Business context and reporting period
This is Allied Motion Technologies Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2016. The company designs and manufactures motion-control components and systems for vehicle, medical, aerospace and defense, electronics, and industrial markets. The filing identifies the registrant as Allied Motion Technologies Inc., not “Allient Inc.”
Results include Heidrive GmbH from its January 12, 2016 acquisition date. Heidrive represented approximately 12% of first-half sales and 7% of June 30 total assets.
Financial performance and position
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $65.8 million | $60.5 million | $129.5 million | $120.1 million |
| Gross margin | $19.6 million; 29.8% | $18.0 million; 29.7% | $37.9 million; 29.3% | $35.5 million; 29.6% |
| Operating income | $6.0 million | $5.7 million | $10.5 million | $11.4 million |
| Net income | $2.9 million | $3.1 million | $5.1 million | $6.1 million |
| Diluted EPS | $0.31 | $0.34 | $0.54 | $0.66 |
| Bookings / backlog | $68.3 million / $80.7 million | $64.5 million / $75.6 million | $134.7 million / $80.7 million | $122.7 million / $75.6 million |
All dollar amounts above are converted from the filing’s stated thousands. Q2 operating income margin was approximately 9.1% versus 9.5%; first-half margin was 8.1% versus 9.5%. Adjusted EBITDA, a non-GAAP measure, was $8.4 million for Q2 and $15.8 million for the first half, compared with $8.1 million and $16.2 million, respectively.
At June 30, cash was $10.4 million, down from $21.3 million at year-end 2015. Current assets were $75.3 million and current liabilities $49.4 million. Balance-sheet current and long-term debt totaled $73.6 million, including $30 million of subordinated notes bearing 14.5% interest (13% cash, 1.5% paid in kind). The company reported approximately $20.2 million available under its senior credit facilities and compliance with covenants. The filing separately cites $73.2 million of obligations under the credit and note agreements before unamortized issuance costs; investors should reconcile this amount with balance-sheet debt.
First-half operating cash flow was $1.7 million, versus $3.6 million in 2015; investing cash outflow was $18.4 million, largely reflecting $16.0 million paid for Heidrive net of acquired cash; financing cash inflow was $5.6 million. Capital expenditures were $2.4 million. The company paid $0.05 per share in dividends during the first half.
Material changes and management commentary
- Q2 revenue rose 9%, while net income fell 6% and diluted EPS fell 9%. First-half revenue increased 8%, but net income declined 17% and diluted EPS declined 18%.
- Management attributed sales growth to Heidrive and strength in medical, aerospace and defense, and industrial markets, partly offset by a slight decline in vehicle sales as projects wound down. Heidrive volume supported gross-margin growth, while acquisition costs, higher engineering investment, and organizational and IT investments weighed on earnings.
- First-half bookings increased 10% and backlog increased 7% year over year. Management described the economic environment as continuing slow growth and said some new projects were entering production in 2016, with others planned for 2017 and later.
- The effective tax rate increased to 34.7% in Q2 from 26.3%, and to 32.3% for the first half from 29.3%, principally reflecting a greater share of income in higher-tax international jurisdictions. The first-half 2016 rate included a $153,000 discrete tax benefit from adoption of a stock-compensation accounting update.
Outlook, risks, contingencies, and unusual items
The filing provides no quantified revenue or earnings guidance. Management’s outlook emphasizes growth in new applications and customers, higher-margin multi-product solutions, and execution amid a slow-growth economy. These statements are forward-looking and subject to risks including economic and currency conditions, customer concentration, demand and backlog conversion, competition, supply availability, financing, and acquisition integration.
Foreign currency translation reduced Q2 comprehensive income by $1.1 million; management estimated that a hypothetical 10% U.S. dollar move would affect Q2 sales by approximately $2.6 million, with partially offsetting cost effects. One customer accounted for 19% of revenue in Q2 and the first half. Litigation was described as ordinary-course matters that management did not expect to materially affect financial position or results. The company was assessing Heidrive’s control environment and excluded its operations from the June 30 internal-control assessment; management concluded disclosure controls were effective.
Important facts for investors to verify
- Reconcile the filing’s $73.2 million stated debt obligations with $73.6 million of current and long-term balance-sheet debt, and assess refinancing and high-coupon subordinated-note costs.
- Evaluate whether Heidrive’s contribution, integration, and purchase-price allocation support sustainable growth and margins.
- Monitor working-capital demands, especially receivables, and cash generation following the acquisition-related cash outflow.
- Assess customer concentration, vehicle-market project wind-downs, backlog conversion, and the timing and returns of engineering investments.
- Track the higher effective tax rate, foreign-exchange exposure, and completion of Heidrive’s internal-control assessment.