Q1 2021 ATS Automation Tooling Systems Inc Earnings Call
I would like to remind you that this call is being recorded on August 12, Twentytwenty at 10 o'clock am eastern time.
Following the presentation, we will conduct a question and answer session.
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I'd now, let's turn the call over to certain Quake, Vice President General Counsel of Ats. Please go ahead.
Thanks, operator, and good morning, everyone. Your main host today are Andrew wider Chief Executive officer of each year and right in the cloud Chief Financial Officer.
Before we begin to report to provide the following statement respecting forward looking information, which has made me not to beat yes, and all of its representatives on this call.
Your costs into the World statements made on this call will contain forward looking information that involves risks and uncertainties, including those introduced by Cougar 19 and damage.
The actual results could differ materially from a conclusion forecast or projection in the forward looking information.
Material factors or assumptions were applied in drawing a conclusion 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 in a material factors or assumptions that were applied in drawing conclusions or making a forecast or projection as reflected in the forward looking information are contained in Hs as filings with Canadian prevention Securities regulators.
No. It's my pleasure to turn the call overdone.
Thank you Stewart.
Good morning, ladies and gentlemen.
The first quarter was a period of adjustment due to the pandemic restrict restrictions were placed on customer plant because it's some customers temporary closed their operations and to date, yes, working from home physical distancing at our facilities and enhance cleaning became standard operating practices.
As a result of these factors Q1 revenues bookings and margins were down versus last year.
Even so our teams delivered exceptional work for customers and secured new programs, including those related to the fight against Colby 19.
And this uncertain and challenging environment, the presence of a healthy backlog strong balance sheet and resilient workforce provides an advantage freight yes.
This morning.
I'll speak to our Q1 performance provide comments and our outlook, which reflects somewhat improved business conditions since our last call and discussed how we're moving forward.
Brian will then provide his report.
Starting with our financial value drivers our revenues for the quarter were 325 million down 4% from last year.
Our Q1, adjusted EBIT margin was 9%, reflecting pandemic related inefficiencies, partially offset by government wage subsidies and cost containment measures, including the reorganization, we completed last year.
Q1 order bookings were 325 million down 23% from last year's record Q1 bookings a 423 million.
Included in our Q1 orders was or previously announced 65 million dollar program for the design build and delivery of two automated systems that will enable the production of up to 10 million units per month of critical components for point of care test kits that can be used to detect cobot 19 I'm.
We used to report that our team is on track to meet this very aggressive delivery schedule.
As well Ats his life Sciences group and co mature directly one pharmaceutical program with an excess of $10 million. It will feature of the compelling combination of coal matures isolation technology with HSS automation capability.
Moving to our outlook.
Our Q1, ending order backlogs $909 million positions us well in the current environment as economic uncertainty accompanying the pandemic has pushed some business to a future did.
By market activity and life Sciences remains relatively robust due to mandates related to corporate 19.
We continue to pursue a number of kobin related rapid response opportunities, including applications for syringe production.
Diagnostic test devices and pen needles.
Other opportunities and medical devices pharma and radio farmer are coming back online.
Life Sciences represented over 70% of our bookings in the first quarter and we expect this would be a strong market for us over the long term.
Maybe a significant slowdown and market demand has caused customers to focus their efforts on cash preservation and re examine capital investment timing. There are select opportunities that are moving forward, but overall market activity is slow.
Consumer activity slowed with the timing of some opportunities moving out.
And energy, we continue to see activity in nuclear including incremental demand for our digital solutions and services.
Generally.
We expect customers exercise caution and making capital investment decisions until there's more clarity on the cervarix need and duration the economic impact of the pandemic.
There'll be some offset in the short term from specific cobot related opportunities and some highly strategic projects.
And after sales services.
Bookings were down low double digits in the first quarter, while revenues were down more significantly due to plant closures and travel restrictions.
Despite Q1 challenges funnel activity for services is robust and we have realized some early wins with our new digital product offerings, including enhanced remote support and smart coach.
Moving forward, we're focused on upgrade and maintenance opportunities to ensure customers continue to operate at high levels of productivity and this new environment.
And the short term after sale services will continue to be impacted will travel restrictions and physical distancing protocols are in effect.
Overall and now to downplay the operating challenges ahead.
But as some regions began to reopen business conditions improved as the quarter progressed.
Moving to the HTS business model, we have no adjusted to the pandemic by leveraging the ABS in a virtual environment.
In the quarter, we completed six virtual cadence to support remote operations, including events that are driving improvement and business development project management finance and supply chain.
Training has continued through the deployment of digital on demand ATM programs.
We also launched forward together to document our approach to cobot.
This will also provide direction for future pandemics or other global or regional concerns impasse impact business operations.
Turning to innovation.
We've been active in applying expertise across the organization.
To quickly address the needs of customers engage into production and 95 respirators.
Ventilators diagnostic test kits, hence ranges.
We accelerated the development and deployment of our digital service product offerings, which are ideally suited to this environment.
We've launched our new Sip Symphony product, an innovative high performance digital manufacturing technology that improves productivity of automated assembly processes by eliminating non value added time.
This product builds on the technology that we acquired last year from Transformers and provides a high degree of standardization is ideal for multipurpose production assets, having the flexibility to depths and new products and processes.
Each of these initiatives demonstrates the innovative nature of our people and our ongoing strategic focus of creating enabling solutions.
Even in this cobot environment, we will prioritize investment and innovation.
Moving to M&A, we continue to engage cultivating activities that are aligned with our stated framework.
We have a strong balance sheet and are well positioned and ready for future opportunities that may arise in this new environment.
While the early days of cobot made it more difficult to cultivate M&A activities have restarted.
In summary.
Our first quarter performance reflected the challenges brought on by the pandemic, but also the resiliency of our workforce and delivering for our customers as an essential business.
We have made adjustments to operate in this new climate and stand ready to do more as needed.
Going forward, we have a strong business with good backlog.
Healthy balance sheet, and our ATM playbook that will enable us to create long term shareholder value.
We are focused on putting our business in a position to succeed through this difficult period and emerge and a strong competitive position in the future that may need Ats Ats is solutions more than ever.
Now I'll turn the call over to Ryan the cloud. This is Ryan its first call as Chief Financial Officer.
As you recall ride was named interim CFO effective June 26.
Having worked closely with the leadership team over many years, Ryan has moved quickly and seamlessly in his new role Ryan over to you.
Thank you, Andrew and good morning, ladies and gentlemen.
Our first quarter performance was impacted by the challenging environment.
We took quick and decisive measures to protect our employees adjust our processes and maintain our strong balance sheet.
That said and as expected our financial performance, including revenues margins and bookings reflected the challenges and inefficiencies caused by the abrupt change in the business environment, partially offset by a strong backlog of orders.
This morning, I'll provide details on our financial performance and discuss our balance sheet, including our liquidity and capital structure.
Starting with operating results, our Q1 revenues declined 4% from last year to 325 million.
Organically revenues decreased by 6%, which was partially offset by 2% growth from acquisitions.
Lower revenues, primarily reflected lower services and protectively due to travel restrictions and customer closures.
Q1 bookings were $325 million, reflecting opportunities moving to the rate as many customers pause to assess the impact of the pandemic on their operations and deal with related health and safety issues.
Our Q1, ending backlog of $909 million provides us with a solid base to mitigate some of the economic fall out of the pandemic.
Of note life Sciences represented 50% over a period and order backlog.
While new industry is immune from the effects of the current environment. We believe life Sciences has the potential to be more resilient.
Looking forward our revenue conversion for Q2 is estimated to be in the lower end of the 35% to 40% range of backlog.
Well, we're more comfortable in our look today than we were in April and May market activity remains low overall.
We also continue to operate with almost half of our workforce at home and the presence of extra health and safety measures in our facilities both of which cause inefficiencies.
In addition, we had previously disclosed customer project on hold which will not contribute to revenues until the program is fully restored.
Moving to margins Q1, gross margin was 24.4% down from last year, reflecting lower volumes, including lower after sales service revenues and operational inefficiencies compared to Q4 gross margin improved sequentially by 120 basis points, reflecting the.
Innovation and improved program execution, partially offset by lower after sales service revenues.
We took actions in the quarter to reduce discretionary expenses and we also benefited from the Canadian emergency, we'd subsidy, which positively impacted our gross margins by approximately $5.6 million.
Importantly, this program enabled us to partially protect our margins, while retaining our skilled workforce, which will be important when conditions start to normalize.
As we look forward, we expect continued margin pressure from the inefficiencies and lower market activity.
We are prepared to make structural changes to our cost base, depending on the length in severity of the downturn, but the reorganization undertaken last year has certainly moved us into a stronger position in this regard.
Moving test Tonight.
On an adjusted basis, which excludes acquisition related amortization expenses Q1 destiny of $47.9 million was lower than last year, despite incremental costs from acquired businesses.
Lower SGT reflected cost containment actions to benefit from our previously implemented reorganization and the Canadian emergency we'd subsidy.
Stock compensation expense was $1.6 million in Q1 down from 3.6 million last year, reflecting normal course, mark to market variability.
Our effective tax rate was 24% in the quarter consistent with our expectations.
Finance costs were up by $1.1 million compared to Q1 last year due primarily to the $250 million Castrol on our credit facility.
First quarter adjusted EPS was 17 cents down from 25 since last year.
Lower revenues and gross margin account for most of the decrease as well the Castro impacted or EPS by one cents.
Moving to the balance sheet, our focus going into the first quarter was to preserve liquidity and maintain our strong balance sheet.
As I noted in Q4, we do $250 million on our credit facility as a precautionary measure today, while there's still uncertainty in the market and we expect pressure on working capital. We are more comfortable in our short term analog and as a result intend to repay the majority of that cash trough in the second quarter.
Our noncash working capital as a percentage of revenue improved in Q1, 212% compared to 12.3% in Q4.
We benefited from good payment terms on several new short duration programs, which offset more challenging payment terms in other areas of our business as well or cash collections remains healthy in the quarter, which reflects the strong strategic relationships, we have with our customers.
Based on our backlog, we do expect to build in working capital over the remainder of this fiscal year that could drive the percentage to over 15%.
To manage credit risk, we have a robust program in place, including a our insurance and we actively monitor customer credit you payments.
In Q1, we generated cash from operations of $47 million compared to usage of $40 million last year, reflecting lower working capital investment in Q ones here.
We invested 5.7 million in Capex and intangible assets in Q1 compared to $9.3 million last year.
Higher investment spending last year related to expansions of certain facilities.
As a reminder, and as planned our Capex budget. This fiscal year is in the range of $25 million to $30 million.
We ended the quarter with good liquidity, consisting of cash of $399 million and availability on our primary credit facility of approximately 375 million.
Subsequent to the ended the quarter, we amended our $750 million primary credit facility and extended the maturity to August of 2022.
Combined with our 250 million U.S. dollar bonds, which matures in June of 2023, we've solidified our credit availability for the next several years.
From a leverage standpoint, we finished the quarter with a net debt to adjusted EBITDA ratio of 1.6 to one.
We have further room to deploy capital to pursue our strategies toward target leverage range of up to two to 2.5 times.
In summary, our first quarter financial performance was impacted by the difficult economic and business environment.
Despite these challenges our team has done an excellent job and meeting customer needs, while maintaining a safe working environment.
The investments we've made in our operations, including innovation capacity for life Sciences business building or service organization and training our people and ambien continuous improvement will enable us to resume progress on our margin expansion program when conditions normalize.
The reorganization completed last year, along with our strong balance sheet and available liquidity.
We continue to service while through this uncertain period and provide us with the ability to pursue strategic M&A opportunities.
Now we will open the call to questions from analysts operator could you. Please provide instructions thanks.
Ladies and gentlemen, we will now conduct a question and answer session.
To allow as many voices to be heard as possible. Please limit yourself to two questions per turn.
If you have a question. Please press star followed by the number one on your Touchtone phone.
Your questions will be pulled in the order they are received.
Ladies and share you left the handset if you're using a speaker phone before pressing any can you.
One moment for your first question. Please.
Your first question today comes from the line of Sherilyn rack born with TD Securities.
Please proceed with your question.
Thanks, very much and good morning.
Andrew in terms of the business opportunity related to co Ed just hoping you could comment on what you think the duration of that is and to what extent is that scale up related to co bid kind of distracting some customers from.
I guess more strategic projects in life Sciences.
Good morning Sherlund.
You know as we look at the opportunities both that we won and future. We're very pleased with the ability and how our team has executed and just as a reminder, couple of dynamics with these opportunities first there are very short windows of Wendy identified opportunity started and when we closed.
And second.
The condensed timeline deezer urgent items that are needed to get to market and for instance that.
Cobot test kit that we've talked about very shorten condensed time window and very proud that the team is on track for that now to answer. Your question. There are there additional opportunities specifically related to to the fight against covered in our funnel and we're aligned around those and we're going to continue to drive those aspect.
Yes.
Additionally.
As customers are starting to change their operating process in this environment. We view this as an opportunity also for automation and what I mean by that is a couple of things are starting to happen and as you're aware.
We have an ongoing standard work to talk with customers on a frequent basis and about it caught rough number quarter of them are starting to talk about their supply chain risk areas that we can help as they're looking at their third global impact.
And there are identifying gaps that ats can potentially help and Phil.
About a quarter of them are starting to talk about how to operate in this pandemic and the social distancing thats required through this and ensuring that automation might be a solution. So.
As we look at first the initial on supporting our customers and their fight against Cobot Theres also additional opportunities through automation in the short and mid term debt, we're really targeting and identify to truly offer that value to customers.
Great very helpful color.
Cheryl and if I could just add onto that as well.
So so our bookings for life Science will work, we're helping the quarter and we've talked about the 65 million.
Test kit order.
We had additional colvin related orders as well, but very important and provide a lot of value to our customers.
But from a dollar standpoint, they weren't the order material so.
If you look at our bookings overall, they were still strong in the quarter, even with the Colvin related orders.
Okay very good.
And then on the gross margin it seems to me that there's the sales mix impact, which is somewhat out of your control because it relates to travel and customer site restriction and then there are kogut related inefficiencies in your assembly operations. So I was hoping you could help us think about relative importance that those two factors and how we should think about your.
Delivery to mitigate each one.
Yes so.
So those two factors.
Roughly had an equal impact on the quarter and so lower after sales services you Ray was challenged by travel restrictions customer closures and customers also restricting visitors and their facilities.
And that absorption and then.
You talked a little bit in the remarks about some of the additional health and safety measures.
We have implemented in our in our facilities.
In terms of mitigation.
If I start with services so.
Sequentially through the quarter April and May were very challenged.
And.
And that was really call it at the state of the pandemic.
As as economies in regions have opened up through through June we did see a sequential improvements in our services activity, which which is positive.
So back to what I would call a normal run rate or where we would expect to be under normal conditions, but but a positive indicator.
In terms of absorption.
In some of those inefficiencies.
We continue to operate through those challenges we believe as Andrew said in his remarks, we've applied retail business model, and we are improving and driving improvements through the process.
But it's it's remains a challenging environment.
Okay. That's my two thank you for the time.
Your next question today comes from the line of Mark Novell with Scotia Bank. Please proceed with your question.
Hi, good morning, guys.
And welcome to the call.
First off.
Great job on managing through the quarter can you guys that are real good job.
Good on that.
First question.
Yeah I.
I guess, you spoke about sort of business conditions are getting a bit better.
Here's a baby again life science pretty robust maybe you can speak to the auto.
Yeah, maybe sort of the cadence or sequential improvement that you've seen any it doesn't look like any big awards in the quarter Im just curious sort of the all the world goes back to work.
You see the pickup in activity or order flow. Thanks.
Sure. Good morning, Mark. Thank you for the question, So certainly and we talk through the life Sciences aspect and some of the wins and the other markets through to take a look at auto specifically as you're aware earlier in the year, we announced a strategic win in the process and it was with.
With a large OEM and their move to the area.
That said this market dynamic has challenges and we globally. It had been staying very close to our customers to ensure as they go through their assessment on their supply chain their assessment on their operations and and where they are planning to spend capital and where they might also look to to conserve.
It is a challenging environment. It's one that we've aligned to where review is is that is strategic for the businesses, but there are opportunities and we're staying very close to those opportunities.
Okay.
There's maybe a bigger picture more holistically on you touched on this I'm curious is yes, I guess kind of the conversation again like I appreciate things that are a bit slower.
Well it has the how's the conversations change from the types of conversations we're having with your customers. You mentioned, you know building supply chain resiliency.
Stuff like that just curious if it's at the moment is really just conversations or has there been sort of any new wins associate that maybe its digital yeah. Maybe just the if you can comment on that.
Sure and Mark.
And I talked a bit about our standard work here and all of our leaders are staying close with customers and what I can state is there's a good percentage that are still trying to identify and operate in this environment.
And it presents a significant challenge even if you look at our operations. We've had to go to ship work, we've had to create an environment, where we've got the distancing, but yet still can operate and deliver a solution and so a good percentage are still going through that and so when we talk to customers.
It is a mixed reaction is a mixed focus around their pursue and drive what we can state.
Is through the quarter, we did see a bit of that open up in the discussion.
We're not by no by any means we're not back to business as usual, but we did see a bit at open and customers are starting to talk about their capital investment plans and at our funnel remains healthy through this and so we view that as positive signs that the second piece, which is an interesting dynamic and you asked about the digital aspect.
You know and one of the things that I want to walk through this is is what ats given our proximity of services, we view that as a competitive advantage and we can be in region. We can be close to sites and certainly that's an advantage, but secondly, our teams.
Identified that it was going to be challenged to be on site with customers as the pandemic unfolded and we launched the remote support through that and as well as the smart coach to really help our customers because at the end our customers want to build their product they want to get it to market.
They don't want to ensure that they can maximize their efficiencies maximize their process.
It was ats that really aligned around delivering that solution and helping and I can say, it's double digits on customers that utilize that digital solution and we view that's just the star about our ability to to really Mary automation and and the digital solution to our cost.
Mers to have that full potential smart factory.
Okay.
Is it still.
It's still challenge.
I mean getting into customer service and maybe not the digital part, but we just.
Conditional systems business too.
Factory acceptance site so inspection.
So challenge for you guys again.
So the revenue profile sort of.
What's actually happening in business.
Yeah. So it is still challenging and if I were to kind of characterize our customer sites that beginning of the pandemic.
The majority no external support on site.
Very limited.
Through this certainly that's opened up but again back to that I talked a little bit about this in the innovation aspect. Our teams constantly worked with customers to overcome the obstacles and just talked about you know factory acceptance test and utilizing the digital aspect in our technology to help our customers.
So they could sign off and see that the machines are working and so we're constantly looking at how to innovate how to drive continuous improvement to really overcome those obstacles, but but as I stated earlier by no means is a business as usual and and it remains a challenge I do view Ats as ability.
Capability as one of the items that is potentially going to separate us through through the mid and long term.
Alright, I got a couple more big we'll get back in queue, but again, a good job mcwhirter.
Thank you Mark Thanks, Mark.
Your next question comes from the line of Justin keyboard with Stifel. GMP. Please proceed with your question.
Hi, Good morning, Thanks for taking my call in the good to see the resilience in the quarter.
You heard US couple other questions on the onshoring or re shoring trend I think if I heard correctly.
Customers may be re evaluating a quarter of their supply chain, which seems quite substantial I'm wondering if that's being driven by potential regulatory changes as a customer driven.
Maybe what areas.
Activity, you're seeing as soon as far as geography, and also is that applicable to other segments of your business outside of health care.
So.
Just a distant just to clarify that earlier remarks, it's a quarter of the conversations with customers and it is very early in this and what I am not stating today is that every customer is going through this because they're going through dynamics, but a quarter of our customers in the interactions have been talking about though.
Risks and the dynamics they face through this pandemic and how to put in the ability to overcome the obstacles. If something were to continue or were you already get a second phase or we were to be phase to the dynamic in the future and it.
As we look at that the external that's driving this there's certainly been talks about how things potentially going to change are going to change, but it's early days and these these specific customers have really aligned rod we saw a gap we saw the impact from that gap and we view, we had the ability to overcome that through using.
Whether its automation or usually utilizing our existing production facilities and expanding their capability or putting new equipment in existing facilities and so it is a bit of it is a bit of a.
Early on in the process, but we do view this as an area of opportunity and one that we can we can support customers as they as they assess this and make their decisions.
Okay appreciate that different additional color and then on the margins in the quarter I'm wondering if it's possible to quantify any onetime costs related to the coven $19 social distancing protocols are implemented and also if you're able to quantify some of the inefficiencies that our reserve.
Also because of that.
Oh.
So I'm not going to specifically quantify but.
If I look at our gross margin relative to Q2 Q1 last year. There was two main impacts one was.
Having lower after sales service revenues.
And as we we've talked about in the past that's up to higher margin business for US and then the second was was the is the the absorption.
And that was caused by some of the inefficiencies again that we've talked about roughly those those order or half and half in terms of impact on the quarter.
Well, we do have we did benefit from the reorganization that we implemented last year in of course, we benefited from.
The wage subsidy payments that I talked about.
And our approach through this.
We took we took quick and decisive measures on discretionary costs.
In terms of measures beyond that that would have impacted or people.
We've tried as best as possible to minimize though is in the weight subsidy certainly helped in that regard.
And the reason for that is we want to coming out of this we want to put ourselves in the best position possible and so maintaining our skilled workforce is certainly an important aspect to that.
So so that's how we've we've managed through some of the the inefficiencies that we faced.
Okay. Appreciate that thing is there another expected a week subsidy benefit.
The next quarter.
Yes, there is so the program the program has changed effective in July.
We do expect to continue to benefit from from the program, but it won't be at the same level that was in the first quarter.
Okay I appreciate that thank you for taking my question.
Thanks, Justin.
Your next question comes from the line of Maxim Sytchev with National Bank financial.
Please proceed with your question.
Hi, good morning, gentlemen.
Good morning box warning Max.
Until maybe the first question for you if you don't mind, you'll comment around M&A do you mind, maybe putting that Michael in terms of what exactly you're looking at doesn't product focused entities versus service.
Maybe size multiples and maybe some of the learnings such you would have experienced last couple of years than transactions and how youre trying to apply those those learnings to the current environment.
Sure. So so Max approved as we look at our funnel our funnel is first and foremost healthy funnel as we look at call. It the progression over the last three years and it has a mix of.
Both size of call it small moving in the large.
Truly areas that we view our areas, we want to continue to drive and focus on from an EPS perspective.
As well as products machines services and or areas. We can bolster from an integration perspective, and so our funnel really focused around and as you as you're well aware we're extremely disciplined in our approach. We've got four key criteria. It starts with market then goes to strategic rationale and then than how we're going to opt.
For it to asset west of the ROI C and so.
Not only have we have we continue to build and drive that I would say it unique learning through this this pandemic is.
Early on certainly engaged in the cultivation, but but the video calls that aspect really became almost a bit more prevalent through the quarter and I'm very very pleased with how we've adapted and engage with certain targets that we view our attractive as an addition for Ats. So.
Lastly, as we look at the board. We've also structured around the ability to have a strategic aspect around this and it's being led backfill Whitehead engagement with management to ensure that as we're looking what we've got the REIT focused the right energy and drive as as ensuring that this is a piece of.
Our of our store and moving forward.
Lastly.
Lessons learned on on the acquisitions, we've done we can't be more proud of where we are with with the groups that we've acquired and I'll just start with homemade share continued drive with that business. Another win as a combined joint effort with with Ats with their best in class isolation technology.
As well as Marco coming online and providing a solution in this space that we view is attractive and so certainly a lot of lessons learned and and we're going to continue to learn through that but I'm proud of how we've overcome those and continued to operate the businesses.
Yes, Thats very helpful and I guess, I mean, you're not looking at verticals such you haven't historically.
[music].
Sort of telegraph to us as an area of interest I mean, like you know something like aerospace right now is not something that you would look at or.
Given some of the amount of uncertainty or is this is something that potentially could pop up on the later.
So as you're aware, we look at all for variables in independence, and jointly and markets one of them and so we're going to look at the cycle to market and where its and its cycle.
It's no secret we like the dynamics of life Sciences, we'd like we like life Sciences through a short and long term impact and the new resiliency that it has over potential.
Economic cycles, we like the regulated aspect of food and beverage and so there are others that we look at that we identify and flex in and out from a standpoint of engagement.
But in general it that's going to be a piece that we're always looking at to ensure that debt that were very.
Understanding and know the dynamics of the business to recycle.
Yes, I complete and then a couple of quick on for Brian If I may.
So the comments around the working capital I mean, assuming.
Once you kind of cycle through the Iraqi contracts is it fair to assume that working capital will be Kim will commence to normalize.
Overall, I mean, what's called the medium term over the next 24 months, where are you expecting this level.
Investment to stay relatively elevated.
So so Max I mean, certainly over the long term, we expect to operate within within our target which is 15%.
Our or being below 15%.
Only we do have some contracts in our backlog that like I like I talked about are going to drive some pressure.
For the balance of the year.
Beyond that it really is going to depend on the though the work that we book going forward and and payment terms and and cash collections and like I mentioned in my remarks.
Hey, our collections were very good in the quarter.
Reflecting our good good strategic relationships with our customers so.
We've we've we've held the line and we had good progress in the first quarter, but.
There is going to be pressure on our working capital going forward.
Right, Okay, No that's fair enough and then.
In terms of the which subsidies.
Is there anything in Italy, and Germany that you can tap were.
The regulatory environment is funded different relative to kind of Canada and.
On the UK them upfront.
So so nothing nothing along those same lines of whats available in Canada, there our programs in Germany around deferral of tax payments and some other.
Potential programs.
But certainly nothing to to the level of what's available to us in Canada.
Okay. That's very helpful. Thanks, very much that's coming.
Your next question comes from the line of match well with Cormark Securities. Please proceed with your question.
Hi, good morning.
We've already spoken Andrew about the delayed.
Particularly the Ami somebody TV programs are you being told.
Details about.
The timing of programs that are greenlighted or is this.
In other words business that you are being told will be delayed, but timing and so be prepared to bid on it or is that much more open end date in the sense that it's like these aren't happening at all like.
With that an idea whether there's.
Serious delays and some of these programs or whether these are just a timing issue.
And back just to make sure you're looking into the automotive specific sector correct, yes, yes.
Yes. So so it is a mixed bag on this Mac and add when we look I mean, we talk a bit about this and strategic when it's aligned to where the customers driving for instance earlier this year.
Customer move forward and we were able to execute quickly on on future projects I would say, it's a mix and we have certain strategic ones, where we've got insight customers are identifying and caught earmarking certain investment into that while others. There are assessing versus other investments in.
So I would say, it's a bit of a mix as you're aware called three years ago, we roughly shifted our focus in that not run we shifted our focus to the E b.
And the process around you didn't call battery pack assembly as well as other aspects and.
That's been more of a discussion with customers as that's been more of a target and a focus but but certainly it's a dynamic an ever changing and therefore, we're staying very close with our customers and making sure that were aligned when they move forward, we're in a position to execute.
Okay.
Okay. Thanks, the second question.
Is it rounds.
How youre.
Jeff seeing sort of.
On the slide so to speak too.
Generating new business for instance.
Where you see the opening up of accessing travel are you jumping in there rushing right back into see client because you expect.
Possibly other shutdowns of timing if we go back and we start to see sort of that closures again like what what is your sort of.
Position tactically in the short term without taking advantage of opportunity to see quiet.
You know.
And and.
I'm going to highlight an area that I'm very proud of the commercial side of our business through this and I'll just state early on April hit add certainly we had to figure out the process the approach, but our commercial organization through to the ATM through to continuous improvement aligned around virtual meetings and.
Showing that there outreach with customers are aligned and and having that dialogue and really making that part of our standard work and so you're right things changed and I would say our team really did a great job of aligning to to dealing with what was in front of us, but then also focusing on the pro.
Active aspect improved and drove our marketing, which has been an area that we viewed as as you know something we can we can we can really drive as well as marrying that with with customers around our sales folks engaging in those conversations and.
Certainly it's one of the dynamics that has tested us on our ability to adapt but I can I can probably stay that the commercial team really aligned to that and have had very close conversations with existing and new customers and that's going to continue.
So how do you think longer term, there's acts wall I would call it saving but if you're spending the same amount you think you can actually be at an organization more effective because maybe reduced travel it's only when we.
Really going to get some.
Signed in revenue in the actual backlog and or whether you think you or do you think you can actually increased the pace.
Updating and that type of thing because youre more effective and in being distance so to speak I'm wondering if it caused that I guess the bottom line of question.
Yeah. So.
I will say, it's very early in the pandemic and in our assessment on it and so you know to claim we're going to have savings through this is I think it's a bit early to make that call. What I can state is the engagement early on we view as a positive that said it is by no means business as usual today.
Okay, and and so therefore.
The shifts I am certain we're going to learn as we go along and we're going to in grain that in our approach and the engagement earlier on a customer processes, where you don't have the schedule on site you can actually be a virtual it can be a quick call. You can walk through your business you can get engineers on that might be in different regions, we view that as.
As an opportunity in something that debt as a global organization that not only can can maximize our value to our customers, but that also service and support as they as they received the equipment, we view that as something that Ats can really really take it provided advantage to our customer base on.
Okay.
Great. Thanks, guys.
And again, ladies and gentlemen, if he would like to ask a question. Please go ahead Im Press Star then the number one on or telephone keypad.
Your next question comes from the line of Mark November with Scotiabank. Please proceed with your question.
Hi, Good morning started just a couple of follow ups, maybe just on the M&A discussion.
I can I can appreciate the commentary around you know.
Cultivating the funnel sort of.
Virtually I'm just sort of curious how comfortable you would actually be closing a deal sort of in this environment.
Yes, and this is.
One that that certainly is going to be a focus for us and weve.
In conversations walking through its one that we're going to have to be comfortable and ensure that we've got the right diligence level and so we're going to be dynamic we're working.
Not not any any future statements, but we're working with firms in regions, where we have teams in regions that would be part of the diligence process, where required or where needed.
Okay.
Well that's good.
Maybe for Ryan the good housekeeping, just see the backlog adjustment in the quarter without the.
The transportation that's been put on hold if it was a transfer these products was that with others.
So no into the majority of that foreign exchange and we still have thought that program on hold in our backlog.
There's some other normal course course scope changes in that number but majorities foreign exchange.
The program on hold is there.
Okay.
Timeline or another drop dead date, where it gets cancelled or mitigate canceled.
This move and backlog or sort of just we'd see.
So so we're going to keep it in backlog.
As long as in stock Council that would be the trigger for us to remove it.
We're continuing work with that customer.
There's other related programs that are proceeding.
So I mean, I can't give you a timeline as to when that might restart or or or otherwise.
Maybe just the loss from this home understating the working capital.
Since I got to build through the year and that's just payment terms on certain projects and that's.
I have on winder since like a couple of quarters or is along the lines.
Of unsure as to.
Sort of when that happens in sort of I guess, the cadence of how the investment.
Yes. So so it's it's a build of working capital primarily related to.
Two commercial terms for their customers and the other half the other driver on that is revenues. So we've seen our revenues declined in the quarter in that obviously has an impact from a percentage basis as well.
But again the commercials the particular, calling contracts were in commercial terms, where there's an actual.
I guess the payment terms longer theres, an actual actual investment.
Is that just sort of through this year or as a longer as it beyond that.
Yes. So these are these are what I would call quote on quote normal contracts. So there there has been nine to 12 months some of them go a little bit longer.
So so yes, there their normal course.
Project durations.
Okay got it alright, thanks Lucas.
And there are no further questions in the queue at this time I turn the call back to Mr. harder for any closing remarks.
Great. Thanks, operator, we look forward to hosting our first ever virtual annual special meeting of shareholders Tomorrow at 10 am We hope you can join us otherwise I look forward reporting our Q2 results in November. Thank you for joining us today Goodbye for now.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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