UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2021.~~2022.

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________________to _________________________

Commission file number 0-04041

ALLIED MOTION TECHNOLOGIES INC.

(Exact name of Registrant as Specified in Its Charter)


Colorado		84-0518115
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

495 Commerce Drive, Amherst, New York (Address of principal executive offices)		14228 (Zip Code)

(716) 242-8634

(Registrant’s Telephone Number, Including Area Code)

~~(Former Address, if Changed Since Last Report)~~

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol		Name of each exchange on which registered
Common stock		AMOT		NASDAQ

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety (90) days. Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ⌧ No ◻

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act.

Large accelerated filer ◻

Accelerated filer ⌧

Non-accelerated filer ◻

Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧

Number of Shares of the only class of Common Stock outstanding: ~~14,714,802~~15,978,261 as of ~~November~~August 3, ~~2021~~2022

Table of Contents

ALLIED MOTION TECHNOLOGIES INC.

INDEX


PART I. FINANCIAL INFORMATION			Page No.

	Item 1.	Financial Statements

		Condensed Consolidated Balance Sheets – Unaudited	1

		Condensed Consolidated Statements of Income and Comprehensive (Loss) Income – Unaudited	2

		Condensed Consolidated Statements of Stockholders’ Equity – Unaudited	3

		Condensed Consolidated Statements of Cash Flows – Unaudited	54

		Notes to Condensed Consolidated Financial Statements - Unaudited	65

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1921

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2830

	Item 4.	Controls and Procedures	2931

PART II. OTHER INFORMATION			2932

	Item 1A.	Risk Factors	2932

	Item 5.	Unregistered Sales of Equity Securities and Use of Proceeds	3132

	Item 6.	Other Information	3132

	Item 7.	Exhibits	3132

Table of Contents

ALLIED MOTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(Unaudited)


	September 30,		December 31,		June 30,		December 31,
	2021		2020		2022		2021
Assets
Current assets:
Cash and cash equivalents	$	19,209	$	23,131	$	28,846	$	22,463
Trade receivables, net of provision for credit losses of $545 and $382 at September 30, 2021 and December 31, 2020, respectively		55,723		47,377
Trade receivables, net of provision for credit losses of $586 and $506 at June 30, 2022 and December 31, 2021, respectively						69,806		51,239
Inventories		72,239		62,978		112,255		89,733
Prepaid expenses and other assets		10,365		8,728		11,403		12,522
Total current assets		157,536		142,214		222,310		175,957
Property, plant and equipment, net		55,215		55,428		65,945		56,983
Deferred income taxes		7,188		330		4,427		5,321
Intangible assets, net		60,643		65,859		125,943		103,786
Goodwill		60,583		61,860		125,006		106,633
Right of use assets		17,104		19,023
Operating lease assets						23,550		16,983
Other long-term assets		5,341		4,483		8,934		5,122
Total Assets	$	363,610	$	349,197	$	576,115	$	470,785
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	35,131	$	27,668	$	47,129	$	36,714
Accrued liabilities		27,315		24,862		46,295		41,656
Total current liabilities		62,446		52,530		93,424		78,370
Long-term debt		109,312		120,079		228,901		158,960
Deferred income taxes		4,230		4,659		8,263		5,040
Pension and post-retirement obligations		5,139		5,340		3,841		3,932
Right of use liabilities		13,126		14,975
Operating lease liabilities						18,854		12,792
Other long-term liabilities		6,945		8,558		21,553		23,929
Total liabilities		201,198		206,141		374,836		283,023
Stockholders’ Equity:
Common stock, 0 par value, authorized 50,000 shares; 14,715 and 14,632 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively		43,792		41,278
Common stock, 0 par value, authorized 50,000 shares; 15,978 and 15,361 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively						81,662		68,097
Preferred stock, par value $1.00 per share, authorized 5,000 shares; 0 shares issued or outstanding		—		—		—		—
Retained earnings		126,568		105,065		134,066		127,757
Accumulated other comprehensive loss		(7,948)		(3,287)		(14,449)		(8,092)
Total stockholders’ equity		162,412		143,056		201,279		187,762
Total Liabilities and Stockholders’ Equity	$	363,610	$	349,197	$	576,115	$	470,785

See accompanying notes to condensed consolidated financial statements.

Table of Contents

ALLIED MOTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE (LOSS) INCOME

(In thousands, except per share data)

(Unaudited)


	For the three months ended				For the nine months ended				For the three months ended				For the six months ended
	September 30,				September 30,				June 30,				June 30,
	2021		2020		2021		2020		2022		2021		2022		2021
Revenues	$	103,509	$	94,653	$	306,723	$	273,696	$	122,722	$	101,537	$	237,507	$	203,214
Cost of goods sold		71,488		66,513		213,417		191,054		82,948		70,320		164,273		141,929
Gross profit		32,021		28,140		93,306		82,642		39,774		31,217		73,234		61,285
Operating costs and expenses:
Selling		4,365		3,734		12,979		11,819		5,808		4,396		10,839		8,614
General and administrative		10,620		10,008		32,549		28,880		12,595		11,181		24,091		21,929
Engineering and development		6,768		6,434		20,967		18,865		9,791		7,240		19,177		14,199
Business development		94		8		268		432		1,417		155		2,265		174
Amortization of intangible assets		1,504		1,499		4,527		4,423		2,645		1,511		5,079		3,023
Total operating costs and expenses		23,351		21,683		71,290		64,419		32,256		24,483		61,451		47,939
Operating income		8,670		6,457		22,016		18,223		7,518		6,734		11,783		13,346
Other expense, net:
Interest expense		777		844		2,445		2,799		1,525		807		2,563		1,668
Other (income) expense, net		(29)		231		(158)		307		(279)		(10)		(234)		(129)
Total other expense, net		748		1,075		2,287		3,106		1,246		797		2,329		1,539
Income before income taxes		7,922		5,382		19,729		15,117		6,272		5,937		9,454		11,807
Income tax (provision) benefit		(1,950)		(1,369)		2,804		(4,173)		(1,691)		(1,303)		(2,370)		4,754
Net income	$	5,972	$	4,013	$	22,533	$	10,944	$	4,581	$	4,634	$	7,084	$	16,561
Basic earnings per share:
Earnings per share	$	0.41	$	0.28	$	1.57	$	0.77	$	0.30	$	0.32	$	0.47	$	1.15
Basic weighted average common shares		14,411		14,271		14,375		14,231		15,355		14,406		15,226		14,356
Diluted earnings per share:
Earnings per share	$	0.41	$	0.28	$	1.56	$	0.76	$	0.29	$	0.32	$	0.45	$	1.14
Diluted weighted average common shares		14,502		14,369		14,478		14,309		15,932		14,494		15,752		14,467
Net income	$	5,972	$	4,013	$	22,533	$	10,944	$	4,581	$	4,634	$	7,084	$	16,561
Other comprehensive income:
Other comprehensive (loss) income:
Foreign currency translation adjustment		(2,528)		3,433		(5,580)		2,937		(8,699)		955		(9,932)		(3,052)
Gain (loss) on derivatives		155		70		919		(1,347)
Comprehensive income	$	3,599	$	7,516	$	17,872	$	12,534
Gain on derivatives										974		56		3,576		764
Comprehensive (loss) income									$	(3,144)	$	5,645	$	728	$	14,273

See accompanying notes to condensed consolidated financial statements.

Table of Contents

ALLIED MOTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except per share data)

(Unaudited)


	Common Stock									Accumulated Other Comprehensive (Loss) Income
(In thousands except per share data)	Shares	Amount		Unamortized Cost of Equity Awards		Common Stock and Paid-in Capital		Retained Earnings		Foreign Currency Translation Adjustments		Accumulated income (loss) on derivatives		Pension adjustments		Total Stockholders' Equity
Balances, December 31, 2021	15,361	$	73,106	$	(5,009)	$	68,097	$	127,757	$	(7,409)	$	180	$	(863)	$	187,762
Stock transactions under employee benefit stock plans	36		1,217				1,217										1,217
Issuance of restricted stock, net of forfeitures	141		5,140		(5,144)		(4)										(4)
Stock-based compensation expense					1,349		1,349										1,349
Shares withheld for payment of employee payroll taxes	(4)		(137)				(137)										(137)
Comprehensive (loss) income											(1,233)		3,423				2,190
Tax effect of derivative transactions													(822)				(822)
Net income									2,504								2,504
Dividends to stockholders - $0.025									(388)								(388)
Balances, March 31, 2022	15,534	$	79,326	$	(8,804)	$	70,522	$	129,873	$	(8,642)	$	2,781	$	(863)	$	193,671
Issuance of restricted stock, net of forfeitures	16		313		(314)		(1)										(1)
Share issuance in connection with acquisitions	463		11,103				11,103										11,103
Stock-based compensation expense					1,141		1,141										1,141
Shares withheld for payment of employee payroll taxes	(35)		(1,103)				(1,103)										(1,103)
Comprehensive (loss) income											(8,699)		1,284				(7,415)
Tax effect of derivative transactions													(310)				(310)
Net income									4,581								4,581
Dividends to stockholders - $0.025									(388)								(388)
Balances, June 30, 2022	15,978	$	89,639	$	(7,977)	$	81,662	$	134,066	$	(17,341)	$	3,755	$	(863)	$	201,279


	Common Stock									Accumulated Other Comprehensive Income (Loss)
										Foreign
				Unamortized		Common Stock				Currency		Accumulated				Total
				Cost of Equity		and Paid-in		Retained		Translation		income (loss)		Pension		Stockholders'		Common Stock									Accumulated Other Comprehensive (Loss) Income
(In thousands except per share data)	Shares	Amount		Awards		Capital		Earnings		Adjustments		on derivatives		adjustments		Equity		Shares	Amount		Unamortized Cost of Equity Awards		Common Stock and Paid-in Capital		Retained Earnings		Foreign Currency Translation Adjustments		Accumulated income (loss) on derivatives		Pension adjustments		Total Stockholders' Equity
Balances, December 31, 2020	14,632	$	47,085	$	(5,807)	$	41,278	$	105,065	$	(216)	$	(1,438)	$	(1,633)	$	143,056	14,632	$	47,085	$	(5,807)	$	41,278	$	105,065	$	(216)	$	(1,438)	$	(1,633)	$	143,056
Stock transactions under employee benefit stock plans	32		988				988										988	32		988				988										988
Issuance of restricted stock, net of forfeitures	81		3,001		(2,872)		129										129	81		3,001		(2,872)		129										129
Stock-based compensation expense					797		797										797					797		797										797
Shares withheld for payment of employee payroll taxes	(21)		(256)				(256)										(256)	(21)		(256)				(256)										(256)
Comprehensive (loss) income											(4,007)		929				(3,078)											(4,007)		929				(3,078)
Tax effect of derivative transactions													(221)				(221)													(221)				(221)
Net income									11,927								11,927									11,927								11,927
Dividends to stockholders - $0.02									(294)								(294)									(294)								(294)
Balances, March 31, 2021	14,724		50,818		(7,882)		42,936		116,698		(4,223)		(730)		(1,633)		153,048	14,724	$	50,818	$	(7,882)	$	42,936	$	116,698	$	(4,223)	$	(730)	$	(1,633)	$	153,048
Issuance of restricted stock, net of forfeitures	15		472		(474)		(2)										(2)	15		472		(474)		(2)										(2)
Stock-based compensation expense					1,000		1,000										1,000					1,000		1,000										1,000
Shares withheld for payment of employee payroll taxes	(23)		(1,344)				(1,344)										(1,344)	(23)		(1,344)				(1,344)										(1,344)
Comprehensive income											955		74				1,029											955		74				1,029
Tax effect of derivative transactions													(18)				(18)													(18)				(18)
Net income									4,634								4,634									4,634								4,634
Dividends to stockholders - $0.025									(368)								(368)									(368)								(368)
Balances, June 30, 2021	14,716		49,946		(7,356)		42,590		120,964		(3,268)		(674)		(1,633)		157,979	14,716	$	49,946	$	(7,356)	$	42,590	$	120,964	$	(3,268)	$	(674)	$	(1,633)	$	157,979
Issuance of restricted stock, net of forfeitures	1		22		(23)		(1)										(1)
Stock-based compensation expense					1,303		1,303										1,303
Shares withheld for payment of employee payroll taxes	(2)		(100)				(100)										(100)
Comprehensive (loss) income											(2,528)		203				(2,325)
Tax effect of derivative transactions													(48)				(48)
Net income									5,972								5,972
Dividends to stockholders - $0.025									(368)								(368)
Balances, September 30, 2021	14,715	$	49,868	$	(6,076)	$	43,792	$	126,568	$	(5,796)	$	(519)	$	(1,633)	$	162,412

~~See accompanying notes to condensed consolidated financial statements.~~

~~Table of Contents~~

Common Stock


Accumulated Other Comprehensive Income (Loss)


Foreign

Unamortized

Common Stock

Currency

Accumulated

Total

Cost of Equity

and Paid-in

Retained

Translation

income (loss)

Pension

Stockholders'


Shares

Amount

Awards

Capital

Earnings

Adjustments

on derivatives

adjustments

Equity
Balances, December 31, 2019

14,399

$
41,642

$
(4,506)

$
37,136

$
92,589

$
(8,626)

$
(277)

$
(1,628)

$
119,194
Stock transactions under employee benefit stock plans

48

1,252

1,252

1,252
Issuance of restricted stock, net of forfeitures

156

3,574

(3,089)

485

485
Stock-based compensation expense

789

789

789
Shares withheld for payment of employee payroll taxes

(36)

(256)

(256)

(256)
Comprehensive loss

(2,428)

(1,432)

(3,860)
Tax effect of derivative transactions

344

344
Net income

4,035

4,035
Dividends to stockholders - $0.02

(290)

(290)
Balances, March 31, 2020

14,567

46,212

(6,806)

39,406

96,334

(11,054)

(1,365)

(1,628)

121,693
Issuance of restricted stock, net of forfeitures

57

1,222

(1,222)

—

—
Stock-based compensation expense

921

921

921
Shares withheld for payment of employee payroll taxes

(8)

(541)

(541)

(541)
Comprehensive income (loss)

1,932

(433)

1,499
Tax effect of derivative transactions

104

104
Net income

2,896

2,896
Dividends to stockholders - $0.02

(292)

(292)
Balances, June 30, 2020

14,617

46,893

(7,107)

39,786

98,938

(9,122)

(1,694)

(1,628)

126,280
Issuance of restricted stock, net of forfeitures

21

555

(555)

—

—
Stock-based compensation expense

905

905

905
Shares withheld for payment of employee payroll taxes

(2)

(17)

(17)

(17)
Comprehensive income

3,433

91

3,524
Tax effect of derivative transactions

(21)

(21)
Net income

4,013

4,013
Dividends to stockholders - $0.02

(292)

(292)
Balances, September 30, 2020

14,636

$
47,431

$
(6,757)

$
40,674

$
102,659

$
(5,689)

$
(1,624)

$
(1,628)

$
134,392

See accompanying notes to condensed consolidated financial statements.

Table of Contents

ALLIED MOTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

For the nine months ended

September 30,

2021

2020
Cash Flows From Operating Activities:

Net income

$
22,533

$
10,944
Adjustments to reconcile net income to net cash provided by operating activities

Depreciation and amortization

13,317

11,682
Deferred income taxes

(7,440)

(931)
Stock-based compensation expense

3,100

2,640
Debt issue cost amortization recorded in interest expense

106

109
Other

1,235

360
Changes in operating assets and liabilities, net of acquisition:

Trade receivables

(9,586)

(2,136)
Inventories

(11,747)

(4,575)
Prepaid expenses and other assets

(675)

(725)
Accounts payable

8,168

492
Accrued liabilities

909

(2,840)
Net cash provided by operating activities

19,920

15,020

Cash Flows From Investing Activities:

Purchase of property and equipment

(9,761)

(6,560)
Consideration paid for acquisitions, net of cash acquired

—

(14,728)
Net cash used in investing activities

(9,761)

(21,288)

Cash Flows From Financing Activities:

Borrowings on long-term debt

819

26,979
Principal payments of long-term debt

(11,417)

(12,299)
Payment of debt issuance costs

—

(401)
Dividends paid to stockholders

(1,007)

(875)
Tax withholdings related to net share settlements of restricted stock

(1,700)

(814)
Net cash (used in) provided by financing activities

(13,305)

12,590
Effect of foreign exchange rate changes on cash

(776)

489
Net (decrease) increase in cash and cash equivalents

(3,922)

6,811
Cash and cash equivalents at beginning of period

23,131

13,416
Cash and cash equivalents at end of period

$
19,209

$
20,227

Supplemental disclosure of cash flow information:

Property, plant and equipment purchases in accounts payable or accrued expenses

$
630

$
398


	For the six months ended
	June 30,
	2022		2021
Cash Flows From Operating Activities:
Net income	$	7,084	$	16,561
Adjustments to reconcile net income to net cash (used in) provided by operating activities
Depreciation and amortization		12,531		8,890
Deferred income taxes		1,222		(7,316)
Stock-based compensation expense		2,490		1,797
Debt issue cost amortization recorded in interest expense		71		71
Other		793		1,028
Changes in operating assets and liabilities, net of acquisition:
Trade receivables		(15,407)		(5,381)
Inventories		(22,003)		(5,951)
Prepaid expenses and other assets		1,601		814
Accounts payable		9,850		5,651
Accrued liabilities		1,478		307
Net cash (used in) provided by operating activities		(290)		16,471

Cash Flows From Investing Activities:
Consideration paid for acquisitions, net of cash acquired		(44,569)		—
Purchase of property and equipment		(6,354)		(5,885)
Net cash used in investing activities		(50,923)		(5,885)

Cash Flows From Financing Activities:
Principal payments of long-term debt and finance lease obligations		(3,406)		(7,603)
Proceeds from issuance of long-term debt		64,203		—
Dividends paid to stockholders		(776)		(662)
Tax withholdings related to net share settlements of restricted stock		(1,240)		(1,600)
Net cash provided by (used in) financing activities		58,781		(9,865)
Effect of foreign exchange rate changes on cash		(1,185)		(468)
Net increase in cash and cash equivalents		6,383		253
Cash and cash equivalents at beginning of period		22,463		23,131
Cash and cash equivalents at end of period	$	28,846	$	23,384

Supplemental disclosure of cash flow information:
Stock issued for acquisitions	$	11,103	$	—
Property, plant and equipment purchases in accounts payable or accrued expenses	$	1,444	$	967

See accompanying notes to condensed consolidated financial statements.

Table of Contents

ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

1. BASIS OF PREPARATION AND PRESENTATION

Allied Motion Technologies Inc. (“Allied Motion” or the “Company”) is engaged in the business of designing, manufacturing and selling precision and specialty controlled motion ~~solutions,~~components and systems, which include integrated system solutions as well as individual controlled motion products, to a broad spectrum of customers throughout the ~~world. The Company’s target markets include Vehicle, Medical, Aerospace & Defense~~world primarily for the vehicle, medical, aerospace and ~~Industrial.~~defense, and industrial markets.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

The assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars using end of period exchange rates. Changes in reported amounts of assets and liabilities of foreign subsidiaries that occur as a result of changes in exchange rates between the foreign subsidiaries’ functional currencies and the U.S. dollar are included in foreign currency translation adjustment. Foreign currency translation adjustment is included in accumulated other comprehensive loss, a component of stockholders’ equity in the accompanying condensed consolidated statements of stockholders’ equity. Revenue and expense transactions use an average rate prevailing during the month of the related transaction. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency of each of the foreign subsidiaries are included in the results of operations as incurred in other (income) expense, net.

The condensed consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and include all adjustments which are, in the opinion of management, necessary for a fair presentation. Certain information and footnote disclosures normally included in financial statements which are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. The Company believes that the disclosures herein are adequate to make the information presented not misleading. The financial data for the interim periods may not necessarily be indicative of results to be expected for the year.

The preparation of financial statements in accordance with U.S. GAAP requires management to make certain estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities as well as disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates.

It is suggested that the accompanying condensed consolidated financial statements be read in conjunction with the Consolidated Financial Statements and related Notes to such statements included in the Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 that was previously filed by the Company.

~~Stock Split~~

~~On March 10, 2021, the Board of Directors approved a~~ 3-for-2 common stock split to be paid in the form of a stock dividend to holders of record on April 16, 2021. The additional shares were issued on April 30, 2021. In lieu of fractional shares, shareholders received a cash payment based on the closing share price of the common stock on the record date. All share and per share information presented in the condensed consolidated financial statements have been adjusted to reflect the stock split on a retrospective basis for all periods presented.

Twinsburg Consolidation

In September 2021, the Company announced its plans to consolidate its manufacturing facility in Twinsburg, Ohio with its Watertown, New York and Reynosa, Mexico facilities in 2022. Such consolidation has been substantially completed by June 30, 2022. Costs of ~~$100~~$4 and $344 are included in business development on the condensed consolidated statement of income and comprehensive (loss) income for the three and six months ended ~~September~~June 30, ~~2021~~2022, respectively, related to the consolidation of the Twinsburg facility. Costs incurred include accelerated ~~depreciation, accelerated~~ lease costs, severance and other payroll related costs.

Table of Contents

ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

2. ACQUISITIONS

FPH Group

On May 30, 2022, the Company acquired 100% of the direct and indirect legal and beneficial ownership of the shares of FPH Group Inc., a corporation incorporated pursuant to the laws of the Province of Ontario and the membership interests of Transtar International, LLC, a Michigan limited liability company, collectively “FPH”. FPH is an Ontario, Canada headquartered industry leader in the development of technically advanced, reliable and cost-effective electrical drive systems which provide high torque and precision motion for the defense industry, as well as light weighting technologies for existing and future ground-based vehicles in the defense industry. FPH provides concept engineering, prototyping, validation and production. FPH also develops composites, advanced materials and hybrid products and systems that achieve significant weight reduction and higher strength. This acquisition provides the Company with a deeper penetration within defense applications including the necessary manufacturing licenses and certifications.

The purchase price was $42,159 consisting of cash of $39,359 funded through borrowings under the Amended Revolving Facility, $550 in Company stock (22,886 shares at $24.01 closing stock price on May 27, 2022), and $2,250 in the form of 93,728 exchangeable shares (based on the closing price of an equivalent share of the Company’s common stock) of an indirect wholly-owned subsidiary of the Company, each of which is initially exchangeable into 1 share of Company common stock, subject to adjustment, in accordance with a Support Agreement entered into concurrently with the closing of the transaction. The purchase price allocation is subject to adjustments based on a final determination of closing net working capital and certain tax matters.

The Company incurred $710 of transaction costs related to the acquisition of FPH, which are included in business development on the condensed consolidated statements of income and comprehensive (loss) income.

The preliminary allocation of the purchase price paid for FPH is based on estimated fair values of the assets acquired and liabilities assumed of FPH as of May 30, 2022 and is as follows (in thousands):


Cash and cash equivalents	$	1,755
Trade receivables		3,161
Inventories		4,576
Other assets, net		174
Property, plant and equipment		624
Right of use assets		4,165
Intangible assets		22,611
Goodwill		13,314
Other current liabilities		(956)
Deferred revenue		(776)
Lease liabilities		(4,165)
Net deferred income tax liabilities		(2,324)
Net purchase price	$	42,159

The intangible assets acquired consist of customer lists of $16,173, technology of $5,731, and a trade name of $707, which are being amortized over 12, 10 and 10 years, respectively. Goodwill generated in the acquisition is related to the assembled workforce, synergies between Allied Motion’s other operations and FPH that are expected to occur as a result of the combined engineering knowledge, the ability of each of the operations to integrate each other’s products into more fully integrated system solutions and Allied Motion’s ability to utilize FPH’s management knowledge in providing complementary product offerings to the Company’s customers.

The operating results of this acquisition are included in the condensed consolidated financial statements beginning on the date of the acquisition. Revenue of FPH included within the condensed consolidated statement of income and comprehensive (loss) income for the three and six months ended June 30, 2022 was $1,925 and earnings were $247.

The goodwill resulting from the FPH acquisition is tax deductible.

Table of Contents

ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

ThinGap and Airex

On May 24, 2022, the Company acquired 100% of the outstanding stock of ThinGap, Inc. (“ThinGap”), a privately-owned California headquartered developer and manufacturer of high performance, zero clogging slotless motors for use in aerospace, defense and medical applications that require precise performance in a compact, yet high-torque-to-volume solutions. ThinGap designs, engineers and manufactures low profile, brushless DC motor kits and assemblies that utilize a proprietary wave-wound stator architecture and highly optimized rotors. ThinGap expands the Company’s precision motion capabilities and advances its strategy to provide integrated motion solutions in the robotics, semiconductor and instrumentation markets.

On June 17, 2022, the Company acquired 100% of the membership interests of Airex, LLC (“Airex”), a privately-owned New Hampshire headquartered developer of high precision electromagnetic components and solutions for the aerospace and defense, life sciences, semiconductor and commercial industrial applications. Airex combines its patented winding technology with robotic manufacturing to produce linear motors – ironless and iron core, rotary motors, voice coils, wound electromagnetic components and sub-components. Airex expands the Company’s motor offerings as well as enhances its quality systems to support broad mission critical defense programs, as well as other high demanding industries.

The purchase price, collectively, for ThinGap and Airex was $16,527, comprised of $8,224 in cash funded through borrowings under the Amended Revolving Credit Facility and $8,303 in Company stock (376,500 shares, of which 29,631 shares are subject to an indemnification holdback, at a weighted average stock price of $22.05). These purchase price allocations are subject to adjustments based on a final determination of closing net working capital and certain tax matters.

The Company incurred $179 of transaction costs related to these acquisitions in 2022, which are included in business development on the condensed consolidated statements of income and comprehensive (loss) income.

The preliminary allocation of the purchase price paid is based on estimated fair values of the assets acquired and liabilities assumed as of May 24, 2022 for ThinGap and June 17, 2022 for Airex and is, collectively, as follows (in thousands):


Cash and cash equivalents	$	1,074
Trade receivables		1,295
Inventories		1,686
Other assets, net		636
Property, plant and equipment		202
Right of use assets		888
Intangible assets		6,000
Goodwill		6,800
Other current liabilities		(574)
Deferred revenue		(245)
Lease liabilities		(888)
Net deferred income tax liabilities		(347)
Net purchase price	$	16,527

The intangible assets acquired consist of customer lists of $3,800, technology of $2,000 and trade names of $200, which are being amortized over weighted average useful lives of 10, 12.5 and 10 years, respectively. Goodwill generated in these acquisitions is related to the assembled workforce, synergies with Allied Motion’s other operations that are expected to occur as a result of the combined engineering knowledge, the ability of the operations to integrate products into more fully integrated system solutions and Allied Motion’s ability to utilize ThinGap and Airex management knowledge in providing complementary product offerings to the Company’s customers.

The operating results of these acquisitions are included in the condensed consolidated financial statements beginning on the date of the acquisition. Revenue included within the condensed consolidated statement of income and comprehensive (loss) income for the three and six months ended June 30, 2022, related to ThinGap and Airex, collectively, was $408 and earnings were not material.

Table of Contents

ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

The goodwill resulting from the ThinGap acquisition is not tax deductible. The goodwill resulting from the Airex acquisition is tax deductible.

2021 Acquisitions

On November 2, 2021, the Company acquired 100% of the outstanding stock of ORMEC Systems Corp. (“ORMEC”), a New York headquartered developer and manufacturer of mission critical electro-mechanical automation solutions and motion control products including multi-axis controls, electronic drives and actuators for the automation and aerospace industries. On November 4, 2021, the Company acquired 100% of ALIO Industries (“ALIO”), a Colorado headquartered innovator and manufacturer of advanced linear and rotary motion systems for nano-precision applications. On December 30, 2021, the Company acquired Spectrum Controls, Inc. (“Spectrum Controls”), a Washington headquartered innovator and manufacturer of industrial Input/Output (“I/O”) and universal communications gateway products.

The initial purchase price, collectively, for ORMEC and ALIO was $33,458, and the initial purchase price of Spectrum Controls was $68,711. During the three months ended March 31, 2022, measurement period adjustments to the preliminary purchase price allocations, collectively, resulted in an increase in purchase price of $119 and an increase in goodwill of $175. There were 0 measurement period adjustments during the three months ended June 30, 2022. During the three months ended March 31, 2022, a settlement of certain closing working capital amounts resulted in a cash inflow of $185. There were 0 additional closing working capital settlements during the three months ended June 30, 2022. The purchase price allocations for each of the three 2021 acquisitions remain preliminary and are subject to adjustments based on a determination of closing net working capital and/or certain tax matters.

The acquisition of ALIO includes contingent consideration initially measured at a fair value of $4,900. There were 0 changes to the estimated fair value of contingent consideration during the three months or six months ended June 30, 2022. Contingent consideration of $1,125 is included in accrued liabilities and $3,775 is included in other long-term liabilities as of June 30, 2022 on the condensed consolidated balance sheet. The Spectrum Controls acquisition includes 2 remaining payments of $12,500 each to be paid in 2 equal installments no later than December 31, 2022 and December 31, 2023, respectively, comprised of 50% cash and 50% in Company stock. As of June 30, 2022, $12,444 is included in accrued liabilities and $12,333 is included in other long-term liabilities on the condensed consolidated balance sheet. As of December 31, 2021, $12,388 is included in accrued liabilities and $12,277 is included in other long-term liabilities on the condensed consolidated balance sheet.

Proforma information

The following pro forma financial information presents the combined results of operations if the FPH, ThinGap and Airex acquisitions had occurred as of January 1, 2021 and Spectrum Controls, ORMEC, and ALIO as of January 1, 2020:


	Three months ended				Six months ended
	June 30,				June 30,
	2022		2021		2022		2021
Revenues	$	127,492	$	118,398	$	248,322	$	236,600
Income before income taxes	$	8,225	$	7,422	$	12,943	$	10,561

The pro forma information includes certain adjustments, including depreciation and amortization expense, interest expense, and certain other adjustments, together with related income tax effects. The pro forma amounts do not reflect adjustments for anticipated operating efficiencies that the Company expects to achieve as a result of these acquisitions. The pro forma financial information is for informational purposes only and does not purport to present what the Company’s results would have been had these transactions actually occurred on the date presented or to project the combined company’s results of operations or financial position for any future period.

2.3. REVENUE RECOGNITION

Performance Obligations

~~Performance Obligations Satisfied at a Point in Time~~

The Company considers control of most products to transfer at a single point in time when control is transferred to the customer, generally when the products are shipped in accordance with an agreement and/or purchase order. Control is defined as the ability to direct the use of and obtain substantially all of the remaining benefits of the product.

Table of Contents

ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

The Company satisfies its performance obligations under a contract with a customer by transferring goods and services in exchange for monetary consideration from the customer. The Company considers the customer’s purchase order, and the Company’s corresponding sales order acknowledgment as the contract with the customer. For some customers, control, and a sale, is transferred at a point in time when the product is delivered to a customer. For a limited number of contracts, the Company recognizes revenue over time in proportion to costs incurred.

Sales, value add, and other taxes ~~we collect~~the Company collects concurrent with revenue-producing activities are excluded from revenue.

Nature of Goods and Services

The Company sells component and integrated controlled motion solutions to end customers and original equipment manufacturers (“OEM’s”) through the Company’s own direct sales force and authorized manufacturers’ representatives and distributors. The Company’s products include ~~brush~~brushed and brushless DC motors, brushless servo and torque motors, coreless DC motors, integrated brushless motor-drives, gearmotors, gearing, modular digital servo drives, motion controllers, incremental and absolute optical encoders, active and passive filters for power quality and harmonic issues, and other controlled motion-related products. The Company’s target markets include Vehicle, Medical, Aerospace & Defense and Industrial.

Determining the Transaction Price

The majority of the Company’s contracts have an original duration of less than one year. For these contracts, the Company applies the practical expedient and therefore does not consider the effects of the time value of money. For multiyear contracts, the Company uses judgment to determine whether there is a significant financing component. These contracts are generally those in which the customer has made an up-front payment. Contracts that management determines to include a significant financing component are discounted at the Company’s incremental borrowing rate. The Company incurs interest expense and accrues a contract liability. As the Company satisfies performance obligations and recognizes revenue from these contracts, interest expense is recognized simultaneously. Management does not have any contracts that include a significant financing component as of ~~September~~June 30, ~~2021.~~2022.

Disaggregation of Revenue

The Company disaggregates revenue from contracts with customers into geographical regions and target markets. The Company determines that disaggregating revenue into these categories achieves the disclosure objective to depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. As noted below in Note 17, Segment Information, the Company’s business consists of 1 reportable segment. ~~The foreign revenues~~Revenue by geographic region is based on point of shipment origin.

A disaggregation of revenue by target market and geography ~~in the table~~is provided below ~~are revenues derived from the Company's foreign subsidiaries as detailed in Note 17.~~(in thousands):


	Three months ended				Six months ended
	June 30,				June 30,
Target Market	2022		2021		2022		2021
Vehicle	$	32,555	$	33,731	$	65,137	$	68,182
Industrial		47,135		33,778		92,911		65,081
Medical		20,194		20,235		41,513		43,524
Aerospace & Defense		17,149		8,579		26,593		16,021
Other		5,689		5,214		11,353		10,406
Total	$	122,722	$	101,537	$	237,507	$	203,214


	Three months ended				Six months ended
	June 30,				June 30,
Geography	2022		2021		2022		2021
North America (primarily U.S.)	$	84,052	$	61,705	$	156,430	$	118,347
Europe		32,122		31,538		65,871		68,700
Asia-Pacific		6,548		8,294		15,206		16,167
Total	$	122,722	$	101,537	$	237,507	$	203,214

Table of Contents

ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

~~A disaggregation of revenue by target market and geography is provided below (in thousands):~~

Three months ended

Nine months ended

September 30,

September 30,
Target Market

2021

2020

2021

2020
Vehicle

$
33,931

$
32,378

$
102,113

$
79,017
Industrial

35,269

25,307

100,351

86,882
Medical

21,030

23,448

64,554

62,260
Aerospace & Defense

8,291

8,844

24,313

30,503
Other

4,988

4,676

15,392

15,034
Total

$
103,509

$
94,653

$
306,723

$
273,696

Three months ended

Nine months ended

September 30,

September 30,
Geography

2021

2020

2021

2020
United States

$
64,326

$
56,185

$
182,673

$
159,862
Europe

30,943

31,800

99,643

93,944
Asia-Pacific

8,240

6,668

24,407

19,890
Total

$
103,509

$
94,653

$
306,723

$
273,696

Contract Balances

When the timing of the Company’s delivery of product is different from the timing of the payments made by customers, the Company recognizes either a contract asset (performance precedes customer payment) or a contract liability (customer payment precedes performance). Typically, contracts are paid in arrears and are recognized as receivables after the Company considers whether a significant financing component exists.

The opening and closing balances of the Company’s contract liabilities are as follows (in thousands):


	September 30,		December 31,		June 30,		December 31,
	2021		2020		2022		2021
Contract liabilities in accrued liabilities	$	354	$	898	$	6,977	$	2,425
Contract liabilities in other long-term liabilities		247		262		222		242
	$	601	$	1,160	$	7,199	$	2,667

The difference between the opening and closing balances of the Company’s contract liabilities primarily results from the timing difference between the Company’s performance and the customer’s payment. In the six months ended June 30, 2022, the Company recognized revenue of $1,865 that was included in the opening contract liabilities balance.

Significant Payment Terms

The Company’s contracts with its customers state the final terms of the sale, including the description, quantity, and price of each product or service purchased. Payments are typically due in full within 30-60 days of delivery. Since the customer agrees to a stated rate and price in the contract that do not vary over the contract, the majority of contracts do not contain variable consideration.

Returns, Refunds, and Warranties

In the normal course of business, the Company does not accept product returns unless the item is defective as manufactured. The Company establishes provisions for estimated returns and warranties. All contracts include a standard warranty clause to guarantee that the product complies with agreed specifications.

~~Table of Contents~~

~~ALLIED MOTION TECHNOLOGIES INC.~~

~~UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except per share data)~~

3.4. INVENTORIES

Inventories include costs of materials, direct labor and manufacturing overhead, and are stated at the lower of cost (first-in, first-out basis) or net realizable value, as follows (in thousands):


	September 30,		December 31,		June 30,		December 31,
	2021		2020		2022		2021
Parts and raw materials	$	54,077	$	44,750	$	86,142	$	65,223
Work-in-process		7,785		6,186		10,905		9,529
Finished goods		10,377		12,042		15,208		14,981
	$	72,239	$	62,978	$	112,255	$	89,733

Table of Contents

ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

4.5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is classified as follows (in thousands):


		September 30,		December 31,			June 30,		December 31,
	Useful lives	2021		2020		Useful lives	2022		2021
Land		$	984	$	999		$	959	$	979
Building and improvements	5 - 39 years		14,297		14,169	5 - 39 years		24,413		14,398
Machinery, equipment, tools and dies	3 - 15 years		81,330		79,738	3 - 15 years		82,958		82,898
Construction work in progress			9,370		6,821			12,175		9,582
Furniture, fixtures and other	3 - 10 years		19,245		16,313	3 - 10 years		21,870		21,794
			125,226		118,040			142,375		129,651
Less accumulated depreciation			(70,011)		(62,612)			(76,430)		(72,668)
Property, plant and equipment, net		$	55,215	$	55,428		$	65,945	$	56,983

Depreciation expense was approximately ~~$2,923~~$3,181 and ~~$2,556~~$2,948 for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, depreciation expense was ~~$8,790~~approximately $6,404 and ~~$7,259,~~$5,867, respectively.

5.6. GOODWILL

The change in the carrying amount of goodwill for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 is as follows (in thousands):


		September 30,		June 30,
		2021		2022
Beginning balance	$	61,860	$	106,633
Goodwill acquired (Note 2)				20,114
Impact of measurement period adjustments of 2021 acquisitions (Note 2)				175
Effect of foreign currency translation		(1,277)		(1,916)
Ending balance	$	60,583	$	125,006

6.7. INTANGIBLE ASSETS

Intangible assets on the Company’s condensed consolidated balance sheets consist of the following (in thousands):


		September 30, 2021						December 31, 2020							June 30, 2022						December 31, 2021
		Gross		Accumulated		Net Book		Gross		Accumulated		Net Book			Gross		Accumulated		Net Book		Gross		Accumulated		Net Book
	Life	Amount		Amortization		Value		Amount		Amortization		Value		Life	Amount		Amortization		Value		Amount		Amortization		Value
Customer lists	8 - 17 years	$	69,237	$	(26,558)	$	42,679	$	69,833	$	(23,636)	$	46,197	5-18 years	$	112,875	$	(30,446)	$	82,429	$	94,079	$	(27,639)	$	66,440
Trade name	10 - 19 years		13,888		(5,706)		8,182		14,055		(5,061)		8,994	10 - 19 years		15,287		(6,347)		8,940		14,649		(5,927)		8,722
Design and technologies	10 - 15 years		15,134		(5,362)		9,772		15,531		(4,874)		10,657	10 - 15 years		41,312		(6,738)		34,574		34,241		(5,617)		28,624
Patents	17 years		24		(14)		10		24		(13)		11
Total		$	98,283	$	(37,640)	$	60,643	$	99,443	$	(33,584)	$	65,859		$	169,474	$	(43,531)	$	125,943	$	142,969	$	(39,183)	$	103,786

Intangible assets resulting from the acquisition of FPH, ThinGap and Airex were $28,611 (Note 2). The intangible assets acquired consist of customer lists, technology and tradenames.

Amortization expense for intangible assets was $2,645 and $1,511 for the three months ended June 30, 2022 and 2021, respectively. For the six months ended June 30, 2022 and 2021, amortization expense was $5,079 and $3,023, respectively.

911

Table of Contents

ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

~~Amortization expense for intangible assets was $1,504 and $1,499~~ ~~for the three months ended September 30, 2021 and 2020, respectively. For the nine months ended September 30, 2021 and 2020, amortization expense was~~ ~~$4,527 and $4,423, respectively.~~

Estimated future intangible asset amortization expense as of ~~September~~June 30, ~~2021~~2022 is as follows (in thousands):


	Estimated		Estimated
	Amortization Expense		Amortization Expense
Remainder of 2021	$	1,500
2022		6,048
Remainder of 2022			$	6,133
2023		6,060		12,269
2024		5,733		11,944
2025		5,715		11,928
2026		5,703		11,831
2027				11,388
Thereafter		29,884		60,450
Total estimated amortization expense	$	60,643	$	125,943

7.8. STOCK-BASED COMPENSATION

Stock Incentive Plans

The Company’s Stock Incentive Plans provide for the granting of stock awards, including restricted stock, stock options and stock appreciation rights, to employees and non-employees, including directors of the Company.

Restricted Stock

For the ~~nine~~six months ended ~~September~~June 30, ~~2021, 109,462~~2022, 166,650 shares of unvested restricted stock were awarded at a weighted average market value of ~~$32.06~~$33.47. Of the restricted shares granted, ~~63,432~~104,946 shares have performance-based vesting conditions. The value of the shares is amortized to compensation expense over the related service period, which is normally three years, or over the estimated performance period. Shares of unvested restricted stock are generally forfeited if a recipient leaves the Company before the vesting date. Shares that are forfeited become available for future awards.

The following is a summary of restricted stock activity for the ~~nine~~six months ended ~~September~~June 30, ~~2021:~~2022:


		Number of
		shares
Outstanding at beginning of period		~~357,342~~293,577
Awarded		~~109,462~~166,650
Vested		~~(145,094)~~(116,638)
Forfeited		~~(10,044)~~(8,312)
Outstanding at end of period		~~311,666~~335,277

Stock-based compensation expense, net of forfeitures, of ~~$1,303~~$1,141 and ~~$920~~$1,000 was recorded for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, stock based compensation expense, net of forfeitures, of $~~3,100~~2,490 and ~~$2,640~~$1,797 was recorded, respectively.

1012

Table of Contents

ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

89. ACCRUED LIABILITIES

Accrued liabilities consist of the following (in thousands):


	September 30,		December 31,		June 30,		December 31,
	2021		2020		2022		2021
Compensation and fringe benefits	$	14,104	$	11,184	$	11,317	$	14,666
Accrued business acquisition consideration						12,559		12,388
Warranty reserve		1,963		1,571		2,038		1,869
Income taxes payable		2,127		1,459
Right of use liabilities		4,347		4,666
Operating lease liabilities - current						5,035		4,532
Finance lease obligations - current						338		—
Deferred revenue						6,977		2,425
Other accrued expenses		4,774		5,982		8,031		5,776
	$	27,315	$	24,862	$	46,295	$	41,656

9.10. DEBT OBLIGATIONS

Debt obligations consisted of the following (in thousands):


	September 30,		December 31,		June 30,		December 31,
	2021		2020		2022		2021
Long-term Debt
Revolving Credit Facility, long-term (1)	$	109,783	$	120,656	$	220,056	$	159,395
Unamortized debt issuance costs		(471)		(577)		(365)		(435)
Finance lease obligations - noncurrent						9,210		—
Long-term debt	$	109,312	$	120,079	$	228,901	$	158,960

(1)

The effective rate of the Amended Revolving Facility is ~~2.42%~~2.92% at ~~September~~June 30, ~~2021.~~2022.

Amended Revolving Credit Facility

The First Amended and Restated Credit Agreement (the “Amended Credit Agreement”) includes a $225 million revolving credit facility (the “Amended Revolving Facility”). The Amended Credit Agreement includes (i) a maximum principal amount of $225 million, (ii) a $75 million accordion amount, and (iii) a maturity date of February 2025.

Borrowings under the Amended Revolving Facility bear interest at the LIBOR or EURIBOR Rate (as defined in the Amended Credit Agreement) plus a margin of 1.00% to 1.75% or the Prime Rate (as defined in the Amended Credit Agreement) plus a margin of 0% to ~~0.75%~~1.25%, in each case depending on the Company’s ratio of total funded indebtedness (as defined in the Amended Credit Agreement) to consolidated trailing twelve-month EBITDA (the “Total Leverage Ratio”). At ~~September~~June 30, ~~2021,~~2022, the applicable margin for LIBOR Rate borrowings was ~~1.50%~~1.75% and the applicable margin for Prime Rate borrowings was ~~0.50%~~1.25%. In addition, the Company is required to pay a commitment fee of between 0.10% and 0.225% quarterly ~~(0.175~~(0.225%% at ~~September~~June 30, ~~2021)~~2022) on the unused portion of the Amended Revolving Facility, also based on the Company’s Total Leverage Ratio. The Amended Revolving Facility is secured by substantially all of the Company’s non-realty assets and is fully and unconditionally guaranteed by certain of the Company’s subsidiaries.

The Amended Credit Agreement contains certain financial covenants related to minimum interest coverage, Total Leverage Ratio, and non-material subsidiaries assets to consolidated total assets at the end of each quarter. The Amended Credit Agreement also includes other covenants and restrictions, including limits on the amount of additional indebtedness, and restrictions on the Company’s ability to merge or sell all, or substantially all, of its assets. Under the provisions of the Amended Credit Agreement, the Company may elect to increase its Leverage Ratio to a 4.0 to 1.0 ratio (a “Leverage Increase”) during the fiscal quarter in which a Material Acquisition (as defined in the Amended Credit Agreement) takes place, and for the next three fiscal quarters. If the Material Acquisition occurs within the last 45 days of any fiscal quarter, the Leverage Increase is applicable for the following four fiscal quarters. The Company qualified for, and elected, the Leverage Increase as a result of the Spectrum Controls acquisition in the fourth quarter of 2021. The Company was in compliance with all covenants at ~~September~~June 30, ~~2021.~~

~~As of September 30, 2021, the unused Amended Revolving Facility was $115,217. The amount available to borrow may be reduced based upon the Company’s debt and EBITDA levels, which impacts its covenant calculations.~~2022.

1113

Table of Contents

ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

As of June 30, 2022, the unused Amended Revolving Facility was $4,944. The amount available to borrow may be reduced based upon the Company’s debt and EBITDA levels, which impacts its covenant calculations.

Other

The China Credit Facility provides credit of ~~$1,547~~$1,492 (Chinese Renminbi 10,000) (“the China Facility”). The China Facility is a demand revolving facility used for working capital and capital equipment needs at the Company’s China operations. The term is annual and may be cancelled at the bank’s discretion. The interest rate shall be agreed upon by the Lender and the Borrower before the Utilization Date (as defined in the China Facility) and shall be specified in the Utilization Request (as defined in the China Facility). Collateral for the facility is a guarantee issued by the Company. There ~~have been~~were 0 borrowings ~~during the nine months ended September 30, 2021 or 2020, respectively, and there is 0 balance in~~under the China Facility ~~at September~~during the three and six months ended June 30, 2022 or 2021, ~~and December 31, 2020.~~respectively.

~~10.~~11. DERIVATIVE FINANCIAL INSTRUMENTS

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, and foreign exchange risk primarily through the use of derivative financial instruments.

~~Beginning in the first quarter of 2021, the~~The Company ~~began entering~~enters into foreign currency contracts with 30-day maturities to hedge its short-term balance sheet exposure, primarily intercompany, that are denominated in currencies (Euro, Mexican Peso, New Zealand Dollar, Chinese Renminbi, Swedish Krona) other than the subsidiary’s functional currency and are adjusted to current values using period-end exchange rates. The resulting gains or losses are recorded in other expense (income) ~~expense,~~, net in the condensed consolidated statements of income and comprehensive (loss) income. To minimize foreign currency exposure, the Company had foreign currency contracts with notional amounts of ~~$10,500~~$16,000 at ~~September~~June 30, ~~2021.~~2022. The foreign currency contracts are recorded in the condensed consolidated balance sheets at fair value and resulting gains or losses are recorded in other expense (income) ~~expense,~~, net in the condensed consolidated statements of income and comprehensive (loss) income. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, the Company had ~~losses~~gains of ~~$82~~$253 and ~~$149,~~$203, respectively on foreign currency contracts which is included in other expense (income) ~~expense,~~, net and generally offset the gains or losses from the foreign currency adjustments on the intercompany balances that are also included in other ~~(income)~~ expense (income), net. During the three and six months ended June 30, 2021, the Company had losses of $39 and $27, respectively.

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements on its variable-rate debt. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. In February 2017, the Company entered into 3 interest rate swaps with a combined notional amount of $40,000 that ~~mature~~matured in February 2022. In March 2020, the Company entered into 2 additional interest rate swaps with a combined notional amount of $20,000 that ~~increases~~increased to $60,000 in March 2022 and matures in December 2024. In March 2022 the Company entered into an additional interest rate swap with a notional amount of $40,000 that matures in December 2026.

The changes in the fair value of ~~interest rate~~ derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive ~~loss~~(loss) income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During ~~2021~~2022 and ~~2020,~~2021, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt.

The Company estimates that ~~an additional $657~~$1,804 will be reclassified as ~~an increase~~a decrease to interest expense over the next twelve months related to its interest rate derivatives. Additionally, the Company does not use derivatives for trading or speculative purposes.

1214

Table of Contents

ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the condensed consolidated balance sheets as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 (in thousands):


		Liability Derivatives					Asset Derivatives
		Fair value as of:					Fair value as of:
Derivatives designated as	Balance Sheet	September 30,		December 31,		Balance Sheet	June 30,		December 31,
hedging instruments	Location	2021		2020		Location	2022		2021
Foreign currency contracts						Prepaid expenses and other assets	$	—	$	39
Interest rate products	Accrued liabilities	$	313	$	—	Other long-term assets		4,928		340
							$	4,928	$	379

							Liability Derivatives
							Fair value as of:
Derivatives designated as						Balance Sheet	June 30,		December 31,
hedging instruments						Location	2022		2021
Foreign currency contracts						Accrued liabilities	$	33	$	—
Interest rate products	Other long-term liabilities		370		1,889	Accrued liabilities		—		120
Foreign currency contracts	Accrued liabilities		38		—
		$	721	$	1,889		$	33	$	120

The tables below present the effect of cash flow hedge accounting on other comprehensive (loss) income ~~(loss)~~ (“OCI”) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 (in thousands):


	Amount of pre-tax (loss) gain recognized				Amount of pre-tax gain (loss) recognized				Amount of pre-tax (loss) gain recognized				Amount of pre-tax (loss) gain recognized
	in OCI on derivatives				in OCI on derivatives				in OCI on derivatives				in OCI on derivatives
Derivatives in cash flow hedging relationships	Three months ended September 30,				Nine months ended September 30,				Three months ended June 30,				Six months ended June 30,
	2021		2020		2021		2020		2022		2021		2022		2021
Interest rate products	$	(34)	$	(133)	$	513	$	(2,184)	$	1,182	$	(157)	$	4,419	$	547


	Amount of pre-tax loss reclassified				Amount of pre-tax loss reclassified				Amount of pre-tax loss reclassified				Amount of pre-tax loss reclassified
	from accumulated OCI into income				from accumulated OCI into income				from accumulated OCI into income				from accumulated OCI into income
Location of (loss) gain reclassified	Three months ended September 30,				Nine months ended September 30,				Three months ended June 30,				Six months ended June 30,
from accumulated OCI into income	2021		2020		2021		2020		2022		2021		2022		2021

Interest expense	$	(237)	$	(224)	$	(693)	$	(410)	$	(102)	$	(231)	$	(288)	$	(456)

The table below presents the line items that reflect the effect of the Company’s derivative financial instruments on the condensed consolidated statements of income and comprehensive (loss) income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020 (in thousands):~~

Total amounts of income and expense

Total amounts of income and expense

line items presented that reflect the

line items presented that reflect the

effects of cash flow hedges recorded

effects of cash flow hedges recorded

Three months ended September 30,

Nine months ended September 30,
Derivatives designated as hedging instruments

Income Statement Location

2021

2020

2021

2020
Interest rate products

Interest Expense

$
777

$
844

$
2,445

$
2,799

~~Table of Contents~~

~~ALLIED MOTION TECHNOLOGIES INC.~~

~~UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except per share data)~~

The tables below present a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of September 30, 2021 and December 31, 2020. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented in the condensed consolidated balance sheets (in thousands):

Gross amounts

Net amounts of liabilities

Gross amounts not offset in the consolidated
As of

Gross amounts

offset in the

presented in the

balance sheets
September 30,

of recognized

consolidated

consolidated

Financial

Cash collateral

2021

liabilities

balance sheets

balance sheets

instruments

received

Net amount
Derivatives

$
738

$
17

$
721

$
—

$
—

$
721

Gross amounts

Net amounts of liabilities

Gross amounts not offset in the consolidated
As of

Gross amounts

offset in the

presented in the

balance sheets
December 31,

of recognized

consolidated

consolidated

Financial

Cash collateral

2020

liabilities

balance sheets

balance sheets

instruments

received

Net amount
Derivatives

$
1,889

$
—

$
1,889

$
—

$
—

$
1,889

The Company has agreements with each of its derivative counterparties that contain a provision where if the Company either defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations.

~~11. FAIR VALUE~~

Authoritative guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date.

The guidance establishes a framework for measuring fair value which utilizes observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. Preference is given to observable inputs.

~~These two types of inputs create the following three - level fair value hierarchy:~~

~~Level 1:~~

~~Quoted prices for identical assets or liabilities in active markets.~~

~~Level 2:~~

Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model - derived valuations whose inputs or significant value drivers are observable.

~~Level 3:~~

~~Significant inputs to the valuation model that are unobservable.~~

The Company’s financial assets and liabilities include cash and cash equivalents, accounts receivable, debt obligations, accounts payable, and accrued liabilities. The carrying amounts reported in the condensed consolidated balance sheets for these assets and liabilities approximate their fair value because of the immediate or short-term maturities of these financial instruments.

The following tables presents the Company’s financial assets that are accounted for at fair value on a recurring basis as of September 30, 2021 and December 31, 2020, respectively, by level within the fair value hierarchy (in thousands):

September 30, 2021


Level 1

Level 2

Level 3
Assets (liabilities)

Pension plan assets

$
6,765

$
—

$
—
Deferred compensation plan assets

4,458

—

—
Interest rate swaps

—

(683)

—
Foreign currency hedge contracts

—

(38)

—

~~Table of Contents~~

~~ALLIED MOTION TECHNOLOGIES INC.~~

~~UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except per share data)~~

December 31, 2020


Level 1

Level 2

Level 3
Assets (liabilities)

Pension plan assets

$
6,347

$
—

$
—
Deferred compensation plan assets

5,386

—

—
Interest rate swaps

—

(1,889)

—

~~12. INCOME TAXES~~

The income tax provision for interim periods is determined using an estimate of the annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter, the estimate of the annual effective tax rate is updated, and if the estimated effective tax rate changes, a cumulative adjustment is made. There is potential for volatility of the effective tax rate due to several factors, including changes in the mix of the pre-tax income and the jurisdictions to which it relates, changes in tax laws, settlements with taxing authorities and foreign currency fluctuations.

~~The effective income tax rate was 24.6% and 25.4% for the three months ended September 30, 2021 and 2020, respectively. The effective tax rate includes a discrete tax benefit of (2.9%) and (2.6~~%), respectively. For the three months ended September 30, 2021 the discrete tax benefit related primarily to the net amount recognized of Portuguese investment tax credits. For the three months ended September 30, 2020 the discrete tax benefit is primarily related to ~~global intangible low-taxed income (GILTI) regulation changes.~~ For the nine months ended September 30, 2021 and 2020, the effective income tax rate was (14.2%) and 27.6%, respectively. The effective tax rate includes a discrete tax benefit of (41.3%) and (0.3%), respectively. The discrete tax benefit for the nine months ended September 30, 2021 is primarily related to the recognition of net operating loss carryforwards resulting from tax legislation enacted in New Zealand during the period, which allows us to use the carryforwards in future periods. The discrete tax benefit for the nine months ended September 30, 2020 primarily related to ~~GILTI regulation changes partially offset by share-based payment awards.~~

~~13. LEASES~~

The Company has operating leases for office space, manufacturing equipment, computer equipment and automobiles. Many leases include one or more options to renew, some of which include options to extend the leases for a long-term period, and some leases include options to terminate the leases within 30 days. In certain of the Company’s lease agreements, the rental payments are adjusted periodically to reflect actual charges incurred for capital area maintenance, utilities, inflation and/or changes in other indexes.

~~Supplemental cash flow information related to the Company’s operating leases for the nine months ended September 30, 2021 and 2020 was as follows (in thousands):~~

September 30,

2021

2020

Cash paid for amounts included in the measurement of operating leases

$
3,988

$
3,341

Right of use assets obtained in exchange for operating lease obligations

$
2,224

$
2,395

~~The following table presents the maturity of the Company’s operating lease liabilities as of September 30,~~ 2021 (in thousands):

Total amounts of income and expense

line items presented that reflect the

effects of cash flow hedges recorded

Three months ended June 30,

Six months ended June 30,

Derivatives designated as hedging instruments

Income Statement Location

2022

2021

2022

2021

Interest rate products

Interest Expense

1,525

807

2,563

1,668

Remainder of 2021

$
1,296
2022

4,389
2023

3,151
2024

2,379
2025

2,173
2026

1,143
Thereafter

4,229
Total undiscounted cash flows

$
18,760
Less: present value discount

(1,287)
Total lease liabilities

$
17,473

Table of Contents

ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

~~As of September 30, 2021, the Company has entered into leases with future minimum lease payments of $13,700 that has not yet commenced.~~

The Company leases certain facilities from a company for which one of our executive officers is a part owner. In connection with such leases, the Company made payments to the lessor of $500 during the year ended December 31, 2020 and is obligated to make payments of $700 ~~during the year ending December 31, 2021. Future minimum lease payments under the leases as of September 30, 2021 are~~ ~~$7,827.~~

The tables below present a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of June 30, 2022 and December 31, 2021. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented in the condensed consolidated balance sheets (in thousands):

Derivative assets:

Net amounts

Gross amounts

of assets

Gross amounts not offset in the consolidated

As of

Gross amounts

offset in the

presented in the

balance sheets

June 30,

of recognized

consolidated

Financial

Cash collateral

2022

assets

balance sheets

instruments

received

Net amount

Derivatives

4,928

—

4,928

—

4,928

Net amounts

Gross amounts

of assets

Gross amounts not offset in the consolidated

As of

Gross amounts

offset in the

presented in the

balance sheets

December 31,

of recognized

consolidated

Financial

Cash collateral

2021

assets

balance sheets

instruments

received

Net amount

Derivatives

387

(8)

379

—

379

Derivative liabilities:

Net amounts

Gross amounts

of liabilities

Gross amounts not offset in the consolidated

As of

Gross amounts

offset in the

presented in the

balance sheets

June 30,

of recognized

consolidated

Financial

Cash collateral

2022

liabilities

balance sheets

instruments

received

Net amount

Derivatives

(6)

—

Net amounts

Gross amounts

of liabilities

Gross amounts not offset in the consolidated

As of

Gross amounts

offset in the

presented in the

balance sheets

December 31,

of recognized

consolidated

Financial

Cash collateral

2021

liabilities

balance sheets

instruments

received

Net amount

Derivatives

120

—

120

—

120

12. FAIR VALUE

These two types of inputs create the following three - level fair value hierarchy:

Level 1:

Quoted prices for identical assets or liabilities in active markets.

Level 2:

Level 3:

Significant inputs to the valuation model that are unobservable.

Table of Contents

ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

The following tables presents the Company’s financial assets that are accounted for at fair value on a recurring basis as of June 30, 2022 and December 31, 2021, respectively, by level within the fair value hierarchy (in thousands):


	June 30, 2022
	Level 1		Level 2		Level 3
Assets (liabilities)
Pension plan assets	$	5,270	$	—	$	—
Deferred compensation plan assets		3,868		—		—
Foreign currency hedge contracts		—		(33)		—
Interest rate swaps, net		—		4,928		—
Contingent consideration		—		—		(4,900)


	December 31, 2021
	Level 1		Level 2		Level 3
Assets (liabilities)
Pension plan assets	$	6,899	$	—	$	—
Deferred compensation plan assets		4,636		—		—
Foreign currency hedge contracts		—		39		—
Interest rate swaps, net		—		220		—
Contingent consideration		—		—		(4,900)

The contingent consideration fair value measurement in connection with the acquisition of ALIO Industries in the fourth quarter of 2021 is based on significant inputs not observable in the market and therefore constitute Level 3 inputs within the fair value hierarchy. The Company determines the initial fair value of contingent consideration liabilities using a Monte Carlo valuation model, which involves a simulation of future earnings generated during the earn out-period using management’s best estimates, or a probability-weighted discounted cash flow analysis. There were 0 changes to the estimated fair value of contingent consideration during the three and six months ended June 30, 2022.

13. INCOME TAXES

The effective income tax rate was 27.0% and 21.9% for the three months ended June 30, 2022 and 2021, respectively. The effective tax rate for the three months ended June 30, 2022 and 2021 includes discrete tax benefit of (1.6%) and (4.3%), respectively, related primarily to share-based payment awards. For the six months ended June 30, 2022 and 2021, the effective income tax rate was 25.1% and (40.3%), respectively. The effective tax rate includes a discrete tax benefit of (3.5%) and (67.1%), respectively. The discrete benefit in the six months ended June 30 2022 is primarily related to the reversal of uncertain tax positions. The discrete benefit in the six months ended June 30, 2021 is related primarily to the recognition of net operating loss carryforwards resulting from tax legislation enacted in New Zealand during the period, which changes our ability to use the carryforwards in future periods changes our ability to use the carryforwards in future periods.

14. LEASES

Table of Contents

ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

Supplemental cash flow information related to the Company’s operating and finance leases for the six months ended June 30, 2022 and 2021 was as follows (in thousands):


	June 30,
	2022		2021
Cash paid for amounts included in the measurement of operating leases	$	2,290	$	2,679
Cash paid for amounts included in the measurement of finance lease obligations	$	368	$	—
Right of use ("ROU") assets obtained in exchange for operating lease obligations	$	2,770	$	1,640
ROU assets obtained in acquisitions (Note 2)	$	5,053	$	—
ROU assets obtained in exchange for finance lease obligations	$	9,471	$	—

The Company’s finance lease obligations relate to a manufacturing facility. As of June 30, 2022, finance lease assets of $9,155 are included in property, plant and equipment, net, finance lease obligations of $338 are included in accrued liabilities, and $9,210 are included in long-term debt on the condensed consolidated balance sheet.

The following table presents the maturity of the Company’s operating and finance lease liabilities as of June 30, 2022 (in thousands):


	Operating Leases		Finance Leases
Remainder of 2022	$	3,112	$	368
2023		4,699		799
2024		4,030		815
2025		3,269		831
2026		2,689		848
2027		2,525		867
Thereafter		6,506		8,769
Total undiscounted cash flows	$	26,830	$	13,297
Less: present value discount		(2,862)		(3,750)
Total lease liabilities	$	23,968	$	9,547

The Company leases certain facilities from companies for which a member of management is a part owner. In connection with such leases, the Company made fixed minimum lease payments to the lessor of $319 and $486 during the three and six months ended June 30, 2022 and is obligated to make payments of $430 during the remainder of 2022. Future fixed minimum lease payments under these leases as of June 30, 2022 are $7,117.

15. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME ~~(LOSS)~~

Accumulated Other Comprehensive (Loss) Income ~~(Loss)~~ (“AOCI”) for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 is comprised of the following (in thousands):


							Foreign Currency										Foreign Currency
	Defined Benefit				Tax Effect of		Translation				Defined Benefit				Tax Effect of		Translation
	Plan Liability		Cash Flow Hedges		Cash Flow Hedges		Adjustment		Total		Plan Liability		Cash Flow Hedges		Cash Flow Hedges		Adjustment		Total
At June 30, 2021	$	(1,633)	$	(886)	$	212	$	(3,268)	$	(5,575)
Unrealized loss on cash flow hedges		—		(34)		8		—		(26)
At March 31, 2022											$	(863)	$	3,644	$	(863)	$	(8,642)	$	(6,724)
Unrealized gain on cash flow hedges												—		1,182		(285)		—		897
Amounts reclassified from AOCI		—		237		(56)		—		181		—		102		(25)		—		77
Foreign currency translation loss		—		—		—		(2,528)		(2,528)		—		—		—		(8,699)		(8,699)
At September 30, 2021	$	(1,633)	$	(683)	$	164	$	(5,796)	$	(7,948)
At June 30, 2022											$	(863)	$	4,928	$	(1,173)	$	(17,341)	$	(14,449)

Foreign Currency

Defined Benefit

Tax Effect of

Translation


Plan Liability

Cash Flow Hedges

Cash Flow Hedges

Adjustment

Total
At June 30, 2020

$
(1,628)

$
(2,228)

$
534

$
(9,122)

$
(12,444)
Unrealized loss on cash flow hedges

—

(133)

33

—

(100)
Amounts reclassified from AOCI

—

224

(54)

—

170
Foreign currency translation gain

—

—

—

3,433

3,433
At September 30, 2020

$
(1,628)

$
(2,137)

$
513

$
(5,689)

$
(8,941)

Table of Contents

ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)


							Foreign Currency
	Defined Benefit				Tax Effect of		Translation
	Plan Liability		Cash Flow Hedges		Cash Flow Hedges		Adjustment		Total
At March 31, 2021	$	(1,633)	$	(960)	$	230	$	(4,223)	$	(6,586)
Unrealized gain on cash flow hedges		—		(157)		38		—		(119)
Amounts reclassified from AOCI		—		231		(56)		—		175
Foreign currency translation loss		—		—		—		955		955
At June 30, 2021	$	(1,633)	$	(886)	$	212	$	(3,268)	$	(5,575)

AOCI for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 is comprised of the following (in thousands):

Foreign Currency

Defined Benefit

Tax Effect of

Translation


Plan Liability

Cash Flow Hedges

Cash Flow Hedges

Adjustment

Total
At December 31, 2020

$
(1,633)

$
(1,889)

$
451

$
(216)

$
(3,287)
Unrealized gain on cash flow hedges

—

513

(121)

—

392
Amounts reclassified from AOCI

—

693

(166)

—

527
Foreign currency translation loss

—

—

—

(5,580)

(5,580)
At September 30, 2021

$
(1,633)

$
(683)

$
164

$
(5,796)

$
(7,948)


							Foreign Currency										Foreign Currency
	Defined Benefit				Tax Effect of		Translation				Defined Benefit				Tax Effect of		Translation
	Plan Liability		Cash Flow Hedges		Cash Flow Hedges		Adjustment		Total		Plan Liability		Cash Flow Hedges		Cash Flow Hedges		Adjustment		Total
At December 31, 2019	$	(1,628)	$	(363)	$	86	$	(8,626)	$	(10,531)
Unrealized loss on cash flow hedges		—		(2,184)		524		—		(1,660)
At December 31, 2021											$	(863)	$	221	$	(41)	$	(7,409)	$	(8,092)
Unrealized gain on cash flow hedges												—		4,419		(1,062)		—		3,357
Amounts reclassified from AOCI		—		410		(97)		—		313		—		288		(70)		—		218
Foreign currency translation gain		—		—		—		2,937		2,937
At September 30, 2020	$	(1,628)	$	(2,137)	$	513	$	(5,689)	$	(8,941)
Foreign currency translation loss												—		—		—		(9,932)		(9,932)
At June 30, 2022											$	(863)	$	4,928	$	(1,173)	$	(17,341)	$	(14,449)


							Foreign Currency
	Defined Benefit				Tax Effect of		Translation
	Plan Liability		Cash Flow Hedges		Cash Flow Hedges		Adjustment		Total
At December 31, 2020	$	(1,633)	$	(1,889)	$	451	$	(216)	$	(3,287)
Unrealized loss on cash flow hedges		—		547		(129)		—		418
Amounts reclassified from AOCI		—		456		(110)		—		346
Foreign currency translation gain		—		—		—		(3,052)		(3,052)
At June 30, 2021	$	(1,633)	$	(886)	$	212	$	(3,268)	$	(5,575)

The realized losses relating to the Company’s interest rate swap hedges were reclassified from AOCI and included in interest expense in the condensed consolidated statements of income and comprehensive (loss) income.

16. DIVIDENDS PER SHARE

The Company declared a quarterly dividend of $0.025 per share in the first and second quarters of 2022. The Company declared a quarterly dividend of $0.02 and $0.025 in the first and second quarters of 2021, respectively. Total dividends declared and paid were $776 and $662 in the six months ended June 30, 2022 and 2021, respectively.

17. EARNINGS PER SHARE

Basic and diluted weighted-average shares outstanding are as follows (in thousands):


	Three months ended		Six months ended
	June 30,		June 30,
	2022	2021	2022	2021
Basic weighted average shares outstanding	15,355	14,406	15,226	14,356
Dilutive effect of potential common shares	577	88	526	111
Diluted weighted average shares outstanding	15,932	14,494	15,752	14,467

For the three months ended June 30, 2022 and 2021, the anti-dilutive common shares excluded from the calculation of diluted earnings per share were immaterial.

1619

Table of Contents

ALLIED MOTION TECHNOLOGIES INC.

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

~~15. DIVIDENDS PER SHARE~~

~~The Company declared a quarterly dividend of $0.02 in the first quarter of 2021 and $0.025~~ ~~per share in the second and third quarters of 2021. The Company declared a quarterly dividend of~~ ~~$0.02 per share in each quarter of 2020. Total dividends declared were $1,030 and $874 in the nine months ended September 30, 2021 and 2020, respectively.~~

~~16.~~ ~~EARNINGS PER SHARE~~

~~Basic and diluted weighted-average shares outstanding are as follows (in thousands):~~

Three months ended

Nine months ended

September 30,

September 30,


2021

2020

2021

2020
Basic weighted average shares outstanding

14,411

14,271

14,375

14,231
Dilutive effect of equity awards

91

98

103

78
Diluted weighted average shares outstanding

14,502

14,369

14,478

14,309

~~For the three and nine months ended September 30, 2021 and 2020, the anti-dilutive common shares excluded from the calculation of diluted earnings per share were immaterial.~~

~~17.~~18. SEGMENT INFORMATION

The Company operates in 1 segment for the manufacture and marketing of controlled motion products for end user and OEM applications. The Company’s chief operating decision maker is the Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products and services in which the entity holds material assets and reports revenue.

~~Financial information related~~Revenues for the three months ended June 30, 2022 and 2021 was comprised of 58% and 55% shipped to U.S. customers, respectively. For the six months ended June 30, 2022 and 2021, revenues was comprised of 57% and 53% shipped to U.S. customers, respectively. The remainder of revenues for all periods were shipped to foreign ~~subsidiaries is summarized below (in thousands):~~

Three months ended

Nine months ended

September 30,

September 30,


2021

2020

2021

2020
Revenues derived from foreign subsidiaries

$
39,183

$
38,468

$
124,050

$
113,834

~~Revenues derived from foreign subsidiaries and identifiable assets outside of the United States are attributable to~~customers, primarily in Europe, Canada and Asia-Pacific.

Identifiable foreign fixed assets were ~~$32,452~~$33,246 and ~~$34,855~~$32,807 as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

~~Sales to customers~~ Identifiable assets outside of the ~~United States by all subsidiaries were $45,350~~U.S. are attributable to Europe, China, Mexico and ~~$41,411 during the three months ended September 30, 2021 and 2020, respectively and $140,565 and $128,170 for the nine months ended September 30, 2021 and 2020, respectively.~~Asia-Pacific.

For the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, one customer accounted for ~~16%~~11% and ~~20%~~16% of revenues, ~~respectively and for~~respectively. For the ~~nine~~six months ended ~~September~~June 30, 2022 and 2021, one customer accounted for 12% and ~~2020 for~~ 16% ~~and 15%~~ of revenues, respectively. As of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 this customer represented ~~16%~~11% and ~~22%~~10% of trade receivables, respectively.

~~Table of Contents~~

~~ALLIED MOTION TECHNOLOGIES INC.~~

~~UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except per share data)~~

~~18. RECENT ACCOUNTING PRONOUNCEMENTS~~

~~Recently adopted accounting pronouncements~~

~~In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12,~~ ~~Simplifying the Accounting for Income Taxes (Topic 740).~~ The standard simplifies the accounting for income taxes by removing certain exceptions to the general principles in Accounting Standards Codification (“ASC”) Topic 740, and clarifies existing guidance to improve consistent application. This guidance is effective for fiscal years beginning after December 15, 2020. The Company adopted this ASU on January 1, 2021 on a prospective basis, as there were no relevant matters impacting the Company for which retrospective application was required, and the adoption did not have a material impact on its condensed consolidated financial statements.

~~19. SUBSEQUENT EVENTS~~

~~Acquisition~~

On November 2, 2021, the Company acquired 100% of the outstanding stock of ORMEC Systems Corp. (“ORMEC”), a New York developer and manufacturer of mission critical electro-mechanical automation solutions and motion control products including multi-axis controls, electronic drives and actuators for the automation and aerospace industries. In addition to its products, ORMEC designs and manufactures complete electro-mechanical and software solutions for custom automation applications. ORMEC strengthens the Company’s technical expertise and adds a higher level of precision motion control systems and solutions to our offerings.

The purchase price was approximately $9,000, comprised of $8,615 in cash and $385 in Company stock (10,685 shares at $36.07 closing stock price on November 1, 2021). The purchase price is subject to adjustments based on a determination of closing net working capital. The Company expects to determine the preliminary purchase price allocation during the fourth quarter of 2021.

1820

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

All statements contained herein that are not statements of historical fact constitute “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 severity, magnitude and duration of the COVID-19 pandemic, including impacts of the pandemic and of businesses’ and governments’ responses to the pandemic on our operations and personnel, and on commercial activity and demand across our and our customers’ businesses, and on global supply chains; our inability to predict the extent to which the COVID-19 pandemic and related impacts will continue to adversely impact our business operations, financial performance, results of operations, financial position, the prices of our securities and the achievement of our strategic objectives; 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 our 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; failure of a key information technology system, process or site or a breach of information security, including a cybersecurity breach, ransomware, or failure of one or more key information technology systems, networks, processes, associated sites or service providers; 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, and in particular those 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 ~~the additional risk factors discussed under “Item 1A. Risk Factors” in Part II of this report and~~ in the Company’s Annual Report in Form ~~10-K.~~10 K. Actual results, events and performance may differ materially from the Company’s forward-looking statements. 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.

New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on its business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. The Company’s expectations, beliefs and projections are believed to have a reasonable basis; however, the Company makes no assurance that expectations, beliefs or projections will be achieved.

Overview

We are a global company that designs, manufactures and sells precision and specialty controlled motion ~~components~~products and ~~systems~~solutions used in a broad range of industries. Our target markets include Vehicle, Medical, Aerospace & Defense (A&D), and Industrial. We are headquartered in Amherst, NY, and have operations in the ~~North America,~~United States, Canada, Mexico, Europe and Asia-Pacific. We are known worldwide for our expertise in electro-magnetic, mechanical and electronic motion technology. We sell component and integrated controlled motion solutions to end customers and OEMs through our own direct sales force and authorized manufacturers’ representatives and distributors. ~~Our~~Its products include ~~brush~~nano precision positioning systems, servo control systems, motion controllers, digital servo amplifiers and ~~brushless DC motors,~~drives, brushless servo, torque, and ~~torque~~coreless motors, ~~coreless DC~~brush motors, integrated ~~brushless~~ motor-drives, ~~gearmotors,~~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, Industrial safety rated input/output Modules, Universal Industrial Communications Gateways and other controlled motion-related products.

1921

Table of Contents

Business Environment

~~COVID-19~~Recent Events

During 2022, interest rate increases and inflation in the U.S. continues to impact our input costs and pricing, primarily for labor and materials. Gross domestic product is forecasted to slow throughout 2022 largely due to the widespread impacts of more restrictive financial conditions. Supply chain disruptions, labor shortages, and global inflation remain persistent in 2022, along with elevated geopolitical instability.

The ongoing Ukraine conflict has created general economic uncertainty with regard to energy and other commodity prices, interest rates, and our supply chain. The conflict has resulted in increased energy and component costs, especially within in our European locations, as well as extending the time for component shipments between Europe and Asia-Pacific. We continue to monitor developments as they unfold in order to react accordingly. The impact of the conflict on our operational and financial performance will depend on future developments that cannot be predicted, including the availability of oil and the potential impact on our production in Europe.

Acquisitions

The Company completed three acquisitions during the second quarter 2022 (“2022 acquisitions”) and three acquisitions during the fourth quarter of 2021 (“2021 acquisitions”). These acquisitions had a significant impact on the quarter and year to date results as described below. These acquisitions are important to executing on the Company’s strategic plan, and our focus in the near term will be on successfully integrating these acquisitions and leveraging the synergies that will be important drivers of our future growth and profitability.

COVID-19

The ~~outbreak of the novel strain~~ongoing impact of Coronavirus (“~~COVID-19”~~COVID-19”) and ~~the impact of the Delta and other~~its variants has created significant impacts and disruptions to the U.S. and global economies and are likely to do so for the foreseeable future. We expect that COVID-19 will continue to adversely affect portions of our business, including our global supply chain and manufacturing operations. We experienced reductions in customer demand in ~~several~~certain of our served markets and increases in demand in other of these markets during ~~periods~~the first and second quarters of ~~2020 and 2021~~2022 due to ~~the impact of COVID-19, offset by increases and rebounds in customer demand in several served markets, resulting in record levels of total bookings in the second and third quarters of 2021.~~COVID-19. The operational ability of our suppliers to provide the necessary quantity of materials on a timely basis has been reduced, which has impacted the predictability of our global supply chain, and resulted in some increased costs to secure and place materials into production and forced us to delay product shipments. ~~During the remainder of 2021,~~Throughout 2022, we expect the impact of COVID-19 on our operations will continue to challenge certain aspects of our business, particularly our global supply chain and our ability to hire direct labor. Certain materials and components used in our products are required and qualified to be sourced from a single or a limited number of suppliers. Any interruption in the supply from any supplier that serves as a sole source could delay product shipments and have a material adverse effect on our business.

In response to COVID-19, we have taken and will continue to take proactive, aggressive action to protect the health and safety of our employees, customers, partners, suppliers and communities. We continue to follow rigorous safety measures in all of our sites, including social distancing protocols, incorporating a work from home model at certain times for those employees that do not need to be physically present to perform their work, limiting travel, implementing temperature checks at the entrances to our facilities where required, extensively and frequently disinfecting our workspaces and providing masks and other protective equipment to those employees who must be physically present. These measures have been implemented on a worldwide basis and have been adjusted prudently as requirements and conditions change. We will continue to monitor and act in accordance with government authorities requirements or recommendations and evolving best practices.

Our Company provides essential and important products, including some that our customers rely on to address COVID-19. We manufacture and deliver critical motion control components, including electronic drives, motors and control assemblies to manufacturers of medical equipment including respirators, ventilators, infusion pumps, medical fluid pumps and other breathing assist equipment required to care for patients with respiratory issues including COVID-19. We are a long-term, qualified supplier to leading medical device manufacturers of ventilators and respirators around the world.

Global demand and capacity to produce ventilators increased significantly during portions of 2020, and we supplied the critical motion control components for the ventilators. The Company rapidly deployed resources to increase production capacity to meet the surge in demand that has been experienced for certain types of medical products related to combatting the COVID-19 virus. While ~~the~~ demand for certain items, such as ventilators, has returned to normalized levels in ~~2021,~~2022, we continue to provide solutions to suppliers of other types of medical equipment, including surgical tools and equipment, surgical robots, diagnostic equipment, test equipment, patient mobility and rehabilitation equipment, hospital beds and mobile equipment carts.

Table of Contents

Our worldwide locations are considered to be essential suppliers to our customers and therefore most of our locations have remained substantially operational ~~during~~throughout the outbreak while implementing the enhanced safety procedures.

WeThere have ~~taken actions since~~been recent COVID-19 related lockdowns in certain areas of China that have generally impacted the ~~beginning~~timing of shipments into and out of certain ports. These lockdowns have not significantly impacted our production facilities, however we are continuing to monitor the ~~pandemic to strengthen our liquidity and financial condition. We renewed and increased our~~situation.

Our Amended Credit Agreement includes a $225 million revolving credit facility ~~to $225 million~~ through February ~~2025 (refer to Note 9,~~ ~~Debt Obligations~~ ~~from our condensed consolidated financial statements).~~2025. Through this amendment we have lowered our cost of debt, and have secured more favorable covenants. This availability of liquidity preserves our financial ~~flexibility during the pandemic and subsequent to it.~~flexibility. We believe that our cash flows from operations and borrowing capacity are sufficient to support our short and long-term liquidity needs.

To conserve cash and maximize operational efficiency while supporting growth plans, we continue to align variable costs with demand, maintain and enhance key engineering capabilities, and control discretionary spending. The Company continues to closely monitor events and conditions resulting from COVID-19.

The extent of the impact of the COVID-19 outbreak on our operational and financial performance will continue to depend on future developments, including the duration and spread of the virus and variants, the potential for additional waves, its impact on our customers, suppliers and the range of governmental reactions to the pandemic, which cannot be predicted at this time. We will continue to proactively respond to the situation and will take further actions as warranted to alter our business operations as necessary.

~~Table of Contents~~

~~China Energy Shortage~~

During the third quarter of 2021, certain regions of China experienced energy shortages which impacted our facilities. One of our China locations was shut down for one week as a result of the restrictions on energy usage imposed by the Chinese government. The impact was not material to our results for the third quarter of 2021, however, there continue to be uncertainties related to the energy shortages that may impact us in the fourth quarter and beyond. We have been able to proactively mitigate the impact of the restrictions on energy usage to date by managing our scheduling at the impacted facilities.

Twinsburg Consolidation

In September 2021, the Company announced its plans to consolidate its manufacturing facility in Twinsburg, Ohio with its Watertown, New York and Reynosa, Mexico facilities in 2022. Costs of ~~$100~~$4 and $344, respectively are included in business development onin the condensed consolidated statement of income and comprehensive (loss) income for the three and six months ended ~~September~~June 30, ~~2021~~2022, respectively, related to ~~the consolidation of the Twinsburg facility. Total costs of approximately $1,000 are expected to be~~this consolidation. Costs incurred in connection with this initiative ~~and will include accelerated depreciation,~~have included accelerated lease costs, severance and other payroll related costs, legal costs, accelerated depreciation, and costs to relocate inventory and machinery and equipment. This initiative is ~~expected to be completed during the second quarter~~substantially complete as of June 30, 2022.

~~Stock Split~~

On April 30, 2021, we effected a 3-for-2 stock split. References to numbers of shares of common stock and per share data have been adjusted to reflect the stock split on a retrospective basis. Refer to Note 1, ~~Basis of Preparation and Presentation~~ ~~in the notes to condensed consolidated financial statements of Part I, Item 1 of this Form 10-Q for further information.~~

~~Cyber Breach~~

During the second quarter 2021, we were the subject of a cyber security breach. We discovered the issue soon after the intrusion and implemented our contingency and disaster recovery plans, including engaging legal, security and forensic experts in this field. We were able to contain the issue and were successful in getting our operations back up and running without a material impact to our results for the quarter. As a result of the lessons learned and in consultation with cybersecurity experts, we have implemented additional security measures that further safeguard our systems. No ransom was paid related to this breach.

~~Recent Accounting Pronouncements~~

~~Refer to Note 18,~~ ~~Recent Accounting Pronouncements~~ in the notes to condensed consolidated financial statements of Part 1, Item 1 of this Form 10-Q for information regarding recently adopted accounting standards and their potential impact on our financial condition or results of operations.

2123

Table of Contents

Operating Results

Three months ended ~~September~~June 30, ~~2021~~2022 compared to three months ended ~~September~~June 30, ~~2020~~2021


	For the three months ended						2021 vs. 2020				For the three months ended						2022 vs. 2021
	September 30,						Variance				June 30,						Variance
(Dollars in thousands, except per share data)	2021			2020			$		%		2022			2021			$		%
Revenues	$	103,509		$	94,653		$	8,856	9	%	$	122,722		$	101,537		$	21,185	21	%
Cost of goods sold		71,488			66,513			4,975	7	%		82,948			70,320			12,628	18	%
Gross profit		32,021			28,140			3,881	14	%		39,774			31,217			8,557	27	%
Gross margin percentage		30.9	%		29.7	%						32.4	%		30.7	%
Operating costs and expenses:
Selling		4,365			3,734			631	17	%		5,808			4,396			1,412	32	%
General and administrative		10,620			10,008			612	6	%		12,595			11,181			1,414	13	%
Engineering and development		6,768			6,434			334	5	%		9,791			7,240			2,551	35	%
Business development		94			8			86	NM	%		1,417			155			1,262	814	%
Amortization of intangible assets		1,504			1,499			5	0	%		2,645			1,511			1,134	75	%
Total operating costs and expenses		23,351			21,683			1,668	8	%		32,256			24,483			7,773	32	%
Operating income		8,670			6,457			2,213	34	%		7,518			6,734			784	12	%
Interest expense		777			844			(67)	(8)	%		1,525			807			718	89	%
Other (income) expense, net		(29)			231			(260)	(113)	%
Other income, net												(279)			(10)			(269)	NM	%
Total other expense		748			1,075			(327)	(30)	%		1,246			797			449	56	%
Income before income taxes		7,922			5,382			2,540	47	%		6,272			5,937			335	6	%
Income tax provision		(1,950)			(1,369)			(581)	42	%		(1,691)			(1,303)			(388)	30	%
Net income	$	5,972		$	4,013		$	1,959	49	%	$	4,581		$	4,634		$	(53)	(1)	%

Effective tax rate		24.6	%		25.4	%						27.0	%		21.9	%
Diluted earnings per share	$	0.41		$	0.28		$	0.13	46	%	$	0.29		$	0.32		$	(0.03)	(10)	%
Bookings	$	119,940		$	88,958		$	30,982	35	%	$	139,209		$	118,974		$	20,235	17	%
Backlog	$	185,561		$	123,700		$	61,861	50	%	$	323,873		$	170,364		$	153,509	90	%

REVENUES: ~~For the quarter, the~~The increase in revenues ~~is primarily due to~~during the second quarter 2022 reflects increases in our Industrial ~~market~~ and ~~our Vehicle market, as we continue to experience strong demand~~A&D served markets and ~~recovery. Sales to our Medical market declined as compared to~~includes a full quarter of the ~~prior year as COVID-19 related demand~~impact of the 2021 acquisitions. Our revenue for ~~ventilators and respirators normalized back to pre-pandemic levels.~~

~~Sales~~the period ended June 30, 2022 was comprised of 58% to U.S. customers ~~were 56% of total sales for the third quarter 2021, which was consistent with the same period last year, with the balance of sales~~and 42% to customers primarily in Europe, Canada and Asia-Pacific. The overall increase in revenue was due to a ~~8.5%~~26% volume increase ~~along with~~offset partially by a ~~0.9% favorable~~5% unfavorable currency impact. Organic growth was 9.9% during the second quarter 2022. See information included in “Non – GAAP Measures” below for a discussion of the non-GAAP measure and a reconciliation of revenue to revenue excluding foreign currency impacts.

ORDER BOOKINGS AND BACKLOG: ~~We experienced~~The 17% increase in orders in the second quarter 2022 compared to 2021 is due to a ~~record level of bookings during the third quarter of 2021.~~22% increase in volume, offset partially by a 5% unfavorable currency impact. The increase in bookings induring the ~~third~~second quarter ~~of 2021~~2022 compared to 2021 is impacted by the ~~third~~three acquisitions completed during the fourth quarter ~~of 2020 is largely due to increases~~2021 and the three acquisitions completed during the second quarter 2022 along with organic growth notably in our Industrial and Vehicle markets reflecting improvements in the general economy along with growth in our core businesses. The increase in backlog as of September 30, 2021, compared to September 30, 2020, was driven by these factors along with global supply chain challenges that continue to be present in the environments that we operate.market.

GROSS PROFIT AND GROSS MARGIN: Gross ~~margins improved~~profit increased to ~~30.9% for~~$39,774 in the ~~third~~second quarter of 2022 from $31,217 in the second quarter of 2021 driven by higher sales volume, including the recently completed acquisitions, and gross margins increased to 32.4% for 2022, compared to ~~29.7%~~30.7% for ~~the third quarter of 2020.~~2021. The increase in gross margin percentage was driven by cost absorption on higher sales volume, ~~increases of higher margin products in our Industrial~~pricing, and Vehicle markets compared to lower volumes of pandemic related Medical market products with lower margins. The margin expansion was somewhat muted by higher material and labor costs as well as costs associated with proactively addressing the challenging global supply chain environment to meet the needs of our customers.favorable mix, notably from accretive acquisitions.

SELLING EXPENSES: Selling expenses increased ~~17% in~~32% during the ~~third~~second quarter ~~of 2021~~2022 compared to ~~the same period of 2020. This is reflective of higher incentive compensation tied~~2021 primarily due to ~~improved revenue and profitability, along~~increased costs in connection with ~~the cost control efforts~~our recently completed acquisitions as well as sales commissions related to the ~~COVID-19 pandemic that were more impactful in the third quarter of 2020.~~increased revenue growth. Selling expenses as a percentage of revenues inwere 5% and 4% during the ~~third~~second quarter of 2022 and 2021, ~~were flat~~respectively.

GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses increased by 13% during the second quarter 2022 compared to 2021 due primarily to increased costs related to the ~~same period last year at approximately 4%.~~inclusion of our recent acquisitions. As a percentage of revenues, general and administrative expenses were 10% and 11% in 2022 and 2021, respectively.

2224

Table of Contents

GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses increased by 6% in the third quarter 2021 from the third quarter 2020 due to increased costs from our incentive compensation programs which are aligned with our revenue and profit growth, along with cost control efforts that were more impactful in the third quarter of 2020 due to COVID-19. As a percentage of revenues, general and administrative expenses were slightly lower for the quarter ended September 30, 2021 at 10% compared to 11% for the same period in 2020.

ENGINEERING AND DEVELOPMENT EXPENSES: Engineering and development expenses increased by 5%35% in the ~~third~~second quarter of ~~2021~~2022 compared to ~~the same quarter last year.~~2021. The increase is primarily due to the inclusion of our recent acquisitions along with our continued ~~ramp up of development projects to meet the future needs of target markets and customer applications, as well as higher incentive compensation costs.~~investment in new product development. As a percentage of revenues, engineering and development expenses were ~~consistent at~~8% for the three months ended June 30, 2022 compared to 7% for the three months ended June 30, 2021.

BUSINESS DEVELOPMENT COSTS: The increase in business development costs in the second quarter ~~ended September 30, 2021~~2022 compared to 2021 is due to increased costs related to the ~~same period in 2020.~~2022 acquisition activities.

AMORTIZATION OF INTANGIBLE ASSETS: Amortization ~~expense was consistent~~of intangible assets increased in the ~~current~~second quarter 2022 compared to 2021 due to incremental intangible amortization attributable to the ~~same period in the prior year.~~

2021 and 2022 acquisitions.

INTEREST EXPENSE: Interest expense ~~decreased by 8%~~increased in the ~~third~~second quarter of 2022 compared to 2021 due to ~~lower~~a combination of increased average debt levels ~~compared~~due to ~~the same period~~funding of acquisition activity, and to a lesser extent, higher interest rates, offset in ~~2020.~~part by interest rate swaps.

INCOME TAXES: The effective income tax rate was ~~24.6%~~27.0% and ~~25.4% in~~21.9% for the ~~third quarter~~three months ended June 30, 2022 and 2021, ~~and 2020,~~ respectively. The effective tax rate for the three months ended June 30, 2022 and 2021 includes a discrete tax benefit of ~~(2.9%~~(1.6%) and ~~(2.6%~~(4.3%), respectively, related primarily to share-based payment awards. The Company expects its income tax rate for the ~~third quarters of 2021 and 2020, respectively. The discrete tax benefit for~~full year 2022 to be approximately 25% to 27%.

NET INCOME AND ADJUSTED NET INCOME: Net income decreased during the ~~third~~second quarter of 2022 compared to 2021, isdespite increased gross profit, primarily ~~related~~due to the ~~net amount recognized~~effect of ~~Portuguese investment tax credits. The discrete tax benefit for the third quarter~~incremental business development costs and amortization of ~~2020 is primarily related~~intangible assets of $1,262 and $1,134, respectively, due to ~~GILTI regulation changes.~~

We are subject to tax laws in the U.S. at the federal and state levels and in numerous foreign jurisdictions. The new U.S. Presidential Administration and Congress are considering significant changes to the existing U.S. tax law, including an increase in the corporate tax rate and the tax rate on foreign earnings. If enacted into law, these proposed changes could substantially increase U.S. taxation on our operations both in and outside of the U.S. and could have a material impact on our effective tax rate in future periods. We will continue to monitor U.S., foreign, and state tax legislative developments.

On March 11, 2021, the American Rescue Plan of 2021 was enacted. The new law extends and enhances several current-law incentives for individuals and businesses in response to the COVID-19 pandemic. We do not expect any significant tax benefit from this new law.

~~NET INCOME:~~ ~~Net income increased during the third quarter 2021 compared to the third quarter 2020 reflecting the results of increased revenue, improved gross margins,~~acquisition-related activity, as well as ~~the lower~~higher interest expense, and a higher effective tax ~~rate, partially offset by increased operating costs~~rate.

Adjusted net income for the quarters ended June 30, 2022 and ~~expenses.~~2021 was $5,679 and $4,785, respectively. Adjusted diluted earnings per share for the second quarter of 2022 and 2021 were $0.36 and $0.33, respectively. Adjusted net income and adjusted diluted earnings per share are non-GAAP measures. See information included in “Non–GAAP Measures” below for a discussion of the non-GAAP measure and reconciliation of net income to Adjusted net income and diluted earnings per share to Adjusted diluted earnings per share.

EBITDA AND ADJUSTED EBITDA: EBITDA was ~~$13,126~~$13,893 for the ~~third~~second quarter ~~of 2021~~2022 compared to ~~$10,281~~$11,203 for the ~~same~~second quarter last year. The increase in the third quarter of 2021 compared to the third quarter of 2020 is primarily due to higher gross profit driven by sales growth and gross margin improvement, partially offset by increased operating expenses, most notably incentive compensation.2021. Adjusted EBITDA was ~~$14,454~~$16,197 and ~~$11,492~~$12,397 for the ~~third~~second quarters of ~~2021~~2022 and ~~2020,~~2021, respectively. EBITDA and Adjusted EBITDA are non-GAAP ~~measurements.~~measures. EBITDA consists of income before interest expense, ~~benefit (provision)~~provision for income taxes, and depreciation and amortization. Adjusted EBITDA also excludes stock-based compensation expense, foreign currency gain/loss and certain other items. Refer to information included in “Non-GAAP Measures” below for a discussion of the non-GAAP measure and a reconciliation of net income to EBITDA and Adjusted EBITDA.

2325

Table of Contents

~~Nine~~Six months ended ~~September~~June 30, ~~2021~~2022 compared to ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021


	For the nine months ended						2021 vs. 2020				For the six months ended						2022 vs. 2021
	September 30,						Variance				June 30,						Variance
(Dollars in thousands, except per share data)	2021			2020			$		%		2022			2021			$		%
Revenues	$	306,723		$	273,696		$	33,027	12	%	$	237,507		$	203,214		$	34,293	17	%
Cost of goods sold		213,417			191,054			22,363	12	%		164,273			141,929			22,344	16	%
Gross profit		93,306			82,642			10,664	13	%		73,234			61,285			11,949	19	%
Gross margin percentage		30.4	%		30.2	%						30.8	%		30.2	%
Operating costs and expenses:
Selling		12,979			11,819			1,160	10	%		10,839			8,614			2,225	26	%
General and administrative		32,549			28,880			3,669	13	%		24,091			21,929			2,162	10	%
Engineering and development		20,967			18,865			2,102	11	%		19,177			14,199			4,978	35	%
Business development		268			432			(164)	(38)	%		2,265			174			2,091	NM	%
Amortization of intangible assets		4,527			4,423			104	2	%		5,079			3,023			2,056	68	%
Total operating costs and expenses		71,290			64,419			6,871	11	%		61,451			47,939			13,512	28	%
Operating income		22,016			18,223			3,793	21	%		11,783			13,346			(1,563)	(12)	%
Interest expense		2,445			2,799			(354)	(13)	%		2,563			1,668			895	54	%
Other (income) expense, net		(158)			307			(465)	(151)	%
Other income, net												(234)			(129)			(105)	81	%
Total other expense, net		2,287			3,106			(819)	(26)	%		2,329			1,539			790	51	%
Income before income taxes		19,729			15,117			4,612	31	%		9,454			11,807			(2,353)	(20)	%
Income tax benefit (provision)		2,804			(4,173)			6,977	(167)	%
Income tax (provision) benefit												(2,370)			4,754			(7,124)	(150)	%
Net income	$	22,533		$	10,944		$	11,589	106	%	$	7,084		$	16,561		$	(9,477)	(57)	%

Effective tax rate		(14.2)	%		27.6	%						25.1	%		(40.3)	%
Diluted earnings per share	$	1.56		$	0.76		$	0.80	105	%	$	0.45		$	1.14		$	(0.7)	(61)	%
Bookings	$	353,558		$	262,246		$	91,312	35	%	$	294,505		$	233,618		$	60,887	26	%
Backlog	$	185,561		$	123,700		$	61,861	50	%	$	323,873		$	170,364		$	153,509	90	%

REVENUES: ~~For the year to date 2021, the~~The increase in revenues reflects improved sales in certain markets we serve, specifically Vehicle and Industrial, as well as the inclusion of Dynamic Controls for the full nine months of 2021. The increase reflects the economic recovery and the increases in demand from our served markets, as certain markets were negatively affected in the prior year period due to the economic environment brought on by the COVID-19 pandemic.

~~Sales to U.S. customers were 54% of total sales~~ for the year to date 2022 reflects increases in our Industrial and A&D served markets and includes the impact of the 2022 and 2021 ~~compared with 53%~~acquisitions. Our revenues for the ~~same~~ period ~~last year, with the balance~~ended June 30, 2022 was comprised of ~~sales~~57% to U.S. customers and 43% to customers primarily in Europe, Canada and Asia-Pacific. The overall increase in revenue was due to a ~~8.7%~~21% volume increase ~~in addition~~offset partially by a 4% unfavorable currency impact. Organic growth was 7.6% during the year to ~~a 3.4% favorable currency impact.~~date 2022. See information included in “Non – GAAP Measures” below for a discussion of the non-GAAP measure and a reconciliation of revenue to revenue excluding foreign currency impacts.

ORDER BOOKINGS AND BACKLOG: The 26% increase in orders for the year to date 2022 compared to 2021 is due to a 30% increase in volume, offset partially by a 4% unfavorable currency impact. The increase in bookings during ~~2021~~year to date 2022 compared to ~~2020~~2021 is ~~largely due to increases~~impacted by the six acquisitions completed between the fourth quarter of 2021 and the second quarter of 2022 along with organic growth notably in our ~~Vehicle and~~ Industrial markets reflecting improvements in the general economy along with growth in our core businesses. The increase in backlog as of September 30, 2021, compared to September 30, 2020 was related to these factors as well as global supply chain challenges that continue to be present in the environments that we operate.

market.

GROSS PROFIT AND GROSS MARGIN: Gross ~~margins improved~~profit increased to ~~30.4%~~$73,234 for year to date 2022 from $61,285 in 2021 driven by higher sales volume, including the recently completed acquisitions, and gross margins increased to 30.8% for 2022, compared to 30.2% for ~~the first nine months of 2020.~~2021. The increase in gross margin percentage was ~~largely~~ driven by cost absorption on higher sales volume, ~~increases of higher margin products in our Industrial~~pricing, and Vehicle markets compared to lower volumes of pandemic related Medical market products with lower margins. The margin expansion was somewhat muted by higher material and labor costs as well as costs associated with addressing the challenging global supply chain environment to meet the needs of our customers.favorable mix, notably from accretive acquisitions.

SELLING EXPENSES: Selling expenses increased ~~10%~~26% during ~~the nine months ended September 30, 2021~~year to date 2022 compared to ~~the same period of 2020~~2021 primarily due to ~~higher incentive compensation~~increased costs in connection with our recently completed acquisitions as well as ~~the inclusion of Dynamic Controls for the full nine months of 2021. Cost control efforts~~sales commissions related to the ~~COVID-19 pandemic in 2020, specifically travel restrictions, resulted in lower than normal expense levels compared to 2021.~~increased revenue growth. Selling expenses as a percentage of revenues were comparable at ~~approximately~~5% and 4% during ~~the first nine months of~~year to date 2022 and 2021, ~~and 2020.~~respectively.

~~Table of Contents~~

GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses increased by ~~13%~~10% during the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to the same period of ~~2020~~2021 due primarily to ~~the~~ increased costs ~~associated with our incentive compensation programs which are aligned with our revenue and profit growth, as well as~~related to the inclusion of ~~Dynamic Controls for the full nine months of 2021. Also, the first nine months of 2020 was favorably impacted by significant COVID-19 cost containment efforts.~~our 2022 and 2021 acquisitions. As a percentage of revenues, general and administrative expenses were ~~consistent at~~10% and 11% in ~~each period.~~

2022 and 2021, respectively.

ENGINEERING AND DEVELOPMENT EXPENSES: Engineering and development expenses increased by ~~11% for~~35% during the ~~first nine months of 2021~~year to date 2022 compared to ~~the same period last year. Part of the increase relates to the inclusion of Dynamic Controls, whose focus is electronics and software engineering, for the full nine months of~~ 2021. The increase is ~~also~~ due primarily to the inclusion and nature of our recent acquisitions along with our

Table of Contents

continued ~~ramp up of development projects to meet the future needs of target markets, as well as supporting growing customer application development needs and higher incentive compensation.~~investment in new product development. As a percentage of revenues, engineering and development expenses were ~~comparable at approximately~~8% for the six months ended June 30, 2022 compared to 7% for the ~~nine~~six months ended ~~September~~June 30, ~~2021 and 2020, respectively.~~2021.

BUSINESS DEVELOPMENT COSTS: The increase in business development costs for year to date 2022 compared to 2021 is due to increased costs related to the 2022 acquisition activities.

AMORTIZATION OF INTANGIBLE ASSETS: Amortization ~~expense~~of intangible assets increased ~~2% during the nine months ended September 30, 2021~~for year to date 2022 compared to ~~the nine months ended September 30, 2020~~2021 due to ~~the inclusion of a full nine months of~~incremental intangible amortization ~~from~~attributable to the ~~Dynamic Controls acquisition in 2020.~~

2021 and 2022 acquisitions.

INTEREST EXPENSE: Interest expense ~~decreased~~increased by ~~13% in~~54% for the ~~nine months ended September 30,~~year to date 2022 compared to 2021 primarily due to ~~lower~~an increase in average debt levels to fund acquisitions combined, to a lesser extent, with increased interest rates, ~~and lower debt balances compared to the same period~~offset in ~~2020.~~part by interest rate swaps.

INCOME TAXES: For the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, the effective income tax rate was ~~(14.2%)~~25.1% and ~~27.6%~~(40.3%), respectively. The effective tax rate includes a discrete tax benefit of ~~(41.3%~~(3.5%) and ~~(0.3%~~(67.1%), ~~respectively, for the 2021 and 2020 periods.~~respectively. The discrete ~~tax~~ benefit ~~for~~in the ~~nine~~six months ended ~~September~~June 30 2022 is primarily related to the reversal of uncertain tax positions and share-based payment awards. The discrete benefit in the six months ended June 30, 2021 is related primarily ~~related~~ to the recognition of net operating loss carryforwards resulting from tax legislation enacted in New Zealand during the ~~period. The discrete tax benefit for~~period, which changes our ability to use the ~~nine months ended September 30, 2020 is~~carryforwards in future periods.

NET INCOME AND ADJUSTED NET INCOME: Net income decreased during year to date 2022 compared to 2021, despite increased gross profit, primarily due to ~~GILTI regulation changes partially offset by share-based payment awards.~~

~~NET INCOME:~~ ~~Net income increased during the nine months ended September 30, 2021 compared to the same period in 2020 reflecting the impact of increased revenue, as well as~~ the effect of a $7,373 discrete income tax benefit in the first quarter of ~~2021.~~

2021 that was not present in year to date 2022, as well as incremental business development costs and amortization of intangible assets of $2,091 and $2,056, respectively, due to acquisition-related activity, as well as higher interest expense.

Adjusted net income for the six month periods ended June 30, 2022 and 2021 was $9,466 and $9,344, respectively. Adjusted diluted earnings per share for year to date 2022 and 2021 were $0.60 and $0.65, respectively. Adjusted net income and adjusted diluted earnings per share are non-GAAP measures. See information included in “Non–GAAP Measures” below for a discussion of the non-GAAP measure and reconciliation of net income to Adjusted net income and diluted earnings per share to Adjusted diluted earnings per share.

EBITDA AND ADJUSTED EBITDA: EBITDA was ~~$35,491~~$24,548 for ~~the nine months ended September 30, 2021~~year to date 2022 compared to ~~$29,598~~$22,365 for ~~the nine months ended September 30, 2020. The increase in 2021 compared~~year to ~~2020 is primarily due to higher gross profit driven by sales growth, partially offset by increased operating expenses.~~date 2021. Adjusted EBITDA was ~~$38,817~~$29,100 and ~~$33,163~~$24,363 for ~~the first nine months of~~year to date 2022 and 2021, ~~and 2020,~~ respectively. EBITDA and Adjusted EBITDA are non-GAAP ~~measurements.~~measures. EBITDA consists of income before interest expense, ~~benefit (provision)~~provision for income taxes, and depreciation and amortization. Adjusted EBITDA also excludes stock-based compensation expense, foreign currency gain/loss ~~business development,~~ and certain other items. Refer to information included in “Non-GAAP Measures” below for a discussion of the non-GAAP measure and a reconciliation of net income to EBITDA and Adjusted EBITDA.

Non-GAAP Measures

Revenue excluding foreign currency exchange impacts, EBITDA, Adjusted EBITDA, Adjusted net income and Adjusted diluted earnings per share are provided for information purposes only and are not measures of financial performance under GAAP.

Management believes the presentation of these financial measures reflecting non-GAAP adjustments provides important supplemental information to investors and other users of our financial statements in evaluating the operating results of the Company as distinct from results that include items that are not indicative of ongoing operating results. In particular, those charges and credits that are not directly related to operating unit performance, and that are not a helpful measure of the performance of our underlying business particularly in light of their unpredictable nature. These non-GAAP disclosures have limitations as analytical tools, should not be viewed as a substitute for revenue and net income determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies. In addition, supplemental presentation should not be construed as an inference that the Company’s future results will be unaffected by similar adjustments to net income determined in accordance with GAAP.

The Company believes that revenue excluding foreign currency exchange impacts is a useful measure in analyzing 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

~~Table of Contents~~

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.

Table of Contents

The Company believes EBITDA is often a useful measure of a Company’s operating performance and is a significant basis used by the Company’s management to measure the operating performance of the Company’s business because EBITDA excludes charges for depreciation, amortization and interest expense that have resulted from our debt financings, acquisitions, as well as our provision for income tax expense. EBITDA is frequently used as one of the bases for comparing businesses in the Company’s industry.

The Company also believes that Adjusted EBITDA provides helpful information about the operating performance of its business. Adjusted EBITDA excludes stock-based compensation expense, as well as ~~certain income or expenses which~~business development costs, foreign currency gains/losses on short-term assets and liabilities, and other items that are not indicative of the ~~ongoing performance of the Company.~~Company’s core operating performance. EBITDA and Adjusted EBITDA do 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 GAAP.

Management uses Adjusted net income and Adjusted diluted earnings per share to assess the Company’s consolidated financial and operating performance. Adjusted net income and Adjusted diluted earnings per share are provided for informational purposes only and are not a measure of financial performance under GAAP. These measures help management make decisions that are expected to facilitate meeting current financial goals as well as achieving optimal financial performance. Adjusted net income provides management with a measure of financial performance of the Company based on operational factors as it removes the impact of certain non-routine items from the Company’s operating results. Adjusted diluted earnings per share provides management with an indication of how Adjusted net income would be reflected on a per share basis for comparison to the GAAP diluted earnings per share measure. Adjusted net income is a key metric used by senior management and the Company’s board of directors to review the consolidated financial performance of the business. This measure adjusts net income determined in accordance with GAAP to reflect changes in financial results associated with the highlighted ~~charges~~expense and income items.

The Company’s calculation of revenues excluding foreign currency exchange impacts for the three ~~and nine~~ months ended ~~September~~June 30, ~~2021~~2022 is as follows (in thousands):

Three months ended

Nine months ended


September 30, 2021

September 30, 2021
Revenue as reported

$
103,509

$
306,723
Currency impact (favorable) unfavorable

(813)

(9,191)
Revenue excluding foreign currency exchange impacts

$
102,696

$
297,532


	Three months ended		Six months ended
	June 30, 2022		June 30, 2022
Revenue as reported	$	122,722	$	237,507
Currency impact unfavorable (favorable)		5,174		8,403
Revenue excluding foreign currency exchange impacts	$	127,896	$	245,910

The Company’s calculation of EBITDA and Adjusted EBITDA for the three ~~and nine~~ months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 is as follows (in thousands):

Three months ended

Nine months ended

September 30,

September 30,


2021

2020

2021

2020
Net income as reported

$
5,972

$
4,013

$
22,533

$
10,944
Interest expense

777

844

2,445

2,799
Provision (benefit) for income tax

1,950

1,369

(2,804)

4,173
Depreciation and amortization

4,427

4,055

13,317

11,682
EBITDA

13,126

10,281

35,491

29,598
Stock-based compensation expense

1,303

920

3,100

2,640
Business development costs

94

8

268

432
Foreign currency (gain) loss

(69)

283

(42)

493
Adjusted EBITDA

$
14,454

$
11,492

$
38,817

$
33,163


	Three months ended				Six months ended
	June 30,				June 30,
	2022		2021		2022		2021
Net income as reported	$	4,581	$	4,634	$	7,084	$	16,561
Interest expense		1,525		807		2,563		1,668
Provision (benefit) for income tax		1,691		1,303		2,370		(4,754)
Depreciation and amortization		6,096		4,459		12,531		8,890
EBITDA		13,893		11,203		24,548		22,365
Stock-based compensation expense		1,141		1,000		2,490		1,797
Business development costs		1,417		155		2,265		174
Foreign currency (gain) loss		(254)		39		(203)		27
Adjusted EBITDA	$	16,197	$	12,397	$	29,100	$	24,363

2628

Table of Contents

The Company’s calculation of Adjusted net income and Adjusted diluted earnings per share for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 is as follows (in thousands except per share amounts):


	For the three months ended
	June 30,
			Per diluted				Per diluted
	2022		share		2021		share
Net income as reported	$	4,581	$	0.29	$	4,634	$	0.32
Non-GAAP adjustments, net of tax
Acquisition inventory step-up amortization - net		207		0.01		—		—
Foreign currency (gain) loss - net		(194)		(0.01)		30		—
Business development costs - net		1,085		0.07		121		0.01
Non-GAAP adjusted net income and diluted earnings per share	$	5,679	$	0.36	$	4,785	$	0.33

For the three months ended

September 30,




Per diluted



Per diluted

2021

share

2020

share
Net income as reported

$
5,972

$
0.41

$
4,013

$
0.28
Non-GAAP adjustments, net of tax








Foreign currency (gain) loss - net

(50)

—

211

0.01
Business development costs - net

72

—

6

—
Non-GAAP adjusted net income and diluted earnings per share

$
5,994

$
0.41

$
4,230

$
0.29


	For the nine months ended								For the six months ended
	September 30,								June 30,
			Per diluted				Per diluted				Per diluted				Per diluted
	2021		share		2020		share		2022		share		2021		share
Net income as reported	$	22,533	$	1.56	$	10,944	$	0.76	$	7,084	$	0.45	$	16,561	$	1.14
Non-GAAP adjustments, net of tax
Discrete income tax benefit		(7,373)		(0.51)		—		—		—		—		(7,373)		(0.51)
Acquisition inventory step-up amortization - net										802		0.05		—		—
Foreign currency (gain) loss - net		(30)		—		357		0.02		(155)		(0.01)		21		0.00
Business development costs - net		205		0.01		313		0.02		1,735		0.11		135		0.01
Non-GAAP adjusted net income and diluted earnings per share	$	15,335	$	1.06	$	11,614	$	0.81	$	9,466	$	0.60	$	9,344	$	0.65

Liquidity and Capital Resources

The Company’s liquidity position as measured by cash and cash equivalents ~~decreased~~increased by ~~$3,922~~$6,383 to a balance of ~~$19,209~~$28,846 at ~~September~~June 30, ~~2021~~2022 from December 31, ~~2020.~~2021.


					2021 vs.						2022 vs.
	Nine Months Ended				2020		Six Months Ended				2021
	September 30,				Variance		June 30,				Variance
	2021		2020		$		2022		2021		$
Net cash provided by operating activities	$	19,920	$	15,020	$	4,900
Net cash (used in) provided by operating activities							$	(290)	$	16,471	$	(16,761)
Net cash used in investing activities		(9,761)		(21,288)		11,527		(50,923)		(5,885)		(45,038)
Net cash (used in) provided by financing activities		(13,305)		12,590		(25,895)
Net cash provided by (used in) financing activities								58,781		(9,865)		68,646
Effect of foreign exchange rates on cash		(776)		489		(1,265)		(1,185)		(468)		(717)
Net (decrease) increase in cash and cash equivalents	$	(3,922)	$	6,811	$	(10,733)
Net increase in cash and cash equivalents							$	6,383	$	253	$	6,130

Of the $28,846 of cash and cash equivalents at June 30, 2022, $16,521 was located at our foreign subsidiaries and may be subject to withholding tax if repatriated back to the U.S.

During the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, the increase in cash ~~provided by~~used in operating activities is primarily due to ~~net income adjusted~~working capital needs, primarily for ~~non-cash items partially offset by increased~~inventories due to strategic decisions to secure critical components given the current supply chain environment.

The increase in cash used in investing activities in 2022 relates to the $44,569 net cash consideration paid for ~~working capital activity~~the ThinGap, FPH and Airex acquisitions in ~~2021 compared to 2020.~~

the second quarter. Cash used in investing activities in the ~~nine~~six months ended ~~September~~June 30, ~~2021 relates to~~2022 includes $6,354 for purchases of property and ~~equipment. Purchases of property and~~ equipment ~~were $9,761~~compared to $5,885 during the ~~nine~~three months ended ~~September~~June 30, 2021 compared to $6,560 during the nine months ended September 30, 2020 reflecting continued commitments to capital expenditure projects supporting customer and growth initiatives. Cash used in investing activities in the prior year period included a $14,728 outflow related to the acquisition of Dynamic Controls.2021. Capital expenditures are expected to be between ~~$12,000~~$15,000 and ~~$15,000~~$20,000 for the full year ~~2021.~~2022.

The ~~change~~increase in cash provided by financing activities induring the ~~nine~~six months ended ~~September~~June 30, ~~2021 from the nine months ended September 30, 2020 primarily is a result~~2022 includes Amended Revolving Facility borrowings of ~~a net paydown of debt of $10,598 in 2021 and the 2020 period including cash borrowed~~$47,583 to fund the ~~acquisition~~three acquisitions in the second quarter of ~~Dynamic Controls which exceeded debt payments.~~2022. Debt payments of $3,406 were made during the six months ended June 30, 2022. At ~~September~~June 30, ~~2021,~~2022, we had ~~$109,783~~$220,057 of obligations under the Amended Revolving Facility, excluding deferred financing costs.

The Amended Credit Agreement contains certain financial covenants related to minimum interest coverage, ~~Total Leverage Ratio,~~total leverage ratio, and non-material subsidiaries assets to consolidated total assets at the end of each quarter. The Amended Credit Agreement also includes

Table of Contents

other covenants and restrictions, including limits on the amount of additional indebtedness, and restrictions on the ability to merge, consolidate or sell all, or substantially all, of our assets. Under the provisions of the Amended Credit Agreement, we may elect to increase our Leverage Ratio to a 4.0 to 1.0 ratio (a “Leverage Increase”) during the fiscal quarter in which a Material Acquisition (as defined in the Amended Credit Agreement) takes place and for the next three fiscal quarters. If the Material Acquisition occurs within the last 45 days of any fiscal quarter, the Leverage Increase is applicable for the following four fiscal quarters. We qualified for and elected the Leverage Increase as a result of the Spectrum Controls acquisition in the fourth quarter of 2021. We were in compliance with all covenants at ~~September~~June 30, ~~2021.~~2022.

~~Table of Contents~~

As of ~~September~~June 30, ~~2021,~~2022, the unused Amended Revolving Facility was ~~$115,217.~~$4,944. The amount available to borrow may be lower and may vary from period to period based upon our debt and EBITDA levels, which impacts our covenant calculations. The Amended Credit Agreement matures in February 2025.

There were no borrowings under the China Facility during the ~~nine~~three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

~~After assessing the strong capital and liquidity position of the~~The Company we declared dividends ~~in total,~~ of ~~$0.07~~$0.050 and ~~$0.06~~$0.045 per share during the ~~nine~~six months ended ~~September~~June 30, 2022 and 2021, respectively. The Company’s working capital, capital expenditure and ~~2020, respectively.~~dividend requirements are expected to be funded from cash provided by operations and amounts available under the Amended Credit Agreement.

Although there is ongoing uncertainty related to the ~~anticipated~~current conflict in Ukraine and the continued impact of COVID-19 and variants on our future results, we believe our diverse markets, our strong market position in many of our businesses, and the steps we have taken to strengthen our balance sheet ~~such as retaining cash to support shorter term needs and extending the maturity of our revolving credit facility in the first quarter of 2020~~ leaves us well-positioned to manage our business through the crisis as it continues to unfold. We continually assess our liquidity and cash positions and have assessed the impact of COVID-19 on our Company. Based on our analysis, we believe our existing balances of cash, the flexibility of our Amended Credit Agreement and our currently anticipated operating cash flows will be more than sufficient to meet our cash needs arising in the ordinary course of business for the next twelve months.

Item 3. Qualitative and Quantitative Disclosures about Market Risk

Foreign Currency

We have ~~foreign~~international operations in The Netherlands, Sweden, Germany, China, Portugal, Canada, Czech Republic, ~~Canada,~~ Mexico, the United Kingdom and New Zealand which expose ~~the Company~~us to foreign currency exchange rate fluctuations due to transactions denominated in Euros, Swedish Krona, Chinese Renminbi, Canadian dollar, Czech Krona, ~~Canadian dollar,~~ Mexican pesos, British Pound Sterling, and New Zealand dollar, respectively. We continuously evaluate our foreign currency risk and ~~will~~we take action from time to time in order to best mitigate these risks. A hypothetical 10% change in the value of the U.S. dollar in relation to our most significant foreign currency exposures would have had an impact of approximately ~~$4,000~~$4,013 on our sales for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~$12,500~~$8,253 on our sales for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. This amount is not indicative of the hypothetical net earnings impact due to partially offsetting impacts on cost of sales and operating expenses in those currencies. We estimate that foreign currency exchange rate fluctuations during the three months ended ~~September~~June 30, ~~2021~~2022 increased ~~sales~~revenues in comparison to the quarter ended ~~September~~June 30, ~~2020~~2021 by ~~$813.~~$5,174. For the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, we estimate that foreign currency exchange rate fluctuations increased ~~sales $9,191~~revenues $8,403 in ~~2021~~2022 compared to ~~2020.~~2021.

We translate all assets and liabilities of our foreign operations, where the U.S. dollar is not the functional currency, at the period-end exchange rate and translate sales and expenses at the average exchange rates in effect during the period. The net effect of these translation adjustments is recorded in the condensed consolidated financial statements as comprehensive (loss) income. The translation adjustment was a loss of ~~$2,528~~$8,699 and a gain of ~~$3,433~~$955 for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The translation adjustment was a loss of ~~$5,580~~$9,932 and ~~a gain of $2,937~~$3,052 for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Translation adjustments are not adjusted for income taxes as they relate to permanent investments in our foreign subsidiaries. A hypothetical 10% change in the value of the U.S. dollar in relation to our most significant foreign currency net assets would have had an impact of approximately ~~$11,100~~$11,152 on our foreign net assets as of ~~September~~June 30, ~~2021. Beginning in the first quarter of 2021, we began entering into~~2022.

We have contracts to hedge our short-term balance sheet exposure, primarily intercompany, that are denominated in currencies (Euro, Mexican Peso, New Zealand Dollar, Chinese Renminbi, Swedish Krona) other than the subsidiary’s functional currency and are adjusted to current values using period-end exchange rates. The resulting gains or losses are recorded in other (income) expense, net in the ~~condensed~~ consolidated statements of income and comprehensive (loss) income. To minimize foreign currency exposure, the Company had foreign currency contracts with notional amounts of ~~$10,500~~$16,000 at ~~September~~June 30, ~~2021.~~2022. The foreign currency contracts are recorded in the

Table of Contents

condensed consolidated balance sheets at fair value and resulting gains or losses are recorded in other expense (income) ~~expense,~~, net in the condensed consolidated statements of income and comprehensive (loss) income. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, we recorded a ~~loss~~gains of ~~$82~~$253 and ~~a loss of $149~~$203, respectively, on foreign currency contracts which is included in other (income) expense, net and generally offset the gains or losses from the foreign currency adjustments on the intercompany balances that are also included in other (income) expense, net. Net foreign currency transaction gains and losses included in other ~~(income)~~ expense, net amounted to a gain of ~~$69~~$253 and a loss of ~~$283~~$39 for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Net foreign currency transaction gains and losses included in other ~~(income)~~ expense, net amounted to a gain of ~~$42~~$203 and a loss of ~~$493~~$27 for the ~~nine~~six months ended ~~September~~June 30, 2022 and 2021, ~~and 2020,~~ respectively.

~~Table of Contents~~

Interest Rates

~~Borrowings under the~~

Interest rates on our Amended ~~Revolving Facility bear interest at~~Credit Agreement are based on the LIBOR or EURIBOR ~~Rate~~ plus a margin of 1.00% to 1.75% ~~(1.50%~~(1.75% at ~~September~~June 30, ~~2021)~~2022) or the Prime Rate plus a margin of 0% to ~~0.75% (0.50%~~1.25% (1.25% at ~~September~~June 30, ~~2021)~~2022), in each case depending on the Company’s ~~Total Leverage Ratio.~~ratio of total funded indebtedness to Consolidated EBITDA. We use interest rate derivatives to add stability to interest expense and to manage our exposure to interest rate movements. We primarily use interest rate swaps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. In February 2017, the Company entered into three interest rate swaps with a combined notional amount of $40,000 that ~~mature~~matured in February 2022. In March 2020, the Company entered into two additional interest rate swaps with a combined notional amount of $20,000 that ~~increases~~increased to $60,000 in March 2022 and matures in December 2024. In March 2022 the Company entered into an additional interest rate swap with a notional amount of $40,000 that matures in December 2026.

As of ~~September~~June 30, ~~2021,~~2022, we had ~~$109,783~~$220,056 outstanding under the Amended Revolving Facility (excluding deferred financing fees), of which ~~$60,000~~$100,000 is currently being hedged. Refer to Note 9, 10, Debt Obligations, of the ~~Notes~~notes to ~~condensed~~ consolidated financial statements for additional information about our outstanding debt. A hypothetical one percentage point (100 basis points) change in the Base Rate on the ~~$49,783~~$120,057 of unhedged floating rate debt outstanding at ~~September~~June 30, ~~2021~~2022 would ~~have~~ approximately a ~~$125~~$300 and ~~$375~~$600 impact on our interest expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively.

Item 4. Controls and Procedures

Conclusion regarding the effectiveness of disclosure controls and procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (principal accounting officer), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of ~~September~~June 30, ~~2021.~~2022. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on ~~this~~management’s evaluation ~~the Company’s principal executive officer~~of our disclosure controls and ~~principal financial officer~~procedures as of June 30, 2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of ~~September 30, 2021, the Company’s~~such date, our disclosure controls and procedures were effective.

Changes in internal control over financial reporting

During the quarter ended ~~September~~June 30, ~~2021,~~2022, there were no changes in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II. OTHER INFORMATION

Item 1A. Risk Factors

~~Except as noted below and to the extent factual information disclosed elsewhere in this Form 10-Q relates to such risk factors, there~~There have been no material changes to the risk factors disclosed in the Company’s Form 10-K for the year ended December 31, ~~2020.~~2021, except to the extent factual information disclosed elsewhere in this Form 10-Q relates to such risk factors. For a full discussion of these risk factors, please refer to “Item 1A. Risk Factors” in the ~~2020~~2021 Annual Report and 10-K.

We could experience a failure of a key information technology system, process or site or a breach of information security, including a cybersecurity breach, ransomware, or failure of one or more key information technology systems, networks, processes, associated sites or service providers.

We rely extensively on information technology (“IT”) systems for the storage, processing, and transmission of our electronic, business-related information assets used in or necessary to conduct business. We leverage our internal information technology

~~Table of Contents~~

infrastructures, and those of our business partners, to enable, sustain, and support our global business activities. In addition, we rely on networks and services, including internet sites, data hosting and processing facilities and tools and other hardware, software and technical applications and platforms, some of which are managed, hosted, provided and/or used by third-parties or their vendors, to assist in conducting our business. The data we store, and process may include customer payment information, personal information concerning our employees, confidential financial information, and other types of sensitive business-related information. Numerous and evolving cybersecurity threats pose potential risks to the security of our IT systems, networks and services, as well as the confidentiality, availability and integrity of our technology systems and data. In addition, the laws and regulations governing security of data on IT systems is evolving and adding another layer of complexity in the form of new requirements. In the past, we have had cybersecurity incidents and we have made, and continue to make investments, seeking to address these threats, including monitoring of networks and systems, hiring of experts to evaluate and test our systems, employee training and security policies for employees and third-party providers.

The frequency and the techniques used in these attacks has increased significantly and may be difficult to detect for periods of time and we may face difficulties in anticipating and implementing adequate preventative measures. While the breaches of our IT systems to date have not been material to our business or results of operations, the costs of attempting to protect our IT systems and data will increase, and there can be no assurance that these added security efforts will prevent all breaches of our IT systems or thefts of our data. If our IT systems are damaged or cease to function properly, the networks or service providers we rely upon fail to function properly, or we or one of our third-party providers suffer a loss or disclosure of our business or stakeholder information due to any number of causes ranging from catastrophic events or power outages to improper data handling or security breaches (including ransomware, denial-of-service attacks, a malicious website, the use of social engineering and other means to affect the confidentiality, integrity and availability of our technology systems and data) and our business continuity plans do not effectively address these failures on a timely basis, we may be exposed to potential disruption in operations, loss of customers, reputational, competitive and business harm as well as significant costs from remediation, ransom payments, litigation and regulatory actions.

We are also subject to an increasing number of evolving data privacy and security laws and regulations. Failure to comply with such laws and regulations could result in the imposition of fines, penalties and other costs. The European Union (“EU”) and United Kingdom’s General Data Protection Regulations and the EU’s pending ePrivacy Regulation could disrupt our ability to sell products and solutions or use and transfer data because such activities may not be in compliance with applicable laws. Additionally, cybersecurity incidents related to export control technology information of our Aerospace & Defense customers could subject us to additional reporting requirements, could disrupt our ability to sell products to those customers and could subject us to additional costs, penalties, and fines all of which may be material to our operating results.

The Audit Committee of the Board of Directors is responsible for information security oversight and is comprised entirely of independent directors. Additionally, two members of the Company’s Board of Directors have relevant information security and cybersecurity experience. As part of their oversight, senior leadership meets with the Audit Committee at least annually to discuss information security and cybersecurity matters.

Over the last three years, the Company has experienced one known information security breach, in connection with a ransomware incident that occurred in June 2021. Over the last three years, costs incurred related to information security breaches did not have a material adverse effect on our results of operations. However, as cybersecurity incidents continue to increase in scope and frequency, we may be unable to prevent a significant incident in the future which may materially impact our results of operations. Every two to three years, the Company is audited by an external security services provider to the National Institute of Standards and Technology (NIST) SP 800-171 standards and enhances its security framework based upon the results of those audits. For new associates, and on an annual basis, the Company requires associates to take security awareness training and has an on-going phishing recognition training and testing programs.

~~Table of Contents~~

Item 5. Unregistered Sales of Equity Securities and Use of Proceeds

Total Number of Shares

Maximum Number of Shares

Number of Shares

Average Price Paid

Purchased as Part of Publicly

that May Yet Be Purchased
Period

Purchased^{(1) (2)}

per Share

Announced Plans or Programs

Under the Plans or Programs
07/01/21 to 07/31/21

38

$
35.35

—

—
08/01/21 to 08/31/21

—

—

—

—
09/01/21 to 09/30/21

2,330

34.65

—

—
Total

2,368

$

—

—

Issuer Purchases of Unregistered Securities


				Total Number of Shares	Maximum Number of Shares
	Number of Shares	Average Price Paid		Purchased as Part of Publicly	that May Yet Be Purchased
Period	Purchased⁽¹⁾	per Share		Announced Plans or Programs	Under the Plans or Programs
04/01/22 to 04/30/22	34,929	$	29.77	—	—
05/01/22 to 05/31/22	356		27.54	—	—
06/01/22 to 06/30/22	—		—	—	—
Total	35,285	$	29.75	—	—

(1)

As permitted under the Company’s equity compensation plan, these shares were withheld by the Company to satisfy tax withholding obligations in connection with the vesting of stock. Shares withheld for tax withholding obligations do not affect the total number of shares available for repurchase under any approved common stock repurchase plan. At ~~September~~June 30, ~~2021,~~2022, the Company did not have an authorized stock repurchase plan in place.

Recent Sales of Unregistered Securities

On June 17, 2022, the Company entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) pursuant to which the Company acquired 100% of the membership interests of Airex, LLC from Airex Merger Holdco, LLC (the “Seller”). Under the Purchase Agreement, a portion of the purchase price was in the form of equity consisting of 80,000 shares of Company common stock. The securities issued in connection with this transaction were issued by the Company to the Seller in reliance upon on Section 4(a)(2) of the Securities Act. The Seller represented that it was an “accredited investor” and will acquire the securities for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof.

Item 6. Other Information

None.

Item 7. Exhibits


		(a)	Exhibits

		31.1	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

		31.2	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

		32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

		32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

		101.1 SCH	Inline XBRL Taxonomy Extension Schema Document (filed herewith).

		101.2 CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).

Table of Contents

		101.3 DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).

		101.4 LAB	Inline XBRL Taxonomy Extension Label Linkbase Document (filed herewith).

		101.5 PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith).

		104	Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in exhibits 101.) (filed herewith)*.

		* Denotes management contract or compensatory plan or arrangement.

3133

Table of Contents

SIGNATURES

~~SIGNATURES~~

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DATE:	~~November~~August 3, ~~2021~~2022	ALLIED MOTION TECHNOLOGIES INC.
		By:	/s/ Michael R. Leach
		Michael R. Leach
		Senior Vice President & Chief Financial Officer

3234


Remainder of 2021	$	1,296
2022		4,389
2023		3,151
2024		2,379
2025		2,173
2026		1,143
Thereafter		4,229
Total undiscounted cash flows	$	18,760
Less: present value discount		(1,287)
Total lease liabilities	$	17,473