Allient : 20250508 ALNT Q1 FY25 Transcript FINAL

Published: 2025-05-13 22:22:04 ET ALNT

Published on 05/13/2025 at 22:22

Table of Contents

Presenters and Participants 2

Presentation 3

Question and Answer 7

Presenters and Participants

Chairman, President & CEO

CFO & Senior Vice President

Investor Relations

Craig-Hallum Capital Group LLC, Research Division

ROTH Capital, Research Division

AIGH Investment Partners

Vanatoc Capital Management

‌Presentation

Good day, and welcome to the Allient, Inc. First Quarter Fiscal Year 2025 Financial Results Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded.

I would now like to turn the conference over to Craig Mychajluk, Investor Relations. Please go ahead.

Investor Relations

Thank you, and good morning, everyone. We certainly appreciate your time today as well as your interest in Allient.

Joining me today are Dick Warzala, our Chairman, President, and CEO, and Jim Michaud, our Chief Financial Officer. Dick and Jim will walk through our first quarter 2025 results, provide a strategic update, and share our outlook. We will then open the call for Q&A.

You should have a copy of the financial results that were released yesterday after the market closed. If not, you can find it on our website at allient.com, along with 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 forward-looking statements on this call during the formal discussion as well as during the Q&A. These statements apply to future events that 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 as well that, during today's call, we will discuss some non-GAAP 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 have provided reconciliations of non-GAAP to comparable GAAP measures in the tables accompanying the earnings release as well as the slides.

With that, please turn to Slide 3, and I will turn it over to Dick to begin.

Chairman, President & CEO

Thank you, Craig, and welcome, everyone. We began 2025 with solid momentum, delivering meaningful sequential growth across revenue, margins, EBITDA, earnings, and cash generation. These results reflect the operational and strategic discipline we've instilled across the company and our commitment to driving long-term value even amid a complex external environment. As expected, year-over-year comparisons were challenging, particularly due to continued demand softness in the industrial automation and vehicle markets. However, our performance this quarter is a clear indicator that our strategy is gaining traction and that our execution is strengthening.

We are building a more resilient and responsive company. Revenue increased 9% sequentially and gross margin expanded 70 basis points to 32.2%, driven both by volume and mix improvement. Operating margin

rose 130 basis points sequentially to 6.6%, and adjusted EPS increased nearly 50% from quarter four, reaching $0.46 per share.

In parallel, we have taken deliberate steps to reduce exposure to geopolitical risks, especially around tariffs and rare earth magnets sourcing, which has become more complex due to China's export restrictions and high-performance magnets. I will speak more about our mitigation strategy during my closing remarks.

Strategically, we remained aligned with the growth themes shaping our markets: electrification, energy efficiency, automation and infrastructure investment. These are long-term trends, and we believe Allient is well-positioned to capitalize on them.

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

CFO & Senior Vice President

Thank you, Dick, and good morning, everyone. I am starting on slide 5. First quarter revenue was

$132.8 million, down 9% year over year due to the anticipated demand softness in the vehicle and industrial markets compounded by an unfavorable $1.8 million FX impact. On a sequential basis, revenue increased

$10.8 million, or 9%, reflecting solid execution and improving momentum in targeted areas like power quality and defense programs. Sales to US customers represented 52% of revenue compared with 58% in Q1 last year, with continued contributions from Europe, Canada, and Asia-Pacific.

Breaking down our results further, let's take a closer look at how each of our key market sectors performed year over year. Aerospace and Defense saw a 25% increase, reflecting timing of key defense and space program deliverables. We are actively pursuing several promising opportunities in the defense sector, which we anticipate will contribute to continued growth in the future.

Medical remained steady, with strength in surgical equipment and tools and mobility solutions. Industrial markets were mixed with our power quality solutions for HVAC and data center infrastructure generating solid growth. However, our total Industrial market sales were down largely due to reduced demand in industrial automation.

Vehicle revenue declined 34%, in line with expectations, reflecting both continued softness in powersports demand and our intentional shift from lower margin programs as we focus on higher value, margin-enhancing applications aligned with our long-term strategy.

Let's move to slide 6 for the composition of our revenue over the trailing 12 months, along with the key catalysts driving these changes. The Industrial sector is our largest market, contributing 47% of the trailing 12-month sales. This market was primarily driven by strong demand for powerful quality solutions, as well as growth in material handling and semiconductor equipment. Industrial automation sales slowed significantly over the past year as inventory levels and new projects have reset across the industry.

Similar to the quarter, Vehicle demand remained under pressure, particularly due to shifting recreational spend trends in powersports. While we saw stronger sales in surgical-related products, our Medical market was down 2% on a trailing 12-month basis due to softness in pump-related products. The Aerospace and

Defense growth reflects variability driven by contract award and government budget cycles combined with long lead times. Finally, our Distributor channel, while smaller, showed modest growth representing 5% of total sales over the trailing 12-month period.

The diversity of our end markets continues to be a foundational strength of the Allient model. This broad market reach, combined with our global customer base, helps mitigate volatility in any single area and enables us to allocate resources where we see the greatest return.

As shown on slide 7, gross margin was 32.2%, down just 10 basis points compared with the same period last year, despite lower year-over-year volume. Sequentially, gross margin expanded 70 basis points and was driven by higher volume, better mix and continued implementation of our lean toolkit across the organization. Importantly, this marks the third consecutive quarter of gross margin expansion, up a total of 230 basis points since our low point in Q2 2024.

Moving to slide 8. On a year-over-year basis, operating income was down due to lower volume and restructuring charges of $1.5 million versus minimal charges last year. In fact, when looking at operating expenses as a percentage of sales, restructuring and business realignment costs from the recent quarter contributed 90 basis points to the total 160-basis-point increase. The remaining impact was largely reduced operating leverage on lower sales volume. Sequentially, though, we saw a 60-basis-point improvement in the operating cost ratio as we benefited from operating leverage, cost discipline and the impact of our Simplify to Accelerate NOW program. As a result, operating income for the quarter was $8.8 million, with operating margin at 6.6%, up 130 basis points from Q4.

On a positive note, the benchmark interest rate we are tied to, SOFR, came down year over year, which helped offset some of the increases. As for our results, net income was $3.6 million, or $0.21 per diluted share, compared with $3 million, or $0.18 per diluted share, in the prior period. Adjusted net income rose to

$7.6 million, or $0.46 per share, up from $0.31 in Q4. Adjusted EBITDA was $17.5 million, or 13.2% of revenue, up 160 basis points sequentially. These gains reflect our improving mix and the structural efficiencies we have been driving.

Turning to cash generation and our balance sheet on slides 10 and 11. Operating cash flow was

$13.9 million, up 52% from last year's first quarter and up 12% over the sequential fourth quarter due to improved working capital. We ended the first quarter with $47.8 million in cash, an increase of 32% since year-end 2024. As a result, our net debt decreased by $13.6 million, bringing it to $174.4 million. Our leverage ratio, which we calculate as net debt divided by trailing 12-month adjusted EBITDA, improved to

2.91x. This was down from 3.01x at the end of December. Our bank-defined leverage ratio, which excludes certain items like foreign cash, came in at 3.56x at quarter end, and we will remain in full compliance with our debt covenants.

These results are aligned with the three core financial priorities we have outlined for 2025. First, inventory management remains a top priority. We continue to drive improvements as our inventory turns improved sequentially from 2.7x at the end of 2024 to 3.1x at March 2025 by reducing inventory levels to target planning, better alignment with customer demand and focused execution in our supply chain. These efforts resulted in freeing up cash and improving cycle efficiency, while still ensuring productivity availability for customers.

Disclaimer

Allient Inc. published this content on May 14, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on May 14, 2025 at 02:21 UTC.