ATS (NYSE: ATS) bookings jump 12.7% but management walks back growth and margin goals

What happened

ATS Corporation (NYSE: ATS) said it will miss its fiscal 2027 goals for modest revenue growth and wider margins. The news came with second-quarter results in which orders rose while sales and profit fell.

All dollar figures in this story are Canadian dollars, as in the release. For the quarter ended Sept. 27, revenue was C$665.8 million, down from C$728.5 million a year earlier. ATS posted a net loss of C$5.0 million against net income of C$33.6 million.

Order Bookings were C$827 million. That is up 12.7% from a year earlier and 26.1% from the first quarter, led by life sciences. Life sciences Order Backlog ended the quarter at the highest level in the company's history.

The dropped goals were modest revenue growth and 50 to 75 basis points of margin expansion. A basis point is one hundredth of a percentage point.

Key numbers

Metric Latest Change Source
Order Bookings, Q2 C$827 million from C$734 million, +12.7% SEC 6-K
Revenue, Q2 C$665.8 million from C$728.5 million, -8.6% SEC 6-K
Adjusted EBITDA, Q2 C$80.7 million from C$103.7 million, -22.2% SEC 6-K
Adjusted EBITDA margin, Q2 12.1% from 14.2%, -211 basis points SEC 6-K
Net income (loss), Q2 -C$5.0 million from C$33.6 million, -114.9% SEC 6-K

Read more: ATS (ATS) company research

Where the pressure came from

Revenue fell C$62.7 million. ATS pointed to a more normal level of GLP-1-related activity than a year earlier and lower activity in other non-life sciences businesses. Growth in energy and services partly offset those declines.

Industrial consumer revenue fell C$41.8 million, food beverage fell C$25.2 million and life sciences fell C$18.7 million. Energy was the one market that grew, which the release ties to work on nuclear projects.

Profit fell faster than sales. Adjusted EBITDA dropped C$23.0 million, or 22.2%, to C$80.7 million. The margin slipped to 12.1% from 14.2%. The release says lower adjusted EBITDA mainly reflected lower revenues.

Adjusted earnings from operations margin was 8.6%, against 10.9% a year earlier. ATS blames mainly lower volumes and mix.

Reported EBITDA, which includes C$21.3 million of restructuring charges, was C$60.5 million versus C$114.6 million a year earlier. For the first six months, adjusted EBITDA was C$173.4 million, down from C$205.3 million.

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Why it matters

OptimistFi has argued that ATS earns a durable-compounder label only if its soft stretch proves cyclical or tied to project execution. The alternative is that custom automation has lost pricing power and operating leverage. This quarter splits that test. Orders and backlog point one way, margins and guidance the other.

The case for timing: the release says the non-life sciences order delays, mostly in packaging automation equipment, reflect a timing shift in customer orders. Customers put off capital decisions. That, not any limit on ATS's ability to serve them, drove the near-term hit.

Trailing-twelve-month book-to-bill was about 1.05. Backlog of about C$2.01 billion was 2.9% below the C$2.07 billion of a year earlier. Management says backlog helps cushion quarterly swings in bookings.

The case against: lower volumes and mix pulled margins down, and management admits it will miss both its growth and margin goals. Tariffs under Section 338 took effect in late August.

The U.S. changed them at the end of October to remove the impact on most covered products. The release says such changes may not turn into orders and revenue right away.

The cost program and cash moves

ATS's Fixed Cost Transformation Program is designed to deliver C$65 million to C$75 million of annualized savings. That equals about 250 basis points of adjusted earnings from operations margin.

That is about half of the 500 basis points needed to move from a fiscal 2026 base of about 10% to the 15% long-term target. The release says lower revenues and mix are temporarily offsetting the program's benefits.

Announced facility closures will cut total square footage by about 10%. ATS expects to cut its workforce, including subcontractors, by about 300 to 400. Management expects restructuring to pay back in under a year, with work continuing over the next 15 months.

After quarter end, ATS completed the sale of two U.S. facilities for C$71.2 million. It expects a gain of about C$12.2 million in the third quarter. During the second quarter it bought back 2,244,461 shares for about C$61.3 million, an average of C$27.32 per share.

What's next

Management expects third-quarter fiscal 2027 revenue of C$640 million to C$680 million. The next quarterly report will show whether revenue lands in that range. It will also show whether non-life sciences bookings recover after the tariff change and whether margin improves as the cost program advances.

Revenue at the low end with orders flat would weaken the timing argument. A rebound in packaging orders alongside steady life sciences bookings would strengthen it. The third-quarter report will also carry the facility sale gain, a one-time item rather than operating improvement.

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Originally published on OptimistFi, evidence-first equity research. More at optimistfi.com.