Business context and reporting period
Allied Motion Technologies Inc. (the registrant named in the filing) designs, manufactures and sells motion-control products worldwide. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2011; amounts below are in U.S. dollars unless noted. Results include Ostergrens, acquired in December 2010, and, for the nine-month comparison, AM Canada, acquired in June 2010.
Financial performance and position
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Revenue | $27.331m | $22.031m | $82.917m | $59.451m |
| Gross profit / margin | $8.213m / 30% | $6.557m / 30% | $24.962m / 30% | $16.508m / 28% |
| Operating income | $2.261m | $1.765m | $6.248m | $3.763m |
| Net income | $1.557m | $1.129m | $4.251m | $2.602m |
| Diluted EPS | $0.18 | $0.14 | $0.50 | $0.33 |
For Q3, revenue rose 24%, operating income 28% and net income 38% year over year. For the nine months, revenue increased 40%, operating income 66% and net income 63%. Nine-month gross margin improved two percentage points; quarterly gross margin was unchanged. Management attributed growth partly to acquisitions and, for existing businesses, stronger sales in several end markets and cost/product-mix improvements.
Q3 EBITDA, a non-GAAP measure, was $2.722m versus $2.234m; nine-month EBITDA was $7.823m versus $5.340m. The 2010 nine-month comparison included a $685,000 insurance recovery and $230,000 of relocation inefficiencies; management reported EBITDA before those nonrecurring items of $4.885m. EBITDA is not a GAAP measure of operating performance or liquidity.
For the first nine months, operating cash flow was $3.576m versus $3.972m. Investing cash use was $1.671m, including $1.339m of capital spending and $332,000 of Ostergrens contingent consideration; financing cash use was $401,000 and included $163,000 of dividends. Cash increased $1.396m from year-end 2010 to $4.949m.
At September 30, 2011, total assets were $57.528m, current assets $35.931m and current liabilities $19.398m. Debt was $428,000, down from $795,000 at December 31, 2010. Approximately $8.4m was available across credit facilities; the company reported compliance with its credit-agreement covenants. The amended revolving facility matures October 2013.
Material changes and notable items
- Q3 revenue growth included a 20% contribution from Ostergrens and 4% growth from existing businesses. Nine-month growth included a 26% contribution from 2010 acquisitions and 14% growth from existing businesses.
- Orders reached a quarterly record of $34.4m, up 79% year over year. Backlog was a record $41.5m at September 30, up 16% year over year and from June 30.
- Operating expenses increased with acquired businesses, staffing and compensation, including incentive bonuses. The nine-month comparison also reflects the absence of the prior-year insurance recovery.
- Ostergrens contingent consideration of $2.498m was accrued as current and expected to be paid in Q1 2012. The estimate could be reduced after the performance period ends; any reduction would benefit Q4 2011 profit. No adjustment had been recorded through September 30.
- The company began a quarterly cash dividend program in August 2011 at $0.02 per share. A further $0.02 dividend was declared, payable November 28, 2011.
Outlook, commentary and risks
Management described business conditions as reasonably strong and consistent, and said it would continue investing in growth, engineering and lower-cost manufacturing. It did not provide quantitative revenue or earnings guidance. Management expected working capital, capital spending and dividends to be funded from operating cash flow and available credit.
Key risks cited include economic and market conditions, customer viability and order-backlog conversion, competition and pricing pressure, metal-cost fluctuations, component availability, new-product acceptance, acquisition integration, financing availability, foreign exchange, and the ability to manage growth and costs. The company noted efforts to source materials at lower cost and pass through surcharges or price increases. Disclosure controls were reported effective, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the sustainability and organic contribution of revenue growth, particularly given the substantial acquisition contribution.
- Assess whether record orders and backlog convert to revenue on expected schedules and with planned margins.
- Monitor working-capital demands, cash generation, inventory and receivables growth, and capital spending.
- Track the final Ostergrens contingent-consideration amount and payment timing.
- Review the full filing’s forward-looking risk disclosures and the assumptions behind non-GAAP EBITDA.