Allied Motion Reports Record Gross Margin of 32.4% on Revenue of $122.7 Million in Second Quarter 2022

Allied Motion Technologies Inc. (Nasdaq: AMOT) (“Allied Motion” or “Company”), a designer and manufacturer of precision and specialty controlled motion products and solutions for the global market, today reported financial results for its second quarter ended June 30, 2022. Results include the three acquisitions completed during the fourth quarter of 2021, and more recently, the acquisitions of ThinGap on May 24, 2022, FPH Group on May 30, 2022, and Airex, LLC on June 17, 2022.

“Strong execution that is aligned with our strategy continues to drive our results. Second quarter revenue reached a record level as our teams have done a tremendous job meeting customer demand despite the ongoing supply chain disruptions. We also overcame a sizable FX headwind during the quarter, generating strong organic growth,” commented Dick Warzala, Chairman and CEO. “Our sales highlights were within our Industrial market, which increased 40% year-over-year from new solution offerings, both organically developed and acquired. Also contributing was strong growth in our Aerospace & Defense markets, largely aided by recent acquisitions.

“The improvement in our gross margin performance is consistent with our stated objectives as we achieved a record level of 32.4%, which is up significantly for both the year-over-year and sequential period. Even at the operating level, our performance was solid as we have continued to invest for future growth.”

Mr. Warzala added, “Looking further out, order patterns have remained favorable, and our strong backlog continues to provide a solid foundation for the future. Additionally, the three acquisitions completed in the second quarter of 2022 are collectively expected to be accretive to gross margins and earnings. When combined with the three acquisitions completed at the end of 2021, we have now added approximately $100 million annually of new business to our platform that will be fully realized in 2023 with a measurably higher margin profile. Equally importantly, we have strengthened our competitive position in several target markets and are now working hard to leverage these investments to drive further sales synergies across our business lines. We remain highly confident in our ability to enhance both our top and bottom-line performance in the future.”

Second Quarter 2022 Results (Narrative compares with prior-year period unless otherwise noted)

Revenue increased 21% to a record $122.7 million and reflected higher demand across Industrial, Aerospace & Defense and Distribution markets, while Medical and Vehicle were slightly lower than the year ago period. Excluding the unfavorable impact of foreign currency exchange rate fluctuations on revenue of $5.2 million, revenue was up 26% and organic growth was 10%. Sales to U.S. customers were 58% of total sales compared with 55% in the same period last year, with the balance of sales to customers primarily in Europe, Canada and Asia-Pacific. See the attached table for a description of non-GAAP financial measures and reconciliation of revenue excluding foreign currency exchange rate fluctuations.

Industrial markets were up 40% in the quarter, benefitting from new solutions offerings, acquisitions and continued economic recovery in broader end market verticals, including industrial automation, oil & gas, material handling, HVAC, and instrumentation. Acquisitions also contributed to the Aerospace & Defense market, which doubled from the year ago period. Partially offsetting were lower sales in the Vehicle markets of 3% largely due to broad supply chain challenges within commercial automotive, and Medical markets which declined less than 1% due to the lapping of a strong prior-year period that was still benefiting in a greater way from pandemic related sales.

Gross margin was 32.4%, a record level, and up 170 basis points from the second quarter of 2021 as higher volume, pricing and margin accretive acquisitions more than offset continued global supply chain disruptions, rising material and labor costs, and non-cash acquisition costs.

Operating costs and expenses were 26.3% of revenue, up 220 basis points, of which 100 basis points was attributable to higher business development costs of $1.2 million in support of the recent M&A activity. Also contributing to the operating cost increase were higher engineering and development costs of approximately 90 basis points, and amortization expense of 70 basis points, largely due to the three acquisitions completed during the second quarter of 2022. The increase was partially offset by lower general and administrative expenses as a percent of revenue due to operating leverage. As a result, operating income was $7.5 million, or 6.1% of sales, compared with $6.7 million, or 6.6%, in the second quarter of 2022.

Net income was $4.6 million, or $0.29 per diluted share, compared to $4.6 million, or $0.32 per share, in the prior-year period. Adjusted net income, which excludes business development costs and other non-recurring items, was $5.7 million, or $0.36 per diluted share, compared with adjusted net income of $4.8 million, or $0.33 per diluted share, in the comparable period of 2021. The effective tax rate was 27.0% compared with 21.9% in the second quarter of 2021, which reflected higher discrete tax benefits related to share-based awards. The Company expects its income tax rate for full year 2022 to be approximately 25% to 27%, based on changes to geographic mix. See the attached tables 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-based compensation expense, business development costs, and foreign currency gains/losses (“Adjusted EBITDA”) was $16.2 million, up $3.8 million, or 30% from the year ago period. As a percent of sales, Adjusted EBITDA was 13.2%, up 100 basis points from the second quarter of 2021. 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 (YTD) 2022 Results (Narrative compares with prior-year period unless otherwise noted)

Revenue of $237.5 million increased $34.3 million, or 17%, reflecting strong demand in Industrial markets and incremental sales from acquisitions. The impact of FX fluctuations was unfavorable $8.4 million for the year-to-date period. Sales to U.S. customers were 57% of total sales compared with 53% for the same period last year, with the balance of sales to customers primarily in Europe, Canada and Asia-Pacific.

Gross margin was 30.8%, up 60 basis points, and reflected similar impacts as the second quarter of 2022. Operating costs and expenses as a percent of revenue were 25.9%, up 230 basis points, due to similar impacts as the second quarter. As a result, operating income was $11.8 million, or 5.0% of sales, compared with $13.3 million, or 6.6% of sales.

Net income was $7.1 million, or $0.45 per diluted share, compared with $16.6 million, or $1.14 per diluted share. The change largely reflects a net discrete tax benefit of $7.4 million recorded in the first quarter of 2021 relating to new legislation enacted in New Zealand. Excluding the discrete tax benefit, business development costs and other non-recurring items, adjusted net income was $9.5 million, or $0.60 per diluted share, compared with $9.3 million, or $0.65 per diluted share, in the comparable period of 2021. Adjusted EBITDA increased to $29.1 million from $24.4 million, and as a percent of sales was 12.3%, up 30 basis points.

Balance Sheet and Cash Flow Review

Cash and cash equivalents were $28.8 million compared with $22.5 million at year-end 2021. The Company generated $13.1 million in net cash from operating activities during the second quarter of 2022. Capital expenditures during the quarter were $3.9 million and largely focused on new customer projects. The Company expects 2022 capital expenditures to be approximately $15 million to $20 million.

Total debt of $229.2 million was up $70.3 million from year-end 2021. During the second quarter of 2022, the Company used $44.8 million of cash to complete three acquisitions, net of cash acquired, which largely was funded with debt. The debt increase also reflects a new finance lease during the first quarter of 2022 for a manufacturing facility expansion in Germantown, WI to support continued growth. Debt, net of cash, was $200.4 million, or 49.9% of net debt to capitalization.

Orders and Backlog Summary ($ in thousands)
		Q2 2022			Q1 2022			Q4 2021			Q3 2021			Q2 2021
Orders		$	139,209		$	155,295		$	114,891		$	119,940		$	118,974
Backlog		$	323,873		$	289,295		$	249,927		$	185,561		$	170,364

Orders were solid at $139.2 million and represented a book-to-bill ratio of 1.1x. Foreign currency translation had an unfavorable $6.0 million impact on second quarter orders compared with the prior-year period.

Backlog increased 12% over the sequential first quarter and 90% over the prior-year period to a record $323.9 million. The time to convert the majority of backlog to sales is approximately three to nine months.

Conference Call and Webcast

The Company will host a conference call and webcast on Thursday, August 4, 2022 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, August 11, 2022. To listen to the archived call, dial [phone] and enter replay pin number 10019635 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 controlled motion products and solutions used in a broad range of applications within the Vehicle, Medical, Aerospace & Defense, Electronic, and Industrial Markets. Headquartered in Amherst, NY, the Company has global operations and sells into markets across the United States, Canada, South America, Europe and Asia-Pacific.

Allied Motion is focused on controlled motion applications and is known worldwide for its expertise in electro-magnetic, mechanical, and electronic controlled motion technologies. Its products include nano precision positioning systems, servo control systems, motion controllers, digital servo amplifiers and drives, brushless servo, torque, and coreless motors, brush motors, integrated motor-drives, gear motors, gearing, incremental and absolute optical encoders, active (electronic) and passive (magnetic) filters for power quality and harmonic issues, Industrial safety rated I/O Modules, Universal Industrial Communications Gateways 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 August 4, 2022 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, the ability to attract and retain qualified personnel, the ability to successfully integrate an acquired business into our business model without substantial costs, delays, or problems, 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 (In thousands, except per share data) (Unaudited)
		For the three months ended								For the six months ended
		June 30,								June 30,
		2022				2021				2022				2021
Revenue		$	122,722			$	101,537			$	237,507			$	203,214
Cost of goods sold			82,948				70,320				164,273				141,929
Gross profit			39,774				31,217				73,234				61,285
Operating costs and expenses:
Selling			5,808				4,396				10,839				8,614
General and administrative			12,595				11,181				24,091				21,929
Engineering and development			9,791				7,240				19,177				14,199
Business development			1,417				155				2,265				174
Amortization of intangible assets			2,645				1,511				5,079				3,023
Total operating costs and expenses			32,256				24,483				61,451				47,939
Operating income			7,518				6,734				11,783				13,346
Other expense, net:
Interest expense			1,525				807				2,563				1,668
Other (income) expense, net			(279	)			(10	)			(234	)			(129	)
Total other expense, net			1,246				797				2,329				1,539
Income before income taxes			6,272				5,937				9,454				11,807
Income tax (provision) benefit			(1,691	)			(1,303	)			(2,370	)			4,754
Net income		$	4,581			$	4,634			$	7,084			$	16,561
Basic earnings per share:
Earnings per share		$	0.30			$	0.32			$	0.47			$	1.15
Basic weighted average common shares			15,355				14,406				15,226				14,356
Diluted earnings per share:
Earnings per share		$	0.29			$	0.32			$	0.45			$	1.14
Diluted weighted average common shares			15,932				14,494				15,752				14,467
Net income		$	4,581			$	4,634			$	7,084			$	16,561

ALLIED MOTION TECHNOLOGIES INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) (Unaudited)
		June 30,				December 31,
		2022				2021
Assets
Current assets:
Cash and cash equivalents		$	28,846			$	22,463
Trade receivables, net of provision for credit losses of $586 and $506 at June 30, 2022 and December 31, 2021, respectively			69,806				51,239
Inventories			112,255				89,733
Prepaid expenses and other assets			11,403				12,522
Total current assets			222,310				175,957
Property, plant and equipment, net			65,945				56,983
Deferred income taxes			4,427				5,321
Intangible assets, net			125,943				103,786
Goodwill			125,006				106,633
Operating lease assets			23,550				16,983
Other long-term assets			8,934				5,122
Total Assets		$	576,115			$	470,785
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	47,129			$	36,714
Accrued liabilities			46,295				41,656
Total current liabilities			93,424				78,370
Long-term debt			228,901				158,960
Deferred income taxes			8,263				5,040
Pension and post-retirement obligations			3,841				3,932
Operating lease liabilities			18,854				12,792
Other long-term liabilities			21,553				23,929
Total liabilities			374,836				283,023
Stockholders’ Equity:
Common stock, no par value, authorized 50,000 shares; 15,978 and 15,361 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively			81,662				68,097
Preferred stock, par value $1.00 per share, authorized 5,000 shares; no shares issued or outstanding			—				—
Retained earnings			134,066				127,757
Accumulated other comprehensive loss			(14,449	)			(8,092	)
Total stockholders’ equity			201,279				187,762
Total Liabilities and Stockholders’ Equity		$	576,115			$	470,785

ALLIED MOTION TECHNOLOGIES INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
		For the six months ended
		June 30,
		2022				2021
Cash Flows From Operating Activities:
Net income		$	7,084			$	16,561
Adjustments to reconcile net income to net cash (used in) provided by operating activities
Depreciation and amortization			12,531				8,890
Deferred income taxes			1,222				(7,316	)
Stock-based compensation expense			2,490				1,797
Debt issue cost amortization recorded in interest expense			71				71
Other			793				1,028
Changes in operating assets and liabilities, net of acquisition:
Trade receivables			(15,407	)			(5,381	)
Inventories			(22,003	)			(5,951	)
Prepaid expenses and other assets			1,601				814
Accounts payable			9,850				5,651
Accrued liabilities			1,478				307
Net cash (used in) provided by operating activities			(290	)			16,471
Cash Flows From Investing Activities:
Consideration paid for acquisitions, net of cash acquired			(44,569	)			—
Purchase of property and equipment			(6,354	)			(5,885	)
Net cash used in investing activities			(50,923	)			(5,885	)
Cash Flows From Financing Activities:
Principal payments of long-term debt and finance lease obligations			(3,406	)			(7,603	)
Proceeds from issuance of long-term debt			64,203				—
Dividends paid to stockholders			(776	)			(662	)
Tax withholdings related to net share settlements of restricted stock			(1,240	)			(1,600	)
Net cash provided by (used in) financing activities			58,781				(9,865	)
Effect of foreign exchange rate changes on cash			(1,185	)			(468	)
Net (decrease) increase in cash and cash equivalents			6,383				253
Cash and cash equivalents at beginning of period			22,463				23,131
Cash and cash equivalents at end of period		$	28,846			$	23,384

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 foreign currency gains/losses), 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, foreign currency gains/losses on short-term assets and liabilities, 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 GAAP.

The Company’s calculation of Revenue excluding foreign currency exchange impacts for the three and six months ended June 30, 2022 is as follows:

		Three Months Ended			Six Months Ended
		June 30, 2022			June 30, 2022
Revenue as reported		$	122,722		$	237,507
Currency impact			5,174			8,403
Revenue excluding foreign currency exchange impacts		$	127,896		$	245,910

The Company’s calculation of Adjusted EBITDA for the three and six months ended June 30, 2022 and 2021 is as follows:

		Three Months Ended							Six Months Ended
		June 30,							June 30,
		2022				2021			2022				2021
Net income		$	4,581			$	4,634		$	7,084			$	16,561
Interest expense			1,525				807			2,563				1,668
Provision (benefit) for income tax			1,691				1,303			2,370				(4,754	)
Depreciation and amortization*			6,096				4,459			12,531				8,890
EBITDA			13,893				11,203			24,548				22,365
Stock compensation expense			1,141				1,000			2,490				1,797
Foreign currency (gain) loss			(254	)			39			(203	)			27
Business development costs			1,417				155			2,265				174
Adjusted EBITDA		$	16,197			$	12,397		$	29,100			$	24,363

*2022 three- and six-month periods include $270 and $1,058, respectively, of acquisition inventory step-up amortization

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 six months ended June 30, 2022 and 2021 is as follows:

		Three Months Ended
		June 30,
		2022				Per diluted share				2021			Per diluted share
Net income as reported		$	4,581			$	0.29			$	4,634		$	0.32
Non-GAAP adjustments, net of tax
Acquisition inventory step-up amortization - net			207				0.01				-			-
Foreign currency gain/ loss - net			(194	)			(0.01	)			30			0.00
Business development costs - net			1,085				0.07				121			0.01
Adjusted net income and diluted EPS		$	5,679			$	0.36			$	4,785		$	0.33
Weighted average diluted shares outstanding							15,932							14,494

		Six Months Ended
		June 30,
		2022				Per diluted share				2021				Per diluted share
Net income as reported		$	7,084			$	0.45			$	16,561			$	1.14
Non-GAAP adjustments, net of tax
Discrete income tax benefit			-				-				(7,373	)			(0.51	)
Acquisition inventory step-up amortization - net			802				0.05				-				-
Foreign currency gain/ loss - net			(155	)			(0.01	)			21				0.00
Business development costs - net			1,735				0.11				135				0.01
Adjusted net income and diluted EPS		$	9,466			$	0.60			$	9,344			$	0.65
Weighted average diluted shares outstanding							15,752								14,467

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 GAAP in the United States, 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20220803005935/en/