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ATS Reports Third Quarter Fiscal 2020 Results

CNW Group - Wed Feb 5, 5:00AM CST

ATS Automation Tooling Systems Inc. (TSX:ATA.TO) ("ATS" or the "Company") today reported financial results for the three and nine months ended December 29, 2019.

Third quarter highlights:

--  Revenues increased 14% to $367.2 million. Organic growth in
        revenues was 5% with 9% coming from acquired businesses.
    --  The Company initiated a previously announced reorganization
        plan. See "Reorganization Plan".
    --  Earnings from operations were $10.4 million (3% operating
        margin), compared to $38.5 million (12% operating margin) a
        year ago. Adjusted earnings from operations(1) were $37.5
        million (10% margin), compared to $46.7 million (15% margin) a
        year ago.
    --  EBITDA(1) was $26.8 million (7% EBITDA margin), compared to
        $48.7 million (15% EBITDA margin) a year ago. Lower EBITDA
        primarily reflected restructuring charges, higher stock
        compensation expenses and operating inefficiencies from the
        implementation of the Reorganization Plan.
    --  Earnings per share were 4 cents basic and diluted compared to
        27 cents a year ago.
    --  Adjusted basic earnings per share(1) were 26 cents compared to
        33 cents a year ago.
    --  Order Bookings were $368 million, 7% lower than a year ago.
    --  Order Backlog increased 1% to $939 million at December 29, 2019
        compared to $926 million a year ago.
    --  The Company acquired MARCO Limited, a leading provider of yield
        control and recipe formulation systems. See "Business
        Acquisitions - MARCO Limited".

"Third quarter performance featured year-over-year growth in revenues," said Andrew Hider, Chief Executive Officer. "Operationally, we initiated a reorganization plan designed to reallocate capital from underperforming facilities to high-performing facilities to support growth and drive continued performance improvement. When complete, this plan will contribute to our margin expansion plans and improve our return on invested capital."

Year-to-date highlights:

--  Revenues increased 16% to $1,047.6 million. Organic growth in
        revenues was 7% with 9% coming from acquisitions.
    --  Earnings from operations were $70.7 million (7% operating
        margin), compared to $84.5 million (9% operating margin) in the
        prior year.
    --  Adjusted earnings from operations(1 )were $118.0 million (11%
        margin), compared to $104.6 million (12% margin) in the prior
        year.
    --  EBITDA(1) was $123.8 million (12% EBITDA margin), compared to
        $114.6 million (13% EBITDA margin) in the prior year.
    --  Earnings per share was 43 cents basic and diluted compared to
        56 cents in the prior year.
    --  Adjusted basic earnings per share(1) increased 11% to 80 cents
        from 72 cents a year ago.
    --  Order Bookings of $1,112 million were comparable to the
        corresponding period a year ago.

Mr. Hider added, "We have continued to execute on our M&A strategy with the acquisition of MARCO, a leading provider of yield control solutions for food and related markets. This is a first step for ATS into an attractive new vertical that provides a stable, mid-single digit growth rate, and is subject to regulation that drives the ongoing need for high-precision technologies. Integration of Comecer is on track as demonstrated by the $32 million joint program win in the third quarter for a new pharmaceutical customer. Going forward, we have a strong balance sheet that will allow us to continue pursuing our value creation strategy, build, grow and expand, with the goal of creating long-term shareholder value."

Financial results (In millions of dollars unless otherwise stated)

3 months ended         3 months ended    9 months ended    9 months ended
                                      December 29, 2019      December 30, 2018 December 29, 2019 December 30, 2018





     Revenues                                      $

              367.2                      $
            321.4 $

        1,047.6 $
      905.0

    ---



     Earnings from operations                       $

              10.4                       $
            38.5    $

        70.7  $
      84.5

    ---



     Adjusted earnings from




     operations(1)                                  $

              37.5                       $
            46.7   $

        118.0 $
      104.6

    ---



     EBITDA(1)                                      $

              26.8                       $
            48.7   $

        123.8 $
      114.6

    ---



     Net income                                      $

              4.1                       $
            25.1    $

        39.9  $
      52.6

    ---



     Adjusted basic earnings per




     share(1)                                       $

              0.26                       $
            0.33    $

        0.80  $
      0.72

    ---



     Basic and diluted earnings




     per share                                      $

              0.04                       $
            0.27    $

        0.43  $
      0.56

    ---
1 Non-IFRS measure: see
                             "Notice to Reader: Non-IFRS
                             Measures and Additional IFRS
                             Measures".

Reorganization PlanATS previously announced the investment of capital in targeted high-performing facilities globally, as part of a $60 million plan to increase capacity and address the Company's significant Order Backlog. To drive continued improvement in operations and focus investment in strategic growth areas of the business, the Company initiated a reorganization plan in the third quarter of fiscal 2020. The reorganization plan includes the consolidation of certain operations and the closure of some underperforming facilities and small branch offices - none of which are strategically important to future growth. Costs to implement the restructuring are comprised primarily of severances and lease termination costs. The Company has recorded charges of $2.0 million and $18.8 million in the second and third quarters, respectively, with approximately $6 million expected to be recorded in the fourth quarter. In addition, operating margins were negatively impacted by approximately $5 million in the third quarter, with a similar impact expected in the fourth quarter, due primarily to unabsorbed costs from closing facilities and cost inefficiencies from transferring projects. Certain of the Company's foreign operations have engaged in normal course consultation processes regarding the reorganization plan. As a result of the expected improvements in the Company's cost structure and elimination of unprofitable facilities, commencing in fiscal 2021, management expects annualized improvements to operating earnings of approximately $15 million to $18 million, and operating margins to be positively impacted by approximately 110 basis points to 130 basis points based on the Company's trailing twelve month revenues.

Third quarter summaryFiscal 2020 third quarter revenues were 14% higher than in the corresponding period a year ago and included $31.3 million of revenues earned by acquired companies (see "Business Acquisitions"). Excluding acquired companies, third quarter revenues were $335.9 million, a 5% increase compared to the corresponding period a year ago, primarily reflecting Order Backlog, which, excluding the impact of acquired Order Backlog, was 4% higher entering the third quarter of fiscal 2020 compared to a year ago. Revenues generated from construction contracts and services increased 17% and 3%, respectively, compared to the corresponding period a year ago.

By market, revenues generated in life sciences increased 33% due to higher Order Backlog entering the third quarter of fiscal 2020 primarily due to additional revenues for medical device and radiopharmaceutical applications. Revenues in the transportation market increased 29% due to higher Order Backlog for both electric vehicle and internal combustion engine projects entering the third quarter of fiscal 2020. Revenues from consumer products decreased 30% due primarily to lower activity in warehousing automation. Revenues from energy markets decreased 39%, due to timing of project performance, primarily in the nuclear market.

Fiscal 2020 third quarter earnings from operations were $10.4 million (3% operating margin) compared to $38.5 million (12% operating margin) in the third quarter of fiscal 2019. Third quarter fiscal 2020 earnings from operations included $18.8 million of restructuring charges incurred as part of the Company's reorganization plan (see "Reorganization Plan"), $1.4 million of incremental costs related to the Company's acquisition activity, down from $2.7 million in the comparable period a year ago, and $6.9 million related to amortization of acquisition-related intangible assets, up from $5.5 million of amortization of acquisition-related intangible assets in the comparable period a year ago.

Excluding these items in both quarters, third quarter fiscal 2020 adjusted earnings from operations were $37.5 million (10% margin), compared to adjusted earnings from operations of $46.7 million (15% margin) a year ago. As expected, third quarter fiscal 2020 adjusted earnings from operations reflected a lower gross margin due to inefficiencies from the implementation of the Reorganization Plan, which negatively impacted earnings by approximately $5.0 million. In addition, lower adjusted earnings from operations in the third quarter of fiscal 2020 reflected $10.8 million of additional stock compensation expenses compared to the corresponding period a year ago. The adoption of IFRS 16 positively impacted earnings from operations by $0.9 million due to the implied finance costs recorded on lease obligations.

Depreciation and amortization expense was $16.4 million in the third quarter of fiscal 2020, compared to $10.2 million a year ago. The increase primarily reflected incremental amortization of acquisition-related intangible assets due to the acquisitions of KMW, Comecer and iXLOG and $4.0 million of incremental depreciation of right-of-use assets as a result of the adoption of IFRS 16.

EBITDA was $26.8 million (7% EBITDA margin) in the third quarter of fiscal 2020 compared to $48.7 million (15% EBITDA margin) in the third quarter of fiscal 2019. Lower EBITDA reflected $18.8 million of restructuring charges, inefficiencies from the implementation of the Reorganization Plan, which negatively impacted earnings by approximately $5.0 million, and $10.8 million of additional stock compensation expenses. These increased expenses were partially offset by higher revenues and lower operating lease costs related to the adoption of IFRS 16, which positively impacted EBITDA by $4.9 million.

Impact of Adoption of IFRS 16 - LeasesThe nature of expenses related to identified lease arrangements changed as IFRS 16 replaced straight-line operating lease expense with depreciation and interest expense relating to lease liabilities. For the three and nine months ended December 29, 2019, the adoption of IFRS 16 resulted in increased depreciation expenses related to right-of-use assets of $4.0 million and $11.6 million, respectively, with a corresponding decrease in operating lease costs which were recognized in cost of revenues and selling, general and administrative expenses. In addition, the adoption of IFRS 16 resulted in incremental interest expenses of $0.9 million and $2.7 million for the three and nine months ended December 29, 2019, respectively, with corresponding decreases in operating lease costs. The combined impact of these changes was to increase earnings from operations by $0.9 million and $2.7 million and to increase EBITDA by $4.9 million and $14.3 million for the three and nine months ended December 29, 2019, respectively. The impact on net income was negligible.

Order Backlog Continuity(In millions of dollars)

Three Months      Three Months   Nine Months      Nine Months


                                            Ended             Ended         Ended            Ended


                                     December 29,      December 30,  December 29,     December 30,


                                             2019               2018           2019              2018




       Opening Order Backlog                     $

              945                 $
              830   $

     904 $
     746



       Revenues                            (367)             (321)       (1,048)            (905)



       Order Bookings                        368                397          1,112             1,109



       Order Backlog adjustments(1)          (7)                20           (29)             (24)

    ---


       Total                                     $

              939                 $
              926   $

     939 $
     926

    ===
(1) Order Backlog adjustments
                             include incremental Order Backlog
                             of $4 million acquired with
                             MARCO, foreign exchange
                             adjustments and cancellations.

Order BookingsThird quarter fiscal 2020 Order Bookings were $368 million, a 7% decrease compared to the third quarter of fiscal 2019. Excluding Business Acquisitions, third quarter Order Bookings were $314 million, which excludes the $32 million joint ATS and Comecer Order Booking for a new pharmaceutical customer. By market, Order Bookings in the life sciences and consumer products markets decreased due primarily to timing of customer decisions. Order Bookings in the transportation and energy markets were similar to the third quarter last year.

Order BacklogAt December 29, 2019, Order Backlog was $939 million, 1% higher than at December 30, 2018. Order Backlog growth was primarily driven by Order Backlog from acquired businesses.

BUSINESS ACQUISITIONS:

MARCO LimitedOn December 16, 2019, the Company acquired 100% of the shares of MARCO Limited ("MARCO"), a U.K. based provider of yield control and recipe formulation systems to help customers in the food, nutraceuticals and cosmetics sectors increase productivity and meet stringent industry regulations. MARCO's solutions are based on its proprietary weighing hardware and process control software technologies. MARCO provides ATS with the means of entering a product-based, niche segment of the food industry that is growing at a mid-single digit rate. The food industry is attractive because it is subject to industry and government regulations, driving a need for high precision technologies.

Cash consideration paid in the third quarter of fiscal 2020 was $44.4 million (25.2 million U.K. pounds sterling). Additional contingent consideration of up to $12.8 million (7.3 million U.K. pounds sterling) is payable if certain performance targets are met within two years of the acquisition date. The fair value of the contingent consideration was valued at $7.4 million (4.2 million U.K. pounds sterling) at the acquisition date. This acquisition was accounted for as a business combination with the Company as the acquirer of MARCO. The purchase method of accounting was used and the earnings were consolidated from the acquisition date, December 16, 2019.

Quarterly Conference CallATS' quarterly conference call begins at 10:00 a.m. eastern on Wednesday, February 5, 2020, and can be accessed live at www.atsautomation.com or on the phone by dialing (647) 427-7450 five minutes prior. A replay of the conference will be available on the ATS website following the call. Alternatively, a telephone recording of the call will be available for one week (until midnight February 12, 2020) by dialing (416) 849-0833 and entering passcode 5498745 followed by the number sign.

About ATSATS is an industry-leading automation solutions provider to many of the world's most successful companies. ATS uses its extensive knowledge base and global capabilities in custom automation, repeat automation, automation products and value-added services, including pre-automation and after-sales services, to address the sophisticated manufacturing automation systems and service needs of multinational customers in markets such as life sciences, chemicals, consumer products, electronics, food, beverage, transportation, energy, and oil and gas. Founded in 1978, ATS employs approximately 4,500 people at 24 manufacturing facilities and over 50 offices in North America, Europe, Southeast Asia and China. The Company's shares are traded on the Toronto Stock Exchange under the symbol ATA. Visit the Company's website at www.atsautomation.com.

Management's Discussion and AnalysisFor the Quarter Ended December 29, 2019

This Management's Discussion and Analysis ("MD&A") for the three and nine months ended December 29, 2019 (third quarter of fiscal 2020) is as of February 4, 2020 and provides information on the operating activities, performance and financial position of ATS Automation Tooling Systems Inc. ("ATS" or the "Company") and should be read in conjunction with the unaudited interim condensed consolidated financial statements of the Company for the third quarter of fiscal 2020, which have been prepared in accordance with International Financial Reporting Standards ("IFRS") and are reported in Canadian dollars. The Company assumes that the reader of this MD&A has access to, and has read, the audited consolidated financial statements prepared in accordance with IFRS and the MD&A of the Company for the year ended March 31, 2019 (fiscal 2019), and, accordingly, the purpose of this document is to provide a fiscal 2020 third quarter update to the information contained in the fiscal 2019 MD&A. Additional information is contained in the Company's filings with Canadian securities regulators, including its Annual Information Form, found on SEDAR at www.sedar.com and on the Company's website at www.atsautomation.com.

Notice to reader: Non-IFRS measures and additional IFRS measuresThroughout this document, management uses certain non-IFRS measures to evaluate the performance of the Company. The terms "operating margin", "EBITDA", "EBITDA margin", "adjusted net income", "adjusted earnings from operations", "adjusted basic earnings per share", "non-cash working capital", "Order Bookings" and "Order Backlog" do not have any standardized meaning prescribed within IFRS and therefore may not be comparable to similar measures presented by other companies. Such measures should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. In addition, management uses "earnings from operations", which is an additional IFRS measure, to evaluate the performance of the Company. Earnings from operations is presented on the Company's consolidated statements of income as net income excluding income tax expense and net finance costs. Operating margin is an expression of the Company's earnings from operations as a percentage of revenues. EBITDA is defined as earnings from operations excluding depreciation and amortization (which includes amortization of intangible assets and right-of-use assets). EBITDA margin is an expression of the Company's EBITDA as a percentage of revenues. Adjusted earnings from operations is defined as earnings from operations before items excluded from management's internal analysis of operating results, such as amortization expense of acquisition-related intangible assets, acquisition-related transaction and integration costs, restructuring charges, and certain other adjustments which would be non-recurring in nature ("adjustment items"). Adjusted basic earnings per share is defined as adjusted net income on a basic per share basis, where adjusted net income is defined as adjusted earnings from operations less net finance costs and income tax expense, plus tax effects of adjustment items. Non-cash working capital is defined as the sum of accounts receivable, contract assets, inventories, deposits, prepaids and other assets, less accounts payable, accrued liabilities, provisions and contract liabilities. Order Bookings represent new orders for the supply of automation systems, services and products that management believes are firm. Order Backlog is the estimated unearned portion of revenues on customer contracts that are in process and have not been completed at the specified date.

Earnings from operations and EBITDA are used by the Company to evaluate the performance of its operations. Management believes that earnings from operations is an important indicator in measuring the performance of the Company's operations on a pre-tax basis and without consideration as to how the Company finances its operations. Management believes that EBITDA is an important indicator of the Company's ability to generate operating cash flows to fund continued investment in its operations. Management believes that adjusted earnings from operations and adjusted basic earnings per share (including adjusted net income) are important measures to increase comparability of performance between periods. The adjustment items used by management to arrive at these metrics are not considered to be indicative of the business' ongoing operating performance. Management uses the measure "non-cash working capital as a percentage of revenues" to evaluate the Company's management of its investment in non-cash working capital. Management calculates non-cash working capital as a percentage of revenues using period-end non-cash working capital divided by trailing two fiscal quarter revenues annualized. Order Bookings provide an indication of the Company's ability to secure new orders for work during a specified period, while Order Backlog provides a measure of the value of Order Bookings that have not been completed at a specified point in time. Both Order Bookings and Order Backlog are indicators of future revenues that the Company expects to generate based on contracts that management believes to be firm. Management believes that ATS shareholders and potential investors in ATS use these additional IFRS measures and non-IFRS financial measures in making investment decisions and measuring operational results.

A reconciliation of (i) earnings from operations and EBITDA to net income, and (ii) adjusted earnings from operations to earnings from operations, adjusted net income to net income and adjusted basic earnings per share to basic earnings per share, in each case for the three- and nine-month periods ended December 29, 2019 and December 30, 2018, is contained in this MD&A (see "Reconciliation of Non-IFRS Measures to IFRS Measures"). A reconciliation of Order Bookings and Order Backlog to total Company revenues for the three- and nine-month periods ending December 29, 2019 and December 30, 2018 is also contained in this MD&A (see "Order Backlog continuity").

COMPANY PROFILEATS is an industry-leading automation solutions provider to many of the world's most successful companies. ATS uses its extensive knowledge base and global capabilities in custom automation, repeat automation, automation products and value-added services, including pre-automation and after-sales services, to address the sophisticated manufacturing automation systems and service needs of multinational customers in markets such as life sciences, chemicals, consumer products, electronics, food, beverage, transportation, energy, and oil and gas. Founded in 1978, ATS employs approximately 4,500 people at 24 manufacturing facilities and has over 50 offices in North America, Europe, Southeast Asia and China.

STRATEGYTo drive the creation of long-term sustainable shareholder value, the Company has developed a three-part value creation strategy: Build, Grow and Expand.

Build: To build on the Company's foundation and drive performance improvements, management is focused on the advancement of the ATS Business Model ("ABM"), the pursuit and measurement of value drivers and key performance indicators, a rigorous strategic planning process, succession planning, talent management and employee engagement, and driving autonomy and accountability into its businesses.

Grow: To drive growth, management is focused on growing organically through the development and implementation of growth tools under the ABM, providing innovation and value to the Company's customers and markets, and growing the Company's recurring revenue.

Expand: To expand the Company's reach, management is focused on the development of new markets and business platforms, expanding service offerings, investing in innovation and product development, and strategic and disciplined acquisitions that strengthen ATS.

The Company pursues these initiatives with a focus on strategic capital allocation in order to drive the creation of long-term sustainable shareholder value.

ATS Business ModelThe ABM is a business management system that ATS has developed with the goal of enabling the Company to pursue its strategies, outpace its chosen markets, and drive year-over-year continuous improvement. The ABM brings focus to:

--  People: developing, engaging and empowering ATS' people to
        build the best team;

    --  Process: aligning ATS people to implement and continuously
        improve robust and disciplined business processes throughout
        the organization; and

    --  Performance: consistently measuring performance in order to
        yield world-class performance for our customers and
        shareholders.

The ABM is ATS' playbook, serving as the framework utilized by the Company to achieve its business goals and objectives through disciplined, continuous improvement. The ABM has been rolled out across ATS divisions globally, supported with extensive training in the use of key problem-solving tools, and applied through various projects to drive continuous improvement.

OVERVIEW - OPERATING RESULTS Consolidated Revenues (In millions of dollars)

Three Months      Three Months   Nine Months       Nine Months


                                               Ended             Ended         Ended             Ended


                                        December 29,      December 30,  December 29,      December 30,


                     Revenues by market         2019               2018           2019               2018

    ===


       Life sciences                                $

            207.5                 $
             156.6     $

       570.4 $
     415.4



       Transportation                         104.2               80.8          268.8              220.0



       Consumer products                       32.5               46.2          131.5              164.1



       Energy                                  23.0               37.8           76.9              105.5

    ---

                     Total revenues                  $

            367.2                 $
             321.4   $

       1,047.6 $
     905.0

    ===

Fiscal 2020 third quarter revenues were 14% higher than in the corresponding period a year ago and included $31.3 million of revenues earned by acquired companies (see "Business Acquisitions"). Excluding acquired companies, third quarter revenues were $335.9 million, a 5% increase compared to the corresponding period a year ago, primarily reflecting Order Backlog, which, excluding the impact of acquired Order Backlog, was 4% higher entering the third quarter of fiscal 2020 compared to a year ago. Revenues generated from construction contracts and services increased 17% and 3%, respectively, compared to the corresponding period a year ago.

By market, revenues generated in life sciences increased 33% due to higher Order Backlog entering the third quarter of fiscal 2020 primarily due to additional revenues for medical device and radiopharmaceutical applications. Revenues in the transportation market increased 29% due to higher Order Backlog for both electric vehicle and internal combustion engine projects entering the third quarter of fiscal 2020. Revenues from consumer products decreased 30% due primarily to lower activity in warehousing automation. Revenues from energy markets decreased 39%, due to timing of project performance, primarily in the nuclear market.

Year-to-dateRevenues for the nine months ended December 29, 2019 were $1,047.6 million, 16% higher than in the corresponding period a year ago and included $82.9 million of revenues earned by acquired companies. Excluding acquired companies, revenues for the nine months ended December 29, 2019 were $964.7 million, a 7% increase over the corresponding period a year ago, primarily reflecting higher Order Backlog entering fiscal 2020 compared to a year ago. Revenues generated from construction contracts and services both increased by 13% compared to the corresponding period a year ago.

By market, fiscal 2020 year-to-date revenues from life sciences markets increased 37%, primarily reflecting higher Order Backlog entering fiscal 2020 due to increased revenues for medical device, pharmaceutical and radiopharmaceutical applications. Revenues in the transportation market increased 22% due to higher Order Backlog entering fiscal 2020, primarily for electric vehicle projects. Consumer products revenues decreased 20% compared to a year ago due primarily to lower activity in warehouse automation. Revenues from energy markets decreased 27%, compared to a year ago primarily due to lower Order Backlog for nuclear projects entering fiscal 2020.

Consolidated Operating Results(In millions of dollars)

Three Months      Three Months   Nine Months       Nine Months


                                                                     Ended             Ended         Ended             Ended


                                                              December 29,      December 30,  December 29,      December 30,


                                                                      2019               2018           2019               2018





                Earnings from operations                              $

             10.4                 $
              38.5    $

      70.7  $
      84.5



       Amortization of acquisition-related intangible assets          6.9                5.5           25.1               16.5



       Restructuring charges                                         18.8
              --          20.8
              --



       Acquisition-related transaction costs                          1.4                2.7            1.4                3.6

    ---



                Adjusted earnings from operations(1)                  $

             37.5                 $
              46.7   $

      118.0 $
      104.6

    ===
1 See "Notice to Reader: Non-
                             IFRS Measures and Additional
                             IFRS Measures."
Three Months      Three Months   Nine Months       Nine Months


                                                     Ended             Ended         Ended             Ended


                                              December 29,      December 30,  December 29,      December 30,


                                                      2019               2018           2019               2018





                Earnings from operations              $

             10.4                 $
              38.5    $

      70.7  $
      84.5



       Depreciation and amortization                 16.4               10.2           53.1               30.1

    ---



                EBITDA(1)                             $

             26.8                 $
              48.7   $

      123.8 $
      114.6

    ===
1 See "Notice to Reader: Non-
                             IFRS Measures and Additional
                             IFRS Measures."

Third QuarterFiscal 2020 third quarter earnings from operations were $10.4 million (3% operating margin) compared to $38.5 million (12% operating margin) in the third quarter of fiscal 2019. Third quarter fiscal 2020 earnings from operations included $18.8 million of restructuring charges incurred as part of the Company's reorganization plan (see "Reorganization Plan"), $1.4 million of incremental costs related to the Company's acquisition activity, down from $2.7 million in the comparable period a year ago, and $6.9 million related to amortization of acquisition-related intangible assets, up from $5.5 million of amortization of acquisition-related intangible assets in the comparable period a year ago.

Excluding these items in both quarters, third quarter fiscal 2020 adjusted earnings from operations were $37.5 million (10% margin), compared to adjusted earnings from operations of $46.7 million (15% margin) a year ago. As expected, third quarter fiscal 2020 adjusted earnings from operations reflected a lower gross margin due to inefficiencies from the implementation of the Reorganization Plan, which negatively impacted earnings by approximately $5.0 million. In addition, lower adjusted earnings from operations in the third quarter of fiscal 2020 reflected $10.8 million of additional stock compensation expenses compared to the corresponding period a year ago. The adoption of IFRS 16 positively impacted earnings from operations by $0.9 million due to the implied finance costs recorded on lease obligations.

Depreciation and amortization expense was $16.4 million in the third quarter of fiscal 2020, compared to $10.2 million a year ago. The increase primarily reflected incremental amortization of acquisition-related intangible assets due to the acquisitions of KMW, Comecer and iXLOG and $4.0 million of incremental depreciation of right-of-use assets as a result of the adoption of IFRS 16.

EBITDA was $26.8 million (7% EBITDA margin) in the third quarter of fiscal 2020 compared to $48.7 million (15% EBITDA margin) in the third quarter of fiscal 2019. Lower EBITDA reflected $18.8 million of restructuring charges, inefficiencies from the implementation of the Reorganization Plan, which negatively impacted earnings by approximately $5.0 million, and $10.8 million of additional stock compensation expenses. These increased expenses were partially offset by higher revenues and lower operating lease costs related to the adoption of IFRS 16, which positively impacted EBITDA by $4.9 million.

Year-to-dateFor the nine months ended December 29, 2019, earnings from operations were $70.7 million (7% operating margin) compared to $84.5 million (9% operating margin) in the corresponding period a year ago. Excluding $20.8 million of restructuring costs, $1.4 million of incremental costs related to the Company's acquisition activity, and $25.1 million related to amortization of identifiable intangible assets recorded on business acquisitions, adjusted earnings from operations were $118.0 million (11% operating margin) in the first nine months of fiscal 2020, compared to adjusted earnings from operations of $104.6 million (12% operating margin) in the corresponding period a year ago. Higher adjusted earnings from operations primarily reflected higher revenues in the first nine months of fiscal 2020, partially offset by increased selling, general and administrative expenses and stock compensation expenses. The adoption of IFRS 16 positively impacted earnings from operations by $2.7 million due to the implied finance costs recorded on lease obligations.

Depreciation and amortization expense was $53.1 million in the first nine months of fiscal 2020 compared to $30.1 million a year ago. The increase primarily reflected amortization of acquisition-related intangible assets of KMW, Comecer and iXLOG and $11.6 million of incremental depreciation of right-of-use assets as a result of the adoption of IFRS 16.

Year-to-date fiscal 2020 EBITDA was $123.8 million (12% EBITDA margin) compared to $114.6 million (13% EBITDA margin) in the first nine months of fiscal 2019. Higher EBITDA reflected increased revenues, partially offset by lower gross margin, inefficiencies from the implementation of the Reorganization Plan, increased stock compensation expenses and higher selling, general and administrative expenses. Higher selling, general and administrative expenses in the period were partially offset by $14.3 million less of operating lease expenses related to the adoption of IFRS 16.

Impact of Adoption of IFRS 16 - LeasesThe nature of expenses related to identified lease arrangements changed as IFRS 16 replaced straight-line operating lease expense with depreciation and interest expense relating to lease liabilities. For the three and nine months ended December 29, 2019, the adoption of IFRS 16 resulted in increased depreciation expenses related to right-of-use assets of $4.0 million and $11.6 million, respectively, with a corresponding decrease in operating lease costs which were recognized in cost of revenues and selling, general and administrative expenses. In addition, the adoption of IFRS 16 resulted in incremental interest expenses of $0.9 million and $2.7 million for the three and nine months ended December 29, 2019, respectively, with corresponding decreases in operating lease costs. The combined impact of these changes was to increase earnings from operations by $0.9 million and $2.7 million and to increase EBITDA by $4.9 million and $14.3 million for the three and nine months ended December 29, 2019, respectively. The impact on net income was negligible. See "Accounting Standard Adopted in Fiscal 2020."

Order Bookings by QuarterThird quarter fiscal 2020 Order Bookings were $368 million, a 7% decrease compared to the third quarter of fiscal 2019. Excluding Business Acquisitions, third quarter Order Bookings were $314 million, which excludes the $32 million joint ATS and Comecer Order Booking for a new pharmaceutical customer. By market, Order Bookings in the life sciences and consumer products markets decreased due primarily to timing of customer decisions. Order Bookings in the transportation and energy markets were similar to the third quarter last year.

Order Backlog Continuity(In millions of dollars)

Three Months      Three Months   Nine Months      Nine Months


                                            Ended             Ended         Ended            Ended


                                     December 29,      December 30,  December 29,     December 30,


                                             2019               2018           2019              2018




       Opening Order Backlog                     $

              945                 $
              830   $

     904 $
     746



       Revenues                            (367)             (321)       (1,048)            (905)



       Order Bookings                        368                397          1,112             1,109



       Order Backlog adjustments(1)          (7)                20           (29)             (24)

    ---


       Total                                     $

              939                 $
              926   $

     939 $
     926

    ===
(1) Order Backlog adjustments
                             include incremental Order Backlog
                             of $4 million acquired with
                             MARCO, foreign exchange
                             adjustments and cancellations.

Order Backlog by Market(In millions of dollars)

December      December
                                29,            30,




                As at     2019           2018

    ===


       Life sciences               $

          514  $
     473



       Transportation          262            275



       Consumer products        69             88



       Energy                   94             90

    ---


       Total                       $

          939  $
     926

    ===

At December 29, 2019, Order Backlog was $939 million, 1% higher than at December 30, 2018. Order Backlog growth was primarily driven by Order Backlog from acquired businesses.

Reorganization PlanATS previously announced the investment of capital in targeted high-performing facilities globally, as part of a $60 million plan to increase capacity and address the Company's significant Order Backlog. To drive continued improvement in operations and focus investment in strategic growth areas of the business, the Company initiated a reorganization plan in the third quarter of fiscal 2020. The reorganization plan includes the consolidation of certain operations and the closure of some underperforming facilities and small branch offices - none of which are strategically important to future growth. Costs to implement the restructuring are comprised primarily of severances and lease termination costs. The Company has recorded charges of $2.0 million and $18.8 million in the second and third quarters, respectively, with approximately $6.0 million expected to be recorded in the fourth quarter. In addition, operating margins were negatively impacted by approximately $5 million in the third quarter, with a similar impact expected in the fourth quarter, due primarily to unabsorbed costs from closing facilities and cost inefficiencies from transferring projects. Certain of the Company's foreign operations have engaged in normal course consultation processes regarding the reorganization plan. As a result of the expected improvements in the Company's cost structure and elimination of unprofitable facilities, commencing in fiscal 2021, management expects annualized improvements to operating earnings of approximately $15 million to $18 million, and operating margins to be positively impacted by approximately 110 basis points to 130 basis points based on the Company's trailing twelve month revenues.

OutlookOrder Bookings are generally variable and sensitive to changes in the major economies the Company serves including the U.S., Canada, Europe and Asia. The global economic environment has shown recent signs of slowing growth and geopolitical risks remain. Ongoing trade negotiations and disputes between various jurisdictions in which the Company does business may impact its future sales and operations. Management will continue to closely monitor ongoing global trade discussions that could affect the Company and, where necessary identify mitigation opportunities.

Funnel activity (which includes customer requests for proposal and ATS identified customer opportunities) in life sciences remains strong, and the addition of Comecer has improved ATS' customer offerings in both pharmaceuticals and radiopharmaceuticals, as demonstrated by the $32 million dollar Order Booking for a pharmaceutical customer announced in the third quarter. In transportation, some electric vehicle opportunities have been delayed due to ongoing refinements to customer technologies or continued assessments of end market conditions; however, the funnel remains significant. Funnel activity in energy is variable and this market provides niche opportunities for ATS. Funnel activity in the consumer products market remains low relative to other customer markets. Overall, the Company's funnel remains significant; however, conversion of opportunities into Order Bookings is variable. The Company expects its Order Backlog of $939 million at the end of the third quarter of fiscal 2020 to partially mitigate the impact of volatile Order Bookings on revenues in the short term.

The Company's sales organization continues to work to engage customers on enterprise-type solutions. Enterprise orders are expected to provide ATS with more strategic customer relationships, better program control and workload predictability and less short-term sensitivity to macroeconomic forces. This approach to market and the timing of customer decisions on larger opportunities is expected to cause variability in Order Bookings from quarter to quarter and lengthen the performance period and revenue recognition for certain customer programs.

The Company's Order Backlog includes several large enterprise programs. These enterprise programs have longer periods of performance and therefore longer revenue recognition cycles. In the fourth quarter of fiscal 2020, management expects the conversion of Order Backlog to revenues to be in the 35% to 40% range. The ongoing implementation of the reorganization plan and project schedules are expected to cause revenues to be in the lower end of the 35% to 40% range of Order Backlog.

The services strategy is expected to add incremental revenues over time as the attach rate of services' contracts on new equipment increases and as the penetration of the installed base improves. The Company is working to grow service revenues as a percentage of overall revenues over time, which is expected to provide some balance to the capital expenditure cycle of the Company's customers but may not fully offset capital spending volatility.

The initial roll-out of the ABM has been completed, which included Company-wide training and deployment of tools to standardize problem solving and continuous improvement processes. As the initial ABM tools are implemented, management will deploy additional tools as part of the ongoing advancement of the ABM, with the goal of driving growth and continuous, sustained performance improvements across the Company. Management expects that the ABM will provide the Company with a long-term competitive advantage in delivering value to its customers and shareholders.

The Company is pursuing several initiatives with the goal of expanding its adjusted earnings from operations margin over the long term including: growing the Company's higher margin after-sales service business; improving global supply chain management; increasing the use of standardized platforms and technologies; growing revenues while leveraging the Company's current cost structure; and the ongoing development and adoption of the ABM. In the fourth quarter of fiscal 2020, the Company's earnings from operations margins will continue to be negatively impacted by the implementation of the Reorganization Plan.

Over the long term, the Company generally expects to continue increasing its overall investment in non-cash working capital to support the growth of its business, with fluctuations on a quarter-over-quarter basis. The Company's goal is to maintain its investment in non-cash working capital as a percentage of annualized revenues below 10% although from time to time it could reach up to 15% or greater due to normal volatility associated with the Company's project-based business.

In order to increase capacity, the Company expects to increase its investment in capital assets and intangible assets to approximately $60 million in fiscal 2020 to fund planned expansions now underway at several facilities. To date, the Company has invested $38.3 million in property, plant and equipment and intangible assets. The actual investment will depend upon timing of the expansions.

The Company expects that continued cash flows from operations, together with cash and cash equivalents on hand and credit available under operating and long-term credit facilities, will be sufficient to fund its requirements for investments in non-cash working capital and capital assets and to fund strategic investment plans including some potential acquisitions. Significant acquisitions could result in additional debt or equity financing requirements.

BUSINESS ACQUISITIONS

MARCO LimitedOn December 16, 2019, the Company acquired 100% of the shares of MARCO Limited ("MARCO"), a U.K. based provider of yield control and recipe formulation systems to help customers in the food, nutraceuticals and cosmetics sectors increase productivity and meet stringent industry regulations. MARCO's solutions are based on its proprietary weighing hardware and process control software technologies. MARCO provides ATS with the means of entering a product-based, niche segment of the food industry that is growing at a mid-single digit rate. The food industry is attractive because it is subject to industry and government regulations, driving a need for high precision technologies.

Cash consideration paid in the third quarter of fiscal 2020 was $44.4 million (25.2 million U.K. pounds sterling). Additional contingent consideration of up to $12.8 million (7.3 million U.K. pounds sterling) is payable if certain performance targets are met within two years of the acquisition date. The fair value of the contingent consideration was valued at $7.4 million (4.2 million U.K. pounds sterling) at the acquisition date. This acquisition was accounted for as a business combination with the Company as the acquirer of MARCO. The purchase method of accounting was used and the earnings were consolidated from the acquisition date, December 16, 2019.

iXLOGOn September 19, 2019, the Company acquired 100% of the shares of iXLOG Unternehmensberatung GmbH ("iXLOG"), a Germany-based IT consulting and service provider specializing in business process optimization, business intelligence and analytics, primarily for large- and medium-sized industrial manufacturing customers. The addition of iXLOG is highly complementary to ATS' Process Automation Solutions ("PA") business. iXLOG will play a critical role in expanding PA's data analytics and business intelligence offerings and in building additional solutions to broaden PA's digitization capabilities that are used to optimize customer manufacturing operations.

The total purchase price was $10.6 million (7.2 million Euros). Cash consideration paid in the second quarter was $7.7 million (5.2 million Euros), with the balance related to an earn-out to be paid within 20 months of the acquisition date. The cash consideration of the purchase price, along with transaction costs, were funded with existing cash on hand. The acquisition was accounted for as a business combination with the Company as the acquirer of iXLOG. The purchase method of accounting was used and the earnings of iXLOG were consolidated from the acquisition date, September 19, 2019.

IAP BVOn October 31, 2019, the Company acquired 60% of the shares of Industrial Automation Partners B.V. ("IAP"), a Netherlands-based provider of process automation services to medium-sized international companies.

The total purchase price paid in the third quarter of fiscal 2020 was $2.6 million (1,8 million Euros). This acquisition was accounted for as a business combination with the Company as the acquirer of IAP. The purchase method of accounting was used and the earnings were consolidated from the acquisition date, October 31, 2019.

CONSOLIDATED RESULTS (In millions of dollars, except per share data)

Three Months          Three Months   Nine Months        Nine Months


                                                                 Ended                 Ended         Ended              Ended


                                                          December 29,          December 30,  December 29,       December 30,


                                                                  2019                   2018           2019                2018




       Revenues                                                       $

              367.2                 $
              321.4   $

       1,047.6 $
      905.0



       Cost of revenues                                         275.0                  236.8          774.2               668.8



       Selling, general and administrative                       58.5                   52.4          174.7               148.0



       Restructuring costs                                       18.8
              --          20.8
              --



       Stock-based compensation                                   4.5                  (6.3)           7.2                 3.7

    ---



                Earnings from operations                           $

              10.4                  $
              38.5      $

        70.7  $
      84.5

    ---


       Net finance costs                                                $

              6.5                   $
              4.8      $

        20.3  $
      15.1



       Provision for income taxes                               (0.2)                   8.6           10.5                16.8

    ---



                Net income                                          $

              4.1                  $
              25.1      $

        39.9  $
      52.6

    ---



                Basic and diluted earnings per share               $

              0.04                  $
              0.27      $

        0.43  $
      0.56

    ===

Revenues. At $367.2 million, consolidated revenues for the third quarter of fiscal 2020 were $45.8 million, or 14%, higher than in the corresponding period a year ago. At $1,047.6 million, year-to-date consolidated revenues were $142.6 million, or 16%, higher than in the corresponding period a year ago (see "Overview - operating results").

Cost of revenues. At $275.0 million, third quarter fiscal 2020 cost of revenues increased compared to the corresponding period a year ago by $38.2 million, or 16%, primarily due to higher revenues. Year-to-date cost of revenues of $774.2 million increased $105.4 million, or 16%, primarily due to higher revenues. Gross margin was 25%, compared to 26% in the corresponding period a year ago, due to the negative impact of the Company's reorganization plan (see "Reorganization Plan"). Year-to-date gross margins for the nine-month periods ended December 29, 2019 and December 30, 2018 were 26%.

Selling, general and administrative ("SG&A") expenses. SG&A expenses for the third quarter of fiscal 2020 were $58.5 million, which included $6.9 million of costs related to the amortization of identifiable intangible assets on business acquisitions and $1.4 million of incremental costs related to the Company's acquisition activity. Excluding these costs, SG&A expenses were $50.2 million in the third quarter of fiscal 2020. Comparably, SG&A expenses for the third quarter of fiscal 2019 were $44.2 million, which excluded $5.5 million of costs related to the amortization of identifiable intangible assets recorded on business acquisitions and $2.7 million of acquisition-related transaction costs. Higher SG&A expenses in the third quarter of fiscal 2020 primarily reflected the additions of KMW, Comecer, and iXLOG, and increased employee costs.

For the nine months ended December 29, 2019, SG&A expenses were $174.7 million, which included $25.1 million of expenses related to the amortization of identifiable intangible assets on business acquisitions and $1.4 million of incremental costs related to the Company's acquisition activity. Excluding these costs, SG&A expenses were $148.2 million for the nine months ended December 29, 2019. Comparably, SG&A expenses for the nine months ended December 30, 2018 were $127.9 million, which excluded $16.5 million of expenses related to the amortization of identifiable intangible assets on business acquisitions and $3.6 million of acquisition-related transaction costs. Higher SG&A expenses in the first nine months of fiscal 2020 primarily reflected the additions of KMW, Comecer, and iXLOG, and increased sales-related expenses.

Restructuring costs. For the three- and nine-month periods ended December 29, 2019, restructuring costs were $18.8 million and $20.8 million, respectively, compared to restructuring costs of $nil in the corresponding periods a year ago (see "Reorganization Plan").

Stock-based compensation. Stock-based compensation expense amounted to $4.5 million in the third quarter of fiscal 2020 compared to a recovery of $6.3 million in the corresponding period a year ago. For the nine-month period ended December 29, 2019, stock-based compensation expense increased to $7.2 million, compared to $3.7 million a year earlier. The increase in stock-based compensation costs is attributable to higher expenses from the revaluation of deferred stock units and restricted share units based on the Company's stock price.

Earnings from operations. For the three- and nine-month periods ended December 29, 2019, earnings from operations were $10.4 million (3% operating margin) and $70.7 million (7% operating margin), respectively, compared to earnings from operations of $38.5 million (12% operating margin) and $84.5 million (9% operating margin) in the corresponding periods a year ago. Excluding the impact of adoption of IFRS 16, earnings from operations were $9.5 million (3% operating margin) and $68.0 million (6% operating margin) for the three- and nine-month periods ended December 29, 2019, respectively (see "Overview - operating results").

Net finance costs. Net finance costs were $6.5 million in the third quarter of fiscal 2020, compared to $4.8 million a year ago. For the nine months ended December 29, 2019, finance costs were $20.3 million compared to $15.1 million in the corresponding period a year ago. For the three and nine months ended December 29, 2019, the increase was primarily due to additional interest expense of $0.9 million and $2.7 million, respectively, recorded on lease liabilities on the adoption of IFRS 16, and lower interest income compared to the corresponding period a year ago.

Income tax provision. For the three and nine months ended December 29, 2019, the Company's effective income tax rates of -4% and 21%, respectively, differed from the combined Canadian basic federal and provincial income tax rate of 27% primarily due to losses in certain jurisdictions with different statutory tax rates, primarily as a result of the Reorganization Plan.

Net income. Fiscal 2020 third quarter net income was $4.1 million (4 cents per share basic and diluted) compared to $25.1 million of net income (27 cents per share basic and diluted) for the third quarter of fiscal 2019. Adjusted basic earnings per share were 26 cents in the third quarter of fiscal 2020 compared to 33 cents in the third quarter of fiscal 2019 (see "Reconciliation of non-IFRS measures to IFRS measures").

Net income for the nine months ended December 29, 2019 was $39.9 million (43 cents per share basic and diluted) compared to $52.6 million (56 cents per share basic and diluted) for the corresponding period a year ago. Adjusted basic earnings per share were 80 cents in the nine months ended December 29, 2019 compared to 72 cents in the corresponding period a year ago (see "Reconciliation of non-IFRS measures to IFRS measures").

Reconciliation of Non-IFRS Measures to IFRS Measures(In millions of dollars, except per share data)

The following table reconciles EBITDA to the most directly comparable IFRS measure (net income):

Three Months        Three Months   Nine Months       Nine Months


                                                           Ended               Ended         Ended             Ended


                                                    December 29,        December 30,  December 29,      December 30,


                                                            2019                 2018           2019               2018





                EBITDA                                      $

              26.8                 $
              48.7   $

      123.8 $
      114.6



       Less: depreciation and amortization expense         16.4                 10.2           53.1               30.1

    ---



                Earnings from operations                    $

              10.4                 $
              38.5    $

      70.7  $
      84.5



       Less: net finance costs                              6.5                  4.8           20.3               15.1



       Provision for income taxes                         (0.2)                 8.6           10.5               16.8

    ---



                Net income                                   $

              4.1                 $
              25.1    $

      39.9  $
      52.6

    ===

The following table reconciles adjusted earnings from operations and adjusted basic earnings per share to the most directly comparable IFRS measure (net income and basic earnings per share):

Three Months Ended December 29, 2019         Three Months Ended December 30, 2018



                                                IFRS          Adjustments                           Adjusted                  IFRS              Adjustments                Adjusted


                                                                                                  (non-IFRS)                                                             (non-IFRS)





                Earnings from operations         $

             10.4

                $                    --                             $

             10.4    $
       38.5
       $
       --   $
        38.5



       Acquisition-related transaction costs     --                  1.4                                 1.4                     --                      2.7                      2.7



       Amortization of acquisition-



       related intangible assets                 --                  6.9                                 6.9                     --                      5.5                      5.5



       Restructuring costs                       --                 18.8                                18.8                     --                       --                      --

    ---

                                                      $

             10.4                                     $

                27.1                              $

             37.5    $
       38.5          $
       8.2    $
        46.7




       Less: net finance costs                        $

             6.5

                $                    --                              $

             6.5     $
       4.8
       $
       --    $
        4.8

    ---



                Income before income taxes        $

             3.9                                     $

                27.1                              $

             31.0    $
       33.7          $
       8.2    $
        41.9

    ---


       Provision for income taxes                   $

             (0.2)

                $                    --                            $

             (0.2)    $
       8.6
       $
       --    $
        8.6



       Adjustment to provision for



       income taxes(1)                           --                  7.5                                 7.5                     --                      2.2                      2.2

    ---

                                                     $

             (0.2)                                     $

                7.5                               $

             7.3     $
       8.6          $
       2.2    $
        10.8





                Net income                        $

             4.1                                     $

                19.6                              $

             23.7    $
       25.1          $
       6.0    $
        31.1

    ---



                Basic earnings per share         $

             0.04                                     $

                0.22                              $

             0.26    $
       0.27         $
       0.06    $
        0.33

    ===
(1) Adjustments to provision for
                             income taxes relate to the income
                             tax effects of adjustment items
                             that are excluded for the purposes
                             of calculating non-IFRS based
                             adjusted net income.
Nine Months Ended December 29, 2019         Nine Months Ended December 30, 2018



                                                IFRS      Adjustments                              Adjuste
                                                                                                         d                 IFRS              Adjustments            Adjusted


                                                                                                (non-IFRS)                                                        (non-IFRS)





                Earnings from operations        $

            70.7

                $                   --                           $

             70.7   $
      84.5
     $
      --  $
       84.5



       Acquisition-related transaction costs     --              1.4                                   1.4                    --                      3.6                  3.6



       Amortization of acquisition-



       related intangible assets                 --             25.1                                  25.1                    --                     16.5                 16.5



       Restructuring costs                       --             20.8                                  20.8                    --                       --                  --

    ---

                                                     $

            70.7                                       $

                47.3                           $

             118.0   $
      84.5     $
      20.1  $
       104.6




       Less: net finance costs                      $

            20.3

                $                   --                           $

             20.3   $
      15.1
     $
      --  $
       15.1

    ---



                Income before income taxes      $

            50.4                                       $

                47.3                            $

             97.7   $
      69.4     $
      20.1   $
       89.5

    ---


       Provision for income taxes                   $

            10.5

                $                   --                           $

             10.5   $
      16.8
     $
      --  $
       16.8



       Adjustment to provision for



       income taxes(1)                           --             13.0                                  13.0                    --                      5.4                  5.4

    ---

                                                     $

            10.5                                       $

                13.0                            $

             23.5   $
      16.8      $
      5.4   $
       22.2





                Net income                      $

            39.9                                       $

                34.3                            $

             74.2   $
      52.6     $
      14.7   $
       67.3

    ---



                Basic earnings per share        $

            0.43                                       $

                0.37                            $

             0.80   $
      0.56     $
      0.16   $
       0.72

    ===
(1) Adjustments to provision for
                             income taxes relate to the income
                             tax effects of adjustment items
                             that are excluded for the purposes
                             of calculating non-IFRS based
                             adjusted net income.

LIQUIDITY, CASH FLOW AND FINANCIAL RESOURCES (In millions of dollars, except ratios)

As at                     December 29, 2019   March 31, 2019

    ---

        Cash and cash equivalents            $117.7            $224.5


        Debt-to-equity ratio(1)              0.50:1
             0.48:1

    ===
1 Debt is calculated as bank
                             indebtedness, long-term debt, and,
                             effective from April 1, 2019, lease
                             liabilities. Equity is calculated as
                             total equity less accumulated other
                             comprehensive income.
Three Months      Three Months   Nine Months       Nine Months


                                                                     Ended             Ended         Ended             Ended


                                                              December 29,      December 30,  December 29,      December 30,


                                                                      2019               2018           2019               2018




       Cash flows (used in) provided by operating activities              $

            (7.0)                 $
             62.2    $

     10.6 $
     101.3

    ===

At December 29, 2019, the Company had cash and cash equivalents of $117.7 million compared to $224.5 million at March 31, 2019. At December 29, 2019, the Company's debt-to-total equity ratio was 0.50:1 and reflected increased lease liabilities due to the adoption of IFRS 16.

In the third quarter of fiscal 2020, cash flows used in operating activities were $7.0 million ($62.2 million provided by operating activities in the third quarter a year ago). The decrease in operating cash flows related primarily to the timing of investments in non-cash working capital in certain customer programs. In the nine months ended December 29, 2019, cash flows provided by operating activities were $10.6 million ($101.3 million provided by operating activities in the corresponding period a year ago). The decrease in operating cash flows related primarily to the timing of investments in non-cash working capital in certain customer programs.

In the third quarter of fiscal 2020, the Company's investment in non-cash working capital increased by $27.3 million from September 29, 2019. On a year-to-date basis, investment in non-cash working capital increased $92.2 million. Accounts receivable increased 20%, or $42.9 million and net contracts in progress increased 86%, or $45.0 million, compared to March 31, 2019, due to increased revenue and the timing of billings on certain customer contracts. The Company actively manages its accounts receivable and net contracts in progress balances through billing terms on long-term contracts, collection efforts and supplier payment terms. Inventories increased 16%, or $11.2 million, primarily due to an increase in work-in-process on certain customer projects. Deposits and prepaid assets decreased 6%, or $1.6 million, compared to March 31, 2019 due to the timing of program execution. Accounts payable and accrued liabilities increased 4%, or $9.3 million, compared to March 31, 2019. Provisions increased 123%, or $17.2 million, compared to March 31, 2019, due to provisions related to the Company's Reorganization Plan.

Cash investments in property, plant and equipment totalled $30.2 million in the first nine months of fiscal 2020, primarily related to the acquisition of computer hardware, office equipment, and the expansion and improvement of certain manufacturing facilities.

Intangible assets expenditures were $8.0 million for the first nine months of fiscal 2020, and primarily related to computer software and various internal development projects.

At December 29, 2019, the Company had $647.5 million of unutilized multipurpose credit, including letters of credit, available under existing credit facilities and an additional $9.2 million available under letter of credit facilities.

On July 28, 2017, the Company amended its senior secured credit facility to extend the agreement by three years to mature on August 29, 2021 (the "Credit Facility"). The Credit Facility provides a committed revolving credit facility of $750.0 million. The Credit Facility is secured by the Company's assets, including certain real estate in North America and a pledge of shares of certain of the Company's subsidiaries. Certain of the Company's subsidiaries also provide guarantees under the Credit Facility. At December 29, 2019, the Company had utilized $128.6 million under the Credit Facility, by way of letters of credit (March 31, 2019 - $134.3 million).

The Credit Facility is available in Canadian dollars by way of prime rate advances and/or bankers' acceptances, in U.S. dollars by way of base rate advances and/or LIBOR advances, in Swiss francs, Euros and U.K. pounds sterling by way of LIBOR advances and by way of letters of credit for certain purposes in Canadian dollars, U.S. dollars and Euros. The interest rates applicable to the Credit Facility are determined based on a net debt-to-EBITDA ratio as defined in the Credit Facility. For prime rate advances and base rate advances, the interest rate is equal to the bank's prime rate or the bank's U.S. dollar base rate in Canada, respectively, plus a margin ranging from 0.45% to 2.00%. For bankers' acceptances and LIBOR advances, the interest rate is equal to the bankers' acceptance fee or LIBOR, respectively, plus a margin that varies from 1.45% to 3.00%. The Company pays a fee for usage of financial letters of credit that ranges from 1.45% to 3.00%, and a fee for usage of non-financial letters of credit that ranges from 0.97% to 2.00%. The Company pays a standby fee on the unadvanced portions of the amounts available for advance or draw-down under the Credit Facility at rates ranging from 0.29% to 0.68%.

The Credit Facility is subject to financial covenants including a net debt-to-EBITDA test and an interest coverage test. Under the terms of the Credit Facility, the Company is restricted from encumbering any assets with certain permitted exceptions. The Credit Facility also limits advances to subsidiaries and partially restricts the Company from repurchasing its common shares and paying dividends. At December 29, 2019, all of the covenants were met.

The Company has additional credit facilities available of $31.4 million (11.0 million Euros, $10.0 million U.S., 50.0 million Thai baht and 2.0 million Czech koruna). The total amount outstanding on these facilities at December 29, 2019 was $4.4 million, of which $4.2 million was classified as bank indebtedness (March 31, 2019 - $2.0 million) and $0.2 million was classified as long-term debt (March 31, 2019 - $18.6 million). The interest rates applicable to the credit facilities range from 1.88% to 6.25% per annum. A portion of the long-term debt is secured by certain assets of the Company.

The Company's U.S. $250.0 million aggregate principal amount of senior notes (the "Senior Notes") are unsecured, were issued at par, bear interest at a rate of 6.50% per annum and mature on June 15, 2023. The Company may redeem the Senior Notes, in whole, at any time or in part, from time to time, at specified redemption prices and subject to certain conditions required by the Senior Notes. If the Company experiences a change of control, the Company may be required to repurchase the Senior Notes, in whole or in part, at a purchase price equal to 101% of the aggregate principal amount of the Senior Notes, plus accrued and unpaid interest, if any, to, but not including, the redemption date. The Senior Notes contain customary covenants that restrict, subject to certain exceptions and thresholds, some of the activities of the Company and its subsidiaries, including the Company's ability to dispose of assets, incur additional debt, pay dividends, create liens, make investments and engage in specified transactions with affiliates. At December 29, 2019, all of the covenants were met. Subject to certain exceptions, the Senior Notes are guaranteed by each of the subsidiaries of the Company that is a borrower or has guaranteed obligations under the Credit Facility. Transaction fees of $7.2 million were deferred and are being amortized over the seven-year term of the Senior Notes.

Contractual Obligations(In millions of dollars)

The Company's minimum purchase obligations are as follows:

Purchase


                           obligations



        Less than one year             $
     145.2


        One - two years            1.2


        Two - three years          0.2


        Three - four years         0.2


        Four - five years          0.1

    ---

                                       $
     146.9

The Company's off-balance sheet arrangements consist of purchase obligations comprised primarily of commitments for material purchases, which have been entered into in the normal course of business.

In accordance with industry practice, the Company is liable to customers for obligations relating to contract completion and timely delivery. In the normal conduct of its operations, the Company may provide letters of credit as security for advances received from customers pending delivery and contract performance. In addition, the Company provides letters of credit for post-retirement obligations and may provide letters of credit as security on equipment under lease and on order. At December 29, 2019, the total value of outstanding letters of credit was approximately $194.3 million (March 31, 2019 - $203.3 million).

In the normal course of operations, the Company is party to a number of lawsuits, claims and contingencies. Although it is possible that liabilities may be incurred in instances for which no accruals have been made, the Company does not believe that the ultimate outcome of these matters will have a material impact on its consolidated financial position.

The Company is exposed to credit risk on derivative financial instruments arising from the potential for counterparties to default on their contractual obligations to the Company. The Company minimizes this risk by limiting counterparties to major financial institutions and monitoring their creditworthiness. The Company's credit exposure to forward foreign exchange contracts is the current replacement value of contracts that are in a gain position. The Company is also exposed to credit risk from its customers. Substantially all of the Company's trade accounts receivable are due from customers in a variety of industries and, as such, are subject to normal credit risks from their respective industries. The Company regularly monitors customers for changes in credit risk. The Company does not believe that any single market or geographic region represents significant credit risk. Credit risk concentration, with respect to trade receivables, is mitigated as the Company primarily serves large, multinational customers and obtains receivables insurance in certain instances.

During the first nine months of fiscal 2020, 368,927 stock options were exercised. At February 4, 2020 the total number of shares outstanding was 92,277,723 and there were 1,318,130 stock options outstanding to acquire common shares of the Company.

NORMAL COURSE ISSUER BIDOn December 19, 2019, the Company announced that the Toronto Stock Exchange ("TSX") had accepted a notice filed by the Company of its intention to make a normal course issuer bid ("NCIB"). Under the NCIB, ATS has the ability to purchase for cancellation up to a maximum of 5,134,930 common shares, representing approximately 10% of the public float of 51,349,307 common shares of the Company. As at December 16, 2019, there were 92,196,223 common shares of the Company issued and outstanding.

Some purchases under the NCIB may be made pursuant to an automatic purchase plan between ATS and its broker. This plan enables the purchase of ATS common shares when ATS would not ordinarily be active in the market due to internal trading blackout periods, insider trading rules, or otherwise.

The NCIB follows the Company's normal course issuer bid for the 12 months ended December 4, 2019 (the "2019 NCIB"). The Company purchased 2,509,738 common shares for $39.3 million under the 2019 NCIB. The weighted average price per share repurchased was $15.66. ATS security holders may obtain a copy of the notice, without charge, upon request from the Secretary of the Company.

RELATED PARTY TRANSACTIONSThe Company has an agreement with a shareholder, Mason Capital Management, LLC ("Mason Capital"), pursuant to which Mason Capital has agreed to provide ATS with ongoing strategic and capital markets advisory services for an annual fee of U.S. $0.5 million. As part of the agreement, a member of the Company's Board of Directors who is associated with Mason Capital has waived any fees to which he may have otherwise been entitled for serving as a member of the Board of Directors or as a member of any committee of the Board of Directors.

There were no other significant related party transactions during the first nine months of fiscal 2020.

FOREIGN EXCHANGEThe Company is exposed to foreign exchange risk as a result of transactions in currencies other than its functional currency of the Canadian dollar, through borrowings made by the Company in currencies other than its functional currency and through its investments in its foreign-based subsidiaries.

The Company's Canadian operations generate significant revenues in major foreign currencies, primarily U.S. dollars, which exceed the natural hedge provided by purchases of goods and services in those currencies. In order to manage a portion of this foreign currency exposure, the Company has entered into forward foreign exchange contracts. The timing and amount of these forward foreign exchange contract requirements are estimated based on existing customer contracts on hand or anticipated, current conditions in the Company's markets and the Company's past experience. Certain of the Company's foreign subsidiaries will also enter into forward foreign exchange contracts to hedge identified balance sheet, revenue and purchase exposures. The Company's forward foreign exchange contract hedging program is intended to mitigate movements in currency rates primarily over a four- to six-month period.

The Company uses cross-currency swaps as derivative financial instruments to hedge a portion of its foreign exchange risk related to its U.S.-dollar-denominated Senior Notes. On March 29, 2016, the Company entered into a cross-currency interest rate swap instrument to swap U.S. $150.0 million into Canadian dollars. The Company will receive interest of 6.50% U.S. per annum and pay interest of 6.501% Canadian. The terms of the hedging relationship will end on June 15, 2023.

The Company manages foreign exchange risk on its Euro-denominated net investments. The Company uses cross-currency swaps as derivative financial instruments to hedge a portion of the foreign exchange risk related to its Euro-denominated net investment. On March 29, 2016, the Company entered into a cross-currency interest rate swap instrument to swap 134.1 million Euros into Canadian dollars. The Company will receive interest of 6.501% Canadian per annum and pay interest of 5.094% Euros. The terms of the hedging relationship will end on June 15, 2023.

In addition, from time to time, the Company may hedge the foreign exchange risk arising from foreign currency debt, intercompany loans, net investments in foreign-based subsidiaries and committed acquisitions through the use of forward foreign exchange contracts or other non-derivative financial instruments. The Company uses hedging as a risk management tool, not to speculate.

Period Average Exchange Rates in CDN$

Three Months Ended                 Nine Months Ended




           December 29,
     December 30,

     December 29,
     December 30,


                                      2019            2018
              % change               2019              2018
     % change



        U.S. dollar                  1.321           1.322              (0.1%)              1.327             1.307       1.5%


        Euro                         1.462           1.508              (3.1%)              1.478             1.521     (2.8%)

    ===

CONSOLIDATED QUARTERLY RESULTS(In millions of dollars, except per share amounts)

Q3             Q2  Q1         Q4    Q3          Q2      Q1         Q4


                                    2020            2020 2020        2019   2019         2019    2019         2018






       Revenues                         $

       367.2       $
      341.2          $
      339.2           $
      348.6     $
      321.4 $
      283.6 $
      300.0 $
      298.4





       Earnings from operations          $

       10.4        $
      31.7           $
      28.6            $
      30.3      $
      38.5  $
      19.0  $
      27.0  $
      25.5





       Adjusted earnings from



       operations                        $

       37.5        $
      42.5           $
      38.0            $
      38.2      $
      46.7  $
      25.4  $
      32.6  $
      32.8





       Net income                         $

       4.1        $
      19.3           $
      16.4            $
      18.2      $
      25.1  $
      10.8  $
      16.7  $
      15.0

    ---


       Basic and diluted earnings



       per share                         $

       0.04        $
      0.21           $
      0.18            $
      0.20      $
      0.27  $
      0.11  $
      0.18  $
      0.16





       Adjusted basic earnings per



       share(1)                          $

       0.26        $
      0.29           $
      0.25            $
      0.26      $
      0.33  $
      0.17  $
      0.22  $
      0.22

    ---




       Order Bookings(2)                $

       368.0       $
      321.0          $
      423.0           $
      298.0     $
      397.0 $
      355.0 $
      358.0 $
      348.0





       Order Backlog(3)                 $

       939.0       $
      945.0          $
      982.0           $
      904.0     $
      926.0 $
      830.0 $
      789.0 $
      746.0

    ===
(1) Non-IFRS measure.  See "Notice
                             to reader: Non-IFRS measures and
                             additional IFRS measures" and
                             "Reconciliation of Non-IFRS
                             Measures to IFRS Measures."


                            (2) Non-IFRS measure.  See "Notice
                             to reader: Non-IFRS measures and
                             additional IFRS measures" and
                             "Order Bookings by Quarter."


                            (3) Non-IFRS measure.  See "Notice
                             to reader: Non-IFRS measures and
                             additional IFRS measures" and
                             "Order Backlog Continuity."

Interim financial results are not necessarily indicative of annual or longer-term results because many of the individual markets served by the Company tend to be cyclical in nature. Operating performance quarter to quarter may also be affected by the timing of revenue recognition on large programs in Order Backlog, which is impacted by such factors as customer delivery schedules, the timing of third-party content, and by the timing of acquisitions. General economic trends, product life cycles and product changes may impact revenues and operating performance. ATS typically experiences some seasonality with its Order Bookings, revenues and earnings from operations due to employee vacation time and summer plant shutdowns by its customers.

CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONSThe preparation of the Company's interim condensed consolidated financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities at the end of the reporting period. Uncertainty about these estimates, judgments and assumptions could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods.

The Company based its assumptions on information available when the interim condensed consolidated financial statements were prepared. Existing circumstances and assumptions about future developments may change due to market changes or circumstances arising beyond the control of the Company. Such changes are reflected in the estimates as they occur. There have been no material changes to the critical accounting estimates described in the Company's 2019 MD&A.

ACCOUNTING STANDARD ADOPTED IN FISCAL 2020IFRS 16 - LeasesThe Company adopted IFRS 16 - Leases ("IFRS 16"), using the modified retrospective approach and accordingly the information presented for the 2019 reporting period has not been restated.

IFRS 16 introduced significant changes to the lessee accounting by removing the distinction between operating and finance leases and requiring the recognition of a right-of-use asset ("ROU asset") and a lease liability at the lease commencement for all leases, except for short-term leases (lease terms of 12 months or less) and leases of low-value assets. In applying IFRS 16, the Company recognized ROU assets and lease liabilities in the interim consolidated statement of financial position, initially measured at the present value of future lease payments; recognized depreciation of ROU assets and interest on lease liabilities in the interim consolidated statements of income; and separated the total amount of lease payments into a principal portion (presented in financing activities) and interest (presented in operating activities) in the interim consolidated statements of cash flows. For short-term leases and leases of low-value assets, the Company has elected not to recognize right-of-use assets and lease liabilities. The respective lease payments associated with these leases are recognized in the interim consolidated statements of income on a straight-line basis.

For leases that were classified as operating leases under IAS 17, lease liabilities at transition have been measured at the present value of remaining lease payments, discounted at the Company's incremental borrowing rate of 5% as at April 1, 2019.

The Company has used the following practical expedients permitted by the standard:

--  Used a single discount rate to a portfolio of leases with
        reasonably similar characteristics;
    --  Applied the standard only to contracts that were previously
        identified as leases under IAS 17 at the date of initial
        application;
    --  Applied the recognition exemptions for low-value leases and
        leases that end within 12 months of the date of application,
        and accounted for them as low-value and short-term leases,
        respectively;
    --  Accounted for non-lease components and lease components as a
        single lease component;
    --  Relied on previous assessments of whether leases are onerous;
    --  Used hindsight in determining the lease term where the contract
        contains options to extend or terminate the lease.

On transition to IFRS 16 at April 1, 2019, the Company recognized ROU assets of $74.3 million and lease liabilities of $74.5 million, and reduced retained earnings by $0.2 million in the interim consolidated statement of financial position.

At March 31, 2019, the minimum operating lease obligations of the Company were $42.9 million, as presented in the audited consolidated financial statements. The difference between the lease liabilities of $74.5 million at April 1, 2019 and the minimum lease obligation disclosed at March 31, 2019 was mainly due to: (i) the impact of discounting the remaining lease payments; (ii) the exclusion of short-term leases and leases of low-value assets; (iii) the inclusion of non-lease components in measuring the lease liability; and (iv) assumptions made on the probability of exercising early termination or renewal options.

For the three- and nine-month periods ended December 29, 2019, the Company recognized expense related to short-term, and low-value leases of $0.7 million and $2.4 million, respectively, in cost of revenues, and $0.4 million and $1.1 million, respectively, in selling, general and administrative expenses in the consolidated statements of income.

The following accounting policy is applicable from April 1, 2019:

At the inception of a contract, the Company determines whether a contract is, or contains, a lease based on whether the contract conveys the right to control the use of an underlying asset for a period of time in exchange for consideration. The Company recognizes an ROU asset and a lease liability on the date the leased asset is available for use by the Company (at the commencement of the lease).

Right-of-use assetsROU assets are initially measured at cost, which is comprised of the initial amount of the lease liability, any initial direct costs incurred and an estimate of costs to dismantle, remove or restore the underlying asset or site on which it is located, less any lease payments made at or before the commencement date. Unless the Company is reasonably certain to obtain ownership of the leased asset at the end of the lease term, a recognized ROU asset is depreciated using the straight-line method over the shorter of its estimated useful life or the lease term. The ROU asset may be adjusted for certain remeasurements of the lease liability and impairment losses.

Lease liabilitiesThe lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily available. The Company uses a single discount rate for a portfolio of leases with reasonably similar characteristics. Lease payments include fixed payments less any lease incentives, and any variable lease payments where variability depends on an index or rate. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Company and payment of penalties for termination of a lease. Each lease payment is allocated between the repayment of the principal portion of the lease liability and the interest portion. The finance cost is charged to net finance costs in the interim consolidated statements of income over the lease period. Payments associated with short-term leases (lease term of 12 months or less) and leases of low-value assets are recognized on a straight-line basis as an expense in the interim consolidated statements of income as permitted by IFRS 16.

The carrying amount of the lease liability is remeasured if there is a modification resulting in a change in the lease term, a change in the future lease payments, or a change in the Company's estimate of whether it will exercise a purchase, extension or termination option. If the lease liability is remeasured, a corresponding adjustment is made to the ROU asset.

As a practical expedient, IFRS 16 permits a lessee to not separate non-lease components, but instead account for any lease and associated non-lease components as a single arrangement. The Company has applied this practical expedient.

Determining the lease term of contracts with renewal or termination optionsThe lease term includes the non-cancellable term of the lease including extension and termination options if the Company is reasonably certain to exercise the option. The Company applies judgment in evaluating whether it is reasonably certain to exercise the options. All relevant factors that create an economic incentive for it to exercise the renewal are considered. After the commencement date, the Company reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise (or not to exercise) the option.

CONTROLS AND PROCEDURESThe Chief Executive Officer ("CEO") and the Chief Financial Officer ("CFO") of the Company are responsible for establishing and maintaining disclosure controls and procedures and internal controls over financial reporting for the Company. The control framework used in the design of disclosure controls and procedures and internal control over financial reporting is the "Internal Control - Integrated Framework (2013)" issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").

Management, including the CEO and CFO, does not expect that the Company's disclosure controls or internal controls over financial reporting will prevent or detect all errors and all fraud or will be effective under all potential future conditions. A control system is subject to inherent limitations and, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met.

During the three and nine months ended December 29, 2019, there have been no changes in the design of the Company's internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over reporting.

Limitation on ScopeThe Company acquired Comecer on February 28, 2019 and MARCO on December 16, 2019. Management has not fully completed its review of internal controls over financial reporting for these newly acquired organizations. Since the acquisitions occurred within the 365 days of the reporting period, management has limited the scope of design and subsequent evaluation of disclosure controls and procedures and internal controls over financial reporting, as permitted under 5.3 of Form 52-109 F1 pursuant to National Instrument 52-109, Certification of Disclosure in Issuer's Annual and Interim Filings. For the period covered by this MD&A, management has undertaken additional procedures to satisfy itself with respect to the accuracy and completeness of the acquired operations' financial information. The following summary of financial information pertains to the acquisition that was included in ATS' interim condensed consolidated financial statements for the period ended December 29, 2019.

(millions of dollars)
     Comecer
     MARCO

    ---


       Revenue(1)
        73.1(1)       0.5(2)

    ---

        Net income (loss)(1)                   (5.0)(1)       0.2(2)

    ---

        Current assets(3)                          63.9          7.7

    ---

        Non-current assets(3)                     177.0         46.7

    ---

        Current liabilities(3)                     49.2         11.3

    ---

        Non-current liabilities(3)                111.9         25.7

    ---
1 Results from April 1, 2019 to
                             December 29, 2019, including
                             amortization of acquisition-
                             related intangible assets.


                            2 Results from December 16, 2019
                             to December 29, 2019.


                            (3) Interim consolidated
                             statement of financial position
                             as at December 29, 2019

Note to Readers: Forward-Looking Statements This news release and management's discussion and analysis of financial conditions, and results of operations of ATS contains certain statements that may constitute forward-looking information within the meaning of applicable securities laws ("forward-looking statements"). Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of ATS, or developments in ATS' business or in its industry, to differ materially from the anticipated results, performance, achievements or developments expressed or implied by such forward-looking statements. Forward-looking statements include all disclosure regarding possible events, conditions or results of operations that is based on assumptions about future economic conditions and courses of action. Forward-looking statements may also include, without limitation, any statement relating to future events, conditions or circumstances. ATS cautions you not to place undue reliance upon any such forward-looking statements, which speak only as of the date they are made. Forward-looking statements relate to, among other things: the strategic framework; the Company's strategy to expand organically and through acquisition; the ATS Business Model ("ABM"); a reorganization plan, including expectations in relation to restructuring costs, near-term impact on operating margins, and improvements to operating earnings and operating margins; trade negotiations and disputes; conversion of opportunities into Order Bookings; the Company's Order Backlog partially mitigating the impact of volatile Order Bookings; the expected benefits where the company engages with customers on enterprise-type solutions and the potential impact on Order Bookings, performance period, and timing of revenue recognition; rate of Order Backlog conversion; expected benefits with respect to the Company's efforts to expand its services revenues; the expected impact of the ABM; initiatives having the goal of expanding adjusted earnings from operations margin over long-term; the reorganization plan's impact on earnings from operations margins in the fourth quarter; the Company's goal with respect to non-cash working capital as a percentage of revenues; the Company's expectations in regards to investment in capital assets; expectation in relation to meeting funding requirements for investments; potential to use leverage to support growth strategy; expected contribution of MARCO and iXLOG; and the Company's belief with respect to the outcome of certain lawsuits, claims and contingencies. The risks and uncertainties that may affect forward-looking statements include, among others: impact of the global economy; general market performance including capital market conditions and availability and cost of credit; performance of the markets that ATS serves; foreign currency and exchange risk; the relative strength of the Canadian dollar; impact of factors such as increased pricing pressure and possible margin compression; the regulatory and tax environment; inability to successfully expand organically or through acquisition, due to an inability to grow expertise, personnel, and/or facilities at required rates or to identify, negotiate and conclude one or more acquisitions, or to raise, through debt or equity, or otherwise have available, required capital; that acquisitions made are not integrated as quickly or effectively as planned or expected and, as a result, anticipated benefits and synergies are not realized; that the reorganization plan is not implemented as anticipated, takes longer than anticipated, and/or does not achieve the anticipated benefits, resulting in delays, increased costs, and/or lower than expected improvements to operating performance; that current or future trade negotiations or disputes have unexpected impact on the business, including increased cost of supplies; that some or all of the sales funnel is not converted to Order Bookings due to competitive factors or failure to meet customer needs; timing of customer decisions related to large enterprise programs and potential for negative impact associated with any cancellations or non-performance in relation thereto; variations in the amount of Order Backlog completed in any given quarter; that the Company is not successful in growing its service offering or that expected benefits are not realized; that the impact of the ABM is other than as expected; that efforts to expand adjusted earnings from operations margin over long-term is unsuccessful, due to any number of reasons, including less than anticipated increase in after-sales service revenues or reduced margins attached to those revenues, inability to achieve lower costs through supply chain management, failure to develop, adopt internally, or have customers adopt, standardized platforms and technologies, inability to maintain current cost structure if revenues were to grow, and failure of ABM to impact margins; that the reorganization plan's impact on earnings from operations margins during the fourth quarter is other than expected; non-cash working capital as a percentage of revenues operating at a level other than as expected due to reasons, including, the timing and nature of Order Bookings, the timing of payment milestones and payment terms in customer contracts, and delays in customer programs; that the Company reverses one or more of its plans in regards to investment in capital assets or that the cost of capital assets are greater than expected; that MARCO's and/or iXLOG's impact is other than expected; risk that the ultimate outcome of lawsuits, claims, and contingencies give rise to material liabilities for which no provisions have been recorded; that one or more customers, or other entities with which the Company has contracted, experience insolvency or bankruptcy with resulting delays, costs or losses to the Company; political, labour or supplier disruptions; the development of superior or alternative technologies to those developed by ATS; the success of competitors with greater capital and resources in exploiting their technology; market risk for developing technologies; risks relating to legal proceedings to which ATS is or may become a party; exposure to product and/or professional liability claims; risks associated with greater than anticipated tax liabilities or expenses; and other risks detailed from time to time in ATS' filings with Canadian provincial securities regulators. Forward-looking statements are based on management's current plans, estimates, projections, beliefs and opinions, and other than as required by applicable securities laws, ATS does not undertake any obligation to update forward-looking statements should assumptions related to these plans, estimates, projections, beliefs and opinions change.

ATS AUTOMATION TOOLING SYSTEMS INC.Interim Consolidated Statements of Financial Position(in thousands of Canadian dollars - unaudited)

December 29                    March 31



       As at                                 Note        2019                         2019

    ---



                     ASSETS


                     Current assets             11


        Cash and cash
         equivalents                                              $

            117,748     $
          224,540


        Accounts receivable                            260,097                      217,245


        Income tax receivable                            3,935                        4,938


        Contract assets                         17      226,150                      213,553



       Inventories                              5       79,207                       67,998


        Deposits, prepaids and
         other assets                            6       27,111                       28,719

    ---

                                                       714,248                      756,993


                     Non-current assets


        Property, plant and
         equipment                                     121,412                       97,669


        Right-of-use assets                      7       57,971
              --


        Other assets                             8        2,502                        2,446



       Goodwill                                       595,484                      551,643


        Intangible assets                              191,563                      213,945


        Deferred income tax
         assets                                          3,404                        3,194


        Investment tax credit
         receivable                                     65,890                       62,953

    ---

                                                     1,038,226                      931,850



                     Total assets                               $

            1,752,474   $
          1,688,843

    ===



                     LIABILITIES AND EQUITY


                     Current liabilities


        Bank indebtedness                       11                   $

            4,167       $
          1,950


        Accounts payable and
         accrued liabilities                           263,574                      254,227


        Income tax payable                                 685                        7,721


        Contract liabilities                    17      128,776                      161,139



       Provisions                              10       31,093                       13,943


        Current portion of
         lease liabilities                       7       13,935
              --


        Current portion of
         long-term debt                         11          133                       18,550

    ---

                                                       442,363                      457,530


                     Non-current
                      liabilities


        Employee benefits                               27,030                       28,187


        Long-term lease
         liabilities                             7       45,358
              --


        Long-term debt                          11      322,660                      328,247


        Deferred income tax
         liabilities                                    85,254                       78,585


        Other long-term
         liabilities                             8        2,426                        6,663

    ---

                                                       482,728                      441,682



                     Total liabilities                            $

            925,091     $
          899,212

    ---



        Commitments and
         contingencies                      11, 15




                     EQUITY


        Share capital                           12                 $

            521,474     $
          516,613


        Contributed surplus                             11,685                       11,709


        Accumulated other
         comprehensive income                           62,074                       69,549


        Retained earnings                              230,992                      191,449

    ---

        Equity attributable to
         shareholders                                  826,225                      789,320


        Non-controlling
         interests                                       1,158                          311

    ---

                     Total equity                      827,383                      789,631

    ---

                     Total liabilities and
                      equity                                    $

            1,752,474   $
          1,688,843

    ===

ATS AUTOMATION TOOLING SYSTEMS INC.Interim Consolidated Statements of Income(in thousands of Canadian dollars, except per share amounts - unaudited)

Three months ended                    Nine months ended



                                                           December 29                  December 30   December 29              December 30


                                                      Note        2019                          2018           2019                      2018







                Revenues



       Revenues from construction contracts                            $

                228,901                     $
              195,441    $

        626,960  $
         554,002



       Sale of goods                                           29,925                        21,038         94,905                    62,804



       Services rendered                                      108,359                       104,918        325,778                   288,194

    ---





                Total revenues
     16, 17     367,185                       321,397      1,047,643                   905,000






                Operating costs and expenses



       Cost of revenues                                       274,985                       236,836        774,224                   668,848



       Selling, general and administrative                     58,508                        52,408        174,748                   147,978



       Restructuring costs                             10       18,797
              --        20,773
              --



       Stock-based compensation                        14        4,544                       (6,310)         7,221                     3,692

    ---





                Earnings from operations                   10,351                        38,463         70,677                    84,482





       Net finance costs                               18        6,440                         4,761         20,294                    15,084

    ---





                Income before income taxes                  3,911                        33,702         50,383                    69,398





       Income tax expense (recovery)                   13        (162)                        8,601         10,527                    16,836

    ---





                Net income                                           $

                4,073                      $
              25,101     $

        39,856   $
         52,562

    ===





                Attributable to



       Shareholders                                                      $

                3,983                      $
              25,094     $

        39,764   $
         52,544



       Non-controlling interests                                   90                             7             92                        18

    ---

                                                                          $

                4,073                      $
              25,101     $

        39,856   $
         52,562





                Earnings per share




                attributable to shareholders



       Basic and diluted                               19                  $

                0.04                        $
              0.27       $

         0.43     $
         0.56

    ===

ATS AUTOMATION TOOLING SYSTEMS INC.Interim Consolidated Statements of Comprehensive Income(in thousands of Canadian dollars - unaudited)

Three months ended                      Nine months ended





       December 29
        December 30

       December 29
        December 30


                                                                                                2019                                2018                   2019                2018






       Net income                                                                $

           4,073                     $
           25,101   $

            39,856   $
             52,562

    ---




       Other comprehensive income (loss):





       Items to be reclassified subsequently to net income:





       Currency translation adjustment



       (net of income taxes of $nil)                                                          3,452                               9,476                (9,087)            (6,473)





       Net unrealized gain (loss) on derivative financial



       instruments designated as cash flow hedges                                             1,258                             (5,257)                 3,375             (1,594)



       Tax impact                                                                             (315)                              1,316                  (849)                399





       Gain transferred to net income for derivatives



       designated as cash flow hedges                                                         (470)                              (815)               (1,283)              (773)



       Tax impact                                                                               118                                 213                    327                 208





       Cash flow hedge reserve adjustment                                                   (2,426)                             13,012                     56              13,822



       Tax impact                                                                               607                             (3,254)                  (14)            (3,456)

    ---





                Other comprehensive income (loss)                                         2,224                              14,691                (7,475)              2,133

    ---





                Comprehensive income                                         $

           6,297                     $
           39,792   $

            32,381   $
             54,695

    ===





                Attributable to



       Shareholders                                                              $

           6,207                     $
           39,785   $

            32,289   $
             54,677



       Non-controlling interests                                                                 90                                   7                     92                  18

    ---

                                                                                  $

           6,297                     $
           39,792   $

            32,381   $
             54,695

ATS AUTOMATION TOOLING SYSTEMS INC.Interim Consolidated Statements of Changes in Equity(in thousands of Canadian dollars - unaudited)

Nine months ended December 29, 2019

    ---

                                                                       Share               Contributed                 Retained

               Currency

             Cash flow

                Total

                Non-                   Total
                                                                     capital                   surplus                 earnings                   translation               hedge reserve                 accumulated                     controlling                  equity
                                                                                                                                                  adjustments                                                   other                       interests
                                                                                                                                                                                                        comprehensive
                                                                                                                                                                                                               income







                Balance, as at March 31, 2019       $

            516,613 $

                11,709 $

              191,449   $

                67,773   $

                1,776   $

                69,549       $

                311 $

               789,631





       Adoption of IFRS 16 (note 2)                                      --

                --                    (221)

                --

                --

                --

                --                   (221)

    ---


       At April 1, 2019 (adjusted)                      $

            516,613 $

                11,709 $

              191,228   $

                67,773   $

                1,776   $

                69,549       $

                311 $

               789,410





       Net income                                                        --

                --                   39,764

                --

                --

                --                              92                   39,856



       Other comprehensive income (loss)                                 --

                --

              --                       (9,087)                       1,612                      (7,475)

                --                 (7,475)

    ---


       Total comprehensive income (loss)                                 --

                --                   39,764                        (9,087)                       1,612                      (7,475)                              92                   32,381

    ---




       Non-controlling interest (note 4)                                 --

                --

              --

                --

                --

                --                             755                      755



       Stock-based compensation                                          --                       696

              --

                --

                --

                --

                --                     696



       Exercise of stock options                                      4,871                      (720)

              --

                --

                --

                --

                --                   4,151



       Repurchase of common shares (note 12)                           (10)

                --

              --

                --

                --

                --

                --                    (10)

    ---





                Balance, as at December 29, 2019    $

            521,474 $

                11,685 $

              230,992   $

                58,686   $

                3,388   $

                62,074     $

                1,158 $

               827,383

    ===






       Nine months ended December 30, 2018

    ---


          Share
            Contributed
            Retained
             Currency
           Cash flow
               Total
              Non-
            Total
                                                                     capital                   surplus                 earnings                   translation               hedge reserve                 accumulated                     controlling                  equity
                                                                                                                                                  adjustments                                                   other                       interests
                                                                                                                                                                                                        comprehensive
                                                                                                                                                                                                               income






       Balance, as at March 31, 2018                        $
          548,747         $
              12,535         $
            121,369             $
              79,918          $
              (4,088)          $
              75,830                  $
              292       $
             758,773





       Net income
           --
              --                   52,544
              --
              --
              --                              18                   52,562



       Other comprehensive income (loss)
           --
              --
            --                       (6,473)                       8,606                        2,133
              --                   2,133

    ---


       Total comprehensive income (loss)
           --
              --                   52,544                        (6,473)                       8,606                        2,133                               18                   54,695

    ---




       Stock-based compensation
           --                       729
            --
              --
              --
              --
              --                     729



       Exercise of stock options                                      2,315                      (492)
            --
              --
              --
              --
              --                   1,823



       Repurchase of common shares                                 (14,775)
              --
            --
              --
              --
              --
              --                (14,775)

    ---


       Balance, as at December 30, 2018                     $
          536,287         $
              12,772         $
            173,913             $
              73,445            $
              4,518           $
              77,963                  $
              310       $
             801,245

    ===

ATS AUTOMATION TOOLING SYSTEMS INC.Interim Consolidated Statements of Cash Flows(in thousands of Canadian dollars - unaudited)

Three months ended       Nine months ended





               December 29
              December 30

           December 29
              December 30


                                                              Note                              2019                     2018                             2019                      2018





                Operating activities



       Net income                                                      $

                4,073       $
              25,101        $

             39,856        $
              52,562



       Items not involving cash



       Depreciation of property, plant and equipment                                          3,785                    2,988                           10,838                     8,756



       Amortization of right-of-use assets                      7                              4,030
              --                          11,615
              --



       Amortization of intangible assets                                                      8,608                    7,246                           30,681                    21,302



       Deferred income taxes                                   13                            (2,489)                   4,564                            2,844                     4,664



       Other items not involving cash                                                       (2,121)                 (2,932)                           (163)                  (5,365)



       Stock-based compensation                                14                              4,544                  (6,310)                           7,221                     3,692

    ---

                                                                                              20,430                   30,657                          102,892                    85,611



       Change in non-cash operating working capital                                        (27,381)                  31,577                         (92,268)                   15,736

    ---



                Cash flows provided by (used in)




                operating activities                             $

                (6,951)      $
              62,234        $

             10,624       $
              101,347

    ---





                Investing activities



       Acquisition of property, plant and equipment                 $

                (13,718)     $
              (4,019)     $

            (30,237)     $
              (13,417)



       Acquisition of intangible assets                                                     (2,007)                (11,672)                         (8,014)                 (14,633)



       Business acquisitions, net of cash acquired              4                           (46,701)                (24,279)                        (53,367)                 (24,279)



       Proceeds from disposal of property,



       plant and equipment                                                                        9                    5,046                               82                     5,196

    ---



                Cash flows used in investing activities         $

                (62,417)    $
              (34,924)     $

            (91,536)     $
              (47,133)

    ---





                Financing activities



       Bank indebtedness                                                 $

                986          $
              198         $

             2,345       $
              (1,111)



       Repayment of long-term debt                                                             (53)                    (28)                        (17,057)                    (320)



       Proceeds from long-term debt                                                             111                       38                              177                        76



       Proceeds from exercise of stock options                                                1,877                       51                            4,151                     1,823



       Repurchase of common shares                                                             (10)                (14,775)                            (10)                 (14,775)



       Lease payments                                                                       (6,190)
              --                        (13,098)
              --

    ---



                Cash flows used in financing activities          $

                (3,279)    $
              (14,516)     $

            (23,492)     $
              (14,307)

    ---




       Effect of exchange rate changes on cash



       and cash equivalents                                                                   (258)                   7,068                          (2,388)                    4,035

    ---




       Increase (decrease) in cash and cash equivalents                                    (72,905)                  19,862                        (106,792)                   43,942





       Cash and cash equivalents, beginning of period                                       190,653                  354,228                          224,540                   330,148

    ---





                Cash and cash equivalents, end of period         $

                117,748      $
              374,090       $

             117,748       $
              374,090

    ===





                Supplemental information



       Cash income taxes paid                                          $

                5,686        $
              1,575         $

             8,411         $
              6,355



       Cash interest paid                                             $

                12,210       $
              11,090        $

             27,140        $
              24,027

    ===

SOURCE ATS Automation Tooling Systems Inc.

View original content to download multimedia: http://www.newswire.ca/en/releases/archive/February2020/05/c7981.html

SOURCE: ATS Automation Tooling Systems Inc.

Ryan McLeod, Vice President, Corporate Controller, 519 653-6500

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