Filing summary
Reporting period: Form 10-Q for the quarter ended September 30, 2015; filed November 5, 2015. The filing identifies the registrant as Allied Motion Technologies Inc., not “ALLIENT INC.” Figures below are in thousands of dollars unless stated otherwise.
Business context and financial performance
Allied Motion designs and manufactures motion-control products and systems for commercial motor, industrial, automotive, medical, and aerospace and defense markets. It reports one operating segment.
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $61,534 | $65,280 | $181,593 | $187,784 |
| Gross margin | $18,939; 30.8% | $19,612; 30.0% | $54,426; 30.0% | $55,272; 29.4% |
| Operating income | $7,031 | $7,262 | $18,397 | $17,318 |
| Net income | $4,278 | $4,115 | $10,379 | $8,956 |
| Diluted EPS | $0.46 | $0.45 | $1.12 | $0.98 |
| Operating cash flow | Not separately stated | Not separately stated | $13,727 | $7,852 |
Q3 gross margin improved to 30.8% from 30.0%; nine-month margin rose to 30.0% from 29.4%. Interest expense was $1,504 for Q3 and $4,530 for the nine-month period. Adjusted EBITDA, a non-GAAP measure, was $9,443 for Q3 and $25,685 year to date, versus $9,901 and $24,505, respectively.
Balance sheet, debt and liquidity
At September 30, 2015, cash was $17,896, total assets $169,040, and total stockholders’ equity $63,928. Current assets were $78,875 and current liabilities $36,822. Debt obligations totaled $70,711, including $9,211 current and $61,500 long-term; debt net of cash was $52,815. The term loan carried a stated 2.2% rate (2.66% effective including hedges); $30,000 of subordinated notes bore 14.5% interest, with 13% payable in cash and 1.5% in kind.
The company reported approximately $15,000 available under its senior credit facilities and $180 available under its China facility, and said it was in compliance with all credit covenants. Nine-month investing cash use was $3,693, primarily capital expenditures. Financing cash use was $4,545, including $4,500 in term-loan principal payments and $690 in dividends. Cash increased by $4,783 during the period.
Changes, outlook and risks
- Reported Q3 revenue declined 6%, while volume was consistent; management attributed the decline to a 6% unfavorable currency effect. At prior-year exchange rates, management estimated Q3 revenue would have been flat and EPS would have increased 11%.
- For the first nine months, reported revenue declined 3%; management attributed a 7% currency headwind to results, partly offset by 4% volume growth. At constant currency, management estimated revenue growth of 4% and EPS growth of 26%.
- Reported net income increased 4% in Q3 and 16% year to date. Management cited improved product mix and gross margins, lower G&A costs, and, year to date, increased volume; currency effects partly offset these improvements. Lower tax rates also supported reported earnings.
- Bookings were $55,115 in Q3, down 17% year over year; nine-month bookings were $177,781, down 9%. Backlog was $67,820, down 16% from September 30, 2014. Management cited lower volume and foreign-exchange effects.
- Electronics and Medical markets grew; Aerospace and Defense, Industrial, Distribution, and Vehicle markets declined. Management emphasized operating efficiencies and strategic acquisition opportunities, but provided no quantified financial guidance.
- Key exposures include foreign-exchange movements, customer demand and concentration, customer creditworthiness, debt and interest costs, pension assumptions, inventory obsolescence, and execution of product-development and growth plans. Two customers accounted for 36% of Q3 revenue and 37% of receivables. Management said ordinary-course litigation was not expected to have a significant adverse effect.
- A $129 discrete tax benefit was recorded in Q3, and $232 in total discrete tax benefits year to date. The filing reports no material change to previously disclosed risk factors. Management judged disclosure controls effective and reported no significant ERP implementation difficulties to date.
Important facts for investors to verify
- Confirm the issuer identity: the supplied request names ALLIENT INC, while this filing is for Allied Motion Technologies Inc.
- Review the decline in bookings and backlog, customer concentration, and whether reported demand trends continued after quarter-end.
- Assess the sustainability of margin and earnings gains, including the effects of foreign currency and discrete tax benefits.
- Review the high-coupon subordinated notes, debt maturities, covenant headroom, and available borrowing capacity.
- The cash-flow statement reports operating cash flow of $13,727 and financing cash use of $4,545; MD&A gives slightly different figures ($13,733 and $4,551). Reconcile these small discrepancies against the filed statements.