Business context and reporting period
Allied Motion Technologies Inc. designs, manufactures and sells motion-control products and solutions. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2012; comparisons are with the corresponding 2011 periods. The filing identifies the issuer as Allied Motion Technologies Inc.
Financial performance and liquidity
Amounts below are in millions except per-share data and margins.
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Revenue | $26.836 | $28.862 | $53.683 | $55.586 |
| Gross margin | $8.151; 30% | $8.800; 30% | $15.788; 29% | $16.749; 30% |
| Operating income | $2.248 | $2.180 | $3.846 | $3.987 |
| Net income | $1.817 | $1.481 | $2.975 | $2.694 |
| Diluted EPS | $0.21 | $0.17 | $0.35 | $0.32 |
| Operating cash flow | Not separately stated | Not separately stated | $0.576 | $1.978 |
For the six months, investing activities used $2.882 million, including $1.350 million of final contingent consideration for the Östergrens acquisition and $1.532 million of property and equipment purchases. Financing activities used $0.071 million, including $0.418 million of dividends. Cash declined $2.432 million to $6.723 million. At June 30, total assets were $58.712 million, current assets $38.346 million and current liabilities $13.117 million.
Debt obligations were $0.159 million, all under the China credit facility; the revolving credit agreement had no outstanding balance. Approximately $8.25 million was available across credit facilities. The company reported compliance with its financial covenants. Its U.S./Europe credit agreement matures October 26, 2013; the China facility matures in October 2012.
Changes versus prior comparable periods
- Q2 revenue declined 7%; management attributed 4.5 percentage points to euro and Swedish krona weakness and 2.5 points to lower volumes. Industrial and distribution sales fell, partly offset by medical-market growth; vehicle, electronics, and aerospace and defense sales were flat.
- Q2 net income rose 23% and diluted EPS rose from $0.17 to $0.21, despite lower revenue. Operating expenses fell 11%, while operating income increased 3%.
- First-half revenue fell 3%; management attributed 2.5 percentage points to currency movements and 0.5 points to lower volume. Gross margin declined one percentage point, partly due to a first-quarter product-replacement charge.
- First-half net income increased 10%, while operating income decreased 4%. Operating cash flow fell to $0.576 million, which management attributed to higher incentive bonus and tax payments.
- Backlog was $36.7 million at June 30, up 3% year over year, but down 10% from March 31 and 17% from December 31, 2011. Q2 orders were $23.7 million, down 7% year over year.
Outlook, commentary, risks and unusual items
Management cited market softening but said it continued to pursue revenue and profitability opportunities. Its stated strategy emphasizes integrated motion-control solutions, product development, geographic expansion, gross-margin improvement and operational efficiencies. The filing provides no quantified revenue or earnings guidance.
Unusual items included $0.301 million of net income from a former landlord for early termination of a Swedish lease in Q2, and a $0.238 million first-quarter charge to replace products containing an incorrect supplier component. Management excluded these items from adjusted EBITDA, a non-GAAP measure. Q2 EBITDA was $3.018 million and adjusted EBITDA $2.863 million; first-half EBITDA was $5.122 million and adjusted EBITDA $5.345 million.
Disclosed risks include economic weakness in the U.S. and Europe, market and customer demand changes, foreign-exchange movements, customer concentration or loss, supplier and component availability, product quality and technical requirements, competition, intellectual-property protection, hiring and retention, acquisition integration, financing availability, and the ability to control costs and execute growth initiatives. Management reported disclosure controls effective at quarter-end and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether backlog conversion, order trends and end-market demand support management’s growth expectations.
- The persistence and cash impact of lower operating cash flow, working-capital movements and planned capital spending.
- The remaining availability, covenant terms and maturities of credit facilities, particularly the China facility due October 2012.
- Potential additional costs or liabilities related to the supplier-component issue and the company’s product-replacement response.
- The contribution of the landlord payment and other nonrecurring items to reported earnings; compare GAAP results with the company’s non-GAAP adjustments.
- Dividend timing: the filing reports two $0.025-per-share dividends paid in the first half and a later declaration; confirm subsequent payment and declaration details.