ATS Corporation (ATS) Q2 2023 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the ATS Automation Second Quarter Conference Call and Webcast. This call is being recorded on November 9, 2022 at 8:30 a.m. Eastern time. [Operator Instructions]. I will now turn the call over to David Galison, Head of Investor Relations at ATS.

Thank you, operator, and good morning, everyone. On the call today are Andrew Hider, Chief Executive Officer of ATS; and Ryan McLeod, Chief Financial Officer. Please note that our remarks today are accompanied by a slide deck, which can be viewed via our webcast and available at atsautomation.com. We caution that the statements made on the webcast and conference call may contain forward-looking information and our cautionary statement regarding such information, including the material factors that could cause actual results to differ materially from the statements and the material factors or assumptions applied in making these statements are detailed on Slide 2 of the slide deck. Now it's my pleasure to turn the call over to Andrew.

Thank you, David. Good morning, ladies and gentlemen, and thank you for joining us. Today, ATS reported another quarter of record order bookings and backlog. The business delivered solid revenues and adjusted earnings in line with our expectations, even as supply chain delays and cost increases continue to present significant challenges. The macro environment is still challenging, and we remain committed to profitable growth, underpinned by our disciplined approach to strategic markets and focus on mitigating risks and driving continuous improvement through our ABM. During the quarter, we made on planned progress in integrating recent acquisitions. Notably, customer interest is developing for solutions that combine the capabilities of SP, Comecer, and BioDot, and along with it, potential access to new submarkets. Today, I will update you on the business and Ryan will provide his financial report. Starting with our financial value drivers. Q2 revenues were $589 million, up 13% from Q2 last year, driven by a combination of acquired businesses and continued strength across our core operations. Organic revenue growth was 4% year-over-year. Order bookings for the quarter were $804 million, up 58% year-over-year. This quarter, we booked the single largest order in ATS' history, $167 million in the EV market. In addition, as we announced last week, we received further follow-on EV orders valued at $140 million, which are part of the same multiphase enterprise program. Our adjusted EBIT margin in Q2 was 12.8%. Today, we also announced a plan to enhance our cost structure and efficiency. Ryan will provide more information in his remarks. Moving to our outlook. We finished the quarter with approximately $1.8 billion of order backlog. Again, this is another record backlog for ATS, providing us with a solid base to work from and reflecting the strength of our focus in strategic markets. Our backlog remains well diversified across global markets and regulated industries. In Life Sciences, during the quarter, we saw an increase in the number of opportunities in the funnel across our major submarkets. Our key technologies and integrated solutions are opening doors with new and existing customers. In total dollars, Life Sciences backlog increased approximately 4% to $782 million versus last quarter. In EV, we're benefiting from the global automotive industry's pivot to electrification at a fast pace but we're monitoring trends in the market. Our partnerships with key OEMs remain strong. In Food and Beverage, our funnel is expanding for each submarket. With energy markets under pressure, our CFT Apollo evaporators provide an energy-efficient solution for our food and beverage customers, particularly as they move away from gas, our energy-saving technology and brand recognition, enhance our position in tomato processing. In energy, finding alternatives to high energy costs and the need for clean energy continue to be 2 of the main focal points in this market. Grid battery storage, in particular, remains a focus given our capabilities and market dynamics. Commercialization of small module reactors may provide opportunities in the future. We remain very competitively placed for growth in these niche areas for automation. In Consumer Products, we exited the quarter with a strong funnel in the personal care and cosmetics industry. On after sales services, this remains a strategic focus with good growth potential as our customers struggle to attract and retain specialized talent and focus on improving asset performance. We support customers with machine connectivity, data analytics and visualization integrated with remote and on-site services through our regional and local teams, all with a focus on reoccurring repeat revenue. On the macro environment, supply chain constraints, rising costs, and availability of labor continue to be front and center for our customers and ATS. We remain confident in our ability to drive profitable growth over the long term as we navigate these challenges with a focus on mitigating risk and driving continuous improvement through our ABM, specifically in Europe, where we generated approximately 30% of our year-to-date revenues. We are monitoring all macro concerns. Our European divisions have a strong global presence, healthy funnels, and diversified revenue streams. While our divisions in Germany and Italy have some exposure to energy disruptions, we have mitigation plans in place to address the potential gas flow reductions or shutdowns. These measures include converting to alternative heating sources, employing energy conservation measures at our production facilities, and having employees work from home where possible. Our ABM has never been a more relevant competitive advantage across our business. During the quarter, we completed 41 ABM events covering all parts of our business across all value drivers. Throughout Q2, supply chain remained a major ABM focus with 8 separate activities completed across multiple groups, including savings funnel workshops, value-engineering kaizens, and problem-solving events to address purchase price variance. The ABM provides a real focus to our global teams. It takes the strength of our greatest asset, our people, working together to stay focused on creating shareholder value and a continually changing environment. On M&A, integration of previous acquisitions across the business is progressing to plan. We continue to refresh our M&A funnel of opportunities and maintain regular connections with potential targets to put ourselves in a leading position when they become available. We drive an ongoing process with our business units and our corporate teams to add new technologies, products and capabilities in our target end markets, and our funnel remains healthy. Subsequent to the end of Q2, we announced that we have entered into an agreement to acquire ZI-ARGUS, a well-established independent automation systems integrator in Southeast Asia and Australia, which is expected to strengthen our PA business position in automation and digital solution in the region across our key markets. On ESG, we're looking forward to publishing our third annual sustainability report, which will include updates on progress to our 2030 targets as well as, new goals focused on environmental stewardship and diversity and inclusion. We're committed to our sustainability journey and our ESG goals. We believe that our proactive and transparent approach in this area has the ability to positively impact our bottom line. ATS is increasingly helping our customers meet their sustainability goals by incorporating elements of waste reduction, energy efficiency, and sustainability metrics into our design processes. Our PA business group has also developed an energy management software to help customers track and reduce their carbon footprint. The promote alignment between ATS and our business partners, we have integrated sustainability considerations directly into our contractor selection and procurement management. On innovation, I'll provide a few highlights from Q2, which demonstrate our ongoing focus on strategic spend in key markets and internal capital deployment to drive return. We continued our development of new features in several areas, including machine learning, vision applications, carbon footprint, digital tracing, EV battery assembly and radioisotope production. We've begun to see one of our SP businesses collaborate with Comecer to combine their filling and isolation capabilities into a single modular platform. This will continue to develop but again, we are encouraged by the team's willingness to learn from each other to bring new offerings to our customers. In summary, our record order backlog gives us a strong platform for uncertain times. We're encouraged by Q2 performance, including record bookings and are taking ongoing action to enhance our cost structure and drive continuous improvement to carry us through ever-changing macroeconomic conditions. Our results once again demonstrate the strength of our global brand and our focus on employee, customer and shareholder success. We will continue to drive the business forward in a disciplined manner using our ABM. Now I will turn the call over to Ryan.

Thank you, Andrew, and good morning, ladies and gentlemen. This morning, I'll start with a review of our Q2 operating results and then provide further details on our balance sheet. Beginning with orders, bookings were $804 million, up 58% compared to Q2 last year. The increase was driven by organic growth in bookings of 49% and a 12% increase in bookings from acquired companies, partially offset by a 4% headwind from foreign exchange translation. Organic bookings growth included our largest ever order of USD 167 million from an existing global automotive customer. This is in addition to the USD 70 million that was booked with the same customer in Q1. Bookings were up sequentially by $68 million compared to Q1 of this year, with growth driven by EV. Our trailing 12-month book-to-bill ratio for Q2 was 1.21:1 positioning us well for continued revenue growth. On Q2 revenues, our top line growth was 12.8% over last year. Organic growth of 3.8% related primarily to increases in the transportation and consumer verticals. Foreign exchange translation created a 4.1% headwind compared to Q2 last year. Acquired companies added 13.1% to revenue growth, with SP being the primary contributor at 11%. Sequentially, our revenues were down by 3.6% compared to Q1 of this year. This was in line with our expectations based on program mix and timing, including the early stage of completion of some of our large enterprise orders. Our Q2 ending backlog of $1.79 billion was 38% higher than Q2 last year. Looking ahead, our revenue conversion for Q3 is estimated to be in the 32% to 37% range of order backlog. The range of conversion reflects the growth and lengthening duration of our backlog and the early stages of some of our enterprise orders. As a reminder, we make this assessment every quarter based on revenue expectations for both the execution of projects from backlog and work that will be booked and built within the quarter. Moving to margins. Included in Q2 gross margin were $3.9 million of costs related to fair value adjustment of inventories acquired through acquisition. Excluding these amounts, Q2's gross margin was 28.1%, 110 basis points lower than Q2 last year. As I noted last quarter, we have seen some ongoing cost pressure due to supply chain inflation and changes in mix of business following the completion of some higher-margin enterprise projects last year, consistent with our expectations. Our focus remains on protecting our margins until supply chain pressures and cost inflation normalize. As expected, while we have seen some relief with sequential month-to-month reductions in raw material costs for certain commodities, overall costs remain high on a year-over-year basis. While we're able to pass along much of these cost increases through our pricing, we are actively mitigating in other ways. For example, the ABM savings funnel activities that Andrew referenced in his remarks have partly offset cost and lead time impacts in the direct purchase of electrical and mechanical components as well as fabricated parts. These purchase categories again saw further lengthening of lead times in the quarter, and we remain actively engaged with our supply base to mitigate these risks. Our ABM supply chain countermeasures also include embedding secured supplier costs into new quotes, accelerating vendor order timing and securing alternative sources of supply. Overall, our operations continue to demonstrate their ability to respond to both cost increases and lead time extensions. Moving to SG&A. Excluding acquisition-related amortization and transaction costs totaling $16.9 million as well as $1.3 million of restructuring costs, Q2's SG&A was $84.9 million, $13.4 million higher than last year, primarily reflecting incremental SG&A costs from acquired companies. I will address restructuring-related costs in a moment. Second quarter stock-based compensation expense was $5.3 million, down $5.2 million from last year. Sequentially, stock-based compensation expenses increased by $9.3 million as a result of revaluation of deferred and restricted share units following movement in our share price. As a reminder, our stock-based compensation is impacted by approximately $900,000 for every $1 change in our share price. Q2 adjusted earnings from operations were $75.1 million or 12.8% compared to $70.7 million last year. This reflected our year-over-year increase in revenues and lower stock-based compensation costs, partially offset by lower gross margin. On a sequential basis compared to Q1 of this year, adjusted earnings from operations were lower by 158 basis points driven by higher stock compensation expense. As part of our regular and ongoing assessment of operations, we have identified opportunities across the business to improve our cost structure and efficiency, primarily through management headcount and other cost reductions. The estimated cost of these efforts is expected to be $20 million to $25 million with the majority of the costs incurred in the third and fourth quarters of this fiscal year. Our estimated payback period is approximately 18 months. Moving to the balance sheet. In Q2, cash flows used in operating activities were $38 million. Cash usage was primarily related to the timing of investments in noncash working capital as we continue to invest in bringing new projects online. Our noncash working capital as a percentage of revenue was 16.1% in Q2, up from 11.4% in Q1. As a reminder, our target is to remain at less than 15%, and this is unchanged despite variations from quarter-to-quarter like we've seen in Q2. In the short term, we have planned for working capital to be elevated as we work through program milestones on some of our newer enterprise orders. We expect to see improvement in cash generation in the second half of the year as these programs start to achieve billing milestones. On CapEx, we invested $9 million in CapEx and intangible assets in Q2 compared to $11.3 million last year. Our year-to-date spend is approximately $21 million. For the balance of the year, we expect to spend below our budget as some projects have been delayed and we continue to pace our spend where appropriate and are purposely maintaining flexibility in our plans to adjust as needed. On leverage, our quarter end net debt to adjusted EBITDA ratio was 3.2:1. On a pro forma basis, this ratio was 3.1:1. Recall that on leverage, we generally target to be in the range of 2.5x. We're willing to increase for acquisitions or for short-term working capital needs as is currently the case. We expect to return to a more typical range by the end of the fiscal year. Subsequent to the end of the quarter, we extended our $750 million revolving credit facility to November of 2026. We also added a 2-year $300 million term loan to our capital structure in order to provide flexibility and support our growth. Going forward, our focus is on maintaining our strong balance sheet while still allowing flexibility in our financing structure to continue pursuing our growth strategies. In summary, we're pleased with this quarter's results and the commitment of our leadership and global teams to drive growth and continuous improvement in our business in a dynamic and challenging operating environment. The significant growth in our bookings and backlog reflects the high value we bring to our customers. As we move forward, we are prepared to operate with cost inflation and lead time pressures in our supply chain throughout the remainder of the fiscal year. We expect ABM efforts, combined with our record order backlog and the reorganization announced today will serve us well as we move forward and continue to pursue growth and margin expansion. Now we'll open the call to questions from our analysts.

[Operator Instructions]. Our first question comes from Mark Neville with Scotiabank.

Maybe my first question is on the EV program. I think you booked roughly $500 million of work in the last 4 or 5 months. I'm just trying to get a sense of sort of how far along in this program you are. Feels early because it's 2022, but I understand there's long lead times so it's a little difficult for, I guess, me to handicap.

Yes. So, as we have announced these and said in the press release, these are typically longer duration projects, and some of that's driven by lead time on materials, and some of that is driven by just the size of the projects. So typically, these are 18 to 24 months from time of order, which is higher than our average, which would typically be in the 9- to 10-month range outside of these large projects.

Sorry, Ryan. I guess my question was, again, I understand this is a multiphase program. I guess I'm trying to understand is your sort of -- this is still kind of early days of this program or if you're significantly advanced. Just trying to, again, get a sense of how large this program could eventually be versus sort of what you've already booked?

Yes. So, Mark, why don't I jump in? So, as we look at this market, while we've been in this space for over a decade. We do view this shift is relatively early in its shift and I talked about it about but I think it was roughly 2 years ago that North America had some area for improvement and for drive for growth. And we do view this as that aspect and there -- this specific OEM building out their capability to meet the demands of the EV shift in the market. That said, we do view this as still relatively early, and we do view this as opportunity moving forward for ATS to really support these customers and delivering their solutions to market.

Got it. Maybe just a quick one on backlog conversion. I guess, just given the size of these recent orders, should we expect another quarter or 2 of -- I guess you've guided for the next quarter, but would there be another maybe quarter after that where the conversion is a little lower than where it might typically be?

It's a little difficult to say at this point because it's really going to depend on the profile of orders that we book within this quarter. As I reiterate, we did guide to the 32% to 37% range, and it really does reflect the significant and large programs that we've booked in the EV space, that's really driving the conversion rate down. Outside of those projects, the conversion rate really hasn't materially changed. So, as you know, we've added more products, more short-cycle equipment. We've grown services. All of that tends to have a shorter conversion cycle and drive the range up. But given the significance of these EV programs, the overall average has come down.

Okay. If I can ask just one more before I get back in queue. Maybe just on the reorg. I'm just curious if this is focused on certain markets or geographies or it's sort of a holistic sort of reorg.

Yes. So, Mark, this is more an efficiency area and I would say it's no specific market or area. It's more around where we saw the need to improve our efficiency in certain key areas.

Our next question comes from David Ocampo with Cormark Securities.

I just wanted to stick on the theme of EV. Just given all the recent announcements, are you guys servicing that through your existing footprint or some of the recent order announcements also going to go through the second facility in ground metals?

So, we are servicing it through our existing facility. We've also added an -- last year, we broke ground on a new facility shortly after we opened in adjoining our neighboring facility. So, we are adding capacity. We've also added in other jurisdictions, other areas through leased space. So, there's been some expansion of our footprint in order to address the growth in the business.

I guess, how much is your capacity expanding? I guess, your utilization right now with your new footprint, 50%, 50% of what you're capable of doing?

Sorry, I missed the last part of the question.

Yes. Just curious with the recent order announcements, how much of the utilization does that take up in your existing footprint?

In terms of -- so I don't have that off-hand yet. I mean we've added about 10% capacity to our total footprint and through CapEx. And as I said, we're adding in other areas through lease facilities and so forth, so more temporary. And I've talked about our approach in the past on having a mix of both in order to maintain flexibility in our cost structure. It's taking up, obviously, given the size of these orders and they are typically large footprint in terms of physical space. It is taking up a large portion of our capacity. But we're not at a point where we're constrained either. And a lot of that is driven by the flexibility we have and continue to maintain in how we approach this work.

Okay. Got it. And then on the cash conversion cycle as it relates to the EV projects, I mean you've had 2 pretty big working capital buildups. How does the billing and cash collection cycles work for that? Is it primarily at the end of the program where you guys collect the bulk of the cash?

No. So -- and I mentioned this a little bit in my prepared remarks, but there are billing milestones throughout the projects. And we are getting into some of those now. And so, we do expect to see an improvement in our cash generation on these projects in the second half of the year.

Our next question comes from Justin Keywood with Stifel.

On the food and beverage, the mention of supply chain challenges impacting revenue in the quarter. Are you able to just to provide some additional context, if that's related to particular components or the finishing of projects because it was quite lower than what we were expecting.

So, the supply chain challenges in terms of lead time cost, that's not specific to food and bet, it's throughout the entire business is really facing the same challenges. What's a little bit unique to the food space is we do have a higher spend in raw materials. So, it's a -- that business in particular is -- has a high consumption of high-grade stainless steel. It's part of the food and beverage processing goes through that kind of material. So, yes, it's been a challenge in that business like everywhere else, but it's not unique to the food space.

Got it. And would you expect those challenges to abate in the next quarter? Or is there still a bit of lead time?

Yes. So, Justin, when we step back and -- from a supply chain perspective, and I'll answer this in 2 ways. One, supply chain. 2, the general view on food and beverage and the space and where we sit today. So, supply chain, look, we -- and I've talked about this in the past, we've gone to a daily visual management perspective. We've gone to the divisions, the sites, and we've largely been able to mitigate the impact across ATS, and we're very pleased with the progress. And our teams are really aligned around this being another quarter of being with a challenging space in supply chain and while there's dynamics going on, we still see challenges in several areas. And so, our focus around mitigating those and really driving the performance of the business. The second piece of that is food and beverage. And I'll just state -- our view is our funnel is healthy here. We referenced the Apollo opportunity, and we're seeing a stronger interest in that area around energy efficiency and the alignment. And so, our view is that this business is going to continue to perform for ATS and really be in a position to execute and deliver value for customers. And so, I guess, when we step back and look, we would look at those as 2 independent items.

Understood. And then my other question is related to the ZI-ARGUS acquisition in the quarter. It appears that ATS is expanding its capability in the Southeast Asia region. And I know that some of these areas are seeing increased manufacturing presence as just derisking some of the geopolitical risk. Is that the right way to look at it? Is there an increased manufacturing in the regions? Or if you can just provide some additional context for the justification of that acquisition?

Yes. Sure. And Justin, this goes into our PA Solutions business and it is an expansion. If you look at the strategic rationale, the expansion is in the region, and it's really aligned around what PA does very well, which is align data collection to digital solutions to enable customers and ZI-ARGUS is the expansion of that within the region. PA was, call it, relatively underpenetrated in this area and it allows them to really expand and build out that capability and so, we're pleased with the alignment. This also brings us into Australia as well. And so ZI-ARGUS really checked a lot of those boxes around alignment to a strong business that allows us to expand in a region that we view as an attractive potential for the solution that PA has.

Just to clarify, was ATS in Australia prior?

No, we did not have a strong footprint in Australia.

Our next question comes from Maxim Sytchev with National Bank.

Andrew, just to try to get a bit more clarity around sort of the cost containment dynamics. Is this more sort of a gross margin or SG&A impact on a prospective basis? And I guess, how quickly can these things show up in the numbers?

You're referring, Max, to the reorganization activity?

Yes.

Yes. That's primarily an SG&A measure, although it would impact a little bit of both, but more weighted towards SG&A and activities are underway, but most will be completed in the third and fourth quarter. So, it will be really first quarter next year where we'll start to see the impact.

Okay. And I guess and how would that sort of delve into your EBIT margin kind of additions, potential accelerating or just sort of keeping steady versus would you tell a graph previously that 15% ambition?

Yes. I would characterize it as more as keeping steady. I mean, we laid out it's an 18-month payback. When it's complete, it does, if you do the math, comes out to approximately a 60-basis point improvement. So, it certainly helps, but it's more steady.

Okay. Helpful. And then in terms of -- as you guys are getting bigger projects on an absolute basis, how should we think about sort of the cost spreading on bigger programs? I mean, are there economies of scale? How should we think about that?

Yes. So Max, as we look at these -- and I'll just walk through it what generally happens is the first time you do one of these programs and projects, you're going to find a higher level that we're going to put towards a potential risk. And what do I mean by that? You're going to look at uncertainty and you're going to mitigate on those areas, and we're going to build that into our thinking and into our approach. Once you do repeat, then you generally are going to see where we're going to have more in alignment to what we'd expect on the value that we have and the value we bring for customers. And so having follow-on orders, having repeat business is viewed as a positive for customers and for ATS, and that's how we would look at it on these programs as well.

Okay. And then last question, just in terms of now that you had SP as part of the portfolio for quite some time. I'm just wondering if you want to provide a bit of an update in terms of how that asset has performed since the acquisition? And any comments, especially around the revenue synergies opportunity, if that has changed relative to sort of the regional acquisition date? Or what are your thoughts there?

Yes. So, look, I'll start with the headline, and then I'll go into some more specifics. This business is on track, on plan to expectations and so we're pleased with the progress. And then if I step through it a little bit, they have done an excellent job of alignment to the ABM -- if you look at the training, the approach, the process, this team is really aligned around the continuous improvement aspect of how ATS operates and how they're being a part of the family now is part of our journey together. And so, I take that and then go into the synergy aspect. I've mentioned this on prior calls, but just to reiterate, we're actually outpacing in the funnel for synergies. So, we're higher than we originally anticipated, which is a good thing and we do view this as a long-term potential, but we've had continued proof points throughout the quarter. And I would say we won 2 pieces of work. One relatively small. It was a combination of Comecer and an aseptic filling application. We also won an award a little over EUR 5 million for the AWK business and that synergy aspect of life sciences. And so, as we step back and look at our approach, we're pleased with the progress we've made. The funnel remains healthy, but a lot of work to do as we align this to longer-term value.

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

Maybe if you could just share some thoughts on kind of the leverage outlook. Are you still targeting reducing leverage, I think, by 1 turn per year? And I think you referenced reaching a normal range by year-end. Just some thoughts on how we should think about that.

Yes, Saba. So, we're in the 3x range right now. And as I talked about, we do expect to have improved cash generation in the second half, largely driven by achievement of milestones on some of these larger projects. And that's going to help offset some of the working capital build we've had on those projects in the first half of the year. So, I would expect we'll get back to what I would call our normal range by the end of the year. And that's sort of where we're going to expect us to finish out.

Okay. Great. And then just kind of my last one. You called out growth across a couple of end markets, stable outlook in terms of the opportunity set across a couple of others. Just hoping you could provide maybe a bit more granularity on what that might mean by perhaps region of the ones that are stable? Is it growth in some offset by softness in other regions? And maybe just the ones that are growing? Is there a particular region driving -- just a bit more color on what you're seeing as you look ahead to the next year across your major end markets?

Sure. So, I'll go into a bit more specific around this. I'll start with the headline. We exited Q2. It was the best bookings quarter in company history, the highest backlog in company history and as you mentioned, a strong funnel, a good funnel going into Q3. And so, we're pleased with the progress and the steps we take to additional insight is we continue to not only pulse and really align and to understand the market dynamics. And as you recall, when we set out on this journey 5, 6 years ago and we look at the strategic focus areas, we generally look at markets that are more resilient and we say that life sciences, EV, energy, regulated food, these areas are generally more resilient in the long term. And we couple that with discussions with customers. And we do that in all regions we support. And our -- long story short here is that customers really aren't changing their buying behaviors and automation can provide multiple call it, avenues of success for customers, whether it's mitigation on turnover, whether it's labor costs, whether it's movement of product from a region to another onshoring, reshoring or inter cost, energy efficiency or even as you look at -- and we look at our food space, the dynamics around the actual food becoming a higher-cost commodity so therefore, you look at automation as an enabler to process. So then getting even further life sciences, pleased with our progress and grew backlog in the quarter, submarkets being attractive and continue to be attractive, seeing more return to normal, certainly, nuances within each customer but pleased with where that sits. EV, we announced last quarter our largest award ever. We then had an announcement last week with a follow-on, and we do view this market as generally early in its journey. That said, we need to cut we need to drive value. Regulated food. This is an area that we view has longer-term tails, and we like the position we sit in today. And we do view this -- it has a little bit more cyclicality based on growing seasons and harvesting seasons. That said, we like to position, we like where we've gotten to. Energy, generally stable niche market, niche space for us and SMRs being an opportunity for us to expand on. The last is consumer and cosmetics, personal care and certainly, while we've seen some area and we've seen this market be dynamic, our view is we've continued to execute, and we're not seeing a big change of behavior today. We do view that there's opportunities to build out. And our teams have done an excellent job here around building our core IP, core capability as customers look at sustainability, and they think about their sustainability journey and how we can utilize our insight and know-how to help them in their journey on packaging on applications that they utilize. So, if you step back, our headline, strong bookings quarter, if I were to characterize our view of the market cautiously optimistic. Certainly, nuances within each area. That said, a strong quarter for us on a bookings perspective, aligning to, for the foreseeable future, our ability to execute.

Maybe if I could just squeeze in one. Just moving lower on the income statement. Some puts and takes. I think you called out on supply chain sort of in the commentary in the release. Can you maybe share your thoughts on where we might be on the cycle towards -- or the timeline towards normalization? And maybe some thoughts on kind of the outlook for the commodities, some of the larger ones that you use, sort of what the outlook there is as you head into the next kind of 12-, 18-month period?

Yes. Maybe I'll start and then Andrew can certainly add in where I missed. In terms of supply chain, so we've seen, call it, stabilization of prices sequentially over the last several months, last quarter or -- and that's in most categories, where we've seen some improvements, some sequential reductions in certain raw material categories. But generally, on a year-over-year basis, we're still up across the board. We've also seen continued lead time extension throughout all categories. So, it's not moving as dramatically as it had, say, 6 or 9 months ago, what lead times are continuing to extend out. And we've talked about this. We look at this at a part level, at a supplier level, also on a category level but generally speaking, we haven't seen it start to improve at this point.

Yes. And maybe I'll just add in. Our view, and I mentioned this a little earlier, our view is that this is going to be bit of a challenging environment for the next, call it, quarter or 2, even further. And so, our teams are well prepared to be in this daily visual management, daily management approach for the foreseeable future. And the investments we've made along the last several years around data and understanding and utilizing that into our global inventory, global ability to understand where we are in the program and project has really helped us minimize and we're going to continue to operate in that manner.

Our next question comes from Mark Neville with Scotiabank.

Maybe just a follow-up on Max's question. Just trying to understand the margin profile on these larger projects. I guess my question would be when you're getting these follow-on orders, should we think about this as sort of a repeat of the same line or which might be better margins because there's less sort of upfront engineering costs or repeat costs? Or is it part of just a bigger envelope or these subsequent orders sort of look -- or the margin profile in subsequent orders would be sort of comparable all the way through?

Yes. So, I'll start, Mark, and I think I'll kind of get to what you're trying to drive into. So generally speaking, when we do something for the first time, you're going to see ATS and our customers look at this with a little heavier risk around, how to minimize call it, areas that might cause us to be RED and we talk about RED programs often, around minimizing RED applications, RED programs. So, the first time you do this, right, there's more unknowns in the application, more unknowns in the customer dynamic. They might change their solution throughout because they have to change how they might position it in the vehicle, et cetera. And so oftentimes, the first one you do is going to be where you learn those areas, and it's an investment on both sides. Once you get into subsequent orders and orders that align around going into production and call it mass production, customers see a high level of value from ATS, and we ultimately see a high level of value within ATS around bringing that technology, that innovation, that solution to market. So that's kind of the thinking around how we operate. Anything you'd add, Ryan?

So maybe just in terms of what's gone through our business and where we are in some of this. And I talked a little bit about mix, but to maybe get a little bit more specific on that. There's a couple of aspects to mix and some of that is timing. And I mentioned we had some large programs last year that were largely completed in the fourth quarter. We've had some new large enterprise orders come on that are in the early stages so we won't really start to see the positive impact of those on our margins until they get into more advanced stages and we get into higher revenue-generating stages of the cycle of those specific projects.

Great. And I guess, Andrew, if I could follow up to what you said. -- there were 3 orders, I think, thus far for this program, $70, $230 million and $190 million, I think, $190 million. Would that -- again, 2 years to the way you spoke to, would that still be sort of "all first-time stuff"? Or are we now getting into sort of where sort of the repeat orders or where there's less unknowns?

Yes. So, there's a mix of some of that is first time, most of it is not. And I think you had some of the currencies mixed up. It was, I believe, in U.S. $70 million, $167 million and $140 million.

Okay. That's helpful. Maybe just, Ryan, I don't know or Andrew, I don't know if you guys mentioned this in your prepared remarks, just how the after-sales service business did in the quarter?

Did not. But it continued to -- we did see good growth in after sales service in the quarter in the range of low double digit.

Okay. Maybe just one last one then. -- in when you spoke to the markets, food and beverage, I guess, food in particular, the backlog looks, call it, roughly flat over the last 12 months. So, I'm just curious, is there anything worth calling out there? Or is it sort of just timing of orders and just normal course?

So, I would say, at this time, no. And I would say largely timing. We do view that the consideration -- and I mentioned this in my prepared remarks, but just the alignment to how CFT and how those business units really operate, we do view it as a real opportunity. That said, we're -- it is generally a timing discussion.

Mark, I would just add on, a lot of that business is being converted from euros. So there's an FX headwind in those backlog numbers as well.

Our next question comes from Maxim Sytchev with National Bank.

I just wanted to clarify one thing. So, I just wanted to be kind of clear around the margin dynamics. Does it mean that there is going to be margin pressure until kind of the large EV programs mature? Or are these 2 things are not related? How should we think about this?

So Max, if we start with where we sit today from -- starting with Q2 in terms of a jump-off point on margins. Moving forward, we're in an environment that dynamics are very similar today to what they were a quarter ago. So, as I said, we're in the early stages of some of these large enterprise projects. as we move forward and get into advanced stages of completion further along in the build. We will see a positive impact to margins through that. So call that timing, and that's a quarter or 2 out. Other -- some of the other dynamics in terms of supply chain, we've talked about the cost and lead time. We've mitigated a lot of that today, but that's still a dynamic that we deal with. And outside of that, we've demonstrated an ability to improve margins over time. And certainly, our expectation is as the environment improves, we will continue to drive margin expansion over the long term. But in the short term, it's a challenging environment.

Thank you for clarifying.

Mr. Hider, there are no further questions. Back to you for closing comments.

Great. Thank you, operator. We look forward to staying focused on our goal of creating value for our customers and shareholders as we continue to execute. Thank you for joining us today. I look forward to speaking to you on our Q3 call in February. Stay safe, and goodbye for now.

This concludes today's conference call. Thank you for your participation.