ALTAGAS REPORTS STRONG THIRD QUARTER 2023 RESULTS

ALTAGAS REPORTS STRONG THIRD QUARTER 2023 RESULTS

Canada Newswire

Nov 3, 2023 6:00 AM EDT

Continued Execution of AltaGas' Strategic Plan Strongly Positions the Company to Deliver on 2023 Guidance and Drive Shareholder Value Creation

CALGARY, AB , Nov. 3, 2023 /CNW/ - AltaGas Ltd. ("AltaGas" or the "Company") (TSX: ALA) today reported third quarter 2023 financial results and provided an update on the Company's operations and other corporate developments.

HIGHLIGHTS

(all financial figures are unaudited and in Canadian dollars unless otherwise noted)

• Normalized EPS ¹ was $0.10 in the third quarter of 2023 compared to $0.10 in the third quarter of 2022, while GAAP EPS ² was a $0.18 loss in the third quarter of 2023 compared a $0.17 loss in the third quarter of 2022. Normalized EPS was ahead of AltaGas' expectations and strongly positions the Company to deliver on its 2023 guidance, including current expectations of achieving results in the upper half of the guidance range.
• Normalized EBITDA ¹ was $252 million in the third quarter of 2023 compared to $233 million in the third quarter of 2022, while loss before income taxes was $51 million in the third quarter of 2023 compared to income before income taxes of $48 million in the same quarter of 2022. Third quarter results included robust performance from the Midstream segment while the Utilities segment was in line with AltaGas' expectations and reflective of the typical seasonal low for natural gas usage during the shoulder season.
• Normalized FFO per share ¹ was $0.50 in the third quarter of 2023 compared to $0.60 in the third quarter of 2022, while Cash from Operations per share ³ was $0.01 in the third quarter of 2023 compared to cash used by operations of $1.37 per share in the third quarter of 2022. The decrease in normalized FFO per share was principally driven by higher interest expense, including hybrid debt which replaced preferred shares, and lower current normalized income tax recovery in the quarter. The increase in Cash from Operations per share was principally driven by changes in working capital.
• The Midstream segment reported strong operating results with normalized EBITDA of $185 million in the third quarter of 2023 compared to $108 million in the third quarter of 2022, while income before taxes in the segment was $61 million in the third quarter of 2023 compared to income before taxes of $71 million in the third quarter of 2022. The largest drivers of the strong year-over-year results were meaningfully stronger performance from global exports business due to solid operational execution, strong volumes and pricing, and benefit of Allowance for Funds Used During Construction ("AFUDC") on the Mountain Valley Pipeline ("MVP") as the project progresses to final completion in early 2024.
• The Utilities segment reported normalized EBITDA of $71 million in the third quarter of 2023 compared to $115 million in the third quarter of 2022, while loss before taxes was $16 million in the third quarter of 2023 compared to income before taxes of $54 million in the same quarter of 2022. The largest driver of the year-over-year decrease in financial contribution was the lack of the larger-then-normal asset optimization that was present in last year's results, and is shared with our customers, and the lost contribution of the Alaskan Utilities, which were divested on March 1, 2023 , and had contributed $13 million in normalized EBITDA in the third quarter of 2022.
• On August 31, 2023 , AltaGas announced that it has entered into a definitive agreement to acquire the Pipestone natural gas processing and storage infrastructure assets located in the Alberta Montney for total consideration of $650 million from Tidewater Midstream and Infrastructure Ltd. ("Tidewater"). Subsequent to the announcement, AltaGas has received all material regulatory approvals, including Competition Act approval, and is currently working on other condition precedents to close the transaction, which continues to be anticipated prior to 2023 year-end.
• On October 20, 2023 , AltaGas entered a five-year transportation agreement with Canadian National Railway Company ("CN"). The agreement provides AltaGas and its customers with cost and service predictability to support AltaGas' growing LPG exports to Asia , which support ongoing resource development across Western Canada , and provides energy security to the Company's downstream customers in Asia .
• Commissioning on two of AltaGas' new very large gas carriers ("VLGCs") progressed well over the third quarter of 2023 with the Boreal Pioneer expected to have its maiden voyage in December of 2023 with the Boreal Voyager expected to follow in March of 2024. These two seven-year time charters with optional extensions will reduce total shipping costs to Asia by approximately 25 percent compared to a standard VLGC. The vessels' deployment will also remove pricing volatility and de-risk maritime shipping costs on a long-term basis and is part of the Company's plan to commercially de-risk its Midstream business. In total, AltaGas will have three Time Charters operating in 2024 with a fourth under construction, which is set to be commissioned in the first half of 2026.
• On October 20, 2023 , Washington Gas executed a definitive agreement with Opal Fuels Inc. ("Opal Fuels") to support a renewable natural gas ("RNG") project at the Prince William County Landfill in Virginia . As part of the agreement, Washington Gas will become an offtake customer for RNG production and purchase key interconnect infrastructure for approximately US$25 million . The interconnect infrastructure is anticipated to become part of Washington Gas' rate base and will be eligible to earn a 100-bps premium to its allowed ROE in the jurisdiction as part of the Virginia Energy Innovation Act, subject to regulatory approval.
• AltaGas is pleased with the construction progress on MVP. The pipeline is expected to be placed into service during the first quarter of 2024 and will provide critical energy security to customers in the Eastern U.S. The updated aggregate capital cost of the pipeline is US$7.2 billion with AltaGas' cash contribution contractually capped at its original US$352 million investment for a ten percent equity interest in a non-dilutive ownership stake. As previously disclosed, AltaGas does not consider its equity stake as core and will consider a monetization as part of the Company's plan to reach its 4.5x net debt to normalized EBITDA target.
• On August 29, 2023 , the Commonwealth of Virginia State Corporation Commission ("SCC of VA") adopted the Hearing Examiner's report for the Virginia rate case, approving approximately US$41 million of incremental base rates plus approximately US$32 million of SAVE surcharges for a total rate increase of approximately US$73 million .
• Effective September 1, 2023 , AltaGas appointed a new independent Director, Angela Lekatsas , to AltaGas' Board of Directors. Ms. Lekatsas has over two decades of broad industry and corporate finance experience and will also serve as a member of AltaGas' Audit Committee.
• On October 19, 2023 , Washington Gas issued US$200 million in private placement notes, which includes US$150 million at 6.06 percent maturing on October 14, 2033 , and US$50 million at 6.43 percent maturing on October 15, 2053 . The proceeds will be used for general corporate purposes.
• On December 5, 2023 , AltaGas will be hosting its 2023 Investor Day, where management will provide an update on the Company's corporate strategy and outlook, share its near- and- long-term corporate priorities, and provide 2024 financial guidance.
• ---------------------------------------------------

CEO MESSAGE

"We are pleased with the third quarter operating and financial results and where we sit on a year-to-date basis" said Vern Yu , President and Chief Executive Officer of AltaGas. "This performance strongly positions the company to deliver on our 2023 guidance, including our current expectation to deliver results in the upper half of our guidance range, and continue to drive value creation for our stakeholders.

"Performance in the Midstream segment was robust and reflected record export volumes and the west coast advantage for Canadian LPGs. The Company has been actively working on de-risking Midstream while using strong risk management practices for residual commodity exposure. The Canadian upstream industry will deliver robust natural gas and NGL production growth in the coming years and we believe that AltaGas is positioned to provide the best value for LPG customers in North America and Asia .

"The Utilities segment performed relatively in line with our expectations and was reflective of the typical seasonal low for natural gas usage during the shoulder season. Our Utilities have a bright future with natural gas remaining the largest home energy source across all our jurisdictions where, on average, electrical substitution costs are more than three times the cost of natural gas on a delivered basis ¹ .

"In the years ahead, we will be acutely focused on balancing the critical needs of energy affordability and reliability with regional climate goals. Subsequent to quarter-end, we were pleased to sign an agreement to support a major RNG project at the Prince William County Landfill in Virginia . Through this agreement Washington Gas will become an offtake customer and purchase key interconnect infrastructure that will transport RNG through our network and lower the carbon-intensity of our energy supply.

"AltaGas has made tremendous progress on restructuring the platform over the past four years, including streamlining operations, refocusing the business, and de-risking the balance sheet. This includes significant leverage reduction, a shift in the debt portfolio with approximately 90 percent of the Company's debt being fixed under a properly staggered maturity ladder, and having built in optionality for additional debt repayments. These moves have strongly positioned AltaGas for the current operating environment and protected the Company from the material increases in interest rates over the past 18 months.

"We will continue this focus in the coming period as we look to complete our portfolio optimization, drive improved return on invested capital from our existing asset base, commercially and financially de-risk operations, and close our deleveraging journey to reach our 4.5x net debt to EBITDA target. AltaGas has a robust investment proposition that is supported by strong macro fundamentals and has a strong growth trajectory. We look forward to closing out a strong year in the fourth quarter and discussing the road ahead with our stakeholders at our Investor Day on December 5, 2023 ."

------------------------------------------------

BUSINESS PERFORMANCE

Midstream

The Midstream segment reported normalized EBITDA of $185 million in the third quarter of 2023 compared to $108 million in the third quarter of 2022. Income before income taxes in the Midstream segment was $61 million in the third quarter of 2023, compared to $71 million in the same quarter of 2022. Third quarter 2023 results included strong operations across the platform, including a significant improvement in the profitability of the global exports business due to robust export volumes, strong logistical performance, and high Asian-to-North American LPG margins. The quarter also benefitted from AFUDC being booked on MVP due to the resumption of construction activities in June of 2023, lower power costs at AltaGas' extraction facilities, and higher crude and NGL marketing margins.

AltaGas exported a record 118,213 Bbls/d of LPGs to Asia during the third quarter of 2023, including eleven full and one partially loaded VLGC at RIPET, and eight full and one partially loaded VLGC at Ferndale. The partially loaded vessels are a function of revenue recognition taking place at the point of ship loading and select loadings taking place over quarter ends. Higher export volumes were driven by continued improvement in AltaGas' operating and logistical capabilities, strong ongoing customer demand in Asia , and higher available LPG supply. AltaGas remains focused on partnering with North American producers, aggregators, and Asian downstream customers to increase direct market access through long-term LPG tolling arrangements. The Company made continued progress on tolling initiatives during the quarter and believes there is a path to push towards 60 percent or higher tolling over a multi-year time horizon. AltaGas also continued to actively hedge merchant export volumes to proactively lock-in structural margins and de-risk cashflows.

Performance across the balance of the Midstream platform was strong and in line with AltaGas' expectations. Although gas processing volumes were down modestly year-over-year during the third quarter of 2023 due to the turnaround at the Edmonton Ethane Extraction Plant ("EEEP") and lower processing volumes at the Harmattan Co-stream due to a pipeline tie-in, volumes have since recovered and continue to reflect the improved industry activity levels and strong macro fundamentals. Volumes across the balance of the platform were strong and included nine percent year-over-year growth in the Montney during the third quarter with a strong resumption of development activity. Fractionation volumes were up 12 percent year-over-year during the third quarter of 2023, including strong increases across Harmattan, Younger, and North Pine . AltaGas' realized frac spread averaged $23.75 /Bbl, after transportation costs, as most of AltaGas' frac exposed volumes were hedged at approximately US$27.33 /Bbl in the third quarter of 2023, prior to transportation costs.

AltaGas is well hedged for the remainder of 2023 with 87 percent of AltaGas' fourth quarter 2023 expected global export volumes tolled or financially hedged with merchant volumes hedged at an average Far East Index (FEI) to North American financial hedge price of approximately US$18.13 /Bbl. The Company has also have been actively hedging its 2024 exposure, with 76 percent of AltaGas' first quarter 2024 expected global export volumes tolled or financially hedged with merchant volumes hedged at an average FEI to North American financial hedge price of approximately US$17.17 /Bbl. AltaGas is also more than 50 percent tolled or financially hedged for second and third quarter of 2024 expected global export volumes. In addition, approximately 77 percent of the Company's fourth quarter 2023 expected frac exposed volumes are hedged at approximately US$26.83 /Bbl, prior to transportation costs. AltaGas continues to actively manage risk across the Midstream platform through commercial constructs and a systematic hedging program that covers key revenue and operating costs.

On October 20, 2023 , AltaGas entered a five-year transportation agreement with CN. The agreement provides AltaGas and its customers with cost and service predictability to support AltaGas' growing LPG exports to Asia , which support ongoing resource development across Western Canada , and provides energy security to the Company's downstream customers in Asia .

----------------------------------------

Utilities

Normalized EBITDA in the Utilities segment was $71 million in the third quarter of 2023, compared to $115 million in the same quarter of 2022 with a loss before income taxes of $16 million in the third quarter of 2023 compared to income before income taxes of $54 million in the same quarter of 2022. The largest driver of the year-over-year decrease in Utilities financial performance was the larger-than-normal third quarter 2022 asset optimization contribution at Washington Gas, which is shared with customers, and the lost contribution of the Alaskan Utilities, which were divested in March of 2023, and had contributed $13 million of normalized EBITDA in the third quarter of 2022. Other factors impacting third quarter results on a year-over-year basis included higher operating and administrative expenses during the third quarter of 2023 and modestly lower contribution from the WGL Retail Energy business. These factors were partially offset by contributions from ongoing asset investments across the network through various Accelerated Replacement Programs ("ARPs") and a favorable foreign exchange rate.

AltaGas continued to upgrade critical infrastructure and make ongoing investments on behalf of its customers during the third quarter of 2023 with the deployment of $204 million of invested capital, including $130 million deployed across the Company's various ARP modernization programs. These investments continue to be directed towards improving the safety and reliability of the system and connecting new customers to the critical energy they require to carry out everyday life. The modernization investments should also bring long-term operating cost benefits to our customers. AltaGas will continue to make these critical investments on behalf of our customers in the years ahead, while balancing the need for ongoing customer affordability. This latter focus is particularly important during the current economic environment of higher interest rates and inflation across the broader economy. AltaGas continues to be acutely focused on cost management across the Utilities platform, managing capital investments, and driving the best outcomes for its customers and stakeholders.

On August 29, 2023 , the SCC of VA adopted the Hearing Examiner's report for the Virginia rate case, approving approximately US$41 million of incremental base rates plus approximately US$32 million of SAVE surcharges for a total rate increase of approximately US$73 million and ROE of 9.65 percent.

On October 20, 2023 , Washington Gas executed a definitive agreement with Opal Fuels to support a RNG project at the Prince William County Landfill in Virginia . As part of the agreement, Washington Gas will become an offtake customer for RNG production volumes and purchase key interconnect infrastructure for approximately US$25 million , which is anticipated to become part of the Washington Gas' rate base and will be eligible to earn a 100-bps premium to its allowed ROE in the jurisdiction as part of the Virginia Energy Innovation Act, subject to regulatory approval.

On October 25, 2023 , Washington Gas received a proposed system modernization extension in Maryland which will run through to 2028. The Public Law Judge has recommended that the commission approve approximately US$330 million of capital to modernize our system and improve safety and reliability. This builds on our ARP program in Virginia that was recently extended to the end of 2027.

Washington Gas' D.C. and Maryland rate cases remain ongoing, and the Company expects a decision prior to 2023 year-end in Maryland and during the first quarter of 2024 in D.C.

Corporate/Other

The Corporate/Other segment realized a $4 million normalized EBITDA loss in for the third quarter of 2023, compared to income of $10 million in the same quarter of 2022.  Loss before income taxes in the Corporate/Other segment was $96 million in the third quarter of 2023, compared to a loss of $77 million in the same quarter of 2022. The decrease in normalized EBITDA was mainly due to a lower contribution from Blythe, higher expenses related to employee incentive plans due to the increase in AltaGas' share price during the third quarter of 2023, as well as higher operating and administrative expenses.

------------------------------------------

Corporate/Other

The Corporate/Other segment realized a $4 million normalized EBITDA loss in for the third quarter of 2023, compared to income of $10 million in the same quarter of 2022.  Loss before income taxes in the Corporate/Other segment was $96 million in the third quarter of 2023, compared to a loss of $77 million in the same quarter of 2022. The decrease in normalized EBITDA was mainly due to a lower contribution from Blythe, higher expenses related to employee incentive plans due to the increase in AltaGas' share price during the third quarter of 2023, as well as higher operating and administrative expenses.

Pipestone Asset Acquisition

On August 31, 2023 , AltaGas announced that it has entered into a definitive agreement with Tidewater to acquire: 1) the Pipestone Natural Gas Processing Plant Phase I and Phase II expansion project; 2) the adjacent Dimsdale Natural Gas Storage Facility; 3) the Pipestone condensate truck-in/truck-out terminal; and 4) the associated gathering pipeline systems required to operate these assets for total consideration of $650 million . This equated to approximately 7.2x estimated run-rate normalized EBITDA, inclusive of synergies and the incremental capital that AltaGas will deploy to complete the Pipestone Phase II development project.

The Pipestone transaction strengthens AltaGas' midstream value chain through an expanded footprint in the Alberta Montney and provides meaningful long-term LPG supply for our global exports' platform. The transaction is expected to be five percent EPS accretive in 2025 forward while being 0.1x net debt to normalized EBITDA credit accretive in 2025 forward. The acquisition is contingent on Tidewater and AltaGas making a positive final investment decision on the Pipestone Phase II project.

Subsequent to the announcement AltaGas has received all material regulatory approvals, including Competition Act approval, and is currently working on other condition precedents to close the transaction, which continues to be anticipated prior to 2023 year-end.

AltaGas 2023 Investor Day

AltaGas will host a 2023 Investor Day, where the Company will provide an update on its corporate strategy and outlook, share its near- and- long-term priorities, and provide 2024 financial guidance.  To register select the link below or go to AltaGas' Events and Presentations webpage.

Date: Tuesday, December 5th, 2023

Time: 9:00 a.m. ET – 12:00pm ET

Registration: Click Here to Register

-------------------------------------------------

Source

https://money.tmx.com/quote/ALA/news/5815626682963044/ALTAGAS_REPORTS_STRONG_THIRD_QUARTER_2023_RESULTS

AltaGas (ALA)

 AltaGas (ALA)

-------------------------------------

November 15, 2023 from InkResearch

Overview

AltaGas (ALA) is not your typical Canadian midstream operator. It has multiple natural gas gathering and processing facilities in Western Canada, but its business also includes two west coast liquefied petroleum gas (LPG) seaports focused on serving Asia. 

ALA is also in the process of commissioning two new very large gas carrier ships, both leased for seven years with three-year extension options. The Boreal Pioneer is expected to have its maiden voyage in December 2023 with the Boreal Voyager expected to follow in March 2024. AltaGas believes these vessels allow it to extend its supply chain to Asia while helping to de-risk the shipping component of its midstream business. The vessels will be able to serve both of ALA's seaport terminals. Asian exports are a core focus for AltaGas and in 2024 it is expected to make a final investment decision on its proposed Ridley Island Energy Export Facility that would handle LPG, methanol, and other bulk liquids. 

Since we last highlighted it here on December 24, 2020, ALA stock has sailed higher, up 45.3%, ahead of the S&P/TSX Composite (+13.6%) and S&P/TSX Utilities Index (-14.4%), but lagging the INK Canadian Insider Index (+56.1%). 

In 2021, ALA was expected to deliver a normalized EPS of midpoint $1.50 and ended up delivering $1.78. For 2023, ALA expects to be at or above its midpoint guidance of $1.95. In terms of normalized EBITDA, for the first nine months of 2023, ALA's midstream segment reported $502 million while utilities delivered $575 million. Normalized results remove the impact of asset sales and dispositions, risk management contract gains or losses and some other non-operating items. Vernon Yu became the new ALA skipper on July 1st. We have seen the new CEO buying after Q3 results were announced on November 3rd. ALA will pay a quarterly dividend of $0.28 per share on December 29th to shareholders of record on December 15th.

-----------------------------------------------

Source

InkResearch

Brookfield Corporation Shareholders

Brookfield Corporation Shareholders

Business has been Strong

We had another quarter of strong operating results as we continue to benefit from both our leading position in the asset classes across alternatives which have been experiencing strong growth, and the resiliency of the cash flows generated by our $140 billion of perpetual capital.

Across the franchise, we are capturing increasing allocations from institutions, pension plans, sovereigns and individuals towards real assets and private credit. And the increasing allocation to alternatives is also growing in our retail and wealth distribution channels, which today raise approximately $800 million a month and should grow to over $1.5 billion a month in 2024. Overall, our asset management business has raised $61 billion of capital to date this year, and our insurance solutions business is set to more than double its assets to over $100 billion in the coming months. This sets us up well for a strong end to the year and step-change growth as we head into 2024.

At the same time, our ability to execute buyouts, partner or lend at scale across a wide spectrum of real asset classes is differentiating the franchise now more than ever. Over the last 12 months, we have deployed $65 billion of capital to acquire high-quality businesses for value and have recycled over $35 billion through monetizations. As the macroeconomic picture becomes clearer, we expect transaction activity to continue to pick up through 2024, with next year slated to be another strong investment year.

Our success is in large part due to our significant levels of liquidity across the group, which today stands at nearly $120 billion, and our access to multiple sources of capital. Through our deep relationships with leading global banks and our strong reputation as a responsible borrower, we have been able to successfully finance and refinance our existing assets and businesses and raise fresh capital to support growth, at a time when many are finding financing tougher to access.

Transaction Activity is Picking up as Interest Rates Crest

Central banks have made significant progress in lowering headline inflation. At the same time, while slowing, economic activity has been resilient and labor markets have remained tight, particularly in the United States. We believe that interest rates have crested around the world and will remain at or around their current levels before coming back down in the medium term.

With this backdrop, market participants’ confidence in pricing risk has increased, which has in turn improved liquidity in the capital markets. And with record levels of dry powder currently on the sidelines, we expect a very busy period of transaction activity through to the end of next year.

Geopolitics, as is often the case, is the wild card that could lead to heightened volatility in the near term, but we expect that this will not impact the long-term outlook for the overall global economy. More specifically for Brookfield, owning businesses and assets that form the backbone of the global economy is a safe place to be in all markets.

Operating Results were Strong

During the quarter, each of our businesses generated strong cash flows and exhibited solid underlying fundamentals. Our positioning around the global demand for alternative investments and real assets is a key driver of performance and a differentiator for our franchise.

Financial Results

Distributable earnings before realizations were $1.1 billion in the quarter and $4.2 billion for the last 12 months. This represents an increase of 11% per share over the prior year, after adjusting for the special distribution of 25% of our asset management business that we completed in December last year.

Asset Management – Our asset management business delivered strong results, generating $634 million of distributable earnings in the quarter and $2.6 billion over the last 12 months. Fee-related earnings increased by 13%, when excluding performance fees, compared to the prior year. This growth was driven by recent fundraising momentum, which increased fee-bearing capital to $440 billion at the end of the third quarter. We closed our largest ever private equity fund, bringing the total raised for the strategy to $12 billion, which is a testament to our strong track record and longstanding investment approach focused on high-quality, cash-generative, essential businesses. Shortly after quarter end, we also closed our third global infrastructure debt fund, which at $6 billion is more than two times larger than the predecessor fund. We also expect a further acceleration in fundraising through the end of the year and heading into 2024, with closes anticipated on our large flagship funds focused on global secular trends. We remain on track towards achieving our $150 billion capital raising target.

Insurance and Retail Wealth – Our insurance solutions business benefited from strong investment performance, with distributable operating earnings of $182 million in the quarter and $657 million over the last 12 months, significantly higher compared to the prior periods. We continue to originate new annuity policies and redeploy our liquid, short-duration investment portfolio into higher yielding assets, further expanding the spread earnings of our existing business. During the quarter, our average investment portfolio yield was 5.5% on approximately $50 billion of assets, about 200 bps higher than the average cost of capital. Annualized earnings from this business remain on track to reach $800 million by the end of 2023. With the anticipated closing of the acquisitions of Argo Group and American Equity Life, our insurance assets will be over $100 billion and annualized earnings will be over $1.2 billion by next year. We also continue to increase our distribution to retail and wealth through various channels, raising about $800 million a month through our Manager from retail products for high-net-worth clients and through origination of annuities within our insurance solutions business. This should increase to over $1.5 billion a month in 2024, and we expect this capital source to continue to grow in the future.

Operating Businesses – Our operating businesses continue to deliver stable and growing cash flows, underpinned by demand for our inflation-linked, highly cash-generative assets. Cash distributions were $366 million in the quarter and $1.5 billion over the last 12 months. Our renewable power and transition, infrastructure and private equity businesses generated resilient and growing cash flows, supported by the solid earnings and essential nature of the businesses and assets that we own. We continue to achieve strong performance in our core real estate portfolio, with growth in same-store net operating income (“NOI”) of 9% compared to the prior year. Foot traffic increased by 7% versus the comparable period at our core retail portfolio, while leasing activity remains robust, with 0.8 million square feet completed in the quarter across our office assets.

Monetization Activity

Our global deal pipeline remains robust. Year to date, we have sold approximately $25 billion of assets at strong valuations and have completed over $35 billion of monetizations over the last 12 months—substantially all transacting at values higher than our IFRS carrying values. We recently sold or agreed to sell, a manufactured housing portfolio in the U.S. for approximately $390 million, a partial stake in a technology services business at an implied enterprise value of over $1 billion (and a 3.5x multiple of capital), and a partial interest in our telecom business in India for $250 million. Year to date, we have recognized $470 million of net realized carried interest into income, and we remain on track to realize well over $500 million of net realized carried interest into income in 2023.

Share Repurchases

Overall, since the end of the last quarter, we continued to reinvest in our businesses but also returned over $400 million to shareholders through regular dividends and share repurchases, taking total share buybacks over the last 12 months to approximately $750 million. With the disconnect between intrinsic value and trading price for both BN and our listed affiliates, we are continuing to allocate capital opportunistically to buy back shares. It is worth noting that we recently started repurchasing BIP and BEP shares in the open market, in addition to the BBU shares already repurchased this year. All of these repurchases are highly additive to the net asset value of a BN share.

Balance Sheet Strength Matters

Over many decades and through various cycles, we have developed a simple set of core principles with regards to financing our business. These principles still guide us today, and they are as follows:

• Always maintain significant and multiple sources of liquidity at the Corporation. Opportunities come to those with capital.
• Finance investments using non-recourse, asset-level debt, without cross collateralization.
• Ensure our businesses and assets can be financed on a standalone basis, but act as a long-term owner and support businesses to ensure we create long-term value.

Last quarter, we highlighted how our access to multiple sources of capital throughout the organization is a significant competitive advantage in the current environment. Building on that, we felt it important to highlight the significant liquidity that we have as a franchise; reinforce the advantages of asset level non-recourse financing; and describe how our businesses continue to successfully finance their operations on a standalone basis.

Cash is King

During periods of volatility or heightened uncertainty, we are reminded of how important it is to have significant amounts of liquidity and how crucial it is to match the duration of one's capital with the life cycle of an investment. The most damaging position to be in is to be forced to sell assets or raise equity capital at the low point in a cycle, subsequently removing the ability to participate in the recovery as a result of undue dilution at the wrong time. This dilutive process is one of the most destructive forces that exists in long-term wealth creation.

With nearly $120 billion of deployable capital, we are in a very strong position. At the Corporation, in addition to holding $4 billion in cash and financial assets, we have liquid securities of a further ±$60 billion on our balance sheet, and another ±$50 billion of insurance float which will soon be ±$100 billion. We also have the ability to raise additional capital through public debt offerings in the capital markets, with significant headroom in our current credit ratings—not to mention the approximately $5 billion of distributable earnings we receive annually.

As a result, we are well prepared to withstand any adverse cycle and, most importantly, are able to focus on growth at a time when we believe excellent value investment opportunities are coming in 2024. This should see us emerge from this cycle in an even stronger position.

The Advantage of Asset-Level Non-Recourse Financing

We take a bottom-up approach to financing the investments we own. This means that the vast majority of our debt is at the individual asset (or portfolio company) level and is sized appropriately for that specific investment to be sustainable through a cycle. Each loan has recourse only to the specific asset that it finances and, importantly, gives lenders no recourse to BN, BAM, or our perpetual affiliate balance sheets.

Our approach to leverage has been designed to optimize our capital structure and insulate the Corporation and our broader business from issues at specific assets that may arise from time to time. This has stood the test of time over the past 30 years, including during periods of stress far greater than what the markets are seeing today. We pride ourselves on being a responsible and strong counterparty to those who lend to us—but at the same time we, along with our lenders, approach financings on an asset-by-asset basis. Our approach to financing our business, along with our reputation and our relationships, are core strengths, enabling us to have continued access to capital at a time when many others find it harder to raise financing.

In just the past few months, despite the market uncertainty and volatility, our businesses have been able to access the capital markets executing on approximately $25 billion of financings, increasing the duration, and in many cases tightening the spreads of the debt. To illustrate this point, we note some of the financings below—all of which are non-recourse to BN, BAM, our listed affiliates, or any associated fund; they are also not cross- collateralized to anything. They stand alone, like virtually all our financings.

A few highlights include:

• Our Renewable Power and Transition business continues to see strong demand from lenders for transition opportunities and recently sourced ~$1.5 billion of financing for the acquisition and future build-out of Duke Energy's renewables portfolio.
• Our Infrastructure group completed a refinancing of over $1 billion of its North American residential decarbonization business. Despite tight conditions in financing markets more broadly, we were able to achieve the strongest pricing for any first-time issuer in the finance market this year, due to the high-quality operating model of the business and our strong reputation as a sponsor.
• Our Private Equity business opportunistically took advantage of the improved tone in the finance markets recently and was able to refinance $3.6 billion of debt at our automotive dealer software and technology services operations, leading to meaningful interest savings with an all-in cost approximately 50 bps below the cost of the debt it replaced. This is the fourth operating company refinancing completed within our Private Equity business in the last few months. In total, we have refinanced nearly $15 billion of debt since the start of the year, all completed with effectively no increase to the overall cost of debt.
• Our Real Estate business continues to access the capital markets globally at meaningful scale. Year to date, we have completed $23 billion of refinancings, which consisted of 131 individual loans, with no material impact to liquidity. We expect to fund our upcoming maturities with similar success. A few highlights this year include approximately $9 billion of office financings closed in the U.S., Europe, Brazil, Australia and India. This included approximately $600 million for an office asset in Australia to refinance existing debt and support growth. We also refinanced $700 million on a luxury retail asset in Chicago, which included a net capital repatriation to our cash accounts of over $200 million.

Overview of Investor Day

We hosted our annual Investor Day in September. For those who were unable to attend, the webcast and materials are posted on our website.

As we outlined at Investor Day, the Corporation is uniquely positioned as a premier global wealth manager. Through BAM, one of the world’s largest alternative asset managers, and our insurance solutions business, we are capturing increased global demand for alternative investments. Our goal for all our constituents is to compound wealth at strong returns, while taking moderate risk.

We remain well positioned in the current environment, given our central position around the global secular trends of decarbonization, digitalization and deglobalization. The scarcity of capital for many others and an investment environment today that puts a premium on operating expertise bodes well for our continued scaling of the business.

Our significant competitive advantages of scale capital, global footprint, deep investment and operating expertise, and our reputation as a superior partner are differentiating the franchise. This is important now more than ever.

Our plan is to grow distributable earnings and intrinsic value by ±20% on a compound annual basis over the next five years. Your entry point today could lead to even better returns, as you can acquire shares at a cheaper price than their current intrinsic value.

At Investor Day, we placed extra focus on the components of our business that are held privately and, in our view, are therefore less understood – our insurance solutions business, real estate business and carried interest.

Insurance Solutions

Our insurance solutions business is growing rapidly, with the goal of scaling to $500 billion of assets over the next 10 years. With the significant increase in demand for annuity and retirement products, particularly in the U.S., we see a significant opportunity to further grow this business now that we have scale origination capabilities.

With the ability to deploy insurance capital into our alternative strategies, we expect that this business will continue to provide excellent returns on capital and create significant value for the Corporation over a long period of time.

Real Estate

Separate and distinct to the globally diversified portfolio of real estate owned within our private funds, we own a portfolio of world-class real estate directly on our balance sheet. Backed by our perpetual capital, our goal with this portfolio is to own the highest quality assets that compound cash flows and value over long periods and provide attractive risk-adjusted returns through cycles. Our perpetual investment horizon enables us to be patient and remain focused on the fundamentals. This portfolio of premier properties continues to perform well. We think of the real estate owned directly on our balance sheet in two categories:

The first is our Core real estate portfolio, which is comprised of 35 of the highest quality retail, office and multifamily residential assets in key markets around the world. This portfolio continues to outperform the overall market, seeing growth in NOI driven by strong underlying fundamentals and tenant demand. This is important because while interest rates have impacted cash flows in the near term, values are driven by underlying fundamentals which have remained strong. We plan to hold our core portfolio on our balance sheet or within our insurance solutions business for a very long time and expect that it will compound and generate compelling returns for us.

The second category is our Transitional and Development portfolio, which consists of office and retail assets that we plan to enhance and sell over time. We continue to make good progress on our buy-fix-sell strategy across this portfolio, and as we execute on monetizations, the proceeds will be recycled into opportunities across our broader business.

We also continue to refinance the in-place debt across our real estate business which has a well-laddered maturity profile, with all 2023 refinancings completed and no material liquidity impacts expected as we look ahead to 2024.

Carried Interest

Carried interest is our hidden jewel, and we expect that it should drive significant growth in earnings for the Corporation over the next five years. Our Manager is planning to build on its excellent track record by continuing to scale its fund offerings, achieving at or above target returns and generating significant carry for us by executing on monetizations over time.

The carry we are expecting to earn is diversified across real asset classes, risk profiles and strategies, reducing the volatility of carry realizations. Over the next 10 years, our plan is to realize $26 billion of carried interest, net to the Corporation, which should provide meaningful cash for us to grow our business. We will likely direct a meaningful portion of this $26 billion of cash towards share repurchases of BN and/or BEP, BIP and BBU should the current disconnect between the intrinsic value and share price for all of these securities continue to exist.

Our Infrastructure and Renewables businesses are in Excellent Shape

Our Manager (BAM) and each of our listed affiliates also had Investor Days of their own, with the webcast and materials posted on their respective Investor pages of our website.

These businesses all have a strong foundation for growth, are well positioned around global secular trends, and benefit from being part of the broader Brookfield Ecosystem, providing them with access to scale capital, deep operating and investment expertise, and global proprietary investment deal flow.

Given the impact that interest rates and broader sector challenges have had on the trading prices of all “dividend yield” securities in the renewables and infrastructure sectors—our renewables security (BEP) and infrastructure security (BIP) being no exception—it is important to reiterate why we continue to expect to earn very attractive returns on the capital we have invested in these businesses over the long term.

First, each of these businesses is highly diversified by sector and geography, generating stable and often inflation- linked cash flows with high cash margins. In almost all instances, they own companies or assets with market- leading positions and high barriers to entry, all of which makes the earnings of these businesses very resilient and stable.

Second, given the nature of the cash flows of these businesses, they are financed on a long-term, fixed-rate, non- recourse basis, which means the impact of the recent rise in rates has been nominal. In fact, since the rise in rates has largely been brought about by higher-than-target inflation levels for many of the developed economies around the world, the cash margins for these businesses are expanding more rapidly than in the past.

Third, these businesses offer great opportunities to invest additional capital to enhance returns. Some of our best risk-adjusted returns are often earned by reinvesting in the underlying operations of these businesses, which we have done for the past decades at excellent returns. Each business today also faces a very visible pipeline of organic growth opportunities over the next several years and, therefore, has good prospects for growth.

Last but not least, given the diversity of the portfolios from a scale, sector, and geography perspective, they are well positioned to execute on capital recycling initiatives to further enhance returns. Real assets with high-quality cash flows and leading market positions are highly sought after; the resilient performance of these assets over the past couple of years demonstrates this well.

And so, while many in the renewables and utilities sectors are on the defensive and looking inward, our businesses, with their access to our institutional capital, are well positioned to strengthen their franchise even further. We expect the recent volatility in the markets to provide them with the opportunity to leverage their scale, access to capital and operating expertise to deploy significant amounts of capital for value in the months ahead. Given the current trading prices for BEP and BIP, along with our strong conviction in the intrinsic value of these businesses, we have begun allocating capital to buy more of their shares in the open market, similar to what we have been doing with BBU this year.

The Backbone of the Global Economy for AI is Powered by Brookfield

A large part of the business discussion of the last year has been about AI—specifically, how it will change business and who will win and lose. We believe that, unlike some “new technologies”, this is a very real possibility and investors need to pay attention.

Less frequently discussed, however, is the impact AI is having on the backbone of the global economy and the amount of funding required to launch us into the AI generation. This digitalization investment, which is powered by renewables, requires tens of trillions of dollars in investment.

As one of the largest developers of renewable power, data centers and real estate for this industry, we are seeing a very dramatic impact on the scale of the investment which is required. The bottom line is that we have never seen greater demand for these products at any time in our history.

Our Ecosystem Positions Us as a Partner of Choice

By leveraging Brookfield’s ecosystem, we are providing turnkey solutions for green data centers on a global basis with a large portfolio that can provide unique and flexible options for customers.

As AI increasingly becomes a more vital, growing and valuable segment for many large corporates around the world, the ability to execute global scale solutions for green data centers is becoming more critical. We expect that a few global scale solution providers will emerge as the winners.

Our data center, renewables and real estate businesses are leaders in their respective sectors; however, we believe the greatest opportunity lies in what we can achieve by having these businesses work together to provide unique integrated solutions to some of the largest global players in AI.

Our Infrastructure business owns and operates one of the largest global data center platforms across five continents. Our operating capacity is close to 500 megawatts and, when combined with a 775-megawatt capacity backlog to be built over the next several years, we will soon have nearly 1,275 megawatts of operating capacity. As a result, we can provide a highly flexible and consistent offering to meet global capacity requirements for large corporations.

Our renewables business is a global leader, with 31 gigawatts of operating capacity in approximately 30 markets and 20 countries around the world, and approximately 144 gigawatts development pipeline. With this operating and development capability, we can provide green power to practically every major power market globally, combine multiple technologies, and leverage our development, procurement, construction, financing and operational capabilities to deliver cost-competitive solutions to AI customers. This power is increasingly being contracted for data centers globally.

Lastly, as one of the largest global investors in real estate across a large footprint, particularly in many of the global gateway cities around the world, we also provide bespoke facilities to support the build-out of green data centers. We expect that, as demand accelerates, our global office, logistics and retail portfolios will provide interesting options for those looking for well-located space for their data infrastructure needs. Our ability to offer this range of solutions is creating exciting partnership opportunities.

The Amount of Capital Required is Very Substantial

The build-out of data centers and renewables is very capital-intensive, and our significant access to large scale capital differentiates us. Equity and debt capital across the risk-return spectrum will be required to support this build-out, and we have the relationships, scale and diversity of capital across our business to support this.

All of this means we expect that AI should be highly additive for our business, and this process is only just getting started.

Closing

We remain committed to investing capital for you in high-quality assets that earn solid cash returns on equity, while emphasizing downside protection for the capital employed. The primary objective of the company continues to be generating increased cash flows on a per share basis and, as a result, higher intrinsic value per share over the longer term.

Thank you for your interest in Brookfield, and please do not hesitate to contact any of us should you have any suggestions, questions, comments, or ideas you wish to share.

Sincerely,

Bruce Flatt
Chief Executive Officer
November 9, 2023

ATS Reports Second Quarter Fiscal 2024 Results

ATS Reports Second Quarter Fiscal 2024 Results

Business WireNov 8, 2023 6:00 AM EST

ATS Reports Second Quarter Fiscal 2024 Results

ATS Corporation (TSX and NYSE: ATS) (“ATS” or the “Company”) today reported its financial results for the three and six months ended October 1, 2023. All references to "$" or "dollars" in this news release are to Canadian dollars unless otherwise indicated.

Second quarter highlights:

• Revenues increased 24.9% year over year to $735.7 million.
• Net Income was $50.7 million compared to $29.5 million a year ago.
• Basic earnings per share were 51 cents, compared to 32 cents a year ago.
• Adjusted EBITDA ¹ was $116.2 million, 29.4% higher compared to $89.8 million a year ago.
• Adjusted basic earnings per share ¹ were 63 cents compared to 51 cents a year ago.
• Order Bookings ¹ were $742 million, 7.7% lower compared to $804 million a year ago.
• Order Backlog ¹ increased 12.4% to $2,016 million compared to $1,793 million a year ago.

"Today we announced another quarter of strong results, including solid revenues, Order Bookings, Order Backlog and adjusted earnings," said Andrew Hider, Chief Executive Officer. "During the quarter, we also hosted our Institutional Investor Day, announced our latest acquisitions (Odyssey Validation Consultants, or "Odyssey" and Avidity Science, LLC or "Avidity") and celebrated our IWK business' 130th anniversary. These were all important individual events and milestones that demonstrate the strength of our global, decentralized organization."

Odyssey's strong focus on supporting customers in digital transformation is expected to accelerate ATS' Process Automation Solutions ("PA") business' strategy to drive validated production process improvements through digital solutions. Avidity is a leader in automated water purification systems for biomedical and life sciences applications, with approximately 40% of revenues being reoccurring in nature. Avidity is expected to join ATS' Life Sciences group in the fourth quarter of calendar 2023 pending completion of customary regulatory reviews.

Year-to-date highlights:

• Revenues increased 24.2% year over year to $1,489.4 million.
• Net Income increased 43.0% year over year to $98.5 million.
• Basic earnings per share increased 36.0% year over year to $1.02.
• Adjusted EBITDA ¹ increased 29.1% year over year to $235.4 million.
• Adjusted basic earnings per share ¹ increased 22.2% year over year to $1.32.
• Order Bookings ¹ were $1,432 million, compared to $1,539 million a year ago.

Mr. Hider added: “With a solid Order Backlog to start the third quarter, our teams remain clearly focused on delivering profitable growth while serving our broader purpose of creating solutions that positively impact lives around the world."

Non-IFRS Financial Measure - See “Non-IFRS and Other Financial Measures."

Financial results (In millions of dollars, except per share and margin data)
	Three Months Ended October 1, 2023			Three Months Ended October 2, 2022			Variance		Six Months Ended October 1, 2023			Six Months Ended October 2, 2022			Variance
Revenues	$	735.7		$	588.9		24.9	%	$	1,489.4		$	1,199.5		24.2	%
Net income	$	50.7		$	29.5		71.9	%	$	98.5		$	68.9		43.0	%
Adjusted earnings from operations 1, 2	$	98.3		$	76.1		29.2	%	$	200.4		$	155.3		29.0	%
Adjusted earnings from operations margin 1, 2		13.4	%		12.9	%	44bps			13.5	%		12.9	%	51bps
Adjusted EBITDA 1, 2	$	116.2		$	89.8		29.4	%	$	235.4		$	182.3		29.1	%
Adjusted EBITDA margin 1, 2		15.8	%		15.2	%	55bps			15.8	%		15.2	%	61bps
Basic earnings per share	$	0.51		$	0.32		59.4	%	$	1.02		$	0.75		36.0	%
Adjusted basic earnings per share 1, 2	$	0.63		$	0.51		23.5	%	$	1.32		$	1.08		22.2	%
Order Bookings 1	$	742.0		$	804.0		(7.7	)%	$	1,432.0		$	1,539.0		(7.0	)%
As At									October 1 2023			October 2 2022			Variance
Order Backlog 1									$	2,016		$	1,793		12.4	%
Non-IFRS Financial Measure - See “Non-IFRS and Other Financial Measures." Certain Non-IFRS Financial Measures have been revised from previously disclosed values to exclude the impact on stock-based compensation expense of the revaluation of deferred stock units and restricted share units resulting specifically from the change in market price of the Company's common shares between periods. Management believes that this adjustment provides further insight into the Company's performance, as share price volatility drives variability in the Company's stock-based compensation expense.

Second quarter summary
Fiscal 2024 second quarter revenues were 24.9% or $146.8 million higher than in the corresponding period a year ago. This performance reflected year-over-year organic revenue growth (growth excluding contributions from acquired companies and foreign exchange translation) of $96.6 million or 16.4%, and revenues earned by acquired companies of $14.5 million. Foreign exchange translation positively impacted revenues by $35.7 million or 6.0%, primarily reflecting the strengthening of the U.S. dollar and Euro relative to the Canadian dollar. Revenues generated from construction contracts increased 32.4% or $117.3 million due to organic revenue growth combined with positive foreign exchange translation impact. Revenues from services increased 28.0% or $32.6 million due to revenues earned by acquired companies of $13.9 million in addition to organic revenue growth and the positive impact of foreign exchange translation. Revenues from the sale of goods decreased 2.8% or $3.1 million primarily due to lower Order Backlog entering the period compared to the prior year.

By market, revenues generated in life sciences increased $7.3 million or 2.6% year over year. This was primarily due to contributions from acquisitions and the positive impact of foreign exchange translation, partially offset by revenues earned on a large $120.0 million program that was in progress a year ago. Revenues in transportation increased $131.6 million or 109.1% on higher Order Backlog entering the second quarter of fiscal 2024, driven primarily by EV Order Bookings, including previously announced electric vehicle ("EV") Order Bookings of U.S. $578.2 million. Revenues generated in food & beverage increased $34.8 million or 46.4% due to higher Order Backlog entering the second quarter of fiscal 2024 and the positive impact of foreign exchange translation. Revenues generated in consumer products decreased $12.8 million or 16.6% primarily due to lower Order Backlog entering the period as compared to the prior year, partially offset by the positive impact of foreign exchange translation. Revenues in energy decreased $14.1 million or 44.3% due to project timing, partially offset by $3.5 million of contributions from acquisitions.

Net income for the second quarter of fiscal 2024 was $50.7 million (51 cents per share basic), compared to $29.5 million (32 cents per share basic) for the second quarter of fiscal 2023. The increase primarily reflected higher revenues, partially offset by higher cost of revenues, selling, general and administrative ("SG&A"), income tax expense, and financing costs. Adjusted basic earnings per share were 63 cents compared to 51 cents in the second quarter of fiscal 2023 (see “Reconciliation of Non-IFRS Measures to IFRS Measures”).

Depreciation and amortization expense was $34.0 million in the second quarter of fiscal 2024, compared to $30.1 million a year ago; the increase was primarily related to incremental depreciation and amortization expense from recently acquired companies.

EBITDA was $117.0 million (15.9% EBITDA margin) in the second quarter of fiscal 2024 compared to $83.1 million (14.1% EBITDA margin) in the second quarter of fiscal 2023. EBITDA for the second quarter of fiscal 2024 included $1.2 million of incremental costs related to acquisition activity and a $2.0 million recovery of stock-based compensation expenses due to revaluation. EBITDA for the corresponding period in the prior year included $0.5 million of incremental costs related to acquisition activity, $3.9 million of acquisition-related inventory fair value changes, $1.3 million of restructuring costs, and $1.0 million of stock-based compensation revaluation expenses. Excluding these costs, adjusted EBITDA was $116.2 million (15.8% adjusted EBITDA margin), compared to $89.8 million (15.2% adjusted EBITDA margin) for the corresponding period in the prior year. Higher adjusted EBITDA reflected higher revenues. EBITDA is a non-IFRS measure - see “Non-IFRS and Other Financial Measures.”

Order Backlog Continuity (In millions of dollars)	Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended
	October 1, 2023			October 2, 2022			October 1, 2023			October 2, 2022
Opening Order Backlog	$	2,023		$	1,555		$	2,153		$	1,438
Revenues		(736	)		(589	)		(1,489	)		(1,200	)
Order Bookings		742			804			1,432			1,539
Order Backlog adjustments 1		(13	)		23			(80	)		16
Total	$	2,016		$	1,793		$	2,016		$	1,793
Order Backlog adjustments include foreign exchange adjustments, scope changes and cancellations.

Order Bookings
Second quarter fiscal 2024 Order Bookings were $742 million, a 7.7% year over year decrease, which reflected an organic Order Bookings decline of 13.5%, primarily related to the transportation market, partially offset by 2.0% growth from acquired companies, in addition to a 3.8% increase due to foreign exchange rate translation of Order Bookings from foreign-based ATS subsidiaries, primarily reflecting the strengthening of the U.S. dollar and Euro relative to the Canadian dollar. Order Bookings from acquired companies totalled $15.7 million. By market, Order Bookings in life sciences increased compared to the prior-year period primarily due to a combination of new and existing applications in the medical device submarket, positive foreign exchange rate translation of Order Bookings from foreign- based ATS subsidiaries, in addition to $4.1 million of contributions from acquired companies. Order Bookings in transportation decreased compared to the prior-year period, as expected, as a result of variability on timing of large EV orders. Second quarter fiscal 2023 included a U.S. $167.0 million Order Booking from an existing global automotive customer to move towards fully automated battery assembly systems for their North American manufacturing operations. Order Bookings in food & beverage increased compared to the prior-year period primarily due to foreign exchange rate translation of Order Bookings from foreign-based ATS subsidiaries. Order Bookings in consumer products increased primarily due to the timing of customer projects and contributions from acquired companies. Order Bookings in energy increased primarily due to a grid battery program order, along with contributions from acquisitions.

Trailing twelve month book-to-bill ratio at October 1, 2023 was 1.10:1. Book-to-bill ratio is a supplementary financial measure - see “Non-IFRS and Other Financial Measures.”

Backlog
At October 1, 2023, Order Backlog was $2,016 million, 12.4% higher than at October 2, 2022. Order Backlog growth was primarily driven by higher Order Bookings in the last twelve months, primarily within the transportation, life sciences and energy markets.

Outlook
The life sciences funnel for fiscal 2024 remains strong, with a focus on strategic submarkets of pharmaceuticals, radiopharmaceuticals, and medical devices such as auto-fillers and auto-injectors. Management continues to see opportunities with both new and existing customers, including those customers using auto-injectors for diabetes and obesity treatments, and producers of contact lens and pre-filled syringes. Funnel activity to leverage the Company's various life sciences integrated solutions to serve broader customer needs remains active. In transportation, the funnel largely includes strategic opportunities related to electric vehicles, as the global automotive industry continues to shift towards EV production. The strategic nature of EV programs and typically larger average order values can cause variability in Order Bookings. Management believes the Company's automated EV battery pack and assembly capabilities position ATS well within the industry. Funnel activity in food & beverage remains strong, particularly for energy-efficient solutions. The Company continues to benefit from strong brand recognition within the global tomato processing industry, and is seeing continued growth within keg filling. Funnel activity in consumer products is stable; inflationary pressures continue to have an effect on discretionary spending, which may impact timing of some customer investments. Funnel activity in energy remains strong and includes some longer-term opportunities in the nuclear industry. The Company is focused on clean energy applications including solutions for the refurbishment of nuclear power plants, early participation in the small modular reactor market, and grid battery storage. Across all markets, customers are exercising normal caution in their approach to investment and spending.

Funnel growth in markets where environmental, social and governance ("ESG") requirements are an increasing focus for customers — including grid battery storage, EV and nuclear, as well as consumer goods packaging — provide ATS with opportunities to use its capabilities to respond to customer sustainability standards and goals. Customers seeking to de-risk or enhance the resiliency of their supply chains, address a shortage of skilled workers or combat higher labour costs also provide future opportunities for ATS to pursue. Management believes that the underlying trends driving customer demand for ATS solutions including rising labour costs, labour shortages, production onshoring or reshoring and the need for scalable, high-quality, energy-efficient production remain favourable.

Order Backlog of $2,016 million is expected to help mitigate some of the impact of quarterly variability in Order Bookings on revenues in the short term. The Company’s Order Backlog includes several large enterprise programs that have longer periods of performance and therefore longer revenue recognition cycles. These programs have extended the average period over which the Company expects to convert its Order Backlog to revenues, providing ATS with longer visibility. In the third quarter of fiscal 2024, management expects the conversion of Order Backlog to revenues to be in the 34% to 37% range. This estimate is calculated each quarter based on management’s assessment of project schedules across all customer contracts, expectations for faster-turn product and services revenues, expected delivery timing of third-party equipment and operational capacity.

The timing of customer decisions on larger opportunities is expected to cause variability in Order Bookings from quarter to quarter. Revenues in a given period are dependent on a combination of the volume of outstanding projects the Company is contracted to, the size and duration of those projects, and the timing of project activities including design, assembly, testing, and installation. Given the specialized nature of the Company’s offerings, the size and scope of projects vary based on customer needs. The Company seeks to achieve revenue growth organically and by identifying strategic acquisition opportunities that provide access to attractive end-markets and new products and technologies and deliver hurdle-rate returns.

Management is pursuing several initiatives to grow revenues and improve profitability with the goal of expanding its adjusted earnings from operations margin to 15% over time through a combination of operational initiatives and portfolio development. Operational initiatives include a focus on pursuing continuous improvement in all business activities through the ABM, including in acquired businesses, improving global supply chain management, increasing the use of standardized platforms and technologies, and growing revenues while leveraging the Company’s cost structure. Portfolio development initiatives include efforts to grow the Company's products and after-sales service revenues as a percentage of overall revenues. After-sales revenues and reoccurring revenues, which ATS defines as revenues from ancillary products and services associated with equipment sales, and revenues from customers who purchase non-customized ATS product at regular intervals, are expected to provide some balance to customers' capital expenditure cycles. Management estimates that reoccurring revenues are currently in the range of 25-35% of total revenues on a trailing twelve-month basis. Moreover, the Company's financial profile, which has included strong growth, margin expansion and disciplined working capital investment, has allowed it to generate free cash flows that are reinvested back into the business. Management also sees the development of the Company's digitalization capabilities as another key area of growth for the portfolio, including the collection and interpretation of data to drive meaningful change that optimizes performance for customers. In addition, management is focused on investing in innovation and employing a consistent, strategic approach to acquisitions. The Company continues to make progress in line with its plans to integrate acquired companies, and expects to realize cost and revenue synergies consistent with announced integration plans.

In the short term, ATS will continue to address disruptions to global supply chains and cost pressures due to inflation, which have been contributing to longer lead times and cost increases in the supply base over the past several quarters. To date, the Company has mitigated many of these supply chain disruptions through the use of alternative supply sources and savings on materials not affected by cost increases. However, prolonged cost increases and price volatility have and may continue to disrupt the timing and progress of the Company’s margin expansion efforts and affect revenue recognition. Achieving and sustaining management's margin target assumes that the Company will successfully implement the initiatives noted above, and that such initiatives will result in improvements to its adjusted earnings from operations margin that offset the pressures resulting from disruptions in the global supply chain (see “Forward-Looking Statements” for a description of the risks underlying the achievement of the margin target in future periods).

The Company regularly monitors customers for changes in credit risk and does not believe that any single industry or geographic region represents significant credit risk.

In the short term, the Company expects non-cash working capital to remain above 10% as large enterprise programs progress through milestones. Over the long-term, the Company expects to continue investing in non-cash working capital to support growth, with fluctuations expected on a quarter-over-quarter basis. The Company’s long-term goal is to maintain its investment in non-cash working capital as a percentage of annualized revenues below 15%. However, given the size and timing of milestone payments for certain large EV programs in Order Backlog, the Company could see its working capital exceed 15% of annualized revenues in certain periods as it did in the first two quarters of fiscal 2024. The Company expects that continued cash flows from operations, together with cash and cash equivalents on hand and credit available under operating and long-term credit facilities will be sufficient to fund its requirements for investments in non-cash working capital and capital assets, and to fund strategic investment plans including some potential acquisitions. Acquisitions could result in additional debt or equity financing requirements for the Company. Non-cash working capital as a percentage of revenues is a Non-IFRS ratio - see “Non-IFRS and Other Financial Measures.”

New York Stock Exchange Listing
On May 25, 2023, the Company commenced trading of its common shares on the New York Stock Exchange ("NYSE"), under ticker symbol "ATS". As a result, ATS is now a dual-listed company, trading on both the Toronto Stock Exchange ("TSX") and NYSE.

Reorganization Activity
The Company periodically undertakes reviews of its operations to ensure alignment with strategic market opportunities. As a part of this review, the Company has identified an opportunity to improve the cost structure of the organization and reallocate investment to growth areas. The majority of these actions are expected to be completed in the third quarter of fiscal 2024. The estimated cost of these activities is between $15 million and $20 million.

Quarterly Conference Call
ATS will host a conference call and webcast at 8:30 a.m. eastern on Wednesday, November 8, 2023 to discuss its quarterly results. The listen-only webcast can be accessed live at www.atsautomation.com . The conference call can be accessed live by dialing (888) 660-6652 or (646) 960-0554 five minutes prior. A replay of the conference will be available on the ATS website following the call. Alternatively, a telephone recording of the call will be available for one week (until midnight November 15, 2023) by dialing (800) 770-2030 and using the access code 8782510.

About ATS
ATS Corporation is an industry-leading automation solutions provider to many of the world's most successful companies. ATS uses its extensive knowledge base and global capabilities in custom automation, repeat automation, automation products and value-added services including pre-automation and after-sales services, to address the sophisticated manufacturing automation systems and service needs of multinational customers in markets such as life sciences, food & beverage, transportation, consumer products, and energy. Founded in 1978, ATS employs over 6,500 people at more than 60 manufacturing facilities and over 80 offices in North America, Europe, Southeast Asia and Oceania. The Company's common shares are traded on the Toronto Stock Exchange and the NYSE under the symbol ATS. Visit the Company's website at www.atsautomation.com .

----------------------------------------

Source

https://money.tmx.com/quote/ATS/news/6205890966005784/ATS_Reports_Second_Quarter_Fiscal_2024_Results