ATS Automation Tooling Systems Inc.
(ATA-T) C$34.69
Strong Q4/F22 Results Despite a Dynamic Macro Backdrop Event
Q4/F22 adjusted EBITDA of $99mm was a beat vs. the Street/TDSI at $92mm/ $93mm. The beat vs. our forecast was largely due to faster-than-expected backlog drawdown and lower SG&A. Bookings of $638mm were well above our forecast of $580mm, although the ending backlog of $1,438mm was 4% below expectations, reflecting higher-than-expected backlog drawdown and FX.
Impact: SLIGHTLY POSITIVE
Strong Q4/F22 Results: Revenue was up 51% y/y to $603mm, and adjusted EBITDA increased to $99mm (16.4% margin) vs. $59mm in Q4/F21, reflecting ~170bps of margin expansion. Organic revenue growth slowed vs. 24% for the nine months ending Q3/F22, but remained double-digit, whereas our F2023 forecast assumes low-single-digit organic growth, which may prove conservative.
Backlog/Bookings: Bookings totalled $638mm, up 38% y/y, largely due to acquisitions. Organic growth was low at 1%, partly because ATS was lapping some large EV bookings, and partly due to project timing in energy. The book-to- bill ratio was 1.06, and although the backlog of $1,438mm was down modestly q/ q, it still grew 24% y/y, with the less-cyclical life sciences and food and beverage markets comprising 64%. ATS' funnel remains significant, and the company noted improving order intake in cosmetics, and new opportunities related to ESG in grid battery storage, among other areas. ATS expects Q1/F23 backlog conversion at the low-end of 40%-45%, which creates some pressure on bookings to hold/grow the backlog, but the company now has a higher weighting to shorter-cycle product sales, which are booked/billed in the same quarter.
Supply Chain: ATS continues to mitigate supply-chain constraints and inflationary cost pressure exceptionally well, in our view, by locking in most of its costs on fixed-price contracts during the proposal stage, accelerating its order timing, securing alternative sources of supply, implementing price increases, etc. The company has a very diversified supply base, with its top 10 suppliers accounting for <15% of its total external spend, and no supplier comprising >3.5%.
TD Investment Conclusion
Despite near-term uncertainty, our investment thesis is intact. We are attracted to ATS based on its unique positioning to benefit from supply-chain reshoring, the scope for continued margin improvement, and the prospect of further M&A upside.