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Allied Motion Reports Record Revenue and Net Income for 2018

AMHERST, N.Y.--(BUSINESS WIRE)--

  • Revenue for the year increased $58.6 million, or 23%, driven primarily by 15% organic growth
  • 2018 net income nearly doubled to a record $15.9 million; Diluted earnings per share increased $0.83 to $1.70
  • Fourth quarter revenue grew 13% to $73.9 million; Organic growth was 5% excluding FX
  • Backlog grew 14% sequentially to a record level of $132.0 million
  • Enhanced market and technology capabilities with TCI, LLC acquisition

Allied Motion Technologies Inc. (AMOT) (“Company”), a designer and manufacturer that sells precision and specialty controlled motion products and solutions to the global market, today reported financial results for its fourth quarter and full year ended December 31, 2018. Results include the acquisition of Maval Industries (“Maval) in January 2018 and a partial month of operations of the TCI, LLC (“TCI”) acquisition that was completed December 6, 2018.

“The success of our One Allied approach to drive organic sales was evident during the year as we achieved double-digit organic growth. This, combined with the successful execution of our acquisition strategy, resulted in record annual revenue and net income,” commented Dick Warzala, Chairman and CEO. “We are winning new projects and customers and gaining market share in many of our served markets. We believe that the successful execution of our strategic plan, our prudent use of capital and the consistent application and utilization of our Allied Systematic Tools (AST) kit to drive continuous improvements, has enabled our success. Moving forward, we plan to continue this same approach to managing our business and to drive our results in the future.”

Mr. Warzala added, “Fourth quarter results, while solid, were impacted in December by a couple of our markets that slowed or shifted order timing to manage inventory levels around year-end. That said, we believe the corrections were completed and our business will return to levels we experienced earlier in 2018.

“We have been particularly pleased with our recent acquisition of TCI as it further broadened our offerings and strengthened our position as a global leader of application-focused controlled motion solutions. The integration is on track and we believe there is excellent long-term growth opportunity as we leverage the technology, expanded channels and extended footprint of the combined businesses.”

Fourth Quarter 2018 Results (Narrative compares with prior-year period unless otherwise noted)

Revenue of $74.0 million was up $8.6 million, or 13%. Organic growth was approximately 5%, excluding the $1.2 million unfavorable impact of changes in foreign currency exchange (“FX”). Sales to U.S. customers were 52% of total sales for the quarter compared with 49% for the fourth quarter last year, with the balance of sales to customers primarily in Europe, Canada and Asia.

Gross margin decreased 220 basis points to 29.2% driven primarily by product mix across the organization. Incremental gross profit from TCI partially offset the impact of the expected lower margin profile of Maval.

Operating costs and expenses outpaced the rate of revenue growth in the quarter. These costs included additional engineering personnel to support the Company’s growth, $413 thousand of business development expense and incremental intangible asset amortization of $140 thousand related to the acquisition. As a result, operating income decreased $1.8 million, or 35%, and operating margin contracted to 4.5%.

Net income was $2.6 million, or $0.28 per diluted share, compared with $95 thousand, or $0.01 per diluted share. The prior-year period was negatively impacted by the transition tax on the deemed repatriation of foreign earnings resulting from the U.S. Tax Cuts and Jobs Act (“the Tax Act”).

Earnings before interest, taxes, depreciation, amortization, stock compensation expense and business development costs (“Adjusted EBITDA”) was $7.8 million, or 10.5% of sales, in the 2018 fourth quarter. The Company believes that, when used in conjunction with measures prepared in accordance with U.S. generally accepted accounting principles, Adjusted EBITDA, which is a non-GAAP measure, helps in the understanding of its operating performance. See the attached table for a description of non-GAAP financial measures and reconciliation table for Adjusted EBITDA.

Full Year 2018 Results (Narrative compares with prior-year period unless otherwise noted)

Strong demand from all the Company’s served markets resulted in record revenue of $310.6 million, up $58.6 million, or 23%. Organic growth was up 15% in 2018. Sales to U.S. customers were 53% of total sales, consistent with 2017, with the balance of sales to customers primarily in Europe, Canada and Asia. The impact of FX fluctuations had a favorable $4.3 million impact on 2018 revenue.

Gross profit increased 21% to $91.4 million, though gross margin contracted 60 basis points to 29.4%, reflecting the expected lower margin profile of Maval.

Operating costs and expenses were up $11.3 million to $68.2 million; however, as a percentage of revenue, operating expenses were down 70 basis points to 21.9%. General and administrative expense as a percent of revenue increased 40 basis points to 10.3% primarily due to higher incentive compensation and additional personnel to support the Company’s growth. Engineering and development (“E&D”) was $19.9 million, up 13.5%. As a percentage of revenue, E&D decreased 60 basis points to 6.4%.

Operating income was up 23.5%, or $4.4 million, to $23.2 million. Higher operating leverage offset the gross margin pressure and $762 thousand of business development expenses resulting in operating margin of 7.5%, unchanged from 2017.

Interest expense increased $227 thousand to $2.7 million as the Company took on additional debt to fund acquisitions.

The effective tax rate for the year was down to 23.0% compared with 50.2%, due primarily to the Tax Act. The higher rate in the prior-year period also included a transition tax on the deemed repatriation of foreign earnings. Net income nearly doubled to $15.9 million, or $1.70 per diluted share, in 2018. The Company anticipates its effective tax rate for 2019 to range from 25% to 28%.

Adjusted EBITDA was $38.4 million, up $7.2 million, or 23%. As a percent of sales, Adjusted EBITDA was 12.4%, up 10 basis points. See the attached table for a description of non-GAAP financial measures and reconciliation table for Adjusted EBITDA.

Balance Sheet and Cash Flow Review

Allied Motion acquired TCI on December 6, 2018 for $64.1 million. The acquisition was funded with existing cash plus borrowings under the Company’s revolving credit facility. Cash and cash equivalents were $8.7 million compared with $15.6 million at the end of 2017. Total debt was $122.5 million at the end of 2018, up $69.4 million from year-end 2017 largely due to acquisitions. Debt, net of cash, was $113.8 million, or 52.8% of net debt to capitalization, up from 30.1% at the end of 2017.

Capital expenditures were $14.3 million and included investments for productivity improvement and growth initiatives. The Company expects to invest $15 million to $18 million in capital expenditures during fiscal 2019, which reflects additional support for the significant project wins that will begin ramping by year-end, the next generation of off-road capabilities and incremental investments for TCI.

Orders and Backlog Summary ($ in thousands)

 
      Q4 2018     Q3 2018     Q2 2018     Q1 2018     Q4 2017
Orders $ 84,911 $ 85,081 $ 86,238 $ 80,699 $ 72,764
Backlog $ 131,997 $ 115,713 $ 111,170 $ 107,321 $ 100,708

The year-over-year increase in orders and backlog reflect recent acquisitions and strength across all the Company’s served markets. The impact on orders from FX fluctuations for the fourth quarter was unfavorable $1.1 million year-over-year.

Backlog was up 31% over the prior-year period and increased 14% since the sequential third quarter of 2018. Included in backlog was $5.6 million attributable to the acquisition of TCI, which is more of a book-to-bill type business. The time to convert the majority of backlog to sales is approximately three to six months. Not included in the backlog are previously announced new business awards of $225.0 million that are expected to begin shipping in late 2019.

Conference Call and Webcast

The Company will host a conference call and webcast on Thursday, March 14, 2019 at 10:00 am ET. During the conference call, management will review the financial and operating results and discuss Allied Motion’s corporate strategy and outlook. A question and answer session will follow.

To listen to the live call, participants can call (201) 689-8263. In addition, the call will be webcast live and may be found at: http://www.alliedmotion.com/investors

A telephonic replay will be available from 1:00 pm ET on the day of the call through Thursday, March 21, 2019. To listen to the archived call, dial (412) 317-6671 and enter replay pin number 13686222 or access the webcast replay via the Company’s website. A transcript will also be posted to the website once available.

About Allied Motion Technologies Inc.

Allied Motion (AMOT) designs, manufactures and sells precision and specialty controlled motion products and solutions used in a broad range of industries within our major served markets, which include Vehicle, Medical, Aerospace & Defense, and Industrial. The Company is headquartered in Amherst, NY, has global operations and sells into markets across the United States, Canada, South America, Europe and Asia.

Allied Motion is focused on controlled motion applications and is known worldwide for its expertise in electro-magnetic, mechanical and electronic motion technology. Its products include brush and brushless DC motors, brushless servo and torque motors, coreless DC motors, integrated brushless motor-drives, gear motors, gearing, modular digital servo drives, motion controllers, incremental and absolute optical encoders, active (electronic) and passive (magnetic) filters for power quality and harmonic issues, and other controlled motion-related products.

The Company’s growth strategy is focused on being the controlled motion solutions leader in its selected target markets by leveraging its “technology/know how” to develop integrated precision solutions that utilize multiple Allied Motion technologies to “change the game” and create higher value solutions for its customers. The Company routinely posts news and other important information on its website at http://www.alliedmotion.com/.

Safe Harbor Statement

The statements in this news release and in the Company’s March 14, 2019 conference call that relate to future plans, events or performance are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements, and may contain the word “believe,” “anticipate,” “expect,” “project,” “intend,” “will continue,” “will likely result,” “should” or words or phrases of similar meaning. Forward-looking statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from the expected results described in the forward-looking statements. The risks and uncertainties include those associated with: the domestic and foreign general business and economic conditions in the markets we serve, including political and currency risks and adverse changes in local legal and regulatory environments; the introduction of new technologies and the impact of competitive products; the ability to protect the Company’s intellectual property; our ability to sustain, manage or forecast its growth and product acceptance to accurately align capacity with demand; the continued success of our customers and the ability to realize the full amounts reflected in our order backlog as revenue; the loss of significant customers or the enforceability of the Company’s contracts in connection with a merger, acquisition, disposition, bankruptcy, or otherwise; our ability to meet the technical specifications of our customers; the performance of subcontractors or suppliers and the continued availability of parts and components; changes in government regulations; the availability of financing and our access to capital markets, borrowings, or financial transactions to hedge certain risks; the ability to attract and retain qualified personnel who can design new applications and products for the motion industry; the ability to implement our corporate strategies designed for growth and improvement in profits including to identify and consummate favorable acquisitions to support external growth and the development of new technologies; the ability to successfully integrate an acquired business into our business model without substantial costs, delays, or problems; our ability to control costs, including the establishment and operation of low cost region manufacturing and component sourcing capabilities; and other risks and uncertainties detailed from time to time in the Company’s SEC filings. Actual results, events and performance may differ materially. Readers are cautioned not to place undue reliance on these forward-looking statements as a prediction of actual results. Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise over time, and it is not possible for us to predict the occurrence of those matters or the manner in which they may affect us. The Company has no obligation or intent to release publicly any revisions to any forward looking statements, whether as a result of new information, future events, or otherwise.

FINANCIAL TABLES FOLLOW

 

ALLIED MOTION TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)

 
    For the three months ended   For the year ended
December 31, December 31,
2018   2017 2018   2017
Revenue $ 73,962 $ 65,355 $ 310,611 $ 252,012
Cost of goods sold   52,392     44,804     219,208     176,333  
Gross profit 21,570 20,551 91,403 75,679
Operating costs and expenses:
Selling 3,405 2,844 11,807 10,979
General and administrative 8,068 6,941 32,037 24,926
Engineering and development 5,303 4,558 19,913 17,542
Business development 413 213 762 213
Amortization of intangible assets   1,021     814     3,655     3,219  
Total operating costs and expenses   18,210     15,370     68,174     56,879  
Operating income 3,360 5,181 23,229 18,800
Other expense (income):
Interest expense 862 677 2,701 2,474
Other (income) expense, net   (35 )   55     (153 )   190  
Total other expense, net   827     732     2,548     2,664  
Income before income taxes 2,533 4,449 20,681 16,136
Provision for income taxes   103     (4,354 )   (4,756 )   (8,100 )
Net income $ 2,636   $ 95   $ 15,925   $ 8,036  
 
Basic earnings per share:
Earnings per share $ 0.28   $ 0.01   $ 1.72   $ 0.88  
Basic weighted average common shares 9,306 9,198 9,265 9,153
Diluted earnings per share:
Earnings per share $ 0.28   $ 0.01   $ 1.70   $ 0.87  
Diluted weighted average common shares 9,383 9,303 9,370 9,275
Net Income $ 2,636 $ 95 $ 15,925 $ 8 036
Foreign currency translation adjustment (957 ) 706 (3,109 ) 6,314
Change in accumulated income (loss)
on derivatives (1) (750 ) 404 238 226
Pension adjustments (2)   (61 )   123     (61 )   (123 )
Comprehensive income $ 868   $ 1,082   $ 12,993   $ 14,453  
 
       
(1) Net of tax of $132 for the period ended December 31, 2018
(2) Net of tax of $2 and ($21) for the periods ended December 31, 2018 and 2017
 
 

ALLIED MOTION TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)

   

December 31,
2018

 

December 31,
2017

Assets
Current assets:
Cash and cash equivalents $ 8,673 $ 15,590
Trade receivables, net of allowance for doubtful accounts of $530 and
$341 at December 31, 2018 and December 31, 2017, respectively 43,247 31,822
Inventories 54,971 32,568
Prepaid expenses and other assets 4,003     3,460  
Total current assets 110,894 83,440
Property, plant and equipment, net 48,035 38,403
Deferred income taxes 341 14
Intangible assets, net 68,354 32,073
Goodwill 52,639 29,531
Other long term assets 5,038     4,461  

Total Assets

$ 285,301   $ 187,922  
Liabilities and Stockholders’ Equity
Current liabilities:
Debt obligations - 461
Accounts payable 25,867 15,351
Accrued liabilities 18,722     14,270  
Total current liabilities 44,589 30,082
Long-term debt 122,516 52,694
Deferred income taxes 3,860 3,609
Pension and post-retirement obligations 4,293 4,667
Other long term liabilities 8,230     9,523  
Total liabilities 183,488 100,575
Stockholders’ Equity:
Common stock, no par value, authorized 50,000 shares; 9,485 and

9,427 shares issued and outstanding at December 31, 2018 and
December 31, 2017, respectively

33,613 31,051
Preferred stock, par value $1.00 per share, authorized 5,000 shares;
no shares issued or outstanding - -
Retained earnings 76,718 61,882
Accumulated other comprehensive loss (8,518 )   (5,586 )
Total stockholders’ equity 101,813     87,347  
Total Liabilities and Stockholders’ Equity $ 285,301   $ 187,922  
 
 

ALLIED MOTION TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

 
   

For the year ended
December 31,

2018   2017
Cash Flows From Operating Activities:
Net income $ 15,925 $ 8,036
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 11,576 10,274
Deferred income taxes (76 ) 3,713
Loss on sale of assets 19 -
Provision for doubtful accounts 192 39
Provision for excess and obsolete inventory 682 480
Provision for warranty (13 ) 234
Debt issue cost amortization recorded in interest expense 148 165
Restricted stock compensation 2,643 2,026
Other 57 (756 )
Changes in operating assets and liabilities, net of acquisitions:
Increase in trade receivables (4,110 ) (4,051 )
(Increase) decrease in inventories (17,327 ) 18
Increase in prepaid expenses and other assets (835 ) (328 )
Increase in accounts payable 6,533 1,277
Increase in accrued liabilities and other liabilities   2,038     4,280  
Net cash provided by operating activities 17,452 25,407
 
Cash Flows From Investing Activities:
Purchase of property, plant and equipment (14,333 ) (6,201 )
Consideration paid for acquisitions, net of cash acquired   (77,413 )   -  
Net cash used in investing activities (91,746 ) (6,201 )
 
Cash Flows From Financing Activities:
(Repayments) on lines-of-credit (454 ) (518 )
Principal payments of long-term debt (13,278 ) (18,389 )
Proceeds from issuance of long-term debt 83,163 -
Payment of debt issuance costs (72 ) -
Issuance of restricted stock 1,076 -
Dividends paid to stockholders (1,079 ) (959 )

Tax withholdings related to settlements of restricted stock

(1,579 ) (1,513 )
Stock transactions under employee benefit stock plans   -     1,213  
Net cash provided by (used in) financing activities 67,777 (20,166 )
Effect of foreign exchange rate changes on cash   (400 )   1,067  
Net (decrease) increase in cash and cash equivalents (6,917 ) 107
Cash and cash equivalents at beginning of period   15,590     15,483  
Cash and cash equivalents at end of period   8,673     15,590  
 
 

ALLIED MOTION TECHNOLOGIES INC.

Reconciliation of Non-GAAP Financial Measures

(In thousands)

 

In addition to reporting net income, a U.S. generally accepted accounting principle (“GAAP”) measure, the Company presents Adjusted EBITDA (earnings before interest, income taxes, depreciation and amortization, stock compensation expense, and business development costs), which is a non-GAAP measure. The Company believes Adjusted EBITDA is often a useful measure of a Company’s operating performance and is a significant basis used by the Company’s management to evaluate and compare the core operating performance of its business from period to period by removing the impact of the capital structure (interest), tangible and intangible asset base (depreciation and amortization), taxes, stock-based compensation expense, business development costs related to acquisitions, and other items that are not indicative of the Company’s core operating performance. Adjusted EBITDA does not represent and should not be considered as an alternative to net income, operating income, net cash provided by operating activities or any other measure for determining operating performance or liquidity that is calculated in accordance with generally accepted accounting principles.

The Company’s calculation of Adjusted EBITDA for the three and twelve months ended December 31, 2018 and 2017 is as follows:

     
Three Months Ended
December 31,
          2018   2017
Net income $ 2,636   $ 95
Interest expense 862 677
Provision for income tax (103 ) 4,354
Depreciation and amortization         3,122       2,684
EBITDA 6,517 7,810
Stock compensation expense 855 553
Business development costs         413       213
Adjusted EBITDA       $ 7,784     $ 8,576
 
 
Year ended
December 31,
          2018   2017
Net income $ 15,925 $ 8,036
Interest expense 2,701 2,474
Provision for income tax 4,756 8,100
Depreciation and amortization         11,576       10,274
EBITDA 34,958 28,884
Stock compensation expense 2,643 2,026
Business development costs         762       213
Adjusted EBITDA       $ 38,363     $ 31,123
 

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