Allied Motion Technologies Inc. (NASDAQ: AMOT) — Q3 2020 Form 10-Q
Issuer note: The supplied filing is for Allied Motion Technologies Inc., not an issuer identified as “Allient Inc.” The unaudited quarter and nine-month periods ended September 30, 2020; dollar amounts below are in millions unless stated otherwise.
Business context and reporting period
Allied Motion designs, manufactures and sells controlled-motion components and systems for vehicle, medical, aerospace and defense, and industrial markets. It reports one operating segment. Results reflect the COVID-19 disruption and the March 2020 acquisition of Dynamic Controls, a medical mobility and rehabilitation controls business.
Financial performance and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $94.7 | $96.6 | $273.7 | $283.2 |
| Gross profit / margin | $28.1 / 29.7% | $30.0 / 31.1% | $82.6 / 30.2% | $86.1 / 30.4% |
| Operating income | $6.5 | $8.8 | $18.2 | $23.7 |
| Net income | $4.0 | $4.6 | $10.9 | $13.5 |
| Diluted EPS | $0.42 | $0.49 | $1.15 | $1.43 |
| Operating cash flow | — | — | $15.0 | $17.0 |
- Q3 revenue declined 2% year over year; excluding favorable currency effects, the company said revenue fell 3.9%. Nine-month revenue declined 3%, reflecting lower volume and a slight unfavorable currency impact.
- Q3 operating income fell 27% and net income fell 13%; nine-month operating income fell 23% and net income fell 19%. Lower revenue and gross margin, plus higher operating costs, weighed on earnings. Lower interest expense and tax provision partly offset the declines.
- Cash and cash equivalents were $20.2 at September 30, up from $13.4 at December 31, 2019. Current assets were $139.8 and current liabilities $52.1.
- Long-term debt, net of issuance costs, was $124.4; gross revolver borrowings were $125.0. The company reported $100.0 of unused capacity under its $225 million revolving facility, subject to covenant-based availability. The facility matures in February 2025; the company said it was in covenant compliance.
- Nine-month investing cash outflow was $21.3, including $14.7 paid for the acquisition, net of cash acquired, and $6.6 in capital expenditures. Financing provided $12.6, primarily reflecting revolver borrowings and repayments.
Material changes and notable items
- Dynamic Controls contributed $6.4 of Q3 revenue and reported a $0.1 operating loss for the quarter; for the post-acquisition nine-month period, it contributed $18.8 of revenue and $1.1 of earnings. The preliminary purchase-price allocation included $6.6 of goodwill and $7.8 of identifiable intangible assets.
- Medical revenue rose to $23.4 in Q3 from $14.6 a year earlier, supported by the acquisition and demand for medical equipment. Vehicle revenue was described as recovering in Q3, while industrial and aerospace and defense markets remained weaker. For the first nine months, vehicle, industrial and aerospace and defense sales were below prior year.
- Q3 bookings were $89.0, down 2%; backlog was $123.7, down 2%. Nine-month bookings were $262.2, down 6%.
- The company declared quarterly dividends of $0.03 per share. Interest expense declined year over year despite higher debt, reflecting lower interest rates. The Q3 effective tax rate was 25.4%, versus 36.9%, including a discrete tax benefit in 2020.
Outlook, commentary and risks
- Management said COVID-19 continued to disrupt demand, suppliers and operations, and expected business uncertainty to weigh on demand in the fourth quarter and beyond. It noted that vehicle orders had resumed and that medical-product demand had increased.
- Management stated that cash, borrowing capacity and anticipated operating cash flows should cover ordinary-course needs for the next 12 months. This is an expectation, not a guarantee; the filing provides no specific revenue or earnings guidance.
- 2020 capital expenditures were expected to be $9–$11 million, slightly below prior expectations. Cost measures included aligning variable costs with demand, temporarily freezing hiring and wages, and limiting discretionary spending.
- Key risks include the duration and effects of COVID-19, customer demand and viability, supply-chain and workforce disruptions, customer concentration, foreign exchange and interest-rate movements, and acquisition integration. One customer represented 20% of Q3 revenue and 23% of trade receivables at quarter-end.
- The company had $64.999 of unhedged floating-rate debt. It estimated that a 100-basis-point rate change would affect interest expense by approximately $0.160 for Q3 and $0.490 for the nine-month period. Management reported disclosure controls were effective and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the issuer identity: the supplied 10-Q names Allied Motion Technologies Inc. (AMOT).
- Track whether COVID-related demand, particularly in industrial and aerospace and defense markets, stabilizes and whether the Q3 vehicle recovery continues.
- Assess the sustainability of medical-market growth and Dynamic Controls’ contribution, integration and purchase-price allocation.
- Monitor gross margin, bookings, backlog, inventory and operating cash flow against the continuing demand and supply-chain uncertainty.
- Review debt availability and covenant headroom, refinancing and rate exposure, and the major-customer concentration in revenue and receivables.