Allient Inc (ALNT) 2012 Q2 法說會逐字稿

Good day ladies and gentlemen and welcome to the second quarter 2012 Allied Motion Technologies Inc.

earnings conference call.

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

Later we will facilitate a question and answer session (Operator Instructions).

I would now like to trend call over to Sue Chiarmonte, Vice President, Secretary and Treasurer.

You may proceed.

Thank you, operator.

Welcome to Allied Motions' conference call to discuss the quarter and six months ended June 30, 2012.

We appreciate you joining us for this call today.

We distributed the press release this morning, or actually yesterday afternoon, and a copy is available on our website at www.Alliedmotion.com.

Today's call is being broadcast live on the Internet and will be available for replay immediately after the call for 90 days.

To access the Internet broadcast and replay, go to the Company's website and click on the webcast icon.

As a reminder, please note that the Safe Harbor statements including in our press release also applied 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 conference call.

Here's the plan for today's call.

I'll begin with a brief review of the second quarter financial results, discuss some 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 opening the mics for questions.

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

Sales in the quarter decreased 7% to $26.8 million from $28.6 million in quarter two of 2011.

Sales in the US were flat while sales in the rest of the world were down 15% with 63% of the decrease due to the dollar strengthening against the euro and Swedish krone and 37% due to volume.

Net income was $1,817,000 compared to $1,487,000 in quarter two of 2011, and $1,158,000 in quarter one of 2012.

Diluted earnings per share were $0.21 per share compared to $0.17 in quarter two 2011 and $0.14 in quarter one 2012.

Orders were $23.7 million compared to $25.6 million in 2011 quarter two.

As we've stated previously, 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.

Trailing 12 months of incoming orders are at $112 million.

Comparing our markets for the second quarter 2012 to the second quarter 2011, medical was up while vehicle and electronics were flat and industrial and aerospace and defense were down.

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

As stated in our press release, our outlook for the remainder of 2012 will be more of the same; that is, we don't expect market conditions to change significantly from the current uncertain economic conditions in Europe, a slowdown in Asia and the relatively flat markets in North America.

Barring a complete collapse of all markets, we believe our diversification in both our geographic and served market segments will serve us well during these uncertain economic times and we will continue to emphasize market diversification within the Company as we move forward in the future.

While macroeconomic conditions are beyond our control we will aggressively continue our platform product development efforts to create new opportunities for our Company while designing innovative motion solutions that change the game that meet the current and emerging needs of our customers in our served market segments.

In uncertain economic times, we believe it is even more important to remain focused on your strategy and to execute for the long-term and not the short-term.

By understanding our strategy, it is impossible to predict how we will respond to changing market conditions and I will take some time now to review our strategy with you.

In 2002, we developed our initial strategy we've updated periodically, and most recently we updated again since December of 2011.

Our strategy defines Allied Motion as being a technology/know-how company, and over the years we've invested in and continually improved upon what we call our areas of excellence.

Our areas of excellence include design engineering, applications engineering, sales engineering, and lean engineering.

And we will protect these assets at all costs as they are critical to the long-term success of the Company.

When times are good, we will invest more in these areas, and if times turn bad, they will be the last areas we will touch.

The strategy also defines the critical issues for the actions necessary to meet the stated long-term goals and objectives of the Company to take us from where we are today to where we want to be in the future.

We firmly believe that our strategy provides us with the guidance to remain focused on the long-term success of the Company and not to overreact to short-term market conditions that can take the Company off course.

If market conditions do turn worse, we will prudently respond, but you can also be assured we will stay the course to ensure we win for the long-term.

One of the critical issues that's defined in our strategy is to develop product line platform whereby we pre-plan what products are required by our served market segments and develop those products that will meet the emerging needs of our selected target markets.

Over time, platform products will become standard product offering and will allow us to quickly respond to new standard or customized application requests from our customers.

It will also provide critical mass and allow us to standardize manufacturing processes across the full range of product offerings, not just a single product.

This approach also allows us to apply what we call smart automation which allows us to compete anywhere in the world using technology and not brute force labor.

The resources have been assigned, development is ongoing and continuous and we expect several new opportunities to be realized this year and beyond based on the current product platform initiatives within the Company.

Although growth in China has slowed from previous levels, we believe that the next 3 to 5 years, China will still continue to lead the growth curve when compared to other geographic markets as internal demand within China continues to expand for our type of products.

We also continue to see global companies expanding their presence in China and they're looking to build a quality supply base in the region.

Given these factors, we're moving forward with our capital investments to install production lines in China that are capable to meet the demands of our existing customers and new potential customers in China as well.

In addition to a production capability, our China strategy recognizes the need to provide technical support for customers in the region, and these needs are being met through the development of a solutions center at our facility in Changzhou, China.

We will continue in our efforts to develop and emphasize motion control solutions that can change the game for customers and also improve our gross margins in the process.

While 80% of our sales come directly from motor sales, we're striving to increase the value of sales through the addition of other core technologies, including control of power electronics, encoders and gearing solutions.

Our One Team sales force and our solution centers are the glue that allows us to function and act as one company.

They also provide us with the capability to sell our products globally and to support them locally.

This satisfies the common requests of our customers and we will continue to invest to support our growth 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.

And last but not least, we're taking our commitment to AST to a new level in 2012 and beyond as we've invested in additional resources as part of our operational excellence team.

As always, we will continue continuously utilize AST to improve efficiencies and eliminate waste throughout the Company.

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

Now I will turn the call over to Dick Smith, who will review the financial results for the first quarter 2012 and year-to-date, and then I will be back for a brief summary before we open the mics for questions.

Dick?

Thank you, Dick.

As was reflected in our press release that was put out yesterday morning or yesterday afternoon, the Company achieved a 23% increase in net income with $1.8 million of net income or $0.21 per diluted share for the second quarter ended June 30, 2012 compared to net income of $1.481 million, or $0.17 per diluted share for the second quarter last year.

Now revenues for the quarter decreased 7% to $26.8 million compared to $28.9 million last year with 63% of the decrease due to the dollar strengthening against the euro and the Swedish krone and 37% due to lower volume.

Now the 23% increase in net income achieved on a 7% decrease in sales is primarily the result of a 11% or a $717,000 decrease in operating expenses; a $301,000 pre-tax gain, which is $222,000 after-tax realized from our old landlord in Sweden paying the Company to terminate its building lease early net of the expenses incurred to move to a new facility.

And also then a lower effective income tax rate of 28% this quarter compared to 32% for the same period last year, reflecting more profit being expected to come from the US operations last year as was estimated halfway through the year.

The 7% decrease in revenues is primarily due to lower sales into the industrial aerospace and defense and distribution markets, partially offset by increased sales into the medical markets.

The Company experienced flat sales into the vehicle electronic -- and electronics markets against the same periods of the prior year.

Now 58% of the Company's sales were to US customers compared with 54% in the second quarter last year with the balance to customers primarily in Europe, Asia and Canada.

Sales to our US customers were down 0.3% for the quarter, or basically flat, and sales to customers outside of the US were down 14.8% for the quarter as we continue to see sales into Europe affected by the weakening European economy and also due to the strengthening of the US dollar.

And the split there is about 50-50, the affect on that 14.8%.

For the six months ended June 30, 2012, the Company achieved net income of $2.975 million, or $0.35 per diluted share compared to net income of $2.694 million, or $0.32 per diluted share last year.

Revenues for the first six months decreased 3% to $53.7 million compared to $55.6 million for the same period last year with 83% of the decrease, of the 3% decrease, due to the dollar strengthening against the euro and the Swedish krone and 17% due to lower volume.

The 3% decrease in revenues reflect lower sales into the industrial distribution and aerospace and defense markets partially offset by increased sales into the medical and vehicle markets, but the other markets remained flat against the same period of the prior year.

In addition, the 3% decrease reflects a 4.2% increase in sales to US customers and an 11.6% decrease in sales to customers outside of the US, again, primarily in Europe, Sweden and Asia.

In addition to the $301,000 gain that I discussed above as far as the rent payment, included in the results for the six months also included was a pre-tax warranty charge of $238,000, or -- which is $178,000 after-tax that was recorded in the first quarter to cover the expected cost of replacing certain products in the field due to an incorrect electronic component and a printed circuit board supplied by one of the companies' subcontract suppliers.

We had disclosed and talked about this at the last conference call.

Now excluding these two items which kind of offset each other, net income for the six months of 2012 would've been $2,931,000 or $0.34 per diluted share, which is an increase in net income of $237,000 or 9% over the same six months of last year, and an increase of $0.02 in earnings per share over the first six months of 2011.

Backlog at June 30, 2012 was $36.7 million, which is up 3% from the same time last year and down 16.7% from the end of 2011.

Orders for the six months ended June 30, 2012 were $46.7 million compared to $52 million in the same six months last year.

As Dick indicated earlier, many of our orders are received as annual blanket orders and the timing can skew the incoming levels on a quarter-to-quarter basis, depending on when they are received.

But the trailing 12 months incoming orders are $112 million.

Our gross profit margin for the quarter remained at 30% for this year as compared to last year and was down 1% for the six months to 29% this year compared to 30% for the same period last year.

Now the $238,000 warranty charge that we just discussed had the effect of reducing the Company's overall gross margin by 1% for the six months this year, and excluding such charge the margins would have been 30%, or the same as last year.

So we were able to maintain the same gross margin on a reduction in sales, which in of itself, with your typical fixed overhead cost structure we were able to achieve that by selling more higher-margin and value-added products, and as well as have adding some cost reduction results.

Selling, general and administrative and engineering expenses as a percent of sales for the second quarter was 21% for 2012, which is down 1% from the prior year or a decrease of $696,000.

For the six months, these operating expenses remained consistent at 22%, but the total the expenses this year decreased $793,000 for the prior-year.

Again, that's a year-to-date basis.

The reduction in expenses is largely due to lower compensation expense resulting from lower incentive compensation and headcount reductions.

Depreciation and amortization expense decreased $59,000 for the quarter from $550,000 last year to $491,000 this year and decreased $112,000 for the six months from $1.092 million last year to $980,000 this year.

For the six months, interest expense was down $37,000 to a total of $10,000 due to the decrease in debt outstanding.

EBITDA increased 10% for the current quarter to $3,018,000 from $2,751,000 last year and increased for the six months to $5,122,000 from $5,101,000 last year.

EBITDA for the trailing 12 months is $10,700,000 which excludes the $1.1 million gain recorded in the fourth quarter of 2011 for adjusting the earnout paid for the Ostergrens acquisition.

We had million $1,532,000 of capital expenditures during the first half of 2012 compared with $993,000 last year.

The Company generated $2,142,000 of cash during the second quarter and the Company ended the quarter with over $6.7 million in cash and $159,000 in bank debt for a net cash and debt position of $6.6 million which compares to a net cash and debt position of $9 million at December 31, 2011 and $3.6 million at June 30, 2011 or the same period last year.

So comparing the same period to 6.6 to 3.6, and that represents an increase of $3.1 million and treated -- and that reflects, the increase reflects the Company's strong cash flow over the last 12 months net of the final payment of $1.4 million for the Ostergrens acquisition and $500,000 paid for implementing a new ERP system, both of which were paid out in the first half of 2012, which again helps explain why we dropped from $9 million at the end of December to the $6.6 million we're at right now.

Our net stockholders' equity at June 30, 2012 was $39.1 million or $4.52 per share and our tangible net book value was $31 million or $3.59 per share.

Our trailing 12-month EPS is $0.85 per diluted share, or it's $0.72 per diluted share when you exclude the $0.13 per share resulting from, again, the earnout adjustment recorded in the fourth quarter of 2011 relating to the Ostergrens acquisition.

Our Board of Directors just declared a $0.025 per share cash dividend that is payable August 23 for shareholders of record August 13.

Okay Dick, I'll now turn it back to you.

Thank you, Dick.

Now to summarize, comparing the second quarter 2012 to the second quarter 2011, overall sales decreased 7% with US sales flat and the rest of the world down.

Earnings for the quarter increased 23% compared to the second quarter of 2011 and are up 10% year to date compared to the same period of 2011.

Orders for the trailing 12 months are running at $112 million annualized and our backlog at the end of quarter two 2012 is 2.7% higher than our backlog at the end of quarter two 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 these product platforms will bring to Allied Motion in the future.

We are 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 objectives.

And independent of the market conditions we face in the future, we will remain focused on our strategy to ensure the long-term success of the Company.

With that, operator, we'll open the mics for questions.

(Operator Instructions) Charles Neuhauser, Mainwall Investment Management.

Good morning, I think I hear what you're saying about the external conditions, and you know, how you're coping with the disruptions in Europe and all that sort of thing right at the moment.

But as far as looking out a little ways goes, specifically can you tell me how the ERP installation has gone?

I mean, usually, these things are another source of disruption and trouble, but how did it go and what do you expect to gain from that investment in the near and intermediate term?

Sure, we could speak to that.

You're right, Charles; it's never easy and there always is a disruption in the Company, and, obviously, we're doing it for the long-term good.

Just for the benefit of everyone, you know we have different systems -- since we've acquired several of our companies, they were using different ERP systems.

And for us to be able to act as one company to share information readily, it's very difficult to try to tie those systems together.

So we did embark on a plan; the entire Company was involved, the management from the Company and some key resources in all disciplines were involved in selecting our new ERP system, which is Microsoft Dynamics AX.

The implementation is well underway.

We expect to go line live in our first company in Europe November of this year.

We also -- we expect to be line live on one of our companies in North America this year, one of our smaller companies, and then the plan right now is to follow on with the rest next year.

So it's going to be an ongoing project that's going to extend beyond this year and into next year.

And then once we do have that, as I mentioned, the data that we can share since our Company is changing its image from a number of independent operating companies to one motion company, it will allow us to access information from wherever the products being manufactured to have cost data readily available so that -- we're currently wasting quite a bit of time.

It's inefficient for us to go back and forth and to communicate this information to each other.

And you also see that -- you hear us mentioning about product affirmation, adding more value to our sales.

That is occurring, which is very encouraging, which means that were not just -- we've talked about this probably a year and a half ago and we're not just a motor company anymore.

We really are a company that can offer a solution.

And fortunately, for our new opportunities, more and more of that is occurring.

So ERP is fundamental to it.

We have incurred significant cost to do it and we are -- Dick, you may want to talk about the cost and the impact on us at this point, what that is.

Well, we have, from a total cash stand point since we started the program, we've spent about $1.5 million so far on the program.

Obviously, some of the cost, the cost of the software and some of the cost of the implementation is being capitalized and will be amortized over the appropriate useful life of the product.

Once we go live, that amortization is going to start.

Just add one thing on the solution center, one of the successes of the solutions center is going to really be dependent on them being able to select which is the best product and be able to price that product, and they're going to need this data that comes out of each of our different technology units to be able to determine what is the best solution, what's the cost of that solution and then develop what is the appropriate price for the customer.

So, having that data readily available is going to be each of the success of our solution centers.

And I would add, our team is doing a great job, and we -- there's always a few surprises as you go through the implementations, but I have to say it's been going quite well and there's quite a commitment from the internal team to make that happen and get it done as planned.

Okay, sounds so far, so good.

Again, I am perfectly aware of the external environment and to be able to just maintain things on an even keel at this point through the remainder of this year, which is, I think, the message you're trying to send out this fine and what one would hope for.

But, again, you talked about game-changing efforts.

You just said something about moving forward from just being a motor manufacturer to somebody that -- a company that provides solutions, which sounds to me like you're projecting an improvement in the level of profit -- the margins generated by the revenues of the business going from just being a product manufacturer to a solutions provider.

But, let's look out next year or the year after and beyond just being able to hold your own in a soft economic environment, what are some of the new product lines or specific efforts that you are developing that should lead the Company to being more than it is today?

Very good question.

I think let's talk a little bit about products and product lines.

First off, while we are a solution provider and we're looking at -- from a design standpoint, we say product platforms; how does it all come together?

So in the past if they acted independently, product would be designed that you couldn't necessarily integrate easily in a solution.

So from design concept today, what happens is we take a step back and we say how does it all fit together, how does it provide a better performing solution, how does it provide something that's more compact and differentiate itself?

So what we say -- we went from a tagline that said motion solutions that raised the bar to motion solutions that changed the game.

I can cite something for you that we had an application, a success last year that's going to continue on for several years here and we had a customer asking for a motor and we felt strongly that a motor drive solution was the best option for them, but sometimes you know you just have to show them before they'll understand what you trying to say.

And so when it came to testing the product, they were designing and developing their own drive, which drive electronics has a big impact on motor performance and you could have a very efficient motor and if you have substandard drive electronics, the motor is going to respond accordingly.

So that's why it's important to look at solutions and designing it together.

So the customer comes in, we're showing them the prototypes of the motor, we're using their drive and it's a big box, let's just call it, that's sitting there next to the motor plugged together.

And side-by-side, we happen to have our integrated motor drive, which sits essentially the same size package as the motor.

And we asked -- we said to the customer, well, while we were running theirs, let's show you what ours will do.

And we were running it, and they said well where's the drive?

And we said it's right there, and right there was inside the motor.

So it was in the same size package.

We had the drive which they have which is a fairly large box sitting outside, and that eliminates the cabling.

It's tuned directly for the motor to working with.

It's saving size, it's saving weight, so there's an awful lot of advantages.

And right there, the customer said to us that changes the game.

And it caused us to say, well, we're not just raising the bar anymore, we're going to change the game.

And we've done that in other areas, and one of the areas that we're quite excited about is our slotless motor product line.

Where it's patented and, again, I'll have to say, you haven't seen the results of this yet; they are coming.

It's a higher performance motor, it runs cooler, it's cost effective and we like it because we've got a patent on it.

It also, when we were initially involved in this application, we had some competition, and you know we had some tools along with our products that custom designed and we came back and said, here's what we can expect performance-wise or what you can expect performance-wise, and we were told it wasn't good enough, that there were other companies that could do it.

And, quite frankly, we really wanted this one.

We felt that we were the best fit, and we didn't give up.

We also had other technology that sat within the company with an acquisition that we had made in Europe that we knew we had and we had to figure out how we were going to commercialize it.

And we saw this as an opportunity to go back into the customer and say, hey, we have come up with a way that we think we can do what you want and make it cost-effective to manufacture and still give you the performance you're looking for, because that was the downfall before.

On a one-off prototype basis, we could build them, but when it got to manufacturing it was a real bear because it was packing so much power into a small package.

And when we went back, they said, hey, they got really excited about what we brought to them from a new technology standpoint, and they said, by the way, the other suppliers they're not getting it done.

So we're not having success with them.

It turns out we're designed in on that with the older technology -- I hate to call it old, because it's relatively new and it's very high-performance and it is protected by patents.

And yet, we have another technology that's coming that they're sitting there excited about for the next generation equipment that they're going to be putting this in.

So you haven't seen the results of that yet, and that's coming very shortly, I can tell you.

And there's several others.

And what we're doing is we're really -- are gearing and stepped up where, in the past, we were brute force gearing and crude gearing.

We're seeing more and more applications where gearing is involved as part of the solution.

We're seeing some emerging applications in Europe and North America which eventually are going to go to Asia again.

We talked about product platforms -- we're designing the whole system together that's including motors, electronics and gearing, okay?

So, I don't want to tell you specifically what they are and what markets they're in and so forth.

I think we're a relatively small company and we would like to keep that information, but I think we do have several new ones and you'll see some coming this year and continuing throughout into the future.

Okay, if I were one of your salesman, would I be excited about this and would I be saying, you know I can go knock on doors with these new products that I had never bothered to knock on before?

Is it something that is applicable to new customers, new applications, that you know realistically we could see -- increase the market for what the company does?

Another good question, and if you are one of our sales people and you weren't excited, I think you'd start looking for a new job.

Now, [Ed], just to tell you the way we're structured is we pay for performance.

And if you look at the income statement, you'll notice that selling expenses are down this year.

We didn't reduce any people.

You get paid when you sell more, and when we give you more value and when you can differentiate yourself going in and eliminate certain competition, you certainly are excited.

I do spend some time in the field, and maybe not enough, but I know when I get out there and I stand in front of customers and I talk to them about -- and just recently, just a month ago where we were selling one component and the customer was talking about the issues they have -- this is a high-end system -- the issues they have with the other components.

For example, we're selling an encoder and they're saying, what are you doing for the drive?

What are you doing for the motor?

And they said, oh yes, that's a pain.

We have to set up all these drives and we have to them cable them together and so forth, and they're too big, they weigh too much and so forth.

I said, what if we can just give you one simple package?

All of the eyes lit up and said, again, wow, you can do that?

Yes.

We can do it quickly.

So, I think our sales people are excited, and I think you would be excited.

too.

If you're pretty good, let us know.

(laughter)

So the theoretical salesman, or maybe even the real salesman can go out there today and start realistically offering these things to new people?

Yes, and what we did in, again, remembering where we came from -- since we were product-based companies in -- some of the salespeople came from one of those particular companies.

It has taken time to get them trained, to get them understanding some of the new technologies we're bringing in.

We did in April of this year bring the North American team together, and late last year we brought the -- or, actually, the European team did get together again after that, but we had the whole team come together late last year, including the agents in Europe and brought them up to speed in some of the new technology.

So, it's not an overnight -- you just don't shift from being a component salesperson to more of a solution selling person.

It does take training and it does take experience and that is coming.

One thing I also do want to emphasize here is the way we're structured with our technology units, and you hear us call them technology units, is that we provide those units with ownership of a particular technology and they can't sit back and rely upon the system making up for shortcomings in their individual component.

So we don't take our eye off the component being the best.

What we're saying is, you own this; this has to be the best.

But we also then look at how do we tie all of these component levels together to make it an even better system.

So we will still compete, and I don't see an end to this.

I see that this is what makes us strong on the component level or an individual product level, and one of the changes you will see occurring and -- is that as we've talked about some of our customers moving to China.

You know, it's an interesting situation because the revenues from that will decrease because the prices are going to go down and our job and our challenge is to keep the margins where they were, okay, or to improve upon, certainly on a percentage standpoint, the margins.

And the only way to do that is when you're being requested to deliver product directly to factories and sometimes right down the road from where we are in Changzhou, is you have to produce there, and you have to have the overhead structure there to do that.

So we are doing that and we are focusing and not taking our eye off the component level, either.

Okay thank you.

Thank you, Charles.

(Operator Instructions) Jeff Geygan, Milwaukee Private Wealth.

Good morning gentlemen, Dick Smith, a question as a follow-up from Charles.

When you talked about $1.5 million spent to date to implement your ERP, can you add color in terms of total cost on that and what portion you'll capitalize verses expense?

Yes, the $1.5 million is -- our implementation plan -- well, first of all, the $1.5 million includes the cost of the software which has a capitalized.

But as far as the remaining implementation costs, what we have done is we have trained implementation teams within the Company so the outside consulting firm that has attributed a lot to that $1.5 million, their costs are going to go down and our internal implementation teams will take over for much of the implementation.

The consultants will still be involved, some of the training some and some of the go-live events.

So we're expecting that it's going to be a total of around $2 million, a total cost to the company, so another $0.5 million, potentially.

How much capitalized?

(multiple speakers)

It will be a total -- a little over $1 million $1.1 million.

Will be capitalized verses (multiple speakers) be expensed.

It will be expensed.

To date --

$1.3 million total.

Yes, total is -- but --

Most of that's -- no, let's say about -- we're at about $800,000 capitalized so far.

Okay, so about $500,000 has been spent?

Not quite, but yes -- or will be through our first go-live later this year.

Okay, yes, those are the numbers we looked at.

Does that answer your question?

Yes, I appreciate the additional color.

Dick, while I have you here, you mentioned in your prepared comments headcount reduction.

Can you describe the number and where they've been reduced within the Company?

Well, as part of our acquisition -- the Swedish acquisition -- we did have some reductions over there as we were restructuring the business there.

So the headcount reductions that I was referring to did come out of some of the reductions over there.

We had retirements of some of the people that were at that facility and we didn't replace them, so it was -- that's where the headcount reductions took place.

I don't have the exact number off the top of my head how many that involved.

It wasn't a big number, but it was -- there was some.

All right, how has the Ostergrens acquisition performed to date versus your expectations?

Are you talking from a financial performance, or from an overall integration to the Company and so forth?

Which regard, or all?

All of the above, thanks.

Okay.

Financially, it's right on track, so we're pleased with it.

And from an overall impact on the Company, they are leading a very important initiative, a future initiative for us, and there are the -- working extremely well within the Company, as I said, leading a very important initiative for the future.

In addition, the China company came from that acquisition and that has given us the foothold we need to expand our own operations in China.

So we're very pleased.

It's accretive, it's working -- they're working extremely well with the rest of our team and it's giving us -- it gave us a foothold for a very important market in the future.

Glad to hear that.

When you describe your sales by geographic region, you use US and non-US.

As I understand, that's Euro, Asia, Canada down 14.8.

Can you add a little more color in terms of where you're seeing the most softness in that non-US revenue decline?

Europe.

I'm sorry, Europe?

Yes, Europe.

What percent of your sales comes from Asia today?

Not much.

Not much, yes.

Yes, so most of what we talk about here is -- and if you just applied what we gave you as far as Europe, you would be pretty safe.

All right, no surprises.

Asia's fairly limited for us right now, and that's one of the potential growth areas that we see.

And it's transitioning, so some of our base that we see in North America and Europe is transitioning to Asia.

So some of that will be our existing customers who have moved operations to China, let's say, and we will now be delivering product directly to them in Asia, rather than coming back to either North America or Europe.

So primarily the sales, when you look them, are Europe.

You described your sector industry ups and downs, aerospace down, medical up.

When I spoke with Dick Smith previously, he indicated you were pushing harder for medical.

Can you add a little bit of color in terms of the nature of the decline in aerospace as well as the improvement in medical?

Are these temporary, permanents, or something other?

I would say medical is permanent because of the emphasis we're putting in medical that we are continuing to attract new customers.

So I think we'll -- that is a focus, and we will continue to see that grow over time.

So whether or not medical grows the market, I think we will take additional market share.

We're winning new applications and we'll see grow there.

The aerospace and defense markets, we are active and it's not one of our larger segments.

It's actually one of our smaller segments, and much of that, as you know, is project-driven and budget-driven.

So we've seen some impact, which is -- most likely, it's more about projects and the timing of projects than it is anything else, and budget cuts.

So there -- it takes a longer time to develop those applications, and again, it is an emphasis, but I don't think you're going to see aerospace and defense grow drastically within the Company in the short term.

We're more emphasis on medical and vehicle.

You commented that in medical, you're taking market share.

What do you assume is your market share today?

Well, that's a really tough number because when we talk about market share, we are looking at our particular market segments.

Medical is so large, and what do you incorporate into medical?

Do you incorporate healthcare in medical, for example?

When we talk about medical instrumentation, high-tech medical, you talk about human robotics in medical.

So when we look at it, we're looking at it from -- and we sub-segment our markets down into very precise segments, and that's what we talk about.

We look at them that way, not the big market overall.

Dick, you mentioned that you have -- you spend some amount of time in the field.

What would you say is the allocation of your time in the field versus not in the field?

Well, between the operations and the selling activities, I would say I'm probably 60% in the field, 60% to 70%, and the other rest of the time sitting in an office somewhere.

The one solution -- you had indicated it is working -- how do you evidence that it's working, and how will I as a shareholder and investor see the successes that you're realizing?

You're talking -- when you say solution, are you talking about one of the application solutions, or --

Generally, about your approach to the market where you're selling solutions instead of a single product.

Got you.

Gross margin improvement, sales improvement, profit improvement that's how you'll know it.

So to date, is there evidence of that?

Well, there's definitely evidence of it as the gross margins have improved over time.

You go back and you look back 3 to 4 years and compare gross margins to where they are today.

Look at the organic growth of the Company last year, not just the acquisitive growth, okay.

It's flat this year.

Last year, we did have good organic growth and we do see market conditions improve, and plus when some of the new application wins kick in, you'll continue to see that.

So I would tell you, measure us on our results.

Clearly, we will.

Okay (laughter) I'm sure you will.

Last question, and I appreciate your taking all my questions here.

When you talked about, quote, game change, end quote, and your products will that change your margin, your market share, both, or did you mean something other?

No, you are correct.

Margins will change and will improve, and market share will change will improve.

And the reason why we say that is where -- if you listen to what we're talking about is that we can offer a fairly complete motion system now.

There's other products underway that are really beefing up the electronics side, and that's another area that you haven't even seen or we haven't even seen scratched the surface yet, and we've expanded that extensively here in the last couple of years when we acquired Agile in Canada.

Along with that has come some fantastic technology, a number of patents and some good technical resources.

The acquisition in Sweden brought again some electronics capability.

Internally, we have funded -- over the last 4 to 5 years, we've been adding to and some very experienced engineering talent, and they're functioning, I'd have to say, extremely well when you start looking that they're around the globe right now in how they're working together to create a common platform.

And we're not seeing competition internally or redundant efforts.

It's really quite exciting and some of these products will start to roll out early next year that have been redesigned based on patented technology that we acquired Agile and incorporating this technology to improve performance, not just the drive product, but the motor product.

So it's -- you know, it's a combination of things and we're not -- we're investing and we talked about areas of excellence; we walk the talk there.

The last downturn, you didn't see us cut anything there, and you're seeing it the same thing here.

We are not cutting; we're adding.

Thank you for taking my call and good luck.

[Michael McCloskey], [Trencor Securities].

Gentlemen, on behalf of my group, I guess I'm going to start out saying I cannot tell you how encouraging it is that you all stay focused on the long haul.

Quarter-to-quarter is not what we're after.

And you threw us the dividend, and that made it real easy.

And I hear what you all are talking about and I've seen how you've executed over the last several years, and please keep it moving forward.

I can hear everything in this conference call, and this has been one of the most detailed conference calls we've had in a long time, and I'm assuming that that means that we're pushing that much closer to where you all want to be and the forward momentum really starts to pick up.

The specific question I have got is, can you flesh out a little more -- I assume that since you put out a press release about the new affiliation with the New York rep, that that was more than just your average pickup, or am I wrong in that assumption?

No, and thank you for e-mailing that question so it gave us a chance to prepare, by the way.

And we encourage you to do that.

Michael did send that question in in an e-mail, and we didn't realize he'd be on the call, but thank you for that.

You're absolutely correct on that.

And that's, you know, something we tried to get across in the press release was that we looked at Canada, We see Canada as being having quite exciting future.

And the rep firm has a -- it covers all of Canada.

It has more than 20 people, sales people in the field, supported by application engineers and back-office support.

It's -- and they're private, so I'm not going to disclose their numbers in terms of revenues and so forth, but I can tell you that they also have expanded into upstate New York and Buffalo, Rochester, Syracuse and down into Binghamton, and seeing some growth there.

And then when we met with them, they are very technically competent.

They have contacts in the marketplace.

They know the customers; they know where the applications are buried; they're loyal.

If you look and you go in and you look at the -- what they talk about is their company policy towards bringing on new lines and so forth, they are very careful.

It took a while to get them signed up, but we both agree we offer quite a bit to each other.

We offer a motion line that -- they had one motor line which they had to go get approval from to allow them to bring us on board, and that's how we act, which we appreciated.

But we are now in the process of going through the training efforts with them and they're coming up to speed.

And I can tell you, the excitement is quite high on both sides.

So it is not an ordinary, you know, we would say reps when signing.

It's a very significant firm, very solid firm, has the contacts and customers based at -- especially start looking at Canada and the different languages in small towns and how far spread apart some of these things are.

You need that local contact, and they provide that.

So you're absolutely correct.

It's going to take some time.

The question you asked is how soon do you expect the new rep firm to have an impact on sales, I believe?

And, typically, I would tell you that it takes, as we mentioned before, our types of products 12 to 18 months to get designed in and to start to realize sales on any new application.

So I would say there's no difference here.

As an additional follow-up, on the China situation, where you've got existing customers that are moving their manufacturing and you're positioning yourself to move with them, kind of a neutral.

At what point organically do you expect or do you all have expectations for yourself at this point to start seeing some new inroads directly into the Southeast Asia market?

That's another good question.

We're starting to see it already, and that's the encouraging point about it here, is that as some of these major companies, as we mentioned, they're looking for a quality supply base in the region.

And they are also, then, reaching out into the China supply base and accessing that, the existing China supply base, and we're being put in contact with some of those suppliers and we were being contacted because as they look at equipment that's being produced around the world and they see whose products are in there, and we're in the region.

So it's -- we are being contacted now and we're starting to see some new applications with new companies that we weren't servicing before in the region.

Again, it's going to take time because I don't think the cycle is going to be any shorter there.

What will change the cycle for us is as the platforms start to come out as standardized product offerings and that is occurring, then you'll start to see some distribution-type sale.

And I don't want to call it that because it will be -- it will be customized product that is put together to meet the exact needs, but it's built off of platforms that fit.

And those will respond will be able to respond quickly to the new application requests and also meet an existing need for, let's say in some cases, some in-house automation that somebody might be working on.

So, it's starting to occur.

And this may be totally out of left field, but I'll hit the other point of the e-mail.

Okay (laughter).

(inaudible) manufacturing even on the radar screen, or is this one still so far out there the practicalities of it -- but it would just seem like precision motor and encoding and all of -- exactly what you all do would be such an integral part if that's ever going to really take off.

And I realize it's about as out there as it gets right now, but it does seem to be getting to be some sort of reality.

Yes, I think -- and just so everybody is -- they didn't see the question, but the question was about the emerging 3-D printing technology and what impact will that have on Allied's business.

And it's interesting.

I can honestly tell you that we were not, and as I'm aware, we may be, but I was not aware that we were actually working in any of those applications.

But you're absolutely correct, so thank you for bringing it to our attention and we've done some research already and we will look at it.

I do think you're correct.

Equipment costs are quite high.

It's not going to be any -- where equipment is being sold for production a process right now, it's going to be prototype, high precision, low volume potentially, but it does require what we offer.

So we will look at it' I guarantee you that.

Thanks for bringing it to our attention..

I appreciate it, and again, I appreciate everything you all are doing.

Please keep those eyes on the long haul.

That's what we're in for, and I hear more on this conference call than I've heard in a long, long time, and I do appreciate it.

Okay, thank you Michael.

At this time, there are no other questions in the queue.

Operator, I did have one other question that was e-mailed in that I would like to respond to here, and it's some of it has already come up, but I think -- let's see if we can answer this specifically here.

And the question is how is Allied Motion dealing with the economic uncertainty around the world?

And that's a pretty broad question, but I think let's just -- first off, I think we can say that we're not pushing the panic button, and as we've discussed earlier here, we are staying focused on our strategy to meet the long-term goals and objectives of the Company.

I think also, if you take a look at the revenues, for the first six months of this year we were $53,683,000 compared to $55,586,000 last year to date.

And while this is a $1.9 million decrease overall, it's made up of -- and I think this is key to understand.

The components that make this up are that 1,614,000 of that decrease is due to the dollar strengthening against the euro and Swedish krone.

So that left -- that leaves you with a $289,000 decrease due to lower sales.

So based on that, I don't think, again, that we're about to push the panic button.

Now also if you add to that our earnings are up 10% year-to-date compared to last year, and you know -- so barring a, as we said earlier, a more significant turn for the worst, we're going to continue executing our strategy and we're going to concentrate on long-term health of the Company.

If conditions do turn worse, we will rue prudently respond.

I think going through our strategy, understanding who we are, I think you have a feel for what that response will be and we are going to stay the course to ensure we win for the long-term.

And we appreciate it when our shareholders do come on the line and ask questions and do tell us that that's basically they're here for the long-term and we do appreciate it because many of you we've heard from over and over again and you have been and we're thankful for that.

So unless there is -- we'll sort of back over if there's another question, but I have answered the e-mail questions and the other ones, operator, let's see if there's any more, and if not we'll just end the call.

There are no other questions, sir.

Okay, well, thank you everybody and we look forward to talking to you again next quarter, and operator, that will end the call.

Ladies and gentlemen this concludes your presentation.

You may now disconnect.