Business context and reporting period
Allied Motion Technologies Inc. designs, manufactures, and sells motion-control products globally. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2013; comparisons are with the corresponding 2012 periods. The company reports one operating segment.
Financial performance and position
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $25.352 million, down 6% | $50.495 million, down 6% |
| Gross margin | $7.535 million; 30% of revenue, unchanged | $15.058 million; 30% versus 29% |
| Operating income | $1.064 million, down 51% | $2.521 million, down 34% |
| Net income | $819,000 versus $1.817 million; diluted EPS $0.09 versus $0.21 | $1.779 million versus $2.975 million; diluted EPS $0.20 versus $0.35 |
| Operating cash flow | Not separately reported for the quarter | $2.741 million versus $576,000 |
Cash and cash equivalents were $11.256 million at June 30, 2013, up from $9.728 million at year-end 2012. Debt obligations were $567,000, all under the China credit facility; no balance was outstanding on the main revolving credit agreement. Cash less reported debt was approximately $10.689 million, an increase of about $1.358 million since year-end. Approximately $8.05 million was available across credit lines and overdraft facilities. The company was in compliance with its credit agreement covenants. Current assets were $38.625 million and current liabilities $11.173 million. Six-month capital expenditures were $1.170 million; dividends paid were $422,000.
Material changes versus prior period
- Management attributed lower revenue primarily to weaker U.S. sales and declines across most served markets, partly offset by industrial-market growth. Sales volume fell 7% in both the quarter and half-year; currency effects offset about 1%.
- Quarterly gross margin percentage held at 30%; the six-month rate improved to 30% from 29%, partly because 2012 included a supplier-related product replacement charge.
- Operating costs rose 8% in the quarter and 5% in the half-year. New costs included $565,000 for a potential acquisition in the quarter ($638,000 year to date) and $234,000 for the completed corporate-office move to Amherst, New York.
- Lower other income also weighed on comparisons: 2012 included a former-landlord payment related to early lease termination.
- Bookings for the quarter were $26.4 million under the prior method and $23.5 million under the revised method. June 30 backlog was $26.9 million under the revised method, versus $35.4 million under the prior method and $36.7 million a year earlier. The revised method counts blanket orders when released to production, not when received.
Outlook, commentary, and risks
Management said revenue had increased in each of the two preceding quarters, which it viewed as a possible indication that the 2012 decline may be turning around. No formal financial guidance was provided. Management expected working capital, capital spending, and dividends to be funded from operating cash flow and available credit facilities. It continued investment in China production capacity and the transition to a new ERP system.
Key disclosed risks include uncertain economic and market conditions, customer demand and backlog conversion, customer concentration or financial health, competition and product acceptance, supply availability, technology and intellectual-property issues, execution of growth strategies and acquisitions, access to financing, foreign exchange, and the ability to control costs. The company noted that demand fluctuations can also lead to inventory obsolescence and that estimates for receivable collectibility, deferred taxes, and pension obligations involve judgment.
Management assessed disclosure controls and procedures as effective at quarter-end and reported no material change in internal control over financial reporting during the quarter. Interim results may not indicate full-year results.
Important facts for investors to verify
- How revenue, bookings, and backlog evolve, accounting for the revised blanket-order reporting method.
- Whether the potential acquisition proceeds and whether related development costs recur.
- Cash generation, capital expenditure needs, and available credit capacity; the China facility was due to mature in October 2013.
- The impact of the Amherst relocation, ERP transition, and China capacity investments on costs and operating performance.
- Reconciliation and comparability of management’s non-GAAP adjusted earnings and EBITDA measures with GAAP results.
- The MD&A contains an apparent period-label inconsistency in its six-month EBITDA sentence; the financial statement and non-GAAP reconciliation show six-month 2013 EBITDA of $3.447 million and 2012 EBITDA of $5.122 million.