Q3 2022 ATS Automation Tooling Systems Inc Earnings Call
Speaker 1: Welcome to the ATS Automation Third Quarter Conference call on webcast. This calls being recorded on February 2, 2022 at 8.30 AM Eastern time. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for your to queue up for questions. If anyone has difficulties during the conference, please press star. Followed by zero for operator assistance at any time. I will now turn the call over to Stuart McQuagg, Vice President General Counsel H.S.
Good morning, ladies and gentlemen, welcome to the Ats automation third quarter conference call on the webcast. This call is being recorded on February 2nd 2022 at 830, a M. Eastern time. Following the presentation. We will conduct a question and answer session instructions will be provided at that time for you to queue up for questions.
If anyone has difficulties during the conference. Please press star followed by zero for operator assistance at any time I will now turn the call over to Stuart Mcquaig, Vice President General Counsel eight yes.
Speaker 2: Thanks, operator, and good morning, everyone. Your main hosts today are Andrew Heider, Chief Executive Officer of ATS, and Ryan McLeod, Chief Financial Officer.
Thanks, operator, and good morning, everyone. You main hosts today are Andrew Hider, Chief Executive Officer of Ats, and Ryan Mcleod Chief Financial Officer, We note that our remarks today are accompanied by a slide deck displayed on the screen in the webcast and which is also available including for those joining by phone at Ats automation Dotcom, we cautioned that the statements made on the webcast and call may contain.
Speaker 2: We note that our remarks today are accompanied by a slide deck displayed on the screen in the webcast, and which is also available, including for those joining by phone, at atsautomation.com. We caution that the statements made on the webcast and call may contain forward looking information, and our cautionary statement regarding such information, including the material factors that could cause actual results to differ materially from the statements, and the material factors or assumptions applied in making the statements are detailed on slide 2 of the slide deck. Now it's my pleasure to turn the call over to Andrew.
Forward looking information in our cautionary statement regarding such information, including the material factors that could cause actual results to differ materially from the statements and the material factors or assumptions applied in making these statements are detailed on slide two of the slide deck now it's my pleasure to turn the call over to Andrew.
Speaker 3: Good morning, ladies and gentlemen, and thank you for joining us.
Thank you Stuart.
Good morning, ladies and gentlemen.
Speaker 3: We're pleased to report another strong quarter for ATS, featuring order bookings, order backlog, and revenue records.
Thank you for joining us.
We're pleased to report another strong quarter for Etfs featuring order bookings.
Order backlog and revenue records and adjusted EBIT margin expansion.
Speaker 3: Although the pandemic and supply chain disruptions created a challenging and fluid business environment, organic revenue growth was robust. Newly acquired businesses performed a plan and we completed two acquisitions.
Although the pandemic and supply chain disruptions created a challenging and fluid business environment.
Ganic revenue growth was robust.
The acquired businesses performed to plan and.
Speaker 3: SP Industries expands our capabilities and offerings throughout the life cycle of pharmaceutical development. GF enhances our offerings.
And we completed two acquisitions.
SP industries expands our capabilities and offerings throughout the lifecycle of pharmaceutical development.
<unk> enhances our offerings in Asia epic fill finish.
Speaker 3: Today, I will update you on our business, and then Ryan will provide his financial report.
Today I will.
Update you on our business and then Ryan will provide his financial report.
Starting with our value drivers.
Speaker 3: 2-3 revenues were $547 million, up 48%
Q3 revenues were $547 million.
Up 48% from Q3 last year.
Speaker 3: driven by a combination of acquired businesses and strength across our core operation.
Driven by a combination of acquired businesses and strength across our core operations.
Speaker 3: Organically, revenues grew 22% year by year, a positive result that was augmented by the pandemic impact on two or three revenues in the prior year.
Organically revenues grew 22% year over year, a positive result that was augmented by the pandemic impact on Q3 revenues in the prior year.
Speaker 3: Two or three order bookings were a record $671 million. Up 54
Q3 order bookings were a record $671 million.
Up 54% year over year.
Speaker 3: CFT, BioDOT, and SB contributed approximately two-thirds of order bookings growth versus last year. Bookings were strong across
CFT Biodot and SP contributed approximately two thirds of order bookings growth versus last year.
Bookings were strong across most market verticals.
Speaker 3: with large customer rewards in consumer products and transportation.
With large customer awards in consumer products and transportation.
Speaker 3: Our adjusted EBIT margin for the quarter was 12.9%.
Our adjusted EBIT margin for the quarter was 12, 9%.
Speaker 3: representing margin expansion of over 100 basis points from Q3 of last year.
Representing margin expansion of over 100 basis points from Q3 of last year.
Moving to our outlook.
Speaker 3: Our backlog grew to a record, $1.5 billion at the end of the quarter.
Our backlog grew to a record $1 $5 billion at the end of the quarter.
Speaker 3: Providing us with a solid base of business and good revenue visibility.
Abiding us with a solid base of business and good revenue visibility.
Speaker 3: The pandemic situation remains fluid. And we continue to work with our customers and employees to manage the challenges, including newly imposed travel restrictions and certain jurisdictions, and supply chain interruptions.
The pandemic situation remains fluid.
And we continue to work with our customers and employees to manage the challenges, including newly imposed travel restrictions in certain jurisdictions and supply chain interruptions. Despite the challenges our teams have done an excellent job to ensure customer needs are met.
Speaker 3: Despite the challenges, our teams have done an excellent job to ensure customer needs are met. By market, conditions remain positive in life sciences with good activity and...
By market conditions.
Conditions remained positive in life sciences with good activity in our key sectors of medical devices pharma and radio pharma.
Speaker 3: Today, our funnels comprised of more traditional, non-COVID-related opportunities.
Today, our funnel is comprised of more traditional non COVID-19 related opportunities.
Speaker 3: In EV, we continue to see robust activity levels with rapid growth in the battery assembly market. We won several mandates during the quarter.
And we continue to see robust activity levels with rapid growth in the battery Assembly market.
We won several mandates during the quarter.
Including a large award from a repeat customer.
Speaker 3: as our customers experience new complexities from evolving battery technology.
As our customers experienced new complexities from evolving battery technologies.
Speaker 3: our long track record and proven expertise in the battery assembly and test space. Position ATS as a trusted partner.
Our long track record and proven expertise into battery Assembly and test space position Hs is a trusted partner.
Speaker 3: Our order funnel remains strong with opportunities and food processing leading the way.
And food and beverage.
Our order funnel remains strong with opportunities in food processing, leading the way.
Speaker 3: In consumer, we're seeing continued activity in warehouse automation.
In consumer we're seeing continued activity and warehouse automation.
Speaker 3: In energy, the market for automated tools and related services for nuclear refurbishment is expanding.
And energy.
The market for automated tools and related services for nuclear refurbishment is expanding.
Speaker 3: The decommissioning market also continues to evolve, and we see prospects in both North America and globally.
The decommissioning market also continues to evolve.
And we see prospects in both North America and globally.
Speaker 3: There are also emerging opportunities in isotope production and small modular reactor markets, as well as grid batteries.
There are also emerging opportunities in isotope production and small modular reactor markets as well as grid batteries.
On services.
Speaker 3: Order bookings screwed. Both year by year and sequentially.
Order bookings grew both year over year and sequentially.
Speaker 3: Utilization and expansion of our regional service network coupled with the use of digital support tools have improved our ability to support our customers.
Utilization and expansion of our regional service network, coupled with the use of digital support tools have improved our ability to support our customers.
Speaker 3: In turn, our customers continue to embrace our digital services platform.
In turn our customers continue to embrace our digital services platform.
Speaker 3: opportunities to expand our aftermarket services footprint and add to our digital capability.
We see opportunities to expand our aftermarket services footprint and add to our digital capabilities.
Speaker 3: Operationally, we faced a challenging business environment resulting from global supply chain issues and the pandemic. We've experienced some supplier lead time extension.
Operationally, we faced a challenging business environment, resulting from global supply chain issues and the pandemic, we've experienced some supplier lead time extensions and a.
Speaker 3: and our team has completed several related problem solving events. These challenges are likely to persist in the near term. To summarize our outlook, this...
Our team has completed several related problem solving events.
These challenges are likely to persist in the near term.
To summarize our outlook.
This quarter included record order bookings.
Record order backlog and a robust funnel.
Speaker 3: were encouraged by recent activity levels. However,
We're encouraged by recent activity levels. However.
Speaker 3: Global supply chain and labor market dynamics represent a challenge and uncertain.
Global supply chain and labor market dynamics represented challenge and uncertainty.
Speaker 3: The situation is actively monitored and countermeasures implemented wherever possible. Simple and Ahoray chop.
The situation is actively monitored and countermeasures implemented wherever possible.
Moving to the ABM.
Our continuous improvement playbook.
Speaker 3: This was another busy quarter with continued emphasis on improving our value drivers, both operationally and commercially.
This was another busy quarter.
With continued emphasis on improving our value drivers, both operationally and commercially.
Speaker 3: Our linear motion business held the kaisen to remove waste from a critical assembly process.
Our linear motion business held the kaizen to remove waste from our critical assembly process.
Speaker 3: The Kaizen resulted in a 50% reduction in floor space.
The Qiagen resulted in a 50% reduction in force base.
Speaker 3: Lower inventory requirements and a 20% improvement in cycle time.
Inventory requirements, and a 20% improvement in cycle time.
Speaker 3: A Life Sciences division held the Kaizen on their spur parts order processes.
At Life Sciences Division held the kaizen on their spare parts order processing.
Speaker 3: Through collaborative efforts, they were able to improve efficiency by 50%.
Through collaborative efforts, they were able to improve efficiency by 50%.
Speaker 3: Our services business held a joint Kaizen with a customer to define requirements for a turnkey training, execution, and spare parts management program.
Our services business, how the joint Kaizen with a customer to define requirements for a turnkey training execution and spare parts management program.
Speaker 3: These joint efforts are a great way to provide value to our customers while also strengthening our relationships.
These joint efforts are a great way to provide value to our customers while also strengthening our relationships.
Speaker 3: We continue to employ our global virtual ABM boot camps on the back of similar successful events in preceding quarters. The camp runs over a six-week period and combines self-paced learning and real-time discussions with ABM leaders.
We continue.
To employ our global virtual ABM boot camps on the back of similar successful a bench in preceding quarters. The camp runs over a six week period and combined self paced learning in real time discussions with ABM leaders.
Speaker 3: This modified virtual format enables us to continue scaling our training and demonstrates how businesses across the HTS use the ABM to drive tangible results.
This modified virtual format enables us to continue scaling our training and demonstrates how businesses across H S use the ABM to drive tangible results.
Speaker 3: acquisitions and strategic core markets continue to be an important complement to ATS's organic growth.
On M&A.
Acquisitions and strategic core markets continue to be an important complement to ats is organic growth.
Speaker 3: During the quarter, we closed two acquisitions, SP being the largest in ATS history.
During the quarter, we closed two acquisitions SP being the largest in Hff's history.
Speaker 3: SP is a designer and manufacturer of high grade biopharmor processing equipment.
SP is a designer and manufacturer of high grade Biopharma processing equipment.
Speaker 3: life sciences equipment, and lab apparatus products.
Life Sciences equipment and lab apparatus products.
Speaker 3: SP expands our life sciences capabilities and offerings through the addition of its aseptic and non-aseptic Lyle portfolio.
S. P expands our life sciences capabilities and offerings through the addition of it's aced uptick in non aesthetic Lyle portfolio.
Speaker 3: Notably the combination of ATS and SP will allow us to better support the needs of our customers throughout the life cycle of pharmaceutical development and production After the point
Notably the combination of H S. In SP will allow us to better support the needs of our customers throughout the lifecycle of pharmaceutical development and production.
After deploying capital to these latest acquisitions, our balance sheet remains strong.
Speaker 3: Our balance sheet remains strong. We will continue to cultivate and evaluate acquisition opportunities consistent with our proven strategy.
We will continue to cultivate and evaluate acquisition opportunities consistent with our proven strategy.
Speaker 3: Of course, timing of acquisitions will be variable, and our approach to deploying our balance sheet will be disciplined and strategic, as will the integration.
Of course timing of acquisitions will be variable and our approach to deploying our balance sheet with disciplined and strategic.
As well the integrations that follow.
Speaker 3: Of note, we continue to make progress in the integration of previous acquisitions, including CFTs.
Of note, we continue to make progress in the integration of previous acquisitions.
Putting CFT, which was acquired last March.
Speaker 3: BioDOT acquired in June , and NCC, which joined in September .
<unk> acquired in June and then see which joined in September .
Speaker 3: At BioDOT, administrative tasks associated with the integration are largely complete, and our efforts are focused on continuing to deploy the ABM playbook.
At Biodot administrative tasks associated with the integration are largely complete and our efforts are focused on continuing to deploy the ABM playbook.
Speaker 3: At CFT, we continue to roll out the ATS business model, focus on opportunities to further synergies in our supply chains and cost structures, and completed several ABM activities.
At CFT, we continue to rollout the Ats business model focused on opportunities to further synergies in our supply chains and cost structures and completed several ABM activities.
Speaker 3: These included standard work events, a raw material problem solving event, and a communication kaizen, which drove increased awareness and engagement across the business.
These included standard work events.
Raw material problem solving event and.
Communication, Kaizen, which drove increased awareness and engagement across the business.
Speaker 3: At ATS, our innovation activities are ongoing as they form part of our EXPAND strategy.
At Ats, our innovation activities are ongoing as they form part of our expand strategy.
Speaker 3: In the past quarter, we have completed a number of projects and initiatives that have resulted in the launch of a new high speed debug camera.
In the past quarter, we have completed a number of projects and initiatives that have resulted in the launch of a new high speed debug camera.
Speaker 3: GMP testing and certification of our SuperTrac Pharma product.
<unk> testing and certification of our Super track pharma product.
Speaker 3: and the development of a new energy management software program that will enable customers to track and reduce their carbon footprint. We're pleased that our acquired company.
And the development of a new energy management software program.
It will enable customers to track and reduce their carbon footprint.
We're pleased that our acquired company are also innovators.
Speaker 3: At the recent Chicago Process Expo, our NCC business won the Innovation Award for the sanitary design of the NCC side drive conveyance system.
At the recent Chicago processes Expo, our NCC business won the innovation award for the sanitary design of the MCC side drive conveyance system.
Speaker 3: We have filed a patent for this system, which is multiple applications, including raw and packaged food products.
We have filed a patent for this system, which has multiple applications, including raw in packaged food products.
Speaker 3: Congratulations to the whole NCC team. Well done.
Congratulations to the whole N C C team well done.
In summary.
Speaker 3: The results of the quarter and year to date demonstrate the strength and resiliency of our business and portfolio offerings.
The results of the quarter and year to date demonstrate the strength and resiliency of our business and portfolio offerings.
Speaker 3: Record order booking activity reflects the alignment we have with our customers in providing best-in-class solutions.
Record order booking activity reflects the alignment we have with our customers and providing best in class solutions.
Speaker 3: Going forward, we are unwavering in our commitment to protecting and engaging our employees.
Going forward, we are unwavering in our commitment to protecting and engaging our employees, serving our customers well and creating value for our shareholders.
Speaker 3: serving our customers well, and creating value for our shareholders.
Speaker 3: We will execute on these priorities through the application of the AVM playbook with the goal of driving continuous improvement in our performance.
We will execute on these priorities through the application of the ABM playbook with the goal of driving continuous improvement in our performance.
Speaker 3: Our record order backlog provides good revenue visibility.
Our record order backlog provides good revenue visibility.
Speaker 3: while the healthy balance sheet enables pursuit of organic growth and strategic M&A opportunities.
While our healthy balance sheet enables pursuit of organic growth and strategic M&A opportunities.
Speaker 3: Our objective is to build a great ATS business.
Our objective is to build a great ETF business and we're making.
Speaker 3: And we're making progress every day towards our collective goal.
Progress every day towards our collective goal.
Speaker 3: Now, I will turn the call over to Ryan. Ryan, over to you. Thank you, Andrew, and good morning.
Now I will turn the call over to Ryan Ryan over to you.
Thank you, Andrew and good morning, ladies and gentlemen.
Speaker 4: This morning I will provide an overview of our Q3 operating results that featured growth in revenues, both year-over-year and sequentially, adjusted EBIT margin expansion, and record order bookings and back-ups.
This morning, I will provide an overview of our Q3 operating results and future growth in revenues, both year over year and sequentially adjusted EBIT margin expansion and record order bookings and backlog.
Speaker 4: I will then review our balance sheet, which we have deployed strategically to expand our customer capabilities and earnings potential.
I will then review our balance sheet, which we've deployed strategically to expand our customer capabilities and earnings potential.
Speaker 4: Bookings were $671 million, up 54% compared to Q3 last year.
Starting with the operating results.
At Kings were $671 million up 54% compared to Q3 last year.
Speaker 4: Organic growth in bookings was 18% partially offset by a 5% headwind from foreign exchange translation
Organic growth in bookings was 18%, partially offset by a 5% headwind from foreign exchange translation.
Speaker 4: Organic growth came from transportation as a result of new and follow on work in
Organic growth came from transportation as a result of new and follow on work in EV.
Speaker 4: energy markets due to follow-on work, and consumer products due to a large customer program won during the quarter.
Energy markets due to follow on work and consumer products due to a large customer program won during the quarter.
Speaker 4: Acquisitions contributed 41% growth in order bookings, with the majority coming in food and beverage due to several new programs booked by our CFT business.
Acquisitions contributed 41% growth in order bookings with the majority coming in food and beverage due to several new programs sportswear CFT businesses.
Speaker 4: On a trailing 12 month basis, our book to bill ratio was 1.15 to 1, positioning us well for continued organic revenue growth.
On a trailing 12 month basis, our book to Bill ratio was 1.15 to one positioning us well for continued organic revenue growth.
Speaker 4: Moving to revenues, our Q3 top line increased 48% over Q3 last year.
Moving to revenues, our Q3 top line increased 48% over Q3 last year organic growth was 22% due to higher order backlog entering the quarter as well as year over year growth in service and parts revenues.
Speaker 4: Organic growth was 22% due to higher order backlog entering the quarter as well as year-over-year growth in service and parts revenue.
Speaker 4: Foreign exchange was a 5% headwind compared to Q3 last year.
Foreign exchange was a 5% headwind compared to Q3 last year.
Speaker 4: Acquired companies added 31% to revenue growth, with CFT and SP the primary contributors.
Acquired companies added 31% to revenue growth with CFT and S. P. The primary contributors.
Speaker 4: Due to seasonality and as expected, CFT revenues were lower in comparison to Q2. Going forward, CFT is well positioned with a healthy order backlog following a very strong order booking result in Q3.
Due to seasonality and as expected.
F T revenues were lower in comparison to Q2.
Going forward CFT is well positioned with a healthy order backlog following a very strong order bookings result in Q3.
Speaker 4: Our Q3 ending backlog of $1.5 billion was 50% higher than Q3 last year. Looking forward, our revenue conversion for Q4 is estimated to be in the 35-40% range of order backlog. As a reminder, this estimate is based on revenue expectations for both the execution of projects from backlog and work that will be booked and billed within the quarter.
Our Q3, ending backlog of $1 $5 billion was 50% higher than Q3 last year looking.
Looking forward our revenue conversion for Q4 is estimated to be in the 35% to 40% range of order backlog.
As a reminder, this estimate is based on revenue expectations for both the execution of projects from backlog.
And work that will be booked and billed within the quarter.
Speaker 4: Moving to margins, Q3 gross margin included 5.1 million of costs related to the fair value adjustment of inventories acquired through acquisition activities.
Yeah.
Moving to margins Q3 gross margin included $5 1 million of costs related to the fair value adjustment of inventories acquired through acquisition activity.
Speaker 4: Excluding this adjustment, Q3's adjusted gross margin was 29.8%, 200 basis points higher than the comparable period a year ago.
Excluding this adjustment Q3 s adjusted gross margin was 29.8% 200 basis points higher than the comparable period a year ago.
Speaker 4: Higher gross margin reflected operating efficiencies from strong project execution, improvements in the cost structure of our core business through previous reorganizations, increased service revenues, and other continuous improvement efforts achieved by deploying our AVF.
Higher gross margin reflected operating efficiencies from the strong project execution improvements and the cost structure of our core business through previous reorganizations.
<unk> service revenues and other continuous improvement efforts achieved by deploying our ABM.
Speaker 4: Disruptions in supply chain have led to increased lead times, and in some cases, increases in cost in our supply.
Disruptions in supply chain have led to increased lead times and in some cases increases in cost in our supply base.
Speaker 4: To date, this has not had a material impact on our profitability. Our teams have implemented countermeasures, including advancing order timing and securing alternative sources of supply to mitigate inflationary pressures and lengthening lead
To date this has not had a material impact on our profitability.
Our teams are implementing countermeasures.
<unk> advancing order timing and securing alternative sources of supply to mitigate inflationary pressures and lengthening lead times.
Speaker 4: Even with these countermeasures, supply chain pressures remain dynamic and will continue to present a challenge to our mitigation efforts going forward.
Even with these countermeasures supply chain pressures remain dynamic and we will continue to present, a challenge to our mitigation efforts going forward.
Speaker 4: Moving to SG&A, expenses were $43.6 million higher than Q3 last year. This year's costs included $16.7 million of acquisition-related amortization and $6.3 million of acquisition-related transaction.
Moving to SG&A expenses were $43 6 million higher than Q3 last year.
This year's costs included $16 7 million of acquisition related amortization and $6 $3 million of acquisition related transaction costs. Excluding these items in both periods Q3's, SG&A was $79 $9 million $25 9 million higher than last year, reflecting incremental SG&A.
Speaker 4: Excluding these items in both periods, Q3's SG&A was $79.9 million, $25.9 million higher than last year, reflecting incremental SG&A costs from acquired companies, primarily CFT, BioDOT, and SLS cloudtacklebrokenStone.com
Cost from acquired companies, primarily CFT Biodot and S. P.
Speaker 4: Third quarter stock compensation expense was $12.7 million, up from $4.9 million last
Third quarter stock compensation expense was $12 $7 million up from $4 $9 million last year.
Speaker 4: Q3 adjusted earnings from operations were $70.4 million or 12.9% compared to $43.8 million or 11.8% last year.
Q3, adjusted earnings from operations were $70 4 million or 12, 9% compared to $43 8 million or 11, 8% last year. The increase in margin reflected efficiency gains made in our cost structure through effectively implemented reorganizations improved program execution.
Speaker 4: The increase in margin reflected efficiency gains made in our cost structure through effectively implemented reorganizations, improved program execution, and increased after-sales service revenues compared to a year ago.
And increased after sales service revenues compared to a year ago.
Speaker 4: Excluding acquisitions, our core business operated with a 14.3% adjusted earnings from operations margin, up 250 basis points over Q3 last year.
Excluding acquisitions, our core business operated with a 14, 3% adjusted earnings from operations margin.
250 basis points over Q3 last year.
Speaker 4: The adjusted earnings margins from our acquired businesses were 7.4%.
Adjusted earnings margins from our acquired businesses were seven 4%.
Speaker 4: As expected, we saw a sequential reduction in earnings at BioDOT as business volumes normalized following a period of higher demand for COVID-related products.
As expected we saw a sequential reduction in earnings at Biodot as business volumes normalized following a period of higher demand for COVID-19 related products.
Speaker 4: As expected, CFT operated at a low single-digit even margin in the third quarter. Actions to improve the cost structure of the business and drive savings through supply chain synergies are underway and on track.
As expected CFT operated at a low single digit EBIT margin in the third quarter.
Actions to improve the cost structure of the business and drive savings through supply chain synergies are underway and on track.
Speaker 4: In the quarter, supply chain savings were partially offset by increased costs of materials such as stainless steel.
In the quarter supply chain savings were partially offset by increased cost of materials such as stainless steel.
Speaker 4: We are confident that the ongoing deployment of the ABM at CFT, including core tools such as daily visual management, problem solving, and Kaizen events, will drive improvements in the business.
We are confident that the ongoing deployment of the a b M at CFT, including core tools, such as daily visual management problem solving and kaizen events will drive improvements in the business.
Speaker 4: As previously announced, we also took action to reorganize certain CFT subsidiaries, including closing two facilities and consolidating product lines.
As previously announced we also took action to reorganize certain CFT subsidiaries, including closing two facilities and consolidating product lines.
Speaker 4: These actions will drive cost efficiencies in line with our plan and bring focus to areas with a stronger value proposition.
Actions will drive cost efficiencies in line with our plan.
Bring focus to areas with a stronger value proposition.
Speaker 4: Restructuring costs of $4.2 million were incurred in the third quarter.
Structuring costs of $4 $2 million were incurred in the third quarter.
Speaker 4: Integration of SP and DF are in the early stages. Our teams are working to achieve identified synergies between our pharma businesses, including ATS Life Sciences, Coma Chair, and now with the additions of SP and DF.
Yeah.
Integration of S. P. D F. R. In the early stages. Our teams are working to achieve identified synergies between our pharma businesses, including Ats life Sciences coma Chair and now with the additions of S. P. M D F.
Speaker 4: Q3 adjusted EPS was $0.52 per share compared to $0.30 per share last year. The increase is primarily attributable to growth in revenues and improved operating margins.
Q3, adjusted EPS was <unk> 52 per share compared to 30 cents per share last year. The increase is primarily attributable to growth in revenues and improved operating margins.
Speaker 4: Moving to the balance sheet, in Q3 we generated cash from operations of $82.1 million up from $78.9 million last year on growth in revenues and operating margins.
Moving to the balance sheet in Q3, we generated cash from operations of $82 $1 million up from $78 9 million last year on growth in revenues and operating margins.
Speaker 4: Our non-cash working capital as a percentage of revenue remained low at 6.3% in Q3.
Noncash working capital as a percentage of revenue remained low at six 3% in Q3 up slightly from 6% in Q2 and well within our target of maintaining working capital as a percentage of revenues below 15%.
Speaker 4: up slightly from 6% in Q2, and well within our target of maintaining working capital as a percentage of revenues below 15%.
Speaker 4: We invested $11.3 million in CapEx and intangible assets in Q3, compared to $7 million in Q3 last year.
We invested $11 3 million in Capex and intangible assets in Q3 compared to $7 million in Q3 last year.
Speaker 4: Higher investments primarily related to the expansion and improvement of facilities and investments in IT.
Higher investments primarily related to the expansion and improvement in facilities and investments in I T.
Speaker 4: On leverage, our December net debt to adjusted EBITDA ratio was 3.1 to 1 as we drew on our revolving credit facility to fund the acquisition of SP in Q3.
On leverage our December net debt to adjusted EBITDA ratio was $3 one to one as we drew on our revolving credit facility to fund the acquisition of S. P and Q3.
Speaker 4: As we have said previously, we are willing to temporarily increase our leverage for the right operations.
As we've said previously we are willing to temporarily increase our leverage for the right opportunities.
Speaker 4: On a pro forma basis, including the trailing 12-month EBITDA contributions of acquired businesses, our net debt to adjusted EBITDA ratio was approximately 2.6 to 1.
On a pro forma basis, including the trailing 12 months EBITDA contributions of acquired businesses, our net debt to adjusted EBITDA ratio was approximately 2.6 to one.
Speaker 4: We ended the quarter with $200 million of cash and availability on our credit facilities of approximately $171.
We ended the quarter with $200 million of cash and availability on our credit facilities of approximately $171 million.
Speaker 4: Going forward, we're focused on maintaining our strong balance sheet and flexibility in our financing to continue supporting our growth strategies.
Going forward.
We're focused on maintaining our strong balance sheet and flexibility in our financing to continue supporting our growth strategies.
Speaker 4: Strong growth continued in Q3, including record quarterly revenues, bookings and backlog, and we pursued margin expansion with good results.
In summary.
Strong growth continued in Q3, including record quarterly revenues bookings and backlog and we pursued margin expansion with good results.
Speaker 4: These accomplishments reflected organic growth, on-plan contributions from our newly acquired businesses, and the ongoing application of our ABM playbook.
These accomplishments reflected organic growth unplanned contributions from our newly acquired businesses and the ongoing application of our ABM playbook.
Speaker 4: Our global teams have demonstrated strong performance in challenging business conditions.
Our global teams have demonstrated strong performance in challenging business conditions, as we continued to deliver value to our customers and shareholders.
Speaker 4: continue to deliver value to our customers and shareholders.
Speaker 4: Now we will open the call to questions from our analysts. Operator, could you please provide instructions? Thank you.
Now we will open the call to questions from our analysts operator could you. Please provide instructions. Thank you.
Speaker 1: Thank you. Ladies and gentlemen, we will now conduct a question and answer session. To allow as many voices to be heard as possible, please submit yourself to two questions per turn. If you have a question, please press the star followed by the one on your touchstone phone. Your questions will be both in the order there is-
Thank you, ladies and gentlemen, we will now conduct a question and answer session to allow as 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 the one on you touched on film.
Speaker 1: Please ensure you leave the handset if you are using a speaker phone before pressing any keys. One moment please for your first question. Your first question comes from Charlene Rapborn.
Questions will be both India and the order. They are received please ensure you would leave the handset if you're using a speaker phone before pressing any keys.
One moment. Please for your first question. Your first question comes from Cherilyn Radbourne TD Securities. Please go ahead.
Thanks, very much and good morning.
Speaker 5: Andrew, as we think about your M&A agenda, after a very busy 12 months, can you give us a sense of how much white space is left in life sciences for you and where your areas of focus will be going forward?
Andrew as we think about your M&A agenda. After a very busy 12 months can you give us a sense of how much white space is left in life Sciences for you and where are your areas of focus will be going forward.
Yeah. Good good good morning Cherilyn.
Speaker 3: So we'll walk through first, really pleased with the progress you've made.
So we'll walk through first really pleased with the progress you've made here.
Speaker 3: and as we continue to build out our focus on key markets, key areas, we've also increased what we view as the potential. And so our funnel was healthy and remains healthy in this space. And there are multiple areas we like, as you're well aware. One is in life sciences.
And as we've continued to build out.
Our focus on key markets key areas. We've also increased what we view as the potential and so our funnel was healthy and remains healthy in this space and there are multiple areas, we like as you're well aware one is in life Sciences.
Speaker 3: And even with the addition of SP, not only do we view biopharma as having additional opportunity, when we look at their...
And even with the addition of our best people not only do we view biopharma as having additional opportunity when we look at there.
Speaker 3: life sciences equipment space, it opens up new niche markets that we view have potential for ATS in the future.
Life Sciences equipment space. It opens up new niche markets that we view have potential for Etfs in the future.
Speaker 3: A couple items to highlight, our balance sheet remains strong. But secondly, the cultivation activity that we do today oftentimes will pay off two years from now.
Couple of items to highlight our balance sheet remains strong, but secondly, the cultivation activity that we do today often times will pay off two years from now.
Speaker 3: So when we look at our strategic layout and our strategic structure.
So when we look at our strategic lay out in our strategic structure.
Speaker 3: We're constantly focused on how to ensure that we build those relationships. We put us in a position that when an available target becomes available, ATS can win. And as you're well aware, we look at niche applications that are leaders in their spaces, leaders in technology that we can bring together and really provide solutions for our customers.
We're constantly focused on how do we ensure that we build those relationships, we put us in a position that when an available target becomes available H S can win and as you're well aware, we look at niche applications that are leaders in their spaces leaders in technology that we can bring together and really.
Provide solutions for our customers.
Speaker 5: Great. That's great color. And then for Ryan, your backlog conversion has been above guidance for the last several quarters, and I was hoping you could help us understand that. Is that because there are now certain short cycle revenues that aren't factored into the backlog conversion, or is the company just continuing to exceed its own expectations for backlog conversion?
Great that's great color and then for Ryan your backlog conversion has been above guidance for the last several quarters and I was hoping you could help us understand that is that because they're now certain short cycle revenues that aren't factored into the backlog conversion or is the company.
Continuing to exceed its own expectations for backlog conversion.
Speaker 4: Yeah, good morning, Sherilyn. So, I'll start. This is something that we do look at every quarter and we base the estimate on what is in our backlog or expectations and
Yeah, good morning, Cherilyn so.
So I'll start this is something that we do look at every quarter and we base the estimate.
On what is in our backlog are expectations and.
Speaker 4: Specifically to your question, we have added faster turning businesses. So SP, as an example, is a quicker turning business. Their projects are generally shorter cycle than the core ATS business. They also have the labware and glassware business, which is.
To your question we have added.
Faster turning businesses. So S. P. It is it is an example is a quicker turning business are there projects are generally shorter cycle than than the core Etfs business. They also have the LIBOR and glassware business, which is.
Speaker 4: faster turning business. In this quarter we were a bit higher than that 35 to 40 percent range.
A faster turning business in this quarter, we were a bit higher than.
Speaker 4: that just over half of that, just over 1% was related to SP, which was not part of our business when we provided that range last quarter. So in the short term, we are dealing with supply chain headwinds.
That 35% to 40% range.
Just over half of that would have been just over 1% was related to S. P, which was not part of our business. When we provided that range last quarter. So in the short term, we are dealing with supply chain headwinds.
Speaker 4: there's been an uptick in employee absenteeism related to COVID. And so that's led us to keep that rate in that 35 to 40% range. Over time, again, to your question, given the addition of more products, technologies, growth in services, we may see this rate increase, but in today's environment, our outlook is in that 35 to 40% range.
There there's been an uptick in employee absenteeism related to Covid and so that's led us to.
Keep that rate in that 35% to 40% range over time and again to the to your question. Given the addition of more products technologies and services. We may see this rate increase but in today's environment are already booked is in that 35% to 40% range.
Speaker 5: Okay, that makes a lot of sense. Thank you. That's all for me.
Okay that makes a lot of sense. Thank you that's all for me.
Speaker 1: Thank you. Your next question comes from Mark Neville with Scotiabank. Please go ahead.
Thank you. Your next question comes from Mark Neville with Scotiabank. Please go ahead.
Speaker 6: Hey, good morning, guys. Excuse me. Yeah, another great quarter. I guess just on these supply chain pressures, again, you're calling us out, longer lead times, labor, etc. I guess I'm just curious, sort of incrementally, have things gotten materially worse or not? Because, again, we're not really seeing it in the numbers, I'm just trying to sort of gauge what it means for...
Hey, good morning, guys.
Use my.
Another great quarter.
I guess just on the supply chain presses, and you're calling yourself longer lead times labor et cetera.
I guess I'm, just curious sort of incrementally have things gotten materially worse.
Or or or not.
Because again, we're not really senior and the numbers I'm, just trying to sort of gauge what it means for the next quarter.
Speaker 3: Yeah, good, good, good morning, Mark. I'll start then Ryan feel free to jump in if there's areas you want to add. So to start.
Yeah. Good morning, Mark I'll start then Ryan feel free to jump in if there's areas you want to add.
So to start.
Speaker 3: We have, and I'll just walk through this quickly. We've really launched our view of the ADM around this, and it's something we call daily visual management.
We have and and you know I'll just walk through this quickly we really launched our view of the ABM around this and it's something we called daily visual management.
Speaker 3: Effectively, what you're doing is you're looking at every business, every site, every area on a daily basis, and you know red or green, do you have an issue or not? And if you have an issue, how do you then resolve that issue and drive? And so
Effectively what Youre doing is youre looking at every business every site every area on a daily basis, and you know red or Green do you have an issue or not and if you have an issue. How do you then resolve that issue and drive and so we know from from not only from a regional from a site specific area at my.
Speaker 3: We know from not only from a regional, from a site specific area, at my level, across the enterprise, I can put weekly, I can put daily if needed.
High level across the enterprise I can pull it weekly I can pull it you know daily if needed what's going on in our supply chain and what do we really need to drive to SaaS and so quite candidly. It has gotten worse and quite candidly you know it is a it is a challenge today one that we're planning for for for the remainder of the calendar year.
Speaker 3: what's going on in our supply chain and what do we really need to drive to assess? And so quite candidly, it has gotten worse. And quite candidly, you know, it is a it is a challenge today, one that we're planning for for for the remainder of the calendar year.
Speaker 3: different opinions on when that will come back to normal, but our view has been tactically, how do we drive impact here? How do we minimize the impact? Additionally, how do we set ourselves up for success in the long term? And so...
Now there's different opinions on when that will call it come back to normal, but our view is bad tactically how do we drive impact here, how do we minimize the impact. Additionally, how do we set ourselves up for success in the long term and so.
Speaker 3: Quite candidly, it has increased. Our team continues to perform. It is an area that we are very focused on, and we're identifying short-term and mid-term countermeasures on a daily basis.
Quite candidly it has increased our team continues to perform it is an area that we are very focused on and we're identifying short term and midterm countermeasures on a daily basis to ensure that we stay ahead of any challenges, whether it's supply chain or general inflation.
Speaker 3: to ensure that we stay ahead of any challenges, whether it's supply chain or general inflation.
Speaker 6: know that that's helpful. And I guess to follow up on Carolyn's question around backlog conversion.
Okay.
Helpful.
And I guess to follow up sort of on Caroline's question just around backlog conversion.
Speaker 6: This your your your guides with getting capture these supply chain issues. And again, sort of anything that you might book and burn in the court is again, it does feel like structurally the business has become sort of a higher. For conversion businesses with recent.
This your guidance with your big caps for the supply chain issues.
And again sort of anything that you might book and burn in the quarter because again it does feel like structurally the business is becoming sort of ball.
Higher.
For conversion businesses with recent M&A.
Yeah. So so.
Speaker 4: Again, that's a fair comment. And I won't rehash the whole discussion, but as I said, as we've had more products, technology services, and SP is a shorter, shorter cycle business and it has more products.
Again, it's that's a fair comment.
And.
I won't rehash, the whole discussion but.
As I said.
We add more products technology services and that's P. It is a shorter shorter cycle business and it has more products I do expect that the rate will continue to increase but.
Speaker 4: I do expect that the rate will continue to increase, but.
Speaker 4: Yeah, in today's environment, it's, you know, as Andrew just said, it's very dynamic. There's there's headwinds in supply chain. There's headwinds still related to to COVID and the resurgence there. So, you know, we're being prudent in this. And, you know, I think I think that's appropriate.
In today's environment. It's you know as Andrew just said, it's very dynamic, there's there's headwinds and supply chain.
There's headwinds still related to COVID-19 and the resurgence there so.
We're being prudent in this and you know I think I think that's appropriate.
Speaker 6: Okay. If you're going to ask a second question, just on M&A, I guess a two-part question. I think sequentially the contribution was down quarter over quarter, and I'm guessing that's wowed us.
Okay.
I forgot to ask the second question is on M&A.
Keep her question Oh I see.
<unk> contribution was down quarter over quarter I'm guessing that's followed up and then second question on them at all.
Speaker 6: Second question, I'm going to, if you've got that base shelf perspective so good, maybe just sort of comment on sort of your thoughts around having that available.
And you've got a base shelf prospectus, so called maybe just some comments on sort of your thoughts around having that available.
Speaker 4: Yeah, so on BioDot, yes, correct. It is, it was down in revenues. And that was expected, as I said, my prepared comments.
Yeah. So.
On Biodot, yes, correct. It is it was down in revenues and that that was expected as I said in my prepared comments that business Heather.
Speaker 4: That business had quite a strong COVID tailwind related to a couple of products that they offer. And we did expect that to normalize. It did happen in the quarter. And the business is really a team line with expectations, but the reality is it's still ahead of our expectations in terms of its performance. So we're very pleased there.
Quite a strong COVID-19 tailwind relate.
Related to two a couple of products that they offer.
And we did expect that to normalize it did happen in the quarter and in the businesses is really.
I'd say in line with expectations, but the reality is it's still ahead of our expectations in terms of its performance. So so we're very pleased there.
Speaker 4: Your second question I think was on the Bay Shell filing. So...
On your second.
Question I think was on the base shelf filing so.
Speaker 4: We really look at this as a tool and what is help us be successful in M&A over the past couple years is having flexibility in the ability to get a deal done in particular without financing conditions.
We really look at this as a tool in and what what has helped us be successful in M&A over the past couple of years is is having flexibility and the ability to get a deal done and in particular with HUD financing conditions and from a seller's perspective that takes a lot of risk out.
Speaker 4: And from a seller's perspective, that takes a lot of risk out of the process.
In the process.
Speaker 4: You know, as we're looking forward, we've talked about our growth strategy, M&A is a big part of that. We want to have, continue to have financial flexibility. And having this base shelf in place is an important part of that flexibility going forward.
And so.
Yeah.
As we're looking forward, we've talked about our growth strategy M&A is a big part of that we want to have.
Continue to have financial flexibility in having this pace shelf in places is an important part of that that that flexibility going forward.
Got it.
Yes.
Speaker 7: Thank you. Your next question comes from David Ocampo with Quarmer Security. Please go ahead. Good morning everyone.
Thank you. Your next question comes from David Ocampo with Cormack Securities. Please go ahead.
Good morning, everyone.
Ryan last quarter you provided it.
Speaker 6: I guess organic operating margins for the base business.
Organic operating margins for the base business.
Speaker 6: Since there's a lot of moving parts in the quarter as it relates to it.
Since there is a lot of moving parts in the quarter as it relates to.
Speaker 6: acquisitions as well as supply chain issues. I was just wondering where your base operating margins are.
Acquisitions as well as supply chain issues I was just wondering.
Where are your your base operating margins on right now.
Speaker 4: Yeah, so I did mention this in my prepared remarks, but we are in the mid 14% range, so 14.3%. We were actually down slightly, we were 14 for in the prior sequential quarter. And the headwind there was related to stock comp, it was about a 30 to 40 basis point, impact on our core margins, our gross margin, and in...
Yeah. So I I did mentioned this in my prepared remarks, but where we are in the mid 14% range. So a 14, 3%.
We were actually down slightly we were 14 four in the prior sequential quarter.
And then the the headwind there was was related to stock comp. It was about a 30 to 40 basis point.
Impact on our core margins.
Our gross margin and a in an.
Speaker 4: in operating margins were both at excluding.com. And then the acquisitions were in the high single didgerange 7.5%.
And operating margins were both had excluding stock comp.
And then the acquisitions were in the high single digit range seven 5%.
Speaker 4: And I talked to the different components there, but just to reiterate, so CFT has historically been at a low single digit e-bid margin, and they continue to be in line there. So we've made progress some of the day one costs that we expected have come out.
And I talk through the different components, there, but just to reiterate so CFT has.
Historically been at a low single digit EBIT margin and they continue to be in line there. So.
We've made progress some of the some of the day one cost that we expected have come out.
Speaker 4: We've had some early wins in supply chain. Now again, there's other areas in supply chain, for example, commodities, and I mentioned stainless steel. They're a large consumer of that. And that's an area where we do have more of a challenge to offset those cost increases. So they're performing to plan. The restructuring we announce will further help with their cost in operating efficiency.
We've had some early wins in supply chain now again, there's there's other areas in supply chain for example, commodities and I mentioned stainless.
Stainless steel are there a large consumer of that and that's an area, where we do have more of a challenge to offset those cost increases. So so they're they're performing to plan. The restructuring we announced will further help with their cost and operating efficiencies the other big piece.
Speaker 4: The other big piece of acquisition margins with biodot and I talked about
So or acquisition margins with Biodot and I talked about.
Speaker 4: That's been a very strong performer for us, really driven by some of those COVID tailwinds. We did see that as I said normalize in the quarter. So their margins are still accretive to our overall margins, but they did come down relative to.
That's been a very strong performer for us really driven by some of those COVID-19 tailwind and we did see that as I said normalized in the quarter and so their margins are still accretive to tour overall margins, but they did come down relative to Q2.
Speaker 6: And you guys did note that product sales is becoming a bigger piece of your business here and in the release. But I was just curious, what's the split now between internal equipment versus third party equipment that you guys are using for?
Yeah.
And you guys did note that.
Product sales is becoming a bigger piece of your business here and in the release, but I was just curious what what's the split now between internal equipment versus third party equipment that you guys are using for I guess the entirety of yourselves.
Speaker 4: So it it it hasn't really changed it's still in that it's still in that 40%
So it it it hasn't really changed it's still not it's still in that 40% range.
Speaker 4: which is typically where it's been. It range is a little bit 40 to 45, but it's still not 40% range.
Which is typically where it's been at it ranges a little bit 40 to 45, but it's it's still in that 40% range.
That's 40% internal rate.
Speaker 4: and you guys have a target sorry for where that david sorry i i misunderstood your question that's forty percent is third-party uh... equipment
Yes, correct.
And do you guys have a target where that.
David Sorry, I misunderstood. Your question, that's 40% is third party equipment.
Equipment.
Okay alright, thank you.
Speaker 1: Thank you. Ladies and gentlemen, as a reminder, should you have any questions, please press star one.
Yeah.
Thank you, ladies and gentlemen, as a reminder, should you have any questions. Please press star one.
Speaker 1: Your next question comes from Justin K. Wood with T-Full Gmb, please go ahead.
Your next question comes from Justin <unk> with Stifel G. M. B. Please go ahead.
Speaker 8: Hi, good morning. Thanks for taking my call and nice to see the continued strength in the business. On the organic growth, it was a strong again at 21.5%. I'm wondering if we just take a step back and if you could describe some of the factors driving that organic growth across the different segments and how you see organic growth playing out in the near term and medium term.
Hi, Good morning, Thanks for taking my call and nice to see the continued strength in the business on the organic growth side. It was a strong again at 21.5% I'm wondering if we just take a step back and if you could describe some of the factors driving that organic growth.
Across the different segments, and how you see organic growth playing out in the near term and medium term.
You know sure good morning, Justin.
So I'll characterize this at the top level, but don't go into specifics. So if we look at the markets. We generally state the markets are favorable and good and that'll be look at our funnel as I mentioned, our funnel remains solid.
I then I then you know what would be remiss to not out in the operating environment, which we would say is challenging and we would say not only you know from a from a supply chain, but also when you look at the pandemic impacts. So so it is a challenging environment, but our teams continue to perform and continue to drive.
But if I step into each segment and I did talk a bit about this in the prepared remarks, but to add a little additional color.
Life Sciences.
When we look at this this area, it's largely comply comprised of non COVID-19 opportunities now and and you know things do get a little bit blurry and that you know vaccine rollout and as we get more biopharma more more pharma it really does impact whether it's out of new drugs and new discoveries, but but that market you know call. It.
Year to date growth is roughly 15% this quarter was a little more impacted by some delays in elective surgeries and so we did see some impact this quarter, but as we look at our year to date number we still see this as a solid market and one that provides opportunities for the future the funnel remains healthy here.
Look we're seeing activity continue to pick up and we booked a large award within the quarter and we continue to work with a with a new customer in Europe .
And you know as you look at the stricter emissions and you look at the the focus on driving this and in that sector in that space. We do view that we are positioned well to help our customers through that and we do view. This as an area that we can continue to support and drive growth within our solution set within our tech.
Knowledge you within within our Cotton Valley, you within that within the market.
Consumer we saw good activity and warehouse automation and we are seeing some some pickup in the cosmetic space as a matter of fact, I recently visited our customer in this area and it was fascinating because this customer specifically walk through their model their business with me, where they said that they are impacted by it.
By a reduced sunscreen because of the limited travel, but yet their home care products have skyrocketed skyrocketing to them was a big number, but but I don't reference what that number is and so we haven't seen that market start to come back and we have seen you know the funnel really aligned with that and then you know to round this out.
Our food business.
You know when we think about primary processing you know I think.
Think tomato to initial processing, so you know from buying to puree.
It was a solid quarter and you know we are seeing a bit of an uptick there and and and and a favorable setup for the the harvest season, that's coming up.
Energy Ah I mentioned this in the announcement and the update you know this this continues to be a strong market for us continues to be an area that we view, we can offer high value for our customer base, we're continuing to look at opportunities to expand a niche application to ensure that it's high value in the markets. We serve and lastly boy you know.
Our services team continues to execute and and if you look at you know versus prior quarter and year over year the growth that they've seen and this.
This is an interesting one and one to highlight where even in my tenure here. This has gone from a nice to have.
Two a strategic imperative for our customers where when they when they came to us at the beginning of as well do you have services and what can you offer and going through now it's because of the pandemic because of the supply chain disruptions because of you know machine dependency indoor turnover theyre looking at our services organization as a key enabler.
So when companies and customers in say the U K went down and went on Lockdown Ats can still execute H S can still provide that value because we launched digital tools, because we had the regional service now working so I truly think this has been an enabler for us to keep driving share and and driving that value for our customers.
So overall I would say to get back to my initial point generally favorable in the markets positive and our funnel remains healthy and aligned around it.
But the operating environment is challenging.
Thank you very helpful context, and good to hear the new EV customer win in Europe , just on the services growth that you mentioned what was that in the quarter and just to provide some contacts if we look at aftermarket services as a percentage of sales what was that prior to the pandemic or a couple of years.
Ago, what is it today and what would be the long term target for that area.
So in terms of our after sales services as a percentage of revenues.
It's it's mid to high teens today. So it's been in the end, it's while it's growing the rest of our business has grown too so.
It's it's hard to keep up with which it has you know a few years ago and I don't have the data in front of me, but if we went back four or five years. It would have been in the low teens, maybe 10, 12%. So it's it's it's growth is paced the equipment side of the business, which.
Which we view as very positive and in March for the reasons that Andrew just outlined.
One other item that I would just want to highlight as well as the growth in our digital solutions around whether it's illuminate or what what ph is doing in their business to really provide not only data collection, but then utilizing the data to then bring back in a solution set that helps customers.
Improve their process and so we've seen that be a real call. It bright spot in growth, but it's still relatively small across the you know the total business, but we do view that as an area of growth for our organization and one that we can help our customers as they navigate this this time.
That's helpful. Thank you for taking my questions.
Thank you. Your next question comes from Maxim <unk> with National Bank. Please go ahead.
Hi, good morning, gentlemen.
Good morning, good morning.
And maybe just the first question for you in terms of you know how do we think about M&A and the timing of that how do you balance.
That dynamic with some obviously they need to properly integrate them.
Especially S P, which was a pretty sizeable transactions. So do you mind, maybe just walking us through your thought process there.
Yeah, and and and and Max or there's no perfect answer here, but I can walk you through as we've developed an integration playbook, it's very standard around how we operate and how we work in our businesses and you know as you are well aware when we look at an acquisition, we have four criteria and its markets its strategic.
Rationale.
One of them is is is the management assessment and and their ability to align around the ABM and so we do assess that going in and then ultimately in the early days of the integration you start to align around where they are in their journey and where do we need to press, where do we need to you know helping that solution set. So we have a very good indication when we acquire a business or were they.
You are in that journey, and where we can help them. So.
What I can tell you is we have built out our capability and our ability within our leadership team to be able to align and continue to build out their portfolio of solutions. We are selective in what we are going to add and we look at it from a value creation perspective, both from a shareholder and a car.
<unk> perspective from what we can offer whether it's technology or solutions and as you're well aware the cultivation activity wall.
I will say it often.
Often times, we'll we'll pay out 234 years from now and so we.
We are not slowing down this activity, we do view that there's a lot of opportunity for us to continue to add here, but we're going to be extremely disciplined and so to answer. Your question head on we have built our capability. Among our team. We certainly are taking in ensuring that we have a key focus on SP to execute to ensure that.
They meet and exceed our expectations and then lastly, we're not slowing down our cultivation and we're going to continue in the areas that we view, we're gonna add value over over the long term for a T S.
Okay that makes a lot of sense. Thank you for that and then just one quick follow up on SP.
The ability to cross sell.
Even with those business do you mind, maybe just providing some datapoints there because my understanding is that I think most of the sales process, they're going through distributors and I'm just curious to see how you think about sort of leveraging the potential of business into the rest of the a T S.
Possible.
So some batch.
And just to confirm Youre asking about the lab work glassware business exactly Yep Yep.
Yeah. So so so we certainly are you know we did a lot of diligence to understand this space and the stickiness with with their you know caught bell our portfolio as well as the other areas.
Within that within that space.
We view this as a as a as a business that was low single digits. It's it's a it's a market that.
Has consistent continued revenue and when we think about the consistency there. It's one one we like from a standpoint of there we don't want to call it consumable, but they're reoccurring revenue and and their approach around the brand being a strong brand in the markets. They serve and so it does go through distribution.
And it's an area that that we certainly see value in continuing to help them execute their plan does it help sell biopharma processing equipment. We think it has any potential adder, but it does not call. It would not draw that that total processing equipment in we would view the alignment with coma chair.
I don't see techno to haul as really being the the thesis and the alignment on the Biopharma Biopharma processing piece and then you know to round. This out they've got journey back in life Sciences equipment and N F. T S and Theres a lot to like around those areas of what we can have from a from an H.
Yes, coma chair SP integration to offer that full process solution, whether its biopharma or pharma processing.
Okay. That's helpful. Thank you so much that's it for me.
Yeah.
Operator.
Great.
Well, we will conclude in and you know if I step back we're pleased with the performance this quarter.
And recognize the hard work and dedication of our teams.
Across Etfs that made this possible.
Thank you for joining us.
Speaking to you on our Q4 call in May stay safe and Goodbye for now.
Yeah.
Yeah.