ATS Q1 Earnings Call Highlights

Key Points

• ATS reported a weaker fiscal Q1: Adjusted revenue fell 5.2% year over year to CAD 698 million, adjusted operating earnings declined 13.4% to CAD 68.1 million, and bookings dropped 5.3% to CAD 656 million. Backlog stood at approximately CAD 1.9 billion.
• An 18-month fixed-cost transformation program aims to generate CAD 60 million–CAD 70 million in annualized savings, including about CAD 20 million from initial European facility consolidation. Management expects the program to contribute roughly 250 basis points of margin improvement and help ATS reach or exceed its 15% operating-margin target.
• Radiopharmaceuticals and energy remain key growth drivers, while quarterly results face volatility from long-cycle project timing. ATS expects second-quarter revenue of CAD 660 million–CAD 700 million and anticipates stronger margins in the second half of fiscal 2027 as backlog converts and cost actions take effect.

ATS NYSE: ATS reported lower fiscal first-quarter revenue and operating earnings as it navigated a reduced opening backlog, planned declines in transportation-related work and timing shifts in large customer awards. Management said it is launching an 18-month fixed-cost transformation program intended to support its longer-term goal of reaching—and potentially exceeding—a 15% operating margin.

For the first quarter of fiscal 2027, adjusted revenue declined 5.2% year over year to CAD 698 million. Adjusted earnings from operations fell 13.4% to CAD 68.1 million, while adjusted earnings per share were CAD 0.35. The company said the lower earnings primarily reflected reduced revenue, with benefits from cost actions still to come.

Order bookings totaled CAD 656 million, down 5.3% from the prior-year quarter, mainly because the comparison period included large nuclear project awards. ATS ended the quarter with approximately CAD 1.9 billion in backlog.

Fixed-cost program targets margin expansion

Chief Executive Officer Doug Wright said he completed a portfolio review and site assessments across the business after joining ATS, identifying opportunities to simplify operations, improve efficiency and raise returns on invested capital.

The company has initiated an 18-month Fixed-Cost Transformation Program focused on reducing facility overhead, indirect expenses and SG&A costs. The initial phase centers on Europe, where ATS identified excess capacity and operating infrastructure that it said was not generating returns consistent with its requirements.

ATS plans to consolidate certain European facilities and transfer selected technical capabilities to other company locations with available capacity. Wright said the first European phase is expected to produce annualized savings of about CAD 20 million, representing roughly 30% of the savings opportunity anticipated from the overall fixed-cost program.

During the analyst question-and-answer session, Wright indicated that the broader program implies approximately CAD 60 million to CAD 70 million of potential annualized savings. He said the initiatives would be “materially complete” within 18 months, though the full savings run rate would accrue over a longer period.

Management said roughly half of the improvement needed to reach the company’s 15% operating-margin target is expected to come from the fixed-cost program. The remaining improvement is expected from higher-margin aftermarket services, commercial discipline, innovation and wider application of ATS’s business-management tools.

Wright told analysts that the transformation is intended to create a more flexible cost structure without limiting investment in growth areas such as radiopharmaceuticals and nuclear energy.

• ATS expects the fixed-cost initiative to reduce facility overhead and indirect SG&A expenses.
• The company said its European consolidation is the first phase of a companywide review.
• Management expects restructuring and reorganization-related charges through the rest of fiscal 2027 as actions are completed and the broader program begins.

Restructuring costs and margin trends

Interim Chief Financial Officer Anne Cybulski said ATS incurred CAD 5.7 million of restructuring costs in the first quarter, compared with an expected CAD 10 million to CAD 15 million. The company expects to complete the initial actions during the second and third quarters as it works through workforce and regional requirements.

ATS also recorded CAD 21.5 million of non-cash reorganization-related charges, primarily asset write-downs involving assets the company no longer considers strategic. The company adjusted these charges as non-recurring items.

Adjusted gross margin was 30% of adjusted revenue, up 18 basis points from the prior-year quarter. Cybulski attributed the increase primarily to higher-margin after-sales service revenue. Service-related revenue grew 11% year over year across the company.

Wright said ATS believes it can eventually operate above its stated 15% margin target. In response to an analyst question, he said the fixed-cost transformation program represents approximately 250 basis points of potential margin improvement over time, with the remainder of a roughly 500-basis-point path expected from services and other operating improvements. Cybulski noted ATS generated an operating margin of about 10.6% last year.

Radiopharma and energy remain key growth areas

Management said long-term demand remains healthy in ATS’s selected end markets despite quarterly variability in larger project awards. Life sciences, food and beverage, and energy accounted for more than 80% of the company’s backlog at quarter-end.

In life sciences, ATS reported a trailing 12-month book-to-bill ratio of about 1.1 times excluding GLP-1-related activity. Wright said this was driven by strength in radiopharmaceuticals, which he described as the fastest-growing portion of the company’s life sciences business.

Radiopharma backlog is now twice as large as ATS’s GLP-1 backlog, Wright said. He cited growing use of therapeutic applications, investment in isotope production and a move toward more decentralized manufacturing. ATS highlighted its work with TerraPower Isotopes and said its containment, automation and lifecycle-support capabilities position it to participate in multiple stages of production-capacity buildouts.

Management also described opportunities in automated visual inspection, lab automation, contact lenses and wearable devices. In food and beverage, the company said its opportunity funnel remains strong despite lower orders in some markets following elevated investment in recent years.

In energy, ATS cited energy security, infrastructure modernization and data-center-related power demand as drivers. Wright said ATS is engaged with reactor technology companies in Canada and the U.S. on early engineering, system design and prototype equipment for small modular reactors and next-generation large-reactor programs. The company said its portion of a single nuclear reactor build could generate CAD 50 million to CAD 150 million in revenue depending on the application.

Outlook and balance sheet

ATS expects second-quarter revenue of CAD 660 million to CAD 700 million, based on backlog conversion and anticipated orders that will be booked and billed during the period. The company said it expects margins to strengthen in the second half of fiscal 2027 as backlog converts and cost actions begin to take effect.

Wright said modest organic revenue growth for the full year remains achievable, but will depend on the timing of larger customer awards and the pace at which orders convert in the second half. He said radiopharma bookings were strong in the first quarter while nuclear bookings were relatively weak, reflecting the uneven timing inherent in long-cycle markets.

Cash used in operating activities was CAD 10 million during the quarter, which Cybulski attributed mainly to billing and collections timing on larger programs. Non-cash working capital represented 14.3% of revenue, within ATS’s long-term target of 15% or less.

The company invested CAD 15.6 million in capital expenditures and intangible assets during the quarter and maintained its fiscal 2027 investment expectation of CAD 70 million to CAD 90 million. Net debt to adjusted EBITDA was 2.9 times at quarter-end, within ATS’s targeted range of two to three times.

Management said its acquisition pipeline remains active and that it retains the flexibility to pursue strategically aligned opportunities while applying its return-on-investment framework. Wright said no additional business dispositions are currently planned, though the company regularly reviews portfolio performance.

About ATS (NYSE:ATS)

ATS Corporation 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.

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