ATS Reports Second Quarter Fiscal 2024 Results

CAMBRIDGE, Ontario--(BUSINESS WIRE)--ATS Corporation (TSX and NYSE: ATS) (“ATS” or the “Company”) today reported its financial results for the three and six months ended October 1, 2023. All references to "$" or "dollars" in this news release are to Canadian dollars unless otherwise indicated.

Second quarter highlights:

• Revenues increased 24.9% year over year to $735.7 million.
• Net Income was $50.7 million compared to $29.5 million a year ago.
• Basic earnings per share were 51 cents, compared to 32 cents a year ago.
• Adjusted EBITDA¹ was $116.2 million, 29.4% higher compared to $89.8 million a year ago.
• Adjusted basic earnings per share¹ were 63 cents compared to 51 cents a year ago.
• Order Bookings¹ were $742 million, 7.7% lower compared to $804 million a year ago.
• Order Backlog¹ increased 12.4% to $2,016 million compared to $1,793 million a year ago.

"Today we announced another quarter of strong results, including solid revenues, Order Bookings, Order Backlog and adjusted earnings," said Andrew Hider, Chief Executive Officer. "During the quarter, we also hosted our Institutional Investor Day, announced our latest acquisitions (Odyssey Validation Consultants, or "Odyssey" and Avidity Science, LLC or "Avidity") and celebrated our IWK business' 130th anniversary. These were all important individual events and milestones that demonstrate the strength of our global, decentralized organization."

Odyssey's strong focus on supporting customers in digital transformation is expected to accelerate ATS' Process Automation Solutions ("PA") business' strategy to drive validated production process improvements through digital solutions. Avidity is a leader in automated water purification systems for biomedical and life sciences applications, with approximately 40% of revenues being reoccurring in nature. Avidity is expected to join ATS' Life Sciences group in the fourth quarter of calendar 2023 pending completion of customary regulatory reviews.

Year-to-date highlights:

• Revenues increased 24.2% year over year to $1,489.4 million.
• Net Income increased 43.0% year over year to $98.5 million.
• Basic earnings per share increased 36.0% year over year to $1.02.
• Adjusted EBITDA¹ increased 29.1% year over year to $235.4 million.
• Adjusted basic earnings per share¹ increased 22.2% year over year to $1.32.
• Order Bookings¹ were $1,432 million, compared to $1,539 million a year ago.

Mr. Hider added: “With a solid Order Backlog to start the third quarter, our teams remain clearly focused on delivering profitable growth while serving our broader purpose of creating solutions that positively impact lives around the world."

Second quarter summary
Fiscal 2024 second quarter revenues were 24.9% or $146.8 million higher than in the corresponding period a year ago. This performance reflected year-over-year organic revenue growth (growth excluding contributions from acquired companies and foreign exchange translation) of $96.6 million or 16.4%, and revenues earned by acquired companies of $14.5 million. Foreign exchange translation positively impacted revenues by $35.7 million or 6.0%, primarily reflecting the strengthening of the U.S. dollar and Euro relative to the Canadian dollar. Revenues generated from construction contracts increased 32.4% or $117.3 million due to organic revenue growth combined with positive foreign exchange translation impact. Revenues from services increased 28.0% or $32.6 million due to revenues earned by acquired companies of $13.9 million in addition to organic revenue growth and the positive impact of foreign exchange translation. Revenues from the sale of goods decreased 2.8% or $3.1 million primarily due to lower Order Backlog entering the period compared to the prior year.

By market, revenues generated in life sciences increased $7.3 million or 2.6% year over year. This was primarily due to contributions from acquisitions and the positive impact of foreign exchange translation, partially offset by revenues earned on a large $120.0 million program that was in progress a year ago. Revenues in transportation increased $131.6 million or 109.1% on higher Order Backlog entering the second quarter of fiscal 2024, driven primarily by EV Order Bookings, including previously announced electric vehicle ("EV") Order Bookings of U.S. $578.2 million. Revenues generated in food & beverage increased $34.8 million or 46.4% due to higher Order Backlog entering the second quarter of fiscal 2024 and the positive impact of foreign exchange translation. Revenues generated in consumer products decreased $12.8 million or 16.6% primarily due to lower Order Backlog entering the period as compared to the prior year, partially offset by the positive impact of foreign exchange translation. Revenues in energy decreased $14.1 million or 44.3% due to project timing, partially offset by $3.5 million of contributions from acquisitions.

Net income for the second quarter of fiscal 2024 was $50.7 million (51 cents per share basic), compared to $29.5 million (32 cents per share basic) for the second quarter of fiscal 2023. The increase primarily reflected higher revenues, partially offset by higher cost of revenues, selling, general and administrative ("SG&A"), income tax expense, and financing costs. Adjusted basic earnings per share were 63 cents compared to 51 cents in the second quarter of fiscal 2023 (see “Reconciliation of Non-IFRS Measures to IFRS Measures”).

Depreciation and amortization expense was $34.0 million in the second quarter of fiscal 2024, compared to $30.1 million a year ago; the increase was primarily related to incremental depreciation and amortization expense from recently acquired companies.

EBITDA was $117.0 million (15.9% EBITDA margin) in the second quarter of fiscal 2024 compared to $83.1 million (14.1% EBITDA margin) in the second quarter of fiscal 2023. EBITDA for the second quarter of fiscal 2024 included $1.2 million of incremental costs related to acquisition activity and a $2.0 million recovery of stock-based compensation expenses due to revaluation. EBITDA for the corresponding period in the prior year included $0.5 million of incremental costs related to acquisition activity, $3.9 million of acquisition-related inventory fair value changes, $1.3 million of restructuring costs, and $1.0 million of stock-based compensation revaluation expenses. Excluding these costs, adjusted EBITDA was $116.2 million (15.8% adjusted EBITDA margin), compared to $89.8 million (15.2% adjusted EBITDA margin) for the corresponding period in the prior year. Higher adjusted EBITDA reflected higher revenues. EBITDA is a non-IFRS measure - see “Non-IFRS and Other Financial Measures.”

Order Bookings
Second quarter fiscal 2024 Order Bookings were $742 million, a 7.7% year over year decrease, which reflected an organic Order Bookings decline of 13.5%, primarily related to the transportation market, partially offset by 2.0% growth from acquired companies, in addition to a 3.8% increase due to foreign exchange rate translation of Order Bookings from foreign-based ATS subsidiaries, primarily reflecting the strengthening of the U.S. dollar and Euro relative to the Canadian dollar. Order Bookings from acquired companies totalled $15.7 million. By market, Order Bookings in life sciences increased compared to the prior-year period primarily due to a combination of new and existing applications in the medical device submarket, positive foreign exchange rate translation of Order Bookings from foreign- based ATS subsidiaries, in addition to $4.1 million of contributions from acquired companies. Order Bookings in transportation decreased compared to the prior-year period, as expected, as a result of variability on timing of large EV orders. Second quarter fiscal 2023 included a U.S. $167.0 million Order Booking from an existing global automotive customer to move towards fully automated battery assembly systems for their North American manufacturing operations. Order Bookings in food & beverage increased compared to the prior-year period primarily due to foreign exchange rate translation of Order Bookings from foreign-based ATS subsidiaries. Order Bookings in consumer products increased primarily due to the timing of customer projects and contributions from acquired companies. Order Bookings in energy increased primarily due to a grid battery program order, along with contributions from acquisitions.

Trailing twelve month book-to-bill ratio at October 1, 2023 was 1.10:1. Book-to-bill ratio is a supplementary financial measure - see “Non-IFRS and Other Financial Measures.”

Backlog
At October 1, 2023, Order Backlog was $2,016 million, 12.4% higher than at October 2, 2022. Order Backlog growth was primarily driven by higher Order Bookings in the last twelve months, primarily within the transportation, life sciences and energy markets.

Outlook
The life sciences funnel for fiscal 2024 remains strong, with a focus on strategic submarkets of pharmaceuticals, radiopharmaceuticals, and medical devices such as auto-fillers and auto-injectors. Management continues to see opportunities with both new and existing customers, including those customers using auto-injectors for diabetes and obesity treatments, and producers of contact lens and pre-filled syringes. Funnel activity to leverage the Company's various life sciences integrated solutions to serve broader customer needs remains active. In transportation, the funnel largely includes strategic opportunities related to electric vehicles, as the global automotive industry continues to shift towards EV production. The strategic nature of EV programs and typically larger average order values can cause variability in Order Bookings. Management believes the Company's automated EV battery pack and assembly capabilities position ATS well within the industry. Funnel activity in food & beverage remains strong, particularly for energy-efficient solutions. The Company continues to benefit from strong brand recognition within the global tomato processing industry, and is seeing continued growth within keg filling. Funnel activity in consumer products is stable; inflationary pressures continue to have an effect on discretionary spending, which may impact timing of some customer investments. Funnel activity in energy remains strong and includes some longer-term opportunities in the nuclear industry. The Company is focused on clean energy applications including solutions for the refurbishment of nuclear power plants, early participation in the small modular reactor market, and grid battery storage. Across all markets, customers are exercising normal caution in their approach to investment and spending.

Funnel growth in markets where environmental, social and governance ("ESG") requirements are an increasing focus for customers — including grid battery storage, EV and nuclear, as well as consumer goods packaging — provide ATS with opportunities to use its capabilities to respond to customer sustainability standards and goals. Customers seeking to de-risk or enhance the resiliency of their supply chains, address a shortage of skilled workers or combat higher labour costs also provide future opportunities for ATS to pursue. Management believes that the underlying trends driving customer demand for ATS solutions including rising labour costs, labour shortages, production onshoring or reshoring and the need for scalable, high-quality, energy-efficient production remain favourable.

Order Backlog of $2,016 million is expected to help mitigate some of the impact of quarterly variability in Order Bookings on revenues in the short term. The Company’s Order Backlog includes several large enterprise programs that have longer periods of performance and therefore longer revenue recognition cycles. These programs have extended the average period over which the Company expects to convert its Order Backlog to revenues, providing ATS with longer visibility. In the third quarter of fiscal 2024, management expects the conversion of Order Backlog to revenues to be in the 34% to 37% range. This estimate is calculated each quarter based on management’s assessment of project schedules across all customer contracts, expectations for faster-turn product and services revenues, expected delivery timing of third-party equipment and operational capacity.

The timing of customer decisions on larger opportunities is expected to cause variability in Order Bookings from quarter to quarter. Revenues in a given period are dependent on a combination of the volume of outstanding projects the Company is contracted to, the size and duration of those projects, and the timing of project activities including design, assembly, testing, and installation. Given the specialized nature of the Company’s offerings, the size and scope of projects vary based on customer needs. The Company seeks to achieve revenue growth organically and by identifying strategic acquisition opportunities that provide access to attractive end-markets and new products and technologies and deliver hurdle-rate returns.

Management is pursuing several initiatives to grow revenues and improve profitability with the goal of expanding its adjusted earnings from operations margin to 15% over time through a combination of operational initiatives and portfolio development. Operational initiatives include a focus on pursuing continuous improvement in all business activities through the ABM, including in acquired businesses, improving global supply chain management, increasing the use of standardized platforms and technologies, and growing revenues while leveraging the Company’s cost structure. Portfolio development initiatives include efforts to grow the Company's products and after-sales service revenues as a percentage of overall revenues. After-sales revenues and reoccurring revenues, which ATS defines as revenues from ancillary products and services associated with equipment sales, and revenues from customers who purchase non-customized ATS product at regular intervals, are expected to provide some balance to customers' capital expenditure cycles. Management estimates that reoccurring revenues are currently in the range of 25-35% of total revenues on a trailing twelve-month basis. Moreover, the Company's financial profile, which has included strong growth, margin expansion and disciplined working capital investment, has allowed it to generate free cash flows that are reinvested back into the business. Management also sees the development of the Company's digitalization capabilities as another key area of growth for the portfolio, including the collection and interpretation of data to drive meaningful change that optimizes performance for customers. In addition, management is focused on investing in innovation and employing a consistent, strategic approach to acquisitions. The Company continues to make progress in line with its plans to integrate acquired companies, and expects to realize cost and revenue synergies consistent with announced integration plans.

In the short term, ATS will continue to address disruptions to global supply chains and cost pressures due to inflation, which have been contributing to longer lead times and cost increases in the supply base over the past several quarters. To date, the Company has mitigated many of these supply chain disruptions through the use of alternative supply sources and savings on materials not affected by cost increases. However, prolonged cost increases and price volatility have and may continue to disrupt the timing and progress of the Company’s margin expansion efforts and affect revenue recognition. Achieving and sustaining management's margin target assumes that the Company will successfully implement the initiatives noted above, and that such initiatives will result in improvements to its adjusted earnings from operations margin that offset the pressures resulting from disruptions in the global supply chain (see “Forward-Looking Statements” for a description of the risks underlying the achievement of the margin target in future periods).

The Company regularly monitors customers for changes in credit risk and does not believe that any single industry or geographic region represents significant credit risk.

In the short term, the Company expects non-cash working capital to remain above 10% as large enterprise programs progress through milestones. Over the long-term, the Company expects to continue investing in non-cash working capital to support growth, with fluctuations expected on a quarter-over-quarter basis. The Company’s long-term goal is to maintain its investment in non-cash working capital as a percentage of annualized revenues below 15%. However, given the size and timing of milestone payments for certain large EV programs in Order Backlog, the Company could see its working capital exceed 15% of annualized revenues in certain periods as it did in the first two quarters of fiscal 2024. The Company expects that continued cash flows from operations, together with cash and cash equivalents on hand and credit available under operating and long-term credit facilities will be sufficient to fund its requirements for investments in non-cash working capital and capital assets, and to fund strategic investment plans including some potential acquisitions. Acquisitions could result in additional debt or equity financing requirements for the Company. Non-cash working capital as a percentage of revenues is a Non-IFRS ratio - see “Non-IFRS and Other Financial Measures.”

New York Stock Exchange Listing
On May 25, 2023, the Company commenced trading of its common shares on the New York Stock Exchange ("NYSE"), under ticker symbol "ATS". As a result, ATS is now a dual-listed company, trading on both the Toronto Stock Exchange ("TSX") and NYSE.

Reorganization Activity
The Company periodically undertakes reviews of its operations to ensure alignment with strategic market opportunities. As a part of this review, the Company has identified an opportunity to improve the cost structure of the organization and reallocate investment to growth areas. The majority of these actions are expected to be completed in the third quarter of fiscal 2024. The estimated cost of these activities is between $15 million and $20 million.

Quarterly Conference Call
ATS will host a conference call and webcast at 8:30 a.m. eastern on Wednesday, November 8, 2023 to discuss its quarterly results. The listen-only webcast can be accessed live at www.atsautomation.com. The conference call can be accessed live by dialing (888) 660-6652 or (646) 960-0554 five minutes prior. A replay of the conference will be available on the ATS website following the call. Alternatively, a telephone recording of the call will be available for one week (until midnight November 15, 2023) by dialing (800) 770-2030 and using the access code 8782510.

About ATS
ATS Corporation is an industry-leading automation solutions provider to many of the world's most successful companies. ATS uses its extensive knowledge base and global capabilities in custom automation, repeat automation, automation products and value-added services including pre-automation and after-sales services, to address the sophisticated manufacturing automation systems and service needs of multinational customers in markets such as life sciences, food & beverage, transportation, consumer products, and energy. Founded in 1978, ATS employs over 6,500 people at more than 60 manufacturing facilities and over 80 offices in North America, Europe, Southeast Asia and Oceania. The Company's common shares are traded on the Toronto Stock Exchange and the NYSE under the symbol ATS. Visit the Company's website at www.atsautomation.com.

For more information, contact:
David Galison
Head of Investor Relations
ATS Corporation
730 Fountain Street North
Cambridge, ON, N3H 4R7
(519) 653-6500
dgalison@atsautomation.com

For general media inquiries, contact:
Matthew Robinson
Director, Corporate Communications
ATS Corporation
730 Fountain Street North
Cambridge, ON, N3H 4R7
(519) 653-6500
mrobinson@atsautomation.com