Q2 2025 ATS Corp Earnings Call
Welcome to the ATF Corporation, second quarter conference call and webcast.
Speaker Change: This call is being recorded on November 6, 2024 at 8.30am Eastern Time. Following the presentation, we will conduct a question and answer session. On now, turn the call over to David Galison, head of investor relations at ATS.
David Galison: Thank you operator and good morning everyone.
I'm a call today, our Andrew Hider, Chief Executive Officer of ATS and Ryan McLeod Chief Financial Officer.
David Galison: Please note that our remarks today are accompanied by a slide deck, which can be viewed via our webcasts and available at atasautomation.com
David Galison: We caution that the statements need and the webcasts 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 and slide three of the slide deck.
Speaker Change: Now, it's my pleasure to turn the call over to Andrew.
Andrew Hider: Thank you, David.
Andrew Hider: Good morning everyone and thank you for joining us.
Andrew Hider: Today, H.S. reported second quarter results for fiscal 25, which has expected for challenged due to lower revenues and transportation.
Andrew Hider: will re-reline our cost structure to protect margins and drive performance improvements.
Andrew Hider: We are pleased with execution across the rest of the business, notably in life sciences.
Andrew Hider: A redrope our highest ever quarterly bookings, both organically and through our recent acquisitions.
David Galison: During the quarter, we successfully completed the acquisitions of both Paxium and Hyda.
David Galison: Both of these companies provide differentiated solutions for a range of industries.
David Galison: The we expect will be a strong compliment to our existing portfolios in food and beverage and life scientists.
David Galison: Today!
David Galison: I will update you on our business and markets and Ryan will provide his financial report.
David Galison: In addition, as we disclose today, we have been and continue to be engaged in ongoing discussions with one of our EV customers who respect the outstanding payments owed on large EV projects.
David Galison: Ryan will provide additional information in his remarks.
Ryan McLeod: Starting with our financial wage drivers.
Ryan McLeod: Order bookings for the quarter, we're $742 million.
David Galison: Flat year-rear as strong growth in life sciences, offset lower-eview bookings as expected.
David Galison: As we have previously noted, we expect transportation to be a smaller portion of our overall business going forward.
David Galison: Q2 Revenors, we're 613 million dollars, down 17% from Q2 last year, mainly due to expected lower EV Revenors.
David Galison: Recent large program wins in life sciences will ramp up if it revenues in future periods.
David Galison: Adjusted Ernie from Operations in Q2 for $57 million.
David Galison: Moving to Outlook, Order Backlog ended the quarter at just over $1.8 billion. With Trelling 12 month book to Bill Ratios, once again at Urbub 1 in all market verticals, except transportation.
David Galison: By market, life sciences backlog was a record 1.1 billion, an increase of 32% compared to your last year.
David Galison: with continued booking strength in our T-submarkets, including radio farmer.
David Galison: GLP-1 auto injectors, wearable devices and contact lenses.
David Galison: Our life science is opportunity funnel is strong. We continue to identify opportunities which levers a full breadth of capabilities to deliver integrated solutions to our customers.
David Galison: A recent highlight is a collaboration between our life sciences, systems, and combative your businesses to support a key customer at a dual-chambered syringe assembly system for cancer treatments.
David Galison: Building our life sciences and integrated solutions funnel continues to be a focal point. We have identified a number of opportunities for collaboration between Comochere, Coxium, SP, Vodot, and I-Divicare.
David Galison: David Ocampo, David Ocampo, David Ocampo,
David Galison: In food and beverage, ending backlog for the second quarter was $210 million, an increase of 30% compared to prior year.
David Galison: Our funnel remains strong and now includes Paxium opportunities, which have grown incrementally since acquisition.
David Galison: With Paxion as part of ATS, we look forward to leveraging customer synergies in food and beverage, but also in life sciences and consumer.
David Galison: In energy, our funnel is strong, with the refurbishment of existing nuclear reactors remaining a key driver.
David Galison: We also have opportunities to serve customers in the SMR market, where we are supporting ongoing concept development work, positioning ourselves for opportunities as the demand for this technology increases over the long term.
David Galison: In consumer products, our funnel remains stable with niche opportunities in areas such as warehouse automation and consumer packaging.
David Galison: In transportation, we made meaningful progress on realigning the cost structure. This has included reallocating workforce and capacity to other parts of the business, mainly life sciences.
David Galison: In addition, as I noted earlier, Ryan will provide further commentary on the recent commercial discussions with one of our EV customers.
David Galison: On After Sales Services, our strategic focus is progressively expanding our core service capabilities from technical support and asset monitoring to complete production monitoring with deep customer knowledge and technical expertise.
David Galison: With our Connected Care Hub in Cambridge, we've onboarded initial customers and we are working to bring connected, 24-7 support to additional key accounts, further deepening our relationships and creating opportunities for growth.
David Galison: On our digital offerings, demand is positive for solutions which improve productivity, energy management and process automation applications, and enterprise-level insights.
David Galison: We continue to advance our offerings in this space, including our internal capabilities, to create more opportunities for customer interaction, data analytics, and access to service offerings.
David Galison: We also bolstered our digital capabilities by acquiring the assets of U-Reality, a small software development business in Germany that specializes in augmented reality and virtual reality experiences.
David Galison: and ABM Adoption and Acquired Companies is a progressing well.
David Galison: I've recently spent time at Avidity, Paxium, and Hidoff locations, with early ABM adoption clearly evident, and the teams are excited to use the tools and embrace continuous improvement.
David Galison: Across ATS, we continue to see increased participation in our ABM Boot Camps as employees demonstrate their commitment to building skills and driving impact.
David Galison: On M&A, our integration work is ongoing with our recent acquisitions, which support expansion of our products and reoccurring revenue portfolio.
David Galison: In the short term, we are focused on bringing leverage to targeted levels while continuing to cultivate the right opportunities that will strengthen our business and create value over the long term.
David Galison: Cultivation takes time. A great example is hide-off, which we have been monitoring for over three years before we had the right opportunity to execute on the deal in a quick and effective manner.
David Galison: Our M&A funnel remains active and our portfolio is diversified across a range of target sizes and markets.
David Galison: We maintain our disciplined approach as we assess targets.
David Galison: while engaging in cultivating opportunities that align with our strategic initiatives.
David Galison: On innovation, we prioritize strategic capital investments into solutions that drive returns.
David Galison: A few highlights from the quarter, in food and beverage we launched digital tomato, which uses our PA FACTS technology and allows customers to monitor and proactively optimize tomato production during the harvest season to prevent downtime and regulate energy usage.
David Galison: In Life Sciences, our Coma Chair team developed a new solution called MODIS, a modular system that can prepare up to four different radiopharmaceuticals sequentially, without the need for time-consuming cleaning and decontamination between batches.
David Galison: Also in life sciences, our ATS Innovation Center completed significant under-the-hood improvements to SuperTrak that will be on display next week at the SPS Expo in Germany.
David Galison: The new SuperTrak Horizon 3 will give our teams access to new markets and provide improved performance to meet demands of cutting-edge assembly equipment, including our own symphony system.
David Galison: ATS has been a pioneer, an innovation leader in linear motion conveyors for over 25 years. And SuperJack Horizon 3 Conveyance Platform continues this tradition.
David Galison: in summer.
David Galison: Performance was mixed in the quarter given challenges in transportation. We continue to work through commercial discussions with one of our EV customers.
David Galison: and the rest of our business, we are pleased with our second quarter bookings and performance.
David Galison: Our backlog, which is anchored in regulated markets, provides us with good revenue visibility as we move ahead.
David Galison: As we transition into the second half of fiscal 25 and next year, our focus remains on driving profitable growth both organically and by acquisition.
David Galison: I'm also pleased to announce that ATS was recently ranked in a list of Canada's most responsible companies for 2025 by Newsweek.
David Galison: highlighting the strength of our dedicated teams as they demonstrate exceptional commitment to innovation and on maintaining our clear customer-centric approach to drive long-term value creation.
David Galison: Now, I will turn the call over to Ryan. Ryan, over to you.
Ryan McLeod: Thank you, Andrew. And good morning, everyone. And thank you for joining us this morning.
Ryan McLeod: Beginning with our operating results for the quarter, we drove solid order bookings of $742 million in line with Q2 last year.
Ryan McLeod: Life Sciences recorded the highest quarterly bookings in company history driven by organic growth with contributions from acquisitions primarily avidity.
David Galison: Our trailing 12-month book-to-bill ratio at the end of Q2 is 1.06 to 1.
David Galison: excluding transportation this ratio was 1.2 to 1 with all other market verticals maintaining a book-to-bill ratio above 1
David Galison: Q2 revenues were lower, as expected, at $613 million, a 16.7% decrease compared to prior year.
David Galison: Organic growth and life sciences, consumer and energy was strong.
David Galison: We also realized a 6% contribution from recent acquisitions.
David Galison: This provided some mitigation to lower revenues in transportation following peak EV contributions from large order bookings in prior periods.
David Galison: In food, lower revenues were primarily a result of a tougher comp in Q2 last year when we benefited in Europe from a surge in energy costs, which drove demand for our energy efficient solutions and primary processing for the tomato market.
David Galison: Moving to earnings, Q2 adjusted earnings from operations were 56.5 million dollars, down 43% from Q2 last year, reflecting lower revenue volumes.
David Galison: As I noted, headwinds in transportation reduced revenues and resulted in operating losses in the quarter in those businesses, which negatively impacted overall company profitability.
David Galison: Q2 gross margin, excluding acquisition-related inventory fair value charges, was 29.6%, an increase of 123 basis points from the prior year, driven by an improved mix of higher margin programs and supported by an improved supply chain environment.
David Galison: Second quarter expenses were $120 million, a $15.4 million increase over the prior year, primarily from incremental acquisition-related costs, mostly from avidity, along with some foreign exchange impacts.
David Galison: Excluding the mark-to-market impact related to changes in our share price, stock-based compensation expense was 4.6 million dollars in Q2, consistent with the prior year.
David Galison: Adjusted EPS was $0.25 in Q2, down from last year, primarily due to lower volumes.
David Galison: Moving to our Outlook, we finished the quarter with just over 1.8 billion dollars of order backlog.
David Galison: And we estimate Q3 revenues to be in the range of $620 million to $680 million.
David Galison: For clarity, we are providing this information on a revenue dollars basis instead of a backlog conversion percentage as has been our past practice.
David Galison: As a reminder, this assessment is updated every quarter based on revenue expectations from existing order backlog and new orders booked and billed within the quarter.
David Galison: In addition, in light of the continuing market conditions with respect to reduced North American EV sales growth, we have removed approximately $150 million of order backlog related to EV projects that we had previously reported as delayed.
David Galison: As a reminder, this order backlog had previously been excluded from our revenue expectations for FY 25.
David Galison: Margin expansion remains a key priority for ATS.
David Galison: We're leveraging ABM tools to achieve our goals, including an ongoing priority on project execution through Kaizens that connect teams with data-driven leading and lagging indicators, processes, and tools.
David Galison: Our supply chain teams continue to use data analytics, daily visual management tools, and value engineering to drive efficiency.
David Galison: In the short term, we expect sequential growth in revenues to improve operating leverage. However, we will continue to see some headwinds, particularly in our transportation businesses, until we complete our reorganization activities.
David Galison: Last quarter, we announced a plan to spend up to $20 million to reduce our cost structure, primarily in our transportation business, to reflect expectations of lower revenues in this vertical.
David Galison: During Q2, we reduced our workforce and reallocated resources as part of this plan and incurred $17.1 million of restructuring costs.
David Galison: We expect to complete the remainder of these initiatives in the third quarter.
David Galison: Moving to the balance sheet, in Q2, cash flows used in operating activities were $44.8 million. Cash usage was primarily related to the timing of progress billings and collection of those billings on our larger projects.
David Galison: Our non-cash working capital as a percentage of revenue was 30% up from 23.4% at the end of fiscal 24.
Speaker Change: As Andrew noted, we are working to resolve a disagreement with one of our EV customers.
Speaker Change: The systems related to this disagreement are operating and producing, and where we have completed our commissioning procedures, the systems have met or exceeded expectations.
Speaker Change: That said...
Speaker Change: until the disagreement is resolved.
Speaker Change: We don't anticipate collection on the overdue balance or other amounts on the balance sheet, including overdue accounts receivable of approximately $155 million and approximately $170 million of contract assets reflecting work completed and remaining to be invoiced.
Speaker Change: As such, working capital is expected to remain above our target level.
Speaker Change: But we do anticipate improvement overall as milestone billings are completed and collected in other parts of the business in the normal course.
Speaker Change: During the quarter, investments in CapEx and intangible assets were $16.8 million and we expect our annual spend to be in the range of $70 to $90 million. We continue to invest in innovation in key growth areas.
Speaker Change: On leverage, our net debt to adjusted EBITDA ratio as of the end of Q2 was 3.4 times on a pro forma basis, which includes full year contributions from our most recent acquisitions, Avidity, Paxium and Heidel.
Speaker Change: Our target range for leverage is two to three times, and in the short term, we are committed to returning leverage to our target range.
Speaker Change: In August, we successfully completed a $400 million Canadian offering of senior unsecured notes. We used the proceeds from this transaction to pay outstanding amounts owed under our credit facility.
Speaker Change: In summary,
Speaker Change: In the near term, her strong order backlog provides us with good revenue visibility.
Speaker Change: We expect short-term margin pressures from lower transportation revenues to reduce as we complete our reorganization activities and drive growth in the rest of the business led by Life Sciences.
Speaker Change: Our recent acquisition of Paxium and Heidolf helped bolster our positions in food and packaging and life sciences, respectively.
Speaker Change: Looking ahead, we're encouraged by the strong momentum for life science business as well as the backlog and funnel activity in other market verticals.
Speaker Change: We see opportunities for growth and innovation across ATS, and we are well positioned to capitalize on them.
Speaker Change: We remain aligned to our core values of people, process and performance in utilizing the ABM to drive discipline, purposeful, continuous improvement.
Speaker Change: Now we will open the call to questions from our analysts. Operator, could you please provide instructions? Thank you.
Speaker Change: Thank you. If you have dialed in and would like to ask a question, please press star followed by the number 1 on your telephone keypad to raise your hand and join the queue. To withdraw your question, please press star 1 again.
Speaker Change: If you have dialed in and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.
Speaker Change: Our first question comes from the line of Sabahat Khan with RBC. Please go ahead.
Sabahat Khan: Thanks and good morning. Maybe if you can just give us a bit more color on some of the puts and takes in the backlog. I know Andrew provided a bit of color on just a broader outlook, but maybe just some moving pieces between kind of the new orders, the order that you removed, and maybe more importantly
Sabahat Khan: Just the discussions you're having, particularly in life sciences, food and beverage, and just kind of trying to get a perspective on the outlook as we head into sort of the back half of this fiscal year for UN into 2026. Just your confidence on sort of the next year being a bit more of a growth-year on an organic front.
Speaker Change: Thank you. Bye-bye.
Speaker Change: Good morning, Sabah. So it's Ryan, I'll start. So, as we said, bookings in the quarter were $742 million. In terms of backlog adjustments, there were about $187 million in the quarter. The majority, and that's reduction, the majority of that
Speaker Change: relates to the large EV program that was put on hold several quarters ago and we have now removed that from our order backlog as we don't
Speaker Change: where content gets removed, stations change, capacities, so forth, but nothing of note in terms of size.
Speaker Change: As we said, we feel very good about where we are from a backlog perspective. We have record order backlog in life sciences.
Speaker Change: It's up 32% year-over-year, consumers up 9%, food is up 30%, and energy remains strong. It's flat year-over-year. So, we are up in all markets with the exception of transportation and where energy is flat.
Speaker Change: Yeah, and Simon, maybe I'll just add on a little bit here, you know, Ryan touched on it, but if you look across our business, all markets except transportation, book-to-bill ratio, trial-and-trial bonds is above a one.
Speaker Change: So overall good quarter in life sciences and other parts of the business and and as expected lower revenue and margins in transportation and Obviously, we're mitigating that risk and limiting that that margin impact
Speaker Change: In addition, we closed two acquisitions within the quarter, very strategic, very much aligned with the future and where we're driving the business with Pax Human Hideoff.
Speaker Change: Highest life sciences backlog in history, trailing 12-month book-to-bill ratio, above a one in all markets except transportation, and funnels remain healthy.
Speaker Change: Great and then maybe just on the on the kind of the right sizing within the transportation business can you maybe just share some color on what cost reductions or right sizing or maybe reallocation you've undertaken thus far and what might still be remaining?
Speaker Change: Yeah, so as we talked about, we spent about $17 million in the quarter primarily related to headcount reductions.
Speaker Change: We've also reallocated resources and that's both people and footprint to other parts of the business. It's primarily life sciences. From a payback perspective or an ongoing savings, it's...
Speaker Change: and I'm going to go over some of the things that we're doing. The savings tied to the spend are well in excess of the spend. And most of it relates to direct labor.
Speaker Change: As we talked about, really making sure that our cost structures align to the market activity in our transportation vertical. Most of the actions are complete. There are a few that...
Speaker Change: Do take a little bit longer to implement and we expect those will be completed in the third quarter.
Speaker Change: Great and then just one last one for me on the on the EV work that you're doing for your large customer just
Speaker Change: To be clear, are you still kind of chipping away at the work for this client while you work on collections for some of the past work, or is that on hold? And then secondly, are you able to provide some perspective on if there's a timeline on how long it may take to figure out the payments on the work already done? Thank you.
Speaker Change: Yeah, so Saba, before we address additional questions on our EV projects, just I'll let you know that there's some items we can't discuss.
Speaker Change: and that's including the name of the customer.
Speaker Change: as well as certain contract operational and financial details beyond what's described in our disclosure materials. Now we'll be obviously forthcoming as we can.
Speaker Change: We all understand that we have to draw the line, just given the nature and status of customer discussions. What we can say is we've delivered equipment according to our contracts. And where we fully commissioned the equipment, it's meeting or exceeding expectations.
Speaker Change: Many of our projects have a high degree of complexity and that requires ongoing discussions with our customers. In this case, very recently.
Speaker Change: Our conversations have become more challenging.
Speaker Change: and we continue our discussions with the customer and we're hopeful that we'll come to resolution but we're prepared to exercise our rights to be paid for the work we've done.
Speaker Change: and I'll just add on in terms of timeline. As Andrew said,
Speaker Change: We are continuing discussions. We're hopeful that will come to resolution, but we're also prepared to exercise our rights to be paid for the work we've done.
Speaker Change: There's a variety of ways we could pursue resolution, but that'll be dependent on on how discussions go and That will ultimately drive timeline
Speaker Change: Thanks very much for the color
Speaker Change: Our next question comes from the line of Justin Keywood with Steeple. Please go ahead.
Justin Keywood: Good morning, thanks for taking my call. Just on the EV discussion, in the opening remarks, there was some commentary.
Justin Keywood: expecting the EV segment to be a smaller percentage going forward. Any updated parameters on what that could be? Thank you.
Speaker Change: Justin, good morning. As we look at it today, it's about 11% of our order backlog, so I think that's a reasonable range in the high single digits, low double digits.
Justin Keywood: Is there any indication of that, around 10%, how diversified would that be? Would that comprise of a number of customers or would that still include the large OEM?
Speaker Change: and it's on a more smaller scale of projects and I would say the large scale as well they're certainly out there given the market dynamics we're seeing more in line with with continued execution but but a diversified customer base.
Speaker Change: Thank you. In discussion on margins, there was also commentary that there could be some continued impacts, but is it fair to assume that fiscal Q2 is low and there would be some progression in the back half of the year?
Speaker Change: to provide a bit more color. So, we've spoken about headwinds in transportation, excuse me, and EV.
Speaker Change: impacted our revenues.
Speaker Change: We are seeing growth in our other market verticals and in our book-to-bill.
Speaker Change: outside excluding transportation is 1.2. So we do expect improvements as revenues continue to increase from Q2 and we'll also see the benefit of our lower cost structure in our transportation business that will benefit our margins.
Speaker Change: So yeah, your assumption is correct.
Speaker Change: Thank you. If I could just slip in one more, the expected exit leverage ratio, did you have that?
Speaker Change: Thank you.
Speaker Change: And is there an anticipated exit ratio for Fiscal 25?
Speaker Change: Oh, sorry, I didn't understand your question. Well, so, again, we talked about in our prepared remarks...
Speaker Change: our commitment to reducing leverage to our target range. I think.
Speaker Change: Outside of the working capital that is tied up on our large projects, we do expect to see improvement from where we were in the second quarter in the rest of the business.
Speaker Change: and so you know what I'll say is we expect improvement over the by the end of the year but I'm not going to provide a precise timeline on when we get there.
Speaker Change: Okay, thank you very much.
Speaker Change: Our next question comes from the line of David Ocampo with Cormark Securities. Please go ahead.
David Ocampo: Thanks. Good morning, everyone.
David Ocampo: Good morning.
David Ocampo: I just wanted to follow up Justin's question, but ask in a different way as it pertains to M&A.
Speaker Change: I mean, if there's any delays as it relates to the payment, I know you don't want to put a timeline on it, but it does put your leverage probably closer to the top end of where you're comfortable with. Does that pause your thoughts on M&A, just because you guys are always cultivating, but, you know, your leverage ratio may be...
Speaker Change: Quite a bit higher than where you guys would like to be post a deal
Speaker Change: Yeah, hey, good morning, David. You know, I'll start here.
Speaker Change: First and foremost, we've just added two
Speaker Change: strategic acquisitions to the business. I'm very pleased with with the addition of Paxium and Hidoff and we're actively engaged to integrate those businesses and really help them achieve their aspirations and early indications are very positive with both businesses.
David Ocampo: Pleased with the closing of of those two and we've also added you reality and so so nice additions within the quarter if we look
David Ocampo: at our funnel today, our funnel remains healthy.
Speaker Change: And as I said in my prepared remarks,
Speaker Change: Oftentimes, cultivation takes time.
Speaker Change: And we will continue to cultivate, and while we're in the process of going through that, we're going to look to de-lever and really build up our ability to execute for the future. So we'll continue to cultivate. Our funnel remains healthy.
Speaker Change: and we'll be balanced in the approach, but we're pleased with the additions and we're gonna execute the plan.
Speaker Change: Okay, that sounds good. And then just the last one here for Ryan.
Speaker Change: I mean, we haven't really seen these large life signs.
Speaker Change: wins in the past. Maybe you can walk us through how the revenue recognition process works as it relates to, as things get booked into the income statement here.
Speaker Change: Thank you.
Speaker Change: Yes, so I'll...
Ryan McLeod: Try to walk through this, but if you don't feel free to follow up
Speaker Change: When we talk about large projects, they typically
Speaker Change: go through three phases. There's the design phase, there's the assembly phase.
Speaker Change: and then they get delivered and commissioned on site.
Speaker Change: Typically the initial design phases are lower revenue recognition periods and that just reflects we have less cost going into the projects.
Speaker Change: As we get into assembly, we start bringing materials, we have our workforce deployed in factory, that's the highest revenue recognition period, and then commissioning, again, is typically a lower period when it's being installed, commissioned, validated on-site.
Speaker Change: The duration varies.
Speaker Change: Large projects typically are over a year, in some cases they can be up to 24 months.
Speaker Change: In life sciences, I would say typically in the large size, they're 12 to 18 months in duration. And again, from a revenue recognition, kind of follow that normal distribution pattern. And so in the quarter...
Speaker Change: If I look across our top 10 orders...
Speaker Change: There was a lot of life sciences in that.
Speaker Change: Radio Pharma, Drug Delivery, Contact Lenses, Wearables. There's also Consumer, there's Nuclear in the top ten. So we're very pleased with the bookings. As I said, we have record order backlog in Life Sciences and are encouraged by the funnel activity in that vertical.
Speaker Change: Okay, that's helpful. I'll follow up offline to make sure I have everything, all my ducks in order in terms of modeling this out.
Speaker Change: I'll stop there with my line of questioning. Thanks so much.
Speaker Change: Thanks, David.
Speaker Change: Our next question comes from the line of Patrick Sullivan with TD Cowan. Please go ahead.
Patrick Sullivan: Good morning, thanks for taking my question. I guess life science is currently over 60% of the backlog, with everything else in that 6 to 12% range. Do you have an ideal target mix for that? I guess would you forecast food and beverage to take over like a comfortable number two position? Do you have any guideposts for the range you'd like to see there?
Speaker Change: So, not specific in guideposts. What I can tell you, if you've looked at M&A and if you've looked at our focus on innovation and product launch, life sciences is a key area of focus for our business, and we're very pleased with the progress.
Speaker Change: biggest backlog in history and across the board minus transportation above a book-to-bill ratio of 1.0, you know, would the addition of Paxium
Speaker Change: to our food and beverage space.
Speaker Change: really excited about the potential and and and you know Paxium came in the food space but we're also seeing a lot of synergy potential in in our life sciences area and and our synergy funnel continues to grow in that space so
Speaker Change: To not put parameters on it, what I can tell you is our...
Speaker Change: There he is.
Speaker Change: that are going to make up, called ATS as we move forward, is the largest in the life sciences.
Speaker Change: Food, Nucure continues to be an attractive piece of the business as well and a niche application. Our consumer products also continues to do well. Transportation is going to be a small portion of the business.
Speaker Change: Okay, great. Thank you.
Speaker Change: Andrew's mentioned on a recent webcast that CommaChair, you've roughly doubled the top line of the business since it was acquired. According to certain forecasts, radiopharma submarkets are expected to grow at pretty strong CAGRs out to 2028. I guess, where does ATSC see the greatest opportunity for that business? Is it the diagnostics versus therapeutics? And I guess, are you guys in a position to outpace some of those industry expected growth rates?
Speaker Change: So
Speaker Change: First and foremost, we actually see opportunity in both areas and, and, and boy, you know, COMA chairs continue to execute both operationally and commercially.
Speaker Change: very pleased with the progress. This team came on, they really aligned around the ABM and taking a hard look at how do they set their business up to drive expansion in their core markets.
Speaker Change: The market is an attractive space, the business executes and really drives high value for our customers.
Speaker Change: One of the most recent wins that we had is in the therapeutics area and and and we we had a large order from a customer
Speaker Change: was our single largest award within the quarter. And Coma Chair continues to bring high value in the space. And not only that, I actually talked a bit about their focus on technology and MODIS being a new launch in their space. And so...
Speaker Change: They're not only bringing value in the core, they're also innovating and designing and building out capability to really have higher value for customers as they grow and continue to launch exciting.
Speaker Change: products within the cancer arena to fight and combat this area.
Speaker Change: Okay, great, thank you. If I could ask one more. So I think it's been said that recurring revenue for any given segment of the business can range from 25 to 35 percent. Are you able to share which segments kind of index higher or lower on that scale?
Speaker Change: So, look, overall, I would say.
Speaker Change: Okay, let me walk through this one a little bit. First, I said between 25 and 35.
Speaker Change: We're actually at the high end of that, as a total enterprise, and we're pleased with the progress we've made. Now, we see actually a bit of a higher level, typically in life sciences, and we've added businesses around this. So think Avidity, where they're going to be 40-plus percent, and Hidoff is going to be a very high portion of that as well.
Speaker Change: And so we see continued ability to expand here.
Speaker Change: a number in the future at or above 40%. That said, we've got some work to do and I would say we're on the higher end of that 25 to 35 as a total corporation and we expect to continue our trajectory and launch solutions and capabilities in this area.
Speaker Change: Okay, great, thank you very much.
Speaker Change: Thank you for tuning in. We'll see you next time.
Speaker Change: Our next question comes from the line of Maxim Sychev with National Bank Financial. Please go ahead.
Speaker Change: I can not do all that.
Speaker Change: Good morning. Good morning, Max.
Maxim Sychev: Maybe just thinking about the transportation market a little bit more removed dynamic, like in terms of the portfolio composition and I'm going for basis, do you think still that this is kind of you know the good market to be in?
Speaker Change: What are your thoughts, maybe, as you think about, especially with, you know, elections in the U.S. and, I mean, arguably, EV market facing more pressure on, you know, what was known yesterday. So, yeah, maybe any thoughts there. Thanks.
Speaker Change: Yeah, good morning, Max. So,
Speaker Change: Look, we have right-sized our business for the market dynamics, and we walked through that. Ryan kind of provided a bit more color around the reorganization and how we've really aligned this business for the market expectation. And we expect this...
Speaker Change: to be a lower portion, and Ryan walked through the numbers, and it being roughly 10%. So net-net, we're gonna continue to execute where we have high value for customers, but it will be a small portion of ATS into the future.
Speaker Change: Again, as you think about the portfolio composition, I mean, are you okay with EB sort of having kind of a long-term option?
Speaker Change: Than anything else or what do you think sort of a focus on kind of health care food? energy Would potentially yield you know better better returns ultimately for the shareholders
Speaker Change: caught a smart segment moving forward.
Speaker Change: Okay, okay, great. Thanks for the comment. And then just one last question in terms of food and beverage So the decline year on year I mean, I understand there's always sort of puts and takes but wondering if you can provide a bit more color In terms of you know, what's going what's going on there? Because as you said, you know a funnel is seems to be pretty pretty good in that space. Thanks
Speaker Change: Yeah.
Speaker Change: So, you know, Max, just to walk through this, you know, first and foremost, up 30% in backlog, pleased with that progress and pleased with this business.
Speaker Change: Just just to walk you through q1 q2 of last year. It's a bit of a comp discussion and let me walk through that so as We're as we've talked in the past there was a bit of an energy crisis as we all know in Europe
Speaker Change: Our CFT business has a very high energy efficiency product that we saw an increased level of demand, and we executed that demand in Q1 and Q2, so we should see this normalize in Q3 of this year.
Speaker Change: And there are solutions that they're launching and capabilities that they're launching. And I even highlighted one.
Speaker Change: in the update around Digital Tomato and what that will bring as a new solution set for their markets. So, really pleased with the progress here and it is a bit of a cop for Q1, Q2 and Q3 should be more normalized.
Speaker Change: Thanks so much, Stephanie.
Speaker Change: Yeah, Max certainly.
Speaker Change: Yeah, I just want to add on as well.
Speaker Change: The energy efficient solutions are primary processing, and we've talked in the past, those are seasonal.
Speaker Change: and require equipment deliveries around harvest seasons. And so what's in the backlog today is more on secondary processing, packaging, and...
Speaker Change: inspection solutions. So and we've talked about that being a focus to balance out the seasonality of that primary processing. So as Andrew said we're quite pleased with performance there.
Speaker Change: Okay, thanks a lot, Farron.
Speaker Change: Our next question comes from the line of Michael Glenn with Raymond James. Please go ahead.
Michael Glenn: Hey, good morning. So just to start on EV, can you indicate gross bookings in EV in the quarter? So, you know, excluding the $150 million adjustment, what were the gross bookings for the period?
Speaker Change: They were in the range of 30, just north of 30 million.
Speaker Change: On new EV bookings, I understand in the past there were different contract structures and payment structures. Are you telling customers now that you're not willing to participate in those types of terms and you've changed the terms of new contracts in that segment?
Speaker Change: So, Michael, I mean, our contracts are different customer to customer, but I would say
Speaker Change: We've got, across the board, strong contracts.
Speaker Change: Good payment terms, certainly relative to
Speaker Change: what we used to see in the ice market and transportation that are more favorable from a working capital perspective. And so I would say the contract terms that were
Speaker Change: that we're working under are favorable.
Speaker Change: Okay.
Speaker Change: Okay, and I'm just like, just.
Speaker Change: I'm going to try to pull this out of you a bit more, but I mean, the contracts you're working under are favorable. Is that contract terms outside of the large customer where you're having the issue? Like, did they have different contract terms associated with them versus
Speaker Change: and others in that backlog.
Speaker Change: So let me address that piece. So as we said, with respect to those large contracts,
Speaker Change: The lines are producing.
Speaker Change: where we've been able to complete commissioning procedures.
Speaker Change: They are producing at or above contracted levels
Speaker Change: Our disagreement with the customer is really around payment for work we've done. I mean, I can't speak for the customer, but again, we know
Speaker Change: That said, we're continuing discussions. We're hopeful that will come to a resolution.
Speaker Change: and Andrew Hider. Thank you. Thank you.
Speaker Change: Okay, and then just on the life science bookings in the quarter, are you able to indicate what the organic, because I know there's some M&A having impact here, Avidity, Hidoff, and maybe some other transactions, but what is the organic, what was the organic bookings number in life sciences?
Speaker Change: Specifically in the quarter, it's north of 20%.
Speaker Change: 20% growth organically.
Speaker Change: Correct, yes, north of.
Speaker Change: North of 20% growth. Okay. And then what, like the margin profile of those contracts themselves, would that be, could you say that that is margin accretive to
Speaker Change: I know your business is under some margin pressure right now, but is that margin accretive to say the 15% target margin that you've spoken to in the past?
Speaker Change: is a creative at the gross margin level.
Speaker Change: And so, you know, what we
Speaker Change: So the main impact, and we had a good solid gross margin in the quarter, we're up about 123 basis points, I believe, year over year.
Speaker Change: What that reflects is that improvement in mix, so more life sciences, more services.
Speaker Change: The other impact on margins in the quarter, though, is really around operating leverage, and again, really driven by the lower revenues in our transportation vertical.
Speaker Change: Again, we've taken action around that, but that's some of the dynamics around our margins.
Speaker Change: Okay, and then I just want to dig into just one last question for me, like what...
Speaker Change: I think you addressed this earlier, but just to understand it more, what's left in the transportation backlog right now, that would still be, I'm guessing, and I don't know completely, but that would still have a sizable portion, the 200, I think 207 million left over in transportation backlog, like a chunk of that would still be related to the large customer where the dispute is?
Speaker Change: There's some, but the majority is related to other customers, other scopes of work.
Speaker Change: Okay. Okay. Thank you for taking the questions.
Speaker Change: Thank you. Thank you.
Speaker Change: Again, if you would like to ask a question, please press star then 1.
Speaker Change: Our next question comes from the line of Patrick Bowman with JP Morgan. Please go ahead.
Patrick Bowman: Thanks, good morning.
Patrick Bowman: We're just wondering if we could put a finer point on margins in the second half. I think you'd previously indicated that the company would would be able to get back to
Patrick Bowman: The first quarter level of around 15% EBITDA margin by the fourth quarter of the year. So is that still aligned with the expectation based on the cost you're taking out based on, you know, how you see the revenue trajectory playing out in the second half?
Speaker Change: So, Patrick, good morning. Generally, yes. I mean, again, this is going to depend on
Speaker Change: progression around the rest of the business and bookings and things like that but but generally yes we we continue to expect sequential improvement into the third and then into the fourth quarter
Speaker Change: Okay, and on the...
Speaker Change: and then did you choose to remove it because of you know the challenges on cash collections with work already done for the customer or was this customer driven like a cancellation on their part and then lastly on this kind of when was it decided
Speaker Change: So.
Speaker Change: No impact on margins related to the removal of backlog. The contract has not been cancelled.
Speaker Change: But it really reflects our expectation that it's not going to move forward. And as we talked about, that's based on
Speaker Change: activity in the market also the the other ongoing scopes of work with with the customer so in terms of timing it's it's a recent development
Speaker Change: Thanks so much for the call, I appreciate it.
Speaker Change: Thank you, Patrick.
Speaker Change: Seeing no further questions at this time, I will now turn the call back to Mr. Hider for closing comments.
Andrew Hider: Thank you for tuning in. We'll see you next time.
Andrew Hider: Great. Thank you, Operator. And thank you, everyone, for joining us today.
Andrew Hider: I look forward to speaking to you on a Q3 call in February. Stay safe and goodbye for now.
Speaker Change: This concludes today's conference call. Thank you all for your participation. You may now disconnect.
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