Allied Motion Technologies, Inc. — 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. Unless otherwise noted, amounts are in thousands of dollars. The filing is for Allied Motion Technologies, Inc. (ticker AMOT), despite the request metadata naming “ALLIENT INC.”
Business context
Allied Motion designs and manufactures precision controlled-motion components and systems for vehicle, industrial, medical, and aerospace and defense markets. It reported one operating segment. During 2018 it acquired Maval OE Steering in January and TCI, LLC in December, expanding its steering-system and industrial power-quality offerings.
Financial performance and position
| Metric | 2018 | 2017 | Change / context |
|---|---|---|---|
| Revenue | $310,611 | $252,012 | Up 23%; management attributed 15 percentage points to organic growth, with the balance from acquisitions. |
| Gross profit / margin | $91,403 / 29.4% | $75,679 / 30.0% | Profit up 21%; margin down 60 basis points, primarily from Maval’s lower-margin profile. |
| Operating income | $23,229 | $18,800 | Up 24%; reported operating margin was 7% versus 8%. |
| Net income | $15,925 | $8,036 | Up 98%; 2017 included a $3,133 tax charge related to the Tax Cuts and Jobs Act. |
| Diluted EPS | $1.70 | $0.87 | Up 95%. Adjusted diluted EPS, a non-GAAP measure, was $1.74 versus $1.22. |
| Operating cash flow | $17,452 | $25,407 | Down $7,955, primarily due to working-capital requirements, especially receivables and inventory. |
| Cash and working capital | $8,673 cash; $66,304 working capital | $15,590 cash; $53,358 working capital | Current ratio was 2.5 versus 2.8. |
| Debt | $122,516 long-term carrying amount | $53,155 total debt | Net debt rose to $113,843 from $37,565, largely to fund acquisitions. |
Investing cash outflow was $91,746, including $77,413 net cash paid for acquisitions and $14,333 of capital expenditures. Financing cash inflow was $67,777, reflecting revolver borrowings. Year-end backlog rose 31% to $131,997; management cautioned that short lead times make backlog an unreliable predictor of future sales. The company declared $0.115 per share in dividends for 2018.
Material changes and unusual items
- TCI was acquired for a transaction value of $64,100; Maval OE Steering was purchased for $13,312. TCI’s purchase-price allocation remained preliminary at year-end.
- The effective tax rate fell to 23.0% from 50.2%. The 2017 rate included the Tax Act’s provisional charge; 2018 included a $235 benefit from finalizing related estimates.
- Quarterly 2018 revenue was $73,962 and net income was $2,636 in the fourth quarter, compared with $65,355 and $95, respectively, in fourth-quarter 2017. Fourth-quarter 2017 earnings reflected the tax-law charge.
- Engineering and development spending increased 14% to $19,913. Capital expenditures increased to $14,333 from $6,201.
Outlook, risks and contingencies
Management’s 2019 commentary emphasized continued expansion in served markets, integrated motion solutions, implementation of a new ERP system, operational improvement, and investment in technical and sales resources. It provided no quantified revenue or earnings guidance. Management said solution wins were expected to ramp during 2019, while noting long sales cycles.
- The $175,000 revolving credit facility matures in October 2021. Year-end borrowings were approximately $123,010 before unamortized issuance costs; $40,000 was hedged against rate changes. The company reported compliance with its covenants at year-end.
- Key risks include customer concentration (one customer represented 19% of revenue; five customers represented about 34%), reliance on limited suppliers, raw-material costs, foreign-exchange exposure, acquisition integration, competitive pricing, and aligning capacity with demand.
- Management said ordinary-course litigation was not expected to have a significant adverse effect. No goodwill or long-lived-asset impairment was recorded.
- The financial-statement and internal-control audits received unqualified opinions, and management concluded controls were effective. However, internal controls at Maval and TCI, whose combined assets were about 31% of total assets, were excluded from the 2018 assessment.
Most important facts for investors to verify
- Whether organic growth and acquired-business contributions can be sustained, and whether TCI and Maval deliver expected integration benefits.
- Whether gross margins recover from the Maval-related dilution and whether operating costs grow more slowly than sales.
- Whether working capital—particularly inventory, up to $54,971—converts into cash and operating cash flow improves.
- Debt levels, covenant headroom, interest-rate exposure, and the company’s ability to fund investment and dividends while servicing debt.
- Whether the preliminary TCI purchase-price allocation, acquisition-related controls integration, and customer and supplier concentrations create additional costs or risks.