ATS - Earnings Call - Q4 2025

Transcript

Operator (participant)

Welcome to the ATS Corporation fourth quarter conference call and webcast. This call is being recorded on May 28th, 2025, at 6:00 P.M. Eastern Time. Following the presentation, we will conduct a question-and-answer session. I'll now turn the call over to David Gallison, Head of Investor Relations at ATS.

David Galison (Head of Investor Relations)

Thank you, Operator, and good evening, 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 are a 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.

Andrew Hider (CEO)

Thank you, David. Good evening, everyone, and thank you for joining us. Today, ATS reported fourth quarter and full year results for fiscal 2025. As you know, we announced a negotiated settlement with our EV customer. It was important that we put this matter behind us to enable us to continue to execute on our growth strategy. On that front, Q4 was the third highest bookings quarter in company history and included organic growth along with contributions from acquisitions. Our life sciences businesses demonstrated strength and market leadership, complemented by contributions from across ATS and other key market verticals. During the year, we welcomed Paxium and Heidolph, further expanding our product portfolio. Fiscal 2025 was not without its challenges, and the results reported today reflect the resilience of our teams, the breadth and depth of our capabilities across our vertical markets, and the value of the ATS business model.

This evening, I'll update you on our business and markets, including macroeconomic influences, and Ryan will provide his financial report. Starting with our financial value drivers, order bookings for the quarter were CAD 863 million, up 9% from the fourth quarter last year. Our growth was supported by diversified bookings across all of our markets. Bookings for the full year were CAD 3.3 billion, a record for ATS, setting us up well for fiscal 2026. Q4 adjusted revenues were CAD 721 million, down 9% from Q4 last year. For the full year, adjusted revenues were 12% lower year over year as a result of lower EV revenues, as expected. Adjusted earnings from operations in Q4 were CAD 74 million, and for the full year, were CAD 283 million. Moving to our outlook, order backlog ended the quarter at approximately CAD 2.1 billion, the highest in the last eight quarters.

Our trailing 12-month book-to-bill ratio was 1.23 to one, again highlighting the importance of our entire portfolio of offerings across services, standard equipment, and products, as well as custom integration. From a macro perspective, geopolitical and trade tensions are creating an uncertain environment. Although we are not immune to this uncertainty, we have not seen any material change in customer behavior to date. It is possible that we could see impacts on demand in some areas of our business if uncertainty continues in the near to midterm. That said, given our Q4 order bookings, we remain optimistic. ATS is well positioned in regulated markets with strategic customer relationships. Our global footprint gives us capacity to help our customers address their risks as well as our own. Further, our embedded ABM tools help our teams respond to changing requirements.

Expanding our market reach through our capabilities while growing recurring revenue is important for shareholder value creation. To that end, our teams are dedicated to delivering for customers globally and actively planning for and addressing any short-term disruptions. This includes further optimizing our global supply chain, strengthening regional capabilities, and taking targeted price action where necessary to support margins while ensuring reliable delivery across customer programs. Within life sciences, order backlog ended the quarter at $1.2 billion, with key wins across all of our major life sciences businesses, including diversification in bookings such as auto-injector assembly, radiopharma, wearables, and other medical devices. Our life sciences opportunity funnel is strong, supported by market growth in key submarkets, including the demand for GLP-1 drugs, wearable devices for diabetes care, automated pharmacies and contact lenses, and the ongoing need for solutions to support detection and treatment in pharma and radiopharma.

Our capabilities and deep understanding of the life sciences markets position us well to explore new areas to broaden our customer base. In the current environment, some customers are evaluating capital spending plans, particularly within the lab research space, but as I indicated, we have not seen a material shift or change at this time. In food and beverage, our funnel remains strong, and we ended the year with a backlog of CAD 258 million. The team is actively pursuing greater diversification to offset some seasonal variability in the CFT business, with advancements into services and secondary processing, as well as packaging, which is supported by the addition of Paxium. In energy, our funnel remains strong as the global nuclear industry experiences growth and transformation driven by increasing energy demands, advancements in nuclear technology, and sustained government support.

Near-term demand is driven by ongoing CANDU reactor refurbishments, and we expect that longer-term demand will also come from new nuclear builds in both large-scale and small modular reactors. Our end-to-end strategic capabilities enable us to support customers across all phases, from concept and design through to factory automation of modular assemblies and waste handling. ATS is well positioned for sustained growth in these key energy markets. In consumer products, our funnel remains stable with attractive niche opportunities. Our capabilities in such areas as warehouse automation and packaging solutions delivered strength in bookings in the quarter. Within transportation, our funnel remains stable with smaller opportunities as expected due to lower end-market demand than previous years, particularly in the EV battery space. During the quarter, we received an additional order from an EV customer in Europe. On after-sales, we continue to make progress on our strategy.

Our evolving service plan offerings, including higher-value services and the expansion of digital tools, are helping to drive greater customer adoption and retention. Our goal is to serve as a global partner for continuous productivity optimization across our customer base. Globally, our ATS teams are aligned and have a deep understanding of where value can be driven for our customers with our digital solutions. Our strategy and ability to drive improved life cycle performance, asset utilization, and overall operational efficiency through areas like our Connected Care Hub will allow us to help our customers reduce their enterprise risk over time. On the ATS Business Model, we hosted our seventh annual Presidents' Kaizen events, which included teams from across all ATS groups and major geographies.

The teams brought focus to strategic areas including resource planning and optimization, business simplification, product development, quotation processes, and reimagining processes to drive greater efficiency in operations. These events are a great demonstration of our team's collective drive for breakthrough change. The level of work completed in a single week is a testament to the evolution of our ABM culture over time. On M&A, we are making steady progress on cultivating strategic opportunities that align with our long-term growth priorities and enhance the value of our portfolio over time. In the short term, we remain focused on returning leverage to targeted levels and on the continued integration of our recent acquisitions to maximize their long-term contributions to our business. On innovation, we're deploying capital and empowering our talent to create differentiated solutions that drive value for our customers.

Going into fiscal 2026, we've identified opportunities to innovate in such areas as expanding the utilization of our Symphony platform, incorporating more digital applications in our portfolio to drive further efficiency, for example, in our Digital Tomato Solution for food and beverage markets, and adding additional functionality into our proprietary SuperTrak system. In summary, our global businesses continue to demonstrate ongoing commitment to serving our customers, supported by deep industry knowledge and experience. To that end, I want to congratulate two businesses on hitting significant milestones this past year. Culmer Cher celebrated their 50th anniversary, and CFT celebrated their 80th. I'm also pleased to note that ATS was once again recognized by Canada's Top 100 for being a leading employer in both the Waterloo Region and Southwestern Ontario.

Strong fourth quarter bookings, combined with a record order backlog, provide us with good revenue visibility and a strong foundation for profitable growth heading into fiscal 2026. Our teams remain focused on driving improvements across all of our value drivers. As we enter fiscal 2026, our opportunity funnel is well diversified, and we are confident in our ability to drive our ABM culture as our engaged and dedicated teams remain intensely focused on creating strong customer and long-term shareholder value. We are responding to the challenges in the macro environment with clear alignment across the leadership team and our individual businesses. Now, I will turn the call over to Ryan. Ryan, over to you.

Ryan McLeod (CFO)

Thank you, Andrew. And good evening, everyone. Before I review results, I'll provide a few comments on two specific non-recurring items. First, our EV settlement, and second, income taxes.

On the EV settlement, as we disclosed, we expect to receive $134.75 million US dollars, or about CAD 194 million, based on our Q4 pending exchange rate before the end of fiscal Q1. The settlement resulted in an after-tax impact of approximately CAD 129 million, which was reflected in our Q4 results. The preliminary fourth quarter fiscal 2025 results that we disclosed on May 23rd, including net income, earnings per share, and EBITDA, are unchanged. However, in finalizing our results and in accordance with IFRS standards, rather than having the expense flow through SG&A, you will see in our financial statements that we have recorded a reduction in revenues in the quarter of CAD 146.9 million, with the remainder of the settlement impact of CAD 24.2 million reflected in SG&A expenses. This income statement classification differs from what we disclosed in our preliminary earnings release.

However, as I noted, there is no change in net income. We are presenting an adjusted revenue measure to reflect this one-time event and have adjusted for the total P&L impact in our adjusted earnings, consistent with what we previously disclosed. Importantly, the settlement will reduce our net debt to adjusted EBITDA leverage by 0.5 times, or approximately half a turn, providing us with greater flexibility to continue to execute on our growth strategy relative to a prolonged process where timing is harder to predict. Given the deteriorating market conditions in transportation and the added uncertainty in the market caused by tariffs, settling the matter at this time was a good outcome for ATS. Separately, on taxes, in our Q4 results, we recognize tax assets related to a plan that will benefit our cash taxes and result in an expected effective tax rate in the mid-20% range going forward.

We've adjusted for the non-recurring impacts related to this plan in our adjusted EPS, which was a $0.38 per share benefit to reflect normalized operations for the year. Now, moving on to Q4 operating results. Order bookings were $863 million, an increase of 9% over Q4 last year, and included 2.6% organic growth, a 4% contribution from acquisitions, and a 2.5% positive impact from foreign exchange translation. At the end of Q4, the trailing 12-month book-to-bill ratio was 1.23 to 1 and was above 1 in all market verticals. For the year, order bookings grew 14.3% and included organic growth of 6.2%, a foreign exchange benefit of 1.9%, and contributions from acquisitions of 6.2%. After adjusting for the revenue portion of the EV settlement, which adds back the $146.9 million impact, revenues for the fourth quarter of fiscal 2025 were $721 million, down 8.9% compared to last year.

Year-over-year organic growth in life sciences and consumer products, along with a 3.6% contribution from recent acquisitions, provided some offset to lower transportation revenues. Notably, revenues increased sequentially by 10.6% as we continued to benefit from strong order bookings over the past several quarters. Moving to earnings, fourth quarter adjusted earnings from operations were $74.3 million, a 23% decline from the prior year, primarily from lower revenue volumes, particularly in transportation. Excluding acquisition-related inventory fair value charges, gross margin for Q4 was 29%, a 90 basis point improvement from last year, driven by a more favorable mix, which included higher margin programs.

On SG&A, excluding acquisition-related amortization and transaction costs and the SG&A portion of the EV settlement, expenses in the fourth quarter totaled CAD 133.9 million, an CAD 11.2 million increase over the prior year, primarily due to SG&A from acquired companies, in addition to increased employee costs and the impact of foreign exchange translation. As always, we continue to work to enhance efficiency in both our existing operations and newly acquired entities through our disciplined integration process. Excluding the mark-to-market impact related to changes in our share price, stock-based compensation expense was CAD 1.1 million in Q4. Earnings per share were $0.41 on an adjusted basis, down from last year primarily due to lower revenue volumes. Turning to our outlook, we ended the fiscal year with an order backlog of approximately CAD 2.1 billion, and we expect Q1 revenues to be in the range of CAD 680 million-CAD 730 million.

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. In the quarter, we incurred an additional CAD 3.5 million of restructuring costs related to the previously disclosed reorganization activities. Expanding our operating margins remains an ongoing priority. In particular, as life sciences order bookings from the latter half of fiscal 2025 moved to higher revenue-generating phases, and as we benefit from the cost structure and volume alignment in our EV businesses, we expect to see improvement throughout fiscal 2026. Across our business, we continue to systematically use ABM tools to enhance our processes, streamline our supply chain, and achieve further standardization. We continue to invest in innovation and services. On tariffs, we're working to mitigate risks as they arise and where possible.

Our global footprint and decentralized operating model, along with our proven ABM tools, provide us the flexibility required to address disruptions over the longer term. Short-term costs have been manageable to date, and we're staying close to our customers as the current environment continues to evolve. We're also actively working with our global supply base to mitigate challenges in flow of goods and manage potential cost increases. Moving to the balance sheet, in Q4, cash flows from operating activities were $39.3 million. Our non-cash working capital as a percentage of revenue was 22.4%. Excluding the settlement receivable from the EV dispute, our non-cash working capital was just over 15%, as we continue to progress across the rest of our businesses on working capital efficiency and moving back towards our target range.

During the quarter, we invested $29 million in CapEx and intangible assets, with an investment for the year of $78.1 million. Our innovation efforts and critical growth areas remain a priority. For fiscal 2026, we expect our CapEx and intangible investment to be in the range of $80 million-$100 million. On leverage, at the end of the quarter, our net debt to adjusted EBITDA ratio was 3.9 times on a pro forma basis, which includes full-year contributions from our most recent acquisitions. As I noted, this will be helped by receipt of the EV settlement payment in Q1 of fiscal 2026. We remain committed to bringing our leverage to our target range of two to three times. For reference, early in Q1, we were active in our NCIB, acquiring 309,000 shares for approximately $10 million.

Share buyback remains an important and opportunistic element of our overall capital deployment strategy. That said, our primary capital allocation priorities remain a focus as we continue to invest internally on innovation and growth while cultivating acquisition opportunities. In summary, fourth quarter results were encouraging as we move into fiscal 2026 with our goal of driving growth and margin expansion. For the year, despite challenges in fiscal 2025 as a result of changes in demand in the North American EV markets, we had record order bookings that were diversified across our strategic global markets and regulated industries. Order backlog is strong and gives us good revenue visibility in fiscal 2026. We expect short-term margin pressures from lower transportation revenues to continue to abate through our reorganization efforts as we drive improved volumes in transportation and growth in the rest of the business.

Looking ahead, we're committed to building on our positive momentum in fiscal 2026. We remain focused on driving growth in our core markets, leveraging our acquisitions, and executing on our value creation strategy. Now, we will open the call to questions from our analysts. Operator, could you please provide instructions? Thank you.

Operator (participant)

Thank you. We will now begin the question-and-answer session. If you'd like to ask a question, please press star one on your telephone keypad. If you would like to withdraw your question, simply press star one again. Your first question comes from the line of Cherilyn Radbourne from TD Cowen. Your line is open.

Cherilyn Radbourne (Managing Director of Equity Research)

Thanks very much and good evening. First question, I guess, is, as you look at the backlog and the underlying duration of it, as well as what you're seeing and hearing from customers, how confident do you feel about returning to positive organic growth in fiscal 2026?

Andrew Hider (CEO)

Yeah, Cherilyn, good evening. Short answer is very positive. If you look at our trailing 12-month book-to-bill ratio, 1.23 really supports that alignment. If you look at all markets, all of our markets are above a 1, and led by some key areas and key technologies. When we look at the year, we are confident we'll be returning to growth. We're confident in the areas that we're supporting. To even go further on, really substantiating that with the discussions, I've been out visiting customers as long as our global team. Where we see products that have alignment to strategic priorities for our customers, they're continuing to invest. Overall, I would say our view of the year is cautiously optimistic.

Ryan McLeod (CFO)

Cherilyn, maybe I'll just jump in with a couple of data points, some of which we covered in the prepared remarks. Order backlog being up 19.3% does support growth, obviously. About 23% of that backlog does go beyond one year, which is fairly consistent with where we typically operate in terms of some of those longer-term programs. Just to echo what Andrew said, the strength of our backlog does give us a lot of confidence in terms of organic growth in fiscal 2026.

Cherilyn Radbourne (Managing Director of Equity Research)

Okay. That's really helpful. The midpoint in the range that you provided for fiscal Q1 would suggest that at the midpoint, you'd be up modestly. That's nice to see. In terms of the internal control deficiency that was noted, can you talk about how that was identified and what's underway to address the issue? Was that related to the accounting treatment of the EV settlement?

Ryan McLeod (CFO)

A couple of things. It is identified through our normal course process. As I think you know, this is our first year having adopted the SOX requirements, which are a little bit different, a little bit more rigorous than what we were previously operating under. We go through a testing process and an assessment process. There were certain business processes, some of it related to what is called IP, information prepared by entity, which is effectively spreadsheets and some of the documentation around spreadsheets. Importantly, none of this had, as we stated in the disclosure, an impact on our reported financial statements, current period, prior periods, and largely relates to documentation improvements that we need to make. That is where our focus is on that as we go into fiscal 2026.

Cherilyn Radbourne (Managing Director of Equity Research)

Okay. Perfect. That's really helpful. That's my two.

Operator (participant)

Your next question comes from a line of Maxim Sytchev from National Bank Financial. Your line is open.

Maxim Sytchev (Managing Director)

Hi, good evening, gentlemen.

Subhachan (Analyst)

Hey, Max.

Maxim Sytchev (Managing Director)

Andrew, maybe the first question for you. Do you mind me providing a bit of color on the composition of programs that exist within the healthcare backlog right now? I mean, one of the questions we often get from investors is how sustainable the GLP-1 sort of growth rate and just curious to see around sort of the exposure there. Thanks.

Andrew Hider (CEO)

Yeah. Max, to give you a little bit more color, I mean, we're certainly excited about our continued support on the GLP-1 space, and we have a diversified customer base within this area. I think right now we're working with eight-plus customers and really aligning around their ability to meet the market demand and continued market demand. We do view this as a short to mid-term area of focus and sustained ability to grow. Additionally, if you step back, we're also in radiopharmaceuticals, which is identification and treatment of cancer. We're in wearable devices and medical devices, so specifically wearable devices in the treatment of diabetes. We're in automated pharmacy. We're in contact lenses. Our view is, as we look at the growth of the year and the potential for the year, there's, as I said earlier, a lot to be cautiously optimistic about.

When I speak to customers, they're looking to further build out their product portfolios, and we're in many niche markets beyond those that I specify. I would say that my engagement with customers have been aligned around that and have been aligned around our ability to support their growth needs.

Maxim Sytchev (Managing Director)

Okay. That's fantastic. Thanks so much. And then, Ryan, around working capital, I mean, correct me if I'm wrong, but historically, transportation was more capital-intensive than other buckets in the business. So now that that part of the business has shrunk fairly significantly versus the rest, how should we think about that working capital intensity, velocity of improvement? Because, I mean, theoretically, that should get better faster, or how should we think about this? Thanks.

Ryan McLeod (CFO)

Yeah. Max, excluding the remaining working capital that's on our balance sheet at Q4 tied to the EV settlement and dispute, we're just over the 15% target. You're right. In terms of market verticals, commercial terms in transportation typically are more working capital intensive. As that has become and will be a smaller part of our business, we do see a benefit to our working capital from that. There is an offset, though, and that's as we've expanded into more product-based businesses, so shorter cycle where we're carrying inventory, those businesses are more working capital intensive. I think I've spoken through some of the acquisitions in particular, Heidolph, Paxium, and Avidity. These are all 20%+ working capital businesses. Now, there's efficiency available in those, and it's primarily around inventories and being more efficient there.

All that to say, that does provide some offset to the lower transportation now. Our target is to be below 15%. I expect we'll get there this year. We'll see normal course variability in quarters, but that is our target. As I said, we have a number of initiatives across the organization in place to help support that progress.

Maxim Sytchev (Managing Director)

Okay. That's very powerful. Just one quick one around the tax rate expectations for 2026. How should we, I guess, model it on a prospective basis?

Ryan McLeod (CFO)

Yeah. So a couple of unusual items going through our taxes in this year, particularly in Q4. On a normalized basis, we're in the mid-20% range, which is a little bit lower than what we'd anticipated. There are some normal course impacts from changes in jurisdictions where we operate, our profitability in certain jurisdictions. We're always looking at how our business is structured globally to really make sure we're maximizing that. We did implement a legal entity consolidation that's going to result in a cash tax benefit that we're going to see over the next several years. That does not really have an impact on our effective tax rate.

Subhachan (Analyst)

The way to think about it is really in the mid-20% range in that 24-26%, but also realizing there's cash tax benefits from some of the planning and as well from the EV settlement that'll help our cash taxes.

Maxim Sytchev (Managing Director)

Okay. That's great. Thank you so much.

Andrew Hider (CEO)

Your next question comes from a line of Sabahat Khan from RBC Capital Markets. Your line is open.

Sabahat Khan (Managing Director)

Great. Thanks. Good afternoon. I guess just following up on the line of questioning that Cherilyn sort of started on the revenue growth for this year. It looks like the revenue, I guess you provided the range. In terms of the outlook for conversion, how much could that vary over the course of the year based on the type of work you've taken? Is this a range that we should probably lean on as we think about the rest of fiscal 2026, or does it even evolve based on the things you can see behind the scenes, just based on the type of work that you might intake the rest of the year? Just trying to get an understanding with the bigger backlog, how we should think about the conversion over the future quarters as well. Thanks.

Ryan McLeod (CFO)

Yeah. A couple of things, Sabahat. I'll step back a little bit. The conversion rate's going to change. That's driven just by material flows and different factors that largely impact our project revenues. As I said, our backlog's up 19%. Several of those programs do go out beyond a year, roughly, as I said, 23%. Our expectation is we're going to drive growth this year. Prior to the EV headwinds, we were at a high single-digit organic growth rate. Keep in mind, the global automation market, it's a mid-single-digit growth rate market, and our objective is to outpace that growth. That's how we're thinking about fiscal 2026.

Sabahat Khan (Managing Director)

Okay. Great. Maybe just kind of on the margin side, with the EV business, I guess, much smaller as we look ahead over the course of fiscal 2026, just directionally, as you look ahead into your backlog and your expectation for revenue for the rest of the year, how are you thinking about margin progression? Should we assume that EV was a good portion of the drag over the last year? Maybe just some high-level commentary on what you're expecting for the rest of this year. Thanks.

Ryan McLeod (CFO)

Yeah. The transportation business was a drag in fiscal 2025. It saw some improvement from the low point in Q2. It's still not operating in Q4 at the level that we expect, but it is improving, and we expect it to be profitable in fiscal 2026. Similar to how we operate, we're targeting margin expansion. We have a number of initiatives in place relating to material productivity, labor productivity, pricing, other areas of efficiency in our operations. That said, what we saw this quarter in terms of expansion, sequential expansion, is probably a reasonable run rate. I've used the term modest previously, and that's what I would continue to expect. There's going to be variability. It's not going to be linear.

That is how we're thinking about the businesses here in terms of margin expansion is progression throughout the year that we'll see in our EBIT and EBITDA margins.

Sabahat Khan (Managing Director)

Great. Maybe just one last one, maybe a high-level one. As we think about tariffs, obviously, there are negatives from the perspective of actual tariffs. Given where you are in sort of the industrial landscape, you could see some positive benefits from the reshoring efforts. Can you maybe just help frame for us that puts in the takes and what you're hearing from customers, given all the headlines out there? Thanks.

Ryan McLeod (CFO)

Yeah. Sabahat, it's certainly challenging to navigate, and this is an evolving landscape. That said, our teams have been laser-focused on identifying risks and actively monitoring and mitigating where possible. We've largely been able to do that. The impact on ATS has been, call it, minimal. We are continuing to ensure that we can identify supply options, identify areas of control, and areas to build. We continue to look across. We do look at this market and tariffs being a potential benefit midterm. The reason is ATS being a global player allows us to really utilize that global strength. Certain businesses are able to move their product and build in-region where needed. We have the ability to support our customers on a global scale.

If this continues on, ATS, we do view us in a position of potential strength to support our customers through that.

Sabahat Khan (Managing Director)

Thanks very much.

Operator (participant)

Again, if you'd like to ask a question, press star one in your telephone keypad. Your next question comes from the line of David Ocampo from Cormark Securities. Your line is open.

David Ocampo (Equity Research Analyst)

Thanks. Good evening, everyone.

Ryan McLeod (CFO)

Hi, David.

David Ocampo (Equity Research Analyst)

Maybe the first one for Ryan. I guess when we think about the inventory and the contract assets that were tied to your EV customer, it sounds like they were almost written off to zero. Is there any room for that to be redeployed to other areas, whether they were standard products? We can view that as potential upside, or should we just view that as a zero going forward?

Ryan McLeod (CFO)

Contract assets is zero. Inventory, we've written to what we expect to be able to utilize, but I wouldn't expect a benefit out of that going forward. There are materials that could be redeployed, but not a material benefit, no.

David Ocampo (Equity Research Analyst)

Okay. Just following up on Max's question or line of questioning, as always, the life sciences, I do respect that GLP-1 is just one end market that you guys serve. I'm curious how you guys are thinking about both the positives and the negatives just as it relates to Lilly's positive trial results as it relates to ingestible GLP-1 drugs.

Andrew Hider (CEO)

Yeah. A couple of items. To give you some context and to add to my comment for Max, the Noble Drug Approval, which is really an indication of future demand, the last couple of years, 2023, 2024, being really above average on approval process, sets the stage for future potential growth. This year is really in line with last year as far as its run rate. Overall, we do view this market as having continued ability to support our position as it sits today. As far as the drug, as far as going to pill form, and you can read the articles as we do, and we have engagements with customers. There has certainly been a lot of discussion around this. We have seen also customers pull back on this based on trials.

Our view is that certainly that could be an option for the future. We're monitoring, assessing. The customers we're engaged with are still investing in the area around the high potency ability around GLP-1 with an auto injector, and that supports our ability to support our customers. As a reminder, we are in pharmacy automation, and we're in other areas. When we see new drug launches, new areas, we have the capability to support our customers on those new launches and new drug programs.

David Ocampo (Equity Research Analyst)

Okay. That's very helpful and useful color. Maybe just the last one. You guys talked about, and you guys always talk about cultivating M&A transactions. When we think about your leverage, even with all the moving parts and the collection of the cash, it does suggest that you guys are still going to be above three times levered. Are larger acquisitions on pause until you can get below the three times? Maybe, Ryan, you can refresh us on the maximum leverage ratio you guys are willing to go to for the right acquisition.

Andrew Hider (CEO)

Yeah. Why don't I start, David? Look, with the settlement, it's about a half a turn reduction, and it certainly gets us closer to our mark. All that to be said, if you look at the landscape for M&A today, seller expectation isn't changing. We're seeing overall volumes go down slightly as far as M&A goes. Our cultivation and our opportunity funnel continues to be strong. We do continue to cultivate those assets where, when they become available, we're in a position to pounce, and they take time. If you look at the two we did this past year with Paxium and Heidolph, those were years in the making. As we look at our future, we're cultivating assets that when we're in a position to move quickly, we can.

We are going to continue to look at areas that are highly attractive for ATS and our shareholders.

Ryan McLeod (CFO)

Yeah. I'll just add on. As I said, we're targeting to get to that two- to three-times range because that really gives us more flexibility relative to where we sit today, particularly as you think about larger opportunities. That said, and I'll repeat a little bit what Andrew said, we're always cultivating for the right opportunity. We are going to look at various financing alternatives where there's a deal that makes sense from a value creation perspective. We'll be disciplined in our approach, but we're going to look at it from a value perspective.

David Ocampo (Equity Research Analyst)

Okay. That's perfect. That's all I had.

Operator (participant)

Your next question comes from the line of Michael Glen from Raymond James. Your line is open.

Michael Glen (Managing Director)

Hey. Just a couple of questions. Number one, what are you guys thinking about in terms of moving some of your product manufacturing to the U.S.? Do you have any CapEx plans? Is any of the CapEx this year associated with that, or just get some thoughts on your line of thinking for that?

Ryan McLeod (CFO)

Yeah. Michael, nothing I would call out specifically that's a material move. As Andrew noted, we have capacity in the U.S. that for some of our products, some of what we do, it's fairly straightforward. Anything that's more significant from a CapEx standpoint, we're not at that point yet where we've made a commitment to move production. That's going to be dependent on, does it make sense in this environment, in a potentially changing environment, and ultimately what the global trade environment looks like in terms of tariffs and how that looks from a long-term perspective. Something we're monitoring, but not something that's part of our CapEx plans that I outlined.

Michael Glen (Managing Director)

Okay. With the EV situation seemingly cleaned up, Andrew, are you able to provide some commentary? Do you think that it is potentially the right time for you to divest the EV business?

Andrew Hider (CEO)

Look, this business has been really right-sized to reflect the current demand environment and, as we see going forward, setting it up for success. You have to remember that the work we do in this business is really wrapped around factory automation. With this business being right-sized and also the potential for more reshoring of manufacturing, there are opportunities we can pursue in factory automation that are outside of the segment. We have good capabilities in the space. It is an area of business that we can create value for our customers and ultimately our shareholders. That is how we see it today.

Michael Glen (Managing Director)

Okay. Thank you.

Operator (participant)

Your next question comes from a line of Cherilyn Radbourne from TD Cowen. Your line is open.

Cherilyn Radbourne (Managing Director of Equity Research)

Thank you. Just a couple of other questions for me. Just with regard to the backlog by market, and you alluded to this a little bit in your prepared remarks, but you set new backlog records in consumer products and nuclear. I was hoping for a bit more color in those two areas.

Andrew Hider (CEO)

Yeah. Cherilyn, I'll take those separate. In consumer products, we've continued to see support on our niche solution for the warehouse automation space. As a reminder, this solution for that area is really targeted around supporting this customer to meet their sustainability goals while improving their efficiency. While they're looking at their global footprint, we've actually had the ability to move this product to be built in region for their usage. We like the ability to support. It is a niche provider in that area and one that we like as far as not only upfront CapEx, but then supporting from a services and capability standpoint. As far as nuclear, look, nuclear, if you think about it, I'm going to break it down into four areas. Our largest area is CANDU reactors. Think of the refurbishment.

We've talked about that in the past, the Bruce Power work that we've done and continue to do. We've seen CANDU reactors continue to have a long life and one that ATS has a lead niche position in. There's also traditional reactors, which are going to go through a decommissioning process, and we continue to see opportunity there. There's the small modular reactor portion. I've walked through this a little bit in the past, but as a reminder, we think this is about a five-plus-year potential. That said, we're working with some of the key players around enabling and getting to that mark because the opportunity exists, and they're really aligning around enabling this as a solution set as clean energy to support the increased energy demands.

Lastly, and we're seeing more increase in this, is nuclear fuel and the support around the ability to bring more nuclear fuel into the market. We've actually started to win work in this space to support that and support the ability to get more fuel into the market. Look, we're a niche player. We like our position. We like the growth potential in this area. If we look at the trailing 12-month book-to-bill ratio in energy, it's certainly supported a continued area of growth.

Cherilyn Radbourne (Managing Director of Equity Research)

Great. Last one from me. Just as you think about how to protect yourselves in light of a changing tariff backdrop and the potential for related inflation, are there any changes that you've made or contemplated to the terms of your contracts in that regard?

Andrew Hider (CEO)

Our contracts actually protect us fairly well from this situation. Certainly, as we're getting into new contracts, it's a point of discussion, but not an area that we're seeing a significant challenge from. I mentioned from a pricing standpoint that we are addressing it. Some of that is on the product side, how we price, but also when there are changes or tariffs impacts, those do get passed on to customers typically. I think more of the work is, or a lot of the work, rather, is happening on the supply chain side. We touched on this a little bit, but it's localizing, and as much as we can, our supply chain, working with our suppliers to do that. We're working very closely with our brokers, logistics advisors.

We do, in our Canadian operations, a lot of what we do benefits from the USMCA where we sit and where our equipment qualifies under those agreements. All that to say, we've been able to manage most of the impact. What we haven't, I think, as Andrew said, it's really not a material headwind for us.

Cherilyn Radbourne (Managing Director of Equity Research)

That's all from me. Thank you.

Andrew Hider (CEO)

Thank you.

Operator (participant)

That concludes our question-and-answer session. I will now turn the call back over to Mr. Hider for closing remarks.

Andrew Hider (CEO)

Thank you, Operator. Thank you, everyone, for joining us today. I look forward to speaking to you on our Q1 call in August. Stay safe and goodbye for now.

Operator (participant)

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