ATS Corp (ATS) 2024 Q4 法說會逐字稿

Welcome to the ATS Corporation fourth quarter conference call and webcast. This call is being recorded on May 16, 2024, at 8.30 AM Eastern Time. Following the presentation, we will conduct a question-and-answer session.

I'd now like to turn the call over to David Galison, Head of Investor Relations at ATS. You may now go ahead.

Thank you, operator. And good morning, everyone. On the call today are Andrew Hider, Chief Executive Officer of ATS; and Ryan McLeod, 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. We caution that the statements made on a 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 these statements are detailed on slide 2 of the slide deck.

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

Thank you, David. Good morning, everyone, and thank you for joining us. Today, ATS reported our fourth quarter and annual results. For the fiscal year as a whole, ATS drove profitable growth, supported by the highest revenues and earnings in company history.

In the fourth quarter, we delivered one of our strongest bookings quarters on record, along with record revenues. Adjusted earnings were in line with our expectations. Our value creation strategy is being advanced as we completed four acquisitions during fiscal '24 and continued to invest in innovation, increasing our patent portfolio by almost 10% over last year.

In addition, we have been active with our share buyback program since late March, having deployed $45 million to repurchase just over 1 million shares. The results reported today reflect the importance of deploying our strategy in our chosen markets, along with our team's commitment to the ABM as we drive continuous improvement throughout our global operations.

This morning, I will update you on the business and our markets, and then Ryan will provide his financial report. Starting with our financial value drivers. Order bookings for the quarter were $791 million, supported by organic growth in life sciences, food and beverage and energy. The underlying trends driving demand for ATS solutions remain favorable.

For the full year, bookings were [$2.9 billion]. Q4 revenues were $792 million, up 8% from Q4 last year, including organic growth of 4%, along with our first full quarter of avidity results. For the full year, revenues increased by 18%. Adjusted earnings from operations in Q4 were $96 million. Full year adjusted earnings were $398 million, up 16% compared to fiscal '23.

Moving to our outlook. Our backlog remained strong at $1.8 billion. By market, Life Sciences backlog was $871 million, 14% higher than Q4 last year, supported by wins across all of our major life sciences businesses, including wins in auto injector assembly, automated pharmacy, radiopharma and pharma.

Our Life Sciences opportunity funnel is strong supported by market growth in key areas, including increased demand for GLP-1 drugs, wearable devices, automated pharmacies and contact lenses. Our teams continue to offer and deliver integrated solutions to our customers from across the breadth of our life sciences operations.

To give context on the GLP-1 opportunity for ATS, revenues from autoinjector orders represented a low single digit percentage of fiscal '24 revenues. However, with the autoinjector orders currently in our backlog and additional customer orders, we expect this to move towards a high single-digit percentage of total revenues over the next several years as demand grows for GLP-1 drugs in associated drug delivery solutions.

Additional growth drivers include potential approvals for new applications such as cardiovascular disease, combined with improved consumer access for GLP-1 drugs. In transportation, backlog was $425 million, reflecting our ongoing execution of large programs won in the prior fiscal year, combined with expected variability of program awards.

We expect to see year-over-year pressure on EV revenues as we continue to execute on our backlog. Our sales funnel and transportation reflects short-term market uncertainty, as we have seen some opportunities move further out into the future.

Our near-term funnel contains smaller opportunities relative to the size the order bookings we've seen over the past 24 months. Longer-term, the fundamentals remain intact, and we are well positioned to compete as the market continues to evolve.

In food and beverage, Q4 bookings were strong and our ending backlog was $230 million. We typically experience seasonal variations in bookings and revenue in this vertical related to primary processing as customers placed orders ahead of the harvest season.

However, the team continues to drive diversification into secondary processing and packaging, digitally enabled applications as well as its customer base to offset some of this variability. To complement ATS' food and beverage offerings in packaging and end-of-line solutions, yesterday afternoon, we announced an agreement to acquire Paxiom, a global provider of primary, secondary and end-of-line packaging machines and food and other industries, headquartered in Montreal.

In energy, our funnel is strong with a focus on refurbishment of existing nuclear reactors for new projects in Canada and around the world are being approved and moving towards implementation.

We also have opportunities to serve customers as they build new reactors, including SMRs over the long run. With our experience, specialized skills and proven track record in these markets, ATS is well positioned to support customers in our area of expertise.

In Consumer Products, our funnel remains stable with niche opportunities in areas such as warehouse automation and consumer packaging and after-sales services. The value of our offerings to customers is clear, customer proximity and speed of response are critical. Our service teams are focused on delivering complete lifecycle solutions, including spare parts and digitally enabled services to help our customers improve their overall equipment effectiveness.

In addition, as we build momentum on higher-value offerings.

We drove some early performance as-a-service solution wins.

On our digital offerings, our funnel is strong.

We are focused on developing capabilities for our customers to utilize an integrated architecture and analyze data in an efficient manner to drive performance and value across all markets that we serve.

During the quarter, a global consumer product, customer ordered ATS with a contract to build and service a global IoT platform.

On ABM, we hosted our Annual President's Kaizen events.

This year's events focused on a variety of improvement areas from new product launches to how we respond to customer inquiries for aftersales services as well as automating several manual processes to create efficiencies in how we process transactions.

The President's Kaizen week is a great demonstration of our team's collective drive for breakthrough change.

The level of work we completed in a single week is a testament to the evolution of our ABM culture over time.

ABM activity saw strong engagement, and we measure and monitor our success to identify areas for ongoing improvement and deployment of our tools across the organization.

I am particularly encouraged by the ongoing rollout in ABM adoption by the team at avidity as part of our integration activities.

On M&A, our funnel is active, healthy and diversified across a range of target sizes.

We continue to be actively engaged in cultivating opportunities of various sizes that fit with our strategy.

The acquisition of Paxiom, which we announced last night, is expected to close in the coming weeks, subject to customary closing conditions.

We are disciplined in our approach and assessment of each target, and we continue to drive integration activities at our more recently acquired businesses.

Integrations are progressing in line with our expectations.

On innovation, we are committed to investing capital strategically to create solutions that drive returns.

A few highlights from the quarter.

In Life Sciences, our teams developed a new solution called Modulis to be used for miniaturized diagnostic devices.

Modulis uses bio-dispensing stations integrated with ATS SuperTrak CONVEYANCE platform and our Cortex vision system.

Also in Life Sciences, our commentary team has developed new innovations to address GMPNX-1 requirements related to the manufacture of sterile medicinal products.

Finally, we are pleased to report that our [PFX platform] is the basis for a newly launched customer portal and IWK as well as for market insights, a digital dashboard and machine benchmarking platform, [PFX], which is our cloud-based IoT platform, also houses an energy management solution and several other increasingly scalable IoT offerings to support our customers across multiple industries.

In summary, Q4 and full year performance illustrates our continued progress as we execute on our strategy.

Along with our financial results, our teams are focused on driving improvements across all of our value drivers.

In fiscal '24, we saw continued strength in on-time delivery and quality, increased our internal fill rate and reduced our voluntary turnover.

We continue to be recognized as an employer of choice.

We are recently included on the list of Southwestern Ontario top employers for 2024.

As we drive forward in fiscal '25, our opportunity funnel is well diversified, and we look forward to welcoming Paxiom to the ATS portfolio.

We are confident in our ability to drive our ABM culture as we continue to focus on creating shareholder value.

Now I will turn the call over to Ryan.

Ryan, over to you.

Thank you, Andrew, and good morning, everyone.

ATS delivered solid financial results this quarter, and we finished the year with a strong balance sheet and backlog that provides good revenue visibility for fiscal 2025.

Starting with our operating results for the quarter, order bookings were$791 million, up 7.3% compared to Q4 last year.

Year-over-year growth was led by Life Sciences with strong organic growth in bookings as well as contributions from our recent acquisitions, including Avidity.

Our trailing 12 month book-to-bill ratio at the end of Q4 was 0.95 to 1.

Excluding transportation, our trailing 12 month book-to-bill ratio was 1.12 with all other market verticals above 1.

Q4 revenues were $792 million, up 8.3% over Q4 last year, driven by an increase in Life Sciences revenues of 15.6%.

Organic revenue growth was 3.5% in the quarter, while the recently acquired companies added approximately 5% growth.

Revenues were higher than we had expected at the outset of the fourth quarter as our teams were able to offset headwinds from the delayed EV projects with incremental site support work complemented by strong execution in our Life Sciences business.

We finished Q4 with just under $1.8 billion of order backlog.

Looking ahead, our revenue conversion for Q1 is estimated to be in the 36% to 40% range of order backlog.

As a reminder, this assessment is updated every quarter based on revenue expectations from existing backlog and new orders booked and billed within the quarter.

This conversion range also factors in the impact of approximately $150 million of transportation order backlog with one of our EV customers that remains delayed.

For fiscal '25, despite expected lower revenues from EV, our business is well positioned to drive top line growth in our other markets, including our largest market life sciences.

We expect this growth combined with the addition of Paxiom to largely offset reduced volumes from EV.

If the EV program on hold restarts, this would be additive to our expectations.

Moving to earnings, Q4 adjusted earnings from operations were $95.9 million, down 6% from Q4 last year, primarily due to an increase in SG&A costs.

Q4 gross margin, excluding acquisition related inventory, fair value charges was 28.1%, down 71 basis points from Q4 last year, primarily reflecting some lower margin projects in the quarter compared to last year.

We consider this to be a short-term issue and expect improvement in our gross margins going forward.

In the quarter, we were able to mitigate the majority of impacts from the delayed EV Order backlog, and we continue to work with one of our EV customers as they solidify their battery design and realign their production schedule.

On supply chain, we are starting to see improvement in lead times.

Although these improvements will take a few quarters to work their way through our backlog.

As a reminder, lead times on specific components have impacted our ability to drive margin expansion, material cost pressures continue to challenge in some areas of the business, driven by higher raw material costs for suppliers.

We're actively managing and working to offset these pressures through our supply chain leaders.

Moving to SG&A, excluding acquisition related amortization and transaction costs, Q4's SG&A was $122.7 million, $17.9 million higher than last year.

The increase reflected incremental SG&A expenses from our acquisitions.

Excluding the mark-to-market impact related to changes in our share price, stock based compensation expense was $4.2 million in Q4, consistent with Q4 last year.

EPS was $0.49 in Q4, up 53% over last year.

Our adjusted EPS was down 11% to $0.65 in Q4.

In respect of our previously announced reorganization plan, in the fourth quarter, we incurred $6.6 million of restructuring costs, bringing the total to $22.8 million for the full year.

We expect that these targeted cost reductions will allow us to invest further into accelerating growth in areas of the business that provide opportunity for higher returns in support of our strategic growth plan.

Q4 costs also included additional actions related to cost control measures within our EV business.

Moving to the balance sheet.

In Q4, cash flows generated by operating activities were $9.6 million.

As noted in prior quarters, our operating cash flows can fluctuate between periods based on current progress billings of our larger projects, particularly in EV.

Non-cash working capital as a percentage of revenue was 19% at the end of Q4, up from 17.8% at the end of Q3.

This was primarily due to an increase in working capital from project milestones and billing on our large EV programs.

In the short term, we expect working capital to remain above our 15% target as we work through our existing backlog.

Total year-to-date investments in CapEx and intangible assets were $88.4 million, which included $25.9 million in Q4.

From fiscal '25 Our CapEx investment is expected to be in the range of

[$70million to $90 million].

On leverage, our net debt to adjusted EBITDA ratio was [2.4 to 1] as of the end of Q4 down from 2.7 times last year.

This remains in line with our targeted leverage range of 2 to 3 times net debt to adjusted EBITDA.

As Andrew noted, we were active on our share buyback program as part of our overall capital deployment strategy.

In summary, our quarterly and annual performance highlighted the strength of our diversified and evolving portfolio and our positions in strategic end-markets.

Bookings growth in life sciences and other market verticals provided some offset to the more measured pace of activity in the EV space compared to last year.

Strong order backlog in our key markets, particularly life sciences, provides good revenue visibility through fiscal '25, and we look forward to closing the acquisition of Paxiom in the coming weeks.

Overall, we're pleased with the performance of our business.

The ABM remains at the core of how we operate, and we are confident in our team's ability to continue to drive long-term value creation for our customers and our shareholders.

Now we will open the call to questions from our analysts.

Operator, could you please provide instructions?

Thank you.

Thank you very much.

We are now opening the floor for question-and-answer session.

(Operator Instructions)

David Ocampo, Cormark Securities.

Thanks.

Good morning, everyone.

I guess my first question, Andrew, I mean, the large enterprise EV program that you have was reduced by $50 million, and you guys have made some pretty significant investments over the last few years to support that program in terms of investments and even working capital, curious if there's any recourse for the adjustments and delays to your customers.

We're having some -- sorry, David, did you hear that response there.

No, it did not.

Okay, because I should have some cyclical challenger.

So I'm sorry, you asked with the cancellation.

So under the terms of the contract and customers are responsible for compensating us up and to the point of when the work is stopped and canceled.

So say, call it a normal course scope change.

And this happens fairly regularly in our business.

So in terms of investment, I mean, I think you identified it, it's primarily working capital and our expectations, we'll recover that as part of this calculation.

Got you.

I guess curious if you see any potential risk of a further reduction just given the ongoing softness that we're seeing with EV demand?

Well, I mean, that's not our expectation.

In addition to descoping that happened in the quarter, the net overall program continued to increase.

The piece that was stopped or cancelled it was the design team fairly early on.

And so from a customer investment standpoint, if you were to call it a easier decision to make that change, but I mean, I don't expect further cancellations.

A normal course scope changes that happened and that happened more frequently in EV, but every cancellations that we've talked about in the past or are unusual.

Okay.

And then my last question, Ryan, is probably better suited to argue, but net working capital was pretty bloated in the quarter.

It had been closer to 19%.

And understanding you've got a lot of that has to do with timing of payments as it relates to EV, are there any milestone payments that we should be aware of over the next few months that could push that working capital to more normal levels?

Yeah.

There are.

But I mean, we've seen some -- first, some of those are going to push you into it into further quarters that were based on the restart.

And then normal course, as projects are getting finalized and ramped up, we'll start to see those milestones in the more of in the Q2, Q3 timeframe, but we are approaching those milestones.

Okay.

That's all I have for you, guys.

Thank you so much.

Thank you, David.

Michael Doumet, Scotiabank.

Hey, good morning, guys.

I was just curious on why the commentary on the revenue outlook excludes the revised EV order?

Is it just reflective of uncertainty around timing and then on the commentary on the outlook for the transportation funnel, your outlook indicates that some of the large orders?

And secondly, not all the large orders have moved further into the future?

I mean, is there an expectation that you could potentially close another large order in the near term?

So I'll start -- good morning, Michael.

I mean, we've taken that out of our expectation really time to time.

We feel it is something, and Andrew maybe talked about it could restart in Q1, we're staying very close with the customer, but we've taken it over our outlook because there is uncertainty around the timing.

I'll let Andrew talk

--

And to add onto that Michael.

So there's two key areas this customers focused on and it is the customer indication of when that would start.

But there's two key areas.

First, it's really around the battery technology that they plan to move forward with.

And then second end market demand.

And so we obviously have very, very frequent ongoing conversations, both on the work we're involved in as well as its application.

And so, we took it off and will be largely offset with growth in other areas.

And so we're setting the business up really around the timing of the business in this program.

And we'll let you know if the delay comes back online, it will be additive to our expectations.

As far as your second part of your question and the business and the market.

A couple of comments on this.

First, we won work in the quarter and we continue to engage customers.

We do view their approach is going to be a bit more measured in the short term.

Measured means they're looking at their technology.

They're looking at their market demands and really aligning their expectations around invested for that.

And so we continue to see opportunities.

We've set the business up and we can be patient and the situation we sit in today, we've taken the right action to set ourselves up, and we continue to see strength in other parts of our business.

So long term, when we step back and look at EV, the market is slated to grow, call it double over 2.5 years to 2.5 years in ATS's strong value, and it is in organic area of focus for us.

So relatively muted there, relatively low investment, strong returns.

And we take that return and put it in other areas of the business and continue to grow.

Very helpful, guys.

Thanks.

And then for the next quarter, should we expect somewhere at similar margin impact given the deferrals so far?

And maybe just a high-level question, assuming declines in transportation, how you guys think about managing labor and overhead in the near term to shield yourself some potential margin variability, given that the outlook still kind of remains potentially it's quite favorable in the longer term?

So we've aligned with business our cost structure to meet to the current levels of demand.

And that said, we're always going to monitor if further adjustments are required, we'll do that.

In terms of our margin outlook, part of how we were able to offset the headwinds, in this quarter. we're tied to on-site support work and that work is continuing.

We do expect that to tail off again as these projects get ramped up on unstated customers.

In the fourth quarter, I did talk about some lower margin programs that impacted our gross margins -- gross margin, sorry, those are largely behind us.

And from a SG&A standpoint, sequentially, we have a little bit of additional spend on really tied to the people costs, and that will be more normalized through next year.

So from a margin standpoint, we don't expect any headwinds going into next fiscal year.

Joe Ritchie, Goldman Sachs.

Thanks.

Good morning, everybody.

So we just touched on -- can we touch on the autoinjector ramp over the next several years getting to high single digits for simply revenue?

I just wanted some clarification on that, is there an expectation that in fiscal '25 you'll get there?

And if not, maybe just talk to us a little bit about like how you expect that ramp to go in the coming years?

Yeah, Joe, so I'll start.

So this has been the last couple of quarters, high single digit, low double digit percentage of our overall bookings.

So it's been a strong area of growth for bookings.

We've started to -- these programs, there are 12 to 14 months kind of on average.

So we're getting into a higher revenue phases.

So we're going to see that revenue contribution moved from where it was in '[24], low single digits up into that high single digits.

In quarters, we'll get into double digits.

But that's how the backlog to revenue is going to unfold.

And Joe, just to add a little bit more color on this area, this space.

I know, I walk through it in my prepared remarks.

We're double-digit customers in this area, strong offering with storing capability and as a reminder, we've invested in this space and continue to invest in this space.

And then here even (technical difficulty) call two decades, but we've launched with our Symphoni platform, the ability to be up to double the output of the standard process and have the footprint.

So strong capability for customers that are moving into the space and have gained approvals and when we see areas like cardiovascular disease or even continued approvals around GLP-1, it really is an area of strive for a test.

Now all that said, we have many areas that we like in the Life Sciences space, whether it's radiopharmaceuticals or wearable devices or even in the last couple of quarters, we had strong awards from contact lenses.

So we see strong tail on GLP-1 drugs and the autoinjector space and the approvals this year actually outpacing last year.

And so, we see it for the foreseeable future, this being a strong area of focus for ATS.

Got it.

That's helpful, guys.

Thank you.

And then I guess my second question, I really want to focus on free cash flow and just given that there is an outlay and free cash flow this past year, how do I think about this framework going forward?

I know you guys have talked about net working capital getting down below that mid-teen percentage, but help me understand what the expectations are for 2025, for fiscal year '25 and beyond.

Yeah.

So I mean, the biggest impact on our free cash flow in '24 was working capital [in that type] EV.

We've talked in the past there being higher variability given the size of these programs and as we're getting into latter stages -- a similar question was asked, we are going to see some of those milestones towards the middle of Q2, Q3 of our fiscal year this year.

So our goal and we talked about it is to be in that 15% below range on.

We have seen inventory build outside of the specific EV area, but pretty small overall AR collections have continued to be quite strong.

The biggest driver has really been the EV space.

As the business -- I'll say the portfolio shift into next year, we're going to see as we talk to larger contributions from life sciences from our food and energy businesses, we will see that reflected in lower working capital.

But as I said, it's going be tied to EV milestones and likely with you or the second half consistent.

Great.

Thank you.

Michael Glen, Raymond James.

Hey, good morning.

So there's a lot of moving parts taking place in the quarter.

But just really interested, can you give some updated commentary surrounding your target for 15% adjusted EBIT margin.

I know there is no timeframe for this, but would you say this is still within reach or is it being pushed out?

Just trying to get some indication as to that particular metric?

Yeah, I mean, absolutely.

That's our target.

That's the goal unchanged.

I mean, I'll start with our operations.

We've got a number of initiatives.

They're well embedded in our business in the big centers, particularly they service well.

Supply chain, that's been an area that's performed very well even in challenging conditions over the last our call it 18 months.

We're continuing to make good progress in our aftersales business, after-sales service business, which is accretive.

Other key areas of focus such as standardization are continuing to progress.

And standardization is an interesting one.

And Andrew mentioned the Symphoni platform, which is the standard technology platform that we're utilizing in the autoinjector space.

I mean, that's a great example of how our team has identified a core technology, standardizing really driving efficiency through the engineering process, through the assembly process.

So all of those initiatives are, like I said, well embedded.

We're managing our SG&A spend.

As we're investing in growth areas, we've reduced spend in other areas.

And we've talked about the reorganization activities we undertook this year.

All that said, there's the EV headwind in the short term from a revenue standpoint.

But again, we do expect the growth in our other market verticals to largely offset and support continued margin expansion.

Okay.

And I'll ask one on the EV as well.

The [150] in delayed, is that -- where is that right now?

Is that sitting in your bookings or is that contained in working capital?

That's the [150] of delayed work.

So the [150] the backlog number and it is in our backlog.

Again, it's contracted.

So we haven't removed it from the backlog number, but we have taken the data of revenue expectations for the year.

There's a working capital impacts tied to that, but it's small, much smaller than

[150].

Okay.

And the working capital build that we're seeing right now, like as you've said, that is really tied to EV, all the other verticals remain largely where you would want them to be?

Yeah, That's correct.

I would point out some of the acquisitions also changed the profile in the non-material way.

But Avidity, for example, is a high-teen low 20% working capital intensity business.

Packaging is more in line.

It's obviously in that part of our business yet, but it's the mid-teen.

But some of those shorter cycle businesses typically do have more inventory that carries a business.

And so, there will be areas of opportunity to improve those metrics, but from a portfolio goes to drive a bit of a shift over time.

Okay, thank you.

(Operator Instructions) Justin Keywood, Stifel.

Good morning.

Thanks for taking my call.

Just on the margin contribution of projects, how should we be looking at GLP-1?

Is this at about the same level, higher or lower?

So the gross margin line is largely in line with our Life Sciences business, Justin.

That's typically ahead of where we are from a corporate average standpoint, but not materially different from the Life Sciences portfolio.

Okay, understood.

And then on the Paxiom acquisition at 19% EBITDA margins, that's much higher then the food and beverage space as the portfolio sits today, I think it's around 10%.

Is there anything unique that Paxiom's doing to drive that higher margins?

And also, is there any synergy opportunities with that acquisition?

So Justin, a couple of items.

First -- and I want to highlight, we've seen nice progress on the packaging food technology portfolio.

And as a reminder, CFT was low single digits, and the team is really achieving the plan.

Understanding that, so proud of the work we've done.

Paxiom really aligns well with what we view is longer-term on a margin perspective.

And just to give you some insight, the business has a very strong brand in the customers they serve.

It's highly valued in not only the solution, but their capabilities for servicing and supporting their customers.

And so, when we went through the diligence process and we killed and really dug into understanding their customer engagement, they have a very strong brand, a very strong name in the space they serve.

And so, we're pleased that they've decided to join the team.

We've been actually starting this for close to two years, actively engaged for over a year around cultivation activities.

And as far as synergies goes, this fits greater into their business.

And first and foremost, it's an offset to seasonality around the harvest season, its primary and secondary packaging, which fundamentally means that you're in line in the packaging process and whether it's Marco NCC, CFT, [COMAC], IWK, it's squarely in line to offer and at higher values, we look at the adjacencies around those spaces.

So first and foremost, we need to close and have them add, but very excited about this business being a part of the future for ATS and what it will offer from both the synergy and capability perspective.

I understood.

That's very helpful.

You answered one of my questions, Paxiom being a cultivated deal.

Could you also describe your pipeline for additional transactions, if would be focused in food and beverage or other segments and any other indication as far as target multiples and size of transaction?

Thank you.

Yeah.

So if we step back -- and actually talked a little bit about this in the prepared remarks.

But to put more meat on the bones here, the funnel was healthy and our teams continue to cultivate.

And if you look at the areas we target, we often use the phrase high consequence of failure, and it aligns well with regulated spaces, but also spaces that customers value in often niche applications.

So you're going to see us targeting and continue to target life sciences applications, food safety applications, digital and services applications around really, we're review high value for customers and ones that we can help support and drive synergies and take our supply chain capability, reduce their cost structure or help them reduce their overall spend to drive improvement on the bottom line.

So we've seen our funnel continue to grow.

It'll be key area of focus.

Multiples have not largely changed.

And targeted areas, as we continue to evolve our portfolio, we see future opportunities and Paxiom being just one of those where we think we can continue to expand upon.

Thank you.

Patrick Baumann, JPMorgan.

Hi, good morning.

Thanks for taking my questions.

Maybe just the first one, if you could help us understand mechanically why backlog was down $100 million or so from the third quarter when the book-to-bill was 1 times.

I know, you mentioned something about like $50 million of descope business in that EV contract.

But the decline sequentially was a bit above that.

So just wondering if you could give us some color on why that was.

Yeah.

Good morning, Patrick.

So that was the biggest impact was that EV cancellation towards some other normal course scope changes, content gets removed, station capacity changes, things like that.

There were actually two cancellations tied to acquisition.

Now these are smaller dollars, but businesses that were acquired and projects from hold.

So that occurred a little bit more unusual.

But the rest really normal course.

There was some FX headwinds in the quarter as well.

I mean, it's a mixture of things.

But overall, again we said, we're in a good position with our backlog despite that delayed project.

Okay.

And then my follow-up is on the 2025 outlook for flat sales, what do you expect the EV sales to be down for the year.

I'm just trying to get a sense of how much growth you would need in the other markets to offset it.

And then if you could talk about how it profiles because you're guiding against first quarter down about 10% year over year.

So just wondering when you expect the growth rate to flip positive to offset a slower start?

Well from a book-to-bill standpoint, that's probably the best indicator.

So as we talked about, Life Sciences was in the [1.13] area on a trailing 12 months, transportation was [0.58], consumer food, both

[1.06].

And that energy was

[1.4].

So organically, I mean, directionally, that's how to think about it.

Given projects progress, where we are in the various markets, we do see a bigger ramp in the second half on revenues relative to the first half.

Of course, that's going to be impacted by what we book over the next couple quarters and then also by service revenues and the shorter cycle businesses that we have as well.

And the other piece on transportation is these projects are typically 18 to 24 months.

So it's not exactly a normal annual book-to-bill cycle.

But the rest of the business is -- that think about it.

And transport being 18 to 24 months, I guess you're just signaling that not to take the full booked-to-bill impact into account for '25.

Is that you messages on that?

Yeah.

I said another way.

There's more time from a backlog and funnel perspective to replenish that business.

Understood.

Okay.

Thanks so much for the time.

Maxim Sytchev, National Bank Financial.

Hi.

Good morning, gentlemen.

Andrew, maybe just a one kind of high-level question.

As we've seen a couple of protectionist measures being implemented in the US when it comes to tariffs on changing the syringes, that type of stuff.

Just curious from a secular positioning perspective, how do you think this potential actions could be presented with positively impacting EPS down the road?

Thanks.

Whenever there's a regulation around rising North America, European focus, it largely plays a positive for automation and we would see this is no different.

And whether it's onshore supply chain derisking, meeting or driving regulation, it pulls in process around building manufacture in a region that we have a strong position within.

And then what you'll generally find is labor shortages, labor cost, lean and even heavier with automation.

So we would largely see it as favorable for ATS and really strong value from what we offer for our customers.

Makes sense.

And then my last question is maybe when you look at potential choices between (inaudible) versus kind of doing M&A?

Because I mean, you bought stock at an average, I think it was at $45 a share.

How you think about what makes the most sense now?

I mean, like obviously, I understand that every opportunity is idiosyncratic.

But what is your framework of thoughts around these two capital allocation strategies?

Thanks.

Yeah.

So I don't think so much -- in the past, we have been asked also what we've done.

So on the NCIB, we've been active repurchased just over 1 million shares deployed about $45 million of capital, sort of roughly $44 a share is what we've been buying at what we purchased at last six, seven weeks now.

And then we've also been active on M&A.

So it's not really more choice.

Now the NCIB is really we view it as opportunistic.

So we don't have a set allocation in our annual planning.

It's opportunistic.

It's something we regularly review with the Board from a priority perspective.

And they could typically take higher priority.

And that's how we look at, of course, internal investment is also something that we're very active in funding.

Andrew talked lot of the innovation activity that are ongoing, but that's really our approach and how we're thinking about it.

And Max, just to add on.

Look we are very aligned and again it's ongoing dialogue with the Board, internal investment credits return to Ryan's point, M&A and share buybacks, obviously, we are in position to be able to do both assets and we continue to drive a focus on capital allocation to return to shareholders.

Okay.

Makes sense.

That's it for me.

Thanks.

Cherilyn Radbourne, TD.

Thanks very much and good morning.

I guess digging through some of the noise in the quarter, what I think you're saying is that basically notwithstanding the weakness in the EV market, you think that the strength affects EV plus the acquisition of Paxiom will enable you to deliver revenues that are basically flat to up slightly in fiscal 2025.

Is that a fair statement?

And if is, can you just give some indication of the level of visibility that you have in those EV market?

So Cherilyn, I'll start just to clarify.

So we've said largely offset which, it is certainly we're going to drive for upside.

But at this point, I'd say we're comfortable that we can largely offset the headwinds through the growth in other parts of the business and with the addition of Paxiom and a full year contribution from Avidity, which is the other larger more recent acquisitions.

And Cherilyn, to add on the second part of the question.

This is the third largest bookings quarter in our history.

And if you look at the year, Life Sciences' strong performance, (technical difficulty) [1.13] walk through these.

But overall, we're pleased in the markets we serve and know that the targets with the continued drive expansion and really alignment to value in those areas of focus.

So the -- end of the quarter, setting up for fiscal '25, really aligned to driving expansion in the markets that we know of high value.

Okay.

And so, if we think about that, then the revenue mix by end market should shift favorably in fiscal 2025.

You've got supply chain lead times improving.

So you should be able to get some purchase efficiencies and then presumably you have continued aftermarket growth.

So if we combine all of that, is there any reason to think that margin shouldn't be sort of flat to better in fiscal 2025?

I mean, you characterized it well.

Yeah, I mean, there are -- like I said, our long-term goal is margin expansion in a year where top line is going to be a challenge.

A flat margin, we would be fine with, but our focus is on long-term margin expansion.

Okay.

And then the bookings were obviously a bright spot in the quarter, a big jump versus $668 million last quarter.

Can you kind of help us understand the quarter over quarter delta and just whether there was anything lumpy in this quarter?

So yes.

I'm hesitating a bit because we always have things that we consider lumpy.

But yeah, I mean, if I look at our top 10 bookings in the quarter, the average was up sequentially.

I'd say the average this quarter was more in line with where we were in Q2.

The largest program was in the $50 million, $60 million range, again, similar to where we were in Q2.

Q3, the largest was in the $30 million range, which I still consider a large program.

And I guess I'd use the word lumpy on that one, too.

But I mean, Andrew said we're very pleased with how we finished the year from a bookings perspective.

Our top 10, Life Sciences was very strong, but we had good diversity, there is nuclear, there was consumer.

There was food in that grouping.

So we're quite pleased -- and EV as well.

So we're quite pleased with the diversity in that bookings number.

Okay, great.

Thank you for the time.

I'll leave it there.

There are no further questions.

Mr. Hider, back to you for closing comments.

Thank you, operator.

We look forward to continuing to execute on our goal, pretty sure a shareholder and customer value in fiscal '25.

Thanks for joining us today.

Outward to speak with you on our Q1 call in August.

Stay safe and goodbye for now.

Thank you, everyone, for attending today's call.

Have a wonderful day.

You may now disconnect.