Q4 2022 Allied Motion Technologies Inc Earnings Call
Speaker 1: at this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone wants to require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to Craig Maholic of investor relations. Thank you. You may begin.
Speaker 2: 2022 results and provide an update on the company's strategic progress and outlook. After which, we'll open up for Q&A.
Speaker 2: Should they have a copy of the financial results that were released yesterday after the market closed? If not, you can find it on our website at alimotion.com, along with the slides that accompany today's discussion.
Speaker 2: If you're reviewing those slides, please turn to slide two for the State Harbour Statement. As you are aware, we may make forward-looking statements on this call during the formal discussion as well as during the Q&A. These statements apply to future events that are subject to recent uncertainties as well as other factors that could cause actual results to differ materially from what has stated on today's call.
Speaker 2: These risks, uncertainties, and other factors are discussed in your age relief, as well as with other documents filed by the company with the Securities and Exchange Commission.
Speaker 2: You can find these documents on our website or at fcsq.gov.
Speaker 2: I want to point out as well that during today's call we will discuss some non-GAAP measures, which we believe will be useful in evaluating our performance.
Speaker 2: You should not consider the presentation of this additional information in isolation or is the substitute for results prepared in accordance with GAP. We have provided reconciliation of non-GAP to comparable GAAP measures in the tables accompanying the earnings release and slides. With that, please turn to slide three and I'll turn it over to deck to begin. Thanks.
Speaker 3: Thank you, Craig, and welcome everyone.
Speaker 3: The fourth quarter camped off a record year for Allied as we continue to execute our strategy, leverage our diversified and market mix, and further develop our one Allied local platform.
Speaker 3: I'm incredibly proud of the teamwork and dedication of the entire LIT as their consistent and focused efforts. Advanced our strategic priorities both organically and energanically while navigating macro headwinds.
Speaker 3: There were a number of highlights during the fourth quarter as revenue grew 35%.
Speaker 3: due to higher demand across each of our target markets, which included incremental sales from acquisitions
Speaker 3: an impressive organic growth of 18% during the quarter.
Speaker 3: Equally important was the strengthening of our margin profile in spite of the overall inefficiencies created by the global supply chain and labor constraints. Both operating income and that income doubled over last year's fourth quarter and on an adjusted basis.
Speaker 3: Our earnings per share were 43 cents up from 30 cents last year.
Speaker 3: For the year, we reached a milestone as our revenue grew 25% across the 500 million level.
Speaker 3: We achieved solid annual organic growth of 12% on a constant currency basis.
Speaker 3: which reflected strong demand within our industrial and aerospace and defense markets.
Speaker 3: We believe our performance across markets substantiates the investments we have made to grow, diversify and strengthen our business.
Speaker 3: As you know, strategic acquisitions are a key component of our growth strategy.
Speaker 3: We completed three acquisitions in the fourth quarter of 2021.
Speaker 3: And another three in the second quarter of 2022.
Speaker 3: Collectively, they enhance their value proposition with new technology offerings.
Speaker 3: strengthen our competitive position, and improved our overall margin profile.
Speaker 3: The integrations have progressed well and our teams are working hard to maximize opportunities.
Speaker 3: and realize the full potential of these businesses.
Speaker 3: Overall, we achieved our stated goal of gross margin expansion, reaching a record 31.3% for the year.
Speaker 3: which was up 130 basis points.
Speaker 3: We have not yet fully leveraged these acquisition costs. We still delivered annual net income of $17.4 million for a dollar nine per diluted share.
Speaker 3: And on an adjusted basis, net income per share of $1.88.
Speaker 3: which was up 18% for the year.
Speaker 3: With that, let me turn it over to Mike for a more in depth review of the financials.
Speaker 3: Thank you, <expletive> . As a reminder, our results include the acquisitions completed during the fourth quarter of 2021 and the second quarter of 2022.
Speaker 3: Starting on slide 5, we provide some detail regarding our cop line.
Speaker 3: As expected, we did see some minor seasonality creeping back into the business during the fourth quarter, particularly in December , due primarily to the typical holiday shutdowns and customer inventory adjustments associated with general business conditions normalizing.
Speaker 3: Nevertheless, fourth quarter revenue increased 35% to $131 billion, which reflected higher demand across each of our target markets and incremental sales from acquisitions.
Speaker 3: The unfavorable impact of exchange rate fluctuations on revenue was $6.7 million in the quarter. In the last quarter, the total trading effects, revenue was up 42% and organic revenue growth was 18.3%.
Speaker 3: Revenue in the Aerospace and Defense Market grew 197 percent from organic growth, program timing and incremental acquisition demand.
Speaker 3: Industrial market sales growth was 46%, reflecting strong end-market demand in industrial automation, material handling, and electronics.
Speaker 3: We saw 8% sales growth within our vehicle market, largely from commercial automotive, trucks and power sports demand.
Speaker 3: While medical markets benefited from surgical related markets and medical pumps, there were offsetting pressures due to lower pandemic related sales. The distribution market, while a small component of our total revenue, increased 22% during the quarter.
Speaker 3: As <expletive> highlighted, our full year results are also strong, with revenue growth of 25%.
Speaker 3: On a constant currency basis, revenue was up 30% for the year, which included 12% organic growth.
Speaker 3: Sales to US customers were 58% of our total compared with 54% for 2021, with the balance of sales to customers primarily in Europe , Canada and Asia Pacific.
Speaker 3: The shift in mix continues to reflect the impact of our recent acquisitions that largely sell to the U.S. market.
Speaker 3: Slide 6 shows the change in our revenue mix by market for the full year period along with the 2022 growth rate for each market and the drivers behind the change.
Speaker 3: Sales to industrial markets were up 43%. Showing by the verticals noted on the slide.
Speaker 3: Industrial has seen nice growth over the last year and continues to be our largest market, making up 38% of our total sales.
Speaker 3: Vehicle comes from a strong truck and commercial vehicle demand offset lower sales and construction and power sports.
Speaker 3: Medical market revenue is nearly flat on a full year basis, reflecting similar impacts since the fourth quarter.jaq.com Power
Speaker 3: While acquisitions contribute to the aerospace and defense growth, we are also driving solid organic growth and benefiting from defense market program timing.
Speaker 4: As highlighted on slide 7.
Speaker 3: Our fourth quarter gross margin was 31.1% up 240 basis points from the year ago period.
Speaker 3: higher volume, margin-decretive acquisitions, and pricing more than offset continued global supply chain disruptions and rising material and labor costs.
Speaker 3: Consistent with our stated objectives, you can see the progress we are making by executing our strategy in the annualized chart on the right as we achieve your record annual gross margin level of 31.3%.
Speaker 3: While our recent M&A activity is certainly helping, we also equate this performance to our global teams that continue to drive higher margin solution-based sales.
Speaker 3: Moving on to slide 8, fourth quarter operating income more than doubled to $8.2 million or 6.2% of sales which was up 210 basis points.
Speaker 3: Operating costs and expenses as a percent of revenue were 24.8% of a mod of 30 basis points, largely attributable to our second quarter M&A activity.
Speaker 3: Operating costs for the full year were also elevated due to M&A activity, which resulted in higher engineering and R&D costs, intangible amortization expense, and business development costs.
If everyone can't deliver theyre going to reshuffle and reschedule because it doesn't make any sense to have three quarters of a device sitting there and not being able to ship. It. So we've seen some shuffling.
It's interesting we've seen some shuffling that says okay. What can we get on a current basis to handle some real let's call it more urgent requirements.
Actually resulted in pushing.
Pushing other equipment out so that it could free up capacity and again not from our standpoint from the complete supply chain thats required to fulfill the requirements of whatever that device might be.
So I would say.
The article was quite accurate, we have not seen oh.
All we can we can be assured that inventories are being depleted.
And the demand is there and at some point in time here they will have to be replenished.
Yeah, so it sounds like it's clearly a.
Driver in terms of the business, but given some of the issues maybe be a little lumpier in the nearer term as these.
Production issues work themselves.
Correct.
Next one just on the top line is spending through the K that it looks like Polaris was about 11% of revenue call. It 55 million Bucks.
You've done a really nice job in terms of trying time that's right.
First of all I bring down the exposure to Polaris, but I mean, it's still.
A pretty important customer.
And you know if you have listened to their call clearly expressed some.
Concerns with regards to the outlook in 2023, and as I recall, I think maybe even talking about the side by side market and I wanted to sort of with that as a backdrop square against your view in terms of you know modest growth in a vehicle like where.
Polaris is really let's just say not really.
And who have grown.
Maybe I'm wrong on that.
Where are the avenues of growth for vehicles that still allow you to push that to a modest growth level.
Yeah sure can answer that I think youre, absolutely correct I mean, our business with Polaris is.
It's remained strong.
And it has been through diversification in other markets.
The overall growth of the company is thats been the reason why the overall percentage of sales as part of Allied have gone down. So that is definitely was something that.
So you wanted to do what we did not want to obviously, we don't want to see the volume within Polaris get reduced I would say to you that.
That whole market.
Hence.
<unk> had some really boom years during COVID-19.
In.
Whether or not there is a settling out.
And demand will go down I mean, Polaris is much closer to the end markets that.
We are but we sell to multiple people in that business and you know what.
I think it's probably something we should expect but as you've noted it won't have as huge of an impact.
Given the level of sales of the diversification of the customer base that we have is it would it has the future. So other the other vehicle markets that we're in.
We are seeing some strength that we've had some major programs that we've invested in the past in the past.
Whether it's a construction.
Construction vehicles and buses or are your automotive or trucks and so forth. So we have some.
Good emerging applications that we've been getting designed in on the last several years.
Are starting to take off and it's all involved in electrification.
And a pretty strong position to benefit from that.
We also have those contracts that we booked.
We we don't have in our backlog, we didn't record as a booking we call unscheduled backlog. So that's not in our backlog.
For automotive and that we do see that as the schedules are firming up and getting stronger.
But that industry still has some challenges with certain components, which are keeping lead times law, but we do expect from our standpoint based upon schedules that we will see an increase there so a little offset definitely an offset to what we might see on the.
The sports Park utilities sports market.
And I would like to call yesterday.
When you mentioned ATV and side by side.
Of ATV as more as the.
The residential.
The type of.
Whereas the side by sides are used in many different applications in industrial and commercial so forth.
I wouldn't there's nothing kind of prompted another question with regards to the vehicles section of your business.
Do you have is you have some kind of sense in terms of what your exposure to that construction equipment and heavy equipment businesses, because I will tell you that if you have seen that.
The players in that World. There is a lot of backlog for them to work through so I mean, I could just kind of you don't.
The exposure there I can really see how that could be.
And it did for you in that business and just maybe some color around how much of your vehicle business comes from just that.
Many of the markets.
Yeah.
It's again, it's the whole vehicle market, it's for us it's quite diversified other than it will.
The large player, let's let's just put it this way I mean.
The large piece of it is 50% of the business coming from.
The power sports market and the rest coming from all these other.
Sub markets that are that we have so and so we do have exposure in construction agricultural.
Which is.
Has been strong and we think should continue to be strong trucks. It has a lot to do with some of the.
Programs that we've worked on in the past that are that are coming to fruition.
So we do see there is a backlog there is there are opportunities and we do see you know ended.
Into the future some opportunities for that to grow for us.
Okay, I'm going to kind of just one more I have a whole list, but I'm going to get out of line sensors that people don't want to talk on.
On the backlog came in at a nice pickup in backlog.
It's healthy I'm curious why not look at that like most I think $330 million backlog number.
So far into this quarter, how much of that backlog is.
Scheduled to go out beyond the first quarter.
Oh well at all.
And we're so far for US we're already two thirds of the way into the first quarter. So as we're looking at it we're kind of looking at the whole backlog relative to the rest of it I actually I'm not I, just don't like for that I'm still stuck into summer.
I got you I don't have the number off the top of my head, Mike Mike you might want to know, but would you care to characterize the backlog I would say it's.
Again, because lead times have gotten stretched over the last couple of years I would characterize the backlog is predominantly the next six to nine months. So.
Okay.
Pinpoint it for Q3 of them at a trough I would do that but.
Okay.
Yeah, I'm, sorry, yes, yes, I mean, as we said we've seen.
Continued strength.
Incoming orders.
Some of the backlog.
<unk> remained strong.
I would say to you that.
I don't have an exact number.
We know we're going to get assets future wells will have some prepared but I think it's kind of we don't obviously, we don't get into forward looking.
And I know, it's you know as we said two thirds of the way through so we kind of know where we are and hmm.
We don't we don't.
Yeah, and I would suggest that we're not looking for fill for the first quarter right.
Correct.
Mhm.
Well, that's actually that's very helpful. So I got more questions, but I'm going to step up I don't know how to queue and I'll come back and it's thought that at a later time, thanks very much.
[noise].
Thank you our next questions come from the line of Brett Kearney with Gabelli. Please proceed with your question.
Hi, guys. Good morning, Thanks for taking my question.
Good morning, Brett good morning.
I wanted to touch on the really strong growth youre seeing within your industrial end market. You know obviously there are some concerns out there on kind of how the broader macro environment, putting unfolds, but we're also hearing.
From folks on just kind of you know the historic Reindustrialization, that's taking place in the U S. In part supported by some of the federal spending streams.
Recent you know inflation reduction chips, and Science Act II J a.
I'm sure. It's hard for you guys to parse out where exactly the orders are coming from within your industrial market.
What's your sense in talking to some of your your customers and channel partners.
Some of the some of the activity and applications your solutions are going into.
Related to kind of industrial plant build out, particularly in North America.
Yeah. That's a great question incredible demand, that's really what's out there and it's more about being able to fulfill the requirements. So I would I would mentioned that.
You know one of our larger acquisitions.
Serve that space.
To a great extent and.
We're not seeing any slowdown there a matter of fact, I mean theres a backlog that's.
That sits out there that we.
We'll be working on into the future, but I would just say to you that I agree 100%.
<unk>.
A number of factors come into play.
Oh, the industrialization of the U S, but I mean, we're a global supplier. So we see it all over the world.
On the labor constraints have been let up they were pre COVID-19 and they are still there today.
Who you see innovation, becoming a part of everybody's.
Thought process here in order to be able to minimize the labor constraints that they're seeing.
I agree, it's there's some strength well out into the future here.
It's the only thing that's going to slow its slowed down is the ability for the.
Suppliers to be able to meet the demand at the time from that Theyre looking for.
Excellent. Thanks, so much.
Thank you Brett.
Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Our next questions come from the line of Gerry Sweeney with Roth Capital. Please proceed with your questions.
Good morning, Mike Thanks for taking my call.
Good morning, Jerry.
Just a couple quick follow up questions. One you talked a little bit about inflation constant battle, just curious where you are on both material cost and labor cost sort of pushing those call. Stuart are you up to date still trailing a little bit.
And just the market receptive to catch them more catch up pricing if necessary.
I'll, let Mike start maybe I'll answer or whatever he says at this point.
So there's ebbs and flows I mean, when we talked about it earlier, Jerry right and I would say.
No.
Late last year, I would call us caught up in the sense that we had contractual agreements, which automatically allowed us to pass things through.
As I think we've talked in the past is usually about a three to six month lag in all of that being processed and pushed through in and seeing it in results and then the team did a really good job.
Passing through purchase price variances and the like again the debate over here is classic Libre, we don't it's difficult to do that with any margin on it right. It's a zero base.
Pass through a large degree which doesn't help your gross margins as well.
Yes, my only cautionary note was that hey.
And all the reports you're seeing it as well you just continue to see prices increase so at some point in time, we're going to come to a crossword crossroads here where.
Demand.
And inflation kind of <unk>.
That'll each other here and we're not going to be able to pass it through as easily so it's it's.
Like I said, it's just a constant battle, so I wouldn't say that we're flush with the current market in the sense that.
Alright, we've seen continue to see significant increases here in the last three months.
But it has moderated to some extent, they're not we're not seeing the massive jump yeah. That's got you unless I'm less philosophy, I guess, yeah, I got it or the gap has narrowed.
Yes.
And I would say I agree with exactly what Mike said and from the standpoint of.
Okay.
I would've expected to start to see some slowing but.
We havent and I do agree that at some point I mean.
As the prices keep going up and up and up and get the email the pass through and who's who's paying on then there's got to be pushed back and so.
The overall inflation rate comes into play and that impacts the labor rates, which.
Certainly commodities are easy.
And I say easy if you're contractually bound by commodity price increases, you're just whether it's plus or minus you're going back to the contract, but it's these labor cost increases too.
That.
In contracts and you know that the days of <unk>.
The expected cost out in the future or signing up for long term contracts where cost downs are occurring.
In the volatile market. We're in today, I think anybody would be foolish to do that.
It's hard to it's hard to control these ones, who can predict what's going to happen. There. So it's a it's not just a battle that youre, having to get lets call. It constant challenge to make sure that you stay at all but you got to be careful that you're not putting yourself in a rough position in the future because the norms of.
Cost outs and some efficiency improvements.
Or not necessarily achievable. So that's the other piece that's upfront you got to be careful.
We're very aware of that and watching that because what we're doing now and certainly in contracts and certainly in new quotes.
Got it.
Staying with just our margins per se.
You know obviously.
On a full year basis, I believe it was a record, but and I'm not sure how much detail you want to go into this but I'm. Just curious you know one of the main themes is moving from components else's solution sales and it's been an ongoing I guess progression and we will continue to be a progression but.
Any way you can sort of break it out but how much themselves have changed over the any given period of time. Once we five years type of thing just Uh huh.
Hoping that up a little bit in terms of visibility.
Okay.
Yeah, well yeah.
We've discussed this.
And multiple calls where the question is how how we transitioned the business from <unk>.
Component sales to solution sales and we've said that.
You know if you go back let's call it five years.
What was the percentage of our sales.
We would call components and what we call solutions today, we also mentioned in previous calls that.
It's a little more difficult because what we would have considered a solution sales back then that is let's say, adding gearing to a motor.
You know today.
Consider that more of a component sale, that's just a normal sale.
<unk> is adding electronics, adding some kind of feedback in a more sophisticated software based solutions and so forth but to answer your question.
But where we are.
We have created a team in the company.
We are getting some very very interesting.
Projects that were working on our programs.
We're seeing that the content that we're putting in the Senate we had a discussion at.
At our board meeting yesterday about.
What did we do on the market, we started selling integrated drives with motors many years ago. It was part of our focus.
We start as we start adding up the number of opportunities that we've won.
Part of this solution based selling.
So it's a significant portion of our new business and that's the thing so we're not.
We have component business that will be here forever.
<expletive>, saying.
That's never going to be shifted out but there is a there is definitely a shift and a trend where we're doing more and more system based solutions with integrated solutions and.
<unk>.
That's the opportunity, but we go beyond just that now to where the company has transitioned.
Where it was like Okay, you got a motor lets add a drive to it well okay.
But today.
And some of the wins that we've had have been more about really sophisticated modeling and simulation that.
That increase our speed of play get us to the market faster and are really meeting took real needs and requirements of the customer not just what they think they need.
So then another change.
It.
We invested in the group that we called it we started out by saying global electronics team now expanded it to global engineering team, where we take on these major programs, we staff them appropriately to win on big projects that are system based solutions and it.
Use to grow and go beyond the level of what we've had in the past so I would I would hesitate to just you know as they.
Come back my numbers would be a little bit inaccurate and even though reclassifications would be but I can tell you that.
More than 50% I would say certainly in the.
With the global team, it's almost 100% is in the system.
Sale opportunity, where multiple technologies being applied to a higher level solution and yes.
Margins are higher cautioned us on.
That too because when you start getting into these larger more sophisticated solutions sales their software being developed there is a lot of electronics.
You're measuring margins based upon.
The content of material and so forth well, it's really your investment that went into these products that where it could be millions of dollars that have to be amortized over more like a software business <unk>.
Our high end electronics products, So that's where we're headed and that's what we see more and more of a set aside well on its way.
I appreciate it that's actually very helpful. Just from a qualitative aspect to understanding.
We are so I appreciate it thank you.
Okay. Thank you Gerry.
Yeah.
Thank you. Our next question is come from the line of Todd Jackson with Northland Securities. Please proceed with your question.
Thanks.
Welcome and myself back so.
So I wanted to circle back and I have a quick discussion again back on the top line with regards to the distribution business I know, it's not you know a major driver of top line performance, but I know, it's an area that you have been focused on in terms of growth and you really are seeing some nice growth. There can you give a little color on you know kind of.
What.
Actions efforts.
Efforts that you've made that have driven that.
And kind of you know.
What are your plans going forward how are you going to continue to drive that that revenue line.
Sure.
I would say to you Ted that a conscious decision for one of our acquisitions.
Which sells.
100% through the distribution channel.
It's interesting as we.
Reported through the distribution channel because we're knowing we know it's the end markets that they're serving so we're reporting it into the end market. So our distribution sales and business has definitely increased.
And.
We are seeing the opportunity and we're working on grooming some.
Let's call it some opportunities that can go through the channel that we're not participating in today. So so we've been successful in increasing the amount of our business that's growing through the channel we're not reporting it that way.
But it's growing faster than what we're showing and we are looking at other ways. We can leverage the channel that we currently have to increase our volume into it. So it's important to us and it has a reach that and because of the broad customer base and other.
Products that are going into it it's a real opportunity for us to increase and expand our business.
From a channel standpoint.
<unk> grown coming as you're bringing more of your products into existing distribution partners or do you see your future growth being driven by expanding.
And your distribution partners from something.
Yes, great question.
Yeah, Great question, I would say to you to start with.
Looking to leverage the distribution partners that we have today and expand our reach with them given our existing products. That's the best way for us to.
So to all logical I'll call. It test the market test the waters about do we have.
Right.
Solution Slash product mix that you can successfully take through the channels. So that's the best opportunity for us out of the chute.
Certainly there is an opportunity to grow with additional distribution channels, but I think our focus initially is that I don't think I know our focus initially will be on.
Looking forward to seeing what the opportunity is for us to bring more product into the existing channel.
Oh.
Okay.
And then just two last questions really kind of a little bit more around the guidance that job. One is on the capex guidance for 'twenty three.
You know theres, a little bit more than I guess, you can say I had well then.
I had in my model doesn't mean that.
Don't run your business, but I.
I wondered if perhaps you could.
Maybe talk a little bit about some of the investments that you're making in the business and where that might you know what that money is being invested.
For you know possible and then just kind of on a side note on that.
Income statement your business development expense, if you could just give a little guidance with regards to how you see that in 2023. So those are my last two thank you.
I'll, let Mike take those [laughter]. The Capex has been a lot of inflow in the sense that we didnt probably execute all the projects we had lined out for 2022 simply because of supply chain.
Delivery of products from vendors to allow us to complete projects. So I would tell you see probably a little bit lighter on the 2022 side. It was at the low end of our outlook and some of that flowing into 2023 and also obviously the additional businesses being added to the mix, while not capital intensive right. They add.
They add to that as well.
Most of the Capex that we spend throughout the year I would say, 80% plus is growth.
And customer project driven right. So it's supporting our new product line with a line in one of our factories, adding tooling, adding capacity to our equipment to meet a growing future demands on existing programs.
I would say that that's the nature of the majority of what we spend you know from a maintenance Capex standpoint safety Capex are there like where again I think we've talked before we're not we don't have significant expenditures most of everything we do is growth supported.
Well.
I'll add to that and then I'll, let Mike jump on to the next section here. So yes, what he's covered.
And he mentioned some of the things get delayed for supply chain and that's correct. There's another there's other reasons too that that occurred.
<unk> delayed program launches.
One so in addition to supply chain.
Necessarily anything that we were doing but were one element of an overall solution.
And if they can't get everything that they need then they delayed programs. So there was there were some delayed program launches.
Which then delayed the capital investment to go into it another item that I think.
We see is that we've had some success. Some early on success with some new opportunities you've been working on in there and they are starting to ramp.
And as they're ramping we're finding that they're expanding as well so.
We will we've allowed in there some program expansion beyond the original estimates that do require capital investments because that's one of the things that we looked at and we've mentioned that.
At efficiencies and costs and so forth.
Quality all of that comes into play so those will expand but they'll expand with additional revenue streams to support it.
Another thing that I'll mention to you that has caused some additional and some expected additional spending is localization of manufacturing.
We've come up with some standardization of certain product lines that we're investing in that are multinational and our belief is that we.
We need to be close to our customers so that theres been some.
Oh call it duplication, but duplication from the standpoint of there's enough demand and let's call the Europe and enough demand in North America that we may be putting in redundant systems.
And both and some of our planning has been around that.
And they are sized appropriately so it may not be one large capital expansion in one geographic region that may be multiple ones and there's reasons that the payback on those come back.
They're very quick and we haven't a program that we're ramping up right now we looked at it and said Okay. We've got a great facility down in Reynosa, Mexico.
Highly automated highly sophisticated and we can produce the product that we needed in but that's the end customers going into Europe , and then we started to look at our internal transfer of transportation costs, and we realized that we could.
A little over a year payback duplicate some of the capital and put it in Europe and eliminate those transportation costs and.
And I hate to say it but transportation cost always are going in at best method and Everything's ideal and then something happens in your air Freighting things in that could be quite heavy and cost of problems. So some of that's going in and again. The last thing I'll mention to you is efficiencies and upgrading because of labor constraints.
And one of our facilities does another fantastic job, but just look at it and says hey, I need fixed more full time equivalents and production I can't get them.
So I have two.
Upgrade what I'm doing today and automate what I'm doing today to generate more efficiency. So I have no longer have a need for six more full time equivalents equivalents I can get the same output by improving our.
The capital and equipment that were using to produce the product. So that's those are other reasons why and I think those will continue and there are definitely good.
And strengthen our company for the future so more color to that Capex, but now I'll turn it back over to Mike.
Yeah, so on the Biz Dev costs.
Well, there's two things I'd say.
They drive that right, it's our M&A activity.
That activity relative to.
Either expansion of a rationalization of some of our facilities.
So.
Again, those activities from our lean ASP toolset.
Hello will be ongoing.
Again, those are that's the lessor side of things from a cost standpoint, but we're always looking to optimize our footprint and door.
A good example is we recently changed.
Changed locations of one of our north American facilities to accommodate growth and to a much more a much larger in a much more advanced facility.
That should be very beneficial going forward right, but you know the duplicative costs and things like that about making a move like that are in there, but again, we will drive the bus that is M&A activity as we've talked before we're focused at the moment on paying.
Paying down debt, but we're always goofing opportunities at the timing of such opportunities are not always.
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Aligned with with some of those priority. So we will continue.
Down that path.
Dependent on how those opportunities develop and what our means to fund them are it'll drive you know the M&A expenditures.
Well, let me rephrase. My question then so since I would imagine that anyone that covers you who doesn't have any M&A built into their forecast and so if we were to assume that you had no M&A you.
You know kind of what would be sort of a steady state of that line item within your P&L and why I ask is because we do actually.
You know for pro forma back it out and you know since it's really not something that's you know operational <unk>.
Spence you know that we see it's kind of hard to model without a little bit of guidance.
You know what you can see like Oh My God.
400000 dollar a year kind of in a steady state you know absent any kind of any M&A as you've kind of worked towards.
So you don't reevaluation inefficiency stuff is 500000, a year is it sounds like it's kind of.
Some kind of.
Black it might be helpful at least.
Yeah, let us let us get back to you on that and I think it did rather than just shooting a number to you right now I mean, we could do a little bit of work here and you can come up with something that.
Be more representative of what we really think it's going to be in the future here I think we just keep looking at okay. Here's what we did so if we.
I'll say, it's how to do it six we're going to do two we're going to do three et cetera, you know whatever let us get back to you was a number that you can plug into your model.
Be more accurate.
Okay, that's fine.
Thanks for taking all my questions and again, congratulations on a very nice quarter.
Thank you.
Thank you there are no.
Further questions at this time I would now like to turn the call back over to management for any closing comments.
Yes.
Well. Thank you everyone for joining us on today's call and for your interest in Allied motion.
For those of you that are interested we will be participating in person at the Roth Conference in Dana point, California next week on Monday March 13th.
Otherwise as always please feel free to reach out to us at any time and we look forward to talking to you with all of you again after our first quarter 2023 results.
Thank you for your participation and have a great day.
Okay.
Thank you. This does conclude today's teleconference. We appreciate your participation you may disconnect your lines at this time.
Enjoy the rest of your day.