Allied Motion Technologies Inc. (AMOT) on Q1 2021 Results - Earnings Call Transcript
Operator: Greetings, and welcome to Allied Motion Technologies First Quarter Fiscal Year 2021 Financial Results. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Craig Mychajluk, Investor Relations. Thank you. You may begin.
Craig Mychajluk: Thank you, and good morning, everyone. We certainly appreciate your time today as well as your interest in Allied Motion. Joining me on the call are Dick Warzala, our Chairman, President and CEO; and Mike Leach, our Chief Financial Officer. Dick and Mike are going to review our first quarter 2021 results and provide an update on the company's strategic progress and outlook. After which, we will open it up for Q&A.
Dick Warzala: Thank you, Craig, and welcome, everyone. After a challenging 2020, we kicked off the year with record revenue of approximately $102 million, which was up 10% over last year's first quarter, driven by strong demand in our medical and vehicle markets. Medical was up 60% due to residual demand from the pandemic and a recovery in other end markets. We also benefited from a full quarter of Dynamic Controls, which we acquired in March last year. The 23% increase in vehicle reflects continued significant demand in powersports. While the pandemic impacted our industrial and A&D end markets, we have continued to pursue the execution of our strategy through the flexible and committed efforts of our team. On a positive note, we are seeing encouraging signs of improvement overall as demonstrated by our record level of orders and backlog in the quarter. While we continue to experience some headwinds on the gross margin line, we did achieve 29.6%, which was up 170 basis points from the sequential fourth quarter as we leveraged our higher volume. Net income for the quarter increased to nearly $12 million, which included a benefit from a discrete tax item that Mike will detail.
Mike Leach: Thank you, Dick. As a reminder, all share and per share information in our earnings release and slides reflect the three-for-two stock split. Starting on Slide 4, we provide some detail regarding our top line. First quarter revenue hit a record level at $101.7 million and was up $9.3 million or 10%, despite the continued impact of the pandemic on some of our end markets. The favorable impact of foreign currency exchange rate fluctuations on revenue was $4.3 million. Sales to U.S. customers were 51%, down from 53% in the prior year period, with the balance of sales to customers, primarily in Europe, Canada, and Asia-Pacific. The slight shift in geographic mix reflects the addition of Dynamic Controls.
Dick Warzala: Thank you, Mike. Slide 11 highlights our record orders in backlog. Since the low point during the onset of the pandemic, we have achieved three straight quarters of order growth, reaching a record level of approximately $115 million in the first quarter. This represents a 23% increase over the first quarter of 2020. All of our major market channels are contributing including within industrial and A&D during the first quarter. Backlog increased 8% over the sequential fourth quarter and was up 14% over last year's first quarter to a record $152 million. The majority of our backlog is expected to convert to sales over the next three to six months. Included in the current backlog was approximately $5 million of the previously announced $325 million of vehicle market awards. As a reminder, we are not expecting much of a top line lift from these awards this year, as we offset the runoff of some legacy programs. At this time, we are expecting all of the announced awards to run concurrently and be at full rate of production by 2024.
Operator: Thank you. Our first question comes from the line of Greg Palm with Craig-Hallum.
Greg Palm: Yes, thanks; and good morning everyone. Congrats on the results. I think to start it, it'd be helpful just to get a little bit more commentary on the quarter itself, what surprised you maybe from an end market standpoint? And would be curious to see if there's any changes here in the first part of Q2 in terms of demand levels now versus what you saw in Q1.
Dick Warzala: Sure, Greg. I would say to you that we had a strong order intake in the fourth quarter of last year as we have reported. So therefore, I would say that there really weren't any surprises in the first quarter. So as we're looking out at what the incoming orders were and knowing what was available for us to ship in the first quarter. I mean, obviously, the continued challenges in the supply chain are there. And that's a day-to-day battle in many areas, but we seem to continue to be able to navigate those. With regard to the continuation, what we see, we do see things continuing to improve. And so we're optimistic that the recovery is well underway and that throughout the year, we will see things improving in – essentially in all markets.
Greg Palm: All right. Good to hear. And as we think about 2021, I mean, I think it's pretty clear that revenue this year is going to surpass what you did last year. And I'm curious if you would characterize this as maybe a year of operating leverage? I know you're incurring some additional investments. But when you look at operating margin or EBITDA margin, would you expect some leverage this year versus what you saw last?
Mike Leach: Greg, I think we're heading in the right direction with regard to that, right? There's some unique challenges that – and headwinds that we're facing, particularly on the supply chain side that is impacting our gross margins. And then certainly, where we are today result-wise compared to where we were last year, we think we highlighted things like incentive compensation. And then, I'll call it a slow return to travel and things like that. So certainly, I think we've said there's going to be operating margin leverage to be had. I think it will be a slow crescendo throughout the year compared to the more impactful leverage that we'll see in periods beyond this year.
Greg Palm: Yes. Okay, Makes sense. And then just last one for Dick. I mean, for several years, I think you've talked about new customers and some of the new application opportunities. And one that always to come up was around your focus on this kind of automation, robotics, autonomous mobility space. Do you see the big themes that are really building post pandemic? So I was just curious if you could provide a little bit more color on how you're positioned there and what you see in terms of opportunities in that market?
Dick Warzala: Sure. And I'd say, Greg, that certainly, there's tremendous activity out there. We also see some acquisitions occurring in that space and a great deal of excitement about what the opportunities are in the future to and for productivity and so forth. I can say to you that we are involved at the engineering level. Our products are – they align very nicely with high performance and their small compact packages and high performance. And so when you're seeing that need or that requirement, then we do participate, and we are engaged and we are moving forward on several projects. Also on – I'll call it a general industrial market – material handling market, we are an agent in many, many applications with several customers in all geographic regions. So it definitely is – it's on everyone's radar because it definitely is an emerging growth area for – in the motion control business. But I think we feel like we have a good, solid position. And it's a great opportunity for us to leverage our solution capability, meaning motors, controls, drives, feedback elements as well as gearing.
Greg Palm: Yes, would seem like it. All right, I’ll hop back in the queue. Thanks.
Dick Warzala: Thank you, Greg.
Operator: Our next question comes from the line of Dick Ryan with Colliers. Please proceed with your question.
Dick Ryan: Congratulations guys on a strong executed quarter here. I may have missed, Mike, what you said the impact on the gross margin was from the supply chain challenges in 1Q?
Dick Warzala: Specifically addressing things like expedited freight and duties and such. It was about 35 basis points impact. But that is not including what we're seeing in elevated prices relative to raw materials, commodities and the like. And that's a little more difficult to measure. And certainly, I think we've discussed too that we've got some protection in our contracts that allow us to pass-through some of those costs. But I would suggest that, that's usually the later quarter two in our ability to pass that along. So certainly, that's a contributor as well.
Dick Ryan: Okay. So any price increases probably that you may be passing along haven't hit yet?
Dick Warzala: Yes, I would say it’s delayed or slowed. It's starting to occur.
Dick Ryan: Okay. Dick, on the strong orders in the last couple of quarters, is there – are there any concerns you might have on double ordering for many of your customers?
Dick Warzala: Not that we could see, Dick. I think we're paying close attention to that, and we're looking for anything that's abnormal. What – we have – we take a conservative approach to what we call an order or actually booking an order. And we have to have a firm production date in order to do that. I'm not going to say some of it hasn't occurred as people are getting into the queue with extended lead times here. But I don't see anything – we don't see anything that's of particular concern at this point in time.
Dick Ryan: Okay. Great. And I guess, simply, where do we go from here. But can you give us a little help on how to handicap the rest of the year? I know you don't give specific guidance, but any qualitative commentary on first half, second half? Or how we should expect the business to flow?
Dick Warzala: Well, there's a couple of things. I think the question that Greg had asked about what do we see now given the first quarter is over? And how is things trending in the second quarter? And my comment was that we're seeing continuing improvement. So we're very optimistic that it's definitely turning around nicely. There's still going to be challenges out there on the supply chain side, and you still have concerns about where are the part shortages, how it could ultimately impact us on a short-term basis. So we'll battle through those, and we'll keep working on those. But we are optimistic here that recovery is underway. And as I said before, we're seeing it in all areas of business. It's not just one. It's all areas of the business that are improving.
Dick Ryan: One last one for me. Oil and gas, with the improvements in oil prices, has that business started to recover?
Dick Warzala: It has. And that's definitely an area that we took a big hit last year with oil and gas, and we are seeing it recover. And we are seeing increased activity there. So it's definitely moving forward for us.
Dick Ryan: All right. Thank you.
Dick Warzala: Thank you, Dick.
Operator: Our next question comes from the line of Brett Kearney with Gabelli Funds. Please proceed with your question.
Brett Kearney: Hi guys, good morning. Thanks for taking my question.
Dick Warzala: Good morning.
Mike Leach: Good morning, Brett.
Brett Kearney: So I wanted to ask – I guess, a little more detail – we're hearing from a lot of companies just how challenging it is on the supply front, and it's kind of – hearing it as extreme or as difficult as many executives have ever faced. And given the amount of electronics in some of your solutions, you're all able to manage through it. I know a lot of the foundation has been laid over the last couple of years. But wondering if you could provide any detail, just kind of the processes, how your teams were able to execute, how you're managing through? And then any areas kind of on your radar that could exacerbate as we look forward and everyone is trying to work through these bottlenecks?
Dick Warzala: Sure, Brett. Well, you are correct. I think if we step back a couple of years ago, pre-pandemic, we had made a conscious effort to invest in strategic sourcing, looking at global partners that could supply us in multiple geographic locations. So I do feel some of that groundwork that we laid helped us get through the situation that we saw here in the last year, and we're continuing to see now. With regard to the shortages, we're seeing – you see it everywhere. And some of it was pandemic related, meaning that facilities were closed. So product wouldn't be manufactured and couldn't be shipped to. That seems to be, for the most part, behind us now that we're not seeing facility closures due to COVID. Workforces are back. It is more where the demand is outstripping the supply side. We have – when necessary, we reached out and asked our customers to step in and help us if we saw if we see a situation arising where we might have a supply shortage. And they have always been there and helped us. And so far, we've been able to get through these. The – I think – are we going to continue to see them? I'm guessing we are. And we will – we've gone out. We've looked at lead times. We placed spot buys. We've had to go to the distribution channel in some cases, which Mike talked about some of the headwinds and cost and so forth. But in order to keep your customers supplied rather than having certain electronic components coming directly to manufacturers, we've had to reach into the secondary channels and distribution channels. And I'd say, lastly, the cooperation that we've received from customers – when we identify a specific part or potential part shortage for requalifying and accelerating that process, typically, it takes quite a bit of time here to requalify a new part. But I think everyone's working closely together here now and you're doing accelerated life testing and the customers are jumping in and engaging and improving those requalifications of alternatives as we move forward here. So I would not say to you that we're out of the woods, we're not. But our team is battling through, and I really have to complement our team of what they've been able to pull off here and to make sure that we do keep our customers supplied.
Brett Kearney: Absolutely. That’s really helpful. Thanks so much.
Dick Warzala: Thank you, Brett.
Operator: There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.
Dick Warzala: Well, thank you, everyone, for joining us on today's call and for your interest in Allied Motion. As always, please feel free to reach out to us at any time, and we look forward to talking with all of you again after our second quarter 2021 results. Thank you for your participation. Stay safe, and have a great day. Now that concludes the call, operator.
Operator: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.
