ATS Corp (ATS) 2012 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the ATS Automation third-quarter conference call. I would like to remind you that this conference call is being recorded on February 8, 2012, at 10 AM Eastern time. Following the presentation we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. (Operator Instructions). I would now like to turn the call over to Stewart McCuaig, Vice President and General Counsel of ATS.

Thanks, operator, and good morning, everyone. Your main hosts today are Anthony Caputo, Chief Executive Officer of ATS and Maria Perrella, Chief Financial Officer.

Before we begin, I am required to provide the following statement respecting forward-looking information, which is made on behalf of ATS and all of its representatives on this call.

The oral statements made on this call will contain forward-looking information. The actual results could differ materially from a conclusion, forecast or projection in the forward-looking information. Certain material factors or assumptions were applied in drawing a conclusion or making a forecast or projection 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 projection as reflected in the forward-looking information are contained in ATS's filings with Canadian provincial securities regulators.

Now, it is my pleasure to turn the call over to Anthony.

Thank you. Good morning, ladies and gentlemen. I am assuming you have seen our press release. Maria will review financial highlights in a few minutes.

Third-quarter results from continuing operations were strong. Key metrics, including bookings revenue, EBIT and cash flow continued to improve. We made advances in our approach to market and again ended the quarter with record backlog.

In France, the Photowatt bankruptcy process was initiated and is progressing. And in Ontario we launched the sale process for Photowatt Ontario.

Today, I will update you on ASG, including the integration of ATW, conditions in the market and our outlook. On Photowatt, I will update you on activities underway in Ontario and the bankruptcy process in France. I will then make some summary comments.

On ASG we booked CAD179 million of new orders, a 35% increase over Q3 last year. On a year-to-date basis, bookings were up approximately 55% over last year. This increase was driven by larger programs, primarily in transportation and then followed by life sciences. Our revised approach to market, growth in the base business and the addition of ATW all contributed to achieving this level of orders. For the quarter we finished with a backlog of CAD376 million.

Consolidated operating margin was 14%. This included a gain of CAD3 million on a sale of our facility in France formerly used by Photowatt and CAD3.7 million in US tax credits.

On a normalized basis operating margin was 9%. Overall, our base business has continued to perform. We have few red programs and we are seeing improved margins from our acquired businesses. The integration of ATW is essentially complete.

Efforts to integrate ATW into ATS's structure, sales and marketing, program management, supply chain and command and control processes are progressing well and should be completed by fiscal year end.

Turning to ASG's market, overall activity remained strong. Our funnel and proposal activity are significant and continue to grow, especially in transportation and life sciences. We are also seeing some improvements in other markets and in particular consumer products. In energy, we are pursuing some interesting opportunities in nuclear and oil and gas. However, in these markets, they are not offsetting the weakness in solar automation.

As I noted last quarter, we are engaged with a number of customers on enterprise-type solutions. This approach is a key differentiator for ASG, but keep in mind the large programs cause variability in quarterly booking numbers. Over time I believe our revised approach to market will continue to gain traction and serve us well. Our orders for the first five weeks of the fourth quarter were CAD48 million.

In terms of outlook, ASG remains focused on growth. Although we have not seen any negative impact to date, we are sensitive to potential macroeconomic threats, including the debt situation in Europe and its potential impact on credit markets as banks delever. Organically, we continue to strengthen our sales organization, improve front end of the business processes, attract and reward the best talent, engage on a key account basis and increase program-type orders.

On acquisitions, we are now redirecting considerable corporate resources to this activity, and we have a strong balance sheet to work with. We are targeting companies based on their ability to bring market or technology leadership, scale or opportunity brought on by the environment.

In terms of specific targets we have broken down the capability value chain for each of our segments. For each segment of the value chain, we have made a grow, team, or acquire decision. For capability that we have chosen to acquire we have identified and are engaging companies that operate in that space. As I indicated previously, we're also looking at other segments that have characteristics attractive to ATS.

As I indicated before, we will not substitute acquisitions for organic growth, which remains a key strategic priority for ASG.

Turning to Photowatt, our results include Photowatt France for five weeks and Photowatt Ontario for the quarter. Maria will speak to the accounting in a few minutes.

On Photowatt Ontario revenues during the quarter were CAD2 million. Delays in the Ontario approval process related to issuing notices to proceed resulted in delays in module orders from our own projects and from other customers. As a result of lower revenues Photowatt Ontario recorded an operating loss of CAD3.5 million during the quarter.

Given the state of the overall Ontario market, the progress on our conditional fit contracts and negotiations with respect to the take-out agreement for our joint venture 64 megawatts of projects, that is, we expect Ontario will be fully ramped up in early fiscal 2013.

During Q3, we initiated a formal sale process for Photowatt Ontario. We engaged an advisor, prepared and distributed marketing materials and set up a data room. We have received a number of nonbinding indicative offers. We are now in discussions with several of these interested parties with a goal of concluding a transaction by the end of the fiscal year.

Turning to France, during the third quarter, the French Bankruptcy Court placed Photowatt France into recovery proceedings under the supervision of a court-appointed trustee. The trustee is working with Photowatt management and advisors to investigate opportunities for Photowatt France operations in an effort to preserve jobs and maximize value. Several parties have expressed interest in Photowatt France's operations and employees. Bids are due February 10 and will be reviewed by the court in due course.

On our last call, I said we would provide some funding during the recovery period. To date we are provided CAD2.7 million in order to sustain the operations during this process. Further funding from ATS if required could be provided over the next three months.

Overall our goal is to separate the solar business from ATS quickly and on a cash neutral basis. As with any undertaking of this nature there are uncertainties with respect to the amounts and timing of cash flows.

Having said that we have a detailed plan and we are working with advisors very familiar with the French bankruptcy process. We are progressing on plan. I will continue to update you as we move forward.

In summary, we are beyond the fork in the road in terms of solar separation. As I noted our plan is to at least offset the cash outflows with cash inflows. Our core business is growing. The addition and integration of Sortimat and ATW have contributed to revenue and backlog, and I expect both will make strong contributions over time. I'm encouraged by the level of activity we are seeing in our markets, which, combined with record backlog, will serve ASG well going forward.

Our approach to market, that is moving from machines to programs to enterprise solutions, continues to gain traction. In terms of acquisitions we have a clear framework and the ability to integrate new companies. We have selected attractive end markets and are considering participating in others.

Going forward I believe our strong foundation of market position will continue to serve us well, regardless of what the future may bring. At this point I would like to turn the call over to Maria.

Thank you, Anthony. As Anthony said, our core automation business performance continued to be strong. Solar has been contained, and we are following two distinct paths to finalize separation.

Today, my comments will focus on our continuing ASG operations and our balance sheet. But I will begin with solar and its impact on our results.

Photowatt France entered the judicial bankruptcy process on November 8. On that date this business will be consolidated. Our investment in Photowatt France as represented on the balance sheet is valued at zero.

In Ontario, offers have been received for Photowatt Ontario and they are being evaluated. It is expected that a binding agreement will be reached by the end of the quarter. Going forward, the financial impact of the bankruptcy and the sale process will be recorded as incurred.

Turning to results from ASG, we continue to be pleased with ASG's performance. Overall Q3 improved year over year and was consistent with Q2 this year.

Before going into details, however, I would like to discuss two items which positively impacted this quarter's results.

With sustained and improving profitability in the US, we were able to recognize CAD3.7 million in R&D tax assets. This increased net income and EBIT by a corresponding amount.

In addition the ASG France building, where Photowatt France produced modules, was sold for CAD7 million cash and a gain of CAD3 million. For purposes of this analysis I'll discuss our operating performance on a normalized basis.

Revenues of CAD149 million increased over revenues of CAD146 million and CAD127 million in the second and first quarters, respectively. On a year-over-year basis, revenues grew CAD28 million or 23% over Q3 last year on balance contributions from ATW and the impact of several quarters of strong bookings.

Normalized gross margins for Q3 were consistent with Q2 at 25%. Last year's Q3 gross margins were 22%. Year-over-year improvements of Sortimat and the successful integration of ATW drove the increase.

SG&A costs were CAD23 million or approximately 15% of revenues consistent with the past three quarters. In comparison to Q3 last year, SG&A increased by approximately CAD4 million, due primarily to the addition of ATW. Our consolidated normalized operating margin of 9.2% in Q3 increased from 9.1% in Q2 and 8.3% in Q1 and was up from 5% in Q3 of last year. Increased margins were earned on higher revenues and improved Sortimat and ATW contributions. Last year, Q3 included CAD500,000 of severance and restructuring charges and CAD600,000 of M&A expenses.

Our Q3 ASG order bookings were CAD179 million or a 35% increase over Q3 of last year. Bookings have grown steadily over the last three quarters from CAD157 million to CAD165 million and to CAD179 million from Q1 to Q3. Although relatively stable and growing over the last several quarters, we expect to see some fluctuations in bookings given our approach to market and timing of various larger opportunities.

As we've described in the last few quarters, our success and our approach to market has altered the size and nature of orders as we have moved from a predominantly six to nine month delivery cycle to some programs extending beyond that. From a revenue perspective, in the short term we expect to see a modest increase over the last few quarters' revenues. Thereafter the revenue trend is expected to near bookings.

Moving to solar, in the quarter, solar incurred a loss of CAD8 million which is included in discontinued operations. For the quarter, France incurred a CAD4.5 million loss. This loss includes funding of CAD2.7 million provided to maintain production during the recovery phase. Photowatt Ontario incurred a loss from operations of CAD3.5 million in the third quarter. The loss was due to the ramp up of operations combined with low sales.

Moving to the balance sheet, I will review cash generated from operations and working capital as a percentage of revenue. At the end of the third quarter, our total cash position in continuing operations was CAD69 million or an increase of CAD6 million from Q2.

Cash net of debt was CAD66 million. The CAD6 million is made up of ASG cash generation of CAD5 million, net proceeds from the sale of the France building of CAD7 million, offset by funding of the solar operation of CAD6 million.

On a year-to-date basis, CAD48 million of cash was used. Automation has used approximately CAD10 million of this and solar has used approximately CAD38 million.

Working capital as a percentage of revenue has increased slightly compared to Q2 and Q1 with all three quarters in the 11% to 13% range. Last year working capital as a percentage of revenue was below 10%. As indicated in the past, the increase is due to the ramp in business as well as decisions taken to use our balance sheet. We expect to operate within the 10% to 15% range for the time being.

In Q4, ASG is expected to generate cash as some programs with longer payment terms start to come due. By Q1, it is expected that the sale of Photowatt Ontario will be finalized, and as previously stated, proceeds from the sale are expected to cover Photowatt France costs.

Turning to net earnings, in Q3 we generated earnings per share of CAD0.20 from continuing operations, or an increase of CAD0.17 per share from CAD0.03 in Q3 last year. On a normalized basis, EPS was CAD0.12 per share as compared to CAD0.11 and CAD0.07 in Q2 and Q1 this fiscal year, respectively.

Loss per share from discontinued operations was CAD0.09 compared to a loss from discontinued operations of CAD0.18 per share in Q3 last year. All in, consolidated earnings per share in Q3 were CAD0.11.

The effective tax rate for the quarter was 12%. This is lower than the Canadian effective tax rate of approximately 28% because we recorded gains of CAD6.7 million which did not attract taxes. Nontaxable gains came from the US R&D tax credits and the gain on the sale of our facility in France.

In addition, we generated more profit in certain jurisdictions where we have lost carry backs that have not been recognized on our balance sheet. This minimized both our cash taxes and effective tax rate.

In summary, solar operations are expected to impact ATS consolidated results for the next few quarters. Our ASG business remained strong and is performing to expectations. We are focused on growth.

Now we would like to open the call to your questions. Operator, can you please provide instructions to our listeners? Thank you.

(Operator Instructions) Mark Neville, Scotia Bank.

So we are about halfway through the six-month separation process you outlined in November. I mean you've done a good job of walking us through how you expect the next couple months to play out. Can you talk to any potential risks along the way?

Starting with France, so we are in a process where there is a court-appointed trustee and there are interested parties, so obviously we don't control the interests of the interested parties or whether they can get to a definitive agreement or not. And we also don't control the entire recovery process which, as I indicated, is under the administration of a court-appointed trustee.

So what we have done is come up with a plan, look at all of the possible alternatives, surrounded ourselves with numerous experts familiar with this entire process. And to the extent which is permissible and allowable, we, ATS, have been very supportive of the process and our employees in France. And I think that we have the risks contained within the framework and the box that we have outlined to you.

In the case of Ontario, Ontario is an attractive asset. As I said we initiated a process. And we have a banker and we put together the data room, you know, the classical stuff. And we have received nonbinding indicative offers and are in the process of trying to negotiate to conclusion that particular process. And we believe that the outcome will be essentially what we have communicated. And so I think that the way to think about the risks are from a macro point of view we have contained them in a big box. And from a client point of view we're trying to make that box as small as possible. But in three months we will all know the outcome.

Okay. I guess just to clarify, did Maria say that you expect a binding decision on PWF by the end of the quarter? Did I get that correct?

Can you repeat that?

I just wanted to clarify if you said that -- if you expect a binding decision on PWF by the end of the quarter? Maybe I missed -- no?

No, no.

What I said in my comments is that the offers from interested parties would be received by the administrator February, and then in due course they would be reviewed by the French courts.

And February 10 is the date that the offers are due into the trustee.

Maybe just one other question, just on the revenue guidance, was that calling for a modest increase over the next few quarters and then revenues to eventually match bookings kind of after that?

Yes, that is what I said, a modest increase over our run rate of about CAD150 million a quarter now. And then we would expect to see more of an increase thereafter to match the increase we have had in bookings.

Cherilyn Radbourne, TD Securities.

Good morning. First question on the automation business, it's certainly nice to see that your bookings and backlogs have remained strong and stable. And it sounds like you continue to quote quite actively. I guess if someone wanted to be concerned about something, that something might be the fact that the strength is very concentrated in life sciences and transportation. So I wondered if you could talk about your level of comfort with the diversity of your current business and the opportunities you have in the pipeline?

Okay. Hi, Cherilyn. Maybe I will start with transportation. So transportation is primarily automotive and the remainder is let's say heavy equipment. Within the automotive part of transportation we are dealing with OEMs and we're dealing with tier 1 and some tier 2 people.

Within transportation we are working on a variety of things. We're working on assembly lines for classical products like powertrain for instance but we also have significant exposure to new products like electric cars and batteries and that kind of thing. So even within the transportation segment and even within the automotive part of the transportation segment, we are fairly diversified.

When it comes to life sciences I think we are equally if not more diversified, focusing primarily on assembly technology but for a variety of blue chip customers whose logos you would probably instantly recognize in the United States, in Europe, and also in parts of Asia. So I don't think we have any one significant customer; maybe we have one but we don't have two in any of those areas.

Well no one single customer accounts for greater than 10% of our revenues or backlog.

Okay. And can you just speak to whether there have been any change in behavior in terms of your European customer base now versus six months ago?

I'm sorry I missed the first part of the question -- has there been any change --

In behavior.

In the customer base.

Yes; as I indicated in my remarks we haven't seen anything. So you know we read the newspapers, we follow the news, we are concerned about the potential risks in Europe in general. And we are monitoring it and are sensitive and perhaps hypersensitive. But we have not seen anything in terms of proposal activity; the number of proposals that we submit; the planning horizon of our customers; the level of engagement; the attitude; the predisposition; all of that.

Okay. And last one for me just on solar, and it's more of an accounting question -- am I right to understand that the carrying value of your remaining solar assets is on the books at just under CAD30 million on a net basis, Maria?

Yes, that is correct. And that is for Photowatt Ontario only.

Okay. So OSPV is not in there?

OSPV is in there as well.

Okay. So it's both PWO and the 50% interest in OSPV?

That's right.

Okay. And so at this stage PWO is for sale and OSPV, I guess it's as before, you're looking to eventually secure third-party ownership for those contracts?

Yes, that's right, yes.

So it's all for sale. And the form of the sale could be A+B or A and B later, but it's all for sale.

Okay. Thank you. That's helpful, and that's all for me.

Michael Willemse, CIBC.

Great, thank you. Maria, could you just comment again on the margin outlook, if sales are going to be moving up towards net orders where do you see margins moving?

And then on -- you mentioned that sales will match order activity, but I mean if there's still a sales cycle I would assume there's going to be a lag effect. Is it kind of a three- to six-month lag that you will see sales kind of match new orders? If you could just kind of give more color there.

Okay. So I will start with the your question on margins. We talked before about most of our costs being variable. And because they are predominantly variable we would not see that much of a margin increase with the increase in revenues. And what we've talked about is getting to margins or where we would like to see our overall margins are in the 10% to 15% range, and that includes corporate costs. And there are some items that are impacting that going forward.

We have also talked about such things as SG&A and M&A activity which could bring down the margins, and then also acquisitions and integrating them, which could also put some pressure on our margins. But overall, we are still aiming in the 10% to 15% range.

On your question on bookings and revenue, we -- our bookings are now more in the nine to 12 or -- well they range between six and 12 months, translating our bookings to revenue.

And what you have said is correct, there would be a bit of a delay in translating the bookings and the backlog into revenues. So we, for example, a few quarters ago we saw CAD206 million in bookings and it will take -- and we said a number of quarters to see that come through in revenues because in there we have certain programs that will be revenued over a 12- to 18- or 24-month period.

Okay. And maybe if I ask the question a different way, should I just kind of look at your orders over the last four quarters or the last 12 months and maybe use that as a better guide of kind of a revenue outlook?

I think that would be a better guide, yes.

Okay. And then for the first five weeks of this quarter orders are CAD48 million; when you look last year it was CAD73 million. Any kind of -- are you seeing any kind of little bit of a hesitation by customers or is this just all due to the lumpiness of the orders?

Yes, I keep making this comment that says that there's going to be variability because our approach to market. And the comment is actually true. So last quarter I think we were at CAD47 million for the five weeks. And then we got to the number that we got to. So I'm not sure how relevant the correlation was in the past between sort of the first five-week booking number and what we ended up for the quarter. But whatever the strength that correlation was it's even less now.

And we here don't attribute a lot to that. What we look at is funnel activity and bids that we submit and so on and so forth. And you know we report the number because we've always reported the number but otherwise I wouldn't report the number.

Right, right. I got it. Okay, thank you.

Daniel Kim, Paradigm Capital.

Good morning, thank you. Anthony, you referenced some time ago that within the automotive sector specifically that new product launches by OEMs and tier 1 suppliers are having, obviously, a clear positive impact on the business.

About a year ago I believe the volumes within that market, particularly North America, really started to take off. Wondering if you can give us a better sense of any visibility you have within this market, if this trend is just the beginning of the cycle for you as you tend to be more of a late cycle play within the automotive space and you expect to growth to continue within this area. Any commentary on that would be helpful. Thank you.

Yes. So it is true, first of all, that we tend to participate in terms of bringing our products and services to bare when a customer has new product launches. So new transmissions, new safety systems, electric cars are all good.

It's also true that we lag because the programs that we participate in are strategic to the customer and take a relatively long period of time for them to get capital appropriation for their products. We also lag in a down economy for the same reason because those programs are more difficult to terminate.

In terms of where we are at the cycle, I don't know if we are at the beginning, but we are closer to the beginning than we are to the middle. We are seeing a lot of new stuff, some of it very interesting, that potentially we have an opportunity to participate in.

Great, okay. And moving on to the life sciences area, to get a better understanding of how this area is growing, is that particular subsegment -- are you seeing an increase in CapEx from your blue-chip customers across the board with more programs? And should we expect continued growth within this area as well?

I think we are seeing modest and perhaps increasing in certain areas CapEx spending from our customers. I think what we are also seeing is how we approach the customers and how we approach the opportunity. So as I indicated our strategy in terms of organic growth is to go from building machines, which is what we used to do, to building programs, which could be multiple machines, multiple services so on and so forth, which is currently what we do do, to enterprise systems, that is having a relationship -- perhaps a strategic relationship -- with key customers. So we have certain relationships with key customers and we are able to use those relationships to gain greater market share.

So in life sciences, to answer your question, I think it is a combination of some growth in the market and CapEx spending which we are seeing, but also how we are approaching the market and our customers.

The MD&A seemed to hint that the unit -- well not hint but -- suggested that the integration of ATW and Sortimat are now largely complete. Wondering if the sales efforts -- where they stand in terms of cross-pollinating customers with complementary solutions. Has that process begun or are we starting to see the benefits of that just now? Or would you expect that to materialize in coming quarters?

I think we are seeing some of the benefit of that now. But I think there is more to gain in that regard. I would say that a significant number of opportunities that we bid on involve more than one of our divisions, which was not the case in the past. And obviously new companies require a bit of time to get used to performing work in a different way.

I would also say if you look at our organic growth numbers compared to our acquisition growth numbers you could potentially come to the conclusion based on the numbers that we are getting a lot of our growth from acquisitions as opposed to organic. And in fact it is balanced between organic and acquisition because many of the opportunities in the transportation segment that come to us, regardless of which company they go to, we design the concept of operation that has perhaps a company like ATW leading that initiative. So that's another example of how we integrate companies.

Great, okay. Just a couple of more quick questions if I may. Within the divisional breakdown, if we look at the revenues by division, the sequential numbers are relatively steady if we look across all the different segments. What's interesting is if we look at on a geographic breakdown the US was quite strong on a sequential basis while Asia was down by roughly the same amount in terms of magnitude. Can you tell us what's going on there in terms of where you are seeing pockets of strength and weakness and why you would see a shift in the US versus Asia?

So maybe I will start and then if you have some comments?

Yes.

A lot of the customers we have in Asia are -- originate in the US, so depending on where the equipment -- what the eventual destination of the equipment is a customer that might be a US parent may have a sub in Asia and they may have a sub in the US. And they may acquire the machine for delivery in the US using their US sub, or they may acquire a similar machine or the same machine through their Asia sub for delivery into Asia. So I think some of that effect is going on. Any --?

In addition to that -- and I'm not sure which period you are comparing -- but our acquisitions are -- or have locations in the US. So ATW is primarily the US, a little bit of Germany. And then Sortimat is mostly Germany and some US, or maybe 75%/25%. And we didn't acquire anything in Asia, or just a very little bit in India. Therefore, some of the growth is just coming from our acquisitions as well.

Great, okay. Okay, so two last quick questions -- just to clarify, Maria, the margin guidance of 10% to 15%, are you talking EBITDA margins?

That is EBIT margin.

EBIT margin, excuse me. And what would be an appropriate tax rate to use going forward, now that there's been a bit of a shift in your jurisdictions?

We are still targeting about 28%, but as we have talked about, it's -- quarter over quarter that changes just because of where we are taxable and certain unusual things that have taken place that are causing the fluctuation in the tax rate. But overall I would say around 28%, 30% for an effective tax rate.

Perfect. Thank you very much. I appreciate it.

Mac Whale, Cormark Securities.

Hi, I was wondering if you could talk a little bit about your comment on entering new markets. What verticals would they be or what are you sort of focusing on? And would they be offshoots of things you're working on now or completely new verticals?

Hi, Mike. The characteristics of the markets that we find attractive are where the consequence of us not succeeding is very, very, very negative. So if a customer has a new product that they need to bring to market by a certain date and they can't that's pretty bad. If pharma, medical devices, you know, the wrong dose gets into the wrong bottle, that would be bad; a sophisticated product that's never been invented before that has process technology that's really never been invented before. So at the time that we're investing the machine the customer is not 100% sure of the process to bring the product together itself, those are markets that we find attractive.

So the second half of your question, some of the markets that we're looking at are related to existing markets. For instance, in the case of pharma medical devices, we actually don't have enough capability dealing with the active ingredient itself, so that might be an area of interest.

But then there's other markets like planes, trains and automobiles, say, the definition of transportation. So airplanes would certainly have those characteristics that I talked about. And we are also of course looking for differentiation on the basis of technology. We are always trying to get new geography and new customers at the same time.

Okay. So -- and just to give us an idea of how far advanced that work is do you know -- do you have a time line and an amount of money you want to invest in getting to a certain revenue target by a certain amount of time in terms of say like aerospace or the thing that you mentioned -- the various targets that you are after -- is it that far advanced that you are close to pulling a trigger on something?

I would just say that we don't forecast or put out a timeline on either top-line growth or acquisitions. I would say that I think in my comments I use the word redirected, and we have. We've redirected significant corporate resources that otherwise were focused on other things to the activity of acquisition. And in the last couple of years on a part-time basis we were able to acquire two companies. So going forward we would hope that with redirected efforts we would at least beat our old track record. But we do have targets but I don't really want to talk about them.

Okay, fair enough. And then on the margin, I know you've given some guidance, Maria, on the ranges. Now what does it take to actually get to the high end of that range? Is it really just seeing this revenue that you are getting into the backlog to roll through the income statement? Or are there still operational improvements that you expect to go along with that or in addition to just the revenue?

So it would be both. It would be revenue increase and also operational improvements in our base business and also our acquired businesses. Although we have said we have come a long way in integrating our acquired businesses and they are doing well, there's still more improvement that can be had.

Okay. So the sort of statement in the MD&A when you say you have substantially completed the integration that doesn't mean you have got it to levels of performance that you would expect?

That's right.

Yes, okay. I just wanted to clarify that. Thanks a lot.

(Operator Instructions). [Ben Skalender], (inaudible).

Hey, first I want to say congratulations; the numbers are looking much better.

The question is I was recently in France and scouting around a little bit about bankruptcy processes, etc. And I know with Photowatt things have not worked out at all as predicted. I got the impression when I was in France that the process that you're going through will take longer and perhaps cost more money than you have allotted for. And I'm just wondering if you are using conservative analysis here and you are quite confident of -- that the process will be finished within say six months, which is I guess longer than you've -- from this point in time, or whether you think it can continue to drag on?

Hi. First in terms of risks or good or getting back to the risk question, the way I think about it is we have containment. So I think we have the definition of a risk box which even in the worst case would not materially impact ATS's ability to execute its strategy. That containment or that box is not our objective. Our objective is to do better than that.

And in terms of financial exposure the characteristics of that box are that we expect that the positives in the disposition of Ontario will offset any cash -- continued cash -- that we would put into Photowatt, either because of our willingness to assist our employees and the administrator or other reasons. So we are trying to do better than that.

In terms of time, the dates that I am reporting are the dates which are set by the French courts and the administrator so that bids will be received the 10th. And then in due course thereafter the court will be presented with those bids.

Could there be a potential for delays in redressing those bids? Yes, there could. Could there be unexpected things that come up? Yes, yes, they could. But I'm pretty confident, to answer your question, that we have it contained both in terms of exposure and timeline.

We have -- we invested about five years ago, and it's certainly been a fairly long haul, but hopefully you guys can put up the numbers. And once you finally get that behind you the earnings will continue to rise. And I do appreciate your work.

Thank you.

Robert Caldwell, Macquarie.

Hi, all. Good morning and congratulations on this very heartening report. The question I have that I've been harboring for some years now has to do with the announce-ability of particular projects, either contracts or to use your new term, programs. Is there a threshold in which you would actually announce a project even though the corporation may very well remain unnamed?

Hi. We are looking at and considering and reconsidering a number of our communication practices which people have brought up -- shareholders, analysts or even members of our own management team. And that is one of them.

The criteria for us is what you indicated, the confidentiality of the customer, so there's many of our customers that just don't want their names mentioned.

And, number two, just the size of the particular contract. Now obviously we follow all the necessary rules and regulations that we need to in terms of materiality and disclosure. And you know if we have an obligation to disclose then we disclose.

But above and beyond that we are looking at that and a number of other issues as I indicated. So I get the point.

Thank you. That'll be helpful, Anthony.

Michael Willemse, CIBC.

Great. Thank you. Just wanted to touch on your -- kind of your manufacturing footprint. Are you pretty happy with your capacity in the US, Canada, Asia, Europe, given where currency has gone, and given the acquisitions you have made? Is there any areas where you might need to increase capacity or even take out capacity? I mean there's been a lot of restructuring so I assume it is pretty much where you want it to be, but I just kind of want to get a better understanding there.

Hi. Just differentiating between capacity and presence for a second -- so we're happy with our capacity both in terms of load and ability to increase, and geography, both in terms of being able to serve our customers by having a regional presence, to currency, to import duties, taxes, all of that kind of stuff. And most of our operations are working on one shift; some are working on a shift and a bit. So we have lots of capacity.

In terms of geographical exposure, there probably are a couple of regions that we are looking at in terms of increasing our exposure -- South America and Asia, parts of Asia, to name two.

Okay. So I guess -- I know Maria has mentioned CapEx before around CAD6 million or CAD7 million a year. Is that still a good number until you look at maybe capacity expansions in South America or Asia?

Yes.

All right. Thank you very much.

Mr. Caputo, there are no further questions at this time.

Thank you very much, ladies and gentlemen.