ALLIED MOTION TECHNOLOGIES INC. Management’s Discussion and Analysis of Financial Position and Operating Results (Form 10-Q)
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. 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.
We are a global company that designs, manufactures and sells precision and specialty controlled motion components and systems used in a broad range of industries. Our target markets include Vehicle, Medical, Aerospace & Defense, and Industrial. We are headquartered in
Amherst, NY, and have operations in the North America, Europeand 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 brush 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.
19 Table of Contents Business Environment COVID-19
The outbreak of the novel strain of Coronavirus ("COVID-19") and the impact of the Delta and other 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 of our served markets during periods of 2020 and 2021 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. 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, 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, 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 deal with COVID-19. We manufacture and deliver critical motion control components including electronic controls, motors and control assemblies to medical equipment manufacturers including respirators, ventilators, infusion pumps, medical fluid pumps and other respiratory support equipment needed to care for patients with respiratory problems, including COVID-19. We are a qualified long-term supplier of leading ventilator and respirator medical device manufacturers 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, 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.
Our sites around the world are considered essential suppliers to our customers and, as a result, most of our sites have remained substantially operational during the outbreak while implementing enhanced security procedures.
We have taken actions since the beginning of the pandemic to strengthen our liquidity and financial condition. We renewed and increased our revolving credit facility to
$225 millionthrough February 2025(refer to Note 9, Debt Obligations from our condensed consolidated financial statements). Through this amendment we lowered our cost of debt, and secured more favorable covenants. This liquidity preserves our financial flexibility during the pandemic and subsequent to it. 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. 20 Table of Contents China Energy Shortage During the third quarter of 2021, certain regions of Chinaexperienced energy shortages which impacted our facilities. One of our Chinalocations 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.
September 2021, the Company announced its plans to consolidate its manufacturing facility in Twinsburg, Ohiowith its Watertown, New Yorkand Reynosa, Mexicofacilities in 2022. Costs of $100are included in business development on the condensed consolidated statement of income and comprehensive income for the three months ended September 30, 2021related to the consolidation of the Twinsburgfacility. Total costs of approximately $1,000are expected to be incurred in connection with this initiative and will include accelerated depreciation, accelerated lease costs, severance and other payroll related costs, legal costs, and costs to relocate inventory and machinery and equipment. This initiative is expected to be completed during the second quarter of 2022. Stock Split
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.
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 positions
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. 21 Table of Contents Operating Results Three months ended
September 30, 2021compared to three months ended September 30, 2020For the three months ended 2021 vs. 2020 September 30, Variance (Dollars in thousands, except per share data) 2021 2020 $ % Revenues $ 103,509 $ 94,653 $ 8,8569 % Cost of goods sold 71,488 66,513 4,975 7 % Gross profit 32,021 28,140 3,881 14 % Gross margin percentage 30.9 % 29.7 % Operating costs and expenses: Selling 4,365 3,734 631 17 % General and administrative 10,620 10,008 612 6 % Engineering and development 6,768 6,434 334 5 % Business development 94 8 86 NM % Amortization of intangible assets 1,504 1,499 5 0 % Total operating costs and expenses 23,351
21,683 1,668 8 % Operating income 8,670 6,457 2,213 34 % Interest expense 777 844 (67) (8) %
Other (income) expense, net (29) 231 (260) (113) % Total other expense 748 1,075 (327) (30) % Income before income taxes 7,922
5,382 2,540 47 % Income tax provision (1,950) (1,369) (581) 42 % Net income
$ 5,972 $ 4,013 $ 1,95949 % Effective tax rate 24.6 % 25.4 %
Diluted earnings per share $ 0.41 $
$ 0.1346 % Bookings $ 119,940 $ 88,958 $ 30,98235 % Backlog $ 185,561 $ 123,700 $ 61,86150 % REVENUES: For the quarter, the increase in revenues is primarily due to increases in our Industrial market and our Vehicle market, as we continue to experience strong demand and recovery. Sales to our Medical market declined as compared to the prior year as COVID-19 related demand for ventilators and respirators normalized back to pre-pandemic levels. Sales 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 to customers primarily in Europe, Canadaand Asia-Pacific. The overall increase in revenue was due to a 8.5% volume increase along with a 0.9% favorable currency impact. 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 a record level of bookings during the third quarter of 2021. The increase in bookings in the third quarter of 2021 compared to the third quarter of 2020 is largely due to increases 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. GROSS PROFIT AND GROSS MARGIN: Gross margins improved to 30.9% for the third quarter of 2021, compared to 29.7% for the third quarter of 2020. The increase in gross margin percentage was driven by volume increases of higher margin products in our Industrial 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. SELLING EXPENSES: Selling expenses increased 17% in the third quarter of 2021 compared to the same period of 2020. This is reflective of higher incentive compensation tied to improved revenue and profitability, along with the cost control efforts related to the COVID-19 pandemic that were more impactful in the third quarter of 2020. Selling expenses as a percentage of revenues in the third quarter of 2021 were flat compared to the same period last year at approximately 4%. 22 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, 2021at 10% compared to 11% for the same period
ENGINEERING AND DEVELOPMENT EXPENSES: Engineering and development expenses increased by 5% in the third quarter of 2021 compared to the same quarter last year. The increase is due to the continued ramp up of development projects to meet the future needs of target markets and customer applications, as well as higher incentive compensation costs. As a percentage of revenues, engineering and development expenses were consistent at 7% for the quarter ended
September 30, 2021compared to the same period in 2020.
AMORTIZATION OF INTANGIBLE ASSETS: The depreciation charge was constant during the current quarter compared to the same period of the previous year.
INTEREST EXPENSES: Interest expense decreased 8% in the third quarter of 2021 due to lower debt levels compared to the same period in 2020.
INCOME TAXES: The effective income tax rate was 24.6% and 25.4% in the third quarter 2021 and 2020, respectively. The effective tax rate includes a discrete tax benefit of (2.9%) and (2.6%) for the third quarters of 2021 and 2020, respectively. The discrete tax benefit for the third quarter of 2021 is primarily related to the net amount recognized of Portuguese investment tax credits. The discrete tax benefit for the third quarter of 2020 is primarily related 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 Administrationand Congressare 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.
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, as well as the lower effective tax rate, partially offset by increased operating costs and expenses. EBITDA AND ADJUSTED EBITDA: EBITDA was
$13,126for the third quarter of 2021 compared to $10,281for the same 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. Adjusted EBITDA was $14,454and $11,492for the third quarters of 2021 and 2020, respectively. EBITDA and Adjusted EBITDA are non-GAAP measurements. EBITDA consists of income before interest expense, benefit (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 reconciliation of net income to EBITDA and Adjusted EBITDA. 23 Table of Contents Nine months ended September 30, 2021compared to nine months ended September 30, 2020For the nine months ended 2021 vs. 2020 September 30, Variance
(Dollars in thousands, except per share data) 2021 2020
$ % Revenues
$ 306,723 $ 273,696 $ 33,02712 % Cost of goods sold 213,417 191,054 22,363 12 % Gross profit 93,306 82,642 10,664 13 % Gross margin percentage 30.4 % 30.2 % Operating costs and expenses: Selling 12,979 11,819 1,160 10 % General and administrative 32,549 28,880 3,669 13 % Engineering and development 20,967 18,865 2,102 11 % Business development 268 432 (164) (38) % Amortization of intangible assets 4,527 4,423 104 2 % Total operating costs and expenses 71,290 64,419 6,871 11 % Operating income 22,016 18,223 3,793 21 % Interest expense 2,445 2,799 (354) (13) %
Other (income) expense, net (158) 307 (465) (151) % Total other expense, net 2,287 3,106 (819) (26) % Income before income taxes 19,729 15,117 4,612 31 % Income tax benefit (provision) 2,804 (4,173) 6,977 (167) % Net income
$ 22,533 $ 10,944 $ 11,589106 % Effective tax rate (14.2) % 27.6 %
Diluted earnings per share
$ 1.56 $ 0.76 $ 0.80105 % Bookings $ 353,558 $ 262,246 $ 91,31235 % Backlog $ 185,561 $ 123,700 $ 61,86150 % REVENUES: For the year to date 2021, the increase in revenues reflects improved sales in certain markets we serve, specifically Vehicle and Industrial, as well as the inclusion of Dynamic Controlsfor 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 2021 compared with 53% for the same period last year, with the balance of sales to customers primarily in Europe, Canadaand Asia-Pacific. The overall increase in revenue was due to a 8.7% volume increase in addition to a 3.4% favorable currency impact. 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 increase in bookings during 2021 compared to 2020 is largely due to increases 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, 2020was related to these factors as well as global supply chain challenges that continue to be present in the environments that we operate. GROSS PROFIT AND GROSS MARGIN: Gross margins improved to 30.4% for year to date 2021, compared to 30.2% for the first nine months of 2020. The increase in gross margin percentage was largely driven by volume increases of higher margin products in our Industrial 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. SELLING EXPENSES: Selling expenses increased 10% during the nine months ended September 30, 2021compared to the same period of 2020 primarily due to higher incentive compensation as well as the inclusion of Dynamic Controlsfor the full nine months of 2021. Cost control efforts related to the COVID-19 pandemic in 2020, specifically travel restrictions, resulted in lower than normal expense levels compared to 2021. Selling expenses as a percentage of revenues were comparable at approximately 4% during the first nine months of 2021 and 2020. 24 Table of Contents GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses increased by 13% during the nine months ended September 30, 2021compared to the same period of 2020 due primarily to the increased costs associated with our incentive compensation programs which are aligned with our revenue and profit growth, as well as the inclusion of Dynamic Controlsfor the full nine months of 2021. Also, the first nine months of 2020 was favorably impacted by significant COVID-19 cost containment efforts. As a percentage of revenues, general and administrative expenses were consistent at 11% in each period. ENGINEERING AND DEVELOPMENT EXPENSES: Engineering and development expenses increased by 11% for the first nine months of 2021 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 to the 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. As a percentage of revenues, engineering and development expenses were comparable at approximately 7% for the nine months ended September 30, 2021and 2020, respectively. AMORTIZATION OF INTANGIBLE ASSETS: Amortization expense increased 2% during the nine months ended September 30, 2021compared to the nine months ended September 30, 2020due to the inclusion of a full nine months of intangible amortization from the Dynamic Controlsacquisition in 2020. INTEREST EXPENSE: Interest expense decreased by 13% in the nine months ended September 30, 2021due to lower interest rates and lower debt balances compared to the same period in 2020. INCOME TAXES: For the nine months ended September 30, 2021and 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, for the 2021 and 2020 periods. The discrete tax benefit for the nine months ended September 30, 2021is primarily related to the recognition of net operating loss carryforwards resulting from tax legislation enacted in New Zealandduring the period. The discrete tax benefit for the nine months ended September 30, 2020is 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, 2021compared to the same period in 2020 reflecting the impact of increased revenue, as well as the effect of a $7,373discrete tax benefit in the first quarter
of 2021. EBITDA AND ADJUSTED EBITDA: EBITDA was
$35,491for the nine months ended September 30, 2021compared to $29,598for the nine months ended September 30, 2020. The increase in 2021 compared to 2020 is primarily due to higher gross profit driven by sales growth, partially offset by increased operating expenses. Adjusted EBITDA was $38,817and $33,163for the first nine months of 2021 and 2020, respectively. EBITDA and Adjusted EBITDA are non-GAAP measurements. EBITDA consists of income before interest expense, benefit (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 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 25
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 certain income or expenses which are not indicative of the ongoing performance of the Company. 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 and income items. The Company's calculation of revenues excluding foreign currency exchange impacts for the three and nine months ended
September 30, 2021is 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
The calculation of the Company’s EBITDA and Adjusted EBITDA for the three and nine months ended
Three months ended Nine months ended September 30, September 30, 2021 2020 2021 2020 Net income as reported
$ 5,972 $ 4,013 $ 22,533 $ 10,944Interest expense 777 844 2,445 2,799
Provision (benefit) for income tax 1,950 1,369 (2,804)
Depreciation and amortization 4,427 4,055 13,317
EBITDA 13,126 10,281 35,491
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 $ 33,16326 Table of Contents The Company's calculation of Adjusted net income and Adjusted diluted earnings per share for the three and nine months ended September 30, 2021and 2020 is as follows (in thousands except per share amounts): 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 $ 0.28Non-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 $ 0.29For the nine months ended September 30, Per diluted Per diluted 2021 share 2020 share Net income as reported $ 22,533 $ 1.56 $ 10,944 $ 0.76Non-GAAP adjustments, net of tax Discrete income tax benefit (7,373) (0.51) - - Foreign currency (gain) loss - net (30) - 357 0.02 Business development costs - net 205 0.01 313 0.02 Non-GAAP adjusted net income and diluted earnings per share $ 15,335 $ 1.06 $ 11,614 $ 0.81
Liquidity and capital resources
The Company's liquidity position as measured by cash and cash equivalents decreased by
$3,922to a balance of $19,209at September 30, 2021from December 31, 2020. 2021 vs. Nine Months Ended 2020 September 30, Variance 2021 2020 $ Net cash provided by operating activities $ 19,920 $ 15,020 $ 4,900Net cash used in investing activities (9,761) (21,288) 11,527 Net cash (used in) provided by financing activities (13,305) 12,590 (25,895) Effect of foreign exchange rates on cash (776)
489 (1,265) Net increase (decrease) in cash and cash equivalents
During the nine months ended
September 30, 2021, the increase in cash provided by operating activities is primarily due to net income adjusted for non-cash items partially offset by increased cash used for working capital activity in 2021 compared to 2020. Cash used in investing activities in the nine months ended September 30, 2021relates to purchases of property and equipment. Purchases of property and equipment were $9,761during the nine months ended September 30, 2021compared to $6,560during the nine months ended September 30, 2020reflecting continued commitments to capital expenditure projects supporting customer and growth initiatives. Cash used in investing activities in the prior year period included a $14,728outflow related to the acquisition of Dynamic Controls. Capital expenditures are expected to be between $12,000and $15,000for the full year 2021. The change in cash provided by financing activities in the nine months ended September 30, 2021from the nine months ended September 30, 2020primarily is a result of a net paydown of debt of $10,598in 2021 and the 2020 period including cash borrowed to fund the acquisition of Dynamic Controlswhich exceeded debt payments. At September 30, 2021, we had $109,783of 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, 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 ability to merge, consolidate or sell all, or substantially all, of our assets. We were in compliance with all covenants at September 30, 2021. 27
September 30, 2021, the unused Amended Revolving Facility was $115,217. 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 have been no borrowings under the Chinese facility during the nine months ended.
After assessing the strong capital and liquidity position of the Company, we declared dividends, in total, of
Although there is ongoing uncertainty related to the anticipated 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.
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