Welcome to the ATS Corporation Second Quarter Conference Call and Webcast. This call is being recorded on November 06, 2024 at 8:30 a.m. Eastern time. Following the presentation, we will conduct a question-and-answer session. I will now turn the call over to David Galison, Head of Investor Relations at ATS.

Thank you, operator, and good morning, everyone. On the call today are Andrew Hider, Chief Executive Officer of ATS; and Ryan McLeod, 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 our 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 on Slide 3 of the slide deck. Now it's my pleasure to turn the call over to Andrew.

Thank you, David. Good morning, everyone, and thank you for joining us. Today, ATS reported second quarter results for fiscal 2025 which, as expected, were challenged due to lower revenues and transportation where we realigned our cost structure to protect margins and drive performance improvements. We are pleased with execution across the rest of the business, notably in Life Sciences where we drove our highest ever quarterly bookings both organically and through our recent acquisitions. During the quarter, we successfully completed the acquisitions of both Paxiom and Heidolph. Both of these companies provide differentiated solutions across a range of industries that we expect will be a strong complement to our existing portfolios in food and beverage and life sciences. Today I will update you on our business and markets and Ryan will provide his financial report. In addition, as we disclose today, we have been and continue to be engaged in ongoing discussions with one of our EV customers regarding outstanding payments owed on large EV projects. Ryan will provide additional information in his remarks. Starting with our financial value drivers. Order bookings for the quarter were $742 million, flat year-over-year as strong growth in life sciences offset lower EV bookings as expected. As we had previously noted, we expect transportation to be a smaller portion of our overall business going forward. Q2 revenues were $613 million, down 17% from Q2 last year, mainly due to expected lower EV revenues. Recent large program wins in life sciences will ramp up revenues in future periods. Adjusted earnings from operations in Q2 were $57 million. Moving to our Outlook. Order backlog ended the quarter at just over $1.8 billion with trailing 12-month book-to-bill ratios once again at or above one in all market verticals except transportation. By market, life sciences backlog was a record 1.1 billion, an increase of 32% compared to Q2 last year. With continued booking strength in our key submarkets, including radiopharma, GLP-1 auto-injectors, wearable devices, and contact lenses. Our life sciences opportunity funnel is strong. We continue to identify opportunities which leverage the full breadth of our capabilities to deliver integrated solutions to our customers. A recent highlight is a collaboration between our life sciences systems and Comecer businesses to support a key customer on a dual chambered syringe assembly system for cancer treatments. Building our life sciences integrated solutions funnel continues to be a focal point, and we have identified a number of opportunities for collaboration between Comecer, Paxiom, SP, BioDot, and IWK. In Food and Beverage, ending backlog for the second quarter was $210 million, an increase of 30% compared to the prior year. Our funnel remains strong and now includes Paxiom opportunities which have grown incrementally since acquisition. With Paxiom as part of ATS, we look forward to leveraging customer synergies in food and beverage, but also in life sciences and consumer. In energy, our funnel is strong with the refurbishment of existing nuclear reactors remaining a key driver. We also have opportunities to serve customers in the SMR market where we are supporting ongoing concept development work, positioning ourselves for opportunities as the demand for this technology increases over the long-term. Recent investments by technology companies in nuclear energy support our strategy in the SMR market and reinforce the viability of nuclear energy as a reliable green energy source. In consumer products, our funnel remains stable with niche opportunities in areas such as warehouse automation and consumer packaging. In transportation, we made meaningful progress on realigning the cost structure. This has included reallocating workforce and capacity to other parts of the business, mainly life sciences. In addition, as I noted earlier, Ryan will provide further commentary on the recent commercial discussions with one of our EV customers. On after-sales services, our strategic focus is progressively expanding. Our core service capabilities from technical support and asset monitoring to complete production monitoring with deep customer knowledge and technical expertise. With our Connected Care hub in Cambridge, we've onboarded initial customers and we are working to bring connected 24/7 support to additional key accounts, further deepening our relationships and creating opportunities for growth. On our digital offerings, demand is positive for solutions which improve productivity, energy management, and process automation applications and enterprise-level insights. We continue to advance our offerings in this space, including our internal capabilities to create more opportunities for customer interaction, data analytics, and access to service offerings. We also bolstered our digital capabilities by acquiring the assets of UReality, a small software development business in Germany that specializes in augmented reality and virtual reality experiences. Our ATS business model continues to bring our people together to solve problems and drive continuous improvement across the organization. In ABM adoption and acquired companies is progressing well. I've recently spent time at Avidity, Paxiom, and Heidolph locations with early ABM adoption clearly evident and the teams are excited to use the tools and embrace continuous improvement. Across ATS, we continue to see increased participation in our ABM boot camps as employees demonstrate their commitment to building skills and driving impact. On M&A, our integration work is ongoing with our recent acquisitions which support the expansion of our products and recurring revenue portfolio. In the short term, we are focused on bringing leverage to targeted levels while continuing to cultivate the right opportunities that will strengthen our business and create value over the long term. Cultivation takes time. A great example is Heidolph, which we have been monitoring for over three years before we had the right opportunity to execute on the deal in a quick and effective manner. Our M&A funnel remains active and our portfolio is diversified across a range of target sizes and markets. We maintain our disciplined approach as we assess targets while engaging in cultivating opportunities that align with our strategic initiatives. On innovation, we prioritize strategic capital investments into solutions that drive returns. A few highlights from the quarter. In food and beverage, we launched Digital Tomato, which uses our PA Facts technology and allows customers to monitor and proactively optimize tomato production during the harvest season to prevent downtime and regulate energy usage. In Life Sciences, our Comecer team developed a new solution called Modis, a modular system that can prepare up to four different radiopharmaceuticals sequentially without the need for time-consuming cleaning and decontamination between batches. Also in Life Sciences, our ATS Innovation center completed significant under-the-hood improvements to SuperTrak that will be on display next week at the SPS Expo in Germany. The new SuperTrak Horizon3 will give our teams access to new markets and provide improved performance to meet demands of cutting-edge assembly equipment, including our own Symphony system. ATS has been a pioneer and innovation leader in linear motion conveyors for over 25 years and the SuperTrak Horizon3 conveyance platform continues this tradition. In summary, performance was mixed in the quarter, given challenges in transportation. We continue to work through commercial discussions with one of our EV customers. In the rest of our business, we are pleased with our second quarter bookings and performance. Our backlog, which is anchored in regulated markets, provides us with good revenue visibility as we move ahead. As we transition into the second half of fiscal 2025 and next year, our focus remains on driving profitable growth both organically and by acquisition. I'm also pleased to announce that ATS was recently ranked in a list of Canada's most responsible companies for 2025 by Newsweek, highlighting the strength of our dedicated teams as they demonstrate an exceptional commitment to innovation and maintaining our clear customer-centric approach to drive long-term value creation. Now I will turn the call over to Ryan. Ryan, over to you.

Thank you, Andrew, and good morning everyone. And thank you for joining us this morning. Beginning with our operating results for the quarter, we drove solid order bookings of $742 million in line with Q2 last year. Life Sciences recorded the highest quarterly bookings in company history driven by organic growth with contributions from acquisitions primarily Avidity. Our trailing 12-month book-to-bill ratio at the end of Q2 was 1.06 to 1. Excluding transportation, this ratio was 1.2 to 1 with all other market verticals maintaining a book-to-bill ratio above one. Q2 revenues were lower as expected at $613 million. This is a 16.7% decrease compared to the prior year. Organic growth in life sciences, consumer, and energy was strong. We also realized a 6% contribution from recent acquisitions. This provided some mitigation to lower revenues in transportation following peak EV contributions from large order bookings in prior periods. In food, lower revenues were primarily a result of a tougher comparison in Q2 last year when we benefited in Europe from a surge in energy costs, which drove demand for our energy-efficient solutions in primary processing for the tomato market. Moving to earnings. Q2 adjusted earnings from operations were $56.5 million, down 43% from Q2 last year, reflecting lower revenue volumes. As I noted, headwinds in transportation reduced revenues and resulted in operating losses in the quarter for those businesses, which negatively impacted overall company profitability. Q2 gross margin, excluding acquisition-related inventory fair value charges, was 29.6%, an increase of 123 basis points from the prior year driven by an improved mix of higher-margin programs and supported by an improved supply chain environment. On SG&A, excluding acquisition-related amortization and transaction costs, second quarter expenses were $120 million, a $15.4 million increase over the prior year, primarily from incremental acquisition-related costs, mostly from Avidity, along with some foreign exchange impacts. Excluding the mark-to-market impact related to changes in our share price, stock-based compensation expense was $4.6 million in Q2, consistent with the prior year. Adjusted EPS was $0.25 in Q2, down from last year, primarily due to lower volumes. Moving to our outlook. We finished the quarter with just over $1.8 billion of order backlog. And we estimate Q3 revenues to be in the range of $620 million to $680 million. For clarity, we are providing this information on a revenue dollars basis instead of a backlog conversion percentage as has been our past practice. As a reminder, this assessment is updated every quarter based on revenue expectations from existing order backlog and new orders booked and built within the quarter. In addition, in light of the continuing market conditions with respect to reduced North American EV sales growth, we have removed approximately $150 million of order backlog related to EV projects that we had previously reported as delayed. As a reminder, this order backlog had previously been excluded from our revenue expectations for fiscal 2025. Margin expansion remains a key priority for ATS. We're leveraging ABM tools to achieve our goals, including an ongoing priority on project execution through Kaizens, the Connect teams with data-driven leading and lagging indicators, processes and tools. Our supply chain teams continue to use data analytics, daily visual management tools, and value engineering to drive efficiency. In the short term, we expect sequential growth in revenues to improve operating leverage. However, we will continue to see some headwinds, particularly in our transportation businesses until we complete our reorganization activities. Last quarter, we announced a plan to spend up to $20 million to reduce our cost structure, primarily in our transportation business to reflect expectations of lower revenues in this vertical. During Q2, we reduced our workforce and reallocated resources as part of this plan and incurred $17.1 million of restructuring costs. We expect to complete the remainder of these initiatives in the third quarter. Moving to the balance sheet. In Q2, cash flows used in operating activities were $44.8 million. Cash usage was primarily related to the timing of progress billings and the collection of those billings on our larger projects. Our non-cash working capital as a percentage of revenue was 30%, up from 23.4% at the end of fiscal 2024. As Andrew noted, we are working to resolve a disagreement with one of our EV customers. The systems related to this agreement are operating and producing, and where we have completed our commissioning procedures, the systems have met or exceeded expectations. That said, until the disagreement is resolved, we don't anticipate collection on the overdue balance or other amounts on the balance sheet, including overdue accounts receivable of approximately $155 million and approximately $170 million of contract assets reflecting work completed and remaining to be invoiced. As such, working capital is expected to remain above our target level. But we do anticipate improvement overall as milestone billings are completed and collected in other parts of the business in the normal course. During the quarter, investments in CapEx and intangible assets were $16.8 million and we expect our annual spend to be in the range of $70 million to $90 million. We continue to invest in innovation in key growth areas. On leverage, our net debt to adjusted EBITDA ratio as of the end of Q2 was 3.4 times on a pro forma basis, which includes full-year contributions from our most recent acquisitions, Avidity, Paxiom, and Heidolph. Our target range for leverage is 2 to 3 times. And in the short term, we are committed to returning leverage to our target range. In August, we successfully completed a CAD400 million offering of senior unsecured bills. We used the proceeds from this transaction to pay outstanding amounts owed under our credit facility. In summary, in the near term, our strong order backlog provides us with good revenue visibility. We expect short-term margin pressures from lower transportation revenues to reduce as we complete our reorganization activities and drive growth in the rest of the business, led by Life Sciences. Our recent acquisition of Paxiom and Heidolph bolster our positions in food and packaging and life sciences, respectively. Looking ahead, we're encouraged by the strong momentum of our Life Science business as well as the backlog and funnel activity in other market verticals. We see opportunities for growth and innovation across ATS, and we are well-positioned to capitalize on. We remain aligned to our core values of people, process, and performance and utilizing the ABM to drive disciplined, purposeful continuous improvement. Now we will open the call to questions from our analysts.

Thank you. Our first question comes from Sabahat Khan with RBC. Please go ahead.

Great. Thanks and good morning. Maybe if you can just give us a bit more color on some of the puts and takes in the backlog. I know Andrew, you provide a bit of color on just a broader outlook. But maybe just the moving pieces between kind of the new orders, the order that you removed. And maybe more importantly, just the discussions you're having, particularly in life sciences, food and beverage, and just kind of trying to get a perspective on the outlook as we head into sort of the back half of this fiscal year and into 2026. Just your confidence on sort of the next year being a bit more of a growth or an organic front. Thank you.

Yes, good morning, Sabahat. It's Ryan here. I'll begin by stating that our bookings for the quarter totaled $742 million. Regarding backlog adjustments, we experienced a reduction of approximately $187 million this quarter. Most of this reduction is related to the large EV program that has been on hold for several quarters, and we have now removed it from our order backlog as we do not anticipate the program moving forward. Aside from that, there are some typical core scope changes involving content removal, station alterations, capacity adjustments, and so on, but nothing significant in terms of size. Overall, we feel very confident about our backlog position. We have achieved a record order backlog in Life Sciences, which is up 32% year-over-year. Our Consumer segment is up 9%, Food is up 30%, and our Energy sector remains robust, remaining flat year-over-year. Thus, we see growth across all markets, with the exception of transportation, where Energy is flat.

Yes. And Sabahat, I would like to add a bit more here. Ryan mentioned this, but when we assess our business, we find that all markets, except transportation, have a strong book-to-bill ratio over the last 12 months. Overall, it has been a positive quarter in life sciences and other sectors, even though we expect lower revenue and margins in transportation. We are actively managing that risk and reducing its marketing impact. Additionally, we completed two acquisitions during the quarter, which are very strategic and well-aligned with our future direction, specifically with Paxiom and Heidolph. The life sciences backlog is the highest in our history, with a trailing 12-month book-to-bill ratio above one in all markets except transportation, and our funnels remain strong.

Great. And then maybe just on the kind of rightsizing within the transportation business. Can you maybe just share some color on what cost reductions or rightsizing or maybe reallocation you've undertaken thus far and what might still be remaining?

Yes. We spent approximately $17 million in the quarter, mainly due to headcount reductions. We've also shifted resources, including personnel and footprint, to other areas of the business, primarily life sciences. In terms of payback or ongoing savings, the savings associated with this expenditure far exceed the costs, mostly concerning direct labor. We are focused on ensuring that our cost structure aligns with market activity in our transportation vertical. Most of the measures have been completed, though a few will take a bit longer to implement, and we anticipate finishing those in the third quarter.

Great. And then just one last one for me. On the EV work that you're doing for your large customer, just to be clear, are you still kind of chipping away at the work for this client while you work on collections for some of the past work? Or is that on hold? And then secondly, are you able to provide some perspective on if there's a timeline on how long it may take to figure out the payments on the work already done? Thank you.

Yes. So Sabahat, before we address additional questions on our EV projects, just to let you know that there are some items we can't discuss. And that's including the name of the customer as well as certain contract operational and financial details beyond what's described in our disclosure materials. Now we'll be obviously forthcoming as we can. We understand that we have to draw the line just given the nature and status of customer discussions. What we can say is we've delivered equipment according to our contracts and where we fully commissioned the equipment; it's meeting or exceeding expectations. Many of our projects have a high degree of complexity, and that requires ongoing discussions with our customers. In this case, very recently, our conversations have become more challenging. We continue our discussions with the customer, and we're hopeful that we'll come to resolution, but we're prepared to exercise our rights to be paid for the work we've done.

And I'll just add on in terms of timeline. As Andrew said, we are continuing discussions. We're hopeful that will come to resolution, but we're also prepared to exercise our rights to be paid for the work we've done. There's a variety of ways we could pursue resolution, but that will be dependent on how discussions go that will ultimately drive the timeline.

Great. Thanks very much for the color.

Our next question comes from the line of Justin Keywood with Stifel. Please go ahead.

Good morning. Thanks for taking my call. Just on the EV discussion in the opening remarks, there was some commentary expecting the EV segment to be a smaller percentage going forward. Any updated parameters on what that could be? Thank you.

So Justin, good morning. As we look at it today, it's about 11% of our order backlog. I think that's a reasonable range in the high single digits to low double digits.

And are any indications of that around 10%, how diversified would that be? Would that comprise a number of customers? Or would that still include the large OEM?

Yes. Good morning, Justin. So if you step back and look at our funnel, our funnel is healthy. It's diversified customers and it's on a more smaller scale of projects. And I would say the large scale, while they're certainly out there, given the market dynamics, we're seeing more in line with continued execution, but a diversified customer base.

Thank you. In discussion on margins, there was also commentary that there could be some continued impacts. But is it fair to assume that fiscal Q2 is low and there would be some progression in the back half of the year?

Yes, that's accurate. To elaborate, we have talked about the challenges in the electric vehicle sector that have affected our revenues. However, we are experiencing growth in our other market sectors, and our book-to-bill ratio, excluding transportation, stands at 1.2. We anticipate improvement as revenues rise from Q2, and we will also benefit from our reduced cost structure in the transportation sector, which will positively impact our margins. So, your assumption is indeed correct.

Thank you. If I could just slip in one more. The expected exit leverage ratio, did you have that?

Our leverage is 3.4 times.

And is there an anticipated exit ratio for fiscal 2025?

I apologize, I didn't catch your question. We have expressed our commitment to lowering leverage towards our target range in our prepared remarks. Aside from the working capital tied up in our large projects, we do anticipate improvements from our performance in the second quarter across the rest of the business. Therefore, I can say we expect progress by the end of the year, but I won't provide a specific timeline for when that will happen.

Okay, thank you very much.

Our next question comes from the line of David Ocampo with Cormark Securities. Please go ahead.

Hi, thanks, good morning everyone.

Good morning.

I just wanted to follow up, Justin's question, but ask it a different way as it pertains to M&A. I mean if there's any delays as it relates to the payment, I know you don't want to put a timeline on it, but it does put your leverage probably closer to the top end of where you're comfortable with. Does that cause your thoughts on M&A just because you guys are always cultivating, but your leverage ratio may be quite a bit higher than where you guys would like to be post the deal?

Yes. Good morning, David, I'll start here. First and foremost, we've just added two strategic acquisitions to the business. I'm very pleased with the addition of Paxiom and Heidolph and we're actively engaged to integrate those businesses and really help them achieve their aspirations. Early indications are very positive with both businesses. So pleased with the closing of those two, and we've also added new reality. And so nice additions within the quarter. If we look at our funnel today, our funnel remains healthy. And as I said in my prepared remarks, oftentimes, cultivation takes time. And we will continue to cultivate, and while we're in the process of going through that, we're going to look to delever and really build up our ability to execute for the future. So we'll continue to cultivate. Our funnel remains healthy, and we'll be balanced in the approach, but we're pleased with the additions, and we're going to execute the plan.

Okay. That sounds good. And for Ryan, we haven't really seen these significant life science wins in the past. Can you explain how the revenue recognition process works regarding how things get recorded in the income statement?

Yes. So I'll talk through this, but feel free to follow up. When we talk about large projects, they typically go through three phases. There's the design phase. There's the assembly phase, and then they get delivered and commissioned on-site. Typically, the initial design phases are lower revenue recognition periods and that just reflects we have less cost going into the projects. As we get into assembly, we start bringing in materials. We have our workforce deployed in the factory. That's the highest revenue recognition period, and then commissioning again is typically a lower period when it's being installed and validated on-site. The duration varies large projects; typically, they're over a year. In some cases, they can be up to 24 months. In Life Sciences, I would say typically for the large size, it's 12 to 18 months in duration. And again, from a revenue recognition perspective, we follow that normal distribution pattern. And so in the quarter, if I look across our top 10 orders, there was a lot of life sciences in that - radiopharma, drug delivery, contact lenses, wearables. There's also a consumer, there's nuclear in the top 10. So we're very pleased with the bookings. As I said, we have record order backlog in Life Sciences and are very encouraged by the funnel activity in that vertical.

Okay. That's helpful. I'll follow up offline to make sure I have everything. All my ducks in order in terms of modeling this. Thanks very much.

Thanks, David.

Our next question comes from the line of Patrick Sullivan with TD Cowen. Please go ahead.

Hi, good morning. Thanks for taking my question. I guess Life Sciences currently over 60% of the backlog with everything else in the 6% to 12% range. Do you have an ideal target mix for that? I guess would you forecast food and beverage to take over like a comfortable number two position? Do you have any guideposts for the range you'd like to see there?

So not specific in guidance. What I can tell you, if you looked at M&A and if you looked at our focus on innovation and product launch, Life Sciences is a key area of focus for our business. And we're very pleased with the progress. Our biggest backlog in history. And across the board, minus transportation, above a book-to-bill ratio of 1.0. With the addition of Paxiom to our food and beverage space, really excited about the potential. Paxiom came in the food space, but we're also seeing a lot of synergy potential in our life sciences area, and our synergy funnel continues to grow in that space. So that would put parameters on it. What I can tell you is our areas that make up, call it, ATS as we move forward are largest in life sciences, food. Nuclear continues to be an attractive piece of the business as well and in niche applications and our consumer products continue to do well. Transportation is going to be a small portion of the business.

Okay. Great. Thank you. And then I guess, Andrew has mentioned on a recent webcast that Comecer has roughly doubled the top line of the business since it was acquired according to certain forecasts, radiopharma submarkets are expected to grow at pretty strong CAGRs out to 2028. I guess where does ATS see opportunities for that business? Is it the diagnostics versus therapeutics? And I guess, are you guys in a position to outpace some of those industry expected growth rates?

First, we actually have opportunities in both areas. And boy, Comecer's continue to execute both operationally and commercially. Very pleased with the progress. This team came on, they really aligned around the ABM and taking a hard look at how they set their business up to drive expansion in their core markets. The market is an attractive space. The business executes and really drives high value for our customers. One of the most recent wins that we had is in the therapeutics area, and we had a large order from a customer. I think it was our single largest award within the quarter. Comecer continues to bring high value in the space. Not only that, I actually talked a bit about their focus on technology and Modis being a new launch in their space. They're not only bringing value in their core, but they're also innovating and designing and building out capability to really have higher value for customers as they grow and continue to launch exciting products within the cancer arena to fight and combat this area.

Okay. Great. Thank you very much.

Our next question comes from the line of Maxim Sytchev with National Bank Financial. Please go ahead.

Hi, good morning, gentlemen.

Good morning, Max.

Maybe just thinking about the transportation market, a little bit sort of more removed dynamic, like in terms of the portfolio composition, kind of on a going-forward basis, do you think still that this is kind of the good market to be in? And what are your thoughts maybe as you think about especially with elections in the U.S. and I mean, arguably, the EV market facing more pressure on what was known yesterday? So yes, maybe any thoughts there?

Yes, good morning, Max. So look, we have rightsized our business for the market dynamics. And we walked through that Ryan kind of provided a bit more color on the reorganization and how we've really aligned this business for the market expectations. We expect this to be a lower portion, and Ryan walked through the numbers being roughly 10%. So net-net, we're going to continue to execute where we have high value for customers, but it will be a small portion of ATS into the future.

Okay, as you consider the portfolio composition, are you comfortable with EV serving as more of a long-term option, or do you believe that focusing on healthcare and food energy could ultimately provide better returns for shareholders?

Yes. So if you look at where our investment is and continues to be, it's a large portion of life sciences, food, and other areas like nuclear for the business. And if you look at where we've shifted and we right-sized this business. Where we see opportunity, we'll continue to execute for the long-term market potential, but it is a lower portion and we're being very focused on higher value for customers. That's where we'll drive that portion of the business, which is call it, a smaller segment moving forward.

Okay. Great. Thanks for the color. And then just one last question. In terms of food and beverage, so the decline year-on-year, I mean, I understand there's always sort of puts and takes, but wondering if you can provide a bit more color in terms of what's going on there? Because as you said, a funnel seems to be pretty good in that space. Thanks.

So Max, just to walk through this. First and foremost, up 30% in backlog, pleased with that progress and pleased with this business. And just to walk you through Q1, Q2 of last year, it's a bit of a comp discussion. And let me walk through that. So we've talked in the past; there was a bit of an energy crisis in Europe. Our CFT business has a very high energy efficiency product that we saw an increased level of demand, and we executed that demand in Q1 and Q2. So we should see this normalize in Q3 of this year. And so we're pleased with the progress of the business. They continue to execute. They've continued to really drive margin as a focus. If you look at CFT, they've been greater than 500 basis points on their bottom line, and there are solutions that they're launching and capabilities that they're launching and even highlighted one in the update around digital tomato and what that will bring as a notion set for their markets. So really pleased with the progress here, and it is a bit of a comp for Q1, Q2, and Q3 should be more normalized.

Yes, Max, the only thing I want to add on as well, the energy-efficient solutions are primary processing. We've talked in the past; those are seasonal and require equipment deliveries around harvest seasons. And so what's in the backlog today is more about secondary processing, packaging, and inspection solutions. We've talked about that being a focus to balance out the seasonality of that primary processing. So, as Andrew said, we're quite pleased with the performance there.

Okay, thanks for the time.

Our next question comes from the line of Michael Glen with Raymond James. Please go ahead.

Hey, good morning. So just to start on EV, can you indicate gross bookings in EV in the quarter? So excluding the $150 million adjustment, what were the gross bookings for the period?

They were in the range of $30 million, just north of $30 million.

Just north of $30 million. So on new EV bookings, I understand in the past, there were different contract structures and payment structures. Are you telling customers now that you're not willing to participate in those types of terms and you've changed the terms of new contracts in that segment?

So Michael, I mean our contracts are different customer to customer. But I would say we've got across the board, strong contracts, and good payment terms certainly relative to what we used to see in the ICE market in transportation that are more favorable from a working capital perspective. I would say the contract terms that we're working under are favorable.

Okay. And I'm just going to try to pull this out to you a bit more, but I mean, the contracts you're working under are favorable. Is that contract terms outside of the large customer where you're having the issue, like did they have different terms associated with them versus others in that backlog?

Let me address that point. As we've mentioned, with regard to those large contracts, where we've completed commissioning procedures, the lines are producing at or above the contracted levels. Our disagreement with the customer concerns payment for the work we've completed. I cannot speak for the customer, but we have learned from public reports that North American automakers have announced delays or adjustments to their previously stated EV capacity targets. Despite this, we are still in discussions and are hopeful for a resolution.

Okay. Regarding the Life Science bookings in the quarter, can you share the organic bookings number in Life Sciences, considering the impact from M&A such as Avidity and Heidolph, along with possibly other transactions?

Specifically, in the quarter, it's north of 20%.

20% growth organically?

Correct. Yes, north of.

Is the margin profile of those contracts margin accretive? I know your business is currently experiencing some margin pressure, but would you say it contributes positively towards the 15% target margin you have previously mentioned?

Let me discuss the gross margin perspective. Overall, Life Sciences contributes positively at the gross margin level. We saw a solid gross margin this quarter, increasing by about 123 basis points year-over-year. This improvement reflects a better mix, with more life sciences and services contributing positively from acquisitions. However, there was some offset due to underutilization in our transportation businesses. Generally, Life Sciences is beneficial to our margins, but the overall impact on margins this quarter is primarily due to operating leverage, which was affected by lower revenues in our transportation segment. We have taken steps to address this, and these are some of the dynamics affecting our margins.

I just want to ask one last question. What part of the transportation backlog is still sizable? I'm presuming that a chunk of the remaining $207 million in transportation backlog relates to the large customer involved in the dispute.

There's some, but the majority is related to other customers, other scopes of work.

Okay, thank you for taking the questions.

Thank you.

Our next question comes from Patrick Baumann with JPMorgan. Please go ahead.

Thanks, good morning. I was just wondering if we could put a finer point on margins in the second half. I think you previously indicated that the company would be able to get back to the first quarter level around 15% EBITDA margin by the fourth quarter of the year. So is that still aligned with the expectation based on the costs you're taking out based on how you see the revenue trajectory playing out in the second half?

So Patrick, good morning. Generally, yes. I mean, again, this is going to depend on progression around the rest of the business and bookings and things like that. But generally, yes, we continue to expect sequential improvement into the third and then into the fourth quarter.

Okay. And on the backlog removal, I was just wondering if this had any impact on the P&L? Like did you have to book any losses on work that had already been done? And then did you choose to remove it because of the challenges on cash collections with work already done for the customer? Or was this customer-driven, like a cancellation on their part? And then lastly on this, kind of when was it decided?

So no impact on margins related to the removal of backlog. The contract has not been canceled, but it really reflects our expectation that it's not going to move forward. As we talked about, that's based on activity in the market, also the other ongoing scopes of work with the customers. In terms of timing, it's a recent development.

Thanks for the color. Appreciate it.

Thank you, Patrick.

Seeing no further questions at this time. I will now turn the call back to Mr. Hider for closing comments.

Great. Thank you, operator, and thank you, everyone, for joining us today. I look forward to speaking to you on our Q3 call in February. Stay safe, and goodbye for now.

This concludes today's conference call. Thank you all for your participation. You may now disconnect.