Allied Motion Reports Third Quarter 2020 Results

Rhea-AI Summary

Allied Motion Technologies Inc. (Nasdaq: AMOT) reported Q3 2020 revenue of $94.7 million, down 2% year-over-year, largely due to the pandemic's impact, although strong demand in Medical markets surged over 60%. Sequentially, revenue increased 9% driven by a rebound in the Vehicle market. Gross margin decreased to 29.7%, while net income fell to $4.0 million, or $0.42 per diluted share. Operating income decreased to $6.5 million, and adjusted EBITDA was $11.2 million. Cash flow improved, with $20.2 million in cash, highlighting a proactive approach to debt repayment amid ongoing COVID-19 challenges.

Positive

• Medical market revenue increased over 60%, offsetting declines in other markets.
• Sequential revenue growth of 9% indicates recovery in Vehicle market.
• Cash and cash equivalents rose to $20.2 million from $13.4 million at year-end 2019.
• Reduced debt by $4.4 million during the quarter, enhancing financial strength.

Negative

• Overall revenue declined 2% year-over-year.
• Gross margin decreased to 29.7% from 31.1% in Q3 2019.
• Net income fell to $4.0 million from $4.6 million in the prior year.

AMHERST, N.Y.--(BUSINESS WIRE)--Allied Motion Technologies Inc. (Nasdaq: AMOT) (“Allied Motion” or “Company”), a designer and manufacturer that sells precision and specialty controlled motion products and solutions to the global market, today reported financial results for its third quarter ended September 30, 2020. Results include the Dynamic Controls Group (“Dynamic Controls”) acquisition that was completed on March 7, 2020.

“Our global team continues to perform very well in the face of uncertainty. Our third quarter results demonstrated the tremendous focus and dedication of our employees and is reflective of our diverse market channel strategy. Continued strong demand in our Medical market and a rebound in our Vehicle market were met with superior execution, resulting in sales growth of 9% sequentially, and nearly offset the impact of the pandemic on our other markets on a year-over-year basis for the third quarter,” commented Dick Warzala, Chairman and CEO. “We continued to improve our financial strength, generating cash to pay down debt while making the necessary investments to drive momentum and emerge in an even stronger position.”

He added, “Given the recent global uptick in COVID-19 positive test results, we remain diligent in our actions to ensure the ongoing safety of our workforce, and we continue to closely monitor the potential impacts on our business and our served markets. Moving forward, we will continue to focus on areas that we can control, including proactive new product development to address the emerging needs of our served markets, optimally meeting the requirements of several new project opportunities, and last, but not least, utilizing our AST Toolkit to drive continuous improvement in all areas of our business.”

Third Quarter 2020 Results (Narrative compares with prior-year period unless otherwise noted)

Revenue of $94.7 million was down 2%, reflecting lower sales to most markets given the ongoing impact from the pandemic. Mostly offsetting that decline was strong demand in the Medical markets, which increased more than 60% and included the contribution from Dynamic Controls. The third quarter also benefited from a strong rebound in the Vehicle market. When compared with the second quarter of 2020, revenue increased 9% driven by a very strong and measurable increase in demand in the Vehicle market. The impact of foreign currency exchange rate fluctuations was favorable by $1.8 million for the third quarter. Revenue excluding the effect of foreign currency translation is a non-GAAP measure. The Company believes this measure is useful for analyzing organic sales results. See the attached table for a description of non-GAAP financial measures and reconciliation of Revenue to Revenue excluding foreign currency translation.

Gross margin in the quarter was 29.7% compared with 31.1% in the third quarter of 2019. The change reflects lower revenue and an unfavorable mix.

Operating costs and expenses as a percent of revenue were 22.9%, up 100 basis points, largely due to lower revenue and incremental expenses related to Dynamic Controls. As a result, operating income declined to $6.5 million or 6.8% of sales. Operating margin expanded 100 basis points sequentially from operating leverage on higher volume.

Third quarter net income was $4.0 million, or $0.42 per diluted share, compared with $4.6 million, or $0.49 per diluted share, in the 2019 third quarter. The effective tax rate for the quarter was 25.4%. Allied Motion expects its income tax rate for full year 2020 to range between 27% to 29%.

Earnings before interest, taxes, depreciation, amortization, stock-based compensation expense, business development costs, and non-income based tax assessment (“Adjusted EBITDA”) was $11.2 million for the third quarter compared with $13.6 million in 2019. As a percent of sales, Adjusted EBITDA was 11.8% versus 14.1%. The Company believes that, when used in conjunction with measures prepared in accordance with U.S. generally accepted accounting principles, Adjusted EBITDA, which is a non-GAAP measure, helps in the understanding of its operating performance. See the attached table for a description of non-GAAP financial measures and reconciliation table for Adjusted EBITDA.

Year-to-Date 2020 Results (Narrative compares with prior-year period unless otherwise noted)

Revenue of $273.7 million was down $9.5 million, or 3%, reflecting strong growth in Medical of almost 60%, which was offset by a decline in demand in all other market verticals resulting from the global economic impact of the COVID-19 pandemic. The impact of FX fluctuations was unfavorable $1.0 million for the year-to-date period. Sales to U.S. customers were 53% of total sales compared with 57% for the same period last year, with the balance of sales to customers primarily in Europe, Canada and Asia.

Gross margin was 30.2% compared with 30.4% in the 2019 period as productivity, cost containment efforts and the favorable impact of Dynamic Controls helped to mostly offset the impact of lower revenue.

Operating costs and expenses as a percent of revenue were 23.5%, up 150 basis points, largely driven by the addition of Dynamic Controls and higher business development costs. As a result, operating margin declined 170 basis points to 6.7%.

Net income of $10.9 million declined $2.6 million, while adjusted EBITDA was $32.7 million, or 11.9% of sales, compared with $37.5 million or 13.3% of sales.

Balance Sheet and Cash Flow Review

Cash and cash equivalents were $20.2 million compared with $13.4 million at the end of 2019. The Company generated net cash from operations of $8.4 million in the third quarter and $15.0 million for the year-to-date period.

In the quarter, the Company paid down $4.4 million in debt with no incremental borrowings. At the end of the quarter total debt was $124.4 million. Compared with year-end 2019, total debt was up $14.6 million, reflecting $26 million in borrowings to acquire Dynamic Controls in March 2020. Debt, net of cash, was $104.2 million, or 43.7% of net debt to capitalization.

Year-to-date capital expenditures were $6.6 million. As a result of the decision to delay certain projects, capital expenditures for full year 2020 were adjusted down to range between $9 million to $11 million from the previous range of $10 million to $12 million. This level continues to enable all key projects to move forward, while deferring lower priority activities.

Orders and Backlog Summary ($ in thousands)

		Q3 2020			Q2 2020			Q1 2020			Q4 2019			Q3 2019
Orders		$	88,958		$	80,365		$	92,923		$	86,315		$	90,726
Backlog		$	123,700		$	127,701		$	133,187		$	124,950		$	125,821

Foreign currency translation had a favorable $1.7 million impact on third quarter orders compared with the prior-year period. The time to convert the majority of backlog to sales is approximately three to six months. A nominal amount of the previously announced $325 million of Vehicle market awards is currently included in backlog. The Company has begun shipments at very low levels for the first of four, seven-year awards, though given the COVID-19 situation, production for the initial projects are not expected to gain traction until 2021.

Conference Call and Webcast

The Company will host a conference call and webcast on Thursday, November 5, 2020 at 10:00 am ET. During the conference call, management will review the financial and operating results and discuss Allied Motion’s corporate strategy and outlook. A question and answer session will follow.

To listen to the live call, dial (201) 689-8263. In addition, the webcast and slide presentation may be found at: www.alliedmotion.com/investor-relations

A telephonic replay will be available from 1:00 pm ET on the day of the call through Thursday, November 12, 2020. To listen to the archived call, dial (412) 317-6671 and enter replay pin number 13710949 or access the webcast replay via the Company’s website. A transcript will also be posted to the website once available.

About Allied Motion Technologies Inc.

Allied Motion (Nasdaq: AMOT) designs, manufactures and sells precision and specialty controlled motion products and solutions used in a broad range of industries within our major served markets, which include Vehicle, Medical, Aerospace & Defense, and Industrial. Headquartered in Amherst, NY, the Company has global operations and sells into markets across the United States, Canada, South America, Europe and Asia.

Allied Motion is focused on controlled motion applications and is known worldwide for its expertise in electro-magnetic, mechanical and electronic motion technology. Its products include brush and brushless DC motors, brushless servo and torque motors, coreless DC motors, integrated brushless motor-drives, gear motors, gearing, modular digital servo drives, motion controllers, incremental and absolute optical encoders, active (electronic) and passive (magnetic) filters for power quality and harmonic issues, and other controlled motion-related products.

The Company’s growth strategy is focused on being the controlled motion solutions leader in its selected target markets by leveraging its “technology/know how” to develop integrated precision solutions that utilize multiple Allied Motion technologies to “change the game” and create higher value solutions for its customers. The Company routinely posts news and other important information on its website at www.alliedmotion.com.

Safe Harbor Statement

The statements in this news release and in the Company’s November 5, 2020 conference call that relate to future plans, events or performance are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements. Examples of forward-looking statements include, among others, statements the Company makes regarding expected operating results, anticipated levels of capital expenditures, the Company’s belief that it has sufficient liquidity to fund its business operations, and expectations with respect to the conversion of backlog to sales. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on the Company’s current beliefs, expectations and assumptions regarding the future of the Company’s business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of the Company’s control. The Company’s actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, general economic and business conditions, conditions affecting the industries served by the Company and its subsidiaries, conditions affecting the Company's customers and suppliers, competitor responses to the Company's products and services, the overall market acceptance of such products and services, the pace of bookings relative to shipments, the ability to expand into new markets and geographic regions, the success in acquiring new business, the impact of changes in income tax rates or policies, the severity, magnitude and duration of the COVID-19 pandemic, including impacts of the pandemic and of businesses’ and governments’ responses to the pandemic on our operations and personnel, and on commercial activity and demand across our and our customers’ businesses, and on global supply chains; our inability to predict the extent to which the COVID-19 pandemic and related impacts will continue to adversely impact our business operations, financial performance, results of operations, financial position, the prices of our securities and the achievement of our strategic objectives and other factors disclosed in the Company's periodic reports filed with the Securities and Exchange Commission. Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise over time, and it is not possible for us to predict the occurrence of those matters or the manner in which they may affect us. The Company has no obligation or intent to release publicly any revisions to any forward looking statements, whether as a result of new information, future events, or otherwise.

FINANCIAL TABLES FOLLOW

ALLIED MOTION TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share data)
(Unaudited)
		For the three months ended								For the nine months ended
		September 30,								September 30,
		2020				2019				2020				2019
Revenue		$	94,653			$	96,633			$	273,696			$	283,159
Cost of goods sold			66,513				66,603				191,054				197,045
Gross profit			28,140				30,030				82,642				86,114
Operating costs and expenses:
Selling			3,734				4,144				11,819				12,373
General and administrative			10,008				9,932				28,880				28,451
Engineering and development			6,434				5,705				18,865				17,188
Business development			8				8				432				64
Amortization of intangible assets			1,499				1,429				4,423				4,291
Total operating costs and expenses			21,683				21,218				64,419				62,367
Operating income			6,457				8,812				18,223				23,747
Other expense:
Interest expense			844				1,359				2,799				3,974
Other expense, net			231				140				307				121
Total other expense, net			1,075				1,499				3,106				4,095
Income before income taxes			5,382				7,313				15,117				19,652
Provision for income taxes			(1,369	)			(2,695	)			(4,173	)			(6,119	)
Net income		$	4,013			$	4,618			$	10,944			$	13,533
Basic earnings per share:
Earnings per share		$	0.42			$	0.49			$	1.15			$	1.44
Basic weighted average common shares			9,514				9,414				9,487				9,390
Diluted earnings per share:
Earnings per share		$	0.42			$	0.49			$	1.15			$	1.43
Diluted weighted average common shares			9,579				9,464				9,539				9,435
Net income		$	4,013			$	4,618			$	10,944			$	13,533
Foreign currency translation adjustment			3,433				(2,369	)			2,937				(2,708	)
Gain (loss) on derivatives			70				(105	)			(1,347	)			(803	)
Comprehensive income		$	7,516			$	2,144			$	12,534			$	10,022

ALLIED MOTION TECHNOLOGIES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
		September 30,				December 31,
		2020				2019
Assets
Current assets:
Cash and cash equivalents		$	20,227			$	13,416
Trade receivables, net of provision for credit losses of $580 and allowance for doubtful accounts of $405 at September 30, 2020 and December 31, 2019, respectively			51,265				44,429
Inventories			61,643				53,385
Prepaid expenses and other assets			6,620				4,413
Total current assets			139,755				115,643
Property, plant and equipment, net			54,058				53,008
Deferred income taxes			895				490
Intangible assets, net			66,366				62,497
Goodwill			60,460				52,935
Right of use assets			18,115				16,420
Other long-term assets			4,202				4,835
Total Assets		$	343,851			$	305,828
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	29,312			$	23,640
Accrued liabilities			22,821				23,001
Total current liabilities			52,133				46,641
Long-term debt			124,387				109,765
Deferred income taxes			4,721				3,399
Pension and post-retirement obligations			5,229				5,139
Right of use liabilities			14,643				13,715
Other long-term liabilities			8,346				7,975
Total liabilities			209,459				186,634
Stockholders’ Equity:
Common stock, no par value, authorized 50,000 shares; 9,757 and 9,599 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively			40,674				37,136
Preferred stock, par value $1.00 per share, authorized 5,000 shares; no shares issued or outstanding			—				—
Retained earnings			102,659				92,589
Accumulated other comprehensive loss			(8,941	)			(10,531	)
Total stockholders’ equity			134,392				119,194
Total Liabilities and Stockholders’ Equity		$	343,851			$	305,828

ALLIED MOTION TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
		For the nine months ended
		September 30,
		2020				2019
Cash Flows From Operating Activities:
Net income		$	10,944			$	13,533
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization			11,682				11,071
Deferred income taxes			(931	)			(563	)
Stock-based compensation expense			2,640				2,374
Debt issue cost amortization recorded in interest expense			109				131
Other			360				581
Changes in operating assets and liabilities, net of acquisition:
Trade receivables			(2,136	)			(13,643	)
Inventories			(4,575	)			1,664
Prepaid expenses and other assets			(725	)			(232	)
Accounts payable			492				(727	)
Accrued liabilities			(2,840	)			2,815
Net cash provided by operating activities			15,020				17,004
Cash Flows From Investing Activities:
Purchase of property and equipment			(6,560	)			(9,280	)
Cash paid for acquisitions, net of cash acquired			(14,728	)			—
Net cash used in investing activities			(21,288	)			(9,280	)
Cash Flows From Financing Activities:
Borrowings on long term debt			26,979				9,091
Principal payments of long-term debt			(12,299	)			(15,000	)
Payment of debt issuance costs			(401	)			—
Dividends paid to stockholders			(875	)			(887	)
Stock transactions under employee benefit stock plans			(814	)			(717	)
Net cash provided by (used in) financing activities			12,590				(7,513	)
Effect of foreign exchange rate changes on cash			489				(306	)
Net increase (decrease) in cash and cash equivalents			6,811				(95	)
Cash and cash equivalents at beginning of period			13,416				8,673
Cash and cash equivalents at end of period		$	20,227			$	8,578

ALLIED MOTION TECHNOLOGIES INC.
Reconciliation of Non-GAAP Financial Measures
(In thousands)
(Unaudited)

In addition to reporting revenue and net income, which are U.S. generally accepted accounting principle (“GAAP”) measures, the Company presents Revenue excluding foreign currency exchange rate impacts, and EBITDA and Adjusted EBITDA (earnings before interest, income taxes, depreciation and amortization, stock-based compensation expense, business development costs, and non-income based tax assessment), which are non-GAAP measures.

The Company believes that Revenue excluding foreign currency exchange rate impacts is a useful measure in analyzing organic sales results. The Company excludes the effect of currency translation from revenue for this measure because currency translation is not under management’s control, is subject to volatility and can obscure underlying business trends. The portion of revenue attributable to currency translation is calculated as the difference between the current period revenue and the current period revenue after applying foreign exchange rates from the prior period.

The Company believes EBITDA and Adjusted EBITDA are often a useful measure of a Company’s operating performance and are a significant basis used by the Company’s management to evaluate and compare the core operating performance of its business from period to period by removing the impact of the capital structure (interest), tangible and intangible asset base (depreciation and amortization), taxes, stock-based compensation expense, business development costs related to acquisitions, and other items that are not indicative of the Company’s core operating performance. EBITDA and Adjusted EBITDA do not represent and should not be considered as an alternative to net income, operating income, net cash provided by operating activities or any other measure for determining operating performance or liquidity that is calculated in accordance with generally accepted accounting principles.

The Company’s calculation of Revenue excluding foreign currency exchange impacts for the three and nine months ended September 30, 2020 is as follows:

		Three Months Ended				Nine Months Ended
		September 30, 2020				September 30, 2020
Revenue as reported		$	94,653			$	273,696
Currency impact			(1,833	)			971
Revenue excluding foreign currency exchange impacts		$	92,820			$	274,667

The Company’s calculation of Adjusted EBITDA for the three and nine months ended September 30, 2020 and 2019 is as follows:

		Three Months Ended September 30,						Nine Months Ended September 30,
		2020			2019			2020			2019
Net income		$	4,013		$	4,618		$	10,944		$	13,533
Interest expense			844			1,359			2,799			3,974
Provision for income taxes			1,369			2,695			4,173			6,119
Depreciation and amortization			4,055			3,744			11,682			11,071
EBITDA			10,281			12,416			29,598			34,697
Stock-based compensation expense			920			833			2,640			2,374
Business development costs			8			8			432			64
Non-income based tax assessment			-			384			-			384
Adjusted EBITDA		$	11,209		$	13,641		$	32,670		$	37,519

ALLIED MOTION TECHNOLOGIES INC.
Reconciliation of GAAP Net Income and Diluted Earnings per Share to
Non-GAAP Adjusted Net Income and Diluted Earnings per Share
(In thousands, except per share data)
(Unaudited)

The Company’s calculation of Adjusted net income and Adjusted diluted earnings per share for the three and nine months ended September 30, 2020 and 2019 is as follows:

		Three Months Ended												Nine Months Ended
		September 30,												September 30,
		2020			Per diluted share			2019			Per diluted share			2020			Per diluted share			2019			Per diluted share
Net income as reported		$	4,013		$	0.42		$	4,618		$	0.49		$	10,944		$	1.15		$	13,533		$	1.43
Non-GAAP adjustments, net of tax
Non-income based tax assessment			-			-			384			0.04			-			-			384			0.04
Income tax provision charge			-			-			433			0.05			-			-			433			0.05
Business development costs			6			0.00			-			-			313			0.03			-			-
Adjusted net income and diluted EPS		$	4,019		$	0.42		$	5,435		$	0.57		$	11,257		$	1.18		$	14,350		$	1.52
Weighted average diluted shares outstanding						9,579						9,464						9,539						9,435

Adjusted net income and diluted EPS are defined as net income as reported, adjusted for unusual non-recurring items. Adjusted net income and diluted EPS are not a measure determined in accordance with generally accepted accounting principles in the United States, commonly known as GAAP, and may not be comparable to the measure as used by other companies. Nevertheless, the Company believes that providing non-GAAP information, such as adjusted net income and diluted EPS are important for investors and other readers of the Company’s financial statements and assists in understanding the comparison of the current quarter’s and current year’s net income and diluted EPS to the historical periods’ net income and diluted EPS.