ATS Corp (ATS) 2021 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the ATS Automation Fourth Quarter Conference Call and Webcast. This call is being recorded on May 20, 2021, at 8:30 a.m. Eastern time. (Operator Instructions)

I'd now like to turn the call over to Shereen Zahawi, Director of Investor Relations at ATS. Please go ahead.

Thank you, operator, and good morning, everyone. Your main hosts today are Andrew Hider, Chief Executive Officer of ATS; and Ryan McLeod, Chief Financial Officer. For those who joined us by phone, our remarks are accompanied by a slide deck, which is available at atsautomation.com.

Before we begin, I am required to provide the following statement respecting forward-looking information, which is made on behalf of ATS and all its representatives on this call. You are cautioned that the oral statements made on this call will contain forward-looking information that involves risks and uncertainties, including those introduced by the COVID-19 pandemic. The actual results could differ materially from a conclusion, forecast or projection in the forward-looking information. Certain material factors or assumptions were applied in drawing the conclusion or making the forecast or projection, as reflected in the forward-looking information.

Additional information about the material factors that could cause actual results to differ materially from the conclusion, forecast or projection in the forward-looking information and the material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information are contained in ATS' filings with the Canadian provincial securities regulators.

Now it's my pleasure to turn the call over to Andrew.

Thank you, Shereen. Good morning, ladies and gentlemen, and thank you for joining us.

We are pleased to report another strong quarter for ATS, including record order bookings and backlog. After a challenging start to our fiscal year brought on by the COVID-19 pandemic, our business rebounded nicely over the balance of the year.

The fourth quarter marked the return to positive organic revenue growth, and we continue to drive margin expansion in line with our long-term plan. During the quarter, we also announced the successful completion of the tender offer to acquire CFT, a global supplier of automated processing and packaging equipment to the food and beverage industry. The transaction closed in late March, and our teams have started the integration work. We are excited to introduce a food technology platform at ATS and look forward to offering innovative solutions to meet our customers' needs.

Today, I will update you on business conditions, and then Ryan will provide his report. Starting with our financial value drivers. Q4 revenues were $400 million, up 4.7% from Q4 last year and up 8.2% sequentially driven by broad-based activity levels. Organically, revenue grew 5.4% in the quarter.

For the full year, our revenues of $1.43 billion were in line with last year's revenues.

Q4 order bookings were $463 million, up 30% from last year and up 6% sequentially. Bookings were strong across most segments with large customer awards in life sciences and transportation.

Bookings for the year were $1.6 billion, up 11% year-over-year driven by large awards in life sciences and consumer products.

Our adjusted EBIT margin for the quarter was 12.4%, representing over a 200 basis point margin expansion versus Q4 of last year and over 50 basis point margin expansion sequentially.

For fiscal 2021, our adjusted EBIT margin of 11.4% represented a 40 basis point margin expansion versus last year's margins.

Moving to our outlook. Our healthy backlog of over $1 billion provides us with a solid base of business and good revenue visibility. We are encouraged with the pace of vaccine rollouts in many of our global markets. However, for the time being, we continue to operate in a COVID-19 environment with the inefficiencies that it entails. Our teams have made meaningful progress adapting to this new normal, and we are pleased by recent order activity. We continue to closely monitor customer demand signals and are seeing activities pick up in some areas. By market, conditions in life sciences are positive with broad-based strength in medical devices, pharma and radiopharma.

During the quarter, we won a number of mandates related to COVID-19, demonstrating the strength of our life sciences franchise and helping in the global fight against the pandemic. This work represent around 34% of our life sciences bookings and 19% of our total bookings in Q4 and covered awards in point-of-care diagnostics, vaccine syringes and diagnostic kits. We are also seeing the return of more traditional, non-COVID-related opportunities in the funnel. Our focus on innovation and differentiated solutions is bearing fruit with new customer wins and higher share of wallet with existing accounts.

Life sciences represented 60% of our annual bookings, and we expect it'll be a strong market for ATS for years to come.

In EV, we're seeing activity levels improve with a number of traditional OEMs and newcomers recently announcing plans for electrical fleets. We continue to be focused on the right opportunities and won a large award in the quarter. ATS has a long track record and proven expertise in battery assembly and tests, and we look forward to supporting our customers' EV fleet goals.

In consumer, similar to last quarter, we saw strength in warehouse automation and food while cosmetics remain soft.

In energy, we continue to serve our customers in areas of refurbishment and decommissioning with strong execution and good line of sight to future opportunities in Canada and globally.

On aftersales services, order bookings showed sequential improvement, and revenues were up double digits versus last year and stable sequentially with strength across all market verticals. Given the ongoing COVID-19 travel restriction in many geographies, we continue to rely on our regional service networks and the use of digital support tools. We see additional opportunities to refine our aftermarket services to drive a better customer experience and are nearing completion on a digital commerce initiative to further enhance our digital value proposition.

To summarize our outlook, bookings were strong this quarter, and our funnel remains healthy. While the pandemic environment continues to introduce some timing and approval uncertainty around capital deployment by our customers, we are encouraged by the recent pickup in activity levels.

Moving to the ABM, our continuous improvement playbook. We are making progress by using virtual means to train and hold events. During the quarter, we held our annual President's Kaizen, which is a week-long event attended by our senior business leaders. We also launched our first global virtual ABM boot camp.

A few ABM highlights from the quarter. We held over 10 Kaizens across various ATS divisions. These events drove improvements in multiple areas, including sales, operations and customer service. One division in our life sciences group was able to achieve greater standardization of parts and components with a tenfold increase in the number of standard parts identified and a 10% increase in supplier rebates. The approach is being replicated at other life sciences divisions.

Our ATS products group was able to develop a process to reduce lead times from approximately 12 weeks to 8 weeks. The team identified efficiency opportunities in our procurement and production processes as well as scheduling and capacity planning. The team is on track to achieve the new lead time by July of this year.

Our industrial automation team hosted its first Kaizen with a customer designed to achieve a meaningful reduction in the project time lines. The event was a big success, resulting in a number of opportunities that ATS and the customer are jointly developing.

We launched our first virtual ABM boot camp, which runs over a 6-week period and combines self-paced learning with real-time discussions with ABM leaders. The first session wrapped up in April with over 50 participants and positive reception. The new format enables us to continue scaling the training and demonstrates how businesses across ATS are using the ABM to deliver tangible results.

Turning to innovation. We continue to prioritize investments in differentiated solutions that positively impact our customers. During the quarter, our Industrial Automation division applied the ABM principles to establish new processes to improve product innovation and drive agile product development. This resulted in the team filing several new patents related to growing areas of our business. In addition, teams across ATS are pursuing next-generation ideas in areas including linear motion technology, digital services and modular flexible manufacturing, just to name a few.

On M&A, acquisitions continue to be an important complement to ATS's organic growth. Late in the fourth quarter, we welcomed CFT to the ATS family. CFT serves as a platform for ATS in the food and beverage industry and joins ATS's other food business, MARCO, to comprise our food technology group. This group is headed by Jeremy Patten, an accomplished ATS veteran.

Subsequent to the quarter, we announced the acquisition of BioDot, which we expect to close in calendar Q2. BioDot expands our life sciences capabilities in precise, low-volume fluid dispensing and enhances our position in the point-of-care and clinical diagnostic lab end markets.

We will continue to cultivate and evaluate acquisition opportunities consistent with our proven strategy. Of course, timing of acquisitions will be variable, and our approach to deploying our balance sheet will be disciplined and strategic.

In summary, fourth quarter results highlighted the strength of our business and our ability to pivot and adapt operations to the current climate. Record booking activity reflected the alignment we have with our customers in providing best-in-class solutions. Going forward, our focus remains on sharpening our execution through the application of the ABM playbook to drive better performance. Our strong backlog provides good revenue visibility, while our healthy balance sheet enables us to act opportunistically when strategic prospects arise. We look forward to closing the BioDot acquisition and finding more avenues to create value for our customers and our shareholders.

Now I will turn the call over to Ryan. Ryan?

Thank you, Andrew, and good morning, ladies and gentlemen. This morning, I'll provide an overview of our Q4 operating results that feature continued growth in revenues and operating margins and record order bookings and backlog. I will then provide color on our balance sheet.

Starting with operating results. Our Q4 bookings were $463 million, up 30% compared to last year due primarily to organic growth. The increase reflected new orders in life sciences and transportation. Fourth quarter bookings included large orders related to COVID-19 point-of-care rapid testing as well as a large EV program win. Compared to Q3, order bookings were up 6%, reflecting improvements in transportation and continued strength in life sciences.

For the year, bookings of $1.6 billion were 11% higher than last year due to increases in life sciences and consumer. Organic growth was 7%, while acquired companies and foreign exchange provided uplift of 2 percentage. Our book-to-bill ratio was 1.14x.

Q4 organic revenue growth was 5.4% over last year primarily due to services and aftersales parts. Acquired companies added 20 basis points to our growth, while foreign exchange was a 90 basis point headwind compared to Q4 last year. Sequentially, revenues increased 8.2% from Q3, primarily reflecting the timing of project activities.

For the year, revenues of $1.43 billion were consistent with last year despite the impact of the pandemic, which was more pronounced in the first half of the year due to more stringent travel restrictions and reduced access to customer facilities. Organically, revenues decreased 3%, and this was offset by 2% growth from acquisitions and a 1% benefit from foreign exchange translation.

Our record Q4 ending backlog of $1.16 billion was 23% higher than last year's $942 million. Organic growth in backlog was 12.4% due to higher order bookings through the year, partially offset by foreign exchange translation, with the balance of the increase related to $166 million of acquired backlog from CFT. Life sciences represented 50% of our period-end order backlog with consumer representing 24%, up from 10% a year ago, primarily reflecting the addition of CFT. Looking forward, our revenue conversion for Q1 is estimated to be in the higher end of the 35% to 40% range of backlog.

While we're pleased with the strength and resiliency of our business, in the near term, COVID will continue to influence the timing of customer orders and services revenues.

Moving to margins. Q4 gross margin was 27.8%, up over 450 basis points from last year. Higher gross margin reflected improvements made in our cost structure through our reorganization and other efforts, improved program execution and increased service revenues. Cost recoveries of $2.1 million were also realized from Canadian Emergency Wage Subsidy.

Our teams have done an excellent job adapting to the current environment. Our operations have continued to overcome the challenges of operating with almost half of our workforce at home and the presence of extra health and safety measures in our facilities.

For the year, fiscal '21 gross margin was 26.9%, up 154 basis points from last year. Higher gross margins for fiscal '21 was due primarily to efficiency gains in our cost structure, improved program execution and $12.2 million of recoveries under the Canadian Emergency Wage Subsidy program. Cost structure and program execution improvements were partially offset by lower aftersales service revenues and other operational efficiencies -- inefficiencies related to COVID-19.

Moving to SG&A. Expenses were $2.5 million higher than Q4 last year. This year's costs included $8.1 million of acquisition-related amortization and $4.2 million of M&A transaction costs, which were partially offset by a $5.6 million adjustment to the continuing consideration related to the acquisition of MARCO.

Excluding comparable items in both periods, Q4's SG&A was $54.8 million, $4.4 million higher than last year, reflecting increased employee costs, partially offset by savings from the reorganization and other cost containment measures.

Fourth quarter stock compensation expense was $6.8 million compared to a recovery of $1 million last year.

Q4 adjusted earnings from operations were $49.5 million or 12.4% compared to $39.3 million or 10.3% last year. The increase in margin reflected efficiency gains made in our cost structure, improved program execution and higher aftersales service revenues.

Our effective tax rate was 9% in the quarter and 19% for the year. This largely reflected a $4.3 million nonrecurring recovery recorded from tax planning opportunities implemented in the fourth quarter. Excluding the nonrecurring recovery, the adjusted effective tax rate was 25% in Q4.

Adjusted EPS was $0.34 in the quarter, up 31% over last year. For the year, adjusted EPS was $1.07, up $0.01 from $1.06 last year. Our improved operating margins accounted for the increase.

Moving to the balance sheet. In Q4, we generated cash from operations of $39 million compared to cash generation of $9.7 million last year, primarily reflecting a reduction in working capital investment and higher profitability.

In fiscal '21, we generated cash from operations of $185 million, up from $20 million last year, reflecting improved profitability and lower investment in noncash working capital.

Our noncash working capital as a percentage of revenue was very low at 6% in Q4, down from 8.7% in Q3 and well within our target of maintaining working capital as a percentage of revenues below 15%. Timing of deposits and program milestones caused the decrease. While we're pleased with this result, we do expect our noncash working capital investment to increase to a more normal range of approximately 10% during fiscal '22.

Our cash collections remain strong, reflecting the strategic relationships we have with our customers.

We invested $13.1 million in CapEx and intangible assets in Q4 compared to $18.3 million last year. Higher investments last year related to the expansion of certain life sciences facilities.

In fiscal '21, CapEx was $31.6 million. Going forward, we expect to increase our CapEx investments in fiscal '22 as we add capacity to support growth and continue to invest in innovation. Overall, our CapEx budget for fiscal '22 is expected to be in the range of $50 million to $60 million.

We ended the quarter with good liquidity consisting of cash of $187 million and availability on our credit facilities of approximately $776 million.

From a leverage standpoint, year-end net debt-to-adjusted EBITDA ratio was 1.4:1, including CFT on a pro forma basis. Adjusting on a pro forma basis for the addition of BioDot, which we expect to close in calendar Q2, our leverage would be approximately 1.7:1. We have further room to deploy capital to pursue our strategies within our normal course target leverage range of up to 2 and 2.5x.

In Q4, we completed our offering of USD 350 million, 8-year 4.125% senior notes. We used a portion of the proceeds from the offering to fund the redemption of the 2023 USD 250 million, 6.5% notes. We recorded onetime finance costs of $9.1 million related to the redemption. Upon repayment of the 6.5% notes, we unwound our existing interest rate swaps and entered into new U.S.-euro interest rate swaps, resulting in an effective interest rate for the new senior notes of 3.63%.

In summary, our fourth quarter featured continued strong operating performance. Our teams have executed efficiently, ensuring customer needs are met while maintaining a safe working environment. The investments and improvements made in our business are driving growth, resiliency and margin expansion. The addition of CFT provides us with an exciting platform in the food technology space. And the coming addition of BioDot will provide us with new capabilities in life sciences. We have a record order backlog, a strong balance sheet and available liquidity that combine to provide ATS with a solid foundation to pursue our growth strategies.

Now we will open the call to questions from our analysts. Operator, can you please provide instructions? Thank you.

(Operator Instructions) Your first question comes from Cherilyn Radbourne from TD Securities.

I wanted to ask about the nice growth in services and parts that we saw again this quarter. Could you touch on the extent to which you think pent-up demand is contributing as things open up? Then if pent-up demand is contributing, how much more pent-up demand might there be out there?

Yes. So as we look at our services business, when we step back and look through the pandemic, a couple of things that we did to enable this business and the team is really aligned around. First, we really focused on our regional service network. And when we look at that network, it enabled us to continue to support and really drive solutions and enable our customers to continue to build their product.

Secondly, we launched digital tools. And we did that to support our customers, but additionally, to really enable this regional network to execute. So as an example, when you think about the U.K. and when the U.K. went on lockdown, we had a regional network built within that region that allowed us to continue to support customers regardless of end market. And we can do that because we had subject matter experts and we have the digital tools that enable them to quickly understand how to fix and really enable the process and production of products.

So overall, I would say we did a nice job pivoting early in the pandemic to enable us to be where we are today. And why do I say all that? Because to answer your question, we certainly are in line with last quarter, and we view that we're getting more and more back to normalized run for this business. And so we're pleased with the progress. We would view that we're in a normalized state. There are still challenges around travel and around ability to support if needed. That said, with our regional support network, we've been able to really overcome a lot of the obstacles within the space.

Okay. That's helpful. So you would say that this is more a normalized state rather than a catch-up of pent-up demand. Is that fair?

Yes. To answer your question directly, yes, this is a more normalized state.

Perfect. And then maybe you could elaborate a little more on the activity in life sciences and the extent to which customer focus is starting to pivot away from COVID and back to projects that might have been temporarily put on hold due to the pandemic. .

Yes. So I did mention this in my opening remarks. We are seeing our funnel increase on non-COVID-related, more elective surgery type of applications. And so I'm really pleased with that as far as how things are starting to progress in our funnel.

And to start with the headline, very solid bookings for the quarter, record bookings for the quarter. And as I mentioned, a healthy funnel as we go into the year. So headline, very pleased with the performance and how we're setting up for the year. But as you look at life sciences, we're starting to see those elective surgery opportunities take shape in our funnel. But additionally, we're pleased with the ability to execute on these COVID-19 opportunities.

We're here for our customers regardless of COVID or non-COVID opportunities, and we've won new customers through this. And so we've taken new technology and new innovations like our Symphoni product line, which was a development from Transformix, to really enable us to execute and build out our capability on these new and existing customers that then allows us to continue our expansion within those businesses.

Your next question comes from Mark Neville from Scotiabank.

Great quarter. Maybe just on the bookings. I mean there's clearly been a step change here. I'm just trying, I guess, to understand it. Andrew, maybe just qualitatively, maybe you can sort of just help with how much is just generally stronger markets versus what you're doing internally in terms of improved processes in the front end or the service offering? Again, any sort of commentary would be helpful.

Yes. So to answer your question directly, it's a bit of both, Mark. And to walk through that, we've won new customers through this. And we're really pleased with those wins, is that it allows us to then expand our footprint. But additionally, we've also expanded within businesses. And I used the example a little bit ago around the Symphoni product line. That has enabled us to do things differently and offer new solutions to customers that we've been supporting for a decade. And so ultimately, really pleased with the progress. But let me get more specific on the markets.

And I talked a bit about life sciences and the continued activity and strong performance within the market. We're seeing not only from a standpoint of the COVID-19, but we're also seeing our funnel increase in non-COVID-related opportunities as well.

In EV, we're seeing the activity pick up in both North America and Europe, and we booked a large EV award in the quarter. And so pleased with that progress. We're also staying very close with this new administration in the U.S. around the stricter environmental emissions rules and laws. And so really, call it, thinking about them as an adoption from EV as the shift continues and being very close to it. We are a leader in battery pack assembly, and it's one we want to continue to really help our customers as they navigate this new market and new opportunity.

In consumer, so this is a mixed bag for us. And we've seen strength in warehouse automation. We're a niche application there, but we've seen strength. Well, also food has showed our ability to execute. Cosmetics is soft and has remained soft. When you think about cosmetics for us, really you think about duty-free shops. And duty-free shops had been impacted by this. And so we do see that market coming back over time, but that has been a little bit on the softer end.

And then in energy, we see opportunities in refurbishments and decommissioning. And I talked about decommissioning on the last call and the opportunity that it has for ATS, but we are seeing opportunities both in Canada and globally, and we're going to continue to build out our capability, and we continue to build out our team.

Lastly, I'll just talk about the ABM and how the team across ATS has shifted to what we call our commercial ABM. And it's around driving our aspect of demand generation, marketing tools, enabling our customers to understand all our capabilities and then aligning that with our sales force effectiveness. And the team is doing an excellent job of pivoting during this environment to really maximize those opportunities.

And so I answered your question upfront around it's a bit of both, but it is. And then when you get into the markets, you can really start to understand how our strategy is taking shape with new technologies, new innovations, marrying with the needs of customers and our continued drive to really satisfy those needs.

Yes, it's great and that's super helpful and encouraging, obviously. Maybe for Ryan just on the backlog conversion for the quarter. Does CFT make it -- make the business's structurally higher number sort of so that 40% is sort of a more normal number going forward? Or is it just a matter of sort of timing and mix for the quarter?

Well, at this point, it's timing and mix for the quarter. And this is something that we look at every quarter and determine where we expect to be based on our portfolio and what we have in backlog and what we expect to book in revenue within the quarter. At this point, I would say it remains to be seen whether CFT will drive a change in this metric, but we'll continue to look at this and assess every quarter.

Your next question comes from Justin Keywood from Stifel.

Nice to see the results. On the notable EV battery award, are you able to provide some more context on the value of the contract, if this is an existing or new customer? And any opportunities for follow-on work?

So I can't provide a lot, Mark -- more. I mean I'll say it was a large program. It's a customer that we have worked with previously, and it's somebody that we do expect to have an ongoing relationship with. It's a long-standing relationship and a very good customer.

And Justin, just to add on to Ryan's comment, and we do see additional potential with this customer. But as you're well aware and we often say, we need to execute and prove out the value that we bring to this customer.

Okay. Understood. And then for margin expansion initiatives, I'm just wondering if you have an update on the broader goals. Like the 500 bps over 5 years was on track. And now there's a few moving parts, but the CFT contributing and perhaps more aftermarket services were coming back. But just as an update, if you have any broad margin expansion goals over the next few years and beyond.

Well, I mean, our goal is unchanged for the core business. So we are still targeting that 500 basis points. And with the addition of CFT, they're going to be a part of that, too. To your point, it'll change the timing but doesn't change the end goal.

If I just go back on the core business. We're largely, call it, halfway there. So we finished the quarter at about 12.4%. Over the last 3 quarters of the fiscal year, we operated at 12.1%. So we have had a good level of margin expansion in the year when I exclude Q1, which was heavily impacted by COVID and the initial lockdowns.

And our plans haven't changed. We're focused on the different initiatives that we're pursuing throughout the business. We're driving continuous improvement through ABM. Our supply chain management, we've made really good progress on this initiative. And it continues to contribute, and it'll be a big part of margin expansion with CFT.

Standardization, this is an area that we've been a little bit further behind on, but it's really starting to take shape. And Andrew talked about some of the Kaizen activity and initiatives that we're pursuing on standardization.

And then you mentioned aftersales services, and we did see a continuation of strength in that business this quarter.

And then, of course, operating leverage, and we expect to continue to grow the business and drive operating leverage.

So like I said, timing will be a little bit more variable with CFT from a total portfolio basis, but the objective for the core business did not change.

And that's adjusted operating margins you're referring to?

Yes, correct.

Okay. And...

Yes. Sorry, go ahead, Justin.

No, go ahead. That's fine.

Well, I was just going to remind you. So when we started this, we were just under 10%. So in fiscal '17, we finished at 9.6%. And like I said, we're -- we finished Q4 at 12.4%. So, call it, we're halfway towards the objective.

Okay. That's helpful. And Ryan, I didn't get in your opening remarks the expected CapEx for the remainder of this year or next year.

It's $50 million to $60 million.

That's 5-0 to $60 million?

Yes, correct.

Okay. And any particular initiatives that's driving that? Because that's historically a little higher than what's been in the past.

Well, so that does incorporate the new businesses. So we have a higher base in terms of ongoing maintenance spend than what we've had in the past. And we are investing in a couple of areas that will be enabling continued growth. So we do have some capacity expansion plan in certain areas, we're going to continue to invest in innovation, and then, like I said, the regular ongoing maintenance-type activity. Overall, long term, we're going to continue to operate in that 2% to 3% range of revenues. And so it'll be a little more on the higher end in this upcoming year.

Your next question comes from David Ocampo from Cormark Securities.

I just wanted to circle in on Justin's last questions on the margins and focus more on the near-term opportunity there. I think on the last quarter you talked about pressure from COVID-related costs. Are you starting to see that recede now? Or have you largely worked that through your system now?

Well, a lot of the factors that have impacted us are still in place. So where we operate around the world, we're still operating with what I would call nonnormal or additional health and safety protocols in our facilities. We still have a large percentage of our workforce at home. So we have people coming into our facilities every day, but we also have our engineering and office staff largely working from home. So those conditions still exist.

We've also talked that there's impact on services and travel restrictions and the complication of people having to quarantine if they're going into a market or coming back home to a market. So all of those conditions still exist. But what I would say is we've done a good job overcoming these obstacles.

So from the services perspective, we talked about our global footprint, our regional network, the digital tools we've implemented. And then within our facilities, our teams have done an excellent job in keeping our facilities safe and keeping them open and adhering to the health and safety protocols. So the conditions still exist. But from an impact, we're mitigating from a margin perspective.

Okay. And then on the M&A pipeline that you guys have in terms of your funnel, it's picked up quite a bit here. Are you starting to see more competition now through the space? And is that having any impact on the multiples that you have to bid in order to acquire these businesses?

So why don't I kind of walk this a little bit? So we announced the acquisition of BioDot and CFT, the closure of CFT. I'm really pleased with those new adds, very much in line with our strategic direction and really in line with where we're taking the corporation.

When we step back and look at our funnel, our funnel remains healthy. And I would actually state that it's opened up more from the food technology space. And we like regulated food. We like the food technology area. And so we've really built that out. And so I would say it's increased. And we remain active in the market around cultivation, around staying close with many targets.

We've entered into many discussions where we don't get to the finish line because we choose to go in a different direction. And we have 4 criteria that you've seen multiple times. And if those 4 really don't line up, we then go in a different direction. But I'll just state that our funnel remains healthy. We continue to cultivate.

And sure, multiples are an area of focus and target, and we see multiples remaining at a certain peak or at a certain level. That said, I think we've continued and will continue to manage to overcome those and really build out a strong value creation for ATS and for our shareholders.

And I'm sorry, Andrew, are you starting to see more competition for the stuff that you're bidding on? Or it's largely unchanged?

It's largely unchanged. What I can say is our cultivation efforts have picked up and continue to pick up, and that really does enable us to move and be in a pace. But it's largely unchanged.

Your next question comes from Maxim Sytchev from National Bank.

Andrew, I was wondering if you don't mind maybe talking about the CFT integration blueprint, maybe any kind of early learnings from having onboarded this asset and how you think about like any updates on the cost synergy, revenue synergy. Just yes, any update on acquisitions if possible.

Absolutely. And I'll start with the headline here, Max, then I'll go into specifics. We are on track with the integration. We are confirming and have confirmed our belief around the synergies and around the cost potential and where we believe we can deliver on. And so none of that has changed.

And so then to walk through it. We closed in March, and our team started the integration immediately around that. And they've done a lot of work around firming up the supply chain synergies and really exploring and continuing to explore the synergy and cross-selling synergies with this group.

And I'm pleased to say we've even started quoting out. And one of the products that this business and technology this business has is something called CFT Robotics, and we've quoted that out in other areas of our business. And so we're realizing, and we're very pleased with the projects and prospects around the synergies, and we're on track to realize those. And so we're -- I would just say headline is pleased with the progress and certainly view this business as a real strategic fit for ATS.

Right. And then so far, no negative surprises in terms of having looked under the hood? Or maybe any positive surprises? Maybe if it's possible to share.

Yes. So with every acquisition, you're going to find things as you go along. And what I can say is that they're not meaningful at this time. And what we're really pleased with is the business and the team at CFT have been fantastic in the approach. And so we're really pleased with how this is unfolding. We're really pleased with the integration. And we're not changing the targets as of yet, but I would just say that what we set out to achieve, we're very confident we can achieve.

Okay. That's super helpful. And maybe just one cleanup question for Ryan. In terms of the backlog-to-revenue conversion for the upcoming quarter, I presume that BioDot is not included in that, correct?

Yes, that's correct. We do expect BioDot to close this quarter. But, I mean, given where we are now, it'll be in the latter half of the quarter, so it won't have a material impact.

(Operator Instructions) Your next question comes from Mark Neville from Scotiabank.

I guess I'm just curious as -- have you seen any impact on your business or in your customers' behavior just from the recent commodity price inflation?

So we -- from a standpoint of our customers, no, we have not. And I just -- I gave the headline, but our funnel is healthy as we go into the year. So pleased with that.

As we look at our business and then step back, the short answer is we have not seen really anything material to date. But our supply chain and our supply chain team has been very focused and very vigilant about this. And as you'll recall, I mean, we've talked about this as one of our 5 points, the team has been very proactive in identification with suppliers and identification of the road map and strategic layout and how we want to drive the business here. So they've been able to really minimize and be able to allow me to state this is no material.

Where we have seen a shift, though, is some suppliers are extending their lead times. So where we've had stuff in days now goes out to potentially weeks, and we've seen stuff shift from, call it, 1 to 3 days to 3 weeks. And fortunately, we were able to identify this early on. And because of our planning, we've been able to plan and ensure that there's no impact in our ability to execute. And so to date, no real material impact.

Another one, just to head it off, is around the shortage in chips in the EV side or the automotive and transportation. And what -- we have not seen a disruption in our portion of that. And just to, call it, remind the team here on this, we are in a strategic area of focus for our customers, and we have not seen any impact on our business. And when we look strategically with the customers, it's aligned with how they have to shift their business to meeting the needs in the market.

Okay. Yes. And just -- sorry, just to clarify that on the chips, Andrew, again, you haven't seen any impact and sort of nothing showing up in this quarter either, in the current quarter? .

Correct. .

Right. Okay. I guess just broadly around infrastructure stimulus, whether U.S. or other markets. I'm just curious, do you think that as -- potentially as a tailwind for the business? .

So -- we do. To answer your question, we do. And let me walk through this a little bit. So we call it -- it's a little -- so we call it onshoring or supply chain derisking in all these areas. And typically, that is going to be an enabler for automation. And if you step back and look at the ability to meet the demand, usually it's going to equate to an automation area. And so we do view that as a tailwind.

And as you're well aware, part of my standard work as a CEO is to continue to talk to customers. And, call it, of the last -- and I mentioned this on a call, call it, a quarter or 2 ago. Of the last 10 customers, especially in life sciences, half of them are talking, and we've seen awards or orders in a small amount but still orders in preparing for the shift.

Mark, one of the other areas that is a tailwind for automation, and it's not getting as much highlight right now, but it is a meaningful change, is the retirement in the next 3 to 5 years. And when we look at retirement and the younger workforce coming in, automation is an enabler to really continue the continuity of production process. Because at the end, what our customers care about is building a quality product on time, on budget, on target consistently. And so they're really reaching out to us to say, we've got a changing shift here. So not only do we need to meet the demand in our region, but we also have a potential retirement aspect coming up. And therefore, we need to talk through the aspects of how do we automate and meet these heavily regulated markets that allow us to produce the product.

So we do view this as a tailwind. Timing is, call it, 18 to 36 months out. So I would say it's early in the assessment and in dialogue, but it is a shift that we view does favor automation.

Great. Maybe just one last question just on M&A just to clarify. Again, with CFT, you're starting the integration, you're doing the integration. BioDot's expected to close this quarter. But neither of those would preclude you from doing anything else in terms of M&A, correct?

Correct.

Mr. Hider, there are no further questions at this time. Please continue.

Thanks, operator.

To conclude, we're pleased with the performance this quarter and recognize the hard work and dedication of our teams across ATS that made this possible. This past year has turned out to be very different from what many of us have imagined. Yet, despite the challenges, our people were able to adapt and deliver innovative, high-quality solutions for our customers, solutions that positively impacted lives around the world.

Thank you for joining us today. I look forward to speaking to you on our Q1 call in August. Stay safe and goodbye for now.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.