ATS Corp T.ATS

TD 2

[retiredcf]

Their target is now $63.00. GLTA

SHARE PRICE UP 5% ON CREDIBLE PATH TO MODEST EBITDA GROWTH IN F2025

THE TD COWEN INSIGHT

We believe ATS has articulated a credible path to modest F2025 EBITDA growth despite a rapid cooling of the EV boom and have modestly increased our forecast accordingly. Our favourable view of ATS' secular earnings growth potential over the medium/long term is largely unchanged, but we have elected to pull back our Street-high F2026 EBITDA estimate, resulting in a net decrease to our target price.

Event

ATS reported Q4/F24 results.

Impact: SLIGHTLY NEGATIVE

Q4/F24 Results: EBITDA of $116mm was a 7%-8% beat vs. the Street/TDSI at $109mm/ $108mm, with higher-than-expected revenue partly offset by a lower-than-expected EBITDA margin (14.6% vs. consensus of 15.0%). Weaker-than-expected margin performance was largely related to execution on a handful of projects and does not seem to be indicative of a trend.

Bookings/Backlog: Bookings were strong at $791mm, the third-highest on record, and
a big beat vs. the Street/TDSI at $718mm/$741mm. Bookings increased 7% y/y, as 2% organic growth and bookings from acquired companies in life sciences offset the absence of a US$120mm EV order booking in Q4/F23. That said, the Q4/F24 book-to-bill ratio was still just 1.0x, and the ending backlog of $1.8bln was 7% below our expectations and down 17% y/y. Of the ~$200mm of EV work put on hold last quarter, a net ~$50mm was cancelled, with the remainder pushed out but still in backlog.

Market Commentary: The TTM book-to-bill ratio was 1.12x, excluding EVs, which implies considerable ongoing strength in the other verticals, most notably life sciences, food and beverage, and energy. Activity is stable in consumer products, which had a book- to-bill ratio >1.0x. The EV boom has rapidly cooled, and it will take longer to convert the remaining working capital investment into cash, but ATS did not make permanent resource commitments to the EV market, and has redeployed the cash generated thus far to enhance its presence in markets with better resiliency.

F2025 Outlook: ATS believes revenue growth ex EVs, combined with acquired revenue, should largely offset the impact of reduced EV volumes, which implies that F2025 revenues should be flat to down slightly vs. F2024. The combination of a more favourable revenue mix (more life sciences/less transportation), improving supply-chain velocity, and margin-accretive acquisitions creates a credible path to modest F2025 EBITDA growth in our view. The recently announced Paxiom acquisition adds key capabilities in packaging, and should be ~2% accretive to revenue and ~3% accretive to EBITDA, based on its calendar 2023 results.