ATS Q4 2025 Earnings Call Transcript

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Provided by Quartr
May 28, 2025
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Operator

Welcome to the ATS Corporation Fourth Quarter Conference Call and Webcast. This call is being recorded on 05/28/2025 at six p. M. Eastern Time. Following the presentation, we will conduct a question and answer session.

Operator

I'll now turn the call over to David Gallison, Head of Investor Relations at ATS.

David Galison
David Galison
Head of Investor Relations at ATS

Thank you, operator, and good evening, everyone. On the call today are Andrew Hyder, Chief Executive Officer of ATS and Ryan MacLeod, Chief Financial Officer. Please note that our remarks today are accompanied by a slide deck, which could 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.

Andrew Hider
Andrew Hider
CEO at ATS

Thank you, David. Good evening, everyone, and thank you for joining us. Today, ATS reported fourth quarter and full year results for fiscal twenty twenty five. As you know, we announced a negotiated settlement with our EV customer. It was important that we put this matter behind us to enable us to continue to execute on our growth strategy.

Andrew Hider
Andrew Hider
CEO at ATS

On the net front, Q4 was the third highest bookings quarter in company history and included organic growth along with contributions from acquisitions. Our Life Sciences businesses demonstrated strength and market leadership, complemented by contributions from across ATS and other key market verticals. During the year, we welcomed Acxiom and Heidolph, further expanding our product portfolio. Fiscal twenty twenty five was not without its challenges, and the results reported today reflect the resilience of our teams, the breadth and depth of our capabilities across our vertical markets and the value of the ATS business model. This evening, I'll update you on our business and markets, including macroeconomic influences, and Ryan will provide his financial report.

Andrew Hider
Andrew Hider
CEO at ATS

Starting with our financial value drivers. Order bookings for the quarter were $863,000,000 up 9% from the fourth quarter last year. Our growth was supported by diversified bookings across all of our markets. Bookings for the full year were $3,300,000,000 a record for ATS, setting us up well for fiscal twenty twenty six. Q4 adjusted revenues were $721,000,000 down 9% from Q4 last year.

Andrew Hider
Andrew Hider
CEO at ATS

For the full year, adjusted revenues were 12% lower year over year as a result of lower EV revenues as expected. Adjusted earnings from operations in Q4 were $74,000,000 and for the full year were $283,000,000 Moving to outlook. Order backlog ended the quarter at approximately $2,100,000,000 the highest in the last eight quarters. Our trailing twelve month book to bill ratio was 1.23:one, again highlighting the importance of our entire portfolio of offerings across services, standard equipment and products, as well as custom integration. From a macro perspective, geopolitical and trade tensions are creating an uncertain environment.

Andrew Hider
Andrew Hider
CEO at ATS

Although we are not immune to this uncertainty, we have not seen any material change in customer behavior to date. It is possible that we could see impacts on demand in some areas of our business if uncertainty continues in the near to mid term. That said, given our Q4 order bookings, we remain optimistic. ATS is well positioned in regulated markets with strategic customer relationships. Our global footprint gives us capacity to help our customers address their risks as well as our own.

Andrew Hider
Andrew Hider
CEO at ATS

Further, our embedded ABM tools help our teams respond to changing requirements. Expanding our market reach through our capabilities while growing reoccurring revenue is important for shareholder value creation. To that end, our teams are dedicated to delivering for customers globally and actively planning for and addressing any short term disruptions. This includes further optimizing our global supply chain, strengthening regional capabilities and taking targeted price action where necessary to support margins while ensuring reliable delivery across customer programs. Within Life Sciences, order backlog ended the quarter at $1,200,000,000 with key wins across all of our major life sciences businesses, including diversification and bookings such as auto injector assembly, radiopharma, wearables and other medical devices.

Andrew Hider
Andrew Hider
CEO at ATS

Our life sciences opportunity funnel is strong, supported by market growth in key submarkets, including the demand for GLP-one drugs, wearable devices for diabetes care, automated pharmacies and contact lenses, and the ongoing need for solutions to support detection and treatment in pharma and radiopharma. Our capabilities and deep understanding of the life sciences markets position us well to explore new areas to broaden our customer base. In the current environment, some customers are evaluating capital spending plans, particularly within the lab research space. But as I indicated, we have not seen a material shift or change at this time. In Food and Beverage, our funnel remains strong.

Andrew Hider
Andrew Hider
CEO at ATS

We ended the year with a backlog of $258,000,000 The team is actively pursuing greater diversification to offset some seasonal variability in the CFT business with advancements in the services and secondary processing as well as packaging, which is supported by the addition of Paxium. In energy, our funnel remains strong as the global nuclear industry experiences growth and transformation driven by increasing energy demands, advancements in nuclear technology and sustained government support. Near term demand is driven by ongoing Candu refurbishment projects, and we expect that longer term demand will also come from new nuclear builds in both large scale and small modular reactors. Our end to end strategic capabilities enable us to support customers across all phases, from concept and design through to factory automation of modular assemblies and waste handling. ATS is well positioned for sustained growth in these key energy markets.

Andrew Hider
Andrew Hider
CEO at ATS

In Consumer Products, funnel remains stable with attractive niche opportunities. Our capabilities in such areas as warehouse automation and packaging solutions delivered strength in bookings in the quarter. Within Transportation, our funnel remains stable with smaller opportunities as expected due to lower end market demand than previous years, particularly in the EV battery space. During the quarter, we received an additional order from an EV customer in Europe. On aftersales, we continue to make progress on our strategy.

Andrew Hider
Andrew Hider
CEO at ATS

Our evolving service plan offerings, including higher value services and the expansion of digital tools are helping to drive greater customer adoption and retention. Our goal is to serve as a global partner for continuous productivity optimization across our customer base. Globally, our ATS teams are aligned and have a deep understanding of where value can be driven for our customers with our digital solutions. Our strategy and ability to drive improved lifecycle performance, asset utilization and overall operational efficiency through areas like our Connected Care Hub will allow us to help our customers reduce their enterprise risk over time. On the ATS business model, we hosted our seventh annual President's Kaizen events, which included teams from across all ATS groups and major geographies.

Andrew Hider
Andrew Hider
CEO at ATS

The teams brought focus to strategic areas including resource planning and optimization, business simplification, product development, flotation processes and reimagining processes to drive greater efficiency in operations. These events are a great demonstration of our team's collective drive for breakthrough change. The level of work completed in a single week is a testament to the evolution of our ABM culture over time. On M and A, we are making steady progress on cultivating strategic opportunities that align with our long term growth priorities and enhance the value of our portfolio over time. In the short term, we remain focused on returning leverage to targeted levels and on the continued integration of our recent acquisitions to maximize their long term contributions to our business.

Andrew Hider
Andrew Hider
CEO at ATS

On innovation, we're deploying capital and empowering our talent to create differentiated solutions that drive value for our customers. Going into fiscal twenty twenty six, we've identified opportunities to innovate in such areas as expanding the utilization of our Symphony platform, incorporating more digital applications in our portfolio to drive further efficiency, for example, in our digital tomato solution for food and beverage markets and adding additional functionality into our proprietary SuperTrak system. In summary, our global businesses continue to demonstrate ongoing commitment to serving our customers, supported by deep industry knowledge and experience. To that end, I want to congratulate two businesses on hitting significant milestones this past year. Comecer celebrated their fiftieth anniversary and CFT celebrated their eightieth.

Andrew Hider
Andrew Hider
CEO at ATS

I'm also pleased to note that ATS was once again recognized by Canada's top 100 for being a leading employer in both the Waterloo Region and Southwestern Ontario. Strong fourth quarter bookings combined with a record order backlog provides us with good revenue visibility and a strong foundation for profitable growth heading into fiscal twenty twenty six. Our teams remain focused on driving improvements across all of our value drivers. As we enter fiscal twenty twenty six, our opportunity funnel is well diversified, and we are confident in our ability to drive our ABM culture as our engaged and dedicated teams remain intensely focused on creating strong customer and long term shareholder value. We are responding to the challenges in the macro environment with clear alignment across the leadership team and our individual businesses.

Andrew Hider
Andrew Hider
CEO at ATS

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

Ryan McLeod
Ryan McLeod
Chief Financial Officer at ATS

Thank you, Andrew, and good evening, everyone. Before I review results, I'll provide a few comments on two specific nonrecurring items. First, our EV settlement and second, income taxes. On the EV settlement, as we disclosed, we expect to receive US134.75 million dollars or about CAD194 million based on our Q4 pending exchange rate before the end of fiscal Q1. The settlement resulted in an after tax impact of approximately CAD129 million, which was reflected in our Q4 results.

Ryan McLeod
Ryan McLeod
Chief Financial Officer at ATS

The preliminary fourth quarter fiscal 'twenty five results that we disclosed on May 23, including net income, earnings per share, EBIT and EBITDA are unchanged. However, in finalizing our results and in accordance with IFRS standards, rather than having the expense flow through SG and A, you will see in our financial statements that we have recorded a reduction in revenues in the quarter of $146,900,000 with the remainder of the settlement impact of $24,200,000 reflected in SG and A expenses. This income statement classification differs from what we disclosed in our preliminary earnings release. However, as I noted, there is no change to net income. We are presenting an adjusted revenue measure to reflect this onetime event and have adjusted for the total P and L impact of our adjusted earnings consistent with what we previously disclosed.

Ryan McLeod
Ryan McLeod
Chief Financial Officer at ATS

Importantly, the settlement will reduce our net debt to adjusted EBITDA leverage by 0.5 times or approximately half the turn, providing us with greater flexibility to continue to execute on our growth strategy relative to a prolonged process where timing is hard to predict. Given the deteriorating market conditions in transportation and the added uncertainty in the market caused by tariffs, settling the matter at this time was a good outcome for ATS. Separately, on taxes, in our Q4 results, we recognized the tax assets related to a plan that will benefit our cash taxes and result in an expected effective tax rate in the mid-twenty percent range going forward. We've adjusted for the nonrecurring impacts related to this plan in our adjusted EPS, which was a $0.38 per share benefit to reflect normalized operations for the year. Now moving on to Q4 operating results.

Ryan McLeod
Ryan McLeod
Chief Financial Officer at ATS

Order bookings were $863,000,000 an increase of 9% over Q4 last year and included 2.6% organic growth, a 4% contribution from acquisitions and a 2.5% positive impact from foreign exchange translation. At the end of Q4, the trailing twelve month book to bill ratio was 1.23:one and was above one in all market verticals. For the year, order bookings grew 14.3% and included organic growth of 6.2%, a foreign exchange benefit of 1.9% and contributions from acquisitions of 6.2%. After adjusting for the revenue portion of the EV settlement, which adds back the $146,900,000 impact, revenues for the fourth quarter of fiscal 'twenty five were $721,000,000 down 8.9% compared to last year. Year over year organic growth in Life Sciences and Consumer Products, along with a 3.6% contribution from recent acquisitions, provided some offset to lower transportation revenues.

Ryan McLeod
Ryan McLeod
Chief Financial Officer at ATS

Notably, revenues increased sequentially by 10.6% as we continued to benefit from strong order bookings over the past several quarters. Moving to earnings. Fourth quarter adjusted earnings from operations were $74,300,000 a 23% decline from the prior year, primarily from lower revenue volumes, particularly in transportation. Excluding acquisition related inventory fair value charges, gross margin for Q4 was 29%, a 90 basis point improvement from last year, driven by a more favorable mix, which included higher margin programs. On SG and A, excluding acquisition related amortization and transaction costs and the SG and A portion of the EV settlement, expenses in the fourth quarter totaled $133,900,000 an $11,200,000 increase over the prior year, primarily due to SG and A from acquired companies, in addition to increased employee costs and the impact of foreign exchange translation.

Ryan McLeod
Ryan McLeod
Chief Financial Officer at ATS

As always, we continue to work to enhance efficiency in both our existing operations and newly acquired entities through a disciplined integration process. Excluding the mark to market impact related to changes in our share price, stock based compensation expense was $1,100,000 in Q4. Earnings per share were $0.41 on an adjusted basis, down from last year primarily due to lower revenue volumes. Turning to our outlook. We ended the fiscal year with an order backlog of approximately $2,100,000,000 and we expect Q1 revenues to be in the range of $680,000,000 to $730,000,000 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
Ryan McLeod
Chief Financial Officer at ATS

In the quarter, we incurred an additional $3,500,000 of restructuring costs related to the previously disclosed reorganization activities. Expanding our operating margins remains an ongoing priority. In particular, as Life Sciences order bookings from the latter half of fiscal 'twenty five moved to higher revenue generating phases, and as we benefit from the cost structure and volume alignment in our EV businesses, we expect to see improvement through fiscal 'twenty six. Across our business, we continue to systematically use ABM tools to enhance our processes, streamline our supply chain and achieve further standardization. And we continue to invest in innovation and services.

Ryan McLeod
Ryan McLeod
Chief Financial Officer at ATS

On tariffs, we're working to mitigate risks as data rising where possible. Our global footprint and decentralized operating model, along with our proven ABM tools, provide us the flexibility required to address disruptions over the longer term. Short term costs have been manageable to date, and we're staying close to our customers as the current environment continues to evolve. We're also actively working with our global supply base to mitigate challenges in flow of goods and manage potential cost increases. Moving to the balance sheet.

Ryan McLeod
Ryan McLeod
Chief Financial Officer at ATS

In Q4, cash flows from operating activities were $39,300,000 Our noncash working capital as a percentage of revenue was 22.4%. Excluding the settlement receivable from the EV dispute, our noncash working capital was just over 15% as we continue to progress across the rest of our businesses on working capital efficiency and moving back towards our target range. During the quarter, we invested $29,000,000 in CapEx and intangible assets with an investment for the year of $78,100,000 Our innovation efforts in critical growth areas remain a priority. For fiscal 'twenty six, we expect our CapEx and intangible investment to be in the range of $80,000,000 to $100,000,000 On leverage, at the end of the quarter, our net debt to adjusted EBITDA ratio was 3.9x on a pro form a basis, which includes full year contributions from our most recent acquisitions. As I noted, this will be helped by receipt of the EV settlement payment in Q1 of fiscal 'twenty six.

Ryan McLeod
Ryan McLeod
Chief Financial Officer at ATS

We remain committed to bringing our leverage to our target range of two to 3x. For reference, early in Q1, we were active in our NCIB, acquiring three hundred and nine thousand shares for approximately $10,000,000 Share buyback remains an important and opportunistic element of our overall capital deployment strategy. That said, our primary capital allocation priorities remain a focus as we continue to invest internally on innovation and growth while cultivating acquisition opportunities. In summary, fourth quarter results were encouraging as we move into fiscal 'twenty six with our goal of driving growth and margin expansion. For the year, despite challenges in fiscal 'twenty five as a result of changes in demand in the North American EV markets, we had record order bookings that were diversified across our strategic global markets and regulated industries.

Ryan McLeod
Ryan McLeod
Chief Financial Officer at ATS

Order backlog is strong and gives us good revenue visibility in fiscal 'twenty six. We expect short term margin pressures from lower transportation revenues to continue to abate through our reorganization efforts as we drive improved volumes in transportation and growth in the rest of the business. Looking ahead, we're committed to building on our positive momentum in fiscal 'twenty six. We remain focused on driving growth in our core markets, leveraging our acquisitions and executing on our value creation strategy. Now we will open the call to questions from our analysts.

Ryan McLeod
Ryan McLeod
Chief Financial Officer at ATS

Operator, could you please provide instructions? Thank you.

Operator

Thank you. We will now begin the question and answer session. Your first question comes from the line of Cherilyn Radbourne from TD Cowen. Your line is open.

Cherilyn Radbourne
Managing Director - Equity Research at TD Securities

Thanks very much and good evening. First question, I guess, is as you look at the backlog and the underlying duration of it as well as what you're seeing and hearing from customers, how confident do you feel about returning to positive organic growth in fiscal twenty six?

Andrew Hider
Andrew Hider
CEO at ATS

Yeah. Sure. And good evening. Short answer is, very positive. And and if you look at our our trailing twelve month book to bill ratio, 1.23 really supports that that alignment.

Andrew Hider
Andrew Hider
CEO at ATS

If you look at all markets, all of our markets are above a one and, you know, led by some key areas and key technologies. So, you know, when we look at the year, we are confident we'll be returning to growth. We're confident in the areas that we're supporting. And to even go further on substance you know, really substantiating that with with the discussions, you know, I've been out visiting customers as long as our our global team. And where we see products that that have alignment to strategic priorities for our customers, they'll continue they're continuing to invest.

Andrew Hider
Andrew Hider
CEO at ATS

So overall, I would say our view of the year is cautiously optimistic.

Ryan McLeod
Ryan McLeod
Chief Financial Officer at ATS

And,

Ryan McLeod
Ryan McLeod
Chief Financial Officer at ATS

Cherilyn, maybe I'll just jump in with a couple of data points, some of which we covered in the prepared remarks. But the order backlog being up 19.3% does does support growth, obviously. About 23% of that backlog does go beyond one year, which which is fairly consistent with where where we typically operate in terms of some of those longer term programs. But, you know, just just to echo what Andrew said, the strength of our backlog does give us a lot of confidence in terms of organic growth in in fiscal twenty six.

Cherilyn Radbourne
Managing Director - Equity Research at TD Securities

Okay. That's really helpful. And the midpoint in the range that you provided for fiscal q one would suggest that at the midpoint, you'd be up modestly. So that's nice to see. In terms of the internal control deficiency that was noted, can you talk about how that was identified and what's underway to address the issue.

Cherilyn Radbourne
Managing Director - Equity Research at TD Securities

Was that related to the EV the accounting treatment of the EV settlement?

Ryan McLeod
Ryan McLeod
Chief Financial Officer at ATS

So a a couple things. So it's it it's identified through our normal course process. And as as I I you know, I think you know this is our first year having adopted the the SOX requirements, which are a little bit different, a little bit more rigorous than what we were previously operating under. So our we go through a testing process and an assessment process, and there was there was certain process business processes. Some of it related to what's what's called IP information prepared by entity, which is effectively spreadsheets and some of the documentation around spreadsheets.

Ryan McLeod
Ryan McLeod
Chief Financial Officer at ATS

So I think, importantly, none of this had a as as we stated in the disclosure, an impact on our our financial reported financial statements in current period, prior periods, and largely relates to documentation improvements that that we need to make. And that's that's where our focus is on that as we go into fiscal twenty six.

Cherilyn Radbourne
Managing Director - Equity Research at TD Securities

Okay. Perfect. That's really helpful. That's my two.

Operator

Your next question comes from the line of Maxim Sytchev from National Bank Financial. Your line is open.

Maxim Sytchev
Managing Director at National Bank Financial

Hi, good evening gentlemen.

Andrew Hider
Andrew Hider
CEO at ATS

Good Max.

Maxim Sytchev
Managing Director at National Bank Financial

Andrew, maybe the first question for you. Do you mind me providing a bit of color on the composition of programs that exist within the healthcare backlog right now? I mean, one of the questions we often get from investors is how sustainable the GLP one sort of growth rate. I'm just curious to see around sort of the exposure there. Thanks.

Andrew Hider
Andrew Hider
CEO at ATS

Yeah. So so so, Max, to give you a little bit more color, I mean so so we're certainly excited about our support on the GLP one space, and we have a diversified customer base within this area. I think right now, we're working with eight plus customers and and really aligning around their ability to meet the market demand and and continued market demand. And we do view this as, you know, a mid, a short to midterm area of focus and and and sustained ability to grow. But, additionally, you know, if you step back, we're in radiopharmaceuticals, which is identification and treatment of cancer.

Andrew Hider
Andrew Hider
CEO at ATS

We're in wearable devices and medical devices, so specifically, you know, wearable devices and the treatment of diabetes. You know, we're in automated pharmacy. We're in contact lenses. And so our view is, you know, as we look at the growth of the year and the potential for the year, you know, there's, as I said earlier, a lot to be cautiously optimistic about. And when I speak to customers, they're looking to further build out their product portfolios, and and we're in many niche markets beyond those that I I specify.

Andrew Hider
Andrew Hider
CEO at ATS

And so, I would say that that my engagement with the customers have been have been aligned around that and and have been aligned around our ability to support their growth needs.

Maxim Sytchev
Managing Director at National Bank Financial

Okay. That's a great color. And then Ryan, around working capital, mean, correct me if I'm wrong, but historical transportation was more capital intensive than other buckets in the business. Now that that part of the business has shrunk fairly significantly versus the rest, how should we think about that working capital intensity velocity improvement? Because I mean theoretically that should get better faster, or or how should we think about this?

Maxim Sytchev
Managing Director at National Bank Financial

Thanks.

Ryan McLeod
Ryan McLeod
Chief Financial Officer at ATS

Yeah. So, Max, excluding the remaining working capital that's on our balance sheet at q four tied to the EV the EV settlement and dispute. We're we're just over the 15% target. So you're right. In terms of market verticals, commercial terms in transportation typically are more working capital intensive.

Ryan McLeod
Ryan McLeod
Chief Financial Officer at ATS

So as that has become and and will be a smaller part of our business, we do see a benefit to our working capital from that. There is an offset, though, and that's as we've as we've expanded into more product based businesses, so shorter cycle where we're carrying inventory, those businesses are are more working capital intensive. And and so I I I think I've I've spoken through, you know, some of the acquisitions in in particular, Heidolph, Paxi, and Movidity. These are all 20% plus working capital businesses. Now there's efficiency available in those, and it it's primarily around inventories and and being more efficient there.

Ryan McLeod
Ryan McLeod
Chief Financial Officer at ATS

But all that to say, that does provide some offset to the lower transportation now. Our target is to be below 15%. I expect we'll get there this year. We'll see normal course variability in in quarters, but but that that is our target. And and as I said, we have a number of initiatives across the organization in place to to help support that that progress.

Maxim Sytchev
Managing Director at National Bank Financial

Okay. That's great color. And so just one quick one around the tax rate expectations for 2026. How should we, I guess, model it on a prospective basis?

Ryan McLeod
Ryan McLeod
Chief Financial Officer at ATS

Yeah. So so a couple of unusual items going through our taxes in in this year, particular in q four. But on normalized basis, we're in the mid 20% range, which is a little bit lower than what we'd anticipated. There's some normal course impacts from changes in jurisdiction where we operate, our profitability in certain jurisdictions, but we're always looking at how our business is structured globally to to really make sure we're maximizing that. We did implement a a legal entity consolidation that's gonna result in a cash tax benefit that we're gonna see over the next several years, but that doesn't really have an impact on our on our effective tax rate.

Ryan McLeod
Ryan McLeod
Chief Financial Officer at ATS

So the the way to think about it is really in the mid 20% range, in that 24 to 26, but also realizing there's there's cap tax benefits from some of the planning and and as well from the EV settlement that'll that'll help our cash taxes.

Maxim Sytchev
Managing Director at National Bank Financial

Okay. That's great. Thank you so much.

Operator

Your next question comes from the line of Subha Khan from RBC Capital Markets. Your line is open.

Sabahat Khan
Sabahat Khan
Managing Director at RBC Capital Markets

Great. Thanks, and good afternoon. I guess just following up on the the line of questioning that Cherilyn sort of started on the organic revenue growth for this year. It looks like the revenue, I guess you provided the range. In terms of the outlook for conversion, like how much could that vary over the course of the year based on the type of work you've taken?

Sabahat Khan
Sabahat Khan
Managing Director at RBC Capital Markets

And is this like a range that we should probably lean on as we think about the rest of fiscal twenty twenty six? Or does it even evolve based on the things you can see behind the scenes just based on the type of work that you might intake the rest of this? Just trying to get an understanding with the bigger backlog, how we should think about the the conversion over the future quarters as Thanks.

Ryan McLeod
Ryan McLeod
Chief Financial Officer at ATS

Yeah. So so a a couple things, Sabin. I'll I'll I'll step back a little bit. The the conversion rate's gonna change. It it that's driven just by material flows and and and different factors that largely impact our project revenues.

Ryan McLeod
Ryan McLeod
Chief Financial Officer at ATS

But, you know, as I said, the you know, our our backlog's up 19%. Several of those programs do go out beyond a year, you know, roughly, as I said, 23%. But but our expectation is is we're going to drive growth this year. And, you know, prior to the EV headwinds, we were at a high single digit organic growth rate. The the keep in mind, the global automation market, it's a mid single digit growth rate market, and our objective is to outpace that growth.

Ryan McLeod
Ryan McLeod
Chief Financial Officer at ATS

And and that's that's how we're thinking about fiscal twenty six.

Sabahat Khan
Sabahat Khan
Managing Director at RBC Capital Markets

Okay. Great. And then maybe just kind of on the on the margin side, would the EV business, I guess, much smaller as we look ahead over the course of fiscal twenty twenty six. Just directionally, you look ahead into your backlog and your expectation for revenue for the rest of the year, how are you thinking about margin progression? Should we assume that EV was a good portion of the drag over the last year?

Sabahat Khan
Sabahat Khan
Managing Director at RBC Capital Markets

Just maybe just some high level commentary on how what you're expecting for the rest of this year. Thanks.

Ryan McLeod
Ryan McLeod
Chief Financial Officer at ATS

Yeah. So the the transportation business was a drag in fiscal twenty five. It it saw some improvement from, you know, the low point in in q two. It's it's, you know, still not operating in q four at the level that we expect, but but it is improving, and and we expect it to be profitable in in fiscal twenty six. You know, similar to how we operate, we're targeting margin expansion.

Ryan McLeod
Ryan McLeod
Chief Financial Officer at ATS

We have a number of initiatives in place relating to material productivity, labor productivity, pricing, other areas of efficiency in our operations. That said, what we saw this quarter in terms of of expansion sequential expansion is is probably a reasonable run rate. I've used the term modest previously, and that's what I would continue to expect. There's gonna be variability. It's not gonna be linear, but but that's, again, that's how we're thinking about the the the businesses here in terms of margin expansion is is progression throughout the year that that pulls in our with our EBIT and EBITDA margins.

Sabahat Khan
Sabahat Khan
Managing Director at RBC Capital Markets

Great. And then maybe just one last one, maybe a high level one. As we think about tariffs, obviously, there's negatives from the perspective of actual tariffs. And then given where you are in sort of the industrial landscape, you could see some positive benefits from the reshoring efforts. If you can maybe just help frame for us the puts and the takes and what you're hearing from customers given all the all the headlines out there.

Sabahat Khan
Sabahat Khan
Managing Director at RBC Capital Markets

Thanks.

Andrew Hider
Andrew Hider
CEO at ATS

Yeah. So, Saba, look, it's certainly challenging to navigate, and and this is an evolving landscape. That said, look. Our teams have been laser focused on identifying risks and and actively monitoring and and mitigating where possible, and we've largely been able to do that. The the impact on ATS has been, call it, minimal, and and we we are continuing to to ensure that we can, you know, identify supply options, identify areas of control, and and areas to build.

Andrew Hider
Andrew Hider
CEO at ATS

And so we continue to look across. Now we do look at this market and and and tariffs being a potential benefit midterm. And and the reason is ATS being a global player allows us to really utilize that that global strength. And so certain businesses are able to move their product and build in region where needed, and and we have the ability to support our customers on a global scale. So if this continues on, ATS, we do view, is in a position of of potential strength to support our customers through that.

Sabahat Khan
Sabahat Khan
Managing Director at RBC Capital Markets

Thanks very much.

Operator

Your next question comes from the line of David Ocampo from Cormark Securities. Your line is open.

David Ocampo
Equity Research Analyst at Cormark Securities

Thanks. Good evening, everyone.

Ryan McLeod
Ryan McLeod
Chief Financial Officer at ATS

Hi, David.

David Ocampo
Equity Research Analyst at Cormark Securities

Maybe the first one for Ryan. I guess when we think about the inventory and the contract assets that were tied to your EV customer, it sounds like they were almost written off to zero.

David Ocampo
Equity Research Analyst at Cormark Securities

Is there any room for that to be redeployed to other areas, whether they were standard products, and we could view that as potential upside? Or should we just view that as a zero going forward?

Ryan McLeod
Ryan McLeod
Chief Financial Officer at ATS

Well, contract assets is is zero. Inventory, we've written to what we expect to be able to utilize, but I I wouldn't expect benefit out of that going forward. There are materials that we that that that could be redeployed, but but not a not a material benefit. No.

David Ocampo
Equity Research Analyst at Cormark Securities

Okay. And then just following up on Max's question or line of questioning as it relates to life sciences. I I do respect that GLP-one is just one end market that you guys serve. But I'm curious how you guys are thinking about both the positives and the negatives just as it relates to Lilly's positive trial results as it relates to ingestible GLP-one drugs.

Andrew Hider
Andrew Hider
CEO at ATS

Yeah. So so so a couple items. And and to give you some some context and and, you know, to add to my comment with for Max, the the novel drug approval, which is really an indication of future demands, you know, the last couple years, twenty three, twenty four, being really above average on approval process sets the stage for for future potential growth. And this year is really in line with last year as far as its run rate. So, overall, we do view this market as having continued ability to support our position as it sits today.

Andrew Hider
Andrew Hider
CEO at ATS

As far as the drug, as far as going to pill form, look and and you can read the articles as as we do, and we have engagements with with customers. There's certainly been a lot of discussion around this. We we have seen also customers pull back on this based on on trials. And so our view is that, certainly, that that could be an option for the future. We're monitoring, assessing.

Andrew Hider
Andrew Hider
CEO at ATS

The customers we're engaged with are still investing in the area around the high potency ability around GLP one with an auto injector, and that supports our ability to support our customers. As a reminder, we are in pharmacy automation, and we're in other areas. And so, you know, when we see new new drug launches, new areas, we are have the capability to support our customers on those new new launches and and and new drug programs.

David Ocampo
Equity Research Analyst at Cormark Securities

Okay. That's very helpful and useful color. And then maybe just the last one. You guys talked about I mean, you guys always talk about cultivating M and A transactions. But when we think about your leverage, even with all the moving parts and the collections of the cash, It does suggest that you guys are still gonna be above three times levered.

David Ocampo
Equity Research Analyst at Cormark Securities

So are are larger acquisitions on pause until you can get below the three times? And maybe, Ryan, you can refresh us on the maximum leverage ratio you guys are willing to go to for the right acquisition.

Andrew Hider
Andrew Hider
CEO at ATS

So yeah. So why why don't I start, David? So so, like, with the settlement, it's about half a turn reduction, and and it certainly gets us gets us, you know, closer to to our mark. All that to be said, if you look at the landscape for m and a today, the seller expectation isn't changing. We're seeing overall volumes go down slightly as as far as m and a goes, but our our cultivation and and our opportunity funnel continues to be strong.

Andrew Hider
Andrew Hider
CEO at ATS

And we we do continue to cultivate those those assets where when they become available, we're in a position to pounce, and they take time. If you look at the the two we did this past year with with Pacium and and and Hideap, that those are years in the making. And and so as we look at our our future, we're cultivating assets that, you know, when we're in a position to to to move quickly, we can. And we we are gonna continue to look at areas that are high attractive for ATS and our shareholders.

Ryan McLeod
Ryan McLeod
Chief Financial Officer at ATS

Yeah. And I'll just add on. So, you know, as I said, we're targeting to get to that two to three times range because that really gives us more flexibility relative to where we sit today, particularly as it as you think about larger opportunities. That said is and I'll repeat a little bit what Andrew said. We're always cultivating for the right opportunity, and we're gonna look at various financing alternatives where there's a deal that makes sense from a value creation perspective.

Ryan McLeod
Ryan McLeod
Chief Financial Officer at ATS

So, you know, we're we'll be disciplined in our approach, but, you know, we're gonna look at it from a a value perspective.

David Ocampo
Equity Research Analyst at Cormark Securities

Okay. That's perfect. That's all I had.

Operator

Your next question comes from the line of Michael Glen from Raymond James. Your line is open.

Michael Glen
Michael Glen
Managing Director - Consumer & Diversified Industrials at Raymond James Financial

Hey. Just a couple of questions. So number one, what are you guys thinking about in terms of moving some of your product manufacturing to The US? Do you have any CapEx plans? Does any of the CapEx this year associated with that?

Michael Glen
Michael Glen
Managing Director - Consumer & Diversified Industrials at Raymond James Financial

Or like, just get some thoughts on your line of thinking for that?

Ryan McLeod
Ryan McLeod
Chief Financial Officer at ATS

Yeah. Michael, so nothing I would call out specifically that's a material move. As Andrew noted, we have we have capacity in The US that for some of our products, some of what we do, it's fairly straightforward. Anything that's more significant from a CapEx standpoint, we're not at that point yet where we've where we've made a commitment to to move, you know, move production. That that's that's gonna be dependent on does it make sense in this environment in a potentially changing environment, and, ultimately, what what the the global trade environment looks like in in in terms of tariffs and and how that looks from a long term perspective.

Ryan McLeod
Ryan McLeod
Chief Financial Officer at ATS

So something we're monitoring, but but not something that's part of our CapEx plans that I outlined.

Michael Glen
Michael Glen
Managing Director - Consumer & Diversified Industrials at Raymond James Financial

Okay. And and then with the EV situation seemingly cleaned up, Andrew, are you able to provide some commentary? Do you do you think that it is potentially the right time for you to divest the EV business?

Andrew Hider
Andrew Hider
CEO at ATS

Yes. So look. This business has been really right sized to to reflect the the current demand environment. And as we see going forward, setting it up for for success. And, look, you have to remember that the work we do in this business is really wrapped around factory automation.

Andrew Hider
Andrew Hider
CEO at ATS

And with this business being right sized and and and also the potential for more reshoring of manufacturing, there's opportunities we can pursue in factory automation that that are outside of the segment. So we have good capabilities in the space. It's an area of business that we can create value for our customers and ultimately our shareholders. And and and so that's how we see it today.

Michael Glen
Michael Glen
Managing Director - Consumer & Diversified Industrials at Raymond James Financial

Okay. Thank you.

Operator

Your next question comes from the line of Cherilyn Radbourne from TD Cowen. Your line is open.

Cherilyn Radbourne
Managing Director - Equity Research at TD Securities

Thank you. Just a couple of other questions for me. Just with regard to the backlog by market and you alluded to this a little bit in your prepared remarks, but you set new backlog records in consumer products and nuclear. So I was hoping for a bit more color in those two areas.

Andrew Hider
Andrew Hider
CEO at ATS

Yeah. So so so, Sharon, I'll take I'll take those So so in consumer products, you know, we've continued to see support on our niche solution for for the warehouse automation space. And as a reminder, this solution for that area is really targeted around supporting this customer to to meet their sustainability goals while improving their efficiency. And so while they're looking at their global footprint, we've actually moved we've had the ability to move this product to be built in region for their their usage. So we we we like the ability to support.

Andrew Hider
Andrew Hider
CEO at ATS

It is a niche provider provider in that area and and one that we we like as far as not only upfront CapEx, but then and then supporting from a services and and and capability standpoint. As far as nuclear, look, nuclear, if you think about it, I'm gonna break it down into four areas. And and our largest area is candy reactors. And and think of the refurbishment. We we've talked about that in the past, the Bruce Power, you know, work that we've done and and and continue to do.

Andrew Hider
Andrew Hider
CEO at ATS

We've seen, Kinder reactors continue to have a a a long life and and one that that ATS has a lead niche position in. There's also traditional reactors, which are gonna go through a decommissioning process, and we we continue to see opportunity there. There's the small module reactor portion. And, you know, I've I've walked through this a little bit in the past, but as a reminder, we think this is about a five plus year potential. That said, we're working with some of the key players around enabling and and getting to that mark because the the opportunity exists, and and they're really aligning around enabling this as a solution set as as as clean energy to support the the the increased energy demands.

Andrew Hider
Andrew Hider
CEO at ATS

And then lastly, and and we're seeing more increase in this, is is is nuclear fuel and and and the support around the ability to bring more nuclear fuel into the market. And so we've actually started to win work in this space to to support that and support the ability to get more fuel into the into the market. So, look, we're a niche player. We we like our position. We like the growth potential in this area.

Andrew Hider
Andrew Hider
CEO at ATS

And if we look at the the the trailing twelve month book to bill ratio in energy, it certainly supported a a continued continued area of growth.

Cherilyn Radbourne
Managing Director - Equity Research at TD Securities

Great. And then last one for me. Just as you think about how to protect yourselves in light of a changing tariff backdrop and the potential for related inflation, Are are there any changes that you've made or contemplated to the terms of your contracts in that regard?

Ryan McLeod
Ryan McLeod
Chief Financial Officer at ATS

So our our contracts actually protect us fairly well from this situation. So, certainly, as we're getting into new contracts, it's a point of discussion, but not not an area that we're seeing a significant challenge from. And and I mentioned, you know, from a pricing standpoint that we are addressing it. Some of that is is on the product side, how we price, but also when there are changes, those those do get or or or tariffs impacts, those do get passed on to customers typically. I think more of the work is is or a lot of the work, rather, is happening on the supply chain side.

Ryan McLeod
Ryan McLeod
Chief Financial Officer at ATS

And we touched on this a little bit, but it's it's localizing and and as much as we can our supply chain, working with our suppliers to do that. We've we've we're working very closely with our brokers, logistics advisers. We do in our Canadian operations, a lot of what we do benefits from from the USMCA, you know, where where we sit and where where our equipment qualifies under those agreements. So all that to say we've we've been able to manage most of the impact and and what we what we haven't I think as Andrew said, it's really not a material headwind for us.

Cherilyn Radbourne
Managing Director - Equity Research at TD Securities

That's all for me. Thank you.

Ryan McLeod
Ryan McLeod
Chief Financial Officer at ATS

Thank you.

Operator

And that and that concludes our question and answer session. I will now turn the call back over to mister Heider for closing remarks.

Andrew Hider
Andrew Hider
CEO at ATS

Thank you, operator, and thank you, everyone, for joining us today. I look forward to speaking to you on our q one call in August. Stay stay safe, and goodbye for now.

Operator

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

Executives
    • David Galison
      David Galison
      Head of Investor Relations
    • Andrew Hider
      Andrew Hider
      CEO
    • Ryan McLeod
      Ryan McLeod
      Chief Financial Officer
Analysts
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Key Takeaways

  • In Q4, ATS achieved third-highest bookings in company history of $863 million (up 9% YoY) and set a full-year record with $3.3 billion in order bookings, driving a backlog of $2.1 billion.
  • Adjusted revenues for Q4 were $721 million, down 9% YoY, and full-year revenues declined 12%, primarily due to lower EV-related revenues.
  • ATS reached a negotiated EV settlement for USD 134.75 million (CAD 194 million), yielding an after-tax benefit of CAD 129 million and reducing net-debt-to-EBITDA leverage by 0.5x.
  • The Life Sciences segment ended Q4 with a $1.2 billion backlog, bolstered by wins in auto-injectors, radiopharma, wearables and pharmacy automation, supporting continued market leadership.
  • While geopolitical and trade tensions pose uncertainty, ATS has not observed material customer behavior changes to date and is optimizing its global supply chain to mitigate potential risks.
AI Generated. May Contain Errors.
Earnings Conference Call
ATS Q4 2025
00:00 / 00:00

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