Allient (ALNT) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents Allied Motion Technologies Inc.'s unaudited condensed consolidated financial statements as of June 30, 2023, along with detailed accounting notes Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | Total Current Assets | $239,244 | $236,007 | | Total Assets | $585,494 | $588,347 | | Total Current Liabilities | $87,757 | $87,588 | | Long-term Debt | $227,106 | $235,454 | | Total Liabilities | $348,700 | $372,882 | | Total Stockholders' Equity | $236,794 | $215,465 | Condensed Consolidated Statements of Income Highlights (Unaudited) | Metric | Three Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | | :--- | :--- | :--- | | Revenues | $146,769 | $292,318 | | Gross Profit | $45,977 | $91,811 | | Operating Income | $12,020 | $23,409 | | Net Income | $6,769 | $13,084 | | Diluted EPS | $0.42 | $0.81 | Condensed Consolidated Statements of Cash Flows Highlights (Unaudited) | Cash Flow Activity | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $17,273 | $(290) | | Net cash used in investing activities | $(12,368) | $(50,923) | | Net cash (used in) provided by financing activities | $(11,092) | $58,781 | | Net (decrease) increase in cash | $(6,494) | $6,383 | - The company operates in a single segment, manufacturing and marketing controlled motion products. For the three months ended June 30, 2023, one customer accounted for 12% of revenues and another for 10%[95][97] Notes to Condensed Consolidated Financial Statements These notes detail financial statement preparation, key accounting events like the FPH acquisition and Spectrum Controls payments, revenue disaggregation, debt covenants, and derivative hedging strategies - In Q2 2023, a measurement period adjustment for the FPH acquisition resulted in a $1,356 thousand increase to goodwill[24] - A deferred acquisition payment of $12.5 million for Spectrum Controls was paid in January 2023, with one final payment of $12.5 million due by January 2024[27] Revenue by Target Market (Six Months Ended June 30) | Target Market | 2023 (in thousands) | 2022 (in thousands) | | :--- | :--- | :--- | | Industrial | $128,845 | $92,911 | | Vehicle | $65,570 | $65,137 | | Medical | $44,562 | $41,513 | | Aerospace & Defense | $40,266 | $26,593 | | Distribution and Other | $13,075 | $11,353 | | Total | $292,318 | $237,507 | - The company's Amended Revolving Credit Facility of $280 million matures in February 2025 and is subject to financial covenants, including a minimum interest coverage ratio of 3.0 to 1.0 and a maximum leverage ratio. The company was in compliance with all covenants as of June 30, 2023[59][61] - The company uses interest rate swaps to hedge variable-rate debt. As of June 30, 2023, swaps with a notional amount of $100,000 were in place, maturing between December 2024 and December 2026[66][142] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses financial performance, highlighting revenue growth from volume and acquisitions, the impact of inflation and interest rates, and improved cash flow, affirming a strong liquidity position - The business environment in the first half of 2023 was characterized by inflation impacting input costs, a higher interest rate environment, and persistent supply chain disruptions[101] - A key near-term focus is the successful integration of six acquisitions completed in late 2021 and Q2 2022 to leverage synergies for future growth and profitability[103] - Bookings decreased in H1 2023 compared to H1 2022, primarily due to a normalization of customer order patterns as supply-chain constraints and longer lead times, which were significant in the prior year, have eased[107][116] Operating Results The company achieved significant year-over-year growth in Q2 and H1 2023 revenue and net income, driven by volume increases and acquisitions, with improved gross margins Q2 2023 vs Q2 2022 Performance | Metric | Q2 2023 | Q2 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $146,769k | $122,722k | 20% | | Gross Profit | $45,977k | $39,774k | 16% | | Operating Income | $12,020k | $7,518k | 60% | | Net Income | $6,769k | $4,581k | 48% | | Diluted EPS | $0.42 | $0.29 | 45% | H1 2023 vs H1 2022 Performance | Metric | H1 2023 | H1 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $292,318k | $237,507k | 23% | | Gross Profit | $91,811k | $73,234k | 25% | | Operating Income | $23,409k | $11,783k | 99% | | Net Income | $13,084k | $7,084k | 85% | | Diluted EPS | $0.81 | $0.45 | 80% | - Organic revenue growth was 17% for Q2 2023 and 21% for the first six months of 2023[106][115] - Interest expense increased 140% in the first six months of 2023 compared to 2022, driven by higher average debt levels to fund acquisitions and increased interest rates[120] Liquidity and Capital Resources The company maintains a strong liquidity position with $24.1 million in cash, improved operating cash flow, reduced investing cash use, and $61.2 million available under its credit facility Cash Flow Summary (Six Months Ended June 30) | Activity | 2023 (in thousands) | 2022 (in thousands) | | :--- | :--- | :--- | | Net cash from Operating Activities | $17,273 | $(290) | | Net cash used in Investing Activities | $(12,368) | $(50,923) | | Net cash from Financing Activities | $(11,092) | $58,781 | - The increase in operating cash flow in H1 2023 is primarily due to increased sales and more efficient conversion of working capital as supply chain constraints eased[134] - As of June 30, 2023, the company had $218.8 million outstanding under its Amended Revolving Facility and $61.2 million available for borrowing[135][137] - The company believes its existing cash, flexible credit agreement, and anticipated operating cash flows are more than sufficient to meet its cash needs for the next twelve months[138] Quantitative and Qualitative Disclosures About Market Risk The company manages market risks from foreign currency fluctuations and interest rates through hedging strategies, including foreign currency contracts and interest rate swaps for variable-rate debt - A hypothetical 10% change in the U.S. dollar value would have impacted sales by approximately $4.9 million for Q2 2023 and $10.0 million for H1 2023[139] - To mitigate foreign currency risk, the company held foreign currency contracts with notional amounts of $17.9 million at June 30, 2023[65][141] - The company has interest rate swaps hedging $100 million of its variable-rate debt. A hypothetical 1% change in interest rates on the unhedged portion of debt ($118.8 million) would impact interest expense by approximately $0.3 million for the quarter[143] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting - As of June 30, 2023, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[145] - No changes occurred in internal control over financial reporting during the quarter ended June 30, 2023, that would be reasonably likely to have a material effect[146] PART II. OTHER INFORMATION Risk Factors No material changes to the risk factors previously disclosed in the company's 2022 Annual Report on Form 10-K have been reported - The company reports no material changes to the risk factors disclosed in its 2022 Annual Report on Form 10-K[147] Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2023, the company withheld 39,007 shares at an average price of $38.63 to satisfy employee tax withholding obligations for vested stock awards Issuer Purchases of Equity Securities (Q2 2023) | Period | Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2023 | 38,774 | $38.65 | | May 2023 | 233 | $35.37 | | June 2023 | 0 | N/A | | Total | 39,007 | $38.63 | - Shares purchased were withheld by the company to satisfy tax withholding obligations in connection with the vesting of employee stock awards and are not part of a formal stock repurchase plan[149] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL taxonomy documents - Exhibits filed include CEO and CFO certifications under Sarbanes-Oxley Sections 302 and 906, as well as various Inline XBRL files[150]