Allied Motion Technologies Inc. — Q3 2013 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2013. The filing identifies the registrant as Allied Motion Technologies Inc. (the request metadata names Allient Inc.). Amounts below are in millions of dollars except per-share data.
Financial performance
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $24.876 | $24.316 | $75.371 | $77.999 |
| Gross margin | $7.238 (29%) | $7.099 (29%) | $22.296 (30%) | $22.887 (29%) |
| Operating income | $1.193 | $2.033 | $3.714 | $5.856 |
| Net income | $0.833 | $1.321 | $2.612 | $4.296 |
| Diluted EPS | $0.09 | $0.15 | $0.30 | $0.50 |
| Operating cash flow | — | $3.444 | $0.647 | |
| Capital expenditures | — | $2.055 | $2.021 |
For the first nine months, adjusted net income was $3.611 million ($0.41 diluted EPS), versus $4.252 million ($0.49) a year earlier. Adjusted EBITDA was $7.226 million versus $7.830 million. These are non-GAAP measures; adjustments include acquisition-related business development costs and relocation costs in 2013, and specified landlord and product-replacement items in 2012.
Liquidity, balance sheet and debt
At September 30, cash and cash equivalents were $11.654 million, current assets $42.412 million and current liabilities $14.254 million. Total assets were $66.991 million and total liabilities $21.525 million. Debt obligations were $1.141 million, all under the China credit facility; no balance was outstanding on the prior revolving credit agreement. The company reported approximately $8.45 million available across credit lines and overdraft facilities, and said it was in compliance with its existing credit covenants. Cash increased $1.926 million in the first nine months.
Operating cash flow improved from the prior-year period, which management attributed primarily to lower incentive bonus and tax payments. Working-capital movements included higher receivables and inventory uses of cash, partly offset by increases in accounts payable and accrued liabilities. Dividends paid in the first nine months were $0.075 per share.
Material changes and management commentary
- Q3 revenue rose 2% year over year, driven mainly by industrial and medical markets; U.S. sales declined while sales outside the U.S. increased. For the nine-month period, revenue fell 3%, with lower sales in most markets except industrial, which management linked to general economic conditions.
- Nine-month sales volume declined 4%, partly offset by a 1% benefit from the weaker U.S. dollar against the euro. Gross margin improved to 30% from 29% for the nine-month comparison, partly because 2012 included a one-time charge for replacing products affected by an incorrect supplier component.
- Profitability declined: Q3 operating income fell 41% and net income fell 37%; nine-month operating income fell 38% and net income fell 39%. Acquisition-related business development costs were $0.596 million in Q3 and $1.235 million year to date. Engineering and development expense also increased, while certain intangible amortization declined.
- Bookings and backlog use a revised method that counts blanket orders only when customers release them to production. Q3 bookings were $25.0 million under the new method ($30.2 million under the prior method); backlog at September 30 was $27.5 million under the new method ($37.6 million under the prior method), versus $33.2 million a year earlier using the prior method.
Acquisition, outlook and risks
On October 18, 2013, after quarter-end, the company completed its acquisition of Globe Motors from Safran USA for approximately $90 million in cash. Purchase accounting was incomplete; the fair values of acquired assets and assumed liabilities, tax positions and working-capital adjustment remained to be determined.
To fund the acquisition, the company entered into a five-year $50 million term loan and $15 million revolving facility, and issued $30 million of senior subordinated notes bearing 14.5% interest (13% cash-pay and 1.5% payment-in-kind), due in 2019. The credit facilities are secured by substantially all company assets and carry leverage and fixed-charge-coverage covenants; the notes have separate, somewhat less restrictive financial covenant thresholds. The facilities require interest-rate hedging on at least 50% of the amortizing term-loan balance. The filing provides no specific forward revenue or earnings guidance.
Management cited risks including economic conditions and demand in its markets, customer order and delivery timing, competition, component availability, customer creditworthiness, execution and integration of acquisitions, financing availability, and the ability to control costs and achieve growth. The filing states disclosure controls were effective and reports no material quarterly change in internal control over financial reporting.
Most important facts for investors to verify
- Final Globe Motors purchase-price allocation, working-capital adjustment and acquired-business contribution to results.
- Actual borrowing levels, cash interest burden, leverage and covenant headroom under the post-acquisition financing.
- Whether backlog and bookings trends under the revised release-based method translate into revenue.
- Whether lower year-to-date sales and earnings stabilize, and whether acquisition and integration costs or expected synergies materially affect results.
- Cash generation, working-capital requirements, capital spending and dividend capacity after the acquisition.