July 8, 2024
ATS Corporation
Key takeaways from investor meetings
Our view: We hosted ATS management (Andrew Hider, CEO; Ryan McLeod, CFO; David Gallison, IR) for marketing meetings in Europe. Topics in focus included the outlook for the company's larger end-markets, the runway for margin improvement, potential impact of a change in U.S. administration, and capital allocation. See below and inside for details.
Key points:
Continued resilience in the Life Science market – Overall, ATS continues to see good Life Sciences demand (this business has been a stabilizing force amid the "mixed" macro backdrop), notably in the Autoinjector and Radiopharmaceutical sub-segments. On GLP-1 drugs more specifically (these were a focus during investor meetings), ATS continues to service a diverse customer base including all major competitors in the space.
Transportation segment contribution to be more balanced going forward – Transportation/EVs was a key focus area during investor discussions (for context, recall the initial build-out of EV capacity by a major customer led to ~$800MM of orders over a short period of time for ATS). While this business and the sizeable orders through F2023 were supportive during an uncertain macro environment, there was (and has been) some level of investor concern as this business made up more than 40% of ATS' backlog at one point. Looking ahead, management noted that as the mix of EV work has moderated, they have been able to re-deploy resources into other business lines, while the expected run-rate contribution from EV-related work should level off at ~20% of the business.
Opportunities for margin expansion – Management noted that there remains opportunity for margin improvement which they expect to be driven by: 1) favourable supply chain dynamics (notably lead time improvement); 2) standardization across the business; 3) optimizing revenue mix; and, 4) operating leverage.
Change in administration could benefit ATS – One interesting takeaway from investor meetings was management noting that the push to bring manufacturing back to the U.S. by a Trump administration could be a positive. For context, ATS already hears from many customers that labor is a constraint, which means that increased "re-shoring" should drive an increase in demand for automation related work.
M&A remains a key focus – Within ATS' broader capital allocation framework, M&A remains a major focus area. The company continues to focus on cultivation efforts across its end-markets, with segment Presidents leading this process (vs. the CEO being primarily responsible historically). While M&A remains the focus from a capital allocation standpoint (recent Paxiom deal added a high-margin platform), we believe organic investments (e.g., R&D) will represent another attractive use of capital for the company (NCIB will be used opportunistically in our view).