Allient Inc (ALNT) 2010 Q2 法說會逐字稿

Good day, ladies and gentlemen.

Welcome to the second quarter 2010 Allied Motion Technologies Incorporated earnings conference call.

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

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

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

(Operator Instructions).

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

Sue Chiarmonte, Vice President, Secretary, and Treasurer.

You may proceed, ma'am.

Thank you, Operator.

Welcome to Allied Motion's conference call to discuss the quarter and six months ended June 30, 2010.

We appreciate you joining us for the call.

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

Today's call is 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 second quarter 2010 conference call.

Today our format will be that I will review the second quarter results, provide with you an update and outlook for the Company for the future.

I will turn the call over to Dick Smith, who will do a financial review and then come back to me for a brief summary.

And then we will open the phone for questions.

Let's start by reviewing the results of the second quarter.

In the first quarter of 2010, we announced that we had record bookings, and we're pleased to announce that we broke that record in the second quarter and again established a new high for the Company.

The bookings for the second quarter increased 110% over the same quarter in 2009.

Also in the second quarter, sales increased 43% over the second quarter 2009, and earnings per share were $0.09 per fully diluted share versus a loss of $1.60 per share the prior year.

As you remember, we did have impairment charges and we made some balance sheet adjustments last year in the second quarter, and now with those behind us, all the wires should -- for the trailing 12 months, we should see all positive numbers for the trailing 12 months.

Looking at our markets, compared to the second quarter of 2009, our vehicle, industrial, electronics, and our medical markets grew, while we had a slight decline in our aerospace and defense.

Comparing second quarter of this year to first quarter of this year, our vehicle, industrial, electronics, and aerospace and defense markets were up, while our medical market was down.

Comparing to our -- on a year-to-date basis for 2009 versus 2010, our vehicle, industrial, electronics, and medical markets grew, and aerospace and defense declined.

It's probably important to note when we look at aerospace and defense that for us it is somewhat project-based, and as our volume in that market segment continues to grow, it will normalize over time.

We also announced in the second quarter that we completed the Agile acquisition.

I will take a few moments here to discuss the benefits that we see with that acquisition.

As we talked about in the press release, Agile brings some intellectual property, some products, and some technology, and some very talented people to the table here for Allied Motion.

We feel very confident that the combination of the existing Allied team of electronics engineers combined with Agile -- we will be able to develop products that will change the game and raise the bar for solutions for our customers.

We are already working on some of those solutions, and Agile does hold a couple of key patents that we plan to capitalize on.

We also expect Agile to be accretive to the Company this year.

We talk about remaining competitive, and we did begin production -- we had mentioned in the first quarter that we were putting a second assembly line in our contract manufacturing facility in China.

That is operational, and we expect to be shifting some production to improve our competitive position in the near future.

So to summarize the second quarter, we had the Agile acquisition, record bookings.

We showed significant profit improvement certainly over the prior year, and we had positive cash flow resulting in a net cash position in excess of $5 million, and we paid off all of our debt.

Moving forward to give you a feel for what we currently see, as we've continued to state, and you all know, orders lead shipments.

In first half of the year, we had record bookings of $54 million, as -- since we broke records in first quarter and again in the second quarter.

And through July, the bookings continue to keep pace and we can say now that our bookings already have exceeded our shipments for all of 2009.

I guess you would say that bodes well for the future, although I think we still -- we must caution you that we don't see that order pace keeping up through the remainder of the year.

We do expect it to tail off a bit, but still be strong.

And that's what we're seeing right now.

Wasn't long ago, when we were -- had these conference calls and we were talking about break-even sales.

And questions were coming to us about what is your break-even sales level at the EBITDA break-even level and the pretax break-even level.

And if we compare where we are this year versus last year, we are still at the same break-even sales level that we were at last year of $65 million at the pretax level.

At the EBITDA level, we were $57 million last year and we're $60 million this year.

So what I think that tells us is that we have done a good job -- even though our business is growing and our orders are coming in very quickly, we have done a good job in controlling our costs.

And if we do that, break-even level stays the same as sales increase -- I guess you would think that it is going to convert to profit, and that's what we believe.

The important -- one other important point about looking out in the future is that we have made this point before, and I will make it again -- is that when the recession hit and the downturn, we protected our core technical team in the Company.

We decided that -- we made that conscious effort that we were not going to cut that, and we were going to maintain that, and manage the Company on a cash flow basis.

We did that.

And I believe it really is paying dividends for us, as we are able to respond to our customers' request and we have the team that is capable of doing that.

We've also given the unforecasted -- as we talked about last quarter, increase in demand, it forced us to really focus on getting our suppliers up to speed, us turning on production at higher levels than we had anticipated, and it has taken some time for the supply chain to catch up.

The field inventories have been depleted and now lead times -- and then lead times have extended out, and we have been working hard to ensure that we can satisfy the requests of our customers.

And we do believe that we're not out of the woods yet there, that the supply chain is still working on catching up.

But we do believe by the end of the third quarter, that should all be in order.

We expect that the inquiry level, which does continue to remain a new project level high, will continue to do so.

And what separates those who win from those who don't is the ability to respond quickly.

Again, go back to keeping this technical team around and not cutting.

That gives us the ability to respond quickly, and we see that as key.

We will continue to structure our Company in a way that we feel gives us the best opportunity to respond quickly and to win.

Some opportunities -- we are adding elements to our Company that provide opportunities for growth.

What does that mean?

Well, that means that with the Agile acquisition it brought to us some products and technology and some people that allowed us to focus on electronic motion control.

We have been primarily a motor provider in the past.

We have spent some money a few years back and hired some key engineers to develop a product line.

And why that is important is that every motor that gets sold out there, there is electronic control that goes along with it.

With the brush motors, it is quite simple.

With brushless motors, it can be much more complex.

So the acquisition of Agile will help us accelerate that process.

And as we continue to develop new products, that leverage the capabilities of what we -- what was existing and what Agile brings, we really believe that the combination will give us the ability to raise the bar in our product development.

That's all well -- that's good, but you still have to get it to market.

As we said about adding elements to the Company and structuring in a way that allows us to win, we have reported all through last year that we restructured and reorganized our sales force.

We call it our one team sales force.

It is in place.

And what it does, is it allows that sales team that was regionally based to go out and sell all the products of Allied Motion.

So if we said we're primarily a motor manufacturer.

Agile did have some common customers with Allied Motion.

That's allowing us to sell a more complete solution, gives us more value in each of the sales that we're making, and we believe we can tap into that existing customer base to generate more business for the Company.

So in addition to new markets, new customers, we think there is a gold mine yet to be tapped in our existing base of customers.

Also, we do believe that there are other acquisition opportunities out there that will allow us to execute our development strategy within the Company.

And I will say that we are not going to do acquisitions for acquisition's sake.

If we do an acquisition, it starts because it is a good strategic fit, and we feel it gives us the opportunity to grow in the future.

So at this point what I will do is I will turn it over to Dick Smith, who can cover the financials in more detail.

And then it will come back to me, and I will give you a brief summary before we open up for questions.

Dick?

Thank you, Dick.

As Dick has just indicated and as was reflected in our press release that we put out this morning, we did have an excellent second quarter.

And when you combine that with the results of our first quarter, which was also a very good quarter, we have realized significantly improved results for our first six months of the year.

For the second quarter ended June 30, the Company achieved $739,000 of net income or $0.09 per diluted share compared to a net loss of $12.1 million or $1.60 per share last year.

Revenues for the quarter increased 43% to $20 million from $13.9 million last year.

And just as a reminder, the prior year net loss includes a pre-tax asset impairment charge of $16 million that we took last year in the second quarter, which was about $11.1 million after tax.

And we also had inventory adjustments of $600,000 for excess and obsolete inventories, again, resulting because of our downturn in our business that we were experiencing in 2009.

Now excluding the impairment charge and inventory adjustments, the net loss for the second quarter last year was $593,000.

So we would have had a loss in the second quarter of last year without the impairment charge and the inventory adjustments.

The 43% increase in revenues in our second quarter reflect a pickup in almost all of our markets to varying degrees, as Dick just mentioned.

50% of our sales for the quarter were to US customers, with the balance of our sales to customers primarily in Europe, Canada, and Asia, and sales to our US customers were up 52% for the quarter while sales to customers outside of the US were up 33% for the quarter.

Of the 43% increase in sales, 46% is due to an increase in sales volume, and that was partially offset by a 3% effect that we had from the strengthening of the dollar against the euro.

For the six months ended June 30, the Company achieved net income of $1.473 million or $0.19 per diluted share, and again that compares to the loss of $12.8 million that we experienced last year.

And again if you exclude the impairment charge and the inventory adjustments, that loss for the six months last year would have been $1.323 million.

The $1.473 million of profit this year compares without those nonrecurring items of $1.323 million last year.

Revenues for the six months increased 28% to $37.4 million from $29.2 million last year.

Now backlog at June 30, was $36.8 million, which is the highest backlog we have had in the Company since we restructured the Company in 2002, and that reflects a 49% increase from the same time last year, and an increase of 26% from the beginning of the quarter and an increase of 75% from the beginning of the year.

And again, that reflects the strong bookings that Dick mentioned that we have experienced in both the first and second quarter this year.

Bookings in the second quarter actually were -- had increased 6% over the record bookings in the first quarter.

So again, the second quarter had the -- is the highest bookings that we have had in the history of the Company since the restructuring.

This quarter and the six months results include Agile Systems that we acquired as Dick mentioned, and Agile's name has been changed to Allied Motion Canada, and will be operating under that name in the future.

And since we acquired them on June 3, we only had a partial month of their results.

And for that partial month, the amounts were immaterial to the overall consolidated results, but they did contribute a small profit to us.

Our gross profit margin for the quarter improved 11%, from 17% last year to 28% this year.

And then for the six months, the gross margin improved 9%, from 18% in 2009 to 27% this year.

And the 9% increase in margin for the six months was due to several factors.

2% of that improvement was due to the $600,000 of inventory adjustments that we had last year, as previously mentioned.

3.5% was due to an improvement in variable margins, reflecting a lower material and variable overhead cost resulting from our cost reduction efforts.

And 3.5% resulted from the improvement in the percent that our fixed manufacturing overhead costs are to the increased sales.

Plus the fact that our fixed manufacturing overhead costs did decrease 2% from last year as well.

Selling, general, and administrative and engineering costs as a percent of sales for the second quarter decreased to 21% this year compared to 25% last year and decreased to 22% for the first half of 2010 compared with 24% for the first half of 2009 and with the decreases due to the increases in sales.

However the total operating cost and expenses for the quarter and six months, excluding the fire related recoveries.

amortization and impairment charges, increased by $857,000 or 25%, and $1.270 million or 18% from the same time last year.

Administrative costs increased $710,000 or 43% from the second quarter last year, and $1.042 million or 31% from the first six months of last year, primarily as a result of increased compensation expense, including incentive bonuses.

Depreciation and amortization expense decreased $446,000 for the quarter from $918,000 last year to $472,000 this year, and decreased $843,000 for the six months.

And then for the six months, interest expense was down $32,000 to a total expense of $3,000, reflecting less debt and lower borrowing costs.

EBITDA, before nonrecurring transition costs that we incurred in moving the encoder operation in the first quarter and the fire insurance recovery that we recorded in the first quarter and the impairment charges, increased to $2.651 million for the six months from a loss of $799,000 for the first six months last year.

We had $602,000 of capital expenditures during the first half of 2010 and that compares with $418,000 last year.

The Company generated $857,000 of cash during the first half of 2010, of which $2.8 million was generated from operating activities.

And the Company ended the quarter with $5.3 million in cash and no bank debt, which is a net cash and debt position of $5.3 million, and that compares to a net cash and debt position of $562,000 at June 30, of 2009, or almost a $4.8 million improvement in our net cash and debt position from the same time last year.

Our stockholders equity at June 30, of 2010, was $25.4 million or $3.22 per share, and our tangible net book value is $24.4 million or $3.09 per share.

Okay, as reported during the May call, we indicated that the May 13, shareholders meeting, we did not receive the required vote of two-thirds of the outstanding shares to pass the proposed amendment to the Articles of Incorporation to change the shares required to elect Directors.

And we indicated that we would then continue to pursue and seek the additional shares required to pass the proposal.

Well, during the remainder of the second quarter, we were successful and indeed did receive the shares required, and the proposal was passed as recommended, and I would like to thank those of you that supported us on this matter.

Okay, I will now turn it back over to Dick for further comments.

Thank you, Dick.

Let's just summarize here real quick -- record bookings first half of the year, cash on hand of $5.3 million, no debt, Agile paid for in cash.

Agile helps us with system solutions.

That's going to allow us to generate higher gross profit and more value-add per customer.

Our one team sales force is in place and allows us to leverage all of our product capabilities, and to grow our Company and not just individual -- entire Company, not just individual business units.

Our investments in engineering and sales gives us the capability to grow our Company even further.

Profit conversion is occurring.

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

Our competitive position continues to improve as we utilize our global production capability.

Last but not least, we have a never-ending commitment to Allied Systemic Tools or AST for short to provide continuous improvement in all of our operations, and that is never-ending.

We have received a few questions about the economy and what we see going forward.

I guess we -- if we were in a vacuum, we would tell you that there is no recession.

That it ended and business is very strong.

Unfortunately, we read the papers and hear the news just like everybody else so, we sit here and say well, we're not economists.

But all I can tell you is that based on our business, we're very optimistic about the future.

I wouldn't go out on a limb and say it has ended, but I would say if we were in a vacuum, I clearly could do that.

So I will leave it up to everyone else who knows more about it than we do, but we're pretty bullish about the future here.

So at this point, I guess I would like to open it up for questions.

And once we answer any questions you might have, we will just do a brief wrap-up and move forward to the next quarter.

Operator, we can open it up for questions.

(Operator Instructions).

Your first question today is from the line of Jason Wells.

And your line is open.

Hi, Jason?

Oh hi, sorry.

I was having trouble with my phone.

One question was on the SG&A spending.

I was wondering if there were any one-time expenses in there related to the acquisition?

And the other question was, what level of bookings -- what level do you think bookings will settle out at?

It sounds like they tailed off a bit, but what do you think is a more normalized level of bookings?

Okay, Jason.

I will take the bookings question and hand the SG&A off to Dick Smith.

When you say they have tailed off slightly -- yes, that's the case.

They have tailed off slightly.

That is one month into the quarter.

Quite frankly, we had expected them to be at the level we're seeing now in the second quarter and they continued to stay above that level.

So I would not come out and say -- let's just put it that we don't think we're going to be at the same booking level we saw in the first and second quarters, but I also said that last quarter.

But we don't -- it is not going to be a dramatic dropoff, based on what we see right now.

Okay?

As far as the SG&A, that is an interesting question.

I will turn that over the Dick and he can answer that for you.

We have two items probably in here that I can mention.

One is we did have some transaction costs that we incurred that we have to now expense as part of the new accounting rules for acquisitions, and that netted to about $44,000 that we incurred in the quarter.

And also we did have a one-time workman's comp claim adjustment that was about $120,000 that relates back to a business we don't own at this point in time.

It relates to a former business.

It was actually acquired as part of our Michigan acquisition.

So that was a catch-up adjust that came to light in the second quarter we had to take the hit for.

Those two items are the nonrecurring type items.

Okay, thanks.

Just following up on the bookings, are you able to break out how much of the bookings are maybe customers restocking inventories versus bookings for new products, and bookings related to all the work you did in the last few years on your products, and new design?

I can't give you an exact number.

We do a much better job on when it converts to shipments and so forth and the bookings coming in.

We can just give you a feel that it is -- we do have bookings and orders coming in for new products that we have developed.

But I would say that the restocking has occurred, and our base business across the board has grown as we talked about.

So yes, to your question, as far as it is a combination of both, but I really can't quantify that.

Once it gets to the shipping level, we can do a much better job at that.

Okay.

Do you think your base business now is higher than it was at the prior peak level of bookings?

Well, the orders are definitely higher.

So as Dick and I mentioned, it's record all-time bookings for us so -- and that's a combination of both.

There are a couple of things that have occurred.

As the recession hit, we did pick up some new customers which are on board now, and we continued to deliver new products in new markets.

So when you say is the base higher, based on the bookings level, I would say yes.

Okay, thanks very much.

All right.

(Operator Instructions).

And gentlemen, you have no further questions at this time.

Okay, Operator.

We would like to thank everyone for attending the conference call this quarter and we look forward to continuing the good news in the third quarter.

As we said, the -- if we were in a vacuum, we would tell you the recession is over.

Maybe we all have to stop listening to what we read in the newspapers and hear on the news.

I wish we could do that.

We're being cautious, but yet we're very optimistic about the future of the Company.

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

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

This concludes the presentation and you may now disconnect.

Have a wonderful day.