ATS Q1 2027 Earnings Report

ATS EPS Results

• Actual EPS: $0.25
• Consensus EPS: $0.28
• Beat/Miss: Missed by -$0.03
• One Year Ago EPS: $0.41

ATS Revenue Results

• Actual Revenue: $488.38 million
• Expected Revenue: $509.72 million
• Beat/Miss: Missed by -$21.34 million
• YoY Revenue Growth: -5.80%

ATS Announcement Details

• Quarter: Q1 2027
• Date: 8/6/2026
• Time: Before Market Opens
• Conference Call Date: Thursday, August 6, 2026
• Conference Call Time: 8:30AM ET

ATS (NYSE:ATS) (NYSE: ATS) is a Canada-based global provider of automation and energy solutions. Headquartered in Cambridge, Ontario, the company specializes in the design, engineering and manufacturing of custom automation and test systems, as well as fluid handling and control products. Since its founding in 1978, ATS has focused on delivering integrated hardware and software solutions that help original equipment manufacturers (OEMs) improve efficiency, quality and throughput across a range of industries.

Through its Automation segment, ATS develops bespoke assembly and testing platforms for sectors such as life sciences, consumer electronics, automotive and industrial equipment. These platforms often feature robotics, vision inspection, precision motion control and advanced data analytics to support complex manufacturing processes. The company’s Flow segment offers metering, pumping and thermal solutions used in medical device sterilization, pharmaceutical production, water treatment and other critical applications where precise fluid measurement and control are paramount.

ATS operates a network of engineering and manufacturing facilities across North America, Europe and Asia, enabling it to serve a diverse customer base with both regional responsiveness and global scale. The company has grown through a combination of organic expansion and targeted acquisitions, continually investing in R&D to advance automation technologies and address evolving market demands. ATS also provides after-market services, including remote monitoring, maintenance and software updates, to ensure long-term system performance and reliability.

ATS Q1 2027 Earnings Call Transcript

Key Takeaways

• Negative Sentiment: Q1 performance declined: Adjusted revenue fell 5.2% year over year to CAD 698 million, while adjusted earnings from operations declined 13.4% to CAD 68.1 million, reflecting a lower opening backlog, project timing, and reduced transportation activity.
• Negative Sentiment: Near-term execution remains dependent on a second-half recovery. ATS expects Q2 revenue of CAD 660 million–CAD 700 million and said achieving modest fiscal 2027 organic growth will require stronger order rates and the conversion of larger awards in the back half of the year.
• Positive Sentiment: Cost transformation targets significant margin expansion. The 18-month program is expected to generate approximately CAD 20 million in annualized savings from its initial European phase, representing about 30% of the anticipated overall opportunity; management estimates the program could contribute roughly 250 basis points of margin improvement over time.
• Positive Sentiment: Radiopharmaceuticals, energy, and services remain key growth drivers. Life sciences book-to-bill excluding GLP-1 activity was approximately 1.1 times, radiopharma backlog has become highly material, energy demand is supported by nuclear and data-center power investment, and service revenue grew 11% year over year.
• Neutral Sentiment: Management maintained financial flexibility while pursuing its strategy. Backlog was approximately CAD 1.9 billion, leverage ended the quarter at 2.9 times net debt to adjusted EBITDA within the targeted range, and the acquisition pipeline remains active, although operating cash flow was negative CAD 10 million due to billing and collection timing.

Presentation

[Operator]

Welcome to the ATS Corporation Q1 conference call and webcast. This call is being recorded on August 6th, 2026 at 8:30 A.M. Eastern Time. Following the presentation, we will conduct a question and answer session. I'd now like to turn the call over to David Ocampo, Head of Investor Relations at ATS.

[David Ocampo, Head of Investor Relations at ATS]

Thank you, operator, and good morning, everyone. On the call today are Doug Wright, Chief Executive Officer, and Anne Cybulski, Interim 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.

[David Ocampo, Head of Investor Relations at ATS]

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 in slide three of the slide deck. With that, it's my pleasure to turn the call over to Doug. Doug, over to you.

[Doug Wright, CEO at ATS]

Thank you, David, and good morning, everyone. Today, we reported Q1 results for fiscal 2027. Before discussing the quarter, I want to provide an update on conclusions from my portfolio review, the long-term demand profile in our chosen end markets, and our path to margin expansion. Since joining ATS, I've completed a comprehensive portfolio review and site assessments across the organization.

[Doug Wright, CEO at ATS]

This process gave me a clear view of both the strengths of the portfolio and the opportunities ahead, and reinforced my confidence in the quality and commitment of our people, the depth of our technical expertise, and the strength of our customer relationships.

[Doug Wright, CEO at ATS]

I was particularly impressed by the importance of our work our teams do every day. They solve complex scientific and manufacturing problems, help improve patient outcomes, support safe and high-quality food production, and contribute to energy security.

[Doug Wright, CEO at ATS]

I am confident in the growth profile and the underlying markets in which we solve such problems and have such impact. Across all of our solutions and end markets, artificial intelligence is creating opportunities for ATS, both as a demand driver and as a capability that we are uniquely able to harness in our solutions because of our deep domain expertise. My overall optimism is reflected in positive outcomes across several areas of the business.

[Doug Wright, CEO at ATS]

In life sciences, the trailing 12-month book to bill, excluding GLP-1-related activity, was approximately 1.1x, driven by strength in radiopharmaceuticals. We also delivered 11% year-over-year growth in service-related revenues across the company. I have even more conviction today than I did in coming to ATS on the opportunities this company has in the markets in which we compete.

[Doug Wright, CEO at ATS]

It is this conviction that tells me that over time, we can operate above our stated operating margin target of 15% while continuing strong secular top-line growth. What will turn this conviction into performance are the frameworks that we are now applying across the business.

[Doug Wright, CEO at ATS]

First, through the application of a disciplined cash return on investment framework, we expect to achieve approximately half of the margin improvement required to achieve our 15% target, primarily through a Fixed-Cost Transformation Program.

[Doug Wright, CEO at ATS]

Second, through growth in higher-margin aftermarket services, stronger commercial discipline, and innovation and improved application of our ABM tools, we expect to deliver the remainder of the improvement needed to achieve and exceed our 15% target.

[Doug Wright, CEO at ATS]

On Fixed-Cost Transformation, we've initiated an 18-month program to simplify our operations, improve efficiency, and strengthen the foundation for long-term profitable growth and shareholder returns.

[Doug Wright, CEO at ATS]

The program will include reductions in facility overhead, indirect expenses in SG&A. The first phase focuses on Europe, where our review identified excess capacity and operating infrastructure that are not generating returns consistent with our requirements.

[Doug Wright, CEO at ATS]

We are consolidating certain facilities and transferring select technical capabilities to other ATS locations, where existing capacity and capabilities can support customer requirements more efficiently.

[Doug Wright, CEO at ATS]

Given the nature of these actions, the implementation and realization of benefits are expected to occur over several quarters. We estimate the initial phase of the European Fixed-Cost Transformation Program to generate annualized savings in the range of CAD 20 million, which is approximately 30% of the savings opportunities we anticipate from the overall Fixed-Cost Transformation Program.

[Doug Wright, CEO at ATS]

On the broader transformation program, we will provide updates on the expected cost out opportunity as these are finalized, along with the cost of the entire program.

[Doug Wright, CEO at ATS]

This program, together with our ABM, expansion of our aftermarket services business, and our focus on regulated markets, is intended to make ATS into an even more attractive company, capable of driving sustained earnings power over time. Now over to Q1. On near-term performance, Anne will discuss the quarter results in more detail in her prepared remarks.

[Doug Wright, CEO at ATS]

In brief, Q1 adjusted revenues were down 5% versus last year, reflecting a lower opening order backlog, the timing of project execution, and a planned reduction in large-scale automotive work. Despite this, we continue to see healthy levels of customer engagement across our markets, particularly in radiopharma.

[Doug Wright, CEO at ATS]

Against this backdrop, profitability in the quarter also reflected the lower revenue base. On profitability, adjusted earnings from operations were CAD 68 million, down 13% compared with Q1 last year.

[Doug Wright, CEO at ATS]

Turning to our end markets, we entered the Q1 with approximately CAD 1.9 billion in order backlog. Within life sciences, our opportunity funnel is active and well-diversified across radiopharma, pharmaceuticals, and medical device applications.

[Doug Wright, CEO at ATS]

Radiopharma remains an attractive growth opportunity supported by increasing adoption of therapeutic applications, ongoing investment in isotope production, and a shift toward more decentralized manufacturing to support timely patient access to treatment.

[Doug Wright, CEO at ATS]

As programs advance toward commercialization, we continue to observe broader market activity aimed at securing capacity, enhancing supply chain resilience, and supporting reliable operations in highly regulated environments.

[Doug Wright, CEO at ATS]

Our work with TerraPower Isotopes reflects this investment as customers expand isotope production capacity to support future therapeutic demand. Our differentiated capabilities in containment systems, automation, and lifecycle support position us to participate in multiple phases of this capacity build-out.

[Doug Wright, CEO at ATS]

Beyond Radiopharma, the life sciences funnel includes opportunities in automated visual inspection, lab automation, contact lenses, and wearable devices. In food and beverage, our funnel remains strong despite lower order activity in certain markets, following elevated investment levels in recent years.

[Doug Wright, CEO at ATS]

We continue to see opportunities across core and adjacent end markets, including fresh food processing, secondary processing, and packaging applications. Equipment replacement requirements may also support investment activity over time. In energy, our funnel remains strong, driven by industry investment in energy security, infrastructure modernization, and new power generation capacity to support data center needs.

[Doug Wright, CEO at ATS]

Within nuclear, ATS has a strong track record supporting CANDU reactor refurbishment and life extension programs. Looking ahead, our opportunity set is broadening. In Canada and the U.S., we are engaged with reactor technology companies in early engineering, systems design, and prototype equipment development for small modular reactors and next-generation large reactor programs.

[Doug Wright, CEO at ATS]

For reference, on a single nuclear reactor build, our portion of the project may represent a low single-digit percentage of the customer's total CapEx. For us, this could represent revenue of CAD 50 million to CAD 150 million based on the application. Within industrial and consumer, funnel activity remains stable, with opportunities across warehouse and packaging systems and specialized industrial applications.

[Doug Wright, CEO at ATS]

On capital allocation, leverage remains within our target range, and our acquisition funnel remains active. Over the past 12 months, we have significantly strengthened our balance sheet, providing greater flexibility as we evaluate opportunities. We remain patient and disciplined, focused on opportunities that are strategically aligned and capable of creating meaningful shareholder value.

[Doug Wright, CEO at ATS]

We will remain selective, but when opportunities align with our strategic priorities and meet our return requirements, we have the flexibility to pursue them while remaining disciplined stewards of capital.

[Doug Wright, CEO at ATS]

Before I summarize the opportunity I have in front of us, I will turn the call over to Anne for her financial report. Anne, over to you.

[Anne Cybulski, Interim CFO at ATS]

Thank you, Doug, and good morning, everyone. Before turning to our operating results, I'll provide some additional context. We are driving improvements to our costs through our previously announced restructuring plan, and those actions are underway. In addition, we plan to take structural costs out of the business as part of our Fixed-Cost Transformation Program. In the near term, revenue mix and volume influence our reported operating margin.

[Anne Cybulski, Interim CFO at ATS]

However, we made some progress during the quarter. For example, in Q1, adjusted gross margin improved both sequentially and year-over-year, which we see as early evidence that some of our focused actions are working, particularly on aftermarket services. In Q1, we incurred restructuring costs of CAD 5.7 million against a Q1 expected spend of CAD 10 million to CAD 15 million.

[Anne Cybulski, Interim CFO at ATS]

We expect to complete this initial set of actions in the Q2 and Q3 as we continue to work through workforce and regional requirements. We also completed other reorganization-related actions in the quarter. These actions resulted in CAD 21.5 million of non-cash charges in the quarter, primarily write-downs of assets that are no longer strategic going forward. We have adjusted for these items as non-recurring.

[Anne Cybulski, Interim CFO at ATS]

We expect further restructuring and reorganization-related charges through the balance of the year to complete our previously disclosed Q1 actions, any margin protection actions warranted by market conditions, and as we start to execute the broader Fixed-Cost Transformation Program that Doug described. We will size those costs as the plans are finalized.

[Anne Cybulski, Interim CFO at ATS]

As Doug noted, about half of our path to 15% operating margins will be closed through our Fixed-Cost Transformation Program, and the remainder through our focus on margin-accretive aftermarket services, stronger commercial discipline, innovation, and improved application of our ABM tools.

[Anne Cybulski, Interim CFO at ATS]

The benefits are expected to build progressively as we implement the program actions over approximately 18 months, and we will report our progress. Taken together, these actions will change our cost structure, not just our costs this year. The opportunity to fundamentally shift the way we manage our cost base underpins our confidence in scalable earnings growth.

[Anne Cybulski, Interim CFO at ATS]

With that, I'll turn to our operating results for the quarter. Order bookings were CAD 656 million, down 5.3% from Q1 last year, reflecting large nuclear project awards in the prior year period. Timing also played a role, with some anticipated Q1 orders moving into future periods. Bookings vary quarter to quarter.

[Anne Cybulski, Interim CFO at ATS]

To reiterate, our view of mid to longer term underlying demand has not changed, and our funnel remains healthy across our chosen markets. Adjusted revenues for the Q1 were CAD 698 million, down 5.2% compared to last year, reflecting a lower opening order backlog and the planned reduction in transportation-related activity, partially offset by revenue growth in energy and services. Moving to earnings.

[Anne Cybulski, Interim CFO at ATS]

Q1 adjusted earnings from operations were CAD 68.1 million, down 13.4% from Q1 last year, primarily on lower revenues, with the benefit of our cost actions still ahead of us. Growth margin for Q1 was 30% of adjusted revenues, an 18 basis point increase on Q1 last year, primarily on higher margin after-sales service revenues.

[Anne Cybulski, Interim CFO at ATS]

On SG&A, excluding adjusting items, expenses in the Q1 totaled CAD 136.6 million, slightly higher than last year, largely on foreign exchange translation.

[Anne Cybulski, Interim CFO at ATS]

Excluding the mark-to-market impact related to changes in our share price, stock-based compensation expense was CAD 4.9 million in Q1, and we continue to expect normalized stock-based comp expense of approximately CAD 5 million per quarter. Adjusted earnings per share for the quarter was CAD 0.35. Moving to our outlook. We closed the quarter with an order backlog of approximately CAD 1.9 billion.

[Anne Cybulski, Interim CFO at ATS]

On a combined basis, life sciences, food and beverage, and energy represented more than 80% of our total backlog, supporting visibility across several of our more highly regulated markets.

[Anne Cybulski, Interim CFO at ATS]

Based on the expected conversion of existing order backlog, together with revenues from orders anticipated to be booked and billed within the period, we expect Q2 revenues to be in the range of CAD 660 million-CAD 700 million. As a reminder, this assessment is updated every quarter.

[Anne Cybulski, Interim CFO at ATS]

Looking across the balance of fiscal 2027, we expect margins to strengthen through the H2 as backlog converts and our cost actions take effect. The macroeconomic environment remains fluid and we continue to monitor trade, tariffs, and geopolitical developments. To date, these have not had a material impact on our business.

[Anne Cybulski, Interim CFO at ATS]

Our global footprint and sourcing network give us the flexibility to manage these dynamics. Moving to the balance sheet. In Q1, cash flows used in operating activities were CAD 10 million.

[Anne Cybulski, Interim CFO at ATS]

This was mainly related to timing of billing and collections on larger programs, and we expect improvement going forward. Our non-cash working capital as a percentage of revenues was 14.3%. This measure can fluctuate between quarters, but we do expect to remain within our long-term target of 15% of revenues or less.

[Anne Cybulski, Interim CFO at ATS]

Working capital discipline, efficient asset utilization, and cash generation remain a clear focus, supported by the internal frameworks we are deploying across the business. During the quarter, we invested CAD 15.6 million in CapEx and intangible assets, including technology infrastructure and internal development initiatives.

[Anne Cybulski, Interim CFO at ATS]

For fiscal 2027, we continue to expect our CapEx and intangible investment to be between CAD 70 million and CAD 90 million. On leverage, our net debt to adjusted EBITDA ratio ended Q1 at 2.9x. We do expect to operate within our targeted range of 2 to 3x through fiscal 2027.

[Anne Cybulski, Interim CFO at ATS]

As previously noted, we may temporarily exceed this range for capital deployment opportunities that meet our disciplined return criteria and support a clear path back to our target leverage range within an acceptable timeframe. In summary, we are advancing the previously disclosed restructuring actions initiated in Q1 and the broader transformation program announced today.

[Anne Cybulski, Interim CFO at ATS]

These initiatives are intended to reduce fixed costs and SG&A, consolidate our footprint, improve capacity utilization, and increase capital efficiency across the organization with a clear focus on cash return on investment.

[Anne Cybulski, Interim CFO at ATS]

As a result, we expect a structurally lower cost base and stronger cash generation over time, positioning ATS for scalable earnings growth as volumes improve. That gives us confidence in our ability to create long-term shareholder value and returns. Before we go to Q&A, I'll pass the call back to Doug to conclude. Doug?

[Doug Wright, CEO at ATS]

Thanks, Anne. My conviction in ATS is stronger today than when I joined the company. We participate in attractive markets with compelling long-term growth drivers. That, together with what I have observed across the organization, reinforces my belief that we can, over time, operate above our stated operating margin target of 15%.

[Doug Wright, CEO at ATS]

Through a focus on cash return on investment, we have the tools to address our fixed cost structure and improve returns. Through the ATS business model, we have the tools to improve operational performance and strengthen execution across the organization.

[Doug Wright, CEO at ATS]

We have a clear plan, now it's about execution, and I am confident in our ability to translate that into improved performance and meaningful value creation. We will open the call to questions from our analysts. Operator, can you please provide instructions? Thank you.

[Operator]

Thank you. We will now begin the question and answer session. In order to ask a question, press star then the number one on your telephone keypad. To withdraw your question, simply press star one again. Your first question comes from the line of Sabahat Khan of RBC Capital Markets. Your line is open.

[Patty Blue, Analyst at RBC Capital Markets]

Hi, good morning, guys. This is Patty on the line for Sabahat this morning. Just maybe starting off, looking at kind of your outlook for the rest of FY 2027. You also mentioned some kind of deal or revenue slippage kind of into future quarters calling out might be dependent on the pickup in order activity through the rest of the year

[Patty Blue, Analyst at RBC Capital Markets]

To kind of deliver on some of your kind of expectations for modest growth this year. Just maybe if you could give a bit more color on that. I think bookings in FY 2026 were down, call it 10%. What would you think You would need to comp maybe through the rest of the year to deliver on that.

[Patty Blue, Analyst at RBC Capital Markets]

If you could also give some incremental color on kind of the nature of that slippage you called out as well, that'd be, I think, really helpful.

[Doug Wright, CEO at ATS]

Okay. Well, thank you, and good morning. We believe the modest or organic revenue growth remains achievable, it will depend on the timing of larger customer awards and the pace at which those orders convert during the H2. The markets that we serve are very attractive,

[Doug Wright, CEO at ATS]

They do have some level of lumpiness in them by the virtue of the fact that in some cases we're dealing with new science or major regulatory criteria that are driving things like nuclear and radiopharma. They're inherently lumpy over the short cycle, over the long term, they're very healthy.

[Doug Wright, CEO at ATS]

As an example, in the most recent quarter, we were very strong in radiopharma, and we had relatively weak bookings in nuclear, that doesn't mean that Both of those markets are still very attractive long-term growers.

[Doug Wright, CEO at ATS]

In the back half of the year, we would expect some of our lumpy markets to do a bit better than they did in the most recent quarter. I think it's just these long cycle markets require us to have a bit of patience with the velocity of the actual backlog, because that's just the nature of the markets that we're in.

[Doug Wright, CEO at ATS]

Clearly, because we started off the fiscal year slow, it'll depend on us having strong recovery and order rates in the back half to be able to deliver on our full year guide. As we evolve in subsequent quarters, we'll continue to update you.

[Patty Blue, Analyst at RBC Capital Markets]

All right. Great. Thanks. That's helpful. Maybe just on the Fixed-Cost Transformation Program, there's still about, you've identified the European consolidation, the footprint consolidation there, CAD 20 million, so kind of implies a full cost savings about CAD 60 million-CAD 70 million.

[Patty Blue, Analyst at RBC Capital Markets]

Have you evaluated, Doug, basically the full business or do you see maybe there's room for more opportunity there as you kind of go through it? Basically, how would you see that evolving, and when maybe could we get more details on the next phases of the program?

[Doug Wright, CEO at ATS]

Sure. First of all, the Fixed-Cost Transformation Program is a fully comprehensive view of our, or will include a view of all of our manufacturing facilities, where we have indirect cost in SG&A. While we're highlighting the European item, I've been to all of our facilities in my process, so we have a comprehensive view there. These will be meaningful changes to our cost structure, I think you've highlighted sort of what the full quantum of the opportunity is.

[Doug Wright, CEO at ATS]

I would say that the run rate that we establish through these programs will be highly accretive to our margin growth rate. The balancing act is that while we are going to be very aggressive in driving what I would consider to be a good set of productivity actions, we are also part of some very, very fast-growing markets that require us to invest.

[Doug Wright, CEO at ATS]

We certainly have a lot of, if you just look at the math, there's certainly a lot of opportunity at a gross level, we also have to be cognizant of how nuclear is evolving and how radiopharma is evolving, we need to make sure that we continue to invest in those.

[Doug Wright, CEO at ATS]

We have what we believe is a fairly aggressive but balanced approach to our fixed cost action, respecting the fact that we still expect ATS to be a long-term growth company with some very important growth markets.

[Doug Wright, CEO at ATS]

It's a balanced approach, it is very tactical and very detailed in terms of how we are going after underutilization and overcapacity. Frankly, some SG&A that has built up that needs to be right-sized. We also have to continue to invest in the long-term drivers of the company's future.

[Anne Cybulski, Interim CFO at ATS]

The one thing that I would add to what Doug said is the way we've assessed the portfolio through his first 6+ months on the job is really through a set of very pragmatic, data-driven frameworks that allow us to identify where these opportunities exist. We will continue to deploy those frameworks, even as we're executing on this transformation plan.

[Anne Cybulski, Interim CFO at ATS]

We are fully aware of where we've tracked from a fixed cost perspective relative to our top line over the last number of years. That's something that we are paying attention to, and as Doug said, will be included in the plan as we execute on it.

[Patty Blue, Analyst at RBC Capital Markets]

All right. Thanks, guys. It's very helpful. Have a great day.

[Doug Wright, CEO at ATS]

You're welcome.

[Operator]

Your next question comes from the line of Cherilyn Radbourne with TD Cowen. Please ask your question.

[Cherilyn Radbourne, Analyst at TD Cowen]

Thanks very much. Good morning. Doug, I guess I'm a little surprised that you see a major cost transformation plan as necessary, and I'm curious whether cost reduction was a large part of your initial thesis when you joined ATS or something that you uncovered on further analysis once you got inside.

[Doug Wright, CEO at ATS]

Well, good morning, Cherilyn. Good to hear from you. I would say that as I joined the company, the board was aware that we had some areas of the business that we needed to manage through some restructuring, obviously the transportation portion that we talked about last quarter. There was some, I would say, pretty well-known and discussed cost actions that needed to be taken.

[Doug Wright, CEO at ATS]

As I've gone through my site visits, I've been on site with all of our significant companies around the world, doing a full-day strategy review and a diagnostic, and I've applied a framework that we've developed on terms of how we look at cash return on investment, how we look at how the portfolio is performing at a macro level as well as at a division level. We simply have identified that there's more opportunity to be more productive.

[Doug Wright, CEO at ATS]

It's a fairly simple framework. What it did do was it identified that there are portions of the business that have invested in capacity that we don't need today to support our growth profile. I'd say it's a little bit of both, Cherilyn. I think I knew when coming in that there was opportunity, that the board had talked to me as I was coming onto the board. As I did my diligence in visiting all the sites, this is not a paperwork exercise.

[Doug Wright, CEO at ATS]

This was done walking through factories and walking through our operations with my team, Anne and I built this framework out that allowed us to have visibility to where there was opportunity. We see significant savings opportunities simply by, I call it running the trains on time better.

[Cherilyn Radbourne, Analyst at TD Cowen]

Okay. That's helpful context for sure. Separately, acquisitions have obviously been part of the growth agenda at ATS for some time. How do you sort of protect the capacity to do them while you execute this transformation program?

[Doug Wright, CEO at ATS]

Well, Cherilyn, clearly, from a human capital or team standpoint, that's a very important question that I have to manage through. I would say that in the growing parts of our organization, they will remain very focused on both organic and inorganic activity. We have a pretty dynamic flywheel and process that we run. We have a dedicated committee of our board that we're always looking at opportunities for efficient deployment of capital in M&A.

[Doug Wright, CEO at ATS]

When there's a specific division that has a particular emphasis on substantial cost reduction activities, they have diminished capacity to take on more effort. We have to be balanced in how we approach certain aspects of the portfolio. The growing parts of the portfolio, there's been no change in appetite for M&A.

[Doug Wright, CEO at ATS]

I would say our cash return on investment framework. We use it for internal investments as well as for our M&A investments. It does set thresholds for how we look at the return on investment. It's a little bit more granular and detailed now with sort of the framework that I've put in place. It hasn't changed our appetite at all. We clearly have some areas that we have to balance the need to run the trains on time with buying new trains.

[Cherilyn Radbourne, Analyst at TD Cowen]

Thank you for the time.

[Doug Wright, CEO at ATS]

You're welcome.

[Operator]

As a reminder, if you wish to ask a question, please press star then the number one on your telephone keypad. The next question comes from the line of Michael Glen with Raymond James. Please go ahead.

[Michael Glen, Analyst at Raymond James]

Hey, good morning. Doug, I'm just hoping that maybe you can dig into the existing backlog and maybe give some insights into are you happy with the margin profile of the work in the embedded backlog? Should we think about a smaller backlog on this margin-optimized company in the future? What does the top line look like when you hit that 15% operating margin?

[Doug Wright, CEO at ATS]

Thank you, Michael. Good morning. I would say there's no correlation between our growth rate potential for the company and this higher margin profile. I don't believe at all that the actions that we're taking have any effect on our ability to create demand. In fact, I think it actually will help us because it will allow us to allocate capital more fulsomely to the businesses that have substantial growth in front of them.

[Doug Wright, CEO at ATS]

In terms of the margin profile and backlog, I wouldn't comment on that, but I would say there's no material difference in what we have in our current backlog versus existing run rates. This is, I think, something that I've spent a lot of time thinking through, Michael.

[Doug Wright, CEO at ATS]

I think the nature of ATS being exposed to really first-generation therapeutics and life sciences and the really, really dynamic changes that are happening in energy demand around the world simply will make us a little more volatile in our program awarding for these large projects.

[Doug Wright, CEO at ATS]

Some of these radiopharma projects are CAD 100 million projects, and some of these nuclear sites are, well, we've said today between CAD 50 million and CAD 150 million scale. There will be a certain amount of dynamics in our order rates, the way we report them.

[Doug Wright, CEO at ATS]

I think the long-term growth potential of the business is getting stronger because we're more focused on our life sciences and energy segment, and even our food business is identifying opportunities to grow faster through virtue of more food quality, and regulatory actions within food are also picking up. There's no correlation between our margin potential and scale.

[Doug Wright, CEO at ATS]

In fact, I could probably build a pretty reasonable argument for you that by investing more heavily in these nuclear is obviously an area where we have very specific differentiation and in radiopharma as well, where we're in a situation where we have some of the best technology in the world. I think our margin profile can actually get better, and we can continue to see significant growth.

[Anne Cybulski, Interim CFO at ATS]

Yeah. Michael, the only thing I would add to that is, when we talk about the Fixed-Cost Transformation Program and the scale and growth that we expect to continue to drive, as Doug described, we're really talking about creating flexibility in our cost structure in order to be able to operate efficiently within the context of those markets and the nature and dynamic of them, the way that they operate.

[Michael Glen, Analyst at Raymond James]

Okay. Can you give some insights into the 18-month period that you're referencing? Are you able to provide some insights into what should we think about margins exiting that period? Are we getting close to 15% at that point in time, or is 15% would come another 18 months after you're done the program?

[Doug Wright, CEO at ATS]

I would say, Michael, it would be somewhere in between those boundaries you've defined. Clearly the cost actions and the decisions to exit facilities, to right size the business, those will all be materially complete within this 18-month horizon.

[Doug Wright, CEO at ATS]

How they actually map into a particular reporting period, will there be some variation there? Clearly a majority of the Well, all of the actions that we've identified in this 18-month program will be activated by that time, of course, they take time to accrue in there.

[Doug Wright, CEO at ATS]

It would probably be somewhere in that horizon that you identified, somewhere 18 months+ would be fully absorbed. To be clear, there will be significant improvement in the 18-month horizon, but the full CAD 70+ million of savings, that clearly will be a run rate basis and then would accrue into that sort of second, third year.

[Anne Cybulski, Interim CFO at ATS]

Yeah, and just to clarify, Michael, as Doug just described, we're talking about the 18-month horizon relative to this Transformation Program, and then we also described where we expect the remainder of the gap to our 15% target to come from. We've tried to dimension it very clearly through the plan that we've laid out, as well as some of the things that we've already been talking about, including services and the ABM.

[Doug Wright, CEO at ATS]

Yeah. I think, Michael, the other perspective to have on this is that as an operator, I certainly have the capacity to drive more dramatic cost reduction in an 18-month horizon. Just looking at our numbers, you could see that for yourself. We are also investing in these new markets.

[Doug Wright, CEO at ATS]

There's a balancing act that we have to strike in terms of making ourselves more efficient where we need to, but also We will protect our investment zones because we're dealing with some markets that have the potential to transform ATS, and we want to make sure that we're in a position to benefit from that growth. There'll be a balancing act. Could we hit the target in 18 months? Probably, but we're also investing at the same time.

[Doug Wright, CEO at ATS]

That's kind of the, call it the balancing feature of the next couple of years for us.

[Michael Glen, Analyst at Raymond James]

I'll just ask one more. Are you expecting to make any dispositions or exiting any additional business lines apart from, say, transportation over the time frame?

[Doug Wright, CEO at ATS]

We have nothing on the agenda for you today. What I would tell you, Michael, is that our cash return on investment framework process constantly evaluates where elements of the portfolio. If you think about the mean cash return on investment for ATS, and you think about a broad portfolio of businesses, we're always looking at where those businesses sit.

[Doug Wright, CEO at ATS]

In fact, we review this with our board every quarter. I look at it every month. We're always looking at where our businesses are performing. In the event that we were to identify a business that we didn't think we had the appetite to invest further to drive improvement in creating that and a better return, then we would consider dispositioning. I'd say the process is there constantly. I do it at my level.

[Doug Wright, CEO at ATS]

Each of our groups and our division leaders have their own portfolio of product lines and smaller businesses. We're building this framework as a way to align ownership behavior with all of our portfolio investments.

[Doug Wright, CEO at ATS]

Therefore, if we were to identify an asset that was not performing and we didn't have the ability or didn't have the appetite to improve it, then we would consider it for disposition. I want you to be comfortable that we have a process for how we adjudicate your question, but there's nothing on the agenda at this moment that we're ready to act on.

[Michael Glen, Analyst at Raymond James]

Okay. Thank you.

[Doug Wright, CEO at ATS]

You're welcome.

[Operator]

Once again, as a reminder, to ask a question, press star then the number 1 on your telephone keypad. Your next question comes from the line of Justin Keywood with Stifel. Please go ahead.

[Justin Keywood, Analyst at Stifel]

Good morning. Thanks for taking my call. On the radiopharmaceutical strength mentioned, are we able to have some context as far as the subsegment % of sales, the book to bill, and how you see that segment going forward?

[Doug Wright, CEO at ATS]

I would say, first of all, it is the fastest-growing part of our life science business. The backlog is twice as material today as our GLP-1 backlog. It is quickly becoming a material part of our life sciences business. The science behind this is really exciting for our team. I mean, we're basically part of a new generation of oncology therapies.

[Doug Wright, CEO at ATS]

Aside from the human element of these exciting new therapies, from a business perspective, these are very, very complex manufacturing environments with a lot of safety, and you're dealing with radiological materials. These sites that our customers are building and that we're partnering with them are very substantial opportunities for ATS.

[Doug Wright, CEO at ATS]

We mentioned one partnership in our text today. There's a whole ecosystem of investment going into this market that we are uniquely positioned to support. These are material.

[Doug Wright, CEO at ATS]

I mean, the size of these facilities would be a triple-digit opportunity addressable market for a company like ATS.

[Justin Keywood, Analyst at Stifel]

Yeah. Thank you. Just on triple-digit addressable market, sorry, are you able to just clarify that a bit?

[Doug Wright, CEO at ATS]

Well, what I'm saying is these isotope facilities that you've probably read about in the news, they are fairly large sites, and they require a lot of ATS category of equipment. For a company like ATS, the addressable market per site would be in that ZIP code.

[Justin Keywood, Analyst at Stifel]

Okay. Thank you. Just circling back on the operating margin target of 15%, I'm not sure if I missed this, is it fair to assume that the base level today is 10%, suggestive of a 500 basis points margin expansion goal?

[Anne Cybulski, Interim CFO at ATS]

Well, last year, we were around 10.6%. Our long-term stated margin target is, EBIT target is 15%. As Doug said today, we believe that as we continue to transform and grow the operations and the business participating in these high-growth markets, that we have the opportunity to operate above that. Right now, we're targeting getting to that 15%.

[Doug Wright, CEO at ATS]

Yeah. Justin.

[Justin Keywood, Analyst at Stifel]

Thank you for the clarification.

[Doug Wright, CEO at ATS]

Yeah. Justin, just in terms of the Cost Transformation Program, just to help you with your modeling, consider it to be around a 250 basis point potential over time. 500 is a pretty good estimate, as you've already stated and Anne confirmed.

[Doug Wright, CEO at ATS]

When we say half, that's kind of the way we would model it from the balance would be other items, including the substantial growth we're having in our services business, which is accretive, as well as other ABM level improvements. Half from fixed cost, half from other. Within that other would be a mix toward aftermarket, which would be reasonably material, as well as the other pieces.

[Doug Wright, CEO at ATS]

As a number of you have asked us before, sort of help bridge the margin expansion deliverable, we're trying to be a little more fulsome here in giving you the little bit of the chunks of the math to help you understand the quantum that we're targeting.

[Justin Keywood, Analyst at Stifel]

Very helpful. Thank you for taking my questions.

[Doug Wright, CEO at ATS]

You're welcome.

[Anne Cybulski, Interim CFO at ATS]

Welcome.

[Operator]

There are no further questions on the line. I will now turn the call back over to Doug Wright for the closing remarks.

[Doug Wright, CEO at ATS]

Thank you, Operator, and thank you everyone for joining us today. We look forward to welcoming shareholders at our annual meeting later today and speaking with all of you again in our Q2 call in November. Have a good day.

[Operator]

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Participants

Executives

• David Ocampo, Head of Investor Relations
• Doug Wright, CEO
• Anne Cybulski, Interim CFO

Analysts

• Patty Blue, Analyst at RBC Capital Markets
• Cherilyn Radbourne, Analyst at TD Cowen
• Michael Glen, Analyst at Raymond James
• Justin Keywood, Analyst at Stifel