Allient (ALNT) 12 Mar 202019 Q4 Earnings call transcript

Greetings. Welcome to the Allied Motion Technologies Inc., Fourth Quarter 2019 Financial Results. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded.

the to turn Mychajluk, host, now Relations. Investor will conference your over Craig I

begin. may You

you, Thank your as Allied as appreciate morning, time well Motion. in interest Yes. your good today and everyone. We certainly

which are call Mike on results are open and full-year and Chief we’ll going the on review our outlook, strategic me Dick our progress fourth and Leach, and Chairman, Dick Officer. for update XXXX our up provide our Q&A. Warzala, and Financial to an CEO; President Mike after it and Joining quarter

You results website should you after closed. the have can a copy alliedmotion.com. not, at that the of financial If our yesterday were released on find it market

that today’s find On the also website, discussion. accompany you’ll slides

the If you are those please reviewing for Harbor Safe slides, turn X statement. Slide to

cause make that aware, These forward-looking risks subject during as are this call as may events formal Q&A. and during that is and the These stated documents in as by materially other as earnings the as other you the future on are and with we release the on from to are the other statements factors discussion factors well with what actual and uncertainties call. as well could risks filed to uncertainties, apply today’s Exchange well differ Commission. some company statements As Securities results to discussed

at sec.gov. these or You website find our can on documents

non-GAAP measures, believe out point performance. to we as well discuss that which want some call, be I evaluating today’s useful during will our in we’ll

GAAP. reconciliations non-GAAP measures tables and information for earnings prepared as accompanying substitute slides. GAAP consider not results provided in in this the of with isolation accordance the should presentation or comparable the release additional You of to in a We

to to I’ll With Slide Dick X, over and that, begin. Dick? please to it turn turn

year we effective through again Europe, and our strategic execution Thank continued which One you, Allied significant XXXX above-market Despite achieving towards growth long-term the strategy. objectives. delivered welcome, in we in made once goals progress our was a the and everyone. Craig, softness of

demand team Fourth Aerospace specifically, these has and Defense precision was vehicles. sales applications Vehicle penetrate require overall the and strong our in further up defense by A&D driven ongoing from quarter & we revenue electrification In of that XX% been driving solutions the advancement as results our XX% of organically, market.

also by record to revenue organic Full-year grew a million, $XXX was XX% and supported growth. X%

and We continue growth with our in of and towards Aerospace Defense progress diversification & XX% further measurable to XX%, make our Medical markets business, respectively. of

the overall adding are the core in and customers Medical, our execution benefiting existing Allied system, customers. of key delivery, to and A of expansion our further in Systematic around AST, continuous expansion new all from quarter growth overall component content our level areas share our in markets business full-year, In with as cost by we increasing Tools, both we was or a and innovation. the operating improvement our drive and margin of a higher quality, and company

to gross benefit our addressable both operating full-year our and business expanded strategically improvements was has the Concurrently, in margin. and a contributor strong margin TCI of both market

achieved we margin with bottom of reaching strong level quarter and As a income record XX% results, million. full-year $XX profile, net result a the of enhanced fourth up line the

current expansion And doubled during and reduce solid we provided almost operations was generation we with to compared that initiatives the support fund and cash as debt opportunities. by Cash XXXX, future to XXXX. capital used both

wide solutions in excited also to Controls a X, we Dynamic are about continue ability recent markets. to leverage as of of controlled Slide acquisition our motion we out to range our Turning build Group,

bright I excited off, welcome Controls’ team very Dynamic the our future we to First entire and are Allied, together. about

engineering our have very resources design team the engineering a Their was increases that for this experienced electronics verticals. around acquisition compelling. critical strengthen solutions rationale significantly our rehabilitation further patient software major with The will They electronics enables mobility market higher-level to position across market and available and other further embedded and product and strong within strategic Allied. suite develop us medical solutions

the to to year. Dynamic The gross From while with designed an be strength are our margin is for a that multiple that we value profile geographic improving the overall marketing and reside. and the currently the customers company, for with by ability accretive the global manufacturing our improve Allied, expected And slightly to integration elements also our overall enhancing proposition system manufactured of footprint, leverage value customers. proposition further financial service expanded the – perspective, are within of markets

over it me in-depth financials. turn more review a Mike, of that, the With to you for let

Thank top you, our X. on Slide Dick. We of provide line an overview

As which specific drivers quarter for revenue A&D. acquired we $XX.X was and on despite XXXX. in reflected a growth Fourth and touched our in an to reminder, XX% A&D Vehicle. FX the December results double-digit up headwind Dick include million, TCI,

continued program as Our automotive commercial organic Vehicle customers from as power We States. the to strong as market new and was saw legacy well also the solid in XX% in drivers a higher sports in United we applications, growth and the achieved of macroeconomic benefit demand reflecting in quarter, quarter, Europe. in

Europe, to softness of increase of sales XX% A&D our a $XXX it in we saw the outpace up within was which Domestic major reflected customers growth particular served million, the reached Medical. XX% Demand record growth. was in continued also broad-based with U.S. in far and organic general growth is total X% all a to and markets revenue supported XXXX by to of sale. and industrial strength

X revenue market by as Slide well the full-year, annual the growth. mix our in market’s as shows for change each

growing Medical of strategy and diversification the to scope broaden past, element about and our of talked the business. important A&D our we’ve markets an As the are in

and in that performed distribution TCI with in can nice business been mind headwinds and for growth market XXX% have industrial treatment has HVAC market. and as and be offset Keep in the found the expected, as in the TCI growth oil in accounts gas the distribution. water

and industrial devices encouraging, recently including interface can the been introduced status PQconnect, have receive for communications software introductions New also data our remotely. product command that

productivity increases on and depicted X, reflect largely gross XX to quarter enhanced basis our respectively. mix. to points margin our the expanded for higher Slide volume initiative, These XX.X%, and continued year XX.X% As

first As on during fourth discussed we the us basis supplier the the a XX exhaust There’ll margin lingering and through were we as inventory estimate remained into the gross impact inventory. headwind issue points, of as expect quarter the in full-year still the XXXX calls, previous working impact XXXX that remaining to we be on We have to some the expected. quarter. remaining approximately impacted be beginning

new terms expect half As around get a to given with negative that supplier. back the of we impact, only the reminder, pricing

see sales to can our strong XX.X% as X, operating to now to Slide basis the points our impact quarter. volume. percentage you of are and higher of past for leverage, the a XXX declined costs on supporting Operating investments Moving infrastructure

You can see the added leverage expense G&A and demonstrated summaries. E&D the

operating expenses support growth million XX.X% sales as future. the increased to basis TCI funded XX Most totaled those the costs that growth of support to leverage related and acquisition. and asset additional for million our and year, amortization and incremental at the we can $X.X in in acquisition. TCI year, importantly, are increase in levels the to provide And for were points did $X.X for largely quarter to Interest related on expense intangible operating our the took expanded debt to while the personnel investments that

credit. can income you primarily XX% diluted in results. X, supported Slide to or $X.XX $X.X to by increased tax the quarter, our million, share see bottom additional tax and R&D Net a lower to due line fourth effective per was Turning rate,

tax for year rate to acquisition. in a tax that, the quarter our share. income XX.X%, net effective The increased of $XXX,XXX the record the increase third a did Despite XXXX which in foreign income for to XXXX tax related provision diluted per reflects the or increase $XX jurisdiction $X.XX a million, X% a in to previous assessment

adjusted XXXX costs, item provided for and anticipate are up between $XX.X the slides. Accordingly, and year the per I disclosures range or to and the for non-GAAP XX%. you and the effective was fiscal Excluding tables review XX%, million, tax our We in share. rates to reconciliation tax net income that other XX% release diluted $X.XX encourage atypical

for margin and EBITDA while performance. sales. million, We progress an XX% points and $XX.X XX.X%. as to Adjusted or quarter Full-year adjusted determining is useful the operating EBIT basis believe EBITDA of million, it internal metric $XX XX XX.X% adjusted to was increased our use adjusted increased EBITDA in

approximately Slide XX was and debt overview balance and capitalization. sheet $XXX.X million, or our to was from net net million, year-end XX an XX.X% million $XX year-end, provides At net of cash, cash of total $XX.X XXXX. Debt, debt down flow.

$XX.X annual part of from in total $XX.X of generated to expenditures operations This XXXX bringing cash We our quarter, million. the the $XX.X million. fourth outstanding capital to used in was flow fund million

between lines range our next-generation and to capabilities which new projects, consists vehicle off-road investments of our We Vehicle million, in XXXX facility CapEx expect the fiscal for completion and million $XX wins. steering manufacturing market support project of to $XX customer China primarily

turns inventory were as pipeline XX-day XX strong at a with tight last our job improvement a DSO done we’ve chain. times, days, from supply sales X.X XXXX improvement was year an balancing our better a from And XXXX.

new expansion up credit drive our enhances cost we I’d debt senior secured to to and feature capacity secured we facility expanded $XXX borrowing reduces continue allowing like in This that million growth XX%, February to nearly million. strategy. add an to revolving a that with announced our accordion refinancing of $XXX flexibility

prudently manage our balance has as allocation not our to We strategy sheet, will, continue changed. however, capital

as down acquisitions. Our reload primary and organic focus growth for as is debt paying well to advancing internal future initiatives,

facility. million with it The $XX purchase credit Dynamic price funded revolving Controls was plus acquired, was borrowings our under cash

back to I’ll over call now Dick. turn the

Thank you, Mike.

in over the XX, And As Slide FX, six X% Europe. the level softness absent depicted $XXX About XX would XX% our of the $XXX been next orders most given months million, solid Backlog and approximately grew backlog million. months. the of $XXX very on a next at have nearly unfavorable to in convert million. remaining full-year was expected is to year-end orders

amount backlog included nominal a numbers. vehicle just market the a the in are reported announced our As previously several we $XXX million of awards reminder, in

awards up for of levels expect year this begun very and to production have shipments and at We through projects low three ramp these the we XXXX. for first seven-year

worth noting, paying others, the are close like to development many we to is coronavirus. It attention relating

families time, on the foremost, are healthy. and health our and focused employees. report of pleased And safety safe our to we are First of and this and we employees that at all are

Changzhou, the China Our in when was outbreak for Spring occurred. closed in facility China Festival

note of the Dynamic in facility we now same operating. a delayed from were for the of came While also weeks, China, with reopening. acquisition, the fully I Controls reopening that also experienced couple would facility in delays type along that new our is Suzhou,

gradually has while move have appears challenges Encouragingly, near some second this within From anticipating we are come normal supply at we be a and chain we impact, any back quarter. not operating levels as or significant our supply China perspective, chain yet seen through the at time. to

as As there to believe our we we of we the to our the relatively and strategy continue business potential this fundamentals quarter move Most forward situation, headwinds to impact to are well-positioned can through our that strong. monitor remain some long-term. we closely first the advance with, importantly, evolving of while we continue year. will And over now, confident is small, contend the be and will

that, for the questions. With let’s operator, open line

Instructions] question. Sure. At question with a question-and-answer [Operator from your be proceed is we Craig-Hallum. And Palm Please from this Greg conducting our time, first will session.

morning the end in Great, all little It’s XXXX. have thanks. to a Really at pretty bit this least nice there. good successful to out good of wake negativity of a news way

good So a congrats on quarter.

Thanks, Greg.

I ask it’s of impressive. It’s starting every this like quarter. I market. the XX%, question But So clearly end mean, results, feel with much almost growth I I actual organic guess, than mean, higher I

you elaborate bit the little customers, it mean, are combination you I most on markets? can it’s maybe I’m Is it Is share seeing of but right gains, that? So, products? assuming where now? end a success new a

Yes.

think, of it’s several combination different a Greg, I things.

I market think, off, pipeline the mean, talked come for that at to as many heard I about, new and us market on overall increases. you’ve are period First themselves the we’ve the markets we’re them in you – to get look that about actual about gestation talk have for And gains above that projects that a that production takes delivered. time working years experiencing were

market So taking and, say, combination those particular, I in that a customers years I some I’ll have certain won’t it’s a And on several say, details some worked items of into think again, and for we’re portfolio. the the share. get motor. let’s that a additional but supplying customers, we on supplying of have components product, our success been had We’ve product particular in

future, be solution. growth we share – because in a So in by that to the adding the of applications to technology strong more to continues opportunity is our current for can us gain more just

And as they’re there and – customers that, upon in it to are to you more the provide that the hopefully sometimes accept quality, tighter while more case, customer. also improve with or, proven reduce the the past challenges cost Allied said has upon for overall, and solution, we’ve that the getting relying in to this size also reduce integration

we focus, range the our broad So think that certainly markets. that’s success our and across driving and emphasis of that’s

out a there’s or Yes, what get full mean, for have percentage if in, what solutions trying a don’t that’s to the is of there? still I sort know sense potential of, days made call it, still opportunities I commentary it mean, and you are that helpful. potential to any give of in can customers switch inning we on – of transition Just the provider? is? lot opportunity a that I early more

talk let’s bring just bit. here, you’ve and to We’ll here light around that resources, us especially our software. little a and throw heard about because about electronics made expanding engineering the acquisition Well, in it that we talk

made in area internally, that investments that solution. being important few significant all are software that a years, provide total the of and communications very the recognize and we electronics part to So, able over last we’ve that

volume, Dynamic and as of core what which and gives very significant unit software engineering acquisition important a see costs, electronics is the well Controls, as With doubles we us strategy. it our capacity drives

think we’re to is in And evolving we key that this can strong be that innings, classify in I where core have our base say to evolving. to because is company we So, standard I – the a will – of volume that’s somewhat now what that you continued you early as going can success. product leverage,

it was core very rehabilitation other serving And we particular, aspects market, to focused, excited engages Dynamic and we’re medical our the accelerate we’re in currently because the markets. can apply those penetrate they mobility while have, Controls technology markets that opportunity and about, in

so that given that. addition, electromagnetic, they didn’t In they they’re electronics, sell gearing, sell didn’t they full have didn’t

of forth, and Well, I solution well. strong say to think can more to out we we be we value markets a applied in add and feel it’s platform – that, motors, have rehabilitation the that not hard also want to as gearing, the so figure that if mobility overall medical we rehabilitation and

And that. solutions let’s early So company I key would the I and solutions is it it’s you if certainly, at element I the call keep globe. integrated footprint a helps around innings that driving think just the think integrated generating And all, how continued of it, classify of solutions, leveraging higher-value doing are third our or inning. the evolution that will towards

That’s great.

one – you’re I your gears reporters Given of the here, mean, later here. switching

a sense market you a what’s feel out of idea near-term little on what your I mean, of are near-term standpoint? there I an mean, the an color exactly how got what gave you’ve So little – revenue there results? like around end seeing bit But are some from maybe standpoint. factory going that start-ups. from and market I out end bit better what’s you chain impacts, on demand of kind you supply impacts

things there’s to think point that Yes, I like two out. I’d

off, not we’re to First immune. going be

call couple to crashes a first top line, of the in bit about the X% As immune it. seen going unless not weeks. everyone and realistic a X%, I little be from bit something being – quarter, on there’s of really we’re We’ve in is going And down They for markets to driven the think, to sees we’re a here next unfolding say, I’ll certainly bit global today, impact. as – be little – what’s it’s it demand let’s qualified that. little

look – but us couple something exception to that may chain to we And when parts that is the the electronic much see. a things certain But a certainly to call normal pretty happen. returned there’s could you Supply now, early for of longer-term, that too with to shortages. see start right appears have component it’s that we state,

have would very in popping supply not be stages, us And you that to secure of uncommon, and Secondly, numbers, are strength people today on early are our to say, to to their future. look source when we in we careful that, while secure for caution bookings orders see into that’s what people is I supply. get the the where may at wanting

So signs we while encouraging saying, about. things don’t their But we see here, circumstances. talking we’re normally about unique talk I’m it’s

and in impact be And major to are now, right in double will it But that closely we predicting We’re not further as going nature. forecast our out ordering quarter, the building not a minimal said that of it’s I year, to impact. there the watch suffice to sure would some it first impact. things we say, make we’re

very But I situation now to on you to to it’s I think guidance and that I facing. we’re and could better happen on be given and say, that’s that a would right else maybe going here conditions world go want probably change going to subject get everyone not dynamic the think, the what’s limb in really a markets,

very So Allied, markets in was we’re steady very and when – global to because but I well. state, of will faced very we not with positive, would and focus. weakness global past, challenging the very situations encouraging, it be if circumstances, the upbeat, And markets on in And continue. going we weathered phone them lose

our anything going maintain too, course, do drastic. will not and we’re to We

look a on, the we’re We’re going pipeline, working continue and going basis. get to great developments to some at on to long-term projects some we’re in great this

some if you’re does going overreact us them. see have even short-term to so not the to And glitches,

Yes.

a that’s Okay. good message.

here luck in for leave I now. future. it the of think Best I’ll there

Thank you, Greg.

Greg. you, Thank

Please from your Our you. from is next question. Brett [Operator proceed GAMCO with Instructions] Inc. Kearney question Investors, Thank

morning. good question. Thanks guys, my for Hi, taking

Good morning.

morning. Good

the and you the schedules this shipments like of What’s they variability to get what’s on and sounds could stage sense Or that new it originally there potentially to underway, at firm see customers? starting contemplated? date market, out? bit the have past the little pretty production vehicle it’s few the the years. move beginning kind still from secured in some maybe the a timing might In be your been awards Are laid reevaluated of talking

here – I to again, deadlines, we towards working for – it in and put let’s production levels say low perspective through Well, in have Sure. that, to timelines XXXX. we’re volume that deliver up and ramp and through have

global to short-term, see in down, we based goes if because impact delayed. going going – much if our much the it we’re anything, market have will for So not in. demands go away, not didn’t us it get demand And upon expectations, built may to

But timelines would up delayed no and ramp time. committed it – that global that in no and And – again, delay as But to. positioned demand in that expect at a quickly, in the the there’s this see delay certainly keep things we’re if ramping I – may the get pushed launch all our market deadlines can if gets to up went out down, we bit. we’ve

a something, full it’s year. came a built that’s we all But for this – and sudden where or this didn’t the we so little and impact it weren’t early not to into much have fortunately, impact, that. And the it’s of a so reason. next too because call production, on in again, – that’s year, crashing plans our But year, see halt to I don’t us built the it in,

more have to maybe with favorable the months? Perfect. with completed will some point, Controls in ask I a company we or we more to lean Allied if coming could one more just Dynamic see business become see And then even evaluations tracking heavily more acquisition expected be say, actionable, and if been now become at more, this in want funnel usual lot could for as you opportunities the in – sneak

– That’s I very of possible. say from I think we’ve And always. shouldn’t standpoint the always,

strong had our this past advance well credit – I so are here generation maintain projects internal in think improvement getting that in facility that actions cash we new in year, underway. a place, strong of the past, and taken we some balance that sheet,

we’re we’re you to going if say to I that there. do accelerate, So would be the well-positioned very that opportunities

much. so Thanks Terrific.

Brett. Thank you,

And Please & Ryan your question. is next question with our Dougherty from from Dick Company. proceed

did Thank of the highlight you. for Say, medical side Dick, you previous Defense full-year. anything and for Medical couple mentioned a quarters, Vehicles QX Aerospace But the well obviously did in go in was and on & QX?

wins to you exciting I you very the the several mostly say designed projects increase out during full-year, I’d seen been haven’t what some no. mean, the we’ve we particular, to I that that some in that we have results for experienced in to new continue years the had we get answer the on, we and even yet. in designed We’ve anything just of can ordinary the existing year. from past volume projects No, – we’ve is had seen on say that

Okay.

on enough we’re us what medical, We’re that And Dynamic even to reinforces I I again, to and market, hard brings medical to Controls, resources medical think, that available emphasize a the and very medical, now I that all acquiring really this increasing, on are on believe which greater commitment work bullish bullish market. penetrate level. technology is to our really just that to can’t base our that

what be if gas the Great. too with recent But to see Say, and it’s what maybe could starting Thank market, are impact on the there oil anything or you. you turmoil impact? in the oil the soon. TCI, on

know, as oil – But now. Sure. owned Well, and again, only have the you impacts year when experienced fallen. as the gas TCI a little TCI a a company, we has over past, things market for we’ve in

So at that. looked we’ve

will it’s of have We and on business. are that that depressed the I past TCI. you tell certainly significant stays to impact do. would If what level, in And impact could with it oil encountered their it fairly an the a aware they’ve

that, it pipeline very what any protected I And should it already we’re thing about will some the depending the and quickly. you the happened, it turnaround impacts see through backlog. year good a in impact we have are best going upon not to first-half definitely is can level, of stays respond But can have based year. tell now, that’s are through we’re the that of way. if depressed in now, right the at mean, would in at to first-half For I and I But we an say, what’s we our looking the

the the that Europe, of quarters. that couple on contribution? of What’s And kind contributed longevity Okay. in program of last legacy that’s vehicle the

to Well, we And line qualify contribution benefit, of that contribution. I program a acquisition. the longevity line has you with want the it a benefits. the and term is little will top that bottom acquired, I tell while along legacy It Globe it has very

So gets matter demand it that line. we out, customer, continued satisfying – a and signed. it’s for for area. us, new of contract us, But had gets bottom And that be the we better, to going for a it’s our stuff a see converted converted for into in sooner

you. Thank great. Okay,

with we Michael Instructions] have now from Principal Please your question. And proceed McCroskey [Operator Financial.

Good morning, gentlemen.

Good Michael. morning,

Another of good, covered call conference things this. Congratulations. and quarter. apologize. may Couple steady and you I’m to I have the late

Is a that financials What’s financial only positives really addressed the that we’re me acquisition? gross margin line slightly help our costs? about not there purchase, what the – some was top acquisition of accretive. their is to Controls Dynamic reason were and the With understand the talking

really don’t again, of reporting acquisition be financial how the the with consistent Dynamic Yes. Controls. we’ve they’re put press that, In then if just to wanted to we material in – terms. we release not We overall, handled – don’t previous we

be top that. $XX be have issue. would did and our about I no So Mike being we’re line revenues to manner million should that price talk – – and be in in just double now. purchase consistent

my Oh, apologies.

did we million be no We top billion. line. mention year. will on $XX slightly this saying, – about to mention He earnings accretive line, you’re we it’s okay. $XX problem it didn’t with the anything think in I I top as have our And don’t said, did but

like It sounds [Multiple Speakers]

with piece Yes. mention it’s we really accretive The the us, you feel that, miss along markets leveraging technology as that this line there and for of did not into really But our acquisition of accelerate it, coming are one top – resources the and is is and that the just it and well. factor maybe the software the electronics and maybe other

Motion to mechanical product with of into addition the portfolio and our that forth that, piece In market gearing so electromagnetic leveraging an services. Dynamic existing Controls Allied it

So Medical great consistent pieces. complementary is complementary technology, past emphasis continue on looking and It’s with of a an it really a Aerospace our strategy for & markets, our focus to marriage. and expand Defense

was software talked our as like this is about. a electronics the resources. I of excellent some us the think it the as win to It But group, question, reemphasize – asking position and of doubles to one. well size us, would far to I into critical think so a So adding this technical an helps I future and it’s big

And quarter and even throw on and a past can in don’t – touch just quarter the the know sight, you’ve I on this – fourth they – touched you necessarily I and open can for call it seasonality. or present But little a know even just moving towards fourth bit? color I us that expectation, but quarter-to-quarter into lumpiness on more to of to more still? way that expand as seems that a an there little we’re is

talk. to Mike for time It’s Sure.

Yes.

in atypical it fourth us quarter. is So by lower not, a have to revenues of the any means,

agree would I is terms. right. with seasonality to our some exactly business. There You’re your

to QX. sports inventory product predominantly less towards for to seasonality. just it’s the I the would they’re that point power destocking prominent going again, unusual market year It’s in – take them, as through changes. and driver not model And

between driver that business primary annual you the basis. on that’s that an seasonality So see

December, bounced would right fourth back add normal we did in see particularly the in is or – year, in but soften also Mike near this and levels. to said Europe quarter, to I that January there what at normal

impressive. of mean, you appreciated, all crew. are it’s really for my Thank on Well, I – consistent again, just and thank behalf y’all you. so

from Michael. Thank you. you, Good to hear

our – And And we turn of will have question-and-answer over session. the the call reached to management. I end call

interest Allied everyone, your you, on for in Motion. thank us for call Well, and joining today’s

our out As Thank at us feel quarter Thank call. all our participation, you your to to a always, after end day. for any to Operator, results. and time, look great we reach forward that free have first with and again, please will you, you. talking of

lines And you for this may Thank your this time. your conference, you today’s disconnect participation. and concludes at