Financial News

Altra Reports Third-Quarter 2018 Results

Delivers GAAP EPS of $0.42; Non-GAAP EPS was a Record Third Quarter of $0.64

Completes Transformative Combination with Four Businesses from Fortive’s Automation & Specialty Platform (“A&S”) Ahead of Plan; Concludes Favorable Round of Financing 

Updates Guidance to Reflect the Addition of A&S and the Transition to Adjusted EPS that Excludes Acquisition Related Amortization and Step-Up Depreciation Going Forward

BRAINTREE, Mass., Oct. 25, 2018 (GLOBE NEWSWIRE) -- Altra Industrial Motion Corp. (Nasdaq: AIMC) (“Altra” or the “Company”), a leading global manufacturer and supplier of electromechanical power transmission and motion control products, today announced unaudited financial results for the third quarter ended September 30, 2018.

Financial Highlights

  • Third-quarter 2018 net sales were $228.5 million, up 6.5% from $214.6 million in the third quarter of 2017. Excluding the negative impact of foreign currency translation, net sales were up 3.9% in Europe, down 4.1% in Asia and up 13.4% in North America compared to the same quarter of 2017.
  • Third-quarter net income was $12.3 million, or $0.42 per diluted share, compared with $13.3 million, or $0.46 per diluted share, in the third quarter of 2017.
  • Non-GAAP adjusted net income in Q3 2018 was $18.7 million, or $0.64 per diluted share, compared with $13.8 million, or $0.48 per diluted share, a year ago.* 
  • Free cash flow year to date 2018 was $37.9 million, up 90% compared with $20.0 million in the third quarter of 2017.*

A&S Highlights

  • Completed the combination with A&S on October 1, 2018, creating a global leader in motion control and power transmission, with pro forma combined sales of $1.9 billion on an LTM basic for the period ending June 30, 2018.
  • Concluded transaction financing with favorable $400 million senior unsecured notes (5-year, 6.125% coupon) (the “Notes”), a $1,340 million senior secured term loan (7-year, LIBOR +200bps) and a $300 million senior secured revolving credit facility (5-year, LIBOR +200bps) (together with the senior secured term loan, the “Altra Credit Facilities”). Expect weighted average interest expense to be approximately 4.5% - 5.0% based on the current debt balance and market conditions.
  • Integration of A&S and Altra advancing on track with successful completion of several key action items, including payroll and IT integration.
  • A&S to be reported as new segment beginning with Q4 2018.

Management Comments

“We delivered strong third-quarter revenue growth of 6.5%, as we leveraged robust demand across most of our end markets,” said Carl Christenson, Altra’s Chairman and CEO. “Our GAAP EPS was down year over year at $0.42. On an adjusted basis, non-GAAP net income grew 35.5%, and we achieved a seasonally strong non-GAAP EPS of $0.64, up 33.3% from the same period last year.* This solid bottom-line performance demonstrates our ability to execute against the Altra Business System to drive growth and leverage operational improvements.

“At the beginning of Q4 we completed the transformative combination with A&S and would like to acknowledge the hard work of both the Altra and Fortive organizations for completing this milestone transaction ahead of plan,” continued Christenson. “We were prepared to hit the ground running on day one and have already made excellent progress with the integration of the businesses, which has reaffirmed our confidence in our ability to realize over $50 million of identified synergies.

“With the A&S businesses, Altra is positioned as a premier global industrial company with an expanded portfolio of technologies and increased exposure to end markets with attractive secular trends including medical, factory automation and robotics. We are confident that our significantly expanded position across the technology continuum uniquely positions us to drive innovation, better serve our customers across all markets and deliver long-term value for our shareholders. 

“Our underlying businesses remain solid with a strong new business pipeline and excellent opportunities for organic growth. In addition, our newly acquired A&S businesses have strong momentum entering Q4. As a result of our optimism and the addition of A&S, we are raising our guidance for full year 2018.

“Looking forward, our strategic priorities are to flawlessly execute on the integration of the businesses and expediently de-lever and strengthen the balance sheet while we leverage the combined entity to accelerate top and bottom line growth. We are excited about the new growth markets that we are entering and remain encouraged by the ongoing recovery in several markets we have historically served,” concluded Christenson.  

Business Outlook

Altra is increasing its guidance for full year 2018 to reflect the addition of A&S. The Company now expects full-year 2018 sales in the range of $1,155 to $1,165 million.  The Company now expects GAAP diluted EPS in the range of $1.39 to $1.41 The Company intends to exclude acquisition amortization and step-up depreciation from its non-GAAP EPS reporting in the fourth quarter. Non-GAAP diluted EPS guidance is now expected to be in the range of $2.86 to $2.91.  Diluted EPS includes the impact of issuing 35.0 million additional shares.  The Company expects its tax rate for the full year to be approximately 23% to 25% before discrete items, capital expenditures in the range of $34 to $38 million, and depreciation and amortization in the range of $66 to $69 million.*

Reconciliations of Non-GAAP Disclosures

*Reconciliation of Non-GAAP Net Income:

  Quarter Ended  Year to Date Ended 
  September 30, 2018  September 30, 2017  September 30, 2018  September 30, 2017 
Net Income $12,313  $13,277  $40,321  $38,987 
Restructuring and consolidation costs $610  $680  $2,119  $3,776 
Loss on extinguishment of convertible debt  -   -   -   1,797 
Loss on settlement of pension plan  -   -   5,086   - 
Supplier warranty settlement  -   -   (1,980)  - 
Amortization of inventory fair value adjustment  -   -   -   2,347 
Acquisition related expenses  4,631   108   11,872   1,674 
Tax impact of above adjustments  1,178   (225)  1,391   (2,845)
Non-GAAP net income* $18,732  $13,840  $58,809  $45,736 
Non-GAAP diluted earnings per share* $0.64  $0.48  $2.01  $1.58 
In Thousands of Dollars, except per share amounts                

*Reconciliation of Free Cash Flow:

  Year to Date Ended 
  September 30, 2018  September 30, 2017 
Net cash flows from operating activities $58,979  $43,289 
Purchase of property, plant and equipment  (21,129)  (23,261)
Free cash flow* $37,850  $20,028 

*Reconciliation of Non-GAAP Operating Margin:

  Quarter EndedYear to Date Ended 
  September 30, 2018  September 30, 2017  September 30, 2018  September 30, 2017 
Income from operations $20,737  $21,273  $68,466  $62,084 
Restructuring and consolidation costs  610   680   2,119   3,776 
Amortization of inventory fair value adjustment  -   -   -   2,347 
Supplier warranty settlement  -   -   (1,980)  - 
Acquisition related expenses  4,631   108   11,872   1,674 
Non-GAAP income from operations * $25,978  $22,061  $80,477  $69,881 
Non-GAAP Income from operations as a percent of net sales*  11.4%  10.3%  11.4%  10.7%

*Reconciliation of Non-GAAP Diluted EPS:

  Fiscal Year 2018  Fiscal Year 2018
Diluted earnings
per share
Net Income $40.7 - $42.5  $1.39 - $1.41
Adjustments (1)     
Restructuring and consolidation costs 2.1 - 4.0   
Acquisition related expenses 35.6   
Loss on settlement of pension plan 5.1   
Supplier warranty settlement (2.0)   
Acquisition depreciation expense 3.0   
Acquisition amortization expense 31.7   
Tax impact of above adjustments (2) (10.1) - (10.6)   
Non-GAAP Net Income $106.1 - $109.3  $2.86 - $2.91
(1) Adjustments are pre-tax, with net tax impact listed separately.
(2) Tax impact is calculated by multiplying the estimated effective tax rate for the period of 23% - 25% before discrete items by the above items with the exception of acquisition-related expenses and the supplier warranty settlement.  Due to the uncertainty of deductibility and the non-recurring nature of the acquisition-related expenses, no tax benefit is assumed and the negative rate impact has been adjusted from the non-GAAP net income calculation. The supplier warranty settlement income is not taxable in the local jurisdiction, therefore no tax impact has been assumed.

Conference Call

The Company will conduct an investor conference call to discuss its unaudited third quarter financial results and the completion of its previously announced combination with Fortive’s A&S platform today Thursday, October 25, 2018 at 10:00 a.m. ET. The public is invited to listen to the conference call by dialing (877) 407-8293 domestically or (201) 689-8349 for international access and asking to participate in the ALTRA conference call. A live webcast of the call will be available in the "Investor Relations" section of Individuals may download charts that will be used during the call at under presentations in the Investor Relations section. The charts will be available after earnings are released. A replay of the recorded conference call will be available at the conclusion of the call on October 25 through midnight on November 7, 2018. To listen to the replay, dial (877) 660-6853 domestically or (201) 612-7415 for international access (conference ID # 13683742). A webcast replay also will be available.  

Altra Industrial Motion Corp.    
Consolidated Statements of Income Data: Quarter Ended    Year to Date Ended    
In Thousands of Dollars, except per share amounts September 30, 2018    September 30, 2017    September 30, 2018    September 30, 2017    
  (Unaudited)    (Unaudited)    (Unaudited)    (Unaudited)    
Net sales $228,483    $214,623    $706,191    $653,415    
Cost of sales  156,543     145,610     481,770     446,109    
Gross profit $71,940    $69,013    $224,421    $207,306    
Gross profit as a percent of net sales  31.5%    32.2%    31.8%    31.7%   
Selling, general & administrative expenses  44,860     41,009     135,372     123,012    
Research and development expenses  5,733     6,051     18,464     18,434    
Restructuring and consolidation costs  610     680     2,119     3,776    
Income from operations $20,737    $21,273    $68,466    $62,084    
Income from operations as a percent of net sales  9.1%    9.9%    9.7%    9.5%   
Loss on settlement of pension plan  -     -     5,086     -    
Interest expense, net  1,958     1,811     5,857     5,547    
Other non-operating income, net  644     696     216     30    
Loss on extinguishment of convertible debt  -     -     -     1,797    
Income before income taxes $18,135    $18,766    $57,307    $54,710    
Provision for income taxes  5,822     5,489     16,986     15,723    
Income tax rate  32.1%    29.2%    29.6%    28.7%   
Net income  12,313     13,277     40,321     38,987    
Weighted Average common shares outstanding                         
Basic  29,010     29,008     29,101     28,912    
Diluted  29,049     29,074     29,178     29,001    
Net income per share                         
Basic $0.42    $0.46    $1.39    $1.35    
Diluted $0.42    $0.46    $1.38    $1.34    
Reconciliation of Non-GAAP Income From Operations:                         
Income from operations $20,737    $21,273    $68,466    $62,084    
Restructuring and consolidation costs  610     680     2,119     3,776    
Amortization of inventory fair value adjustment  -     -     -     2,347    
Supplier warranty settlement  -     -     (1,980)    -    
Acquisition related expenses  4,631     108     11,872     1,674    
Non-GAAP income from operations * $25,978    $22,061    $80,477    $69,881    
Non-GAAP Income from operations as a percent of net sales*  11.4%    10.3%    11.4%    10.7%   
Reconciliation of Non-GAAP Net Income:                         
Net income $12,313    $13,277    $40,321    $38,987    
Restructuring and consolidation costs  610     680     2,119     3,776    
Loss on extinguishment of convertible debt  -     -     -     1,797    
Supplier warranty settlement  -     -     (1,980)    -    
Loss on settlement of pension plan  -     -     5,086     -    
Amortization of inventory fair value adjustment  -     -     -     2,347    
Acquisition related expenses  4,631     108     11,872     1,674    
Tax impact of above adjustments  1,178     (225)    1,391     (2,845)   
Non-GAAP net income *  18,732     13,840     58,809     45,736    
Non-GAAP diluted earnings per share * $0.64  (1)$0.48  (2)$2.01  (3)$1.58  (4)
(1) - Tax impact is calculated by multiplying the estimated effective tax rate for the period of 24.2% by restructuring and consolidation costs.  Acquisition related expenses in the quarter are not tax deductible, therefore the tax impact has been eliminated.    
(2) - Tax impact is calculated by multiplying the estimated effective tax rate for the period of 28.6% by the above items.    
(3) - Tax impact is calculated by multiplying the estimated effective tax rate for the period of 24.2% by restructuring and consolidation costs and the loss on settlement of pension plan.  Acquisition related expenses for the year to date period are not tax deductible, therefore the tax impact has been eliminated. The supplier warranty settlement income is not taxable in the local jurisdiction; therefore, no tax impact has been assumed.    
(4) - Tax impact is calculated by multiplying the estimated effective tax rate for the period of 29.7% by the above items.    

Consolidated Balance Sheets        
In Thousands of Dollars September 30, 2018  December 31, 2017 
Current Assets        
Cash and cash equivalents $50,097  $51,994 
Trade receivables, net  139,863   135,499 
Inventories  157,049   145,611 
Income tax receivable  1,548   6,634 
Prepaid expenses and other current assets  21,215   17,344 
Assets held for sale  696   1,081 
Total current assets  370,468   358,163 
Property, plant and equipment, net  187,800   191,918 
Intangible assets, net  148,389   159,613 
Goodwill  202,114   206,040 
Deferred income taxes  1,542   2,608 
Other non-current assets, net  2,256   2,315 
Total assets $912,569  $920,657 
Liabilities and stockholders' equity        
Current liabilities        
Accounts payable $61,466  $68,014 
Accrued payroll  31,139   32,091 
Accruals and other current liabilities  53,169   32,921 
Income tax payable  11,115   9,082 
Current portion of long-term debt  1,306   384 
Total current liabilities  158,195   142,492 
Long-term debt - less current portion  255,161   275,587 
Deferred income taxes  49,929   52,250 
Pension liabilities  24,520   25,038 
Long term taxes payable  5,418   6,322 
Other long-term liabilities  2,186   22,263 
Total stockholders' equity  417,160   396,705 
Total liabilities, and stockholders' equity $912,569  $920,657 
Reconciliation to operating working capital:        
Trade receivables, net  139,863   135,499 
Inventories  157,049   145,611 
Accounts payable  (61,466)  (68,014)
Operating working capital * $235,446  $213,096 

  Year to Date Ended 
  September 30, 2018  September 30, 2017 
  (Unaudited)  (Unaudited) 
Cash flows from operating activities        
Net income $40,321  $38,987 
Adjustments to reconcile net income to net operating cash flows:        
Depreciation  20,735   19,764 
Amortization of intangible assets  7,296   7,139 
Amortization of deferred financing costs  449   449 
Loss on foreign currency, net  204   241 
Loss on settlement of pension plan  5,086    
(Gain)/Loss on disposal / impairment of fixed assets  293   (36)
Loss on extinguishment of debt     1,797 
Stock based compensation  3,830   4,543 
Amortization of inventory fair value adjustment     2,347 
Changes in assets and liabilities:        
Trade receivables  (7,550)  (9,701)
Inventories  (13,828)  (9,478)
Accounts payable and accrued liabilities  7,129   (8,799)
Other current assets and liabilities  (4,256)  (2,392)
Other operating assets and liabilities  (730)  (1,572)
Net cash provided by operating activities  58,979   43,289 
Cash flows from investing activities        
Purchase of property, plant and equipment  (21,129)  (23,261)
Working capital settlement from prior year acquisitions     2,883 
Proceeds from sale of Altra Industrial Motion Changzhou     3,221 
Acquisition of Aluminum Die Casting, S.r.L.  (2,663)   
Net cash used in investing activities  (23,792)  (17,157)
Cash flows from financing activities        
Payments on Revolving Credit Facility  (36,673)  (39,036)
Dividend payments  (14,964)  (13,256)
Borrowing under Revolving Credit Facility  19,000   7,000 
Payments of equipment, working capital notes, mortgages, and other debts  (1,132)  (913)
Cash paid to redeem Convertible Notes     (954)
Shares surrendered for tax withholding  (2,848)  (2,089)
Net cash used in financing activities  (36,617)  (49,248)
Effect of exchange rate changes on cash and cash equivalents  (467)  7,149 
Net change in cash and cash equivalents  (1,897)  (15,967)
Cash and cash equivalents at beginning of year  51,994   69,118 
Cash and cash equivalents at end of period $50,097  $53,151 
Reconciliation to free cash flow:        
Net cash flows from operating activities  58,979   43,289 
Purchase of property, plant and equipment  (21,129)  (23,261)
Free cash flow* $37,850  $20,028 

Selected Segment Data Quarter Ended
September 30
  Year to Date Ended September 30 
In Thousands of Dollars, except per share amount 2018  2017  2018  2017 
Net Sales:                
Couplings, Clutches & Brakes $118,662  $110,109  $361,569  $327,310 
Electromagnetic Clutches & Brakes  57,915   58,304   192,158   187,463 
Gearing  54,198   48,368   159,650   144,545 
Eliminations  (2,292)  (2,158)  (7,186)  (5,903)
Total $228,483  $214,623  $706,191  $653,415 
Income from operations:                
Couplings, Clutches & Brakes $15,639  $12,679  $47,799  $33,031 
Electromagnetic Clutches & Brakes  6,490   6,138   23,234   21,894 
Gearing  5,881   5,689   18,396   17,804 
Corporate  (6,663)  (2,553)  (18,844)  (6,869)
Restructuring and consolidation costs  (610)  (680)  (2,119)  (3,776)
Total $20,737  $21,273  $68,466  $62,084 

About Altra Industrial Motion Corp.

Altra Industrial Motion Corp. is a premier industrial manufacturer of highly engineered power transmission, motion control and engine braking systems and components.  Altra's portfolio consists of 27 well-respected brands including Bauer Gear Motor, Boston Gear, Jacobs Vehicle Systems, Kollmorgen, Portescap, Stromag, Svendborg Brakes, TB Wood's, Thomson and Warner Electric. Headquartered in Braintree, Massachusetts, Altra has approximately 9,300 employees and over 50 production facilities in 16 countries around the world.

* Discussion of Non-GAAP Financial Measures

As used in this release and the accompanying slides posted on the Company's website, non-GAAP diluted EPS, non-GAAP income from operations and non-GAAP net income are each calculated using either net income or income from operations that excludes acquisition related costs, restructuring costs, and other income or charges that management does not consider to be directly related to the Company's core operating performance. Beginning in the fourth quarter, the Company intends to exclude acquisition related amortization and depreciation from its calculation of non-GAAP net income and non-GAAP income from operations. Non-GAAP diluted EPS is calculated by dividing non-GAAP net income by GAAP weighted average shares outstanding (diluted).  Non-GAAP free cash flow is calculated by deducting purchases of property, plant and equipment from net cash flows from operating activities. Non-GAAP operating working capital is calculated by deducting accounts payable from net trade receivables plus inventories.

Altra believes that the presentation of non-GAAP net income, non-GAAP income from operations, non-GAAP diluted EPS, non-GAAP free cash flow and non-GAAP operating working capital provides important supplemental information to management and investors regarding financial and business trends relating to the Company's financial condition and results of operations.

Forward-Looking Statements

All statements, other than statements of historical fact included in this release are forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, any statement that may predict, forecast, indicate or imply future results, performance, achievements or events. Forward-looking statements can generally be identified by phrases such as “believes,” “expects,” “potential,” “continues,” “may,” “should,” “seeks,” “predicts,” “anticipates,” “intends,” “projects,” “estimates,” “plans,” “could,” “designed”, “should be,” and other similar expressions that denote expectations of future or conditional events rather than statements of fact. Forward-looking statements also may relate to strategies, plans and objectives for, and potential results of, future operations, financial results, financial condition, business prospects, growth strategy and liquidity, and are based upon financial data, market assumptions and management's current business plans and beliefs or current estimates of future results or trends available only as of the time the statements are made, which may become out of date or incomplete. Forward-looking statements are inherently uncertain, and investors must recognize that events could differ significantly from our expectations. These statements include, but may not be limited to, the statements under “Business Outlook,” our expectations regarding our tax rate, our expectations regarding our acquisition of the A&S businesses, including but not limited to our expectations regarding the integration of the A&S businesses and the impact of such acquisition on our business, including expected synergies, our expectations regarding delevering our business and our ability to delever our business, our expectations regarding growth opportunities and our ability to drive growth, our plans to change how we calculate certain non-GAAP measures, our expectations regarding our ability to serve our customers and deliver value for our shareholders and the Company’s guidance for full year 2018.

In addition to the risks and uncertainties noted in this release, there are certain factors that could cause actual results to differ materially from those anticipated by some of the statements made. These include: (1) competitive pressures, (2) changes in economic conditions in the United States and abroad and the cyclical nature of our markets, (3) loss of distributors, (4) the ability to develop new products and respond to customer needs, (5) risks associated with international operations, including currency risks, (6) accuracy of estimated forecasts of OEM customers and the impact of the current global economic environment on our customers, (7) risks associated with a disruption to our supply chain, (8) fluctuations in the costs of raw materials used in our products, (9) product liability claims, (10) work stoppages and other labor issues, (11) changes in employment, environmental, tax and other laws and changes in the enforcement of laws, (12) loss of key management and other personnel, (13) risks associated with compliance with environmental laws, (14) the ability to successfully execute, manage and integrate key acquisitions and mergers, (15) failure to obtain or protect intellectual property rights, (16) risks associated with impairment of goodwill or intangibles assets, (17) failure of operating equipment or information technology infrastructure, (18) risks associated with our debt leverage, (19) risks associated with restrictions contained in the agreements governing the Notes and the Altra Credit Facilities, (20) risks associated with compliance with tax laws, (21) risks associated with the global recession and volatility and disruption in the global financial markets, (22) risks associated with implementation of our ERP system, (23) risks associated with the Svendborg, Stromag, and A&S acquisitions and integration and other acquisitions, (24) risks associated with certain minimum purchase agreements we have with suppliers, (25) risks related to our relationships with strategic partners, (26) our ability to offset increased commodity and labor costs with increased prices, (27) risks associated with our exposure to variable interest rates and foreign currency exchange rates, (28) risks associated with interest rate swap contracts, (29) risks associated with our exposure to renewable energy markets, (30) risks related to regulations regarding conflict minerals, (31) risks related to restructuring and plant consolidations, (32) risks related to our acquisition of A&S, including (a) the possibility that we may be unable to achieve expected synergies and operating efficiencies in connection with the proposed transaction within the expected time-frames or at all and to successfully integrate A&S, (b) expected or targeted future financial and operating performance and results, (c) operating costs, customer loss and business disruption (including, without limitation, difficulties in maintain relationships with employees, customers, clients or suppliers) being greater than expected following the transaction, (d) our ability to retain key executives and employees, (e) slowdowns or downturns in economic conditions generally and in the markets in which the A&S businesses participate specifically, (f) lower than expected investments and capital expenditures in equipment that utilizes components produced by us or A&S, (g) lower than expected demand for our or A&S’s repair and replacement businesses, (h) our ability to successfully integrate the merged assets and the associated technology and achieve operational efficiencies, (i) the integration of A&S being more difficult, time-consuming or costly than expected and (j) the inability to undertake certain corporate actions that otherwise could be advantageous to comply with certain tax covenants and (33) other risks, uncertainties and other factors described in the Company's quarterly reports on Form 10-Q and annual reports on Form 10-K and in the Company's other filings with the U.S. Securities and Exchange Commission (SEC) or in materials incorporated therein by reference. Except as required by applicable law, Altra does not intend to, update or alter its forward looking statements, whether as a result of new information, future events or otherwise. AIMC-E


Altra Industrial Motion Corp.
Christian Storch, Chief Financial Officer

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