ATS Corporation (ATS:CA) Q3 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents a mixed picture. While there is optimism about growth in Life Sciences and nuclear segments, and a strong order backlog, the decrease in gross margin and increased SG&A expenses are concerns. The Q&A reveals cautious optimism but lacks specific guidance, which may cause uncertainty. Given the market cap of $3.18 billion, the stock is likely to have a muted reaction, resulting in a neutral sentiment.
Key Financial Performance
Order Bookings $821 million, down 7% compared to Q3 last year due to the expected lower run rate in Transportation and the inclusion of several larger enterprise bookings in Life Sciences and Food & Beverage last year.
Revenues $761 million, up 16.7% compared to last year, including organic growth of 12.6%, along with a 4.1% benefit from foreign exchange translation. Revenue increased in all market verticals, except for Transportation as expected.
Adjusted Earnings from Operations $79.9 million, a 21.6% increase from Q3 last year, primarily on higher revenue volumes.
Gross Margin 29.6%, a 111 basis point decrease from last year, mainly due to program mix and timing of programs being executed across market verticals with different gross margin profiles.
SG&A Expenses $141.9 million, an $11.3 million increase over the prior year, mainly due to foreign exchange translation and, to a lesser extent, increased employee costs and professional fees.
Earnings Per Share (EPS) $0.48 on an adjusted basis.
Cash Flows from Operating Activities $115 million, with noncash working capital as a percentage of revenues at 16.4%, an improvement sequentially and from Q3 last year, driven by larger milestone payments before the end of the quarter.
CapEx and Intangible Assets Investment $16.6 million during the quarter, supporting innovation and strengthening capabilities. Fiscal '26 CapEx and intangible investment expected to be between $70 million and $90 million, slightly lower than previously disclosed.
Net Debt to Adjusted EBITDA Ratio 3x, reflecting progress towards the top end of the target range of 2 to 3x as expected.
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Operating Highlights
Radiopharma: Led by Comecer business, remains a key growth market with strong customer relationships, expanded services footprint, and a proven track record. Unique capabilities are driving engagement with both established and emerging customers.
GLP-1 auto-injectors: Executing against a healthy backlog and partnering with customers to scale production. Supporting customers throughout the product lifecycle as device requirements evolve and new therapeutic applications emerge.
Life Sciences: Order backlog of $1.1 billion, with Q3 revenues of $391 million, the second highest in ATS' history. Demand remains constructive in end markets.
Food & Beverage: Order backlog of $203 million, driven by brand recognition in core processing markets like tomato and fresh fruit applications.
Energy: Order backlog of $296 million, up 87% year-over-year, driven by refurbishment and life extension projects for nuclear reactors. Progressing in new build programs, including large-scale reactors and SMRs.
Consumer Products: Backlog reached $321 million, supported by a large enterprise warehouse packaging automation program. Opportunities in warehouse automation and packaging remain steady.
Lean Operating System: Focus on execution discipline, margin performance, and capital allocation. Lean culture deeply embedded through the ATS Business Model (ABM).
Restructuring Program: Incurred $5.5 million in restructuring costs in Q3, with total costs expected to be $20 million. Program aims to realign cost structure and support operating leverage.
Working Capital Efficiency: Improved noncash working capital as a percentage of revenues to 16.4%, moving closer to the target of less than 15%.
Leadership Changes: Doug Wright appointed as CEO, Sarah Moore as Life Sciences Group Executive, and Simon Roberts to lead Packaging & Food Technology business. Leadership changes aim to strengthen operational focus and customer alignment.
Capital Allocation: Focus on allocating capital to generate attractive risk-adjusted returns and enhance long-term shareholder value. Evaluating opportunities consistent with leverage framework.
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Risk or Challenges
Order Bookings: Order bookings were down 7% compared to Q3 last year, attributed to a lower run rate in Transportation and fewer large enterprise bookings in Life Sciences and Food & Beverage.
Gross Margin: Gross margin decreased by 111 basis points due to program mix and timing of programs being executed across market verticals with different gross margin profiles.
Restructuring Costs: The company incurred $5.5 million in restructuring costs during the quarter, with total costs under the program expected to reach $20 million.
Macroeconomic Environment: The macro environment remains dynamic amid geopolitical and trade uncertainty, though the company has not been materially impacted by tariffs.
Transportation Market: Revenue in the Transportation market decreased as expected, reflecting smaller scale opportunities in both commercial and traditional vehicle platforms.
Leverage Ratio: Net debt to adjusted EBITDA ratio was 3x, at the top end of the company's target range, indicating limited flexibility for additional leverage.
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Guidance & Outlook
Order Backlog: The company ended the quarter with an order backlog of approximately $2.1 billion, reflecting a well-balanced mix across end markets and geographies.
Life Sciences: Order backlog was $1.1 billion, with revenues for the quarter at $391 million, the second highest in ATS' history. Demand remains constructive, with growth driven by radiopharma and GLP-1 auto-injectors. The company is executing against a healthy backlog and supporting customers as device requirements evolve.
Food & Beverage: Quarter-end order backlog was $203 million. Funnel activity remains strong, driven by brand recognition in core processing markets, including tomato and other fresh fruit applications.
Energy: Order backlog reached a record $296 million, up 87% year-over-year, driven by refurbishment and life extension projects for nuclear reactors. Activity is progressing in new build programs, including large-scale reactors and SMRs, with ATS engaged in front-end design, engineering, and prototyping activities.
Consumer Products: Backlog reached a record $321 million, supported by a large enterprise warehouse packaging automation program. Funnel remains steady with ongoing opportunities in warehouse automation and packaging.
Transportation: The funnel reflects smaller scale opportunities in both commercial and traditional vehicle platforms.
Revenue Guidance: Q4 revenues are expected to be in the range of $710 million to $750 million.
Restructuring Costs: The company incurred $5.5 million in restructuring costs during the quarter, with total costs under the program expected to be approximately $20 million. Some reinvestment in strategic growth areas is anticipated as the company moves into fiscal '27.
Capital Expenditures: For fiscal '26, CapEx and intangible investment is expected to be between $70 million and $90 million, slightly lower than the previously disclosed range.
Leverage: Net debt to adjusted EBITDA ratio was 3x, with progress towards the top end of the target range of 2 to 3x as expected.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:What are Douglas Wright's priorities for the next 90 days and 6 months?
A:Douglas Wright plans to focus on strong and growing end markets, margin expansion, and disciplined capital deployment. He aims to improve ABM tools execution, commercial actions, and leverage ratios while remaining optimistic about ATS's outlook.
Q:How does the management view the improvement in margins and gross margin changes?
A:Management sees opportunities in standardization, supply chain, and operational excellence initiatives. They note that nuclear projects, while lower in gross margin, are accretive to the bottom line. The backlog reflects these dynamics.
Q:What is the outlook for the nuclear, energy, and life sciences segments?
A:The nuclear segment is driven by life extension projects and new builds, including SMR and traditional reactors. Life Sciences shows growth in custom integration and new applications like radiopharma and med tech innovations. Management is optimistic about these segments.
Q:What are the plans for capital allocation and M&A as leverage improves?
A:Management plans to maintain discipline in capital allocation, focusing on M&A to improve margins, aftermarket mix, and new technologies. They aim to deploy capital thoughtfully while reviewing working capital targets in future calls.
Q:What is the status of the GLP-1 market and diversification efforts?
A:The GLP-1 market remains strong with opportunities in new therapies and delivery form factors. Management is diversifying into radiopharma, oncology, and other med tech areas to reduce dependency on GLP-1.
Q:How does management view the transportation/EV segment?
A:Management sees long-term value in the EV ecosystem but plans to be more targeted, focusing on niches like battery assembly and hybrid engines. They aim to avoid high-risk mega projects and maintain a cautious approach.
Q:What is the outlook for Life Sciences given recent CapEx investments?
A:Management acknowledges significant CapEx investments in Life Sciences, driven by demand and reshoring trends. They see opportunities in serving this capacity expansion across geographies.
Q:What is the status of the transportation segment and its strategic importance?
A:The transportation segment is expected to stabilize, with a focus on targeted areas like EV and hybrid technologies. Management aims to maintain its current range and sees it as a strategic but smaller part of the business.
Q:What are the expectations for bookings growth and backlog?
A:Management is satisfied with year-to-date bookings and a healthy pipeline. They expect continued growth, with some timing impacts on Custom Integration business. Backlog execution remains strong.
Q:What are the plans for SG&A and restructuring savings?
A:Restructuring savings will be reinvested in innovation, growth areas like nuclear and Life Sciences, and margin protection. The focus is on fiscal '27 for operating leverage improvements.
Q:What are Douglas Wright's views on margin expansion and his experience in prior roles?
A:Douglas Wright emphasizes ABM tools, advanced technology applications, and increasing aftermarket mix for margin expansion. He has extensive experience in these areas and plans to deploy similar strategies at ATS.
Q:What caused the increase in services revenue in the quarter?
A:The increase in services revenue was primarily due to refurbishment work, which is nearing completion. Other service streams like spares and asset management continue to perform well.
Q:Review of Unclear Management Responses
A:Management avoided providing specific financial targets for working capital ratios and did not detail the exact impact of FX on SG&A. They also used general language about economic uncertainty and pipeline robustness without specific data.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
ATS ABM
ATS backlog
ATS dedication
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ATS term
CEO
Consumer Products
Food Beverage
Life Sciences
President
accountability
background
backlog record
capital allocation
component
continuity
core
culture ATS
day
decision
depth
discipline
engineering
finance
lifecycle
market ATS
nature
people
production
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recognition
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understanding
ATS Transcript
ATS Corporation (ATS:CA) Q3 2026 Earnings Call Transcript
Unknown2-4
The earnings call presents a mixed picture. While there is optimism about growth in Life Sciences and nuclear segments, and a strong order backlog, the decrease in gross margin and increased SG&A expenses are concerns. The Q&A reveals cautious optimism but lacks specific guidance, which may cause uncertainty. Given the market cap of $3.18 billion, the stock is likely to have a muted reaction, resulting in a neutral sentiment.
ATS Corporation (ATS:CA) Q2 2026 Earnings Call Transcript
Positive11-5
The earnings call summary and Q&A indicate strong financial performance, with a solid order backlog and promising growth in segments like Life Sciences and Energy. Despite some uncertainties, management provided optimistic guidance, focusing on margin expansion and strategic initiatives. The stock is likely to experience a positive movement, considering the company's market cap and the absence of significant negative factors.
ATS Corporation (ATS) Q1 2026 Earnings Call Transcript
Positive8-7
The earnings call presented a strong backlog, positive integration of acquisitions, and favorable market conditions for automation. Management's optimistic guidance on margin improvements and leverage targets, along with strategic diversification efforts, indicate a positive outlook. The Q&A reinforced this sentiment, revealing minimal negative impact from external pressures and ongoing M&A activity. The market cap suggests a moderate reaction, leading to a 'Positive' stock price prediction over the next two weeks.
ATS Corporation (NYSE:ATS) Q4 2025 Earnings Call Transcript
Unknown5-30
The earnings call summary presents a mixed picture: strong order backlog and margin improvements are positive, but revenue and earnings declines, especially in transportation, are concerning. The Q&A highlights confidence in future growth and strategic investments, yet short-term margin pressures and high leverage persist. The share buyback is a positive element, but the lack of clarity on EV-related inventory and cautious M&A strategy temper enthusiasm. Considering the company's market cap, the stock price is likely to remain stable, resulting in a neutral prediction.
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ATS Report
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