Mar 13, 2014
Executives
Susan M. Chiarmonte – Vice President, Secretary and Treasurer Richard S.
Warzala – President, Chief Executive Officer and Director Robert P. Maida – Chief Financial Officer
Analysts
Jeff R. Geygan – Milwaukee Private Wealth Management, Inc.
Operator
Thank you and welcome to the Q4 2013 Allied Motion Technologies, Inc., Earnings Conference Call. At this time, all participants are in a listen-only mode.
At the conclusion of today's conference call instructions will be given for the Q&A session. (Operator Instructions) I would now like to turn the call over to Sue Chiarmonte, Vice President and Treasurer.
Susan M. Chiarmonte
Thank you, Operator. Welcome to Allied Motion’s conference call to discuss the quarter and year ended December 31, 2014 and thank you for joining us for the call today.
We distributed two press releases yesterday and copies are available on our website at www.alliedmotion.com. Today’s call is being broadcast live on the Internet and will be available for replay immediately after the call for 90 days.
To access the Internet broadcast or the replay, go to the Company’s website click on the Investor Relations page and then click on the Webcast icon. As a reminder, please note the Safe Harbor statements included in the press releases also apply to our comments made on the conference call.
I will now turn the call over to Dick Warzala, Chairman, President and CEO of Allied Motion Technologies.
Richard S. Warzala
Thank you, Sue, and welcome everyone to our fourth quarter 2013 conference call. Please note that with this call we are returning to our past practice of providing results for the combined entity of Allied Motion only and we will not be breaking out the results of any specific business units including Globe Motors.
As a reminder, we did provide our shareholder with detailed pro forma information last quarter and in the amended 8-K filed on January 3 of this year. Pro forma included the combined results of Allied Motion and Globe Motors for the full year 2012 and the nine months ended September 30, 2013.
In addition, throughout 2014 we will continue to provide combined Allied Motion and Globe Motors’ pro forma data for revenues, net income, earnings per share and adjusted EBITDA. Here is the plan for today’s call.
I will begin with a brief review of the results for the quarter and year 2013 and we’ll then discuss some of the key items that impacted all the results, I will then turn the call over to Rob Maida, our CFO, who will provide you with a detailed financial review for both the quarter and the year. After Rob returns the call to me, we will provide you with some insight as to the activities and opportunities we see it as a future and we’ll then open the mics for questions.
Let’s begin with a high level overview of the results for the fourth quarter and for the year 2013. I would like to note that I will only presenting adjusted numbers while Rob will provide you with both that is reported and adjusted for comparison purposes.
As a reminder, Globe Motors’ results are included in our reported numbers for the fourth quarter and the year ended 12, 31, 2013 that they started on October 19 of 2013 as the acquisition was completed on October 18. And I think it’s also fair to say that based on the timing of the year the results that we have for Globe represents approximately two months worth of results.
Revenues in the fourth quarter of 2013 increased to $50.1 million compared to $24 million for this same period last year, and increased to $125.5 million for the year compared to $102 million last year. Excluding all non-recurring items, the company achieved adjusted net income of $1.8 million or $0.20 per diluted share in the fourth quarter compared to adjusted net income of $1.12 million or $0.13 per diluted share for the same quarter of 2012.
Excluding the non-recurring charges in the current year, the company achieved adjusted net income of $5.41 million or $0.61 per diluted share compared to $5.37 million or $0.62 per diluted share for the same period of last year. Adjusted EBITDA which excludes stock compensation expense and certain non-recurring items increased to $6 million in the fourth quarter of 2013 compared to $2 million for the same quarter last year.
And increased to $13.2 million for the year compared to $9.9 million last year. With regard to our bookings, I remind everyone that our past practice was to book and report all orders in the period they were received including blanket orders, which might cover anywhere from 12 to 24 months of demand in the past.
Beginning in 2013, we no longer include the full value of the blanket orders when received and only report them as bookings when they were released the production. To allow for a direct year-over-year comparison, I’m reporting numbers following the prior method that is includes of blanket orders.
Orders for the fourth quarter of 2013 were $53.7 million versus $23.4 million in the same quarter last year, and orders for the year were $135.3 million compared to the last year’s orders of $19.4 million. Now I’m going to give you some pro forma results and this include the Allied Motion and Globe Motors which are unaudited in pro forma results for the year ended December 31, 2013.
Revenues were $220.7 million, net income was $8 million, diluted earnings were $0.88 per share and adjusted EBITDA was $26.8 million. I’m going to remind you those were unaudited pro forma numbers for the year ended December 31, 2013.
Now I’m going to turn the call over to Rob Maida, who will provide you with a detailed review of the financial results, and then I will be back to provide you with some insight as to the key activities and opportunities for 2014.
Robert P. Maida
Thank you, Dick and good morning everyone. As was reflected in our press release that was put out last evening the company achieved net income of $3,953,000 or $0.45 per diluted share for the year ended December 31, 2013, compared to net income of $5,397,000 or $0.63 per diluted share for the year ended December 31, 2012.
The results for the year as well as quarter will be presented as adjusted for non-recurring charges to provide a better indication of performance associated with operating results. Additionally, the reported results for the current year include the incremental results of Globe Motors Inc.
a subside here acquired on October 18, 2013. While we do not disclose the operating results of individual business units, we can’t say that the profit achieved by the acquired company was accretive to earnings.
The results for the year ended December 31, 2013 include $1.9 million or $1.3 million net of tax of acquisition related expenses related to Globe Motors, and $234,000 or $159,000 net of tax of relocation expenses in conjunction with moving our corporate office and key employees from Denver, Colorado to Amherst, New York. Excluding these non-recurring charges in the current year, the company achieved adjusted net income of $5.41 million or $0.61 per diluted share compared to $5.37 million or $0.62 per diluted share for the same period last year.
Additionally, the results for the year ended December 31, 2012 included two partially offsetting non-recurring items, first of which $301,000 or $222,000 net of tax, received as a concession payment from a landlord for early termination of a building lease. Net of expenses incurred to move to new facility, and the second is a pre-tax charge of $238,000 or $178,000 net of tax in the first quarter of 2012.
This chart was reported to cover the expected cost of replacing certain products in this field due to an incorrect electronic component and printed circuit board supplied by one of the company's subcontract suppliers. EBITDA increased 9% for the year to $10.1 million from $9.3 million last year, adjusted EBITDA which excludes stock compensation as well as certain non-recurring items increased to $13.2 million compared to $9.9 million last year.
Revenues for the year increased 23.1% or $23.5 million to $125.5 million compared to $101.97 million last year. With $22.1 million or 21.7% of the increase due to higher volume and $1.4 million or 1.4% due to favorable currency change where the dollar weakened against both the Euro and Swedish Krona.
The 57% of the company sales were to U.S. customers compared with 56% last year with a balance of sales to customers primarily in Europe, Sweden and Asia.
The 23.1% increase in sales is a result of 25% increase in sales to our U.S. customers and a 21% increasing sales to customers outside of the U.S.
Bookings for this year were $121.1 million compared to $90.4 million last year as discussed in previous quarters beginning in 2013, we no longer include the full value of blanket purchase orders when we’re seen from customers and only reports and as bookings when they are released to production. As Dick mentioned, to ensure an accurate comparison we have presented bookings and backlog throughout 2013 in the same manner as the prior year.
Therefore using prior methodology, booking for the year would have been $135.3 million compared to last years bookings of $90.4 million or 50% increase over the last year. Backlog at December 31, 2013 was $75.6 million using the new methodology and was $83.7 million using prior methodology, compared to $32.9 million at last year or an increase of 154% over prior year.
We had $3.1 million of capital expenditures during 2013 compared to $2.6 million last year. And to reiterate Dick’s earlier comments on a pro forma basis, the company achieved net income of $8 million, EBITDA of $25.3 million and adjusted EBITDA of $26.8 million for the year ended December 31, 2013.
For the quarter ended December 31, 2013, the company achieved net income of $1.3 million or $0.15 per diluted share compared to net income of $1.1 million or $0.13 per diluted share for the same period last year. Excluding the non-recurring charges discussed earlier, the company achieved adjusted net income of $1.8 million or $0.20 per diluted share compared to adjusted net income of $1.1 million or $0.13 per diluted share for the same period last year.
Adjusted net income for the fourth quarter excludes $461,000 – $461,000 net of tax for business development cost and $16,000 net of tax for the fourth quarter of last year. EBITDA increased to $5.1 million in the quarter from $1.9 million for the same period last year, adjusted EBITDA which excludes stock compensation expense as well as certain non-recurring items increased to $6 million in the fourth quarter compared to $2 million for the same period last year.
And as a reminder, this quarter’s results include the incremental results from Globe, which were not included in last year’s numbers. Revenues for the quarter were $50.1 million compared to $24 million for the same period last year, this represents an increase of $26.2 million or 109.1%, of this increase $25.8 million is due to an increase in sales volume and $412,000 is due to favorable currency change where the dollar weakened against both the Euro and Swedish krona.
Looking at our total sales for the quarter, 63% were to U.S. customers compared with 55% for the same period last year, with the balance of our sales to customers primarily in Europe, Sweden and Asia.
109% increase in sales is a result of a 141% increase in sales to our U.S. customers and a 70% increase in sales to customers outside the U.S.
Our gross profit margin remains steady in the quarter at 28% both this quarter and the same quarter last year. And for the tear year, gross profit margin is also steady at 29% compared to last year.
Bookings for the quarter were $52 million compared to $23.5 million for the same period last year and as a reminder again we no longer include the full value of blanket purchase orders when received from customers and only reported them as bookings when they are released to production. Therefore using prior methodology, bookings for the quarter would have been $53.7 million compared to $23.4 million for the same period last year or 129% increase over that period.
Total selling general administrative and engineering expenses increased 95% or $5.0 million for the quarter an increase 31% or $6.8 million for the year as compared to the same periods last year. These operating expenses include transaction costs associated with the acquisition of Globe of $678,000 for the quarter and $1.9 million for the year, also included our relocation cost of $234,000 for the year as compared to last year.
As a reminder, the results for both the quarter and the year include incremental results from Globe. Excluding the incremental cost of the acquired company, our SG&A expenses increased 6.6% for the quarter reflecting an increase in compensation expense, including incentive bonuses and we’re relatively steady with last year where SG&A increased 1.5% from December 31, 2012.
Depreciation and amortization expense increased $1.2 million for the quarter from $437,000 last year to $1.6 million this year and increased $1.1 million for the year from $1.8 million last year to $2.9 million in this year reflecting the incremental results from Globe. For the year, interest expense increased $1.4 million to a total interest expense of $1,445,000 due to the increase in debt incurred in connection with Globe Motors acquisition.
Included in interest expense is $93,000 of non-cash interest charges from the amortization of differed finance charges. The company had $10.2 million of cash on hand at December 31, 2013 compared to $11.7 million at September 30, 2013.
Our cash position declined $1.5 million during the quarter with major uses of cash being $4.3 million used in conjunction with the acquisition of Globe Motors, $2.7 million for debt repayment, $1.3 million for interest payments and $227,000 for dividends paid. Hence, with these major uses of cash which totaled $8.5 million during the quarter, the company ended the quarter with over $10 million of cash.
Our debt position increased $86.5 million during the quarter to a total outstanding bank debt of $87.6 million at December 31, 2013, which reflects bank debt incurred for the acquisition of Globe. As previously mentioned, debt repayment during the quarter amounted to $2.7 million.
Our net stockholders equity of December 31, 2013 was $48 million or $5.28 per share and our Board of Directors have declared a $2.5 per share cash dividend that is payable of March 14 for shareholders of record March 3. With that I will now turn the meeting back over to Rich Warzala.
Richard S. Warzala
Thank you, Rob. In the press release, I made the following statements and I’m going to read it just incase some of you haven’t had a chance to see the press release that went out last night..
The year 2013 was certainly an exciting one for Allied Motion, highlighted by the successful completion of the Globe Motors acquisition in October. Allied’s result in the fourth quarter and the year included a little over two months of revenues and earnings from Globe Motor’s post-acquisition.
In 2014, revenues are expected to more than double relative to Allied’s 2013 pre-acquisition revenues and the Globe acquisition is expected to continue to be accretive to earnings. Limited one time cost will be incurred in the first quarter of 2014, primarily in the legal, financial and tax areas as we work to finalize and implement the benefits available to us as a result of the acquisition.
While Globe is operating in substantially the same manner as it was prior to the acquisition. The integration process has started, and will continue through the year, as we followed a structured approach that we believe will lead to success in the process.
We expect that the coming year will continue to be transformative for our company, and that with the addition of Globe Motors, we’ve put ourselves in a position to leverage the capabilities of both companies to create an increasing number of new opportunities by designing innovative motion solutions that change the game and meet the current and emerging needs of our customers in our served market segments. Now what I would like to do is, take the opportunity to expand on that PR a little bit and give you a little more information.
Again, the PR I did mentioned that it was an exciting year for Allied highlighted by the Globe acquisition. So as stated in previous market communications, it is our belief that Globe Motors is a solid well-run company, which is evidenced by both the historical financial performance, including solid cash flows, and the stability of Globe management team and the entire workforce.
Our experience thus far continues to confirm that our initial thought are in fact on target. We do expect revenues to more than double at 2014, relative to Allied’s pre-acquisition revenues and we do expect Globe to continue to be accretive to earnings.
Through a proper planning and integration process, we can leverage the combined customer base and market shares in the aerospace and defense, medical, industrial and the vehicle markets to produce even greater sales in each of the markets in the future. Within the next few weeks, we will bring together a team of 65 sales and engineering personnel to begin the process of defining and ultimately capitalizing on the competitive advantages of the combined entity.
By applying the same Allied Systematic Tools or AST for short lean principles that are such an integral part of our current company culture, we can define and shape our global sales and support organization and securely position ourselves for long-term sustainable growth in the future. The challenge to accomplish this objective lies in the minds and hands of our employees and I for one [ph] and confident that we can and will rise to occasion and exceed even our own internal expectations.
The PR also mentioned the limited one-time costs were incurred and what that statement was referring to is that we are working on other areas post-acquisition including finalizing of the networking capital adjustment as part of the stock purchase agreement, completing the work with regard to taking a Section 338 Election to receive certain tax benefits in the future and ensuring the proper company structure is in place to optimize the tax benefits available to us as a company. While we will incur certain cost they will be limited in nature and we do expect a financial return on our efforts.
Another point in the PR was that while Globe is operating in substantially the same manner, the integration process has started and we will follow a structured approach. So in addition to the upcoming sales and engineering meeting, several actions have already been taken to link the technology units to ensure we are providing the right solutions for our customers.
We are also working on and exploring synergy potentials in markets, products, production and sourcing capabilities. In September of this year we will develop a new long-term strategy and will set the direction and establish the goals and objectives for the next three to five years.
The Globe concludes with that we expect the coming year will continue to be transformative and that we are going to develop and accelerate motion solutions have changed the game. So in short that’s what this acquisition is all about, truly transforming our company and positioning us to achieve even greater growth and success in the future, we are an exciting and well positioned company, we are more capable than ever to better serve our target market segments.
While we do have a reputation for high quality innovation and on-time delivery, Globe Motors takes this reputation to new levels. Globe has a track record on seven years of production on one line, and eight plus years an another of zero defect manufacturing.
While many of our competitors may tell low PPM failure rates or Parts Per Million failure rates. We can document several year of zero defects, this type of track record will result in new doors being opened in the future.
Geographically, we now have strategic manufacturing capability in Europe, Asia and North America including lower cost production facilities in Portugal, China and Mexico. While many companies utilize low cost regions to merely take advantage of low cost labor, the Allied and Globe facilities in these countries are different.
They are stated of the art factories that took on the challenge to raise bar and utilize technology to provide production capabilities that will insure – that will endure well into the future. Even when the labor cost advantage begins to slip away.
With regards to customer support we are investing in and expanding our technical and sales support capabilities through the implementation of our solution centers within our key geographic regions. Global companies want and need global support, and Allied Motion can clearly demonstrate and we are making the investment to ensure that their needs are being satisfied.
Regarding innovation, one could argue that innovation was already alive and well, as demonstrated by the several awarded and pending patents within both companies. While our patents are a good indicator of innovation, what truly separates the pretenders from the real players, is the ability to utilize the patented technology to bring game changing solutions to your served market segments.
Globe and Allied had demonstrated the ability to do such through the development and sales of leading edge power steering solutions in several types of vehicles and through high performance motor/gearing solutions used in several cutting edge medical applications. This type of creativity is supported by a company culture that constantly challenge its team to provide solutions with the most compact, differentiated products or systems that change the game and adds value to our customer’s products.
While the coming year, will be transformative and we have many opportunities ahead, you can count on us to continue you to utilize Allied Systematic Tools or AST for short to improve efficiencies and eliminate waste throughout our company to improve quality, delivery, cost and innovation. AST is critical to and helps create the path of success in all aspects of our business and in all regions of the world.
With that operator, I will now open the mics for questions.
Operator
Thank you. (Operator Instructions) thank you.
Richard S. Warzala
Okay, I’ll tell you what we’ll do, again thank you for those of you who have – we have a question?
Operator
Yes, we have a question in the queue from the line of Jeff Geygan, over to you. Go ahead.
Richard S. Warzala
Okay.
Jeff R. Geygan – Milwaukee Private Wealth Management, Inc.
Yes, good morning, thanks for your time today. I find this to be kind of interesting the acquisition you had made, given that you offer the pro forma revs of 220, can you tell me what your revs for 2013 ex-Globe Motors were?
Richard S. Warzala
As we’ve said Jeff, we knew that that was a question that was already sent to us also, so I will address that right away. We said that we are not going to split out the results of any of our business units including Globe Motors.
There are several reasons for that and first of, we do have competitive issues in information that we certainly don’t want to disclose out there and by the way our competitors do listen in, we are aware of that. Secondly as you understand the company culture and what we are building and what we’ve been building over the years here, you hear us talk a lot about one team, and I find that if we are going to talk about individual units, you are going to break apart the concept of one team.
So therefore we are not going to do that and we will give you pro forma results and we think that’s really the true indicator of how well we are doing, it gives you the combined results of both companies in the past, it gives you the combined results as we continue into the future. I hope you can accept that and everyone else can accept that.
Jeff R. Geygan – Milwaukee Private Wealth Management, Inc.
Well fair enough, but I’m just trying to add to statements you made. If then the fact that you gave us a number on a pro forma basis your revs were 220 last year and your statements further was that you expect your revs in 2014 to be twice that – 2X, I mean should we use 220 as our expectation to your revs in 2014 or is there a different number that I can extrapolate from the data you have given us so far?
Richard S. Warzala
Fair enough, and I knew I would put myself on that position when we made the statement that it was Allied Motion numbers post-acquisition and so forth that that question was going to come up. Let us say that we are confident we will do more than 220.
Jeff R. Geygan – Milwaukee Private Wealth Management, Inc.
Okay. Thank you.
I accept that. The second part is you’ve used some adjusted numbers, so let me bag this.
You’re adjusted EBITDA margin for 2013, as I looked at it, seems to me to be roughly 12%, you’re adjusted net income about 3.5%. Its hard for me to see that you had a lot of synergies in the stated periods.
Should we assume that on this larger revenue that those margins will stay the same or would I expect those margins to improve on a forward basis as a result of your synergistic savings.
Richard S. Warzala
,
And in order to be successful, you’ve to be better than your competition in the engineering discipline, sales engineering, application engineering, design engineering, manufacturing engineering et cetera. So the first focus of our company is to continue to grow the top line and leverage those capabilities to eliminate the redundant work that’s being done in several locations and to utilize that personnel to do more.
You are absolutely correct, on the opportunities that are there, and we are beginning the process, and I’ll have to say beginning the process, and its going to take a little bit of time here to start to pull together where some of the additional opportunities are certainly in the sourcing and production capability. So going forward, looking at – I guess I’ll let Rob, deal more with the number side of it from when you add in when we look at EBITDA, or adjusted EBITDA.
Okay, because I think that’s a more sure representation with the debt load that we are carrying today of what the company is really doing. So maybe Rob you can add a little bit to that or Jeff if you need more clarity in the question, you might want to reframe that for Rob.
Jeff R. Geygan – Milwaukee Private Wealth Management, Inc.
I’ll let Rob take a look at it and lets see he wants me to restate it. Nee to restate it?
Nope.
Robert P. Maida
No, Jeff I think. Excuse me, I think to add on to Dick’s comments, I think from a standpoint of synergies and what that would relate to in terms of future EBITDA margin.
I think that we certainly would expect that what Dick is talking the synergies that we’re trying to create and build upon in the organization will results in increased margin in EBITDA, and adjusted EBITDA numbers. I think that one key area that Dick mentioned earlier in his statements is related to AST, and AST as we continue to build upon these two companies and look at the synergies between these two companies, we will be applying our lean principles to the entire organization that includes lean manufacturing, and that would include the aspects of the front office and back office lean.
And I do think that from a standpoint of increased margin, we would certainly expect some of those to develop through the use of our AST model in capturing some of those synergies. Hopefully, that answers your question.
Jeff R. Geygan – Milwaukee Private Wealth Management, Inc.
It adds color, I appreciate that. With respect to the cost synergies, Dick I believe you mentioned, have you find that your markets, your products , your production and your sourcing which all makes sense.
Can you add a little flesh to that bone and give us a sense of absolute type dollars we’re looking at or potentially present improvement as of function of these synergistic saving?
Richard S. Warzala
Well, I think that’s tough for us to do right now. And I guess we’ve mentioned – we’ve built some numbers internally that we have never used any of the numbers of justify the acquisition itself that as we’ve set some goals for ourselves for improvements that we can make.
We use production for example, we have to find a better way to utilize production facilities, we have as I mentioned state of the art facilities in low cost regions and our customers and some of the global customers we’re working with today that’s allowing us to just be able to engage in securing their business. In the past we were not viewed as a company that really could support someone globally, so what we’re seeing today is customers and again look at top line improvement to leverage that overhead that already exists to generate additional margin.
And that’s really how we’re looking at it and its coming though, we have great receptivity by certain customers that in the path didn’t see us as a really player there on a global basis. Now when you start looking at improvements from an AST standpoint, we have various and many, many examples of where we have conducted certain lean events.
In the lean events that we’ve conducted if you look at our factories today versus what they were 10 years ago, you will see a massive reduction in floor space requirements. What does that mean to us?
well at the own factories, the own facilities it doesn’t do much, if you still have the space, its just idle and its empty, well we do have big pockets of space sitting in certain facilities and it certainly give us the opportunity to leverage some of the requirements for manufacturing in key locations, and that is adjusting it to the certain a extent, especially on leased building were we can down size, we can pay for less spaces. And I think that’s what we’re seeing and so we see improvements in quality, we see improvements in efficiencies, we have improvements in floor space required, all of those are part of the normal process of AST and we don’t any reason why we cant continue to do that or even accelerate that into future as well as leveraging certain factories that we have that give us the opportunity to sell competitively or be competitive from a product standpoints.
So not exact numbers, but its again we do have several cases where floor space, quality improvements and so forth that we can relate back to in the past.
Jeff R. Geygan – Milwaukee Private Wealth Management, Inc.
And Dick, I understand you have – for are competitive reasons you want be careful about what you say, I understand that. So I want make a statement and maybe you can just affirm it.
you’ve indicated that the Globe Motors acquisition will be accretive year ago, if I look back for the last two or three years then I look forward for the next one to three years. I would believe if its in fact accretive they are out on your financial statements.
So whatever your condition was a year or two ago, presumably with accretion your metrics should be more favorable on a forward basis and if you could just say yes, I understand that correctly I would appreciate it.
Richard S. Warzala
I’m look at Rob, and he done, he said yes.
Jeff R. Geygan – Milwaukee Private Wealth Management, Inc.
Okay.
Richard S. Warzala
You couldn’t have seen that but I could.
Jeff R. Geygan – Milwaukee Private Wealth Management, Inc.
Okay, last question is you have $10.2 million in cash, your balance sheet profile has changed quit bit, because now you have substantial amount of debt, you’ve used that cash in some ways for dividends, acquisition of course, you’ve got CapEx requirements, there is some amount of other cash needs, but given you are a larger company, your working capital requirement have changed and with the debt load how would you anticipate your uses of cash will change in the future?
Richard S. Warzala
That’s a good question and I will pass it on to Rob. That was also a question that was sent in over the web to us so thanks for bringing that up Jeff.
Rob go ahead.
Robert P. Maida
Jeff I think to answer that question, I think I would like to state first that the performance of the organization historically has been very strong from a cash generation standpoint and if you look at both of the organizations, you look at Globe historically as well as Allied has been a very good cash generator if you will. So the cash flow of the combined entity historically when you take a look at it on a pro forma basis, historically its strong and certainly evidenced by this fourth quarter where our cash position as I stated we utilized $8.5 million cash and we still ended the quarter with over $10 million on our balance sheet.
So strong historical performance. I do expect that these entities continue to being strong cash generators, we don’t see any reason why there wouldn’t be strong cash generation coming forth and again I will – in the future I see a stronger performance quite frankly on a cash basis and the reason I say that is where Dick just was talking about related to AST and if we are looking to enhance our position as a lean organization then everybody who understands lean understands the benefit and what that does for cash and freeing up cash by pulling waste out of the organization as a whole and as we apply all of our principles, I do expect that we will even be a stronger cash generators in the future.
Jeff R. Geygan – Milwaukee Private Wealth Management, Inc.
And your attitude towards your debt fee roughly $87 million outstanding, where does that fall on your priority list in terms of uses of cash and how aggressive do you want to be in reducing or eliminating that?
Richard S. Warzala
I can answer that a little bit and then Rob can add to more to it. first of, the $30 million of the $30 million of the mezz is something that is there for three years, and there is no pre-payment allowed on the mezz itself, the bank debt the senior debt, we have to for the covenants in the loan agreements, is that 50% of our excess cash that we generate has to be used to pay down the bank debt and that’s on a year-over-year basis.
So if we generate excess cash let’s take a number of $10 million this year, $5 million of its going to go to pay down the bank debt in addition to the normal quarterly payments that we make. Now that leads us into what else and how else do we want who address the debt itself.
And I think it comes into play with several other questions that were sent into us with regard to how are we going to do additional acquisitions, are we going to put an investor relations program in place, were we going to offer, we are going to go out and offer equity to pay down some of the debt. I mean all of those are options opened to us right now, and I think as Rob had stated, if we look at the fourth quarter alone, we generated a net positive $7 million in cash approximately $7 million in cash in the fourth quarter alone and $8 million some of use and a reduction of cash from $11.7 million to $10.2 million.
Okay. So I think we are confident that we do have the cash to continue to operate, but we do have other options available to us Jeff that we are going to explore for sure.
And some of these other factors may come into play, if we look at the acquisition for example – acquisition questions, are we working on any other acquisition, and if so, what should our expectations be for the future. And I’m going to say we’re always active, acquisitions take time, you have groom them sometimes many years in advanced and we wont pass up on a good one.
Depending on how big it is and what is required that may cause some restructuring, it may cause us to take some actions to work on that bank debt as we know it today. So we’re open to it, we are dealing with it, we are comfortable with it and based on certain agreement that we have, there is not – we have to do certain things on a certain way when the mezz debt comes up in three years from now, we’ll be addressing that.
Okay, so I hope I’ve answered your question and if there is anything else you have on that, please feel free.
Jeff R. Geygan – Milwaukee Private Wealth Management, Inc.
I do appreciate it, I feel like I have taken more than share of time here. So thank you very much, good luck, I hope all of your plans come true and I will look forward to hearing from you on a frequent basis in the future.
Richard S. Warzala
Thank you.
Robert P. Maida
Thank you Jeff.
Operator
Thank you, and next question is from the line of [indiscernible].
Unidentified Analyst
Yes hi, a couple of questions. One short of high level just trying get reacquainted with the combined business, but could you shed any light on kind of end market exposure for those combined businesses and any type of seasonal impacts that we should be aware of now with greater percent of the business in Europe?
Richard S. Warzala
Well lets talk about first the impact of the business and what our major markets are and so forth. I think JD if I remember seeing your question, you also sent that in to us on the web or through an e-mail and you asked about the markets.
I mean our top five markets as a company vehicle is now number one okay, and especially with the addition of Globe that’s our largest market and we talk about all aspects of vehicle okay. industrial is a large segment for us and that covers many different types of items.
Medical is a large segment, electronics is a large segment and aerospace and defense is a larger segment than it was in the past. So the vehicle is certainly the largest and we are now more in each of the other segments have grown also as well.
so we still have some good diversification and even when we talk about vehicles there are so many different types that we are dealing with here. So seasonality is a different question, there has been a little bit of seasonality in the past and I’ll just say a little bit and some of that has caused I would say by our European markets where we do see in the fourth quarter things tend to slowdown a bit and we also see in the summer months where things tend to slow down a bit.
We think we are probably now again with Globe, we are going to see less of an impact on the big picture with the combination of the two companies. So seasonality has a minor, I’ll just say a minor impact and we will have a minor impact on our result, although I still would expect somewhat in the summer and somewhat in the end of the year.
The fact that more businesses in Europe as a percentage that’s not going to be the case, actually more business is going to be in the U.S. if you look at the combined entities as a percentage of what we would report in the past as a percentage of our overall business in U.S.
versus the rest of the world, you are going to see the U.S. will have actually increased.
Unidentified Analyst
And then just one or two other quick ones and this analysis might be somewhat simplistic, but if we look back at the pro forma that you previously shared and you kind of taken average quarter of revenue for just Globe standalone, in 2012 it was like $26.5 million and then though the nine months of 2013, it was closer to $30 million a quarter. Were they really growing that fast and if so why over there, just some kind of anomaly, and the way that I worked it out simplistically that kind of is making the calculations, maybe not all that valid for that kind of a analysis.
Richard S. Warzala
There is growth.
Unidentified Analyst
Why was it growing…
Richard S. Warzala
You analyze it.
Unidentified Analyst
Yes, why were they growing so strong when I know that Allied standalone through 2013 was somewhat flattish year-over-year.
Richard S. Warzala
Correct, you are correct. They had won some new applications and some new business and that’s the growth.
Unidentified Analyst
Okay. And are you still optimistic that that’s sustainable for them going forward?
Richard S. Warzala
Yes.
Unidentified Analyst
And then just one final question if I could, I know historically your backlog was around a quarter of revenue, and now I look at the end in your backlog for this year somewhere around $75 million or $76 million I think you said, which is much stronger than one quarter forward revenue run-rate. Is that just more longer-term projects in there or is that just a very strong Globe backed log that now gets rolled in.
Richard S. Warzala
We are again, its something that I guess, we really – as we said we don’t want to split out and start talking about separate technology units, but we’ll confirm that it is a strong Globe backlog that has helped, but also you have to remember that as we give you the comparison of the way we used to book things on previous basis on a prior basis than we do now, as we adjusted down by not taking blanket order this past year into to backlog and so forth. You would have seen that decline for the Allied base business.
Now that’s out of there, so you’ll see a much more – you won’t see the big spikes that we saw in the past for quarter-over-quarter for bookings, and therefore increasing the backlog, because we’ve changed the methodology for booking the blanket orders. So I think there was some adjustment that occurred in there, because of that and that’s out of the system now and as we move through 2014 we’ll have more regular, and we’ll be able to really compare that I would say on a consistent basis rather than the peaks and valleys or the spikes that we would we would have, from getting a large blanket order that might have been in place for one year or 18 months or even two years in some cases.
Unidentified Analyst
Okay, perfect, but it sounds like as appose to having one quarter of revenue coverage looking forward now of that metrics somewhat stronger just gives you a little, better confidence about the outlook and kind of stuff?
Richard S. Warzala
Well, I think – I guess I’m looking at Rob and I’m saying I’m that really prepared to really say at this point what we think the backlog is going to look like, I think we’re going to see – and or is it going to increase or going to get smaller. I would suspect because of the methodology change that we made that we would basically show less backlog than we had in the past.
Okay, so if in facts the peaks and the valleys are come an out on a regular basis or we’re consistent in the way we’re doing it across the company. I would expect that the backlog itself might show decreased levels, but again you’ve added another factor in there and that is a Globe business that made some changes to that.
So I would say just bear with us let us get through a couple of quarters and we’ll get a better feel for what we should expect going forward.
Unidentified Analyst
Okay, it sounds great. Thank you very much.
Richard S. Warzala
Okay. Thank you.
Operator
Thank you we don’t have any further questions at the moment.
Richard S. Warzala
Okay, let me – go ahead.
Operator
About to give another reminder but if you...
Richard S. Warzala
Well , I’m going to just tick through some of questions that we received and JD’s was he had sent some in so I can cross those off. Some have already been answered through the questions here, so I’m not going to repeat them.
There is a question that comes up and it does come up frequently with regarding IR work Investors Relations work and the question came in as a statement and then a question that said I think [indiscernible] has a good story to tell and which I believe were the right promotion could result in a higher stock price for the company. Do you plan on implementing an IR program in the near future?
I would say to you we are not against an IR program, we’ve been consistent on our message to those who have approached us and many of our shareholders have offered up some sources that they believe are very effective and can be very effective with the company. Well the decision we’ve take and when we deal with the professional firms they understand our position and actually grudgingly agree with it.
We’re saying we need to retain our focus on the integration and that is the most important thing for us in the near future. Making sure we get this right and we truly are capable of leveraging the synergies of these two companies.
We said its transformative and it will be. So therefore we will have a better story to tell and we have good track record of converting acquisitions if you look back at our past you will see its a very good track record of doing that and I think one of the elements the key elements for our success has done focus and making sure that we stay on top of it and we engage and we integrate in a proper manner and plan, process and stay focused.
Therefore we will do that we will stay focused on it and we will not in this quarter or next quarter be looking at implementing an IR program. That takes a full commitment and it takes quite a bit of time and resources, so again I’ll ask you just bear with us, we are not against it and we realize their benefits, but we are not going to derail what the most important task ahead of us is, and that is a proper integration.
Okay, so that was the question and I hope that’s been answered and if anybody has any further questions on that please go ahead before I could answer the rest of them.
Operator
And we do have a…
Richard S. Warzala
Operator just – go ahead.
Operator
[indiscernible] question from the line of Michael McCroskey. Go ahead.
Unidentified Analyst
I just want to comment on top of what you are saying Dick, on behalf of my group please, this is consistent with your [indiscernible] of long-term planning as appose to short-term and so I hope you will stay on that path as long as possible, it’s a waste of your focus and takes away from what you all been able to do and accomplish over these past few years and its just about the confidence. So please continue in that way.
Richard S. Warzala
Thank you Michael and I hope you to your response here realized that that is our plan.
Unidentified Analyst
That’s all, I’m done.
Richard S. Warzala
Okay, thank you Michael. Okay and let me just – I’ll tick off these others real quick here for us and we do appreciate your questions.
One of them is we’ve talked about a little but let me just summarize real quick. It says how is the Globe acquisition doing that is – is it meeting your expectations in terms of financial integration and synergies?
Well I’ll say quickly in the financial side, yes. On integration I think we talked about that extensively here today with regard to what our integration plans are and the process we have an hold of course there, or save a course there so I’m still very confident that we are going succeed as plan and we are going to come out stronger as a result.
Synergies we’ve talked about the synergies, we mentioned synergies you know again they mean different things to different people, many talking about synergies being how much cost can you eliminate, some talk about what growth opportunities do you have. As I mentioned we are emphasizing the growth opportunities to start with and getting some larger wind and stronger by dealing with companies and we think that we can leverage those synergies that give us that capability.
I mean it’s a very, very strong selling point when we can walk into customer accounts and say look here is a company that we acquired that has seven years eight plus years and two different production lines of zero defects. That’s music to their ears, again we have capabilities to produce in multiple regions where large companies are setting up plans and recognizing that in order to really win those regions they also have to setup plans and we are there to support them.
So I think the answer to your question is yes on the financial, integration is moving along as planned and we are moving forward and looking at the key synergies that we are important for long-term growth. Let see, there is one other one here, there is two other ones and I don’t want to – you know I’m going to both of these over to Rob, one was on computer system asking can you update us on the status of your new computer system implementation efforts and how does the Globe acquisition impact the implementation if at all.
Rob.
Robert P. Maida
Sure. What we will state is that we begun and continue our efforts on the implementation of our ERP system, certainly this past year with our efforts with this acquisition some of our focus has been a little bit delayed on that but we are back on track and actually we’ve begun the rollout process to three of our business units globally for 2014.
And I think I heard you state Dick that how does perhaps the globe acquisition impact that implementation effort. Actually globe is running a Microsoft ERP system similar to our package that we have chosen within Allied prior to the acquisition, different versions of a Microsoft product, but Microsoft product still the same.
So at this point Globe runs their own ERP system and today we actually finalized a path that we’ve gone down with implementing to our – I guess I would say Allied business units where much more diversity in legacy systems exist that will be a future – something that we would look at in the future as to whether or not there is benefit. So.
Richard S. Warzala
Okay. Thank you Rob in the last question, we’ve already touched on this a bit, what I think we will just do is a different twist on it, I mean that was with regard to outlook for cash flow in the future and will it have an impact on Allied continuing to pay a dividend.
The answer is I think we’ve already stated that we are confident about our cash flow going forward in that as with regard to a divided as long as we continue on that regard, we don’t expect to change the dividend, of course its something were to happen, where our cash flow became an issue and certainly the dividend is something that we could address, but right now we have no plans to discontinue and our plan is to just manage that cash flow and get it strong and keep it stronger. Keep it strong and get it stronger in the future.
So that’s it for the questions that were sent in and I guess if there are no other question, operator we will check one more time and then we can go ahead and end the call.
Operator
And we have no further questions at the moment on audio.
Richard S. Warzala
All right.. Well thank you everybody for participating and we look forward to giving – providing you with the first quarter results which will include a full first quarter shipments and earnings from the Globe acquisition and its coming up on us real quick here and this is almost fairly late in the game and so we’ll be talking to you very soon and we appreciate your continued support..
Thank you Operator that will end the call.
Operator
Okay. so ladies and gentlemen and that concludes your conference call for today.
You may now disconnect. Thank you.