ATS Corp T.ATS

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ATS Corporation

(ATS-T) C$56.00

First Look: Q1/F24 EBITDA Beat Event

August 9, 2023

Recommendation: BUY

Risk: MEDIUM

12-Month Target Price: C$71.00

12-Month Dividend (Est.): C$0.00

12-Month Total Return: 26.8%

• ATS reported Q1/F24 adjusted EBITDA of $119mm, a 3%-4% beat vs. the Street/TDSI at $114mm/$115mm. The major variance vs. our forecast was a slightly faster than expected backlog drawdown, which may be due to favourable execution and/or earlier-than-expected receipt of materials.

• Bookings of $690mm were healthy, and only marginally below the Street's/ our expectation of $703mm/$700mm. The book-to-bill ratio was <1.0, as expected (0.92), but the TTM book-to-bill ratio remains strong at 1.18 and the backlog of $2.0bln is up 30% y/y, and remains at near-record levels.

• The conference call is at 8:30 a.m. ET. Dial-in: 1-888-390-0546.

  Impact: NEUTRAL

• Q1/F24 Results: Revenue increased 23% y/y to $754mm, reflecting healthy organic growth of 15% plus acquired revenue (~2%) and an FX tailwind (~6%). Adjusted EBITDA increased 29% y/y to $119mm (15.8% margin) vs. $93mm (15.1% margin) in Q1/F23. The margin expansion reflects lower adjusted SG&A as a % of revenue, partially offset by a lower gross profit margin, in part due to the execution of some higher-margin programs in Q1/F23.

• Solid Bookings/Backlog: Bookings of $690mm, while down 6% y/y and q/q, were quite healthy considering that Q1/F23 included a US$70mm EV order and Q4/ F23 included a US$120mm EV order. The backlog of $2.0bln is up 30% y/y and down only marginally q/q. We think that investors will want to be reassured that ATS is making progress on adding new OEM customers to its EV backlog and to understand an unusually large unfavourable backlog adjustment of $66mm.

• Outlook Commentary: The company's outlook commentary is virtually unchanged vs. last quarter. Funnel activity is strong in life sciences, including pharmaceuticals, radiopharmaceuticals, and medical devices, which includes auto-fillers and auto-injectors (specifically mentioned for the first time). Transportation and food and beverage also have robust funnels. Activity is stable in consumer products, and in nuclear, and the nuclear funnel includes some longer-term opportunities.

• Balance Sheet: The proceeds of the company's U.S. IPO were initially used to pay down the credit facility, resulting in net debt to TTM adjusted EBITDA of 2.0x vs. 2.7x in Q4/F23.