ATS - Q1 2024

Transcript

Operator (participant)

Welcome to the ATS Corporation first quarter conference call and webcast. This call is being recorded on August 9, 2023, at 8:30 A.M. ET. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. If anyone has any difficulties hearing the conference, please press * followed by 0 for operator assistance at any time. I'll now turn the call over to David Galison, Head of Investor Relations at ATS.

David Galison (Head of Investor Relations)

Thank you, operator, 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 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 2 of the slide deck. It's my pleasure to turn the call over to Andrew.

Andrew Hider (Board of Directors)

Thank you, David. Good morning, ladies and gentlemen, and thank you for joining us. This has been an exciting and transformational few months for ATS, during which we successfully completed our U.S. IPO and New York Stock Exchange listing. This represents an important milestone and supports our strategic growth objectives while providing increased liquidity in our shares and additional flexibility for M&A. Today, we reported a strong start to fiscal 2024, including record revenues supported by solid bookings, backlog, and adjusted earnings. These results reflect our team's disciplined execution of the ATS Business Model. Our ABM has reached a level of maturity that allows us to refine our approach and add new tools to drive performance for our customers and shareholders. First, I will update you on the business, and Ryan will provide his financial report. Starting with our financial value drivers.

Order bookings for the quarter were $690 million and included growth in Life Sciences and continued strength in EV and food and beverage. Q1 revenues were a record $754 million, up 23% from Q1 last year, including strong organic growth. Adjusted earnings from operations in Q1 were $102 million, up 29% versus Q1 last year. Moving to our outlook. We ended the quarter with order backlog of over $2 billion. This was anchored by our strong bookings in Life Sciences, partially offset by the expected revenue ramp-up on our EV projects and execution of primary processing projects ahead of the harvest season in food and beverage. As a reminder, the timing of customer decisions on larger opportunities can cause variability in order bookings from quarter to quarter.

By market, Life Sciences backlog was $783 million. Of note, our Q1 bookings included several key wins in strategic submarkets, including contact lenses, auto-injectors, and diabetes care, along with pharma and radiopharma. We secured another significant order based on our SYMPHONI, our innovative high-speed assembly technology. Overall, the Life Sciences funnel for fiscal 2024 remains strong. Transportation ending backlog was $834 million, up 124% year-over-year, as we continue to execute on our current EV programs. Our existing programs are being executed well and are on track from a cost and timing perspective. Of the strategic nature of EV program and large order values, this can cause variability in bookings. That said, our transportation funnel remains strong, and we remain well-positioned given our significant experience and expertise in this space.

In food and beverage, quarterly bookings were solid and the ending backlog was $188 million, up 15% year-over-year, even as our teams delivered on projects in backlog ahead of the tomato harvest season. Our funnel remains strong. Timing of the summer harvest season drives some seasonality in this vertical. In energy, the nuclear market continues to provide long-term opportunities, including new public sector interests. The focus on clean, sustainable energy to support future societal needs, including grid requirements for electric vehicles, is a driver for our business, as is the adoption of carbon reduction targets. ATS is well-positioned to support in several areas as customers add and refurbish nuclear power plants and commercialize small modular reactors. We also have specialized skills in energy storage and continue to work with customers on select opportunities. In consumer products, our backlog and funnel are stable.

Inflationary pressures continue to have an effect on discretionary spending in the personal care markets, which may impact timing of some customer investments. On digital. To create real value out of production digitization, our customers are looking for a partner who is strong in both automation integration and domain knowledge. Our teams are helping customers understand how to capture data, and more importantly, how to extract value from that data to drive impact. For example, a major global customer utilizing our IoT platform for plant performance management recently awarded us with a global management services contract for digital services. Another Life Sciences customer recently launched a pilot with us for a global IoT platform for performance management. On after-sales services, we are actively engaged with customers to leverage both technology and services to provide a better customer experience and outcome.

For example, our enhanced remote support platform streamlines the process of contacting ATS support simply by scanning a QR code. With one customer, this ease of contact has led to an annual remote service contract, leveraging the technology and our subject matter experts. On after-sales services, our regional networks and service centers are training and onboarding new resources to support our customers in critical geographic regions. The recent acquisition of TRIAD provides extended capabilities to support customers with predictive maintenance. On supply chain, material costs and lead time pressures remain, and we'll take time to work through some of our larger projects. We have started to see some improvements in both pricing and lead times in certain areas. Countermeasures that were created to combat volatility throughout much of fiscal 2023 remain in effect, allowing us to stay on schedule with our operations.

Our ATS Business Model, or ABM playbook, continues to create a competitive advantage. During the quarter, we completed 45 ABM events across all business groups and geographies. We use our ABM tools to drive improvements in all aspects of our business, not just on the shop floor. The ABM itself is also subject to continuous improvement. We constantly challenge ourselves on ABM tools and events to drive impact and stay focused on our value drivers. I'm pleased that our ABM is evolving and improving with time and use. In June, we hosted our annual ATS Leadership Conference. The theme was Building the Best ATS, and was aligned to our three core values of people, process, and performance. It provided an opportunity for our leaders to see examples of the ABM in action across our decentralized business as we drive value for our employees, customers, and shareholders.

On M&A, we recently announced and closed two acquisitions: Yazzoom in Q1 and Odyssey Validation Consultants in early Q2. Both are part of our Process Automation Group and enhance our capabilities in AI process optimization and digital services. Our M&A funnel remains active and healthy, and with our recent equity offering and listing on the NYSE, we have the balance sheet and financial capacity to move quickly should a potential opportunity meet our strict acquisition criteria. On sustainability, ATS recently earned a bronze medal from EcoVadis, one of the world's leading providers of business sustainability ratings. This award speaks to our ongoing commitment to improve sustainability within ATS and leverage our solutions to help customers achieve their sustainability goals. Our teams are working closely with our global customers to meet their needs through energy-efficient automation and energy management solutions.

We are actively monitoring regulatory developments, including international reporting standards and more specific regional requirements. We look forward to releasing our next sustainability report later this year. On innovation, we continue to deploy capital and leverage talent to create differentiated, enabling solutions that generate attractive returns for our customers and shareholders. When customers visit our sites where our innovations are displayed, their enthusiasm is clear. In particular, our patented SYMPHONI technology, on view in our ATS Innovation Center in Cambridge, Ontario, is a good example of our investment in leading-edge technology with applications across Life Sciences, in addition to other possible market applications that we will explore in the future. A few other innovation highlights from the quarter: Our Comecer team launched its MIKROS machine for dispensing microfluid drops of radioisotopes used in the preparation of radiopharmaceuticals and built on its contribution to automating the production of prostate cancer therapies.

Our SP team has developed its EZ-2 Bionic automated evaporator for integration into automated chemistry lines, which enables the production of pharmaceuticals that use new approaches to delivering drugs to target cells within a patient. Finally, our ATS Innovation Center developed a novel method for performing ultrasonic welding using our SYMPHONI platform that we believe have a variety of applications. In summary, disciplined adherence to our build, grow, and expand strategy is driving positive results. Our strong backlog and funnel give us confidence moving forward. With a focus on operational excellence, we will continue to build the best ATS for our employees, customers, and shareholders. Now I'll turn the call over to Ryan. Ryan, over to you.

Ryan McLeod (CFO)

Thank you, Andrew, good morning, everyone. This was a productive quarter for ATS that included solid and diversified bookings and continued good execution across our business. Beginning with orders, bookings were $690 million, down 6.3% compared to Q1 last year, which included a $70 million U.S. EV order. Our trailing twelve-month book-to-bill ratio at the end of the quarter was 1.18:1. In a broader context, our Q1 results ranks among the five best quarters for order bookings in ATS's history. Moving to revenues. Q1 revenues were $754 million, up 23.4% over Q1 last year. Organic revenue growth was 15.4% year-over-year, and was primarily due to increases in transportation related to EV battery projects.

Recently acquired companies added approximately 3% to revenue growth, and foreign exchange translation added a 5.5% benefit compared to Q1 last year. Our Q1 ending backlog of just over $2 billion was 30% higher than Q1 last year, providing good revenue visibility for the fiscal year. Our revenue conversion for Q2 is estimated to be in the 34%-37% range of backlog, based on revenue expectations from existing backlog and new orders booked and billed within the quarter. As a reminder, we do tend to experience seasonality in our business in the second fiscal quarter due to seasonality in our food business and higher vacation periods in our European-based businesses. Moving to earnings. Q1 adjusted earnings from operations were $102.1 million, up 29% from last year, primarily due to revenue growth.

Adjusted earnings from operations margin was 13.5% in the quarter, up 58 basis points compared to last year, reflecting higher operating leverage, partially offset by lower gross margin. Our Q1 adjusted gross margin was 28.2%, down 50 basis points from Q1 last year. The year-over-year decrease primarily reflected the execution of higher margin programs in the prior period, due in part to supply chain cost inflation and lead time impacts in current programs being executed. In supply chain, we have seen improvement in specific cost categories such as raw materials and freight, and cost inflation has stabilized. Despite some improvement, overall volatility remains in the supply chain environment. Lead times remain extended in key areas, primarily electrical control components, which impacts our ability to drive efficiency in our supply chain in the short term.

Our global supply chain teams are focused on countermeasures to help mitigate these challenges. Moving to SG&A, expenses were $11.5 million higher than Q1 last year. This quarter's cost included $18.6 million of acquisition-related amortization and $0.1 million of acquisition-related transaction costs. Excluding these comparable items in both periods, Q1's SG&A was $105 million, $13.5 million higher than Q1 last year, primarily reflecting foreign exchange translation, incremental SG&A expenses from acquisitions, and increased employee costs. Stock-based compensation expense for Q1 was $10 million, an increase of $14 million from last year's recovery of $4 million. Excluding the mark-to-market impact related to changes in our share price, stock-based compensation expense was $5.6 million in Q1, compared to an expense of $4.3 million last year. Moving to the balance sheet.

In Q1, cash flows used in operating activities were $107.8 million, primarily driven by an increase in working capital on our large EV programs. Non-cash working capital as a percentage of revenue was 15.6% at the end of Q1, up from 10.1% at the end of Q4, primarily reflecting the timing of progress and milestone billings on our large EV programs. As I've noted previously, cash generation and period-end working capital values can fluctuate depending on timing of billing milestone payments and execution of work on our larger programs. In the short term, we continue to expect working capital to remain variable and could exceed 15% in certain quarters, as was the case in Q1. In the first quarter of fiscal 2024, total investments in CapEx and intangible assets were $23 million.

This is in line with our expected fiscal 2024 CapEx spend of $80 million-$100 million, which is supporting our organic growth. On leverage, our net debt to adjusted EBITDA ratio was 2.0:1 as of the end of Q1, down from 2.7:1 at the end of Q4, and in line with our target leverage range of 2x-3x net debt to adjusted EBITDA. Our lower sequential leverage reflects net proceeds from our recently completed equity offering that we've used to initially pay down amounts outstanding on our revolving senior secured line of credit. We ultimately intend to utilize capital from the offering to pursue strategic opportunities, including acquisitions.

As noted previously, we are willing to temporarily increase our leverage beyond our target leverage range to support short-term working capital requirements or for an acquisition that fits within our framework and creates long-term value for our shareholders.

In summary, ATS delivered solid results for the quarter, again highlighting the strength of our strategic end markets and the value of the ABM in driving disciplined execution across all parts of the business. Our teams remain focused on serving our customers and delivering value. Going forward, we expect supply chain challenges will take some time to abate, and we are continually driving existing and new countermeasures to address inflation and other persistent supply chain issues. Strong order backlog supports our immediate growth plans, and with the additional financial flexibility gained from our recent U.S. IPO, we have additional capacity to pursue organic and acquisition opportunities that meet our disciplined investment criteria and create value for our customers and shareholders. Now, we will open the call to questions from our analysts. Operator, could you please provide instructions? Thank you.

Operator (participant)

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star followed by the one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request. Should you wish to remove yourself from the queue, please press star two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. The first question comes from Cherilyn Radbourne of TD Cowen. Please go ahead.

Patrick Sullivan (VP of Equity Research)

Good morning. This is Patrick Sullivan on behalf of Cherilyn Radbourne. Thank you for taking my questions. As it relates to bookings backlog, in the transportation segment specifically, previously, you'd mentioned a few ongoing pilot projects with new EV customers. Are you able to provide any updates with respect to those pilot projects and whether or not they're indications for further follow-on orders?

Andrew Hider (Board of Directors)

Yeah. Good, good morning, Patrick. We've talked about pilot and then going to production. I would say, we see the same as we've seen in the past, where customers are aligning their solution set with the launch of EV vehicles, and we do view the pilot moving to production, whether it's in the short term or long term. I would say no change in the dynamic with customers around this, around this, taking from an identification to a solution set in full automation.

Ryan McLeod (CFO)

Patrick, just as a reminder, these programs are typically longer in duration, so, 12-18 months. I mean, that kind of gives you a bit of a sense around when further opportunities could materialize.

Patrick Sullivan (VP of Equity Research)

Okay, great. Thank you. Switching over to the topic of M&A. The most recent group of tuck-ins, seem to support building out the process automation platform further. One particular acquisition, Yazzoom, which you talked about, springing more expertise in the areas of AI/ML. Can you discuss how those capabilities may be integrated across the larger process automation portfolio, and then whether or not there are other AI machine learning tools that ATS is either evaluating in the market or working on internally?

Andrew Hider (Board of Directors)

Absolutely. Patrick, I'll take this in a bit of kind of answer your question as it was asked. Yazzoom, really pleased with this addition. You know, as a reminder, kind of to set the framework, our PA business has really aligned itself with the ability to pull information and data from customer sites, to then bring it so we can take action or provide insight on said data to then drive improvements in the process. We've been continuing to build out and really enable this transition. As a reminder, because ATS has a strong position in integration and automation and domain expertise, it really enables us to support our customers to drive actionable insights. Customers look for, just beyond a dashboard, how they can really improve their process to then improve their output.

PA has really been enabling this and has positioned themselves as a strong leader in this space, which then positions for more data analytics and more AI. That's where Yazzoom really comes in. In this business, we, we identified one of their AI-based detections of anomalies in the data, where it allows us to assess and do more predictive. We can start to understand when things get out of sequence or out of spec and take action before the machine goes down. You're going to see PA and our total business continuing to build out capability around solution sets, around capabilities in this space, around, you know, specific actionable insights. We have launched PA Facts, which is a cloud-based solution set where customers can, can now be part of.

You know, if you step back, ATS as a whole, we've, we've made a shift to enabling our solutions, our products, to be digitally enabled in the field, and we're continuing down that, that, that progress. If you then step back and look at AI within the business, you know, it's impacting every aspect of our business. And, you know, I can talk about it from a standpoint of how we operate, to how we innovate, to how we launch solutions. You know, as a case in point, example, we now are doing incoming inspection utilizing AI, where we're testing incoming products or parts. We can understand, are they having abnormalities, or are they starting to get out of spec? We can notify the supplier that they're having an issue.

To not only going to even our auditing process, to identify where we might want to go deeper in auditing. really enabling our ability to maximize data, maximize the impact, to then innovation and launch. You know, just a couple examples. We're very excited, and one of them I'll highlight is our Raytec Vision business. They have now they're working with two customers in Italy and have highlighted this at a trade show through Tecnologistica, where they're now doing a 360 scan on peeled tomatoes. The challenge here is not a defect in the tomato. That's usually something that's fairly easy to identify.

They're looking actually for peel fragments, where it might not have gotten all the peel off the tomato itself, and then it will kick it off to reprocessing. It really enables them to become higher value to customers, higher on the quality change, higher on the impact, and utilizing technology and innovation with AI to bring a full solution set to market. It is certainly something that we're invested in, focused on, and really maximizing the impact in the space that we have. It's early in its journey, and so while we're pleased with our progress, there's a lot more to go here, and we're excited about what the opportunity might present itself in the future.

Patrick Sullivan (VP of Equity Research)

Excellent. Thank you.

Operator (participant)

Thank you. The next question comes from David Ocampo, Cormark Securities. Please go ahead.

David Ocampo (Equity Research Analyst)

Thanks. Good morning, everyone.

Andrew Hider (Board of Directors)

Good morning, David.

David Ocampo (Equity Research Analyst)

I, I think everyone knows that GM raised some automation supply chain concerns with, with their battery pack assembly, and I think you guys touched on it briefly in your prepared remarks. I was hoping you guys could share a little bit more details on how you've been able to mitigate supply chain issues, particularly as it relates to delivering EV projects on time, which you alluded to in your remarks.

Andrew Hider (Board of Directors)

Yeah. You know, our business and, you know, if we look at the supply chain, we are seeing some improvements here, and we've actually seen lead times come down. You know, David, as we've walked in the past, we identified supply chain as a real target years ago, and our teams went into really a proactive countermeasure mode, identifying where we might have a gap and starting to align around how to minimize that impact. We call it daily visual management, where you basically look at the business on a total level, at a regional level, at a site level, where you can understand where you have an impact and whether it's electronic or mechanical part, and then determine where you minimize that impact.

Our teams have done a really an excellent job around minimizing this and, and turning it into a, a real advantage for ATS. Now, we are seeing supply chain start to ease. I would say we're not, we're not back to pre-pandemic levels, but it is moving in the right direction, especially on lead time. You know, when we then look at the EV space, look, we're a proven leader in this space. We, we have a track record. We've done more than 100 battery lines to date, and we continue to position ourselves and look to have high value for customers that are gonna navigate launching new EV solutions in the market. Continued focus, continued monitoring, but certainly something that, that is on our, on our radar.

David Ocampo (Equity Research Analyst)

Yeah, that's perfect. Just maybe a quick one for, for Ryan. If I take a look at your working capital, it's above that 15% threshold. Should we, should we be thinking about any big cash flow collection milestones in the next quarter or maybe even two quarters from now to drive that lower?

Ryan McLeod (CFO)

Well, a couple things. I mean, you're right. Our goal is to maintain that below 15%. We've talked about these large programs causing variability, and certainly we've seen that in the uptick in this quarter. I would say we're gonna continue to see variability in this metric at period end. I mean, cash flows are coming in on these projects, but with large project come large billing milestones, and if they fall, you know, in the week after a quarter end or the week before, that can drive a pretty dramatic difference.

You know, all to say that the, the, the, the cash collection, are, are, are ongoing and, and, you know, we don't see any issue, but the variability we will continue to see, just given the size of the programs.

David Ocampo (Equity Research Analyst)

Got it. That's, that's helpful. That's it for me. Thanks, guys.

Andrew Hider (Board of Directors)

Thank you, David.

Operator (participant)

Thank you. The next question comes from Michael Doumet of Scotiabank. Please go ahead.

Michael Doumet (Equity Research Analyst of Diversified Industrials)

Good morning, guys. Just to follow up on the supply chain discussion, I, I wonder if you can maybe talk about to what extent it's still weighing on margins. Any way you can help us understand, you know, how much they've improved so far, again, versus last year, and then how much more to go to kinda get back to that desired margin level?

Ryan McLeod (CFO)

Yeah. Good morning, Michael. There is still an impact. You know, keep in mind, a lot of what we do are projects which take 12-18 months to complete. So, you know, the supply chain impacts that we've seen over the past year in terms of inflation and lead time, those are embedded in the work that we're executing today. You know, we've talked about in the past, our team's done an excellent job in implementing mitigation and working to overcome these challenges, but it is part of our portfolio today.

I would say as we see improvement, and we talked about some incremental improvement, although, generally, we're still not near pre-pandemic efficiency in terms of lead times. As we see that improvement, it'll take, you know, a quarter or two, it really depends on where we are in projects, but it'll take there'll be a bit of a lag before we start to see any sort of benefit in our margins from a return to normal supply chain environment perspective.

Michael Doumet (Equity Research Analyst of Diversified Industrials)

That makes a ton of sense. Maybe on the lead times, it feels like your peers are talking about, again, moderating lead time, just, just like you did here. Which again, I, I presume helps the supply chain, it helps the margin profile. I, I wonder whether the normalization of lead times means we may see a normalization of your backlog, as well as your burn, burn rate over the next couple of quarters as customers, you know, may not have to order as in advance as they did before.

Ryan McLeod (CFO)

You know, we haven't really seen that impact in our business. I mean, what, what we're doing for customers, you know, people, we've been asked around, around double ordering and things like that. That, that's not an issue. I mean, we're, we're doing, typically very strategic projects where, you know, a customer is launching a new product or they're ramping up capacity, and so it's not the type of, of item you're gonna double order.

From a lead time perspective, you know, we've seen some extension of our project lead times due to supply chain. We're also able to mitigate a lot of it through some of the tools that Andrew talked about when, you know, we're looking at daily visual management around lead times on specific components. Having that knowledge early in a project allows us to order. Now, the challenge is that that takes away some ability for us to, to drive efficiency in supply chain. It, it doesn't affect schedule as much as it does affect efficiency.

Michael Doumet (Equity Research Analyst of Diversified Industrials)

Perfect. Thanks for the color, Ryan.

Operator (participant)

Thank you. Once again, ladies and gentlemen, if you do have a question, please press star one at this time. Our next question comes from Justin Keywood of Stifel. Please go ahead.

Justin Keywood (Managing Director of Institutional Research)

Good morning. Thanks for taking my questions. On the comments surrounding digital, which I assume involves the PA business, are you able to characterize the percentage of total revenue that would be classified as digital? Also, if I heard correctly in the opening remarks, ATS is searching for a partner in digital. If that is true, what would the criteria be, and what type of form could that look like? Thanks.

Andrew Hider (Board of Directors)

Yeah, good, good morning, Justin. I guess I'll start, and, and Ryan can add. You know, when we look at digital, it's, it really is gonna be in line with not only our PA business, but also our services impact. It's one of the, one of the, you know, the challenges that we've often looked at is: How do you characterize revenue from, from AI to digital, to, to operate full services? So we do characterize this within our, within our, our, our PA and, and services business, and, and we continue to see real opportunity for growth here. We, we've had nice progress throughout the year. We also see real potential for the future. As far as partnering, you know, we, we often look for partners around digital.

We also look for future ads like Yazzoom and others to bring that value to the market. And, and we have a focus around owning the floor, and, and how we mean around that is, is, is the ability to extract, bring the data to an area where you take action on the insight and then bring that value back into customers. And, and so whether we own, whether we partner, whether we innovate to bring solution, we are constantly looking to, to move up that value chain for owning the production, owning the capability for customers.

As a reminder, most sites with our customer base are brownfield sites, meaning they've been in existence, and they look for solutions like what PA can bring to market, where they wanna digitize a production floor that maybe doesn't have the ability to have a digital output, and we bring that to market. Justin, just on the first part of your question, in terms of software digital revenues, it's in the low single-digit percent of our overall revenue base today.

Justin Keywood (Managing Director of Institutional Research)

Would that be close to software as a service revenue or SaaS?

Andrew Hider (Board of Directors)

Yeah, yes, short answer is yes.

Justin Keywood (Managing Director of Institutional Research)

Okay, great. Just on M&A, if you can provide us an update on the funnel, target segments that you're looking at, any changes in multiple. I believe Ryan mentioned the net debt to EBITDA and bringing that up potentially for one or two on M&A and what that could look like. Thank you.

Andrew Hider (Board of Directors)

Sure. I'll, I'll take the first part, then Ryan can walk through the second. Look, our funnel remains healthy, and it has a good mix of small, medium, and large deals. You know, one of the things that we've really been lining up, and, you know, the ABM has helped here, is our process around when we identify to driving to the ability to either move forward or not, and really enabling that continuous improvement on cultivation as well as assessment. Our funnel remains healthy. As you know, we have a focus on always cultivating. We are always cultivating and looking for technologies and IP in the spaces that we view are high consequence of failure.

You know, whether it's Life Sciences or digital or, or capabilities that, that go across platforms, we are actively continuing to look into the market and continuing to build relationships. That said, we're disciplined, and we're gonna continuously be disciplined around ensuring that it has high value for our customers and our shareholders, and making sure we maximize that value. Just in terms of leverage, we've talked about a 2x to 3x range for, for leverage. We would be open to exceeding that in the short term. It's, you know, it's 3.5x potentially, but that would really depend on the asset and their, their profile and, and where we see short-term working capital needs for, for our business.

I, I don't wanna put a, you know, a, a definitive number out there, but it's something we would consider in the right circumstance.

Justin Keywood (Managing Director of Institutional Research)

Understood. Thanks for taking my questions.

Andrew Hider (Board of Directors)

Thank you.

Operator (participant)

Thank you. The next question comes from Sabahat Khan of RBC Capital. Please go ahead.

Sabahat Khan (Managing Director of Global Research)

Great. Thanks, and good morning. I guess just a question on kind of the larger push towards after-sales service and Illuminate. You know, in the current environment, you know, can you maybe talk about your go-to-market strategy with getting more customers sort of activate that software, and sort of how you're pushing the after-sales service element, just broadly? And, you know, does that evolve as the macro backdrop evolves? Thanks.

Andrew Hider (Board of Directors)

I'll answer that almost going backwards. Our view is it does magnify us. You know, as things become potentially uncertain, we do view services, we view the digital capability as enabling our customers to really maximize their assets in the field. So we do view this as real opportunity and a continued opportunity that we can bring high value to. As far as the digital approach and how we're positioning it, you know, we have launched tools like demand generation, lead generation. We have launched tools like value selling and really identifying where customers see the most significant value. Personally, I've been on calls with customers where, you know, they'll often talk: "We don't just want a dashboard anymore.

You have to help us implement solutions." We do that very effectively, and we've actually acquired a business I've talked about in the past called BLSG, where we take that insight, and we help them implement the solution. I do wanna come back to your, your statement around Illuminate, and I just wanna remind that Illuminate is an on-premise solution, and our PA Facts is in the cloud. We're continuing to push in the cloud. It's obviously an area that, that we view, you know, both have a lot of potential, but we can offer both to customers, whether they need to be on-prem or in the cloud, and really maximize that performance, maximize the usage of data to improve process.

Sabahat Khan (Managing Director of Global Research)

Great. Then, I guess just one on sort of end markets. You know, transportation's obviously become a big part of the mix, but now you're seeing kind of growth in spaces like Life Sciences and so forth. I guess, you know, 12-24 months from now, what do you envision your end market mix looks like? Do you think it evolves more and it's unclear at this point? Just curious, you know, based on the discussions you're having and where you're seeing the demand indicators, what that mix could look like 1-2 years from now. Thank you.

Andrew Hider (Board of Directors)

Yeah, so, Right, it's always hard to predict the percentage. We like the spaces we serve, we like the areas we serve. If I can just walk through them. You know, Life Sciences, I characterize as a strong funnel, and we're seeing real opportunity in areas like auto-injectors, contact lenses, pharma, radiopharma, and we're continually launching new solutions in this space that have real value and high value to customers. You know, I just, sorry not to reference the SYMPHONI platform. I was with the innovation team yesterday, going through and they're using AI to bring solution sets around an area of auto-injectors where they can identify defects early on, so you don't continue to add value in the production process.

We see a lot of areas that we can continue to expand, and we see growth in the market itself. We, you know, Life Sciences is gonna be a continued focus for us. EV or, or transportation, more specifically EV, look, this is an area that we continue to see opportunity, and I've talked about this with the, the demand and need for production to meet the, you know, the, the market space and launching new vehicles. We see our funnel is healthy here. It is going to be more variable in, in that these are large programs, large projects, often starting with a pilot going to production over a period of time. In food and beverage, pleased with the progress. We, we, we like this space. I talked about our business, Raytec Vision, with optical sorting.

We see continued opportunity here. You know, just to round this out with energy and, and, and nuclear, the, the, the change for, for nuclear being a greener energy and alignment to not only refurbishment but, but small modular reactors is seeing real opportunity for ATS. It is a niche capability within within our group, and it's one that we view we can offer, offer high value for our customers, both on the initial as well as serving and supporting. Overall, we like the mix, we like the area of focus, and, and we're gonna continue to drive both organic and potentially inorganic growth in the spaces that we view have long-term value for our shareholders.

Sabahat Khan (Managing Director of Global Research)

Great. Thanks very much.

Operator (participant)

Thank you. There are no further questions. I will turn the call back to Mr. Hider for closing remarks.

Andrew Hider (Board of Directors)

Thank you, operator. We look forward to pursuing ongoing value creation in fiscal 2024. We believe that our capabilities align well to the long-term trends, driving the need for our solutions on a global basis. If you haven't already done so, I encourage you to register for our Institutional Investor Day on September 6 in New York. There, you will hear directly from members of the ATS executive team on corporate strategy, our growth opportunities, key business groups, and our financial value drivers. More immediately, we also invite you to participate in our annual and special shareholders meeting, which will be held virtually tomorrow, beginning at 10:00 A.M. ET. Otherwise, I look forward to speaking to you on our Q2 call in November. Thank you for joining us today. Stay safe and goodbye for now.

Operator (participant)

Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.