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Allied Motion Technologies Inc  (NASDAQ:AMOT)
Q1 2019 Earnings Call
May. 02, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Allied Motion Technologies Inc. First Quarter 2019 Financial Results Conference Call. At this time, all participants are in a listen only mode. A question-and-answer session will follow the formal presentation. (Operator Instruction). As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host Craig Mychajluk, Investor Relations. Please go ahead.

Craig Mychajluk -- Investor Relations

Yeah. Thank you. Good morning, everyone. Certainly appreciate your time today as well as your interest in Allied Motion. Joining me on the call are Dick Warzala, our Chairman, President and CEO; and Mike Leach, our Chief Financial Officer. Dick and Mike are going to review our first quarter 2019 results and provide an update on the company's strategic progress and outlook, after which we will open it up for Q&A.

You should have a copy of the financial results that were released yesterday after the market close. If not, you can find it on our website at alliedmotion.com. On the website, you'll also find slides that accompany today's discussion. If you are reviewing those slides, please turn to slide two for the safe harbor.

As you are aware, we may make some 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 risks and uncertainties as well as other factors that could cause actual results to differ materially from what is stated on today's call. These risks and uncertainties and other factors are provided in the earnings release as well as with other documents filed by the company with the Securities and Exchange Commission. You can find these documents on our website or at sec.gov.

I want to point out as well that during today's call, we'll discuss some non-GAAP measures, which we believe will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We provided reconciliations of non-GAAP 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 Dick to begin. Dick?

Richard S. Warzala -- Chairman,President and Chief Executive Officer

Thank you, Craig, and welcome, everyone. We kicked off the year on a healthy note as revenue grew 13% organically and 23% overall to a new record level, despite FX headwinds that reduced our reported revenue by 3%. Additionally, incoming orders hit a new record level at $94 million, adjusted EBITDA was up 20% and earnings per share were up 7% year-over-year.

Earnings in the quarter was somewhat muted in relation to the revenue increase as we continued to make the necessary investments in internal resources and CapEx to support our strategic growth objectives for the future. There were also a few atypical items that dampened profitability and resulted in our gross margin percent being unchanged.

One of the items was an unexpected price increase from a supplier of electronic assemblies that decided to continue -- discontinue certain operations and consequently raise pricing on assemblies they produce for us. We expect to reduce this impact later in the year.

We gain market share and expanded sales in many of our served markets, as well as realizing the benefit from positive secular trends around factory automation and specialized robotics. While there are some market outliers, on average, our served markets in total have historically grown in a GDP plus range. It is our internal objective to deliver above market growth and our organic growth rate in the quarter is a testament to solid execution by our team. Our newest acquisition TCI performed as expected and resulted in a positive impact on both gross margin and EPS for the quarter.

Moving forward, we will be working to maximize TCI's long-standing distributor relationships and to expand our geographic reach by utilizing the global footprint of Allied Motion. Overall, we believe there is significant potential for a long term growth from this acquisition.

And last but not least, our one One Allied approach continues to gain traction as we work on leveraging our strong technical capabilities by investing in key resources and our global electronics team to further drive integration of solutions for our served markets.

While the conservative commitment to focus on key strategic developments and opportunities, we believe the potential to continue grow and expand margins over time has never been better.

With that, Mike, let me turn it over to you for a more in-depth review of the financials.

Michael R. Leach -- Chief Financial Officer

Thank you, Dick. We provide an overview of our top line on slide four. As a reminder, our results include the first full quarter of TCI which we acquired in December 2018. We hit a record level of $94 million, despite an FX headwind of $3.1 million. Demand was broad based and growth in all of our major served markets were same.

As Dick mentioned, our organic growth was nearly 13% excluding an unfavorable FX impact and we saw particularly strong organic growth within A&D and Medical during the quarter. Sales to US customers edged up fairly to 54% of total sales, with the balance of sales to customers primarily in Europe.

Slide five shows the change in our revenue mix by market and the growth of each market for the trailing 12 months ended March 31. Keep in mind, that the TCI business is recognized in the industrial and distribution numbers, which explains a 44% growth in distribution.

Our A&D market has performed very well with 32% TTM growth and reflects higher sales across a number of submarkets, which include defense, commercial aviation and space. Also notable is the 24% growth in vehicle, fueled by the rebound in the power sports market as well as industrial, which continues to benefit from factory automation and a less from TCI.

Slide six provides detail on gross margin, which was unchanged at 29.5%. TCI was accretive to our gross margins, though as Dick mentioned, there were notable unfavorable impact elsewhere in the business which were estimated at approximately 90 basis points. The largest relates to a supplier who is discontinuing operations and subsequently increased their prices for any new orders without notice. We are working on lessening this impact as we develop, negotiate with and qualify other suppliers.

At this time, we would anticipate partial relief sometime in our third quarter. The other items relate to the timing of investment into tooling and a meaningful amount of prototype samples, both sold roughly at cost as part of the upcoming vehicle markets program.

Moving to slide seven, operating costs and expenses for the quarter increased 60 basis points to 21.7% of sales. While selling expenses of 4.4% of sales were up 90 basis points, primarily due to the addition of TCI, E&D was down 30 basis points and G&A was down 20 basis points. In addition to the gross margin impact, the first quarter operating margin reflects incremental intangible asset amortisation of $562,000 related to DCI. Additional personnel to support growth across the Globe organisation and accelerate investing of some director shares.

Interest expense increased $566,000 to $1.2 million as the company took on additional debt and more expenses leverage levels to fund acquisition. If you look at slide eight, you can see our bottom line results. The effective tax rate for the quarter was 27.5%, up from 26.2%. Net income increased to $4.5 million or $0.48 per diluted share compared with $4.2 million or $0.45 per diluted share in the first quarter of 2018.

We have adjusted our fiscal 2019 tax rate expectations up slightly to range between 26% and 29% which reflects adjustments and continued clarifications to the recent tax form regulations. Adjusted EBITDA for the quarter was $11.7 million, up $2 million or 20%. As a percent of sales, adjusted EBITDA was 12.5%, a decrease of 20 basis points. We use adjusted EBITDA as an internal metric and believe it is useful in determining our progress and operating performance. This is a non-GAAP measure, so please be advised to review our reconciliation and the related disclosures in our release and at the end of our slides .

Slide nine provides an overview of our balance sheet and cash flow. Reflected in the numbers on the slide of the two acquisitions made in 2018, that's Maval and TCI were both funded with a combination of cash and debt. As a result, at quarter end debt net of cash was around $119 million or 52.7% of net debt to capitalization.

Capital expenditures were $2.5 million for the quarter and were primarily investments for productivity improvement and growth initiatives. We expect our fiscal 2019 CapEx to range between $15 million and $18 million, which reflects additional support for the significant project wins that will begin ramping up by year-end, the next generation of off-road vehicle steering capabilities and incremental investments related to the addition of TCI.

First quarter inventory turns improved to more normal historical levels at 4.6 times as we've done a better job of balancing our strong sales pipeline along with tight supply chain. Our DSO is 52 days, down from a height in 2018 number.

I'll now turn the call back over to Dick.

Richard S. Warzala -- Chairman,President and Chief Executive Officer

Thank you, Mike. We'll now turn to slide 10. With continued strong demand in end markets, the first quarter orders grew 16% year-over-year and 10% sequentially to a record $94 million. Absent unfavorable FX, orders would have been about $97 million, up 20% year-over-year. Backlog at quarter end was at a near record level of $131 million, which included about $5.5 million from TCI.

As a reminder, TCI is more of a book-to-bill type business, and their typical book to ship time is measured in just days and not weeks. About 80% of our backlog is expected to convert in the next six months and 95% over the next 12 months. As we have previously discussed, just a nominal amount of the $225 million in the several vehicle market awards we announced previously are included in our reported backlog numbers.

Also as a reminder, we are currently investing in these programs and we expect to begin shipments at very low levels toward the end of this year. We will begin ramping shipments in 2020 to full rate production by the end of 2021, which would then continue for the following six to seven years. Executing our business operating system, Allied Systematic Tools is key to future margin enhancement as we focus on quality, delivery, innovation and cost.

While we have a strong AST team and we've enhanced those capabilities over this past year, it is also important to note that we will continue to invest in our strategic areas of excellence, especially around electronics and software as we further build out our integrated solution offerings.

While remain -- we remain cautious and flexible around the global economic environment, we have strong confidence in our future as we remain steadfast in the execution of our long term growth strategy to expand our multi technology solution opportunities and to further penetrate our target markets.

With that, operator, let's open the line for questions.

Questions and Answers:

Operator

Thank you. At this time we'll be conducting a question-and-answer session. (Operator Instructions) Our first question comes from the line of Greg Palm with Craig-Hallum. Please proceed with your question.

Greg Palm -- Craig-Hallum -- Analyst

Yeah. Thanks, and good morning. Nice quarter here.

Richard S. Warzala -- Chairman,President and Chief Executive Officer

Thank you, Greg.

Michael R. Leach -- Chief Financial Officer

Thank you, Greg.

Greg Palm -- Craig-Hallum -- Analyst

So, I guess starting with the organic growth rate, 13%. I mean, that's really fantastic in my opinion in this environment. I mean, even if I assume few points were driven by push outs from Q4 to Q1. I'm just not aware of too many other industrial related companies that are putting up this type of growth in the macro environment. So, love a little bit more color. I mean, is it new customers, is it existing and just being attached to the right ones? Can you help us kind of understand what's going on?

Michael R. Leach -- Chief Financial Officer

Greg, I think it's a little bit all of the above. So I think we continue to win new customers along with gaining continued share with existing customers. We've talked about some of the gains we've had in certain markets this past year and again, I think it's a little bit of a carry forward that -- kind of how we indicated that at the year end as well.

Greg Palm -- Craig-Hallum -- Analyst

And based on the... Go ahead, Dick.

Richard S. Warzala -- Chairman,President and Chief Executive Officer

I would concur with what Mike just said. I mean, that's exactly what it is.

Greg Palm -- Craig-Hallum -- Analyst

And based on the Q1 results, I mean, presumably that makes the Q4 results which were a little bit more disappointing. Probably gives you more confidence that, that was just sort of a onetime kind of inventory adjustment kind of thing -- kind of an anomaly. Is that fair to say?

Richard S. Warzala -- Chairman,President and Chief Executive Officer

Yeah. I think, as we've said after the year end conference call that, we gave a little more color at that point because we felt that was just a blip and we express there at least our thoughts because we're so far down the road here and with the facts and data we had, it would bounce right back. And I think we just shows that, it just -- it did bounce right back. And I think you are correct, there are certain inventory adjustments and pullbacks that occurred at year end, that did account for some of the increase in sales that we saw over year-over-year for first quarter. So I think you are correct.

Greg Palm -- Craig-Hallum -- Analyst

Great. In terms of gross margins, the associated drag from what you call the atypical items, I mean, I guess, should we expect sequential improvement in Q2? It sounded like maybe some improvement starting in Q3, but maybe you can kind of walk us through some additional color there?

Michael R. Leach -- Chief Financial Officer

Sure. I think there will be a little bit of sequential improvements where we talk about the pass through of tooling and prototypes. While we do encounter that from time to time and do see some fluctuations, it was sizable in Q1 and I don't think it'll repeat to that nature again at least in Q2. The issue we've mentioned relative to pricing some of the discontinued production from a supplier, that will take a little bit of time to recover from in the sense that it was a sole source position and replacing that supplier and getting another supplier through a qualification process will take a little bit of time. So I don't think we expect to see a partial recovery from that until probably some time within Q3.

Greg Palm -- Craig-Hallum -- Analyst

Okay. That sounds like you've got your head wrapped around the near-term impact there. And to be clear, the impact from the tooling and prototype samples that you mentioned, that's related to the previously announced vehicle win that's ramping later this year or is that something new?

Richard S. Warzala -- Chairman,President and Chief Executive Officer

No, it's predominantly that.

Greg Palm -- Craig-Hallum -- Analyst

Okay. Shifting gears to TCI. Kind of curious now that you've owned it for another month and a half since the last call. I'm curious, if you can give us some more commentary on the potential growth strategy there and some of the associated revenue synergies that you're looking at?

Richard S. Warzala -- Chairman,President and Chief Executive Officer

Sure. I think nothing much has changed in what we've discussed here in the last month and a half other than gaining some additional understanding of the business and some of the market opportunities for us. TCI is -- we acquired it, we are looking at a diversification strategy and to some other more stable markets, oil and gas is a major market for TCI. And I think as we look at those markets, we also see opportunities where we can leverage other products within Allied Motion. So we're quite excited about that and we're undertaking a project now as TCI already had it on it's radar and was beginning to -- its efforts to work on it that we're also looking at how can we pull along some of the other products that Allied already makes.

So I think we're very encouraged that there will be additional synergies to be realized. And we'll be active and have the opportunity to become competitive in certain areas where we hadn't been in the past. And that's using the footprint of Allied. As we look at the market what's interesting in the market from a market perspective is that, TCI is primarily North America and both the European and Asian markets are bigger than the North American market for their products. So it just kind of gives you the -- puts it in perspective what the potential opportunity is here. And we think it's substantial. We will be working on further leveraging of capabilities within both companies as we've talked about the distribution channel and we talked about our global footprint are the things that we can control, internally we will be working on here.

Greg Palm -- Craig-Hallum -- Analyst

And is there potential to start manufacturing and distributing their product globally at some point this year or is that a longer-term opportunity?

Richard S. Warzala -- Chairman,President and Chief Executive Officer

I say, it's longer term, but we are absolutely now ready, under way and looking at that and getting product designs up to speed and identifying and addressing how we can utilize the footprint to take advantage of that. So it started pretty quickly, but we will not see any impact -- we will see an impact this year, Greg.

Greg Palm -- Craig-Hallum -- Analyst

Okay. Last one for me on TCI and then I'll hop back in the queue. I know they've got -- call it outsized exposure to oil and gas. So I'm curious what you've seen maybe -- end of March, April on the bounce of crude prices, any sort of difference in the order rates for that business?

Michael R. Leach -- Chief Financial Officer

I would say to you that it's pretty stable right now. I mean, it's interesting, you can definitely see the impact, but when you look at it, first quarter, for example, we did have a slight downtick, but we ticked right back up here. So it's pretty stable right now. And I don't think we can expect much change here as we move forward in the year.

Greg Palm -- Craig-Hallum -- Analyst

Okay. All right. Thanks for all the color.

Richard S. Warzala -- Chairman,President and Chief Executive Officer

Thank you.

Operator

(Operator Instructions) Our next question comes from the line of Dick Ryan with Dougherty & Company. Please proceed with your question.

Richard Ryan -- Dougherty & Company. -- Analyst

Thank you. You said there is a couple on the supplier issue since they were sole source. Was this just pricing or volumes from them impacted, that may have worked its way down through your ability to deliver to your customers or is that a threat over the next quarter or two.

Richard S. Warzala -- Chairman,President and Chief Executive Officer

Well, we'll give you a little bit more caller around that. So, it is a fairly significant impact on us. And it came as a surprise, there was no advance warning that there was any indication that they may be considering discontinuing the operation that supplies us. And we were just basically told either pay additional money or you won't get product. And that's not an option. So, we are paying additional money and it's impacting our profitability because of that and of course we are -- as Mike mentioned, working on alternative suppliers, we're well down the path, but you don't just in the markets that we serve -- your don't just change suppliers and just start shipping from the new supplier, you do have to go through a qualification process. That's why it's going to be -- it's going to continue for a certain period of time.

It's unusual, I mean, in all the year that I've been in business in -- this is a rare occurrence where something like this happens, but it just indicates that they have no intention or any desire to be serving those markets anymore. That's what we faced.

Richard Ryan -- Dougherty & Company. -- Analyst

So you're concerned on volume availability for the near term and how readily can you bring on a new supplier? Is this something that's more of a custom sort of assembly or there are other options available?

Richard S. Warzala -- Chairman,President and Chief Executive Officer

There are several options. This is really -- this is the assembly of the circuit board itself. Okay. So we control the components in the supply chain for that. So that's good. What -- I have to -- as I mentioned though, they're still -- if you change a supplier and even if it's just an assembly we have to go back through a requalify process. So that's -- it's not a concern, we have other suppliers that we use and we absolutely have already, the process is well down -- down the path of being proven so forth, but it still takes qualification at the customer level. So that's really what we're working through right now.

And I'd say, we have very limited concern. The alternative supplier is world class and we're moving forward and we're confident that as we get into the third quarter things will be transferred and everything will be fine.

Richard Ryan -- Dougherty & Company. -- Analyst

Okay great. So you talked about new customer wins and solution wins in the discussion on orders, really what is that occurring either in the verticals or is it US versus European?

Richard S. Warzala -- Chairman,President and Chief Executive Officer

Yeah. In the in the verticals, I think as Mike did mention here is, when you're comparing our -- this first quarter versus the prior year, aerospace and defense had a nice uptick and that was -- those were wins that we had in the volume ramping up. Okay. And so, most of our defense work is done in North America. We classified some other things in aerospace and defense, such as commercial aviation and so forth, but really the the big win there -- the big uptick that occurred for us was in, what we'll call, aerospace and defense. There is also -- we did see In medical, and again, volume increases, new customers coming on board, but volume increases in existing customer base as well. So I think it's a very positive sign. We we talk about how we continue to invest in solutions and -- that's certainly impacting our margins, but we -- our overall operating profit when I'm talking to say margins here in this case. But it's -- we see it as absolutely necessary, we have a -- it's a long design in wind cycle, but once we get in it's solid and we're an integrated solution and it's a pretty sticky.

So we continue to see and we'll invest as well in platform solutions that we can leverage into many areas. I did mention investments in electronics and software, that's a really big push within the company. And in the first quarter we brought in a leader for that group. And we are decentralized electronics group and the management of that is a challenge and I think we're getting our hands around it and we are going to continue to invest in that area, Dick, because that is really sticky and those -- and that's what helps us to come up with unique solutions and really create value for our customers.

Richard Ryan -- Dougherty & Company. -- Analyst

Yeah. I think you mentioned in the past the kind of shortage of qualified talent out there. Are you losing any to competitors or is it more a question of just hiring the right talent?

Richard S. Warzala -- Chairman,President and Chief Executive Officer

Well, I think we've been pretty fortunate. Again, mentioning that we have a decentralized approach to the engineering which creates some challenges in itself, but establishing a framework that they can work within and make ensuring they're cooperating, so forth, And that's what new leadership is really focusing and concentrating on. And I would have to say to you, our internal resources where they actually work for us, we have used contractors in the past to fill the gap where we haven't been able to recruit fast enough. But we are not losing internal resources. And we are continuing to add and build and we're working with several universities, we're going to continue to expand that to bring in some bright young talent. We've got a great senior team providing strong leadership and direction and we're also supplementing that with some talent right out of the school.

And so, I think the mix is good, we're going to continue to grow there, we have not lost people in that area. So it's saying, obviously, it's a great place to work, if anyone listening needs a job then it's -- I think we're very pleased and happy with the way our employees do work together here certainly in that area.

Richard Ryan -- Dougherty & Company. -- Analyst

Okay. Great. Thanks, Dick.

Richard S. Warzala -- Chairman,President and Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Brett Kearney with GAMCO Investors. Please proceed with your question.

Brett Kearney -- GAMCO Investors -- Analyst

Hi, guys. Good morning. Thanks for taking my question.

Richard S. Warzala -- Chairman,President and Chief Executive Officer

Thank you, Brett.

Michael R. Leach -- Chief Financial Officer

Good morning.

Brett Kearney -- GAMCO Investors -- Analyst

Just want to ask, as you're looking to build out your electronics and software solutions as you discussed. Started to invest in it this quarter a bit more recently. Is that something you see yourselves doing primarily organically or are there also inorganic component to effectuate that strategy?

Richard S. Warzala -- Chairman,President and Chief Executive Officer

Sure. Well, I would say to you this, we have actively been pursuing and looking at opportunities to acquire a base of business and talent along the way. And I would say to you that, what we found is, is the cost of acquiring companies in that space is very expensive and has been very expensive. And while building it organically and growing it organically may take a little bit longer, we feel very comfortable that we're controlling our destiny, we're building a solid platform that meets emerging needs of the marketplace, then we're not introducing another variable to this subset or subset of products that we're building for different markets and different solutions.

So I think, there is -- we continue to look, but we are not waiting for that right opportunity to fall in our laps. We are taking control of our destiny and we are investing and we're going to continue to invest. And if you had listened to calls and I go back five, six, seven years, we talk about a transition of the company moving away and you heard is say that we're not a motor company, we're not just a motor company anymore, we are really a solution provider. And that's exactly what you're seeing here. And our win are occurring in that area and they are sticky. And so we are going to continue to invest and it's going to -- organic may take longer, but it's in our opinion it's stronger and more secure and we control all the IP and we control the continuation of the platform development and making sure all the pieces work together without introducing another variable which could take some time to figure out how to integrate. So, you will see more of this in the future from us.

Brett Kearney -- GAMCO Investors -- Analyst

That's great. Thanks so much.

Richard S. Warzala -- Chairman,President and Chief Executive Officer

Thank you

Operator

Our next question comes from the line of Edison Chu with G2 Investment Partners. Please proceed with your question.

Josh Goldberg -- G2 Investment Partners -- Analyst

Hi, this is Josh Goldberg for Edison. Can you hear me OK?

Michael R. Leach -- Chief Financial Officer

Hey, Josh.

Richard S. Warzala -- Chairman,President and Chief Executive Officer

Hey, Josh.

Josh Goldberg -- G2 Investment Partners -- Analyst

Hey, guys. I had a few questions, I guess I'll start with, how much did TCI contributed in the quarter in revenue?

Michael R. Leach -- Chief Financial Officer

Again, we don't -- we actually don't break the numbers out by individuals, but I can say that, in this case here it's consistent with what our pro forma showed for the prior year.

Josh Goldberg -- G2 Investment Partners -- Analyst

Consistent in terms of it was flat year-over-year or it was up?

Michael R. Leach -- Chief Financial Officer

Yeah. It was flat.

Josh Goldberg -- G2 Investment Partners -- Analyst

TCI revenues flat. Okay. So if I look at your business then, outside of TCI and your biggest customer, your growth is very strong in the quarter. I calculated north of 30%. Is that accurate?

Richard S. Warzala -- Chairman,President and Chief Executive Officer

I'll let Mike answer that, your calculator is faster than mine. 30% without TCI you are saying. I think we are...

Josh Goldberg -- G2 Investment Partners -- Analyst

And you biggest customer.

Richard S. Warzala -- Chairman,President and Chief Executive Officer

And our biggest customer. I don't know how you would split that out. I mean, generically speaking, I'd say that customer is relatively consistent year-over-year and their volumes maybe up a little bit, so I -- that 30% seems rich to me Josh. I mean, I think we talked about 13% organically without FX. I would not suggest that we saw significant decreases and/or increases out of our largest customers.

Josh Goldberg -- G2 Investment Partners -- Analyst

Okay. Well, I'll take that one offline then. Can you talk a little bit about the growth rates that you're seeing outside of your biggest customer in vehicle. I just want to know how much the Maval acquisition is helping you gain more design wins in that area?

Richard S. Warzala -- Chairman,President and Chief Executive Officer

Okay. So, I think you have two questions or is it -- if we take the last, what I heard, the Maval acquisition and whether it's helping us with design wins. I'll address that first. That was our strategy in buying Maval and looking at that, we were -- we had the ability to take our target markets and our served markets here to provide an integrated solution. And as we've talked and discussed in the past, to start design -- the design process to win the design to prototype and get into production is normally about a two to three year period of time. So I would say to you, we are making good progress, we are absolutely working on designs and we feel confident that in the next few years that we will be selected and certain programs and that we will turn it in production. But if we did not have, it's not one of those items that had an immediate impact and it's continuing to run stable, but there is no major growth occurring from there.

Michael R. Leach -- Chief Financial Officer

At this time.

Josh Goldberg -- G2 Investment Partners -- Analyst

Okay.

Richard S. Warzala -- Chairman,President and Chief Executive Officer

But we are on our design programs right now.

Josh Goldberg -- G2 Investment Partners -- Analyst

Okay. And if it's OK, another one. Almost four months into the year and you guys have not given rate visibility yet into these vehicle programs that you have. Can you give us a little bit sense of the timing of it now. I mean, you've been very vague about it, but maybe we can get a better sense of the timing so that people aren't either too far ahead or too far behind what you're expecting. I know originally you thought mid to late '19, now you're saying late '19 more modest revenue. Is there any changes in those relationships or what's causing changes in that timeline?

Richard S. Warzala -- Chairman,President and Chief Executive Officer

Well. Okay. I think, if I -- we are talking about ramping up later in the year having no really any -- very little impact on revenues and/or earnings. We will be starting here later this year and all the activities that are going on right now to get lines in place and running off of live parts and live lines is ongoing. So we are starting to ramp.

Now there's multiple programs, so that's what I think you have to -- we have to take in consideration here that there's some -- there are multiple programs that we are ramping up and each of them will ramp up at different times. So we start this year, we will have additional programs starting to ramp next year and as I think, I mentioned in the conference call portion of it that, we see ourselves in full production in the 2021 time frame and then continuing for the next six to seven years. And that's $225 million in awards that we talked about, that we have received, we've been awarded and we're working on others. We continue to work on others, but that's kind of what you can expect is that, if you talk about the ramp up periods and it's typically a very slow process to ramp, but full production by 2021, $225 million over six years, there's you number.

Josh Goldberg -- G2 Investment Partners -- Analyst

Okay. So the point is that, by spending so much time and effort and money this year, it actually might hurt your earnings this year as you start ramping the program and then it might be accretive to your earnings next year. But right now you're spending ahead of the ramp.

Richard S. Warzala -- Chairman,President and Chief Executive Officer

We are spending ahead of the ramp. A lot of it is CapEx, a lot of it is...

Josh Goldberg -- G2 Investment Partners -- Analyst

Can you quantify that a little bit. Can you quantify that little bit for us? Sense of how much (Multiple Speakers) CapEx or OpEx, whatever you have?

Richard S. Warzala -- Chairman,President and Chief Executive Officer

Mike you want to jump in on that.

Michael R. Leach -- Chief Financial Officer

Well, I think CapEx last year was in the $15 million range, we're expecting it to be in a similar range this year. I would tell you that -- I'm looking here. 50% of that spend is probably associated with these vehicle market wins. Again, let' be careful, (inaudible) talk about vehicles our off-road ATV type vehicles are -- we're investing in as well for the next generation, but you are right, that doesn't relate to the commercial automotive contract wins.

Josh Goldberg -- G2 Investment Partners -- Analyst

Got it. Last one for me. Obviously, consistent with what Greg Palm brought up before. Going to these conferences you hear in that the industrial space is having a difficult -- more difficult 19s and 18s. I think some of the industry forecasts are growing mid single digits and you guys have outperformed that so far. And I just want to get a little more color in terms of do you see that continue? Are you happy with how March and April played out? It sounds like there was a bounce back in January, but is there a good cadence to your orders now and does the pipeline looks strong? Thanks.

Richard S. Warzala -- Chairman,President and Chief Executive Officer

I think. As we talked about six weeks ago or so we mentioned that we felt good about the way the year was starting off and continuing and we felt confident about the first quarter in terms of the run rates that we were seeing and the bias we're seeing and then I think it is continuing. But, again, we're only four months into the year and we're one month -- six weeks past when we talk to you before, but it is continuing and it is encouraging. And I think Greg did asked questions about which markets and so forth and we talked about -- it's aerospace and defense has been strong force, medical is been strong force and those are markets that take a long time to get design wins and but then they're pretty stable for a long period of time too. So that that is very encouraging.

I would tell you and I think you may have said this when you first started the -- your question or series of questions about our largest customer and so forth. There even though the volumes, OK, may increase in there, there is a continued pressure on price. So I would caution us to think about if you -- even if you hear those volumes are going up, we've been very innovative in working on next generation products so that we could retain the business, but when there are price backs that are -- get backs that are in pricing that we have seen. So you may -- we may look that it's flat from a revenue standpoint, but the unit volume will actually have gone up and margin protection is certainly yes by design, we have to work on that. And this contract manufacturing issue that we have had absolutely impacted that and weided it and that's one of the areas here that we -- as we mentioned, we fell that within third quarter and so forth will be behind us.

Michael R. Leach -- Chief Financial Officer

I'm just going to add to that, I think the statement in the Q. When we talk about customer concentration, I think, which is probably where you're driving your math from Josh. I think it's more about the diversification away from that customer with the addition of TCI that is driving that number than anything.

Josh Goldberg -- G2 Investment Partners -- Analyst

Yeah. I mean, I would just add, in terms of following the company for a couple of years the fact that when you bought Globe Motors that was a big big customer of yours, the vehicle market was so important and now you've been able to diversify away with One Allied approach to really kind of become more of a global supplier of motors. And I think that that's something I think is little bit under appreciated by people who follow the company. Thanks, guys.

Richard S. Warzala -- Chairman,President and Chief Executive Officer

It's a very, very, very good point. And again, I'm going to stress it again. The investment we're making in electronics and software we believe is going to pay big dividends down the road and that's the path of margin improvement. Thanks, Josh.

Operator

Our next question comes from the line of Mike Morales with Walthausen and Company. Please proceed with your question.

Michael Morales -- Walthausen & Co. -- Analyst

Hi. Good morning, guys. And thank you for taking my questions.

Richard S. Warzala -- Chairman,President and Chief Executive Officer

Good morning, Mike.

Michael Morales -- Walthausen & Co. -- Analyst

In the slide deck you call out 90 basis points of the gross margin impact is an atypical events. Could you break that down between the buyer impact and the tooling impact to give us a sense of how this progresses through the years, is that worked out?

Richard S. Warzala -- Chairman,President and Chief Executive Officer

Yeah. I think the slow supplier impacts about two thirds of that.

Michael Morales -- Walthausen & Co. -- Analyst

Okay. And then shifting gears maybe a little bit, it's been in the headlines a little bit more at the USMCA. I'm curious on how you guys are thinking about that impacting the vehicle side of your business? That would be a headwind or a tailwind for you guys and how that's going (inaudible) key business looking forward? Thanks.

Richard S. Warzala -- Chairman,President and Chief Executive Officer

Well. I think there's a couple of factors that come into play there. And one, we absolutely see it as a positive if North American content requirements go up, that I think that plays right into helping us. So that's one area. I mean -- and again we have a -- we're in a situation where we can provide benefit to our customers who have to work to meet those content requirements, then I think that's -- that absolutely plays into our hands. Other than that, if vehicle sales and all the other things get impacted by that, we will be also.

Michael Morales -- Walthausen & Co. -- Analyst

All right. Thank you guys for the color. Appreciate it.

Richard S. Warzala -- Chairman,President and Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Tim Madey with White Pine Capital. Please proceed with your question.

Tim Madey -- White pine capital -- Analyst

Hi, guys. Nice quarter and thanks for taking my questions. As you know, it's pretty new to this story, so I might add some rudimentary questions here that you already answer or can't. But on that $225 million of new business. Could you just characterize that a little bit? What what business type is that and kind of how it ramps over time and then how the margin profile kind of looks as you ramp that out (inaudible) corporate growth or EBITDA?

Richard S. Warzala -- Chairman,President and Chief Executive Officer

Sure. Yeah. And no problem, I think it's probably a good time to refresh everyone's memory on what those project win were. If you go back to when we acquired Globe, we talked about end of life of contracts. That was something we were certainly aware of when we acquired Globe that, they had certain contracts and certain customers that we're going to run out to completion of the contracts. And there was a gap in replacing those contracts to sustain the revenue stream.

I can say that when we can get enough volume into what we'll call our automotive type facilities, that is -- from a operating profit standpoint, it's consistent with the operating profit that we see in other operations. When it's running at a lower level it certainly has an impact. It will have a gross margin impact, so the gross margin is lower. But again, from an operating profit standpoint, we can leverage that -- the high volume, the higher volumes we have there and it will be consistent with an operating profit level.

The ramp up of these wins, you get the win, you get the contract forward and there are several deliverables that have to occur after you get notification of that, there's is a -- they are time phased and that's basically what you go through and getting equipment in place and shipping product off of production equipment, getting it into the field test and so forth. So there's a tough -- the timing that it takes to ramp it up is fairly significant and that's really what you're seeing here.

So we announced the wins, we don't include it in our backlog and that's the important other note. And the reason we don't is, only things that we include in our backlog, even though we have the orders, unless we have a firm production date we do not put them into our backlog number. So that's the one thing. The other, role in the backlog and that'll be considered in order when we get firm production dates. So 2000 -- this year we start, OK, later in the year we start, we are delivering off the first, let's call it, the first award. And then, in next year we'll begin delivering off of other awards and into full rate of production 2021. And as we mentioned $225 million, we say that's going to run over six to seven years, so that's what I just said earlier, you can kind of do the math on that. But I'd also tell you that, it's -- that's not all we were working on, we have others that we're working on and we would expect to gain more as time goes on here too. The other important item to mention is that, we have diversified geographically also, we strongly believe that our footprint gives us a unique competitive advantage in the marketplace and to service the local economies. And when we call local economies, let's say, North America, Asia and Europe. That's really what our footprints allowing us to do and we're getting better and better in leveraging those and smarter in how we utilize the local supply chain and so forth to satisfy those customers, so we're competitive. That gets rid of some tariff issues, gets rid of the logistics issues, the transportation issues and so for.

Tim Madey -- White pine capital -- Analyst

So over time you could see another $20 million roughly added to backlog when you start to get more of that full production ramp?

Richard S. Warzala -- Chairman,President and Chief Executive Officer

Yes.

Tim Madey -- White pine capital -- Analyst

Okay.

Richard S. Warzala -- Chairman,President and Chief Executive Officer

I'll say to you. Yes, at some point when we have visibility on what the actual releases will be and production dates will be, it'll be rolling into the backlog. So you're correct.

Tim Madey -- White pine capital -- Analyst

That kind of -- they gets segway into next kind of question. Looking at your organic growth and I know it's on a macro environment, it's changing all the time. But how do you think about organic growth kind of going forward over the next few years, especially with this type of unrecognized backlog, if you will, already present there in the model? That's a tough one, I know. Maybe you guys don't...

Richard S. Warzala -- Chairman,President and Chief Executive Officer

Well, I'll try to make sure I'm answering your question. So how...

Tim Madey -- White pine capital -- Analyst

(Multiple Speakers) it's going to look like you may over the next 12 months versus next couple of years. How do you think about the organic side of the business?

Richard S. Warzala -- Chairman,President and Chief Executive Officer

Well, all I can say to you is that, we watch it very closely here and we pay close attention to what the macro market is doing and what the impact it could have on us. We have an internal target that we set for ourselves that -- and if you look at our industry and again -- giving you some color about what this industry has done historically. We've seen 3% to 4% growth rates historically. And we've exceed that and that's -- we work very hard to ensure that we are developing the next generation product/platforms that for the markets that we're serving and to continue to have above market growth rates. So -- and that's our goal. I can't sit here and tell you that, that's absolutely guarantee we're going to do that. But I think it's -- we have a track record and that is our internal goal and we focus hard on it. And we will continue to focus on it.

Michael R. Leach -- Chief Financial Officer

But to your point certainly those contract wins in the vehicle market will provide a tailwind to that organic growth rate.

Tim Madey -- White pine capital -- Analyst

And just one last thing on the -- building out the platform, software, electronics, et cetera. How do you think about the right capital structure for the company? Your acquisitions do you think going forward mostly tuck-ins or are they as large as your most recent one and you use a combination of debt or stock or cash. Just generally, I know you can't show your hand too much, but generally how do you think about the capital structure in these acquisitions?

Richard S. Warzala -- Chairman,President and Chief Executive Officer

Yeah. I'll speak and then let I'll Mike add whenever I miss here. But I think we have a -- we have the shelf in place which gives us quite a bit of flexibility going forward in the future. And I think that should indicate that we intend to continue to grow and we'll access whatever markets are necessary, the capital markets necessary to facilitate the growth.

And I think our key here is, pay the right price, don't get no seduced with the wrong acquisition. As I said, the wrong acquisitions are those that are going to put the company at risk or the price is just too high without any strategic -- not strategic benefit to justify it. And we're going to stay disciplined in doing that and we are fortunate that we have -- we feel capital markets available to us to go ahead and continue to support the growth necessary. So, Mike, you might want to add something to that.

Michael R. Leach -- Chief Financial Officer

Yeah. I would just add that our continued growth and size and strength certainly helps us with the increasing flexibility even as it relates to the debt markets above and beyond what Dick talked about in the equity markets. So, again, I think there's some continued flexibility there, hopefully in the future. Again, we have other tools as Dick just mentioned that we can chase to fund future growth as well. And that's not to say that we have a new stock in the past as well. I would just add that, it hasn't been a major component of deals, but we always like to use the small component stock in the deals we do whether that's to retain talent or to create organizational buying with key stakeholders and things to. So I think it's more just a continuation of that mentality from a capital structure standpoint.

Richard S. Warzala -- Chairman,President and Chief Executive Officer

And then I'll give you some more color too, as we talked in the previous question too about, are we going to continue to invest in electronics engineering and software engineering. And the answer is, yes. It's a key element, it integrates everything that we do as a company here and it gives us the opportunity to provide some fairly unique solutions for our customers, it increases reliability, drives down costs. There are so many positive sides of that.

In addition to that, when we looked at companies in that space the multiples that they were commanding and they were getting were not multiples we felt comfortable with. And I'm talking 15 times, 16 times EBITDA and that's not something we felt comfortable playing in. We felt more comfortable that we're here -- we're long term people, we have a long term strategy, we're going to invest in our people and in our strategy and that's better for our shareholders and that's really the approach we've taken.

Tim Madey -- White pine capital -- Analyst

With it EBITDA running last year around $40 million or maybe close to $50 million this year. I mean, what kind of long term -- How do you think about the long term debt returns on EBITDA that you would be willing to take.

Richard S. Warzala -- Chairman,President and Chief Executive Officer

Go ahead, Mike.

Michael R. Leach -- Chief Financial Officer

I mean our current facility keeps us within 3.5 terms with an acquisition holiday. Like I said, I think as we continue to grow and shape and size there may be some more flexibility allowed us, at least, that's my thinking, in that regard and certainly as we approach $50 million EBITDA and above, there's potentially other debt market avenues that we can start thinking about depending on our future trajectory as well.

So, again, I think it's about flexibility, I think we have tools (inaudible) that we haven't used in the past and I think our continued growth is going to continue to add to that in terms of our flexibility.

Tim Madey -- White pine capital -- Analyst

Thanks a lot, guys. Great job.

Richard S. Warzala -- Chairman,President and Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of John Sturges with Oppenheimer and Company. Please proceed with your question.

John Sturges -- Oppenheimer & Company -- Analyst

Yeah. Thank you for taking my call. Roughly four years ago you started is my understanding. You started down the solution path. And I'm just curious what percentage changes have you seen in terms of your revenue stream?

Richard S. Warzala -- Chairman,President and Chief Executive Officer

Sure it's a good question. I would say to you, John, we started talking about it four years ago, but we actually started doing it well before then in different levels where -- when Allied was formed as what we know as Allied Motion today go back 16, 17 years ago now it really was a motor company and we acquired additional motor companies and then we added some gearing capability, we added some feedback capability, we added some -- and along the way we've added some electronics capabilities by small acquisitions and a small acquisition in particular, internal development that we've started, as well as getting pieces of it with a number of -- small pieces of it with a number of acquisitions. So that's developed before, it started before sooner than four years ago, but I would say to you, in the last three to four years is where it's really starting to take traction and the integrated solutions are taking hold and these thing -- and the items we're working on for the future business level -- for future business is greater than 50%. So that's -- it's quite encouraging and it's going to go up. It's absolutely going to go up. And I think the value of the company when you look at it from -- the stickiness in the applications and the software and electronic side of it that is the integrating piece that we use here and our commitment to continue to invest is what is key.

John Sturges -- Oppenheimer & Company -- Analyst

Great. Thank you very much.

Richard S. Warzala -- Chairman,President and Chief Executive Officer

Thank you.

Operator

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to management for closing remarks.

Richard S. Warzala -- Chairman,President and Chief Executive Officer

Well, thank you everyone for a very lively call with many questions. I think it's probably a record this time. So we thank you for your interest in Allied Motion. For those of you who are interested, we will be attending the Craig-Hallum conference in Minneapolis on May 29 and the Keybanc Industrial Conference in Boston on May 30 and new for us, we're going to go international at the Roth Conference in London, England on June 18 and 19. We hope you can join us there. As always, please feel free to reach out to us at any time. And we look forward to talking to you all again after our second quarter results. Thank you for your participation and have a great day.

Operator

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Duration: 59 minutes

Call participants:

Craig Mychajluk -- Investor Relations

Richard S. Warzala -- Chairman,President and Chief Executive Officer

Michael R. Leach -- Chief Financial Officer

Greg Palm -- Craig-Hallum -- Analyst

Richard Ryan -- Dougherty & Company. -- Analyst

Brett Kearney -- GAMCO Investors -- Analyst

Josh Goldberg -- G2 Investment Partners -- Analyst

Michael Morales -- Walthausen & Co. -- Analyst

Tim Madey -- White pine capital -- Analyst

John Sturges -- Oppenheimer & Company -- Analyst

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