Good morning, ladies and gentlemen, welcome to the ATS Automation Fourth Quarter Conference Call and Webcast. This call is being recorded today, May 19, 2022 at 8:30 A.M. Eastern Time. I would now like to turn the call over to Mr. David Galison, Head of Investor Relations at ATS. Please go ahead, sir.

Thank you, operator and good morning, everyone. On the call today are Andrew Hider, Chief Executive Officer of ATS; and Ryan McLeod, Chief Financial Officer. Please note that our remarks today are accompanied by a slide deck which can viewed via our webcast and available at atsautomation.com. We caution that the statements made on our webcast and conference call may contain forward-looking information and our cautionary statement regarding such information including the material factors that could cause actually results to differ materially from the statements and the material factors or assumptions applied in making these statements are detailed on Slide 2 of the slide deck. Now, it's my pleasure to hand over the call to Andrew.

Thank you, David. Good morning, ladies and gentlemen and thank you for joining us. We're pleased to report another quarter of profitable growth for ATS featuring record revenues, strong order bookings and order backlog and continued adjusted EBIT margin expansion. Despite challenges in the global business environment, the year as whole saw ATS produce double-digit organic revenue growth while achieving on target contributions from newly acquired businesses. All of this reflected good execution of the ABM playbook by dedicated and resilient ATS teams worldwide. As part of our expand strategy, integration activities with all our recent acquisitions continued in Q4 and we completed the acquisition of HSG. Today, I will update you on our business and then, Ryan will provide his financial report. Starting with our financial value drivers, Q4 revenues were a record $603 million up 51% from Q4 last year, driven by a combination of acquired businesses and continued strength across our core operations. Organically, revenues grew 11% year-over-year. For the full year, total revenues were up 53%, including 20% from organic growth. Q4 order bookings were $638 million, up 38% year-over-year. Bookings were strong across most market verticals in Q4 and featured key wins within Life Sciences, consumer, transportation and food. For the full year, bookings were up by 51%, driven by acquired businesses. Our adjusted EBIT margin for the quarter was 14.2%, representing margin expansion of 183 basis points from Q4 last year, with strong sequential and full year margin expansion as well. Moving to our outlook, we finished with a $1.4 billion order backlog that includes several large enterprise programs that have longer durations. Our backlog is distributed across diversified regulated industries where quality and reliability are mandatory. The size and composition of backlog provides us with a solid base of business as we head…

Thank you, Andrew and good morning, ladies and gentlemen. I'll start with an overview of our Q4 operating results and then, I'll provide color on our balance sheet. Starting with orders, bookings were $638 million, up 38% compared to Q4 last year. Growth was driven by acquired companies, primarily CFT contributing $81 million and SP adding $66 million. Organic growth in bookings was 1%, offset by a 3% headwind from foreign exchange translation. For the year, bookings of $2.5 billion were up $830 million due to increases in Life Sciences and food. Of this 51% increase, organic growth was 21%, while acquired companies drove 34% growth. Foreign exchange translation had a negative 4% impact. Our book-to-bill ratio for fiscal '22 was 1.13:1, positioning us well for continued organic revenue growth. Moving to revenues, our top line grew 51% in Q4 over the prior year. Our organic growth of 10.5% related primarily to growth within the Life Sciences and transportation verticals. Foreign exchange translation created a 3% headwind compared to Q4 last year. Acquired companies added 43% of revenue growth with CFT and SP, the primary contributors. For the year, revenues were $2.2 billion, an increase of 53% from the prior year. Revenues from acquired companies contributed 37% to overall growth, while organic growth was 20%. This was offset by a foreign exchange translation impact of 4% for the year. As expected, with the addition of SP, our revenue mix shifted to a higher rating on product sales and shorter cycle original equipment which provides a good balance to our longer duration project-based revenues. Our Q4 revenue mix was 59% from construction projects, 18% from product sales and 23% from services. In Q4 of last year, this mix was 65% from construction sales, 8% from product sales and 27% from after-sales…

Your first question comes from David Ocampo, Cormark Securities.

Ryan, you touched a little bit about getting some pricing relief from some of your customers and being able to pass it through. But I wanted to drill a little bit more on the enterprise contracts since those are a little bit more, longer, dated. I'm just curious how much flexibility on pricing? Is there -- if inflation or your wages for your employees shoots up 10%. Are you guys able to pass that off immediately or does ATS help to find other ways to mitigate like the measures that you guys are talking about in terms of sourcing from different suppliers and what have you?

So first of all, whether it's an enterprise program or a regular shorter duration construction contract, when we're doing custom work. We're going out and quoting our supply chain in both cases and typically, it's going to be in the 60% to 80%. We're not quoting 100% of our supply chain but certainly, the key components in the majority of our third-party materials. And that's where we get some price protection on cost increases from our supply base. And so, if there's a sudden price increase in a component, we didn't source, that's when we're going to look at alternative levers like utilizing alternative sources of supply, we might change design for certain components. So those are some of the measures that we've used and continue to use. In terms of people and other costs, we do factor in our expectation for wage increases and that's part of our normal process in quoting as well.

No, that makes a lot of sense. And then, Andrew, maybe one for you and we've always talked about capital deployment and how your M&A pipeline is quite flush here. But just given kind of the relative valuation on where ATS is trading today and maybe where the expectations are for some of your targeted companies? Has your thought process changed on capital deployment? Can we expect more to be done on the NCIB? I know a little bit of shares got picked up there. But how should we be thinking about that going forward?

If I step back and I'm going to state, first and foremost, we look at long-term shareholder value and our capital allocation plan. And we have a well thought or strategy wrapped around this and I'm going to walk through the levers on this. So first and you picked up on -- the NCIB which when we see an area of opportunity, we have the ability to pull that lever. And your comment, you've seen some of that uptick. Number two, around M&A, when we look at the market, we continue to cultivate. And when we think about long-term value creation, we want to continue to cultivate. We want to continue to assess and identify companies that are going to be strategic for ATS. Our funnel remains healthy and we've aligned around areas that we view are going to drive significant opportunities for both our customers and our shareholders. The only item here is, if you look at the M&A market, it is down year-to-date, not my words, the banks that we pulse on this down roughly 30% but our cultivation efforts continue. And the reason is at times cultivation is going to take a year or two for the right asset for the right targets. And so, we've continued to build out and continue to have a strong funnel.

Your next question comes from Mark Neville of Scotiabank.

Great quarter, great job. Maybe just quickly a follow-up first on David's question, just around price, on these programs or on any program, do you have the ability to go back and sort of adjust price while the program is ongoing?

In some contracts, we do have that ability. That's -- those are rare occasions today and utilize more where we've got ongoing master agreements with customers typically.

Okay. Maybe just on the margin sort of longer term, the 15% target, I can't remember the number you quoted but the legacy is close to 17%. When you think about the acquired businesses doing 7, just big picture, when you think about these businesses longer term or what they should do, should they look over time comparable to legacy or maybe even a bit better just given the mix?

So let me -- I'll try and answer your question. So the core business did 16.8% in the quarter. There's a favorable stock comp benefit there and we were 15% for the year. And I think that's a better reflection given if I look at the full year, there's a lot of variability in our stock comp expense. For the full year, it was more normal. So we're quite pleased with that. In terms of the acquired businesses, there's a mix. There's some that are accretive to those margins and the others that are dilutive and CFT would be the one that I would call out. And we talked about it when we acquired the business it was a low single-digit margin business. We have a plan to increase those margins over time that we've laid out. We've made good progress. That's, again, a business that is more susceptible to the supply chain headwinds that are happening today and that reflects their higher buy on raw materials and components like that. But we're pleased with the progress we've made in terms of taking costs out of the business, putting in some operational efficiencies. That said, there's still ways to go with that business and through overall performance.

Maybe just on the CapEx budget for the year, Andrew or Ryan, whoever, can you maybe just talk about -- I mean it feels like a big number for you guys. Obviously, you can -- it's not an issue to fund it but maybe just some of the things that you're doing this year that's taking up or where that money is going?

Yes, so it's -- so it is a larger number. And first of all, our total business has increased. So the maintenance requirements are higher, not from a percentage standpoint but we're still in the 2%, low 2% range from a maintenance standpoint. But then we also have a number of growth initiatives to add capacity. And they're primarily adding floor space in some of our key core locations. And those are areas where we have critical mass, critical footprint but have seen a good growth in our business and really a need to expand. We're also increasing spend on innovation and we've talked about that for a number of years and that continues to be an important part of our growth strategy. All that said, there is some flexibility in our plan. So given business conditions, we will continue to monitor and adjust as needed.

Your next question comes from Maxim Sytchev of National Bank Financial.

A couple of questions, if I may, I think in the backlog sort of floor chart, there was a $73 million adjustment. Just was curious if you can comment on that because some of that was in relation to M&A, some of that scope changes just in terms of how we should be thinking about that number?

Yes, so in the quarter, about 2/3 of that is FX related and primarily in the euro, we saw that currency value decrease. And the balance, the other 1/3 would have been normal course scope changes in cancellations.

Okay. So yes, quite small okay, that's helpful. And then, I was wondering just in terms of -- you mentioned electrical components. I was curious around controllers and kind of how chip shortages are impacting the suppliers of your suppliers and how much visibility you have on these issues and how that's being managed, if it's possible to provide any color there?

Yes. Sure, Max. And I'll walk through this but I want to walk through it so you understand how we view it. So if you look at our business, let's break it into two sections. There's, the standard machines. And oftentimes in standard machines will have where possible, multi-controllers or core agnostic. And we will at times where we identify risk, build that into our process for engineering, for design to ensure. At times, we don't have that but it is more common in that area. Then you've got our custom machines. And in general, you're going to find that you're going to have less optionality from a multi-controller perspective but you're going to have options at times or within a supplier to have multiple options within that supplier. And so, we monitor this extremely close. And if supplier has a component that's an A component and they're running into a shortage. We'll then look at an offset that says maybe a B or a D and we have to design it in. And because we've got the engineering horsepower, we can do that. Alternative times we'll also, because we know the global market reach out to a distribution channel and do a longer-term buy on those components that we view are going to need to have call it some protection. And so -- and in the last case and at times and we've done this even recently where we work with the customer on a change out. And so, I would say we've managed the situation. We continue to be very focused on this. When we talk daily visual management, it is real, it is at every site, every location. And because of our buy and our continued buy, we've continued to mitigate that risk. And just for a reference point, we have a very diversified spend and no supplier makes up more than 3% of our, spend. And so while it is a challenge and suppliers do get hit, we've been able to offset and we continue to be very forward-looking in this to ensure that we minimize impact on our business.

That's very helpful disclosure. And just in terms of the -- by market outlook, I was wondering how you think right now, as COVID is receding about organic growth rates on healthcare and related/unrelated question around EVs and the potential growth dynamics in transportation, just curious to see if we should anticipate an acceleration in the latter?

Yes, so let me walk through that. And I'm going to start with EV because I mentioned it in my prepared remarks we are bullish on this market, on this area. And we continue to see strong demand. As a matter of fact, even this week I was meeting with a customer in this area where they view ATS as a very strategic supplier and they're looking at not only our current technology but ones we're working on from an innovation perspective to build it into their process. And so, we have deep relationships with the OEMs here. We continue to see opportunity. We are well positioned in the space to help them as they navigate the complexities and changes and we continue to stay very close around that change. And if you think about not only the equipment but then the servicing capability, the complexity around if a battery changes, you have to be able to move at their pace and ATS just does a fantastic job of value creation here. If you then look at healthcare, look, this is a big piece of our business and one we view as a growth trajectory. And you mentioned COVID. And certainly, we did see a nice uptick from COVID during that time period. We've largely pivoted back and we are on our base business and we continue to support many of the areas and I referenced radiopharma, medical devices, pharmaceutical manufacturing and even with our new SB acquisition. We've seen even synergies with other businesses like Comecer and DF. And so, we view that as a market that's going to continue to support our aspirations and our growth trajectory.

Okay, 100%. And then, just one last one for Ryan in terms of -- because, again like you're juggling all the supply chain issues anything that we should be mindful of in terms of the non-cash working capital. If you're trying to maybe over-commit on the inventory side of things or yes just any directionality there?

Yes. So we've made some investments into inventory to secure product for what I'd call longer-than-normal lead times but not really material from an inventory standpoint. What's going to drive our working capital is more on the project side and customer terms, commercial terms. And so, we did see a bit of an increase -- to just over 8% this quarter. I expect we'll continue to be in that range. We might end up in the 10% range in certain quarters but it's generally going to continue to be in that area.

Your next question comes from Justin Keywood of Stifel.

Nicely navigated quarter with a tough backdrop, my question is to do with geography. And I'm wondering if you're seeing any softness in Europe as compared to other regions. And also the revenue split in Europe by vertical, is that consistent with other regions? For example, would Life Sciences be 50% or perhaps even higher given that ATS serves pharma companies that may be based in Ireland?

Look, I'll take the first part of this, and then, Ryan can jump in on the second. So we continue to see opportunity in Europe across the board. And I have personally met with customers here. And what I can state is our funnel remains healthy. We look at this as -- I would characterize it as cautiously optimistic. And the only area that I would say we have seen some impact. It is not material but we have seen some impact as we do have customers in Russia that we do not have at this moment. And therefore, we have seen that impact. It is not material on our results. And therefore, it's not something we've outlined or highlighted. Ryan, why don't you take the second piece of that?

Yes. Well, so just to put a fine point on Russia, it's less than 0.5% of our total revenue, so to Andrew's point, not material. In terms of vertical markets, so it's -- our food business is more weighted into Europe. The rest of the business is, I would say, fairly aligned with the geographic revenue split. Today, transportation would be a little bit more aligned into North America Life Sciences likely as well. Consumer is going to be a bit of a mix and energy is more North American. So food is really the one that's more heavily weighted into Europe today.

Great. And then, a follow-on question for the Food & Beverage segment. I'm wondering if ATS provides automation work for baby formula and if this is an opportunity for ATS to help given the current baby formula shortage going on?

We would characterize that -- and what we call secondary processing and we are in this space. I'm not going to get into all the areas we play in this area but we do view this as an area that we can continue to grow into.

And given the current shortage for baby formula, does this elevate the perhaps demand for a better quality control given the Abbott Lab's facility that was shut down and perhaps there could be some increased attention to higher-quality manufacturing in the space?

I'm just going to -- I'm going to kind of step back and say, this is one of the reasons why we like regulated food and why we like secondary processing, is you're going to have a heightened area of focus around ensuring you meet the qualifications for the markets. And Justin, just to give you some -- and you know this but to give you some insight as to when we view the food space, regulated food. This is one of the areas why we like this space, is it has similar characteristics as our Life Sciences where regulation, quality, dependency, these are -- these matter to our customers. And so while we're early in our journey with food at ATS, we are -- with CFT, with Raytec with MARCO, with other areas, we've made a nice progress here and we do view this as going to be an area of growth for our corporation.

Your next question comes from Cherilyn Radbourne of TD.

Andrew, my first question is for you. We know that you have ongoing dialogue with customers. So I was just hoping to tap into that a little bit. Could you just update us on the tone of those conversations as the quarter progressed and sort of macro uncertainty and inflationary pressures build . Did you get a sense that they were starting to approach CapEx more cautiously as a consequence and/or have they started to look to ATS more for assistance with inflationary pressure?

And I'm going to get to this. But as you're well aware, we're 80% regulated and that generally has a -- when we view it, the markets we serve today have longer tails on their growth. If I were to characterize my engagement with customers, I would say, in general, it's cautiously optimistic, more resilient markets, areas that when you think mid and long term, they've got labor shortage issues at times and automation can support and help that. As well as ATS has been very focused on continuing to expand our value to these customers, whether it be technology, whether it be helping them in their service and support, whether it be in getting their products to market at a faster pace. So in general, I would say our communication has been solid. And just to recap the quarter, very strong bookings quarter, very strong backlog as we going into the New Year. And as I mentioned, a healthy funnel as we look at the core markets today.

Great. And then, maybe for Ryan, just in terms of the organic growth in bookings this quarter, can you remind us of the size of the prior year EV bookings that you're lapping? And maybe give us a bit more color on what you're seeing in nuclear and just how timing impact affected bookings in the quarter?

Yes, so I'll start and I'll let Andrew address the nuclear portion of the question. So we had a couple of orders in Q4 last year that were in the -- $50 million range so a couple of significant ones and we have those that's, not unusual. And this quarter, we had a couple of orders in the $30 million range. Our organic growth in bookings was 1% this quarter. But we're always going to see normal course variability because of the size of some of these orders. And that's why -- and I referenced our trailing 12-month book-to-bill in my prepared remarks. For we tend to look at this on a longer-term basis. Our organic growth rate in bookings for the year was 21%. And so that's a very good number. That's going to be a tough one to be going into next year but something we're very proud of. So we don't -- like I said, we don't get too focused on a singular quarter and we're pleased with the bookings as Andrew talked about and we've got a very strong funnel and our backlog is very strong as we go into the next year.

And Cherilyn, I'll just walk through the nuclear side. And I met with a very important nuclear customer earlier in the week. And we continue to see -- and I would characterize our focus here has been a niche focus. It's high value to our customers. We see continued potential expansion with our current customer base. And with a renewed focus on nuclear we do see an avenue in areas that we can expand that on a global basis. And we often talk about decommissioning, we talk about other areas. But as you see a shift from fossil fuels to this being an energy source we do view additional opportunity here.

Your final question is a follow-up from Mark Neville of Scotiabank.

Maybe just on the sort of the backlog conversion guidance, is this more a function of the higher guide for the quarter, more a function of sort of what's in the backlog or sort of the structural change in the business from all the acquisitions over the past year or so?

Mark, it's both. So we've added businesses that have more products. The equipment is shorter cycle and we've also grown our services. And so all of that changes the mix a little bit and helps it push us into that 40% to 45%. Now that said, we do make this assessment every quarter. We look at our backlog and our expectations for how that's going to get revenue. And so it really is a bit of both. But over the longer term, I would expect given the change in mix in our business that will generally be in that 40% to 45% range. That said, if we have a number of large projects come on in the early stages, we could see that percentage decrease as well. So the short answer is it's a bit of both.

Got it. Maybe moving over to the supply chain and Andrew, I appreciate all the color and sort of how you're managing it. I appreciate you sort of usual every day, every location. But is there also like a centralized supply chain team that's managing this sort of from hope level?

Yes. So Mark, we have both a centralized supply chain team which, by the way, this has been something we've talked about for years where this has been one of our 5 points of focus on our margin expansion plan with supply chain. Our supply chain leader has built a team out here and globally. And then additionally, we have built out teams at the core location. And remember, these are individuals that our focus is they pay for their costs. So not only do they perform, they've continued to expand and really drive the business. So short answer is yes, we have both. And yes, we look at this from a macro perspective, i.e., global enterprise, all of ATS because we can bring at times that full breadth of our focus to our supply base or a shift of supply base. And so our growth really is going to be helpful for us as we navigate these times.

Got it. If I can ask last question just on M&A. Curious on a couple of things, I guess. First, just given the macro uncertainty, is more stuff popping up. Curious if sort of seller expectations have changed. Also curious, sort of given sort of the macro and certainly sort of your appetite for sort of doing a dealer deals in this environment if it's changed at all?

So what we've seen as we haven't seen a massive shift in seller call it, approach to the market. The deals -- and I mentioned this earlier in the call, the deals have gone down in totality in their numbers but we haven't seen a massive shift in expectations from sellers. And so we are patient, we are focused, we are aligned with longer-term value creation for our shareholders and we're going to keep that focus. And so, I view our position, having a strong balance sheet, having a critical for having markets that we view are resilient more -- excuse me, more resilient, is really aligned around the journey that ATS has been on. So while I do say that it's a challenging environment, we're in a position to continue to build out our relationship and our funnel through this.

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

Thank you, operator. We're pleased with the performance this quarter and appreciate the efforts put forth from our talented teams to make it possible. We look forward to the new fiscal year and the opportunity to continue to deliver on our plans. Thank you for joining us. I look forward to speaking to you on our Q1 call in August. Stay safe and goodbye for now.

Ladies and gentlemen, this does conclude your conference call for today. We would like to thank you for participating and ask that you please disconnect your lines.