ATS Reports First Quarter Fiscal 2024 Results

CAMBRIDGE, ON, Aug. 9, 2023 /PRNewswire/ - ATS Corporation (TSX: ATS) (NYSE: ATS) ("ATS" or the "Company") today reported its financial results for the three months ended July 2, 2023. All references to "$" or "dollars" in this press release are to Canadian dollars unless otherwise indicated.

First quarter highlights:

• Revenues increased 23.4% year over year to $753.6 million.
• Net Income was $47.7 million compared to $39.4 million a year ago.
• Basic earnings per share were 50 cents, compared to 43 cents a year ago.
• Adjusted basic earnings per share1 were 69 cents compared to 57 cents a year ago.
• Order Bookings1 were $690 million, 6.3% lower compared to $736 million a year ago.
• Order Backlog1 increased 30.1% to $2,023 million compared to $1,555 million a year ago.

"Today we reported a strong start to fiscal 2024, including record revenues, supported by solid Order Bookings, Order Backlog and adjusted earnings," said Andrew Hider, Chief Executive Officer. "This has been an exciting and transformational few months for ATS during which we successfully completed our U.S. initial public offering ("U.S. IPO") and New York Stock Exchange ("NYSE") listing. These milestone accomplishments support our strategic growth objectives while providing increased liquidity in our shares and additional flexibility for M&A."

In conjunction with the successful U.S. IPO, the Company sold 6,900,000 common shares for gross proceeds of U.S. $282.9 million. Proceeds were initially used to pay down amounts drawn on the Company's revolving senior secured credit facility, reducing its net debt to adjusted EBITDA ratio to 2.0 to 1 at July 2, 2023 (from 2.7 to 1 at March 31, 2023). The Company expects the increase in available capital from the U.S. IPO will be used for strategic opportunities, including acquisitions, as well as working capital requirements and general corporate purposes. Consistent with the Company's value creation strategy, the Company may execute on strategic opportunities, including disciplined acquisitions, if and when such opportunities arise, that drive the creation of long-term sustainable shareholder value.

Mr. Hider added: "Our strong Order Backlog, which is distributed across strategic global markets and regulated industries, give us confidence moving forward. We remain committed to a disciplined focus on our strategy and the pursuit of operational excellence through the ATS Business Model ("ABM") as we continue to build the best ATS for our employees, customers, and shareholders."

First quarter summary
Fiscal 2024 first quarter revenues were 23.4% or $143.0 million higher than in the corresponding period a year ago. This performance reflected year over year organic revenue growth (growth excluding contributions from acquired companies and foreign exchange translation) of $94.1 million or 15.4%, and revenues earned by acquired companies of $15.3 million, most notably $8.3 million from Zi-Argus Australia Pty Ltd. and Zi-Argus Ltd. (together, "ZIA"), which was acquired in the fourth quarter of fiscal 2023. Foreign exchange translation positively impacted revenues by $33.6 million or 5.5%, primarily reflecting the strengthening of the U.S. dollar and Euro relative to the Canadian dollar. Revenues generated from construction contracts increased 35.6% or $133.7 million due to organic revenue growth combined with positive foreign exchange translation impact. Revenues from services increased 24.7% or $28.2 million due to revenues earned by acquired companies of $16.2 million and the positive impact of foreign exchange translation . Revenues from the sale of goods decreased 15.6% or $18.9 million primarily due to lower Order Backlog entering the year compared to the prior year.

By market, revenues generated in life sciences decreased $12.0 million or 4.0% year over year. This was primarily due to higher revenues earned on a large $120.0 million program in progress a year ago, partially offset by contributions from acquisitions and the positive impact of foreign exchange translation. Revenues in transportation increased $121.5 million or 125.3% on higher Order Backlog entering the first quarter of fiscal 2024, driven primarily by electric vehicle ("EV") Order Bookings, including previously announced EV Order Bookings of U.S. $578.2 million. Revenues generated in food & beverage increased $21.8 million or 20.0% due to higher Order Backlog entering the first quarter of fiscal 2024. Revenues generated in consumer products increased $7.9 million or 10.4% primarily due to $4.6 million of contributions from acquisition, most notably ZIA. Revenues in energy increased $3.8 million or 11.8% due to $3.5 million of contributions from acquisitions, most notably IPCOS Group N.V. ("IPCOS").

Net income for the first quarter of fiscal 2024 was $47.7 million (50 cents per share basic), compared to $39.4 million (43 cents per share basic) for the first quarter of fiscal 2023. The increase reflected higher revenues, partially offset by higher cost of revenues, selling, general and administrative expenses ("SG&A"), stock-based compensation, income tax expense, and financing costs. Adjusted basic earnings per share were 69 cents compared to 57 cents in the first quarter of fiscal 2023 (see "Reconciliation of Non-IFRS Measures to IFRS Measures").

Depreciation and amortization expense was $35.7 million in the first quarter of fiscal 2024, compared to $33.6 million a year ago.

EBITDA was $114.7 million (15.2% EBITDA margin) in the first quarter of fiscal 2024 compared to $95.2 million (15.6% EBITDA margin) in the first quarter of fiscal 2023. EBITDA for the first quarter of fiscal 2024 included $0.1 million of incremental costs related to acquisition activity and $4.4 million of stock- based compensation revaluation expenses. EBITDA for the corresponding period in the prior year included $0.4 million of incremental costs related to acquisition activity, $5.2 million of acquisition- related inventory fair value changes, and $(8.3) million of stock-based compensation revaluation expenses. Excluding these costs, adjusted EBITDA was $119.2 million (15.8% adjusted EBITDA margin), compared to $92.5 million (15.1% adjusted EBITDA margin) for the corresponding period in the prior year. Higher adjusted EBITDA reflected higher revenues, partially offset by increased SG&A expenses. EBITDA is a non-IFRS measure - see "Non-IFRS and Other Financial Measures."

Order Bookings
First quarter fiscal 2024 Order Bookings were $690 million. The 6.3% year over year decrease reflected an organic Order Bookings decline of 12.8%, partially offset by 2.1% growth from acquired companies, in addition to a 4.4% increase due to foreign exchange rate translation of Order Bookings from foreign- based ATS subsidiaries, primarily reflecting the strengthening of the U.S. dollar and Euro relative to the Canadian dollar. Order Bookings from acquired companies totalled $15.2 million, most notably $9.5 million from ZIA. By market, Order Bookings in life sciences increased compared to the prior-year

period primarily due to foreign exchange rate translation of Order Bookings from foreign-based ATS subsidiaries, in addition to $3.1 million of contributions from acquired companies. Order Bookings in transportation decreased compared to the prior-year period, which included a U.S. $70.0 million Order Booking from an existing global automotive customer to move towards fully automated battery assembly systems for their North American manufacturing operations. Order Bookings in food & beverage increased compared to the prior-year period primarily due to foreign exchange rate translation of Order Bookings from foreign-based ATS subsidiaries, in addition to $3.3 million of contributions from acquired companies. Order Bookings in consumer products increased principally due to contributions from acquired companies, primarily ZIA totalling $5.5 million. Order Bookings in energy increased due to timing of customer projects and contributions from acquisitions, primarily IPCOS totalling $3.2 million.

Trailing twelve month book-to-bill ratio at July 2, 2023 was 1.18:1. Book-to-bill ratio is a supplementary financial measure - see "Non-IFRS and Other Financial Measures."

Backlog
At July 2, 2023, Order Backlog was $2,023 million, 30.1% higher than at July 3, 2022. Order Backlog growth was primarily driven by higher Order Bookings in fiscal 2023 within the transportation market, primarily from EV projects.

Outlook
The life sciences funnel for fiscal 2024 remains strong, with a focus on strategic submarkets of pharmaceuticals, radiopharmaceuticals and medical devices, which includes auto-fillers and auto- injectors. Management continues to see opportunities with both new and existing customers, including good prospects to deliver life sciences solutions that leverage integrated capabilities from ATS' various life sciences businesses. In transportation, the funnel largely includes strategic opportunities related to electric vehicles, as the global automotive industry continues to pivot towards EV production. The strategic nature of EV programs and typically larger average order values can cause variability in Order Bookings. Management believes the Company's automated EV battery pack and assembly capabilities position ATS well within the industry. Funnel activity in food & beverage remains strong, with particular interest in energy efficient solutions. Timing of the summer harvest season drives some seasonality in this vertical. Funnel activity in consumer products is stable. Inflationary pressures continue to have an effect on discretionary spending, which may impact timing of some customer investments. Funnel activity in energy remains strong and includes some longer-term opportunities in the nuclear industry. The Company is focused on clean energy applications including solutions for the refurbishment of nuclear power plants, early participation in the small modular reactor market, and grid battery storage. Across all markets, customers are exercising normal caution in their approach to investment and spending. Funnel growth in markets where environmental, social and governance ("ESG") requirements are an increasing focus for customers — including grid battery storage, EV and nuclear, as well as consumer goods packaging — provide ATS with opportunities to use its capabilities to respond to customer sustainability standards and goals. Customers seeking to de-risk or enhance the resiliency of their supply chains, address a shortage of skilled workers or combat higher labour costs also provide future opportunities for ATS to pursue. Management believes that the underlying trends driving customer demand for ATS solutions including rising labour costs, labour shortages, production onshoring or reshoring and the need for scalable, high-quality, energy-efficient production remain favourable.

Order Backlog of $2,023 million is expected to help mitigate some of the impact of quarterly variability in Order Bookings on revenues in the short term. The Company's Order Backlog includes several large enterprise programs that have longer periods of performance and therefore longer revenue recognition cycles. These programs have extended the average period over which the Company expects to convert its Order Backlog to revenues, providing the Company with longer visibility. In the second quarter of fiscal 2024, management expects the conversion of Order Backlog to revenues to be in the 34% to 37% range. This estimate is calculated each quarter based on management's assessment of project schedules across all customer contracts, expectations for faster-turn product and services revenues, expected delivery timing of third-party equipment and operational capacity.

The timing of customer decisions on larger opportunities is expected to cause variability in Order Bookings from quarter to quarter. Revenues in a given period are dependent on a combination of the volume of outstanding projects the Company is contracted to, the size and duration of those projects, and the timing of project activities including design, assembly, testing, and installation. Given the specialized nature of the Company's offerings, the size and scope of projects vary based on customer needs. The Company seeks to achieve revenue growth organically and by identifying strategic acquisition opportunities that provide access to attractive end-markets and new products and technologies and deliver hurdle-rate returns. The Company is working to grow its product portfolio and after-sales service revenues as a percentage of overall revenues over time, which is expected to provide some balance to customers' capital expenditure cycles.

Management is pursuing several initiatives to grow its revenues and improve its profitability with the goal of expanding its adjusted earnings from operations margin to 15% over the long term. These initiatives include growing the Company's after-sales service business, improving global supply chain management, increasing the use of standardized platforms and technologies, growing revenues while leveraging the Company's cost structure, and pursuing continuous improvement in all business activities through the ABM, including in acquired businesses. The Company continues to make progress in line with its plans to integrate acquired companies, and expects to realize cost and revenue synergies consistent with announced integration plans.

In the short term, ATS will continue to address disruptions to global supply chains and cost pressures due to inflation, which have been contributing to longer lead times and cost increases on certain raw materials and components. To date, the Company has mitigated many of these supply chain disruptions through the use of alternative supply sources and savings on materials not affected by cost increases. However, prolonged cost increases and price volatility have and may continue to disrupt the timing and progress of the Company's margin expansion efforts and affect revenue recognition. Achieving and sustaining management's margin target assumes that the Company will successfully implement the initiatives noted above, and that such initiatives will result in improvements to its adjusted earnings from operations margin that offset the pressures resulting from disruptions in the global supply chain (see "Forward-Looking Statements" for a description of the risks underlying the achievement of the margin target in future periods).

The Company regularly monitors customers for changes in credit risk and does not believe that any single industry or geographic region represents significant credit risk.

In the short term, the Company expects non-cash working capital to remain above 10% as programs progress through milestones. Over the long term, the Company generally expects to continue investing in non-cash working capital to support growth, with fluctuations expected on a quarter-over-quarter basis. The Company's long-term goal is to maintain its investment in non-cash working capital as a percentage of annualized revenues below 15%. However, given the size and timing of milestone payments for certain large EV programs, the Company could see its working capital exceed 15% of annualized revenues in certain periods as it did in the first quarter of fiscal 2024. The Company expects that continued cash flows from operations, together with cash and cash equivalents on hand and credit available under operating and long-term credit facilities will be sufficient to fund its requirements for investments in non-cash working capital and capital assets, and to fund strategic investment plans including some potential acquisitions. Acquisitions could result in additional debt or equity financing requirements for the Company. Non-cash working capital as a percentage of revenues is a Non-IFRS ratio - see "Non-IFRS and Other Financial Measures."

New York Stock Exchange Listing
On May 25, 2023, the Company commenced trading of its common shares on the New York Stock Exchange, under ticker symbol "ATS". As a result, ATS is now a dual-listed company, trading on both the TSX and NYSE. The NYSE listing supports the Company's growth strategy, enhances liquidity for the Company's common shares and improves trading access for investors in the United States and globally. In conjunction with the U.S. IPO, the Company sold 6,900,000 common shares at a price of

U.S. $41 per share, for gross proceeds of U.S. $282.9 million. Proceeds were initially used to pay down amounts drawn on the Company's revolving senior secured credit facility. The Company expects the increase in available capital from the U.S. IPO will be used for strategic opportunities, including acquisitions, as well as working capital requirements and general corporate purposes. Consistent with the Company's value creation strategy, the Company may execute on strategic opportunities, including disciplined acquisitions, if and when such opportunities arise, that drive the creation of long-term sustainable shareholder value.

Quarterly Conference Call
ATS will host a conference call and webcast at 8:30 a.m. eastern on Wednesday, August 9, 2023 to discuss its quarterly results. The listen-only webcast can be accessed live at www.atsautomation.com. The conference call can be accessed live by dialing (416) 764-8688 or (888) 390-0546 five minutes prior. A replay of the conference will be available on the ATS website following the call. Alternatively, a telephone recording of the call will be available for one week (until midnight August 16, 2023) by dialing (416) 764-8677 and entering passcode 885809 followed by the number sign.

About ATS
ATS Corporation is an industry-leading automation solutions provider to many of the world's most successful companies. ATS uses its extensive knowledge base and global capabilities in custom automation, repeat automation, automation products and value-added services including pre-automation and after-sales services, to address the sophisticated manufacturing automation systems and service needs of multinational customers in markets such as life sciences, food & beverage, transportation, consumer products, and energy. Founded in 1978, ATS employs over 6,500 people at more than 60 manufacturing facilities and over 80 offices in North America, Europe, Southeast Asia and Oceania. The Company's common shares are traded on the Toronto Stock Exchange and the New York Stock Exchange under the symbol ATS. Visit the Company's website at www.atsautomation.com.

Reconciliation of Non-IFRS Measures to IFRS Measures
(In millions of dollars, except per share data)

The following table reconciles adjusted EBITDA and EBITDA to the most directly comparable IFRS measure (net income):

The following table reconciles adjusted earnings from operations, adjusted net income and adjusted basic earnings per share to the most directly comparable IFRS measure (net income and basic earnings per share):

The following table reconciles organic revenue to the most directly comparable IFRS measure (revenue):