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spk00: recorded on August 8, 2024, at 8.30 a.m. Eastern Time. Following the presentation, we will conduct a question-and-answer session. I will now turn the call over to David Gellison, Head of Investor Relations at ATS. Please go ahead.
spk09: Thank you, Operator, and good morning, everyone. On the call today are Andrew Heider, Chief Executive Officer of ATS, and Ryan McLeod, Chief Financial Officer. Please note that our remarks today are accompanied by a slide deck, which can be viewed via our webcast and available at atsautomation.com. We caution that the statements made on our webcast and conference call may contain forward-looking information, and our cautionary statement regarding such information, including the material factors that could cause actual results to differ materially from the statements, and the material factors or assumptions applied in making the statements are detailed on slide two of the slide deck. Now, it's my pleasure to turn the call over to Andrew. Thank you, David.
spk02: Good morning, everyone, and thank you for joining us. Today, ATS reported first quarter results for fiscal 25, including our second highest bookings quarter in company history, led by both organic and acquisition within life sciences. The quarter's results once again reflect the strength of our ABM and disciplined execution of our strategy for value creation. To further advance our capabilities, we welcomed Paxium to the ATS portfolio in July, creating further opportunities in multiple and market verticals. This morning, I will update you on our business and markets, and Ryan will provide his financial report. starting with our financial value drivers. Order bookings for the quarter were $817 million, up 18% year-over-year, supported by organic growth and life sciences, along with consumer products. Q1 revenues were $694 million, down 8% from Q1 last year, as transportation revenues were lower, as expected, while we were in the early phases of executing on recent program wins in life sciences. By revenue stream, we drove solid growth in year-over-year service and product sales. Adjusted earnings from operations in Q1 were $86 million. Moving to Outlook, our backlog ended at $1.9 billion, with trailing 12-month book-to-bill ratios at or above 1 in all market verticals for the third consecutive quarter, with the exception of transportation. By market, life sciences backlog of $990 million is the highest in ATS history, an increase of 26% compared to Q1 last year. This quarter included a number of large orders across our strategic submarkets, including wearable devices and GLP-1 auto injectors, along with orders for radioisophil production lines. Our life sciences opportunity funnel is strong in all key submarkets. and our integrated life sciences solutions are creating new opportunities for our teams to harness a comprehensive suite of capabilities across customer value chains. In food and beverage, ending backlog for the first quarter was $216 million, an increase of 15% compared to prior year, and our funnel remains strong. With the Paxium acquisition, we look forward to leveraging customer synergies to expand our market position and support diversification of our offerings and customer base. Paxium's differentiated solutions in filling, wrapping, sealing, labeling, and palletizing across a range of industries will be a strong complement to our existing ATS portfolio, allowing us to offer complete packaging and end-of-line solutions. In energy, our funnel is strong. with refurbishment of existing nuclear reactors remaining a key driver. Our expertise with CANDU reactors positions us well as projects worldwide progress towards execution. We have opportunities to serve customers in the SMR market, where we are supporting ongoing concept development work with the long-term goal of positioning ourselves for opportunities as the technology moves to construction phases. In both the SMR and large-scale new-build markets, demand is benefiting from the need to achieve emissions targets globally. In addition, automation of fuel fabrication to support longer-term growth in the market is an emerging area of focus for ATS's previous experience. We are focused on expanding our international customer base while supporting our long-standing customers. In addition, we also have specialized skills in energy storage. and continue to work with customers on select opportunities. In transportation, backlog was $417 million as we continued to progress on large programs won in fiscal 23. Our sales funnel in transportation consists of smaller opportunities relative to the size of the order bookings we've seen over the past 24 months as industry participants reduce investments to match end market demand and lower platform costs. As our existing EV projects have been moved towards completion and customers have adjusted their end market demand expectations, we have been redeploying resources internally. Given the current market conditions, today we announced plans to realign our EV businesses and adjust our cost structure to reflect our expectations for EV to be a smaller portion of our overall business going forward. Ryan will provide further information in his prepared remarks. In consumer products, our funnel remains stable, including ongoing opportunities in areas such as warehouse automation and consumer packaging. This continues to be a niche market that makes use of our specialized capabilities and complements revenue and our larger verticals. On after-sales services, our regional networks remain a key element of our approach to growth across all vertical markets and create the proximity and response times that our customers need. Our teams remain focused on expanding our capabilities to drive momentum on higher-value services, including digitally-enabled insights. During the quarter, we launched our Service Experience Center in Cambridge, which will enable real-time asset monitoring and support over any asset's full lifecycle. Our Illuminate platform continues to be an important part for our ability to provide automation equipment monitoring and insights both onsite and remotely. On our digital offerings, our funnel is strong. Demand is positive for solutions which improve productivity or energy management and process automation applications. Our proven track record is a competitive advantage for us. We continue to build our suite of offerings, including additional capabilities being layered onto our Pafax platform, which is our cloud-based IoT platform that houses scalable technology IoT offerings to support our customers' production control systems. As an example, during the quarter, we launched additions for AI-based heat exchanger and compressor monitoring systems to our Enomaly product. With this addition, we further expand Enomaly as a leading comprehensive software product for AI-based predictive maintenance. We remain focused on developing our capabilities to allow us to support customers in the collection and analysis of data to meaningfully drive performance. On the ATS business model, we hosted our annual ATS Leadership Conference, where ABM culture and success stories were on display. Several teams were honored with ABM awards for overall value driver performance, innovation, recurring revenue, health and safety, and employee engagement. Throughout the quarter, our global teams engaged in formal continuous improvement efforts, including problem-solving events, Kaizens, and workshops focused on all of our value drivers. Our ABM culture continues to advance with evolving tools to improve day-to-day activities in addition to enterprise-wide events and a strong focus on sustaining impact. The value that our ABM drives for our employees, customers, and shareholders remains clear. On M&A, our funnel is active. and our portfolio remains diversified across a range of target sizes and markets. We maintain our disciplined approach as we assess targets, while being actively engaged in cultivating opportunities that align with our strategic initiatives. Integration activities are now underway at Paxium, guided by our ABM playbook. Meanwhile, integration of previous acquisitions, including Avidity, are progressing well. Both Paxium and Avidity, along with other recent acquisitions, are important contributors to expanding our recurring revenues. We are pleased to announce yesterday that we've signed an agreement to acquire the majority of the assets of Hideoff Instruments, which is a leading manufacturer of lab equipment, subject to clearing a closing condition. On innovation, capital investment into solutions that drive returns remains a point of emphasis in our strategy. A few highlights from the quarter, our Symphony platform continues to be a differentiator for high-speed automation assembly. And during the quarter, we launched Symphony Cell Conductor, a software add-on that enables regulatory compliance for the life sciences market. Using our PA FACS platform and building on our previous launches of MyIWK and Marco Insights, we've also launched MyCFT. a customer portal for tomato processing applications within our food and beverage market. At AdWK, our teams developed and successfully launched Cabli Blue, a carton-to-carton blistering offering that allows customers to meet their sustainable packaging requirements. This offering was originally developed during a President's Kaizen. The team added direct voice of customer feedback and have had positive lead generation since launch. The successful market deployment of this product is a good example of our focus on customer sustainability requirements, which continue to evolve. In summary, our first quarter bookings were strong and our backlog provides good revenue visibility. With the actions we've announced today, we remain confident in our strategic direction and focus on regulated end markets. Our dedicated team is demonstrating exceptional commitment to innovation and customer satisfaction that is necessary for long-term value creation. As we progress through fiscal 2025, we will continue to focus on delivering on our shared purpose, creating solutions that positively impact lives around the world. Now, I will turn the call over to Ryan. Ryan, over to you. Thank you, Andrew, and good morning, everyone.
spk01: Starting with our operating results for the quarter, we drove strong order bookings of $817 million up 18.4% compared to Q1 last year. Life Sciences led this increase with a combination of organic order bookings growth in addition to contributions from acquisitions, including avidity. Our trailing 12 month book to bill ratio at the end of Q1 was 1.02 to 1. Excluding transportation, our trailing 12 month book to bill ratio was 1.18 to 1. Q1 revenues were $694 million down 7.9% compared to the prior year. Organic growth in life sciences and consumer products, along with a 4% benefit from recently acquired companies, was offset by declines in transportation and food. As expected, EV has moved past peak revenue contributions from our previous large order bookings in this space. Food and beverage revenues declined, driven by a prior year benefit from stronger activity related to the higher energy cost environment, particularly in Europe. Moving to earnings, Q1 adjusted earnings from operations were $86.2 million, down 16% from Q1 last year, primarily due to lower revenues. Q1 gross margin, excluding acquisition-related inventory fair value charges, was 29.9%, an increase of 168 basis points from the prior year. We continue to prioritize margin expansion utilizing ABM tools. In terms of supply chain dynamics, The improving trend on lead times for critical components has continued. These improvements could take several quarters to be reflected in our results. We are still experiencing cost increases on some material costs, and our team continues to drive proven supply chain strategies and ABM activities to support the business. Moving to SG&A, excluding acquisition-related amortization and transaction costs, first quarter SG&A was $116.4 million. an $11.4 million increase when compared to the prior year, primarily due to incremental acquisition-related SG&A costs, mostly from Avidity. Excluding the mark-to-market impact related to changes in our share price, stock-based compensation expense was $5 million in Q1, consistent with the prior year. Earnings per share was $0.36 in Q1 and $0.50 on an adjusted basis. Moving to our outlook, we finished the quarter with just under $1.9 billion of order backlog. Looking ahead, a revenue conversion for Q2 is estimated to be in the 33 to 36% range of order backlog. As a reminder, this assessment is updated every quarter based on revenue expectations from existing backlog and new orders booked and billed within the quarter. The lower conversion percentage reflects the relatively early phases of some larger life science programs, as well as approximately $150 million of delayed transportation order backlog, which remains excluded from our outlook for the year. Due to lower expected revenues in Q2, particularly in our transportation business, we expect our margins to be negatively impacted. We are taking actions to mitigate the impact, including reallocating resources into other areas of the business, in addition to reducing our workforce, which we expect will cost between $15 million and $20 million over the next several quarters. These actions are expected to right-size the cost structure of our transportation business for current market activity, allow us to continue to serve our customers effectively, and support ongoing growth in our other market verticals. Moving to the balance sheet. In Q1, cash flows used in operating activities were $35.4 million. Cash usage largely reflected the timing of progress billings and collection of those billings on our larger projects. Our non-cash working capital as a percentage of revenue was 23.4%, up from 19% at the end of fiscal 24. Looking ahead, we anticipate that working capital improvements will start to materialize in the back half of the year as milestones are achieved on larger programs in our backlog. During the quarter, we invested $15.9 million in CapEx and intangible assets. On leverage, our net debt to adjusted EBITDA ratio was 2.7 to 1 as of the end of Q1. Our current leverage position is consistent with our objective of maintaining our net debt to adjusted EBITDA ratio within the two to three times range. As we noted when we reported our year end results, we're active on our share buyback program during Q1. The NCIB program remains an opportunistic component of our overall capital deployment strategy. In summary, ATS delivered solid results for the quarter. We are particularly pleased with the continued strength of our order bookings, which highlight the value and importance of our offerings to our diverse customer base and our attractive long-term growth opportunities. Our order backlog remains strong and provides us with good revenue visibility for the fiscal year with particular strength in life sciences. The recent addition of Paxium will further our opportunities in food technologies and packaging. And we look forward to closing the Heidolf acquisition in the coming weeks. Our focus remains on our core values of people, process, and performance, and utilizing the ABM to drive disciplined, purposeful, continuous improvement. We're confident in the ability of our teams to drive our strategy forward and create long-term value for our customers and shareholders. Now, we'll open the call to questions from our analysts. Operator, can you please provide instructions? Thank you.
spk00: the floor for question and answer session. If you'd like to ask a question, please press star one. Again, that's star one on your telephone keypad. Our first question comes from Michael Glenn from Raymond James. Your line is now open.
spk05: Hey, thanks for getting me in there. I just really want to start with the working capital situation. I'm having a bit of a tough time understanding If the customer doesn't appear to be willing to pay for the work being done, why are you still progressing and building working capital on these projects? The numbers just seems to be getting really, really large at this point.
spk01: Good morning, Michael. A couple of things. The increase in working capital in the quarter was in a couple different areas of the business. It was both life sciences and in EV primarily. As I mentioned in my prepared remarks, programs are progressing. And as these programs get completed or advanced, depending on where we are in the build, we are invoicing them and we expect to collect on them. I've talked about this being largely a timing issue, and that's what it is at this point.
spk05: Okay. Is there risk, though, of any obsolescence with what you're building? I mean, the value of this equipment I think is changing in the marketplace as we speak, given the evolving EV outlook. Should we think about potential for charges against any of this working capital that's being built up?
spk01: No, that's not our expectation. I mean, contractually, we're building to what's been expected or what we've contracted to. And as I said, our expectation is the programs will get completed. And again, the build, it's not solely related to EV in the quarter. It's in life sciences as well.
spk05: Okay, I'll leave it there. Thank you.
spk00: Our next question comes from Sherilyn Radborn from TD Cohen. Your line is now open.
spk07: Good morning. Thank you for taking my question. This is Pat Sullivan on behalf of Sherilyn. I know you touched on it a little bit in your prepared remarks, but could you elaborate on the opportunity that you see ahead in energy, including no larger nuclear reactors, SMRs, and grid battery storage?
spk02: Yeah, absolutely, Pat, and good morning. Look, there's, call it three, and then you added a fourth in there from a standpoint of energy storage, but large part, the biggest portion of our energy and nuclear area is candy reactor refurbishment, and being green energy and the need for continued energy support. We see this as an area of continued strength. It's a niche area for our organization. We do the automation for the refurbishment process. That said, we continue to expand capability and our ability to serve and support for not only the candy refurbishment process, but also support the tooling over the life of the tooling. We see continued strength in this area. The second portion, I would say, is the small module reactors. And as I talked through, we continue to see opportunity in this area. We're working with some of the major players in this space. And we do see this as an area of growth for the future. All that said, it needs to be proved out and we need to make sure that we support our customers as they're really looking to bring these online and prove the capability on small modular actors. As a reminder, we're a small portion of the overall spend, but high impact. Exactly kind of where we want to be from a value perspective with these customers. And then there's decommissioning. And we continue to support decommissioning where needed. Obviously, this is an area that our customers look to ATS to support on efficiency of decommissioning. And when they can automate and drive cost and efficiency, it only supports their value creation in the space. Then there's battery storage and energy storage. And that continues to be an area of opportunity for the business and one that we view we have a strong value for our customers around.
spk07: Okay, thanks. And if I could ask another one, I think since you guys last reported, we've seen more and more announcements from companies investing billions of dollars into their GLP-1 supply chains. I guess for these investments, uh announcements in alignment with your internal expectations for the segment are they you know exceeding it or succeeding those levels you expected maybe three or six months ago
spk02: Yeah, so look, I would say it's in line. We continue to be a strong supporter for this space. Many customers around their launch and or future launch of drugs within this market around the auto injector area. As a reminder, we've been in this market for, gosh, two decades with the EpiPen and other variations of the product over time. With our launch of the Symfony platform, it's really enabled us to support customers on production needs. And to give you context, on a base system, Symfony allows us to go up to two times the output and half the footprint. A real key enabler and another check and improve point around utilizing innovation, IP, and technology to drive higher value for our customers. And so overall, we view this as a market that we will continue to support the foreseeable future. It's in line with our customers' investment on their growth. And as they identify new drugs and new ability to fight other areas with this product, it's an area that ATS will continue to support.
spk07: Okay, great. Thank you.
spk00: Our next question comes from Joe Ritchie from Goldman Sachs. Your line is now open.
spk08: Hi, good morning, guys. Good morning. So maybe just kind of focused on the near term for a second and the guidance for next quarter. So you've given a range, you know, call it roughly around, you know, 620 to we'll say roughly 680 in revenues for for the upcoming quarter. I'm just curious two things. Number one, what's dependent on like the low versus the high end of the range, like in confidence and hitting either end? And then secondly, as you think about the margin profile of the business that's coming through, I know that some of your, I think some of your design work on the life sciences side tends to be a little bit lower margin. So Help us understand what the margin trajectory of that backlog is as well that converts.
spk01: Yeah, so Joe, I guess just first on the backlog conversion, then I'll touch on margins. So the range we provide, it's based on what's in backlog and then as well as our expectation for shorter term business in quarter bookings and how that converts to revenue. So there's some impact from the shorter term, shorter cycle equipment, but it's more dependent on progress on the projects. And so where we have materials coming in, that can get us towards a higher range. If materials push out a few weeks, that could put us towards a lower range. So that's the kind of sensitivity around it. In terms of margin, I mean, programs and the rest of the business is largely operating as expected, and we're quite pleased with our margin performance in this current quarter. But given the sequential decline in revenues, we are going to see pressure on gross margin as well as our operating leverage, and it's primarily a utilization issue. So we do have cost containment measures in place in addition to the restructuring actions that we've talked about, but those won't fully offset the revenue headwinds in the second quarter.
spk08: Okay, that's helpful, Ryan. And then maybe just, you referenced the restructuring actions, the $15 to $20 million in cost actions. How should we think about the payback from those actions. And then also you guys have referenced right-sizing your transportation backlog. Historically, if I go back into the history, I've seen that backlog in that kind of 200 to $250 million range. Is that what the expectation should be for what right-sizing actually means going forward?
spk01: Well, so let me, answer the first part of the question first so i mean what we're doing is is as we talked about aligning our cost structure to the level of market activity we expect so um part of that is reallocating resources uh and that's both people and footprint to other parts of the business primarily in life sciences but but other parts as well um there is a headcount impact and um Again, that's going to remove cost from the business. From a run rate savings, it's in excess of the dollars we're spending. From a backlog perspective, at this point, I'd say we expect this to be a lower percentage of our business. I don't think of it in terms of dollars, but just the way the market's going versus growth in our other verticals. in that low double-digit, maybe high single-digit percentage of revenues going forward.
spk08: Okay, that's helpful. Thanks, guys.
spk06: Thank you.
spk00: Our next question comes from Justin Keywood from Stifel. Your line is now open.
spk03: Good morning. Thanks for taking my call. On the record life sciences backlog, are you able to quantify what comprises of GLP-1 orders, and also the outlook for life sciences. If we were to look at the segment beyond GLP-1, are you still seeing strength and growth? Thank you.
spk02: So why don't I take the second part first, and then Ryan can walk through the portion of backlog. You know, Justin, when we step back and look at this space, there are, and I referenced this in my prepared remarks, there are several areas that we continue to see strength around. And of course, we reference GLP-1. We're able to utilize our capability, our technology, our footprint to really drive impact here. But in addition to that, there are several areas. And I go through radiopharmaceutical and the launch of new drugs in the fight against cancer. We have a strong position in the ability to support that market. And it continues to be an area of strength for our comatose business. We also see continued strength in wearable devices and specifically around not only wearable, but in the treatment of diabetes and in the areas around how we can support the products and launches within that space. We're also in pharmacy automation, which also is continuing to show strength and opportunity for the future. But I also remind you, you know, when we look at ATS and even our order volume, We have businesses that are continuing to support things like contact lenses and areas that customers look to invest because it's their core product and core niches that they want to support over the long term. And we're able to support and drive that. not only new technology, new innovation in those products, we have the ability to serve and support over the life of the equipment. So our view of the market, very strong bookings quarter, very strong backlog today. our funnel remains healthy with the addition or, excuse me, future addition of the new acquisition we announced with Hideoff. We can't be more excited about that potential and what we can do with that business as we help them really penetrate and drive more into the lab space. But Ryan, do you want to touch on the backlog portion?
spk01: Yeah, Justin, it's roughly 20% of our life science is backlogged. or, or to 10% of our overall backlog. And that's consistent with, uh, where we'd expected it to be. Uh, we've talked in the past about, um, those, those solutions being roughly high single digit, low double digit percentage of our revenues. And that's, that's how it aligns with our backlog.
spk03: Thank you. Appreciate it. And then on MNA, uh, you mentioned the hideoff, uh, tuck in the acquisition. If there is any, um, metrics that you could point to. The press release did mention that it's accretive on a multiple basis. And then also within the pipeline, is it largely tuck-in opportunities or are there some more sizable transactions potentially?
spk01: Yeah, so it's accretive on a gross margin basis. And to give maybe a little bit more context, this is an asset that um, an asset deal. And so, uh, the, the company had been, uh, had breached some covenants and been pushed into an insolvency process by its lenders. And so, um, from, uh, from a value perspective, made it very attractive. And this is a business that we've, we've, uh, tracked for, for quite a period of time, which allowed us to move very quickly. Um, And then I'll let Andrew address the second part.
spk02: Yeah. So just to add, we've known this space, this market for over two years and continue to monitor. So very pleased. And of course, we have to close and add hide off to the business, but excited about the opportunity and where they're positioned within the organization. As far as our funnel, it continues to be strong. And when we look, there is a good mix of small, medium and large within our funnel. And as a reminder, we are constantly cultivating and constantly looking at areas that we know by building those relationships, building that ability to understand detailed assessment within the markets. When opportunities arise, we can move very quick and hide off is just one example of that, that when this when this became available. we knew the space, we knew the area, we had done the diligence around understanding their capability, customer sentiment, and technology, that we could move very quick and have a future potential with this business.
spk03: Thank you for taking my questions.
spk00: Question comes from Maxim Sychev from National Bank Financial. Your line is now open.
spk04: Hi, good morning, Chairman. Good morning. Good morning. Andrew, maybe just building a little bit on sort of the M&A discussion and maybe the interplay between M&A and NCIB and how you guys are thinking about this internally.
spk01: Thanks. So, Max, maybe I'll start on that. I mean, first on the NCIB, it really is, we've always viewed this as opportunistic. There's not a set allocation in our budget. We regularly review it with the board and we balance that with other opportunities that we want to be well positioned for. Our capital deployment framework really favors internal investment first and it's all based on return on invested capital and then M&A second. Okay, thank you.
spk04: And then the second question I had just in terms of right sizing of the business, do you want me to be contextualizing this once we sort of through that, how the exit margin compares to what you guys telegraphed and then yesterday in terms of, you know, progressing to those levels? Thanks.
spk01: Yeah, I mean, I think. This puts us back into a place, I mean, we won't, I don't think coming out of this we'll be at the 15%. There's still work we have to do. And that was not, as a reminder, that was not a short-term margin target. That was one that we see evolving to over a number of years. But I think, you know, this is really, we're in a position that we need to protect the margins and given the decline that we're seeing in the transportation market, aligning our cost structure to that reality. So from a margin perspective, you know, I'd say it puts us back into a place that we were prior to the decline in transportation. Yeah.
spk04: And I guess, is there any difference structurally that needs to be done internally vis-a-vis the restructuring you've done in the transport space in Europe a number of years ago? Like, is this more complex or is it not really necessarily the case?
spk02: I would say it's not more complex. And, you know, as a reminder, we were able to move several of the associates to support our growth areas like life sciences. And then this was the additional action that's taken to align the business to what we view as the future or foreseeable future in the short and midterm.
spk04: And I guess, Andrew, your comment around sort of preserving the capability if when sort of the market recovers, you still have you know, sort of embedded expertise that doesn't go away, right?
spk02: Correct, correct. And, you know, as a reminder, our workforce is, you know, to an extent, ability to flex into areas for growth and we're able to support the growth in life sciences right now and we're able to utilize that workforce to really support and drive.
spk04: Okay, good to hear. Thank you so much. Thank you.
spk00: Before we move on to our next question, if you'd like to ask a question, please press star 1 on your telephone keypad. That's star 1 on your telephone keypad. Our next question comes from David Ocampo from Cormark Securities. Your line is now open.
spk06: Thanks. Good morning, everyone. Just two questions here. Ryan, you talked about repurposing some of the square footage in EV to life sciences. But I'm just curious, with all the square footage that you guys have in Ohio, I seem to remember it being a pretty large number. Are there any facilities or leases that you're contemplating getting out of?
spk01: Short answer is no, we're not exiting any facilities. And even in Ohio, I mean, A lot of that has been focused on EV over the last two years, but there is some life science work that gets done out of that facility. There's some, I guess I'd call it consumer that gets done out of that facility. So it's not solely focused on transportation.
spk06: Okay. And then just the last quick one here, just on the tax rate, it looks pretty elevated in the quarter. Was that largely driven by where the profits were generated or was there something that's materially changed within kind of how you're being taxed?
spk01: So there's a couple of dynamics. Part of it was... the geographic split of profitability in the quarter. But we did have an expectation that our effective tax rate would increase. And that's based largely on changes in the jurisdictions in which we operate. So we do expect it to be higher in fiscal 25 vis-a-vis where we were the last couple of years.
spk06: So do you think the rate that we saw this quarter should be applying for the balance of the year, call it that 26, 27% range?
spk01: Yeah, I think in the 25 to 27% range, we'll see some movement quarter to quarter. And I should also remind you that we, I mean, this is a focus, how we've structured the business globally, and we're always looking to maximize our efficiency efficiency in terms of taxes um and and our focus first and foremost is on cash taxes and and minimizing cash taxes and and secondarily is on our effective tax rate okay that's perfect thanks a lot guys our next question comes from patrick bauman from jp morgan your line is now open
spk10: Oh, hi. Good morning. Can you hear me? Yes. Good morning. Good morning. Great. Thanks for taking my question. You may have mentioned this at the beginning of the call, but I wasn't able to join until a few minutes late. Last quarter, you had mentioned that you thought that acquisitions you had done in growth and life sciences as well would offset the decline you expected in transport in terms of the 2025 revenue outlook. I was wondering if you provided an update on that or if not, if you could provide an update on how you're thinking about that.
spk01: Yeah, sure. I didn't provide an update on that, but I mean, the overall outlook hasn't changed. I think underneath there's certainly moving parts. Transportation sequentially from where we were three months ago, I would say has become weaker. um life sciences sequentially has become stronger and i mean you can see in our in our results very strong bookings uh in that quarter uh we've we've closed paxium um we we expect to close heidolf in in the short term which is which is additive so I mean, Q2 is going to be a challenging quarter. We do see the second half being strong. And overall, we don't see a material change to our revenue outlook for the year.
spk10: Okay. And then separately on margin, did you comment on what drove the significant improvement in gross margin in the quarter and the sustainability of gross margin at that level?
spk01: Um, no, I didn't, but, but happy to. So, um, so a couple of things, I mean, you know, 170 basis points or 168 base points to be a bit more precise year over year. Uh, we did see some benefit from, from acquisitions and then as well, some benefit from, from mix, including both higher service revenues and then a higher proportion of our, of our revenues coming from, from life sciences, which, which does have a benefit at the gross margin level. Um, Our operations performed very well in the quarter. I did reference in my prepared remarks that supply chain headwinds are easing, but that's going to take still a few quarters to work its way through a business. But yeah, we're pleased with the margin performance in the quarter.
spk10: Is that high 29s something we should be modeling going forward, or do you think it's going to step back down in the near term?
spk01: Well, so... So I mean, there's going to be there's going to continue to be variability in the short term, as I talked about, given the sequential revenue decline, we expect there are going to be headwinds, mainly from from utilization, which, again, we're taking we're taking measures to to address through the restructuring actions. as well as some temporary cost improvement measures that we have in place. But coming out of that, we do expect to see continued strong margin performance.
spk10: Understood. Okay. Thanks so much. Best of luck. Thank you. Thank you.
spk00: We have reached the end of our Q&A session. I'd now like to hand back over to Mr. Andrew Hyder for final remarks.
spk02: Thank you, operator. We're pleased with our progress and the ABM will continue to support our focus on value creation for shareholders. I invite you all to participate in our annual shareholders meeting, which will be held virtually tomorrow at 10 a.m. Eastern time. Thanks for joining us today. I look forward to speaking to you on our Q2 call in November. Stay safe and goodbye for now.
spk00: Thank you everyone for attending today's call. You may now disconnect. Have a wonderful day.
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