Allient Inc (ALNT) 2008 Q4 法說會逐字稿

Good day, ladies and gentlemen.

Welcome to the fourth-quarter 2008 Allied Motion Technologies Incorporated earnings conference call.

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

We will conduct a question-and-answer session towards the end of the conference.

(Operator Instructions).

As a reminder, this conference is being recorded for replay purposes.

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

Sue Chiarmonte, Vice President, Secretary and Treasurer of Allied Motion Technologies, Inc.

You may proceed, ma'am.

Welcome to Allied Motion's conference call to discuss the quarter and year ended December 31, 2008.

We appreciate your joining us for this call.

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

Today's call is being recorded and will be available for replay until March 9, 2009.

The call-back number for the replay is 1-888-286-8010 and the passcode is 97387884.

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 Web site 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 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.

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 year.

Dick will then discuss the operations.

I will then make a brief closing statement, and then we'll open up the call for questions at the end.

I will start with an overview of our results for this year.

Net profit for the year was up 21% over last year to $2.909 million.

Revenues also were up almost 2% to just under $86 million.

Fully-diluted earnings per share was $.39 per share for the year compared to $.33 per share last year.

Our gross profit margin improved to 26% compared to 24% last year.

EBITDA increased 3% to $8 million this year.

Our cash balance increased by $3.7 million to a balance of $4.2 million at December 31.

We paid down our bank debt by $1.6 million during the year, leaving the balance of our bank debt at year end at $2.8 million.

Finally, our book value per share improved to $5.05 this year from $4.90 last year.

Overall, we had a good year despite the devastating fire that occurred at our Chatsworth, California plant in October and the falloff of our business in the fourth quarter caused by the global economic downturn.

While we were able to achieve continuous improvements in sales and profit through our third quarter, the global economic downturn caught up to us in the fourth quarter, resulting in a drop in sales and profit compared to last year and to the third quarter.

The economic downturn started to have an adverse effect on us earlier in the year in our banking and construction-related markets, and then in the third quarter, we started to experience softness in more of our markets.

Then in the fourth quarter, the downturn adversely affected most of our markets to varying degrees.

Our backlog at year end is down 26% from the same time last year to a balance of $23.6 million.

Now, in response to these events, we have and will continue to take actions to mitigate the adverse effects the economic downturn has on the Company and are diligently working to adjust our costs and expenses to keep them in line with the changes in revenues.

While the economy is down, we will continue to improve our efficiencies, finish development of new products and put ourselves in a strong position to begin growing the Company once the economy turns around, begins to turn around.

Also, on a more positive note, we do 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 do have a strong balance sheet, which will help us get through this difficult period and to posture ourselves to take advantage of growth opportunities that may arise during this period.

Finally, as we reported on January 20, 2009, we have substantially recovered from the fire at our facility located in Chatsworth, California, which sustained heavy damage.

The damaged facility was 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 revenues.

While this was a very unfortunate event that did cause a short-term disruption of supply to customers during the fourth quarter of 2008, the COPI operation has been relocated to a new leased facility, and all production lines are now operating at or near the levels required to meet current customer requirements.

I would again like to thank our employees at Computer Optical for the extraordinary effort they put forth to recover from this very unfortunate event.

As a result of the fire, we did record in the fourth quarter $1.2 million of fire-related costs and expenses, including write-off of inventory and equipment that was destroyed in the fire.

We also recorded in the fourth quarter insurance recoveries of $1.357 million of which $1.25 million has been paid to us as of year end.

Additional claims for the loss of property and the initial claim for the business interruption coverage will be filed with the insurance company in 2009.

Now, I am going to briefly review the operating results for the fourth quarter and year ended December 31, 2008.

For the fourth quarter, the Company achieved net income of $280,000 or $0.04 per diluted share, compared to net income of $648,000 or $0.09 per diluted share last year.

Revenues for the quarter decreased 17% to $17.6 million from $21.3 million last year.

The 17% decrease in revenues in our fourth quarter of 2008 reflect both the downturn in virtually all of our markets to varying degrees caused by the global economic downturn and the sales disruption caused by the October fire.

58% of our sales for the quarter and 56% for the year 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 19% for the quarter and down 9% for the year, while sales to customers outside of the US were down 15% for the quarter and were up 21% for the year.

Of the 17% decrease in sales, 2% was due to the strengthening of the US dollar against the euro in the fourth quarter.

For the year ended December 31, 2008, net income increased 21% from $2.4 million to $2.9 million this year.

Sales were up 1.7% from $84.5 million to $86 million this year.

Earnings per fully diluted share was $0.39 per share this year compared to $0.33 last year.

Of the 1.7% increase in sales for the year, 2.3% was due to the weakness of the US dollar against the euro for the year.

Backlog at December 31, 2006 was $23.6 million, which was down 26% from the same time last year and down 15% from the beginning of the quarter.

EBITDA for the year increased 3% to $8 million for this year from $7.75 million last year.

We had $2.078 million of capital expenditures during 2008 compared with $1.284 million last year.

The capital expenditures in 2008 included a little over $0.5 million to replace the capital assets at Computer Optical products that were destroyed in the fire.

As I said before, our gross profit margins for the year improved to 26% compared to 24% last year but fell to 23% from 26% for the fourth quarter of 2008 and 2007, respectively.

The margin improvement for the year was driven by three factors.

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

The second was from continuous improvement in efficiencies and reduction of costs here in our US operation.

The third 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 year compared with 19% and 18% for the same periods last year, respectively.

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

Depreciation and amortization expense remain constant at $865,000 for the quarter this year and last year and was $3.513 million for the year, current year, which is an increase of $41,000 over 2007.

For the quarter, interest expense was down $98,000 to a total expense of $45,000.

For the year, it was down $522,000 to a total expense for the year of $177,000.

These reductions reflect less debt outstanding and lower borrowing costs.

The Company ended the year with $4.2 million in cash and $2.8 million in bank debt as compared to $534,000 in cash and $4.4 million of bank debt outstanding last year at December 31.

The $3.7 million increase in cash and the $1.6 million reduction in our bank debt represents a $5.3 million improvement in our cash and debt positions for the last 12 months.

Our net stockholders equity at December 31, 2008 was $36.8 million or $5.05 per share.

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

Dick?

Consistent with our past practice, Dick Smith has provided the detailed financial results.

I will focus on reporting the key operating activities that drove the results.

As our backlog and our fourth-quarter results indicate, incoming orders continued to decline in virtually all of our served market segments.

As mentioned during our third-quarter conference call, we indicated that we would monitor the deteriorating business climate very closely, and we began taking actions to protect the overall strength of our company.

No company in this industry will escape the consequences of a downturn that is unprecedented during my 25 years of running Motion businesses.

I believe our prior and ongoing actions have prepared us to not only weather the storm but to emerge stronger than ever when the business cycle begins to tick back upwards.

This does not come without pain for many, as we have been forced to reduce our global workforce by approximately 30% when compared to the year-end of 2007.

These are difficult but necessary actions to provide a lifeline for all in the future.

While we have retrenched during these turbulent times, we will strive to take full advantage of the opportunities an economic downturn may provide to our company.

We are financially sound with a cash position that exceeds our outstanding debt.

While we will continue to adjust as necessary, we have not cut the resources that are critical to ensure success on the many new and exciting growth-oriented projects currently in our sales pipeline.

We have and continue to be proactive in our actions to protect our bottom line, and we are also seizing upon the opportunities to grow as the market conditions are now clearly affecting the competitive landscape.

I will now update some of the comments I made during our third-quarter conference call, as I believe it is important to reassure our employees, our customers and our shareholders of the confidence we have in our ability to weather the storm and emerge from the recession in a position to grow faster and better than ever.

First, I touched on our broad market diversification and indicated that it provides an opportunity to grow some segments even while most markets are flat or experiencing decline.

The downturn in incoming orders during the third and fourth quarters represents a broad downturn across many market segments and does indicate that a market-based pullback has occurred.

While we are cognizant of the benefits that diversification provides, we also realize that certain segments are more recession-proof than others.

We will continue to make and accelerate investments in the segments that we believe to be less affected than others in a recession.

During the last several years, 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, chemical 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.

As a result of our investment in our people and processes, our new opportunities pipeline continues to grow and does bode 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.

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

Also the investments we 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 turbulent times, we will watch closely for both-on business opportunities, and we have the ability to respond quickly when they do occur.

While the 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.

As Dick already mentioned, comparing fourth quarter ending 2007 to the same period in 2008, Allied Motion has $3.7 million more in cash and $1.6 million less in debt.

We now have $4.2 million of cash and $2.8 million of debt and an interest rate of approximately 1.2%.

Allied Motion is unwavering and committed to implementing Allied's systematic tools or AST for short to ensure continuous improvement in quality, delivery, cost and innovation.

Through the implementation of manufacturing cells and the utilization of other AST tools, we are continuously striving to eliminate waste and improve efficiencies in all aspects of our business.

Whether it is 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 us put us in a position to win today and will continue to enhance our position in the future.

As the year progresses, we will be diligent in our efforts to revamp our material planning system to more closely match customer demand with the expectation that reduction in inventories can help provide positive cash flow during market downturns.

On October 13, 2008, as Dick previously reported, we had a fire that occurred at our Chatsworth facility on Saturday, October 11 at 4:30 AM.

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

As announced in the January 21, 2009 press release, our new facility has substantially recovered and now back in full production.

Additionally, Raytheon and the U.S.

Navy recognized COPI's recovery by providing the employees with a plaque during an awards ceremony at the facility that reads as follows.

"The program office of the joint standoff weapons, JSOW, would like to recognize Computer Optical Products Incorporated for extraordinary recovery from the October 11, 2008 catastrophic fire.

Your reference ensured no impact to JSOW's long-standing record of on-time delivery." I said it before, and I will repeat it again for each op team.

Moving to the market side, over the last 12 months, our medical, distribution and aerospace and defense markets experienced growth, our industrial market was flat, and our electronics and vehicle markets, including trucks, off-road, bus and RV and marine vehicles, were down when compared to the prior 12-month period.

Comparing the fourth quarter of 2008 to the third quarter of 2008, all markets have experienced a decline.

With regard to our selling efforts, we have launched our one-team sales force as we move forward with our plan to more effectively leverage our resources and implement a companywide sales organization.

This new team will be led in North America by Rudy Colwell, who has more than 20 years experience in the motion industry, including extensive experience working with North American companies requiring an Asian manufacturing capability.

He has a bachelor of Science degree in Electronics Engineering and an MBA in Global Management.

In addition to his new role, Rudy will continue in his current role as the General Manager of Allied's Asian operations.

Our press release on February 17, 2009 stated, "The newly formed one-team sales organization improves our sales coverage by creating a focused regional sales force to sell all Allied Motion products through one organization.

The regional sales team will be supported by market, technology and service specialists.

Rudy brings excellent industry knowledge as well as technical and sales experience and will provide the leadership to our North American sales team to ensure we meet our strategic goals for growth in sales and profitability."

In closing, we expected a turbulent economic climate and we prepared ourselves for the effects if would bring.

We are an experienced management team that has been there before, and we will manage our business to maintain a proper balance between short-term challenges and long-term growth.

Since we do not expect the economic conditions to improve dramatically during this coming year, it is most important right now that we establish clear priorities.

We must focus all of our energies to ensure we work together to win as a team.

As additional opportunities are presented, 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 it today, we are being challenged by this unprecedented downturn in the global economy.

The length and depth of the economic downturn is still unknown, but with our strong balance sheet and the actions we have and will continue to take, we are very optimistic that we will weather the storm and emerge a stronger company.

As we have said, where there is adversity, there is opportunity.

We will pursue these opportunities.

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.

Operator, that concludes our prepared remarks.

We are now ready for questions.

(Operator Instructions).

It appears we have no questions at this time.

My apologies.

We did have one question come in from the line of Jason Wells, [Granite Xiou].

I was wondering, after the expense cuts, what your breakeven revenue level is now at the EBITDA level.

Dick, do you want to take that?

Well, it's going to be -- let me just look at one thing.

At the EBITDA level, approximately around $4 million would be at the EBITDA level.

I'm sorry.

What is the $4 million?

Well, EBITDA of about $4 million would put us at a breakeven with our total depreciation, amortization and interest that we were incurring.

Was that your question, how much of EBITDA we had?

No, no.

Sorry.

I meant what revenue level do you need to have 0 EBITDA?

Oh, to have 0 EBITDA?

Right.

In other words, how far down can your revenue go before you start burning cash?

Well, let's see.

It will be about $65 million in revenues.

Yes, it will be a little bit lower than that, actually about $60 million.

What are operating expenses running at now, after the cuts?

Well, I think that showed it to -- well, let's see.

They were at $3.7 million during the quarter, but I'm not sure exactly when you made the expense cuts.

Well, some of them were made in the fourth quarter, so the operating expenses are going to be about $3.5 million.

What did you say the insurance proceeds were last quarter?

$1.357 million.

Where did those show up on the income statement?

Actually, we have two separate line items that we've added to the face of the financial statements, or to the statement of operations, one called fire-related losses were the $1.2 million of all the expenses and write-offs are reflected and then a separate line called insurance recoveries.

So that is broken out separately.

Did you collect on those yet?

Yes.

Out of the $1.357 million, we had collected $1.250 million as of year end.

The total that you expect, that you accrued for -- that's $1.357 million?

Yes, that's correct.

If your revenue is -- let's see if I can back into this.

On the orders, what have you seen in terms of order patterns this quarter versus last quarter?

Are they continuing to get worse?

Have you seen stabilization?

No, I think we have continued to see them declining this quarter.

So they were about $13 million last quarter, so even less in the March quarter?

Oh, you are talking about in the first quarter?

I think they are stabilizing it, they, in the first quarter, Dick?

Yes, yes, they are.

One other quick question, too, Jason.

If I understood your question on the cost reductions, did you ask strictly about the overhead costs, or did you ask about all costs?

Well, I guess I would like to know about both.

I was first asking for -- I was wondering.

It sounded like your operating expenses now are $3.5 million after the 30% headcount reduction?

That's what I am saying to you, that that's why I was asking your question, because if you are looking at the fixed-cost side of it versus the variable-cost side of it, we typically run around 10% to 11% labor with variable overhead that is 1.5 times that.

So if you look at the cuts, you see that there is, as Dick was mentioning, a couple of hundred thousand dollars a quarter.

You really didn't hear about the variable side, which is a significant amount more than that of course.

If you take 10% of our sales and figure that's our labor cost and you reduce our sales, if you were going to say from a breakeven standpoint -- and I use the number about $65 million, so let's say that's a $21 million reduction in sales, you will reduce your direct labor by $2.1 million.

It would be 10% of that $2.1 million for just the sales drop, okay, if it's 10%.

We did -- if you look at a 30% reduction, that's not quite 30% in terms of sales reduction.

Or you look at the break-even number, but Dick's is more correct than mine correct what I'm saying is that there are additional cost reductions in the variable side, direct labor and variable overhead that has to be considered in those cost reductions.

Now you are talking about the cost of products sold?

Correct.

But then on the operating expense line, that's now down to $3.5 million per quarter, right, $14 million a year?

Yes, roughly.

Yes, that's correct.

Again, on the cost side, you are saying that labor is 10% of revenue, and that is completely variable or is not variable?

It is.

That's the direct labor part of our cost of sales, yes.

Then the 90% of cost of sales, the rest of it -- what is that?

How does that break down?

Okay, 10% of sales I talked about, not 10% of cost of sales, 10% of sales.

That's typically what we run, 10% to 11% of sales would be our labor number, our direct labor number.

Okay.

Your variable overhead would be, on average, throughout our company, some 1.5 times that.

Okay, 25% of sales?

No.

In total, Okay.

In total, yes.

I had kind of looked at this actually before variable versus fixed.

I came to a variable margin of 45% or so.

Is that about right?

That's a little high.

I'll tinker around with the numbers a little bit, given what you have just said.

Can you update us on what kind of acquisitions you are looking at and what the prices are like and provide some more color there?

Sure.

It's early on, obviously, in the phase where people are starting to feel the impacts on their business.

So those who would have been interested in selling their businesses, let's say, a year ago or so had a price in mind based on earnings.

Now, I think, as their earnings are being revised, given the slowdown, some of them still want the same price.

So, they will not get done, and those who come to the realization that maybe there is an adjustment necessary and if it makes good sense, then we would look at it.

But I don't think there is any set-in-stone number.

Each circumstance is different.

All we can say is that we are very excited about our internal possibilities, about the growth prospects of the activities we are working on.

Given the conditions we are in, we know that and we know them very well.

We are likely to invest internally first.

That doesn't mean that there isn't an opportunity out there for us, but they would have to be -- we would have to evaluate it as to exceed the opportunities we would have to use our internal capital to invest in our own operations.

Other than that, we really don't discuss and talk about -- we have never done it in the past -- about the opportunities that are presenting themselves to us currently.

There are some, and we will continue to evaluate.

But I think it's fair to say that we will invest our capital and what we know best, and that's what we have internally.

Would you contemplate using stock at the current stock prices in an acquisition?

No, no.

I should not have answered that quickly, but I would say no and I would probably say absolutely no.

Right, not at these prices.

Thanks very much.

It appears we have no additional questions at this time.

Okay, operator, if there's no additional questions, I guess we will call the conference call to a conclusion.

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