Allient (ALNT) - 2020 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's analysis of financial condition Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, income, equity, and cash flows, with detailed notes Condensed Consolidated Balance Sheets 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 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 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] - 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][9] Condensed Consolidated Statements of Cash Flows 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] - 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] Notes to Condensed Consolidated Financial Statements 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 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] - Target markets include Vehicle, Medical, Aerospace & Defense, and Industrial[15] - Financial statements are prepared in accordance with U.S. GAAP, with certain information condensed or omitted per SEC rules[18] Note 2. Acquisitions 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][25] - Dynamic Controls brings strong leadership and an experienced electronics and software engineering design team, strengthening the Company's medical market position[22] | 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] - 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] Note 3. Revenue Recognition 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] | 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] Note 4. Inventories 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 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 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 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] | 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 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] | 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 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 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] - The effective rate of the Amended Revolving Facility was 2.36% at September 30, 2020[52] - The Company was in compliance with all financial covenants at September 30, 2020[55] - Unused Amended Revolving Facility was $100,001 thousand as of September 30, 2020[56] Note 11. Derivative Financial Instruments 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] - 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] | 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] Note 12. Fair Value 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] | 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 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] - The Company adopted new GILTI regulations in Q3 2020, resulting in a discrete tax benefit of (0.9%)[73] Note 14. Leases 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) 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] Note 16. Dividends Per Share 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] - Total dividends declared were $874 thousand for the nine months ended September 30, 2020, compared to $863 thousand in the prior year[80] Note 17. Earnings Per Share 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 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] | 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] Note 19. Recent Accounting Pronouncements 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][87][88] - Adopted ASU 2020-04 (Reference Rate Reform) effective January 1, 2020, electing expedients related to hedging relationships, with no material impact[89] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial performance, discussing COVID-19 impact, operating results, and liquidity Forward-Looking Statements 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] - 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] 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] - Target markets include Vehicle, Medical, Aerospace & Defense, and Industrial[93] - Products include various motors, drives, gearmotors, motion controllers, and encoders[93] Business Environment 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] - Impact was most pronounced in Vehicle, Industrial, and Aerospace & Defense markets, but the Vehicle market showed recovery in Q3 2020[95] - The Company rapidly increased production capacity for medical products (e.g., ventilators) due to surge in demand[98] - Proactive measures included rigorous safety protocols, work-from-home policies, travel suspensions, and facility disinfection[96] - Strengthened liquidity by renewing and increasing the revolving credit facility to $225 million through February 2025, lowering debt costs, and securing favorable covenants[100] Operating Results - Q3 2020 vs. Q3 2019 Revenues decreased by 2% and net income declined by 13% in Q3 2020 due to COVID-19 related volume declines | Metric (in thousands, except per share) | Q3 2020 | Q3 2019 | Variance ($) | 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 | $(2,121) | (2)% | - Revenue decrease was due to a 3.9% volume decrease, partially offset by a 1.9% favorable currency impact[104] - Gross margin decreased to 29.7% from 31.1% due to reductions in volume and a product mix with lower margin profiles[106] - Engineering and development expenses increased by 13% due to the Dynamic Controls acquisition and ramp-up of development projects[109] - Effective tax rate decreased to 25.4% from 36.9% due to GILTI regulation changes and a foreign tax audit settlement[111] Operating Results - YTD 2020 vs. YTD 2019 For YTD 2020, revenues decreased by 3% and net income decreased by 19%, driven by COVID-19 related volume reductions | Metric (in thousands, except per share) | YTD 2020 | YTD 2019 | Variance ($) | 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] - Business development costs increased significantly to $432 thousand in 2020, primarily related to the Dynamic Controls acquisition[123] - Effective tax rate decreased to 27.6% from 31.1% due to discrete tax benefits[125] Non-GAAP Measures 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][129] | 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 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 $20,227 thousand at September 30, 2020[136] | Cash Flow Summary (in thousands) | YTD 2020 | YTD 2019 | Variance ($) | | :--------------------------------- | :------- | :------- | :----------- | | 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] - Investing cash outflow primarily due to the $14,728 thousand acquisition of Dynamic Controls[139] - Financing cash inflow reflects $26,000 thousand borrowing from the Amended Revolving Facility for the acquisition[140] - The Company believes existing cash, Amended Credit Agreement flexibility, and anticipated operating cash flows are sufficient for the next twelve months[143] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the Company's exposure to market risks, specifically foreign currency and interest rate changes, and mitigation strategies Foreign Currency Risk 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] - 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] - 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] - 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] Interest Rate Risk 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] - The Company uses interest rate swaps as cash flow hedges to stabilize interest expense[147] - As of September 30, 2020, $60,000 thousand of the $124,999 thousand outstanding debt was hedged[148] - 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] Item 4. Controls and Procedures 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] - Internal controls over financial reporting remained effective despite team members working from home due to the COVID-19 pandemic[151] - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2020[152] PART II. OTHER INFORMATION This section provides additional information including risk factors, equity security sales, and exhibits Item 1A. Risk Factors 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] - Operations-related risks include increased operational costs, workforce challenges (illness, absenteeism), and disruptions in access to components, supplies, and support services[154] - Customer-related risks involve changes in customer priorities, limited resources, and potential impairment of customer viability, impacting demand for products and services[155] - The pandemic may also heighten other existing risks described in the Annual Report on Form 10-K[156] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] - The Company did not have an authorized stock repurchase plan in place at September 30, 2020[158] Item 5. Other Information This section states that there is no other information to report - No other information to report[157] Item 6. Exhibits 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] - Includes Inline XBRL Taxonomy Extension Schema, Calculation, Definition, Label, and Presentation Linkbase Documents, and the Cover Page Interactive Data File[159][160]