Business context and reporting period
The supplied filing is Allied Motion Technologies, Inc.’s Form 10-K for the fiscal year ended December 31, 2013, filed March 18, 2014. The request metadata names ALLIENT INC; investors should verify the issuer identity. Allied Motion designs, manufactures and sells motors, motion controls, gearing and encoders for medical, vehicle, aerospace and defense, electronics, and industrial markets. Figures below are in millions of dollars unless stated otherwise. Globe Motors’ results are included only from its October 18, 2013 acquisition date.
Financial results and liquidity
| Metric | 2013 | 2012 |
|---|---|---|
| Revenue | $125.502 | $101.968 |
| Gross profit / margin | $36.522 / 29% | $29.640 / 29% |
| Operating income | $7.058 | $7.272 |
| Net income | $3.953 | $5.397 |
| Diluted EPS | $0.45 | $0.63 |
| Operating cash flow | $10.779 | $4.604 |
- Fourth-quarter revenue was $50.131 million and net income was $1.341 million, compared with $23.969 million and $1.101 million, respectively, in Q4 2012.
- Reported 2013 net income included acquisition-related and other nonrecurring charges. Management’s non-GAAP adjusted net income was $5.413 million ($0.61 diluted EPS), versus $5.369 million ($0.62) in 2012. Adjusted EBITDA was $13.213 million versus $9.879 million; these are non-GAAP measures.
- Cash and cash equivalents were $10.171 million at year-end. Total assets were $170.977 million, versus $60.967 million a year earlier; current assets were $67.287 million and current liabilities $42.250 million.
- Total debt was $87.645 million, including $14.145 million current and $73.500 million long-term. Debt rose principally to fund the Globe acquisition. Investing cash outflow was $94.694 million, including $91.607 million of acquisition consideration, net of cash acquired; financing provided $84.409 million.
- The company reported approximately $7.7 million available to borrow under its various lines of credit at year-end and said it complied with its credit agreement covenants.
Material changes versus the prior comparable period
- Revenue grew 23%, primarily from Globe and higher sales in vehicle, aerospace and defense, industrial, and medical markets. Management attributed 22 percentage points of the increase to volume and one point to foreign exchange.
- Operating expenses rose $7.096 million to $29.464 million, broadly offsetting the $6.882 million increase in gross profit. Operating income decreased 3%; net income declined 27%, with higher interest and acquisition costs among the factors.
- Globe was acquired for approximately $90 million in cash. The acquisition added $14.209 million of goodwill and $33.530 million of amortizable intangible assets in the purchase price allocation, which remained subject to adjustment.
- Orders and backlog comparisons are affected by a 2013 change in accounting for blanket purchase orders: orders are recorded when released to production, rather than when the blanket order is received. Under the prior method, 2013 backlog was $83.694 million versus $32.915 million at year-end 2012.
Outlook, risks and unusual items
- Management expected 2014 revenue to more than double compared with Allied’s 2013 pre-acquisition revenue and expected Globe to remain accretive to earnings. It anticipated limited one-time legal, financial and tax costs, continued investment in engineering, sales and China production capacity, and a focus on gross-margin improvement. No specific earnings or margin guidance was provided.
- The $30 million senior subordinated notes carry a 14.50% rate, of which 13.00% is payable in cash and 1.50% in kind, and mature in October 2019. The senior credit facilities are secured by substantially all company assets; the notes are unsecured. Debt service and the ability to meet covenants merit attention.
- Three customers represented 42% of trade receivables at year-end, although no customer accounted for more than 10% of annual revenue. Backlog, including pull-system and blanket orders, is not guaranteed to convert to sales.
- Other disclosed exposures include competition, economic conditions, customer demand and viability, acquisition integration, component availability, foreign exchange, and the ability to fund growth. A product warranty issue tied to a supplier component required replacement costs; the remaining related reserve was $0.030 million at year-end.
- Management said ordinary-course litigation was not expected to have a significant adverse effect. The independent auditor gave an unqualified opinion on the financial statements. Management reported effective financial reporting controls but excluded Globe from its controls assessment while integration work continued; Globe represented about 21% of annual sales and 63% of year-end assets.
Important facts for investors to verify
- Confirm issuer identity and whether the relevant comparison is the full fiscal year or Q4; this is a 2013 annual report, not a standalone quarterly filing.
- Review the acquisition financing, interest expense, debt maturities, covenant headroom and cash-flow capacity, particularly the high-cost subordinated notes.
- Assess the quality and conversion prospects of the reported backlog under the revised booking method, and customer concentration in receivables.
- Check Globe’s integration, purchase price allocation and expected 2014 contribution against management’s outlook; reported 2013 results include Globe only after October 18.
- Track gross-margin performance, recurring versus adjusted earnings, and the company’s ability to fund capital investment and dividends while servicing debt.