Allied Motion Technologies Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; comparisons are with Q1 2014 unless otherwise noted. The filing identifies the registrant as Allied Motion Technologies Inc. (not “Allient Inc.”). Financial statement amounts below are in millions of dollars unless otherwise stated.
Financial performance
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Revenue | $59.580 | $60.435 | Down 1% |
| Gross profit / margin | $17.500 / 29% | $17.092 / 28% | Gross profit up 2% |
| Operating income | $5.631 | $4.571 | Up 23% |
| Net income | $2.976 | $2.148 | Up 39% |
| Diluted EPS | $0.32 | $0.24 | Up $0.08 |
| Operating cash flow | $0.677 | $(0.232) | Improved |
| Capital expenditures | $1.436 | $0.584 | Up $0.852 |
Operating margin was approximately 9.4%, versus 7.6%; net margin was approximately 5.0%, versus 3.6%. EBITDA was $7.704 million and adjusted EBITDA was $8.137 million; these are non-GAAP measures.
Balance sheet, debt and liquidity
- Cash was $11.043 million at March 31, 2015, down $2.070 million from year-end 2014. Current assets were $70.172 million and current liabilities $35.282 million; working capital was $34.890 million.
- Total debt obligations were $73.670 million, including $8.420 million current and $65.250 million long-term, compared with $74.848 million at December 31, 2014. Debt net of cash was approximately $62.627 million, up $0.892 million from year-end.
- The company reported approximately $15 million available under its senior credit facilities and $0.290 million available under its China credit facility. It said it was in compliance with credit covenants at quarter-end.
- Senior subordinated notes total $30 million, carry a 14.5% rate (13% cash and 1.5% payment-in-kind), and mature in October 2019. The term loan’s stated rate was 2.2%; the effective rate including hedges was 2.65%.
Changes and management commentary
- Management attributed the slight revenue decline to currency: sales volume rose 6%, offset by an estimated 7% foreign-exchange-related sales decline, primarily from the euro and Swedish krona. The company estimated currency reduced year-over-year sales by about $4.4 million.
- Aerospace and defense, medical and electronics markets grew; vehicle and industrial markets were flat, and distribution declined. Bookings were $58.143 million versus $64.394 million; backlog was $71.344 million at quarter-end, down from $75.065 million at December 31, 2014.
- Gross margin improved mainly due to sales mix. General and administrative expense fell 11%, in part because 2014 included reserves related to a pricing dispute settled in Q4 2014. Lower interest expense and a lower effective tax rate also supported earnings.
- Foreign currency translation produced a $4.479 million loss in other comprehensive income, contributing to a comprehensive loss of $1.603 million despite positive net income.
Outlook, risks and other notable items
- The filing provides no specific revenue, earnings or cash-flow guidance. Management cited an expanding pipeline of opportunities and a strategy focused on integrated motion-control solutions.
- Key risks include foreign exchange movements, cyclicality and order variability, customer concentration, competition and pricing pressure, supplier availability, execution of growth initiatives and ERP implementation, and the ability to service debt and comply with covenants.
- Two customers represented 32% of Q1 revenue and 34% of trade receivables. Foreign-currency exposure was material; the company estimated a hypothetical 10% U.S. dollar move would affect Q1 sales by about $1.7 million, before offsetting cost and expense effects.
- Ordinary-course litigation was disclosed; management did not expect its resolution to significantly adversely affect financial position or results. The company completed ERP installation at one U.S. location and one Swedish location during the quarter and reported no significant difficulties to date.
- After quarter-end, the company entered into an amended and restated credit agreement dated April 29, 2015. The terms are not detailed in the supplied filing text.
Investor facts to verify
- Review the April 29, 2015 amended credit agreement for changes to borrowing capacity, pricing, maturities and covenants.
- Assess the sustainability of earnings growth given near-flat reported revenue, favorable sales mix, and currency headwinds.
- Monitor backlog, bookings, customer concentration and the health of the two customers representing significant revenue and receivables.
- Track cash conversion and capital spending; the cash-flow statement reports $0.677 million of operating cash flow, while the MD&A text describes 2014 operating cash used as $0.192 million, differing from the statement’s $0.232 million.
- Evaluate debt service and refinancing risk, particularly the 14.5% subordinated notes due in 2019 and the substantial scheduled debt payments in 2018–2019.