ATS Corporation Q1 FY2026 earnings call

Management Statement and Operational Highlights

• Leadership Transition: While the Board conducts CEO search, Ryan McLeod serves as Interim CEO with support from senior leadership team.
• Q1 Results: Q1 revenues were $737 million, up 6% from Q1 last year. Order bookings were $693 million. Adjusted earnings from operations in Q1 were $79 million. Recently acquired companies contributed 4.1% to revenue growth, and foreign exchange translation added a 3.2% benefit.
• Segments Update: Discussed performance and opportunities in Life Sciences, Food and Beverage, Energy, Consumer Products, and Transportation.
• Services: Advancing digital solutions, including the Connected Care Hub, to help customers proactively enhance system utilization and mitigate risk.
• ATS Business Model: Global team engaged in initiatives like Kaizens, workshops, and problem-solving events. Annual ABM awards recognized excellence in various areas, underscoring ABM culture.
• M&A: Teams actively cultivating strategic opportunities aligning with long-term growth ambitions and value creation, focusing on returning leverage to target range and realizing synergies from recent acquisitions.
• Innovation: Deploying capital for differentiated solutions. Leveraged acquisition of reality to launch a virtual reality training platform. Multiplex system in energy for safe, precise cutting in nuclear decommissioning and waste handling.
• ATS Automation Summit: Showcased solutions in digital transformation, intelligent automation, and technology-enabled scalability, positioning ATS as a thought leader.

Segment Performance

• Life Sciences: Order backlog at quarter end was $1.2 billion. Secured wins in submarkets such as auto-injectors, radiopharma, and blood glucose monitoring wearables. Comecer, a part of Life Sciences, is a preferred partner for radiopharma customers and opened a new site in Indianapolis.
• Food and Beverage: Ended the quarter with a backlog of $229 million, a 6% increase compared to Q1 last year. Focus on primary processing solutions and aftermarket service, with active execution on growth strategy for secondary processing, packaging, and services supported by Paxiom.
• Energy: Funnel includes a mix of short and long-term opportunities, with the nuclear industry benefiting from renewed investment and favorable government policy. Momentum from ongoing CANDU refurbishment activity, and potential from large-scale new builds and small module reactor programs.
• Consumer Products: Funnel remains stable with attractive niche opportunities, and capabilities in warehouse automation and packaging resonate with customers.
• Transportation: Funnel remains stable but is affected by relatively lower EV end market demand.

Guidance

• Q2 revenues expected to be in the range of $700 million to $740 million.
• Order backlog ended the quarter at approximately $2.1 billion.
• Expect operating margin improvement throughout fiscal '26, though not necessarily linear.
• Target to bring net debt to adjusted EBITDA ratio to 2 to 3x. Aim to have noncash working capital as a percentage of revenues below 15%.

Risks

• Cross-Border Tariffs: Closely monitoring business environment due to dynamics of cross-border tariffs.
• Variable Investment Timing: Investment timing in business is variable.
• U.S. Government Funding Changes: Some customers in lab research space are taking a more measured approach to capital spending due to changes in U.S. government funding, though impact on Life Sciences overall is minimal.

Q: Joe Ritchie asked about the demand environment, specifically in key end markets and the outlook for the rest of the year.

A: Andrew Hider and Ryan McLeod responded that the trailing 12-month book-to-bill ratio is 1.17, funnels remain healthy, and key segments like Life Sciences (e.g., GLP-1 drugs, radiopharma), Energy (nuclear business), Food and Beverage, Transportation, and Consumer Products are in strong positions with solid backlogs. Excluding transportation, orders are up over 10% year-over-year in the first 6 months.

Q: Maxim Sytchev inquired about integration progress, margin profile, and M&A pipeline.

A: Andrew Hider and Ryan McLeod stated integration across acquired companies is going well, ABM deployments are strong, margin expansion is expected through gross margin and operating leverage, and M&A activity continues with focus on deleveraging to reach target leverage range.

Q: Justin Keywood asked about tariffs, balance sheet, and deleveraging.

A: Andrew Hider and Ryan McLeod replied that tariffs haven't had material impact yet, EV settlement payment was fully received with no tax impact, and deleveraging is expected this year with focus on working capital below 15% of revenues.

Q: Patrick Baumann asked about margin dynamics and food and beverage CapEx outlook.

A: Ryan McLeod said margin expansion is expected for the year with initiatives in productivity and efficiency, and Andrew Hider mentioned food and beverage market is stable with opportunities in technology and innovation.

Q: Patrick Sullivan asked about lab space capabilities and the multiplex system.

A: Andrew Hider and Ryan McLeod explained lab space capabilities across various businesses and that the multiplex system is for decommissioning in nuclear reactors, used for safe, precise cutting in decommissioning and waste handling applications.

Q: Fred Gatali asked about Life Sciences diversification and working capital timeline.

A: Ryan McLeod said Life Sciences auto-injector business is diversified with 10 active customers, and working capital is expected to be below 15% by year-end, with focus on payment terms and order to cash cycle in product-based businesses and custom automation.