ALLIED MOTION TE(AMOT) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents Allient Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of income and comprehensive income, stockholders' equity, and cash flows, along with detailed notes Condensed Consolidated Balance Sheets – Unaudited Total assets and stockholders' equity slightly increased from December 2023 to March 2024, while total liabilities slightly decreased | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | Change ($) | Change (%) | | :-------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Total Assets | $611,599 | $597,542 | $14,057 | 2.35% | | Total Liabilities | $344,469 | $345,967 | $(1,498) | (0.43)% | | Total Stockholders' Equity | $267,130 | $251,575 | $15,555 | 6.18% | | Cash and cash equivalents | $31,514 | $31,901 | $(387) | (1.21)% | | Inventories | $124,909 | $117,686 | $7,223 | 6.14% | | Total current liabilities | $73,108 | $95,617 | $(22,509) | (23.54)% | | Long-term debt | $240,176 | $218,402 | $21,774 | 9.97% | Condensed Consolidated Statements of Income and Comprehensive Income – Unaudited Q1 2024 saw increased revenues, gross profit, and net income compared to Q1 2023, driven by higher sales and improved margins | Metric | Three months ended March 31, 2024 (in thousands) | Three months ended March 31, 2023 (in thousands) | Change ($) | Change (%) | | :-------------------------------- | :------------------------------------- | :------------------------------------- | :--------- | :--------- | | Revenues | $146,713 | $145,549 | $1,164 | 0.80% | | Gross profit | $47,377 | $45,834 | $1,543 | 3.37% | | Operating income | $12,100 | $11,389 | $711 | 6.24% | | Net income | $6,902 | $6,315 | $587 | 9.30% | | Basic earnings per share | $0.42 | $0.40 | $0.02 | 5.00% | | Diluted earnings per share | $0.42 | $0.39 | $0.03 | 7.69% | | Comprehensive income | $2,416 | $6,536 | $(4,120) | (63.04)% | Condensed Consolidated Statements of Stockholders' Equity – Unaudited Stockholders' equity increased from December 2023 to March 2024, driven by net income and stock issuances, offset by dividends | Metric | December 31, 2023 (in thousands) | March 31, 2024 (in thousands) | Change ($) | | :-------------------------------- | :----------------------------- | :---------------------------- | :--------- | | Total Stockholders' Equity | $251,575 | $267,130 | $15,555 | | Net income | N/A | $6,902 | $6,902 | | Stock transactions under employee benefit stock plans | N/A | $1,564 | $1,564 | | Share issuance in connection with acquisitions | N/A | $6,250 | $6,250 | | Share issuance to settle contingent consideration | N/A | $4,874 | $4,874 | | Comprehensive loss | N/A | $(4,510) | $(4,510) | | Dividends to stockholders | N/A | $(500) | $(500) | Condensed Consolidated Statements of Cash Flows – Unaudited Operating cash flow significantly increased in Q1 2024, while investing and financing activities saw substantial changes | Cash Flow Activity | Three months ended March 31, 2024 (in thousands) | Three months ended March 31, 2023 (in thousands) | Change ($) | | :-------------------------------- | :------------------------------------- | :------------------------------------- | :--------- | | Net cash provided by operating activities | $9,179 | $3,586 | $5,593 | | Net cash used in investing activities | $(28,500) | $(9,804) | $(18,696) | | Net cash provided by financing activities | $19,538 | $738 | $18,800 | | Net decrease in cash and cash equivalents | $(387) | $(5,469) | $5,082 | | Cash and cash equivalents at end of period | $31,514 | $25,145 | $6,369 | Notes to Condensed Consolidated Financial Statements – Unaudited Detailed notes explain financial statements, covering preparation, acquisitions, revenue, inventory, assets, debt, and other key financial areas Note 1. Basis of Preparation and Presentation Allient Inc. operates globally in motion, control, power, and composites; financial statements are unaudited and follow U.S. GAAP - Allient Inc. operates globally, providing precision motion, control, power, and structural composites for industrial, vehicle, medical, and aerospace and defense markets[16] - Financial statements are unaudited, prepared under SEC rules and U.S. GAAP, and involve management estimates and assumptions[19][20] Note 2. Acquisitions Q1 2024 saw the acquisition of SNC for $20.0 million cash, contributing $8.5 million revenue, and final payments for other acquisitions - Acquired SNC Manufacturing Co., Inc. and Acutran de Mexico, S.A. de C.V. (collectively "SNC") on January 11, 2024, for an initial purchase price of $20.0 million in cash[23][24] SNC Acquisition Contribution | Metric | Three months ended March 31, 2024 (in thousands) | | :-------------------------------- | :------------------------------------- | | SNC Revenue contribution | $8,509 | | SNC Net income contribution | $730 | | Transaction costs incurred | $300 | - Final deferred acquisition payment for Spectrum of $12.5 million (50% cash, 50% stock) was paid on January 3, 2024, and contingent consideration for Sierramotion was paid in Q1 2024[32] Note 3. Revenue Recognition Revenue is primarily recognized at shipment; Q1 2024 saw growth in Industrial and Vehicle markets, but decline in Medical and A&D - Revenue is generally recognized at a single point in time when control of products is transferred to the customer, typically upon shipment or delivery[34][35] Revenue by Target Market | Target Market (in thousands) | Three months ended March 31, 2024 | Three months ended March 31, 2023 | Change ($) | Change (%) | | :--------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Industrial | $69,594 | $63,256 | $6,338 | 10.02% | | Vehicle | $34,654 | $30,831 | $3,823 | 12.40% | | Medical | $19,086 | $23,674 | $(4,588) | (19.38)% | | Aerospace & Defense | $16,653 | $21,287 | $(4,634) | (21.77)% | | Distribution and Other | $6,726 | $6,501 | $225 | 3.46% | | Total | $146,713 | $145,549 | $1,164 | 0.80% | Revenue by Geography | Geography (in thousands) | Three months ended March 31, 2024 | Three months ended March 31, 2023 | Change ($) | Change (%) | | :--------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | North America (primarily U.S.) | $99,703 | $97,367 | $2,336 | 2.40% | | Europe | $40,660 | $39,897 | $763 | 1.91% | | Asia-Pacific | $6,350 | $8,285 | $(1,935) | (23.35)% | | Total | $146,713 | $145,549 | $1,164 | 0.80% | Note 4. Inventories Total inventories increased by 6.14% to $124.9 million in Q1 2024, driven by parts, raw materials, and finished goods Inventory Breakdown | Inventory Category (in thousands) | March 31, 2024 | December 31, 2023 | Change ($) | Change (%) | | :-------------------------------- | :------------- | :---------------- | :--------- | :--------- | | Parts and raw materials | $90,002 | $87,381 | $2,621 | 3.00% | | Work-in-process | $11,716 | $11,456 | $260 | 2.27% | | Finished goods | $23,191 | $18,849 | $4,342 | 23.04% | | Total Inventories | $124,909 | $117,686 | $7,223 | 6.14% | Note 5. Property, Plant and Equipment Net property, plant, and equipment increased by 4.28% to $70.3 million in Q1 2024, mainly from buildings and machinery Property, Plant, and Equipment Breakdown | Category (in thousands) | March 31, 2024 | December 31, 2023 | Change ($) | Change (%) | | :---------------------- | :------------- | :---------------- | :--------- | :--------- | | Land | $1,778 | $973 | $805 | 82.73% | | Building and improvements | $28,854 | $26,201 | $2,653 | 10.13% | | Machinery, equipment, tools and dies | $102,290 | $99,711 | $2,579 | 2.59% | | Construction in progress | $8,232 | $9,300 | $(1,068) | (11.48)% | | Furniture, fixtures and other | $24,558 | $24,439 | $119 | 0.49% | | Less accumulated depreciation | $(95,363) | $(93,161) | $(2,202) | 2.36% | | Net Property, Plant, and Equipment | $70,349 | $67,463 | $2,886 | 4.28% | - Depreciation expense for the three months ended March 31, 2024, was $3.17 million, a slight increase from $3.14 million in the prior year[46] Note 6. Goodwill Goodwill increased by $1.8 million to $133.2 million in Q1 2024, primarily from the SNC acquisition Goodwill Movement | Metric | March 31, 2024 (in thousands) | | :-------------------------- | :---------------------------- | | Beginning balance (Dec 31, 2023) | $131,338 | | Goodwill acquired | $2,752 | | Effect of foreign currency translation | $(931) | | Ending balance (March 31, 2024) | $133,159 | Note 7. Intangible Assets Net intangible assets slightly decreased to $110.2 million in Q1 2024, with future amortization expected at $9.3 million for 2024 Intangible Assets Net Book Value | Category (in thousands) | March 31, 2024 Net Book Value | December 31, 2023 Net Book Value | Change ($) | Change (%) | | :---------------------- | :---------------------------- | :------------------------------- | :--------- | :--------- | | Customer lists | $73,235 | $74,410 | $(1,175) | (1.58)% | | Trade name | $7,987 | $7,656 | $331 | 4.32% | | Design and technologies | $29,014 | $29,307 | $(293) | (1.00)% | | Total | $110,236 | $111,373 | $(1,137) | (1.02)% | - Amortization expense for intangible assets was $3.12 million for the three months ended March 31, 2024, an increase from $3.01 million in the prior year[48] Estimated Amortization Expense | Year ending December 31, | Estimated Amortization Expense (in thousands) | | :----------------------- | :-------------------------------------------- | | Remainder of 2024 | $9,274 | | 2025 | $12,372 | | 2026 | $12,275 | | 2027 | $11,832 | | 2028 | $11,094 | | Thereafter | $53,389 | | Total | $110,236 | Note 8. Stock-Based Compensation In Q1 2024, 175,721 unvested restricted shares were awarded; stock-based compensation expense was $1.2 million - 175,721 shares of unvested restricted stock were awarded in Q1 2024 at a weighted average market value of $30.02, with 107,377 shares having performance-based vesting conditions[51] Stock-Based Compensation Expense | Metric | Three months ended March 31, 2024 (in thousands) | Three months ended March 31, 2023 (in thousands) | | :-------------------------------- | :------------------------------------- | :------------------------------------- | | Stock-based compensation expense | $1,211 | $1,267 | Note 9. Accrued Liabilities Accrued liabilities significantly decreased to $34.1 million in Q1 2024, mainly due to acquisition consideration settlements Accrued Liabilities Breakdown | Category (in thousands) | March 31, 2024 | December 31, 2023 | Change ($) | Change (%) | | :---------------------- | :------------- | :---------------- | :--------- | :--------- | | Compensation and fringe benefits | $11,450 | $17,251 | $(5,801) | (33.63)% | | Accrued business acquisition consideration | $0 | $12,638 | $(12,638) | (100.00)% | | Contingent consideration – current | $270 | $7,720 | $(7,450) | (96.50)% | | Other accrued expenses | $9,366 | $6,566 | $2,800 | 42.64% | | Total Accrued Liabilities | $34,147 | $56,488 | $(22,341) | (39.55)% | Note 10. Debt Obligations Long-term debt increased to $240.2 million in Q1 2024, driven by a new $50 million note and extended credit facility Debt Category Breakdown | Debt Category (in thousands) | March 31, 2024 | December 31, 2023 | Change ($) | Change (%) | | :--------------------------- | :------------- | :---------------- | :--------- | :--------- | | Revolving Credit Facility, long-term | $183,962 | $210,120 | $(26,158) | (12.45)% | | Note Payable | $50,000 | $0 | $50,000 | N/A | | Long-term debt (Total) | $240,176 | $218,402 | $21,774 | 9.97% | - Entered into a Third Amended and Restated Credit Agreement for a $280 million revolving credit facility, extending the term to March 1, 2029[56] - Entered into a $150 million fixed-rate private shelf facility, with $50.0 million borrowed on March 21, 2024, bearing interest at 5.96% and maturing March 21, 2031[56][62] - The company was in compliance with all financial covenants (minimum interest coverage ratio of 3.0:1.0 and leverage ratio not greater than 4.25:1.0) as of March 31, 2024[59] - Unused Revolving Facility was $96.0 million as of March 31, 2024[63] Note 11. Derivative Financial Instruments The company uses foreign currency contracts and interest rate swaps to manage foreign exchange and interest rate risks - Uses foreign currency contracts (30-day maturities) to hedge short-term balance sheet exposure in currencies like Euro, Mexican Peso, New Zealand Dollar, Chinese Renminbi, and Swedish Krona[65] - Uses interest rate swaps as cash flow hedges to manage exposure to variable-rate debt, with combined notional amounts of $100 million ($60 million maturing Dec 2024, $40 million maturing Dec 2026)[69][140] Derivative Fair Values | Derivative Type | Fair Value (Asset) March 31, 2024 (in thousands) | Fair Value (Asset) December 31, 2023 (in thousands) | Fair Value (Liability) March 31, 2024 (in thousands) | Fair Value (Liability) December 31, 2023 (in thousands) | | :-------------- | :------------------------------------- | :------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Foreign currency contracts | $19 | $54 | $28 | $0 | | Interest rate swaps | $4,402 | $4,431 | $0 | $0 | - Estimated $3.1 million will be reclassified as a decrease to interest expense over the next twelve months related to interest rate derivatives[71] Note 12. Fair Value Financial assets and liabilities are categorized into a three-level fair value hierarchy, with contingent consideration as Level 3 - Financial assets and liabilities are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs), and Level 3 (significant unobservable inputs) for fair value measurement[77] Fair Value Measurements | Asset/Liability (in thousands) | March 31, 2024 (Level 1) | March 31, 2024 (Level 2) | March 31, 2024 (Level 3) | December 31, 2023 (Level 1) | December 31, 2023 (Level 2) | December 31, 2023 (Level 3) | | :----------------------------- | :----------------------- | :----------------------- | :----------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Pension plan assets | $6,143 | $0 | $0 | $5,859 | $0 | $0 | | Deferred compensation plan assets | $4,382 | $0 | $0 | $4,305 | $0 | $0 | | Foreign currency hedge contracts | $0 | $(9) | $0 | $0 | $54 | $0 | | Interest rate swaps, net | $0 | $4,402 | $0 | $0 | $4,431 | $0 | | Contingent consideration | $0 | $0 | $(270) | $0 | $0 | $(7,990) | - Contingent consideration for ALIO Industries, settled 50% in stock and 50% cash, had $5.7 million earned in 2023 and paid in Q1 2024; the remaining contingent consideration of $270 thousand is in accrued liabilities[79][82] Note 13. Income Taxes The effective income tax rate decreased to 21.8% in Q1 2024, due to deferred tax asset realization and income mix Effective Income Tax Rate | Metric | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Effective income tax rate | 21.8% | 23.2% | | Discrete tax benefits | (2.3)% | (2.8)% | - The lower effective tax rate in Q1 2024 is attributed to the realization of certain deferred income tax assets and the impact of the mix of foreign and domestic income[114] - The company expects its income tax rate for the full year 2024 to be approximately 21% to 23%[114] Note 14. Leases The company holds operating and finance leases, with total liabilities of $23.6 million and $8.9 million respectively - Cash paid for operating leases was $1.6 million in Q1 2024, up from $1.4 million in Q1 2023[86] Lease Liabilities | Lease Type | Total Undiscounted Cash Flows (in thousands) | Present Value Discount (in thousands) | Total Lease Liabilities (in thousands) | | :----------- | :------------------------------------------- | :------------------------------------ | :------------------------------------- | | Operating Leases | $26,464 | $(2,868) | $23,596 | | Finance Leases | $11,927 | $(3,010) | $8,917 | Note 15. Accumulated Other Comprehensive (Loss) Income Accumulated Other Comprehensive Loss increased to $(14.7) million in Q1 2024, mainly due to foreign currency translation loss Accumulated Other Comprehensive (Loss) Income Movement | Metric (in thousands) | December 31, 2023 | March 31, 2024 | Change ($) | | :-------------------- | :---------------- | :------------- | :--------- | | Total AOCI | $(10,175) | $(14,661) | $(4,486) | | Foreign currency translation adjustment | $(13,256) | $(17,664) | $(4,408) | | Unrealized gain (loss) on cash flow hedges | $4,431 | $4,329 | $(102) | Note 16. Dividends Per Share The company declared a quarterly dividend of $0.03 per share in Q1 2024, an increase from Q1 2023 Dividend Per Share | Period | Dividend Per Share | | :----- | :----------------- | | Q1 2024 | $0.03 | | Q1 2023 | $0.025 | Note 17. Earnings Per Share Basic and diluted weighted average shares outstanding increased in Q1 2024 compared to Q1 2023 Weighted Average Shares Outstanding | Metric (in thousands) | Three months ended March 31, 2024 | Three months ended March 31, 2023 | Change | | :-------------------- | :-------------------------------- | :-------------------------------- | :----- | | Basic weighted average shares outstanding | 16,394 | 15,872 | 522 | | Diluted weighted average shares outstanding | 16,497 | 16,137 | 360 | Note 18. Segment Information Allient operates as a single segment; 58% of Q1 2024 revenues were from U.S. customers, the rest from foreign markets - The company operates in one segment for the manufacture and marketing of specialty-controlled motion products and solutions[92] Geographic Revenue Distribution | Geographic Revenue | Q1 2024 | Q1 2023 | | :----------------- | :------ | :------ | | U.S. customers | 58% | 56% | | Foreign customers | 42% | 44% | - One customer accounted for 12% of revenues in Q1 2024 and 12% of accounts receivable as of March 31, 2024[94] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2024 financial condition and results, covering strategic focus, business environment, operating results, and liquidity Overview Allient Inc. is a global leader in precision motion, control, power, and structural composites for diverse markets - Allient Inc. is a global company designing, manufacturing, and selling precision motion, control, power, and structural composites[98] - Serves industrial, vehicle, medical, and aerospace and defense markets, with operations in the U.S., Canada, Mexico, Europe, and Asia-Pacific[98] - Products include nano precision positioning systems, servo control systems, motion controllers, digital servo amplifiers and drives, various motors, gearing, encoders, filters, and transformers[98] Business Environment The 2024 business environment faces inflation and geopolitical risks; the company focuses on inventory, acquisitions, and efficiency - Inflation, higher interest rates, and geopolitical conflicts continue to create economic uncertainty, impacting input costs, supply chains, and customer ordering patterns[99][100] - The company is carrying larger inventories in 2024 to meet customer needs, especially as order patterns normalize post-COVID-19 and due to changing aerospace and defense demands[101] - Recent acquisitions (SNC in Q1 2024, Sierramotion in Q3 2023) are key to strategic growth, with a near-term focus on integration and synergy realization[102] - Implementing a "Simplify to Accelerate" strategy focused on realigning footprint, reinforcing lean manufacturing, and reducing working capital to drive earnings momentum and strengthen cash flow[103][104] Operating Results Q1 2024 saw slight revenue growth, improved gross profit, and higher net income, driven by Industrial and Vehicle markets Revenues Revenues increased by 1% to $146.7 million in Q1 2024, with acquisitions contributing $9.5 million, but organic revenue declined Revenues Performance | Metric | Q1 2024 (in thousands) | Q1 2023 (in thousands) | Variance ($) | Variance (%) | | :----- | :--------------------- | :--------------------- | :----------- | :----------- | | Revenues | $146,713 | $145,549 | $1,164 | 1% | - Revenue increase driven by Industrial and Vehicle markets; acquisitions contributed $9.5 million[106] - Organic revenue decreased 5.9% in Q1 2024, primarily in Medical and Aerospace and Defense markets[106] Order Bookings and Backlog Order bookings decreased by 1% in Q1 2024 due to volume and normalization, with backlog decreasing by 16% Order Bookings and Backlog Performance | Metric | Q1 2024 (in thousands) | Q1 2023 (in thousands) | Variance ($) | Variance (%) | | :----- | :--------------------- | :--------------------- | :----------- | :----------- | | Bookings | $122,127 | $123,198 | $(1,071) | (1)% | | Backlog | $258,130 | $308,635 | $(50,505) | (16)% | - Decrease in bookings primarily due to 1% volume decrease and normalization of order patterns[107] Gross Profit and Gross Margin Gross profit increased by 3% to $47.4 million in Q1 2024, with gross margin improving to 32.3% due to sales and mix Gross Profit and Gross Margin Performance | Metric | Q1 2024 (in thousands) | Q1 2023 (in thousands) | Variance ($) | Variance (%) | | :----- | :--------------------- | :--------------------- | :----------- | :----------- | | Gross profit | $47,377 | $45,834 | $1,543 | 3% | | Gross margin percentage | 32.3% | 31.5% | 0.8 pp | | - Increase in gross margin percentage driven by cost absorption on higher sales volume, pricing, and favorable mix[108] Selling Expenses Selling expenses increased by 4% to $6.3 million in Q1 2024, driven by higher compensation and sales commissions Selling Expenses Performance | Metric | Q1 2024 (in thousands) | Q1 2023 (in thousands) | Variance ($) | Variance (%) | | :----- | :--------------------- | :--------------------- | :----------- | :----------- | | Selling expenses | $6,298 | $6,032 | $266 | 4% | - Increase primarily due to increased employee compensation related costs and sales commissions[109] General and Administrative Expenses General and administrative expenses decreased by 3% to $14.4 million in Q1 2024, mainly due to lower compensation General and Administrative Expenses Performance | Metric | Q1 2024 (in thousands) | Q1 2023 (in thousands) | Variance ($) | Variance (%) | | :----- | :--------------------- | :--------------------- | :----------- | :----------- | | General and administrative | $14,440 | $14,820 | $(380) | (3)% | - Decrease primarily due to lower employee compensation related costs[110] Engineering and Development Expenses Engineering and development expenses increased by 7% to $11.1 million in Q1 2024, driven by project ramp-up Engineering and Development Expenses Performance | Metric | Q1 2024 (in thousands) | Q1 2023 (in thousands) | Variance ($) | Variance (%) | | :----- | :--------------------- | :--------------------- | :----------- | :----------- | | Engineering and development | $11,067 | $10,387 | $680 | 7% | - Increase due to continued ramp-up of development projects and supporting growing customer application development needs[111] Business Development Costs Business development costs significantly increased to $357 thousand in Q1 2024, primarily due to acquisition activities Business Development Costs Performance | Metric | Q1 2024 (in thousands) | Q1 2023 (in thousands) | Variance ($) | Variance (%) | | :----- | :--------------------- | :--------------------- | :----------- | :----------- | | Business development | $357 | $197 | $160 | NM % | - Increase largely due to costs incurred for current period acquisition activities[112] Amortization of Intangible Assets Amortization of intangible assets increased by 4% to $3.1 million in Q1 2024, due to recent acquisitions Amortization of Intangible Assets Performance | Metric | Q1 2024 (in thousands) | Q1 2023 (in thousands) | Variance ($) | Variance (%) | | :----- | :--------------------- | :--------------------- | :----------- | :----------- | | Amortization of intangible assets | $3,115 | $3,009 | $106 | 4% | - Increase primarily due to additional intangible assets from recent acquisition activity[112] Interest Expense Interest expense increased by 14% to $3.4 million in Q1 2024, due to higher rates and debt issuance costs Interest Expense Performance | Metric | Q1 2024 (in thousands) | Q1 2023 (in thousands) | Variance ($) | Variance (%) | | :----- | :--------------------- | :--------------------- | :----------- | :----------- | | Interest expense | $3,388 | $2,983 | $405 | 14% | - Increase primarily due to higher interest rates and amortization of debt issuance costs, partially offset by interest rate swaps[113] Income Taxes The effective income tax rate decreased to 21.8% in Q1 2024, driven by deferred tax assets and income mix Income Taxes Performance | Metric | Q1 2024 | Q1 2023 | | :----- | :------ | :------ | | Effective tax rate | 21.8% | 23.2% | - Lower effective tax rate due to realization of deferred income tax assets and impact of foreign/domestic income mix[114] - Full year 2024 income tax rate expected to be 21% to 23%[114] Net Income and Adjusted Net Income Net income increased by 9% to $6.9 million in Q1 2024, reflecting gross profit growth; adjusted net income also rose Net Income and Adjusted Net Income Performance | Metric | Q1 2024 (in thousands) | Q1 2023 (in thousands) | Variance ($) | Variance (%) | | :----- | :--------------------- | :--------------------- | :----------- | :----------- | | Net income | $6,902 | $6,315 | $587 | 9% | | Adjusted net income | $9,546 | $8,935 | $611 | 6.84% | | Adjusted diluted EPS | $0.58 | $0.55 | $0.03 | 5.45% | - Net income increase reflects gross profit growth, partially offset by inflationary pressures and increased interest expense[115] EBITDA and Adjusted EBITDA EBITDA increased to $18.6 million in Q1 2024, and Adjusted EBITDA rose to $20.0 million, indicating improved performance EBITDA and Adjusted EBITDA Performance | Metric | Q1 2024 (in thousands) | Q1 2023 (in thousands) | Variance ($) | Variance (%) | | :----- | :--------------------- | :--------------------- | :----------- | :----------- | | EBITDA | $18,594 | $17,347 | $1,247 | 7.19% | | Adjusted EBITDA | $20,042 | $19,025 | $1,017 | 5.35% | Non-GAAP Measures Non-GAAP measures like Organic Revenue, EBITDA, and Adjusted Net Income provide supplemental insights into operating results - Non-GAAP measures (Organic revenue, EBITDA, Adjusted EBITDA, Adjusted net income, Adjusted diluted EPS) are provided to offer supplemental information for evaluating operating results, distinct from GAAP results[118] - Organic revenue adjusts reported revenues for foreign currency impact and acquisition contributions[119] - EBITDA excludes depreciation, amortization, interest expense, and income taxes, while Adjusted EBITDA further excludes stock-based compensation, business development costs, and foreign currency gains/losses[121][122] - Adjusted net income and Adjusted diluted EPS remove the impact of certain non-routine items to provide a measure of financial performance based on operational factors[123] Organic Revenue Calculation | Non-GAAP Metric | Q1 2024 | | :-------------- | :------ | | Revenue change over prior year | 0.8% | | Less: Impact of acquisitions and foreign currency | 6.7% | | Organic revenue | (5.9)% | Liquidity and Capital Resources Cash and equivalents slightly decreased in Q1 2024, but operating cash flow improved, and financing provided substantial cash Cash Flow Activities | Cash Flow Activity (in thousands) | Q1 2024 | Q1 2023 | Variance ($) | | :-------------------------------- | :------ | :------ | :----------- | | Net cash provided by operating activities | $9,179 | $3,586 | $5,593 | | Net cash used in investing activities | $(28,500) | $(9,804) | $(18,696) | | Net cash provided by financing activities | $19,538 | $738 | $18,800 | | Net decrease in cash and cash equivalents | $(387) | $(5,469) | $5,082 | - Increase in operating cash flow primarily due to increased sales and more efficient working capital conversion[128] - Investing cash usage increased due to $20 million cash paid for the SNC acquisition and $6.25 million for the 2022 Spectrum acquisition[129] - Financing cash flow increased due to $76.85 million proceeds from long-term debt issuance, including $50 million Notes used to pay down the Revolving Facility[130] - Capital expenditures are expected to be between $13 million and $17 million for the full year 2024[129] - The company was in compliance with all debt covenants as of March 31, 2024, and believes it has sufficient liquidity for the next twelve months[131][134] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details Allient Inc.'s exposure to foreign currency and interest rate risks, and its hedging strategies Foreign Currency Allient faces foreign currency risk from international operations, using contracts to hedge short-term balance sheet exposure - International operations in Europe, Canada, Mexico, China, New Zealand, and other regions expose the company to foreign currency exchange rate fluctuations[135] - A hypothetical 10% change in the U.S. dollar's value would impact Q1 2024 sales by approximately $4.9 million and foreign net assets by $16.4 million[135][136] - Foreign currency translation adjustments resulted in a loss of $4.4 million in Q1 2024, compared to a gain of $1.4 million in Q1 2023[136] - Uses foreign currency contracts with notional amounts of $22.0 million at March 31, 2024, to hedge short-term balance sheet exposure[137] Interest Rates The company manages interest rate risk with fixed and variable debt, using interest rate swaps to hedge $100 million of variable debt - Series A Senior Notes bear a fixed interest rate of 5.96% and mature on March 21, 2031[138] - Interest rates on the Credit Facility are variable, based on Term SOFR plus a margin (1.875% at March 31, 2024)[139] - Uses interest rate swaps to hedge $100 million of the $184.0 million outstanding under the Revolving Facility, with swaps maturing in December 2024 ($60 million) and December 2026 ($40 million)[140][141] - A hypothetical 100 basis points change in the Base Rate on the $84.0 million unhedged floating rate debt would impact Q1 2024 interest expense by approximately $300 thousand[141] Item 4. Controls and Procedures This section confirms the effectiveness of disclosure controls and procedures and reports no material changes in internal control Conclusion regarding the effectiveness of disclosure controls and procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2024 - Management, including CEO and CFO, evaluated and concluded that disclosure controls and procedures were effective as of March 31, 2024[142][143] Changes in internal control over financial reporting No material changes in internal control over financial reporting occurred during Q1 2024 - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2024[144] PART II. OTHER INFORMATION Item 1A. Risk Factors No material changes to risk factors from the 2023 Form 10-K, except for factual updates within this 10-Q - No material changes to risk factors from the 2023 Annual Report on Form 10-K, except for factual updates within this Form 10-Q[145] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details equity security activities, including shares withheld for taxes and unregistered issuances for acquisitions Issuer Purchases of Equity Securities The company withheld 3,741 shares in Q1 2024 at $32.39 per share for tax obligations; no repurchase plan was active Issuer Purchases of Equity Securities | Period | Number of Shares Purchased | Average Price Paid per Share | | :----- | :------------------------- | :--------------------------- | | 01/01/24 to 01/31/24 | 798 | $28.12 | | 03/01/24 to 03/31/24 | 2,943 | $33.55 | | Total Q1 2024 | 3,741 | $32.39 | - Shares were withheld to satisfy tax withholding obligations for stock vesting; no authorized stock repurchase plan was in place[146] Recent Sales of Unregistered Securities In Q1 2024, unregistered common stock was issued to settle deferred acquisition considerations for Spectrum, Sierramotion, and Alio - Issued 202,921 shares of common stock on January 3, 2024, as final payment for the Spectrum Acquisition[147] - Issued 71,346 shares of common stock on January 24, 2024, for Sierramotion Acquisition earnout consideration[148] - Issued 103,135 shares of common stock on February 2, 2024, as partial payment for Alio Acquisition earnout consideration[149] - Securities were issued in reliance upon Section 4(a)(2) of the Securities Act of 1933 to accredited investors for investment purposes[150] Item 5. Other Information No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated by directors or executive officers in Q1 2024 - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated by directors or executive officers in Q1 2024[151] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including credit agreements, note payable, and certifications - Includes Third Amended and Restated Credit Agreement, Note Payable Agreement, Form of Note, Consulting Agreement with Robert P. Maida, and certifications from CEO and CFO[152]