Allied Motion Technologies Inc. — Q2 2014 Form 10-Q
Reporting period: Three and six months ended June 30, 2014. Unless noted, amounts are in thousands of dollars. The filing identifies the issuer as Allied Motion Technologies Inc.
Business context and financial results
The company designs, manufactures and sells motion-control products and systems across commercial motor, industrial, automotive, medical, and aerospace and defense markets. Results include Globe Motors, acquired in October 2013, from its acquisition date; therefore, year-over-year growth is materially affected by the acquisition.
| Metric | Q2 2014 | Q2 2013 | First half 2014 | First half 2013 |
|---|---|---|---|---|
| Revenue | $62,069 | $25,352 | $122,504 | $50,495 |
| Gross profit (margin) | $18,568 (30%) | $7,535 (30%) | $35,660 (29%) | $15,058 (30%) |
| Operating income | $5,485 | $1,064 | $10,056 | $2,521 |
| Net income | $2,693 | $819 | $4,841 | $1,779 |
| Diluted EPS | $0.29 | $0.09 | $0.53 | $0.20 |
| Operating cash flow | Not separately presented by quarter | $6,358 | $2,741 |
Liquidity, debt and cash flow
- At June 30, 2014, cash was $10,988; current assets were $70,723 and current liabilities $41,959.
- Total debt was $82,543: $12,043 current and $70,500 long-term. Debt declined from $87,645 at December 31, 2013. Cash increased by $817 over the six-month period.
- Cash flow for the first half: $6,358 provided by operations, $172 used in investing, and $5,286 used in financing. Financing outflows included $2,500 of term-loan principal payments and $499 of dividends.
- Approximately $10,000 was available under the senior credit facilities at June 30. The company reported compliance with debt covenants. The $30,000 subordinated notes carry 14.5% interest (13% cash, 1.5% payment-in-kind).
Material changes and management commentary
- Q2 revenue rose 145% and first-half revenue rose 143%, primarily due to Globe; management also reported growth across markets. Q2 bookings were $63,474, and backlog was $80,777 versus $75,599 at December 31, 2013.
- First-half gross margin fell to 29% from 30%. Management attributed the decline primarily to Globe and product mix. Q2 gross margin was unchanged at 30%.
- Interest expense rose to $1,649 in Q2 and $3,287 for the first half, largely reflecting acquisition-related debt. Intangible amortization also increased with Globe’s acquired assets.
- Globe’s preliminary purchase price was $88,566 after a $1,434 working-capital adjustment; the purchase-price allocation remained subject to further adjustment.
- The company paid quarterly dividends of $0.025 per share. Management said working capital, capital expenditures and dividends were expected to be funded by operating cash flow and available credit. No quantified earnings or revenue guidance was provided.
Risks, contingencies and other notable items
- Three customers represented 33% of revenue in both the quarter and first half, and 43% of receivables at June 30. Customer concentration and collection risk warrant attention.
- Management cited risks including economic and market conditions, customer demand and viability, competition, product execution, supply availability, acquisition integration, financing access, and cost control.
- The filing discusses estimates and contingencies but does not provide a clear quantified amount for material contingent liabilities.
- Disclosure controls were assessed as effective, with no material change in internal control over financial reporting reported for the quarter.
- The company was assessing the impact of the new revenue-recognition standard, ASC 606; adoption was required for periods beginning after December 15, 2016, with early adoption prohibited.
Important facts for investors to verify
- How much reported growth and backlog reflect Globe versus organic demand, and how sustainable the bookings are.
- Whether gross margin can recover despite the acquired business and mix effects, and how acquisition-related amortization and interest affect earnings.
- Debt repayment capacity, refinancing needs, covenant headroom, and the high cash interest burden on subordinated notes.
- Exposure to the three major customers and the collectability of receivables.
- Cash-flow presentation: the cash-flow statement reports first-half operating cash flow of $6,358, while MD&A states $6,289; the filing text does not reconcile this difference.