Q3 2025 ATS Corp Earnings Call

Welcome to the ATS Corporation third quarter conference call and webcast. This call is being recorded on February 5th, 2025 at 830 a.m. Eastern Time. Following the presentation, we will conduct a question and answer session. I'll now turn the call over to David Galison, Head of Investor Relations at ATS.

Speaker Change: Thank you, operator, and good morning, everyone. On the call today are Andrew Hider, Chief Executive Officer of ATS, and Ryan McLeod, Chief Financial Officer.

and our cautionary statement regarding such information.

Speaker Change: 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 three of the slide deck. Now it's my pleasure to turn the call over to Andrew.

Andrew Hider: Thank you, David. Good morning, everyone, and thank you for joining us.

Today, ATS reported third quarter results for Fiscal 25.

Andrew Hider: This was the second-highest bookings quarter in company history and included strong organic growth along with contributions from acquisitions.

Andrew Hider: This morning, I will update you on our business and markets, and Ryan will provide his financial report. And we will both touch upon the recent developments on tariffs.

Andrew Hider: Starting with our financial value drivers. Order bookings for the quarter were $883 million, up 32% from the third quarter last year.

Andrew Hider: All of our market verticals contributed to this growth, with good diversification in bookings, including large and small orders, and contributions from our services businesses.

Andrew Hider: Q3 revenues were $652 million, down 13% from Q3 last year, primarily due to lower EV revenues as expected.

Adjusted earnings from operations in Q3 were 66 million dollars.

Andrew Hider: Moving to our Outlook, order backlog ended the quarter at approximately 2.1 billion dollars, with our trailing 12-month book-to-bill ratio at 1.18 to 1.

Andrew Hider: We are focused on expanding our market reach through our capabilities, high value applications that are complex to manufacture and where quality is critical, aligned very well with our strengths.

Andrew Hider: By building out our standard products and equipment and adding services and digital capabilities, we're also shifting to growing our levels of reoccurring revenues to help offset some of the variability in bookings over time.

Andrew Hider: On the recent developments on tariffs between the U.S. and Canada, if tariffs are implemented in the next month, we would expect some complexity in the short term.

Andrew Hider: Our people continue their unwavering commitment to delivering customer value and to actively planning for and addressing any disruptions that result from new tariffs and to meet customer requirements.

Andrew Hider: Regardless of how the challenge ahead may develop, we rely on the strengths of our teams, our disciplined processes, and daily visual management tools to plan for and track impacts, improve our approach, and pivot when necessary.

Andrew Hider: ATS is built on strong businesses with empowered and driven teams. We will continue to operate in a way that is best for the company and our shareholders.

and which is supportive of our employees and our customers.

Moving to Outlook.

Andrew Hider: Within life sciences, order backlog sits at a record 1.2 billion, an increase of 39% compared to Q3 last year.

Andrew Hider: with strong bookings delivered in key sub-markets such as radiopharma, GLP-1 auto injectors, wearables, and other medical devices.

Andrew Hider: As an example of how we are expanding market reach, we booked a small order with an emerging customer in advanced robotic surgery, and an order with a larger customer for a new application that also creates inroads into the surgical robotic space.

Andrew Hider: Overall, our Life Sciences Opportunity Funnel is strong. We continue to build out our integrated solution set, leveraging our capabilities across our businesses to drive higher value for customers at each stage of their product lifecycle.

Andrew Hider: Further, we continue to accelerate our growth strategy, the ongoing development of new products and solutions in the pharmaceutical manufacturing market to leverage Comachere, our do-si-tecto business in Spain, and our core automation capabilities.

Andrew Hider: In food and beverage, our funnel remained strong, and we ended the quarter with a record backlog of $252 million, an increase of 22% compared to last year, supported in part by our acquisition of Paxium.

Andrew Hider: As we move ahead on our Paxium integration, opportunities continue to emerge for customer synergies and process improvements in areas such as secondary packaging and digital solutions.

Andrew Hider: In energy, our funnel remains strong, supported by refurbishment opportunities for nuclear power generation facilities and new nuclear builds, including both large-scale and small modular reactors over the long term.

Andrew Hider: We are well positioned to support customers in our areas of specialization, including nuclear fuel fabrication, factory automation of modular assemblies for new nuclear builds, and nuclear waste handling.

Andrew Hider: ATS is well positioned to serve as a strategic partner from the concept and design phases all the way to execution.

Andrew Hider: In consumer products, our funnel remains stable with niche opportunities in areas such as automated warehouse solutions packaging.

Andrew Hider: In the quarter, we received a warehouse solutions booking with an additional potential to combine the capabilities and capacity of different businesses to support this customer with their emerging sustainability requirements across geographies.

Andrew Hider: Within transportation, our previously announced restructuring activities continue to line our business with lower end market demand, particularly in EV.

Andrew Hider: Our funnel remains stable with smaller opportunities that we have seen in prior years. However, in the quarter, we had a new EV customer win in Europe.

Andrew Hider: On After Sales, we expanded our higher value services, incorporating our digital capabilities.

Andrew Hider: We're evolving our service plan offerings to drive greater customer adoption and retention.

Andrew Hider: We continue the launch of our Connected Care Hub in Cambridge, further expanding its operational capabilities, and receiving several new customer orders.

Andrew Hider: On our performance-based services, we are building on the success and learnings from our pilot projects as we scale with additional customers.

Andrew Hider: On our digital offerings, our fall is strong, and we remain committed to serving as a global partner for continuous productivity optimization across our customer base.

Andrew Hider: Our ATS business model continues to drive a culture of continuous improvement, innovation, and resilience across the organization, with strong engagement in AVM events completed across all ATS businesses and geographies.

Andrew Hider: By way of example, our CFT business held the Kaizen event in November, dedicated to improving project management tools and best practices.

Andrew Hider: with a clear focus on data and sustainment to drive continued margin expansion.

Andrew Hider: As part of these sustainment efforts, they held a follow-up event as part of our President's Kaizen Week in January. A great example of ongoing use of tools to drive steady improvement.

Andrew Hider: I look forward to providing you with a broader update on our President's Kaizen events and our Q4 results call.

Andrew Hider: The ABM is also a critical part of our M&A playbook, used to integrate new acquisitions and drive towards targeted ROIC.

Andrew Hider: Our M&A funnel remains strong, and we actively cultivate opportunities across a range of target sizes and markets.

Andrew Hider: In the short term, we are focused on bringing leverage to our targeted levels, where we expand our pipeline of acquisition opportunities that align with our strategic vision for long-term value creation.

Andrew Hider: Integration activities are well underway on our recent acquisitions, and we remain confident in their long-term contributions to our growth.

Andrew Hider: On innovation, we are deploying capital and empowering our talent to create differentiated solutions that drive value for our customers.

Andrew Hider: In November, we brought together thought leaders from our businesses around the world for our annual Innovation Summit, branded Building an Innovation Powerhouse.

Andrew Hider: AI's potential to drive innovation and operational efficiency was a central theme.

Andrew Hider: The event accelerated our efforts to create deeper collaboration on AI-driven initiatives across ATS.

Andrew Hider: This focus reflects our commitment to advancing technologies that enhance capabilities and deliver long-term value.

Andrew Hider: In December, we released our 5th Annual Sustainability Report, reaffirming our commitments and highlighting how we help our customers meet their sustainability goals.

Andrew Hider: I encourage you to review the report where we highlight our progress over the past year and provide examples of our approach to product design to handle more sustainable packaging solutions and increase the processing efficiency of our equipment.

Andrew Hider: In summary, strong third quarter bookings combined with a sizable order backlog provide us the good foundation as we move through the final quarter of our year and look ahead to fiscal 2026.

Andrew Hider: The disciplined execution of our strategy, driven by our ABM tools, processes, and culture, will serve us well in achieving our objectives.

Andrew Hider: Our AVM Continuous Improvement Mindset keeps our teams engaged and dedicated to delivering customer and shareholder value.

Ryan McLeod: Now I will turn the call over to Ryan. Ryan, over to you.

Thank you, Andrew, and good morning, everyone.

Ryan McLeod: Beginning with our operating results for the quarter, order bookings were $883 million, an increase of 32% over Q3 last year.

Ryan McLeod: In Life Sciences, quarter bookings were our third highest on record, following our top two Life Sciences bookings quarters in Q1 and Q2 of this year, respectively.

Ryan McLeod: In the third quarter, bookings were driven by a combination of organic growth and contributions from the recent acquisitions of Avidity, Paxium, and Heidel.

Ryan McLeod: Our trailing 12-month book-to-bill ratio at the end of Q3 was 1.18 to 1. Excluding transportation, this ratio was 1.24 to 1, with all other market verticals sustaining a book-to-bill ratio above 1.

Ryan McLeod: Q3 revenues of $652 million were 13.3% lower than last year. Strong year-over-year organic growth in life sciences, consumer, and food and beverage, in addition to a 6% contribution from recent acquisitions, partially mitigated the expected declines in transportation.

Ryan McLeod: Of note, revenues increased sequentially by 6.4% as we have begun to realize on the benefits of our strong order bookings over the past several quarters.

Ryan McLeod: Moving to earnings, adjusted earnings from operations in Q3 were $65.7 million, a decrease of 35% from the prior year, reflecting lower revenue volumes primarily in transportation.

Ryan McLeod: Excluding acquisition-related inventory fair value charges, Q3 gross margin was 30.7 percent, a 216 basis point improvement from last year, driven by a more favorable mix, including higher margin programs and an improved supply chain environment.

On SGA.

Ryan McLeod: Excluding acquisition-related amortization and transaction costs, as well as one-time contract settlement costs, third-quarter SG&A expenses were $130.6 million.

Ryan McLeod: A $22.7 million increase over the prior year, primarily as a result of SG&A and our acquired companies, along with increased employee costs and foreign exchange translation.

Ryan McLeod: As always, we are continuing to drive efficiency into both our existing operations and new acquisitions who have joined ATS.

Ryan McLeod: For further context, the one-time contract settlement costs that I referenced were within one of our life sciences businesses and related to a cancelled program.

Ryan McLeod: Turning to our outlook, we concluded the quarter with an order backlog of just under $2.1 billion and we expect Q4 revenues to be in the range of $650 million to $710 million.

Ryan McLeod: As a reminder, this assessment is updated every quarter, taking into account revenue expectations from current order backlog and new orders booked and billed within the quarter.

Ryan McLeod: Margin expansion remains an ongoing priority. To achieve this, we're employing ABM tools in a disciplined manner to improve processes, our supply chain, and standardization. Further, we continue to invest in innovation and services to drive growth.

Ryan McLeod: During the quarter, we substantially completed the reorganization plan we announced in Q1, which was primarily intended to right-size the cost structure of our transportation businesses to reflect current market activity.

Ryan McLeod: In the quarter, we incurred an additional $3.3 million of restructuring costs.

Ryan McLeod: On tariffs, as Andrew noted, we are monitoring the situation closely and are assessing potential impacts on our business.

Ryan McLeod: Our global footprint and decentralized operating model, along with our proven ABM tools, give us flexibility to address disruptions over the longer term.

Well, we await further information over the next month.

Ryan McLeod: We're actively working with our customers and suppliers to mitigate challenges that tariffs could pose to our collective businesses.

Ryan McLeod: Moving to the balance sheet, in Q3 we generated cash flows from operating activities of $66.7 million.

Ryan McLeod: Our non-cash working capital as a percentage of revenue was 30.3%.

Ryan McLeod: This value remained high as a result of our previously disclosed disagreement with one of our EV customers.

Ryan McLeod: While work remains paused on the projects, we have continued efforts to resolve this disagreement. However, until it is resolved, working capital is expected to remain above our target level of 15% of revenues.

Ryan McLeod: That said, we did see good progress across the rest of our businesses on working capital efficiency, with XEV working capital values moving closer to our target range, even with the acquisitions of higher working capital intensive product businesses.

Ryan McLeod: During the quarter, we invested $16.4 million in CapEx and intangible assets, with an expected annual expenditure at the lower end of our previously disclosed range of $70-90 million. Our innovation efforts in critical growth areas remains a priority.

Ryan McLeod: On leverage, at the end of the third quarter, our net debt to adjusted EBITDA ratio was 3.7 times on a pro forma basis, which includes full-year contributions from our most recent acquisitions. We remain committed to bring our leverage to our target range of 2 to 3 times.

Ryan McLeod: In December, we successfully completed an additional $200 million Canadian offering of Senior Unsecured Notes as part of a single series with our August issuance of 6.5% notes due in 2032.

Ryan McLeod: Proceeds from this transaction were used to repay outstanding amounts under our credit facility.

Ryan McLeod: In summary, order bookings are strong and diversified across our markets.

Ryan McLeod: Record order backlog and life sciences and food and beverage give us good revenue visibility going forward.

Ryan McLeod: We expect the short-term margin pressures from lower transportation revenues to continue to abate through our reorganization efforts as we drive improved volumes in transportation and continued growth in the rest of the business.

Ryan McLeod: Looking ahead, we're committed to building on recent positive momentum in our financial results as we finish out fiscal 25.

Ryan McLeod: We're encouraged by the progress our global teams are making in advancing our strategies And are confident that their efforts will generate value for customers and shareholders as we move forward

Ryan McLeod: Now, we will open the call to questions from our analysts. Operator, could you please provide instructions? Thank you.

Ryan McLeod: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again.

Ryan McLeod: Your first question comes from the line of Justin Keywood from Stiefel. Your line is open.

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Justin Keywood: Good morning. Thanks for taking my call. On the margins, we saw a good expansion on the gross margin level year over year, up almost 200 beeps.

Speaker Change: Should we anticipate that to start impacting the overall operating margins for fiscal Q4 or will that take a bit longer for some of the reorganization activities to mature and some of the ABM initiatives to be implemented?

Ryan McLeod: Good morning, Justin. It's Ryan. So short answer is yes, we do expect

Ryan McLeod: continued margin improvement. But let me give you a little bit more context than that. So

Ryan McLeod: Looking back on the year, Q2 really reflected the low point in our financial performance, and that was expected. And we did see sequential growth.

and Margin Expansion this quarter.

Ryan McLeod: The growth has been across all our market verticals with the exception of transportation and that has helped drive

Ryan McLeod: Margin Improvement, along with the actions we've taken to right-size our cost structure.

As we look forward, we do expect...

Ryan McLeod: continued sequential growth to benefit our margins, but it will be modest in Q4.

Ryan McLeod: Our transportation business, while it's improved from Q2, the cost structure has been right-sized and we've had good bookings in Q3.

Ryan McLeod: The revenues aren't going to ramp in that business until we get into more advanced stages with a lot of the new business we've just won. So we're going to see more benefit into fiscal 26.

Okay, thank you and then on the

energy or nuclear segment.

Ryan McLeod: Good bookings or backlog growth up 58%. I think there was a big jump in bookings as well. Are you able to give some additional context there? Was that from a new customer or existing customer? And what is the outlook for that segment going forward?

Yes, so, so, um,

Ryan McLeod: Let me start there. So when we step back and look at this segment, as a reminder, we're a niche player, but we have a strong value for our customers. And we support

Ryan McLeod: Now multi areas for this market first one can do reactive refurbishment and and we've seen and continue to see

Ryan McLeod: customers look to this area as a refurbishment to really look at green energy and nuclear energy being a power source that they can rely on and so we see continued opportunity in that space and we did see actually continued bookings within this market.

Ryan McLeod: The SMR builds, and while it's early, and we still view this as a mid to long term area of focus, we have a strong niche position within that space, and we're working with several of the key leaders.

Ryan McLeod: And it's about getting the applications proven out and then ultimately in line and online to support energy. We're seeing large scale new builds as well start to come into discussion. And an ATS, if you look at the refurbishment,

Ryan McLeod: kind of effectively two things is decommissioning and then recommissioning. That's the recommissioning piece and we have ability to support new builds on traditional as well as can-do reactors.

Ryan McLeod: And then, you know, decommissioning waste we play in as well as operations and maintenance.

Ryan McLeod: One additional one that we're highlighting and you'll see us continue to highlight is fuel fabrication.

as these new solutions come online.

Ryan McLeod: It is an area and opportunity that ATS can really play in and support.

Ryan McLeod: While it's early, we are starting our position, and we have a strong position to be able to support the ramp up in this space. So overall, pleased with the progress, nice growth, and one that we do view is a strong value for our customers, yet it is a niche solution for our business.

Justin Keywood: And Justin, just to add on the specifics, there was multiple customers that contributed to bookings in the space in the quarter.

Justin Keywood: Very interesting. And just finally, on the ongoing dispute with the large EV customer, the $175 million of assets that are to be invoiced are not delivered.

Speaker Change: Is that equipment able to be repurchased for other projects or is there still a view that it could eventually be delivered to the customer and paid for?

Speaker Change: The equipment's been delivered and, to the best of our knowledge, remains in production.

at the customer site.

Speaker Change: Just to be clear, is that the $165 million or the $175 million?

Okay.

Thank you very much.

Speaker Change: Your next question comes from a line of Cherylin Radburn from TD Cowan. Your line is open.

Thanks very much and good morning.

Cherylin Radburn: Andrew, I imagine that with the election of a second Trump administration, tariffs and how to locate supply chains medium to long term are top-of-mind issues with your customers. Can you give us some color on the volume of your customer conversations lately and and the key topics?

Yeah, so good morning, Sherrilyn.

Cherylin Radburn: When we look at our, when we're having discussions with our customers, and as a reminder, we do view that the short term is, you know, if these were to be implemented, going to be, you know, a bit dynamic. Mid to long term, this is a real strength for ATS.

Cherylin Radburn: And when we talk to our customers, we have the ability to build support.

and continue to support operations in core regions.

Cherylin Radburn: And so it's a real strength for our organization. And I highlighted an example in our prepared remarks around

Cherylin Radburn: the opportunity to support the warehouse automation space where our global scale, our global footprint really played a big factor here.

Cherylin Radburn: as well as our continued focus on standardization and moving from a more complex product to ability to build in multi-locations. So,

Cherylin Radburn: Our conversations have been, I would say, more on the positive side in our ability to support, yet our customers are still waiting to see how things truly shake out and where their focus is going to be for the future.

Cherylin Radburn: Thank you for watching. Please subscribe to our channel. See you next time.

Speaker Change: That makes sense. Just, you know, thinking about another Trump policy and mass deportation, do you think that could result in a short-term boost in the food and beverage area, just given that there's a lot of undocumented labor that's active in that space?

Speaker Change: Yes, so if you look in that space, specifically in the U.S., you're going to find, of course, they're going to have regulation around ensuring that they have documentation.

All that said...

When you see a change or a shift,

Speaker Change: that the end product, so think the actual fruit or the vegetable, becomes a higher value, you will look at efficiency and you will look at process to be something you want to maximize.

Speaker Change: That's what we can support and so we do view this as an area of opportunity I would say it's you know short term is not not the words Way we would characterize it. We would think this is a more mid to long term that said

Speaker Change: We are staying very close with our customers. We have a proactive outreach to ensure they understand where we can support. And we've also launched tools or solutions where we can help them.

Speaker Change: really navigate these times. And one of them, you know, and I'm going to draw on an acquisition early in the journey, Marco.

Speaker Change: recently launched a solution set where we can now do check weighing in the field that aligns with with pack houses.

Speaker Change: Why that matters to our customers it allows them to track and really understand the weights of their products So they don't overpack

Speaker Change: and this is a real real benefit and so we're going to continue to see opportunities that align well there. All that to be said, we do view this as is a bit more in the midterm area.

That's my cue, thank you.

Thank you, Sheila.

Speaker Change: Your next question comes from a line of Patrick Bowman from JP Morgan. Your line is open.

Hi, good morning. Thanks for taking my questions.

Speaker Change: On the orders, a couple of ones here, are there any big bookings worth calling out that benefited the quarter that you'd want to highlight? And then thinking about the backlog and the translation into sales, can you talk about

Speaker Change: why the sales are sort of lagging what they had, you know, I guess, before the EV downturn and, you know, relative to that backlog, and then particularly thinking about 26, like,

Speaker Change: Can some of these longer cycle orders, you know, start to translate and can you see an organic growth rate that's

you know, above that long-term target of mid-single-digit plus.

Speaker Change: Good morning, Patrick. So, I'll start with the profile of the orders and try and talk through how those are going to

Speaker Change: get delivered and how that flows through revenue. So there were a number of big, what we would call, you know, quote-unquote big programs in the quarter. Typically, we look at our top ten

Speaker Change: And on average, that was about 30 million across those top 10. It well diversified across every single market vertical.

Speaker Change: was within our top 10, which was a real benefit. And then, as Andrew noted in his prepared remarks, we had lots of small and mid-sized orders that support as well. So when we have a strong bookings quarter like we did in this quarter, there typically is a benefit from some of these larger orders.

Now

in terms of how these get revenued.

Speaker Change: out or produced. So typically a larger order, and this is a general rule of thumb, they're going to have longer delivery periods and could be going to multiple sites. It could just be the complexity of

Speaker Change: the equipment, but think 12 to 18 months is sort of an average delivery period for those projects. So how that flows through our revenue.

Speaker Change: is the first several months there's going to be a design phase which is a lower revenue generating period and then as the equipment moves into production and assembly on our shop floors that's when we get into those higher

revenue-generating period.

We do expect to see...

Speaker Change: next fiscal year as a result of the bookings and backlog we've seen this year.

Speaker Change: There can be a one to two quarter lag from a large booking until we really start to see it materially impact our revenue run rate.

Speaker Change: And Patrick, you know, Ryan hit it very strong for this quarter. He's pleased with the progress here. And as you look.

Speaker Change: our farmers remain healthy in the core markets we support. So not only are we continuing to execute, we're looking for areas to really drive expansion. And I referenced a couple of those, even in the prepared remarks around the surgical space. So pleased with the progress, more to come.

Speaker Change: Sorry, just to follow up on that 30 million number, how does that, so what is your typical top 10? I don't know how to think about that 30 billion relative to...

Normal. Yeah, typically.

Yeah, no, typically we're in the 20 million range.

Speaker Change: It could be low to mid-20 million range. I'd say that's more average if I look over the last eight quarters in terms of where we've been. This was on a higher end being 30 and we've had sort of lower end would be mid-teens.

Speaker Change: And then I was wondering if you could put a finer point around...

Speaker Change: the improvement you expect in fourth quarter margin. I think you had previously talked about

Speaker Change: maybe getting back to first quarter levels by the back part of the year. Wondering if you could kind of frame for us where you are relative to those expectations based on your revenue trajectory that you've guided to for the fourth quarter.

Speaker Change: Yeah, so in terms of, I'll piece it apart, in terms of our gross margin, we've seen year over year a good benefit from a couple different areas. One is mixed.

for Life Sciences.

typically is going to benefit our gross margin.

Speaker Change: and in relative to a year ago where we had more transportation. So that's been a benefit to our gross margin.

We've seen a benefit from continued growth in after-sales services.

Speaker Change: as well as acquisitions, that's been a benefit. There's been some offset in our gross margin from underutilization, and that's, again, in our transportation business, and we've taken action to address that.

Speaker Change: As we look forward, as transportation goes from where it's been this couple of quarters, there is a bit of a headwind in terms of our margin, but from an operating margin standpoint,

Speaker Change: And so, again, as the business continues to grow, as we see the improvement in our transportation business, we do expect that operating leverage will improve, but it's going to be more modest in Q4, as I noted.

Speaker Change: No kind of like, no color on the absolute margin that you'd want to provide to get people kind of aligned with how you're thinking.

No, nothing that I would call it.

Okay, we'll follow up offline. Thank you very much.

Thank you.

Speaker Change: Your next question comes from a line of Maxim Sychev from National Bank. Your line is open.

Hi, good morning, gentlemen.

Good morning.

Speaker Change: Andrew, maybe the first question for you, I think your reference to an EV program in Europe, do you mind maybe talking about your capability to carry out work in the geography? Because correct me if I'm wrong, a couple of years ago we had a restructuring there, so maybe some color on that side, please.

Speaker Change: Yes, so just a little bit more on this win, this was a customer, or the end OEM is a customer from the past and it's a slightly different application on their EV shift. Very pleased with the win and one we need to execute. We'll be using our global footprint for really building this capability out and that means multi-region. We do have capability in Europe and we can support this customer in region as well.

Speaker Change: Okay, great. And then I think maybe a couple of quarters ago, Andrew, you were talking about the grid battery storage, you know, opportunity. I'm just wondering if there's any, any update on that market, please.

Speaker Change: So we continue to stay close in this space. I'll just say of the energy sector, nuclear is really showing signs of strength in that space, but grid storage is something we stay close on and we're working with several of the key players, but I would say if you look at energy, nuclear is the area right now that we're seeing stronger growth.

Speaker Change: and I guess I mean like all these recent announcements from obviously Darlington OPG I mean it looks like there's definitely an inflection point

Speaker Change: Like in terms of timing, is this kind of, you know, 12 months out or a little bit beyond that in terms of really seeing kind of like a ramp up in revenue just so we can calibrate our expectations?

Speaker Change: Yes, so we would say, you know, when the announcements are made, it's usually a pretty lengthy process, so it's a greater than 12 months, and it's one that aligns well with ATS's value. That said,

Speaker Change: These are fairly lengthy programs and processes, and we engage early and focus on winning and focus on offering value for customers as they take these next steps.

Speaker Change: Okay, great. Thank you. And then one quick question for Ryan, if I may. It looks like the tax rate is running a little bit higher, kind of on sort of a year-to-date basis. Could we see a bit of a reversal in Q4, or how should we think about it from a model perspective? Thanks.

Speaker Change: So I don't expect it in Q4. Max, if you're right, it is higher than what we had originally anticipated at the outset of the year. There's been some changes in the jurisdictions in which we operate in terms of...

Speaker Change: legislation and that's had an impact as well as our profitability in certain jurisdictions. So, I don't expect a change, but I mean.

Speaker Change: As always, we're looking at how our business is structured globally to ensure we're maximizing our efficiency and how we operate and finance our businesses, but in the short term, I expect it's going to remain in line with what we've seen year to date.

Speaker Change: Okay, that's great. And then maybe, if you don't mind, I was thinking one more. In terms of the working capital, XEV, do you mind maybe providing a bit of sort of a goalpost in terms of how the rest of the business is performing there?

Thank you.

Speaker Change: Yeah, so we're slightly above the 15% target that we have, but obviously with transportation that's what's putting us up in the 30% range today, but outside of that we're just above the target. We did see good progress this quarter across the business.

Speaker Change: And that's, you know, some of these acquisitions we've added in, they do carry, they're more product-based businesses, they carry inventory, and they've come on with a higher working capital intensity. So that's part of our improvement opportunity.

Speaker Change: You know, we have other areas across the rest of the business to be more efficient, whether it's in commercial terms with customers, receivables, and our whole order-to-cash cycle. There's a number of areas that we're working to continue to improve to get back below that 15% target.

Okay, super helpful, thank you.

Speaker Change: Your next question comes from a line of Sabaha Khan from RBC Capital Markets. Your line is open.

Speaker Change: Okay, great. Thanks and good morning. We touched on this a little bit earlier, but I guess, you know, as we look forward to fiscal 26 and some of the questions earlier around

Sabaha Khan: The Book King's growth may be aligning better with revenue. Can you just talk about sort of how capital allocation evolves into next year? Sort of what is the focus on sort of leverage reduction from the current levels?

Speaker Change: at what point do you need to get to for eminently we pick up you can just talk about your sort of

Speaker Change: Outlook for capital allocation, leverage reduction, and so forth through fiscal 26. Thank you.

Sabaha Khan: Yeah, good morning, Sabah. So, I mean, as we talked about in our prepared remarks, our priority right now is on bringing our leverage into our target range of two to three times.

Sabaha Khan: We're at 3.7 today, we've deployed roughly $180 million of capital in DEMINE this year.

Sabaha Khan: But where we sit, again, our focus is to bring that into the two to three times range. Typically, that's.

Sabaha Khan: you know, two, three, maybe four quarters, just depending on what happens with with new order flow and in commercial terms on those. So, so that's our focus in terms of M&A.

Sabaha Khan: As Andrew talked about, we're continuing to be actively cultivating, and if there was something that...

Sabaha Khan: materialized, we would look at different ways that we could that we could make that happen.

Sabaha Khan: But for now, the priority, as I said, is to reduce our leverage. And Saba, maybe I'll just add on a short, short point here. Look, we continue to cultivate our funnel is healthy. But as a reminder.

Sabaha Khan: You know, even two of the three acquisitions we did last quarter, they were multi-year cultivation efforts. And so, oftentimes these take time and we continue to stay close for the core markets, technology, and solutions that we want as part of the future for ATS.

Sabaha Khan: Okay, great. And then there's a question earlier on nuclear. We just want to, you know, maybe get some perspective on your medium-term thinking around that market, maybe as EV moderates.

Speaker Change: Obviously a lot of headlines around demand for new builds, SMR, refurbs, etc. Do you have some sort of perspective on

Speaker Change: what that energy or nuclear mix could go to in a few years as a percentage of revenue if that demand sustains at the levels that we're seeing would make so well.

Speaker Change: You know, maybe I'll start here. So look, we like our position in Nuclear, and we like the niche capability we have at the tie buy for our customers.

Speaker Change: Candy Reactor has been the lead there. It's been a core focus of ours and we're seeing even resurgence in that market in that space.

Speaker Change: All that to be said, when we look at the future, it will be a piece of the equation. Life Sciences will, given its sheer size and built trajectory, will be our largest market.

Speaker Change: food is getting in a strong position and then and then we will look to to be in high-value niches like energy like nuclear to really round that that equation out.

Speaker Change: And then just one last quick one, I guess, sounds like the, you know, the order bookings, etc. quite strong in life sciences.

Speaker Change: One of the other topics that came out of the new administration was sort of the new health administration there and their views on pharma. Have you noticed any change in tone from customers at all? Like how are they thinking about

Speaker Change: political noise around the new health admin, what the customers are telling us.

Speaker Change: Yeah, so certainly, look, this is, you know, continuing to evolve and what I can tell you is we are

Speaker Change: being very proactive in our outreach to ensure we have alignment to ensure that our customers know that we can support in region and on a global scale and a full technology suite of solutions for their ability to launch products.

Speaker Change: We have not seen a marked change in their approach to capability. Remember, and Shaba, you know this, but as a reminder, we work with them on their...

Speaker Change: radioisotopes in the identification treatment of cancer, you know, and I could go down the list. We're often in very attractive spaces for our customers.

Speaker Change: And so all that to be said, we haven't seen a marked difference in their behaviors. We are staying very close, and we also are looking to identify

Speaker Change: how this can be a strength for ATS and how we can truly position ourselves because of our decentralized global scale to support and really enable their ability to navigate these times.

Thank you.

Speaker Change: Okay, great. My last actual question. I'll pass it on after this. A lot of discussion about tariffs earlier. Is there any exposure to other inputs or anything like that from Mexico at all within your business and maybe any finished product moving from the U.S. to Canada? I was just trying to get a perspective on that.

just the setup of your supply chain. Thank you.

Sabaha Khan: Sabah, sorry, can you repeat the first part of that question? Yeah, is there anything coming in from Mexico to either...

Speaker Change: US weather's inputs or things like that within your supply chain.

Sabaha Khan: within the tariff construct and then either much finished product or inputs that come from the U.S. into Canada in terms of whether it's your COGS or finished product.

Got it, so

Sabaha Khan: Mexico into the US. Typically, we are buying through distribution. So this is really, we're getting into our suppliers.

Sabaha Khan: their supply chains and how they're set up. So that's part of the work we're doing right now is working with particularly our critical vendors to understand their mitigation strategies.

Sabaha Khan: You know, for example, we do have a supplier that sources from Mexico and so one of the things they're looking at doing would be to ship directly to Canada and bypass moving through the U.S.

Sabaha Khan: So that would be a benefit for our Canadian operations, but that's very much the level of detail we're getting into with our suppliers to understand their supply chains, their mitigation strategies.

Okay, great. Thanks. Appreciate the discussion. That was helpful.

Speaker Change: Your next question comes from a line of Michael Glenn from Raymond James. Your line is open.

Michael Glenn: Hey, good morning. Ryan, maybe just to start, at a recent investor conference, you indicated that the past

Speaker Change: to that 15% margin target was something like three to four years away. I don't recall you had really given a time frame on this trajectory. Could you just maybe speak to...

Andrew Hider, Ryan McLeod

Speaker Change: value accretive lines of business. So the supply chain capability, for example, that's a focus for us. It's been a very strong value generator for the company. Our teams have performed very well. It continues to be a focus area.

Standardization is another area that...

Speaker Change: It isn't applicable across all of our business, but certainly in

and our larger project-based business as it is.

Speaker Change: And a good example there is all the work we're doing in auto-injector. We've got a standard technology platform that gets utilized across all those solutions. So those are areas we're focused on. We're also continuing to build out.

Speaker Change: In higher value areas such as our after-sales services business There's there's our ongoing continuous improvement activities Through through our ABM. So all of those areas are

are factors in helping us get to that margin target.

Speaker Change: to be available to us on those margin expansion activities. And as the business continues to grow, we expect our operating leverage to continue to improve and again, help support that, the achievement of that objective.

Speaker Change: Okay so like from from the end of this year it's would you say that the split of improvement is roughly balanced between gross margin and SG&A leverage or does it skew more towards one bucket versus the other?

Speaker Change: Most of the areas we've targeted are in our gross margin. From getting back to call it baseline, that's going to be operating leverage.

Cut.

Speaker Change: And just going back to the cross-border dynamics, so that was a helpful disclosure provided about the mid-teens percentage of revenue from Canada into the US.

Can you give an idea what portion of that 15%

Speaker Change: could you move relatively seamlessly? I imagine some of the integration work, for example, you could move quite rapidly. Is there a way we can characterize what could be moved quickly and what would be a little more challenging to move?

I'm not sure I would characterize any of it as...

Speaker Change: Easy, I mean, there's complexity, and I think we use this word, but there would be complexity in the short term, so projects that are underway where we've got ongoing builds within our facilities, that would be challenging, and again, what I use the word complexity in the short term.

Speaker Change: Longer term, there is flexibility, about a third of our global capacity in terms of

Speaker Change: footprint is in the U.S. and the U.S. actually represents our largest concentration of manufacturing space globally. About 20% of our people are located in the U.S. So we do have a significant presence. We have the ability to expand in the U.S.

Speaker Change: I mean this is obviously a very dynamic situation. We are working and continue to work with our customer suppliers on response plans, but at this stage we're monitoring and we'll adjust as we need to.

Speaker Change: Okay and the final one on my side, can you just speak to the large EV customer in the order, was there?

Speaker Change: Number one, is there anything left in backlog right now with the large EV customer? And then number two, was there any revenue contribution at all from that large EV customer in the quarter?

Speaker Change: On question two, no revenues related to the customer dispute in the quarter. In terms of backlog, there is a small amount in backlog that is tied to commissioning work that has been paused.

Okay. Okay, that's it for me. Thank you.

Speaker Change: Your next question comes from a line of David Ocampo from Cormark Securities. Your line is open.

David Ocampo: Thanks. Good morning, everyone. Just two really quick clarification questions. Ryan, you touched a little bit on the leverage on getting dip back down to the two to three times.

David Ocampo: range call it sometime next year on fiscal basis. Is that under the assumption without collecting from your transportation customer and then in the event that it isn't, does that push you well below the two times range with the collection of the 340 million?

David Ocampo: So you're correct that that excludes any movement on the amounts that are under dispute

Okay, that's it.

Speaker Change: That's what I thought. And then just a follow up on Patrick's question from a little bit earlier, but just diving a little bit more specifically into one area. I think a few quarters ago, you guys called out GLP-1 being 20% of your life science backlog, 10% of the overall.

Speaker Change: But I think it still represents a smaller portion of your revenue. Do you guys expect the timeline of the revenue ramp to follow that consistent pattern of the one and two quarter lag as you work through some of the more engineering and design work, or is there a longer ramp as it relates to those products?

Speaker Change: It's a slightly longer ramp, just based on customer delivery requirements and the size and scope of some of the programs, but it's not materially different.

Speaker Change: And then as it relates to milestone payments in terms of the cash collection, is it pretty consistent with what we've seen in the past from ATS or is it kind of tilted towards more of the EV style, big milestone payments towards the end?

Speaker Change: I'd say more consistent with what I would call our standard terms, so better than what we see in transportation, but I would also just caution on that point.

Speaker Change: with big programs, you still have big milestone payments. So even though they typically come in earlier, they're better commercial terms from that perspective. They can still be lumpy.

Speaker Change: Okay, that's it for me. Thanks a lot for speaking in right at the end.

Speaker Change: And there are no further questions at this time. I will now turn the call back over to Mr. Hider for closing remarks.

Andrew Hider: Thank you, operator, and thank you everyone for joining us today. I look forward to speaking to you on our Q4 call in May. Stay safe and goodbye for now.

Andrew Hider: This concludes today's conference call. Thank you for your participation. You may now disconnect.