Q4 2020 Earnings Call
I'd like to remind you that this call is being recorded on May 27th 2020 at 10 am Eastern time. Following the presentation. We will conduct a question and answer session instructions will be provided at that time for you to queue up for questions. If anyone has difficulties hearing the conference. Please press star followed by easier.
Oh for operators assistance at any time I'd now like to turn the call over to Stewart Mcquaig, Vice President General Counsel of Ats.
Thanks, operator, and good morning, everyone. Your main host today, our Andrew Hyder, Chief Executive Officer, Bts, and <unk> Chief Financial Officer.
Before we begin to required to provide the falling statement respecting forward looking information, which has been on behalf of H. young and old Representatives on this call.
You are cautioned that the oral statements made on this call contain forward looking information that involves risks and uncertainties, including those introduced by the current told at 19 pandemic.
The actual results could differ materially from a conclusion forecast or projection in the forward looking information.
Certain material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward looking information.
Additional information about material factors that could cause actual results could differ materially from the conclusion forecast or projection in the forward looking information and the material factors or assumptions there for applied in drawing a conclusion or making a forecast or projection as reflected in the forward looking information are contained in HSS filings with Canadian provincial securities regulators.
No. It's my pleasure to turn the call over to Andrew.
Thank you Stewart.
Good morning, ladies and gentlemen.
Oh, just start but thanking you for your continued support it yes.
The last few months have been challenging for everyone.
Economic impact of this health crisis is unprecedented.
The old directly affected by Cobot 19 reached Anderson, Sears sympathies and to those health care professionals on the front lines. We thank you for your service.
Through this pandemic, our first priority has been to health and safety of our employees.
In February we quickly put in place our pandemic response team that has worked diligently to coordinate our global approach to business continuity employee health and safety once you're in local regulations are followed.
Our teams.
Adjusted how we work and implemented measures to enhance safety at our facilities.
On a central business, providing critically important services that enable our customers to produce medical devices pharmaceuticals nuclear energy food and other important products, we remain committed to serving our customers and communities.
We've also taken on new mandates to help our customers in the automotive sector rapidly transition production for personal protective equipment.
And in life Sciences, we have deployed resources to help customers quickly ramp production a critical components to aid in the fight against Cobot 19.
Our teams have done an outstanding job, ensuring that we continue to deliver exceptional work for our customers.
I want to thank our suppliers and other partners are working hard alongside with us.
I could not more proud the where teams have taken on these challenges.
Well travel restrictions measures implemented to have enhanced facility cleaning and physical distancing have impacted operational efficiency.
They are critical to our employees wellbeing.
These efficiency impacts were felt in Q4 and will continue into fiscal 21.
Turning now to performance.
Fiscal 20 in Q4 feature growth in revenues in order bookings as well we've completed the previously announced reorganization plan, which impacted our operating margins.
I will speak to these outcomes provide commentary on our outlook for more details on how we were operating in this new environment. Maria will then provide her report.
Starting with our financial by drivers our revenues for the year were up 14% to $1.4 billion.
This included Q4 revenues of 382 million up 10% over last year.
Our adjusted EBIT margin for the year was 11% down slightly due to the expected inefficiencies caused by recent recently completed reorganization.
Margins were also impacted by red programs in the quarter, we work to mitigate cost and schedule schedule overruns, but I don't expect that will ever eliminate red programs, given the challenging and innovative projects. We take on these particular projects were isolated to one facility and countermeasures have been implemented.
Order bookings for the year 1.5 billion.
Up 4% over last year.
Our Q4 bookings were $365 million up 19% over last year.
Q4 included $60 million he be booking for fully automated battery somebody program for global automotive manufacturer.
This program includes two turnkey lines for the customers North American operations will be delivered over the next 18 months and is based on Ats is best in class Super track linear motion technology.
Moving to our outlook.
Q4, ending order backlog $942 million positions us well in the current environment.
Today.
We have not had any material cancellations on programs and our backlog only one program has been put on hold.
The global pandemic has caused economic uncertainty, which we expect will impact customer order activity.
We have seen an impact in our funnel some opportunities have been pushed to a future date.
By market.
Activity in life Sciences has remained relatively robust.
Most you bet activity has transitioned to mandates related to cobot 19 responses.
We expect to other opportunities to progress in medical devices pharma and radio pharma, we saw it with some interruption as customers adjusts to the new environment.
Life Sciences represents 54% of our revenues last year.
This market has positive dynamics for continued long term growth and its highly complimentary to our capabilities as it features high barriers to entry and putting stringent regulation and high consequence of failure.
And he be customer shutdowns and focus efforts on cash preservation.
Caused customers to reexamine capital investment plans.
Some strategic opportunities are proceeding as evidenced by the new battery program I discussed however, we expect some opportunities to move out until there's more clarity regarding the economic impact of this pandemic.
In consumer.
Similar to E. B, we expect a general slowdown in activity the timing of some opportunities moving out.
And energy, we can see continued to see activity a nuclear there where we offer considerable value for our customers, including digital solutions and services.
Well that customers may delay work as they adjust to the new environment, we see opportunities in this market.
Generally we expect opportunities to focus on we expect customers to focus on preserving liquidity until there is more clarity on the severity in duration economic impact of the pandemic.
There will be some offset in the short term from specific cobot related opportunities and some highly strategic projects.
On after sales services.
Bookings remained strong in Q4 up double digits, and we continue to see good trends and attaching service sales to our Capex business.
Q4 service revenues were down from last year as operations were impacted by customer plant closures and travel restrictions.
In response to this we've accelerated development of our digital service offerings, including enhanced remote support and smart coach an on demand virtual training product.
For the year, both bookings and revenues for after sale services increased by double digits, we've seen strength across our services portfolio, including upgrades asset management and our digital services offerings.
Moving forward.
Focused on aligning the customer upgrade and maintenance opportunities to ensure customers can continue to operate at high levels of productivity in this new environment.
In the short term after sales services will be impacted while travel restrictions are in effect.
As we announced in November we introduced a reorganization plan to support our growth and drive continued performance improvements.
This has been completed on time and on budget.
Reorganization is designed to reallocate capital from underperforming facilities to high performing facilities and drive margin expansion.
That said I don't expect it will fully offset the inefficiencies caused by this new operating environment in the near term and consequently, we will see margin pressure in fiscal 21.
Moving to the Ats business model.
A few ATM highlights from the quarter in January we held our second annual presidents Cogen. This involved the execution for simultaneous kaizen events globally with participation by the executive leadership group as team members.
The forbearance focus on sales funnel process employee retention, new product development and cost reduction.
Events were held in facilities around the world that was very pleased by the achievements made by the teams in a short period of time importantly, the 30 and 60 day follow ups, which are standard parts of the ATM process showed sustainment of the benefits realized in each event.
More recently as we have transitioned to new ways of operating the fundamentals of our AB have served our organization well.
These new ways of operating include work from home protocols for our people where possible to enable physical distancing.
And our facilities, we have also transitioned to shifts to reduce workforce density we've implemented virtual daily visual management, which enables our remote workforce to stay connected with our teams on site.
Along with daily visual management other core ATM tools, such as problem solving the equipped 13 to quickly identify issues root causes and implement corrective actions.
Turning to innovation.
Much of our recent focus has turned to finding ways to help in the fight against Cobot 19.
Our people to come together to apply their expertise across our organization.
Outside of what we would consider to be core to our business. We have taken actions to help manufacturers' produce critical personal protective and medical equipment.
In the U.S., we worked with a global automakers to help them reconfigure capacity and supply equipment that can produce up to 11095 respirators per day.
This was accomplished in 17 days from kickoff to deliver an incredible achievement by the team.
We're working with ventilator manufacturers, enabling them to scale up production and providing equipment used to calibrate and test before distribution to hospitals and medical facilities.
We're also engaged in activities that are well aligned to the value we bring to customers. For example, we're engaged with manufacturers of Cobot 19 test kits, helping them ramp up production to meet the unprecedented demand for their products.
At closer our team has launched Deyton box and new product to enable the fast decontamination medical equipment, including 95 masks, helping to mitigate shortages.
This product is based on the same technology used in or a skeptic isolators.
And I'd be K., our team has developed a rapid deployment to billing solution suitable for hygiene products with high OCO content, such as hand sanitizer.
Each of these initiatives have been implemented very quickly and demonstrates the innovation of our people and the positive impact that our organization enables for our communities.
Moving to M&A for the year, we completed three acquisitions deploying 53 million capital.
Integration of market was underway and on track with a focus on deployment of the ATM to driving operational efficiencies advance geographic penetration.
And expand marco's after sales services as a reminder, mark it was a leading provider yields control and recipe formulation systems for the food and related industries.
As we look ahead, we're focused on maintaining our financial strength, which positions us well to get through these challenges today and be ready for future opportunities that may arise out of this new environment.
In summary.
I want to thank our employees for their ongoing dedication, which has enabled ats to support our customers.
Make a difference in our communities and drive improvements in our business.
Our focus on innovation and continuous improvement enabled by our ATM long with the completion of our reorganization and ongoing measures to contain costs and preserve liquidity will serve us well.
As we navigate through this dynamic period, we don't know how long the impact the pandemic will last however, when we do move beyond this health and economic crisis. We believe our business is uniquely positioned as customers returned to work and look at ways to drive efficiency in their operate.
Patients automation will be a critical enabler.
Long term, we expect manufacturers to examine their existing footprint and supply chains to ensure that can operate in the future through major disruptions as we're experiencing.
Enabling efficiencies through automation and innovation will be vital to their success.
We have valued customer relationships world, leading organizations, many of whom are essential service providers themselves.
We have the strong business with good backlog healthy balance sheet, and our ATM playbook that will enable us to continue to create long term shareholder value now I'll turn the call over to Maria.
[laughter].
Thank you Andrew while the current economic environment has changed dramatically our focus going into fiscal 2001 has not changed we're committed to protecting our people serving our customers and ensuring our balance sheet remains strong by preserving cash and liquidity, while we continue to pursue.
Our longer term strategic goals.
In my prepared remarks, I will provide some commentary on the effects of cobot 19, as they relate to our new fiscal year 21, which commenced April 1st.
Those comments will be qualitative as there is a great deal of uncertainty on the duration and severity of the downturn.
[noise] thinking about the financial highlights of fiscal 2000.
Looking revenue and adjusted earnings increased over fiscal 19, as a result of both organic and inorganic growth.
Fiscal 2000 include the full year of Coleman, Sir and Kim W. As compared to one in five months in fiscal 19, respectively.
Our three acquisitions in fiscal 2000 added approximately $8 million of revenue in Q4.
As expected margins for the year were impacted by the reorganization plan undertaken to drive improvement in our operations through the closure of underperforming division and in Q4 by two other factors red programs and inefficiencies related to coated 19.
This morning, I will discuss fiscal 2020 performance, including Q4 results and provide an update on our balance sheet.
I'll start with operating results.
Revenues of $1.4 billion grew by 14% over last years 1.25 billion with 10% from acquisitions and 4% from organic growth.
We've seen good growth over the last three years as revenues have grown by 10%, 12% and 14% in fiscal 18 19 fiscal 2000.
Respectively.
Organic growth in that period has averaged 8%.
Q4 revenues of $382 million for approximately $40 million higher than expected due primarily to timing of third party materials and to a lesser extent foreign exchange.
Certain program milestones were accelerated as a threat supply chain issues and impending closures were contemplated.
For the year bookings of $1.5 billion were 4% higher than last year due to acquisition with the base business see a 2% year over year decline.
Our book to Bill ratio was 1.03 to one.
Q4 bookings were $356 million compared to 368 million in Q3.
We started to see opportunity slip to the right as customers were preoccupied with cobot 19 related health and safety issues.
With life Sciences accounting for greater than 50% of our business. We are in a solid position to deal with the uncertainty ahead.
Transportation order activity is expected to be lower which will put pressure on fiscal 2001 revenue.
We ended fiscal 20 with backlog of $942 million.
4% increase over last year's 904 million.
The increase came from acquired backlog and foreign exchange translation.
A backlog of $942 million will help mitigate some of the expected challenges with order bookings.
Our revenue conversion range for Q1 fiscal 21 is estimated to be in the 30% to 35% range of backlog.
The effects of Cobot 19 started to be experienced in mid March and now into Q1 as onsite service and support has been negatively impacted.
The ability to perform factory acceptance and site acceptance testing was disrupted due to travel restriction.
Some customer plants were closed and operational inefficiencies resulted from physical distancing protocols.
In addition to these impacts a customer put on hold one part of an order accounting for approximately $30 million in backlog, which will not be converted to revenue in the timeframe originally expected.
On the positive side, the previously announced $65 million order to produce cobot 19 test kits is to be delivered in a short timeframe and will help to offset some of the significant impacts just noted.
Moving to margins, we had expected gross margins to be impacted in Q4 by the reorganization plan announced in November.
We estimated the quarterly impact being about $5 million and that was the case as we experienced inefficiencies in the affected facilities caused by under absorption of employee and fixed costs.
Also there was an additional negative impact of approximately $4 million due to red programs.
And other margin pressure due to cope with 19 related issues and other costs.
Offset by certain other reductions.
On Red programs, we experienced program execution challenges in one of our transportation facility.
As a large number of TV programs are nearing completion.
Combination of size and customers schedules resulted in shortages of internal resources and added unplanned costs due to higher subcontractors and related inefficiencies.
Fiscal 2000 gross margin of 25.3% with 90 basis points lower than fiscal 19.
The reorganization red programs and Cobot 19 impacted fiscal 2000 margin by a total of approximately 60 $16 million or 110 basis points.
Some of these factors on our Q4 gross margin was 290 basis points, resulting in our reported gross margin of 23.2%.
Moving to our reorganization plan as expected, we recorded related costs of $26.6 million in the year.
Because of the reorganization actions taken prior to cope with 19.
Additional actions taken to reduce costs, we are in a stronger position to cope with the economic follow up the pandemic.
The estimated $15 million to $18 million annual benefit of the reorganization maybe hit in the short run by the impact of the economic environment.
On costs, we have taken action on discretionary and other variable expenses in Q1.
This includes managing costs through reduced subcontractors mandatory use of vacation time, and other arrangements where appropriate.
Notwithstanding these actions, we expect gross margin pressure, resulting from the retention of the majority of our skilled workforce.
We are evaluating the need for further restructuring as a result of general economic conditions and while no decisions have been taken we will respond appropriately if and as needed.
Moving to SG any on an adjusted basis, which excludes M&A transaction costs.
Acquisition related amortization expenses and restructuring costs Q4's, S. Uni of $50.4 million came in lower than the estimated normal run rate of $52 million and slightly lower than Q3.
Lower employee incentive expenses, along with some impact from cost containment actions combined to reduce Q4 SG any by approximately $2 million year over year. Despite the addition of SGT from acquisitions.
For the year SGN eight of $198.5 million with $22 million higher than fiscal 19, due primarily to acquired company.
[noise] stock compensation recovery or expense has fluctuated throughout the year due to mark to market adjustments with recovery of $1 million. This Q4 as compared to a 6 million dollar expense last Q4.
With this level of fluctuation I will speak to adjusted earnings excluding stock compensation expense.
On this basis Q4, adjusted earnings from operations were $38.3 million or 10% compared to 44.4 million or 12.7% last year.
The 2.7% decrease in margin reflected inefficiencies from the reorganization activity red programs and covert 19 related costs.
Partially offset by slightly lower SGN, a as a percentage of revenue.
Moving to the balance sheet cash preservation of liquidity, our front and center, we came into this quarter with a strong balance sheets and we're working to maintain this we drew $250 million on our credit facility as a precautionary measure.
Our net debt to EBITDA leverage is 1.6 to one.
By quarter end, we started to experience some negative cash impact as certain customers started delayed payments.
As well the composition of bookings for example, the relatively higher weighting of transportation and payment terms in those bookings were less than favorable.
Our noncash working capital as a percentage of revenue increased slightly in Q4 to 12.3% as compared to 12.2% in Q3 and 10.7% in Q2.
In fiscal 2001, we expect our working capital as a percentage of revenue to increase to over 15% and we could see upwards of 20% based on transportation payment terms and expected customer payment behaviors.
We have a robust accounts receivable risk management program in place and are focused on monitoring customer payments and credits.
On Capex in fiscal 2000, we invested $57 million of a planned budget of 60 million.
Fiscal 2001, our capex spend will reduce to $25 million to $30 million and will be primarily for maintenance and IP infrastructure.
For the year, we generated cash from operations of $20 million compared to cash generation of 128 million in fiscal 2019.
Under our and see IB program, we've repurchased $5 million as compared to 39 million in the prior year.
With the $250 million cash draw from our credit facility.
We had changed the composition of our cash and debt. We continued to have strong liquidity with cash on hand of $359 million and our credit facility of which approximately 400 million is available.
Turning to earnings fourth quarter, adjusted EPS was 26 cents for the year adjusted EPS of <unk> dollar six cents was up nine cents from 98 cents last year.
Our effective tax rate was 23% in the quarter and 22% for the year.
On our income taxes, the restructuring charges recorded in year resulted in a lower effective tax rate.
In summary, we accomplished a number of objectives in the year, including organic and inorganic growth.
The significant reorganization activity behind us, we're better positioned to weather economic uncertainty and once the current economic situation is resolved to return to our margin improvement program.
With our ATM Foundation, we can adjust and adapt to the changing environment.
We have we have a strong balance sheet with cash on hand, and available credit, which will ensure viability and liquidity for the year to come.
Now we'd like to open the call to your questions. Operator could you. Please provide instructions to our listeners. Thank you.
Ladies and gentlemen, we will now conduct a question and answer session to allow as many places to be heard as possible. Please limit yourself to two questions per turn.
If you have a question. Please press the star followed by the one on your Touchtone phone your questions will be pulled in order that they are received please ensure that you lift the handset. If you are using a speaker phone before pricing any cheese one moment. Please for your first question.
Your first question comes from the line of Mark Nebel with Scotiabank. Your line is open.
Hey, good morning.
HM.
I appreciate all the extra the details my color I'm prepared remarks I.
I guess Im just curious if we compare made to April April to March.
Maybe just talk about I guess, two things first I'm sort of what's happening inside your business in terms of stopping Utilizations general build these sort of.
Operator, install other manufacturing or aftermarket second.
From a customer perspective, whether in terms of order slower RFP is sort of just how that's all progressing I guess, what I'm ultimately sort of asking is.
We've seen sequential improvement at this point, you're still not yet, but if you.
Touched on that that would be helpful. Thanks.
Yeah, good good morning, Mark.
So lucky.
As you can imagine with this pandemic our customers are faced with with many challenges and what I can stay generally is we haven't seen a greater change in the way they've operated what we have and and I know you are aware of this but but as a reminder, one of my.
Standard works as a CEO is is having ongoing and frequent calls with customers or visiting customers and through this pandemic I've continued that.
Even as recently as this week heads receive calls with with customers, where they are focused on ensuring that we as Ats had don't continue to support and deliver.
On their platforms their solutions their products that said their base at many challenges around whether they can be onsite for a site acceptance test or be a have a factory acceptance test and so.
What I can tell you is is it's still early days and how this pandemic is is really shaping up and with travel restrictions remaining in effect.
Certainly creates dynamics that we continue to overcome and you know as a reminder, in my prepared remarks I walked through.
Some of the digital solutions that we've implemented one being smart coach.
Which is on demand training for customers, enabling them to really utilize technology to understand how to operate and troubleshoot equipment to remote support that our team early on in the pandemic identify the traveled becomes or could become a challenge and launched with.
With a lot of lot of interest from customers around the ability to troubleshoot and ensure that they can continue their operation and so early days, we've really gone to execution both from a pandemic response perspective.
And you know what I can tell you is it's around maintaining and keeping a healthy and safe work environment for our people number one number two supporting our customers.
They often times are essential and their products are helping everyday lives.
Becomes better and then the third is continuing to add value to our shareholders.
So I guess on Oh go ahead Maria Sir.
I was just going to add you asked about the the months and changes in Andrew provided a sure.
Good coverage there.
But what are the things that did change for us.
In April we press release, the 65 million dollar coded 19 test kit machine and <unk>.
And when we talk about our revenue conversion and where it is we say one of the one of the Asa offsets and benefits that were seeing is as a result of this order so that.
That ordered did change for us.
Our workforce requirements and if we hadn't received that at the time then it would have been a slightly different situation level than what we see today and with that order we have the benefit to be able to revenue that over the next four month, so positive impact.
Yes.
Yeah.
And you also mentioned that there was a program put on hold.
In the quarter I'm, just curious the any details around.
End market I think you've actually another remove centers transportation books any details around that would be helpful.
[music].
So yet so we said that transportation end markets and around and around $30 million, that's been put unfold and we expect the customer to.
Sure I guess more just one last one of before I get the Q.
Just on the.
The the Red program or the.
The program going over budget in the quarter was that one specific projects.
Just curious how closeness to completion just trying to gauge through those that this could be a lingering issue for a quarter tools, which largely behind us.
Thanks.
So that this there were four program, we said transportation programs and in the quarter.
They got too.
A much higher percentage completion. So we expect that most of the financial impact is behind us is largely behind us as in Q1, we were completing these programs.
Okay.
Great. Thank you all I'll get back in June.
Your next question comes from the line of Justin Q It with Stifel JMP. Your line is open.
Good morning, and thank you for taking my questions on the corporate 19 related contracts. It just seems to be in a pretty good position to assist here and I believe that $65 million test Kit automation award might've been a record for the health care segment I'm wondering if you're just able to expand on the activity you're seeing in this new area and if.
There's an opportunity for similar similar sized contracts for test kit automation going forward.
Good good morning, Justin.
No.
I'd be more proud of how the team executed and I'm going to talk a little bit about this program because there was a lot of challenges that we faced to overcome to deliver the solution for this customer and time was a critical element of that discussion and.
It's a testament to the hard work dedication and true innovation and we've invested in innovation here.
Continuously and the ability to overcome those obstacles to deliver this was just an amazing feat for the team, but I can't be more proud and by the way as are we.
We look at that project today, we're on track and so it's moving forward.
As we look at this space, we do view that there is there is additional potential we won a small order recently, but it's not as material, but there is additional opportunity that we view, we can help our customers as they look to look to providers to to really one alignment on the critical.
Timelines. These are test kits that are going to be utilized.
Around the globe and also high levels of quality that Ats can provide and so.
What I can tell you. This contract is a large contract we view that there's more potential and we're going to continue to drive to ensure that we deliver on time on budget of this of this specific area.
Absolutely that's helpful and maybe a question for Maria just to clarify was that 65 million dollar contract is that going to be accounted for in the Q1 bookings along with the revenue recognition.
The $65 million is a Q1 booking and wool revenue it in Q1 Q2.
And right now it's looking like about 50 percents in each quarter, but that's that's roughly could be 40, 60 60 40.
Okay.
Justin I did want to add one additional item our team commercially has also built.
A co bid response group to ensure that we have an outreach to customers and you.
No. That's just one area. We also talk about you know you know whether its mask manufacturing to our decontamination process at coal mature to ventilator testing in manufacturing.
Two.
The sanitizing filling processing so.
We've really built a focus on this to ensure not only can we help our customers, but we can enable and really drive to solutions in our communities as as its much needed and so.
It's been a real real focus for the group and certainly something that that we're proud of here at 80 us.
Absolutely and my next question news, it's more of a broad question related to the health care activity that you're seeing.
Is this related more to normalize patterns or our customers starting to re examine their supply chains. As the result of Copel 19 appropriate perhaps to look to more manufacture more on shore, which I assume would be beneficial to dcs and providing the automation equipment.
No.
Adjusted as we sit today.
You know life Sciences.
Wait to see some delays is the market is certainly seeing dynamics and this pandemic, but we do expected to come back quickly and the funnel remains strong.
Our view win and and many views of of the spaces in the you know kind of future and we would say mid term future call. It one to three ish years. This is going to be a real focused on on supply chain enablement supply chain de risking.
To ensure that the future of organizations can really overcome obstacles like this and so.
I said it in my comments that we view Ats is being uniquely positioned.
You know, it's very early in the process very early for our customers and their assessment, they're focused on getting through this pandemic, but overall, we view this as an area that automation is going to enable and innovations going enable in HTS is uniquely positioned in that space.
That's helpful and thank you for taking my questions.
[laughter] next question comes from the line of Maxine by Jets with National Bank Financial Your line is open.
Hi, good morning.
Good morning Max.
Maybe first question for you to mind, maybe differentiating.
Healthcare space between what's happening with declined from the medical device I persist pharma I mean, I would presume that given the fact that elective surgeries have been.
Bush with the right the medical device clients would be more negatively impacting the short term is that how we should be thinking about this and also do you mind you get breaking down in terms of what roughly for sequential revenue in health care comes from medical devices versus pharma, if it's possible.
So <unk> Maxx will answer the first part of that.
And as we'd so.
When we look at our medical devices oftentimes and by the way I had a call with one of the one of the customers in this space call. It two weeks ago.
It is an enablement solution, meaning it's it's a surgery or operation that they're going to be required to do and and it really aligns around it truly hoping the end customer the user of the specific device.
I have a better experience and so we have not seen a slowdown in this area. What I can tell you is in general, though we have seen in the short term we have seen some challenges.
And we've talked about that but we do expect that to come back fairly quickly as we have.
Many solutions in the market many solutions in the space as far as the pharma and caught radio pharma.
That business was was deemed essential early on.
They are continuing to operate and we're continuing to see customer interest to ensure that they provide the specific solutions to their customers.
Right and sorry, and just to clarify when you talk about lack of slowdown on the medical device side is that what you experiencing right now one of the funnel or both.
Yes. So so we have seen in we have seen some delays, but the funnel remains strong in this area and we do expect it to come back fairly quickly and the delays have been more largely around timing with the customers and some of them have been aligned to.
Ensuring a proper kick off or or site acceptance testing or along those areas, but but overall again back to the general statement. We do expect some delays, but we do expect to come back fairly quickly in the funnel remains strong for the specific space.
Okay, that's very helpful.
And then getting it will go back maybe please.
On the split revenues about two third of our life Sciences revenues or medical device and one third pharma.
Okay. Thank you very much that's very helpful. And then do let me be commenting a little bit interim so.
The risk mitigation strategies and kind of the complexity around.
The culprit contract that you have signed recently.
Just given the fact that it's a very short duration project can you had a rough program I mean, obviously I'm just kind of smoking same space and so forth, but just do you mind me be commenting on the complexity of the execution being able to actually.
Don't get to get a Don on time, when bunch of them and so forth.
Sure I'll provide more color and then Maria can certainly jump in.
This is this is something that we walked into and had very clear focus on and if we're talking the test kit, which is called the $65 million order we announced.
You know it barely can dense.
Timeline that said one of the one of the areas that we've been.
We announced.
In prior years is the acquisition of transforming person and utilizing that technology and we've been able to utilize a piece of that technology in the solution and so.
I'm not saying this is low risk I'm, saying, it certainly presents risk, but our team is on track and on budget and we built also that into our approach with the customer who has been very open to working with us at the end, it's about getting the solution out to the market and ensuring that ats can openness and really provide that.
Value.
Okay. That's helpful and then just in terms.
Certainly and in addition to that.
Well using three facilities to get this work done and these three facilities all have experienced and a very skilled workforce to to achieve this and we've talked about.
Some areas, where we haven't been able to use our people. So for example in.
Insights support and service and those skilled resources have been redeployed also to work on this program to ensure its success.
Okay. That's helpful and then again and just in terms of kind of the to technology.
Has to be employed in order to undertake this project I mean this is not something.
So breakthrough from Brown from one automation perspective, I mean, it gets leased sort of all the moving parts or a relatively again like I do want as I understand this is just a sort of walk in the park, but this has been done before in terms of DASL applications, which I guess, that's my question.
Uh huh.
So.
Back when we look at this program certainly there's challenges within the program and the condensed timeline as one of them. What I can tell use. This is this is what ats does well and we've identified the key risks in the application Weve really aligned around the technology that we've invested in innovation, we've invested in word utilizing.
And and we're on track on budget to our plan and we're having a very positive very very ongoing discussions with the customer to ensure that we deliver this product on time and on budget.
Okay, No that's that's great and.
And then maybe just the last question around the possibility of additional restructuring just wondering.
What would trigger points do you have to see over the coming.
Some months.
In order to sort of decide if if if you need to additional adjustments.
You know in general Max we're going to continue to look at leading indicators to ensure that our business is properly structured to and to to continue to execute through this pandemic and so.
We monitor we ensure that we've got the rate basis to to get through and then than than really align our organization because as we've talked.
You look you look at mid term and call. It a year plus out automation is going to be key enablement and so we're going to manage an alignment to balance both cost as well as ensuring that our business is ready to take on that potential future state of automation being an enabler for for development of.
Supply chain reduction of risk and so.
We get key leading indicators, we monitor we continue to assess and we're going to continue through that.
Okay, Alright, thank you very much.
Your next question comes from the line of Mac, well with Cormark Securities. Your line is open.
Hi, I'm when you look at given the weight of life Sciences versus transportation in both the bookings and just in your revenue. It just looking short term is that shifts in and activity.
Is that something that life science can can offset in transportation and would there be a margin implication to that shift.
So you know.
Overall and this is just a general sense of the market short term is going to be challenging and and we won some some cobra opportunities in and strategic opportunities.
We do expect that the market is going to be hub and have general weakness and so when we look at our us and I mentioned this earlier on the call, but we expect some delays where we do expected to come back quickly nuclear similar to allow us some delays, but but fairly steady and we do expected to come back in Q.
Consumer.
Overall, we've had some strategic wins here, but customers are looking and continue to look at cash preservation and cost containment and so it might drive service ability in activity in the mid to long term.
But overall, we view that area to have a bit more risk in an area that we continue to monitor and Mac as you're aware about three years ago.
The two and a half years ago, we went through strategic assessment of the business and we focused on key areas of transportation, one being the shift E B and we announced that late last quarter or late in Q4 of us strategic win for the business in something that we've aligned to that we can have high value.
For our customers.
Okay. That's helpful.
You look to be positioned in both those key verticals in the right way over the next call it five years.
I'm wondering whether there whether we should be modeling in a different.
Return to normalcy, so to speak whether that rebound will be more V shaped in say life science in more U shaped and transportation just trying to get a more nuance sense out how if you even see it yet.
What the shape of the recovery will be on the two different segments.
Yeah.
Good luck.
It's too early to tell on on the recovery and I've read articles on the versus swish versus W and and and what I can say in general is the life Sciences market, we expect some delays, but it to come back fairly quickly and the funnel a strong.
In E B in auto we do expect us to be a bit more challenging as customers at pets shutdowns and they're very focused on kras preservation and so I think good answers your question.
But it is very early in this pandemic in and what we don't want to state as you know we're viewing it as were plus we're preparing our business for what could happen and we're expecting the best outcome, meaning we're driving to add value to our customers and ensuring that when they look at.
They are cheap providers their key solution providers Ats isn't that in that.
First priority list.
That said, we're also preparing the business to be able to whether through this pandemic.
Okay.
And then connected to that just a question on.
You've done restructuring you.
Added some new businesses and youre applying pretty much done with the ABS implementation.
Yes in Miss what have you learned about strengths and weaknesses that.
Approach to business in this pandemic has it.
Is it resilient or are there things about it that you realize function well in normal situations, but just not sustainable I'm wondering if you could give us a view on whether you have a picture on how well that's working and whether that take you to sort of the next phase, which you know who knows what that looks like but I'm curious.
It's about what you what you think the evolution is in that particular way of doing business.
You know back.
So I'm going to us I'm going to answer your question, but I'm a start.
With with leadership and the ATM starts with people then process then performance and I start with leadership in my response, because we had a high level pandemic risk response.
It's been built we had it in place we went from high level.
To being able to drive it at a very tactical level very quickly and we were able to get to this because of our focus on leadership and I can't be more proud of how the team went from.
Early days early impact to executing and I mean that because you take things like I T and and we've we've invested in security to ensure security was a safe work environment. They went from a very small portion of our workforce work.
And from home.
Up to 50% in a very short window and they did it successfully and we did that and by the way not only that we have 50% of our workforce coming into work every day.
Same view the team went from the ability to looked at the challenge and identify areas to overcome that's the ATM in action.
It is our continuous improvement focus where we have challenges. We have ahead of us and we're going to overcome those obstacles that said, we also know that the market's going to created a unique dynamic and we're going to ensure that we continue to challenge ourselves to set ourselves up for the future and so you know I can talk to the President's Kaiser.
In which we did early in the in the quarter.
And the outcome and kept more proud of that my staff, including my direct team and myself Ron teams for that as well as the IBM and action, where we started doing.
Virtual daily visual management, where we have the ability to now navigate we've got people working from home working with folks onsite to ensure were not missing a beat through this now is there going to be inefficiencies absolutely working in this pandemic working through the challenges we faced two to ensure a sale.
Dave working environment, there will be obstacles, but it can't be more proud of how this team has executed and continues to execute and that is the ATM and action.
Great. Thanks, Andy those Mike My two questions. Thanks, Thanks, guys.
Hi, Ken if you have a question please press.
Star followed by one on your Touchtone phone your questions will be pulled in order that they are received your next question comes from the line of Cherilyn Radbourne with TD Securities. Your line is open.
[noise] Cherilyn Radbourne your line is open.
Oh, sorry about that I was on mute, thanks, very much and good morning.
I apologize if I missed this but we are two months and into Q1 already and I was just hoping you could give a bit a color on how bookings.
In an overall sense are tracking to date in the quarter.
Good morning, Sheryl and.
We don't provide that information.
Okay I had to ask and can you just can comment on how much revenue in the quarter might have been related to cope with 19, whether it was helping the auto manufacturer re purpose to production of masks were hoping healthcare customers quickly scale up.
Production of key items.
Yes, so we've we've.
Spoken of and press release I.
A number of orders and opportunities, but the most material one would be the 65 million dollar.
Cobot 19 test kit program, and we will see as I said between or around 50% about revenue comes through in the quarter and then the other areas are small not material.
Less than 5 million of having an impact.
Okay. That's helpful and maybe early to ask this next one but.
Just wanted to get your perspective on the M&A landscape and what an economic shock like this could be going forward.
Yes, so sherilyn.
One of the things that we've continued to do through this through this pandemic and situation is is our cultivation efforts and certainly.
It's been a little bit more challenging in that it's phone call or video related but but we've continued to an our funnel remains healthy that said, we're very mindful of the dynamic and situation. We're in and cash preservation is a key item for us there are certain certain potential targets that we.
I would view is areas that we would we would want to have as part of the HTS family, but we're going to be very mindful on timing and and ensuring that they align to delivering on our financial objectives for each target. So.
It's early early days very you know the activity is certainly slowing down and you can see it.
But we're continuing our discussions and if the right asset were to be available and be a potential for the Hs family and the financials made made a lot of sense than we were in a position we could go forward.
All right. That's helpful. That's all for me. Thank you.
Thank you Sheryl.
Your next question comes from the line of Mark Nevo with Scotiabank. Your line is open.
So yeah, just maybe it's a quick follow ups and it's good to know the M&A see I'm just curious again I can appreciate now the buildings is difficult.
Focused on the balance sheet book.
I'm just curious how does your.
Appetite change or desire for certain end markets or digital capabilities and or even sort of how you your balance sheet as or any sort of walk ignoring the short term maybe longer term.
Changes or change in view of how you see scalable you're you're done those revenues on a.
So you know market and we've often stated the four variables of what is a target or potential target and one of them as market and what I can tell you. It is our view of life Sciences remains very favorable.
And we like the space, we like dynamics in the space digital we view as an area that that Ats has a unique position with automation and our digital solutions, so that as a continuation.
We're also viewing other areas of say this is going to be impacted in and we're going to make sure that we're aligned to.
Make adding value to our shareholders and it is that return in balance with the review is favorable for our business and in the mid and long term.
Okay.
Maybe just one last and then some restructuring or the.
The fact, you're looking at potentially doing additional restructuring at this point is it more.
It's are dependent on the shape or speed of the recovery or other considerations around how that was completed last reward.
Curious maybe over over over Capacitized in certain parts of business.
So that that's the motivation versus.
Just.
The recovery.
So so to be very clear and specific on it on our response, we indicated that this is a foregone conclusion, what we have stated that we have leading indicators that we monitor to ensure our business.
Is going to be properly adjusted through this through this cycle and we.
We do look at look at how markets had the ability to come back as well as when markets do come back, making sure Ats is prepared to be able to execute and deliver the value to our customers and all those will be factored into our decision process.
Okay understood.
For there's any confusion there, but I understood. Thank you.
Mr. Guided there are no further questions at this time.
Thanks, operator, thank you everyone for joining US today. Please continue to see stave to stay safe and healthy and I look forward to reporting or Q1 results in August goodbye for now.
This concludes today's conference call you may now disconnect.
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