ATS Corporation Common Shares

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 the webcast and conference call may contain forward-looking information and our cautionary statement regarding such information, including the material factors that could cause actual results to differ materially from the statements and the material factors or assumptions applied in making the statements are detailed on slide three of the slide deck. Now, it's my pleasure to turn the call over to Andrew. Thank you, David.

Good morning, everyone, and thank you for joining us. Today, ATS reported third quarter results for fiscal 25. This was the second highest bookings quarter in company history and included strong organic growth along with contributions from acquisitions. 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, starting with our financial value drivers. Order bookings for the quarter were $883 million, up 32% from the third quarter last year. 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. 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. Moving to our outlook, order backlog ended the quarter at approximately $2.1 billion, with our trailing 12-month book-to-bill ratio at 1.18 to 1. We are focused on expanding our market reach through our capabilities. High value applications that are complex to manufacture and where quality is critical align very well with our strengths. 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. 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. 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. 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. 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. Within life sciences, order backlog sits at a record 1.2 billion, an increase of 39% compared to Q3 last year. with strong bookings delivered in key sub markets such as radio pharma, GLP-1 auto injectors, wearables, and other medical devices. As an example of how we're 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. 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. Further, we continue to accelerate our growth strategy, the ongoing development of new products and solutions in the pharmaceutical manufacturing market to leverage Comichair, our dosing technical business in Spain, and our core automation capabilities. In food and beverage, our funnel remains 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. 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. 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 module reactors over the long term. 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. ATS is well positioned to serve as a strategic partner from the concept and design phases all the way to execution. In consumer products, our funnel remains stable with niche opportunities in areas such as automated warehouse solutions packaging. 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. Within transportation, our previously announced restructuring activities continue to line our business with lower end market demand, particularly in EV. 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. On after sales, we expanded our higher value services, incorporating our digital capabilities. We are evolving our service plan offerings to drive greater customer adoption and retention. We continue the launch of our Connected Care Hub in Cambridge, further expanding its operational capabilities and receiving several new customer orders. On our performance-based services, we are building on the success and learnings from our pilot projects as we scale with additional customers. On our digital offerings, our funnel is strong, and we remain committed to serving as a global partner for continuous productivity optimization across our customer base. 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. By way of example, our CFT business held the Kaizen event in November dedicated to improving project management tools and best practices with a clear focus on data and sustainment to drive continued margin expansion. 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. I look forward to providing you with a broader update on our President's Kaizen events on our Q4 results call. The ABM is also a critical part of our M&A playbook, used to integrate new acquisitions and drive towards targeted ROIC. Our M&A funnel remains strong, and we actively cultivate opportunities across a range of target sizes and markets. In the short term, we are focused on bringing leverage toward targeted levels, where we expand our pipeline of acquisition opportunities that align with our strategic vision for long-term value creation. Integration activities are well underway on our recent acquisitions, and we remain confident in their long-term contributions to our growth. On innovation, we are deploying capital and empowering our talent to create differentiated solutions that drive value for our customers. In November, We brought together thought leaders from our businesses around the world for our annual innovation summit, branded Building an Innovation Powerhouse. AI's potential to drive innovation and operational efficiency was a central theme. The event accelerated our efforts to create deeper collaboration on AI-driven initiatives across ATS. This focus reflects our commitment to advancing technologies that enhance capabilities and deliver long-term value. In December, we released our fifth annual sustainability report, reaffirming our commitments and highlighting how we help our customers meet their sustainability goals. 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. 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. The disciplined execution of our strategy, driven by our ABM tools, processes, and culture, will serve us well in achieving our objectives. Our ABM continuous improvement mindset keeps our teams engaged and dedicated to delivering customer and shareholder value. Now I will turn the call over to Ryan.

Ryan, over to you. Thank you, Andrew, and good morning, everyone. Beginning with our operating results for the quarter, order bookings were $883 million, an increase of 32% over Q3 last year. In life sciences, order bookings were our third highest on record. following our top two life sciences bookings quarters in Q1 and Q2 of this year, respectively. In the third quarter, bookings were driven by a combination of organic growth and contributions from the recent acquisitions of Avidity, Paxium, and Heidel. 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. 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. 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. 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. Excluding acquisition-related inventory fair value charges, Q3 gross margin was 30.7%, 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 SG&A, excluding acquisition-related amortization and transaction costs, as well as one-time contract settlement costs, third-quarter SG&A expenses were $130.6 million, 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 translations. As always, we're continuing to drive efficiency into both our existing operations and new acquisitions who have joined ATS. 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. Excluding the mark-to-market impact related to changes in our share price, stock-based compensation expense was $3.7 million in Q3. Earnings per share was 32 cents on an adjusted basis down from last year, primarily due to lower revenue volumes. 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. 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. 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. 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. In the quarter, we incurred an additional $3.3 million of restructuring costs. On tariffs, as Andrew noted, we are monitoring the situation closely and are assessing potential impacts on our business. Our global footprint and decentralized operating model, along with our proven ABM tools, give us flexibility to address disruptions over the longer term. While we await further information over the next month, We're actively working with our customers and suppliers to mitigate challenges that tariffs could pose to our collective businesses. Moving to the balance sheet, in Q3, we generated cash flows from operating activities of $66.79. Our non-cash working capital as a percentage of revenue was 30.3%. This value remained high as a result of our previously disclosed disagreement with one of our EV customers. While work remains paused on the projects, We've 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. 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. 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 to $90 million. Our innovation efforts in critical growth areas remains a priority. 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 acquisition. We remain committed to bring our leverage to our target range of two to three times. 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. Proceeds from this transaction were used to repay outstanding amounts under our credit facility. In summary, order bookings were strong and diversified across our market. Record order backlog in life sciences and food and beverage give us good revenue visibility going forward. 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. Looking ahead, we're committed to building on recent positive momentum in our financial results as we finish out fiscal 25. 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. Now, we will open the call to questions from our analysts. Operator, could you please provide instructions? Thank you.