Executive Summary

Q1 2016 revenue rose 6.9% year over year to $63.7M, with EPS of $0.23 versus $0.32 in Q1 2015; gross margin compressed 70bps to 28.7% on mix .
Sequentially, revenue increased over 25% and earnings tripled versus Q4 2015 as Vehicle demand began to normalize and Heidrive contributed; operating margin improved to 7.1% from 5.0% in Q4 .
Bookings grew 14% YoY to $66.4M and backlog rose 15% versus year-end to $81.7M, driven primarily by Heidrive; U.S. customer sales mix decreased to 55% from 67% a year ago as European exposure increased .
Operating costs rose 15.8% on higher E&D investment (6.4% of revenue) and integration, and cash from operations was a use of $6.9M due to working capital and assumed liabilities from the acquisition .
Wall Street consensus (S&P Global) for Q1 2016 was unavailable due to data-access limits; beat/miss versus estimates cannot be assessed at this time (values not retrieved from S&P Global).

What Went Well and What Went Wrong

What Went Well

Heidrive acquisition drove top-line growth; “Sales in the first quarter were up nearly 7%…as the contribution from the Heidrive acquisition offset continued softness in Vehicle” — Dick Warzala, CEO .
Sequential inflection: “When you compare current quarter to 2015 fourth quarter results, revenue was up over 25% and earnings tripled as sales from all of our major markets, including Vehicle, trended upwards” .
Commercial momentum: Bookings +14% YoY to $66.4M; backlog $81.7M (+15% vs year-end), providing improved visibility into 2016 demand .

What Went Wrong

Margin pressure: Gross margin fell to 28.7% from 29.4% YoY on product mix; operating margin declined to 7.1% from 9.5% YoY .
Elevated OpEx: Operating expenses increased 15.8% (+$1.9M) from integration and stepped-up E&D and systems investments; E&D at 6.4% of revenue vs 5.8% a year prior .
Cash consumption: Net cash used in operations of $6.9M vs $0.7M provided in Q1 2015, reflecting working capital timing and assumed Heidrive liabilities; total debt rose to $77.0M (net debt $70.7M; 50% of capitalization) with acquisition funding .

Financial Results

Income Statement and Key Metrics (sequential trend and YoY context)

Metric	Q3 2015	Q4 2015	Q1 2016
Revenue ($USD Millions)	$61.534	$50.841	$63.675
Diluted EPS ($USD)	$0.46	$0.07	$0.23
Gross Margin (%)	N/A	28.2%	28.7%
Operating Income ($USD Millions)	N/A	$2.533	$4.532
Operating Margin (%)	N/A	5.0%	7.1%
Net Income ($USD Millions)	$4.278	$0.695	$2.127
Adjusted EBITDA ($USD Millions)	$9.033	$5.538	$7.383

Year-over-Year (Q1 2016 vs Q1 2015)

Metric	Q1 2015	Q1 2016
Revenue ($USD Millions)	$59.580	$63.675
Gross Margin (%)	29.4%	28.7%
Operating Income ($USD Millions)	$5.631	$4.532
Operating Margin (%)	9.5%	7.1%
Net Income ($USD Millions)	$2.976	$2.127
Diluted EPS ($USD)	$0.32	$0.23
Adjusted EBITDA ($USD Millions)	$8.137	$7.383

KPIs and Operating Indicators

KPI	Q3 2015	Q4 2015	Q1 2016
Bookings ($USD Millions)	$55.1	$54.2	$66.4
Backlog ($USD Millions)	$67.8	$71.0	$81.7
Cash from Operations ($USD Millions)	YTD $13.727	FY $20.073	($6.915)
Capital Expenditure ($USD Millions)	N/A	FY $4.730	$1.0
Total Debt ($USD Millions)	N/A	$68.8	$77.0
Net Debt ($USD Millions)	$52.8 (bank debt net of cash)	$47.5	$70.7
U.S. Sales Mix (% of Revenue)	N/A	65%	55%

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Capital Expenditures	FY 2016	“CapEx expected to be at similar levels for 2016” (vs 2015 $4.7M)	No update in Q1 release	Maintained context
Debt Structure	FY 2016	N/A	“Intend to restructure a significant portion of our debt later this year.”	New strategic intent
Revenue/Margins/EPS	FY/Q2 2016	Not provided	Not provided	No formal guidance

Note: No quantitative ranges were issued in the Q1 press release; management discussed strategy and debt restructuring intent without providing numerical guidance .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q3 2015, Q4 2015)	Current Period (Q1 2016)	Trend
Vehicle market demand	Weakness; bookings/backlog down; FX headwinds	“Softness” continued but sequential improvement across major markets including Vehicle	Improving sequentially
FX impact/constant currency	Material headwind; constant-currency framing used	Less emphasized; mix shifted toward Europe via Heidrive (U.S. mix down to 55%)	Mix shifting; FX commentary reduced
E&D investment	Ongoing; higher E&D % (Q4 7.3%)	E&D 6.4% of revenue; continued investments in systems/personnel	Sustained investment
Bookings/backlog	Bookings/backlog down YoY	Bookings +14% YoY; backlog +15% vs year-end	Improving
Acquisition/integration	Heidrive announced/closed early Q1	Heidrive contributed to sales; expanded markets/customers	Accretive contribution
Debt strategy	Net debt reduced in 2015	Plan to restructure significant portion of debt in 2016	Strategic repositioning

Management Commentary

“Sales in the first quarter were up nearly 7% from last year as the contribution from the Heidrive acquisition offset the continued softness in our Vehicle market.” — Dick Warzala, Chairman & CEO .
“Revenue was up over 25% and earnings tripled [sequentially] as sales from all of our major markets, including Vehicle, trended upwards.” — Dick Warzala .
“2016 will be a year of change and transformation…apply our One Allied approach…use our Allied Systematic Tools to improve productivity…invest in development of motion control solutions…We also intend to restructure a significant portion of our debt later this year.” — Dick Warzala .
Heidrive rationale: “Expands product offerings, geographic reach, technical sales and systems engineering capabilities.” — Acquisition release (Jan 12, 2016) .

Q&A Highlights

The Q1 2016 earnings call transcript link was identified but full text could not be retrieved via the tools; as a result, specific Q&A highlights and guidance clarifications are unavailable for inclusion in this recap .

Estimates Context

S&P Global consensus estimates for Q1 2016 EPS and revenue could not be retrieved due to data-access limits; therefore, beat/miss assessment versus Wall Street consensus is unavailable at this time (values not retrieved from S&P Global).
Given the sequential improvement (revenue +25%+, EPS ~3x versus Q4) and stronger bookings/backlog, the narrative into Q2 was constructive, but any estimate revisions cannot be quantified without consensus data .

Key Takeaways for Investors

Integration and accretion from Heidrive are the primary upside drivers in 2016, broadening European exposure and supporting bookings/backlog growth .
Sequential operational inflection: operating margin improved to 7.1% and Adjusted EBITDA rose vs Q4; watch whether Vehicle demand normalization sustains into Q2/Q3 .
Margin watch: gross margin compression YoY tied to mix and higher OpEx from E&D; scaling multi-product systems should aid medium-term margin recovery as programs ramp .
Balance sheet and cash: operating cash outflow in Q1 reflects working capital and acquisition liabilities; debt rose to $77.0M with net debt at $70.7M (50% capitalization) — monitor planned debt restructuring for interest/cash flow benefits .
Geographic mix shift: U.S. revenue share declined to 55% with European growth; FX impacts may moderate, but mix and pricing dynamics should be incorporated into margin expectations .
Near-term trading considerations: positive backlog/bookings and sequential rebound are supportive; absence of formal guidance and YoY margin pressure may cap near-term upside until sustained margin expansion is evident .
Medium-term thesis: execution on One Allied and Allied Systematic Tools, plus accretive M&A, positions the company for higher-value solutions and margin expansion as integration benefits and system wins move into production .

Sources

Q1 2016 8-K and press release with financial tables and commentary .
Q4 2015 8-K and press release with financial tables and full-year context .
Q3 2015 8-K press release and financial summary .
Heidrive acquisition press releases (Jan 12, 2016) .
Q1 2016 call transcript link (content not retrieved) .

ALLIENT INC (ALNT)·Q1 2016 Earnings Summary