Allient Inc (ALNT) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2012 Allied Motion Technologies Inc.

earnings conference call.

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

At this time, all participants on the phone lines are in a listen only mode.

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

(Operator Instructions).

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

Sue Chiarmonte, Vice President, Secretary and Treasurer.

Please go ahead, ma'am.

Thank you, Operator.

Welcome to Allied Motion's conference call to discuss the quarter ended March 31, 2012.

We appreciate you joining us for this call today.

We distributed a 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.

To access the Internet broadcast (technical difficulty) go to the Company's website and click on the 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 first-quarter 2012 conference call.

Here's the plan for today's call -- I will begin with a brief review of the first-quarter financial results and discuss some of the key items that impacted the results.

And then I will 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 year.

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

Let's begin with an overview of results for the first quarter of 2012.

Sales in quarter one in 2012 were $26.8 million compared to $26.7 million in the first quarter of 2011.

Sales in the US were up 9.4%, and were offset by sales decreased -- a sales decrease in Europe of 8.4%.

Net income was $1.158 million compared to $1.213 million in quarter one of 2011.

And diluted EPS were $0.14 a share in both 2011 and 2012.

Net income was negatively impacted by an unusual warranty reserve of $238,000 pre-tax in one of our European operations, to cover the expected cost of replacing products in the field, due to an incorrect component in a driver circuit that could cause the motor to shut down at temperatures lower than expected.

Without the reserve, net income would have increased to $1.336 million for the quarter, representing a 10% increase over the prior year.

The component issue did have an impact on sales to some customers, as parts were being reworked or replaced as required, but it was really fairly minimal.

With regard to cash, cash net of debt at the end of the first quarter 2012 was $4.423 million compared to $1.471 million at the end of the first quarter 2011.

We used $4.574 million of cash in the quarter, with $1.4 million to complete the earnout payment for the Ostergrens acquisition; and $3.5 million for bonuses and deferred compensation earned for 2011 performance, and paid in the first quarter of 2012.

I should also note that under normal business conditions, cash usage is expected in the first quarter of the year.

With regard to orders, in 2012 of quarter one, they were $23 million compared to $26.4 million in 2011 quarter one.

As we've stated before, many of our orders are received as annual blankets; and the timing of such has a tendency to skew incoming levels on a quarter-to-quarter basis.

Looking at the trailing 12 months, incoming orders are $114 million.

At the end of the first quarter 2012, backlog was $40.9 million compared to $38.7 million at the end of the first quarter 2011.

Comparing our markets for the quarter -- medical, vehicle, and electronics were up; while industrial and aerospace and defense were down.

Next, I will provide an outlook for 2012, and discuss some of the key activities and actions that we will focus on for the coming year to drive growth for the Company in the future.

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 flows can support our growth initiatives and also reward our shareholders at the same time.

We emphasize gross margin improvement.

While we may experience short-term bumps along the way, we are moving forward with a goal of increasing gross profit margins within the Company.

Gross margin improvement requires cost reductions; new products development that emphasizes more complete motion control systems; any support structure try to sell, apply and service our products and our customers.

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

Electronic motion control brought new growth opportunities and added value in several new applications in 2011.

And we expect more of the same in 2012.

We are investing aggressively in this area, and expect it to generate value-add opportunities in many of our sales activities.

Our solution centers differentiate us from our competition, and we 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 satisfies a common request from our customers.

Our platform-based product line approach for development continues, whereby we pre-plan what products are required by our served market segments, and develop these products to meet the emerging needs of these selected segments.

We have assigned resources, and we do expect several new opportunities to be developed this year.

In 2010 -- repeat, it was 2010, our geographic sales mix was 59% in North America and 41% in the rest of the world; compared to 53.5% in North America and 46.5% in the rest of the world in 2011.

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 levels of growth in our served market segments.

As reflected in our first-quarter results, business levels actually declined in Europe by 8.4%, and increased in the US by 9.4%.

The decline in Europe is a broad-based decline, with most markets down except for medical, which is up slightly; and vehicle, which is flat.

Also, our decrease was caused by the product issue that we had that we've previously discussed.

And Europe would have been down by about 6% in the quarter if we were able to complete the shipments that were planned for the quarter, and not impacted by the faulty component that we had in the driver circuit.

The increase in the US is a result of modest growth and new business developed in 2011 in our medical, vehicle, and electronics markets, and a drop in our industrial and aerospace and defense markets.

We maintain that in the next 3 to 5 years, China will lead the growth curve as internal demand within China continues to expand for our type of products.

While we expect the cost in China to rise relatively quickly, we believe they will maintain a competitive advantage and still be a low-cost producing country in the near-term.

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 startup of our Solution Center, sales network, and additional manufacturing in China are elements that will be critical to our success in the future, and are currently underway.

Last but not least, we are taking our commitment to Allied Systematic Tools, or AST for short, to a new level in 2012, as we have invested in additional resources as part of our operational excellence team.

As always, we will continually utilize AST to improve efficiencies and eliminate waste throughout our Company.

AST is critical to, and helps to create the path to success, in all regions of the world.

Now I'll turn the call over to Dick Smith, who will review the financial results for the quarter.

And then I'll be back for a brief summary before we open the mics for questions.

Thank you, Dick.

Dick has already presented to the overall financial results.

So instead of repeating what he has already presented, my presentation -- in my presentation, I will fill in some of the details around the overall results that have been presented.

Revenues for the quarter were at $26.8 million, which is $123,000 or 0.5% higher than revenues for the same quarter of last year.

Now, 54% of the Company's sales were US customers, with the balance to customers primarily in Europe and Canada.

The 0.5% increase in sales that we did experience was the result of sales in the US -- to US customers, going up 9.4% for the quarter.

Whereas sales to customers outside of the US, which is primarily Europe, were down 8.4% for the quarter, as we started to see sales into Europe affected by the weakening economy over in Europe.

Jumping to gross profit margin -- gross profit margin was down 2% to 28% for the quarter, compared to 30% last year.

Now, of this 2% drop in gross profit margin, 1% was due to the warranty charge of $238,000 that Dick discussed earlier in the call.

And the remaining 1% drop in gross margin was due to sales mix and less fixed overhead absorption in our European operation.

Selling, general, and administrative and engineering costs as a percent of sales for the first quarter of 2012 and 2011 were both 22%.

And the total of these costs this year decreased $97,000 from the prior year.

Depreciation and amortization expense decreased $53,000 for the quarter to a total of $489,000, from $542,000 last year.

For the quarter, interest expense was down $17,000 to a total expense of $7000, due to the decrease in debt outstanding.

Adjusted EBITDA, which is EBITDA excluding stock compensation expense and the one-time warranty charge in the first quarter that we've discussed, was $2.482 million this year compared to $2.492 million for the same quarter last year.

We had $586,000 of capital expenditures during the first quarter of 2012, compared with $428,000 in 2011.

Our net stockholders' equity at March 31, 2012, was $38.4 million, or $4.44 per share.

And our tangible net book value is $29.7 million, or $3.43 per share.

Our trailing 12 months EPS, earnings per share, is $0.81 per diluted share.

Our Board of Directors just declared a $0.025 per share cash dividend that is payable May 31, for shareholders of record May 21.

Also, yesterday at the shareholders meeting, all directors were reelected, with no director receiving less than 99.2% of the shares voted.

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

Thank you, Dick.

To summarize, comparing the first quarter of 2012 to the first quarter of 2011, sales were flat; with European sales down and US sales up.

We expect this trend to continue as we move through 2012.

Earnings per share for the first quarter of both 2011 and 2012 were $0.14 per diluted share.

The 2012 results were impacted by an unusual warranty charge.

And without the charge, Q1 2012 earnings would have increased by 10% over Q1 2011.

Orders for the trailing 12 months are running at a $114 million annual rate, and our backlog at the end of Q1 2012 is 5.8% higher than our backlog at the end of Q1 2011.

Our platform product development is underway, with several new products currently being developed to change the game and meet the emerging needs of our target market segments.

We are all very excited about the new opportunities of these products, and what they will bring to Allied Motion in the future.

As always, we remain focused on improving our margins by both increasing the value of our sales; and by improving our cost structure, by utilizing our AST toolkit to effect the changes necessary to meet our strategic goals.

And with that, Operator, we'll open the mics for questions.

(Operator Instructions).

Operator, while they are actually thinking of questions, we do have people that have e-mailed some questions in.

And out of courtesy to those that have taken the time, we would -- I will go forward and address some of those.

First question was -- as stated in the press release, profits were adversely impacted due to an incorrect electronic component in a printed circuit board supplied by one of the Company's subcontract suppliers.

There's three questions that were asked -- has Allied Motion taken any action against the supplier to recoup some or all of the financial loss?

If not, why not?

Well, the answer is yes, we are taking actions to recoup some of this loss.

And as I do want to repeat what I've stated, is that we have -- actually recorded, or -- what our expected total cost of the repair process is.

So if we do recoup some of this, which we expect we can recoup some, it will adjust the earnings in a positive way in the future.

It is a, to be a little more -- provide a little more detail, this is a resistor.

And it was a bad resistor value that caused the motor to trip at a lower temperature rise than it should have.

We looked at all applications that may have been affected, and we came up with approximately 25,000 motors that were either in the field or currently in production.

To give you a feel for that, we've shipped well over 1 million motors of this type in the product, and have not experienced the problem in the past.

We did catch it; and, unfortunately, had reached a [field] that we were proactive and did notify our customers that we did have the problem.

And like all good companies should do, we did stand behind our product and get it replaced.

Second question is, what steps has -- with regard to that, is what steps has Allied Motion taken in the quality control process to ensure that this type of subcontract supplier error does not happen again?

As I mentioned, it's a resistor value.

All of our boards are in-circuit tested.

And periodically, we would go through complete functional tests.

We will not test every future on the board.

And as we said, they are checked to make sure they operate.

Every motor is checked to make sure it operates.

But something like this, being unusual, where it's a temperature trip, it takes a different type of testing to determine what occurs.

Having said that, we are working with our suppliers at this point, subcontractors, to see what else we can put in place to detect an error of this type.

The third question was -- while you stated that this error delayed sales that would've been realized in the first quarter, does this error jeopardize future business from this vendor?

I'll take that as two questions.

And I'm not sure whether it was meant to say vendor or customers.

But, does it jeopardize future business from this vendor?

And the answer is, if they don't do something to correct it, it certainly will.

As I've said, they've shipped us well over 1 million of these types of -- this type of unit.

And we haven't seen this problem in the past, or other types of problems.

So, it's something that did occur.

We are working with them, and they have been a good supplier.

So I would say that as long as they take corrective actions, and as long as they stand behind their work like we stood behind ours, it should not jeopardize their business.

As far as customers go, our customers -- we don't anticipate any loss of business because of this.

And our customers, matter of fact, were very complimentary of us for standing up and getting to them as soon as we knew there was a potential problem.

And, in fact, in some applications, it did not have an impact, so that was also taken into consideration.

To answer your question, again, the supplier must implement corrective actions and, we feel, should stand behind his work like we stood behind ours.

And we don't see any impact on customers.

There's other questions.

But before I do that, let me send it back to you, Operator, to see there's questions from the people on the call.

[Maz Cioden] with [TO] Investing.

I have two questions, actually.

The first one is, if you add back the negative sales impact from what happened this quarter, how much more sales would have been in the quarter for you?

And would that have translated into any more EPS for you guys?

And number two, you talking about China being -- or Asia being an emphasis for you as you go forward.

And I'm wondering, when does that start really -- start [playing] effect for your Company?

I know you said you had 50-some percent of your sales were from the US, and the rest really from Europe.

When does China start playing a role for your Company here, growth-wise?

Those are the two questions I have.

All right, thank you.

I will address your first question on the negative impact to sales.

As we mentioned, sales in Europe would have dropped 6% over the prior year rather than 8.4%.

And we did -- the impact of the increased sales, if you look at our gross margins, that will give you a feel for what the increase in that would've been.

And, secondly, the -- as we stated, the warranty reserve that we took of $238,000 would have been added back.

It would have been a -- for a sales increase of approximately -- we had $123,000, would have probably been about $400,000-plus.

And earnings, as we've mentioned already, would have gone up over 10%.

Okay?

The one with China begins -- China has already begun for us.

And we do manufacture a significant amount of product in China.

And we do deliver to North American and European companies, as well as Asian companies, with this product.

What we're working on now -- and the process is accelerating -- is that that internal demand in China that's being created, many of our customers have set up factories directly in China.

And that's -- those are growth opportunities for both us and them.

So more of our product will ship directly into China, instead of being shipped back -- exported out, as well as working on new projects or new products for our customers there.

We have a fairly significant base of customers that have established manufacturing operations in China.

And our goal is to first support their needs; as well as, of course, we have other similar types of customers that we're working with today for future business.

So we're shipping today, and will continue to increase, we feel, fairly rapidly here in the future.

Okay, thank you.

Michael Mcroskey, Princor.

Help me out a little bit.

I'm a little confused.

Flesh out, if you can -- I think one of the concerns today, I'll bet on, is the change in bookings.

Also, from the comments today, I'm still a little bit shaky on what your expectation for your top line is going forward.

I've heard, Europe flat, then we've also -- we were down 6%, even assuming no problem this quarter.

Can you flesh out a little more specifically what you're expecting, exactly, as far as topline growth, and address the booking situation for this quarter going forward?

Okay, let's start with the bookings.

Bookings -- and I think we've been through this several times here -- the way we do record bookings in some of our operations is that if we have a firm purchase order, and it's for an annual requirement -- or even longer in some cases -- with release dates, we will book the order when received.

That has a tendency to skew bookings on a quarter-to-quarter basis, and that's why I talked about the trailing 12 months of $114 million in bookings.

That's probably something we are going to change in the future because of these large spikes up and spikes down, placed based on when blankets get placed, have a tendency to skew what the business looks like.

We will continue to report, in the future, trailing 12 months, so you get a better feel for what orders have been received in the trailing 12 months, and knowing that many of those are blanket orders that will be shipped over the coming year.

Your other question, which was the sales would be down; I was talking specifically about Europe, sales would have been down.

US was up.

So Europe would have still been down about 6%, even without the warranty issue or the component issue that we had faced in the quarter.

So, guidance for the future -- you know we don't give any.

I've told you what the trailing 12 month backlog is -- or bookings are.

You know what the backlog is.

Backlog is up over first quarter of last year, okay.

I think that's about all the information we'll provide at this time, Michael.

Appreciate it.

That help?

That helped.

And gentlemen, there are no further questions on the phone lines.

Okay, I'll go to the e-mail questions, then.

Another question that came in was, do you have any acquisition plans on the horizon?

I think we have stated that we plan to drive our growth both through organic growth and through acquisitions.

And I think it'd be safe to assume that we are working on new opportunities on an ongoing basis.

So the answer is -- you never know.

We can't sit here and tell you that, yes, something is going to happen tomorrow.

But suffice it to say that we are working on those types of things on an ongoing basis.

I'll go to another question, and then if something else pops up, we can take that.

Let's see what this one is.

There seems to be speculation in the market that Allied supplies products used in higher-tech medical applications.

Can you elaborate on that, and maybe any other markets that you are focusing on for growth?

As a Company, we do believe that our products and solutions can serve the medical markets well.

We are definitely focusing on that type of application.

Without knowing exactly what the question was referring to, I guess it's probably safe for us to say that, in this case, your speculation does have merit, as it is a particular area of emphasis on our part.

With regard to other markets -- we automate equipment, we make things move, and we help improve efficiency in the process; therefore, that translates to specialty vehicle applications that can benefit from our combined technology.

As they -- and they are of particular interest to us, whether they are an industrial, aerospace and defense, or commercial type applications.

And I do have one more.

This one is -- is Allied Motion being affected by the uncertainty in Europe?

And if so, how long do you think you will be impacted?

Well, I guess, based on our first quarter results, yes, we have been affected by the uncertainty in Europe.

With regard to how long we expect to be affected, I don't know if I really want to begin to speculate on that.

And there's probably people on the call that can provide better guidance than we can.

I guess we'll leave that to the experts.

What we can say is that we will definitely monitor the situation closely.

And we'll do whatever is within our control to mitigate the impact.

And we will do what we believe is the best interest of our Company in the long-term.

In the past, we saw that when market hiccups happened, we held our ground.

We didn't abandon our strategy.

We didn't have any knee-jerk reactions for the short-term challenges.

And I think it's paid off well for us.

We will definitely remain focused on meeting our next level of strategic goals, which we stated are -- $250 million in revenues and a minimum of 15% operating profit.

That's it for the e-mail questions.

We have to thank you for those, and please continue to do so in the future.

Operator, any more questions?

There are no questions on the phone lines.

Okay, we'd like to thank everybody for attending the call, and we look forward to talking to you again next quarter.

Ladies and gentlemen, thank you so much for your participation today.

This does conclude our presentation, and you may now disconnect.

Have a great day.