Allied Motion Technologies Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. The filing identifies the registrant as Allied Motion Technologies Inc.; this differs from the request metadata naming Allient Inc. Unless noted otherwise, financial amounts below are in thousands of U.S. dollars.
Business context and results
The company designs, manufactures and sells motion-control components and systems to OEMs and end customers across vehicle, medical, aerospace and defense, electronics, and industrial markets. It reports one operating segment. Management cited growth in aerospace and defense and medical sales, partially offset by weaker vehicle, distribution, industrial and electronics sales.
| Metric | Q1 2017 | Q1 2016 | Change |
|---|---|---|---|
| Revenue | $61,354 | $63,675 | Down 4% |
| Gross profit; gross margin | $17,701; 28.9% | $18,505; 29.1% | Profit down 4%; margin down 0.2 percentage points |
| Operating income | $4,365 | $4,760 | Down 8% |
| Interest expense | $523 | $1,532 | Down 66% |
| Income before taxes | $3,852 | $3,213 | Up 20% |
| Income tax provision; effective rate | $1,195; 31.0% | $858; 26.7% | Rate increased |
| Net income; diluted EPS | $2,657; $0.29 | $2,355; $0.25 | Net income up 13%; EPS up $0.04 |
| Bookings; period-end backlog | $60,459; $77,954 | $66,391; $81,704 | Bookings down 9%; backlog down 5% |
EBITDA, a non-GAAP measure, was $6,825 versus $7,015; adjusted EBITDA was $7,291 versus $7,611. Management attributed higher net income despite lower revenue primarily to reduced interest expense following the October 2016 refinancing and lower operating expenses, partly offset by lower gross profit from reduced volume.
Cash flow, liquidity and debt
- Operating cash flow was $2,332, compared with cash used of $6,915 in Q1 2016. Investing cash use was $1,288 versus $17,984, with the prior-year period including the Heidrive acquisition. Financing cash use was $2,600 versus cash provided of $9,571.
- Cash declined $1,435 from year-end to $14,048. Capital expenditures were $1,288; the company paid $3,000 of long-term debt principal and $228 in dividends.
- At March 31, 2017, current assets were $78,989 and current liabilities $26,068. Debt included $67,592 of long-term debt and $943 of current China facility borrowings. The company reported approximately $56,725 available under its $125,000 revolving facility and approximately $508 available under its China facility.
- The revolving facility’s effective rate was 3.4%. The company was in compliance with its financial covenants. Interest-rate swaps hedged $46,578 of revolving debt; management estimated a 100-basis-point rate change on $16,884 of unhedged floating-rate debt would affect quarterly interest expense by approximately $42.
Management commentary, risks and unusual items
- Management said vehicle-market demand had softened but appeared to stabilize in certain applications. Bookings and backlog were lower, mainly due to weaker vehicle-market orders. It described a growing pipeline for integrated solutions but noted that sales cycles and ramp-up to production can be long. No specific financial guidance was provided.
- Revenue declined due to lower sales volumes and an estimated 2% foreign-exchange headwind; management estimated currency fluctuations reduced sales by approximately $1,200 year over year. Sales volume decreased 2%. One customer represented 19% of quarterly revenue and 20% of receivables at quarter-end.
- The company disclosed no material changes to the risk factors in its 2016 Form 10-K. Risks discussed include economic, political and currency conditions; demand and customer concentration; competition and technology; supply availability; customer specifications; growth and acquisition integration; and access to financing.
- Q1 2016 comparative results were revised for an intercompany cost-of-sales elimination error. The company said the error was not material to the 2016 quarterly filings; the correction increased Q1 2016 net income by $228 and EPS by $0.02. The filing also says the 2016 effective tax rate was revised from 28.7% to 26.7% to reflect the correction.
- Heidrive, acquired in January 2016, represented approximately 13% of Q1 2017 sales and 7% of assets at March 31, 2017. The company excluded Heidrive from its internal-control assessment while evaluating its control environment. Management concluded disclosure controls were effective.
Important facts for investors to verify
- Confirm the issuer identity: the supplied filing is for Allied Motion Technologies Inc., not a company identified in the metadata as Allient Inc.
- Track whether vehicle-market demand, bookings and backlog recover, and whether the integrated-solution pipeline converts to production and revenue.
- Assess the sustainability of earnings growth given lower revenue and gross profit, higher effective taxes, and reliance on reduced interest expense.
- Review debt, covenant headroom, interest-rate exposure and cash conversion, including the effect of working-capital movements.
- Monitor customer concentration, foreign-exchange exposure, and the progress of Heidrive’s internal-control assessment.