Allied Motion Technologies Inc. (AMOT) Q3 2021 Results Conference Call November 4, 2021 10:00 AM ET Company Participants Craig Mychajluk - IR Dick Warzala - Chairman, President and CEO Mike Leach - CFO Conference Call Participants Greg Palm - Craig-Hallum Dick Ryan - Colliers Gerry Sweeney - ROTH Capital Operator Greetings. Welcome to the Allied Motion Technologies Inc. Third Quarter Fiscal Year 2021 Financial Results Conference Call. [Operator Instructions] Please note this conference is being recorded. I ...

Allied Motion Technologies Inc. (AMOT) Q2 2021 Earnings Conference Call August 5, 2021 10:00 AM ET Company Participants Craig Mychajluk - Investor Relations Dick Warzala - Chairman, President & Chief Executive Officer Mike Leach - Chief Financial Officer Conference Call Participants Greg Palm - Craig-Hallum Capital Group Dick Ryan - Colliers Brett Kearney - Gabelli Funds Operator Good day, and welcome to the Allied Motion Technologies Second Quarter Fiscal Year 2021 Financial Results Conference Call. All pa ...

Financial Performance - Revenue increased by 17% to $101.5 million[4] - Gross margin expanded by 110 bps sequentially to 30.7%[4] - Operating income reached $6.7 million, driven by higher volume[5] - $10.9 million cash was generated from operations, with $16.5 million year-to-date[5] - Adjusted EBITDA for the trailing twelve months (TTM) was $45.803 million[56] Strategic Growth & Market Position - Vehicle market sales increased by 82%[6] - Industrial markets experienced YoY growth of 20% and sequential growth of 8%[7] - Record orders of $119.0 million were achieved, up 48% YoY and 4% sequentially[8] - Backlog grew 12% sequentially to a record $170.4 million[9] Capital Structure - $7.6 million of debt was paid down[6] - Net debt/net total capitalization improved 440 bps since year-end 2020[31] Outlook - Expect to invest $12 million to $15 million in capital expenditures during FY21[43]

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) The unaudited condensed consolidated financial statements detail the company's financial position and performance [Condensed Consolidated Balance Sheets – Unaudited](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20%E2%80%93%20Unaudited) - The company's financial position shows **increased total assets and stockholders' equity**, while total liabilities slightly decreased[8](index=8&type=chunk) Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $360,458 | $349,197 | | Total Liabilities | $202,479 | $206,141 | | Total Stockholders' Equity | $157,979 | $143,056 | [Condensed Consolidated Statements of Income and Comprehensive Income – Unaudited](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income%20%E2%80%93%20Unaudited) - The company reported **significant increases in revenues, gross profit, and net income** for both the three and six months ended June 30, 2021[10](index=10&type=chunk) Three Months Ended June 30 (in thousands, except per share data) | Metric | 2021 | 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $101,537 | $86,661 | 17.2% | | Gross Profit | $31,217 | $26,460 | 17.9% | | Operating Income | $6,734 | $5,051 | 33.3% | | Net Income | $4,634 | $2,896 | 60.0% | | Diluted EPS | $0.32 | $0.20 | 60.0% | Six Months Ended June 30 (in thousands, except per share data) | Metric | 2021 | 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $203,214 | $179,043 | 13.5% | | Gross Profit | $61,285 | $54,502 | 12.4% | | Operating Income | $13,346 | $11,766 | 13.4% | | Net Income | $16,561 | $6,931 | 139.0% | | Diluted EPS | $1.14 | $0.49 | 132.7% | [Condensed Consolidated Statements of Stockholders' Equity – Unaudited](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20%E2%80%93%20Unaudited) - Stockholders' equity increased to **$157,979 thousand**, driven by net income and stock transactions[13](index=13&type=chunk)[14](index=14&type=chunk) - Net income for the six months ended June 30, 2021, was **$16,561 thousand**, contributing to the increase in retained earnings[10](index=10&type=chunk)[13](index=13&type=chunk) Total Stockholders' Equity (in thousands) | Date | Amount | | :--- | :--- | | June 30, 2021 | $157,979 | | December 31, 2020 | $143,056 | [Condensed Consolidated Statements of Cash Flows – Unaudited](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20%E2%80%93%20Unaudited) - Cash from operating activities increased significantly, while financing activities became a net use of cash due to debt payments[16](index=16&type=chunk)[139](index=139&type=chunk) Cash Flows From Operating, Investing, and Financing Activities (Six Months Ended June 30, in thousands) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $16,471 | $6,599 | | Net cash used in investing activities | $(5,885) | $(18,342) | | Net cash (used in) provided by financing activities | $(9,865) | $17,275 | | Net increase in cash and cash equivalents | $253 | $5,603 | [Notes to Condensed Consolidated Financial Statements - Unaudited](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20-%20Unaudited) These notes detail the accounting policies and significant balances underpinning the condensed consolidated financial statements [1. BASIS OF PREPARATION AND PRESENTATION](index=9&type=section&id=1.%20BASIS%20OF%20PREPARATION%20AND%20PRESENTATION) - Allied Motion Technologies Inc designs, manufactures, and sells controlled motion solutions globally for various key markets[19](index=19&type=chunk) - The unaudited financial statements are prepared under U.S GAAP and retrospectively reflect a **3-for-2 common stock split**[21](index=21&type=chunk)[23](index=23&type=chunk) [2. REVENUE RECOGNITION](index=10&type=section&id=2.%20REVENUE%20RECOGNITION) - Revenue is primarily recognized at a single point in time, generally upon product shipment or delivery[25](index=25&type=chunk)[28](index=28&type=chunk) Disaggregated Revenue by Target Market (Six Months Ended June 30, in thousands) | Target Market | 2021 | 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Vehicle | $68,182 | $46,639 | 46.2% | | Industrial | $65,081 | $61,574 | 5.7% | | Medical | $43,524 | $38,812 | 12.1% | | Aerospace & Defense | $16,021 | $21,658 | -26.0% | | Other | $10,406 | $10,360 | 0.4% | | **Total** | **$203,214** | **$179,043** | **13.5%** | Disaggregated Revenue by Geography (Six Months Ended June 30, in thousands) | Geography | 2021 | 2020 | Change (%) | | :--- | :--- | :--- | :--- | | United States | $118,347 | $103,680 | 14.1% | | Europe | $68,700 | $62,145 | 10.5% | | Asia-Pacific | $16,167 | $13,218 | 22.3% | | **Total** | **$203,214** | **$179,043** | **13.5%** | [3. INVENTORIES](index=12&type=section&id=3.%20INVENTORIES) - Inventories are stated at the lower of cost (first-in, first-out basis) or net realizable value[37](index=37&type=chunk) Inventories (in thousands) | Category | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Parts and raw materials | $50,006 | $44,750 | | Work-in-process | $6,604 | $6,186 | | Finished goods | $11,166 | $12,042 | | **Total** | **$67,776** | **$62,978** | [4. PROPERTY, PLANT AND EQUIPMENT](index=12&type=section&id=4.%20PROPERTY,%20PLANT%20AND%20EQUIPMENT) Property, Plant and Equipment, net (in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Property, plant and equipment, net | $55,153 | $55,428 | Depreciation Expense (in thousands) | Period | 2021 | 2020 | | :--- | :--- | :--- | | Three months ended June 30 | $2,948 | $2,394 | | Six months ended June 30 | $5,867 | $4,703 | [5. GOODWILL](index=12&type=section&id=5.%20GOODWILL) - Goodwill decreased slightly to **$61,114 thousand** at June 30, 2021, primarily due to foreign currency translation effects[8](index=8&type=chunk)[42](index=42&type=chunk) Goodwill (in thousands) | Date | Amount | | :--- | :--- | | June 30, 2021 | $61,114 | | December 31, 2020 | $61,860 | [6. INTANGIBLE ASSETS](index=12&type=section&id=6.%20INTANGIBLE%20ASSETS) - Net intangible assets decreased to **$62,412 thousand** at June 30, 2021, mainly due to ongoing amortization[8](index=8&type=chunk)[44](index=44&type=chunk) Intangible Assets, net (in thousands) | Category | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Customer lists | $43,878 | $46,197 | | Trade name | $8,454 | $8,994 | | Design and technologies | $10,070 | $10,657 | | Patents | $10 | $11 | | **Total** | **$62,412** | **$65,859** | Amortization Expense (in thousands) | Period | 2021 | 2020 | | :--- | :--- | :--- | | Three months ended June 30 | $1,511 | $1,483 | | Six months ended June 30 | $3,023 | $2,924 | [7. STOCK-BASED COMPENSATION](index=13&type=section&id=7.%20STOCK-BASED%20COMPENSATION) - In the first six months of 2021, **108,476 shares of unvested restricted stock** were awarded at a weighted average market value of $32.06[48](index=48&type=chunk) Stock-based Compensation Expense (net of forfeitures, in thousands) | Period | 2021 | 2020 | | :--- | :--- | :--- | | Three months ended June 30 | $1,000 | $931 | | Six months ended June 30 | $1,797 | $1,720 | [8. ACCRUED LIABILITIES](index=14&type=section&id=8.%20ACCRUED%20LIABILITIES) - Accrued liabilities increased to **$25,942 thousand**, primarily due to higher compensation and warranty reserves[8](index=8&type=chunk)[52](index=52&type=chunk) Accrued Liabilities (in thousands) | Category | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Compensation and fringe benefits | $12,942 | $11,184 | | Warranty reserve | $2,265 | $1,571 | | Income taxes payable | $1,862 | $1,459 | | Right of use liabilities | $4,347 | $4,666 | | Other accrued expenses | $4,526 | $5,982 | | **Total** | **$25,942** | **$24,862** | [9. DEBT OBLIGATIONS](index=14&type=section&id=9.%20DEBT%20OBLIGATIONS) - Long-term debt decreased to **$112,391 thousand** due to principal payments on the Amended Revolving Credit Facility[8](index=8&type=chunk)[55](index=55&type=chunk) - The Amended Revolving Credit Facility has a maximum of **$225 million**, matures in February 2025, and had **$112,103 thousand** of unused capacity[56](index=56&type=chunk)[57](index=57&type=chunk)[58](index=58&type=chunk) Long-term Debt (in thousands) | Date | Amount | | :--- | :--- | | June 30, 2021 | $112,391 | | December 31, 2020 | $120,079 | [10. DERIVATIVE FINANCIAL INSTRUMENTS](index=15&type=section&id=10.%20DERIVATIVE%20FINANCIAL%20INSTRUMENTS) - The Company uses interest rate swaps and foreign currency contracts to manage interest rate and foreign exchange risks[60](index=60&type=chunk) - Interest rate swaps designated as cash flow hedges had combined notional amounts of **$40,000 thousand** maturing in February 2022[62](index=62&type=chunk) Fair Value of Derivative Financial Instruments (in thousands) | Balance Sheet Location | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Accrued liabilities (Interest rate products) | $498 | $— | | Other long-term liabilities (Interest rate products) | $388 | $1,889 | | Accrued liabilities (Foreign currency contracts) | $51 | $— | | **Total** | **$937** | **$1,889** | [11. FAIR VALUE](index=18&type=section&id=11.%20FAIR%20VALUE) - Financial assets and liabilities are measured using a three-level fair value hierarchy with a preference for observable inputs[70](index=70&type=chunk) - Most financial instruments approximate fair value due to their immediate or short-term maturities[71](index=71&type=chunk) Financial Assets (Liabilities) at Fair Value (June 30, 2021, in thousands) | Asset (Liability) | Level 1 | Level 2 | Level 3 | | :--- | :--- | :--- | :--- | | Pension plan assets | $6,948 | $— | $— | | Deferred compensation plan assets | $4,563 | $— | $— | | Interest rate swaps | $— | $(886) | $— | | Foreign currency hedge contracts | $— | $(51) | $— | [12. INCOME TAXES](index=19&type=section&id=12.%20INCOME%20TAXES) - The effective tax rate for H1 2021 includes a discrete tax benefit of **(67.1%)** related to recognizing net operating loss carryforwards in New Zealand[76](index=76&type=chunk) Effective Income Tax Rate | Period | 2021 | 2020 | | :--- | :--- | :--- | | Three months ended June 30 | 21.9% | 29.9% | | Six months ended June 30 | (40.3)% | 28.8% | [13. LEASES](index=19&type=section&id=13.%20LEASES) - The Company holds operating leases for office space, manufacturing equipment, computer equipment, and automobiles[77](index=77&type=chunk) - Total lease liabilities were **$18,461 thousand** as of June 30, 2021[79](index=79&type=chunk)[81](index=81&type=chunk) Lease-Related Cash Flows (Six Months Ended June 30, in thousands) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Cash paid for amounts included in the measurement of operating leases | $2,679 | $2,126 | | Right of use assets obtained in exchange for operating lease obligations | $1,640 | $1,797 | [14. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)](index=21&type=section&id=14.%20ACCUMULATED%20OTHER%20COMPREHENSIVE%20INCOME%20(LOSS)) - Accumulated other comprehensive loss was **$(5,575) thousand** at June 30, 2021, compared to $(3,287) thousand at year-end 2020[8](index=8&type=chunk)[83](index=83&type=chunk) - The change was primarily driven by a foreign currency translation loss of **$(3,052) thousand** for the first six months of 2021[83](index=83&type=chunk) [15. DIVIDENDS PER SHARE](index=22&type=section&id=15.%20DIVIDENDS%20PER%20SHARE) - The Company declared quarterly dividends totaling **$0.045 per share** for the six months ended June 30, 2021[85](index=85&type=chunk) Total Dividends Declared and Paid (Six Months Ended June 30, in thousands) | Period | 2021 | 2020 | | :--- | :--- | :--- | | Total dividends declared and paid | $662 | $582 | [16. EARNINGS PER SHARE](index=22&type=section&id=16.%20EARNINGS%20PER%20SHARE) Diluted Earnings Per Share | Period | 2021 | 2020 | | :--- | :--- | :--- | | Three months ended June 30 | $0.32 | $0.20 | | Six months ended June 30 | $1.14 | $0.49 | Diluted Weighted Average Common Shares (in thousands) | Period | 2021 | 2020 | | :--- | :--- | :--- | | Three months ended June 30 | 14,494 | 14,304 | | Six months ended June 30 | 14,467 | 14,278 | [17. SEGMENT INFORMATION](index=22&type=section&id=17.%20SEGMENT%20INFORMATION) - The Company operates as a single reportable segment focused on controlled motion products[88](index=88&type=chunk) - Identifiable foreign assets were **$143,110 thousand** as of June 30, 2021, and one customer accounted for **16% of revenues** for H1 2021[90](index=90&type=chunk) Revenues Derived from Foreign Subsidiaries (Six Months Ended June 30, in thousands) | Period | 2021 | 2020 | | :--- | :--- | :--- | | Revenues | $84,867 | $75,363 | [18. RECENT ACCOUNTING PRONOUNCEMENTS](index=23&type=section&id=18.%20RECENT%20ACCOUNTING%20PRONOUNCEMENTS) - The Company adopted ASU 2019-12, 'Simplifying the Accounting for Income Taxes,' on January 1, 2021, with no material impact[92](index=92&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial condition, operating results, liquidity, and the impact of COVID-19 [Overview](index=24&type=section&id=Overview) - Allied Motion Technologies Inc is a global company that designs, manufactures, and sells precision controlled motion components and systems[95](index=95&type=chunk) - The Company serves Vehicle, Medical, Aerospace & Defense, and Industrial markets with operations in North America, Europe, and Asia-Pacific[95](index=95&type=chunk) [Business Environment](index=26&type=section&id=Business%20Environment) The business environment continues to be impacted by COVID-19, affecting supply chains despite a rebound in customer demand [COVID-19](index=26&type=section&id=COVID-19) - COVID-19 continues to create significant disruptions to the global economy, adversely affecting the Company's supply chain and operations[96](index=96&type=chunk) - The Company experienced a **record level of total bookings** in Q2 2021, driven by rebounds in several served markets[96](index=96&type=chunk) - Proactive measures include rigorous safety protocols, remote work arrangements, and providing critical components for medical equipment[97](index=97&type=chunk)[98](index=98&type=chunk) - Liquidity was strengthened by renewing and increasing the revolving credit facility to **$225 million** through February 2025[100](index=100&type=chunk) [Stock Split](index=28&type=section&id=Stock%20Split) - On April 30, 2021, the Company effected a **3-for-2 common stock split**, with all share and per share data adjusted retrospectively[103](index=103&type=chunk) [Cyber Breach](index=28&type=section&id=Cyber%20Breach) - The Company experienced a cyber security breach in Q2 2021 but contained it quickly with **no material impact** to quarterly results[104](index=104&type=chunk) - **No ransom was paid**, and additional security measures have since been implemented[104](index=104&type=chunk) [Recent Accounting Pronouncements](index=28&type=section&id=Recent%20Accounting%20Pronouncements) - The Company adopted ASU 2019-12, 'Simplifying the Accounting for Income Taxes,' on January 1, 2021, with no material impact[92](index=92&type=chunk)[105](index=105&type=chunk) [Operating Results](index=28&type=section&id=Operating%20Results) Operating results show significant revenue and net income growth for Q2 and H1 2021, driven by market recovery [Three months ended June 30, 2021 compared to three months ended June 30, 2020](index=28&type=section&id=Three%20months%20ended%20June%2030,%202021%20compared%20to%20three%20months%20ended%20June%2030,%202020) Revenues increased by 17% to $101,537 thousand, and net income surged by 60% to $4,634 thousand [REVENUES](index=29&type=section&id=REVENUES_Q2) - Revenues increased **17% to $101,537 thousand**, driven by growth in Vehicle and Industrial markets[107](index=107&type=chunk)[108](index=108&type=chunk) - The revenue increase was due to a **12.4% volume increase** and a **4.7% favorable currency impact**[108](index=108&type=chunk) [ORDER BOOKINGS AND BACKLOG](index=29&type=section&id=ORDER%20BOOKINGS%20AND%20BACKLOG_Q2) - The Company achieved a **record level of bookings** in Q2 2021, increasing **48% to $118,974 thousand**[107](index=107&type=chunk)[109](index=109&type=chunk) - Backlog grew **33% to $170,364 thousand**, reflecting economic improvements and supply chain challenges[107](index=107&type=chunk)[109](index=109&type=chunk) [GROSS PROFIT AND GROSS MARGIN](index=29&type=section&id=GROSS%20PROFIT%20AND%20GROSS%20MARGIN_Q2) - Gross profit increased **18% to $31,217 thousand**, with gross margin slightly higher at **30.7%**[107](index=107&type=chunk)[110](index=110&type=chunk) - The increase was driven by higher margin products in the Vehicle market, despite supply chain costs[110](index=110&type=chunk) [SELLING EXPENSES](index=29&type=section&id=SELLING%20EXPENSES_Q2) - Selling expenses increased **14% to $4,396 thousand**, reflecting higher incentive compensation costs[107](index=107&type=chunk)[111](index=111&type=chunk) - As a percentage of revenues, selling expenses remained flat at approximately **4%**[111](index=111&type=chunk) [GENERAL AND ADMINISTRATIVE EXPENSES](index=29&type=section&id=GENERAL%20AND%20ADMINISTRATIVE%20EXPENSES_Q2) - General and administrative expenses increased **15% to $11,181 thousand**, due to increased incentive compensation[107](index=107&type=chunk)[112](index=112&type=chunk) - As a percentage of revenues, these expenses were flat at approximately **11%**[112](index=112&type=chunk) [ENGINEERING AND DEVELOPMENT EXPENSES](index=29&type=section&id=ENGINEERING%20AND%20DEVELOPMENT%20EXPENSES_Q2) - Engineering and development expenses increased **17% to $7,240 thousand**, driven by higher incentive costs and project ramp-ups[107](index=107&type=chunk)[113](index=113&type=chunk) - As a percentage of revenues, these expenses were consistent at **7%**[113](index=113&type=chunk) [AMORTIZATION OF INTANGIBLE ASSETS](index=29&type=section&id=AMORTIZATION%20OF%20INTANGIBLE%20ASSETS_Q2) - Amortization expense for intangible assets was consistent at **$1,511 thousand** in Q2 2021[107](index=107&type=chunk)[113](index=113&type=chunk) [INTEREST EXPENSE](index=29&type=section&id=INTEREST%20EXPENSE_Q2) - Interest expense decreased by **10% to $807 thousand** in Q2 2021, primarily due to lower debt levels[107](index=107&type=chunk)[113](index=113&type=chunk) [INCOME TAXES](index=29&type=section&id=INCOME%20TAXES_Q2) - The effective income tax rate decreased to **21.9%** in Q2 2021 from 29.9% in Q2 2020, benefiting from a discrete tax benefit[107](index=107&type=chunk)[114](index=114&type=chunk) - Potential changes to U.S tax law could materially impact future effective tax rates[115](index=115&type=chunk) [NET INCOME](index=31&type=section&id=NET%20INCOME_Q2) - Net income increased by **60% to $4,634 thousand**, reflecting higher revenue, improved gross margins, and a lower tax rate[107](index=107&type=chunk)[116](index=116&type=chunk) [EBITDA AND ADJUSTED EBITDA](index=31&type=section&id=EBITDA%20AND%20ADJUSTED%20EBITDA_Q2) - EBITDA increased **25.7% to $11,203 thousand**, and Adjusted EBITDA increased **22.3% to $12,397 thousand**[117](index=117&type=chunk) [Six months ended June 30, 2021 compared to six months ended June 30, 2020](index=31&type=section&id=Six%20months%20ended%20June%2030,%202021%20compared%20to%20six%20months%20ended%20June%2030,%202020) Revenues increased 14% to $203,214 thousand, and net income surged 139% to $16,561 thousand, boosted by a tax benefit [REVENUES](index=31&type=section&id=REVENUES_YTD) - Revenues increased **14% to $203,214 thousand**, reflecting improved sales and economic recovery[118](index=118&type=chunk) - The revenue increase was due to an **8.8% volume increase** and a **4.7% favorable currency impact**[119](index=119&type=chunk) [ORDER BOOKINGS AND BACKLOG](index=33&type=section&id=ORDER%20BOOKINGS%20AND%20BACKLOG_YTD) - Bookings increased **35% to $233,618 thousand**, and backlog grew **33% to $170,364 thousand**[118](index=118&type=chunk)[121](index=121&type=chunk) [GROSS PROFIT AND GROSS MARGIN](index=33&type=section&id=GROSS%20PROFIT%20AND%20GROSS%20MARGIN_YTD) - Gross profit increased **12% to $61,285 thousand**, but gross margin slightly decreased to **30.2%**[118](index=118&type=chunk)[121](index=121&type=chunk) - The decrease in gross margin was driven by increased supply chain costs and lower margin sales in Q1 2021[121](index=121&type=chunk) [SELLING EXPENSES](index=33&type=section&id=SELLING%20EXPENSES_YTD) - Selling expenses increased **7% to $8,614 thousand**, mainly due to higher incentive compensation[118](index=118&type=chunk)[122](index=122&type=chunk) - As a percentage of revenues, selling expenses were comparable at approximately **4%**[122](index=122&type=chunk) [GENERAL AND ADMINISTRATIVE EXPENSES](index=33&type=section&id=GENERAL%20AND%20ADMINISTRATIVE%20EXPENSES_YTD) - General and administrative expenses increased **16% to $21,929 thousand**, driven by higher incentive compensation[118](index=118&type=chunk)[123](index=123&type=chunk) - As a percentage of revenues, these expenses remained consistent at **11%**[123](index=123&type=chunk) [ENGINEERING AND DEVELOPMENT EXPENSES](index=33&type=section&id=ENGINEERING%20AND%20DEVELOPMENT%20EXPENSES_YTD) - Engineering and development expenses increased **14% to $14,199 thousand**, due to project ramp-ups[118](index=118&type=chunk)[124](index=124&type=chunk) - As a percentage of revenues, these expenses were comparable at approximately **7%**[124](index=124&type=chunk) [AMORTIZATION OF INTANGIBLE ASSETS](index=33&type=section&id=AMORTIZATION%20OF%20INTANGIBLE%20ASSETS_YTD) - Amortization expense increased **3% to $3,023 thousand**, due to the Dynamic Controls acquisition[118](index=118&type=chunk)[124](index=124&type=chunk) [INTEREST EXPENSE](index=33&type=section&id=INTEREST%20EXPENSE_YTD) - Interest expense decreased **15% to $1,668 thousand**, driven by lower interest rates and reduced debt[118](index=118&type=chunk)[125](index=125&type=chunk) [INCOME TAXES](index=33&type=section&id=INCOME%20TAXES_YTD) - The effective income tax rate was **(40.3%)** for H1 2021, due to a significant discrete tax benefit of **(67.1%)**[118](index=118&type=chunk)[125](index=125&type=chunk) [NET INCOME](index=33&type=section&id=NET%20INCOME_YTD) - Net income increased **139% to $16,561 thousand**, reflecting higher revenue and a substantial **$7,373 thousand** discrete tax benefit[118](index=118&type=chunk)[125](index=125&type=chunk) [EBITDA AND ADJUSTED EBITDA](index=33&type=section&id=EBITDA%20AND%20ADJUSTED%20EBITDA_YTD) - EBITDA increased **15.8% to $22,365 thousand**, and Adjusted EBITDA increased **12.4% to $24,363 thousand**[118](index=118&type=chunk)[126](index=126&type=chunk) [Non-GAAP Measures](index=34&type=section&id=Non-GAAP%20Measures) - The Company provides non-GAAP measures like Revenue excluding FX, EBITDA, and Adjusted EBITDA to supplement GAAP results[127](index=127&type=chunk)[128](index=128&type=chunk) Revenue Excluding Foreign Currency Exchange Impacts (in thousands) | Period | Reported Revenue | Currency Impact (Favorable) | Revenue Excl. FX | | :--- | :--- | :--- | :--- | | Three months ended June 30, 2021 | $101,537 | $(4,104) | $97,433 | | Six months ended June 30, 2021 | $203,214 | $(8,378) | $194,836 | EBITDA and Adjusted EBITDA (in thousands) | Metric | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | EBITDA | $11,203 | $8,911 | $22,365 | $19,317 | | Adjusted EBITDA | $12,397 | $10,137 | $24,363 | $21,671 | [Liquidity and Capital Resources](index=36&type=section&id=Liquidity%20and%20Capital%20Resources) - Cash and cash equivalents increased slightly to **$23,384 thousand** at June 30, 2021[8](index=8&type=chunk)[138](index=138&type=chunk) - Capital expenditures are expected to be between **$12,000 thousand and $15,000 thousand** for 2021[141](index=141&type=chunk)[142](index=142&type=chunk) - Management believes existing cash, credit facility flexibility, and operating cash flows are sufficient for the next twelve months[144](index=144&type=chunk) Net Cash Flows (Six Months Ended June 30, in thousands) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $16,471 | $6,599 | | Net cash used in investing activities | $(5,885) | $(18,342) | | Net cash (used in) provided by financing activities | $(9,865) | $17,275 | | Net increase in cash and cash equivalents | $253 | $5,603 | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The Company is exposed to foreign currency and interest rate risks, which it manages through derivative financial instruments [Foreign Currency](index=38&type=section&id=Foreign%20Currency) - The Company's foreign operations expose it to foreign currency exchange rate fluctuations[145](index=145&type=chunk) - Foreign currency contracts with notional amounts of **$10,000 thousand** were used to hedge balance sheet exposure[148](index=148&type=chunk) - Foreign currency fluctuations increased sales by **$8,378 thousand** for the six months ended June 30, 2021[145](index=145&type=chunk) - The translation adjustment resulted in a loss of **$3,052 thousand** for the six months ended June 30, 2021[146](index=146&type=chunk) [Interest Rates](index=40&type=section&id=Interest%20Rates) - The Company uses interest rate swaps to add stability to interest expense and manage exposure to rate movements[149](index=149&type=chunk) - As of June 30, 2021, **$60,000 thousand** of the **$112,897 thousand** outstanding variable-rate debt was hedged[150](index=150&type=chunk) - A hypothetical **100 basis point change** in the Base Rate would impact interest expense by approximately **$265 thousand** for H1 2021[150](index=150&type=chunk) [Item 4. Controls and Procedures](index=40&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material changes in internal controls - The Company's principal executive and financial officers concluded that disclosure controls and procedures were effective as of June 30, 2021[152](index=152&type=chunk) - There were no changes in internal control over financial reporting that materially affected controls during the quarter[153](index=153&type=chunk) [PART II. OTHER INFORMATION](index=41&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1A. Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) The company's key risks emphasize the increasing threat of cybersecurity breaches, consistent with prior disclosures - A primary risk factor is the potential for **failure of key IT systems or a breach of information security**, including cybersecurity breaches[154](index=154&type=chunk)[155](index=155&type=chunk) - The Company experienced one known ransomware incident in June 2021, which **did not have a material adverse effect** on its operations[160](index=160&type=chunk) - Mitigation efforts include monitoring, forensic experts, and employee training, but these cannot guarantee prevention of future breaches[155](index=155&type=chunk)[156](index=156&type=chunk) [Item 5. Unregistered Sales of Equity Securities and Use of Proceeds](index=42&type=section&id=Item%205.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Company withheld shares to satisfy tax obligations and did not have an authorized stock repurchase plan in place - The Company did not have an authorized stock repurchase plan in place at June 30, 2021[161](index=161&type=chunk) Shares Withheld for Tax Withholding Obligations (April 2021) | Period | Number of Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | 04/01/21 to 04/30/21 | 22,985 | $34.85 | [Item 6. Other Information](index=42&type=section&id=Item%206.%20Other%20Information) This section states that there is no other information to report - No other information is reported in this section[162](index=162&type=chunk) [Item 7. Exhibits](index=42&type=section&id=Item%207.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including credit agreements, certifications, and XBRL documents - Key exhibits include the Third Amendment to the Credit Agreement, Director Compensation Program, CEO/CFO Certifications, and Inline XBRL documents[162](index=162&type=chunk)[163](index=163&type=chunk)

Allied Motion Technologies Inc. (AMOT) Q1 2021 Earnings Conference Call May 6, 2021 10:00 AM ET Company Participants Craig Mychajluk – Investor Relations Dick Warzala – Chairman, President and Chief Executive Officer Mike Leach – Chief Financial Officer Conference Call Participants Greg Palm – Craig-Hallum Dick Ryan – Colliers Brett Kearney – Gabelli Funds Operator Greetings, and welcome to Allied Motion Technologies First Quarter Fiscal Year 2021 Financial Results. At this time, all participants are in a l ...