Executive Summary / Key Takeaways

• ATS Corporation is strategically pivoting towards high-growth, regulated markets, particularly Life Sciences and Energy, while rightsizing its exposure to the volatile transportation sector. This shift is underpinned by a robust backlog and a strong trailing 12-month book-to-bill ratio of 1.17:1 in Q1 fiscal 2026, excluding transportation, signaling a return to organic growth.
• The company's proprietary technologies, such as the SuperTrak Horizon3 conveyance platform and digital solutions like Connected Care Hub and Digital Tomato, provide tangible operational efficiencies and recurring revenue streams, enhancing its competitive moat in specialized automation.
• Despite a challenging fiscal 2025 marked by an EV customer dispute and associated revenue declines, ATS achieved record order bookings of $3.3 billion for the full year and expects operating margin improvement throughout fiscal 2026, driven by favorable mix and cost structure realignments.
• ATS is committed to deleveraging, targeting a net debt to adjusted EBITDA ratio of 2x to 3x within fiscal 2026, primarily through working capital efficiency and profitable operations, which will enhance financial flexibility for future strategic acquisitions.
• The company's global footprint and disciplined ATS Business Model (ABM) are critical differentiators, enabling it to mitigate geopolitical and tariff-related risks while capitalizing on strategic opportunities in a dynamic automation landscape.

The Automation Architect: Forging a Future in Regulated Markets

ATS Corporation, founded in 1978, has evolved into a global leader in providing sophisticated automation solutions, distinguishing itself through an integrated approach that spans planning, design, building, commissioning, and servicing of automated manufacturing and assembly systems. The company's overarching strategy centers on expanding its market reach into high-value, complex applications where quality is critical, particularly within regulated industries. This strategic focus is designed to leverage ATS's deep industry knowledge and technological prowess, fostering long-term customer relationships and driving recurring revenue streams.

The industrial automation landscape is characterized by increasing demand for efficiency, precision, and digital integration. Broad industry trends, such as the push for onshoring, supply chain de-risking, and the pervasive impact of labor shortages, all contribute to a favorable environment for automation providers like ATS. The global automation market is experiencing a mid-single-digit growth rate, and ATS aims to outpace this expansion by focusing on strategic customer investments and continuous innovation.

ATS's competitive standing is robust in specialized, custom automation solutions, though it operates alongside larger, more diversified industrial conglomerates. Direct competitors like Rockwell Automation (ROK), ABB Ltd. (ABB), Siemens AG (SIEGY), and Emerson Electric (EMR) offer broad portfolios, but ATS carves out its niche through a full-service, end-to-end value proposition. While Rockwell is a leader in industrial software and ABB in robotics, ATS emphasizes comprehensive lifecycle support, from concept development to post-automation services, including training, process optimization, and digital offerings. This integrated approach allows ATS to differentiate itself, particularly in highly regulated and complex markets where tailored solutions are paramount. The company's global footprint, with approximately one-third of its manufacturing capacity and 20% of its workforce in the U.S., provides a strategic advantage in addressing regional customer needs and mitigating cross-border tariff impacts.

Technological Edge: Precision, Digitalization, and Innovation

At the heart of ATS's competitive advantage lies its differentiated technology and a relentless pursuit of innovation. The company's core offerings include advanced automated manufacturing and assembly systems, complemented by a suite of digital solutions.

A prime example of ATS's technological leadership is the SuperTrak Horizon3 conveyance platform. This proprietary linear motion conveyor system, building on over 25 years of innovation, offers improved performance for cutting-edge assembly equipment, including ATS's own Symphoni system. The tangible benefits for customers include enhanced precision, higher throughput, and greater flexibility in manufacturing processes, which are critical for industries requiring meticulous control and rapid adaptation. The SuperTrak Horizon3 is designed to open new markets for ATS, contributing to its long-term growth strategy by enabling more advanced and efficient automation solutions.

ATS is also a pioneer in digital transformation, leveraging its acquisition of UReality to develop and launch an interactive and scalable virtual reality training platform for customers. This technology significantly reduces training times and costs, while improving operational proficiency and safety. Furthermore, its Connected Care Hub provides 24/7 support and real-time data analytics, helping customers proactively enhance system utilization and mitigate risks. This digital ecosystem strengthens customer relationships and drives recurring revenue, a key strategic initiative for ATS.

In the Food and Beverage sector, ATS introduced Digital Tomato, which utilizes PA Facts technology to monitor and proactively optimize tomato production during harvest season. This solution prevents downtime and regulates energy usage, offering quantifiable benefits in terms of operational efficiency and sustainability for customers. Similarly, in Life Sciences, the Comecer team developed Modis, a modular system capable of preparing up to four different radiopharmaceuticals sequentially without time-consuming cleaning and decontamination between batches. This innovation significantly improves efficiency and reduces cross-contamination risks in a highly regulated environment.

The "so what" for investors is clear: these technological differentiators contribute directly to ATS's competitive moat. By offering solutions that deliver superior performance, reduce operational costs, and enhance customer productivity, ATS can command higher value, secure stronger customer loyalty, and capture market share in its targeted segments. The continuous investment in R&D, as evidenced by these new product launches, underpins ATS's ability to maintain its leadership in specialized automation and drive sustainable financial performance.

Strategic Evolution and Financial Performance

ATS's financial narrative in recent periods reflects a strategic pivot and resilience in the face of market challenges. For the full fiscal year 2025, ATS achieved record order bookings of $3.3 billion, demonstrating robust demand across its diversified portfolio. However, adjusted revenues for fiscal 2025 were $2.53 billion, 12% lower year-over-year, primarily due to anticipated declines in its transportation (EV) segment. The company's adjusted earnings from operations for the full year stood at $283 million.

The first quarter of fiscal 2026 (ended July 2025) saw revenues increase by 6% year-over-year to $737 million, with recent acquisitions contributing 4.1% and foreign exchange adding 3.2%. Despite this, organic revenue growth was negative 1.2%, as lower transportation revenues partially offset growth in Life Sciences, Consumer Products, and Food and Beverage. Adjusted earnings from operations in Q1 fiscal 2026 were $79 million, or 10.7% of revenues, marking an almost 40 basis point sequential improvement from Q4 fiscal 2025. Gross margin remained strong at 29.8%, consistent with the prior year's first quarter.

A significant operational challenge in fiscal 2025 was a dispute with a large EV customer regarding outstanding payments. This led to the removal of approximately $150 million of delayed EV project backlog in Q2 fiscal 2025 and necessitated a $17.1 million restructuring cost to rightsize the transportation business. The dispute was resolved in May 2025 with a settlement agreement of USD $134.75 million (approximately CAD $194 million), which was fully received in Q1 fiscal 2026 and used to reduce credit facility debt. This settlement, while impacting Q4 fiscal 2025 results with a $146.9 million revenue reduction, was crucial for improving the company's balance sheet and providing greater financial flexibility.

ATS's strategic shift is evident in its segment performance. Life Sciences continues to be a powerhouse, achieving a record backlog of $1.2 billion in Q1 fiscal 2026. This segment, which includes key wins in auto-injectors (especially GLP-1 drugs with 10 active customers), radiopharma, and wearables, consistently delivers strong organic growth, exceeding 20% organically in Q2 fiscal 2025. Life Sciences typically contributes higher gross margins, benefiting from a favorable mix and recent acquisitions like Avidity and Heidolph, which boast over 40% recurring revenue.

The Food and Beverage segment also shows robust growth, with a backlog of $229 million in Q1 fiscal 2026, up 6% year-over-year. The acquisition of Paxiom is instrumental in diversifying this segment into secondary processing and packaging, offsetting the seasonality of the primary processing business. The Energy segment, particularly nuclear, is experiencing renewed investment, with strong demand for CANDU reactor refurbishments and long-term potential in new builds and small modular reactors (SMRs).

In contrast, the transportation segment, now rightsized, is expected to be a smaller portion of ATS's business, around 10% of the order backlog. While it was a drag on performance in fiscal 2025, it is projected to return to profitability in fiscal 2026.

Liquidity, Capital Allocation, and Outlook

ATS's financial health is improving, with a clear focus on deleveraging and disciplined capital allocation. Cash flows from operating activities were $156 million in Q1 fiscal 2026, significantly bolstered by the EV settlement payment. The company's net debt to adjusted EBITDA ratio improved to 3.6x on a pro forma basis in Q1 fiscal 2026, down from 3.9x at the end of fiscal 2025. Management is committed to bringing this leverage ratio down to its target range of 2x to 3x within fiscal 2026, primarily through enhanced working capital efficiency, aiming for a target of 15% of revenues or less. This deleveraging is crucial for providing greater flexibility for future strategic initiatives, including potential acquisitions.

For fiscal 2026, ATS expects capital expenditures and intangible investments to be in the range of $80 million to $100 million, reflecting continued investment in innovation and capability. While larger acquisitions are currently constrained by the focus on deleveraging, ATS continues to actively cultivate strategic M&A opportunities, recognizing that such efforts often require multi-year cultivation.

The outlook for fiscal 2026 is positive, with management anticipating a return to organic revenue growth and continued operating margin improvement. Q2 fiscal 2026 revenues are expected to be in the range of $700 million to $740 million. This growth will be driven by the strong order backlog, particularly in Life Sciences, and the benefits of cost structure realignments in the transportation business. Margin expansion is expected to be modest and non-linear, but a consistent focus on material productivity, labor efficiency, and supply chain optimization through the ABM tools will support this progression.

Risks and Competitive Dynamics

Despite the positive outlook, ATS faces several risks. Geopolitical and trade tensions, including potential cross-border tariffs, could introduce short-term complexities, although ATS's global footprint and decentralized operating model provide flexibility to mitigate these disruptions. The company's contracts generally protect it from tariff impacts, with cost increases typically passed on to customers. However, supply chain localization and working with suppliers on mitigation strategies remain ongoing efforts.

While ATS excels in custom, integrated solutions, its smaller scale compared to industry giants like Siemens and Rockwell Automation could result in higher costs and potentially lower margins in certain price-sensitive markets. ATS's reliance on specific supply chains also presents a vulnerability to disruptions. However, the company's proprietary technology and strong service network act as significant barriers to entry, protecting its market position.

In the competitive landscape, ATS's focus on tailored digital tools for real-time performance provides an edge against competitors like Emerson Electric, who may be more device-centric. ATS's ability to deliver seamless, integrated solutions across the full lifecycle of automation projects helps it compete effectively against ABB's strengths in robotics by emphasizing software and services. The company's strategic adaptability, particularly its focus on software and services, positions it well to capitalize on industry trends like AI and data center growth, although larger rivals with extensive infrastructure focus might capture a greater share of these broader opportunities.

Conclusion

ATS Corporation stands at an inflection point, having successfully navigated a challenging fiscal 2025 and strategically repositioned itself for sustained growth. The company's core investment thesis is firmly rooted in its leadership in specialized automation for regulated markets, particularly Life Sciences and Energy, underpinned by a robust backlog and a disciplined operational model. Its commitment to technological differentiation, exemplified by innovations like SuperTrak Horizon3 and advanced digital solutions, provides a strong competitive moat and drives tangible benefits for customers, translating into enhanced financial performance.

With a clear path to deleveraging and a strategic focus on margin expansion through operational efficiencies and a favorable business mix, ATS is poised for profitable growth in fiscal 2026. While macroeconomic uncertainties and competitive pressures remain, ATS's global capabilities, adaptive strategy, and continuous innovation position it to outpace market growth and create long-term shareholder value. The company's ability to execute on its technological roadmap and maintain its leadership in niche, high-value automation applications will be critical to its continued success.