ATS Corp T.ATS

RBC

[retiredcf]

August 9, 2023

ATS Corporation
Good Q1 print; Strong outlook provided for Q2

TSX: ATS | CAD 56.00 | Outperform | Price Target CAD 69.00

Sentiment: Positive

Initial take – ATS reported strong Q1/F24 results with revenue and Adjusted EBITDA ahead of RBC and Street forecasts. Revenue was $753.6MM (+23.4% YoY and notably including +15.4% YoY organic growth) vs. RBC/consensus expectations of $724.0MM/ $722.3MM, while Adjusted EBITDA of $119.2MM (+28.9% YoY; includes a $4.4MM mark-to-market adjustment on SBC) was also ahead of RBC/consensus forecasts of $114.8MM/$114.1MM. Relative to our forecasts, higher-than-expected revenue and lower- than-expected SG&A as a % of revenue, partially offset by lower-than-expected Gross Profit margin, drove Adjusted EBITDA ahead of our forecast. Adjusted EPS came in at $0.69 vs. RBC/consensus of $0.66/$0.65.

Q1/F24 bookings of $690MM (-6.3% YoY); backlog stands at $2,023MM (+30.1% YoY; -6.0% QoQ) – Bookings in the quarter totalled $690MM (-6.3% YoY, -12.8% organic growth; -6.4% QoQ), well ahead of RBC forecast of $615.2MM and implying a quarterly book-to-bill ratio of ~0.92x. Bookings in the quarter were driven by order growth in Life Sciences, Food & Beverage, Consumer Products, and Energy, which were more than offset by a decline in Transportation (noting Q1/F23 reflected a US$70MM booking from an existing EV customer). Backlog exiting Q1 stood at $2,023MM (+30.1% YoY, -6.0% QoQ). ATS expects Backlog conversion of 34%-37% in FQ2, which implies revenue of ~$688MM-$749MM (vs. consensus of $706MM coming into today's reporting).

Outlook commentary: Funnel activity remains strong across Life Sciences, Food & Beverage and Energy, while the outlook for Consumer Products is "stable". In Transportation, the funnel continues to largely include strategic opportunities related to EVs as the global automotive industry continues to pivot toward EV production. In Life Sciences, the focus is on the strategic submarkets of pharmaceuticals, radiopharmaceuticals, and medical devices, which includes auto-fillers and auto- injectors. Although customers are exercising "normal" caution in their approach to investment and spending, management has noted funnel growth in markets where ESG requirements are increasingly in focus (e.g., battery storage, EVs, nuclear). Additionally, the underlying trends driving growth in ATS's business (e.g., rising labor costs, labor shortages, production onshoring/reshoring) remain in place. From a macro perspective, the company continues to address supply chain disruptions and cost pressures due to inflation. Despite these pressures, ATS continues to execute well in our view, as highlighted by the company's strong results to-date.