Allient Inc (ALNT) 2013 Q4 法說會逐字稿

Good day to you and welcome to the Q4 2013 Allied Motion Technologies, Inc.

earnings conference call.

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

At the conclusion of today's conference call instructions will be given for the Q&A session.

(Operator Instructions)

I would now like to turn the call over to Sue Chiarmonte, Vice President and Treasurer.

Thank you, operator.

Welcome to Allied Motion's conference call to discuss the quarter and year ended December 31, 2014, and thank you for joining us for the call today.

We distributed our press release yesterday and copies are available on our website at www.Allied Motion.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 or the replay go to the company's website, click on the Investor Relations page, and then click on the webcast icon.

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

I will now turn the call over to Dick Warzala, Chairman, President, and CEO of Allied Motion Technologies.

Thank you, Sue, and welcome, everyone, to our fourth-quarter 2013 conference call.

Please note that with this call we are returning to our past practice of providing results for the combined entity of Allied Motion only and we will not be breaking out the results of any specific business units, including Globe Motors.

As reminder, we did provide our shareholders with detailed pro forma information last quarter and in the amended 8-K filed on January 3 of this year.

Pro forma included the combined results of Allied Motion and Globe Motors for the full-year 2012 and the nine months ended September 30, 2013.

In addition, throughout 2014 we will continue to provide combined Allied Motion and Globe Motors pro forma data for revenues, net income, earnings per share, and adjusted EBITDA.

Here is the plan for today's call.

I will begin with a brief review of the results for the quarter and the year 2013, and we'll then discuss some of the key items that impacted those results.

I will then turn the call over to Rob Maida, our CFO, who will provide you with a detailed financial review for both the quarter and the year.

After Rob returns the call to me, we will provide you with some insight as to the activities and opportunities we see for the future, and we'll then open the mike for questions.

Let's begin with a high-level overview of our results for the fourth quarter and for the year 2013.

I'd like to note that I will only present adjusted numbers, while Rob will provide you with both -- that is reported and adjusted numbers for comparison purposes.

As a reminder, Globe Motors results are included in our reported numbers for the fourth quarter and the year ended 12/31/2013, but they started on October 19 of 2013, as the acquisition was completed on October 18.

And I think it's also fair to say that based on the timing of the year the results that we have for Globe represents approximately two months worth of results.

Revenues in the fourth quarter 2013 increased to $50.1 million compared to $24 million for the same period last year, and increased to $125.5 million for the year, compared to $102 million last year.

Excluding all nonrecurring items the company achieved adjusted net income of $1.8 million, or $0.20 per diluted share in the fourth quarter compared to adjusted net income of $1.12 million or $0.13 per diluted share for the same quarter of 2012.

Excluding the nonrecurring charges in the current year the company achieved adjusted net income of $5.41 million or $0.61 per diluted share compared to $5.37 million, or $0.62 per diluted share for the same period last year.

Adjusted EBITDA, which excludes stock compensation expense and certain nonrecurring items, increased to $6 million in the fourth quarter 2013 compared to $2 million for the same quarter last year and increased to $13.2 million for the year compared to $9.9 million last year.

With regard to our bookings I remind everyone that our past practice was to book and report all orders in the pd they were received, including blanket orders, which might cover anywhere from 12 to 24 months of demand in the past.

Beginning in 2013 we no longer included the full value of the blanket orders when received and only reported them as bookings when they were released to production.

To allow for direct year-over-year comparison I'm reporting numbers following the prior method, that is inclusive of blanket orders.

Orders for the fourth quarter of 2013 were $53.7 million versus $23.4 million in the same quarter last year and orders for the year were $135.3 million, compared to last year's orders of $90.4 million.

Now I'm going to give you some pro forma results and this includes the Allied Motion and Globe Motors which are unaudited pro forma results for the year ended December 31, 2013.

Revenues were $220.7 million.

Net income was $8 million.

Diluted earnings were $0.88 per share and adjusted EBITDA was $26.8 million.

Again, I'll remind you those were unaudited pro forma numbers for the year ended December 31, 2013.

Now I'm going to turn the call over to Rob Maida, who will provide you with a detailed review of the financial results, and then I will be back to provide you with some insight as to the key activities and opportunities for 2014.

Thank you, Dick, and good morning, everyone.

As was reflected in our press release that was put out last evening the Company achieved net income of $3,953,000 or $0.45 per diluted share for the year ended December 31, 2013 compared to net income of $5,397,000 or $0.63 per diluted share for the year ended December 31, 2012.

The results for the year as well as the quarter will be presented as adjusted for nonrecurring charges to provide a better indication of performance associated with operating results.

Additionally, the reported results for the current year include the incremental results of Globe Motors Inc., a subsidiary acquired on October 18, 2013.

While we do not disclose the operating results of individual business units we can say that the profit achieved by the acquired company was accretive to earnings.

The results for the year ended December 31, 2013 include $1.9 million; or $1.3 million net of tax of acquisition-related expenses related to Globe Motors and $234,000 or $159,000 net of tax of relocation expenses in conjunction with moving our corporate office and key employees from Denver, Colorado to Amherst, New York.

Excluding these nonrecurring charges in the current year the Company achieved adjusted net income of $5.41 million or $0.61 per diluted share compared to $5.37 million or $0.62 per diluted share for the same period last year.

Additionally, the results for the year ended December 31, 2012 include two partially offsetting nonrecurring items, the first of which was is $301,000, or $222,000 net of tax received as a concession payment from a landlord for early termination of a building lease, net of expenses incurred to move to new facilities.

And the second is a pretax charge of $238,000 or $178,000, net of tax in the first quarter of 2012.

This charge was reported to cover the expected costs of replacing certain products in the field due to an incorrect electronic component and printed circuit boards supplied by one of the companies subcontract suppliers.

EBITDA increased 9% for the year to $10.1 million from $9.3 million last year.

Adjusted EBITDA, which excludes stock compensation as well as certain nonrecurring items, increased to $13.2 million compared to $9.9 million last year.

Revenues for the year increased 23.1% or $23.5 million to $125.5 million compared to $101.97 million last year with $22.1 million or 21.7% of the increase due to higher volume and $1.4 million, or 1.4% due to a favorable currency change where the dollar weakened against both the euro and Swedish krone.

57% of the Company's sales were to US customers compared with 56% last year with the balance of sales to customers primarily in Europe, Sweden, and Asia.

The 23.1% increase in sales is a result of a 25% increase in sales to our US customers and a 21% increase in sales to customers outside of the US.

Bookings for this year were $121.1 million compared to $90.4 million last year.

As discussed in previous quarters beginning in 2013 we no longer include the full value of blanket purchase orders when received from customers and only report them as bookings when they are released to production.

As Dick mentioned to ensure an accurate comparison we have presented bookings and backlog throughout 2013 in the same manner as the prior year.

Therefore, using prior methodology bookings for the year would have been $135.3 million compared to last year's bookings of $90.4 million or a 50% increase over last year.

Backlogs at December 31, 2013 were $75.6 million using the new methodology and was $83.7 million using prior methodology, compared to $32.9 million last year, or an increase of 154% over prior year.

We had $3.1 million of capital expenditures during 2013 compared to $2.6 million last year.

And to reiterate Dick's earlier comments, on a pro forma basis the Company achieved net income of $8 million, EBITDA of $25.3 million, and adjusted EBITDA of $26.8 million for the year ended December 31, 2013.

For the quarter ended December 31, 2013, the Company achieved net income of $1.3 million or $0.15 per diluted share compared to net income of $1.1 million or $0.13 per diluted share for the same period last year.

Excluding the nonrecurring charges discussed earlier the Company achieved adjusted net income of $1.8 million or $0.20 per diluted share compared to adjusted net income of $1.1 million or $0.13 per diluted share for the same period last year.

Adjusted net income for the fourth quarter excludes $461,000 net of tax for business development costs and $16,000 net of tax for the fourth quarter last year.

EBITDA increased to $5.1 million in the quarter from $1.9 million for the same period last year.

Adjusted EBITDA, which excludes stock compensation expense as well as certain nonrecurring items, increased to $6 million in the fourth quarter compared to $2 million for the same period last year.

And as a reminder, this year's results include the incremental results from Globe, which were not included in last year's numbers.

Revenues for the quarter were $50.1 million compared to $24 million for the same period last year.

This represents an increase of $26.2 million or 109.1%.

Of this increase $25.8 million is due to an increase in sales volume and $412,000 is due to favorable currency change, where the dollar weakened against both the euro and Swedish krone.

Looking at our total sales for the quarter, 63% were to US customers compared with 55% for the same period last year with the balance of our sales to customers primarily in Europe, Sweden, and Asia.

The 109% increase in sales is a result of a 141% increase in sales to our US customers and a 70% increase in sales to customers outside the US.

Our gross profit margin remained steady in the quarter at 28% both this year and -- both this quarter and the same quarter last year.

And for the year gross profit margin was also steady at 29% compared to last year.

Bookings for the quarter were $52 million compared to $23.5 million for the same period last year.

And as a reminder, again, we no longer include the full value of blanket purchase orders when received from customers and only report them as bookings when they are released to production.

Therefore, using prior methodology bookings for the quarter would have been $53.7 million compared to $23.4 million for the same period last year, or 129% increase over that period.

Total selling, general, administrative and engineering expenses increased 95% or $5.0 million for the quarter, and increased 31% or $6.8 million for the year as compared to the same periods last year.

These operating expenses include transaction costs associated with the acquisition of Globe of $678,000 for the quarter and $1.9 million for the year.

Also included are relocation costs of $234,000 for the year as compared to last year.

As a reminder the results for both the quarter and the year include incremental results from Globe.

Excluding the incremental costs of the acquired company our SG&A expenses increased 6.6% for the quarter, reflecting increasing compensation expense, including incentive bonuses and were relatively steady with last year where SG&A increased 1.5% from December 31, 2012.

Depreciation and amortization expense increased $1.2 million for the quarter from $437,000 last year to $1.6 million this year, and increased $1.1 million for the year from $1.8 million last year to $2.9 million this year, reflecting the incremental results from Globe.

For the year interest expense increased $1.4 million to a total interest expense of $1,445,000 due to the increase in debt incurred in connection with the Globe Motors acquisition.

Included in interest expense is $93,000 of non-cash interest charges from the amortization of deferred finance charges.

The Company had $10.2 million of cash on hand at December 31, 2013, compared to $11.7 million at September 30, 2013.

Our cash position declined $1.5 million during the quarter with major uses of cash being $4.3 million used in conjunction with the acquisition of Globe Motors, $2.7 million for debt repayment, $1.3 million for interest payments, and $227,000 for dividends paid.

Hence, with these major uses of cash, which total $8.5 million during the quarter, the Company ended the quarter with over $10 million of cash.

Our debt position increased $86.5 million during the quarter to a total outstanding bank debt of $87.6 million at December 31, 2013, which reflects bank debt incurred for the acquisition of Globe.

As previously mentioned debt repayment during the quarter amounted to $2.7 million.

Our net stockholders' equity at December 31, 2013 was $48 million or $5.28 per share.

And our Board of Directors have declared a $0.025 per share cash dividend that is payable March 14 for shareholders of record, March 3. With that, I will now turn the meeting back over to Dick Warzala.

Thank you, Rob.

In the press release I made the following statement -- and I'm going to read it just in case some of you haven't had a chance to see the press release that went out last night.

The year 2013 was certainly an exciting one for Allied Motion, highlighted by the successful completion of the Globe Motors acquisition in October.

Allied's results in the fourth quarter and the year included a little over two months of revenues and earnings from Globe Motors post acquisition.

In 2014 revenues are expected to more than double relative to Allied's 2013 pre-acquisition revenues, and the Globe acquisition is expected to continue to be accretive to earnings.

Limited one-time costs will be incurred in the first quarter of 2014, primarily in the legal, financial, and tax areas as we work to finalize and implement the benefits available to us as a result of the acquisition.

While Globe is operating in substantially the same manner as it was prior to the acquisition the integration process has started and will continue through the year as we followed a structured approach that we believe will lead to success in the process.

We expect that the coming year will continue to be transformative for our company and that with the addition of Globe Motors we have put ourselves in a position to leverage the capabilities of both companies to create an increasing number of new opportunities by designing innovative Motion Solutions that change the game and meet the current and emerging needs of our customers in our served market segments.

Now what I would like to do is take the opportunity to expand on that PR a little bit and give you a little bit more information.

Again, the PR did mention that it was an exciting year for Allied, highlighted by the Globe acquisition.

So as stated in previous market communications it is our belief that Globe Motors is a solid well-run company, which is evidenced by both the historical financial performance, including solid cash flows and the stability of the Globe management team and the entire workforce.

Our experience thus far continues to confirm that our initial thoughts are in fact on target.

We do expect revenues to more than double in 2014 relative to Allied's pre-acquisition revenues, and we do expect Globe to continue to be accretive to earnings.

Through a proper planning and integration process we can leverage the combined customer base and market shares in the aerospace and defense, medical, industrial, and the vehicle markets to produce even greater sales in each of the markets in the future.

Within the next few weeks we will bring together a team of 65 sales and engineering personnel to begin the process of defining and ultimately capitalizing on the competitive advantages of the combined entity.

By applying the same Allied Systematic Tools, or AST for short, lean principles that are such an integral part of our current company culture, we can define and shape our global sales and support organization and securely position ourselves for long-term sustainable growth in the future.

The challenge to accomplish this objective lies in the minds and hands of our employees and I, for one, am confident that we can and will rise to the occasion and exceed even our own internal expectations.

The PR also mentioned that limited one-time costs were incurred.

And what that statement was referring to is that we are working on other areas post acquisition, including finalizing of the net working capital adjustment as part of the stock purchase agreement, completing the work with regard to taking a Section 338 election to receive certain tax benefits in the future and ensuring the proper company structure is in place to optimize the tax benefits available to us as a company.

While we will incur certain costs they will be limited in nature, and we do expect a financial return on our efforts.

Another point in the PR was that while Globe is operating in substantially the same manner, the integration process has started and we will follow a structured approach.

So in addition to the upcoming sales and engineering meeting several actions have already been taken to link the technology units to ensure we are providing the right solutions for our customers.

We are also working on and exploring synergy potentials in markets, products, production, and sourcing capabilities.

In September of this year we will develop a new long-term strategy that will set the direction and establish the goals and objectives for the next three to five years.

The quote concludes that we expect the coming year will continue to be transformative and that we are going to develop and accelerate motion solutions that change the game.

So in short that's what this acquisition is all about, truly transforming our company and positioning us to achieve even greater growth and success in the future.

We are an exciting and well positioned company, and we are more capable than ever to better serve our target market segments.

While we do have a reputation for high quality innovation and on-time delivery, Globe Motors takes this reputation to new levels.

Globe has a track record of seven years of production on one line and eight-plus years on another of zero defect manufacturing.

While maybe of our competitors may tout low ppm failure rates, or parts per million, failure rates, we can document several years of zero defects.

This type of track record will result in new doors being opened in the future.

Geographically we now have strategic manufacturing capabilities in Europe, Asia, and North America, including lower-cost production facilities in Portugal, China, and Mexico.

While many companies utilize low-cost regions to merely take advantage of low-cost labor, the Allied and Globe facilities in these countries are different.

They are state-of-the-art factories that took on the challenge to raise the bar and utilize technology to provide production capabilities that will endure well into the future, even when the labor cost advantage begins to slip away.

With regard to customer support we are investing in expanding our technical and sales support capabilities through the implementation of our solution centers within our key geographic regions.

Global companies want and need global support and Allied Motion can clearly demonstrate that we are making the investment to ensure that their needs are being satisfied.

Regarding innovation one could argue that innovation was already alive and well as demonstrated by the several awarded and pending patents within both companies.

While patents are a good indicator of innovation what truly separates the pretenders from the real players is the ability to utilize the patented technology to bring game changing solutions to your served market segments.

Globe and Allied have demonstrated the ability to do such through the development and sale of leading edge power steering solutions in several types of vehicles and through high-performance motor/gearing solutions used in several cutting-edge medical applications.

This type of creativity is supported by a company culture that constantly challenges its team to provide solutions with the most compact, differentiated products or systems that change the game and add value to our customers' products.

While the coming year will be transformative and we have many opportunities ahead you can count on us to continue to utilize Allied Systematic Tools, or AST for short, to improve efficiencies and eliminate waste throughout our company to improve quality, [deliverability], cost, and innovation.

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

With that, operator, I will now open the mikes for questions.

Thank you.

Ladies and gentlemen, your Q&A session will now begin.

(Operator Instructions)

Okay, well, I'll tell you what we'll do.

Again, thank you, those of you who have -- we have a question?

Jeff Geygan.

Good morning.

Thanks for your time today.

I find this to be kind of interesting, the acquisition you've made.

Given that you offered the pro forma revs of $220 million, can you tell me what your revs for 2013, ex Globe Motors were?

As we've said, Jeff, that was a question that was already sent to us also so I will address that right away.

We said that we are not going to split out the results of any of our business units, including Globe Motors.

There are several reasons for that.

And first off we do have competitive issues and information that we certainly don't want to disclose out there -- and by the way, our competitors do listen in; we are aware of that.

Secondly, as you understand the Company culture and what we are building and what we've been building over the years here you've heard us talk a lot about One Team.

And I find that if we are going to talk about individual units, you are going to break apart the concept of One Team.

So, therefore, we are not going to do that.

And we will give you pro forma results.

And we think that's really the true indicator of how well we are doing.

So it gives you the combined results of both companies in the past and it gives you the combined results as we continue into the future.

I hope you can accept that and everyone else can accept that.

Well, fair enough, but I'm just trying to add to statements you made.

If then the fact that you gave us a number on a pro forma basis, your revs were $220 million last year and your statement further was that you expect your revs in 2014 to be twice -- 2X.

I mean should we use $220 million as our expectation for your revs in 2014, or is there a different number that I can extrapolate from the data you've given us so far?

Fair enough.

And I knew I put myself in that position when we made the statement that it was Allied Motion numbers, post acquisition and so forth that that question was going to come up.

Let us say that we are confident we will do more than $220 million.

Okay.

Thank you.

I accept that.

The second part is you've used some adjusted numbers, so let me beg this -- your adjusted EBITDA margin for 2013 as I looked at it seems to me to be roughly 12%; your adjusted net income, about 3.5%.

It's hard for me to see that you have a lot of synergies in the stated periods.

Should we assume that on this larger revenue that those margins will stay the same or would I expect those margins to improve on a forward basis as a result of your synergistic savings?

Yes.

Oka, fair question.

With regard to synergies, I think we've always talked about synergies on the growth side.

Certainly there are some cost-saving opportunities for us.

And we will be working on several of those items throughout the year here.

The synergies that we are focusing on is how do we take the strengths of both companies and use it to execute our strategy?

And I will remind everyone that the strategy that we have developed and continue to execute over the last 10 years talks about us being a technology/know-how-driven company.

And in order to be successful you have to be better than your competition in the engineering disciplines -- sales engineering, application engineering, design engineering, manufacturing engineering, etc.

So the first focus of our Company is to continue to grow the top line and leverage those capabilities to eliminate redundant work that's being done in several locations and to utilize that personnel to do more.

You are absolutely correct on the opportunities that are there.

And we are beginning the process -- and I have to say beginning the process and it's going to take a little bit of time here to start to pull together where some of the additional opportunities are, certainly in the sourcing and production capability.

So going forward, looking at -- I guess I'll let Rob deal more with the numbers side of it from when you add in, when we look at EBITDA or adjusted EBITDA; okay?

Because I think that's a more true representation with the debt load that we are carrying today of what the Company is really doing.

So maybe, Rob, you can add a little bit to that?

Or, Jeff, if you need more clarity in the question you might want to reframe it for Rob.

I'll let Rob take a whack at it unless he wants me to restate it?

No.

I think to add onto Dick's comments I think from a standpoint of synergies and what that would relate to in terms of future EBITDA margin I think that we certainly would expect that what Dick is talking about, the synergies that we are trying to create and build upon in the organization will result in increased margin in EBITDA and adjusted EBITDA numbers.

I think that one key area that Dick mentioned earlier in his statements is related to AST.

AST, as we continue to build upon these two companies and look at the synergies between these two companies, we will be applying our lean principles to the entire organization.

That includes lean manufacturing and that would include the aspects of the front office and back-office lean.

And I do think that from a standpoint of increased margin we would certainly expect some of those to develop through the use of our AST model in capturing some of those synergies.

Hopefully that answers your question.

It adds color.

I appreciate that.

With respect to the cost synergies, Dick, I believe you mentioned that you'd find that in your markets, your products, your production, and your sourcing, which all makes sense.

Can you add a little flesh to that bone and give us a sense of the absolute type dollars we are looking at or potentially percent improvement as a function of these synergistic savings?

Well, I think that's tough for us to do right now.

I think as we mentioned, we've built some numbers internally that we have never used in any of the numbers to justify the acquisition itself, and we have set some goals for ourselves for improvements that we can make.

If we use production, for example, we have to find a better way to utilize production facilities.

We have, as I mentioned, state-of-the-art facilities in low-cost regions.

Our customers -- some of the global customers we are working with today, that's allowing us to just be able to engage in securing their business.

In the past we were not viewed as a company that really could support someone globally.

So what we're seeing today is customers -- again, look at top-line improvement to leverage that overhead that already exists to generate additional margin.

And that's really how we're looking at it.

And it's coming true.

We are in great receptivity by certain customers that in the past did not see us as a real player there on a global basis.

Now when you start looking at improvements from an AST standpoint, we had various and many, many examples where we had conducted certain lean events.

And the lean events that we have conducted, if you look at our factories today versus what they were 10 years ago, you will see a massive reduction in floor space requirements.

What's that mean to us?

Well, if you own factories, you own facilities, it doesn't do much if you still have the space.

It's just idle and it's empty.

Well we do have big pockets of space sitting in certain facilities.

And it certainly gives us the opportunity to leverage some of that -- some of the requirements for manufacturing in key locations and adjusting it to a certain extent, especially in leased buildings, where we can downsize, we can pay for less space.

And I think that's what we're seeing.

And so we see improvements in quality, we see improvements in efficiency, improvements in floor space required; all of those are part of the normal process of AST.

And we don't see any reason why we can't continue to do that or even accelerate that in the future, as well as leveraging certain factories that we have that give us the opportunity to sell competitively or be competitive from a production standpoint.

So not exact numbers but, again, we do have several cases where floor space, quality improvements and so forth that we can relate back to in the past.

And, Dick, I understand you have -- for competitive reasons you want to be careful about what you say.

I understand that.

So I want to make a statement and maybe you can just affirm it.

You've indicated that the Globe Motors acquisition will be accretive; ergo, if I look back for the last two, three years and then I look forward to the next one to three years I would believe if it's in fact accretive that that would bear out on your financial statements.

So whatever your condition was a year or two ago, presumably with accretion your metrics should be more favorable on a forward basis.

If you could just say, yes, I understand that correctly; I would appreciate it.

I am looking at Rob, and he is nodding his head yes.

You couldn't see that, but I could.

Last question here -- you have $10.2 million in cash.

Your balance sheet profile has changed quite a bit because now you have a substantial amount of debt.

You've used that cash in some ways for dividends, acquisitions of course.

You've got CapEx requirements.

There some amount of other cash needs, but given you are a larger company, you're working capital requirements have changed and with the debt load, how would you anticipate your uses of cash will change in the future?

Yes.

That's a good question and I will pass that onto Rob.

That was also a question that was sent in over the web to us, so thanks for bringing that up.

Rob, go ahead.

Jeff, I think to answer that question I think I'd like to state first that the performance of the organization historically has been very strong from a cash generation standpoint.

And if you look at both of the organizations, you look at Globe historically as well as Allied has been a very good cash generator, if you will.

So the cash flow of the combined entity historically, when you take a look at it on a pro forma basis, historically is strong, and certainly evidenced by this fourth quarter, where our cash position as I stated we utilized $8.5 million of cash and we still ended the quarter with over $10 million on our balance sheet, so strong historical performance.

I do expect that these entities continue being strong cash generators.

We don't see any reason why there would not be strong cash generation coming forth.

And, again, I will in the future I see even stronger performance quite frankly on a cash basis.

And the reason I say that is what Dick was just talking about related to AST.

And if we are looking to enhance our position as a lean organization then everybody who understands lean understands the benefits and what that does for cash -- and freeing up cash by pulling waste out of the organization as a whole.

And as we apply all of our principles I do expect that we will even be a stronger cash generator in the future.

And your attitude towards your debt, the roughly $87 million outstanding, where does that fall in your priority list in terms of uses of cash and how aggressive you want to be in reducing or eliminating that?

I can answer that a little bit and then Rob can add more to it.

First off, the $30 million of the mezz is something that is there for three years, and there is no prepayment allowed on the mezz itself.

The bank debt -- the senior debt -- we have to, per the covenants in the loan agreements, is that 50% of our excess cash that we generate has to be used to pay down the bank debt.

So -- and that's on a year-over-year basis -- so if we generate excess cash -- let's pick a number, $10 million this year; $5 million of it is going to pay down the bank debt in addition to the normal quarterly payments that we make.

Now, that leads us into what else and how else do we want to address the debt itself?

I think it comes into play with several other questions that were sent in to us with regard to, are we going to do additional acquisitions?

Are we going to put an investor relations Program in place?

Are we going to go out and offer equity to pay down some of the debt?

All of those are options open to us right now.

And I think as Rob had stated, if we look at the fourth quarter alone we generated a net positive $7 million in cash; approximately $7 million in cash in the fourth quarter alone with $8.0-some million of use and a reduction of cash from $11.7 million to $10.2 million, okay?

So I think we are confident that we do have the cash to continue to operate, but we do have other options available to us, Jeff, that we are going to explore for sure.

And some of these other factors may come into play.

If we look at the acquisition questions, are we working on any other acquisitions?

And if so what should our expectations be for the future?

And I'm going to say, we are always active.

Acquisitions take time.

You have to groom them sometimes many years in advance.

We won't pass up on a good one.

Now, depending on how big it is and what's required, that may cause some restructuring, may cause us to take some action to work on that bank debt as we know it today.

So we are open to it, we are dealing with it, we are comfortable with it.

And based on certain agreements that we have, there is not -- we have to do certain things in a certain way.

When the mezz debt comes up in three years from now we will be addressing that, okay?

So I hope I have answered your question and if there is anything else that you have on it, please feel free.

I do appreciate it.

I feel like I've taken more than my share of time here, so thank you very much.

Good luck.

I hope all of your plans come true.

And I will look forward to hearing from you on a frequent basis in the future.

J.D. Padgett, ALMAK Capital.

Hi.

A couple questions -- one sort of high-level.

I'm just trying to get re-acquainted with the combined business.

But could you shed any light on kind of end market exposure for the combined businesses and any type of seasonal impacts that we should be aware of now, with a greater percentage of the business in Europe?

Well, let's talk about first the impact of the business and what our major markets are and so forth.

I think, J.D., if I remember seeing your question you also sent that into us on the web, or in an email and you asked about the markets.

I mean, our top five markets as a company -- vehicle is now number one; okay?

Especially with the addition of Globe; that's our largest market.

And when we talk about vehicle, all aspects of vehicle.

Industrial is a large segment for us, and that covers many different types of items.

Medical is a large segment.

Electronics is a large segment.

And aerospace and defense is a larger segment than it was in the past.

So vehicle is certainly the largest, and we are now more -- each of the other segments have grown also, as well.

So we still have some good diversification.

And even when we talk about vehicle, there are so many different types that we are dealing with here.

So seasonality is a different question.

There has been a little bit of seasonality in the past, and I will also say a little bit.

And some of that is caused I would say by our European markets where we do see in the fourth quarter things tend to slow down a bit.

We also see in the summer months where things tend to slow down a bit.

We think we are probably now, again, with Globe, we are going to see less of an impact on the big picture, with the combination of the two companies.

So seasonality has a minor -- I'll just say a minor impact -- will have a minor impact on our results.

Although I still would expect somewhat in the summer and somewhat in the end of the year.

The fact that more business is in Europe -- as a percentage that's not going to be the case.

Actually, more business is going to be in the US.

If you look at the combined entities as a percentage of what we would report in the past, as a percentage of our overall business in US versus rest of the world you are going to see the US will have actually increased.

Okay.

And then just one or two other quick ones.

This analysis might be somewhat simplistic, but if we look back at the pro forma that you previously shared and you kind of take an average quarter of revenue for just Globe, standalone in 2012, it was like $26.5 million.

And then through the nine months of 2013 it was closer to $30 million a quarter.

Were they really growing that fast, and if so why?

Or was there just some kind of anomaly in the way that I've looked at that simplistically that kind of is making the calculations maybe not all that valid for that kind of analysis?

There is growth.

Why were they growing so strong when I know that Allied, standalone, through 2013, was somewhat flattish, year over year?

Correct.

You are correct.

They have won some new applications and some new business, and that's the growth.

Okay.

And are you still optimistic that that's sustainable for them going forward?

Yes.

And then just one final question if I could, I know historically your backlog was around a quarter of revenue.

And now I look at the ending year backlog for this year, somewhere around $75 million or $76 million, I think you said, which is much stronger than one quarter forward revenue run rate.

Is that just more longer-term projects in there, or is that just a very strong Globe backlog that now gets rolled in?

Again, it's something that I guess we really, as we said, we don't want to split out and start talking about separate technology units, but I will confirm that it is a strong Globe backlog that has helped.

But also, you have to remember that as we give you the comparisons of the way we used to book things on a previous -- on a prior basis than we do now as we adjusted down by not taking blanket orders this past year into the backlog and so forth, you would've seen that decline for the Allied base business.

And now, that's out of there, so you'll see a much more -- you won't see the big spikes that we saw in the past, for quarter over quarter for bookings, and therefore, increasing the backlog because we have changed the methodology for booking the blanket orders.

So I think there was some adjustment that occurred in there because of that, and that's out of the system now, and as we move through 2014 we will have a more regular -- and we will be able to really compare that on a, I would say, on a consistent basis rather than the peaks and valleys or the spikes that we would have from getting a large blanket order that might have been in place for one year or 18 months or even two years, in some cases.

Okay.

Perfect.

But it sounds like, as opposed to having one quarter of revenue coverage looking forward, now that metric is somewhat stronger, just gives you a little better confidence about the outlook and that kind of stuff.

Well I guess I am looking at Rob and I'm saying, I'm not really prepared to really say at this point what we think the backlog is going to look like.

I think we are going to see -- is it going to increase or going to get smaller?

I would suspect because of the methodology change that we made that we would basically show less backlog than we had in the past.

So if in fact the spikes -- the peaks and the valleys are coming out on a regular basis and we are consistent in the way we are doing it across the company, I would expect that the backlog itself might show decreased levels, but again you've added another factor in there, and that is the Globe business that made some changes to that.

I'd say, just bear with us.

Let us get through a couple of quarters here and we'll get a better feel for what we should expect going forward.

Okay.

Sounds great.

Thank you very much.

Thank you.

We don't have any further questions at the moment.

Okay.

Let me --

Oh, I was just about to give another reminder, but if you --

Well I'm going to just tick through some of the questions that we received.

And JD's was -- he had sent some in so I can cross those off.

Some have already been answered, of the questions here, so I'm not going to repeat them.

There is a question that comes up -- and it does come up frequently -- was regarding IR work, Investor Relations work.

And the question came in as a statement and then a question that said that, I think AMOT has a good story to tell which I believe with the right promotion could result in a higher stock price for the company.

Do you plan on implementing an IR program in the near future?

I'd say to you, we are not against an IR program.

We've been consistent in our message to those who have approached us and many of our shareholders have offered up some sources that they believe are very effective -- can be very effective with the company.

The decision we've taken -- and when we deal with the professional firms they understand our position and actually grudgingly agree with it.

We are saying, we need to retain our focus on the integration.

That is the most important thing for us in the near future, making sure we get this right and we truly are capable of leveraging the synergies of these two companies.

We've said it's transformative, and it will be.

So therefore, we will have a better story to tell.

And we have a good track record of converting acquisitions; if you look back in our past you will see it's a very good track record of doing that.

And I think one of the key elements for our success has been focus and making sure that we stay on top of it and we engage in the integrate in a proper manner -- in a planned process and stay focused.

Therefore, we will do that.

We will stay focused on it and we will not -- in this quarter or next quarter be looking at implementing an IR program.

That takes a full commitment and it takes quite a bit of time and resources.

So, again, I'll ask you just bear with us.

We are not against it and we realize there are benefits, but we are not going to derail what the most important task ahead of us is, and that is a proper integration, okay?

So that was a question and I hope that's been answered.

And if anybody has any further questions on that, please go ahead before I get onto the rest of them.

I had an audio question from the line of, is it Michael?

[Nacroski], go ahead.

I just want to comment on top of what you are saying there, Dick, on behalf of my group, please, this is consistent with your tradition of long-term planning as opposed to short-term.

And so I hope you will stay on that track as long as possible.

It's a waste of your focus and takes away from what you have been able to do and accomplish over these past few years.

It's just a vote of confidence to please continue in that way.

Thank you, Michael.

I hope through our response here you realize that that is our plan.

Thank you, Michael.

That is all I wanted to comment.

Okay.

Thank you, Michael.

Let me just -- I'll tick off these others real quick here for us.

We do appreciate your questions.

One of them is -- we've talked about it a little bit but let me just summarize real quick.

It says, how is the Globe acquisition doing?

That is, is it meeting your expectations in terms of financial integration and synergies?

I will say quickly, on the financial side, yes.

On the integration, I think we've talked about that extensively here today with regard to what our integration plans are and the process, we are going to hold the course there -- we're going to stay the course there.

So I am still very confident that we are going to succeed as planned and we are going to come out stronger as a result.

Synergies, we talked about the synergies.

We mentioned synergies.

Again, they mean different things to different people.

Many talk about synergies being how much cost can you eliminate?

Some talk about what growth opportunities do you have?

As I mentioned, we are emphasizing the growth opportunities to start with and getting some large -- sine larger wins and stronger -- we're dealing with bigger companies and we think that we can leverage those synergies that give us that capability.

I mean, it's a very, very strong selling point when we can walk into customer accounts and say look here is a company that we acquired that has seven years, eight-plus years and two different production lines of zero defects.

That's music to their ears.

And we have capabilities to produce in multiple regions where large companies are setting up plants and recognizing that in order to really win in those regions they also have to set up plants and we are there to support them.

So I think to answer your questions, yes on the financial integration is moving along as planned.

And we are moving forward and looking at the key synergies that we see are important for long-term growth.

Let's see, there is one other one here.

There's two other ones.

I don't want to -- first -- I'm going to send both of these over to Rob.

One was on a computer system, asking, can you update us on the status of your new computer system implementation efforts?

And how does the Globe acquisition impact implementation, if at all?

Rob?

Sure.

What we will state is that we have begun -- we continue our efforts on the implementation of our ERP system.

Certainly this past year with our efforts with this acquisition some of our focus has been a little bit delayed on that, but we are back on track and actually we've begun the roll-out process to three of our business units globally for 2014.

And I think I heard you state, Dick, that how does perhaps the Globe acquisition impact that implementation effort?

Actually, Globe is running a Microsoft ERP system similar to our package that we have chosen within Allied, prior to the acquisition; Different versions of a Microsoft product, but a Microsoft product still the same.

So at this point Globe runs their own ERP system, and until we actually finalize the path that we've gone down with implementing to our -- I guess I would say Allied business units where much more diversity and legacy systems exist, that will be a future -- something that we would look at in the future as to whether or not there is benefit.

Okay.

Thank you, Rob.

And the last question, we've already touched on this a bit but I think what we will just do is a different twist on it, and it was with regard to outlook for cash flow in the future and will it have an impact on Allied continuing to pay a dividend?

The answer is I think we have already stated that we are confident about our cash flow going forward.

And that with regard to a dividend as long as we continue on that regard we don't expect to change a dividend.

Of course, if something were to happen where cash flow became an issue then certainly the dividend is something that we could address.

But right now we have no plans to discontinue.

And our plan is to just manage that cash flow and get it strong and keep it stronger.

Or keep it strong and get it stronger in the future.

So that's it for the questions that were sent in.

And I guess if there are no other questions, operator, we will check one more time, then we can go ahead and end the call.

We have no further questions at the moment on audio.

All right.

Well, thank you, everybody, for participating.

And we look forward to providing you with the first-quarter results which will include a full first quarter of shipments and earnings from the Globe acquisition and it's coming up on us real quick here.

This one was fairly late in the game and so we will be talking to you very soon and we appreciate your continued support.

Thank you, operator.

That will end the call.

Thank you.

So ladies and gentlemen, that now concludes your conference call for today.

You may now disconnect.

Thank you.