ATS Corp

TSX:ATS

Earnings Call Analysis

Robust Earnings Growth Despite Margin Pressure

The last quarter showcased a strong performance, with adjusted earnings from operations climbing by 17% year-over-year to $101.2 million, propelled by revenue expansion. Margins saw a modest upturn, with gross margins excluding specific charges ticking up 12 basis points to 28.5%. However, an EV customer's rescheduling introduces anticipated margin pressures, which are being proactively addressed by reallocating resources. The challenges in the supply chain continue, mainly around material costs and elongated lead times affecting margins, yet the management is confident in their mitigation strategies. Investments were controlled with a lower than planned capital expenditure, and a reorganization plan is underway with a $20 million expense cap aimed at driving future growth. The backlog remains robust, providing revenue visibility, and with a stable net debt to adjusted EBITDA ratio of 2.3:1, the company is positioned well within its targeted leverage range.

Impressive Growth Amidst Expansion

The company reported an exceptional third quarter, with organic revenue growth and contributions from recent acquisitions such as Avidity, which expands its life sciences product and service offerings. Significantly, revenue grew to $752 million, marking a 16% increase from the previous year, supported by strong performances in the Life Sciences and Food & Beverage sectors. Adjusted earnings from operations rose to $101 million, a 17% year-over-year improvement.

Strategic Acquisitions and Diversified Portfolio

The strategic acquisitions of Avidity and ITACA are prime examples of how the company leverages M&A to drive its strategy and evolve its portfolio. As Avidity enhances life sciences offerings and ITACA brings automation integration with a focus on pharmaceuticals, the company's portfolio becomes increasingly diversified, bolstering its strategic position in key markets. Despite the $200 million EV order backlog delay, the company remains resilient, with a forward-looking strategy to restart this program in the first fiscal quarter of '25.

Resilient Backlog and Focused Business Strategy

Amidst a challenging quarter with order bookings at $668 million—a decline of 31.8% from Q3 last year—the company maintains a hale and hearty backlog worth over $1.9 billion. The life sciences sector demonstrates a record backlog of $875 million, up 10% from the previous year. With a robust pipeline of opportunities, including advancements in EV and diagnostic cartridge assembly systems, the company is strategically positioned for sustained growth and innovation.

Fiscal Prudence and Supply Chain Efficiency

The company has exercised fiscal prudence, with plans to keep its fiscal '24 CapEx investment at the lower end of the projected $80-$100 million range. Supply chain challenges persist, particularly in extended lead times for electrical and mechanical parts, but the company's ability to adapt and mitigate these challenges showcases its operational resilience and efficiency.

Optimistic Margins Despite Near-term Pressures

With Q3 adjusted earnings from operations margin improving to 13.5%, up from 13 basis points over last year, the company demonstrates it can leverage revenue growth for improved profitability. Although an EV customer's realignment may create near-term margin pressures, the company is proactively redeploying resources to counterbalance these effects, exemplified by the redirection of efforts to the Life Sciences business.

Earnings Call Transcript 2024-Q3

[Operator]

Welcome to the ATS Corporation Third Quarter Conference Call and Webcast. This call is being recorded on February 7, 2024 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 Galison, Head of Investor Relations at ATS.

[David Galison, executive]

Thank you, Operator, and good morning, everyone. On the call today are Andrew Hider, Chief Executive Officer of ATS; and Ryan McLeod, Chief Financial Officer.Please note that our remarks today are accompanied by a slide deck, which can be viewed via our webcast and available at atsautomation.com. We caution that the statements made on 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.Now, it's my pleasure to turn the call over to Andrew.

[Andrew Hider, executive]

Thank you, David. Good morning, everyone, and thank you for joining us. Today, we reported strong third quarter organic revenue growth, good contributions from recent acquisitions and adjusted earnings in line with our expectations as we've built on the momentum achieved in the first half of the year.We completed the acquisition of Avidity, which further expands our life sciences products and services offerings, it's complementary to our existing businesses. At the beginning of Q4, our PA Solutions Group completed the acquisition of ITACA, an Italian-based automation integrator with a focus on primary processing and pharmaceuticals.Avidity and ITACA are the most recent examples of how we use acquisitions to drive our strategy and evolve our portfolio. We are pleased to welcome both teams to ATS. Now, I will update you on the business and our markets and then Ryan will provide his financial report. Starting with our financial value drivers. Order bookings for the quarter were $668 million, supported by organic growth in Life Sciences and strong performance in Food and Beverage.The underlying trends driving demand for ATS solutions remained favorable. Q3 revenues were $752 million, up 16% from Q3 last year, including organic growth of 9%. Adjusted earnings from operations in Q3 were $101 million, up 17% versus Q3 last year. Moving to our outlook. Our backlog held strong at over $1.9 billion. By market, our life sciences backlog is up 10% compared to Q3 last year at a record $875 million, supported by wins in key areas, including auto-injectors and contact lenses.We remain focused on opportunities to provide expanded or integrated solutions to our customers. For example, we secured a new order as a result of an innovative offering that includes BioDot's dispensing technology and SuperTrak's Smart Conveyance technology as part of a diagnostic cartridge assembly system.Our life sciences' opportunity funnel remains strong, supported by market growth, including increased consumer demand for auto-injectors driven by GLP-1 drugs. In transportation, backlog was $564 million down 36% compared to Q3 last year, reflecting ongoing execution of large programs won in the last fiscal year along with expected variability in program awards in this market.We are working with one of our OEM customers to support their revised timing on a portion of their existing program. While the near-term market for electric vehicles remains dynamic as OEMs look to lower platform costs and align capacity to end market demand, the long-term fundamentals remain intact and support demand for our solutions.Our transportation funnel is strong and reflects diversified long-term opportunities to support our customers. With ATS' proven ability to partner with customers by providing flexible solutions, we are well positioned as the EV market continues to evolve. In Food and Beverage, Q3 bookings were strong as expected, and our ending backlog was $207 million. Notably, we successfully secured our first IoT order for a tomato processing line.Our food and beverage businesses are focused on innovation and customer experience, including aftermarket service as we expand our offerings to our customers. In Energy, our funnel remains strong and is expected to provide opportunities for both refurbishment of existing nuclear reactors and investment in new reactors providing sustainable clean energy.ATS has the experience, specialized skills and proven track record to support customers with their energy initiatives. In Consumer Products, our funnel is stable. However, customers are continuing to evaluate their investments in the current economic climate which may impact the timing of some opportunities. On after sales services, our consistent investment in the strategic area has included developing our digital solutions. As these solutions evolve, we are putting ourselves in a position to provide performance insights to our connected asset value chain and support our shift towards providing higher value services on both ATS and non-ATS equipment.During the quarter, we also secured a synergy win with triad and our Life Sciences business to identify OEE improvement opportunities for a key customer. On our digital offerings across the automation value chain, our funnel is strong and we remain focused on developing our capabilities, utilizing an integrated architecture to help our customers collect and analyze data in an efficient manner to drive performance.During the quarter, a global pharma customer won ATS to contract to build their IoT platform for data exchange with one of their major clients. On supply chain, lead times and material cost pressures continue to challenge in some areas of the business, which our teams consistently work to offset to the use of our supply chain levers and ABM tools, while increasingly leveraging digital tools to drive insights and opportunities.ABM activity and engagement remains strong and we measure and monitor our success to identify areas for ongoing improvement and employment of our tools across the organization. During the quarter, we hosted our ABM Global Conference with a focus on ATS business model principles, processes and tools to achieve impact on our value drivers. On M&A, we continue to expand our portfolio and our integration efforts with Avidity and ITACA, are underway and progressing according to plan. Our M&A formal remains active, healthy and diversified across all target sizes. We remain disciplined in our approach and assessment of each target.On ESG, ATS scientific products earned a silver medal as part of the EcoVadis sustainability program, an improvement from bronze last year. This award is a testament to the SP team's commitment to promoting sustainable practices and reducing our environmental impact.Additionally, Avidity recently launched the world's first water platform system with reusable cartridges that helps customers reduce their environmental footprint. We consistently work to identify ways to demonstrate our commitment to ESG principles and priorities across the organization as well for our customers.On innovation, we remain focused on strategically investing capital to create solutions that drive returns for our customers and a few highlights for the quarter and Life Sciences, a Comecer team developed a new software product for use by customers in the therapeutic radiopharma market, specifically to allow nuclear medicine departments to link dose preparation information directly to central hospital data systems. On Symphony, our ATS Innovation Center continues to develop new solutions for auto-injector device assembly alone for threaded components to be connected together at very high speeds and accuracy.In Food and Beverage, COMAC announced the launch of the 3D scanning vision system that helps to automate and speed up the inspection and sorting of kegs prior to them being filled.And to drive our effort, ATS hosted its first ever Global Innovation Summit in November, which included over 50 of ATS' top innovators with the purpose of sharing technologies, innovation trends and opportunities to accelerate technology development, including incorporating AI into our innovation approach and how we operate daily.In summary, our Q3 performance includes a strong revenue and earnings growth. Our opportunity funnel is well diversified, our strategic acquisitions are performing to plan, and we remain confident in our ability to continue our trajectory in creating shareholder value.We are pleased to see ATS recognized once again as one of Waterloo's region's top and players. ATS was founded in the Waterloo Ontario region over 45 years ago. And today, our team members continue to bring their best every day to serve our customers and grow our business.We remain guided by the ABM as our playbook as we deliver on our shared purpose to create solutions that positively impact cars around the world. Now, I will turn the call over to Ryan. Ryan, over to you.

[Ryan McLeod, executive]

Thank you, Andrew, and good morning, everyone. ATS delivered strong financial results this quarter, with organic revenue growth, margin improvement and we finished the quarter with a strong balance sheet.Starting with our operating results for the quarter order bookings were $668 million, down 31.8% compared to Q3 last year. As a reminder, Q3 last year included $300 million of orders from an EV customer, which were not expected to repeat this quarter.Of note in Q3 this year, we drove year-over-year bookings growth in Life Sciences, including strong organic growth in addition to contributions from recently acquired companies, including Avidity.Our trailing 12-month book-to-bill ratio at the end of Q3 was 0.95:1. By market vertical, our trailing 12-month book-to-bill at the end of Q3 was at or greater than 1 in all markets with the exception of transportation.We have previously noted that as we continue to execute on our large programs in the EV market, we do expect to see longer periods between ordering cycles. On revenues, Q3 revenues were $752 million, up 16.2% over Q3 last year. Organic revenue growth was 9.1% in the quarter. Recently acquired companies added approximately 5% to revenue growth and foreign exchange translation had a positive impact of 2.5% compared to Q3 last year.We finished Q3 with just over $1.9 billion of Order Backlog. Looking ahead, our revenue conversion for Q4 is estimated to be in the 36% to 39% range of Order Backlog. As a reminder, this assessment is updated every quarter based on revenue expectations from existing Backlog and new orders booked and build within the quarter.This conversion range also factored in the impact of approximately $200 million of transportation Order Backlog with one of our EV customers that has been delayed. Moving to earnings. Q3 adjusted earnings from operations were $101.2 million, up 17% from Q3 last year, primarily due to revenue growth. Adjusted earnings from operations margin was 13.5% in the quarter, up 13 basis points compared to last year, reflecting improved operating leverage.Our Q3 gross margin, excluding acquisition-related inventory fair value charges was 28.5%, up 12 basis points from Q3 last year, reflecting higher volumes and acquisitions. Going forward, with an EV customer realigning its production schedule, resulting in a delay of ATS' execution on this contract in our Backlog, we expect to see some near-term margin pressure in this part of our business.We are actively mitigating this utilization pressure by redeploying resources on to other programs, including in our Life Sciences business. Our expectation is for this program to restart in the first quarter of our fiscal '25. On supply chain, material cost pressure is still present for some categories of spend, most notably for electrical and mechanical parts where lead times remain a challenge. Lead times have generally improved in other areas.As we previously noted, short-term inefficiencies caused by extended lead times in our supply chain impact our ability to drive margin expansion. Despite these ongoing challenges, our teams are well equipped to drive performance and mitigate these impacts for our customers. Moving to SG&A. Expenses were $6.9 million higher than Q3 last year and included $17.1 million of acquisition-related amortization and $900,000 of acquisition-related transaction costs, partially offset by an $11.7 million gain on the sale of 2 redundant facilities.Excluding these items, Q3 SG&A was $107.9 million, $14.7 million higher than last year, primarily due to increased employee costs, incremental SG&A expenses from acquisitions and foreign exchange translation impacts.Stock-based compensation expense for Q3 was $4.7 million. Excluding the mark-to-market impact related to changes in our share price, stock-based compensation expense was $5.3 million in Q3 compared to an expense of $4.3 million last year.On earnings per share, our EPS was $0.48 in Q3, up 50% over last year. Our adjusted EPS was up 16.1% to $0.65 in Q3, primarily reflecting growth in revenues. We have begun to implement our previously announced reorganization plan. In Q3, we incurred $16.2 million in costs with total expected costs of approximately $20 million. The majority of the remaining costs are expected to be incurred in the fourth quarter.We anticipate that these targeted cost reductions will allow us to invest further into accelerating growth in areas of the business to provide opportunity for higher returns in support of our strategic growth plans. Next, moving to the balance sheet. In Q3, cash flow is generated by operating activities were $110.5 million, reflecting the timing of project progress and milestone billings and payments, primarily on our large EV programs.Noncash working capital as a percentage of revenue was 17.8% at the end of Q3, down from 18.4% at the end of Q2, again, primarily reflecting a reduction in working capital investments in our large EV programs.In the short term, we continue to expect working capital to remain variable. Total year-to-date investments in CapEx and intangible assets were $62.5 million, which included $17.7 million in Q3.Our planned fiscal '24 CapEx investment of $80 million to $100 million has flexibility, and we expect to be in the lower end of this range for the year. On leverage, our net debt to adjusted EBITDA ratio was 2.3:1 as of the end of Q3, in line with our target leverage range of 2 to 3x net debt to adjusted EBITDA. In the quarter, we funded the acquisition of Avidity with cash on hand and by drawing on our credit facility. Its early days, and integration efforts are progressing as planned and we look forward to our continued work with the Avidity team along with ITACA.In summary, our quarterly performance once again highlighted the strength of our diversified and evolving portfolio and positions in strategic end markets. Going forward, we will continue applying measures to combat challenges, including those still lingering our supply chain.Strong Order Backlog in our key markets once again provides good revenue visibility over the next several quarters. We remain confident in our team's ability to drive our strategy supported by the ABM, which will continue to unite our people across ATS as we remain focused on our employees, our customers and long-term value creation for our shareholders.Now, we will open the call to questions from our Analysts. Operator, could you please provide instructions.

[Operator]

Certainly. [Operator Instructions]. Your first question comes from Cherilyn Radbourne with TD Cowen.

[Patrick Sullivan, analyst]

This is Pat Sullivan on the line on behalf of Cherilyn. I think last quarter you were able to give us a breakdown on auto-injector bookings. I'm wondering if you've a little comment on the level of auto injector bookings this quarter? And then if you're able to provide a breakdown with respect to the composition of those bookings by customers, I guess what is the level of competition you're seeing in that end market?

[Andrew Hider, executive]

Yes, good morning. We actually won a key award within the quarter. And, well, it's an existing customer, it's a new production line for this customer and we continue to see this as a real area of opportunity and to walk this a bit more specific and to give you some guidance as to ATS' position because it will help as we talk about competition in the competitive landscape.ATS invested in a technology with Symphony. And it's our platform that when you're building a process, you can do it in motion. And why that matters is when you look at output, it allows us to actually be up to almost 3x the output at roughly half the footprint, and it's a real key enabler.And it's just one of the areas that we look at from a standpoint of how innovation allows us to differentiate and really offer high value for our customers as they continue to look at maximizing their launch and maximize their impact. And to give you a bit more context on the market, and certainly, there's multiple reports out about this space, whether it's the JPMorgan structure around going from $18 billion to $100 billion or even Morgan Stanley and significant level of increase, our mission has always been really enabling our customers to maximize their launch.And with our solution set, with our capability on a global scale, it affords us the ability to be a leader in that space. So, I'm pleased with the progress, pleased with the performance, and we do view this as a market that's going to continue to evolve.

[Ryan McLeod, executive]

And Patrick, just the specifics, this is a low single-digit percentage of our bookings in the quarter.

[Patrick Sullivan, analyst]

And if I could ask one more. There have been a lot of recent moments in the Canadian nuclear energy sector. Capital Power BG assessing the SMRs and then the more recent announcement of the refurbishment retrofitting sectoring nuclear generating station. I guess, can you comment on what you're seeing in your funnel with respect to opportunities like this? Are there any opportunities for ATS with respect to those 2 mentioned developments? And any idea, I guess, what kind of time frame you'd be looking at from an RFP to actual execution perspective.

[Andrew Hider, executive]

Yes, absolutely. So, headline market is favorable. And to give you some context, our trailing 12 months is 1.16 on the space. And so, we're not only seeing really favorable end market trends and dynamics, we're also performing and continuing to execute and offer high value for the markets.As far as SMR, our phone remains healthy. This is still early in its journey and our view is we're a high-value provider and we're staying close with the opportunities as they unfold.As far as the CANDU reactor and refurbishment programs, look, this is early. That said, it is very in line with what ATS offers for high value for this type of work and we're staying very close.We're in early days of review of the application and we do view this as something that will be right in line with what we can offer and have high contribution towards. So, to get back to your initial, there is favorable market dynamics on a global scale. This is a green energy that ATS supports and really one that we offer high value for in our niche capability and we continue to launch technology and solutions that enable us a strong position.

[Operator]

Your next question comes from David Ocampo with Cormark Securities.

[David Ocampo, analyst]

On the $200 million of EV Order Backlog that got delayed, curious if you guys see any risk if that portion pushed out further to the right? And, ultimately, when that program does restart in fiscal Q1, will that be at the normal run rate or lower than your initial projections of order deliveries and order execution?

[Ryan McLeod, executive]

Good morning, David, it's Ryan. So, our expectation is this, as we laid out in our prepared remarks and disclosure materials, our expectation is this resumes in Q1 of fiscal '25.Customers have the ability to certainly change that dynamic, but that's not our expectation. In terms of run rate, at this point, we would expect it to resume as it had been originally planned and wouldn't see any ongoing impact. I mean, that's our expectations.

[David Ocampo, analyst]

And then the last one is just on the supply chain issues. I mean, this is something that's been hurting you guys at least for the last several quarters. Are you guys seeing any positive indicators relating to electrical components and those issues easing? And what are your expectations on the timing of margin improvement once supply chain begins to normalize?

[Ryan McLeod, executive]

Yes. So, again, David, it's Ryan. This is interesting. I mean, the suppliers are talking about improvements. I would say we've seen some incremental improvements. But when we look at data around quoted lead times, particularly in electrical and mechanical components, we have not seen a material improvement.So, when we talk about the challenges, that's really it. Its lead time is a primary challenge and that has an impact on our ability to reduce cost in supply chain and offset some of those dynamics.In terms of when it shifts, certainly, this is something we stay very close to, but it will take 1 to 2 quarters for it to work its way through our programs and until we see a benefit in terms of what we can do from a margin perspective.

[David Ocampo, analyst]

And if I could just follow up on that. If you had to put a number on it, how much do you think supply chain has negatively impacted your gross margins because you guys have been in that 28% to 29% range from the quarter?

[Ryan McLeod, executive]

Yes. I mean, it's not as much. I mean, we've been able to offset a lot of it through pricing and other areas. So, it's not a headwind, but it's a barrier from us expanding margins. So, our typical playbook is when we get an order in, when we do the design work and we look for efficiencies in one of those areas is through supply chain.So, whether it's finding alternative suppliers, whether it's reengineering to find cheaper components, sometimes they have less features but they do the job that we need. Sometimes, it's pulling similar to same components across multiple programs and with extended lead times, that really limits our ability to exercise all of those levers.So, it's not as much a headwind today or a negative impact on our margins, that's something that is limiting our ability to expand margins when we do get programs in-house.

[Operator]

Your next question comes from Michael Doumet with Scotiabank.

[Michael Doumet, analyst]

Wondering if you could just elaborate on the margin pressure as it relates to the delayed EV program. Is it strictly a result of operating deleveraging due to the deferral? And then, I guess, longer term, the question is, how do you manage? Potentially, what could be some lumpiness in transportation and the overall capacity in that business?

[Ryan McLeod, executive]

Yes. Good morning, Michael. So, the answer to your question is, yes, it's primarily deleveraging and I'll give you a bit of context. So, we've been converting approximately 25% to 30% of our Backlog, and I'm excluding orders that get booked and billed within the quarter. So, that provides you with a sense of the revenue challenge and with EV, it's more towards the lower end of that range.So, in terms of what we're doing to mitigate, I talked about repurposing capacity where we can, including into some Life Science programs. We've scaled back on contractors but we are maintaining our cost structure as our expectation is for this program to restart as we talked about in the first quarter of fiscal '25.So, that's going to drive the temporary inefficiencies and call it utilization, but that's where we're going to see the negative impact on margins in the fourth quarter.

[Michael Doumet, analyst]

And, Ryan, can you maybe just give us a sense for the magnitude of the margin pressure in Q4 based on the lower utilization?

[Ryan McLeod, executive]

Yes. So, I kind of laid out the revenue headwind. And so, if you think about our typical cost structure or cost structure, it's roughly half labor and half materials. So, the materials doesn't have an impact and what we're dealing with is the labor inefficiency. And then like I said, we're able to offset some of that but there's going to be an impact.

[Michael Doumet, analyst]

And then just maybe more broadly on Life Sciences. Organic growth, it was still negative in the quarter, which is a little bit of a surprise given some of the bookings that you called out last quarter. What is the visibility on an acceleration in organic growth in that end market? And where really are you just in terms of the ramp overall for GLP-1? Just trying to get a sense for how much GLP-1s can really move the needle going forward.

[Andrew Hider, executive]

Yes. Sorry, Michael, you're asking but revenue growth in Life Sciences?

[Michael Doumet, analyst]

Yes, exactly.

[Andrew Hider, executive]

Yes. So, we did have positive organic growth in Life Science revenues in the quarter. It was low single digit, but there was positive revenue growth. So, your question is more around where are we in this GLP-1 progression? Or what would you like to understand from a context around that space, that market?

[Michael Doumet, analyst]

Yes. So, sorry for the confusion here on the organic growth. But the question in terms of where you are on the ramp and overall GLP, the ability to move the needle overall for Life Sciences?

[Andrew Hider, executive]

There are multiple reports out there, and I cited a little bit earlier on in the discussion around whether it's Morgan Stanley or whether it's JPMorgan, the net result is, this is a significant growth area for this solution and whether it's going from $18.8 billion in 2023 to $100 billion in 2030 or a different magnitude, the growth profile is real.And it's really tied to U.S. obesity and the market there is also in a significant growth profile. So, Net-net, it's an opportunity, a significant opportunity for ATS to drive high impact. And as we look at where it is in its journey, we view it still early in its journey. And while it's made progress and to give you some context around progress, last year of approvals, it was the second highest approval year in the last 10 years of NOVA drugs, basically new molecules.And so, we're seeing continued approval in areas to support growth, we're seeing that auto-injector is an area that offers high value for end customers or end patients and ATS has a strong play and the ability to support.That said, it's only one piece of our Life Sciences' offering, and we have multiple offerings that we like and as a reminder, last quarter, our contact lenses was one of the largest orders within the space.So, while we like this area, we're also involved in radiopharmaceuticals, which is identification and treatment of cancer. We're involved in wearables, in the treatment of diabetes, we're involved in many areas that offer high value for customers and very strategic for customers and product launches.

[Operator]

Your next question comes from Patrick Baumann with JPMorgan.

[Patrick Baumann, analyst]

Just wondering if you can give an update on the funnel for orders across EVs and food and beverage. I think you just talked about Life Sciences, but really specifically about calendar year 2024, not so much your fiscal year. Curious how to think about orders over the next year. And then more near term, you had a really tough comp in the third quarter here, so, obviously, orders being down shouldn't be a surprise to people. But the fourth quarter looks like the comp is a little bit easier, do you have a line of sight to some growth there or should we expect a book-to-bill to remain below 1 kind of in the short term?

[Andrew Hider, executive]

Multiple questions on that, and we'll see if I can answer all of them, but I'll go in that order and I'll walk EV first to kind of get line of sight and then I'll go into regulated food and then we can talk a bit more around other areas. But look, and I said this in my prepared remarks, our funnel in the mid- to long term remains strong.And we're staying very close with customers, while our certainly near term will be impacted by current market dynamics. And the customers are faced with many areas, whether it's technology and technology development or cost structure that they're looking to offset or even just matching capacity to consumer demand, we're staying close.And when we look at areas that ATS has differentiated ourselves, we put ourselves in a position that when our customers come out and they get back to a more measured pace, we're in a position to offer high value. And you think of the solutions like the digital twin that we've launched really enable us to maximize their impact to launch their product. And the discussions we've had with our customers is they're focused on EV being a key piece of their investment for CapEx and ATS offers high value for this space. One more area just as a reference, while we certainly still have a large customer, we are working with roughly 10 customers in this space right now. And so, varying degrees of where they are in their journey for EV launch, it continues to be an opportunity and strategic for the value we can create for our customer base.Moving on to regulated food. Look, this was a strong quarter. We are pleased with the performance of the business and yes, last year was a big comp to kind of reference against or comp against. It had a large order of roughly, call it, $20 million last year in Q3, the team continues to execute. And we are aligned around technology, innovation and really bringing our customer solutions to market. And it's an example of just the way that we think about and utilize innovation.Our business worked with AI and utilizing AI with vision and with our Raytec business, and we're providing the capability to really do an assessment to understand tomatoes when they're peeled to look for areas that maybe have been missed and then kick out. So, it offers higher yield, higher ability and energy continues to be a discussion point.So, pleased with the progress on that group, pleased with the performance and one that we view we can continue to really offer high value for our customers.

[Patrick Baumann, analyst]

I guess, in the fourth quarter, should we expect some growth there? Or should you think book-to-bill can kind of be around 1 in the fourth quarter?

[Ryan McLeod, executive]

Yes, Patrick, so this is Ryan. We don't typically provide forward-looking on our bookings. And with some of these large programs, there's variability and if something comes in the last 2 weeks of March or the first 2 weeks of April, that can drive some different discussion. And that's why when we're looking at bookings, we're looking at trailing 12 months and over a longer period to understand directionally where business is trending and our funnel or Backlog rather typically, goes out about 3 quarters.So, EV, it's a little bit longer given the duration of those programs and then we have some shorter cycle businesses that have been added in. But that is really how we look at the business from a quarter-to-quarter perspective.

[Andrew Hider, executive]

And just to add a little bit to there, we've been very focused on strategic end markets and being well positioned in those areas. And so, you think of areas alike and we talked a bit about life sciences around and our focus on key issues that offer high value.Our addition with Avidity and the value that that brings. And by the way, think about it from a standpoint of now we're in the lab, so you can almost fall the molecule we're in the lab all the way to production to energy and the ability and resurgence of nuclear being a green energy supporting really the energy challenges on a global scale.So, while we don't provide that, we have been very strategic in the markets we support and I've been very focused. So, not immune to end market, our target has always been to out execute and really drive performance in the business through our ABM and our playbook.

[Patrick Baumann, analyst]

Thanks for bearing with me with that short-term question. I'm kind of new to this to the call. So we'll keep that in mind going forward. Best luck.

[Operator]

Your next question comes from Michael Glen with Raymond James.

[Michael Glen, analyst]

So, over the past 2 days, we've seen some pretty strong indications from 2 of the largest players in the obesity drug market regarding these capacity constraints they're facing. So, can you help us draw the connection between what they are referencing specifically and how this plays into your auto-injector product offering? Like can you often reference these order funnels? Can you say whether the order funnel has grown in that market sequentially from last quarter to this quarter? And can you give some indication like when should we think about timing of these orders coming into play?

[Andrew Hider, executive]

Yes. So, Michael, just to kind of give you some real walk-down approach here. As I mentioned in my prepared remarks, the life sciences funnel is strong, and our Backlog is very strong.The growth of our funnel continues to build. And I would say, as has grown in our opportunities. We view the big moves, really is generally favorable. And it's an area that we can offer high value. And oftentimes, and I talk about strategic end markets and strategic products for our customers.When our customers are launching a solution and their demand is significant, they're looking to folks like ATS to really help them provide that back into the market. And I walked through our Symphoni Technology and really the impact that this has, but also, what it allows us to do is to take a more standard approach to a customized solution. And let me put a little more meat on the bones there, this allows us to really take the standard products at the standard capability and bring it to multiple customers.And as customers ramp, they want to go with the provider that offers them the highest capability and highest ability to launch their solution on time, on quality, on budget and oh, by the way, to be able to continue to increase as their demand increases. So, why I mentioned earlier in the discussion and call this is earlier in its journey, we do view we are well positioned to really maximize our impact and maximize our customers' ability to meet the market demands.

[Michael Glen, analyst]

And then if we think about last quarter, the indication you provided was something in the ballpark of $100 million of orders for auto-injectors and this quarter, it was down, it was low single digit. If we think about that number in the context of what you're talking about market size, the $18 billion going to $100 billion, what's your piece of the pie in those numbers? Are you able to give some type of assessment on that? What's the size of the piece you're going for in that market?

[Ryan McLeod, executive]

So, Michael, I'll start just on orders. I mean the numbers you referenced, they are actually accurate, but keep in mind, with orders, they are lumpy, regardless of market, they're going to -- the size of then the timing, those aren't going to be a steady stream line up into the right. It's going to be more lumpy just or call it variable.

[Andrew Hider, executive]

And we're talking dollar versus percent but as you look at the ramp, and it's not always a one-for-one as far as an increase in percent of the business, but the general growth profile will follow the profile of the investment. And so, not my information to be very clear, and I did mention that, that was a JPMorgan/Morgan Stanley estimate on the market regardless.Whether you read it from those banks or others, the market growth profile is very strong and ATS is well positioned to support that space. Timing will be variable, customers will be looking at their launches, when they get approval.So, it will certainly be variable, we are in a position, and we're working with customers to ensure that they're successful in launch. And one last minor one here, we've been in this space for over 2 decades and while it's new and exciting and an area that we can support the drive, we've also been in this market and we have a strong reputation in the space to really help our customers execute.

[Operator]

Your next question comes from Justin Keywood with Stifel.

[Justin Keywood, analyst]

We saw some deleveraging in the quarter, balance sheet is at 2.3x that could suggest a reasonable capacity for further M&A. Are you able to update us on the pipeline target verticals and potential size of deals that you're looking at?

[Andrew Hider, executive]

Good morning, Justin. Look, we are in a position, and I'll just say, if I just step back and I did mention this, our funnel remains healthy. And when we look at our funnel, it is a mixture of sizes, small, medium and large, aligned around very strategic products and technologies for end markets that we view are strong end markets and strategic end markets, and so we're pleased with where we sit.We've added now Avidity, we've added ITACA, 2 very good additions to the family. Our position in the ability to continue to cultivate is strong and we continue to have very good dialogues with potential targets. That said, we're patient. And when we find high value for our customers and shareholders, we're in a position to move quickly.

[Justin Keywood, analyst]

And then a follow-up to GLP-1. We saw Novo announced an acquisition of Catalent to shore up manufacturing capacity for fill/finish. One question is, if ATS offers fill/finish and does that take away the opportunity? And then also just on the GLP-1 Backlog, if we're able to characterize the percentage, I know it was at a record level in the current quarter.

[Andrew Hider, executive]

To walk through the acquisition, we generally view that as positive for ATS. And it's just one more proof point of the constraint to get product to market and exciting times for our ability to support, but also, and I referenced this on the call as a highlight for innovation.We launched an IoT solution set for a customer and it was run a pharma customer to work with a contract manufacturer to really do data processing, and it's just how we can continue to evolve and really support customers as they move in these directions to really bring their product to market and understand all the data variables to support those launches. Ryan will touch upon the second part of the question.

[Ryan McLeod, executive]

Yes. So, it's low double digits as a percentage of our Backlog.

[Justin Keywood, analyst]

So, just to clarify, low single digits for bookings but double digits for Backlog.

[Ryan McLeod, executive]

Correct. So, and Justin, just to clarify, so keep in mind, these programs are in the range of 12 months from timing of order to execution of delivery. So, the orders that we booked back in our fiscal Q2 are still in relatively early stages and so, most of that is still in our Backlog.

[Operator]

Your next question comes from Maxim Sytchev with National Bank.

[Maxim Sytchev, analyst]

Andrew, maybe just one kind of methodologist philosophic question for you. When we think about kind of return on invested capital by vertical, when you look at transport, obviously, more lumpiness, more working capital intensity. Like, when you look across the portfolio, how does it stack versus other verticals within ATS? And over the long term, should we assume that kind of the preferred route would be to get to, I don't know, like 80% health care in 10 years? Or how should we think about that level of composition? Maybe any comments from it would be super helpful.

[Andrew Hider, executive]

Yes. So, Max, as you're well aware, we have a very focused strategy around capital allocation. And it is very aligned to return on invested capital. And if you just take a step back and look at our M&A pipeline and what we've announced, it really aligns around, just take the last few digital Life Sciences, regulated food and areas that we offer high impact on an external perspective.When we look internally, we look at investment to return and ensure that the return on where we're focused is at the level of threshold we would expect. And so, while every market is going to have an opportunity, certain markets are going to have higher returns. And that's how we align for innovation, that's how we line for technology development and there's no shortage of opportunity for life sciences and our continued expansion.And I referenced a few of these on the call, we invested and launched a new Life Sciences system around on auto-injectors, around capability building within the space to even continue to improve our output.We talked about a capability development in radiopharmaceutical, around dose calibration and utilizing IoT as a support structure, and we talked about really the launch of an IoT solution within the pharma space. So, as we look at our investments, we expect a strong return, we also expect a strong penetration to support our growth in strategic end markets.

[Ryan McLeod, executive]

Max, just to add on a little bit here, too. So, the transport and EV business is primarily an organic play for us. So, from a return perspective, and we've talked about this when we look at return on investment, typically, internal investments generate a higher return and reach our thresholds more quickly.So, even though this is a higher investment in working capital in this business from a return on invested capital, the fact that it's organic really puts it at a similar playing field with the rest of the verticals.

[Maxim Sytchev, analyst]

And actually, you might in fact squeeze in one more. I think last quarter you mentioned that you have some pilot programs with other auto OEMs. Just curious to see if there is any potential directional update you can provide on those, must be helpful to us.

[Andrew Hider, executive]

Yes. So, they're progressing to plan, and we have no other delays in our programs. So, they're progressing the plan and we're staying close with our customers around their investment and their long-term view on the market. And so, I would just say it's ongoing progress and one we're aligned around.

[Operator]

[Operator Instructions]. Your next question comes from Sabahat Khan with RBC Capital Markets.

[Sabahat Khan, analyst]

Just a clarification question. I think I just want to tie off the comment in the press release about the $200 million of delayed Backlog. I guess, should we assume that if the delay hadn't happened, kind of the revenue would have been higher by $2 million for this next quarter or is that $200 million revenue impact maybe going to be split somewhat in this upcoming quarter and maybe a bit after that?

[Ryan McLeod, executive]

Yes. Good morning, Sabahat, it's Ryan. So, the $200 million Backlog, so like the rest of our projects would be executed over a period of time and call it roughly 12 months, what would have been remaining on that program. So, I mentioned this earlier, but from our Backlog we typically revenue in the range of 25% to 30%. And, in this case, with EV being longer duration programs, it would have been more towards the lower end of that.

[Sabahat Khan, analyst]

And then there's a little bit of discussion earlier on your participation in kind of the nuclear space. I'm just wondering, I guess, given the role that you're paying and some of the elements of, whether its refurbishment or things like that, kind of are you working on becoming more involved in other parts of it? Like if new builder to start tomorrow morning, do you have kind of the capacity and the capabilities to get involved or is there some R&D and other capabilities that you're looking to add to maybe partake in this or what seems to be more like a 5-, 10-, 15-year type runway here for that side of the business? Just curious what capabilities or where you can play today versus maybe 3, 5 years from now.

[Andrew Hider, executive]

So, a couple of things. First, we like our niche position, and we like the value it creates. We are continuing to expand that value creation. And, you look at the SMR space that we're supporting, you look at what we can do on refurbishment, you look at what we can do in decommissioning and even in areas around new and identifying.So, it is an area that says when we step back, we like the strategic position we are today, we like the opportunities that we can build into and we can do that both from an innovation perspective as well as really supporting our customers through different technologies. So, it's an area that I would say we're going to continue to highlight and continue to drive.

[Sabahat Khan, analyst]

And then just one last one, I guess, on the EV side, given some of the discussions you're having with some of your larger customer here. Are some of the other, I guess, OEMs that were in the pipeline that were doing some test runs or trying out your capabilities. I guess, how are the discussions progressing there? Any update on the time lines that those other potential customers are thinking about?

[Andrew Hider, executive]

I would say the mid- to long-term narrative has it changed dramatically? What I can tell you is what we do view is that the net result will be customers are going to be a bit measured in their pace of investment and really looking at this over long periods of time.That said, when we talk about CapEx spend and focus for CapEx spend, EV is a key priority. And so, while the near term, we do view is impacted, and we talked a bit about that, so I don't need to dwell further.Our customers focused around technology, innovation, profitability being a key focus and then matching capacity. These are areas where ATS does well and supports in a strong way as far as our capability through Digital Twin, through making modifications, through really testing.And to give you context of Digital Twin, what it allows us to do, and there's an advantage of measure it twice, cut once. Well, with Digital Twin, we can measure 50,100,1000 times cut once, and it allows us to do really real-time view of what these changes will impact how it will align around their production launch and then support their ability to modify change and really minimize impact on their launch.And so, our view is, we continue to offer high value in this space and while it's certainly going to have some dynamics over the next short term, Quarter 2, we're going to be very focused on offering customers high value through that cycle.

[Operator]

Mr. Hider, there are no other questions. Back to you for closing remarks.

[Andrew Hider, executive]

Thank you, Operator. We look forward to continuing to execute on our goal of creating value for our customers and shareholders. Thanks for joining us today. I look forward to speaking to you on our year-end call in May. Stay safe, and goodbye for now.

[Operator]

This concludes today's conference. You may now disconnect.