ATS Corporation Good underlying growth
Our view: ATS reported Q4/F24 results ahead of Street expectations. Despite some headwinds in the Transportation/EV business, ATS' other end-markets continue to trend well. Looking ahead to F2025, we think the company will deliver EBIT growth (reflecting margin expansion), which we view favourably considering the uncertainty in Transportation. Revising PT -$5 to $60; reiterate OP.
Key points:
Thoughts exiting Q4/F24 – Overall, ATS reported Q4/F24 results that were ahead of Street expectations (see inside for details). The Transportation end-market was in focus yet again this quarter as a key EV customer for ATS cancelled $50MM of work out of $200MM of backlog that had previously been "on hold" (remaining $150MM is still on hold but remains in ATS' backlog). While this created some noise with respect to the backlog conversion guide for Q1/F25 (36%-40%, below the historical ~mid-40% range), our focus is on the strong book-to-bill that ATS has been able to deliver in its other end-markets. Specifically, LTM book-to-bill was 1.13x, 1.06x, and 1.4x for Life Sciences, Food & Beverage, and Energy, respectively. Looking ahead, these metrics point to an outlook for strong organic revenue growth across these end-markets in F2025, which we believe should offset lower-than-expected Transportation revenue next year (a restart in the above-noted $150MM of paused backlog would be upside to our estimates, though management emphasized the timing of a restart remains uncertain at this stage). Also of note, ATS does not expect any margin headwinds heading into F2025 (EBIT margin in F2024 was 13.1% for reference), which we view favourably against the backdrop of the above- noted Transportation disruptions.
Life Sciences/GLP-1 update – We estimate Life Sciences Net Bookings reached $371.2MM in FQ4 (+19.4% YoY), reflecting continue strong demand across ATS' focus end-markets (namely pharmaceuticals and medical devices). Additionally, ATS continues to position the business to capitalize on the emerging GLP-1 tailwind. For perspective, GLP-1 drugs were a ~LSD% contributor to ATS' F2024 revenue, while in recent quarters GLP-1/autoinjectors have represented ~HSD%-LDD% of overall Bookings. We believe this points to the overall revenue contribution from GLP-1 growing through F2025, and management estimates that this product line will move toward ~HSD% of overall revenue over the coming years (there could be upside to this estimate as GLP-1s get approved for new use cases).
Balance Sheet in good shape – FQ4 leverage stood at 2.4x, while on the call management reiterated that M&A remains the focus from a capital allocation standpoint (recent Paxiom deal adds a high-margin platform). Looking ahead, we think organic investments/innovation will represent another attractive use of capital for the company, while the NCIB will be used opportunistically, in our view