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Allied Motion Technologies Inc (NASDAQ:AMOT)
Q1 2020 Earnings Call
May 8, 2020, 9:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the Allied Motion Technologies First Quarter Fiscal Year 2020 financial results. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]

It is now my pleasure to introduce your host, Deborah Pawlowski. Please go ahead.

Deborah K. Pawlowski -- Investor Relations-Kei Advisors LLC

Thanks, Stacy, and good morning everyone. We certainly appreciate your time today, as well as your interest in Allied Motion. Joining me on the call are Dick Warzala, our Chairman, President and CEO and Mike Leach, our Chief Financial Officer.

Dick and Mike will discuss actions we have taken to address the COVID-19 pandemic, review our results for the first quarter of 2020 and update you on our current situation. Then we will open the call for questions.

You should have a copy of the financial results that were released yesterday after the market closed. If not, you can find them on our website at alliedmotion.com. On the website as well, you'll find the slides that accompany today's discussion. If you are reviewing those slides, please turn to Slide 2 for the Safe Harbor statement.

As you are aware, we may make some forward-looking statements on this call during the formal discussion as well as during the Q&A. These statements apply to future events and are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from what is stated on today's call. These risks and uncertainties and other factors are discussed in the earnings release as well as with other documents filed by the Company with the Securities and Exchange Commission. You can find these documents on our website or at sec.gov.

I want to point out that during today's call, we will discuss some non-GAAP financial measures, which we believe will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We've provided reconciliations of non-GAAP to comparable GAAP measures in the tables accompanying the earnings release and slides.

So, with that if you turn to Slide 3, I'll turn it over to Dick to begin. Dick?

Richard S. Warzala -- Chairman of the Board, President and Chief Executive Officer

Thank you, Debbie, and welcome everyone. Before we begin, I would like to thank everyone on this call for your interest and support and I hope that you and those close to you are all safe and healthy.

While I know you've heard this before, we are truly an unprecedented times. As we began to feel the impact of COVID-19, our global management team quickly prioritized our efforts and all our employees adapted with greater agility.

Our first and foremost commitment was to the health and safety of our workforce. In fact very early in March, we implemented restrictions on travel and increased utilization of virtual meetings. In addition, processes were modified to meet social distancing requirements, and additional cleaning and sanitizing protocols were implemented as well. We are following local health and public safety regulations along with the Center for Disease Control guidelines and all employees who can work from home are doing so.

Our global operations were closely together to ensure we responded quickly to the rapidly evolving situation. We qualify as an essential supplier, because Allied produces products are used to support critical industries including medical, defense and agriculture. As a result, all our manufacturing facilities remain operational at this time.

We believe our One Allied approach to simplify interaction with customers, enabled seamless continuity for receiving orders and request for quotes in all regions. We adjusted our staffing levels to align with production volumes to meet both the increased demand for several of our products in the medical market and the reduced demand overall in our Vehicle markets.

To ensure we are prepared in the event of disruption either from in the necessity to temporarily closed facilities, our lapses in the supply chain, we have built inventory in some facilities to maintain response of delivery to our customers. I know that we had fortunately refinanced our lending agreement and we closed on our acquisition of Dynamic Controls just as the impact of COIVD-19 was being realized in the US.

With more than $20 million in cash at the end of the quarter, our strong cash generation capability and the prudent actions we are taking provides us with confidence that we have the financial flexibility to address the situation, while not losing sight of the long-term.

Looking at Slide 4, our first quarter performance was relatively solid as we benefited from the acquisition of Dynamic Controls and the diversity of the markets we serve as the impact of the pandemic really did not affect us until the last few weeks in March. Excluding unfavorable FX, 2020 first quarter revenue was comparable to the prior-year period.

We are seeing varying impacts on the demand of our products, which is closely related to the markets and applications where they are being used. As a result, our Vehicle market have been the hardest hit. Our defense market has been stable and our industrial markets were up.

While we had an uptick in oil and gas in the quarter, given the current state of that industry, we do not expect that to repeat in the near term. In the medical market, the demand for our product ventilators, respiratory equipment and mobile medical cards have been strong, while the elimination of elective surgeries has slowed demand somewhat in other medical applications. Our sales in this market did receive the benefit from the Dynamic Controls acquisition.

The strategic rationale behind the acquisition of Dynamic Controls is very compelling, as it brings a significant influx of critical engineering resources to Allied, which we expect to leverage across some of our other target markets. We are excited about our future together and on behalf of the entire Allied team, I would like to take this opportunity to welcome all the employees of Dynamic Controls to Allied Motion.

The margin profile of Dynamic combined with the further expansion and execution of our business operating system, Allied Systematic Tools or AST, led to a 90 basis point gross margin expansion in the quarter.

Let's look at Slide 5, and I will review our priorities for the near-term and long-term, as we navigate these challenging conditions, while not losing sight of achieving our long-term goals. For the near-term, we are focusing on cash conservation and we are adjusting our variable cost structure to align with market changes, while also maintaining strong discipline over fixed cost.

We do expect our second quarter to be impacted by a significant slowdown in some of our markets, as a result of the shelter-in-place efforts in the US and Europe. Importantly, we are firmly committed to execute our strategy and retain our critical talent, especially our engineering resources to ensure the long-term strength and growth of our Company.

We are also keeping our team focused on several new project opportunities as well as ensuring we meet our internal timeline to effectively launch several new growth-oriented product platforms. While this pandemic will change how we operate in the future, I believe we will come out of this crisis is stronger and better than ever as we operate it within the guiding principles of our One Allied culture and the focus provided by our long-term strategy.

With that, Mike, let me turn it over to you for a more in-depth review of the financials.

Michael R. Leach -- Chief Financial Officer

Thank you, Dick. We provide an overview of our top line on Slide 6. As a reminder, our results include about three weeks of operations from Dynamic Controls.

Revenue in the first quarter was $92.4 million, and when excluding the FX headwind of $1.4 million, revenue would have been in line with the prior-year period. Organic revenue declined 2.8% in the quarter. As Dick already mentioned, the COVID-19 pandemic started having a negative impact on sales in March, primarily related to a decline in demand in our Vehicle markets. However, growth in industrial and medical, which included contributions from Dynamic Controls partially offset those results.

Sales to US customers were consistent year-over-year at 53% of total sales, with the balance of sales to customers, primarily in Europe, Canada and Asia. Our operations in China we're back to full production capacity by early March. Supply chain in China has mostly recovered as well. And currently the supply chains in the US and Europe are functioning adequately.

Slide 7 shows the change in our revenue mix by market and the growth of each market for the trailing 12 months ended March 31. As we've talked about in the past, growing our A&D and medical markets are an important element of our strategy to broaden scope and diversification of the business. Revenues from the recently acquired Dynamic Controls business can be found within medical. While we have achieved double-digit TTM growth in most verticals, the drop-off in demand within vehicle due to COVID-19 is reflected in the 2% TTM sales decline.

As depicted on Slide 8, our gross margin expanded 90 basis points for the quarter to 30.4%. This increase largely reflects our continued productivity initiatives and improved mix, including the favorable impact from Dynamic Controls. As we've discussed on previous calls, the supplier issue that impacted us during 2019 had some lingering impact into the beginning of 2020. However, we exhausted the remaining inventory related to this issue in the first quarter. We estimate that the first quarter impact on gross margin to be approximately 30 basis points. As a reminder, we only expect to get back around half of this negative impact given the price in terms of the new supplier.

Moving on to Slide 9, operating income for the first quarter was $6.7 million or 7.3% total sales, compared with 7.8% in the prior year period. The decline in operating margin reflects a 140 basis points increase of operating expenses as a percent of revenue, due in part to the incremental expenses related to Dynamic and associated business development costs.

We are aligning variable costs with demand. We've instituted a freeze on hiring and wages. And are tightly controlling discretionary spending. It is very important to note that we are maintaining key engineering capabilities, which we considered vital to our future success. And a significant number of personnel that joined us from Dynamic, are experienced electronics and software engineers.

Turning to Slide 10, you can see our bottom line results. Net income for the quarter was $4 million or $0.42 per diluted share compared with $4.5 million or $0.48 per diluted share in the prior year period. Excluding business development costs, adjusted net income was $4.2 million for $0.44 per diluted share.

The 2020 first quarter effective tax rate was 28%, and we anticipate the effective tax rate for fiscal 2020 to range between 27% to 29%. Adjusted EBITDA was $11.4 million, and as a percent of sales was 12.4%, roughly in line with last year. We use adjusted EBITDA as an internal metric and believe it is useful in determining our progress and operating performance.

Slides 11 and 12 provide an overview of our balance sheet and cash flow. We are being proactive in conserving cash during this downturn, while preserving the talent and infrastructure needed to drive future growth and continue to gain market share. Cash and cash equivalents at quarter-end were $20.4 million, up $7 million from the end of 2019.

Total net debt increased $20 million during the quarter, of which Dynamic accounted for approximately $15 million. Debt, net of cash was $116 million or 48.8% net debt to net capitalization.

As touched upon our last quarter's call, we announced in February that we secured a new $225 million senior secured revolving credit facility with an accordion feature, allowing expansion, up $300 million. This refinancing expanded our borrowing capacity nearly 30% and reduces our cost of debt. Additionally an increase in our leverage coverage ratio of debt-to-EBITDA by 0.5 times to 3.5 times enhances our flexibility. At the end of the quarter, our bank leverage ratio was just 2.65.

Capital expenditures were $1.7 million for the quarter. We adjusted our previous expectation of fiscal 2020 capex from $15 million to $18 million down to $10 million to $12 million. This new level enables key projects to move forward and differs lower priority activities.

First quarter 2020 inventory turns were 4.1 times, in line with year-end 2019 results, as we continue to do a good job balancing our sales pipeline, along with tight supply chain. Our DSO was elevated at 52 days due to the timing of collection of receipts and was not due to a deterioration in credit quality.

Before I hand it back to Dick, let me reiterate that we've demonstrated that our business is capable of generating significant cash from operations, given our current cash and available liquidity as well as actions we are taking to adjust for the changing environment, we believe that we have the financial flexibility to navigate through these uncertain times.

With that, I'll now turn the call back over to Dick.

Richard S. Warzala -- Chairman of the Board, President and Chief Executive Officer

Thank you, Mike. As depicted on Slide 13, orders were nearly $93 million and absent unfavorable FX of $1.3 million, orders would have been up over last year. Backlog at quarter end was approximately $133 million. About 85% of our backlog is expected to convert in the next six months, and most of the remaining over the next 12 month. As a reminder, just a nominal amount of the $225 million of vehicle market awards we previously announced are included in our reported backlog numbers. While we have begun shipments at very low levels for the first of the three awards, we believe the COVID-19 pandemic will likely slow down production ramp up for these projects through the remainder of this year.

As we started the second quarter we have seen an increased negative impact on our Vehicle markets, while we expect our medical markets to experience additional growth due to COVID-19. We are managing our cost and protecting our balance sheet against the current reality of volatility in our markets. Looking ahead, our focus will continue to be on the health and safety of our global employees and supporting our customers' needs.

While our visibility is somewhat limited due to the rapidly evolving environment, we have run various scenarios and we will continue to respond in an appropriate manner in the short term. In addition we strongly believe we are well positioned as we continue to advance our strategy and we remain focused on achieving our long-term goals and objectives.

With that, operator, let's open the line for questions.

Questions and Answers:

Operator

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Greg Palm with Craig-Hallum. Please go ahead.

Greg Palm -- Craig-Hallum -- Analyst

Thanks, good morning. Nice job on the quarter and hope you all are doing OK.

Richard S. Warzala -- Chairman of the Board, President and Chief Executive Officer

Thank you, Greg.

Greg Palm -- Craig-Hallum -- Analyst

So I guess, just starting with kind of visibility, Dick, can you give us any sense of what you're seeing here in April, I mean you mentioned significant slowdown in certain segments, can you help sort of define what that really means?

Richard S. Warzala -- Chairman of the Board, President and Chief Executive Officer

Sure. The slowdown, primarily as a result of, as we mentioned in the conference call here, the shelter-in-place and the shutdown of certain manufacturing facilities. So I mentioned vehicle, and what I would like to remind everybody, as we talked about vehicle is that our Vehicle market is very broad based. Automotive is a small segment of that, but it's also agricultural vehicles, construction vehicles, trucks, buses etc. So what we saw and I think if you noticed in the automotive, primarily our automotive business today is in Europe and some in Asia. The European companies were pretty much shut down. In Asia, they started back up. So that business was back up and running. So what we've seen is the various degrees, the companies that have shut down are now starting to come back online with schedules for, I'll say, beginning of May, mid-May and on. So we will, we do expect that those businesses will start shipping again to those businesses. So that was in April, probably one of the big impacts, as well as the power sports market, that slowed down to a crawl as well.

Medical we're continuing, and as we have mentioned several times, I think we sell motors, critical pieces of equipment, especially to those dealing with the coronavirus ventilators, respirators and pumps used for a lung cleansing and fluid removal and so forth. So that market is going to be strong. We expect to be strong. There is increased demand there. And it will continue.

When we talk about our Aerospace and Defense business, Greg, I think it's best to say that most of our business in there is defense. We do have some commercial aviation related business, but most of it is defense. So we don't expect a huge impact there. Our industrial markets have, one of the areas that we do expect to see a slowdown and an impact is oil and gas. Until the oil price recovers and capex comes online, we do expect that that will have an impact on us.

But overall, I will tell you that coming out of April, having just completed April, that was our one of our major concerns because of the uncertainty, the volatility that we were seeing, I think our team did a great job of flexing the workforce, making sure that we reconfigured our operations to ensure we have the proper PPE, and we also had social distancing requirements being met, staggered the workforce, and starting, and with all of that inefficiency, I think our team came through extremely well, and given the severity of what happened, I would say to you that the Company is is going to be fine.

Greg Palm -- Craig-Hallum -- Analyst

Yeah, that's most important. So, good to hear there. It might be too early, but any indications from your customers maybe in robotics and automation application that you might see accelerated demand coming out of this crisis? I'm curious if you think that will be a key theme. And maybe just remind us of what your sort of positioning is in those markets?

Richard S. Warzala -- Chairman of the Board, President and Chief Executive Officer

Sure. In the surgical robot space, I would say to you that some of the companies were shut down for a couple of weeks. But they quickly came -- were brought back on line and in production has resumed, or the custom automation, I'll call it, and I think we're going to see quite a bit of that in the future, the demand was stable, and I wouldn't say that we saw anything accelerate, but I think that there was going to be some, certainly, as automation becomes a bigger part of the competitive landscape here in the future, I think we certainly will see some benefits, but that that's going to be more project-based, Greg, and not necessarily, what we're delivering to certain OEMs, and standard type products. So there is definitely an opportunity there in the future.

Greg Palm -- Craig-Hallum -- Analyst

Yeah, makes sense. What about, thinking about the supply chain disruptions that we've seen or heard about, really across the world, it seems to have a pretty big impact on a lots of companies. I mean over the years, I feel like you've been building out this sort of solution capability, presumably, so your customers can reduce exposure to so many suppliers. I mean does that become an even bigger focus going forward? I mean, any thoughts on more of the broader supply chain and how you might fit in competitively?

Richard S. Warzala -- Chairman of the Board, President and Chief Executive Officer

Yeah, I would say to you, one of the things, that's a strength that we have right now, is our global footprint. And I'll tell you our team, when we had specific issues pop up, but we've had a few pop up, everybody jumped right on the issue and helped resolve it very quickly. No matter whether it was for their operation, for another operation. So I would say to you that our team has done a very good job of minimizing any supplier disruption. Of course there were some factories that were shut down, so there were delays. But as those came back online, our team minimized any supplier disruption.

Talking about solutions for the future, that is absolutely a direction that the Company is not going to change. Matter of fact, as I mentioned that several new projects and product platforms, they are based around solutions and it does make it a little bit simpler for our customers to place an order with one company that includes multiple elements of the solution in the package, OK. So it's definitely going to continue in the future and we'll do that.

The other thing that we've done and we look at this very closely, we've been doing this for a number of years now is localization of the supply chain. Looking at total cost of what it truly takes to procure parts in low-cost regions and the long lead times that you may have and the inventory requirements, taking a look at the true cost and working on localization of the supply chain, so if the demand is going to be in North America, our preference is to build it in North America, within in Europe, our preference is to build it in Europe, and in Asia, our preference is to build in and Asia. So we're kind of uniquely suited to be able to do that. Now, you can't do everything at every facility or in every region, but where is the primary demand coming in, and we are looking at that and continuing to focus on that and I think that will continue to be accelerated in the future. So, that will definitely help.

Greg Palm -- Craig-Hallum -- Analyst

Yeah, it makes sense. Okay, last one maybe for Mike, although, Dick you can chime in too. Comfort level in the balance sheet at this point, presumably there is going to be some nice M&A opportunities that probably emerges from all of this. So where do you rank that versus focus on deleveraging at this point?

Richard S. Warzala -- Chairman of the Board, President and Chief Executive Officer

Yeah, I'll jump in first and then Mike can -- he can take care of all the details. As Mike had mentioned and we are mentioning is, that a strong focus on cash and looking at the capex and making the important decisions about when these projects, if there is going to be delays kick off, and as far as, will give you -- we did actually improve our cash position at the end of April. So I think that focus will help us as we move forward.

Now, when you're looking at acquisitions, we have -- we're obviously always in the market and always working on things and suffice it to say that those things were put on hold as we're all dealing with the short-term impacts and trying to understand what's going to happen, and make sure we're able to respond to our current customer base. But I think slowly, but surely will start to come back in the focus and we will take the opportunity, if they do come up to pursue them. But I'll let Mike speak more about the balance sheet and the financing and so forth at this point.

Michael R. Leach -- Chief Financial Officer

So to answer your question directly, Greg, I mean we feel good and comfortable regarding our balance sheet, our cash position and our credit facilities. So certainly we feel the timing of our refinancing provided extra flexibility in this period for us and opportunistic, if you will, from a timing perspective. So that certainly helps. As I had read in my discussion points, we've always demonstrated fairly strong cash generation and coming out of Q1, we typically from a seasonality standpoint, have a working capital build. And that is reflected in our balance sheet here at the end of March. I'll note that 40% to 50% of that build that you do see in the balance sheet was a result though of the Dynamics acquisition. So I'd say that I think the team did a great job of managing working capital in a normally peak period.

And then lastly, I'd mentioned in along with seeing all of this things we did relative to discretionary costs and PPE with employees, we issued on very early in the process cash management guidelines for all of our team, ranging from the capex that Dick mentioned and identifying all essential growth related type projects, but also maintaining and monitoring the inventory levels very aggressively, managing our receivables, being careful with the credit issue, making sure that if we see extensions in our receivables, in terms of payments that were acting like a -- likewise within our payables, so that we don't become an expanded banking facility, if you will. So again, I think we've put I think a lot of things in place and feel good about where we are heading into the balance of the year here.

Greg Palm -- Craig-Hallum -- Analyst

Yeah, great. All right, thanks for all the color. And good luck going forward.

Richard S. Warzala -- Chairman of the Board, President and Chief Executive Officer

Thank you, Greg.

Michael R. Leach -- Chief Financial Officer

Thank you.

Operator

Our next question comes from Gerry Sweeney with ROTH Capital. Please go ahead.

Gerry Sweeney -- ROTH Capital -- Analyst

Yeah, good morning Dick and Mike. Thanks for taking my call.

Richard S. Warzala -- Chairman of the Board, President and Chief Executive Officer

Good morning, Gerry.

Michael R. Leach -- Chief Financial Officer

Good morning, Gerry.

Gerry Sweeney -- ROTH Capital -- Analyst

On the medical side, obviously, lots of talks respirators, ventilators things like that. Is there any way you could even in a broad brush fashion, maybe give us an idea how much of your business is toward that market versus more on the robotic side?

Richard S. Warzala -- Chairman of the Board, President and Chief Executive Officer

We actually, we don't necessarily break out the application itself for ventilators and respirators and so forth. We do call it in, so for me to -- I can -- let me see if I can help you there, a little bit, it's -- I would, I think I'd be misleading, because I don't have the granularity of where the products are going. But I would think, that robotics -- when we start talking about medical one of our -- one of the things that we have, a fairly significant pump market, and we don't break our pumps down into which market it's going into, so it can be industrial, it can be medical, as well. So there is a significant piece of it there, so pumps as we talk about. And lots of times, we don't know, we sell to the pump manufacturers and they are selling into these different industries. So that's where -- one of the reasons I am a little hesitant to give you an exact number, because we don't know exactly what that is or give you more guidance on that.

What I would say to you is that, the areas -- we are in ventilators, we are in respirators, we are in dialysis machines, we are in a lot of analyzing equipment, we're in lung cleansing applications for fluid removal. So we are in a variety of applications and what we did see is, we saw some quick demand, some -- an increase in demand that was short lead time to respond to and applications that we are already designed in on. We also saw requests for -- there were many companies that we're attempting to fulfill the need for the ventilator markets and some of what I'll say is, some of its crude ventilator markets or less sophisticated than the ones that you see in the market that we hear a lot about here. And we were getting request for very high levels of demand there, which we questioned, we thought they were duplicated, and we thought that some of it was opportunistic. And so we were very careful, although we worked on solving the demand, we really felt that our best chance for increasing our level of business was for the applications we were already designed in, and that demand was increasing. So, and I mentioned the robotics, that was more impacted by a couple of week shutdown, OK. And then that came back online and that's back moving forward.

The other thing about medical, I will say to you is that, Dynamic did come on board on March 7. And Dynamic is 100% Medical and while you may look at their website, you may say, OK, it looks like they are in a rehabilitation equipment, they are also in oxygen regulators, so again breathing apparatus, which did see an uptick in demand as well. So I hope that helps.

Gerry Sweeney -- ROTH Capital -- Analyst

No, it certainly does, especially sort of sticking with your current customers that's designed in the segment with the on the pumps side. And then on the vehicle side, I know, a larger auto contract and there is only a small amount of, I think revenue for backlog in your numbers for this year. Any chance, any of that roll-out gets pushed back a year or two, with some of these features with all those shut down or are these long enough lead times for the long cycle projects that you expect them to keep rolling as this?

Richard S. Warzala -- Chairman of the Board, President and Chief Executive Officer

Typically in the start-up, companies will want to keep the projects moving forward, OK. So they just, they'll want to be ready for when the demand cut over to the new products. So I would say there is definitely going to be some delay, because factories were shut down. How much, it's hard to say right now. Demand -- will demand come back for automotive website and how fast will it come back for automotive. So the companies that we sell to, we're going to be -- it's going to be a factor or whether or not they come online as quickly as they desired and or if the demand there, and I think that's the big thing. But I would like to remind, I said this earlier but, that piece of our business is relatively small for us at this point from an automotive standpoint.

So when we talk about vehicle, automotive is about 20% of our overall or less, in our overall vehicle market sales, OK. So our vehicle is much broader. And we think that those areas again will will also, some of them are, while their impacted, there's others that, they'll keep moving along as they have in the past.

Gerry Sweeney -- ROTH Capital -- Analyst

Got it. That's helpful. That's it from my end. I appreciate you taking my call. Thank you.

Richard S. Warzala -- Chairman of the Board, President and Chief Executive Officer

Thank you, Gerry.

Operator

Next question comes from Dick Ryan with Dougherty. Please go ahead.

Dick Ryan -- Dougherty -- Analyst

Thank you. So Dick, when you look at the strong order pattern, if you had to be sensitive on price, and is there any gross margin impact anticipated with some of this new business coming in?

Richard S. Warzala -- Chairman of the Board, President and Chief Executive Officer

I think Dick, there were certainly companies that as soon as the pandemic came out or broke out, they were immediately reaching out to all supply base, their entire supply base to reduce prices. We've even saw some, say retroactive to January 1, which I think is very unrealistic. I mean, we think it's very unrealistic, and of course, that we have to say, look, we already had committed to certain prices, we already delivered product and that's past. Now, what can we do in the future, I think there's a good chance that we'll see cost come down, given oil and given demand decrease here so forth, we may see cost come down, and if costs do come down, our customers are going to expect to see some price down.

But as of now, I will tell you that the focus has really been on meeting demand and satisfying demand, but of course, our markets were always sensitive about cost and we're always working on coming up with ways to reduce costs, overall cost, not just from material cost standpoint, from an overall basis. So yeah, I would expect, we're going to have some demand on us, and where realistic, we will certainly respond. But we're not, I mean we will respond accordingly as well.

Dick Ryan -- Dougherty -- Analyst

Okay, thank you. On the, some new growth initiatives, the new platforms, can you give us a sense, which markets you might be rolling out initially? And what those applications might be?

Richard S. Warzala -- Chairman of the Board, President and Chief Executive Officer

Yes, sure. I mean let's just talk about our newest acquisition, Dynamics, which is really, we are very excited about that, because Dynamic sells electronic controls and they sell it to the mobility and rehabilitation market. We're already seeing opportunities now bringing that together with the platform that Allied already has and customers that Allied, from electromechanical standpoint, combined with the electronic capabilities and software capabilities of Dynamics, we're already getting demand. And we're getting -- and we see opportunities for us to come in with the same approach we've taken in other markets for system solutions. So I think that's an exciting area for us.

And and also while our first priority is going to be attacking those opportunities based upon this new solution we can offer, we do see that some of the unit volume the Dynamic has, we've reached out for support in some areas, but it's component sourcing and or production for our other markets to help us look at ways that we can become more competitive, reduce costs, come up with a better solution. So we're -- so I'll say that's an area that we're absolutely focused on, material handling scenario, we are absolutely focused on. And we have solutions that we been working on for multiple years. Now we're very excited about the increase in the electronics capabilities that we had organically over the last few years in building our team, in addition now adding the resources that come from Dynamics, I think is going to position us very strongly from a solution-oriented standpoint to put more system solutions together. So automation, material handling, the rehabilitation markets and I'll even say to you that the industrial markets will have some of these as well.

On the medical side, we also on the medical side, not necessarily as much, on the electronics, but we've also been working for multiple years here now on bringing the gearing and the mechanical side together with some of the solutions we're already offering on a motor standpoint. So it really is a continuation of an acceleration of, let's stay focused on what the strategic opportunities we saw and we have as well as platforms we are developing and continue to develop for what we see as emerging needs in the market. Hope that helps.

Dick Ryan -- Dougherty -- Analyst

Yeah, it does. Virtually every one year end [Phonetic] markets have a variety of puts and takes. I guess I'm not asking for guidance, but as you stress test the near-term here, Can you give us a sense of what some of your assumptions are, I mean are you, sub 10% year-over-year kind of impact, something greater than that? Can you kind of give us a sense of your near-term assumption?

Richard S. Warzala -- Chairman of the Board, President and Chief Executive Officer

Well, we've done, as Mike mentioned this too in the conference call here is that, we've done some sensitivity analysis and we've looked at various scenarios here. And it really -- you're absolutely correct, it is market by market and its sub-markets within there. So we saw markets and the short-term, and I would have to say to you that from a Company standpoint, I think we've got to throw April out. We can't use April as guidance for what's going to happen into the future, other than what may occur, let's say in early May or through May. After that, we're really looking at, say in the next two to three weeks, we expect to see some clarity about how, when the factories and the companies are returning to business, what their demand looks like and how we can start to project that demand into the overall financial picture.

So it is very specific, I mean, take oil and gas, for an example. I mean if that stays where it is, I mean that's going to impact our -- definitely our sales in the oil and gas market. So we've seen an uptick slightly. We are watching it closely, but we've adjusted for that. We've had to adjust for that. Power sports is another area that I mean it just slowed right down, but some encouraging signs that that may be coming back to life. Automotive, factories are -- and our Vehicle markets, another vehicle factories are going back into production. So I think, Dick, I would hesitate to use April as any guidance at all for what may happen in the next two to three months. And I think, we will attempt to be as transparent as we possibly can be here, but I don't think relating April to what we expect in May and June and beyond as realistic. I think it's going to be better than what we saw in April. And we finished April, and I'd say from a financial standpoint, we were pleased.

Dick Ryan -- Dougherty -- Analyst

Okay, great. Thank you and congratulations.

Richard S. Warzala -- Chairman of the Board, President and Chief Executive Officer

Thank you, Dick.

Operator

Next question comes from Jeff Geygan with Global Value Investment Corp. Please go ahead.

Jeff Geygan -- Global Value Investment Corp -- Analyst

Hey, good morning gentlemen. Thank you for taking my questions.

Richard S. Warzala -- Chairman of the Board, President and Chief Executive Officer

Hi, Jeff.

Jeff Geygan -- Global Value Investment Corp -- Analyst

Can you please share your observations about your Chinese production in light of the COVID-19 as well as tariffs issues from last year?

Richard S. Warzala -- Chairman of the Board, President and Chief Executive Officer

Sure. So two separate questions. Let's talk about the Chinese operations. I will tell you that, we acquired a second China operation with Dynamics and and have controls. And then our existing operation, they have supported the rest of the company way above and beyond. And I say that from the standpoint of getting protective equipment and also the standpoint of where we had some issues with a particular component or supplier going to work on it. They came up to speed and back up to speed very quickly. They implemented procedures internally that we emulated in the rest of our operations, which we think helped us protect our workforce, very well. So we left [Phonetic] what they did, and how they responded and the standard -- protective gear, sanitization procedures that they were using and so forth, and as I said that we have emulated that. So they came right back up to speed, and they are running at full production rates right now, including our Suzhou operation, which came as part of Dynamic.

Now the tariffs, -- I'll stop here, if you have any more questions on that, before I jump into tariffs.

Jeff Geygan -- Global Value Investment Corp -- Analyst

I have a follow-up. But I'd like to hear your thoughts on the tariffs as well before.

Richard S. Warzala -- Chairman of the Board, President and Chief Executive Officer

Okay. So the tariffs themselves, they absolutely had impacts on us and on our customers and some of those impacts, we're still dealing with. And I think we'll continue to deal with here. So the -- we have applied for exemptions in some cases, and in some we've been approved and others we have not been approved. So clearly is an area that we have to pay close attention to, and we have to make some business decisions as how we're going to operate in the future given a scenario, where they will continue to exist or are they could worsen. I mentioned localization of supply, I think we're going to continue to drive toward that. And it makes good operating sense first off. Secondly, given the state of what may occur here in the future, I think it's also protecting ourselves and our customers down the road, but the tariffs have that impacts. And while we work through those to best of our ability, but we do think that in certain areas that they are definitely going to impact us or continue to impact us.

Jeff Geygan -- Global Value Investment Corp -- Analyst

Yeah, sure makes sense. Specific to the COVID-19 slowdown and using China anecdotally or as a proxy for how the rest of the world might come out given that they seem to have loosened up in early March, how does your experience there impact you think with other parts of the global geography that you operate in?

Richard S. Warzala -- Chairman of the Board, President and Chief Executive Officer

Sure. As part of the process here, Jeff, we immediately implemented a, I'll call it taskforce, call it whatever you want, where we met every single morning and we engaged with our operations around the world. We still do that. And not everybody, every morning, but we still do that and we get reports on what's happening in the local facilities, what's happening in the local regulations and the government. We track if we've had any instances, and I can tell you that we have close to 2,000 employees. We had three confirmed cases, all three were in Europe. And they did not impact operations to any great extent. They were isolated cases, that we were able to take care of. And then, we had temperature testing earlier on. We implemented early on, hand sanitizing, social distancing, masks. We implemented that very early on. And we did -- there were people that were stopped from coming in to work based on temperature. Fortunately in those cases that there were stopped, I mean they were temporary and those employees did not end up having COVID-19. So I'd say to you that, as we watch and learn from what we see and we're -- again we are in Sweden, we're in the Netherlands, we are in the UK, we are in New Zealand now, we are in Portugal, so, we're in Germany, in China and we get some input, and some great input every morning here about how they're coming back up to speed and how they're dealing with it so forth on a local basis. So I think, I'm encouraged from what I'm seeing and what I'm hearing and how we're seeing the companies come back online and local governments and countries coming back online. As far as China, both our facilities are about 300-plus miles away from Wuhan. And neither of those facilities had any reported incidents, OK, or confirmed cases of COVID-19. And the entire workforce came back within a couple of weeks, it was back up and running. So I'd say we're prepared in the same manner. And while we had to do some, we had to do split shifts, and we had to control people coming in and out of the operations, it was a little bit inefficient. But I think it was effective and our teams of tailored that to become more efficient as we move forward, where business dried up in some cases and literally just dried up in some cases, we had to adjust and we did do that. One of the thing I would like to say is that, we have not touched, and it's part of our core values that are strategic heart beat here is that we, are a technology/know-how Company, and for us to win in the long term, we are an engineering company. And engineering in terms of manufacturing process, design process, glean [Phonetic] process, quality etc. And we are protecting those resources, and what we've done is, we've turned to focus now as soon as we had control -- the best of our ability control over the situation, we immediately turned to focus on the positive side, and the growth opportunities. And we 100% moving forward with securing those. So I'd say that's where we are and I just think that I can't say enough about what our team did here and I think for us, we believe the future is bright.

We lost Jeff.

Operator

Thank you. Our next question comes from Brett Kearney with Gabelli Funds. Please go ahead.

Brett Kearney -- Gabelli Funds -- Analyst

Hi guys, good morning. Thanks for taking my question.

Richard S. Warzala -- Chairman of the Board, President and Chief Executive Officer

Good morning, Brett.

Michael R. Leach -- Chief Financial Officer

Good morning, Brett.

Brett Kearney -- Gabelli Funds -- Analyst

With all the work you guys have done really the last couple of years, and on the supply chain front and the One Allied approach, really showing through in these challenging dynamic times. I know there's plenty, we've all been focused on kind of internally, but I guess as you look outside your four walls, are you seeing anything within the competitive set that others who probably weren't as well prepared as Allied coming in that allowing market -- incremental marketing gain opportunities in any of your markets or applications in your ability to maintain continuity of supply and operations throughout this crisis?

Richard S. Warzala -- Chairman of the Board, President and Chief Executive Officer

Well, I think, Brett, you mentioned the One Allied, and as I mentioned a couple times already here is that, our team worked very closely together and helped each other out, when there was a shortage situation, let's say in the supply of electronic component or mechanical component. And even looking internally too, the production capabilities, we have to satisfy those needs and demands. And I think it's going to make us again stronger, because of that.

But talking about demand that we would have seen in the short-term, certainly in the medical area and ventilators, respirators, breathing apparatus, I mentioned that there were several companies that were rushing to bring products to market and looking at opportunities. In addition there was demand increase in areas where we're, let's say our competition was designed in. So they did reach out to us and ask if we could supply products and meet their needs in case they had a supply issue. So sometimes, we're custom engineered designed in in many of our end customers that's, they are almost sole sourced on their motor and electronic suppliers. So, it's somewhat difficult to do. But in an emergency situation, it can be done, and we were able to do that.

I'm not going to say to you that we took market share from our competition in this case, but we were, we are now in front of companies that we weren't in front of in the past and they are testing and evaluating our product for solutions in the future. So whether or not, we got this short-term business, we're encouraged that we'll get some long-term business from that.

Brett Kearney -- Gabelli Funds -- Analyst

Yeah. Terrific. Thank you guys. Hope you and the entire Allied team stay safe and healthy.

Richard S. Warzala -- Chairman of the Board, President and Chief Executive Officer

Thank you.

Michael R. Leach -- Chief Financial Officer

Thank you.

Operator

Thank you. There are no further questions. I would like to turn the call over to Dick for closing comments.

Richard S. Warzala -- Chairman of the Board, President and Chief Executive Officer

Well, thank you everyone for joining us on today's call and for your interest in Allied Motion. As always, please feel free to reach out to us at any time, and we look forward to talking with all of you again after our second quarter results. Thank you for your participation. Stay safe and have a great day. That will conclude the call.

Operator

[Operator Closing Remarks]

Duration: 54 minutes

Call participants:

Deborah K. Pawlowski -- Investor Relations-Kei Advisors LLC

Richard S. Warzala -- Chairman of the Board, President and Chief Executive Officer

Michael R. Leach -- Chief Financial Officer

Greg Palm -- Craig-Hallum -- Analyst

Gerry Sweeney -- ROTH Capital -- Analyst

Dick Ryan -- Dougherty -- Analyst

Jeff Geygan -- Global Value Investment Corp -- Analyst

Brett Kearney -- Gabelli Funds -- Analyst

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