Q4 2022 ATS Automation Tooling Systems Inc Earnings Call
Following the presentation, we will conduct a question-and-answer session, and instructions will be provided at that time for you on how to queue up.
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I would now like to turn the call over to MR David gallison, Head of Investor Relations, at ATS. Please go ahead, sir.
Thank you, operator. Good morning everyone on on the call today: our Andrew heyder, Chief Chief Executive Officer of ETS, and Ryan mcclouod, Chief Financial Officer.
Please note that our remarks today are accompanied by a slide deck which can be viewed via our webcast and available at ATS automation com.
We caution that the statements made on our webcast and conference call may contain forward-looking information and are 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 hand over the call to Andrew.
Thank you, David.
Good morning, Ladies and gentlemen, and thank you for joining us.
We're pleased to report another quarter of profitable growth for ATS.
Featuring record revenues.
Strong order bookings and order backlog and continued adjusted EBIT margin expansion.
Despite challenges in the global business environment, the year as a whole saw it produced double-digit organic revenue growth, while achieving on-target contributions from newly acquired businesses.
All this reflected good execution of the ABM playbook by dedicated and resilient ATS teams worldwide as part of our expand strategy.
Integration activities, with all our recent acquisitions, continued in Q4 and we completed the acquisition of hsg.
Today.
I will update you on our business and then Ryan will provide his financial report.
Starting with our financial value drivers.
Q4 revenues were a record $603 million.
Up 51% from Q4 last year.
Driven by a combination of acquired businesses.
And continued strength across our core operations.
Organically, revenues grew 11% year-over-year.
For the full year, total revenues were up 53% and.
Including 20% from organic growth.
Q4 order bookings.
Were $638 million.
Up 38% year-over-year.
Bookings were strong across most market verticals in Q4 and featured key wins within life sciences.
Consumer transportation and food.
For the full year bookings were up by 51%.
Driven by acquired businesses.
Our adjusted EBIT margin for the quarter was 14%.
Representing margin expansion of 183 basis points from Q4 last year.
With strong sequential and full year margin expansion as well.
Moving to our outlook.
We finished with a one point four billion order backlog that includde several large enterprise programs that have longer durations.
Our backlog is distributed across diversified regulated industries, for quality and reliability are mandatory.
The size and composition of backlog provides us with a solid base of business as we head into a new fiscal year.
By market.
Conditions remain generally positive in life sciences.
With good activity level in our key sectors of medical devices, pharma and radio pharma.
Life sciences represented more than 50% of our ending backlog.
And we expect it to remain a key vertical for ATS.
In e remain bullish as OEMs accelerate their investment plans.
Received several additional orders for battery sembly systems during the quarter.
Our experience.
And successful track record position us well, as new complexities arrive from evolving battery technologies.
In food and beverage.
We continue to see orders across both processing and packaging.
Key drivers include a strong tomato season.
Demand for primary and secondary processing.
And a need for automation and processing technology due to labor shortages, specifically in North America and Europe .
And consumer.
We're seeing ongoing activity in warehouse automation, as well as increased order intake from cosmetics customers during the quarter, a market which was particularly hit hard by pandemic-related effects.
In energy. There is ongoing interest in nuclear power and grid battery storage to support green energy initiatives. We're focused on funnel development in these areas.
And after-sale services. We have continued to expand our regional networks and we're now providing local support to some of the customers of our recent acquisitions, such as SP, Marco and CFT. This is a good start on our journey to increase value for acquired customers and share wallet for ATS.
We are progressing in our digital journey.
To develop combined technologies and service solutions to meet our customers' challenges on the shop floor.
By way of example, we recently helped the customer drive better value out of illuminate by analyzing their data to identify areas for immediate support which drove a significant OE improvement.
In addition, based on knowledge generated from the data, we are now providing ongoing support to the customer through health checks.
Upgrades and a service level agreement, with future potential to expand other equipment and higher-value services.
Next.
I would like to address some of the macro issues facing the markets.
In Ukraine, ATS has a small operation that serves as an internal supplier with 70 valued in place.
We are maintaining regular contact.
And supporting our team, and we have made a donation to the red cross.
Our donation is being used to fund mobile health teams.
Families displaced by the war and emergency basic needs.
Our thoughts are with those affected by this tragic situation.
Relative to the pandemic.
In many geographies we've seen restrictions that were implemented in the early days of the pandemic lifted or reduced.
But the situation remains fluid.
We are working with our customers and employees to monitor the situation and address the challenges.
Despite the difficulties and Q4 absenteism in some geographies.
Our teams maintain their focus on delivering world-class performance for our customers.
Inflation, supply chain constraints and competition for talent.
Represent ongoing challenges.
The situation remains dynamic for HS and for our customers.
Through the effort of our teams and the deployment of our ABM, to date, we've had a good level of success in mitigating some of these challenges. However, we're not immune. That said, ATS is ideally positioned to assist our global customers with automation solutions that will strengthen their global supply chains.
And reduce both production costs and labor dependence.
To summarize their outlook.
This quarter included strong or bookings.
Order backlog and a solid opportunity funnel.
We remain encouraged by recent activity levels, while at the same time recognizing that this is a complex and volatile business environment with heightened risks to order intake, timing and operational execution.
Our teams remain focused on problem-solving efforts to identify effective countermeasures to mitigate the effects, with special ongoing attention to supply chain assist, Ed as always, by our continuous improvement playbook.
R ABM.
Moving to ABM: highlights.
During the quarter, we held our annual week-long set of President' kaisen events, tended by our senior business leaders and employees from across the organization.
This year, the President's Kaizens focused on both front-end sales and operational execution improvements.
two events focus on responding to supply chain challenges and one on engineering efficiency.
The remaining three events: targeted value selling.
Capture rate improvement and finally, optimizing sales processes across three acquired businesses.
commatcha SP and DF.
Our EV team held a joint kaisen workshop with general motors.
To enhance machine throughput and support customer growth.
Many sspt members participated in their first virtual bootcam, where they learned and applied ABM fundamentals.
As a result, 10 probleom solving and kaesen events were planned at SP for April and may, as we roll at our ABM playbook.
We will continue to employ our global ABM boot camps in fiscal 2020. -three.
We are proud of the ongoing demand for and commitment to these blue camps.
On mineade.
Acquisitions in strategic markets are an important complement to ATS's organic growth, market penetration and customer capabilities.
During the fourth quarter, we completed the acquisition of hsg engineering.
hsg is an industrial automation integrator primarily serving the pharmaceutical sector.
hg joined h'spa business to deepen its or main knowledge in the biopharma and pharmaceutical sectors and strengthened PA's regional presence in Italy.
With a strong balance sheet, ATS will cultivate and evaluate acquisition opportunities consistent with our proven strategy. Naturally, timing of acquisitions will be varitable and our approach to deploying our balance sheet we disciplined and strategic.
Of note.
We continue to make progress integrating our acquaried businesses.
There are strong collaboration as we explore opportunities to grow our support and integrate service activities.
Across ATS. Our innovation activities are an ongoing part of our expand strategy.
Globally. The team made solid progress in a number of areas.
Our supertrack team continue to build the conveyance portfolio to enhance supertrack potential in the life sciences and pharma industries.
At our HS innovation center in Cambridge. The team maintained its research collaboration with the University of Waterloo. In addition, the team developed new applications using the Symphony platform, including a system for syringe production.
Biodot had developed new techniques performing LD beads.
Based on the valwed-out dispensing technology, which may open up synergies with SP, although this is still in early stages.
comacchair continues to innovate and build out its strong portfolio of technology used in the production of a new radiooatl that is showing strong potential as a breakthrough in radio pharmaceutical cancer treatment.
Our EV team remained focused on development of its attery assembly platform with innovations that increase throughput and yield through the early identification of defective battery cells in the assembly process.
In summary, we are pleased with the results of the quarter and fiscal year as they demonstrate the strength and growth of our portfolio and offerings.
And the resiliency of our global teams.
Our commitment to providing best-in-class solutions to our customers is evident in strong order bookings and robust order backlog.
Our strong leadership team remains focused in our dedication to our employees, our customers and creating value for our shareholders.
Our global teams did an excellent job in what was a very challenging environment delivering strong results in fiscal' twenty-two and.
I am thankful for and proud of their efforts and continued commitment.
Now I will turn the call over to Ryan. Ryan over to you.
Thank you Andrew, and good morning Ladies and gentlemen. I'll start with an overview of our Q4 operating results and then I'll provide color on our balance sheet.
Starting with orders, bookings were $638 million, up 38% compared to Q4 last year.
Growth was driven by acquired companies, primarily CF, contributing $81 million in SP, adding sixty-six million.
Organic growth in bookings was 1%, offset by a 3% headwind from foreign exchange translation.
For the year. Bookings of $2.5 billion were up 83 million due to increases in life sciences and food.
Of this 51% increase, organic growth was 21%, while acquired companies drove 34% growth.
Foreign exchange translation had a negative 4% impact.
Our book-to bill ratio for fiscal 22 was one point one three to 1, positioning us well for continued organic revenue growth.
Moving to revenues, our top line grew 51% in Q4 over the prior year.
Our organic growth of ten point point A- 5% related primarily to growth within the life sciences and transportation verticals.
Foreign exchange translation created a 3% headwind compared to Q4 last year.
Acquired companies added 43% of revenue growth with CFT nsp the primary contributors.
For the year, revenues were two point two billion, an increase of 53% from the prior year.
Revenues from acquired companies contributed 37% to overall growth, while organic growth was 20%. This was offset by a foreign exchange translation impact of 4% for the year.
As expected, with the addition of SP, our revenue mix shifted to a higher weighting on product sales and shorter cycle original equipment, which provides a good balance to our longer-duration project-based revenues.
Our Q4 revenue mix was 59% from construction projects, 18% from product sales in 23% from services.
In Q4 of last year, this mix was 65% from construction sales.
8% from product sales to 27% from aftersale services.
We continue to focus on growing our after-sale service business, with Q4 aftersale service revenues growing 14% sequentially and 16% year-over-year, including 21% organic growth compared to last year.
Our Q4 ending backlog of one point four billion dollars was 24% higher than Q4 last yearlooking forward, our revenue conversion from Q1 is estimated to be in the lower end of to 40% to 45% range of order backlog.
Of note. This is an increase to our prior quarter range of 35% to 40% and reflects the change in mix of our business.
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 build us within the quarter.
Moving to margins, included in Q4 gross margin were $5.2 million of costs related to fair value adjustment of inventories acquired through acquisition.
Excluding this adjustment, Q4's adjusted gross margin was 30%, 180 basis points higher than the comparable periods a year ago.
Higher gross margin, reflected operating efficiencies from strong project execution, improvements in the cost structure of our core business through previous reorganizations, increased after-sales service revenues and other continuous improvement efforts achieved by deploying our ABF.
To date, cost increases and lead time extensions in our supply base have not had a material impact on our profitability.
In our systems integration businesses, we've been largely able to mitigate the impacts.
In our product and original equipment businesses. We have seen some impact on margins from rising costs of certain commodities and components.
Cost increases, notably for lead, aluminum and stainless steel, continue to affect direct raw material purchases and add inflationary cost pressure on derivative component supply.
Electrical components are still the primary category impacted on lead times.
From a risk mitigation perspective. We have a diversified supply base, with our top 10 suppliers accounting for less than 15% of our total external spend.
No supplier represents more than three point point a half percent of our total spent.
We continue to monitor the supply chain, with concerted efforts made by our team to identify and implement countermeasures, including embedding secured supplier costs into new quotes, accelerating order timing, securing alternative sources of supply and implementing pricing changes.
Our ABM has served us well to date as we navigate and continue to address these pressures which we anticipate will continue through at fiscal' twenty-three.
Abm efforts, combined with our strong backlog, have served as well in managing our risk exposure.
Going forward. We are focused on continuing to implement countermeasures to help offset these pressures in our business.
Moving dest gena expenses were $49.2 million higher than Q4 last year.
This year's cost included 19.2 million of acquisition-related amortization, $1.4 million of acquisition-related transaction costs and one point nine million of restructuring costs, mainly related to ongoing cost rationalization in acquired businesses.
These costs were partially offset by a $1.7 million favorable adjustment in respect of acquisition-related conting consideration.
Excluding comparable items in both periods. Q4's SGNA was $91.8 million, 37 million higher than last year, reflecting incremental SGNA costs from acquired companies, primarily CFT, hioddot and P.
Fourth quarter saw a compensation expense with $8 thousand down $11.9 million from Q3 and down $6 million from last year.
The decrease in stock-based compensation costs is a result of lower expenses from the revaluation of deferred and restricted share units.
Q4 adjusted earnings from operations were fory-five $8 thousand, but 14% compared to 49.5 million, or twelve point 4% last year.
The increase reflected improved gross margin and lower sawid compensation expense, partially offset by higher SGNA expenses.
Excluding acquisitions, our core business operated with a 17% adjusted earnings from operations margin.
Adjusted earnings margins from our acquired businesses were 8% in Q4 compared to seven point 4% in Q3.
For the year, our core business achieved a 15% adjusted earnings from operations margin.
We are pleased with this performance and are focused on continuing to expand our margins in both our core and acquired businesses.
In the short term. Challenges in supply chain will continue to pressure our countermeasures.
Moving to the balance sheet and Q4, cash flows from operating activities worth $3 million- eight point nine million lower than last year- is primarily related to the timing of investments in noncash working capital in certain customer programs.
In fiscal' 22, we generated cash from operations of $216 million up from 185 million last year, flecting growth and improved profitability, partially offset by increased investment in noncash working capital.
Our noncash working capital is a percentage of revenues was 8% in Q4, up from 6% in Q3 and 6% in Q4 last year.
We invested 16.3 million in CapEx and intangible assets in Q4, compared to 13 million in Q4 last year.
Higher investments, primarily related to growth in our business.
In fiscal' 22 total CapEx.
And investment was $53 million.
We expected to increase our CapEx in fiscal' 23 in order to support growth through additional capacity and investments in innovationoverall, our CapEx budget for fiscal' 23 is expected to be in the range of $9.21 billion.
On leverage. Our year-end-net debt to adjusted EBITDA ratio is two point eight to one on a pro forma basis. Including the trailing 12 -month EBITDA contributions of acquired businesses, our net debt to adjusted EBITDA ratio was approximately two point six to one
We ended the quarter with $135 million of cash and availability on our credit facilities of two hundred and twenty-nine million.
Going forward with're focused on maintaining our strong balance sheet while simultaneously supporting flexibility in our financing structure to continue pursuing our growth strategies.
In summary.
We're pleased with another quarter of good results, including record quarterly revenues, strong bookings and backlog and margin expansion.
These achievements reflect organic growth, contributions from our newly acquired businesses and the ongoing deployment of ABM playbook.
Our global teams persevered in the face of adverse business conditions, allowing ATS to deliver best-in-class solutions to our customers and strong financial results.
Now we'll open the call to questions from our analysts operator. Should you please provide instructions? Thank you.
Thank you, sir. Ladies and gentlemen, we will now conduct the question-and-answer session.
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one moment please for your first question.
Your first question comes from David o'camppell, coremark Securities. Please go ahead.
Thanks good morning everyone.
Good more important.
Ding you touched a little bit about getting some some pricing early from some of your customers and being able to pass it through. But I wanted to draw a little bit more on on the enterprise contracts and those are a little bit more longer dated and M just curious how, how much flexibility on on pricing is there? You know, if inflation or your wages for your employees should up 10%, are you guys able to pass that off immediately or does does ATS how todefind other ways to mitigate, like the measures that you guys were talking about in terms of sourcing from different suppliers and what have you?
So first of all, whether it's an enterprise program or or a regular shorter duration construction contractwhen we're doing custom work, we are a support that we're going out in quoting our supply chain. In both cases, and typically it's going tobe the 60 percentto 8%, we're not quting 100% of our supply chain, but certainly the key components in the majority of our third-party materials.
And that's where we get some price protection on cost increases from our supply base.
And so if there is a sudden price increase in a component we didn't source, that's when we're going to look at alternative levers, like like use of the utilizing alternative sources of supply, we might change design for certain components. So those are some of the measures that we've used and continue to use.
In terms of people and other cost. We do factor in our expectation for wage increases and that's part of our part of our normal process in quarance as well.
No that makes a lot of sense. But then and your maybe one for you and we've always talked about capital deployment and how your EA pipeline is quite flush here. But just given kind of the volat valuation on where ETS is trading today and maybe where are the expectations are for some of your targeted companies as your thought process changed on capital deployment, can we expect more to be done on the nsib and know a little bit of shares got picked up there? But how should we really thin about that going forward?
Yes So So good morning David if I step back and I'm going to state first and foremost we look at long-term shareholder value and our capital allocation plan and we a well thoughtctorthrough strategy wrapped around this and I'm going to walk through the levers on this. So first and you picked up on at the ncciipb which when we see an area of opportunity we have the ability to pull that lever and.
Your comment. You've seen some of that uptick. Number two around Ma.
So when we look at the market, we continue to cultivate, and when we think about long-term value creation, we want to continue to cultivate. We're want to continue to assess and identify companies that are going to be strategic for ATS. Our funnel remains healthy and we've aligned around areas that we w are going to drive significant opportunities for both our customers and our shareholders.
The only item here is.
If you look at the Ma market, it is down year-to-date- not my words, the banks that we poulse on this- done roughly 30%. But our cultivation efforts continue and the reason is, at times cultivation is going to take a year or two for the right asset, for the right targets, and so we've continued to build out and continued to have a strong funnel.
Okay that's my too. I'll hohelp back going to keep.
Thank you.
Your next question comes from Marc nevle of Scotia Bank. Please go ahead.
morningyou guys great quarter, great job. Maybe just quickly to follow-up for some David's question: just run price on these programs or on any program, do you have the ability to go back and sort of adjust price by why the program's ongoing?
In some contracts we do have that ability. That's those are rare occasions today and utilize more where we've got ongoing master agreements with customers typically.
Maybe just on the margin sort of longer term, the 15% target.
I CAn't. Can't remember the number- you quote it, but the legacy close to' 17. when think about the acquired businesses of doing' seven's a big picture. When think about these businesses longer term or what they should do, should they look over time, comparable to legacy or maybe even even a bit better, just given the mix?
So let me I'll try and answer your question. So the core business did 17% in the quarter. There's a favorable stock comp benefit there and we were 15% for the year and I think that's a better reflection given. If I look at the full year, there's a lot of variability in our stock comp, stock comp expense. For the full year it was, it was more normal, So we're quite pleased with that. In terms of the acquired businesses, there's a mix. There's some that are accretive to those margins and then others that are dilutive in CFT would be.
So one that I would call out and we talked about when we required the business. It was a low single-digit margin business. We have a plan to increase those margins over time that we've laid out. We made good progress.
That's again a business that is more susceptible to the supply chain headwinds that are happening today and that reflects their higher buy on on raw materials and components like that. But we're pleased with the progress we've made in terms of taking costs, the business putting in some operational efficiencies. That said, there's still a ways to go with that business in terms of real performance.
Maybe just just on the CapEx budgets for the year, andreor Oran, whether can ities talk about? I mean, I feels like a big number for you guys. Obviously can. It's not an issue to defendit, but maybe some of the things that you're doing the year, that sticking up where their money's going.
Yeah So it's.
So it is a larger number and, first of all, our total business has increased, So the maintenance requirements are higher, not from a percentage standpoint of we're still in the to low 2% range from a maintenance standpoint. But then we also have a number of growth initiatives to add capacity and they're primarily adding forlo base in some of our key core locations, and those are areas where we have critical mass, critical footprint, but Ve seen a good growth in our business and really a need to expand. We're also increasing spend on innovation and we've talked about that for a number of years and that continues to be an important part of growth strategy. All that said, there is some flexibility in our plan so, given given business conditions, we will continue to monitor and adjust as needed.
Al right, I'll get back and cub again. Thank Joe.
Thanks Mark, Thank.
Ladies and gentlemen, as a reminder, if you would like to ask a question, please press Star one now.
Your next question comes from Maxim, citechef of National Bank financial. Please go ahead.
Hi good money and gerleman.
Good morning. We next couple.
Couple of questions if I may. I think in the backlog.
So the flow chart: there was a 73 million adjustment. Just was curious if you can comment on that, because some of that was in relation to a some of that scope changes, just in terms of how we should to think about that number.
Yes So in the quarter of a two third of that is FX related and primarily in the euro. We saw that currency value decrease and the balance- the other third, would have been normal core scope changes in cancellations.
Okay So quite small. Okay, that's well, help you, Thank you. And then was wondering just in terms of you mentioned electrical components, with curious around controllers and kind of how chip shortagers are impacting the suppliers of your suppliers and how much visibility you have on these issues and how that's being managed, if it's possible to providing a color of that.
Yes sure MAX and I'll walk through this but I want to walk through it so you understand how we view it. So if you look at our business.
Let's break it into two sections. There's the standard machines.
And oftentimes on standard machines, will have.
Where possible, multicontrollers or control agnostic.
And we will, at times where we identify risk, build that into our process for engineering, for design, to ensure at times we don't have that but it is more common in that area.
Then you've got our custom machines and in general you're going to find that you're going to have less optionality from a multicontroller perspective.
But you're going to have options at times or within a supplier, to have multiple options within that supplier, and so we monitor this extremely close. And if supplier has a components that's in a component and they're running into a shortage, we'll then look at an offset that says maybe a, B or ad and we have to design it in, and because we've got the engineering coursestpower, we can do that alternative times. We'll also, because we know the global market, reach out to a distribution channel and do a longer term buy on those components that we view are going to need to have call it some protection.
And so, and in the last case, and at times- and we've done this even recently- where we work with the customer on a change out, and so I would say we've managed a situation, we continueed to be very focused on this. When we talk daily visual management, it is real, it is at every site, every location, and because of our buy and our continueed by, we've continue to mitigate that risk. And, just for our reference point, we have a very diversified spend and no supplier makes up more than 3% of our spend and so, while it is a challenge and suppliers do get hit, we've been able to offset and we continue to be very forward looking in this to ensure that we minimize impact on our business.
Thank you, that's. That's very helpful disclosure and just in terms of the by market outlook, was wondering how you think right now was as called it is receiving about organic growth rate, some health care and reallyated as much unrelated question around EVs and the potential growth dynamics and transportation. Just curious to see if P should anticipate an acceleration in the letter.
Yes So let me walk through that, and I'm going to start with because I mentioned it in my prepared remarks. We are bullish on this, on this market, on this area, and we can continue to see strong de mand, as a matter of fact, even this week was meeting with a customer in this area where they view ATS is a very strategic supplier and they're looking at not only our current technology that ones're working on from an innovation perspective to build that into their process, and so we have deep relationships with the OEMs here we continue to see opportunity. We are well positioned in the space to help them as they navigate the complexities and changes. And and we continue to stay very close around that change. And you know, if you think about not only the equipment but then the servicing capability, the complexity around if, if a battery changes, you have to build able to move at their pace, and ATS just does a fantastic job of value creation here.
If you then look at health care look, this is, this is a big piece of our business. And one we view is a growth traject, ory and you mentioned COVID-19 and certainly we did see a nice uptick from COVID-19 during that time period. We've largely pivoted back and we are on our base business and we continue to support many of the areas and I referenced: radio pharma, medical devices, pharmaceutical manufacturing and even with our new SB acquisition.
We've seen even synergies with other businesses like comahair and DF and, and so we view that as a market that's going to continue to support our aspirations and our growth trajectory.
Okay 100%, and then then is just just one last 1, four for Ryan in terms of- because again you're jumggling all these supply chain issues- anything that we should be mindful off in terms of the knownoncash working capital, if you are trying to maybe overcommit on the inventory set of things, or just to any directionality there.
Yes So we've made some investments into inventory to secure product for what I'd go longer than normal lead times, but not in not really material from an inventory standpoint what's going to drive our working capititalals more on the project side in customer terms, commercial terms, and so we did see a bit of an increase to just over 8% this quarter. I expect we we'll continue to be in that range. We might end up in the 10% range in certain quarters but it's generally going to continue to be in that area.
Okay that's great. Thank you very much.
Your next question comes from Justin Keywood of steeple. Please go ahead.
Good morning. Nicely navigated quarter with a tough backdrop. My question is to do with geography and I'm wondering if you're seeing any softness in Europe as compared to other regions and also the revenue split in Europe by vertical. Is that consistent with other regions? For example, would life sciences be 50% or perhaps even higher, given that ATS service of pharma companies that may be based in Ireland?
Good more in Justin, and certainly Thank you for the comment. Look, I'll think the first part of this is, then rank can jump in on the second.
So we continue to see opportunity in Europe across across the Board and I have personally met with customers here and where- and state is our funnel remains healthy. We look at this is, I would characterize, as cautiously optimisticand the only area that I would say we have seen some impact- it is not material, but we have seen some impact- is we do have customers in Russia that we do not have at this moment and therefore we have seen that impact. It is not material on our results and therefore it's not something we've outlined or highlighted. Rand, why do you take the second piece of that? Yes well, just to put a fine point on Russia, it's less than a half percent of our total revenue. So sodi Andrew's point law material and terms the vertical market, So our food businesses- is more weighted into Europe . The rest of the business, I would say, fairly aligned with the geographic revenue split today, transportation would be a little bit more aligned in the North America. Life science is likely as well.
Consumers going to be a bit of a mix in Energies, more North Americans, So food's really the one that's more heavily weighted in New York today.
Great Thank you for the context and then follow-on a question for the food and beverage segment. I'm wondering if ATS provides automation work for baby formula And if this is an opportunity for ATS to help, given the current baby formula a shortage going on.
We would characterize that and in what we call secondary processing, and we are in this space. I'm not going to get into all the areas we play in this area, but but we do view this as an area that we can continue to grow into.
And given the current shortage for baby formula, does this elevate the perhaps demand for a better quality control, given the obbit Labs facility that was shutdown, and perhaps there could be some increased attention to higher quality manufacturing in the space?
I'm just going to, I'm going to kind of step back and said: this is one of the reasons why we like regulated food and why we like secondary processing is you're going to have a heightened area of focus around ensuring that you meet the qualifications for the markets. And you know Justin, and just to just to give you some, and you know this, but but you give you some insight as to when we view the food space, regulated food. This is one of the areas why we like this, this space is it has similar characteristics as our sciences, where regulation, quality dependency- these are these matter to our customers. And so, while we're early in our journey with food at hats we are, we with C FT, with Ray TAC, with Marco, with other areas- we've made a nice progress here and we do view this is going to be an area of growth for our Corporation.
Understood and thank you for taking my questions.
Thank you.
Your next question comes from a sheryn radborne of TD. Please go ahead.
Thanks very much and good morning.
And and your. My first question is 3- you: we know that you have ongoing dialogue with customers, So was justfichoping to tap into that a little bit. Could you just update us on the tone of those conversations of the quarter progressed and sort of macro uncertainty and inflationary pressures builded. Did you get a sense that they were starting to approach CapEx more cautiously as a consequence, and or have they starting to look to ATS more for Assistant with inflationary pressure?
sheryland. Thank you for the question. I'm I'm going to get to this, but but, as you'rewell AW, 80% regulated and that generally has A. when we view it, the markets we serve today have longer tails on their growth. If I were to characterize my engagements customers, I would say in general it's cautiously optimistic, more resilient markets.
Areas that that, when you think mid and long term, they've got labor shortage issues at times, and automation can support and help that as well, as ATS has been very focused on continuing to expand our value to these customers, whether it be technology, whether it be helping them in their service and support, whether it be in getting their products to market at a faster pace. So So, in general, I would say our communication has been solid and, just to recap the quarter, very strong bookings quarter, very strong backlog as it going to the new year and, as I mentioned, a healthy funnel as we look at the core markets today.
Great and then maybe for Ryan, just in terms of the organic growth in bookings this quarter, can you remind us of the size of the prior year e booking that you're lapping and maybe give us a bit more color on what you're seeing in nuclear and just how timing impact affected bookings in the quarter?
Yes So all starting I'll that and to address the nuclear portion of the question. So we had a couple of orders in Q4 last year that we're in the.
In the five million range. So So a couple significant ones in, and we have those. That's not unusual. This quarter we had a couple of orders in the $3 million range. Our organic growth in bookings was 1% this quarter, but we're always going to see normal course variability because of the size of some of these orders.
And that's why- and I referenced trailing 12 month book to bill in my prepared remarks- I we tend to look at this on a longer-term basis: our organic growth rate in bookings.
For the year with 21%.
And so that's a very good number. That's going to be a tough one to be coming next year, but something we're very proud of. So we don't get, like I said, we don't get too focused on on a singular quarter and we're pleased with the bookings that ander talked about. We've got a very strong funnel ownerour backlog is very strong as we go into next year.
And sherlina, I'll just walk through the nuclear side. It and I met with a very important nuclear customer earlier in the week.
And we continue to see- I would characterize our focus here- has been a niche focus. It's the tie value to our customers. We see continueed potential expansion with our current customer base and with a renewed focus on n cle. They reduce, see in avenue and areas that we can expand that on a global basis and we often talk about decommissioning. We talk about other areas but, as you see, a shift from fossil fuels to this being an energy source, we do view additional opportunity herear.
That's my queue, Thank you.
Ladies and gentlemen, once again, if you would like to ask a question, please press Star one now.
Your final question is a follow-up from Mark nevil of scotiabank. Please go ahead.
areyes. Thanks again, maybe just on the sort of the backlog conversion guidance.
Is this more a function- the higher guue for the quarter, more function of sort of what's in the backlog or sort of the structural change, the business from all the acquisitition over the past year or so?
Market it's both, So we've added businesses that have more products.
The equipment. The equipment is shorter cycle and we've also grown our services and so all of that a changes the mix a little bitand helps it push us into that 40% to 45% now. That said, we do make this assess from every quarter. We look at our backlog in our expectations for how that's going to get revenue and soit really is a bit of both. But over the longer term would expect, given the change in mix in our business that will will generally be in that 40% to 45% range. That said, if we have a number of large projects come on and our early stages, we could see that percentage decrease as well. So shor answer is it's abit of both.
Got it thenitt. Moving over to the supply chain and to appreciate all the color and sort of how you're managing it. I appreciate it sort of visual everyday. everyav location is there also like a centralized supply chain team that'sre maning this sort of a corloate level?
Yes So Mark, we have both a centralized supply chain team which, by the way, this has been something we've talked about for years.
Where this has been one of our five points of focus on our margin expansion plan with supply chain our supply chain leader has built a team out here and globally and then additionally we have built out teams at the core location and remember. These are individuals that our focus is they pay for their pay for their cost. So not only do they perform they've continued to expand and really drive the business. So short answer is yes we have both and yes. We look at this from a macro perspective. ie global enterprise all of ATS because we can bring at times that.
Full breadth of our focus to our supply base, or a shift of supply base, and so our growth really is be going to be helpful for us as we navigate these times.
Got it if second ask a last question is on mna curious and a couple of things I guess first.
Just given the macro uncertainty is more, stop popping up. Curious if sort of seller expectations of change and also curious sort of given sort of the macro uncertainty, sort of your appetite for sort of doing a deal or deals and this environment as it's changed at all. Thanks for call.
So.
What we've seen is we haven't seen a massive shift in seller call it approach to the market. The deals- and I mentioned this, earer- in the call the deals have gone down in totality in their numbers, but we haven't seen a massive shift in expectations from sellers. And so we are patient, we are focused, we are aligned with longer-term value creation for our shareholders and we're going to keep that focus. And so I view our position- having a strong balance sheet, having a critical for having markets that we view our resilient more- it should be more resilient- is really aligned around around the journey that ATS has been on. So, while I do say that it's a challenging environment, we're in a position to continue to build out our relationship and our funnel through this.
Thanks it, Thank right.
Thank you Mark.
Mr hyder. There are no further questions at this time.
Thank you, operator. We're pleased with the performance this quarter and appreciate the efforts.
Put forth from our talented teams to make it possible.
Look forward to the new fiscal year.
And the opportunity to continue to deliver on our plans. Thank you for joining us. I look forward to speaking to you on our Q1 call in August St. safe and goodbye for now.
Ladies and gentlemen, this does conclude your conference call for today. We would like to thank you for participating and ask that you please disconnect your lines.
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