Welcome to the ATS Corporation third quarter conference call and webcast. This call is being recorded on February 5th, 2025 at 8.30 a.m. Eastern Time. Following the presentation, we will conduct a question and answer session. I'll now turn the call over to David Dellison, Head of Investor Relations at ATS.

Thank you, Operator, and good morning, everyone. On the call today are Andrew Heider, 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 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 on slide three 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 third quarter results for fiscal 25. This was the second highest bookings quarter in company history and included strong organic growth along with contributions from acquisitions. This morning I will update you on our business and markets and Ryan will provide his financial report and we will both touch upon the recent developments on tariffs. Starting with our financial value drivers, order bookings for the quarter were $883 million, up 32% from the third quarter last year. All of our market verticals contributed to this growth, with good diversification in bookings, including large and small orders, and contributions from our services businesses. Q3 revenues were $652 million, dollars, down 13 percent from Q3 last year, primarily due to lower EV revenues as expected. Adjusted earnings from operations in Q3 were 66 million dollars. Moving to our outlook, order backlog ended the quarter at approximately 2.1 billion dollars, with our trailing 12-month book to bill ratio at 1.18 to 1. We are focused on expanding our market reach through our capabilities. High-value applications that are complex to manufacture and where quality is critical align very well with our strengths. By building out our standard products and equipment and adding services and digital capabilities, we are also shifting to growing our levels of reoccurring revenues to help offset some of the variability in bookings over time. On the recent developments on tariffs between the U.S. and Canada, if tariffs are implemented in the next month, we would expect some complexity in the short term. Our people continue their unwavering commitment to delivering customer value and to actively planning for and addressing any disruptions that result from new tariffs and to meet customer requirements. Regardless of how the challenge ahead may develop, we rely on the strengths of our teams, our discipline processes, and daily visual management tools to plan for and track impacts, improve our approach, and pivot when necessary. ATS is built on strong businesses with empowered and driven teams. We will continue to operate in a way that is best for the company and our shareholders, and which is supportive of our employees and our customers. Moving to outlook. Within life sciences, order backlog sits at a record 1.2 billion, an increase of 39% compared to Q3 last year, with strong bookings delivered in key sub markets such as radiopharma, GLP-1 auto injectors, wearables, and other medical devices. As an example of how we're expanding market reach, we booked a small order with an emerging customer in advanced robotic surgery and an order with a larger customer for a new application that also creates inroads into the surgical robotic space overall our life sciences opportunity funnel is strong we continue to build out our integrated solution set leveraging our capabilities across our businesses to drive higher value for customers at each stage of their product life cycle further we continue to accelerate our growth strategy, the ongoing development of new products and solutions in the pharmaceutical manufacturing market to leverage Comacher, Iodosic technical business in Spain, and our core automation capabilities. In food and beverage, our funnel remains strong, and we ended the quarter with a record backlog of $252 million, an increase of 22% compared to last year, supported in part by our acquisition of Paxium. As we move ahead on our Paxium integration, opportunities continue to emerge for customer synergies and process improvements in areas such as secondary packaging and digital solutions. In energy, our funnel remains strong, supported by refurbishment opportunities for nuclear power generation facilities and new nuclear builds, including both large-scale and small modular reactors over the long term. We are well positioned to support customers in our areas of specialization, including nuclear fuel fabrication, factory automation of modular assemblies for new nuclear builds, and nuclear waste handling. ATS is well positioned to serve as a strategic partner from the concept and design phases all the way to execution. In consumer products, our funnel remains stable with niche opportunities in areas such as automated warehouse solutions packaging. In the quarter, we received a warehouse solutions booking with an additional potential to combine the capabilities and capacity of different businesses to support this customer with their emerging sustainability requirements across geographies. Within transportation, our previously announced restructuring activities continued to line our business with lower-end market demand, particularly in EV. Our funnel remained stable with smaller opportunities that we have seen in prior years. However, in the quarter, we had a new EV customer win in Europe. On after-sales, we expanded our higher-value services, incorporating our digital capabilities. We are evolving our service plan offerings to drive greater customer adoption and retention. We continue the launch of our Connected Care Hub in Cambridge, further expanding its operational capabilities and receiving several new customer orders. On our performance-based services, we are building on the success and learnings from our pilot projects as we scale with additional customers. On our digital offerings, our funnel is strong and we remain committed to serving as a global partner for continuous productivity optimization across our customer base. Our ATS business model continues to drive a culture of continuous improvement, innovation, and resilience across the organization with strong engagement in AVM events completed across all ATS businesses and geographies. By way of example, our CFT business held the Kaizen event in November dedicated to improving project management tools and best practices with a clear focus on data and sustainment to drive continued margin expansion. As part of these sustainment efforts, they held a follow-up event as part of our President's Kaizen Week in January, A great example of ongoing use of tools to drive steady improvement. I look forward to providing you with a broader update on our President Kaizen events on our Q4 results call. The ABM is also a critical part of our M&A playbook, used to integrate new acquisitions and drive towards targeted ROIC. Our M&A funnel remains strong, and we actively cultivate opportunities across a range of target sizes and markets. In the short term, we are focused on bringing leverage to our target levels while we expand our pipeline of acquisition opportunities that align with our strategic vision for long-term value creation. Integration activities are well underway on our recent acquisitions and we remain confident in their long-term contributions to our growth. On innovation, we are deploying capital and empowering our talent to create differentiated solutions that drive value for our customers in november we brought together thought leaders from our businesses around the world for our annual innovation summit branded building an innovation powerhouse ai's potential to drive innovation and operational efficiency was a central theme the event accelerated our efforts to create deeper collaboration on ai-driven initiatives across ATS. This focus reflects our commitment to advancing technologies that enhance capabilities and deliver long-term value. In December, we released our fifth annual sustainability report, reaffirming our commitments and highlighting how we help our customers meet their sustainability goals. I encourage you to review the report where we highlight our progress over the past year and provide examples of our approach to product design to handle more sustainable packaging solutions and increase the processing efficiency of our equipment. In summary, strong third quarter bookings combined with a sizable order backlog provide us the good foundation as we move through the final quarter of our year and look ahead to fiscal 2026 the disciplined execution of our strategy driven by our abm tools processes and culture will serve us well in achieving our objectives our abm continuous improvement mindset keeps our teams engaged and dedicated to delivering customer and shareholder value now i will turn the call over to ryan ryan over to you thank you andrew and good morning everyone

Beginning with our operating results for the quarter, order bookings were $883 million, an increase of 32% over Q3 last year. In life sciences, order bookings were our third highest on record, following our top two life sciences bookings quarters in Q1 and Q2 of this year, respectively. In the third quarter, bookings were driven by a combination of organic growth and contributions from the recent acquisitions of Avidity, Paxiom, and Heidel. Our trailing 12-month book-to-bill ratio at the end of Q3 was 1.18 to 1. Excluding transportation, this ratio was 1.24 to 1, with all other market verticals sustaining a book-to-bill ratio above 1. Q3 revenues of $652 million were 13.3% lower than last year. Strong year-over-year organic growth in life sciences, consumer, and food and beverage, in addition to a 6% contribution from recent acquisitions, partially mitigated the expected declines in transportation. Of note, revenues increased sequentially by 6.4% as we have begun to realize on the benefits of our strong order bookings over the past several quarters moving to earnings adjusted earnings from operations in q3 were 65.7 million dollars a decrease of 35 percent from the prior year reflecting lower revenue volumes primarily in transportation excluding acquisition related inventory fair value charges q3 gross margin was 30.7 percent and 216 basis point improvement from last year, driven by a more favorable mix, including higher margin programs and an improved supply chain environment. On SG&A, excluding acquisition-related amortization and transaction costs, as well as one-time contract settlement costs, third-quarter SG&A expenses were $130.6 million, a $22.7 million increase over the prior year, primarily as a result of SG&A our acquired companies along with increased employee costs and foreign exchange translation as always we're continuing to drive efficiency into both our existing operations and new acquisitions who have joined ats for further context the one-time contract settlement costs that i referenced were within one of our life sciences businesses and related to a cancelled program excluding the mark-to-market impact related to changes in our share price stock-based compensation expense was 3.7 million dollars in q3 earnings per share was 32 cents on an adjusted basis down from last year primarily due to lower revenue volumes turning to our outlook we concluded the quarter with an ordered backlog of just under 2.1 billion dollars and we expect q4 revenues to be in the range of 650 million to 710 million dollars as a reminder this assessment is updated every quarter, taking into account revenue expectations from current order backlog and new orders booked and billed within the quarter. Margin expansion remains an ongoing priority. To achieve this, we're employing ABM tools in a disciplined manner to improve processes, our supply chain, and standardization. Further, we continue to invest in innovation and services to drive growth. During the quarter, we substantially completed the reorganization plan we announced in Q1, which was primarily intended to right-size the cost structure of our transportation businesses to reflect current market activity. In the quarter, we incurred an additional $3.3 million of restructuring costs. On tariffs, as Andrew noted, we are monitoring the situation closely and are assessing potential impacts on our business. Our global footprint and decentralized operating model, along with our proven ABM tools, give us flexibility to address disruptions over the longer term while we await further information over the next month we're actively working with our customers and suppliers to mitigate challenges that tariffs could pose to our collective businesses moving to the balance sheet in q3 we generated cash flows from operating activities of 66.7 million dollars our non-cash working capital as a percentage of revenue was 30.3 percent this value remained high as a result of our previously disclosed disagreement with one of our EV customers. While work remains paused on the projects, we've continued efforts to resolve this disagreement. However, until it is resolved, working capital is expected to remain above our target level of 15% of revenues. That said, we did see good progress across the rest of our businesses on working capital efficiency, with XEV working capital values moving closer to our target range, even with the acquisitions of higher working capital intensive product businesses. During the quarter, we invested $16.4 million in capex and intangible assets with an expected annual expenditure at the lower end of our previously disclosed range of $70 to $90 million. Our innovation efforts and critical growth areas remains a priority. On leverage, at the end of the third quarter, our net debt to adjusted EBITDA ratio is 3.7 times on a pro forma basis which includes full year contributions from our most recent acquisitions. We remain committed to bringing our leverage to our target range of two to three times. In December, we successfully completed an additional $200 million Canadian offering of senior unsecured notes as part of a single series with our August issuance of 6.5% notes due in 2032. Proceeds from this transaction were used to repay outstanding amounts under our credit facility in summary order bookings are strong and diversified across our markets record order backlogs in life sciences and food and beverage give us good revenue visibility going forward we expect the short-term margin pressures from lower transportation revenues to continue to abate through our reorganization efforts as we drive improved volumes in transportation and continued growth in the rest of the business looking ahead we're committed to building on recent positive momentum in our financial results as we finish out fiscal 25. we're encouraged by the progress our global teams are making in advancing our strategies and are confident

that their efforts will generate value for customers and shareholders as we move forward now we will open the call to questions from our analysts operator could you please provide instructions thank you thank you we will now begin the question and answer session if you your hand and join the queue if you would like to withdraw your question simply press star one again your first question comes from the line of justin keywood from steeple your line is open good morning thanks for taking my call on the margins we saw a good expansion on the gross margin 11 level year over year up almost 200 beeps should we anticipate that to start impacting

the overall operating margins for fiscal Q4 or will that take a bit longer for some of the reorganization activities to mature in some of the ABM initiatives to be implemented?

Yeah good morning Justin it's Ryan so short answer is yes we do expect continued margin improvement but let me give you a little bit more context than that so You know, looking back on the year, Q2 really reflected the low point in our financial performance, and that was expected, and we did see sequential growth and margin expansion this quarter. The growth has been across all our market verticals, with the exception of transportation, and that has helped drive margin improvement, along with the actions we've taken to right-size our cost structure. So as we look forward, we do expect continued sequential growth to benefit our margins, but it will be modest in Q4. So our transportation business, while it's improved from Q2, the cost structure has been been right sized and we've had good bookings in Q3. The revenues aren't going to ramp in that business until we get into more advanced stages with with with a lot of the new business we've just won. So we're going to see more benefit into fiscal 26. But again, short answer, improvement in Q4, but it's going to be modest.

Okay, thank you. And then on the energy or nuclear segment, good bookings or backlog growth up 58%. I think there was a big jump in bookings as well. Are you able to give some additional context there? Was that from a new customer or existing customer? And what is the outlook for that segment going forward?

Yeah, so let me start there. So when we step back and look at this segment, as a reminder, we're a niche player, but we have a strong value for our customers. And we support now multi areas for this market. First one, can-do, react, and refurbishment. And we've seen and continue to see customers look to this area as a refurbishment to really look at green energy and nuclear energy being a power source that they can rely on. And so we see continued opportunity in that space. And we did see actually continued bookings within this market. Additionally, and I've talked about this in the past, we support the SMR builds, and while it's early and we still view this as a mid- to long-term area of focus, we have a strong niche position within that space, and we're working with several of the key leaders. um and and uh you know it's it's about getting the the applications proven out and then and then ultimately in line and online to support energy we're seeing large scale new builds as well starting to come into into discussion and an ats you know if you look at the refurbishment it's kind of effectively two things is decommissioning and then recommissioning that's the recommissioning piece and we have ability to support new builds on traditional as well as can-do reactors. And then, you know, decommissioning waste we play in as well as operations and maintenance. One additional one that we're highlighting and you'll see us continue to highlight is fuel fabrication. As these new solutions come online, it is an area, an opportunity that ATS can really play in and support. And so while it's early, we are starting our position and we have a strong position to be able to support the ramp up in this space. So overall, pleased with the progress, nice, nice, nice growth. And one that we do view is a strong value for our customers, yet it is a niche solution for our business.

And Justin, just to add on the specifics, there was multiple customers that contributed to bookings in the space in the quarter.

Very interesting. And just finally, on the ongoing dispute with the large EV customer, the $175 million of assets that are to be invoiced or not delivered, is that equipment able to be repurchased for other projects? Or is there still a view that it could eventually be delivered to the customer and paid for?

The equipment's been delivered, and to the best of our knowledge, remains in production. at the customer site.

Is that, just to be clear, is that the $165 million or the $175 million?

All of it.

Thank you very much.

Your next question comes from a line of Sherilyn Radburn from TD Cowan. Your line is open.

Thanks very much and good morning. Andrew, I imagine that with the election of a second Trump administration, tariffs and how to locate supply chains medium to long term are top of mind issues with your customers. Can you give us some color on the volume of your customer conversations lately and the key topics?

Yeah, so good morning, Sherilyn. When we look at our, you know, when we're having discussions with our customers, and as a reminder, we do view that the short term is, you know, if these were to be implemented, going to be, you know, a bit dynamic mid to long term, this is a real strength for ATS. And when we talk to our customers, we have the ability to build support and continue to support operations in core regions. And so it's a real strength for our organization. And I highlight an example in our prepared remarks around the opportunity to support the warehouse automation space where our global scale, our global footprint really played a big factor here, as well as our continued focus on standardization and moving from a more complex product to ability to build in multi-location. So our conversations have been, I would say, more on the positive side in our ability to support, Yet our customers are still waiting to see how things truly shake out and where their focus is going to be for the future.

That makes sense. Just thinking about another Trump policy, mass deportation.

Do you think that could result in a short term boost in the food and beverage area, just given that there's a lot of undocumented labor that's active in that space? yeah so um if you look in that space in is specifically in the u.s you're going to find of course they're going to have a regulation around ensuring that they have documentation all that said when you see a change or a shift that the end product so think uh that the actual fruit or the vegetable becomes a higher value you will look at efficiency and you will look at process to be something you want to maximize. That's what we can support. And so we do view this as an area of opportunity. I would say it's, you know, short term is not the words or way we would characterize it. We would think this is a more mid to long term. That said, we are staying very close with our customers. We have a proactive outreach to ensure they understand where we can support. And we've also launched tools or solutions where we can help them really navigate these times. And one of them, you know, and I'm going to draw on an acquisition early in the journey, Marco recently launched a solution set where we can now do check weighing in the field that aligns with pack houses. Why that matters to our customers, it allows them to track and really understand the weights of their products so they don't overpack. And this is a real benefit. And so we're going to continue to see opportunities that align well there. All that to be said, we do view this as a bit more in the midterm area.

That's my cue. Thank you.

Thank you, Sherlyn.

Your next question comes from a line of Patrick Bowman from J.P. Morgan.

Your line is open well hi good morning thanks for taking my questions um on the on the orders um a couple ones here uh are there any big bookings worth calling out that benefited the quarter that you'd want to highlight um and then thinking about you know the backlog and the translation into sales can you talk about um why the sales are sort of lagging what they had you know i guess before the EV downturn and, you know, relative to that backlog and then particularly thinking about 26, like can some of these longer cycle orders, you know, start to translate and can you see an organic growth rate that's, you know, above that long-term target of mid-single-digit plus?

Good morning, Patrick. So, I'll start with the profile of the orders and try and talk through how those are going to get delivered and how that flows through revenue. So there were a number of big, what we would call, quote unquote, big programs in the quarter. Typically, we look at our top 10 and on average, that was about 30 million across those top It well diversified across every single market vertical was within our top 10, which was a real benefit. And then, as Andrew noted in his prepared remarks, we had lots of small and midsize orders that support as well. So when we have a strong bookings quarter like we did in this quarter, there typically is a benefit from some of these larger orders. Now, in terms of how these get revenue out or produced, so typically a larger order, and this is a general rule of thumb, they're going to have longer delivery periods and and could be going to multiple sites it could just be the complexity of of the equipment but but think you know 12 to 18 months um is sort of an average delivery period for those projects so how that flows through our revenue is the first several months there's going to be a design phase which is a lower revenue generating period and then as the equipment moves into production and assembly on our shop floors that's when we get into the those higher revenue generating periods so we do expect to see a benefit to our organic growth rate into next fiscal year as a result of of the bookings and backlog we've seen this year but there can be a one to two quarter lag from a large booking until we really start to see it materially impact our revenue run rate. And Patrick, you know, Ryan hit it.

Very strong bookings quarter. He's pleased with the progress here. And as you look, our funders remain healthy in the core markets we support. So not only do we continue to execute, we're looking for areas to drive expansion. And I referenced a couple of those, even in the prepared remarks around around the surgical space. So, pleased with the progress, more to come.

Sorry, just to follow up on that $30 million number, how does that, so what is your typical top 10? I don't know how to think about that $30 million relative to normal.

Yeah, typically, yeah, no, typically we're in the $20 million range.

It could be lower to mid mid-20 million range, I'd say that's more average if I look over the last eight quarters in terms of where we've been. This was on the higher end being 30, and we've had sort of lower end would be mid-teens. Got it.

And then I was wondering if you could put a finer point around the improvement you expect in fourth quarter margin. I think you had previously talked about you know, maybe getting back to first quarter levels, you know, by the back part of the year. Wondering if you could kind of frame for us where you are relative to those expectations based on your revenue trajectory that you've guided to for the fourth quarter.

Yeah. So in terms of, I'll piece it apart, in terms of our gross margin, we've seen year over year a good benefit from a couple of different areas. One is mix. so um life sciences typically is going to benefit our gross margin and in relative to a year ago where we had more transportation so that's been a benefit to our gross margin um we've we've seen a benefit from uh continued growth in in after sales services uh as well as acquisitions that's that's been a benefit um there's been some offset in our gross margin from underutilization and that's again in our transportation business and we've taken action to address that as we look forward as as transportation and it goes from where it's been this this couple of quarters there is a bit of a headwind in terms of our margin but from an operating margin standpoint growth and transportation will benefit from from where we are today in terms of our overall margin outlook. The revenue levels that we expect to hit in Q4, we do have some headwinds from an operating leverage standpoint still in our business. And so, again, as the business continues to grow, as we see the improvement in our transportation business, we do expect that That operating leverage will improve, but it's going to be more modest in Q4, as I noted.

No kind of like no color on the absolute margin that you'd want to provide to get people kind of aligned with how you're thinking?

No, nothing that I would call it.

OK, we'll follow up offline. Thank you very much. Thank you.

Your next question comes from a line of Maxim Sitchev from National Bank.

Your line is open. all right good morning gentlemen good morning morning um and you made the first question for you i i think your reference to uh an ev program uh in europe um do you mind maybe talking about your capability to carry out work in the geography because correct me if i'm wrong a couple of years ago we had a restructuring there so maybe some some color on that side please yes so so just just a little bit more on this win uh this was a customer or the end oem is a customer from the past and it's a slightly different application on their ev shift very pleased with the win and when we need to execute we'll be using our global footprint for for really building this capability

out and that means multi-region um we do have capability in europe and and we can support this customer in region as well okay great and then um i think maybe a couple of quarters ago uh andrew you were talking about the grid battery storage opportunity. I'm just wondering if there's any update on that product, please.

So we continue to stay close in this space. I'll just say of the energy sector, nuclear is really showing signs of strength in that space. But grid storage is something we stay close on and we're working with several of the key players. But I would say if you look at energy, nuclear is the area right now that we're seeing stronger growth.

And I guess, I mean, like all these recent announcements from obviously Darlington, OPG, I mean, it looks like there's definitely an inflection point. Like in terms of timing, is this kind of, you know, 12 months out or a little bit beyond that in terms of really seeing kind of like a ramp up in revenue just so we can calibrate our expectations?

Yeah, so we would say, you know, when the announcements are made, it's usually a pretty lengthy process. So I would say greater than 12 months. And it's one that aligns well with ATS's value. That said, these are fairly lengthy programs and processes, and we engage early and focus on winning and focus on offering value for customers as they take these next steps.

Okay, great. And then one quick question for Ryan, if I may. It looks like the tax rate is running a little bit higher kind of on sort of year-to-date basis. Could we see a bit of a reversal in Q4 or how should we think about it from a model perspective?

Yeah, so I don't expect it in Q4 max, if you're right. It is higher than what we had originally anticipated at the outset of the year. there's been some changes in the jurisdictions in which we operate in terms of tax legislation and that's had an impact as well as our profitability in certain jurisdictions so I don't expect a change but I mean as always we're looking at how our business is structured globally to ensure we're we're maximizing our efficiency and how we operate and finance our businesses but in the short term I expect it's going to remain in line with what we've seen year to date okay that's good and then maybe if you can mind i was thinking one more in terms of the working capital x healthcare sorry x x ev do you like maybe providing a bit of sort of goal posts in terms of how the rest of the business performing there thanks yeah so so we're slightly above uh the the 15 target that we have um so obviously with with transportation that's that's what's putting us up in the 30% range today. But outside of that, we're just above the target. We did see good progress this quarter across the business. And that's, you know, some of these acquisitions we've added in, they do carry, they're more product-based businesses, they carry inventory, and they've come on with a higher working capital intensity. So that's part of our improvement opportunity as as you know we have other areas across the rest of the business to be more efficient whether it's in uh commercial terms with customers uh receivables and in our whole order to cash cycle uh there's a number of areas that that we're working to uh continue to improve to get to get back below that 15 target okay super helpful thank you your next question comes from a line of sabaha khan from rbc capital markets your line is open okay great thanks Thanks.

And good morning. We touched on this a little bit earlier, but I guess, you know, as we look forward to fiscal 26 and some of the questions earlier around the bookings growth, maybe aligning better with revenue, can you just talk about sort of how capital allocation evolves into next year? sort of what's what is the focus on sort of leverage reduction from the current levels um at what point do you need to get to for a minute when we pick up if you can just talk about your sort of outlook for capital allocation leverage reduction and so forth through 20 fiscal 26. thank you yeah good morning sabba so um i mean as we talked about in our prepared remarks our priority right now is on bringing our leverage into our target range of of two to three times

um we're at 3.7 today we've we've deployed roughly 180 million of capital in m&a this year um but but where we sit again our focus is is to bring that into the two to three times range um typically that's that's you know two three maybe four quarters just depending on uh what happens with with new order flow in in commercial terms on those um so so that's our focus in terms of M&A, as Andrew talked about, we're continuing to be actively cultivating. And if there was something that materialized, we would look at different ways that we could make that happen. But for now, the priority, as I said, is to reduce our leverage.

And Saba, maybe I'll just add on a short, short point here. Look, we continue to cultivate our funnel is healthy. But as a reminder, you know, even two of the three acquisitions we did last quarter, they were multi-year cultivation efforts. And so oftentimes these take time and we continue to stay close for the core markets, technologies and solutions that we want as part of the future for ATS.

Okay, great. And then there's a question earlier on nuclear. we just want to maybe get some perspective on your medium-term thinking around that market. Maybe as EV moderates, obviously a lot of headlines around demand for new builds, SMR, et cetera. Do you have some sort of perspective on what that energy or nuclear mix could go to in a few years as a percentage of revenue if that demand sustains at the level that we're seeing over the next level?

You know, maybe I'll start here. So, look, we like our position in nuclear, and we like the niche capability we have that's high value for our customers. Candy Reactor has been the lead there. It's been a core focus of ours, and we're seeing even resurgence in that market and that space. All that to be said, you know, when we look at the future, it will be a piece of the equation. uh life sciences will given its sheer size and culture will be our largest market um food is getting in in a strong position and then and then we will look to to be in high value niches like energy like nuclear to to really round that that equation out okay great and then just one last quick one i guess sounds like the you know the order bookings etc quite strong in life sciences um one of the other topics that came out of the new administration was sort of the new health administration there and their views on pharma like have you noticed any change in tone from

customers at all like how are they thinking about planning for the next one two three years like is there maybe some projects that might be holding in their back pocket until they get a bit more visibility on the new administration's priorities around health care or do you think it's business as usual for now until your life science of customers here although i'm just curious with all the political noise around the new health admin what the customers are telling you yeah so So certainly, look, this is continuing to evolve.

And what I can tell you is we are being very proactive in our outreach to ensure we have alignment, to ensure that our customers know that we can support in-region and on a global scale and a full technology suite of solutions for their ability to launch products. We have not seen a marked change in their approach to capability. Remember, and Saba, you know this, but as a reminder, we work with them on their really strategic product launches. And so when you look at auto injector, when you look at radio isotopes in the identification treatment of cancer, you know, and I could go down the list, we're often in very attractive spaces for our customers. And so all that to be said, we haven't seen a marked difference in their behaviors. we are staying very close and we also are looking to identify how this can be a strength for ATS and how we can truly position ourselves because of our decentralized global scale to support and really enable their ability to navigate these times.

Okay, great. My last actual question, I'll pass along after this. A lot of discussion about tariffs earlier. Is there any exposure to other inputs or anything like that from Mexico at all within your business and maybe any product moving finished product moving from us to canada i'll just try to get perspective on um just the the setup of your supply chain thank you it's sabo sorry can you can you repeat the first part of that question i missed is there yeah is there anything coming in from mexico to either u.s weather's inputs or things like that within your supply chain within the turf construct and then um is there much finished product or inputs that come from us into canada in terms of whether it's a cause or finished product got it so so um some but but minimal

moving from u.s into canada um in terms of our finished product uh on our supply chain uh yes there is uh there is sourcing that that comes from um mexico into the u.s typically we are buying through uh distribution so so this is really uh we're getting into our suppliers um their supply chains and how they're set up so that that's part of the work we're doing right now is is working with particularly our critical vendors to to understand their mitigation strategies so um you know for example we do have a supplier that that uh sources from from mexico and so one of the things they're looking at doing would be to ship directly to canada and bypass moving through the us so that would that would be a benefit for our canadian operations but but that's very much the the level of detail we're getting into with our suppliers to understand their supply chains uh their mitigation strategies okay great thanks appreciate the discussion that was helpful your next question comes from a line of michael glenn from raymond james your line is open Good morning.

Ryan, maybe just to start, at a recent investor conference, you indicated that the path to that 15% margin target was something like three to four years away. I don't recall you really given a time frame on this trajectory. Can you just maybe speak to the path from the end of, say, this fiscal year towards that 15%? What are some of the major buckets that come into play to get you towards that level?

Certainly. Good morning, Michael. So when we put this out, that was, I'd say, pretty consistent with the general timing. And so that hasn't really shifted. A lot of what we're doing is focused on efficiency in our business, value accretive lines of business. So supply chain capability, for example, that's a focus for us. It's been a very strong value generator for the company. Our teams have performed very well. It continues to be a focus area. Standardization is another area that isn't applicable across all of our business, but certainly in our larger project-based businesses, it is. And a good example there is all the work we're doing in auto-injector. We've got a standard technology platform that gets utilized across all those solutions. So those are areas we're focused on. um we're also continuing to build out again higher value areas such as our after sales services business um there's there's our ongoing continuous improvement activities uh through through our abm so all of those areas are are um are factors in in in helping us get to that to that margin target i think this year um we've had headwinds largely in terms of of our operating leverage with with lower volumes and ev so uh we've made some corrections there um but but coming out of this again we we really see that that path continuing to um to to be available to us on on those those margin expansion activities and as the business uh continues to to grow um we we expect our operating leverage to to continue to improve and again help support that uh the achievement of that objective Okay.

So, like, from the end of this year, would you say that the split of improvement is roughly balanced between gross margin and SG&A leverage, or does it skew more towards one bucket versus the other?

Most of the areas where we've targeted are in our gross margin. From getting back to, call it baseline, that's going to be operating leverage.

And just going back to the cross-border dynamics. So that was a helpful disclosure provided about the mid-teens percentage of revenue from Canada into the U.S. Can you give an idea what portion of that 15% could you move relatively seamlessly? i imagine some of the integration work for example you could move quite rapidly is there a way we can characterize what could be moved quickly and what would be a little more challenging to um to move i i'm not sure i would characterize any of it as is um easy i mean there's there's complexity and and i think we use this word but there there would be complexity in the short term so projects that are underway where we've got ongoing builds within our facilities that that that would

be challenging and again what i use the word complexity in the short term um longer term there is flexibility uh about a third of our global capacity in terms of uh footprint is in the u.s and and the u.s actually represents our largest concentration of of manufacturing space globally uh about 20 of our people are located in the us so so we do have a significant presence we have the ability to expand in the us but it it would be again i'll use the word complex in the short term so i mean this is obviously a very dynamic situation um we we are working and

continue to work with our customers suppliers on on response plans but um at this stage we're monitoring and and we'll adjust as we need to okay and final one on my side can you just speak to the large ev customer in the order was there number one is there anything left in backlog right now with the large ev customer and then number two was there any revenue contribution at all from that large ev customer in the quarter uh on question two no no revenues uh related to the customer dispute in the quarter.

In terms of backlog, there is a small amount in backlog that is tied to commissioning work that has been paused.

Your next question comes from a line of David Ocampo from Cormark Securities. Your line is open.

Thanks. Good morning, everyone. Just two really quick clarification questions. ron you touched a little bit on the leverage on getting it back down to that two to three times range called sometime next year on fiscal basis is that under the assumption without collecting from your transportation customer and then in the event that it isn't uh does that push you well below the two times range with with the collection of the call to 340 million So you're correct.

That excludes any movement on the amounts that are under dispute. Okay.

That's what I thought. And then just a follow-up on Patrick's question from a little bit earlier, but just diving a little bit more specifically into one area. I think a few quarters ago, you guys called out GLP-1 being 20% of your life science, backlog 10% of the overall. But I it still represents a smaller proportion of your revenue do you guys expect that the timeline of the revenue ramp to follow that that consistent pattern of the one and two quarter lag as you work through some of the more engineering and design work or is there a longer ramp uh as it relates to those products um it is slightly longer ramp it just based on on customer delivery requirements and and the size and scope of some of the programs but um it's it's it's not materially different okay and then as it relates to milestone payments in terms of the cash collection uh is it pretty consistent with what we've seen in the past from ats or is it kind of tilted

towards more of the ev style uh big milestone payments towards the end um i'd say more consistent with with what i would call our standard terms um so so uh better than what we see in transportation But I would also just caution on that point, with big programs, you still have, you know, big milestone payments. So even though they typically come in earlier, they're better commercial terms from that perspective, they can still be lumpy.

Okay, that's it for me. Thanks a lot for speaking in right up here.

And there are no further questions at this time. I will now turn the call back over to Mr. Heider for closing remarks.

Thank you operator and thank you everyone for joining us today. I look forward to speaking to you on our Q4 call in May. Stay safe and goodbye for now.

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