ATS Corporation Q3 FY2025 earnings call

• Strong third quarter bookings, second highest in company history, with 32% growth in order bookings to $883 million.
• Revenues down 13% y/y due to lower EV revenues, but adjusted earnings from operations $66 million.
• Order backlog ended at ~$2.1 billion with trailing 12-month book-to-bill ratio 1.18:1.
• Focus on expanding market reach through capabilities in high-value, complex manufacturing applications.
• Shifting to growing recurring revenues to offset booking variability.
• Life sciences order backlog at record $1.2 billion, driven by radiopharma, GLP-1 auto-injectors, etc.
• Food and beverage backlog up 22% supported by Paxiom acquisition.
• Energy segment strong with opportunities in nuclear refurbishment, SMR builds, and fuel fabrication.
• Transportation saw restructuring and a new EV customer win in Europe.
• After sales expanded services and digital offerings, with Connected Care Hub in Cambridge.
• ABM and Kaizen events driving continuous improvement, like CFT's Kaizen event in November and January.

Order bookings for the quarter were $883 million, up 32% from the third quarter last year. Q3 revenues were $652 million, down 13% from Q3 last year primarily due to lower EV revenues. Adjusted earnings from operations in Q3 were $66 million. Life sciences order backlog ended the quarter at a record $1.2 billion, an increase of 39% compared to Q3 last year. Food and beverage ended the quarter with a record backlog of $252 million, an increase of 22% compared to last year. Energy segment funnel remains strong with opportunities in nuclear, SMR, and decommissioning. Consumer products funnel remains stable. Transportation had restructuring but saw a new EV customer win in Europe. After sales expanded higher value services and digital capabilities.

• Q4 revenues expected in range of $650 million to $710 million.
• Margin expansion remains priority, with continued sequential growth expected but modest in Q4.
• Focus on reducing net debt to adjusted EBITDA ratio to target range of 2-3 times from current 3.7 times.
• Expect organic growth benefit from current bookings and backlog into next fiscal year, with 1-2 quarter lag from large bookings to revenue impact.

• Potential complexity in short term if US-Canada tariffs implemented next month.
• Working capital issues due to ongoing dispute with EV customer, keeping working capital above target level of 15% of revenues.
• Transportation revenue ramp challenges as new business won in Europe takes time to materialize in revenues.

Q: On the margins, should we anticipate continued improvement in Q4?

A: Yes, but modest as transportation revenue ramp is still in early stages.

Q: Can you give additional context on energy segment bookings growth?

A: Energy segment has opportunities in CANDU reactor refurbishment, SMR builds, and fuel fabrication, with multiple customers contributing to bookings.

Q: Is the equipment from the large EV customer repurchasable?

A: The equipment has been delivered and remains in production at the customer site.

Q: Any color on customer conversations around tariffs and supply chains?

A: Conversations are positive on ATS's ability to support, but customers are waiting to see tariff implementation shakeout.

Q: How do large bookings translate into sales with a lag?

A: Larger orders have 12-18 month delivery periods, with design phase being lower revenue and production/assembly being higher revenue, expecting benefit to organic growth rate next fiscal year.

Q: Update on EV program in Europe?

A: It's a win with an existing customer, using global footprint to support execution in Europe.

Q: Perspective on nuclear market timing?

A: Nuclear programs are lengthy, with more than 12 months until revenue impact, but ATS engages early.

Q: Outlook for capital allocation and leverage reduction?

A: Priority is to reduce net debt to adjusted EBITDA to 2-3 times, with M&A cultivation ongoing but focus on leverage reduction now.

Q: Medium term perspective on nuclear market as a percentage of revenue?

A: Nuclear will be a niche but valuable part of revenue, with life sciences expected to be largest market.

Q: Impact of new health administration on life sciences customers?

A: No marked change in customer behaviors, with ATS staying proactive to support global product launches.

Q: Supply chain exposure to Mexico and Canada tariffs?

A: Minimal finished product moving US-Canada, some sourcing from Mexico into US, working with suppliers on mitigation strategies.