ATS Corporation Common Shares

Good morning, ladies and gentlemen. Welcome to the ATS Automation third quarter conference call and webcast. I would like to remind you that this call is being recorded February 5th, 2020 at 10 o'clock Eastern Standard Time. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. If anyone has difficulty hearing the conference, please press star followed by zero for operator assistance at any time. I would now like to turn the call over to Stuart McQuaig, Vice President, General Counsel of ATS.

Stuart McQuaig Thanks, operator, and good morning, everyone. Your main hosts today are Andrew Hyder, Chief Executive Officer of ATS, and Maria Perrella, Chief Financial Officer. Before I begin, I'm required to provide the following statement respecting forward-looking information which is made on behalf of ATS and all 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 Andrew.

Thank you Stuart. Good morning ladies and gentlemen and thank you for joining us. Our third quarter performance included growth in revenues, the continued advancement of our ABM and our previously announced reorganization plan, which is on track. Strategically, we have continued to execute on our M&A strategy with the acquisition of a leading provider of yield control solutions for food and related markets. This morning, I'm going to speak to you about our Q3 performance, our outlook, and the reorganization. I will also provide you with an overview of our latest acquisition, Marco. Maria will then provide her report. Starting with our financial value drivers, our revenues for the first nine months of the year were up 16% over last year to $1.05 billion. Q3 revenues were $367 million, up 14% over Q3 last year. Our adjusted EBIT margin for the first nine months of the year was 11%. As anticipated, Q3 EBIT margin was impacted by the reorganization plan. Year to date, order bookings were $1.11 billion. Our Q3 bookings were $368 million, up from Q2 and down year over year. Q3 bookings featured a number of programs with repeat customers, including a $24 million program for a life science medical device customer. Q3 also included new customer wins, including an approximately $20 million program for a new aerospace customer. This is an exciting program as it represents an expansion of our transportation market and it includes our Illuminate factory intelligence product. As we announced, Q3 bookings also included a $32 million order from a new pharma customer for the supply of an automated pharmaceutical assembly and filling line. This strategic win was a joint effort between Comasur and ATS. And importantly, our funnel for joint work continues to be strong. Moving to our outlook. We have a good level of order backlog at $939 million. Our strategies to target high growth, regulated markets, are reflected in the composition of our backlog, with 55% of our backlog in Life Sciences. Life Sciences has positive industry dynamics, high barriers to entry, including stringent regulation and high consequence of failure. These characteristics are complementary to our capabilities, which include high speed, high precision solutions across a number of applications. Looking at our funnel, Life Sciences continues to be strong. and we are seeing good opportunities in medical devices, pharma, and radiopharma. In EV, customers remain diligent in finalizing their designs and assessing end consumer demand. This has led to delays. However, the funnel remains strong, as is our transportation backlog. Our record of proven success in EV positions us well as the industry shifts to electric vehicles. In energy, we continue to win work in nuclear, where we are able to offer considerable value for our customers, including additional opportunities in digital and services. In consumer, we continue to pursue niche opportunities where our technologies align well with the value required by our customers. As I've stated, I expect our customers will continue to exercise caution and be thorough in making their capital investment decisions. which leads to variability in order bookings from quarter to quarter. On after-sales services, both bookings and revenues are up double digits for both Q3 and year-to-date. We continue to see favorable trends in attaching service sales to our CapEx business and are driving growth through this channel in markets such as transportation that have historically had lower engagement. We're focused on growing the strategic area of our business as it drives reoccurring revenues and contributes to our margin expansion initiatives. As we announced last quarter, we introduced a reorganization plan to support our growth and drive continued performance improvements. Actions are underway and on track. The implementation of the reorganization will continue through the fourth quarter. When complete, this plan is designed to reallocate capital from underperforming facilities to high-performing facilities and drive margin expansion. Moving to the ATS business model, a few ABM highlights from the quarter. Our global HR group completed four Kaizen events, each designed to drive improvements across a number of key business processes. One of the events targeted our employee performance management cycle to drive a faster process with better alignment between organizational and individual employee objectives. Overall, the event will shrink the cycle by over 50%, allowing our businesses to cascade goals at a much faster pace, which provides clarity for our people and drives positive impacts for our customers and shareholders. Daily visual management, a system which presents data visually on business processes, has been one of the most effective tools that we have rolled out through the ABM. This quarter, a number of our businesses implemented it across a range of functions and processes. The division implemented daily visual management across our entire assembly operations, allowing for fast and easy daily tracking of program progress. A shared services finance group implemented in certain processing areas leading to a 15% reduction in processing times. And a sales organization in one of our divisions implemented it in order to improve tracking of project opportunities, which will enable the group to increase its funnel and be more efficient in its sales approach. ABM training is ongoing. through boot camps and weekly lean training session. This is driving the advancement of the ABM throughout the business. Employee feedback is positive, and people are engaged in making improvements in their day-to-day activities. We have many opportunities ahead for continued improvement that I expect will support our margin expansion plans. Turning to our innovation agenda. Activities are ongoing. In the quarter, we completed the launch of a new after-sales services IT platform for North America. This technology platform provides customers with an easier entry point to our after-sales services, which increases the efficiency of our sales and enables a comprehensive digital services offering. Rollouts to additional regions are scheduled over the next several months. In October, our SuperTrack Micro product was awarded New Product of the Year at the Assembly Trade Show held in Chicago. SuperTrack Micro is an exciting addition to our linear motion technology platform that we launched in 2019. It allows customers to configure high-speed, flexible production systems in smaller footprints. which are ideal for high-mix applications. Continued investment and innovation is an important part of our capital allocation strategy to drive shareholder value. Moving to M&A. In December, we completed our acquisition of Marco, a leading provider in yield control and recipe formulation systems. Marco was a well-run $30 million company with a low to mid 20% EBITDA margin that provides us with a good entry into a product based niche segment of the food industry. Food is an attractive new vertical for ATS that is stable with growth in the mid single digit range and subject to regulation, which drives the ongoing need for high precision technologies. Initial integration is underway with a focus of deployment of the ABM to drive operational efficiencies, advance geographic penetration, and expand MarCO's after-sales services. MarCO serves as a first step in our expansion into this attractive new market. On other M&A activity, integration of XLOG and Comasur are progressing as planned. In summary, we have continued to execute on our value creation strategy. We're focused on driving growth and attractive regulated markets that are aligned with the unique value we bring to our customers. Our focus on margin expansion through continuous improvement enabled by our ABM had delivered results over the past several years. We have further room for margin expansion, which will be supported by our structured initiatives. We have made important capital allocation decisions to drive organic and inorganic growth, margin expansion, and improve our return on invested capital. Our balance sheet remains strong, which we will continue to put to work to drive our strategies. Now I will turn the call over to Maria.

Thank you, Andrew. In Q3, we increased bookings and revenue and had cash usage due to an increase in working capital as a percentage of revenue. Q3 this year included Commissure, which was acquired in February last year and is performing to plan. As anticipated, our reorganization activities commenced in Q3 and related costs impacted results in line with our expectations. The reorganization will set us up for margin expansion in fiscal 21. In the last four months, we have made three new acquisitions, Marco, XLOG, and IAP. The impact of these latest acquisitions on Q3 revenue was modest, and in aggregate, they will add approximately $40 million in revenue per annum. This morning, I will discuss Q3 results, provide an update on the reorganization plan, including timing and expected impact, and our balance sheet. I'll start with operating results. Q3 bookings were $368 million, up from Q2 bookings of $321 million. Our funnel is healthy and remains similar in size and quality to prior quarters with a good mix of opportunities. Year-to-date bookings of $1.112 billion averaged $371 million per quarter, with a book-to-bill ratio of 1.06 to 1, which is a positive indicator for continued growth. Q3 revenues of $367 million increased 7.6% over Q2. On a year-over-year basis, revenues increased 14%. Organic revenue growth was 5%, driven primarily by revenues from transportation and life sciences markets. Growth from acquisitions was 9%. Year-to-date, revenues have grown by 16%. Organic revenue growth was 7%, again driven primarily by revenues earned in life sciences and transportation markets. Year-to-date revenue growth from acquisitions was 9%. Looking at our acquisitions, both KMW and Commissure's results were on plan and as expected. Commissure has a high level of backlog and is well positioned for year-over-year growth. Q3 ending backlog of $939 million provides us with a solid base to generate revenue growth. Looking forward, Q4 revenues are estimated to be in the lower end of the 35 to 40% range of backlog. This is primarily due to project schedules. Specifically, we have a number of large programs in design or installation going through Q4, and these phases have lower third-party material content compared to Q3. The reorganization will also affect Q4 revenues because of the timing of activities ramping down at impacted divisions. Moving to our reorganization plan, as expected, it is impacting operating results, both adjusted and unadjusted earnings. We had expected that through the reorganization period over Q3 and Q4, there would be some downward pressure on margins. as inefficiencies in the affected facilities would cause underabsorption of employee and fixed costs. This impact is temporary and will be eliminated once the reorganization is complete. In Q3, the impact was approximately $5 million, and we see some additional margin pressure in Q4, estimated to be in the same dollar range. In Q3, we recorded $19 million in restructuring costs, with an estimated $6 million of remaining costs to be recorded in Q4. The reorganization will set us up well going forward, adding an incremental $15 to $18 million of annualized earnings commencing fiscal 21. This will contribute to our margin expansion initiatives as we expect a positive margin impact of between 110 and 130 basis points at the current revenue levels once the reorganization is complete. On gross margin, Q3 gross margin was 25.1%, with the reorganization activity impacting by approximately 1.3%. Over the last year, gross margins have ranged from 26.3% to 27%. On a year-to-date basis, gross margin was 26.1%, consistent with last year. Excluding M&A transaction costs, acquisition-related amortization expenses, and restructuring costs, Q3's SG&A was $50.2 million as compared to Q1 and Q2 SG&A of $49.9 million and $48.1 million. The slight increase is due to the three recent acquisitions. The $6 million increase from last year's Q3 SG&A of $44.2 million is due primarily to the acquired companies adding $5 million and increased employee costs to support organic growth, which added approximately $1 million. Stock compensation expense was $10.8 million higher compared to Q3 last year and has fluctuated over the last several quarters. With this level of fluctuation, I will speak to adjusted earnings excluding stock compensation expense. Q3 operating margin excluding stock comp was 11.4% compared to 12.6% last year. The temporary Reorganization activity negatively impacted adjusted operating margins by approximately 1.3%. Our focus is to drive margin improvements on a year-over-year basis. Year-to-date, adjusted earnings margin, excluding stock comp, was down five basis points from last year's 12%, due primarily to the inefficiencies from the reorganization plan. Moving to the balance sheet, Timing of deposits and collections, program milestones, and payment of accrued liabilities are causing quarterly variability in cash generation and working capital as a percentage of revenue. Our non-cash working capital as a percentage of revenue was 12.2% in Q3 compared to 10.7% in Q2 and 12.4% in Q1. The increased percentage or investment in working capital in Q3 is due to the timing of milestones, including certain receivables, which were collected shortly after our December 29 Q3 cutoff. Year to date, we have invested $38.3 million of our planned fiscal 20 investment in CapEx and intangible assets. We expect to spend in the range of $55 to $60 million for the fiscal year. We continue to have strong liquidity with cash on hand of $118 million and our credit facility of which approximately $648 million is available. In Q3, we generated adjusted earnings per share of 26 cents compared to 33 cents last year or a 7 cent decrease. Higher stock compensation expenses reduced adjusted EPS by 9 cents. This was partially offset by higher revenues. On a year-to-date basis, adjusted EPS of $0.80 is up $0.08 from $0.72 last year, primarily due to higher revenues. On our income taxes, we had income tax recovery this quarter due to the restructuring charges recorded in jurisdictions with higher tax rates. In summary, we continue to execute on our build, grow and expand strategy while we work through the temporary margin impact of the reorganization activity in Q3 and Q4. Our funnel remains well diversified with a mix of programs and enterprise solutions. We have a strong balance sheet with available credit which will support our objective of profitable growth. Now we'd like to open the call to your questions. Operator, could you please provide instructions to our listeners? Thank you.

Ladies and gentlemen, we will now conduct a question and answer session. To allow as many voices to be heard as possible, please limit yourself to two questions per turn. If you have a question, please press star followed by the one on your touchtone phone. Your questions will be pulled in the order they are received. Please ensure you lift your handset if you're using a speakerphone before pressing any keys. Your first question comes from the line of Mark Neville from Scotiabank. Your line is open.

Hey, good morning. First, I just want to ask about the guidance and the backlog conversion for Q4 low end of 35% to 40%. I guess if I'm reading this or interpreting this, it sort of sounds like The range now is 35 to 40, sort of not 30 to 40. Again, I don't want to put words in your mouth, but I'm sort of reading it that way. Am I interpreting that correctly?

Well, for 2-4, the range is the 35 to 40%. and you're asking if the range could be 30 to 40 percent?

Yeah, you sort of used to talk about, yeah, go ahead.

So I would just say what I usually say. It depends, and each quarter we have to assess, and the it depends part is based on the orders that we receive in the quarter, types of orders that we could receive. So, for example, if we receive a, and I'm making it up, $100 million order, and there's a period of performance of 24 months, that could easily change the backlog profile. Based on our experience in the last few quarters, we've been in the 35% to 40% range, and that has to do with the average period of performance and the mix large and small programs that we've had.

Okay, and it looks like Marco didn't come with much backlog. I assume that's just a reflection of the fact that it's more of a products business than anything else?

Yeah, and they came with about $4 million of backlog, and their period of performance is in the three to four month range. So there's, as you're suggesting, products, so there's a quicker turnover as compared to the ATF-based business.

But that's sort of all factored into the guide anyway, right? Yes, that's all factored in. Yeah, good. You spoke to the reorg, but just maybe a little more sort of color on that, just the progress, how much is sort of left to do if we're still targeting sort of March completion or Q4 completion, just a broader update on that, if you could, please.

I'll just start with the numbers so when we spoke about the reorganization we said that it would cost around 25 million dollars and between q3 and q4 and in q3 we did a large portion of that and we carried out the the the people part of it and in q4 what we have to do is is wind down some of these facilities and we would be incurring some lease termination costs. So by the end of Q4, we see being substantially complete.

Yeah, and Mark, just to add on that slightly, as we step back and look at the progress, we're on track to meet our expectations. We've continued to review the risk and view them as low risk, and our team is executing as planned.

Okay, and the 15, 18 million sort of payback, the thought is like that starts in earnest Q1 of fiscal 2021, correct? Like there's not really a ramp period. It should sort of help right away.

Yeah, so when we provided the range of 15 to 18 million dollars, what we see is around the 18 million per annum. And that slight range is just a bit of a buffer in April, but right now we're targeting to be achieving the 15 to 18 million early Q1.

Okay. And sorry, Maria, you mentioned the lease termination. Was there some lease termination in Q3? It just looked like there was a lease expense sort of jumped in Q3.

A small amount.

Okay. Okay, thank you. I'll get back in queue.

You're welcome.

Your next question comes from the line of Sherrilyn Radborn from TD Securities. Your line is open.

Thanks very much, and good morning. I wanted to start with a question just on customer purchasing behavior. I know, Andrew, the company really didn't see much of an impact of the trade tensions, even when they were sort of at their height. I'm just curious how you're thinking about the phase one trade deal between the U.S. and China. Is that effectively neutral, or do you think that that might have some positive impact on sentiment?

Good morning, Sherilyn. We view many different areas when we look at the business. To start with the trade direct head-on, we initially anticipated it would have had a larger positive impact. What I can state is our customers remain focused on their investments, and we haven't seen a huge change in behaviors. That said, we do view this as a potential positive for ATS. Any area where you want to move a regulated product, we view we've got the best solution to enable that move. And so we continue to monitor, but we haven't seen it be a big impact on our funnel or backlog as of yet.

Okay. And a somewhat related question. Just how are you thinking about the continued project deferrals in electric vehicles? In other words, are the launch dates still the same, do you think, meaning that there's more time pressure once the customers pull the trigger on those orders?

So when we look at this space, let's start with the facts. Our funnel remains healthy in this space, and we are very aligned with our customers as they're going through their product development. As we've stated in the past, timing will be variable, and we have not seen a shift in the launch date. What we can tell you is our funnel is healthy in the space. We have been working with these customers very closely, and when they're in a position to be able to move forward, we view ATS having a great value to helping them bring their product to market.

Great. That's two, so I'll get back in the queue. Thank you.

Thank you.

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

Good morning, and thanks for taking my call. This is on the new $20 million aerospace customer announced. Are you able to give some additional color on the size of the customer? What was the key attributes in winning this order and any particular follow-on opportunity there?

Great. Thank you, Justin, and good morning. So what we can tell you about this customer is it's a large customer in the space, and we're very pleased with the win. It took us roughly nine months to show and win the order. This order is largely around taking an existing brownfield, and when we say brownfield, we mean that's an existing product or existing production facility, and enabling it to be able to pull the information, collect the data, and then utilize the data in our Illuminate platform to then maximize and improve the production process. And we view this as, first and foremost, we need to execute and deliver this value. But then secondly, as we go forward, we view this as a key area that we see value that we could provide to customers in this space. All that to be said, we need to execute the order, deliver the results, show the performance, and then potentially continue to provide this level of service for this customer.

Thank you. That's helpful. And then on the margin expansion opportunity, I was hoping to get an update on the prior goal of 500 beeps over five years. I know we've seen some good margin expansion lately, but where would you say we are at in that, and what's the opportunity to expand considering the reorganization? Thank you.

Good morning, Justin. When we started the margin improvement plan and when we talked about the 500 basis points, we were at around 10%. And in fiscal 18 and fiscal 19, we added about 90 basis points in each of the first two years. So that got us to about 190 basis points of the 500 basis point margin expansion initiative. this year and as we've seen as a result of the reorganization activity we've had a decrease in our margins and and therefore we don't expect any expansion however our goal remains the same and as we've said the reorganization is expected to add about 15 to 18 million dollars in earnings which will help us move further towards our goal and and we continue on the initiatives, the five areas that we talked about, the driving continuous improvement through the ABM, supply chain management, standardization, services, and leveraging our cost structure to achieve the 500 basis points. As we get and as we move closer to the 500 basis points, we'll provide an update and what our targets will be going forward.

Thank you. And just one quick clarification. So is the way to look at it, the margin expansion would largely be weighted in the last two years, so fiscal 2021 and 2022?

Well, what we said before is as the years go by, we would see more of an impact, and that's because we're doing more investing up front and, for example, Fiscal 20 is a good example of that. So, yes, we would see more in the later years. And then also, as I've said, as we get closer to the 500 basis points, we'll provide an update on what our plans are moving forward.

Thank you for taking my questions.

You're welcome.

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

Hi, good morning.

Good morning.

Marie, maybe the first question for you, in terms of when you talk about less third-party costs coming in for fiscal Q4, does it mean that the margin profile on sort of the engineering installation work should be higher, or how should we think about this?

When we record our revenues, and that's percentage of completion revenue recognition, regardless of what's happening in our programs, so whether there's engineering or design or third-party materials, the margin is always the same. So then that means no impact to margins going into Q4 as a result of the third-party material mix.

Okay, that's helpful. Thank you very much. And then should we expect fairly significant non-cash working capital inflow in fiscal Q4, just kind of in line with the seasonal patterns? Or is there anything at all there?

Well, that number will be impacted by our working capital as a percentage of revenue, and so we've seen the increase. And we said that in the quarter, the 12.2 or 12.3% working capital as a percentage of revenue is a little high due to certain timing of collections and milestones and deposit payments. So if we, and I'm not going to guide, but if we expect our working capital as a percentage of revenue to come down, then that number should come down also. And of course, that's what we're targeting. And that's what we're seeing. But it's hard to provide a number because of the variability, as we've seen over the last number of quarters in our working capital as a percentage of revenue.

Okay, fair enough. And then maybe just a last quick question for Andrew, if it's possible. Do you mind me commenting in terms of the M&A environment, kind of expectations of sellers, uh on the one hand and and maybe you know your desire to do more m&a if you can comment uh potentially on on the quantum and how aggressive you want to be given given obviously your healthy balance sheet thanks absolutely good morning max um you know let me start as we've been clear we've got four key variables that we view any m a potential

around and we're very disciplined in our approach. And what I can state is we haven't seen a huge shift in the market today. Our funnel is healthy in areas that we're targeting and we're disciplined in our approach. And I would just add that Marco is a prime example of an area we've been targeting to want to get into. We like the dynamics of the business. It met all four criteria very well. And because of the relationship that we built through the discussions with the team, we felt very confident and moving and adding them to the ATS family. So, but we're to step back in high level. Funnel is healthy. We're firm believers in cultivation and ensuring that we've got ongoing dialogues. That said, we're going to be disciplined. And as we think about our primary focus around value creation for our shareholders, disciplined capital allocation is a critical piece of that. And we're pleased with the additions. We view that there's more to be potentially added, but we're going to be very careful in our approach.

Okay. And so, and again, like I'm not trying to sort of, you know, take words from your mouth, but you haven't seen the multiples kind of creep across, you know, the assets that you're targeting. Is it fair enough? Or you have to be more selective, I guess, relative to, I don't know, like 15 months ago, for example.

Yeah, you know, Max, what I can say is we're seeing it is a broad range and areas that we target, it is a fairly broad range. And so it's still an aggressive market. That said, our ability to cultivate, and one of the things that's really resonating with targets as we have discussions, is our approach in a decentralized model where the ABM is our enabling force. It's really how we align every business. So if you're in Germany, if you're in a different part of the world and you've built up your brand, you can keep that ability to execute on what's made you successful and the ABM enables you to move even faster. And so what I can tell you is that we're viewing as a competitive advantage for us in the discussions. But we haven't seen a huge decline in the multiples as of yet. And, again, we're making sure we're cultivating such that when an asset becomes available and it meets our four criteria, we can move at a very fast pace to add them to the family.

Okay, excellent. Thank you very much. That's it for me.

Thank you, Max.

Again, if you'd like to ask a question, please press star and the number one on your telephone keypad. Your next question comes from the line of Mark Neville from Scotiabank. Your line is open.

Just a few follow-ups. I guess first on the Aerospace Award. First, I'm just curious, how much business are you actually doing in aerospace, or is it a new vertical? And I guess specifically to this award, it sounds to me like it's sort of more software and data, but I'm not sure. Is there actual equipment or systems installations as well, or is that a potential follow-on?

Yes, so... Mark, when we look at this space, and we're putting it in our transportation space, it is new to ATS, and this is an area where we are maximizing the data control, and we're using our Illuminate platform to present the data such that we can maximize the performance of the operation. And I'll just say, one of the things that we view as an opportunity for ATS in this area is around brownfield manufacturing sites, where the equipment might not have been connected. With our PA solutions business, we can then be able to utilize, be able to extract, pull, maximize the data usage, and then have the Illuminate platform to present it such that we can improve the manufacturing process. And so we like certain dynamics of aerospace. obviously regulated. More importantly, we like the ability to really impact and drive this value with our customers around utilizing their current equipment, getting a footprint into enabling, helping, solving, and then having the Illuminate platform being able to provide useful information around, call it a smart factory, to maximize their performance.

Okay. Again, I guess this... I want to make sure there's some sort of understanding, but is it, is it sort of typical or have you, is there, have you won a lot of orders sort of like this where it's more sort of, you know, tied to these brownfields where you're, you know, maximizing the data and using Illuminate versus, you know, entering with your traditional sort of systems type business? I don't know if I'm asking it correctly, but.

No, you know, Mark, we're seeing, and it's, there's, Stepping back, when we look at customers in the space, customers are really identifying and driving their ability to how they want to maximize their existing production facilities. Whether it's in aerospace or other spaces that we're in today, customers are looking to really perform at a higher level. That is an area that they're challenged on to continue to build out their business. When we look at businesses like PA that can go in, enable the ability to utilize the existing data that's coming off machines, and then you look at our Illuminate platform, it really does enable and help them moving in that direction. And so we've seen customers valuing these solutions. There is early thinking in this. That said, the smart factory is not an early concept, and customers are looking to get to that solution set. Did that answer your question?

Yeah, it helps. I guess if it's not an existing customer or vertical, I'm just curious sort of how you win that award. Is there an RFP put out or just how you win that award?

Yeah, so we identified it with one of our businesses. We were able to identify the potential opportunity, and then we went in and really built out the solution around it. Again, the gestation period was called roughly nine-ish months. And the team was able to prove through that time period that we truly can help this customer. And so, again, we need to execute, we need to drive the results, and then we view that there's potential in the future.

Okay. Maybe just a couple more sort of housekeeping questions. But the working cap, Max asked it, but, Marie, I think you said earlier there was a collection of receivables shortly after the quarter. So the thinking is it does come down a bit in Q4, the working cap investment?

Well, based on that, the thinking is yes, and that impacted just over 1%. Okay.

And the amortization of acquisition-related intangibles, it's been bouncing around a bit, I guess quarter to quarter. Maybe just help us with, just for modeling purposes, sort of what the number might look like with all the recent deals.

So first of all, just to answer the bouncing around, that just has to do with the amortization period. So it's not fixed, i.e. five years or seven years, depending on what the intangible is. It ranges from three to seven years. We're seeing that. And then we've been adding these new acquisitions. Based on what we're modeling today, we know that it'll be increasing And we can see at least a million more a quarter, but we'll have better information and indication of that in the next few weeks.

Okay. Okay. Maybe I'm going to sort of just ask the last one. Just on the M&A conversation, again, like the last few deals have looked very different. So, again, I understand there's like a criteria and sort of a fairly wide sort of range of what you're looking at, but Is there a preference in terms of products, systems, data, sort of what you want to do and sort of how that sort of in terms of multiples, how it sort of all comes together? Because, again, I guess I'm thinking about Marco, products-based business, pretty attractive multiple. If there's a bunch of stuff out there like that that you could do, just a discussion around that. Thanks.

So, Mark, I'm going to attempt to answer your question, and let's make sure we get to an answer. When we look at businesses, we look at them in isolation, and then we look at them how they would add to the overall ATS breadth. And not to walk into our four criteria, but I'm going to quickly. It's around the market and truly understanding the market. And so let's take Marco for this. regulated food space and we got into the niche application of where they play and how they really drive value in that area and check the box around what the market looks like today and over over the next call it five to seven years and in the future then we look at the street strategic rationale how do we really enable that business how do we drive it again check the box and where we want to go and Third is around how we operate the ABM, how it can enable that organization. And last is ROIC. And I say ROIC because we look at the return. And so the return is going to really factor in whether the multiple is high or low. Regardless, how does it return to our business? How do we enable them to drive growth? How do we then drive that and really add value to our shareholders? And so is there a focus we like? Different businesses for different aspects. We, we are, and we've targeted areas around, you know, whether it's product base or whether it's a software solution. Those have been areas that we've been, been driving. That said, we, we, we like regulated areas and that's no secret. We've talked about regulated spaces and, and how we view them being adding value to ATS and our ability to execute on them. Did that answer your question, Mark?

Yeah, again, it's a broad answer, but it sort of speaks to, I guess, what the last few deals have looked like. So, yeah, I guess. Okay. Thanks.

Your next question comes from the line of Sherilyn Radhorn from TD Securities. Your line is open.

Thank you. Just a quick couple of follow-ups from me. First on Marco, just wonder if you could speak to any revenue synergies. Just wondering if we should think about that as kind of an initial question step out into food that's a bit standalone initially, and then you layer on with tuck-ins, or are there some synergies right out of the gate?

Yeah, so let's start with Marco. We like the base business, and we like this organization on its own. And so regardless of tuck-ins or not, we like the base business. Second, we do view... that ATS can help them penetrate their market, meaning our infrastructure alone allows them to add in areas. So for instance, in North America, we view them as being slightly under-penetrated. We can help them grow that faster. This is an independent business, standalone business within ATS. And we view this segment as an attractive segment that if additional opportunities became available and they checked our four boxes, we would be interested in moving to the next step. And so we do like the regulated food space. We do like this area. We do like different areas in regulated food. And we like the ability to really drive this penetration. And so it is going to be on its own. There is some areas we believe we can help them move at a faster pace. And if the right opportunities presented themselves in the future for additions to the platform, we would be interested in moving forward, assuming it checked our four boxes.

Okay, that's helpful. And then separately, if I look at the revenue segmentation on your income statement, the sale of goods has seen very strong growth in the quarter and year to date. And if memory serves, a lot of that is parts. So just wondering if you could give some color on that.

We've been working to increase our after-sales parts and service, and you can see that in the numbers. When we started to talk about services as a percentage of revenue, we were around 15%, and as Andrew said, our objective is to move to around 20%, and we've made some progress in the year. both there and then in the other line item, which is other services offerings.

Okay. Thanks. That's all from me. You're welcome.

There are no further questions at this time. I turn the call back over to Andrew.

Thanks, Operator. Thank you, everyone, for joining us today. And I look forward to reporting our fiscal 20 results in May. Have a great day.

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