Q3 2021 ATS Automation Tooling Systems Inc Earnings Call
Okay.
Good morning, ladies and gentlemen, welcome to the Ats automation third quarter conference call and webcast.
This call is being recorded on February 3rd 'twenty 'twenty, one at 10 o'clock a M eastern time.
Following the presentation, we will conduct a question and answer session and instructions will be provided at that time for you to queue up for questions.
If anyone has difficulties hearing the conference. Please press star followed by zero for operator assistance at any time.
I'd now like to turn the call over to screen Zahavi director of Investor Relations at eight P. M.
Great. Thank you operator, good morning, everyone. You remain hosts today are Andrew Hider, Chief Executive Officer of Ats, and Ryan Mcleod Chief Financial Officer.
For those who joined us by phone our remarks are accompanied by a slide deck, which is available at Ats automation dotcom.
Before we begin I am required to provide the following statement respecting forward looking information, which is made on behalf of Ats and all its representatives on this call.
You are cautioned that the oral statements made on this call will contain forward looking information that involves risks and uncertainties, including those introduced by the COVID-19 pandemic.
The actual results could differ materially from a conclusion forecast or projection in the forward looking information.
Certain material factors or assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward looking information.
Additional information about the material factors that could cause actual results to differ materially from.
The conclusion forecast or projection in the forward looking information and the material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward looking information our contained in Ats as filings with the Canadian provincial Securities regulators.
Now it is my pleasure to turn the call over to Andrew.
Thank you Sharon.
Good morning, ladies and gentlemen, and thank you for joining us.
Our third quarter featured record order bookings and backlog.
We continue to improve our performance in the face of challenging business conditions.
Meaningful margin expansion in line with our long term plan.
We also announced several transactions.
In December we.
I'll share intention to pursue a tender offer to acquire CFT group.
Global supplier of automated processing and packaging equipment for food and beverage industry.
The attractive growth market for us.
During the quarter.
Reorganize our European transportation business as planned.
Hoping to strengthen our position and performance in an important end market.
Today.
I will update you on business conditions, and then Ryan will provide his report.
Starting with our financial value drivers.
Q2 revenues were $370 million up 1% from Q3 last year.
And up 10% sequentially.
I'm really driven by her contributions from our services business.
Q3 order bookings were $435 million.
Up 18% from last year.
And 8% sequentially.
Bookings were strong across most segments.
Large customer awards on life Sciences and consumer.
Our adjusted EBIT margin for the quarter was 11, 8%.
Representing a 164 basis point margin expansion versus Q3 of last year.
Moving to our outlook.
We're encouraged by the strong order bookings activity.
As the pandemic evolves globally, we are closely monitoring customer demand signals and it's fair to say that some customers remain cautious about approving new capex spend.
Our order backlog of $985 million.
Provides us with a solid base of business after uncertainty in the short term.
By market activity and life Sciences remained robust with broad based strength in medical devices pharma and radio format.
We continue to win new mandates related to COVID-19.
This work represent around 18% of our life Sciences bookings this quarter.
Our focus on innovation and differentiated solutions is bearing fruit with new customer wins and higher share of wallet with existing accounts.
Life Sciences represented over 60% of our year to date bookings.
I expect it will be a strong market for ats for years to come.
E D.
We're starting to experience some improvement in activity levels and intend to remain selective and focused on the right projects.
Given recent industry announcements and plans for future customer capital deployment and you'd be we continue to be bullish on long term opportunities, particularly in North America, where customers see the need to build capacity.
In consumer we saw strength in warehouse automation and food.
Cosmetics from and a little soft.
In energy, we continue to execute on our nuclear strategy and what our first major project in the U S.
This is an important development for Hs as it marks our entry into the attractive decommissioning space and the geographic diversification of the business.
On after sales services.
Revenues were up in the high single digits year over year and up double digits compared to Q2 with broad based strength across all vertical markets.
Our regional service networks, and the use of digital support tools, including enhanced remote support have been instrumental in driving our ability to serve customers as travel challenges continue.
Moving forward.
We continue to refine our digital offerings by adding new capabilities, such as E commerce to improve customer convenience.
And reliance on Ats as a partner.
We're also growing capacity in our regional service networks to strengthen our local presence and increased customer confidence.
By being more proactive and strategic in how we embed services in our Capex projects.
We see instrumental opportunities and retrofit and maintenance.
To summarize our outlook.
We are encouraged by bookings this quarter and our funnel remains healthy.
Similar to last quarter, the pandemic environment continues to introduce some timing and approval uncertainty as customers exercised caution around capital deployment.
Moving on in the third quarter, we made substantial progress on the previously announced reorganization plan in our transportation business.
Including the sale of certain assets in Germany.
This reorganization eliminate underperforming operations to protect future margins and allows us to bring greater focus to attracted nishu and he'd be with.
The Ats value proposition is strong and the risk reward dynamic it's compelling.
Moving to the a b M our continuous improvement playbook.
We are making progress by using virtual means to train and hold events.
The regular cadence and other initiatives.
We have identified additional opportunities for improvement to support growth and margin expansion.
A few ABM highlights from the quarter.
All seven patients across various Ats divisions.
These events drove improvements in multiple areas, including sales operations and customer service.
One division and our life Sciences group was able to achieve cost savings of 25%, but identifying material savings and improving operational efficiencies and making greater reuse of engineering designs.
Our team at conferences and other ones was able to reduce production lead times for key products by improving process flow and production area layout, which has led to higher customer satisfaction.
And commercial ABM, we refined our marketing efforts, we identified and implemented a new process and software tool. This.
This is expected to result in a 5% to 10% improvement and that are in our digital lead generation.
We also hosted our first Ats virtual Expo in early December.
Which showcased our automation capabilities through life presentations and more than 40 display booths, showcasing ats and our growth partners.
You bet was well attended with more than 800 participants and generated leads which are accretive to our sales funnel.
Turning to innovation.
We continue to prioritize investments in differentiated solutions that positively impact our customers.
Teams across Ats are pursuing next generation ideas in areas, including linear motion technology digital services on.
Modular and flexible manufacturing just to name a few.
Ats has also been recognized for its efforts and dedication.
In the third quarter whole logic at key customer within our life Sciences group.
Recognize ats for our participation in the manufacturing scale up Hologic innovative COVID-19 assay program.
I'm proud of the work done on this assignment and pleased to say, it's one of many ways Ats is building customer success around the world.
On M&A.
Acquisitions continue to be an important complement to ats is organic growth.
In the third quarter, we announced our intention to pursue the acquisition of Citigroup.
Tender offer process.
CFT as a global supplier of automated processing and packaging equipment.
And which serve as a platform for H S into food and beverage industry.
It is well aligned with our strategy to target acquisitions.
Or active in growing markets with differentiated technologies and strong positions.
It's complementary technologies can be combined with our existing capabilities to create unique customer offerings.
The transaction offers strong synergies earnings accretion and an attractive return on invested capital.
The transaction is expected to close on the first quarter of calendar 2021 subject to achieving a 90% take up on the voluntary takeover offer and customary regulatory approvals and closing conditions.
In addition to CFT, we continue to cultivate and evaluating a number of opportunities of course timing will be variable and our approach to deploying our balance sheet will be disciplined and strategic.
In summary.
Third quarter results demonstrated the strength of our business.
And our ability to adapt our operations to the current climate.
Booking activity is encouraging and reflects the alignment we have with our customers and providing best in class solutions.
Going forward.
Our focus remains on sharpening our execution through the application of the ABM playbook to drive better performance.
Our strong backlog provides good revenue visibility during this challenging period or a healthy balance sheet enables us to act opportunistically when strategic prospects arise.
We're looking forward to close on the CFT acquisition, and see a significant value creation opportunity for our customers and our shareholders.
Now I will turn the call over to Ryan of note Ryan was named a permanent CFO in November congratulations Ryan well deserved Brian over to you.
Thank you, Andrew and good morning, ladies and gentlemen.
Third quarter performance featured record order bookings and backlog.
Revenues and operating margins, both improved year over year.
Starting with a review of our operating results, our Q3 bookings were $435 million up 18% compared to last year.
The increase primarily reflected new orders in life Sciences and consumer.
Organic growth was strong on acquired companies and foreign exchange provided an uplift from 2% to 3% respectively.
Compared to Q2 order bookings were up 8%, reflecting continued strength in life sciences and improvements in consumer and energy.
Year to date bookings were 1.1 dollars 6 billion with a book to Bill ratio of 1.13 to one.
Q3 revenues increased 1% from last year organically revenue decreased 3% due primarily to timing of program activities and third party materials.
Acquired companies and foreign exchange positively impacted revenues by two percentage.
Sequentially revenues increased 10% from Q2, primarily reflecting improved service revenues.
Our record Q3, ending backlog of $985 million provides a solid base to close at the fiscal year.
Life Sciences represented 61% of period end order backlog.
While we are pleased with the strength and resiliency of our business in the short term the resurgence of Covid in many parts of the world and continued uncertainty in the economy may impact the timing of customer ordering decisions and services revenue.
Looking forward our Rev.
Revenue conversion from Q4 is estimated to be in the 35 to <unk> 40 per cent range of backlog.
Moving to margins Q3 gross margin was 27, 8% up 267 basis points from last year.
Gross margin reflected improvements made in our cost structure from a reorganization and other efforts and good program execution.
Cost recoveries of $1 8 million were realized from the Canadian emergency wage subsidy.
Our teams have done an excellent job adapting to the current environment. However margins going forward will continue to be challenged by the inefficiencies of operating with almost half of our work force at home and the presence of extra health and safety measures in our facilities.
Moving to SG&A expenses were $800000 higher than last year.
This year's costs included $8 1 million of acquisition related amortization and $2 5 million of M&A transaction costs, which were partially offset by a $5 $3 million gain on the sale of a facility as part of our reorganization plan.
Excluding these items in both periods Q3's, SG&A was 54 million $3 8 million higher than Q3 last year, reflecting incremental costs from acquired companies and increased employee costs, partially offset by a half million dollars recoveries from the Canadian emergency wage subsidy.
Regarding the reorganization we announced in September.
Plan was implemented to help mitigate the impact of a downturn in the transportation market due to COVID-19.
Total restructuring costs incurred this year were $14 million of which 6 million was recorded in Q3 8 million in Q2.
Following the sale of some of our European transportation assets in October we're now completing the final actions in this reorganization.
Not expect to incur further charges.
Third quarter stock compensation expense was $4 $9 million up slightly from the $4 5 million dollar expense last year.
The tax rate was 24 five per cent in the quarter consistent with expectations.
Q3, adjusted EPS was <unk> 30.
Up 15% over last year and improved operating margins accounted for the increase.
Moving to the balance sheet.
In Q3, we generated cash from operations of $79 million compared to cash usage of $7 million last year, primarily reflecting a reduction in working capital investment and higher profitable.
Year to date, we have generated cash from operations of 146 million up from $10 6 million last year.
Our non cash working capital as a percentage of revenue was eight 7% in Q3 down from $13 one per cent in Q2, and well within our goal of maintaining working capital as a percentage of revenues below 15%.
Timing of deposits and program milestones have caused the decrease.
Our cash collections remained strong in the quarter, reflecting new strategic relationships, we have with their customers.
We invested $7 million in Capex on intangible assets in Q3 compared to $15 7 million last year.
Higher investments last year related to the expansion of certain life sciences facilities.
Year to date from you spent $15 $5 million.
In Q3, we deployed $8 $7 million under our normal course issuer bid 512000 shares were repurchased and cancelled at an average price of $16 93.
We will continue to deploy capital under our share repurchase program as appropriate.
From a leverage standpoint, we finished the quarter with a net debt to adjusted EBITDA ratio on 0.8 to one on.
On a pro forma basis adjusting for the potential addition of CFT group leverage will be approximately $1 91.
We have further room to deploy capital to pursue our strategies within our normal course target leverage range of up to two to two and a half times.
We ended the quarter with good liquidity, consisting of cash of $225 million and availability on our credit facilities of approximately 777 million.
Subsequent to the end of the quarter, we completed our offering of USD $350 million eight year senior notes.
Were issued at par and bear interest at a rate of $4 125 per cent.
We used a portion of the proceeds from the offering to fund the redemption of the U S $250 million $6 five per cent notes, which were due in 2023.
Upon repayment of the six 5% notes, we unwound, our existing interest rate swaps and entered into new U S zero interest rate swaps to hedge a portion of our year on net investment.
The swap transaction results in an effective interest rate for the new senior notes a 3.63 per cent.
In summary, our third quarter featured strong performance by our business despite the challenging environment.
Our teams have continued to execute efficiently.
Certain customer needs are met while maintaining a safe working environment.
Investments and improvements we've made in our business are serving as well driving operational improvements that have led to margin expansion.
Going forward, we have a record order backlog and strong balance sheet and available liquidity to combine to provide us with a solid foundation to pursue our growth strategies.
Now we will open the call to questions from our analysts operator could you. Please provide instructions. Thank you.
Ladies and gentlemen, we will now conduct a question and answer session. Two allowance many voices to be heard as possible. Please limit yourself to two questions per turn.
If you have a question. Please press star followed by number one on your Touchtone phone questions.
Questions will be pulled in the order. They are received please ensure you lift the handset. If you were at using a speaker phone before pressing any teeth.
One moment. Please for your first question.
Our first question comes from Cherilyn Radbourne with TD Securities.
Your line is now open.
Thanks, very much on good morning.
I was hoping that we can speak about warehouse automation a little bit.
Clearly, there's a big build out on the square footage that's underway given what the pandemic has done for E. Commerce. So I was hoping you could speak a little bit more about the award in the quarter and sort of what what part of that warehouse market is addressable for Ats.
Good morning Cherilyn.
When we look at this market from.
Our solution today is a new she application and it is really wrapped around taking multiple packages and bringing them into one singular package that would be shipped out per consumer.
And when we look at this space, although we're in a niche application, we're continuing to assess areas that we view are aligned with what Ats can provide in the market as well as where we can develop our technologies. So today, it's a niche that we're focused on we continue to assessors for expansion.
Okay.
<unk> done them I was reading something interesting the other day in relation to two by where apparently rapid COVID-19 testing has been rolled out quite broadly such that you have hotels restaurants stores and so forth and open without restriction I just wonder given the conversations that you have.
With multiple parties across life Sciences is that something that you can kind of foresee more generally around the world to get back to normal and and what could that mean for Ats.
Yeah, So Sharon I'll provide my view on this and certainly it's it's it's one of.
There's different dynamics at play here and one of them is around test kitchen, and as Youre well aware earlier in the year. We are assuming like early last year, we announced on awarded.
The testing process and our mission has always been around enabling our customers to bring those to market to serve areas around the world M.
And we continue to see potential in.
As noted in the quarter. It was 18% of our life Sciences bookings 10 per cent of our total bookings and.
And as the businesses around vaccine as well as testing continues to roll through we view it as an area that we can really help our customers and then ultimately enable the safe return to normal operations, but as far as timing goes it's certainly certainly a dynamic market.
And it's one that we view this as very much in line with Ats can do to help in the new economies and the customers, we support as well as having a meaningful impact on on the fight against Covid.
Great well that's my two thank you.
Our next question comes from Mark Neville with Scotiabank. Your line is now open.
Hey, good morning, guys keep ordering Brian congratulations on the appointment.
Thanks, Mark Ryan.
First question for you just on the gross margin.
I think youre up about 400 basis points year to date roughly.
And you made a comment about sort of continued pressure on margin.
I just wanted I just want to be clear that that's not to suggest the margin needs to come down from here It's kipp.
Making us aware of some sort of doing some of the puts and takes of distillate and black if it isn't that right.
Yeah. So so we look at this quarter.
Specifically, so we're up.
Call round to 270 basis points.
And so you know.
The big driver, but three quarters of that.
Is improvements in our cost structure and better program execution, and I talked a little bit about that in my prepared remarks.
There is about a 50.
50 basis points, which is related to the wage subsidy.
And that's.
As youre well aware that's due to the.
The revenue changes within our Canadian operations.
But certainly the benefit we're seeing in program management and our cost structure sustainable.
My cautionary language is really around new environment than we've seen.
We've seen a number of regions that have returned to work.
And that that'd be ex executing services.
Installations commissioning all of that that type of work more difficult more challenging.
You've done a good job on overcoming and adapting to the environment today, but it's a dynamic environment.
You talked about some of the some of the tools with our regional service network and digital tools and our service organization.
Those have certainly helped but it's it's a challenging environment still.
Okay. That's fair thanks.
Maybe just some of the after sales service part of the business again, it sounds like it's pretty healthy growth from the quarter.
I'm, just sort of curious sort of how that business is functioning now and I know there were some challenges when you're in the pandemic from getting insights.
Sounds like it's sort of digital which is driving a lot of the growth.
Maybe just qualitatively.
Sort of what's happening in the business from where it's at.
Yeah.
Yes.
I'll start with just the obvious.
Independent make things are very fluid and so certainly obstacles continue to arise in this group continues to overcome and I'm going to walk through that overcome.
Early on from the pandemic.
The team of line and understood that it would be a challenge to be on site and they launched several digital tools Julie support our customers and as you recall at close to last year at this time.
Customers really shut down and wouldn't allow us on remote support.
Different aspects, where we could be able to really help them through this process.
Was viewed positively and many of our customers utilize that capability now.
Now fast forward and we continue to build on our regional network you take for.
For example, like the U K.
One on big locked down we have a team of service folks in the U K.
They were able to utilize their skill set so whether they were on the automotive supporter or whether their life sciences or whether they're in consumer regardless of that specific skill set we now had smart glasses, which are the digital glasses. We had tablets. We also had K.
Ability and our ability to talk to the subject matter experts at core at all.
At our headquarters and it allowed us to start to utilize that footprint to really support and help our customers and so I would say the team certainly faced a lot of obstacles through the year and they continue to overcome those out to really enable this situation of where were in today.
And I walked through so.
So our growth in the quarter versus versus sequentially, we saw growth in the quarter versus prior year, but additionally, with building out that support structure with building out debt.
Our ability to truly help our customers all of that to be said to go back to the beginning it is a fluid environment. It's one we continue to look on how do we adapt and overcome.
So I guess just a follow up would there still be parts of that business that are challenged I guess installation maybe parts and then secondly on the digital side.
When you were thinking would be that the gains we made on digital.
Sustainable sort of beyond depends on it just showing sort of.
How useful there.
Yes, so I'll take.
Those two pieces.
Start with the first and we do think it.
If customers go into lockdown it does create a challenge and it's one that we certainly are continuing to look at ways to support and drive remember our customers often times on launching products that save People's lives.
And so we are very much in line with what we talk to them frequently we engage them, but if they go into locked on and don't let somebody on site than it does create a unique challenge and it's one that we look to continue to over that adapt and overcome excuse me as.
As far as the digital aspect. This is an area that we are focused on and it has been an enabler in and it is an area of focus for services as well on digital tools.
And as we looked and we talked a little bit about the E Commerce and this is.
An area that we're continuing to provide ease of use ease of application for our customers to really make their ability to operate their business at the maximum level. They can operate and so when you look at services. When you look at P. A M and it wasn't as highlighted on P. A M.
It's continuing to really enable many aspects of how to how to help our customers pull data from their equipment and then maximize the return on and we did a small acquisition within the quarter called the NIM co. This is really wrapped around that ability to then draw to the cloud.
Utilize the data on the cloud utilizing their specific tools to then improve efficiencies, whether it's across equipment or cost plants and it is an area that we view, we can really continue and continue to drive in an area that we view as a real opportunity for us to bring the full breadth of Ats tour markets into our customers.
Okay, just one line.
One on me and anchor I didn't hear you.
You said anything on the MD&A, you mentioned sort of domain expertise I'm. Just curious is this something that's used in a particular market.
Or is it from somebody you can use across your business.
So it is more across the business and as you think about an income they're real kind of area of expertise is being able to pull so think about the channel to be able to pull the information to the cloud.
And then also within the cloud they've got a standard set of package tools that allows them to then maximize that return so OE impact.
And whether it's looking across multiple tools or multiple sites. That's the that's the area of value in and rebuilt we're continuing to look to build this out and taking a bigger piece of this is is they are very close with customers on on data and on being able to maximize that value on data.
Okay.
And what's interesting is helpful. Thanks, guys appreciate it.
Our next question comes from Maxim <unk> with National Bank Financial Your line is now open.
Hi, good morning.
Good morning, Matt.
Just wanted to start with what I thought was an interesting posts in relation to your involvement with GM and LTE M.
Battery once just curious I guess two part question typically you've kind of shy away from you know talking about clients. So what was kind of a change there and maybe do you mind, maybe talking about potential.
I guess inflection point put a lack of a better word in terms of <unk> opportunities in North America specifically.
Yes so.
This Jim announced publicly their approach and with that they also referenced Ats are a key partner on that approach in that process.
Stepping back on on this space we've been in we've been in the evening shift in this specific area for greater than a decade now.
And.
We've also references on our social media sites and you're welcome to see that but when you step back and look at this process.
It's an area that we view, we can bring a strong level of value to customers.
And we referenced <unk> items in the in our update which is.
In these applications oftentimes, there's 10000 wells 10000.
And if one of them has an issue it could be up to 2% inefficiency and so when we look at capability you look at what we've invested in technology experience as well as their footprint and capability to support our customers. It is an area that debt again, we're very focused on a niche here.
Our area of value, but it is an area that we view, we can positively support our customers as they transition to the EV launch.
In North America, we're seeing that as a potential and we're seeing the movement, we're seeing the alignment to launching new products and this announcement is just one on one of the many examples of customers, making the investment and moving forward on looking at the capacity and how they can improve the capacity and output.
Okay. That's very helpful. Thank you and then.
Circling back on on M&A opportunities, just not functionality I mean, obviously like now you're on the process of.
On closing the Italian transaction, but.
Given the fact that I would assume that Covid has pressured.
Some of the smaller potential.
Potential competitors.
Opportunity to.
Accelerate.
M&A program.
Just I was wondering if you don't mind, providing some thoughts there.
Yes.
And I'll walk through this a little bit on the on the opening remarks, but I'll go into a bit more specifics around our funnel.
And M&A is very strong and we continue to stay very close to it and cultivate and I.
I will state that cultivation.
As Ben has been a unique dynamic that now virtually it makes our ability to have meetings much quicker and given our footprint like like the CFT discussion, we're able to be on site when needed because usually in region.
And so to answer your question there is a healthy funnel.
We are very selective you know our four criteria that we focus on strategically to drive value to Ats and our shareholders.
And so on.
There are targets that were in discussion with and remain in discussion with them and when they become available. We are certainly in a position with our balance sheet debt. We can move forward as needed as long as it meets our four criteria.
Okay excellent thats it from me thanks very much thank.
Thank you Max.
Our next question comes from Justin <unk> with Stifel GMP. Your line is now open.
Good morning, Thanks for taking my call and congrats on the quarter.
I had a question related to the nuclear business. It was good to see the first day U S Award I was wondering if you had any additional color on the type of customer the opportunity for follow on orders and in general how you see the nuclear speaks evolving from Etfs.
Good morning, Justin.
So let me let me walk through this one a little bit let me unpack this.
So this this application is decommissioning.
And as you are aware and we've talked about it we have done a really big focused on on refurbishment and as you think about that process.
Commissioning is call it half of it.
So when you go through a refurbishment you pull out new decommission what was in use and then you put in the new.
Reactor and then it can extend the life. This is just that half piece. So we do have experience here and what's exciting for Ats and our approach on this is this is our first real meaningful impact in the U S and in alignment to the decommissioning space and just to kind of walk through the high level of what this.
Means or what it could mean.
So a typical reactor is going to last anywhere from call. It on average between 40 and 60 years.
And that's a typical life span.
Why there's a variance if theyre going to do extensions and theyre going to walk through that just to get extensions, but the typical life span is between 40 and 60 and in the U S alone.
47 reactors over the age of four day.
So now lets break that even further on the decommissioning the total value of decommissioning.
Is $600 million over seven to eight years, and all debt portion with us dismantling et cetera, it's roughly about 40% of that and as you look at that about 40% two thirds is labor.
Area of impact from automation, so call it $150 million.
Her reactor as potential.
Why this matters why this is big for these these these customers you don't want human interaction inside a new director.
As much as possible you want to look at automation to try and help and so this is an area. We view Ats can really help our customers. It is a critical aspect it's a critical element.
It's something that is going to continue.
For years to come and it's an area that Ats has built an understanding on capability and therefore this is the first piece, we need to execute we need to deliver we need to show the value to this specific customer, but additionally, its an area that we view risk within our niche within our area of focus certainly can add value.
To our customers on that day to Ats.
Okay.
Appreciate that a few items to unpack there.
Further refurbishing versus the decommissioning would that be similar as far as an opportunity.
Revenue businesses.
Yes.
So refurbishment is a bit different.
Like when we talk about refurbishment, let's let's talk about say, Bruce power and Theyre going through their refurbishment process.
But it's gotten through on on the first reactor on their six on the processing and they are starting to on two and three and it's really helping them and its can do reactors. So it's a little different than in the reactor type.
Decommissioning is a different aspect.
Again, it's it's it's an attractive area, where automation can play a part and it can really help as they go through this process and in both youre going to be in the reactor. So you want to limit human interaction do you want to limit the touch points. So that is why automation can be can be a key enabler here.
Okay I appreciate that thank you for taking my questions.
You bet. Thank you Justin.
As a reminder, ladies and gentlemen, please press star one on your telephone keypad, if he would like to ask a question.
Our next question comes from Mac whale with <unk> Securities.
Your line is now open.
Hi, Andrew I, just wanted to follow up a little bit on the transportation segment.
You talked specifically about one particular element on the expertise you bring I was wondering can you speak to the different Inc.
In the business that you had in Europe, and how that will manifest itself in North America.
And related to that how far up the supply chain do you go do you is it really just from the battery packs that go into sales and do you go the other direction to into vehicle integration.
Yeah, good good morning Mac.
So our focus is around that battery assembly area.
Say it because we do battery pack assembly.
We also do pack out and so it is in that general area of focus on and to start.
We've been continue to be successful in Europe, and we've launched many products certainly been balance those products were also in North America, and launched and talked about those products and.
And again, we've been in this space for greater than 10 years, which allowed us to really understand the nuances.
Areas that we need to focus on for development.
And really how we can maximize our technology to really bring that value to customers and so when you think about what matters to the customer they miss it speed because one of the things, we're finding with the EV market.
It is not only is it speed to market, but additionally, there is changes in the batteries. So as we're coming out with a new developments they need a customer that can really move faster them.
To help them enable getting those changes in because it could mean distance it could mean, an easier charging process. It could meet any of the above and so when we look at our focus on and I did mentioned this in the frame up we've been very specific on where we want to place.
Our area of focus for this market because we view even at a high level of impact high level of value for these key areas.
On the announcement from GM was one of them.
We've had several others that we've announced around the wins in this space and it's one that we continue to build out I will state, we don't want to be everything to everybody in this area and so we're very focused on our specific niche.
Okay.
Is there.
Is there opportunity like do you see the opportunity is.
Exploiting that niche with more customers or started taking that starting from that niche and expanding like you do in other business segments, where you basically bought more.
That'd be the net backs green facility so to speak right. So I'm wondering which phase are you ran in terms of growth.
Yeah.
And.
What I can say it's both.
We're very focused on the technology.
Where we can differentiate our solution.
So we continue to engage with many customers on their journey to the evening shift and so.
One of the things that is a bit different day miss versus call. It traditional ice is that referenced ahead or on the battery changes.
And the continued development, where the cycle for a battery is we're viewing is potentially much shorter and therefore as they look to automation. It would be an area that we need to continue to drive to have a solution that can be ready to market on a very fast pace and that's what Ats does really well and we've continued to drive that globally.
Okay.
And just a last question I had was about M&A you talked about the four criteria have there been any shift in the metrics union per door evaluating those four criteria like do you decline in this environment you need to ship those at all or.
Well I'll make a narrower so to speak or I'm wondering how that.
How the environment has changed the way you look at them.
Yes.
Certainly certainly market has been an interesting one for us to SaaS because you have to look at the impact from Covid and there's good and bad for impact from Covid. There are businesses that have been greatly impacted on a positive on a hell. So on a negative and so it is an area of ship that we look at in a very detailed.
Cash and to assess the impact from Covid on.
Our business on and what that long term looks like.
For two and we're continuing to build this out the strategic rationale on wanting to.
Reoccurring revenue areas that we are going to drive impact we're as we look at the food and beverage space that has a meaningful entrants.
Obviously, it needs to close and go through the process, but the debt allows us to look at additional add ons in that space and so then that goes down too.
The third piece, which is how we're going to operate and I'll just state that we continue to build our confidence around the ability to integrate and operating the assets and I referenced this on the call, but just as a reminder.
We see it with <unk> on the CFT up there. We just did a quick update on on <unk> and the book to Bill ratio on that business. Since since acquisition is up 20%. The operating margin is up 300 basis points and the aftermarket is up 200 basis points.
And it's still quite early days and its alignment with Ats, We're really pleased with the progress.
And the base business on radio pharmaceutical continues to be an area that we're very pleased with the progress we've made as well as the opportunity for synergies and lastly, and this is the dynamic or on multiple slash ROIC the financial aspect of the business and so there are many out there and we're continuing to assess strategically.
We're looking we're looking to really build ats around businesses that are going to add value to our shareholders in the mid and long term and ensuring that wouldn't be out of business. It is an area, we want to really drive into and so yes, certainly it's changed but additionally, I would say the target market has continued to grow and our ability with the addition of the food and beverage.
Space, and we've had targets reaching out to us around the potential fit and so.
I'd say that the workload has increased and it's a good thing and certainly we're going to be as ads.
Focused around having the discipline to ensure it is the right level of value over the long term.
Okay, great. Thanks, guys.
Answering those questions.
Yeah.
Mr High net there are no further questions at this time.
Thanks, operator to.
To conclude we are pleased with the performance this quarter and recognize the hard work.
Dedication of our teams across Ats that made this possible.
The COVID-19 pandemic.
While certainly challenging has brought out the best in our people.
I couldnt be prouder, the progress that we've made over the last year.
We remain focused on delivering innovative and high quality solutions for our customers, providing a safe work environment for our employees and.
And creating value for our shareholders. Thank you for joining us today I look forward to speaking to you on our Q4, calling day safe stay safe and Goodbye for now.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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Andrew.
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