Allient (ALNT) - 2021 Q2 - Quarterly Report

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