AMOT - Earnings call transcript Q2 2019

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Operator

Greetings, and welcome to the Allied Motion Technologies Second Quarter 2019 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Craig Mychajluk, Investor Relations. Thank you, sir.

You may begin.

Craig Mychajluk

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

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

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

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

those reviewing you're the safe to slides, If Slide X for please turn harbor.

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

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

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

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

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

Dick Warzala

everyone. and welcome, Craig, you, Thank

digit to to customers in gain growth markets. by Allied our all double traction our One well as Our our solutions served of as engineer key evidenced responding approach are continues

of reported and X% record revenue in revenue FX headwinds solid had and up our over to grew reduced immeasurable growth our Tools Of improve margins XX% Allied note, while of organic operating with revenue the revenue Systematic backlog. expanded business. performance orders our by effectiveness areas Overall, X.X%. We XX% all reflecting

Solid from in bottom had our X% cash operations. generated we to led strong execution line a increase and

is the strong performing and was through our the to sales our and improvement TCI expanded growth We of softness addressable our in can in market growth headway acquisition Europe, market as U.S. rate and was well deliver we strategically strategy by overall organic made contributor Our earnings. while believe we a above execution impacted in excellent

months, progress and of XX% market for continue further Aerospace particular market the we to was up Defense towards XX our is & XX% our business. diversification almost trailing In our make medical as up

Systematic Executing improvement level a or company all of AST continuous our business the we Tools areas operating of system, to as higher cost is drive quality, enhancement around delivery, margin Allied innovation. key in and

strong as and have performance. team past have capabilities our enhanced We those the AST margin improved demonstrated a by recent over year

Importantly, electronic noted price the first from suppliers offset assembly these improvements increases received control as we we our quarter. one help in the of

in to headwind end diligently to persist expected this our have is working inventory certain lead impact, are the for long XXXX. While the lessen we components given level experienced we of through key of the current times

increase addition integration areas introduction further drive product engineers in around invest Those We've markets. also struck to software. of been and new continued solutions innovation, for have of to our our new multiple accelerate areas excellence the especially electronics served strategic of with and

technology production ourselves support organizationally we as of progress centers. our unit sales, our our and day, utilization target align we make to more with markets centers, customers Each better effective solution and

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

Mike Leach

Dick. you, Thank

on overview our We'll of Slide X. an topline provide

which we TCI reminder, include a our As in XXXX. results acquired December

of headwind in million markets. FX $XX.X noted, or $X of served with million. all broad-based increased Dick growth major million despite XX% Demand our revenue an to was $XX.X As

growth in We Europe. domestic offset particularly Medical. had We largely A&D softness saw but and strong by double-digit in that organic was growth,

a increased in with total to U.S. customers XX% balance customers to Asia. of to and sales sales sales Europe of result, As primarily the

Slide X in be acquisition and shows the and XX. revenue change market distribution. growth the each mix by distribution the within in market XXX% June XX for The for months industrial accounts TCI growth the trailing and our can of ended found

growth Medical engineered markets Over our we the share XX months, gain solutions. our last considerable to continue as have and with A&D experienced precision market

to As diversification we've scope strategy important the of are talked about element our the markets business. and these of the growing broaden past, in

of margin Our highlight quarter. expansion the was certainly a

depicted Slide the over recent to served number points mix higher gross reflects increase XX.X%. as This across improved margin our prior significant well X, a on of the favorable As TCI. XXX acquisition period markets, volume, as of year basis

supplier a remains impact of mentioned, will As the us Dick end issue headwind XXXX. that the through likely

profit amortization to X, Slide quarter points the TCI additional due operating and increased to to asset of largely related to related basis XX XX.X% costs sales higher acquisition. and incremental selling intangible to for the on expenses personnel Moving

additions selling were to basis the While G&A company's expense the X.X% XX growth. up expense of points XX decreased engineering to XX also to group despite points E&D XX.X% sales X.X% basis to basis, decreased support significant and of

funded $X.X balances improving however, to led basis management XX growth the Solid to expanding TCI income operating continues XX% million our X.X%. for provide to operating acquisition. investments to in leverage. at expense continue Interest to points a level gross margin with in that We margin million operating higher $X.X to and the increased increase that cost debt plan on

Turning Net was XXXX. or the $X.XX bottom second the per diluted million to from income line $X.XX our The quarter can share $X.X X, results. rate tax of to up XX% for see sales fiscal XX%. compared increased effective $XX.X of increased range percent points with you Slide a the EBITDA and and up XX% tax basis XX% XX.X%. as XXXX XX expectations million rate for adjusted quarter XX.X%. our a to We've between Adjusted to quarter was up

internal please review in to in EBITDA is This useful our and non-GAAP end metric our performance. reconciliation it release believe and an our advised We slides. use as at related and and be disclosures the progress determining our measure the of operating is a adjusted so

provides the X, with slide overview numbers of on acquisitions this combination of made and in and a two funded are flow, the balance an as in were sheet cash our debt. reflected Slide XXXX cash both

net result, at $XX.X quarter operations We As cash XX.X% resulting net million to approximately year-to-date was in of of capitalization. million. in strong $XXX the or a amount from the quarter of cash $X.X debt million generated debt second

internal as we reload changed initiatives. primary and future initiatives paydown and and were strategy allocation capital our improvement acquisitions. investments as growth million debt growth has primarily Our not for organic and capital for were productivity expenditures is Year-to-date focus advancing $X.X

our next the shipping will XXXX wins off-road range steering addition by fiscal We which The slowly between CapEx vehicle million for $XX $XX year-end. of and million that and reflects additional related begin expect generation to significant project TCI. the capabilities support of to investments incremental

were Second year balancing our done times X.X as from last a we've pipeline supply the quarter a chain. strong with tight improvement inventory turns sales better job

the and XX at DSO was a down Our from heightened number. sequential quarter XXXX first days

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

Dick Warzala

Thank you, Mike.

XX. turn now to We'll Slide

the emerged in flow in offset that U.S. Europe. order strong the Our softness has

orders second year-over-year grew $XX $XX result, would million. X% been record quarter to nearly sequentially XX% unfavorable and have million. a orders a FX As Absent

a XX% was more expected next million convert at end at our XX% next backlog record than and year-over-year in six months. level to XX% over of Backlog of the the months up $XXX.X is quarter approximately XX

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

and these towards begin at in the of We low very programs have shipments expect this invested currently to end year. levels

XXXX continue years. by the six for begin XXXX in will would to full shipments of end which rate ramping We seven production following to the

and we While flexible believe and confidence Europe, continued cautious well in have global profitability. for particularly positioned our around growth the we in economic and are we strong remain revenue environment in future

As global maximize We’ll will strive TCI's growth relationships utilization AST internal reach improving to enhance and acquisitions. move and of through our footprint. to by distributor on forward to efficiencies expand strategic we their utilizing also we'll the be we long-standing opportunities continue geographic our working to through operational focus

our further our solutions served executing change our meet of design motion that the believe customers will to We leveraging innovative the full current and by markets. company and capabilities game be long-term our our the success and strategy of and enhanced needs emerging

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

Operator

with first Palm Instructions] [Operator of Our with question comes the Craig-Hallum. Please from question. your line Greg proceed

Gregory Palm

out environment nice through an challenging I appears job there. increasingly would say to what be navigating

Richard Warzala

Thank you, you. Good morning. Thank Greg.

Gregory Palm

visibility the just over mean appears to be starting specifically what and of I softness curious spot end on markets macro is So soft are I Europe there? maybe what most guess, seeing kind that the since your you the

Richard Warzala

end the markets The is it it reality Europe. we’re all in really across is that seeing

and one, level the So general, its customers. it’s a across reduction the for business it's existing it's not board,

had, that Some of we probably bigger seen that we've a hadn’t achieve drop. so have we gains some new offset would business, overall by new business if

Gregory Palm

of terms it visibility standpoint from is is, there? most destocking do demand more customer what what’s you of real or direct, thought like feel of I your of it's sort know you is in do but the drop-off, And a sort end

Richard Warzala

real We drop-off. it's demand think

Gregory Palm

what's appears standpoint. up in existing by to look customers, strong to kind ramp be Is bright quarter growth growth be driven to on what the from that driving nice the standouts there? Moving `were a Aerospace, a Defense, programs of the new spot of

Richard Warzala

and what’s the solutions that, that you of takes increased we their years, that processes products and we’re success happened We've it's in engineered won share, anywhere in see both. what we've markets. new so and have is there we’re past, taken we’ve projects. four early whole is product and and There the taken design is business phases we our to development here get we’ve market will in mentioned designed - say in pick approval would in as to I to won through both time we then up, as key two get contracts the I gets to those share from new Again three think were launched that cycle market that demand appropriate that and –

Gregory Palm

the remained on you terms pretty say kind in of to So there? bullish opportunities near-term

Richard Warzala

Yes, we do.

Gregory Palm

the still maybe or issue, on quarter a the kind of last and through impact little of I don't bit changed that just expectation the think be release, this know now you year? to then the had that QX, we the on may language to remainder the is drag some in of case quarter the expecting And but supplier I alluded partial

Richard Warzala

pick Yes, it’s a up. good

protect at key to components, components the on in and lead the no certain we look we As had ourselves and pipeline. get times order on

see this going to and customers ship to the to going caused of protect first us for the push to So so it our order had end year. relief ability we protect push things to is our year. in to now what end of will year again until our here is the I next the protect product, think don't quarter through it we're -

Gregory Palm

of clarification parts the track expected? new But on new supplier are and as

Richard Warzala

Correct.

Gregory Palm

Good.

at product if to then with TCI? mentioned on actual kind was time you're kind broadly on quarter, these And disclose is I sense. in of you TCI, if strategy just Make Okay. us so don't update but of revenue I lastly internationally, taking what impact don’t kind if of know could know just just the to that hinted the potentially you opportunity that over curious and willing

Richard Warzala

opportunity There is some there. international definitely

to do As as you work international some and frequencies, the to electrical to is into a their have and into do, of testing you markets, we bulk have launching mentioned run you development before, footprint. you domestic different so the have business start

And markets to think produce even going it’s product what's from especially locally. become with critical knowing I tariffs able more day-to-day, today's an us happen be volatile to for to in not

there we have we an markets it's and little going be not shipped say, sit that international a to okay, these can are it's these where already products markets take footprint now international that overnight time. start into selling, we bit testing of So you success immediately in can but can

We are that also acquisitions at - looking are in we space.

I you to company think to strongly. We long-term we bring excellent extremely It’s the say about for an very future we’re well. long-term. going here. paths we’re would performed it can team certainly I that what in encouraged both had The believe So and to work

Operator

is Our Dougherty proceed with question next the with line & Company. of your from Ryan Dick Please question.

Dick Ryan

supplier issue QX,how the Mike a of you that quantify later was? for much drag margins on as

Mike Leach

a Yes, to is point very the don’t calculated QX it described that QX,so I've is it but drag. I specifically drag we basis similar XX know

So…

Dick Ryan

XX?

Mike Leach

our I the revenue know –XX. and similar well. was the obviously as impact Yes, dollar dollar similar is

range. it's So right in that

Dick Ryan

rifle is of AST, markets Dick, markets you enough of hitting shot or you're so maybe across have you approach, can platform it a from kind software, been describe end that your and people, process? just investments, mentioned rolling little of all where bit of that key kind that the a more out first if made you're

Richard Warzala

AST and that about Well leading Sure, quality, talked and toolkit it’s innovation. as Dick. our to here its I in addition so really delivery, cost

So its that toolkit since it’s a here part of and was in then. over I’ll Allied XXXX time it advantage call been expanded our Motion back since

improvements AST internally resources expanded. drive elements innovation particularly events additional in is continues think number We to the so we into sustainable a focused had on America, that drive improving forward, North waste toolkit team of which area really done new growth as and every margins as in in that and to along, the both we help areas play, has of focus hold continuous other there's we move and some is and now increase we've to one the Europe coming eliminating and area. in and are and both that that the the that year What in added we on of throughout in process entire we've been speed always will gone The business participation our company. we’re elements

the say they a people a set to of rather large a train and/or potentially get it in in get year of tools that culture. and company. our We about certified more it's better so than markets forth, train. So every parts they can and in of group process, It’s and as these to events qualified participate particular is utilize

we’ll and those areas here this on key It’s just say that something areas But are it's speed innovation going continue and stop. won’t ratcheting to play going of forward. two focus And really I'll key end. It won’t we’re year. up

Dick Ryan

focus quarter? had know So was how mentioned is the - the vehicle? in vehicle I you’ve and market A&E how Medical, you but

Richard Warzala

slightly, up for The it’s trailing okay up for essentially vehicle the XX.X%. the it was quarter XX was quarter market X.X% - month,

Operator

Please [Operator the question of with proceed next question? Instructions] from Investors. Our your comes Brett Kearney line with GAMCO

Brett Kearney

Another solid quarter.

provide ties is issue like provided one that exposures. chain you of great follow-up on dynamics about think color your trade earlier but isolated in current into guess, you a sounds of one from supply guess, as that guess dynamics your where additional your regionally, some major the any I broadly up how It the I I this sourcing you’ve bulk how can year the of - Just transactions came supply a you're compelling maybe more this on Could and lot environment? exposures been color we there.

Richard Warzala

multiple economics the that been as the last If acquire that located has locally the the that delays, to that you the the play will can support regions. the got source ability back for we've I several our of can us down along first-off, say led and might fortunate and geographic you look on in the at products made years, components key you have pretty acquisitions your and regions all strategy short-term locally secondly, because in cusps along, looked that thinking were we've that. done we that like companies regionalized, and if we customers different at all but that change, over geographic our made they source will the to them a-- you wherever while of And wherever cost, path speed been the has profit if dealing basis you to were are to the a loss do with we and situation logistics you

facilities. we see when quality centers are down what to to is where customers. top-notch are best to and Their cost certain - markets in is total in product we’re Europe North key some do actually of entering the terms we actual Asia that So acquisition of of and up and delivery at that and the drive production to America, performance both built is continue improve we that we to have the look very to place new produce as going closely and continue cost for the excellent

some future. key towards it localization drive and We again We've for continue the extra we've - believe we and we going to as moving in an It key some our to success. area active be is benefits will believe sourcing. have regionalization that to strategic project. that’s it's added So well resources that in

Brett Kearney

market anything I I It's market. including market in can I continued clear, in seeing, could kind share activity obviously want If underlying in ask more. just share you vehicle what customers you're to overall ask space? one guess, just from vehicle the wins wise, terms of the of hearing levels

Richard Warzala

Sure.

our German know you market, as largest market. - have largest We that's our

investing we are keep into new it back to generate products new to business secure not the clearly for we and business. secure So but only the have money also future

seeing the necessarily and years from a let’s you’re while in a solution applications company several focused with the market-based in away to are when you to say particular transition on. So I we want don't that moving one share the customer last solution

you investment engineering, tell developing we the growth in where heavily still significant the and areas, well future to address needs exciting definite I investing in for are being we about. some of can as and we’re vehicle there as I markets think markets the see and as products there emerging the other future the a in markets is we market those definitely talked made the driver in

competition I exactly here sit out are not and going you So I there. with to what and you tell because bear me am they there hope is

Operator

Please Morales question. The Instructions] your [Operator the from line with with question Walthausen comes next of Co. & proceed Mike

Mike Morales

way of contracts timing am the about couple next think you guys some of vehicle weakness ramp on of the of the Europe years? large talked if changes the to that some over I curious about of the the

Richard Warzala

begin ramp-up, you to think at think platform okay. of designed The ramp-up are vehicles to the all. process platforms. our about By three those a when you of time into five-year Not getting - and those

demand we be market will higher business here a of whether little a determine what more. and is the the whether will lower less little or in or drive ship full future years value market level demand the the will So

$XXX but the we it can the kind expected see six So about, period, million fluctuate that's year to business that minus in of we that will plus XX%. value of talk the or XX%, seven

bore, same still or higher. the only we are affirmed So will and slightly thing happen launch again, are volume is lower, full will slightly whether dates our or the be, not

Mike Morales

is from just year-to-date just back And compensation expense then that? thinking last I at Maybe driving running year. much you that from pretty the Can how modeling that is what's year? the me the question. help us understand a in stock-based about higher last a cliff you're half of know

Mike Leach

this it versus Yes, basis a The some of out of compensation And year. well. this current way for is elevated issued to you're on basis, quarter-by-quarter. paid awards which the more some were just are some an annual were those elevated it the KPIs, which, year metrics why quarterly is as also and on are seeing changed incentive

expect year. So I at it would the rate to run a throughout similar be

Dick Warzala

Yes, bit I'll a add little to that.

topline that, you to, compensation. Mike Some see you stock-based as topline on is mentioning is And growth growth. see increased driving will occurring, of here based

Operator

you. Thank

Scott question with your Our Advisers. Emerald comes from Blumenthal the next line Please question. proceed with

Scott Blumenthal

apologize, the and you much in how million much expect talk the did of I I be backlog; how how delivered bit you much that understand or of thereafter? got little the about $XXX the of backlog to on vehicle order I very is talk about call in late. you a backlog little can XXXX because there Dick,

Dick Warzala

talking regular the are Are backlog? you about $XXX million or the about talking you

Scott Blumenthal

Talking regular backlog. the about

Dick Warzala

we we that the six in mention to deliver backlog. months the Yes, that. XX% of did We next said expect

Scott Blumenthal

from acquisition is how the if characterize you could TCI? any, And of in backlog much,

Dick Warzala

tell for I model delivery. split what really usually But is TCI up. quick it their We businesses The don't can … very you

that, it get backlog. So minimal our I'll TCI deliver impact and has say very When an quickly. order I on

a like is TCI not or months orders could our deliveries. So get times be primarily. there months firm of other it's longer businesses some book-to-bill with we business lead where is months six and nine or really that XX

little. very So

Scott Blumenthal

Medical would is the during last strength that A&D backlog one quarter? That's really what and completely to helpful, be; the attribute in the indicating you And organic here. almost do my nice

Dick Warzala

well as wins Both of market projects. new experienced we've gains and them share as

certainly programs already So on. for spending we in some that have already we A&D demand. increased increased projects that we're some We - saw

new and share We some have taken winning we're programs. market

I about work continued As Medical, solution. far programs. you would as our it's investment we winning new to in And on more that engineering say longer-term

us come success, projects be our or to it's next-generation So it it of or fruition, our when to several successful, to that's working is on strength. but really future engineer-to-engineer, we're – for really years and for that's takes products. generations And those

we do the we’ve and electronics thing invested And did and resources our to side. future. that in that one heavily to invest will I software is continue mention And in in we engineering continue the

the out You're and consultants, phasing not we we've terms that internally. impact were been utilizing people because in of seeing and cost subcontractors we the bringing increase were utilizing in subcontractors

we're more our let's from just getting, say, there. buck So bank

ramp part up and resources So our we're larger in sales. going our we to part to software as becoming engineering a continue and electronics integral of an all see the of

the And solution and that's continue for why that from that's the beginning, and we're started future. going growth focus to driving been on in got our centers to strategy

new Medical been demand; project and increased wins Defense So has share, Aerospace project been increased has and demand. market wins,

Scott Blumenthal

certification? Dick, require Aerospace Defense, and In do you

Dick Warzala

Board, Medical it's it's that Vehicle. specific certification whether Defense Aerospace we have Sure, across there and as really too. certifications, you is - specific, and the for and whether and/or Medical And have

So, yes.

each Now do driving those towards, for our highest of all specific yes, level industries. requirements. we're quality of have of call, certifications what the we'll we facilities But,

Operator

It Thank additional questions time. you. no we appears have this at

to the any I over to pass for So additional like comments. concluding Management would floor back

Dick Warzala

brought. that thank today's you we are and questions of us pleased call. for of interest level joining certainly and on Well, And the questions with types your you everyone

interested, on For X. in Minneapolis September Conference Dougherty attending be will those the of we you

we have at look great results. participation you reach again our and quarter us a third your As please to forward anytime with free feel all talking to you always, after out day. Thank of to and for

Operator

your disconnect today's ladies you and participation. time. may lines for this teleconference. at you your we Again, thank And again conclude this gentlemen, does Once

Allient (ALNT) 2 Aug 192019 Q2 Earnings call transcript