Q3 2020 Earnings Call
Yes automation third quarter conference call and webcast.
I would like to remind you that this call is being recorded February 2020 at 10 o'clock Eastern standard time.
Following the presentation, we will conduct a question and answer session instructions will be provided at that time free to queue up for questions.
If anyone has difficulty hearing the conference. Please press star followed by zero for operator assistance at any time I would now like to turn the call over to stored Mcquaig, Vice President General counsel of Ats.
Thanks, operator, and good morning, everyone. Your main host today are Andrew Heiter, Chief Executive Officer of HSN, <unk>, Chief Financial Officer before I begin to required to provide the following statement respecting forward looking information, which is made on behalf of age, yes, and all those representatives on this call.
All statements made on this call will contain forward looking information actual results could differ materially from a conclusion forecast or projection in the forward looking information.
Certain material factors or assumptions were applied in drawing any conclusions or making a forecast or projection as reflected in the forward looking information.
Additional information about the material factors that could cause actual results to differ materially from the conclusion forecast or projection in the forward looking information and the material factors or assumptions there were applied in drawing any conclusions or making a forecast or projection as reflected in the forward looking information or contained NHS as filings with Canadian eventual securities.
The regulators no. It's my pleasure to turn the call over to Andrew.
Thank you Stewart.
Good morning, ladies and gentlemen, thank you for joining us.
Our third quarter performance included growth in revenues.
Continued advancement very B M.
No previously announced reorganization plan, which is on track.
Strategically.
We have continued to execute on our M&A strategy.
The acquisition of a leading provider of yield control solutions for food and related markets.
This morning.
I'm going to speak about our Q3 performance or outlook and the reorganization.
I will also provide you with an overview of our latest acquisition Marco.
Maria will then provide her report.
Starting with our financial body drivers our revenues for the first nine months of the or were up 16% over last year to $1.05 billion.
Q3 revenues were $367 million.
14% over Q3 last year.
Our adjusted EBIT margin for the first tried much of the year was 11%.
It was anticipated Q3, EBIT margin was impacted by the reorganization plan.
Year to date order bookings were 1.11 billion.
Our Q3 bookings were $368 million.
Up from Q2 and down year over year.
Q3 bookings featured a number of programs with repeat customers, including a 24 million dollar program for life Science medical device customer.
Q3 also included new customer wins.
Including at approximately 20 million dollar program.
New aerospace customer. This is an exciting program as it represents an expansion of our transportation market and it includes our ILLUMENATE factory intelligence product.
As we announced.
Q3 bookings also included a 32 million dollar order from a new pharma customer for the supply of an automated pharmaceutical assembly and filling one.
This strategic win was a joint effort between go Musser at age, Yes, and importantly, our funnel for joint work continues to be strong.
Moving to our outlook.
We have a good level of order backlog at $939 million.
Our strategies to target high growth.
Regulated markets are reflected in the composition of our backlog.
With 55% of our backlog and life Sciences.
Life Sciences has positive industry dynamics.
Hi barriers to entry, including stringent regulation in high consequence of failure.
These characteristics are complementary to our capabilities, which include high speed high precision solutions across a number of applications.
Looking at our funnel.
Life Sciences continues to be strong and we're seeing good opportunities and medical devices pharma and radio pharma.
<unk> customers remain diligent and finalizing their designs and assessing and consumer demand.
This has led to delays however, the funnel remains strong.
As is our transportation backlog.
Our record a proven success and easy positions us well as the industry shifts to electric vehicles.
In energy.
We continue to win work in new color, where we're able to offer considerable value for our customers.
Including additional opportunities in digital and services.
And consumer we continue to pursue niche opportunities, where technology is aligned well with the Bayer required by our customers.
As I've stated.
I spoke to customers will continue to exercise caution and be thorough and making their capital investment decisions, which leads to variability in order bookings from quarter to quarter.
In other after sell services, both bookings and revenues are up double digits for both Q3 and year to date.
We continue to see favorable trends and the judging service sales to our Capex business.
And are driving growth through this channel in markets, such as transportation, but does that have historically had lower engagement.
We're focused on growing the strategic area of our business as it drives recurring revenues and contributes to our margin expansion initiatives.
As we announced last quarter.
We introduced a reorganization plan to support our growth.
And drive continued performance improvements.
Actions are underway and on track.
The implementation of the <unk> reorganization will continue through the fourth quarter.
When complete this plan is designed to reallocate capital from underperforming facilities to high performing facilities and drive margin expansion.
Moving to the age yes business model.
A few ATM highlights from the quarter.
Our global HR group completed four kaizen events, each designed to drive improvements across a number of key business processes.
One of the events targeted our employee performance management cycle to drive a faster process with better alignment between organizational and individual employee objectives.
Overall, you bet will shrink the cycle by over 50%, allowing our businesses to cascade goals at a much faster pace, which provides clarity for people and drives positive impacts for our customers and shareholders.
Daily Visual management system, which presents data visually I'd business processes has been one of the most effective tools, we have rolled out through the.
This quarter, a number of our businesses implemented implemented it across a range of functions and processes.
The division implemented daily visual management across our entire assembly operations.
Alone for fast and easy daily tracking a program progress.
It is shared services finance group implemented in certain processing area is leading to a 15% reduction in processing times.
And sales organization and one of our divisions implemented it in order to improve tracking a project opportunities, which will enable the group to increase its funnel it'd be more efficient and its sales approach.
ATM training is ongoing through boot camps and weekly lean training session.
This is driving the advancement of the ATM throughout the business.
Please be back is positive.
And people are engaged in making improvements in their day to day activities.
We have many opportunities ahead for continued improvement that I expect will support a margin expansion plans.
Turning to our innovation agenda.
Activities are ongoing.
In the quarter, we completed the launch of a new after sales services I T platform for North America.
This technology platform provides customers with an easier entry point toward after sales services, which increases the efficiency of our sales and enables a comprehensive digital services offering.
Rollouts two additional regions are scheduled over the next several months.
In October our Super truck micro product was awarded new product of the year at the Assembly trade show held in Chicago.
Super truck micro is an exciting addition to our linear motion technology platform that we launched in 2018.
It allows customers to configure high speed flexible production systems and smaller footprints.
Which right deal for high mix applications.
Continued investment and innovation is an important part for capital allocation strategy to drive shareholder value.
Moving to EBITDA.
In December.
We completed our acquisition of Marco a leading provider in yield control in recipe formulation systems.
Mark there was a well run $30 million company with a low to mid 20% EBITDA margin. The provides us with a good entry into a product based niche segment of the food industry.
Food is an attractive new more vertical for Ats that is stable with growth in the mid single digit range and subject to regulation, which drives the ongoing need for high precision technologies.
Initial integration is underway with a focus of deployment of the ATM to drive operational efficiencies advance geographic penetration.
And expand Marcos after sales services.
Marco serves as a first step in our expansion into this attractive new market.
On other M&A activity.
The integration of X. logs and commerce or are progressing as planned.
In summary.
We've continued to execute on our value creation strategy.
We're focused on driving growth and attractive regulated markets.
There are aligned with unique value, we bring to our customers.
Our focus on margin expansion through continuous improvement enabled by Arabia has delivered results over the past several years.
We have further room for margin expansion, which will be supported by our structured initiatives.
We have made important capital allocation decisions to drive organic and inorganic growth.
Margin expansion and improve our return on invested capital.
Our balance sheet remains strong, which we will continue to put to work to drive our strategies.
Now I'll turn the call over to Maria.
Thank you Andrew.
In Q3, we increased bookings and revenue and had cash usage due to an increase in working capital as a percentage of revenue.
Q3, this year, including called <unk>.
Which was acquired in February last year, and it's performed fine.
As anticipated our our reorganization activities commenced in Q3 and related costs impacted results in line with our expectation.
The reorganization will set us up for margin expansion in fiscal 21.
In the last four months, we have made three new acquisition.
Markel X slog in IP <unk>.
The impact of these latest acquisitions on Q3 revenue was modest and in aggregate they will add approximately $40 million in revenue per annum.
This morning, I will discuss Q3 results provide an update on the reorganization plan, including timing and expected impact and our balance sheet.
I'll start with operating results.
Q3 bookings were $368 million up from Q2 bookings of 321 million.
Or funnels healthy and remain similar in size and quality to prior quarters with a good mix of opportunities.
Year to date bookings of $1.112 billion averaged $371 million per quarter with a book to bill ratio of 1.06 to one which is a positive indicator for continued growth.
Q3 revenues of $367 million increased 7.6% over Q2.
On a year over year basis revenues increased 14%.
Organic revenue growth was 5% driven primarily by revenues from transportation and life Sciences market.
Gross from acquisitions was 9%.
Year to date revenues have grown by 16%.
Organic revenue growth was 7% again, driven primarily by revenues earned in life Sciences and transportation market.
Year to date revenue growth from acquisitions was 9%.
Looking at our acquisitions, both Cam W and compressors results were on plan and as expected.
Thomas Sir has a high level of backlog and is well positioned for year over year growth.
Q3, ending backlog of $939 million provides us with a solid base to generate revenue growth.
Looking forward Q4 revenues are estimated to be in the lower end of the 35% to 40% range of backlog.
This is primarily due to project schedules, specifically, we have a number of large programs in designer installation going through Q4, and these phases have lower third party material content compared to Q3.
The reorganization will also affect Q4 revenues because of the timing of activities ramping down at impacted division.
Moving to our reorganization plan as expected it is impacting operating result.
<unk> adjusted and Unadjusted earnings.
We had expected that through the reorganization period over Q3 in Q4, there would be some downward pressure on margins as inefficiencies in the affected facilities would cause under absorption of employee and fixed costs.
This impact is temporary and will be eliminated once the reorganization is complete.
In Q3, the impact was approximately $5 million and we see some additional margin pressure in Q4 estimated to be in the same dollar range.
In Q3, we recorded $19 million and restructuring costs with an estimated 6 million of remaining cost to be recorded in Q4.
The reorganization will set us up well going forward, adding an incremental $15 million to $18 million of annualized earnings commencing fiscal 21.
This will contribute to our margin expansion initiatives as we expect a pot positive margin impact of between 110 and 130 basis points.
At the current revenue levels once the reorganization is complete.
[noise] on gross margin Q3, gross margin was 25.1% with the reorganization activity impacting by approximately 1.3%.
Over the last year gross margins have ranged from 26.3% to 27%.
On a year to date basis gross margin was 26.1% consistent with last year.
Excluding M&A transaction costs acquisition related amortization expenses and restructuring costs.
Freeze ups you name was $50.2 million as compared to Q1 in Q2 as you need a 49.9 million and 48.1 million.
The slight increase is due to the three recent acquisitions.
The 6 million dollar increase from last year's Q3 S. You need a $44.2 million.
Due primarily to the acquired companies.
Adding $5 million, an increased employee cost to support organic growth, which added approximately $1 million.
Stock compensation expense was $10.8 million higher compared to Q3 last year and has fluctuated over the last several quarters.
With this level of fluctuation I will speak to adjusted earnings excluding stock compensation expense.
Q3 operating margin, excluding stock comp was 11.4% compared to 12.6% last year.
The temporary reorganization activity negatively impacted adjusted operating margins by approximately 1.3%.
Our focus is to drive margin improvements on a year over year basis.
Year to date adjusted earnings margin, excluding stock comp was down five basis points from last year's 12% due primarily to the inefficiencies from the reorganization plan.
Moving to the balance sheet.
Timing of deposits and collection program milestones and payment of accrued liabilities are causing quarterly variability in cash generation and working capital as a percentage of revenue.
Our noncash working capital as a percentage of revenue was 12.2% in Q3 compared to 10.7% in Q2 and 12.4% in Q1.
The increase percentage or investment in working capital in Q3 is due to the timing of milestones, including certain receivables, which were collected shortly after our December 29 to three cut off.
Year to date, we have invested $38.3 million of our planned physical 20 investment in Capex and intangible assets.
We expect to spend in the range of $55 million to $60 million for the fiscal year.
We continue to have strong liquidity with cash on hand of $118 million and our credit facility of which approximately $648 million is available.
In Q3, we generated adjusted earnings per share of 26 cents compared to 33 cents last year or seven cents decrease.
Higher stock compensation expenses reduced adjusted EPS by nine cents. This was partially offset by higher revenues.
On a year to date basis adjusted EPS of 80 cents is up eight cents from 72 cents last year, primarily due to higher revenues.
On our income taxes, we had income tax recovery this quarter due to the restructuring charges recorded in jurisdictions with higher tax rate.
In summary, we continued to execute on our build grow and expand strategy. While you work through the temporary margin impact of the reorganization activity in Q3 in Q4.
Our funnel remains well diversified with a mix of programs and enterprise solutions.
We have a strong balance sheet with available credit, which will support our objective of profitable growth.
Now we'd like to open the call to your questions. Operator could you. Please provide instructions to our listeners they.
Ladies and gentlemen, we will now conduct a question and answer session to allow as many voices can be heard as possible. Please limit yourself to two questions per turn.
If you have a question. Please press star followed by the one on your Touchtone phone your questions will be falls in the order their received.
He said sure you lift your handset if you're using a speaker phone before pressing any key.
Your first question comes down the line of Mark have off from Scotiabank. Your line is open.
Hey, good morning.
My first just want to ask about the I guess the guidance in the backlog conversion.
For Q4, low end up 35% to 40% produced from reading this you're interpreting this.
Sort of sounds like the range now is 35 to 40 sort of not 30 to 40 again Ann Arbor words in your mouth, but it's I'm sort of reading it that way nice interpreting that correctly.
The.
Well for for too for the ranges that 35% to 40% and you're asking if the range could be 30% to 40% or yeah, you're sort of let's talk about yeah. Yeah. So.
So I would just they would I, usually say it depends and each quarter, we have to assess.
And at the it depends part.
Is based on the the orders that we receive in the quarter types of orders that we could receive so for example, if we receive the.
And I'm, making it up hundred million dollar order and there's a period of performance of 24 month that could easily change the backlog profile based on our experience in the last few quarters, we've been in the 35% to 40% range and that has to do with the average period of performance and.
The mix, a large and small programs that we've had.
Okay, and it looks like Marco didn't come with much backlog I assume that's just a reflection of the fact of smaller products business than anything else.
Yeah, and they came with about 4 million of backlog <unk> and their period of performances.
In the three to four month range. So there's a as you're suggesting products. So there's a quicker turn over as compared to the HTS based business.
But that's sort of all factored into the the guide anywhere.
Yeah, that's our first RIDEA got you spoke to the the Reorg, but just maybe maybe a little more sort of color on that just the progress.
How much is sort of left to do if we're still targeting sort of March.
Completion, or Q4 completion, just a broader update 'em out if you could please.
Well I'll just start with the numbers. So when we spoke about the reorganization, we said that it would cost around $25 million and.
Ah between Q3 in Q4.
And in Q3, we did a large portion of that and we carried out the the that people part of it and in Q4, what we have to do is a wind down some of these facilities and we would be incurring some lease termination costs. So by the end of Q.
Before we see being substantially complete yes, and Mark just just to add on that slightly as we step back and looked at the progress we're on track to meet our expectations.
Weve continued to review the risk and view them as low risk and our team is executing as planned.
Okay, and the 15 18 million sort of payback thought is.
Mike that starts in earnest Q1.
The school 2021 correctly, there's not really ramped or is it should sort of help right away.
Yes, so we when we provided the range of $15 million to $18 million a what we see is around the 18 million front and them.
And we Ah that that's like range is just a bit of a buffer in April, but but right now we're targeting to to be achieving the.
Brandon the 15 to 18 million early.
Q1.
Okay, and sort of the Maria you mentioned the lease terminations or some lease termination Inc. Q3, it is likely to.
There's a lease expense sort of jumped in Q3.
A a small amount.
Okay. Thank you I'll get back in Q.
You're welcome.
Your next question comes from a line of Cherilyn Radbourne from TD Securities. Your line is open.
Thanks, very much and good morning, I wanted to start with the question just on customer purchasing behavior I know Andrew a the company really didnt see much of an impact of the trade tensions even when they were sort of at their height. So I'm just curious how you're thinking about the fees one trade deal between the U.S. in China is not.
Effectively neutral or do you think that that might have some positive impact on sentiment.
Good morning, Shirlon, you know we view many different areas. When you look at the business and to start with the trade direct head on we initially anticipated it would have had a larger positive impact what I can state.
Is our customers remained focused on their investments and we haven't seen a huge change in behaviors that said, we do view this as a potential positive free Tee US is an area, where you want to move a regulated product. We view, we've got the best solution to enable that move and so we continue to monitor.
Sure, but we haven't seen at B B, a big impact on our funnel or backlog as of yet.
Okay, and it's somewhat related question just how are you thinking about the continued project deferrals in electric vehicles in other words are the launch dates and still the same do you think meaning that there's more time pressure once the customers pull the trigger on those orders.
So when we look at the space, let's start with the facts are our funnel remains healthy in the space and we are very aligned with our customers as they're going through their product development. As we've stated in the past timing will be variable add we have not seen a shift in the watch state what.
We can tell you is is our funnel is is helping in the space. We have been working with these customers very closely.
And when they're in a position to be able to move forward, we view ats, having a great value to helping them bring their product to market.
Great that's too so I'll get back into queue. Thank you.
Thank you.
Your next question comes from line of adjusting keyword from Stifel P.
She M. P. Your line is open.
Good morning, and thanks for taking my call. This on the new 20 million dollar aerospace customer announced or are you able to give some additional color on the size of the customer Oh, what was the key attributes in winning this order and a any particular a follow on opportunity there.
Great. Thank you Justin and good morning.
So what we can tell you about this customers it's a large.
Customer in the space and we're very pleased with the win let's call. It took us roughly nine months to ER to show and when the order of disorder is largely around taking existing brownfield and we say brownfield remained that's an existing product or existing production facility and then.
Labeling it to be able to pull the information collects the data.
And then to utilize the data in our <unk> ILLUMENATE platform to then maximize an improved the production process.
And we view this as first and foremost we need to execute deliver this value.
But then secondly, as we go forward we view this as a key area that we see value that we could provide to customers in the space all that to be said, we need to execute the order delivered the results show the performance and then potentially continue to to provide this level of service for this customer.
Thank you that's helpful and then on the margin expansion opportunity I was hoping to get an update on the prior goal of 500 beeps over five years I know we've seen some some good margin expansion lately, but where would you say whether or not and what's the opportunity to expand to consider.
Turning the reorganization thank you.
Good morning, Justin.
And when when we started the margin improvement plan and when we talked about the 500 basis points, we were at around 10% and in fiscal 18 in fiscal 19, we added about 90 basis points a in each of the first two years. So we so that got us to about 190 basis points of need.
500.
A basis point margin expansion.
Initiative this year.
As we've seen a as a result of the reorganization activities. We've had a decrease in their margins and therefore, we don't expect any expansion. However, our goal remains the same and as we said the reorganization is expected to add about $15 million to $18 million an earnings.
Which will help us move further towards our goal and we continue on the initiatives. The five areas that we talked about driving continuous improvement through the B M supply chain management standardization.
Services, and leveraging our cost structure to achieve.
The 500 basis points.
As we get and as we move closer to the 500 basis points will provide an update and what our targets will be going forward.
Thank you and just one quick clarification. So is the way to look at it.
The margin expansion would would largely be a weighted in the last two years. So some fiscal 2021 in 2022.
[noise], what we said before is as as the years go buy we would see more of an impasse and that's because we're doing more investing or upfront and for example fiscal 20 is a good example of that.
So so yes, we would see more in the later years and and then also as I've said as we get closer to the 500 basis points will provide an update on what are what our plans are moving forward.
Thank you for taking my questions.
You're welcome.
Your next question comes from line of Maxim Sytchev from National Bank. Your line is open.
Hi, good morning.
Good morning.
Maybe the first question for you in terms of when you talk about less third party costs coming in for fiscal Q4.
Doesn't mean that the margin profile on a sort of the engineering installation work should be higher or how should we think about this.
When we record our revenues a and that's percentage of completion revenue recognition, regardless of what's happening in our programs. So whether there's engineering or design or third party materials. The margin is always the same. So then that means no impact to margins going into Q.
For as a result of the third party material mix.
Okay. That's helpful. Thank you very much and then should we expect a fairly significant noncash working capital inflow in fiscal Q4.
Just kind of a inline with the seasonal patterns.
Or is there anything there.
Well that number.
That number will be impacted by our working capital as a percentage of revenue and so we've seen the increase and we said that in the quarter. The 12.2 were 12.3% working capital as a percentage of revenue was is a little high due to certain timing of collections and.
And milestones and deposit payments. So if we are and I'm not going to guide, but if we if we expect our working capital as a percentage of revenue to come down then that number should come down also and of course, that's what we're targeting and and.
What we're seeing but it it's hard to to provide a number because of the variability as we've seen over the last number of quarters in our working capital as a percentage of revenue.
Okay Fair enough and then maybe just last quick question for Andrew if it's possible I do want to be commenting in terms of the M&A environment kind of expectations of sellers.
On the one hand, and maybe you know your desire to do more money. If you can comment potentially on the quantum when how aggressive you want to be given given obviously you a healthy balance sheet.
Thanks.
Absolutely good morning Max.
You know.
Let me start.
As we've been clear we've got four key variables that we view any M&A potential around and we're very disciplined in our approach and what I can what I can state is we haven't seen a huge shift in the market today.
Our funnel is healthy in areas that we're targeting add work discipline in our approach and I would just.
Add that Marco is it is a prime example of and every we've been targeting to why to get into we like the dynamics of the business. It met all four criteria very well and because of the relationship that we built through the discussions with the team we feel very confident and moving in adding them CHS family. So.
But were just a back in high level funnel is healthy.
Were burned believers in cultivation and ensuring that we've got ongoing dialogues.
That said, we're going to be disciplined and as we think about our our primary focus around value creation for our shareholders disciplined capital allocation is a critical piece of that and we're pleased to be additions.
We view that there's more to be ward to be potentially added, but we're going to be very careful in our approach.
Okay, and so they get like I'm, not trying to sort of.
Take words from your mouth, but you haven't seen the multiples kind of creep across.
You know the assets that you're targeting is it fair enough or or you have to be more selective I guess relative to I don't know like 15 months ago for example.
Yeah, you know a Max what I can say that we're seeing it is a broad range and areas that we target.
It is a fairly broad range and so we will it's still an aggressive market that said our ability to cultivate and one of the things that that's really resonating with targets as we as we have discussions is are approaching a decentralized model, where the m. <unk> is our enabling force it it's.
Our really how we aligned every business. So if you're in if you're in Germany, if you're in a different part of the world. It and you built up your brand you can keep that ability to execute on what's made you successful and the ATM enables you to move even faster and so what I can tell you that that is we're viewing.
As a competitive advantage for us in the discussions, but we haven't seen a huge declined in the multiples as of yet and and again, we're making sure. We're cultivating such that when an asset becomes available that it meets our four criteria. We can move at a very fast pace to to add them for the family.
Okay excellent. Thank you very much that's it for me.
Thank you much.
Again, if you like to ask a question. Please press star and the number one on your telephone keypad.
Your next question comes from the line have Mark Nelson from Scotiabank. Your line is open.
And just a few follow ups I guess first on the Aerospace Award first I'm just curious how much business are you actually do and aerospace is or is it a new vertical I guess, specifically to this award it sounds to me like it's sort of more software and data up and I'm not sure as.
Actual equipment or systems installations, as well or is that a potential follow on it.
Yes, so mark when we when we look at this space and we're putting it in our transportation space.
It is new to age Jaeson. This is an area, where we are maximizing the data control and we're using or your ILLUMENATE platform to presented data such that we can maximize the performance of the operation.
I'll just state one of the things that we view as an opportunity for H.. Yes. In this area is around brownfield manufacturing sites, where the equipment might not has been a connected with our PVA solutions business, we can that be able to utilize buildup <unk> extract.
Pull maximize the data usage and then have the aluminum platform to presented such that we can improve the manufacturing process and so we like we'd like certain dynamics of aerospace obviously regulated more importantly, we like the ability to really impact and drive this value with our customers.
Around utilizing their current equipment getting getting a footprint into enabling helping solving and then having you ILLUMENATE platform being able to provides useful information around call. It a smart factory to maximize our performance.
Okay again, I guess does.
I want to make sure of some sort of understanding of what is it is it sort of typical or how do you want.
How do you want a lot order sort of like this where.
It's more sort of.
Tied to these brownfields, where you're you know maximizing the data using illuminates versus you know entering with your traditional sort of systems type business.
I'm, asking you correctly, but [noise].
No I'm you know mark.
We're seeing and it's.
There's.
Stepping back when we looked at customers in the space customers are really identified and and and driving their ability to hot how they want to maximize their existing production facilities.
And whether it's in aerospace or other spaces that we're in today customers are looking to really performing at a higher level that is that as an area. The third shale John to continue to build out their business and so when we look at businesses like P.A. that can go in enabled the ability to to utilize the existing.
Data up that's coming off machines, and then you look at our aluminum platform. It really does enable us to help them moving in that direction and so we've seen customers valuing these solutions.
There is early thinking in this that said the smart Dr is not an early concept and customers are looking to get to that solutions that did that answer your question.
Helps I guess, if it's not an existing customer vertical im just curious sort of how you win that award is there an RFP put out or just how it.
Yeah.
When that award.
Yeah. So we identified it with one of our businesses, we were able to identify the potential opportunity and then we went in and really built out the solution around it again, the gestation period was call. It roughly nine ish months and the team was able to prove that time period that we truly can help this customer and so.
Again, we need to execute lead to drive the results and then we view that theres potential in the future.
Okay, maybe just a couple of more sort of housekeeping questions, but the working cap Max asked it but I'm sorry, I think you said earlier there was a collection of receivables shortly after the quarter city thinking is it does come down a bit in Q4, the workup investment.
But well based on that.
The thinking is yes, and not impacted Doug just over 1%.
Okay.
And there the amortization of acquisition related intangibles, it's been bouncing around a bit I guess quarter to quarter, just maybe just help us with just for modeling purposes sort of what the number might look like with all the with the recent deals.
It's it's so first of all just to answer the bouncing around that just has to do with.
Amortization periods. So it's not six E five years or seven years, depending on what the intangible is it ranges from three to seven years, we're seeing that and then we've been adding a these new acquisitions based on what we're modeling the we know that it'll be increasing and we can see.
At least.
Million more corridor, but we'll have a better information and indication of that in the next few.
Okay.
Okay.
Yes searched ask last one just.
So somebody M&A conversation.
The last few deals of look very different so again I understand there's like a criteria in service.
Fairly wide sort of range, what you're looking at but because their preference in terms of products systems data.
Sort of why do you want to do and.
Sort of how that sort of in terms of multiples I was sort of all comes together because again like I guess I'm thinking about.
Marco products based business pretty attractive multiple.
There's a bunch of stuff out there like that that you could do just a just a discussion around that.
Yeah.
So mark I'm, an attempt to answer your question and let's make sure we get to US and answer when we look at businesses. We look at them in isolation and then we look at them, how they would add to the overall ats breath and not to walk into our four criteria, but I'm going to quickly.
Oh, it's around the market and truly understanding the market and so let's take Marco for this.
Regulated food space, and we got into the niche application of where they play and how they really drive value in that area and check the box around what the market looks like today and over over the next call. It five to seven years and in the future. Then we look at the streets strategic rationale how do we really enable that busy.
And is how do we drive it again checked the box and where we want to go third is around how we operate the a b M. How would it can enable that that organization and lasted ROI C and I say RC because we look at the return and so the return is going to really factor and whether the multiple is high or low regard. This how's it reach.
Turn to our business, how do we enable them to drive growth. How do we then drive that and really add value to our shareholders and so.
Is there is there a focus we like different businesses for different aspects, we are than weve targeted areas around you know whether its product base or whether it's a software solution.
Those have been areas that we've been been driving that said, we we like regulated areas and that's no secret we've talked about regulated spaces in and how we view them being adding value to ats and our ability to execute on them.
Did that answer your question Mark.
Yeah again, it's brought answer but do you sort of speaks to I guess, what the last few deals would look like so yes.
Okay. Thanks.
Your next question comes from the line have Sheryl Unread Barnes from TD Securities. Your line is open.
Thank you just a quick couple of follow ups for me first on Marco just wonder if you could speak to any revenue synergies. Just wondering if we should think about that is kind of an initial step out into food. That's a bit standalone. Initially and then you layer on with tuck ins or are there some synergies right at the gate.
Yes so.
Let's start with Marco on we like the base business and and we like this organization on its own and so regardless of tuck ins or not we like the base business second we do view that Ats can help them penetrate their market, meaning our infrastructure alone allows them to added.
Area. So for instance, in North America, we view them as being slightly under penetrated we can help them grow that faster.
This is an independent business standalone business within Ats.
Had we view this segment as an attractive segment that if additional opportunities became available and we they checked our four boxes, we would be interested in moving to the next stop and so we do like the regulated food space.
We do like this area, we do like different areas unregulated food and and we like the ability to really drive this penetration and so.
It is gonna be out its own or there is some areas. We help we believe we can help them move at a faster pace and if the right opportunities presented themselves in the future for additions to the platform. We would we would be interested in moving forward assuming it checked our four boxes.
Okay. That's helpful and then separately if I look at the revenue segmentation on your income statement the feel of goods seen very strong gross a in the quarter and year to date and if memory serves a lot of that as parts. So just wondering if you could give some color on that.
[noise], we've we've been working to increase our after sales parts and service and ER and you can see that in in the numbers. When we started to talk about services as a percentage of revenue.
We were around 15% and as Andrew said, we are our objective is to move to around 20% and we've made some progress in the year.
Both there and then in the other line item, which is other services offerings.
Okay. Thanks, that's all for me.
You're welcome.
There are no further questions at this time I turn the call back over to Andrew.
Thanks, operator, thank you everyone for joining us today.
I look forward to reporting our fiscal 20 results in May have a great depth.
This concludes today's conference call you may now disconnect.
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