Business Context and Reporting Period
Allied Motion Technologies Inc. designs and manufactures motion-control products and systems for vehicle, medical, aerospace and defense, and industrial/electronics markets. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2017. The filing identifies the registrant as Allied Motion Technologies Inc.; this differs from the request metadata name “ALLIENT INC.”
Financial Performance
Amounts below are in millions of dollars, except per-share data and percentages.
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $64.968 | $61.040 | $186.657 | $190.550 |
| Gross profit / margin | $19.546 / 30.1% | $17.907 / 29.3% | $55.128 / 29.5% | $56.276 / 29.5% |
| Operating income | $5.267 | $5.326 | $13.619 | $16.300 |
| Net income | $3.057 | $2.821 | $7.941 | $8.369 |
| Diluted EPS | $0.33 | $0.30 | $0.86 | $0.90 |
| Operating cash flow | — | — | $15.313 | $9.965 |
Q3 operating and net margins were approximately 8.1% and 4.7%, respectively; nine-month margins were approximately 7.3% and 4.3%. Q3 revenue increased 6% year over year, while nine-month revenue fell 2%. Management attributed the year-to-date decline primarily to weaker Vehicle-market sales; other served markets grew. Q3 bookings were $72.964 million, up 23%, and backlog was $93.547 million, up 20% from September 2016.
Financial Position, Cash Flow and Liquidity
At September 30, 2017, cash and equivalents were $17.600 million, current assets $87.968 million, and current liabilities $31.424 million. Total debt was approximately $62.521 million, comprising $61.995 million of long-term debt and $0.526 million of current debt; total debt was approximately $71.419 million at December 31, 2016. The company had $62.396 million available under its $125 million revolving facility and reported compliance with all debt covenants. The facility also includes a $50 million accordion feature.
For the nine months, operating cash flow was $15.313 million; capital expenditures were $4.220 million; debt principal payments were $9.114 million; and dividends paid were $0.709 million. Cash increased $2.117 million to $17.600 million. Management said working-capital dynamics supported operating cash generation and expected working capital, capital spending and dividends to be funded by operating cash and available credit.
Changes, Outlook and Risks
Q3 net income rose 8% despite slightly lower operating income, with management citing higher volumes, improved gross margin and lower interest expense. Interest expense fell 58% in Q3 and 61% year to date, reflecting interest savings following refinancing. Year-to-date net income declined 5% and diluted EPS declined 4%; operating income fell 16% as revenue weakened and operating expenses increased. The effective tax rate was 33.1% in Q3 and 32.1% year to date, versus 27.6% and 29.5% in the respective prior-year periods.
Management said Q3 results exceeded expectations, demand strengthened in most markets, and backlog reached a record level. It disclosed a $6.8 million defense-market contract announced in October 2017, after quarter-end. No formal earnings or revenue guidance is provided in the supplied filing text. Management identified risks including economic and currency conditions, customer and market demand, competition, product acceptance, supplier availability, customer concentration, execution of growth plans, and acquisition integration. One customer represented 18% of Q3 revenue and 19% of trade receivables at quarter-end. The company uses interest-rate swaps; $45.281 million of revolving debt was hedged. A hypothetical 10% currency movement was estimated to affect Q3 sales by approximately $2.9 million, before offsetting effects.
The filing notes that 2016 quarterly results were revised to correct an intercompany cost-of-sales elimination error; management deemed the error immaterial to the affected filings. Disclosure controls were assessed as effective. Implementation of a financial reporting system was ongoing, with completion expected in Q4 2017. The company was evaluating new accounting standards, including revenue recognition effective in 2018, and initially expected no material impact from adoption.
Important Facts for Investors to Verify
- Confirm issuer identity: the filing is for Allied Motion Technologies Inc., not “ALLIENT INC.”
- Reconcile the MD&A liquidity statement, which says cash was $17.302 million and increased $5.060 million, with the balance sheet and cash-flow statement, which report $17.600 million at September 30 and a $2.117 million increase.
- Assess whether record backlog and the October defense contract convert to revenue as expected, and monitor continued weakness in the Vehicle market.
- Review customer concentration, foreign-exchange exposure, debt covenant headroom, and the effect of interest-rate changes on unhedged borrowings.
- Track operating expenses, effective tax rate, and progress on financial-system implementation and accounting-standard adoption.