AMOT Allied Motion Technologies Inc

Allied Motion Technologies Inc. (NASDAQ:AMOT) (“Company”), a designer and manufacturer that sells precision motion control products and solutions to the global market, today reported financial results for the third quarter ended September 30, 2017.

• Revenue increased 6.4% to $65.0 million
• Orders were up 23.5% to a record $73.0 million
• Backlog grew to largest level in Company history at $93.5 million
• Net income increased 8.4% to $3.1 million, or $0.33 per diluted share
• Cash generated from operation was $7.9 million

“Third quarter results exceeded our expectations, a result of improving economic conditions and increased demand from our target markets,” commented Dick Warzala, Chairman and CEO of Allied Motion. “We achieved considerable growth within our Medical and Industrial/Electronics markets including increased demand for our servo motor products that are used in factory automation solutions. As previously announced last month, we secured a contract for $6.8 million in the Defense market which is further evidence that our target market strategy and focused selling efforts are beginning to yield benefits.”

Third Quarter 2017 Results (Narrative compares with prior-year period unless otherwise noted)

Revenue grew $3.9 million, or 6.4%, to $65.0 million. The improvement reflects significantly higher sales to the Company’s Industrial/Electronics markets, solid growth in its Medical markets and improvement in distribution sales. Sales to these markets more than offset lower demand from the Vehicle market. Excluding the favorable effects of foreign currency exchange (FX), third quarter revenue was $63.6 million, up 4.2% from the prior-year period.

Sales to U.S. customers were 53% of total sales for the quarter compared with 56% for the same period last year, with the balance of sales to customers primarily in Europe, Canada and Asia.

Gross profit was $19.5 million, or 30.1% of revenue, compared with $17.9 million, or 29.3% of revenue. The 80 basis point expansion in gross margin was due to more favorable mix and higher volume.

Total operating costs and expenses were up $1.7 million, or 13.5%, to $14.3 million. This included general and administrative expenses of $6.3 million, which was up $1.0 million primarily due to increased incentive compensation.

As a percent of sales, selling expenses were up 30 basis points to 4.3%, and reflected the expansion of the sales organization earlier in 2017.

Engineering and development (“E&D”) was up 10.8%, or $0.4 million, to $4.4 million and increased as a percent of revenue to 6.8% from 6.5%. Higher E&D investments were focused on customer specific motion solutions reflecting the solid pipeline of motion solution opportunities.

Operating income was $5.3 million, relatively unchanged from the prior-year period.

The Company refinanced its borrowings in November 2016, measurably reducing interest expense which was down $0.9 million, or nearly 58%, to $0.6 million in the third quarter of 2017.

The effective tax rate was 33.1%. The Company continues to anticipate its effective tax rate for 2017 to be approximately 29% to 32%.

Net income was $3.1 million, up 8.4% compared with $2.8 million in the third quarter of 2016. On a per diluted share basis, earnings were $0.33, up 10% from $0.30 per diluted share.

Earnings before interest, taxes, depreciation, amortization, stock compensation expense, and business development costs (“Adjusted EBITDA”) was $8.4 million, or 12.9% of revenue, compared with $8.4 million, or 13.7% last year. The Company believes that, when used in conjunction with measures prepared in accordance with U.S. generally accepted accounting principles, Adjusted EBITDA, which is a non-GAAP measure, helps in the understanding of its operating performance. See the attached tables for a description of non-GAAP financial measures and reconciliation tables for Constant Currency and Adjusted EBITDA.

Year-to-date 2017 Results (Narrative compares with prior-year period unless otherwise noted)

Increased demand from the Industrial/Electronics, Medical and Aerospace & Defense markets as well as improvement in distribution sales partially offset softness in the Company’s Vehicle market. As a result, for the nine-month period, sales were down $3.9 million, or 2%. Sales to U.S. customers were 54% of total sales on a year-to-date basis compared with 55% for the same period last year.

Gross margin was 29.5%, consistent with last year as mix helped to offset lower volume. Operating expenses for the year-to-date period were up 3.8%, or $1.5 million, mostly as a result of investments in personnel and technology. Operating income was down $2.7 million, or 16.4%. Lower interest expense, resulting from the November 2016 refinancing, enabled net income of $7.9 million, compared with $8.4 million in the prior-year period.

Balance Sheet and Cash Flow Review

Cash and cash equivalents at the end of the third quarter were $17.6 million compared with $15.5 million at 2016 year-end. Cash generated by operations was $7.9 million in the quarter and $15.3 million year-to-date.

Capital expenditures were $1.5 million in the quarter and $4.2 million for the nine-month period. Capital expenditures in 2017 are expected to be approximately $5 million to $6 million. The Company repaid $3.4 million in debt in the third quarter of 2017. Debt at the end of the quarter was $62.5 million compared with $71.4 million at year-end 2016. Debt, net of cash, was $44.9 million, or 34.1% of net debt to capitalization.

 

Orders and Backlog Summary ($ in thousands)

                   

Q3 2017

Q2 2017

Q1 2017

Q4 2016

Q3 2016

Orders $ 72,964 $ 65,754 $ 60,459 $ 56,543 $ 59,088 Backlog $ 93,547 $ 85,250 $ 77,954 $ 78,602 $ 77,683  

Record orders of $73.0 million reflects strength across all markets except Vehicle. Orders reached record status even excluding favorable FX.

For the first nine-months of 2017, higher orders were driven by increased demand in the Company’s Industrial/Electronics, Medical, Aerospace & Defense markets and growth in Distribution.

Backlog was up a substantial 20% over the prior-year period and increased 10% since the end of the trailing second quarter. The time to convert the majority of backlog to sales is approximately three to six months.

Mr. Warzala concluded, “The benefit of improved market conditions, successful wins with new solutions in more applications and the addition of new customers have led to strengthening orders throughout the year and a record backlog. We have a solid pipeline of sales opportunities and are methodically adding new channel partners for our distribution strategy. We are executing our plan and believe we are creating a strong business foundation upon which to grow.”

Conference Call and Webcast

The Company will host a conference call and webcast on Thursday, November 2, 2017 at 11:00 am ET. During the conference call, management will review the financial and operating results and discuss Allied Motion’s corporate strategy and outlook. A question-and-answer session will follow.

To listen to the live call, participants can dial (778) 327-3988. In addition, the call will be webcast live and may be found at: http://www.alliedmotion.com/investors.

A telephonic replay will be available from 1:00 pm ET on the day of the call through Thursday, November 9, 2017. To listen to the archived call, dial (412) 317-6671 and enter replay pin number 10003590 or access the webcast replay via the Company’s website. A transcript will also be posted to the website once available.

About Allied Motion Technologies Inc.

Allied Motion (NASDAQ: AMOT) designs, manufactures and sells precision and specialty motion control components and systems used in a broad range of industries within our major served markets, which include Vehicle, Medical, Aerospace & Defense, and Industrial/Electronics. The Company is headquartered in Amherst, NY, has global operations and sells into markets across the United States, Canada, South America, Europe and Asia.

Allied Motion is focused on motion control applications and is known worldwide for its expertise in electro-magnetic, mechanical and electronic motion technology. Its products include brush and brushless DC motors, brushless servo and torque motors, coreless DC motors, integrated brushless motor-drives, gear motors, gearing, modular digital servo drives, motion controllers, incremental and absolute optical encoders, and other associated motion control-related products.

The Company’s growth strategy is focused on becoming the motion solution leader in its selected target markets by leveraging its “technology/know how” to develop integrated precision motion solutions that utilize multiple Allied Motion technologies to “change the game” and create higher value solutions for its customers. The Company routinely posts news and other important information on its website at http://www.alliedmotion.com/.

Safe Harbor Statement

The statements in this news release and in the Company’s November 2, 2017 conference call that relate to future plans, events or performance are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements, and may contain the word “believe,” “anticipate,” “expect,” “project,” “intend,” “will continue,” “will likely result,” “should” or words or phrases of similar meaning. Forward-looking statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from the expected results described in the forward-looking statements. The risks and uncertainties include those associated with: the domestic and foreign general business and economic conditions in the markets we serve, including political and currency risks and adverse changes in local legal and regulatory environments; the introduction of new technologies and the impact of competitive products; the ability to protect the Company’s intellectual property; our ability to sustain, manage or forecast its growth and product acceptance to accurately align capacity with demand; the continued success of our customers and the ability to realize the full amounts reflected in our order backlog as revenue; the loss of significant customers or the enforceability of the Company’s contracts in connection with a merger, acquisition, disposition, bankruptcy, or otherwise; our ability to meet the technical specifications of our customers; the performance of subcontractors or suppliers and the continued availability of parts and components; changes in government regulations; the availability of financing and our access to capital markets, borrowings, or financial transactions to hedge certain risks; the Company's ability to realize the annual interest expense savings from its debt refinancing; the ability to attract and retain qualified personnel who can design new applications and products for the motion industry; the ability to implement our corporate strategies designed for growth and improvement in profits including to identify and consummate favorable acquisitions to support external growth and the development of new technologies; the ability to successfully integrate an acquired business into our business model without substantial costs, delays, or problems; our ability to control costs, including the establishment and operation of lowcost region manufacturing and component sourcing capabilities; and other risks and uncertainties detailed from time to time in the Company’s SEC filings. Actual results, events and performance may differ materially. Readers are cautioned not to place undue reliance on these forward-looking statements as a prediction of actual results. Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise over time, and it is not possible for us to predict the occurrence of those matters or the manner in which they may affect us. The Company has no obligation or intent to release publicly any revisions to any forward looking statements, whether as a result of new information, future events, or otherwise.

FINANCIAL TABLES FOLLOW

 

ALLIED MOTION TECHNOLOGIES INC.CONSOLIDATED STATEMENTS OF INCOME(In thousands, except per share data)(Unaudited)

    For the three months ended   For the nine months ended September 30, September 30, 2017   2016 2017   2016   Revenue $ 64,968 $ 61,040 $ 186,657 $ 190,550 Cost of goods sold   45,422     43,133     131,529     134,274   Gross profit 19,546 17,907 55,128 56,276 Operating costs and expenses: Selling 2,822 2,431 8,135 7,490 General and administrative 6,255 5,264 17,985 17,551 Engineering and development 4,389 3,961 12,984 12,185 Business development - 123 - 341 Amortization of intangible assets   813     802     2,405     2,409   Total operating costs and expenses 14,279 12,581 41,509 39,976 Operating income 5,267 5,326 13,619 16,300 Other expense (income): Interest expense 633 1,504 1,797 4,626 Other expense, net   65     (75 )   135     (190 ) Total other expense, net   698     1,429     1,932     4,436   Income before income taxes 4,569 3,897 11,687 11,864 Provision for income taxes   (1,512 )   (1,076 )   (3,746 )   (3,495 ) Net income $ 3,057   $ 2,821   $ 7,941   $ 8,369     Basic earnings per share: Earnings per share $ 0.33   $ 0.30   $ 0.87   $ 0.90   Basic weighted average common shares   9,173     9,350     9,137     9,325   Diluted earnings per share: Earnings per share $ 0.33   $ 0.30   $ 0.86   $ 0.90   Diluted weighted average common shares   9,294     9,350     9,265     9,325     Net income $ 3,057   $ 2,821   $ 7,941   $ 8,369     Other comprehensive income: Foreign currency translation adjustment 1,829 383 5,608 1,346 Change in accumulated loss on derivatives   45     66     (178 )   (56 ) Comprehensive income $ 4,931   $ 3,270   $ 13,371   $ 9,659      

ALLIED MOTION TECHNOLOGIES INC.CONSOLIDATED BALANCE SHEETS(In thousands, except per share data)

     

September 30,2017

December 31,2016

(Unaudited) Assets Current Assets: Cash and cash equivalents $ 17,600 $ 15,483

Trade receivables, net of allowance for doubtful accounts of$379 and $362 at September 30, 2017 and December 31, 2016, respectively

34,493 26,104 Inventories 32,779 31,098 Prepaid expenses and other assets   3,096     3,120   Total current assets 87,968 75,805 Property, plant and equipment, net 38,157 37,474 Deferred income taxes 492 923 Intangible assets, net 32,776 34,252 Goodwill 29,305 27,522 Other long term assets   4,343     3,943   Total assets $ 193,041   $ 179,919   Liabilities and Stockholders’ Equity Current Liabilities: Debt obligations 526 936 Accounts payable 17,156 13,204 Accrued liabilities   13,742     10,678   Total current liabilities 31,424 24,818 Long-term debt 61,995 70,483 Deferred income taxes 3,129 3,266 Pension and post-retirement obligations 4,403 4,381 Other long term liabilities   5,386     4,685   Total liabilities 106,337 107,633 Stockholders’ Equity:

Common stock, no par value, authorized 50,000 shares; 9,453 and9,374 shares issued and outstanding at September 30, 2017and December 31, 2016, respectively

31,244 29,503

Preferred stock, par value $1.00 per share, authorized 5,000shares; no shares issued or outstanding

- Retained earnings 62,033 54,786 Accumulated other comprehensive loss   (6,573 )   (12,003 ) Total stockholders’ equity   86,704     72,286   Total Liabilities and Stockholders’ Equity $ 193,041   $ 179,919      

ALLIED MOTION TECHNOLOGIES INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)(Unaudited)

    For the nine months ended September 30, 2017   2016 Cash Flows From Operating Activities: Net income $ 7,941 $ 8,369  

Adjustments to reconcile net income to net cash provided byoperating activities (net of working capital acquired in 2016):

Depreciation and amortization 7,590 7,309 Deferred income taxes (99 ) 1,345 Stock compensation expense 1,473 1,370 Debt issue cost amortization recorded in interest expense 113 - Other (26 ) (455 ) Changes in operating assets and liabilities: Trade receivables (6,887 ) (5,739 ) Inventories (379 ) 613 Prepaid expenses and other assets 17 1,252 Accounts payable 3,106 (525 ) Accrued liabilities   2,464     (3,574 ) Net cash provided by operating activities 15,313 9,965   Cash Flows From Investing Activities: Purchase of property and equipment (4,220 ) (3,694 ) Consideration paid for acquisition, net of cash acquired ($2,329)   -     (16,049 ) Net cash used in investing activities (4,220 ) (19,743 )   Cash Flows From Financing Activities: Payments on lines-of-credit, net (441 ) 6,802 Principal payments of long-term debt (9,114 ) (5,625 ) Dividends paid to stockholders (709 ) (700 ) Stock transactions under employee benefit stock plans   355     268   Net cash (used in) provided by financing activities (9,909 ) 745 Effect of foreign exchange rate changes on cash   933     297   Net increase (decrease) in cash and cash equivalents 2,117 (8,736 ) Cash and cash equivalents at beginning of period   15,483     21,278   Cash and cash equivalents at end of period $ 17,600   $ 12,542      

ALLIED MOTION TECHNOLOGIES INC.

Reconciliation of Non-GAAP Financial Measures

(In thousands)

 

In addition to reporting net income, a U.S. generally accepted accounting principle (“GAAP”) measure, the Company presents Adjusted EBITDA (earnings before interest, income taxes, depreciation and amortization, stock compensation expense, and business development costs), which is a non-GAAP measure. The Company believes Adjusted EBITDA is often a useful measure of a Company’s operating performance and is a significant basis used by the Company’s management to evaluate and compare the core operating performance of its business from period to period by removing the impact of the capital structure (interest), tangible and intangible asset base (depreciation and amortization), taxes, stock-based compensation expense, business development costs related to acquisitions, and other items that are not indicative of the Company’s core operating performance. Adjusted EBITDA does not represent and should not be considered as an alternative to net income, operating income, net cash provided by operating activities or any other measure for determining operating performance or liquidity that is calculated in accordance with generally accepted accounting principles.

The Company’s calculation of Adjusted EBITDA for the three and nine months ended September 30, 2017 and 2016 is as follows:

      Three months ended September 30,         2017     2016 Net income $ 3,057     $ 2,821 Interest expense 633 1,504 Provision for income tax 1,512 1,076 Depreciation and amortization         2,630         2,459   EBITDA 7,832 7,860 Stock compensation expense 519 395 Business development costs         -         123   Adjusted EBITDA       $ 8,351       $ 8,378       Nine months ended September 30,         2017     2016 Net income $ 7,941 $ 8,369 Interest expense 1,797 4,626 Provision for income tax 3,746 3,495 Depreciation and amortization         7,590         7,309   EBITDA 21,074 23,799 Stock compensation expense 1,473 1,370 Business development costs - 341 Insurance recoveries         -         (823 ) Adjusted EBITDA       $ 22,547       $ 24,687      

ALLIED MOTION TECHNOLOGIES INC.

Reconciliation of Non-GAAP Financial Measures

(In thousands)

 

Constant Currency Presentation

The Company believes constant currency information provides valuable supplemental information that facilitates period-to-period comparisons of the company's business performance. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. Constant currency results are calculated by translating current period results in local currency using the prior year's currency conversion rate. The following table reconciles reported amounts to constant currency amounts for the three and nine months ended September 30, 2017.

      Three months ended September 30, 2017 $ in thousands    

% increase (decrease)compared with prior year amounts

Revenue 2017 revenue, as reported $ 64,968 6.4 % Currency impact   (1,335 ) (2.2 %) 2017 revenue, at 2016 exchange rates $ 63,633   4.2 %     Nine months ended September 30, 2017 $ in thousands

% increase (decrease)compared with prior year amounts

Revenue 2017 revenue, as reported $ 186,657 (2.0 %) Currency impact   528   0.3 % 2017 revenue, at 2016 exchange rates $ 187,185   (1.7 %)  

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Company:Allied Motion Technologies Inc.Sue Chiarmonte, 716-242-8634 x602sue.chiarmonte@alliedmotion.comorInvestors:Kei Advisors LLCDeborah K. Pawlowski, 716-843-3908dpawlowski@keiadvisors.com