ATS Corp (ATS) 2014 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the ATS Automation third-quarter conference call.

I would like to remind you that this conference call is being recorded on February 5, 2014, at 10:00 AM Eastern time. Following the presentation, we will conduct a question and answer session.

(Operator Instructions)

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

Thanks, operator; and good morning, everyone. You main hosts today are Anthony Caputo, Chief Executive Officer of ATS; and Maria Perrella, Chief Financial Officer.

Before we begin, I'm required to provide the following statement respecting forward-looking information, which is up made on behalf of ATS and all of its representatives on this call.

The oral statements made on this call will contain forward-looking information. The actual results could differ materially from a conclusion, forecast or projection in the forward-looking information.

Certain material factors or assumptions were applied in drawing 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 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's filings with Canadian Provincial Securities Regulators.

Now it's my pleasure to turn the call over to Anthony.

Good morning, ladies and gentlemen. I assume you've seen our press release. Maria with review financial highlights in a few minutes.

In the third quarter, we continued to make progress with our value creation plan. Our financial results were solid. We realized strong operating margins, generated significant cash from operations, and achieved record orders.

Strategically, on the first day of Q3, we completed the acquisition of IWK; and integration is well underway.

Today I'll update you on our Q3 performance, conditions in the market. And on IWK, I'll review status of our integration work. I will then make some summary comments.

Q3 bookings were CAD237 million, which were more than twice Q2 and 37% higher than last year. Excluding IWK, bookings were CAD189 million, 72% higher than Q2 and 9% higher than Q3 last year.

As I've indicated before, we expect variability in our quarterly bookings due to the types of programs we pursue and when. Overall, our funnel and proposal activity remain strong. Q3 revenues were CAD178 million, up significantly from last year and from Q2.

Our Q3 consolidated EBITDA was CAD23 million. Our base business margin of 13% was stronger than Q2 and Q3 last year. IWK generated 15%, pre-allocation of any corporate costs. We continue to improve our operations through a focus on disciplined program management, cost control, and supply chain management.

On our EUR65 million Nigeria Enterprise Program, we've completed design work and some manufacturing. The customer did not provide bridge financing as it believes financial close will happen in the short term. Reaching financial close and/or the timing of any additional progress payments will impact how quickly we can fully ramp up the program.

On the service side, we recently began work on an order in excess of CAD5 million for the support of in ATS line for a life sciences customer. ATS will provide upgrades, training, maintenance, certification and spare parts. A portion of the contract value is tied to the equipment meeting certain performance criteria.

This is an important win for us and indicative of our strategy to increase our service offering and provide comprehensive, value-based solutions for our customers. As I noted last quarter, the acquisition of IWK provided an opportunity to further consolidate and realign divisions and global capacity.

As a result, we have reduced the scope of some divisions and will be closing our Singapore facility and shifting work to neighboring facilities in Malaysia and Thailand. I expect these actions will have an approximate 12- to 18-month payback.

During the quarter, we also achieved recovery of costs related to programs acquired in a previous acquisition. We had incurred program costs in previous years and had been pursuing recovery for quite some time.

Our backlog has reached a record level of almost CAD500 billion and is comprised of 40% Life Sciences and 30% Transportation. The addition of IWK and our success in nuclear markets has shifted the balance towards consumer products and energy.

Turning to our markets, as I noted, funnel and proposal activity remain healthy. By market, Life Sciences is strong, with a number of new and follow-on opportunities in both medical devices and pharma.

Transportation also remains strong; and Energy continues to have significant activity, particularly in nuclear. By way of example, we're currently working on a program to design, build and test automated tooling which will be used in a major nuclear reactor refurbishment program.

We've also seen some increased activity in our traditional consumer and electronic markets. And IWK's strong position in consumer provides us with additional exposure and opportunities.

We've successfully proved the quality of our backlog, which results in increasing predictability, more strategic customer relationships, better program control, and less sensitivity to macro economic forces.

Our goal is to continue to provide value-based enterprise programs where ATS delivers enabling plant-wide solutions to our customers.

As I've indicated before, this approach to market is a key differentiator for ATS and results in larger program wins with variability and quarterly bookings. I believe our approach to market will continue to serve us well.

In terms of outlook, the health of the global economy has improved, but uncertainty remains. In North America and Europe, the recover is slow but encouraging while growth in Asia remains modest.

Our competitive position is strong. We're seeing significant opportunities. But some of our customers continue to exercise caution with respect to their capital investments.

Turning to M&A, IWK brought a strong management team, incremental core capabilities, and customers in areas that are new to ATS. We see significant cross-selling and key account development opportunities.

IWK significantly advances ATS's services strategy. As I indicated before, we intend to expand and are rolling out IWK service model and capability across all of ATS. IWK's leading position in dispensing and cartoning for pharma and personal care markets allows us to establish them as a center of excellence for filling primary and secondary packaging within ATS. In due course, we will work to expand this capability.

Our other M&A efforts are also active, and we are currently engaged in discussions with several parties. Our intention is to continue to make acquisitions of desired capability a significant component of our value creation strategy. Our balance sheet and free cash flow provides us the flexibility to do this.

In summary, our third-quarter operating performance was strong; market activity is robust; and we're focused on executing our value creation plan.

Strategically, we've made progress with acquisition of IWK. I expect integration will take another two quarters to complete. I'm confident that IWK will be a strong contributor to ATS's success.

Organically, we had strong bookings in Q3 and our funnel is robust. The quality and predictability of our backlog and prospects for growth have improved. From an M&A perspective, we are engaged and remain focused on this key element of our strategy.

Overall, our vision is to create a significant global Company which delivers manufacturing solutions, including machine systems, enterprise solutions and service, to global leaders in the markets we serve. Our markets include mission-critical aspects of Life Sciences, Transportation, Energy and Consumer Products.

At this point, I'd like to turn the call over to Maria.

Thank you, Anthony.

Q3 operating results were strong, both in our base business and with IWK, which was included for the full quarter. Today, I will discuss IWK from an integration and performance point of view, the performance of our base business, and then consolidated results.

First, I will discuss the accounting impacts from the IWK acquisition.

IWK provided us with the opportunity to consolidate our tax base in Germany, thereby further lowering our cash taxes. Accordingly, we recorded a net tax benefit of approximately CAD7.8 million in our tax expense line, primarily related to the acquisition of IWK and our ability to use our previously-unrecognized tax assets in Germany.

Going forward, the consolidation of our tax base in Germany and the resulting one-time positive asset recognition changes our normalized effective tax rate from the current range of 25% to 30%, to 30% to 35%. Although our effective tax rate has increased for accounting purposes, our cash taxes are low. And going forward, based on the work we have done, we expect they will remain low.

In addition, the capitalization of intangibles resulting from the IWK purchase price allocation substantially increases our amortization expense. The impact in Q3 was approximately CAD2.4 million, or 1.4% of EBIT margin.

While the higher effective tax rate and resulting income tax expense, as well as amortization, which are mostly non-cash items, will impact earnings per share going forward, we expect accretion from our combined businesses.

As I indicated last quarter, our focus is on EBITDA. In the past, we spoke to EBIT as depreciation and amortization were not material.

Going forward, we will speak more to EBITDA, as it more accurately measures us against our goal to generate operating cash flows as part of our value creation strategy.

Moving to our operations, IWK is a positive addition to ATS. It improved ATS results at the gross margin, EBITDA, and cash generation levels.

IWK added opening backlog of CAD40 million at the beginning of Q3 and generated CAD48 million of bookings in the quarter, contributing CAD61 million to closing Q3 backlog.

IWK bookings of CAD48 million were higher than usual due to one order, which accounted for approximately 20% of bookings. IWK recorded revenues of CAD29.7 million and a normalized EBITDA margin of 15%.

Based on the current purchase price allocation, which is subject to finalization, ATS amortization has almost doubled compared to the pre-IWK run rates, which as I noted, reduced our consolidated EBIT margin by approximately 1.4%.

Amortization expenses are included in our SG&A line, and these expenses account for most of the increase in SG&A as a percentage of revenue. In Q3, IWK generated CAD9.6 million of cash.

I will now speak to consolidated results and the ATS base business.

Excluding IWK, our base business continued to deliver strong operating performance improvements, with strong EBIT and EBITDA margins, cash generation and bookings. Q3 revenues of CAD178 million included CAD148 million from our base business.

CAD148 million was higher than prior years' revenues of CAD144 million and lower than last quarter's revenues of CAD155 million. Lower order bookings in Q2 impacted Q3 revenues.

Consolidated Q3 bookings of CAD237 million included strong base business bookings of CAD189 million, an improvement over Q2 bookings of CAD110 million and last year's Q3 bookings of CAD173 million. Over the last four orders bookings have averaged CAD159 million without IWK.

Backlog increased significantly from CAD355 million in Q2 to a record CAD467 million in Q3. The increase comes from strong bookings and the addition of CAD40 million of IWK backlog.

On a consolidated basis, we typically expect to revenue between 35% to 40% of backlog in the following quarter. This is subject to some variability, as it is impacted by the timing and composition of new orders.

Q3 gross margin was 27%. The increase in gross margin represents improvements in our base business with approximately 2% improvement over last-year Q3 and 0.5% over last quarter, as well as the addition of IWK. We continue to work to improve our performance.

Q3 SG&A was CAD30 million, a CAD7 million increase over Q2 and CAD9 million increase over Q3 last year.

Compared to Q3 last year, the increase in SG&A includes approximately CAD2.4 million of amortization expenses related to IWK intangibles and CAD7.5 million of costs from IWK.

In Q3, SG&A expenses included three one-time items, which essentially net out. Q3 SG&A expenses included a gain of CAD4.3 million for the successful recovery of costs related to programs acquired in a previous acquisition.

This offsets costs we have incurred over the past several years. We have been pursuing this resolution for some time.

Offsetting this gain was CAD1.2 million of IWK-related acquisition costs and CAD2.5 million of restructuring costs. Approximately CAD500,000 of additional restructuring costs will be incurred in Q4. The payback period from the restructuring initiative is expected to be approximately 12 to 18 months.

Q3 EBITDA margin was 12.7%, an increase from 11.4% in Q2 and 11.6% Q3 last year. Excluding IWK, our Q3 EBITDA margin was 12.6%. IWK normalized EBITDA margins are approximately 15%.

As we work to improve performance, increase the value of enterprise solutions and realize restructuring and integration benefits, we expect EBITDA margin will be positively impacted.

In Q3, stock comp expense was CAD1.5 million, down from CAD2.6 million in Q2, and generally more in line with the CAD1.3 million in each of Q1 and Q4 last year. Based on our current outstanding awards, each CAD1 increase in stock price increases compensation expense by approximately CAD500,000 per quarter.

As a benchmark, we previously spoke of EBIT begin in the 10% plus range. EBIT margin pre-IWK normalized for nonrecurring items and stock compensation expense, was 11.4% this quarter, compared to 11.6% in Q2; 10.8% in Q1; and between 10% and 10.2% in the previous three quarters.

Moving to the balance sheet, I'll review cash and working capital as a percentage of revenue.

Q3 cash net of debt of CAD39.7 million decreased compared to Q2's net cash position of CAD139 million. The CAD100 million net change reflects CAD137 million for the IWK acquisition, offset by approximately CAD29 million of cash from operations and CAD8 million from the issuance of common shares. Our cash generation from operations represented a significant improvement over Q2 and Q1.

ASG working capital as a percentage of revenue decreased from 15% at the end of Q2 to 13% at the end of Q3. We expect to operate within the 10% to 15% range, which may fluctuate depending on the timing of milestone billings and payments.

Turning to net earnings, in Q3 we generated earnings per share of CAD0.21 from continuing operations. Adjusted for one-time tax benefits and the resulting increase in our effective tax rate, EPS would have [been] approximately CAD0.13 compared to CAD0.12 in Q2 and Q3 last year.

In summary, our Q3 performance was strong for both our base business and IWK. We are pleased with IWK's performance and excited about the capability it adds to ATS.

We have low leverage, significant free cash flow and, therefore, the funding capacity to continue to pursue our growth strategy, both organically and through acquisitions.

Now we'd like to open the call to your questions.

Operator, could you please provide instructions to our listeners? Thank you.

(Operator Instructions)

Justin Wu, GMP Securities.

My first question is on FX. Obviously we've seen some big movements in the exchange rates for the Canadian dollar against the US and the euro. I was wondering if you could comment, perhaps firstly, on the impact on P&L, first with the -- how much of your contracts are US dollar- and euro-denominated and talk about raw material costs? Presumably, most of your purchase components are US dollar or euro and if there's any kind of near-term impacts on the entire cost?

Okay. So a few things. First of all, from a P&L perspective, really no impact to our income or profitability as a result of the foreign exchange fluctuations. That's because we try to naturally hedge, first of all. So where we have euro denominated contracts, we are doing the work in Europe and our cost are in euros. And similarly, where we have US denominated contracts, the work is being done in the US and, therefore, we're hedging that way as well.

Where we are not hedged -- where we are not naturally hedged we do have an active hedging program in place to minimize any fluctuations or impacts to the P&L, either positive or negative, therefore, minimal to no P&L impact. Where we are seeing the impact, though, is on the translation. So our US and euro denominated divisions revenues -- those are translated into Canadian dollars at a higher rate. In the quarter, we would've seen a bit of a benefit to our revenues because of the foreign exchange changes.

Okay. So that's great. In terms of your ability, does it help your ability to bid on contracts at all? Or is there -- presumably you still have a fairly large Canadian manufacturing or assembly portion of your capacities in Canada. So I was wondering if you could talk about the competitiveness impact?

So I will start. Good morning. Every time we look at an opportunity, we formulate a concept of operation. And the formulation and concept of operation, or the things that weigh on how we configure our sales include divisions that have expertise, prime contractor, subcontractor relationships, FX to the extent that it's meaningful.

Customer preferences, import duties, taxes, VAT's, all those things. Because, as Maria said, we have operations in many different currency countries, we can configure our sales accordingly. From a competitiveness point of view, Maria also talked about having a hedging program in addition to a natural hedge. But the weakening of the Canadian dollar certainly does not put us at a disadvantage when our Cambridge operation is bidding to the US.

That's helpful. And my second question is on service, obviously IWK has essentially doubled your service revenues and you've talked about growing that further. Ultimately, where do you want to see that business? Is it 20% of revenue or 30% of revenue? How long do you think it will take to get there? And what are the kind of steps that you guys are doing out to get to that level?

So we really haven't provided guidance on a target but we've said we wanted to be a significant part of our revenue. And I would say today it's a meaningful part of our revenue, not a significant part of our revenue, so we have a ways to go. In terms of the amount of time to get there, again, we haven't provided specific guidance, but it's not years.

In terms of how to get there, on the last call I talked about selling spare parts. I talked about linking our service to warranty. I touched on preventive maintenance. And on this call, I gave an example, which is sort of the top-end of what we're trying to achieve where we have an existing line and we are going to modify and upgrade that line, then we're going to put it back into commission.

And among other things, we have a performance incentive if we, with the cooperation of our customer, can get that line to perform at a standard, which is higher than what we would normally commit to. So that would be the top end of service. We are rolling out IWK service model at the same time as engaging our customers in the type of offering I just gave an example of in my comments. And we are adding corporate level leadership to the whole area of service in our Company.

Okay. And would it entail any kind of capital deployment towards service locations and such? Or is that fairly minor?

It could, but we don't anticipate that, and I think it would be fairly minor.

Okay, great. Thank you.

Mark Neville, Scotia Bank.

Just so we -- just on the service contract that you touched on, the CAD5 million, just to clarify, that is for an existing installed machine?

It is for an existing installed machine or machines, which will be reconfigured to have a different configuration and output.

Okay. And that within ATS or an IWK?

Primarily ATS.

Okay. I think you touched on it briefly but you talked about adding people to IWK service staff or service personnel. Would that be sales people or would that be technicians? How do we think about that?

You think of them as technical reps/first responders/technicians that can then formulate an appropriate response as a function of what the issue is. So if it is a preventive maintenance routine, then they would have a protocol to do that. If it is kind of a 911 call, then they would be the first responder but be in a position to reach back into the appropriate division for more specific engineering or technical support. So it gives us better presence. In certain cases, we actually embed people in our customers and it precludes the necessity for every division to fly all over the place in order to deal with this equipment.

Okay. And I think you gave numbers last quarter the existing staff -- the staff that was in place. But to roll IWK across ATS, is it a significant higher you have to do? A significant amount of people, or is it small? How do we sort of think about that?

You got to think about in terms of the people and the programs. So IWK has 25 people. ATS has a number of people that are performing that function on a full-time basis. So one notion is the notion of global coverage. So how many people do we need to add? So we need to add more people to the 25.

But equally importantly, we need to add programs in terms of formulating the offering, in terms of linking our warranty to preventive maintenance programs just like you have to take your car in in order for the warranty to be good. In certain cases, we provide specialized parts and we need to encourage our customers to utilize those parts and to see the benefit of utilizing those parts as opposed to off-the-shelf parts. So it's a series of things.

Okay. On the SG&A -- sorry I missed it -- for the IWK amortization, how much of was in SG&A versus the cost of sales?

We put it all in SG&A, and it's about CAD2.4 million.

Okay. So the 29.5% run rate we're out now, presumably that comes down. Or is that sort of the right run rate or where we should be thinking for the business going forward?

I believe it's the right run rate, and that's made up of our base of CAD22 million. So I talked about CAD23 million to CAD24 million in the past. And we did restructuring activity, which brings it down a bit. So I would say the run rate for -- or pre-IWK is CAD22 million to CAD23 million. And then IWK has added another CAD7.5 million, which we expect will remain about the same. And that includes the CAD2 million, almost CAD2.5 million for the depreciation and amortization.

Okay. Is there -- sorry just one last one on bookings; obviously a very strong quarter. Were there any large enterprise orders in there? Or how much is it is just strength in end-markets?

There were no large enterprise orders. There were some large orders.

Nuclear, which we talked about, there were two orders which were about CAD30 million.

The distinction between big and enterprise, just as a reminder, is we call them enterprise when we have the cognizants. So where we are the engineering authority, sort of speak, and we have all of the intellectual property, the know-how, all of that stuff. But a program can be big like a nuclear program, but in the case of a nuclear program, the engineering authority is not us. It's a combination of the customer, sometimes the customer's customer and the regulator, which could be a government.

Okay. Thanks a lot.

Daniel Kim, Paradigm Capital.

A question on IWK. Maria, you suggested that the SG&A from that particular asset should be relatively flat going forward. Anthony, you then contrasted, expect to see some more restructurings of the balance for the year. So when we look at this quarters results, about CAD900,000 to the bottom line, representing about 3% accretion to the net income -- wondering if you can give us a sense, please, were you expect to see better leverage and the potential operating model you'd like to see this at within, say, a years time, please?

Thank you.

Can I start?

Just on -- I think what I said with respect IWK is that I expect that it's going to take another two quarters to integrate. I don't expect any more restructuring related to IWK, or because of IWK, except what Maria said where there's some costs flowing through in the fourth quarter from what we've already done. You want the second half?

We -- as you -- you're saying we've done a restructuring. We did restructuring in Q1 and we did more in Q3. What we did in Q1 we've seen the benefit come through in Q3 with our improved margins. And then we will see some more improvement based on the actual restructuring that we've done. I think it's about 0.25% and that will start to flow through starting in Q4.

And then in addition to that, when we talk about our margins and improving our margins there's the scale that we talk about and we continue to work on our supply chain to improve our gross margins and enterprise programs as they come in.

Can you share with us any goals you might have for IWK? I mean the EBIT -- the gross margins, the EBITDA margins, are better then ATA; however, when you look at the bottom line, the contribution is not as strong.

So just a couple of things on that. At the EBITDA level, 15%, we haven't allocated any of our corporate costs or management fees. So the little bit of apples and oranges. And if we were to do that, I believe the margins would be more similar. And then -- sorry, I forgot your question?

Okay, that's helpful. So I was just more curious if you had a target in terms of what type of net contribution you'd like to see from that asset? In a percentage basis?

No. We don't have a target and I --

We have a target we just haven't provided it.

Correct. And there was a comment, another comment, that you made, I think on the bottom line that it's not as profitable as our base business. So again, that's just due to the depreciation and amortization as a result of the purchase price allocation accounting.

Right. Okay. And last question, if I may, Anthony, with regards acquisitions -- clearly IWK was a pretty decent size. You still have some resources to stretch the balance sheet a little bit further. Wondering if you can comment in terms of relative size of acquisition targets -- if we can expect something similar size, larger or significantly smaller in terms of framing our thinking on that would be helpful. Thank you.

Sure. So first of all our acquisition targets are capability-based. As a reminder, we're not trying to consolidate the industry or something like that. We're trying to acquire capabilities that we don't have.

And I've spoken in the past about our desire to make our M&A portion of our strategy more meaningful in terms of size and strategic impact. So my preference would be to do larger acquisitions, and larger acquisitions in less space. So I've talked about where we want to participate in the market. And we want to participate in what I called mission-critical aspects of the markets that we've chosen to serve: so life sciences, transportation, energy, consumer and so on.

So if we were to -- and our objective, with respect to our backlog, is to have a balance. But as we go forward, if we were to make a big acquisition in life sciences, then life sciences would be proportionately a bigger part of our backlog for a period of time. Or if we were to make a big acquisition in transportation, we would have more transportation for a period of time. So, they will come as they come, but our desire is CAD100 million-ish or bigger. And from time to time, we will make acquisitions which bring specific capability and may be relatively small, but are bolt-ons to existing divisions or segments that we currently operate.

Terrific. Very helpful. Sorry, just one last question if I may. Could you give us an update, please, on the past deals announced on life sciences division from both the Nigerian and North American contracts, in terms of what's been delivered and what we can expect to be delivered over the remaining lives, please?

Yes. So on the North America track, we said it was a CAD40 million contract and most of it was revenued. We have about CAD6 million or so left to go. And on Nigeria --

And the prospects for follow-on on that are related to our customer getting market receptivity for the new product that he is launching using those first two lines. Sorry.

Nigeria, we had recorded the EUR25 million in our backlog and we've revenued substantially all of it. There might be about EUR1 million left to go. And if and when we get to financial close, or we get bridge financing, there would be approximately another EUR40 million that could be revenue. But we do not have that in our backlog.

Thank you very much.

(Operator Instructions)

David Tyerman, Canaccord Genuity.

A question just trying to clarify the EBITDA margin prospects going forward. So, Maria, I think you said there is another 0.25 point roughly based on some stuff you've done already and then an unknown amount from scale and supply chains and enterprise programs and so on. Is that how we should we be thinking about it on the margins?

Yes, that would be a good way to think about it.

Okay. So from the other opportunities that don't have a number attached to them, is there any way we should be thinking about those down the road? And time frame?

Yes, so that's difficult to do. The scale has to do with acquisitions and how much we bring to the topline. As we've said, we would keep our corporate cost substantially the same and we would get the benefit there. And then similarly on the enterprise programs, it depends when they come in and how large they are and over what period of time we would revenue those.

So difficult to quantify. I would say, though, that we talked in the past about our EBIT being in the 10% to 15% range and, therefore, our EBITDA -- we look at it in the same way and we've said it would take a bit of time to get there. But I can't really say when.

Okay. Fair enough. And then on the cash tax rate, could you give us any idea of what you see that being? And also, will it be at a low level for some time and then rise to a more sustainable rate at some other time as you exhaust some of these credits that you've had -- these tax assets you've set up?

Yes. So, our cash tax rate will be approximately 5% of our taxable income -- or 5% to 10% of our taxable income. And based on the losses that we do have, we believe we would not substantially change that cash tax rate for a number of years. So a number of years being at least three or four years based on the business that we have today.

Okay. That's good. That's very helpful. And then -- actually that's it. That's great. Thank you very much.

Cherilyn Radbourne, TD Securities.

You mentioned in your outlook commentary that things had improved in consumer and electronics. And I was just wondering if you could provide a little bit more color relative to that comment?

Good morning.

So they've improved in our traditional business where we're just seeing more activity and we're responding to more bids and a lot of those with our traditional customers. And then they are improving because IWK has significant exposure to that market. And IWK brings a number of customers, a handful at least, which are global whose brands you would recognize. And they are providing a certain portion of what the customer requires, but the rest of ATS can provide a lot more. Therefore IWK/ATS can expand its offering.

So both of those pieces are true. And then in addition to that, of course there's the energy piece where we're doing pretty well in nuclear.

Okay, that's helpful. And then just lastly, Maria, can you just give us a sense of how long that purchase price amortization runs for?

It's around eight to nine years.

Okay. That's helpful. That's it for me. Thank you.

(Operator Instructions)

Mark Neville, Scotiabank.

Hi. I just want to follow-up on the Nigerian contract. The CAD40 million that's non-backlogged -- I think last quarter the client also -- or you said that the client chose not to pursue bridge financing because they're waiting financial close. Just curious as to how that all stands now?

Do you want to talk to it?

Well it is just sort of one delay after another delay after another delay, which has been the case for 1.5 years. And there's issues with banks joining the syndicate and leaving the syndicate. And there's issues with the agencies that are backing in securing the loans. But I guess nothing unexpected for a government in Nigeria dealing with international banks, as well as domestic banks in three countries.

Right. Okay. Thanks.

Daniel Kim, Paradigm Capital.

Just a question on the backlog. Last quarter I believe what you suggested was you can expect 40% of the backlog to be delivered in the current quarter, which looks like it was right on the mark. Within the outlook section, you're now suggesting 35% to 40% of the current backlog to go into Q4 revenue.

So my first question would be why have you provided a range now in terms of a lower potential outlook in terms of deliverables? If that is the case, we look at revenues to range between, say, CAD163 million to CAD187 million in Q4. And at the very low-end, that would imply core revenues are declining versus on the very high end only expected growth of roughly 3%. I wonder if you can comment on that outlook, please?

Okay. Last quarter we had a low bookings quarter, the CAD110 million. And they were relatively smaller dollar programs, therefore, we were better able to quantify, as you've said. This quarter, with the large bookings, we have about 10 programs that are larger than CAD10 million. And with these programs, as we've talked about, it takes -- or the ramp-up is a little bit different than the smaller programs where we have the design and engineering phase and then the assembly and build.

Where we would typically have a profile of revenuing evenly over the first two quarters, in the cases of these programs it's more -- or it's skewed more to the back end. And in the first quarter it's around 20% and then it goes up to 30% or 40%. So with the assembly and build and materials coming in, at this point, it's just a little bit unknown as to when that would happen in this quarter, this quarter being Q4 or Q1, therefore the range.

Okay, that's helpful. Thank you very much.

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

Thank you very much, everyone, and have a nice day.

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.