Allied Motion Reports Fourth Quarter 2017 Operating Income Doubled on 18% Growth in Revenue
Business Wire 14-Mar-2018 4:15 PM
AMHERST, N.Y.--(BUSINESS WIRE)-- Allied Motion Technologies Inc.(NASDAQ:AMOT) (Company), a designer and manufacturer that sells precision motion control products and solutions to the global market, today reported financial results for the fourth quarter and full year ended December 31, 2017.
Fourth quarter revenue increased 18.1% to $65.4 million; Achieved record revenue in 2017 of $252.0 million
Reported earnings per share for the year was $0.87, which reflects a $0.35 per share one-time charge associated with the impact of tax reform
Operating income doubled to $5.2 million in the quarter
2017 orders up 8.6% to a record $272 million; Backlog grew to record level of $100.7 million
Not included in the backlog are previously announced new business awards of $225.0 million that were received in the last eleven months and will start shipping in 2019
Total debt down $18.3 million to $53.2 million at year-end; Net debt to capitalization ratio improved to 30.1% from 43.6% at the end of 2016
Cash generated from operations was $25.4 million in 2017, up from $14.3 million in 2016
Acquired the original equipment (OE) steering business of Maval Industries, LLC in January 2018; Addition of OE product line enables Allied to provide a fully integrated steering system solution to its customers
Our fourth quarter results were very strong and drove record revenue for the year, commented Dick Warzala, Chairman and CEO of Allied Motion. During 2017, we gained greater traction and market share in many of our served markets, won important and significant new awards, generated considerable cash and made progress streamlining the organization. Absent the one-time impact of tax reform, our earnings were also measurably higher for both the quarter and the year. And, our emphasis on utilizing our Allied Systematic Tool kit (AST) to drive continuous improvements in Quality, Delivery, Cost and Innovation, contributed measurably to our solid performance. AST is an integral element of Allieds culture.
Mr. Warzala added, Our contract wins over the last year are a testament to our ability to build highly reliable, quality products and custom engineered solutions, and they substantiate the strategic investments we have made to grow and diversify our business. We won significant, new business in not only our Vehicle market, but also in our Medical, Industrial, and Aerospace and Defense markets. With these wins, we are creating a larger base of business that enhances our ability to realize continuous and sustainable organic growth well into the future.
Fourth Quarter 2017 Results (Narrative compares with prior-year period unless otherwise noted)
Revenue was $65.4 million, up $10.0 million, or 18.1%. The increase reflects growth across all of the Companys served markets, to include significantly higher sales to the Vehicle market. Excluding the favorable effects of foreign currency exchange (FX), fourth quarter revenue was $62.8 million, up 13.5%. Sales to U.S. customers were 49% of total sales for the quarter compared with 51% for the same period last year, with the balance of sales to customers primarily in Europe, Canada and Asia.
Gross profit for the quarter rose $3.8 million to $20.6 million, while gross margin improved 120 basis points to 31.4%. The expansion in gross margin was due to more favorable mix and higher volume.
Operating costs and expenses were up $1.2 million to $15.4 million primarily due to increased investments in the sales and engineering organization. Within operating expenses, engineering and development (E&D) was $4.6 million, up 14.4%, although as a percent of revenue, E&D decreased 20 basis points to 7.0%.
Operating income was $5.2 million, double the prior-year-period, and operating margin expanded 320 basis points to 7.9%.
Interest expense decreased $1.1 million, or nearly 63%, to $0.7 million in the quarter, which was due to reduced debt levels and lower cost of debt with the new credit facility established in November 2016.
The effective tax rate for the quarter was 97.9% compared with 24.5% in the prior-year period. The higher rate reflects an estimated transition tax of $3.1 million on the deemed repatriation of foreign earnings resulting from the U.S. Tax Cuts and Jobs Act (the Tax Act). This one-time expense was recorded to taxes in the fourth quarter and negatively impacted diluted earnings per share $0.35, resulting in fourth quarter net income of $95 thousand, or $0.01 per diluted share. The Tax Act contains other provisions that did not materially impact the Company, including the revaluation of deferred tax balances.
Earnings before interest, taxes, depreciation, amortization, stock compensation expense and business development costs (Adjusted EBITDA) was $8.6 million, up $2.8 million or 47.5%. As a percent of sales, Adjusted EBITDA was 13.1% compared with 10.5% in the prior-year period. 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 2017 Results (Narrative compares with prior-year period unless otherwise noted)
Record revenue of $252.0 million was up $6.1 million, or 2.5%. Increased demand from the Industrial/Electronics, Medical and Aerospace & Defense markets as well as improvement in distribution sales more than offset lower demand in the Companys Vehicle market. 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 was favorable $1.7 million for the year.
Gross profit increased nearly 4% to $75.7 million, and gross margin was up 30 basis points to 30.0%.
Operating costs and expenses were up $2.8 million, or 5.1%, to $56.9 million. The increase was due to reasons similar to those in the quarter. E&D was up $1.4 million, or 8.5%, to $17.5 million and increased as a percent of revenue to 7.0% from 6.6%. The increase in E&D investments was to develop standardized product platforms and provide customized motion solutions for customers. As a result, operating income was $18.8 million, down slightly from the prior-year period.
Interest expense decreased $4.0 million, or 61.6%, to $2.5 million due to the debt refinancing in November 2016 and lower debt balances.
The effective tax rate for 2017 was 50.2%, due to implementation of the Tax Act. As a result, net income for the year was $8.0 million, or $0.87 per diluted share. The Company anticipates its effective tax rate for 2018 to range from 22% to 26%.
Full year Adjusted EBITDA was $31.1 million, up 2% over 2016. As a percent of sales, Adjusted EBITDA was 12.3% compared with 12.4% in 2016.
Balance Sheet and Cash Flow Review
Cash and cash equivalents at the end of 2017 were $15.6 million compared with $15.5 million at the end of 2016. Cash provided by operations was $25.4 million, an increase of $11.1 million, and was used to pay down debt and fund $6.2 million of capital expenditures during the year.
The Company expects to invest $13 million to $16 million in capital expenditures during fiscal 2018. The higher level of capital expenditures is to support the significant recent project wins announced over the last year.
Total debt was $53.2 million at year-end, down $18.3 million from 2016. Debt, net of cash, was $37.6 million, or 30.1% of net debt to capitalization, down from 43.6% at the end of 2016.
Orders and Backlog Summary ($ in thousands)
Q4 2017 Q3 2017 Q2 2017 Q1 2017 Q4 2016
Orders $ 72,764 $ 72,964 $ 65,754 $ 60,459 $ 56,543
Backlog $ 100,708 $ 93,547 $ 85,250 $ 77,954 $ 78,602
FY 2017 FY 2016 $ Change % Change
Orders $ 271,941 $ 250,369 $ 21,572 8.6%
The year-over-year increase in orders and backlog reflect strength across all of the Companys served markets. The impact on orders from FX fluctuations was favorable $2.6 million in the fourth quarter and $2.0 million in the full year period.
Backlog was up 28% over the prior year-end period and increased nearly 8% since the end of the trailing third quarter. The time to convert the majority of backlog to sales is approximately three to six months.
Mr. Warzala concluded, We have begun 2018 with a strong backlog, an excellent pipeline of opportunities and an acquisition that enhances our value proposition by enabling us to provide fully-integrated steering solutions to our customers. We are excited about the momentum we are building and we will stay on course by executing our growth strategy to create additional value for all of our stakeholders.
Conference Call and Webcast
The Company will host a conference call and webcast on Thursday, March 15, 2018 at 11:00 am ET. During the conference call, management will review the financial and operating results and discuss Allied Motions corporate strategy and outlook. A question and answer session will follow.
To listen to the live call, participants can call (778) 327-3988. 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 2:00 pm ET on the day of the call through Thursday, March 22, 2018. To listen to the archived call, dial (412) 317-6671 and enter replay pin number 10004297 or access the webcast replay via the Companys website. A transcript will also be posted to the website once available.
About Allied Motion Technologies Inc.
Allied Motion (NASDAQ: 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/Electronics. 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 Companys 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 Companys March 15, 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 Companys 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 Companys 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; our ability to control costs, including the establishment and operation of lowcost region manufacturing and component sourcing capabilities; and other risks and uncertainties detailed from time to time in the Companys 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)
For the three months ended For the year ended
December 31, December 31,
2017 2016 2017 2016
Revenue $ 65,355 $ 55,343 $ 252,012 $ 245,893
Cost of goods sold 44,804 38,615 176,333 172,889
Gross profit 20,551 16,728 75,679 73,004
Operating costs and expenses:
Selling 2,844 2,496 10,979 9,986
General and administrative 6,941 6,782 24,926 24,333
Engineering and development 4,558 3,985 17,542 16,170
Business development 213 87 213 428
Amortization of intangible assets 814 795 3,219 3,204
Total operating costs and expenses 15,370 14,145 56,879 54,121
Operating income 5,181 2,583 18,800 18,883
Other expense (income):
Interest expense 677 1,823 2,474 6,449
Other expense, net 55 (179 ) 190 (369 )
Total other expense, net 732 1,644 2,664 6,080
Income before income taxes 4,449 939 16,136 12,803
Provision for income taxes (4,354 ) (230 ) (8,100 ) (3,725 )
Net income $ 95 $ 709 $ 8,036 $ 9,078
Basic earnings per share:
Earnings per share $ 0.01 $ 0.08 $ 0.88 $ 1.01
Basic weighted average common shares 9,198 9,057 9,153 9,011
Diluted earnings per share:
Earnings per share $ 0.01 $ 0.08 $ 0.87 $ 1.00
Diluted weighted average common shares 9,303 9,174 9,275 9,105
ALLIED MOTION TECHNOLOGIES INC. CONSOLIDATED BALANCE SHEETS (In thousands, except per share data)
Cash and cash equivalents $ 15,590 $ 15,483
Trade receivables, net of allowance for doubtful accounts of $341
and $362 at December 31, 2017 and 2016, respectively 31,822 26,104
Inventories 32,568 31,098
Prepaid expenses and other assets 3,460 3,120
Total current assets 83,440 75,805
Property, plant and equipment, net 38,403 37,474
Deferred income taxes 14 923
Intangible assets, net 32,073 34,252
Goodwill 29,531 27,522
Other long-term assets 4,461 3,943
Total assets $ 187,922 $ 179,919
Liabilities and Stockholders Equity
Debt obligations 461 936
Accounts payable 15,351 13,204
Accrued liabilities 14,270 10,678
Total current liabilities 30,082 24,818
Long-term debt 52,694 70,483
Deferred income taxes 3,609 3,266
Pension and post-retirement obligations 4,667 4,381
Other long term liabilities 9,523 4,685
Total liabilities 100,575 107,633
Common stock, no par value, authorized 50,000 shares; 9,427 and
9,374 shares issued and outstanding at December 31, 2017 and
2016, respectively 31,051 29,503
Preferred stock, par value $1.00 per share, authorized 5,000 shares;
no shares issued or outstanding - -
Retained earnings 61,882 54,786
Accumulated other comprehensive loss (5,586 ) (12,003 )
Total stockholders equity 87,347 72,286
Total Liabilities and Stockholders Equity $ 187,922 $ 179,919
ALLIED MOTION TECHNOLOGIES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
For the year ended December 31,
Cash Flows From Operating Activities:
Net income $ 8,036 $ 9,078
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 10,274 9,749
Deferred income taxes 3,713 1,770
Provision for doubtful accounts 39 167
Provision for excess and obsolete inventory 480 351
Provision for warranty 234 (138 )
Write-off of debt issue costs on Prior Credit agreement recorded in
interest expense - 1,052
Debt issue cost amortization recorded in interest expense 165 380
Restricted stock compensation 2,026 1,893
Other (756 ) (652 )
Changes in operating assets and liabilities, excluding changes due to acquisition:
(Increase) in trade receivables, net (4,051 ) (3,719 )
Decrease (increase) in inventories 18 (928 )
(Increase) decrease in prepaid expenses and other assets (328 ) 69
Increase (decrease) in accounts payable 1,277 (956 )
Increase (decrease) in accrued liabilities and other liabilities 4,280 (3,813 )
Net cash provided by operating activities 25,407 14,303
Cash Flows From Investing Activities:
Purchase of property and equipment (6,201 ) (5,188 )
Consideration paid for acquisition, net of cash acquired - (16,205 )
Net cash used in investing activities (6,201 ) (21,393 )
Cash Flows From Financing Activities:
(Repayments) borrowings on lines-of-credit, net (518 ) (5,709 )
Principal payments of long-term debt (18,389 ) (67,125 )
Proceeds from issuance of long-term debt - 76,321
Payment of debt issuance costs - (745 )
Dividends paid to stockholders (959 ) (942 )
Shares withheld for payment of employee payroll taxes (1,513 ) (1,054 )
Stock transactions under employee benefit stock plans 1,213 834
Net cash provided by (used in) financing activities (20,166 ) 1,580
Effect of foreign exchange rate changes on cash 1,067 (285 )
Net increase (decrease) in cash and cash equivalents 107 (5,795 )
Cash and cash equivalents at beginning of period 15,483 21,278
Cash and cash equivalents at end of period 15,590 15,483
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, business development costs and insurance recoveries), which is a non-GAAP measure. The Company believes Adjusted EBITDA is often a useful measure of a Companys operating performance and is a significant basis used by the Companys 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 Companys 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 Companys calculation of Adjusted EBITDA for the three months and full year ended December 31, 2017 and 2016 is as follows:
Three Months Ended
Net income $ 95 $ 709
Interest expense 677 1,823
Provision for income tax 4,354 230
Depreciation and amortization 2,684 2,440
EBITDA $ 7,810 $ 5,202
Stock compensation expense 553 523
Business development costs 213 87
Adjusted EBITDA $ 8,576 $ 5,812
Full Year Ended
Net income $ 8,036 $ 9,078
Interest expense 2,474 6,449
Provision for income tax 8,100 3,725
Depreciation and amortization 10,274 9,749
EBITDA $ 28,884 $ 29,001
Stock compensation expense 2,026 1,893
Business development costs 213 428
Insurance recoveries - (823 )
Adjusted EBITDA $ 31,123 $ 30,499
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