ATS Corporation Q4 FY2026 earnings call

- **Strategic Portfolio Reorganization**: - Consolidated former transportation operations, exiting low-margin large-scale automotive projects and redeploying retained capabilities into higher-return niche industrial applications; - Completed integration of aftermarket businesses directly into operating units, giving each business full ownership of the full equipment lifecycle to improve margins and revenue predictability.

- **Operational and Product Innovation**: - Expanding the digital twin offering beyond one-off project execution to provide continuous customer support, and integrating digital tools (remote diagnostics, machine intelligence) to grow recurring service revenue; - Launched FlexLine, a new sterile pharmaceutical production platform for the life sciences segment that integrates key manufacturing steps to reduce complexity and accelerate customer market entry; - Diversified the life sciences sales funnel beyond large GLP-1-related programs into new high-growth areas including radiopharma, mail order pharmacy, automated visual inspection, and lab automation.

- **Capital Allocation Framework**: - Leverage is now within the company's 2.0-3.0x net debt to adjusted EBITDA target range, providing increased financial flexibility for M&A; - M&A priorities are focused on opportunities that improve margin profile, increase aftermarket/service revenue mix, and strengthen technical capabilities in core end markets (including nuclear energy); all potential acquisitions must generate returns above ATS's cost of capital.

- **Financial Operational Improvements**: - Achieved three consecutive quarters of improvement in non-cash working capital as a percentage of revenue, ending Q4 at 12.1% (below the 15% long-term target); - Leverage (net debt to adjusted EBITDA) improved for four consecutive quarters to end at 2.8x, within the target range.

Segment-level revenue breakdown is not explicitly provided in the call transcript. Aggregate results for the quarter are as follows: Total adjusted Q4 revenues were $744 million, up 3.2% year-over-year. Full-year 2026 revenue grew approximately 11% year-over-year, with 6% organic growth; excluding the transportation segment, full-year organic growth reached nearly 14%. Total Q4 order bookings were $704 million, down 18.4% year-over-year, as the prior year period included large consumer product project awards. The ending fiscal 2026 total order backlog was approximately $2 billion: - Life Sciences: $1.1 billion in backlog, representing 55% of total backlog. The segment had strong diversified demand, with particular growth in radiopharma; - Energy: Order backlog increased 40% year-over-year, driven by nuclear refurbishment, life extension, and new build programs; - Transportation: The segment will be discontinued as a separate reporting vertical following reorganization; exiting large-scale automotive projects will remove ~$50 million of dilutive annual revenue; - Combined regulated end markets (Life Sciences, Energy, Food and Beverage) make up nearly 80% of total backlog entering fiscal 2027.

- Q1 fiscal 2027 revenue is expected to be in the range of $700 million to $740 million; - Full-year fiscal 2027 is expected to deliver modest revenue growth, which includes the step-down in dilutive transportation revenue; the moderate growth outlook reflects timing of large program execution and backlog normalization in life sciences following strong 2025 bookings, not a weakening of underlying demand; - Adjusted operating earnings margin is expected to improve 50 to 75 basis points over full-year fiscal 2026, driven by portfolio reorganization and operating discipline; a portion of savings from these actions will be reinvested in targeted growth areas including nuclear and radiopharma; - Capital expenditures and intangible investments for fiscal 2027 are projected to be between $70 million and $90 million; - Restructuring costs of approximately $5 million are expected in Q1 fiscal 2027 to complete transportation consolidation, plus an additional $5 to $10 million of restructuring costs for other business areas across the full year; - The long-term adjusted operating earnings margin target remains 15%, with continued deliberate progress toward this goal in 2027.

- Geopolitical and trade uncertainty continue to create a fluid macro environment; however, management noted that previously announced tariffs have not had a material impact to date, as most Canadian exports to the U.S. remain covered by USMCA, and any impact from revised Section 232 tariffs is not expected to be significant; - Large custom automation projects have inherent lumpiness in order timing and revenue recognition, which can create quarterly revenue volatility even when underlying end market demand remains strong; - Specialized high-consequence end markets (such as lab automation) can face short-term demand disruption from regulatory shifts or changes in large customer budgeting priorities; - Working capital performance can be impacted by temporary timing differences around billing and collection activity at period end, requiring ongoing focused management discipline.

Q: What is the 2027 bookings outlook for life sciences, specifically for backlog growth, and how does GLP-1 impact this trajectory? / A: The overall life sciences funnel remains strong, with continued growth in radiopharma offsetting timing moderation in GLP-1-related auto-injector projects. After working through the large 2025 GLP-1 backlog, management's goal is to grow overall life sciences backlog in fiscal 2027, supported by a more diversified portfolio of sub-segments.

Q: Can M&A activity proceed concurrently with ongoing portfolio restructuring, and what is the priority for M&A in nuclear energy? / A: Restructuring and M&A are independent, parallel processes: restructuring addresses low-return non-core assets, while M&A targets future growth and capability expansion. Management would strongly consider nuclear-focused acquisitions that extend technology or service capabilities, or improve geographic positioning for this high-growth segment. All deals are evaluated on long-term return on capital, not just purchase multiple.

Q: What is current recurring revenue as a percentage of total revenue, and what initiatives are in place to grow this share? / A: Recurring revenue (including aftermarket, spares, and faster-turn product businesses) was approximately one-third of total fiscal 2026 revenue, in line with expectations. Key initiatives include full customer lifecycle ownership for each operating unit (from the recent aftermarket integration), deployment of specialized commercial tools for service sales, and expansion of digital offerings such as digital twin and remote diagnostics to grow the recurring revenue stack.

Q: What explains the working capital improvement in Q4, and is the 15% or below target maintained for fiscal 2027? / A: While timing of billing and collections can create quarterly fluctuations, the Q4 improvement was meaningful, driven by transportation reorganization and focused working capital discipline across the business. Management maintains the long-term target of 15% or lower for non-cash working capital as a percentage of revenue, and will continue to hold general managers accountable for this metric as a core part of operating performance.

Q: What is the current size of GLP-1 auto-injector business in the life sciences backlog, and what is the long-term outlook for this segment? / A: The share of auto-injector work in the life sciences backlog has ticked down from the prior 20% level as large 2025 orders are executed, which is a normal moderation after a period of heavy capacity build. Management still sees long-term growth for auto-injectors across a range of therapies beyond GLP-1, with many new clinical trials underway for cardiovascular, autoimmune, and neurological indications, so this remains a core attractive position for ATS.