ALLIED MOTION TE(AMOT) - 2024 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements of Allient Inc., including the Balance Sheets, Statements of Income and Comprehensive Income, Statements of Stockholders' Equity, Statements of Cash Flows, and the accompanying notes, providing a detailed financial overview for the periods ended September 30, 2024 Condensed Consolidated Balance Sheets – Unaudited The balance sheet shows a slight decrease in total assets from $597,542 thousand at December 31, 2023, to $596,435 thousand at September 30, 2024. Total liabilities decreased significantly, while stockholders' equity increased | Metric | Sep 30, 2024 (in thousands) | Dec 31, 2023 (in thousands) | Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :----- | | Total Assets | $596,435 | $597,542 | (0.19)% | | Total Liabilities | $323,568 | $345,967 | (6.59)% | | Total Stockholders' Equity | $272,867 | $251,575 | 8.46% | | Cash and cash equivalents | $37,118 | $31,901 | 16.38% | | Total current assets | $250,854 | $248,151 | 1.09% | | Total current liabilities | $61,186 | $95,617 | (36.01)% | Condensed Consolidated Statements of Income and Comprehensive Income – Unaudited For the three months ended September 30, 2024, revenues decreased by 14% YoY, leading to a 68% drop in net income. For the nine months, revenues decreased by 7% YoY, and net income decreased by 49% YoY | Metric | Sep 30, 2024 (in thousands) | Sep 30, 2023 (in thousands) | YoY Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :--------- | | Revenues | $125,213 | $145,319 | (14)% | | Gross profit | $39,264 | $47,498 | (17)% | | Operating income | $6,616 | $11,864 | (44)% | | Net income | $2,101 | $6,666 | (68)% | | Basic EPS | $0.13 | $0.42 | (69)% | | Diluted EPS | $0.13 | $0.41 | (68)% | | Metric | Sep 30, 2024 (in thousands) | Sep 30, 2023 (in thousands) | YoY Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :--------- | | Revenues | $407,958 | $437,637 | (7)% | | Gross profit | $127,317 | $139,309 | (9)% | | Operating income | $23,595 | $35,273 | (33)% | | Net income | $10,153 | $19,750 | (49)% | | Basic EPS | $0.61 | $1.24 | (51)% | | Diluted EPS | $0.61 | $1.22 | (50)% | Condensed Consolidated Statements of Stockholders' Equity – Unaudited Total stockholders' equity increased from $251,575 thousand at December 31, 2023, to $272,867 thousand at September 30, 2024, primarily driven by net income and stock issuances related to acquisitions and employee benefit plans, partially offset by dividends and comprehensive losses | Metric | Sep 30, 2024 (in thousands) | Dec 31, 2023 (in thousands) | Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :----- | | Common Stock | $110,278 | $95,937 | 14.95% | | Retained Earnings | $174,497 | $165,813 | 5.24% | | Accumulated Other Comprehensive Loss | $(11,908) | $(10,175) | (17.03)% | | Total Stockholders' Equity | $272,867 | $251,575 | 8.46% | - Share issuance in connection with acquisitions contributed $6,250 thousand to common stock in Q1 2024[12] - Dividends paid to stockholders were $0.03 per share in Q1, Q2, and Q3 2024[12] Condensed Consolidated Statements of Cash Flows – Unaudited Net cash provided by operating activities increased to $29,458 thousand for the nine months ended September 30, 2024, from $27,132 thousand in the prior year. Cash used in investing activities significantly increased due to acquisitions, while financing activities shifted from a net use to a net provision of cash | Metric | Sep 30, 2024 (in thousands) | Sep 30, 2023 (in thousands) | YoY Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :--------- | | Net cash provided by operating activities | $29,458 | $27,132 | 8.57% | | Net cash used in investing activities | $(32,134) | $(18,854) | (70.43)% | | Net cash provided by (used in) financing activities | $7,685 | $(14,500) | 152.99% | | Net increase (decrease) in cash and cash equivalents | $5,217 | $(6,778) | 176.96% | | Cash and cash equivalents at end of period | $37,118 | $23,836 | 55.72% | - Consideration paid for acquisitions, net of cash acquired, was $(25,231) thousand in 2024, up from $(11,004) thousand in 2023[14] - Proceeds from issuance of long-term debt were $76,898 thousand in 2024, significantly higher than $11,000 thousand in 2023[14] Notes to Condensed Consolidated Financial Statements – Unaudited These notes provide detailed disclosures for the condensed consolidated financial statements, covering the basis of preparation, significant accounting policies, acquisitions, revenue recognition, inventory, property, plant and equipment, goodwill, intangible assets, stock-based compensation, accrued liabilities, debt obligations, derivative financial instruments, fair value measurements, income taxes, leases, accumulated other comprehensive income (loss), dividends per share, earnings per share, and segment information 1. BASIS OF PREPARATION AND PRESENTATION Allient Inc. designs, manufactures, and sells precision motion, control, power, and structural composites globally for industrial, vehicle, medical, and aerospace & defense markets. The unaudited condensed consolidated financial statements are prepared in accordance with SEC rules and U.S. GAAP, with certain information condensed or omitted - Allient Inc. operates in designing, manufacturing, and selling precision motion, control, power, and structural composites for industrial, vehicle, medical, and aerospace & defense markets globally[16] - Financial statements are prepared under U.S. GAAP, with management estimates and assumptions, and should be read with the 2023 Form 10-K[19][20][21] 2. ACQUISITIONS In Q1 2024, Allient acquired SNC Manufacturing Co., Inc. for $20.0 million cash, a designer and manufacturer of electrical transformers. The acquisition contributed $28,072 thousand in revenue and $3,014 thousand in net income for the nine months ended September 30, 2024. The company also finalized payments for Sierramotion (acquired Q3 2023) and Spectrum (acquired 2022) in Q1 2024 | SNC Acquisition Contribution (Nine Months Ended Sep 30, 2024) | Amount (in thousands) | | :---------------------------------------------------------- | :-------------------- | | Revenue | $28,072 | | Net income | $3,014 | - Acquired SNC Manufacturing Co., Inc. in Q1 2024 for $20.0 million cash, adding electrical transformer design and manufacturing capabilities[23][24] - Goodwill from SNC acquisition is related to assembled workforce, synergies, and management knowledge, and is not tax deductible[29][30] - Final deferred acquisition payments for Sierramotion and Spectrum were made in Q1 2024[31][32] 3. REVENUE RECOGNITION Revenue is primarily recognized at a single point in time upon shipment, when control transfers to the customer. The Company disaggregates revenue by geographical regions and target markets, with Industrial and North America being the largest categories - Revenue is generally recognized when products are shipped and control is transferred to the customer[33][34] | Target Market | 2024 (in thousands) | 2023 (in thousands) | YoY Change | | :-------------------- | :------------------ | :------------------ | :--------- | | Industrial | $192,230 | $193,766 | (0.79)% | | Vehicle | $83,669 | $98,559 | (15.11)% | | Medical | $58,828 | $66,254 | (11.21)% | | Aerospace & Defense | $53,627 | $60,237 | (10.97)% | | Distribution and Other | $19,604 | $18,821 | 4.16% | | Total | $407,958 | $437,637 | (6.78)% | | Geography | 2024 (in thousands) | 2023 (in thousands) | YoY Change | | :-------------------------- | :------------------ | :------------------ | :--------- | | North America (primarily U.S.) | $276,886 | $300,834 | (7.96)% | | Europe | $111,664 | $113,679 | (1.77)% | | Asia-Pacific | $19,408 | $23,124 | (16.07)% | | Total | $407,958 | $437,637 | (6.78)% | 4. INVENTORIES Inventories are valued at the lower of cost (FIFO) or net realizable value, totaling $117,605 thousand at September 30, 2024, a slight decrease from $117,686 thousand at December 31, 2023 | Inventory Category | Sep 30, 2024 (in thousands) | Dec 31, 2023 (in thousands) | | :----------------- | :-------------------------- | :-------------------------- | | Parts and raw materials | $85,670 | $87,381 | | Work-in-process | $11,897 | $11,456 | | Finished goods | $20,038 | $18,849 | | Total Inventories | $117,605 | $117,686 | 5. PROPERTY, PLANT AND EQUIPMENT Net property, plant, and equipment increased slightly to $68,396 thousand at September 30, 2024, from $67,463 thousand at December 31, 2023. Depreciation expense for the nine months ended September 30, 2024, was $9,667 thousand | Category | Sep 30, 2024 (in thousands) | Dec 31, 2023 (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Gross Property, Plant, and Equipment | $171,558 | $160,624 | | Accumulated Depreciation | $(103,162) | $(93,161) | | Net Property, Plant, and Equipment | $68,396 | $67,463 | - Depreciation expense for the nine months ended September 30, 2024, was $9,667 thousand[45] 6. GOODWILL Goodwill increased to $134,390 thousand at September 30, 2024, from $131,338 thousand at December 31, 2023, primarily due to goodwill acquired from the SNC acquisition and measurement period adjustments | Goodwill Changes (Nine Months Ended Sep 30, 2024) | Amount (in thousands) | | :------------------------------------------------ | :-------------------- | | Beginning balance (Dec 31, 2023) | $131,338 | | Goodwill acquired | $2,752 | | Impact of measurement period adjustments | $323 | | Effect of foreign currency translation | $(23) | | Ending balance (Sep 30, 2024) | $134,390 | 7. INTANGIBLE ASSETS Net intangible assets decreased to $104,593 thousand at September 30, 2024, from $111,373 thousand at December 31, 2023. Amortization expense for the nine months ended September 30, 2024, was $9,381 thousand | Intangible Asset Category | Sep 30, 2024 Net Book Value (in thousands) | Dec 31, 2023 Net Book Value (in thousands) | | :------------------------ | :----------------------------------------- | :----------------------------------------- | | Customer lists | $69,523 | $74,410 | | Trade name | $7,690 | $7,656 | | Design and technologies | $27,380 | $29,307 | | Total Net Intangible Assets | $104,593 | $111,373 | - Amortization expense for intangible assets was $9,381 thousand for the nine months ended September 30, 2024[48] - Estimated future intangible asset amortization expense for the remainder of 2024 is $3,305 thousand, and $12,570 thousand for 2025[49] 8. STOCK-BASED COMPENSATION Stock-based compensation expense for the nine months ended September 30, 2024, was $3,382 thousand. The Company awarded 186,758 shares of unvested restricted stock during this period, with 107,377 shares having performance-based vesting conditions - Stock-based compensation expense was $3,382 thousand for the nine months ended September 30, 2024, compared to $4,165 thousand in the prior year[53] - 186,758 shares of unvested restricted stock were awarded in the nine months ended September 30, 2024, with a weighted average market value of $29.78[51] 9. ACCRUED LIABILITIES Accrued liabilities significantly decreased to $32,292 thousand at September 30, 2024, from $56,488 thousand at December 31, 2023, primarily due to the payment of accrued business acquisition consideration and contingent consideration. The Company also initiated a "Simplify to Accelerate NOW" program, incurring $1,948 thousand in restructuring costs for the nine months ended September 30, 2024 | Accrued Liability Category | Sep 30, 2024 (in thousands) | Dec 31, 2023 (in thousands) | | :------------------------- | :-------------------------- | :-------------------------- | | Compensation and fringe benefits | $13,448 | $17,251 | | Accrued business acquisition consideration | $0 | $12,638 | | Contingent consideration – current | $0 | $7,720 | | Restructuring related accruals | $922 | $0 | | Total Accrued Liabilities | $32,292 | $56,488 | - The "Simplify to Accelerate NOW" program, initiated in Q2 2024, is expected to cost $1.9 million to $2.4 million, primarily for employee severance[54][55] - Restructuring and business realignment costs of $1,948 thousand were incurred for the nine months ended September 30, 2024[55] 10. DEBT OBLIGATIONS Long-term debt increased to $231,415 thousand at September 30, 2024, from $218,402 thousand at December 31, 2023. This includes a new $280 million revolving credit facility and a $150 million fixed-rate private shelf facility, under which $50 million in Series A Senior Notes were issued. The Company was in compliance with all debt covenants as of September 30, 2024, but amendments were made in October 2024 to temporarily increase the maximum Leverage Ratio | Debt Category | Sep 30, 2024 (in thousands) | Dec 31, 2023 (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Revolving Credit Facility | $175,962 | $210,120 | | Note Payable | $50,000 | $0 | | Long-term debt (total) | $231,415 | $218,402 | - Entered into a $280 million revolving credit facility (extended to March 1, 2029) and a $150 million fixed-rate private shelf facility, issuing $50 million in Series A Senior Notes due March 21, 2031, at 5.96% interest[57][62] - October 2024 amendments temporarily increased the maximum Leverage Ratio to 4.5:1.0 for Q1 and Q2 2025, and adjusted interest rates on the Revolving Facility and Series A Notes[64] - 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 September 30, 2024[59] 11. DERIVATIVE FINANCIAL INSTRUMENTS The Company uses derivative financial instruments, primarily foreign currency contracts and interest rate swaps, to manage interest rate and foreign exchange risks. Foreign currency contracts hedge short-term balance sheet exposure, while interest rate swaps are designated as cash flow hedges to stabilize interest expense on variable-rate debt - Uses foreign currency contracts (30-day maturities) to hedge short-term balance sheet exposure in various currencies, with notional amounts of $24,438 thousand at September 30, 2024[66] - Employs interest rate swaps as cash flow hedges to manage variable-rate debt exposure, with a new $50,000 thousand notional amount swap maturing in September 2027 added in September 2024[67][69] - Estimated $1,566 thousand will be reclassified as a decrease to interest expense over the next twelve months related to its interest rate derivatives[71] 12. FAIR VALUE The Company's financial assets and liabilities are measured at fair value using a three-level hierarchy. Pension plan assets and deferred compensation plan assets are Level 1, while foreign currency hedge contracts and interest rate swaps are Level 2. Contingent consideration liabilities, previously Level 3, were settled in Q1 2024 - Fair value hierarchy levels: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), Level 3 (significant unobservable inputs)[77] - Pension plan assets ($6,399 thousand) and deferred compensation plan assets ($4,747 thousand) are classified as Level 1[78] - Foreign currency hedge contracts ($14 thousand net) and interest rate swaps ($1,915 thousand net) are classified as Level 2[78] - Contingent consideration liabilities, previously Level 3, were settled in Q1 2024, with no remaining liability as of September 30, 2024[78] 13. INCOME TAXES The effective income tax rate for the three months ended September 30, 2024, was 22.6% (23.0% in 2023), and 21.8% for the nine months (23.4% in 2023). Discrete tax costs related to share-based awards and provision to return adjustments impacted the 2024 rates, while 2023 included discrete tax benefits | Period | Effective Income Tax Rate (2024) | Effective Income Tax Rate (2023) | | :-------------------------------- | :------------------------------- | :------------------------------- | | Three months ended Sep 30 | 22.6% | 23.0% | | Nine months ended Sep 30 | 21.8% | 23.4% | - The 2024 effective tax rates include net discrete tax costs primarily from share-based awards and provision to return adjustments[80] - The Company expects its income tax rate for the full year 2024 to be approximately 21% to 23%[112] 14. LEASES The Company has operating and finance leases for facilities and equipment. Cash paid for operating leases increased to $4,791 thousand for the nine months ended September 30, 2024, from $4,195 thousand in 2023. Total operating lease liabilities are $24,312 thousand and finance lease liabilities are $8,711 thousand as of September 30, 2024 | Metric | 2024 (in thousands) | 2023 (in thousands) | | :-------------------------------- | :------------------ | :------------------ | | Cash paid for operating leases | $4,791 | $4,195 | | Cash paid for interest on finance lease obligations | $305 | $318 | | Assets acquired under operating leases | $3,709 | $6,578 | | Lease Type | Total Lease Liabilities (in thousands) | | :--------------- | :----------------------------------- | | Operating Leases | $24,312 | | Finance Leases | $8,711 | 15. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME Accumulated Other Comprehensive Loss (AOCI) increased to $(11,908) thousand at September 30, 2024, from $(10,175) thousand at December 31, 2023. This change was influenced by unrealized gains/losses on cash flow hedges and foreign currency translation adjustments | AOCI Component | Dec 31, 2023 (in thousands) | Sep 30, 2024 (in thousands) | | :-------------------------------- | :-------------------------- | :-------------------------- | | Defined Benefit Plan Liability | $(344) | $(344) | | Cash Flow Hedges | $4,431 | $1,847 | | Tax Effect of Cash Flow Hedges | $(1,006) | $(390) | | Foreign Currency Translation Adjustment | $(13,256) | $(13,021) | | Total AOCI | $(10,175) | $(11,908) | - Foreign currency translation resulted in a gain of $235 thousand for the nine months ended September 30, 2024, compared to a loss of $1,995 thousand in 2023[85] 16. DIVIDENDS PER SHARE The Company declared a quarterly dividend of $0.03 per share in the first, second, and third quarters of 2024 - Quarterly dividend declared was $0.03 per share for Q1, Q2, and Q3 2024[86] 17. EARNINGS PER SHARE Diluted weighted average shares outstanding were 16,605 thousand for the three months ended September 30, 2024, and 16,581 thousand for the nine months. Anti-dilutive shares excluded from the calculation were 128,000 and 74,000 for the respective periods in 2024 | Period | Basic (in thousands) | Diluted (in thousands) | | :-------------------------------- | :------------------- | :--------------------- | | Three months ended Sep 30, 2024 | 16,574 | 16,605 | | Three months ended Sep 30, 2023 | 15,979 | 16,237 | | Nine months ended Sep 30, 2024 | 16,513 | 16,581 | | Nine months ended Sep 30, 2023 | 15,940 | 16,198 | - Anti-dilutive common shares excluded from diluted EPS calculation were 128,000 for the three months and 74,000 for the nine months ended September 30, 2024[87] 18. SEGMENT INFORMATION The Company operates as a single segment focused on specialty-controlled motion products. Revenue distribution shows 56% to U.S. customers for Q3 2024 (55% for nine months), with the remainder to foreign customers, primarily in Europe, Canada, and Asia-Pacific - The Company operates in one segment: manufacture and marketing of specialty-controlled motion products and solutions[88] - For the three months ended September 30, 2024, 56% of revenue was shipped to U.S. customers, and 44% to foreign customers (Europe, Canada, Asia-Pacific)[89] - No single customer accounted for a material concentration of revenue or accounts receivable for the three and nine months ended September 30, 2024[91] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Allient Inc.'s financial condition and results of operations, highlighting key trends, business environment factors, and the impact of strategic initiatives like "Simplify to Accelerate NOW." It also includes a discussion of non-GAAP financial measures and the Company's liquidity and capital resources Overview Allient Inc. is a global company specializing in precision motion, control, power, and structural composites for industrial, vehicle, medical, and aerospace & defense markets. It provides integrated system solutions and individual products through direct sales and distributors, leveraging expertise in electro-magnetic, mechanical, and electronic motion technology - Allient Inc. designs, manufactures, and sells precision motion, control, power, and structural composites globally for industrial, vehicle, medical, and aerospace & defense markets[95] - Products include nano precision positioning systems, servo control systems, motion controllers, digital servo amplifiers and drives, various motors, gearing, encoders, filters, and transformers[95] Business Environment The Company faced negative impacts from inflation and higher interest rates from 2022 through 2024. Geopolitical conflicts and the U.S. Presidential election are creating economic uncertainty. Customer ordering patterns, particularly in Vehicle and Industrial markets, shifted significantly in Q2 and Q3 2024 due to elevated inventory levels and slowing demand. In response, Allient launched its "Simplify to Accelerate NOW" strategy to reduce costs, enhance efficiency, and improve cash flow, with expected annual savings of $10 million - Inflation and higher interest rates negatively impacted input costs and pricing from 2022 through most of 2024[96] - Geopolitical conflicts and the U.S. Presidential election are causing economic uncertainty, affecting energy prices, interest rates, supply chains, and customer ordering patterns[97] - Customer demand decreased, and delivery dates were pushed out in Q2 and Q3 2024, especially in Vehicle and Industrial markets, due to elevated customer inventory levels[98] - Launched "Simplify to Accelerate NOW" strategy to reduce costs, enhance efficiency, and improve cash flow, with expected annual savings of approximately $10 million[99][100] Operating Results Operating results for both the three and nine months ended September 30, 2024, show a decline in revenues, gross profit, operating income, and net income compared to the prior year. This was primarily driven by lower sales volume, particularly in the Vehicle and Industrial markets, and changes in customer ordering patterns, partially offset by contributions from recent acquisitions and cost reduction efforts under the "Simplify to Accelerate NOW" strategy Three months ended September 30, 2024 compared to three months ended September 30, 2023 Revenues decreased by 14% YoY to $125,213 thousand, primarily due to volume decreases in Vehicle and Industrial markets, partially offset by acquisitions. Gross profit declined by 17% with a reduced gross margin of 31.4%. Operating income fell by 44%, and net income decreased by 68% to $2,101 thousand | Metric | Sep 30, 2024 (in thousands) | Sep 30, 2023 (in thousands) | Variance ($) | Variance (%) | | :-------------------------------- | :-------------------------- | :-------------------------- | :----------- | :----------- | | Revenues | $125,213 | $145,319 | $(20,106) | (14)% | | Gross profit | $39,264 | $47,498 | $(8,234) | (17)% | | Gross margin percentage | 31.4% | 32.7% | | | | Operating income | $6,616 | $11,864 | $(5,248) | (44)% | | Net income | $2,101 | $6,666 | $(4,565) | (68)% | | Diluted earnings per share | $0.13 | $0.41 | $(0.28) | (68)% | | Bookings | $102,631 | $154,908 | $(52,277) | (34)% | | Backlog | $238,492 | $309,636 | $(71,144) | (23)% | - Organic revenue decreased 21.5% in Q3 2024, with acquisitions contributing $10,473 thousand[103] - Bookings decreased 34% due to a large defense order in Q3 2023 and changes in customer order patterns[104] - General and administrative expenses decreased 5% due to lower incentive compensation and cost reduction actions from the "Simplify to Accelerate NOW" strategy[108] Nine months ended September 30, 2024 compared to nine months ended September 30, 2023 Revenues decreased by 7% YoY to $407,958 thousand, primarily due to volume declines in Vehicle markets, partially offset by acquisitions. Gross profit decreased by 9% with a gross margin of 31.2%. Operating income fell by 33%, and net income decreased by 49% to $10,153 thousand | Metric | Sep 30, 2024 (in thousands) | Sep 30, 2023 (in thousands) | Variance ($) | Variance (%) | | :-------------------------------- | :-------------------------- | :-------------------------- | :----------- | :----------- | | Revenues | $407,958 | $437,637 | $(29,679) | (7)% | | Gross profit | $127,317 | $139,309 | $(11,992) | (9)% | | Gross margin percentage | 31.2% | 31.8% | | | | Operating income | $23,595 | $35,273 | $(11,678) | (33)% | | Net income | $10,153 | $19,750 | $(9,597) | (49)% | | Diluted earnings per share | $0.61 | $1.22 | $(0.61) | (50)% | | Bookings | $362,131 | $415,113 | $(52,982) | (13)% | | Backlog | $238,492 | $309,636 | $(71,144) | (23)% | - Organic revenue decreased 13.9% year-to-date 2024, with acquisitions contributing $30,856 thousand[117] - Business development costs increased 23% primarily due to restructuring-related costs from the "Simplify to Accelerate NOW" strategy[123] - Interest expense increased 10% due to higher interest rates and average debt levels for acquisitions and capital expenditures[125] Non-GAAP Measures The Company provides non-GAAP measures such as Organic Revenue, EBITDA, Adjusted EBITDA, Adjusted Net Income, and Adjusted Diluted Earnings Per Share to offer supplemental information for evaluating operating results, excluding items not indicative of ongoing performance - Non-GAAP measures (Organic Revenue, EBITDA, Adjusted EBITDA, Adjusted Net Income, Adjusted Diluted EPS) are used to evaluate operating results by excluding non-routine items[129][132][133] | Period | Three months ended Sep 30, 2024 | Nine months ended Sep 30, 2024 | | :-------------------------------- | :------------------------------ | :----------------------------- | | Revenue change over prior year | (13.8)% | (6.8)% | | Less: Impact of acquisitions and foreign currency | 7.7% | 7.1% | | Organic revenue | (21.5)% | (13.9)% | | Metric | Three months ended Sep 30, 2024 (in thousands) | Three months ended Sep 30, 2023 (in thousands) | Nine months ended Sep 30, 2024 (in thousands) | Nine months ended Sep 30, 2023 (in thousands) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | EBITDA | $12,595 | $18,243 | $42,438 | $54,042 | | Adjusted EBITDA | $14,432 | $20,849 | $48,404 | $60,255 | | Metric | Three months ended Sep 30, 2024 (in thousands) | Diluted EPS (2024) | Three months ended Sep 30, 2023 (in thousands) | Diluted EPS (2023) | | :-------------------------------- | :--------------------------------------------- | :----------------- | :--------------------------------------------- | :----------------- | | Net income as reported | $2,101 | $0.13 | $6,666 | $0.41 | | Non-GAAP adjusted net income | $5,068 | $0.31 | $9,980 | $0.61 | Liquidity and Capital Resources Cash and cash equivalents increased by $5,217 thousand to $37,118 thousand at September 30, 2024. Operating cash flow improved, while investing cash flow increased due to acquisitions. Financing activities provided cash, primarily from new debt to fund acquisitions. The Company believes its current cash, operating cash flows, and available financing are sufficient for the next twelve months, despite recent amendments to debt covenants - Cash and cash equivalents increased by $5,217 thousand to $37,118 thousand at September 30, 2024[138] - Net cash provided by operating activities increased by $2,326 thousand to $29,458 thousand for the nine months ended September 30, 2024[139] - Net cash used in investing activities increased by $13,280 thousand to $(32,134) thousand, primarily due to the $20 million cash paid for the SNC acquisition[139][141] - Net cash provided by financing activities was $7,685 thousand, a significant increase from $(14,500) thousand used in the prior year, mainly due to $76,898 thousand in new long-term debt[139][142] - The Company believes existing cash, anticipated operating cash flows, and available financing are sufficient to meet cash needs for the next twelve months[147] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details Allient Inc.'s exposure to market risks, specifically foreign currency exchange rate fluctuations and interest rate movements, and the strategies employed to mitigate these risks, including the use of derivative financial instruments Foreign Currency Allient is exposed to foreign currency exchange rate fluctuations due to international operations in various countries. A hypothetical 10% change in the U.S. dollar's value would impact sales by approximately $4,213 thousand for the nine months ended September 30, 2024, and foreign net assets by $17,152 thousand. The Company uses foreign currency contracts to hedge short-term balance sheet exposure - International operations expose the Company to foreign currency exchange rate fluctuations (Euro, Swedish Krona, Chinese Renminbi, Canadian dollar, Czech Krona, Mexican pesos, British Pound Sterling, New Zealand dollar)[148] - A hypothetical 10% change in the U.S. dollar's value would impact sales by approximately $4,213 thousand for the nine months ended September 30, 2024[149] - Foreign currency translation adjustments resulted in a gain of $235 thousand for the nine months ended September 30, 2024, compared to a loss of $1,995 thousand in 2023[150] - Foreign currency contracts with notional amounts of $24,438 thousand were used to hedge short-term balance sheet exposure as of September 30, 2024[151] Interest Rates The Company manages interest rate risk through a mix of fixed-rate debt (Series A Notes at 5.96%, amended to 6.46% from Oct 2024 to Sep 2025) and variable-rate debt under its Credit Facility (Term SOFR plus a margin). Interest rate swaps are used to hedge variable-rate debt, with $150,000 thousand of the Revolving Facility currently hedged - Series A Notes bear a fixed interest rate of 5.96% (amended to 6.46% from Oct 1, 2024, to Sep 30, 2025) and mature on March 21, 2031[152] - Interest rates on the Credit Facility are variable, based on Term SOFR plus a margin (1.25% to 2.50%)[153] - Interest rate swaps are used to hedge variable-rate debt, with $150,000 thousand of the $175,962 thousand Revolving Facility outstanding at September 30, 2024, currently hedged[153][154] - A hypothetical 1% change in the Base Rate on the $25,962 thousand unhedged floating rate debt would impact interest expense by approximately $200 thousand for the nine months ended September 30, 2024[154] Item 4. Controls and Procedures This section confirms the effectiveness of Allient Inc.'s disclosure controls and procedures as of September 30, 2024, and reports no material changes in internal control over financial reporting during the quarter Conclusion regarding the effectiveness of disclosure controls and procedures Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of September 30, 2024, providing reasonable assurance of achieving their objectives - Disclosure controls and procedures were evaluated and deemed effective as of September 30, 2024[155][156] Changes in internal control over financial reporting There were no material changes in the Company's internal control over financial reporting during the quarter ended September 30, 2024 - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2024[157] PART II. OTHER INFORMATION Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the Company's Form 10-K for the year ended December 31, 2023, except for factual updates provided elsewhere in this Form 10-Q - No material changes to risk factors from the 2023 Form 10-K, except for factual updates within this 10-Q[158] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During September 2024, the Company withheld 1,102 shares at an average price of $21.24 per share to satisfy tax withholding obligations related to stock vesting. The Company did not have an authorized stock repurchase plan in place at September 30, 2024 | Period | Number of Shares Purchased | Average Price Paid per Share | | :----------------- | :------------------------- | :--------------------------- | | 09/01/24 to 09/30/24 | 1,102 | $21.24 | - Shares were withheld to satisfy tax withholding obligations for stock vesting, not part of a repurchase plan[159] - No authorized stock repurchase plan was in place as of September 30, 2024[159] Item 5. Other Information No directors or executive officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter ended September 30, 2024 - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated by directors or executive officers in Q3 2024[160] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including amendments to credit and note purchase agreements, certifications from the CEO and CFO, and XBRL taxonomy documents - Includes amendments to the Third Amended and Restated Credit Agreement and Note Purchase and Private Shelf Agreement[162] - Contains certifications from the Chief Executive Officer and Chief Financial Officer as required by the Sarbanes-Oxley Act[162] - Provides Inline XBRL Taxonomy Extension documents[162]