Allient Inc (ALNT) 2008 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q3 2008 Allied Motion Technologies conference call.

My name is Emanuel, and I will be your operator for today.

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

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

I would now like to turn the call over to Mrs.

Katrice Roskelley.

Please proceed, ma'am.

Thank you, operator.

Welcome to Allied Motion's conference call to discuss the quarter and nine months ended September 30, 2008.

We appreciate you joining us for this call.

We distributed the press release earlier today and a copy is available on our website at www.AlliedMotion.com.

Today's call is being recorded.

It will be available for replay until November 10, 2008.

The call back number for the replay is 1-888-286-8010 and the pass code is 85086158.

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 the conference call.

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

Thank you, Katrice.

Good afternoon, 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.

Our agenda is that I will start with some general comments.

I will then review the numbers for the quarter and nine months and Dick will then discuss the operations, I will make a brief closing statement, and we will then open up the call for questions.

I would like to start by saying that we have achieved an increase in sales and net income for the quarter over last year, which is the fifth consecutive quarter of improved revenues and profits from the same periods of the prior year.

Some of the highlights of our achievements this quarter compared to the same quarter last year are as follows; net profit was up 3% over last year at $704,000.

Revenues were also up 3% to $21.5 million.

Fully diluted earnings per share was $0.09 per share for the quarter compared to $0.10 per share last year, which resulted in the trailing four quarters being $0.44 per share.

Our gross profit margin improved to 26% compared to 25% last year.

Our cash balances increased 1.6 million to a balance of $3.5 million at the end of the quarter.

And finally, our book value per share is still at $5.14.

While we achieved improved sales and net income over last year, we did experience a slowdown in orders during the quarter, as is evidenced in the drop of our backlog, which decreased 7% from the same time last year and decreased 13% from the beginning of the year to a balance of $27.8 million.

As a result of the decrease in our order intake, we also had sales slowdown in the third quarter from the levels we were at in the first two quarters of the year, with third quarter sales down 8.5% from the second quarter.

This decrease is being driven by the worsening global economic conditions.

As the economic slowdown worsens, an increasing number of our industry sectors have been adversely affected, especially here in the United States.

On the positive side, we do have a number of markets that remain strong and are growing, plus we have a number of opportunities for new business with both new and existing customers.

Some of these opportunities are being driven by our new products and some by market conditions, which will help mitigate the adverse effects of the economy.

We are diligently working to adjust our costs and expenses to keep them in line with the changes in revenues.

And finally, as I stated in today's press release and as we reported on October 13, 2008, we did experience a fire at our facility located in Chatsworth, California, which sustained heavy damage to the manufacturing area and most of the office areas.

The damaged facility is leased by the company's wholly owned subsidiary, Computer Optical Products, where we manufacture our encoder products.

Computer Optical sales account for less than 10% of Allied Motion's consolidated sales.

And while there will be short-term disruption of supply to customers, we are making excellent progress in getting the operation back up and operating and we should start achieving some deliveries to customers by the end of November.

Our employees have responded extremely well and have already relocated to another facility and have made progress in getting temporary production lines back up and operating.

This is a very unfortunate event for the company, but we are committed to recover as quickly as possible to minimize any adverse effect it will have on all of our employees and business partners, including our customers.

Now I am going to briefly review the operating results for the quarter and the nine months ended September 30, 2008.

For the third quarter, the Company achieved net income of $704,000 or $0.09 per diluted share compared to net income of $686,000 or $0.10 per diluted share last year.

Revenues for the quarter increased 3% to $21.5 million from $20.9 million last year.

The 3% increase in revenues achieved in our third quarter of 2008 reflects a significant change in sales mix from last year.

Our 3% increase in revenues resulted from an 18% increase in sales into our aerospace and defense, medical, distribution and certain markets in our industrial and electronics market segments, such as pumps and industrial automation, which was partially offset by an 15% downturn in construction-related markets, such as industrial machine tools, material handling and recreation related markets such as recreation vehicles and the marine markets.

The downturn in these markets reflect both the adverse effects of the economy and the effects of the competitive pressures of low-cost region competitors, which are primarily Chinese competitors.

55% of our sales for the quarter were to US customers, with the balance of our sales to customers primarily in Europe, Canada and Asia.

Sales to our US customers were down 10% for the quarter and 6% for the nine months, while sales to customers outside of the US are up 26% for the quarter and up 34% for the nine months.

Of the 3% increase in sales, 2.8% was due to the weakness of the US dollar against the euro.

For the nine months ended September 30, 2008, net income increased 50% from $1,748,000 to $2,629,000 this year, and sales were up 8.1% from $63.3 million to $68.4 million.

Earnings per fully diluted share was $0.35 per share this year compared to $0.24 last year and is $0.44 for the trailing four quarters.

Of the 8.1% increase in sales, 4% was due to the weakness of the US dollar against the euro.

Backlog at September 30, 2008 was $27.8 million, which is down 7% from the same time last year and down 13% from the beginning of the year.

EBITDA for the first nine months increased 15% to $6.7 million for this year from $5.8 million last year.

We had $1.1 million of capital expenditures during the first three quarters of 2008 compared with just under $1 million last year.

As I said before, our gross profit margin for the quarter improved to 26% for both the third quarter and nine months of this year compared to 25% and 24% for the third quarter and nine months last year, respectively.

The margin improvement was driven by three factors.

First was from the change in sales mix, and we achieved higher margins for most of the markets that we experienced increased sales, and we had less sales from markets where we achieve lower margins.

The second reason was from continuous improvement in efficiencies and reduction of costs.

And the third reason was from higher quantities of production from our Asian contract manufacturing facility.

Selling, general and administrative and engineering costs as a percent of sales increased to 20% for the quarter and 19% for the nine months this year from 18% for both periods last year.

The selling and engineering costs have increased, as we have strengthened our capabilities in the areas that will provide us with a competitive advantage and provide us with the resources that will help us meet the needs of the customers and allow us to develop new and innovative products.

Depreciation and amortization expense decreased by $19,000 to a total of $879,000 for the quarter and was $2.6 million for the nine months ended September 30, 2008, an increase of $41,000 over the same period last year.

For the quarter and nine months, interest expense was down $120,000 and down $424,000 respectively, from the same period last year, reflecting less debt outstanding and lower borrowing costs.

The Company ended the quarter with $3.5 million in cash and $3 million in bank debt as compared to $500,000 in cash and $8.1 million in bank debt outstanding last year at September 30th.

This represents an $8 million improvement in our cash and debt positions for the last 12 months.

Our net stockholders' equity at September 30, 2008 was $37 million or $5.14 per share.

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

Dick?

Thank you, Dick.

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

In our quarterly press release, I stated as our backlog and our third quarter results indicate, incoming orders declined in most of our served market segments and we are monitoring the situation very closely to watch for trends and to ensure we are proactive in protecting the earnings of our company.

While many companies will retrench during these potentially turbulent times, we have planned accordingly and we will strive to take full advantage of the opportunities an economic downturn may provide to our company.

We are a financially sound company with positive cash net of debt and while we will adjust as necessary, we will not cut the resources that are critical to ensure success on the many new and exciting growth oriented projects currently in our sales pipeline.

During this call, I will take the opportunity to expand on these statements and provide you with additional insight into the activities that we feel are important as we move forward in the future.

While we will be proactive to protect our bottom line, we will also seize upon the opportunities to grow as the market conditions affect the competitive landscape.

At Allied Motion, we see the glass as half-full and here are a number of reasons why.

First, in the past we discussed our broad market diversification.

This diversification provides an opportunity to grow, while some of our markets are flat or experiencing declines, others continue to grow and expand.

The downturn in incoming orders during the third quarter represents a broad downturn across many market segments and may indicate a market based pull back has occurred.

We are watching the situation very closely for signs of return to normalcy or if the broad-based economic markets will deteriorate further.

In any case, we will continue to be cognizant of the benefits diversification provides and we will watch all markets closely to respond as required.

Also, during this past year, Allied Motion has made significant investments and has added critical resources in sales, applications and design engineering.

Our goal is to continuously improve and strengthen our technology/know-how in electromagnetic, mechanical and electronic design capabilities.

This investment is already paying dividends and is allowing us to meet the demands of our customers faster and better than our competitors.

In our industry, history has shown that the companies who provide the right solution the quickest will ultimately win the order.

Next, as a result of our investment in our people and processes, our new opportunities pipeline continues to grow in bodes well for our growth in the future.

We have worked closely with our customers in all of our markets to provide solutions that truly raise the bar.

We emphasize our ability to provide motor, gearing, feedback and electronic motion control solutions to meet the exact needs of our customers' applications.

Our existing and emerging product platforms and our customization capability provides us with an important differentiating factor against our competition and we will exploit this capability to provide us with additional design wins in the future.

Next, our efforts in the past to improve the utilization of our facilities and to reduce floor space requirements provides us an opportunity today to grow our businesses without expanding or building any new facilities.

Also, the investments we've made in our low-cost region operations provides us the ability today to respond quickly to ensure we meet the competitive needs of our customers.

During these potentially turbulent times, we will watch closely for bolt-on business opportunities and we have the ability to respond quickly when they do occur.

While a credit crunch has affected many companies, Allied Motion has continuously strengthened its financial condition and has the credit facilities available to operate and support expansion in the future.

If you compare third quarter ending 2007 to the same period in 2008, Allied Motion has $3 million more in cash and $5 million less in debt, putting us in a positive $500,000 cash net of debt position, representing improvement of $8 million during the past 12 months.

Dick stated it another way.

I state it again because we think that's a very important point to make about our financial stability.

At Allied Motion is unwavering and committed to implementing Allied Systematic Tools or AST for short, to ensure continuous improvement in quality, delivery, cost and innovation.

Through the implementation of manufacturing cells and utilization of other AST tools, we are continuously striving to eliminate waste and improve efficiencies in all aspects of our business, whether it's product design, order processing, manufacturing or materials handling, our toolkit provides us with the necessary elements to ensure we improve in all aspects of our business.

Our investment in AST has helped put is in the position to win today and will continue to enhance our position in the future.

Dick previously mentioned this and I will elaborate a little further.

On October 13th we reported the fire that occurred at our Chatsworth facility on Saturday, October 11th at 4:30 a.m.

Fortunately the building was unoccupied at the time and no one was injured.

At this facility we design and engineer customized encoder products and assemblies and much of the assembly and test equipment is designed specifically for the product or application.

Even during tough times such as these, our employees exhibited once again that they will do whatever it takes to recover quickly and to ensure our customers' needs are met.

My hat goes off to the entire Chatsworth team, as they have truly done an amazing job in moving to a new facility and restarting component production in less than two weeks after the fire.

On November 4th, that being tomorrow, all employees will return to work and we will begin final assembly shipments to customers by the end of the week.

We expect to be back in full production for all products and customers by the end of November.

Great job from that team.

Moving to the market side.

Over the last 12 months our medical, aerospace and defense, electronics, industrial and distribution markets experienced growth, while our vehicle markets, which includes trucks, off-road, bus, RV, and marine vehicles, were down when compared to the prior 12 month period.

Comparing our market segment sales from year-to-date 2007 versus year-to-date 2008, our medical, aerospace and defense, distribution, electronics and industrial market segments experienced growth, while our vehicle market segment experienced a decline.

Further comparing the second quarter of 2008 to the third quarter of 2008, our medical and our aerospace and defense market segments experienced growth and our distribution, industrial, electronics and vehicle market segments were down.

With regard to our selling efforts, we continue to move forward with our plan to more effectively leverage our resources and implement a company-wide sales organization.

With the addition of several new resources as previously mentioned, Allied Motion is positioning itself to be best in the business and to be the recognized leader in its served market segments.

As a reminder, you may want to look at our new website, launched in the third quarter of 2008, to view what we truly have to offer as a company today.

In closing I would like to reiterate that while we expect turbulent economic times ahead, we are an experienced management team that has been there before and we will manage the business to maintain a proper balance between short-term challenges and long-term growth.

With a glass half-full, opportunities will be presented and Allied Motion will respond accordingly to ensure achievement of our strategic goals and objectives.

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

Thank you, Dick.

As we have discussed today, we continue to make progress in improving the financial results of the Company and in building the foundation necessary to achieve continued growth in sales and profitability.

As we have discussed before in prior meetings, our strategy for growth includes achieving organic growth as well as making complementary acquisitions.

We are now actively looking for appropriate companies to acquire and are in discussions with a few companies.

The length and depth of the economic downturn is still unknown and we will continue to be challenged by the adverse effects of the economic conditions in certain of our markets.

But where there is adversity there is also opportunity, which we will pursue.

In addition, with the wide diversity of applications we enjoy in our markets, along with our new product introductions and our focused corporate strategy, we are very optimistic that we will accomplish our long-term goals 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) There are no questions in queue at this time.

I might just make one other point on the availability of credit, which obviously has been mentioned in the news, that some companies' credit availability has been diminished or reduced.

We still have our full line of credit available to us, which is about $15.5 million with JP Morgan Chase and with $3.5 million of cash we have about $19 million worth of either cash or credit available to us to fund our future growth and expansion of the business.

So I just wanted to make that point.

Operator, are there any questions at this point in time?

There are no questions in the queue at this time.

We just had a question come into the queue.

It's Carl [Diezeli].

I just had a quick question.

I think I heard you say that the book value is a little north of $5.00 per share, the stock is closing a little under $2.60 a share.

Have you given any thought to shrinking the capitalization in terms of buying back some stock?

We have discussed that.

That is an option to us, but we're also looking at some growth opportunities and we may, at this stage, I think we are concluding that we want to utilize that capital for our expansion and growth.

Now, if that doesn't happen, buying back stock is always an option that we have and we might want to take that into consideration.

Right now our stock is very thinly traded as it is, and to shrink that base, that would diminish the number of shares out there in the marketplace.

At this time there are no more questions in queue.

We've had one queue up now and his name is Jason Wells with [Ridite View].

Can you talk about the order pattern through October, if you see any further fall off than what you saw in the September quarter?

And also talk about the breakeven revenue level of the company and how many quarters or if there's a timeframe for how long you'd operate at a loss position?

As far as the order intake, we did see a drop-off in our order intake in the September quarter, as we mentioned.

That pattern has continued.

As far as the breakeven sales, from a quarter standpoint it's going to be about $15-$17 million, roughly.

Is that on an EBITDA basis or an operating income basis?

No, I was just looking at sales.

Well, that would be on an EBITDA basis.

Okay.

And the orders in October, did they fall off further from the September quarter or were they just down like they were in September?

Have things gotten worse, is what I'm asking, in October?

It's probably along the same lines as what it was in September -- towards the end of September.

Okay.

You mentioned in the press release you'll continue to invest, which makes sense, but is there a point at which you decide the downturn is going to be longer than you thought and you start cutting expenses?

Sure.

If we should go into a loss situation or sort of pushing a loss situation, we would tighten expenses.

Now obviously we will continue to look at our variable costs and especially from a manufacturing standpoint and we'll reduce those or adjust those based upon the level of revenues that we are at.

Going into other areas into operating expenses, we'll continue to look at those and only spend money that needs to be spent, and if the downturn continues we would then look at cutting some of those expenses as well.

Okay.

And do you think you'll be cash flow positive -- cash from operations, this quarter?

We could be about breakeven, maybe a little bit more.

At this time there are no more questions in queue.

Okay, well I guess that wraps up the conference call.

I would like to thank you for joining us today and we look forward to talking to you again after the next quarter.

Operator, this concludes the conference call.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Good day.