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Allied Motion Reports 13% Net Income Growth in 2017 First Quarter
[May 03, 2017]

Allied Motion Reports 13% Net Income Growth in 2017 First Quarter

Allied Motion Technologies Inc. (NASDAQ:AMOT) ("Company"), a global designer and manufacturer of motion control products and solutions, today reported financial results for the first quarter ended March 31, 2017.

"Cost discipline and the effectiveness of our refinancing last year enabled net income growth on moderately softer revenue," commented Dick Warzala, Chairman and CEO of Allied Motion. "With regard to our markets, on a trailing twelve-month basis, our Aerospace & Defense, Medical, and Industrial/Electronics increased while our Vehicle markets were down due to weakness and end-of-life in certain applications."

Mr. Warzala concluded, "We are making solid strides with our multi-product, fully integrated solutions that are leading to awards such as the Vehicle market win just recently announced. For customer-specific Vehicle applications, the sales cycles can be quite long and the time from being selected for the solution to full rate production can be upwards of 3 to 4 years, yet, we are building a scalable foundation which can deliver strong returns on our investments. Importantly, we also continue to build a pipeline of exciting market-based, as well as customer-specific, application opportunities."

First Quarter 2017 Results (Narrative compares with prior-year period unless otherwise noted)

Revenue was $61.4 million, down $2.3 million, or 3.6%. Sales to U.S. customers were 54% of total sales for the quarter compared with 55% for the same period last year, with the balance of sales to customers primarily in Europe, Canada and Asia. Excluding the unfavorable effects of foreign currency exchange (FX), first quarter revenue was $62.5 million, down $1.2 million, or 2%, from the prior-year period.

Gross profit was $17.7 million, or 28.9% of revenue, compared with $18.5 million, 29.1% of revenue. The 20 basis point decline in gross margin was due to lower volume, product mix and under absorption of costs in certain production facilities.

Total operating costs and expenses decreased $0.4 million, or 3.0%, to $13.3 million. G&A expenses declined 10.3%, or $0.7 million, to $5.7 million due to lower incentive and deferred compensation costs and disciplined expense management. Engineering and development ("E&D") was up 3.5%, or $0.1 million, to $4.2 million and increased as a percent of revenue to 6.8% from 6.4%. The modest increase in E&D investments were focused on customized motion solutions for customers. As a percent of sales, selling expenses were up 40 basis points to 4.2%, and reflected the addition of new sales management and other personnel additions. The $0.1 million in business development costs in the 2016 first quarter was from the Heidrive acquisition.

As a result, first quarter operating income was $4.4 million compared with $4.8 million, or as a percent of revenue, down 40 basis points to 7.1%.

Given the lower cost of debt with the new credit facility in 2016, interest expense decreased $1.0 million, or nearly 66%, to $0.5 million.

The effective tax rate in the first quarter was 31.0%. The Company anticipates its effective tax rate for 2017 to be approximately 29% to 32%. Net income for the quarter was up 12.8%, or $0.3 million, to $2.7 million. On a per share basis, net income increased $0.04, to $0.29 per diluted share.

Earnings before interest, taxes, depreciation, amortization, stock compensation expense, and business development costs ("Adjusted EBITDA") was $7.3 million compared with $7.6 million in the prior-year period. As a percent of sales, Adjusted EBITDA decreased 10 basis points to 11.9%.

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 tables for a description of non-GAAP financial measures and reconciliation tables for Constant Currency and Adjusted EBITDA.

Balance Sheet and Cash Flow Review

Cash and cash equivalents at the end of the first quarter were $14.0 million compared with $15.5 million at the end of 2016. Cash provided by operations was $2.3 million compared with $6.9 million of cash used in operations during the first quarter of 2016.

Capital expenditures of $1.3 million included productivity and growth initiatives. Debt was reduced by approximately $3 million, using cash generated from operations and cash on hand, to $68.5 million at quarter-end compared with $71.4 million at year-end 2016. Debt, net of cash, was $54.5 million, or 41.6% of net debt to capitalization. Capital expenditures in 2017 are expected to be somewhat similar to 2016, at approximately $5 million to $6 million.

Orders and Backlog Summary ($ in thousands)


Q1 2017

Q4 2016

Q3 2016

Q2 2016

Q1 2016

Orders $ 60,459 $ 56,543 $ 59,088 $ 68,347 $ 66,391
Backlog $ 77,954 $ 78,602 $ 77,683 $ 80,742 $ 81,704

The sequential quarterly increase in orders was mostly the result of strength in the Company's Aerospace & Defense market. The decrease in orders and backlog in the first quarter compared with the prior-year period reflect softness in the Company's Vehicle market, including timing of customer requirements. Excluding the negative $1.0 million impact of FX, orders were $61.5 million in the 2017 first quarter.

Conference Call and Webcast

The Company will host a conference call and webcast on Thursday, May 4, 2017 at 10:00 am ET. During the conference call, management will review the financial and operating results and discuss Allied Motion's corporate strategy and outlook. A question and answer session will follow.

To listen to the live call, participants can dial (778) 327-3988. In addition, the call will be webcast live and may be found at:

A telephonic replay will be available from 1:00 pm ET on the day of the call through Thursday, May 11, 2017. To listen to the archived call, dial (412)-317-6671 and enter replay pin number 10002771 or access the webcast replay via the Company's website. A transcript will also be posted to the website once available.

About Allied Motion Technologies Inc.

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, and Industrial/Electronics. 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. The Company routinely posts news and other important information on its website at

Safe Harbor Statement

The statements in this news release and in the Company's May 4, 2017 conference call that relate to future plans, events or performance are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements, and may contain the word "believe," "anticipate," "expect," "project," "intend," "will continue," "will likely result," "should" or words or phrases of similar meaning. Forward-looking statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from the expected results described in the forward-looking statements. The risks and uncertainties include those associated with: the domestic and foreign general business and economic conditions in the markets we serve, including political and currency risks and adverse changes in local legal and regulatory environments; the introduction of new technologies and the impact of competitive products; the ability to protect the Company's intellectual property; our ability to sustain, manage or forecast its growth and product acceptance to accurately align capacity with demand; the continued success of our customers and the ability to realize the full amounts reflected in our order backlog as revenue; the loss of significant customers or the enforceability of the Company's contracts in connection with a merger, acquisition, disposition, bankruptcy, or otherwise; our ability to meet the technical specifications of our customers; the performance of subcontractors or suppliers and the continued availability of parts and components; changes in government regulations; the availability of financing and our access to capital markets, borrowings, or financial transactions to hedge certain risks; the Company's ability to realize the annual interest expense savings from its debt refinancing; the ability to attract and retain qualified personnel who can design new applications and products for the motion industry; the ability to implement our corporate strategies designed for growth and improvement in profits including to identify and consummate favorable acquisitions to support external growth and the development of new technologies; the ability to successfully integrate an acquired business into our business model without substantial costs, delays, or problems; our ability to control costs, including the establishment and operation of low cost region manufacturing and component sourcing capabilities; and other risks and uncertainties detailed from time to time in the Company's SEC (News - Alert) filings. Actual results, events and performance may differ materially. Readers are cautioned not to place undue reliance on these forward-looking statements as a prediction of actual results. Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise over time, and it is not possible for us to predict the occurrence of those matters or the manner in which they may affect us. The Company has no obligation or intent to release publicly any revisions to any forward looking statements, whether as a result of new information, future events, or otherwise.




(In thousands, except per share data)

For the three months ended
March 31,
2017   2016
Revenue $ 61,354 $ 63,675
Cost of goods sold   43,653     45,170  
Gross margin 17,701 18,505
Operating costs and expenses:
Selling 2,603 2,424
General and administrative 5,749 6,409
Engineering and development 4,191 4,050
Business development - 83
Amortization of intangible assets   793     779  
Total operating costs and expenses 13,336 13,745
Operating income 4,365 4,760
Other expense (income):
Interest expense 523 1,532
Other expense, net   (10 )   15  
Total other expense, net   513     1,547  
Income before income taxes 3,852 3,213
Provision for income taxes   (1,195 )   (858 )
Net income $ 2,657   $ 2,355  
Basic earnings per share:
Earnings per share $ 0.29   $ 0.25  
Basic weighted average common shares   9,068     9,273  
Diluted earnings per share:
Earnings per share $ 0.29   $ 0.25  
Diluted weighted average common shares   9,229     9,273  



(In thousands, except per share data)

March 31, 2017 December 31, 2016
Current Assets:
Cash and cash equivalents $ 14,048 $ 15,483
Trade receivables, net of allowance for doubtful accounts of $367
and $362 at March 31, 2017 and December 31, 2016, respectively 31,035 26,104
Inventories 30,862 31,098
Prepaid expenses and other assets   3,044     3,120  
Total current assets 78,989 75,805
Property, plant and equipment, net 37,370 37,474
Deferred income taxes 845 923
Intangible assets, net 33,576 34,252
Goodwill 27,740 27,522
Other long term assets   3,906     3,943  
Total assets $ 182,426   $ 179,919  
Liabilities and Stockholders' Equity
Current Liabilities:
Debt obligations 943 936
Accounts payable 14,605 13,204
Accrued liabilities   10,520     10,678  
Total current liabilities 26,068 24,818
Long-term debt 67,592 70,483
Deferred income taxes 3,295 3,266
Pension and post-retirement obligations 4,220 4,381
Other long term liabilities   4,834     4,685  
Total liabilities 106,009 107,633
Stockholders' Equity:
Common stock, no par value, authorized 50,000 shares; 9,471
and 9,374 shares issued and outstanding at March 31, 2017
and December 31, 2016, respectively
30,621 29,503
Preferred stock, par value $1.00 per share, authorized 5,000 shares;
no shares issued or outstanding -
Retained earnings 57,211 54,786
Accumulated other comprehensive loss   (11,415 )   (12,003 )
Total stockholders' equity   76,417     72,286  
Total Liabilities and Stockholders' Equity $ 182,426   $ 179,919  



(In thousands)

For the quarter ended
March 31,
2017     2016
Cash Flows From Operating Activities:
Net income $ 2,657 $ 2,355
Adjustments to reconcile net income to net cash provided by (used in)
operating activities (net of working capital acquired in 2016):
Depreciation and amortization 2,450 2,270
Deferred income taxes (48 ) 96
Stock compensation expense 466 513
Debt issue cost amortization recorded in interest expense 37 -
Other 248 (217 )
Changes in operating assets and liabilities:
Trade receivables (4,768 ) (6,423 )
Inventories 221 (16 )
Prepaid expenses and other assets 150 (484 )
Accounts payable 1,302 (748 )
Accrued liabilities   (383 )   (4,261 )
Net cash provided by (used in) operating activities 2,332 (6,915 )
Cash Flows From Investing Activities:
Consideration paid for acquisition, net of cash acquired ($2,329) - (17,000 )
Purchase of property and equipment   (1,288 )   (984 )
Net cash used in investing activities (1,288 ) (17,984 )
Cash Flows From Financing Activities:
Borrowings on lines-of-credit, net - 10,859
Principal payments of long-term debt (3,000 ) (1,875 )
Dividends paid to stockholders (228 ) (224 )
Stock transactions under employee benefit stock plans   628     811  
Net cash (used in) provided by financing activities (2,600 ) 9,571
Effect of foreign exchange rate changes on cash   121     366  
Net decrease in cash and cash equivalents (1,435 ) (14,962 )
Cash and cash equivalents at beginning of period   15,483     21,278  
Cash and cash equivalents at end of period $ 14,048   $ 6,316  


Reconciliation of Non-GAAP Financial Measures

(In thousands)

In addition to reporting net income, a U.S. generally accepted accounting principle ("GAAP") measure, the Company presents Adjusted EBITDA (earnings before interest, income taxes, depreciation and amortization, stock compensation expense, and business development costs), which is a non-GAAP measure. 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 evaluate and compare the core operating performance of its business from period to period by removing the impact of the capital structure (interest), tangible and intangible asset base (depreciation and amortization), taxes, stock-based compensation expense, business development costs related to acquisitions, and other items that are not indicative of the Company's core operating performance. 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 months ended March 31, 2017 and 2016 is as follows:

      Three months ended
March 31,
          2017       2016
Net income $ 2,657       $ 2,355
Interest expense 523 1,532
Provision for income tax 1,195 858
Depreciation and amortization         2,450         2,270
EBITDA 6,825 7,015
Stock compensation expense 466 513
Business development costs         -         83
Adjusted EBITDA       $ 7,291       $ 7,611

Constant Currency Presentation

The Company believes constant currency information provides valuable supplemental information that facilitates period-to-period comparisons of the company's business performance. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. Constant currency results are calculated by translating current period results in local currency using the prior year's currency conversion rate. The following table reconciles reported amounts to constant currency amounts for the three months ended March 31, 2017.

        Three months ended
March 31, 2017
$ in thousands    

% increase (decrease)
compared with prior
year amounts

2017 revenue, as reported $ 61,354 -3.6 %
Currency impact   1,123 1.8 %
2017 revenue, at 2016 exchange rates $ 62,477 -1.8 %

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