Q2 2023 ATS Automation Tooling Systems Inc Earnings Call
Customer interest is developing for solutions that combine the capabilities of SP <unk> and Biodot.
And along with it potential access to new Submarkets.
I will update you on the business and Ryan will provide his financial report.
Starting with our financial value drivers.
Q2 revenues were $589 million up 13% from Q2 last year.
Given by a combination of acquired businesses and continued strength across our core operations.
Organic revenue growth was 4% year over year.
Order bookings for the quarter were $804 million.
Up 58% year over year.
This quarter, we booked the single largest order in <unk> history of $167 million in the EV market.
In addition.
As we announced last week, we received further follow on <unk> orders valued at $140 million, which are part of the same multiphase enterprise program.
Our adjusted EBIT margin in Q2 was 12, 8%.
Today, we also announced a plan to enhance our cost structure and efficiency.
Brian will provide more information in his remarks.
Moving to our outlook.
We finished the quarter with approximately $1 8 billion of.
Of order backlog.
Again this is another record backlog for Etfs, providing.
Providing us with a solid base to work from and reflecting the strength of our focus in strategic markets.
Our backlog remains well diversified across global markets and regulated industries.
In life Sciences during the quarter, we saw an increase in the number of opportunities in the funnel across our major submarkets.
Our key technologies and integrated solutions are opening doors with new and existing customers.
In total dollars life Sciences backlog increased approximately 4% to $782 million versus last quarter.
In EV, we are benefiting from the global automotive industry is pivot.
So electrification at a fast pace.
We are monitoring trends in the market our partnerships with key Oems remained strong.
And food and beverage.
<unk> expanding for each sub market.
With energy markets under pressure, our CFT Apollo Evaporators provide an energy efficient solution for our food and beverage customers.
Particularly as they move away from gas.
Our energy saving technology and brand recognition enhance our position and tomato processing.
And energy finding alternatives to high energy costs and the need for clean energy continue to be two of the main focal points in this market.
Grid battery storage in particular remains a focus given our capabilities and market dynamics.
Commercialization of small modular reactors may provide opportunities in the future.
We remained very competitively placed for growth in these niche areas for automation.
In consumer products, we exited the quarter with a strong funnel and the personal care and cosmetics industry.
On after sales services. This remains a strategic focus with good growth potential.
As our customers struggled to attract retain specialized talent.
And focus on improving asset performance.
We support customers with machine connectivity data analytics, and visualization integrated with repo with remote and onsite services through our regional and local teams.
All with a focus on reoccurring repeat revenue.
On the macro environment.
Supply chain constraints rising costs and availability of labor continue to be front and center for our customers and Ats.
We remain confident in our ability to drive profitable growth over the long term.
As we navigate these challenges with a focus on mitigating risk and driving continuous improvement through our ABM.
Specifically in Europe , where we generated approximately 30% of our year to date revenues.
We are monitoring all macro concerns.
Our European divisions have a strong global presence healthy bundles and diversified revenue streams.
While our divisions in Germany, and Italy have some exposure to energy disruptions.
We have mitigation plans in place to address the potential gas flow reductions or shutdowns.
These measures include converting to alternative heating sources.
Employing energy conservation measures at our production facilities, and having employees work from home where possible.
Our ABM has never been a more relevant competitive advantage across our business.
During the quarter, we completed 41, ABM events, covering all parts of our business across all value drivers.
Throughout Q2 supply chain remained a major ABM focus with eight separate activities completed across multiple groups.
<unk> savings funnel workshops.
<unk> engineering, kaizen and problem solving events to address purchase price variance.
The ABM provides a real focus to our global teams. It takes the strength of our greatest asset our people.
Working together to stay focused on creating shareholder value and are continually changing environment.
On M&A.
Gration of previous acquisitions across the business is progressing to plan.
We continue to refresh our M&A funnel of opportunities and maintain regular connections with potential targets to put ourselves in a leading position when they become available.
We drive an ongoing process with our business units and our corporate teams to add new technologies products and capabilities in our target end markets.
And our funnel remains healthy.
Subsequent to the end of Q2, we announced that we have entered into an agreement to acquire XE Rguest, a well established independent automation systems integrator in southeast Asia and Australia.
She is expected to strengthen our business position in automation and digital solution and the region across our key markets.
On ESG, we're looking forward to publishing our third annual sustainability report, which will include updates on progress to our 2030 targets.
As well as new goals focused on environmental stewardship and diversity and inclusion.
We are committed to our sustainability journey and our ESG goals.
We believe that our proactive and transparent approach in this area has the ability to positively impact our bottom line.
Ats is increasingly helping our customers meet their sustainability goals by incorporating elements of waste reduction energy efficiency and sustainability metrics into our design processes.
Our <unk> business group has also developed an energy management software to help customers track and reduce their carbon footprint.
The promote alignment between Ats and our business partners.
We have integrated sustainability considerations directly into our contractor selection and procurement management.
On innovation.
I'll provide a few highlights from Q2, which demonstrate our ongoing focus on strategic spend in key markets and internal capital deployment to drive return.
We continued our development of new features in several areas, including machine learning vision applications.
<unk> corporate digital tracing.
Battery Assembly and radioisotope production.
We've begun to see one of our SP businesses collaborate with <unk> to combine their filling in isolation capabilities into a single modular platform.
This will continue to develop but again, we are encouraged by the team's willingness to learn from each other to bring new offerings to our customers.
In summary.
Our record order backlog gives us a strong platform for uncertain times.
We're encouraged by Q2 performance, including record bookings and are taking ongoing action to enhance our cost structure and drive continuous improvement to carry us through ever changing macroeconomic conditions.
Our results once again demonstrate the strength of our global brand and our focus on employee customer and shareholder success.
We will continue to drive the business forward in a disciplined manner using our ABM.
Now I will turn the call over to Ron Bryan over to you.
Thank you, Andrew and good morning, ladies and gentlemen.
This morning, I'll start with a review of our Q2 operating results and then provide further details on our balance sheet.
Beginning with orders bookings were $804 million up 58% compared to Q2 last year.
The increase was driven by organic growth in bookings of 49% and a 12% increase in bookings from acquired companies, partially offset by a 4% headwind from foreign exchange translation.
Organic bookings growth included our largest ever order of 167 million U S dollars from an existing global automotive customer. This is in addition to the $70 million that was put to the same customer in Q1.
Bookings were up sequentially by $68 million compared to Q1 of this year with growth driven by EV.
Our trailing 12 month book to Bill ratio for Q2 was one to one to one positioning us well for continued revenue growth.
On Q2 revenues, our topline growth was 12, 8% over last year organic growth of three 8% related primarily to increases in the transportation and consumer verticals foreign.
Foreign exchange translation created a four 1% headwind compared to Q2 last year.
Acquired companies added 13, 1% to revenue growth with SP being the primary contributor at 11%.
Sequentially, our revenues were down by three 6% compared to Q1 of this year.
This was in line with our expectations based on program mix and timing incur.
Including the early stage of completion of some of our large enterprise orders.
Q2, ending backlog of $1 $79 billion.
<unk> was 38% higher than Q2 last year.
Looking ahead, our revenue conversion for Q3 is estimated to be in the 32% to 37% range of order backlog.
The range of conversion reflects the growth in lengthening duration of our backlog and the early stages of some of our enterprise orders.
As a reminder, we make this assessment every quarter based on revenue expectations for both the execution of projects through backlog and work that will be booked and billed within the quarter.
Yes.
Moving to margins included in Q2 gross margin were $3 9 million of costs related to fair value adjustment of inventories acquired through acquisition.
Excluding these amounts Q2's gross margin was 28, 1% 110 basis points lower than Q2 last year.
As I noted last quarter, we have seen some ongoing cost pressure due to supply chain inflation and changes in mix of business. Following the completion of some higher margin enterprise projects last year consistent with our expectations.
Our focus remains on protecting our margins until supply chain pressures and cost inflation normalizes.
As expected.
While we have seen some relief with sequential month to month reductions in raw material cost for certain commodities overall costs remain high on a year over year basis, while we were able to pass along much of these cost increases through our pricing. We are actively mitigating in other ways. For example, the ABM savings funnel activities that Andrew referenced in his.
<unk> are partly offset cost and lead time impacts in the direct purchase of electrical and mechanical components as well as fabricated parts.
These purchase categories again saw further lengthening lead times in the quarter and we remain actively engaged with our supply base to mitigate these risks.
Our ABM supply chain countermeasures also include embedding secured supplier costs into new quotes accelerating vendor order timing and securing alternative sources of supply.
Overall our operations.
To demonstrate the ability to respond to both cost increases and lead time extensions.
Moving to SG&A, excluding acquisition related amortization and transaction costs totaling $16 9 million as well as $1 3 million of restructuring costs Q2's, SG&A was $84 9 million $13 4 million higher than last year, primarily reflecting incremental SG&A costs from.
Acquired companies I will address restructuring related costs in a moment.
Second quarter stock based compensation expense was $5 3 million down $5 $2 million from last year sequentially stock based compensation expenses increased by $9 3 million as a.
<unk>, a revaluation of deferred and restricted share units following movement in our share price.
As a reminder, our stock based compensation is impacted by approximately $900000 for every $1 change in our share price.
Q2, adjusted earnings from operations were <unk>, $75, 1 million or 12, 8% compared to $70 7 million last year.
This reflected a year over year increase in revenues and lower stock based compensation costs, partially offset by lower gross margin.
On a sequential basis compared to Q1 of this year adjusted earnings from operations were lowered by 158 basis points driven by higher stock compensation expense.
Yes.
As part of a regular and ongoing assessment of operations, we have identified opportunities across the business to improve our cost structure and efficiency, primarily through management head count and other cost reductions.
The estimated cost of these efforts is expected to be 20% to $25 million with the majority of the costs incurred in the third and fourth quarters of this fiscal year are estimated payback period is approximately 18 months.
Moving to the balance sheet in.
In Q2 cash flows used in operating activities were $38 million cash usage was primarily related to the timing of investments in noncash working capital as we continue to invest in bringing new projects online.
Our noncash working capital as a percentage of revenue was 16, 1% in Q2 up from 11, 4% in Q1 as a reminder, our target is to remain at less than 15% and this is unchanged despite variations from quarter to quarter like we've seen in Q2.
In the short term, we have plans for working capital to be elevated as we worked through program milestones on some of our newer enterprise orders, we expect to see improvement in cash generation in the second half of the year as these programs start to achieve billing milestones on.
On Capex, we invested $9 million in Capex and intangible assets in Q2 compared to $11 $3 million last year, our year to date spend is approximately $21 million.
The balance of the year, we expect to spend below our budget as some projects have been delayed and we continue to pace, our spending where appropriate and are purposely maintaining flexibility in our plans to adjust as needed.
On leverage our quarter end net debt to adjusted EBITDA ratio was three two to one on a pro forma basis. This ratio was $3 one to one.
Recall that on leverage we generally target to be in the range of two five times, we're willing to increase for acquisitions or for short term working capital needs. As is currently the case, we expect to return.
For a more typical range by the end of the fiscal year.
Subsequent to the end of the quarter, we extended our $750 million revolving credit facility to November of 2026, we also added a two year.
$300 billion term loan to our capital structure in order to provide flexibility and support our growth.
Going forward, our focus is on maintaining our strong balance sheet, while still allowing flexibility in our financing structure to continue pursuing our growth strategies.
In summary, we're pleased with this quarters results and the commitment of our leadership and global teams to drive growth and continuous improvement in our business in a dynamic and challenging operating environment.
Significant growth in our bookings and backlog reflects the high value, we bring to our customers.
As we move forward, we are prepared to operate with cost inflation and lead time pressures in our supply chain through the remainder of the fiscal year.
We expect ABM efforts combined with a record order backlog and the reorganization announced today will service well as we move forward and continue to pursue growth and margin expansion.
Now, we'll open the call to questions from our analysts operator could you. Please provide instructions. Thank you.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the one on your Touchtone phone.
To withdraw your question Sir.
Followed by the team.
Anything a speaker phone please lift the handset before <unk>. Our first question comes from Mark Neville with Scotiabank. Your line is open.
Hey, good morning, guys.
Excuse me.
Maybe first just on the on the EV program.
I think you've booked roughly $500 million of work in the last four or five months.
I'm, just trying to get a sense of sort of how far along in this program you are.
It feels early because 2022, but understand there is long lead times. So it's a little difficult for me to handicap.
Yes, good morning, Mark.
So as we.
We have announced these.
<unk> said in the press release these are typically longer duration projects.
And some of that's driven by by lead time on materials and some of that is driven by.
The size of the projects.
So typically these are 18 to 24 months from time of order, which is higher than our average which would typically be in the nine to nine to 10 month range.
Outside of these large projects.
Sorry, sorry, Ryan I guess I guess my question with them.
This is a multi phase program.
I guess I'm trying to understand this.
Some of this is still kind of early days of this program or if you're significantly advance.
Just trying to again get a sense of how large this program could eventually be versus sort of what you've already booked.
Yeah, So mark why don't I jump and good morning. So.
Look as we look at this market.
We've been in this space for for over a decade.
We do view this shift is relatively early.
And it's and it shifts and I talked about it but I think it was roughly two years ago that North America had some area for improvement and for drive for growth and we do view this as that aspect and there.
This specific OEM building up their capability to meet the demands of the EV shift in the market.
That said, we do view this as still relatively early and would you view this as opportunity moving forward for Ats to really support these customers and delivering their solutions to market.
Got it.
Maybe just a quick one on backlog conversion I guess, just given the size of the recent orders.
So we expect another quarter or two of I guess, you've guided for next quarter, but would there be another maybe quarter after that where the conversion is a little lower than where it might typically be.
It's a little difficult to say at this point, because it's really going to depend on the profile of orders that we book within this quarter.
As.
Ill reiterate what we did guide to the 32% to 37% range.
It really does reflect.
The significance.
In large programs that we booked.
In the EV space, that's really driving the conversion rate down.
Outside of those projects.
The conversion rate really hasn't materially changed so as you know we've added more products more short cycle equipment with growing services all of that tends to have shorter conversion cycle and drive drive the range up but given the significance of these EV programs. The overall average has come down.
Alright.
If I can ask just one more before I get back in queue, maybe just on the reorder.
I'm just curious if this is focus on certain markets or geographies or.
That's sort of a.
The holistic sort of reorder.
Yes. So so mark this is more of an efficiency area and I would say, it's no no specific market or area, it's more around where we saw the need to improve our efficiency in certain key areas.
Okay. Thanks, I'll get back to you.
Our next question comes from David Ocampo, with <unk> Securities. Your line is open.
Thank you and good morning, everyone.
Good morning, good morning.
I just wanted to stick on the theme of Bvd, just given all the recent announcements are you guys servicing that your existing footprint or some of the recent order announcements also going to go through the second facility in ground metals.
So so we earn servicing it through our existing facility. We've also added and.
Last year, we broke ground.
On a new facility.
Shortly after we opened.
And are joining our neighboring facilities. So we are adding capacity. We've also added.
In other in other jurisdictions other areas.
Through lease space.
So there's been some expansion of our footprint in order to.
Address the growth in the business.
I guess, how much is your capacity expanding.
I guess your utilization right now with your new footprint, 50%, 60% of what you are capable of doing.
Sorry, I missed the last part of the question.
Yes, just curious with the <unk>.
Recent order for air announcements, how much of the utilization of that take up in your existing footprint.
And in terms of foot.
I don't have that off hand.
We've added about 10% capacity to our total footprints and.
As through through Capex, and as I said, we're at or adding in.
Other areas through through lease facilities, and so forth. So more were temporary and I've talked about our approach in the past on on having a mix of both in order to maintain flexibility in our cost structure.
It's it's taking up obviously given the size of these orders and they are typically large footprints.
In terms of physical space. It is taking up a large portion of our capacity, but we're not at a point, where we're constrained either in a lot of that is driven by the flexibility we have and continue to maintain.
<unk> in how we approach this work.
Okay.
Okay got it and then on the cash conversion cycle as it relates to the <unk> projects.
Had two pretty big working capital build ups, how does how does the billing and cash collection cycles work for that is it primarily at the end of the program, where you guys quite the bulk of the cash.
So.
I mentioned this a little bit in my prepared remarks, but there are billing milestones throughout the projects and we are getting into.
Some of those.
Some of those now and so we do expect to see it.
Improvement in our cash generation on these projects in the second half of the year.
Okay.
That's my two ill hop back in the queue. Thanks guys. Thank.
Thanks, David.
Our next question comes from Justin <unk> with Sidoti Your line is open.
Good morning, Thanks for taking my call on the food and beverage the mention of supply chain challenges impacting our revenue.
Revenue in the quarter or are you just to provide some additional context if thats.
Related to particular components or the finishing of projects.
Because it was quite lower than what we were expecting.
So.
So this the supply chain challenges in terms of lead time cost.
That's not specific to food and beverage.
Throughout the entire business is really facing the same challenges, what's a little bit unique to the food space.
We do have.
A higher spend in raw materials. So it's.
That business in particular.
As a high as high consumption of high grade stainless steel.
It's part of the food products food and beverage processing goes through goes through that kind of material. So.
Yes, it's been.
A challenge in that business like everywhere else.
But it's not unique to the food space.
Got it and would you expect.
Those challenges to abate in.
And the next quarter or is there still a bit of lead time.
Yes, so so.
Adjusted when we step back and look from a from a supply chain perspective, and I'll answer. This in two ways one supply chain to the general view on on food and beverage in the space and where we sit today. So supply chain look we and I've talked about this in the past we've gone to a daily visual management perspective, we've got.
Gone to the divisions the sites and.
And we've largely been able to mitigate the impact across Ats and we're very pleased with the progress and our teams are really aligned around this being another quarter or two.
Being a.
A challenging space in supply chain and while there is dynamics going on we still see challenges.
In several areas and so our focus around mitigating those and really driving the performance of the business.
The second piece of that is food and beverage and I will just state.
Our view is our funnel is healthy here, we referenced the Apollo opportunity and we're seeing.
A stronger interest in that area around energy efficiency and the alignment and so our view is that this business is going to continue to perform for Etfs and really be in a position to execute and deliver value for customers and so.
I guess, when we step back and look we would look at those as two two independent items.
Understood and then my other question is related to the <unk>.
<unk> acquisition in the quarter.
It appears that Etfs is expanding its capability and the southeast Asia region, and I know that some of these areas are seeing increase manufacturing.
Presence is just derisking some of the geopolitical risk is that the right way to look at it is there's increased manufacturing in the regions or if you can just provide some additional context for the justification of that acquisition.
Yes sure.
And Justin this goes into our solutions.
Our solutions business and it is an expansion if you look at the strategic rationale the expansion is in the region and it's really aligned around what pega does very well, which is allowing data collection to digital solutions to enable customers and <unk> is the expansion of that within the region.
<unk> was call.
Call it relatively underpenetrated in this area and that allows them to really expand and build out that capability and so we're pleased with the with the alignment.
This also brings us into Australia, as well and so.
<unk> really checked a lot of those boxes around alignment to a strong business that allows us to expand in a region that we view.
As an attractive potential for the solution that <unk>.
Yes.
Just to clarify was that Ats in Australia prior.
No we did not have a strong footprint in Australia.
Okay. Thank you for taking my questions.
Thank you.
Our next question comes from Maxim <unk> with National Bank. Your line is open.
Hi, good morning, gentlemen.
Good morning.
Just trying to get a bit more clarity around them. So the cost containment dynamics is this more sort of a gross margin or SG&A.
Impact on a prospective basis and I guess on how quickly can these things show up in the numbers.
You're referring back to the reorganization activity.
Yes, yes, that's primarily.
SG&A measure.
Although it would impact a little bit of both but more weighted towards SG&A and activities are underway, but most will be completed in the third and fourth quarter. So it'll be really first quarter next year, we'll start to see the impact.
Okay, and I guess and how would that sort of delve into your.
EBIT margin kind of ambitions.
Potential accelerating on justice and are keeping keeping steady horses.
Telegraphed previously that 60% ambition.
Yes, I would characterize it as more of us keeping steady I mean, we laid out it's an 18 month payback.
When it's when it's complete it does if you do the math comes out to approximately a 60 basis point improvement.
It certainly helps but it's more steady.
Okay. Okay helpful. And then in terms of as you guys are getting.
Bigger projects on an absolute basis, how should we think about sort of the cost spreading on bigger programs I mean, I don't economies of scale, how should we think about that.
Yeah, So so Max.
As we look at these and I'll just walk through it what generally happens is the first time, we do one of these programs and projects.
Youre going to find a higher level that we're going to we're going to put towards a potential risk and and what I mean by that youre going to look at uncertainty and youre going to youre going to mitigate on those areas and we're going to build that into our thinking and into our approach. Once you do repeat than you generally are going to see where we're going to have more in alignment to what we'd expect on.
The value that we have and the value we bring for customers and so.
Having follow on orders, having repeat business is viewed as a positive for customers and for Ats and Thats, how we would look at it on these programs as well.
Okay. Thank you and then last question just in terms of now that you've had to SP as part of the portfolio port for quite some time I'm. Just wondering if you don't mind, providing a bit of an update in terms of how that asset has performed.
Since the acquisition.
And any comments, especially around the revenue synergies opportunity if that.
Has changed relative to some of the original acquisition date or what are your thoughts there. Thanks.
Yes, so look.
I'll start with the headline and then I'll go into more specifics.
<unk> business is on track on plan to expectations and and so we're pleased with the progress.
And then if I step through it a little bit.
They have done an excellent job of alignment to the ABM.
If you look at the training the approach the process. This team is really aligned around the continuous improvement aspects of how Ats operates and how they're being a part of the family now as part of our journey together.
And so I take that and then go into the synergy aspect.
I've mentioned this on prior calls, but just to reiterate.
We're actually outpacing in the funnel for synergies so we're higher than we originally anticipated which is a good thing.
And we do view this as a long term potential, but we've had continued proof points throughout the quarter and I would say we want to pieces of work in.
And the one relatively small it was a combination of <unk>.
So mature and a nice uptick drilling application.
We also won.
An award little over 5 million euros.
Our <unk> business.
And net synergy aspect with life Sciences, and so as we step back and look at our approach. We're pleased with the progress we've made.
Funnel remains healthy, but a lot of work to do as we as we align this too to longer term value.
Excellent that's all for me thank you.
Thank you, ladies and gentlemen, as a reminder.
Because you have a question. Please press star followed by the one our next question comes from Mark Neville with.
Nevada, Ken with RBC capital markets. Your line is open.
Maybe if you could just share some thoughts on kind of the leverage outlook.
Still targeting reducing leverage I think by one turn per year, and I think you referenced reaching a normal range by year end.
Just some thoughts on how we should think about that.
Yes, good morning Savi so.
So we're in the three times range right now and as I talked about we do expect to.
Have improved cash generation second half largely driven by achieved.
Achievement of milestones on some of these larger projects and that's going to that's going to help.
Offset some of the working capital build we've had on those projects and in the first half of the year. So I would expect we will get back to what I would call the normal range by by the end of the year.
And that's that's that's where we're at I expect us to finish out.
Okay, Great and then just kind of my last one I know you called out growth across a couple of end markets stay.
Stable outlook in terms of the opportunity set across a couple of others. Just hoping you could provide maybe a bit more granularity what that might mean by perhaps region.
The ones that are stable is it growth and some offset by softness in other regions and then maybe just the ones that are growing and is there a particular region driving its a bit of more color on what youre seeing.
As you look ahead to the next year across cellular major end markets.
Sure.
I'll go into a bit more specific around this.
I'll start with the headline.
We exited Q2 was the best bookings quarter in company history.
The highest <unk>.
Backlog in company history, and as you mentioned, a strong funnel a a good funnel going into Q3.
And so we're pleased with the progress and then and then steps we take to additional insight.
As we continue to not only pulse.
And really align and to understand the market dynamics.
As you recall when we set out on this journey five six years ago. When we look at the strategic focus areas. We generally look at markets that are more resilience and we say that life Sciences EV energy regulated food. These areas are generally more resilient in the long term.
And we couple that with with.
We have discussions with customers and we do that and in all regions, we support and our long story short here is that <unk>.
Customers really aren't changing their buying behaviors and automation can provide multiple avenues of success for customers, whether its mitigation on on turnover, whether its labor cost whether it's movement of product from our region to another onshoring re shoring or energy cost energy efficiency or even.
As you look at when we look at our food space.
The dynamics around the actual food, becoming a higher cost commodity. So therefore, you look at automation as an enabler to process. So.
Then getting even further life sciences.
Pleased with our progress and grew backlog in the quarter.
Submarkets being attractive and continue to be attractive seeing more return to normal certainly nuances within each customer, but are pleased with where that sits.
We announced last quarter, our largest award ever.
Then had announcement last week with a follow up on and we do view. This market is generally early in its journey.
That said, we need to execute need to drive value.
Regulated food. This is an area that we view has longer term tails and we like the position we sit in today.
And we do view this has a little bit more cyclicality based on based on growing seasons and harvesting seasons that said, we'd like to position, we like where we've gotten to.
Energy generally stable niche market niche space for us.
And <unk> as being an opportunity for us to expand on the domestic consumer.
<unk>.
Cosmetics personal care and certainly while we have seen some area and we've seen this market dynamic our view as we've continued to execute and we're not seeing a big change in behavior. Today, we do view that there is opportunities to build out and our teams have done an excellent job here around building.
Our core IP core capability as customers look at sustainability and they think about their sustainability journey and how we can utilize our insight and knowhow to help them in their journey on packaging on on applications that they utilize so.
If you step back our headline strong bookings quarter.
If I were to characterize our view of the market cautiously optimistic.
Certainly nuances within each area that said.
Strong quarter for us on a bookings perspective.
Lining to for the foreseeable future our ability to execute.
Maybe if I could just squeeze in one just moving lower on the income statement you know some puts and takes I think you called out on supply chain sort of in the commentary in the release can you maybe share your thoughts on where we might be on the cycle towards or the timeline towards normalization and maybe some thoughts on.
Kind of the outlook for the commodity some of the larger ones that you use sort of what's the outlook. There as you head into the next kind of 12 18 months period. Thanks.
Yes, maybe I'll start and then Andrew can certainly add in where I Miss.
In terms of supply chain, so we've seen.
Stabilization of prices sequentially. So over the last several months last last quarter or two.
And that's in most categories.
Where we've seen some.
Some improvement some sequential reductions has been certain raw material categories.
Generally on a year over year basis, we're still up.
Across the board we've also seen.
Continued lead time.
The extension through at all categories. So it's not moving as dramatically as it had say six or nine months ago, but lead times are continuing to extend out.
<unk>.
We've talked about this we look at this at our part level at a supplier level also on a category level, but generally speaking we.
Haven't seen it start to improve at this point.
Yes.
Maybe I'll just add in.
Our view and I mentioned this a little earlier our view is that this is going to be good.
The challenging environment for the next call it quarter to even further and so our teams are well prepared to be in this day.
Daily Visual management Daily management approach for the foreseeable future.
Are the investments we've made along the last several years around data and understanding and utilizing that into our global inventory.
<unk> ability to understand where we are in the program and project has really helped us minimize and we're going to continue to operate in that in that manner.
Great. Thanks, very much for that.
Our next question comes from Mark Neville with Scotiabank. Your line is open.
Hey, guys. Thanks again, maybe.
And maybe just a follow up.
On Max's question, just trying to understand the margin profile on these larger projects.
I guess my question would be when Youre getting these follow on orders should we think about this as sort of a re.
Repeat of the same line.
Which might be better margin because there is less sort of upfront engineering costs are a repeat task or is it part of just a bigger envelope.
Are these subsequent orders.
Look the margin profile and subsequent orders would be sort of comparable all.
All the way through.
Yes, so I'll start Mark and I.
I think I'll kind of get to what you're trying to drive into so generally speaking when we do something for the first time, you're going to see.
Ats and our customers look at this with a little heavier risk around how to minimize call. It areas that might cause us to be ready when we talk about red programs often around minimizing red applications Red programs. So the first time you do this right, there's more unknowns and the application.
<unk> unknowns in the customer dynamic they might change their solution throughout because they have to change how they might position in the vehicle et cetera, and so oftentimes. The first one you do is going to be where you learn those areas and it's an investment on both sides.
Once you get into subsequent orders and orders at align around going into production and call. It mass production cuts.
Customers see a high level value from Ats, and we ultimately see a high level of value within ags around bringing that that technology that innovation that solution to market.
So that's kind of the thinking around how we operate anything you'd add Brian .
So maybe just.
In terms of.
What's gone through our business and where we are in some of this in.
Talked a little bit of a mix but.
Maybe get a little bit more specific on that.
<unk>.
Theres a couple of aspects to mix and some of that is timing and I mentioned, we had some large programs last year that were largely completed in the fourth quarter. We've had some new large enterprise orders come on that are in the early stages. So we won't really start to see the positive impact of those on our margins in total.
Get into more advanced stages, and we get into higher revenue generating stages of the cycle of those specific projects.
Alright.
And I guess, Andrew if I could follow up to what you said.
There was three orders thus far for this program.
$72 30, and 190, I think under $90 million.
With that.
Again, two years to the way you spoke to would that still be sort of a quote unquote all first time stuff.
Or are we now getting into sort of.
We're sort of repeat orders all aware.
Theres less on loans.
Yes. So there is a mix of some of that is.
First time most of it is not.
And.
Hi.
Thank you had some of the currencies make stop it it was I believe in U S dollars.
$71 67.
And $1 40.
Okay. Okay. Okay.
Okay.
That's helpful. Maybe just Orion I don't know or Andrew I don't think I've mentioned this in your prepared remarks, just how the after.
Sales service business did in the quarter.
It did not but it continued to we did see good growth in after sales service.
In the quarter.
In our range.
Low double digit.
Okay.
Maybe just one last one then and when you spoke to the markets.
Food and beverage food in particular.
The backlog looks let's call it roughly flat.
Over the last 12 months. So I'm just curious is there anything.
Worth calling out there.
Yeah.
Or is it sort of just timing of orders and just normal course.
Yes.
So I would say at this time, no and I would say largely timing, we do view that debt.
The consideration and I mentioned this in my prepared remarks, but just that the alignment to how CFT and how those business units, where they operate we do viewed as a real opportunity that said we're.
It is generally a timing discussion.
Mark I would just add on a lot of this a lot of that business is is being converted from euro. So there is an FX headwind in those backlog numbers as well.
Okay.
That makes lot of sense alright, thanks, guys I appreciate Simon the job.
Our next question comes from Maxim <unk> with National Bank. Your line is open.
Hi, John I, just wanted to clarify one thing so I just wanted to kind of clear.
On the margin dynamic so it doesn't mean that.
There is going to be margin pressure until kind of the large EV programs mature or are these two things are not related how should we think about this.
So <unk>, if we start with where we sit today from.
Starting with Q2 in terms of a jump off point on margins.
Moving forward, we're in we're in an environment that.
Dynamics are very similar today to what they were a quarter ago.
So as I said, we're in the early stages of some of these large enterprise projects as we move forward and get into.
Advanced stages of completion.
Further along in the build we will see a positive impact.
Impact to margins through that so.
So call that timing and that spits out.
Quarter or two out.
<unk>.
Other some of the other dynamics in terms of supply chain, we've talked about the cost and lead time.
We mitigated a lot of that to date, but that's still a dynamic that we deal with.
And inside of that.
Why.
We have we've demonstrated an ability to improve margins over time and certainly our expectation is as the environment improves we will continue to drive margin expansion over the long term, but in the short term.
A challenging environment.
Okay. Okay. Thank you for clarifying.
Mr. Hider there are no further question at you for closing comments.
Great. Thank you operator.
Look forward to staying focused on our goal of creating value for our customers.
And shareholders as we continue to execute.
Thank you for joining us today.
I look forward to speaking to you on our Q3 call in February stay safe and Goodbye for now.
This concludes today's conference call. Thank you for your participation.
Increased disconnect your line.