Allied Motion Reports First Quarter 2020 Results

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 first quarter ended March 31, 2020. Results include the Dynamic Controls Group (“Dynamic Controls”) acquisition that was completed on March 7, 2020.

Dick Warzala, Chairman and CEO, commented, “The business impact due to COVID-19 started in March and was primarily related to a decline in demand in our Vehicle markets. As we worked through the various issues caused by COVID-19, our first and foremost commitment was to our workforce and to ensure the health and safety of all employees and their families. I personally want to thank our global management team and all our employees who worked tirelessly together to create a safe environment, while at the same time making the necessary adjustments to ensure the needs of our customers were continuing to be met. Wherever possible, our team is working remotely, and our manufacturing operations have continued to produce under stringent practices to protect our employees. I believe we will come out of this crisis stronger and better than ever as we operate within the guiding principles of our One Allied Culture and the focus provided by our Long-Term Strategy.”

Mr. Warzala continued, “Our first quarter results were relatively solid as we benefitted from the acquisition of Dynamic Controls and the diversity of the markets we serve. Our global operations worked closely together to ensure we responded quickly to the rapidly evolving situation and to meet the significant increases in demand for several of our products supplied to the medical market. To ensure we meet short term demand, we have built inventory in some facilities to address potential temporary closures and we are working closely with our supply chains to ensure critical materials are available, when needed. We also remain intently focused on the long term strength and viability of our company, with an increased emphasis on cash conservation, adjusting our variable cost structure to align with market changes, maintaining strong discipline over fixed costs, retaining our critical talent, and keeping our team focused on securing several new project opportunities as well as launching several new growth-oriented product platforms. While this unparalleled situation with the novel coronavirus pandemic has tested Allied’s global response capabilities, our team has done an excellent job creating safe work environments, operating remotely, supporting customers’ needs, addressing costs and keeping our eye on the future.”

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

Revenue of $92.4 million was down 1.6%, and reflected lower sales to the Vehicle market, partially offset by growth in Industrial and Medical, which included contributions from Dynamic Controls. Excluding foreign currency translation, which had a $1.4 million unfavorable impact, revenue was in line with the prior-year period. Organic revenue declined 2.8% in the 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 expanded 90 basis points to 30.4%, in large part due to productivity and improved mix across a number of served markets, including the favorable impact of Dynamic Controls.

Operating costs and expenses were up $1.0 million, or 23.1% of revenue, largely due to the incremental expenses related to the Dynamic Controls acquisition and associated business development costs. As a result, operating income decreased 8.4% to $6.7 million and operating margin declined 50 basis points to 7.3%.

First quarter net income was $4.0 million, or $0.42 per diluted share, compared with $4.5 million, or $0.48 per diluted share. Excluding business development costs, adjusted net income for the 2020 first quarter was $4.2 million, or $0.44 per diluted share. See the attached table for a description of non-GAAP financial measures and reconciliation table for Adjusted Net Income and Diluted Earnings per Share.

Earnings before interest, taxes, depreciation, amortization, stock compensation expense and business development costs (“Adjusted EBITDA”) was $11.4 million for the first quarter compared with $11.7 million in 2019. As a percent of sales, Adjusted EBITDA remained relatively consistent at 12.4% versus the first quarter of 2019. 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.

Customers and Supply Chain: Allied Motion operations continue as supplier for critical industries

• One Allied approach to simplify interaction with customers enables seamless continuity for receiving orders and requests for quotes in all regions.
• Allied Motions’ global operations provide equipment used to support critical industries including medical, defense and agriculture qualifying the Company as an essential supplier. As a result, Allied Motion’s manufacturing facilities remain operational at this time. Staffing is being adjusted based on the demand in the operations.
• Where needed, modifications to processes have been made to accommodate for sufficient social distance and additional cleaning protocols have been implemented. China operations were back to full capacity by early March.
• Supply chain in China has mostly recovered. At this time, supply chains in the U.S. and Europe are functioning.

Liquidity and Balance Sheet: Recent refinancing provides financial flexibility

• Cash and cash equivalents at quarter end were $20.4 million compared with $13.4 million at the end of 2019.
• Refinanced lending agreement in February 2020:
  • Expanded capacity nearly 30%, or $50 million, to $225 million
  • Accordion feature allows expansion of additional $75 million
  • Increased leverage coverage ratio of net debt/EBITDA by 0.5x to 3.5x
• Total debt as of March 31, 2020 increased by $26.5 million to $136.2 million from the end of 2019, and reflects funds used to make the Dynamic Controls acquisition.
• Debt, net of cash, was $115.9 million, or 48.8% net debt to net capitalization.
• Capital expenditures for the quarter were $1.7 million. The Company will control capital expenditures in 2020 to a range of $10 million to $12 million that enables key projects to move forward and defers lower priority activities.
• To conserve cash while supporting growth plans, Allied is aligning variable costs with demand, maintaining key engineering capabilities, freezing hiring activity and wages and tightly controlling discretionary spending.

Mike Leach, Chief Financial Officer, commented, “We have continued to demonstrate that our business is capable of generating significant cash from operations. We are being proactive in conserving cash during this downturn while preserving the talent and infrastructure needed to drive future growth potential and to continue to gain market share.”

Orders and Backlog Summary ($ in thousands)
		Q1 2020			Q4 2019			Q3 2019			Q2 2019			Q1 2019
Orders		$	92,923		$	86,315		$	90,726		$	95,317		$	93,744
Backlog		$	133,187		$	124,950		$	125,821		$	133,507		$	130,646

Foreign currency translation had an unfavorable $1.3 million impact on first 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 previously announced new Vehicle market awards is currently included in backlog. The Company has begun shipments at very low levels for the first of three seven-year awards totaling $225 million. With the COVID-19 situation, Allied Motion now expects production for these projects to remain flat through 2020 and begin to regain traction in 2021.

Conference Call and Webcast

The Company will host a conference call and webcast on Thursday, May 7, 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 [phone]. 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, May 14, 2020. To listen to the archived call, dial [phone] and enter replay pin number 13700691 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 http://www.alliedmotion.com/.

Safe Harbor Statement

The statements in this news release and in the Company’s May 7, 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 March 31,
		2020				2019
Revenue		$	92,382			$	93,896
Cost of goods sold			64,340				66,234
Gross profit			28,042				27,662
Operating costs and expenses:
Selling			4,243				4,093
General and administrative			9,162				8,950
Engineering and development			6,234				5,807
Business development			247				53
Amortization of intangible assets			1,441				1,432
Total operating costs and expenses			21,327				20,335
Operating income			6,715				7,327
Other expense (income):
Interest expense			1,054				1,180
Other expense (income), net			59				(18	)
Total other expense, net			1,113				1,162
Income before income taxes			5,602				6,165
Provision for income taxes			(1,567	)			(1,695	)
Net income		$	4,035			$	4,470
Basic earnings per share:
Earnings per share		$	0.43			$	0.48
Basic weighted average common shares			9,453				9,340
Diluted earnings per share:
Earnings per share		$	0.42			$	0.48
Diluted weighted average common shares			9,516				9,375
Net income		$	4,035			$	4,470
Foreign currency translation adjustment			(2,428	)			(887	)
Loss on derivatives			(1,088	)			(262	)
Comprehensive income		$	519			$	3,321

ALLIED MOTION TECHNOLOGIES INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) (Unaudited)
		March 31, 2020				December 31, 2019
Assets
Current assets:
Cash and cash equivalents		$	20,383			$	13,416
Trade receivables, net of allowance for doubtful accounts of $462 and $405 at March 31, 2020 and December 31, 2019, respectively			55,420				44,429
Inventories			60,090				53,385
Prepaid expenses and other assets			4,858				4,413
Total current assets			140,751				115,643
Property, plant and equipment, net			52,973				53,008
Deferred income taxes			650				490
Intangible assets, net			68,287				62,497
Goodwill			59,082				52,935
Right of use assets			18,221				16,420
Other long-term assets			4,026				4,835
Total Assets		$	343,990			$	305,828
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	31,299			$	23,640
Accrued liabilities			22,024				23,001
Total current liabilities			53,323				46,641
Long-term debt			136,244				109,765
Deferred income taxes			5,120				3,399
Pension and post-retirement obligations			5,115				5,139
Right of use liabilities			14,684				13,715
Other long-term liabilities			7,811				7,975
Total liabilities			222,297				186,634
Stockholders’ Equity:
Common stock, no par value, authorized 50,000 shares; 9,711 and 9,599 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively			39,406				37,136
Preferred stock, par value $1.00 per share, authorized 5,000 shares; no shares issued or outstanding			-				-
Retained earnings			96,334				92,589
Accumulated other comprehensive loss			(14,047	)			(10,531	)
Total stockholders’ equity			121,693				119,194
Total Liabilities and Stockholders’ Equity		$	343,990			$	305,828

ALLIED MOTION TECHNOLOGIES INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
		For the three months ended
		March 31,
		2020				2019
Cash Flows From Operating Activities:
Net income		$	4,035			$	4,470
Adjustments to reconcile net income to net cash used in
operating activities
Depreciation and amortization			3,750				3,659
Deferred income taxes			(488	)			(297	)
Stock compensation expense			789				674
Debt issue cost amortization recorded in interest expense			38				43
Other			72				347
Changes in operating assets and liabilities, net of acquisition:
Trade receivables			(7,463	)			(10,941	)
Inventories			(3,978	)			1,291
Prepaid expenses and other assets			275				(161	)
Accounts payable			3,043				490
Accrued liabilities			(3,039	)			(2,014	)
Net cash used in operating activities			(2,966	)			(2,439	)
Cash Flows From Investing Activities:
Purchase of property and equipment			(1,696	)			(2,505	)
Cash paid for acquisitions, net of cash acquired			(14,541	)			-
Net cash used in investing activities			(16,237	)			(2,505	)
Cash Flows From Financing Activities:
Borrowings on long term debt			26,979				6,568
Dividends paid to stockholders			-				-
Payment of debt issuance costs			(401	)			-
Stock transactions under employee benefit stock plans			(256	)			(63	)
Net cash provided by financing activities			26,322				6,505
Effect of foreign exchange rate changes on cash			(152	)			(50	)
Net increase in cash and cash equivalents			6,967				1,511
Cash and cash equivalents at beginning of period			13,416				8,673
Cash and cash equivalents at end of period		$	20,383			$	10,184

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

In addition to reporting net income, a U.S. generally accepted accounting principle (“GAAP”) measure, the Company presents Revenue excluding foreign currency exchange rate impacts and Adjusted EBITDA (earnings before interest, income taxes (benefit), depreciation and amortization, stock 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 Adjusted EBITDA is often a useful measure of a Company’s operating performance and is 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. Adjusted EBITDA does 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 months ended March 31, 2020 is as follows:

		Three Months Ended
		March 31, 2020
Revenue as reported		$	92,382
Foreign currency translation			1,423
Revenue excluding foreign currency translation		$	93,805

The Company’s calculation of Adjusted EBITDA for the three months ended March 31, 2020 and 2019 is as follows:

		Three Months Ended
		March 31,
			2020			2019
Net income		$	4,035		$	4,470
Interest expense			1,054			1,180
Provision for income tax			1,567			1,695
Depreciation and amortization			3,750			3,659
EBITDA			10,406			11,004
Stock compensation expense			789			674
Business development costs			247			53
Adjusted EBITDA		$	11,442		$	11,731

ALLIED MOTION TECHNOLOGIES INC.
Reconciliation of GAAP Net Income and Diluted Earnings per Share to
Non-GAAP Adjusted Net 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 months ended March 31, 2020 and 2019 is as follows:

	Three Months Ended
	March 31,
	2020			Per diluted share			2019			Per diluted share
Net income as reported	$	4,035		$	0.42		$	4,470		$	0.48
Non-GAAP adjustments, net of tax
Business development costs		178			0.02			38			0.00
Adjusted net income and diluted EPS	$	4,213		$	0.44		$	4,508		$	0.48
Weighted average diluted shares outstanding					9,516						9,375

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.

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