Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Amounts presented in Item 7 are in thousands, except per share data.
Overview
We are a global company that designs, manufactures, and sells precision and specialty-controlled motion products and solutions used in a broad range of industries. Our target markets include Industrial, Vehicle, Medical, and Aerospace & Defense (A&D). We are headquartered in Amherst, NY, and have operations in the 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 products include nano precision positioning systems, servo control systems, motion controllers, digital servo amplifiers and drives, brushless servo, torque, and coreless motors, brush motors, integrated motor-drives, gear motors, gearing, 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, light-weighting technologies, and other controlled motion-related products.
Financial Overview
Highlights for our fiscal year ended December 31, 2024, include:
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We remain focused on executing our strategy for growth while streamlining the organization and emphasizing continuous improvement in quality, delivery, cost and innovation as we drive the One Allient approach and expand our value proposition for our customers. Solid strides continue to be made with our multi-product, fully integrated solutions that are leading to increased business. Also, we continue to build a pipeline of exciting market-based application opportunities. Sales cycles are long and the time from being selected for the solution development to full rate production can be longer, yet we believe we continue to build a scalable foundation which can deliver strong returns on those investments.
Our Strategy
Our growth strategy is focused on becoming a leading global controlled motion solution provider in our selected target markets by further developing our products and services platform to utilize multiple Allient technologies which create increased value solutions for our customers. Our strategy further defines Allient as being a “technology/know-how” driven company and to be successful, we continue to invest in our areas of excellence.
We have set growth targets for our Company and we will focus and align our resources to meet those targets. First and foremost, we invest in our people as we believe that attracting and retaining the right people is the most important element in our strategy. We will continue to invest significantly in applied and design engineering resources.
Our strategic focus is addressing the critical issues that we believe are necessary to meet the stated long-term goals and objectives of the Company. The majority of the critical issues are focused on growth and profitability initiatives for the Company.
One of these initiatives includes product line platform development and rationalization to meet the emerging needs of our target markets. Our platform development emphasizes a combination of our technologies to create increased value solutions for our customers while seeking operating efficiencies. The emphasis on new opportunities has evolved from being an individual component provider to becoming a solutions provider whereby the new opportunities utilizemultiple Allient technologies in a system solution approach. We believe this approach will allow us to provide increased value to our customers and improved margins for our Company and are demonstrated in our acquisitions completed in 2024 and 2023. Our strong financial condition, along with AST continuous improvement initiatives in quality, delivery, and cost allow us to have a positive outlook for the continued long-term growth of our Company.
Outlook for 2025
We experienced a significant demand shift starting in the late second quarter of 2024, with notable declines in our Industrial Automation sector prompted by extended capital expenditure cycles, delayed factory expansions and budget constraints on automation upgrades as well as market softness in the recreational vehicle marketplace driven by increased financing costs and tightening of household budgets. These factors combined with intermittent uneven order flow in other served markets, spurred a slowdown in demand. The declines were in large part due to significant inventory rebalancing at some of our larger customers surfacing as the supply chain returned to more normal conditions and macroeconomic pressures shifting customer priorities. These market conditions substantially persisted through the second half of 2024.
Our Simplify to Accelerate NOW program continues to generate tangible results while enhancing our agility and competitiveness.
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Our goal is to drive $6 million to $7 million in annual savings. In early February 2025, we announced plans to expand machining capabilities at our Dothan, Alabama facility, an initiative expected to help support our goal. While this transition presents complexities and requires focused execution, we are confident in the long-term efficiencies it will create. One-time implementation costs are expected to be equivalent to the annualized savings, resulting in a one-year pay back on the investment. We anticipate realizing the initial benefits of this initiative toward the end of 2025.
Allient is an applied technology/know-how motion company, and to grow, we will continue to invest in the technical resources to ensure we can move forward with our mantra to “create controlled motion solutions that change the game” and to meet the emerging needs of our customers in our served market segments. We anticipate that our investment in these key resources will continue to drive our growth now and in the future. We expect to continue the shift from being a component supplier to a more complete solutions provider, along with the application of AST, to drive cost reduction.
Our global production footprint provides us with the opportunity to be a value added supplier for global companies who require support around the world. We will continue to evaluate and find areas to leverage our current manufacturing and sales capabilities to drive sales and improve efficiencies.
While near-term order patterns remain fluid, the fundamental drivers of our business remain strong. Overall, our strategic initiatives position Allient for stronger financial performance, greater operational flexibility, and enhanced earnings power in the years ahead.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements which have been prepared in accordance with Generally Accepted Accounting Principles (“GAAP”). We make estimates and assumptions in the preparation of our consolidated financial statements that affect the reported amounts of assets and liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. We base our estimates and judgments upon historical experience and other factors that are believed to be reasonable under the circumstances. Changes in estimates or assumptions could result in a material adjustment to the consolidated financial statements.
We have identified several critical accounting estimates. An accounting estimate is considered critical if both: (a) the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment involved, and (b) the impact of changes in the estimates and assumptions would have a material effect on the consolidated financial statements. This listing is not a comprehensive list of all of our accounting policies. For further information regarding the application of these and other accounting policies, See Note 1, Business and Summary of Significant Accounting Policies of the notes to consolidated financial statements contained in Item 8 of this report for additional information.
The Company’s critical accounting policies and estimates include:
Revenue Recognition
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. The Company satisfies its performance obligations under a contract with a customer by transferring goods and services generally 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. In the normal course of business, the Company does not accept product returns unless the item is defective as manufactured. The
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Company establishes provisions for estimated returns and warranties. All contracts include a standard warranty clause to guarantee that the product complies with agreed specifications.
Inventories
Inventories are measured on a first-in, first-out basis at the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Inventory costing requires complex calculations that include assumptions for overhead absorption, scrap, sample calculations, manufacturing yield estimates, costs to sell, and the determination of which costs may be capitalized. The Company’s estimate of the appropriate amount of obsolete or excess inventory, as well as inventory that is not of saleable quality, uses certain inputs and involves judgment. Such inputs include data associated with historic trends, the demand forecast for inventory on-hand which includes customer orders, and item specific estimates about the timing or level of demand for a specific part.
Historically, our inventory adjustment has been adequate to cover our losses. However, variations in methods or assumptions could have a material impact on our results. If our demand forecast for specific products is greater than actual demand and we fail to reduce manufacturing output accordingly, we could be required to record additional inventory write-downs or expense a greater amount of overhead costs, which would negatively impact our net income. As of December 31, 2024, we have $111,517 of inventory recorded on our consolidated balance sheet, representing approximately 19% of total assets. A 1% write-down of our inventory would decrease our 2024 net income by approximately $850, or $0.05 per diluted share.
Evaluation of Goodwill for impairment
We test the reporting unit’s goodwill for impairment as of October 31st of each fiscal year and between annual tests if an event occurs or circumstances change that may indicate that the fair value of the reporting unit is below its carrying value. In conducting this annual impairment test, we may first perform a qualitative assessment of whether it is more-likely-than-not that the reporting unit’s fair value is less than its carrying value. If we determine that it is not more-likely-than-not that the fair value of the reporting unit is less than its carrying amount, no further goodwill impairment testing is required. If it is more-likely-than-not that the reporting unit’s fair value is less than its carrying value, or if we elect not to perform a qualitative assessment of a reporting unit, a quantitative analysis is performed, in which the fair value of the reporting unit is compared to its carrying amount. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss is recognized equal to the excess, limited to the amount of goodwill allocated to that reporting unit.
We elected to bypass the qualitative assessment and performed a quantitative assessment of our single reporting unit as of October 31, 2024. Fair value of the reporting unit is estimating using a weighted methodology that utilizes the income and market approaches. The income approach incorporates significant assumptions and estimates, including discounted cash flow modeling to forecast cash flows, revenue growth, operating income margin, and discount rate. As the fair value of our reporting unit exceeds its carrying value, Allient does not believe that our reporting unit is at risk for impairment. Fair value is calculated based on estimated discounted future cash flows and comparable publicly traded companies.
Changes to the factors considered above could affect the estimated fair value of our reporting unit and could result in a goodwill impairment charge in a future period. As of December 31, 2024, we have $131,789 of goodwill recorded on our consolidated balance sheet, representing approximately 23% of total assets. A 1% write-down of our goodwill would decrease our 2024 net income by approximately $1,000, or $0.06 per diluted share.
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Business Combinations
The Company allocates the purchase price of an acquired company, including when applicable, the acquisition date fair value of contingent consideration between tangible and intangible assets acquired and liabilities assumed from the acquired business based on their estimated fair values, with the residual of the purchase price recorded as goodwill. Third party appraisal firms and other consultants are engaged to assist management in determining the fair values of certain assets acquired and liabilities assumed. Estimating fair values requires significant judgments, estimates and assumptions, including but not limited to: discount rates, future cash flows and the economic lives of trade names, technology, customer relationships, and property, plant and equipment. These estimates are based on historical experience and information obtained from the management of the acquired companies and are inherently uncertain.
Impact of Recently Issued Accounting Pronouncements
In the normal course of business, we evaluate all new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”), Securities and Exchange Commission (“SEC”), Emerging Issues Task Force (“EITF”) or other authoritative accounting bodies to determine the potential impact they may have on our consolidated financial statements. See Note 1, Business and Summary of Significant Accounting Policies of the notes to consolidated financial statements contained in Item 8 of this report for additional information about these recently issued accounting standards and their potential impact on our financial condition or results of operations.
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Operating Results
The following discussion is a comparison between fiscal year 2024 and fiscal year 2023 results. For a discussion of our results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022, please refer to Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which was filed with the SEC on March 5, 2024.
Year 2024 compared to 2023
December 31, Variance
(Dollars in thousands, except per share data) 2024 2023 $ %
Gross margin percentage 31.3 % 31.7 %
Operating costs and expenses:
Effective tax rate 21.9 % 18.9 %
Diluted earnings per share $ 0.79 $ 1.48 $ (0.69) (47) %
REVENUES: The decrease in revenues for 2024 reflects decreases within each of the target markets, most significantly in Vehicle. Decreases in revenues compared to the prior year period are largely impacted by elevated shipments during the prior year period as supply chains normalized, combined with elevated inventory levels and slowing demand at our customers in the current period, partially offset by revenue contributed from the 2023 and 2024 acquisitions. Our sales for 2024 were comprised of 55% to U.S. customers and 45% to customers primarily in Europe, Canada and Asia-Pacific. The overall decrease in revenue was primarily due to an 8% volume decrease and a minimal foreign currency impact. The acquisitions completed in 2023 and 2024 contributed an incremental $40,856 of revenues in 2024. See information included in “Non – GAAP Measures” below for a discussion of the non-GAAP measure and reconciliation of revenue to revenue excluding foreign currency impacts.
ORDER BOOKINGS AND BACKLOG: The 8% decrease in orders in 2024 compared to 2023 is due to an 8% decrease in volume with minimal foreign currency impact. Decreases in bookings are primarily due to a slowing demand at certain customers beginning in the second quarter of 2024. The acquisitions completed in 2023 and 2024 contributed an incremental $39,993 of orders in 2024. The decrease in backlog as of December 31, 2024, compared to December 31, 2023 includes an incremental backlog of $7,353 from the acquisition that was completed during 2024.
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GROSS PROFIT AND GROSS MARGIN: Gross margins decreased to 31.3% for 2024, compared to 31.7% for 2023. The gross margin decrease was largely driven by lower fixed cost absorption on lower sales volumes, as well as the gross margin impact of our most recent acquisition.
SELLING EXPENSES: Selling expenses increased 2% during 2024 compared to 2023 primarily due to increased costs in connection with our acquisitions and the mix of sales with commissions. Selling expenses as a percentage of revenues were 5% and 4% during 2024 and 2023, respectively.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses decreased by 5% during 2024 compared to 2023 due to lower incentive compensation as well as cost reduction actions taken reflecting our Simplify to Accelerate NOW strategy. As a percentage of revenues, general and administrative expenses were 11% and 10% in 2024 and 2023, respectively.
ENGINEERING AND DEVELOPMENT EXPENSES: Engineering and development expenses decreased by 5% in 2024 compared to 2023. The decrease reflects the cost reduction actions taken as part of our Simplify to Accelerate NOW strategy. As a percentage of revenues, engineering and development expenses were 7% for each of the years ended December 31, 2024 and 2023.
BUSINESS DEVELOPMENT COSTS: The decrease in business development costs in 2024 compared to 2023 is largely due to the fair value changes of contingent consideration of $1.9 million related to acquisitions incurred in 2023, compared to the $300 contra expense recognized in 2024, offset in part by restructuring expenses recognized in 2024.
AMORTIZATION OF INTANGIBLE ASSETS: Amortization of intangible assets increased 1% in 2024 compared to 2023, due to the inclusion of the full year of intangible asset amortization of the 2023 acquisition and the intangible asset amortization from the 2024 acquisition.
INTEREST EXPENSE: Interest expense increased by 7% in 2024 compared to 2023 primarily due to higher average debt balances and higher interest rates, offset in part by the impact of interest rate swaps.
INCOME TAXES: For 2024 and 2023, the effective income tax rate was 21.9% and 18.9%, respectively. The effective rate differs from the statutory rate primarily due to state income taxes, the impact of foreign tax provisions in the U.S., foreign tax rate differences, Section 162(m) compensation limits, the benefit of Research and Development tax credits and incentives and withholding taxes on foreign distributions. The effective tax rate for 2024 was higher than the effective tax rate for 2023 primarily due to increases due to impacts of section 162(m) compensation and withholding taxes on foreign distributions, partially offset by increases in certain credits and incentives, the realization of certain deferred income tax assets that had been reserved in prior years, as well as the impact of the mix of foreign and domestic income.
NET INCOME AND ADJUSTED NET INCOME: Net income decreased during 2024 compared to 2023, primarily due to operating income decreases, reflecting decreased revenues and lower gross margin, partially offset by a decrease in operating expenses.
Adjusted net income for the years ended December 31, 2024 and 2023 was $24,679 and $37,458, respectively. Adjusted diluted earnings per share for 2024 and 2023 were $1.49 and $2.30, 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 $56,045 for 2024 compared to $67,151 for 2023. Adjusted EBITDA was $62,525 and $77,184 for 2024 and 2023, respectively. EBITDA and Adjusted EBITDA are non-GAAP measures. EBITDA consists of income before interest expense, 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.
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Non-GAAP Measures
Revenue excluding foreign currency exchange, Organic growth, 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 currency translation is calculated as the difference between the current period revenue and the current period revenue after applying foreign exchange rates from the prior period.
The Company believes 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 business development costs, foreign currency gains/losses on short-term assets and liabilities, and other items that are not indicative of the 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 expense and income items. Organic growth is reported revenues adjusted for the impact of foreign currency and the revenue contribution from acquisitions.
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The Company’s calculation of Revenue excluding foreign currency exchange impacts for the years ending December 31, 2024 and 2023 is as follows:
For the year ended December 31,
Currency impact unfavorable 139 258
Revenue excluding foreign currency exchange impacts $ 530,107 $ 578,892
The Company’s calculation of organic growth for 2024 is as follows:
Year ended
Revenue change over prior year (8.4) %
Less: Impact of acquisitions and foreign currency 7.0
Organic growth (15.4) %
The Company’s calculation of EBITDA and Adjusted EBITDA for 2024 and 2023 is as follows (in thousands):
Year ended
December 31,
Stock-based compensation expense 4,147 5,477
Acquisition and integration-related costs 445 2,959
Restructuring and business realignment costs 1,971 1,316
Foreign currency (gain)/loss (83) 281
The Company’s calculation of Adjusted net income and Adjusted diluted earnings per share for years ended December 31, 2024 and 2023 is as follows (in thousands, except per share data):
For the year ended
December 31,
Per diluted Per diluted
Non-GAAP adjustments, net of tax (1)
Foreign currency (gain) / loss – net (64) — 223 0.01
Restructuring and business realignment costs – net 1,510 0.09 1,042 0.06
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Liquidity and Capital Resources
The Company’s liquidity position as measured by cash and cash equivalents increased by $4,201 to a balance of $36,102 at December 31, 2024 from 2023.
2024 vs.
Year Ended 2023
December 31, Variance
Net cash provided by operating activities $ 41,850 $ 45,038 $ (3,188)
Net cash used in financing activities (843) (21,317) 20,474
Effect of foreign exchange rates on cash (1,892) 173 (2,065)
Net increase in cash and cash equivalents $ 4,201 $ 1,287 $ 2,914
Of the $36,102 cash and cash equivalents on hand at December 31, 2024, $30,020 was located at our foreign subsidiaries and may be subject to withholding tax if repatriated to the U.S.
During 2024, the cash provided by operating activities decreased from 2023 primarily due to decreases in cash due to changes in accounts payable and accrued liabilities, as well as a decrease in net income, offset partially by increases in cash due to changes in accounts receivable and inventory.
The cash used in investing activities in 2024 increased as compared with 2023 due to $20,000 in cash paid for the acquisition of SNC, offset by $5,129 of cash paid in 2023 for the acquisition of Sierramotion, as well as by a decrease in capital expenditures of $1,920. The Company expects 2025 capital expenditures to be approximately $10,000 to $12,000.
Cash used in financing activities in 2024 as compared to cash used in financing activities in 2023 reflects the borrowings of $20,000 from the Amended Revolving Facility to fund the SNC acquisition and the $50,000 of fixed-rate Notes issued in March 2024 that were used to pay down the Revolving Facility, as compared to the $11,000 borrowed in 2023, primarily to fund the business acquisition activity in the third quarter of 2023 and, to a lesser extent, inventory requirements during uncertain supply chain environments in 2023. Debt repayments, excluding the pay down on the Revolving Facility of $50,000 from the Notes issuance, of $18,433 and $28,395 were made during 2024 and 2023, respectively. At December 31, 2024, the Company had $168,962 of obligations under the Amended Revolving Facility, excluding deferred financing costs and $50,000 for the Notes issued in March 2024.
The Amended Credit Agreement includes covenants and restrictions that limit the Company’s ability to incur additional indebtedness, make certain investments, create, incur or assume certain liens, merge, consolidate or sell all or substantially all of its assets and enter into transactions with an affiliate of the Company on other than an arms’ length transaction. These covenants, which are described more fully in the Amended Credit Agreement, to which reference is made for a complete statement of the covenants, are subject to certain exceptions. Financial covenants under the 2024 Credit and Note Payable Agreements require the Company to maintain a minimum interest coverage ratio of at least 3.0:1.0 at the end of each fiscal quarter. In addition, the Company’s Leverage Ratio at the end of any fiscal quarter shall not be greater than 4.25:1.0 through December 31, 2024 or greater than 3.75 to 1.0 as of the end of any fiscal quarter thereafter; provided that the Company may elect to temporarily increase the Leverage Ratio by 0.5:1.0 following a material acquisition under the 2024 Credit and Note Payable Agreements. The 2024 Credit and Note Payable Agreements also include covenants and restrictions that limit the Company’s ability to incur additional indebtedness, merge, consolidate or sell all or substantially all of its assets and enter into transactions with an affiliate of the Company on other than an arms’ length transaction. These covenants, which are described more fully in the 2024 Credit and Note Payable Agreements, to which reference is made for a complete statement of the covenants, are subject to certain exceptions. The Company was in compliance with all covenants at December 31, 2024 as well as at each quarter end during 2024.
As of December 31, 2024, the unused Amended Revolving Facility was $111,038. 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
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calculations. The Amended Credit Agreement matures in March 2029.
On October 22, 2024, the Company entered into a Second Amendment to the Third Amended and Restated Credit Agreement and a Second Amendment to the Note Purchase and Private Shelf Agreement (collectively, the “October 2024 Credit and Note Payable Amendments”). These amendments include provisions to increase the maximum Leverage Ratio to 4.5:1.0 for the quarters ending March 31, 2025 and June 30, 2025, 4.0:1.0 for the quarter ending September 30, 2025, and returning to 3.75:1.0 for the quarter ending December 31, 2025 and thereafter. From January 1, 2025 through September 30, 2025, borrowings under the Revolving Facility will bear interest at Term SOFR plus a margin of 2.50% and a commitment fee of 0.325% on the unused portion of the Revolving Facility. Also, from October 1, 2024 through September 30, 2025, the Series A Notes will bear interest at 6.46%.
The Company declared dividends, in total, of $0.12 and $0.115 per share during 2024 and 2023, respectively. The Company’s working capital, capital expenditure and dividend requirements are expected to be funded from cash provided by operations and amounts available under the Amended Credit Agreement (refer to Note 7, Debt Obligations, of the notes to consolidated financial statements for definition and terms).
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 amending our revolving credit facility leaves us well-positioned to manage our business. We continually assess our liquidity and cash positions taking geopolitical and other uncertainties into consideration. Based on our analysis, we believe our existing balances of cash, our currently anticipated operating cash flows, and our available financing under agreements in place will be more than sufficient to meet our cash needs arising in the ordinary course of business for the next twelve months.
Item 7A. Qualitative and Quantitative Disclosures about Market Risk
Foreign Currency
We have international operations in The Netherlands, Sweden, Germany, China, Portugal, Canada, Czech Republic, Mexico, the United Kingdom and New Zealand which expose us to foreign currency exchange rate fluctuations due to transactions denominated in Euros, Swedish Krona, Chinese Renminbi, Canadian dollar, Czech Krona, Mexican pesos, British Pound Sterling, and New Zealand dollar, respectively. We continuously evaluate our foreign currency risk and 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 $4,493 on our 2024 sales. 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 decreased sales in 2024 compared to 2023 by approximately $139.
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 consolidated financial statements as comprehensive (loss) income. The translation adjustment was a loss of $12,033 and a gain of $3,669 for the years ended December 31, 2024 and 2023, 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 $16,105 on our foreign net assets as of December 31, 2024.
We have contracts to hedge our short-term balance sheet exposure, primarily intercompany, that are denominated in currencies (Euro, Mexican Peso, Canadian Dollar, 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 consolidated statements of income and comprehensive income. To minimize foreign currency exposure, the Company had foreign currency contracts with notional amounts of $30,945 and $22,193 at December 31, 2024 and 2023, respectively. The foreign currency contracts are recorded in the consolidated balance sheets at fair value and resulting gains or losses are recorded in other expense (income), net in the consolidated statements of income and comprehensive income. During the years ended December 31, 2024 and 2023, we recorded losses of $1,749 and $115, respectively, which is included in other (income) expense, net and generally offset
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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 total other (income) expense, net amounted to a gain of $85 and a loss of $281 in 2024 and 2023, respectively.
Interest Rates
The Series A Notes under our 2024 Note Payable Agreement will bear interest at a fixed rate 5.96% and will mature on March 21, 2031. Interest on the Notes will be payable quarterly on the 21st day of March, June, September and December in each year, commencing on June 21, 2024. As amended on October 22, 2024, the Series A Notes will bear interest at 6.46% from October 1, 2024 through September 30, 2025. Interest will be computed on the basis of a 360-day year composed of twelve 30-day months.
Interest rates on our Credit Facility are based on Term SOFR plus a margin of 1.25% to 2.50% (2.125% at December 31, 2024), depending on the Company’s ratio of total funded indebtedness to consolidated EBITDA. As amended on October 22, 2024, borrowings under the Credit Facility will bear interest at Term SOFR plus a margin of 2.50% from January 1, 2025 through September 30, 2025. 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 March 2020, the Company entered into two interest rate swaps with a combined notional amount of $20,000 that increased to $60,000 in March 2022 and matured 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. In September 2024, the Company entered into an additional interest rate swap with a notional amount of $50,000 that matures in September 2027.
As of December 31, 2024, we had $168,962 outstanding under the Amended Revolving Facility (excluding deferred financing fees), of which $90,000 is currently being hedged. Refer to Note 7, Debt Obligations, of the notes to 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 $78,962 of unhedged floating rate debt outstanding at December 31, 2024 would have an impact of approximately $790 on our interest expense for 2024.
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Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Allient Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Allient Inc. and subsidiaries (the "Company") as of December 31, 2024 and 2023, the related consolidated statements of income and comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 5, 2025, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Inventories – Refer to Note 1 to the financial statements
Critical Audit Matter Description
Inventories are measured on a first-in, first-out basis at the lower of cost or net realizable value. The valuation of inventory requires the Company to estimate obsolete or excess inventory, as well as inventory that is not of saleable
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quality. The Company’s estimate of the appropriate amount of obsolete or excess inventory, as well as inventory that is not of saleable quality, uses certain inputs and involves judgment. Such inputs include data associated with historic trends, the demand forecast for inventory on-hand which includes customer orders, and item specific estimates about the timing or level of demand for a specific part.
We identified the estimate of obsolete or excess inventory, as well as inventory that is not of saleable quality, as a critical audit matter because of the significant amount of judgment required by management when evaluating the assumptions for item specific estimates about the timing or level of demand for a specific part. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of the item specific estimates about the timing or level of demand for a specific part.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the valuation of obsolete or excess inventory, as well as inventory that is not of saleable quality, included the following, among others:
/s/ Deloitte & Touche LLP
Williamsville, New York
March 5, 2025
We have served as the Company's auditor since 2018.
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ALLIENT INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
December 31,
Assets
Current assets:
Prepaid expenses and other assets 11,187 13,437
Property, plant, and equipment, net 65,685 67,463
Liabilities and Stockholders’ Equity
Current liabilities:
Pension and post-retirement obligations 1,667 2,679
Other long-term liabilities 4,647 5,400
Commitments and contingencies (Note 11) —
Stockholders’ Equity:
Accumulated other comprehensive loss (23,183) (10,175)
Total Liabilities and Stockholders’ Equity $ 575,781 $ 597,542
See accompanying notes to consolidated financial statements.
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ALLIENT INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share data)
For the year ended
December 31, December 31, December 31,
Operating costs and expenses:
Other expense, net:
Other (income) expense, net (116) 231 283
Basic earnings per share:
Diluted earnings per share:
Other comprehensive (loss) income:
Foreign currency translation adjustment (12,033) 3,669 (9,516)
Pension adjustments, net of tax 475 250 269
See accompanying notes to consolidated financial statements.
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ALLIENT INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except per share data)
Common Stock Accumulated Other Comprehensive Loss
Foreign Currency Accumulated Total
Retained Translation income (loss) on Pension Stockholders'
Stock compensation expense 5,073 5,073
Tax effect (1,713) (92) (1,805)
Net income 17,389 17,389
Stock compensation expense 5,477 5,477
Tax effect 748 (83) 665
Net income 24,097 24,097
Stock compensation expense 4,147 4,147
Tax effect 459 (236) 223
Net income 13,166 13,166
See accompanying notes to consolidated financial statements.
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ALLIENT INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the year ended
December 31, December 31, December 31,
Cash Flows From Operating Activities:
Provision for excess and obsolete inventory 4,943 2,487 1,628
Stock-based compensation expense 4,147 5,477 5,073
Cash Flows From Investing Activities:
Purchase of property and equipment (9,683) (11,603) (15,910)
Cash Flows From Financing Activities:
Payment of contingent consideration (2,450) — —
Payment of debt issuance costs (3,154) — (391)
Net cash (used in) provided by financing activities (843) (21,317) 63,605
Effect of foreign exchange rate changes on cash (1,892) 173 (1,039)
Net increase in cash and cash equivalents 4,201 1,287 8,151
Supplemental disclosure of cash flow information:
Stock issued to settle contingent consideration $ 4,874 $ — $ —
See accompanying notes to consolidated financial statements.
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ALLIENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
The Company is engaged in the business of designing, manufacturing, and selling precision motion, control, power and structural composites to provide integrated system solutions as well as individual products, to a broad spectrum of customers throughout the world primarily for the industrial, vehicle, medical, and aerospace and defense markets.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions are eliminated in consolidation.
For business combinations, net assets acquired, and liabilities assumed are recorded at their estimated fair values.
Cash and Cash Equivalents
Cash and cash equivalents include instruments which are readily convertible into cash (original maturities of three months or less) and which are not subject to significant risk of changes in interest rates.
Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The provision for credit losses is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable; however, changes in circumstances relating to accounts receivable may result in a requirement for additional provisions in the future. Activity in the provision for credit losses for 2024 and 2023 was as follows (in thousands):
Additional reserves 562 267
Effect of foreign currency translation 16 6
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):
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ALLIENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
Property, Plant and Equipment
Property, plant and equipment is classified as follows (in thousands):
December 31, December 31,
Construction in progress 2,856 9,300
Less accumulated depreciation (103,566) (93,161)
Property, plant, and equipment, net $ 65,685 $ 67,463
Depreciation expense is provided using the straight-line method over the estimated useful lives of the assets. Amortization of building improvements is provided using the straight-line method over the life of the lease term or the life of the asset, whichever is shorter. Maintenance and repair costs are charged to operations as incurred. Major additions and improvements are capitalized. The cost and related accumulated depreciation of retired or sold property are removed from the accounts and the resulting gain or loss, if any, is reflected in earnings.
Depreciation expense was $13,194, $12,755 and $12,676 in 2024, 2023 and 2022, respectively.
Intangible Assets
Intangible assets, other than goodwill, are initially recorded at fair value and are amortized over their estimated useful lives using an accelerated or straight-line method which approximates the pattern of expected cash flows over the remaining useful lives of the intangible assets.
Impairment of Long-Lived Assets
The Company reviews the carrying values of its long-lived assets, including property, plant and equipment and intangible assets, on an annual basis and whenever events or changes in circumstances indicate that such carrying values may not be recoverable. Long-lived assets are recorded at their carrying amounts if the projected cash flows from their use will recover their carrying amounts on an undiscounted basis and without considering interest. If projected cash flows are less than their carrying value, the long-lived assets must be reduced to their estimated fair value. Judgment is required to project such cash flows and, if required, estimate the fair value of the impaired long-lived assets. The Company did not record any impairment charges for the years ended December 31, 2024, 2023 or 2022.
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ALLIENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
Goodwill
Goodwill represents the excess of the purchase price over the fair value of identifiable net tangible and intangible assets acquired in a business combination.
Goodwill is not amortized but is reviewed for impairment at least annually or more frequently if impairment indicators arise. The Company has defined one reporting unit that is the same as its operating segment. Goodwill is evaluated for impairment by first performing a qualitative assessment to determine whether a quantitative goodwill test is necessary. If it is determined, based on qualitative factors, that the fair value of the reporting unit may be more likely than not less than its carrying amount, or if significant adverse changes in the Company’s future financial performance occur that could materially impact fair value, a quantitative goodwill impairment test would be required. Additionally, the Company can elect to forgo the qualitative assessment and perform the quantitative test. If the qualitative assessment indicates that the quantitative analysis should be performed, or if management elects to bypass a qualitative assessment, the Company then evaluates goodwill for impairment by comparing the fair value of the reporting unit to its carrying amount, including goodwill.
At October 31, 2024, Allient performed its annual goodwill impairment test. The Company elected to bypass the qualitative assessment and performed a quantitative analysis of the reporting unit. As the fair value of our reporting unit exceeds its carrying value, Allient does not believe that our reporting unit is at risk for impairment. The discounted cash flow method incorporates various assumptions, such as projected revenue growth rates, operating margins, the terminal growth rate, and the weighted-average cost of capital. The comparable publicly traded companies’ method includes assumptions such as determination of relevant comparable companies and valuation multiple ranges. The Company did not record any goodwill impairment charges for the years ended December 31, 2024, 2023 or 2022.
Other Long-Term Assets
Other long-term assets include the noncurrent portion of interest rate derivatives of $2,575 that the Company has entered into in response to the variable interest rate exposure on long-term debt, as well as securities that the Company has purchased with the intent of funding the deferred compensation arrangements for certain executives of the Company. These items are accounted for at fair value on a recurring basis. Any changes in value are included in net income in the Company’s consolidated statements of income and comprehensive income.
Warranty
The Company offers warranty coverage for its products. The length of the warranty period for its products is generally three months to two years and varies based on the product sold. The Company estimates the costs of repairing products under warranty based on the historical average cost of the repairs. The assumptions used to estimate warranty accruals are re-evaluated periodically in light of actual experience and, when appropriate, the accruals are adjusted. Estimated warranty costs are recorded at the time of sale of the related product, and are considered a cost of goods sold.
Changes in the Company’s reserve for product warranty claims during 2024, 2023 and 2022 were as follows (in thousands):
December 31, December 31, December 31,
Warranty reserves acquired — — 45
Effect of foreign currency translation (97) 32 (97)
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ALLIENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
December 31, December 31,
Compensation and fringe benefits $ 13,134 $ 17,251
Accrued business acquisition consideration — 12,638
Operating lease liabilities – current 5,088 5,142
Finance lease obligations – current 448 412
Contingent consideration – current — 7,720
As part of the Simplify to Accelerate NOW strategy, restructuring and business realignment costs of $1,971 are included within business development in the consolidated statements of income and comprehensive income for the year ended December 31, 2024, of which $1,958 has been paid during the year ended December 31, 2024.
Foreign Currency Translation
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 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 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 operating locations are included in the other (income) expense, net as incurred.
Revenue Recognition
Refer to Note 3, Revenue Recognition, for description of the Company’s policies regarding revenue recognition.
Engineering and Development Costs
The Company is engaged in a variety of engineering and design activities as well as basic research and development activities directed to the substantial improvement or new application of the Company’s existing technologies. Engineering and design as well as research and development costs are expensed as incurred.
Basic and Diluted Earnings per Share
Basic earnings per share is computed by dividing net income or loss by the weighted average number of shares of common stock outstanding. Diluted earnings per share is determined by dividing the net income by the sum of: (1) the weighted average number of common shares outstanding and (2) if not anti-dilutive, the effect of potential common shares determined utilizing the treasury stock method.
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ALLIENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
Basic and diluted weighted-average shares outstanding are as follows (in thousands):
Year ended December 31,
Dilutive effect of potential common shares 74 309 503
For 2024, 2023 and 2022, the anti-dilutive common shares excluded from the calculation of diluted income per share were 106,000, 22,000, and 15,000, respectively.
Comprehensive Income
The Company’s comprehensive income as reported in the Consolidated Statements of Income and Comprehensive Income includes net income, foreign currency translation adjustments, the net change in cash flow hedges, net of tax, and defined benefit plan liability adjustments, net of tax. The Consolidated Statements of Income and Comprehensive Income and Note 13, Accumulated Other Comprehensive Income, contain additional information on the computation of the Company’s comprehensive income.
Supplemental Cash Flow Information
The following represents supplemental cash flow information for the years ended December 31, 2024, 2023, and 2022 (in thousands):
Year ended December 31,
Cash paid during the year for:
Fair Value Accounting
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.
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ALLIENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
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 consolidated balance sheets for these assets approximate fair value because of the immediate or short-term maturities of these financial instruments.
The following table presents the Company’s financial assets that are accounted for at fair value on a recurring basis as of December 31, 2024 and 2023, respectively, by level within the fair value hierarchy (in thousands):
Level 1 Level 2 Level 3
Assets (liabilities)
Pension plan assets $ 6,164 $ — $ —
Deferred compensation plan assets 4,647 — —
Foreign currency hedge contracts, net — (137) —
Interest rate swaps, net — 2,575 —
Level 1 Level 2 Level 3
Assets (liabilities)
Pension plan assets $ 5,859 $ — $ —
Deferred compensation plan assets 4,305 — —
Foreign currency hedge contracts, net — 54 —
Interest rate swaps, net — 4,431 —
Contingent consideration — — (7,990)
The contingent consideration fair value measurement at December 31, 2023 represented amounts in connection with the acquisitions of Sierramotion, which had a maximum amount of $2,000, and ALIO Industries (“ALIO”, a 2021 acquisition), which did not have a maximum amount. The measurements are based on significant inputs not observable in the market and therefore constitute Level 3 inputs within the fair value hierarchy. The contingent consideration at December 31, 2023 for the acquisition of Sierramotion consisted of Company stock and was paid in January 2024 at the maximum amount of $2,000. The contingent consideration at December 31, 2023 for the acquisition of ALIO of $5,757 was paid 50% in Company stock and 50% cash in February 2024. The performance period for the ALIO contingent consideration has expired and there are no remaining contingent consideration liabilities as of December 31, 2024. Fair value adjustments to contingent consideration after the acquisition date are included within business development in the consolidated statement of income and comprehensive income.
Derivative Financial Instruments
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification ("ASC") No. 815, Derivatives and Hedging ("ASC 815"), provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how the entity accounts for derivative instruments and related hedged items, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Further, qualitative disclosures are required that explain the Company’s objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.
As required by ASC 815, the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has
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ALLIENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply, or the Company elects not to apply hedge accounting.
Income Taxes
The current provision for income taxes represents actual or estimated amounts payable or refundable on tax return filings each year. Deferred tax assets and liabilities are recorded for the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts reported in the accompanying consolidated balance sheets, and for operating loss and tax credit carryforwards. The change in deferred tax assets and liabilities for the period measures the deferred tax provision or benefit for the period. Effects of changes in enacted tax laws on deferred tax assets and liabilities are reflected as adjustments to the tax provision or benefit in the period of enactment. A valuation allowance may be provided to the extent management deems it is more likely than not that deferred tax assets will not be realized. The ultimate realization of net deferred tax assets is dependent upon the generation of future taxable income, in the appropriate taxing jurisdictions, during the periods in which temporary differences, net operating losses and tax credits and incentives become realizable. Management believes that it is more likely than not that the Company will realize the benefits of these temporary differences and operating loss and tax credit carryforwards, net of valuation allowances.
It is the Company's policy to include interest and penalties related to income tax liabilities in income tax expense on the consolidated statements of income and comprehensive Income. In addition, the Company records uncertain tax positions in accordance with ASC 740, Income Taxes, ("ASC 740").
Pension and Postretirement Welfare Plans
The Company records the service cost component of net benefit costs in cost of goods sold, selling, and general and administrative expenses. The interest cost component of net benefit costs is recorded in interest expense and the remaining components of net benefit costs, amortization of net losses and expected return on plan assets is recorded in other expense, net.
Concentration of Credit Risk
Trade receivables subject the Company to the potential for credit risk. To reduce this risk, the Company performs evaluations of its customers’ financial condition and creditworthiness at the time of sale, and updates those evaluations when necessary. See Note 14, Segment Information, for additional information regarding customer concentration.
Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
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ALLIENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
Recently Adopted Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board, (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures". This ASU requires incremental disclosures related to an entity’s reportable segments, including (i) significant segment expense categories and amounts for each reportable segment that are provided to the chief operating decision maker (“CODM”), (ii) an aggregate amount and description of other segment items included in each reported measure, (iii) all annual disclosures about a reportable segment’s profit or loss and assets required by Topic 280 to be disclosed in interim periods, (iv) the title and position of the individual or the name of the group identified as the CODM and (v) an explanation of how the CODM uses the reported measures of segment profit or loss to assess performance and allocate resources to the segment. The standard improves transparency by providing disaggregated expense information about an entity’s reportable segments. The standard does not change the definition of a segment, the method for determining segments or the criteria for aggregating operating segments into reportable segments. This guidance is effective for annual reporting periods beginning after December 15, 2023, and interim reporting periods beginning after December 15, 2024. The Company adopted this guidance retrospectively during the year ended December 31, 2024, providing the additional disclosures as required. For additional information, refer to Note 14, Segment Information.
Recently Issued Accounting Pronouncements
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”. This enhances the disclosures around rate reconciliation, income taxes paid, and other related topics. The standard is effective for annual periods beginning after December 15, 2024. The Company is assessing the impact of adopting the standard on our consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40)”. This improves financial reporting by requiring that public business entities disclose additional information about specific expense categories in the notes to financial statements at interim and annual reporting periods. The amendments in this update are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. The Company is assessing the impact of adopting the standard on our consolidated financial statements.
2. ACQUISITIONS
On January 11, 2024, the Company acquired 100% of the outstanding shares of SNC Manufacturing Co., Inc. (a Wisconsin corporation) and Acutran de Mexico, S.A. de C.V. (a Mexican corporation), (collectively “SNC”), a premier designer and global manufacturer of electrical transformers serving blue-chip customers in defense, industrial automation, alternative power generation and energy, including electric utilities and renewable energy
The purchase price consisted of $20,000 in cash paid at closing. The purchase price allocation is final as of December 31, 2024. Measurement period adjustments to the initial purchase price allocation were made during 2024 that resulted in a decrease of the purchase price of $67, a decrease to inventory of $500, a decrease to deferred income tax liabilities of $230, and an increase to goodwill of $203. The Company incurred $313 of transaction costs related to the acquisition during 2024, which are included in business development on the consolidated statements of income and comprehensive income.
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ALLIENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
Revenue of SNC included within the consolidated statements of income and comprehensive income during 2024 was $38,045 and net income was $3,066 in 2024.
Cash and cash equivalents $ 881
Trade receivables 3,467
Inventories 8,600
Prepaid expenses and other assets 496
Property, plant, and equipment 4,258
Operating lease assets 378
Intangible assets 2,900
Other current liabilities (3,188)
Deferred revenue (55)
Operating lease liabilities (378)
Net deferred income tax liabilities (472)
Other noncurrent liabilities (118)
Net purchase price $ 19,724
The fair values of the assets acquired were determined using one of three valuation approaches: market, income or cost. The selection of a particular method for a given asset depends on the reliability of available data and the nature of the asset, among other considerations. The market approach estimates the value for a subject asset based on available market pricing for comparable assets. The income approach estimates the value for a subject asset based on the present value of cash flows projected to be generated by the asset. The projected cash flows were discounted at a required rate of return that reflects the relative risk of the asset and the time value of money. The projected cash flows for each asset considered multiple factors from the perspective of a marketplace participant including revenue projections from existing customers, attrition trends, technology life-cycle assumptions, marginal tax rates and expected profit margins considering historical and expected margins. The cost approach estimates the value for a subject asset based on the cost to replace the asset and reflects the estimated reproduction or replacement cost for the asset, less an allowance for loss in value due to depreciation or obsolescence, with specific consideration given to economic obsolescence if indicated. These fair value measurement approaches are based on significant unobservable inputs, including management estimates and assumptions.
The intangible assets acquired consist of $1,500 of customers lists, $600 of trade name, and $800 of technology, which are being amortized over 12, 10, and 10 years, respectively. Goodwill generated is related to the assembled workforce, synergies between Allient’s other operations and SNC 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 Allient’s ability to utilize SNC’s management knowledge in providing complementary product offerings to the Company’s customers.
The goodwill resulting from the acquisition is not tax deductible.
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ALLIENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
On September 22, 2023, the Company acquired 100% of the ownership interest in Sierramotion Inc. (“Sierramotion”), a company headquartered in California, that specializes in designing and engineering turn-key motion components and mechatronic solutions for robotic, medical, industrial, defense, semiconductor, and other precision applications. The purchase price for Sierramotion of $8,400 included $2,000 of contingent consideration which was paid in January 2024 (Note 1) and at closing which consisted of a combination of cash and Company stock. The intangible assets of $4,100 and goodwill of $2,876 are expected to be deductible for tax purposes. The purchase price allocation is final. Transaction costs for the acquisition were not material. The operating results of this acquisition are included in the consolidated financial statements beginning on the acquisition date and the revenue and earnings in the current year interim periods presented are not material. The revenue and earnings of Sierramotion included within the consolidated statement of income and comprehensive income for the year ended December 31, 2023 is not material. The goodwill resulting from the acquisition is not tax deductible.
On January 3, 2024, the final deferred acquisition payment for the Spectrum acquisition of $12,500 (comprised of 50% cash and 50% Company stock) was paid.
Unaudited Pro Forma Financial Information
The following unaudited pro forma financial information presents the combined results of operations if the SNC acquisition had occurred as of January 1, 2023, and the Sierramotion acquisition had occurred as of January 1, 2022.
Year ended December 31,
The pro forma information includes certain adjustments, including depreciation and amortization expense, interest expense, and certain other adjustments. 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.
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.
The Company satisfies its performance obligations under a contract with a customer by transferring goods and services in exchange for generally 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.
Sales, value add, and other taxes the Company collects concurrently with revenue-producing activities are excluded from revenue.
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ALLIENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
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 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 Industrial, Vehicle, Medical, and Aerospace & Defense.
Determining the Transaction Price