UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2019March 31, 2020
Commission File Number 0-04041
ALLIED MOTION TECHNOLOGIES INC.
(Exact name of Registrant as Specified in Its Charter)
Colorado |
| |
(State or other jurisdiction of incorporation or organization) |
| 84-0518115 |
495 Commerce Drive, Amherst, New York |
| |
| 14228 |
(716) 242-8634
(Registrant’s Telephone Number, Including Area Code)
(Former Address, if Changed Since Last Report)
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Common stock | AMOT |
| NASDAQ |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety (90) days. Yesx Noo¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrantRegistrant was required to submit such files). Yesx Noo¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act. (Check one):
Large accelerated filer ¨ | Accelerated filer x | Non-accelerated filer ¨ | Smaller reporting | Emerging growth |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso¨ Nox
Number of Shares of the only class of Common Stock outstanding: 9,599,859outstanding: 9,734,550 as of August 1, 2019May 6, 2020
ALLIED MOTION TECHNOLOGIES INC.
PART I. FINANCIAL INFORMATION | Page No. | ||||
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Item 1. | Financial Statements | ||||
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Condensed Consolidated Statements of | |||||
Condensed Consolidated Statements of Stockholders’ Equity | |||||
Condensed Consolidated Statements of Cash Flows | |||||
Notes to Condensed Consolidated Financial Statements - Unaudited | |||||
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26 |
ALLIED MOTION TECHNOLOGIES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
|
| June 30, |
| December 31, |
| ||||||||||
|
| 2019 |
| 2018 |
| March 31, 2020 | December 31, 2019 | ||||||||
Assets |
|
|
|
|
| ||||||||||
Current assets: |
|
|
|
|
| ||||||||||
Cash and cash equivalents |
| $ | 10,463 |
| $ | 8,673 |
| $ | 20,383 | $ | 13,416 | ||||
Trade receivables, net of allowance for doubtful accounts of $555 and $530 at June 30, 2019 and December 31, 2018, respectively |
| 51,799 |
| 43,247 |
| ||||||||||
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 |
| 52,420 |
| 54,971 |
| 60,090 | 53,385 | ||||||||
Prepaid expenses and other assets |
| 4,201 |
| 4,003 |
| 4,858 | 4,413 | ||||||||
Total current assets |
| 118,883 |
| 110,894 |
| 140,751 | 115,643 | ||||||||
Property, plant and equipment, net |
| 49,780 |
| 48,035 |
| 52,973 | 53,008 | ||||||||
Deferred income taxes |
| 506 |
| 341 |
| 650 | 490 | ||||||||
Intangible assets, net |
| 65,446 |
| 68,354 |
| 68,287 | 62,497 | ||||||||
Goodwill |
| 53,153 |
| 52,639 |
| 59,082 | 52,935 | ||||||||
Right of use asset |
| 18,164 |
| — |
| ||||||||||
Right of use assets | 18,221 | 16,420 | |||||||||||||
Other long-term assets |
| 4,618 |
| 5,038 |
| 4,026 | 4,835 | ||||||||
Total Assets |
| $ | 310,550 |
| $ | 285,301 |
| $ | 343,990 | $ | 305,828 | ||||
Liabilities and Stockholders’ Equity |
|
|
|
|
| ||||||||||
Current liabilities: |
|
|
|
|
| ||||||||||
Accounts payable |
| 25,032 |
| 25,867 |
| $ | 31,299 | $ | 23,640 | ||||||
Accrued liabilities |
| 20,142 |
| 18,722 |
| 22,024 | 23,001 | ||||||||
Total current liabilities |
| 45,174 |
| 44,589 |
| 53,323 | 46,641 | ||||||||
Long-term debt |
| 123,288 |
| 122,516 |
| 136,244 | 109,765 | ||||||||
Deferred income taxes |
| 3,516 |
| 3,860 |
| 5,120 | 3,399 | ||||||||
Pension and post-retirement obligations |
| 4,328 |
| 4,293 |
| 5,115 | 5,139 | ||||||||
Right of use liability |
| 15,206 |
| — |
| ||||||||||
Right of use liabilities | 14,684 | 13,715 | |||||||||||||
Other long-term liabilities |
| 7,838 |
| 8,230 |
| 7,811 | 7,975 | ||||||||
Total liabilities |
| 199,350 |
| 183,488 |
| 222,297 | 186,634 | ||||||||
Stockholders’ Equity: |
|
|
|
|
| ||||||||||
Common stock, no par value, authorized 50,000 shares; 9,600 and 9,485 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively |
| 35,697 |
| 33,613 |
| ||||||||||
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 |
| 85,058 |
| 76,718 |
| 96,334 | 92,589 | ||||||||
Accumulated other comprehensive loss |
| (9,555 | ) | (8,518 | ) | (14,047 | ) | (10,531 | ) | ||||||
Total stockholders’ equity |
| 111,200 |
| 101,813 |
| 121,693 | 119,194 | ||||||||
Total Liabilities and Stockholders’ Equity |
| $ | 310,550 |
| $ | 285,301 |
| $ | 343,990 | $ | 305,828 |
See accompanying notes to condensed consolidated financial statements.
ALLIED MOTION TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands)thousands, except per share data)
(Unaudited)
|
| For the three months ended |
| For the six months ended |
| ||||||||
|
| June 30, |
| June 30, |
| ||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
Revenues |
| $ | 92,630 |
| $ | 79,981 |
| $ | 186,526 |
| $ | 156,557 |
|
Cost of goods sold |
| 64,208 |
| 56,464 |
| 130,442 |
| 110,486 |
| ||||
Gross profit |
| 28,422 |
| 23,517 |
| 56,084 |
| 46,071 |
| ||||
Operating costs and expenses: |
|
|
|
|
|
|
|
|
| ||||
Selling |
| 4,136 |
| 2,943 |
| 8,229 |
| 5,640 |
| ||||
General and administrative |
| 9,569 |
| 8,336 |
| 18,519 |
| 15,792 |
| ||||
Engineering and development |
| 5,676 |
| 4,963 |
| 11,483 |
| 9,918 |
| ||||
Business development |
| 3 |
| 165 |
| 56 |
| 316 |
| ||||
Amortization of intangible assets |
| 1,430 |
| 878 |
| 2,862 |
| 1,762 |
| ||||
Total operating costs and expenses |
| 20,814 |
| 17,285 |
| 41,149 |
| 33,428 |
| ||||
Operating income |
| 7,608 |
| 6,232 |
| 14,935 |
| 12,643 |
| ||||
Other expense (income): |
|
|
|
|
|
|
|
|
| ||||
Interest expense |
| 1,435 |
| 602 |
| 2,615 |
| 1,216 |
| ||||
Other (income) expense, net |
| (1 | ) | (200 | ) | (19 | ) | (94 | ) | ||||
Total other expense, net |
| 1,434 |
| 402 |
| 2,596 |
| 1,122 |
| ||||
Income before income taxes |
| 6,174 |
| 5,830 |
| 12,339 |
| 11,521 |
| ||||
Provision for income taxes |
| (1,729 | ) | (1,599 | ) | (3,424 | ) | (3,092 | ) | ||||
Net income |
| $ | 4,445 |
| $ | 4,231 |
| $ | 8,915 |
| $ | 8,429 |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic earnings per share: |
|
|
|
|
|
|
|
|
| ||||
Earnings per share |
| $ | 0.47 |
| $ | 0.46 |
| $ | 0.95 |
| $ | 0.91 |
|
Basic weighted average common shares |
| 9,408 |
| 9,268 |
| 9,378 |
| 9,241 |
| ||||
Diluted earnings per share: |
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Earnings per share |
| $ | 0.47 |
| $ | 0.45 |
| $ | 0.95 |
| $ | 0.90 |
|
Diluted weighted average common shares |
| 9,456 |
| 9,356 |
| 9,419 |
| 9,321 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 4,445 |
| $ | 4,231 |
| $ | 8,915 |
| $ | 8,429 |
|
|
|
|
|
|
|
|
|
|
| ||||
Foreign currency translation adjustment |
| 548 |
| (3,532 | ) | (339 | ) | (1,845 | ) | ||||
(Loss) income on derivatives |
| (436 | ) | 247 |
| (698 | ) | 851 |
| ||||
Comprehensive income |
| $ | 4,557 |
| $ | 946 |
| $ | 7,878 |
| $ | 7,435 |
|
See accompanying notes to condensed consolidated financial statements
ALLIED MOTION TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
|
| Common Stock |
|
|
| Accumlated |
|
|
| ||||||||||||
(In thousands) |
| Shares |
| Amount |
| Unamortized |
| Common Stock |
| Retained |
| Other |
| Total |
| ||||||
Balances, December 31, 2018 |
| 9,485 |
| $ | 36,779 |
| $ | (3,166 | ) | $ | 33,613 |
| $ | 76,718 |
| $ | (8,518 | ) | $ | 101,813 |
|
Stock transactions under employee benefit stock plans |
| 27 |
| 1,088 |
|
|
| 1,088 |
|
|
|
|
| 1,088 |
| ||||||
Issuance of restricted stock, net of forfeitures |
| 96 |
| 4,059 |
| (3,729 | ) | 330 |
|
|
|
|
| 330 |
| ||||||
Stock-based compensation expense |
|
|
|
|
| 596 |
| 596 |
|
|
|
|
| 596 |
| ||||||
Shares withheld for payment of employee payroll taxes |
| (1 | ) | (63 | ) |
|
| (63 | ) |
|
|
|
| (63 | ) | ||||||
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
| (887 | ) | (887 | ) | ||||||
Accumulated loss on derivatives |
|
|
|
|
|
|
|
|
|
|
| (343 | ) | (343 | ) | ||||||
Tax effect of derivative transactions |
|
|
|
|
|
|
|
|
|
|
| 81 |
| 81 |
| ||||||
Net income |
|
|
|
|
|
|
|
|
| 4,470 |
|
|
| 4,470 |
| ||||||
Dividends to stockholders - $0.03 per share |
|
|
|
|
|
|
|
|
| (287 | ) |
|
| (287 | ) | ||||||
Balances, March 31, 2019 |
| 9,607 |
| $ | 41,863 |
| $ | (6,299 | ) | $ | 35,564 |
| $ | 80,901 |
| $ | (9,667 | ) | $ | 106,798 |
|
Issuance of restricted stock, net of forfeitures |
| 11 |
| 416 |
| (416 | ) | — |
|
|
|
|
| — |
| ||||||
Stock-based compensation expense |
|
|
|
|
| 780 |
| 780 |
|
|
|
|
| 780 |
| ||||||
Shares withheld for payment of employee payroll taxes |
| (18 | ) | (647 | ) |
|
| (647 | ) |
|
|
|
| (647 | ) | ||||||
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
| 548 |
| 548 |
| ||||||
Accumulated loss on derivatives |
|
|
|
|
|
|
|
|
|
|
| (564 | ) | (564 | ) | ||||||
Tax effect of derivative transactions |
|
|
|
|
|
|
|
|
|
|
| 128 |
| 128 |
| ||||||
Net income |
|
|
|
|
|
|
|
|
| 4,445 |
|
|
| 4,445 |
| ||||||
Dividends to stockholders - $0.03 per share |
|
|
|
|
|
|
|
|
| (288 | ) |
|
| (288 | ) | ||||||
Balances, June 30, 2019 |
| 9,600 |
| $ | 41,632 |
| $ | (5,935 | ) | $ | 35,697 |
| $ | 85,058 |
| $ | (9,555 | ) | $ | 111,200 |
|
|
| Common Stock |
|
|
| Accumlated |
|
|
| ||||||||||||
(In thousands) |
| Shares |
| Amount |
| Unamortized |
| Common Stock |
| Retained |
| Other |
| Total |
| ||||||
Balances, December 31, 2017 |
| 9,427 |
| $ | 34,473 |
| $ | (3,422 | ) | $ | 31,051 |
| $ | 61,882 |
| $ | (5,586 | ) | $ | 87,347 |
|
Stock transactions under employee benefit stock plans |
| 26 |
| 849 |
|
|
| 849 |
|
|
|
|
| 849 |
| ||||||
Issuance of restricted stock, net of forfeitures |
| 30 |
| 1,582 |
| (1,582 | ) | — |
|
|
|
|
| — |
| ||||||
Stock-based compensation expense |
|
|
|
|
| 460 |
| 460 |
|
|
|
|
| 460 |
| ||||||
Shares withheld for payment of employee payroll taxes |
| (1 | ) | (34 | ) |
|
| (34 | ) |
|
|
|
| (34 | ) | ||||||
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
| 1,687 |
| 1,687 |
| ||||||
Accumulated loss on derivatives |
|
|
|
|
|
|
|
|
|
|
| 604 |
| 604 |
| ||||||
Net income |
|
|
|
|
|
|
|
|
| 4,198 |
|
|
| 4,198 |
| ||||||
Balances, March 31, 2018 |
| 9,482 |
| $ | 36,870 |
| $ | (4,544 | ) | $ | 32,326 |
| $ | 66,080 |
| $ | (3,295 | ) | $ | 95,111 |
|
Stock transactions under employee benefit stock plans |
| 1 |
| 2 |
|
|
| 2 |
|
|
|
|
| 2 |
| ||||||
Issuance of restricted stock, net of forfeitures |
| 7 |
| 311 |
| (311 | ) | — |
|
|
|
|
| — |
| ||||||
Stock-based compensation expense |
|
|
|
|
| 542 |
| 542 |
|
|
|
|
| 542 |
| ||||||
Shares withheld for payment of employee payroll taxes |
| (15 | ) | (555 | ) |
|
| (555 | ) |
|
|
|
| (555 | ) | ||||||
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
| (3,532 | ) | (3,532 | ) | ||||||
Accumulated loss on derivatives |
|
|
|
|
|
|
|
|
|
|
| 247 |
| 247 |
| ||||||
Net income |
|
|
|
|
|
|
|
|
| 4,231 |
|
|
| 4,231 |
| ||||||
Dividends to stockholders - $0.055 per share |
|
|
|
|
|
|
|
|
| (521 | ) |
|
| (521 | ) | ||||||
Balances, June 30, 2018 |
| 9,475 |
| $ | 36,628 |
| $ | (4,313 | ) | $ | 32,315 |
| $ | 69,790 |
| $ | (6,580 | ) | $ | 95,525 |
|
For the three months ended | ||||||||
March 31, | ||||||||
2020 | 2019 | |||||||
Revenues | $ | 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 | ) | ||||
Income (loss) on derivatives | (1,088 | ) | (262 | ) | ||||
Comprehensive income | $ | 519 | $ | 3,321 |
See accompanying notes to condensed consolidated financial statements.
ALLIED MOTION TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except per share data)
(Unaudited)
Common Stock | ||||||||||||||||||||||||||||
Shares | Amount | Unamortized Cost of Equity Awards | Common Stock and Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Stockholders' Equity | ||||||||||||||||||||||
Balances, December 31, 2019 | 9,599 | $ | 41,642 | $ | (4,506 | ) | $ | 37,136 | $ | 92,589 | $ | (10,531 | ) | $ | 119,194 | |||||||||||||
Stock transactions under employee benefitstock plans | 32 | 1,252 | 1,252 | 1,252 | ||||||||||||||||||||||||
Issuance of restricted stock, net of forfeitures | 104 | 3,574 | (3,089 | ) | 485 | 485 | ||||||||||||||||||||||
Stock compensation expense | 789 | 789 | 789 | |||||||||||||||||||||||||
Shares withheld for payment of employee payroll taxes | (24 | ) | (256 | ) | (256 | ) | (256 | ) | ||||||||||||||||||||
Foreign currency translation adjustments | (2,428 | ) | (2,428 | ) | ||||||||||||||||||||||||
Accumulated income (loss) on derivatives | (1,432 | ) | (1,432 | ) | ||||||||||||||||||||||||
Tax effect of derivative transactions | 344 | 344 | ||||||||||||||||||||||||||
Net income | 4,035 | 4,035 | ||||||||||||||||||||||||||
Dividends to stockholders - $.03 | (290 | ) | (290 | ) | ||||||||||||||||||||||||
Balances, March 31, 2020 | 9,711 | $ | 46,212 | $ | (6,806 | ) | $ | 39,406 | $ | 96,334 | $ | (14,047 | ) | $ | 121,693 |
Common Stock | ||||||||||||||||||||||||||||
Shares | Amount | Unamortized Cost of Equity Awards | Common Stock and Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Stockholders' Equity | ||||||||||||||||||||||
Balances, December 31, 2018 | 9,485 | $ | 36,779 | $ | (3,166 | ) | $ | 33,613 | $ | 76,718 | $ | (8,518 | ) | $ | 101,813 | |||||||||||||
Stock transactions under employee benefit stock plans | 27 | 1,088 | 1,088 | 1,088 | ||||||||||||||||||||||||
Issuance of restricted stock, net of forfeitures | 96 | 4,059 | (3,729 | ) | 330 | 330 | ||||||||||||||||||||||
Stock compensation expense | 596 | 596 | 596 | |||||||||||||||||||||||||
Shares withheld for payment of employee payroll taxes | (1 | ) | (63 | ) | (63 | ) | (63 | ) | ||||||||||||||||||||
Foreign currency translation adjustments | (887 | ) | (887 | ) | ||||||||||||||||||||||||
Accumulated income (loss) on derivatives | (343 | ) | (343 | ) | ||||||||||||||||||||||||
Tax effect of derivative transactions | 81 | 81 | ||||||||||||||||||||||||||
Net income | 4,470 | 4,470 | ||||||||||||||||||||||||||
Dividends to stockholders - $.03 | (287 | ) | (287 | ) | ||||||||||||||||||||||||
Balances, March 31, 2019 | 9,607 | $ | 41,863 | $ | (6,299 | ) | $ | 35,564 | $ | 80,901 | $ | (9,667 | ) | $ | 106,798 |
See accompanying notes to condensed consolidated financial statements.
ALLIED MOTION TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)thousands, except per share data)
(Unaudited)
|
| For the six months ended |
| For the three months ended | |||||||||||
|
| June 30, |
| March 31, | |||||||||||
|
| 2019 |
| 2018 |
| 2020 | 2019 | ||||||||
Cash Flows From Operating Activities: |
|
|
|
|
| ||||||||||
Net income |
| $ | 8,915 |
| $ | 8,429 |
| $ | 4,035 | $ | 4,470 | ||||
Adjustments to reconcile net income to net cash provided by operating activities |
|
|
|
|
| ||||||||||
Adjustments to reconcile net income to net cash used in operating activities | |||||||||||||||
Depreciation and amortization |
| 7,327 |
| 5,622 |
| 3,750 | 3,659 | ||||||||
Deferred income taxes |
| (491 | ) | (282 | ) | (488 | ) | (297 | ) | ||||||
Stock compensation expense |
| 1,540 |
| 1,094 |
| 789 | 674 | ||||||||
Debt issue cost amortization recorded in interest expense |
| 87 |
| 74 |
| 38 | 43 | ||||||||
Other |
| (166 | ) | 133 |
| 72 | 347 | ||||||||
Changes in operating assets and liabilities, net of acquisition: |
|
|
|
|
| ||||||||||
Trade receivables |
| (8,692 | ) | (7,639 | ) | (7,463 | ) | (10,941 | ) | ||||||
Inventories |
| 1,973 |
| (6,840 | ) | (3,978 | ) | 1,291 | |||||||
Prepaid expenses and other assets |
| (289 | ) | (504 | ) | 275 | (161 | ) | |||||||
Accounts payable |
| (795 | ) | 5,788 |
| 3,043 | 490 | ||||||||
Accrued liabilities |
| (557 | ) | 1,511 |
| (3,039 | ) | (2,014 | ) | ||||||
Net cash provided by operating activities |
| 8,852 |
| 7,386 |
| ||||||||||
Net cash used in operating activities | (2,966 | ) | (2,439 | ) | |||||||||||
|
|
|
|
|
| ||||||||||
Cash Flows From Investing Activities: |
|
|
|
|
| ||||||||||
Purchase of property and equipment |
| (6,401 | ) | (5,555 | ) | (1,696 | ) | (2,505 | ) | ||||||
Cash paid for acquisition, net of cash acquired |
| — |
| (13,312 | ) | ||||||||||
Cash paid for acquisitions, net of cash acquired | (14,541 | ) | - | ||||||||||||
Net cash used in investing activities |
| (6,401 | ) | (18,867 | ) | (16,237 | ) | (2,505 | ) | ||||||
|
|
|
|
|
| ||||||||||
Cash Flows From Financing Activities: |
|
|
|
|
| ||||||||||
Borrowings on long-term debt |
| 7,695 |
| 14,252 |
| ||||||||||
Principal payments of long-term debt |
| (7,000 | ) | (2,500 | ) | ||||||||||
Borrowings on long term debt | 26,979 | 6,568 | |||||||||||||
Dividends paid to stockholders |
| (605 | ) | (522 | ) | - | - | ||||||||
Payment of debt issuance costs | (401 | ) | - | ||||||||||||
Stock transactions under employee benefit stock plans |
| (710 | ) | 261 |
| (256 | ) | (63 | ) | ||||||
Net cash (used in) provided by financing activities |
| (620 | ) | 11,491 |
| ||||||||||
Net cash provided by financing activities | 26,322 | 6,505 | |||||||||||||
Effect of foreign exchange rate changes on cash |
| (41 | ) | (271 | ) | (152 | ) | (50 | ) | ||||||
Net increase (decrease) in cash and cash equivalents |
| 1,790 |
| (261 | ) | ||||||||||
Net increase in cash and cash equivalents | 6,967 | 1,511 | |||||||||||||
Cash and cash equivalents at beginning of period |
| 8,673 |
| 15,590 |
| 13,416 | 8,673 | ||||||||
Cash and cash equivalents at end of period |
| $ | 10,463 |
| $ | 15,329 |
| $ | 20,383 | $ | 10,184 |
See accompanying notes to condensed consolidated financial statements.
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
1.BASIS OF PREPARATION AND PRESENTATION
1. | BASIS OF PREPARATION AND PRESENTATION |
Allied Motion Technologies Inc. (Allied Motion(“Allied Motion” or the Company)“Company”) is engaged in the business of designing, manufacturing and selling controlled motion control solutions, which include integrated system solutions as well as individual controlled motion control products, to a broad spectrum of customers throughout the world primarily for the commercial motor, industrial, motion, automotive, control, medical, and aerospace and defense markets.
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-companyintercompany accounts and transactions have been eliminated in consolidation.
The assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars using end of period exchange rates. Changes in reported amounts of assets and liabilities of foreign subsidiaries that occur as a result of changes in exchange rates between foreign subsidiaries’ functional currencies and the U.S. dollar are included in foreign currency translation adjustment. Foreign currency translation adjustment is included in accumulated other comprehensive income,loss, a component of stockholders’ equity in the accompanying condensed consolidated balance sheets.statements of stockholders’ equity. Revenue and expense transactions use an average rate prevailing during the month of the related transaction. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency of each of the Technology UnitUnits (“TU”TUs”) are included in the results of operations as incurred.
The condensed consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and include all adjustments which are, in the opinion of management, necessary for a fair presentation. Certain information and footnote disclosures normally included in condensed consolidated financial statements which are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. The Company believes that the disclosures herein are adequate to make the information presented not misleading. The financial data for the interim periods may not necessarily be indicative of results to be expected for the year.
The preparation of condensed consolidated financial statements in accordance with U.S. GAAP requires management to make certain estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities as well as disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
It is suggested that the accompanying condensed consolidated financial statements be read in conjunction with the Consolidated Financial Statements and related Notes to such statements included in the Annual Report on Form 10-K for the year ended December 31, 20182019 that was previously filed by the Company.
2.ACQUISITIONS
2. | ACQUISITIONS |
TCIDynamic Controls
On December 6, 2018,March 7, 2020, the Company entered into a Unit Purchase Agreement (the “Purchase Agreement”) with TCI, LLC, a Wisconsin limited liability company (“TCI”), and the members of TCI (“Sellers”), pursuant to which Allied Motion acquired 100% of the issued and outstanding common unitsshare capital of TCI from Sellers (the “Acquisition”the Dynamic Controls Group (“Dynamic Controls”) in, a transaction valued at $64,135.wholly owned subsidiary of Invacare Corporation, a market-leading designer and manufacturer of equipment for the medical mobility and rehabilitation markets. The Acquisition considerationpurchase price was funded using borrowings under the Amended Revolving Facility (Note 10). The purchase price is subject to adjustments based on a determination of closing net working capital, cash, indebtednesscapital.
Dynamic Controls brings strong leadership and other TCI liabilities. During the second quarter of 2019, these adjustments were settleda very experienced electronics and the purchase price was finalized. A portion of the Acquisition consideration was placed in escrow to secure payment of any post-closing adjustments to the purchase pricesoftware engineering design team, providing market leading electronic control solutions and to secure the Sellers’ indemnification obligations to Allied Motion. Cash consideration was funded from borrowings onproducts that will further strengthen the Company’s existing credit facilities.
The TCI acquisition broadens and strengthens the Company’smedical market position, as a leading global diversifiedwell as enable it to further develop higher level solutions provider in the controlled motion market. TCI has adjacent technologies and capabilities that enable more efficient and longer life solutions for motion devices in a wide variety of demanding applications. TCI’s technology and products are expected to be a valuable addition to the Company’s expanding suite of solution offerings.with embedded electronics across our other major served markets.
The Company incurred $413$247 of transaction costs related to the acquisition of TCI. Transaction costsDynamic Controls in the three months ended March 31, 2020, which are included in business development expenses on the condensed consolidated statements of income and comprehensive income. The Company accounted for the acquisition pursuant to the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, “Business Combinations.”
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
the acquisition pursuant to ASC 805, “Business Combinations.” The preliminary allocation of the purchase price paid for TCIDynamic Controls is based on estimated fair values of the assets acquired and liabilities assumed of TCIDynamic Controls as of December 6, 2018March 7, 2020 is as follows (in thousands):
Cash and cash equivalents | $ | 11,437 | ||||||
Accounts receivable | 4,129 | |||||||
Inventory |
| $ | 3,718 |
| 3,329 | |||
Accounts receivable |
| 5,822 |
| |||||
Other assets, net |
| 303 |
| 769 | ||||
Property, plant and equipment |
| 3,464 |
| 1,185 | ||||
Amortizable intangible assets |
| 36,400 |
| |||||
Right of use assets | 2,692 | |||||||
Intangible assets | 7,800 | |||||||
Goodwill |
| 18,457 |
| 6,820 | ||||
Current liabilities |
| (4,029 | ) | (7,269 | ) | |||
Net purchase price |
| $ | 64,135 |
| ||||
Lease liabilities | (2,707 | ) | ||||||
Net deferred income tax liabilities | (2,207 | ) | ||||||
Total purchase consideration | $ | 25,978 |
The purchase price excluded any cash on hand and any debt of TCI.
The allocation of the purchase price is preliminary as the valuation of both the tangible and identifiable intangible assets and liabilities is being finalized.
During the second quarter 2019, the purchase price allocation has been revised to reflect an updated valuation of inventory.
The intangible assets acquired consist of customer lists, technology and a trade name, which are being amortized over 16, 1513 and 1918 years, respectively. Goodwill generated in the acquisition is related to the assembled workforce, synergies between Allied Motion’s other TUsoperations and TCIDynamic Controls that are expected to occur as a result of the combined engineering knowledge, the ability of each of the TUsoperations to integrate each other’s products into more fully integrated system solutions and Allied Motion’s ability to utilize TCI’sDynamic Controls’ management knowledge in providing complementary product offerings to the Company’s customers.
The goodwill resulting fromoperating results of this acquisition are included in our condensed consolidated financial statements beginning on the TCI acquisition is tax deductible.
Pro forma Condensed Combined Financial Information
The following presentsdate of the Company’s unaudited pro forma financial informationacquisition. Included within the condensed consolidated statement of income and comprehensive income for the three months ended June 30, 2018 giving effectMarch 31, 2020, revenues related to Dynamic Controls were $2,500 and earnings related to the operations of Dynamic Controls were $125. Unaudited pro forma revenues, assuming the acquisition of TCI as if it had occurred aton January 1, 2018. Included in2019, would have been $97,500 and $101,900 for the prothree months ended March 31, 2020 and 2019, respectively. Pro forma information is:earnings and diluted earnings per share are not materially different than actual reported results for each of those periods due to the additional depreciation and amortization resulting from the valuationinclusion of amortizable tangible and intangible assets; interest on borrowings made by the Company; amortization of deferred finance costs incurred to issue the borrowings; and removal of acquisition related transaction costs.
|
| Three months ended |
| Six months ended |
| ||
|
| June 30, 2018 |
| June 30, 2018 |
| ||
Revenues |
| $ | 91,836 |
| $ | 178,825 |
|
Net income |
| $ | 4,997 |
| $ | 9,541 |
|
Diluted earnings per share |
| $ | 0.54 |
| $ | 1.03 |
|
purchase accounting adjustments. The pro forma adjustmentsamounts do not reflect adjustments for anticipated operating efficiencies that the Company expects to achieve as a result of this acquisition. The pro forma financial information is for informational purposes only and does not purport to present what the Company’s results would actually have been had these transactions actually occurred on the date presented or to project the combined company’s results of operations or financial position for any future period.
Maval OE Steering
On January 19, 2018, the Company purchased substantially all of the operating assets associated with the original equipment steering business of Maval Industries, LLC (“Maval”) for $13,312 in cash. Consistent with the Company’s strategy to provide higher level system solutions, the addition of the Maval OE steering (“Maval OE Steering”) product line enables Allied to provide a fully integrated steering system solution to its customers.
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
The following table represents the purchase price allocation and summarizes the aggregate estimated fair value of the assets acquired (in thousands):
|
| January 19, 2018 |
| |
Intangible assets |
| $ | 3,870 |
|
Goodwill |
| 6,001 |
| |
Assets acquired (net of liabilities assumed) |
| 3,441 |
| |
Fair value of net assets acquired |
| $ | 13,312 |
|
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired. The purchase price allocation was completed during the fourth quarter 2018.
The goodwill resulting from the Maval OE SteeringDynamic Controls acquisition is not tax deductible.
3.REVENUE RECOGNITION
3. | REVENUE RECOGNITION |
Performance Obligations
Performance Obligations Satisfied at a Point in Time
The Company’s standard delivery method is “free on board” shipping point. Consequently, the Company considers control of most products to transfer at a single point in time when control is transferred to the customer, generally when the products are shipped in accordance with an agreement and/or purchase order. Control is defined as the ability to direct the use of and obtain substantially all of the remaining benefits of the product.
The Company satisfies its performance obligations under a contract with a customer by transferring goods and services in exchange for monetary consideration from the customer. The Company considers the customer’s purchase order, and the Company’s corresponding sales order acknowledgment as the contract with the customer. For some customers, control, and a sale, is transferred at a point in time when the product is delivered to a customer.
Sales, value add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue.
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
Nature of Goods and Services
The Company sells component and integrated controlled motion solutions to end customers and original equipment manufacturers (“OEM’s”) through the Company’s own direct sales force and authorized manufacturers’ representatives and distributors. The Company’s products include brush and brushless DC motors, brushless servo and torque motors, coreless DC motors, integrated brushless motor-drives, gearmotors, gearing, modular digital servo drives, motion controllers, incremental and absolute optical encoders, active and passive filters for power quality and harmonic issues, and other controlled motion-related products. The Company’s target markets include Vehicle, Medical, Aerospace & Defense and Industrial.
Determining the Transaction Price
The majority of the Company’s contracts have an original duration of less than one year. For these contracts, the Company applies the practical expedient and therefore does not consider the effects of the time value of money. For multiyear contracts, the Company uses judgment to determine whether there is a significant financing component. These contracts are generally those in which the customer has made an up-front payment. Contracts that management determines to include a significant financing component are discounted at the Company’s incremental borrowing rate. The Company incurs interest expense and accrues a contract liability. As the Company satisfies performance obligations and recognizes revenue from these contracts, interest expense is recognized simultaneously. The CompanyManagement does not have any contracts that include a significant financing component as of June 30, 2019.
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)March 31, 2020.
Disaggregation of Revenue
The Company disaggregates revenue from contracts with customers into geographical regions and target markets. The Company determines that disaggregating revenue into these categories achieves the disclosure objective to depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. As noted in the Segment Information footnote, the Company’s business consists of one reportable segment. The revenues by geography in the table below are revenues derived from the Company’s foreign subsidiaries as provided in Note 18. A reconciliation of disaggregated revenue to segment revenue as well as revenue by geographical regions is provided in Note 16, Segment Information.18.
|
| Three months ended June 30, |
| Six months ended June 30, |
| Three months ended | |||||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| March 31, | |||||||||||
Target Market |
|
|
|
|
|
|
|
|
| 2020 | 2019 | ||||||||||
Vehicle |
| $ | 30,778 |
| $ | 31,193 |
| $ | 64,374 |
| $ | 63,354 |
| $ | 28,055 | $ | 33,596 | ||||
Industrial |
| 32,194 |
| 28,073 |
| 63,505 |
| 51,965 |
| 33,351 | 31,311 | ||||||||||
Medical |
| 12,219 |
| 9,838 |
| 24,629 |
| 20,482 |
| 14,551 | 12,410 | ||||||||||
Aerospace & Defense |
| 12,143 |
| 8,558 |
| 23,397 |
| 16,369 |
| 11,142 | 11,253 | ||||||||||
Other |
| 5,296 |
| 2,319 |
| 10,621 |
| 4,387 |
| 5,283 | 5,326 | ||||||||||
Total |
| $ | 92,630 |
| $ | 79,981 |
| $ | 186,526 |
| $ | 156,557 |
| $ | 92,382 | $ | 93,896 |
|
| Three months ended June 30, |
| Six months ended June 30, |
| Three months ended | |||||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| March 31, | |||||||||||
Geography |
|
|
|
|
|
|
|
|
| 2020 | 2019 | ||||||||||
United States |
| $ | 62,645 |
| $ | 46,484 |
| $ | 121,957 |
| $ | 90,654 |
| $ | 56,369 | $ | 59,314 | ||||
Europe |
| 29,390 |
| 32,947 |
| 63,561 |
| 64,779 |
| 33,133 | 34,167 | ||||||||||
Asia |
| 595 |
| 550 |
| 1,008 |
| 1,124 |
| ||||||||||||
Other | 2,880 | 415 | |||||||||||||||||||
Total |
| $ | 92,630 |
| $ | 79,981 |
| $ | 186,526 |
| $ | 156,557 |
| $ | 92,382 | $ | 93,896 |
7
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
Contract Balances
When the timing of the Company’s delivery of product is different from the timing of the payments made by customers, the Company recognizes either a contract asset (performance precedes customer payment) or a contract liability (customer payment precedes performance). Typically, contracts are paid in arrears and are recognized as receivables after the Company considers whether a significant financing component exists.
The opening and closing balances of the Company’s receivables, contract asset, and contract liabilityliabilities are as follows (in thousands):
|
| Receivables |
| Contract Asset |
| Contract Liability |
| |||
Opening balance at April 1, 2019 |
| $ | — |
| $ | — |
| $ | 442 |
|
Closing balance at June 30, 2019 |
| — |
| — |
| 388 |
| |||
Increase/(decrease) |
| $ | — |
| $ | — |
| $ | (54 | ) |
March 31, 2020 | December 31, 2019 | |||||||
Contract liabilities in accrued liabilities | $ | 481 | $ | 454 | ||||
Contract liabilities in other long-term liabilities | 286 | - | ||||||
$ | 767 | $ | 454 |
|
| Receivables |
| Contract Asset |
| Contract Liability |
| |||
Opening balance at April 1, 2018 |
| $ | — |
| $ | — |
| $ | 702 |
|
Closing balance at June 30, 2018 |
| — |
| — |
| 623 |
| |||
Increase/(decrease) |
| $ | — |
| $ | — |
| $ | (79 | ) |
The difference between the opening and closing balances of the Company’s contract assets and contract liabilities primarily results from the timing difference between the Company’s performance and the customer’s payment.
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
Significant Payment Terms
The Company’s contracts with its customers state the final terms of the sale, including the description, quantity, and price of each product or service purchased. Payments are typically due in full within 30-60 days of delivery. Since the customer agrees to a stated rate and price in the contract that do not vary over the contract, the majority of contracts do not contain variable consideration.
Returns, Refunds, and Warranties
In the normal course of business, the Company does not accept product returns unless the item is defective as manufactured. The Company establishes provisions for estimated returns and warranties. All contracts include a standard warranty clause to guarantee that the product complies with agreed specifications.
Practical Expedients
Incremental costs of obtaining a contract - the Company elected to expense the incremental costs of obtaining a contract when the amortization period for such contracts would have been one year or less.
Remaining performance obligations - the Company elected not to disclose the aggregate amount of the transaction price allocated to remaining performance obligations for its contracts that are one year or less, as the revenue is expected to be recognized within the next year.
The time value of money - the Company elected not to adjust the promised amount of consideration for the effects of the time value of money for contracts in which the anticipated period between when the Company transfers the goods or services to the customer and when the customer pays is equal to one year or less.
4.INVENTORIES
4. | INVENTORIES |
Inventories include costs of materials, direct labor and manufacturing overhead, and are stated at the lower of cost (first-in, first-out basis) or net realizable value, as follows (in thousands):
|
| June 30, |
| December 31, |
| March 31, 2020 | December 31, 2019 | ||||||||
Parts and raw materials |
| $ | 34,336 |
| $ | 34,449 |
| $ | 39,901 | $ | 35,849 | ||||
Work-in-process |
| 7,766 |
| 7,557 |
| 7,563 | 6,951 | ||||||||
Finished goods |
| 10,318 |
| 12,965 |
| 12,626 | 10,585 | ||||||||
|
| 52,420 |
| 54,971 |
| 60,090 | 53,385 |
5.PROPERTY, PLANT AND EQUIPMENT
8
Property, plant and equipment is classified as follows (in thousands):
|
| June 30, |
| December 31, |
| ||
Land |
| $ | 980 |
| $ | 981 |
|
Building and improvements |
| 13,154 |
| 13,054 |
| ||
Machinery, equipment, tools and dies |
| 66,723 |
| 60,755 |
| ||
Furniture, fixtures and other |
| 15,577 |
| 15,571 |
| ||
|
| 96,434 |
| 90,361 |
| ||
Less accumulated depreciation |
| (46,654 | ) | (42,326 | ) | ||
Property, plant and equipment, net |
| $ | 49,780 |
| $ | 48,035 |
|
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
5. | PROPERTY, PLANT AND EQUIPMENT |
Property, plant and equipment is classified as follows (in thousands):
March 31, 2020 | December 31, 2019 | |||||||
Land | $ | 972 | $ | 977 | ||||
Building and improvements | 13,502 | 13,366 | ||||||
Machinery, equipment, tools and dies | 75,077 | 73,894 | ||||||
Furniture, fixtures and other | 16,201 | 15,797 | ||||||
105,752 | 104,034 | |||||||
Less accumulated depreciation | (52,779 | ) | (51,026 | ) | ||||
Property, plant and equipment, net | $ | 52,973 | $ | 53,008 |
Depreciation expense was $2,238approximately $2,309 and $1,953$2,227 for the quarters ended June 30,March 31, 2020 and 2019, and 2018, respectively. For the six months ended June 30, 2019 and 2018, depreciation expense was $4,465 and $3,860, respectively.
6.GOODWILL
6. | GOODWILL |
The change in the carrying amount of goodwill for the sixthree months ended June 30, 2019March 31, 2020 and year ended December 31, 20182019 is as follows (in thousands):
|
| June 30, |
| December 31, |
| ||||||||||
|
| 2019 |
| 2018 |
| March 31, 2020 | December 31, 2019 | ||||||||
Beginning balance |
| $ | 52,639 |
| $ | 29,531 |
| $ | 52,935 | $ | 52,639 | ||||
Adjustment to or acquisition of goodwill (Note 2) |
| 579 |
| 23,844 |
| ||||||||||
Goodwill acquired (Note 2) | 6,820 | - | |||||||||||||
Adjustments to goodwill acquired | - | 614 | |||||||||||||
Effect of foreign currency translation |
| (65 | ) | (736 | ) | (673 | ) | (318 | ) | ||||||
Ending balance |
| $ | 53,153 |
| $ | 52,639 |
| $ | 59,082 | $ | 52,935 |
7.INTANGIBLE ASSETS
7. | INTANGIBLE ASSETS |
Intangible assets on the Company’s condensed consolidated balance sheets consist of the following (in thousands):
|
|
|
| June 30, 2019 |
| December 31, 2018 |
| March 31, 2020 | December 31, 2019 | ||||||||||||||||||||||||||||||||||||||
|
| Life |
| Gross |
| Accumulated |
| Net Book |
| Gross |
| Accumulated |
| Net Book |
| Life | Gross Amount | Accumulated amortization | Net Book Value | Gross Amount | Accumulated amortization | Net Book Value | |||||||||||||||||||||||||
Customer lists |
| 8 - 17 years |
| $ | 64,400 |
| $ | (17,339 | ) | $ | 47,061 |
| $ | 64,439 |
| $ | (15,343 | ) | $ | 49,096 |
| 8 - 17 years | $ | 68,342 | $ | (20,258 | ) | $ | 48,084 | $ | 64,314 | $ | (19,311 | ) | $ | 45,003 | |||||||||||
Trade name |
| 10 - 12 years |
| 12,241 |
| (3,712 | ) | 8,529 |
| 12,249 |
| (3,305 | ) | 8,944 |
| 10 - 19 years | 13,607 | (4,314 | ) | 9,293 | 12,222 | (4,114 | ) | 8,108 | |||||||||||||||||||||||
Design and technologies |
| 10-12 years |
| 12,993 |
| (3,150 | ) | 9,843 |
| 13,023 |
| (2,723 | ) | 10,300 |
| 10 - 15 years | 14,625 | (3,727 | ) | 10,898 | 12,927 | (3,554 | ) | 9,373 | |||||||||||||||||||||||
Patents |
| 17 years |
| 24 |
| (11 | ) | 13 |
| 24 |
| (10 | ) | 14 |
| 17 years | 24 | (12 | ) | 12 | 24 | (11 | ) | 13 | |||||||||||||||||||||||
Total |
|
|
| $ | 89,658 |
| $ | (24,212 | ) | $ | 65,446 |
| $ | 89,735 |
| $ | (21,381 | ) | $ | 68,354 |
| $ | 96,598 | $ | (28,311 | ) | $ | 68,287 | $ | 89,487 | $ | (26,990 | ) | $ | 62,497 |
Intangible assets resulting from the acquisition of TCIDynamic Controls were approximately $36,400$7,800 (Note 2). The intangible assets acquired consist of a customer lists,list, a trade name and technology. The valuation and useful life of the purchased intangibles has not been finalized.
Intangible assets from the acquisition of the Maval OE Steering business were approximately $3,870 (Note 2). The intangible assets acquired consist of customer lists.
Amortization expense for intangible assets was $1,430$1,441 and $878$1,432 for the quarters ending June 30,ended March 31, 2020 and 2019, and 2018, respectively. For the six months ended June 30, 2019 and 2018, amortization expense was $2,862 and $1,762, respectively.
Estimated future intangible asset amortization expense as of June 30, 2019 is as follows (in thousands):
|
| Estimated Amortization |
| |
Remainder of 2019 |
| $ | 2,865 |
|
2020 |
| 5,731 |
| |
2021 |
| 5,478 |
| |
2022 |
| 5,478 |
| |
2023 |
| 5,397 |
| |
2024 |
| 5,095 |
| |
Thereafter |
| 35,402 |
| |
Total estimated amortization expense |
| $ | 65,446 |
|
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
8.STOCK-BASED COMPENSATION
Estimated future intangible asset amortization expense as of March 31, 2020 is as follows (in thousands):
Estimated Amortization Expense | ||||
Remainder of 2020 | $ | 4,456 | ||
2021 | 5,905 | |||
2022 | 5,948 | |||
2023 | 5,949 | |||
2024 | 5,625 | |||
Thereafter | 40,404 | |||
Total estimated amortization expense | $ | 68,287 |
8. | STOCK-BASED COMPENSATION |
Stock Incentive Plans
The Company’s Stock Incentive Plans provide for the granting of stock awards, including restricted stock, stock options and stock appreciation rights, to employees and non-employees, including directors of the Company.
Restricted Stock
For the six monthsquarter ended June 30, 2019, 107,828March 31, 2020, 105,864 shares of unvested restricted stock were awarded at a weighted average market value of $42.03.$34.00. Of the restricted shares granted, 76,62975,592 shares have performance basedperformance-based vesting conditions. The value of the shares is amortized to compensation expense over the related service period, which is normally three years, or over the estimated performance period. Shares of unvested restricted stock are generally forfeited if a recipient leaves the Company before the vesting date. Shares that are forfeited become available for future awards.
The following is a summary of restricted stock activity for the six monthsquarter ended June 30, 2019:March 31, 2020:
Number of | ||||
Outstanding at beginning of period |
| 186,702 | ||
Awarded |
| 105,864 | ||
Vested |
| (62,139 | ) | |
Forfeited |
| (1,975 | ) | |
Outstanding at end of period |
| 228,452 |
Stock-based
Stock based compensation expense, net of forfeitures, of $866$789 and $598$674 was recorded for the quarterquarters ended June 30,March 31, 2020 and 2019, and 2018, respectively. For the six months ended June 30, 2019 and 2018, stock-based compensation expense, net of forfeitures, of $1,540 and $1,094 was recorded, respectively.
9.ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
|
| June 30, |
| December 31, |
| ||
|
| 2019 |
| 2018 |
| ||
Compensation and fringe benefits |
| $ | 9,396 |
| $ | 11,642 |
|
Warranty reserve |
| 976 |
| 971 |
| ||
Income taxes payable |
| 1,750 |
| 1,182 |
| ||
Right of use liability |
| 3,475 |
| — |
| ||
Other accrued expenses |
| 4,545 |
| 4,927 |
| ||
|
| $ | 20,142 |
| $ | 18,722 |
|
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
9. | ACCRUED LIABILITIES |
10.DEBT OBLIGATIONS
Accrued liabilities consist of the following (in thousands):
March 31, 2020 | December 31, 2019 | |||||||
Compensation and fringe benefits | $ | 8,584 | $ | 12,967 | ||||
Warranty reserve | 1,460 | 1,075 | ||||||
Income taxes payable | 3,452 | 2,231 | ||||||
Right of use liabilities | 3,734 | 3,203 | ||||||
Other accrued expenses | 4,794 | 3,525 | ||||||
$ | 22,024 | $ | 23,001 |
10. | DEBT OBLIGATIONS |
Debt obligations consisted of the following (in thousands):
|
| June 30, |
| December 31, |
| ||
Long-term Debt |
|
|
|
|
| ||
Revolving Credit Facility, long-term (1) |
| $ | 123,695 |
| $ | 123,010 |
|
Unamortized debt issuance costs |
| (407 | ) | (494 | ) | ||
Long-term debt |
| $ | 123,288 |
| $ | 122,516 |
|
Long-term Debt | March 31, 2020 | December 31, 2019 | ||||||||
Revolving Credit Facility, long-term | (1) | $ | 136,927 | $ | 110,085 | |||||
Unamortized debt issuance costs | (683 | ) | (320 | ) | ||||||
Long-term debt | $ | 136,244 | $ | 109,765 | ||||||
|
(1) The effective rate of the Revolver is 4.19% at June 30, 2019.
(1) The effective rate of the Revolver is 2.89% at March 31, 2020. |
Amended Revolving Credit AgreementFacility
On October 28, 2016,February 12, 2020, the Company entered into a $125,000First Amended and Restated Credit Agreement (the “Amended Credit Agreement”) for a $225 million revolving credit facility (the “Revolving“Amended Revolving Facility”). The significant changes made to the Company’s prior credit facility by the Amended Credit Facility”), with an initialAgreement include (i) increasing the maximum principal amount from $175 million to $225 million, (ii) providing for a $75 million accordion amount, (iii) decreasing certain interest-rate margins and fees, and (iv) extending the term to February 2025 from the original term of five years.
On December 6, 2018,October 2021. HSBC Bank USA, National Association is the Companyadministrative agent, and certain of its subsidiaries entered into a Second Amendment to Credit Agreement to exercise the $50 million accordion feature of its existing senior secured revolving credit facilityHSBC Securities (USA) Inc., KeyBank National Association, Wells Fargo Bank, National Association and to add TCI as an additional guarantor. The Company’s credit facility, which matures in October 2021, increased capacity from $125 million to $175 million with the additional borrowing capacity being provided by the existing lenders. Other terms and conditions under the credit facility remain unchanged. At June 30, 2019 there was approximately $52,762 available under the Revolving Credit Facility.Citizens Bank, N.A. are joint lead arrangers.
Borrowings under the Amended Revolving Credit Facility bear interest at the LIBOR Rate (as defined in the Amended Credit Agreement) plus a margin of 1.00% to 2.25%1.75% or the Prime Rate (as defined in the Amended Credit Agreement) plus a margin of 0% to 1.25%0.75%, in each case depending on the Company’s ratio of total funded indebtedness (as defined in the Amended Credit Agreement) to Consolidated trailing twelve-month EBITDA (the “Total Leverage Ratio”). At June 30, 2019,March 31, 2020, the applicable margin for LIBOR Rate borrowings was 2.00%1.5% and the applicable margin for Prime Rate borrowings was 1.00%0.5%. In addition, the Company is required to pay a commitment fee of between 0.10% and 0.25%0.225% quarterly (currently 0.220%0.175%) on the unused portion of the Amended Revolving facility,Facility, also based on the Company’s Total Leverage Ratio. The Amended Revolving Facility is secured by substantially all of the Company’s non-realty assets and is fully and unconditionally guaranteed by certain of the Company’s subsidiaries.
The Amended Credit Agreement contains certain financial covenants related to minimum interest coverage and total leverage ratio at the end of each quarter. The Amended Credit Agreement also includes other covenants and restrictions, including limits on the amount of additional indebtedness, and restrictions on the Company’s ability to merge or sell all or substantially all of its assets. The Company was in compliance with all covenants at June 30, 2019.March 31, 2020.
As of March 31, 2020, the unused Amended Revolving Facility was approximately $88,073. The amount available to borrow may be reduced based upon our debt and EBITDA levels, which impacts our covenant calculations.
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
Other
The China Credit Facility provides credit of approximately $1,457$1,411 (Chinese Renminbi 10,000) (“the China Facility”). The China Facility is a demand revolving facility used for working capital and capital equipment needs at the Company’s China operations. The term is annual and may be cancelled at the bank’s discretion. The interest rate is 110% of the applicable PBOC Benchmark Lending Rate. Collateral for the facility is a guarantee issued by the Company. There have been no borrowings for the China Credit Facilityduring 2020 and there is no balance in 2019. The balance of the China Facility was zero as ofat March 31, 2020 and December 31, 2018.2019.
11.DERIVATIVE FINANCIAL INSTRUMENTS
11. | DERIVATIVE FINANCIAL INSTRUMENTS |
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and creditforeign exchange risk primarily by managing the amount, sources and duration of its debt funding andthrough the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing and duration of the Company’s known
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings.
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. During October 2013, the Company entered into two identical interest rate swaps with a combined notional of $25,000 that amortized quarterly to a notional of $6,673 at the September 2018 maturity. Neither of these interest rate swaps is currently active as the Company terminated one interest rate swap during October 2016 as part of its debt refinancing, and the second matured September 2018. In February 2017, the Company entered into three interest rate swaps with a combined notional amount of $40,000 that maturesmature in February 2022. In March 2020, the Company entered into two additional interest rate swaps with a combined notional amount of $20,000 that increases to $60,000 in March 2022 and matures in December 2024.
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated Other Comprehensive Income (Loss) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During 20192020 and 2018,2019, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. There was no hedge ineffectiveness recorded in the Company’s earnings during the quarters ended June 30, 2019 and 2018.
The Company estimates that an additional $52$774 will be reclassified as an increase to interest expense over the next twelve months. Additionally, the Company does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are not designated as hedges.
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the condensed consolidated balance sheets as of June 30, 2019March 31, 2020 and December 31, 20182019 (in thousands):
|
|
|
| Asset Derivatives |
|
|
| Liabilty Derivatives |
| ||||||||
|
|
|
| Fair value as of: |
|
|
| Fair value as of: |
| ||||||||
Derivatives designated as |
| Balance Sheet |
| June 30, |
| December 31, |
| Balance Sheet |
| June 30, |
| December 31, |
| ||||
Interest rate products |
| Other assets |
| $ | — |
| $ | 566 |
| Other liabilities |
| $ | 340 |
| $ | — |
|
Asset Derivatives | Liability Derivatives | |||||||||||||||||||
Fair value as of: | Fair value as of: | |||||||||||||||||||
Derivatives designated as hedging instruments | Balance Sheet Location | March 31, 2020 | December 31, 2019 | Balance Sheet Location | March 31, 2020 | December 31, 2019 | ||||||||||||||
Interest rate products | Other long-term assets | $ | - | $ | - | Other long-term liabilities | $ | 1,795 | $ | 363 |
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
The tabletables below presentspresent the effect of cash flow hedge accounting on accumulated other comprehensive income (loss) (OCI) for the threequarters ended March 31, 2020 and six months ended June 30, 2019 and 2018 (in thousands):
|
| Amount of gain (loss) recognized in OCI |
| Amount of gain (loss) recognized in OCI |
| ||||||||
Derivatives in cash flow hedging |
| Three months ended June 30, |
| Six months ended June 30, |
| ||||||||
relationships |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
Interest rate products |
| $ | (387 | ) | $ | 247 |
| $ | (597 | ) | $ | 815 |
|
Amount of gain (loss) recognized in OCI on derivative | ||||||||
Derivatives in cash flow hedging relationships | Three months ended March 31, | |||||||
2020 | 2019 | |||||||
Interest rate products | $ | (1,112 | ) | $ | (210 | ) |
|
| Amount of gain (loss) reclassified from |
| Amount of gain (loss) reclassified from |
| ||||||||
Location of gain (loss) |
| accumulated OCI into income (effective |
| accumulated OCI into income (effective |
| ||||||||
reclassified from |
| portion) |
| portion) |
| ||||||||
accumulated OCI into |
| Three months ended June 30, |
| Six months ended June 30, |
| ||||||||
income |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
Interest expense |
| $ | 49 |
| $ | — |
| $ | 101 |
| $ | (36 | ) |
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
Amount of (gain) loss reclassified from accumulated OCI into income | ||||||||
Location of (gain) loss reclassified from accumulated OCI into income | Three months ended March 31, | |||||||
2020 | 2019 | |||||||
Interest expense | $ | 31 | $ | (52 | ) |
The table below presents the effect of the Company’s derivative financial instruments on the condensed consolidated statementstatements of income and comprehensive income for the three and six months ended June 30, 2019March 31, 2020 and 2018:2019:
|
|
|
| Total amounts of income and expense line |
| Total amounts of income and expense line |
| ||||||||
|
|
|
| items presented that reflect the effects of cash |
| items presented that reflect the effects of cash |
| ||||||||
|
|
|
| flow hedges recorded |
| flow hedges recorded |
| ||||||||
Derivatives designated as |
| Balance Sheet |
| Three months ended June 30, |
| Six months ended June 30, |
| ||||||||
hedging instruments |
| Location |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
Interest rate products |
| Other assets |
| $ | 1,435 |
| $ | 602 |
| $ | 2,615 |
| $ | 1,216 |
|
Total amounts of income and expense line items presented that reflect the effects of cash flow hedges recorded | ||||||||||
Income Statement | Three months ended March 31, | |||||||||
Derivatives designated as hedging instruments | Location | 2020 | 2019 | |||||||
Interest rate products | Interest Expense | $ | 1,054 | $ | 1,180 |
The tables below present a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of June 30, 2019March 31, 2020 and December 31, 2018.2019. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented onin the condensed consolidated balance sheets.
|
|
|
| Gross amounts |
| Net amounts of assets |
|
|
| ||||||||||
|
|
|
| offset in the |
| presented in the |
| Gross amounts not offset in the condensed consolidated |
| ||||||||||
|
| Gross amounts |
| condensed |
| condensed |
| balance sheets |
| ||||||||||
As of |
| of recognized |
| consolidated |
| consolidated balance |
| Financial |
| Cash collateral |
|
|
| ||||||
June 30, 2019 |
| liabilities |
| balance sheets |
| sheets |
| instruments |
| received |
| Net amount |
| ||||||
Derivatives |
| $ | 340 |
| $ | — |
| $ | 340 |
| $ | — |
| $ | — |
| $ | 340 |
|
|
|
|
| Gross amounts |
| Net amounts of |
|
|
| ||||||||||
|
| Gross |
| offset in the |
| assets presented |
| Gross amounts not offset in the condensed |
| ||||||||||
As of |
| amounts of |
| condensed |
| in the condensed |
| consolidated balance sheets |
| ||||||||||
December 31, |
| recognized |
| consolidated |
| consolidated |
| Financial |
| Cash collateral |
|
|
| ||||||
2018 |
| assets |
| balance sheets |
| balance sheets |
| instruments |
| received |
| Net amount |
| ||||||
Derivatives |
| $ | 566 |
| $ | — |
| $ | 566 |
| $ | — |
| $ | — |
| $ | 566 |
|
Gross | Gross amounts offset in the | Net amounts of liabilities presented in | Gross amounts not offset in the condensed consolidated balance sheets | |||||||||||||||||||||
As of March 31, 2020 | amounts of recognized liabilities | condensed consolidated balance sheets | the condensed consolidated balance sheets | Financial instruments | Cash collateral received | Net amount | ||||||||||||||||||
Derivatives | $ | 1,795 | $ | - | $ | 1,795 | $ | - | $ | - | $ | 1,795 |
Gross | Gross amounts offset in the | Net amounts of liabilities presented in | Gross amounts not offset in the condensed consolidated balance sheets | |||||||||||||||||||||
As of December 31, 2019 | amounts of recognized liabilities | condensed consolidated balance sheets | the condensed consolidated balance sheets | Financial instruments | Cash collateral received | Net amount | ||||||||||||||||||
Derivatives | $ | 363 | $ | - | $ | 363 | $ | - | $ | - | $ | 363 |
The Company has agreements with each of its derivative counterparties that contain a provision where if the Company either defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations.
12.FAIR VALUE
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
12. | FAIR VALUE |
Authoritative guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date.
The guidance establishes a framework for measuring fair value which utilizes observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. Preference is given to observable inputs.
These two types of inputs create the following three-level fair value hierarchy:
The Company’s financial assets and liabilities include cash and cash equivalents, accounts receivable, debt obligations, accounts payable, and accrued liabilities. The carrying amounts reported in the condensed consolidated balance sheets for these assets approximate fair value because of the immediate or short-term maturities of these financial instruments.
The following tabletables presents the Company’s financial assets that are accounted for at fair value on a recurring basis as of June 30, 2019March 31, 2020 and December 31, 2018,2019, respectively, by level within the fair value hierarchy (in thousands):
|
| June 30, 2019 |
| |||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| |||
Assets (liabilities) |
|
|
|
|
|
|
| |||
Pension plan assets |
| $ | 5,773 |
| $ | — |
| $ | — |
|
Other long-term assets |
| 4,471 |
| — |
| — |
| |||
Interest rate swaps |
| — |
| (264 | ) | — |
| |||
|
| December 31, 2018 |
| March 31, 2020 | ||||||||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Level 1 | Level 2 | Level 3 | ||||||||||||
Assets |
|
|
|
|
|
|
| |||||||||||||||
Assets (liabilities) | ||||||||||||||||||||||
Pension plan assets |
| $ | 5,231 |
| $ | — |
| $ | — |
| $ | 5,002 | $ | - | $ | - | ||||||
Other long-term assets |
| 3,962 |
| — |
| — |
| 3,884 | - | - | ||||||||||||
Interest rate swaps |
| — |
| 434 |
| — |
| - | (1,795 | ) | - |
13.INCOME TAXES
December 31, 2019 | ||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||
Assets (liabilities) | ||||||||||||
Pension plan assets | $ | 6,099 | $ | - | $ | - | ||||||
Other long-term assets | 4,690 | - | - | |||||||||
Interest rate swaps | - | (363 | ) | - |
13. | INCOME TAXES |
The income tax provision for interim periods is determined using an estimate of the annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter, the estimate of the annual effective tax rate is updated, and if the estimated effective tax rate changes, a cumulative adjustment is made. There is a potential for volatility of the effective tax rate due to several factors, including changes in the mix of the pre-tax income and the jurisdictions to which it relates, changes in tax laws, settlements with taxing authorities and foreign currency fluctuations.
The effective income tax rate as a percentage of income before income taxes was 28.0% and 27.4%27.5% in the secondfirst quarter 20192020 and 2018,2019, respectively. The effective tax rate is net of a discrete tax provision of 0.3% and benefit of (0.5%(1.8%), rate for the secondfirst quarters of 20192020 and 2018 related primarily to the recognition of excess tax benefits for share-based payment awards. For the six months ended June 30, 2019 and 2018, the effective income tax rate as a percentage of income before income taxes was 27.7% and 26.8%, respectively. For the six-month periods ending June 30, 2019 and 2018, the effective rate is net of a discrete tax benefit of (1.1%) and (1.4%), respectively, related primarily to the recognition of excess tax benefitsprovision and benefit for share-based payment awardsawards.
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
The effective rate before discrete items varies from the statutory rate primarily due to differences in state taxes, the impact of international tax provisions in the US, the difference in foreign tax rates and the mix of foreign and domestic income. The increase in the effective income tax rate as a percentage of income before income taxes from secondfirst quarter 20182019 to 20192020 is a result of limited deductibility of Executive Compensation and Global Intangible Low-Taxed Income, both of which are on-going provisions of the Tax Cuts and Jobs Act that was enacted on December 22, 2017.
14.LEASES
Accounting Standards Update ASU No. 2016-02, Leases (Topic 842), requires the Company to recognize a right of use (“ROU”) asset and a lease liability for all leases with terms greater than 12 months. Refer to Note 19 — Recent Accounting Pronouncements for discussion on the adoption of Topic 842.
14. | LEASES |
The Company has operating leases for office space, manufacturing equipment, computer equipment and automobiles. Many leases include one or more options to renew, some of which include options to extend the leases for a long-term period, and
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
some leases include options to terminate the leases within 30 days. In certain of the Company’s lease agreements, the rental payments are adjusted periodically to reflect actual charges incurred for capital area maintenance, utilities, inflation and/or changes in other indexes.
For the three and six months ended June 30, 2019, theThe components of operating lease expense were as follows (in thousands):
|
| Three months ended |
| Six months ended |
| ||||||||||
|
| June 30, 2019 |
| June 30, 2019 |
| March 31, 2020 | March 31, 2019 | ||||||||
Fixed operating lease expense |
| $ | 1,023 |
| $ | 2,039 |
| $ | 1,028 | $ | 1,016 | ||||
Variable operating lease expense |
| 40 |
| 79 |
| 231 | 39 | ||||||||
|
| $ | 1,063 |
| $ | 2,118 |
| $ | 1,259 | $ | 1,055 |
Supplemental cash flow information related to the Company’s operating leases for the six-monththree-month period ended June 30,March 31, 2020 and 2019 was as follows (in thousands):
For the three months ended March 31, | ||||||||||||
2020 | 2019 | |||||||||||
Cash paid for amounts included in the measurement of operating leases |
| $ | 2,069 |
| $ | 1,001 | $ | 1,031 | ||||
ROU assets obtained in exchange for operating lease obligations |
| $ | 20,529 |
| $ | 2,710 | $ | 122 | ||||
ROU assets recorded upon adoption of ASC 842 | $ | - | $ | 20,344 |
The following table presents the lease balances within the Condensed Consolidated Balance Sheet, weighted average remaining lease term, and weighted average discount rates related to the Company’s operating leases as of June 30, 2019 (in thousands except for the weighted average remaining lease term and weighted average discount rate):
Lease assets and liabilities |
| Classification |
| Amount |
| |
Assets: |
|
|
|
|
| |
Right of use asset |
| Other long-term assets |
| $ | 18,164 |
|
|
|
|
|
|
| |
Liabilities: |
|
|
|
|
| |
Current |
|
|
|
|
| |
Right of use liability, current |
| Accrued liabilities |
| $ | 3,475 |
|
Long-term |
|
|
|
|
| |
Right of use liability, long-term |
| Other long-term liabilities |
| 15,206 |
| |
Total ROU lease liabilities |
|
|
| $ | 18,681 |
|
|
|
|
|
|
| |
Weighted average remaining lease term |
|
|
| 9 years |
| |
Weighted average discount rate |
|
|
| 2.9 | % |
The following table presents the maturity of the Company’s operating lease liabilities as of June 30, 2019 (in thousands):
2020 |
| $ | 3,958 |
|
2021 |
| 3,195 |
| |
2022 |
| 2,612 |
| |
2023 |
| 2,129 |
| |
2024 |
| 1,832 |
| |
Thereafter |
| 6,992 |
| |
Total undiscounted cash flows |
| 20,718 |
| |
Less: present value discount |
| (2,037 | ) | |
Total lease liabilities |
| $ | 18,681 |
|
As of June 30, 2019, the Company had no additional significant operating or finance leases that had not yet commenced.
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
15.ACCUMULATED OTHER COMPREHENSIVE INCOMEThe following table presents the lease balances within the condensed consolidated balance sheet, weighted average remaining lease term, and weighted average discount rates related to the Company’s operating leases as of March 31, 2020 and 2019 (in thousands except for the weighted average remaining lease term and weighted average discount rate):
Three months ended | ||||||||||
Lease assets and liabilities | Classification | March 31, 2020 | December 31, 2019 | |||||||
Assets: | ||||||||||
Right of use assets | Other long-term assets | $ | 18,221 | $ | 16,420 | |||||
Liabilities: | ||||||||||
Current | ||||||||||
Right of use liabilities, current | Accrued liabilities | $ | 3,734 | $ | 3,203 | |||||
Long-term | ||||||||||
Right of use liabilities, long-term | Other long-term liabilities | 14,684 | 13,715 | |||||||
Total ROU lease liabilities | $ | 18,418 | $ | 16,918 | ||||||
Weighted average remaining lease term | 7.71 | 8.27 | ||||||||
Weighted average discount rate | 2.80 | % | 2.91 | % |
Accumulated Other Comprehensive Income (“AOCI”) forThe following table presents the quarter ended June 30, 2019 and 2018 is comprisedmaturity of the followingCompany’s operating lease liabilities as of March 31, 2020 (in thousands):
|
| Defined Benefit |
| Cash Flow Hedges |
| Foreign Currency |
| Total |
| ||||
At March 31, 2019 |
| $ | (1,006 | ) | $ | 172 |
| $ | (8,833 | ) | $ | (9,667 | ) |
Unrealized loss on cash flow hedges |
| — |
| (387 | ) | — |
| (387 | ) | ||||
Amounts reclassified from AOCI |
| — |
| (49 | ) | — |
| (49 | ) | ||||
Foreign currency translation loss |
| — |
| — |
| 548 |
| 548 |
| ||||
At June 30, 2019 |
| $ | (1,006 | ) | $ | (264 | ) | $ | (8,285 | ) | $ | (9,555 | ) |
|
| Defined Benefit |
| Cash Flow Hedges |
| Foreign Currency |
| Total |
| ||||
At March 31, 2018 |
| $ | (945 | ) | $ | 800 |
| $ | (3,150 | ) | (3,295 | ) | |
Unrealized gain on cash flow hedges |
| — |
| 247 |
| — |
| 247 |
| ||||
Amounts reclassified from AOCI |
| — |
| — |
| — |
| — |
| ||||
Foreign currency translation loss |
| — |
| — |
| (3,532 | ) | (3,532 | ) | ||||
At June 30, 2018 |
| $ | (945 | ) | $ | 1,047 |
| $ | (6,682 | ) | $ | (6,580 | ) |
Remaining 2020 | $ | 3,078 | ||
2021 | 3,568 | |||
2022 | 2,779 | |||
2023 | 2,425 | |||
2024 | 2,010 | |||
2025 | 1,991 | |||
Thereafter | 4,333 | |||
Total undiscounted cash flows | 20,184 | |||
Less: present value discount | (1,766 | ) | ||
Total lease liabilities | $ | 18,418 |
AOCI forAs of March 31, 2020, the six months ended June 30, 2018 and 2017 is comprised of the following (in thousands):Company had no additional significant operating or finance leases that had not yet commenced.
|
| Defined Benefit |
| Cash Flow Hedges |
| Foreign Currency |
| Total |
| ||||
At December 31, 2018 |
| $ | (1,006 | ) | $ | 434 |
| $ | (7,946 | ) | $ | (8,518 | ) |
Unrealized loss on cash flow hedges |
| — |
| (597 | ) | — |
| (597 | ) | ||||
Amounts reclassified from AOCI |
| — |
| (101 | ) | — |
| (101 | ) | ||||
Foreign currency translation loss |
| — |
| — |
| (339 | ) | (339 | ) | ||||
At June 30, 2019 |
| $ | (1,006 | ) | $ | (264 | ) | $ | (8,285 | ) | $ | (9,555 | ) |
|
| Defined Benefit |
| Cash Flow |
| Foreign Currency |
| Total |
| ||||
At December 31, 2017 |
| $ | (945 | ) | $ | 196 |
| $ | (4,837 | ) | $ | (5,586 | ) |
Unrealized gain on cash flow hedges |
| — |
| 815 |
| — |
| 815 |
| ||||
Amounts reclassified from AOCI |
| — |
| 36 |
| — |
| 36 |
| ||||
Foreign currency translation loss |
| — |
| — |
| (1,845 | ) | (1,845 | ) | ||||
At June 30, 2018 |
| $ | (945 | ) | $ | 1,047 |
| $ | (6,682 | ) | $ | (6,580 | ) |
The realized gains relating to the Company’s interest rate swap hedges were reclassified from accumulated other comprehensive income and included in interest expense in the Condensed Consolidated Statements of Income and Comprehensive Income.
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
16.DIVIDENDS PER SHARE
15. | ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |
Accumulated Other Comprehensive Income (Loss) (“AOCI”) for the quarters ended March 31, 2020 and 2019 is comprised of the following (in thousands):
Defined Benefit Plan Liability | Cash Flow Hedges | Foreign Currency Translation Adjustment | Total | |||||||||||||
At December 31, 2019 | $ | (1,628 | ) | $ | (277 | ) | $ | (8,626 | ) | $ | (10,531 | ) | ||||
Unrealized loss on cash flow hedges | - | (1,119 | ) | - | (1,119 | ) | ||||||||||
Amounts reclassified from AOCI | - | 31 | - | 31 | ||||||||||||
Foreign currency translation loss | - | - | (2,428 | ) | (2,428 | ) | ||||||||||
At March 31, 2020 | $ | (1,628 | ) | $ | (1,365 | ) | $ | (11,054 | ) | $ | (14,047 | ) |
Defined Benefit Plan Liability | Cash Flow Hedges | Foreign Currency Translation Adjustment | Total | |||||||||||||
At December 31, 2018 | $ | (1,006 | ) | $ | 434 | $ | (7,946 | ) | $ | (8,518 | ) | |||||
Unrealized loss on cash flow hedges | - | (210 | ) | - | (210 | ) | ||||||||||
Amounts reclassified from AOCI | - | (52 | ) | - | (52 | ) | ||||||||||
Foreign currency translation loss | - | - | (887 | ) | (887 | ) | ||||||||||
At March 31, 2019 | $ | (1,006 | ) | $ | 172 | $ | (8,833 | ) | $ | (9,667 | ) |
The realized losses relating to the Company’s interest rate swap hedges were reclassified from accumulated other comprehensive income (loss) and included in interest expense in the Condensed Consolidated Statements of Operations and Comprehensive Income.
16. | DIVIDENDS PER SHARE |
The Company declared a quarterly dividend of $0.030$0.03 per share in the first quarter of 2020 and second quarters of 2019. Dividends declared for the first and second quarters of 2018 were at $0.025 and $0.030 per share, respectively. Total dividends declared were $290 and $287 in the first six monthsquarter of 2020 and 2019, respectively. The declared dividends were paid in April 2020 and 2018 were $575 and $520,2019, respectively.
17.EARNINGS PER SHARE
17. | EARNINGS PER SHARE |
Basic and diluted weighted-average shares outstanding are as follows:
Three months ended | |||||||||||||||||
|
| Three months ended June 30, |
| Six months ended June 30, |
| March 31, | |||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2020 | 2019 | ||||||
Basic weighted average shares outstanding |
| 9,408 |
| 9,268 |
| 9,378 |
| 9,241 |
| 9,453 | 9,340 | ||||||
Dilutive effect of equity awards |
| 48 |
| 88 |
| 41 |
| 80 |
| 63 | 35 | ||||||
Diluted weighted average shares outstanding |
| 9,456 |
| 9,356 |
| 9,419 |
| 9,321 |
| 9,516 | 9,375 |
For the three and six months ended June 30,March 31, 2020 and 2019, the anti-dilutive common shares excluded from the calculation of diluted earnings per share were immaterial.
18.SEGMENT INFORMATION
17
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
18. | SEGMENT INFORMATION |
The Company operates in one segment for the manufacture and marketing of controlled motion products for original equipment manufacturers and end user applications. The Company’s chief operating decision maker has been identified as the Chief Executive Officer and President, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products and services in which the entity holds material assets and reports revenue.
Financial information related to the foreign subsidiaries is summarized below (in thousands):
|
| Three months ended June 30, |
| Six months ended June 30, |
| ||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
Revenues derived from foreign subsidiaries |
| $ | 29,985 |
| $ | 33,497 |
| $ | 64,567 |
| $ | 65,903 |
|
Three months ended | ||||||||
March 31, | ||||||||
2020 | 2019 | |||||||
Revenues derived from foreign subsidiaries | $ | 36,013 | $ | 34,579 |
Identifiable foreign assets were $93,952$123,749 and $88,400$95,777 as of June 30, 2019March 31, 2020 and December 31, 2018,2019, respectively.
Revenues derived from foreign subsidiaries and identifiable assets outside of the United States are primarily attributable to Europe.
Sales to customers outside of the United States by all subsidiaries were $38,802$43,389 and $38,395$43,680 during the quarters ended June 30,March 31, 2020 and 2019, and 2018, respectively; and $82,485 and $74,698 for the six months ended June 30, 2019 and 2018, respectively.
For secondfirst quarter 20192020 and 2018,2019, one customer accounted for 15%13% and 20% of revenues, respectively; and for the year to date 2019 and 2018 for 16% and 20% of revenues, respectively. As of June 30, 2019,March 31, 2020, and December 31, 20182019 this customer represented 17%13% and 13%20% of trade receivables, respectively.
ALLIED MOTION TECHNOLOGIES INC.
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
19.RECENT ACCOUNTING PRONOUNCEMENTS
19. | RECENT ACCOUNTING PRONOUNCEMENTS |
Recently adopted accounting pronouncements
In FebruaryJune 2016, the FASB issued Accounting Standards Update ASU No. 2016-02, (“ASU”) 2016-13,LeasesFinancial Instruments - Credit Losses (Topic 842)326): Measurement of Credit Losses on Financial Instruments., whichThis guidance requires lessees to recognize a right-of-use (“ROU”) assetthe measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and a lease liability for all leases with terms greater than 12 monthsreasonable and supportable forecasts. This guidance also requires enhanced disclosures by lesseesregarding significant estimates and lessors about the amount, timing and uncertainty of cash flows arising from leases. Subsequent to the issuance of Topic 842, the FASB clarified the guidance through several ASUs; hereinafter the collection of leasejudgments used in estimating credit losses. The new guidance is referred to as “ASC 842”.
Oneffective for fiscal years beginning after December 15, 2019. The Company adopted this ASU on January 1, 2019, the Company adopted ASC 842 using2020 applying the modified retrospective method for all lease arrangements atapproach and the beginning of the period of adoption. Results for reporting periods beginning January 1, 2019 are presented under ASC 842, while prior period amounts wereadoption did not adjusted and continue to be reported in accordance with the Company’s historic accounting under ASC 840, Leases. The standard hadhave a material impact on its condensed consolidated financial statements.
In January 2017, the Company’s Consolidated Condensed Balance Sheet butFASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The guidance in ASU 2017-04 eliminates the requirement to determine the fair value of individual assets and liabilities of a reporting unit to measure goodwill impairment. Under the amendments in the new ASU, goodwill impairment testing will be performed by comparing the fair value of the reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. ASU 2017-04 is effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company adopted this standard on January 1, 2020 on a prospective basis and the adoption did not have a significantmaterial impact on the Company’sits condensed consolidated net income and cash flows. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases. For leases that commenced before the effective date of ASC 842, the Company elected the permitted practical expedients to not reassess the following: (i) whether any expired or existing contracts contain leases; (ii) the lease classification for any expired or existing leases; and (iii) initial direct costs for any existing leases. The Company also elected to exclude leases with a term of 12 months or less in the recognized ROU assets and lease liabilities, when the likelihood of renewal is not probable.financial statements.
As a result of the cumulative impact of adopting ASC 842, the Company recorded operating lease ROU assets of $19,728 and operating lease liabilities of $20,350 as of January 1, 2019, primarily related to real estate, equipment and automobile leases, based on the present value of the future lease payments on the date of adoption. Refer to Note 14 - Leases for the additional disclosures required by ASC 842.
The Company determines if an arrangement is a lease at inception. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit interest rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The ROU asset also consists of any prepaid lease payments and deferred rent liabilities. The lease terms used to calculate the ROU asset and related lease liability include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense. The Company has lease agreements which require payments for lease and non-lease components and has elected to account for these as a single lease component.
Recently issued accounting pronouncements
In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820)”, which modifies the disclosures on fair value measurements by removing the requirement to disclose the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and the policy for timing of such transfers. The ASU expands the disclosure requirements for Level 3 fair value measurements, primarily focused on changes in unrealized gains and losses included in other comprehensive income (loss). The ASU is effective for public entities for fiscal years beginning after December 15, 2019, with early adoption permitted. Management2019. The Company has not yet completedhistorically had any transfers between Level 1 and Level 2 or assets or liabilities measured at fair value under Level 3. The Company adopted this ASU on January 1, 2020 on a prospective basis and the adoption did not have a material impact on its assessment of the impact of the new standard on the Company’scondensed consolidated financial statements.
In June 2016,March 2020, the FASB issued ASU 2016-13, “2020-04,Financial Instruments - Credit LossesReference Rate Reform (Topic 326)848): MeasurementFacilitation of Credit Lossesthe Effects of Reference Rate Reform on Financial Instruments”Reporting. This guidance requires the measurement of all expected credit lossesprovides relief for financial assets held at the reporting date based on historical experience, current conditionsimpacted areas as it relates to impending reference rate reform and reasonablecontains optional expedients and supportable forecasts.exceptions for applying US GAAP to contracts, hedging relationships, and other areas or transactions, subject to meeting certain criteria, that are impacted by reference rate reform. This guidance also requires enhanced disclosures regarding significant estimates and judgments used in estimating credit losses. The new guidanceASU is effective upon issuance for fiscal years beginning after December 15, 2019. Early adoption is permitted for fiscal years,all entities and interim periods within those fiscal years, beginning after December 15, 2018.elections of certain optional expedients are required to apply the provisions of the guidance. The Company adopted this ASU effective January 1, 2020 on a prospective basis, and at this time the Company is currently evaluatingelecting the impact thatexpedient codified in ASC 848-50-25-2 to continue to assert probability of hedged interest payments, regardless of any expected future modification in terms related to reference rate reform. Should the Company elect further optional expedients as it relates to reference rate reform, disclosure of those elections will be done in the fiscal period in which the elections are made. The adoption of this guidance willdid not have a material impact on its condensed consolidated financial statements.
18
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
All statements contained herein that are not statements of historical fact constitute “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, and may contain the word “believe,” “anticipate,” “expect,” “project,” “intend,” “will continue,” “will likely result,” “should” or words or phrases of similar meaning. Forward-looking statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from the expected results described in the forward-looking statements. The risks and uncertainties include those associated with: the domestic and foreign general business and economic conditions in the markets we serve, including political and currency risks and adverse changes in local legal and regulatory environments; 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 introduction of new technologies and the impact of competitive products; the ability to protect the Company’s intellectual property; our ability to sustain, manage or forecast its growth and product acceptance to accurately align capacity with demand; the continued success of our customers and the ability to realize the full amounts reflected in our order backlog as revenue; the loss of significant customers or the enforceability of the Company’s contracts in connection with a merger, acquisition, disposition, bankruptcy, or otherwise; our ability to meet the technical specifications of our customers; the performance of subcontractors or suppliers and the continued availability of parts and components; changes in government regulations; the availability of financing and our access to capital markets, borrowings, or financial transactions to hedge certain risks; the ability to attract and retain qualified personnel who can design new applications and products for the motion industry; the ability to implement our corporate strategies designed for growth and improvement in profits including to identify and consummate favorable acquisitions to support external growth and the development of new technologies; the ability to successfully integrate an acquired business into our business model without substantial costs, delays, or problems; our the ability to control costs, including the establishment and operation of low cost region manufacturing and component sourcing capabilities; and the additional risk factors discussed under “Item 1A. Risk Factors” in Part II of this report and in the Company’s Annual Report in Form 10-K. Actual results, events and performance may differ materially. Readers are cautioned not to place undue reliance on these forward- looking statements as a prediction of actual results. 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.
New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on its business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. The Company’s expectations, beliefs and projections are the and are believed to have a reasonable basis; however, the Company makes no assurance that expectations, beliefs or projections will be achieved.
Overview
Overview
We are a global company that designs, manufactures and sells precision and specialty controlled motion components and systems used in a broad range of industries. Our target markets include Vehicle, Medical, Aerospace & Defense, and Industrial. We are headquartered in Amherst, NY, and have operations in the United States, Canada, Mexico, Europe and Asia.Asia-Pacific. We are known worldwide for our expertise in electro-magnetic, mechanical and electronic motion technology. We sell component and integrated controlled motion solutions to end customers and original equipment manufacturers (“OEMs”)OEMs through our own direct sales force and authorized manufacturers’ representatives and distributors. Our products include brush and brushless DC motors, brushless servo and torque motors, coreless DC motors, integrated brushless motor-drives, gearmotors, gearing, modular digital servo drives, motion controllers, incremental and absolute optical encoders, active and passive filters for power quality and harmonic issues, and other controlled motion-related products.products.
Business Environment
The ongoing outbreak of the novel strain of Coronavirus (“COVID-19”) has resulted, and will continue to result, in significant economic disruption and has and will adversely affect our business, including our supply chain and operations. We also have experienced, and expect to continue to experience, reductions in customer demand in several of our served markets, primarily Vehicle. We expect that the social distancing measures, the reduced operational status of our suppliers and reductions in production at certain facilities will more meaningfully impact our operations in the second quarter, and general business uncertainty will continue to negatively impact demand in several of our served markets in the second quarter, and possibly beyond. During the first quarter of 2020, the impact of COVID-19 on our operations was most pronounced in North America, where we experienced interruption of our operations due to weakening demand and supply chain difficulties.
In response to the worldwide outbreak, we have taken proactive, aggressive action to protect the health and safety of our employees, customers, partners and suppliers. We enacted rigorous safety measures in all of our sites, including implementing social distancing protocols, requiring working from home for those employees that do not need to be physically present on the manufacturing floor or in a lab to perform their work, suspending travel, implementing temperature checks at the entrances to our facilities, extensively and frequently disinfecting our workspaces and providing masks to those employees who must be physically present. We expect to continue to implement these measures and we may take further actions as government authorities require or recommend or as we determine to be in the best interests of our employees, customers, partners and suppliers.
We are approaching our response to the current landscape with a recognition that our Company provides essential and important products that our customers rely on to address this crisis. We manufacture and deliver critical motion control components, including electronic drives, motors and control assemblies to manufacturers of medical equipment including respirators, ventilators, infusion pumps, medical fluid pumps and other breathing assist equipment required to care for patients with respiratory issues including the coronavirus. We have also been a long-term, qualified supplier to leading medical device manufacturers of ventilators and respirators around the world.
Global capacity to produce ventilators has increased significantly and we are a reliable supplier of the critical motion control components it requires.
We also provide solutions to suppliers of other types of medical equipment including surgical tools and equipment, surgical robots, diagnostic equipment, test equipment, patient mobility and rehabilitation equipment, hospital beds and mobile equipment carts. The Company rapidly deployed resources to increase production capacity to meet the recent surge in demand for certain types of medical products, related to combatting the COVID-19 virus.
Our worldwide locations are considered to be essential suppliers to our customers and therefore most of our locations have remained substantially operational during the outbreak while implementing the enhanced safety procedures. Our facility in China was shut down for a small portion of the first quarter and is fully operational currently.
We took actions in the first quarter to strengthen our liquidity and financial condition. In February 2020, we renewed and increased our revolving credit facility (“Amended Revolving Facility”) to $225 million through February 2025 (refer to Note 10, “Debt Obligations” from our condensed consolidated financial statements). Through this amendment we lowered our cost of debt, and secured more favorable covenants. While part of our pre-COVID-19 planning, this liquidity preserves our financial flexibility during the pandemic. We believe that our cashflows from operations and borrowing capacity are sufficient to support our short and long-term liquidity needs.
To conserve cash while supporting growth plans, we are aligning variable costs with demand, maintaining key engineering capabilities, freezing hiring activity and wages and tightly controlling discretionary spending.
The extent of the impact of the COVID-19 outbreak on our operational and financial performance will depend on certain developments, including the duration and spread of the virus, its impact on our customers and the range of governmental reactions to the pandemic, which cannot be predicted at this time. We will continue to proactively respond to the situation and will take further actions as warranted to alter our business operations as required.
20
Operating Results
Financial overviewQuarter ended March 31, 2020 compared to quarter ended March 31, 2019
For the quarter ended | 2020 vs. 2019 | |||||||||||||||
March 31, | Variance | |||||||||||||||
(in thousands) | 2020 | 2019 | $ | % | ||||||||||||
Revenues | $ | 92,382 | $ | 93,896 | $ | (1,514 | ) | (2 | )% | |||||||
Cost of goods sold | 64,340 | 66,234 | (1,894 | ) | (3 | )% | ||||||||||
Gross profit | 28,042 | 27,662 | 380 | 1 | % | |||||||||||
Gross margin percentage | 30.4 | % | 29.5 | % | ||||||||||||
Operating costs and expenses: | ||||||||||||||||
Selling | 4,243 | 4,093 | 150 | 4 | % | |||||||||||
General and administrative | 9,162 | 8,950 | 212 | 2 | % | |||||||||||
Engineering and development | 6,234 | 5,807 | 427 | 7 | % | |||||||||||
Business development | 247 | 53 | 194 | 366 | % | |||||||||||
Amortization of intangible assets | 1,441 | 1,432 | 9 | 1 | % | |||||||||||
Total operating costs and expenses | 21,327 | 20,335 | 992 | 5 | % | |||||||||||
Operating income | 6,715 | 7,327 | (612 | ) | (8 | )% | ||||||||||
Interest expense | 1,054 | 1,180 | (126 | ) | (11 | )% | ||||||||||
Other expense (income) | 59 | (18 | ) | 77 | (428 | )% | ||||||||||
Total other expense | 1,113 | 1,162 | (49 | ) | (4 | )% | ||||||||||
Income before income taxes | 5,602 | 6,165 | (563 | ) | (9 | )% | ||||||||||
Provision for income taxes | (1,567 | ) | (1,695 | ) | 128 | (8 | )% | |||||||||
Net Income | $ | 4,035 | $ | 4,470 | $ | (435 | ) | (10 | )% | |||||||
Effective tax rate | 28.0 | % | 27.5 | % | 0 | % | 2 | % | ||||||||
Diluted earnings per share | $ | 0.42 | $ | 0.48 | $ | (0.06 | ) | (13 | )% | |||||||
Bookings | $ | 92,923 | $ | 93,744 | $ | (821 | ) | (1 | )% | |||||||
Backlog | $ | 133,187 | $ | 130,646 | $ | 2,541 | 2 | % | ||||||||
REVENUES: For the quarter, the decrease in revenues reflects the impact of declines in the markets we serve due to recent market conditions. The addition of revenues from Dynamic Controls were more than offset by declines in many of the markets we serve, most notably in our Vehicle market.
Growth across allSales to U.S. customers were 53% of total sales for the Company’s served markets ledfirst quarter 2020 compared with 54% for the same period last year, with the balance of sales to leveraging of costscustomers primarily in Europe, Canada and expansion of margins. Excluding the unfavorable effects of foreign currency exchange (“FX”) of $2,010, second quarterAsia. The overall decrease in revenue was $94,640, up 18.3%. Fordue to a 0.1% volume decrease along with a 1.5% unfavorable currency impact. Revenue for the six months ended June 30,first quarter 2020 was comparable to 2019 excluding the unfavorable effects of FX of $5,150, revenue was $191,676, up 22.4%. Revenuewhen excluding foreign currency exchange impacts is a non-GAAP measurement. Refer tofrom both periods. See information included in “Non -– GAAP Measures” below for a discussion of the non-GAAP measure and reconciliation of revenue to revenue excluding foreign currency exchange impacts.
Our One Allied strategy to gain market share with our unique ability to provide engineered solutions for our customers isORDER BOOKINGS AND BACKLOG: The decrease in orders in the primary driverfirst quarter of our growth in 2019. Our business operating system, Allied Systematic Tools (AST), is contributing to
stronger margins. Improved product mix helped to overcome an ongoing supplier issue. Our recent acquisition, TCI continues to be a strong contributor to sales and earnings and has strategically expanded our market access.
Operating Results
Quarter ended June 30, 20192020 compared to quarter ended June 30, 2018
|
| For the quarter ended |
| 2019 vs. 2018 |
| |||||||
|
| June 30, |
| Variance |
| |||||||
(in thousands) |
| 2019 |
| 2018 |
| $ |
| % |
| |||
Revenues |
| $ | 92,630 |
| $ | 79,981 |
| $ | 12,649 |
| 16 | % |
Cost of goods sold |
| 64,208 |
| 56,464 |
| 7,744 |
| 14 | % | |||
Gross profit |
| 28,422 |
| 23,517 |
| 4,905 |
| 21 | % | |||
Gross margin percentage |
| 30.7 | % | 29.4 | % |
|
|
|
| |||
Operating costs and expenses: |
|
|
|
|
|
|
|
|
| |||
Selling |
| 4,136 |
| 2,943 |
| 1,193 |
| 41 | % | |||
General and administrative |
| 9,569 |
| 8,336 |
| 1,233 |
| 15 | % | |||
Engineering and development |
| 5,676 |
| 4,963 |
| 713 |
| 14 | % | |||
Business development |
| 3 |
| 165 |
| (162 | ) | (98 | )% | |||
Amortization of intangible assets |
| 1,430 |
| 878 |
| 552 |
| 63 | % | |||
Total operating costs and expenses |
| 20,814 |
| 17,285 |
| 3,529 |
| 20 | % | |||
Operating income |
| 7,608 |
| 6,232 |
| 1,376 |
| 22 | % | |||
Interest expense |
| 1,435 |
| 602 |
| 833 |
| 138 | % | |||
Other (expense) income |
| (1 | ) | (200 | ) | 199 |
| (100 | )% | |||
Total other expense |
| 1,434 |
| 402 |
| 1,032 |
| 257 | % | |||
Income before income taxes |
| 6,174 |
| 5,830 |
| 344 |
| 6 | % | |||
Provision for income taxes |
| (1,729 | ) | (1,599 | ) | (130 | ) | 8 | % | |||
Net Income |
| $ | 4,445 |
| $ | 4,231 |
| $ | 214 |
| 5 | % |
|
|
|
|
|
|
|
|
|
| |||
Effective tax rate |
| 28.0 | % | 27.4 | % | 1 | % | 2 | % | |||
Diluted earnings per share |
| $ | 0.47 |
| $ | 0.45 |
| $ | 0.02 |
| 4 | % |
Bookings |
| $ | 95,317 |
| $ | 86,238 |
| $ | 9,079 |
| 11 | % |
Backlog |
| $ | 133,507 |
| $ | 111,170 |
| $ | 22,337 |
| 20 | % |
NET INCOME: Net income increased during the secondfirst quarter of 2019 reflecting a significantis largely due to the effect of COVID-19 on the markets we serve along with unfavorable foreign currency impacts. The increase in backlog as of March 31, 2020, compared to at March 31, 2019 was due to the addition of Dynamic Controls at the end of the first quarter 2020.
GROSS PROFIT AND GROSS MARGIN: Gross margin increased to 30.4% for the first quarter of 2020, compared to 29.5% for the first quarters of 2019. The increase reflects sales of higher margin products during the quarter, enhanced by the reduction in Vehicle sales that tend to have lower margins.
SELLING EXPENSES: Selling expenses increased in the first quarter of 2020 compared to the same period of 2019. This was due to Dynamic Controls and higher outside commissions. Selling expenses as a percentage of revenues were 4.6% in the first quarter of 2020 compared to 4.4% for the same period last year.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses increased by 2% in the first quarter 2020 from the first quarter 2019 due to the incremental expenses from Dynamic Controls partially offset by reduced incentive compensation. As a percentage of revenues, general and administrative expenses were 9.9% for the quarter ended March 31, 2020 compared to 9.5% for the same period in 2019.
ENGINEERING AND DEVELOPMENT EXPENSES: Engineering and development expenses increased sellingby 7% in the first quarter of 2020 compared to the same quarter last year. Part of the increase relates to the addition of Dynamic Controls, whose focus is electronics and general administrativesoftware engineering. The increase is also due to the continued ramp up of development projects to meet the future needs of target markets, as well as supporting growing customer application development needs. As a percentage of revenues, engineering and development expenses were 6.7% and 6.2% for the first quarters of 2020 and 2019, respectively.
BUSINESS DEVELOPMENT COSTS: The Company incurred $247 of business development costs in the first quarter 2020 compared to support growth.$53 of business development costs in the first quarter last year. The costs in 2020 relate to activity from the acquisition of Dynamic Controls.
INTEREST EXPENSE: Interest expense decreased in 2020 as debt levels were lower during the first two months of the first quarter of 2020 compared to 2019. Borrowings increased in March 2020 to fund the acquisition of Dynamic Controls. Interest rates were also lower in first quarter of 2020 compared to 2019.
AMORTIZATION OF INTANGIBLE ASSETS: Amortization expense increased 1% to $1,441 in the first quarter of 2020 compared to the first quarter of 2019 due to the addition of Dynamic Controls.
INCOME TAXES: The effective income tax rate as a percentage of income before income taxes was 28.0% and 27.5% in the first quarter 2020 and 2019, respectively. The effective tax rate is net of discrete tax provision of 0.3% and benefit of (1.8%) for the first quarters of 2020 and 2019 respectively, related primarily to the recognition of excess tax benefit and provision for share-based payment awards. The effective rate before discrete items varies from the statutory rateprimarily due to differences in state taxes, the impact of international tax provisions in the US, the difference in foreign tax rates and the mix of foreign and domestic income.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act is a sweeping stimulus bill intended to bolster the U.S. economy, among other things, and provide emergency assistance to qualifying businesses and individuals. The Company will continue to evaluate the impact of the CARES Act, however there was not a significant impact on the provision for income taxes during the quarter ended March 31, 2020.
NET INCOME:Net income decreased during the first quarter 2020 compared to the first quarter 2019. Lower revenue and increased operating expenses as a result of the Dynamic Controls acquisition more than offset the gains attributed to improvement in gross margins.
EBITDA AND ADJUSTED EBITDA: EBITDA was $11,277$10,406 for the secondfirst quarter of 20192020 compared to $9,263$11,004 for the same quarter last year. Adjusted EBITDA was $12,146$11,442 and $10,026$11,731 for the second quarterfirst quarters of 20192020 and 2018,2019, respectively. EBITDA and adjusted EBITDA are non-GAAP measurements. EBITDA consists of income before interest expense, provision for income taxes, and depreciation and amortization. Adjusted EBITDA also excludes stock compensation expense and certain other items. Refer to information included in “Non - GAAP Measures” below for a reconciliation of net income to EBITDA and adjusted EBITDA.
REVENUES: For the quarter, the increase in revenues reflects increased sales in all our served markets, including contributions from the TCI acquisition made in December 2018.Non-GAAP Measures
Sales to U.S. customers were 58% of total sales for the quarter compared with 52% for the same period last year, with the balance of sales to customers primarily in Europe, Canada and Asia. The overall increase in revenue was due to an 18.3% volume increase offset by a 2.5% unfavorable currency impact.
ORDER BOOKINGS AND BACKLOG: The increase in bookings in the second quarter of 2019 compared to the second quarter of 2018 is largely due to growth across all of the major markets served by the company, including contributions from the TCI acquisition made in December 2018. The increase of backlog as of June 30, 2019, compared to at June 30, 2018 was attributable to the same factors.
GROSS MARGIN: Gross margin increased 130 basis points to 30.7% for the second quarter of 2019 compared to 29.4% for the same quarter last year. This is due to higher volumes, favorable product mix across a number of served markets, the recent acquisition of TCI.
SELLING EXPENSES: Selling expenses increased in the second quarter of 2019 compared to the same period of 2018. This was attributable to higher commissioned sales and the additional selling organizations associated with the Maval OE Steering and TCI acquisitions. Selling expenses as a percentage of revenues were 4.5% in the second quarter of 2019 compared to 3.7% for the same period last year.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses increased by 15% in the second quarter 2019 from the second quarter 2018 largely due to the addition of TCI. As a percentage of revenues, general and administrative expenses remained constant near 10% for the period ended June 30, 2019 compared to the same period in 2018.
ENGINEERING AND DEVELOPMENT EXPENSES: Engineering and development expenses increased by 14% in the second quarter of 2019 compared to the same quarter last year, however decreased as a percentage of sales. The increase in expenses is primarily due to added resources (headcount and consulting), the continued ramp up of development projects to meet the future needs of customers and target markets along with the engineering resources associated with the acquired businesses in 2018. As a percentage of revenues, engineering and development expenses were 6.1% and 6.2% for the second quarters of 2019 and 2018, respectively.
BUSINESS DEVELOPMENT COSTS: The Company incurred $3 of business development costs in the second quarter of 2019 compared to $165 of business development costs in the second quarter last year.
AMORTIZATION OF INTANGIBLE ASSETS: Amortization expense increased 63% to $1,430 in the second quarter of 2019 compared to the second quarter of 2018 due to the increase in intangible assets from the acquisition TCI.
INCOME TAXES: The effective income tax rate as a percentage of income before income taxes was 28.0% and 27.4% in the second quarter 2019 and 2018, respectively. The effective tax rate for the second quarters of 2019 and 2018 is net of a discrete tax benefit of (0.5%) related primarily to the recognition of excess tax benefits for share-based payment awards. The effective rate before discrete items varies from the statutory rate primarily due to differences in state taxes, the impact of international tax provisions in the US, the difference in US and foreign tax rates and the mix of foreign and domestic income.
Six months ended June 30, 2019 compared to six months ended June 30, 2018
|
| For the six months ended |
| 2019 vs. 2018 |
| |||||||
|
| June 30, |
| Variance |
| |||||||
(in thousands) |
| 2019 |
| 2018 |
| $ |
| % |
| |||
Revenues |
| $ | 186,526 |
| $ | 156,557 |
| $ | 29,969 |
| 19 | % |
Cost of goods sold |
| 130,442 |
| 110,486 |
| 19,956 |
| 18 | % | |||
Gross profit |
| 56,084 |
| 46,071 |
| 10,013 |
| 22 | % | |||
Gross margin percentage |
| 30.1 | % | 29.4 | % |
|
|
|
| |||
Operating costs and expenses: |
|
|
|
|
|
|
|
|
| |||
Selling |
| 8,229 |
| 5,640 |
| 2,589 |
| 46 | % | |||
General and administrative |
| 18,519 |
| 15,792 |
| 2,727 |
| 17 | % | |||
Engineering and development |
| 11,483 |
| 9,918 |
| 1,565 |
| 16 | % | |||
Business development |
| 56 |
| 316 |
| (260 | ) | (82 | )% | |||
Amortization of intangible assets |
| 2,862 |
| 1,762 |
| 1,100 |
| 62 | % | |||
Total operating costs and expenses |
| 41,149 |
| 33,428 |
| 7,721 |
| 23 | % | |||
Operating income |
| 14,935 |
| 12,643 |
| 2,292 |
| 18 | % | |||
Interest expense |
| 2,615 |
| 1,216 |
| 1,399 |
| 115 | % | |||
Other (expense) income |
| (19 | ) | (94 | ) | 75 |
| (80 | )% | |||
Total other expense |
| 2,596 |
| 1,122 |
| 1,474 |
| 131 | % | |||
Income before income taxes |
| 12,339 |
| 11,521 |
| 818 |
| 7 | % | |||
Provision for income taxes |
| (3,424 | ) | (3,092 | ) | (332 | ) | 11 | % | |||
Net Income |
| $ | 8,915 |
| $ | 8,429 |
| $ | 486 |
| 6 | % |
|
|
|
|
|
|
|
|
|
| |||
Effective tax rate |
| 27.7 | % | 26.8 | % | 1 | % | 3 | % | |||
Diluted earnings per share |
| $ | 0.94 |
| $ | 0.90 |
| $ | 0.04 |
| 4 | % |
Bookings |
| $ | 189,061 |
| $ | 166,937 |
| $ | 22,124 |
| 13 | % |
Backlog |
| $ | 133,507 |
| $ | 111,170 |
| $ | 22,337 |
| 20 | % |
NET INCOME: Net income increased during 2019 reflecting an increase in revenues partially offset by increased selling and general administrative costs to support growth along with the added infrastructure costs of the acquisitions completed during 2018.
EBITDA AND ADJUSTED EBITDA: EBITDA was $22,281 for 2019 compared to $18,359 last year. Adjusted EBITDA was $23,877 and $19,769 for 2019 and 2018, respectively. EBITDA and adjusted EBITDA are non-GAAP measurements. EBITDA consists of income before interest expense, provision for income taxes, and depreciation and amortization. Adjusted EBITDA also excludes stock compensation expense and certain other items. Refer to information included in “Non - GAAP Measures” below for a reconciliation of net income to EBITDA and adjusted EBITDA.
REVENUES: For 2019, the increase in revenues reflects increased sales in all our served markets, as well as contributions from the TCI acquisition made in December 2018.
Sales to U.S. customers were 56% of total sales for 2019 compared with 52% for the same period last year, with the balance of sales to customers primarily in Europe, Canada and Asia. Sales volume increased by 22.4% for the six months ended June 30, 2019, offset by a 3.3% unfavorable currency impact.
ORDER BOOKINGS AND BACKLOG: The increase in orders in 2019 compared to 2018 is largely due to organic growth across all the major markets served by the company, along with the acquisition of TCI in late 2018. The increase in backlog as of June 30, 2019, compared to June 30, 2018 was attributable to the same factors.
GROSS MARGIN: Gross margin increased 70 basis points to 30.1% in 2019 compared to 29.4% in 2018. As noted above, this is due is due to higher volumes, favorable product mix across a number of served markets, and the recent acquisition of TCI.
SELLING EXPENSES: Selling expenses increased in 2019 compared to 2018 primarily due to higher commissioned sales and the additional selling organization associated with the acquisition of TCI. Selling expenses as a percentage of revenues increased to 4.4% for 2019 compared to 3.6% in 2018.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses increased by 17% in 2019 compared to 2018 largely due to the acquisition of TCI along with higher stock compensation and incentive compensation expense associated with improved performance. As a percentage of revenues, general and administrative expenses were 10% for 2019 and 2018.
ENGINEERING AND DEVELOPMENT EXPENSES: Engineering and development expenses increased by 16% in 2019 compared to 2018, however decreased as percentage of sales. The increase in expenses is primarily due to added resources (headcount and consulting), the continued ramp up of development projects to meet the future needs of customers and target markets along with the engineering resources associated with the acquired businesses in 2018. As a percentage of revenues, engineering and development expenses were 6.2% for 2019, down 10 basis points from 6.3% in 2018.
BUSINESS DEVELOPMENT COSTS: The Company incurred $56 of business development costs in 2019 compared to $316 of business development costs last year. The costs in 2019 relate to activity from the December 2018 acquisition of TCI. The costs in 2018 were related to the acquisition of the Maval OE Steering business and activity associated with other M&A opportunities.
AMORTIZATION OF INTANGIBLE ASSETS: Amortization expense increased 62% in 2019 compared to 2018 due to the increase in intangible assets from the acquisition TCI.
INCOME TAXES: The effective income tax rate as a percentage of income before income taxes was 27.7% and 26.8% for the six months ended June 30, 2019 and 2018, respectively. The effective tax rate is net of a discrete tax benefit of (1.1%) and (1.4%), respectively, related primarily to the recognition of excess tax benefits for share-based payment awards. The effective rate before discrete items varies from the statutory rate primarily due to differences in state taxes, the impact of international tax provisions in the US, the difference in US and foreign tax rates and the mix of foreign and domestic income.
Non-GAAP Measures
Revenue excluding foreign currency exchange impacts, EBITDA and Adjusted EBITDA are provided for information purposes only and are not measures of financial performance under GAAP.
Management believes the presentation of these financial measures reflecting non-GAAP adjustments provides important supplemental information in evaluating the operating results of the Company as distinct from results that include items that are not indicative of ongoing operating results; in particular, those charges and credits that are not directly related to operating unit performance, and that are not a helpful measure of the performance of our underlying business particularly in light of their unpredictable nature. These non-GAAP disclosuresdisclosure have limitations as analytical tools, should not be viewed as a substitute for revenue and net income determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under GAAP, nor are theyis it necessarily comparable to non-GAAP performance measures that may be presented by other companies. In addition, supplemental presentation should not be construed as an inference that the Company’s future results will be unaffected by similar adjustments to net income determined in accordance with GAAP.
The Company believes EBITDA is often a useful measure of a Company’s operating performance and is a significant basis used by the Company’s management to measure the operating performance of the Company’s business because EBITDA excludes charges for depreciation, amortization and interest expense that have resulted from our debt financings, as well as our provision for income tax expense. EBITDA is frequently used as one of the bases for comparing businesses in the Company’s industry.
The Company believes that revenue excluding foreign currency exchange 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 is often a useful measure of a Company’s operating performance and is a significant basis used by the Company’s management to measure the operating performance of the Company’s business because EBITDA excludes charges for depreciation, amortization and interest expense that have resulted from our debt financings, as well as
our provision for income tax expense. EBITDA is frequently used as one of the bases for comparing businesses in the Company’s industry.period.
The Company also believes that Adjusted EBITDA provides helpful information about the operating performance of its business. Adjusted EBITDA excludes stock compensation expense, as well as certain income or expenses which are not indicative of the ongoing performance of the Company. 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 revenues excluding foreign currency exchange impacts for the quarter ended June 30, 2019March 31, 2020 is as follows:
|
| For the three months |
| For the nine months |
| For the three months ended | |||||
|
| June 30, 2019 |
| June 30, 2019 |
| March 31, 2020 | |||||
Revenue as reported |
| $ | 92,630 |
| $ | 186,526 |
| $ | 92,382 | ||
Currency impact |
| 2,010 |
| 5,150 |
| 1,423 | |||||
Revenue excluding foreign currency exchange impacts |
| $ | 94,640 |
| $ | 191,676 |
| ||||
Revenue excluding foreign currency | |||||||||||
exchange impacts | $ | 93,805 |
The Company’s calculation of EBITDA and Adjusted EBITDA for the quarters ended June 30,March 31, 2020 and 2019 and 2018 is as follows (in thousands):
|
| For the three months ended |
| For the six months ended |
| ||||||||
|
| June 30, |
| June 30, |
| ||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
Net income as reported |
| $ | 4,445 |
| $ | 4,231 |
| $ | 8,915 |
| $ | 8,429 |
|
Interest expense |
| 1,435 |
| 602 |
| 2,615 |
| 1,216 |
| ||||
Provision for income tax |
| 1,729 |
| 1,599 |
| 3,424 |
| 3,092 |
| ||||
Depreciation and amortization |
| 3,668 |
| 2,831 |
| 7,327 |
| 5,622 |
| ||||
EBITDA |
| 11,277 |
| 9,263 |
| 22,281 |
| 18,359 |
| ||||
Stock compensation expense |
| 866 |
| 598 |
| 1,540 |
| 1,094 |
| ||||
Business development costs |
| 3 |
| 165 |
| 56 |
| 316 |
| ||||
Adjusted EBITDA |
| $ | 12,146 |
| $ | 10,026 |
| $ | 23,877 |
| $ | 19,769 |
|
March 31, | ||||||||
2020 | 2019 | |||||||
Net income as reported | $ | 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 |
Liquidity and Capital Resources
On February 12, 2020, we entered into a First Amended and Restated Credit Agreement (the “Amended Credit Agreement”) for a $225 million revolving credit facility (the “Amended Revolving Facility”) with HSBC Bank USA and affiliate banks (refer to Note 10, “Debt Obligations” from our condensed consolidated financial statements). The term of the Amended Credit Agreement was extended to February 2025 from the original term of October 2021.
The Company’s liquidity position as measured by cash and cash equivalents increased by $1,790$6,967 to a balance of $10,463$20,383 at June 30, 2019March 31, 2020 from December 31, 2018.2019.
|
| Six months ended |
|
|
| |||||
|
| June 30, |
| 2019 vs. 2018 |
| |||||
|
| 2019 |
| 2018 |
| $ |
| |||
Net cash provided by operating activities |
| $ | 8,852 |
| $ | 7,386 |
| $ | 1,466 |
|
Net cash used in investing activities |
| (6,401 | ) | (18,867 | ) | 12,466 |
| |||
Net cash provided by (used in) financing activities |
| (620 | ) | 11,491 |
| (12,111 | ) | |||
Effect of foreign exchange rates on cash |
| (41 | ) | (271 | ) | 230 |
| |||
Net increase (decrease) in cash and cash equivalents |
| $ | 1,790 |
| $ | (261 | ) | $ | 2,051 |
|
Quarter ended | 2020 vs. | |||||||||||
March 31, | 2019 | |||||||||||
2020 | 2019 | $ | ||||||||||
Net cash used in operating activities | $ | (2,966 | ) | $ | (2,439 | ) | $ | (527 | ) | |||
Net cash used in investing activities | (16,237 | ) | (2,505 | ) | (13,732 | ) | ||||||
Net cash provided by financing activities | 26,322 | 6,505 | 19,817 | |||||||||
Effect of foreign exchange rates on cash | (152 | ) | (50 | ) | (102 | ) | ||||||
Net increase in cash and cash equivalents | $ | 6,967 | $ | 1,511 | $ | 5,456 |
During the secondfirst quarter of 2019,2020, the increase in cash provided byused for operating activities is primarily due to a decreasean increase in working capital needs primarily for inventories despite increased revenues along with higher levels of orders, particularly in the second quarter of 2019.needs.
The significant cash used in investing activities in 2018the first quarter 2020 reflects the acquisition the Maval OE Steering business.of Dynamic Controls for $14,541 net of cash acquired. Purchases of property and equipment were $6,401$1,696 during 2019 compared to $5,555 for 2018. The Company expects to invest between $15 million and $18 million in capital expenditures during 2019.
During the first quarter 2020 compared to $2,505 for the first quarter 2019 reflecting cost containment efforts during the recent COVID-19 pandemic. Capital expenditures are expected to be between $10,000 and $12,000 for the remainder of 2020.
The increase in cash provided by financing activities reflects the Amended Revolving Facility borrowing for the acquisition of Dynamic Controls. During 2019, the Company utilized revolver borrowings to fund working capital to support the growth seen from fourth quarter 2018 along with the payment of annual incentive compensation amounts. During the second quarter of 2019, the Company made payments on the revolver that offset all but $695 of the 2019 borrowings.
The cash used in financing activities in first quarter 2018 reflects the use of the revolver to partially finance the acquisition of the Maval OE Steering business. At June 30, 2019,March 31, 2020, we had $123,695$136,927 of obligations under the Amended Revolving Facility, excluding the unamortized debt issuedeferred financing costs.
The Amended Credit Agreement contains certain financial covenants related to minimum interest coverage and total leverage ratio at the end of each quarter. The Amended Credit Agreement also includes other covenants and restrictions, including limits on the amount of additional indebtedness, and restrictions on the ability to merge, consolidate or sell all or substantially all our assets. We were in compliance with all covenants at June 30, 2019.March 31, 2020.
As of June 30, 2019,March 31, 2020, the unused Amended Revolving Facility was approximately $88,073. The amount available to borrow under the Credit Agreement was approximately $51,305.may be lower and may vary from period to period based upon our debt and EBITDA levels, which impacts our covenant calculations. The Amended Credit Agreement matures in October 2021.February 2025.
There were no borrowings for the China Facility balance during the quarter ended June 30,first quarters of 2020 or 2019.
The Company declared dividends of $0.030 per share during the first quarter 2019quarters of 2020 and $0.030 per share during2019. Although there is uncertainty related to the second quarteranticipated impact of 2019. The Company’s working capital, capital expenditurethe recent COVID-19 outbreak on our future results, we believe our business model and dividend requirements are expectedthe recent steps we have taken to strengthen our balance sheet, such as retaining cash to support shorter term needs leaves us well-positioned to manage our business through this crisis as it continues to unfold. We have reviewed numerous potential scenarios in connection with the impact of COVID-19 on our Company. Based on our analysis, we believe our existing balances of cash, the flexibility of our Amended Credit Agreement and our currently anticipated operating cash flows will be funded fromsufficient to meet our cash provided by operations and amounts available underneeds arising in the Credit Agreement.ordinary course of business for the next twelve months.
Item 3. Qualitative and Quantitative Disclosures about Market Risk
Foreign Currency
We have foreign operations in The Netherlands, Sweden, Germany, China, Portugal, Czech Republic, Canada, Mexico, and Mexico,New Zealand which expose the Company to foreign currency exchange rate fluctuations due to transactions denominated in Euros, Swedish Krona, Chinese Renminbi, Czech Krona, Canadian dollar, and Mexican pesos, and New Zealand dollar, respectively. We continuously evaluate our foreign currency risk and will take action from time to time in order to best mitigate these risks. A hypothetical 10% change in the value of the U.S. dollar in relation to our most significant foreign currency exposures would have had an impact of approximately $3,100$3,600 on our secondfirst quarter 2019 sales and $6,500 on our sales for the six months ended June 30, 2019.2020 sales. This amount is not indicative of the hypothetical net earnings impact due to partially offsetting impacts on cost of sales and operating expenses in those currencies. We estimate that foreign currency exchange rate fluctuations during the quarter ended June 30, 2019March 31, 2020 decreased sales in comparison to quarter ended June 30, 2018March 31, 2019 by approximately $2,000. For the six months ended June 30, 2019 we estimate that foreign currency exchange rate fluctuations decreased sales by approximately $5,200 compared to the six months ended June 30, 2018.$1,400.
We translate all assets and liabilities of our foreign operations, where the U.S. dollar is not the functional currency, at the period-end exchange rate and translate sales and expenses at the average exchange rates in effect during the period. The net effect of these translation adjustments is recorded in the condensed consolidated financial statementsCondensed Consolidated Financial Statements as Comprehensive Income. The translation adjustment was a gain of approximately $500 and a loss of approximately $3,500$2,400 and $900 for the secondfirst quarter of 20192020 and 2018, respectively. For the six months ended June 30, 2019, and 2018, the translation adjustment was a loss of approximately $300 and $1,845, respectively. Translation adjustments are not adjusted for income taxes as they relate to permanent investments in our foreign subsidiaries. Net foreign currency transaction gains and losses included in other income, net amounted to a gain of $19 and $294 for the second quarter of 2019 and 2018, respectively. For the six months ended June 30, 2019 and 2018, net foreign currency transaction gains and losses included in other income, net wereapproximately a loss of $58$100 for the first quarters of 2020 and a gain of $156, respectively.2019. A hypothetical 10% change in the value of the U.S. dollar in relation to our most significant foreign currency net assets would have had an impact of approximately $7,100$7,400 on our foreign net assets as of June 30, 2018.March 31, 2020.
Interest Rates
Interest rates on ourBorrowings under the Amended Revolving Facility are based onbear interest at the LIBOR Rate plus a margin of 1.00% to 2.25%1.75% (currently 2.0%1.5%) or the Prime Rate plus a margin of 0% to 1.25%0.75% (currently 1.0%0.5%), in each case depending on the Company’s ratio of total funded indebtedness to Consolidated trailing twelve-month EBITDA. We use interest rate derivatives to add stability to interest expense and to manage our
exposure to interest rate movements. We primarily use interest rate swaps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. During October 2013, the Company entered into two interest rate swaps with a combined notional of $25,000 that amortized quarterly to a notional of $6,673 at the September 2018 maturity. Neither of these interest rate swaps is currently active, one was liquidated as part of the 2016 debt refinancing and the other matured in September 2018. In February 2017, wethe Company entered into three interest rate swaps with a combined notional amount of $40,000 that maturesmature in February 2022. In March 2020, the Company entered into two additional interest rate swaps with a combined notional amount of $20,000 that increases to $60,000 in March 2022 and matures in December 2024.
As of June 30, 2019,March 31, 2020, we had $123,695$136,927 outstanding under the Amended Revolving Facility (excluding deferred financing fees), of which $40,000$60,000 is currently being hedged. Refer to Note 10 of the notesNotes to the condensed consolidated financial statementsCondensed Consolidated Financial Statements for additional information about our outstanding debt. A hypothetical one percentage point (100 basis points) change in the Base Rate on the $83,695$76,927 of unhedged floating rate debt outstanding at June 30, 2019March 31, 2020 would have anapproximately a $200 impact of approximately $200 on our interest expense for the secondfirst quarter of 2019 and $400 on our interest expense for the six months ended June 30, 2019.2020.
Item 4. Controls and Procedures
Conclusion regarding the effectiveness of disclosure controls and procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (principal accounting officer), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of June 30, 2019.March 31, 2020. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on management’sthis evaluation, of our disclosure controlsthe Company's principal executive officer and procedures as of June 30, 2019, our Chief Executive Officer and Chief Financial Officerprincipal financial officer concluded that, as of such date, ourMarch 31, 2020, the Company’s disclosure controls and procedures were effective.
Changes in internal control over financial reporting
In response to the COVID-19 pandemic, many of our team members began working from home during the first quarter of fiscal 2020. Management has taken measures to ensure that our internal controls over financial reporting remained effective and were not materially affected during this period. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.
During the quarter ended June 30, 2019,March 31, 2020, there were no changes in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
25
There have been no material changes toThe following risk factor supplements the risk factors discloseddescribed in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, except2019 and should be read in conjunction with the risk factors described in our 2019 Form 10-K Report:
Our financial condition and results of operations have been and may continue to be adversely affected by public health issues, including epidemics or pandemics such as COVID-19. The COVID-19 pandemic has subjected our business, operations, financial performance, cash flows and financial condition to a number of risks, including, but not limited to those discussed below.
Operations-related risks: As a result of the COVID-19 pandemic, we are facing increased operational challenges from the need to protect employee health and safety, workplace disruptions and restrictions on the movement of people, raw materials and goods, both at our own facilities and at our customers and suppliers. For example, we may experience additional operating costs due to increased challenges with our workforce (including as a result of illness, absenteeism or government orders), access to necessary components and supplies, access to capital, and access to fundamental support services (such as shipping and transportation). The ultimate significance of these disruptions to our business, financial condition, results of operations, and cash flows will depend greatly on how long the disruptions continue. Any delayed recovery in our operations, and/or any similar delay with respect to resumption of operations by one or more of our key suppliers, would result in further challenges to our business and may negatively affect our business, financial condition, results of operations, and cash flows.
Customer-related risks: As a result of the COVID-19 crisis, there may be changes in our customers’ priorities and practices, as our customers in both the United States and globally confront competing budget priorities and more limited resources. To the extent factual information disclosed elsewherethat the COVID-19 outbreak or its aftermath further impacts demand for our products and services or impairs the viability of some of our customers, our financial condition, results of operations, and cash flows could be adversely affected, and those impacts could be material.
Other risks: The magnitude and duration of the global COVID-19 pandemic is uncertain. As the pandemic continues to adversely affect our business and operating and financial results, it also is expected to have the effect of heightening many of the other risks described in this form 10-Q relates to such risk factors. For a full discussion of thesethe risk factors please refer to “Item 1A. Risk Factors” in the 2018our Annual Report on Form 10-K for the year ended December 31, 2019. Further, the COVID-19 pandemic may also affect our operating and financial results in Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Period |
| Number of Shares |
| Average Price Paid |
| Total Number of Shares |
| Maximum Number of Shares |
| |
04/01/19 to 04/30/19 |
| 1,807 |
| $ | 42.85 |
| — |
| — |
|
05/01/19 to 05/31/19 |
| 15,285 |
| 35.98 |
| — |
| — |
| |
06/01/19 to 06/30/19 |
| 1,930 |
| 43.09 |
| — |
| — |
| |
Total |
| 19,022 |
| $ | 37.35 |
| — |
| — |
|
(1) As permitted under the Company’s equity compensation plan, these shares were withheld by the Companya manner that is not presently known to satisfy tax withholding obligations for employees in connection with the vesting of stock. Shares withheld for tax withholding obligationsus or that we currently do not affect the total number of shares available for repurchase under any approved common stock repurchase plan. At June 30, 2019, the Company did not have an authorized stock repurchase plan in place.expect to present significant risks to our operations or financial results.
None.
(a) Exhibits
Item 6. | Exhibits |
| (a) | Exhibits |
31.1 | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 31.2 | |
32.1 | ||
| ||
32.2 | ||
| ||
101 | ||
| The following materials from Allied Motion Technologies Inc.’s Quarterly Report on Form 10-Q for the quarter ended |
__________________________________ |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
DATE: |
| ALLIED MOTION TECHNOLOGIES INC. | |||
By: |
| /s/ Michael R. Leach | |||
Michael R. Leach | |||||
Chief Financial Officer |