ATS Corporation
Q4/F24 Adj. EBITDA ahead of RBC/consensus; Q1 top-line guide short of consensus
TSX: ATS | CAD 44.65 | Outperform | Price Target CAD 65.00
Sentiment: Neutral
Initial take – Q4/F24 results were ahead of expectations, which is directionally positive; however, the outlook for FQ1 revenue is below current RBC/consensus expectations.
Results details – ATS reported Q4/F24 results above Street forecasts. Revenue was $791.5MM (+8.3% YoY; +3.5% YoY organic growth) vs. RBC/consensus expectations of $714.6MM/$721.9MM, while Adjusted EBITDA of $115.8MM (-2.0% YoY) was also ahead of RBC/consensus $108.5MM/$108.5MM. Relative to our forecasts, higher-than-expected revenue and Gross Profit as a % of revenue was partially offset by higher-than-expected SG&A as a % of revenue, driving Adjusted EBITDA ahead of our forecast. Adjusted Diluted EPS was $0.65 vs. RBC/consensus estimates of $0.61/$0.57.
Bookings of $791MM were well ahead of RBC forecast of $676MM; backlog stands at $1.8B – Bookings in the quarter totalled $791MM (+7.3% YoY, +2.1% organically; +18.4% QoQ), well ahead of RBC forecast of $676MM and implying a quarterly book- to-bill ratio of ~1.0x (~0.95x on a LTM basis). The YoY growth in bookings was driven by Life Sciences, Food & Beverage, and Energy, partially offset by declines in Transportation (prior year period included US$119.9MM of orders from a global automotive customer) and Consumer Products. Backlog exiting FQ4 stood at $1,793MM (-16.7% YoY, -6.0% QoQ).
Entered into definitive agreement to acquire Paxiom Group – Yesterday, ATS announced it had entered into a definitive agreement to acquire Paxiom Group (“Paxiom”), a provider of primary, secondary, and end-of-line packaging machines in the Food & Beverage, Cannabis, and Pharmaceutical industries. Paxiom's offerings complement several of the products/services of ATS’ existing businesses and allow the company to offer complete packaging and end-of-line solutions. ATS expects the transaction to close in calendar Q3/24 (lines up with ATS' Q2/F25).
O1/F25 revenue guidance & outlook commentary – For Q1/F25, ATS expects Backlog conversion of 36%-40%, which implies revenue of ~$645MM-$717MM (vs. RBC/consensus of $719.5MM/$722.4MM coming into today's reporting). The lower-than- expected backlog conversion is partially driven by a ~$50MM backlog reduction to reflect scope changes related to one of ATS' EV customers, partially offset by scope changes leading to increased backlog in other areas of the overall program with this same customer. For context, this $50MM scope change impact was a portion of the ~$200MM of backlog with the same above-noted EV customer that had been delayed as of FQ4. Overall, ATS continues to work to support this customer's revised timing as they realign their production schedules on this portion of the program.
Overall, funnel activity remains strong across Life Sciences, Food & Beverage, and Energy, while the outlook for Consumer Products is "stable" and the Transportation funnel is being driven by smaller opportunities as OEMs take a more "measured" approach to large EV investments. In Life Sciences, the focus remains on the strategic sub-markets of pharmaceuticals, radiopharmaceuticals, and medical devices, with management expecting programs related to GLP-1 and associated drug delivery solutions (e.g., auto- injectors) to move toward a ~HSD% of total revenue over the next several years.
The outlook further notes that although customers are exercising "normal" caution in their approach to investment and spending, management continues to highlight 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' business (e.g., rising labour costs, labour shortages, production onshoring/reshoring) remain in place. From a macro perspective, ATS continues to address short-term supply chain volatility, which we think has been managed well to-date.