ATS Corp (ATS) 2020 Q4 法說會逐字稿

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 a.m. Eastern Time. (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. Your main hosts today are Andrew Hider, 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 made on behalf of ATS and all of its representatives on this call. You are cautioned that the oral statements made on this call contains 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 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' filings with Canadian provincial securities regulators.

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

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 to those health care professionals on the front lines, 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 who are working hard alongside with us. I could not be more proud of 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 '21.

Turning now to performance. Fiscal '20 and Q4 featured growth in revenues and order bookings. As well, we have 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 report.

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 our recently completed reorganization. Margins were also impacted by RED programs in the quarter. We worked 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 2 turnkey lines for the customers' North American operations, will be delivered over the next 18 months and is 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 in 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. Much of that activity has transitioned to mandates related to COVID-19 responses. We expect other opportunities to progress in medical devices, pharma and radiopharma with some interruption as customers adjust to the new environment. Life sciences represents 54% of our revenues last year. This market has positive dynamics for continued long-term growth and is 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 a general slowdown in activity with the timing of some opportunities moving out. In energy, we continue 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 on -- we expect customers to focus on preserving liquidity until there is more clarity on the severity and 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 remained 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, and 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're 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 '21.

Moving to the ATS business model. A few ABM highlights from the quarter. In January, we held our second annual President's Kaizen. This involved the execution of 4 simultaneous Kaizen events globally with participation by the executive leadership group as team members. The 4 events focus 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 have also transitioned to ships to reduce workforce density. We have implemented virtual daily visual management, which enables our remote workforce since they connected with our teams on-site. 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're also engaged in activities that are well aligned to the value we bring to customers. For example, we're engaged with manufacturers of COVID-19 test kits, helping them ramp up production to meet the unprecedented demand for their products. At Comecer, our team has launched DeconBox, 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 impact that our organization enables for our communities.

Moving to M&A. For the year, we completed 3 acquisitions, deploying $53 million in capital. Integration of MARCO is underway and on track with a focus on deployment of the ABM to drive operational efficiencies, advance 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're focused on maintaining our financial strength, which positions us well to get through these challenges today and be ready for future opportunities that may arise out of this new environment.

In summary, I want to thank our employees for their ongoing dedication, which has enabled ATS to support our customers, make a difference in our communities and drive improvements in our business. Our focus on innovation and continuous improvement, enabled by our 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're 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 a strong business with good backlog, a healthy balance sheet and our ABM playbook that will enable us to continue to create long-term shareholder value.

Now I will turn the call over to Maria.

Thank you, Andrew. While the current economic environment has changed dramatically, our focus going into fiscal '21 has not changed. We are committed to protecting our people, serving our customers and ensuring our balance sheet remains strong by preserving cash and liquidity, while we continue to pursue our longer-term strategic goals.

In my prepared remarks, I will provide some commentary on the effects of COVID-19, as they relate to our new FY '21, which commenced April 1. Those comments will be qualitative as there is a great deal of uncertainty on the duration and severity of the downturn.

Thinking about the financial highlights of fiscal '20. Bookings, revenue and adjusted earnings increased over fiscal '19, as a result of both organic and inorganic growth. Fiscal '20 includes a full year of Comecer and KMW as compared to 1 and 5 months in fiscal '19, respectively. Our 3 acquisitions in fiscal '20 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 2 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'll 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 3 years as revenues have grown by 10%, 12% and 14% in fiscal '18, '19 and fiscal '20, 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 of 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 1.03:1.

Q4 bookings were $356 million compared to $368 million in Q3. We started to see opportunities slip to the right as customers were preoccupied 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 '21 revenues.

We ended fiscal '20 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 '21 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 on-site 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, a 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 time frame 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 time frame and will help to offset some of the significant impacts just noted.

Moving to margins. We had expected gross margins to be impacted in Q4 by the reorganization plan announced in November. We estimated the quarterly impact being about $5 million, and that was the case, as we experienced inefficiencies in the affected facilities caused by underabsorption of employee and fixed costs.

Also, there was an additional negative impact of approximately $4 million 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 '20 gross margin of 25.3% was 90 basis points lower than fiscal '19. The reorganization RED programs and COVID-19 impacted fiscal '20 margins by a total of approximately $16 million or 110 basis points. Some of these factors on our Q4 gross margin was 290 basis points, resulting in our reported gross margin of 23.2%.

Moving to our reorganization plan. As expected, we recorded related costs of $26.6 million in the year. Because of the reorganization actions taken prior to 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 may be hidden in the short-run by the impact of the economic environment.

On costs, we have taken action on discretionary and other variable expenses in Q1. This includes managing costs through reduced subcontractors, mandatory use of vacation time and other arrangements where appropriate. Notwithstanding these actions, we expect gross margin pressure resulting from the retention of the majority of our skilled workforce. We are evaluating the need for further restructuring as a result of general economic conditions and while no decisions have been taken, we will respond appropriately, if and as needed.

Moving to SG&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 run rate of $52 million and slightly lower than Q3. Lower employee incentive expenses, along with some impact from cost-containment actions, combined to reduce Q4 SG&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 '19 due primarily to acquired companies.

Stock compensation recovery or expense has fluctuated throughout the year due to mark-to-market adjustments, with recovery of $1 million this Q4 as compared to a $6 million 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 (sic) [$39.3 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 1.6:1. 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 noncash working capital as a percentage of revenue increased slightly in Q4 to 12.3% as compared to 12.2% in Q3 and 10.7% in Q2. In fiscal '21, we expect our working capital as a percentage of revenue to increase to over 15%, and we could see upwards of 20% based on transportation payment terms and expected customer payment behaviors. We have a robust accounts receivable risk management program in place and are focused on monitoring customer payments and credits.

On CapEx, in fiscal '20, we invested $57 million of a planned budget of $60 million. In fiscal '21, 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 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 continue 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 the 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 environment. 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.

(Operator Instructions) Your first question comes from the line of Mark Neville with Scotia Bank.

I appreciate all the extra the details and the 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, 2 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, have we seen sequential improvement at this point or still not yet? If you could touch on that, that would be helpful.

Yes, good one, Mark. So look, 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've operated. What we have -- and I know you're aware of this, but as a reminder, one of my standard works as a CEO is having ongoing and frequent calls with customers or visiting customers, and through this pandemic, I've continued that. And even as recent as this week, I had recent calls with customers where they're focused on ensuring that we, as ATS, can continue to support and deliver on their platforms, their solutions, their products. That said, they're faced with many challenges around whether they can be on-site for a site acceptance test 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 equipment to remote support, that our team early on in the pandemic identified that travel becomes or could become a challenge and launched with a lot of interest from customers around the ability to troubleshoot and ensure that they can continue their operation. And so early days. We've really gone to execution 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 oftentimes are essential, and their products are helping everyday lives become better. And then the third is continuing to add value to our shareholders.

Okay. I guess on that -- go ahead, Maria, sorry.

I was just going to add, you asked about the months and changes, and Andrew provided 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 machines. And when we talk about our revenue conversion and where it is, we say one of the offsets and benefits that we're seeing is as a result of this order. So that order did change for us, our workforce requirements. And if we hadn't received it at that 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 4 months. So positive impact.

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

So -- yes. So we said the 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 revenue from that. But in the year, we expect to revenue.

Okay. If I could ask just one last one then before I get in the queue. Just on the RED program or 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 if this could be a lingering issue for a quarter or 2? Or if it's largely beyond this?

So this -- there were 4 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, is largely behind us. As in Q1, we were completing these programs.

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

On the COVID-19 related contracts, ATS seems to be in a pretty good position to assist here. And I believe that $65 million TestKit Automation Award might have been a record for the Healthcare segment. I'm wondering if you're just able to expand on the activity you're seeing in this new area. And if there's an opportunity for similar-sized contracts for TestKit Automation going forward?

Justin, we can't be more proud of how the team executed. And I'm going to talk a little bit about this program because there was a lot of challenges that we faced to overcome to deliver 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 feat for the team, and I can't be more proud. And by the way, as we look at that project today, we're on track and so it's moving forward.

As we look at this space, we do view that there is 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 alignment on the critical time lines. These are test kits that are going to be utilized around the globe and also high levels of quality that ATS can provide. And so what I can tell you, this contract is a large contract. We view that there's more potential. And we're going to continue to drive to ensure that we deliver on time, on budget of this specific area.

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 the Q1 bookings along with the revenue recognition?

The $65 million is a Q1 booking and we'll revenue it in Q1 and Q2. And right now, it's looking like about 50% in each quarter, but that's rough. It could be 40-60, 60-40.

And Justin, I did 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 mask 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're proud of here at ATS.

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

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 funnel remains strong. Our view and many views of this space is in the kind of future and we would say midterm future, call it, 1- to 3-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 in my comments that we view ATS as being uniquely positioned. It's very early in the process, very early for our customers and their assessment. They're focused on getting through this pandemic. But overall, we view this as an area that automation is going to enable, and innovation is going to enable, and ATS is uniquely positioned in that space.

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

Andrew, maybe first question for you. Do you mind maybe differentiating in the health care space between what's happening with the clients on the medical devices side versus pharma? I mean I would presume that given the fact that elective surgeries have 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 health care comes from medical devices versus pharma, if it's possible?

So Max, I'll answer the first part of that. And as we -- so when we look at our medical devices, oftentimes, and by the way, I had a call with one of the customers in this space, call it, 2 weeks ago. It is an enablement solution, meaning it's a surgery or operation that they're 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've talked about that. But we do expect that to come back fairly quickly as we have many solutions in the market and many solutions in the space.

As far as the pharma and, call it, radiopharma, that business was deemed essential early on. They're continuing to operate. We're continuing to see customer interest to ensure that they provide the specific solutions to their customers.

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

Yes. So we have seen some delays, but the funnel remains strong in this area, and we do expect it to come back fairly quickly. And the delays have been more largely around timing with the customers and some of them have been aligned to ensuring a proper 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 funnel remains strong for this specific space.

Right. Okay. Now that's very helpful.

And on the...

Go ahead, Maria, please.

Yes. On the split of revenues, about 2/3 of our life sciences revenues are medical device and 1/3 pharma.

Okay. 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 so forth?

Sure. I'll 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're talking the TestKit, which is, call it, the $65 million order we announced, it barely condensed timeline. That said, one of the areas that we've been -- we announced in prior years is the acquisition of Transformix and utilizing that technology, and we've been able to utilize a piece of that technology in this solution. And so I'm not saying this is low risk. I'm saying it certainly presents risk, but our team is on track and on budget. And we've built also that into our approach with a customer who has been very open to working with us. At the end, it's about getting the solution out to the market and ensuring that ATS can help in this and really provide that value.

Okay. That's helpful. And then just in terms of -- sorry go ahead.

And in addition to that, we're using 3 facilities to get this work done. And these 3 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 on-site support and service. And those skill resources have been redeployed also to work on this program to ensure its success.

Okay. That's helpful. And then again, 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 -- again, like I don't want to understand that this is just sort of a walk in the park, but this has been done before in terms of the actual application of technology? I guess that's my question.

So Max, when we look at this program, certainly, there's 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've 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're utilizing that. And we're on track, on budget to our plan. And we're having very positive, very ongoing discussions with the customer to ensure that we deliver this product on time and on budget.

Okay. No, 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?

In general, Max, we're 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 midterm and call it a year plus out, automation is going to be a key enablement. So we're going to have an alignment to balance both cost as well as ensuring that our business is ready to take on that potential future state of automation being an enabler for development of supply chain reduction of risk. And so we've got key leading indicators we monitor, we continue to assess, and we're going to continue through that.

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

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

So overall and this is just a general sense of the market, short-term is going to be challenging. And we've won some COVID opportunities and strategic opportunities. We do expect that the market is going to be -- 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 serviceability and activity in the mid- to long-term. But overall, we view that area to have a bit more risk in an area that we continue to monitor. And Mac, as you're aware, about 3 years ago, maybe 2.5 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 of a strategic win for the business and something that we've aligned to that we can have high-value for our customers.

Okay. That's helpful. And you look to be positioned in both those key verticals in the right way over the next, call it, 5 years. I'm wondering whether we should be modeling in a different return to normalcy, so to speak? Whether the rebound will be more V-shaped in, say, life science and more U-shaped in transportation. Just trying to get a more nuanced sense of how -- if you even see it yet, what the shape of the recovery will be on the 2 different segments?

Yes. Look, it's too early to tell on the recovery, and I've 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're very focused on cash preservation. And so I think that answers your question. But it is very early in this pandemic. And what we don't want to state is -- we're viewing it as we're preparing our business for what could happen and we're expecting the best outcome. Meaning, we're driving to add value to our customers and ensuring that when they look at their key providers, they're key solution providers, ATS is in that -- in the first priority list. That said, we're also preparing the business to be able to weather through this pandemic.

Okay. And then connected to that, just a question on -- you've done restructuring, you've added some new businesses, and you're applying pretty much done with the ATS implementation. Is in this -- what have you learned about strength and weaknesses of that approach to business in this pandemic? Has it -- is it resilient? Or are there things about it that you realized function well in normal situations, but just not sustainable? I'm wondering if you could give us a view on whether you have a picture on how well that's working? And whether that takes you to sort of the next phase, which -- who knows what that looks like, but I'm curious about what you think the evolution is in that particular way of doing business?

Mac, so I'm going to answer your question, but I'm going to start with leadership. And the ABM starts with people, then process, then performance. And I started with leadership in my response because we had a high level pandemic risk response. It's been built. We've 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've invested in security to ensure security was a safe work environment. They went from a very small portion of our workforce working from home to up to 50% in a very short window. And they did it successfully. And we did that. And by the way, not only that, we have 50% of our workforce coming into work every day. Same view. The team went from the ability to 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're going to ensure that we continue to challenge ourselves to set ourselves up for the future. And so I can talk through 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've got people working from home, working with folks on-site to ensure we're 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.

(Operator Instructions) Your next question comes from the line of Cherilyn Radbourne with TD Securities.

I apologize if I missed this, but we are 2 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?

Cherilyn, we don't provide that information.

Okay. I had to ask. 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 health care customers quickly scale up production of key items?

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

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?

Yes. So Cherilyn, one of the things that we 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've continued that. And our funnel remains healthy. That said, we're very mindful of the dynamic and situation we're in and cash preservation is a key item for us. There are certain potential targets that we would view as areas that we would want to have as part of the ATS family, but we're 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're 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're in a position we could move forward.

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

Yes. Just maybe just a few quick follow-ups and maybe just continue on the M&A fee. I'm just curious, again, I can appreciate now that diligence is difficult and you're focused on the balance sheet. But I'm 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 longer -- ignoring the short term, will there longer term changes or change in view of how you go about your agenda -- your M&A agenda?

So Mark, and we've often stated the 4 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 the space. Digital, we view as an area that ATS has a unique position with automation and our digital solutions. So that is a continuation. We are also viewing other areas to say, this is going to be impacted. And we're going to make sure that we're aligned to make -- adding value to our shareholders. And it is that return in balance with what we view as favorable for our business in the mid- and long-term.

Okay. Maybe just one last one then. Just on the restructuring or the fact you're 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 it appears maybe overcapacitized in certain parts of the businesses and sort of that -- that's the motivation versus just the recovery?

So to be very clear and specific on our response. We have not stated that this is a foregone conclusion. What we have stated is 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.

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

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. Goodbye for now.

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