Q2 2024 ATS Corp Earnings Call
Ladies and gentlemen, welcome to the a T S Corporation second quarter conference call and webcast.
This call is being recorded on November eight.
2023 at 830, a M eastern time.
Following the presentation, we will conduct a question and answer session.
I'll now turn the call over to David Galison head of Investor Relations at ETF.
Thank you operator, and good morning, everyone on.
On the call today are Andrew Hider, Chief Executive Officer of Etfs, and Brian Macleod, 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 Dot com.
We caution that the statements made on the webcast and conference 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 these statements are detailed on slide two of the slide deck.
Now, it's my pleasure to turn the call over to Andrew.
Thank you David good morning, everyone.
Thank you for joining us.
Today, we reported another successful quarter headlined by solid and diversified order bookings.
Ganic revenue growth and strong execution across our business.
Consistent with our strategy, we announced two acquisitions, which are expected to expand our capabilities in key areas, including biomedical research and digital.
The quarter also featured our institutional Investor day, and <unk> hundred 30, <unk> anniversary, but providing specialized packaging solutions for global customers in pharma and consumer products.
I will update you on the business end markets and then Ryan will provide his financial report.
Starting with our financial value drivers.
Order bookings for the quarter were $742 million.
Which included growth in life Sciences, consumer products, and energy and solid bookings in our transportation and food and beverage verticals.
Our trailing 12 month book to Bill ratio at the end of the quarter was 111 to one.
Q2 revenues were $736 million.
Up 25% from Q2 last year.
Including organic growth of 16%.
Yeah.
Adjusted earnings from operations in Q2 were $98 million up 29% versus Q2 last year.
Moving to our outlook.
Order bookings included new orders across all markets, particularly.
In life Sciences and EV.
Our backlog remained consistent versus last quarter at over $2 billion. Despite the revenue ramp up and our EV projects at normal project execution and other areas.
By market the life Sciences funnel remains strong and backlog was $857 million up 10% compared to Q2 last year.
We secured key orders in several areas of our important sub markets, including medical devices.
Our Symphony platform supported key wins as did our track record for quality and on time delivery.
And radio pharma co mature successfully secured several new orders.
<unk> position as a leader in its space.
All of our life Sciences businesses are focused on identifying opportunities to provide expanded or integrated solutions to our customers.
Transportation and he got backlog was $736 million up 20% year over year.
Our OEM EV programs continue to be executed well and we remain on track from a cost and timing perspective.
Recent labor disruptions in the automotive industry have not materially affected our performance or our ability to serve our customers.
In the short term consumer demand may influence the timing of OEM investments. However, our outlook has not changed and our transportation funnel remains strong.
Reflects diversified long term opportunities with additional investments in production capacity will be required to reach dated EV production targets.
And food and beverage.
We saw a strong finish to the tomato harvest season for both CFT and Ray tact.
Customer interest is growing for our recently developed opportunity optical sorting product, which leverages AI and a patented feed system, enabling improved productivity and higher quality inspection for peeled Tomatoes.
The food and beverage funnel remains strong.
In energy.
Funnel remains strong and contains several long term opportunities in the nuclear space.
This market remains active both in Canada and globally for new plant and refurbishment projects small modular reactors and decommissioning opportunities.
We remain well positioned based on our demonstrated experience in these markets.
Consumer products, our funnel remains stable. However, inflationary pressures continue to have an effect on discretionary spending in the personal care markets.
Which may impact timing of some customer investments.
On after sales services.
We are delivering value to our customers through partnerships dedicated to achieving the highest level of asset performance over the entire lifecycle of the equipment.
Through expanded core and digitally enabled service offers.
We're also building recurring revenue streams for Ats.
The continued expansion of our regional networks enables us to provide dedicated service teams and spare parts to the regions in which we operate.
On digital the.
Ongoing shift to digital accessibility to the cloud provides opportunities for growth as we work with customers to collect.
July and analyze data and ultimately optimize performance across all markets we serve.
On supply chain material cost pressure eased in Q2 for some categories, but not all and lead times remain extended.
We have consistently demonstrated our ability to operate in a dynamic environment with longer lead times and we remain prepared to do so.
Our supply chain teams are focused on daily visual management, including enhanced tools and deployed 11 AVM events in Q2, including purchase price variance and value engineering Kaizen and workshops.
Across all business groups and geographies, we completed 40 ABM events during the quarter and ran five problem solving workshops with over 100 participants.
As we highlighted during our Investor day, CFT is leveraged all aspects of the Ats business model, which has helped to generate a more than 500 basis point improvement in adjusted EBIT margin since acquisition.
Our most recently acquired businesses are also making good progress in implementing the ABM.
On M&A, we closed the acquisition of Odyssey in early July and announced the acquisition of Avidity in September.
But he is expected to complement and expand our life sciences products and services and customer base and is a natural fit alongside <unk> and S. P.
In addition to strong reoccurring revenue avidity is accretive to <unk> gross margins and adjusted EBIT margins.
Our M&A funnel remains active healthy and diversified across both large and small opportunities.
As always we remain disciplined in our assessment of targets.
On ESG we.
We recently released our fourth annual sustainability report I encourage you to review the ways in which we are supporting our customers across the globe and their sustainability efforts in advancing our own ESG targets as responsible operators.
On innovation ongoing internal investment is supporting our talented teams and creating unique enabling solutions to drive customer value.
A few highlights from the quarter.
We launched a new Super track pharma linear motor can bear that allows the functionality of our highly successful super tracking bears to be used in ace uptick in clean room environment and the pharmaceutical industry.
During our life Sciences annual innovate day in Chicago, we highlighted the Ats flex feeder solution, which is designed to improve our ability to deliver projects using symphony technology quickly and at a lower cost.
On Green Energy solutions, our Ats industrial automation team developed new test equipment used in the production of high capacity fuel cells.
And in food and beverage our comex team is bringing a new high speed in line pellet checker to our customers in the brewing industry to reduce loss product.
In summary.
We are pleased with Q2 performance and encouraged by strong order bookings in our opportunity funnel.
Our results demonstrate the strength and diversification of our portfolio of offerings and the dedication of our global teams.
As we execute on our backlog, we will continue to move forward with our strategy, while building flexibility into our business.
This will be assisted by our ABM as we deliver results for our customers and our shareholders.
Now I will turn the call over to Ryan Ryan over to you.
Thank you Andrew and good morning, everyone.
This quarter Ats delivered strong results as we remained focused on executing across our businesses and pursuing our value creation objectives.
Beginning with orders order bookings were $742 million down seven 7% compared to Q2 last year, which included a 167 million U S easy work.
Excluding transportation.
Saw a year over year growth in all other markets, including strong organic growth in life Sciences, and once again, our teams delivered a top five order bookings quarter over Ats is 45 year history.
Q2 revenues were $736 million up 24, 9% over Q2 last year.
Organic revenue growth was 16, 4% year over year, primarily based on the stages of project execution on our large EV battery programs.
Recently acquired companies added approximately 2% to revenue growth and foreign exchange translation had a positive impact of 6% compared to Q2 last year.
We finished Q2 with order backlog of just over $2 billion 12.
12% higher than Q2 last year.
Looking ahead, our revenue conversion for Q3 is estimated to be in the 34% to 37% range of backlog.
This assessment is made every quarter based on revenue expectations from existing backlog and new orders booked and billed within the quarter.
Moving to earnings Q2, adjusted earnings from operations were $98 3 million up 29% from Q2 last year, primarily due to revenue growth, partially offset by higher SG&A costs.
Adjusted earnings from operations margin was 13, 4% in the quarter up 44 basis points compared to last year, reflecting improved operating leverage.
Our Q2 gross margin excluding acquisition related inventory fair value charges was 28, 3% up 20 basis points from Q2 last year.
The year over year increase primarily reflected improved mix with continued good program execution.
On supply chain price volatility still exist the variances are more muted than last year and.
Inflationary pressures and some cost categories are trending downward, particularly for certain categories of raw materials and freight.
Lead times remain extended in key areas, while our suppliers work to rebalance their production capacity and inventory levels.
As I've noted on previous calls longer lead times impact our ability to drive efficiency in our supply chain in the short term.
Moving to SG&A expenses were $20 $1 million higher than Q2 last year and included $16 1 million of acquisition related amortization and $1 2 million of acquisition related transaction costs.
Excluding these comparable items in both periods Q2's, SG&A was $104 6 million $19 7 million higher than last year, primarily due to increased employee costs incremental SG&A expenses from acquisitions and foreign exchange translation impacts.
Stock based compensation expense for Q2 was $3 5 million.
A decrease of $1 8 million from last year's expense.
Excluding the mark to market impact related to changes in our share price stock based compensation expenses were $5 5 million in Q2 compared to an expense of $4 $3 million last year.
On earnings per share or EPS was <unk> 51 in Q2 up 59% over last year or.
Our adjusted EPS was up 23, 5% to <unk> 63 in Q2, primarily reflecting growth in revenues.
As part of our periodic assessment of operations, we have identified opportunities in certain parts of the business to improve our cost structure and reallocate capital in support of our strategic growth plans.
We expect these targeted cost reductions will allow us to invest further into accelerating growth in areas of the business that provide opportunity for higher returns.
The estimated cost of these efforts is expected to be $15 million to $20 million with the majority of costs incurred in the third fiscal quarter.
Moving to the balance sheet in Q2 cash flows generated by operating activities were $8 $5 million, reflecting the timing of project progress and milestone billings and payments primarily on our large EV programs.
Noncash working capital as a percentage of revenue was 18, 4% at the end of Q2 up from 15, 6% at the end of Q1.
Primarily reflecting working capital investments and our large EV programs.
Cash generation in period end working capital values can fluctuate depending on timing of billing milestone payments and execution of work on our larger programs in the short term, we continue to expect working capital to remain variable.
Total year to date investments in Capex and intangible assets were $44 8 million, which included $21 8 million in Q2.
This is on track to our planned fiscal 'twenty, four capex investment of $80 million to $100 million.
On leverage or net debt to adjusted EBITDA ratio was 2.0 to one as of the end of Q2 down from two seven to one at Q4 of the prior fiscal year and in line with our target leverage range of two to three times net debt to adjusted EBITDA.
Lower leverage reflected net proceeds from our equity offering which we used in Q1 to initially pay down amounts outstanding on our revolving senior secured line of credit.
On M&A subject to completion of regulatory reviews.
To complete the acquisition of Avidity and the third fiscal quarter, we intend to fund the acquisition with cash on hand, and by drawing on our credit facility at which point, we expect leverage to rise to approximately the midpoint to the two to three times range.
And subsequent to quarter end and with the strong support from our lenders, we amended our credit facility to extend our term loan maturity to November of 2026 matching the maturity on our revolving line of credit.
Okay.
In summary, we're pleased with the performance of our evolving portfolio and confident that our positions in our strategic end markets combined with the evident value of the Ats business model will support long term value creation.
We continue to monitor macro level challenges, including rising interest rates and extended lead times and our supply chain, which we expect will take some time to decrease.
In the meantime, strong order backlog in our key markets provides good revenue visibility over the next several quarters.
Overall, we have the capacity to continue to support our growth strategy as we remain focused on creating value for employees customers and shareholders.
Now we will open the call to questions from our analysts operator could you. Please provide instructions. Thank you.
Ladies and gentlemen at this time, if you would like to ask a question Press Star then the number one on your telephone keypad.
If you would like to withdraw your question Press Star one a second time and we will pause for just a moment to compile the Q&A roster.
And we will take our first question from Cherilyn Radbourne with TD Cowen Your line is open.
Thanks, very much and good morning.
Andrew as you noted in your prepared remark consumer adoption.
In Q have plateaued, a bit could you give us a bit of color and what youre hearing from customers and what you think the implications might be for funnel conversion rates.
Yes, good morning Cherilyn.
The overall market, it's a bit dynamic right now and we're monitoring it very closely with Oems.
They are battery technology evolution, there near term investment plans.
And really at this point.
We're not seeing major changes to our <unk> funnel transportation funnel remains strong and reflects diversified long term opportunities.
Really our view of the opportunity has not changed.
You step back and look at our organization.
We have a long tail here and view this as additional investments in production capacity and these are needed to meet the stated EV production targets now the timing certainly is going to be discussed.
A discussion point, we haven't seen a marked change in timing distribution as of today.
It said, we're staying very close in and even if we look at the quarter, we booked several customers within the quarter.
Continued to evolve and continue to really focus on high value as these customers navigate this is certainly dynamic and challenging environment.
Okay. That's helpful.
I think bookings included in grid battery program order, which I believe is the first for ATF, maybe you could elaborate on that a little bit.
So we are excited about this space and it's an area that we view.
As we step back and look at our capabilities is very in line with.
With how we have launched solutions into markets to support the demand and growth just to step back on this one it really is it's very closely aligned to how we operate for the EDA space. We use a lot of the same capability in technology and we brought it to this market as we see this as a growing area and.
And as you look at the energy consumption energy space and they're needed to really identify areas to store and then produce output. We certainly view this as a strong potential that said its early in its journey and one that we're working with a key leader as they as they really look to prove out their technology and prove out their capability.
That's my two thank you for your time.
Thank you Cherilyn.
And we will take our next question from <unk> Khan with RBC capital markets. Your line is open.
Great. Thanks, and good morning, I guess, just kind of on a similar line of questioning as Cheryl and if you can just maybe hone in a little bit on the life Sciences market and we've been getting a lot of questions over the recent weeks on that market as people see some of the headlines and maybe to the extent you can share maybe talk about the specific areas are involved with within life Sciences, which we.
Do you see growth and which ones might see some slowdown in just a little bit of color on that larger end market I noticed some commentary in the release about injectables relate to obesity and diabetes, maybe you can talk about how youre involved in that space as well. Thank you.
Yeah, Hey, good morning, Saba look I'm going to give some headlines that I'll go into more specific <unk>.
Headline.
As I walk through our funnel is strong and in the life Sciences space number two if you look at the bookings were up year to date call it 16%.
And a lot of that is aligned around areas that we view have long tails and as a reminder, when I first joined we really looked at this space and we identified targeted areas that we view are more resilient and we continue to align around those areas.
And one of them is this auto injector space, which the end market is growing part mid mid twenties, and the external growth rate and thats surrounds weight loss that surrounds.
Diabetes care thats around even though they are testing it now for cardiovascular.
Solutions and so we do view that market as a strong growth in <unk>.
Not every time, it's a one for one on capex to growth, but we are seeing a significant growth in the support of the auto injector space.
Our bookings for the quarter were a big piece of that was around auto injector number two.
I highlighted this a bit in our in my prepared remarks, coma chair and our support in the fight against cancer.
And the new launches.
Drugs around really identifying and being higher level in that fight against cancer and where they fit in the space and as a reminder, they do the billing application for this.
Aligned around key it's aligned around our technology, and we are really truly driving and enabling our customers to bring those products to market.
And so.
As we see new launches in life Sciences, as we see new areas Etfs is positioned to really support customers and bringing that product to market and got it.
At a rate that we can meet the increased demand we can have high quality.
And really reduce the risk to bring those products to life and so.
Overall, I'm pleased with the progress more to come in and as a reminder, our funnel remains strong for this for this market.
Okay, Great and then just maybe a bit more of a specific one on the EV market you got sort of a large enterprise order some smaller ones in there and I think on the <unk>.
Last call you alluded to doing tests with.
One or more Oems that could lead to potentially bigger orders can you maybe walk us through what that process entails the size of that test order.
How long the customer wants to kind of run with those products that you've provided that model the assembly stones and at what point will they make a decision on whether to convert just thinking at all if you can walk us through a process timeline are we looking at a six month two years, maybe some additional color on that how that works on your end.
Yes.
Yeah.
Unfortunately, there is no standard playbook for this one and what you often find is customers will launch with a pilot production line and what they are often doing with that is they're testing out their solution set some customers will go quickly from pilot, while it's even in process to production.
We will test the pilot and then water.
Narrow win on the technology, and then and then launched a production we've actually seen customers even in the short time.
Last call. It 24 months, we've seen customers also changed based on battery technologies and so they have launched and then they modified.
And really realigned to a new battery technology that offers higher output lower costs and and and so there is really no standard and so what I can tell you is this.
Our target our focus is to be on customers that we knew of long tail customers that we view, we can offer high value in their pivot to the EV space and customers that we viewed that really are going to align around production input production quantity output and and so while we're pleased with the progress here we do.
See this is call it early in its journey and its one that our views of the market has not changed yet the long term perspective is is really around launching new vehicles and really supporting these customers as they navigate this.
Certainly changing environment.
So I would just add on a little bit here too. So so the order you referenced.
To give you a bit of context, it's mid single digit millions.
So as Andrew said not not atypical for.
For this stage of where that customer that the other thing I would add one just about <unk> in general.
As a reminder, these programs typically are 18 to 24 months in duration. So they are longer duration programs and that does also influence the timing of customers pursuing follow on orders or expansion of orders. So so it is a little bit longer.
The funnel.
The amount of time Warner's sit in our funnel, it's a little bit longer than than other parts of the business.
Great. Thanks, very much for the color I'll get back in queue.
And we will take our next question from Michael <unk> with Scotiabank. Your line is open.
Hey, good morning, guys.
I wanted to see if I can push a little bit more on the auto injectors fees again as far as it relates to diabetes and obesity treatment.
I'm wondering if that's a sense for what has been booked to date versus what you still would qualify as being in the funnel.
I'm trying to get a sense for whether bookings could accelerate a little bit more rapidly in the coming quarters, just any perspective there.
Good morning, Michael It's Brian So I mean within the quarter.
It was it was in the 10% to 15% range of our bookings.
And I'll, let Andrew comment on the funnel, yes. So so we have shipped solutions here, we're in process on solutions and our funnel remains strong around this space.
One of the areas and I'll, just walk through and highlighted technology and I did mentioned this but just to really highlight it in a little bit more clarity.
The the Symphony platform has really put us in a unique space here and as a reminder, we acquired the company transform ex some time ago. We worked in our innovation Center right here in Cambridge, Ontario.
To bring this solution from from where it was being capable in this space and it allows us to have a smaller footprint and allowed us to bring a solution set with high output high quality small footprint, which is critical for this elements and so we've been able to really align around this and it makes more of a standard solution set for.
The market. So again, we're pleased with the progress the funnel is strong in this area, we see it continuing to grow and it's one of many areas that we provide solutions sets for our customers and I highlight that because there are several other life sciences applications and end markets that we also support but also have strong growth in <unk>.
Mission to help our customers bring their product to market.
Very helpful details. So maybe just pivoting here to higher interest rates just wondering.
How higher interest rates are filtered into some of the discussions youre, having with your customers.
Presumably or it could presumably defer some spending and just wondering if you can provide comments as to maybe where you felt conversations changed the most end market wise.
Or if you have it at all.
Yes, So let me look first and foremost the bookings rate year to date is strong we are.
Happy with the quarter I think this is our third largest bookings quarter.
And history and so so overall pleased with the progress and as I walk through the markets I referenced strong in most areas I would say the one area that we watch closely as our consumer products, but more specifically the personal care.
And.
That generally can be impacted by by a recession.
That is a low single digits and just to just to highlight our consumer products year to date is up 20%. So while I have highlighted that as an area. We look at we have not seen that walk through and into an impact and so when I speak to customers and as you are well aware as a CEO of one of my ongoing standard works is too.
Have conversations with many of our customers in many of our spaces.
Seeing a marked difference in their buying behavior, we often align around.
Key technologies are key solutions like the auto injector.
That really aligned to their strategic output of their products and so they're focused on getting these to market. They are focused on bringing the capability to their customer base.
And <unk> is well positioned to provide that.
Very helpful color. Thanks, guys.
Yeah.
As a reminder, it is star one if you would like to ask a question and.
And we will take our next question from Michael Glen with Raymond James Your line is open.
Hey, good morning.
Just to go back on the auto injector, Andrew can you just frame for us the competitive <unk>.
<unk> around this business.
How do you assess your current market share do you view Ats as the market leader in that space or.
Just trying to get some insights on that.
Yes, so I'll answer the latter part of the question. So we are a market leader in this space and we've been in this market for some time.
And we provided solutions sets for a period of time with known customers that are.
We have continued to grow and we've continued to take share here in Iraq.
<unk> Symphony earlier, because that was a key enabler for us.
And it really allowed us to bring a standard solution set with customization.
And I'll tell you whether you come in into North America, or Europe, we're providing solutions for this space and it is a competitive area that said we are a leader in this in this space and we have key technology that our customers value.
Yes.
Okay.
And then just on the <unk>.
The EV the EV backlog.
Would you say that that is becoming more diversified over time is it still as heavily concentrated with.
One customer or is there is there are small evolution theyre taking towards diversification.
Sure.
Okay.
Yes, so I would say, it's still heavily concentrated yet there is defer the diversification is increasing and again, even this quarter. We saw several customers in new and follow on work and so that's been a continued to support the diverse diversification in this space.
Okay, and Brian just a clarification I think you said auto injector was 10% to 15% range of bookings in the quarter was up for life sciences or was that for the entire bookings figure.
That was.
Yes.
For the entire bookings.
15, 10 to 15 of our entire bookings.
Okay. Okay. Thank you.
And as a reminder, if you would like to ask a question press star one on your telephone keypad.
And we will take our next question from Justin <unk> with Stifel, Canada. Your line is open.
Good morning, Thanks for taking my call on M&A any change in the multiple environment.
And is there, perhaps an opportunity here to do additional.
Transactions or is the focus more internally and closing and integrating avidity.
Yes, so so I'll walk through different such that first and foremost we're very excited.
Welcome ability to the family. This would you view the closing as this quarter and are excited to have that as part of our future.
Number two.
As you look at the deal flow in the in the M&A space deal flow has gone down.
That said our funnel is healthy and we continue to cultivate in key areas and this is Ben.
A proven focus for Etfs that we have our playbook, we have our ability to execute when we identified key high value for <unk>.
For Etfs, our customers and our shareholders.
And in our funnel remains healthy in the states, we have not seen a significant change in seller expectations.
And we are extremely as youre, well aware very disciplined in our approach on this.
The key focus areas for M&A potential and part of that is the financial return.
So youre going to see us continue to execute our plan and when the right opportunities arise we're in a position to move fast and really helped the costs. There helped the new additions achieved their aspirations.
And to add a little color on that common share growing at a very fast pace. We've had them now as part of almost five years.
I highlighted CFT and the announcement on what they've done with their margin expansion and just.
Pleased with the progress here and more to come for the future.
Great and then just to clarify on that CFT margin expansion I think on the Investor Day. It was mentioned there was 500 bps since it was acquired.
That's correct that is correct.
Thank you.
And then a question for Brian on the working capital. So it has been a little elevated and I believe above the target range this quarter.
Just wondering if we're expecting that to revert in fiscal Q3, and what is the expectations for the back half of the year.
Yes, so our goal is to be below 15%, we've exceeded that in the first half of the fiscal year and I've talked about some of the drivers of that variability primarily.
Some of the investments into the larger programs that are that are driving that increase.
In the short term I expect we'll continue to see.
Sure.
Higher than target run rate.
I do expect we'll see a decrease in the first half of calendar 'twenty four so.
Our fourth fiscal quarter in the first fiscal quarter of next year.
And that's that's really tied to our current program schedules of the portfolio of what's in our backlog and how thats going to get executed and then build.
Outside of the programs, we've had a little bit of a build in inventory, but the main drivers really tied to specific customer programs.
Understood and then just finally on the net debt to EBITDA. So two times in the quarter and post avidity I.
I believe Thats two five times is that correct.
That is correct yes.
Great. Thank you for taking my questions.
And we will take our next question from Maxim <unk> with National Bank Financial Your line is open.
Hi, good morning, gentlemen.
Good morning Max.
Most questions have been answered.
Or asked I guess just wanted to see if maybe you can provide a bit of.
Framework in terms of how we should be thinking about the payback on some of the reorganization activities <unk> undertaken in the upcoming quarter.
Thanks.
Yes, good morning, <unk>, So I'll start.
And I referenced.
In my prepared remarks that we do periodically.
Look for and identify areas to improve value and what.
What we're doing it it's actions that are going to impact a number of areas of the organization and it's really about.
Reallocating capital into higher value areas of the business for example, digital.
Services Life Sciences.
And we are removing and a number of other areas, where we don't see the same growth or value potential. So we spoke about this in the jazz, including at our Investor Day, we talked about optimizing our portfolio ensure we're spending in the right areas to drive to.
To drive value for customers shareholders. So we do expect this will drive growth and improvement in our margins over time.
But this is not targeted as our cost savings initiatives.
Understood. Thank you.
And if there is nothing from from Andrew.
Follow up question I had was in relation to the leverage dynamic.
Pro forma two five times I'm, just curious if your framework or the thought process around.
The optimal capital structure within the high interest rate environment has changed at all.
Just maybe any kind of high level thoughts on that thank you.
Yes so.
Generally no.
Our thinking hasn't changed around capital deployment, and where we're focused in.
We do favor internal investment we look at it from an ROIC perspective, and that typically generates the highest returns M&A.
<unk> is also a <unk>.
Priority for Us and then.
Our share buyback is more opportunistic.
The cost of capital the cost of debt.
The effects the individual investment decisions. So so when we're looking at M&A. There is there is an impact on.
For example.
DCF in the valuation, but but it doesn't change the overall framework with how we're looking at the business and now we're looking at.
Deploying capital to drive value.
Okay, Okay, and maybe just high constant one one other one in terms of nuclear I mean, there is.
Better news flow around some of the opportunities that I am just curious.
You can maybe comment on the space in terms of the pacings of potential.
Contract announcements on that side.
Yes, so max.
We've seen nuclear.
As we look at the energy space nuclear is is growing.
<unk> continues to grow quite strong.
And as a reminder, we are in the can do reactor space.
And more specifically the refurbishment of candy reactors, which <unk> seen continued global interest around this.
Additionally, we support.
And we're a part of the small modular reactors and wall, it's early and I M.
<unk> early in its journey, we're seeing strong science and potential acceleration here. So.
I'm always careful until the technology is proven out we are working with some of the key players in that space and we support this area again, we're a niche provider for automation equipment around this around the energy and nuclear arena and one that we view, we have high value for customers as they move forward.
Okay excellent. Thank you so much.
Thank you Max.
We will take follow up questions from Michael Glen with Raymond James Your line is open.
Hey, guys I just wanted to.
And one follow up on that 10% to 15% figure.
Can you characterize how that would have tracked in the past this quarter versus prior quarters have you seen quarters with this much strength in the past or as is the direction generally up into the right with this business trying to assess lumpiness as well.
Yes, Michael you're asking specifically on auto injector order flow.
Yes, yes, yes.
This is this was.
A higher quarter than where we've been on a run rate basis.
Okay and would you say would you expect order flow to be relatively consistent or there will be lumpiness.
During the quarter as this as this buildup.
Yes, so Michael there will be lumpiness.
That said the funnel is healthy share and and we continue to support customers as there is a growth on building capability to meet the demand.
And that's why new areas that.
Can be utilized for the auto injector space. The demands are only going up and so we are supporting that and it will be a.
Continued focus on timing for customers, but it is a healthy funnel.
And are you doing still finish at all with any of these applications as well.
We are we are early days in that and we are continuing to assess as youre well aware, we do fill finish and our in our business and we do look across synergy to bring a full day to customers.
Early on right now we're part of the medical device portion of that but it is an area that we're looking into and continue to look into.
Okay. Thank you.
And we have no further questions I will now turn the call back to Mr. Andrew Hider for closing remarks.
Thank you operator, I look forward to welcoming avidity to the Ats group of companies pending closing of course.
And to speaking with you on our Q3 call in February.
Thank you for joining us today stay safe and goodbye for now.
And ladies and gentlemen, this concludes today's call and we thank you for your participation you may now disconnect.
Okay.
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