OREANDA-NEWS. Allied Motion Technologies Inc. (NASDAQ:AMOT) (“Company”), a global designer and manufacturer of motion control products and solutions, today reported financial results for the second quarter ended June 30, 2016. Results include the acquisition of Heidrive GmbH (“Heidrive”) acquired on January 12, 2016.

Second Quarter 2016 Performance 

  • Achieved revenue of $65.8 million; up 8.9% over prior-year period
  • Gross margin was 29.8%; Operating income increased 4.0%
  • Net income declined 5.9% on higher effective tax rate of 34.7%
  • Adjusted EBITDA* increased 4.1% to $8.4 million
  • Debt restructuring expected to be completed in the second half of 2016

*Please see the attached tables for a reconciliation of GAAP net income to Adjusted EBITDA

Dick Warzala, Chairman and CEO of Allied Motion, commented, “Results in the quarter were as expected and favorably affected by our acquisition of Heidrive.  Sales to our Medical, Aerospace & Defense and Industrials/Electronics markets had solid double digit growth while our Vehicle market declined slightly primarily due to end-of-life wind downs on a couple of projects. As we advance our global growth strategy and transformation to a precision motion control solutions provider, we are expanding our opportunity pipeline with new applications and new customers while focusing our resources toward higher margin, multi-product solutions. We expect in time both scale and revenue diversity will help to diminish the variability of sales to specific markets and customers within quarters.”

Mr. Warzala concluded, “We continue to develop custom applications created for specific customer needs that utilize our extensive technical and engineering knowledge. We are applying this capability to expand our customers and our geographic reach. We are seeing traction with our efforts in new projects, with some moving into production this year and others planned for 2017 and beyond. In the meantime, our attention is on executing our strategy in what appears to be a continuing slow growth economic environment.” 

Second Quarter 2016 Results (Narrative compares with prior year period unless otherwise noted)

($ in thousands,
except per share amounts)		 Q2 2016 Q2 2015   $ Change % Change
Revenue $   65,835   $   60,479     $   5,356     8.9 %
Gross profit     19,613       17,987         1,626     9.0 %
  Gross profit margin     29.8 %     29.7 %        
Operating income     5,963       5,735           228     4.0 %
  Operating margin     9.1 %     9.5 %        
Net income     2,942       3,125         (183 )   (5.9 )%
Diluted earnings per share $   0.31   $   0.34     $   (0.03 )   (8.8 )%
                                 

Strong sales in most markets helped to counter lower sales in our Vehicle market. Sales to U.S. customers were 55% of total sales for the quarter compared with 64% for the same period last year, with the balance of sales to customers primarily in Europe, Canada and Asia. 

Higher operating expenses in the quarter included the addition of Heidrive as well as investments in personnel, systems and engineering and development (E&D) to support the Company’s growth. General and administrative expenses had a $0.8 million benefit from insurance proceeds related to a fire in a warehouse facility in Europe last year. E&D as a percent of revenue was 6.3%, up 20 basis points. The $0.1 million in business development costs was carryover from the Heidrive acquisition. Selling, general and administrative expenses (SG&A) as a percent of revenue was 12.9% compared with 13.0% in the prior-year period.  

While operating income grew and income before income taxes improved 6.1% to $4.5 million, the 8.4 point higher effective tax rate of 34.7% resulted in lower net income.  Last year’s second quarter benefited from the reversal of a valuation allowance. The Company anticipates its effective tax rate for 2016 will be approximately 32%. 

Second quarter earnings before interest, taxes, depreciation, amortization, stock compensation business development expense and insurance recovery (“Adjusted EBITDA”) were $8.4 million, or 12.8% of sales, up 4.1% over $8.1 million, or 13.4% of sales, in the prior-year period. The Company believes that, when used in conjunction with measures prepared in accordance with U.S. generally accepted accounting principles, Adjusted EBITDA, which is a non-GAAP measure, helps in the understanding of its operating performance. See the attached table for a description of non-GAAP financial measures and reconciliation table for Adjusted EBITDA.

Year-to-date (YTD) 2016 Results (Narrative compares with prior year period unless otherwise noted)

($ in thousands, except per share amounts) YTD 2016 YTD 2015   $ Change % Change
Revenue $   129,510   $   120,059     $   9,451     7.9 %
Gross profit     37,890       35,487         2,403     6.8 %
  Gross profit margin     29.3 %     29.6 %        
Operating income     10,495       11,366           (871 )   (7.7 )%
  Operating margin     8.1 %     9.5 %        
Net income     5,069       6,101         (1,032 )   (16.9 )%
Diluted earnings per share $   0.54   $   0.66     $   (0.12 )   (18.2 )%
                                 

The same factors affecting the second quarter results had a similar impact on results in the 2016 first half. Sales to U.S. customers were 55% of total sales on a year-to-date basis compared with 65% for the same period last year, with the balance of sales to customers primarily in Europe, Canada and Asia. 

E&D as a percent of revenue increased to 6.4% in the first half of 2016 from 6.0% in the first half of 2015. Higher E&D spending is for product development for customer applications. SG&A as a percent of revenue increased to 13.4% from 13.0% in the prior-year period.

June 30, 2016 Balance Sheet and Cash Flow Review

Cash and cash equivalents at the end of the quarter were $10.4 million compared with $21.3 million at 2015 year end. The Company paid cash to fund approximately one-half of the total purchase price of Heidrive in January 2016.

Cash provided by operations year-to-date was $1.7 million compared with $3.6 million in the prior-year period. Capital expenditures were $2.4 million in the first half of 2016.

Total debt was $73.6 million compared with $67.4 million at December 31, 2015. The increase was due to the Heidrive acquisition. Debt, net of cash, was $63.2 million, or 47% of net debt to capitalization.

Bookings and Backlog Summary ($ in thousands)

  Q2 2016 Q1 2016 Q4 2015 Q3 2015 Q2 2015 
Bookings $ 68,347 $ 66,391 $ 54,159 $ 55,115 $ 64,523
Backlog $ 80,742 $ 81,704 $ 70,999 $ 67,820 $ 75,605
                     
  YTD 2016 YTD 2015 $ Change % Change
Bookings $ 134,738 $ 122,666 $ 12,072     9.8 %
                     

Growth in most markets drove improved bookings and backlog.

Allied Motion (NASDAQ:AMOT), designs, manufactures and sells precision and specialty motion control components and systems used in a broad range of industries within our major served markets, which include Vehicle, Medical, Aerospace & Defense, Electronics and Industrial. The Company is headquartered in Amherst, NY, has global operations and sells into markets across the United States, Canada, South America, Europe and Asia.

Allied Motion is focused on motion control applications and is known worldwide for its expertise in electro-magnetic, mechanical and electronic motion technology. Its products include brush and brushless DC motors, brushless servo and torque motors, coreless DC motors, integrated brushless motor-drives, gear motors, gearing, modular digital servo drives, motion controllers, incremental and absolute optical encoders, and other associated motion control-related products. The Company’s growth strategy is focused on becoming the motion solution leader in its selected target markets by leveraging its “technology/know how” to develop integrated precision motion solutions that utilize multiple Allied Motion technologies to “change the game” and create higher value solutions for its customers.

FINANCIAL TABLES FOLLOW

ALLIED MOTION TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF INCOME
 (In thousands, except per share data)

    For the three months ended   For the six months ended
    June 30,   June 30,
      2016       2015       2016       2015  
    (Unaudited)   (Unaudited)
Revenue   $   65,835     $   60,479     $   129,510     $  120,059  
Cost of goods sold       46,222         42,492         91,620         84,572  
Gross margin       19,613         17,987         37,890         35,487  
Operating costs and expenses:                
Selling       2,635         2,063         5,059         4,271  
General and administrative       5,878         5,822         12,287         11,375  
Engineering and development       4,174         3,707         8,224         7,153  
Business development       135         -          218         -   
Amortization of intangible assets       828         660         1,607         1,322  
Total operating costs and expenses       13,650         12,252         27,395         24,121  
Operating income       5,963         5,735         10,495         11,366  
Other expense (income):                
Interest expense       1,590         1,511         3,122         3,026  
Other expense, net       (130 )       (19 )       (115 )       (285 )
Total other expense, net       1,460         1,492         3,007         2,741  
Income before income taxes       4,503         4,243         7,488         8,625  
Provision for income taxes       (1,561 )       (1,118 )       (2,419 )       (2,524 )
Net income   $   2,942     $   3,125     $   5,069     $    6,101  
                 
Basic earnings per share:                
Earnings per share   $   0.31     $   0.34     $   0.54     $   0.66  
Basic weighted average common shares       9,343         9,264         9,312         9,225  
Diluted earnings per share:                
Earnings per share   $   0.31     $   0.34     $   0.54     $   0.66  
Diluted weighted average common shares       9,343         9,264         9,312         9,225  
                 

ALLIED MOTION TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)

         
  June 30,  2016   December 31, 2015
Assets   (Unaudited)    
Current Assets:        
Cash and cash equivalents   $   10,362     $   21,278  
Trade receivables, net of allowance for doubtful accounts of $783 and $611 at June 30, 2016 and December 31, 2015, respectively       31,965         22,710  
Inventories, net       30,079         26,175  
Prepaid expenses and other assets       2,904         3,749  
Total Current Assets       75,310         73,912  
Property, plant and equipment, net       38,626         35,315  
Deferred income taxes       1,533         2,548  
Intangible assets, net       36,288         29,984  
Goodwill       28,095         17,757  
Other long term assets       3,902         2,631  
Total Assets   $   183,754     $   162,147  
Liabilities and Stockholders’ Equity        
Current Liabilities:        
Debt obligations       21,055         9,860  
Accounts payable       14,492         13,000  
Accrued liabilities       13,901         11,121  
Total Current Liabilities       49,448         33,981  
Long-term debt       52,555         57,518  
Deferred income taxes       2,875         630  
Deferred compensation arrangements       3,413         2,636  
Pension and post-retirement obligations       4,177         2,785  
Total Liabilities       112,468         97,550  
Commitments and Contingencies        
Stockholders’ Equity:        
Common stock, no par value, authorized 50,000 shares; 9,396 and 9,276 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively       29,078         27,824  
Preferred stock, par value $1.00 per share, authorized 5,000 shares; no shares issued or outstanding       -          -   
Retained earnings       51,244         46,650  
Accumulated other comprehensive loss       (9,036 )       (9,877 )
Total Stockholders’ Equity       71,286         64,597  
Total Liabilities and Stockholders’ Equity   $   183,754     $   162,147  
         

ALLIED MOTION TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)

    For the six months ended
    June 30,
      2016       2015  
Cash Flows From Operating Activities:   (Unaudited)    
Net income   $   5,069     $   6,101  
Adjustments to reconcile net income to net cash provided by (used in) operating activities (net of working capital acquired):        
         
Depreciation and amortization       4,850         3,665  
Deferred income taxes       859         555  
Stock compensation expense       974         926  
Other       (314 )       272  
Changes in operating assets and liabilities:        
Trade receivables       (8,992 )       (5,975 )
Inventories, net       689         (1,514 )
Prepaid expenses and other assets       1,389         (666 )
Accounts payable       (39 )       1,757  
Accrued liabilities       (2,810 )       (1,519 )
Net cash provided by operating activities       1,675         3,602  
         
Cash Flows From Investing Activities:        
Consideration paid for acquisition, net of cash acquired       (16,049 )       -   
Purchase of property and equipment       (2,382 )       (2,708 )
Net cash used in investing activities       (18,431 )       (2,708 )
         
Cash Flows From Financing Activities:        
Borrowings on lines-of-credit, net       9,534         1,398  
Principal payments of long-term debt       (3,750 )       (3,000 )
Dividends paid to stockholders       (473 )       (468 )
Stock transactions under employee benefit stock plans       268         223  
Net cash provided by (used in) financing activities       5,579         (1,847 )
Effect of foreign exchange rate changes on cash       261         (824 )
Net decrease in cash and cash equivalents       (10,916 )       (1,777 )
Cash and cash equivalents at beginning of period       21,278         13,113  
Cash and cash equivalents at end of period   $   10,362     $   11,336  
                 

ALLIED MOTION TECHNOLOGIES INC.
 (In thousands)

Reconciliation of Non-GAAP Financial Measures
The Company believes Adjusted EBITDA is often a useful measure of a Company’s operating performance and is a significant basis used by the Company’s management to measure the operating performance of the Company’s business because Adjusted EBITDA excludes charges for depreciation and amortization, and interest expense resulting from our debt financings, as well as our provision for income tax expense, stock compensation expense and business development costs. Adjusted EBITDA does not represent and should not be considered as an alternative to net income, operating income, net cash provided by operating activities or any other measure for determining operating performance or liquidity that is calculated in accordance with generally accepted accounting principles.

The Company’s calculation of Adjusted EBITDA for the three and six months ended June 30, 2016 and 2015 is as follows:

    Three Months Ended
    June 30,
      2016       2015  
Net income $   2,942     $   3,125  
Interest expense   1,590       1,511  
Provision for income tax   1,561       1,118  
Depreciation and amortization   2,580       1,858  
EBITDA   $   8,673      $   7,612   
Stock compensation expense   461       502  
Business development costs   135       -  
Insurance recoveries   (823 )     -  
Adjusted EBITDA $   8,446     $   8,114  
               
    Six Months Ended
    June 30,
      2016       2015  
Net income $   5,069     $   6,101  
Interest expense   3,122       3,026  
Provision for income tax   2,419       2,524  
Depreciation and amortization   4,850       3,665  
EBITDA   $    15,460     $    15,316   
Stock compensation expense     974       926  
Business development costs     218         -   
Insurance recoveries     (823 )       -   
Adjusted EBITDA $   15,829     $   16,242