Allied Motion Technologies Inc. (Nasdaq: AMOT) (“Company”), a designer and manufacturer that sells precision motion control products and solutions to the global market, today reported financial results for its third quarter ended September 30, 2018. Results include the acquisition of Maval Industries in January 2018.

“Our One Allied approach and focus on delivering market leading solutions continued to pay off with another quarter of record revenue and backlog as we saw strong performance across all of our served markets,” commented Dick Warzala, Chairman and CEO. “Importantly, our business model also demonstrated its leverage potential with operating margin expanding to 9.0%.

“We are confident in our strategy, and with a record level of backlog, robust new business pipeline and favorable economic environment, we are well positioned for continued growth in revenue and profitability.”

Third Quarter 2018 Results (Narrative compares with prior-year period unless otherwise noted)

Record revenue of $80.1 million was up $15.1 million, or 23%. The increase was due to growth across all of the Company’s served markets and reflects significantly higher sales to the Vehicle market. The change in foreign currency exchange (FX) had a $0.7 million unfavorable impact on revenue in the quarter. Sales to U.S. customers were 55% of total sales for the quarter compared with 53% for the same period last year, with the balance of sales to customers primarily in Europe, Canada and Asia.

Gross profit increased $4.2 million, or 22%, to $23.8 million. Gross margin decreased 40 basis points to 29.7%. Higher volume and productivity helped to offset the impact of the lower margin profile of the Maval acquisition.

Operating costs and expenses were up $2.3 million to $16.5 million; however, as a percentage of revenue, operating expenses were down 140 basis points to 20.6%. General and administrative expense as a percent of revenue increased 70 basis points to 10.3% primarily due to higher incentive compensation and additional personnel to support the Company’s growth. Engineering and development (“E&D”) was $4.7 million, up 7%. As a percentage of revenue, E&D decreased 90 basis points to 5.9%.

Higher gross profit combined with operating leverage drove operating income up 37%, or $2.0 million, to $7.2 million, while operating margin expanded 90 basis points to 9.0%.

Interest expense for the period was unchanged at $0.6 million.

The effective tax rate decreased to 26.7% from 33.1%, largely due to lower U.S. federal tax rates from the December 2017 Tax Cuts and Jobs Act. The Company anticipates its effective tax rate for 2018 to range from 24% to 26%.

Net income increased $1.8 million, or 59%, to $4.9 million, or $0.52 per diluted share, from $3.1 million, or 0.33 per diluted share.

Earnings before interest, taxes, depreciation, amortization, stock compensation expense and business development costs (“Adjusted EBITDA”) was $10.8 million, up $2.5 million, or 29%. As a percent of sales, Adjusted EBITDA was 13.5%, an increase of 60 basis points. The Company believes that, when used in conjunction with measures prepared in accordance with U.S. generally accepted accounting principles, Adjusted EBITDA, which is a non-GAAP measure, helps in the understanding of its operating performance. See the attached table for a description of non-GAAP financial measures and reconciliation table for Adjusted EBITDA.

Year-to-Date (YTD) 2018 Results (Narrative compares with prior-year period unless otherwise noted)

Strong demand from all the Company’s served markets resulted in record revenue of $236.6 million, up $50.0 million, or 27%. Sales to U.S. customers were 53% of total sales compared with 54% for the same period last year, with the balance of sales to customers primarily in Europe, Canada and Asia. The impact of FX fluctuations had a favorable $5.5 million impact on revenue for the year-to-date period.

Gross profit increased 27% to $69.8 million, and gross margin was the same as the first nine months of 2017. Operating costs and expenses as a percent of revenue were 21.1%, down 110 basis points. As a result, operating income increased $6.3 million, or 46%, while operating margin expanded 110 basis points to 8.4%.

The effective tax rate for the year-to-date period was down to 26.8% compared with 32.1% for the same period last year, due primarily to U.S. tax reform. Net income was up $5.3 million, or 67%, to $13.3 million. Adjusted EBITDA for the period was $30.6 million, up 36%. As a percent of sales, Adjusted EBITDA was 12.9% compared with 12.1%.

Balance Sheet and Cash Flow Review

Cash and cash equivalents were $11.4 million compared with $15.6 million at the end of 2017. Total debt was $62.5 million at the end of the third quarter, up $9.3 million from year-end 2017 largely due to the Maval acquisition. Debt, net of cash, was $51.1 million, or 33.7% of net debt to capitalization, up from 30.1% at the end of 2017.

Capital expenditures of $10.6 million include investments for productivity improvement and growth initiatives. The Company continues to expect to invest $13 million to $16 million in capital expenditures during fiscal 2018. The increase in capital expenditures over the prior year is for growth capital to support significant project wins.

The year-over-year increase in orders and backlog reflect strength across all the Company’s served markets. The impact on orders from FX fluctuations for the third quarter was unfavorable $0.7 million year-over-year.

Backlog was up 24% over the prior-year period and increased 4% since the sequential second quarter of 2018. The time to convert the majority of backlog to sales is approximately three to six months. Not included in the backlog are previously announced new business awards of $225.0 million that are expected to begin shipping in mid to later part of 2019.

Conference Call and Webcast

The Company will host a conference call and webcast on Thursday, November 1, 2018 at 10:00 am ET. During the conference call, management will review the financial and operating results and discuss Allied Motion’s corporate strategy and outlook. A question and answer session will follow.

To listen to the live call, participants can call (201) 689-8263. In addition, the call will be webcast live and may be found at: http://www.alliedmotion.com/investors.

A telephonic replay will be available from 1:00 pm ET on the day of the call through Thursday, November 8, 2018. To listen to the archived call, dial (412) 317-6671 and enter replay pin number 13683801 or access the webcast replay via the Company’s website. A transcript will also be posted to the website once available.

About Allied Motion Technologies Inc.

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

Allied Motion is focused on motion control applications and is known worldwide for its expertise in electro-magnetic, mechanical and electronic motion technology. Its products include brush and brushless DC motors, brushless servo and torque motors, coreless DC motors, integrated brushless motor-drives, gear motors, gearing, modular digital servo drives, motion controllers, incremental and absolute optical encoders, and other associated motion control-related products.

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

Safe Harbor Statement

The statements in this news release and in the Company’s November 1, 2018 conference call that relate to future plans, events or performance are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements, and may contain the word “believe,” “anticipate,” “expect,” “project,” “intend,” “will continue,” “will likely result,” “should” or words or phrases of similar meaning. Forward-looking statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from the expected results described in the forward-looking statements. The risks and uncertainties include those associated with: the domestic and foreign general business and economic conditions in the markets we serve, including political and currency risks and adverse changes in local legal and regulatory environments; the introduction of new technologies and the impact of competitive products; the ability to protect the Company’s intellectual property; our ability to sustain, manage or forecast its growth and product acceptance to accurately align capacity with demand; the continued success of our customers and the ability to realize the full amounts reflected in our order backlog as revenue; the loss of significant customers or the enforceability of the Company’s contracts in connection with a merger, acquisition, disposition, bankruptcy, or otherwise; our ability to meet the technical specifications of our customers; the performance of subcontractors or suppliers and the continued availability of parts and components; changes in government regulations; the availability of financing and our access to capital markets, borrowings, or financial transactions to hedge certain risks; the Company's ability to realize the annual interest expense savings from its debt refinancing; the ability to attract and retain qualified personnel who can design new applications and products for the motion industry; the ability to implement our corporate strategies designed for growth and improvement in profits including to identify and consummate favorable acquisitions to support external growth and the development of new technologies; the ability to successfully integrate an acquired business into our business model without substantial costs, delays, or problems, including the ability to carve out, relocate and separate the Maval OE business; our ability to control costs, including the establishment and operation of low cost region manufacturing and component sourcing capabilities; and other risks and uncertainties detailed from time to time in the Company’s SEC filings. Actual results, events and performance may differ materially. Readers are cautioned not to place undue reliance on these forward-looking statements as a prediction of actual results. Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise over time, and it is not possible for us to predict the occurrence of those matters or the manner in which they may affect us. The Company has no obligation or intent to release publicly any revisions to any forward looking statements, whether as a result of new information, future events, or otherwise.

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