Financial Data and Key Metrics Changes - Fourth quarter revenue increased by 6% to $93 million, driven by strong demand in the Medical market and recovery in the Vehicle market [9][13] - Full year revenue was $366.7 million, down 1% year-over-year, with Medical market revenue up 61% [10][13] - Gross margin for the fourth quarter was 27.9%, down from 30.1% in the prior year, while full year gross margin was 29.6%, compared to 30.3% [15][16] - Net income for the fourth quarter was $2.7 million or $0.28 per diluted share, with full year net income at $13.6 million or $1.43 per diluted share [19] Business Line Data and Key Metrics Changes - Medical market revenue increased by 69% in Q4 compared to the same period in 2019, and was up 61% for the full year [10][13] - Vehicle market revenue saw a 6.5% increase in Q4, but was still down year-over-year due to earlier pandemic impacts [13] - Revenue from other markets declined by only 1% in 2020, indicating resilience despite pandemic challenges [10] Market Data and Key Metrics Changes - Sales to U.S. customers decreased to 53% from 57% in the prior year, reflecting the addition of Dynamic Controls [14] - The company reported a record level of orders in Q4, climbing to over $108 million, up 26% compared to Q4 2019 [24] - Backlog at year-end was approximately $141 million, up 14% sequentially, indicating strong future sales potential [24] Company Strategy and Development Direction - The company is focused on advancing internal and organic growth initiatives while maintaining a strong financial position to weather uncertainties [23][25] - Strategic capital investments are being made to enhance operational capabilities and prepare for future growth [11][22] - The company aims to drive an annual gross margin increase of 1 percentage point per year through commitment to long-term strategy execution [28] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the recovery trajectory as vaccines are distributed, although demand in the Medical market is expected to moderate [26] - The company is cautiously optimistic about improvements in Industrial and A&D markets, while Powersports demand remains strong [27] - Management highlighted the importance of agility and understanding of served markets to navigate varied market trends [27] Other Important Information - The company announced a standard quarterly dividend and a 3-for-2 stock split effective April 30, reflecting confidence in continued growth [11] - Total debt at year-end was $120.1 million, with a focus on paying down debt while maintaining liquidity for future acquisitions [20][21] Q&A Session Summary Question: Were there any specific key wins in Q4 orders and how does the backlog shape up? - Management indicated that the backlog mirrors the normal business mix, with a notable A&D contract contributing to firm deliveries [30] Question: Any green shoots in various end markets as the first quarter closes? - Management noted encouraging signs across most markets, with particular optimism for improvements in Europe and oil prices [32] Question: What is the current environment for M&A activity? - Management confirmed no change in their acquisitive strategy, indicating that M&A activity is ramping up [34] Question: Can you elaborate on the gross margin performance and future improvement? - Management acknowledged that gross margin was impacted by product mix and fixed overhead costs, but expects improvements as volumes return [36][38] Question: How should we think about the ramp-up of the $8 million Vehicle award? - Management stated that the ramp-up of each award is on track, with full production expected by 2024 [42] Question: Are there any labor and staffing challenges anticipated with production ramp-up? - Management is actively working on automation and selective recruiting to meet production demands while maintaining workforce loyalty [53]

Financial Performance & Market Data - As of November 9, 2020, the company's market capitalization was $412 million[4] - The average daily dollar volume (3 months) was $0.9 million[4] - Q3 2020 TTM revenue was $361.6 million, up 1% from the previous year[30, 33] - Adjusted EBITDA for Q3 20 TTM was $42.7 million, with a margin of 11.8%[39] - The company's backlog as of Q3 2020 was $123.7 million[45] Strategic Focus & Acquisitions - The company aims to be a leading global controlled motion solutions provider in selected target markets[5] - The company acquired Dynamic Controls Group to strengthen electronics and software capabilities in the medical market[17] - The company expects the Dynamic Controls acquisition to enhance overall gross margin profile and be slightly accretive in 2020[17] Target Markets - Industrial market accounted for 32% of Q3 2020 TTM sales[19] - Vehicle market accounted for 30% of Q3 2020 TTM sales[21] - Medical market accounted for 21% of Q3 2020 TTM sales[24] - Aerospace & Defense market accounted for 12% of Q3 2020 TTM sales[25] Financial Strength - The company had $20.2 million in cash and cash equivalents as of September 30, 2020[40] - Total debt was $124.4 million, and net debt was $104.2 million[40] - The company paid off 47% of the debt used to acquire Dynamic Controls in six months[40]

Allied Motion Technologies Inc. (AMOT) Q3 2020 Results Conference Call November 5, 2020 10:00 AM ET Company Participants Craig Mychajluk - Investor Relations Dick Warzala - Chief Executive Officer Mike Leach - Chief Financial Officer Conference Call Participants Greg Palm - Craig-Hallum Gerry Sweeney - ROTH Capital Dick Ryan - Colliers Brett Carney - Civilian Companies Jeff Dugan - Global Value Investment Corp Operator Good day, ladies and gentlemen, and welcome to Allied Motion Technologies Third Quarter F ...

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial statements and management's analysis of financial condition [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including balance sheets, income, equity, and cash flows, with detailed notes [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20%E2%80%93%20Unaudited) The balance sheet shows the company's financial position as of September 30, 2020, with increases in assets, liabilities, and equity | Metric | Sep 30, 2020 (in thousands) | Dec 31, 2019 (in thousands) | | :-------------------------------- | :-------------------------- | :-------------------------- | | **Assets** | | | | Cash and cash equivalents | $20,227 | $13,416 | | Total current assets | $139,755 | $115,643 | | Total Assets | $343,851 | $305,828 | | **Liabilities & Equity** | | | | Total current liabilities | $52,133 | $46,641 | | Long-term debt | $124,387 | $109,765 | | Total liabilities | $209,459 | $186,634 | | Total stockholders' equity | $134,392 | $119,194 | [Condensed Consolidated Statements of Income and Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income%20%E2%80%93%20Unaudited) The income statement reflects decreased revenues and net income for Q3 and YTD 2020 due to market conditions | Metric (in thousands, except per share) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :-------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Revenues | $94,653 | $96,633 | $273,696 | $283,159 | | Gross profit | $28,140 | $30,030 | $82,642 | $86,114 | | Operating income | $6,457 | $8,812 | $18,223 | $23,747 | | Income before income taxes | $5,382 | $7,313 | $15,117 | $19,652 | | Net income | $4,013 | $4,618 | $10,944 | $13,533 | | Basic earnings per share | $0.42 | $0.49 | $1.15 | $1.44 | | Diluted earnings per share | $0.42 | $0.49 | $1.15 | $1.43 | | Comprehensive income | $7,516 | $2,144 | $12,534 | $10,022 | [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity%20%E2%80%93%20Unaudited) The statement details changes in stockholders' equity for YTD 2020, reflecting stock transactions, net income, and foreign currency adjustments | Metric (in thousands) | Balances, Dec 31, 2019 | Balances, Sep 30, 2020 | | :----------------------------------- | :--------------------- | :--------------------- | | Common Stock and Paid-in Capital | $37,136 | $40,674 | | Retained Earnings | $92,589 | $102,659 | | Accumulated Other Comprehensive Loss | $(10,531) | $(8,941) | | Total Stockholders' Equity | $119,194 | $134,392 | - Net income for the nine months ended September 30, 2020, was **$4,013 thousand**, contributing to retained earnings[9](index=9&type=chunk) - Foreign currency translation adjustments resulted in a gain of **$3,433 thousand** for the three months ended September 30, 2020, and a gain of **$2,937 thousand** for the nine months ended September 30, 2020[7](index=7&type=chunk)[9](index=9&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20%E2%80%93%20Unaudited) The cash flow statement shows a net increase in cash for YTD 2020, driven by financing activities despite decreased operating cash | Metric (in thousands) | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------------------ | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $15,020 | $17,004 | | Net cash used in investing activities | $(21,288) | $(9,280) | | Net cash provided by (used in) financing activities | $12,590 | $(7,513) | | Effect of foreign exchange rate changes on cash | $489 | $(306) | | Net increase (decrease) in cash and cash equivalents | $6,811 | $(95) | | Cash and cash equivalents at end of period | $20,227 | $8,578 | - Cash paid for acquisitions, net of cash acquired, was **$14,728 thousand** for the nine months ended September 30, 2020[14](index=14&type=chunk) - Borrowings on long-term debt increased by **$26,979 thousand**, while principal payments were **$12,299 thousand** for the nine months ended September 30, 2020[14](index=14&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20-%20Unaudited) These notes provide detailed explanations and disclosures for the financial statements, covering accounting policies, acquisitions, revenue, assets, debt, and taxes [Note 1. Basis of Preparation and Presentation](index=8&type=section&id=1.%20BASIS%20OF%20PREPARATION%20AND%20PRESENTATION) Allied Motion designs and sells controlled motion solutions globally for Vehicle, Medical, Aerospace & Defense, and Industrial markets - The Company is engaged in designing, manufacturing, and selling controlled motion solutions, including integrated system solutions and individual products[15](index=15&type=chunk) - Target markets include Vehicle, Medical, Aerospace & Defense, and Industrial[15](index=15&type=chunk) - Financial statements are prepared in accordance with U.S. GAAP, with certain information condensed or omitted per SEC rules[18](index=18&type=chunk) [Note 2. Acquisitions](index=8&type=section&id=2.%20ACQUISITIONS) Allied Motion acquired Dynamic Controls Group for **$26,165 thousand** on March 7, 2020, enhancing its medical market position - Acquired **100%** of Dynamic Controls Group on March 7, 2020, for **$26,165 thousand**, funded by borrowings under the Amended Revolving Facility[21](index=21&type=chunk)[25](index=25&type=chunk) - Dynamic Controls brings strong leadership and an experienced electronics and software engineering design team, strengthening the Company's medical market position[22](index=22&type=chunk) | Acquired Assets/Liabilities (in thousands) | Amount | | :--------------------------------------- | :----- | | Cash and cash equivalents | $11,437 | | Intangible assets | $7,800 | | Goodwill | $6,629 | | Net purchase price | $26,165 | - Intangible assets acquired include customer lists (**$4,400**), technology (**$1,900**), and a trade name (**$1,500**), amortized over 16, 13, and 18 years, respectively[26](index=26&type=chunk) - Dynamic Controls contributed **$6,418 thousand** in revenues and **$(62) thousand** in earnings for the three months ended September 30, 2020, and **$18,833 thousand** in revenues and **$1,110 thousand** in earnings for the nine months ended September 30, 2020[27](index=27&type=chunk) [Note 3. Revenue Recognition](index=11&type=section&id=3.%20REVENUE%20RECOGNITION) Revenue is recognized upon product shipment, disaggregated by target market and geography, with short contract durations - Control of most products transfers at a single point in time, generally when products are shipped[30](index=30&type=chunk) | Target Market (in thousands) | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :--------------------------- | :-------------------------- | :-------------------------- | | Vehicle | $79,017 | $97,375 | | Industrial | $86,882 | $94,076 | | Medical | $62,260 | $39,180 | | Aerospace & Defense | $30,503 | $36,018 | | Other | $15,034 | $16,510 | | Total | $273,696 | $283,159 | | Geography (in thousands) | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :----------------------- | :-------------------------- | :-------------------------- | | United States | $159,862 | $186,697 | | Europe | $93,944 | $95,010 | | Other | $19,890 | $1,452 | | Total | $273,696 | $283,159 | - Contract liabilities increased from **$454 thousand** at December 31, 2019, to **$757 thousand** at September 30, 2020, primarily due to timing differences between performance and customer payment[39](index=39&type=chunk) [Note 4. Inventories](index=13&type=section&id=4.%20INVENTORIES) Inventories increased to **$61,643 thousand** as of September 30, 2020, with raw materials as the largest component | Inventory Category (in thousands) | Sep 30, 2020 | Dec 31, 2019 | | :-------------------------------- | :----------- | :----------- | | Parts and raw materials | $42,150 | $35,849 | | Work-in-process | $7,843 | $6,951 | | Finished goods | $11,650 | $10,585 | | Total | $61,643 | $53,385 | [Note 5. Property, Plant and Equipment](index=13&type=section&id=5.%20PROPERTY%2C%20PLANT%20AND%20EQUIPMENT) Net property, plant, and equipment increased to **$54,058 thousand** as of September 30, 2020, with machinery and equipment as the largest category | Category (in thousands) | Sep 30, 2020 | Dec 31, 2019 | | :----------------------------------- | :----------- | :----------- | | Machinery, equipment, tools and dies | $66,064 | $58,358 | | Total Property, plant and equipment, net | $54,058 | $53,008 | | Depreciation expense (9 months) | $7,259 | $6,780 | [Note 6. Goodwill](index=13&type=section&id=6.%20GOODWILL) Goodwill increased to **$60,460 thousand** as of September 30, 2020, primarily due to the Dynamic Controls acquisition | Goodwill (in thousands) | Amount | | :---------------------- | :----- | | Beginning balance | $52,935 | | Goodwill acquired (Note 2) | $6,629 | | Effect of foreign currency translation | $896 | | Ending balance | $60,460 | [Note 7. Intangible Assets](index=13&type=section&id=7.%20INTANGIBLE%20ASSETS) Net intangible assets increased to **$66,366 thousand** as of September 30, 2020, mainly due to the Dynamic Controls acquisition | Intangible Asset (in thousands) | Sep 30, 2020 Net Book Value | Dec 31, 2019 Net Book Value | | :------------------------------ | :-------------------------- | :-------------------------- | | Customer lists | $46,650 | $45,003 | | Trade name | $9,038 | $8,108 | | Design and technologies | $10,666 | $9,373 | | Total | $66,366 | $62,497 | - Intangible assets from the Dynamic Controls acquisition totaled **$7,800 thousand**[46](index=46&type=chunk) | Amortization Expense (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :---------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Amortization expense | $1,499 | $1,429 | $4,423 | $4,291 | [Note 8. Stock-Based Compensation](index=14&type=section&id=8.%20STOCK-BASED%20COMPENSATION) The Company awarded **160,437** shares of unvested restricted stock for YTD 2020, resulting in **$2,640 thousand** in compensation expense - **160,437** shares of unvested restricted stock were awarded at a weighted average market value of **$33.51** for the nine months ended September 30, 2020[49](index=49&type=chunk) | Restricted Stock Activity (9 months ended Sep 30, 2020) | Number of shares | | :-------------------------------------- | :--------------- | | Outstanding at beginning of period | 186,702 | | Awarded | 160,437 | | Vested | (93,260) | | Forfeited | (2,583) | | Outstanding at end of period | 251,296 | | Stock-based Compensation Expense (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :---------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Stock-based compensation expense | $920 | $834 | $2,640 | $2,374 | [Note 9. Accrued Liabilities](index=15&type=section&id=9.%20ACCRUED%20LIABILITIES) Accrued liabilities remained stable at **$22,821 thousand** as of September 30, 2020, with compensation and benefits as the largest component | Accrued Liability (in thousands) | Sep 30, 2020 | Dec 31, 2019 | | :------------------------------- | :----------- | :----------- | | Compensation and fringe benefits | $11,056 | $12,967 | | Warranty reserve | $1,527 | $1,075 | | Income taxes payable | $539 | $2,231 | | Right of use liabilities | $4,125 | $3,203 | | Other accrued expenses | $5,574 | $3,525 | | Total | $22,821 | $23,001 | [Note 10. Debt Obligations](index=15&type=section&id=10.%20DEBT%20OBLIGATIONS) Long-term debt increased to **$124,387 thousand** due to the Amended Revolving Credit Facility, increased to **$225 million** | Debt Obligation (in thousands) | Sep 30, 2020 | Dec 31, 2019 | | :----------------------------- | :----------- | :----------- | | Revolving Credit Facility, long-term | $124,999 | $110,085 | | Unamortized debt issuance costs | $(612) | $(320) | | Long-term debt | $124,387 | $109,765 | - The Amended Revolving Facility was increased to **$225 million** with a **$75 million** accordion amount and extended to February 2025[53](index=53&type=chunk) - The effective rate of the Amended Revolving Facility was **2.36%** at September 30, 2020[52](index=52&type=chunk) - The Company was in compliance with all financial covenants at September 30, 2020[55](index=55&type=chunk) - Unused Amended Revolving Facility was **$100,001 thousand** as of September 30, 2020[56](index=56&type=chunk) [Note 11. Derivative Financial Instruments](index=16&type=section&id=11.%20DERIVATIVE%20FINANCIAL%20INSTRUMENTS) The Company uses interest rate swaps to manage interest rate risk, with derivative liabilities at **$2,137 thousand** as of September 30, 2020 - The Company uses interest rate swaps to manage exposure to interest rate movements and add stability to interest expense[59](index=59&type=chunk) - In March 2020, two additional interest rate swaps were entered into with a combined notional amount of **$20,000 thousand**, increasing to **$60,000 thousand** in March 2022 and maturing in December 2024[59](index=59&type=chunk) | Derivative (in thousands) | Sep 30, 2020 Fair Value (Liability) | Dec 31, 2019 Fair Value (Liability) | | :------------------------ | :---------------------------------- | :---------------------------------- | | Interest rate products | $2,137 | $363 | - An estimated **$896 thousand** will be reclassified as an increase to interest expense over the next twelve months[61](index=61&type=chunk) [Note 12. Fair Value](index=17&type=section&id=12.%20FAIR%20VALUE) The Company's financial assets and liabilities approximate fair value; pension and deferred compensation assets are Level 1, swaps are Level 2 - Fair value is defined as the price received to sell an asset or paid to transfer a liability in an orderly transaction[66](index=66&type=chunk) | Financial Instrument (in thousands) | Sep 30, 2020 Level 1 | Sep 30, 2020 Level 2 | Dec 31, 2019 Level 1 | Dec 31, 2019 Level 2 | | :---------------------------------- | :------------------- | :------------------- | :------------------- | :------------------- | | Pension plan assets | $5,898 | — | $6,099 | — | | Deferred compensation plan assets | $4,777 | — | $4,690 | — | | Interest rate swaps | — | $(2,137) | — | $(363) | [Note 13. Income Taxes](index=18&type=section&id=13.%20INCOME%20TAXES) The effective income tax rate decreased to **25.4%** for Q3 2020 and **27.6%** for YTD 2020, due to GILTI changes and R&D tax credit | Effective Income Tax Rate | Q3 2020 | Q3 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------ | :------ | :------ | :-------------------------- | :-------------------------- | | Effective tax rate | 25.4% | 36.9% | 27.6% | 31.1% | | Discrete tax benefit (Q3) | (2.6)% | 5.9% (provision) | (0.3)% (9 months) | 1.5% (provision, 9 months) | - The decrease in the effective tax rate is due to an increase in the estimated research and development tax credit and a lower amount of GILTI[72](index=72&type=chunk) - The Company adopted new GILTI regulations in Q3 2020, resulting in a discrete tax benefit of **(0.9%)**[73](index=73&type=chunk) [Note 14. Leases](index=20&type=section&id=14.%20LEASES) Cash paid for operating leases increased to **$3,341 thousand** for YTD 2020, and ROU assets from acquisitions increased to **$2,735 thousand** | Lease Information (in thousands) | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :------------------------------- | :-------------------------- | :-------------------------- | | Cash paid for operating leases | $3,341 | $3,101 | | ROU assets obtained in exchange for operating lease obligations | $2,395 | $260 | | ROU assets obtained in acquisitions | $2,735 | — | | Operating Lease Liabilities Maturity (in thousands) | Amount | | :-------------------------------------------------- | :----- | | 2020 (remaining 3 months) | $1,214 | | 2021 | $4,334 | | 2022 | $3,413 | | 2023 | $2,684 | | 2024 | $2,140 | | 2025 | $1,990 | | Thereafter | $4,403 | | Total undiscounted cash flows | $20,178 | | Less: present value discount | $(1,410) | | Total lease liabilities | $18,768 | [Note 15. Accumulated Other Comprehensive Income (Loss)](index=20&type=section&id=15.%20ACCUMULATED%20OTHER%20COMPREHENSIVE%20INCOME%20%28LOSS%29) Accumulated Other Comprehensive Loss (AOCI) improved to **$(8,941) thousand** as of September 30, 2020, due to foreign currency translation gains | AOCI Components (in thousands) | At Dec 31, 2019 | At Sep 30, 2020 | | :----------------------------- | :-------------- | :-------------- | | Defined Benefit Plan Liability | $(1,628) | $(1,628) | | Cash Flow Hedges | $(363) | $(2,137) | | Tax effect of Cash Flow Hedges | $86 | $513 | | Foreign Currency Translation Adjustment | $(8,626) | $(5,689) | | Total | $(10,531) | $(8,941) | - Foreign currency translation gain was **$2,937 thousand** for the nine months ended September 30, 2020[79](index=79&type=chunk) [Note 16. Dividends Per Share](index=21&type=section&id=16.%20DIVIDENDS%20PER%20SHARE) The Company declared a consistent quarterly dividend of **$0.03** per share in both 2020 and 2019 - Quarterly dividend of **$0.03** per share declared in each quarter of 2020 and 2019[80](index=80&type=chunk) - Total dividends declared were **$874 thousand** for the nine months ended September 30, 2020, compared to **$863 thousand** in the prior year[80](index=80&type=chunk) [Note 17. Earnings Per Share](index=21&type=section&id=17.%20EARNINGS%20PER%20SHARE) Basic and diluted weighted-average shares outstanding increased slightly for Q3 and YTD 2020 | Shares Outstanding (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Basic weighted average shares outstanding | 9,514 | 9,414 | 9,487 | 9,390 | | Diluted weighted average shares outstanding | 9,579 | 9,464 | 9,539 | 9,435 | [Note 18. Segment Information](index=22&type=section&id=18.%20SEGMENT%20INFORMATION) The Company operates as a single reportable segment, with foreign subsidiaries contributing significantly to revenues and assets - The Company operates in one segment for the manufacture and marketing of controlled motion products[82](index=82&type=chunk) | Foreign Subsidiaries (in thousands) | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2019 | | :---------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Revenues derived from foreign subsidiaries | $38,468 | $31,894 | $113,834 | $96,461 | | Identifiable foreign assets (Sep 30, 2020) | $127,369 | | | | | Identifiable foreign assets (Dec 31, 2019) | $95,777 | | | | - One customer accounted for **20%** of revenues in Q3 2020 (**17%** in Q3 2019) and **15%** for the nine months ended September 30, 2020 (**16%** in 2019), also representing **23%** of trade receivables as of September 30, 2020[85](index=85&type=chunk) [Note 19. Recent Accounting Pronouncements](index=22&type=section&id=19.%20RECENT%20ACCOUNTING%20PRONOUNCEMENTS) The Company adopted several ASUs effective January 1, 2020, including those related to credit losses and goodwill impairment, with no material impact - Adopted ASU 2016-13 (Credit Losses), ASU 2017-04 (Goodwill Impairment), and ASU 2018-13 (Fair Value Measurement) on January 1, 2020, with no material impact[86](index=86&type=chunk)[87](index=87&type=chunk)[88](index=88&type=chunk) - Adopted ASU 2020-04 (Reference Rate Reform) effective January 1, 2020, electing expedients related to hedging relationships, with no material impact[89](index=89&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial performance, discussing COVID-19 impact, operating results, and liquidity [Forward-Looking Statements](index=25&type=section&id=Forward-Looking%20Statements) This section cautions that the report contains forward-looking statements, which involve risks and uncertainties that could cause actual results to differ - Forward-looking statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from expected results[91](index=91&type=chunk) - Key risks include domestic and foreign economic conditions, the severity and duration of the COVID-19 pandemic, new technologies, intellectual property, growth management, customer success, supply chain, government regulations, financing, and ability to attract qualified personnel[91](index=91&type=chunk) [Overview](index=25&type=section&id=Overview) Allied Motion is a global company specializing in precision controlled motion components and systems, serving diverse markets - Allied Motion is a global company designing, manufacturing, and selling precision and specialty controlled motion components and systems[93](index=93&type=chunk) - Target markets include Vehicle, Medical, Aerospace & Defense, and Industrial[93](index=93&type=chunk) - Products include various motors, drives, gearmotors, motion controllers, and encoders[93](index=93&type=chunk) [Business Environment](index=25&type=section&id=Business%20Environment) The COVID-19 pandemic significantly disrupted the business environment, reducing demand in most markets, while Medical saw strong demand - COVID-19 caused significant disruptions to the U.S. and global economies, adversely affecting the Company's supply chain, operations, and customer demand[94](index=94&type=chunk) - Impact was most pronounced in Vehicle, Industrial, and Aerospace & Defense markets, but the Vehicle market showed recovery in Q3 2020[95](index=95&type=chunk) - The Company rapidly increased production capacity for medical products (e.g., ventilators) due to surge in demand[98](index=98&type=chunk) - Proactive measures included rigorous safety protocols, work-from-home policies, travel suspensions, and facility disinfection[96](index=96&type=chunk) - Strengthened liquidity by renewing and increasing the revolving credit facility to **$225 million** through February 2025, lowering debt costs, and securing favorable covenants[100](index=100&type=chunk) [Operating Results - Q3 2020 vs. Q3 2019](index=28&type=section&id=Operating%20Results%20-%20Quarter%20ended%20September%2030%2C%202020%20compared%20to%20quarter%20ended%20September%2030%2C%202019) Revenues decreased by **2%** and net income declined by **13%** in Q3 2020 due to COVID-19 related volume declines | Metric (in thousands, except per share) | Q3 2020 | Q3 2019 | Variance ($) | Variance (%) | | :-------------------------------------- | :------ | :------ | :----------- | :----------- | | Revenues | $94,653 | $96,633 | $(1,980) | (2)% | | Gross profit | $28,140 | $30,030 | $(1,890) | (6)% | | Gross margin percentage | 29.7% | 31.1% | | | | Operating income | $6,457 | $8,812 | $(2,355) | (27)% | | Interest expense | $844 | $1,359 | $(515) | (38)% | | Income before income taxes | $5,382 | $7,313 | $(1,931) | (26)% | | Net income | $4,013 | $4,618 | $(605) | (13)% | | Diluted earnings per share | $0.42 | $0.49 | $(0.07) | (14)% | | Bookings | $88,958 | $90,726 | $(1,768) | (2)% | | Backlog | $123,700 | $125,821 | $(2,121) | (2)% | - Revenue decrease was due to a **3.9%** volume decrease, partially offset by a **1.9%** favorable currency impact[104](index=104&type=chunk) - Gross margin decreased to **29.7%** from **31.1%** due to reductions in volume and a product mix with lower margin profiles[106](index=106&type=chunk) - Engineering and development expenses increased by **13%** due to the Dynamic Controls acquisition and ramp-up of development projects[109](index=109&type=chunk) - Effective tax rate decreased to **25.4%** from **36.9%** due to GILTI regulation changes and a foreign tax audit settlement[111](index=111&type=chunk) [Operating Results - YTD 2020 vs. YTD 2019](index=31&type=section&id=Operating%20Results%20-%20Nine%20months%20ended%20September%2030%2C%202020%20compared%20to%20nine%20months%20ended%20September%2030%2C%202019) For YTD 2020, revenues decreased by **3%** and net income decreased by **19%**, driven by COVID-19 related volume reductions | Metric (in thousands, except per share) | YTD 2020 | YTD 2019 | Variance ($) | Variance (%) | | :-------------------------------------- | :------- | :------- | :----------- | :----------- | | Revenues | $273,696 | $283,159 | $(9,463) | (3)% | | Gross profit | $82,642 | $86,114 | $(3,472) | (4)% | | Gross margin percentage | 30.2% | 30.4% | | | | Operating income | $18,223 | $23,747 | $(5,524) | (23)% | | Interest expense | $2,799 | $3,974 | $(1,175) | (30)% | | Income before income taxes | $15,117 | $19,652 | $(4,535) | (23)% | | Net income | $10,944 | $13,533 | $(2,589) | (19)% | | Diluted earnings per share | $1.15 | $1.43 | $(0.28) | (20)% | | Bookings | $262,246 | $279,788 | $(17,542) | (6)% | | Backlog | $123,700 | $125,821 | $(2,121) | (2)% | - Revenue decrease was due to a **3.0%** volume decrease and a **0.3%** unfavorable currency impact[117](index=117&type=chunk) - Business development costs increased significantly to **$432 thousand** in 2020, primarily related to the Dynamic Controls acquisition[123](index=123&type=chunk) - Effective tax rate decreased to **27.6%** from **31.1%** due to discrete tax benefits[125](index=125&type=chunk) [Non-GAAP Measures](index=33&type=section&id=Non-GAAP%20Measures) The Company provides non-GAAP financial measures, including Revenue excluding foreign currency impacts, EBITDA, and Adjusted EBITDA - Non-GAAP measures (Revenue excluding foreign currency exchange impacts, EBITDA, Adjusted EBITDA) are provided to supplement GAAP financial performance evaluation[128](index=128&type=chunk)[129](index=129&type=chunk) | Non-GAAP Revenue (in thousands) | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2020 | | :------------------------------ | :-------------------------- | :-------------------------- | | Revenue as reported | $94,653 | $273,696 | | Currency impact | $(1,833) | $971 | | Revenue excluding foreign currency exchange impacts | $92,820 | $274,667 | | Non-GAAP EBITDA (in thousands) | Q3 2020 | Q3 2019 | YTD 2020 | YTD 2019 | | :----------------------------- | :------ | :------ | :------- | :------- | | EBITDA | $10,281 | $12,416 | $29,598 | $34,697 | | Adjusted EBITDA | $11,209 | $13,641 | $32,670 | $37,519 | [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) The Company's liquidity improved, with cash increasing by **$6,811 thousand** for YTD 2020, supported by financing activities - Cash and cash equivalents increased by **$6,811 thousand** to **$20,227 thousand** at September 30, 2020[136](index=136&type=chunk) | Cash Flow Summary (in thousands) | YTD 2020 | YTD 2019 | Variance ($) | | :--------------------------------- | :------- | :------- | :----------- | | Net cash provided by operating activities | $15,020 | $17,004 | $(1,984) | | Net cash used in investing activities | $(21,288) | $(9,280) | $(12,008) | | Net cash provided by (used in) financing activities | $12,590 | $(7,513) | $20,103 | | Net increase (decrease) in cash and cash equivalents | $6,811 | $(95) | $6,906 | - Decrease in operating cash flow due to lower net income and increased inventories[138](index=138&type=chunk) - Investing cash outflow primarily due to the **$14,728 thousand** acquisition of Dynamic Controls[139](index=139&type=chunk) - Financing cash inflow reflects **$26,000 thousand** borrowing from the Amended Revolving Facility for the acquisition[140](index=140&type=chunk) - The Company believes existing cash, Amended Credit Agreement flexibility, and anticipated operating cash flows are sufficient for the next twelve months[143](index=143&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details the Company's exposure to market risks, specifically foreign currency and interest rate changes, and mitigation strategies [Foreign Currency Risk](index=36&type=section&id=Foreign%20Currency) The Company is exposed to foreign currency exchange rate fluctuations, with a hypothetical **10%** change impacting sales and net assets - Foreign operations in Europe, Canada, Mexico, and Asia expose the Company to foreign currency exchange rate fluctuations[144](index=144&type=chunk) - A hypothetical **10%** change in the U.S. dollar's value would impact Q3 2020 sales by approximately **$3,900 thousand** and YTD 2020 sales by **$11,400 thousand**[144](index=144&type=chunk) - Foreign currency exchange rate fluctuations increased Q3 2020 sales by **$1,833 thousand** compared to Q3 2019, but decreased YTD 2020 sales by **$971 thousand** compared to YTD 2019[144](index=144&type=chunk) - Translation adjustment was a gain of **$3,433 thousand** for Q3 2020 and **$2,937 thousand** for the nine months ended September 30, 2020[146](index=146&type=chunk) [Interest Rate Risk](index=38&type=section&id=Interest%20Rates) The Company manages interest rate risk on its variable-rate Amended Revolving Facility through interest rate swaps, with **$60,000 thousand** of debt hedged - Borrowings under the Amended Revolving Facility bear variable interest rates[147](index=147&type=chunk) - The Company uses interest rate swaps as cash flow hedges to stabilize interest expense[147](index=147&type=chunk) - As of September 30, 2020, **$60,000 thousand** of the **$124,999 thousand** outstanding debt was hedged[148](index=148&type=chunk) - A hypothetical **100 basis point** change in the Base Rate would impact interest expense by approximately **$160 thousand** for Q3 2020 and **$490 thousand** for the nine months ended September 30, 2020, on the unhedged **$64,999 thousand** debt[148](index=148&type=chunk) [Item 4. Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the Company's disclosure controls and procedures were effective as of September 30, 2020 - The Company's disclosure controls and procedures were effective as of September 30, 2020[150](index=150&type=chunk) - Internal controls over financial reporting remained effective despite team members working from home due to the COVID-19 pandemic[151](index=151&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2020[152](index=152&type=chunk) [PART II. OTHER INFORMATION](index=40&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides additional information including risk factors, equity security sales, and exhibits [Item 1A. Risk Factors](index=40&type=section&id=Item%201A.%20Risk%20Factors) This section supplements risk factors, emphasizing the adverse impact of the COVID-19 pandemic on the Company's operations - The COVID-19 pandemic has adversely affected and may continue to affect the Company's business, operations, financial performance, cash flows, and financial condition[153](index=153&type=chunk) - Operations-related risks include increased operational costs, workforce challenges (illness, absenteeism), and disruptions in access to components, supplies, and support services[154](index=154&type=chunk) - Customer-related risks involve changes in customer priorities, limited resources, and potential impairment of customer viability, impacting demand for products and services[155](index=155&type=chunk) - The pandemic may also heighten other existing risks described in the Annual Report on Form 10-K[156](index=156&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=40&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Company reported the withholding of **472** shares of common stock during Q3 2020 to satisfy tax obligations for stock awards | Period | Number of Shares Purchased | Average Price Paid per Share | | :----------------- | :------------------------- | :--------------------------- | | 07/01/20 to 07/31/20 | 404 | $35.02 | | 08/01/20 to 08/31/20 | 68 | $39.63 | | 09/01/20 to 09/30/20 | — | — | | Total | 472 | — | - Shares were withheld to satisfy tax withholding obligations in connection with the vesting of stock[158](index=158&type=chunk) - The Company did not have an authorized stock repurchase plan in place at September 30, 2020[158](index=158&type=chunk) [Item 5. Other Information](index=40&type=section&id=Item%205.%20Other%20Information) This section states that there is no other information to report - No other information to report[157](index=157&type=chunk) [Item 6. Exhibits](index=41&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL taxonomy documents - Includes certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) and 18 U.S.C. Section 1350[159](index=159&type=chunk) - Includes Inline XBRL Taxonomy Extension Schema, Calculation, Definition, Label, and Presentation Linkbase Documents, and the Cover Page Interactive Data File[159](index=159&type=chunk)[160](index=160&type=chunk)

Allied Motion Technologies Inc. (AMOT) Q2 2020 Results Conference Call August 6, 2020 10:00 AM ET Company Participants Craig Mychajluk - Investor Relations Dick Warzala - Chief Executive Officer Mike Leach - Chief Financial Officer Conference Call Participants Greg Palm - Craig-Hallum Gerry Sweeney - ROTH Capital Dick Ryan - Colliers Operator Greetings, and welcome to the Allied Motion Technologies Second Quarter Fiscal Year 2020 Financial Results. [Operator Instructions] A brief question-and-answer session ...