Allient Inc (ALNT) 2014 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2014 Allied Motion Technologies earnings conference call. My name is Derek, and I'll be your operator for today. (Operator Instructions) I would now like to turn the conference over to Ms. Sue Chiarmonte, Vice President and Treasurer. Please proceed.

Thank you, operator. Welcome to Allied Motion's conference call to discuss the second quarter ended June 30, 2014. We'd also like to thank you for joining us on the call today.

We distributed our press release earlier this week -- actually, yesterday, late afternoon -- and copies are 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 or 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 second-quarter 2014 conference call. Please note that this quarter is the second full quarter of reporting that includes the Globe Motors results in our numbers.

Here is the plan for today's call. I will begin with a highlight of the year-to-date pro forma results and will then turn the call over to Rob Maida, our CFO, who will provide you with a complete and detailed financial review of the quarter and the year-to-date results. After Rob returns the call to me, I will further elaborate on our earnings announcement press release and will provide you with some additional insight as to the activities and opportunities we see for the future. Once that is complete, I will then open the mics for questions.

As previously indicated, we will continue to provide unaudited pro forma information throughout 2014 as a means of providing a comparison of revenue, net income, and earnings per share, giving effect to the acquisition as compared to the historical results for Allied Motion. Accordingly, the Company's pro forma financial information for the six months ended June 30, 2013, giving effect to the acquisition of Globe Motors as if it had occurred at January 1, 2013, compared to the actual results for the same period of 2014 are as follows.

For revenue, pro forma 2013 year-to-date was $104.1 million; and the actual 2014 year-to-date is $122.5 million. For net income, it was $3.9 million; and the pro forma for 2013 year-to-date and the actual for 2014 year-to-date is $4.8 million. That results in diluted earnings per share of $0.43 on a pro forma basis for 2013 year-to-date and $0.53 for actual 2014 year-to-date.

As a reminder, included in the pro forma information is the additional depreciation and amortization resulting from the valuation of amortizable tangible and intangible assets; interest on borrowings made by the Company; the amortization of deferred finance costs incurred to issue the borrowings; removal of acquisition-related transaction costs; removal of certain costs for which Allied Motion would be indemnified by the seller; and stock compensation expense related to shares issued to certain executives of Allied Motion as a result of the acquisition. That is just something that I was required to do. So I did my duty, and I understand that.

And now what I will do is turn the call over to Rob Maida.

Thank you, Dick. As was reflected in our press release that was put out Wednesday evening, the Company achieved net income of $2.693 million or $0.29 per diluted share for the quarter ended June 30, 2014, compared to net income of $819,000 or $0.09 per diluted share for the same period last year.

EBITDA increased to $7.2 million in the quarter from $1.6 million for the same period last year. And adjusted EBITDA, which excludes stock compensation expense as well as certain nonrecurring items, increased to $7.6 million in the second quarter compared to $2.7 million for the same period last year.

Revenues for the quarter were a record $62.1 million compared to $25.4 million for the same quarter last year. This is an increase of 145%, with 144% of the increase due to higher sales volume and 1% favorable currency change due to the dollar weakening against the Euro.

Looking at our total sales for the quarter, 64% were to US customers compared to 54% for the same period last year, with the balance of our sales to customers primarily in Europe, Sweden, and Asia. The 145% increase in sales reflects higher sales at all TUs and is a result of 191% increase in sales to our US customers and a 91% increase in sales to customers outside the US.

Bookings for the quarter were $63.5 million compared to $26.4 million the same period last year, or an increase of approximately $40 million, resulting from the addition of Globe as well as increases at most of our TUs and reflects a continuation of growth recognized in previous quarters. Backlogs increased 1.4% or approximately $1 million for the quarter to $80.8 million compared to $79.7 million at March 31, 2014, and compared to $26.9 million as of June 30, 2013.

Our gross profit margins remained unchanged at 30% this quarter compared to the same quarter last year. Total selling and G&A and engineering expenses were $6 million higher for the quarter as compared to the same period last year. This increase is largely due to the addition of Globe Motors along with higher stock compensation expense and incentive compensation expense resulting from improved profitability.

Depreciation and amortization expense increased $1.4 million for the quarter, from $417,000 last year to $1.8 million this year, reflecting the additional depreciation and amortization related to the Globe acquisition. Interest expense increased for the quarter to a total of $1.6 million from $8,000 for the same period last year -- and, again, reflects the additional debt associated with the acquisition.

And we had $987,000 of capital expenditures during the quarter compared to $872,000 for the same period last year.

For the six months ended June 30, 2014, the Company reported net income of $4.8 million or $0.53 per diluted share compared to net income of $1.8 million or $0.20 per diluted share for the same period last year. Revenues increased 143% to $122.5 million compared to $50.5 million last year, with sales to US customers up 195% and foreign sales up 84%. Of the total 143% increase in sales, 142% is due to an increase in sales volume and 1% favorable currency change due to the dollar weakening against the Euro.

Bookings for the first six months this year were $127.9 million compared to $44.4 million for the same six months last year. Gross profit margin achieved was 29% for the six months compared to 30% last year, which primarily reflects sales mix.

Selling, general, and administrative and engineering costs increased by $11.9 million and primarily reflects the inclusion of Globe Motors' SG&A along with an increase in incentive compensation due to improved profitability. Also included are higher engineering costs, reflecting Allied Motion's continued investment in our technical resources to better leverage the capabilities of both companies and create an increasing number of new opportunities which meet the needs of our customers.

For the year, depreciation and amortization expense increased $2.6 million from $830,000 to $3.5 million, while interest expense was up $3.2 million to a total expense of $3.3 million, reflecting the additional expense associated with the acquisition. Also, for the six-month period we had $1.5 million in capital expenditures compared with $1.2 million for the same period last year.

Adjusted EBITDA increased to $14.6 million for the six months year-to-date compared to $4.8 million for the same period last year. Additionally, the six-month period last year excluded $638,000 of acquisition-related expenses and $234,000 in expenses related to the move of our corporate offices to Amherst, New York.

Total outstanding debt at June 30, 2014, was $82.5 million compared to $87.6 million outstanding at December 31, 2013, and $567,000 at June 30, 2013. We had $10.99 million of cash on hand at June 30, 2014, compared to $10.17 million at December 31, 2013, and $11.26 million at June 30, 2013. Therefore, our cash and debt position improved $5.9 million from December 31, 2013.

Our DSO increased to 49 days at June 30, 2014, from 45 days at June 30, 2013, and is unchanged from 49 days at the end of 2013. Higher sales levels with extended payment terms are contributing to this overall increase. These extended terms are customary in the market segments served. Inventory turns increased to 6 and June 30, 2014, compared to 4.5 at June 30, 2013, and up from 5.1 at the end of 2013 and reflects better overall inventory management and certain high-volume applications where inventory inherently turns more quickly.

Our net stockholders' equity at June 30, 2014, was $52.8 million or $5.72 per share compared to $43.9 million or $4.96 per share for the same period last year. And finally, our Board of Directors just declared a $0.025 per share cash dividend that is payable September 9 for shareholders of record of August 27.

I will now turn the meeting back over to Dick Warzala.

Thank you, Rob. As I have done in the past here -- and I will keep with the practice -- just in case you haven't had a chance to read the press release, I will read my statements to you, and then I will elaborate a little bit in more detail on those statements.

In the press release, I commented: we are very pleased with our record results for the second-quarter 2014, as they validate our previous comments that we expect our revenues for 2014 to more than double relative to Allied's 2013 preacquisition revenues and for the Globe acquisition to be accretive to earnings. When comparing the pro forma results of Allied and Globe for the six months ended June 30, 2013, to the actual results of Allied and Globe for the same period of 2014, our revenues increased from a pro forma of $104.1 million in 2013 to $122.5 million in 2014, and our earnings per share increased from a pro forma of $0.43 per share in 2013 to $0.53 per share in 2014.

Also, on a year-to-date basis we experienced growth in our served markets of medical, vehicle, and aerospace and defense, while our industrial electronics markets were relatively flat. The Allied/Globe integration process, in which we have focused primarily on leveraging growth opportunities for the combined entity, is proceeding well.

In September of 2014 we will take the process to the next level when we update our long-term strategy and establish the goals and objectives for our Company for the next 3 to 5 years. While we consider 2014 to be a transformative here for Allied Motion, our long-term success will be further enhanced by leveraging the capabilities of both companies to design innovative motion solutions that change the game and meet the current and emerging needs of our customers in our served market segments.

So now what I will do is I will just expand on those comments a little bit further and give you a little bit more color on the PR -- again, the statement that refers back to our previous comment, stating that the revenues are expected to more than double and Globe would be accretive to our earnings. Now, the statement was provided for reference purposes only. And beyond that, we will let the reported results of 2014 year-to-date result revenues of $122.5 million and EPS of $0.53 per share demonstrate that we are on track to meet the numbers that we have presented.

Growth continued with -- also on a year-to-date basis, we experienced growth in our served markets of medical, vehicle, and aerospace and defense, while our industrial and electronics markets were flat. It is important to note that the comparison reflects the actual growth experienced by the combined entity of Globe and Allied in 2014 over the actual data from Allied Motion for the prior year.

In addition, with the many new opportunities we are pursuing, we are experiencing an increasing number that include multiple Allied Motion technologies, which we commonly refer to internally as motion solutions. We feel that the more we can leverage the full capabilities of the Company, the better our chances are to win the business and to improve our margins at the same time.

Continuing in the PR, it stated the Allied/Globe integration process, in which we have focused primarily on leveraging growth opportunities for the combined entity, is proceeding well. And then it also mentioned that in September 2014 we will be updating our strategy.

During the conference call last quarter, we had reported that in the first week of April 2014, we assembled a team of 66 sales and engineering personnel from both Globe and Allied to begin the process of defining and ultimately capitalizing on the competitive advantages of the combined entity. We identified and then focused on the most significant, critical issues on an interim basis, which would lead us up to our strategy update planned for September 24 through 26 of this year.

A strategy update will result in us defining the critical issues and action plans required for us to achieve the goals and objectives that we will set for Allied for the next three to five years. Beginning in the fourth quarter of 2014, we will utilize our strategy deployment process to ensure we execute and stay on track to meet the goals and objectives as defined during the strategy session. I fully expect our team will establish a new set of goals that will be both challenging and rewarding and will lead the Company to change the game in all the aspects of our business.

The quote concludes with: while we consider 2014 to be a transformative year for Allied Motion, our long-term success will be further enhanced by leveraging the capabilities of both companies to design innovative motion solutions that change the game and meet the current and emerging needs of our customers and our served market segments. For sake of clarity, we will continue to emphasize that this is what the Globe acquisition was all about -- that is, transforming our combined Company and to position 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.

Internally, 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. In doing such, we will constantly focus on improving quality, delivery, 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.

While I have previously discussed our commitment to continuous improvement in quality, delivery, and cost, I would like to provide you with some insight into a few unique opportunities we have identified for our Company. The first would be our sales and support organization.

We have the ability to define and shape our global sales and support organization to securely position ourselves for long-term, sustainable growth in the future. Our customers are looking for global support, and we have the resources and the global reach to provide them with what is required to meet their needs.

Another unique opportunity for Allied Motion is the innovation area. Globe and Allied have already demonstrated the ability to provide game-changing solutions through the development and sale of leading-edge power steering solutions in several types of vehicles and through high-performance, motor-sized gearing solutions used in several cutting-edge medical applications.

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, we have the ability to leverage our current capabilities for even greater success in the future.

Another one of the unique opportunities for our Company is our geography. We now have strategic manufacturing capabilities in Europe, Asia, and North America, including lower-cost production facilities in Portugal, China, and Mexico. The Allied and Globe facilities 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.

Once again, we provide our customers with a manufacturing footprint that can service their needs in key areas of the world. In summary, the Allied Motion is delivering solid financial results. And by leveraging the capabilities of the combined Allied Motion and Globe Motors entity, we are optimistic that the best is yet to come.

With that, operator, we are going to open the mics for questions.

Charles Neuhauser, Mainwall Investment Management.

Just on a very simplistic basis, obviously the earnings per share in the just-reported quarter were noticeably higher than in the first quarter. And I just wondered if there was any seasonality to those results, or if it is simply a continuation of your improving the efficiency of the operations? And secondly, looking forward in general, is there any seasonal pattern to the business that we should be aware of?

Charles, this Dick Warzala. I will start, and then I can turn it over to Rob.

But again, as we said, this is the second full quarter of results that we are reporting with Globe. So I realize, and -- you know, it is understandable to ask the question, because there really isn't any historical data out there for you to compare this, other than the pro formas that we have provided.

We do believe that there will be a little bit of seasonality. And the seasonality, most likely, as we have seen even in the pro forma, second quarter we do see a spike up. And we tend to see a little dip in the third quarter, if we are going back historically, based upon our business in Europe.

I have to stress that if you look at our sales in the second quarter, you will see that the second-quarter results -- shipments were more US-based than in the previous quarter. And that may reflect, again, which we are talking about, is a little bit of seasonality that we might see in the second quarter.

Rob, do you have any other color you want to add to that?

No, I think, Dick, you did mention some seasonality. Additionally, I do think there has been some improvement.

Certainly, we continue to drive AST throughout the organization for productivity improvements. And I think we are seeing some of that as well as we continue to integrate and onboard.

Great. Thank you very much. Thanks.

(Operator Instructions) J.D. Padgett, ALMAK Capital.

Another great quarter. Two quick questions, if I could. I couldn't remember -- are there any sort of earnout provisions associated with Globe?

Answer to that is no.

Okay. And then, secondarily, it seems like Globe's business has a little more customer concentration. Could you just elaborate on that? I didn't know if that was maybe because some of their product went through distribution, or they just have some larger, more strategic customer relationships.

Their product, to answer your question, does not really go through distribution. There are some reps that sell the Globe product; there's a network of reps around the world. But they do have some larger, strategic customers, to answer your question.

Okay. And then any sort of success stories in terms of approaching former Globe customers and cross-selling previous Allied products or vice versa?

Good question. Former Allied and cross-selling and so forth -- our focus has been on really looking at the entire product set that we have to offer today, or solution set, I would say, between Allied and Globe. And to answer your question, we have a few success stories.

I can't honestly say that you have seen any results yet in the numbers, but we are also working on several others that we can leverage the products and capabilities of both companies. So it is happening. And there are opportunities for us.

So still really early innings in terms of building on any of the synergies.

It is. It sure is. You know, when you recognize that, as we talked before about that, typically it is anywhere from one to two years to get designed in, and sometimes longer on certain platforms by the time they get to production.

So if you realize that we've been together now as a company or a combined entity of a little over eight months, close to nine months here now -- 8.5, I guess, to be exact. So it will take a little bit more time.

And it is interesting to ask the question about Allied and Globe, but I think what we have seen, even at our most recent acquisition -- because the acquisition prior to Globe was Ostergrens in Sweden -- we are now seeing where some of the products are being leveraged between the solutions that they were offering before and the Allied products that are available now to be used those applications.

So it does take time. We are working on them. We have certainly identified some key opportunities where we think it can help us, let's say, further entrench ourselves with our customers; provide a more complete solution; and/or improve our competitiveness and hopefully increase our merchant at the same time. So the opportunities are yet to come there with Globe and Allied.

Okay, and one slight twist on that. Have you been able to leverage the purchasing power now of the combined companies to go after your supply base at all?

It is in the works. It is the same thing. Typically, our products are custom-designed. And when we make the change to products, many times our customers are involved in the process, and we have to go back through approval processes, depending on the type of change we may make.

But to answer your question, there has been significant amount of activity in cross -- in pollenization, I would say, of the suppliers. But none of that has been realized yet.

Okay, great. I look forward to what's to come.

That's in the early stages.

Thank you.

And at this time I'm showing no further questions in queue. I would like to turn the call back over to Mr. Dick Warzala for any closing remarks.

Okay. Before I do closing remarks, we do have a couple of questions that did come in over the Internet from individuals that mentioned that we could not be on the call but would like to have us respond. And as everyone is aware, you can get back on later and listen to the call.

One of them was -- and I think it has been covered a little bit -- are there any additional synergistic opportunities you can discuss associated with the integration strategy? We just talked a little bit about the products and the opportunity to sell more of our products as a solution.

We just talked a little bit about the opportunity to leverage purchasing power and to generate some synergies there. There is also -- in my comments I mentioned about our production capability, and that production capability in North America, in Mexico, in Portugal, and in China. We are very encouraged by the discussions we are having with our global customers, and those are the multinationals that we already doing business with, but who are looking at our global footprint and asking us if we can produce on a local basis.

We are very much aware, and I think we have emphasized in the past that we put our -- when we purchased the Swedish operation that had the facility in China, our plan was not only to utilize that facility to help service the existing customers, but also to help serve the China market even better. So when you look at the cost of labor in China, the shipping costs, the logistics costs, the transportation delays that occur, we really believe that if you learn how to manufacture competitively and you have flexible manufacturing in the regions where it is required, you can help eliminate some of those non-value added costs.

And at our China facility, as it is being utilized today and much of the product is being exported out of China, will at some point in time be fully utilized to ship to new customers and existing customers who are expanding their operations in China. So I think our footprint in manufacturing that we have is well received by our global customers. And that is an opportunity we will have to be able to leverage some of the synergies in the future.

That is one question. And I will just send it back to the operator, see if there's any others before I have another one here.

No questions in queue.

Okay. The next one was: in previous calls you have talked about focusing on the integration of Globe. Can you expand upon any current developments and how the integration is progressing?

I can certainly do that. I think one of the statements that we made early on is that our plan was for the first year to operate the companies in relatively the same manner without changing much, to get to know each other, to get to understand the businesses better, and not just go in and start making changes that would have been mistakes once we learn true business opportunities later on.

So I would say that we have made significant progress in the employees of both companies communicating and working on what those opportunities to leverage the entire Company's skill set is. Again, we talked about this earlier, but we think it is a significant benefit and opportunity we will have the future.

And the last one -- I will just hit on this one, and I will turn this over to Rob, because he is very silent over here now. He's wishing he had some financial questions, but I guess the numbers are good. They don't give them any questions.

It said: you discussed on -- focusing on interim critical issues leading to your strategy session in September. Can you provide further insight into the critical issues identified? Go ahead, Rob.

There are some critical issues that have been identified in the interim that we are following through on, and probably the most important is to help -- one of the largest critical issues facing us is -- and, in fact, it was mentioned previously, I think by J.D. -- was customer concentrations. And one of the more critical items for us that we are focusing on is to make sure that we -- what is most important to the Company, if you will, is that we maintain those relationships with those critical customers where we have those concentrations. So I would say that that is where our focus has been leading up to coming into our September strategy session.

Okay. And another one that, obviously, as we move forward here, in order to take the opportunity to leverage synergies and so forth that we've talked about is the structure, the business structure. And it was important for us to get the message out to our employees that -- you know, don't look over your shoulder about having a job.

Jobs may change; on the other hand, as we look at what our footprint is today and how we are covering or providing coverage in certain countries in terms of sales and also in production, that even though they might change, there is still an opportunity for our employees to make sure that we leverage that capability and those synergies in the proper manner.

So I think Rob hit number one. We have identified that as interim. That is secure, to make sure that we maintain those customer relationships that are most important to us right now.

Anytime there is an acquisition, there is an uneasiness in the market. But I think we have done a good job so far in suppressing any concern. And we have not lost any customers because of that. Matter of fact, I think we are doing a good job in ensuring that we will have increased opportunities with that customer base.

Other than that, there are several others. But the strategy session is important. It will define where we're going for the next three to five years. It will set some goals and objectives that will be certainly aggressive. And I think our team will be up to the task to make sure that we achieve those.

So that is it for the questions we were sent. And if there are -- I will let you try one more time for any other questions. If not, we will close the session.

(Operator Instructions)

Okay, I will take that as a signal that everyone is satisfied. And we thank you for your participation, and we look forward to talking to you again next quarter.

Ladies and gentlemen, that concludes today's conference. We thank you for your participation. You may now disconnect. Have a great day.