Allied Motion Expands Margins on 16% Revenue Growth in Second Quarter 2019

Allied Motion Technologies Inc. (Nasdaq: AMOT) ("Allied Motion” or "Company”), a designer and manufacturer that sells precision and specialty controlled motion products and solutions to the global market, today reported financial results for its second quarter ended June 30, 2019. Results include the TCI, LLC ("TCI”) acquisition that was completed December 6, 2018.

"The One Allied strategy to gain market share through our emphasis to provide engineered solutions for customers in selected target markets is the primary driver of our continued growth. Expanded utilization of our Allied Systematic Tools ("AST”) to improve quality, delivery, cost and innovation is contributing to our improved margins and helped to offset the increased pricing from a supplier of a key electronic assembly. Our recent acquisition of TCI has strategically expanded our addressable market and was a strong contributor to sales and earnings,” commented Dick Warzala, Chairman and CEO.

He added, "We achieved yet another record level of orders and backlog in the quarter as we continued to have strong order flow in the U.S., partially offset by some general economic softness in Europe. Our strong backlog provides us confidence for the near-term as we continue to focus on the long-term by investing in the development of Allied Motion multi-technology solutions that ‘Change the Game’ and create value for our customers.”

Second Quarter 2019 Results (Narrative compares with prior-year period unless otherwise noted)

Revenue of $92.6 million was up $12.6 million, or 16%, and reflects growth across all of the Company’s served markets. Revenue increased more than 18% when excluding a $2.0 million unfavorable impact of changes in foreign currency exchange rates. Organic growth was more than 3%, which reflects double-digit U.S. performance, partially offset by softer market conditions in Europe. Sales to U.S. customers were 58% of total sales for the quarter compared with 52% from the second quarter last year, with the balance of sales to customers primarily in Europe, Canada and Asia. The Company believes that Revenue excluding foreign currency exchange impacts, which is a non-GAAP measurement, is a useful measure in analyzing organic sales results. See the attached table for a description of non-GAAP financial measures and reconciliation of Revenue to Revenue excluding foreign currency exchange impacts.

Gross margin expanded 130 basis points to 30.7%, as a result of higher volume, favorable mix across a number of served markets, the recent acquisition of TCI, and the lessening of atypical items that had negatively impacted the sequential first quarter gross margin. The supplier identified in the first quarter that is discontinuing operations and subsequently increased their prices for any new orders is still a headwind that will likely impact the Company through the end of 2019 given the current level of inventory.

Operating costs and expenses as a percent of revenue were up 90 basis points to 22.5%, largely due to higher selling costs related to additional personnel and incremental intangible asset amortization related to the TCI acquisition. General and administrative expense as a percent of revenue decreased 10 basis points to 10.3%, and engineering and development as a percent of revenue decreased 10 basis points to 6.1%, despite significant additions to the engineering group to support Allied Motion’s growth.

Operating income increased 22% to $7.6 million as operating margin improved 40 basis points to 8.2%.

Interest expense increased to $1.4 million on higher debt balances that funded the TCI acquisition.

The effective tax rate was 28.0% compared with 27.4% in the prior-year period. Net income increased to $4.4 million, or $0.47 per diluted share, compared with $4.2 million, or $0.45 per diluted share. The Company adjusted its effective tax rate for fiscal 2019 to be in the range of 28% to 30%.

Earnings before interest, taxes, depreciation, amortization, stock compensation expense and business development costs ("Adjusted EBITDA”) was $12.1 million, up $2.1 million or 21%. As a percent of sales, Adjusted EBITDA was 13.1%, up 60 basis points. The Company believes that, when used in conjunction with measures prepared in accordance with U.S. generally accepted accounting principles, Adjusted EBITDA, which is a non-GAAP measure, helps in the understanding of its operating performance. See the attached table for a description of non-GAAP financial measures and reconciliation table for Adjusted EBITDA.

Year-to-Date (YTD) 2019 Results (Narrative compares with prior-year period unless otherwise noted)

Strong demand for Allied Motion’s products and solutions from all the Company’s served markets resulted in revenue of $186.5 million, up $30 million, or 19%. The impact of FX fluctuations was unfavorable $5.2 million for the year-to-date period. Sales to U.S. customers were 56% of total sales compared with 52% for the same period last year, with the balance of sales to customers primarily in Europe, Canada and Asia.

Gross profit increased 22% to $56.1 million, and gross margin was up 70 basis points to 30.1% largely due to higher volume, favorable mix and the TCI acquisition.

Operating costs and expenses as a percent of revenue were 22.1%, up 70 basis points. As a result, operating margin declined 10 basis points to 8.0%.

Net income was up $0.5 million, or 6%, to $8.9 million. Adjusted EBITDA for the period was $23.9 million, up 21%. As a percent of sales, Adjusted EBITDA was 12.8%, up 20 basis points.

Balance Sheet and Cash Flow Review

Cash and cash equivalents were $10.5 million compared with $8.7 million at the end of 2018. Total debt was $123.3 million as of June 30, 2019, up $0.8 million from year-end 2018. Debt, net of cash, was $112.8 million, or 50.4% of net debt to capitalization.

Year-to-date capital expenditures were $6.4 million and included investments for productivity improvement and growth initiatives. The Company expects to invest $15 million to $18 million in capital expenditures during fiscal 2019, with the majority focused on the previously announced Vehicle market project wins, off-road vehicle steering capabilities and incremental investments related to the addition of TCI.

The year-over-year increase in orders and backlog reflects strength across all the Company’s served markets and the incremental orders and backlog from the acquisition. Foreign currency translation had an unfavorable $2.3 million impact on second quarter orders compared with the prior-year period.

Backlog reached a record level, increasing 20% over the prior-year period and 2% from the sequential first quarter. The time to convert the majority of backlog to sales is approximately three to six months. A nominal amount of the $225 million of previously announced new Vehicle market awards are included in the backlog. The Company is currently investing in these programs and expects to begin shipments at very low levels by the end of 2019, with full rate production by the end of 2021.

Conference Call and Webcast

The Company will host a conference call and webcast on Friday, August 2, 2019 at 10:00 am ET. During the conference call, management will review the financial and operating results and discuss Allied Motion’s corporate strategy and outlook. A question and answer session will follow.

To listen to the live call, dial (201) 689-8263. In addition, the call will be webcast and may be found at: https://www.alliedmotion.com/investor-relations/

A telephonic replay will be available from 1:00 pm ET on the day of the call through Friday, August 9, 2019. To listen to the archived call, dial (412) 317-6671 and enter replay pin number 13692058 or access the webcast replay via the Company’s website. A transcript will also be posted to the website once available.

About Allied Motion Technologies Inc.

Allied Motion (Nasdaq: AMOT) designs, manufactures and sells precision and specialty controlled motion products and solutions used in a broad range of industries within our major served markets, which include Vehicle, Medical, Aerospace & Defense, and Industrial. The Company is headquartered in Amherst, NY, has global operations and sells into markets across the United States, Canada, South America, Europe and Asia.

Allied Motion is focused on controlled motion applications and is known worldwide for its expertise in electro-magnetic, mechanical and electronic motion technology. Its products include brush and brushless DC motors, brushless servo and torque motors, coreless DC motors, integrated brushless motor-drives, gear motors, gearing, modular digital servo drives, motion controllers, incremental and absolute optical encoders, active (electronic) and passive (magnetic) filters for power quality and harmonic issues, and other controlled motion-related products.

The Company’s growth strategy is focused on being the controlled motion solutions leader in its selected target markets by leveraging its "technology/know how” to develop integrated precision solutions that utilize multiple Allied Motion technologies to "change the game” and create higher value solutions for its customers. The Company routinely posts news and other important information on its website at http://www.alliedmotion.com/.

Safe Harbor Statement

The statements in this news release and in the Company’s August 2, 2019 conference call that relate to future plans, events or performance are "forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements, and may contain the word "believe,” "anticipate,” "expect,” "project,” "intend,” "will continue,” "will likely result,” "should” or words or phrases of similar meaning. Forward-looking statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from the expected results described in the forward-looking statements. The risks and uncertainties include those associated with: the domestic and foreign general business and economic conditions in the markets we serve, including political and currency risks and adverse changes in local legal and regulatory environments; the introduction of new technologies and the impact of competitive products; the ability to protect the Company’s intellectual property; our ability to sustain, manage or forecast its growth and product acceptance to accurately align capacity with demand; the continued success of our customers and the ability to realize the full amounts reflected in our order backlog as revenue; the loss of significant customers or the enforceability of the Company’s contracts in connection with a merger, acquisition, disposition, bankruptcy, or otherwise; our ability to meet the technical specifications of our customers; the performance of subcontractors or suppliers and the continued availability of parts and components; changes in government regulations; the availability of financing and our access to capital markets, borrowings, or financial transactions to hedge certain risks; the ability to attract and retain qualified personnel who can design new applications and products for the motion industry; the ability to implement our corporate strategies designed for growth and improvement in profits including to identify and consummate favorable acquisitions to support external growth and the development of new technologies; the ability to successfully integrate an acquired business into our business model without substantial costs, delays, or problems; our ability to control costs, including the establishment and operation of low cost region manufacturing and component sourcing capabilities; and other risks and uncertainties detailed from time to time in the Company’s SEC filings. Actual results, events and performance may differ materially. Readers are cautioned not to place undue reliance on these forward-looking statements as a prediction of actual results. Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise over time, and it is not possible for us to predict the occurrence of those matters or the manner in which they may affect us. The Company has no obligation or intent to release publicly any revisions to any forward looking statements, whether as a result of new information, future events, or otherwise.

FINANCIAL TABLES FOLLOW

ALLIED MOTION TECHNOLOGIES INC.
Reconciliation of Non-GAAP Financial Measures
(In thousands)
(Unaudited)

In addition to reporting net income, a U.S. generally accepted accounting principle ("GAAP”) measure, the Company presents Revenue excluding foreign currency exchange impacts and Adjusted EBITDA (earnings before interest, income taxes, depreciation and amortization, stock compensation expense, and business development costs), which are non-GAAP measures.

The Company believes that Revenue excluding foreign currency exchange impacts is a useful measure in analyzing organic sales results. The Company excludes the effect of currency translation from revenue for this measure because currency translation is not under management’s control, is subject to volatility and can obscure underlying business trends. The portion of revenue attributable to currency translation is calculated as the difference between the current period revenue and the current period revenue after applying foreign exchange rates from the prior period.

The Company believes Adjusted EBITDA is often a useful measure of a Company’s operating performance and is a significant basis used by the Company’s management to evaluate and compare the core operating performance of its business from period to period by removing the impact of the capital structure (interest), tangible and intangible asset base (depreciation and amortization), taxes, stock-based compensation expense, business development costs related to acquisitions, and other items that are not indicative of the Company’s core operating performance. Adjusted EBITDA does not represent and should not be considered as an alternative to net income, operating income, net cash provided by operating activities or any other measure for determining operating performance or liquidity that is calculated in accordance with generally accepted accounting principles.

The Company’s calculation of Revenue excluding foreign currency exchange impacts for the three and six months ended June 30, 2019 is as follows:

The Company’s calculation of Adjusted EBITDA for the three months and six months ended June 30, 2019 and 2018 is as follows:

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