Business context and reporting period
Allied Motion Technologies Inc. (Nasdaq: AMOT) designs and manufactures precision motion-control components and integrated systems for vehicle, medical, aerospace and defense, electronics, and industrial markets. This Form 10-K covers the fiscal year ended December 31, 2015; amounts below are in U.S. dollars, with financial statement figures generally in millions unless noted.
Financial performance and position
| Metric | 2015 | 2014 | Change |
|---|---|---|---|
| Revenue | $232.4 | $249.7 | Down 7% reported; down 1% at prior-year exchange rates |
| Gross profit / margin | $68.8 / 29.6% | $73.4 / 29.4% | Profit down 6%; margin up 0.2 percentage points |
| Operating income / margin | $20.9 / 9.0% | $24.2 / 9.7% | Down 13% |
| Net income | $11.1 | $13.9 | Down 20% |
| Diluted EPS | $1.20 | $1.51 | Down 21% |
| Cash from operations | $20.1 | $20.2 | Down $0.1 |
| Capital expenditures | $4.7 | $4.0 | Up $0.7 |
Gross-margin improvement reflected sales mix, more solutions-oriented business, and efficiency initiatives. Foreign exchange reduced reported 2015 revenue by approximately $15.4 million and net income by approximately $1.1 million; at prior-year exchange rates, net income was $12.1 million and diluted EPS was $1.31. Engineering and development expense was $14.2 million, about 6% of sales. The effective tax rate rose to 28.2% from 25.6%.
At year-end, cash was $21.3 million, working capital was $41.5 million, and the current ratio was 2.2. Total debt obligations were $68.8 million; net debt was $47.5 million, down $14.2 million from 2014. Interest expense was $6.0 million. The company reported $15.0 million available under its senior credit facilities and compliance with debt covenants. Operating cash flow less capital expenditures was approximately $15.3 million (calculated). The company paid $0.10 per share in dividends during 2015.
Material changes versus the prior period
- Reported revenue declined primarily because of unfavorable currency translation and a 1% volume decrease. Electronics and Medical markets grew; Vehicle, Industrial, and Aerospace and Defense markets weakened.
- Bookings were $247.4 million excluding foreign exchange, versus $251.5 million in 2014. Year-end backlog was $71.0 million, down 5% reported; most backlog typically converts to sales within three to four months, and management cautioned it is not a reliable sales indicator.
- Quarterly results weakened sharply in the fourth quarter: revenue was $50.8 million versus $61.9 million in Q4 2014, and net income was $0.7 million versus $4.9 million.
- Foreign-currency translation produced a $4.3 million loss in other comprehensive income in 2015. In 2014, the company had recorded a $5.6 million translation loss.
Outlook, risks, contingencies, and unusual items
Management provided no quantified 2016 revenue or earnings guidance. It planned to continue investing in engineering, integrated motion solutions, operational-efficiency initiatives, and an ERP implementation; management expected solution-oriented sales and efficiency efforts to support growth and margin improvement. The company also intended to continue its dividend program and evaluate further acquisitions.
On January 12, 2016, after year-end, Allied Motion acquired Heidrive GmbH for €20 million (approximately $22 million). Heidrive reported 2015 revenue of approximately €29 million (approximately $32 million); management expected the acquisition to be immediately accretive. The acquisition was supported by January amendments that increased the revolving credit facility from $15 million to $30 million and the foreign revolving sublimit from $10 million to $25 million.
Key risks include customer concentration (one customer represented 24% of 2015 revenue; another represented 15% of year-end receivables), foreign-exchange exposure, competitive pricing, demand cyclicality, acquisition integration, and execution of the ERP and growth initiatives. Debt includes $30 million of 14.5% subordinated notes, with 13% cash interest and 1.5% paid in kind, due in 2019; the company also disclosed a balloon payment at maturity on its term loan. Management said ordinary-course legal matters were not expected to have a significant adverse effect. Goodwill impairment testing found no impairment at year-end. The independent auditor gave an unqualified opinion on the financial statements and internal control over financial reporting; management also concluded disclosure controls were effective.
Important facts for investors to verify
- How much of future revenue and cash flow depends on the concentrated customer base, and whether customer demand remains stable.
- Heidrive’s actual contribution, integration costs, financing effects, and realized versus expected accretion.
- Debt repayment and refinancing capacity, particularly the 2019 subordinated-note maturity and term-loan balloon payment.
- Whether the fourth-quarter earnings decline was temporary, and whether bookings and backlog convert into sales as expected.
- The continuing effect of currency movements on reported sales, earnings, and foreign net assets.
- Reconcile the filing’s bookings disclosures: the comparison table reports $231.9 million for 2015, while management’s overview gives $247.4 million excluding foreign exchange.