Allied Motion Technologies Inc. — Q2 2018 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2018. The filing identifies the registrant as Allied Motion Technologies Inc.; the request metadata says “ALLIENT INC,” so confirm the intended company. Financial amounts below are in USD thousands unless stated otherwise.
Business context and results
The company designs, manufactures and sells motion-control components and systems for vehicle, industrial/electronics, medical, and aerospace and defense markets. It operates as one reportable segment. Results include the Maval OE steering business acquired on January 19, 2018.
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $79,981 | $60,335 | $156,557 | $121,689 |
| Gross profit / margin | $23,517 / 29.4% | $17,881 / 29.6% | $46,071 / 29.4% | $35,582 / 29.2% |
| Operating income | $6,232 | $3,987 | $12,643 | $8,352 |
| Net income | $4,231 | $2,227 | $8,429 | $4,884 |
| Diluted EPS | $0.45 | $0.24 | $0.90 | $0.53 |
| Operating cash flow | — | $7,386 | $7,383 |
Financial position, cash flow and liquidity
- At June 30, cash was $15,329; current assets were $101,284 and current liabilities $37,909. Total assets were $215,190.
- Debt obligations were $64,938 in total: $64,485 long-term debt (net of issuance costs) and $453 current China facility borrowings. The company reported approximately $60,018 available under its $125 million revolving facility and was in compliance with its financial covenants.
- First-half cash decreased $261. Operating cash flow was $7,386; investing used $18,867, including $13,312 for Maval and $5,555 for capital expenditures; financing provided $11,491, including net revolver borrowings of $14,252.
- Receivables rose to $41,267 from $31,822 and inventories to $41,098 from $32,568 at year-end 2017, reflecting growth and working-capital needs.
Material changes and management commentary
- Q2 revenue increased 33% year over year; management attributed the increase to growth across served markets and Maval. Excluding favorable currency effects, Q2 revenue was $77,724, up 29%; volume rose 29% and FX contributed about 4%.
- First-half revenue rose 29%; excluding FX, it was $150,267, up 24%, with volume up 24% and a 5% favorable currency impact. First-half gross margin improved 0.2 percentage points to 29.4%; Q2 margin fell 0.2 points, partly due to Maval dilution.
- Net income rose 90% in Q2 and 73% for the first half. Management cited higher revenue and fixed-cost leverage, partly offset by increased incentive compensation, engineering and development spending, and organizational investment.
- Q2 bookings were $86,238, up 31%, and backlog was $111,170, up 30% from the prior-year comparison. First-half bookings were $166,937, up 32%. Management attributed growth to organic demand and Maval.
- The Maval acquisition added a fully integrated steering-system offering. Its preliminary allocation included $5,995 of goodwill and $3,700 of intangible assets; the allocation and certain valuations remained subject to finalization.
Outlook, risks and unusual items
- No specific revenue or earnings guidance is provided. Management expected 2018 capital expenditures of $13 million to $16 million, above first-half spending, to support new contract wins and IT infrastructure.
- Management cited long sales cycles between solution selection and full-rate production, while expressing confidence in its scalable growth platform. It also identified risks including economic and currency conditions, customer demand and concentration, supply availability, competition, execution and integration of acquisitions, and access to financing.
- One customer represented 20% of Q2 and first-half revenue and 21% of receivables at June 30, 2018. Foreign-currency translation reduced Q2 comprehensive income by $3,532; management estimated FX increased Q2 sales by approximately $2,300.
- The company’s effective tax rate was 27.4% in Q2 and 26.8% for the first half, below the corresponding 2017 rates. Accounting for certain Tax Cuts and Jobs Act effects remained incomplete; estimates could change and affect tax expense.
- The company used interest-rate swaps to hedge $43,337 of its $64,982 revolving-facility balance. A 100-basis-point change on the unhedged floating-rate debt was estimated to affect first-half interest expense by approximately $108.
- Management reported effective disclosure controls. The Maval business was excluded from the internal-control effectiveness assessment while its control environment was being evaluated. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Confirm the company identity: the filing is for Allied Motion Technologies Inc., not “ALLIENT INC.”
- Track whether Maval’s integration, final purchase-price allocation and expected contribution to results develop as anticipated.
- Monitor working-capital growth, operating cash conversion, capital expenditures, revolver borrowings and covenant headroom.
- Assess whether bookings and backlog convert to revenue, particularly given the disclosed long sales cycles and customer concentration.
- Follow the final accounting for tax-law changes and any resulting effects on tax expense or deferred tax balances.