Allient Inc (ALNT) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the first quarter Allied Motion Technologies Incorporated earnings conference call.

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

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

Later, we'll conduct a question and answer session.

(Operator Instructions) And now I would like to turn the conference over to your host for today Ms.

Sue Chiarmonte, VP, Secretary and Treasurer.

Please proceed.

Thank you, operator.

Welcome to Allied Motion's conference call to discuss the quarter ended March 31, 2010.

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 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 Warzala, President and CEO of Allied Motion Technologies.

Thank you, Sue.

Welcome, everyone, to our first quarter 2010 conference call.

Today what we plan to do is provide you with a little bit of history, review our first quarter results, provide you with an outlook as what we see for our markets and the economy for the coming year.

Dick Smith will provide you with a financial review.

I will then come back and do a brief summary, and we'll open up the lines for questions.

First, let's start with some history and what the impact that the recession had on Allied Motion.

As you know, our sales in 2008 were $86 million.

First half of the year we are going at a run rate or we are at a rate of $46 million and looking at potential for exceeding $90 million for the year.

As the second quarter or second half of the year started, we did notice that orders were beginning to decrease, and we expected that we were going to see some impact in the near future.

We ended the year at $86 million.

We began to take some actions to reduce costs, and we expected a drop of approximately 20% in 2009 as we finished our planning process, which occurs at the end of 2008.

So as we all know, the drop was much bigger, the recession was much greater, and we were forced to do some cost reductions that had to right size the business.

We'd planned approximately 20% drop going into the year and as we saw, the recession was going to hit us deeper, we did move to make some changes and reduce and right size the business.

We also made a conscious decision back then that what we would do is we would manage our business on a cash flow basis, a positive cash flow basis.

The reasons for that is we felt that it'd taken several years for us to build up our team, our key technical resources and engineering and sales, and that in prior times when you saw economic dips, companies would let those people go.

Then when times -- when the business came back, they were forced to go out and rehire.

And you would find that it would be difficult to get that talent back.

So we made a conscious decision, we weren't going to do that.

We had spent time putting a platform in place, a foundation for growth.

We were experiencing that in 2008, and we weren't going to allow just a one-year dip or whatever it may be to take us off track.

In addition, during that time, late 2008, 2009, we didn't stop in our implementation of Allied Systematic Tools, or AST for short.

You hear us talk about that in every single conference call.

And it's important because that has really provided us with the tool kit necessary to improve productivity, on-time delivery, quality and efficiency throughout our organization.

I think we can credit AST for helping us through the recessionary period and putting the cost structure in place that allowed us to enjoy profitability here as we reported in the first quarter.

We also, as we came out of there -- or not as we were coming out of the recession, I'd say as we were at the tail end of it.

We were looking at and then we planned for a three- to four-year climb out to get back to the levels that we were experiencing in 2008.

I say to you that based on our first quarter, we would say that we're well on track for that and maybe things are improving from there, and it's on the shorter end of that.

So let's look at quarter one.

As we've seen, the bounce back has occurred quicker than even we expected.

We had an all-time record bookings quarter for the Company in the first quarter.

That is for any quarter, not just a first quarter.

So we're very encouraged by those signs.

I guess the question would be, what happened there?

Why?

Well, our planning process is a very thorough process, and it's a bottoms up buildup looking at each customer, each item, working closely with those customers to determine what we expect their sales to be in the coming year.

That's what we did.

That happens late in the year, in the fourth quarter where you finalize those plans.

And as you move into the year, you're working off the plans that you developed in conjunction with your customers.

What we actually saw was that demand increased a lot faster, and well above the forecasts that we were given.

Of course, when you have -- when that occurs, you have other issues that you're going to deal with, and let's face it, it's a nice problem to have and we're all very happy with it.

But there are supply issues.

When pull ins occur unexpectedly, when demand goes up 60%, 70%, 80%, 100% above forecast, it strains your ability to meet that demand, and we're no exception.

Supply chain has to be ramped back up, and sometimes that takes a little bit of time.

But anyways, we're working our way through that, and we've worked our way through it in the first quarter.

We were very pleased that this bounce back is occurring faster than even we had expected.

If we compare our markets, if we look at the first quarter 2010 to the first quarter 2009, we see that our vehicle, our industrial and electronics markets grew, while our medical market was virtually unchanged and aerospace and defense was down.

We compare our first quarter 2010 to the fourth quarter 2009.

We see that our vehicle, our industrial, our aerospace and defense were up, and our medical and electronics were down.

Next in the first quarter, we'll talk about the move that we initiated at the end of 2009, and that was the transfer of our copy encoder operation from Chatsworth, California to Emoteq in Tulsa, Oklahoma.

Eventually, that move is complete.

The remaining costs for that move were expensed this quarter.

And we do have a top-notch team in Tulsa.

We're very confident that that team will not only take the product line and continue to ship as demand has indicated in the past, but they will also make some significant improvements that will result in on-time delivery every time, top quality, and last but not least, begin to work on next generation products that will be in support of the target markets and applications that we have identified.

We also, in the first quarter, added an additional production line in our low-cost region facility in China.

This production line is for permanent magnet DC motors, and we believe it'll enhance our capabilities to satisfy more of our customers with that production line that we have.

It was -- the initial lines that we have there were dealing with higher volume repetitive type of customers, and we recognize the need that as the volume for some of our major customers and some of the other products are lower, we had to meet that demand, and that's what we've done.

So we have set that line up, and that should help us improve profitability in the future, also.

So let's summarize quarter one.

Record bookings, significant profit improvement, positive cash flow, and that's resulting in a net cash position of approximately $5 million and we've continued to make cost improvements.

What's 2010 hold for us?

Give you a little outlook on that, what we currently see.

As I mentioned, we're really talking more about the economy and our markets and not specifically giving guidance to what we will do.

With the strong bookings quarter and of course orders lead shipments, I would guess we'd have to say things bode well as we move through the year.

Also at this time, order input continues to remain strong.

And although we don't expect it to be at the same level as quarter one, the reason for that is that we do think there was a little bit of catch-up that occurred, as we look back at the fourth quarter of last year and see some of our customers in some of our markets that had not ordered to previous levels that there was a little bit of that catch up occurring.

But we continue to see, even in this quarter, that in the start of this quarter that the incoming orders are remaining strong.

So we're encouraged.

We feel that we hope we're wrong in our forecast that we put together and that it continues to stay where it was in first quarter and grow beyond that.

What we are saying is we don't really expect that at that level and that level would mean $26 million in the first quarter would mean in excess of $100 million.

As we mentioned in 2008, we're on track to ship 92 and the economy and recessionary period hit, and we ended up at $86 million.

That's been done without any acquisitions.

That's all organic.

As we can see from the bottom line, profit improvements are there, and those cost reductions that we put in place are having an impact.

Also through the rest of 2010, maybe not the rest of 2010, but certainly in the short term, we do expect that material shortages and supply side will have some struggles to continue to stay up with the increased demand that we're seeing.

Those lead times may extend, and we do think that the demand from our customers will outpace, certainly the planning that we put in place for materials, but we are working very hard to ensure that we don't allow that to impact our shipments to our customers.

We see currently and we -- I guess our expectations are to continue to see that our inquiry levels and our new project activity is strong.

The new demand that we see is for area -- for products in our target markets that we've really taken a conscious effort to go after.

So we see new projects and also new demand.

What opportunities are there for Allied Motion?

We talked in previous calls about our corporate sales team.

Just to reemphasize that, we were organized as independent business units in the past and we made the move the last few years to integrate those units and to have a common sales team.

So we could leverage the technologies and products across the Company and sell to our existing base of customers.

That allows us to add more value and allows us to sell other products to the same base of customers, which we believe provides us with a major opportunity in the years ahead.

So we -- that sales team as it continues to improve, the internal teams were also strengthened to support that.

We also have mentioned that we made an investment to bring in some key resources to develop our electronic motion control capabilities.

That, again, provides us new growth opportunities and adds value -- adds more value in many of our existing applications.

We see this investment that we made and those key people providing new opportunities now.

We mentioned that project activity and new opportunities are occurring.

In addition to just occurring, they're occurring in the target markets that we've identified.

We will talk -- we can talk a little later about some of those target markets if you have some questions on those, but we do see many new project opportunities occurring in that -- in those areas, and I said that bodes well.

Because we've invested money in target markets and in products that we believe we can provide a significant advantage to our customers.

And add value for our Company.

Our new product development that we have been working on, we spent the time on new products that not only do individual products and look to raise the bar in each of our companies, so that means not just motors, not just gearboxes, not just feedback not just drives, but as a complete system.

And that's an important approach for us is to look at, we have a fairly wide technology base that puts us in a great position to compete.

We have a sales team to support that and we have a top notch group of engineers to help develop those products supported by internal product line and support people.

Next I would tell you that although we won't talk much about it, and I'm sure you'll have some questions or you may ask some questions, but we do see acquisition opportunities beginning to emerge.

They were there.

There were some activities that we had pre to the dip in business, which we put on hold.

We believe they were wise decisions to do that, but they are reemerging.

And we're confident in the future that something will occur in that area.

We don't want it -- we're not going leave it just to that.

We, of course, believe that we have positioned ourselves well for organic growth, also.

In summary, cash on hand in excess of $5 million, very low debt, $332,000.

We have lower operating costs due to restructuring and it's now paying dividends.

We not only maintained our technical resources during the recessionary period, we believe we improved them, and that's going to result and is resulting in product solutions that continually raise the bar of performance in all of our serve markets.

We positioned our sales team to leverage all product capabilities and grow as a company, not as just individual business units.

We made investments, as we've talked, as I've mentioned many times here now in engineering and sales, and that gives us the capability to grow organically.

We have a balance sheet that will allow us to make the strategic acquisitions as appropriate.

We also want to emphasize, we will not make an acquisition for acquisition sake.

We believe very strongly in our organic growth capability, but there are some opportunities that will enhance and enhance our capability further in the future and our strategic position as we move forward.

Our competitive position has been improved by utilizing our global production capabilities.

As we mentioned, we've added a second line in our China operation and we expect that to help us on the cost side and continually improve profits for us.

Last but not least, AST, Allied Systematic Tools, has provided us the tool kit and the processes and systems that allow us to become more efficient in all of our operations.

That's never ending, and we will continue with that.

Now I'm going to turn this over to Dick Smith so he can report all the positive financial results we had here in the first quarter.

Then when Dick gets finished, I'll come back with a brief summary before we open it up for questions.

Thank you.

Thank you, Dick.

We had previously put out our press release that disclosed what our earnings were for the quarter.

Just going through that with a quick summary, the Company did achieve $734,000 of net income or $0.09 per diluted share for the first quarter.

That compares to a net loss of $730,000 or $0.10 per diluted share for the first quarter of last year.

Revenues for the quarter increased almost 14% to $17 million, from $15 million last year, and included in the first quarter was a pretax gain of $685,000 which is about $436,000 after tax; for the final settlement with the insurance company for the business interruption losses caused by the fire in October of 2008 at our encoder operation in Chatsworth, California.

Also included in the first quarter are $230,000 of inefficiencies and incremental non-recurring costs incurred in integrating the encoder operation into our Emoteq operation in Tulsa, Oklahoma.

So if you exclude the business interruption gain and the non-recurring costs that I just mentioned, the net pretax profit would be $609,000 and the net income would be $438,000.

Turning to sales now, the 14% increase in revenues for the first quarter reflects a pickup in almost all of our markets to varying degrees.

Particularly in the vehicle and industrial markets as Dick summarized earlier.

57% of our sales for the quarter were to US customers with a balance of our sales to customers primarily in Europe, Canada, and Asia.

Sales to our US customers were up 12% for the quarter, while sales to customers outside of the US were up 17% for the quarter.

Backlog at March 31, 2010, was $29.1 million and that was up almost 18% from the same time last year, and up almost 39% from the end of 2009.

Bookings for the quarter were $26.2 million, which is up over 54% when compared to the $17 million that was booked for the same quarter of last year.

Our gross profit margin improved to 25% for the quarter compared to 18% last year, and this 7% improvement in gross margin was due to a 5% improvement in our variable margin, which is due primarily to our cost reduction efforts.

And we had a 2% improvement that reflects the increases in sales with our fixed manufacturing overhead costs staying the same this year as it was last year.

So it's basically the absorption back to having increased sales and manufacturing costs staying the same.

Selling, general and administrative, and engineering costs as a percent of sales for the first quarter decreased to 23% this year compared to 23.5% last year, with the decrease due to the increase in sales.

However, the total operating costs and expenses for the quarter, excluding the fire insurance recoveries and the amortization, increased by $415,000 or 11.5% from the same time last year.

The administrative cost component of that increased $334,000 or 19% from 2009, partially as a result of increased compensation expense, including incentive bonuses.

Depreciation and amortization expense decreased $397,000 for the quarter, to a total of $496,000 from $893,000 last year.

For the quarter, interest expense was $3,000 compared to $15,000 last year, reflecting less debt outstanding and lower borrowing costs.

EBITDA before the non-recurring transition costs in moving the encoder operation that I previously mentioned and the fire insurance recovery that was booked during the quarter.

That EBITDA -- that net EBITDA increased to $1.108 million this year from a loss of $152,000 last year.

We had $304,000 of capital expenditures during the first quarter.

That compares with $241,000 last year.

The Company did generate $841,000 of cash during the quarter, of which $1.6 million was generated from operating activities.

The Company ended the quarter with $5.3 million in cash and $322,000 in bank debt, or net cash and debt position of $5 million.

That compares to a negative net cash and debt position of $482,000 at March 31 last year.

Or a $5.5 million improvement in our net cash and debt position from the same time last year.

Based on the operating results for the last couple quarters, the annualized sales required to breakeven at the EBITDA level is approximately $56 million, or $14 million per quarter.

And to breakeven at the pretax level would require approximately $61 million of annualized sales, or $15,250,000 -- or $15.25 million per quarter.

Our stockholders' equity at March 31 was $25.4 million or $3.24 per share, and our tangible book value was $24.2 million or $3.09 per share.

We had our 2010 annual shareholders meeting yesterday, and I'd like to tell you how that came out.

At that meeting, all seven of our directors received a positive vote for re-election of at least 83% of the shares voted.

However, the Company's Articles of Incorporation requires the affirmative vote of two-thirds of the outstanding shares for the re-election of directors.

A recent change in the New York Stock Exchange rules, which affects all NASDAQ companies now prohibit brokers from voting for the election of directors, unless they receive specific directions from the beneficial owners of shares they hold in street name.

Prior to this change in the rules, brokers had the right to vote all shares they held for the re-election of directors and they always voted enough of these discretionary shares so that all of Allied directors received the affirmative vote of more than the required two-thirds of the outstanding shares.

However, without the broker vote this year, five of the seven incumbent directors did not receive the affirmative votes of two-thirds of the outstanding shares.

Pursuant to Colorado law and our articles, those five directors will continue in office until the next annual meeting or until resignation or removal.

In addition, at our meeting yesterday, we had shareholders vote on a proposal to amend the articles to change the two-thirds vote to a majority vote for the election of directors.

Such amendment also requires a positive vote of two-thirds of the outstanding shares and brokers are not allowed to vote on this proposal.

As of now, we have only received a positive vote of 63.1% of the outstanding shares, and we are continuing to seek the additional shares required to pass the proposal, which we are confident we will be able to accomplish.

Okay.

I will now turn the meeting back over to Dick.

Thank you, Dick.

To elaborate a little bit more on what Dick had mentioned here is about the broker shares.

As he mentioned, 63% of the -- we received 63% of the outstanding shares voted to make the change, and that means we only need 4% more.

So that's 63% of the shares voted, and we need 4% more -- approximately 4% more in order to achieve or accomplish the change into our amend -- our Articles of Incorporation here, which allow us then to say a majority vote instead of a two-thirds vote of the outstanding shares.

So we encourage you if you haven't voted, you will be asked -- we will be following up to get that vote and as Dick mentioned, it's a small number, but everything helps here at this point to get that done.

So we thank you on your cooperation on that.

I think what we'll do at this point, rather than going into some other comments that I have here, I think we'll turn it open -- the mic open to questions you may have and we will address those and maybe we can answer some of the additional material that I was going to present here, but we'll answer it by question.

Operator we are going to turn the mics open for questions at this time.

(Operator Instructions)

Well I think maybe what we're seeing here is typically when we announce good results, we get very few questions.

So I will go into and talk a little bit about our markets a little more, our products and our ability to compete.

And if a question pops up in the meantime, great, we'll answer it, and if not, then we'll conclude the call.

But operator, I guess you are saying we do have a question here now?

So maybe we'll turn it back over to that first.

You have a question from the line of Sam Bergman with [Bayberry Asset Management].

Good morning, gentlemen.

Nice quarter.

Nice bookings for the quarter.

Thank you.

I have a couple questions.

If terms of the margins, which went from 18% to roughly 25%, is it your expectation the margins will remain there and get better or do you think there will be some kind of -- because of mix it could drop in different quarters?

We would expect they'll remain there and get better.

Okay.

In regard to the increase in backlog, I know the supply chain has to be there to bring in all these products so you can ship.

What are you doing for added employees if any, or can you run the Company on a higher level of revenue without adding to the costs?

The answer to your question is, yes, we can run the Company at a higher level of revenue without adding substantial costs.

And when you go through these recessionary periods, one of the benefits are that you become -- you find ways to become more efficient.

We did a consolidation.

We worked on continued cost improvements as there are using our Allied Systematic Tools.

So we do believe we're positioned to operate the Company at higher levels of revenues without bringing back all the costs that was there previously.

Of course, the -- on the direct labor side as the requirements come up to build more product, we will be adding, and we have added direct labor personnel.

And as has been our practice in the past, we will continue to enhance our areas of excellence that will allow us to meet the demands of our customers.

So we expect that, and you can expect that we will continue to enhance our engineering and our technical resources here as we move forward.

Do you have any plans to perhaps do some IR or talk about the story, if the story's developing the way it is now?

Or is there a pause or a wait to see how other quarters work out for the Company?

I think our approach to that has always been that we feel that the Company needs to deliver a consistent growth in revenues and earnings to provide a true story.

And we felt in 2008, we would have told you that, the beginning of 2008, mid 2008 we were probably on track to do that.

Right.

And fortunately, we hadn't started the process.

It's much more difficult to back off that once -- if something happens.

So I would tell you that -- I think we'll watch it a little bit here, but it's certainly something we've talked about and considered.

Given that we get some support from the economy that it stays, I'm not going to say strong, but stays at least consistent, but I think we will look at that here in the near future.

Just a couple more questions.

I don't know if I'm backing up the line or --

That's okay, go ahead.

Please.

In terms of international business, what percentage of the revenue was international business?

Dick mentioned it was about 43%, approximately 43%.

43%, and is there more of an emphasis on international business versus US business?

I wouldn't say there was more of an emphasis.

I think we have a product line that allows us to sell it globally, and we emphasize -- we like to balance.

So I wouldn't necessarily say more of an emphasis, but I would say that it certainly is an emphasis to make sure we have that balance.

I think there will be an emphasis, if we would look at one area in the future that would be Asia.

Many of our customers that we see in North America and Europe have established operations in Asia.

We are strengthening our position in Asia, and I would expect some revenue growth to occur there in the future.

Is there a breakout that you normally give when you file in terms of the backlog, what percentage is medical, what percentage is electronics or not?

No, we don't.

You don't?

No, we don't.

Is there any way you can do that or you'd rather not?

We certainly can do it, but we'd rather not.

The reason why I say that is it takes sometimes several years for us to develop -- we identify an emerging market that we feel has great potential for us.

Then we have to develop the products to go into that marketplace.

Right.

So I would -- I can tell you that if you -- our markets that we're focusing on and emphasizing on, and the reasons we're doing that, this is part of my summary.

So, I guess I'll bring it up here now.

The markets that we do emphasize, and we're currently emphasizing even more, -- medical market, aerospace and defense, and vehicle markets.

When I talk about vehicle, our definition of vehicle is not automotive.

It's specialty vehicle.

When you hear about green energy, hear about handling devices, automated handling devices, you can hear about robotic vehicles, that's what we mean by vehicles for Allied Motion.

If you're going to service those markets, you need to have the products that meet the stringent quality and performance specs, okay?

We like that.

Those are the markets we want.

Those are the markets we're after.

So I would tell you that hopefully by us emphasizing there we're going to see growth in those.

Because that is our plan.

They require the performance that we can bring.

We have the processes in place that we can be qualified to service those markets and we will continue to emphasize those in the future.

I hope that helps.

It does help.

The other couple questions, again, I don't want to back up the line, but if you tell me to continue, I will.

In terms of the pent up demand that you saw going into the first quarter, because of probably lack of buying in the fourth quarter, how much would you contribute to design wins that you received, and therefore product is ramping up, or would you just say it was just ordinary business?

That's a very good question, and I'm going to answer it as best I can, but I don't have exact numbers.

We do track new design wins and typically what happens there, Sam, is that it takes a while for those to ramp up.

Our design-in period is not unusual to be 18 to 24 months, especially in the areas and the markets that we are talking about.

Right.

They do have stringent requirements for qualification.

So I would say to you that in general, general terms, we would say 30% would be new design wins and the remainder would be the pickup in the economy across the board.

So would you say there are further design wins in the first quarter or --?

Continued design wins, yes.

It continues to grow and we are very encouraged by that and not only that.

As I mentioned -- or you started right out with our margin question.

And we certainly recognize that if we're going to be a company that provides solutions that raise the bar of performance, then we need to be selling into those markets that need that.

And it's not just in certain markets that we have served historically, it's a cost battle.

We're doing everything necessary to be cost effective, but we also see our future is in the performance areas where we do bring a solution, a unique solution.

Where in the past, we had individual business units competing on an individual product, we are getting design wins now that are leveraging multiple business units products.

We like that, also.

You would expect that to continue?

Yes.

Last question.

You did mention perhaps an acquisition.

Where would the acquisition in terms of financing, where would that come from?

I would assume you're not going to dilute the stock at this point?

Do you have a credit line that would finance an acquisition at this point?

Yes, we do.

We have some cash, we have our credit line.

And you are correct.

We feel that there is significant upside potential in the stock and we would be very careful.

Okay.

Thank you very much for your time.

Thank you.

Looks like you answered some of the questions.

A couple people dropped off.

So if anyone has any more questions here, please go ahead and signal.

(Operator Instructions)

Okay, operator.

I think what we'll do, at this point, we'll wrap up the conference call and we want to thank everyone for participating.

And we would encourage you, once again, if you haven't voted to please vote for Proposition 2 so we can amend our articles and move forward.

It wasn't our choice that the NASDAQ and the SEC put those requirements out there, and it makes it really, really difficult for small companies to go ahead and make any changes when you need two thirds of the outstanding shares and brokers can't vote certain shares.

So we encourage you, we'll be following up.

Please do vote, and we'll move forward here and deal with the important issues, which are growth of the Company.

Thank you again, and we look forward to talking to you again next quarter.

Ladies and gentlemen, that concludes today's conference.

Thank you for your participation.

You may now disconnect.

Have a great day.