Business context and reporting period
Allied Motion Technologies Inc. (the filing issuer; the request metadata says “ALLIENT INC”) designs and manufactures motion-control components and systems for vehicle, industrial/electronics, medical, and aerospace and defense markets. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2018; comparisons are with the corresponding 2017 periods. Amounts below are in millions except per-share data.
Financial performance and position
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $80.1 | $65.0 | $236.6 | $186.7 |
| Gross profit / margin | $23.8 / 29.7% | $19.5 / 30.1% | $69.8 / 29.5% | $55.1 / 29.5% |
| Operating income | $7.2 | $5.3 | $19.9 | $13.6 |
| Net income | $4.9 | $3.1 | $13.3 | $7.9 |
| Diluted EPS | $0.52 | $0.33 | $1.42 | $0.86 |
| Operating cash flow | — | — | $11.3 | $15.3 |
Q3 revenue grew 23% as reported; management said growth excluding an estimated $0.7 million adverse currency effect was 24%. Nine-month revenue grew 27% as reported and 24% excluding a favorable estimated $5.5 million currency effect. Q3 net income increased 59%; nine-month net income rose 67%. Q3 gross margin declined 0.4 percentage points, while the nine-month margin was unchanged.
At September 30, cash was $11.4 million, current assets $105.0 million, and current liabilities $43.1 million. Long-term debt was $62.0 million and current debt $0.4 million. The revolving facility had $62.5 million outstanding and approximately $62.5 million available under its $125 million commitment. The company reported compliance with all debt covenants. Total assets were $222.1 million and stockholders’ equity $100.5 million.
Nine-month operating cash flow fell to $11.3 million, principally as higher earnings were offset by working-capital needs, including increases in receivables and inventory. Investing activities used $23.9 million, including $13.3 million for the Maval acquisition and $10.6 million in capital expenditures. Financing provided $8.8 million, including increased revolver borrowing. Cash declined $4.2 million from year-end to $11.4 million.
Material changes and management commentary
- In January 2018, Allied acquired substantially all operating assets of Maval Industries’ original-equipment steering business for $13.3 million in cash. The preliminary allocation included $5.9 million of goodwill and $3.9 million of intangible assets; valuation remained subject to finalization.
- Management attributed sales growth to increased volume across served markets, organic growth, and Maval. Q3 bookings were $85.1 million, up 17%, and backlog was $115.7 million, up 24% year over year. Nine-month bookings were $252.0 million, up 27%.
- Management said higher volume improved fixed-cost leverage, but Maval’s lower margin diluted Q3 gross margin. Higher general and administrative costs reflected incentive compensation, stock compensation, and growth-related headcount; engineering and development spending also increased.
- Management reported Q3 Adjusted EBITDA of $10.8 million versus $8.4 million, and nine-month Adjusted EBITDA of $30.6 million versus $22.5 million. These are non-GAAP measures and should not be treated as substitutes for GAAP results.
Outlook, risks and unusual items
- Management expected 2018 capital expenditures of $13–$16 million, with spending supporting contract wins and IT upgrades. It said working capital, capital spending, and dividends were expected to be funded by operating cash flow and facility availability. No revenue or earnings guidance was provided.
- Key stated risks include economic and currency conditions, customer and backlog realization, competition and technology changes, supplier availability, capacity alignment, acquisition integration, financing access, and attracting qualified personnel. One customer represented 20% of nine-month revenue and 22% of receivables at quarter-end.
- Foreign currency translation reduced comprehensive income by $2.2 million for the first nine months; management estimated currency reduced Q3 sales by about $0.7 million. A hypothetical 10% U.S. dollar move would affect Q3 sales by about $3.1 million, though this is not a net earnings estimate.
- The company had not completed all accounting for the 2017 Tax Cuts and Jobs Act; the transition-tax estimate was $3.1 million, and the company was still evaluating GILTI tax accounting. Potential adjustments could affect tax expense.
- Management concluded disclosure controls were effective and reported no material changes in internal control during the quarter. The Maval business was excluded from the internal-control assessment while its control environment was being evaluated. The filing reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Confirm the issuer identity: this filing is for Allied Motion Technologies Inc., not “ALLIENT INC.”
- Assess whether backlog and bookings convert to revenue and whether the single-customer concentration changes.
- Track working-capital absorption, capital spending, cash generation, and revolver usage as growth continues.
- Review the final Maval purchase-price allocation, integration progress, and acquisition impact on margins and controls.
- Monitor covenant headroom, interest-rate exposure, currency effects, and resolution of tax-accounting estimates.