ATS Corp T.ATS

RBC

[retiredcf]

February 9, 2023

ATS Corporation
A good Q3 print; Outlook commentary is supportive

TSX: ATS | CAD 53.93 | Outperform | Price Target CAD 55.00

Sentiment: Positive

Initial take – ATS reported good Q3/F23 results with revenue and Adjusted EBITDA ahead of RBC and Street forecasts, while Adjusted EPS was just shy of consensus, driven by a higher-than-anticipated interest expense. Revenue was $647.0MM (+18.3% YoY, +9.6% YoY organic growth) vs. RBC/consensus expectations of $622.6/$625.4MM, while Adjusted EBITDA of $95.1MM (+13.9% YoY) was ahead of with RBC/consensus forecasts of $90.7MM/$91.5MM. Relative to our forecasts, higher-than-expected revenue and Gross Profit margin, as well as lower-than-expected SG&A as a % of revenue, drove Adjusted EBITDA ahead of our forecast. Adjusted EPS came in at $0.51 vs. RBC/consensus of $0.52/$0.53.

Q3/F23 bookings of $979MM (+45.9% YoY); backlog stands at $2,143MM (+45.3% YoY; +37.8% QoQ) – Bookings in the quarter totalled $979MM (+45.9% YoY including +38.2% organic growth; +21.8% QoQ), well ahead of RBC forecast of $697MM and implying a strong quarterly book-to-bill ratio of 1.5x. Bookings in the quarter were driven by strong orders in Transportation (including a US $221MM booking from an existing automotive customer; US$120MM of additional bookings from this customer were announced subsequent to the quarter) and Life Sciences, partially offset by lower YoY bookings in Food & Beverage due to project timing and Consumer Products due to a large project award that occurred in Q3/F22. Backlog exiting Q3 stood at $2,143MM (+45.3% YoY, +37.8% QoQ). As a result of the extended project conversion period, combined with the higher Backlog, ATS expects Backlog conversion of 29%-32% in FQ4. This implies FQ4 revenue of $621.5MM-$685.8MM (vs. current consensus of $674.4MM for Q4/ F23).

Outlook commentary: Funnel activity remains strong across Life Sciences, Food & Beverage and Transportation, while the outlook for Consumer Products and Energy is "stable". Although some customers are still exercising "normal" caution in their approach to investment and spending, management has not seen a change in customer behaviour so far. From a macro perspective, the company continues to address supply chain disruptions and cost pressures due to inflation, as well as monitor its exposure to European customers (Europe currently accounts for 27.2% of total backlog). Despite these pressures, ATS continues to execute well in our view, as highlighted by the company's strong results to-date. Finally, the company provided an update on the reorganization activity announced last quarter, which was expected to primarily impact "certain management positions". The program was expected to cost ~$20MM-$25MM (YTD expenses of $11.7MM thus far, with $10.5MM recorded in FQ3) with a payback period of ~18 months. We will look for additional colour on this and the operating outlook on the 8:30am ET call this morning.