Allied Motion Technologies Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing is an annual report, not a standalone Q4 filing. Amounts are in thousands of U.S. dollars unless stated otherwise. The issuer named in the filing is Allied Motion Technologies Inc. (NASDAQ: AMOT).
Business context
The company designs and manufactures precision controlled-motion components and systems for vehicle, industrial, medical, and aerospace and defense markets. It operates internationally and reports one operating segment. Its stated strategy is to expand integrated, multi-technology solutions, invest in engineering, pursue acquisitions, and improve quality, delivery, and cost.
Financial performance and liquidity
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Revenue | $371,084 | $310,611 | +19% |
| Gross profit / margin | $112,584 / 30.3% | $91,403 / 29.4% | +23%; margin +0.9 percentage point |
| Operating income / margin | $29,443 / 7.9% | $23,229 / 7.5% | +27% |
| Net income | $17,022 | $15,925 | +7% |
| Diluted EPS | $1.80 | $1.70 | +6% |
| Operating cash flow | $34,530 | $17,452 | +$17,078 |
| Capital expenditures | $14,882 | $14,333 | +$549 |
| Cash and cash equivalents at year-end | $13,416 | $8,673 | +$4,743 |
| Working capital / current ratio | $69,002 / 2.5 | $66,304 / 2.5 | Working capital +$2,698 |
| Long-term debt, net of financing costs | $109,765 | $122,516 | −$12,751 |
Net debt (debt less cash) was $96,349, down from $113,843. Net debt to capitalization was 45%, versus 53%. Operating cash flow improved primarily with higher earnings and improved working capital, including inventory management. Investing cash outflow was $14,882, principally capital spending; financing cash outflow was $14,777, mostly debt repayment. The company paid $0.12 per share in dividends.
Non-GAAP measures: adjusted net income was $17,920 and adjusted diluted EPS was $1.89; adjusted EBITDA was $47,532, compared with $38,363 in 2018. These exclude specified items and are not substitutes for GAAP measures.
Material changes and quarterly context
- Organic growth accounted for 9 percentage points of reported revenue growth; acquisitions accounted for the remainder. Revenue excluding foreign-exchange effects was $378,929, up from $306,275.
- Gross-margin expansion reflected higher volume, fixed-cost leverage, favorable product mix, and operating efficiencies. Operating expenses rose 22%, including higher selling, administrative, engineering, and acquired-intangible amortization costs.
- Interest expense increased 90% to $5,134, reflecting borrowing associated with the 2018 TCI acquisition. The effective tax rate rose to 28.6% from 23.0%, including a 1.8% discrete provision tied to a foreign tax audit settlement.
- Bookings increased 9% to $366,103, while year-end backlog declined 5% to $124,950. Management says most backlog converts in three to six months and cautions that backlog is not a reliable predictor of sales.
- Reported Q4 2019 revenue was $87,925 and net income was $3,489 (diluted EPS $0.37), compared with Q4 2018 revenue of $73,962 and net income of $2,636 (diluted EPS $0.28).
Outlook, risks, and notable items
- Management gave no numerical 2020 revenue or earnings guidance. It described continued investment in integrated solutions, engineering, sales capabilities, lean initiatives, and selective acquisitions, and cited solution wins expected to ramp during 2020.
- On February 12, 2020, the company amended and extended its revolving credit facility to $225 million, with a $75 million accordion and a February 2025 maturity; stated borrowing margins and fees were reduced. The facility is secured by substantially all non-real-estate assets and includes financial covenants.
- On March 7, 2020, the company acquired Dynamic Controls for $15 million plus cash acquired, expanding medical mobility and rehabilitation capabilities. The filing says the purchase-price allocation was preliminary.
- The filing identifies COVID-19, first reported in December 2019, as a potential risk to company, customer, and supplier operations; the impact was uncertain at the filing date. Other material risks include foreign exchange and trade exposure, reliance on key customers and limited-source suppliers, cyclical demand, raw-material costs, acquisition integration, debt and covenant obligations, cybersecurity, and product quality.
- Five customers represented approximately 30% of 2019 revenue; one customer alone represented 16%. The company reported no material adverse effect expected from ordinary-course litigation. Goodwill impairment testing identified no impairment in 2019.
- The company adopted lease accounting Topic 842 in 2019, recognizing a $16,420 right-of-use asset and $16,918 lease liability at year-end; management said the adoption materially affected the balance sheet but not net income or cash flows. Auditors issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- How much of future growth is organic versus acquired, and whether the TCI and Dynamic Controls businesses deliver expected revenue, margins, and integration benefits.
- Whether backlog converts as expected, given the year-over-year decline and management’s warning that it is not a reliable sales indicator.
- Debt capacity, covenant headroom, interest-rate exposure, and the effect of the amended credit facility and subsequent acquisition.
- Customer concentration and exposure to any disruption among key customers or single-/limited-source suppliers, including pandemic-related effects.
- Drivers of the higher effective tax rate, including foreign audit matters, and sensitivity of earnings to foreign exchange, margins, and acquisition-related amortization.