Allied Motion Technologies, Inc. — FY 2021 Form 10-K
Period and business: Fiscal year ended December 31, 2021; comparisons are with FY 2020. The filing identifies the registrant as Allied Motion Technologies, Inc. (Nasdaq: AMOT), a designer and manufacturer of controlled-motion components and systems serving vehicle, industrial, medical, and aerospace and defense markets. Amounts below are in U.S. dollars; financial amounts are in millions unless noted.
Financial performance and liquidity
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Revenue | $403.5 | $366.7 |
| Gross profit / margin | $121.1 / 30.0% | $108.6 / 29.6% |
| Operating income / margin | $26.0 / 6% | $23.0 / 6% |
| Net income | $24.1 | $13.6 |
| Diluted EPS | $1.66 | $0.95 |
| Operating cash flow | $25.4 | $24.8 |
| Investing cash flow | $(61.0) | $(24.1) |
| Cash and cash equivalents at year-end | $22.5 | $23.1 |
| Debt, net of cash | $136.5 | $96.9 |
- Revenue increased 10%, reflecting higher sales in vehicle and industrial markets, an 8% volume increase, and a 2% favorable currency impact. By target market, vehicle revenue rose to $129.8 million and industrial to $135.4 million; aerospace and defense declined to $31.7 million.
- Gross margin improved 40 basis points, primarily from a more favorable product and market mix. Higher material and labor costs and supply-chain-related costs limited expansion.
- Net income included a $7.4 million discrete tax benefit, principally related to New Zealand net operating loss carryforwards. The effective tax rate was negative 4.2%, versus 27.3% in 2020. Adjusted net income, a non-GAAP measure, was $18.2 million, or $1.26 per diluted share, compared with $14.3 million, or $1.00, in 2020.
- Bookings reached a record $468.4 million, up 26%. Year-end backlog was $249.9 million, up 77%, including $47.9 million from 2021 acquisitions. The company cautions that backlog is not a reliable indicator of future sales and may not convert fully to revenue.
- Operating cash flow was broadly stable; increased inventory to support customers and supply-chain needs used $22.9 million of cash. Investing outflows included $47.3 million net cash consideration for acquisitions and $13.7 million of capital expenditures.
- Year-end revolving credit borrowings were $159.4 million, with $65.6 million unused capacity reported, subject to debt, EBITDA, and covenant calculations. The $225 million facility matures in February 2025. The company reported compliance with covenants at year-end. Cash totaled $22.5 million, of which $15.9 million was held at foreign subsidiaries and may incur withholding tax if repatriated.
Material changes and notable items
- Three acquisitions closed in late 2021: ORMEC, ALIO, and Spectrum Controls, for aggregate purchase consideration of approximately $102.2 million. They added automation, precision-motion, and industrial-controls capabilities. Their 2021 contribution to reported revenue was limited because of the late closing dates; management forecast approximately $60 million of incremental 2022 revenue from the acquisitions.
- Goodwill rose to $106.6 million from $61.9 million, and net intangible assets to $103.8 million from $65.9 million, largely reflecting the acquisitions. Purchase-price allocations remained preliminary at year-end.
- The company announced consolidation of its Twinsburg, Ohio facility into Watertown, New York and Reynosa, Mexico facilities, expected to conclude in Q2 2022. It recorded $0.5 million of related 2021 costs and expected total costs of approximately $1.0 million.
- A 3-for-2 stock split took effect in April 2021; reported share and per-share data have been retrospectively adjusted.
- A June 2021 cybersecurity breach, described as a ransomware incident, was contained; the company reported no material results impact and no ransom payment.
Outlook, risks, and contingencies
- Management expected continued supply-chain challenges, upward pressure on material and labor costs, and difficulty hiring direct labor in 2022. It cited record backlog, diversified markets, and operational flexibility as supports for profitable growth and improved free cash flow, but gave no consolidated revenue or earnings forecast.
- Expected 2022 capital expenditures were $15 million to $20 million; the expected 2022 income tax rate was approximately 24% to 26%. Management stated that cash, available borrowing capacity, and anticipated operating cash flows should cover ordinary-course needs for the next 12 months.
- COVID-19-related supply constraints, limited-source suppliers, shipment delays, higher freight and input costs, labor availability, and uneven demand remain material uncertainties. Raw-material price surcharges may not fully or promptly recover cost increases.
- Management said the Ukraine conflict created economic and supply-chain uncertainty but did not believe its effects were material at the time of filing. Chinese energy restrictions caused a one-week shutdown at one location in late 2021; the reported 2021 impact was not material, though future effects remained uncertain.
- Other key risks include customer concentration (one customer represented 15% of revenue in both 2021 and 2020), acquisition integration and valuation, foreign exchange and interest-rate exposure, competition, cybersecurity, and the ability to convert backlog into sales. The company had $4.9 million of contingent consideration tied to ALIO earnings goals through 2024.
- Ordinary-course legal proceedings were not expected by management to have a significant adverse effect. Deloitte issued unqualified opinions on the financial statements and internal control; management and the auditor excluded the three late-2021 acquisitions from internal-control assessments.
Most important facts for investors to verify
- How much of the $249.9 million backlog converts to revenue, and whether delivery timing and margins withstand ongoing supply constraints.
- Whether the three acquisitions achieve the anticipated approximately $60 million of 2022 incremental revenue and deliver integration benefits; review final purchase-price allocations and related amortization.
- Underlying earnings after excluding the $7.4 million discrete tax benefit, and whether the projected 24%–26% tax rate is realized.
- Debt and covenant headroom after acquisition-related borrowing, including the distinction between reported gross debt and debt net of cash.
- Inventory quality and demand assumptions: inventory increased to $89.7 million, and inventory valuation was a critical audit matter.
- Progress and final costs of the Twinsburg consolidation, and whether cybersecurity and supply-chain risks cause further operational disruption.