Allient Inc (ALNT) 2009 Q3 法說會逐字稿

Good day ladies and gentlemen and welcome to the Q3 2009 Allied Motion Technologies Inc.

earnings conference call.

My name is Katrina and I'll be your operator for today.

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

Later, we will conduct question-and-answer session.

(Operator Instructions) I would now like to turn the conference over to your host for today, Sue Chiarmonte, Vice President, Secretary and Treasurer.

Please proceed.

Thank you, operator.

Welcome to Allied Motion's conference call to discuss the quarter and nine months ended September 30, 2009.

Thank you for holding on a few extra minutes this morning as we understand it was difficult for some people to get through and get on the call.

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

Today's call is being brought test 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 to Dick Warzala, President and CEO of Allied Motion Technologies.

Thank you, Sue, and welcome to our Q3 conference call.

I'll start with a business overreview.

Dick Smith will then provide a financial update and I will follow up with a brief wrapup before we open the lines for questions.

As reported in our Q3 press release, although our revenues were down 30.4% when compared to the third quarter of 2008, we were able to generate a net income of $279,000 for the quarter.

In line with our stated intentions to operate the Company on a positive cash flow basis through the economic downturn, we did generate $1,388,000 in cash for the third quarter.

We reduced our debt by $1.6 million to an outstanding balance of $800,000 and we have $2,750,000 of cash on hand.

The profit that was generated was a result of many cost reduction actions and efficiency improvements that were made throughout the past year, including a headcount reduction in our US operations of 32%.

The 32% headcount reduction is significant but I do want to point out that we did make a conscious decision not to cut our areas of excellence.

That is the skill sets that we determine are critical to achieve our strategic goals as a technology/know-how driven company.

In fact we have continued to strengthen our design engineering, lead engineering and sales capabilities as we believe this provides us with the best opportunity to grow in the future.

Last week in a press release, we announced that we were relocating our COPI [encoder] operation from a standalone facility in Chatsworth, California into our EMOTEQ facility in Tulsa, Oklahoma.

A couple of additional notes on the move.

The cost of the relocation is expected to be substantially recorded in the fourth quarter of this year.

You may ask why it wasn't done with the write-offs in quarter two and the simple answer for that is we just weren't ready.

With the consolidation, we do expect to realize more than $500,000 in annual savings beginning in 2010.

We believe the creation of one entity will strengthen our ability to service our customers with more effective system solutions and ultimately that will help grow the combined business in the future.

A last note on improvements.

While we did return to profitability, we will continue to make organizational improvements that will strengthen the overall Company, reduce costs, improve efficiency, and create better opportunities for growth in the future.

Our AST lean enterprise tools provide the framework for continuous improvement throughout the Company and the journey will not end.

Moving onto sales.

We can report that we had a 30.7% drop in the quarter compared to the same quarter last year with all served markets down from 6% up to 39%.

Year-to-date '08 versus year-to-date '09, all markets again were down anywhere from 8% to 47%.

The trailing 12 months of '08 versus '09 all were down again from 11% to 45%.

I think this really reflects the seriousness of the economic downturn and those numbers kind of say it all.

But we did have a 7.3% increase -- yes, I said increase in Q3 '09 versus Q2 '09.

In all markets, we are up anywhere from 2% to 16%.

So let's hope that that's a sign of things to come.

Although if we want to talk a little bit about trends, we still see that the order sizes are smaller, lead times are shorter and blanket orders are less likely to come.

That indicates to us that caution still prevails in the marketplace.

And although we do see some signs of improvement, we have to be cautious that it's a little bit erratic and the question is really will it be sustained.

What's going to happen over time?

we think that a gradual return to 2008 levels will occur but it's going to take a while to get there.

Also means that in order to grow the Company at a more significant rate than the growth rate that we will see in the general economy, we will need to take market share and we will need to do some strategic acquisitions.

I would tell you that we are prepared to do both and we'll talk a little bit more about how we feel we could take some market share.

Over the last several years, and I can say several years, we have been busy creating and releasing several new products that raise the bar of performance.

Just bear with me a little bit.

I'll throw out some acronyms and some names of our products and if you have any questions on those, you can ask later.

But as we have mentioned before, we are a motion control company.

We do make motors primarily and we have supporting motion devices such as encoders, gear boxes and most recently, a very conscious and concerted effort to improve our drive capability, our electronics capabilities.

But I will give you the names of some things and for example, we have three new electronic drives platforms that we have introduced or are introducing yet this year.

We call them the S, the I, and the X-drives.

We have small frame outer rotor motors.

That's a specific type of motor, brushless motor that has certain characteristics, that we have continued to release new products in that area.

We have miniature slotless, high-speed brushless motors that are used primarily in medical and surgical type applications.

We have complementary miniature gear boxes to go along with those.

We have what we call our EnduraMax brushless DC motors and that is a family of motors, one size released and another size due this year and early next year a few more sizes.

We have the small frame, high-performance DC monitors or brush type motors.

So we aren't abandoning that market.

We're coming out with higher performance products that can meet the needs of industrial applications.

We have what we call our next generation Megaflux torque motors and those motors again have certain characteristics that lend themselves to some applications better than others.

And last but not least, we have some compact, very high-resolution encoders.

So what I named for you is 11 new product families and all are capable of producing $5 million in sales annually in the next three to five years.

That's where our market share is coming from.

The new design-in activity is high.

We mentioned that last quarter and it continues to sustain itself there and continues to improve.

What we are seeing is more system type requirements as we have evolved the Company over the years from a motor company into a motor, electronics and feedback and gearing company.

We have several new wins this year already and many more in process and they are in our target markets, the markets that we really want to service.

And that's the medical market, aerospace and defense market, pump markets and specialty vehicle markets.

To summarize, people.

We talked about reductions but we also mentioned that we retained our areas of excellence.

We can respond to the demands of the market that we are seeing.

We're focusing our efforts on our target markets.

Those are the markets that need our products and services, products that raise the bar and help meet the needs of their applications.

New product development.

You heard me talk about 11 different product families.

That's an aggressive effort for a company our size and we realize it's important for our future.

Cost reductions.

We had cost reductions in the past.

We announced the recent cost reduction effort.

I want to again emphasize not just the cost reduction effort to move the COPI facility to EMOTEQ, but one that we feel is going to strengthen the business.

And continuous improvement through AST or Allied Systematic Tools to help drive the improvement efficiencies, profits for the Company.

Now what I'd like to do -- you're going to hear some of the same things over and over and over again -- I should say not over and over but from Dick Smith who will talk about the financial results.

He's our Executive Chair and Chief Financial Officer.

Thank you.

Thank you, Dick.

As was reflected in our press release that was put out this morning and as Dick mentioned earlier, the Company achieved net income for the quarter of $279,000 or $0.04 per diluted share for the third quarter compared to net income of $704,000 or $0.09 per diluted share last year.

Revenues for the quarter decreased 30% to $15 million from $21.5 million last year.

The 30% decrease in revenues for the quarter reflected downturn in all of our markets to varying degrees as Dick mentioned earlier caused by the global economic downturn.

56% 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 29% for the quarter while sales to customers outside of the US were down 32% for the quarter.

Of the 30% decrease in sales, 1% was due to the strengthening of the US dollar against the euro.

For the nine months ended September 30 of 2009, the Company had a net loss of $12,566,000 or $1.67 per diluted compared to net income of $2.6 million or $0.35 per diluted share last year.

Now the year-to-date net loss includes a pretax asset impairment charge of $15.9 million which is $11.1 million after tax and inventory adjustments of $600,000 which is $417,000 after tax, primarily for excess (inaudible) inventory recorded in the second quarter.

So excluding these second quarter adjustments, we would have a net loss of just over $1 million for the nine-month period.

Revenues for the nine months decreased 35% to $44.2 million from $68.4 million last year.

Backlog at September 30, 2009 was $25.9 million which is down 7% from the same time last year, but up 5% from the beginning of the quarter and up 10% from the beginning of the year.

Bookings for the quarter were $15.7 million which is down 14% when compared to $18.3 million for the same quarter of last year.

For the nine months, bookings were down 29% to $45.8 million from $64.5 million for the same nine months last year.

We did see an improvement in our third-quarter bookings in revenues as compared with the second quarter with bookings up 19% and revenues up 17.5%.

Our gross profit margin fell to 25% and 20% for the quarter and nine months ended September 30 respectively as compared to 26% for the same periods last year.

So the 1% decrease in gross margin for the quarter was due to fixed manufacturing overheads being a higher percent of the significantly lower sales, despite our success in reducing our fixed overhead costs by 19.5%, plus the effects of fixed overheads was partially offset by a 1% improvement in our variable profit margin for the quarter.

So that's an important point to understand here is despite our 30% drop in sales, we were actually able to improve our variable margin by 1% which means that all of our variable costs we were able to reduce in the same proportion as our drop in sales.

Now that was offset, even though we reduced our total fixed overhead costs by almost 20%, still as a percent of sales it was 2% higher which resulted in our 1% drop in gross margin.

So that's an important point to understand there.

Then the 6% decrease in gross margin for the nine months was primarily the result of the $600,000 of inventory adjustments that I previously mentioned, plus the fixed overhead as it relates to the significant drop in sales and the lag in getting our variable costs reduced during the first two quarters at the same pace as our decline in sales.

Okay, now talking about selling, general and administrative and engineering costs.

As a percent of sales for the third quarter, the increase to 22% this year compared to 20% last year and an increase to 23% for the nine months compared with 19% for the nine months last year.

However, the total operating costs and expenses for nine months excluding the impairment charges were reduced by approximately $3.2 million or 22% from last year.

The selling an engineering costs have been reduced at a lesser rate of 15% from the first nine months of last year to not jeopardize our core competencies that could virtually affect the long-term growth and profitability of the Company.

Administrative costs were reduced to $581,000 or 28% from the third quarter last year and reduced over $2 million or 30% for the nine months as compared to last year.

These reductions were a result of reductions in compensation expense, including incentive bonuses and certain discretionary expenditures.

Depreciation and amortization expense decreased for the quarter to $570,000 from $879,000 last year and $2.4 million from $2.6 million for the nine months.

For the quarter, interest expense was down 6000 to a total expense of $27,000 and for the nine months was down $70,000 to a total expenses of $62,000, reflecting less debt outstanding and lower borrowing costs.

As I indicated earlier, the Company recorded a total of $15,986,000 of asset impairment charges during the second quarter, which was the result of the continued downturn in our business resulting from the downturn in the global economy and the slower than originally expected recovery.

The Company is required for accounting purposes to assess the carrying value of long-lived amortizing assets and goodwill whenever circumstances indicate a decline in value may have occurred.

And for the reasons just mentioned, the Company determined in the second quarter that it needed to write down the carrying value of certain fixed assets by $2.6 million and amortizing intangible assets by $1.1 million.

In addition, goodwill was actually written off completely which was $12,222,000 during the second quarter.

That eliminated like I said all goodwill from the balance sheet.

The reduction in intangibles and fixed assets will reduce depreciation and amortization expense by approximately $1 million over the 12 months following the impairment charge.

And it did reduce depreciation and amortization expense by $244,000 for the third quarter as compared to last year.

EBITDA before impairment charges for the quarter was $1 million and for the nine months was $210,000.

We had $726,000 of capital expenditures during the first nine months compared with $1.1 million last year.

As Dick said, we generated $1,388,000 during the year before debt repayment.

We did repay a net of $1.6 million in debt.

So our net cash that we did use after the debt payment was $212,000 for the quarter.

And for the nine months, we used $1.5 billion in cash and that reflects -- and that includes the paydown of our debt over the nine-month period of $2 million.

So cash before debt payment was actually a positive $554,000.

The Company ended the quarter with $2.75 million in cash and $800,000 in bank debt or a net cash and debt position of $1.95 million which compares to a net cash and deposition of $1.4 million at December 31, 2008 or a $554,000 improvement in our net cash and debt position for the last nine months.

The Company also amended its credit agreement during the third quarter, resulting in the repayment of the $2.4 million bank term debts and the borrowing of $800,000 on our bank line of credit which now provides up to $8 million and EUR2 million of borrowing availability.

It also amended certain financial covenants and waved violation of one of the previous financial covenants.

The amended agreement is scheduled to terminate July 31, 2010 unless extended by the bank and the Company.

After the additional cost reductions made in the third quarter, the annualized sales required to break even at the EBITDA level is approximately $53 million or $13.25 million per quarter and to break even at the pretax level would require approximately $60 million of annualized sales or $15 million per quarter.

Our net stockholders equity at September 30 was $24.9 million or $3.30 per share and our tangible book value is $23.4 million or $3.10 per share.

I will now turn the meeting back over to Dick.

Thank you, Dick.

One thing that I may want to just clarify for you before we finish the call is Dick talked about the reduction in sales and engineering costs as a percentage.

What I want to clear up is that we are a performance based company.

And the difference in the salaries paid is in the commission side and also the bonus side.

So, while I mentioned that we haven't reduced headcount in those areas and actually we have increased, that in fact is correct and the difference becomes what we implemented here in the Company several years ago as performance-based.

And as the performance goes down, the compensation goes down with it.

So to summarize a little bit, as we discussed today, our cost improvements are kicking in to improve our profitability as evidenced here in the third quarter.

We do have a facility consolidation underway which will improve our cost position even more and provide us additional opportunities to grow.

We do see some signs of recovery.

Markets may be stabilizing and we expect modest growth in 2010.

We have many new design wins already and we have more on the way that will help accelerate this growth in the future and we remain bullish on the future of Allied Motion.

Now operator, we would like to open up the lines for questions if there are any.

(Operator Instructions) Sir, you have no questions at this time.

Well I guess we were very clear in what we presented here.

So if there are no questions, then we will close the conference call and we'll look forward to talking to you again next quarter.

Thank you.

Ladies and gentlemen, that concludes today's conference, thank you for your participation.

You may now disconnect.

Have a great day.