Allied Motion Reports Record Revenue of $96.6 Million and Expanded Margins in Third Quarter 2019

• One Allied strategy drives revenue growth of 21% to a record $96.6 million
• Gross margin expanded 140 basis points to 31.1%
• Operating income grew 22% to $8.8 million with operating margin of 9.1%
• Net income was $4.6 million, or $0.49 per diluted share; Excluding atypical foreign tax assessment charges, adjusted net income* grew 12% to $5.4 million, or $0.57 per diluted share
• Year-to-date cash generated from operations was $17.0 million, up 51%

AMHERST, N.Y.--(BUSINESS WIRE)--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 third quarter ended September 30, 2019. Results include the TCI, LLC (“TCI”) acquisition that was completed December 6, 2018.

“We performed well in the quarter, delivering strong operating results as we execute on our strategy for growth. Organic revenue grew 10% driven by strong demand from market share gains in our Medical and Aerospace & Defense markets. Importantly, we also realized the positive effect that volume has on our margin profile,” commented Dick Warzala, Chairman and CEO. “While our bottom line was impacted by $0.08 per diluted share in the quarter from atypical foreign tax adjustments, our results validate that our business is capable of generating stronger earnings as we continue to grow.”

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

Record revenue of $96.6 million was up $16.5 million, or 21%, and reflects considerable growth in Medical and Aerospace & Defense, and contributions from TCI. Revenue increased 23%, excluding a $1.6 million unfavorable impact of changes in foreign currency exchange rates. The Company achieved organic growth of nearly 10%, which reflects the continued strength in the U.S. Sales to U.S. customers were 59% of total sales for the quarter compared with 55% from the third 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 140 basis points to 31.1%, in large part due to the higher volume as well as favorable mix across a number of served markets and the recent acquisition of TCI.

Operating costs and expenses as a percent of revenue were up 140 basis points to 22.0%, largely due to higher selling costs related to additional personnel and incremental intangible asset amortization related to the TCI acquisition. General and administrative expenses were up 10 basis points to 10.3% of revenue, while engineering and development expense remained unchanged at 5.9%.

Operating income increased 22% to $8.8 million as operating margin improved 10 basis points to 9.1%.

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

Michael Leach, Chief Financial Officer, commenting on the foreign tax assessments in the quarter, noted, “We recorded a higher tax provision and recognized an atypical charge in the quarter both of which were due to tax assessments in a foreign jurisdiction for a previous acquisition. The assessments resulted from the outcomes of a tax audit that identified dividend and expense payments prior to our owning the company. The withholding tax related to the dividend is recorded in other expense and we are exploring options to potentially recover this charge, whereas the other audit adjustment impacted the current period’s tax provision and is not recoverable.”

The Company recorded a $384 thousand charge in other expense and had a $433 increase in the income tax provision related to the unusual tax assessment in a foreign jurisdiction. As a result, net income was $4.6 million, or $0.49 per diluted share, compared with $4.9 million, or $0.52 per diluted share in the prior-year period. Excluding the atypical charges, adjusted net income was up 12% to $5.4 million, or $0.57 per diluted share. *See the attached table for a description of non-GAAP financial measures and reconciliation table for Adjusted Net Income and Diluted Earnings per Share.

Given the additional tax provision, the Company is increasing its expected effective tax rate for fiscal 2019 to be in the range of 29% to 32% from 28% to 30%.

Earnings before interest, taxes, depreciation, amortization, stock compensation expense, business development costs and non-income based tax assessment (“Adjusted EBITDA”) was $13.6 million, up

$2.8 million or 26%. As a percent of sales, Adjusted EBITDA was 14.1%, 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 the Company’s products and solutions from most of its served markets resulted in revenue of $283.2 million, up $47 million, or 20%. The impact of FX fluctuations was unfavorable $6.7 million for the year-to-date period. Sales to U.S. customers were 57% of total sales compared with 53% for the same period last year, with the balance of sales to customers primarily in Europe, Canada and Asia.

Gross profit increased 23% to $86.1 million, and gross margin was up 90 basis points to 30.4% largely due to higher volume, favorable mix and TCI.

Operating costs and expenses as a percent of revenue were 22.0%, up 90 basis points. As a result, operating margin remained consistent at 8.4%.

Net income was $13.5 million. Adjusted net income was $14.4 million, up 8.0% over the prior-year period. Adjusted EBITDA for the period was $37.5 million, up 23%. As a percent of sales, Adjusted EBITDA was 13.3%, up 40 basis points. *See the attached table for a description of non-GAAP financial measures and reconciliation table for Adjusted Net Income and Adjusted EBITDA.

Balance Sheet and Cash Flow Review

Cash and cash equivalents were $8.6 million compared with $8.7 million at the end of 2018. Total debt was $116.5 million as of September 30, 2019, down $6.0 million from year-end 2018. Debt, net of cash, was $107.9 million, or 48.7% of net debt to capitalization.

Year-to-date capital expenditures were $9.3 million and included investments for productivity improvement and growth initiatives. The Company adjusted down its expected capital expenditure plan for fiscal 2019 to $13 million to $15 million, 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.

Mr. Leach, commented, “We have generated $17 million in cash from operations in the first nine months, invested in growth, and reduced debt by $6 million. Our capital priorities are straightforward: invest in organic growth, reduce debt, and maintain financial flexibility for acquisitions.”

Orders and Backlog Summary ($ in thousands)

	Q3 2019			Q2 2019			Q1 2019		Q4 2018		Q3 2018
Orders	$	90,726	$		95,317	$		93,744	$	84,911	$	85,081
Backlog	$	125,821	$		133,507	$		130,646	$	131,997	$	115,713

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 $1.4 million impact on third quarter orders compared with the prior-year period.

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, November 1, 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 [phone]. 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, November 8, 2019. To listen to the archived call, dial [phone] and enter replay pin number 13694905 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 November 1, 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. Examples of forward-looking statements include, among others, statements the Company makes regarding expected operating results, anticipated levels of capital expenditures, the Company’s belief that it has sufficient liquidity to fund its business operations, expectations regarding income tax rates and expectations with respect to the conversion of backlog to sales. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on the Company’s current beliefs, expectations and assumptions regarding the future of the Company’s business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of the Company’s control. The Company’s actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, general economic and business conditions, conditions affecting the industries served by the Company and its subsidiaries, conditions affecting the Company's customers and suppliers, competitor responses to the Company's products and services, the overall market acceptance of such products and services, the pace of bookings relative to shipments, the ability to expand into new markets and geographic regions, the success in acquiring new business, the impact of changes in income tax rates or policies and other factors disclosed in the Company's periodic reports filed with the Securities and Exchange Commission. 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. CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (In thousands, except per share data) (Unaudited)
	For the three months ended		For the nine months ended
	September 30,		September 30,
	2019	2018	2019	2018
Revenue	$ 96,633	$ 80,092	$ 283,159	$236,649
Cost of goods sold	66,603	56,330	197,045	166,816
Gross profit	30,030	23,762	86,114	69,833
Operating costs and expenses:
Selling	4,144	2,762	12,373	8,402
General and administrative	9,932	8,177	28,451	23,969
Engineering and development	5,705	4,692	17,188	14,610
Business development	8	33	64	349
Amortization of intangible assets	1,429	872	4,291	2,634
Total operating costs and expenses	21,218	16,536	62,367	49,964
Operating income	8,812	7,226	23,747	19,869
Other expense (income):
Interest expense	1,359	623	3,974	1,839
Other (income) expense, net	140	(24)	121	(118)
Total other expense, net	1,499	599	4,095	1,721
Income before income taxes	7,313	6,627	19,652	18,148
Provision for income taxes	(2,695)	(1,767)	(6,119)	(4,859)
Net income	$ 4,618	$ 4,860	$ 13,533	$ 13,289
Basic earnings per share:
Earnings per share	$ 0.49	$ 0.52	$ 1.44	$ 1.44
Basic weighted average common shares	9,414	9,273	9,390	9,251
Diluted earnings per share:
Earnings per share	$ 0.49	$ 0.52	$ 1.43	$ 1.42
Diluted weighted average common shares	9,464	9,371	9,435	9,337
Net income	$ 4,618	$ 4,860	$ 13,533	$ 13,289
Foreign currency translation adjustment	(2,369)	(307)	(2,708)	(2,152)
(Loss) income on derivatives	(105)	137	(803)	988
Comprehensive income	$ 2,144	$ 4,690	$ 10,022	$ 12,125

ALLIED MOTION TECHNOLOGIES INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) (Unaudited)
	September 30,	December 31,
	2019	2018
Assets
Current assets:
Cash and cash equivalents	$ 8,578	$ 8,673
Trade receivables, net of allowance for doubtful accounts of $576
and $530 at September 30, 2019 and December 31, 2018, respectively	56,004	43,247
Inventories	51,376	54,971
Prepaid expenses and other assets	4,082	4,003
Total current assets	120,040	110,894
Property, plant and equipment, net	49,471	48,035
Deferred income taxes	456	341
Intangible assets, net	63,762	68,354
Goodwill	52,523	52,639
Right of use asset	17,358	-
Other long-term assets	4,632	5,038
Total Assets	$ 308,242	$ 285,301
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	24,677	25,867
Accrued liabilities	23,571	18,722
Total current liabilities	48,248	44,589
Long-term debt	116,486	122,516
Deferred income taxes	3,317	3,860
Pension and post-retirement obligations	4,279	4,293
Right of use liability	14,107	-
Other long-term liabilities	8,009	8,230
Total liabilities	194,446	183,488
Stockholders’ Equity:
Common stock, no par value, authorized 50,000 shares; 9,600
and 9,485 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively	36,437	33,613
Preferred stock, par value $1.00 per share, authorized 5,000 shares;
no shares issued or outstanding	-	-
Retained earnings	89,388	76,718
Accumulated other comprehensive loss	(12,029)	(8,518)
Total stockholders’ equity	113,796	101,813
Total Liabilities and Stockholders’ Equity	$ 308,242	$ 285,301

ALLIED MOTION TECHNOLOGIES INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
	For the nine months ended
	September 30,
	2019	2018
Cash Flows From Operating Activities:
Net income	$ 13,533	$ 13,289
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	11,071	8,454
Deferred income taxes	(563)	(484)
Stock compensation expense	2,374	1,787
Debt issue cost amortization recorded in interest expense	131	113
Other	581	521
Changes in operating assets and liabilities, net of acquisition:
Trade receivables	(13,643)	(11,727)
Inventories	1,664	(11,067)
Prepaid expenses and other assets	(232)	(1,610)
Accounts payable	(727)	8,093
Accrued liabilities	2,815	3,917
Net cash provided by operating activities	17,004	11,286
Cash Flows From Investing Activities:
Purchase of property and equipment	(9,280)	(10,581)
Cash paid for acquisition, net of cash acquired	-	(13,312)
Net cash used in investing activities	(9,280)	(23,893)
Cash Flows From Financing Activities:
Borrowings on long-term debt	9,091	17,658
Principal payments of long-term debt	(15,000)	(8,350)
Dividends paid to stockholders	(887)	(800)
Stock transactions under employee benefit stock plans	(717)	262
Net cash (used in) provided by financing activities	(7,513)	8,770
Effect of foreign exchange rate changes on cash	(306)	(396)
Net decrease in cash and cash equivalents	(95)	(4,233)
Cash and cash equivalents at beginning of period	8,673	15,590
Cash and cash equivalents at end of period	$ 8,578	$ 11,357

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, business development costs and non-income based tax assessment), 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 nine months ended September 30, 2019 is as follows:

	Three Months Ended		Nine Months Ended
	September 30, 2019		September 30, 2019
Revenue as reported	$	96,633	$	283,159
Currency impact		1,567		6,717
Revenue excluding foreign currency exchange impacts	$	98,200	$	289,876

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

	Three Months Ended					Nine Months Ended September 30,
	September 30,
	2019				2018		2019			2018
Net income	$ 4,618		$ 4,860			$13,533		$ 13,289
Interest expense	1,359			623		3,974		1,839
Provision for income tax	2,695			1,767		6,119		4,859
Depreciation and amortization	3,744			2,832		11,071		8,454
EBITDA	12,416	10,082					34,697				28,441
Stock compensation expense	833			694		2374		1,787
Business development costs	8			33		64		349
Non-income based tax assessment	384			-		384		-
Adjusted EBITDA	$ 13,641			$ 10,809		$ 37,519			$ 30,577

ALLIED MOTION TECHNOLOGIES INC. Reconciliation of GAAP Net Income and Diluted Earnings per Share to Non-GAAP Adjusted Net and Diluted Earnings per Share (In thousands) (Unaudited)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Net income	$	4,618	$	4,860	$	13,533	$	13,289
Add back:
Non-income based tax assessment	384		-		384		-
Income tax provision charge	433		-		433		-
Non-GAAP adjusted net income	$	5,435	$	4,860	$	14,350	$	13,289
Average diluted shares outstanding	9,464		9,371		9,435		9,337
Diluted earnings per share - GAAP	$	0.49	$	0.52	$	1.43	$	1.42
Diluted earnings per share - Non-GAAP	$	0.57	$	0.52	$	1.52	$	1.42

Adjusted net income and diluted EPS are defined as net income as reported, adjusted for unusual non-recurring items. Adjusted net income and diluted EPS are not a measure determined in accordance with generally accepted accounting principles in the United States, commonly known as GAAP, and may not be comparable to the measure as used by other companies. Nevertheless, the Company believes that providing non-GAAP information, such as adjusted net income and diluted EPS are important for investors and other readers of the Company’s financial statements and assists in understanding the comparison of the current quarter’s and current year’s net income and diluted EPS to the historical periods’ net income and diluted EPS.