Allient Inc (ALNT) 2011 Q1 法說會逐字稿

Good day ladies and gentlemen, and welcome to the first-quarter 2011 Allied Motion Technologies Incorporated earnings conference call.

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

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

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

(Operator Instructions).

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

I would now like to turn the conference over to your host for today, Ms.

Sue Chiarmonte, Vice President, Secretary and Treasurer.

Please proceed ma'am.

Thank you operator.

Welcome to Allied Motion's conference call to discuss the quarter ended March 31, 2011.

We appreciate your joining us for this call.

We distributed the press release yesterday 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.

Access the Internet broadcast and replay, go to the Company's website and click on the Webcast come.

As a reminder, please note that the Safe Harbor statements included in our press release also apply to all comments made on this 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 2011 conference call.

Here's the plan for today's call.

I'll begin with a review of the quarter, and then I will provide you a high-level outlook for 2011 that goes behind the numbers and provides you with some insight on the significant activities and opportunities for the year ahead.

After that, Dick Smith will provide a detailed financial review.

I will then follow with a brief summary before we open the mic for questions.

Let's review the key operating results for the first quarter.

First-quarter sales were a record for the Company and up 53% over Quarter 1 2010.

Our existing companies were up 22% at our acquisitions provided 31% of the growth.

We also had record earnings in the first quarter.

Our earnings per share were $0.14 per fully diluted share versus $0.09 in Quarter 1 of 2010.

If you look at the Quarter 1 earnings in 2010, they did include a $685,000 insurance recovery for the fire that we had in Chatsworth.

If you exclude the insurance recovery, you would see that the first-quarter 2010 earnings per share would have been $0.04 a share.

This means that you see an increase of $0.10 per share from an operating standpoint.

One of the things we do, we don't normally do but thought it since it's a new acquisition in Ostergrens, don't normally talk about individual operations but I thought it would be worthwhile to give you some insight on where we are with that.

Ostergrens did have a positive impact on our sales of course, but I'd have to tell you that in the first quarter here, substantially all of the earnings growth came from existing operations.

We do expect that Ostergrens will contribute from here on out the rest of the year.

We saw the gross profit increase in the first quarter of '11 to 30% from 25% in the first quarter of 2010.

Roughly half of the increase came from variable margin improvement and half came from volume.

As we do add and as our emphasis is to have more value add per sale, meaning more systems solutions, electronics, gearboxes and so forth to go along with our motors, we do expect that will drive an increase in our gross profit in the future.

Cash flow -- [or] cash.

At the end of the first quarter of 2010, we had $5 million in cash, net of debt.

At the end of the first quarter 2011, we had $1.4 million cash net of debt.

We did use $1.3 million in cash during the first quarter.

At this point, we do expect cash flow to be solid through 2011.

We also have to remember that we did pay cash for our acquisitions, the two acquisitions we did do last year.

Orders.

Orders in 2011 first quarter were $26.4 million and in 2010 first quarter they were $26.2 million.

The first -- last year if you look at 2010, the first-quarter and second-quarter bookings really led the way for the recovery during the year, and then they were followed by a reduction of about 25% in both Quarter 3 and Quarter 4 2010.

If we exclude the Ostergrens bookings, we would see that bookings actually increased approximately 10% for the first quarter of 2011 over the fourth quarter of 2010.

Looking at our markets, if you look compared Quarter 1 2010, first quarter 2011, first quarter 2010, you'll see that our medical, vehicle, industrial, electronics, aerospace and defense, which are our key markets, all up.

Compare fourth quarter of 2010 to our first quarter of 2011, all markets are up except for aerospace and defense.

On a year-over-year basis, trailing 12 months, again all markets are up.

At the end of our first quarter 2011, we had a backlog of $38.7 million compared to $29.1 million at the end of Quarter 1 2010.

Now what I would like to do is move on and give you an outlook for 2011, which is really our view of what we currently see and some discussion or brief discussion on some of the key activities and actions for the remainder of the year that will drive the growth for our Company.

We'll start by looking at a few economic and financial items.

We say, at this point, the economy appears to be stable with modest growth expected for the year.

We do see customers adjusting orders, pulling in, pushing out, but we do think that's -- we don't see the drastic swings like we saw last year.

What we are seeing is some tweaking.

Internal cash flow from our operations is going to continue to fund our growth opportunities.

We do expect that to be solid.

We're going to emphasize gross margin improvement.

That's going to come from a few areas.

First off, we'll look at some cost reductions, and through the continuous implementation of AST or Allied Systematic Tools to improve our efficiencies and eliminate waste within -- throughout the Company.

We also have some innovative new product development projects which have been underway for a number of years.

We continue to release new products that are meeting the needs of our market segments.

We'd like to call it -- in the past, we would say raising the bar, but we've changed that internally to something that will Change the Game.

We were just recently awarded a patent on our high-speed brushless motors, our slotless motors.

I think that's a tribute to our team that as we talk about changing the game and the recognition that product can change the game.

We have many of our new products in addition to talking about the component level.

We emphasize more complete motion control systems where we are adding additional value to every sale.

In order to do that, we have to create and continue to supplement and create a support structure that's trained to sell, apply, and service our products and customers on a system/solution basis.

We're going to be very focused this year on the smooth assimilation of our two acquisitions to ensure we realize the full value of our investments in these companies.

As has been mentioned in the past, as a reminder, they have brought us, both acquisitions have brought us the electronic motion control capabilities, products and people and resources.

We are going to work very hard to bring out the best systems we possibly can.

As I said previously, motion solutions that Change the Game.

From a growth standpoint, there's a number of items that we will be -- are focusing on in 2011.

As I mentioned about our new products, several new products will again be released during the year with the emphasis on integrating the full capabilities of our product offerings, the benefits to that.

This comes back to the gross margin question or gross profit question that may come up (inaudible) does provide a higher value add, and it also allows us with -- in addition to that, it's reduction in the number of competitors that we see that are capable of offering what we would call our type of solutions.

Our pipeline of projects is very strong, and it continues to grow.

That's both from a components level and systems and in our target markets.

We have good diversification in our sales with basically a 50-50 split between North America and the rest of the world.

In that, you would see that Asia lags behind, and rightfully so.

We have not had a real presence there.

But we do see that the Asian markets will provide some opportunity to us.

I would guess that we might have some questions about that as we talked about Ostergrens and having a presence at our own facility in Asia, and what the impact that has on us.

So we do see that we will expand into that market and we are pleased that we do have good diversification from a geographic standpoint.

To support that, we are in the process, and it's an ongoing process, and we call it our one team sales force, of further expanding and developing the one team sales force in North America and Europe.

We are restructuring our European sales organization to achieve better coverage in key geographic markets.

Ostergrens team provides us with that capability.

We are also expanding our North American coverage as we see our opportunities our opportunity pipeline continue to grow.

We are adding resources in North America, and we are also in the planning stages, and I'll say planning stages for Asia as we are defining what the best and right way for us to go to market there is.

While we are doing that, it's important for us, since we've added the acquisitions and we continue to bring new products to bear, that we do have to educate our sales team and prepare them to sell all of our products and solutions in the future.

That's an ongoing process and it is well underway.

To support the expanding field sales team, we are currently developing and launching solutions centers in Europe and North America.

We also expect that we will be doing the same in Asia.

What this means is that's going to provide support for our increased [program] coverage in each continent.

The solutions center is staffed with key technical people.

They have the ability to look at an application from a solutions standpoint, and they can look at our entire product capability, product line, and come up with the best solution for our customers and our markets.

That's the purpose of the solutions center, to support the field sales team and to provide some guidance to our customers in those markets, in our key markets.

It also will provide us with a quick delivery by combining these elements together of prototypes to ensure that we can be first in to get the design wins.

Last but not least on the growth side, from a marketing perspective, we will be and we continue to work on defining the way we are going to further develop and promote our parent brand; that is Allied Motion.

Our global structure is going to be used to our advantage and we do believe that the parent brand is -- will lead us there.

We can talk about some of the cost reductions/improvement activities in here.

As I previously mentioned, I'll emphasize it again, we do have our own company and resources in China now, and that's going to further facilitate our sourcing capabilities and provide closer contact with our customers located in China/Asia.

We are going to continue to utilize Allied Systematic Tools, or AST as we call it internally, to improve efficiencies, eliminate waste in our acquisitions, and to further improve our existing operations.

When we talk about AST within Allied Motion, we are not talking strictly about manufacturing.

We are talking about the entire Company, eliminating waste and improving process inefficiencies through the entire Company.

And we also expect that our product development activities follow the same principles as everything else -- lean, eliminate waste, get the best products to market as quickly as possible.

Last but not least, as I mentioned in our earnings press release, the capabilities provided by our two acquisitions, combined with the internal product developments in 2010, allows us to take the next step forward by providing motion solutions that change the game for our served markets and customers in 2011.

What I will do now is turn the call over to Dick Smith who will review the financial results for the third quarter -- for the first quarter, sorry.

Then I will be back for a brief summary before we open the mics up for questions.

Dick?

Thank you.

As was reflected in our press release that we put out yesterday afternoon, the revenues and profits that we achieve this quarter both set records for the highest that we have achieved since the Company was restructured in 2002.

We did achieve profits of $1.213 million, or $0.14 per diluted share, for the first quarter ending March 31, 2011.

That compares to net income of $734,000, or $0.09 per diluted share, for the first quarter last year.

Now, as Dick mentioned and as we indicated in our press release, there was to non-recurring items incurred in last year's first quarter, which was an insurance settlement and also we had some nonrecurring expenses that -- [in] moving our (inaudible) operation from California into our operation in Tulsa.

The net effect of those two items would restate the net income to the $438,000, or $0.06 per diluted share.

Now, revenues for the quarter, as Dick mentioned, was $26.7 million.

That was an increase of $9.3 million or 53% from last year.

Now, if you look at the breakdown of the revenues, of the $9.3 million or a 53% increase, our existing businesses increased 22% and the companies acquired in 2010 contributed 31% of the increase.

Now, as Dick was talking about, the two companies that we acquired in 2010 were Agile Systems, which now operates as Allied Motion Canada, and that was acquired in June of 2010, and then the Ostergrens operation in Sweden, which was acquired on December 30, 2010.

So all of the numbers that we're reporting now include the operations of those two companies in this year and they were not in last year.

So we are trying to make a differentiation between what they contributed versus what the existing businesses contributed for us.

As Dick mentioned, the 22% increase in revenues that was generated by our existing businesses reflected a hiccup in all of our markets to varying degrees.

Now, if you look at the total sales for the quarter, 50% were to US customers, with the balance of our sales customers primarily in Europe, Canada and Asia.

Then if you look at the breakdown of that, sales to our US customers were up 34% for the quarter.

Of that, 23% was from customers of our existing businesses, and 11% was due to customers of the two acquired companies.

So our [Gibson] businesses, their sales were up 23% from their US customers, and the two acquired companies contributed 11%.

Now, the total sales to customers outside the US were up 79% for the quarter.

Of that, 20% was from our existing customers and 59% was contributed by the two acquired companies.

Backlog at March 31, 2011 was $38.7 million.

That was up 33% from the same time last year and up 2% from the end of 2010.

Of that 33% increase, the existing businesses were up 10% and the incremental backlog of the acquired companies contributed 23% of the increase.

Our gross margins, gross profit margins improved by 5% this quarter up to 30%.

That compares to 25% last year.

If you break that 5% improvement in gross profit margin, 2% was an improvement in our variable margin, which is due to our continued efforts of selling higher value-added products and also to our cost reduction efforts.

Then the remaining 3% is basically due to increase in sales as we are absorbing more fixed overhead cost on the increased sales.

Our absorption is better.

Selling, general and administrative and engineering costs as a percent of sales for the first quarter, that decreased to 22% this year compared to 23% last year.

That was primarily due to the increase in sales because the total costs did increase by $1.949 million.

70% of that increase is the incremental cost of the two acquisitions, and the balance of the increase is primarily in general and administrative expenses, which reflects increased compensation expense, including incentive bonuses, as well as we did have some incremental administrative costs incurred to finalize the Ostergrens acquisition during the quarter.

Depreciation and amortization increased $46,000 for the quarter to a total of $542,000 from $496,000 last year.

That primarily reflects the additional intangible assets and the additional fixed assets that were acquired this year.

For the quarter, interest expense was up $21,000 to a total expense of $24,000, reflecting an increase in the bid outstanding.

That was primarily because of the borrowings that we did for the acquisition of Ostergrens.

EBITDA, before the -- if you look at it before the non-recurring items that I mentioned before, was $2.3 million, $2.35 million this year in the first quarter.

That compares to $1.1 million in 2010.

We had $428,000 of capital expenditures during the first quarter.

That compares to $304,000 last year.

As Dick mentioned, the Company did use $1.236 million in cash in the quarter, of which $653,000 was used in operating activities.

The company ended the quarter was $2.3 million in cash and $846,000 in bank debt, or a net cash and deposition of $1.5 million, which compares to the $5 million at the end of last year, as Dick had mentioned.

Our net stockholders equity at December 31 was $32.1 million, or $3.82 per share.

Our tangible net book value was $22.1 million or $2.63 per share.

Our trailing 12-months earnings per share is $0.50 per diluted share.

In addition, I want to mention that we had our annual shareholders meeting yesterday.

The two valid items, one was the election of directors and the other was the appointment of our auditors.

I can report that all directors were reelected with no director receiving less than -- director that was the least percentage of vote was 89.8%.

The vote for the auditors passed at 99.9% of the vote.

I'd like to thank those of you that supported the current Board of Directors.

Okay, I will now turn the meeting back over to Dick.

Thank you Dick.

I think what I need to do is let's clarify one number here that -- Dick gave you one number, I gave you another -- and just explain the difference there -- is that when we normalized 2010, what I did is I only included the fire cost and Dick normalize for both the move cost and the fire.

So from -- that's why you heard a difference between the two numbers, Dick's number and my number.

Okay.

To summarize, record sales and earnings in the first quarter of 2011.

The project pipeline is high-quality and it continues to expand.

Our new product development efforts are focused on creating motion solutions that change the game.

Our Agile and Ostergrens acquisitions enhance our electronic motion control capabilities.

They allow for system solutions, which we believe will generate higher gross profits and more value-add per sales per customer.

Our emphasis for this year is going to be on the smooth and effective assimilation of our acquisitions to ensure we realize solid returns on our investments.

With that, operator, we will now open the mics for questions.

(Operator Instructions).

[Jeffrey Benjamin].

Thank you.

I was just wondering if you can -- as the business continues to perform well and generate free cash flow, have you looked at any sort of opportunities to return that to the shareholders, whether through dividends or stock repurchases?

Thanks for attending the call.

Yes, we've actually -- it is a discussion item that we do have at each of our Board meetings and as recently as this week.

We can tell you that we don't believe we will be moving forward with stock repurchase here in the near term, but we do think there is a definite possibility that we will institute some type of a dividend program.

So it's on our radar.

We've looked at it extensively, and we do think that is a distinct possibility for dividends.

No questions over the phone.

We did have some questions that were e-mailed in to us.

One was regarding a balance sheet item of long-term versus current liabilities.

I'd like to maybe turn it over to Dick Smith so he can respond to that.

The question was that there was a $2.4 million drop in our other long-term liabilities and a similar amount of increase in our current liabilities.

The main item that clouds that switch from long-term to short-term was the $2.5 million earnout liabilities, contingent liabilities, that we had booked as part of the Ostergrens acquisition.

Since that earnout is based upon the 2011 results, that move from long-term at the end of the year was more than 12 months out that we would have actually pay that.

It's now within 12 months, so we had to move it into current liabilities.

Thanks Dick.

We did have actually another question on stock repurchase or dividends, so I think we've already answered that.

There was a question about how the Ostergrens acquisition fit into our overall game plan.

I think it was more about -- it seemed to be a little different than our past acquisitions.

I think that is correct.

Ostergrens provides us with a couple of strategic opportunities that we feel we can leverage into the future.

One is they have an excellent sales structure in the Scandinavian countries that we believe can blend in very nicely with our European sales structure and allows us to reorganize and to have a more effective sales structure throughout Europe.

As we said, they do have a good, solid base of customers in the Scandinavian area, and we do believe that their sales team allows us to go ahead and to become more effective throughout Europe.

The other reason is, in that, in their sales efforts, they look more at the solution sale.

They look at it from the top down and say how can we provide a more complete motion solution for our customers and not from a component level?

That is, as you've heard mentioned a number of times, a strategic direction for our Company.

So they have the experience and the expertise there and have practiced that way, have actually performed their business in that way and functioned in that manner in the past.

We expect they will provide us and help us as we expand that throughout the world.

Getting away from the sales and support side, we do feel that their location and their facility in China is strategic to us in the future.

They picked an area and a location that we found has a strong supply base for our types of products and in addition to that a customer base for our types of products.

Many of them, of those customers sitting there, are existing customers.

So we feel that that is an opportunity that we certainly want to leverage into the future.

We don't see Asia anymore as a place that you go to or China in particular for just low cost supply and products.

We do see it as a market opportunity.

So the two reasons primarily would be the selling/solution capability and the Asian location.

A third -- a fourth question here that did come up -- but the maybe before I answer that, are there any other questions out there, operator?

(Operator Instructions).

Okay, well, then I'll go onto the last question here that we were e-mailed.

It's similar to, I guess it fits into the Ostergrens acquisition.

The question was the Asia plans for growth.

As I already mentioned, we have been producing at our own facility, at our -- I'm sorry, at a subcontract facility in China for many years now and supplying our customers primarily back in North America and in Europe, and that the Ostergrens facility in the Changzhou area does provide us our own facility for creating a solution center, creating a support channel for our customers and some new customers that we expect.

So we will be developing a sales network in China.

That's one our plans, is to develop that sales network and to become active in the China market and to develop and grow that as a market itself.

That was the end of the -- that was it for the e-mailed questions.

So I guess we'll just open it back up once more and see if there's -- if there are any other questions.

If there are, we'll answer them.

If not, we'll conclude the call.

(Operator Instructions).

It looks like there are no questions.

Thank you all for attending this quarter's conference call.

We'll look forward to communicating again with you in August.

Operator, that will conclude the call.

Ladies and gentlemen, that concludes today's conference.

Thank you for your participation.

You may now disconnect.

Have a wonderful day.