Q2/F24 Revenue and Adjusted EBITDA modestly above consensus; bookings also ahead of our forecasts
TSX: ATS | CAD 46.57 | Outperform | Price Target CAD 69.00
Sentiment: Neutral
Initial take – ATS reported Q2/F24 results with revenue and Adjusted EBITDA modestly ahead of Street forecasts. Revenue was $735.7MM (+24.9% YoY; +16.4% YoY organic growth) vs. RBC/consensus expectations of $708.1MM/$717.9MM, while Adjusted EBITDA of $116.2MM (+29.3% YoY) was ahead of RBC forecasts of $110.7MM and modestly ahead of consensus of $113.7MM. Relative to our forecasts, higher-than-expected revenue and modestly lower-than-expected SG&A as a % of revenue drove Adjusted EBITDA ahead of our forecast (Gross Profit margin was in line with our estimates). Adjusted EPS came in at $0.63 vs. RBC/ consensus of $0.61/$0.65, and we believe the shortfall vs. consensus likely reflected higher quarterly interest expense relative to what was baked into Street forecasts.
Q2/F24 bookings of $742MM (-7.7% YoY, +7.5% QoQ); backlog stands at $2.0B (+12.4% YoY; -0.3% QoQ) – Bookings/backlog were the focus of investor inbound ahead of the quarter, and in our view, a flat QoQ backlog given the tough/sizable EV bookings comparison from prior year should be received well. Bookings in the quarter totalled $742MM (-7.7% YoY, -13.5% organic growth; +7.5% QoQ), ahead of RBC forecast of $712MM and implying a quarterly book-to-bill ratio of ~1.0x. The YoY decline in bookings reflected a decrease in Transportation bookings owing to the timing of large EV orders (Q2/F23 included a US$167MM EV order), partially offset by growth in all other end-markets.
Backlog exiting Q2 stood at $2,016MM (+12.4% YoY, -0.3% QoQ). ATS expects Backlog conversion of 34%-37% in FQ3, which implies revenue of ~$685MM-$746MM (vs. consensus of $708MM 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 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 sub-markets of pharmaceuticals, radiopharmaceuticals, and medical devices, including customers using auto-injectors for diabetes and obesity treatments, and producers of contact lens and pre-filled syringes. The commentary in the release noting the demand related to auto-injectors for diabetes and obesity treatments is likely to be in focus on the 8:30am ET call today. Investors have been trying to understand the current contribution to ATS's revenue from GLP-1 related work and the potential opportunity over the coming years.
The outlook further notes that 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, consumer goods packaging). Additionally, the underlying trends driving growth in ATS's business (e.g., rising labour costs, labour shortages, production onshoring/reshoring) remain in place. From a macro perspective, ATS continues to address supply chain disruptions (which has eased only in certain areas) and cost pressures due to inflation, though we think the company has managed these headwinds well thus far.
Conference call today at 8:30am ET – dial-in (888) 660-6652