Allient Inc (ALNT) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2007 Allied Motion Technologies Inc.

earnings conference call.

At this time, all participants are in a listen-only mode.

We will be facilitating a question-and-answer session towards the end of today's conference.

(OPERATOR INSTRUCTIONS) As a reminder, this call is being recorded for replay purposes.

I'd now like to turn the presentation over to your host for today's conference call, Ms.

Sue Chiarmonte.

Please proceed.

Thank you.

Welcome to Allied Motion's conference call to discuss the quarter and year ended December 31, 2007.

We appreciate your joining us for this call.

We distributed the press release early today.

If you have not received this announcement, please call our corporate office at 303-799-8520 and request a copy or visit our website at alliedmotion.com.

Today's call is being recorded.

It will be available for replay until March 6.

The call back number for the replay is 1-888-286-8010 and the pass code is 82413897.

This call is also being broadcast live on the Internet and will be available for replay immediately after the call for 90 days.

To access the Internet broadcast and replay, go to the Company's website and click on the webcast icon.

As a reminder, please note that the Safe Harbor statements included in our press release also apply to all comments made on this conference call.

I will now turn the call over to Dick Smith, Chief Executive Officer of Allied Motion Technologies.

Thank you, Sue.

Good morning and thank you for joining us today.

As usual, I have Dick Warzala, our President and Chief Operating Officer, on the call with me and he will be making part of the presentation today.

Today I will start with some general comments and then will review the numbers for both the quarter and the year, and then Dick will discuss the operations and I will end with a brief closing statement.

And then after that, we will open up the call for questions.

I will start with an overview of 2007 and our accomplishments for the year.

We had a very good year in 2007, including ending the year with a strong fourth quarter.

And as we have reported during the year, we have made progress in improving the gross profitability of the Company.

Net income for the year increased 24% over last year to $2.4 million, and increased 67% in the fourth quarter.

Fully diluted earnings per share was up 18% for the year to $0.33 per share and was up 50% for the fourth quarter.

Gross profit margins improved nearly 1% for the year and increased 2% in the fourth quarter.

EBITDA increased 8% for the year to $7.75 million and increased 26% in the fourth quarter.

Sales for the year increased 2% over last year to $84.6 million, including 11% increase in the fourth quarter.

We also paid down our bank debt by $5.3 million during the year, leaving the balance of our bank debt at year-end at $4.4 million.

On May 7 of 2007, we finalized the refinancing of our bank debt, whereby we entered into a global bank facility with JPMorgan Chase Bank that provided us $4 million of term debt and up to $15 million of revolving lines of credit.

Our new bank facility has significantly reduced our cost of borrowed funds and has also provided us a global facility that will allow us to use the full resources of the Company to finance the growth of our Company.

Our backlog at year-end is up over 14% over last year and up 7% over the end of the third quarter.

The 2% increase in revenues achieved in 2007 reflects a significant change in sales mix.

Our increase in sales reflect a 13% increase in sales from our industrial electronics distribution and Aerospace and defense market segments, partially offset by an 11% downturn in vehicle and medical market segments.

63% of our sales for the year were to US customers with the balance to customers primarily in Europe and Canada.

Sales to US customers were down 5% for the year and sales to customers outside of the US were up 18%.

2% of the sales increase was due to the weakness of the US dollar against the Euro.

Next, we continue to increase production and sourcing a product from our contract manufacturing facility in China in order to continue realizing cost savings, which is required to maintain or improve our lower margin business in some of our vehicle, medical and commercial applications.

In addition, we will utilize the sales CR resource to stay competitive for those customers where price is more important than manufacturing and engineering support, and where we can achieve a reasonable profit margin.

To further strengthen our focus on this important resource, we re-hired Rudy Colwell as our General Manager of Asian operations, who will coordinate production managers with our contract manufacturer as well as work on obtaining new business with new and existing customers.

We continue to implement our AST tools, which provide continuous improvement in our manufacturing efficiencies and productivity.

We continue to make progress in introducing new products and receiving production orders for these new products.

And Dick will expand on some of these points in his presentation.

So overall, while we achieved significant improvement in our operating results for the year, we also continued to take those actions that are building and strengthening our Company for its long-term success.

I will now provide some of the details of the fourth quarter and year-end results.

For the quarter ended December 31, 2007, the Company achieved a 67% increase in net income, which improved from $388,000 or $0.06 per diluted share last year to $648,000 or $0.09 per diluted share this quarter.

Revenues for the quarter increased 11% to $21.2 million from $19.1 million last year.

The Company achieved net income for the year of $2,396,000 or $0.33 per diluted share, a 24% increase over last year's net income of $1,931,000 or $0.28 per diluted share.

Revenues for the year increased to $84.5 million from $82.7 million last year.

Backlog at December 31, 2007 was $32 million, up 7% from the beginning of the quarter and up 14% over the same time last year.

EBITDA for the year was up 8.2% to over $7.75 million for this year from $7.17 million last year.

Our gross [profit] margins improved for both the quarter and year.

For the quarter, gross profit margins improved 2% to 26% from 24% last year, and for the year, gross profit margins improved to 24.4%, nearly a 1% improvement over last year.

Selling, general and administrative and engineering costs as a percent of sales for the quarter slightly improved to 19.4% this year from 19.5% last year, and was up slightly to 18.2% this year compared to 17.9% last year.

The increase is primarily the result of increased selling and engineering expenses that were incurred to strengthen our sales and engineering capabilities.

Depreciation and amortization expense increased by $22,000 to $865,000 for the quarter, and was $3,472,000 for the year ended December 31, 2007, an increase of $189,000 over last year.

For the quarter and year, interest expense was down $84,000 and down $284,000, respectively, for the same periods last year.

The Company ended the quarter with $534,000 in cash, $4.4 million in bank debt, and over $14.6 million available to borrow under our lines of credit both here in the United States and in Europe.

As we reported during the year, the majority of our bank debt is now classified as a long-term liability in the balance sheet, which has contributed to an increase in our current ratio from 1.2 at the end of last year to 2.1 currently.

Our net stockholder's equity at December 31, 2007 was $34 million or a net book value per share of $4.90.

Now I would like to ask Dick to discuss our operations.

Dick?

Thank you, Dick, and welcome, everyone.

Consistent with our past practice, Dick Smith has already provided the detailed financial results and I will focus on reporting the key operating activities that drove the results.

Our improvement in earnings in both the fourth quarter and for the year reflects our continued emphasis on managing our business to realize acceptable returns on all of our sales activities.

To accomplish this, we source components and manufacture products in Asia, Europe and North America, and work with each of our customers to ensure the proper mix of manufacturing and logistic support is in place to optimally meet their requirements.

Additionally, our local sales and application support is among the best in the industry and is another key element in the overall support of our customer's needs.

While we recognize the need to be price competitive, product price alone is usually not the main driver for our customers.

To help you better understand our business, I will take some time to define for you other requirements that truly drive success in our marketplace.

First off, we recognize that customers demand quality and they do not tolerate product failures.

Since most of our products are installed in higher level assemblies and equipment, the cost to repair and/or replace faulty products in the field can far outweigh the additional cost of the product.

To ensure we meet the highest quality standards, it all starts with understanding the requirements of our customer's applications, followed by designing the products that meet their exact needs, and continues with having the right processes in place to ensure quality is built in during the manufacturing phase.

Overall, our never-ending emphasis on quality and ongoing quality improvements results in a track record with our customers that provides us with a competitive edge against our competition.

While quality is a given, achieving consistent and ongoing quality over the long run requires that we not only build quality products; it also requires expertise in applications engineering, design engineering and material sourcing, and I will explain why next.

The process to ensure quality starts with applications engineering, and if you don't have the people who truly understand the motion requirements of the customer's applications, there is a good chance you will fail in the long run.

Why?

Simply put, if you need to move a mountain, you will need the design to be rugged enough to handle the heavy loads and to provide consistent and enduring performance over time.

If you need to move a molehill, then you don't want to pay for the solution that moves a mountain.

Have the expertise to recognize the exact requirements of the application and translating that into a product that best meets that need is a critical element to ensure enduring quality in the application.

To satisfy this requirement, you must have the people with the right engineering expertise to understand a customer's need, and Allied Motion is continually adding and upgrading its applications support around the world to ensure we can best meet that need.

Another competitive edge that Allied Motion has is the breadth of our product line and the resulting solutions we can offer.

In many cases, companies that don't have our product breadth will attempt to provide a solution that utilizes what they have to offer rather than meeting the exact need of the customer.

In the past, I've stressed the need for us to develop products and solutions that truly raise the bar of performance for our customers, and I talked about our new product development efforts.

Let me state that Allied Motion has made significant progress to ensure we meet the needs of our customer's applications and it is evident by the solutions we offer today.

If you merely think of Allied Motion as a mid-performance motor supplier, you are thinking in the past, as we are not the same company we were five years ago.

During the last several years, we have developed and released several high-performance motors that truly raise the bar of performance when compared to our competitors.

Many of these motors are used in critical medical applications where only the best will suffice.

We have also expanded our electronics capabilities to add additional value by incorporating electronic drive and control solutions to optimize the overall solution.

These products are used in many space-constrained applications with a particular emphasis on alternative fuel or green applications and other vehicle type applications where weight and space are at a premium.

Our encoder solutions have changed the game in defense applications, as they provide the compact packaging, high-resolution, ruggedness and reliability that improves performance and cost-effectiveness for our customers.

And last but not least, we offer air moving solutions that now include both brush and brushless motors, drive and fan/blower systems for a more complete air moving solution.

These air moving solutions are supported by the investment we've made in our in-house state-of-the-art test chamber and through live tests and performance data to ensure we meet the exact needs of our customers.

Today at Allied Motion, motors are only part of our overall solution.

By combining our motors with electronics, feedback, gearing and air moving capabilities, a systems solution is designed and quality is once again improved.

Another key element to ensure we provide the highest quality products and solutions is our global sourcing and supplier approval capabilities.

As we reach around the world to find cost competitive solutions, we cannot forget the need to ensure we are continuously getting exactly what we thought.

During the past few years, the media has exposed an alarming number of product recalls and safety issues for all types of consumer, industrial, food and medical products.

We realize you cannot let your guard down, and by using our global inspection capabilities, we are closely monitoring all of our supply sources to ensure no liberties are taken that result in inferior quality in our products.

Last but not least, even though all the proper steps are taken to ensure quality products are designed and manufactured, there can still be a breakdown that results in an issue that must be resolved quickly.

Allied Motion mitigates this risk by maintaining a global manufacturing and local engineering and service capabilities.

If a problem does occur, our global team is immediately deployed to quickly resolve the issue and maintain a continuous supply of product to our customers.

Our service is second to none and the value of the service is truly realized in the most demanding of times for our customers and once again, sets us apart from our competition.

I've stressed in the past that the strategic driving force of our Company is applied motion control technology and know-how.

To be successful, we must continue to feed and develop the engineering resources including applications, sales, design, sourcing and manufacturing engineering to be the best in the business.

While the talent in the organization is better than ever, we will continue to feed and develop these resources now and into the future.

With an impressive array of new products continually coming to market, the challenge ahead will be to reeducate our customers as to how they view Allied Motion and its business units as their supplier.

To facilitate this process, we organized our sales force to serve specific market segments, and we are supporting their efforts with a new website and printed literature focused on solutions to the major markets and applications we serve.

By so doing, we are ensuring the complete technology base of our Company, including our people and products, is available to bring the best solution and meet the current and emerging needs of customers in our served market segments.

This sales team transition is still a work in progress.

And while we are improving daily, much more opportunity lies ahead of us.

Comparing our market segment sales for 2006 versus 2007, our Aerospace and defense, distribution, electronics and industrial market segments experienced growth, while our medical and vehicle market segments experienced a decline.

Further comparing the third quarter of 2007 to the fourth quarter of 2007, our Aerospace and defense, distribution, and medical market segments experienced growth, while our industrial and vehicle market segments were down.

In summary, Allied Motion maintains a quality first mentality and meets the needs of our global customers by combining all the aforementioned critical elements to ensure a consistent long-term and enduring quality solution for our customers.

Our Company has gone through a significant transition during the past few years that promises to make us even stronger in the future.

We believe our customers realize that with the uncertainties in the global marketplace today, whether credit concerns, recession concerns or product recalls of all types, Allied Motion provides the stability and peace of mind for our customers in the potentially turbulent times ahead.

Our company is strong.

Our balance sheet is strong.

Our new applications pipeline is strong and growing, and our new product pipeline will ensure we meet the emerging needs of our customers today and in the future.

I'll now turn this back over to Dick Smith for his closing remarks and comments.

Thank you, Dick.

As Dick and I have discussed today, we have made excellent progress in improving the financial results of the Company.

But more importantly, we have continued to build the foundation necessary to achieve continued growth in sales and profitability, including the development of new products that are opening up new applications in both existing and new markets; improvement in our operating efficiencies in the US and Europe; strengthening our technical and sales expertise and resources; and expanding the utilization of our low-cost manufacturing capability in China, which will improve margins, help us maintain our price competitiveness, and will open up new applications where we were previously not cost competitive.

Our China manufacturing capability also provides us the opportunity to supply product to some of our customers who are starting to manufacture product in China for both export and for sale within China.

As we have stated before, our strategy is to grow our business through both internal growth and strategic acquisitions.

Our main focus during 2007 was to improve the operations, but we are continually looking for and having discussions with companies that are complementary and fit our strategic goals.

While no acquisition is imminent, we will continue to look in 2008 for the next strategic acquisition.

While we have made progress -- significant progress in improving profitability and strengthening our financial position and increasing shareholder value, our shareholders can be assured that we will continue to strive for continuous improvement and operating results, and to make progress towards achieving our long-term goal of increasing shareholder value through growth in sales and profitability.

Thank you.

And operator, that concludes our prepared remarks and we are now ready for questions.

(OPERATOR INSTRUCTIONS).

You have no questions at this time.

Okay.

Well, if there is no questions, I guess we will conclude the conference call.

I'd like to thank you for joining us today and we would look forward to talking to you again after the end of the first quarter.

Again, thank you, and this concludes the conference call.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Good day.