Q3 2024 ATS Corp Earnings Call - Q&A

Welcome to the a T S Corporation third quarter conference call and webcast. This call is being recorded on February 7th 2024 at 830, a M eastern time.

Operator: Welcome to the ATS Corporation third quarter conference call and webcast. This call is being recorded on February 7th, 2024 at 8:30 a.m. Eastern Time.

Following the presentation, we will conduct a question and answer session.

Operator: Following the presentation, we will conduct a question and answer session. I'll now turn the call over to David Gallison, Head of Investor Relations at ATS. Thank you, Operator, and good morning, everyone.

I'll now turn the call over to David Galison head of Investor Relations at Ats.

Thank you operator, and good morning, everyone.

On the call today are Andrew Hider, Chief Executive Officer of Etfs, and Ryan Mcleod Chief Financial Officer.

David Gallison: On the call today are Andrew Heider, Chief Executive Officer of ATS, and Ryan McLeod, Chief Financial Officer. Please note that our remarks today are accompanied by a slide deck, which can be viewed via our webcast and is available at ATSAutomation.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 the statements, are detailed on slide 2 of this slide. Now, it's my pleasure to turn the call over to Andrew. Thank you, David. Good morning, everyone, and thank you for joining us.

Please note that our remarks today are accompanied by a slide deck, which can be viewed via our webcast and available on Etfs 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 those 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 and thank you for joining us.

David Gallison: Today, we reported strong third-quarter organic revenue growth, good contributions from recent acquisitions, and adjusted earnings in line with our expectations, as we built on the momentum achieved in the first half of the year. We completed the acquisition of Avidity, which further expands our life sciences products and services offering that's complementary to our existing business. At the beginning of Q4, our PA Solutions Group completed the acquisition of Itaka, an Italian-based automation integrator with a focus on primary processing and pharmaceuticals. Avediti and Ataka are the most recent examples of how we use acquisitions to drive our strategy and evolve our portfolio. We are pleased to welcome both teams to ATS.

Today, we reported strong third quarter organic revenue growth.

Contributions from recent acquisitions and adjusted earnings in line with our expectations.

We built on the momentum achieved in the first half of the year.

We completed the acquisition of Avidity, which further expands our life sciences products and services offerings. This is complementary to our existing businesses.

At the beginning of Q4.

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An Italian based automation integrator with a focus on primary processing and pharmaceuticals.

Ah Vanity and Attacca or the most recent examples of how we use acquisitions to drive our strategy and evolve our portfolio.

We are pleased to welcome both teams to Etfs.

Andrew Heider: Now, I will update you on the business and our markets, and then Ryan will provide his financial report, starting with our financial value driver. Order bookings for the quarter were $668 million, supported by organic growth in life sciences and strong performance in food and beverage. The underlying trends driving demand for ATS solutions remain favorable. Q3 revenues were $752 million, up 16% from Q3 last year, including organic growth of 9%. Adjusted earnings from operations in Q3 were $101 million, up 17% versus Q3 last year. Moving on, Our backlog held strong at over 1.9 billion dollars; by market, our life sciences backlog is up 10% compared to Q3 last year at a record $875 million, supported by wind in key areas, including auto injectors and contact lenses.

Now I will update you on the business and our markets.

And then Brian will provide his financial report.

Starting with our financial value drivers.

Order bookings for the quarter were $668 million.

Supported by organic growth in life Sciences, and strong performance in food and beverage.

The underlying trends driving demand for HTS solutions remain favorable.

Q3 revenues were $752 million.

16% from Q3 last year, including organic growth of 9%.

Adjusted earnings from operations in Q3 were $101 million.

Up 17% versus Q3 last year.

Moving to our outlook.

Our backlog held strong at over $1 9 billion.

By market, our life Sciences backlog is up 10% compared to Q3 last year at a record $875 million supported by wins in key areas, including auto injectors and contact lenses.

We remain focused on opportunities to provide expanded or integrated solutions to our customers.

Andrew Heider: We remain focused on opportunities to provide expanded or integrated solutions to our customers. For example, we secured a new order as a result of an innovative offer that includes Biodots dispensing technology and SuperTrak Smart Conveyance Technology as part of a diagnostic cartridge assembly system.

For example, we secured a new order as a result of an innovative offering.

That includes Biodot dispensing technology, and Super Jack Smart conveyance technology as part of a diagnostic cartridge Assembly system.

Our life Sciences opportunity funnel remains strong.

Andrew Heider: Our Life Sciences Opportunity Fund remains strong, supported by market growth, including increased consumer demand for auto injectors driven by GLP-1 drugs, and Transportation. Backlog was $564 million, down 36% compared to Q3 last year, reflecting ongoing execution of large programs won in the last fiscal year along with expected variability in program awards in this market. We are working with one of our OEM customers to support their revised timing on a portion of their existing program. While the near-term market for electric vehicles remains dynamic, as OEMs look to lower platform costs and align capacity to end market demand, the long-term fundamentals remain intact, supporting demand for our solution.

Supported by market growth, including increased consumer demand for auto injectors, driven by G. L. P. One drugs.

In transportation.

Backlog was $564 million down 36% compared to Q3 last year, reflecting ongoing execution of large programs. One in the last fiscal year, along with expected variability and program awards in this market.

We are working with one of our OEM customers to support their revised timing on a portion of their existing program.

While the near term market for electric vehicles remains dynamic as Oems look to lower platform cost and align capacity to end market demand.

The long term fundamentals remain intact and support demand for our solutions.

Andrew Heider: Our transportation funnel is strong and reflects diversified long-term opportunities to support our customers, with ATS's proven ability to partner with customers by providing flexible solutions. We are well positioned as the EV market continues to evolve, and Food and Beverage. Q3 bookings were strong as expected, and our ending backlog was $207 million.

Our transportation funnel is strong.

And reflects diversified long term opportunities to support our customers.

With Ats has proven ability to partner with customers by providing flexible solutions.

We are well positioned as the EV market continues to evolve.

And food and beverage Q.

Q3 bookings were strong as expected.

Ending backlog was $207 million.

Andrew Heider: Notably, we successfully secured our first IoT order for a tomato processing line. Our food and beverage businesses are focused on innovation and customer experience, including aftermarket service, as we expand our offerings to our customers. Energy, our funnel remains strong and is expected to provide opportunities for both refurbishment of existing nuclear reactors and investment in new reactors providing sustainable, clean energy. ATS has the experience.

We successfully secured our first Iot order for tomato processing line.

Our food and beverage businesses are focused on innovation and customer experience.

Including aftermarket service as we expand our offerings to our customers.

In energy our funnel remains strong and is expected to provide opportunities for both refurbishment of existing nuclear reactors and.

And investment in new reactors, providing sustainable clean energy.

<unk> experience specialized skills and proven track record to support customers with their energy initiatives.

Andrew Heider: Specialized Skills, to support customers with their energy initiatives, and Consumer Products. Our funnel is stable. However, customers are continuing to evaluate their investments in the current economic climate, which may impact the timing of some opportunities. After Sales Services, a consistent investment in the strategic area, has included developing our digital solution. As these solutions evolve

In consumer products, our funnel is stable.

However, customers are continuing to evaluate their investments in the current economic climate, which may impact the timing of some opportunities.

On after sales services.

Our consistent investment in the strategic area has included developing our digital solutions.

As these solutions evolve.

Andrew Heider: We are putting ourselves in a position to provide performance insights through our connected asset value chain, too, our shift towards providing higher-value services on both ATS and non-ATS equipment. During the quarter, we also secured a synergy win with Triad and our life sciences business to identify OEE improvement opportunities for a key customer. With our digital offerings across the automation value chain, our funnel is strong, and we remain focused on developing our capabilities, utilizing an integrated architecture to help our customers collect and analyze data in an efficient manner to drive performance. During the quarter, a Global Pharma customer ordered ATS, a contract to build their IoT platform for data exchange with one of their major clients. On the supply chain, lead times and material cost pressures continue to challenge some areas of the business, which our teams consistently work to offset through the use of our supply chain levers and ABM tools, while increasingly leveraging digital tools to drive insights and opportunities. ABM activity and engagement remain strong, and we measure and monitor our success to identify areas for ongoing improvement and the deployment of our tools across the organization.

We are putting ourselves in a position to provide performance insights through our connected asset value chain.

And support.

Our shift towards providing higher value services on both Ats and non ags equipment. During the quarter. We also secured a synergy win with triad and our life sciences business to identify improvement opportunities for our key customer and our digital offerings across the automation Daiichi upon was strong.

And we remain focused on developing our capabilities utilizing an integrated architecture to help our customers collect and.

And analyze data in an efficient manner to drive performance.

During the quarter, our global pharma customer or to Ats the contract to build their Iot platform for data exchange with one of their major clients.

On supply chain lead times and material cost pressures continue to challenge in some areas of the business, which our teams consistently worked to offset to the use of our supply chain levers and ABM tools, while increasingly leveraging digital tools to drive insights and opt.

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ABM activity and engagement remains strong and we measure and monitor our success to identify areas for ongoing improvement and deployment of our tools across the organization.

Andrew Heider: During the quarter, we hosted our ABM Global Conference with a focus on ATS business model principles, processes, and tools to achieve impact on our value drivers, and M&A. We continue to expand our portfolio, and our integration efforts with Ability in the Talk are underway and progressing according to plan. Our M&A funnel remains active, healthy, and diversified across all target sizes, and we will remain disciplined in our approach and assessment of each target on ESG. ATS Scientific Products earned a silver medal as part of the Ecovadas Sustainability Program, an improvement from bronze last year. This award is a testament to that.

During the quarter, we hosted our ABM Global conference with a focus on Ats business model principles.

<unk> and tools to achieve impact on our value drivers on M&A, we continue to expand our portfolio and our integration efforts with ability and attacca are underway and progressing according to plan.

Our M&A funnel remains active healthy and diversified across all target sizes.

We remain disciplined in our approach and assessment of each target.

On ESG.

Scientific products earned its silver metal as part of the <unk> sustainability program and improvement from brands last year.

This award is a testament to the SP team's commitment to promoting sustainable practices and reducing our environmental impact.

Andrew Heider: This award is a testament to that, to the SP team's commitment to promoting sustainable practices and reducing our environmental impact. Additionally, AVIDITY recently launched the world's first water platform system, with reusable cartridges, that helps customers reduce their environmental impact. We consistently work to identify ways to demonstrate our commitment to ESG principles and priorities, across the organization, as well as for our customers, in innovation. We remain focused on strategically investing capital to create solutions that drive returns for our customers. A few highlights for the quarter, and Life Sciences. Our co-mature team developed a new software product for use by customers in the therapeutic radiopharma market, specifically to allow nuclear medicine departments to link dose preparation information directly to central hospital data systems using Our ATS Innovation Center continues to develop new solutions for the auto-injector device assembly, allowing for threaded components to be connected together at very high speeds and accuracy. In Food and Beverage, COMAC announced the launch of a 3D scanning vision system that helps to automate and speed up the inspection and sorting of kegs prior to them being filled.

Additionally.

<unk> recently launched the world's first water platform system.

With reusable cartridges that helps customers reduce their environmental footprint.

We consistently work to identify ways to demonstrate our commitment to ESG principles and priorities.

<unk> the organization as well for our customers.

On innovation.

We remain focused on strategically investing capital to create solutions that drive returns for our customers and a few highlights for the quarter and.

In life Sciences, our co mature team developed a new software product for use by customers in the therapeutic radio pharma market.

Specifically to allow nuclear medicine departments to link dose preparation information directly to central Hospital data systems.

Symphony.

Our Ats innovation Center continues to develop new solutions for auto injector device assembly, allowing for threaded components to be conducted together at very high speeds and accuracy.

In food and beverage <unk> announced the launch, but <unk> scanning vision system that helps to automate and speed up the inspection and sorting of kegs prior to them being felt.

Ryan McLeod: And to drive our effort, ATS hosted its first ever Global Innovation Summit in November, which included over 50 of ATS' top innovators, with the purpose of sharing technology, innovation trends, and opportunities to accelerate technology development, including incorporating AI in your innovation approach and how we operate daily. In summary, our Q3 performance included strong revenue and earnings growth. Our Opportunity Funnel is well diversified. Our strategic acquisitions are performing to plan, and we remain confident in our ability to continue our trajectory of creating shareholder value. We are pleased to see ATS recognized once again as one of Waterloo Region's top employers. ATS was founded in Waterloo, Ontario, region over 45 years ago, and today our team members continue to bring their best every day to serve our customers and grow our business. We remain guided by ABM as our playbook, as we deliver on our shared purpose to create solutions that positively impact lives around the world. Now, I will turn the call over to Ryan. Ryan, it's over to you.

And to drive our effort.

Posted its first ever global innovation summit in November.

Which included over 50 of Ats as top innovators with the purpose of sharing technologies innovation trends and opportunities to accelerate technology development, including incorporating AI into our innovation approach and how we operate daily.

In summary.

Our Q3 performance, including strong revenue and earnings growth.

Our opportunity funnel is well diversified.

Our strategic acquisitions are performing to plan.

And we remain confident in our ability to continue our trajectory and creating shareholder value.

We are pleased to see Hs recognized once again.

As one of Waterloo regions top employers.

Ats was founded in the Waterloo, Ontario region over 45 years ago and today. Our team members continue to bring their best every day to serve our customers and grow our business.

We remain guided by the ABM is our playbook.

As we deliver on our shared purpose to create solutions that positively impact labs around the world.

Now I will turn the call over to Ryan Brian over to you.

Ryan McLeod: Thank you, Andrew, and good morning. ATS delivered strong financial results this quarter with organic revenue growth and margin improvement, and we finished the quarter with a strong balance. Starting with our operating results for the quarter, order bookings were $668 million, down 31.8% compared to Q3 last year. As a reminder, Q3 last year included $300 million of orders from an EV customer, which we're not expected to repeat this quarter. In Q3 this year, we drove year over year bookings growth in life sciences, including strong organic growth, in addition to contributions from recently acquired companies, including Avidity. Our trailing 12-month book to bill ratio at the end of Q3 was 0.95 to 1. By market vertical, our trailing 12-month book to bill at the end of Q3 was at or greater than 1 in all markets with the exception of transportation. We have previously noted that as we continue to execute on our large programs in the EV market, we do expect to see longer periods between orders and cycles. On revenues, Q3 revenues were $752 million, up 16.2% over Q3 last year. Organic revenue growth was 9.1% in the quarter.

Thank you Andrew and good morning, everyone.

Ats delivered strong financial results this quarter with organic revenue growth margin improvement and we finished the quarter with a strong balance sheet.

Starting with our operating results for the quarter order bookings were $668 million down 31, 8% compared to Q3 last year.

As a reminder, Q3 last year included $300 million of orders from an EV customer, which were not expected to repeat this quarter.

Of note in Q3 this year, we drove year over year bookings growth in life Sciences.

Strong organic growth in addition to contributions from recently acquired companies, including Avidity.

Our trailing 12 month book to Bill ratio at the end of Q3 was <unk> 95 to one.

By market vertical our trailing 12 month book to Bill at the end of Q3 was at or greater than one in all markets with the exception of transportation.

We have previously noted that as we continue to execute on our large programs in the EV market, we do expect to see longer periods between ordering cycles.

On revenues Q3 revenues were $752 million.

Up 16, 2% over Q3 last year.

Organic revenue growth was nine 1% in the quarter recently acquired companies added approximately 5% to revenue growth and foreign exchange translation had a positive impact of two 5% compared to Q3 last year.

Ryan McLeod: Recently acquired companies added approximately 5% to revenue growth, and foreign exchange translation had a positive impact of 2.5% compared to Q3 last year. We finished Q3 with just over $1.9 billion of order back. Looking ahead, our revenue conversion for Q4 is estimated to be in the 36% to 39% range of order backlog. As a reminder, this assessment is updated every quarter based on revenue expectations from existing backlog and new orders booked and billed within the quarter. This conversion range also factors in the impact of approximately $200 million of transportation order backlog with one of our EV customers that has been delayed. Moving to earnings, Q3 adjusted earnings from operations were $101.2 million, up 17% from Q3 last year, primarily due to revenue growth. Adjusted Earnings from operations margin was 13.5% in the quarter, up 13 basis points compared to last year, reflecting improved operating leverage.

We finished Q3 with just over $1 9 billion of order backlog looking ahead. Our revenue conversion for Q4 is estimated to be in the 36% to 39% range of order backlog.

As a reminder, this assessment is updated every quarter based on revenue expectations from existing backlog.

And new orders booked and billed within the quarter.

This conversion range also factored in the impact of approximately $200 million of transportation order backlog one of our EV customers that has been delayed.

Moving to earnings Q3, adjusted earnings from operations were $101 $2 million.

Up 17% from Q3 last year, primarily due to revenue growth.

Adjusted earnings from operations margin was 13, 5% in the quarter up 13 basis points compared to last year, reflecting improved operating leverage.

Our Q3 gross margin excluding acquisition related inventory fair value charges was 28, 5%.

Ryan McLeod: Our Q3 gross margin, excluding acquisition-related inventory fair value charges, was 28.5%, up 12 basis points from Q3 last year, reflecting higher volumes and acquisitions. Going forward, with an EV customer realigning its production schedule, resulting in a delay in ATS's execution on this contract in our backlog, we expect to see some near-term margin pressure in this part of our business. We are actively mitigating this utilization pressure by redeploying resources onto other programs, including in our life sciences business. Our expectation is for this program to restart in the first quarter of our fiscal 25.

Up 12 basis points from Q3 last year, reflecting higher volumes and acquisitions.

Going forward with an EBIT customer realigning its production schedule, resulting in a delay of Ats is execution on this contract in our backlog.

We expect to see some near term margin pressure in this part of our business we.

We are actively mitigating this utilization pressure by redeploying resources onto other programs, including in our life Sciences business.

Our expectation is for this program to restart the first quarter of our fiscal 'twenty five.

Ryan McLeod: On the supply chain, material cost pressure is still present for some categories of spend, most notably for electrical and mechanical parts where lead times remain a challenge, although lead times have generally improved in other areas. As we've previously noted, short-term inefficiencies caused by extended lead times in our supply chain impact our ability to drive margin expansion. However, despite these ongoing challenges, our teams are well equipped to drive performance and mitigate these impacts for our customers. Moving to SG&A, expenses were $6.9 million higher than Q3 last year and included $17.1 million of acquisition-related amortization and $900,000 of acquisition-related transaction costs, partially offset by an $11.7 million gain on the sale of two redundant facilities. Including these items, Q3's SGD was $107.9 million, $14.7 million higher than last year, primarily due to increased employee costs, incremental SG&E expenses from acquisitions Stock-based compensation expense for Q3 was $4.7 million. Excluding the mark-to-market impact related to changes in our share price, stock-based compensation expense was $5.3 million in Q3 compared to an expense of $4.3 million last year.

On supply chain material cost pressures still present for some categories of spend most notably for electrical and mechanical parts, where lead times remain a challenge.

Lead times are generally improved in other areas.

As we previously noted short term inefficiencies caused by extended lead times and our supply chain impacts our ability to drive margin expansion.

Despite these ongoing challenges our teams are well equipped to drive performance and mitigate these impacts for our customers.

Moving to SG&A expenses were $6 $9 million higher than Q3 last year and included $17 1 million of acquisition related amortization and 900000 of acquisition related transaction costs.

We offset by $11 $7 million gain on the sale of two redundant facilities.

Excluding these items Q3's, SG&A was $107 9 million.

$14 7 million higher than last year.

Primarily due to increased employee costs incremental SG&A expenses from acquisitions and.

And foreign exchange translation impacts.

Stock based compensation expense for Q3 was $4 7 million <unk>.

Excluding the mark to market impact related to changes in our share price stock based compensation expense was $5 3 million in Q3 compared to an expense of $4 3 million last year.

Ryan McLeod: On earnings per share, our EPS was $0.48 in Q3, up 50% over last year. Our adjusted EPS was up 16.1% to $0.65 in Q3, primarily reflecting growth in revenue. We've begun to implement our previously announced reorganization plan. In Q3, we incurred $16.2 million of costs, a total expected cost of approximately $20 million.

On earnings per share or EPS was <unk> 48 in Q3 up 50% over last year.

Our adjusted EPS was up 16, 1% to 65 in Q3, primarily reflecting growth in revenues.

We've begun to implement our previously announced reorganization plan.

In Q3, we incurred $16 2 million of costs with total expected costs of approximately $20 million. The majority of the remaining costs are expected to be incurred in the fourth quarter.

Ryan McLeod: The majority of the remaining costs are expected to be incurred in the fourth quarter. We anticipate that these targeted cost reductions will allow us to invest further in accelerating growth in areas of the business to provide opportunities for higher returns in support of our strategic growth plan. Next, moving to the voucher. In Q3, cash flows generated by operating activities were $110.5 million, reflecting the timing of project progress and milestone billings and payments primarily on our large EV program. Non-cash working capital is a percentage of revenue, with 17.8% at the end of Q3, down from 18.4% at the end of Q2.

We anticipate that these targeted cost reductions will allow us to invest further into accelerating growth in areas of the business to provide opportunity for higher returns and support of our strategic growth plans.

Next moving to the balance sheet.

In Q3 cash flows generated by operating activities were $110 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 17, 8% at the end of Q3 down from 18, 4% at the end of Q2, again, primarily reflecting a reduction in working capital investments and our large television programs in the short term, we continue to expect working capital to remain variable.

Ryan McLeod: Again, primarily reflecting a reduction in working capital investments in our large EV program. In the short term, we continue to expect working capital to remain variable. Total year-to-date investments in CapEx and intangible assets were $62.5 million, which included $17.7 million in Q3.

Total year to date investments in Capex and intangible assets were $62 5 million, which included $17 7 million in Q3.

Our planned fiscal 'twenty four capex investment of 80 million to $100 million has flexibility and we expect to be in the lower end of this range for the year.

On leverage or net debt to adjusted EBITDA ratio was two three to one as of the end of Q3 in line with our target leverage range of two to three times net debt to adjusted EBITDA.

In the quarter, we funded the acquisition of avidity with cash on hand, and by drawing on our credit facility.

Ryan McLeod: Our planned fiscal 24 CapEx investment of $80 million to $100 million has flexibility, and we expect to be in the lower end of this range for the year. On leverage, our net debt to adjusted EBITDA ratio was 2.3 to 1 as of the end of Q3, in line with our target leverage range of two to three times net debt to adjusted EBITDA. In the quarter, we funded the acquisition of Avidity with cash on hand and by drawing on our credit.

It's early days and integration efforts are progressing as planned and we look forward to our continued work with the avidity team along with the Taco.

In summary, our quarterly performance once again highlighted the strength of our diversified and evolving portfolio and positions in strategic end markets.

Going forward, we will continue applying measures to combat challenges, including those filling in our supply chain.

Strong order backlog in our key markets. Once again provides good revenue visibility over the next several quarters.

We remain confident in our team's ability to drive our strategy supported by the ABM.

Which will continue to unite our people across Etfs as we remain focused on our employees, our customers and long term value creation for our shareholders.

Operator: We look forward to our continued work with the AVIDITY team, along with the. In summary, our quarterly performance once again highlighted the strength of our diversified and evolving portfolio and positions in strategic end markets. Going forward, we will continue applying measures to combat challenges, including those still lingering in our supply chain. Strong order backlog in our key markets once again provides good revenue visibility over the next several quarters. We remain confident in our team's ability to drive our strategies supported by the ABS, which will continue to unite our people across ATS as we remain focused on our employees, our customers, and long-term value creation for our shareholders. Now, we will open the call to questions from our panel. Operator, can you please provide instructions?

Now we will open the call to questions from our analysts operator could you please provide instructions.

Thank you.

Certainly.

At this time I would like to remind everyone in order to ask a question. Please press star followed by the number one on your telephone keypad.

To withdraw your question Press Star one again.

Your first question comes from Cherilyn Radbourne with TD Cowen. Please go ahead.

Good morning, everyone and thank you for taking my question. This is Pat Sullivan online on the add Michelle Linn.

I think last quarter, you were able to give us a breakdown on auto injector bookings I'm wondering if you're able to comment on the level of auto getting bookings this quarter and then if you're able to provide a breakdown with respect to the composition of those bookings by my customers I guess, what is the level of competition, you're seeing in that end market.

Yes, good morning.

We actually won a key award within the quarter.

And while it's an existing customer to new production lines for this customer.

Operator: Certainly. At this time, I would like to remind everyone, in order to ask a question, please press star followed by the number one on your telephone keypad. To withdraw your question, press star 1 again.

And we continue to see this as a real area of opportunity and to work and it's a bit more specific.

And to give you some guidance as to Ats's position because it will help as we talk about competition as we and the competitive landscape.

Cherilyn Radbourne: Your first question comes from Cherilyn Radbourne with TD Cowan. Please go ahead. Good morning, everyone.

Ats invested in a technology with symphony and its a platform that allows us to do.

Pat Sullivan: Thank you for taking my questions. This is Pat Sullivan on the line on behalf of Cherilyn. I think last quarter you were able to give us a breakdown on auto injector bookings. I'm wondering if you have a comment on the level of auto injector bookings this quarter. And then if you're able to provide a breakdown with respect to the competition for those bookings by customers, I guess, what is the level of competition you're seeing in that end market? Yeah, good, good morning.

When Youre building a process you can do it in motion and why that matters is when you look at output it allows us to actually be up to.

Almost three times the output at roughly half the footprint and it's a real key enabler.

And it's just one of the areas that we look at from a standpoint of how innovation.

Allows us to differentiate and really offer high value for our customers as they continue to look at maximizing their launch and maximize their impact.

Andrew Heider: We actually won a key award within the quarter. And while it's an existing customer, it's a new production line for this customer. And we continue to see this as a real area of opportunity. And, you know, to get this a bit more specific and to give you some guidance as to ATS's position, because it will help as we talk about competition as we are in the competitive landscape. ATS invested in technology with Symphony, and it's our platform that allows us to do when you're building a process, you can do it in motion. Why that matters is, when you look at output, it allows us to actually be up to almost three times the output at roughly half the footprint. And it's a real key enabler.

And to give you a bit more context on the market and certainly theres multiple reports out about this space.

Whether it's the jpmorgan structure around going from from $18 billion to 100 billion or or even Morgan Stanley and significant level of increase.

Our mission has always been.

Really enabling our customers to maximize their launch.

And with our solution set with our capability on a global scale. It affords us the ability to be a leader in that space. So I am pleased with the progress pleased with the performance and we do view this as a market that's going to continue to evolve.

Andrew Heider: And it's, you know, just one of the areas that we look at from the standpoint of how innovation allows us to differentiate and really offer high value for our customers as they continue to look at maximizing their launch and maximizing their impact. And to give you a bit more context on the market, and certainly there are multiple reports out about this space, whether it's the J.P. Morgan structure around going from $18 billion to $100 billion or even Morgan Stanley, a significant level of increase. Our mission has always been really enabling our customers to maximize their launch, and with our solution set, and our capability on a global scale, it affords us the ability to be a leader in that space. So, we are pleased with the progress, pleased with the performance, and we do view this as a market that's going to continue to evolve. And Patrick, just the specifics, so it was a low single-digit percentage of our bookings in the quarter. Okay, thank you very much.

And Patrick just just the specifics so it was a low single.

This was a low single digit percentage of our bookings in the quarter.

Okay. Thank you very much and if I could ask one more.

A lot of recent movements in the Canadian nuclear energy sector capital power will be G assessing viability SMIC.

And then the more recent announcement of the refurbishment retrofitting Pickering nuclear generating station. So I guess can you comment on what Youre seeing in your funnel with respect to gaming.

This.

Opportunities for Etfs with respect to those two mentioned developments and then I guess, what kind of timeframe you'd be looking at from an RFP to actual execution perspective.

Yeah, absolutely. So headline market is is favorable and to give you some context.

Our trailing 12 months was $1 one six on this on this space.

And so we're not only seeing really favorable end market trends and dynamics, where also performing are continuing to execute and offer high value for the markets.

As far as <unk>.

Pat Sullivan: And if I could ask one more, you know, there's been a lot of recent announcements in the Canadian nuclear energy sector, capital power and OBG assessing via the SMRs, and then the more recent announcement of the refurbishment retrofitting at Thickering Nuclear Generating Station. So I guess, can you comment on what you're seeing in your funnel with respect to opportunities like this? Are there any opportunities for ATS with respect to those two mentioned developments? And any idea, I guess, what kind of timeframes you'd be looking at from an RFP to actual execution perspective? Yeah, absolutely.

Our funnel remains healthy this is still early in its journey.

And Ats is our view is we're a high value provider and we're staying close with the opportunities as they unfold.

As far as the as far as the can do reactor and refurbishment programs look this is early.

That said it is very in line with what Ats offers for high value for these for this type of this type of work and we're staying very close we're in early days of a review of the application and we do view this as something that will be the.

Right in line with what we can offer and have high contribution towards so.

To get back to your initial there is favorable market dynamics on a global scale. This is a green energy that Ats supports and really one that we offer high value for in our niche capability and we continue to launch technology solutions that enable us a strong position.

Andrew Heider: So, the headline market is favorable. And, you know, to give you some context, our trailing 12 months is 1.16 in this space. And so we're not only seeing really favorable end market trends and dynamics, but we're also performing and continuing to execute and offer high value for the market. As far as SMR is concerned, our picture remains healthy.

Okay. Thank you very much.

Your next question comes from David Ocampo, with Cormack Securities. Please go ahead.

David Ocampo: This is still early in its journey, and ATS is, you know, our view is that we're a high-value provider, and we're staying close to the opportunities as they unfold. As far as the CANDU reactor and refurbishment programs are concerned, look, this is early. That said, it is very in line with what ATS offers for high value for this type of work, and we're staying very close. We're in the early days of reviewing the application, and we do view this as something that will be right in line with what we can offer and have a high contribution towards. So to get back to your initial question, there is favorable market dynamics on a global scale. This is a green energy that ATS supports and really one that we offer high value for in our niche capability, and we continue to launch technology and solutions that enable us to have a strong position. Okay, thank you very much. Your next question comes from David Ocampo with Cormark Securities. Please go ahead. Thanks. Good morning, everyone.

Hi, Thanks, good morning, everyone on the $200 million.

Order backlog that got delayed curious if you guys see any risks if that portion.

Pushed out further to the right and ultimately when that program does restart in fiscal Q1 will that be at the normal run rate.

Sure then your initial projections.

Order deliveries and order execution.

Good morning, David It's Ryan so.

I mean, our expectation is this is.

As we laid out in our prepared remarks and disclosure materials.

Our expectation is this resumes in Q1 of fiscal 'twenty five.

Customers have the ability to to certainly change that dynamic, but thats not our expectation.

In terms of run rate.

At this point, we would expect it to resume.

Than originally planned and wouldn't see any ongoing impact.

I mean, that's our that's our expectation.

David Ocampo: On the $200 million of EV order backlog that got delayed, curious if you guys see any risks if that portion can get pushed out further to the right, and ultimately, when that program does restart in fiscal Q1, will that be at the normal run rate or lower than your initial projections of order deliveries and order expectations? Good morning, David. It's Ryan.

Mutations.

Okay got it and then.

My last one is just on the supply chain issues. I mean, this is something that's been.

Hurting you guys at least for the last several quarters or are you guys seeing any positive indicators relating to electrical components.

And those issues easing and what are your expectations on the timing of margin improvement once supply chain begins to normalize.

Ryan McLeod: So, I mean, our expectation is this, as we have laid out in our prepared remarks and disclosure materials, our expectation is that this resumes in Q1 of fiscal 25. You know, customers have the ability to certainly change that dynamic, but that's not our expectation in terms of run rate. You know, at this point, we would expect it to resume as it had been originally planned and wouldn't see any ongoing impact. I mean, that's our expectation. Okay, I got it.

Yes, so so again, David trying to and this is interesting.

The suppliers are talking about improvements I would say we've seen some incremental improvements.

But.

When we look at data around quoted lead times.

Particularly in electrical and mechanical components, we have not seen a material improvement.

So.

That really when we talk about the challenges that is really at its lead times. Our primary challenge in that that has an impact on our ability to.

David Ocampo: And then the last one's just on the supply chain issues, something that's been. Hey, what are your expectations on the timing of margin improvement once the supply chain begins to normalize? Yeah, so again, David trying to make this is interesting.

To reduce costs in the supply chain and offset some of those dynamics.

In terms of when it when it when it shifts.

Ryan McLeod: I mean, you know, the suppliers are talking about improvements. I would say we've seen some incremental improvements. But when we look at data around quoted lead times, particularly for electrical and mechanical components, we have not seen a material improvement. So, you know, that really, when we talk about the challenges, that's really it. Lead time is a primary challenge, and that has an impact on our ability to reduce costs and the supply chain and offset some of those dynamics. You know, in terms of when it when it shifts, certainly, you know, this is something we stay very close to. But it will take, you know, one to two quarters for it to work its way through our programs.

Felipe.

This is something we stay very close to.

But it will take one to two quarters for it to work its way through our programs and until we see a benefit in terms of what we can do from a margin perspective.

And if I could just follow up on that if you.

And to put a number on it.

How much do you think supply chain as negatively impacted your gross margins because you guys have been in that 28% to 29% range for.

Six or seven quarters, yes.

So it is much I mean, we've been able to offset a lot of it through pricing and other other areas. So it's not it's not a headwind, but it's a barrier from us expanding margins. So our typical playbook is when we get an order and.

Ryan McLeod: And until we see a benefit in terms of what we can do from a margin perspective. And if I could just follow up on that, if you had to put a number on it, how much do you think supply chain has negatively impacted your gross margins because you guys have been in that 28? Corp. Yeah, I mean, it's not as much.

We do the design work and we look for efficiencies and one of those areas is through supply chain. So.

Whether it's.

Finding alternative suppliers, whether it's reengineering defined.

<unk> component, sometimes they have less features but they they do the job that we need.

Sometimes it's it's.

Pulling.

Ryan McLeod: I mean, we've been able to offset a lot of it through pricing and other areas. So it's not it's not a headwind, but it's a barrier to us expanding margins. So our typical playbook is when we get an order in, you know, when we do the design work, and we look for efficiencies in one of those areas is through the supply chain.

Pulling this.

Similar the same components across multiple programs.

And with extended lead times.

That really limits your ability to exercise all of those all of those leavers so sorry.

Not as much headwind today's.

Ryan McLeod: So, whether it's finding alternative suppliers, whether it's reengineering to find cheaper components, sometimes they have fewer features, but they do the job that we need. You know, sometimes it's pulling similar components across multiple programs and with extended lead times, that really limits our ability to exercise all of those, all of those levers. So it's not as much a headwind today, you know, or a negative impact on our margins as something that is limiting our ability to expand margins when we do get programs in house. So that makes sense. I'll hand the call over. Your next question comes from Michael Delmay with Scotiabank. Please go ahead.

Or a negative impact on our margin does something that is limiting our ability to expand margins when we do get programs in house.

Got it that makes sense.

Color.

Your next question comes from Michael Del Mar with Scotiabank. Please go ahead.

Hi, Hey, good morning, guys wondering if you could just elaborate on the margin pressure as it relates to the delayed <unk> program is.

Is it strictly a result of operating deleveraging due to the deferral.

And then I guess longer term. The question is how do you manage potentially what could be some lumpiness in transportation and the overall capacity in that business.

Yes, good morning, Michael So I mean, I'll give you.

Michael Delmay: Hey, good morning, guys. Wondering if you could just elaborate on the margin pressure as it relates to the delayed EV program. You know, is it strictly a result of, you know, operating de-leveraging due to the deferral? And then, I guess, longer term, the question is, you know, how do you manage, potentially, what could be some lumpiness in transportation and the overall capacity in that business. Yeah, Michael.

So the answer to your question is yes, its primary primarily deleveraging and I'll give you a bit of context. So.

We've been converting approximately 25% to 30% of our <unk>.

Backlog and im excluding orders that get booked and billed within the quarter.

So that provides you with.

A sense of the revenue challenge with EV, it's more towards the lower end of that that range.

Ryan McLeod: So I mean, I'll give you the answer to your questions yet primary, primarily deleveraging. I'll give you a bit of context. So, we've been converting approximately 25 to 30 percent of our backlog, and I'm excluding orders that get booked and billed within the quarter. So that provides you with a sense of the revenue challenge, and with EV, it's more towards the lower end of that range. So in terms of what we're doing to mitigate it, I talked about repurposing capacity where we can and including it into some life science programs. We've scaled back on contractors, but we are maintaining our cost structure as our expectation is for this program to restart as we talked about in the first quarter of fiscal 25. So you know that's going to drive temporary inefficiencies and you know call it utilization, but that's where we're going to see the negative impact on margins in the fourth quarter.

So in terms of what we're doing to mitigate I talked about repurposing capacity, where we can.

Including into into some life science programs.

We've scaled back on contractors, but we are maintaining our cost structure.

Our expectation is for this program to restart as we talked about it in the first quarter of.

Fiscal 'twenty five.

So that's going to drive the temporary inefficiencies in.

Dollar utilization, but that's that's where we're going to see the negative impact on margins in the fourth quarter.

And Ryan can you can you maybe just give us a sense for the magnitude.

Of the margin pressure in Q4.

Based on the lower utilization.

Yes, so I mean.

Related with the revenue headwind and so.

Ryan McLeod: And Ryan, can you maybe just give us a sense of the magnitude of the margin pressure in Q4 based on the lower utilization? Yeah, so I kind of laid out the revenue headwind. And so, you know, if I think about our typical cost structure, or cost structure, it's roughly half labor and half material. So the materials don't have an impact.

I mean.

If you think about our typical cost structure or cost structure.

It's roughly half labor and half materials. So the material doesn't have an impact and what we are dealing with us.

Is the labor inefficiency and then.

Like I said, we're able to offset some of that but.

There is theres going to be an impact.

Okay. That's helpful.

And then just maybe more broadly on life sciences and inorganic growth.

Ryan McLeod: And what we're dealing with is labor inefficiency. And then, like I said, we're able to offset some of that, but there's going to be an impact. Okay, that's helpful.

It was still negative in the quarter, which is a little bit of surprise given some of the bookings.

That you called out last quarter.

What is the visibility on an acceleration in organic growth in that end market and we're really are you just in terms of the ramp overall for <unk>, just trying to get a sense for.

Michael Delmay: And then maybe more broadly on life sciences, you know, organic growth was still negative in the quarter, which is a little bit of a surprise given some of the bookings that you called out last quarter. What is the visibility on an acceleration in organic growth in that end market? And where really are you, just in terms of the ramp overall for GLP-1? Just trying to get a sense for how much.

How much.

<unk> can really move the needle.

Going forward.

Yeah, sorry, Michael you're asking me a revenue growth in life Sciences.

Yes exactly.

Yes, so we did have.

We did have positive.

Organic growth in life science revenues in the quarter.

Michael Delmay: GLP-1s can really move the needle going forward. Yeah, sorry, Michael. You're asking me about revenue growth in life sciences? Yeah, exactly.

It was low single digit, but there was there was positive revenue growth.

Alright, so apologize as we just look at spot.

Ryan McLeod: Yeah, so we did have positive organic growth in life science revenues in the quarter. It was low single-digit, but there was positive revenue growth, and you know as we just look at, So, your question is more around where we are in this GLP-1 progression or what would you like to understand from a context around that space, that market? Yeah, so sorry for the confusion there about organic growth.

So your question is more around where are we in this in this G. L. P. One progression or what would you like to understand from a context around that space that market.

Yes, so sorry for the confusion there on the organic growth, but the question in terms of where you are on the ramp.

And overall GOP the ability to move the needle overall for life Sciences.

Andrew Heider: But the question, in terms of where you are on the round and overall GLP, the ability to move the needle overall for life, You know, um... Look, and there are multiple reports out there, and I cited a little bit earlier in the discussion around whether it's, you know, Morgan Stanley, or whether it's J.P. Morgan, the net result is this is a significant growth area for this solution, and whether it's going from, you know, $18.8 billion in 2023 to $100 billion in 2030, or, you know, a different magnitude, And it's really tied to U.S. obesity, and, you know, the market there is also experiencing significant growth. So, you know, net-net, it's an opportunity, a significant opportunity for ATS to drive high impact, and as we look at where it is in its journey, we view it as still early in its journey, and while it's made progress, and to give you some context around progress, last year of approvals was the second highest approval year in the last 10 years for NOVA drugs, basically new molecules. We're seeing continued approval in areas to support growth. We're seeing that the auto-injector is an area that offers high value for end customers or end patients. And ATS has a strong play in the ability to support.

No.

And there are multiple reports out there and I cited a little bit earlier on in the discussion around whether it's.

Morgan Stanley or whether it's J P. Morgan.

The net result is this is a significant growth area for their solutions and whether it's acquiring from <unk>.

$18 8 billion in 2000 $23 billion to $100 billion in 2030 or.

A different magnitude the growth profile is real.

And it's really tied to U S obesity.

The market. There is also a significant growth profile so.

So net net it's an opportunity a significant opportunity for Ats to drive high impact.

And as we look at it where it is in its journey.

We view it is still early in its journey.

<unk> and wallets made progress and to give you some context around progress.

Last year.

<unk> of approvals. It was the second highest approval year in the last 10 years of Nova drops basically new molecules and so.

We're seeing continued approval in areas to support growth, we're seeing that auto injector is an area that offers high value for end customers or end patients.

And Ats is a strong play and the ability to support that said it is only one piece of our life sciences offering and we have multiple offerings that we like and as a reminder.

Andrew Heider: That said, it's only one piece of our life sciences offering, and we have multiple offerings that we like. And as a reminder, last quarter, our contact lenses were one of the largest orders within the space. So while we like this area, we're also involved in radiopharmaceuticals, which are the identification and treatment of cancer. We're involved in wearables and the treatment of diabetes. We're involved in many areas that offer high value for customers and are very strategic for customers and product launches. Super helpful.

Last quarter.

Contact lenses was one of the largest orders within within the space. So while we like this area.

We're also involved in Radiopharmaceuticals, which is identification and treatment of cancer we're involved in.

In Wearables in the treatment of diabetes, we're involved in in many areas that offer high value for customers and very strategic for customers and product launches.

Super helpful. Thank you Andrew.

Your next question comes from Patrick Baumann with Jpmorgan. Please go ahead.

Hi, good morning, Thanks for Cumulus.

Michael Delmay: Thank you, Andrew. Your next question comes from Patrick Bauman with JP Morgan. Please go ahead. Well, hi. Good morning.

Just had a.

Wondering if you can give an update on the funnel.

For orders across some.

Evs and food and beverage I think you just talked about life Sciences.

Patrick Bauman: Thanks for cueing me in. I just had a wondering if you could give an update on the funnel for orders across some. EVs and food and beverage. I think you just talked about life sciences, but really specifically about calendar year 2024, not so much your fiscal year. Curious how to think about orders over the next year. And then? More near term, you do have a really tough comp in the third quarter here, so obviously orders being down shouldn't be a surprise to people. But the fourth quarter looks like the comp is a little bit easier.

Really specifically about calendar year, 2024, and not so much for your fiscal year.

Curious how to think about orders over the next year and then.

Our near term.

You do have you had a really tough comp in the third quarter here, So obviously orders being down shouldnt be surprised people by.

The fourth quarter it looks like the comp is a little bit easier.

Do you have line of sight to some growth there or should we expect a book to bill to remain below one kind of in the short term.

Multiple questions on that and we will see if I can if I can answer all of them but.

Andrew Heider: Do you have a line of sight to some growth there? Or should we expect, you know, a book to bill ratio to remain below one kind in the short term? multiple questions on that, and we'll see if I can answer all of them, but I'll go in order and I'll walk Evie first to kind of get a line of sight, and then I'll go into regulated food, and then we can talk a bit more around other areas, but look, and I said this in my prepared remarks, our funnel in the mid to long term remains strong, and we're staying very close with customers And customers are faced with many areas, whether it's technology and technological development or cost structure that they're looking to offset or even just matching capacity to consumer demand. We're staying close.

In the second quarter.

Yes.

I'll walk.

EV <unk> to kind of get line of sight, and then I'll go into to.

Regulated food and then we can talk a bit more around other areas but.

And I said this in my prepared remarks, our funnel in the mid to longer term remains strong.

And in <unk>, and we're staying very close with the customers, while our certainly near term will be impacted by current market dynamics and the customers are faced with many more areas, whether it's technology and technology development or cost structure that they are looking to offset or even just matching capacity.

City to consumer demand.

Staying close and and.

When we look at areas that Ats has differentiated ourselves.

We have.

Put ourselves in a position that when our customers come out and they get back to a more measured pace, we're in a position to offer high value.

Andrew Heider: And when we look at areas that ATS has differentiated itself, we have put ourselves in a position that when our customers come out and they get back to a more measured pace, we're in a position to offer high value. And you think of the solutions like the digital twin that we've launched really enable us to maximize their impact on the launch of their product. And, you know, the discussions we've had with our customers are that they're focused on EV being a key piece of their investment in CapEx, and ATS offers high value for this space. One more area, just as a reference, while we certainly still have a large customer, we are working with roughly 10 customers in this space right now. And so, varying degrees of where they are in their journey for the EV launch, it continues to be an opportunity and strategic for the value we can create for our customer base. Moving on to regulated food. Look, this was a strong quarter.

Do you think of the solutions like the digital twin that we've launched really enable us to maximize our impact to launch their product.

The discussions we've had.

With our customers as they're focused on.

<unk> being a key piece of their investment for Capex and Ats offers high value for this space.

One more area just just as a reference.

While we certainly still have a large customer we are working with.

10 customers in this space right now and so varying degrees of where they are in their journey for EV launch it continues to be an opportunity and strategic for the value we can create for our customer base.

Moving on to regulated to look this was a strong quarter.

We are pleased with the performance of the business.

And and yes last year was a it was a.

A big comp to two two.

Andrew Heider: We are pleased with the performance of the business, and yes, last year was a big comp to kind of reference against or compare against. It had a large order of roughly, call it $20 million last year in Q3. The team continues to execute, and we are aligned around technology, innovation, and really bringing our customer solutions to market. An example of just the way that we think about and utilize innovation, our business worked with AI and utilizing AI with vision and with our Raytech business, and we're providing the capability to really do an assessment to understand tomatoes when they're peeled, to look for areas that maybe had been missed and then kick out. So it offers higher yield, higher ability, and energy continues to be a discussion point.

Referenced against or comp against it.

It had a large order of roughly call it $20 million last last year in Q Q3.

The team team continues to execute and.

We are aligned around technology innovation, and really bringing our customers solutions to market.

<unk>.

An example of just the way that we think about and utilize innovation.

Our business.

Worked with that with AI and utilizing AI with vision and with our <unk> business and we are providing the capability to really do our assessment to understand tomatoes, when they appealed to look for areas that maybe had been missed and then kick out so it offers.

Higher yield higher ability and and in energy continues to be a discussion point so.

Andrew Heider: So pleased with the progress on that group, pleased with the performance, and one that we think we can continue to really offer high value for our customers, and then the. I guess in the fourth quarter, should we expect some growth there, or do you think book-to-bill can kind of be around one in the fourth quarter? Yeah, Patrick, so this is Ryan.

I'm pleased with the progress on that group pleased with that.

Performance and one that we view, we can continue to really.

Offer high value for our customers.

And then the debt.

<unk>.

I guess in the fourth quarter.

Should we expect some growth there or is it or should.

Do you think book to Bill can kind of be around one in the fourth quarter.

Yes, Patrick so so this is Ryan.

We don't we don't typically provide.

Ryan McLeod: It's, you know, we don't typically provide forward-looking information on our bookings, and, you know, with some of these large programs, there's variability, and if something comes in, you know, the last two weeks of March or the first two weeks of April, that can drive some, you know, different discussions. And that's why when we're looking at bookings, we're looking at the trailing 12 months and over It's a little bit longer, given the duration of those programs. And then we have some shorter cycle businesses that have been added in. But that is really how we look at the business from a quarter to quarter perspective. And I should add on a little bit to that too.

Forward looking on our bookings.

With some of these large programs are the variability and if something comes in.

The last two weeks of March of the first two weeks of April.

That can drive some.

A different discussion.

That's why we're looking at bookings, we're looking at trailing 12 month and over a longer period to understand Directionally, where business is trending in.

Our funnel of our backlog rather.

Typically goes out about about three quarters.

It's a little bit longer given the duration of those programs.

Then we have some shorter cycle businesses that had been added in but that that.

Is really how we look at the business from a from a quarter to quarter perspective.

Just to add on a little bit to there.

Andrew Heider: You know, we've been very focused on strategic end markets and being well-positioned in those areas, and so, you know, you think of areas like, and we talked a bit about life sciences around here, and our focus on key niches that offer high value, our addition with avidity and the value that that brings, and by the way, think about it from the standpoint of now that we're in the lab, so you can almost follow the molecule. We're in the lab all the way to production, to energy, and the ability and resurgence of nuclear being a green energy supporting really the energy challenges on a global scale. So while we don't provide that, we have been very strategic in the markets we support, and I've been very focused. So not immune to the end market, our target's always been to out-execute and really drive performance in the business through our ABM and our Playball. Okay, great. It makes a ton of sense.

We've been very focused on strategic end markets and being well positioned in those areas and so you think of areas alike, and we talked a bit about life science is around.

And our focus on key issues that offer high value.

Our addition, with avidity and the value that that brings and by the way to think about it from a standpoint of now we are in the lab. So you can almost follow the molecule where in the lab all the way to production.

Two energy and and the ability and resurgence of nuclear being a green energy supporting really the energy challenges on a global scale. So so while we don't provide that we have been very strategic in the markets. We support and I have been very focused so not a new end to end market.

Our target has always been to out execute and really drive performance in the business through our ABM and our playbook.

Okay, great make makes a ton of sense thanks for that.

Patrick Bauman: Thanks for bearing with me with that short-term question. I'm kind of new to this, new to the call. So we'll keep that in mind going forward. Thanks so much.

Bearing with me with that with that short term question.

I'm kind of new to this.

<unk>.

We will keep that in mind going forward. Thanks, so much best of luck.

Andrew Heider: Best of luck. Great. Thanks, Patrick. Your next question comes from Michael Glenn with Raymond James. Please go ahead. Hey, good morning.

Great.

Thanks, Patrick.

Your next question comes from Michael Glen with Raymond James. Please go ahead.

Hey, good morning, so over the past two days.

Michael Glenn: So over the past two days, we've seen some pretty strong indications from two of the largest players in the obesity drug market regarding capacity constraints they're facing. Can you help us draw the connection between what they are referencing specifically and how this plays into your auto-injector product offering? You often reference these order funnels.

Some pretty strong indications from two of the largest players in the obesity truck market regarding this.

Capacity constraints, they're facing so can you help us draw the connection between what they are referencing specifically.

How this plays into your auto injector product offering.

You often reference these order funnels can you say, whether the order funnel is growing in that market sequentially from.

Michael Glenn: Can you say whether the order funnel has grown sequentially in that market from last quarter to this quarter, and can you give some indication of when we should think about timing of these orders coming into play? Yeah, so, Michael, just to kind of give you some real walk-down here. As I mentioned in my prepared remarks, the life sciences funnel is strong, and our backlog is very strong. The growth of our funnel continues to build, and I would say that as has grown in our opportunities. We view the big moves really as generally favorable, and it's an area that we can offer high value when, and oftentimes, I talk about strategic end markets and strategic products for our customers when our customers are launching a solution, and their demand is significant.

Last quarter to this quarter can you and can you give some indication that like when should we see.

Think about timing of these orders coming into play.

Yes, so Michael.

Michael just to kind of give you some.

Real walk down approach here.

As I mentioned in my prepared remarks, the life Sciences funnel is strong and our backlog is very strong.

The growth of our funnel continues to build and I would say as has grown and our opportunities.

We view the big moves really is generally favorable and and it's an area that we can offer high value and when and often times and I talk about strategic end markets and strategic products for our customers.

When our customers are launching a solution.

And their demand is significant.

Michael Glenn: They're looking to folks like ATS to really help them provide that value to the market. And I walked through, excuse me, I walked through our Symphony Technology, and really the impact that this has, but also what it allows us to do, is to take a more standard approach to a customized solution. Let me put a little more meat on the bones there.

They're looking to.

Folks like Ats to really help them provide that back into the market.

And.

I walked through excuse me I'll walk through our.

Symphony technology and the impact that this has but also what it allows us to do.

Is to take a more standard approach to.

A customized solution and let me, let me put a little more meat on the bonds there.

Andrew Heider: This allows us to really take this standard product set, this standard capability, and bring it to multiple customers. And, you know, as customers grow, they want to go with the provider that offers them the highest capability and the highest ability to launch their solution on time, on quality, on budget, and, oh, by the way, to be able to continue to increase as their demand increases. So what I mentioned earlier in the discussion and call this is this is earlier in its journey; we do view we are well positioned to really maximize our impact and maximize our customers' ability to meet the market demands. Okay, and then if we think about last quarter, the indication you provided was something in the ballpark of $100 million of orders for auto injectors, and this quarter it was down; it was low single digit. If we think about that number in the context of what you're talking about market size, the $18 billion is going to, a hundred billion. Thank you. What's your piece of the pie in those numbers? Are you able to give some type of assessment on that? What's the size of the piece you're going for in that market?

This allows us to really take this the standard products that standard capability and bring it to multiple customers and as customers ramp they want to go with that.

<unk> that offers them the highest capability and highest ability to launch their solution on time on quality on budget and all by the way to be able to continue to increase as the demand increases so.

So while I mentioned earlier in the discussion and call businesses.

This is earlier in its journey, we do view, we are well positioned to to really maximize our impact and maximize our customers' ability to meet the market demands.

Okay, and then if we think about last quarter. The indication you provided was something in the ballpark of $100 million.

Of orders for auto injectors, and this quarter. It was down it was low single digit.

If we think about that number in the context of what youre talking about market size, the $18 billion going to 100 billion.

Thank you.

What what's your what's your piece of the.

Of the pie and those numbers are you able to give some type of assessment on that.

What's the size of the PCR, calling for in that market.

So Michael I'll start just on on orders I mean, the numbers you referenced charter.

Ryan McLeod: So, Michael, I'll start just on orders. I mean, the numbers you referenced are directionally accurate, but keep in mind with orders, they are lumpy regardless of market. They're going to, you know, the size of them, the timing; those aren't going to be, you know, a steady straight line up and to the right.

Directionally directionally accurate, but keep in mind with orders they are lumpy regardless of market.

Theyre going to the size of them the timing those those arent going to be.

A steady straight line up into the right.

It's going to be it's going to be.

Andrew Heider: It's going to be, you know, more lumpy, just, just, or call it variable. And, you know, we're talking dollar versus percent, but as you look at the ramp, it's not always a one for one as far as an increase in percent of the business, but the general growth profile will follow the profile of the investor. And so, not my information, to be very clear, and I did mention that that was a JP Morgan slash Morgan Stanley estimate on the market. Regardless, whether you read it from those banks or others, the market growth profile is very strong, and ATS is well-positioned to support that space. Timing will be variable. Customers will be looking at their launches when they get approval. So, it will certainly be variable. We are in a position, and we're working with customers to ensure that they're successful in the launch. And, you know, just one last minor one here.

More lumpy just just.

I'll call it variable.

And.

We're talking dollar versus percent, but but as you look at the ramp.

And it's not always a one for one as far as an increase in percent of the business.

But the general growth profile will follow up.

The profile of the investment.

And so I am not.

The information to be very clear and I did mention that that was a JP Morgan Slash Morgan Stanley estimate on the market, regardless, whether you read it from from those banks or others. The market growth profile is very strong.

And in Ats is well positioned to support that that timing will be variable customers will be we'll be looking at their launch is when they get approval. So it will certainly be variable we are in a position and we're working with customers to ensure that theyre successful in Watson one last minor one here.

<unk>.

Andrew Heider: We've been in this space for over two decades, and while it's new and exciting and an area that we can support the drive, we've also been in this market, and we have a strong reputation in the space to really help our customers. Okay, thanks for taking the question. Your next question comes from Justin Keywood with Stiefel. Please go ahead. Good morning.

<unk> been in this space for over two decades.

And wallets, it's new and exciting and an area that we can support the drive we have also been in this market and we have a strong reputation in the space to really help our customers execute.

Okay. Thanks for taking the questions.

Your next question comes from Justin <unk> with Stifel. Please go ahead.

Good morning, we saw some deleveraging in the quarter, our balance sheets of two three times that could suggest a reasonable capacity for further M&A or able to update us on the pipeline target verticals and potential size of deals that youre looking at.

Justin Keywood: We saw some deleveraging in the quarter, and with balance sheets at 2.3 times EBIT, that could suggest a reasonable capacity for further M&A. Are you able to update us on the pipeline target verticals and potential size of deals that you're looking at? Good morning, Justin.

Good morning, Justin.

Andrew Heider: Um, look, we are in a position, and I'll just say, you know, if I just step back, and I did mention this, our funnel remains healthy. And when we look at our funnel, it is a mixture of sizes, small, medium, and large, aligned around very strategic products and technologies for end markets that we view as strong end markets and strategic end markets. And so we're pleased with where we sit. We've added Nalazidity, and we've added Itaka, two very good additions to the family.

Look.

We are in a position and I will just say if I just step back and.

And I did mentioned this our funnel remains healthy.

<unk>.

And when we look at our funnel.

It is it is a mixture of sizes small medium and large aligned around very strategic products and technologies for end markets that we view, our strong end markets and strategic end markets and so.

We're pleased with where we sit.

At <unk>, we've added Attacca.

Two very good additions to the family.

Andrew Heider: Our position, you know, in the ability to continue to cultivate, is strong, and we continue to have very strong or very good dialogues with potential targets. That said, we're patient. And when we find high value for our customers and shareholders, we're in a position to move quickly. And then, as a follow-up to GLP-1, we saw Novo announce an acquisition of Catalan to shore up manufacturing capacity for fill finish. One question is whether ATS offers fill finish, and does that take away the opportunity?

Our position.

And the ability to continue to cultivate.

It's strong and we we continue to have very strong very good dialogues with potential targets that said, we're patient and when we find high value for our customers and shareholders. We're in a position to move quickly.

Okay.

Understood and then a follow up to <unk>, one we saw Novo announced an acquisition of catalyst to shore up manufacturing capacity for fill and finish.

One question is if ETS offers fill finish and does that take away the opportunity.

Andrew Heider: And then also, just on the GLP-1 backlog, if we're able to characterize the percentage, I know it was at a record level in the current quarter, to walk through the acquisition. We generally view that as positive for ATS, and it's just one more proof point of the constraints to get product to market and, you know, exciting times for our ability to support it, but also, you know, and I referenced this on the call as a highlight for innovation. We launched an IoT solution set for a customer, and it was for a pharma customer to work with a contract manufacturer to really do data processing. And it's just how we can continue to evolve and really support customers as they move in these directions to really bring their products to market and understand all the data variables to support those launches. Ryan, we'll touch upon the second part of the question now. Yeah, so it's in the low double digits as a percentage of our backlog. So just to clarify, low single digits for bookings but double digits for backlogs. Great Thank you.

And then also just on the GOP one backlog, if we're able to characterize the percentage I know it was at a record level in the current quarter.

To walk through the acquisition, we generally view that as positive for us and it's just one more proof point.

The constraint to get product to market and and.

Exciting times for our ability to support but also and I referenced this on.

On the call.

<unk> as a <unk>.

Highlight for innovation.

We launched an Iot solution set for customer and it was it was around a pharma customer to work with a contract manufacturer truly.

Truly do data processing.

And it's just how we can continue to evolve and really support customers as they move in these in these directions to really bring their products to market and understand all of the data variables to support those launches.

Brian will touch upon the second part of the question.

Yes so.

Low double digits as a percentage of our backlog.

So just to clarify at low single digits for bookings, but.

Double digits for backlog.

Correct.

Thank you.

So Justin just to clarify so keep in mind.

Ryan McLeod: So just to clarify, so to keep in mind, these programs are in the range of 12 months from timing of order to execution of delivery. So, the orders that we booked last quarter, sorry, back in our fiscal Q2, are still in relatively early stages. And so most of that is still in our backlog. Thank you for taking my call. Thank you, Justin. Your next question comes from Maxim Sychev with the National Bank. Please go ahead. Hi everyone, I'm Shabnam.

These programs are in the range of 12 months from from timing of order to execution of delivery. So the orders that we booked last quarter.

Sorry back in our fiscal Q2 are still in relatively early stages and so most of that is still in our backlog.

Yeah.

Understood. Thank you for taking my call.

Thank you Justin.

Your next question comes from Maxim <unk> with National Bank. Please go ahead.

Hi, good morning, gentlemen.

Actually maybe just.

Maxim Sychev: I think maybe just one kind of..., methodology slash philosophical question for you. When we think about return on invested capital by vertical, when you look at transport, obviously, more lumped into this, more working capital intensity, like when you look across the portfolio, how does it stack versus other verticals within ATS? And, you know, over the long term, should we assume that the kind of preferred route would be to get to, I don't know, like 80% health care in 10 years? Or how should we think about that level of composition, maybe in any common term?

One mark on it.

Methodologies last philosophical question for you when we think about kind of return on invested capital by vertical.

When you look at.

Transports, obviously more lumpiness more working capital intensity like when you look across the portfolio how does it stack.

<unk> on the verticals within Ats and <unk>.

Over the long term should we assume that kind of a preferred route would be to get to I don't know like 80% healthcare in 10 years or how should we think about that level of competition, maybe in any comments from that would be super helpful. Thanks.

Okay.

Andrew Heider: Yeah. So, Max, as you're well aware, we have a very focused strategy around capital allocation, and it is very aligned to return on invested capital. And, you know, if you just take a step back and look at our M&A pipeline and what we've announced, it really aligns around, let's just take the last few, digital, life sciences, regulated food, and areas that we offer high impact from an external perspective. When we look internally, we look at investment to return and ensure that the return on where we're focused is at the level and threshold we would expect. And so while every market is going to have an opportunity, certain markets are going to have higher returns.

Yes.

Matches as Youre well aware, we're we have a very focused strategy around capital allocation and it is very aligned to return on invested capital.

If you just take a step back and look at our M&A pipeline and what we've been balanced it really aligns around let's take the last few digital.

Life Sciences.

Regulated food and areas that we offer high impact on an external perspective when.

When we look internally, we look at investment to return and ensure that the return on and on.

Where we're focused is at the level of threshold, we would expect.

So while every market is going to have an opportunity as certain markets are going to have higher returns and.

Andrew Heider: And that's how we align for innovation. That's how we align for technological development. And there's no shortage of opportunity for life sciences and our continued expansion. And I referenced a few of these on the call, invested in and launched a new life sciences system around auto injectors, around capability building within the space to even continue to improve our output. We talked about capability development in radiopharmaceuticals around dose calibration and utilizing IoT as a support structure.

That's how we align for innovation a salary line for technology development and there is no shortage of opportunity for life Sciences, and our continued expansion.

I referenced a few of these on the call are we.

Invested and launched a new a new life Sciences.

System around Brown auto injectors around capability building within within the space to even continue to improve our output.

We talked about a capability development and radiopharmaceutical around dose calibration and utilizing Iot as a support structure.

Andrew Heider: And we talked about the real launch of an IoT solution within the pharma space. So, as we look at our investments, we expect a strong return. We also expect strong penetration to support our growth in strategic end markets. Mark, just to add a little bit here too. So, you know, the transport and EV business is primarily an organic play for us. So, from a return perspective, and we've talked about this, looking at return on investment, typically, internal investments generate a higher return and reach our thresholds more quickly. So, even though this is a higher investment in working capital in this business, from a return on investment capital, the fact that it's organic really puts it on a similar playing field with the rest of the verticals. Okay, that's super helpful.

And we talked about.

Really the launch of our Iot solution within within the pharma space. So.

As we look at as we look at our invest investments we expect a strong return. We also expect a strong penetration to support our growth in strategic end markets.

Okay.

Just to add on a little bit here too so so.

The transport Navy business is primarily an organic play for us so from a return perspective, and we've talked about this when you look at return on investment typically internal investments.

Generate a higher return and reach our thresholds more quickly so even though this is a higher investment in working capital in this business from a return on invested capital. The fact that its organic really puts it at a similar playing field with the rest of the the rest of the verticals.

Andrew Heider: And actually, you might have had one more. I think last quarter, you mentioned that you had some pilot programs with other auto OEMs. Just curious to see if there is any potential directional update you can provide. Yeah, I mean, so they're progressing the plan and, and, and, you know, we have no other delays in our program. So they're progressing the plan.

Okay. That's super helpful and you might impact was one more I think last quarter you mean.

Understand that you have some pilot programs with other auto Oems.

Just curious to see influence any potential directional updates you can provide on <unk> must be hopeful.

Yes.

So they're progressing to plan and we have no other delays in our programs. So so they're progressing to plan and we're staying close with our customers around their investment in there and Theyre long term view on the market.

Andrew Heider: And we're staying close with our customers around their investment and their and their long-term view of the market. And, and so, you know, it's, it's, I would just say it's, it's, ongoing progress. And when we're, when we're aligned around here, Okay, let's move on. Thank you, Matt. If you would like to ask a question, please press star 1 now. Your next question comes from Sabahat Khan with RBC Capital Markets. Please go ahead.

And so.

It's I would just say, it's ongoing progress and when we're when we're aligned around.

Okay. Okay excellent. Thanks, so much.

Thank you Matt.

Thank you I'd like to ask a question. Please press star one now.

Your next question comes from <unk> Khan with RBC capital markets. Please go ahead.

Sabahat Khan: Great. Thanks, and good morning. Just a clarification question. I just want to tie off the comment in the press release about the $200 million in delayed backlog. I guess, should we assume that if the delay hadn't happened, the revenue would have been higher by $2 million for this next quarter? Or is that $200 million revenue impact maybe going to be split somewhat in this upcoming quarter and maybe a bit after that? Yeah, good morning Sabahat. It's Ryan.

Great. Thanks, and good morning, just a clarification question I think I just wanted to tie off the comment in the press release about the $200 million of delayed backlog I guess should we assume that if the delay hadn't happened kind of revenue would have been higher by $2 million for this next quarter or is that 200, it revenue impact maybe going to be split somewhat in this upcoming quarter and maybe.

A bit after that thanks.

Yes, good morning solve its Ryan so the $200 million backlog.

Ryan McLeod: So the 200 million backlog, so like the rest of our projects, would be executed over a period of time and, you know, call it roughly 12 months. What would have been remaining on that program. So I mentioned this earlier, but from our backlog, we typically earn revenue in the range of 25 to 30%. And in this case, with EV being longer-duration programs, it would have been more towards the lower end of that.

So like the rest of our projects would be executed over a period of time.

<unk> color roughly 12 months, what would've been remaining on that program.

So.

I mentioned this earlier, but from our backlog we typically.

Revenue in the range of 25% to 30% and in this case.

With EV being longer duration programs.

It would have been more towards the lower end of that.

Ryan McLeod: Okay, great. And then there was a little bit of discussion earlier on your participation in kind of nuclear space. I'm just wondering, I guess, given the role that you're playing in some of the elements of what is refurbishment or things like that, are you working on becoming more involved in other parts of it, like if new builds were to start tomorrow morning? Do you have kind of the capacity and the capability to get involved, or is there some R&D and other capabilities that you're looking to add to maybe partake in this or what seems to be more of Curious, what capabilities or where you can play today versus maybe three, five years from now?

Okay, Great and then there is a little bit of discussion earlier on your participation in kind of the nuclear space I'm, just wondering I guess given the role that you're playing in some of the elements of what is refurbishment or things like that.

Are you working on becoming more involved in other parts of <unk>.

<unk> to start Tomorrow morning.

Do you have kind of the capacity and the capabilities get involved or is there some R&D and other capabilities that you are looking to add two maybe partaken this or what seems to be more like a 510 15 year type of runway here for that side of the business just curious.

What capabilities are where you can play today versus maybe three five years from now.

Yeah.

Sabahat Khan: You know, so a couple things. First, we like our niche position, and we like the value it creates. We are continuing to expand that value creation. And, you know, look at the SMR space that we're supporting; look at what we can do on refurbishment, look at what we can do on decommissioning, and even in areas around new and identification. So, it is an area that says, when we step back, we like the strategic position we are in today. We like the opportunities that we can build on, and we can do that both from an innovation perspective, as well as really supporting our customers through different technologies. So, it's an area that I would say we're going to continue to highlight and continue to drive.

So couple of things first we like our niche position and we like the value. It creates we are continuing to expand that value creation and you look at the <unk> space that we're supporting.

When you look at you look at what we can do on refurbishment you look at what we can do on decommissioning and even in areas around new and identifying soap. So it is it is an area that says.

When we step back we like the strategic position. We are today, we like the opportunities that we can build into and we can do that both from an innovation perspective, as well as as well as really supporting our customers through through different technologies. So.

It's an area that I would say, we're going to continue to highlight and continue to drive.

Sabahat Khan: And then just one last one, I guess, on the EV side, given some of the discussions you're having with kind of your larger customer here, are some of the other, I guess, OEMs that were in the pipeline that were doing some test runs or trying out your capabilities? How are the discussions progressing there? Any update on the timelines that those other potential customers are thinking about? You know, I would say...

Great and then just one last one I guess on the EV side, given some of the discussions youre, having with some of your larger customer here.

Are some of the other other Oems that were in the pipeline that we are doing some test runs or.

Trying out your capabilities I guess, how are the discussions progressing there any update on the timelines that those other potential customers are thinking about.

No I would say.

Andrew Heider: The mid- to long-term narrative hasn't changed dramatically. What I can tell you is what we do view is that, you know, the net result will be customers are going to be a bit measured in their pace of investment and really looking at this over long periods of time. That said, when we talk about CapEx spend and focus on CapEx spend, EV is a key priority. And so while the near-term view we do view is impacted, and we talked a bit about that, so I don't need to dwell further, our customers focused around technology, innovation, profitability being a key focus, and then matching capacity. These are areas where ATS does well and supports in a strong way as far as our capability through the digital twin, through making modifications, through really testing it. And to give you context for the digital twin, what it allows us to do, and there's an old adage of measure twice, cut once. Well, with the digital twin, we can measure 50, 100,000 times, and cut once.

The mid to long term narrative Hasnt hasnt changed dramatically what I can tell you is what we what we do view as debt.

The net result will be customers are going to be measured in their pace of investment.

Really looking at this over long periods of time.

Said.

When we talk about Capex spend and focus for Capex spend is a key priority and so while the near term. We do view is impacted and we've talked a bit about that so I don't need to dwell further.

Our customers focused around technology innovation profitability being a key focus.

And then matching capacity these are areas, where we're ats does well and supports in a strong way as far as our capability through digital twin through we're making modifications through really testing in Hebei context.

Digital twin what it allows us to do and there's an old adage of rate measure measure twice cut once with digital twin we can measure 50, or 100000 times cut once and it allows us to do really real time view of what these changes will will will impact how it will align around their production.

Andrew Heider: And it allows us to do a really real-time view of what these changes will impact, how they will align around their production launch, and then support their ability to modify change and really minimize impact on their launch. And so our view is that we continue to offer high value in this space, and while it's certainly going to have some dynamics over the next short term, you know, quarter two, we're going to be very, very focused on offering customers high value through that cycle. Thanks very much for the color. Mr. Hyder, there are no other questions. Back to you for closing remarks. Thank you, Operator. We look forward to continuing to execute on our goal of creating value for our customers and shareholders. Thanks for joining us today. I look forward to speaking to you on our year-end call in May. Stay safe, and goodbye for now. This concludes today's conference. You may now disconnect.

And then and then support their ability to modify change and really minimize impact on on their launch and so on.

Our view is we continue to offer high value in this basin and while it's certainly going to have some dynamics over the next short term quarter too.

We're going to be very very focused on and offering customers high value through that cycle.

Great. Thanks, very much for the color.

Mr. Hider, there are no other questions back to you for closing remarks.

Thank you operator.

We look forward to continuing to execute on our goal of creating value for our customers and shareholders.

Thanks for joining us today.

I look forward to speaking to you on our year end call in May stay safe and goodbye for now.

This concludes today's conference you may now disconnect.

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Okay.

Yes.

Yes.

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