ATS Corp (ATS) Q2 2027 Earnings Call Transcript

DATE

Wed, Nov. 4, 2026

CALL PARTICIPANTS

• Head of Investor Relations - David Ocampo
• Chief Executive Officer - Douglas William Wright
• Interim Chief Financial Officer - Anne Cybulski

TAKEAWAYS

• Order Bookings -- $827 million, representing a 12.7% increase year over year driven primarily by large enterprise orders in the life sciences sector.
• Revenue -- $665.8 million, reflecting an 8.6% decrease due to a more normalized level of GLP-1 activities and lower volumes in non-life sciences businesses.
• Adjusted Earnings from Operations -- $57.4 million, down from $79.1 million in the prior year primarily due to lower volumes and unfavorable mix.
• Adjusted Earnings from Operations Margin -- 8.6%, a decrease from 10.9% in the prior-year period reflecting the impact of absorption and project mix.
• Order Backlog -- $2,009 million, which included a record $1.2 billion in life sciences backlog.
• Fiscal 2027 Revenue Guidance -- $640 million to $680 million for the third quarter, based on the expected conversion of existing backlog and anticipated book-and-bill orders.
• Fixed Cost Transformation Program -- $65 million to $75 million in projected annualized cost savings, intended to support 250 basis points of margin expansion toward a 15% long-term target.
• Workforce Reduction -- 300 to 400 positions globally, including subcontractors, as part of the structural reorganization and facility closures.
• Share Repurchases -- $61.3 million, representing the repurchase of 2,244,461 common shares during the second quarter at an average price of $27.32 per share.
• Net Debt to Adjusted EBITDA -- 3.1 times, standing slightly above the target range of 2.0 to 3.0 times due to lower trailing 12-month EBITDA and capital deployment for buybacks.
• Adjusted Basic EPS -- $0.27, compared to $0.45 in the second quarter of the prior year.
• Non-cash Working Capital -- 13.4% of adjusted revenues, remaining within the long-term target of 15% or less.
• Facility Sales -- $71.2 million in proceeds from the sale of two U.S. facilities, resulting in an estimated gain on disposal of $12.2 million.
• CapEx and Intangibles Guidance -- $60 million to $80 million for fiscal 2027, adjusted from previous estimates.
• Food and Beverage Backlog -- $223 million, supported by customer plant upgrades despite cyclicality in the tomato processing market.
• Energy Backlog -- $236 million, reflecting continued investment in nuclear refurbishment and life extension programs.
• Industrial and Consumer Backlog -- $312 million, as management repositions the portfolio toward mission-critical production environments.
• Gross Margin -- 28.6%, representing a 131-basis-point decrease year over year driven by lower absorption.
• Cash Flow from Operations -- $81 million, an improvement from $28 million in the prior-year period.
• Facility Closures -- 10% reduction in global square footage announced to date, primarily focused on excess capacity in Europe.

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RISKS

• Cybulski stated, "Management does not expect to achieve its previous goals for modest revenue growth, and for margin expansion in the year," noting that lower revenues and project mix are temporarily offsetting transformation benefits.
• Wright noted that Section 338 tariffs "affected our packaging equipment, and delayed customer decision making in response to the tariffs," which exacerbated timing shifts in customer orders.
• Cybulski warned that management expects to operate moderately above the target leverage range of 2 to 3 times for the remainder of fiscal 2027.

SUMMARY

ATS Corporation (NYSE:ATS) reported second-quarter results characterized by record backlog in the life sciences segment alongside operational headwinds in non-core markets. Management withdrew previous full-year guidance for revenue growth and margin expansion, citing temporary delays in order bookings for packaging equipment and the impact of Section 338 tariffs. The company is actively executing a Fixed Cost Transformation Program to reduce its global footprint by 10% and lower its fixed cost base. While organic revenue declined, growth in the radiopharma and nuclear sectors provided a partial offset. The company remains focused on its capital allocation framework, prioritizing a mix of organic investment, strategic acquisitions, and share repurchases while navigating a period of lower volume absorption.

• Management noted that the lift of Section 338 tariffs in late October is expected to benefit the packaging automation business as customers advance deferred capital expenditure plans.
• Interim CFO Cybulski indicated that approximately half of the targeted $65 million to $75 million in cost savings will come from cost of revenues, with the remainder from selling, general, and administrative expenses.
• The company reported that radiopharma remains a significant growth driver, with CEO Wright stating, "our radiopharma backlog continues to grow and it is a highly attractive opportunity supported by increasing adoption of therapeutic applications."
• In the nuclear sector, the company is targeting expansion into the U.S. and U.K. markets, supported by the recent issuance of the first commercial small modular reactor construction permit in Tennessee.
• Management is expanding its food and beverage opportunity set beyond tomato processing into fresh fruit and secondary packaging to reduce cyclical exposure.
• The company completed a sale-leaseback of one U.S. facility to support its growing nuclear business while using the proceeds to fund restructuring activities.

INDUSTRY GLOSSARY

• ABM (ATS Business Model): A disciplined business management system focused on people, processes, and performance to drive continuous improvement and margin expansion.
• Book-to-bill ratio: The ratio of orders received to units shipped and billed, used to gauge future revenue potential.
• GLP-1: A class of medications used to treat type 2 diabetes and obesity, driving demand for specialized automated assembly and injection systems.
• NCIB (Normal Course Issuer Bid): A program through which a company repurchases its own shares from the open market for cancellation.
• Radiopharma: A specialized field of medicine using radioactive isotopes for diagnosis or treatment of diseases like cancer.
• Section 338 Tariffs: Trade duties imposed under the Tariff Act of 1930 that recently affected Canadian-manufactured packaging equipment sold into the United States.
• SMR (Small Modular Reactor): A type of nuclear fission reactor that is smaller than conventional reactors, allowing for factory fabrication and modular installation.

Full Conference Call Transcript

Operator: Welcome to the ATS Corporation Second Quarter Conference Call and Webcast. This call is being recorded on 11/04/2020 at 08:30AM eastern time. Following the presentation, we will conduct a question and answer session. I would now like to turn the call over to David Ocampo head of investor relations at ATS.

David Ocampo: Thank you, operator, and good morning, everyone. On the call today are Douglas William Wright, Chief Executive Officer; and Anne Cybulski, Interim Chief Financial Officer. Please note that our remarks today are accompanied by a slide deck. Which can be viewed via our webcast and available at atsautomation.com. We caution that the statements made on the webcast and conference call may contain forward looking information, and our cautionary statement regarding such information, including the material factors that could cause actual results, to differ materially from the statements, and the material factors or assumptions applied in making the statements are detailed in slide 3 of the slide deck. With that, my pleasure to turn the call over to Douglas.

Douglas, over to you.

Douglas William Wright: Thank you, David, and good morning, everyone. Today, we reported our second quarter results for fiscal 27. Before I walk through my typical updates, I will start by noting that the strength of our end markets is visible, with strong growth in order bookings this quarter, especially in life sciences. We continue our focus on aftermarket, and improvement in our ABM. Including refining our commercial processes. We have a clear view on the portfolio, our strategy, and on driving execution across our businesses. And we are making progress on our fixed cost transformation program, which is already delivering results to set us up for the future.

At the same time, we are managing temporary delays in order bookings in some of our non life sciences businesses. Specifically in relation to packaging automation equipment, what would otherwise likely have been a modest timing shift in orders, has been exacerbated by section 38 tariffs. The Section 38 tariffs that came into effect in late August after the breakdown of trade talks between Canada and the United States affected our packaging equipment, and delayed customer decision making in response to the tariffs. At the end of October, the US announced modifications to section 38 tariffs, eliminating the impact on nearly all of the covered products.

We welcome that, and expect it to benefit ATS and our affected customers over time as our customers digest the various changes and advance their capital expenditure plans. Now moving to results. Order bookings were $827 million in the quarter. In life sciences, we ended the quarter with our highest order backlog in ATS history. We continue to see a healthy pipeline of activity across our end markets and remain well positioned to participate in their long term growth. Particularly in life sciences and nuclear. Turning to revenue. Q2 revenues were $666 million within our expectations, and our aftermarket revenues grew as we remain focused on this longer term margin accretion driver.

Adjusted earnings from operations were $57 million with an adjusted margin of 8.6%, compared to 10.9% last year reflecting lower volumes and a mix that included fewer higher margin programs. Turning to end markets. We ended our second quarter with approximately $2 billion of order backlog. Within Life Sciences, backlog was $1.2 billion which is our highest backlog on record in this end market. And reflects continued diversification of our opportunities. As an example, our radiopharma backlog continues to grow and it is a highly attractive opportunity supported by increasing adoption of therapeutic applications, and ongoing investment in isotope production. Our capabilities in containment, automation, and life cycle support position us to participate in multiple phases of that build out.

Beyond radiopharma, the funnel includes a range of medical device solutions including diabetes and vision care, along with automated pharmacy and other evolving applications, including automated sterilization, and liquid pharma visual inspection. In food and beverage, backlog was $223 million bookings were up year over year for the third consecutive quarter. However, below our expectations for the year based on the cyclicality in the tomato business. Our funnel is supported by customers upgrading existing plants to improve productivity and reduce operating cost. As an example, a large share of the global Keg line installed base is approaching the end of life, which is creating a replacement pipeline for us.

In energy, backlog ended the quarter at $236 million Our funnel remains strong, supported by investment in energy security, infrastructure modernization, and new power generation for data centers. Within nuclear, CANDU refurbishment and life extension programs continue to support capital project opportunities today and life cycle service opportunities over the long term. The new build market is also advancing. In September, The US regulator issued its first construction permit for a commercial small modular reaction in Tennessee. In Ontario, construction of the Darlington SMR is advancing and 2 large scale new builds are progressing through predevelopment and impact assessment. As this market continues to advance from licensing into construction, ATS remains well positioned given early engagement.

During the quarter, we booked several additional orders with an existing SMR customer, a ZYN order with a new customer, and we continue to build on our capabilities in this area. In industrial and consumer, backlog was $312 million and the funnel activity is stable. We continue to reposition the portfolio toward opportunities with better returns, and within our industrial business, we are broadening our pipeline into mission critical production environments. On capital allocation, in the quarter, we repurchased approximately 2.2 million shares for $61 million under our normal course issuer bid.

The purchase of our own shares is not only based on our confidence in the long term value of the business, but in addition, measured against our capital allocation framework, it was a compelling use of capital. Share repurchases are 1 part of our capital allocation program, which includes tools to evaluate organic investments acquisitions, and portfolio optimization opportunities. To execute on that program, we have strengthened the team. We brought in 2 senior leaders in corporate development and transformation. Both leaders reflect our commitment to disciplined capital allocation and to delivering the fixed cost transformation program. We pursue opportunities only where they meet our criteria for shareholder value creation.

Our acquisition funnel remains active across a number of our end markets. We remain focused on opportunities that are strategically aligned and meet our return requirements. In summary, Q2 results delivered strong order bookings and our highest life science backlog on record. Which is diversified across several key growth areas. We believe that the delays due to section 38 tariffs and other customer delays are temporary in nature, and we are actively managing the impact. Our conviction in our end markets and the growth within them is unchanged.

That conviction is supported by a healthy trailing 12 month book to bill ratio, strong radiopharma growth as therapies move toward commercialization, nuclear demand accelerating on the back of energy security and data center demand, and a clear aftermarket opportunity. We continue to advance our fixed cost transformation program both through a reduction of our footprint and related adjustments to our workforce. Although these adjustments are not easy, we have not wavered from our desire to build a stronger company.

With my evaluation of our businesses complete, and with our team's development of clear return driven operating models, deep strategic understanding in connection to our end markets and customers, I remain confident in the opportunities we have in front of us as a global automation player. Now I will turn the call over to Anne Cybulski for her financial report. Anne, over to you.

Anne Cybulsk: Thank you, Douglas, and good morning, everyone. Today, I will provide an update on our outlook for fiscal 27 and progress on our fixed cost transformation program. I will also provide further details on our results. I will start with our outlook for fiscal 27. We are pleased with the strength of our order bookings and backlog, which gives us confidence in our return to top line growth over time. That said, given the order bookings delays, in particular, those related to packaging equipment, and the execution time for our orders to convert to revenues, we do not expect to achieve our previous goals for modest revenue growth, and for margin expansion in the year.

To be more specific, while progress on our fixed cost transformation program has been meaningful, lower revenues and mix are temporarily offsetting these benefits. Especially over the next several months. We expect third quarter revenues to be in the range of $640 million to $680 million As a reminder, this information is based on the expected conversion of existing order backlog together with revenues from orders anticipated to be booked and billed within the quarter. Overall, we continue to see strength in our funnel and momentum in bookings. As that continues, we have confidence in our ability to drive growth, and margin improvement as we start to execute on our backlog and transform our cost base.

To that end, during the quarter, we advanced our fixed cost transformation program. As a reminder, this program is designed to drive meaningful structural changes to ATS' cost base by simplifying our operating structure optimizing our global footprint, and reducing fixed costs to better align with our current business profile and long term growth objectives. We are committed to delivering $65 million to $75 million of annualized savings once completed. Or roughly 250 basis points of margin expansion. From a base of 10%, this represents approximately half of the path to our adjusted earnings from operations margin target of 15%. With the remainder from aftermarket and ABM focus.

Given the nature of the facility and reorganization activities associated with the fixed cost program, implementation will continue over the next 15 months with benefits building progressively as actions are completed within the planned timeframe. Thus far, we have announced several facility closures, including in Europe, that will reduce our square footage by approximately 10%. In October, we completed the planned sale of the 2 US facilities previously used for our transportation business.

For $71.2 million resulting in an estimated gain on disposal of approximately $12.2 million We completed a sale leaseback of 1 of the facilities to support our growing nuclear business in the US, the proceeds are expected to help fund the cash cost of our restructuring activities, including the fixed cost program. As a result of the actions announced to date, there will be a workforce reduction, including subcontractors, of 300 to 400 globally, and additional adjustments as further steps in the program are taken. We continue to expect payback on restructuring to be less than 1 year overall, with some variability depending on jurisdiction.

In Q2, we recorded $21.3 million of restructuring costs, Approximately half of this was related to the fixed cost transformation program, with the remainder associated with previously announced restructuring actions that are now complete. With that context, I will turn to our operating results for the quarter. Order bookings were $827 million up 12.7% from Q2 last year. The increase reflected large enterprise orders in life sciences, Our trailing 12 month book to bill ratio was 1.05 to 1. We ended the quarter with an order backlog of approximately $2 billion up sequentially from Q1. On a combined basis, life sciences, food and beverage, and energy represented more than 85% of total backlog.

Supporting future growth across our more highly regulated end markets. Revenues for the second quarter were $666 million in line with our guide. The 8.6% reduction from last year reflected a more normalized level of GLP-1 related volume, along with lower activity in non life sciences businesses. However, of note, excluding GLP 1 revenues, life sciences were up year over year. Turning to earnings. Second quarter adjusted earnings from operations were $57.4 million a 27.4% decrease from last year. Adjusted earnings from operations margins were 8.6%, down from 10.9% in the prior year. Primarily reflecting the impact of mix and absorption.

Gross margin for Q2 was 28.6% of revenues, a 131 basis point decrease from last year again driven by mix and absorption. On SG and A, excluding adjusting items, expenses in the second quarter totaled $128.8 million, a $5.7 million decrease from the prior year mainly on lower employee costs. Excluding the mark to market impact related to changes in our share price, stock based compensation expense was $4.2 million in Q2. Adjusted earnings per share for the quarter were $0.27 Moving to the balance sheet. In Q2, cash flows provided by operating activities were $81 million compared to $28 million last year.

Our working capital as a percentage of revenues was 13.4%, and within our long term target of 15% or less. During the quarter, we invested $18.2 million in CapEx and intangible assets, bringing the year to date total to $33.8 million For fiscal 27, we now expect CapEx and intangible investment to be between $60 million and $80 million On leverage, our net debt to adjusted EBITDA ratio was 3.1 times, The increase reflects lower trailing 12 month adjusted EBITDA as well as the share repurchases in the quarter. Excluding share repurchases, our net debt to adjusted EBITDA ratio was 3 times.

Absent any material acquisitions or actions to optimize our portfolio, we expect to operate moderately above our target leverage range of 2 to 3 times during the remainder of fiscal 27. We remain disciplined on capital allocation. And any acquisition would need to be supported by a well defined path back toward our target leverage range. In summary, we are encouraged by growth in order bookings and backlog. And therefore, we are confident in our return to top line growth over time. In addition, we have a clear focus on aftermarket, and its contribution to revenues and margin, and we drove improvements in free cash flow in the quarter.

We continue to implement the fixed cost transformation program, and we are on track for its operational rationalization benefits to build. We also continue to drive improvements using the ABM including around commercial process acumen. With our disciplined focus across our businesses, we expect more efficient usage of our capital along with a structurally lower cost base and stronger cash generation over time. The effort our teams are demonstrating is evident to me every day through their deep understanding of our end markets, their drive to innovate, and their connection to driving shareholder returns through the use of our operating models. I echo Douglas's confidence in the opportunities that ATS has in front of us.

Now we will open the call to questions from our analysts. Operator, could you please provide instructions?

Operator: Thank you. Will now begin the question and answer session. Please limit yourself to 1 and 1 follow-up. If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Sabahat Khan with RBC Capital Markets. Your line is open. Please go ahead.

Sabahat Khan: Thanks, and good morning. So just the first 1 on the demand environment here. Maybe if can just delve a little bit deeper into the commentary around the verticals that are seeing delays due to tariffs. How have sort of the customers how have they evolved in terms of the outlook? Do you have some visibility to when that business rolls in? And then maybe you can just tie in the strength that is there in life sciences, where exactly that is coming from. Thanks.

Douglas William Wright: Good morning, Sabahat. So on the tariff situation, the impact is concentrated in our packaging consumer business. And so it is basically several lines that were manufactured in our Canadian facilities sold into the US market. So it is isolated to those. it is not related to our life sciences products. it is really the packaging systems. Both the it was on the original list, and the same products were taken off of the list at the end of October. In terms of the, as you said, the life sciences business has had a good quarter on the order side. We have.

As we have talked about with everyone over the last couple of quarters, we have been working really hard to diversify our pipeline. And looking at different modalities of med device and pharma. Inclusive of things like diabetes care, sterilization, liquid pharma, visual inspection, vision care. So. And obviously, our radiopharma business has been quite strong. So in the quarter, it was balanced across many of those things. Radiopharma was a standout performer. And we had some follow on repeat business from several customers. In the other modalities that I mentioned. So it was a really good it was a really good quarter for our life sciences team.

Sabahat Khan: Okay. Thanks. And then just for my follow-up, if we look at the margin side, can you-- is it too early for that fixed cost transformation changes to have contributed to margins? Just trying to get an understanding of what maybe underlying margins were if you assume flat revenue and no mix headwind and sort of-- is revenue and then kind of tied to that and the target around 15%, I guess, there is a certain level of revenue growth required to get to that range. Or, you know, with the FCTP program, you could kind of get there even with the revenues in current range?

Just sort of perspective on underlying margins and what is needed to get to that 15 on the revenue side. Thank you.

Anne Cybulsk: Yeah. So, Sabahat, hi. I can answer that to start, and then if Douglas wants to add, he can? So we have made good progress on the fixed cost transformation program. And there is good momentum there. We. As I said in my prepared remarks, we are committed to hitting that timeline that we talked about in August. And about half of our restructuring costs in the quarter came from that program. So that benefit will build over time. The near term, as I said, we expect an impact on our margins over the next several months as we respond to the current demand environment specifically related to order bookings and delays that we talked about.

We are we are on track, the original dimensioning of the fixed cost transformation program remains that from a base of 10% on you know, the same the same volume that we had coming out of last year that we can we can drive the savings regardless of top line growth, and that is our goal.

Douglas William Wright: Yeah. And, Sabahat, the only. What I would add to that is that, you know, when we start to see the strength in the life sciences business start to accrue to the revenue growth with this really great pipeline that the team has created and now backed up by a solid, bookings trend. That obviously has an effect on our margin profile as well. So we are really driving both the growth agenda to focus on growing segments of our business that have a higher return on investment, and we have been very specific about areas that we were fading away from and redeploying our investments into.

And then the fixed cost transformation program, is really a specific focus around efficiency where we had overcapacity or overinvestment in some segments And, essentially, what we are doing, Sabahat, is we are taking the benefits of the fixed cost transformation program we are actually overdriving a bit to the commitment that we have made and we are actually reinvesting that. So you can imagine investing in new industries like radio pharma, and SMR take a lot of investment. We have to hire people. We have to build facilities and service centers So it is all oriented toward growth.

So to answer your question more specifically, we will deliver good margin traction as the benefits of both the fixed cost transformation program and the strong growth that we are seeing in the favorable segments that we are aligned to start to perform.

Sabahat Khan: Thanks very much.

Operator: Your next question comes from the line of Justin Keywood with Stifel. Your line is open. Please go ahead.

Justin Keywood: So just following up on the bookings, substantial strength And last quarter, there was mention of potential $100 million orders. Within the radiopharmaceutical space. Did any of those land in their current quarter? So thank you, Justin.

Douglas William Wright: I will take that 1. So the. We did get a large incremental order in radiopharma and we are very happy with the performance sequential performance. Order velocity in radiopharma, And we also got a-- We had several good quality orders in other parts of the pipeline You know, as we have as we have talked about with everyone a lot, we have been spending a lot of time learning how to diversify the modalities of the applications that we can serve and to provide more balance in our pipeline. And so the strength was both in radiopharma and in medical device this quarter. Which is a substantial improvement from the prior couple of quarters where we were.

Where we had a lot of good strength in radiopharma and med device was in the process of refactoring its pipeline. Now we are starting to see that work start to bear fruit.

Justin Keywood: Understood. And as we look into fiscal Q3, is there any indication of just the level of booking strength to continue as we are aware? It is quite lumpy. But historically, bookings and revenue has converged over the longer term. So that could imply there is a path for the sales level to increase gradually. it is not reflected in the fiscal Q3 guidance on the sales level, but is that an opportunity more medium term?

Douglas William Wright: So, obviously, we have we have guided Q3 based on, you know, our visibility to the backlog and the current conditions. But as you said, ultimately, as the pipeline grow-- we have seen the pipeline grow. We are starting to see the backlog grow. that is certainly normally portends to good revenue sequential growth in the medium term. As you said, you know, we had a few. We have some of the investments are long cycle investments by our customers. These are major investments on their part, whether it is radio pharma or med device. So they will be, you know, they will. They will be executed over many quarters. And so I think that the revenue growth out.

Obviously, we are not going to guide for 2028. But as the backlog is now, particularly in life sciences, is at a historical levels. And the pipeline that created that backlog continues to grow and be managed I think we will start to see that process evolve toward greater revenue growth in the medium term as you have highlighted. I think, you know, that.

Justin, there is also a little bit of noise that gets created by, you know, this tariff dynamic that we got a little offside on in the quarter, and that obviously affected orders Even though our orders were strong in Q2, they were we had orders that were supposed to be that were expected, actually did not happen in Q2 related to the 338 exposed tariff If you can imagine, had half the quarter the customer and us were trying to figure out what the heck was going on. So now that is been resolved, that will start to, you know, unlock We would expect it to unlock.

But I think the strength of the orders in the quarter, even with that, impact, is indicative in the in the health of the pipeline. So we are we are pretty pleased with, how the very pleased with how the life sciences team performed in the quarter, and I think it will show up in our revenue in the in the coming quarters.

Anne Cybulsk: Yeah and as. Just 1 quick thing to add, Justin. As we said in our prepared remarks, we do welcome the lifting of the tariffs that caused that order delay impact to several customers, and we would expect that if that environment becomes easier for them to make decisions if and as they were related to tariffs, which we believe they were, then that will help us going forward.

Justin Keywood: Understood. Thank you. Just. Maybe just 1 quick follow-up. Any indication on the bookings that would be unlocked given that tariff uncertainty being resolved?

Douglas William Wright: Well, I would say, Justin, it is a fairly significant our packaging business was pretty material last year. And so as we as we look at the current situation, we are not. I do not want to-- We. it is a little-- we do not want to give guidance on how quickly that business is going to recover because we literally just got the news a week ago when we just had an election last night. So. But I would say that it is a material positive for order potential that, you know, we would be hopeful for.

But I want to steer clear of quantifying it simply because as soon as I do that, then you guys will ask whether it is Q3 or Q4 or whatever. I wanna be a little careful about that.

Justin Keywood: Thank you for taking my questions.

Douglas William Wright: Thanks, Justin.

Operator: Your next question comes from the line of Maxim Sytchev with National Bank Capital Markets. Your line is open. Please go ahead.

Maxim Sytchev: Yes. Hi. Good morning. I just wanted to maybe start with health care and curious around just how we should be thinking about the backlog to revenue conversion. It feels like it is a bit sort of longer dated projects in the backlog. So just maybe any sort of rules of thumb that we should be thinking through that would be super helpful. Thank you.

Douglas William Wright: Yeah. I think, Maxim, good morning. As you said correctly, some of the major CapEx decisions of our customers are longer dated. And in this case, while we had a very strong orders velocity in the quarter in life sciences, the timing of when that is expected to be delivered, is a little longer dated than we would need in order to have it show up materially in Q3 as an example. So I. I would say, you know, we are we are building back our. The base of our backlog but it will take some time to filter through into the robust revenues that 1 could imply with that type of orders growth.

So it is a little longer dated. And I think that is actually a positive in some ways because what that is an indication of is that the market is still making decisions to the significant amount of CapEx against their growth profile. You know, this is not small. These are not small incremental. These are whole factories that are being implemented by these customers in radio pharma and med device.

So I think it actually speaks to the robustness You know, the reason that we are so excited about the life sciences market as a big piece of ATS is that you know, from a market standpoint, there is just a lot of optimism and growth happening in that marketplace. So as we. Particularly, as we have now worked to diversify the pipeline of the different application modalities that we focus on You know, sometimes it is the really exciting new therapies, like in radio pharma, and sometimes it is just repeat business of things like diabetes care or vision care, that are long standing customers that are expanding their capacity, and they are coming to ATS.

So I am I am pretty optimistic about the. I am very optimistic about the growth profile, particularly pleased with the diversification in the in the in the portfolio. Of the pipeline on life sciences. But it will take another quarter or 2 before it starts to really start to reenergize the revenue growth.

Maxim Sytchev: For sure. And I guess maybe a quick question for Anne Cybulski then. Just terms of thinking about comps, etcetera, do we still have 1 or 2 quarters left for kind of GLP 1 sort of, you know, tougher comp, now that we have Q2 in the bag.

Anne Cybulsk: Yeah. that is about right, Maxim. So a couple of quarters and we will be-- we will have lapped the, the previous, GLP 1 order intake. That said, as part of the pipelines that Douglas talked about, those types of applications remain part of the of the overall growth prospects, and we are happy we are happy to have that as part of the as part of the funnel.

Douglas William Wright: Yeah. And, Maxim, just for context, GLP 1, we. You know, financially, as Anne said, we will lap it. But couple of points there. First is that we still have a number of systems that we are building and delivering They are. you know, I was just walking on the shop floor yesterday. there is still a lot of floor space being taken up by these systems. So we are still actively supporting customers in this market. They are still taking on capacity.

And we believe that over the mid to long term, that GLP 1 will continue to be a growth story as lumpy as it is been the growth dynamics If I were to talk to your colleagues over in the pharmaceutical side of the house, you know, the growth dynamics in GLP 1, would indicate, you know, a fairly significant incremental capacity that has to be built out over the next decade. And we are, obviously, very, interested in supporting that as time goes on. So we. Financially, we have lapped it. It will be a positive tailwind, if you will, going into next year. The next calendar year. But I think the.

Over the long term, I still think we are gonna be having conversations about GLP 1. A positive way.

Maxim Sytchev: Okay. Super. Thank you so much.

Douglas William Wright: Thanks, Maxim.

Operator: Your next question comes from the line of Fred Tremblay with Desjardins. Line is open. Please go ahead.

Analyst: Thanks. Good morning. Earlier on the call, you commented on life sciences orders being longer dated. Understanding that is the nature of those orders. But I was curious if on the other end, if you are seeing opportunities to improve overall project execution and internal efficiency to help shorten that conversion from order to revenue across the organization? Any thoughts on that aspect of it?

Douglas William Wright: So, Fred, good morning. Yeah. I mean, I think to some extent, the our ability to offer shorter lead times to our customers becomes a competitive advantage. And in some parts of our business, you know, we have the opportunity to do that. I think when a when a customer gives us their schedule for a large. When they are building a new something like a new factory, it is usually not really our timing that regulates the revenue cycle. it is usually the amount of engineering and execution that has to happen.

I think it is a good point that over time, we have had a number of our units that have been working with our ATS Business Model team to compress their lead times and to approve. Improve their internal efficiency it is actually a big driver in our ATS Business Model cost activity to, you know, the in project in project based businesses on that side of the house, experiences taught us that if we go slow, we find more opportunities to make mistakes and to have, you know, variances in our cost. So I think it is a valid point. It does not necessarily change the.

Bend the curve too much on the most recent strong bookings that we had.

Anne Cybulsk: If it were an optimistic way to be able to do that, you would be sure you can be sure that we would pull the trigger on that. But in these in these cases, these large orders are new factories that are not just us delivering equipment. it is a whole ecosystem of folks that have to perform And, therefore, in some cases, the longer dating is something that we have to support. I would just wanna add, though, that in some cases, and this is really when we talk.

When I talk about the deep knowledge that our teams have of their end markets and their customers, In some cases, especially when it comes to innovative products that we are bringing to market, including some that we have you know, launched at recent trade shows. Lead time is important. But what is more important is the depth of knowledge that our teams have around where to innovate, where to invest in innovation, and what our customers actually require. So both project execution and innovation and bringing to bringing our products to market faster are beneficial to our customers.

Analyst: Great. Very helpful. And then just for my follow-up, Douglas, I am looking at the reduction in square footage and labor force as well in terms of the cost transformation program. You maybe expand a little bit on how you think about those initiatives relative to what should be an eventual revenue bounce back for the company given the bookings that we are seeing now and hoping to see in the future as well? How do you keep the flexibility to respond to that environment while at the same time trying to optimize the footprint. Thanks.

Douglas William Wright: Well, Fred, you answered part of the question yourself. I think it. A lot of it has to do with our we have to have a flexible tactical ecosystem that allows us to adjust when conditions change. In this particular case, you know, we were we were quite thoughtful in our fixed cost transformation exercise in terms of where we were reducing capacity and we have not seen any evidence that our thesis about where growth was expected to come and where growth is occurred have changed our direction there. So put it differently, the places like Radiopharma and these med device areas that we are talking about, we are not reducing capacity there at all.

In fact, we are adding capacity in radiopharma specifically So it is really the other portions of the nonlife sciences portion of the business. Where we have a. You know, a little bit of it was the carryover effect of the transportation segment that we that we faded away from. And in the food business and other parts of the system, where that fixed cost transformation program, we are still on track We are. Our thesis about where we needed to remove where the where the return on investment was below standard and where the cost needed to come out. That has not been changed at all. By the strength in the bookings.

The only thing that would change our outlook there would be some dramatic change in the portfolio or some dramatic change in the end markets, But the reality is that most of what is happening in our end markets dynamics right now are things that we predicted during our work that we put together when we put together the fixed cost transformation program. Because I. And I wanna make sure that you guys understand this.

When we I know that in some industrials, there is a an effort to sort of provide a kind of a universal haircut on cost across the enterprise as almost a reaction to usually some recession or some negative thing that is happening in the market. In this case, our fixed cost transformation program, maybe it is a maybe we did not name it properly, but it is very targeted. On areas. Specific areas of the portfolio that we are underperforming. So by deduction, Fred, the areas of the business where we are seeing the strong orders growth have. In fact, are getting new investments Radiopharma, we just completed the expansion of our facility in Bologna.

And we just opened up a new. We last year, we commissioned a new service center in the Central United States, and we just are starting another 1 in Melbourne, Australia. So there is a significant amount of investment happening in the areas where we are seeing the growth. So I do not have. there is not a dilemma here it is a very surgical exercise about where we are addressing floor space and workforce where the capacity was simply over. Oversized to the available market opportunity. And there are other areas that we are investing heavily. So that is something that I think is important for everyone to understand. Understood. Thank you.

Analyst: You are welcome.

Operator: Your next question comes from the line of Cherilyn Radbourne with TD Cowen. Your line is open. Please go ahead.

Cherilyn Radbourne: Thanks very much, and good morning. First question I wanted to ask was with regard to the cost structure. I think, historically, we have all understood that there is been a lot of SG and A cost leverage in this business. But perhaps there is a larger fixed cost component in COGS. Than we previously appreciated. So, certainly not asking you to give away anything that would be, competitive or sensitive, but perhaps you could talk about how much of the 65 to 75 million of targeted cost savings should fall to COGS versus SG and A?

Douglas William Wright: Well, Cherilyn, good morning. You are you are you are correct. there is opportunity both in SG&A and in COGS We you know, I do not wanna oversimplify a very complex ecosystem, but I would say that from a. You know, if I were if I were modeling things for myself, I would that it is probably about half the benefit is gonna come from COGS. Because if you think about COGS, it is the it is obviously material and labor but there is also indirect costs. So that is sort of you know, non direct workers, as well as the facility cost, utilities, property taxes, all the things that go around with running an operation.

As you can imagine, if you have a facility a scaled up facility that is running at 50% of its available capacity versus 90% available capacity, there is a big difference in the drag on the margins simply because of that fixed cost. And that is part of COGS. So it is really both it is very. Gonna vary from unit to unit, but in. You can think about as about half and half.

Anne Cybulsk: Yeah. that is right. And, Cherilyn, just to add to that, I mean, that. I think of fixed costs as Douglas described included. And also including SG and A. And the reason that we dimensioned Europe first is because that is where we had the most excess capacity but also the long. Longest lead time associated with executing on our on our plan. But, I mean, as a reminder, what we are aiming for out of this program is that flexibility on the cost structure going forward by removing some of that excess capacity that we do not need.

Cherilyn Radbourne: Okay. that is really helpful. And then in the Outlook commentary, there are some comments here about instituting broader market coverage, improved customer engagement, development of a pipeline, I think specifically as it relates to radiopharma. So maybe you can give us a bit more detail on what that means practically.

Douglas William Wright: Sure, Cherilyn. It. I think 1 of the big opportunities that we have at ATS is that we have a number of businesses that have a very strong technical position but and very strong reputation and in a given market, but they some of them, because of their scale, are less exposed to the global markets The 1 of the things that is very exciting about the life sciences market in particular is that the. You know, our customers are very global. The diseases are very global, of course. So the types of things that people are working on are very similar.

So as an example, our Comecer business, which is has a European heritage, has been making very significant investments for several years now in The US. And we are continuing to do that. They recently just. As I as I as I mentioned in my comments to the last question, have ex. Have put a position into Australia because the Melbourne area is actually a hotbed of radiopharma research and development. So we wanna be there to support their. Those customers. So part of our work on the commercial side is recognizing where we have good product market fit but we do not have good channel fit.

So we do a. there is a model that I learned a long time ago about how you sort of a framework that we use that we look at sort of how our market. How we cover a given Some markets are very unique region to region, but in our case, for the most part, most of the work that we do is pretty universal across the globe in terms of you know, contact lenses, diabetes, auto injectors, They are very similar region to region. But some of those businesses do not have the global breadth and channel coverage so that is presence in a market with direct salespeople, direct service people to be able to do those.

So it is a really important growth factor for us. it is something that I. We probably need to spend more time communicating with you guys, because underneath the covers, we are working really, really hard on expanding our channel presence for a lot of these fast growing markets, whether it is SMR, focusing on The US and The UK and other SMR end markets, or whether it is radio pharma, which I have already mentioned. Med device, there is opportunities in Asia. So we really think that this is an area that we have got a lot of potential future growth to deliver. Through that broader market coverage. Thank you.

Cherilyn Radbourne: You are welcome.

Operator: Your next question comes from the line of Jonathan Goldman with Scotiabank. Your line is open. Please go ahead.

Jonathan Goldman: Hey, good morning team, and thanks for taking my questions. Maybe just circling back to the fixed cost transformation program The number you outlined, $65 million to $75 million cost savings, I am assuming that is a gross number. Making the investments you discussed earlier in the call. What would be the net amount of the cost savings that you expect to achieve And can you share how much you actually had in the quarter? And how should we think about the cadence of the balance of the amounts through the next 15 months?

Douglas William Wright: So, Jonathan, just 1 correction for you. The 65 to 75 million is the net number? So we are overdriving our internal work What we have committed to you is going to be the net result because we wanna make sure that you guys can model it out in margin dollars. So we have done it that way.

Anne Cybulsk: Anne, you wanna comment on the other part of the question? Sorry. I other part of the question was related to missed it. Jonathan, can you repeat?

Jonathan Goldman: Yeah. it is the cadence. Maybe how much you achieved this quarter and how we should think about the balance, kind of the slope of that filter results.

Anne Cybulsk: Okay. Sorry. So, I mean, we talked about where we where we were starting based on excess capacity and the longest lead time, and that was with some of our some of our excess capacity in Europe. We are committed to. And so we will expect to see some of those some of those savings start to impact us later in the year and into next year. And as the rest of the program is executed, we are we are we are committed to the time frame that we originally outlined back in August, which was 18 months from that time and 15 months from now.

And we will we will report progress similar to what we did this quarter around impact on facilities and headcount. In general, we expect, related to any restructuring program, that our payback will be less than 1 year. And you know, when we think about our capital allocation and capital return frameworks, 1 of the things that I commented on in my prepared remarks was, we did in the beginning part of Q3, we did sell, a facility. 2 facilities in The US and leased 1 back. So broadly, we are aiming to have all of this work be done on a you know, a cash. Generally cash neutral basis.

As we think about our investment frameworks and how we draw our return. Got it.

Jonathan Goldman: that is helpful. And then maybe switching to the, the decision to kind of remove the full year guidance for the modest revenue growth and the margin expansion. How much of that decision was based on the 38 tariffs and kind of the shifting and timing of projects there?

Douglas William Wright: Well, I think the 38 tariffs as a. I think a player question addressed this too. We had expectation. We had we had opportunities in our pipeline in Q2 that did not book directly related to 38. And therefore, that has to flow into the second half How quickly it recovers, we have been. You know, we are we are we are we are all I think, fairly humble in trying to predict regulatory dynamics And so we have been humble about that, but the reality is those bookings are absolutely gonna be we. We are pipe. The pipeline is still there, but the timing of that it. Had they come in Q2, we would have had the.

We would have had better. A better second half. Revenue outlook very likely. But, you know, that is. We have to we have to play it like it is, and this is a situation where we had a fairly significant piece of our business in Canada that had expectations of packaging business coming in that had to. We had to pull out of the revenue.

Anne Cybulsk: Yeah. And so while not all real. The. Just in there, the removal of modest is not all related to that. A good chunk of it is. But there is also been. We have some 6 cyclicality in other parts of our business that we are working to remove as we continue to diversify the portfolio, including within our food and beverage businesses. there is some normal decision delays that played into that. And, also, we are in the midst of repositioning our previous business. Our businesses that were previously focused on transportation. And really, you know, really good progress there. But there were some of those factors that also played into the change.

Jonathan Goldman: Okay. that is helpful. And maybe if I can squeeze 1 more in. Working cap performance is really strong again this quarter. Looks like year to date, last 2 quarters, you are pacing below your 15% target. How should we think about our run rate going forward, whether it is the second half this year or beyond that? Because it does seem like you are punching above your weight there.

Anne Cybulsk: Yeah. I mean, it is, something that we are we are quite proud of and pleased with. It demonstrates a good level of process discipline. it is an area of focus for our ATS Business Model team and also for our leaders. Through the back half of the year, barring any typical changes or delays in terms of timing of larger mile payments, I would expect to stay within our range. And it is important to how we think about driving our cash returns over time. So it is part of the growth algorithm that we. We have talked about previously, and we have got a good focus on it. Okay. that is good to hear.

Jonathan Goldman: I will get back in queue.

Douglas William Wright: Thanks, Jonathan.

Operator: As a reminder, if you would like to ask a question, please press 1. To raise your hand. Your next question comes from the line of Michael Glen with Raymond James. Your line is open. Please go ahead.

Michael Glen: Good morning. Anne Cybulski, maybe just for the 3Q the revenue guide, can you maybe just, speak to what type of margin we should expect in 3Q. Would it be a similar margin to the 2Q performance? Just trying to get some insight there.

Anne Cybulsk: So as we talked about, we are taking action to solve the deleveraging that we saw in the quarter. And over the near term, I would expect some as I said in my prepared remarks, some pressure over the next several months. However, that does not take away from the work that we are we are driving on our fixed cost transformation program. So there are some timing elements playing into what I would expect to see in Q3. But the revenue guide is reflective of what we know we have in our backlog and we think we will we will book and bill in the quarter.

And the only other thing that I would add is from a Q3 perspective, we do have some continued investments that we will continue to make in our commercial activities and our focus on innovation. Including an innovation summit that is coming up next week, which I know a lot of our teams are looking forward to. So, hopefully, that helps you.

Michael Glen: Okay. And then maybe just 1 on the nuclear business. I cannot. I am I am not sure if you mentioned this, Douglas, but can you give an update on. There were some plans communicated about expanding this business into The US and The UK. Can you give an update on that?

Douglas William Wright: Sure, Michael. We are really excited about, what is going on in nuclear You know, obviously, we have our really strong Canada based franchise that continues to give us a good base. With good growth potential. And as you have said, we have we are excited about the potential in The US market as well as the UK We do have an expectation that we will be expanding facilities in the US for the market there in the nuclear in the nuclear market 1 has to be domestic manufacturing. For the most part, so we will we will do that. UK is still a target for us. We are working to identify the right methodology to enter that market.

But I would say, you know, we have had as we talked about, we did we did bring on board 1 new SMR customer, last quarter from a booking standpoint and we have several others that we are still very active in engineering and development. So I think the SMR market's going to so far, we are seeing very good regulatory support, and all of the major players that are have their have their plans in effect. We are seeing good traction We saw the announcement of the US regulator approved the site in Tennessee. Which is similar to the technology that is in Darlington. And there is a lot of other opportunities that the team is also pacing against.

Operator: Mr. Wright, there are no further questions on the line. I will now turn the call back to you for closing remarks. Thank you, operator.

Douglas William Wright: Thank you, everyone, for joining us today. We look forward to speaking to you again on our Q3 call in February. Bye.

Operator: This concludes today's call. Thank you for attending, and you may now disconnect.

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