areas you've identified. Is that basically it?

Yes, I think that we have spent the initial time -- we spent a lot of time just getting the disciplines into the sales process. We have now started to evolve the corporate account management structure.

I think it still needs work. But, it is progressing nicely. So, we do have some global account managers who take global responsibility for certain key accounts. That exists today.

Okay, thanks very much.

You're welcome.

David Tyerman, Scotia Capital. Please go ahead.

Yes, a couple of questions. One, I was just doing some math on the MgSi versus the SI on the quarter. If I'm doing my math right, I'm calculating about $390 per watt for the MgSi and $460 for the polysilicon. Does that sound about right to you guys? And I'm just using the numbers that you have in the report.

I assume you're talking about ASP?

Yes.

And those are dollars?

Yes.

Million dollars?

Yes.

I'm sorry. My head are in Euros. So, what did you have for poly?

For poly, I have $460. So, let's say, 5% lower than that?

Hold on just a sec.

Oh, sorry. You were talking Euros.

I think it's probably--.

--I think--.

--About right outside the ballpark.

Yes, they're close.

Okay.

They're close.

The GAAP's a little more than 10%. I'm just a little surprised about that, like, $390 to $460. I don't know if there's any explanation there.

So, the GAAP, our expectation for the GAAP between metallurgical and polysilicon was slightly less than 10%. The reason it ended up being at 10%, quite honestly, is because our ASP for poly was slightly higher than what we had targeted for the quarter.

Okay.

But, fundamentally, there's no change in what we believe that's going to be. And we think that there is the opportunity for some of those prices to -- we fully expect the price differential between MgSi and SI will converge as we continue to drive improved efficiency, our conversion efficiency, with MgSi.

And why would there be a difference right now between the two? I mean, this is priced for watt.

Well, I think, number one, it's early. So, there's an adoption. Secondly, there are -- the fact is, with lower efficiency, you need more space to get the same amount of power output.

Okay. So, the buyer is willing to pay less because they don't want to use up more space, it sounds like.

I think that's a fair statement.

All right. But, it sounds like, mostly, it's early days and hopefully--.

--It is definitely early days.

Um-hmm. Okay, that's fine. Just on the shipments in Q2, it is, as you pointed out, Ron, the quarter where you have four weeks off. Is there anything that would cause the production not to -- or sorry, sales to be not four-thirteenths less than Q1?

I'm sorry. Which business are you talking about?

The Solar shipments.

Solar shipments?

Yes. Like, you did 10.7 megawatts in Q1. I'm just thinking, well, it's probably going to be nine-thirteenths of that in Q2.

I don't think we can put a penny on it. I think that would be a forecast, but--.

--Is there any reason why it wouldn't be, though?

I can't -- we're not expecting anything that would cause an anomaly, or else we would have commented on it.

And in Q1, you were sort of running at run rate through the whole quarter?

Yes.

Okay, okay. That's helpful. And then, when you made a comment about you have the supply of silicon in place for the expansions that you've lined up, is that 80 megawatts or 135?

Actually, what we're referring to is the 20 megawatt expansion in 2010, that's in the cell and the module area. And that's going to be fed by the second Deutsche Solar contract, which starts in early 2010.

Okay. So, 80 megawatts, then.

Eighty megawatts in cells and modules.

Right. And--.

--So, the next thing is the rights issuance has a certain amount of proceeds which are set aside--.

--Right--.

--For us to further the silicon supply strategy, which would then be, once secured, be the catalyst for us to look at the second round of expansion--.

--Right--.

--Just as we've articulated is a further -- and we'd like it to be 55 megawatts of integrated capacity.

Right. And it sounds like some of the money from the rights offering goes to set up the infrastructure to go to the 135?

Yes.

Yes.

In fact, the building infrastructure is in place to basically house the full capacity expansion of the 55 megawatts of integrated capacity.

Right. And if you look at the split on the silicon, what would the rough split be between polysilicon and refined met, in terms of contracts you've got in place?

In terms of contracts?

Yes, because you've been announcing both types.

Yes. But, when I think when we announced them, we talked about what the nature of the supply was, David.

Okay. So, if I just total this up, that should give me the answer.

You should get a pretty good approximate.

Okay. And then, the question I have on labor costs, etc., like you talk about in the text, the MD&A, that REC cost, labor cost, other material cost in scrap rates are going up using the recycled polysilicon and refined met. I was particularly interested in the direct labor and maybe the other two. Why are those going up?

Well, I think there's a number of contributions, and I'll let Gary jump in. But, I think one of the factors is, first of all, we've expanded capacity quite substantially. So, it's early days with respect to that capacity coming on board, and we've hired a number of new people.

Right.

Secondly, I think it's early days from the standpoint of the yields we're getting on MgSi. Gary, you have anything to add to that?

Well, there are a couple of unique aspects to this, and that's because of the high area percentage of recycled material. That material has to be measured and sorted at incoming.

Right.

So, the higher percentage of that is we have to put more human resources to do that sorting and measurement.

The other is that, with the capacity expansion, we've begun to reach the limit of our automated tabbers, and we're doing some manual stringing in those areas, as well. So, we've had to hire additional resources in that operation.

Okay. And I take it this stuff will all sort of work its way out as you move through the learning curve, etc., at -- a little equipment here and there?

Obviously, the material issue doesn't work itself out as you go through the learning curve. But, the other factors should.

Right. Okay, fair enough. And then, just on the ASG side, the backlog, which is up quite nicely, is the length of the backlog fairly normal, or are there any really long -- is there a material piece of it that's long-legged?

No, I think there's a pretty good cross section here.

Okay.

So, I don't think there's any anomaly. I think the only anomaly, maybe, where I would point out is that there is one order in the backlog, which is on hold by a customer because of them working through product issues.

Right.

And we've talked about that in the past. And so, that's the only thing in the backlog that I would point out, would be a little bit unique.

Okay. Is that very large or--?

--Oh, it's about $14 million.

Okay.

Which has been stable over the past, what, three quarters?

Okay.

Right.

Yes.

Okay. And then, just on the wind-down of Photowatt USA and NSSP, can you give us -- well, on NSSP, I'm a little unclear. I would have expected the expenses to go away pretty fast. Is that what I should be thinking or--?

--Yes, we are basically in the phases -- and Gary's driving this. We're basically in the phases of decommissioning equipment and mediating the facility and doing those types of activities. The only other activity is the discussions that are continuing with both the TPC, who provided funding, and with CB21, who has interest in the technology.

Okay. So, any idea how many more quarters this will be showing up?

I think that, quite frankly, the amount's going to continue to decline quite steeply.

Okay.

So, I expect that decline will continue.

That's good enough. And then, intersegment elimination and corporate expenses has been quite a lot higher than sort of traditional run rates for the last couple of quarters. Is there anything in particular there?

Well, intersegment expense includes our corporate cost.

Yes.

And I think that there are a couple of things they've gone through. First of all, as we pointed out in the MD&A, there is a fairly decent charge that goes through the SG&A category for severance and the activities taking place with respect to the strengthening of the management team.

In addition, we are incurring costs, like all companies are right now, in terms of the requirements to meet Bill 198 and the work that's done in that area, as well as we've spent a fair amount of time in the last while working with advisors to go through some of the increased accounting complexities, which we reported in the quarter, in terms of hedge accounting and comprehensive income and those types of issues, as well.

So, those would be key areas which have driven that. The other factor that's gone through there is stock-based compensation increased, as well, and that was noted in the MD&A.

Okay. So, you, historically, have been running closer to $3 million a quarter for the last number of years? Should we be thinking and going back to that or--?

--Well, I think that there's going to be an ongoing cost associated with some of these new regulatory requirements.

Okay.

I hope that that will abate, and we will stabilize at this level. But, clearly, I think there has been a step change in that corporate costs because of some of these new requirements.

Oh, okay. So, excluding the severance, the rest of it, hopefully, goes down a little, but--.

--Yes, yes--.

--We have some extra costs.

Yes, yes.

Okay, that's great. And then, the last question I had was just on the tax rate. Any thoughts on the tax rate going forward? You must have some carryforwards now and so on.

We do have a substantial amount of tax carryforwards because, as you recall, we were required to write these down, although the benefit still is retained. We still--.

--Right--.

--Get to see the benefit. But, I confess that this is not my area of expertise, and I would encourage you to talk with Gerry about that.

Okay.

I just can't deal with it today.

Okay, that's fine. Thanks, Ron.

You're welcome.

Michael Willemse, CIBC World Markets. Please go ahead.

Oh, great. Thank you. The MD&A from your last earnings release, you spoke of the EDF joint venture, and there is some pretty aggressive expansion plans there, four tranches of 100 megawatts each.

I'm just wondering, if the equity Spin Out is not going to happen until the Spring 2008, what would be the timeline here for that first 100-megawatt tranche to be built?

Our expectation is that that would proceed only when the CEA has demonstrated certain milestones associated with efficiency improvements, and our expectation is that that would be in the 2009, 2010 timeframe.

We don't see there being a conflict from the standpoint of the schedules. I think that's the important point. There are some initial benefits we expect to gain as soon as we form the lab-fab. But, the lab-fab requires us to build a roughly 20 to 25-megawatt prototype production facility, which is going to take -- and that's funded by the rights issuance, which will probably take about, what -- is it about a 12-month--?

--Yes, uh-huh--.

--Plan? And I think the timing does align.

Okay. So, once the rights issuance closes and funding is in place, within about 12 months you should have a 20 to 25-megawatt facility built?

Yes, this will be a prototype facility. And it will be owned by the collaborative partners.

And does that make rate from ingots to wafers to cells to modules, that 20 to 25-megawatt prototype?

No, that's cell capacity only.

So, it will only be making cells?

That is correct.

And then, Photowatt gets half of those cells to convert into modules, correct?

Right.

Well, I think they'd be careful. I think that that is correct. However, this is a prototype development facility.

I think, clearly, the technology developed in the lab-fab, the commercialization of the technology, flows out through to the PD alliance, which is the second phase which I think was mentioned earlier, about the 100-megawatt tranches. And also, that technology is available to the collaborative partners to be able to capitalize within their own operations.

Okay. And Photowatt is contributing $16 million. I imagine that EDF is contributing the same. How much is the French Government contributing to the first lab-fab?

A good point, and this is one of the unique and very positive aspects of this. The CEA and the French Government have committed a budget of $140 million Euros over five years. So, for a small investment on our part, we get to leverage a huge investment by the French Government.

Okay. And some of that will be, I guess, contributed even with the first prototype facility?

It's all for the prototype facility.

I'm sorry. But, the $140 million Euros?

Yes.

Is all for the first prototype?

It's for the lab-fab, yes, for the development of efficiency improvements on polysilicon and metallurgical silicon.

Okay. Just another question, have you thought about -- is it too early to kind of gage what the tax implications would be from the Spin Out of Photowatt?

We have done just an initial assessment of tax implications as part of the development of our decision about which exit alternative to pursue. But, I think it's too early to get specific about it.

Okay, thank you very much.

You're welcome.

Mr. Jutras, there are no further questions at this time. Please continue.

Thank you very much. If there are no further questions, I would remind you that our annual meeting will be held on September 13 in Kitchener. And the meeting materials will be mailed out shortly.

Thank you very much for listening today. And until our next call, bye. Thank you.

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