OREANDA-NEWS. Altra Industrial Motion Corp. (Nasdaq:AIMC), a global manufacturer and marketer of electromechanical power transmission and motion control products, today announced unaudited financial results for the second quarter ended June 30, 2017.

Financial Highlights

  • Second-quarter 2017 net sales were $223.4 million, up 22.3% from $182.7 million in the second quarter of 2016. Excluding the impact of the Stromag acquisition, second-quarter 2017 net sales were up 4.0% from the same quarter of 2016.
  • Gross margin increased 40 basis points year over year to 32.3%. 
  • Operating margin increased 150 basis points year over year to 10.4%.
  • Second-quarter net income was $15.4 million, or $0.53 per diluted share, compared with $9.3 million, or $0.36 per diluted share, in the second quarter of 2016.
  • Non-GAAP net income in Q2 2017 was $16.6 million, or $0.57 per diluted share, compared with $10.9 million, or $0.42 per diluted share, a year ago.* 
  • Cash flow from operations of $26.0 million led to free cash flow of $11.5 million for the year to date period. *
*Reconciliation of Non-GAAP Net Income:          
  Quarter Ended   Year to Date Ended
  June 30, 2017   June 30, 2016   June 30, 2017   June 30, 2016
Net Income $ 15,384     $ 9,349     $ 25,710     $ 18,159  
               
Restructuring and consolidation costs $ 1,198     $ 1,641     $ 3,096     $ 3,194  
Legal fees associated with pursuit of unfair trade remedy   -       534       -       534  
Loss on extinguishment of convertible debt   -       -       1,797       -  
Amortization of inventory fair value adjustment   -       -       2,347       -  
Acquisition related expenses   568       -       1,566       -  
Tax impact of above adjustments   (529 )     (632 )     (2,620 )     (1,096 )
Non-GAAP net income* $ 16,621     $ 10,892     $ 31,896     $ 20,791  
Non-GAAP diluted earnings per share* $ 0.57     $ 0.42     $ 1.10     $ 0.80  
 
*Reconciliation of Free Cash Flow Year to Date Ended
  June 30, 2017   June 30, 2016
Net cash flows from operating activities $ 25,956     $ 30,532  
Purchase of property, plant and equipment   (14,416 )     (10,861 )
 
Free cash flow* $ 11,540     $ 19,671  
In Thousands of Dollars, except per share amounts      

Management Comments
"We turned in an excellent performance during the second quarter, reporting record sales, record GAAP EPS, and record non-GAAP EPS" said Carl Christenson, Altra's Chairman and CEO. "We are seeing ongoing improvement in certain of our end markets that had been challenged, including oil and gas and mining, and we are leveraging that healthier demand environment with a lower cost structure. As a result, we achieved a 47% increase in GAAP EPS, a 36% increase in non-GAAP EPS, a 40 basis point increase in gross margin and a 150 basis point increase in operating margin."

Business Outlook

"Although incoming orders moderated somewhat from the first to second quarter, we are optimistic that the upturn in certain of our end markets will continue to take hold," said Christenson. "As our markets strengthen, we expect to benefit increasingly from our work during the past few years on consolidation, supply chain and operational excellence initiatives. We also are encouraged by the progress of our Stromag acquisition, where we already experienced strong cross-selling opportunities in the second quarter. We continue to seek further acquisitions, but remain highly disciplined in that pursuit. As a result of our success thus far in 2017, we are raising our guidance for full year 2017, and look forward to the solid execution of our strategic plan during the second half of the year."

Altra is raising its top and bottom line guidance for full year 2017, given that the Company's performance in the first half of the year exceeded its expectations and improvement in certain of its end markets is expected to continue. Altra now expects full-year 2017 sales in the range of $850 to $865 million, net income in the range of $50.5 to $53.5 million and non-GAAP net income in the range of $56.7 to $59.7 million, GAAP diluted EPS in the range of $1.74 to $1.84, and non-GAAP diluted EPS guidance in the range of $1.95 to $2.05. The Company now expects its tax rate for the full year to be approximately 29% to 31% before discrete items, capital expenditures in the range of $25 to $30 million, and depreciation and amortization in the range of $35 to $37 million.*

*Reconciliation of 2017 Non-GAAP Net Income and Diluted EPS Guidance
(Amounts in millions except per share information)		       Fiscal Year 2017    Fiscal Year 2017
Diluted earnings
per share
         
Net Income    $50.5 - $53.5   $1.74 - $1.84
Adjustments (1)        
Restructuring and consolidation costs   3.1    
Acquisition related expenses     1.6    
Amortization of inventory fair value adjustment   2.3    
Loss on extinguishment of debt   1.8    
Tax impact of above adjustments (2)   (2.6)    
         
Non-GAAP Net Income   $56.7 - $59.7   $1.95 - $2.05
         
(1) Adjustments are pre-tax, with net tax impact listed separately 
(2) Tax impact is calculated by multiplying the estimated effective tax rate for the period of 29.9% by the above items.

Conference Call
The Company will conduct an investor conference call to discuss its unaudited second-quarter 2017 financial results today, July 25, at 10:00 a.m. ET. The public is invited to listen to the conference call by dialing (877) 407-8293 domestically or (201) 689-8349 for international access. A live webcast of the call will be available in the "Investor Relations" section of www.altramotion.com. Individuals may download charts that will be used during the call at www.altramotion.com under presentations in the Investor Relations section. The charts will be available after earnings are released. A replay of the recorded conference call will be available at the conclusion of the call through midnight on August 8, 2017. To listen to the replay, dial (877) 660-6853 domestically or (201) 612-7415 for international access (conference ID # 13666119). A webcast replay also will be available.

Altra Industrial Motion Corp.        
                 
         
Consolidated Statements of Income Data: Quarter Ended   Year to Date Ended  
In Thousands of Dollars, except per share amounts June 30, 2017   June 30, 2016   June 30, 2017   June 30, 2016  
  (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)  
                 
Net sales $ 223,357     $ 182,674     $ 438,792     $ 363,127    
Cost of sales   151,231       124,474       300,499       250,297    
Gross profit $ 72,126     $ 58,200     $ 138,293     $ 112,830    
Gross profit as a percent of net sales   32.3 %     31.9 %     31.5 %     31.1 %  
Selling, general & administrative expenses   41,619       35,870       82,003       69,406    
Research and development expenses   6,160       4,514       12,383       9,078    
Restructuring Charges   1,198       1,641       3,096       3,194    
Income from operations $ 23,149     $ 16,175     $ 40,811     $ 31,152    
Income from operations as a percent of net sales   10.4 %     8.9 %     9.3 %     8.6 %  
Interest expense, net   2,031       2,904       3,736       5,800    
Other non-operating income, net   (136 )     (205 )     (666 )     (483 )  
Loss on extinguishment of convertible debt   -       -       1,797       -    
Income before income taxes $ 21,254     $ 13,476     $ 35,944     $ 25,835    
Provision for income taxes   5,870       4,127       10,234       7,676    
Income tax rate   27.6 %     30.6 %     28.5 %     29.7 %  
Net income   15,384       9,349       25,710       18,159    
                 
                 
Weighted Average common shares outstanding                
Basic   28,978       25,699       28,873       25,699    
Diluted   29,114       25,968       29,042       25,793    
                 
Net income per share                
Basic $ 0.53     $ 0.36     $ 0.89     $ 0.71    
Diluted $ 0.53     $ 0.36     $ 0.89     $ 0.70    
                 
Reconciliation of Non-GAAP Income From Operations:                
                 
Income from operations $ 23,149     $ 16,175     $ 40,811     $ 31,152    
                 
Restructuring and consolidation costs   1,198       1,641       3,096       3,194    
Amortization of inventory fair value adjustment   -       -       2,347       -    
Legal fees associated with pursuit of unfair trade remedy   -       534       -       534    
Acquisition related expenses   568       -       1,566       -    
Non-GAAP income from operations * $ 24,915     $ 18,350     $ 47,820     $ 34,880    
                 
Reconciliation of Non-GAAP Net Income:                
                 
Net income attributable to Altra Industrial Motion Corp. $ 15,384     $ 9,349     $ 25,710     $ 18,159    
                 
Restructuring and consolidation costs   1,198       1,641       3,096       3,194    
Loss on extinguishment of convertible debt   -       -       1,797       -    
Legal fees associated with pursuit of unfair trade remedy   -       534       -       534    
Amortization of inventory fair value adjustment   -       -       2,347       -    
Acquisition related expenses   568       -       1,566       -    
Tax impact of above adjustments   (529 )     (632 )     (2,620 )     (1,096 )  
Non-GAAP net income * $ 16,621     $ 10,892     $ 31,896     $ 20,791    
                 
                 
Non-GAAP diluted earnings per share * $ 0.57     (1 ) $ 0.42     (2 ) $ 1.10     (3 ) $ 0.80     (4 )
                 
                 
(1) - tax impact is calculated by multiplying the estimated effective tax rate for the period of 29.9% by the above items
(2) - tax impact is calculated by multiplying the estimated effective tax rate for the period of 29.1% by the above items
(3) - tax impact is calculated by multiplying the estimated effective tax rate for the period of 29.8% by the above items
(4) - tax impact is calculated by multiplying the estimated effective tax rate for the period of 29.4% by the above items
                 
Consolidated Balance Sheets            
In Thousands of Dollars              June 30, 2017     December 31, 2016
             (unaudited)     
Assets:                
Current Assets                
Cash and cash equivalents           $ 58,981     $ 69,118  
Trade receivables, net             137,797       120,319  
Inventories                                                         142,696       139,840  
Income tax receivable               6,417       607  
Prepaid expenses and other current assets             14,891       10,429  
Assets held for sale             3,967       3,874  
Total current assets             364,749       344,187  
Property, plant and equipment, net             185,034       177,043  
Intangible assets, net             158,766       154,683  
Goodwill             198,986       188,841  
Deferred income taxes             1,363       2,510  
Other non-current assets, net             2,189       2,560  
Total assets           $ 911,087     $ 869,824  
                 
Liabilities and stockholders' equity                
Current liabilities                
Accounts payable           $ 57,451     $ 60,845  
Accrued payroll             26,736       31,302  
Accruals and other current liabilities             40,129       35,080  
Income tax payable             7,740       706  
Current portion of long-term debt             371       43,690  
Total current liabilities             132,427       171,623  
Long-term debt, less current portion             308,009       325,969  
Deferred income taxes             56,132       61,084  
Pension liabilities             26,288       23,691  
Other long-term liabilities             19,452       4,109  
Total stockholders' equity             368,779       283,348  
Total liabilities, and stockholders' equity           $ 911,087     $ 869,824  
                 
                 
Reconciliation to operating working capital:                
Trade receivables, net             137,797       120,319  
Inventories             142,696       139,840  
Accounts payable             (57,451 )     (60,845 )
Operating working capital *           $ 223,042     $ 199,314  
                 
            Year to Date Ended
            June 30, 2017   June 30, 2016
            (Unaudited)   (Unaudited)
Cash flows from operating activities                
Net income                   $   25,710     $   18,159  
Adjustments to reconcile net income to net cash flows:                
Depreciation                                 12,930         10,487  
Amortization of intangible assets               4,685         4,262  
Amortization of deferred financing costs               299         393  
Loss/(Gain) on foreign currency, net               132         (100 )
Accretion of debt discount, net               —         1,962  
(Gain)/loss on disposal / impairment of fixed assets               (74 )       411  
Loss on extinguishment of debt               1,797         —  
Stock based compensation               3,153         2,312  
Amortization of inventory fair value adjustment               2,347         —  
Changes in assets and liabilities:                
Trade receivables               (12,812 )       (8,890 )
Inventories               (1,473 )       238  
Accounts payable and accrued liabilities               (9,212 )       1,470  
Other current assets and liabilities               (1,146 )       (698 )
Other operating assets and liabilities               (380 )       526  
Net cash provided by operating activities               25,956         30,532  
Cash flows from investing activities                
Purchase of property, plant and equipment               (14,416 )       (10,861 )
Working capital settlement from prior year acquisitions               2,883         —  
Net cash used in investing activities               (11,533 )       (10,861 )
Cash flows from financing activities                
Payments on Revolving Credit Facility               (24,054 )       (26,507 )
Dividend payments               (8,300 )       (3,903 )
Borrowing under Revolving Credit Facility               5,000         —  
Payments of equipment, working capital notes, mortgages and other debt               (505 )       (2,545 )
Cash paid for convertible debt               (954 )       —  
Proceeds from mortgages and other debt               —         3,112  
Shares surrendered for tax withholding               (386 )       (103 )
Purchases of common stock under share repurchase program               —         (4,391 )
Net cash used in financing activities               (29,199 )       (34,337 )
Effect of exchange rate changes on cash and cash equivalents               4,639         (1,324 )
Net change in cash and cash equivalents               (10,137 )       (15,990 )
Cash and cash equivalents at beginning of year               69,118         50,320  
Cash and cash equivalents at end of period           $   58,981     $   34,330  
                 
Reconciliation to free cash flow:                 
Net cash flows from operating activities               25,956         30,532  
Purchase of property, plant and equipment               (14,416 )       (10,861 )
                 
Free cash flow *           $   11,540     $   19,671  
Altra Industrial Motion Corp.                      
Selected Segment Data         Quarter Ended   Year to Date Ended
In Thousands of Dollars, except per share amount         June 30, 2017   June 30, 2016   June 30, 2017   June 30, 2016
Net Sales:                      
Couplings, Clutches & Brakes         $   110,969     $   78,157     $   217,201     $   153,780  
Electromagnetic Clutches & Brakes             65,281         57,053     $   129,159     $   114,402  
Gearing             49,149         49,096     $   96,177     $   98,015  
Eliminations             (2,042 )       (1,632 )   $   (3,745 )   $   (3,070 )
Total         $   223,357     $   182,674       $   438,792     $   363,127  
                                 
Income from operations:                      
Couplings, Clutches & Brakes         $   12,007     $   7,554     $   20,352     $   13,845  
Electromagnetic Clutches & Brakes             8,163         7,068     $   15,756     $   13,531  
Gearing             6,590         5,867     $   12,115     $   11,629  
Restructuring and consolidation costs             (1,198 )       (1,641 )   $   (3,096 )   $   (3,194 )
Corporate             (2,413 )       (2,673 )   $   (4,316 )   $   (4,659 )
Total         $   23,149     $   16,175     $   40,811     $   31,152  

About Altra Industrial Motion Corp.
Altra Industrial Motion Corp., through its subsidiaries, is a leading global designer, producer and marketer of a wide range of electromechanical power transmission and motion control products. The Company brings together strong brands covering over 42 product lines with production facilities in twelve countries. Altra's leading brands include Ameridrives Couplings, Bauer Gear Motor, Bibby Turboflex, Boston Gear, Delroyd Worm Gear, Formsprag Clutch, Guardian Couplings, Huco, Industrial Clutch, Inertia Dynamics, Kilian Manufacturing, Lamiflex Couplings, Marland Clutch, Matrix, Nuttall Gear, Stieber Clutch, Stromag, Svendborg Brakes, TB Wood's, Twiflex, Warner Electric, Warner Linear, and Wichita Clutch.

* Discussion of Non-GAAP Financial Measures
As used in this release and the accompanying slides posted on the Company's website, non-GAAP diluted earnings per share, non-GAAP income from operations and non-GAAP net income are each calculated using either net income or income from operations that excludes acquisition related costs, restructuring costs, and other income or charges that management does not consider to be directly related to the Company's core operating performance. Non-GAAP diluted earnings per share is calculated by dividing non-GAAP net income by GAAP weighted average shares outstanding (diluted). Non-GAAP free cash flow is calculated by deducting purchases of property, plant and equipment from net cash flows from operating activities. Non-GAAP operating working capital is calculated by deducting accounts payable from net trade receivables plus inventories.

Altra believes that the presentation of non-GAAP net income, non-GAAP income from operations, non-GAAP diluted earnings per share, non-GAAP free cash flow and non-GAAP operating working capital provides important supplemental information to management and investors regarding financial and business trends relating to the Company's financial condition and results of operations.

Forward-Looking Statements
All statements, other than statements of historical fact included in this release are forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, any statement that may predict, forecast, indicate or imply future results, performance, achievements or events. Forward-looking statements can generally be identified by phrases such as "believes," "expects," "potential," "continues," "may," "should," "seeks," "predicts," "anticipates," "intends," "projects," "estimates," "plans," "could," "designed", "should be," and other similar expressions that denote expectations of future or conditional events rather than statements of fact. Forward-looking statements also may relate to strategies, plans and objectives for, and potential results of, future operations, financial results, financial condition, business prospects, growth strategy and liquidity, and are based upon financial data, market assumptions and management's current business plans and beliefs or current estimates of future results or trends available only as of the time the statements are made, which may become out of date or incomplete. Forward-looking statements are inherently uncertain, and investors must recognize that events could differ significantly from our expectations. These statements include, but may not be limited to, those related to expectations regarding economic conditions, expectations regarding the continued upturn of the Company's end markets, the expected benefit from the Company's consolidation, supply chain and operational excellence initiatives, the expected execution of the Company's strategic plan during the second half of the year, expectations on the improvement in certain of the Company's end markets, the statements under our "Business Outlook" , our acquisition strategies, our ability to execute our strategic plan, and the Company's updated guidance for full year 2017.

In addition to the risks and uncertainties noted in this release, there are certain factors that could cause actual results to differ materially from those anticipated by some of the statements made. These include: (1) competitive pressures, (2) changes in economic conditions in the United States and abroad and the cyclical nature of our markets, (3) loss of distributors, (4) the ability to develop new products and respond to customer needs, (5) risks associated with international operations, including currency risks, (6) accuracy of estimated forecasts of OEM customers and the impact of the current global economic environment on our customers, (7) risks associated with a disruption to our supply chain, (8) fluctuations in the costs of raw materials used in our products, (9) product liability claims, (10) work stoppages and other labor issues, (11) changes in employment, environmental, tax and other laws and changes in the enforcement of laws, (12) loss of key management and other personnel, (13) risks associated with compliance with environmental laws, (14) the ability to successfully execute, manage and integrate key acquisitions and mergers, (15) failure to obtain or protect intellectual property rights, (16) risks associated with impairment of goodwill or intangibles assets, (17) failure of operating equipment or information technology infrastructure, (18) risks associated with our debt leverage and operating covenants under our debt instruments, (19) risks associated with restrictions contained in our Credit Facility, (20) risks associated with compliance with tax laws, (21) risks associated with the global recession and volatility and disruption in the global financial markets, (22) risks associated with implementation of our ERP system, (23) risks associated with the Svendborg,  Guardian and Stromag acquisitions and integration and other acquisitions, (24) risks associated with the Company's closure of a manufacturing facility in China, (25) risks associated with certain minimum purchase agreements we have with suppliers, (26) risks associated with our exposure to variable interest rates and foreign currency exchange rates, (27) risks associated with interest rate swap contracts, (28) risks associated with our exposure to renewable energy markets, (29) risks related to regulations regarding conflict minerals, (30) risks related to restructuring and plant consolidations, and (31) other risks, uncertainties and other factors described in the Company's quarterly reports on Form 10-Q and annual reports on Form 10-K and in the Company's other filings with the U.S. Securities and Exchange Commission (SEC) or in materials incorporated therein by reference. Except as required by applicable law, Altra Industrial Motion Corp. does not intend to, update or alter its forward looking statements, whether as a result of new information, future events or otherwise. AIMC-E