Allient Inc (ALNT) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2011 Allied Motion Technologies, Inc.

earnings conference call.

My name is Erica and I would be your coordinator for today.

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

We will be facilitating a question and answer session towards the end of this conference.

(Operator Instructions).

I would now like to turn the presentation over to your host for today's call, Ms.

Sue Chiarmonte.

Please proceed.

Thank you, operator.

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

Thank you for joining us for this call.

We distributed the press release earlier 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 the 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, and welcome, everyone to our fourth-quarter 2011 conference call.

Here is the plan for today's call.

I will begin with a review of the fourth quarter and the year 2011 results.

I will follow that with a discussion of several key events that occurred during the year.

And then I'll provide an outlook for 2012 and go behind the numbers to provide you with some insight as to the significant activities and opportunities for the coming year.

After that, Dick Smith will provide a detailed financial review, and I'll follow that with a brief summary before opening the mics for questions.

Before we start, it's important to point out that our results for the fourth quarter and the year 2011 were impacted by a positive adjustment of $1.1 million for the earn-out owed on the Ostergrens acquisition that was completed on December 30, 2010.

While I will compare the numbers as reported, which includes the adjustment, Dick Smith will provide additional detail to eliminate the nonrecurring and nonoperating adjustments in both 2010 and 2011 to provide you with a more accurate comparison of our true operating results.

For the year 2011 we achieved record sales, record orders, record profits, record cash flow, and we ended the year with a record order backlog.

Now I will just turn the call over to Dick Smith for the financial review.

No, I'm just kidding.

But I can honestly say that these calls are much easier and enjoyable when you can start them off with a statement like that.

Okay, let's begin with a quick overview of the results for the fourth quarter and year 2011.

Quarter four sales were $28 million, up 33% compared to the $21 million in quarter four 2010 and were $111 million for the year, up 38% compared to 2010.

Quarter four diluted EPS, earnings per share, were $0.32, up 167% for the quarter, and $0.81 for the year, up 80%.

Gross profit increased 2% for the quarter and 2% for the year.

With regard to cash flow, we began 2011 with cash net of debt of $2.8 million and ended the year with $9 million cash net of debt.

We also instituted a dividend program in the third quarter of 2011 resulting in payouts of $333,000 to our shareholders during the year.

With regard to orders, 2011 Q4 orders were $31 million, up 64% compared to $19 million in 2010's Q4.

For the year, orders were $117 million, up 16%, versus $92 million in 2010.

At the end of the year, backlog was $44 million compared to $38 million at the end of 2010.

Comparing our markets for the year, medical, vehicle, industrial and electronics were all up, while aerospace and defense were flat.

As this record year was coming to a close, we felt that it was important to capitalize on our positive momentum and to update the long-term strategy for Allied Motion.

As I stated in our press release, in December 2011 we brought our global team together and focused on a One Company, One Team approach to update and create a strategic plan for the next three to five years.

Reviewing the aggressive goals and objectives established by our team, it clearly indicates that our team is ready and willing to take Allied Motion to higher levels in the future.

Our strong financial condition when combined with Allied Systematic Tools, or AST for short, continuously improve quality, delivery, cost, and focus on the creation of innovative motion solutions that change the game and create value for our customers allows us to have a positive outlook for the continued, long-term growth of our Company.

To expand on those statements, I'll provide you with a couple of key longer-term goals that we set for our Company, which includes increasing our revenues to $250 million with approximately half of the growth coming from organic growth and half from acquisition; achieving a minimum operating profit of 15% in each of our technology units and the Company as a whole.

Now again, as in the past, we do not disclose individual Company numbers.

All we are saying here is that as a company, our goal is to improve our offering profit to 15%, but we will continue to measure and monitor each of our units so that they are also achieving that minimum benchmark.

We believe this can be achieved through more value-added sales and through the continuous implementation of AST throughout our Company with a specific new emphasis on transactional, lean methodology.

Given our expectation that Asia will continue to exhibit high growth rates in the future, we felt it was important for us to develop an effective Asian strategy and establish a goal to generate 25%-plus of our sales in that region in the future.

Next I will provide you with a brief outlook for 2012, which is our view of what we currently see.

I will also discuss some of the key activities and actions for the coming year that will drive growth for the Company.

In 2010 our geographic sales mix was 59% in North America and 41% in the rest of the world.

In 2011 the sales mix was 53.5% in North America and 46.5% in the rest of the world.

For 2012 we built our plans with the expectation that Europe would exhibit minimal growth; North America modest growth; and Asia would exhibit the highest level of growth in our served geographic markets.

We feel that China will continue to lead worldwide growth, although we do expect that the cost will continue to rise relatively quickly also.

Therefore, these factors lead us to a strategy that builds upon our proven technical expertise and treats the region as an important growth market and not just a low-cost labor source in the future.

The start-up of our solution center and sales network in China are elements that will be critical to our success in the future.

In short, we will be aggressively investing in this region.

Internal cash flow from our operations will continue to fund our growth opportunities, both internal and external, and our dividend program will continue.

We are confident that our cash flow can support our growth initiatives and also it can reward our shareholders at the same time.

We are fortunate to have a very loyal base of shareholders, and many of you have provided us with positive feedback about the dividend program and the long-term confidence it exhibits in our Company.

We will emphasize gross margin improvement.

Gross margin improvement requires cost reduction, new product emphasizing more complete motion control systems, and a support structure trained to sell, supply and service our products and customers.

We made good progress in 2011 and these initiatives will continue in 2012.

Electronic motion control brought new growth opportunity and added value in several new applications in 2011, and we expect more of the same in 2012.

We made two acquisitions that brought us capabilities in this area.

We mentioned one in last year -- the end of last year 2010, December 30, 2010, and also another one in July of 2010.

Both of those brought us electronic motion control capabilities, and we fully plan to continue investing aggressively in this area.

Our One Team salesforce developed nicely in North America and Europe.

And as I previously mentioned, we will begin establishing the same capability in Asia.

Our solution centers differentiate us from our competition and will become functional in North America and Europe, and the foundation will be established in Asia in 2012.

Together with our One Team salesforce, the solution center is the glue that allows us to function and act as one company and satisfy the common requests of our customers.

Our platform-based product line approach, whereby we preplan what products are required by our served market segments, provides us the capability to quickly deliver prototypes we first did with application solutions and secures a continuous stream of new design-in wins for the Company.

While it is relatively simple to create platforms for components, a coordinated effort to tie all of our technologies together as systems is where the real opportunity lies and that will be our emphasis.

Further development and promotion of our parent brand that is Allied Motion will continue in 2012.

A global structure has been defined as an outcome of our strategy and we will use that structure to our advantage in the marketplace.

And last but not least, we will take our commitment to AST to a new level in 2012 as we invest in additional resources as part of our operational excellence team to continuously build and utilize AST to improve efficiency and eliminate waste throughout our Company.

Now I'd like to turn the call over to Dick Smith.

Thank you, Dick.

As Dick has just indicated and as was reflected in our press release that was put out after last night, we did have a record year in revenues and profit and a record profit for the fourth quarter.

And even excluding the $1.1 million adjustment to the contingent earn-out, which I will discuss more later, profits for the quarter and the year were record amounts.

For the year ended December 31, 2011 the Company reported net income of $6,967,000 or $0.81 per share.

This includes the $1.1 million adjustment which was an increase in earnings, and it was an adjustment to the contingent earn-out liability that we recorded as part of the acquisition of Ostergrens Elmotor AB, which is a Swedish company, on December 30, 2010.

Now let me explain the earn-out adjustment that I just discussed here.

As part of the purchase price of Ostergrens, there was an earn-out component to that purchase price, and it was based on a multiple of incremental profit achieved in 2011 over 2010 for certain customer projects.

Now the accounting requirement is that we have to estimate what that contingent earn-out liability will be --- that will paid in early 2012 based on the actual 2011 results, and that estimate has to be booked at the date of acquisition.

And any difference between the actual earn-out amount and the estimate that was booked at the date of acquisition has to be recorded in 2011 operating results as profit or loss, depending on whether their estimate turns out to be more or less than the actual liability.

But due to customer delays and a slowdown in shipments during 2011 for certain of those customer projects, the earn-out amount ended up being less than what was originally estimated when the contingent earn-out liability had to be reported as of the closing date.

The amount of adjustment to the earn-out was $1.1 million and was recorded in profits in the fourth quarter in the year.

Now because the adjustment is an adjustment to the purchase price, no income tax expense is recorded against the adjustment.

So for presenting operating results for 2011 that excludes the earn-out adjustment, $1.1 million needs to be excluded from both pretax and after-tax profit.

So before the earn-out adjustment, we achieved net income for the year of $5,866,000, or $0.68 per diluted share compared to net income of $3,585,000, or $0.45 per diluted share last year, which is a 64% increase in net income and a 51% increase in earnings per share.

The result of the current year include the incremental results of Ostergrens, as well as the incremental results of Agile Systems, a subsidiary acquired on June 3, 2010 and now operates as Allied Motion Canada.

While we don't disclose the operating results of individual business units, we can say that the profit achieved at both acquired companies were accretive to earnings.

Revenues for the year increased 38% to $110.9 million from $80.6 million last year.

Of this 38% increase, revenues from existing businesses increased 11% and incremental revenues achieved by the two companies acquired in 2010 contributed 27% of the increase.

The 38% increase in sales from last year was the result of an increase in sales in virtually all of our major industry sectors except aerospace and defense, which was down 2% for the year.

Now 54% of our sales for the year which are US customers with the balance of our sales to customers primarily in Europe, Canada, and Asia.

Now sales to our US customers increased 25%, of which 20% was from customers of our existing businesses and 5% was due to the acquired companies.

So this growth reflects sales to new customers and growth with some existing customers, again, in the US.

Sales to customers outside of the US increased 57%, of which 2% was from customers of our existing businesses and 55% was from the acquired companies.

So this reflected sales in Europe and Asia have slowed for our existing customers.

Of the 38% increase in revenues, 36% was due to an increase in sales volume for the year and 2% was due to favorable currency exchange.

Bookings for the year were $117.4 million compared to $92 million for last year, with $2.5 million of the increase coming from existing businesses and $22.9 million of the increase coming from the two acquired companies.

Backlog at December 31 of 2011 was a record $44 million, which is up 16% from the $37.9 million at the same time last year and up 6.1% from September 30, 2011.

Now for the quarter -- fourth quarter ended December 31, the Company reported net income of $2.7 million, or $0.32 per diluted share.

And excluding the earn-out adjustment, we achieved net income of $1,615,000 or $0.19 per diluted share, compared to net income of $983,000 or $0.12 per diluted share for the fourth quarter of last year.

Now this net income of $1.615 million for the quarter is a record profit for the Company.

Revenue for the quarter increased 33% to $28 million from $21 million last year.

Again, this quarter results include the incremental results from Ostergrens, which were not included in last year's results.

Of the 33% increase in revenues, revenues from existing businesses increased 9% and incremental revenues achieved by Ostergrens contributed 24% of the increase.

And the 9% increase from our existing businesses reflect the pickup in several of our major market sectors to varying degrees, particularly in our vehicle, which is primarily off-road equipment, medical and distribution.

And this was partially offset by the declines in electronics and industrial and aerospace and defense.

Of the total 32.6% increase in sales, 32.8% is due to an increase in sales volume partially offset by 0.2% unfavorable currency exchanges.

Now looking at our total sales for the quarter, 54% were to US customers with the balance of our sales to customers in Europe, Canada, and Asia.

Now sales to our US customers in the fourth quarter increased 27%, of which 24% were from existing customers and 3% due to the acquired company.

The only reason I am referring to the acquired company, being Ostergrens, in the fourth quarter is because we did have the Allied Motion Canada operation in the fourth quarter of last year.

So the only incremental effect is from Ostergrens for the quarter.

And this drove to our US customers, again, reflects sales to new customers and growth from our existing --- some of our existing customers.

Sales to customers outside of the US increased 40%, of which we experienced a 12% decline from existing businesses offset by a 52% increase from the acquired company.

Our gross profit margin improved 2% for the year, and that was up to 30% this year compared to 28% for last year.

And the gross profit percentage for the fourth quarter was 31% compared to 29% for the same quarter last year.

And the 2% improvement in gross margins for the year and quarter was due to our continuous effort in reducing costs and also due to selling more value-added systems solutions and custom engineered products that typically have higher margins.

Selling, general, and administrative and engineering costs as a percent of sales were 22% for both the fourth quarter of 2011 and 2010, and also 22% for the full years of 2011 and 2010.

However, these costs and expenses increased by $1.4 million or 30% for the quarter and $6.8 million or 39% for the year over the same periods of last year.

The 79% of the quarter increase and 66% of the year increase is due to the incremental cost of Ostergrens and Allied Motion Canada.

So if you take the incremental cost of the two acquisitions out, our operating expenses increased 6% for the quarter and 14% for the year for the existing businesses.

And the increase reflects an increase in engineering costs as we invest more in our technical resources and in general and administrative expenses, which are primarily from increased compensation expense, including incentive bonuses.

Depreciation and amortization expense increased $125,000 for the quarter, and that is from $415,000 last year to $540,000 this year.

And it increased $356,000 for the year from $1.8 million last year to 2,171,000 this year.

For the year interest expense was up $81,000 to a total expense of $84,000, reflecting an increase in debt outstanding due to the Ostergrens acquisition.

Now adjusted EBITDA, which excludes stock compensation expense and non-operating items such as the earn-out adjustments, increased 46% to $11,376,000 for 2011 or $1.33 per diluted share from $7,776,000 last year or $0.97 per diluted share.

We had $1.849 million of capital expenditures during 2011 compared to $1.213 million last year.

I might say that all the numbers to calculate the adjusted EBITDA numbers are in the press release except for the stock compensation expense, and that was $703,000 in 2011 and $798,000 in 2010.

The Company generated $5,602,000 of cash during 2011, of which $8,881,000 was generated from operating activities.

And the Company ended the year with over $9.1 million in cash and $157,000 in total bank debt, which is all classified as short-term, for a net cash and debt position of $9 million, which compares to a net cash and debt position of $4.5 million at September 30, 2011, which is an improvement of $4.5 million for the fourth quarter.

And it compares to a net cash and debt position of $2.8 million at the end of last year or an improvement of $6.2 million for the year.

Our net stockholders' equity at December 31, 2011 was $36.3 million, or $4.29 per share.

And our tangible net book value was $27.7 million, or $3.27 per share.

Total shares outstanding at the year-end were 8,465,909 shares.

Okay, I'll turn it back over to Dick.

Thank you, Dick.

To summarize, for the year 2011 we achieved record sales, record orders, record profits, record cash flow, and we ended the year with a record order backlog.

We funded our growth opportunities internally.

We implemented a shareholder cash dividend program, and we improved our positive cash position by more than $6 million by the end of 2011.

Our global team updated our long-term strategy and established new long-term goals and objectives and developed a critical issue plan to achieve these goals.

The execution of this plan will further establish Allied Motion as a leader in its selected target market segments.

And with that, operator, we will open the mic to questions.

(Operator Instructions).

Operator, if maybe questions are being formulated, we did have some e-mails of questions from people that were not going to be on the call or weren't able and asked if we could answer those.

One of the questions asked about if we should expand on our China/Asia plans and strategy.

And I think, yes, we could do that.

To elaborate a little bit more, many of our customers are large global customers.

And they also have recognized the Asian market as a -- to provide strong potential for growth in the future.

With that, they are looking to us to provide support directly in the the region.

And that is one of the major reasons why we acquired Ostergrens -- it was a major reason -- I'm not saying the only reason but it was a major reason why we acquired Ostergrens, because they did have that presence.

And we are building on that presence.

So our plan is, as I mentioned, was not to just look at that region as a low-cost supplier, it is to look at the region to provide major growth opportunities for us in the future.

And that is what we are investing in.

Another question that came up was based on the adjustment that we made for the earn-out -- the earn-out adjustment.

And the question was, does that mean your expectation for the Ostergrens acquisition are lower?

And the answer to that is no.

The way the earn-out was structured it was project-based.

And typically these projects have a way of not occurring as quickly as you would like them to happen.

The projects that were on the list are still on the list and are progressing.

So in fact, we are actually very positive about the opportunities that acquisitions are going to bring to us in the future.

And the last question that we have that came in was -- you didn't mention the dividend in the press release.

What are your plans?

And as I stated here, our plans are to continue.

We do have -- we need a formal Board approval, which we will have the meeting today and tomorrow and after that meeting we will be releasing a press release on that.

So those were the questions that were sent in.

And if there are any other ones now we will be happy to answer them.

[Michael McCloskey], [Pincor Securities].

Gentlemen, another excellent quarter.

You continue to hit on all cylinders and it is appreciated by us long-term shareholders.

Thank you, Michael.

I will take the (inaudible) like I am kicking.

But you all have executed very well and we are very appreciative.

If you can give us some indication -- the one thing that I think may be of a question, and maybe you can give a little understanding, we have had good increases throughout the year but we are stuck at a top line of around $27 million -- $27 million, $28 million.

But the backlog has seen quite a nice increase on top of that.

Is there some timing issues as far as quarter-to-quarter?

To be honest, I thought I might see a little of that in the fourth quarter this year.

Is there some seasonality issues?

Can you expand on that at all as to what we can expect going forward?

While there are -- and to answer your question, I think, last quarter especially we talked about -- if you go back two quarters, our bookings were relatively low.

We did mention that we do negotiate longer-term or blanket orders and it is a matter of timing in some cases when they occur.

So the second quarter was relatively low.

We said that we expected it to come back, and then third quarter it did come back very nicely.

And we think that the fourth quarter bookings at $31 million are pretty solid.

So when you say we are stuck at a top line of $28 million, we would have been happy to be stuck at that top line a few years ago of $28 million per quarter.

But I think we do have some excellent prospects in the Company for continued growth.

And you are correct, there is timing.

And it is a couple of factors.

Not as much -- there is some seasonality, but not as much of that as the placement of blankets, longer-term orders and when they actually do get placed.

Well, and as a follow-up, obviously you all have done just a tremendous, tremendous job in integrating both of these recent acquisitions.

Obviously with the cash position building and, I guess I'd just leave it at that.

I'm sure there are no comments to be made, but hopefully there will be some other opportunities that will come available to you.

Your management team, obviously, knows how to integrate an acquisition.

That's just amazing that you have all been able to handle it the way you have, so I hope there are other opportunities.

We hope so, too.

And we have no further audio questions at this time.

Okay, if there are no further questions we will wrap up the call.

And we look forward to talking to you at the end of the first quarter.

Thank you, operator, and thank you everyone, for attending.

You're welcome.

Thank you for your participation in today's conference.

This concludes the presentation.

Everyone may now disconnect.

And have a great day.