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Allied Motion Revenue Growth of 23% Drives 37% Increase in Operating Income in Third Quarter 2018

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

  • Revenue increased $15.1 million to a record $80.1 million driven primarily by organic growth
  • Demonstrated strong operating leverage with operating margin expansion of 90 basis points to 9.0%
  • Achieved net income of $4.9 million, up $1.8 million, or 59%; Diluted earnings per share increased $0.19 to $0.52
  • Backlog grew 4% sequentially to a record level of $115.7 million

Allied Motion Technologies Inc. (AMOT) (“Company”), a designer and manufacturer that sells precision motion control products and solutions to the global market, today reported financial results for its third quarter ended September 30, 2018. Results include the acquisition of Maval Industries in January 2018.

“Our One Allied approach and focus on delivering market leading solutions continued to pay off with another quarter of record revenue and backlog as we saw strong performance across all of our served markets,” commented Dick Warzala, Chairman and CEO. “Importantly, our business model also demonstrated its leverage potential with operating margin expanding to 9.0%.

“We are confident in our strategy, and with a record level of backlog, robust new business pipeline and favorable economic environment, we are well positioned for continued growth in revenue and profitability.”

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

Record revenue of $80.1 million was up $15.1 million, or 23%. The increase was due to growth across all of the Company’s served markets and reflects significantly higher sales to the Vehicle market. The change in foreign currency exchange (FX) had a $0.7 million unfavorable impact on revenue in the quarter. Sales to U.S. customers were 55% of total sales for the quarter compared with 53% for the same period last year, with the balance of sales to customers primarily in Europe, Canada and Asia.

Gross profit increased $4.2 million, or 22%, to $23.8 million. Gross margin decreased 40 basis points to 29.7%. Higher volume and productivity helped to offset the impact of the lower margin profile of the Maval acquisition.

Operating costs and expenses were up $2.3 million to $16.5 million; however, as a percentage of revenue, operating expenses were down 140 basis points to 20.6%. General and administrative expense as a percent of revenue increased 70 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 $4.7 million, up 7%. As a percentage of revenue, E&D decreased 90 basis points to 5.9%.

Higher gross profit combined with operating leverage drove operating income up 37%, or $2.0 million, to $7.2 million, while operating margin expanded 90 basis points to 9.0%.

Interest expense for the period was unchanged at $0.6 million.

The effective tax rate decreased to 26.7% from 33.1%, largely due to lower U.S. federal tax rates from the December 2017 Tax Cuts and Jobs Act. The Company anticipates its effective tax rate for 2018 to range from 24% to 26%.

Net income increased $1.8 million, or 59%, to $4.9 million, or $0.52 per diluted share, from $3.1 million, or 0.33 per diluted share.

Earnings before interest, taxes, depreciation, amortization, stock compensation expense and business development costs (“Adjusted EBITDA”) was $10.8 million, up $2.5 million, or 29%. As a percent of sales, Adjusted EBITDA was 13.5%, an increase of 60 basis points. 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.

Year-to-Date (YTD) 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 $236.6 million, up $50.0 million, or 27%. Sales to U.S. customers were 53% of total sales compared with 54% for the same period last year, with the balance of sales to customers primarily in Europe, Canada and Asia. The impact of FX fluctuations had a favorable $5.5 million impact on revenue for the year-to-date period.

Gross profit increased 27% to $69.8 million, and gross margin was the same as the first nine months of 2017. Operating costs and expenses as a percent of revenue were 21.1%, down 110 basis points. As a result, operating income increased $6.3 million, or 46%, while operating margin expanded 110 basis points to 8.4%.

The effective tax rate for the year-to-date period was down to 26.8% compared with 32.1% for the same period last year, due primarily to U.S. tax reform. Net income was up $5.3 million, or 67%, to $13.3 million. Adjusted EBITDA for the period was $30.6 million, up 36%. As a percent of sales, Adjusted EBITDA was 12.9% compared with 12.1%.

Balance Sheet and Cash Flow Review

Cash and cash equivalents were $11.4 million compared with $15.6 million at the end of 2017. Total debt was $62.5 million at the end of the third quarter, up $9.3 million from year-end 2017 largely due to the Maval acquisition. Debt, net of cash, was $51.1 million, or 33.7% of net debt to capitalization, up from 30.1% at the end of 2017.

Capital expenditures of $10.6 million include investments for productivity improvement and growth initiatives. The Company continues to expect to invest $13 million to $16 million in capital expenditures during fiscal 2018. The increase in capital expenditures over the prior year is for growth capital to support significant project wins.

Orders and Backlog Summary ($ in thousands)

                   
Q3 2018 Q2 2018 Q1 2018 Q4 2017 Q3 2017
Orders $ 85,081 $ 86,238 $ 80,699 $ 72,764 $ 72,964
Backlog $ 115,713 $ 111,170 $ 107,321 $ 100,708 $ 93,547
 

The year-over-year increase in orders and backlog reflect strength across all the Company’s served markets. The impact on orders from FX fluctuations for the third quarter was unfavorable $0.7 million year-over-year.

Backlog was up 24% over the prior-year period and increased 4% since the sequential second quarter of 2018. 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 mid to later part of 2019.

Conference Call and Webcast

The Company will host a conference call and webcast on Thursday, November 1, 2018 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, November 8, 2018. To listen to the archived call, dial (412) 317-6671 and enter replay pin number 13683801 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 motion control components and systems 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 motion control 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, and other associated motion control-related products.

The Company’s growth strategy is focused on becoming the motion solution leader in its selected target markets by leveraging its “technology/know how” to develop integrated precision motion 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 November 1, 2018 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 Company's ability to realize the annual interest expense savings from its debt refinancing; 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, including the ability to carve out, relocate and separate the Maval OE business; 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.

 
 

ALLIED MOTION TECHNOLOGIES INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)

         
For the three months ended For the nine months ended
September 30, September 30,
2018   2017 2018   2017
 
Revenue $ 80,092 $ 64,968 $ 236,649 $ 186,657
Cost of goods sold   56,330     45,422     166,816     131,529  
Gross profit 23,762 19,546 69,833 55,128
Operating costs and expenses:
Selling 2,762 2,822 8,402 8,135
General and administrative 8,210 6,255 24,318 17,985
Engineering and development 4,692 4,389 14,610 12,984
Amortization of intangible assets   872     813     2,634     2,405  
Total operating costs and expenses 16,536 14,279 49,964 41,509
Operating income 7,226 5,267 19,869 13,619
Other expense (income):
Interest expense 623 633 1,839 1,797
Other (income) expense, net   (24 )   65     (118 )   135  
Total other expense, net   599     698     1,721     1,932  
Income before income taxes 6,627 4,569 18,148 11,687
Provision for income taxes   (1,767 )   (1,512 )   (4,859 )   (3,746 )
Net income $ 4,860   $ 3,057   $ 13,289   $ 7,941  
 
Basic earnings per share:
Earnings per share $ 0.52   $ 0.33   $ 1.44   $ 0.87  
Basic weighted average common shares   9,273     9,173     9,251     9,137  
Diluted earnings per share:
Earnings per share $ 0.52   $ 0.33   $ 1.42   $ 0.86  
Diluted weighted average common shares   9,371     9,294     9,337     9,265  
 
Net income $ 4,860   $ 3,057   $ 13,289   $ 7,941  
Foreign currency translation adjustment (307 ) 1,829 (2,152 ) 5,608

Change in accumulated income (loss) on derivatives

  137     45     988     (178 )
Comprehensive income $ 4,690   $ 4,931   $ 12,125   $ 13,371  
 
 

ALLIED MOTION TECHNOLOGIES INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

       

September 30,

2018

(Unaudited)

December 31,

2017

Assets
Current assets:
Cash and cash equivalents $ 11,357 $ 15,590

Trade receivables, net of allowance for doubtful accounts of $506 and
  $341 at September 30, 2018 and December 31, 2017, respectively

45,230 31,822
Inventories 44,887 32,568
Prepaid expenses and other assets   3,490     3,460  
Total current assets

104,964

83,440
Property, plant and equipment, net 43,026 38,403
Deferred income taxes 129 14
Intangible assets, net 33,075 32,073
Goodwill 34,938 29,531
Other long term assets   5,981     4,461  
Total assets $ 222,113   $ 187,922  
Liabilities and Stockholders’ Equity
Current liabilities:
Debt obligations 437 461
Accounts payable 24,587 15,351
Accrued liabilities   18,051     14,270  
Total current liabilities 43,075 30,082
Long-term debt 62,021 52,694
Deferred income taxes 3,164 3,609
Pension and post-retirement obligations 4,238 4,667
Other long term liabilities   9,132     9,523  
Total liabilities 121,630 100,575
Stockholders’ Equity:

Common stock, no par value, authorized 50,000 shares; 9,476 and
  9,427 shares issued and outstanding at September 30, 2018 and
  December 31, 2017, respectively

32,867 31,051

Preferred stock, par value $1.00 per share, authorized 5,000 shares;
  no shares issued or outstanding

- -
Retained earnings 74,366 61,882
Accumulated other comprehensive loss   (6,750 )   (5,586 )
Total stockholders’ equity   100,483     87,347  
Total Liabilities and Stockholders’ Equity $ 222,113   $ 187,922  
 
 

ALLIED MOTION TECHNOLOGIES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

     
For the nine months ended
September 30,
2018     2017
Cash Flows From Operating Activities:
Net income $ 13,289 $ 7,941
Adjustments to reconcile net income to net cash provided by
operating activities (net of working capital acquired in 2017):
Depreciation and amortization 8,454 7,590
Deferred income taxes (484 ) (99 )
Stock compensation expense 1,787 1,473
Debt issue cost amortization recorded in interest expense 113 113
Other 521 (26 )
Changes in operating assets and liabilities:
Trade receivables (11,727 ) (6,887 )
Inventories (11,067 ) (379 )
Prepaid expenses and other assets (1,610 ) 17
Accounts payable 8,093 3,106
Accrued liabilities   3,917     2,464  
Net cash provided by operating activities 11,286 15,313
 
Cash Flows From Investing Activities:
Purchase of property and equipment (10,581 ) (4,220 )
Cash paid for acquisition, net of cash acquired   (13,312 )   -  
Net cash used in investing activities (23,893 ) (4,220 )
 
Cash Flows From Financing Activities:
Borrowings on lines-of-credit, net 17,658 (441 )
Principal payments of long-term debt (8,350 ) (9,114 )
Dividends paid to stockholders (800 ) (709 )
Stock transactions under employee benefit stock plans   262     355  
Net cash provided by (used in) financing activities 8,770 (9,909 )
Effect of foreign exchange rate changes on cash   (396 )   933  
Net decrease in cash and cash equivalents (4,233 ) 2,117
Cash and cash equivalents at beginning of period   15,590     15,483  
Cash and cash equivalents at end of period $ 11,357   $ 17,600  
 
 

ALLIED MOTION TECHNOLOGIES INC.

Reconciliation of Non-GAAP Financial Measures

(In thousands)

(Unaudited)

 
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 nine months ended
September 30, 2018 and 2017 is as follows:

   
Three Months Ended
September 30,
      2018   2017
Net income $ 4,860   $ 3,057
Interest expense 623 633
Provision for income tax 1,767 1,512
Depreciation and amortization       2,832     2,630
EBITDA 10,082 7,832
Stock compensation expense 694 519
Business development costs       33     -
Adjusted EBITDA     $ 10,809   $ 8,351
 
 
Nine months ended
September 30,
      2018   2017
Net income $ 13,289 $ 7,941
Interest expense 1,839 1,797
Provision for income tax 4,859 3,746
Depreciation and amortization       8,454     7,590
EBITDA 28,441 21,074
Stock compensation expense 1,787 1,473
Business development costs       349     -
Adjusted EBITDA     $ 30,577   $ 22,547
 

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