Allied Motion Technologies Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. The filing identifies the registrant as Allied Motion Technologies Inc. (not “Allient Inc.”). Unless noted otherwise, financial amounts are in thousands of dollars.
Business context and results
The company designs, manufactures, and sells motion-control products and integrated systems for vehicle, industrial/electronics, medical, and aerospace and defense markets. It operates as one reportable segment. Results include the Maval original-equipment steering business from its January 19, 2018 acquisition.
| Metric | Q1 2018 | Q1 2017 | Change |
|---|---|---|---|
| Revenue | $76,576 | $61,354 | +25% |
| Gross profit / gross margin | $22,554 / 29.5% | $17,701 / 28.9% | Margin +0.6 percentage points |
| Operating income / margin | $6,411 / 8.4% | $4,365 / 7.1% | +47% operating income |
| Net income / net margin | $4,198 / 5.5% | $2,657 / 4.3% | +58% net income |
| Diluted EPS | $0.45 | $0.29 | +55% |
| Bookings / backlog | $80,699 / $107,321 | $60,459 / $77,954 | Bookings +33%; backlog +38% |
Management attributed revenue growth to higher sales across served markets, the Maval acquisition, and a favorable 7% currency impact; revenue excluding favorable foreign exchange was $72.5 million, up 18%. Gross-margin improvement reflected higher volume and favorable product mix. Higher G&A and engineering spending reflected growth-related staffing, incentive compensation, and product-development investment.
EBITDA, a non-GAAP measure, was $9,096 versus $6,825; adjusted EBITDA was $9,743 versus $7,291. The company cautions that these measures are supplemental and not substitutes for GAAP results or cash flow.
Cash flow, liquidity, and debt
- Operating cash flow was $1,695, down from $2,332, primarily reflecting increased working-capital needs. Investing cash outflow was $15,534, including $13,312 for Maval and $2,222 of capital expenditures. Financing provided $10,999, including $14,500 of long-term borrowings and $4,350 of principal payments.
- Cash declined $2,587 from year-end to $13,003. Current assets were $100,129 and current liabilities $39,023; the reported balances imply a current ratio of approximately 2.6.
- Revolving-facility borrowings were $63,462 (carrying value of long-term debt was $62,928 after issuance costs); the China facility balance was $478. Approximately $61,538 remained available under the revolving facility. The company reported compliance with debt covenants at quarter-end.
- Quarterly dividend declared was $0.025 per share. Management expected working capital, capital expenditures, and dividends to be funded by operating cash flow and available credit; capital expenditures were expected to increase during 2018 to support new contracts and IT improvements.
Material developments, outlook, and risks
- The company paid $13,312 cash for substantially all operating assets of Maval’s OE steering business to expand integrated steering-system offerings. The purchase-price allocation was preliminary, including $3,700 of acquired intangibles and $5,669 of goodwill; the production separation was still underway under a transition-services agreement.
- Bookings and backlog rose substantially year over year. Management cited organic growth across major markets and the acquisition, and said integrated solutions and application opportunities were supporting its growth strategy. No specific full-year revenue or earnings guidance was provided.
- One customer represented 21% of quarterly revenue and 23% of receivables at March 31, 2018. Foreign-exchange movements increased quarterly revenue by an estimated $4.0 million; a hypothetical 10% U.S. dollar move would affect quarterly sales by approximately $3.2 million, before partially offsetting cost and expense effects.
- Variable-rate debt creates interest-rate exposure; $43,985 of the $63,462 revolver balance was hedged. Management estimated a 100-basis-point change on unhedged floating-rate debt would affect quarterly interest expense by approximately $49.
- Accounting for certain Tax Cuts and Jobs Act effects remained provisional, including the transition-tax calculation; the company was still evaluating its accounting policy for GILTI. Further analysis could affect income-tax expense.
- Management identified risks including economic and currency conditions, customer demand and concentration, supply availability, competition and technology, growth execution, and successful acquisition integration. It reported no material changes to the risk factors in its 2017 Form 10-K. Disclosure controls were deemed effective; the acquired Maval business was excluded from the internal-control assessment while its control environment was being evaluated.
Important facts for investors to verify
- How much of sales, bookings, and backlog growth is organic versus attributable to Maval and currency, and whether backlog converts to revenue as expected.
- Progress and costs of the Maval carve-out, final purchase-price allocation, and integration; acquired-business controls were not included in management’s control assessment.
- Working-capital conversion and cash generation, given the quarter’s receivables and inventory increases and lower operating cash flow.
- Debt, covenant headroom, borrowing costs, and the effectiveness of interest-rate hedges as rates change.
- Final tax accounting under the Tax Cuts and Jobs Act, including the transition tax and GILTI, and any resulting earnings impact.