Allied Motion Technologies Inc. — Q2 2017 Form 10-Q
Reporting period: Three and six months ended June 30, 2017. The filing identifies the registrant as Allied Motion Technologies Inc.; this differs from the request metadata name “ALLIENT INC.” Financial amounts below are in U.S. dollars, generally thousands, except per-share data.
Business context
The company designs, manufactures and sells motion-control components and systems for markets including Vehicle, Medical, Aerospace & Defense, Electronics and Industrial. It reported one operating segment. Management attributed weaker results primarily to softness in the Vehicle market, especially off-road, while describing demand in Medical, Industrial, Electronics and Aerospace & Defense as strong or growing.
Financial performance
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $60.335 million | $65.835 million | $121.689 million | $129.510 million |
| Gross margin | $17.881 million; 29.6% | $19.864 million; 30.2% | $35.582 million; 29.2% | $38.369 million; 29.6% |
| Operating income | $3.987 million | $6.214 million | $8.352 million | $10.974 million |
| Net income | $2.227 million | $3.193 million | $4.884 million | $5.548 million |
| Diluted EPS | $0.24 | $0.34 | $0.53 | $0.60 |
| Adjusted EBITDA (non-GAAP) | $6.905 million | $8.697 million | $14.196 million | $16.308 million |
- Q2 revenue declined 8% year over year; management cited a 7% volume decline and an approximately 1% adverse currency effect. For the first half, revenue fell 6%, reflecting a 5% volume decrease and a 1% currency impact.
- Q2 gross margin percentage decreased 0.6 percentage points; management said lower volume drove the margin compression. Operating income fell 36% in Q2 and 24% for the first half.
- Interest expense declined to $0.641 million in Q2 from $1.590 million, and to $1.164 million for the first half from $3.122 million, reflecting debt-related interest savings. The decline partly cushioned lower operating income.
- Bookings were $65.754 million in Q2, down 4%; first-half bookings were $126.213 million, down 6%. Backlog at June 30 was $85.250 million, up 6% from the comparable prior-year amount, primarily due to more long-term orders at foreign locations.
Cash flow, balance sheet and liquidity
- First-half operating cash flow was $7.383 million, versus $1.675 million in 2016. The company attributed the improvement to a return to more favorable working-capital dynamics; receivables used $4.442 million of cash during the period.
- First-half capital expenditures were $2.677 million. Investing cash outflow was $2.677 million, compared with $18.431 million in 2016, which included the Heidrive acquisition.
- Cash declined $0.750 million from year-end to $14.733 million. Financing activities used $6.118 million, including $6.000 million of revolving-credit-facility principal payments and $0.473 million of dividends.
- At June 30, total debt was approximately $65.922 million: $64.963 million long-term debt, net of issuance costs, plus $0.959 million under the China facility. Revolver borrowings were $65.609 million; approximately $59.391 million remained available. The company reported covenant compliance.
- Current assets were $80.683 million and current liabilities were $26.192 million. Total assets were $185.398 million and stockholders’ equity was $81.514 million.
Management commentary, outlook and risks
- Management said Q2 results were generally in line with expectations given persistent weakness in the off-road Vehicle business. It described strong responses to factory-automation solutions and positive early indications from expanded distributor channels.
- The company was adapting operations to lower Vehicle-market volumes and beginning organizational changes in North American motor operations to eliminate redundancies and pursue sales and operational synergies. No quantified earnings or revenue guidance was provided.
- Management cited risks including economic and currency conditions, competition and new technologies, customer demand and concentration, order-backlog conversion, supply availability, execution of growth and acquisition strategies, financing access, and attracting qualified personnel. One customer represented 18% of Q2 revenue and 17% of receivables at June 30.
- Foreign-currency movements reduced sales by an estimated $1.0 million in Q2 and $1.9 million in the first half versus 2016. A hypothetical 10% U.S. dollar move would have affected Q2 sales by approximately $2.6 million; this is not an estimate of net earnings impact. Interest-rate swaps hedged $45.930 million of revolving debt; the filing said a 100-basis-point change on unhedged floating-rate debt would not materially affect interest expense.
- The filing disclosed correction of an intercompany cost-of-sales error in 2016 quarterly statements. Management said it was not material to any 2016 quarter; the presented 2016 comparative figures were revised, increasing Q2 2016 net income by $0.251 million and first-half net income by $0.479 million versus amounts previously reported.
- Management concluded disclosure controls were effective as of June 30, 2017 and reported no material change in internal control over financial reporting during the quarter. The company said there were no material changes to previously disclosed risk factors.
Key facts for investors to verify
- Confirm the issuer identity: this filing is for Allied Motion Technologies Inc., not the company name supplied in the request metadata.
- Track Vehicle-market demand, gross-margin recovery, bookings and backlog conversion, especially whether growth in other markets offsets Vehicle weakness.
- Review the reconciliation and composition of non-GAAP adjusted EBITDA, and distinguish it from GAAP earnings and operating cash flow.
- Monitor revolving debt, borrowing availability, covenant headroom, floating-rate exposure and the continuing effectiveness of interest-rate hedges.
- Assess customer concentration, foreign-exchange sensitivity and the financial effects of the North American organizational changes; the filing provides no quantified forecast for these items.
- Note that 2016 comparative earnings were revised for the disclosed accounting error; use the revised figures when making year-over-year comparisons.