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ATS Automation Tooling Systems Inc. (OTCPK:ATSAF) Q4 2020 Earnings Conference Call May 27, 2020 10:00 AM ET

Company Participants

Stewart McCuaig – Vice President, General Counsel

Andrew Hider – Chief Executive Officer

Maria Perrella – Chief Financial Officer

Conference Call Participants

Mark Neville – Scotiabank

Justin Keywood – Stifel GMP

Maxim Sytchev – National Bank Financial

Mac Whale – Cormark Securities

Cherilyn Radbourne – TD Securities

Operator

Good morning, ladies and gentlemen. Welcome to the ATS Automation Fourth Quarter Conference Call and Webcast. I would like to remind you that this call is being recorded on May 27, 2020 at 10:00 AM Eastern Time. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions]

I would now like to turn the call over to Stewart McCuaig, Vice President, General Counsel of ATS.

Stewart McCuaig

Thanks, operator, and good morning, everyone. Your main hosts today are Andrew Hider, Chief Executive Officer of ATS, and Maria Perrella, Chief Financial Officer.

Before we begin, I am required to provide the following statement respecting forward-looking information, which is made on behalf of ATS and all of its 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 COVID-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 to differ materially from the conclusion, forecast or projection in the forward-looking information and the material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information are contained in ATS’ filings with Canadian provincial securities regulators.

Now, it’s my pleasure to turn the call over to Andrew.

Andrew Hider

Thank you, Stewart. Good morning, ladies and gentlemen. I want to start by thanking you for your continued support of ATS. The last few months have been challenging for everyone and the economic impact of this health crisis is unprecedented. To those directly affected by COVID-19 we extend our sincere sympathies and tothose healthcare professionals on the frontlines, we thank you for your service.

Through this pandemic, our first priority has been the 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, while ensuring local regulations are followed.

Our teams have adjusted how we work and implemented measures to enhance safety at our facilities. As an essential 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 to personal protective equipment. And in life sciences, we have deployed resources to help customers quickly ramp production of critical components to aid in the fight against COVID-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 for working hard alongside with us. I could not be more proud the way our teams have taken on these challenges. While travel restrictions measures implemented to enhance facility cleaning and physical distancing have impacted operational efficiency, they are critical to our employees’ well-being. These efficiency impacts were felt in Q4 and will continue into fiscal 2021.

Turning now to performance. Fiscal 2020 and Q4 featured growth in revenues and 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 and offer more details on how we are operating in this new environment. Maria will then provide her reports.

Starting with our financial value 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 a recently completed reorganization. Margins were also impacted by RED programs in the quarter.

We work to mitigate cost and schedule overruns, but I don’t expect that we 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 were $1.5 billion, up 4% over last year. Our Q4 bookings were $365 million, up 19% over last year.

Q4 included a $60 million EV booking for fully-automated battery assembly program for a global automotive manufacturer. This program includes two turnkey lines for the customer’s North American operations. It will be delivered over the next 18 months and it’s based on ATS’ best-in-class, SuperTrak linear motion technology.

Moving to our outlook. Our Q4 ending order backlog of $942 million positions us well on the current environment. To-date, we have not had any material cancellations on programs in our backlog and 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 and some opportunities have been pushed to a future date.

By market, activity in life sciences has remained relatively robust. Most of that activity has transitioned to mandates related to COVID-19 responses. We expect other opportunities to progress in medical devices, pharma and radio pharma with some interruption as customers adjust to the environment. Life sciences represents 54% of our revenues last year.

This market has positive dynamics for continued long-term growth and it’s highly complementary to our capabilities as it features high barriers to entry including stringent regulation and high consequence of failure.

In EV, customer shutdowns and focused efforts on cash preservations have 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 is more clarity regarding the economic impact of this pandemic.

In consumer, similar to EV, we expect the general slowdown in activity with the timing of some opportunities moving out.

In energy, we continued to see activity in nuclear, where we offer considerable value for our customers including digital solutions and services. While our customers may delay work as they adjust to the new environment, we see opportunities in this market.

Generally, we expect opportunities to focus – we expect customers to focus on preserving liquidity until there is more clarity on the severity in duration of the economic impact of the pandemic. There will be some offset in the short-term from specific COVID-related opportunities and some highly strategic projects.

On after sales services, bookings remain strong in Q4, up double-digits and we continue to see good trends in 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 sales services increased by double-digits. We’ve seen strength across our services portfolio including upgrades, asset management and our digital services offerings.

Moving forward, we are 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. The 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 2021.

Moving to the ATS business model. A few ABM highlights from the quarter. In January, we held our Second Annual Presidents’ Kaizen. This involved the execution of four simultaneous Kaizen events globally with participation by the executive leadership group as team members. The four events focused on sales funnel process, employee retention, new product development and cost reduction.

The events were held in facilities around the world and I 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 ABM 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 ABM have served our organization well. These new ways of operating include work from home protocols for our people where possible to enable physical distancing. In our facilities, we’ve also transitioned to shifts to reduce workforce density.

We have implemented virtual daily visual management which enables our remote workforce to stay connected with our teams onsite. Along with daily visual management, other core ABM tools such as problem solving have equipped our team 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 COVID-19. Our people have 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 automaker to help them reconfigure capacity and supply equipment that can produce up to 11,000 N95 respirators per day. This was accomplished in 17 days, from kickoff to delivery, an incredible achievement by the team.

We are 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 are also engaged in activities that are well aligned to the value we bring to customers. For example, we are engaged with manufacturers of COVID-19 test kits, helping them ramp up production to meet these unprecedented demand for their products.

At Comecer, our team has launched d-CON box, a new product to enable the fast decontamination of medical equipment including N95 masks, helping to mitigate shortages. This product is based on the same technology used in our Aseptic Isolators.

At IWK, our team has developed a rapid deployment tube filling solution, suitable for hygiene products with high alcohol content such as hand sanitizer. Each of these initiatives have been implemented very quickly and demonstrates the innovation of our people and the positive impacts that our organization enables for our communities.

Moving to M&A, for the year, we completed three acquisitions deploying $53 million in capital. Integration of MARCO was underway and on track with a focus on deployment of the ABM to drive operational efficiencies, advanced geographic penetration and expand MARCO’s after sales services.

As a reminder, MARCO is a leading provider of yield control and recipe formulation systems for the food and related industries.

As we look ahead, we are 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 ABM, along 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 of the pandemic will last. However, when we do move beyond this health and economic crisis, we believe our business is uniquely positioned as customers return to work and look at ways to drive efficiency in their operations, automation will be a critical enabler.

Long-term, we expect manufacturers to examine their existing footprints and supply chains to ensure they can operate in the future through major disruptions as we are experiencing. Enabling efficiencies through automation and innovation will be vital to their success. We have valued customer relationships with world-leading organizations, many of whom are essential service providers themselves.

We have this strong business with good backlog, a healthy balance sheet and our ABM playbook that will enable u to continue to create long-term shareholder value.

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Now I will turn the call over to Maria.

Maria Perrella

Thank you, Andrew. While the current economic environment has changed dramatically, our focus going into fiscal 2021 has not changed. We are committed to protecting our people, serving our customers and ensuring our balance sheet remain 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 COVID-19 as they relate to our new fiscal year 2021, 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.

Speaking about the financial highlights of fiscal 2020, bookings, revenue and adjusted earnings increased over fiscal 2019 as a result of both organic and inorganic growth. Fiscal 2020 includes the full year of Comecer and KMW, as compared to one and five months in fiscal 2019 respectively. Our three acquisitions in fiscal 2020 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 divisions and in Q4 by two other factors, RED programs and inefficiencies related to COVID-19.

This morning, I will discuss fiscal 2020 performance, including Q4 results and provide an update on our balance sheet. I will start with operating results.

Revenues of $1.4 billion grew by 14% over last year’s $1.25 billion with 10% from acquisitions and 4% from organic growth. We have seen good growth over the last three years as revenues have grown by 10%, 12% and 14% in fiscal 2018, 2019, and fiscal 2020 respectively. Organic growth in that period has averaged 8%.

Q4 revenues of $382 million were 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 the threat to supply chain issues and impending closures were contemplated.

For the year, bookings of $1.5 billion were 4% higher than last year due to acquisitions with the base business seeing a 2% year-over-year decline. Our book-to-bill ratio was 1.03 to 1. Q4 bookings were $356 million, compared to $368 million in Q3. We started to see opportunities slipped to the right as customers were pre-occupied with COVID-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 2021 revenues. We ended fiscal 2020 with backlog of $942 million, a 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 to mitigate some of the expected challenges with order bookings. Our revenue conversion range for Q1 fiscal 2021 is estimated to be in the 30% to 35% range of backlog.

The effects of COVID-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 restrictions. Some customer plants were closed and operational inefficiencies resulted from physical distancing protocols.

In addition to these impacts, our customer put on hold one part of an EV 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 COVID-19 test kits is to be delivered in a short timeframe and will help to offset some of these significant impacts just noticed.

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 COVID-19-related issues and other costs, offset by certain other reductions. On RED programs, we experienced program execution challenges in one of our transportation facilities.

As a large number of EV programs are nearing completion, the combination of size and customer schedules resulted in shortages of internal resources and added unplanned costs due to higher subcontractors and related inefficiencies.

Fiscal 2020 gross margin of 25.3% was 90 basis points lower than fiscal 2019. The reorganization, RED programs and COVID-19 impacted fiscal 2020 margins by a total of approximately $16 million or 110 basis points. The sum 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 COVID-19, and additional actions taken to reduce costs, we are in a stronger position to cope with the economic fallout of the pandemic. The estimated $15 million to $18 million annual benefit of the reorganization maybe hidden in the short run by the impact of the economic environments.

On costs, we have taken action on discretionary and other variable expenses in Q1. This includes managing cost 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&A, on an adjusted basis, which excludes M&A transaction costs, acquisition-related amortization expenses, and restructuring costs, Q4’s SG&A of $50.4 million came in lower than the estimated normal runrate of $52 million and slightly lower than Q3.

Lower employee incentive expenses, along with some impacts from cost containment actions, combined through reduced Q4 SG&A by approximately $2 million year-over-year despite the addition of SG&A from acquisitions.

For the year, SG&A of $198.5 million was $22 million higher than fiscal 2019 due primarily to acquired companies. Stock compensation recovery or expense has fluctuated throughout the year due to mark-to-market adjustments was a recovery of $1 million this Q4 as compared to a $6 million 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 COVID-19-related costs, partially offset by slightly lower SG&A as a percentage of revenue.

Moving to the balance sheet. Cash preservation and liquidity are front and center. We came into this quarter with a strong balance sheet and we are 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 1.

By quarter end, we started to experience some negative cash impacts as certain customers started to delay 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 non-cash 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 2021, we expect our working capital as a percentage of revenue to increase to over 16% 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 2020, we invested $57 million of a planned budget of $60 million. In fiscal 2021, our CapEx spend will reduce to $25 million to $30 million and will be primarily for maintenance and IT infrastructure.

For the year, we generated cash from operations of $20 million, compared to cash generation of $128 million in fiscal 2019. Under our NCIB 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 have 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 $0.26. For the year, adjusted EPS of $1.06 was up $0.09 from $0.98 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 the year resulted in a lower effective tax rate.

In summary, we accomplished a number of objectives in the year including organic and inorganic growth. With a significant reorganization activity behind us, we are better positioned to weather economic uncertainty and once the current economic situation is resolved to return to our margin improvement program. With our ABM foundation, we can adjust and adapt to the changing environments.

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.

Question-And-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Mark Neville with Scotiabank. Your line is open.

Mark Neville

Hey, good morning.

Andrew Hider

Good morning.

Mark Neville

I appreciate all the extra the details and color in prepared remarks. I guess I’m just curious, if we sort of compare May to April, April to March, maybe you can just talk about, I guess, two things. First, sort of what’s happening inside your business in terms of staffing, utilizations, general ability to sort of operate install, whether manufacturing or aftermarket?

And second, from a customer perspective, whether in terms of order flow or RFPs sort of just how that’s all progressing? I guess what I’m ultimately sort of asking is if we’ve seen sequential improvement at this point, you’re still not yet. If you could touch on that, that would be helpful.

Andrew Hider

Yes, good morning, Mark. So, as you can imagine, with this pandemic, our customers are faced with many challenges and what I can say generally is, we haven’t seen a greater change in the way they have operated and what we have and I know you are aware of this.

But as a reminder, one of my standard works as a CEO is having ongoing and frequent calls with the customers or visiting customers and through this pandemic I have continued that and even its reason is this week had recent calls with customers where they are focused on ensuring that we as ATS can continue to support and deliver on their platforms, their solutions, their products.

That said, they are faced with many challenges around whether they can be on site for a site acceptance test or be – or have a factory acceptance test. And so, what I can tell you is, it’s still early days and how this pandemic is really shaping up and with travel restrictions remaining in effect, it certainly creates dynamics that we continue to overcome.

And 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 the equipment to remote support that our team early on in the pandemic identified that travel becomes or could become a challenge and launched with lot of the interest from customers around the ability to troubleshoot an instrument they can continue their operation.

And so, early days, we’ve really gone to execution mode from a pandemic response perspective. And 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 become better. And then the third is continuing to add value to our shareholders.

Mark Neville

Okay. I guess on that or – go ahead, Maria, sorry.

Maria Perrella

I was just going to add, you asked about the months and changes, and Andrew provided…

Mark Neville

Sure.

Maria Perrella

Good coverage there. But one of the things that did change for us is, in April we press released the $65 million COVID-19 test kit machine. And when we talked about our revenue conversion, and where – as we say one of the offsets and benefits that we are seeing is as a result of this order.

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So that order did change for us, our workforce requirements and if we had received it at the time, then it would have been a slightly different situation than what we see today. And with that order, we have the benefit to be able to revenue that over the next four months. So, positive impact.

Mark Neville

Yes. And you also mentioned that there was a program put on hold in the quarter. I am just curious the – any details around the end-market, I think you actually know that you may have said it was transportation, but just any details around that will be helpful.

Maria Perrella

Yes. So, we said that transportation end-market and around $30 million that’s been put on hold and we expect the customer to continue with this program. In the quarter, we don’t see revenues from that, but in the year, we expect to revenue.

Mark Neville

Okay. If I could ask just one last one then before I get in the queue. Just on the RED program or the – that the program that went over budget in the quarter, was that one specific project? And just curious how close it is to completion? Just trying to gauge through this that this could be a lingering issue for a quarter or two or if it’s largely beyond us? And thanks for that.

Maria Perrella

So, this – there were four programs, we said transportation programs and in the quarter they got to a much higher percentage of completion. So, we expect that most of the financial impact is behind us – this is largely behind us as in Q1 we were completing these programs.

Mark Neville

Okay. Thank you. I’ll get back in queue.

Operator

Your next question comes from the line of Justin Keywood with Stifel GMP. Your line is open.

Justin Keywood

Good morning and thank you for taking my questions. On the COVID-19-related contracts, ATS seems to be in a pretty good position to assist here and I believe that $65 million Test Kit automation award might have been a record for the healthcare segment. I am wondering if you are just able to expand on the activity you are seeing in this new area and if there is an opportunity for similar sized contracts for Test Kit automation going forward?

Andrew Hider

Good morning, Justin. I can’t be more proud of how the team executed and I am going to talk a little bit about this program, because there was a lot of challenges that we faced to overcome to deliver this 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 feed for the team and I can’t be more proud. And by the way, as we look at that project today, we are on track and so, it’s moving forward. As we look at this space, we do view that 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 providers to really one, align 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 is more potential. And we are going to continue to drive to ensure that we deliver on time, on budget of this specific area.

Justin Keywood

Absolutely. That’s helpful. And maybe a question for Maria. Just to clarify, was that $65 million contract, is that going to be accounted for in Q1 bookings along with the revenue recognition?

Maria Perrella

The $65 million is a Q1 booking and we’ll revenue it in Q1 and Q2. And right now, I was looking like about 60% in each quarter. But that’s rough, it could be 40%, 60% – 60%, 40%.

Justin Keywood

Okay.

Andrew Hider

And Justin, I do want to add one additional item. Our team, commercially has also built a COVID response group to ensure that we have an outreach to customers and that’s just one area. We also talk about whether it’s mass manufacturing to our decontamination process at Comecer to ventilator, testing and manufacturing to the sanitizing filling process.

And 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 it’s much needed. And so, it’s been a real, real focus for the group and certainly something that we are proud of here at ATS.

Justin Keywood

Absolutely. And my next question is more of a broad question related to the healthcare activity that you are seeing. Is this related more to normalized patterns or are customers starting to reexamine their supply chains as a result of COVID-19 perhaps to look to more – manufacture more onshore, which I assume would be beneficial to ATS and providing the automation equipment?

Andrew Hider

You know, Justin, as we sit today, life sciences might see some delays as the market is certainly seeing dynamics in this pandemic. But we do expect it to come back quickly and the former remains strong. Our view and many views of this space is, in the kind of future and we would say, mid-term future call it, one to three-ish years, this is going to be a real focus on supply chain enablement, supply chain derisking 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. It’s very early in the process, very early for our customers and their assessment. They are focused on getting through this pandemic. But overall, we view this as an area that automation is going to enable and innovation is going to enable and ATS is uniquely positioned in this space.

Justin Keywood

That’s helpful and thank you for taking my questions.

Operator

Your next question comes from the line of Maxim Sytchev from National Bank Financial. Your line is open.

Maxim Sytchev

Hi, good morning.

Maria Perrella

Good morning.

Andrew Hider

Good morning, Max.

Maxim Sytchev

Andrew, maybe first question for you. Do you mind maybe differentiating in the healthcare space between what’s happening with the clients from the medical devices versus pharma? I mean, I would presume that given the fact that elective surgeries has been pushed to the right, the medical device clients would be more negatively impacted in the short-term.

Is that how we should be thinking about this? And also, do you mind maybe breaking down in terms of what roughly percentage of revenue in healthcare accounts for medical devices versus pharma if it’s possible?

Andrew Hider

So, Max, I’ll answer the first part of that and as we – so, when we look at our medical devices often times and by the way I had a call with one of the customers in this space call it two weeks ago. It is an enablement solution, meaning it’s a surgery or operation that they are going to be required to do and it really aligns around truly helping the end customer, the user of the specific device to 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 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 call it radio pharma, that business was deemed essential early on and they are continuing to operate and we are continuing to see customer interest to ensure that they provide the specific solutions to their customers.

Maxim Sytchev

Right. And sorry – and just to clarify, when you talk about lack of slowdown on the medical device side, is that what you are experiencing right now, or the funnel or both?

Andrew Hider

Yes. So, we have seen – we have seen some delays, but the former 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 at the proper kickoff or site acceptance testing, or along those areas.

But overall, again, back to the general statement, we do expect some delays, but we do expect it to come back fairly quickly and the former remains strong for this specific space.

Maxim Sytchev

Okay. Now that’s very helpful. Go ahead, Maria, please.

Maria Perrella

Yes. On the split of revenues, about two-thirds of life sciences revenues in medical device and one-third, pharma.

Maxim Sytchev

Okay. Thank you very much. That’s very helpful. And then, do you mind maybe commenting a little bit in terms of sort of the risk mitigation strategies and kind of the complexity around the COVID contract that you have signed recently, just given the fact that, it’s a very short duration project and you had a RED program.

I mean, obviously, I understand it’s not in the same space and so forth. But just, do you mind maybe commenting on the complexity of the execution being able to actually get it done on time, on budget and then so forth?

Andrew Hider

Sure. I will provide my color and then Maria can certainly jump in. This is something that we walked into and had very clear focus on – and we are talking the test kit which is, call it the $65 million order we announced. Barely condensed time line. That said, one of the areas that we’ve been – we announced in prior years the acquisition of Transformix and utilizing that technology and we’ve been able to utilize a piece of that technology and the solution.

And so, I am not saying this is low risk, I am saying, it certainly presents risk, but our team is on track and on budget. And we’ve built off of that into our approach with the customer who has been very open to working with us. At the end, it’s about getting this solution out to the market and ensuring that that ATS can help in this and really provide that value.

Maxim Sytchev

Okay. That’s helpful. And then just in terms – sorry, go ahead.

Maria Perrella

And in addition to that, we are using three facilities to get this work done. And we use three facilities all have experience and a very skilled workforce to achieve this. And we’ve talked about some areas where we haven’t been able to use our people. So, for example, in onsite support and service and those skilled resources have been redeployed also to work on this program to ensure its success.

Maxim Sytchev

Okay. That’s helpful. And then, just in terms of – kind of the technology that has to be employed in order to undertake this project, I mean, this is not something sort of breakthrough from an automation perspective.

I mean, at least, sort of all the moving parts are relatively – I don’t want to – I understand this is just sort of a walk in the park that this has been done before in terms of the actual application of technology, I guess, that’s my question.

Andrew Hider

So, you know, Max, when we look at this program, certainly there is challenges within the program and the condensed timeline is one of them. What I can tell you is, this is what ATS does well. And we have identified the key risks in the application.

We’ve really aligned around the technology that we’ve invested in and the innovation we’ve invested in, we are already utilizing that. And we are on track, on budget to our plan and we are having very positive, very ongoing discussions with the customer to ensure that we deliver this product on-time and on budget.

Maxim Sytchev

Okay. Now that’s great. And then, maybe just the last question around the possibility of additional restructuring. Just wondering, what trigger points do you have to see over the coming – I don’t know, if it’s weeks or months in order to sort of decide if you need additional adjustments?

Andrew Hider

In general, Max, we are going to continue to look at leading indicators to ensure that our business is properly structured to continue to execute through this pandemic. And so, we monitor, we ensure that we’ve got the right basis to get through and then really align our organization, because as we’ve talked, you look at mid-term and call it a year plus out, automation is going to be a key enablement.

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And so, we are going to – in alignment to balance both costs, as well as ensuring that our business is ready to take on that potential future state of automation being an enabler for development of supply chain, reduction of risk. And so, we’ve got key leading indicators we monitor. We continue to asses and we are going to continue through that.

Maxim Sytchev

Okay. All right. That’s it. Thank you very much.

Operator

Your next question comes from the line of Mac Whale with Cormark Securities. Your line is open.

Mac Whale

Hi. When you look at, given the weight on life sciences versus transportation in both the bookings and just in your revenue, just looking short-term, is that shift in activity, is that’s something that life science can offset in transportation and would there be a margin implication to that shift?

Andrew Hider

So, overall, and this is just a general sense of the market. Short-term, it’s going to be challenging and we won some COVID opportunities and strategic opportunities. We do expect that the market is going to be – and have general weakness. And so, when we look at LS, and I mentioned this earlier on the call, but we expect some delays, but we do expect it to come back quickly.

Nuclear, similar to LS, some delays, but fairly steady and we do expect it to come back. EV and 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 and in an area that we continue to monitor.

And Mac, as you are aware, about three years ago, maybe two-and-a-half years ago, we went through a strategic assessment of the business and we focused on key areas of transportation, one being the shift to EV and we announced that late last quarter, or late in Q4, the strategic win for the business and something that we have aligned to that we can have high value for our customers.

Mac Whale

Okay. That’s helpful. And you look to be positioned in both those key verticals in the right way over the next, call it, five years. I am wondering whether we should be modeling in a different return to normalcy, so to speak, whether the rebound will be more V shape in say life science and more U shape in transportation. Just trying to get a more nuance sense of how – if you even see it, yet, what the shape of the recovery will be on the two different segments?

Andrew Hider

Yes. Like I am – it’s too early to tell on the recovery and I have read all the articles on V versus Swish versus W. 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 is strong.

In EV and in auto we do expect this to be a bit more challenging as customers have had shutdowns and they are very focused on cash preservation. And so, I think that answers your question.

Mac Whale

Yes.

Andrew Hider

But it is very early in this pandemic and what we don’t want to state is, we are viewing it as – we are preparing our business for what could happen and we are expecting the best outcome, meaning, we are driving to add value to our customers and ensuring that when they look at their key providers, their key solution providers, ATS is in the first priority list. That said, we are also preparing the business to be able to weather through this pandemic.

Mac Whale

Okay. And then, connected to that, just a question on, you’ve done restructuring. You’ve added some new businesses and you are applying pretty much done with the ABS implementation. Is – in this, what have you learned about the strength and weaknesses of that approach to business in this pandemic? Has it – is it resilient or are those things about it that you realized function well in normal situations, but it’s just not sustainable.

I am wondering if you could give us a view on whether you have a picture on how well that’s working and whether that takes you to sort of the next phase which – who knows what that looks like, but I am curious about what you think the evolution is in that particular way of doing business?

Andrew Hider

Mac, so, I am going to answer your question, but I am going to start with leadership. And the ABM 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 IT and we have invested in security to ensure security was a safe work environment. They went from a very small portion of our workforce working from home up to 50% in a very short window. And they did it successfully and we did that and by the way now with that, we have 50% of our workforce coming into work every day.

Same view that the team went from the ability to look at the challenge and identify areas to overcome. That’s the ABM in action. That’s our continuous improvement focus where we have challenges we have ahead of us and we are going to overcome those obstacles. That said, we also know that the market is going to create a unique dynamic and we are going to ensure that we continue to challenge ourselves to set us ourselves up for the future.

And so, I can talk to the President’s Kaizen, which we did early in the quarter and the outcome and can’t be more proud of that. My staff including my direct team and myself were on teams for that, as well as the ABM in action where we started doing virtual daily visual management where we have the ability to now navigate where we got people working from home, working with folks on site to ensure we are not missing a beat through this.

Now, is there going to be inefficiencies? Absolutely. Working in this pandemic, working through the challenges we face to ensure a safe working environment, there will be obstacles. But I can’t be more proud of how this team has executed and continues to execute and that is the ABM in action.

Mac Whale

Great. Thanks, Andrew. Those are my two questions. Thanks. Thanks guys.

Operator

[Operator Instructions] Your next question comes from the line of Cherilyn Radbourne with TD Securities. Your line is open. Cherilyn Radbourne your line is open.

Cherilyn Radbourne

Sorry about that. I was on mute. Thanks very much and good morning. I apologize if I missed this, but we are two months into Q1 already. And I was just hoping you could give a bit of color on how bookings in an overall sense are tracking to-date in the quarter?

Maria Perrella

Good morning, Cherilyn. We don’t provide that information.

Cherilyn Radbourne

Okay, I had to ask.

Andrew Hider

Sure.

Cherilyn Radbourne

Can you just comment on how much revenue in the quarter might have been related to COVID-19? Whether it was helping the auto manufacturer repurpose to production of masks or helping healthcare customers quickly scale up production of key items?

Maria Perrella

Yes. So, we’ve spoken of and press released a number of orders and opportunities, but the most material one would be the $65 million COVID-19 test kits program and we will see, as I said, between or around 50% of that revenue come through in the quarter and then the other areas are small, not material, and less than $5 million of an impact.

Cherilyn Radbourne

Okay. That’s helpful. And it may be 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 mean going forward?

Andrew Hider

Yes. So, Cherilyn, one of the things that we’ve continue to do through this pandemic and situation is, our cultivation efforts. And certainly, it’s been a little bit more challenging and that it’s phone call or video –related. But we have continued that and our funnel remains healthy. That said, we are very mindful of the dynamic and situation we are in and cash preservation is a key item for us.

There are certain potential targets that we would view as areas that we would want to have as part of the ATS family. But we are going to be very mindful on timing and ensuring that they align to delivering on our financial objectives for each target.

So, it’s early days. Very – the activity is certainly slowing down, I mean, you can see it. But we are continuing our discussions and if the right asset were to be available and be a potential for the ATS family and the financials made a lot of sense, then we are in a position we could go forward.

Cherilyn Radbourne

All right. That’s helpful. That’s all for me. Thank you.

Andrew Hider

Thank you, Cherilyn.

Operator

Your next question comes from the line of Mark Neville with Scotiabank. Your line is open.

Mark Neville

Sorry. Just maybe just few quick follow-ups and maybe just continue on the M&A fee. I am just curious, again – I can appreciate now that diligence is difficult and you are focused on the balance sheet. But I am just curious, has your appetite changed or desire for certain end-markets or digital capabilities or even sort of how you view your balance sheet?

Is there any sort of – ignoring the short-term, but maybe longer-term, changes or change in view of how you sort of go about your agendas your M&A agenda?

Andrew Hider

So, you know, Mark, we’ve often stated that four variables of what is a target or potential target and one of them is market. And what I can tell you is, our view of life sciences remains very favorable. And we like the space. We like dynamics in this space.

Digital, we view as an area that ATS has a unique position with automation in our digital solutions. So, that is a continuation. We are also viewing other areas, say, this is going to be impacted and we are going to make sure that we are aligned to make – adding value to our shareholders. And is that return in balance with what we view as favorable for our business in the mid and long-term.

Mark Neville

Okay. Maybe just one last one then. Just on the restructuring or the fact you are looking at potentially doing additional restructuring, at this point, is it then more sort of dependent on the shape or speed of the recovery?

Or are there considerations around now that you’ve completed the last reorg, I am sure maybe over-capacitized in certain parts of the business and sort of that’s the motivation versus just the recovery?

Andrew Hider

So, to be very clear and specific on our response, we have not stated that 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 cycle.

And we do look at how markets have 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.

Mark Neville

Okay. Understood. I am sorry if there was any confusion I’ve got. Understood. Thank you.

Operator

Mr. Hider, there are no further questions at this time.

Andrew Hider

Thanks, operator. Thank you, everyone for joining us today. Please continue to stay safe and healthy. And I look forward to reporting our Q1 results in August. Good bye for now.

Operator

This concludes today’s conference call. You may now disconnect.