Business context and reporting period
The filing is Allied Motion Technologies Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2016. This differs from the request metadata label “ALLIENT INC.” The company designs and manufactures motion-control products and systems for vehicle, medical, aerospace and defense, electronics, and industrial markets. Unless noted otherwise, financial amounts below are in millions of dollars.
Results include Heidrive GmbH from its January 12, 2016 acquisition. Heidrive accounted for approximately 13% of year-to-date sales and 7% of assets at September 30.
Financial results and liquidity
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $61.0 | $61.5 | $190.6 | $181.6 |
| Gross profit / margin | $17.6 / 28.8% | $18.9 / 30.8% | $55.5 / 29.1% | $54.4 / 30.0% |
| Operating income | $5.0 | $7.0 | $15.5 | $18.4 |
| Net income | $2.5 | $4.3 | $7.6 | $10.4 |
| Diluted EPS | $0.27 | $0.46 | $0.81 | $1.12 |
| Operating cash flow | Not presented quarterly | $10.0 | $13.7 |
- Q3 revenue declined 1%; year-to-date revenue rose 5%. Management attributed year-to-date growth to markets other than vehicles and the Heidrive acquisition.
- Q3 gross margin fell 2.0 percentage points, primarily from product mix and under-absorption of fixed production costs. Year-to-date gross margin declined 0.9 percentage points.
- Net income declined 41% in Q3 and 27% year to date. Higher selling and engineering costs, acquisition-related amortization and business-development costs, and organizational investment weighed on results. Year-to-date operating costs rose 11%.
- Year-to-date capital expenditures were $3.7 million. Acquisition spending was $16.0 million net of acquired cash, and net cash declined $8.7 million to $12.5 million.
- At September 30, cash was $12.5 million; current assets were $74.7 million and current liabilities $45.6 million. Debt obligations were approximately $70.2 million at face value, including $19.1 million classified as current. The prior facilities had approximately $22.8 million available, and the company reported compliance with their covenants.
- Bookings were $59.1 million in Q3, up 7%; backlog was $77.7 million, up 15% from the comparable reported balance. Management said backlog and orders had declined sequentially during 2016 amid vehicle-market weakness, soft industrial conditions, and European seasonality.
Material changes, outlook, and risks
- On October 28, 2016, after quarter-end, the company entered a five-year, $125 million senior secured revolving facility, with a $50 million accordion feature. Proceeds redeemed $30 million of 14.5% subordinated notes and refinanced $40.5 million outstanding under the prior credit agreement. The company expects a $1.0 million write-off of unamortized debt issuance costs in Q4. New covenants include minimum interest coverage of 3.0:1 and maximum leverage limits that step down over time.
- Management said specific vehicle applications remained challenged and expected that pressure to persist in the short term. It cited progress in medical and aerospace and defense markets, new application wins, and customer interest in integrated multi-product solutions. It expressed confidence in its longer-term strategy but provided no quantified financial guidance.
- Risks highlighted include customer concentration (one customer represented 24% of Q3 revenue and 20% of nine-month revenue), vehicle and industrial market weakness, foreign-exchange exposure, customer and supplier performance, product-cycle changes, and acquisition integration. A hypothetical 10% dollar move would affect reported Q3 sales by about $2.3 million and year-to-date sales by about $7.4 million; these are not estimates of net earnings impact.
- Management said ordinary-course litigation was not expected to have a significant adverse effect. No material changes to the previously disclosed annual-report risk factors were reported. Disclosure controls were deemed effective; Heidrive was excluded from the internal-control assessment while its control environment was being evaluated.
Key facts for investors to verify
- Confirm the issuer identity: the filing names Allied Motion Technologies Inc., not ALLIENT Inc.
- Review the new credit agreement’s borrowing terms, covenant headroom, and subsequent debt balances.
- Assess whether bookings and backlog convert to revenue, particularly given sequential order weakness and customer concentration.
- Monitor vehicle-market demand, product mix, gross margins, and returns on increased engineering and organizational spending.
- Review Heidrive integration, acquisition accounting, and the effect of refinancing costs on Q4 results.